This article has been written by Adv. Aditi Lakhanpal.
Table of Contents
Introduction
Arbitration is considered as one of the effective mechanisms to adjudicate a dispute due to its efficacious, speedy, and cost-effectiveness. Administration and the judiciary have been working to stimulate it, specifically commercial arbitration, for the reason being that it would add to ease of doing business by boosting financiers’ confidence. Nevertheless charging of unreasonable and exorbitant remuneration by the arbitrators is absolutely in contradiction of the very object of the Arbitration under the Arbitration Act.[1]
Arbitration and Conciliation (Amendment) Act, 2015 came into force, inter alia amending Section 11 of the Act particularly Section 11(14) that empowers the High Court about the framing of appropriate rules to ascertain fees of arbitrators for arbitration which are being conducted under the Jurisdiction of such High Court, whether the same is court-appointed or whether the same is an ad hoc arbitration.[2]
High Courts may take into account the Fourth Schedule which is specifically inserted in the Act, concerning model fee structure which contemplates curtailing the practice of unilateral fixation of exorbitant fees in all kinds of arbitrations. It is pertinent to note that the said amendment is not applicable in the cases of International Commercial Arbitration and Institutional Arbitration. Hereof, the purpose behind such an amendment can be obtained from the 246th Law Commission Report.[3]
The said Report deliberates that in an attempt to make arbitration a cost-effective mechanism there is requisite of some mode to streamline the remuneration for Arbitrators. In this regard, it is imperative to refer Amendment Act of 2019 which makes it obligatory for the appointing authority to fix remuneration of the Arbitrator as per Schedule IV.[4]
The intent of ‘fees’ in the arbitration regime
It is most unfortunate that these days arbitration has become merely a money-spinning business. Arbitrators fix their fee without having any regard whatsoever as to its genuineness or whether disputant parties can afford the same. Therefore, in such a scenario it becomes quite imperative to understand the basic intent of paying fees to Arbitrators.
The mere purpose behind paying remuneration to Arbitrators is for their services they have rendered; to appreciate for all the efforts they have put in to adjudicate the dispute. In this regard, it is relevant to refer the case titled as Amiraj Construction Co. vs State Of Maharashtra And Ors [5] wherein Bombay High Court observed that:-
“The arbitrators must remember that they are not there to make money but they are to render their services to the State as a matter of public cause. The idea is that as far as possible, in such matters, the Government should not waste public money and time in costly litigations, and instead avail of the cheaper and easier method of resolving disputes by arbitration. If the Arbitrators do not bring in a sense of service and dedication, but only have a mercenary approach, such arbitrations become a luxury which the public exchequer cannot afford, being ultimately a drain on the public at large.”
The very intent of paying fees to Arbitrators is reflected in case Ariba India Private Ltd vs M/S Ispat Industries [6] wherein Delhi High Court held that:-
“The institutions of arbitration, just like the courts, are created with the litigant, i.e. consumer of justice being the central figure. It is to provide judicial service to the litigating public, to preserve law and order in the society, that the courts have been established and all other alternate dispute resolution modes, including arbitration, have been evolved. Just like the courts have not been created for the benefit of the Judges and the support staff, similarly, the arbitrations are not conducted to advance the cause of the learned arbitrators.”
Fixation of ‘unreasonable’ and ‘exorbitant’ fees by arbitrators
As per the Amendment Act, 2015, Rs.30,00,000/ is the upper ceiling for the entirety of the fee payable to the Arbitrators and in the case of Sole Arbitrator, the fees would be Rs. 30,00,000 + 25% of 30,00,000 (7,50,000) = Rs.37,50,000/. [5]
Accordingly, where three Arbitrators adjudicate the arbitration proceedings, having a claim of more than 50,00,00,000, remuneration payable to each Arbitrator individually would be Rs 10,00,000/-. However, where it is adjudicated by Sole Arbitrator, then he would be entitled to 37, 50,000/-. [7]
Despite the legislature mandate, the fixing of unreasonable and exorbitant fees by the Arbitrators has phenomenally crept in the arbitration consequently thwarting the growth of arbitration as an effective dispute resolution mechanism. The Arbitrators are exploiting the disputant parties and misconstruing the legislative mandate. There have been cases where Arbitrators charged hefty fees resulting in an amount that is equivalent to the amount involved in the dispute. According to the 246th Law Commission Report, the major drawback of arbitration mechanisms, particularly ad-hoc arbitration is exorbitant remuneration fixed by the Arbitrators.
