INTRODUCTION:
We are living in the modern era of upcoming legal jurisprudence and growing commercial disputes. 'Arbitration' is a form of Alternative Dispute Resolution that comes with any form of a commercial contract in this era. The increased penchant for arbitration has shored up the dubiety for the traditional method of litigation. One of the main aspects that attract parties towards the arbitration process is the cost advantage and the superiority of 'party autonomy'. Litigations and the entirety of the cou rt admini s tration are cons ide red cumbersome and expensive for commercial contractors. On the other hand, arbitrations are believed to be more economical. Nonetheless, recent years have seen this notion to prove a modern myth rather than a conscious reality. One of the biggest contributors to the same appears to be focused on the Arbitrator's Fees.
The process of determining a dispute via arbitration involves submitting to an
A concerning theme surrounding arbitrations in
This article will shed light on the facets of Arbitrator's Fees as decided by the Apex Court in this case. The
BRIEF FACTS OF THE CASE:
The disputes between the parties were referred to an
The tribunal temporarily exempted
POINTS OF DETERMINATION:
This article will discuss the following issues placed before the Bench:
- Whether the arbitrator(s) are entitled to unilaterally determine their fees?
-
Whether the ceiling of
Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule of the Arbitration Act applies only to the variable amount of the fee or the entire fee amount; and -
Whether the ceiling of
Rs 30,00,000 applies as a cumulative fee payable to the arbitral tribunal or it represents the fee payable to each arbitrator?
EVOLUTION OF SCHEDULE IV:
Before analyzing the Court's guidelines, let us first look at the history of the Fourth Schedule, which was inserted into the 1996 Act via the 2015 Amendment. It was to provide a model for the fixation of fees of the arbitrator. Before the insertion, when the contract lacked such a stipulation, the
The problem with this earlier provision was that it restricted the autonomy of the parties. Even when the fee for the arbitrators is provided for in the agreement, due to a lapse of time between the reference and the date of the agreement, the fee that is provided in the agreement might become insu
On another tangent, the tribunal was acting as a judge in its own cause while deciding its own fees. In the case of Vijya Minerals v.
In
High fee charged by arbitrators who are mostly ex-judges has brought disrepute to the entire arbitration ecosystem in
GUIDELINES LAID DOWN BY THE APEX COURT IN ONGC V. AFCONS GUANUSA JV:
In a welcome step, the Bench held that the fee for the arbitrators has to be decided mutually by all parties. It was held that "arbitrator(s) do not possess an absolute or unilateral power to determine their own fees". Reference was made th to the 246 Law Commission Report and the 2015 Amendment which inserted Schedule IV. The Bench reaffirmed that 'party autonomy is a cardinal principle of arbitrations'6
The parties are thus free to adhere to Schedule IV of the 1996 Act or decided among themselves what fee is to be paid. This is in line with the
The parties can also agree to a fee according to Schedule IV initially subject to a revision of the fee after a fixed number of proceedings (Example - Schedule IV to be followed for 15 hearings after which a fee of 2 lakhs per hearing per arbitrator will be charged). Such revision in fee must be pre-decided and fixed in the preliminary hearing itself so as not to prejudice the parties at a later point in the proceedings.
Once the terms of reference have been finalized and the fee schedule agreed upon in the preliminary hearing, the tribunal cannot tinker with the amount so fixed or the heads it would be charged under. The fee schedule is final for all purposes. This ensures the primacy of contractual relations which is one of the most attractive features of arbitrations for commercial entities.
Apart from these guidelines, the
The Apex Court has also been conscious of not allowing for absurd conclusions from the reading of the Fourth Schedule. It is now settled that the ceiling of
CONCLUSION:
The judgement goes a long way in making certain how the Arbitrators should proceed, however, the periodic revision that has been suggested by the Apex Court might die a slow death in the red tape laden Goliath of Indian Executive.
With the new guidelines in place, there is a lot more clarity on the matter of fixation of the Arbitrator's fee now. In addition, the Apex Court had given a lot of flexibility to both Arbitrators as well as the parties in dispute to fix the fee according to their convenience. A forced ceiling on the Arbitrator's fee would only be problematic for the budding ADR ecosystem of
Footnotes
1 Arbitration and Conciliation Act 1996, No. 26, Acts of
2
3 Arbitration and Conciliation Act 1996, No. 26, Acts of
4 Vijya Minerals v.
5
6
7 NHAI v.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr Devanshi Prasad
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