Fixing Arbitrators Fee #3: Between High Court Rules on Fees and 4th Schedule, HC Rules Must Prevail

Revising Fee Scale For Arbitrators

Judges: D.Y. Chandrachud CJI, Sanjiv Khanna J, Surya Kant J

On April 7th 2022, Justices D.Y. Chandrachud, Sanjiv Khanna, and Surya Kant heard the ONGC’s and other petitioners’ final arguments in ONGC v Afcons. They have approached the Court seeking a cap on arbitrators’ fees to make arbitration affordable to Public Sector Undertakings (PSUs). Senior Advocate Dr. Abhishek Manu Singhvi, appearing for the respondent company Afcons, began arguments. 

Attorney General Mr. K.K. Venugopal argued that arbitrators cannot unilaterally fix their fees—the Fourth Schedule of the Arbitration and Reconciliation Act, 1996 (Arbitration Act), provides a template based on which High Courts may determine the fee. Further, the aggregate of claims and counterclaims must be considered to ascertain fees, and the ₹30,00,000 limit imposed under the Fourth Schedule on fees should be applicable to both. The AG also argued that a lump sum should be set as fees for a particular dispute—setting fees as per the number of sittings could lead to abuse of the system.

Subsequently, Senior Advocate Dr. Abhishek Manu Singhvi, appearing for Afcons, began his arguments. He argued that ONGC dragged the arbitration proceedings on for seven years, and the time and subsequent fee for the dispute had been exceeded—the arbitrators were fair to demand an increase in fee. 

Fourth Schedule is a Template for High Courts to Fix Fees; Arbitrators do not Have This Power

The AG argued that Section 11(14) of the Arbitration Act states that ‘High Court may frame such rules [for the determination of fees] as may be necessary, after taking into consideration the rates specified in the Fourth Schedule’. Therefore, the Fourth Schedule acts as a template or guideline for the various High Courts to rely on. 

Chandrachud J clarified that regardless of whether the High Courts prescribe a fee higher or lower than the Fourth Schedule, the High Court rules would apply. In the absence of High Court rules on Fees, the Fourth Schedule as per the 2015 amendment to the Arbitration Act would apply. 

However, the AG cautioned that even if this procedure is to be followed more stringently in the future, no guidelines exist to bar tribunals from fixing arbitrators fees. He requested that the Court note this lacunae in its consideration. 

Application of the ₹30 Lakh Ceiling on Fees

The fee payable to arbitrators depends on the claim and counterclaim of the parties. Further, the Fourth Schedule imposes a ₹30,00,000 limit on the fees that may be charged. Mr. K.K. Venugopal argued that the ₹30,00,000 limit applies to the aggregate of the claim and counterclaim. If this amount is not treated as a lump sum, parties will have to pay a fee on claim, up to ₹30,00,000, and then an additional fee on counterclaim upto ₹30,00,000, imposing a high burden on parties such as ONGC. 

Solicitor General Mr. Tushar Mehta continued his arguments from day 2 on the interpretation of the ₹30,00,000 limit on fees under the 6th item in the Fourth Schedule. Item six states that for dispute over ₹20,00,00,000, the model fee will be ₹19,87,500 plus 0.5 percent of the claim amount over and above Rs. 20,00,00,000, with a ₹30,00,000 ceiling. The SG stated that this ceiling did not just apply to the additional 0.5%, but the entire amount of ₹19,87,500. In the previous hearing, the Bench heard arguments on the absence of a comma to understand whether the limit applied to the whole amount or the additional percentage was by error or design. The SG argued that the Hindi version which is relied on by the Legislature must be the basis for interpretation of any law. In Jaswant Sugar Mills v The Presiding Officer (1996) the Court emphasised that between the English and Hindi copies, Hindi is to be referred. 

Court will continue hearing arguments on April 19th, 2022.