the petitioner, Oil and Natural Gas Corporation Limited1and the respondent, Afcons Gunanusa JV2, entered into a Lump Sum Turnkey
No Acts & Articles mentioned in this case
1
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL/APPELLATE JURISDICTION
Arbitration Petition (Civil) No. 0 5 of 2022
Oil and Natural Gas Corporation Ltd. .... Petitioner
Versus
Afcons Gunanusa JV .... Respondent
With
Civil Appeal No 5880 of 2022
With
Civil Appeal No 5879 of 2022
And With
Miscellaneous Application Nos. 1990-1991 of 2019 in Special Leave
Petition (Civil) Nos. 10021- 10022 of 2017
2
J U D G M E N T
Dr Dhananjaya Y Chandrachud, J
This judgment has been divided into sections to facilitate analysis. They are:
A Factual Background .................................................................................... 5
A.1 Facts of Petition for Arbitration (Civil) No 5 of 2022 .............................. 5
A.2 Facts of Special Leave Petition (Civil) No 13426 of 2021 ................... 13
A.3 Facts of Special Leave Petition (Civil) No 10358 of 2020 ................... 17
A.4 Facts of Miscellaneous Application Nos 1990-1991 of 2019 .............. 19
B Submissions of Counsel ............................................................................ 20
B.1 Submissions on behalf of the petitioners ............................................ 21
B.2 Submissions on behalf of the respondents ......................................... 28
B.3 Submissions on behalf of the amicus curiae ....................................... 31
C Determination of arbitrators’ fee ................................................................ 38
C.1 Comparative outlook ........................................................................... 38
C.1.1 Position of international organisations .......................................... 39
(i) United National Commission on International Trade ......................... 39
(ii) Permanent Court of Arbitration ......................................................... 42
(iii) London Court of International Arbitration ......................................... 43
(iv) International Centre for Dispute Resolution ..................................... 44
(v) International Chamber of Commerce ................................................ 44
(vi) Singapore International Arbitration Centre ....................................... 45
(vii) Hong Kong International Arbitration Centre .................................... 45
(viii) International Centre for Settlement of Investment Disputes ........... 46
3
(ix) Summary .......................................................................................... 46
C.1.2 Position in other national jurisdictions ........................................... 47
(i) England .............................................................................................. 48
(ii) Italy .................................................................................................... 50
(iii) Sweden ............................................................................................ 51
(iv) Germany .......................................................................................... 52
(v) Japan ................................................................................................ 54
(vi) Singapore ......................................................................................... 54
(vii) United States ................................................................................... 55
(viii) Summary ........................................................................................ 56
C.2 Statutory scheme on payment of fees to arbitrators in India............... 57
C.2.1 Party autonomy ............................................................................. 57
C.2.2 Fourth Schedule and regulation of arbitrators’ fees ...................... 59
C.2.3 Costs and fees: Two different paradigms ..................................... 70
C.2.4 Directives governing fees of arbitrators in ad hoc arbitrations ...... 92
D Interpretation of “sum in dispute” in the Fourth Schedule ......................... 97
D.1 Statutory Framework ........................................................................... 97
D.2 Definition of claim and counter-claim ................................................ 100
D.2.1 In re arbitration proceedings ....................................................... 100
(i) Statutory Framework of the Arbitration Act ................................. 100
(ii) Academic discourse .................................................................... 105
(iii) Judicial pronouncements ............................................................ 107
D.2.2 In re civil proceedings ................................................................. 109
(i) Statutory Framework of CPC ...................................................... 109
(ii) Academic discourse .................................................................... 112
4
(iii) Judicial pronouncements ............................................................ 114
D.3 Analysis ............................................................................................. 115
E Fee Ceiling in Fourth Schedule ............................................................... 119
E.1 Difference between the English and Hindi translations ..................... 121
E.2 Exception to literal interpretation ....................................................... 124
E.3 Interpretation based on legislative intent .......................................... 127
F Ceiling applicable to individual arbitrators ............................................... 130
G Conclusion ............................................................................................... 131
G.1 Findings ............................................................................................. 131
G.2 Directions .......................................................................................... 133
PART A
5
A Factual Background
A.1 Facts of Petition for Arbitration (Civil) No 5 of 2022
1 On 29 May 2009, the petitioner, Oil and Natural Gas Corporation Limited
1
,
and the respondent, Afcons Gunanusa JV
2
, entered into a Lump Sum Turnkey
Contract
3
for the construction of an ICP-R Platform. The ICP-R Platform is
alleged to have been completed on 31 October 2012.
2 Due to ongoing disputes and differences, Afcons invoked arbitration on 20
July 2015, in accordance with Clause 1.3 of the LSTK Contract. Afcons appointed
Justice Mukul Mudgal as their arbitrator.
3 The relevant parts of Clause 1.3 of the contract are extracted below:
“1.3 Laws/Arbitration
[…]
1.3.2 Arbitration
Except as otherwise provided elsewhere in the contract, if any
dispute, difference question or disagreement arises between
the parties hereto or their respective representatives or
assignees, in connection with construction, meaning,
operation, effect, Interpretation of the contract or breach
thereof which parties are unable to settle mutually, the same
shall be referred to Arbitration as provided hereunder:
1.3.2.1 A party wishing to commence arbitration proceeding
shall Invoke Arbitration Clause by giving 60 days notice to the
other party. The notice Invoking arbitration shall specify
all the points of disputes with details of the amount claimed
to be referred to arbitration at the time of Invocation of
arbitration and not thereafter. If the claim is in foreign
currency, the claimant shall indicate its value in Indian
Rupee for the purpose of constitution of the arbitral
tribunal.
1
“ONGC”
2
“Afcons”
3
“LSTK Contract”
PART A
6
1.3.2.2 The number of the arbitrators and the appointing
authority will be as under:
Claim amount
(excluding claim
for Interest and
counter claim, if
any)
Number
of
arbitrator
Appointing Authority
Upto Rs. 5 Crore Sole
Arbitrator
ONGC
Above Rs. 5
Crore
3
Arbitrators
One arbitrator by each
party and the 3rd
arbitrator, who shall be the
presiding arbitrator, by the
two arbitrators.
1.3.2.3 The parties agree that they shall appoint only
those persons as arbitrators who accept the conditions
of this arbitration clause. No person shall be appointed
as arbitrator or presiding arbitrator who does not accept
the conditions of this arbitration clause.
[…]
1.3.2.8 Arbitrators shall be paid fees at the following rates.
Amount of Claims
and Counter
Claims (excluding
interest)
Lump sum fees (Including fees for
study of pleadings, case material,
writing of the award, secretarial
charges etc.) payable to each
arbitrator (to be shared equally by the
parties)
Upto Rs. 50 lac Rs. 7,500 per meeting subject to a
ceiling of Rs. 75.000/-
Above Rs. 50 lac
to Rs. 1 crore
Rs. 90,000/- plus Rs. 1,200/- per lac
or a part there of subject to a cei ling
of Rs. 1,50,000/-
Above Rs. 1 Crore
and upto Rs. 5
Crores.
Rs. 1,50,000/- plus Rs. 22,500/- per
crore or a part there of subject to a
ceiling of Rs. 2,4 0,000/-
Above Rs. 5
Crores and upto
Rs. 10 Crores
Rs. 2,40,000/- plus Rs. 15,000/- per
crore or a part there of subject to a
ceiling of Rs. 3,15, 000/-
Above Rs. 10 Rs. 3,15,000/- plus Rs. 12,000/- per
PART A
7
Crores crore or a part there of subject to a
ceiling of Rs. 10,00,000/-
For the disputes above Rs. 50 lacs, the Arbitrators shall
be entitled to an additional amount @ 20% of the fee
payable as per the above fee structure.
1.3.2.9 lf after commencement of Arbitration pr oceedings, the
parties agree to settle the dispute mutually or refer the
dispute to conciliation, the arbitrators shall put the
proceedings in abeyance until such period as r equested by
the parties. Where the proceedings are put in abeyance o r
terminated on account of mutual settlement of dispute by the
parties, the fees payable to the arbitrators shall be
determined as under:
I) 25% of the fees if the claimant has not submitted statement
of claim.
II) 50% of the fees if the award is pending.
1.3.2.10 Each party shall pay its share of arbitrator’s fee in
stages as under:
(I) 25% of the fees on filing of reply to the statement of claims.
(II) 25% of the fees on the competition of evidence.
(III) Balance 50% at the time when award is given to the
parties.
[…]
1.3.2.14 Subject to aforesaid, provisions of the Arbitration and
Conciliation Act, 1 996 and any statutory modifications or re-
enactment thereof shall apply to the arbitration proceedings
under this clause.”
(emphasis supplied)
4 On 20 August 2015, ONGC responded by appointing Justice Gyan Sudha
Mishra as their a rbitrator. The arbitrators appointed Justice GN Ray as the
presiding arbitrator, and the a rbitral tribunal was constituted.
5 The arbitral tribunal held a preliminary meeting on 25 November 2015 at
which the members of the tribunal indicated their view that the fee schedule
PART A
8
prescribed in the contract seemed unrealistic. While Afcons was agreeable to a
revision in the fee, ONGC indicated that it may not be agreeable. The arbitral
tribunal directed ONGC to consider a revision of the arbitrators’ fee. In a letter
dated 28 January 2016 addressed to ONGC , the arbitral tribunal noted that the
Fourth Schedule to the Arbitration and Conciliation Act 1996
4
recommends the
fee for each arbitrator as Rs 30 lakhs, when the amount in dispute exceeds Rs 20
crore (in the present case, it was Rs 900 crores).
6 On 16 April 2016, the arbitral tribunal informed ONGC that it would no
longer bargain on the amount if ONGC was agreeable to the schedule provided
in the Fourth Schedule to the Arbitration Act, along with a reading fee of Rs 6
lakhs for each arbitrator. However, the letter stated that the ceiling of Rs 30 lakhs
provided in the Fourth Schedule was on the ‘ lower side’ for an arbitration with a
disputed amount of Rs 900 crores, and should be revised. The letter reads thus:
“If the appropriate authority of ONGC is inclined to accept the
ceiling referred to in the schedule of the amendment of
Arbitration and Conciliation Act and offer such remuneration,
the Arbitrators do not intend to enter into any bargaining. We
may only indicate that remuneration of Rs. 30 Lacs is in the
lower side and reasonably deserves upward revision in this
case. The arbitrators also expect that considering the
composition of the arbitral tribunal and huge claim involved
(about Rs. 1000 crore) and extraordinarily voluminous
documents to be taken into consideration it may be only
appropriate that as special case, a reasonable reading/
perusal fee to the tune of about 6 lacs for each arbitrator may
be considered. Such reading fee is prevalent in similar other
cases.”
7 By its letter dated 22 April 2016, ONGC informed the arbitral tribunal that
the proposal for the application of the Fourth Schedule of the Arbitration Act was
4
“Arbitration Act”
PART A
9
under consideration by them but since it did not provide for a reading fee, ONGC
could not agree to it.
8 At its second sitting on 4 August 2016, the arbitral tribunal passed a
procedural order directing the parties to deposit 25 per cent of the arbitrators’ fee,
which was recorded as Rs 30 lakhs. On 22 May 2018, the arbitral tribunal passed
another procedural order finalising its fee, stating that it had done so after taking
into account the pleadings submitted by the parties, the complexity of the issues
involved, high value of the claim (Rs 679 crores) and counter-claim (Rs 407
crores), and the voluminous nature of the documents. The tribunal fixed a fee of
Rs 1.5 lakhs for each arbitrator for every sitting of a three- hour duration. The
tribunal indicated that it may also charge a reading fee or conference fee (for
conferences between the members) , which would be indicated at a later stage.
The procedural order states as follows:
“The first sitting of this arbitration case was held in November,
2015. The remuneration of the members of the arbitral
tribunal could not be finally fixed. The claimant had agreed to
pay such remuneration in its share as would be directed by
the tribunal. But the respondent had requested the tribunal to
fix remuneration later on because appropriate authority was
to be considered. The arbitral tribunal was also not in a
position to assess the extent of claim and counter claim to be
raised by the parties and also the complexity of the arbitration
case at that stage. The respondent's representative, however,
had suggested for the ceiling fee at Rs. 30.00 lakhs for each
of the Arbitrators as mentioned in the fourth schedule of
amended Arbitration and Conciliation Act, 1996. It was
pointed out by the tribunal that the arbitration case arose prior
to amendment of the Act. Therefore, the ceiling fee referred to
in the amended Act was not attracted. It was also pointed out
to the respondent's representative that the Arbitral Tribunal
did not like to assert the remuneration of the members of the
tribunal and it would be only appropriate if fair, pragmatic and
reasonable remuneration would be fixed at the suggestion of
both the parties who were expected to take pragmatic and
realistic approach in suggesting the remuneration of the
PART A
10
arbitrators by taking into consideration of the amount of claim
and counter claim to be made by the parties, the composition
of the arbitral tribunal, the complexities of the issues requiring
adjudication and number of sittings likely to take for
concluding the arbitration case, in suggesting the
remuneration of the arbitrators. However, before finally fixing
the remuneration to be paid to the arbitrators by the parties,
25% of Rs. 30.00 lakhs were directed to be deposited by the
parties by sharing equally.
After pleadings have been filed by the parties by taking
substantially long time, presumably, in view of complex
technical issues involved and large number of documents
intended to be relied on by the parties, the members of the
arbitral tribunal have been able to have a fair idea about the
nature and complexities of the issues for determination and
the time likely to be required for completing the arbitration
case. The arbitral tribunal, therefore, holds that proper
remuneration payable to the members of the arbitral tribunal
should be indicated to the parties for compliance.
It may be indicated here that the claimant has claimed about
Rs. INR 6,79,20,52,999/- crores along with 18% interest per
annum on the said sum. The respondent has made a counter
claim of about Rs. INR 4,07,12,97,603/- crores and has also
claimed interest at 18% per annum on the said sum. Both the
parties have informed the arbitral tribunal that both the parties
will examine their respective witnesses including expert
witnesses. As a matter of fact, the claimant has filed affidavit
of evidence of three expert witnesses. Similarly, the
respondent also intends to examine witnesses including
expert witness. Till date 20 sittings have been held and
examination of first witness of the claimant is estimated to be
completed by holding 26 sittings.
It is, therefore, quite evident that the hearing of this arbitration
case will take fairly long time. Along with the pleadings, both
the parties have filed volumes of documents in support of
their respective case. By now the claimant has filed 68
volumes of their document. Similarly, the respondent has also
filed 24 volumes as its document to be relied on. It is not
unlikely that further documents may be relied on by the
parties in the hearing process.
Considering the amounts of claim and counter claim, the
voluminous documents to be taken into consideration and a
very long hearing to conclude the arbitration case and the
complex technical issues required to be taken into
consideration, the arbitral tribunal has decided that it will be
only appropriate, fair and reasonable to fix remuneration of
each of the arbitrators at Rs. 1.50 lakhs (Rupees one lakh
PART A
11
and fifty thousand) per sitting, each sitting confined to three
hours or part thereof. Perusal fee and inter se conference
amongst the members of the tribunal, may not be indicated
now. Such fee may be indicated later or after the case
proceeds further thereby enabling the tribunal to assess the
extent of exercise called for.”
9 On 22 June 2018, ONGC filed an application before the arbitral tribunal for
modifying the procedural order dated 22 May 2018 increasing the fee. The
arbitral tribunal issued a procedural order dated 25 July 2019 rejecting ONGC’s
application. The tribunal observed that:
(i) At the first sitting, the tribunal indicated that the fee specified in the
contract (Rs 12 lakhs per arbitrator) was unrealistic. While Afcons agreed
to a revision of the fee, ONGC was not agreeable. The tribunal granted an
opportunity to ONGC to propose a ‘ reasonable and pragmatic’ fee
schedule;
(ii) While awaiting ONGC’s response, the tribu nal proposed the fee schedule
in the Fourth Schedule to the Arbitration Act “as an example” while noting
that the ceiling of Rs 30 lakhs was also “too low”. Since ONGC seemed
agreeable, the tribunal directed the parties to deposit the first tranche of
fee based on Rs 30 lakhs in the interim;
(iii) Since ONGC did not propose a revised fee schedule, the tribunal, after
considering the complexity of the issues involved, the quantum of the
amount in dispute and the voluminous nature of the documents, fixed its
fee by a procedural order dated 22 May 2018;
(iv) ONGC has not refuted the reasons provided by the tribunal for fixing its
fee. It has only contested the revision on the ground that the fee schedule
PART A
12
in the contract was binding. Since ONGC had shown its willingness earlier
to accept the schedule of fees in the Fourth Schedule, ONGC’s submission
was rejected; and
(v) The ceiling of Rs 30 lakhs in the Fourth Schedule is not applicable to the
present dispute since it arose before the amendment which added the
Schedule.
The tribunal held that the fee was set on the basis of the amount being paid in
arbitrations of such nature. However, it agreed to reduc e the fee of each
arbitrator to Rs 1 lakh per sitting. It noted that the reading fee was kept open, and
would be decided at a later stage.
10 By its letter dated 21 August 2020, ONGC informed the arbitral tribunal
that the revised fee was not approved by its ‘higher’ management. Thereafter,
ONGC filed a petition
5
under Section 14 read with Section 15 of the Arbitration
Act before the Bombay High Court for the termination of the mandate of the
arbitral tribunal and the substitution of a fresh set of arbitrators. By its order dated
7 October 2021, th e petition was dismissed by the Bombay High Court on the
ground of a lack of jurisdiction since the arbitration was an international
commercial arbitration within the meaning of Section 2(f) of the Arbitration Act.
However, ONGC was granted liberty to approach this Court and all its
contentions were kept open. ONGC then filed the present arbitration petition.
5
Commercial Arbitration Petition (Lodging) No 9590 of 2020
PART A
13
A.2 Facts of Special Leave Petition (Civil) No 13426 of 2021
11 This appeal arises from a final judgement and order dated 6 August 2021
of the High Court of Delhi, by which it dismissed the petition
6
filed by the
petitioner, NTPC Limited
7
.
12 NTPC and the respondent, Afcons-Shetty and Company Private Limited-
JV
8
, entered into a contract for the construction of a “ desilting arrangement
package for Koldam Hydro Electric Power (Package- 3) Project”. When disputes
arose between the parties, Afcons-Shetty invoked arbitration for a claim of about
Rs 37 crores. An arbitral tribunal was to be constituted in terms of Clause 67.3 of
the contract. Both parties nominated their arbitrators – NTPC nominated Shri
Krishna Mohan Singh and Afcons-Shetty nominated Shri Santanu Basu Rai
Chaudhuri. When the nominated arbitrators failed to appoint a presiding
arbitrator, Afcons-Shetty approached the Delhi High Court under Section 11 of
the Arbitration Act
9
, which then appointed Justice Manmohan Sarin as the
presiding arbitrator on 21 May 2018 with the consent of parties.
13 The arbitral tribunal held its first sitting on 12 July 2018, where it decided
that the fees payable to the tribunal shall be in terms of the Fourth Schedule to
the Arbitration Act. The Fourth Schedule was subsequently amended on 12
November 2018.
14 NTPC filed its counter-claim of approximately Rs 19 crores. By a
procedural order dated 13 July 2019, the arbitral tribunal fixed a separate fee for
6
OMP (T) (COMM) 37 of 2021
7
“NTPC”
8
“Afcons-Shetty”
9
Arbitration Petition No 375 of 2018
PART A
14
the claim (Rs 28,64,520 per arbitrator) and counter-claim (Rs 19,13,615 per
arbitrator), aggregating to a total fee of Rs 47,78,135 per arbitrator. In support of
its position, the tribunal placed reliance upon the proviso to Section 38(1) of the
Arbitration Act.
15 On 21 September 2019, NTPC filed an application seeking a modification
of the procedural order dated 13 July 2019. By its reply dated 18 October 2019,
Afcons-Shetty opposed the application. By its order dated 8 November 2019, the
arbitral tribunal dismissed NTPC’s application noting that:
“4. There is merit in Mr. Mukhopadhyay's submission that
claims and counter claims being independent of each other
for which separate fee is to be fixed the same cannot be
combined for purpose of ceiling. Moreover, it cannot also be
lost sight of that the Fourth Schedule of the Act can only
serve as a guiding principle in the absence any rules being
framed by the High Court. In view of the foregoing
discussions the order passed by us does not call for any
modifications or review. The application is accordingly
dismissed.”
16 On 15 October 2020, NTPC sought a modification of the tribunal’s orders
dated 13 July 2019 and 8 November 2019, so that the fee fixed in terms of the
Fourth Schedule should include the fee payable for NTPC’s counter-claim. By its
reply dated 30 October 2020, Afcons -Shetty opposed the application.
17 By its order dated 14 January 2021, the t ribunal rejected NTPC’s position
that the claim and counter-claim have to be cumulated to arrive at the “sum in
dispute” for the purposes of the Fourth Schedule. The tribunal held that:
(i) Section 31(8) of the Arbitration Act allows a tribunal to provide for the costs
of arbitration. The regime for costs is provided under Section 31A. The
PART A
15
explanation to Section 31A(1) provides that costs include those relating to
the fees and expenses of the arbitrators;
(ii) The proviso to Section 38(1) stipulates that separate costs are to be fixed
for claims and counter-claims. The position under proviso to Rule 3 of the
DIAC (Administrative Cost & Arbitrators’ Fees) Rules 2018
10
is also similar;
and
(iii) Nothing in the Fourth Schedul e or the DIAC Rules imposes a restriction on
separate costs (and thus fees) being fixed for claims and counter-claims by
the tribunal.
18 Subsequently, by its order dated 19 March 2021, the tribunal held that in
case NTPC does not comply with its directions contained in the order dated 14
January 2021 for payment of Rs 2 lakhs per arbitrator, the tribunal would
consider whether NTPC’s counter-claim should be suspended.
19 NTPC filed a petition under Sections 9 and 14 read with Section 31(8)
before the Delhi High Court, seeking a direction that the tribunal charge a
combined fee under the Fourth Schedule for adjudicating both the claim and the
counter-claim or, in the alternate, for the termination of the mandate of the
tribunal. The petition was opposed by Afcons -Shetty.
20 By a judgment dated 6 August 2021, a Single Judge of the Delhi High
Court dismissed NTPC’s petition. The Single Judge held that the proviso to
Section 38(1), Section 31(8) and Section 31A are inextricably linked and on a
10
“DIAC Rules”
PART A
16
combined reading, a tribunal would have the power to fix a separate fee for
claims and counter-claims. The Single Judge of the Delhi High Court held thus:
“43. …the scheme of 1996 Act is such that the provisions of
Section 38(1), 31(8) and 31A are inextricably interlinked.
These provisions cannot be read in isolation. The proviso to
Section 38(1) clearly states that, where there are claims and
counter-claims before the arbitral tribunal, the Arbitral
Tribunal may fix separate amount of deposits for the claim
and counter-claim. Section 38(1) clarifies that the “amount of
deposit” is to be directed “as an advance for the costs
referred to in sub- section (8) of Section 31”. Sub- section (8)
of Section 31 requires the Arbitral Tribunal to fix the costs of
arbitration in accordance with Section 31A. The explanation
to Section 31A(1) clearly states that, for the purposes of
Section 31A(1) the expression “costs” means reasonable
costs relating to, inter alia, “the fees and expenses of the
arbitrators”.
[…]
48. The position becomes clear when we view the proviso to
Section 38(1), Section 31(8) and the Explanation to Section
31A(1) in juxtaposition. Section 31(8) mandates that the
arbitral tribunal fix the costs of arbitration, in accordance with
Section 31A. Clause (i) of the Explanation to Section 31A(1)
specifically includes the fees and expenses of the arbitrators
as an integral part of the “costs”. Clearly, therefore, the
arbitrator has to fix the fees payable to the arbitral tribunal,
with, needless to say, consent of parties. Section 38(1)
provides for advance, for such “costs” fixed, by way of
“deposit”. The expressions “deposit”, “costs” and “fees” are,
therefore, intertwined by statute, and, as the interpreter
thereof, the Court can hardly extricate them from each other.
The proviso to Section 38(1) provides that, where the arbitral
tribunal is seized of claims and counter-claims, it may fix
separate amount of deposit for each. No doubt, the use of the
word “may” does involve an element of discretion; but, if the
arbitral tribunal does fix separate fees for the claims and
counter-claims, it cannot be held that it has acted irregularly,
or contrary to the statutory mandate. ”
PART A
17
A.3 Facts of Special Leave Petition (Civil) No 10358 of 2020
21 The appeal arises from a final judgement and order dated 10 July 2020 by
which the High Court of Delhi dismissed the petition
11
filed by the petitioner, Rail
Vikas Nigam Limited
12
.
22 On 28 December 2010, RVNL awarded a contract for the “ construction of a
viaduct and related works for a length of 4.748 kms in the Joka- BBD Bag Corridor
of Kolkata Metro Railway Line” to the respondent, Simpex Infrastructures
Limited
13
. Disputes having arisen between the parties, Simpex invoked arbitration
by its letter dated 26 December 2017.
23 The parties could not agree upon the appointment of arbitrators. While
Simpex nominated its arbitrator, RVNL contended that Simpex had to nominate
its arbitrator from a panel of five names recommended by RVNL. Since RVNL
refused to nominate their arbitrator, Simpex approached the Delhi High Court
under Section 11 of the Arbitration Act
14
. The High Court, by its order dated 11
December 2018, nominated an arbitrator on behalf of RVNL and ordered that “the
Arbitrator[s] shall be paid fee as per Fourth Schedule to the [Arbitration] Act”.
RVNL’s special leave petition
15
against the order of the Delhi High Court was
dismissed by this Court on 12 April 2019.
24 Meantime, the arbitrators nominated by the parties appointed a presiding
arbitrator. The arbitral tribunal held its preliminary sitting on 15 January 2019,
where it recorded that its fee shall be in accordance with the Fourth Schedule to
11
OMP (T) (COMM) 38 of 2020
12
“RVNL”
13
“Simpex”
14
ARB P 519 of 2018
15
SLP
PART A
18
the Arbitration Act. By its order dated 9 January 2020, the arbitral tribunal
recorded that, in accordance with Fourth Schedule, the fee of each arbitrator
would be Rs 49,87,500.
25 RVNL then filed an application on 27 February 2020 for the recall of the
tribunal’s order dated 9 January 2020 on the ground that the ceiling on fees for
each arbitrator under the Fourth Schedule is Rs 30,00,000.
