The Supreme Court on Tuesday set about to resolve the conundrum around the fixation of arbitrator’s fee in India, as attorney general KK Venugopal implored the court to rationalise the fee structure in view of the predicament being faced by the public sector undertakings (PSUs) over the exorbitant demands made by the arbitrators.
Retired Supreme Court and high court judges are usually appointed as arbitrators.
Directing listing of all the cases pertaining to the issue of ceiling on arbitrator’s fee, a bench headed by Chief Justice of India NV Ramana agreed to examine the mandatory nature of the model schedule of fee for the arbitrators, prescribed under the Fourth Schedule of the Arbitration and Conciliation Act, 1996.
The bench, which also comprised justices AS Bopanna and Hima Kohli, noted that the contentions around the applicability of the Fourth Schedule and arbitration proceedings become disproportionately expensive for the parties need to be finally settled in the wake of growing complaints against the arbitrator’s fee.
The order followed arguments by Venugopal, who raised concerns about the “exorbitant and arbitrary” fee charged by the arbitrators and urged the bench to lay down uniform yardsticks across the board.
Venugopal, appearing with advocate Abhishek Gupta on behalf of the Oil and Natural Gas Corporation (ONGC), was arguing in a matter involving the PSU’s arbitration with Afcons Gunanusa JV when the law officer lamented the fee being sought by the arbitrators in several cases involving the ONGC.
{{/usCountry}}Venugopal, appearing with advocate Abhishek Gupta on behalf of the Oil and Natural Gas Corporation (ONGC), was arguing in a matter involving the PSU’s arbitration with Afcons Gunanusa JV when the law officer lamented the fee being sought by the arbitrators in several cases involving the ONGC.
{{/usCountry}}“There is a case where the arbitral tribunal charged ₹80 lakh. The arbitrator divided a day into three sittings and charges separately for each sitting. They also charged another ₹6 lakh as conference fees. There has to be some uniformity. If the arbitrators don’t accept the contractual fee, they should stick to the Fourth Schedule, which caps the fee at ₹30 lakh,” Venugopal pressed.
To this, the CJI retorted: “So, arbitrators have to work without any remuneration? Better, we close the arbitration system.”
“You might have to,” replied Venugopal, adding that the absence of ceiling in the fee and the apprehension that refusal to pay an exorbitant fee may prejudice such party’s case. He sought to highlight that PSUs are accountable to the Comptroller and Auditor General (CAG) and therefore, they are accountable for every penny spent.
“The other side, the contractors, they are happy to comply. They have huge amounts. As far as we are concerned, we are answerable to the CAG. If we don’t agree, arbitrators will not be happy. So, we are in a quandary” he said.
But the bench called it a matter of “serious concern” that PSUs are attributing bias on account of not accepting fees fixed by the arbitrators.
At this point, senior advocate Abhishek Manu Singhvi, appearing for the private company, countered Venugopal’s arguments claiming the problems arise when PSUs tend to protract the proceedings. “We have no problem with the Fourth Schedule. But it has a cap of ₹30 lakh. If there are 100 sittings, it comes to ₹30,000 per sitting. Do we want retired Supreme Court judges and high court chief justices deciding at ₹30,000 per sitting?” he asked.
The bench, on its part, sought to know whether the constitutionality of the Fourth Schedule is under scrutiny of the Supreme Court. To this, the AG replied that two petitions are pending in the top court, prompting the bench to direct listing of all such cases together on March 23.
The 246th Law Commission Report had addressed the issue of fee of arbitrators in 2014 and suggested a model schedule of fees as a mechanism to rationalise the fee structure.
The Arbitration and Conciliation Act was amended in 2015 to make the process cost effective. It inserted Fourth Schedule to provide a model fee schedule for domestic arbitration on the basis of which high courts may frame rules for the purpose of determination of fees of arbitral tribunal, where a high court appoints an arbitrator.
Another amendment was made in 2019 passed to establish arbitral institutions designated by the Supreme Court or the high courts under section 11 of the Act. Schedule IV is now mandatory in such arbitrations.