Delhi High Court Dismisses Plea Challenging Recalculation Of Arbitral Fees, Upholds Separate Fee Calculation For Claims & Counterclaims

Additionally, the court held that invoking Section 39(2) of the Arbitration and Conciliation Act, 1996 was premature since no award had been made.

Brief Facts:

The petitioner has challenged an order passed by the arbitrator regarding the apportionment of fees under Section 39(2) of the Act. The dispute arose from an arbitration proceeding started by Shooglo Network Private Limited (formerly OMG Network) seeking recovery of ₹44,69,864 with an interest rate of 24% per annum. Further, the respondent filed a counterclaim seeking ₹2 crores.

The dispute arose when the arbitrator, in an order dated 12.08.2024, determined the arbitral fees at ₹6,02,747. Moreover, it was decided that both parties would pay 50% each of the said fees i.e. ₹3,01,373 each. Furthermore, the respondent filed an application under Section 31A read with Section 38 of the Act. And also, relied on the Supreme Court's judgment in Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV, wherein it was held that the arbitral fees should be calculated separately for the claim and the counterclaim under the Fourth Schedule of the Act.

Further, the petitioner challenged the application by arguing that the fees having been already fixed based on mutual agreement between the parties. It was not open to the arbitral tribunal to revise the same on an application of the respondent.

Submissions made by the parties:

The counsel for the petitioner contended that the feels payable to the arbitrator had already been agreed upon and recorded in the proceedings. So, there was no need to revise it. Additionally, they relied on the judgment in Jivanlal Joitram Patel v. National Highways Authority of India, wherein it was held that fees should be based on the aggregate amount of claim and counterclaim, and re-determining fees after it has been fixed is improper. Further, they relied on the judgment of the Supreme Court in Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV.

However, the counsel for the respondent strongly refutes both the maintainability and the merits of the petition because no award had been passed yet. Additionally, they asserted that the fees were originally based on the IVth Schedule of the Act, and the revised fee was correctly calculated considering the judgment in Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV.

Observation of the court:

The court noted that the petitioner has invoked Section 39(2) which only applies when an arbitral tribunal exercises a lien on an award or refuses to deliver it until fees are paid. The court observed that this provision was not applicable, as the arbitral tribunal had not yet made an award or exercised such a lien.

Moving further, the court explained that Section 38(2) provides remedies for non-payment of fees before an award is made, but those conditions had not been met in this case. Since the arbitral proceedings had not progressed to the stage of an award, invoking Section 39(2) was premature and untenable.

Moreover, the court held that the petitioner's reliance on McNally Bharat Engineering Company Limited v. Steel Authority of India Limited & Anr. was misplaced, since that case dealt with relevant provisions of the ICA Rules, not the IVth Schedule of the Act. The court noted that this case involved a different set of rules and circumstances, making it inapplicable to this case.

The court held that the initial fixation of fees was based on the IVth Schedule of the Act, and the tribunal had followed proper legal guidance.

“24. As noticed, this argument is fallacious for the simple reason that the initial fixation of fees was not on account of an agreement between the parties independent of the IVth Schedule. On the contrary, while fixing the fees, the arbitrator expressly purported to apply the IVth Schedule and make the same applicable for the purpose of determination of fees. Therefore, it is not as if the impugned order seeks to disregard an agreement between the parties as regards which the arbitral fees would be payable.”

The Supreme Court's judgment in Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV clarified that arbitral fees for claim and counterclaim must be calculated separately, and the arbitrator has applied this method properly. Finally, the court dismissed the petition.

Case Title: ICRI CORPORATES PRIVATE LIMITED v. SHOOGLO NETWORK PRIVATE LIMITED (PREVIOUSLY OMG NETWORK PRIVATE LIMITED)

Citation: 2024 LiveLaw (Del) 1144

Case Number: O.M.P.(MISC.)(COMM.) 788/2024

Counsel for the Petitioners: Mr. Sunil Choudhary, Adv.

Counsel for the Respondents: Mr. Mayank Arora and Mr. Abhnav Agrawal, Advs.

Date of Judgment: 07.10.2024