Arbitrators Cannot Pass Binding And Enforceable Orders Unilaterally Determining Their Fees: Delhi High Court

The Delhi High Court bench of Justice Dinesh Kumar Sharma has affirmed that Arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. A unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition of in rem suam decisions, ie., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration.

Brief Facts

Dispute having arisen between the parties with respect to the Rural Electrification Works (RE) in Kaimur District of Bihar, under the Government of India Scheme of Rajiv Gandhi Grameen Vidyuktikaran Yojana (RGGVY), an Arbitral Tribunal was constituted.

In the preliminary hearing held on 02.08.2018 it was decided that the fees of the Ld. Tribunal shall be paid in accordance with the Fourth Schedule of the of Arbitration and Conciliation Act, 1996 along with an additional 10% of fees to the Presiding Arbitrator for administrative expenses, by both the parties. It was also decided that fee for counter claim and reading fees shall be fixed at a later stage.

Thereafter an application under section 29A was filed seeking extension of the mandate of the tribunal along with substitution of the tribunal on the ground that fee was unilaterally enhanced. The extension was granted by the court by an order passed on March 27, 2023 but refused to substitute the arbitrator and directed the petitioner to approach the tribunal for the said relief.

However, application filed before the tribunal praying for the same relief was also dismissed along with costs to be paid by the respondents.

Contentions

The petitioner submitted that the Ld. Tribunal unilaterally enhanced the fee by Rs.45,00,000/-, vide order dated 28.10.2022 without consent of the petitioner and that no reasons were given to justify the exorbitant and unilateral enhancement of fees outside the ambit of the 4th Schedule of the Act.

It was further submitted that in ONGC v. Afcons Gunanusa JV 2022 the Hon'ble Supreme Court has held that a party who is not agreeable to a unilateral revision of fees demanded by the tribunal in midst of the proceedings has a real apprehension that its refusal may result in an embarrassing consequence, bearing on the substance of the dispute

It was further submitted that in State of Orissa v. Modern Construction Co. 1972 the Supreme Court has held that demand of unreasonable and unconscionable remuneration amounts to misconduct, and the authority of the arbitrator can be superseded on this ground.

It was further submitted that the element of bias can be made a basis to terminate the mandate of the learned Arbitrator, under Section 14 if he becomes de jure unable to perform his function, thereby placing reliance on Rashtriya Ispat Nigam Ltd. v. Space Tech Equipments & Structurals Pvt. Ltd &Ors. 2020.

Per contra, the respondent submitted that the present application is not maintainable as the allegations made herein, do not satisfy the requisites of Section 14(1)(a) and nor do any of the grounds fall within the 7th Schedule of the Act and bias cannot be attributed merely because an adverse award has been rendered against the Petitioner, by one of the learned Arbitrators herein as held in HRD Corporation v. GAIL (2018) and Chennai Metro Rail Ltd. Administrative Building v. M/S Transtonnelstroy Afcons (JV) & Anr., 2022.

It was further submitted that several dates took place before the Ld. Arbitral Tribunal, between 28.10.2022 and filing of the application wherein the petitioner neither objected nor protested against the enhanced fee, moreover it kept on assuring the learned Tribunal that the same shall be paid.

Court's Analysis

In the Supreme Court has held that Arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. A unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition of in rem suam decisions, ie., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration.

It is clear from the above observations of the Supreme Court that the unilateral enhancement of fee is not permissible in the eyes of law.

The court noted that In the present case, the bare perusal of the order dated 28.10.2022 passed by the learned Tribunal, it is revealed that the direction of enhancement of fees is passed as a binding direction to both parties and without any consent of the parties.

It was observed that the plea taken by the learned counsel for the respondent is that since “no objection” was raised by the petitioner before the learned Arbitrator after 28.10.2022 therefore it amounts to consent, cannot be accepted in view of the categorical law laid down by the Apex Court in ONGC(Supra).

In fact, the court noted that in the present case, the petitioner filed an application before the learned Arbitral Tribunal being aggrieved of order dated 28.10.2022 and sought for withdrawal of direction of enhancement of fees therefore it cannot be said that no objections were raised as to the enhancement of the fees.

There is a difference between raising objections and giving consent. The court perused the entire impugned order and noted that it was not admitted in the order that the consent was given for enhancing the fees of the Arbitral Tribunal and merely because on 14.02.2023 the claimant/petitioner stated that outstanding fees would be paid cannot be read as “consent” therefore this order cannot be sustained and is liable to be set aside.

The court proceeded to address second prayer of the petitioner that the arbitrator should be substituted for which section 14 of the Arbitration Act was referred and noted that the de jure inability refers to the impossibility which occurs by operation of law i.e. the inability of the arbitrator to function due to his personal factors. The de facto inability refers to inability by fact i.e. circumstances beyond the control of the arbitrator, to act

It is pertinent to mention here that the petitioner initially filed an application praying therein for extension of the period of 12 months and further to substitute arbitral tribunal and appoint fresh arbitrators reconstituting the arbitral tribunal. The substitution was sought on the ground that the fee was unilaterally revised.The coordinate bench of this Court vide order dated 27.03.2023 extended the period by period of 12 months with effect from 28.11.2022. However, in respect of another prayer which was permitted to be withdrawn by the petitioner with liberty to file appropriate proceedings.

Thereafter, an application was filed before the tribunal in which it was prayed that the order enhancing the fees be withdrawn but the court observed that there was no submission in the said application to the effect that there was bias or apprehension to the continuance of the proceedings by the same arbitral tribunal

It is clear form a long line of cases rendered by the Supreme Court that the issue pertaining to ineligibility on any of the grounds mentioned under section 12 read with fifth and seventh schedules must be raised before the tribunal then only other forums can be approached if the party feels aggrieved by the decision of the tribunal.

In Chennai Metro Rail Limited(Supra) the Supreme Court has held that “if during continuance of the proceedings the arbitrators become subject to any eligibility condition, the party should first appear before the arbitrator and object to his continuance.”

It was further observed that “though these observations were in relation to Section 12 of the A&CAct but reading together the HRD(Supra) and Bharat Broadband Network Limited vs. United Telecoms Limited/2018 makes it clear that the aggrieved party has to first apply before the tribunal as a matter of law and the tribunal should have an opportunity to deal with the parties' reservations and decide whether to continue with the proceedings.”

The petitioner in the present case on the face of it has not raised the issue of bias before the learned Arbitral Tribunal and thus the issue of bias raised before the present Court is not sustainable in the eyes of law. Since, the mandate of the tribunal was expired, it was further extended.

The court directed that “the parties shall appear before the learned Arbitral Tribunal. The learned Arbitral Tribunal may continue with the fees already decided in the preliminary hearing held on 02.08.2018. In case, the learned Arbitral Tribunal chooses not to continue with the proceedings on the earlier decided fees, the parties shall be at liberty to approach the Court for the appropriate proceedings.” Accordingly, the present petition was disposed of.

Case Title: SPML INFRA LIMITED versus POWER GRID CORPORATION OF INDIA LIMITED

Case Number: O.M.P.(MISC.)(COMM.) 286/2023 & O.M.P. (T) (COMM.) 79/2023

Date Of Judgment: 27/11/2024

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