26 By its order dated 3 March 2020, the arbitral tribunal rejected RVNL’s
application. It noted that that the limitation of Rs 30,00,000 in the entry at Serial
No 6 of the Fourth Schedule does not encompass the entire fee, comprising of
the base component of Rs 19,87,500 and the variable component (0.5 per cent of
the claim amount above Rs 20 crores) but was only limited to the variable
component. Hence, the ceiling on fee according to the tribunal, is Rs 49,87,500,
and not Rs 30,00,000.
27 RVNL then filed a petition under Section 14 of the Arbitration Act before
the Delhi High Court, praying for the termination of the mandate of the arbitral
tribunal.
28 By a judgment dated 10 July 2020, a Single Judge of the Delhi High Court
rejected RVNL’s petition. The Single Judge held that the ceiling of Rs 30,00,000
is applicable only to the variable component of the entry at Serial No 6 of the
Fourth Schedule. It has been held that the use the disjunctive, namely, ‘plus’
between the fixed base component and the variable component indicates that the
ceiling of Rs 30,00,000 applies only to the latter. According to the judgment, such
an interpretation arises not only from the English version of the Arbitration Act,
PART A
19
but also its Hindi version. Finally, the court held that while this interpretation was
based on the text of the entry at Serial No 6 of the Fourth Schedule, it is also
supported by the 246
th
Report of the Law Commission (which recommended the
changes to the Fourth Schedule) and the DIAC Rules Model Fee (on the basis of
which the Schedule Four was crafted).
A.4 Facts of Miscellaneous Application Nos 1990-1991 of 2019
29 The miscellaneous application has been filed by the respondent, RV NL, in
relation to an order dated 16 January 2018 of a two-Judge Bench of this Court in
the main SLP. By its order dated 16 January 2018, this Court appointed Justice
Vikramjit Sen as the sole arbitrator with the consent of the parties, to decide their
disputes. The order of this C ourt recognised that “[t]he learned Arbitrator is at
liberty to fix his remuneration”.
30 By a procedural order dated 24 February 2018, the sole arbitrator, with the
consent of the parties, decided that arbitral fee shall be payable in accordance
with the Fourth Schedule to the Arbitration Act. On 25 March 2019, the sole
arbitrator raised separate invoices for the payment of fee for claims and counter-
claims.
31 RVNL filed an application on 18 May 2019 raising an objection to the sole
arbitrator raising separate invoices for payment of a fee for claims and counter
PART B
20
claims. By an email dated 20 May 2019, the petitioner HCIL-Adhikarya- Arss
(JV)
16
, agreed to RVNL’s application and for it to be allowed.
32 The sole arbitrator dismissed RVNL’s application on 20 May 2019, holding
that in terms of the proviso to Section 38(1) of the Arbitration Act and Order VIII
Rule 6A of the Civil Procedure Code 1908
17
, claims and counter-claims have to
be treated separately. Further, the sole arbitrator noted that since he had been
appointed by this Court in an ad hoc arbitration with liberty to fix his own fee, a
separate fee could be charged for the claim (Rs 325,89,48,831) and counter -
claim (Rs 21,59,56,092).
33 RVNL has filed a miscellaneous application before this Court, seeking a
determination of whether a fee can be charged separately by the arbitral tribunal
for the claim and counter-claim and whether the tribunal was justified in doing so
after fixing its fee in terms of the Fourth schedule.
B Submissions of Counsel
34 We have heard Mr KK Venugopal the learned Attorney General, and Mr
Tushar Mehta, learned Solicitor General, on behalf of the petitioners. Dr Abhishek
Manu Singhvi led the arguments on behalf of the respondents and Mr Manu
Sheshadri for the respondent in SLP (C) No. 13426 of 2021. Mr K. Parmeshwar
addressed the court for the intervenors. Mr Huzefa Ahmadi, has rendered
objective assistance to this Court as amicus curiae.
16
“HCIL”
17
“CPC”
PART B
21
B.1 Submissions on behalf of the petitioners
35 On behalf of the various public sector undertakings that have instituted
proceedings before this Court, the following submissions have been made by the
Attorney General and the Solicitor General:
(i) The arbitration clause of a contract is binding on the parties and the
arbitrators. Once the fee payable to the arbitrators has been specified in
the agreement between the parties, the arbitrators must either accept their
appointment on the terms agreed in the contract between the parties or
refuse the arbitration if they are not agreeable to accept the assignment on
the fee which has been fixed by parties in their agreement. In NHAI v.
Gayatri Jhansi Roadways Ltd.
18
, this Court has held that the fee fixed in
the agreement is binding. In Russell on Arbitration
19
(24
th
Edition) it has
been noted that the appointment of arbitrators is a matter of contract
subject to the mandatory provisions of the governing law. Arbitrators
cannot increase their fees and expenses unless their agreement with the
parties entitles them to do so. Gary Born in his treatise titled International
Commercial Arbitration
20
has observed that arbitrators, in principle, should
not be permitted to unilaterally determine their own fee in the absence of
any agreement between the parties since that violates the principle that
one cannot be the judge of their own cause;
(ii) If either one party or both parties are not willing to pay the fees desired by
the arbitrators or if the arbitrators deviate from the fees stipulated under
18
(2020) 17 SCC 626 (“Gayatri Jhansi Roadways Ltd”)
19
David St John Sutton, Judith Gill and Matthew Gearing, Russell on Arbitration (24
th
edition, 2015) (“Russell on
Arbitration”)
20
Gary B Born, International Commercial Arbitration (2
nd
edition, 2014)
PART B
22
the agreement, the mandate of the arbitral tribunal would have to be
terminated in its entirety;
(iii) Section 11(14) of the Arbitration Act provides that the “High Court may
frame such rules [for determination of fees] as may be necessary, after
taking into consideration the rate specified in the Fourth Schedule”.
Therefore, the Fourth Schedule should serve as a template or a guide for
the High Courts in fixing fees for the arbitrators;
(iv) Sub-Section (3A) of Section 11, inserted by the Arbitration and Conciliation
(Amendment) Act 2019
21
, also stipulates that the arbitrator appointed by a
party shall be entitled to the fees at the rates specified in the Fourth
Schedule;
(v) Conflicting views have emerged from the High Courts as regards the
nature of the Fourth Schedule to the Arbitration Act. Typically, it is
considered suggestive in cases where arbitrators are appointed by parties
and mandatory when arbitrators are appointed by the court;
(vi) The entry at Serial No 6 of the Fourth Schedule to the Arbitration Act
provides a cap on the fees payable to the arbitral tribunal. There is an
apparent mismatch between the English and Hindi versions, since a
comma which is present in the Hindi version is absent in the English
version, before the phrase “with a ceiling of Rs 30,00,000”. The comma
disjoins the phrase "with a ceiling of Rs.30,00,000” from the words
preceding the comma, "Rs. 19,87,500 plus 0.5 % of the claim amount over
and above Rs. 20 Cr." The use of the comma in the Hindi version suggests
21
“Arbitration Amendment Act 2019”
PART B
23
that the ceiling is applicable to the entire clause. Thus, the total fees
payable to the arbitrators cannot exceed Rs 30,00,000;
(vii) The omission of the comma in the English version is an inadvertent
grammatical mistake. Commas have a crucial role to play in interpretation
and due regard must be given to it when multiple interpretations are
possible;
(viii) If the comma is not given its due effect, the upper limit on the fees can be
interpreted to mean Rs 49,87,500 [19, 87,500 + 30,00,000]. Such an
interpretation would be contrary to the legislative intent of making
arbitration cost-effective and economical;
(ix) The Fourth Schedule is based on the D elhi International Arbitration
Centre
22
fees’ schedule which contains a comma like the Hindi version,
which disjoints the applicable fees and establishes a ceiling of Rs
30,00,000 towards arbitrators’ fees. This ceiling applies to the aggregate
amount of the claim and counter-claim;
(x) Section 2(9) of the Arbitration Act provides that wherever Part - I of the
Arbitration Act refers to a claim, it shall be applicable to a counter-claim
and where it refers to defence, it shall include a reference to the defence of
a counter-claim;
(xi) The legislative intent behind using the phrase “sum in dispute” in the
Fourth Schedule of the Arbitration Act was to refer to the cumulative sum
of the claim and counter-claim. If the legislative intent was to charge
22
“DIAC”
PART B
24
separate fees for both the claim and counter-claim, it would have been
explicitly stated;
(xii) The plain English meaning of the term “sum” means aggregate and of the
term “dispute” means the totality of all the claims and counter-claims. The
term “sum” or “dispute” cannot be bifurcated through legal interpretation to
refer to claims and counter-claims as separate concepts;
(xiii) The rules of various institutions in India and abroad that conduct
arbitration proceedings also fortify the position that the “sum in dispute”
includes the claim and counter-claim;
(xiv) In Union of India v. Singh Builders
23
and Sanjeev Kumar Jain v. RS
Charitable Trust
24
, this Court observed that arbitrators are charging
exorbitant fees, without any ceilings. The Law Commission of India in its
246
th
Report
25
identified the above mischief and recommended the
introduction of the Fourth Schedule to address this issue;
(xv) It is evident from the LCI 246
th
Report (supra) that the Fourth Schedule
was introduced to make arbitration a cost-effective solution for dispute
resolution domestically by providing some mechanism to rationalise the fee
structure for arbitration. The Law Commission stated that the model
schedule of fees recommended by it is based on the fee set by DIAC. The
fee schedule set by DIAC specifically provides that the “sum in dispute”
includes the counter-claim made by any party. Thus, the interpretation that
the “sum in dispute” includes the counter-claim would be in tandem with
23
(2009) 4 SCC 523 (“Singh Builders”)
24
(2012) 1 SCC 455
25
Law Commission of India, ‘Amendments to the Arbitration and Conciliation Act 1996’ (246
th
Report, August
2014) available at <https://lawcommissionofindia.nic.in/reports/report246.pdf> accessed on 29 June 2022 (“ LCI
246
th
Report”)
PART B
25
the legislative intent and the object that was sought to be achieved with the
introduction of the Fourth Schedule;
(xvi) The proviso to Section 38(1) of the Arbitration Act, providing for a
separate “deposit” for claim and counter-claim as an advance for the costs
referred to in Section 31(8), cannot be construed to include arbitrators’
fees because that would negate the requirement of the Fourth Schedule
framed either under Section 11(14) or Section 11(3A) of the Arbitration Act,
as the case may be. This can be harmoniously reconciled by excluding
“fees” from the ambit of “costs”;
(xvii) Fees and costs are completely distinct. Fees are a return or
consideration for professional services rendered, where there is an
element of quid pro quo. Fees can be fixed by agreement between the
parties in an ad hoc arbitration or by rules in an institutional arbitration. On
the other hand, costs are expenses incurred in the facilitation of the
arbitration, which include expenses for the venue of arbitration,
transportations costs and secretarial expenses;
(xviii) Section 31(8) of the Arbitration Act states that the cost of arbitration is
fixed by the arbitral tribunal in accordance with Section 31A. There is no
involvement of party autonomy in the determination of costs, unlike the
concept of fees which is based on party autonomy;
(xix) Sub-Sections (3) and (4) of Section 31A of the Arbitration Act enumerate
the circumstances which may be taken into account by the arbitral tribunal
to determine costs. None of these circumstances make any references to
PART B
26
arbitrators’ fees but refer to expenses incurred in the process of facilitating
the arbitration proceedings;
(xx) In Gayatri Jhansi Roadways Ltd (supra), this Court held that while
arbitrators’ fees may be a component of costs to be paid but it is a far cry
to state that Section 31(8) and 31A would directly govern contracts in
which the fee structure has already been laid down. Section 31(8) read
with Section 31A deals with costs generally but not with arbitrator(s) fees;
(xxi) The Explanation to Section 31A(1) of the Arbitration Act states for the
purpose of this sub- Section, “costs” means reasonable costs relating to the
“fees” and expenses of the arbitrator. The Explanation takes away the
effect of the legislative intent enshrined in Sections 11(14) read with the
Fourth Schedule and Section 38(1) of the Arbitration Act. In Dattatraya
Govind Mahajan v. State of Maharashtra
26
, this Court has held that the
intention of the legislature is paramount;
(xxii) Further, the Explanation to Section 31A(1) which provides that costs
include the “fees and expenses of arbitrators, Courts and witnesses” has to
be read in conjunction with Section 31A(1)(a) which provides that the
arbitral tribunal has the discretion to determine “whether costs are payable
by one party to another”. The implication of the above is that when costs
are awarded to the successful party, it would recoup the entirety of the
amount that has been spent on arbitration, including fees and expenses of
the arbitrators, court and witnesses as compensation for the arbitration
which has failed against it. This does not refer to a new determination of
26
(1977) 2 SCC 54
PART B
27
fees by the arbitrators; they are only entitled to what the agreement states.
It would be extraordinary to state that the arbitrators can stipulate a new
fee at the final stage of determining costs under Section 31A;
(xxiii) The Fourth Schedule uses the phrase “sum in dispute” and there is no
mention of this phrase in the Arbitration Act. On the other hand, Section 38
pertains to deposits and that too at a preliminary stage as an advance for
costs as referred to in Section 31(8). These provisions cannot be used to
interpret the term “sum in dispute”. If the language of the enacting part is
ambiguous, then the Schedule should be referred to for understanding the
intent of the legislature. Thus, the Fourth Schedule would supersede the
provisions of Section 38 on the basis of which, it can be concluded that
arbitral fee refers to a cumulative amount of claim and counter-claim;
(xxiv) The Fourth Schedule was introduced by the Arbitration and Conciliation
(Amendment) Act 2015
27
. The legislature was aware of the terminology
used in Section 38(1) and could have used the terms “costs” or “deposits”
but yet it still chose to use the term “sum in dispute”; and
(xxv) Public sector undertakings, unlike private companies, cannot afford the
high fees that are charged by the arbitrators. A failure to pay the hefty fees
being charged by arbitrators could lead to a situation where the arbitral
tribunal forms a bias against such public sector undertakings.
27
“Arbitration Amendment Act 2015”
PART B
28
B.2 Submissions on behalf of the respondents
36 On behalf of the respondents, the following submissions have been urged
by Dr Abhishek Manu Singhvi, S enior Counsel:
(i) If the parties have prescribed a fee schedule and the arbitral tribunal
agrees to be bound by it unconditionally, without any caveat, then the
agreed schedule would apply. However, there is nothing in the Arbitration
Act to indicate what is to be done in a circumstance where the parties are
unable to agree to a fee schedule. The question then arises if the arbitral
tribunal can fix its own fees;
(ii) The issue of fee fixation is dealt with as a part of “costs” under Section
31(8) (prior to the Arbitration Amendment Act 2015) or Section 31(8) read
with Section 31A (after the Arbitration Amendment Act 2015);
(iii) Sections 31(8) and 31A are part of Chapter VI titled “Making of Arbitral
Award and Termination of Proceedings”, which implies that the issue of
fees remains open to determination till the award is made. A similar
practice is followed under the English Arbitration Act 1996, UNICITRAL
Rules and International Chamber of Commerce Rules. Therefore, if there
is no agreement between the parties regarding the fees of the arbitrators
and the arbitration has proceeded, the arbitral tribunal would be entitled to
its right to remuneration, which is crystallized as a part of “reasonable
costs” as provided under the Explanation to Section 31A(1);
(iv) It has been suggested that this Court may provide guidelines where three
case management hearings can be conducted at the initial stage of
PART B
29
arbitration leading to the fixation of the fee of the arbitrators, which shall
not be changed except under extraordinary circumstances;
(v) Arbitrator(s) may demand an increase in fees if there is an undue delay in
the completion of the arbitration proceedings;
(vi) The right to remuneration of the arbitrator(s) is secured by empowering the
arbitral tribunal to fix an amount of deposit or supplementary deposit in
advance under Section 38(1) of the Arbitration Act, which is a part of final
accounting upon the termination of arbitral proceedings under Section
38(3). The enforcement of this right is ensured by empowering the arbitral
tribunal to exercise a lien on the award under Section 39(1);
(vii) Section 39(1) of the Arbitration Act permits a party to approach the court
to resolve the issue of costs (including fees) as the court “may consider
reasonable”. The arbitral tribunal’s right to fix reasonable costs (including
its final determination of fee) is judicially reviewable under Section 39 read
with Section 31A of the Arbitration Act;
(viii) Section 31(8) of the Arbitration Act provides that the costs of arbitration
shall be fixed in terms of Section 31A of the Act. The Explanation to
Section 31A(1) provides that “costs” shall mean reasonable costs relating
to the fees and expenses of arbitrators;
(ix) The proviso to Section 38(1) of the Arbitration Act in clear and
unambiguous terms provides that a separate amount may be fixed for
deposit towards the claim and the counter-claim, if any counter-claim is
preferred apart from the claim;
PART B
30
(x) The fees of arbitrators are an integral part of the costs to be fixed by the
arbitral tribunal under Section 31(8) towards deposits, for which the arbitral
tribunal is empowered to fix separate amounts for claims and counter-
claims;
(xi) The phrase “sum in dispute” mentioned in the Fourth Schedule has to be
interpreted in the above context;
(xii) Any reliance on the inconsistency between the Hindi and English versions
of the Arbitration Act with respect to the entry at Serial 6 of the table in the
Fourth Schedule is in the teeth of Article 348(1)(b)(ii) of the Constitution,
which provides that the Act passed by Parliament in the English language
shall be the authoritative text. Further, Article 348(1) begins with a non-
obstante clause which has an overriding effect over other provisions;
(xiii) If the legislature wanted to indicate that the maximum cap on fees
payable to an arbitrator is Rs 30 ,00,000, it would have simply stated so.
There was no need to provide in the entry at Serial 6 that the fixed amount
of Rs 19,87,500% + 0.5% of the claim amount over and above Rs
20,00,00,000 with a ceiling of Rs 30,00,000 would be the upper ceiling;
(xiv) Counter-claims arise from a distinct dispute, separate from the dispute
pertaining to the claim and mostly in regard to an independent cause of
action. Even if the main suit fails, a counter-claim may survive and
continue. Thus, a separate court fee (where a suit is filed in a court) is
required to be paid on the amount of counter-claim. A counter-claim is
different from a set-off, which arises from the same dispute and can be
PART B
31
claimed as an adjustment in the main suit, without requiring the payment of
court fees;
(xv) The Arbitration Act refers to claims and counter- claims distinctly in
various provisions such as Section 2 (9), Section 23 (2A), Section 31A and
Section 38;
(xvi) Section 2(9) of the Arbitration Act, which states any reference to a claim
in Part - I also applies to a counter-claim, has to be read in tandem with the
proviso to Section 38(1), Section 31A and Section 31(8); and
(xvii) Bias is not an appropriate ground to challenge the increase in fees of
arbitrators.
B.3 Submissions on behalf of the amicus curiae
37 Mr Huzefa Ahmadi, learned Senior Counsel, assisting this Court as amicus
curiae made the following submissions:
(i) Party autonomy is the overarching principle of arbitration and is crystallised
in Section 2(6) of the Arbitration Act. It allows parties to determine the
relevant law and procedure that will govern the arbitration and limits court
intervention. The principle of party autonomy extends to parties’ freedom to
decide the fees payable to the arbitrator(s);
(ii) Prior to the amendment of the Arbitration Act in 2015, the issue of
arbitrators’ fees would have been a subject of agreement between the
parties and the arbitrators. However, this Court in Singh Builders (supra)
noted that the arbitrators have been unilaterally, arbitrarily and
disproportionately fixing their fees. This observation was made in the
PART B
32
context of court-appointed arbitrators where this Court was concerned with
the fact that parties were being sent for arbitration by courts and were
being forced to pay the fees fixed by such arbitrators. This Court noted that
institutional arbitration has already remedied this problem since the arbitral
institution fixes the fees and not the arbitrators in terms of the rules of the
institution;
(iii) In the above backdrop, the Law Commission recognised that the issue of
arbitrator fees in ad hoc arbitration must be resolved by the introduction of
a mechanism to rationalise the fee structure. A model schedule of fees, the
Fourth Schedule, was added to the Arbitration Act through the Arbitration
Amendment Act 2015, which was to serve as a guide for High Courts to
frame rules governing the fixation of fees payable to the arbitrators. This
model schedule of fees was based on the schedule of fees developed by
DIAC and was suitably revised;
(iv) The Fourth Schedule is to be read along with provisions for appointment of
arbitrators under Section 11. It does not apply to international commercial
arbitration and is not applicable when the parties have agreed to the fees
in terms of the rules of an arbitral institution;
(v) The High Courts have been slow in framing rules for the determination of
fees payable to arbitrator(s);
(vi) Some High Courts have been of the view that the Fourth Schedule is
merely suggestive and not mandatory, while others have held that it is
mandatory. Thus, there is an uncertainty regarding the nature of the Fourth
Schedule. In Gayatri Jhansi Roadways Ltd (supra), this Court held that if
PART B
33
the fee schedule is fixed by the parties in an agreement, they would not be
bound by the Fourth Schedule. Pursuant to this decision, many High
Courts have proceeded to hold that the Fourth Schedule is only applicable
to court-appointed arbitrators if stated expressly or if the parties and
arbitrators have agreed to its applicability;
(vii) Section 11 has been further amended by the Arbitration Amendment Act
2019. Sub- Section (14) of Section 11 now reads that “[t]he arbitral
institution shall determine the fees of the arbitral tribunal and the manner of
its payment to the arbitral tribunal subject to the rates specified in the
Fourth Schedule”. The amended Section 11 has not been brought into
force and is subject to two exceptions. Crucially, once the amendment
comes into force, the fee of the arbitral tribunal would be fixed by the
arbitral institution appointing the arbitrator. This Court’s interpretation
regarding the nature of the Fourth Schedule would also have an impact on
the amended Section 11 when it is brought into force;
(viii) To determine if the term “sum in dispute” refers to both the claim and
counter-claim, it has to be considered whether a counter=claim can be
treated as an independent claim for which a legal proceeding may be
instituted. Section 23 of the Arbitration Act provides the basis on which a
counter-claim is to be adjudicated. Section 23 does not stipulate that the
counter-claim must be linked or related to the claim; rather it only states
that the counter-claim must come within the scope of the arbitration
agreement;
PART B
34
(ix) The independent nature of the counter-claim is recognised under Sections
38(1) and 38(2) of the Arbitration Act in the following terms, where the
arbitral tribunal is empowered to:
(a) Determine separate amount of deposits on a claim and counter-claim;
and
(b) Suspend or terminate the proceedings in respect of the claim or
counter-claim, in the event, the deposit directed to be paid by the
tribunal is not paid by the parties;
(x) Claims and counter-claims are treated separately under the analogous
provisions of Order VIII of the CPC ;
(xi) Proceedings relating to a counter -claim can survive even if the
proceedings relating to a claim are terminated;
(xii) Section 2(9) only provides that provisions of the Arbitration Act relating to
a claim would mutatis mutandis apply to a counter-claim. It is not a
definition clause but it is intended to apply to only procedural aspects. In
fact, it fortifies the argument that the “claim amount” under the Fourth
Schedule would mutatis mutandis apply to counter-claims and is not an
aggregate of claims and counter-claims;
(xiii) An arbitral tribunal is not restrained from deciding its fees under the
Fourth Schedule for claims and counter-claims separately;
(xiv) The Fourth Schedule does not explicitly state that the “ sum in dispute”
includes a counter-claim;
(xv) Until the amendment to Section 11 is notified, the court appointing
arbitrators should ensure that the parties are made aware of the terms on
PART B
35
which the appointment is made and specifically whether or not the Fourth
Schedule is applicable. The court should also ensure that the parties have
clarity on the fees and expenses payable to the arbitrator(s);
(xvi) This Court may recommend that either prior to or at the time of notifying
the amendments to Section 11, the rates specified in the Fourth Schedule
may be revised to reflect the rates that are realistic in present times;
(xvii) None of the provisions of the Arbitration Act entitle the arbitrators to fix
their own fees. The scheme of the Act indicates that the arbitral tribunal is
only empowered to apportion costs (including the arbitrators’ fee) incurred
during the arbitration as between the parties at the time of passing the
award;
(xviii) Remuneration of arbitrators is subject to direct negotiation and
agreement between the arbitrators and the parties and ought to be
determined at the inception of the proceedings. The fee that has been
agreed upon between the parties and the arbitrators is apportioned as a
part of the costs at the time when the award is passed. This view is
supported by the decision of this Court in Gayatri Jhansi Roadways Ltd
(supra), where it was observed that “…it is true that the arbitrator’s fees
may be a component of costs to be paid but it is a far cry thereafter to state
that section 31(8) and 31A would directly govern contracts in which a fee
structure has already been laid down”;
(xix) Section 39 of the Arbitration Act also empowers the arbitral tribunal to
only hold the award from the parties for any unpaid costs of arbitration.
PART B
36
These unpaid costs could include arbitrators’ fees previously agreed upon
between the parties and not paid;
(xx) Any deviation from the fees agreed between the parties and the
arbitrator(s) would require the consent of the parties. It would be
unreasonable and unfair to the parties if the arbitral tribunal is allowed to
alter its fees at a later stage of the arbitration proceedings. At an advanced
stage, parties may be apprehensive to disagree with the arbitral tribunal
and may agree to an unreasonable and arbitrary fee sought by it;
(xxi) The fee payable under the Fourth Schedule would be applicable to each
member of the arbitral tribunal. It cannot be considered as a lump sum to
be split among the members. The Note to the Fourth Schedule provides
that where the tribunal consists of a sole arbitrator, they would be entitled
to 25 per cent over and above the fee payable under the Fourth Schedule.
It would be absurd if the sole arbitrator would be entitled to 25 per cent
over and above the stipulated sum under the Fourth Schedule but in the
case of an arbitral tribunal consisting of three or more members, the entire
fee would have to split;
(xxii) Under Section 10 of the Arbitration Act, parties are free to determine the
number of arbitrators. If there is no agreement, then the default rule is of
appointing a sole arbitrator. Parties can always appoint a sole arbitrator,
but if there are unwilling to derogate from the agreement which provides
for appointment of three or more arbitrators, then they would have to bear
the costs accordingly;
PART B
37
(xxiii) The ceiling of Rs 30,00,000 in the Fourth Schedule is only applicable to
the sum of 0.5% of the claim amount over and above Rs 20 crores. The
expression “+” that appears after Rs 19,87,500 is disjunctive; and
(xxiv) The Fourth Schedule was introduced in English while the Hindi version
was the translation. Thus, precedence must be given to the English
version. A comma is not conclusive for determining the meaning of a
statutory provision.
