Arbitrator's Fees : If There Are HC Rules, They Should Apply; 4th Schedule Can Be A Default Provision, Supreme Court Says During Hearing

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, submissions were made by Attorney General for India KK Venugopal, Solicitor General of India Tushar Mehta and Senior Advocate Dr AM Singhvi.

Submissions Of Counsels

4th Schedule Yardstick or Template By Which Domestic Arbitration Which Is Commercial In Nature Should Continue; Ceiling Of 30 Lakhs To Be Applied Entirely To The Table; Claim and Counterclaim Should Be Aggregate; 4th Schedule Fees Is Separate For Separate Arbitrators: AG KK Venugopal

AG KK Venugopal commenced his submissions by referring to section 11(14) of the Act which empowers the High Court to frame the rules as may be necessary for determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal after taking into consideration the rates specified in the Fourth Schedule. He further contended that arbitrators could not unilaterally fix the fees.

Referring to the rules framed by various High Courts such as Bombay, Delhi and Kerala, he contended that the High Court should formulate uniform rules so that there is uniformity throughout the country.

"If there are rules made by the High Court, then the rules of the High Court would apply. Bombay High Court and Delhi High Court have formulated the rules," remarked Justice Sanjiv Khanna.

"If the HC has framed rules and those are lower than the 4th schedule, then the HC rules will apply. Then in ad hoc arbitration you'll be guided by the rules. The 4th schedule of 2015 is in force and it provides a template and it can be in a sense a default provision except when it has been agreed by the parties," remarked Justice DY Chandrachud.

"Even if this comes into force, it does not deal with the powers of the tribunals to fix the fees. The only difficulty will be where the rules have not been made. There would be templates," replied AG.

AG further argued that claim and the counterclaim have to be bundled together with a ceiling of Rupees 30 lakhs for the determination of fees as per the 4th Schedule of the Arbitration Act.

In this regard, he said, "If it's not aggregated then there will be huge liability on the parties which would mean either that this 30 lakhs would apply to anything above 20 crores. If you don't aggregate there would be 50 lakhs to each arbitrator, plus very heavy expenses of the counsel".

"You can't charge a different set of fees for counterclaim and claim. They should charge the same set of fees. Some ground rules we may have to set here subject to hearing the other parties," remarked Justice Chandrachud at this juncture.

It was also AG's contention that the ceiling of 30 lakhs should apply entirely to the table. To further substantiate his contention, AG referred to the Law Commission's 46th report and the Top Court's judgment in Union of India v Singh Builders. Reliance was also placed by AG on the Delhi High Court's judgment in Rail Vikas Nigam Ltd. vs Simplex Infrastructures Ltd.

"Basis of arbitration where your lordship is noting as to what has been happening on ground. And your lordship's judgment will be of great value. If they agree they have to answer to the Dept and CAG and if they don't agree they have this belief of prejudice," he further added.

To conclude his submissions, AG argued that:

• The 4th schedule is the yardstick or the template by which the arbitration in this country should continue- dometic arbitration which is commercial in nature.
• Claim and counterclaim - to be aggregated for having one single lump sum
• Fees cannot be fixed per day, per hour per sitting because it could lead to abuse. Lump sum would ensure that there is urgency and even the arbitrator would also complete the hearing as swiftly as possible. Because the quicker the arbitration is completed, it would save the expenses of parties to render it truly a cheap and efficacious remedy
• In addition to aggregation- max fees is 30 lakhs.

While AG was concluding his submissions he urged the bench to lay down the norms to be applied formally across the board for domestic arbitration which would be a boon for arbitration across the country.

Absence Of Comma Should Not Make Difference As Object Of Cap Of 30 Lakh Was To Reduce Cost Of Arbitration; CAP Was Intended To Be On Ceiling Which Was Overall Chargeable; Section 38 Is Intended To Be Used At Outset & Not Periodically: SG Tushar Mehta

Solicitor General Tushar Mehta on whether the ceiling of 30 lakhs in the sixth item in Schedule IV (which says that for sums in dispute of Rs. 20 crores and above, the fee will be 19,87,500 + 0.5% of claim amount over and above 20 crores subject to the ceiling of 30 lakhs), is only referable to the second part or to the total, submitted that the absence of comma in the English version should not make a difference as the object of the Cap of 30 lakh was to reduce the cost of arbitration.

"Whatever text was before the Legislature, appears to be the law. Hindi verison is otherwise an official version coming from the government and can always be relied upon as an aid of interpretation. There was no need to put the cap on the first few entries because the upper limit of sum and dispute provides the cap.. Necessity of cap is there in the last entry.The cap was intended to be on the ceiling which was overall chargeable," SG further added.