The Commission has also placed reliance on a judgment titled Union of India v. Singh Builders Syndicate [8] wherein the Supreme Court addressed the issue of unreasonable and exorbitant remuneration charged by the Arbitrators. The Court deliberated that no doubt the arbitration process becomes quite expensive when retired judges are appointed as arbitrators. Furthermore, there have been numerous sittings, particularly in ad-hoc arbitration and fixing of excessive remuneration for every sitting, with several add-ons, devoid of any upper limit, have several times occasioned in the cost of arbitration approaching or is over and above the amount involved in the dispute or the amount of the award. In addition to this Court even highlighted the fear of the disputant parties upon a denial to pay the arbitrary fee that may prejudice their case.[9]
Relevance of IV Schedule in fixing fees of arbitrators
The Fourth Schedule has been specifically inserted in the Act which intends to curb the practice of unilateral fixation of excessive fees in all kinds of arbitrations. The said intent is specified in the Note to the amendment to Section 11(14) in 246 the Law Commission Report, which provides as under –”NOTE: There have been instances where arbitrators are known to charge excessive fees. An indicative fee schedule is therefore provided in the 6th Schedule. The High Courts are given liberty to frame their own rules in this regard.”
The relevance of Schedule IV in determining the fees of arbitrators can be better elucidated under the following two scenarios:-
Where Arbitrator is appointed by Court
Considering a situation where the arbitrator is appointed by a court, then remuneration payable to Arbitrator shall abide by rates stipulated in Schedule IV, and the same was affirmed by Court in the case titled Kumar & Kumar Associates v. Union of India[10].
Nevertheless, the verdict pronounced in DSIIDC Ltd. v. Bawana Infra Development (P) Ltd[11] was contrary to aforementioned judgment and explicitly observed that where the arbitrator is appointed by the court under Section 11 of the Act, in absence of rules framed by the High Court under Section 11(4), the Fourth Schedule is merely guiding in nature.
Interestingly, the Rajasthan High Court passed a ruling titled Doshion (P) Ltd. v. Hindustan Zinc Ltd[12] wherein arbitrary fees of Rs 75,00,000/ as fixed by the Arbitrator was opposed by the Petitioner. Petitioner contended that the fee of the Arbitrator must be fixed as per the rates stipulated in Schedule IV.
In this regard, even the High Court notified that Schedule IV is to be followed. Regardless of aforesaid, the Arbitrator reduced Rs 20,00,00/ and subsequently charged Rs 55,00,000. Besides charging unreasonable and exorbitant fees, the Arbitrator conducted proceedings ex-parte and concluded the matter for final arguments. High Court categorically held that charging a fee over and above the rates stipulated in Schedule IV amounts to de facto disqualification under Section 14(1)(a) of the Arbitration & Conciliation Act, 1996 warranting the mandate of the arbitrator to be terminated thereunder.
After 2015, the Arbitration & Conciliation Act was again amended in the year 2019 concerning the fixation of fees in the arbitration regime. As per the 2019 Amendment Act, both Supreme Court and High Court have been empowered to designate arbitral institutions that shall not only appoint arbitrators but also fix remuneration of appointed arbitrators as per rates stipulated in IV Schedule of the Act. Further, where no arbitral institution is being designated then in such a scenario, the Chief Justice of the concerned High Court may maintain a panel of arbitrators in lieu of adjudicating disputes between the parties. Consequently, Schedule IV is binding is such arbitration proceedings.
Where Arbitrator is appointed by parties
Supreme in NHAI & Ors v Gayatri Jhansi Roadways Limited & Ors [13] while overruling the verdict of Delhi High Court [14], expressly held that Schedule IV is not mandatory in ascertaining the fees as fixed by the disputant parties themselves. A similar view was upheld in Gammon Engineers[15] wherein the Supreme Court again reiterated that Schedule IV was not binding and the arbitral tribunal will be bound by the fees fixed by the agreement between the disputant parties.
Similar findings were arrived at by the Delhi High Court in Paschimanchal Vidyut Vitran Nigam Limited v. IL & FS Engineering and Construction Company Limited [16] wherein Court concluded that the Court has no role to play in fixing fees for the arbitral tribunal in those situations where disputant parties themselves agree upon the fees payable to the arbitrators.
From the aforementioned verdicts, it is apparent that prominence is given to an agreement made between the disputant parties. However, the problem arises when the fee structure is not agreed between the parties. Henceforth this calls for a more streamlined approach to ascertain the fees of the Arbitrators.
