Supreme Court holds ‘Arbitrators cannot unilaterally issue binding and enforceable orders determining their own fees’; Justice Sanjiv Khanna partially dissents 

Supreme Court: The 3-judge bench of Dr DY Chandrachud*, Surya Kant and Sanjiv Khanna*, JJ  has held that arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. While Chandrachud, J wrote the majority opinion for Surya Kant, J and himself, Khanna, J wrote a separate opinion where he agreed with the majority opinion of certain parts but disagreed on some.

Majority opinion

Unilateral determination of fees by Arbitrators

The bench has held that 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. 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 and Conciliation Act, 1996 and also demand a deposit (advance on costs) in accordance with Section 38 of the Arbitration Act.

“If while fixing costs or deposits, the arbitral tribunal makes any finding relating to arbitrators‘ fees (in the absence of an agreement between the parties and arbitrators), it cannot be enforced in favour of the arbitrators. The arbitral tribunal can only exercise a lien over the delivery of arbitral award if the payment to it remains outstanding under Section 39(1). The party can approach the court to review the fees demanded by the arbitrators if it believes the fees are unreasonable under Section 39(2).”

Directives to govern proceedings in ad hoc arbitrations

While holding that the fees of the arbitrators must be fixed at the inception to avoid unnecessary litigation and conflicts between the parties and the arbitrators at a later stage, the Court issued the following directives to govern proceedings in ad hoc arbitrations:

  1. Upon the constitution of the arbitral tribunal, the parties and the arbitral tribunal shall hold preliminary hearings with a maximum cap of four hearings amongst themselves to finalise the terms of reference of the arbitral tribunal. The arbitral tribunal must set out the components of its fee in the Terms of Reference which would serve as a tripartite agreement between the parties and the arbitral tribunal.
  2. In cases where the arbitrator(s) are appointed by parties in the manner set out in the arbitration agreement, the fees payable to the arbitrators would be in accordance with the arbitration agreement. However, if the arbitral tribunal considers that the fee stipulated in the arbitration agreement is unacceptable, the fee proposed by the arbitral tribunal must be indicated with clarity in the course of the preliminary hearings in accordance with these directives. In the preliminary hearings, if all the parties and the arbitral tribunal agree to a revised fee, then that fee would be payable to the arbitrator(s). However, if any of the parties raises an objection to the fee proposed by the arbitrator(s) and no consensus can be arrived at between such a party and the tribunal or a member of the tribunal, then the tribunal or the member of the tribunal should decline the assignment.
  3. Once the Terms of Reference have been finalised and issued, it would not be open for the arbitral tribunal to vary either the fee fixed or the heads under which the fee may be charged.
  4. The parties and the arbitral tribunal may make a carve out in the Terms of Reference during the preliminary hearings that the fee fixed therein may be revised upon completion of a specific number of sittings. The quantum of revision and the stage at which such revision would take place must be clearly specified. The parties and the arbitral tribunal may hold another meeting at the stage specified for revision to ascertain the additional number of sittings that may be required for the final adjudication of the dispute which number may then be incorporated in the Terms of Reference as an additional term.
  5. In cases where the arbitrator(s) are appointed by the Court, the order of the Court should expressly stipulate the fee that arbitral tribunal would be entitled to charge. However, where the Court leaves this determination to the arbitral tribunal in its appointment order, the arbitral tribunal and the parties should agree upon the Terms of Reference as specified in the manner set out in draft practice direction (1) above.
  6. There can be no unilateral deviation from the Terms of Reference. The Terms of Reference being a tripartite agreement between the parties and the arbitral tribunal, any amendments, revisions, additions or modifications may only be made to them with the consent of the parties.
  7. All High Courts shall frame the rules governing arbitrators’ fees for the purposes of Section 11(14) of the Arbitration and Conciliation Act, 1996.
  8. The fee structure contained in the Fourth Schedule, revised in the year 2016, cannot be static and deserves to be revised periodically. The Union of India shall, hence, suitably modify the fee structure contained in the Fourth Schedule and continue to do so at least once in a period of three years.

The Court also made clear that when one or both parties, or the parties and the arbitral tribunal are unable to reach a consensus, it is open to the arbitral tribunal to charge the fee as stipulated in the Fourth Schedule, which we would observe is the model fee schedule and can be treated as binding on all. Consequently, when an arbitral tribunal fixes the fee in terms of the Fourth Schedule, the parties should not be permitted to object the fee fixation. It is the default fee, which can be changed by mutual consensus and not otherwise.

Some Clarifications on the Fourth Schedule of the Arbitration Act

  • The term “sum in dispute” in the Fourth Schedule of the Arbitration Act refers to the sum in dispute in a claim and counter-claim separately, and not cumulatively. Consequently, 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 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; and
  • This ceiling is applicable to each individual arbitrator, and not the arbitral tribunal as a whole, where it consists of three or more arbitrators. Of course, a sole arbitrator shall be paid 25 per cent over and above this amount in accordance with the Note to the Fourth Schedule.

