Supreme Court: In an application against the unilateral revision of the Tribunal’s fee in an ongoing Arbitration proceeding, an objection was placed against the same on the basis of ONGC v. Afcons Gunanusa JV, 2022 SCC OnLine SC 1122, whereby it was held that parties are at liberty to fix the fee payable to the Arbitrator and that once the terms of engagement are finalized it is not open to the Tribunal to either vary the fee fixed or the heads under which fee may be charged. The Division Bench of S. Ravindra Bhat* and Aravind Kumar, JJ dismissed the application and held that that the increase of fee does not amount to a per se ineligibility, reaching to the level of voiding the Tribunal’s appointment, and terminating its mandate.
In the matter at hand, the Chennai Metro Rail Limited, (‘Chennai Metro’), pursuant to a public tender, awarded the contract to the respondent (‘Afcons’) for a project of the total value of Rs. 1566 crores. The contract was signed on 31-01-2011. Eventually, on 15-04-2021, Afcons sought a reference of several heads of disputes to arbitration after certain interlocutory proceedings. Two of the disputes between the parties were referred to a three-member tribunal under the Arbitration and Conciliation Act, 1996 (‘the Act’). The fee for each arbitrator was fixed at ₹ 1,00,000/- per session of hearing date. During the course of the proceedings, one member of the tribunal passed away and had to be substituted. The parties proceeded with the conduct of arbitration. In the meanwhile, another tribunal dealt with two claims of Afcons. The award passed in those proceedings became the subject matter of challenge (by Afcons) under Section 34 which was declined by an order of the Madras High Court. The appeal against that order was thereafter pending.
The tribunal sought to revise the fee payable from ₹ 1,00,000/- to ₹ 2,00,000/- for each session of three hours, however, the Chennai Metro objected to this revision.
Issue of Bias
The Court referred to M/s. Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., 9 2017 (1) SCR 798, wherein the Court underlined the objective behind the 2015 amendment to the Act, that to identify the circumstances that gave rise to justifiable doubts about the independence or impartiality of the arbitrator and in the event, any of those circumstances exist, the remedy is provided under Section 12 of the Act. The Court also noted that it was held that if an advisor had any past or present business relationship with a party, he was ineligible to act as arbitrator.
The Court on analysis and perusal of HRD Corporations v. Gas Authority of India Ltd., 2017 (11) SCR 857, said that the first category of ineligibility for the appointment is contained in Section 12(1) read with the explanation and the Fifth Schedule to the Act and the second category is where the arbitrator to start with is eligible but after appointment incurs any, or becomes subject, to any of the conditions, as enumerated in the Fifth Schedule. Further, the Court said that in that event, it is open to the party to claim that there could be justifiable doubts about his independence or impartiality. The Court said that on basis of HRD Corporations (supra) and Bharat Broadband Network Limited v. United Telecoms Ltd., (2019) 6 SCR 97, it is clear that any legal disability as enumerated in the Fifth Schedule [or any other circumstance, given the terminology of Section 12 (3) which is not restricted to fifth schedule ineligibility], the aggrieved party has to first apply before the tribunal as a matter of law. Additionally, the Court said that both the decisions are unequivocal to the effect that the issue of bias should be raised before the same tribunal at the earliest opportunity.
Issue of fixation of fee
The Court noted ONGC (Supra), is the authority for the issue of fixation of fee, being contractual, and wherever there is no prior arrangement or Court order, the Tribunal has to fix it at the threshold. The Court noted that it was held that the arrangement is by way of a tripartite agreement, which means that regardless of what mode of payment was adopted, any revision or revisiting of the fee condition, should be based on consultation, and agreement of both contesting parties, and the Tribunal.
The Court noted that in the present case, there was breach of the rule laid down in ONGC (supra), that the increase in fee must be with the agreement of parties and in the event of disagreement by one party, the Tribunal must continue with the previous arrangement, or decline to act as arbitrator. The Court opined that the increase of fee does not amount to a per se ineligibility, reaching to the level of voiding the Tribunal’s appointment, and terminating its mandate. The Court referred to HRD (supra) and National Highways Authority of India & Ors. vs. Gayatri Jhansi Roadways Limited & Ors., 2019  SCR 1001, wherein, a similar view was taken.
The Court clarified that the Chennai Metro’s attempt to the concept of saying that de jure ineligibility because of existence of justifiable doubts about impartiality or independence of the Tribunal on unenumerated grounds, cannot be sustained. The Court said an exception will be made by allowing the Chennai Metro’s plea. The statutory route paved by the Parliament carefully will be skipped, which can cast more spells of uncertainty upon the arbitration process. The Court reiterated that the “de jure condition is not the key which unlocks the doors that bar challenges, mid-stream, and should “not to unlock the gates which shuts the Court” out from what could potentially become causes of arbitrator challenge, during the course of arbitration proceedings, other than what the Act specifically provides for.
Therefore, the Court dismissed Chennai Metro’s application and directed the Arbitrators to resume the proceedings and decide the case in accordance with the law. The Court upheld the impugned order.
[Chennai Metro Rail Ltd. v. Transtonnelstroy Afcons (JV), 2023 SCC OnLine SC 1370, Decided on 19-10-2023]
*Judgment Authored by; Justice S. Ravindra Bhat