38 Mr Ahmadi also urged the court to issue certain directives for governing ad
hoc arbitrations in India. These are reproduced below:
“1. In cases where the arbitrator(s) are appointed by
parties in the manner set out in the arbitration agreement,
upon constitution of the arbitral tribunal, the parties and the
arbitral tribunal shall hold a preliminary hearing amongst
themselves to finalise the terms of reference (the “Terms of
Reference”) of the arbitral tribunal. The arbitral tribunal must
set out the components of its fee in the Terms of Reference
which would serve as a tripartite agreement between the
parties and the arbitral tribunal. Once the Terms of Reference
have been finalised and issued, it would not be open for the
arbitral tribunal to vary either the fee fixed or the heads under
which the fee may be charged.
2. The parties and the arbitral tribunal may make a carve
out in the Terms of Reference that the fee fixed therein may
be analysed upon completion of pleadings. The parties and
the arbitral tribunal may hold another meeting to ascertain the
number of sittings that may be required for the final
adjudication of the dispute which number may then be
incorporated the Terms of Reference as an additional term.
3. In cases where the arbitrator(s) are appointed by the
Court, the order of the Court should ideally expressly stipulate
the fee that arbitral tribunal would be entitled to charge.
However, where the Court leaves this determination to the
arbitral tribunal in its appointment order, the arbitral tribunal
and the parties should agree upon the Terms of Reference as
specified in the manner set out in draft practice direction (1)
above.
PART C
38
4. There can be no unilateral deviation from the Terms
of Reference. The Terms of Reference being a tripartite
agreement between the parties and the arbitral tribunal, any
amendments, revisions, additions or modifications may only
be made to it with the consent of the parties.
5. All High Courts shall frame the rules for arbitrator fee
for the purposes of Section 11(14) of the Arbitration and
Conciliation Act, 1996.”
39 On the basis of these submissions, this Court has now been called to
determine the following issues in relation to the arbitrators’ fees:
(i) Whether the arbitrator(s) are entitled to unilaterally determine their own
fees;
(ii) Whether the term “sum in dispute” in the Fourth Schedule to the Arbitration
Act means the cumulative total of the amounts of the claim and counter -
claim;
(iii) Whether the ceiling of Rs 30,00,000 in the entry at Serial No 6 of the
Fourth Schedule of the Arbitration Act is applicable only to the variable
amount of the fee or the entire fee amount; and
(iv) Whether the ceiling of Rs 30,00,000 applies as a cumulative fee payable to
the arbitral tribunal or it represents the fee payable to each arbitrator.
C Determination of arbitrators’ fee
C.1 Comparative outlook
40 The issue whether the remuneration of arbitrators has to be decided by the
parties or by the arbitrator(s) on their own has not been exhaustively addressed
PART C
39
in India. People and businesses across the world have increasingly become
interconnected with the advent of globalisation. Hence, it will be useful to look at
the practices adopted by international organisations and in national jurisdictions
on the determination of arbitrators’ fees. We must at the outset distinguish
between arbitrations administered by institutions and ad hoc arbitrations.
Typically, when an arbitration is conducted under the aegis of an arbitral
institution, the fees payable to the arbitrators is fixed by the institution, sometimes
independently or in consultation with the sole or presiding arbitrator. The parties
are not involved in negotiations with the arbitrator(s) to decide the fees. However,
in ad hoc arbitrations, parties enter into their own arrangements with the
arbitrators regarding their remuneration
28
.
C.1.1 Position of international organisations
(i) United National Commission on International Trade
29
41 The UNCITRAL adopted a model law on International Commercial
Arbitration on 21 June 1985. It was hoped that states would give due
consideration to the model law while framing their own domestic legisla tion. The
Arbitration Act has also been enacted taking into account the UNCITRAL Model
Law. The Preamble to the Act states:
“WHEREAS the United Nations Commission on International
Trade Law (UNCITRAL) has adopted the UNCITRAL Model
Law on International commercial Arbitration in 1985:
28
Nigel Blackaby, Constantine Partasides, Alan Redfern and Martin Hunter, Redfern and Hunter on International
Arbitration (6th Edition, 2015), Chapter 4, Paragraph 4.203 (“Redfern and Hunter on International Arbitration”)
29
“UNCITRAL”
PART C
40
AND WHEREAS the General Assembly of the United Nations
has recommended that all countries give due consideration to
the said Model Law, in view of the desirability of uniformity of
the law of arbitral procedures and the specific needs of
international commercial arbitration practice;
AND WHEREAS the UNCITRAL has adopted the UNCITRAL
Conciliation Rules in 1980;
AND WHEREAS the General Assembly of the United Nations
has recommended the use of the said Rules in cases where a
dispute arises in the context of international commercial
relations and the parties seek an amicable settlement of that
dispute by recourse to conciliation;
AND WHEREAS the said Model Law and Rules make
significant contribution to the establishment of a unified legal
framework for the fair and efficient settlement of disputes
arising in international commercial relations;
AND WHEREAS it is expedient to make law respecting
arbitration and conciliation, taking into account the aforesaid
Model Law and Rules;
BE it enacted by Parliament in the forty-seventh Year of the
Republic of India as follows:-”
42 The UNCITRAL Model Law does not explicitly recognise the right of
remuneration of arbitrator(s). However, arbitrators must be compensated for their
services. This flows from the contractual relationship between the parties and the
arbitrator and customary practice
30
.
43 The original UNCITRAL Rules introduced in 1976 could be used to govern
ad hoc arbitrations as well as arbitrations where an arbitral institution was
involved. The 1976 Rules allowed the arbitrator(s) to determine their own fees,
which were to be reasonable taking into account the sum in dispute and the
complexity of the dispute
31
. The UNCITRAL rules also required the arbitrator(s) to
30
Gary B Born, International Commercial Arbitration (3
nd
edition, 2021), Chapter 13 (“Gary Born on
Arbitration”)
31
Article 38(a) read with Article 39(1), UNCITRAL Rules 1976
PART C
41
take into account the schedule of fees that has been issued or provided by an
appointing authority, if designated by the parties
32
. In the absence of such a fee
schedule, the arbitral tribunal could fix its fees only after consulting with the
appointing authority if a party has requested the appointing authority to furnish a
statement for determining the fees and the appointing authority has consented to
providing such a statement
33
. However, the appointing authority did not have the
power to alter the decision of the tribunal regarding remuneration payable to
arbitrators. The arbitrators had the final authority to determine their
remuneration
34
. Commentators have noted that this was an “unusual approach”
for establishing the fees of arbitrators and was subject to criticism because it
granted arbitrator(s) undue authority to determine their compensation
35
.
44 The UNCITRAL Rules were revised in 2010. The Rules continue to grant a
substantial role to the arbitrators in deciding their own fees but the appointing
authorities, if designated by the parties, or the Permanent Court of Arbitration
36
,
have greater control over such determination. Article 40(2)(a) read with Article 41
of the UNCITRAL Rules 2010 empowers the arbitral tribunal to fix their fees
subject to the same reasonableness requirement and the other criteria prescribed
under the 1976 Rules
37
. The arbitral tribunal is required to inform the parties as to
“how it proposes to determine its fees and expenses, including any rates it
intends to apply” promptly after its constitution
38
. It is noted that this makes the
32
Article 39(2)-(3), UNCITRAL Rules 1976
33
Article 39(3)-(4), UNCITRAL Rules 1976
34
D Caron and L Caplan, The UNCITRAL Arbitration Rules: A Commentary (2
nd
edition, 2013), page 863
35
Supra at note 30
36
“PCA”
37
Article 41(1) reads: “The fees and expenses of the arbitrators shall be reasonable in amount, taking into
account the amount in dispute, the complexity of the subject matter, the time spent by the arbitrators and any
other relevant circumstances of the case.”
38
Article 41(3), UNCITRAL Rules 2010
PART C
42
process of determining fees more transparent
39
. The fees set by the arbitrators
can be reviewed they are not reasonable. Under Articles 41(3)
40
and 41(4)(b)
41
of
the UNCITRAL Rules 2010, within 15 days of receiving the arbitral tribunal’s
determination of fees, the parties can refer the fees determined by the arbitral
tribunal to the appointing authority for review and if no such authority has been
designated, then the review will be undertaken by the Secretary-General of the
PCA. If the Secretary-General of the PCA or the appointing authority (if
designated) finds that the fee proposed to be charged is excessive, then it can
make necessary adjustments in terms of Article 41(4)(c)
42
. The fees so revised
are binding on the tribunal
43
.
(ii) Permanent Court of Arbitration
45 The PCA Rules have been formulated on the basis of the UNCITRAL
Rules 2010. A mandatory automatic review of the fees and expenses determined
by the arbitral tribunal is carried out by Secretary General of the PCA (as the
appointing authority under the PCA Rules) at the conclusion of each case
44
. The
process of review of fees set by the arbitral tribunal is not automatic under the
39
Supra at note 34
40
Article 41(3) reads: “Within 15 days of receiving that proposal, any party may refer the proposal to the
appointing authority for review. If, within 45 days of receipt of such a referral, the appointing authority finds that
the proposal of the arbitral tribunal is inconsistent with paragraph 1, it shall make any necessary adjustments
thereto, which shall be binding upon the arbitral tribunal.”
41
Article 41(4)(b) reads: “Within 15 days of receiving the arbitral tribunal’s determination of fees and expenses,
any party may refer for review such determination to the appointing authority. If no appointing authority has been
agreed upon or designated, or if the appointing authority fails to act within the time specified in these Rules, then
the review shall be made by the Secretary -General of the PCA;”
42
Article 41(4)(c) reads: “If the appointing authority or the Secretary-General of the PCA finds that the arbitral
tribunal’s determination is inconsistent with the arbitral tribunal’s proposal (and any adjustment thereto) under
paragraph 3 or is otherwise manifestly excessive, it shall, within 45 days of receiving such a referral, make any
adjustments to the arbitral tribunal’s determination that are necessary to satisfy the criteria in paragraph 1. Any
such adjustments shall be binding upon the arbitral tribunal;”
43
Articles 41(3), UNCITRAL Rules 2010
44
Article 41(3)(a), PCA Rules 2010
PART C
43
UNCITRAL Rules 2010. Parties may hesitate to invoke the provisions of review in
the fear of upsetting the tribunal or they may raise unjustified requests for review
if they are dissatisfied with the award. The PCA Rules avoid these pitfalls. The
PCA is also empowered to manage the advances of costs incurred by the
arbitrators. Every time a payment is made to an arbitrator out of the deposit, it is
subject to review
45
. The PCA rules become relevant since India has signed a
Host Country Agreement with the PCA and a PCA facility is in the process of
being set up in India.
(iii) London Court of International Arbitration
46
46 The LCIA’s Schedule of Costs of arbitrations governs the fees payable to
the arbitrator(s). The arbitral tribunal is required to agree in writing to the rates
specified in the schedule. The tribunal’s fees are calculated on the basis of the
work done by the arbitrator(s) in connection with the arbitration, the complexity of
the case and requirements relating to the qualification of the arbitrator(s). The
fees are charged on an hourly basis not exceeding £500 unless there are
exceptional circumstances
47
. The role of the arbitrator(s) thus is limited to
reporting the hours worked which forms the basis of the fees to be paid.
45
Article 43 of the PCA Rules reads: “[t]he [PCA] shall ensure that any disbursements of arbitral tribunal fees and
expenses made prior to the fixing of the costs of arbitration pursuant to article 40 are consistent with the criteria in
article 41, paragraph 1 and with the arbitral tribunal’s proposal (and any adjustments thereto)…”
46
“LCIA”
47
Schedule of Arbitration Fees and Costs, LCIA Rules 2020
PART C
44
(iv) International Centre for Dispute Resolution
48
47 The ICDR case administrator fixes the daily or hourly rate for
arbitrator(s)
49
. The determination of fees may involve an element of negotiation
between the parties and the arbitrator(s)
50
. Article 38 of the ICDR Rules 2021
provides that the “[t]he fees and expenses of the arbitrators shall be reasonable
in amount, taking into account the time spent by the arbitrators, the size and
complexity of the case, and any other relevant circumstances”.
(v) International Chamber of Commerce
51
48 The ICC Rules 2021 stipulate that the ICC Court will determine the
arbitrators’ fee
52
according to the fee scale based on the sum in dispute, or where
the sum is not stated, based on its discretion
53
. The ICC Court while setting the
fees of the arbitrator(s) has to consider various factors like “the diligence and
efficiency of the arbitrator, the time spent, the rapidity of the proceedings, the
complexity of the dispute and the timeliness of the submission of the draft
award”
54
. The ICC Court is empowered to increase the fees if the arbitration has
48
“ICDR”
49
Article 38(2), ICDR Rules 2021
50
Article 38(2) of ICDR Rules 2021 provides: “As soon as practicable after the commencement of the arbitration,
the Administrator shall designate an appropriate daily or hourly rate of compensation in consultation with the
parties and all arbitrators, taking into account the arbitrators’ stated rate of compensation and the size and
complexity of the case”.
51
“ICC”
52
Article 38(1) of the ICC Rules 2021 provides: “The costs of the arbitration shall include the fees and expenses
of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scale in force at
the time of the commencement of the arbitration, as well as the fees and expenses of any experts appointed by
the arbitral tribunal and the reasonable legal and other costs incurred by the parties for the arbitration.” Article
38(2) provides: “The Court may fix the fees of the arbitrators at a figure higher or lower than that which would
result from the application of the relevant scale should this be deemed necessary due to the exceptional
circumstances of the case”.
53
Articles 2(1), Appendix III (Arbitration Costs and Fees), ICC Rules 2021
54
Article 2(2), Appendix III (Arbitration Costs and Fees), ICC Rules 2021
PART C
45
been conducted expeditiously and reduce the fees if there has been a delay in
pronouncing the award
55
.
(vi) Singapore International Arbitration Centre
56
49 The fees are fixed by the Registrar in accordance with the Schedule of
Fees on basis of the amount in dispute
57
. The time spent on the matter and the
complexity of the dispute are considered for the determination of fees
58
. The
parties have the discretion to provide an alternative method of determining the
fees prior to the constitution of the arbitral tribunal
59
.
(vii) Hong Kong International Arbitration Centre
60
50 The parties determine the arbitrators’ fees based on either the sum in
dispute or at an hourly rate
61
. If the fees are decided based on the sum in
dispute, then the fees will be fixed on the basis of the guidelines and fee table
55
Paragraphs 118- 22, Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration Under the ICC
Rules of Arbitration (2019)
56
“SIAC”
57
Rule 36(1) of SIAC Rules 2016 provides: The fees of the Tribunal shall be fixed by the Registrar in accordance
with the applicable Schedule of Fees or, if applicable, with the method agreed by the parties pursuant to Rule
34.1, and the stage of the proceedings at which the arbitration concluded. In exceptional circumstances, the
Registrar may determine that an additional fee over that prescribed in the applicable Schedule of Fees shall be
paid”.
58
Supra at note 30
59
Rule 34(1) of SIAC Rules 2016 provides: “The Tribunal’s fees and SIAC’s fees shall be ascertained in
accordance with the Schedule of Fees in force at the time of commencement of the arbitration. The parties may
agree to alternative methods of determining the Tribunal’s fees prior to the constitution of the Tribunal” .
60
“HKIAC”
61
Article 10.1 of HKIAC Rules 2018 provides: “The fees and expenses of the arbitral tribunal shall be determined
according to either:
(a) an hourly rate in accordance with Schedule 2; or
(b) the schedule of fees based on the sum in dispute in accordance with Schedule 3.
The parties shall agree the method for determining the fees and expenses of the arbitral tribunal, and shall inform
HKIAC of the applicable method within 30 days of the date on which the Respondent receives the Notice of
Arbitration. If the parties fail to agree on the applicable method, the arbitral tribunal's fees and expenses shall be
determined in accordance with Schedule 2”.
PART C
46
provided in the Rules. If the fees are to be determined at hourly rates, then a co-
arbitrator will negotiate and agree on their f ees with the nominating party, and a
sole or presiding arbitrator will negotiate with parties jointly
62
.
(viii) International Centre for Settlement of Investment Disputes
63
51 The Secretary General, with the approval of the Chair (Chairman of the
Administrative Council), would determine and publish the fee and per diem
allowance payable to each arbitrator(s) in terms of the Regulation 14 of the ICSID
Administrative and Financial Regulations 2022
64
. The older 2006 version of the
Regulations allowed the parties to contract out of the fee structure prescribed by
ICSID
65
.
(ix) Summary
52 Typically, when an arbitration is conducted under the auspices of an
arbitral institution, the fees payable to the arbitrator(s) are fixed by the institution
62
Article 10.2 of HKIAC Rules 2018 provides: “Where the fees of the arbitral tribunal are to be determined in
accordance with Schedule 2,
(a) the applicable rate for each co-arbitrator shall be the rate agreed between that co- arbitrator and the
designating party;
(b) the applicable rate for a sole or presiding arbitrator designated by the parties or the co-arbitrators, as
applicable, shall be the rate agreed between that arbitrator and the parties, subject to paragraphs 9.3 to 9.5 of
Schedule 2. Where the rate of an arbitrator is not agreed in accordance with Article 10.2(a) or (b), or where
HKIAC appoints an arbitrator, HKIAC shall determine the rate of that arbitrator”.
63
“ICSID”
64
Regulation 14 (2) states: “The Secretary-General, with the approval of the Chair, shall determine and publish
the amount of the fee and the per diem allowance referred to in paragraph (1)(a) and (c). Any request by a
member for a higher amount shall be made in writing through the Secretary-General, and not directly to the
parties. Such a request must be made before the constitution of the Commission, Tribunal or Committee and
shall justify the increase requested”.
65
Regulation 14 states: “(1) Unless otherwise agreed pursuant to Article 60(2) of the Convention, and in addition
to receiving reimbursement for any direct expenses reasonably incurred, each member of a Commission, a
Tribunal or an ad hoc Committee appointed from the Panel of Arbitrators pursuant to Article 52(3) of the
Convention (hereinafter referred to as “Committee”) shall receive…”
PART C
47
itself. However, some arbitral institutions like ICDR, SIAC and HKIAC allow a
certain level of negotiations between the parties and arbitrator(s) for the
determination of fees payable to the arbitrators, upholding the principle of party
autonomy. ICDR allows determination of compensation by the Administrator in
consultation with the arbitrator(s) and the parties. SIAC allows the parties to
propose an alternative method of calculating fees prior to the constitution of the
tribunal. HKIAC enables the parties to choose between remuneration based on
the sum in dispute or hourly rates. Interestingly, UNCITRAL Rules 2013 allow
greater control to the arbitrator(s) in determining their fees. However, the
designated appointing authority or the Secretary General of the PCA can make
adjustments to the fees proposed by the arbitrator(s). Thus, none of the
international bodies (including arbitral institutions) confer an absolute or unilateral
power to the arbitrator(s) to decide their own fees. G ary Born in his treatise on
international commercial arbitration has noted that, “[a] number of other
institutional rules also minimize the role of arbitrators in fixing the tribunal’s fees.
These rules typically fix the amount of the arbitrator’s fees by reference to the
amount in dispute”
66
.
C.1.2 Position in other national jurisdictions
53 While it will not be possible to undertake a comprehensive review of all the
foreign jurisdictions in respect of the legal regime governing the payment of
remuneration to arbitrators, we have discussed a few jurisdictions that either
66
Supra at note 30
PART C
48
have explicitly recognised an arbitrators’ entitlement to remuneration and/or have
dealt with the issue of arbitrators’ power of fixing their own remuneration.
(i) England
54 The English courts have held that the arbitrator’s rights and duties result
from a conjunction of contract and status
67
. Upon accepting the appointment, the
arbitrator becomes a party to the arbitration agreement, giving rise to a trilateral
contract between the parties and the arbitrator
68
. However, the English courts
acknowledge that certain aspects of the relationship between the arbitrator and
parties are also influenced by the quasi-judicial status of the arbitrator, which
requires the arbitrator to be independent of the parties
69
.
55 Section 28 of the English Arbitration Act 1996
70
recognises the entitlement
of an arbitrator to remuneration. This is a mandatory provision which cannot be
derogated from
71
. Section 28(1) codifies the common law position
72
that parties
are jointly and severally liable to pay reasonable fees and expenses to the
arbitrator(s) as is appropriate in the circumstances. In terms of Section 28(5), the
arbitrator(s) are entitled to be paid the fees and expenses agreed by them with
the parties
73
. However, if there is no such agreement, the arbitral tribunal can
67
KS Norjarl AS v. Hyundai Heavy Indus. Co., [1992] 1 QB 863, 884
68
Compagnie Européenne de Céréales SA v. Tradax Exp. SA, [1986] 2 Lloyd’s Rep. 301 (QB)
69
Jivraj v. Hashwani, [2011] UKSC 40
70
“English Arbitration Act”
71
Section 4(1) and Schedule 1 of the English Arbitration Act
72
Loukas A Mistelis (ed), Concise International Arbitration (2
nd
edition, 2015), Chapter 23 (“Mistelis on
Arbitration”)
73
Section 28(5) provides: “Nothing in this section affects any liability of a party to any other party to pay all or any
of the costs of the arbitration (see sections 59 to 65) or any contractual right of an arbitrator to payment of his
fees and expenses.”
PART C
49
seek payment of such fees and expenses from one, some or all the parties
74
. The
parties’ liability to pay fees and expenses may be determined by courts. The
court may consider factors like the standard fee s of the arbitrator(s), the time
invested, complexity of the dispute, and whether the procedures adopted by the
tribunal were suitable
75
.Section 33(1)(b) stipulates that it is the duty of the arbitral
tribunal to adopt procedures that are suitable to the circumstances of the case
and to avoid unnecessary delays or expenses, to provide a fair means for the
resolution of the dispute. The court is also entitled to review the fees
76
determined by the arbitrator(s) or arbitral institution, which has not been
contractually agreed to by the parties
77
. However, if the agreement with an
arbitrator(s) or an arbitral institution is not clear regarding the terms of the
payment , the court can intervene to review the fees, in order to examine if they
are reasonable
78
. It is also important to note that where only one party has
agreed to the fees and the fees have been held to be unreasonable, then the
other party is only jointly and severally liable to pay the amount that the court has
determined to be reasonable, but the first party may be liable contractually to pay
the contractually agreed amount
79
.
74
Supra at note 72
75
ibid
76
Section 28(2) provides: “Any party may apply to the court (upon notice to the other parties and to the
arbitrators) which may order that the amount of the arbitrators’ fees and expenses shall be considered and
adjusted by such means and upon such terms as it may direct.”
77
Hussmann (Europe) Ltd v. Al Ameen Development & Trade, [2000] 2 Lloyd's Rep. 83. Queen’s Bench
Division (Commercial Court)), paragraphs 71- 72
78
ibid
79
Supra at note 72
PART C
50
(ii) Italy
56 Article 814 of the Italian Code of Civil Procedure provides that the
arbitrators have a right to expenses and the fees for the work done, unless they
have waived this right at the time of acceptance or through a subsequent written
statement. Article 814 also provides that the parties are jointly and severally liable
for paying the fees and expenses of the arbitral proceedings, irrespective of how
the arbitration costs are apportioned between them. If one party has made all the
payments of the fees and expenses payable to the arbitrator(s), they are entitled
to recover this amount from the other party subject to the limits set out in the
award.
57 Article 814 also recognises that arbitrator(s) determine their own fees in
the award and allocate the responsibility of the payment of such fees. However,
such a determination is not binding unless the parties approve the fees proposed
by the arbitrator(s). If the fees have not been paid, the arbitrator(s) can approach
the President of the court in the district where the arbitration is seated for the
determination of the fees. This order is enforceable against the parties
80
. The
schedule of fees is provided in the Ministerial Decree issued by the Italian
Ministry of Justice for domestic ad hoc arbitrations
81
.
80
CMS Expert Guides, “International Arbitration Law and Rules in Italy ”, available at
<https://cms.law/en/int/expert- guides/cms-expert-guide-to -international-arbitration/italy> accessed on 29 June
2022; See also, Italian Code of Civil Procedure, available at <https://www.international-arbitration-
attorney.com/wp-content/uploads/2013/07/Italy -Arbitration-Law.pdf> accessed on 29 June 2022
81
Cecilia Carrara, Stefano Parlatore, Daniele Geronzi et.al, Arbitration Procedures and Practice in Italy, available
at <https://uk.practicallaw.thomsonreuters.com/6-383 -
9187?transitionType=Default&contextData=(sc.Default)&firstPage=true#co_anchor_a719112> accessed on 29
June 2022
PART C
51
(iii) Sweden
58 The arbitral tribunal is empowered to set its own fees unless there is an
agreement between the parties
82
. Section 37(1) of the Swedish Arbitration Act
83
provides that the parties are jointly and severally liable to pay reasonable
compensation to the arbitrator(s) for work and expenses. The Swedish Supreme
Court has interpreted the words “reasonable compensation” to mean an
assessment of time spent by the arbitrator (s) and the qualification of the
arbitrator(s)
84
. The Swedish Supreme Court has also noted that a
disproportionately high cost of arbitration compared to the value of sum in dispute
does not necessarily require a reduction in the compensation
85
.
59 Section 37 of the Swedish Arbitration Act is applicable “unless otherwise
jointly decided by the parties in a manner that is binding upon the arbitrators”.
Commentators have thus noted that Section 37 is non -mandatory and can be
altered or waived off by the parties
86
. However, it is understood that if the
arbitrator(s) are not parties to an agreement with respect to their compensation, it
becomes binding on the arbitrator(s) only if they are aware and understand the
agreement when they accept the appointment
87
. Section 39 of the Swedish
Arbitration Act further provides that an agreement regarding compensation to the
arbitrator(s) which is not entered jointly by the parties is void.
82
Annette Magnusson, Jakob Ragnwaldh and Martin Wallin (eds), International Arbitration in Sweden: A
Practitioner's Guide (2
nd
edition, 2021), Chapter 9
83
The Swedish Arbitration Act (SFS 1999:116), available at <https://sccinstitute.se/media/1773096/the-swedish -
arbitration- act_1march2019_eng-2.pdf > accessed on 29 June 2022
84
Supra at note 82
85
NEMU Mitt i Sverige AB v. Jan H, Gunnar B and Bo N (the arbitrators), the Supreme Court, 22 October
1998, NJA 1998 p. 574 (T 105-98)
86
Supra at note 82
87
ibid
PART C
52
60 Section 41 enables a party or an arbitrator to file an application before the
District Court regarding the amendment of the award with respect to the payment
of compensation to the arbitrator(s). The District Court is empowered to reduce
the compensation of the arbitrator(s). The national courts also have the power to
revise the fees set by arbitral institutions, if the seat of the arbitration is in
Sweden
88
. This is an unusual exception since typically rules of arbitral institutions
setting the fees are never subject to judicial review
89
.
