OIL AND NATURAL GAS CORPORATION LTD versus AFCONS GUNANUSA JV

[2022] 10 S.C.R.

AOIL AND NATURAL GAS CORPORATION LTD.

AFCONS GUNANUSA JV

(Arbitration Petition (Civil) No. 05 of 2022)

AUGUST 30, 2022

[DR. DHANANJAYA Y CHANDRACHUD, SANJIV KHANNAAND SURYA KANT, JJ.]

Arbitration and Conciliation Act, 1996 – ss. 11, 31, 31A, 38and 39 – Fourth Schedule – Arbitrators’ Fees – Whether theCarbitrator(s) are entitled to unilaterally determine their own fees –Whether the term “sum in dispute” in the Fourth Schedule to theArbitration Act means the cumulative total of the amounts of theclaim and counterclaim – Whether the ceiling of Rs 30,00,000 inthe entry at Serial No 6 of the Fourth Schedule of the ArbitrationDAct is applicable only to the variable amount of the fee or the entirefee amount – Whether the ceiling of Rs 30,00,000 applies as acumulative fee payable to the arbitral tribunal or it represents thefee payable to each arbitrator – Held: Arbitrators do not have thepower to unilaterally issue binding and enforceable ordersdetermining their own fees – unilateral determination of feesEviolates the principles of party autonomy and the doctrine of theprohibition of in rem suam decisions, i.e., the arbitrators cannot bea judge of their own private claim against the parties regardingtheir remuneration – However, the arbitral tribunal has the discretionto apportion the costs (including arbitrators’ fee and expenses)Fbetween the parties in terms of s.31(8) and s.31A and also demanda deposit (advance on costs) in accordance with s.38 – If whilefixing costs or deposits, the arbitral tribunal makes any findingrelating to arbitrators’ fees (in the absence of an agreement betweenthe parties and arbitrators), it cannot be enforced in favour of thearbitrators – The arbitral tribunal can only exercise lien over theGdelivery of arbitral award if the payment to it remains outstandingu/s.39(1) – The party can approach the court to review the feesdemanded by the arbitrators if it believes the fees are unreasonableu/s.39(2) – The term “sum in dispute” in the Fourth Schedule of theArbitration Act refers to the sum in dispute in claim and counter-Hclaim separately, and not cumulatively – Consequently, arbitrators

shall be entitled to charge separate fee for the claim and thecounter-claim in an ad hoc arbitration proceeding, and the feeceiling contained in the Fourth Schedule will separately apply toboth, when the fee structure of the Fourth schedule has been madeapplicable to the ad hoc arbitration – The ceiling of Rs 30,00,000in the entry at Serial No 6 of the Fourth Schedule is applicable tothe sum of the base amount (of Rs 19,87,500) and the variableamount over and above it –Consequently, the highest fee payableshall be Rs 30,00,000 – This ceiling is applicable to each individualarbitrator, and not the arbitral tribunal as whole, where it consistsof three or more arbitrators – sole arbitrator shall be paid 25 percent over and above this amount in accordance with the Note to theFourth Schedule.

Arbitration Law – Concepts of costs and fees in arbitration –Distinguished.

Arbitration Law – Ad hoc arbitration – Direction / guidelinesissued for governing proceedings in ad hoc arbitrations.

In the instant arbitration petition, the following issues in relation tothe arbitrators’ fees arose for consideration: (i) Whether the arbitrator(s) are entitled to unilaterally determine their own fees; (ii) Whether theterm “sum in dispute” in the Fourth Schedule to the Arbitration Act meansthe cumulative total of the amounts of the claim and counterclaim;(iii)Whether the ceiling of Rs 30,00,000 in the entry at Serial No 6 of theFourth Schedule of the Arbitration Act is applicable only to the variableamount of the fee or the entire fee amount; and (iv)Whether the ceilingof Rs 30,00,000 applies as cumulative fee payable to the arbitral tribunalor it represents the fee payable to each arbitrator.

Disposing of the appeals, the Court

HELD:

Per D.Y. Chandrachud, J. [for himself and Surya Kant, J.]

1.1. ARBITRATOR’S FEE: On review of few foreignjurisdictions that either have explicitly recognised an arbitrators’entitlement to remuneration and/or have dealt with the issue ofarbitrators’ power of fixing their own remuneration, it is seenthat although there are jurisdictional differences, the followingbroad principles emerge: (i) Typically, the fees payable to

Aarbitrator(s) are determined through an agreement between theparties (of which the arbitrator(s) become aware of when theytake up the assignment) or separate agreement of the partieswith the arbitrator(s). The arbitrator(s) then become bound bysuch contractually agreed fees; and (ii) Certain arbitrationlegislations give the arbitrator(s) effective power to determineBtheir own fees, typically when there is an absence of agreementbetween the parties on the subject. However, such determinationof fees is subject to review by the courts who can reduce the feesif they are not reasonable. Thus, arbitrator(s) do not possess anabsolute or unilateral power to determine their own fees. PartiesCare involved in determining the fees of the arbitrator(s) in someform. It could be by: (i) determining the fees at the threshold inthe arbitration agreement; or (ii) negotiating with the arbitratorswhen the dispute arises regarding the fees that are payable; or(iii) by challenging the fees determined by the tribunal before acourt. [Paras 66 and 67][720-C-F]D

1.2 Party autonomy is cardinal principle of arbitration.The arbitration agreement constitutes the foundation of thearbitral process. The arbitral tribunal is required to conduct thearbitration according to the procedure agreed by the parties. Theprocedure may stipulate adherence to institutional rules or adEhoc rules or combination of both. [Para 68][721-B]

1.3 (i) In terms of the decision of this Court in Gayatri JhansiRoadways Ltd and the cardinal principle of party autonomy, theFourth Schedule is not mandatory and it is open to parties bytheir agreement to specify the fees payable to the arbitrator(s)For the modalities for determination of arbitrators’ fees; and (ii)Since most High Courts have not framed rules for determiningarbitrators’ fees, taking into consideration Fourth Schedule ofthe Arbitration Act, the Fourth Schedule is by itself not mandatoryon court-appointed arbitrators in the absence of rules framed byGthe concerned High Court. Moreover, the Fourth Schedule isnot applicable to international commercial arbitrations andarbitrations where the parties have agreed that the fees are tobe determined in accordance with rules of arbitral institutions.The failure of many High Courts to notify the rules has led to

situation where the purpose of introducing the Fourth Scheduleand sub-Section (14) to Section 11 has been rendered nugatory,and the court-appointed arbitrator (s) are continuing to imposeunilateral and arbitrary fees on parties. Such unilateral fixationof fees goes against the principle of party autonomy which iscentral to the resolution of disputes through arbitration. Further,there is no enabling provision under the Arbitration Actempowering the arbitrator(s) to unilaterally issue binding orenforceable order regarding their fees. [Para 79][730-G-H; 731-A-D]

1.4 (i) Arbitration proceedings must be conductedexpeditiously; (ii) Court interference should be minimal; and (iii)When one or both parties, or the parties and the arbitral tribunalare unable to reach consensus, it is open to the arbitral tribunalto charge the fee as stipulated in the Fourth Schedule, which isthe model fee schedule and can be treated as binding on all.Consequently, when an arbitral tribunal fixes the fee in terms ofthe Fourth Schedule, the parties should not be permitted to objectthe fee fixation. It is the default fee, which can be changed bymutual consensus and not otherwise. [Para 105][754-B-D]INTERPRETATION OF “SUM IN DISPUTE” IN THEFOURTH SCHEDULE

2.1 On basis of analysis, the following principles emerge:(i) The Arbitration Act treats claims and counter-claims at par,and holds them subject to the same procedural timelines andrequirements; (ii) The Arbitration Act allows the arbitral tribunalto fix deposit of costs for claims and counter-claims separately,recognizing that they are distinct proceedings since: (a) theproceeding for adjudicating on the claim is independent of theproceeding for deciding the counter-claim; (b) distinct issues mayarise before the tribunal while adjudicating on the claim andcounter-claim; (c) the evidence led in support of the claim maynot be dispositive of the material which would be relied on todecide the counterclaim; and (d) the decision on the claim doesnot necessarily conclude the adjudication of the counter-claim;and (iii)The Arbitration Act considers claims and counter-claimsto be independent proceedings since the latter is not contingentupon the former. Rather, it protects the right of any respondent

Ato raise counter-claim in an arbitration proceeding, provided itarises from the arbitration agreement under dispute. Further, inthe event of default in the payment of deposit either for theclaim or counter-claim, it specifically notes that the proceedingswill be terminated only in respect of the claim, or as the case maybe, the counter-claim in respect of which the default has occurred;B(iv)Though counter-claim may arise from similar facts as claim,the counter-claim is not set off and is not in the nature of adefence to the claim; and (v) counter-claim will survive forindependent adjudication even if the claim is dismissed orwithdrawn and the respondent to claim would be entitled toCpursue their counter-claim regardless of the pursuit of or thedecision on the claim. [Para 117][760-C-H; 761-A]

2.2 On analysis of the statutory framework of the ArbitrationAct and the CPC, related academic discourse and judicialpronouncements, the following conclusions emerge: (i) ClaimsDand counter-claims are independent and distinct proceedings; (ii)A counter-claim is not defence to claim and its outcome is notcontingent on the outcome of the claim; (iii) Counter-claims areindependent claims which could have been raised in separateproceedings but are permitted to be raised in the sameproceeding as claim to avoid multiplicity of proceedings; andE(iv)The dismissal of proceedings in relation to the original claimdoes not affect the proceedings in relation to the counter-claim.[Para 135][770-A-D]

2.3 On combined reading of Section 31(8), Section 31Aand Section 38(1) of the Arbitration Act, it is clear that: (i) separateFdeposits are to be made for claim and counter-claim in anarbitration proceeding; and (ii) these deposits are in relation tothe costs of arbitration, which includes the fee of the arbitrators.Therefore, prima facie, the determination of the fee under theFourth Schedule should also be calculated separately for claimGand counter-claim – i.e., the term “sum in dispute” refers toindependent claim amounts for the claim and counterclaim. Suchan interpretation is also supported by the definition of claim andcounter-claim, and by the fact that the latter constitutesproceedings independent and distinct from the former. [Para 136]

FEE CEILING IN FOURTH SCHEDULE

3. The Law Commission of India (LCI) 246th Report,indicates that the legislative intent behind the introduction ofthe Fourth Schedule was to put an end to the practise of arbitratorscharging exorbitant fees from the parties taking their services inad hoc arbitrations. Consequently, when there is option of settingthe ceiling of the fees in the Fourth Schedule at either Rs30,00,000 or Rs 49,87,500, it would be appropriate to choose thelower amount since it would be in keeping with legislative intent.The 2015 Arbitration Amendment Act was clearly enacted withthe intent to give effect to the recommendation of the LCI 246thReport on the point. Thus, the ceiling of Rs 30,00,000 in entry atSerial No 6 of the Fourth Schedule is applicable to the sum ofbase amount and the variable amount, and not just the variableamount. [Para 155][782-A-C]

CEILING APPLICABLE TO INDIVIDUAL ARBITRATORS

4. The submission that the ceiling of Rs 30,00,000prescribed in the entry at Serial No 6 of the Fourth Schedule willbe applicable to the cumulative fee paid to the entire arbitraltribunal, i.e., in three member tribunal, and each individualarbitrator would receive fee of Rs 10,00,000 is erroneous, andhence must be rejected. First, there is nothing in the language ofthe Fourth Schedule to support such an interpretation. The headerof the third column states “Model Fee” and does not specify it tobe in respect of the whole tribunal. Second, if such aninterpretation were to be adopted, it would lead to absurdconsequences. For instance, in an arbitration where the sum indispute is large enough to trigger the ceiling of Rs 30,00,000 andit were to be adjudicated by three-member tribunal, themaximum fee would have to be divided amongst the threearbitrators. On the other hand, if the same dispute were to beadjudicated by sole arbitrator, the sole arbitrator would thenreceive the whole amount of the maximum fee, i.e., triple of whateach individual arbitrator would have received in three-membertribunal. Such disparity is inconceivable, regardless of the extrawork sole arbitrator may have to put in. This is further bolsteredby the Note to the Fourth Schedule, which states that “[i]n theevent the arbitral tribunal is sole arbitrator, he shall be entitled

EFG

Ato an additional amount of twenty-five per cent on the fee payableas per the above”. Consequently, the sole arbitrator would notonly receive Rs 30,00,000, but an additional 25 per cent overand above it. Indeed, it is clear that the Note was added to theFourth Schedule to fairly compensate sole arbitrators whoarguably would have to do more work than as member of aBlarger tribunal; which is why they are allowed payment of 25 percent of the fee over and above what they would be paid pursuantto the table given in the Fourth Schedule. The corollary of this isthat the fee provided in Fourth Schedule is for each individualarbitrator, regardless of whether they are member of aCmultimember tribunal or sole arbitrator. Finally, thisinterpretation of the Fourth Schedule, that the fee providedtherein is applicable for each individual arbitrator and not thewhole arbitral tribunal, has also been fairly conceded before thisCourt by the Attorney General. [Para 157][782-E-H; 783-A-B]DCONCLUSION5. (i) Arbitrators do not have the power to unilaterally issuebinding and enforceable orders determining their own fees. Aunilateral determination of fees violates the principles of partyautonomy and the doctrine of the prohibition of in rem suamEdecisions, i.e., the arbitrators cannot be judge of their ownprivate claim against the parties regarding their remuneration.However, the arbitral tribunal has the discretion to apportion thecosts (including arbitrators’ fee and expenses) between theparties in terms of Section 31(8) and Section 31A of the ArbitrationFAct and also demand deposit (advance on costs) in accordancewith Section 38 of the Arbitration Act. If while fixing costs ordeposits, the arbitral tribunal makes any finding relating toarbitrators’ fees (in the absence of an agreement between theparties and arbitrators), it cannot be enforced in favour of thearbitrators. The arbitral tribunal can only exercise lien overGthe delivery of arbitral award if the payment to it remainsoutstanding under Section 39(1). The party can approach the courtto review the fees demanded by the arbitrators if it believes thefees are unreasonable under Section 39(2);

(ii) Since this judgment holds that the fees of the arbitratorsmust be fixed at the inception to avoid unnecessary litigation andconflicts between the parties and the arbitrators at later stage,this Court has issued certain directives to govern proceedingsin ad hoc arbitrations;

(iii)The term “sum in dispute” in the Fourth Schedule ofthe Arbitration Act refers to the sum in dispute in claim andcounter-claim separately, and not cumulatively. Consequently,arbitrators shall be entitled to charge separate fee for the claimand the counter-claim in an ad hoc arbitration proceeding, andthe fee ceiling contained in the Fourth Schedule will separatelyapply to both, when the fee structure of the Fourth schedule hasbeen made applicable to the ad hoc arbitration;

(iv)The ceiling of Rs 30,00,000 in the entry at Serial No 6of 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

(v) This ceiling is applicable to each individual arbitrator,and not the arbitral tribunal as whole, where it consists of threeor more arbitrators. Of course, sole arbitrator shall be paid 25per cent over and above this amount in accordance with the Noteto the Fourth Schedule. [Para 158][783-C-F; 784-A-E]

Bharat Aluminium Co. v. Kaiser Aluminium TechnicalServices (2016) 4 SCC 126 : [2016] 1 SCR 364; CopperLtd Centrotrade Minerals & Metal Inc. v. Hindustan(2017) 2 SCC 228 : [2016] 9 SCR 83; Salem AdvocateBar Assn. (II) v. Union of India (2005) 6 SCC 344 :[2005] 1 Suppl. SCR 929; Indian Oil Corpn. Ltd. v.Amritsar Gas Service (1991) 1 SCC 533 : [1990] 3Suppl. SCR 196; Nityanand Sharma v. State of Bihar(1996) 3 SCC 576 : [1996] 2 SCR 1; Aswini KumarGhose v. Arabinda Bose 1953 SCR 1 and IndoreDevelopment Authority (LAPSE-5 J.) v. Manoharlal(2020) 8 SCC 129 : [2020] 3 SCR 1 – followed.

Sanjeev Kumar Jain v. RS Charitable Trust (2012) 1SCC 455 : [2011] 12 SCR 744; Voestalpine Schienen

GmbH v. Delhi Metro Rail Corpn. Ltd. (2017) 4 SCC665 : [2017] 1 SCR 798; State of Goa v. PraveenEnterprises (2012) 12 SCC 581 : [2011] 10 SCR 1026;Jag Mohan Chawla v. Dera Radha Swami Satsang(1996) 4 SCC 699 : [1996] 2 Suppl. SCR 509; AphaliPharmaceuticals Ltd. v. State of Maharashtra (1989) 4SCC 378 : [1989] 1 Suppl. SCR 129; Mohd. Shabir v.State of Maharashtra (1979) 1 SCC 568 : [1979] 2SCR 997; Mithilesh Kumari v. Prem Behari Khare (1989)2 SCC 95 : [1989] 1 SCR 621- relied on.

Assam State Weaving and Manufacturing Co. Ltd. v.Vinny Engineering Enterprises (P) Ltd. AIR 2010 Cal52- approved.

NHAI v. Gayatri Jhansi Roadways Ltd. (2020) 17 SCC626; Union of India v.Singh Builders (2009) 4 SCC523 : [2009] 3 SCR 563; Dattatraya Govind Mahajanv. State of Maharashtra (1977) 2 SCC 54; SanjeevKumar Jain v. Raghubir Saran Charitable Trust andOrs. (2012) 1 SCC 455 : [2011] 12 SCR 744; TriveniShankar Saxena v. State of UP & Ors. 1992 Suppl. 1SCC 524 : [1991] 3 Suppl. SCR 534; Voltas Ltd. v.Rolta India Ltd. (2014) 4 SCC 516 : [2014] 2 SCR 797;Rajni Rani v. Khairati Lal (2015) 2 SCC 682 : [2014]10 SCR 971; Thomas Mathew v. KLDC Ltd. (2018) 12SCC 560 - referred to.

Gammon Engineers and Contractors Pvt. Ltd. v. NHAI2018 SCC OnLine Del 10183 and NHAI v. GayatriJhansi Roadways Ltd. 2017 SCC OnLine Del 10285 -referred to.

KS Norjarl AS v. Hyundai Heavy Indus. Co., [1992] 1QB 863, 884; Compagnie Européenne de Céréales SAv. Tradax Exp. SA [1986] 2 Lloyd’s Rep. 301 (QB);Jivraj v. Hashwani [2011] UKSC 40; Taylor v. Caribou102 Me 401 : 67 2 (1907); Hussmann (Europe) Ltdv. Al Ameen Development & Trade, [2000] 2 Lloyd’sRep. 83 Queen’s Bench Division (Commercial Court)– referred to.

P St J Langan, Maxwell on The Interpretation of Statutes(N M Tripathi Private Ltd, 1976 David St John Sutton,Judith Gill and Matthew Gearing); Russell onArbitration (24[th] edition, 2015) (“Russell onArbitration”); Gary Born, International CommercialArbitration (2[nd] edition, 2014) Loukas Mistelis (ed),Concise International Arbitration (2[nd] edition, 2015)Chapter 23 (“Mistelis on Arbitration”); Halsbury’sLaws of India (Civil Procedure) (2[nd] edition);Zuckermann on Civil Procedure (Sweet & Maxwell,4[th] edition) Justice GP Singh, Principles of StatutoryInterpretation (14[th] edition, Lexis Nexis); DiggoryBailey and Luke Norbury, Bennion on StatutoryInterpretation (7th edition, Lexis Nexis)- referred to.

Per Sanjiv Khanna, J.

HELD : 1.1. While I am entirely in agreement with theconsidered view expressed by D.Y. Chandrachud, J. that –(a)party autonomy and arbitration agreement are the foundation ofthe arbitral process, and therefore, when the parties fix the feepayable to the arbitral tribunal, the law does not permit the arbitraltribunal to derogate and ask for additional or higher fee; (b) wherethe court while appointing an arbitrator fixes the fee, the arbitraltribunal cannot ask for supplementary or higher fee; and (c) inboth cases, the fee payable to the arbitral tribunal may beenhanced either by written agreement between the parties orby court order. However, I am unable to concur that in theabsence of any agreement between the parties, or the partiesand the arbitral tribunal, or court order fixing the fee, the arbitraltribunal is not entitled to fix the fee, as I am of the opinion that bythe implied terms of the contract and as per the provisions of theArbitration and Conciliation Act, 1996, an arbitral tribunal can fixa reasonable fee, which an aggrieved party, who is not signatoryto the written agreement, can question under sub-section (3) ofSection 39 of the A&C Act during the pendency of the arbitrationproceedings, or in case the arbitral tribunal claims lien on theaward in terms of sub-section (2) to Section 39 of the A&C Act.At the same time, I respectfully agree with D.Y. Chandrachud,J., that when an arbitral tribunal, even in the absence of consent

DEF

Aof the parties, fixes the fee in terms of the Fourth Schedule, theparties should not be permitted to object the fee fixation. TheFourth Schedule is the default fee, declared by the legislature asfair and reasonable, which can be changed by mutual consensus,and not otherwise. Further, post the enforcement of theArbitration Amendment Act, 2019 vide Act 33 of 2019 on 30[th]BAugust 2019, and insertion of sub-section (3A) to Section 11, theproviso to the sub-section states that the fee prescribed in theFourth Schedule is mandatory and applies to all arbitrationsincluding ad hoc arbitrations, albeit in case of institutionalarbitrations, as per sub-section (14) to Section 11 of the A&CCAct, the fee fixed by the institution “subject to the rates specifiedin the Fourth Schedule” would be payable. [Para 2][786-F-H; 787-A-D]

1.2. On interpretation of the Fourth Schedule, I respectfullyagree with the view expressed by D.Y. Chandrachud J. onDinterpretation of Serial No.6 and that the fee prescribed is foreach member of the arbitral tribunal, with note providing for anadditional amount of twenty five percent in case of sole/singlemember arbitral tribunal. Even so, on these aspects I would liketo give separate reasoning, as also point anomalies in the FourthSchedule. However, in my opinion, the expression “sum inEdispute” means the sum total of both the claims and counterclaims. [Para 3][787-E-F]

2. Sub-section (8) to Section 31, as originally enacted beforeits substitution by Act No. 3 of 2016, had stipulated that unlessotherwise agreed by the parties, the arbitral tribunal shall fix theFcost of arbitration. The explanation to this Section clarified thatthe expression ‘costs’, for the purpose of the sub-section, meansreasonable costs relating to the fees and expenses of thearbitrator and the witnesses. The sub-section emphasised thatthe agreement between the parties is paramount and binding.GThe arbitral tribunal is entitled to fix costs of arbitration, whichincludes the fee and expenses of the arbitrator, if the agreementbetween the parties is wordless and silent as to the fee payableto the arbitral tribunal. The word ‘cost’, it is argued, is differentfrom the arbitrator’s fee and therefore, the arbitral tribunal is notcompetent or authorised to fix its own fee on the principle ofH

nemo judex in causa sua, that is, ‘no one should be judge in theirown cause’. The principle would apply where the parties havefixed the fee payable to the arbitral tribunal, either as term inthe arbitration agreement or otherwise by an agreement, eitherbefore or after the appointment of the arbitral tribunal. Thisprinciple will apply equally where the court fixes the fee as aterm of appointment. However, this principle will have noapplication where the parties or the court has left it to the arbitraltribunal to fix its own fee. In other words when the arbitrationagreement is silent and the parties have not agreed on thequantum of fee payable to the arbitral tribunal, or the court orderdoes not fix the fee, the arbitral tribunal has the right and powerto fix its own fee. [Paras 15 and 23][797-D-E; 798-A-B; 805-D-F]

3. It will be appropriate to summarize the legal position asunder:

(a)The arbitral tribunal is bound by the fee or remunerationfixed by the parties in the arbitration agreement, or by mutualconsent, whether before or after the disputes have arisen. (b)Where the court refers disputes to an arbitral tribunal, in theabsence of any agreement between the parties fixing the feepayable to the arbitral tribunal, it should fix the fee so payable.The fee fixed by the court is binding on the arbitral tribunal. (c) Itis desirable that the parties/court should ascertain the feestructure from the prospective arbitrators before an arbitrator isnominated/appointed. (d) In the absence of written agreementor court order fixing the fee of the arbitral tribunal, the arbitraltribunal is entitled to ‘fair and reasonable fee’, which should bedone in transparent manner and in consultation with the parties.This exercise should be undertaken at the initial/preliminarystage. However, lack of consensus, would not bar an arbitraltribunal from fixing ‘fair and reasonable fee’. An aggrieved partywould be entitled to question the fee fixed by the arbitral tribunalin terms of Section 39 of the A&C Act. On challenge beingraised, the court would examine the question of reasonablenessof fee with reference to the factors stated above and in particularwith reference to the Fourth Schedule of the A&C Act. The feestructure mentioned in the Fourth Schedule or by the respectiveHigh Courts would be per se treated and regarded as ‘fair and

672SUPREME COURT REPORTS

Areasonable fee’. (e)Fee once fixed cannot be increased orenhanced except with the consent of all the parties or by an orderof the court. (f) Post the enactment and enforcement of Act No.33 of 2019, and in terms of the first proviso to sub-section (3A)of Section 11 of the A&C Act, the arbitral tribunal is entitled tothe fee at the rate specified in the Fourth Schedule. Consequently,Bthe arbitral tribunal is not entitled to deviate and fix higher fee.Similarly, arbitral institutions, in terms of Section 11(14), are boundto follow the fee structure mentioned in the Fourth Schedule.However, sub-sections (3A) and (14) of Section 11 do not bar orprohibit the ad hoc arbitral tribunal or the arbitral institution toCcharge arbitration fee which is less or lower than what is stipulatedin the Fourth Schedule. Sub-sections (3A) and (14) of Section 11are binding on the parties and the arbitral tribunal. [Para 35][814-G-H; 815-A-H]

4. High cost of arbitration is one of the prime reasons forDthe reluctance of the litigants to accept arbitration as an alternativeto court litigation. Arbitration, as process of justice delivery, issubstitutional in character, would remain unattractive unless it isaffordable and lower cost alternative to litigation. This beingthe objective of the scheme of the provisions of the A&C Act ingeneral, and Sections 2(1)(d), 2(9), 7, 8, 9, 11, 17 and 23, it wouldEbe appropriate to hold that arbitral tribunal, as statutorilyconceived, is to examine and adjudicate all disputes arising fromthe contract and, therefore, the Fourth Schedule mindfully usesthe expression “sum in dispute”. Any contrary interpretationconceiving separate fee for claim and counter-claim, which, it isFapparent, would substantially enhance the cost of arbitration, anddissuade the litigants from resorting to arbitration. The heading“sum in dispute” will mean the aggregate of all the amounts indispute without any bifurcation and separate application of thefee schedule with reference to the amount subject matter of the

claim(s), and the amount subject matter of the counter-claim(s).GThe aforesaid dictum would not apply in cases where there is anumbrella arbitration clause, which applies to different/distinctcontracts, in which case each contract would be treated as aseparate arbitration proceeding viz. the claim, counter-claim andset-off relating to that contract. [Paras 46, 47 and 48][822-A-C,HF-G; 823-A]

5. The model fee mentioned in the third column of theFourth Schedule would be the fee payable to each member of thearbitral tribunal, and in cases where the arbitral tribunal consistsof sole arbitrator, he shall be entitled to an additional amount of25% above the amount specified in the model fee. It is apparentthat this interpretation has been accepted and followed by severalarbitral tribunals since introduction of the Fourth Schedule. Thisinterpretation has gained acceptance. To interpret it differentlywould lead to confusion and chaos which must be avoided, evenif the other interpretation is plausible. However, in view of theabove interpretation, the Fourth Schedule does requiremodification and moderation. For example, where the sum indispute is Rs.5,00,000/-, in case of the sole arbitrator, the amountpayable to him would be Rs.56,250/-, that is, Rs.45,000/- plus25% (Rs.11,250) of Rs.45,000/-.In case of an arbitral tribunal ofthree arbitrators, the fee payable would be Rs.1,50,000/-. Thisfee is too high and would be unacceptable to most of the litigantsas they would be liable to pay minimum arbitration fee of nearly11% in case of sole arbitrator and nearly 30% in case of an arbitraltribunal consisting of three members. [Paras 53 and 54][825-B-E]

National Highways Authority of India v. Gayatri JhansiRoadways Limited (2020) 17 SCC 626 – relied on.

Aphali Pharmaceuticals Ltd.v. State of Maharashtra &Ors. (1989) 4 SCC 378 : [1989] 1 Suppl. SCR 129 –held inapplicable.

Union of India v. Singh Builders Syndicate (2009) 4SCC 523 : [2009] 3 SCR 563; Sanjeev Kumar Jain v.Raghubir Saran Charitable Trust and Others. (2012) 1SCC 455 : [2011] 12 SCR 744; Orissa MiningCorporation Ltd. v. Prannath (1997) 3 SCC 535 –referred to.

K/S Norjarl A/S v. Hyundai Heavy Industries Co. Ltd.(1991) 3 All ER 211- referred to.

Julian D.M. Lew, Loukas A. Mistelis, etal., Comparative International Commercial Arbitration,

A‘Chapter 12 Rights and Duties of Arbitrators andParties’ Russell on Arbitration (24[th] Edition).; RobertMerkin QC, LLD,”Arbitration Law”, Service IssueNo.83, November 2019; Datuk Professor SundraRajoo, Law, Practice and Procedure of ArbitrationB(Second Edition), 2016; Michael Mcilwrath and JohnSavage, International Arbitration and Mediation: APractical Guide, (2010); Russell on Arbitration, 24[th]Edition; International Commercial Arbitration’, 2[nd]Edition, 2914; Julian D.M. Lew, Loukas A. Mistelis,et al., Comparative International CommercialCArbitration, ‘Chapter 12 Rights and Duties ofArbitrators and Parties’; Redfern and Hunter onInternational Arbitration, Oxford University Press, 6[th]Edn., 2015; Russell on Arbitration, 24[th] Edition underthe heading ‘Determination of the recovery of costsDof the arbitration’; Datuk Professor Sundra Rajoo,Law, Practice and Procedure of Arbitration (SecondEdition), 2016. Chapter 24 in the said book refers toGary Born, International Commercial Arbitration;Tackaberry, and Marriott, Bernstein’s Handbook ofArbitration and Dispute Resolution Practice (4[th] Edn.,E2003); Mustill and Boyd, The Law and Practice ofCommercial Arbitration in England, (2[nd] Edn., 1989);Datuk Professor Sundra Rajoo, Law, Practice andProcedure of Arbitration (Second Edition), 2016;‘India’s Grand Advocates: Legal Elite Flourishing inFthe Era of Globalization’, by Marc Galanter and NickRobinson, published by the Harvard Law School, and‘Litigation Expenses: High Cost of Justice’, by UshaRani Das; Earl T. Crawford, The Construction ofStatutes, 3[rd] Edition; J. G. Sutherland, Statutes andGStatutory Construction, 3[rd] Edition, Vol.3, pp. 410-412;Earl T. Crawford, The Construction of Statutes, 3[rd]Edition; Professor Sundra Rajoo, Law, Practice andProcedure of Arbitration (Second Edition), 2016 –referred to.

OIL AND NATURAL GAS CORPORATION LTD. v. AFCONSGUNANUSA JV

Case Law Reference

In the judgment of DR. DHANANJAYA Y CHANDRACHUD, J.

CIVIL ORIGINAL/APPELLATE JURISDICTION: ArbitrationPetition (Civil) No. 05 of 2022.B

Petition Under Section 11(6) read with Section 14 and Section 15of the Arbitration and Conciliation Act, 1996 for Termination of theMandate of the Present Arbitral Tribunal and Appointment of SubstituteArbitral Tribunal.

WithC

SLP (C) No.10358 of 2020, 13426 of 2021, SLP (C) Diary No.8494of 2022, Civil Appeal Nos. 5880, 5879 of 2022 and MiscellaneousApplication Nos.1990-1991 of 2019 in SLP (C) Nos. 10021-10022 of2017.

DTushar Mehta, SG, K.K. Venugopal, AG, Huzefa Ahmadi, Sr. Adv.(A.C.), S.B. Upadhyay, Rajeev Sharma, Dr. Abhishek Manu Singhvi,Anish Dayal, Sr. Advs., Pradhuman Gohil, Ms. Taruna Singh Gohil, Ms.Ranu Purohit, R. Vishnu Kumar, Alapati Sahithya Krishna, Ms. AnushkaShah, Ms. Nooreen Sharma, Rohan Sharma, Ms. Sharukh Alam,Abhishek Gupta, Gunnam Venkateswara Rao, Ms. Ikshita Singh, Ms.EChinmayee Chandra, Kapil Raghav, Dishant Bhati, Tarkeshwar Natha,Nishant Kumar, Harshit Singh, Lalit Mohan, Rameshwar Prasad Goyal,Udit Seth, Anil Seth, C. Kannan, Ravi Shankar, Mayank Kshirsagar,Suyash Gupta, Abhishek Birthray, Sumit R. Sharma, Tanmay Nandi,Somya Budholia, Prateek Seth, Adeem Ahmed, Ms. Sonali Jaitely Bakshi,FJaiyesh Bakhshi, Ms. Rini Badoni, Ms. Sanjana Bakshi, Ms. ManmilanSidhu, Ankit Tyagi, Ms. Radhika Malik, Ms. Sudiksha Saini, Ms. AshimaChauhan, Ms. Anwesha Chaudhary, Gaurav Mishra, Tanmoy Nandi,P.V. Yogeswaran, Manu Seshadri, Aveak Ganguly, Abhijit Lal, Ms. PallaviAnand, Mithu Jain, S.D. Singh, Rahul Kumar Singh, Ms. Meenu Singh,Dhiraj Kumar, Ram Kripal Singh, Ms. Shweta Sinha, Ms. Bharti Tyagi,GSantosh Kumar - I, R. Chandrachud, D. Venkata Krishna, SantoshKumar, K. Parameshwar, Kailas Bajirao Autade, Ms. Sregurupriya, Ms.Sheetal Patil, Advs. for the appearing parties.

# Ed. Note: There are two seperate judgments in the matter. One judgment was deliveredby Hon’ble Dr. Justic D. Y. Chandrachud for himself and for Hon’ble Mr. Justice SuryaHKant. The other judgment was delivered by Hon’ble Mr. Justice Sanjiv Khanna.

OIL AND NATURAL GAS CORPORATION LTD. v. AFCONSGUNANUSA JV

The Judgments[#] of the Court were delivered by

DR. DHANANJAYA Y CHANDRACHUD, J.

This judgment has been divided into sections to facilitate analysis.They are:

AFactual Background....................................................5*A.1Facts of Petition for Arbitration (Civil) No 5 of 2022..5*A.2Facts of Special Leave Petition (Civil) No 13426 of2021..................................................................13*

A.3Facts of Special Leave Petition (Civil) No 10358 of2020.................................................................17*C

A.4Facts of Miscellaneous Application Nos 1990-1991of 2019.............................................................19*BSubmissions of Counsel..............................................20*B.1Submissions on behalf of the petitioners..............21*B.2Submissions on behalf of the respondents.............28*B.3Submissions on behalf of the amicus curiae........31*

CDetermination of arbitrators’ fee...................................38*

C.1Comparative outlook.........................................38*EC.1.1 Position of international organisations.........39*(i)United National Commission on InternationalTrade......................................................39*(ii)Permanent Court of Arbitration..............42*(iii)London Court of International Arbitration...43*F(iv)International Centre for Dispute Resolution..44*(v)International Chamber of Commerce.........44*(vi)Singapore International Arbitration Centre..45*(vii)Hong Kong International Arbitration Centre..45*G(viii) International Centre for Settlement ofInvestment Disputes.................................46*(ix)Summary..............................................46*

* Ed. Note: Pagination is as per the original judgment.

EFee Ceiling in Fourth Schedule..................................119*

E.1Difference between the English and Hinditranslations...................................................121*

E.2Exception to literal interpretation......................124*

E.3Interpretation based on legislative intent............127*

FCeiling applicable to individual arbitrators...................130*

GConclusion.............................................................131*G.1Findings.......................................................131*G.2Directions....................................................133*

Factual Background

A.1 Facts of Petition for Arbitration (Civil) No 5 of 2022

1. On 29 May 2009, the petitioner, Oil and Natural Gas CorporationLimited[1], and the respondent, Afcons Gunanusa JV[2], entered into LumpSum Turnkey Contract[3] for the construction of an ICP-R Platform. TheICP-R Platform is alleged to have been completed on 31 October 2012.

2. Due to ongoing disputes and differences, Afcons invokedarbitration on 20 July 2015, in accordance with Clause 1.3 of the LSTKEContract. Afcons appointed Justice Mukul Mudgal as their arbitrator.

3. The relevant parts of Clause 1.3 of the contract are extractedbelow:

“1.3Laws/Arbitration

1.3.2Arbitration

Except as otherwise provided elsewhere in the contract, if anydispute, difference question or disagreement arises between theparties hereto or their respective representatives or assignees, inconnection with construction, meaning, operation, effect,

1 "ONGC”

2 "Afcons”

3 "LSTK Contract”

* Ed. Note: Pagination is as per the original judgment.

Interpretation of the contract or breach thereof which parties areunable to settle mutually, the same shall be referred to Arbitrationas provided hereunder:

1.3.2.1 party wishing to commence arbitration proceeding shallInvoke Arbitration Clause by giving 60 days notice to the otherparty. The notice Invoking arbitration shall specify all thepoints of disputes with details of the amount claimed to bereferred to arbitration at the time of Invocation of arbitration andnot thereafter. If the claim is in foreign currency, the claimantshall indicate its value in Indian Rupee for the purpose ofconstitution of the arbitral tribunal.

1.3.2.2 The number of the arbitrators and the appointing authoritywill be as under:

1.3.2.3 The parties agree that they shall appoint only thosepersons as arbitrators who accept the conditions of thisarbitration clause. No person shall be appointed as arbitratoror presiding arbitrator who does not accept the conditionsof this arbitration clause.

1.3.2.8 Arbitrators shall be paid fees at the following rates.

For the disputes above Rs. 50 lacs, the Arbitrators shall beentitled to an additional amount @ 20% of the fee payableas per the above fee structure.

