Arbitrator Cannot Unilaterally Decide Fees, Supreme Court Observes

The Supreme Court of India, on August 30, observed that arbitrators did not possess an absolute and unilateral power to determine their own fees.

The case pertained to a dispute between Oil and Natural Gas Corporation and Afcons whereby certain questions regarding the Arbitration and Conciliation Act 1996 came to the fore.

Bench of Justices DY Chandrachud, Surya Kant and Sanjiv Khanna heard the matter and pronounced the judgement on Tuesday.

Justice DY Chandrachud authored an opinion for himself and Justice Surya Kant and Justice Sanjiv Khanna wrote a separate opinion.

Arbitrators' Fee

The Court enumerated three ways by which parties can partake in deciding the fees: (i) determining the fees at the threshold in the arbitration agreement; or (ii) negotiating with the arbitrators when the dispute arises regarding the fees that are payable; or (iii) by challenging the fees determined by the tribunal before a court. 

Judgment authored by Justice DY Chandrachud stated that, "Typically, the fees payable to arbitrator(s) are determined through an agreement between the parties (of which the arbitrator(s) become aware of when they take up the assignment) or a separate agreement of the parties with the arbitrator(s). The arbitrator(s) then become bound by such contractually agreed fees; and  (ii) Certain arbitration legislations give the arbitrator(s) effective power to determine their own fees, typically when there is an absence of agreement between the parties on the subject. However, such determination of fees is subject to review by the courts who can reduce the fees if they are not reasonable."

"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," observed the Court.

Claim And Counter Claim

The Court analysed the statutory framework of the Arbitration Act and the CPC, related academic discourse and judicial pronouncements and observed that claims and counter-claims were distinct and independent proceeding, counter-claim was not a defence to a claim and its outcome was not contingent on the outcome of the claim.

It was also noted that counter-claims were independent claims which could have been raised in separate proceedings but were permitted to be raised in the same proceeding as a claim to avoid a multiplicity of proceedings; and the dismissal of proceedings in relation to the original claim would not affect the proceedings in relation to the counter-claim.

Sum In Dispute

The Court held that sum in dispute in the Fourth Schedule of the Arbitration Act shall be considered separately for the claim amount in dispute in the claim and counter-claim. Consequently, the arbitrators' fee will be calculated separately for the claim and counter-claim, and the ceiling on the fee will also be applicable separately to both.

The Court observed 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. Consequently, 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."

Ceiling Limit

The ceiling of Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule was held to be applicable to the sum of the base amount (of Rs 19,87,500) and the variable amount over and above it. Consequently, the highest fee payable shall be Rs 30,00,000; and this ceiling was applicable to each individual arbitrator, and not the arbitral tribunal as a whole, where it consisted of three or more arbitrators. The Court noted that a sole arbitrator shall be paid 25 per cent over and above this amount in accordance with the Note to the Fourth Schedule. 

In the opinion authored by Justice Sanjiv Khanna, the judge noted that the expression “sum in dispute” meant the sum total of both the claims and counter claims. 

The judgment had expounded on many fractious issues in Arbitration Act and will certainly set many complexities to rest.

[Oil and Natural Gas Corporation Ltd. vs. Afcons Gunanusa JV (2022)]