This article is written by Advocate Vinayak Harshvardhan.

Arbitral fees in ad hoc arbitration

In Ad-hoc Arbitrations Arbitral fee is supposed to be regulated by: 4th Schedule of Arbitration & Conciliation Act [hereinafter referred as ‘The Act’], High Court Rules post-2019 amendments and agreement governing fees. Court-appointed Arbitrators will have to confine their fees in consonance with the stipulations of the agreement. In cases of the court-appointed tribunal, one can find recourse to arbitrary fee fixation in an Arbitral court that has jurisdiction (territorial/pecuniary/subject matter). However, the lacuna lies in cases where such recital/ clause in the agreement specifying the ‘fees’ is absent.

Imagine the scenario that in an Ad-hoc arbitration, your Arbitrator has fixed a fee that seems arbitrary to you and neither does it follow the 4th Schedule of the Act. Let us explore the law surrounding the legal issue.

Interpretation of the 4th schedule — the ceiling issue

Delhi High Court, in the case of Delhi State Industrial Infrastructure Development Corporation Ltd. (DSIIDC) v. Bawana Infra Development (P) Ltd., 2018 SCC OnLine Del 9241, it was held that the ceiling for fee fixation as stipulated under the 4th Schedule of the Act cannot be breached. Similar findings have been recorded by Patna High Court in Kumar and Kumar Associates v. UOI 2016 SCC OnLine Pat 9476; MANU/BH/0529/2016. Interestingly the same bench of DSIIDCL vs Bawana Infra (supra.) in another matter G.S. Developers & Contractors Pvt. Ltd. v. Alpha Corp Development Private Limited and Ors., 2019 SCC OnLine Del 8844 took a contrary approach and held that the 4th Schedule model is mere guidance and not mandatory.

However, the interpretation of the 4th schedule itself is open-ended. High Courts of different states have concluded the interpretation of ceiling in Arbitrations wherein the disputed amount is above Rs. 20,00,00,000/- differently. Delhi High Court in Rail Vikas Nigam Ltd. vs Simplex Infra. O.M.P. (T) (Comm) 28/2020 decided on 10.07.2020 has concluded that the ceiling of Rs. 30,00,000 is only applicable to the second component of the fee i.e., 0.5 per cent of the claim amount. It held that the cap of Rs. 30,00,000 is not inclusive of the base fare of Rs. 19,87,500. Therefore, settling the issue for the territory of Delhi.

However, in a different approach the Patna High Court in the case of The State of Bihar, Sugarcane Industry Dept. v. The Bihar State Sugarcane Corporation [CWJC №14355 of 2019] vide order dated 05.03.2020 has held that “the ceiling of Rs. 30,00,000.00/- has to be applied to the summation of the base amount and the percentage of the claim added together. However, in the case where the arbitral tribunal consists of a sole arbitrator, he would be entitled to an additional amount of 25 % of the maximum amount which, in any case, cannot be more than the sum of Rs. 7,50,000 (25% of Rs. 30,00,000.00/-). It is thus held that the ceiling of Rs. 30,00,000.00/- in the 4th Schedule to the Act, is not only on the variable amount of fees to be calculated at the rate of 0.5% of the claim amount, leaving aside the fee amount of Rs. 19,87,500.00/-, but also on both, the base amount and the percentage of Claim amount added together.”

The issue is yet to reach the Apex Court yet. However, the laws as being settled by the High Courts will be applicable as the law of the land depending on the seat of the Arbitration Tribunal. Judgements from other high courts will have mere persuasive value and would not be binding upon the Arbitrator/ Tribunal.

Court-appointed tribunal

Petition under section 11 of the Act

Courts can take cognizance of the issue under the subject matter jurisdiction. Therefore, an aggrieved party can approach the courts under section 11 of the Act, seeking a suitable remedy.

Review/recall

Is a Review or Recall application maintainable against such order of fixation of fees?

