Arbitrator's Fee : Claim & Counter-Claim Have To Be Bundled Up Together, With Rs.30 lakhs Ceiling, Says Supreme Court During Hearing
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The Supreme Court on Wednesday resumed the hearing on the issue of fixation of standards for fees for arbitrators.The bench of Justices D. Y. Chandrachud, Sanjiv Khanna and Surya Kant was hearing the plea by the ONGC on the issue of the mandatory nature of the 'model' fee scale for arbitrators prescribed under the Fourth Schedule of the Arbitration and Conciliation Act 1996.During the...
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The Supreme Court on Wednesday resumed the hearing on the issue of fixation of standards for fees for arbitrators.
The bench of Justices D. Y. Chandrachud, Sanjiv Khanna and Surya Kant was hearing the plea by the ONGC on the issue of the mandatory nature of the 'model' fee scale for arbitrators prescribed under the Fourth Schedule of the Arbitration and Conciliation Act 1996.
During the hearing, the bench orally observed that the claim and the counter-claim have to be bundled together with a ceiling of Rupees 30 lakhs for the determination of fees as per the 4th Schedule of the Arbitration Act.
The bench was hearing Solicitor General of India Tushar Mehta on whether the ceiling of 30 lakhs in the sixth item in Schedule IV (which says that for sums in dispute of Rs. 20 crores and above, the fee will be 19,87,500 + 0.5% of claim amount over and above 20 crores subject to the ceiling of 30 lakhs), is only referable to the second part or to the total.
"The dispute which your lordships may consider adjudicating is this that the view taken in the case of Rail Vikas (one of the impugned decisions) is that 19,87,500 is the base fee and we add 0.5% on every additional amount over and above the 20 crores. 30 lakhs is the ceiling and therefore the maximum fee payable would be 49,87,500. The view taken by the tribunal is that the 30,00,000 ceiling is only for the 0.5% fee part- so 19,87,500 is the base and then you keep adding 0.5% on the balance more than 20 crores and you stop at 30 lakhs. So the maximum fees that an arbitrator would get is 19 lakhs + 30 lakhs. Our case is that it applies for both, that 30 lakhs is the outer limit for both", the SG told the bench.
Further, the SG made submissions on whether the model fee corresponding to the various slabs of the 'sum in dispute', as stipulated in Schedule IV of the 1996 Arbitration Act, would be for the whole arbitral tribunal or for each arbitrator.
"There can be a sole arbitrator, three arbitrators but there is no prohibition for having five arbitrators. It is only said the number should not be even, it should be odd. The question is whether the amount mentioned in the schedule would be for the tribunal or for each arbitrator. Because in one of the matters of Rail Vikas Nigam Ltd., the view taken is that not only the 30,00,000 ceiling is applicable to the second part but that is per arbitrator. That will be another dimension", the SG advanced.
"The amount payable under the fourth schedule is per arbitrator- it has to be per arbitrator and not for the whole Tribunal. We must take a view which makes Arbitration workable", said Justice Chandrachud.
Justice Chandrachud: "In the Schedule 4, the calculated maximum for any slab of fees corresponds to the base of the next slab. What would have been the object of putting this cap (of 30 lakhs in the 6th item)? The purpose was that though in the slabs for items 1 to 5, the maximum which is payable is necessarily fixed because of the fact that the maximum payable is dependent on the maximum quantum of the sum in dispute, but for the last item it would be open ended. The purpose was that the variable component does not become unwieldy. The object of putting a ceiling is that the sum in dispute is above 20 crores, there is no upper end of the sum in dispute- it could be 21 crores or 21,000 crores. So when they are adding a percentage of the amount above the base, the base being 20 crores, they did not want that additional, variable component to be absolutely uncertain or indefinite. The purpose of introducing the cap of 30 lakhs was that since there is no upper limit to the sum in dispute, there should be a cap as to what the variable component can be. The object was not so much to cap the arbitrator fee as much to ensure that the variable component should not be so indefinite as to be a proportion of the upper limit of the fees. They felt it should not be more than 30 lakhs. The object was not to cap the overall fee of the arbitrator at 30 lakhs but to make sure that the variable component does not become such an unruly horse that if the claim is 20,000 crores, the variable will become 0.5% of this 20,000 crores"
SG: "The payment or money or quantum has nothing to do with quality. Like Your lordships are doing service- your lordships are not doing service commensurate to any salary, Your lordships are doing immense service. So to say that the more expensive the arbitrator, the better the adjudication you get is conceptually faulty. Those who really want to earn out of it may not accept institutional arbitration, they will go for ad hoc arbitration where their fees are accepted. Those who have to do it for service will accept the fourth schedule. Fourth schedule is not a mandate, it is a mandate for institutional arbitration"
Justice Khanna: "Whether it is 30 lakhs or 49 lakhs, whether it has to be paid to 3 arbitrators or one arbitrator, the real problem comes in claims which are core of the litigation in India, which will be less than one crore. Like, say, for below five lakhs (sum in dispute), it will become 1,35,000. That means you are paying a fee of how much? Nobody will go under the arbitration under fourth schedule. It is virtually impossible"
Justice Chandrachud: "We have sat as company judges in the Bombay High Court. We dealt with 100-150 matters every day. If you did not dispose it off, the burden would be on your shoulders the next day or next week. There were small claims of 10 lakhs, 20 lakhs or 2 crores which are very small claims which you cannot send to a retired High Court judge for arbitration. It does not make sense. So what we started doing was- and there are also judgments of the Supreme Court that you should not use company jurisdiction for recovery of fees, but as judges we know what the practical way and that it is the most effective form of recovery; you have to make a commercial city work- so we started appointing junior counsel as arbitrator and they were so successful!"
