Arbitrators can’t determine their fees, rules SC, sets ₹30 lakh ceiling
Justice Khanna wrote a separate order agreeing to the suggestion by the other two judges for constituting a new arbitral tribunal but refused to find fault with the tribunal fixing its own fees
Arbitrators cannot determine their own fees, the Supreme Court has said, and set a ₹30 lakh ceiling for fees individual arbitrators can charge in domestic arbitrations under the Fourth Schedule to the Arbitration and Conciliation Act, 1996.
The court said this on Tuesday after a bench of justices Dhananjaya Y Chandrachud, Surya Kant and Sanjiv Khanna heard a bunch of petitions from companies against the arbitrary fee increases. Oil and Natural Gas Corporation Ltd (ONGC) filed the lead petition in the matter.
Justice Khanna wrote a separate order agreeing to the suggestion by the other two judges for constituting a new arbitral tribunal but refused to find fault with the tribunal fixing its own fees. He recorded his dissent. “I am of the opinion that by the implied terms of the contract and as per the provisions of the Arbitration and Conciliation Act, 1996, an arbitral tribunal can fix a reasonable fee.” He added this had to be done in a transparent manner and in consultation with the parties.
The court said a party to an arbitration dispute can approach it if it believes that the fee charged is “unreasonable”. “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 provided the Fourth schedule has been made applicable to the arbitration dispute by the parties.”
It said members of the arbitral tribunal cannot make any finding related to their fee and such a finding cannot be enforced in favour of the arbitrators.
The ONGC moved the court over the arbitrary arbitration fees in a ₹900 crore contract with M/s Afcons Gunanusa JV signed in 2009. Afcons invoked arbitration in 2015 and both sides appointed an arbitral tribunal of three members to decide the dispute. The members found the fee unrealistic as per the Fourth Schedule.
The tribunal fixed a fee of ₹1.5 lakh (later reduced to ₹1 lakh) for each arbitrator for every sitting of three-hour duration and indicated that it may also charge a reading fee or conference fee (for conferences between the members) to be indicated at a later stage. Around 54 sittings took place by July 2019.
Attorney General KK Venugopal, who appeared for ONGC, informed the court that this fee was not acceptable to it while Afcons agreed to pay the amount. Venugopal said that being a public sector company, it had limitations on the payment of fees beyond the prescribed limits under the 1996 Act and this gave an unfair advantage to the opposite side besides prejudicing the minds of the arbitrators.
In 2020, ONGC informed the arbitral tribunal that the revised fee was not approved by its management. ONGC approached the Bombay high court for termination of the mandate of the arbitral tribunal and appointing a fresh set of arbitrators. Its plea was rejected in October 2021. ONGC then approached the top court this year.
The top court used its extraordinary powers under Article 142 and directed the constitution of a new arbitral tribunal in accordance with the arbitration agreement and listed the matter for further hearing on September 21.
It said 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, ie, the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration.”
The court said the fees of the arbitrators must be fixed at the inception to avoid unnecessary litigation and conflicts between the parties. This fee ceiling will apply to individual arbitrators, and not the arbitral tribunal as a whole, which consists of three or more arbitrators.
