The Rajasthan High Court passed a judgment titled Doshion (P) Ltd. v. Hindustan Zinc Ltd.[1], wherein there was a challenge to fixation of arbitrator’s fee at INR 75,00,000. The petitioner based its challenge on two-fold grounds. First, that Schedule IV must apply. Second, the Notification dated 23.03.2017 by the Rajasthan High Court to follow Schedule IV. The arbitrator granted discount of INR 20,00,000 and fixed the fees at INR 55,00,000, conducted proceedings ex parte posting the matter for final arguments. The Court opined that the arbitrator had been rendered de jure/de facto unable to perform his functions and terminated his mandate under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996.
The 246th Law Commission Report[2] had addressed the issue of fee of arbitrators in 2014 and suggested a model schedule of fees as a mechanism to rationalize the fee structure. It placed reliance on Union of India v. Singh Builders Syndicate[3], which discussed the absence of ceiling in the fee and the apprehension that refusal to pay an exorbitant fee may prejudice such party’s case.
The Supreme Court in Singh Builders Syndicate (supra) highlighted the problems arising out of the exorbitant amount of fee of the Arbitral Tribunal and gave suggestions to save arbitration from the arbitration cost. The suggestive measures were reiterated in Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust[4] where the Court recognised that sometimes arbitration proceedings become disproportionately expensive for the parties and suggested as under,
- Reasonableness and certainty about costs.
- Disclosure of the fees structure before the appointment.
- Institutional arbitration where the arbitrator’s fee is pre-fixed.
- Each High Court to have a scale of arbitrator’s fee calibrated with reference to the amount involved in the dispute to avoid different designates prescribing different fee structures.
The Arbitration and Conciliation (Amendment) Act, 2015[5] was passed to make the process cost effective. This amending Act inserted Schedule IV to the Act to provide a model Fee Schedule for domestic arbitration on the basis of which the High Courts may frame rules for the purpose of determination of fees of Arbitral Tribunal, where a High Court appoints an arbitrator under Section 11 of the Act. Subsequently, the Arbitration and Conciliation (Amendment) Act, 2019[6] was passed to establish arbitral institutions designated by the Supreme Court or the High Courts of States under Section 11. Schedule IV is now mandatory in such arbitrations.
Determination of the Fee of Arbitrator
1. Arbitrator appointed by the Court
The Delhi High Court in DSIIDC Ltd. v. Bawana Infra Development (P) Ltd.[7], held that even under the amended Act post 2015, the arbitrator is free to fix its fee schedule in an arbitration which is conducted without court intervention. It observed that even if 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 directory in nature.
In contrast, while appointing the arbitrator, the Court in Kumar & Kumar Associates v. Union of India[8], an explicit direction was made that the arbitrator shall abide by Schedule IV.
2. Arbitrator Appointed by the Parties
The Delhi High Court in NHAI v. Gayatri Jhansi Roadways Limited[9] where the arbitrator was appointed by the parties, it was unequivocally held that Schedule IV is not mandatory in determining the fee structure where the fee structure has been agreed to in the agreement between the parties.
In Paschimanchal Vidyut Vitran Nigam Limited v. IL & FS Engineering and Construction Company Limited[10], the arbitrator was appointed by the parties. In this background, the Delhi High Court held that the Court would have no role to play in fixing the fees of an Arbitral Tribunal as no such power is vested in the Court at present. Schedule IV was held to be suggestive in view of sub-section (1) of Section 11 which provides that the High Courts concerned should frame rules as may be necessary for determination of fees and the manner of its payment, albeit, after taking into account the rates specified in Schedule IV.
Fee of Sole Arbitrator – An Analysis
Distinct from the fee of the Arbitral Tribunal, a Note has been appended to Schedule-IV which provides that the fee of a sole arbitrator is decided keeping in mind the fee payable plus additional 25% under the ceiling of INR 30,00,000.
The Note has stirred up a controversy on the calculation of fee of the sole arbitrator. In practice, the following readings have developed.
The first interpretation construes INR 30,00,000 cap as the upper ceiling for the entirety of the fee payable to the sole arbitrator.
The second interpretation construes that the fee payable is calculated according to the base/model fee plus 0.5% of the claim in the ‘sum in dispute’ slab which is subjected to the upper-cap, and it is separately subjected to 25% over and above the sum total of fee amount separately subjected to the ceiling. In other words, INR 30,00,000 is the upper ceiling for the entirety of the fee payable in case the base amount plus the percentage of claim amount exceeds it. The sole arbitrator is entitled to further 25% of the fee payable. Thus, if the base amount plus clam amount reached the ceiling, the fees would be 30,00,000 + 25% of 30,00,000 (7,50,000) = 37,50,000.
