S.N. Sunderson & Company vs M/S. Chandok Machineries
2017 Latest Caselaw 1382 Del

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*       IN THE HIGH COURT OF DELHI AT NEW DELHI

+                    ARB. PET. NO.365/2015 & IA 2408/2017

        S.N. SUNDERSON & COMPANY                          ..... Petitioner
                          Through: Mr. Jayant K. Mehta, Mr Pulkit Agarwal
                          and Mr Abhijeet Srivastava, Advocates

                          versus

        M/s. CHANDOK MACHINERIES                         ..... Respondent
                          Through: Mr Avi Singh with Ms Megha,
                          Advocates.

        CORAM: JUSTICE S.MURALIDHAR

                                    ORDER

15.03.2017

IA No.9/2017 In Arb. Pet. No. 365/2015

1. An interesting question of law concerning the interpretation of the Arbitration and Conciliation Act, 1996 („the Act‟) and, in particular, the powers and jurisdiction of the Court to interfere with a procedural order of the Arbitral Tribunal („AT‟) fixing its fee arises for consideration in the present application.

2. The background to the present application is that on 27th December, 2014, the Respondent M/s. Chandok Machineries sent a notice to the Petitioner - S.N. Sunderson & Company - seeking reference of the disputes that had arisen between them pursuant to a Memorandum of Understanding (MoU) dated 4th September, 2012 relating to the working of Amehta and Badari

Mines, to arbitration.

3. When the parties failed to concur on the name of the presiding Arbitrator, the Petitioner filed Arb. Petition No.365/2015 in this Court under Section 11(4) of the Act.

4. In the meanwhile, with effect from 23rd October 2015, the Act stood amended. The first significant amendment, relevant for the present application, is the insertion of Sub-section (14) in Section 11 of the Act which reads as under:

"(14) For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Forth Schedule.

Explanation.- For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution."

5. The second significant amendment is that Sub-section (8) to Section 31 has been substituted. It states: "The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with Section 31 A". Section 31 A (1) inter alia provides that the AT would have the discretion to determine the costs to be paid by one party to the other. The expression „costs‟ is defined in sub- clause (i) of the Explanation as meaning "reasonable costs relating to fees and expenses of the arbitrators".

6. Corresponding to Section 11 (14) of the Act, the Fourth Schedule to the Act was added which set out the model fees payable to the Arbitrators depending on the sum in dispute. A note appended below the table read thus:

"In the event, the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent. on the fee payable as per the table set out above.

7. To complete this narration, it must be noted that under Section 14, as amended, the Delhi High Court is yet to make rules on the aspect of determination of fees payable to an AT.

8. In the said petition, on 27th November, 2015, the following order was passed:

"The learned counsel for the parties would submit that a third arbitrator may be appointed by the Court.

In the circumstances, Justice (Retd.) Anil Kumar (Mobile No. 9818000140 is appointed as the Arbitrator. The parties shall appear before the learned Arbitrator on 14th December, 2015.

The fees shall be fixed by the learned Arbitrator himself.

A copy of this order be sent to the learned Arbitrator.

The petition stands disposed off in the above terms."

9. The first hearing of the three-Member AT took place on 14th December, 2015.

10. There were two references before the AT. The first was pursuant to the order dated 27th November, 2015 of this Court in Arb. Pet. No. 365/2015. The second reference was pursuant to the MOUs dated 4 th September, 2012.

As regards the second reference a notice invoking the arbitration clause was sent by the Respondent to the Petitioner on 8th April, 2016.

11. In light of the law as explained by the Division Bench (DB) of this Court in Ardee Infrastructures v. Ms. Anuradha Bhatia (decision dated 6th January 2017 in FAO (OS) No. 221 of 2016) while the first reference (which was consequent to the invocation of the arbitration by the Respondent by notice dated 27th December 2014) was governed by the provisions of the Act as it stood prior to the amendment with effect from 23rd October 2015. The second reference (consequent to the invocation of the arbitration by the Respondent by notice dated 8th April 2016) would be governed by the amended provisions of the Act that became effective from 23rd October 2015.