1.3.2.9 lf after commencement of Arbitration proceedings, theparties agree to settle the dispute mutually or refer the dispute toconciliation, the arbitrators shall put the proceedings in abeyanceuntil such period as requested by the parties. Where theproceedings are put in abeyance or terminated on account ofmutual settlement of dispute by the parties, the fees payable tothe arbitrators shall be determined as under:

I) 25% of the fees if the claimant has not submitted statement ofclaim.

AII) 50% of the fees if the award is pending.

1.3.2.10 Each party shall pay its share of arbitrator’s fee in stagesas under:

(I) 25% of the fees on filing of reply to the statement of claims.

(II) 25% of the fees on the competition of evidence.

(III) Balance 50% at the time when award is given to the parties.

1.3.2.14 Subject to aforesaid, provisions of the Arbitration andConciliation Act, 1996 and any statutory modifications or re-Cenactment thereof shall apply to the arbitration proceedings underthis clause.”

(emphasis supplied)

4. On 20 August 2015, ONGC responded by appointing JusticeDGyan Sudha Mishra as their arbitrator. The arbitrators appointed JusticeGN Ray as the presiding arbitrator, and the arbitral tribunal wasconstituted.

5. The arbitral tribunal held preliminary meeting on 25 November2015 at which the members of the tribunal indicated their view that theEfee schedule prescribed in the contract seemed unrealistic. While Afconswas agreeable to revision in the fee, ONGC indicated that it may notbe agreeable. The arbitral tribunal directed ONGC to consider are visionof the arbitrators’ fee. In letter dated 28 January 2016 addressed toONGC, the arbitral tribunal noted that the Fourth Schedule to theArbitration and Conciliation Act 1996[4 ]recommends the fee for eachFarbitrator as Rs 30 lakhs, when the amount in dispute exceeds Rs 20crore (in the present case, it was Rs 900 crores).

6. On 16 April 2016, the arbitral tribunal informed ONGC that itwould no longer bargain on the amount if ONGC was agreeable to theschedule provided in the Fourth Schedule to the Arbitration Act, alongGwith reading fee of Rs 6 lakhs for each arbitrator. However, the letterstated that the ceiling of Rs 30 lakhs provided in the Fourth Schedulewas on the ‘lower side’ for an arbitration with disputed amount of Rs900 crores, and should be revised. The letter reads thus:

H4 "Arbitration Act”

“If the appropriate authority of ONGC is inclined to accept theceiling referred to in the schedule of the amendment of Arbitrationand Conciliation Act and offer such remuneration, the Arbitratorsdo not intend to enter into any bargaining. We may only indicatethat remuneration of Rs. 30 Lacs is in the lower side andreasonably deserves upward revision in this case. The arbitratorsalso expect that considering the composition of the arbitral tribunaland huge claim involved (about Rs. 1000 crore) and extraordinarilyvoluminous documents to be taken into consideration it may beonly appropriate that as special case, reasonable reading/ perusalfee to the tune of about 6 lacs for each arbitrator may be considered.Such reading fee is prevalent in similar other cases.”

7. By its letter dated 22 April 2016, ONGC informed the arbitraltribunal that the proposal for the application of the Fourth Schedule ofthe Arbitration Act was under consideration by them but since it did notprovide for reading fee, ONGC could not agree to it.

8. At its second sitting on 4 August 2016, the arbitral tribunal passeda procedural order directing the parties to deposit 25 per cent of thearbitrators’ fee, which was recorded as Rs 30 lakhs. On 22 May 2018,the arbitral tribunal passed another procedural order finalising its fee,stating that it had done so after taking into account the pleadings submittedby the parties, the complexity of the issues involved, high value of theclaim (Rs 679 crores) and counter-claim (Rs 407 crores), and thevoluminous nature of the documents. The tribunal fixed fee of Rs 1.5lakhs for each arbitrator for every sitting of three-hour duration. Thetribunal indicated that it may also charge reading fee or conferencefee (for conferences between the members), which would be indicatedat later stage. The procedural order states as follows:“The first sitting of this arbitration case was held in November,2015. The remuneration of the members of the arbitral tribunalcould not be finally fixed. The claimant had agreed to pay suchremuneration in its share as would be directed by the tribunal. Butthe respondent had requested the tribunal to fix remuneration lateron because appropriate authority was to be considered. Thearbitral tribunal was also not in position to assess the extent ofclaim and counter claim to be raised by the parties and also thecomplexity of the arbitration case at that stage. The respondent’srepresentative, however, had suggested for the ceiling fee at Rs.

30.00 lakhs for each of the Arbitrators as mentioned in the fourthschedule of amended Arbitration and Conciliation Act, 1996. Itwas pointed out by the tribunal that the arbitration case aroseprior to amendment of the Act. Therefore, the ceiling fee referredto in the amended Act was not attracted. It was also pointed outto the respondent’s representative that the Arbitral Tribunal didnot like to assert the remuneration of the members of the tribunaland it would be only appropriate if fair, pragmatic and reasonableremuneration would be fixed at the suggestion of both the partieswho were expected to take pragmatic and realistic approach insuggesting the remuneration of the arbitrators by taking intoconsideration of the amount of claim and counter claim to be madeby the parties, the composition of the arbitral tribunal, thecomplexities of the issues requiring adjudication and number ofsittings likely to take for concluding the arbitration case, insuggesting the remuneration of the arbitrators. However, beforefinally fixing the remuneration to be paid to the arbitrators by theparties, 25% of Rs. 30.00 lakhs were directed to be deposited bythe parties by sharing equally.

After pleadings have been filed by the parties by taking substantiallylong time, presumably, in view of complex technical issues involvedand large number of documents intended to be relied on by theparties, the members of the arbitral tribunal have been able tohave fair idea about the nature and complexities of the issuesfor determination and the time likely to be required for completingthe arbitration case. The arbitral tribunal, therefore, holds thatproper remuneration payable to the members of the arbitral tribunalshould be indicated to the parties for compliance.

It may be indicated here that the claimant has claimed about Rs.INR 6,79,20,52,999/- crores along with 18% interest per annumon the said sum. The respondent has made counter claim ofabout Rs. INR 4,07,12,97,603/- crores and has also claimed interestat 18% per annum on the said sum. Both the parties have informedthe arbitral tribunal that both the parties will examine theirrespective witnesses including expert witnesses. As matter offact, the claimant has filed affidavit of evidence of three expertwitnesses. Similarly, the respondent also intends to examinewitnesses including expert witness. Till date 20 sittings have been

held and examination of first witness of the claimant is estimatedto be completed by holding 26 sittings.

It is, therefore, quite evident that the hearing of this arbitrationcase will take fairly long time. Along with the pleadings, boththe parties have filed volumes of documents in support of theirrespective case. By now the claimant has filed 68 volumes oftheir document. Similarly, the respondent has also filed 24volumes as its document to be relied on. It is not unlikely thatfurther documents may be relied on by the parties in the hearingprocess.

Considering the amounts of claim and counter claim, thevoluminous documents to be taken into consideration and verylong hearing to conclude the arbitration case and the complextechnical issues required to be taken into consideration, the arbitraltribunal has decided that it will be only appropriate, fair andreasonable to fix remuneration of each of the arbitrators at Rs.1.50 lakhs (Rupees one lakh and fifty thousand) per sitting, eachsitting confined to three hours or part thereof. Perusal fee andinterse conference amongst the members of the tribunal, may notbe indicated now. Such fee may be indicated later or after thecase proceeds further thereby enabling the tribunal to assess theextent of exercise called for.”

9. On 22 June 2018, ONGC filed an application before the arbitraltribunal for modifying the procedural order dated 22 May 2018 increasingthe fee. The arbitral tribunal issued procedural order dated 25 July2019rejecting ONGC’s application. The tribunal observed that:

(i)At the first sitting, the tribunal indicated that the fee specifiedin the contract (Rs 12 lakhs per arbitrator) was unrealistic.While Afcons agreed to revision of the fee, ONGC wasnot agreeable. The tribunal granted an opportunity to ONGCto propose ‘reasonable and pragmatic’ fee schedule;

(ii)While awaiting ONGC’s response, the tribunal proposedthe fee schedule in the Fourth Schedule to the ArbitrationAct “as an example” while noting that the ceiling of Rs 30lakhs was also “too low”. Since ONGC seemed agreeable,the tribunal directed the parties to deposit the first trancheof fee based on Rs 30 lakhs in the interim;

A(iii)Since ONGC did not propose revised fee schedule, thetribunal, after considering the complexity of the issuesinvolved, the quantum of the amount in dispute and thevoluminous nature of the documents, fixed its fee by aprocedural order dated 22 May 2018;

B(iv)ONGC has not refuted the reasons provided by the tribunalfor fixing its fee. It has only contested the revision on theground that the fee schedule in the contract was binding.Since ONGC had shown its willingness earlier to acceptthe schedule of fees in the Fourth Schedule, ONGC’ssubmission was rejected; and

(v)The ceiling of Rs 30 lakhs in the Fourth Schedule is notapplicable to the present dispute since it arose before theamendment which added the Schedule.

The tribunal held that the fee was set on the basis of the amountbeing paid in arbitrations of such nature. However, it agreed to reduceDthe fee of each arbitrator to Rs 1 lakh per sitting. It noted that the readingfee was kept open, and would be decided at later stage.

10. By its letter dated 21 August 2020, ONGC informed the arbitraltribunal that the revised fee was not approved by its ‘higher’ management.Thereafter, ONGC filed petition[5] under Section 14 read with SectionE15 of the Arbitration Act before the Bombay High Court for thetermination of the mandate of the arbitral tribunal and the substitution ofa fresh set of arbitrators. By its order dated 7 October 2021, the petitionwas dismissed by the Bombay High Court on the ground of lack ofjurisdiction since the arbitration was an international commercialFarbitration within the meaning of Section 2(f) of the Arbitration Act.However, ONGC was granted liberty to approach this Court and all itscontentions were kept open. ONGC then filed the present arbitrationpetition.

A.2 Facts of Special Leave Petition (Civil) No 13426 of 2021

G11. This appeal arises from final judgement and order dated 6August 2021 of the High Court of Delhi, by which it dismissed the petition[6]filed by the petitioner, NTPC Limited[7].

5 Commercial Arbitration Petition (Lodging) No 9590 of 20206 OMP (T) (COMM) 37 of 2021H7 "NTPC”

12. NTPC and the respondent, Afcons-Shetty and CompanyPrivate Limited-JV[8], entered into contract for the construction of a“desilting arrangement package for Koldam Hydro Electric Power(Package-3) Project”. When disputes arose between the parties, Afcons-Shetty invoked arbitration for claim of about Rs 37 crores. An arbitraltribunal was to be constituted in terms of Clause 67.3 of the contract.Both parties nominated their arbitrators– NTPC nominated Shri KrishnaMohan Singh and Afcons-Shetty nominated Shri Santanu Basu RaiChaudhuri. When the nominated arbitrators failed to appoint presidingarbitrator, Afcons-Shetty approached the Delhi High Court under Section11 of the Arbitration Act[9], which then appointed Justice Manmohan Sarinasthe presiding arbitrator on 21 May 2018 with the consent of parties.

13. The arbitral tribunal held its first sitting on 12 July 2018, whereit decided that the fees payable to the tribunal shall be in terms of theFourth Schedule to the Arbitration Act. The Fourth Schedule wassubsequently amended on 12 November 2018.

14. NTPC filed its counter-claim of approximately Rs 19 crores.By procedural order dated 13 July 2019, the arbitral tribunal fixed aseparate fee for the claim (Rs 28,64,520 per arbitrator) and counter-claim (Rs 19,13,615 per arbitrator), aggregating to total fee of Rs47,78,135 per arbitrator. In support of its position, the tribunal placedreliance upon the proviso to Section 38(1) of the Arbitration Act.

15. On 21 September 2019, NTPC filed an application seeking amodification of the procedural order dated 13 July 2019. By its replydated 18 October 2019, Afcons-Shetty opposed the application. By itsorder dated 8 November 2019, the arbitral tribunal dismissed NTPC’sapplication noting that:

“4. There is merit in Mr. Mukhopadhyay’s submission that claimsand counter claims being independent of each other for whichseparate fee is to be fixed the same cannot be combined for purposeof ceiling. Moreover, it cannot also be lost sight of that the FourthSchedule of the Act can only serve as guiding principle in theabsence any rules being framed by the High Court. In view of theforegoing discussions the order passed by us does not call for anymodifications or review. The application is accordingly dismissed.”

8 "Afcons-Shetty”

9 Arbitration Petition No 375 of 2018

A16. On15 October 2020, NTPC sought modification of thetribunal’s orders dated 13 July 2019 and 8 November 2019, so that thefee fixed in terms of the Fourth Schedule should include the fee payablefor NTPC’s counter-claim. By its reply dated 30 October 2020, Afcons-Shetty opposed the application.B17. By its order dated 14 January 2021, the tribunal rejectedNTPC’s position that the claim and counter-claim have to be cumulatedto arrive at the “sum in dispute” for the purposes of the Fourth Schedule.The tribunal held that:

(i)Section 31(8) of the Arbitration Act allows tribunal toCprovide for the costs of arbitration. The regime for costs isprovided under Section 31A. The explanation to Section31A(1) provides that costs include those relating to the feesand expenses of the arbitrators;

(ii)The proviso to Section 38(1) stipulates that separate costsDare to be fixed for claims and counter-claims. The positionunder proviso to Rule 3 of the DIAC (Administrative Cost& Arbitrators’ Fees) Rules 2018[10] is also similar; and

(iii)Nothing in the Fourth Schedule or the DIAC Rules imposesa restriction on separate costs (and thus fees) being fixedEfor claims and counter-claims by the tribunal.

18. Subsequently, by its order dated 19 March 2021, the tribunalheld that in case NTPC does not comply with its directions contained inthe order dated 14 January 2021 for payment of Rs 2 lakhs per arbitrator,the tribunal would consider whether NTPC’s counter-claim should beFsuspended.

19. NTPC filed petition under Sections 9 and 14 read with Section31(8) before the Delhi High Court, seeking direction that the tribunalcharge combined fee under the Fourth Schedule for adjudicating boththe claim and the counter-claim or, in the alternate, for the termination ofthe mandate of the tribunal. The petition was opposed by Afcons-Shetty.G

20. By judgment dated 6 August 2021, Single Judge of theDelhi High Court dismissed NTPC’s petition. The Single Judge held thatthe proviso to Section 38(1), Section 31(8) and Section 31A are

inextricably linked and on combined reading, tribunal would have thepower to fix separate fee for claims and counter-claims. The SingleJudge of the Delhi High Court held thus:

“43. …the scheme of 1996 Act is such that the provisions ofSection 38(1), 31(8) and 31A are inextricably interlinked. Theseprovisions cannot be read in isolation. The proviso to Section 38(1)clearly states that, where there are claims and counter-claimsbefore the arbitral tribunal, the Arbitral Tribunal may fix separateamount of deposits for the claim and counter-claim. Section 38(1)clarifies that the “amount of deposit” is to be directed “as anadvance for the costs referred to in sub-section (8) of Section31”. Sub-section (8) of Section 31 requires the Arbitral Tribunalto fix the costs of arbitration in accordance with Section 31A.The explanation to Section 31A(1) clearly states that, for thepurposes of Section 31A(1) the expression “costs” meansreasonable costs relating to, inter alia, “the fees and expenses ofthe arbitrators”.

48. The position becomes clear when we view the proviso toSection 38(1), Section 31(8) and the Explanation to Section 31A(1)in juxtaposition. Section 31(8) mandates that the arbitral tribunalfix the costs of arbitration, in accordance with Section 31A. Clause(i) of the Explanation to Section 31A(1) specifically includes thefees and expenses of the arbitrators as an integral part of the“costs”. Clearly, therefore, the arbitrator has to fix the fees payableto the arbitral tribunal, with, needless to say, consent of parties.Section 38(1) provides for advance, for such “costs” fixed, byway of “deposit”. The expressions “deposit”, “costs” and “fees”are, therefore, intertwined by statute, and, as the interpreterthereof, the Court can hardly extricate them from each other.The proviso to Section 38(1) provides that, where the arbitraltribunal is seized of claims and counter-claims, it may fix separateamount of deposit for each. No doubt, the use of the word “may”does involve an element of discretion; but, if the arbitral tribunaldoes fix separate fees for the claims and counter-claims, it cannotbe held that it has acted irregularly, or contrary to the statutorymandate.”

ABCD

AA.3 Facts of Special Leave Petition (Civil) No 10358 of 2020

21. The appeal arises from final judgement and order dated 10July 2020 by which the High Court of Delhi dismissed the petition[11] filedby the petitioner, Rail Vikas Nigam Limited[12].

22. On 28 December 2010, RVNL awarded contract for the“construction of viaduct and related works for length of 4.748 kms inthe Joka-BBD Bag Corridor of Kolkata Metro Railway Line” to therespondent, Simpex Infrastructures Limited[13]. Disputes having arisenbetween the parties, Simpex invoked arbitration by its letter dated 26December 2017.

23. The parties could not agree upon the appointment of arbitrators.While Simpex nominated its arbitrator, RVNL contended that Simpexhad to nominate its arbitrator from panel of five names recommendedby RVNL. Since RVNL refused to nominate their arbitrator, Simpexapproached the Delhi High Court under Section 11 of the ArbitrationDAct[14]. The High Court, by its order dated 11 December 2018,nominatedan arbitrator on behalf of RVNL and ordered that “the Arbitrator[s]shall be paid fee as per Fourth Schedule to the [Arbitration] Act”. RVNL’sspecial leave petition[15] against the order of the Delhi High Court wasdismissed by this Court on 12 April 2019.

E24. Meantime, the arbitrators nominated by the parties appointeda presiding arbitrator. The arbitral tribunalheld its preliminary sitting on15 January 2019, where it recorded that its fee shall be in accordancewith the Fourth Schedule to the Arbitration Act. Byits order dated 9January 2020, the arbitral tribunal recorded that, in accordance withFourth Schedule, the fee of each arbitrator would be Rs 49,87,500.F

25. RVNL then filed an application on 27 February 2020 for therecall of the tribunal’s order dated 9 January 2020 on the ground that theceiling on fees for each arbitrator under the Fourth Schedule is Rs30,00,000.

26. By its order dated 3 March 2020, the arbitral tribunal rejectedGRVNL’s application. It noted that that the limitation of Rs 30,00,000 in

11 OMP (T) (COMM) 38 of 202012 "RVNL”13 "Simpex”14 ARB P 519 of 2018H15 SLP

the entry at Serial No 6 of the Fourth Schedule does not encompass theentirefee, comprising of the base component of Rs 19,87,500 and thevariable component (0.5 per cent of the claim amount above Rs 20 crores)but was only limited to the variable component. Hence, the ceiling onfee according to the tribunal, is Rs 49,87,500, and not Rs 30,00,000.

27. RVNL then filed petition under Section 14 of the ArbitrationAct before the Delhi High Court, praying for the termination of themandate of the arbitral tribunal.

28. By judgment dated 10 July 2020, Single Judge of the DelhiHigh Court rejected RVNL’s petition. The Single Judge heldthat theceiling of Rs 30,00,000 isapplicable only to the variable component ofthe entry at Serial No 6 of the Fourth Schedule. It has been held that theuse the disjunctive, namely, ‘plus’ between the fixed base componentand the variable component indicates that the ceiling of Rs 30,00,000applies only to the latter. According to the judgment, such an interpretationarises not only from the English version of the Arbitration Act, but alsoits Hindi version. Finally, the courtheld that while this interpretation wasbased on the text of the entry at Serial No 6 of the Fourth Schedule, it isalso supported by the 246[th] Report of the Law Commission (whichrecommended the changes to the Fourth Schedule) and the DIAC RulesModel Fee (on the basis of which the Schedule Four was crafted).

A.4 Facts of Miscellaneous Application Nos 1990-1991 of2019

29. The miscellaneous application has been filed by the respondent,RVNL, in relation to an order dated 16 January 2018 ofa two-JudgeBench of this Court in the main SLP. By its order dated 16 January2018, this Court appointed Justice Vikramjit Sen as the sole arbitratorwith the consent of the parties, to decide their disputes. The order of thisCourt recognised that “[t]he learned Arbitrator is at liberty to fix hisremuneration”.

30. By procedural order dated 24 February 2018, the solearbitrator, with the consent of the parties, decided that arbitral fee shallbe payable in accordance with the Fourth Schedule to the ArbitrationAct. On 25 March 2019, the sole arbitrator raised separate invoices forthe payment of fee for claims and counter-claims.

31. RVNL filed an application on 18 May 2019 raising an objectionto the sole arbitrator raising separate invoices for payment of fee for

Aclaims and counterclaims. By an email dated 20 May 2019, the petitionerHCIL-Adhikarya-Arss (JV)[16], agreed to RVNL’s application and for itto be allowed.

32. The sole arbitrator dismissed RVNL’s application on 20 May2019, holding that in terms of the proviso to Section 38(1) of the ArbitrationBAct and Order VIII Rule 6A of the Civil Procedure Code 1908[17], claimsand counter-claims haveto be treated separately. Further, the solearbitrator noted that since he had been appointed by this Court in anadhoc arbitration with liberty to fix hisown fee, separate fee could becharged for the claim (Rs 325,89,48,831) and counter-claim (Rs21,59,56,092).C

33. RVNL has filed miscellaneous application before this Court,seeking determination of whether fee can be charged separately bythe arbitral tribunal for the claim and counter-claim and whether thetribunal was justified in doing so after fixing its fee in terms of the Fourthschedule.D

Submissions of Counsel

34. We have heard Mr KK Venugopal the learned AttorneyGeneral, and Mr Tushar Mehta, learned Solicitor General, on behalf ofthe petitioners. Dr Abhishek Manu Singhvi led the arguments on behalfEof the respondents. Mr Manu Sheshadri and Mr K. Parmeshwaraddressed the court for the intervenors. Mr Huzefa Ahmadi, has renderedobjective assistance to this Court as amicus curiae.

B.1 Submissions on behalf of the petitioners

F35. On behalf of the various public sector undertakings that haveinstituted proceedings before this Court, the following submissions havebeen made by the Attorney General and the Solicitor General:

(i)The arbitration clause of contract is binding on the partiesand the arbitrators. Once the fee payable to the arbitratorsGhas been specified in the agreement between the parties,the arbitrators must either accept their appointment on theterms agreed in the contract between the parties or refusethe arbitration if they are not agreeable to accept the

assignment on the fee which has been fixed by parties intheir agreement. In NHAI v. Gayatri Jhansi RoadwaysLtd.[18], this Court has held that the fee fixed in the agreementis binding. In Russellon Arbitration[19] (24[th] Edition) it hasbeen noted that the appointment of arbitrators is matterof contract subject to the mandatory provisions of thegoverning law. Arbitrators cannot increase their fees andexpenses unless their agreement with the parties entitlesthem to do so. Gary Born in his treatise titled InternationalCommercial Arbitration[20] has observed that arbitrators, inprinciple, should not be permitted to unilaterally determinetheir own fee in the absence of any agreement betweenthe parties since that violates the principle that one cannotbe the judge of their own cause;

(ii)If either one party or both parties are not willing to pay thefees desired by the arbitrators or if the arbitrators deviatefrom the fees stipulated under the agreement, the mandateDof the arbitral tribunal would have to be terminated in itsentirety;

(iii)Section 11(14) of the Arbitration Act provides that the “HighCourt may frame such rules [for determination of fees] asmay be necessary, after taking into consideration the ratespecified in the Fourth Schedule”. Therefore, the FourthSchedule should serve as template or guide for the HighCourts in fixing fees for the arbitrators;

(iv)Sub-Section (3A) of Section 11, inserted by the Arbitrationand Conciliation (Amendment) Act 2019[21], also stipulatesthat the arbitrator appointed by party shall be entitled tothe fees at the rates specified in the Fourth Schedule;

(v)Conflicting views have emerged from the High Courts asregards the nature of the Fourth Schedule to the ArbitrationAct. Typically, it is considered suggestive in cases where

18 (2020) 17 SCC 626 (“Gayatri Jhansi Roadways Ltd”)

19 David St John Sutton, Judith Gill and Matthew Gearing, Russell on Arbitration (24thedition, 2015) (“Russell on Arbitration”)

20 Gary Born, International Commercial Arbitration (2nd edition, 2014)

21 "Arbitration Amendment Act 2019"

694SUPREME COURT REPORTS

Aarbitrators are appointed by parties and mandatory whenarbitrators are appointed by the court;

(vi)The entry at Serial No 6 of the Fourth Schedule to theArbitration Act provides cap on the fees payable to thearbitral tribunal. There is an apparent mismatch betweenBthe English and Hindi versions, since comma which ispresent in the Hindi version is absent in the English version,before the phrase “with ceiling of Rs 30,00,000”. Thecomma disjoins the phrase “with ceiling of Rs.30,00,000”from the words preceding the comma, “Rs. 19,87,500 plus0.5 % of the claim amount over and above Rs. 20 Cr.” TheCuse of the comma in the Hindi version suggests that theceiling is applicable to the entire clause. Thus, the total feespayable to the arbitrators cannot exceed Rs 30,00,000;

(vii)The omission of the comma in the English version is anDinadvertent grammatical mistake. Commas have crucialrole to play in interpretation and due regard must be givento it when multiple interpretations are possible;

(viii) If the comma is not given its due effect, the upper limit onthe fees can be interpreted to mean Rs 49,87,500 [19,87,500E+ 30,00,000]. Such an interpretation would be contrary tothe legislative intent of making arbitration cost-effective andeconomical;

(ix)The Fourth Schedule is based on the Delhi InternationalArbitration Centre[22 ]fees’ schedule which contains commaFlike the Hindi version, which disjoints the applicable feesand establishes ceiling of Rs 30,00,000 towards arbitrators’fees. This ceiling applies to the aggregate amount of theclaim and counter-claim;

(x)Section 2(9) of the Arbitration Act provides that whereverGPart - I of the Arbitration Act refers to claim, it shall beapplicable to counter-claim and where it refers to defence,it shall include reference to the defence of counter-claim;

H22 "DIAC”

(xi)The legislative intent behind using the phrase “sum indispute” in the Fourth Schedule of the Arbitration Act wasto refer to the cumulative sum of the claim and counter-claim. If the legislative intent was to charge separate feesfor both the claim and counter-claim, it would have beenexplicitly stated;

(xii)The plain English meaning of the term “sum” meansaggregate and of the term “dispute” means the totality ofall the claims and counter-claims. The term “sum” or“dispute” cannot be bifurcated through legal interpretationto refer to claims and counter-claims as separate concepts;

(xiii) The rules of various institutions in India and abroad thatconduct arbitration proceedings also fortify the position thatthe “sum in dispute” includes the claim and counter-claim;

(xiv) In Union of India v. Singh Builders[23]and SanjeevKumar Jain v. RS Charitable Trust[24], this Court observedthat arbitrators are charging exorbitant fees, without anyceilings. The Law Commission of India in its 246[th] Report[25]identified the above mischief and recommended theintroduction of the Fourth Schedule to address this issue;

(xv)It is evident from the LCI 246[th] Report (supra) that theFourth Schedule was introduced to make arbitration cost-effective solution for dispute resolution domestically byproviding some mechanism to rationalise the fee structurefor arbitration. The Law Commission stated that the modelschedule of fees recommended by it is based on the fee setby DIAC. The fee schedule set by DIAC specificallyprovides that the “sum in dispute” includes the counter-claimmade by any party. Thus, the interpretation that the “sum indispute” includes the counter-claim would be in tandem withthe legislative intent and the object that was sought to beachieved with the introduction of the Fourth Schedule;

23 (2009) 4 SCC 523 (“Singh Builders”)

24 (2012) 1 SCC 455

25 Law Commission of India, ‘Amendments to the Arbitration and Conciliation Act1996’ (246[th] Report, August 2014) available at <https://lawcommissionofindia.nic.in/reports/report246.pdf> accessed on 29 June 2022 (“LCI 246[th] Report”)

A(xvi) The proviso to Section 38(1) of the Arbitration Act, providingfor separate “deposit” for claim and counter-claim as anadvance for the costs referred to in Section 31(8), cannotbe construed to include arbitrators’ fees because that wouldnegate the requirement of the Fourth Schedule framed eitherunder Section 11(14) or Section 11(3A) of the ArbitrationBAct, as the case may be. This can be harmoniouslyreconciled by excluding “fees” from the ambit of “costs”;

(xvii) Fees and costs are completely distinct. Fees are return orconsideration for professional services rendered, wherethere is an element of quid pro quo. Fees can be fixed byCagreement between the parties in an ad hoc arbitration orby rules in an institutional arbitration. On the other hand,costs are expenses incurred in the facilitation of thearbitration, which include expenses for the venue ofarbitration, transportations costs and secretarial expenses;

(xviii) Section 31(8) of the Arbitration Act states that the cost ofarbitration is fixed by the arbitral tribunal in accordancewith Section 31A. There is no involvement of partyautonomy in the determination of costs, unlike the conceptof fees which is based on party autonomy;

E(xix) Sub-Sections (3) and (4) of Section 31A of the ArbitrationAct enumerate the circumstances which may be taken intoaccount by the arbitral tribunal to determine costs. None ofthese circumstances make any references to arbitrators’fees but refer to expenses incurred in the process ofFfacilitating the arbitration proceedings;

(xx)In Gayatri Jhansi Roadways Ltd (supra), this Court heldthat while arbitrators’ fees may be component of costs tobe paid but it is far cry to state that Section 31(8) and 31Awould directly govern contracts in which the fee structureGhas already been laid down. Section 31(8) read with Section31A deals with costs generally but not with arbitrator(s)fees;

(xxi) The Explanation to Section 31A(1) of the Arbitration Actstates for the purpose of this sub-Section, “costs” meansreasonable costs relating to the “fees” and expenses of theH

arbitrator. The Explanation takes away the effect of thelegislative intent enshrined in Sections 11(14) read with theFourth Schedule and Section 38(1) of the Arbitration Act. InDattatraya Govind Mahajan v. State of Maharashtra[26],this Court has held that the intention of the legislature isparamount;

(xxii) Further, the Explanation to Section 31A(1) which providesthat costs include the “fees and expenses of arbitrators,Courts and witnesses” has to be read in conjunction withSection 31A(1)(a) which provides that the arbitral tribunalhas the discretion to determine “whether costs are payableby one party to another”. The implication of the above isthat when costs are awarded to the successful party, itwould recoup the entirety of the amount that has been spenton arbitration, including fees and expenses of the arbitrators,court and witnesses as compensation for the arbitrationwhich has failed against it. This does not refer to newdetermination of fees by the arbitrators; they are only entitledto what the agreement states. It would be extraordinary tostate that the arbitrators can stipulate new fee at the finalstage of determining costs under Section 31A;

(xxiii) The Fourth Schedule uses the phrase “sum in dispute” andthere is no mention of this phrase in the Arbitration Act. Onthe other hand, Section 38 pertains to deposits and that tooat preliminary stage as an advance for costs as referredto in Section 31(8). These provisions cannot be used tointerpret the term “sum in dispute”. If the language of theenacting part is ambiguous, then the Schedule should bereferred to for understanding the intent of the legislature.Thus, the Fourth Schedule would supersede the provisionsof Section 38 on the basis of which, it can be concludedthat arbitral fee refers to cumulative amount of claim andcounter-claim;

(xxiv) The Fourth Schedule was introduced by the Arbitration andConciliation (Amendment) Act 2015[27]. The legislature was

26 (1977) 2 SCC 54

27 "Arbitration Amendment Act 2015"

Aaware of the terminology used in Section 38(1) and couldhave used the terms “costs” or “deposits” but yet it stillchose to use the term “sum in dispute”; and

(xxv) Public sector undertakings, unlike private companies, cannotafford the high fees that are charged by the arbitrators. ABfailure to pay the hefty fees being charged by arbitratorscould lead to situation where the arbitral tribunal forms abias against such public sector undertakings.

B.2 Submissions on behalf of the respondents

36. On behalf of the respondents, the following submissions haveCbeen urged by Dr Abhishek Manu Singhvi, Senior Counsel:

(i)If the parties have prescribed fee schedule and the arbitraltribunal agrees to be bound by it unconditionally, withoutany caveat, then the agreed schedule would apply. However,there is nothing in the Arbitration Act to indicate what is toDbe done in circumstance where the parties are unable toagree to fee schedule. The question then arises if thearbitral tribunal can fix its own fees;

(ii)The issue of fee fixation is dealt with as part of “costs”under Section 31(8) (prior to the Arbitration AmendmentEAct 2015) or Section 31(8) read with Section 31A (afterthe Arbitration Amendment Act 2015);

(iii)Sections 31(8) and 31A are part of Chapter VI titled“Making of Arbitral Award and Termination ofProceedings”, which implies that the issue of fees remainsFopen to determination till the award is made. similarpractice is followed under the English Arbitration Act 1996,UNICITRAL Rules and International Chamber ofCommerce Rules. Therefore, if there is no agreementbetween the parties regarding the fees of the arbitratorsand the arbitration has proceeded, the arbitral tribunal wouldGbe entitled to its right to remuneration, which is crystallizedas part of “reasonable costs” as provided under theExplanation to Section 31A(1);

(iv)It has been suggested that this Court may provide guidelineswhere three case management hearings can be conducted

at the initial stage of arbitration leading to the fixation of thefee of the arbitrators, which shall not be changed exceptunder extraordinary circumstances;

(v)Arbitrator(s) may demand an increase in fees if there is anundue delay in the completion of the arbitration proceedings;

(vi)The right to remuneration of the arbitrator(s) is secured byempowering the arbitral tribunal to fix an amount of depositor supplementary deposit in advance under Section 38(1)of the Arbitration Act, which is part of final accountingupon the termination of arbitral proceedings under Section38(3). The enforcement of this right is ensured byempowering the arbitral tribunal to exercise lien on theaward under Section 39(1);

(vii)Section 39(1) of the Arbitration Act permits party toapproach the court to resolve the issue of costs (includingfees) as the court “may consider reasonable”. The arbitraltribunal’s right to fix reasonable costs (including its finaldetermination of fee) is judicially reviewable under Section39 read with Section 31A of the Arbitration Act;

(viii) Section 31(8) of the Arbitration Act provides that the costsof arbitration shall be fixed in terms of Section 31A of theAct. The Explanation to Section 31A(1) provides that“costs” shall mean reasonable costs relating to the feesand expenses of arbitrators;

(ix)The proviso to Section 38(1) of the Arbitration Act in clearand unambiguous terms provides that separate amountmay be fixed for deposit towards the claim and the counter-claim, if any counter-claim is preferred apart from the claim;

(x)The fees of arbitrators are an integral part of the costs tobe fixed by the arbitral tribunal under Section 31(8) towardsdeposits, for which the arbitral tribunal is empowered to fixseparate amounts for claims and counter-claims;

(xi)The phrase “sum in dispute” mentioned in the FourthSchedule has to be interpreted in the above context;

(xii)Any reliance on the inconsistency between the Hindi andEnglish versions of the Arbitration Act with respect to the

entry at Serial 6 of the table in the Fourth Schedule is in theteeth of Article 348(1)(b)(ii) of the Constitution, whichprovides that the Act passed by Parliament in the Englishlanguage shall be the authoritative text. Further, Article348(1) begins with non-obstante clause which has anoverriding effect over other provisions;

(xiii) If the legislature wanted to indicate that the maximum capon fees payable to an arbitrator is Rs 30,00,000, it wouldhave simply stated so. There was no need to provide in theentry at Serial 6 that the fixed amount of Rs 19,87,500% +0.5% of the claim amount over and above Rs 20,00,00,000Cwith ceiling of Rs 30,00,000 would be the upper ceiling;

(xiv) Counter-claims arise from distinct dispute, separate fromthe dispute pertaining to the claim and mostly in regard toan independent cause of action. Even if the main suit fails,a counter-claim may survive and continue. Thus, separateDcourt fee (where suit is filed in court) is required to bepaid on the amount of counter-claim. counter-claim isdifferent from set-off, which arises from the same disputeand can be claimed as an adjustment in the main suit, withoutrequiring the payment of court fees;

(xv)The Arbitration Act refers to claims and counter- claimsdistinctly in various provisions such as Section 2 (9), Section23 (2A), Section 31A and Section 38;

(xvi) Section 2(9) of the Arbitration Act, which states anyreference to claim in Part-I also applies to counter-Fclaim, has to be read in tandem with the proviso to Section38(1), Section 31A and Section 31(8); and

(xvii) Bias is not an appropriate ground to challenge the increasein fees of arbitrators.