Interpretation to expression ‘sum in dispute’ and ‘cost’
It has been perceived that certain avaricious arbitrators fix arbitrarily and unreasonably separate fees for claims and counterclaims. Nevertheless, it is prima facie from the intent of the legislature that expression “sum in dispute” includes both “claims” and “counterclaims” and thus charging separate remuneration for claim and counterclaim would not only make arbitration process expensive but will also amount to a violation of the fundamental right to right to access to justice.
Concerning the expression “sum in dispute,” it is imperative to refer to the observations made in Delhi State Industrial Infrastructure Development Corporation Ltd. (DSIIDC) v Bawana Infra Development [8] wherein Delhi High Court categorically held that ‘Sum in dispute’ shall include both claim and counterclaim amounts. If the Act intended to have the Arbitral Tribunal exceed the ceiling limit by charging separate remuneration for claim as well as counterclaim amounts, then it would have stated so in Schedule IV.
In addition to the above, it is also pertinent to note Section 31(8) read with Section 31A that elucidates that the expression “costs” take account of fees and expenses of arbitrators. The proviso to Section 38(1) is applicable only in those states of affairs when the Arbitral Tribunal is not to fix its fee in consonance with the Fourth Schedule to the Act.
In this regard, reliance is placed on the case titled Gayatri Jhansi Roadways Limited[17] wherein Supreme Court held that “The change in the language of section 31(8) read with Section 31A which deals only with the costs generally and not with arbitrator’s fees is correct in law. It is true that the arbitrator’s fees may be a component of costs to be paid but it is a far cry thereafter to state that section 31(8) and 31A would directly govern contracts in which a fee structure has already been laid down by the parties”
Different fees charged by different arbitral tribunals
Charging of different fees by various arbitral tribunals is another significant aspect associated with the charging of unreasonable and exorbitant fees by arbitrators. Interestingly, Delhi International Arbitration Center fixes fees for arbitrators in consonance with IV Schedule. However, Mumbai Centre for International Arbitration has its own slab for fixing fees of arbitrators with a ceiling of Rs 8.5 Crores. Thus considering the factum of arbitrary fees being fixed by various Arbitral Tribunals under different heads, Section 11(14) is to be read with the IV Schedule in this regard, prescribing ad valorem fees with a ceiling of Rs.30.00 lakhs in case the amount in dispute surpasses Rs. 20 crores.
This issue has been remarkably addressed by Bombay High Court in ruling titled Vestas Wind Technology India … vs M/S. Inox Renewables Limited [18] wherein the court held that “It would be more appropriate if uniform fees can be introduced in the provisions of the Arbitration and Conciliation Act, 1996 in case of arbitral proceedings held without the intervention of the Courts, appointment of arbitral Tribunal under Sections 9 or 11 of the Arbitration and Conciliation Act, 1996 or under Section 89 of the Code of Civil Procedure, 1908 or any other proceedings between the parties where an arbitration agreement is arrived at for the first time, or Arbitral Tribunal appointed by Institutions. Unless uniform fees in the aforesaid proceedings are prescribed and the Rules under Section 11(14) are framed, the problem of exorbitant fees and other charges in the arbitration proceedings would continue.”
Author’s opinion
Merely because the claim in dispute or award is large, why should Arbitrators think that they can fix unreasonable and exorbitant fees? Likewise, if the arbitration is empanelled with retired judges why should fees be fixed as per status?
Courts have time and again acknowledged the fact that some greedy Arbitrators have turned the arbitration regime into a profitable business and have undeniably taken certain effective decisions to make arbitration proceedings affordable. In the past also Courts have condemned endeavor of the Arbitrator of fixing arbitrary fees and same is prima facie from the case titled
Amiraj Construction Co. vs State Of Maharashtra And Ors [19] Bombay HC held that if in any arbitration, the arbitrators fix unreasonable and/or unconscionable fees and attempt to overestimate their bills by producing expenses which are apparently not genuine; such demeanor is liable to be considered as misconduct within the meaning of the Arbitration Act. Consequently, such conduct amounts to unfair exploitation of the situation itself.
In this regard, it is imperative to put reliance on judgment titled Sanjeev Kumar Jain vs. Raghubir Saran Charitable Trust and Ors. [20]
“The remedy for the healthy development of arbitration in India is to disclose the fee structure before the appointment of arbitrators so that any party who is unwilling to bear such expenses can express his unwillingness. Another remedy is Institutional Arbitration where the arbitrator’s fee is pre-fixed. The third is for each High Court to have a scale of arbitrator’s fee suitably calibrated regarding the amount involved in the dispute. This will also avoid different designates prescribing different fee structures. By these methods, there may be a reasonable check on the fees and the cost of arbitration, thereby making arbitration, national and international, attractive to the litigant public. Reasonableness and certainty about total costs is the key to the development of arbitration. Be that as it may.”
