Arbitrator's Can't Unilaterally Fix Fees At A Later Stage : Amicus Curiae Tells Supreme Court

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 today, Senior Advocate Hufeza Ahmadi (appointed amicus curiae) while emphasizing on the essence of arbitration namely fairness, efficiency and integrity, submitted that party autonomy must trump over all the rules.

"If parties are appointing an arbitrator then in the 1st hearing itself, then fees must be determined. Kindly consider the agony of the parties as to what happened, consider the wastage of time for the parties. If the arbitrators withdraw at that stage there should be some sort of reprimand. You can't change the rules of the games later. Kindly consider what the parties will have to go to. Even if you have accepted it and if you go for too long, you'll have to accept it. It should be done in the first 2 or 3 hearings," submitted Senior Counsel.

Submissions were also made by Advocate(s) K Parameshwari and Manu Sheshadhri.

If Parties Agree To A Particular Procedure Irrespective Of Whether It's Just Fair So Far As It's In Accordance With Law, Party Autonomy Must Trump Over All Other Rules; Scheme Of The Act As It Stands Today Does Not Make The 4th Schedule Mandatory At All: Senior Advocate Hufeza Ahmadi

Senior Advocate Hufeza Ahmadi (appointed amicus curiae) commenced his submissions by emphasizing on the essence of arbitration namely fairness, efficiency and integrity. Referring to the same, Senior Counsel contended that the same should not be compromised in any manner in case where the arbitrator feels that the remuneration is not appropriate.

Focusing on the aspect of "party autonomy" in arbitration, he said, "Legislature in its wisdom has limited challenge to award in arbitration proceedings to a very limited ground. So it is necessary for an overarching guiding principle that fairness, efficiency and integrity of arbitration is not compromised in any manner. Emphasized on party autonomy because arbitration and reference to arbitration is a creature of contract. If parties agree to a particular procedure irrespective of whether it's just fair so far as it's in accordance with law, party autonomy must trump over all other rules."

He further contended that as per the scheme of the Act, 4th schedule was not mandatory at all.

"Scheme of the act as it stands today does not make the 4th schedule mandatory at all. Fact that a party agrees to the 4th schedule is also part of party autonomy as it adopts the 4th schedule since it's convenient to do so," submitted Ahmadi.

4th Schedule If Interpreted Appears To Suggest That Claim And Counter- Claim Can Be Charged Separately; Rule Should Not Be Very Rigid & There Should Be Certain Amount Of Flexibility In Procedure

With regards to 4th schedule, the amicus submitted that, "4th schedule if interpreted appears to suggest that claim and counter- claim can be charged separately. Also emphasize on retention of certain flexibility with the parties in matters of procedure. Rule should not be very rigid and there should be a certain amount of flexibility in the procedure."

There Cannot Be Unilateral Fixation Of Fees By The Arbitrator At The Later Stage; First Hearing Must Stipulate The Fees Of The Arbitrator And If You Have Agreed To That There Should Not Be Any Question Of Modification: Senior Advocate Hufeza Ahmadi

Senior Advocate Ahmadi also argued that the parties in the first hearing of the arbitration should stipulate the fees of the arbitrator and that there could not be unilateral fixation of fees at the later stage. He further suggested that in a court appointed arbitrator, the court's order should also have a clause pertaining to the arbitrator's fees.

"To say that in court appointed arbitrator, order of court must stipulate the fees of the arbitrator and it must also have the clause. If it exceeds this then you may charge so much but all that should be watertight and there cannot be unilateral fixation of fees by the arbitrator at the later stage. The first hearing must stipulate the fees of the arbitrator and if you have agreed to that there should not be any question of modification because that puts the parties in an embarrassing situation," submitted Senior Counsel.

Arbitrator's Fees Should Be Fixed In First 2 or 3 Hearings; If Arbitrators Withdraw During Middle Of Arbitration Proceedings There Should Be Some Sort Of Reprimand: Senior Advocate Hufeza Ahmadi

Throwing light on the agony suffered by the parties on the arbitrator demanding a different fees in the mid of the arbitration proceedings, Ahmadi said, "If parties are appointing an arbitrator then in the 1st hearing itself, then fees must be determined. Kindly consider the agony of the parties as to what happened, consider the wastage of time for the parties. If the arbitrators withdraw at that stage there should be some sort of reprimand. You can't change the rules of the games later. Kindly consider what the parties will have to go to. Even if you have accepted it and if you go for too long, you'll have to accept it. It should be done in the first 2 or 3 hearings."

