Supreme Court To Fix Standards For Arbitrators' Fees; Reserves Judgment

The bench of Justices D. Y. Chandrachud, Sanjiv Khanna and Surya Kant reserved the same while 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.

Submissions Of Counsels

Parties Had Agreed That They Would Appoint Arbitrator Who Accepted Conditions Of Arbitration Clause; Arbitrator Fixing Fees Unilaterally Is Inappropriate; What Was In Mind Of Legislature Was Rs 30 Lakhs; Sum In Dispute Will Include Claim & Counter Claim : Attorney General For India KK Venugopal

Appearing for ONGC, Attorney General for India KK Venugopal commenced his rejoinder submissions by submitting that the arbitration clause in the contract that was entered into between ONGC and AFCONS was binding on the parties and on the arbitrator that was appointed by them.

Referring to the arbitration clause that was entered into between the parties, AG said, "Arbitration clause wherein the fees of the arbitration has been set out with ceiling of 10 lakh was informed to them at the time of nomination. ONGC's letter appointing nominee arbitrator a copy of which was sent to retired justice who was respondent; nominee arbitrator."

He further said that the parties had agreed that they would appoint the arbitrator who accepted the conditions of the arbitration clause and now AFCONS could not deviate from the same.

"With open eyes they agreed and on the first hearing they re-fixed it according to the 4th schedule and asked to deposit 25% for each one of them," AG further said.

To further substantiate his contention to lay emphasis on Arbitrator being bound by the fee fixed by the parties in the arbitration agreement, AG quoted the law laid down in NHAI v. Gayatri Roadways, Russell on Arbitration" by Francis Russles and Gary Born.

In his rejoinder submissions, AG reiterated his submissions that the fees for the claim and counterclaim should be bundled together.

"In no circumstances to segregate the 2, 30 lakhs, 30 lakhs can't be justified," AG further added.

Expressing his apprehension on clubbing the fees for claim as well as counterclaim, Justice DY Chandrachud said, "To say that the claim and counterclaim can be clubbed, we might be throwing the baby out of the bath water. That's my fear."

On behalf of NHAI, AG submitted that the NHAI having almost 140 pending arbitration(s) and was facing 2 issues with regards to:

• Whether the maximum fees for the arbitrator is Rs 30 lakhs or is Rs 49, 87,500
• Whether the sum and dispute for the purpose of arbitrator fees is to be calculated separately or together

To further substantiate his contention, AG referred to the ratio laid down in Union of India v Singh Builders wherein the Court had urged that it was necessary to find a solution to the issue of arbitrator's fee to save the arbitration from the arbitrator's cost, the 246th report of the Law Commission relating to Amendments in the Arbitration and Conciliation Act, 1996 related to Fees of Arbitrators wherein the Commission had focused on the need of a mechanism to rationalize the fee structure for arbitrations, Sanjeev Kumar Jain vs Raghubir Saran Charitable Trust and State of Bihar v Bihar Sugar Cane Corporation.

On the issue of 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), was only referable to the second part or to the total, the AG submitted that the absence of comma in the English version should not make a difference as the object of the Cap of 30 lakh was to reduce the cost of arbitration.

"What was in the mind of the Legislature was Rs 30 lakhs. The 4th schedule provides for maximum fees to be paid to the arbitrator of Rs 30 lakhs only which will include claim and counterclaim. It can't be 30 lakhs plus 30 lakhs for an arbitrator, since it would be a huge amount," AG further said.

Further emphasizing on the maximum fees of Rs 30 lakhs to be charged by the arbitrator would be 30 lakhs, AG said, "So far as the variableness is concerned it would no longer operate the moment the comma is there, it is cut short with 30 lakhs. Maximum that the arbitrator can claim for arbitration is open to 30 lakhs. All other arbitral tribunals have held it to be equivalent to 30 lakhs. Parties who invite a contractor are in the position to lay down the terms."

We Can Fix Ethical Principles That Fix Your Fees Upfront; This Thing Of Twisting Parties In Midst Of Proceedings Must End: Supreme Court

"When you're dealing with multi billion dollars contracts, you'll get the lowest common factor there. You have to upfront fix your fees, there we have absolutely clear. In the case management hearing, you must upfront disclose in your mind but for the parties to lead evidence, then you will be in catch 22 situation. The point that you have made that 30 lakhs is the cap, the point that you've made is the plausible argument but we should not unduly tighten up things to make arbitration an option," remarked Justice Chandrachud.

The judge further said, "We can fix ethical principles that fix your fees upfront. Therefore upfront you say that this is my fee as an arbitrator, it's an open market for services and this is how I price myself. As young lawyers we have fixed our fees depending upon the volume of work. These are really market forces you see. So that we must leave open but we are completely with you on this that this thing of twisting the parties in the midst of the proceedings must end. This can't go on. The only thing is whether the claim and counterclaim should be aggregated and secondly the aspect of 4th schedule."

Counterclaim Ought To Be Considered As Distinct 'Dispute' From Claim: Amicus Hufeza Ahmadi

Amicus Hufeza Ahmadi submitted that the counterclaim ought to be considered as a distinct 'dispute' from a claim. He further submitted that the 'sum in dispute' defined by the IVth Schedule of the Arbitration and Conciliation Act, 1996 ( Arbitration Act) ought to be considered an independent claim and not the aggregate of the claim and counterclaim.

To further substantiate his contention, Amicus said, "Does the counterclaim not involve any additional work? If you have only the work you pay the same amount. The 4th schedule leaves it open."

With regards to the issue of charging 30 lakhs or Rs 49 lakhs, Amicus said, "Rs 30 lakhs plus 19 lakhs, expression plus is "disjunctive" and the view taken by Justice Rekha Palli is correct. It only applies to the enhanced amount. The interpretation sought to be by the AG would be to read the same expression differently and it only applies to the enhanced amount."

Case Title: Oil And Natural Gas Corporation Ltd. v. Afcons Gunanusa JV

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