B.3 Submissions on behalf of the amicus curiaeG

37. Mr Huzefa Ahmadi, learned Senior Counsel, assisting this Courtas amicus curiae made the following submissions:

(i)Party autonomy is the overarching principle of arbitrationand is crystallised in Section 2(6) of the Arbitration Act. ItHallows parties to determine the relevant law and procedure

that will govern the arbitration and limits court intervention.The principle of party autonomy extends to parties’ freedomto decide the fees payable to the arbitrator(s);

(ii)Prior to the amendment of the Arbitration Act in 2015, theissue of arbitrators’ fees would have been subject ofagreement between the parties and the arbitrators.BHowever, this Court in Singh Builders (supra) noted thatthe arbitrators have been unilaterally, arbitrarily anddisproportionately fixing their fees. This observation wasmade in the context of court-appointed arbitrators wherethis Court was concerned with the fact that parties wereCbeing sent for arbitration by courts and were being forcedto pay the fees fixed by such arbitrators. This Court notedthat institutional arbitration has already remedied thisproblem since the arbitral institution fixes the fees and notthe arbitrators in terms of the rules of the institution;

(iii)In the above backdrop, the Law Commission recognisedthat the issue of arbitrator fees in ad hoc arbitration mustbe resolved by the introduction of mechanism to rationalisethe fee structure. model schedule of fees, the FourthSchedule, was added to the Arbitration Act through theArbitration Amendment Act 2015, which was to serve as aguide for High Courts to frame rules governing the fixationof fees payable to the arbitrators. This model schedule offees was based on the schedule of fees developed by DIACand was suitably revised;

(iv)The Fourth Schedule is to be read along with provisions forappointment of arbitrators under Section11. It does not applyto international commercial arbitration and is not applicablewhen the parties have agreed to the fees in terms of therules of an arbitral institution;

(v)The High Courts have been slow in framing rules for thedetermination of fees payable to arbitrator(s);

(vi)Some High Courts have been of the view that the FourthSchedule is merely suggestive and not mandatory, whileothers have held that it is mandatory. Thus, there is anuncertainty regarding the nature of the Fourth Schedule. In

AGayatri Jhansi Roadways Ltd (supra), this Court heldthat if the fee schedule is fixed by the parties in anagreement, they would not be bound by the Fourth Schedule.Pursuant to this decision, many High Courts have proceededto hold that the Fourth Schedule is only applicable to court-appointed arbitrators if stated expressly or if the partiesBand arbitrators have agreed to its applicability;

(vii)Section 11 has been further amended by the ArbitrationAmendment Act 2019. Sub-Section (14) of Section 11 nowreads that “[t]he arbitral institution shall determine the feesof the arbitral tribunal and the manner of its payment to theCarbitral tribunal subject to the rates specified in the FourthSchedule”. The amended Section 11 has not been broughtinto force and is subject to two exceptions. Crucially, oncethe amendment comes into force, the fee of the arbitraltribunal would be fixed by the arbitral institution appointingDthe arbitrator. This Court’s interpretation regarding the natureof the Fourth Schedule would also have an impact on theamended Section 11 when it is brought into force;

(viii) To determine if the term “sum in dispute” refers to both theclaim and counter-claim, it has to be considered whether aEcounter claim can be treated as an independent claim forwhich legal proceeding may be instituted. Section 23 ofthe Arbitration Act provides the basis on which counter-claim is to be adjudicated. Section 23 does not stipulate thatthe counter-claim must be linked or related to the claim;rather it only states that the counter-claim must come withinFthe scope of the arbitration agreement;

(ix)The independent nature of the counter-claim is recognisedunder Sections 38(1) and 38(2) of the Arbitration Act in thefollowing terms, where the arbitral tribunal is empoweredto:

(a)Determine separate amount of deposits on claim andcounter-claim; and

(b)Suspend or terminate the proceedings in respect of the claimor counter-claim, in the event, the deposit directed to bepaid by the tribunal is not paid by the parties;H

(x)Claims and counter-claims are treated separately under theanalogous provisions of Order VIII of the CPC;

(xi)Proceedings relating to counter-claim can survive even ifthe proceedings relating to claim are terminated;

(xii)Section 2(9) only provides that provisions of the ArbitrationBAct relating to claim would mutatis mutandis apply to acounter-claim. It is not definition clause but it is intendedto apply to only procedural aspects. In fact, it fortifies theargument that the “claim amount” under the Fourth Schedulewould mutatis mutandis apply to counter-claims and is notan aggregate of claims and counter-claims;C

(xiii) An arbitral tribunal is not restrained from deciding its feesunder the Fourth Schedule for claims and counter-claimsseparately;

(xiv) The Fourth Schedule does not explicitly state that the “sumin dispute” includes counter-claim;

(xv)Until the amendment to Section 11 is notified, the courtappointing arbitrators should ensure that the parties aremade aware of the terms on which the appointment is madeand specifically whether or not the Fourth Schedule isapplicable. The court should also ensure that the partieshave clarity on the fees and expenses payable to thearbitrator(s);

(xvi) This Court may recommend that either prior to or at thetime of notifying the amendments to Section 11, the ratesspecified in the Fourth Schedule may be revised to reflectthe rates that are realistic in present times;

(xvii) None of the provisions of the Arbitration Act entitle thearbitrators to fix their own fees. The scheme of the Actindicates that the arbitral tribunal is only empowered toapportion costs (including the arbitrators’ fee) incurred duringthe arbitration as between the parties at the time of passingthe award;

(xviii) Remuneration of arbitrators is subject to direct negotiationand agreement between the arbitrators and the parties andought to be determined at the inception of the proceedings.

The fee that has been agreed upon between the partiesand the arbitrators is apportioned as part of the costs atthe time when the award is passed. This view is supportedby the decision of this Court in Gayatri Jhansi RoadwaysLtd (supra), where it was observed that “…it is true thatthe arbitrator’s fees may be component of costs to bepaid but it is far cry thereafter to state that section 31(8)and 31A would directly govern contracts in which feestructure has already been laid down”;

(xix) Section 39 of the Arbitration Act also empowers the arbitraltribunal to only hold the award from the parties for anyCunpaid costs of arbitration. These unpaid costs could includearbitrators’ fees previously agreed upon between the partiesand not paid;

(xx)Any deviation from the fees agreed between the partiesand the arbitrator(s) would require the consent of the parties.DIt would be unreasonable and unfair to the parties if thearbitral tribunal is allowed to alter its fees at later stage ofthe arbitration proceedings. At an advanced stage, partiesmay be apprehensive to disagree with the arbitral tribunaland may agree to an unreasonable and arbitrary fee soughtEby it;

(xxi) The fee payable under the Fourth Schedule would beapplicable to each member of the arbitral tribunal. It cannotbe considered as lump sum to be split among the members.The Note to the Fourth Schedule provides that where theFtribunal consists of sole arbitrator, they would be entitledto 25 per cent over and above the fee payable under theFourth Schedule. It would be absurd if the sole arbitratorwould be entitled to 25 per cent over and above thestipulated sum under the Fourth Schedule but in the case ofan arbitral tribunal consisting of three or more members,Gthe entire fee would have to split;

(xxii) Under Section 10 of the Arbitration Act, parties are free todetermine the number of arbitrators. If there is no agreement,then the default rule is of appointing sole arbitrator. Partiescan always appoint sole arbitrator, but if there are unwillingHto derogate from the agreement which provides for

appointment of three or more arbitrators, then they wouldhave to bear the costs accordingly;

(xxiii) The ceiling of Rs 30,00,000 in the Fourth Schedule is onlyapplicable to the sum of 0.5% of the claim amount overand above Rs 20 crores. The expression “+” that appearsafter Rs 19,87,500 is disjunctive; and

(xxiv) The Fourth Schedule was introduced in English while theHindi version was the translation. Thus, precedence mustbe given to the English version. comma is not conclusivefor determining the meaning of statutory provision.

38. Mr Ahmadi also urged the court to issue certain directives forgoverning ad hoc arbitrations in India. These are reproduced below:

“1. In cases where the arbitrator(s) are appointed by parties inthe manner set out in the arbitration agreement, upon constitutionof the arbitral tribunal, the parties and the arbitral tribunal shallhold preliminary hearing amongst themselves to finalise the termsof reference (the “Terms of Reference”) of the arbitral tribunal.The arbitral tribunal must set out the components of its fee in theTerms of Reference which would serve as tripartite agreementbetween the parties and the arbitral tribunal. Once the Terms ofReference have been finalised and issued, it would not be openfor the arbitral tribunal to vary either the fee fixed or the headsunder which the fee may be charged.

2. The parties and the arbitral tribunal may make carve out inthe Terms of Reference that the fee fixed therein may be analysedupon completion of pleadings. The parties and the arbitral tribunalmay hold another meeting to ascertain the number of sittings thatmay be required for the final adjudication of the dispute whichnumber may then be incorporated the Terms of Reference as anadditional term.

3. In cases where the arbitrator(s) are appointed by the Court,the order of the Court should ideally expressly stipulate the feethat arbitral tribunal would be entitled to charge. However, wherethe Court leaves this determination to the arbitral tribunal in itsappointment order, the arbitral tribunal and the parties should agreeupon the Terms of Reference as specified in the manner set outin draft practice direction (1) above.

A4. There can be no unilateral deviation from the Terms ofReference. The Terms of Reference being tripartite agreementbetween the parties and the arbitral tribunal, any amendments,revisions, additions or modifications may only be made to it withthe consent of the parties.

B5. All High Courts shall frame the rules for arbitrator fee for thepurposes of Section 11(14) of the Arbitration and Conciliation Act,1996.”

39. On the basis of these submissions, this Court has now beencalled to determine the following issues in relation to the arbitrators’fees:C

(i)Whether the arbitrator(s) are entitled to unilaterallydetermine their own fees;

(ii)Whether the term “sum in dispute” in the Fourth Scheduleto the Arbitration Act means the cumulative total of theDamounts of the claim and counter-claim;

(iii)Whether the ceiling of Rs 30,00,000 in the entry at SerialNo 6 of the Fourth Schedule of the Arbitration Act isapplicable only to the variable amount of the fee or theentire fee amount; and

E(iv)Whether the ceiling of Rs 30,00,000 applies as cumulativefee payable to the arbitral tribunal or it represents the feepayable to each arbitrator.

Determination of arbitrators’ fee

C.1 Comparative outlookF

40. The issue whether the remuneration of arbitrators has to bedecided by the parties or by the arbitrator(s) on their own has not beenexhaustively addressed in India. People and businesses across the worldhave increasingly become interconnected with the advent of globalisation.Hence, it will be useful to look at the practices adopted by internationalGorganisations and in national jurisdictions on the determination ofarbitrators’ fees. We must at the outset distinguish between arbitrationsadministered by institutions and ad hoc arbitrations. Typically, when anarbitration is conducted under the aegis of an arbitral institution, the feespayable to the arbitrators is fixed by the institution, sometimesindependently or in consultation with the sole or presiding arbitrator. TheH

parties are not involved in negotiations with the arbitrator(s) to decidethe fees. However, in ad hoc arbitrations, parties enter into their ownarrangements with the arbitrators regarding their remuneration[28].

C.1.1 Position of international organisations

(i) United National Commission on International Trade[29]

41. The UNCITRAL adopted model law on InternationalCommercial Arbitration on 21 June 1985. It was hoped that states wouldgive due consideration to the model law while framing their own domesticlegislation. The Arbitration Act has also been enacted taking into accountthe UNCITRAL Model Law. The Preamble to the Act states:

“WHEREAS the United Nations Commission on InternationalTrade Law (UNCITRAL) has adopted the UNCITRAL ModelLaw on International commercial Arbitration in 1985:

AND WHEREAS the General Assembly of the United Nationshas recommended that all countries give due consideration to thesaid Model Law, in view of the desirability of uniformity of thelaw of arbitral procedures and the specific needs of internationalcommercial arbitration practice;

AND WHEREAS the UNCITRAL has adopted the UNCITRALConciliation Rules in 1980;

AND WHEREAS the General Assembly of the United Nationshas recommended the use of the said Rules in cases where adispute arises in the context of international commercial relationsand the parties seek an amicable settlement of that dispute byrecourse to conciliation;

AND WHEREAS the said Model Law and Rules make significantcontribution to the establishment of unified legal framework forthe fair and efficient settlement of disputes arising in internationalcommercial relations;

AND WHEREAS it is expedient to make law respectingarbitration and conciliation, taking into account the aforesaid ModelLaw and Rules;

28 Nigel Blackaby, Constantine Partasides, Alan Redfern and Martin Hunter, Redfernand Hunter on International Arbitration (6th Edition, 2015), Chapter 4, Paragraph4.203 (“Redfern and Hunter on International Arbitration”)29 “UNCITRAL”

ABE it enacted by Parliament in the forty-seventh Year of theRepublic of India as follows:-”

42. The UNCITRAL Model Law does not explicitly recognisethe right of remuneration of arbitrator(s). However, arbitrators must becompensated for their services. This flows from the contractualBrelationship between the parties and the arbitrator and customarypractice[30].

43. The original UNCITRAL Rules introduced in 1976 could beused to govern ad hoc arbitrations as well as arbitrations where anarbitral institution was involved. The 1976 Rules allowed the arbitrator(s)Cto determine their own fees, which were to be reasonable taking intoaccount the sum in dispute and the complexity of the dispute[31]. TheUNCITRAL rules also required the arbitrator(s) to take into accountthe schedule of fees that has been issued or provided by an appointingauthority, if designated by the parties[32]. In the absence of such feeschedule, the arbitral tribunal could fix its fees only after consulting withDthe appointing authority if party has requested the appointing authorityto furnish statement for determining the fees and the appointingauthority has consented to providing such statement[33]. However, theappointing authority did not have the power to alter the decision of thetribunal regarding remuneration payable to arbitrators. The arbitratorsEhad the final authority to determine their remuneration[34]. Commentatorshave noted that this was an “unusual approach” for establishing the feesof arbitrators and was subject to criticism because it granted arbitrator(s)undue authority to determine their compensation[35].

44. The UNCITRAL Rules were revised in 2010. The RulesFcontinue to grant substantial role to the arbitrators in deciding theirown fees but the appointing authorities, if designated by the parties, orthe Permanent Court of Arbitration[36], have greater control over such

30 Gary Born, International Commercial Arbitration (3nd edition, 2021), Chapter 13(“GaryBorn on Arbitration”)G31 Article 38(a) read with Article 39(1), UNCITRAL Rules 1976

32 Article 39(2)-(3), UNCITRAL Rules 1976

33 Article 39(3)-(4), UNCITRAL Rules 1976

34 Caron and L Caplan, The UNCITRAL Arbitration Rules: Commentary (2ndedition, 2013), page 863

35 Supra at note 3036 “PCA”H

determination. Article 40(2)(a) read with Article 41 of the UNCITRALRules 2010 empowers the arbitral tribunal to fix their fees subject tothe same reasonableness requirement and the other criteria prescribedunder the 1976 Rules[37]. The arbitral tribunal is required to inform theparties as to “how it proposes to determine its fees and expenses,including any rates it intends to apply” promptly after its constitution[38].It is noted that this makes the process of determining fees moretransparent[39]. The fees set by the arbitrators can be reviewed theyare not reasonable. Under Articles 41(3)[40] and 41(4)(b)[41] of theUNCITRAL Rules 2010, within 15 days of receiving the arbitraltribunal’s determination of fees, the parties can refer the feesdetermined by the arbitral tribunal to the appointing authority for reviewand if no such authority has been designated, then the review will beundertaken by the Secretary-General of the PCA. If the Secretary-General of the PCA or the appointing authority (if designated) findsthat the fee proposed to be charged is excessive, then it can makenecessary adjustments in terms of Article 41(4)(c)[42]. The fees so revisedare binding on the tribunal[43].

37 Article 41(1) reads: “The fees and expenses of the arbitrators shall be reasonable inamount, taking into account the amount in dispute, the complexity of the subjectmatter, the time spent by the arbitrators and any other relevant circumstances of thecase.”

38 Article 41(3), UNCITRAL Rules 2010

39 Supra at note 34

40 Article 41(3) reads: “Within 15 days of receiving that proposal, any party may referthe proposal to the appointing authority for review. If, within 45 days of receipt ofsuch referral, the appointing authority finds that the proposal of the arbitral tribunalis inconsistent with paragraph 1, it shall make any necessary adjustments thereto,which shall be binding upon the arbitral tribunal.”

41 Article 41(4)(b) reads: “Within 15 days of receiving the arbitral tribunal’s determinationof fees and expenses, any party may refer for review such determination to the appointingauthority. If no appointing authority has been agreed upon or designated, or if theappointing authority fails to act within the time specified in these Rules, then thereview shall be made by the Secretary-General of the PCA;”

42 Article 41(4)(c) reads: “If the appointing authority or the Secretary-General of thePCA finds that the arbitral tribunal’s determination is inconsistent with the arbitraltribunal’s proposal (and any adjustment thereto) under paragraph 3 or is otherwisemanifestly excessive, it shall, within 45 days of receiving such referral, make anyadjustments to the arbitral tribunal’s determination that are necessary to satisfy thecriteria in paragraph 1. Any such adjustments shall be binding upon the arbitral tribunal;”

43 Articles 41(3), UNCITRAL Rules 2010

710SUPREME COURT REPORTS

[2022] 10 S.C.R.

A(ii) Permanent Court of Arbitration

45. The PCA Rules have been formulated on the basis of theUNCITRAL Rules 2010. mandatory automatic review of the feesand expenses determined by the arbitral tribunal is carried out by SecretaryGeneral of the PCA (as the appointing authority under the PCA Rules)Bat the conclusion of each case[44]. The process of review of fees set bythe arbitral tribunal is not automatic under the UNCITRAL Rules 2010.Parties may hesitate to invoke the provisions of review in the fear ofupsetting the tribunal or they may raise unjustified requests for review ifthey are dissatisfied with the award. The PCA Rules avoid these pitfalls.The PCA is also empowered to manage the advances of costs incurredCby the arbitrators. Every time payment is made to an arbitrator out ofthe deposit, it is subject to review[45]. The PCA rules become relevantsince India has signed Host Country Agreement with the PCA and aPCA facility is in the process of being set up in India.

(iii) London Court of International Arbitration[46]D

46. The LCIA’s Schedule of Costs of arbitrations governs thefees payable to the arbitrator(s). The arbitral tribunal is required to agreein writing to the rates specified in the schedule. The tribunal’s fees arecalculated on the basis of the work done by the arbitrator(s) in connectionwith the arbitration, the complexity of the case and requirements relatingEto the qualification of the arbitrator(s). The fees are charged on an hourlybasis not exceeding £500 unless there are exceptional circumstances[47].The role of the arbitrator(s) thus is limited to reporting the hours workedwhich forms the basis of the fees to be paid.F(iv) International Centre for Dispute Resolution[48]

47. The ICDR case administrator fixes the daily or hourly rate forarbitrator(s)[49].The determination of fees may involve an element of

44 Article 41(3)(a), PCA Rules 2010G45 Article 43 of the PCA Rules reads: “[t]he [PCA] shall ensure that any disbursementsof arbitral tribunal fees and expenses made prior to the fixing of the costs of arbitrationpursuant to article 40 are consistent with the criteria in article 41, paragraph 1 and withthe arbitral tribunal’s proposal (and any adjustments thereto)…”46 “LCIA”

47 Schedule of Arbitration Fees and Costs, LCIA Rules 202048 “ICDR”H49 Article 38(2), ICDR Rules 2021

negotiation between the parties and the arbitrator(s)[50]. Article 38 of theICDR Rules 2021 provides that the “[t]he fees and expenses of thearbitrators shall be reasonable in amount, taking into account the timespent by the arbitrators, the size and complexity of the case, and anyother relevant circumstances”.

(v) International Chamber of Commerce[51]

48. The ICC Rules 2021 stipulate that the ICC Court willdetermine the arbitrators’ fee[52] according to the fee scale based on thesum in dispute, or where the sum is not stated, based on its discretion[53].The ICC Court while setting the fees of the arbitrator(s) has to considervarious factors like “the diligence and efficiency of the arbitrator, thetime spent, the rapidity of the proceedings, the complexity of the disputeand the timeliness of the submission of the draft award”[54]. The ICCCourt is empowered to increase the fees if the arbitration has beenconducted expeditiously and reduce the fees if there has been delay inpronouncing the award[55].

(vi) Singapore International Arbitration Centre[56]

49. The fees are fixed by the Registrar in accordance with theSchedule of Fees on basis of the amount in dispute[57]. The time spent on

50 Article 38(2) of ICDR Rules 2021 provides: “As soon as practicable after thecommencement of the arbitration, the Administrator shall designate an appropriatedaily or hourly rate of compensation in consultation with the parties and all arbitrators,taking into account the arbitrators’ stated rate of compensation and the size andcomplexity of the case”.

51 “ICC”

52 Article 38(1) of the ICC Rules 2021 provides: “The costs of the arbitration shallinclude the fees and expenses of the arbitrators and the ICC administrative expensesfixed by the Court, in accordance with the scale in force at the time of the commencementof the arbitration, as well as the fees and expenses of any experts appointed by thearbitral tribunal and the reasonable legal and other costs incurred by the parties for thearbitration.” Article 38(2) provides: “The Court may fix the fees of the arbitrators at afigure higher or lower than that which would result from the application of the relevantscale should this be deemed necessary due to the exceptional circumstances of thecase”.

53 Articles 2(1),Appendix III (Arbitration Costs and Fees), ICC Rules 2021

54 Article 2(2), Appendix III (Arbitration Costs and Fees), ICC Rules 2021

55 Paragraphs 118-22, Note to Parties and Arbitral Tribunals on the Conduct of theArbitration Under the ICC Rules of Arbitration (2019)56 “SIAC”

57 Rule 36(1) of SIAC Rules 2016 provides: The fees of the Tribunal shall be fixed bythe Registrar in accordance with the applicable Schedule of Fees or, if applicable, with

Athe matter and the complexity of the dispute are considered for thedetermination of fees[58].The parties have the discretion to provide analternative method of determining the fees prior to the constitution of thearbitral tribunal[59].

(vii) Hong Kong International Arbitration Centre[60]B

50. The parties determine the arbitrators’ fees based on either thesum in dispute or at an hourly rate[61]. If the fees are decided based onthe sum in dispute, then the fees will be fixed on the basis of the guidelinesand fee table provided in the Rules. If the fees are to be determined atChourly rates, then aco-arbitrator will negotiate and agree on their feeswith the nominating party, and sole or presiding arbitrator will negotiatewith parties jointly[62].

Dthe method agreed by the parties pursuant to Rule 34.1, and the stage of the proceedingsat which the arbitration concluded. In exceptional circumstances, the Registrar maydetermine that an additional fee over that prescribed in the applicable Schedule of Feesshall be paid”.

58 Supra at note 30

59 Rule 34(1) of SIAC Rules 2016provides: “The Tribunal’s fees and SIAC’s fees shallbe ascertained in accordance with the Schedule of Fees in force at the time ofEcommencement of the arbitration. The parties may agree to alternative methods ofdetermining the Tribunal’s fees prior to the constitution of the Tribunal”.60 “HKIAC”

61 Article 10.1 of HKIAC Rules 2018provides: “The fees and expenses of the arbitraltribunal shall be determined according to either:

(a) an hourly rate in accordance with Schedule 2; or

(b) the schedule of fees based on the sum in dispute in accordance with Schedule 3.FThe parties shall agree the method for determining the fees and expenses of the arbitraltribunal, and shall inform HKIAC of the applicable method within 30 days of the dateon which the Respondent receives the Notice of Arbitration. If the parties fail to agreeon the applicable method, the arbitral tribunal’s fees and expenses shall be determinedin accordance with Schedule 2".

62 Article 10.2 of HKIAC Rules 2018 provides: “Where the fees of the arbitral tribunalare to be determined in accordance with Schedule 2,G(a) the applicable rate for each co-arbitrator shall be the rate agreed between that co-arbitrator and the designating party;

(b) the applicable rate for sole or presiding arbitrator designated by the parties or theco-arbitrators, as applicable, shall be the rate agreed between that arbitrator and theparties,subject to paragraphs 9.3 to 9.5 of Schedule 2. Where the rate of an arbitrator isnot agreed in accordance with Article 10.2(a) or (b), or where HKIAC appoints anHarbitrator, HKIAC shall determine the rate of that arbitrator”.

(viii) International Centre for Settlement of InvestmentDisputes[63]

51. The Secretary General, with the approval of the Chair(Chairman of the Administrative Council), would determine and publishthe fee and per diem allowance payable to each arbitrator(s) in terms ofthe Regulation 14 of the ICSID Administrative and Financial Regulations2022[64]. The older 2006 version of the Regulations allowed the parties tocontract out of the fee structure prescribed by ICSID[65].

(ix) Summary

52. Typically, when an arbitration is conducted under the auspicesof an arbitral institution, the fees payable to the arbitrator(s)are fixed bythe institution itself. However, some arbitral institutions like ICDR, SIACand HKIAC allow certain level of negotiations between the partiesand arbitrator(s) for the determination of fees payable to the arbitrators,upholding the principle of party autonomy. ICDR allows determinationof compensation by the Administrator in consultation with the arbitrator(s)and the parties. SIAC allows the parties to propose an alternative methodof calculating fees prior to the constitution of the tribunal. HKIAC enablesthe parties to choose between remuneration based on the sum in disputeor hourly rates. Interestingly, UNCITRAL Rules 2013 allow greatercontrol to the arbitrator(s) in determining their fees. However, thedesignated appointing authority or the Secretary General of the PCAcan make adjustments to the fees proposed by the arbitrator(s). Thus,none of the international bodies (including arbitral institutions) confer anabsolute or unilateral power to the arbitrator(s) to decide their own fees.Gary Born in his treatise on international commercial arbitration hasnoted that, “[a] number of other institutional rules also minimize the role

63 “ICSID”

64 Regulation 14 (2) states: “The Secretary-General, with the approval of the Chair,shall determine and publish the amount of the fee and the per diem allowance referredto in paragraph (1)(a) and (c). Any request by member for higher amount shall bemade in writing through the Secretary-General, and not directly to the parties. Such arequest must be made before the constitution of the Commission, Tribunal or Committeeand shall justify the increase requested”.

65 Regulation 14 states: “(1) Unless otherwise agreed pursuant to Article 60(2) of theConvention, and in addition to receiving reimbursement for any direct expensesreasonably incurred, each member of Commission, Tribunal or an ad hoc Committeeappointed from the Panel of Arbitrators pursuant to Article 52(3) of the Convention(hereinafter referred to as “Committee”) shall receive…”

Aof arbitrators in fixing the tribunal’s fees. These rules typically fix theamount of the arbitrator’s fees by reference to the amount in dispute”[66].

C.1.2Position in other national jurisdictions

53. While it will not be possible to undertake comprehensivereview of all the foreign jurisdictions in respect of the legal regimeBgoverning the payment of remuneration to arbitrators, we have discusseda few jurisdictions that either have explicitly recognised an arbitrators’entitlement to remuneration and/or have dealt with the issue of arbitrators’power of fixing their own remuneration.

(i) EnglandC

54. The English courts have held that the arbitrator’s rights andduties result from conjunction of contract and status[67]. Upon acceptingthe appointment, the arbitrator becomes party to the arbitrationagreement, giving rise to trilateral contract between the parties andthe arbitrator[68]. However, the English courts acknowledge that certainDaspects of the relationship between the arbitrator and parties are alsoinfluenced by the quasi-judicial status of the arbitrator, which requiresthe arbitrator to be independent of the parties[69].

55. Section 28 of the English Arbitration Act 1996[70] recognisesthe entitlement of an arbitrator to remuneration. This is mandatoryEprovision which cannot be derogated from[71]. Section 28(1) codifies thecommon law position[72] that parties are jointly and severally liable to payreasonable fees and expenses to the arbitrator(s) as is appropriate in thecircumstances. In terms of Section 28(5), the arbitrator(s) are entitled tobe paid the fees and expenses agreed by them with the parties[73].FHowever, if there is no such agreement, the arbitral tribunal can seek

66 Supra at note 30

67 KS Norjarl AS v. Hyundai Heavy Indus. Co., [1992] 1 QB 863, 88468 Compagnie Européenne de Céréales SA v. Tradax Exp. SA, [1986] 2 Lloyd’sRep. 301 (QB)

69 Jivraj v. Hashwani, [2011] UKSC 40

70 “English Arbitration Act”

71 Section 4(1) and Schedule 1 of the English Arbitration Act

72 Loukas Mistelis (ed), Concise International Arbitration (2nd edition, 2015), Chapter

23 (“Mistelis on Arbitration”)

73 Section 28(5) provides: “Nothing in this section affects any liability of party to any

other party to pay all or any of the costs of the arbitration (see sections 59 to 65) orHany contractual right of an arbitrator to payment of his fees and expenses.”

payment of such fees and expenses from one, some or all the parties[74].The parties’ liability to pay fees and expenses may be determined bycourts. The court may consider factors like the standard fees of thearbitrator(s), the time invested, complexity of the dispute, and whetherthe procedures adopted by the tribunal were suitable[75].Section 33(1)(b)stipulates that it is the duty of the arbitral tribunal to adopt proceduresthat are suitable to the circumstances of the case and to avoid unnecessarydelays or expenses, to provide fair means for the resolution of thedispute. The court is also entitled to review the fees[76] determined by thearbitrator(s) or arbitral institution, which has not been contractually agreedto by the parties[77]. However, if the agreement with an arbitrator(s) or anarbitral institution is not clear regarding the terms of the payment, thecourt can intervene to review the fees, in order to examine if they arereasonable[78]. It is also important to note that where only one party hasagreed to the fees and the fees have been held to be unreasonable, thenthe other party is only jointly and severally liable to pay the amount thatthe court has determined to be reasonable, but the first party may beliable contractually to pay the contractually agreed amount[79].

(ii) Italy

56. Article 814 of the Italian Code of Civil Procedure providesthat the arbitrators have right to expenses and the fees for the workdone, unless they have waived this right at the time of acceptance orthrough subsequent written statement. Article 814 also provides thatthe parties are jointly and severally liable for paying the fees and expensesof the arbitral proceedings, irrespective of how the arbitration costs areapportioned between them. If one party has made all the payments ofthe fees and expenses payable to the arbitrator(s), they are entitled torecover this amount from the other party subject to the limits set out inthe award.

74 Supra at note 72

75 ibid

76 Section 28(2) provides: “Any party may apply to the court (upon notice to the otherparties and to the arbitrators) which may order that the amount of the arbitrators’ feesand expenses shall be considered and adjusted by such means and upon such terms asit may direct.”

77 Hussmann (Europe) Ltd v.Al Ameen Development & Trade, [2000] 2 Lloyd’sRep. 83. Queen’s Bench Division (Commercial Court)), paragraphs 71-7278 ibid

79 Supra at note 72

A57. Article 814 also recognises that arbitrator(s) determine theirown fees in the award and allocate the responsibility of the payment ofsuch fees. However, such determination is not binding unless the partiesapprove the fees proposed by the arbitrator(s). If the fees have not beenpaid, the arbitrator(s) can approach the President of the court in thedistrict where the arbitration is seated for the determination of the fees.BThis order is enforceable against the parties[80]. The schedule of fees isprovided in the Ministerial Decree issued by the Italian Ministry of Justicefor domestic ad hoc arbitrations[81].

(iii) Sweden

C58. The arbitral tribunal is empowered to set its own fees unlessthere is an agreement between the parties[82]. Section 37(1) of the SwedishArbitration Act[83 ]provides that the parties are jointly and severally liableto pay reasonable compensation to the arbitrator(s) for work andexpenses. The Swedish Supreme Court has interpreted the words“reasonable compensation” to mean an assessment of time spent by theDarbitrator(s) and the qualification of the arbitrator(s)[84]. The SwedishSupreme Court has also noted that disproportionately high cost ofarbitration compared to the value of sum in dispute does not necessarilyrequire reduction in the compensation[85].

59. Section 37 of the Swedish Arbitration Act is applicable “unlessEotherwise jointly decided by the parties in manner that is binding uponthe arbitrators”. Commentators have thus noted that Section 37 is non-

80 CMS Expert Guides, “International Arbitration Law and Rules in Italy”, available at<https://cms.law/en/int/expert-guides/cms-expert-guide-to-international-arbitration/italy> accessed on 29 June 2022; See also, Italian Code of Civil Procedure, available atF<https://www.international-arbitration-attorney.com/wp-content/uploads/2013/07/Italy-Arbitration-Law.pdf> accessed on 29 June 202281 Cecilia Carrara, Stefano Parlatore, Daniele Geronzi et.al, Arbitration Procedures andPractice in Italy, available at <https://uk.practicallaw.thomsonreuters.com/6-383-9187?transitionType=Default&contextData=(sc.Default)&firstPage=true#co_anchor_a719112>accessed on 29 June 2022

82Annette Magnusson, Jakob Ragnwaldh and Martin Wallin (eds), InternationalGArbitration in Sweden: Practitioner’s Guide (2[nd] edition, 2021), Chapter 983 The Swedish Arbitration Act (SFS 1999:116), available at <https://sccinstitute.se/media/1773096/the-swedish-arbitration-act_1march2019_eng-2.pdf> accessed on 29June 2022

84Supra at note 82

85 NEMU Mitt i Sverige AB v. Jan H, Gunnar and Bo N (the arbitrators), theHSupreme Court, 22 October 1998, NJA 1998 p. 574 (T 105-98)

mandatory and can be altered or waived off by the parties[86]. However,it is understood that if the arbitrator(s) are not parties to an agreementwith respect to their compensation, it becomes binding on the arbitrator(s)only if they are aware and understand the agreement when they acceptthe appointment[87]. Section 39 of the Swedish Arbitration Act furtherprovides that an agreement regarding compensation to the arbitrator(s)which is not entered jointly by the parties is void.

60. Section 41 enables party or an arbitrator to file an applicationbefore the District Court regarding the amendment of the award withrespect to the payment of compensation to the arbitrator(s). The DistrictCourt is empowered to reduce the compensation of the arbitrator(s).The national courts also have the power to revise the fees set by arbitralinstitutions, if the seat of the arbitration is in Sweden[88]. This is an unusualexception since typically rules of arbitral institutions setting the fees arenever subject to judicial review[89].

(iv) Germany

61. The German arbitration law is governed by the Tenth Book ofthe Code of Civil Procedure (Zivilprozessordnung)[90]. In the absence ofan agreement in ad hoc arbitrations, the ZPO does not contain anyprovision regulating the fees payable to arbitrator(s). Fees are then to becharged in terms of the rules of the German Civil Code (BürgerlichesGesetzbuch)[91] depending on whether the contract between the partiesis to be classified as service contract or contract for work. Theprovisions of the BGB provide that remuneration for such contracts isdeemed to be the fees of the arbitrator(s) in absence of an agreementbetween the parties[92].

62. However, in Germany, the arbitrator(s) are prohibited fromdetermining their own fees in the absence of an agreement under the

86 Supra at note 82

87 ibid

88 Soyak Int’l Constr. & Inv. Inc. v. Hobér, Kraus & Melis, Case No. O 4227-06(Swedish S.Ct. 2008)

89 Supra at note 30

90 “ZPO”

91 “BGB”

92 K. Bockstiegel, Stefan Kröll and Patricia Nacimiento (eds), Arbitration in Germany:The Model Law in Practice (2[nd] edition, 2015), Chapter VI

Adoctrine of prohibition ofin rem suam decisions, i.e., arbitrators cannotbe judge of their own cause[93]. Earlier, even decision regarding thesum in dispute by the arbitral tribunal was seen as indirectly determiningthe amount of fees when fees are calculated as percentage of theamount at stake and thus, was considered to be violation of the abovedoctrine[94]. However, recently, the Federal Court of JusticeB(Bundesgerichtshof)[95] held that decision of the tribunal regarding thesum in dispute, even if it influences the fees payable to the arbitrator(s),does not violate the doctrine of prohibition ofin rem suam decisions[96].The BGH observed that since the ZPO obligates the arbitral tribunal torender determination on costs, which often includes determinationCregarding the sum in dispute, such determination, even if it indirectlyincludes decision on the fees, would not become decision in remsuam[97]. The BGH further noted that while determination of the sum indispute only binds the parties, it is not actually decision in rem suamfrom the arbitrators’ perspective[98]. In any event, an indirect determinationby the arbitrator(s) as to their own fees only forms the basis of anDarbitrator’s claim against party and can be enforced only through courtaction if the party fails to pay the amount. In terms of the BGB, thecourts can review such claim to decide if it’s equitable. Thus, thearbitrator(s) cannot determine their fees arbitrarily[99].

E(v) Japan

63. Under Article 47(1) of the Japanese Arbitration Law[100], thefees payable to the arbitrator(s)are to be governed by the agreementbetween the parties. If there is no agreement, then in terms of Article47(2), the arbitral tribunal has the power to determine the remunerationFof the arbitrator(s). In such cases, the remuneration has to be of anappropriate amount.

93 ibid

94 ibid

95 “BGH”

96 BGH 28.03.2012, SchiedsVZ 2012, 154 cited in supraat note 30;Seealso, supra at

note 92

97 ibid

98 ibid

99 ibid

100 Law No138 of 2003, available at <https://japan.kantei.go.jp/policy/sihou/Harbitrationlaw.pdf> accessed on 29 June 2022

(vi) Singapore

64. Section 40(1) of the Arbitration Act 2001[101] provides that theparties are jointly and severally liable to pay reasonable fees and expensesto the arbitrator(s) that are appropriate to the circumstances. Section40(2) provides that in the absence of written agreement between theparties as to the fees payable to the arbitrator(s), any party can approachthe Registrar of the Supreme Court within the meaning of the SupremeCourt of Judicature Act 1969 for the assessment of fees. While Section41(1) of the Singapore Arbitration Act empowers the arbitral tribunal torefuse to deliver an award if the parties have not made full payment oftheir fees and expenses, Section 41(2) allows party to apply to thecourt to review the fees[102]. This has been understood as the right of theparties to challenge unreasonable fees[103].

(vii) United States

65. The United States Federal Arbitration Act 1925[104] does notexplicitly make reference to the rights or duties of the arbitrator(s).The Uniform Arbitration Act, enacted in 1955, is also of relevance. Itfunctions as model arbitration statute to enable each state to adopt auniform arbitration law. It was revised in 2000. Section 21(d) of therevised version of the Act provides that “an arbitrator’s expenses andfees, together with other expenses, must be paid as provided in the award.”The comment to this Section under the Act provides that “Section 21(d)…allows arbitrators, unless the agreement provides to the contrary, to

101 Available at <https://sso.agc.gov.sg/Act/AA2001#:~:text=1.,is%20the%20Arbitration%20Act%202001.&text=the%20arbitral%20tribunal%20as% 20authorised,and%20all%20the%20relevant%20circumstances>accessed on 29 June 2022(“Singapore Arbitration Act”)

102 Section 41(2) reads: “(2) Where subsection (1) applies, party to the arbitralproceedings may, upon notice to the other parties and the arbitral tribunal, apply to theCourt, which may order that —

(a) the arbitral tribunal must deliver the award upon payment into Court by the applicantof the fees and expenses demanded, or any lesser amount that the Court may specify;(b) the amount of the fees and expenses demanded are to be assessed by the Registrarof the Supreme Court; and

(c) out of the money paid into Court, the arbitral tribunal must be paid the fees andexpenses that may be found to be properly payable and the balance of the money (ifany) must be paid out to the applicant”.