In addition to these judicial pronouncements, certain holistic measures need to be incorporated as to curtail the charging of arbitrary, unilateral and disproportionate remuneration by the Arbitrators and also to restore the confidence of the disputant parties in arbitration. Certain comprehensive measures that can be incorporated in the arbitration process are:-
- Arbitrators should fix the fees as minimum as possible and it should be absolutely reasonable. The Arbitrators must bear in mind that they are not there to generate profits nonetheless their prime duty is to render their services to impart justice. If the Arbitrator fails to instill a sagacity of service and perseverance, but merely have a mercenary outlook, then arbitration proceedings would become expensive which would ultimately discourage the parties to not go for it. Therefore Arbitrators must remember that just like the courts have not been established for the benefit of the Judges likewise, the arbitrations are not created to advance the cause of the learned arbitrators.[21]
- In case any government servant is appointed as Arbitrator, who is still in service, then such an Arbitrator should not be paid any fees for the arbitration apart from any expenses such as traveling incurred by him. He is entitled to remuneration only which is fixed for his being a government servant. While retired arbitrators should strictly adhere to model schedule fees or fees as fixed by the concerned High Court whatsoever the case may be. It has been observed that fees in the case of retired judges are fixed in consonance of their established reputation, legal knowledge, and wisdom. Nevertheless, such an endeavor not only defeats the very object of the Act but also erodes the faith of disputant parties in arbitration.
- The model schedules of fees are based on the fee roster fixed by the Delhi High Court International Arbitration Centre, which are over five years old. Therefore, such schedules of fees must be revised and updated after every three-four years so that they continue to stay genuine.
- To absolutely resolve this ‘hearing-based fees’ issue, the only solution one can deliberate upon is not a legal one, but an ethical one. The onus falls on lawyers to advise their clients to opt for institutional arbitration. For the reason being that, it’s the lawyers who formulate and negotiate the arbitration agreement and therefore they must not only have their client’s best interests in mind but also save them from the clutches of greedy arbitrators.
- Parties are expected to be vigilant while drafting their arbitration clause. They can predetermine the remuneration of the Arbitrator according to their agreement, which will save them from agreeing to exorbitant costs of arbitration proceedings. Where parties have no consensus over the fees fixed in such arbitration, then there should be certain fair and reasonable model fee structure for fixation of fees even in ad hoc arbitrations conducted under the jurisdiction of the concerned High Court.
To sum up, access to justice is a facade of right to life as enshrined under Article 21 of the Constitution of India. Such an endeavor of charging unreasonable and exorbitant remuneration for adjudicating a dispute effortlessly violates the provisions of Article 21. The spirit of access to justice lies in the fact that it is affordable and reachable to the disputants. Henceforth, to preserve the right to access to justice the adjudicatory mechanism must be reasonable and fair enough to instill the faith of disputants in arbitration mechanisms.
References
[1] Arbitration and Conciliation Act, 1996 [2] Arbitration and Conciliation (Amendment) Act, 2015. [3] Law Commission of India, Report No. 246, “Amendments to the Arbitration and Conciliation Act, 1996”, (August 2014). [4] Arbitration and Conciliation (Amendment) Act, 2019. [5] 1987 (3) BomCR 607. [6]2011(3) Arb LR 163(Delhi) [7] Punjab State Power Corporation Limited v. Union of India Civil Writ Petition No. 3962 of 2017, judgment dated 21-07-2017 [8] (2009) 4 SCC 523 [9] (2009) 4 SCC 523 [10] 2016 SCC OnLine Pat 9476 [11] 2018 SCC OnLine Del 9241 [12] S.B. Civil Writ No.6074/2018 [13] SCC OnLine Del 10285 [14] 2017 SCC OnLine Del 10285 [15] National Highways Authority of India v. Gammon Engineers and Contractor Pvt. Ltd SCC OnLine Del 10183 [16] O.M.P.(I) (COMM.) 356/2017 [17] CIVIL APPEAL NO. 5384 OF 2019 [18] ARBITRATION PETITION NO.1088 OF 2015 [19] Supra Note 5. [20] (2012 ) 1 SCC 455 [21] Supra note 6.LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