(iv) Germany
61 The German arbitration law is governed by the Tenth Book of the Code of
Civil Procedure (Zivilprozessordnung)
90
. In the absence of an agreement in ad
hoc arbitrations, the ZPO does not contain any provision regulating the fees
payable to arbitrator(s). Fees are then to be charged in terms of the rules of the
German Civil Code (Bürgerliches Gesetzbuch)
91
depending on whether the
contract between the parties is to be classified as a service contract or contract
for work. The provisions of the BGB provide that remuneration for such contracts
is deemed to be the fees of the arbitrator(s) in absence of an agreement between
the parties
92
.
62 However, in Germany, the arbitrator(s) are prohibited from determining
their own fees in the absence of an agreement under the doctrine of prohibition of
88
Soyak Int’l Constr. & Inv. Inc. v. Hobér, Kraus & Melis, Case No. O 4227-06 (Swedish S.Ct. 2008)
89
Supra at note 30
90
“ZPO”
91
“BGB”
92
K. Bockstiegel, Stefan Kröll and Patricia Nacimiento (eds), Arbitration in Germany: The Model Law in Practice
(2
nd
edition, 2015), Chapter VI
PART C
53
in rem suam decisions, i.e., arbitrators cannot be a judge of their own cause
93
.
Earlier, even a decision regarding the sum in dispute by the arbitral tribunal was
seen as indirectly determining the amount of fees when fees are calculated as a
percentage of the amount at stake and thus, was considered to be a violation of
the above doctrine
94
. However, recently, the Federal Court of Justice
(Bundesgerichtshof)
95
held that a decision of the tribunal regarding the sum in
dispute, even if it influences the fees payable to the arbitrator(s), does not violate
the doctrine of prohibition of in rem suam decisions
96
. The BGH observed that
since the ZPO obligates the arbitral tribunal to render a determination on costs,
which often includes a determination regarding the sum in dispute, such a
determination, even if it indirectly includes a decision on the fees, would not
become a decision in rem suam
97
. The BGH further noted that while a
determination of the sum in dispute only binds the parties, it is not actually a
decision in rem suam from the arbitrators’ perspective
98
. In any event, an indirect
determination by the arbitrator(s) as to their own fees only forms the basis of an
arbitrator’s claim against a party and can be enforced only through court action if
the party fails to pay the amount. In terms of the BGB, the courts can review such
a claim to decide if it’s equitable. Thus, the arbitrator(s) cannot determine their
fees arbitrarily
99
.
93
ibid
94
ibid
95
“BGH”
96
BGH 28.03.2012, SchiedsVZ 2012, 154 cited in supra at note 30; See also, supra at note 92
97
ibid
98
ibid
99
ibid
PART C
54
(v) Japan
63 Under Article 47(1) of the Japanese Arbitration Law
100
, the fees payable to
the arbitrator(s) are to be governed by the agreement between the parties. If
there is no agreement, then in terms of Article 47(2), the arbitral tribunal has the
power to determine the remuneration of the arbitrator(s). In such cases, the
remuneration has to be of an appropriate amount.
(vi) Singapore
64 Section 40(1) of the Arbitration Act 2001
101
provides that the parties are
jointly and severally liable to pay reasonable fees and expenses to the
arbitrator(s) that are appropriate to the circumstances. Section 40(2) provides
that in the absence of a written agreement between the parties as to the fees
payable to the arbitrator(s), any party can approach the Registrar of the Supreme
Court within the meaning of the Supreme Court of Judicature Act 1969 for the
assessment of fees. While Section 41(1) of the Singapore Arbitration Act
empowers the arbitral tribunal to refuse to deliver an award if the parties have not
made full payment of their fees and expenses, Section 41(2) allows a party to
apply to the court to review the fees
102
. This has been understood as the right of
the parties to challenge unreasonable fees
103
.
100
Law No 138 of 2003, available at < https://japan.kantei.go.jp/policy/sihou/arbitrationlaw.pdf> accessed on 29
June 2022
101
Available at
<https://sso.agc.gov.sg/Act/AA2001#:~:text=1.,is%20the%20Arbitration%20Act%202001.&text=the%20arbitral%
20tribunal%20as%20authorised,and%20all%20the%20relevant%20circumstances> accessed on 29 June 2022
(“Singapore Arbitration Act”)
102
Section 41(2) reads: “(2) Where subsection (1) applies, a party to the arbitral proceedings may, upon notice to
the other parties and the arbitral tribunal, apply to the Court, which may order that —
PART C
55
(vii) United States
65 The United States Federal Arbitration Act 1925
104
does not explicitly make
a reference to the rights or duties of the arbitrator(s). The Uniform Arbitration Act,
enacted in 1955, is also of relevance. It functions as a model arbitration statute to
enable each state to adopt a uniform arbitration law. It was revised in 2000.
Section 21(d) of the revised version of the Act provides that “an arbitrator’s
expenses and fees, together with other expenses, must be paid as provided in
the award.” The comment to this Section under the Act provides that “Section
21(d)… allows arbitrators, unless the agreement provides to the contrary, to
determine in the award payment of expenses, including the arbitrator’s expenses
and fees”
105
. In the United States, it has been held that it is a violation of public
policy if the arbitrator(s) attempt to renegotiate the fees at a later stage once they
are appointed, owing to the concern that the parties may be compelled to accede
to the demand fearing adverse consequences
106
.
(a) the arbitral tribunal must deliver the award upon payment into Court by the applicant of the fees and
expenses demanded, or any lesser amount that the Court may specify;
(b) the amount of the fees and expenses demanded are to be assessed by the Registrar of the Supreme
Court; and
(c) out of the money paid into Court, the arbitral tribunal must be paid the fees and expenses that may be
found to be properly payable and the balance of the money (if any) must be paid out to the applicant”.
103
Bernard Hanotiau and Alexis Mourre (eds), Players Interaction in International Arbitration (ICC, 2012),
Chapter 12
104
“FAA”
105
Uniform Arbitration Act (Last Revisions Completed Year 2000), available at
<https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=8fff228f-
9517-f310-36a1- 989efa4a826e&forceDialog=0> accessed on 29 June 2022
106
Double-M Construction Corp. v. Central School District No 1 Town of Highlands Orange County, (1978)
402 NYS 2d 442 cited in Jeffrey Waincymer, Procedure and Evidence in International Arbitration (Walters Kluwer,
2012)
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56
(viii) Summary
66 Although there are jurisdictional differences, the following broad principles
emerge from our discussion above:
(i) Typically, the fees payable to arbitrator(s) are determined through an
agreement between the parties (of which the arbitrator(s) become aware of
when they take up the assignment) or a separate agreement of the parties
with the arbitrator (s). The arbitrator (s) then become bound by such
contractually agreed fees; and
(ii) Certain arbitration legislations give the arbitrator(s) effective power to
determine their own fees, typically when there is an absence of agreement
between the parties on the subject. However, such determination of fees is
subject to review by the courts who can reduce the fees if they are not
reasonable.
67 Thus, arbitrator(s) do not possess an absolute or unilateral power to
determine their own fees. Parties are involved in determining the fees of the
arbitrator(s) in some form. It could be by: (i) determining the fees at the threshold
in the arbitration agreement; or (ii) negotiating with the arbitrators when the
dispute arises regarding the fees that are payable; or (iii) by challenging the fees
determined by the tribunal before a court.
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C.2 Statutory scheme on payment of fees to arbitrators in India
C.2.1 Party autonomy
68 Party autonomy is a cardinal principle of arbitration. The arbitration
agreement constitutes the foundation of the arbitral process. The arbitral tribunal
is required to conduct the arbitration according to the procedure agreed by the
parties. The procedure may stipulate adherence to institutional rules or ad hoc
rules or a combination of both. Redfern and Hunter on International
Commercial Arbitration (supra) compares arbitration to a ship, highlighting the
extent of control parties exercise over arbitral proceedings:
“In some respects, an international arbitration is like a ship.
An arbitration may be said to be ‘owned’ by the parties, just
as a ship is owned by shipowners. But the ship is under the
day-to-day command of the captain, to whom the owners
hand control. The owners may dismiss the captain if they
wish and hire a replacement, but there will always be
someone on board who is in command (5) —and, behind the
captain, there will always be someone with ultimate control.”
The leading treatise on international commercial arbitration further notes that the
principle of party autonomy is entrenched in the international and national
regimes on arbitration:
“Party autonomy is the guiding principle in determining the
procedure to be followed in an international arbitration. It is a
principle that is endorsed not only in national laws, but also by
international arbitral institutions worldwide, as well as by
international instruments such as the New York Convention
and the Model Law. The legislative history of the Model Law
shows that the principle was adopted without
opposition, (7) and Article 19(1) of the Model Law itself
provides that: ‘Subject to the provisions of this Law, the
parties are free to agree on the procedure to be followed by
the arbitral tribunal in conducting the proceedings.’ This
principle follows Article 2 of the 1923 Geneva Protocol, which
provides that ‘[t]he arbitral procedure, including the
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constitution of the arbitral tribunal, shall be governed by the
will of the parties …’, and Article V(1)(d) of the New York
Convention, under which recognition and enforcement of a
foreign arbitral award may be refused if ‘the arbitral procedure
was not in accordance with the agreement of the parties’.”
69 The Arbitration Act recognises the principle of party autonomy in various
provisions. It allows the parties to derogate from the provisions of the Act on
certain matters. Several provisions of the Arbitration Act explicitly embody the
principle of party autonomy. Section 2(6)
107
of the Arbitration Act provides that
parties have the freedom to authorise any person, including an arbitral institution,
to determine the issue between them. Section 19(2)
108
provides that the parties
are free to choose the procedure to be followed for the conduct of arbitral
proceedings. Section 11(2)
109
provides that parties are free to decide on the
procedure for the appointment of arbitrators. In Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services
110
, this Court observed that party autonomy is
the “brooding and guiding spirit” of arbitration. In Centrotrade Minerals & Metal
Inc. v. Hindustan Copper Ltd
111
, this Court referred to party autonomy as the
backbone of arbitration.
70 Having spelt out party autonomy as the cardinal principle of arbitration in
India, in the sections which follow we analyse how provisions relating to the
payment of fees to arbitrators have to be interpreted in light of this principle.
107
Section 2 (6) of the Arbitration Act states: “Where this Part, except section 28, leaves the parties free to
determine a certain issue, that freedom shall include the right of the parties to authorise any person including an
institution, to determine that issue”.
108
Section 19(2) of the Arbitration Act states: “Subject to this Part, the parties are free to agree on the procedure
to be followed by the arbitral tribunal in conducting its proceedings”.
109
Section 11(2) of the Arbitration Act states: “Subject to sub-section (6), the parties are free to agree on a
procedure for appointing the arbitrator or arbitrators”.
110
(2016) 4 SCC 126, paragraph 5
111
(2017) 2 SCC 228, paragraph 38
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C.2.2 Fourth Schedule and regulation of arbitrators’ fees
71 Appointment of arbitrator(s) in India may take place either through an
agreement between parties or by taking recourse to courts under Sections 11(3)
and 11(6) of the Arbitration Act. Prior to the amendment of the Arbitration Act by
the Arbitration Amendment Act 2015, a practice emerged, especially in cases of
ad hoc arbitrations, where arbitrators would unilaterally, and in some cases
arbitrarily, fix excessive fees for themselves. In Singh Builders (supra), this
Court noted that such arbitrary fixation of fees by the arbitrators, specifically
court-appointed arbitrators, has made arbitration an expensive proposition,
bringing it into disrepute. The Court suggested some possible solutions. This
Court observed:
“22. When an arbitrator is appointed by a court without
indicating fees, either both parties or at least one party is at a
disadvantage. Firstly, the parties feel constrained to agree to
whatever fees is suggested by the arbitrator, even if it is high
or beyond their capacity. Secondly, if a high fee is claimed by
the arbitrator and one party agrees to pay such fee, the other
party, which is unable to afford such fee or reluctant to pay
such high fee, is put to an embarrassing position. He will not
be in a position to express his reservation or objection to the
high fee, owing to an apprehension that refusal by him to
agree for the fee suggested by the arbitrator, may prejudice
his case or create a bias in favour of the other party which
readily agreed to pay the high fee.
23. It is necessary to find an urgent solution for this problem
to save arbitration from the arbitration cost. Institutional
arbitration has provided a solution as the arbitrators' fees is
not fixed by the arbitrators themselves on case- to-case basis,
but is governed by a uniform rate prescribed by the institution
under whose aegis the arbitration is held. Another solution is
for the court to fix the fees at the time of appointing the
arbitrator, with the consent of parties, if necessary in
consultation with the arbitrator concerned. Third is for the
retired Judges offering to serve as arbitrators, to indicate their
fee structure to the Registry of the respective High Court so
that the parties will have the choice of selecting an arbitrator
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whose fees are in their “range” having regard to the stakes
involved.
24. What is found to be objectionable is parties being forced
to go to an arbitrator appointed by the court and then being
forced to agree for a fee fixed by such arbitrator. It is
unfortunate that delays, high costs, frequent and sometimes
unwarranted judicial interruptions at different stages are
seriously hampering the growth of arbitration as an effective
dispute resolution process. Delay and high costs are two
areas where the arbitrators by self-regulation can bring about
marked improvement.”
72 In Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust and Ors.
112
,
this Court in a similar vein observed that arbitrators in ad hoc arbitrations in India
are charging disproportionately high fees. While interpreting Section 11 of the
Arbitration Act, this Court held that the word “appointment” does not merely refer
to nominating or designating a person to act as an arbitrator, but it includes the
court’s power to stipulate the fees that can be charged by an arbitrator appointed
by the court. The fees should be stipulated after hearing the parties and, if
required, after ascertaining the fees structure from prospective arbitrators. This
will avoid a situation where parties have to negotiate the terms of the fees of the
arbitrators, after their appointment. Referring to Singh Builders (supra), this
Court acknowledged the increased complaints against disproportionate fees
being charged by the arbitrators and made certain suggestions for the healthy
development of arbitration in India. One such remedy suggested by this Court
was disclosure of the fee structure prior to the appointment of arbitrators to
enable any party to express their unwillingness to bear such expenses . This
Court observed thus:
112
(2012) 1 SCC 455
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61
“41. There is a general feeling among the consumers of
arbitration (parties settling disputes by arbitration) that ad hoc
arbitrations in India—either international or domestic, are time
consuming and disproportionately expensive. Frequent
complaints are made about two sessions in a day being
treated as two hearings for the purpose of charging fee; or
about a session of two hours being treated as full session for
purposes of fee; or about non- productive sittings being
treated as fully chargeable hearings. It is pointed out that if
there is an Arbitral Tribunal with three arbitrators and if the
arbitrators are from different cities and the arbitrations are to
be held and the arbitrators are accommodated in five star
hotels, the cost per hearing (arbitrator's fee, lawyer's fee, cost
of travel, cost of accommodation, etc.) may easily run into
rupees one million to one- and-half million per sitting. Where
the stakes are very high, that kind of expenditure is not
commented upon. But if the number of hearings become too
many, the cost factor and efficiency/effectiveness factor is
commented. That is why this Court in Singh Builders
Syndicate [(2009) 4 SCC 523 : (2009) 2 SCC (Civ) 246]
observed that the arbitration will have to be saved from the
arbitration cost.
42. Though what is stated above about arbitrations in India,
may appear rather harsh, or as a universalisation of stray
aberrations, we have ventured to refer to these aspects in the
interest of ensuring that arbitration survives in India as an
effective alternative forum for disputes resolution in India.
Examples are not wanting where arbitrations are being shifted
to neighbouring Singapore, Kuala Lumpur, etc. on the ground
that more professionalised or institutionalised arbitrations,
which get concluded expeditiously at a lesser cost, are
available there. The remedy for healthy development of
arbitration in India is to disclose the fees structure before the
appointment of arbitrators so that any party who is unwilling to
bear such expenses can express his unwillingness. Another
remedy is institutional arbitration where the arbitrator's fee is
prefixed. The third is for each High Court to have a scale of
arbitrator's fee suitably calibrated with reference to the
amount involved in the dispute. This will also avoid different
designates prescribing different fee structures. By these
methods, there may be a reasonable check on the fees and
the cost of arbitration, thereby making arbitration, both
national and international, attractive to the litigant
public. Reasonableness and certainty about total costs are
the key to the development of arbitration. Be that as it may.”
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73 It was in the above context that the LCI 246
th
Report (supra) proposed
reforms for regulating arbitrators’ fees in ad hoc arbitrations. The Commission
recommended that a model schedule of fees should be inserted into the
Arbitration Act, which was to serve as a guide for High Courts to frame their own
rules governing the fixation of arbitrators’ fees. The Commission accepted that
different values and standard of fees may be adopted in international commercial
arbitrations, which led to the exclusion of the applicability of the Fourth Schedule
to the Arbitration Act to international commercial arbitrations. The Commission
adversely commented on the practice of charging fees on “per sitting” basis in ad
hoc arbitrations where sometimes there are 2- 3 sittings in a day in the same
matter between the same parties. The Commission also noted that costs are
further increased by continuation of proceedings for years since dates are given
with significant gaps, resulting in the denial of timely delivery of justice to the
aggrieved party.
74 The Arbitration Amendment Act 2015 introduced the Fourth Schedule to
the Arbitration Act as a model schedule of fees in terms of the recommendations
of the LCI 246
th
Report (supra). The Fourth Schedule came into effect on 23
October 2015. Section 11 of the Arbitration Act was also accordingly amended to
add sub-Section (14) to Section 11, which reads as follows:
“Section 11. Appointment of arbitrators
[…]
(14) For the purpose of determination of the fees of the
arbitral tribunal and the manner of its payment to the arbitral
tribunal, the High Court may frame such rules as may be
necessary, after taking into consideration the rates specified
in the Fourth Schedule.
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Explanation: For the removal of doubts, it is hereby clarified
that this subsection shall not apply to international
commercial arbitration and in arbitrations (other than
international commercial arbitration) in case where parties
have agreed for determination of fees as per the rules of an
arbitral institution.”
The Fourth Schedule has to be read along with the provisions of sub- Section (14)
of Section 11. In terms of the Explanation to Section 11(14), the Fourth Schedule
will not be applicable to international commercial arbitrations. Further, the Fourth
Schedule will not be applicable where parties have agreed to the determination of
the arbitrators’ fees according to the rules of an arbitral institution. The Fourth
Schedule was to serve as a guide for different High Courts to frame rules for
determining the fees of arbitrators. The High Courts have been slow, if not tardy,
in framing these rules. Apart from the High Courts of Rajasthan, Kerala and
Bombay, other High Courts have not framed rules under Section 11 (14) of the
Arbitration Act for the determination of fees. Further the rules framed by High
Courts of Bombay and Rajasthan only govern arbitrators appointed by the courts.
Thus, the purpose of Section 11(14) for regulating fees in ad hoc arbitrations
remains unrealised.
75 A dispute arose before the Delhi High Court regarding the applicability of
the Fourth Schedule to the arbitration agreement in a situation where the fee
payable to the arbitrator(s) has already been stipulated in the arbitration
agreement. In Gammon Engineers and Contractors Pvt. Ltd. v. NHAI
113
, the
fee schedule was fixed by the parties in accordance with a policy decision of the
National Highways Authority of India dated 31 May 2004. However, the arbitral
113
2018 SCC OnLine Del 10183 (“Gammon”)
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tribunal decided that its fees will be regulated in terms of the Fourth Schedule
introduced through the Arbitration Amendment Act 2015 by observing that the
latest provisions in the amended Act empower it to unilaterally determine its own
fees, irrespective of the agreement between the parties. NHAI moved an
application under Section 14 of the Arbitration Act to terminate the mandate of
the arbitral tribunal since it had wilfully rejected the agreement between the
parties. A Single Judge of the Delhi High Court held that since there was an
agreement between the parties regarding the fixation of fees, the Fourth
Schedule will not be applicable. The Single Judge further held that while Section
31A of the Arbitration Act discusses different aspects of “costs” to be fixed by the
arbitral tribunal while passing an award, it is only one of the aspects to be
considered by the tribunal for determining costs payable by one party to another.
The words “unless otherwise agreed by the parties” were omitted from Section
31(8) of the Arbitration Act (as amended by the Arbitration Amendment Act 2015)
to ensure that parties cannot contract out of paying costs and denude the ability
of the tribunal to award costs in favour of the successful party. The Single Judge,
thus, terminated the mandate of the arbitral tribunal since it wilfully ignored the
agreement between the parties. In doing so, the Single Judge disagreed with the
view of another Single Judge of the Delhi High Court in NHAI v. Gayatri Jhansi
Roadways Ltd.
114
.
76 In Gayatri Jhansi (Delhi High Court) (supra), it was held that Section
31(8) and Section 31A of the Arbitration Act govern the determination of fees and
since the expression “unless otherwise agreed by the parties” has been removed
114
2017 SCC OnLine Del 10285 (“Gayatri Jhansi (Delhi High Court)”)
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from Section 31(8) by the Arbitration Amendment Act 2015, the power of the
parties to fix the arbitrators’ fees has been specifically taken away except in
international commercial arbitrations and arbitrations where parties have agreed
that the fees will be fixed under the rules of an arbitral institution. Thus, in Gayatri
Jhansi (Delhi High Court) (supra), the arbitral tribunal was allowed to fix its fees
according to the Fourth Schedule dehors the agreement between the parties.
77 The appeals against both the judgements of the Delhi High Court were
heard by this Court in Gayatri Jhansi Roadways Ltd (supra), where a two-
Judge Bench of this Court was called upon to determine the applicability of the
Fourth Schedule when the arbitrators’ fee has been fixed by an agreement
between the parties. This Court held that Section 31(8) read with Section 31A will
not be applicable if the fees of the arbitrator(s) have been fixed by an agreement.
This Court upheld the observations of the Single Judge of the Delhi High Court in
Gammon (supra) in this regard. Justice Rohinton F Nariman, speaking for the
Bench, observed as follows:
“14. However, the learned Single Judge's conclusion that the
change in language of Section 31(8) read with Section 31- A
which deals only with the costs generally and not with
arbitrator's fees is correct in law. It is true that the arbitrator's
fees may be a component of costs to be paid but it is a far cry
thereafter to state that Sections 31(8) and 31-A would directly
govern contracts in which a fee structure has already been
laid down. To this extent, the learned Single Judge is correct.
We may also state that the declaration of law by the learned
Single Judge in Gayatri Jhansi Roadways Ltd. [NHAI v.
Gayatri Jhansi Roadways Ltd., 2017 SCC OnLine Del 10285]
is not a correct view of the law.”
However, this Court observed that the fee schedule contained in NHAI’s circular
dated 1 June 2017 would substitute the earlier schedule and the arbitrators would
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be entitled to charge their fees in accordance with the updated fee schedule, but
not in terms of the Fourth Schedule to the Arbitration Act. This Court further
observed that the mandate of the arbitral tribunal in Gammon (supra) should not
be terminated since the arbitrator(s) had merely followed the law which had been
laid down in Gayatri Jhansi (Delhi High Court) (supra).
78 The Arbitration Amendment Act 2019 was introduced on the basis of the
report of High Level Committee dated 30 July 2017 for promoting institutional
arbitration. Sub-Section 11(14) has been subsequently amended by the
Arbitration Amendment Act 2019. The amended sub- Section (14) to Section 11
provides thus:
“Section 11. Appointment of arbitrators
[…]
(14) The arbitral institution shall determine the fees of the
arbitral tribunal and the manner of its payment to the arbitral
tribunal subject to the rates specified in the Fourth Schedule.
Explanation: For the removal of doubts, it is hereby clarified
that this sub- section shall not apply to international
commercial arbitration and in arbitrations (other than
international commercial arbitration) in case where parties
have agreed for determination of fees as per the rules of an
arbitral institution.”
Further, sub- Section (3A) has been introduced to Section 11, which stipulates
thus:
“Section 11. Appointment of arbitrators
[…]
(3A) The Supreme Court and the High Court shall have the
power to designate, arbitral institutions, from time to time,
which have been graded by the Council under section 43- I,
for the purposes of this Act:
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Provided that in respect of those High Court jurisdictions,
where no graded arbitral institution are available, then, the
Chief Justice of the concerned High Court may maintain a
panel of arbitrators for discharging the functions and duties of
arbitral institution and any reference to the arbitrator shall be
deemed to be an arbitral institution for the purposes of this
section and the arbitrator appointed by a party shall be
entitled to such fee at the rate as specified in the Fourth
Schedule:
Provided further that the Chief Justice of the concerned High
Court may, from time to time, review the panel of arbitrators.”
The amendments introduced to Section 11 by the Arbitration Amendment Act
2019 came into force on 30 August 2019. However, even after a lapse of three
years, the Arbitration Council has not been established in accordance with Part
IA of the Arbitration Amendment Act 2019. In the absence of the Arbitration
Council of India, graded arbitral institutions for the purpose of implementing
amendments to Section 11 are yet to come into existence. While several High
Courts have taken concerted steps to establish and refer matters to court adjunct
arbitration centres, ad hoc arbitrations continue to hold the field since the
amendments made by the Arbitration Amendment Act 2019 have been non-
starters. . However, the amendments indicate the legislative intent that going
forward, the fixation of fees of arbitrator(s) would be carried out by an arbitral
institution designated for such purpose in terms of sub- Section (14) of Section 11.
Further, there is one notable difference between the sub- Section (14) as it stood
before the amendment and after, in terms of the applicability of the Fourth
Schedule. Earlier, the rates specified in the Fourth Schedule were only to be
taken into consideration by the High Court while framing the rules relating to the
fixation of fees. However, now the provision reads that, “[t]he arbitral institution
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shall determine the fees of the arbitral tribunal and the manner of its payment to
the arbitral tribunal subject to the rates specified in the Fourth Schedule”. There
are two exceptions to this – Section 11(14) is not applicable to international
commercial arbitrations and to a situation where the parties have agreed to
determine fees in terms of the rules of an arbitral institution as stipulated in the
Explanation to Section 11(14). It is important to note that the newly introduced
Section 11(3A) provides that the Supreme Court and the High Courts shall have
the power to designate arbitral institutions from time to time, which have been
graded by the Arbitration Council of India under Section 43(1) of the Arbitration
Act. The first proviso to sub- Section (3A) to Section 11 provides that in those
jurisdictions of High Courts where there are no graded arbitral institutions
available, the Chief Justice of the High Court may maintain a panel of arbitrators
for discharging the functions and duties of an arbitral instit ution. In terms of the
first proviso, the reference to such an arbitrator would be deemed to be reference
to an arbitral institution for the purpose of Section 11 and arbitrator appointed by
a party is entitled to such fee at the rate as specified in the Fourth Schedule. A
harmonious reading of the first proviso to sub- Section (3A) of Section 11 and
sub-Section (14) of Section 11 indicate that the Fourth Schedule shall have a
mandatory effect on the stipulation of fees for arbitrator(s) appointed by arbitral
institutions designated for such purpose in terms of Section 11 of the Arbitration
Act in the absence of an arbitration agreement governing the fee structure.