SG: "Yes, they don't care for heavy fees. They just do it for the satisfaction of having done something"
SG: "The very genesis of the concept of arbitration is party autonomy. The moment a question of arbitration comes, the normal statutorily provided remedy is given up and the parties would choose their judges. Whether arbitration is ad hoc or institutional, it is the same pious duty as your lordships' duty. The source of Your Lordships' duty is the Constitution, the C. P. C., etc, the source for the arbitrator is the decision of the party. But the sanctity attached to the court is not lost. When determining the fee and interpreting the provisions providing for the fees, the normal rules of interpretation may perhaps not apply and your lordships may have to keep in mind the nature of the function of an arbitral tribunal- which is determining the lis between the parties, deciding the fates of human beings, which is a Godly act. The sanctity which is attached to the judicial offices which your lordships are holding will not be lost merely because the capacity is changed and the same judge becomes an arbitrator...In examining the questions, we may be referring to the fees to be prescribed or decided or adjudicated with reference to former hon'ble judges and therefore we have inherent limitations in pointing out certain arguments. But now as the arbitration law is developing in a large number of cases, experts are appointed as arbitrators, engineers are appointed, in international commercial arbitration, professors are appointed as arbitrators. I will not confine myself mentally that I would be submitting something with respect to the future course of conduct of former hon'ble judges, which may include them, but generally as a principle, what is the concept of an arbitration nowadays is technocrats, bureaucrats and professors are also acting as panel of arbitrators or sole arbitrators"
Whether the amount to be calculated would include the aggregate of claim and counterclaim or separate fees for claim and separate fees for counterclaim for the same subject matter of the dispute
SG: "Schedule 4 does not distinguish between claim and counterclaim; it speaks of the sum in dispute. Your lordships would find a common scheme throughout the Act that what the tribunal adjudicates upon is the entire dispute presented before them, whether by the claimant or by the respondent. And that becomes the sum in dispute, unlike civil courts"
SG: "If we see Section 2(9) of the Act, the scheme is that a composite dispute goes before the arbitrator. It would include both claim and counterclaim and defence and counter defence. There is no notion, unlike the C. P. C., that counterclaim is separate and claim is separate. Reading section 2(9) with section 23, it becomes clear that when it gives the right to the claimant to state his statements of claims, it necessarily gives the right to the respondent to file his counter...Section 7 mentions 'All or certain disputes' which may be raised by the claimant, raised by the counterclaimant who is the respondent. There is a possibility of one claimant and three respondents and all three were signatory to the arbitration agreement and will be having their respective counterclaims. The law does not contemplate any such distinction- whatever are the disputes arising from the contract which contains an arbitration agreement will be adjudicated upon by the tribunal. It will be the same dispute, because it arises from the same set of facts. If I raise a claim, there is the respondent who wants to raise a counterclaim, he will not be able to raise a counterclaim beyond the terms of the contract because then it cannot go to arbitration. Arbitration necessarily refers to and goes to the contractual relations. Say, I am required to be paid 50 crores and he would say 'no, you were guilty and in fact I am required to be paid 80 crores'. But it would be the same dispute which the arbitrator would be adjudicating upon. The tribunal derives its jurisdiction to adjudicate from section 7, which is party autonomy, but the jurisdictional word would be arbitration of 'all or certain disputes'"
SG: "Once you accept the fourth schedule, then much of the time our experience is that the parties send a mail that 'we are exchanging pleadings so we will seek an adjournment instead of a meeting. Please adjourn to a particular date convenient to us'. But the tribunal says 'we will hold a sitting for 5 minutes and then adjourn it'. Because of such issues, the questions arise. That is our experience...If I may narrate something lighter vein- There was an optician. His son came into the business and he was a new man so the optician was teaching him the tricks of the trade, how to quote the price. He said there are three things- the choice of the buyer, the capacity of the buyer and the desperation of the buyer. When the buyer selects one frame, you say the price would be 50,000. Look at his face, if there is no change in his expression, then say 20,000 for the glass is extra. Look at his face, if there is still no change in his expressions, then say 'each'. So 50 becomes 90!"