103 Bernard Hanotiau and Alexis Mourre (eds), Players Interaction in InternationalArbitration (ICC, 2012), Chapter 12104 "FAA”

Adetermine in the award payment of expenses, including the arbitrator’sexpenses and fees”[105]. In the United States, it has been held that it is aviolation of public policy if the arbitrator(s) attempt to renegotiate thefees at later stage once they are appointed, owing to the concern thatthe parties may be compelled to accede to the demand fearing adverseconsequences[106].B

(viii) Summary

66. Although there are jurisdictional differences, the followingbroad principles emerge from our discussion above:

(i)Typically, the fees payable to arbitrator(s) are determinedthrough an agreement between the parties (of which thearbitrator(s) become aware of when they take up theassignment) or separate agreement of the parties withthe arbitrator(s). The arbitrator(s) then become bound bysuch contractually agreed fees; and

(ii)Certain arbitration legislations give the arbitrator(s) effectivepower to determine their own fees, typically when there isan absence of agreement between the parties on the subject.However, such determination of fees is subject to reviewEby the courts who can reduce the fees if they are notreasonable.

67. Thus, arbitrator(s) do not possess an absolute or unilateralpower to determine their own fees. Parties are involved in determiningthe fees of the arbitrator(s) in some form. It could be by: (i) determiningFthe fees at the threshold in the arbitration agreement; or (ii) negotiatingwith the arbitrators when the dispute arises regarding the fees that arepayable; or (iii) by challenging the fees determined by the tribunal beforea court.

G105 Uniform Arbitration Act (Last Revisions Completed Year 2000), available at <https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=8fff228f-9517-f310-36a1-989efa4a826e&forceDialog=0> accessedon 29 June 2022

106 Double-M Construction Corp. v. Central School District No 1 Town ofHighlands Orange County, (1978) 402 NYS 2d 442 cited in Jeffrey Waincymer,Procedure and Evidence in International Arbitration (Walters Kluwer, 2012)H

C.2 Statutory scheme on payment of fees to arbitrators inIndia

C.2.1 Party autonomy

68. Party autonomy is cardinal principle of arbitration. Thearbitration agreement constitutes the foundation of the arbitral process.The arbitral tribunal is required to conduct the arbitration according tothe procedure agreed by the parties. The procedure may stipulateadherence to institutional rules or ad hoc rules or combination of both.Redfern and Hunteron International Commercial Arbitration(supra) compares arbitration to ship, highlighting the extent of controlparties exercise over arbitral proceedings:

“In some respects, an international arbitration is like ship. Anarbitration may be said to be ‘owned’ by the parties, just as shipis owned by shipowners. But the ship is under the day-to-daycommand of the captain, to whom the owners hand control. Theowners may dismiss the captain if they wish and hire replacement,but there will always be someone on board who is in command(5) —and, behind the captain, there will always be someone withultimate control.”

The leading treatise on international commercial arbitration furthernotes that the principle of party autonomy is entrenched in the internationaland national regimes on arbitration:

“Party autonomy is the guiding principle in determining theprocedure to be followed in an international arbitration. It is aprinciple that is endorsed not only in national laws, but also byinternational arbitral institutions worldwide, as well as byinternational instruments such as the New York Convention andthe Model Law. The legislative history of the Model Law showsthat the principle was adopted without opposition, (7) and Article19(1) of the Model Law itself provides that: ‘Subject to theprovisions of this Law, the parties are free to agree on the procedureto be followed by the arbitral tribunal in conducting theproceedings.’ This principle follows Article 2 of the 1923 GenevaProtocol, which provides that ‘[t]he arbitral procedure, includingthe constitution of the arbitral tribunal, shall be governed by thewill of the parties …’, and Article V(1)(d) of the New YorkConvention, under which recognition and enforcement of foreign

Aarbitral award may be refused if ‘the arbitral procedure was notin accordance with the agreement of the parties’.”

69. The Arbitration Act recognises the principle of party autonomyin various provisions. It allows the parties to derogate from theprovisions of the Act on certain matters. Several provisions of theBArbitration Act explicitly embody the principle of party autonomy.Section 2(6)[107] of the Arbitration Act provides that parties have thefreedom to authorise any person, including an arbitral institution, todetermine the issue between them. Section 19(2)[108] provides that theparties are free to choose the procedure to be followed for the conductof arbitral proceedings. Section 11(2)[109] provides that parties are freeCto decide on the procedure for the appointment of arbitrators. In Bharat

Aluminium Co. v. Kaiser Aluminium Technical Services[110], thisCourt observed that party autonomy is the “brooding and guiding spirit”of arbitration. In Centrotrade Minerals & Metal Inc. v. HindustanCopper Ltd[111], this Court referred to party autonomy as the backboneDof arbitration.

70. Having spelt out party autonomy as the cardinal principle ofarbitration in India, in the sections which follow we analyse how provisionsrelating to the payment of fees to arbitrators have to be interpreted inlight of this principle.

EC.2.2 Fourth Schedule and regulation of arbitrators’ fees

71. Appointment of arbitrator(s) in India may take place eitherthrough an agreement between parties or by taking recourse to courtsunder Sections 11(3) and 11(6) of the Arbitration Act. Prior to theamendment of the Arbitration Act by the Arbitration Amendment ActF2015, practice emerged, especially in cases of ad hoc arbitrations,where arbitrators would unilaterally, and in some cases arbitrarily, fix

107 Section 2 (6) of the Arbitration Act states: “Where this Part, except section 28,leaves the parties free to determine certain issue, that freedom shall include the rightof the parties to authorise any person including an institution, to determine that issue”.G108 Section 19(2) of the Arbitration Act states: “Subject to this Part, the parties are freeto agree on the procedure to be followed by the arbitral tribunal in conducting itsproceedings”.

109 Section 11(2) of the Arbitration Act states: “Subject to sub-section (6), the partiesare free to agree on procedure for appointing the arbitrator or arbitrators”.110 (2016) 4 SCC 126, paragraph 5

111 (2017) 2 SCC 228, paragraph 38H

excessive fees for themselves. In Singh Builders (supra), this Courtnoted that such arbitrary fixation of fees by the arbitrators, specificallycourt-appointed arbitrators, has made arbitration an expensive proposition,bringing it into disrepute. The Court suggested some possible solutions.This Court observed:

“22. When an arbitrator is appointed by court without indicatingfees, either both parties or at least one party is at disadvantage.Firstly, the parties feel constrained to agree to whatever fees issuggested by the arbitrator, even if it is high or beyond theircapacity. Secondly, if high fee is claimed by the arbitrator andone party agrees to pay such fee, the other party, which is unableto afford such fee or reluctant to pay such high fee, is put to anembarrassing position. He will not be in position to express hisreservation or objection to the high fee, owing to an apprehensionthat refusal by him to agree for the fee suggested by the arbitrator,may prejudice his case or create bias in favour of the otherparty which readily agreed to pay the high fee.

23. It is necessary to find an urgent solution for this problem tosave arbitration from the arbitration cost. Institutional arbitrationhas provided solution as the arbitrators’ fees is not fixed bythe arbitrators themselves on case-to-case basis, but is governedby uniform rate prescribed by the institution under whose aegisthe arbitration is held. Another solution is for the court to fix thefees at the time of appointing the arbitrator, with the consent ofparties, if necessary in consultation with the arbitrator concerned.Third is for the retired Judges offering to serve as arbitrators, toindicate their fee structure to the Registry of the respective HighCourt so that the parties will have the choice of selecting anarbitrator whose fees are in their “range” having regard to thestakes involved.

24. What is found to be objectionable is parties being forced to goto an arbitrator appointed by the court and then being forced toagree for fee fixed by such arbitrator. It is unfortunate thatdelays, high costs, frequent and sometimes unwarranted judicialinterruptions at different stages are seriously hampering the growthof arbitration as an effective dispute resolution process. Delayand high costs are two areas where the arbitrators by self-regulationcan bring about marked improvement.”

A72. In Sanjeev Kumar Jain v. Raghubir Saran Charitable Trustand Ors.[112], this Court in similar vein observed that arbitrators in adhoc arbitrations in India are charging disproportionately high fees. Whileinterpreting Section 11 of the Arbitration Act, this Court held that theword “appointment” does not merely refer to nominating or designatinga person to act as an arbitrator, but it includes the court’s power to stipulateBthe fees that can be charged by an arbitrator appointed by the court. Thefees should be stipulated after hearing the parties and, if required, afterascertaining the fees structure from prospective arbitrators. This will avoida situation where parties have to negotiate the terms of the fees of thearbitrators, after their appointment. Referring to Singh Builders (supra),Cthis Court acknowledged the increased complaints against disproportionatefees being charged by the arbitrators and made certain suggestions for thehealthy development of arbitration in India. One such remedy suggestedby this Court was disclosure of the fee structure prior to the appointmentof arbitrators to enable any party to express their unwillingness to bearsuch expenses. This Court observed thus:D

“41. There is general feeling among the consumers of arbitration(parties settling disputes by arbitration) that ad hoc arbitrations inIndia—either international or domestic, are time consuming anddisproportionately expensive. Frequent complaints are made abouttwo sessions in day being treated as two hearings for the purposeEof charging fee; or about session of two hours being treated asfull session for purposes of fee; or about non-productive sittingsbeing treated as fully chargeable hearings. It is pointed out that ifthere is an Arbitral Tribunal with three arbitrators and if thearbitrators are from different cities and the arbitrations are to beFheld and the arbitrators are accommodated in five star hotels, thecost per hearing (arbitrator’s fee, lawyer’s fee, cost of travel,cost of accommodation, etc.) may easily run into rupees one millionto one-and-half million per sitting. Where the stakes are very high,that kind of expenditure is not commented upon. But if the number

of hearings become too many, the cost factor and efficiency/Geffectiveness factor is commented. That is why this Court in SinghBuilders Syndicate [(2009) 4 SCC 523 : (2009) 2 SCC (Civ) 246]observed that the arbitration will have to be saved from thearbitration cost.

42. Though what is stated above about arbitrations in India, mayappear rather harsh, or as universalisation of stray aberrations,we have ventured to refer to these aspects in the interest ofensuring that arbitration survives in India as an effective alternativeforum for disputes resolution in India. Examples are not wantingwhere arbitrations are being shifted to neighbouring Singapore,Kuala Lumpur, etc. on the ground that more professionalised orinstitutionalised arbitrations, which get concluded expeditiously ata lesser cost, are available there. The remedy for healthydevelopment of arbitration in India is to disclose the feesstructure before the appointment of arbitrators so that any partywho is unwilling to bear such expenses can express hisunwillingness. Another remedy is institutional arbitration wherethe arbitrator’s fee is prefixed. The third is for each High Court tohave scale of arbitrator’s fee suitably calibrated with referenceto the amount involved in the dispute. This will also avoid differentdesignates prescribing different fee structures. By these methods,there may be reasonable check on the fees and the cost ofarbitration, thereby making arbitration, both national andinternational, attractive to the litigant public. Reasonableness andcertainty about total costs are the key to the development ofarbitration. Be that as it may.”73. It was in the above context that the LCI 246[th] Report (supra)proposed reforms for regulating arbitrators’ fees in ad hoc arbitrations.The Commission recommended that model schedule of fees should beinserted into the Arbitration Act, which was to serve as guide for HighCourts to frame their own rules governing the fixation of arbitrators’fees. The Commission accepted that different values and standard offees may be adopted in international commercial arbitrations, which ledto the exclusion of the applicability of the Fourth Schedule to theArbitration Act to international commercial arbitrations. The Commissionadversely commented on the practice of charging fees on “per sitting”basis in ad hoc arbitrations where sometimes there are 2-3 sittings in aday in the same matter between the same parties. The Commission alsonoted that costs are further increased by continuation of proceedings foryears since dates are given with significant gaps, resulting in the denialof timely delivery of justice to the aggrieved party.

74. The Arbitration Amendment Act 2015 introduced the FourthSchedule to the Arbitration Act as model schedule of fees in terms of

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Athe recommendations of the LCI 246[th] Report (supra). The FourthSchedule came into effect on 23 October 2015. Section 11 of the ArbitrationAct was also accordingly amended to add sub-Section (14) to Section11, which reads as follows:

“Section 11. Appointment of arbitratorsB

(14) For the purpose of determination of the fees of the arbitraltribunal and the manner of its payment to the arbitral tribunal, theHigh Court may frame such rules as may be necessary, aftertaking into consideration the rates specified in the Fourth Schedule.CExplanation: For the removal of doubts, it is hereby clarified thatthis subsection shall not apply to international commercial arbitrationand in arbitrations (other than international commercial arbitration)in case where parties have agreed for determination of fees asper the rules of an arbitralin stitution.”D

The Fourth Schedule has to be read along with the provisions ofsub-Section (14) of Section 11. In terms of the Explanation to Section11(14), the Fourth Schedule will not be applicable to internationalcommercial arbitrations. Further, the Fourth Schedule will not be applicablewhere parties have agreed to the determination of the arbitrators’ feesEaccording to the rules of an arbitral institution. The Fourth Schedule wasto serve as guide for different High Courts to frame rules for determiningthe fees of arbitrators. The High Courts have been slow, if not tardy, inframing these rules. Apart from the High Courts of Rajasthan, Keralaand Bombay, other High Courts have not framed rules under Section 11F(14) of the Arbitration Act for the determination of fees. Further therules framed by High Courts of Bombay and Rajasthan only governarbitrators appointed by the courts. Thus, the purpose of Section 11(14)for regulating fees in ad hoc arbitrations remains unrealised.

75. dispute arose before the Delhi High Court regarding theapplicability of the Fourth Schedule to the arbitration agreement in aGsituation where the fee payable to the arbitrator(s) has already beenstipulated in the arbitration agreement. In Gammon Engineers andContractors Pvt. Ltd. v. NHAI[113], the fee schedule was fixed by theparties in accordance with policy decision of the National Highways

H113 2018 SCC OnLine Del 10183 (“Gammon”)

Authority of India dated 31 May 2004. However, the arbitral tribunaldecided that its fees will be regulated in terms of the Fourth Scheduleintroduced through the Arbitration Amendment Act 2015 by observingthat the latest provisions in the amended Act empower it to unilaterallydetermine its own fees, irrespective of the agreement between the parties.NHAI moved an application under Section 14 of the Arbitration Act toterminate the mandate of the arbitral tribunal since it had wilfully rejectedthe agreement between the parties. Single Judge of the Delhi HighCourt held that since there was an agreement between the partiesregarding the fixation of fees, the Fourth Schedule will not be applicable.The Single Judge further held that while Section 31A of the ArbitrationAct discusses different aspects of “costs” to be fixed by the arbitraltribunal while passing an award, it is only one of the aspects to beconsidered by the tribunal for determining costs payable by one party toanother. The words “unless otherwise agreed by the parties” were omittedfrom Section 31(8) of the Arbitration Act (as amended by the ArbitrationAmendment Act 2015) to ensure that parties cannot contract out ofpaying costs and denude the ability of the tribunal to award costs infavour of the successful party. The Single Judge, thus, terminated themandate of the arbitral tribunal since it wilfully ignored the agreementbetween the parties. In doing so, the Single Judge disagreed with theview of another Single Judge of the Delhi High Court in NHAI v. GayatriJhansi Roadways Ltd.[114].

76. In Gayatri Jhansi (Delhi High Court) (supra), it was heldthat Section 31(8) and Section 31A of the Arbitration Act govern thedetermination of fees and since the expression “unless otherwise agreedby the parties” has been removed from Section 31(8) by the ArbitrationAmendment Act 2015, the power of the parties to fix the arbitrators’fees has been specifically taken away except in international commercialarbitrations and arbitrations where parties have agreed that the fees willbe fixed under the rules of an arbitral institution. Thus, in Gayatri Jhansi(Delhi High Court) (supra), the arbitral tribunal was allowed to fix itsfees according to the Fourth Schedule dehors the agreement betweenthe parties.

77. The appeals against both the judgements of the Delhi HighCourt were heard by this Court in Gayatri Jhansi Roadways Ltd(supra), where two-Judge Bench of this Court was called upon to

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Adetermine the applicability of the Fourth Schedule when the arbitrators’fee has been fixed by an agreement between the parties. This Courtheld that Section 31(8) read with Section 31A will not be applicable ifthe fees of the arbitrator(s) have been fixed by an agreement. ThisCourt upheld the observations of the Single Judge of the Delhi HighCourt in Gammon (supra) in this regard. Justice Rohinton Nariman,Bspeaking for the Bench, observed as follows:

“14. However, the learned Single Judge’s conclusion that thechange in language of Section 31(8) read with Section 31-A whichdeals only with the costs generally and not with arbitrator’s feesis correct in law. It is true that the arbitrator’s fees may be aCcomponent of costs to be paid but it is far cry thereafter to statethat Sections 31(8) and 31-A would directly govern contracts inwhich fee structure has already been laid down. To this extent,the learned Single Judge is correct. We may also state that thedeclaration of law by the learned Single Judge in Gayatri JhansiDRoadways Ltd. [NHAI v. Gayatri Jhansi Roadways Ltd., 2017SCC OnLine Del 10285] is not correct view of the law.”However, this Court observed that the fee schedule contained inNHAI’s circular dated 1 June 2017 would substitute the earlier scheduleand the arbitrators would be entitled to charge their fees in accordanceEwith the updated fee schedule, but not in terms of the Fourth Schedule tothe Arbitration Act. This Court further observed that the mandate of thearbitral tribunal in Gammon (supra) should not be terminated since thearbitrator(s) had merely followed the law which had been laid down inGayatri Jhansi (Delhi High Court) (supra).F78. The Arbitration Amendment Act 2019 was introduced on thebasis of the report of High Level Committee dated 30 July 2017 forpromoting institutional arbitration. Sub-Section 11(14) has beensubsequently amended by the Arbitration Amendment Act 2019. Theamended sub-Section (14) to Section 11 provides thus:

G“Section 11. Appointment of arbitrators

(14) The arbitral institution shall determine the fees of the arbitraltribunal and the manner of its payment to the arbitral tribunal subjectto the rates specified in the Fourth Schedule.

Explanation: For the removal of doubts, it is hereby clarified thatthis sub-section shall not apply to international commercialarbitration and in arbitrations (other than international commercialarbitration) in case where parties have agreed for determinationof fees as per the rules of an arbitral institution.”

Further, sub-Section (3A) has been introduced to Section 11, whichstipulates thus:

“Section 11. Appointment of arbitrators

(3A) The Supreme Court and the High Court shall have the powerto designate, arbitral institutions, from time to time, which havebeen graded by the Council under section 43-I, for the purposesof this Act:

Provided that in respect of those High Court jurisdictions, whereno graded arbitral institution are available, then, the Chief Justiceof the concerned High Court may maintain panel of arbitratorsfor discharging the functions and duties of arbitral institution andany reference to the arbitrator shall be deemed to be an arbitralinstitution for the purposes of this section and the arbitratorappointed by party shall be entitled to such fee at the rate asspecified in the Fourth Schedule:

Provided further that the Chief Justice of the concerned HighCourt may, from time to time, review the panel of arbitrators.”

The amendments introduced to Section 11 by the ArbitrationAmendment Act 2019came into force on 30 August 2019. However,even after lapse of three years, the Arbitration Council has not beenestablished in accordance with Part IA of the Arbitration AmendmentAct 2019. In the absence of the Arbitration Council of India, gradedarbitral institutions for the purpose of implementing amendments to Section11 are yet to come into existence. While several High Courts have takenconcerted steps to establish and refer matters to court adjunct arbitrationcentres, ad hoc arbitrations continue to hold the field since theamendments made by the Arbitration Amendment Act 2019 have beennon-starters. . However, the amendments indicate the legislative intentthat going forward, the fixation of fees of arbitrator(s)would be carriedout by an arbitral institution designated for such purpose in terms of sub-

ASection (14) of Section 11. Further, there is one notable differencebetween the sub-Section (14) as it stood before the amendment andafter, in terms of the applicability of the Fourth Schedule. Earlier, therates specified in the Fourth Schedule were only to be taken intoconsideration by the High Court while framing the rules relating to thefixation of fees. However, now the provision reads that, “[t]he arbitralBinstitution shalldetermine the fees of the arbitral tribunal and the mannerof its payment to the arbitral tribunal subject to the rates specified in theFourth Schedule”. There are two exceptions to this – Section 11(14) isnot applicable to international commercial arbitrations and to situationwhere the parties have agreed to determine fees in terms of the rules ofCan arbitral institution as stipulated in the Explanation to Section 11(14). Itis important to note that the newly introduced Section 11(3A) providesthat the Supreme Court and the High Courts shall have the power todesignate arbitral institutions from time to time, which have been gradedby the Arbitration Council of India under Section 43(1) of the Arbitration

Act. The first proviso to sub-Section (3A) to Section 11 provides that inDthose jurisdictions of High Courts where there are no graded arbitralinstitutions available, the Chief Justice of the High Court may maintain apanel of arbitrators for discharging the functions and duties of an arbitralinstitution. In terms of the first proviso, the reference to such an arbitratorwould be deemed to be reference to an arbitral institution for the purposeEof Section 11 and arbitrator appointed by party is entitled to such fee atthe rate as specified in the Fourth Schedule. harmonious reading ofthe first proviso to sub-Section (3A) of Section 11 and sub-Section (14)of Section 11 indicate that the Fourth Schedule shall have mandatoryeffect on the stipulation of fees for arbitrator(s) appointed by arbitralFinstitutions designated for such purpose in terms of Section 11 of theArbitration Act in the absence of an arbitration agreement governing thefee structure.

79. Based on the above discussion, we summarise the position asfollows:G(i)In terms of the decision of this Court in Gayatri JhansiRoadways Ltd (supra) and the cardinal principle of partyautonomy, the Fourth Schedule is not mandatory and it isopen to parties by their agreement to specify the feespayable to the arbitrator(s) or the modalities fordetermination of arbitrators’ fees; andH

(ii)Since most High Courts have not framed rules forAdetermining arbitrators’ fees, taking into considerationFourth Schedule of the Arbitration Act, the Fourth Scheduleis by itself not mandatory on court-appointed arbitrators inthe absence of rules framed by the concerned High Court.Moreover, the Fourth Schedule is not applicable toBinternational commercial arbitrations and arbitrations wherethe parties have agreed that the fees are to be determinedin accordance with rules of arbitral institutions. The failureof many High Courts to notify the rules has led to situationwhere the purpose of introducing the Fourth Schedule andsub-Section (14) to Section 11 has been rendered nugatory,Cand the court-appointed arbitrator(s) are continuing toimpose unilateral and arbitrary fees on parties. As we havediscussed in Section C.2.1, such unilateral fixation offees goes against the principle of party autonomy which iscentral to the resolution of disputes through arbitration.DFurther, there is no enabling provision under the ArbitrationAct empowering the arbitrator(s) to unilaterally issue abinding or enforceable order regarding their fees. This isdiscussed in Section C.2.3 of this judgement. Hence, thisCourt would be issuing certain directives for fixing of feesin ad hoc arbitrations where arbitrators are appointed byEcourts in Section C.2.4 of this judgement.

C.2.3 Costs and fees: Two different paradigms

80. Prior to the Arbitration Amendment Act 2015, Section 31(8)governing the determination of costs of arbitration by the arbitral tribunalread thus:

“Section 31. Form and contents of arbitral award

(8) Unless otherwise agreed by the parties:-

(a) the costs of an arbitration shall be fixed by the arbitral tribunal;

(b) the arbitral tribunal shall specify—

(i) the party entitled to costs,

(ii) the party who shall pay the costs,

A(iii) the amount of costs or method of determining that amount,and

(iv) the manner in which the costs shall be paid.

Explanation.—For the purpose of clause (a), “costs” meansreasonable costs relating to-

(i) the fees and expenses of the arbitrators and witnesses,

(ii) legal fees and expenses,

(iii) any administration fees of the institution supervising thearbitration, and

(iv) any other expenses incurred in connection with the arbitralproceedings and the arbitral award.”

The unamended sub-Section (8) of Section 31 enabled the arbitraltribunal to fix the costs, unless otherwise agreed by the parties. Theterm “costs” meant “reasonable costs” relating inter alia to the feesDand expenses payable to the arbitrators and witnesses, in terms of theExplanation to Section 31(8). The LCI 246[th ]Report (supra) hadrecommended the recognition of the “loser pays” principle for costs toreflect the relative success and failure of the parties. The LawCommission noted that the “loser pays” principle serves as deterrentEagainst frivolous invocation of disputes and incentivises contractualcompliance.

81. Pursuant to the LCI 246[th ]Report (supra), the ArbitrationAmendment Act 2015 deleted the phrase “unless otherwise agreed bythe parties” from sub-Section 31(8) and the arbitral tribunal was givenFthe power to fix costs in terms of Section 31A of the Arbitration Act.The amended Section 31(8) reads thus:

“Section 31. Form and contents of arbitral award

(8) The costs of an arbitration shall be fixed by the arbitral tribunalGin accordance with section 31A.”

Section 31A of the Arbitration Act stipulates thus:

“31A. Regime for costs

(1) In relation to any arbitration proceeding or proceeding underHany of the provisions of this Act pertaining to the arbitration, the

Court or arbitral tribunal, notwithstanding anything contained inthe Code of Civil Procedure, 1908 (5 of 1908), shall have thediscretion to determine—

(a) whether costs are payable by one party to another;

(b) the amount of such costs; and

(c) when such costs are to be paid.

Explanation.—For the purpose of this sub-section, “costs” meansreasonable costs relating to—

(i) the fees and expenses of the arbitrators, Courts and witnesses;

(ii) legal fees and expenses;

(iii) any administration fees of the institution supervising thearbitration; and

(iv) any other expenses incurred in connection with the arbitral orCourt proceedings and the arbitral award.

(2) If the Court or arbitral tribunal decides to make an order as topayment of costs,—

(a) the general rule is that the unsuccessful party shall be orderedto pay the costs of the successful party; or

(b) the Court or arbitral tribunal may make different order forreasons to be recorded in writing.

(3) In determining the costs, the Court or arbitral tribunal shallhave regard to all the circumstances, including—

(a) the conduct of all the parties;

(b) whether party has succeeded partly in the case;

(c) whether the party had made frivolous counter claim leadingto delay in the disposal of the arbitral proceedings; and

(d) whether any reasonable offer to settle the dispute is made bya party and refused by the other party.

(4) The Court or arbitral tribunal may make any order under thissection including the order that party shall pay—

(a) proportion of another party’s costs;

(b) stated amount in respect of another party’s costs;

(c) costs from or until certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to distinct part of the proceedings; and

(g) interest on costs from or until certain date.

(5) An agreement which has the effect that party is to pay thewhole or part of the costs of the arbitration in any event shall beonly valid if such agreement is made after the dispute in questionhas arisen.”

Section 31A provides that the arbitral tribunal or the court has thediscretion to determine costs of arbitration which includes, inter alia,reasonable costs relating to the fees and expenses of the arbitrators,courts and witnesses. Sub-Section (5) of Section 31A specifies that anDagreement between parties apportioning costs is only valid if it is madeafter the dispute has arisen. The provision has an effect of limiting partyautonomy when an agreement regarding apportioning of costs can beentered between the parties. However, it does not completely effacethe principle of party autonomy.

82. Section 38 of the Arbitration Act also becomes relevant sinceit enables the arbitral tribunal to demand an advance for costs in theform of deposits. The provision reads thus:

“Section 38 - Deposits

(1) The arbitral tribunal may fix the amount of the deposit orsupplementary deposit, as the case may be, as an advance for thecosts referred to in sub-section (8) of section 31, which it expectswill be incurred in respect of the claim submitted to it:

Provided that where, apart from the claim, counter-claim hasGbeen submitted to the arbitral tribunal, it may fix separate amountof deposit for the claim and counter-claim.

(2) The deposit referred to in sub-section(1) shall be payable inequal shares by the parties:

Provided that where one party fails to pay his share of the deposit,Hthe other party may pay that share:

Provided further that where the other party also does not pay theaforesaid share in respect of the claim or the counter-claim, thearbitral tribunal may suspend or terminate the arbitral proceedingsin respect of such claim or counter-claim, as the case may be.

(3) Upon termination of the arbitral proceedings, the arbitral tribunalshall render an accounting to the parties of the deposits receivedand shall return any unexpended balance to the party or parties,as the case may be.”

Section 38(1) of the Arbitration Act empowers the arbitral tribunalto determine the deposit that is payable as advance on costs based on itsown assessment of what may be incurred as costs for adjudicating theclaim and counter-claim (if any) before it. Section 38(2) also empowersthe arbitral tribunal to suspend or terminate the proceedings if the partiesfail to pay the deposit.

83. Additionally, Section 39(1) enables the arbitral tribunal to holda lien on an arbitral award if there are any unpaid costs of arbitration.Section 39 of the Arbitration Act provides thus:

“Section 39 - Lien on arbitral award and deposits as to costs

(1) Subject to the provisions of sub-section (2) and to any provisionto the contrary in the arbitration, agreement, the arbitral tribunalshall have lien on the arbitral award for any unpaid costs of thearbitration.

(2) If in any case an arbitral tribunal refuses to deliver its awardexcept on payment of the costs demanded by it, the Court may,on an application in this behalf, order that the arbitral tribunal shalldeliver the arbitral award to the applicant on payment into Courtby the applicant of the costs demanded, and shall, after such inquiry,in any, as it thinks, fit, further order that out of the money so paidinto Court there shall be paid to the arbitral tribunal by way ofcosts such sum as the Court may consider reasonable and thatthe balance of the money, if any, shall be refunded to the applicant.

(3) An application under sub-section (2) may be made by anyparty unless the fees demanded have been fixed by writtenagreement between him and the arbitral tribunal, and the arbitraltribunal shall be entitled to appear and be heard on any suchapplication.

736SUPREME COURT REPORTS

A(4) The Court may make such orders as it thinks fit respecting thecosts of the arbitration where any question arises respecting suchcosts and the arbitral award contains no sufficient provisionconcerning them.”

84. The legal regime on costs under the Arbitration Act has beenBset out in some detail above because it has been argued on behalf of therespondents that the arbitral tribunal’s power to fix costs under Section31(8) read with 31A entails the power to fix arbitrators’ fees, which arealso component of the costs in terms of the Explanation to Section31A. According to the respondents, this position is bolstered by the factthat the arbitral tribunal has the power to fix the amount of deposit thatCis payable as an advance on costs and it can also hold lien on thearbitral award if such costs remain unpaid.

85. In Gayatri Jhansi Roadways Ltd(supra), this Court held:

“14. However, the learned Single Judge’s conclusion that theDchange in language of section 31(8) read with Section 31A whichdeals only with the costs generally and not with arbitrator’s feesis correct in law. It is true that the arbitrator’s fees may be acomponent of costs to be paid but it is far cry thereafter to statethat section 31(8) and 31A would directly govern contracts inwhich fee structure has already been laid down…”E

86. The above interpretation of this Court is in harmony with theobservations of the Law Commission in the LCI 246[th ]Report (supra)where it had recommended changes to the regime of costs only to providea statutory recognition to the “loser pays” principle. The Report containedthe following observations:F

“70.Arbitration, much like traditional adversarial dispute resolution,can be an expensive proposition. The savings of party in avoidingpayment of court fee, is usually offset by the other costs ofarbitration – which include arbitrator’s fees and expenses,institutional fees and expenses, fees and expenses in relation tolawyers, witnesses, venue, hearings etc. The potential for rackingup significant costs justify need for predictability and clarity inthe rules relating to apportionment and recovery of such costs.The Commission believes that, as rule, it is just to allocate costsin manner which reflects the parties’ relative success and failurein the arbitration, unless special circumstances warrant an

exception or the parties otherwise agree (only after the disputehas arisen between them).

71.The loser-pays rule logically follows, as matter of law, fromthe very basis of deciding the underlying dispute in particularmanner; and as matter of economic policy, provides economicallyefficient deterrence against frivolous conduct and furtherscompliance with contractual obligations.”

The Law Commission was seeking to regulate how costs areapportioned and recovered between parties by suggesting amendmentsto the legal framework on costs.The same LCI 246th Report (supra)dealt with redressing the issue of exorbitant fees being charged byarbitrators and recommended the introduction of model schedule offees, based on which High Courts could frame rules on fixing fees, todecrease the control arbitrators have over fixing their own fees. Hence,it is evident that the Law Commission understood that the issue ofarbitrators’ fees is independent of the issue of allocation of costs. TheLCI 246th Report (supra) was attempting to address the concern ofarbitrary and unilateral fixation of fees by the arbitrators. The interpretationsuggested by the respondents, that while allocating costs the arbitraltribunal can enter into fresh and unilateral determination of fees, wouldbe contrary to what the Law Commission sought to achieve byrecommending the regulation of fees charged by arbitrators.

87. The concepts of costs and fees in arbitration must bedistinguished. Fees constitute compensation or remuneration payable tothe arbitrators for their service. Arbitrators are entitled to “financialremuneration by the parties in return for performance of his or hermandate”[115]. While the national laws governing arbitration give quasi-judicial status to arbitrators where they have to be impartial adjudicators,many aspects of the relationship between the parties and arbitrators arecontractual in nature[116]. Without acknowledging the contractual natureof the relationship, there is no satisfactory explanation for the parties’right to appoint arbitrator(s) (and the corresponding right of thearbitrator(s) to decline such appointment), arbitrators’ remuneration,arbitrators’ duty to conduct arbitration in terms of the arbitrationagreement (independently of the requirement of fairness and equality)

115 Supra at note 30

116 ibid

Aand the parties’ right to jointly remove arbitrator(s)[117]. In VoestalpineSchienen GmbH v. Delhi Metro Rail Corpn. Ltd.[118], this Court,while holding that the arbitrator has to act impartially and independently,recognised the contractual nature of the relationship between the partiesand arbitrator(s) in the following extract:

“20. Independence and impartiality of the arbitrator are thehallmarks of any arbitration proceedings. Rule against bias is oneof the fundamental principles of natural justice which applied toall judicial and quasi-judicial proceedings. It is for this reasonthat notwithstanding the fact that relationship between theparties to the arbitration and the arbitrators themselvesare contractual in nature and the source of an arbitrator’sappointment is deduced from the agreement entered intobetween the parties, notwithstanding the same non-independence and non-impartiality of such arbitrator(though contractually agreed upon) would render himineligible to conduct the arbitration. The genesis behindthis rational is that even when an arbitrator is appointed interms of contract and by the parties to the contract, he isindependent of the parties. Functions and duties require him torise above the partisan interest of the parties and not to act in, orso as to further, the particular interest of either parties. After all,the arbitrator has adjudicatory role to perform and, therefore, hemust be independent of parties as well as impartial. The UnitedKingdom Supreme Court has beautifully highlighted this aspect inHashwani v. Jivraj [Hashwani v. Jivraj, (2011) 1 WLR 1872 :2011 UKSC 40] in the following words : (WLR p. 1889, para 45)

“45. … the dominant purpose of appointing an arbitrator orarbitrators is the impartial resolution of the dispute between theparties in accordance with the terms of the agreement and, althoughthe contract between the parties and the arbitrators would be acontract for the provision of personal services, they were notGpersonal services under the direction of the parties.”

(emphasis supplied)

88. The relationship between parties and arbitrator(s) iscontractual in nature. Upon that relationship, the law superimposes aduty upon the arbitrator(s) to act as an impartial and independentadjudicator. The principle of party autonomy plays substantial role inthe determination of arbitrators’ fees. We have noted in Section C.1of this judgement that party autonomy plays central role in thedetermination of arbitrators’ fees in the rules of international arbitralinstitutions and domestic legislation of other countries. Aside frominstitutional arbitration, arbitrators’ fees in ad hoc arbitration are arrivedat through negotiations between the parties and the arbitrator(s)[119].The primacy of parties’ agreement in determination of arbitrators’ feeswas also reaffirmed by this Court in Gayatri Jhansi Roadways Ltd(supra). However, there may be instances where the parties have notentered into any agreement with respect to the fees. In ad hocarbitrations this leads to peculiar situation where it has to be determinedwho will fix the fees in such circumstances. While certain foreignjurisdictions enable the arbitral tribunal to fix the fees typically subject toreview by courts, there are jurisdictions which continue to give value toparties’ consent in determining renumeration for arbitrators. As discussedabove in Section C.1, in certain jurisdictions like Germany, arbitratorsare prohibited from unilaterally fixing their fees because it violates thedoctrine of the prohibition of in rem suam decisions, i.e., arbitratorscannot give an enforceable ruling on their own fees. Austria andSwitzerland also do not allow arbitrators to issue binding and enforceableorders regarding fixation of their own fees[120]. In Italy, while thearbitrators can determine fees in absence of an agreement betweenparties, such fees become binding only once the parties’ consent to it.In Singapore, in absence of written agreement, party may approachthe Registrar of the Supreme Court within the meaning of the SupremeCourt of Judicature Act 1969 for the assessment of fees.

89. In contrast, costs are typically compensation payable by thelosing party to the winning party for the expenses the latter incurred by

119 Supra at note 28

120 Michael Wietzorek, “Chapter II: The Arbitrator and the Arbitration Procedure:May Arbitrators Determine their own Fees?” in Christian Klausegger, Peter Klein, et al(eds), Austrian Yearbook on International Arbitration 2012, Austrian Yearbook onInternational Arbitration, Volume 2012 (Manz’sche Verlags- undUniversitätsbuchhandlung; Manz’sche Verlags- und Universitätsbuchhandlung, 2012).

ABCDEF

Aparticipating in the proceedings[121]. In Salem Advocate Bar Assn. (II)v. Union of India[122], this Court has defined costs in similar manner inthe context of litigation:

“37. Judicial notice can be taken of the fact that many unscrupulousparties take advantage of the fact that either the costs are notBawarded or nominal costs are awarded against the unsuccessfulparty. Unfortunately, it has become practice to direct parties tobear their own costs. In large number of cases, such an orderis passed despite Section 35(2) of the Code. Such practicealso encourages the filing of frivolous suits. It also leads to thetaking up of frivolous defences. Further, wherever costs areCawarded, ordinarily the same are not realistic and are nominal.When Section 35(2) provides for cost to follow the event, it isimplicit that the costs have to be those which are reasonablyincurred by successful party except in those cases wherethe court in its discretion may direct otherwise byDrecording reasons therefore. The costs have to be actualreasonable costs including the cost of the time spent bythe successful party, the transportation and lodging, if any,or any other incidental costs besides the payment of thecourt fee, lawyer’s fee, typing and other costs in relation tothe litigation. It is for the High Courts to examine these aspectsEand wherever necessary make requisite rules, regulations orpractice direction so as to provide appropriate guidelines for thesubordinate courts to follow.”

