Premature Termination of Arbitration: Assessing Arbitrator Fee Entitlements under Indian Law

Introduction

Arbitration offers a time-bound and flexible mode of resolving disputes. However, the path followed during arbitration proceedings may not always be linear. At times, arbitration proceedings may be terminated prematurely. This may happen because of a mutual settlement between the parties, withdrawal of claims, jurisdictional challenges or even default or non-participation by parties. A pertinent question then arises: should arbitrators be paid the entire fees agreed upon? Or they should be paid the pro-rated amount as per the stage at which the proceedings end? Arbitrators are often left in a dilemma about their fee entitlements in such situations, especially when significant time and effort have already been invested. The question becomes more pertinent since the Arbitration and Conciliation Act, 1996¹ (the Act) remains silent on such payments in case of early termination. This article analyses such lacuna by keeping in mind the judicial views on such issues and further explores the comparative frameworks, including international institutional rules and foreign statutes.

Legal lacuna in Indian context

Section 31-A² of the Act does refer to costs and advance payment but does not specifically address the scenario where proceedings conclude before the final award. Further, Section 31-A(4)(c) also provides a scenario wherein the courts or Arbitral Tribunal may allow for costs to be determined till a certain date only. Notably, this raises another pertinent issue of arbitrators being Judges in their own cause regarding remuneration. Further, Schedule 4³ provides maximum limit of fees payable to the arbitrators appointed in ad hoc arbitration. However, even the Schedule does not address the issue of fees payable to the arbitrator(s), especially in ad hoc arbitration, if the proceedings are terminated, withdrawn or settled before the final award. This ambiguity creates challenges, especially in ad hoc arbitration, where the determination of fees becomes unclear, potentially leading to additional burden of litigation for the parties involved.

The introduction of the Schedule 4 was intended to guide the High Courts to form their own rules relating to the determination of arbitrator fees. Meanwhile, all the High Courts have not been able to frame such rules except the High Courts of Bombay, Kerala and Rajasthan. It must also be noted that the rules framed by the High Courts of Bombay and Rajasthan are only applicable to the arbitrators that are appointed by the courts. Therefore, the whole purpose of introducing Schedule 4 for regulating fees of the arbitrators in ad hoc arbitration remains largely unfulfilled. Moreover, the Draft Arbitration and Conciliation (Amendment) Bill, 2024⁴ which has been introduced to propose amendment in the Act, the Draft Bill does not provide for provision determining the arbitrator’s fees in case of premature termination of arbitration proceedings.

Indian judicial position

The Supreme Court of India in ONGC Ltd. (ONGC) v. Afcons Gunanusa JV (Afcons)⁵, attempted to address certain issues surrounding fees charged by arbitrators in ad hoc arbitrations. In this case, the dispute between the parties was referred to the Arbitral Tribunal and the fee payable to the arbitrators was already stipulated in the arbitration agreement. The Tribunal was of the opinion that stipulated fees is “unrealistic” fee so parties agreed and revised the fees in accordance with Schedule 4 of the Act. After some time, the Arbitral Tribunal again wished to revise their fees citing the complexity of the issue to which ONGC denied. ONGC filed a petition in Bombay High Court under Section 14⁶ read with Section 15⁷ of the Act which was dismissed by the Bombay High Court and hence the appeal was filed in the Supreme Court. The majority opined in this case that:

(1) Arbitrators do not have the power to unilaterally decide their own fees and issue binding and enforceable orders relating to that.

(2) The maximum fee payable under the Schedule 4 is INR 30,00,000 (INR thirty lakhs) per arbitrator.

(3) Issued guidelines for fixation of fees at the time of commencement of arbitration to avoid unnecessary litigation.

The Supreme Court’s view in this case does answer and provide further clarity with regards to a structured approach in determining arbitrators’ fees. However, the approach still fails to resolve the complexities pertaining to the proceedings that end prematurely. The Supreme Court suggests a tripartite agreement during preliminary hearings, allowing for stage-wise fee payments. However, in case of proceedings ending prematurely, this approach may lead to delays if extensive negotiations are required during the early stages of arbitration. Moreover, the Supreme Court’s suggestion that arbitrators may determine their own fees if consensus is not reached at the preliminary stage could lead to arbitrary fee determinations.

Comparative analysis: How other jurisdictions handle the issue

International arbitral institutes

Unlike the Act, the arbitral institutions provide greater clarity on the issue. Arbitral Institutions such as International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC)⁸, American Arbitration Association (AAA), Delhi International Arbitration Centre (DIAC)⁹, etc., have specified rules on the quantum of fees payable to the arbitrators based on the stage at which the proceedings terminate.

