Revising Fee Scale For Arbitrators
Oil And Natural Gas Corporation v Afcons Gunanusa JV
The Supreme Court is reviewing the Fourth Schedule of The Arbitration and Conciliation Act, 1996, which decides the fees for arbitrators. The review will likely affect the viability of arbitration as a cost-effective alternative dispute resolution mechanism.
Petitioner: Oil And Natural Gas Corporation
Lawyers: Mr. K.K. Venugopal (AG); Mr. Abhishek Gupta (Adv.); Mr. Gunnam Venkateswara Rao (AOR); Mr. Tushar Mehta, (SG); Mr. S.B. Upadhyay, (Sr. Adv.); Mr. Rameshwar Prasad Goyal, (AOR);
Respondent: Afcons Gunanusa JV
Lawyers: Mr. Abhishek Manu Singhvi, (Sr. Adv.); Mr. Anish Dayal, (Sr. Adv.); Mr. Abhishek Birthray, (Adv.) Mr. P.V. Yogeswaran, (AOR)
Case Number: Petition for Arbitration (Civil) No.5/2022
Next Hearing: April 6, 2022
Last Updated: April 19, 2022
Can arbitrators unilaterally hike prices during the arbitration process?
Is the 30 Lakh cap on arbitrators fee applicable to an aggregate of the claims and counterclaims in the matter?
In 2015, Oil And Natural Gas Corporation Ltd. (ONGC) and Afcons Gunanusa commenced arbitration proceedings. The parties were resolving a dispute arising out of an agreement for a joint construction project. The agreement stipulated that if the claim and counterclaim amounts were over ₹10 crore, each arbitrator’s fee would be fixed at ₹10 lakh for the entire arbitration period. Only arbitrators who agreed to this stipulation would be appointed to the proceedings. In 2015, the parties appointed one High Court Judge and two Supreme Court Judges as arbitrators.
The arbitrators sought a revised fee structure in the very first arbitration proceeding. In 2016, they demanded that the fees be fixed as per the Fourth Schedule of the The Arbitration and Conciliation Act, 1996 (the Arbitration Act). According to the Fourth Schedule, they were entitled to receive ₹12,37,500 and 0.75% of the claim amount if it exceeded ₹1 crore. This is a higher remuneration bracket than originally agreed to. In August 2016, ONGC agreed to increase the fee as per the Arbitration Act.
In May 2018, the arbitrators revised the fee. Stating that the dispute was complex and required a substantial amount of time, they imposed a fee of ₹1.5 lakhs per sitting, per arbitrator. Each sitting would last three hours.
ONGC protested and demanded that the arbitral tribunal reconsider the revised fee. The arbitral tribunal temporarily permitted ONGC to refrain from paying the revised fee. However, in 2019, the tribunal imposed a retrospective fee of ₹1 lakh per arbitrator per sitting—the parties would have to pay for the 2018 proceedings at this rate as well.
ONGC refused to pay this increased fee and approached the Bombay High Court seeking the constitution of a new arbitral tribunal. Following ONGC’s refusal, the panel of arbitrators recused themselves from the proceedings. Retired Justice Dharmadhikari, the presiding arbitrator of the panel, wrote a letter to the Chief Justice of India regarding the embarrassment faced by his co-panelists.
The Bombay High Court dismissed ONGC’s petition in 2021, following which ONGC approached the SC.
CJI Ramana constituted a special Bench consisting of Justices D.Y. Chandrachud, Sanjiv Khanna, and Surya Kant to review the pay scale under the Arbitration Act. Three other cases where the Court is interpreting the Fourth Schedule of the Arbitration Act have been tagged with ONGC v Afcons.
ONGC argues that the fee charged is outside of the stipulated amount listed under the Fourth Schedule of the Arbitration Act. Further, Public Sector Undertakings (PSU) such as ONGC are under severe scrutiny from the Comptroller and Auditor General of India—they are unable to release funds to pay significantly high fees. Lamenting that PSUs do not have the luxury of paying high fees that private companies do, ONGC argues that it will be disadvantaged in the arbitration process if it refuses to comply with the arbitrators’ demands.
Dr. Abhishek Manu Singhvi, appearing for Afcons, pointed out that the cap for arbitrator’s fees under the Fourth Schedule was Rs. 30 lakhs. If the arbitration proceedings take place across 100 sittings, then the fees payable per arbitrator per sitting would only be Rs. 30,000. Singhvi contended that such a nominal fee would be inadequate for retired Judges.
In the present case, 50 sittings have already been completed with a resolution being nowhere in sight.