Arbitrators Must Separately Calculate Fees For Claims And Counterclaims In Ad Hoc Arbitration: Delhi High Court

The bench held that in ad hoc arbitration, the arbitrator must calculate fees separately for claims and counterclaims, with the ceiling limit in the Fourth Schedule applied separately to each.

Brief Facts:

The matter pertained to a dispute in which the High Court appointed Rajiv Jain as the Sole Arbitrator for the adjudication of disputes related to an agreement. It was also stated that the fee for the Arbitrator would be determined in accordance with the Fourth Schedule of the Arbitration Act.

The final computation of the fee by the Arbitrator was based on the judgment of High Court in the case of Rail Vikas Nigam Ltd. The Sole Arbitrator stated that according to this judgment, the upper limit of fees payable to a sole arbitrator under the Fourth Schedule of the Arbitration Act is Rs. 62,34,375 which is Rs. 49,87,500 multiplied by 1.25.

Observations by the High Court:

The High Court noted the order of the Sole Arbitrator relied on the judgment of Rail Vikas Nigam Ltd. for the computation of fees. This reliance was deemed erroneous by the High Court because the Supreme Court, in its judgment in ONGC Ltd., aside the Rail Vikas Nigam Ltd. judgment on 30.08.2022. Therefore, it noted that by the time the Arbitrator passed the order dated 12.08.2023, calculating his fees, the judgment of Rail Vikas Nigam Ltd. was no longer good law.

The Supreme Court in ONGC Ltd. provided guidelines on the determination of arbitrators' fees. It emphasized that arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their fees as this would violate the principles of party autonomy and the prohibition of in rem suam decisions, meaning arbitrators cannot be judges of their own remuneration claims. Instead, arbitrators can apportion costs between the parties and demand deposits in accordance with Sections 31(8), 31-A, and 38 of the Arbitration Act. If an arbitrator's fee is disputed, it cannot be enforced in favor of the arbitrator but can only be reviewed by a court.

Further, the Supreme Court clarified that the term "sum in dispute" in the Fourth Schedule of the Arbitration Act refers to the sum in dispute in a claim and counterclaim separately, not cumulatively. Consequently, arbitrators are entitled to charge separate fees for claims and counterclaims in ad hoc arbitration proceedings with the fee ceiling in the Fourth Schedule applicable separately to both.

The High Court noted that the Petitioner's total claim amounted to Rs. 76,85,57,520 which fell under serial No. 6 of the Fourth Schedule. The base amount of Rs. 19,87,500, along with 0.5% of the claim exceeding Rs. 20,00,00,000, totaled Rs. 28,42,787.6. Adding these amounts exceeded the ceiling limit of Rs. 30,00,000. Thus, the High Court noted that the Arbitrator's total fee for the Petitioner's claim was Rs. 37,50,000 including an additional 25% as per the Fourth Schedule.

For the Respondent's counterclaims amounting to Rs. 2,55,24,967, falling under serial No. 4 of the Fourth Schedule, the base amount of Rs. 3,37,500, along with 1% of the claim exceeding Rs. 1,00,00,000, totaled Rs. 4,92,749. Adding an additional 25% of Rs. 4,92,749, the total fee for the counterclaims was Rs. 6,15,936.25. Therefore, the High Court calculated the total fee for the Sole Arbitrator for both claims and counterclaims amounts to Rs. 43,65,936.25/-, with each party liable to pay Rs. 21,82,968.12.

The High Court noted that the Petitioner already paid Rs. 30,98,695/-, which exceeded the required amount while the Respondent only paid Rs. 18,75,000 less than the required amount.

The High Court issued the following directions: the Sole Arbitrator is to repay the excess amount paid by the Petitioner within two weeks, the Respondent is to pay the deficient amount within ten days to the Arbitrator, and the Arbitrator is to publish the Award within one week thereafter.

Case Title: Ahluwalia Contracts India Limited Vs Union Of India Through Executive Engineer Cpwd & Anr.

Citation: 2024 LiveLaw (Del) 858

Case Number: O.M.P.(MISC.)(COMM.) 477/2024

Advocate for the Petitioner: Mr. Dhruv Rohtagi, Mr. Dev Jaichandran, Mr. Vaibhav, Ms. Aamna Hasan.

Advocate for the Respondent: Mr. Niraj Kumar, Sr. Central Government Counsel alongwith Mr. Chaitanya Kumar, Mr. Ajit Kr. Sethi, Advocate for R-1/UOI.

Date of Judgment: 24.07.2024

Click Here To Read/Download Order or Judgment