Khanna, J’s opinion

Khanna, J agreed with the majority opinion on the following points”

 (a) party autonomy and arbitration agreement are the foundation of the arbitral process, and therefore, when the parties fix the fee payable to the arbitral tribunal, the law does not permit the arbitral tribunal to derogate and ask for additional or higher fee;

(b) where the court while appointing an arbitrator fixes the fee, the arbitral tribunal cannot ask for supplementary or higher fee; and

(c) in both cases, the fee payable to the arbitral tribunal may be enhanced either by a written agreement between the parties or by a court order.

He, however, disagreed on the point 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. He opined that by the implied terms of the contract and as per the provisions of the Arbitration Act , 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 Arbitration Act during the pendency of the arbitration proceedings, or in case the arbitral tribunal claims lien on the award in terms of sub-section (2) to Section 39 of the Arbitration Act.

“In my opinion, arbitrator’s fee, being a component of cost, can be fixed by the arbitral tribunal when it is not already predetermined by way of an agreement between the parties, or by a court order. This is because the arbitral tribunal has the power to fix and direct the parties to make payment of deposits in advance and during the course of the arbitration proceedings, subject to the arbitral tribunal rendering an account on termination of the arbitration proceedings.”

On the argument that the word ‘cost’, it is argued, is different from the arbitrator’s fee and therefore, the arbitral tribunal is not competent or authorised to fix its own fee on the principle of nemo judex in causa sua, that is, ‘no one should be judge in their own cause’, Khanna, J explained that,

“The principle would apply where the parties have fixed the fee payable to the arbitral tribunal, either as a term in the arbitration agreement or otherwise by an agreement, either before or after the appointment of the arbitral tribunal. This principle will apply equally where the court fixes the fee as a term of appointment. However, this principle will have no application where the parties or the court has left it to the arbitral tribunal to fix its own fee.”

Hence, when the arbitration agreement is silent and the parties have not agreed on the quantum of fee payable to the arbitral tribunal, or the court order does not fix the fee, the arbitral tribunal has the right and power to fix its own fee.

It was further explained that the pre-amended sub-section (8) to Section 31 and post-amendment Section 31A and Section 38 of the Arbitration Act, use the expression ‘costs’, albeit they also refer to fee and expenses of the arbitrator/tribunal. The sections are, therefore, comprehensive and all-embracing provisions that equally empower and authorise the arbitral tribunal to fix the fee in the absence of any agreement between the parties or a court order fixing the fee payable to the arbitral tribunal. Any other interpretation would make the Arbitration Act unworkable and Sections 31A, 38 and 39 superfluous.

He also observed that arbitral tribunals, since time immemorial, have been fixing arbitration fee, and the legislature has not intervened or barred them from doing so even by the 2016 Amendment. Additionally, there is no provision in the Arbitration Act which states that the parties can move the court for fixation of fee of the arbitral tribunal when the arbitration agreement is silent or the parties are unable to agree on the quantum of fee or where the court, while making reference, has not fixed the fee and has left it to the arbitral tribunal to decide upon its own fee. Hence, to hold to the contrary would create chaos and invalidate a number of orders passed by the High Courts and even this Court, which leave it open for the arbitral tribunal to fix its own fee.

He, however, agreed with the majority opinion of the point that when an arbitral tribunal, even in the absence of consent of the parties, fixes the fee in terms of the Fourth Schedule, the parties should not be permitted to object the fee fixation. The Fourth Schedule is the default fee, declared by the legislature as fair and reasonable, which can be changed by mutual consensus, and not otherwise. Further, post the enforcement of the Arbitration Amendment Act, 2019 vide Act 33 of 2019 on 30th August 2019, and insertion of subsection (3A) to Section 11, the proviso to the sub-section states that the fee prescribed in the Fourth Schedule is mandatory and applies to all arbitrations including ad hoc arbitrations, albeit in case of institutional arbitrations, as per sub-section (14) to Section 11 of the A&C Act, the fee fixed by the institution “subject to the rates specified in the Fourth Schedule” would be payable.

[ONGC v. Afcons Gunanusa JV, 2022 SCC OnLine SC 1122, decided on 30.08.2022]


*Judgment by: Justice Dr DY Chandrachud (Majority) and Justice Sanjiv Khanna (Partial dissent)


For petitioners: AG KK Venugopal and SG Mr Tushar Mehta

For respondents: Senior Advocate Dr Abhishek Manu Singhvi

For Intervenors: Advocates Manu Sheshadri and K. Parmeshwar

Amicus Curiae: Senior Advocate Huzefa Ahmadi

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