(emphasis supplied)

F90. The principle of the payment of “costs” remains the same inlitigation and arbitration even though the form of expenses may vary.Redfern and Hunter on International Commercial Arbitration(supra) has classified the various components of costs under the followingheadings[123]:

G121John Y. Gotanda, “Part I: International Commercial Arbitration, Chapter 7: BringingEfficiency to the Awarding of Fees and Costs in International Arbitrations”, in StefanM. Kröll, Loukas A. Mistelis, et al. (eds), International Arbitration and InternationalCommercial Law: Synergy, Convergence and Evolution (Kluwer Law International,2011)122 (2005) 6 SCC 344H123 Supra at note 28, Chapter 9

“•‘costs of the tribunal’ (including the charges for administrationof the arbitration by any arbitral institution);

•‘costs of the arbitration’ (including hiring the hearing rooms,interpreters, transcript preparation, among other things); and

•‘costs of the parties’ (including the costs of legal representation,expert witnesses, witness and other travel-related expenditure,among other things).”

The first category of “costs of the tribunal” includes the fees,travel-related and other expenses, payable to the arbitrators. However,this category also includes fees and expenses relating to the expertsappointed by the tribunal, administrative secretary or registrar and otherincidental expenses incurred by the tribunal in respect of the case[124].Fees of arbitrators constitute component of the diverse elementswhich make up the costs that are payable by one party to another. Thepurpose of awarding costs is to “indemnify the winning party”. The “loserpays” principle apportions the costs between the parties through thecosts follow the event[125] method. The primary purpose of the CFE methodis to “make the claimant whole”[126]. The CFE method has been statutorilyrecognised in some national legislations. The English Arbitration Actprovides that “unless the parties otherwise agree, the tribunal shall awardcosts on the general principle that costs should follow the event exceptwhere it appears to the tribunal that this principle is not appropriate inrelation to whole or part of the costs”[127]. Since costs are typicallyawarded at the conclusion of the proceedings on the basis of the relativesuccess or failure of parties, an award of costs forms part of thefinal award. However, interim awards or rulings on costs may also beissued. Most international arbitral institutions give arbitral tribunals thediscretion to allocate costs unless there is an agreement between theparties regarding the apportionment of costs. It has been noted that the“loser pays” principle is common approach[128] followed for awarding

124 ibid

125 “CFE”

126 Supra at note 121

127 Section 61(2), English Arbitration Act

128 There are some institution rules which do not prescribe general rule and leave theapportionment of the costs to the arbitral tribunal. The ICDR (Art. 34) and HKIAC(34.3) require the tribunal to carry out reasonable apportionment of costs. The ICCRules (Art. 38(5) and SIAC Rules (Art. 35)leave the apportionment of costs upto thediscretion of the tribunal.

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Acosts[129]. The UNCITRAL Rules, while providing that costs of arbitrationshall be “borne by the unsuccessful party” as general principle, allowthe arbitral tribunal to take the ultimate decision[130]. The LCIA Rulesallow the arbitral tribunal to depart from the general principle “incircumstances (in which) the application of such general principle wouldbe inappropriate”[131]. The Arbitration Act also provides statutoryBrecognition to the principle of “loser pays” in Section 31A (2)[132 ]as thegeneral principle of allocating costs, which can be derogated from at thediscretion of the tribunal provided it records its reasons in writing. Further,the Arbitration Act seeks to limit the ability of parties to contractuallyallocate fees by specifying in Section 31A(5) that such an agreementCwill only be valid “if such agreement is made after the dispute in questionhas arisen”. The intention of the legislature to limit party autonomy inallocation of costs is also evident from the deletion of the phrase “unlessotherwise agreed by the parties” from Section 31(8) through theAmendment Act 2015.D91. We can see that the functional role of costs and fees is different.While fees represent the payment of remuneration to the arbitrators,costs refer to all the expenses incurred in relation to arbitration that areto be allocated between the parties upon the assessment of certainparameters by the arbitral tribunal or the court. Section 31A(3) providesEthat an arbitral tribunal or the court has to take into account the followingfactors for determining costs:

“(a) the conduct of all the parties;

(b) whether party has succeeded partly in the case;

F(c) whether the party had made frivolous counter claim leadingto delay in the disposal of the arbitral proceedings; and

129 Arif Hyder Ali, Jane Wessel, et al. (eds), The International Arbitration Rulebook: AGuide to Arbitral Regimes(Kluwer Law International, 2019), Chapter 8130 Article 42(1), UNCITRAL RulesG131 Article 28(4), LCIA Rules

132 Section 31A(2) provides:

“(2) If the Court or arbitral tribunal decides to make an order as to payment of costs,—

(a) the general rule is that the unsuccessful party shall be ordered to pay the costs of thesuccessful party; or

(b) the Court or arbitral tribunal may make different order for reasons to be recordedHin writing.”

(d) whether any reasonable offer to settle the dispute is made bya party and refused by the other party.”

This is accompanied by the general rule under Section 31A(2)that the unsuccessful party has to bear the costs of arbitration.

92. Another way to understand the difference between costs andfees is to distinguish between the nature of the claim that both reflect.Redfern and Hunter on International Commercial Arbitration(supra) discusses costs in Chapter 9, titled “Awards”. It states that “[a]claim in respect of the costs incurred by partyin connection with aninternational arbitration is, in principle, no different from any other claim,except that it usually cannot be quantified until the end of the arbitralproceedings”[133]. The decision of an arbitral tribunal ordering one partyto pay arbitration costs is considered as an “award” within the meaningof the New York Convention and UNCITRAL Model Law since thedecision resolves claim one party has towards another in respect tothe entitlement of being repaid by the other party for expenses incurredduring arbitration[134]. Gary Bornon Arbitration (supra) specifically notesthe difference between costs and fees, and states that any decision ofthe arbitral tribunal relating to payment of fees to the members of thetribunal is not considered an award since it does not resolve claimbetween the parties; rather it resolves claim between the arbitrator(s)against the parties[135]. The Swiss Federal Tribunal has observed in thiscontext that[136]:

“[A]ccording to the majority of legal writing the arbitral tribunalhas no authority to issue an enforceable decision as to the fees itmay derive from the arbitration agreement (receptum arbitri). Thisis because claims resulting from the relationship between thearbitral tribunal and the parties do not fall within the arbitrationclause; also because this would be an unacceptable decision inone’s own case. The decision on costs in an arbitral award istherefore nothing else as rendering of account which does notbind the parties or circumscription of the arbitrators’ private lawclaim based on the arbitration agreement on which in case ofdispute the State Court will have to decide.”

133 Supra at note 123

134 Supra at note 30, Chapter 23

135 ibid

136 Judgment of 10 November 2010, DFT 136 III 597, 603 cited in ibid

The German arbitration law also takes the above position, wherea portion of the award relating to costs of arbitration was deniedenforcement as arbitrators are prohibited from fixing their own fees andcosts, except when there is an agreement between the parties andarbitrators[137].

B93. Since fees of the arbitrators are not claim that needs to bequantified at the end of the proceedings based, inter alia, on the conductof parties and outcome of the proceedings, they can be determined atthe stage when the arbitral tribunal is being constituted. Redfern andHunter on International Commercial Arbitration (supra) discussesthe concept of fees of arbitrators in Chapter 4, titled “Establishment andCOrganisation of an Arbitral Tribunal”, indicating that fees have to bedetermined much earlier at the inception of the proceedings. In fact, thecommentary states that in ad hoc arbitrations, “it is necessary for theparties to make their own arrangements with the arbitrators as to theirfees. The arbitrators should do this at an early stage in the proceedings,Din order to avoid misunderstandings later”[138].

94. It has been argued on behalf of the respondents that the powerof arbitrator(s) under Section 38(1) of the Arbitration Act to demand adeposit as an advance on costs “which it expects will be incurred” inrelation to the claim and counterclaim (if any) indicates that the tribunalEis entitled to determine its own fees. If such deposit is not paid, thetribunal can suspend or terminate the proceedings under Section 38(2)of the Arbitration Act. It can also hold lien on the award if the costs ofarbitration remain unpaid under Section 39(1) of the Arbitration Act.

95. Gary Born on Arbitration(supra) explains the concept of anadvance on costs or deposits in the following terms[139]:F

“Once the arbitral tribunal is in place, the parties are generallyrequired to provide security for the fees and costs of the arbitrators.Most institutional arbitration rules contain express provisions forpayment by the parties of an advance on costs (or deposit), andarbitrators often have the power under national law to requireGpayment of an advance even absent express provision to thateffect in either the arbitration agreement or institutional rules.

137 Judgment of 24 October 2008, XXXIV Y.B. Comm. Arb. 533 (OberlandesgerichtFrankfurt) (2009) cited in supra at note 123

138 Supra at note 28

H139 Supra at note 30, Chapter 15

The amount of the advance on costs is based upon the expectedtotal amount of fees and expenses of the arbitrators and institutionaladministrative costs. If the parties do not pay the advance, thearbitration will not go forward; if one party fails to make payment,the other may do so on its behalf, so that the arbitration will proceed,hopefully to conclude with decision in its favor, in which theprevailing party will be awarded (among other things)reimbursement of the amounts it advanced on behalf of its counter-party.”The above extract and Section 38[140] of the Arbitration Act indicatethat the purpose of demanding deposit is to simply secure the futureexpenses or the “costs” relating to the arbitration, including arbitrators’fees. The arbitrator(s) may resign or cease their work until such paymentis made. This principle cannot be extended to establish that the arbitrator(s)have unilateral power to fix their own fees while demanding deposit.The arbitral tribunal can also ask for supplementary deposit, whichindicates that the amount fixed in the deposit is provisional in nature.Upon the termination of the mandate of the arbitral tribunal, it is requiredto provide an account of the deposits and if the deposits exceed the totalamount of costs, the tribunal is required to return the balance. Thisindicates that the order on deposits is not binding determination as tocosts (including arbitrators’ fees). It is procedural order issued for thepurpose of securing payment of future expenses.

140 "Section 38 - Deposits

(1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit,as the case may be, as an advance for the costs referred to in sub-section (8) of section31, which it expects will be incurred in respect of the claim submitted to it:Provided that where, apart from the claim, counter-claim has been submitted to thearbitral tribunal, it may fix separate amount of deposit for the claim and counter-claim.(2) The deposit referred to in sub-section(1) shall be payable in equal shares by theparties:

Provided that where one party fails to pay his share of the deposit, the other party maypay that share:

Provided further that where the other party also does not pay the aforesaid share inrespect of the claim or the counter-claim, the arbitral tribunal may suspend or terminatethe arbitral proceedings in respect of such claim or counter-claim, as the case may be.(3) Upon termination of the arbitral proceedings, the arbitral tribunal shall render anaccounting to the parties of the deposits received and shall return any unexpendedbalance to the party or parties, as the case may be.”

A96. While the arbitral tribunal can exercise lien over the arbitralaward for any unpaid costs of arbitration under Section 39(1) of theArbitration Act, party can also approach the court for the release ofthe award and the court on inquiry can assess whether the costs demandedare reasonable under Section 39(2). These costs would include thearbitrators’ fees that have been previously agreed upon. However, evenBif there is no agreement between the parties and the arbitrator(s)regarding the fees payable to the arbitrator(s), any determination of costsrelating to arbitrators’ fees by the tribunal is non-binding demand thathas been raised by the tribunal. As has been discussed above, whilecosts, in general, are to be decided at the discretion of the tribunal or theCcourt because they involve claim that one party has against the anotherrelating to resolution of dispute arising from the arbitration agreement,fees of the arbitrators are not claim to be decided between the parties.Rather, it is an independent claim that the arbitrator(s) have against theparties[141]. It will be for the court to decide whether the claim of thearbitrator(s) regarding their remuneration is reasonable. This alsoDbecomes clear from sub-Sections (2) and (3) of Section 39, which provide:

“Section 39 - Lien on arbitral award and deposits as to costs

(2) If in any case an arbitral tribunal refuses to deliver its awardEexcept on payment of the costs demanded by it, the Court may,on an application in this behalf, order that the arbitral tribunal shalldeliver the arbitral award to the applicant on payment into Courtby the applicant of the costs demanded, and shall, after such inquiry,in any, as it thinks, fit, further order that out of the money so paidFinto Court there shall be paid to the arbitral tribunal by way ofcosts such sum as the Court may consider reasonable and thatthe balance of the money, if any, shall be refunded to the applicant.

(3) An application under sub-section (2) may be made by anyparty unless the fees demanded have been fixed by writtenGagreement between him and the arbitral tribunal, and the arbitraltribunal shall be entitled to appear and be heard on any suchapplication.

(emphasis supplied)

H141 Paragraphs 91-92of this judgement

Sub-Section (2) provides that an application can be made to thecourt if the arbitral tribunal is refusing to deliver the award, except onpayment of costs demanded by it. The court can then order the arbitraltribunal to deliver the award to the applicant on payment of the costsdemanded by the tribunal to the court. Crucially, the court can conductan inquiry to determine if the costs are reasonable and out of the moneypaid to the court, it can direct the payment of reasonable costs to thetribunal and the balance (if any) to be refunded to the applicant. Sub-Section (3) provides that an application under sub-Section (2) for thedelivery of an award withheld by the arbitral tribunal exercising lienover it, can only be made if the fees demanded have not been fixed by awritten agreement by the party and the arbitral tribunal. Section 39 ofthe Arbitration Act is similar to Section 38 of the now repealed ArbitrationAct 1940. Section 38 of the erstwhile legislation provided thus:

“38. Disputes as to arbitrator’s remuneration or costs:

(1) If in any case an arbitrator or umpire refuses to deliver hisaward except on payment of the fees demanded by him, the Courtmay. on an application in this behalf, order that the arbitrator orumpire shall deliver the award to the applicant on payment intoCourt by the applicant of the fees demanded, and shall, after suchinquiry, if any, as it thinks fit, further order that out of the moneyso paid into Court there shall be paid to the arbitrator or umpire byway of fees such sum as the Court may consider reasonable andthat the balance of the money, if any, shall be refunded to theapplicant.

(2) An application under Sub-section (1) may be made by anyparty to the reference unless the fees demanded have been fixedby written agreement between him and the arbitrator or umpire,and the arbitrator or umpire shall be entitled to appear and beheard on any such application.

(3) The Court may make such orders as it thinks fit respecting thecosts of an arbitration where any question arises respecting suchcosts and the award contains no sufficient provision concerningthem.”

Section 38(1) of the Arbitration Act 1940 enabled an arbitrator orumpire to refuse delivery of an award if the payment of fees demandedby them remained unpaid, and in such cases the court could direct the

Aarbitrator or the umpire to deliver the award upon payment of such feesto the court by the applicant. Thereafter, it could assess the propriety ofthe fees demanded and out of the amount deposited in court, it coulddirect payment to the tribunal and the balance (if any) to be refunded tothe applicant. The difference between Section 38(1) of the ArbitrationAct 1940 and Section 39(1) of the Arbitration Act is that the formerBspecifically refers to the payment of the arbitrators’ fee, while the latterrefers to costs demanded by the tribunal. Section 39(1) seems to bewider in scope. However, since the costs under Section 39 are to bepayable to the arbitral tribunal, these would typically reflect costs relatingto fees of the members of the tribunal and other out-of-pocket expensesCpayable to the arbitrators that are necessary for the conduct of arbitralproceedings like expenses relating to travel, accommodation and anyother allowances.

97. This interpretation of costs under Section 39 as only limited tothe costs owed to the arbitral tribunal is also in consonance with theDpurpose of Section 39, which is that it enables the arbitral tribunal toexercise lien over the arbitral award. In Triveni Shankar Saxena v.State of UP & Ors.[142], this Court defined lien as follows:

“17…The word ‘lien’ originally means “binding” from the Latinligamen. Its lexical meaning is “right to retain”. The word ‘lien’ isEnow variously described and used under different contexts suchas ‘contractual lien’, ‘equitable lien’, ‘specific lien’, ‘general lien’,‘partners lien’, etc. etc. in Halsbury’s Laws of England, FourthEdition, Volume 28 at page 221, para 502 it is stated:

“In its primary or legal sense “lien” means right at common lawFin one man to retain that which is rightfully and continuously in hispossession belonging to another until the present and accrued claimsare satisfied.””“Lien” has been defined in P Ramanatha Aiyar: The MajorLaw Lexiconas[143]:

G“”Lien” defined. right by which person in possession of theproperty holds and retains it against the other in satisfaction of ademand due to the party retaining it. [O. VIII, R. 6(2), CPC (5 of1908)and S. 47, margin, (3 of 1930)].

142 1992 Suppl. 1 SCC 524H143 P Ramanatha Aiyar: The Major Law Lexicon(LexisNexis, 4thedition)

Right of one person to satisfy claim against another by holdingor retaining possession of that other’s assets/property. (Finance)

The right to possession of property until such time that anoutstanding liability has been repaid. banker’ s lien gives bankthe right to retain or sell the property of debtor in lieu of payment.(Banking; Insurance & International Accounting).”

The arbitral tribunal can exercise lien over the arbitral awardand refuse to deliver it if there are outstanding payments yet to be madeto the tribunal. The principle behind allowing the arbitral tribunal toexercise lien over the arbitral award is to ensure that the tribunal is notleft in the lurch without its expenses being met, while the beneficiary ofthe award reaps the benefits of it. In Assam State Weaving andManufacturing Co. Ltd. v. Vinny Engineering Enterprises (P)Ltd.[144], the Calcutta High Court observed that:“Section 39 of the 1996 Act, much like Section 38 of the old Act,recognises an arbitral tribunal’s lien over the award. The sectionconceives of situation where there may be dispute betweenthe arbitral tribunal and one or more parties to the reference as tothe costs of the arbitration. Upon an arbitral tribunal refusing todeliver its award unless its demand for payment of costs weremet by party, an application may be carried to court for directingthe tribunal to deliver the award to the applicant. Sub-section (2)contemplates an applicant thereunder to put into court the costsdemanded by the arbitral tribunal. Upon such costs being depositedthe court may order the tribunal to deliver the award to the applicant.The court can thereafter inquire into the propriety of the costsdemanded and deal with the matter following the inquiry.

Sub-section (3) of Section 39 permits an application under sub-section (2) to be carried by any party to the reference only oncondition that the fees demanded were not as fixed by writtenagreement between the applicant and the arbitral tribunal. Thesub-section does not limit an application to be made under sub-section (2) only by party who has been refused the delivery ofthe award. The delivery that Section 39 speaks of is the physicaldelivery of the document embodying the award and not merelythe pronouncement of the award. For, it is the physical receipt of

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[2022] 10 S.C.R.

Athe document that would entitle party to apply for setting asidethe award or for implementing it.”

98. Hence, sub-Section (2) and (3) of Section 39, read together,govern situation where the fees and other expenses payable to thearbitrators have not been decided through written agreement betweenBthe party and the arbitral tribunal. While ideally, the parties and thearbitrators should arrive at an arrangement regarding the remunerationof arbitrators, the arbitral tribunal may raise non-binding invoiceregarding the arbitration costs (i.e., fees and expenses payable toarbitrator(s)) and may refuse to deliver the award unless the outstandingpayments have been made. The parties are not obligated to pay suchCcosts if they believe that such costs are unreasonable. In such case, itis the court that determines whether the fees and other expensesdemanded by the tribunal are reasonable in terms of Section 39(2).

99. To conclude, the arbitral tribunal while deciding the allocationof costs under Sections 31(8) read with 31A or advance of costs underDSection 38 cannot issue any binding or enforceable orders regardingtheir own remuneration. This would violate the principle of party autonomyand the doctrine of prohibition of in rem suam decisions[145], whichpostulates that the arbitrators cannot be the judge of their own claimagainst parties’ regarding their remuneration. The principles of partyEautonomy and the doctrine of prohibition ofin rem suam decisions donot restrict the arbitral tribunal from apportioning costs between the parties(including the arbitrator(s) remuneration) since this is merely areimbursement of the expenses that the successful party has incurred inparticipating in the arbitral proceedings. Likewise, the arbitral tribunalcan also demand deposits and supplementary deposits since theseFadvances on costs are merely provisional in nature. If while fixing costsor deposits, the arbitral tribunal makes any finding relating to arbitrators’fees (in the absence of an agreement), it cannot be enforced in favourof the arbitrators. The party can approach the court to review the feesdemanded by the arbitrators.

G100. Ideally, in ad hoc arbitrations, the fees payable to thearbitrator(s) should be decided through an arrangement between theparties and the arbitrator(s). In the next section, we are issuing certaindirectives to govern the process of how fees payable to the arbitrator(s)have to be fixed in ad hoc arbitrations.

C.2.4 Directives governing fees of arbitrators in ad hocarbitrations

101. Preliminary meetings in arbitration proceedings entail ameeting convened by the arbitral tribunal with the parties to arrive at acommon understanding about how the arbitration is to be conducted. Itgenerally takes place at an early stage of the dispute resolution process,prior to the “written phase of the proceedings”. Rules of certaininternational arbitral institutions provide for convening preliminarymeeting[146] or case-management conference[147]. The fees and expensesare typically addressed at this stage[148]. We propose that this stage ofhaving preliminary hearing should be adopted in the process of conductingad hoc arbitrations in India as it will provide much needed clarity onhow arbitrators are to be paid and reduce conflicts and litigation on thisissue.

102. These preliminary hearings should also be conducted whenthe fees are specified in the arbitration agreement. The arbitrationagreement may have been entered into at an earlier point in time, evenseveral years earlier. It is possible that at the time when the disputesbetween the parties arise, the fees stipulated in the arbitration agreementmay have become an unrealistic estimate of the remuneration that is tobe offered for the services of the arbitrator due to the passage of time.In the preliminary hearings, if all the parties and the arbitral tribunalagree to revised fee, then that fee would be payable to the arbitrator(s).However, if any of the parties raises an objection to the fee beingdemanded by the arbitrator(s) and no consensus can be arrived at betweensuch party and the tribunal or member of the tribunal, then the tribunalor the member of the tribunal should decline the assignment. Since therelationship between the parties and arbitrator(s) is contractual in nature,specifically with respect to the payment of remuneration, there must bea consensus on the fees to be paid.

103. It is possible that during the preliminary hearings, the partiesand the arbitral tribunal may be unsure about the extent of time thatneeds to be invested by the arbitrator(s) and the complexity of the dispute.It is also possible that the arbitral proceedings may continue for much

146 Rule 19.3, SIAC Rules

147 Article 24, ICC Rules

148 Supra at note 28

Alonger time than was expected. In order to anticipate such contingencies,during the preliminary hearings, the parties and the arbitrator(s) shouldstipulate that after certain number of sittings, the fee would standrevised at specified rate. The number of sittings after which the revisionwould take place and the quantum of revision must be clearly discussedand determined during the preliminary hearings through the process ofBnegotiation between the parties and the arbitrator(s). There is no unilateralpower reserved to the arbitrator(s) to revise the fees on their own termsif they believe that an additional number of sittings would be required tosettle the dispute. The fees payable to the arbitral tribunal in an ad hocarbitration must be settled between the arbitral tribunal and the partiesCat the threshold during the course of the preliminary hearings. Resolutionof the fees payable to the arbitral tribunal by mutual agreement duringthe preliminary hearings is necessary. Failing such an agreement, thearbitrator(s) who decline to accept the fee suggested by the parties (orany of them) are at liberty to decline the assignment. The fixation ofarbitral fees at the threshold will obviate the grievance that theDarbitrator(s) are arm-twisting parties at an advanced stage of the disputeresolution process. In such situation, party who is not agreeable to aunilateral revision of fees demanded by the arbitral tribunal in the midstof the proceedings has real apprehension that its refusal may result inembarrassing consequences bearing on the substance of the dispute.

104. We believe that the directives proposed by the amicus curiae,with suitable modifications, would be useful in structuring how thesepreliminary hearings are to be conducted. Exercising our powersconferred under Article 142 of the Constitution, we direct the adoptionof the following guidelines for the conduct of ad hoc arbitrations inFIndia:

“1. Upon the constitution of the arbitral tribunal, the parties andthe arbitral tribunal shall hold preliminary hearings with maximumcap of four hearings amongst themselves to finalise the terms ofreference (the “Terms of Reference”) of the arbitral tribunal.GThe arbitral tribunal must set out the components of its fee in theTerms of Reference which would serve as tripartite agreementbetween the parties and the arbitral tribunal.

2. In cases where the arbitrator(s) are appointed by parties in themanner set out in the arbitration agreement, the fees payable tothe arbitrators would be in accordance with the arbitrationH

agreement. However, if the arbitral tribunal considers that the feestipulated in the arbitration agreement is unacceptable, the feeproposed by the arbitral tribunal must be indicated with clarity inthe course of the preliminary hearings in accordance with thesedirectives. In the preliminary hearings, if all the parties and thearbitral tribunal agree to revised fee, then that fee would bepayable to the arbitrator(s). However, if any of the parties raisesan objection to the fee proposed by the arbitrator(s) and noconsensus can be arrived at between such party and the tribunalor member of the tribunal, then the tribunal or the member ofthe 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 feefixed or the heads under which the fee may be charged.

4. The parties and the arbitral tribunal may make carve out inthe Terms of Reference during the preliminary hearings that thefee fixed therein may be revised upon completion of specificnumber of sittings. The quantum of revision and the stage at whichsuch revision would take place must be clearly specified. Theparties and the arbitral tribunal may hold another meeting at thestage specified for revision to ascertain the additional number ofsittings that may be required for the final adjudication of the disputewhich number may then be incorporated in the Terms of Referenceas 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 arbitraltribunal would be entitled to charge. However, where the Courtleaves this determination to the arbitral tribunal in its appointmentorder, the arbitral tribunal and the parties should agree upon theTerms of Reference as specified in the manner set out in draftpractice direction (1) above.

6. There can be no unilateral deviation from the Terms ofReference. The Terms of Reference being tripartite agreementbetween the parties and the arbitral tribunal, any amendments,revisions, additions or modifications may only be made to themwith 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 andConciliation Act, 1996.

A8. The Fourth Schedule was lastly revised in the year 2016. Thefee structure contained in the Fourth Schedule cannot be staticand deserves to be revised periodically. We, therefore, direct theUnion of India to suitably modify the fee structure contained inthe Fourth Schedule and continue to do so at least once in periodof three years.”B

105. Conscious and aware as we are that (i) Arbitrationproceedings must be conducted expeditiously; (ii) Court interferenceshould be minimal; and (iii) Some litigants would object to even justand fair arbitration fee, we would like to effectuate the object and purposebehind enacting the model fee schedule. When one or both parties, orCthe parties and the arbitral tribunal are unable to reach consensus, it isopen to the arbitral tribunal to charge the fee as stipulated in the FourthSchedule, which we would observe is the model fee schedule and canbe treated as binding on all. Consequently, when an arbitral tribunal fixesthe fee in terms of the Fourth Schedule, the parties should not be permittedDto object the fee fixation. It is the default fee, which can be changed bymutual consensus and not otherwise.

Interpretation of “sum in dispute” in the Fourth ScheduleD.1 Statutory Framework

E106. We must begin by looking at the statutory framework of theArbitration Act. In order to understand the genesis of the competinginterpretations, it is important to first consider Sections 31(8), theExplanation to Section 31A(1) and Section 38(1).

107. Section 31(8) of the Arbitration Act reads thus:F“31. Form and contents of arbitral award.—

(8) The costs of an arbitration shall be fixed by the arbitral tribunalin accordance with Section 31-A.”

GSub-Section (8) of Section 31 was amended by the ArbitrationAmendment Act 2015, which also added Section 31A to the ArbitrationAct.

108. Section 31A(1) is in the following terms:

“31-A. Regime for costs.—(1) In relation to any arbitrationHproceeding or proceeding under any of the provisions of this

Act pertaining to the arbitration, the court or arbitral tribunal,notwithstanding anything contained in the Code of Civil Procedure,1908 (5 of 1908), shall have the discretion to determine—

(a) whether costs are payable by one party to another;

(b) the amount of such costs; and

(c) when such costs are to be paid.

Explanation.—For the purpose of this sub-section, “costs”means reasonable costs relating to—

(i) the fees and expenses of the arbitrators, courts andwitnesses;

(ii) legal fees and expenses;

(iii) any administration fees of the institution supervising thearbitration; and

(iv) any other expenses incurred in connection with the arbitral orcourt proceedings and the arbitral award.[…]”

(emphasis supplied)

Sub-Section (1) of Section 31A provides the court or the arbitraltribunal with the power to determine the following in regard to costs: (i)whether they are payable by one party to the other; (ii) their amount;and (iii) when they are payable. The Explanation to Section 31A(1)defines “costs” to include four components, the first of which is “thefees and expenses of the arbitrators, courts and witnesses”.

109. Section 31(8) is also linked to Section 38(1), which is asfollows:

“38. Deposits.—(1) The arbitral tribunal may fix the amount ofthe deposit or supplementary deposit, as the case may be, as anadvance for the costs referred to in sub-section (8) of Section 31,which it expects will be incurred in respect of the claim submittedto it:

Provided that where, apart from the claim, counter-claimhas been submitted to the arbitral tribunal, it may fixseparate amount of deposit for the claim and counter-claim.”

(emphasis supplied)

AAccording to sub-Section (1) of Section 38 of the Arbitration Act,the arbitral tribunal can direct the parties to make deposit, as an advance,for the costs referred to in Section 31(8). As noted earlier, Section 31(8)states that such costs are to be determined in accordance with Section31A. Crucially, the proviso to Section 38(1) provides that the arbitraltribunal may fix separate amount of deposit for the claim and counter-Bclaim, in an arbitration where counter-claim has been filed.

110. The inter-connection between Section 31(8), Section 31Aand Section 38(1) bears directly on the interpretation of the FourthSchedule of the Arbitration Act. The Fourth Schedule is extracted below:

“THE FOURTH SCHEDULE

See Section 11(3-A)

Note: In the event the arbitral tribunal is sole arbitrator, he shallbe entitled to an additional amount of twenty-five per cent on thefee payable as per the above.”

The issue before this Court turns on the interpretation of the term“sum in dispute”, which is the header of the second column of the FourthSchedule. This column provides the different categories of the amounts,corresponding to which the third column provides the relevant fee whichthe arbitrators can charge for that category.

111. On the one hand, it has been argued before us that theexpression “sum in dispute” should be the cumulative sum of the claimand counter-claim raised by the parties. If such position is adopted, thearbitrators will charge one common fee for hearing both the claim andcounter-claim, and the ceiling prescribed in the Fourth Schedule willapply to their cumulative total. On the other hand, it is submitted that“sum in dispute” refers to the individual sums in dispute in the claimand counter-claim. The consequence of adopting this position would bethat the arbitrators will charge different sets of fees for the claim andcounter-claim, and hence, separate fee ceilings will apply to both.

D.2 Definition of claim and counter-claim

D.2.1 In re arbitration proceedings

(i)Statutory Framework of the Arbitration Act

112. The Arbitration Act does not specifically define either theexpression “claim” or “counter-claim”. However, these expressions arereferred to in numerous instances, which we shall now outline.

113. Part I of the Arbitration Act is titled “Arbitration”. Section 2is the definitions clause for Part I. Section 2(1) defines the variousterms used throughout Part I. Sections 2(2) to 2(5) clarify the scope ofthe disputes which will be covered by Part I. Section 2(6) notes thatwhere Part I allows parties to determine any issue, it also providesthem right to let any other person or institution determine the issuefor them. Section 2(7) notes that awards passed under Part I shall bedomestic awards. Section 28(1) clarifies that any reference to anagreement made by the parties (or which may be made), will alsoinclude reference to any arbitration rules referred to in the agreement.Crucially, Section 2(9) states that “[w]here [Part I], other than clause(a) of Section 25 or clause (a) of sub-section (2) of Section 32, refers toa claim, it shall also apply to counter-claim, and where it refers to adefence, it shall also apply to defence to that counter-claim”. This

Acorresponds to Article 2(f)[149] of the UNCITRAL Model Law, on whichthe Arbitration Act is based. Section 25(a) notes that if the claimant failsto communicate his statement of claim in accordance with sub-section(1) of Section 23, the arbitral tribunal shall terminate the proceedings,while Section 32(2)(a) provides that the arbitral tribunal shall issue anorder for termination of arbitration proceedings where the claimantBwithdraws his claim, unless the respondent objects to the order and thearbitral tribunal recognises legitimate interest on his part in obtaining afinal settlement of the dispute. Hence, as is evident, other than thesespecific provisions which refer to only claim filed by the claimant, theArbitration Act treats claims and counter-claims at par.C

114. Another reference is then made to counter-claims in sub-Section (2-A) of the Section 23, which provides as follows:

“23. Statements of claim and defence.

(2-A) The respondent, in support of his case, may also submit acounter claim or plead set-off, which shall be adjudicated uponby the arbitral tribunal, if such counter claim or set-off falls withinthe scope of the arbitration agreement.”

Section 23(2-A) clarifies that an arbitral tribunal is under anEobligation to also adjudicate upon counter-claim or set-off filed by aparty in an arbitration proceeding, with the limitation that they should fallwithin the scope of the arbitration agreement. This is in line with therequirements under the UNCITRAL Model Law[150]. If party files afrivolous counter-claim which leads to delay in the arbitrationFproceedings, the arbitral tribunal can take that into account whiledetermining costs in accordance with Section 31A(3)(c).

115. Section 23(2-A) was introduced by the ArbitrationAmendment Act 2015, bearing in view the recommendations in the LCI246[th] Report (supra). The Report had recommended the addition of

149 Article 2(f) provides: “(f)where provision of this Law, other than in Article 25(a)and 32(2)(a), refers to claim, it also applies to counter-claim, and where it refers toa defence, it also applies to defence to such counter-claim”.

150 Howard M Holtzmann and Joseph Neuhaus, Guide to the UNCITRAL ModelLaw on International Commercial Arbitration: Legislative History and Commentary(Walter Kluwers, 1989), page 649H

an explanation to Section 23(1) (instead of different sub-Section) alongwith the following comment:

“Amendment of Section 23

13.In section 23, after sub-section (1) and before sub-section (2),add the words “Explanation: In his defence the respondent mayalso submit counter claim or plead set off, which shall betreated as being within the scope of reference and be adjudicatedupon by the arbitral tribunal notwithstanding that it may not fallwithin the scope of the initial reference to arbitration, but providedit falls within the scope of the arbitration agreement.”

[NOTE: This explanation is in order to ensure that counter claimsand set off can be adjudicated upon by an arbitrator without seekinga separate/new reference by the respondent so long as it fallswithin the scope of the arbitration agreement, in order to ensurefinal settlement of disputes between parties and prevent multiplicityof litigation.]”

Thus, the object of taking up counter-claim along with the claimin the same proceeding is not because the counter-claim arises due tothe claim (which it may not) but in order to prevent multiplicity ofproceedings.

116. We have already noted Section 38(1) earlier in this judgment,where the proviso provides the arbitral tribunal with the power to fix aseparate amount of deposits (of costs determined under Section 31(8))in instances where claim and counter-claim have both been filed in anarbitration proceeding. We must also take note of Section 38(2) of theArbitration Act, which provides:

“(2) The deposit referred to in sub-section (1) shall be payable inequal shares by the parties:

Provided that where one party fails to pay his share of the deposit,the other party may pay that share:

Provided further that where the other party also does not pay theaforesaid share in respect of the claim or the counter-claim, thearbitral tribunal may suspend or terminate the arbitral proceedingsin respect of such claim or counter-claim, as the case may be.”

As general rule, sub-Section (2) of Section 38 provides that thedeposits determined under Section 38(1) have to be shared by both parties.

AThe first proviso notes that if one party fails to pay their share, the otherparty may step in and pay it. Further, the second proviso notes that if theother party also does not pay that share, the arbitral tribunal can suspendproceedings. Importantly, it provides that it may terminate proceedingsin relation to either the claim or counter-claim or both, depending uponwhether the appropriate deposits have been made for one of them orBneither of them.117. Consequently, on the basis of the above analysis, the followingprinciples emerge:

(i)The Arbitration Act treats claims and counter-claims at par,Cand holds them subject to the same procedural timelinesand requirements;

(ii)The Arbitration Act allows the arbitral tribunal to fix depositof costs for claims and counter-claims separately,recognizing that they are distinct proceedings since:(a) theDproceeding for adjudicating on the claim is independent ofthe proceeding for deciding the counter-claim; (b)distinctissues may arise before the tribunal while adjudicating onthe claim and counter-claim; (c) the evidence led in supportof the claim may not be dispositive of the material whichwould be relied on to decide the counter-claim; and (d)theEdecision on the claim does not necessarily conclude theadjudication of the counter-claim; and(iii)The Arbitration Act considers claims and counter-claims tobe independent proceedings since the latter is notcontingent upon the former. Rather, it protects the right ofFany respondent to raise counter-claim in an arbitrationproceeding, provided it arises from the arbitration agreementunder dispute. Further, in the event of default in thepayment of deposit either for the claim or counter-claim,it specifically notes that the proceedings will be terminatedGonly in respect of the claim, or as the case may be, thecounter-claim in respect of which the default has occurred;

(iv)Though counter-claim may arise from similar facts as aclaim, the counter-claim is not set off and is not in thenature of defence to the claim; and

(v)A counter-claim will survive for independent adjudicationeven if the claim is dismissed or withdrawn and therespondent to claim would be entitled to pursue theircounter-claim regardless of the pursuit of or the decisionon the claim.

(ii) Academic discourse

118. In Justice R S Bachawat’s seminal treatise on Law ofArbitration & Conciliation, it has been noted that an arbitral tribunalhas the jurisdiction to decide any claim and counter-claim arising out ofa dispute referred to it, and not deciding the latter would be ground toset aside the award[151]:

“[s 7.44.3] Counter-claim

When disputes in pending suit are referred to arbitration, thearbitrator has jurisdiction to decide both the claim and thecounterclaim…An award allowing the claim without deciding thecounterclaim is liable to be set aside. Where the arbitrationagreement permitted reference of all disputes to arbitration, it couldnot be said that by entertaining counterclaim, the arbitratorexceeded his jurisdiction.”

119. Similarly, CR Dutta’s treatise on Law of Arbitration &Conciliation supports the proposition that the Arbitration Act treats aclaim and counter-claim as two separate and independent proceedings[152]:

“4. To be paid equally

The cost amount to be deposited will be in respect of the claimand separately in respect of the counter-claim by the parties inequal shares. If party does not pay the other party may be askedto pay the shares of both the parties. If the amount directed to bedeposited in respect of the claim is not made, then the proceedingsin respect of the claim may be suspended or terminated but theproceedings in respect of counter-claim can proceed if the amountin respect thereof has been deposited. For the purposes of depositof costs and expenses, the claim and counter-claim have beentreated as two separate independent proceedings.”

