Arbitrators Entitled To Charge Separate Fee For Claim & Counter Claim In Arbitration Proceedings : Supreme Court

The Supreme Court held that 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. 

"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", the majority judgment authored by Justice DY Chandrachud held. 

Justice Sanjiv Khanna, in a separate judgment, opined that the expression "sum in dispute" means the sum total of both the claims and counter claims.

The court was interpreting the term "sum in dispute" which is the header of the second column of the Fourth Schedule. This column provides the different categories of the amounts, corresponding to which the third column provides the relevant fee which the arbitrators can charge for that category. One suggestion was that the expression "sum in dispute" should be the cumulative sum of the claim and counter-claim raised by the parties. If such a position is adopted, the arbitrators will charge one common fee for hearing both the claim and counter-claim, and the ceiling prescribed in the Fourth Schedule will apply to their cumulative total. Another possible interpretation was that "sum in dispute" refers to the individual sums in dispute in the claim and counter-claim. The issue was whether the expression 'sum in dispute' refers to the aggregate of the claim and the counter-claim, or the fee payable as per the schedule has to be separately computed for the claim(s) and counter-claim(s) without aggregating them;

Referring to Arbitration Act and the Code of Civil Procedure, related academic discourse and judicial pronouncements, the bench noticed the following:

(i) Claims and counter-claims are independent and distinct proceedings;

(ii) A counter-claim is not a defence to a claim and its outcome is not contingent on the outcome of the claim;

(iii)Counter-claims are independent claims which could have been raised in separate proceedings but are permitted to be raised in the same proceeding as a claim to avoid a multiplicity of proceedings; and

(iv)The dismissal of proceedings in relation to the original claim does not affect the proceedings in relation to the counter-claim.

The court therefore held thus:

"On a combined reading of Section 31(8), Section 31A and Section 38(1), it is clear that: (i) separate deposits are to be made for a claim and counter-claim in an arbitration proceeding; and (ii) these deposits are in relation to the costs of arbitration, which includes the fee of the arbitrators. Therefore, prima facie, the determination of the fee under the Fourth Schedule should also be calculated separately for a claim and counter-claim – i.e., the term "sum in dispute" refers to independent claim amounts for the claim and counterclaim. Such an interpretation is also supported by the definition of claim and counter-claim, and by the fact that the latter constitutes proceedings independent and distinct from the former."

If this interpretation were to be discarded in favor of construing "sum in dispute" as a cumulation of the claim amount for the claim and counter-claim, it would have far-reaching consequences in terms of procedural fairness. First, under the proviso to Section 38(1), the arbitral tribunal can direct separate deposits for a claim and counter-claim. These are based on the cost of arbitration  defined by a conjoint reading of Sections 31(8) and 31A, which includes the arbitrators' fee. Hence, if the arbitrators were to charge a common fee for both the claim and counter-claim, they would have to then equitably divide that fee while calculating individual deposits for the purpose of the proviso to Section 38(1). Second, the second proviso to Section 38(2) provides that if the deposit is not made by both the parties, the arbitral tribunal can dismiss the claim and/or counter-claim, as the case may be. If the claim was to be dismissed in such a manner, it would lead to an absurd situation where the arbitrators' fee would have to be revised in the middle of the arbitration proceedings solely on the basis of the amount of the counter-claim. Third, under Section 23(2-A), the only requirement of a counter-claim is that it should arise out of the same arbitration agreement as the claim. However, the cause of action of a counter-claim may be entirely different from the claim and possibly far more complex. Therefore, determining the arbitrators' fee on a combined basis for both the claim and counter-claim would thus not match up to the separate effort they would have to put in for each individual dispute in the claim and counter-claim

"Sum in dispute" will mean the aggregate of all the amounts in dispute : Justice Sanjiv Khanna

Justice Sanjiv Khanna, in his separate opinion, noted that this interpretation overlooks the legal position that the counter-claim and set off raised before an arbitral tribunal must fall within the scope of the arbitration agreement, which is the subject matter and basis of any claim in the arbitration proceedings.

"I would hold that the heading "sum in dispute" will mean the aggregate of all the amounts in dispute without any bifurcation and separate application of the fee schedule with reference to the amount subject matter of the claim(s), and the amount subject matter of the counter-claim(s).. The aforesaid dictum would not apply in cases where there is an umbrella arbitration clause, which applies to different/distinct contracts, in which case each contract would be treated as a separate arbitration proceeding viz. the claim, counter-claim and set-off relating to that contract.", the judge observed

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

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