In a notable ruling, the Supreme Court has held that Arbitrators do not have the power to unilaterally fix their fees without due consultation with the parties.
The judgement reserved by a Division Bench comprising of Justice DY Chandrachud and Justice Sanjeev Khanna on May 11, 2022 rules that unilateral determination of fees violates party autonomy and the doctrine of 'arbitrators cannot be judges of their own private claims regarding the remuneration against parties'
The Court ruled that Fourth schedule of the Arbitration and Conciliation Act, 1996 is not mandatory and therefore Arbitrators cannot unilaterally issue binding orders governing their own fees.
The judgement authored by Justice DY Chandrachud read further:
-The arbitral tribunal has the right to apportion costs and arbitral fees and expenses between parties and to also direct advance deposit according to Section 38. Arbitral fees directed in the absence of an agreement between parties cannot be enforced in favour of the Arbitrator. Arbitral tribunal can only exercise lien over award if the payment remains outstanding as per Section 39.
- The fees should be fixed at inception to avoid unnecessary conflict between arbitrators and parties at a later stage.
-Arbitrators would be entitled to charge separate fees for claim and counterclaim in ad hoc arbitration and the fees given in the fourth schedule will separately apply to both.
-The ceiling of Rs.30 lakhs in entry six of the fourth schedule is applicable to the sum of base amount and the variable amount over and above it. Consequently, the highest fees payable will be 30 lakhs.
-This is applicable to individual arbitrators and not an arbitral tribunal as a whole where it consists of more than three or more arbitrators. Sole arbitrators will get 25% over and above this amount according to 4th schedule.
Justice Sanjeev Khanna wrote a separate opinion piece in which he stated as below:
"I am of the opinion that by the terms of contract and provisions of Arbitration and Conciliation Act 1996, an arbitral tribunal can fix reasonable fees which an aggrieved party who is not signatory to the written agreement can question under subsection 3 to section 39 of the act during pendency of the arbitration proceedings or in case the arbitral tribunal claims lien over the award.
At the same time, I agree with Justice Chandrachud that when an arbitral tribunal, even in absence of consent of the parties, fixes the fee in terms of the fourth schedule, the parties would not be permitted to object to the fixation of fees.
Fourth schedule is the default fees declared by the legislature which can be changed by mutual consensus. After the amendment act of 2019 on 30th of August 2019, and insertion of subsection 3A to section 11, the Proviso states that fees given in the fourth schedule is mandatory and applies to all arbitrations including ad hoc arbitration. Fees fixed by the institution subject to the rates specified in the fourth schedule would be applicable. On the interpretation of the fourth schedule, while agreeing with the view expressed by Justice Chandrachud, on the interpretation of serial number six, the fee is prescribed for each member of the arbitral tribunal. The expression sum in dispute includes both claim and counterclaim".
The judgement came in the petition filed by ONGC in which the Public Sector Undertaking raised the greivance regarding arbitrators unilaterally increasing the fees amid the course of hearings.
Attorney General for India KK Venugopal, appearing for the ONGC, argued that PSUs are bound by audits and thereby are not in a position to meet such unilateral fee hikes demanded by the arbitrators while private claimants might be willing to do so which puts PSUs at a disadvantage.
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