Arbitral Tribunal Erred In Fixing Fees Separately For Claims And Counter-Claims, Contrary To The Agreement Between Parties: Delhi High Court

The bench of Justice Prateek Jalan remarked that though in ONGC (2022), it was held that the term “sum in dispute” in the Fourth Schedule shall be considered separately for the claim and counter-claim, the Arbitral Tribunal was in error in fixing the arbitral fees separately for the claims and counter-claims, contrary to the express Agreement between the parties.

While dealing with a petition filed under Section 14 of the A&C Act by NHAI, the Court noted that the parties had agreed not to apply the Schedule IV in totality, but to apply the fee structure envisaged in a 2020 Circular issued by NHAI, which incorporated some- but not all- vital elements of Schedule IV.

Observing that the parties took a conscious decision regarding consolidated fee for claims and counter-claims, the Court said that the Arbitral Tribunal was in error in holding that the fee structure projected by NHAI was not acceptable to it.

The bench thus concluded that the renumeration of the Tribunal must be computed on the basis of the total sum in dispute, inclusive of the claims and counter-claims, as provided in the 2020 Circular issued by NHAI.

The dispute between the petitioner, National Highways Authority of India (NHAI), and the respondent, M/s AE Tollway Ltd, under an Agreement was referred to arbitration.

The Arbitral Tribunal passed a preliminary order, refusing to fix the arbitral fees as per the fee structure provided under the Agreement. The Tribunal held that the amount of fees payable to the Arbitrator would be as per the Fourth Schedule of the A&C Act.

NHAI made an application for recall of the said order, contending that the Tribunal was bound to follow the fee schedule set out in the Agreement.

It pleaded that in view of the Agreement between them, the parties are bound by a 2020 Circular issued by NHAI, as per which the Tribunal was required to charge consolidated fees for claims and counter-claims.

Relying upon the decision of the Supreme Court in Oil and Natural Gas (ONGC) vs Afcons Gunanusa JV (2022), which was pronounced in the interregnum period, the Tribunal passed an order, holding that the arbitral fees was liable to be charged separately for the claims and counter-claims, in terms of ONGC (2022).

Consequently, NHAI filed a petition under Section 14 of the A&C Act before the Delhi High Court, seeking termination of the mandate of the Arbitral Tribunal on the ground that the Tribunal had fixed its fees contrary to the Agreement between the parties.

NHAI argued before the Court that the interpretation of the 4^th Schedule to the A&C Act, as made by the Apex Court in ONGC (2022), would apply only if there is no agreement between the parties to the contrary. It added that the intention of NHAI was not to apply the 4^th Schedule in totality, and the fee schedule provided in the said Schedule was incorporated subject to the claim and counter-claim being combined for the purpose of determination of fees.

The High Court noted that the Supreme Court in ONGC (2022) had ruled that, in cases of ad hoc arbitrations, where the 4^th Schedule has been made applicable for calculation of arbitrators’ fee, the term “sum in dispute” in the said Schedule shall be considered separately for the claim amount for the claim and counter-claim. Consequently, the arbitrators’ fee will be calculated separately for the claim and counter-claim, the Supreme Court had held.

The High Court, however, after referring to the 2020 Circular issued by NHAI, ruled that, in view of the said Circular, the fees of the Tribunal need not be computed separately for the claims and counterclaims.

Noting that the Agreement between the parties was not to apply Schedule IV in totality, but to apply the 2020 Circular, which incorporates some- but not all- vital elements of Schedule IV, the Court remarked, “As stated in paragraph 173 of ONGC, the interpretation therein would be applicable to arbitrations to which Schedule IV applies. However, that does not extend to a case such as the present one in view of the principles of party autonomy, acknowledged in ONGC itself.”

“ONGC makes it clear that the determination of arbitral fees is contractual in nature, and requires a tripartite consensus between both parties and the arbitrator(s),” the Court said.

Since the Apex Court in ONGC (2022) clearly requires party autonomy to be given paramount importance, the Tribunal was in error in holding, in its first procedural order rendered before the judgment in ONGC, that the fee structure projected by NHAI was not acceptable to it, the bench said.

Referring to the 2020 Circular issued by NHAI, the Court said, “Paragraph 2 of the 2020 Circular clearly defines “sum in dispute” as the claims and the counter-claims, and makes it clear that the fee in paragraph 1 thereof is inclusive of the fees of the arbitrators for the same. As the 2020 Circular reveals a clear intention to define the sum in dispute as inclusive of the claim and the counter-claim, the interpretation does not present any ambiguity, calling for application of the doctrine of contra proferentem”, the Court ruled. It thus dismissed the plea of the respondent, AE Tollway, that any ambiguity in the provisions of the 2020 Circular should be resolved against its author, i.e., NHAI, by applying the doctrine of contra proferentem.

The bench further reckoned that the interpretation of Schedule IV in ONGC (2022), which resolves an ambiguity in the said Schedule, cannot be applied to a contractual arrangement which does not contain a similar ambiguity.

The respondent, AE Tollway, averred before the Court that NHAI’s reluctance to bring its 2020 Circular in line with Schedule IV as interpreted by the Supreme Court, is unfortunate and unreasonable. To this, the bench remarked that it was unable to hold the same as, per se, illegal in a commercial context.

“Parties are entitled to come to an agreement as to the terms upon which they would arbitrate, and ONGC itself makes it clear that their autonomy must be respected. In any event, there is no challenge to the 2020 Circular in these proceedings,” it added.

The Court thus concluded that the renumeration of the Tribunal must be computed on the basis of the total sum in dispute, inclusive of the claims and counter-claims, as provided in the 2020 Circular issued by NHAI.

Case Title: NHAI vs. M/s AE Tollway Ltd.

Citation: 2023 LiveLaw (Del) 259

Counsel for the Petitioner: Ms. Maninder Acharya, Senior Advocate with Mr. Ashish Rana, Mr. Anurag Singh, Mr. Nilesh Mudgil, Mr. Gaurav Raj, Advocates

Counsel for the Respondent: Mr. Saurabh Kirpal, Senior Advocate with Mr. Saket Sikri, Mr. Anirudh Bakhru, Ms. Charu S. Singh, Mr. Sarthak Sachdeva, Ms. Teresa, Ms. Tejaswini, Mr. Nikhil Arora, Advocates.

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