151Anirudh Wadha and Anirudh Krishnan, Justice R S Bachawat’s Law of Arbitration &Conciliation (6[th] edition, 2017)

152 CR Dutta’s Law Of Arbitration And Conciliation (LexisNexis)

A120. Gary Born on Arbitration (supra) notes that party isgenerally not bound by any restriction in regards to its counter-claim,except that it must fall within the scope of the arbitration agreement[153]:

“In general, there are no limits under national law on the subjectmatter of respondent’s counterclaims, beyond whateverBrestrictions may be contained in the parties’ arbitration agreement:the respondent may assert any counterclaim that falls within thescope of the arbitration agreement. This general freedom may belimited by the parties’ arbitration agreement or applicableinstitutional rules (which, however, usually do not impose furtherlimits).”

C121. Finally, in Procedure and Evidence in InternationalArbitration, counter-claim is differentiated from set-off by notingthat it is claim brought by the defendant and is not defence to theclaimant’s claim[154]:

D“4.4. counterclaim is usually seen as claim brought by arespondent in civil suit against the claimant that is independentof the primary claim although it may be linked to the same facts.The term is used in contradistinction to set-off that is seen as adefence to the primary claim, albeit one invariably related todifferent facts. Because it is not simply defence, counterclaimEleads to separate judgment that may be in excess of the judgmentunder the primary claim. Furthermore, the counterclaim remainsalive even if the initial claim is withdrawn. Thus, it is truly reverseclaim and not defence as such.”

122. These academic writings support the conclusion that claimsFand counter-claims within an arbitration proceeding are distinct andindependent proceedings in themselves.

(iii) Judicial pronouncements

123. Even before the introduction of Section 23(2-A) through theArbitration Amendment Act 2015, counter-claims were raised by partiesGin arbitration proceedings. In Indian Oil Corpn. Ltd. v. Amritsar GasService[155], this Court had to decide on the validity of an award under

153 Supra at note 30

154 Jeffrey Waincymer, Procedure and Evidence in International Arbitration (WaltersKluwer, 2012)H155 (1991) 1 SCC 533 (“Amritsar Gas Service”)

the Arbitration Act 1940 where the appellant’s counter-claim had beendismissed by the arbitrator since it was not part of the reference. Speakingfor the three-Judge Bench, Justice J S Verma held that when all disputesunder an arbitration agreement are referred to arbitration, party canfile its counter-claim before the arbitral tribunal:

“15. The appellant’s grievance regarding non-consideration of itscounter-claim for the reason given in the award does appear tohave some merit. In view of the fact that reference to arbitratorwas made by this Court in an appeal arising out of refusal to staythe suit under Section 34 of the Arbitration Act and the referencewas made of all disputes between the parties in the suit, theoccasion to make counter-claim in the written statement couldarise only after the order of reference. The pleadings of the partieswere filed before the arbitrator, and the reference covered alldisputes between the parties in the suit. Accordingly, the counter-claim could not be made at any earlier stage. Refusal to considerthe counter-claim for the only reason given in the award does,therefore, disclose an error of law apparent on the face of theaward. However, in the present case, the counter-claim not beingpressed at this stage by learned counsel for the appellant, it isunnecessary to examine this matter any further.”

124. In State of Goa v. Praveen Enterprises[156], two-JudgeBench followed the principle enunciated in Amritsar Gas Service(supra) in case arising under the Arbitration Act. Speaking for thetwo-Judge Bench, Justice R V Raveendran, in the course of an eruditeexposition of the law, highlighted that respondent to claim could wellseek independent recourse to arbitration for deciding the counter-claim,but raising counter-claim obviates multiplicity of litigation:

“32. counterclaim by respondent presupposes the pendencyof proceedings relating to the disputes raised by the claimant. Therespondent could no doubt raise dispute (in respect of the subject-matter of the counterclaim) by issuing notice seeking referenceto arbitration and follow it by an application under Section 11 ofthe Act for appointment of arbitrator, instead of raising acounterclaim in the pending arbitration proceedings. The objectof providing for counterclaims is to avoid multiplicity of proceedings

Aand to avoid divergent findings. The position of respondent in anarbitration proceeding being similar to that of defendant in asuit, he has the choice of raising the dispute by issuing notice tothe claimant calling upon him to agree for reference of his disputeto arbitration and then resort to an independent arbitrationproceeding or raise the dispute by way of counterclaim, in theBpending arbitration proceedings.”

Subsequently, in Voltas Ltd. v. Rolta India Ltd.[157], another two-Judge Bench of this Court followed the reasoning in PraveenEnterprises (supra), that counter-claims were independent claimproceedings by the respondent. The Court held that the limitation for aCcounter-claim would be determined with reference to the date it wasinstituted before the arbitral tribunal. However, it carved out an exceptionto this general rule for instances where the respondent had earlier raisedthe counter-claim as claim in notice for arbitration sent to the claimant,but did not subsequently file an application under Section 11 of theDArbitration and raised it directly as counter-claim. In such instances,the date of limitation would, it was observed, begin from when the noticeof arbitration was first received by the claimant.

D.2.2 In re civil proceedings

(i) Statutory Framework of CPCE

125. Order VIII of the CPC contains provisions pertaining towritten statements, set-offs and counter-claims by the defendant. Rule6 elucidates the particulars of set-off to be given in written statement:

“—6. Particulars of set-off to be given in written statement.F(1) Where in suit for the recovery of money the defendant claimsto set-off against the plaintiff’s demand any ascertained sum ofmoney legally recoverable by him from the plaintiff, not exceedingthe pecuniary limits of the jurisdiction of the Court, and both partiesfill the same character as they fill in the plaintiff’s suit, the defendantmay, at the first hearing of the suit, but not afterwards unlessGpermitted by the Court, present written statement containingthe particulars of the debt sought to be set-off.

(2) Effect of set-off.—The written statement shall have the sameeffect as plaint in cross-suit so as to enable the Court to

H157 (2014) 4 SCC 516

pronounce final judgment in respect both of the original claimand of the set-off, but this shall not affect the lien, upon the amountdecreed, of any pleader in respect of the costs payable to himunder the decree.

(3) The rules relating to written statement by defendant applyto written statement in answer to claim of set-off.”

Rule 6(1) specifies that while filing their written statement, adefendant may mention the particulars of an ascertained sum legallyrecoverable from the plaintiff. Rule 6(2) notes that the effect of pleadinga set-off in written statement is the same as filing plaint in cross-suit. Rule 6(3) then notes that the plaintiff’s written statement inrespondent to the defendant’s set-off claim shall follow the same rulesas the defendant’s written statement in response to the plaintiff’s plaint.

126. On the other hand, distinct provision is made for counter-claim under Rule 6-A of Order VIII of the CPC:

“6-A. Counter-claim by defendant.—(1) defendant in suitmay, in addition to his right of pleading set-off under Rule 6, setup, by way of counter-claim against the claim of the plaintiff, anyright or claim in respect of cause of action accruing to thedefendant against the plaintiff either before or after the filing ofthe suit but before the defendant has delivered his defence orbefore the time limited for delivering his defence has expired,whether such counter-claim is in the nature of claim for damagesor not:

Provided that such counter-claim shall not exceed the pecuniarylimits of the jurisdiction of the Court.

(2) Such counter-claim shall have the same effect as cross-suitso as to enable the Court to pronounce final judgment in thesame suit, both on the original claim and on the counter-claim.

(3) The plaintiff shall be at liberty to file written statement inanswer to the counter-claim of the defendant within such periodas may be fixed by the Court.

(4) The counter-claim shall be treated as plaint and governed bythe rules applicable to plaints.”

ARule 6-A(1) provides that the defendant’s counter-claim is inaddition to claim for set-off under Rule 6. It provides that the defendantmay file counter-claim based on cause of action accruing to themagainst the plaintiff either before or after the filing of the suit but beforethe defendant has delivered his defence or before the time limited fordelivering his defence has expired. The proviso notes that the value ofBthe counter-claim cannot exceed the pecuniary jurisdiction of the courtwhere it is being filed. Rule 6-A(2) provides that the counter-claim hasthe same effect as cross-suit. Rule 6-A(3) permits plaintiff to file awritten statement against the defendant’s counter-claim. Finally, Rule 6-A(4) notes that the counter-claim shall be treated as plaint and theCrules governing plaints will be applicable to it.

127. Rule 6-D of Order VIII is of particular importance, and itprovides thus:

“6-D. Effect of discontinuance of suit.—If in any case in whichthe defendant sets up counter-claim, the suit of the plaintiff isDstayed, discontinued or dismissed, and counter-claim maynevertheless be proceeded with.”

Rule 6-D clarifies, in no uncertain terms, that even if the suitwhich has been instituted by the plaintiff is stayed, discontinued ordismissed, it would not affect the defendant’s counter-claim. ThisEhighlights, once again, that counter-claims are distinct and independentfrom claims. The defendant’s counter-claim is equivalent to plaint.The counter-claim is not being filed as an independent suit but as acounter-claim within pre-existing suit so as to avoid multiplicity oflitigation. However, it is not dependant on the outcome of the originalFsuit and is an independent proceeding.

(ii) Academic discourse

128. Mulla’s treatise on the Code of Civil Procedure notes thata counter-claim is an independent suit which exists within another pre-existing suit, in order to enable the court to pronounce final judgment onGthe claim and the counter-claim together[158]:

“The very object of Rule 6A is to treat counterclaim as anindependent suit to be heard together with the plaintiff’s suit toenable the court to pronounce final judgement.”

129. Sarkar’s Code of Civil Procedure notes that counter-claim is an independent action and not defence to the plaintiff’s originalclaim[159]:

“The provisions of Rule 6A(1) are in substance similar to those ofRSC, 1965 [Rules of the Supreme Court of UK, 1965], Order 15,Rule 2(1). Cf Rule 6(2) with Order 8, Rule 6(2) of the Code andRule 6A(4) with RSC 1965, Order 18, Rule 18. The effect of thisrule is from the point of view of pleading to assimilate counter-claim with plaint in suit and is therefore governed by the samerules of pleading as plaint. counter-claim is substantially across-action, not merely defence to the plaintiff’s claim.It must be of such nature that the court would have jurisdictionto entertain it as separate action.”

(emphasis supplied)

Sarkar (supra) further notes that this understanding is crystallisedin Order VIII Rule 6-D, where the dismissal of frivolous action by theplaintiff would not affect the defendant’s counter-claim:

“[Rule 6-D] further illustrates the principle that counter-claim isto be treated as cross action, and is not affected by anythingwhich relates solely to the plaintiff’s claim. Thus, where the plaintiffdiscontinues action the counter-claim has been served, he cannotprevent the defendant from enforcing against him the causes ofaction contained in the counter-claim. So if an action is dismissedbeing frivolous, the counter-claim is not affected and the defendantmay be granted the relief which he seeks thereby.”

130. The above exposition of counter-claim is elaborated inHalsbury’s Laws of India (Civil Procedure)[160]:

“A “counter-claim” is claim made by defendant in suit againsta plaintiff. It is claim, independent of and separable fromthe plaintiff’s claim, which can be enforced by cross-action.It is cause of action in favour of the defendant against theplaintiff…”

(emphasis supplied)

159 Sudipto Sarkar and Aditya Swarup, Sarkar’s Code of Civil Procedure (LexisNexis,

13[th] edition) (“Sarkar”)

160Halsbury’s Laws of India (Civil Procedure) (2nd edition)

[2022] 10 S.C.R.

A131. Zuckerman’s treatise on Civil Procedure, Principles ofPractice also observes that counter-claims are an independentproceeding[161]:

“4.52. counterclaim is independent of the main claim. It mayrelate to the same transaction, as where the claimant claims forBthe price of goods and the defendant counterclaims damages forlate delivery or for defects. Equally, counterclaim can be whollyseparate from the claim, as where the defendant sues in respectof entirely different events from those that are raised in theclaimant’s claim.”

C(iii) Judicial pronouncements

132. In Jag Mohan Chawla v. Dera Radha Swami Satsang[162],a two-Judge Bench of this Court had to decide whether, under the CPC,a counter-claim can be made on cause of action different from theprimary claim. Speaking for the two-Judge Bench, Justice K Ramaswamyheld:D

“5…In sub-rule (1) of Rule 6-A, the language is so couchedwith words of wide width as to enable the parties to bringhis own independent cause of action in respect of any claimthat would be the subject-matter of an independent suit.EThereby, it is no longer confined to money claim or to cause ofaction of the same nature as original action of the plaintiff. It neednot relate to or be connected with the original cause of action ormatter pleaded by the plaintiff. The words “any right or claim inrespect of cause of action accruing with the defendant” wouldshow that the cause of action from which the counter-claim arisesFneed not necessarily arise from or have any nexus with the causeof action of the plaintiff that occasioned to lay the suit…Thecounter-claim expressly is treated as cross-suit with allthe indicia of pleadings as plaint including the duty toaver his cause of action and also payment of the requisiteGcourt fee thereon. Instead of relegating the defendant toan independent suit, to avert multiplicity of the proceedingand needless protection (sic protraction), the legislature

161 Zuckermann on Civil Procedure (Sweet & Maxwell, 4th edition)H162 (1996) 4 SCC 699

intended to try both the suit and the counter-claim in thesame suit as suit and cross-suit and have them disposed ofin the same trial. In other words, defendant can claim anyright by way of counter-claim in respect of any cause of actionthat has accrued to him even though it is independent of the causeof action averred by the plaintiff and have the same cause ofaction adjudicated without relegating the defendant to file aseparate suit…”

(emphasis supplied)

Hence, it was held that since the counter-claim was effectivelyan entirely independent suit from the claim, it could arise out of anyunrelated cause of action.

133. In Rajni Rani v. Khairati Lal[163], Justice Dipak Misra (asthe learned Chief Justice then was), speaking for two-Judge Bench ofthis Court, analysed the provisions of Order VIII and held:

“9.6…a counterclaim preferred by the defendant in suit isin the nature of cross-suit and by statutory commandeven if the suit is dismissed, counterclaim shall remain alivefor adjudication. For making counterclaim entertainable bythe court, the defendant is required to pay the requisite court feeon the valuation of the counterclaim. The plaintiff is obliged to filea written statement and in case there is default the court canpronounce the judgment against the plaintiff in relation to thecounterclaim put forth by the defendant as it has an independentstatus. The purpose of the scheme relating to counterclaimis to avoid multiplicity of the proceedings. When acounterclaim is dismissed on being adjudicated on merits itforecloses the rights of the defendant. As per Rule 6-A(2) thecourt is required to pronounce final judgment in the same suitboth on the original claim and also on the counterclaim.The...purpose is to avoid piecemeal adjudication…”

134. In Thomas Mathew v. KLDC Ltd., another two-JudgeBench of this Court held that counter-claim is an independent suit andconsequently, the period of limitation would be three years from the dateof accrual of the cause of action[164].

163 (2015) 2 SCC 682

164 (2018) 12 SCC 560

DEF

AD.3 Analysis

135. On our analysis of the statutory framework of the ArbitrationAct and the CPC, related academic discourse and judicialpronouncements, the following conclusions emerge:

(i)Claims and counter-claims are independent and distinctBproceedings;

(ii)A counter-claim is not defence to claim and its outcomeis not contingent on the outcome of the claim;

(iii)Counter-claims are independent claims which could haveCbeen raised in separate proceedings but are permitted to beraised in the same proceeding as claim to avoid amultiplicity of proceedings; and

(iv)The dismissal of proceedings in relation to the original claimdoes not affect the proceedings in relation to the counter-claim.D

136. We must now consider these principles in the context of theinter-connection between Section 31(8), Section 31A and Section 38(1)and the Fourth Schedule of the Arbitration Act. On combined readingof Section 31(8), Section 31A and Section 38(1), it is clear that: (i) separatedeposits are to be made for claim and counter-claim in an arbitrationEproceeding; and (ii) these deposits are in relation to the costs of arbitration,which includes the fee of the arbitrators. Therefore, prima facie, thedetermination of the fee under the Fourth Schedule should also becalculated separately for claim and counter-claim – i.e., the term “sumin dispute” refers to independent claim amounts for the claim and counter-Fclaim. Such an interpretation is also supported by the definition of claimand counter-claim, and by the fact that the latter constitutes proceedingsindependent and distinct from the former.137. If this interpretation were to be discarded in favor ofconstruing “sum in dispute” as cumulation of the claim amount for theGclaim and counter-claim, it would have far-reaching consequences interms of procedural fairness. First, under the proviso to Section 38(1),the arbitral tribunal can direct separate deposits for claim and counter-claim. These are based on the cost of arbitration defined by conjointreading of Sections 31(8) and 31A, which includes the arbitrators’ fee.Hence, if the arbitrators were to charge common fee for both theH

claim and counter-claim, they would have to then equitably divide thatfee while calculating individual deposits for the purpose of the proviso toSection 38(1).Second, the second proviso to Section 38(2) provides thatif the deposit is not made by both the parties, the arbitral tribunal candismiss the claim and/or counter-claim, as the case may be. If the claimwas to be dismissed in such manner, it would lead to an absurd situationwhere the arbitrators’ fee would have to be revised in the middle of thearbitration proceedings solely on the basis of the amount of the counter-claim. Third, under Section 23(2-A), the only requirement of counter-claim is that it should arise out of the same arbitration agreement as theclaim. However, the cause of action of counter-claim may be entirelydifferent from the claim and possibly far more complex. Therefore,determining the arbitrators’ fee on combined basis for both the claimand counter-claim would thus not match up to the separate effort theywould have to put in for each individual dispute in the claim and counter-claim.

138. In support of the proposition that “sum in dispute” in theFourth Schedule includes the cumulation of the sums of the claim andcounter-claim, we have also been referred to the LCI 246[th] Report(supra). It has been argued that the Law Commission highlighted theproblem of arbitrators charging an excessive fee in ad hoc arbitrations,which is what led to the introduction of the Fourth Schedule by theArbitration Amendment Act 2015. Thus, it has been urged that “sum indispute” in the Fourth Schedule should be interpreted keeping in mindthe purpose with which it was introduced. However, we must reject theargument since it would militate against the statutory framework of theArbitration Act as it stands today. If Parliament intended that commonfee be charged for claim and counter-claim, it would have amendedthe rest of the Arbitration Act as well or introduced specific clause inthe Fourth Schedule. Parliament may in its legislative wisdom still do so.In Aphali Pharmaceuticals Ltd. v. State of Maharashtra[165] speakingfor two-Judge Bench of this Court, Justice K N Saikia held:

“31. Schedule in an Act of Parliament is mere question ofdrafting…The Schedule may be used in construing provisions inthe body of the Act. It is as much an act of legislature as the Actitself and it must be read together with the Act for all purposes of

Aconstruction. Expressions in the Schedule cannot control orprevail against the express enactment and in case of anyinconsistency between the Schedule and the enactment, theenactment is to prevail and if any part of the Schedule cannotbe made to correspond it must yield to the Act.”

(emphasis supplied)

139. In final attempt, we have also been referred to the rules ofnumerous arbitral institutions which provide for the calculation ofarbitrators’ fees on the cumulation of the sum of the claim and counter-claim –such as the DIAC[166], Mumbai Centre for InternationalCArbitration[167], Indian Council of Arbitration[168], Construction IndustryArbitration Council[169], SIAC, HKIAC[170], Stockholm.

140. Chamber of Commerce[171] and European Court ofArbitration[172]. This will, however, have no bearing on our judgment. Asnoted earlier in this judgment, parties have the freedom to opt forDinstitutional arbitration and be bound by the rules of the institution.However, the judgment is currently dealing with instances of ad hocarbitrations where the Fourth Schedule has been made applicable forthe calculation of the arbitrators’ fee. In such cases, we hold that the“sum in dispute” in the Fourth Schedule of the Arbitration Act shall be

166 Rule 3(ii) of the DIAC Rules provides: “3. Arbitrators’ Fees - (ii)The fee shall bedetermined and assessed on the aggregate amount of the claim(s) and counter claim(s)”.167Based on its online Fee Calculator available at <https://mcia.org.in/mcia-schedule-of-fees/calculate_fees/#> accessed on 29 June 2022

168Rule 31(2) of Rules of Domestic Commercial Arbitration and Conciliation

169 Schedule of Fees available at <http://www.ciac.in/fee_arbitrator.html> accessed onF29 June 2022170Article 6.3 of Schedule III of HKIAC Administered Arbitration Rules 2013 provides:“6.3 Claims and counterclaims are added for the determination of the amount in dispute.The same rule applies to any set-off defence, unless the arbitral tribunal, after consultingwith the parties, concludes that such set-off defence will not require significant additionalwork”.

171Article 2 of Appendix IV of 2017 Arbitration Rules provides: “(3) The amount inGdispute shall be the aggregate value of all claims, counterclaims and set-offs. Where theamount in dispute cannot be ascertained, the Board shall determine the Fees of theArbitral Tribunal having regard to all relevant circumstances.”.

172Appendix 3 of the Arbitration Rules of the European Court of Arbitration – 2021provides: “For the purposes of the application of the scale range the amount to betaken into account to apply this scale will be the total of the claims made by the parties,i.e. of the claims and counterclaims.”.H

considered separately for the claim amount in dispute in the claim andcounter-claim. Consequently, the arbitrators’ fee will be calculatedseparately for the claim and counter-claim, and the ceiling on the feewill also be applicable separately to both.

Fee Ceiling in Fourth Schedule

141. This issue revolves around the interpretation of the sixth entryof the Fourth Schedule. For convenience of the reader, the FourthSchedule is being extracted again:

“THE FOURTH SCHEDULE

See Section 11(3-A)

Note: In the event the arbitral tribunal is sole arbitrator, he shallbe entitled to an additional amount of twenty-five per cent on thefee payable as per the above.”

(emphasis supplied)

A142. The choice before this Court is between two competinginterpretations of the Model Fee where the sum in dispute is above Rs20,00,00,000. Before we explain the competing interpretations, it isimportant to note that there is an agreement on the following:

(i)For an arbitration with the sum in dispute is Rs 20,00,00,000,Bthe fee would be Rs 19,87,500. This will be referred to asthe base amount;

(ii)For any increase in the sum in dispute over and above Rs20,00,00,000, 0.5 per cent of the amount above Rs20,00,00,000 will be added to the fee. This will be referredCto as the variable amount. For instance, if the sum in disputewas Rs 21,00,00,000, the amount above Rs 20,00,00,000 isRs 1,00,00,000. Hence, 0.5 per cent of Rs 1,00,00,000 willbe added as the variable amount; and

(iii)There is ceiling of Rs 30,00,000.DThe controversy before this Court is in relation to the third point,namely, to what does the ceiling apply. There are two possibleinterpretations:

(i)First, the ceiling is for the sum of the base amount and thevariable amount. If this interpretation were to be accepted,Ethe highest possible fee would be Rs 30,00,000; or

(ii)Second, the ceiling is for the variable amount only. If thisinterpretation were to be accepted, the highest possible feewould be Rs 49,87,500.

E.1 Difference between the English and Hindi translationsF143. The first submission before us is that there is differencebetween the English and Hindi translation of the relevant text. For readyreference, the two versions are being extracted below:

(emphasis supplied)

The difference between the two is the presence of comma (“,”)in the Hindi translation, which is absent in the English version. It hasbeen submitted that the comma was inadvertently missed from the Englishversion, and hence the Hindi translation should be given preference. Insupport of this proposition, reliance is also placed upon Article 343(1) ofthe Constitution which provides that “[t]he official language of the Unionshall be Hindi in Devanagari script”.

144. We must reject this submission at the threshold since it is inteeth of Article 348(1)(b)(ii) of the Constitution, which reads thus:

“348. Language to be used in the Supreme Court and inthe High Courts and for Acts, Bills, etc.—(1) Notwithstandinganything in the foregoing provisions of this Part, until Parliamentby law otherwise provides—

(b) the authoritative texts—

(i) of all Bills to be introduced or amendments thereto to be movedin either House of Parliament or in the House or either House ofthe Legislature of State,

shall be in the English language.”

Article 348 begins with non-obstante clause, which clarifies thatit shall have precedence over other Articles in Part XVII, including Article343(1).

145. In Nityanand Sharma v. State of Bihar[173], three-JudgeBench of this Court had to decide whether the ‘Lohar’ community wouldbe construed as Scheduled Tribe since their name appeared in theSchedule in the Hindi translation while the English original had the community“Lohra”. Speaking for the Bench, Justice K Ramaswamy held:

“19. Article 348(1)(b) of the Constitution provides thatnotwithstanding anything in Part II (in Chapter II Articles346 and 347 relate to regional languages) the authoritativetext of all Bills to be introduced and amendments theretoto be moved in either House of Parliament … of all

Aordinances promulgated by the President… and all orders,rules, regulations and bye-laws issued under theConstitution or under any law made by Parliament, shall bein the English language. By operation of sub-article (3) thereofwith non obstante clause, where the Legislature of State hasprescribed any language other than the English language for useBin Bills introduced in, or Acts passed by, the Legislature of theState or in Ordinances promulgated by the Governor of the Stateor in any order, rule, regulation or bye-law referred to in paragraph(iii) of that sub-clause, translation of the same in the Englishlanguage published under the authority of the Governor of theCState in the Official Gazette of that State shall be deemed to bethe authoritative text thereof in the English language under thisarticle. Therefore, the Act and the Schedule thereto are partof the Act, as enacted by Parliament in English language. Itis the authoritative text. When the Schedules were translatedinto Hindi, the translator wrongly translated Lohara as LoharDomitting the letter ‘a’ while Lohra is written as mentioned in Englishversion. It is also clear when we compare Part XVI of the SecondSchedule relating to the State of West Bengal, the word Loharboth in English as well as in the Hindi version was not mentioned.Court would take judicial notice of Acts of Parliament and wouldEinterpret the Schedule in the light of the English version being anauthoritative text of the Act and the Second Schedule.”

(emphasis supplied)

Similarly, in the present case, this Court shall be governed by article348 (1)(b)(i) while interpreting the entry at Serial No 6 of the FourthFSchedule.

E.2 Exception to literal interpretation

146. There is no comma in the English version of the sixth entryof the Fourth schedule. Hence, there is nothing to suggest conclusively(unlike the Hindi translation) that the ceiling of Rs 30,00,000 appliesGcumulatively to the sum of the base amount and variable amount.

147. The absence of comma may be one indicator of the meaningof provision. However, in his seminal treatise on Principles of StatutoryInterpretation, Justice GP Singh has observed[174] :

H174 Justice GP Singh, Principles of Statutory Interpretation (14th edition, LexisNexis)

“In England, before 1850, there was no punctuation in themanuscript copy of any Act which received the Royal assent;therefore, the courts cannot have any regard to punctuation forconstruing the older Acts. Even as regards more modern Acts, itis very doubtful if punctuation can be looked at for purposes ofconstruction. The opinion on Indian statutes is not very muchdifferent.”

148. Similarly, Bennion in his treatise on Statutory Interpretationnotes[175] :

“16.8. Punctuation is part of an Act and may be considered inconstruing provision. It is usually of little weight, however, sincethe sense of an Act should be the same with or without itspunctuation…Although punctuation may be considered, it willgenerally be of little use since the sense of an Act should be thesame with or without it. Punctuation is device not for makingmeaning, but for making meaning plain. Its purpose is to denotethe steps that ought to be made in oral reading and to point out thesense. The meaning of well-crafted legislative proposition shouldnot turn on the presence or absence of punctuation mark.”149. In Aswini Kumar Ghose v. Arabinda Bose[176], aConstitution Bench of this Court had to interpret provisions of the BarCouncils Act 1926. key submission was in reference to the presenceof comma before the word “or” in the non-obstante provision. JusticeB K Mukherjea in his judgment observed:

“56…Punctuation is after all minor element in the constructionof statute, and very little attention is paid to it by English courts.Cockburn, C.J. said in Stephenson v. Taylor [(1861) 1 & S p.101] : “On the Parliament Roll there is no punctuation and wetherefore are not bound by that in the printed copies”. It seems,however, that in the Vellum copies printed since 1850 there aresome cases of punctuation, and when they occur they can belooked upon as sort of contemporanea exposition[See Craies onStatute Law, p. 185]. When statute is carefully punctuated andthere is doubt about its meaning, weight should undoubtedly be

175 Diggory Bailey and Luke Norbury, Bennion on Statutory Interpretation (7th edition,LexisNexis)176 1953 SCR 1

Agiven to the punctuation [Vide Crawford on Statutory Construction,p. 343]. I need not deny that punctuation may have its uses insome cases, but it cannot certainly be regarded as controllingelement and cannot be allowed to control the plain meaning of atext [Ibid].”

BThus, Justice Mukherjea chose middle-path where the learnedJudge admitted to the use of punctuation but held that it still cannot be acontrolling element in interpreting provision.

150. Another Constitution Bench of this Court in IndoreDevelopment Authority (LAPSE-5 J.) v. Manoharlal[177], has notedCits support of the use of punctuation as tool of interpretation and citedwith approval the following extract from Taylor v. Caribou[178]:

“We are aware that it has been repeatedly asserted by courts andjurists that punctuation is no part of statute, and that it ought notto be regarded in construction. This rule in its origin was foundedDupon commonsense, for in England until 1849 statutes wereentrolled upon parchment and enacted without punctuation…Sucha rule is not applicable to conditions where, as in this State, Billis printed and is on the desk of every Member of the Legislature,punctuation and all, before its final passage. There is no reasonwhy punctuation, which is intended to and does assist in makingEclear and plain the meaning of all things else in the English language,should be rejected in the case of the interpretation of statutes.“Cessante ratione legis cessat ipso lex”. Accordingly we find thatit has been said that in interpreting statute punctuation may beresorted to when other means fail…; that it may aid itsFconstruction…; that by it the meaning may often be determined;that it is one of the means of discovering the legislative intent…;that it may be of material assistance in determining the legislativeintention…”

Indeed, in Mohd. Shabir v. State of Maharashtra, two-JudgeGBench of this Court held that mere stocking was not an offence underSection 27 of Drugs and Cosmetics Act 1940 due to the absence of acomma after the word “stock”[179].

177 (2020) 8 SCC 129178 102 Me 401 : 67 2 (1907)H179 (1979) 1 SCC 568

151. In the present case, the English version of the entry at SerialNo 6 of the Fourth Schedule does not have any comma. Due to itsabsence, it can be construed that the literal meaning of the provision isthat the ceiling should only apply to the variable amount. However,Maxwell on The Interpretation of Statutes notes that the literal meaningof provision must be rejected when it goes manifestly against thelegislative intent behind the enactment[180]:

“WHERE the language of statute, in its ordinary meaning andgrammatical construction, leads to manifest contradiction of theapparent purpose of the enactment, or to some inconvenience orabsurdity which can hardly have been intended, constructionmay be put upon it which modifies the meaning of the words andeven the structure of the sentence. This may be done by departingfrom the rules of grammar, by giving an unusual meaning toparticular words, or by rejecting them altogether, on the groundthat the legislature could not possibly have intended what its wordssignify, and that the modifications made are mere corrections ofcareless language and really give the true meaning. Where themain object and intention of statute are clear, it must not bereduced to nullity by the draftsman's unskilfulness or ignoranceof the law, except in case of necessity, or the absolute intractabilityof the language used.”

Hence, in the present case, we must aim to ascertain the legislativeintent behind the Fourth Schedule.

E.3 Interpretation based on legislative intent

152. The Fourth Schedule was added to the Arbitration Actpursuant to the Arbitration Amendment Act 2015, which in itself wasbased upon the recommendations in the LCI 246[th] Report (supra).The Report referred to the judgment in Singh Builders (supra), whichraised the issue of arbitrators charging exorbitant fees:

“20. Another aspect referred to by the appellant, however requiresserious consideration. When the arbitration is by tribunalconsisting of serving officers, the cost of arbitration is very low.On the other hand, the cost of arbitration can be high if the ArbitralTribunal consists of retired Judge(s).

180 P St J Langan, Maxwell on The Interpretation of Statutes (N M Tripathi Private Ltd,1976)

21. When retired Judge is appointed as arbitrator in place ofserving officers, the Government is forced to bear the high costof arbitration by way of private arbitrator’s fee even though it hadnot consented for the appointment of such non-technical non-serving persons as arbitrator(s). There is no doubt prevalentopinion that the cost of arbitration becomes very high in manycases where retired Judge(s) are arbitrators. The large numberof sittings and charging of very high fees per sitting, with severaladd-ons, without any ceiling, have many time resulted in thecost of arbitration approaching or even exceeding the amountinvolved in the dispute or the amount of the award.

22. When an arbitrator is appointed by court without indicatingfees, either both parties or at least one party is at disadvantage.Firstly, the parties feel constrained to agree to whatever fees issuggested by the arbitrator, even if it is high or beyond theircapacity. Secondly, if high fee is claimed by the arbitrator andone party agrees to pay such fee, the other party, which is unableto afford such fee or reluctant to pay such high fee, is put to anembarrassing position. He will not be in position to express hisreservation or objection to the high fee, owing to an apprehensionthat refusal by him to agree for the fee suggested by the arbitrator,may prejudice his case or create bias in favour of the otherparty which readily agreed to pay the high fee.

23. It is necessary to find an urgent solution for this problem tosave arbitration from the arbitration cost. Institutional arbitrationhas provided solution as the arbitrators’ fees is not fixed by thearbitrators themselves on case-to-case basis, but is governed bya uniform rate prescribed by the institution under whose aegis thearbitration is held. Another solution is for the court to fix the feesat the time of appointing the arbitrator, with the consent of parties,if necessary in consultation with the arbitrator concerned. Thirdis for the retired Judges offering to serve as arbitrators, to indicatetheir fee structure to the Registry of the respective High Court sothat the parties will have the choice of selecting an arbitrator whosefees are in their “range” having regard to the stakes involved.”

153. After noting the judgment in Singh Builders (supra), theLCI 246th Report (supra) stated as follows:H

“11. In order to provide workable solution to this problem, theCommission has recommended model schedule of fees and hasempowered the High Court to frame appropriate rules for fixationof fees for arbitrators and for which purpose it may take the saidmodel schedule of fees into account. The model schedule of feesare based on the fee schedule set by the Delhi High CourtInternational Arbitration Centre, which are over 5 years old, andwhich have been suitably revised. The schedule of fees wouldrequire regular updating, and must be reviewed every 3-4 yearsto ensure that they continue to stay realistic.

12.The Commission notes that International Commercialarbitrations involve foreign parties who might have different valuesand standards for fees for arbitrators; similarly, institutional rulesmight have their own schedule of fees; and in both cases greaterdeference must be accorded to party autonomy. The Commissionhas, therefore, expressly restricted its recommendations in thecontext of purely domestic, ad hoc, arbitrations.”

As means of controlling the rising fees of arbitrators, the LawCommission proposed model fee schedule based on the one used bythe DIAC. Schedule of the DIAC Rules provides that when the sumin dispute is above Rs 20,00,00,000, the fees shall be “Rs.19,87,500/- +0.5% of the claim amount over and above Rs.20 crores, with ceiling ofRs.30,00,000/-”. Evidently, the DIAC Rules have comma, which wouldmean that the ceiling would have been applicable to the base amountand the variable amount.

154. In Mithilesh Kumari v. Prem Behari Khare[181], two-Judge Bench of this Court held that, depending on the facts andcircumstances of each case, law commission reports precedingenactments of statutes can be relied on as an aid in interpretation.Speaking for the Bench, Justice K N Saikia held:

“15…where particular enactment or amendment is the result ofrecommendation of the Law Commission of India, it may bepermissible to refer to the relevant report as in this case. Whatimportance can be given to it will depend on the facts andcircumstances of each case.”

A155. The LCI 246[th] Report (supra), indicates that the legislativeintent behind the introduction of the Fourth Schedule was to put an endto the practise of arbitrators charging exorbitant fees from the partiestaking their services in ad hoc arbitrations. Consequently, when we havethe option of setting the ceiling of the fees in the Fourth Schedule ateither Rs 30,00,000 or Rs 49,87,500, we believe that it would beBappropriate to choose the lower amount since it would be in keepingwith legislative intent. The 2015 Arbitration Amendment Act was clearlyenacted with the intent to give effect to the recommendation of the LCI246th Report on the point. Thus, we hold that the ceiling of Rs 30,00,000in entry at Serial No 6 of the Fourth Schedule is applicable to the sum ofCbase amount and the variable amount, and not just the variable amount.

Ceiling applicable to individual arbitrators

156. The final submission made before this Court was that theceiling of Rs 30,00,000 prescribed in the entry at Serial No 6 of theFourth Schedule will be applicable to the cumulative fee paid to theDentire arbitral tribunal, i.e., in three-member tribunal, each individualarbitrator would receive fee of Rs 10,00,000.

157. Such submission is erroneous, and hence we must rejectit.First, there is nothing in the language of the Fourth Schedule to supportsuch an interpretation. The header of the third column states “ModelEFee” and does not specify it to be in respect of the whole tribunal. Second,if such an interpretation were to be adopted, it would lead to absurdconsequences. For instance, in an arbitration where the sum in dispute islarge enough to trigger the ceiling of Rs 30,00,000 and it were to beadjudicated by three-member tribunal, the maximum fee would have toFbe divided amongst the three arbitrators. On the other hand, if the samedispute were to be adjudicated by sole arbitrator, the sole arbitratorwould then receive the whole amount of the maximum fee, i.e., triple ofwhat each individual arbitrator would have received in three-membertribunal. Such disparity is inconceivable, regardless of the extra work asole arbitrator may have to put in. This is further bolstered by the Note toGthe Fourth Schedule, which states that “[i]n the event the arbitral tribunalis sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent on the fee payable as per the above”. Consequently, the solearbitrator would not only receive Rs 30,00,000, but an additional 25 percent over and above it. Indeed, it is clear that the Note was added to theHFourth Schedule to fairly compensate sole arbitrators who arguably would

have to do more work than as member of larger tribunal; which is whythey are allowed payment of 25 per cent of the fee over and above whatthey would be paid pursuant to the table given in the Fourth Schedule. Thecorollary of this is that the fee provided in Fourth Schedule is for eachindividual arbitrator, regardless of whether they are member of multi-member tribunal or sole arbitrator. Finally, this interpretation of the FourthSchedule, that the fee provided therein is applicable for each individualarbitrator and not the whole arbitral tribunal, has also been fairly concededbefore this Court by the learned Attorney General.

