Additional Compilation on Behalf of ONGCRevising Fee Scale For Arbitrators
In 2015, the Oil and Natural Gas Corporation (ONGC) and Mumbai-based construction company Afcons Gunanusa (Afcons) commenced arbitration proceedings to resolve a dispute arising out of a joint construction project. As per the agreement between the parties, if the claim and counterclaim amounts in the dispute exceeded ₹10 crore, each arbitrator’s fee would be fixed at ₹10 lakh for the arbitration’s entire duration. Only arbitrators amenable to these terms would be appointed. ONGC and Afcons appointed two retired Supreme Court Judges and a retired High Court Judge as arbitrators. All three agreed to the terms of the agreement.
In 2016, at the very start of the proceedings, the arbitrators unilaterally demanded (for undisclosed reasons) that their fees be fixed in accordance with the Fourth Schedule of the Arbitration and Conciliation Act, 1996 (Arbitration Act). Subsequently, in May 2018, the arbitrators further hiked their fees, claiming that the dispute was complex and would take time for them to resolve. After ONGC filed a petition requesting the tribunal to reconsider these fees, the arbitrators agreed to fees of ₹1 lakh per arbitrator for every sitting. However, as the proceedings entail two three-hour sessions per day, the arbitrators would be paid ₹2 lakh each for a single day’s work.
Refusing to pay the fees, ONGC petitioned the Bombay High Court in 2020, requesting the Court to constitute a new tribunal. After the petition was dismissed in October 2021, ONGC approached the Supreme Court in November of the same year.
In March 2022, a Bench comprising Chief Justice N.V. Ramana and Justices Sanjiv Khanna and Surya Kant was set up to review the pay scale under the Arbitration Act.
The Attorney General of India, Mr. K.K. Venugopal, submitted a list of propositions to the SC on behalf of ONGC. These propositions aim at clarifying the procedure by which arbitrator fees are decided and the circumstances under which arbitrators may claim a hike.
Fees Listed in the Arbitration Agreement To Be Binding
Before appointment, parties must brief an arbitrator about the number of witnesses they are likely to examine and the approximate duration of the proceedings. At this stage, fees agreed on by both parties must be proposed to the arbitrator. Once the arbitrator agrees, the arbitrator shall be bound by the fees.
Tripartite Contract Between the Arbitrators and the Parties
Once the arbitrator is aware of the approximate duration of the proceedings and after they have accepted the fees, a tripartite contract comes into existence between the arbitrators and the parties.
No Unilateral Deviation From Fees Stipulated in the Contract
Once arbitration proceedings commence, arbitrators may not deviate from the fees stipulated in the contract without the consent of both the parties.
If Fourth Schedule Used, No Additional Fees to be Charged
If the arbitrators and the parties agree to abide by the fee scheme listed in the Fourth Schedule of the Arbitration and Conciliation Act, 1996, the amount shall be paid as a lump sum. Parties shall not pay additional fees to arbitrators for reading documents related to the dispute, discussions among arbitrators, and writing the award.
Fees Cannot be Raised Without Agreement of Both Parties
If arbitrators suggest an increase in fees and only one party agrees to this hike, the arbitrators are not entitled to an enhancement in fees. If the arbitrators nevertheless raise the fees without the consent of both parties, it would amount to misconduct.
If Proceedings Continue with Hiked Fees, Arbitration May be Terminated
If arbitration proceedings continue despite one party refusing to consent to the fee hike, the dissenting party may make a claim against the arbitrators alleging bias. In such cases, proceedings can be terminated as per Section 14 of the Arbitration Act.
If Duration of Proceedings Exceeds Estimate, Arbitrator not Automatically Entitled to Hike Fees
The parties and arbitrators agree on a lump sum fee based on an estimate of the number of witnesses to be examined and the duration of the proceedings. Exceeding the estimate would not automatically entitle the arbitrator to hiked fees.