It was also Mr Mehta's contention that the bench could consider the Delhi Model to consider whether the comma in the Fourth Schedule was a mistake or not.

He also drew the Court's attention to the Allahabad High Court's judgment in Jaswant Sugar Mills v. The Presiding Officer AIR 1962 Allahabad 240 to contend that if there is Hindi and English version and even assuming that English version is true, then also Hindi can be relied upon.

"Remedy is not giving an overly expansive interpretation but it lies in the Central Government revising it. When this amendment was introduced, the Law Minister relied on the Law Commission's report. As far as fee structure is concerned, exorbitant fees were charged earlier. This is an interesting facet where punctuation marks can be an assisted guide for interpretation. Absence of COMMA appears to be a mistake where in the Hindi version we have a COMMA. Absence of a comma should not make difference as the object of the cap of Rs 30 lakh was to reduce the cost of arbitration," SG further added.

With regards to the aspect as to whether the model fee corresponding to the various slabs of the 'sum in dispute', as stipulated in Schedule IV of the 1996 Arbitration Act, would be for the whole arbitral tribunal or for each arbitrator, SG submitted that the same should be considered as the fee for the Tribunal.

SG further contended that even if Section 38 of the Act enables the arbitral tribunal to order depsoits as an advance for the costs, it is intended to be used at the outset and not periodically.

 When the first meeting is held- there the tribunal can say that you deposit. This is intended to be used at the outset and not periodically," submitted SG.

"Problem of arbitrators saying now gives me this, give me this, it sends a bad taste in the mouth and there should be some professionalism in arbitration," remarked Justice Chandrachud.

"The terms must be cast in stone and that should not change later. At the outset only. Once the terms of engagement are final, you can't change the terms of the goalpost later," added Senior Advocate Huzefa Ahmadi.

Unfair For ONGC To Get Advantage Of Their Own Wrong; AFCONs Being Painted Black By Public Sector; ONGC Has To Be More Responsible; Objected To Increased Fees After 1 Year: Senior Advocate AM Singhvi

Appearing for the the private respondent AFCONs, Senior Advocate AM Singhvi submitted that it would be unfair if ONGC got the advantage of their own wrong. To substantiate his contention on this aspect, Senior Counsel contended that it had been 7 years since the arbitration had commenced and ONGC had objected to the arbitrator fixing the revised increased fee after 13 months.

"The petitioner's counsel categorically said that, "during the 43rd and 46th sitting there would be another 80 sittings which would be required for cross examining the witnesses". During 2020 when the CoVID took place the tribunal canceled the same and then filed an application for VC, it was rejected. Now why did they do this, it's in the next para- they put this clause, "petitioner usually delays in the arbitration since no interest is required to be paid by them". It has already been 7 years since the arbitration commenced- even to the objection of fees of 1 lakh was objected after 13 months of 1 lakh being fixed for 120 hearings etc. In my case, the 4th schedule does not arise. These are in particular judicial arbitrators and are not strangers of arbitration. It would be unfair of ONGC to get advantage of their own wrong," submitted Singhvi.

It was also Senior Advocate's contention that AFCONs was being painted black by the public sector. "ONGC has to be more responsible and I can have a reputation of being less responsible as I'm a private party. They have been in the saddle for the last 5 years," Counsel also contended.

On the aspect of ONGC approaching the High Court and Top Court under Section 14 of the Act which deals with terming the mandate of the Arbitrator, Senior Counsel contended that no prejudice was being caused to ONGC. He also urged the bench to not allow the PSU to distort the law.

"Your lordship's hands are long enough but don't allow the law to be distorted. How many things must be changed because ONGC finds 1 lakh expedient," he further added.

The hearing will continue next week.

Previous Reports :

Arbitrator's Fee : Claim & Counter-Claim Have To Be Bundled Up Together, With Rs.30 lakhs Ceiling, Says Supreme Court During Hearing

Arbitrators Fixing Their Own Fee Would Amount To Misconduct; PSUs Can't Meet Exorbitant Fee Demand As They Are Answerable To CAG : Attorney General Tells Supreme Court

Can Arbitrators Fix Their Fee Without Parties' Consent? Is 4th Schedule The Standard Fee Scale? Supreme Court Considers

Case Title: Oil And Natural Gas Corporation Ltd. v. Afcons Gunanusa JV

Click Here To Read/Download Order