Conclusion

G.1 Findings

158. We answer the issues raised in this batch of cases in thefollowing terms:

(i)Arbitrators do not have the power to unilaterally issue bindingand enforceable orders determining their own fees. Aunilateral determination of fees violates the principles ofparty autonomy and the doctrine of the prohibition ofin remsuam decisions, i.e., the arbitrators cannot be judge oftheir own private claim against the parties regarding theirremuneration. However, the arbitral tribunal has thediscretion to apportion the costs (including arbitrators’ feeand expenses) between the parties in terms of Section 31(8)and Section 31A of the Arbitration Act and also demand adeposit (advance on costs) in accordance with Section 38of the Arbitration Act. If while fixing costs or deposits, thearbitral tribunal makes any finding relating to arbitrators’fees (in the absence of an agreement between the partiesand arbitrators), it cannot be enforced in favour of thearbitrators. The arbitral tribunal can only exercise lienover the delivery of arbitral award if the payment to itremains outstanding under Section 39(1). The party canapproach the court to review the fees demanded by thearbitrators if it believes the fees are unreasonable underSection 39(2);

(ii)Since this judgment holds that the fees of the arbitratorsmust be fixed at the inception to avoid unnecessary litigationand conflicts between the parties and the arbitrators at

784SUPREME COURT REPORTS

Alater stage, this Court has issued certain directives to governproceedings in ad hoc arbitrations in Section C.2.4;

(iii)The term “sum in dispute” in the Fourth Schedule of theArbitration Act refers to the sum in dispute in claim andcounter-claim separately, and not cumulatively.BConsequently, arbitrators shall be entitled to charge aseparate fee for the claim and the counter-claim in an adhoc arbitration proceeding, and the fee ceiling contained inthe Fourth Schedule will separately apply to both, when thefee structure of the Fourth schedule has been madeapplicable to the ad hoc arbitration;C

(iv)The ceiling of Rs 30,00,000 in the entry at Serial No 6 ofthe Fourth Schedule is applicable to the sum of the baseamount (of Rs 19,87,500) and the variable amount over andabove it. Consequently, the highest fee payable shall be Rs30,00,000; and

(v) This ceiling is applicable to each individual arbitrator, andnot the arbitral tribunal as whole, where it consists ofthree or more arbitrators. Of course, sole arbitrator shallbe paid 25 per cent over and above this amount inaccordance with the Note to the Fourth Schedule.

G.2 Directions

159. We issue the following directions in each of the cases beforethis Court:

(i)In respect of Arbitration Petition (Civil) No 5 of 2022, feeFschedule for the arbitrators was already prescribed in theLSTK contract. However, during the preliminary meetingon 25 November 2015, the arbitral tribunal observed thatthe fee schedule in the LSTK contract was unrealistic. WhileAfcons agreed to revise the fees, ONGC expressed itsdisagreement. The tribunal directed ONGC to considerGrevising the fees. On 16 April 2016,the arbitral tribunalinformed ONGC that it would no longer bargain on theamount of fees if ONGC was agreeable to the fee providedin the Fourth Schedule to the Arbitration Act, along with areading fee of Rs 6 lakhs for each arbitrator. By its letterHdated 22 April 2016, ONGC indicated that it was agreeable

to revising the fees in terms of the Fourth Schedule. It onlyobjected to the reading fee. Subsequently, the arbitral tribunalpassed procedural order dated 4 August 2016 directingthe parties to deposit 25 per cent of the arbitrators’ fee,which was recorded as Rs 30 lakhs. It seems ceiling ofRs 30 lakhs was determined following the Fourth Scheduleto the Arbitration Act. However, the arbitral tribunal thenunilaterally decided to revise the fees and passed aprocedural order fixing fee of Rs 1.5 lakhs for eacharbitrator for every sitting of three-hour duration. Thetribunal also indicated it may also charge reading orconference fee, which would be decided at later stage.By an order dated 25 July 2019, the arbitral tribunal adjustedits fees to Rs 1 lakh per sitting. Around 54 sittings havebeen held in terms of the arbitral tribunal’s order dated 25July 2019. In this background, it is evident that there wasno consensus between the parties and the arbitratorsregarding the fee that is to be paid to the members of thearbitral tribunal. Allowing the continuance of the arbitraltribunal would mean foisting fee upon the parties and thearbitral tribunal to which they are not agreeable. In view ofour directives in Section C.2.4 and the facts noted earlier,we exercise our powers under Article 142 of the Constitutionof India and direct the constitution of new arbitral tribunalin accordance with the arbitration agreement. For thispurpose, Arbitration Petition (C) No. 5 of 2022 would belisted for directions before this Court on 21 September 2022.The above directions should not be construed as findingon the conduct of the arbitration proceedings. Thesedirections are an attempt to ensure that the arbitralproceedings are conducted without rancour which mayderail the proceedings. In consonance with our findings,the fee payable to the earlier arbitral tribunal would be thefee payable in terms of the Fourth Schedule of the ArbitrationAct. Though the Fourth Schedule is per se not applicable toan international commercial arbitration, since ONGC hadindicated (following the suggestion of the arbitral tribunal)that it would be agreeable to pay the fee payable in termsof Schedule, it cannot now take recourse to the arbitrationagreement between the parties to pay lesser fee. We

ABCD

further clarify that if the fee in excess of the amount payableunder the Fourth Schedule has been paid to the membersof the arbitral tribunal, such amount will not be recoveredfrom them;

(ii)The civil appeal arising out of Special Leave Petition (Civil)BNo 13426 of 2021 is dismissed and the judgment of theSingle Judge of the Delhi High Court dated 6 August 2021is upheld;

(iii)The civil appeal arising out of Special Leave Petition (Civil)No 10358 of 2020 is allowed and the judgment of the SingleJudge of the Delhi High Court dated 10 July 2020 is setaside; and

(iv)Miscellaneous Application Nos 1990-1991 of 2019aredismissed.

160. Before parting, we would like to place on record our sincereDappreciation for the submissions made by the amicus curiae, Mr HuzefaAhmadi who was ably assisted by Ms Anushka Shah.

161. Pending applications, if any, stand disposed of.

ESANJIV KHANNA, J.

Reason and cause for my separate judgment.

This is an unfortunate litigation wherein one or both parties havequestioned the legitimacy and reasonableness of the fee claimed by thearbitral tribunal.

2. While I am entirely in agreement with the considered viewexpressed by esteemed brother D.Y. Chandrachud, J. that –(a) partyautonomy and arbitration agreement are the foundation of the arbitralprocess, and therefore, when the parties fix the fee payable to the arbitraltribunal, the law does not permit the arbitral tribunal to derogate and askGfor additional or higher fee; (b) where the court while appointing anarbitrator fixes the fee, the arbitral tribunal cannot ask for supplementaryor higher fee; and (c) in both cases, the fee payable to the arbitral tribunalmay be enhanced either by written agreement between the parties orby court order. However, I am unable to concur that in the absence ofany agreement between the parties, or the parties and the arbitral tribunal,

or court order fixing the fee, the arbitral tribunal is not entitled to fixthe fee, as I am of the opinion that by the implied terms of the contractand as per the provisions of the Arbitration and Conciliation Act, 1996[1],an arbitral tribunal can fix reasonable fee, which an aggrieved party,who is not signatory to the written agreement, can question under sub-section (3) of Section 39 of the A&C Act during the pendency of thearbitration proceedings, or in case the arbitral tribunal claims lien on theaward in terms of sub-section (2) to Section 39 of the A&C Act. At thesame time, I respectfully agree with brother D.Y. Chandrachud, J., thatwhen an arbitral tribunal, even in the absence of consent of the parties,fixes the fee in terms of the Fourth Schedule[2], the parties should not bepermitted to object the fee fixation. The Fourth Schedule is the defaultfee, declared by the legislature as fair and reasonable, which can bechanged by mutual consensus, and not otherwise. Further, post theenforcement of the Arbitration Amendment Act, 2019 vide Act 33 of2019 on 30[th] August 2019, and insertion of sub-section (3A) to Section11, the proviso to the sub-section states that the fee prescribed in theFourth Schedule is mandatory and applies to all arbitrations including adhoc 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.

3. On interpretation of the Fourth Schedule, I respectfully agreewith the view expressed by learned D.Y. Chandrachud J. on interpretationof Serial No.6 and that the fee prescribed is for each member of thearbitral tribunal, with note providing for an additional amount of twentyfive percent in case of sole/single member arbitral tribunal. Even so,on these aspects I would like to give separate reasoning, as also pointanomalies in the Fourth Schedule. However, in my opinion, the expression“sum in dispute” means the sum total of both the claims and counterclaims.

Background of the problem of high cost of arbitration, thelegislative history and remedial changes in the Arbitration andConciliation Act, 1996.

4. The issue of skyrocketing costs of arbitration has been subjectof concern and lament in two decisions of this Court in Union of India

1 For short, the ‘A&C Act’.

2 The fee schedule fixed under Section 11(14) or Section 11(3A) , as the case may be, ofthe A&C Act.

Av. Singh Builders Syndicate[3] and Sanjeev Kumar Jain v. RaghubirSaran Charitable Trust and Others.[4] The Court in Singh BuildersSyndicate (supra) judicially noticed the prevalent opinion that the costof arbitration becomes very high when retired judges are appointed asarbitrators. large number of sittings, fee being charged on “per sitting”basis, and several other add-ons without any ceiling contribute to theBcost of arbitration approaching or even at times exceeding the amountinvolved in the dispute or the award amount. When an arbitrator isappointed by the Court without prior fixation of fee, either of the partiesmight be at disadvantage as they feel invariably compelled to agree towhatever fee is suggested by the arbitrator, even if it is extravagant andCbeyond their paying capacity. Secondly, in the event one party agrees topay such fee, the other party who is unable to afford or reluctant topay such fee is put in an embarrassing position. The party may bedisinclined to express reservation or object to the high fee owing to theapprehension that this may prejudice his case or create bias in favourof the other party. The decision in Sanjeev Kumar Jain (supra) refersDto the statutory provisions of the A&C Act, namely, Section 31(8), as itexisted, dealing with costs of arbitration, and the explanation that definesthe expression ‘costs’ to mean reasonable costs relating to (i) the feesand expenses of arbitrators and witnesses, (ii) legal fee and expenses(iii) any administration fee of the institution supervising the arbitration,Eand (iv) other expenses incurred in connection with the arbitrationproceedings and the arbitral award. Interpreting Section 11 of the A&CAct which deals with the appointment of an arbitrator, the Court opinedthat the word ‘appointment’ not only means nominating or designating aperson who will act as an arbitrator, but is wide enough to encompassstipulating terms on which he is appointed. Therefore, it is open to theFCourt, at the time of appointment of an arbitrator under Section 11, tostipulate the fees payable to the tribunal. This, the court commended,should be done after hearing the parties, and if necessary, afterascertaining the fee structure from the prospective arbitrators, to avoidthe situation where the parties have to negotiate the terms of the feeGafter the appointment of the arbitral tribunal. The judgment adverts toinstitutionalised arbitration as the preferred mode as fixed fee isprescribed by the institution under whose aegis the arbitration is held,viz.ad hoc arbitrations, where the arbitrators are appointed by the parties3 (2009) 4 SCC 523H4 (2012) 1 SCC 455with or without the intervention of the court, albeit in the absence of anyagreement between the parties on the procedure to be followed, thearbitral tribunal, subject to Part 1 of the A&C Act, conducts theproceedings in the manner it deems appropriate.[5] Referring to the adhoc arbitrations in India, the Court judicially acknowledged that frequentcomplaints regarding the cost of arbitration, including high fees chargedby arbitrators, have adversely affected the efficiency and effectivenessof arbitration. While some of the criticism may be harsh as it would bewrong to state that there is universalisation of stray aberrations, thecourt observes that these are still matters of concern and the remedy forhealthy development of arbitration in India is to disclose the fee structurebefore the appointment of the arbitrators so that any party which isunwilling to bear such expenses can express its unwillingness.Consequently, the judgment ennobles and leans towards institutionalisedor ad hoc arbitration, where the arbitrator’s fee is prefixed. Anotherremedy that the court suggested is for each High Court to have scaleof arbitrator’s fee, suitably calibrated with reference to the amount indispute. These steps, the Court felt, would make arbitration attractive tothe litigant public. Reasonableness and certainty regarding the total costsare the key to the development of arbitration.

5. The 246[th] Report of the Law Commission of India dated 5[th]August 2014, under the heading ‘Fees of Arbitrators’, highlighted theproblem of high costs, especially associated with ad hoc arbitrations,and the complaint that several arbitrators arbitrarily and unilaterally fixdisproportionate fees. To counter this, the Law Commission suggested amechanism to rationalise the fee structure for arbitration byrecommending model schedule of fees. The Report neverthelessaccepted that different values and standards of fees may be payable ininternational commercial arbitrations. The Report adversely commentedon the ‘per sitting’ basis on which fee is charged in ad hoc arbitrations,sometimes with 2-3 sittings day in the same matter between the sameparties, and that costs further increase by continuation of proceedingsfor years since the dates are spread over long period of time. TheCommission suggested the model schedule of fee that should be insertedin the A&C Act.

5 The observations on ad hoc arbitration are my observations with reference to sub-sections (2) and (3) to Section 19 of the A&C Act, which postulate that the arbitraltribunal, subject to the agreement between the parties, is entitled to conduct theproceedings in the manner it considers appropriate.

EFG

A6. In view of the recommendations made by the Law Commission,the A&C Act was amended effective from23[rd] October 2015, vide ActNo. 3 of 2016, with the insertion of the Fourth Schedule to the A&C Act,exemplifying schedule of fee payable to the arbitrators. Sub-section(14) to Section 11was enacted, and read thus:

B“(14) For the purpose of determination of the fees of the arbitraltribunal and the manner of its payment to the arbitral tribunal, theHigh Court may frame such rules as may be necessary, aftertaking into consideration the rates specified in the Fourth Schedule.

Explanation.– For the removal of doubts, it is hereby clarifiedCthat this sub-section shall not apply to international commercialarbitration and in arbitrations (other than international commercialarbitration) in case where parties have agreed for determinationof fees as per the rules of an arbitral institution.”

The fee structure in the Fourth Schedule was to serve as guideDfor the different High Courts to frame rules determining the fee payableto the arbitral tribunals. However, most of the High Courts did not framerules under Section 11(14) for the purpose of determination of fee andthe manner of payment to the arbitral tribunal.[6] Further, the rules, asframed by the High Courts, except for the High Court of Kerala, areapplicable when the arbitrators are appointed by the Court or the partiesEby agreement or mutual consent agree to be governed by the applicablerules. Resultantly, the desired purpose of Section 11(14) has not beenmet, and remains unrealised.

7. Based on the High Level Committee Report dated 30[th] July2017, vide Act No. 33 of 2019, number of significant amendmentsFwere made to the A&C Act to promote and establish the culture ofinstitutional arbitration. The relevant amendments, for our purpose, includethe amendment to Section 2(1), by inserting clause (ca) which definesthe expression “arbitral institution” as “an arbitral institution designatedby the Supreme Court or High Court under this Act”. PartIA consisting

of Sections 43A to 43M have been inserted for the establishment andGincorporation of an Arbitration Council of India, with Section 43Dprescribing duties and functions of the said Council, which include framingpolicies governing gradation of arbitral institutions, recognising professional

6 High Courts of Kerala, Madhya Pradesh, Delhi, Punjab and Haryana, Rajasthan,HKarnatakaand Madras have framed rules.

institutes providing accreditation of arbitrators, review or grading ofarbitral institutions or arbitrators, making recommendations to the CentralGovernment on various measures to be adopted and to make provisionsfor easy resolution of commercial disputes. Simultaneously, sub-section(3A) to Section 11 has been inserted and reads:

“(3A) The Supreme Court and the High Court shall have the powerto designate, arbitral institutions, from time to time, which havebeen graded by the Council under section 43-I, for the purposesof this Act:

Provided that in respect of those High Court jurisdictions, whereno graded arbitral institution are available, then, the Chief Justiceof the concerned High Court may maintain panel of arbitratorsfor discharging the functions and duties of arbitral institution andany reference to the arbitrator shall be deemed to be an arbitralinstitution for the purposes of this section and the arbitratorappointed by party shall be entitled to such fee at the rate asspecified in the Fourth Schedule:

Provided further that the Chief Justice of the concerned HighCourt may, from time to time, review the panel of arbitrators.”

Corresponding substitutions/insertions have been made in sub-sections (4), (5), (6), (8) and (9) to Section 11 to provide for and giveeffect to the provisions that appointment of an arbitrator shall be madeon an application of party by the arbitral institution designated by theSupreme Court in the case of international commercial arbitration or bythe High Court in other cases. Sub-section (11) to (14) to Section 11 assubstituted read:

“(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to different arbitralinstitutions, the arbitral institution to which the request has beenfirst made under the relevant sub-section shall be competent toappoint.

(12) Where the matter referred to in sub-sections (4), (5), (6) and(8) arise in an international commercial arbitration or any otherarbitration, the reference to the arbitral institution in those sub-sections shall be construed as reference to the arbitral institutiondesignated under sub-section (3A).

A(13) An application made under this section for appointment of anarbitrator or arbitrators shall be disposed of by the arbitral institutionwithin period of thirty days from the date of service of notice onthe opposite party.

(14) The arbitral institution shall determine the fees of the arbitralBtribunal and the manner of its payment to the arbitral tribunal subjectto the rates specified in the Fourth Schedule.”

8. However, even after the lapse of nearly three years, theArbitration Council of India has not been fully operationalised, and PartIA, dealing with the Arbitration Council of India, from Sections 43A toC43M, have not been enforced. The substituted provisions of sub-sections(11) to (14) to Section 11[7] of the A&C Act, which came into force on30[th] August 2019 vide SO No. 3154(E) dated 30[th] August 2019, havebeen effectively only partially enforced and implemented. However, onthe positive side, I would record that several High Courts have takenconcerted steps to establish and refer matters to the court adjunctDarbitration centres. Despite these efforts, ad hoc arbitrations havecontinued and hold the field as they were prior to the enactment andenforcement of Act No. 33 of 2019. Therefore, the amendments madeby Act No. 33 of 2019 have been somewhat non-starter and thus, theshift envisaged by the legislature from ad hoc arbitration to institutionalEarbitration has not been accomplished.

The legal issues required to be adjudicated.

9. The question of quantum of fee payable to the arbitrators canbe broadly divided into three categories: (i) institutionalised arbitrationwhere the fee payable to the arbitrator is governed by the prescribedFfee schedule. In the present petition/appeals, we are not concerned withsuch cases[8]; (ii) ad hoc arbitrations where (a) the fee is prescribed inthe agreement between the parties, (b) where the fee is fixed by thecourt while appointing the arbitral tribunal, (c) where no fee is prescribedin the agreement between the parties, or where the court while appointingGthe arbitral tribunal does not fix the fee or permits the arbitral tribunal tofix the fee ; and (iii) where the arbitration fee is prescribed and governedby the Fourth Schedule to the A&C Act.

7 Including newly inserted sub-section (3A) to Section 11 of the A&C Act.

8 The legal effect of the substituted sub-section (14) to Section 11 vide Act 33 of 2019Hrequires elucidation for the present decision and has been interpreted.

10. While deciding questions relating to the second category, Iwould refer to and interpret the statutory provisions pre and postAmendment Act No.3 of 2016 and Amendment Act No.33 of 2019, andelucidate on the rights of the parties/ litigants in the fee fixation. In thesecond portion of my judgment, I would examine and interpret the FourthSchedule.

Who decides the fee payable to the Arbitral Tribunal?

(a) Where fee payable is fixed by an agreement between theparties, or by court order.

11. Arbitration is contract centric and is structured on partyautonomy. The parties are free to agree upon the procedure on conductof the arbitration, which includes the right to fix the fee payable to thearbitrator. While the relationship between the parties and the arbitratoris based on the contract, the arbitrator’s status as ade-jure adjudicatorstems directly from the law. The relationship between the parties andthe arbitral tribunal is both contractual and statutory. Consequently, anarbitral tribunal, in addition to the contractual terms, must abide by therules and procedure that are bare essential pre-requisites of any disputeresolution system.[9] In Sanjeev Kumar Jain (supra), this court has heldthat when court appoints an arbitrator, and also fixes the fee, whetherin terms of the Fourth Schedule or otherwise, the fee is binding on thearbitrator/tribunal. The arbitral tribunal, while accepting an appointment,must accept the remuneration as fixed by the parties or as determined inthe court order appointing the tribunal. Russell pertinently observes thatthe appointment of an arbitrator is matter of contract, subject tomandatory provisions of the statute An arbitrator will not be usually entitledto increase his fee and expenses unless his agreement with the partiesallows him to do so.[10] The arbitrators should not exceed their authority,either under the terms of the arbitration agreement fixing their fee, orunder their powers in law, which does not permit them to rewrite theagreement or ignore the court order fixing the fee. It follows that the

9 Julian D.M. Lew , Loukas A. Mistelis , et al., Comparative International Commercial

Arbitration, ‘Chapter 12 Rights and Duties of Arbitrators and Parties’, pp. 276 - 27710 Russell on Arbitration (24th Edition). Russell also observes that attempts to increasefee have led to allegation of bias against the arbitrators and of what used to be called‘misconduct’, and if pursued unreasonably, would lead to an application for removal ofan arbitrator or even challenge to an award made by him because of the breach of dutyto avoid unnecessary expense.

Aarbitral tribunal, during the proceedings, is not entitled to unilaterallyincrease its fee, unless the agreement on which it is constituted allows itto do so, or all parties voluntarily agree to enhancement. Where fee isfixed by court order, the arbitral tribunal may approach the court formodification/increase in the fee by giving reasons justifying the same.Unilateral increase is unacceptable, as explained in the judgment byBD.Y.Chandrachud J. and in my opinion this would violate the provisionsof the A&C Act. This principle applies to institutional arbitration, as anarbitrator/tribunal so appointed is bound by the rules of the institutionand must abide by the terms of appointment. Where an arbitral tribunalsolicits higher fees, an aggrieved party, in my opinion, as explained below,Ccan approach the court for appropriate orders under sub-sections (2) or(3) to Section 39 of the A&C Act.(b) Where fee is not fixed by court order, or an agreementbetween the parties.12. There is considerable jurisprudence and legal opinion whichDaccepts that in the absence of an agreement or consensus between theparties, or court order fixing the fee, the arbitral tribunal is entitled tofix the fee payable for conducting the arbitration, albeit the fee so fixedshould be fair and reasonable. Robert Merkin[11] states that, where theagreement between the parties or with the arbitrator is silent as to theEfee, the arbitrator is nevertheless entitled to reasonable fee based eitheron an implied term in the agreement, or on the application of the principleof quantum meruit. Reasonable fee and expenses appropriate in suchcircumstances can be determined by the arbitrator. Professor SundraRajoo,[12] while accepting that the fee of the arbitrator is an importantconsideration when the parties contemplate arbitrating dispute, agreesFthat it is common in ad hoc arbitration proceedings for the arbitral tribunalto fix its own fee.[13] He observes that, if the parties cannot agree on theremuneration in advance, the arbitral tribunal is ordinarily entitled toreasonable remuneration on quantum meruit basis for the value of thework actually done. Russell, in his work,[14] observes that where there isno express agreement with the arbitrator, the arbitrator may also haveG

11 Robert Merkin QC, LLD, “Arbitration Law”, Service Issue No.83, November 2019.12 Datuk Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (SecondEdition), 2016, at pg.341 and 346, paragraphs 24.4 and 24.7.

13 Reference is made to Michael Mcilwrath and John Savage, International Arbitrationand Mediation: Practical Guide, (2010) at p.267, para 5-112.

H14 Russell on Arbitration, 24th Edition, pgs. 150 and 152, paragraphs 4-052 and 4-056.

the right to payment of reasonable fees under contract implied byconduct in circumstances where party participates in the arbitration,even if that party disputes the jurisdiction of the tribunal. Referring tothe English Arbitration Act, 1996, he states that the enactment providesthat the parties are jointly and severally liable to pay to the arbitratorssuch reasonable fee and expenses. The level of fee may be agreeddirectly with the arbitral tribunal, which normally occurs in ad hocarbitration. However, in the absence of any established arrangement, itis desirable that the parties and the tribunal should negotiate and agreeon the fee payable beforehand, which must be reasonable. Gary B.Born,[15] referring to the 2010 UNICITRAL Rules, observes that wherethe parties do not discuss method of calculation of the arbitrator’sremuneration, the arbitrator is entitled to reasonable fee. What is‘reasonable’ depends on the facts and on what the national systemsprescribe. This includes judicial assessment of the appropriate amount,[16]an aspect which Iwould elucidate subsequently. The model law adoptedby the UNCITRAL on International Commercial Arbitration recognisesthat the arbitrators must be compensated for their services and this flowsfrom the contractual relationship between the parties and the arbitrator,as well as customary practices. The 1976 UNCITRAL Rules hadexpressly allowed the arbitrators to determine their own fee, which shouldbe reasonable, taking into account the sum in dispute and the complexityof the dispute. Further, the rules require the arbitrators take into accountthe schedule of the fee that has been issued or provided by an appointingauthority, if designated by the parties. The 1976 UNICTRAL rule positionwas criticised as granting arbitrators undue authority to determine theircompensation. The revised rules issued in 2010, while continuing withthe substantial role to the arbitrators in deciding the ‘reasonable’ fee,requires the arbitrators to inform the parties as to how it proposes todetermine its fee and expenses promptly after its constitution. Therebythe process of determining the fee ismadetransparent. The fee set bythe arbitrators can be reduced if it is not reasonable and challengedwithin the prescribed period by the party moving to the appointing/designated authority, and in absence of designated authority, the reviewis undertaken by the Secretary General of the Permanent Court ofArbitration.

15 ‘International Commercial Arbitration’, 2nd Edition, 2914 @ paragraph 13.04.

16 Julian D.M. Lew , Loukas A. Mistelis , et al., Comparative International CommercialArbitration, ‘Chapter 12 Rights and Duties of Arbitrators and Parties’, pp. 2167-2173

A13. I would now turn my attention to the statutory provisions ofthe A&C Act, and would state that my attention has not been drawn toany provision which expressly or by necessary implication barsan arbitraltribunal from determining its fee, or to infer that the prohibition of nemojudex in causa sua (judge in your own cause) applies to arbitrations inIndia. Section 5[17] of the A&C Act states that in matters governed byBPart 1, no judicial authority shall intervene except when provided in Part1. Therefore, unless provision in Part 1 of the A&C Act confersjurisdiction on the court in respect of the matter, by inference the subject-matter would fall within the implied jurisdiction of the arbitral tribunal.Section 2(6) of the A&C Act states that where Part 1, except for SectionC28, leaves the parties to determine certain issue, that freedom shallauthorise any person, including the arbitral tribunal, to determine thatissue[18]. Sub-section (2) to Section 19[19] states that subject to provisionsof Part 1, the parties are free to agree on the procedure to be followedby the arbitral tribunal. Sub-section (3) to Section 19[20 ]states that wherethe parties fail to reach an agreement, subject to adhering to the provisionsDof Part 1, the arbitral tribunal is entitled to conduct the proceedings in themanner it considers appropriate. It follows that, where the parties do notagree on the fee, or the court while appointing an arbitral tribunal doesnot fix the fee, the arbitral tribunal by implication is authorised to fix thefee, which should be reasonable.E

14. I would respectfully agree with D.Y. Chandrachud J. that theprocess of fixation of fee by the arbitral tribunal should be in accordancewith public policy underlying arbitration, that is, with agreement andconsensus of the parties who bear the cost of arbitration. The arbitraltribunal should be transparent and disclose the fee structure and terms

Fof payment at the preliminary stage, so that an unwilling party can express

17 “5. Extent of judicial intervention.—Notwithstanding anything contained in anyother law for the time being in force, in matters governed by this Part, no judicialauthority shall intervene except where so provided in this Part.”18 Section 2(6) reads: “(6) Where this Part, except section 28, leaves the parties free toGdetermine certain issue, that freedom shall include the right of the parties to authoriseany person including an institution, to determine that issue.”

19 Section 19(2) reads: “(2) Subject to this Part, the parties are free to agree on theprocedure to be followed by the arbitral tribunal in conducting its proceedings.”20 Section 19(3) reads: “(3) Failing any agreement referred to in sub-section (2), thearbitral tribunal may, subject to this Part, conduct the proceedings in the manner itHconsiders appropriate.”

its unwillingness. No party should feel compelled to agree and therefore,it is necessary that the consent of the parties in writing should be taken.This exercise undertaken at the initial stage would avoid embarrassingsituations and prevent delay and litigation. The suggestion in SanjeevKumar Jain (supra) that the parties before nomination should ascertainthe fee structure from the prospective arbitrators is salutary. At the sametime, I would accept that fee fixation is matter of the procedure andrelates to conduct of arbitration, and for reasons supra and as held below,is an obligation as well as right conferred on the arbitral tribunal.Therefore, even in cases where consensus between the parties or withthe arbitral tribunal is not possible, the arbitral tribunal is entitled to fixthe professional fee payable for adjudication, as without fee fixation,except in cases of pro bono arbitration, the arbitral tribunal would beunable to proceed further to decide and adjudicate the disputes. It goeswithout saying that the fee so fixed should be fair and reasonable.[21]

15. I would now proceed to examine the specific provisions which,according to me, make the legal position clear as they empower an arbitraltribunal to fix its fee. Sub-section (8) to Section 31,[22] as originally enactedbefore its substitution by Act No. 3 of 2016, had stipulated that unlessotherwise agreed by the parties, the arbitral tribunal shall fix the cost ofarbitration. The explanation to this Section clarified that the expression‘costs’, for the purpose of the sub-section, means reasonable costs

21 The term ‘reasonable’ has been used in the explanation to the pre-amended sub-section (8) to Section 31, and post-amendment Section 31A of the A&C Act, precedingthe word ‘costs’. Sub-section (2) to Section 39 also provides for costs, by way of sumthat the court may consider ‘reasonable’, to be paid to the arbitral tribunal if, afternecessary inquiry, the court thinks it fit.

22 “(8) Unless otherwise agreed by the parties, ––

(a) the costs of an arbitration shall be fixed by the arbitral tribunal;

(b) the arbitral tribunal shall specify––

(i) the party entitled to costs,

(ii) the party who shall pay the costs,

(iii) the amount of costs or method of determining that amount, and

(iv) the manner in which the costs shall be paid.

Explanation.––For the purpose of clause (a), “costs” means reasonable costs relating

(i) the fees and expenses of the arbitrators and witnesses,

(ii) legal fees and expenses,

(iii) any administration fees of the institution supervising the arbitration, and

(iv) any other expenses incurred in connection with the arbitral proceedings and thearbitral award.”

Arelating to the fees and expenses of the arbitrator and the witnesses.[23]The sub-section emphasised that the agreement between the parties isparamount and binding. The arbitral tribunal is entitled to fix costs ofarbitration, which includes the fee and expenses of the arbitrator, if theagreement between the parties is wordless and silent as to the fee payableto the arbitral tribunal.

16. Post enforcement of Act No. 3 of 2016, sub-section (8) toSection 31 states that the cost of arbitration shall be fixed by the arbitraltribunal in accordance with Section 31A of the A&C Act. Section 31A,as inserted by Act No. 3 of 2016 and applicable with retrospective effectfrom 23[rd] October 2015, reads:C

“31A. Regime for costs.––(1) In relation to any arbitrationproceeding or proceeding under any of the provisions of thisAct pertaining to the arbitration, the Court or arbitral tribunal,notwithstanding anything contained in the Code of Civil Procedure,1908 (5 of 1908), shall have the discretion to determine—D

(a) whether costs are payable by one party to another;

(b) the amount of such costs; and

(c) when such costs are to be paid.

Explanation.—For the purpose of this sub-section, “costs”Emeans reasonable costs relating to—

(i) the fees and expenses of the arbitrators, Courts andwitnesses;

(ii) legal fees and expenses;

F(iii) any administration fees of the institution supervising thearbitration; and

(iv) any other expenses incurred in connection with the arbitralor Court proceedings and the arbitral award.

G(2) If the Court or arbitral tribunal decides to make an order as topayment of costs, —

(a) the general rule is that the unsuccessful party shall beordered to pay the costs of the successful party; or

H23 See observations in Sanjeev Kumar Jain(supra) referred to in paragraph 4 above.

(b) the Court or arbitral tribunal may make different orderfor reasons to be recorded in writing.

(3) In determining the costs, the Court or arbitral tribunal shallhave regard to all the circumstances, including—

(a) the conduct of all the parties;

(b) whether party has succeeded partly in the case;

(c) whether the party had made frivolous counter-claimleading to delay in the disposal of the arbitral proceedings; and

(d) whether any reasonable offer to settle the dispute is madeby party and refused by the other party.

(4) The Court or arbitral tribunal may make any order under thissection including the order that party shall pay—

(a) proportion of another party’s costs;

(b) stated amount in respect of another party’s costs;

(c) costs from or until certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to distinct part of the proceedings; and

(g) interest on costs from or until certain date.

(5) An agreement which has the effect that party is to pay thewhole or part of the costs of the arbitration in any event shall beonly valid if such agreement is made after the dispute in questionhas arisen.”

17. The explanation to sub-section (1) to Section 31A states that,for the purpose of the sub-section, ‘costs’ means the reasonable costsrelating to the fee and expenses of the arbitrator, the court and thewitnesses. Further, the regime of costs introduced by the insertion ofSection 31A in terms of sub-section (1) is to be given effectnotwithstanding anything contained in the Code of Civil Procedure,1908.[24] Section 31A gives discretion to the arbitral tribunal to determine– (a) the costs payable by one party to the other; (b) amount of such

24 Hereinafter referred to as ‘the Code’.

Acosts; and (c) when such costs are to be paid. Sub-sections (2), (3) and(4) to Section 31A lay down the rules and principles which the arbitraltribunal should keep in mind while exercising the discretion to apportionand award costs. Significantly, sub-section (5) to Section 31A annulsand abrogates any pre-dispute agreement which has the effect that oneparty is to pay the whole or part of the costs of arbitration. In otherBwords, an agreement between the parties as to ‘payment’ of costs wouldbe valid only if such agreement is made after the dispute between theparties has arisen. The object and purpose behind sub-section (5) toSection 31A is to check the malpractice in standard form agreements orunequitablecontracts whereby the dominating party could incorporate aCclause in the contract or the arbitration agreement, burdening one of theparties to bear the costs of arbitration in whole or part. I would notinterpret the mandate of sub-section (5) to Section 31A as an attempt totrample the freedom to contract or autonomy of parties. On the otherhand, it is check on the dominating party from incorporating anunconscionable term that the costs of arbitration would be paid entirelyDor in part by one of the parties, and the general rule incorporated inclause (a) to sub-section (2) to Section 31A states that unless there is anagreement between the parties post the disputes, the unsuccessful partyshall be ordered to pay costs to the successful party. In other words‘costs follow the event.’

E18. What is of importance for the decision and issue raised in thepresent case is Section 38 of the A&C Act, which reads thus:

“38. Deposits.—(1) The arbitral tribunal may fix the amount ofthe deposit or supplementary deposit, as the case may be, as anadvance for the costs referred to in sub-section (8) of section 31,Fwhich it expects will be incurred in respect of the claim submittedto it:

Provided that where, apart from the claim, counter-claimhas been submitted to the arbitral tribunal, it may fix separateamount of deposit for the claim and counter-claim.G

(2) The deposit referred to in sub-section (1) shall be payable inequal shares by the parties:

Provided that where one party fails to pay his share of thedeposit, the other party may pay that share:

Provided further that where the other party also does not paythe aforesaid share in respect of the claim or the counter-claim,the arbitral tribunal may suspend or terminate the arbitralproceedings in respect of such claim or counter-claim, as the casemay be.

(3) Upon termination of the arbitral proceedings, the arbitral tribunalshall render an accounting to the parties of the deposits receivedand shall return any unexpended balance to the party or parties,as the casemay be.”