Justice Chandrachud: "If you see Section 8, the court is duty-bound to refer the matter to arbitration. Under the old Act, there used to be a specific reference- the arbitration agreement was filed under Section 20, and then on filing in the court, a reference was made to arbitration. So the claimant had come. There was a question as to whether counterclaim is arbitrable or otherwise. Now it is resolved by the 1997 Act. It says 'refer the parties to arbitration'. It does not refer to it as a claim or counterclaim"
SG: "Yes. 'Parties', not 'respondents'"
SG: "The Arbitration Act is very clear what you are deciding is the dispute between the parties- the sum in dispute, the property in dispute. Raised by whom, defended by whom, raised by both etc is irrelevant. Because what comes before the tribunal is a composite proceeding. They are not independent proceedings. C. P. C. says the counterclaim will be treated as a plaint. This is consciously not present in the arbitration act that it will be treated as a separate claim. The scheme under the arbitration act is that the composite dispute goes before the tribunal"
SG: "Merely because in civil jurisdiction there is a separate court fees for claim and counterclaim may not be the criteria to adjudicate the claim and counterclaim in arbitration on the ground that there is separate court fees. The court fee has nothing to do with the work or the judicial time which is invested by the court or the tribunal. Therefore, there is a cap- in Gujarat, the cap is of 15,000 whether the suit is for 5 lakhs, 50 lakhs or 50,000 crores. Because for trying a suit of 50,000 crores or even 5 lakhs, you spend the same amount of money. Section 3 of the court fees act 1870- levy of fees in High Courts on their original side- says it the fees payable for the time being to the clerks and officers (other than the sheriffs and attorneys) of the High Courts. So court fee is for the basic expenditure of the clerks etc. Whether the tribunal is adjudicating a dispute of 20 crores or 20,000 crores, the function, the sanctity, the seriousness will not change merely because of the amount being high. Fees for adjudication cannot be proportionate to the amount to be adjudicated"
Justice Khanna: "Suppose the claimant makes a claim for one crore. The counterclaim is for 19 crores. The arbitration fee will be inclusive of both. You will not say that you pay the arbitration fee only on one crore. It is a composite amount"
Justice Chandrachud: "Yes, you cannot levy the fees only on the claim. Otherwise what will happen is that suppose each of the arbitrators levies a fee per session of Rs.5 lakhs. So it will be 15 lakhs per session. There are two sessions in a day. It will be Rs.30 lakhs. But if you say that the counterclaim is a separate suit, then it will be 60 lakhs. You cannot levy an identical fee on the counter claim separately. The claim and the counterclaim have to be bundled up together, with a ceiling of Rs.30 lakhs"
Power of arbitral tribunal to fix own fees
SG: "So far as Section 38 is concerned which provides for deposit, what is being stipulated is the deposit of cost. Cost is defined in the regime stipulated under 31A. This gives an enabling power to the tribunal, not for adjudication of fees, but expenses of witnesses, administration fees, any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award. When the term arbitration fees is used with reference to cost, it is only a pre-quantified, pre-identified component which is being talked about for the purpose of arbitration- who will bear that cost which is already quantified. The term fees used in 31A is used only as a composition of cost.
Please see Section 39- 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. In my submission, this stipulates a pre-quantified fees of the arbitral tribunal, not deposited and thereafter when the award is passed, the tribunal says we will not pronounce it unless you deposit the amount.
To read power to fix the fees at the stage of 31A would mean that at the end of the proceedings, when it is to be terminated, a contentious issue will arise. This interpretation may also defeat the object of the act which is speedy disposal of disputes. The reason is at the end of adjudication on the merits of the dispute, at the fag end, the parties may start a dispute with regard to the fees. Suppose the tribunal insists for an amount which is not in accordance with the contract or in accordance with the schedule, that can be a ground for alleging bias or misconduct. How will a party be able to raise that ground at the fag end when the award is ready and the cost is to become a part of that award? So the court would not normally read an expression in such a way that it negates the very object of the arbitration proceedings, that is speedy disposal, and gives power to the tribunal at this stage when the parties would not have any right to adjudication. I would go and say what? Because the mandate is over"
Justice Chandrachud: "If you see 31A- 'the Court or arbitral tribunal 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'...'(a)' really gives the discretion to the arbitral tribunal to decide whether the plaintiff will pay the cost to the defendant or the defendant will pay the cost to the plaintiff, and then the amount of such cost, and when such costs are to be paid. So this does not really give a power to the arbitral tribunal to decide its own fees. And therefore the regime for the cost is at the end, in the (chapter on) making of award and termination of proceedings"
SG: "Section 31A encompasses both the tribunal and the court. If we say that this power includes the power of the arbitrator to fix his own fees, then how would we harmoniously read the power of the court? Then how will the court fix the fee? Will the court now under 34 and 37 say that now we fix the arbitrator's fees to be so and so? No".
The hearing will continue tomorrow.
Earlier, the Attorney General for India KK Venugopal had made submissions in the matter :
Reports of previous hearings :
Case Title: Oil And Natural Gas Corporation Ltd. v. Afcons Gunanusa JV
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