12. Prior to the amendment with effect from 23rd October 2015, Section 31(8) of the Act read as under:

"(8) Unless otherwise agreed by the parties,

(a) the costs of an arbitration shall be fixed by the arbitral tribunal;

        (b)        the arbitral tribunal shall specify-
              (i) the party entitled to costs,
              (ii) the party who shall pay the costs,
              (iii)       the amount of costs or method of determining that
              amount, and
              (iv)        the manner in which the costs shall be paid.

Explanation.--For the purpose of clause (a), "costs" means reasonable costs relating to

(i) the fees and expenses of the arbitrators and witnesses,

(ii) legal fees and expenses,

(iii) any administration fees of the institution supervising the arbitration, and

(iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award."

13. The difference in Section 31 (8) as it stood prior to 23rd October 2015 and Section 31 A inserted with effect from that date is that in the former the discretion of the AT to fix its fees was subject to an agreement to the contrary between the parties to the arbitration. Under Section 31 A the discretion of the AT is not subject to an agreement to the contrary between the parties. Be that as it may, in the present case, there was no agreement between the parties as regards the fees payable to the AT. Thus the AT was, for both references, free to fix its own fees subject only to the requirement that it had to be 'reasonable'.

14. On 13th January 2016, the AT in the present case passed an order to the effect that "The fees of Arbitration shall be as per The Arbitration and Conciliation (Amendment) Act, 2015." It was further directed that such fees would be payable to each of the arbitrators separately. Further "Out of total fees payable, Rs.5 lakhs will be paid initially and balance in two instalments. After payment of initial fees, first instalment will be payable at the time of parties commencing evidence and second instalment at the time of commencement of Arguments."

15. The Respondent / Applicant paid the first instalment of fees as per the

directions of the AT on 18th January, 2016. The Respondent also filed its statement of claim in the first reference before the AT on 15th February, 2016 against the Petitioner for an aggregate sum of Rs. 12,96,21,991.40.

16. On 12th July, 2016, the Respondent filed an application before the AT for merger of the two references. On 10th August, 2016, the Respondent filed its statement of claim under the second reference for Rs. 12,67,22,182.19 against the Petitioner. It is stated that these claims overlapped the claims under the first reference.

17. As regards the second reference, by a separate order dated 10th August, 2016, the AT directed the Respondent to pay a sum of Rs.5 lacs to each of the arbitrators as part of the arbitration fees within one week. A review application filed by the Respondent seeking recall of the aforementioned order dated 10th August, 2016 was dismissed by the AT on 8th September, 2016. Thereafter, a second review application was filed on 19th October, 2016 seeking recall of the order dated 10th August, 2016 and 8th September, 2016.

18. At the hearing held on 19th October 2016, the AT directed the Respondent to pay the second instalment of fees of Rs. 942332.50 under the first reference separately to each of the arbitrators. On 24th October 2016, the Respondent deposited a sum of Rs. 5 lacs with each of the arbitrators.

19. On 4th November, 2016, the AT dismissed the Respondent‟s application seeking amendment of the claims under the first reference. It dismissed the application of the Respondent for merger of the claims under the first and

second references.

20. It is in the above circumstances that the present application was filed by the Respondent with the prayers that this Hon'ble Court may clarify the orders dated 13th January 2016 and 19th October 2016 passed by the AT determining the fee payable to each Arbitrator in the AT.

21. The present application is captioned as being under Section 151 Code of Civil Procedure, 1908 („the Code‟). When notice was issued in the present application on 3rd January 2017, the following order was passed by this Court:

"2. Notice. Mr. Jayant K. Mehta, learned counsel for the non- Applicant accepts notice and raises an objection as to the maintainability of the present application. He says that the application in effect seeks to challenge the orders passed by the Arbitral Tribunal ('AT') on the issue of the fees to be paid to the AT.

3. The application in effect does question the orders passed by the AT on 10th August, 2016, 8th September, 2016 and 4th November, 2016.

