New Delhi: The Supreme Court on Tuesday held that arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees.
The judgment was delivered by a bench of Justices D.Y. Chandrachud, Surya Kant, and Sanjiv Khanna. Justice Khanna authored a separate judgment, where he differed on certain aspects with the majority.
The majority judgment by Justices Chandrachud and Surya Kant said: “Arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. A unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition of in rem suam decisions, i.e., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration.”
The majority bench added, however, the arbitral tribunal has the discretion to apportion the costs (including arbitrators fee and expenses) between the parties in terms of Section 31(8) and Section 31A of the Arbitration Act and also demand a deposit (advance on costs) in accordance with Section 38 of the Arbitration Act.
It added: “The relationship between parties and arbitrator(s) is contractual in nature. Upon that relationship, the law superimposes a duty upon the arbitrator(s) to act as an impartial and independent adjudicator. The principle of party autonomy plays a substantial role in the determination of arbitrators’ fees.” The bench clarified that the arbitral tribunal is required to conduct the arbitration according to the procedure agreed by the parties.
The top court made these observations in a 205-page judgment in an arbitration matter between Oil and Natural Gas Corporation Limited (ONGC) and Afcons Gunanausa JV.
The ONGC had sought termination of the mandate of an arbitral tribunal and argued that once arbitrators’ fee is specified in the agreement between the parties, they should either accept their appointment on the terms agreed or decline arbitration.
The majority bench said: “Arbitrators shall be entitled to charge a separate fee for the claim and the counter-claim in an ad hoc arbitration proceeding, and the fee ceiling contained in the Fourth Schedule will separately apply to both, when the fee structure of the Fourth Schedule has been made applicable to the ad hoc arbitration.”
The bench said the ceiling of Rs 30,00,000 in the entry at serial No 6 of the Fourth Schedule is applicable to the sum of the base amount (of Rs 19,87,500) and the variable amount over and above it. Consequently, the highest fee payable shall be Rs 30,00,000, it added.
The bench said: “We exercise our powers under Article 142 of the Constitution of India and direct the constitution of a new arbitral tribunal in accordance with the arbitration agreement.”
Justice Khanna authored a separate judgment in the matter, however he agreed with the direction for constitution of a new arbitral tribunal and also agreed that a unilateral increase in arbitrators fee was unacceptable.
“I am unable to concur that in the absence of any agreement between the parties, or the parties and the arbitral tribunal, or a court order fixing the fee, the arbitral tribunal is not entitled to fix the fee, as I am of the opinion that by the implied terms of the contract and as per the provisions of the Arbitration and Conciliation Act, 19961, an arbitral tribunal can fix a reasonable fee, which an aggrieved party, who is not a signatory to the written agreement, can question under sub-section (3) of Section 39 of the A&C Act during the pendency of the arbitration proceedings..,” he said.