Another interpretation entails that Schedule IV states that merely the component of 0.5% of the total claim is limited to 30,00,000 i.e. the ceiling and the calculation of fee of the sole arbitrator shall be the base amount plus upper ceiling on 0.5% of total claim amount plus additional 25%. For the sum in dispute above INR 20,00,00,000, the fee will be INR 19,87,500 + INR 30,00,000 (restricted to the ceiling amount) + additional 25%.
This multiplicity of interpretations has given rise to lack of uniformity and credited the Arbitral Tribunal with an arbitrary discretion; the evil that was sought to be cured by the amendment of 2015. It is the case of the author that the restriction is applicable to the total fee payable, which shall include the model fee of INR 19,87,500 plus 0.5% of the claim and subject to additional 25%.
In this regard, a reference must be made to Bawana Infra Development[11] (supra) wherein the Delhi High Court adjudicated on the issue of “sum in dispute” and whether the term includes both claim and counterclaim amounts. The Court appreciated the contention that in view of the general practice across countries and the object behind the amendment to the Act in 2015, Schedule IV has to be read as prescribing a cumulative value of the “sum in dispute” rather than separate values thereby allowing a separate fee to be charged exceeding the ceiling limit on the basis of claim and counterclaim individually.
The Court held that the proviso to Section 38(1) of the Act which empowers the Arbitral Tribunal to fix separate amount of deposit for the claim and counterclaim can only apply where the Arbitral Tribunal is not required to fix its fee in terms of Schedule IV. It was held by the Court that,
“‘Sum in dispute’ shall include both claim and counterclaim amounts. If the legislature intended to have the Arbitral Tribunal exceed the ceiling limit by charging separate fee for claim and counterclaim amounts, it would have provided so in Schedule IV.”
Accordingly, the sole arbitrator was requested to withdraw his order claiming separate fee for the statement of claim and the counterclaim amounts.
Transferring the principle to the issue at hand of fee of the sole arbitrator, the intention of the legislature was to provide an upper-cap to the fee of the arbitrator in order to make arbitral process cost-effective. If the legislature intended to have each arbitrator in the Arbitral Tribunal exceed the ceiling amount by charging a base amount and a percentage of claim amounts which will be subject to the ceiling separately, it would have provided so in Schedule IV.
|
Schedule IV |
|
|
Sum in Dispute |
Model Fee |
|
…Above Rs. 20,00,00,000 |
Rs. 19,87,500 plus 0.5% of the claim amount over and above Rs. 20,00,00,000 with a ceiling of Rs. 30,00,000” |
The phrase “with a ceiling of Rs. 30,00,000”, cannot be considered as a modifying phrase at the end, which would only refer to ceiling being applicable to “plus 0.5% of the claim amount over and above Rs. 20,00,00,000”. The provision cannot be read disjunctively as doing so would defeat the intention of legislature, resulting in excess amount of fee payable.
Therefore, a sound interpretation of Schedule IV would be on the lines of the second interpretation provided in this article. The ceiling of INR 30,00,000 would be applied to the base amount and the percentage of claim added together. Keeping in mind that the maximum fee payable to each arbitrator is INR 30,00,000, and in case where the Arbitral Tribunal consists of a sole arbitrator, he will be entitled to an additional amount of 25% of the maximum amount i.e. INR 7,50,000 making the total fee payable to the sole arbitrator INR 37,50,000.
Conclusion
While the controversy at hand is yet to be put to bed, the Punjab and Haryana High Court in a recent judgment titled Punjab State Power Corporation Limited v. Union of India[12] stirred up the issue whether the fee payable to a three-member Arbitral Tribunal would be paid individually to each of the three arbitrators or collectively. Contradicting the general norm adopted by the partakers in the arbitral process, the Division Bench was of the opinion that the fee payable to each individual arbitrator in a three-member Arbitral Tribunal under Schedule IV would be calculated by a 1/3rd pro rata distribution of the composite fee determined under the Schedule. Accordingly, each arbitrator in a three-member Arbitral Tribunal would be entitled to INR 10,00,000 individually and separately, as opposed to INR 30,00,000. However, this decision appears to be contrary to the legislative intent as will lead to very illogical situations viz. if a claim of more than 50,00,00,000 is adjudicated by a three-member Arbitral Tribunal each member will be entitled to INR 10,00,000 whereas if the same is decided by sole arbitrator, he will get INR 37,50,000.
* IVth Year student, Amity Law School, Delhi (Affiliated to GGSIPU)
[2] 246th Report on Amendments to the Arbitration and Conciliation Act, 1996 (August, 2014)
[3] (2009) 4 SCC 523
[4] (2012) 1 SCC 455
[5] Arbitration and Conciliation (Amendment) Act, 2015
[6] Arbitration and Conciliation (Amendment) Act, 2019
[9] ARB A No. 1/2017, IAs Nos.8086/2017 & 9441/2017, judgment dated 11-9-2017
[10] 2018 SCC OnLine Del 10831
[12] Civil Writ Petition No. 3962 of 2017, judgment dated 21-07-2017
Good article