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Arbitrator can’t unilaterally fix the fees: Supreme Court

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The Supreme Court today has opined that arbitrator cannot unilaterally fix the fees while it was hearing a plea filed by the Oil and Natural Gas Corporation (ONGC) against the fixation of high fees by arbitrators during arbitration proceedings with the Afcons. 

Justice D.Y. Chandrachud put forth his point that there are two things which legislative do, firstly they repeal provision and bring new one second, they substitute the provision with another one.

You are right, arbitrator cannot unilaterally fix the fees. There is no bar if three arbitrators’ charges same fees. You can’t charge double set of fees. Some ground rules, we need to set down. 

The Supreme Court on Thursday, in continuation of part heard arguments on behalf of Oil and Natural Gas Corporation Ltd, represented through Attorney General K.K. Venugopal dealt with the primary issue involved in the Petition that whether a separate fee under the Fourth Schedule of Arbitration and Conciliation Act,1966 is payable on counter claim or not.

In continuation of his arguments made before Bench of Justice D.Y. Chandrachud, Justice Surya Kant and Justice Sanjiv Khanna, the Attorney General Venugopal continued his arguments by stating about the 2015 amendment in Arbitration and Conciliation Act, 1996 which came into force in 1st January 2016. Further he also submitted that the High court may frame after taking into consideration the rates mentioned in fourth schedule. Section 11(3)(A) not come into force. The whole scheme of section 3 was to supervise arbitration proceedings including appointment of arbitrators in expedition manner. 

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Section 11(14) is still implementing and in continuous even today. Kerala has reduced the caping from 30 lakhs to 12 lakhs.

AG Venugopal, during his submissions referred to Bombay High court Rules wherein it specifies that the arbitrator is appointed by Bombay High Court. Also, as per the Rules 2(2) of Bombay High Court Rules, such rules will apply as under Arbitration and Conciliation Act.

Further AG Venugopal referred to Delhi Arbitration Centre Rules which is significant so far as rules of DAC is concerned, it also mentions of cap of 30 lakhs. They added 6th schedule. Ad hoc arbitration faces problems and one of such is regard to fee charge which is being done on sitting-on-sitting basis without having any checks and balances on it. Arbitration act gives powers to remove this anomaly of delays in arbitration proceedings.

Justice D.Y. Chandrachud put forth his point that there are two things which legislative do, firstly they repeal provision and bring new one second, they substitute the provision with another one.

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You are right, arbitrator cannot unilaterally fix the fees. There is no bar if three arbitrators’ charges same fees. You can’t charge double set of fees. Some ground rules, we need to set down. 

J. Chandrachud submits that these rules were framed in 2015 and central govt amended in 2022 and seven years has gone by, this 4th schedule has not been touched by central govt, which is the root cause of this problem.  If HC had framed rules, which are higher than 4th schedule, then HC rules would apply.

KK Venugopal, AG argues before three judges bench that Law commission is merely DAC formulation and accepted by parliament because hindi version carries comma, comma should not be in hindi version.  

J. Khanna says that we don’t have provision of advance deposit.

When the arbitrator tribunal asks for additional fees for passing an award is inconceivable. So far as claim and counterclaim is concerned, amount has to be aggregated, it should be a lump sum amount. It would be a boon for the nation in field of arbitration if the changes I have explained in detailed, if this court considers, submits AG.

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Another round of part arguments were done by SG Mehta by referring to law commission report. He further states that by reliance upon commission report refers to Delhi, comma can be read either from Hindi version or from Delhi rules. Some judgments are rare, comma issue came up for judicial interpretation.  

J. Chandrachud observes that absence of comma should not really make any difference. Cap of 30 lakhs was introduced to reduce cost of arbitration.

Mr. Mehta, further submits that so far as individual fees/ tribunal concerns, Ld. AG says it has to be individual fees. But I say, the fees has to be of arbitral tribunal. Under Section 11(14) of Arbitration Act. there is no embargo about having 5 arbitrators.

J. Chandrachud submits – According to You, there are 3 arbitrators, they will get 10 lacs each. If there is a sole arbitrator, he will get 30 lacs.

Mr. Mehta cited Article 2 (f) of UNCITRAL MODEL Law on International Commercial Arbitration (1985).

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RESPONDENT AFCONS SUBMISSIONS 

Sr. Adv Abhishek Manu Singhvi, for respondent Afcons submits that this court heard about the issue about punctuations, commas and about fixation of fees.

He further submits that kindly see the conduct of ONGC. This would be sufficient enough to dispose of my case. In 2020, tribunal cancelled all dates, then the matter conducted through VC. It was specifically mentioned in the agreement that no interest on the amount shall be paid. ONGC submits that I will not join through Video Conferencing.

After 13 months, 1 lac fees were fixed. There were 120 sittings for cross examination of the witness. The amount of Rs. 30 lacs, if I bifurcate that comes to around 25,000 Rs. per session. In the starting, arbitrator should give some reasonable indication.  

Is it practical I would be cross examined in 120 sittings? states Mr. Singhvi, for Afcons.

They are judicial arbitrators, not strangers. – Mr. Singhvi.

I have no problem, it should be 30 lacs for each, not at all problem with aggregate amount/fees. (aggregate refers herein to ‘Composite amount’), says Singhvi.

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Mr. Singhvi submits that arbitration agreement got invoked in year 2015. Petitioner ONGC proposed the amount to be 30 lacs. I was not privy to this information. I was not consulted for this amount to be fixed. On 22 may 2018, the Tribunal noted that after 20 sittings, one witness examination was not fully completed.

Further cross of Jadhav, expert witness of claimant was not concluded. Even 1.5 lacs got reduced.  ONGC filed application for modification of minutes and fixation of fess before tribunal, Respondent challenged this fee structure submits Singhvi.

J. Kant asks the Counsel of Afcons – What do you suggest, to approach under section 34? If not, then Will it come under section 16?

No one can misuse section 14 and 15 of Arbitration Act, urges Mr. Singhvi.

How many interpretations were done on behalf of ONGC with respect to the sections 14, 15 and 16, just because 1.5 fee is inexpedient for them, submits Singhvi.

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