In this article, Swati Garg, an Advocate and an LL.M. graduate from Gujarat National Law University discusses the Fourth Schedule of Arbitration and Conciliation Act, 1996.

Arbitration and Conciliation Act, 1996 (herein referred to as the Arbitration Act) was amended by the Arbitration and Conciliation (Amendment) Act, 2015 which inserted Fourth Schedule in the Act. By inserting the schedule, legislators have tried to regularize the fees of arbitrators in domestic arbitration as opposed to leaving it to the discretion of arbitral tribunal or the parties.

Prior to the 2015 Amendment, Section 31(8) of the Arbitration Act provided that fees of the arbitrators would be fixed by the arbitral tribunal if it has not been already agreed upon by the parties.

With 2015 Amendment, Parliament inserted Fourth Schedule wherein a Model fee chart is provided for arbitrator fees. As per this chart, for a sole arbitrator, fees would be 25% in addition to the fees prescribed. Subsequently, it has empowered the High Court, in its discretion, to determine the fees of arbitral tribunal keeping into consideration the Model fees as specified in the Fourth Schedule.[1]

Model fees chart as provided in the Fourth Schedule

If there is only a sole arbitrator, he shall be entitled to an additional amount of 25 per cent on the fee payable.

In lieu of their powers, Delhi High Court and Rajasthan High Court have already framed rules regarding arbitrator’s fees. Punjab and Haryana High Court has adopted the model fees prescribed in the fourth schedule in toto[2] whereas Delhi and Rajasthan High Court has departed from the same and have set the fees lower than what is prescribed in the Arbitration Act.[3]

Parties will be benefited from this fixation of fees as usually prices quoted in adhoc arbitration are higher than this. Parties having no say in this, have to comply with these demands of humongous fees. Though the Supreme Court and various High Courts have frowned upon this act of charging of higher fees by Judges.[4] For the parties, these model fees are a welcoming step.

However, the question which arose here is regarding the applicability of Fourth Schedule, if it is mandatory or just directory. The use of the word ‘Model’ in the Schedule and power of High Court to make rules for fixation of fees has created an ambiguity as to the applicability of the schedule. The concern here is what if the High Court doesn’t wish to enact any rules, then is it mandatory for parties to abide by the model fees?

In the case of Kumar & Kumar Associates vs The Union of India & Ors.[5], Patna High Court has clarified that the parties have to abide by the Fourth Schedule.

It is also relevant to mention here that under Section 29 B of the Arbitration Act, there is a provision of fast-track arbitration which has been inserted by 2015 amendment act. Apart from taking a mere six months of time to complete the proceedings, section 29 B (6) let the parties and arbitrator decide the fees.

Who pays the Arbitration fees?

Section 31 A of the Arbitration Act empowers the arbitral tribunal to determine as to which party pays the fees. The general rule is that the unsuccessful party pays the share of fees of the successful party, however, the arbitral tribunal can decide differently by passing a reasoned order in writing. The arbitral tribunal has to keep the below-mentioned points[6] in mind before deciding on the share of the party:

1. the conduct of all the parties;
2. whether a party has succeeded partly in the case;
3. whether the party had made a frivolous counter-claim leading to delay in the disposal of the arbitral proceedings; and
4. whether any reasonable offer to settle the dispute is made by a party and refused by the other party.

To save oneself from such outcomes, parties are allowed to make an agreement for dividing the cost of arbitration but it will only be valid if such agreement is made after the dispute came into existence.

Conclusion

Arbitration is one of the best mechanism to resolve a dispute without the intervention of the court yet high arbitrator fees have discouraged parties from opting for it. The model fees are acting as a deterrent against the practice of demanding such exorbitant fees. Many courts have adopted the same, yet many haven’t. Though there is still a need for the Supreme court ruling as the fees aren’t mandatory and High courts have the power to make rules regarding it, still this fresh change has brought a sigh of relief for parties.

References

[1] Section 11(14) of the Arbitration Act

[2] https://highcourtchd.gov.in/sub_pages/left_menu/Rules_orders/high_court_rules/vol-I-pdf/chap4partEV1.pdf

[3] http://www.dacdelhi.org/topics.aspx?mid=21; http://www.bareactslive.com/RAJ/RJ485.HTM

[4] https://timesofindia.indiatimes.com/city/delhi/HC-scraps-ex-judge-panel-over-high-fee/articleshow/31300401.cms; http://www.lawyersclubindia.com/news/SC-snubs-retd-Judges-for-charging-heavy-fee-in-arbitration-cases-10521.asp;
https://indianexpress.com/article/india/india-others/hc-govt-officials-cant-charge-fees-in-arbitration-cases-need-guidelines/

[5] https://indiankanoon.org/doc/125836906/

[6] Section 31 A (3) of the Arbitration Act