79 Based on the above discussion, w e summarise the position as follows:
(i) In terms of the decision of this Court in Gayatri Jhansi Roadways Ltd
(supra) and the cardinal principle of party autonomy, the Fourth Schedule
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69
is not mandatory and it is open to parties by their agreement to specify the
fees payable to the arbitrator(s) or the modalities for determination of
arbitrators’ fees; and
(ii) Since most High Courts have not framed rules for determining arbitrators’
fees, taking into consideration Fourth Schedule of the Arbitration Act, the
Fourth Schedule is by itself not mandatory on court-appointed arbitrators in
the absence of rules framed by the concerned High Court. Moreover, the
Fourth Schedule is not applicable to international commercial arbitrations
and arbitrations where the parties have agreed that the fees are to be
determined in accordance with rules of arbitral institutions. The failure of
many High Courts to notify the rules has led to a situation where the
purpose of introducing the Fourth Schedule and sub- Section (14) to
Section 11 has been rendered nugatory, and the court-appointed
arbitrator(s) are continuing to impose unilateral and arbitrary fees on
parties. As we have discussed in Section C.2. 1, such a unilateral fixation
of fees goes against the principle of party autonomy which is central to the
resolution of disputes through arbitration. Further, there is no enabling
provision under the Arbitration Act empowering the arbitrator(s) to
unilaterally issue a binding or enforceable order regarding their fees. This
is discussed in S ection C.2.3 of this judgement. Hence, this Court would
be issuing certain directives for fixing of fees in ad hoc arbitrations where
arbitrators are appointed by courts in Section C.2 .4 of this judgement.
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C.2.3 Costs and fees : Two different paradigms
80 Prior to the Arbitration Amendment Act 2015, Section 31(8) governing the
determination of costs of arbitration by the arbitral tribunal read thus:
“Section 31. Form and contents of arbitral award
[…]
(8) Unless otherwise agreed by the parties:-
(a) the costs of an arbitration shall be fixed by the arbitral
tribunal;
(b) the arbitral tribunal shall specify--
(i) the party entitled to costs,
(ii) the party who shall pay the costs,
(iii) the amount of costs or method of determining that
amount, and
(iv) the manner in which the costs shall be paid.
Explanation.---For the purpose of clause (a), "costs" means
reasonable costs relating to-
(i) the fees and expenses of the arbitrators and witnesses,
(ii) legal fees and expenses,
(iii) any administration fees of the institution supervising the
arbitration, and
(iv) any other expenses incurred in connection with the
arbitral proceedings and the arbitral award.”
The unamended sub- Section (8) of Section 31 enabled the arbitral tribunal to fix
the costs, unless otherwise agreed by the parties. The term “ costs” meant
“reasonable costs” relating inter alia to the fees and expenses payable to the
arbitrators and witnesses, in terms of the Explanation to Section 31(8). The LCI
246
th
Report (supra) had recommended the recognition of th e “loser pays”
principle for costs to reflect the relative success and failure of the parties. The
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71
Law Commission noted that the “loser pays” principle serves as a deterrent
against frivolous invocation of disputes and incentivises contractual compliance.
81 Pursuant to the LCI 246
th
Report (supra), the Arbitration Amendment Act
2015 deleted the phrase “unless otherwise agreed by the parties” from sub-
Section 31(8) and the arbitral tribunal was given the power to fix costs in terms of
Section 31A of the A rbitration Act. The amended Section 31(8) reads thus:
“Section 31. Form and contents of arbitral award
[...]
(8) The costs of an arbitration shall be fixed by the arbitral
tribunal in accordance with section 31A.”
Section 31A of the Arbitration Act stipulates thus:
“31A. Regime for costs
(1) In relation to any arbitration proceeding or a proceeding
under any of the provisions of this Act pertaining to the
arbitration, the Court or arbitral tribunal, notwithstanding
anything contained in the Code of Civil Procedure, 1908 (5 of
1908), shall have the discretion to determine--
(a) whether costs are payable by one party to another;
(b) the amount of such costs; and
(c) when such costs are to be paid.
Explanation.--For the purpose of this sub- section, "costs"
means reasonable costs relating to--
(i) the fees and expenses of the arbitrators, Courts and
witnesses;
(ii) legal fees and expenses;
(iii) any administration fees of the institution supervising the
arbitration; and
(iv) any other expenses incurred in connection with the
arbitral or Court proceedings and the arbitral award.
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(2) If the Court or arbitral tribunal decides to make an order as
to payment of costs,--
(a) the general rule is that the unsuccessful party shall be
ordered to pay the costs of the successful party; or
(b) the Court or arbitral tribunal may make a different order for
reasons to be recorded in writing.
(3) In determining the costs, the Court or arbitral tribunal shall
have regard to all the circumstances, including--
(a) the conduct of all the parties;
(b) whether a party has succeeded partly in the case;
(c) whether the party had made a frivolous counter claim
leading to delay in the disposal of the arbitral proceedings;
and
(d) whether any reasonable offer to settle the dispute is made
by a party and refused by the other party.
(4) The Court or arbitral tribunal may make any order under
this section including the order that a party shall pay--
(a) a proportion of another party's costs;
(b) a stated amount in respect of another party's costs;
(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f) costs relating only to a distinct part of the proceedings;
and
(g) interest on costs from or until a certain date.
(5) An agreement which has the effect that a party is to pay
the whole or part of the costs of the arbitration in any event
shall be only valid if such agreement is made after the dispute
in question has arisen.”
Section 31A provides that the arbitral tribunal or the court has the discretion to
determine costs of arbitration which includes, inter alia, reasonable costs relating
to the fees and expenses of the arbitrators, courts and witnesses. Sub-Section
(5) of Section 31A specifies that an agreement between parties apportioning
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costs is only valid if it is made after the dispute has arisen. The provision has an
effect of limiting party autonomy when an agreement regarding apportioning of
costs can be entered between the parties. However, it does not completely efface
the principle of party autonomy.
82 Section 38 of the Arbitration Act also becomes relevant since it enables the
arbitral tribunal to demand an advance for costs in the form of deposits. The
provision reads thus:
“Section 38 - Deposits
(1) The arbitral tribunal may fix the amount of the deposit or
supplementary deposit, as the case may be, as an advance
for the costs referred to in sub- section (8) of section 31, which
it expects will be incurred in respect of the claim submitted to
it:
Provided that where, apart from the claim, a counter -claim
has been submitted to the arbitral tribunal, it may fix separate
amount of deposit for the claim and counter-claim.
(2) The deposit referred to in sub- section(1) shall be payable
in equal shares by the parties:
Provided that where one party fails to pay his share of the
deposit, the other party may pay that share:
Provided further that where the other party also does not pay
the aforesaid share in respect of the claim or the counter-
claim, the arbitral tribunal may suspend or terminate the
arbitral proceedings in respect of such claim or counter-claim,
as the case may be.
(3) Upon termination of the arbitral proceedings, the arbitral
tribunal shall render an accounting to the parties of the
deposits received and shall return any unexpended balance
to the party or parties, as the case may be.”
Section 38(1) of the Arbitration Act empowers the arbitral tribunal to determine
the deposit that is payable as advance on costs based on its own assessment of
what may be incurred as costs for adjudicating the claim and counter-claim (if
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74
any) before it. Section 38(2) also empowers the arbitral tribunal to suspend or
terminate the proceedings if the parties fail to pay the deposit.
83 Additionally, Section 39(1) enables the arbitral tribunal to hold a lien on an
arbitral award if there are any unpaid costs of arbitration. Section 39 of the
Arbitration Act provides thus:
“Section 39 - Lien on arbitral award and deposits as to
costs
(1) Subject to the provisions of sub- section (2) and to any
provision to the contrary in the arbitration, agreement, the
arbitral tribunal shall have a lien on the arbitral award for any
unpaid costs of the arbitration.
(2) If in any case an arbitral tribunal refuses to deliver its
award except on payment of the costs demanded by it, the
Court may, on an application in this behalf, order that the
arbitral tribunal shall deliver the arbitral award to the applicant
on payment into Court by the applicant of the costs
demanded, and shall, after such inquiry, in any, as it thinks,
fit, further order that out of the money so paid into Court there
shall be paid to the arbitral tribunal by way of costs such sum
as the Court may consider reasonable and that the balance of
the money, if any, shall be refunded to the applicant.
(3) An application under sub- section (2) may be made by any
party unless the fees demanded have been fixed by written
agreement between him and the arbitral tribunal, and the
arbitral tribunal shall be entitled to appear and be heard on
any such application.
(4) The Court may make such orders as it thinks fit respecting
the costs of the arbitration where any question arises
respecting such costs and the arbitral award contains no
sufficient provision concerning them.”
84 The legal regime on costs under the Arbitration Act has been set out in
some detail above because it has been argued on behalf of the respondents that
the arbitral tribunal’s power to fix costs under Section 31(8) read with 31A entails
the power to fix arbitrators’ fees, which are also a component of the costs in
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terms of the Explanation to Section 31A. According to the respondents, this
position is bolstered by the fact that the arbitral tribunal has the power to fix the
amount of deposit that is payable as an advance on costs and it can also hold a
lien on the arbitral award if such costs remain unpaid.
85 In Gayatri Jhansi Roadways Ltd (supra), this Court held:
“14. However, the learned Single Judge’s conclusion that the
change in language of section 31(8) read with Section 31A
which deals only with the costs generally and not with
arbitrator’s fees is correct in law. It is true that the arbitrator’s
fees may be a component of costs to be paid but it is a far cry
thereafter to state that section 31(8) and 31A would directly
govern contracts in which a fee structure has already
been laid down…”
86 The above interpretation of this Court is in harmony with the observations
of the Law Commission in the LC I 246
th
Report (supra) where it had
recommended changes to the regime of costs only to provide a statutory
recognition to the “loser pays” principle. The Report contained the following
observations:
“70. Arbitration, much like traditional adversarial dispute
resolution, can be an expensive proposition. The savings of a
party in avoiding payment of court fee, is usually offset by the
other costs of arbitration – which include arbitrator’s fees and
expenses, institutional fees and expenses, fees and
expenses in relation to lawyers, witnesses, venue, hearings
etc. The potential for racking up significant costs justify a
need for predictability and clarity in the rules relating to
apportionment and recovery of such costs. The Commission
believes that, as a rule, it is just to allocate costs in a manner
which reflects the parties’ relative success and failure in the
arbitration, unless special circumstances warrant an
exception or the parties otherwise agree (only after the
dispute has arisen between them).
71.The loser-pays rule logically follows, as a matter of law,
from the very basis of deciding the underlying dispute in a
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particular manner; and as a matter of economic policy,
provides economically efficient deterrence against frivolous
conduct and furthers compliance with contractual obligations.”
The Law Commission was seeking to regulate how costs are apportioned and
recovered between parties by suggesting amendments to the legal framework on
costs. The same LCI 246th Report (supra) dealt with redressing the issue of
exorbitant fees being charged by arbitrators and recommended the introduction
of a model schedule of fees, based on which High Courts could frame rules on
fixing fees, to decrease the control arbitrators have over fixing their own fees.
Hence, it is evident that the Law Commission understood that the issue of
arbitrators’ fees is independent of the issue of allocation of costs. The LCI 246th
Report (supra) was attempting to address the concern of arbitrary and unilateral
fixation of fees by the arbitrators. The interpretation suggested by the
respondents, that while allocating costs the arbitral tribunal can enter into a fresh
and unilateral determination of fees, would be contrary to what the Law
Commission sought to achieve by recommending the regulation of fees charged
by arbitrators.
87 The concepts of costs and fees in arbitration must be distinguished. Fees
constitute compensation or remuneration payable to the arbitrators for their
service. Arbitrators are entitle d to “financial remuneration by the parties in return
for performance of his or her mandate”
115
. While the national laws governing
arbitration give a quasi-judicial status to arbitrators where they have to be
impartial adjudicators, many aspects of the relationship between the parties and
115
Supra at note 30
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arbitrators are contractual in nature
116
. Without acknowledging the contractual
nature of the relationship, there is no satisfactory explanation for the parties’ right
to appoint arbitrator(s) (and the corresponding right of the arbitrator(s) to decline
such appointment), arbitrators’ remuneration, arbitrators’ duty to conduct
arbitration in terms of the arbitration agreement (independently of the requirement
of fairness and equality) and the parties’ right to jointly remove arbitrator (s)
117
. In
Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd.
118
, this Court,
while holding that the arbitrator has to act impartially and independently,
recognised the contractual nature of the relationship between the parties and
arbitrator(s) in the following extract:
“20. Independence and impartiality of the arbitrator are the
hallmarks of any arbitration proceedings. Rule against bias is
one of the fundamental principles of natural justice which
applied to all judicial and quasi-judicial proceedings. It is for
this reason that notwithstanding the fact that relationship
between the parties to the arbitration and the arbitrators
themselves are contractual in nature and the source of
an arbitrator's appointment is deduced from the
agreement entered into between the parties,
notwithstanding the same non- independence and non-
impartiality of such arbitrator (though contractually
agreed upon) would render him ineligible to conduct the
arbitration. The genesis behind this rational is that even
when an arbitrator is appointed in terms of contract and
by the parties to the contract, he is independent of the
parties. Functions and duties require him to rise above the
partisan interest of the parties and not to act in, or so as to
further, the particular interest of either parties. After all, the
arbitrator has adjudicatory role to perform and, therefore, he
must be independent of parties as well as impartial. The
United Kingdom Supreme Court has beautifully highlighted
this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj, (2011) 1
WLR 1872 : 2011 UKSC 40] in the following words : (WLR p.
1889, para 45)
116
ibid
117
ibid
118
(2017) 4 SCC 665
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“45. … the dominant purpose of appointing an arbitrator or
arbitrators is the impartial resolution of the dispute between
the parties in accordance with the terms of the agreement
and, although the contract between the parties and the
arbitrators would be a contract for the provision of personal
services, they were not personal services under the direction
of the parties.”
(emphasis supplied)
88 The relationship between parties and arbitrator(s) is contractual in nature.
Upon that relationship, the law superimposes a duty upon the arbitrator(s) to act
as an impartial and independent adjudicator. The principle of party autonomy
plays a substantial role in the determination of arbitrators’ fees. We have noted in
Section C.1 of this judgement that party autonomy plays a central role in the
determination of arbitrators’ fees in the rules of international arbitral institutions
and domestic legislation of other countries. Aside from institutional arbitration,
arbitrators’ fees in ad hoc arbitration are arrived at through negotiations between
the parties and the arbitrator(s)
119
. The primacy of parties’ agreement in
determination of arbitrators’ fees was also reaffirmed by this Court in Gayatri
Jhansi Roadways Ltd (supra). However, there may be instances where the
parties have not entered into any agreement with respect to the fees. In ad hoc
arbitrations this leads to a peculiar situation where it has to be determined who
will fix the fees in such circumstances. While certain foreign jurisdictions enable
the arbitral tribunal to fix the fees typically subject to review by courts, there are
jurisdictions which continue to give value to parties’ consent in determining
renumeration for arbitrators. As discussed above in Section C.1 , in certain
jurisdictions like Germany, arbitrators are prohibited from unilaterally fixing their
119
Supra at note 28
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fees because it violates the doctrine of the prohibition of in rem suam decisions,
i.e., arbitrators cannot give an enforceable ruling on their own fees. Austria and
Switzerland also do not allow arbitrators to issue binding and enforceable orders
regarding fixation of their own fees
120
. In Italy, while the arbitrators can determine
fees in absence of an agreement between parties, such fees become binding
only once the parties’ consent to it. In Singapore, in absence of a written
agreement, a party may approach the Registrar of the Supreme Court within the
meaning of the Supreme Court of Judicature Act 1969 for the assessment of
fees.
89 In contrast, costs are typically compensation payable by the losing party to
the winning party for the expenses the latter incurred by participating in the
proceedings
121
. In Salem Advocate Bar Assn. (II) v. Union of India
122
, this
Court has defined costs in a similar manner in the context of litigation:
“37. Judicial notice can be taken of the fact that many
unscrupulous parties take advantage of the fact that either the
costs are not awarded or nominal costs are awarded against
the unsuccessful party. Unfortunately, it has become a
practice to direct parties to bear their own costs. In a large
number of cases, such an order is passed despite Section
35(2) of the Code. Such a practice also encourages the filing
of frivolous suits. It also leads to the taking up of frivolous
defences. Further, wherever costs are awarded, ordinarily the
same are not realistic and are nominal. When Section 35(2)
provides for cost to follow the event, it is implicit that the
costs have to be those which are reasonably incurred by
a successful party except in those cases where the court
in its discretion may direct otherwise by recording
120
Michael Wietzorek, “Chapter II: The Arbitrator and the Arbitration Procedure: May Arbitrators Determine their
own Fees?” in Christian Klausegger, Peter Klein, et al (eds), Austrian Yearbook on International Arbitration 2012,
Austrian Yearbook on International Arbitration, Volume 2012 (Manz’sche Verlags- und Universitätsbuchhandlung;
Manz’sche Verlags- und Universitätsbuchhandlung , 2012).
121
John Y. Gotanda, “Part I: International Commercial Arbitration, Chapter 7: Bringing Efficiency to the Awarding
of Fees and Costs in International Arbitrations”, in Stefan M. Kröll, Loukas A. Mistelis, et al. (eds), International
Arbitration and International Commercial Law: Synergy, Convergence and Evolution (Kluwer Law International,
2011)
122
(2005) 6 SCC 344
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reasons therefore. The costs have to be actual
reasonable costs including the cost of the time spent by
the successful party, the transportation and lodging, if
any, or any other incidental costs besides the payment of
the court fee, lawyer's fee, typing and other costs in
relation to the litigation. It is for the High Courts to examine
these aspects and wherever necessary make requisite rules,
regulations or practice direction so as to provide appropriate
guidelines for the subordinate courts to follow.”
(emphasis supplied)
90 The principle of the payment of “costs” remains the same in litigation and
arbitration even though the form of expenses may vary. Redfern and Hunter on
International Commercial Arbitration (supra) has classified the various
components of costs under the following headings
123
:
“•‘costs of the tribunal’ (including the charges for
administration of the arbitration by any arbitral institution);
•‘costs of the arbitration’ (including hiring the hearing rooms,
interpreters, transcript preparation, among other things); and
•‘costs of the parties’ (including the costs of legal
representation, expert witnesses, witness and other travel-
related expenditure, among other things).”
The first category of “costs of the tribunal” includes the fees, travel-related and
other expenses, payable to the arbitrators. However, this category also includes
fees and expenses relating to the experts appointed by the tribunal,
administrative secretary or registrar and other incidental expenses incurred by
the tribunal in respect of the case
124
. Fees of arbitrators constitute a component
of the diverse elements which make up the costs that are payable by one party to
another. The purpose of awarding costs is to “indemnify the winning party”. The
123
Supra at note 28 , Chapter 9
124
ibid
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“loser pays” principle apportions the costs between the parties through the cost s
follow the event
125
method. The primary purpose of the CFE method is to “make
the claimant whole”
126
. The CFE method has been statutorily recognised in some
national legislations. The English Arbitration Act provides that “unless the parties
otherwise agree, the tribunal shall award costs on the general principle that costs
should follow the event except where it appears to the tribunal that this principle
is not appropriate in relation to whole or part of the costs”
127
. Since costs are
typically awarded at the conclusion of the proceedings on the basis of the relative
success or failure of parties, an award of costs forms a part of the final award.
However, interim awards or rulings on costs may also be issued. M ost
international arbitral institutions give arbitral tribunals the discretion to allocate
costs unless there is an agreement between the parties regarding the
apportionment of costs. It has been noted that the “loser pays” principle is a
common approach
128
followed for awarding costs
129
. The UNCITRAL Rules, while
providing that costs of arbitration shall be “borne by the unsuccessful party” as a
general principle, allow the arbitral tribunal to take the ultimate decision
130
. The
LCIA Rules allow the arbitral tribunal to depart from the general principle “in
circumstances (in which) the application of such a general principle would be
inappropriate”
131
. The Arbitration Act also provides statutory recognition to the
125
“CFE”
126
Supra at note 12 1
127
Section 61(2), English Arbitration Act
128
There are some institution rules which do not prescribe a general rule and leave the apportionment of the
costs to the arbitral tribunal. The ICDR (Art. 34) and HKIAC (34.3) require the tribunal to carry out a reasonable
apportionment of costs. The ICC Rules (Art. 38(5) and SIAC Rules (Art. 35) leave the apportionment of costs
upto the discretion of the tribunal.
129
Arif Hyder Ali, Jane Wessel, et al. (eds), The International Arbitration Rulebook: A Guide to Arbitral Regimes
(Kluwer Law International, 2019), Chapter 8
130
Article 42(1), UNCITRAL Rules
131
Article 28(4), LCIA Rules
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principle of “loser pays” in Section 31A (2)
132
as the general principle of allocating
costs, which can be derogated from at the discretion of the tribunal provided it
records its reasons in writing. Further, the Arbitration Act seeks to limit the ability
of parties to contractually allocate fees by specifying in Section 31A(5) that such
an agreement will only be valid “if such agreement is made after the dispute in
question has arisen”. The intention of the legislature to limit party autonomy in
allocation of costs is also evident from the deletion of the phrase “unless
otherwise agreed by the parties” from Section 31(8) through the Amendment Act
2015.
91 We can see that the functional role of costs and fees is different. While
fees represent the payment of remuneration to the arbitrators, costs refer to all
the expenses incurred in relation to arbitration that are to be allocated between
the parties upon the assessment of certain parameters by the arbitral tribunal or
the court. Section 31A(3) provides that an arbitral tribunal or the court has to take
into account the following factors for determining costs:
“(a) the conduct of all the parties;
(b) whether a party has succeeded partly in the case;
(c) whether the party had made a frivolous counter claim
leading to delay in the disposal of the arbitral proceedings;
and
(d) whether any reasonable offer to settle the dispute is made
by a party and refused by the other party.”
132
Section 31A(2) provides:
“(2) If the Court or arbitral tribunal decides to make an order as to payment of costs,--
(a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or
(b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing.”
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This is accompanied by the general rule under Section 31A(2) that the
unsuccessful party has to bear the costs of arbitration.
92 Another way to understand the difference between costs and fees is to
distinguish between the nature of the claim that both reflect. Redfern and Hunter
on International Commercial Arbitration (supra) discusses costs in Chapter 9,
titled “Awards”. It states that “[a] claim in respect of the costs incurred by a party
in connection with an international arbitration is, in principle, no different from any
other claim, except that it usually cannot be quantified until the end of the arbitral
proceedings”
133
. The decision of an arbitral tribunal ordering one party to pay
arbitration costs is considered as an “award” within the meaning of the New York
Convention and UNCITRAL Model Law since the decision resolves a claim one
party has towards another in respect to the entitlement of being repaid by the
other party for expenses incurred during arbitration
134
. Gary Born on Arbitration
(supra) specifically notes the difference between costs and fees, and states that
any decision of the arbitral tribunal relating to payment of fees to the members of
the tribunal is not considered an award since it does not resolve a claim between
the parties; rather it resolves a claim between the arbitrator(s) against the
parties
135
. The Swiss Federal Tribunal has observed in this context that
136
:
“[A]ccording to the majority of legal writing the arbitral tribunal
has no authority to issue an enforceable decision as to the
fees it may derive from the arbitration agreement (receptum
arbitri). This is because claims resulting from the relationship
between the arbitral tribunal and the parties do not fall within
the arbitration clause; also because this would be an
unacceptable decision in one’s own case. The decision on
133
Supra at note 12 3
134
Supra at note 3 0, Chapter 23
135
ibid
136
Judgment of 10 November 2010, DFT 136 III 597, 603 cited in i bid
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costs in an arbitral award is therefore nothing else as a
rendering of account which does not bind the parties or a
circumscription of the arbitrators’ private law claim based on
the arbitration agreement on which in case of dispute the
State Court will have to decide.”
The German arbitration law also takes the above position, where a portion of the
award relating to costs of arbitration was denied enforcement as arbitrators are
prohibited from fixing their own fees and costs, except when there is an
agreement between the parties and arbitrators
137
.
93 Since fees of the arbitrators are not a claim that needs to be quantified at
the end of the proceedings based, inter alia , on the conduct of parties and
outcome of the proceedings, they can be determined at the stage when the
arbitral tribunal is being constituted. Redfern and Hunter on International
Commercial Arbitration (supra) discusses the concept of fees of arbitrators in
Chapter 4, titled “Establishment and Organisation of an Arbitral Tribunal”,
indicating that fees have to be determined much earlier at the inception of the
proceedings. In fact, the commentary states that in ad hoc arbitrations, “it is
necessary for the parties to make their own arrangements with the arbitrators as
to their fees. The arbitrators should do this at an early stage in the proceedings,
in order to avoid misunderstandings later”
138
.
94 It has been argued on behalf of the respondents that the power of
arbitrator(s) under Section 38(1) of the Arbitration Act to demand a deposit as an
advance on costs “which it expects will be incurred” in relation to the claim and
137
Judgment of 24 October 2008, XXXIV Y.B. Comm. Arb. 533 (Oberlandesgericht Frankfurt) (2009) cited in
supra at note 12 3
138
Supra at note 28
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counterclaim (if any) indicates that the tribunal is entitled to determine its own
fees. If such a deposit is not paid, the tribunal can suspend or terminate the
proceedings under Section 38(2) of the Arbitration Act. It can also hold a lien on
the award if the costs of arbitration remain unpaid under Section 39(1) of the
Arbitration Act.
