Arbitrators Must Say Upfront Their Fees For The Number Of Sittings, Opines Supreme Court During Hearing

The bench of Justices D. Y. Chandrachud, Sanjiv Khanna and Surya Kant was considering the issue regarding the mandatory nature of the 'model' fee scale for arbitrators prescribed under the Fourth Schedule of the Arbitration and Conciliation Act 1996.

In the hearing yesterday, the bench, emphasizing on "upfront" fixation of arbitrator's fee, observed :

"Ideal situation is that everything should be upfront and once you fix it then that must govern. We can't ask the arbitrators to accept 15k per sitting because that would result in collapsing the arbitration. While we want to restrict the excesses that are taking place, we should not be doing anything that breaks the back of arbitration but at the same time we need to lay down some safeguards," the bench orally remarked.

Unilaterally Variation Has To Be Seen Contextually; Window Should Be Given To Both Parties To Gauge Entire Evidence: Senior Advocate AM Singhvi

At the outset, Senior Advocate Dr Abhishek Manu Singhvi for AFCONS urged the bench to dismiss ONGC's appeal. To further substantiate his contention, Singhvi argued that it had been 7 years since the arbitration had commenced.

Highlighting the time that ONGC was taken for the purpose of examination of the witnesses, Senior Counsel said,

"70-80 hearings and further 66 have already been held and large numbers are still to be held. Right through CoVid when people were progressing they said that they would not progress and they had put a clause in contractual contracts that you shall not charge interest and delay is fatal to me."

Highlighting the facts of ONGC's appeal, Justice DY Chandrachud, at this juncture asked if it was correct for the arbitrator to unilaterally alter the fees in the middle once it was fixed by the arbitrator.

"One area where we would want your assistance on, even on the facts of your case the difficulty is agreement said cap of 10 lakhs but ONGC waived and they said 4th schedule. Arbitrators accepted the 4th schedule. But one question which arises for consideration is, once the fees are fixed by the arbitrator then you know is it correct to say that the arbitrator can unilaterally alter fees in the middle?," remarked Justice Chandrachud.

In response, the Senior Counsel said that according to AFCONS 4th schedule had to be of temporary guidance and not final and that the same was not binding. He suggested laying down guidelines wherein parties are given a window (of particular number of hearings) wherein they can assess the time taken for gauging the entire evidence.

 "In general sections of guidelines your lordships could put that they could have 2 to 3 hearings to gauge the entire evidence. Nobody could imagine that there would be 120 hearings and therefore it would be unfair to the arbitrator. Your lordships have to give that window and once that window is given then they would take 3 to 4 hearings for that purpose only. For future say that this should be done in the first ⅔ sittings in direct hearing of the assessment only. We both give a written assessment and then let them rule and decide that. If your lordship forces that decision in first ¾ sittings, then it'll be salutary", Dr.Singhvi submitted.

"Is it not possible for the arbitrators to control the cross examination?" Justice Chandrachud asked at this juncture.

"Your lordship knows how the real world out there is functioning" replied Singhvi.

Objecting to the submissions of Senior Counsel with regards to the time taken by ONGC to examine the witnesses, Attorney General for India KK Venugopal said, "Question was how long would it take for the hearings of both the parties. 120 is wholly wrong. It was 70-80 hearings."

While the bench was considering the submissions related to the parties being given an opportunity of deciding the number of hearings that they would take to complete the examination, Justice Chandrachud asked Senior Advocate Singhvi as to what would happen if even after a bona fide assessment with regards to the number of hearings (For Example: 70-80), the examination is not over in 70 sittings.

Answering the question posed by the bench, Senior Advocate AM Singhvi said,

"1. There should be 2/3 case hearings on the subject

2. A 10 or 15% absorption

3. That assumes there is at the end, on the 70th hearing they say that they require 50/70 more hearings but let's take that example, unless there is absent consent your lordships will have to have that extension or enhancement will have to be in extraordinary cases in writing. Your lordships must put that the person who is saying cap has to be judged in terms of the time that he is asking

4. If that does not happen, then you may go to the Court."

Arbitrators Must Say Upfront That For X Number Of Hearings This Is Our Fees; While We Want To Restrict The Excesses That Are Taking Place, We Should Not Be Doing Anything That Breaks Back Of Arbitration But At Same Time We Need To Lay Down Some Safeguards: Supreme Court

"Arbitrators must say upfront that for X number of hearings this is our fees but then 10% or 20% beyond that hearing would be estimable. If the arbitrators have an overall cap such as in the 4th schedule, then there is no question. But even if you have agreed for a cap, arbitrators can say that this applies for a limited number of hearings," remarked Justice Chandrachud.

"Whenever we'll ask the parties to go to court there would be a delay but we would ask the parties for the arbitration to continue. Another way to look at it is that if the party has breached the schedule, then the other party that consumed more time must pay," Justice Khanna added.

The bench further asked the parties to give its suggestions so that the court would not straight jacket everything but would bring a sort of regularity in the same.

"Ideal situation is that everything should be upfront and once you fix it then that must govern. We can't ask the arbitrators to accept 15k per sitting because that would result in collapsing the arbitration. While we want to restrict the excesses that are taking place, we should not be doing anything that breaks the back of arbitration but at the same time we need to lay down some safeguards," remarked Justice Chandrachud.

On bench asking the parties to give suggestions, the Attorney General for India said, "If the parties have dragged on exemplary then the court can impose costs and this can be an alternative."

Other Party Is Asking For Distortion Of The Act; There Can't Be Re Writing Of The Act: Senior Advocate AM Singhvi

Raising an objection that that the Supreme Court does not have jurisdiction u/s 14 of the Arbitration and Conciliation Act, 1996 to terminate the mandate of the Arbitrator, Senior Advocate AM Singhvi said that by way of seeking the relief u/s 14, ONGC was asking for distortion of the Act.

"Suppose the arbitrator has fixed the hearing at 50k per hearing but in the midst arbitrator says that it's not 50k but 50 lakh, what is the remedy in this case?" Justice Chandrachud asked at this juncture.

"Remedy is I cannot come under 14, 15 & 11(6). But the remedy is that I can file a complaint against the arbitrator. They can file on the basis of bias and unreasonableness. Reasonableness has to be decided. Your lordships would be doing great disturbances and why should your lordships make an artificial distinction?He may be unreasonable in rare cases but he's not biased and according to me the construct is that the Arbitral Tribunal has to be heard. Section 39 is the first court of call. Other party is asking for distortion of the Act," responded Senior Advocate.

The bench would now continue hearing the matter tomorrow.

Case Title: Oil And Natural Gas Corporation Ltd. Vs. Afcons Gunanusa | Arbitration Case No.5/2022