Rule 34.7¹⁰ of the SIAC Rules, allows the Registrar to determine arbitrator fees based on the stage at which proceedings terminate. Such provisions ensure transparency and fairness and avoid arbitrators being Judges in their own cause regarding remuneration.

English Arbitration Act, 1996

Section 28¹¹ of the Arbitration Act, 1996 (GB) recognises the right of arbitrators to remuneration and states that parties are jointly liable to pay reasonable fees to the arbitrators. The arbitrators and the parties usually determine the arbitrators’ fee by a mutual agreement, however, if the agreement is not reached, then the court may interfere in determining such fees. Moreover, the English Court has stated, if the terms of the payment are unclear, then the courts can interfere to review such fees and examine the reasonableness.¹²

Singapore Arbitration Act, 2001

In Singapore, the provisions related to determination of arbitrators’ fee under the Singapore Arbitration Act, 2001 differ slightly from the provisions of the English Arbitration Act, 1996 by reducing the role of the arbitrators in determining their fees. Section 40¹³ of the Singapore Arbitration Act, 2001 states that the parties are jointly liable to pay reasonable fees and expenses to the arbitrators. It is further stated under the provision that if the parties fail to come to a written agreement in determining the fees, then any party can approach the Registrar of the Supreme Court (exercising the power under Supreme Court of Judicature Act, 1969¹⁴) for determination of their fee. Further, Section 41(2)¹⁵ allows a party to apply to the Court to review the fees.

UNCITRAL Rules, 2010

Under the UNCITRAL Rules, 2010, Article 40¹⁶ read with Article 41¹⁷ empower the Tribunal to fix their own fees subject to reasonability based on the sum of the dispute and complexity. Further, the rules state that parties may refer the fees determined by the Arbitral Tribunal to the appointing authority for a review. In case no appointing authority is designated, then the review will be undertaken by the Secretary-General of the Permanent Court of Arbitration (PCA). If the Secretary-General of the PCA or the appointing authority (if designated) finds that the fee proposed to be charged is excessive, then it can make necessary adjustments in terms of Article 41(4)(c). If there is any revision in the fees, such revision is binding on the Tribunal.

Conclusion and way forward

The Indian arbitration framework, though steadily evolving, continues to grapple with such critical lacunae. The lack of clarity on such issues not only creates practical difficulties for arbitrators and parties alike but may also discourage early settlements, which runs contrary to the very ethos of alternative dispute resolution.

To address this issue, India must look up to the international best practices that balance party autonomy with institutional oversight in such issues. Jurisdictions such as Singapore and the UK offer models where arbitrator fee disputes are subject to neutral review mechanisms. The UNCITRAL Rules similarly incorporate provisions for external oversight to ensure that fees remain reasonable and proportionate. Drawing from such frameworks, India must adopt a more structured, stage-wise, and reviewable system to instil predictability and fairness.

First, a statutory amendment to the Act is warranted. This should empower a neutral authority, such as the Registrar of the High Court or an appropriate arbitral institution, to review arbitrator fees in cases where disputes arise due to premature termination. Such a measure would ensure objective oversight while respecting the principles of party autonomy.

Second, the incorporation of mandatory stage-wise fee agreements at the preliminary stage of arbitration would significantly enhance transparency. A tripartite agreement between the parties and the Arbitral Tribunal could allocate fees across distinct procedural milestones such as filing of pleadings, completion of evidence, and final arguments. This model would allow equitable compensation for arbitrators while ensuring that parties are not unfairly burdened when proceedings end prematurely.

Third, pending any statutory reform, High Courts should exercise their rule-making powers under the Act to develop fee guidelines for ad hoc arbitrations, even in cases where arbitrators are not court-appointed. These rules should provide indicative slabs based on procedural stages, offering both guidance and flexibility to arbitrators and parties.

Finally, the long-term solution lies in the institutionalisation of arbitration in India. Institutional frameworks inherently resolve many of these concerns through their default rules, administrative support, and fee schedules. Promoting institutional arbitration will not only reduce procedural uncertainty but also reinforce credibility and efficiency in the arbitration process.

As the Indian Government has introduced draft Arbitration and Conciliation (Amendment) Bill, 2024, proposing to amend the Act, it is highly recommended that the Government should incorporate such provision for determination of arbitrator’s fees in case of premature termination of proceedings. It will not only fill the vital gap which requires necessary change in the Act but also clarify the doubts of the parties with regard to payment of arbitrator’s fees making the entire process smooth.

In sum, introducing statutory clarity, promoting procedural transparency, and institutionalising arbitral practices are essential steps toward ensuring a more robust, fair, and trusted arbitration ecosystem in India.