95 Gary Born on Arbitration (supra) explains the concept of an advance on
costs or deposits in the following terms
139
:
“Once the arbitral tribunal is in place, the parties are generally
required to provide security for the fees and costs of the
arbitrators. Most institutional arbitration rules contain express
provisions for payment by the parties of an advance on costs
(or deposit), and arbitrators often have the power under
national law to require payment of an advance even absent
express provision to that effect in either the arbitration
agreement or institutional rules.
The amount of the advance on costs is based upon the
expected total amount of fees and expenses of the arbitrators
and institutional administrative costs. If the parties do not pay
the advance, the arbitration will not go forward; if one party
fails to make payment, the other may do so on its behalf, so
that the arbitration will proceed, hopefully to conclude with a
decision in its favor, in which the prevailing party will be
awarded (among other things) reimbursement of the amounts
it advanced on behalf of its counter-party.”
The above extract and Section 38
140
of the Arbitration Act indicate that the
purpose of demanding a deposit is to simply secure the future expenses or the
139
Supra at note 30 , Chapter 15
140
“Section 38 - Deposits
(1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as the case may be, as an
advance for the costs referred to in sub- section (8) of section 31, which it expects will be incurred in respect of
the claim submitted to it:
Provided that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix
separate amount of deposit for the claim and counter-claim.
(2) The deposit referred to in sub-section(1) shall be payable in equal shares by the parties:
Provided that where one party fails to pay his share of the deposit, the other party may pay that share:
Provided further that where the other party also does not pay the aforesaid share in respect of the claim or the
counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or
counter-claim, as the case may be.
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“costs” relating to the arbitration, including arbitrators’ fees. The arbitrator(s) may
resign or cease their work until such payment is made. This principle cannot be
extended to establish that the arbitrator(s) have a unilateral power to fix their own
fees while demanding a deposit. The arbitral tribunal can also ask for a
supplementary deposit, which indicates that the amount fixed in the deposit is
provisional in nature. Upon the termination of the mandate of the arbitral tribunal,
it is required to provide an account of the deposits and if the deposits exceed the
total amount of costs, the tribunal is required to return the balance. This indicates
that the order on deposits is not a binding determination as to costs (including
arbitrators’ fees). It is a procedural order issued for the purpose of sec uring
payment of future expenses.
96 While the arbitral tribunal can exercise a lien over the arbitral award for
any unpaid costs of arbitration under Section 39(1) of the Arbitration Act, a party
can also approach the court for the release of the award and the court on inquiry
can assess whether the costs demanded are reasonable under Section 39(2).
These costs would include the arbitrators’ fees that have been previously agreed
upon. However, even if there is no agreement between the parties and the
arbitrator(s) regarding the fees payable to the arbitrator(s), any determination of
costs relating to arbitrators’ fees by the tribunal is a non- binding demand that has
been raised by the tribunal. As has been discussed above, while costs, in
general, are to be decided at the discretion of the tribunal or the court because
they involve a claim that one party has against the another relating to resolution
of a dispute arising from the arbitration agreement, fees of the arbitrators are not
(3) Upon termination of the arbitral proceedings, the arbitral tribunal shall render an accounting to the parties of
the deposits received and shall return any unexpended balance to the party or parties, as the case may be.”
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a claim to be decided between the parties . Rather, it is an independent claim that
the arbitrator(s) have against the parties
141
. It will be for the court to decide
whether the claim of the arbitrator(s) regarding their remuneration is reasonable.
This also becomes clear from sub- Sections (2) and (3) of Section 39, which
provide:
“Section 39 - Lien on arbitral award and deposits as to
costs
[…]
(2) If in any case an arbitral tribunal refuses to deliver its
award except on payment of the costs demanded by it, the
Court may, on an application in this behalf, order that the
arbitral tribunal shall deliver the arbitral award to the applicant
on payment into Court by the applicant of the costs
demanded, and shall, after such inquiry, in any, as it thinks,
fit, further order that out of the money so paid into Court there
shall be paid to the arbitral tribunal by way of costs such sum
as the Court may consider reasonable and that the balance of
the money, if any, shall be refunded to the applicant.
(3) An application under sub- section (2) may be made by any
party unless the fees demanded have been fixed by written
agreement between him and the arbitral tribunal, and the
arbitral tribunal shall be entitled to appear and be heard on
any such application.
[…]”
(emphasis supplied)
Sub-Section (2) provides that an application can be made to the court if the
arbitral tribunal is refusing to deliver the award, except on payment of costs
demanded by it. The court can then order the arbitral tribunal to deliver the award
to the applicant on payment of the costs demanded by the tribunal to the court.
Crucially, the court can conduct an inquiry to determine if the costs are
reasonable and out of the money paid to the court, it can direct the payment of
141
Paragraphs 91-92 of this judgement
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88
reasonable costs to the tribunal and the balance (if any) to be refunded to the
applicant. Sub-Section (3) provides that an application under sub- Section (2) for
the delivery of an award withheld by the arbitral tribunal exercising a lien over it,
can only be made if the fees demanded have not been fixed by a written
agreement by the party and the arbitral tribunal. Section 39 of the Arbitration Act
is similar to Section 38 of the now repealed Arbitration Act 1940. Section 38 of
the erstwhile legislation provided thus:
“38. Disputes as to arbitrator's remuneration or costs:
(1) If in any case an arbitrator or umpire refuses to deliver his
award except on payment of the fees demanded by him, the
Court may. on an application in this behalf, order that the
arbitrator or umpire shall deliver the award to the applicant on
payment into Court by the applicant of the fees demanded,
and shall, after such inquiry, if any, as it thinks fit, further
order that out of the money so paid into Court there shall be
paid to the arbitrator or umpire by way of fees such sum as
the Court may consider reasonable and that the balance of
the money, if any, shall be refunded to the applicant.
(2) An application under Sub- section (1) may be made by any
party to the reference unless the fees demanded have been
fixed by written agreement between him and the arbitrator or
umpire, and the arbitrator or umpire shall be entitled to
appear and be heard on any such application.
(3) The Court may make such orders as it thinks fit respecting
the costs of an arbitration where any question arises
respecting such costs and the award contains no sufficient
provision concerning them.”
Section 38(1) of the Arbitration Act 1940 enabled an arbitrator or umpire to refuse
delivery of an award if the payment of fees demanded by them remained unpaid,
and in such cases the court could direct the arbitrator or the umpire to deliver the
award upon payment of such fees to the court by the applicant. Thereafter, it
could assess the propriety of the fees demanded and out of the amount
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89
deposited in court, it could direct payment to the tribunal and the balance (if any)
to be refunded to the applicant. The difference between Section 38(1) of the
Arbitration Act 1940 and Section 39(1) of the Arbitration Act is that the former
specifically refers to the payment of the arbitrators’ fee, while the latter refers to
costs demanded by the tribunal. Section 39(1) seems to be wider in scope.
However, since the costs under Section 39 are to be payable to the arbitral
tribunal, these would typically reflect costs relating to fees of the members of the
tribunal and other out-of-pocket expenses payable to the arbitrators that are
necessary for the conduct of arbitral proceedings like expenses relating to travel,
accommodation and any other allowances.
97 This interpretation of costs under Section 39 as only limited to the costs
owed to the arbitral tribunal is also in consonance with the purpose of Section 39,
which is that it enables the arbitral tribunal to exercise a lien over the arbitral
award. In Triveni Shankar Saxena v. State of UP & Ors.
142
, this Court defined
lien as follows:
“17…The word 'lien' originally means "binding" from the Latin
ligamen. Its lexical meaning is "right to retain". The word 'lien'
is now variously described and used under different contexts
such as 'contractual lien', 'equitable lien', 'specific lien',
'general lien', 'partners lien', etc. etc. in Halsbury's Laws of
England, Fourth Edition, Volume 28 at page 221, para 502 it
is stated:
“In its primary or legal sense "lien" means a right at common
law in one man to retain that which is rightfully and
continuously in his possession belonging to another until the
present and accrued claims are satisfied.””
142
1992 Suppl. 1 SCC 524
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90
“Lien” has been defined in P Ramanatha Aiyar: The Major Law Lexicon as
143
:
““Lien” defined. A right by which a person in possession of the
property holds and retains it against the other in satisfaction
of a demand due to the party retaining it. [O. VIII, R. 6(2),
CPC (5 of 1908)and S. 47, margin, (3 of 1930)].
Right of one person to satisfy a claim against another by
holding or retaining possession of that other ’s
assets/property. (Finance)
The right to possession of property until such time that an
outstanding liability has been repaid. A banker’ s lien gives a
bank the right to retain or sell the property of a debtor in
lieu of payment. (Banking; Insurance & International
Accounting).”
The arbitral tribunal can exercise a lien over the arbitral award and refuse to
deliver it if there are outstanding payments yet to be made to the tribunal. T he
principle behind allowing the arbitral tribunal to exercise a lien over the arbitral
award is to ensure that the tribunal is not left in the lurch without its expenses
being met, while the beneficiary of the award reaps the benefits of it. In Assam
State Weaving and Manufacturing Co. Ltd. v. Vinny Engineering Enterprises
(P) Ltd.
144
, the Calcutta High Court observed that:
“Section 39 of the 1996 Act, much like Section 38 of the old
Act, recognises an arbitral tribunal's lien over the award. The
section conceives of a situation where there may be a dispute
between the arbitral tribunal and one or more parties to the
reference as to the costs of the arbitration. Upon an arbitral
tribunal refusing to deliver its award unless its demand for
payment of costs were met by a party, an application may be
carried to court for directing the tribunal to deliver the award
to the applicant. Sub- section (2) contemplates an applicant
thereunder to put into court the costs demanded by the
arbitral tribunal. Upon such costs being deposited the court
may order the tribunal to deliver the award to the applicant.
The court can thereafter inquire into the propriety of the costs
demanded and deal with the matter following the inquiry.
143
P Ramanatha Aiyar: The Major Law Lexicon (LexisNexis, 4
th
edition)
144
AIR 2010 Cal 52
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91
Sub-section (3) of Section 39 permits an application under
sub-section (2) to be carried by any party to the reference
only on condition that the fees demanded were not as fixed
by written agreement between the applicant and the arbitral
tribunal. The sub- section does not limit an application to be
made under sub- section (2) only by a party who has been
refused the delivery of the award. The delivery that Section
39 speaks of is the physical delivery of the document
embodying the award and not merely the pronouncement of
the award. For, it is the physical receipt of the document that
would entitle a party to apply for setting aside the award or for
implementing it.”
98 Hence, sub- Section (2) and (3) of Section 39, read together, govern a
situation where the fees and other expenses payable to the arbitrators have not
been decided through a written agreement between the party and the arbitral
tribunal. While ideally, the parties and the arbitrators should arrive at an
arrangement regarding the remuneration of arbitrators, the arbitral tribunal may
raise a non- binding invoice regarding the arbitration costs (i.e., fees and
expenses payable to arbitrator(s)) and may refuse to deliver the award unless the
outstanding payments have been made. The parties are not obligated to pay
such costs if they believe that such costs are unreasonable. In such a case, it is
the court that determines whether the fees and other expenses demanded by the
tribunal are reasonable in terms of Section 39(2).
99 To conclude, the arbitral tribunal while deciding the allocation of costs
under Sections 31(8) read with 31A or advance of costs under Section 38 cannot
issue any binding or enforceable orders regarding their own remuneration. This
would violate the principle of party autonomy and the doctrine of prohibition of in
rem suam decisions
145
, which postulates that the arbitrators cannot be the judge
145
Supra at note 120
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92
of their own claim against parties’ regarding their remuneration. The principles of
party autonomy and the doctrine of prohibition of in rem suam decisions do not
restrict the arbitral tribunal from apportioning costs between the parties (including
the arbitrator(s) remuneration) since this is merely a reimbursement of the
expenses that the successful party has incurred in participating in the arbitral
proceedings. Likewise, the arbitral tribunal can also demand deposits and
supplementary deposits since these advances on costs are merely provisional in
nature. If while fixing costs or deposits, the arbitral tribunal makes any finding
relating to arbitrators’ fees (in the absence of an agreement), it cannot be
enforced in favour of the arbitrators . The party can approach the court to review
the fees demanded by the arbitrators.
100 Ideally, in ad hoc arbitrations, the fees payable to the arbitrator (s) should
be decided through an arrangement between the parties and the arbitrator (s). In
the next section, we are issuing certain directives to govern the process of how
fees payable to the arbitrator(s) have to be fixed in ad hoc arbitrations.
C.2.4 Directives governing fees of arbitrators in ad hoc arbitrations
101 Preliminary meetings in arbitration proceedings entail a meeting convened
by the arbitral tribunal with the parties to arrive at a common understanding about
how the arbitration is to be conducted. It generally takes place at an early stage
of the dispute re solution process, prior to the “written phase of the proceedings”.
Rules of certain international arbitral institutions provide for convening a
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93
preliminary meeting
146
or case-management conference
147
. The fees and
expenses are typically addressed at this stage
148
. We propose that this stage of
having a preliminary hearing should be adopted in the process of conducting ad
hoc arbitrations in India as it will provide much needed clarity on how arbitrators
are to be paid and reduce conflicts and litigation on this issue.
102 These preliminary hearings should also be conducted when the fees are
specified in the arbitration agreement. The arbitration agreement may have been
entered into at an earlier point in time, even several years earlier. It is possible
that at the time when the disputes between the parties arise, the fees stipulated
in the arbitration agreement may have become an unrealistic estimate of the
remuneration that is to be offered for the services of the arbitrator due to the
passage of time. In the preliminary hearings, if all the parties and the arbitral
tribunal agree to a revised fee, then that fee would be payable to the arbitrator(s).
However, if any of the parties raises an objection to the fee being demanded by
the arbitrator(s) and no consensus can be arrived at between such a party and
the tribunal or a member of the tribunal, then the tribunal or the member of the
tribunal should decline the assignment. Since the relationship between the
parties and arbitrator(s) is contractual in nature, specifically with respect to the
payment of remuneration, there must be a consensus on the fees to be paid.
103 It is possible that during the preliminary hearings, the parties and the
arbitral tribunal may be unsure about the extent of time that needs to be invested
by the arbitrator(s) and the complexity of the dispute. It is also possible that the
146
Rule 19.3, SIAC Rules
147
Article 24, ICC Rules
148
Supra at note 28
PART C
94
arbitral proceedings may continue for much longer time than was expected. In
order to anticipate such contingencies, during the preliminary hearings, the
parties and the arbitrator (s) should stipulate that after a certain number of sittings,
the fee would stand revised at a specified rate. The number of sittings after which
the revision would take place and the quantum of revision must be clearly
discussed and determined during the preliminary hearings through the process of
negotiation between the parties and the arbitrator(s). There is no unilateral power
reserved to the arbitrator(s) to revise the fees on their own terms if they believe
that an additional number of sittings would be required to settle the dispute. The
fees payable to the arbitral tribunal in an ad hoc arbitration must be settled
between the arbitral tribunal and the parties at the threshold during the course of
the preliminary hearings. Resolution of the fees payable to the arbitral tribunal by
mutual agreement during the preliminary hearings is necessa ry. Failing such an
agreement, the arbitrator(s) who decline to accept the fee suggested by the
parties (or any of them) are at liberty to decline the assignment. The fixation of
arbitral fees at the threshold will obviate the grievance that the arbitrator(s) are
arm-twisting parties at an advanced stage of the dispute resolution process. In
such a situation, a party who is not agreeable to a unilateral revision of fees
demanded by the arbitral tribunal in the midst of the proceedings has a real
apprehension that its refusal may result in embarrassing consequences bearing
on the substance of the dispute.
104 We believe that the directives proposed by the amicus curiae, with suitable
modifications, would be useful in structuring how these preliminary hearings are
to be conducted. Exercising our powers conferred under Article 142 of the
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95
Constitution, we direct the adoption of the following guidelines for the conduct of
ad hoc arbitrations in India:
“1. Upon the constitution of the arbitral tribunal, the
parties and the arbitral tribunal shall hold preliminary hearings
with a maximum cap of four hearings amongst themselves to
finalise the terms of reference (the “Terms of Reference”) of
the arbitral tribunal. The arbitral tribunal must set out the
components of its fee in the Terms of Reference which would
serve as a tripartite agreement between the parties and the
arbitral tribunal.
2. In cases where the arbitrator(s) are appointed by
parties in the manner set out in the arbitration agreement, the
fees payable to the arbitrators would be in accordance with
the arbitration agreement. However, if the arbitral tribunal
considers that the fee stipulated in the arbitration agreement
is unacceptable, the fee proposed by the arbitral tribunal must
be indicated with clarity in the course of the preliminary
hearings in accordance with these directives. In the
preliminary hearings, if all the parties and the arbitral tribunal
agree to a revised fee, then that fee would be payable to the
arbitrator(s). However, if any of the parties raises an objection
to the fee proposed by the arbitrator(s) and no consensus can
be arrived at between such a party and the tribunal or a
member of the tribunal, then the tribunal or the member of the
tribunal should decline the assignment.
3. Once the Terms of Reference have been finalised
and issued, it would not be open for the arbitral tribunal to
vary either the fee fixed or the heads under which the fee may
be charged.
4. The parties and the arbitral tribunal may make a carve
out in the Terms of Reference during the preliminary hearings
that the fee fixed therein may be revised upon completion of a
specific number of sittings. The quantum of revision and the
stage at which such revision would take place must be clearly
specified. The parties and the arbitral tribunal may hold
another meeting at the stage specified for revision to
ascertain the additional number of sittings that may be
required for the final adjudication of the dispute which number
may then be incorporated in the Terms of Reference as an
additional term.
5. In cases where the arbitrator(s) are appointed by the
Court, the order of the Court should expressly stipulate the
fee that arbitral tribunal would be entitled to charge. However,
where the Court leaves this determination to the arbitral
PART C
96
tribunal in its appointment order, the arbitral tribunal and the
parties should agree upon the Terms of Reference as
specified in the manner set out in draft practice direction (1)
above.
6. There can be no unilateral deviation from the Terms
of Reference. The Terms of Reference being a tripartite
agreement between the parties and the arbitral tribunal, any
amendments, revisions, additions or modifications may only
be made to them with the consent of the parties.
7. All High Courts shall frame the rules governing
arbitrators' fees for the purposes of Section 11(14) of the
Arbitration and Conciliation Act, 1996.
8. The Fourth Schedule was lastly revised in the year
2016. The fee structure contained in the Fourth Schedule
cannot be static and deserves to be revised periodically. We,
therefore, direct the Union of India to suitably modify the fee
structure contained in the Fourth Schedule and continue to do
so at least once in a period of three years.”
105 Conscious and aware as we are that (i) Arbitration proceedings must be
conducted expeditiously; (ii) Court interference should be minimal; and (iii) Some
litigants would object to even a just and fair arbitration fee, we would like to
effectuate the object and purpose behind enacting the model fee schedule. When
one or both parties, or the parties and the arbitral tribunal are unable to reach a
consensus, it is open to the arbitral tribunal to charge the fee as stipulated in the
Fourth Schedule, which we would observe is the model fee schedule and can be
treated as binding on all. Consequently, when an arbitral tribunal fixes the fee in
terms of the Fourth Schedule, the parties should not be permitted to object the
fee fixation. It is the default fee, which can be changed by mutual consensus and
not otherwise.
PART D
97
D Interpretation of “sum in dispute” in the Fourth Schedule
D.1 Statutory Framework
106 We must begin by looking at the statutory framework of the Arbitration Act.
In order to understand the genesis of the competing interpretations, it is important
to first consider Sections 31(8), the Explanation to Section 31A(1) and Section
38(1).
107 Section 31(8) of the Arbitration Act reads thus:
“31. Form and contents of arbitral award.—
[…]
(8) The costs of an arbitration shall be fixed by the arbitral
tribunal in accordance with Section 31- A.”
Sub-Section (8) of Section 31 was amended by the Arbitration Amendment Act
2015, which also added Section 31A to the Arbitration Act.
108 Section 31A(1) is in the following terms:
“31-A. Regime for costs.—(1) In relation to any arbitration
proceeding or a proceeding under any of the provisions of this
Act pertaining to the arbitration, the court or arbitral tribunal,
notwithstanding anything contained in the Code of Civil
Procedure, 1908 (5 of 1908), shall have the discretion to
determine—
(a) whether costs are payable by one party to another;
(b) the amount of such costs; and
(c) when such costs are to be paid.
Explanation.—For the purpose of this sub- section,
“costs” means reasonable costs relating to—
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98
(i) the fees and expenses of the arbitrators, courts and
witnesses;
(ii) legal fees and expenses;
(iii) any administration fees of the institution supervising the
arbitration; and
(iv) any other expenses incurred in connection with the
arbitral or court proceedings and the arbitral award.
[…]”
(emphasis supplied)
Sub-Section (1) of Section 31A provides the court or the arbitral tribunal with the
power to determine the following in regard to costs: (i) whether they are payable
by one party to the other; (ii) their amount; and (iii) when they are payable. The
Explanation to Section 31A(1) defines “costs” to include four components, the
first of which is “the fees and expenses of the arbitrators, courts and witnesses”.
109 Section 31(8) is also linked to Section 38(1) , which is as follows:
“38. Deposits.—(1) The arbitral tribunal may fix the amount
of the deposit or supplementary deposit, as the case may be,
as an advance for the costs referred to in sub- section (8) of
Section 31, which it expects will be incurred in respect of the
claim submitted to it:
Provided that where, apart from the claim, a counter-
claim has been submitted to the arbitral tribunal, it may
fix separate amount of deposit for the claim and counter-
claim.”
(emphasis supplied)
According to sub- Section (1) of Section 38 of the Arbitration Act, the arbitral
tribunal can direct the parties to make a deposit, as an advance, for the costs
referred to in Section 31(8). As noted earlier, Section 31(8) states that such costs
are to be determined in accordance with Section 31A. Crucially, the proviso to
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99
Section 38(1) provides that the arbitral tribunal may fix a separate amount of
deposit for the claim and counter-claim, in an arbitration where a counter-claim
has been filed.
110 The inter-connection between Section 31(8), Section 31A and Section
38(1) bears directly on the interpretation of the Fourth Schedule of the Arbitration
Act. The Fourth Schedule is extracted below:
“THE FOURTH SCHEDULE
See Section 11(3- A)
Sl. No. Sum in dispute Model fee
(1) (2) (3)
1. Up to Rs 5,00,000 Rs 45,000
2. Above Rs 5,00,000 and up to Rs
20,00,000
Rs 45,000 plus 3.5 per cent of
the claim amount over and above
Rs 5,00,000.
3. Above Rs 20,00,000 and up to
Rs 1,00,00,000
Rs 97,500 plus 3 per cent of the
claim amount over and above Rs
20,00,000.
4. Above Rs 1,00,00,000 and up to
Rs 10,00,00,000
Rs 3,37,500 plus 1 per cent of
the claim amount over and above
Rs 1,00,00,000.
5. Above Rs 10,00,00,000 and up
to Rs 20,00,00,000
Rs 12,37,500 plus 0.75 per cent
of the claim amount over and
above Rs 10,00,00,000.
6. Above Rs 20,00,00,000 Rs 19,87,500 plus 0.5 per cent of
the claim amount over and above
Rs 20,00,00,000 with a ceiling of
Rs 30,00,000.
Note: In the event the arbitral tribunal is a sole arbitrator, he shall be entitled to
an additional amount of twenty-five per cent on the fee payable as per the
above.”
PART D
100
The issue before this Court turns on the interpretation of the term “sum in
dispute”, which is the header of the second column of the Fourth Schedule. This
column provides the different categories of the amounts, corresponding to which
the third column provides the relevant fee which the arbitrators can charge for
that category.
111 On the one hand, it has been argued before us that the expression “sum in
dispute” should be the cumulative sum of the claim and counter-claim raised by
the parties. If such a position is adopted, the arbitrators will charge one common
fee for hearing both the claim and counter-claim, and the ceiling prescribed in the
Fourth Schedule will apply to their cumulati ve total. On the other hand, it is
submitted that “sum in dispute” refers to the individual sums in dispute in the
claim and counter-claim. The consequence of adopting this position would be that
the arbitrators will charge different sets of fee s for the claim and counter-claim,
and hence, separate fee ceilings will apply to both.
D.2 Definition of claim and counter-claim
D.2.1 In re a rbitration proceedings
(i) Statutory Framework of the Arbitration Act
112 The Arbitration Act does not specifically define either the expression
“claim” or “counter-claim”. However, these expressions are referred to in
numerous instances, which we shall now outline.
PART D
101
113 Part I of the Arbitration Act is titled “Arbitration”. Section 2 is the definitions
clause for Part I. Section 2(1) defines the various terms used throughout Part I .
Sections 2(2) to 2(5) clarify the scope of the disputes which will be covered by
Part I. Section 2(6) notes that where Part I allows parties to determine any issue,
it also provides them a right to let any other person or institution determine the
issue for them. Section 2(7) notes that awards passed under Part I shall be
domestic awards. S ection 28(1) clarifies that any reference to an agreement
made by the parties (or which may be made), will also include a reference to any
arbitration rules referred to in the agreement. Crucially, Section 2(9) states that
“[w]here [Part I], other than clause (a) of Section 25 or clause (a) of sub- section
(2) of Section 32, refers to a claim, it shall also apply to a counter-claim, and
where it refers to a defence, it shall also apply to a defence to that counter-claim”.
This corresponds to Article 2(f)
149
of the UNCITRAL Model Law, on which the
Arbitration Act is based. Section 25(a) notes that if the claimant fails to
communicate his statement of claim in accordance with sub- section (1) of Section
23, the arbitral tribunal shall terminate the proceedings, while Section 32(2)(a)
provides that the arbitral tribunal shall issue an order for termination of arbitration
proceedings where the claimant withdraws his claim, unless the respondent
objects to the order and the arbitral tribunal recognises a legitimate interest on his
part in obtaining a final settlement of the dispute. Hence, as is evident, other than
these specific provisions which refer to only a claim filed by the claimant, the
Arbitration Act treats claims and counter-claims at par.
149
Article 2(f) provides: “(f)where a provision of this Law, other than in Article 25(a) and 32(2)(a), refers to a
claim, it also applies to a counter-claim, and where it refers to a defence, it also applies to a defence to such
counter-claim”.
PART D
102
114 Another reference is then made to counter -claims in sub-Section (2- A) of
the Section 23, which provides as follows:
“23. Statements of claim and defence.
[…]
(2-A) The respondent, in support of his case, may also submit
a counter claim or plead a set-off, which shall be adjudicated
upon by the arbitral tribunal, if such counter claim or set-off
falls within the scope of the arbitration agreement.”
