Arbitrators Fee Cap Is Rs 30 Lakhs, Ceiling Limit Applicable To Individual Arbitrators, Not Tribunal As A Whole : Supreme Court

The Supreme Court held that the ceiling of Rs 30,00,000 in entry at Serial No 6 of the Fourth Schedule of the Arbitration and Conciliation Act is applicable to the sum of base amount and the variable amount, and not just the variable amount.

This means that the highest fee payable shall be Rs 30,00,000, the bench comprising Justices DY Chandrachud, Surya Kant and Sanjiv Khanna observed.

The court also held that the ceiling is applicable to each individual arbitrator, and not the arbitral tribunal as a whole, where it consists of three or more arbitrators. The conclusions in this regard in the judgment authored by Justice Chandrachud reads as follows:

1. The ceiling of Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule is applicable to the sum of the base amount (of Rs 19,87,500) and the variable amount over and above it. Consequently, the highest fee payable shall be Rs 30,00,000;
2. This ceiling is applicable to each individual arbitrator, and not the arbitral tribunal as a whole, where it consists of three or more arbitrators. Of course, a sole arbitrator shall be paid 25 per cent over and above this amount in accordance with the Note to the Fourth Schedule.

Sixth entry of the Fourth Schedule & Interpretations

As per sixth entry of the Fourth Schedule, when the sum in dispute is above Rs 20,00,00,000, the model fee shall be 'Rs 19,87,500 plus 0.5 per cent of the claim amount over and above Rs 20,00,00,000 with a ceiling of Rs 30,00,000'. This means  that (i) For an arbitration with the sum in dispute is Rs 20,00,00,000, the fee would be Rs 19,87,500. This will be referred to as the base amount; (ii) For any increase in the sum in dispute over and above Rs 20,00,00,000, 0.5 per cent of the amount above Rs 20,00,00,000 will be added to the fee. This will be referred to as the variable amount. For instance, if the sum in dispute was Rs 21,00,00,000, the amount above Rs 20,00,00,000 is Rs 1,00,00,000. Hence, 0.5 per cent of Rs 1,00,00,000 will be added as the variable amount; and (iii)There is a ceiling of Rs 30,00,000.

On the issue of ceiling, the court noticed that there are two possible interpretations: (i) First, the ceiling is for the sum of the base amount and the variable amount. If this interpretation were to be accepted, the highest possible fee would be Rs 30,00,000; or (ii) Second, the ceiling is for the variable amount only. If this interpretation were to be accepted, the highest possible fee would be Rs 49,87,500.

Difference between the English and Hindi translation

The bench, at the outset noticed that there is a difference between the English and Hindi translation of the relevant text of the sixth entry which is the presence of a comma in the Hindi translation, which is absent in the English version.

"The English version of the entry at Serial No 6 of the Fourth Schedule does not have any comma. Due to its absence, it can be construed that the literal meaning of the provision is that the ceiling should only apply to the variable amount.", the court observed.

Legislative Intent to put an end to the practise of arbitrators charging exorbitant fees

The court, referring to Law Commission of India  246th Report , observed that that the legislative intent behind the introduction of the Fourth Schedule was to put an end to the practise of arbitrators charging exorbitant fees from the parties taking their services in ad hoc arbitrations. The court thus observed|:

"Consequently, when we have the option of setting the ceiling of the fees in the Fourth Schedule at either Rs 30,00,000 or Rs 49,87,500, we believe that it would be appropriate to choose the lower amount since it would be in keeping with legislative intent. The 2015 Arbitration Amendment Act was clearly enacted with the intent to give effect to the recommendation of the LCI 246th Report on the point. Thus, we hold that the ceiling of Rs 30,00,000 in entry at Serial No 6 of the Fourth Schedule is applicable to the sum of base amount and the variable amount, and not just the variable amount."

Ceiling applicable for each individual arbitrator and not the whole arbitral tribunal

Another contention raised was that the ceiling of Rs 30,00,000 prescribed in the entry at Serial No 6 of the Fourth Schedule will be applicable to the cumulative fee paid to the entire arbitral tribunal, i.e., in a three member tribunal, each individual arbitrator would receive a fee of Rs 10,00,000. Rejecting this submission as erroneous, the court observed:

"First, there is nothing in the language of the Fourth Schedule to support such an interpretation. The header of the third column states "Model Fee" and does not specify it to be in respect of the whole tribunal. Second, if such an interpretation were to be adopted, it would lead to absurd consequences. For instance, in an arbitration where the sum in dispute is large enough to trigger the ceiling of Rs 30,00,000 and it were to be adjudicated by a three-member tribunal, the maximum fee would have to be divided amongst the three arbitrators. On the other hand, if the same dispute were to be adjudicated by a sole arbitrator, the sole arbitrator would then receive the whole amount of the maximum fee, i.e., triple of what each individual arbitrator would have received in a three-member tribunal. Such a disparity is inconceivable, regardless of the extra work a sole PART G 131 arbitrator may have to put in. This is further bolstered by the Note to the Fourth Schedule, which states that ―[i]n the event the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent on the fee payable as per the above‖. Consequently, the sole arbitrator would not only receive Rs 30,00,000, but an additional 25 per cent over and above it. Indeed, it is clear that the Note was added to the Fourth Schedule to fairly compensate sole arbitrators who arguably would have to do more work than as a member of a larger tribunal; which is why they are allowed payment of 25 per cent of the fee over and above what they would be paid pursuant to the table given in the Fourth Schedule. The corollary of this is that the fee provided in Fourth Schedule is for each individual arbitrator, regardless of whether they are a member of a multi member tribunal or a sole arbitrator. Finally, this interpretation of the Fourth Schedule, that the fee provided therein is applicable for each individual arbitrator and not the whole arbitral tribunal, has also been fairly conceded before this Court by the learned Attorney General."

Fourth Schedule does require modification and moderation : Justice Sanjiv Khanna

Justice Sanjiv Khanna, concurred with the above interpretation that the model fee mentioned in the third column of the Fourth Schedule would be the fee payable to each member of the arbitral tribunal. The judge, however, opined that the Fourth Schedule does require modification and moderation.

"For example, where the sum in dispute is Rs.5,00,000/-, in case of the sole arbitrator, the amount payable to him would be Rs.56,250/-, that is, Rs.45,000/- plus 25% (Rs.11,250) of Rs.45,000/-. In case of an arbitral tribunal of three arbitrators, the fee payable would be Rs.1,50,000/-. This fee is too high and would be unacceptable to most of the litigants as they would be liable to pay minimum arbitration fee of nearly 11% in case of sole arbitrator and nearly 30% in case of an arbitral tribunal consisting of three members. Similar may be the situation in case of claims falling under Serial Nos. 2 and 3. A high fee payout at serial numbers 1 to 3 as framed by the legislature makes arbitration unaffordable and beyond reach for a common litigant. Public perception that arbitration is costly and for moneyed litigants must be dispelled, if arbitration is to gain mass acceptance as the preferred alternative. High fee structure denies access to arbitration. In fact, the above figures would suggest that the fee specified in the Fourth Schedule is the cumulative fee to be divided between the three-member arbitral tribunal. Nevertheless, for the sake of certainty and to avoid confusion, it may not be advisable overturn the settled and accepted position."

Also From the judgment

Arbitrators Cannot Unilaterally Fix Their Fee As It Violates Party Autonomy : Supreme Court

'Hold Preliminary Hearings To Fix Arbitrator's Fee' : Supreme Court Issues Directives To Govern Fees Of Arbitrators

Case details

Arbitration and Conciliation Act, 1996 - 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, i.e., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration - The fees of the arbitrators must be fixed at the inception to avoid unnecessary litigation and conflicts between the parties and the arbitrators at a later stage- Issued directives to govern proceedings in ad hoc arbitrations. (Para 158(i-ii), 104)

Arbitration and Conciliation Act, 1996 ; Section 31, 31A, 38, 39 - The arbitral tribunal has the discretion to apportion the costs (including arbitrators' fee and expenses) between the parties in terms of Section 31(8) and Section 31A of the Arbitration Act and also demand a deposit (advance on costs) in accordance with Section 38 of the Arbitration Act. If while fixing costs or deposits, the arbitral tribunal makes any finding relating to arbitrators' fees (in the absence of an agreement between the parties and arbitrators), it cannot be enforced in favour of the arbitrators. The arbitral tribunal can only exercise a lien over the delivery of arbitral award if the payment to it remains outstanding under Section 39(1). The party can approach the court to review the fees demanded by the arbitrators if it believes the fees are unreasonable under Section 39(2). (Para 158(i))

Arbitration and Conciliation Act, 1996 ; Fourth Schedule - The term "sum in dispute" in the Fourth Schedule of the Arbitration Act refers to the sum in dispute in a claim and counter-claim separately, and not cumulatively. Consequently, arbitrators shall be entitled to charge a separate fee for the claim and the counter-claim in an ad hoc arbitration proceeding, and the fee ceiling contained in the Fourth Schedule will separately apply to both, when the fee structure of the Fourth schedule has been made applicable to the ad hoc arbitration. (Para 158(iii))

Arbitration and Conciliation Act, 1996 ; Fourth Schedule - The ceiling of Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule is applicable to the sum of the base amount (of Rs 19,87,500) and the variable amount over and above it. Consequently, the highest fee payable shall be Rs 30,00,000 -This ceiling is applicable to each individual arbitrator, and not the arbitral tribunal as a whole, where it consists of three or more arbitrators. Of course, a sole arbitrator shall be paid 25 per cent over and above this amount in accordance with the Note to the Fourth Schedule. (Para 158(iv-v))