Attorney General Raises Concerns About 'Exorbitant' Arbitrators' Fee In PSU Cases; Supreme Court Agrees To Hear Issue Of 4th Schedule Fee Scale

The Supreme Court on Tuesday agreed to hear the issue related to the mandatory nature of the 'model' fee scale for arbitrators prescribed under the Fourth Schedule of the Arbitration and Conciliation Act 1996.

The Chief Justice of India NV Ramana agreed to constitute a bench to hear the Special Leave Petitions which raise the issue relating to the interpretation of the Fourth Schedule.  This was after the Attorney General for India KK Venugopal raised concerns about the "exorbitant and arbitrary" fee charged by the arbitrators and pressed that the Court should lay down uniform standards.

Appearing in an arbitration petition filed by the Oil and Natural Gas Corporation (ONGC), the AG said that the arbitrators were charging exorbitant fees.

"Arbitrator has to work without any remuneration? Better we close the arbitration system", CJI Ramana quipped.

The AG replied that the ONGC agreed to follow the Fourth Schedule but keep charging under different heads.

"It goes to Rupees 85 lakhs and more for each arbitration. Having accepted the 4th schedule, and asked us to deposit 25 lakhs, then they suddenly say Rupees 1.5 lakhs per sitting, then they demand separate reading fee, conference fee. We only seek uniformity. Your lordships will have to bring in uniformity", the AG said. He stressed that the Public Sector Undertakings are accountable to the CAG; however, the private claimants will be happy to oblige the fee demands of the arbitrators.

"The other side, the contractors, they are happy to comply. They have huge amounts. As far as we are concerned, we are answerable to the CAG. If we don't agree, the arbitraror will not be happy. So we are in a quandary", the AG said. 

The CJI did not appreciate the AG's imputation that arbitrators will give adverse verdict if their fee demand is not accepted.

"Mr.AG, we have great regard for you, but the impression you are trying to create is not right. Just because you don't agree to their fee, you feel arbitrators will be biased?", CJI asked.

The AG said that the question of bias will arise and that it can amount to misconduct if the arbitrator accepts the unilateral fee fixed by one party to the dispute.

Senior Advocate Dr Abhishek Manu Singvhi, appearing for the private respondent in the matter, rebutted the AG's arguments by saying that the problem arises when PSUs like ONGC drags the proceedings.

"We are very happy with 4th schedule. But there is a clause which says that there is no interest payable to me if there is any delay by the ONGC. The ONGC counsel says by modest estimation, it will take 70-80 sittings. For two years, they(ONCG) objected to virtual sitting. Even while all the courts in the country were functioning virtually, there was not a single sitting from 2020- 2022.  I have no problem with the 4th schedule. But it has a cap of Rs 30 lakhs. If there are 100 sittings, it comes to 30,000 per sitting. Do we want retired Supreme Court judges deciding at Rupees 30,000 per sitting?", Singhvi said.

Singhvi reiterated, "I am quite happy with the 4th schedule. But no arbitrator will be happy with Rupees 30,000 per sitting".

"There has to be a question about how much fees the ONGC is paying the lawyers as well", Singhvi added.

At this point, the CJI asked if the constitutionality of the 4th Schedule has been challenged. In reply, the AG informed that two special leave petitions are pending in the Supreme Court on the interpretation of the 4th Schedule.

The CJI said that he will constitute a bench to hear those matters and tagged those SLPs (the AG agreed to give the numbers to the Court Officer) along with the present arbitration petition.

After the hearing was over, the CJI told the AG that the conduct of some of the PSUs were not appreciable. The CJI said that if there was an objection to the fees, it should be expressed at the time of the appointment itself.

"Mr AG,  with due respect to you, the way PSUs are working  is not appreciable...simply because the arbitrator cannot defend, you cannot attribute bias.. at the point of appointment, you have to say we don't agree with this fee...if you are not agreeable, you should have protested then", the CJI said.

"We wrote to each arbitrators. They accepted the 4th schedule. But later they changed their minds", the AG said.

"I am sorry, the issue is.. when there is a cap of 30 lakhs and the counsels say they need 80 more hearings", Singhvi replied.

The bench, also comprising Justice AS Bopanna and Justice Hima Kohli, has posted the matter next on March 23.

It may be recalled that the Supreme Court had earlier pulled up the ONGC in another case after former Bombay High Court judge Justice SC Dharmadhikari had recused over a fee dispute.

"You have lots of money to file frivolous petitions, but you can't pay arbitrators? You are insulting judges", the CJI had observed then. Expressing great unhappiness over the development, the CJI had sought the assistance of the Attorney General to address the issue.

"We want to bring to your notice as you are Attorney General of India, the arrogance of ONGC, the behaviour and conduct of ONGC", the CJI had told the AG.

(Report to be updated with the details of the SLPs on the question of 4th schedule after the order is uploaded)

Case Title : OIL AND NATURAL GAS CORPORATION LTD. vs. AFCONS GUNANUSA JV| Arbitration Case No.5/2022

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