Section 23(2- A) clarifies that an arbitral tribunal is under an obligation to also
adjudicate upon a counter-claim or set-off filed by a party in an arbitration
proceeding, with the limitation that they should fall within the scope of the
arbitration agreement. This is in line with the requirements under the UNCITRAL
Model Law
150
. If a party files a frivolous counter-claim which leads to a delay in
the arbitration proceedings, the arbitral tribunal can take that into account while
determining costs in accordance with Section 31A(3)(c).
115 Section 23(2- A) was introduced by the Arbitration Amendment Act 2015,
bearing in view the recommendations in the LCI 246
th
Report (supra). The
Report had recommended the addition of an explanation to Section 23(1)
(instead of a different sub- Section) along with the following comment:
“Amendment of Section 23
13.In section 23, after sub-section (1) and before sub- section
(2), add the words “Explanation: In his defence the
respondent may also submit a counter claim or plead a set
off, which shall be treated as being within the scope of
reference and be adjudicated upon by the arbitral tribunal
notwithstanding that it may not fall within the scope of the
150
Howard M Holtzmann and Joseph E Neuhaus, A Guide to the UNCITRAL Model Law on International
Commercial Arbitration: Legislative History and Commentary (Walter Kluwers, 1989), page 649
PART D
103
initial reference to arbitration, but provided it falls within the
scope of the arbitration agreement.”
[NOTE: This explanation is in order to ensure that counter
claims and set off can be adjudicated upon by an arbitrator
without seeking a separate/new reference by the respondent
so long as it falls within the scope of the arbitration
agreement, in order to ensure final settlement of disputes
between parties and prevent multiplicity of litigation.]”
Thus, the object of taking up a counter-claim along with the claim in the same
proceeding is not because the counter-claim arises due to the claim (which it may
not) but in order to prevent a multiplicity of proceedings.
116 We have already noted Section 38(1) earlier in this judgment, where the
proviso provides the arbitral tribunal with the power to fix a separate amount of
deposits (of costs determined under Section 31(8)) in instances where a claim
and counter-claim have both been filed in an arbitration proceeding. We must
also take note of Section 38(2) of the Arbitration Act, which provides:
“(2) The deposit referred to in sub- section (1) shall be payable
in equal shares by the parties:
Provided that where one party fails to pay his share of the
deposit, the other party may pay that share:
Provided further that where the other party also does not pay
the aforesaid share in respect of the claim or the counter-
claim, the arbitral tribunal may suspend or terminate the
arbitral proceedings in respect of such claim or counter -claim,
as the case may be.”
As a general rule, sub- Section (2) of Section 38 provides that the deposits
determined under Section 38(1) have to be shared by both parties. The first
proviso notes that if one party fails to pay their share, the other party may step in
and pay it. Further, the second proviso notes that if the other party also does not
PART D
104
pay that share, the arbitral tribunal can suspend proceedings. Importantly, it
provides that it may terminate proceedings in relation to either the claim or
counter-claim or both, depending upon whether the appropriate deposits have
been made for one of them or neither of them.
117 Consequently, on the basis of the above analysis, the following principles
emerge:
(i) The Arbitration Act treats claims and counter-claims at par, and holds them
subject to the same procedural timelines and requirements;
(ii) The Arbitration Act allows the arbitral tribunal to fix a deposit of costs for
claims and counter-claims separately, recognizing that they are distinct
proceedings since: (a) the proceeding for adjudicating on the claim is
independent of the proceeding for deciding the counter -claim; (b) distinct
issues may arise before the tribunal while adjudicating on the claim and
counter-claim; (c) the evidence led in support of the claim may not be
dispositive of the material which would be relied on to decide the counter-
claim; and (d) the decision on the claim does not necessarily conclude the
adjudication of the counter -claim; and
(iii) The Arbitration Act considers claims and counter-claims to be independent
proceedings since the latter is not contingent upon the former. Rather, it
protects the right of any respondent to raise a counter-claim in an
arbitration proceeding, provided it arises from the arbitration agreement
under dispute. Further, in the event of a default in the payment of a deposit
either for the claim or counter-claim, it specifically notes that the
PART D
105
proceedings will be terminated only in respect of the claim, or as the case
may be, the counter-claim in respect of which the default has occurred;
(iv) Though a counter-claim may arise from similar facts as a claim, the
counter-claim is not a set off and is not in the nature of a defence to the
claim; and
(v) A counter-claim will survive for independent adjudication even if the claim
is dismissed or withdrawn and the respondent to a claim would be entitled
to pursue their counter-claim regardless of the pursuit of or the decision on
the claim.
(ii) Academic discourse
118 In Justice R S Bachawat’s seminal treatise on Law of Arbitration &
Conciliation, it has been noted that an arbitral tribunal has the jurisdiction to
decide any claim and counter-claim arising out of a dispute referred to it, and not
deciding the latter would be a ground to set aside the award
151
:
“[s 7.44.3] Counter-claim
When disputes in a pending suit are referred to arbitration,
the arbitrator has jurisdiction to decide both the claim and the
counterclaim…An award allowing the claim without deciding
the counterclaim is liable to be set aside. Where the
arbitration agreement permitted reference of all disputes to
arbitration, it could not be said that by entertaining a
counterclaim, the arbitrator exceeded his jurisdiction.”
151
Anirudh Wadha and Anirudh Krishnan, Justice R S Bachawat’s Law of Arbitration & Conciliation (6
th
edition,
2017)
PART D
106
119 Similarly, CR Dutta’s treatise on Law of Arbitration & Conciliation supports
the proposition that the Arbitration Act treats a claim and counter-claim as two
separate and independent proceedings
152
:
“4. To be paid equally
The cost amount to be deposited will be in respect of the
claim and separately in respect of the counter -claim by the
parties in equal shares. If a party does not pay the other party
may be asked to pay the shares of both the parties. If the
amount directed to be deposited in respect of the claim is not
made, then the proceedings in respect of the claim may be
suspended or terminated but the proceedings in respect of
counter-claim can proceed if the amount in respect thereof
has been deposited. For the purposes of deposit of costs and
expenses, the claim and counter-claim have been treated as
two separate independent proceedings.”
120 Gary Born on Arbitration (supra) notes that a party is generally not
bound by any restriction in regards to its counter-claim, except that it must fall
within the scope of the arbitration agreement
153
:
“In general, there are no limits under national law on the
subject matter of a respondent’s counterclaims, beyond
whatever restrictions may be contained in the parties’
arbitration agreement: the respondent may assert any
counterclaim that falls within the scope of the arbitration
agreement. This general freedom may be limited by the
parties’ arbitration agreement or applicable institutional rules
(which, however, usually do not impose further limits).”
121 Finally, in Procedure and Evidence in International Arbitration , a counter-
claim is differentiated from a set-off by noting that it is a claim brought by the
defendant and is not a defence to the claimant’s claim
154
:
152
CR Dutta’s Law Of Arbitration And Conciliation (LexisNexis)
153
Supra at note 30
154
Jeffrey Waincymer, Procedure and Evidence in International Arbitration (Walters Kluwer, 2012)
PART D
107
“4.4. A counterclaim is usually seen as a claim brought by a
respondent in a civil suit against the claimant that is
independent of the primary claim although it may be linked to
the same facts. The term is used in contradistinction to a set-
off that is seen as a defence to the primary claim, albeit one
invariably related to different facts. Because it is not simply a
defence, a counterclaim leads to a separate judgment that
may be in excess of the judgment under the primary claim.
Furthermore, the counterclaim remains alive even if the initial
claim is withdrawn. Thus, it is truly a reverse claim and not a
defence as such.”
122 These academic writings a support the conclusion that claims and counter-
claims within an arbitration proceeding are distinct and independent proceedings
in themselves.
(iii) Judicial pronouncements
123 Even before the introduction of Section 23(2-A) through the Arbitration
Amendment Act 2015, counter-claims were raised by parties in arbitration
proceedings. In Indian Oil Corpn. Ltd. v. Amritsar Gas Service
155
, this Court
had to decide on the validity of an award under the Arbitration Act 1940 where
the appellant’s counter-claim had been dismissed by the arbitrator since it was
not part of the reference. Speaking for the three- Judge Bench, Justice J S Verma
held that when all disputes under an arbitration agreement are referred to
arbitration, a party can file its counter-claim before the arbitral tribunal:
“15. The appellant's grievance regarding non- consideration of
its counter-claim for the reason given in the award does
appear to have some merit. In view of the fact that reference
to arbitrator was made by this Court in an appeal arising out
of refusal to stay the suit under Section 34 of the Arbitration
Act and the reference was made of all disputes between the
parties in the suit, the occasion to make a counter-claim in the
written statement could arise only after the order of reference.
155
(1991) 1 SCC 533 (“Amritsar Gas Service”)
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The pleadings of the parties were filed before the arbitrator,
and the reference covered all disputes between the parties in
the suit. Accordingly, the counter-claim could not be made at
any earlier stage. Refusal to consider the counter-claim for
the only reason given in the award does, therefore, disclose
an error of law apparent on the face of the award. However,
in the present case, the counter-claim not being pressed at
this stage by learned counsel for the appellant, it is
unnecessary to examine this matter any further.”
124 In State of Goa v. Praveen Enterprises
156
, a two-Judge Bench followed
the principle enunciated in Amritsar Gas Service (supra) in a case arising under
the Arbitration Act. Speaking for the two -Judge Bench, Justice R V Raveendran,
in the course of an erudite exposition of the law, highlighted that a respondent to
a claim could well seek independent recourse to arbitration for deciding the
counter-claim, but raising a counter-claim obviates a multiplicity of litigation:
“32. A counterclaim by a respondent presupposes the
pendency of proceedings relating to the disputes raised by
the claimant. The respondent could no doubt raise a dispute
(in respect of the subject-matter of the counterclaim) by
issuing a notice seeking reference to arbitration and follow it
by an application under Section 11 of the Act for appointment
of arbitrator, instead of raising a counterclaim in the pending
arbitration proceedings. The object of providing for
counterclaims is to avoid multiplicity of proceedings and to
avoid divergent findings. The position of a respondent in an
arbitration proceeding being similar to that of a defendant in a
suit, he has the choice of raising the dispute by issuing a
notice to the claimant calling upon him to agree for reference
of his dispute to arbitration and then resort to an independent
arbitration proceeding or raise the dispute by way of a
counterclaim, in the pending arbitration proceedings.”
156
(2012) 12 SCC 581 (“Praveen Enterprises”)
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109
Subsequently, in Voltas Ltd. v. Rolta India Ltd.
157
, another two- Judge Bench of
this Court followed the reasoning in Praveen Enterprises (supra), that counter-
claims were independent claim proceedings by the respondent. The C ourt held
that the limitation for a counter-claim would be determined with reference to the
date it was instituted before the arbitral tribunal. However, it carved out an
exception to this general rule for instances where the respondent had earlier
raised the counter-claim as a claim in a notice for arbitration sent to the claimant,
but did not subsequently file an application under Section 11 of the Arbitration
and raised it directly as a counter-claim. In such instances, the date of limitation
would, it was observed, begin from when the notice of arbitration was first
received by the claimant.
D.2.2 In re c ivil proceedings
(i) Statutory Framework of CPC
125 Order VIII of the CPC contains provisions pertaining to written statements,
set-offs and counter-claims by the defendant. Rule 6 elucidates the particulars of
a set-off to be given in a written statement:
“6. Particulars of set-off to be given in written
statement.—(1) Where in a suit for the recovery of money
the defendant claims to set-off against the plaintiff's demand
any ascertained sum of money legally recoverable by him
from the plaintiff, not exceeding the pecuniary limits of the
jurisdiction of the Court, and both parties fill the same
character as they fill in the plaintiff's suit, the defendant may,
at the first hearing of the suit, but not afterwards unless
permitted by the Court, present a written statement containing
the particulars of the debt sought to be set-off.
157
(2014) 4 SCC 516
PART D
110
(2) Effect of set- off.—The written statement shall have the
same effect as a plaint in a cross-suit so as to enable the
Court to pronounce a final judgment in respect both of the
original claim and of the set-off, but this shall not affect the
lien, upon the amount decreed, of any pleader in respect of
the costs payable to him under the decree.
(3) The rules relating to a written statement by a defendant
apply to a written statement in answer to a claim of set-off.”
Rule 6(1) specifies that while filing their written statement, a defendant may
mention the particulars of an ascertained sum l egally recoverable from the
plaintiff. Rule 6(2) notes that the effect of pleading a set-off in a written statement
is the same as filing a plaint in a cross-suit. Rule 6(3) then notes that the
plaintiff’s written statement in respondent to the defendant’s set-off claim shall
follow the same rules as the defendant’s written statement in response to the
plaintiff’s plaint.
126 On the other hand, a distinct provision is made for a counter -claim under
Rule 6-A of Order VIII of the CPC :
“6-A. Counter-claim by defendant.—(1) A defendant in a
suit may, in addition to his right of pleading a set-off under
Rule 6, set up, by way of counter-claim against the claim of
the plaintiff, any right or claim in respect of a cause of action
accruing to the defendant against the plaintiff either before or
after the filing of the suit but before the defendant has
delivered his defence or before the time limited for delivering
his defence has expired, whether such counter-claim is in the
nature of a claim for damages or not:
Provided that such counter -claim shall not exceed the
pecuniary limits of the jurisdiction of the Court.
(2) Such counter-claim shall have the same effect as a cross-
suit so as to enable the Court to pronounce a final judgment
in the same suit, both on the original claim and on the
counter-claim.
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(3) The plaintiff shall be at liberty to file a written statement in
answer to the counter-claim of the defendant within such
period as may be fixed by the Court.
(4) The counter-claim shall be treated as a plaint and
governed by the rules applicable to plaints.”
Rule 6-A(1) provides that the defendant’s counter-claim is in addition to a claim
for set-off under Rule 6. It provides that the defendant may file a counter-claim
based on a cause of action accruing to them against the plaintiff either before or
after the filing of the suit but before the defendant has delivered his defence or
before the time limited for delivering his defence has expired. The proviso notes
that the value of the counter-claim cannot exceed the pecuniary jurisdiction of the
court where it is being filed. Rule 6-A(2) provides that the counter-claim has the
same effect as a cross-suit. Rule 6-A(3) permits a plaintiff to file a written
statement against the defendant’s counter-claim. Finally, Rule 6-A(4) notes that
the counter-claim shall be treated as a plaint and the rules governing plaints will
be applicable to it.
127 Rule 6-D of Order VIII is of particular importance, and it provides thus:
“6-D. Effect of discontinuance of suit.—If in any case in
which the defendant sets up a counter-claim, the suit of the
plaintiff is stayed, discontinued or dismissed, and counter-
claim may nevertheless be proceeded with.”
Rule 6-D clarifies, in no uncertain terms, that even if the suit which has been
instituted by the plaintiff is stayed, discontinued or dismissed, it would not affect
the defendant’s counter-claim. This highlights, once again, that counter-claims
are distinct and independent from claims. The defendant’s counter-claim is
equivalent to a plaint. The counter-claim is not being filed as an independent suit
PART D
112
but as a counter-claim within a pre- existing suit so as to avoid a multiplicity of
litigation. However, it is not dependant on the outcome of the original suit and is
an independent proceeding.
(ii) Academic discourse
128 Mulla’s treatise on the Code of Civil Procedure notes that a counter-claim
is an independent suit which exists within another pre- existing suit, in order to
enable the court to pronounce final judgment on the claim and the counter-claim
together
158
:
“The very object of Rule 6A is to treat a counterclaim as an
independent suit to be heard together with the plaintiff’s suit
to enable the court to pronounce final judgement. ”
129 Sarkar’s Code of Civil Procedure notes that a counter-claim is an
independent action and not a defence to the plaintiff’s original claim
159
:
“The provisions of Rule 6A(1) are in substance similar to
those of RSC, 1965 [Rules of the Supreme Court of UK,
1965], Order 15, Rule 2(1). Cf Rule 6(2) with Order 8, Rule
6(2) of the Code and Rule 6A(4) with RSC 1965, Order 18,
Rule 18. The effect of this rule is from the point of view of
pleading to assimilate a counter-claim with a plaint in a suit
and is therefore governed by the same rules of pleading as a
plaint. A counter-claim is substantially a cross- action, not
merely a defence to the plaintiff’s claim. It must be of such
a nature that the court would have jurisdiction to entertain it
as a separate action. ”
(emphasis supplied)
158
Mulla, The Code of Civil Procedure, (Volume 2, 18
th
edition) page 1925
159
Sudipto Sarkar and Aditya Swarup, Sarkar’s Code of Civil Procedure (LexisNexis, 13
th
edition) (“Sarkar”)
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113
Sarkar (supra) further notes that this understanding is crystallised in Order VIII
Rule 6-D, where the dismissal of a frivolous action by the plaintiff would not affect
the defendant’s counter-claim:
“[Rule 6- D] further illustrates the principle that a counter-claim
is to be treated as a cross action, and is not affected by
anything which relates solely to the plaintiff’s claim. Thus,
where the plaintiff discontinues action the counter-claim has
been served, he cannot prevent the defendant from enforcing
against him the causes of action contained in the counter-
claim. So if an action is dismissed being frivolous, the
counter-claim is not affected and the defendant may be
granted the relief which he seeks thereby.”
130 The above exposition of a counter-claim is elaborated in Halsbury’s Laws
of India (Civil Procedure)
160
:
“A “counter-claim” is a claim made by a defendant in a suit
against a plaintiff. It is a claim, independent of and
separable from the plaintiff’s claim, which can be
enforced by a cross- action. It is a cause of action in favour
of the defendant against the plaintiff…”
(emphasis supplied)
131 Zuckerman’s treatise on Civil Procedure, Principles of Practice also
observes that counter-claims are an independent proceeding
161
:
“4.52. A counterclaim is independent of the main claim. It may
relate to the same transaction, as where the claimant claims
for the price of goods and the defendant counterclaims
damages for late delivery or for defects. Equally, a
counterclaim can be wholly separate from the claim, as where
the defendant sues in respect of entirely different events from
those that are raised in the claimant’s claim.”
160
Halsbury’s Laws of India (Civil Procedure) (2
nd
edition)
161
Zuckermann on Civil Procedure (Sweet & Maxwell, 4
th
edition)
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(iii) Judicial pronouncements
132 In Jag Mohan Chawla v. Dera Radha Swami Satsang
162
, a two-Judge
Bench of this Court had to decide whether, under the CPC, a counter-claim can
be made on a cause of action different from the primary claim. Speaking for the
two-Judge Bench, Justice K Ramaswamy held:
“5…In sub- rule (1) of Rule 6-A, the language is so couched
with words of wide width as to enable the parties to bring
his own independent cause of action in respect of any
claim that would be the subject-matter of an independent
suit. Thereby, it is no longer confined to money claim or to
cause of action of the same nature as original action of the
plaintiff. It need not relate to or be connected with the original
cause of action or matter pleaded by the plaintiff. The words
“any right or claim in respect of a cause of action accruing
with the defendant” would show that the cause of action from
which the counter-claim arises need not necessarily arise
from or have any nexus with the cause of action of the plaintiff
that occasioned to lay the suit…The counter-claim
expressly is treated as a cross- suit with all the indicia of
pleadings as a plaint including the duty to aver his cause
of action and also payment of the requisite court fee
thereon. Instead of relegating the defendant to an
independent suit, to avert multiplicity of the proceeding
and needless protection (sic protraction), the legislature
intended to try both the suit and the counter-claim in the
same suit as suit and cross- suit and have them disposed
of in the same trial. In other words, a defendant can claim
any right by way of a counter-claim in respect of any cause of
action that has accrued to him even though it is independent
of the cause of action averred by the plaintiff and have the
same cause of action adjudicated without relegating the
defendant to file a separate suit…”
(emphasis supplied)
Hence, it was held that since the counter-claim was effectively an entirely
independent suit from the claim, it could arise out of any unrelated cause of
action.
162
(1996) 4 SCC 699
PART D
115
133 In Rajni Rani v. Khairati Lal
163
, Justice Dipak Misra (as t he learned Chief
Justice then was), speaking for a two- Judge Bench of this Court, analysed the
provisions of Order VIII and held:
“9.6…a counterclaim preferred by the defendant in a suit
is in the nature of a cross- suit and by a statutory
command even if the suit is dismissed, counterclaim
shall remain alive for adjudication. For making a
counterclaim entertainable by the court, the defendant is
required to pay the requisite court fee on the valuation of the
counterclaim. The plaintiff is obliged to file a written statement
and in case there is default the court can pronounce the
judgment against the plaintiff in relation to the counterclaim
put forth by the defendant as it has an independent status.
The purpose of the scheme relating to counterclaim is to
avoid multiplicity of the proceedings. When a counterclaim
is dismissed on being adjudicated on merits it forecloses the
rights of the defendant. As per Rule 6- A(2) the court is
required to pronounce a final judgment in the same suit both
on the original claim and also on the counterclaim.
The...purpose is to avoid piecemeal adjudication…”
134 In Thomas Mathew v. KLDC Ltd., another two- Judge Bench of this Court
held that a counter-claim is an independent suit and consequently, the period of
limitation would be three years from the date of accrual of the cause of action
164
.
D.3 Analysis
135 On our analysis of the statutory framework of the Arbitration Act and the
CPC, related academic discourse and judicial pronouncements, the following
conclusions emerge:
(i) Claims and counter-claims are independent and distinct proceedings;
163
(2015) 2 SCC 682
164
(2018) 12 SCC 560
PART D
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(ii) A counter-claim is not a defence to a claim and its outcome is not
contingent on the outcome of the claim;
(iii) Counter-claims are independent claims which could have been raised in
separate proceedings but are permitted to be raised in the same
proceeding as a claim to avoid a multiplicity of proceedings; and
(iv) The dismissal of proceedings in relation to the original claim does not
affect the proceedings in relation to the counter-claim.
136 We must now consider these principles in the context of the inter-
connection between Section 31(8), Section 31A and Section 38(1) and the Fourth
Schedule of the Arbitration Act. On a combined reading of Section 31(8), Section
31A and Section 38(1), it is clear that: (i) separate deposits are to be made for a
claim and counter-claim in an arbitration proceeding; and (ii) these deposits are in
relation to the costs of arbitration, which includes the fee of the arbitrators.
Therefore, prima facie, the determination of the fee under the Fourth Schedule
should also be calculated separately for a claim and counter-claim – i.e., the term
“sum in dispute” refers to independent claim amounts for the claim and counter-
claim. Such an interpretation is also supported by the definition of claim and
counter-claim, and by the fact that the latter constitutes proceedings independent
and distinct from the former.
137 If this interpretation were to be discarded in favor of construing “sum in
dispute” as a cumulation of the claim amount for the claim and counter-claim, it
would have far-reaching consequences in terms of procedural fairness. First ,
under the proviso to Section 38(1), the arbitral tribunal can direct separate
deposits for a claim and counter-claim. These are based on the cost of arbitration
PART D
117
defined by a conjoint reading of Sections 31(8) and 31A, which includes the
arbitrators’ fee. Hence, if the arbitrators were to charge a common fee for both
the claim and counter-claim, they would have to then equitably divide that fee
while calculating individual deposits for the purpose of the proviso to Section
38(1). Second, the second proviso to Section 38(2) provides that if the deposit is
not made by both the parties, the arbitral tribunal can dismiss the claim and/or
counter-claim, as the case may be. If the claim was to be dismissed in such a
manner, it would lead to an absurd situation where the arbitrators’ fee would have
to be revised in the middle of the arbitration proceedings solely on the basis of
the amount of the counter -claim. Third, under Section 23(2- A), the only
requirement of a counter-claim is that it should arise out of the same arbitration
agreement as the claim. However, the cause of action of a counter-claim may be
entirely different from the claim and possibly far more complex. Therefore,
determining the arbitrators’ fee on a combined basis for both the claim and
counter-claim would thus not match up to the separate effort they would have to
put in for each individual dispute in the claim and counter-claim.
138 In support of the proposition that “sum in dispute” in the Fourth Schedule
includes the cumulation of the sums of the claim and counter-claim, we have also
been referred to the LCI 246
th
Report (supra). It has been argued that the Law
Commission highlighted the problem of arbitrators charging an excessive fee in
ad hoc arbitrations, which is what led to the introduction of the Fourth Schedule
by the Arbitration Amendment Act 2015. Thus, it has been urged that “sum in
dispute” in the Fourth Schedule should be interpreted keeping in mind the
purpose with which it was introduced. However, we must reject the argument
PART D
118
since it would militate against the statutory framework of the Arbitration Act as it
stands today. If Parliament intended that a common fee be charged for a claim
and counter-claim, it would have amended the rest of the Arbitration Act as well
or introduced a specific clause in the Fourth Schedule. Parliament may in its
legislative wisdom still do so. In Aphali Pharmaceuticals Ltd. v. State of
Maharashtra
165
, speaking for a two- Judge Bench of this Court, Justice K N
Saikia held:
“31. A Schedule in an Act of Parliament is a mere question of
drafting…The Schedule may be used in construing provisions
in the body of the Act. It is as much an act of legislature as
the Act itself and it must be read together with the Act for all
purposes of construction. Expressions in the Schedule
cannot control or prevail against the express enactment
and in case of any inconsistency between the Schedule
and the enactment, the enactment is to prevail and if any
part of the Schedule cannot be made to correspond it
must yield to the Act.”
(emphasis supplied)
139 In a final attempt, we have also been referred to the rules of numerous
arbitral institutions which provide for the calculation of arbitrators’ fees on the
cumulation of the sum of the claim and counter-claim – such as the DIAC
166
,
Mumbai Centre for International Arbitration
167
, Indian Council of Arbitration
168
,
Construction Industry Arbitration Council
169
, SIAC, HKIAC
170
, Stockholm.
165
(1989) 4 SCC 378
166
Rule 3(ii) of the DIAC Rules provides: “3. Arbitrators' Fees - (ii)The fee shall be determined and assessed on
the aggregate amount of the claim(s) and counter claim(s)”.
167
Based on its online Fee Calculator available at <https://mcia.org.in/mcia- schedule- of-fees/calculate_fees/#>
accessed on 29 June 2022
168
Rule 31(2) of Rules of Domestic Commercial Arbitration and Conciliation
169
Schedule of Fees available at <http://www.ciac.in/fee_arbitrator.html> accessed on 29 June 2022
170
Article 6.3 of Schedule III of HKIAC Administered Arbitration Rules 2013 provides: “6.3 Claims and
counterclaims are added for the determination of the amount in dispute. The same rule applies to any set-off
defence, unless the arbitral tribunal, after consulting with the parties, concludes that such set-off defence will not
require significant additional work”.