4. Apart from the above issue of maintainability, the substantive issues that arise in this application are whether in terms of the Fourth Schedule of the Arbitration and Conciliation Act, 1996 ('Act'), the fee payable on a claim of above Rs. 10 crores and up to 20 crores would be Rs. 12,37,500 plus 0.75% of the claim over and above Rs. l crore (as has been printed in the Fourth Schedule) or over and above Rs. 10 crores, as it should be when it is compared with the other entries in the table. The other issue is whether the fee so determined is payable to the AT as a whole or to each individual member of the AT.

5. On the above issues a detailed hearing would be required.

The parties will file their respective notes of submissions on the above issues before the next date.

6. List on 1st February, 2017."

22. On 1st February, 2017, further time was granted to the Applicant to file its written note of submissions. That has since been filed.

23. Meanwhile, IA No. 2408/2017 for stay was filed by the Respondent appending with it the proceedings of the AT at its hearing on 7th February, 2017. The AT again directed that the fees as ordered by it earlier should be paid to each member of the AT within 2 weeks. In the said application it was prayed that this Court should stay the said order of the AT till the disposal of IA 9/2017.

24. IA No.2408/2017 came up for hearing on 27th February, 2017. The Court directed that till the next date of hearing i.e. 15th March 2017, the directions issued by the AT regarding payment of the next instalment of fees shall remain stayed.

25. The first question that requires to be considered by the Court is whether the present application is maintainable under Section 151 of the CPC. The question posed by the Court to Mr. Avi Singh, learned counsel for the Applicant/Respondent, was notwithstanding Section 151 CPC, whether under any of the provisions of the Act, even after amendment with effect from 23rd October 2015, the Court can review a procedural order passed by the AT fixing its fees?

26. Mr Avi Singh referred to the decision of the Supreme Court in Sanjeev

Kumar Jain v. Raghubir Saran Charitable Trust (2012) 1 SCC 455 where, inter alia, it was observed as under:

"39. ... The word `appoint' in section 11 of the Act, therefore refers not only to the actual designation or nomination as an arbitrator, but includes specifying the terms and conditions, which the Chief Justice or Designate may lay down on the facts and circumstances of the case. Whenever the Chief Justice or his Designate appoint arbitrator/s, it will be open to him to stipulate the fees payable to the arbitrator/s, after hearing the parties and if necessary after ascertaining the fee structure from the prospective Arbitrator/s. This will avoid the embarrassment of parties having to negotiate with the Arbitrators, the fee payable to them, after their appointment."

27. Mr Avi Singh was candid that under Section 19 (1) of the Act, the AT was not bound by the CPC. He also did not dispute that under Section 37 of the Act, no appeal was maintainable against the orders of the AT fixing its fees. He also drew the attention of the Court to the specific bar under Section 11(7) of the Act on the filing of the appeals against the orders passed under Section 11(4), 11(5) and 11(6) of the Act. He submitted that it would be manifestly contradictory for the judicially appointed arbitrators to set fees in complete disregard of the provisions under Section 11 (14) and the Guideline rates in Schedule 4 to the Act.

28. The Court is unable to appreciate how the above passage in Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust (supra), answers the question concerning the power of the Court to judicially review a procedural order of an AT fixing its fees. Under Section 5 of the Act, the extent of judicial intervention is limited. Section 5 is categorical that "no judicial authority shall intervene except where so provided in this part". In other

words, unless there is specific provision in the Act, permitting judicial intervention, the jurisdiction of the Court to interfere with the procedural orders passed by the AT cannot be presumed to exist as an inherent power of the Court or exercised even suo motu. In other words, there are no inherent powers of the Court, much less, a power similar to the one under Section 151 of the CPC, to exercise jurisdiction under the Act to interfere with the procedural orders of the AT.

29. Since the Court is not satisfied that the present application in its present form is maintainable, the Court declines to examine the two issues raised therein as regards fixing the fees by the AT and noted by this Court in its order dated 3rd January, 2017.

30. Accordingly, IA No. 9 of 2017 is dismissed as not maintainable.

31. The interim order passed by this Court on in IA No. 2408/2017 is hereby vacated and the said application is also dismissed.

S.MURALIDHAR, J MARCH 15, 2017 rd