Arbitrators don’t have power to unilaterally issue binding orders determining their own fees: SC

Exercising plenary powers under Article 142 of the Constitution, the court directed adoption of a slew of guidelines for the conduct of ad hoc arbitrations in India.

A bench of Justices DY Chandrachud, Surya Kant and Sanjiv Khanna passed a verdict on a batch of pleas including that of the

on the issue of fixation of fees by the arbitrators for themselves while adjudicating a dispute.

The bench 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 in rem suam decisions, i.e., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration”.

It, however, said an 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 Act and 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 bench said.

It added that 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) and 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) of Act.

The bench said this judgment holds that the fees of the arbitrators must be fixed at the inception to avoid unnecessary litigation and conflicts between the parties and the arbitrators at a later stage.

It clarified that the term “sum in dispute” in the Fourth Schedule of the Arbitration Act refers to the sum in dispute in a claim and counterclaim separately, and not cumulatively.

“Consequently, arbitrators shall be entitled to charge a separate fee for the claim and the counterclaim 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”, it said.

The top court also compared the world wide best practices and arbitration institutes of repute and said the ceiling of Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule of the Act is 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”, it said, adding that this ceiling is applicable to each individual arbitrator, and not the arbitral tribunal as a whole, where it consists of three or more arbitrators.

Of course, a sole arbitrator shall be paid 25 per cent over and above this amount in accordance with the Note to the Fourth Schedule, it said.

The bench said that Rules of certain international arbitral institutions provide for convening a preliminary meeting or case-management conference and the fees and expenses are typically addressed at this stage.

“We propose that this stage of having a preliminary hearing should be adopted in the process of conducting ad hoc arbitrations in India as it will provide much needed clarity on how arbitrators are to be paid and reduce conflicts and litigation on this issue”, it said.

The bench said it is conscious and aware that arbitration proceedings must be conducted expeditiously, court interference should be minimal and some litigants would object to even a just and fair arbitration fee. It would like to effectuate the object and purpose behind enacting the model fee schedule, it said.

“When one or both parties, or the parties and the arbitral tribunal are unable to reach a consensus, it is open to the arbitral tribunal to charge the fee as stipulated in the Fourth Schedule, which we would observe is the model fee schedule and can be treated as binding on all,” it said.

The bench added that consequently, when an arbitral tribunal fixes the fee in terms of the Fourth Schedule, the parties should not be permitted to object to the fee fixation as it is the default fee, which can be changed by mutual consensus and not otherwise.

Justice Sanjiv Khanna concurred with the majority judgement that party autonomy and arbitration agreement are the foundation of the arbitral process, and therefore, when the parties fix the fee payable to the arbitral tribunal, the law does not permit the arbitral tribunal to derogate and ask for additional or higher fee.

Justice Khanna, however, did not agree with the view of the majority that in the absence of any agreement between the parties, or the parties and the arbitral tribunal, or a court order fixing the fee, the arbitral tribunal is not entitled to fix the fee.