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Synopsis

The Supreme Court on Tuesday held that 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 Court held.

However, Court added that 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 and Conciliation Act, 1996 and can 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)", Justice DY Chandrachud held.

While referring to the term "sum in dispute" used in the Fourth Schedule of the Arbitration Act, Court held that it refers to the sum in dispute in a claim and counter-claim separately, and not cumulatively. 

With this view, Court said that 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.

Court also held that the ceiling of Rs 30,00,000 as given in the Fourth Schedule of the Act of 1996, is applicable to the sum of the base amount (of Rs 19,87,500) and the variable amount over and above it and 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...", Court further clarified.

These observations have been made by the Top Court while deciding a dispute that arose regarding arbitrator’s fees in an arbitration where ONGC was a party.

The matter was heard by a three-judge bench of Justices Chandrachud, Surya Kant and Sanjiv Khanna. While Justice Chandrachud and Kant have given similar views on the matter, Justice Khanna has authored a separate judgment giving his views.

In March this year, while arguing in a matter pertaining to the dispute in arbitrator’s fees in arbitration, the Attorney General KK Venugopal had told the top court that" arbitrators believe they have a right to fix their own fees. Whatever fees they fix, should also be accepted by the parties."

"Arbitrators fixing their own fees will be highly anomalous. They ask for reading fees, conference fee, and a fee for the award. All these fees are becoming a problem for Public sector corporations....", the court was further told.

Recently, the Chief Justice of India NV Ramana while hearing the same matter pertaining to the dispute in arbitrator’s fees had remarked, “We may have to stop arbitration in India.”

Case Title: Oil and Natural Gas Corporation Ltd. vs. Afcons Gunanusa JV