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119
140 Chamber of Commerce
171
and European Court of Arbitration
172
. This will,
however, have no bearing on our judgment. As noted earlier in this judgment,
parties have the freedom to opt for institutional arbitration and be bound by the
rules of the institution. However, the judgment is currently dealing with instances
of ad hoc arbitrations where the Fourth Schedule has been made applicable for
the calculation of the arbitrators’ fee. In such cases, we hold that the “sum in
dispute” in the Fourth Schedule of the Arbitration Act shall be considered
separately for the claim amount in dispute in the claim and counter-claim.
Consequently, the arbitrators’ fee will be calculated separately for the claim and
counter-claim, and the ceiling on the fee will also be applicable separately to
both.
E Fee Ceiling in Fourth Schedule
141 This issue revolves around the interpretation of the sixth entry of the
Fourth Schedule. For convenience of the reader, the Fourth Schedule is being
extracted again:
“THE FOURTH SCHEDULE
See Section 11(3- A)
Sl. No. Sum in dispute Model fee
(1) (2) (3)
1. Up to Rs 5,00,000 Rs 45,000
171
Article 2 of Appendix IV of 2017 Arbitration Rules provides: “(3) The amount in dispute shall be the aggregate
value of all claims, counterclaims and set-offs. Where the amount in dispute cannot be ascertained, the Board
shall determine the Fees of the Arbitral Tribunal having regard to all relevant circumstances.”.
172
Appendix 3 of the Arbitration Rules of the European Court of Arbitration – 2021 provides: “For the purposes of
the application of the scale range the amount to be taken into account to apply this scale will be the total of the
claims made by the parties, i.e. of the claims and counterclaims.”.
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120
2. Above Rs 5,00,000 and up to Rs
20,00,000
Rs 45,000 plus 3.5 per cent of
the claim amount over and above
Rs 5,00,000.
3. Above Rs 20,00,000 and up to
Rs 1,00,00,000
Rs 97,500 plus 3 per cent of the
claim amount over and above Rs
20,00,000.
4. Above Rs 1,00,00,000 and up to
Rs 10,00,00,000
Rs 3,37,500 plus 1 per cent of
the claim amount over and above
Rs 1,00,00,000.
5. Above Rs 10,00,00,000 and up
to Rs 20,00,00,000
Rs 12,37,500 plus 0.75 per cent
of the claim amount over and
above Rs 10,00,00,000.
6. Above Rs 20,00,00,000 Rs 19,87,500 plus 0.5 per cent
of the claim amount over and
above Rs 20,00,00,000 with a
ceiling of Rs 30,00,000.
Note: In the event the arbitral tribunal is a sole arbitrator, he shall be entitled to
an additional amount of twenty-five per cent on the fee payable as per the
above.”
(emphasis supplied)
142 The choice before this Court is between two competing interpretations of
the Model Fee where the sum in dispute is above Rs 20,00,00,000. Before we
explain the competing interpretations, it is important to note that there is an
agreement on the following:
(i) For an arbitration with the sum in dispute is Rs 20,00,00,000, the fee would
be Rs 19,87,500. This will be referred to as the base amount;
(ii) For any increase in the sum in dispute over and above Rs 20,00,00,000,
0.5 per cent of the amount above Rs 20,00,00,000 will be added to the fee.
This will be referred to as the variable amount. For instance, if the sum in
PART E
121
dispute was Rs 21,00,00,000, the amount above Rs 20,00,00,000 is Rs
1,00,00,000. Hence, 0.5 per cent of Rs 1,00,00,000 will be added as the
variable amount; and
(iii) There is a ceiling of Rs 30,00,000.
The controversy before this Court is in relation to the third point, namely, to what
does the ceiling apply. There are two possible interpretations:
(i) First, the ceiling is for the sum of the base amount and the variable
amount. If this interpretation were to be accepted, the highest possible fee
would be Rs 30,00,000; or
(ii) Second, the ceiling is for the variable amount only. If this interpretation
were to be accepted, the highest possible fee would be Rs 49,87,500.
E.1 Difference between the English and Hindi translations
143 The first submission before us is that there is a difference between the
English and Hindi translation of the relevant text. For ready reference, the two
versions are being extracted below:
Rs.19,87,500 plus 0.5 per cent of the claim
amount over and above Rs.20,00,00,000 with
a ceiling of Rs.30,00,000.
19,87,500 �पए + 20,00,00,000 �पए से अिधक
की दावा रकम का 0.5 प्रितशत, 30,00,000 �पए
की अिधकतम सीमा सिहत।
(emphasis supplied)
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122
The difference between the two is the presence of a comma (“,”) in the Hindi
translation, which is absent in the English version. It has been submitted that the
comma was inadvertently missed from the English version, and hence the Hindi
translation should be given preference. In support of this proposition, reliance is
also placed upon Article 343(1) of the Constitution which provides that “[t]he
official language of the Union shall be Hindi in Devanagari script”.
144 We must reject this submission at the threshold since it is in teeth of Article
348(1)(b)(ii) of the Constitution, which reads thus:
“348. Language to be used in the Supreme Court and in
the High Courts and for Acts, Bills, etc. —(1)
Notwithstanding anything in the foregoing provisions of this
Part, until Parliament by law otherwise provides—
[…]
(b) the authoritative texts—
(i) of all Bills to be introduced or amendments thereto to be
moved in either House of Parliament or in the House or either
House of the Legislature of a State,
[…]
shall be in the English language.”
Article 348 begins with a non- obstante clause, which clarifies that it shall have
precedence over other Articles in Part XVII, including Article 343(1).
145 In Nityanand Sharma v. State of Bihar
173
, a three- Judge Bench of this
Court had to decide whether the ‘Lohar’ community would be construed as a
Scheduled Tribe since their name appeared in the Schedule in the Hindi
173
(1996) 3 SCC 576
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123
translation while the English original had the community “Lohra”. Speaking for the
Bench, Justice K Ramaswamy held:
“19. Article 348(1)(b) of the Constitution provides that
notwithstanding anything in Part II (in Chapter II Articles
346 and 347 relate to regional languages) the
authoritative text of all Bills to be introduced and
amendments thereto to be moved in either House of
Parliament … of all ordinances promulgated by the
President… and all orders, rules, regulations and bye-
laws issued under the Constitution or under any law
made by Parliament, shall be in the English language. By
operation of sub- article (3) thereof with a non obstante
clause, where the Legislature of a State has prescribed any
language other than the English language for use in Bills
introduced in, or Acts passed by, the Legislature of the State
or in Ordinances promulgated by the Governor of the State or
in any order, rule, regulation or bye- law referred to in
paragraph (iii) of that sub- clause, a translation of the same in
the English language published under the authority of the
Governor of the State in the Official Gazette of that State shall
be deemed to be the authoritative text thereof in the English
language under this article. Therefore, the Act and the
Schedule thereto are part of the Act, as enacted by
Parliament in English language. It is the authoritative
text. When the Schedules were translated into Hindi, the
translator wrongly translated Lohara as Lohar omitting the
letter ‘a’ while Lohra is written as mentioned in English
version. It is also clear when we compare Part XVI of the
Second Schedule relating to the State of West Bengal, the
word Lohar both in English as well as in the Hindi version was
not mentioned. Court would take judicial notice of Acts of
Parliament and would interpret the Schedule in the light of the
English version being an authoritative text of the Act and the
Second Schedule. ”
(emphasis supplied)
Similarly, in the present case, this Court shall be governed by article 348 (1)(b)(i)
while interpreting the entry at S erial No 6 of the Fourth Schedule.
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124
E.2 Exception to literal interpretation
146 There is no comma in the English version of the sixth entry of the Fourth
schedule. Hence, there is nothing to suggest conclusively (unlike the Hindi
translation) that the ceiling of Rs 30,00,000 applies cumulatively to the sum of the
base amount and variable amount.
147 The absence of a comma may be one indicator of the meaning of a
provision. However, in his seminal treatise on Principles of Statutory
Interpretation, Justice GP Singh has observed
174
:
“In England, before 1850, there was no punctuation in the
manuscript copy of any Act which received the Royal assent;
therefore, the courts cannot have any regard to punctuation
for construing the older Acts. Even as regards more modern
Acts, it is very doubtful if punctuation can be looked at for
purposes of construction. The opinion on Indian statutes is
not very much different.”
148 Similarly, Bennion in his treatise on Statutory Interpretation notes
175
:
“16.8. Punctuation is a part of an Act and may be considered
in construing a provision. It is usually of little weight, however,
since the sense of an Act should be the same with or without
its punctuation…Although punctuation may be considered, it
will generally be of little use since the sense of an Act should
be the same with or without it. Punctuation is a device not for
making meaning, but for making meaning plain. Its purpose is
to denote the steps that ought to be made in oral reading and
to point out the sense. The meaning of a well-crafted
legislative proposition should not turn on the presence or
absence of a punctuation mark.”
149 In Aswini Kumar Ghose v. Arabinda Bose
176
, a Constitution Bench of
this Court had to interpret provisions of the Bar Councils Act 1926. A key
174
Justice GP Singh, Principles of Statutory Interpretation (14
th
edition, LexisNexis)
175
Diggory Bailey and Luke Norbury, Bennion on Statutory Interpretation (7
th
edition, LexisNexis)
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125
submission was in reference to the presence of a comma before the word “or” in
the non- obstante provision. Justice B K Mukherjea in his judgment observed:
“56…Punctuation is after all a minor element in the
construction of a statute, and very little attention is paid to it
by English courts. Cockburn, C.J. said in Stephenson v.
Taylor [(1861) 1 B & S p. 101] : “On the Parliament Roll there
is no punctuation and we therefore are not bound by that in
the printed copies”. It seems, however, that in the Vellum
copies printed since 1850 there are some cases of
punctuation, and when they occur they can be looked upon
as a sort of contemporanea exposition [See Craies on Statute
Law, p. 185]. When a statute is carefully punctuated and
there is doubt about its meaning, a weight should
undoubtedly be given to the punctuation [Vide Crawford on
Statutory Construction, p. 343]. I need not deny that
punctuation may have its uses in some cases, but it cannot
certainly be regarded as a controlling element and cannot be
allowed to control the plain meaning of a text [Ibid].”
Thus, Justice Mukherjea chose a middle- path where t he learned Judge admitted
to the use of punctuation but held that it still cannot be a controlling element in
interpreting a provision.
150 Another Constitution Bench of this Court in Indore Development
Authority (LAPSE-5 J.) v. Manoharlal
177
, has noted its support of the use of
punctuation as a tool of interpretation and cited with approval the following extract
from Taylor v. Caribou
178
:
“We are aware that it has been repeatedly asserted by courts
and jurists that punctuation is no part of a statute, and that it
ought not to be regarded in construction. This rule in its origin
was founded upon common sense, for in England until 1849
statutes were entrolled upon parchment and enacted without
punctuation…Such a rule is not applicable to conditions
where, as in this State, a Bill is printed and is on the desk of
176
1953 SCR 1
177
(2020) 8 SCC 129
178
102 Me 401 : 67 A 2 (1907)
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126
every Member of the Legislature, punctuation and all, before
its final passage. There is no reason why punctuation, which
is intended to and does assist in making clear and plain the
meaning of all things else in the English language, should be
rejected in the case of the interpretation of statutes.
“Cessante ratione legis cessat ipso lex”. Accordingly we find
that it has been said that in interpreting a statute punctuation
may be resorted to when other means fail…; that it may aid
its construction…; that by it the meaning may often be
determined; that it is one of the means of discovering the
legislative intent…; that it may be of material assistance in
determining the legislative intention…”
Indeed, in Mohd. Shabir v. State of Maharashtra, a two-Judge Bench of this
Court held that mere stocking was not an offence under Section 27 of Drugs and
Cosmetics Act 1940 due to the absence of a comma after the word “stock”
179
.
151 In the present case, the English version of the entry at Serial No 6 of the
Fourth Schedule does not have any comma. Due to its absence, it can be
construed that the literal meaning of the provision is that the ceiling should only
apply to the variable amount. However, Maxwell on The Interpretation of Statutes
notes that the literal meaning of a provision must be rejected when it goes
manifestly against the legislative intent behind the enactment
180
:
“WHERE the language of a statute, in its ordinary meaning
and grammatical construction, leads to a manifest
contradiction of the apparent purpose of the enactment, or to
some inconvenience or absurdity which can hardly have been
intended, a construction may be put upon it which modifies
the meaning of the words and even the structure of the
sentence. This may be done by departing from the rules of
grammar, by giving an unusual meaning to particular words,
or by rejecting them altogether, on the ground that the
legislature could not possibly have intended what its words
signify, and that the modifications made are mere corrections
of careless language and really give the true meaning. Where
the main object and intention of a statute are clear, it must not
179
(1979) 1 SCC 568
180
P St J Langan, Maxwell on The Interpretation of Statutes (N M Tripathi Private Ltd, 1976)
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be reduced to a nullity by the draftsman's unskilfulness or
ignorance of the law, except in a case of necessity, or the
absolute intractability of the language used.”
Hence, in the present case, we must aim to ascertain the legislative intent behind
the Fourth Schedule.
E.3 Interpretation based on legislative intent
152 The Fourth Schedule was added to the Arbitration Act pursuant to the
Arbitration Amendment Act 2015, which in itself was based upon the
recommendations in the LCI 246
th
Report (supra). The R eport referred to the
judgment in Singh Builders (supra), which raised the issue of arbitrators
charging exorbitant fees:
“20. Another aspect referred to by the appellant, however
requires serious consideration. When the arbitration is by a
tribunal consisting of serving officers, the cost of arbitration is
very low. On the other hand, the cost of arbitration can be
high if the Arbitral Tribunal consists of retired Judge(s).
21. When a retired Judge is appointed as arbitrator in place of
serving officers, the Government is forced to bear the high
cost of arbitration by way of private arbitrator’s fee even
though it had not consented for the appointment of such non-
technical non- serving persons as arbitrator(s). There is no
doubt a prevalent opinion that the cost of arbitration becomes
very high in many cases where retired Judge(s) are
arbitrators. The large number of sittings and charging of very
high fees per sitting, with several add- ons, without any ceiling,
have many a time resulted in the cost of arbitration
approaching or even exceeding the amount involved in the
dispute or the amount of the award.
22. When an arbitrator is appointed by a court without
indicating fees, either both parties or at least one party is at a
disadvantage. Firstly, the parties feel constrained to agree to
whatever fees is suggested by the arbitrator, even if it is high
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or beyond their capacity. Secondly, if a high fee is claimed by
the arbitrator and one party agrees to pay such fee, the other
party, which is unable to afford such fee or reluctant to pay
such high fee, is put to an embarrassing position. He will not
be in a position to express his reservation or objection to the
high fee, owing to an apprehension that refusal by him to
agree for the fee suggested by the arbitrator, may prejudice
his case or create a bias in favour of the other party which
readily agreed to pay the high fee.
23. It is necessary to find an urgent solution for this problem
to save arbitration from the arbitration cost. Institutional
arbitration has provided a solution as the arbitrators’ fees is
not fixed by the arbitrators themselves on case- to-case basis,
but is governed by a uniform rate prescribed by the institution
under whose aegis the arbitration is held. Another solution is
for the court to fix the fees at the time of appointing the
arbitrator, with the consent of parties, if necessary in
consultation with the arbitrator concerned. Third is for the
retired Judges offering to serve as arbitrators, to indicate their
fee structure to the Registry of the respective High Court so
that the parties will have the choice of selecting an arbitrator
whose fees are in their “range” having regard to the stakes
involved.”
153 After noting the judgment in Singh Builders (supra), the LCI 246
th
Report
(supra) stated as follows:
“11. In order to provide a workable solution to this problem,
the Commission has recommended a model schedule of fees
and has empowered the High Court to frame appropriate
rules for fixation of fees for arbitrators and for which purpose
it may take the said model schedule of fees into account. The
model schedule of fees are based on the fee schedule set by
the Delhi High Court International Arbitration Centre, which
are over 5 years old, and which have been suitably revised.
The schedule of fees would require regular updating, and
must be reviewed every 3- 4 years to ensure that they
continue to stay realistic.
12.The Commission notes that International Commercial
arbitrations involve foreign parties who might have different
values and standards for fees for arbitrators; similarly,
institutional rules might have their own schedule of fees; and
in both cases greater deference must be accorded to party
autonomy. The Commission has, therefore, expressly
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restricted its recommendations in the context of purely
domestic, ad hoc, arbitrations.”
As a means of controlling the rising fees of arbitrators, the Law Commission
proposed a model fee schedule based on the one used by the DIAC. Schedule B
of the DIAC Rules provides that when the sum in dispute is above Rs
20,00,00,000, the fees shall be “Rs.19,87,500/- + 0.5% of the claim amount over
and above Rs.20 crores , with a ceiling of Rs.30,00,000/ -”. Evidently, the DIAC
Rules have a comma, which would mean that the ceiling would have been
applicable to the base amount and the variable amount.
154 In Mithilesh Kumari v. Prem Behari Khare
181
, a two-Judge Bench of this
Court held that, depending on the facts and circumstances of each case, law
commission reports preceding enactments of statutes can be relied on as an aid
in interpretation. Speaking for the Bench, Justice K N Saikia held:
“15…where a particular enactment or amendment is the
result of recommendation of the Law Commission of India, it
may be permissible to refer to the relevant report as in this
case. What importance can be given to it will depend on the
facts and circumstances of each case.”
155 The LCI 246
th
Report (supra), indicates that the legislative intent behind
the introduction of the Fourth Schedule was to put an end to the practise of
arbitrators charging exorbitant fees from the parties taking their services in ad
hoc arbitrations. Consequently, when we have the option of setting the ceiling of
the fees in the Fourth Schedule at either Rs 30,00,000 or Rs 49,87,500, we
believe that it would be appropriate to choose the lower amount since it would be
181
(1989) 2 SCC 95
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130
in keeping with legislative intent. The 2015 Arbitration A mendment Act was
clearly enacted with the intent to give effect to the recommendation of the LCI
246th Report on the point. Thus, we hold that the ceiling of Rs 30,00,000 in entry
at Serial No 6 of the Fourth Schedule is applicable to the sum of base amount
and the variable amount, and not just the variable amount.
F Ceiling applicable to individual arbitrators
156 The final submission made before this Court was that the ceiling of Rs
30,00,000 prescribed in the entry at S erial No 6 of the Fourth Schedule will be
applicable to the cumulative fee paid to the entire arbitral tribunal, i.e., in a three-
member tribunal, each individual arbitrator would receive a fee of Rs 10,00,000.
157 Such a submission is erroneous , and hence we must reject it. First, there
is nothing in the language of the Fourth Schedule to support such an
interpretation. The header of the third column states “Model Fee” and does not
specify it to be in respect of the whole tribunal. Second , if such an interpretation
were to be adopted, it would lead to absurd consequences. For instance, in an
arbitration where the sum in dispute is large enough to trigger the ceiling of Rs
30,00,000 and it were to be adjudicated by a three- member tribunal, the
maximum fee would have to be divided amongst the three arbitrators. On the
other hand, if the same dispute were to be adjudicated by a sole arbitrator, the
sole arbitrator would then receive the whole amount of the maximum fee, i.e.,
triple of what each individual arbitrator would have received in a three- member
tribunal. Such a disparity is inconceivable, regardless of the extra work a sole
PART G
131
arbitrator may have to put in. This is further bolstered by the Note to the Fourth
Schedule, which states that “[i]n the event the arbitral tribunal is a sole arbitrator,
he shall be entitled to an additional amount of twenty-five per cent on the fee
payable as per the above”. Consequently , the sole arbitrator would not only
receive Rs 30,00,000, but an additional 25 per cent over and above it. Indeed, it
is clear that the Note was added to the Fourth Schedule to fairly compensate sole
arbitrators who arguably would have to do more work than as a member of a
larger tribunal; which is why they are allowed payment of 25 per cent of the fee
over and above what they would be paid pursuant to the table given in the Fourth
Schedule. The corollary of this is that the fee provided in Fourth Schedule is for
each individual arbitrator, regardless of whether they are a member of a multi-
member tribunal or a sole arbitrator. Finally, this interpretation of the Fourth
Schedule, that the fee provided therein is applicable for each individual arbitrator
and not the whole arbitral tribunal, has also been fairly conceded before this
Court by the learned Attorney General.
G Conclusion
G.1 Findings
158 We answer the issues raised in this batch of cases in the following terms:
(i) Arbitrators do not have the power to unilaterally issue binding and
enforceable orders determining their own fees. A unilateral determination
of fees violates the principles of party autonomy and the doctrine of the
prohibition of in rem suam decisions, i.e., the arbitrators cannot be a judge
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of their own private claim against the parties regarding their remuneration.
However, the arbitral tribunal has the discretion to apportion the costs
(including arbitrators’ fee and expenses) between the parties in terms of
Section 31(8) and Section 31A of the Arbitration Act and also demand a
deposit (advance on costs) in accordance with Section 38 of the Arbitration
Act. If while fixing costs or deposits, the arbitral tribunal makes any finding
relating to arbitrators’ fees (in the absence of an agreement between the
parties and arbitrators), it cannot be enforced in favour of the arbitrators.
The arbitral tribunal can only exercise a lien over the delivery of arbitral
award if the payment to it remains outstanding under Section 39(1). The
party can approach the court to review the fees demanded by the
arbitrators if it believes the fees are unreasonable under Section 39(2);
(ii) Since this judgment holds that the fees of the arbitrators must be fixed at
the inception to avoid unnecessary litigation and conflicts between the
parties and the arbitrators at a later stage, this Court has issued certain
directives to govern proceedings in ad hoc arbitrations in Section C.2.4;
(iii) The term “sum in dispute” in the Fourth Schedule of the Arbitration Act
refers to the sum in dispute in a claim and counter -claim separately, and
not cumulatively. Consequently, arbitrators shall be entitled to charge a
separate fee for the claim and the counter-claim in an ad hoc arbitration
proceeding, and the fee ceiling contained in the Fourth Schedule will
separately apply to both, when the fee structure of the Fourth schedule has
been made applicable to the ad hoc arbitration;
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(iv) The ceiling of Rs 30,00,000 in the entry at S erial No 6 of the Fourth
Schedule is applicable to the sum of the base amount (of Rs 19,87,500)
and the variable amount over and above it. Consequently, the highest fee
payable shall be Rs 30,00,000; and
(v) This ceiling is applicable to each individual arbitrator, and not the arbitral
tribunal as a whole, where it consists of three or more arbitrators. Of
course, a sole arbitrator shall be paid 25 per cent over and above this
amount in accordance with the Note to the Fourth Schedule.
G.2 Directions
159 We issue the following directions in each of the cases before this Court:
(i) In respect of Arbitration Petition (Civil) No 5 of 2022, a fee schedule for the
arbitrators was already prescribed in the LSTK contract. However, during
the preliminary meeting on 25 November 2015, the arbitral tribunal
observed that the fee schedule in the LSTK contract was unrealistic. While
Afcons agreed to revise the fees, ONGC expressed its disagreement. The
tribunal directed ONGC to consider revising the fees. On 16 April 2016, the
arbitral tribunal informed ONGC that it would no longer bargain on the
amount of fees if ONGC was agreeable to the fee provided in the Fourth
Schedule to the Arbitration Act, along with a reading fee of Rs 6 lakhs for
each arbitrator. By its letter dated 22 April 2016, ONGC indicated that it
was agreeable to revising the fees in terms of the Fourth Schedule. It only
objected to the reading fee. Subsequently, the arbitral tribunal passed a
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procedural order dated 4 August 2016 directing the parties to deposit 25
per cent of the arbitrators’ fee, which was recorded as Rs 30 lakhs. It
seems a ceiling of Rs 30 lakhs was determined following the Fourth
Schedule to the Arbitration Act. However, the arbitral tribunal then
unilaterally decided to revise the fees and passed a procedural order fixing
a fee of Rs 1.5 lakhs for each arbitrator for every sitting of a three- hour
duration. The tribunal also indicated it may also charge a reading or
conference fee, which would be decided at a later stage. By an order dated
25 July 2019, the arbitral tribunal adjusted its fees to Rs 1 lakh per sitting.
Around 54 sittings have been held in terms of the arbitral tribunal’s order
dated 25 July 2019. In this background, it is evident that there was no
consensus between the parties and the arbitrators regarding the fee that is
to be paid to the members of the arbitral tribunal. Allowing the continuance
of the arbitral tribunal would mean foisting a fee upon the parties and the
arbitral tribunal to which they are not agreeable. In view of our directives in
Section C.2.4 and the facts noted earlier, we exercise our powers under
Article 142 of the Constitution of India and direct the constitution of a new
arbitral tribunal in accordance with the arbitration agreement. For this
purpose, Arbitration Petition (C) No. 5 of 2022 would be listed for directions
before this Court on 21 September 2022. The above directions should not
be construed as a finding on the conduct of the arbitration proceedings.
These directions are an attempt to ensure that the arbitral proceedings are
conducted without rancour which may derail the proceedings. In
consonance with our findings, the fee payable to the earlier arbitral tribunal
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would be the fee payable in terms of the Fourth Schedule of the Arbitration
Act. Though the Fourth Schedule is per se not applicable to an
international commercial arbitration, since ONGC had indicated (following
the suggestion of the arbitral tribunal) that it would be agreeable to pay the
fee payable in terms of Schedule, it cannot now take recourse to the
arbitration agreement between the parties to pay a lesser fee. We further
clarify that if the fee in excess of the amount payable under the Fourth
Schedule has been paid to the members of the arbitral tribunal, such
amount will not be recovered from them;
(ii) The civil appeal arising out of Special Leave Petition (Civil) No 13426 of
2021 is dismissed and the judgment of the Single Judge of the Delhi High
Court dated 6 August 2021 is upheld;
(iii) The civil appeal arising out of Special Leave Petition (Civil) No 10358 of
2020 is allowed and the judgment of the Single Judge of the Delhi High
Court dated 10 July 2020 is set aside; and
(iv) Miscellaneous Application Nos 1990- 1991 of 2019 are dismissed.
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160 Before parting, we would like to place on record our sincere appreciation
for the submissions made by the amicus curiae, Mr Huzefa Ahmadi who was ably
assisted by Ms Anushka Shah.
161 Pending applications, if any, stand disposed of.
….......…...….......………………........J.
[Dr Dhananjaya Y Chandrachud]
….....…...….......………………........J.
[Surya Kant]
New Delhi;
August 30, 2022
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