Often, review/ recall applications are dismissed by the Arbitrators for the want of jurisdiction to entertain such applications. It is aptly correct that in the Arbitration and Conciliation Act, 1996 no such provision has been laid down that empowers the tribunal to review or recall their order. However, this position saw a landmark shift after the Supreme Court recently in Srei Infrastructure Finance Limited v. Tuff Drilling Private Limited, Civil Appeal No. 15036 of 2017 held that the arbitral tribunal has the power to recall its order terminating the proceeding under Section 25(a) of the Arbitration and Conciliation Act, 1996.

The Act does not provide for a remedy against the order under Section 25(a) and the remedy under Section 34 is not available against such an order unless the order under Section 25(a) is also treated as an award. There seems to be a legislative gap concerning Sections 25(a) and 32(2)(c). Regarding whether the tribunal can exercise the power akin to principles underlying Order IX Rule 9 of the Civil Procedure Code, 1908 (CPC), the amicus curiae submitted that arbitral tribunal can recall an order passed under Section 25(a) on the principles of Order IX Rule 9 CPC. Order of fixation of fees by a tribunal is an administrative exercise and cannot be termed as an award.

Therefore, it is logical to conclude that the tribunal will have the power to recall the orders that do not allow a remedy under section 34 or elsewhere in the Act. Otherwise, with such grave lacuna, the act fails to qualify as a complete code.

Non-court appointed tribunal

Recourse under subject matter jurisdiction court — Non-interference under section 11 of the Act.

Paschimanchal Vidyut Vitran Nigam Limited v. IL&FS Engineering & Construction Company Limited [O.M.P. (MISC.) (COMM.) 164/2018 decided on 16.08.2018]: — Js. Rajeev Shaker, Delhi High Court observed that the Tribunal, in this case, was appointed by the parties themselves with mutual consent and not by the Court.

Therefore, the court held that it has no rule to play in fixing fees of the arbitral tribunal. The rationale for the following decision was based on the principle of ‘party autonomy’, which is the cornerstone of arbitration.

Recourse under writ/supervisory jurisdiction- Scope of interference under Article 226/227 of the Constitution of India.

Time and again we have seen that Parties have approached Hon’ble High Courts under Article 227 ‘supervisory jurisdiction’ read with Article 226 seeking the indulgence of courts in resolving disputes about Arbitrations.

Hon’ble Supreme Court in Deep Industries Ltd. v. Oil and Natural Gas Corporation Ltd. & Anr. (2019) SCC Online SC 1602 held “This being the case, there is no doubt whatsoever that if petitions were to be filed under Articles 226/227 of the Constitution against orders passed in appeals under Section 37, the entire arbitral process would be derailed and would not come to fruition for many years.

At the same time, we cannot forget that Article 227 is a constitutional provision which remains untouched by the non-obstante clause of Section 5 of the Act. In these circumstances. What is important to note is that though petitions can be filed under Article 227 against the judgment allowing or dismissing first appeals under Section 37 of the Act yet the High Court would be extremely circumspect in interfering with the same, taking into account the statutory policy as adumbrated by us hereinabove so that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction.”

Therefore, the scope of court interference has been narrowed down as the Apex Court has imposed this judicial restraint.

Recently, in the case of Bhaven Construction vs. Executive Engineer Civil Appeal No. 14665 of 2015, delivered on 06.01.2021, the Hon’ble Apex Court discouraged High Court’s from entertaining 226/227 petitions qua the Act. Even though the intentions of the Apex Court are noble and aim to reduce court interventions in the Arbitral Proceedings. Similar observations have been upheld earlier as well. But it is pertinent to note that these judgements while narrowing down the scope of judicial intervention in arbitrations have carved out an exception for events that leave parties remediless.

Taking note of the case of Nivedita Sharma v. Cellular Operators Association of India, (2011) 14 SCC 337, Hon’ble apex court in Bahven Construction (supra.) under paragraph 17 has observed “It is, therefore, prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment. This power needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute or a clear ‘bad faith’ shown by one of the parties. This high standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient.”

Therefore, in an event, the Arbitrator/Tribunal arbitrarily fixes the fee, and the recourse in form of Review/Recall has been dismissed. Then the parties can challenge such order before the High Court under Article 226 r/w 227 of the Constitution of India on grounds of being left remediless.