"Ist hearing or in the first 2 or 3 hearings depending on the case management?" asked Justice DY Chandrachud at this juncture.

"It can't be that after 10 or 15 hearings you can't suddenly say that you will charge different fees. If the parties say that let the arbitrator fix their own fee and we have no problem, then they must abide," Ahmadi.

Creation Of Arbitration Council of India Will Resolve 95% Problems: Senior Advocate Hufeza Ahmadi

Referring to the report of Justice BN Srikrishna and stressing on the need for implementation of the Arbitration and Conciliation (Amendment) Act, 2019 which provides for creation of Arbitration Council of India, Senior Counsel said, "If you bring the amendment into force and set up ACI, 95% of the problems will be resolved except when the parties do not want to subject themselves to institutional arbitration but ad hoc arbitration."

He further added that, "Earlier this power was with the HC, SC or Civil court but the idea of the amendment was to bring in graded institutions. Power of appointment of arbitrators which was with the court will go to the institutions. If the power of the judicial body is to be vested in the counsel- composition of that would be judicial. Please see section 43(C). Creation of institution which would thereafter make the appointment itself will be- it'll have a great impact on the arbitration in India. You have 1 judge who will be appointed in consultation with the CJI whereas all the others will be Central Government nominees."

7 Years Down The Lane, Most Of High Courts Have Not Issued Rules And Even If They Are There Is No Uniformity: Advocate K Parameshwar

Appearing for the Newasa Bar Association (District & Taluk Bar Associations) , Advocate K Parameshwar drew Court's attention to Section 11(14) of the Arbitration and Conciliation Act, 1996 which the High Court may frame rules for determining the tribunal's fee and the manner of payment of arbitral tribunal after taking into consideration the rates specified in the Fourth Schedule.

Referring to the same, Counsel said that only 3 High Courts namely Bombay, Rajasthan and Kerala had framed rules. He further added that although these courts have framed the rules, there is no uniformity in the rules.

Emphasizing on the aspects related to access to justice and stressing on "certainty of forum", Counsel said, "By virtue of 2015 amendment 11(14) was introduced and HC was required to frame rules and only 3 HC's have framed rules. We have Bombay, Kerala and Rajasthan who have only formulated the rules and all the other HC's think that the international arbitration center rules will survive. So far as Bombay is concerned, there is no uniformity in the rules.

There are a number of matters where the HC appoints an arbitrator but the field is completely vacant there. 7 years down the lane, most of the HC have not issued rules and even if they are there is no uniformity. Arbitration is a substitutional remedy and outusts the jurisdiction of Court and should be viewed from the aspect of access to justice. It displaces my traditional remedy and if it leaves the field empty then it'll deprive me of my access to justice. Out of the 5 aspects of access to justice one is "certainty of forum"."

Appearing for AFCONS R.N. Shetty And Co. Pvt. Ltd JV, Advocate Manu Sheshadri mooted for arbitrators charging separate fees for claim and counterclaim.

"Separate fees can be charged for claim and counterclaim referring to the proviso of section 38. Section 23 of the Act, here also it refers to statement of claim and defense and the old section 23 only refers to the claim," submitted Counsel.

"From day 1 the arbitrator says and each of them say that we're charging 4 lakh since there is counter claim we'll charge 4 lakh for claims and 4 lakh for counterclaim. Sometimes it's not even possible to bifurcate," remarked Justice Chandrachud.

"Sum in dispute is not used anywhere in the act except the heading in 4th schedule. That heading of 1 column is qualified by what it means on the right side. Section 38 specifically talks of claims and counterclaim. Interpretation of the concept will mean that it'll apply in a different way. If the intent of the statute in a vanilla 4th schedule case is to give you separate sets of fees then it might not be right to give for 1 set of fees," submitted Senior Advocate AM Singhvi.

"When we interpret the 4th schedule, we'll have to be conscious of the fact that they followed "sum in dispute" and didn't use separate heading for claim and counter - claim. We're dealing with a huge figure," remarked Justice Khanna.

The bench would continue hearing the matter tomorrow.

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