Section 38 has not been substituted or amended vide Act No. 3 of2016. The reference made in Section 38to sub-section (8) to Section 31,therefore, cites the said sub-section before its substitution by Act No. 3of 2016. Be that as it may, I do not think that this would make anysubstantial difference, as post the substitution, sub-section (8) to Section31 refers to Section 31A, which was inserted by Act No.3 of 2016. Sub-section (1) to Section 31A, in fact, is substantially parimateria to theearlier (pre-substitution) sub-section (8) to Section 31, except for theportion in sub-section (8) to Section 31 which gave absolute primacy tothe arbitration agreement. I need not again refer to and interpret sub-sections (1) and (5) to Section 31A of the A&C Act. Sub-section (1) toSection 38 empowers the arbitral tribunal to fix the amount of the depositor the supplementary deposit, as the case may be, as an advance for thecosts referred to in sub-section (8) to Section 31. In other words, thearbitral tribunal can ask the parties to deposit the costs in advance andsuch deposits towards costs can be directed on more than one occasion.The expression ‘costs’ in Section 38 would obviously include the feesand expenses of the arbitral tribunal. This position is lucid beyond adoubt in view of the language of the proviso, and vide the language andwords of sub-sections (2) and (3) to Section 38. Sub-section (2) statesthat costs referred to in sub-section (1) shall be payable by the parties inequal shares. However, in case one party fails to pay its share of thedeposit, the other party would pay that share. Further, if the other partyalso does not pay the aforesaid share in respect of the claim or thecounter-claim, the arbitral tribunal may suspend or terminate the arbitralproceedings in respect of such claim or counter-claim. The second provisoto sub-section (2) to Section 38 will have limited application where theFourth Schedule applies to the arbitration proceedings, in which case thefee will be payable not with reference to the claim or counter-claim, but

Awith reference to the “sum in dispute”. Iwill subsequently interpret theexpression “sum in dispute” to mean the aggregate or total amount subjectmatter of the disputes before the arbitral tribunal. The effect of sub-section (2) to Section 38, which has to be read with the limitationincorporated vide sub-section (5) to Section 31A, is that as generalrule, the costs, including the fee of the arbitrators, would be payable inBadvance and shared equally by the parties. It is not the sole responsibilityof the party raising the claim or counter-claim. These payments, duringthe course of the arbitration proceedings, are treated as advancepayments and in terms of sub-section (3) to Section 38, the arbitral tribunal,upon termination of the arbitration proceedings, must render an accountCto the parties of the deposits received. Any unexpended balance is to bereturned to the party or the parties, as the case may be, who had madethe payment. The expression “termination of arbitration proceedings”not only refers to the termination of the proceedings which takes placeunder the second proviso to sub-section (2) to Section 38, but also to theDtermination of proceedings on pronouncement/making of the award interms of Section 32, as well as under Sections 14 and 15 of the A&CAct. This is important as we do have cases wherein the arbitrators resignor recuse without pronouncing an award, but thereupon they are boundto render an account of the costs, including the fee paid to them. As perthe statutory mandate of sub-section (3) to Section 38, the arbitral tribunalEmust render an account to the parties of the deposits received upontermination of the arbitration proceedings.[25]

19. Sub-section (5) to Section 31A does not apply so as to overridean agreementon the quantum of thefee payable to the arbitrators, asthe said provision only applies where an agreement has the effect thatFa party is to pay whole or part of the cost of the arbitration. Sub-section (5) deals with the discretion of the arbitral tribunal toapportionthe costs of arbitration, and does not restrict the authority ofthe arbitral tribunal to fixthe cost of arbitration, including the quantum

G25 Premature termination of arbitrator’s mandate has serious repercussions in form ofloss of time, money, as well as repetition of proceedings, and the delay may lead toadditional damages and interest. By accepting appointment, an arbitrator undertakes tocarry out his responsibilities. Resignations must be for good cause especially whenthe proceeding have continued and substantial time and money has been spent. (see -Julian D.M. Lew, Loukas A. Mistelis, et al., Comparative International CommercialHArbitration, ‘Chapter 12 Rights and Duties of Arbitrators and Parties’, pp. 281 – 282)

of fee payable to it. However, any contractual term fixing the feepayable to the arbitral tribunalis binding, and cannot be overridden bythe arbitral tribunal.

20. The aforesaid legal exposition is in consonance with thedecision of this Court in National Highways Authority of India v.Gayatri Jhansi Roadways Limited,[26 ]wherein Division Bench of thisCourt has held as under:

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11. We have heard the learned counsel for the both the sides. Inour view, Shri Narasimha, learned Senior Counsel, is right in statingthat in the facts of this case, the fee schedule was, in fact, fixedby the agreement between the parties. This fee schedule, beingbased on an earlier circular of 2004, was now liable to be amendedfrom time to time in view of the long passage of time that hasensued between the date of the agreement and the date of thedisputes that have arisen under the agreement. We, therefore,hold that the fee schedule that is contained in the Circular dated1-6-2017, substituting the earlier fee schedule, will now operateand the arbitrators will be entitled to charge their fees inaccordance with this schedule and not in accordance with theFourth Schedule to the Arbitration Act.12. We may, however, indicate that the application that was filedbefore the High Court to remove the arbitrators stating that theirmandate must terminate, is wholly disingenuous and would not liefor the simple reason that an arbitrator does not become de jureunable to perform his functions if, by an order passed by sucharbitrator(s), all that they have done is to state that, in point offact, the agreement does govern the arbitral fees to be charged,but that they were bound to follow the Delhi High Court in GayatriJhansi Roadways Ltd. case which clearly mandated that the FourthSchedule and not the agreement would govern.

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14. However, the learned Single Judge’s conclusion that the changein language of Section 31(8) read with Section 31-A which deals

Aonly with the costs generally and not with arbitrator’s fees is correctin law. It is true that the arbitrator’s fees may be component ofcosts to be paid but it is far cry thereafter to state that Sections31(8) and 31-A would directly govern contracts in which feestructure has already been laid down. To this extent, the learnedSingle Judge is correct. We may also state that the declaration ofBlaw by the learned Single Judge in Gayatri Jhansi Roadways Ltd.is not correct view of the law.”

We would, however, explain the mandate as stated in paragraphs12 and 14 in this decision.

21. Paragraph 14, as quoted, refers to Section 31(8) read withSection 31A, to state that it deals with costs in general and not witharbitrator’s fee. This reasoning has to be read with myinterpretation,which refers to and takes into account Section 38 of the A&C Act. Inmy opinion, arbitrator’s fee, being component of cost, can be fixed byDthe arbitral tribunal when it is not already predetermined by way of anagreement between the parties, or by court order. This is because thearbitral tribunal has the power to fix and direct the parties to make paymentof deposits in advance and during the course of the arbitrationproceedings, subject to the arbitral tribunal rendering an account ontermination of the arbitration proceedings. In Gayatri Jhansi RoadwaysELimited (supra), there was an agreement between the parties on thequantum of fee payable to the arbitral tribunal, and in this context theDivision Bench has observed that Sections 31(8) and 31A would notdirectly govern the contracts in which the fee structure has been laiddown.F

22. Paragraph 12 of the judgment is of utmost significance as itinterprets and holds that the dispute as to the payment of fee does notresult in termination of proceedings under clause (a) to sub-section (1)to Section 14 of the A&C Act. If one or both the parties fail to depositthe arbitration costs, including the arbitrator’s fee, the mandate of theGarbitrator is not terminated because he has become de jure or de factounable to perform his functions as under Section 14(1)(a). On the otherhand, in such situations, the two provisos to sub-section (2) to Section 38come into play. Where one of the parties fails to pay its share of thedeposit, it is open to the other party to pay that share. However, if theother party also does not pay the share, the arbitral tribunal is entitled toHterminate or suspend the arbitration proceedings.[27] This legal positionalso takes care of the argument raised by some counsels that thearbitration proceedings should be treated as terminated, where in theabsence of any written agreement, the fee fixed by the arbitrator isunacceptable to party on the ground that it is too high or even for thereason that they are unable to pay or bear the financial burden of thesaid fee, and such cases are to be treated as ‘de jure’ impossibilitycovered under Section 14(1)(a) of the A&C Act. This argument wouldbe contrary to and unacceptable in view of the two provisos to sub-section (2) to Section 38. In all fairness, it must be stated that Mr. K.K.Venugopal, learned Attorney General for India, had accepted this legalposition, and I quote… “[t]his of course would indicate that no ground ofbias can be raised if the arbitrator directs one party to pay the fee payableby the party, in case the other party is not prepared to pay the fee. Noquestion of bias would arise”.[28]

23. The word ‘cost’, it is argued, is different from the arbitrator’sfee and therefore, the arbitral tribunal is not competent or authorised tofix its own fee on the principle of nemo judex in causa sua, that is, ‘noone should be judge in their own cause’. The principle would apply wherethe parties have fixed the fee payable to the arbitral tribunal, either as aterm in the arbitration agreement or otherwise by an agreement, eitherbefore or after the appointment of the arbitral tribunal. This principle willapply equally where the court fixes the fee as term of appointment.However, this principle will have no application where the parties or thecourt has left it to the arbitral tribunal to fix its own fee. In other wordswhen the arbitration agreement is silent and the parties have not agreedon the quantum of fee payable to the arbitral tribunal, or the court orderdoes not fix the fee, the arbitral tribunal has the right and power to fix itsown fee.

27 The International Arbitration Rulebook: Guide to Arbitral Regimes published byKluwerArbitration in Chapter 8: Costs and Fees observes that the arbitrators andarbitration institutions have to be paid for their services and reimbursed for the expensesincurred for fulfilling their duties. Each party is to pay equal proportion of costs inadvance. Further the parties are jointly and severally liable, and if one party fails topay, the other party will be invited to pay that share of costs in addition to its own. Ifthe fees are not paid, as general matter, it is quite possible that the arbitration may notproceed.

28 Petitioner’s submission in rejoinder in Arbitration Case (C) No. 5 of 2022 filed byMr. Gunnam Venkateswara Rao, Advocate.

A24. The pre-amended sub-section (8) to Section 31 and post-amendment Section 31A and Section 38 of the A&C Act, use theexpression ‘costs’, albeit they also refer to fee and expenses of thearbitrator/tribunal. The sections are, therefore, comprehensive and all-embracing provisions that equally empower and authorise the arbitraltribunal to fix the fee in the absence of any agreement between theBparties or court order fixing the fee payable to the arbitral tribunal.Any other interpretation would make the A&C Act unworkable andSections 31A, 38 and 39 superfluous. These provisions must be giventheir full intended effect and they are notsupererogatory in nature. Thesections should not be read as unnecessary when they refer to arbitrationCfee. Notably, arbitral tribunals, since time immemorial, have been fixingarbitration fee, and the legislature has not intervened or barred themfrom doing so even by the amendments made vide Act No. 3 of 2016.Additionally, there is no provision in the A&C Act which states that theparties can move the court for fixation of fee of the arbitral tribunalwhen the arbitration agreement is silent or the parties are unable toDagree 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 uponits own fee. To hold to the contrary would create chaos and invalidate anumber of orders passed by the High Courts and even this Court, whichleave it open for the arbitral tribunal to fix its own fee.

E25. ‘Redfern and Hunter on International Arbitration’,[29] referringto the expression ‘costs’, has divided the same into three categories,namely: (i) costs of the tribunal, which include charges for administrationof arbitration; (ii) costs of arbitration, which includes hiring of rooms,transcript writers, amongst other things; and (iii) costs of the parties,which includes costs of legal representatives and expert witnesses,Famongst other things; to observe that all three elements would includethe fee of the arbitral tribunal. The expression ‘costs’, therefore, iscomprehensive and broad to include fee and expenses of the arbitraltribunal.Russell[30] observes that the arbitral tribunal may make an orderfor costs on such basis as it thinks fit. Under the same heading, heGobserves that normally the tribunal or the appointing authority willdetermine the tribunal’s fee and expenses, which would be recovered in

29 Redfern and Hunter on International Arbitration Oxford University Press, 6th Edn.,2015, pg. 532-537.

30 Russell on Arbitration, 24th Edition, pg. 461, paragraphs 7-217 to 7-222, under theHheading ‘Determination of the recovery of costs of the arbitration’.

and be part of the award. However, when there is question about thefee and expenses of the tribunal being reasonable and appropriate, thecourt, in terms of Section 28(2) of the English Arbitration Act, 1996, andalso while exercising power under Section 63(4) of the aforesaid Act,can examine the said question.The court can also examine the said questionon an application by any of the parties under Section 64(2) of the EnglishArbitration Act, 1996. For our purposes, it is relevant to state that Section63[31] deals with recovery of costs of arbitration and does not per se dealwith the fee payable to the arbitral tribunal, nevertheless arbitration feebeing subset and part of costs, can be made subject-matter ofproceedings under Sections 63/64 of the English Arbitration Act, 1996.

26. Professor Sundra Rajoo has elaborately examined the questionof arbitrator’s remuneration to observe that it consists of sums due tohim in respect of his professional fee and expenses. Such remunerationis also known as the ‘cost of the award’, that is, the fee and expenses ofthe arbitrator or umpire, though the term ‘fee’ must be distinguishedfrom the cost of the reference, that is, the legal cost incurred by theparties.[32] Reference is made by him to Tackaberry and Marriott[33], whohave summarised the ratio in K/S Norjarl A/S v. Hyundai HeavyIndustries Co. Ltd.[34]as under:

(1)An arbitrator who accepts appointment with or without anystipulation as to fees thereby enters into trilateralEagreement with the parties.

(2)By that agreement the arbitrator assumes the status of aquasi-judicial adjudicator with all the duties and disabilitiesinherent in that status.

(3)Amongst those disabilities is an inability to deal unilaterallywith one person for personal benefit.

31 The recoverable costs of the arbitration. 63 (1) – xxxx; (2) xxxx; (3) The tribunalmay determine by award the recoverable costs of the arbitration on such basis as itthinks fit. If it does so, it shall specify – (a) the basis on which it has acted, and (b) theitems of recoverable costs and the amount referable to each; xxxx.

32 Datuk Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (SecondEdition), 2016. Chapter 24 in the said book refers to Gary Born, International CommercialArbitration.

33 Tackaberry, and Marriott, Bernstein’s Handbook of Arbitration and Dispute ResolutionPractice (4[th] Edn., 2003) at pg. 2-35834 (1991) 3 All ER 211

A(4)It follows that an arbitrator who has accepted appointmenton particular basis as to the amount and payment of hisfees, which may include stipulation as to payment inadvance or commitment fee, cannot, thereafter, alter thebasis of his remuneration unless all parties agree.

B(5)An arbitrator who has accepted appointment withoutstipulation as to fees is entitled to reasonable fee to betaxed, by him or by the court, at the conclusion of thearbitration, and cannot thereafter make any specialagreement or arrangement about his fees unless all partiesto the reference concur in it.

(6)So the arbitrator may not enter into any fee agreement orarrangement with party to which any other party objects.

(7)These propositions apply to sole arbitrator, party-appointed arbitrator, an umpire, chairman or thirdarbitrator.D

The points (1) to (5) set out the correct position. However, as faras point (5) is concerned, in the context of the statutory provisions of theA&C Act, it should be understood that where an arbitrator has acceptedappointment without any stipulation as to the fee, he is entitled toreasonable fee as an implied term of the contract of appointment or onEthe principle of quantum merit.Point (6) should be read withthe mandateofSection 38 of the A&C Act as examined above. In this background,and in the context of statutory provisions of the A&C Act, I believe thatthe suggestion in Sanjeev Kumar Jain (supra), and as proposed by Mr.Huzefa Ahmedi, Senior Advocate, who was appointed by this Court asFamicus curiae, and as held by brother D.Y. Chandrachud J., the arbitraltribunal should, at the very outset or during the preliminary hearings,with mutual consent of the parties and by written agreementfix thefee, which once fixed should remain binding and should not be revised,has merit. There cannot be any unilateral deviation from the terms offee as agreed, which terms not only bind the parties, but the arbitralGtribunal as well. Any deviation, amendment, or modification can only beby written agreement with the consent of all parties to the litigation.

27. In the context of the situation where the arbitrator and theparties are unable to agree on the remuneration to be paid to the arbitraltribunal, and the arbitral tribunal fixes the fee payable, I would like toHrefer to Section 39 of the A&C Act which reads thus:

“39. Lien on arbitral award and deposits as to costs.—(1)Subject to the provisions of sub-section (2) and to any provision tothe contrary in the arbitration agreement, the arbitral tribunal shallhave lien on the arbitral award for any unpaid costs of thearbitration.

(2) If in any case an arbitral tribunal refuses to deliver its awardexcept on payment of the costs demanded by it, the Court may,on an application in this behalf, order that the arbitral tribunal shalldeliver the arbitral award to the applicant on payment into Courtby the applicant of the costs demanded, and shall, after such inquiry,if any, as it thinks fit, further order that out of the money so paidinto Court there shall be paid to the arbitral tribunal by way ofcosts such sum as the Court may consider reasonable and thatthe balance of the money, if any, shall be refunded to the applicant.

(3) An application under sub-section (2) may be made by anyparty unless the fees demanded have been fixed by writtenagreement between him and the arbitral tribunal, and the arbitraltribunal shall be entitled to appear and be heard on any suchapplication.

(4) The Court may make such orders as it thinks fit respecting thecosts of the arbitration where any question arises respecting suchcosts and the arbitral award contains no sufficient provisionconcerning them.”

Section 39 is part of Chapter X, which is miscellaneous chapter.Sub-section (1) to Section 39 states that the arbitral tribunal shall havelien over the arbitral award for any unpaid costs of arbitration. This lienis subject to provisions of sub-section (2) to Section 39, which states thatwhere an arbitral tribunal refuses to deliver an award except on paymentof costs demanded by it, the party may make an application to courtfor an order that the arbitral tribunal should deliver the arbitral award tothe party. The court thereupon is required to conduct an inquiry andmay, if it deems proper, direct the party to deposit the costs in the courtfor delivery of the award to the party. After the inquiry, the court canpass orders for payment of costs to the arbitral tribunal as the court mayconsider reasonable. In case any deposit has been made by the party,the same would abide by the decision of the court. If extra payment hasbeen made, the same shall be refunded to the party.

A28. Sub-section (3) to Section 39 states that an application undersub-section (2) may be made by ‘any party’ unless the fee[35] demandedhas been fixed by written agreement between him and the arbitraltribunal. Further, the arbitral tribunal is entitled to appear and be heardwhen an application is made under sub-section (2) to Section 39. Inother words, where there is written agreement between the arbitralBtribunal and party on the aspect of the payable fee, the party cannotfile any application under sub-section (3) to Section 39 of the A&C Act.This is significant as it bars and prohibits party to challenge the fee tobe paid to the arbitral tribunal, once it has agreed to it in writing. Theobject and purpose is to impede such party from raising any objection toCfixation of fee or costs during the course of the arbitration proceedingsor after the award is made. The agreement between the parties or withthe arbitral tribunal in writing as to the quantum of fee payable to thearbitral tribunal binds the parties.29. Sub-section (3) to Section 39 of the A&C Act is ambiguousDand requires interpretation to effectuate the legislative object and intent.Sub-sections (1) and (2) to Section 39, as noticed, particularly deal withcases where the arbitral tribunal does not deliver the award and claimsa lien for the unpaid costs of arbitration, in which event the aggrievedparty can move an application for an order directing the arbitral tribunalEto deliver the award to the applicant. Such party is required to makepayment into the court of the costs demanded, whereupon the courtconducts an inquiry, if any, as it thinks fit and thereupon passes an orderas to the money to be paid from the amount deposited with the arbitraltribunal towards costs. The amount determined by the court should be

reasonable. Balance money, if any, is to be refunded to the applicant.FSub-section (3), on the other hand, empowers ‘any party’ tomove anapplication before the court under sub-section (2), provided the ‘fee’demanded has not been fixed under written agreement between himand the arbitral tribunal. In my opinion, sub-section (3) to Section 39 of

the A&C Act confers right on ‘any party’ to move to the court if heGhas discontent with the ‘fee’ fixed by the arbitral tribunal, unless he hasalready agreed to the ‘fee’in written agreement. Sub-section (3) is,

35 Sub-section (3) to Section 39 expressly uses the words “the fees demanded…”,which can be contrasted with the word ‘cost’, which is more comprehensive andHincludes fee.

therefore, independent and will apply even in situations not covered bysub-section (2), where the arbitral tribunal refuses to deliver the awardto the applicant, except on payment of costs as demanded. No doubt,sub-section (3) to Section 39 refers to sub-section (2) thereof, but thesaid reference is in the context of the inquiry which the court has toconduct to determine the reasonable quantum of the ‘fee’ that should bepaid/is payable to the arbitral tribunal. In terms of sub-section (3) toSection 39, the arbitral tribunal, in such event, is entitled to appear andbe heard on such application. The above interpretation should be acceptedfor two reasons: (a) sub-section (3) to Section 39 is an independentprovision and cannot be treated as superfluous or redundant provisionapplicable in circumstances where sub-sections (1) and (2) to Section39 are applicable; and (b) it would effectuate the legislative intent andobject to ensure that any party can approach the court in case there is adispute with regard to fixation of ‘fee’ by the arbitral tribunal before anaward is made. I do not find any good ground and reason to hold that thelegislative intent is to prevent party from approaching the court on ‘feefixation’ by the arbitrator/tribunal till an award is made. This power/rightof any party to approach the court against the ‘fee fixation’ by the arbitraltribunal is notwithstanding Section 38 of the A&C Act, for the simplereason that party may feel aggrieved and may not want to participatein the arbitration proceedings for want of high costs which it can ill-afford to pay or would be compelled to pay in spite of its weak financialcondition, as failure to pay the ‘fee’ to the arbitral tribunal may havenegative consequences.

30. Sub-section (4) to Section 39 empowers the court to makesuch orders as it thinks fit respecting the costs of arbitration where aquestion arises respecting such costs and the arbitral award contains nosufficient provision concerning them. The power conferred under sub-section (4) to Section 39 is, therefore, wide and can even apply post theaward, when the award itself contains no sufficient direction concerningthe costs. Thus, in myopinion, sub-sections (2) and (3) to Section 39 areindependent provisions, and the latter sub-sectioncan be invoked whenevera party does not agree to the ‘fee’ fixed by the arbitral tribunal in asituation where the ‘fee’ is not fixed by written agreement. Section39(3) applies when both parties or one of the parties does not agree tothe ‘fee’ fixed by the arbitral tribunal.

AWhat is ‘fair and reasonable fee’?

31. I have held that in the absence of any agreement or courtorder, the arbitral tribunal is entitled to fix ‘fair and reasonableremuneration’. Fixation of fee by an arbitrator is delicate matter ashe is then determining the fee which he is entitled to command havingBregard to: (i) complexity of the disputes; (ii) difficulty or novelty of thequestions involved; (iii) the skill, specialized knowledge and responsibilityof the arbitral tribunal; (iv) number and importance of documents to bestudied; (v) value of the property involved or the amount or the sum inissue; and (vi) importance of the dispute to the parties.[36] ProfessorSundraRajoo[37] has observed that experienced and qualified arbitratorsCare accustomed to receiving fees at least equivalent to the upperendof the fee charged for their profession in their home jurisdiction. If thefee structure is too low, it may be difficult to procure the services ofappropriately qualified arbitrators. Even if they do, they may not be willingto dictate the amount of time required to resolve the case.Therefore, theDarbitrators must openly, and in transparent manner, state the fee thatthey would like to charge so as to avoid embarrassing allegations anddisagreements. This should be done before acceptance of appointmentor at the very commencement of the arbitration process. The arbitratorsare conscious of the role they perform as adjudicators, which is verydifferent from and cannot be equated with advocates. While it is possibleEto choose and change an advocate keeping in view one’s pocket, anarbitrator once appointed stands on different footing. When an arbitraltribunal has been duly constituted, either party, irrespective of the factwhether they can afford the fee or not, is unlikely to displease thearbitral tribunal stating that the fee fixed is not reasonable.[38 ]At theFsame-time, any challenge to the arbitrator’s fee by those who arewillingly paying similar professional fee to those who argue for them

36 Mustill and Boyd, The Law and Practice of Commercial Arbitration in England, (2ndEdn., 1989) at p.236.

37 Datuk Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (SecondGEdition), 2016.

38 The high fee charged by senior advocates has been the subject matter of severalarticles, including the write-up ‘India’s Grand Advocates: Legal Elite Flourishing inthe Era of Globalization’, by Marc Galanter and Nick Robinson, published by theHarvard Law School, and ‘Litigation Expenses: High Cost of Justice’, by Usha RaniDas. The latter article, in fact, refers to several quotations by leading advocates whoHhave acknowledged the problem.

before the arbitratorwould be discordant.[39 ]To avoid any controversyand litigation, the fee structure fixed in the Fourth Schedule, or by therespective High Courts, when adopted by the arbitral tribunal, in myopinion should be considered as ‘fair and reasonable’. The courtwouldnot permit party to question the feeif it is in terms of the FourthSchedule, or the rules framed by the High Court. I, therefore, albeitfor different grounds and reasons, concur with the observations madein paragraph 105 by my brother D.Y. Chandrachud, J.

Situation post enforcement of Act No. 33 of 2019: Effect of-the proviso to subsection (3A) to Section 11 of the Arbitrationand Conciliation Act, 1996.

32. Sub-section (3A) to Section 11 states that the Supreme Courtand the High Courts shall have the power to designate arbitral institutionsfrom time to time, which institutions have been graded by the Councilunder Section 43-I of the A&C Act. In the absence of any designationand gradation, the sub-section (3A) to Section 11 is not effectively andde-factoenforced. However, the first proviso would be applicable as itapplies in respect of those High Courts’ jurisdiction where no gradedarbitral institution is available. In such cases, the Chief Justice of theconcerned High Court may maintain panel of arbitrators in dischargingthe functions and duties of an arbitral institution. Further, reference tothe arbitrator is deemed to be an arbitral institution for the purpose ofSection 11 and the arbitrator is entitled to such fee as the rates specify inthe Fourth Schedule. In other words, the Fourth Schedule is binding.Sub-section (14) to Section 11 states that the arbitral institution shalldetermine the fee of the arbitral tribunal and the manner of payment tothe arbitral tribunal, subject to the rates specified in the Fourth Schedule.When we read the first proviso to sub-section (3A) to Section 11 andsub-section (14) to Section 11 together and in harmonious manner, it islucid that the rate of fee specified in the Fourth Schedule is obligatory.The expression ‘the rate’ specified in the Fourth Schedule refers to thefee mentioned in the Forth Schedule and Section 11(14), when it usesthe expression “subject to the Fourth Schedule”, it requires that the feecannot exceed the fee fixed in the schedule, albeit may be lower thanthe figure mentioned in the schedule.

39 High cost of litigation has grave implications and consequences, concern whichmust engage the attention of the senior members of the Bar.

EFG

A33. Therefore, post enforcement of Act No. 33 of 2019 in termsof the proviso to sub-section (3A) to Section 11, which applies to ad hocarbitrations, the fee structure fixed by the Fourth Schedule is imperativeand binding. In the case of institutional arbitrations, the fee structureshould be fixed in terms of the Fourth Schedule. However, both sub-sections (3A) and (14) to Section 11 of the A&C Act do not bar theBarbitral tribunal, or the arbitral institution, from fixing fee which is lowerthan the Fourth Schedule.

Power of the arbitral tribunal to direct advance deposit ofcosts, including supplementary costs, under Section 38 of theCArbitration and Conciliation Act, 1996:

34. I am conscious that the aforesaid determination on theremuneration/fee payable to the arbitral tribunal may lead to difficulty,especially in cases where one party deliberately delays and prolongsthe proceedings, as result of which, number of hearings are requiredDto be held. In such situations, the arbitral tribunal is entitled to takerecourse to Section 38 of the A&C Act and call upon the party tomake supplementary deposits in the form of costs of arbitration, which,while not including any ‘supplementary’ fee payable to the arbitraltribunal, would mean the ‘cost incurred bythe parties’ payable in termsof Section 31A of the A&C Act. Of course, the deposit would finallyEabide by the directions given in the award on payment of costs. Thepower and authority given to the arbitral tribunal to direct the partiesor party to make advance deposit of costs, including supplementarycosts, remains, and has not been limited or obliterated by Act No. 33of 2019.F

Summary

35. It will nowbe appropriate to summarize the legal position asunder:

(a)The arbitral tribunal is bound by the fee or remunerationfixed by the parties in the arbitration agreement, or by mutualconsent, whether before or after the disputes have arisen.

(b)Where the court refers disputes to an arbitral tribunal, inthe absence of any agreement between the partiesfixingHthe fee payable to the arbitral tribunal, it should fix the fee

so payable.The fee fixed by the court is binding on thearbitral tribunal.

(c)It is desirable that the parties/court should ascertain the feestructure from the prospective arbitrators before anarbitrator is nominated/appointed.

(d)In the absence of written agreement or court orderfixing the fee of the arbitral tribunal, the arbitral tribunal isentitled to ‘fair and reasonable fee’, which should be donein transparent manner and in consultation with theparties.This exercise should be undertaken at the initial/preliminary stage. However, lack of consensus, would notbar an arbitral tribunal from fixing ‘fair and reasonable fee’.An aggrieved party would be entitled to question the feefixed by the arbitral tribunal in terms of Section 39 of theA&C Act. On challenge being raised, the court wouldexamine the question of reasonableness of fee withreference to the factors stated above and in particular withreference to the Fourth Schedule of the A&C Act. The feestructure mentioned in the Fourth Schedule or by therespective High Courts would be per se treated andregarded as ‘fair and reasonable fee’.

(e)Fee once fixed cannot be increased or enhanced exceptwith the consent of all the parties or by an order of thecourt.

(f)Post the enactment and enforcement of Act No. 33 of 2019,and in terms of the first proviso to sub-section (3A) of Section11 of the A&C Act, the arbitral tribunal is entitled to the feeat the rate specified in the Fourth Schedule.Consequently,the arbitral tribunal is not entitled to deviate and fix higherfee. Similarly, arbitral institutions, in terms of Section 11(14),are bound to follow the fee structure mentioned in the FourthSchedule. However, sub-sections (3A) and (14) of Section11 do not bar or prohibit the ad hoc arbitral tribunal or thearbitral institution to charge arbitration fee which is less orlower than what is stipulated in the Fourth Schedule.Sub-sections (3A) and (14) of Section 11 are binding on theparties and the arbitral tribunal.

816SUPREME COURT REPORTS

AInterpretation of the Fourth Schedule

36. The Fourth Schedule was introduced vide Act No. 3 of 2016with retrospective effect from 23[rd] October 2015 and reads:

BTHE FOURTH SCHEDULE

[See section 11(3A)]

The Fourth Schedule, post substitution by Act No. 33 of 2019,refers to Section 11(3A), instead Section 11(14) of the A&C Act.

37. The three aspects of the Fourth Schedule which requireFinterpretation are: (a) whether the expression ‘sum in dispute’ refers tothe aggregate of the claim and the counter-claim, or the fee payable asper theschedule has to be separately computed for the claim(s) andcounter-claim(s) without aggregating them; (b) do the words in SerialNo.6 - “Rs.19, 87, 500/- plus 0.5% of the claim amount over andGabove Rs.20, 00, 000/- with the ceiling of Rs.30, 00, 000/-” meanRs.19, 87, 500/- plus 0.5% of the total claims, subject to the ceiling ofRs.30, 00, 000/-, or the maximum fee payable is Rs.30, 00, 000/- plusRs.19, 87, 500/-, that is, Rs.49, 87, 500/-; and (c) whether the feeprescribed in the Fourth Schedule is cumulative for the three-memberarbitral tribunal, to be shared/divided between the three members, or the

fee prescribed is for each individual member of the three member arbitraltribunal.

Interpretation of the expression “sum in dispute”

38. The expression “sum in dispute” does not refer to claim or

counter-claim. The word ‘sum’means the whole, aggregate or the totalamount. Thus, the legislature has deliberately and consciously avoidedaseparate reference to the amounts stated either in the claim or the counter-claim.The “sum in dispute” refers to the total amount subject matterbefore the arbitral tribunal, which is to be adjudicated upon. Thus, itwould be correct to state that the language and the words “sum indispute”are an intended and calculateddeparture, as the words ‘claim’and ‘counter-claim’ do find specific mention in Section 23(2A), whichstates that the respondent in support of his case may also submit counter-claim or plead set-off which shall be adjudicated by the arbitral tribunalif such counter-claim or set-off falls within the scope of the arbitrationagreement.[40 ]Similarly, Section 2(9) states that for the purpose of Part 1,except in the case of Section 25(a) and Section 32(2)(a), reference to aclaim shall also apply to counter-claim, and where it refers to defence,it shall also apply to defence to that counter-claim.Likewise, proviso toSection 38(1)[41 ]states that where, apart from the claim, counter-claimhas been submitted to the arbitral tribunal, it may fix separate amountof deposit for the claim or the counter-claim. Notwithstanding theprovisions, the legislature, while enacting the Fourth Schedule, thoughcognizant of the difference between claim and counter claim/set-off,eschewed anyseparate reference to the amount prayed in the claim(s)or counter-claim(s)/set-off. The Fourth Schedule does nottreat them asseparate for computing the fee payable to the arbitral tribunal. On theother hand, the expression “sum in dispute” before the arbitral tribunalhas been made the basis for computation of fee.

40 Inserted vide Act No. 3 of 2016 with retrospective effect from 23rd October 2015.Even before the insertion, the position in law was the same.

4138. Deposits.– (1) The arbitral tribunal may fix the amount of the deposit orsupplementary deposit, as the case may be, as an advance for the costs referred to insub-section (8) of section 31, where it expects will be incurred in respect of the claimsubmitted to it;

Provided that where, apart from the claim, counter-claim has been submitted tothe arbitral tribunal, it may fix separate amount of deposit for the claim and counter-claim.

A39. The legislature is presumed to know the prior construction ofthe terms in the original act, and an amendment substituting the newterm or phrase for the one previously construed indicates that the judicialor executive construction of the former terms or phrases did notcorrespond with the legislative intent and different interpretation mustbe given to the new term or phrase. Thus, in interpreting an amendatoryBact, there is presumption of change in legal rights. change inphraseology creates presumption that the legislature intended changein meaning.Conversely, when words used in the original statute are usedin the re-enacted/amendatory act, they should be presumed to be usedin the same sense in the new statute or amendatory act.[42]

40. Further, while interpreting provision in an amendatory act,an additional principleof construction is to examine the object of theamendatory act to determine the legislative intent.For this purpose, thecourt should give effect to every word, and in case of ambiguity, refer tothe surrounding circumstances in the form of legislative proceedingsDand reports of the legislative committees concerning the amendments.[43]

Statutes in parimateria may also be resorted to for assistance.[44]

41. In the context of the Fourth Schedule, for clarification andaffirmation, it would be most appropriate if reference is made to the246[th] Report of the Law Commission of India. The Law Commission,Ewhile recommending model schedule of fee[45], had stated that theschedule was based on the fee schedule set by the Delhi High Court

42 Earl T. Crawford, The Construction of Statutes, 3rd Edition, pp. 617 and 619

43 J. G. Sutherland, Statutes and Statutory Construction, 3rd Edition, Vol.3, pp. 410-412

44 Earl T. Crawford, The Construction of Statutes, 3rd Edition, pp. 616-617

45 “10. One of the main complaints against arbitration in India, especially ad hocarbitration, is the high costs associated with the same – including the arbitrary,unilateral and disproportionate fixation of fees by several arbitrators. Thecommission believes that if arbitration is really to become cost-effective solutionfor dispute resolution in the domestic context, there should be some mechanism torationalize the fee structure for arbitrations.

11. In order to provide workable solution to this problem, the Commission hasGrecommended model schedule of fees and has empowered the High Court to frameappropriate rules for fixation of fees for arbitrators and for which purpose it maytake the said model schedule of fees into account. The model schedule of fees arebased on the fee schedule set by the Delhi High Court International ArbitrationCentre, which are over 5 years old, and which have been suitably revised. Theschedule of fees would require regular updating, and must be reviewed every 3-4Hyears to ensure that they continue to stay realistic.”

International Arbitration Centre. The schedule in the Delhi InternationalArbitration Centre (Administrative Cost & Arbitrators’ Fees)Rulesusesthe identical expression, “sum in dispute”, and providescumulative fee of both theclaim and the counter-claim. Accordingly, theexpression “sum in dispute” borrowed from the Delhi High CourtInternational Arbitration Centre, should be given an identical constructionas referring to the entire amount or the sum total of the disputes whichare subject matter of the arbitration, that is, the disputes raised in theclaim petition as well as the counter-claim. Separate fee for the claimand counter-claim/ set off is not envisaged and postulated.

42. One of the objectives of the A&C Act is to ensure cohesionof the remedy.Sections 2(9) and 23(2-A) incorporate the rule againstfragmentation of remedies and nothing more. This is marked anddeliberate departure from the earlier Arbitration Act, 1940 wherein anarbitrator’s jurisdiction was confined to the disputes referred to him byway of an order of reference. The arbitrator could not enlarge the scopeof reference and entertain fresh claims or even counter-claim/set-offwithout fresh order of reference.[46]43. The argument that counter-claim and set-off should be treatedas separate, as adjudication of the claim and counter-claim are distinctandtreated differently under the A&C Act and the Code, and entailseparate adjudication, though an attractive argument at the first blush,overlooks the legal position that the counter-claim and set-off raisedbefore an arbitral tribunal must fall within the scope of the arbitrationagreement, which is the subject matter and basis of any claim in thearbitration proceedings. counter-claim can only be filed before anarbitral tribunal, if it is covered and governed by the arbitration agreementrelied upon by the claimant, and not in respect of the cause of actionnotcoveredby the subject matter of the arbitration agreement.Necessarily,therefore, there would be connect between the claim and the counter-claim/set-off. set-off is defence to the action and claims made bythe claimant, which may be both legal and equitable. Equitable set-offsare not recognised under Order VIII Rule 6 of the Code but are permittedto be raised by the defendant as the Code is not exhaustive. However,equitable set-offs must arise out of the same transaction or one that is so

46 See Section 20 of the Arbitration Act, 1940. Refer to Orissa Mining Corporation Ltd.v. Prannath, (1997) 3 SCC 535.

Aconnected that they may be looked upon as part of the same transaction.Counter-claim, on the other hand, is regarded as cross-action. When acounter-claim is not connected with the claim in the suit, the Court, inexercise of power under Rule 6(c) to Order VIII of the Code, can directthat such counter-claim may be excluded and tried as an independentsuit.B

44. Arbitral tribunal derives its jurisdiction from Section 7 of theA&C Act, which extends to “all or certain disputes which have arisen orwhich may arise between them in respect of defined legal relationship,whether contractual or not”. As stated above, the A&C Act does notcontemplate separate jurisdictions for arbitral tribunal on the basis ofCnumber or nature of claims, and, therefore, does not afford to the tribunalthe liberty to treat claim and counter-claim separately. Commentary onthe UNCITRAL Model Law on International Commercial Arbitration[47]observes that when two or more parties have entered into an agreementto arbitrate, any of them normally has power to commence arbitralDproceedings. It is common practice that more than one party put forththeir claims in same arbitration. The labels that are appended to theseclaims presented by opposing parties, namely, the claim or counter-claim,are nothing more than an acknowledgement of the chronological orderin which actions have been brought in the arbitration, and they do notentail any type of structural differentiation. It is for this reason thatEclarification is offered by Article 2(f) of the UNCITRAL Model Lawwhich states that claim also applies to counter-claim and whenever itrefers to defence, it also applies to defence to counter-claim. Asnoticed above, these facets of the UNCITRAL Model Law have beenincorporated in the A&C Act. reading of the rules published by theFHigh Courts of Delhi, Bombay, Madhya Pradesh, Karnataka, Rajasthanand Madras indicate that they, in unison, have stated that the sum indispute or the arbitrator’s fee shall be calculated on the aggregate of theclaim and the counter-claim. The fee is not to be calculated independently,first with reference to the claim and then the counter-claim. This is also

postulated in the rules framed by the Indian Council of Arbitration RulesGof Domestic Commercial Arbitration, Mumbai Centre for InternationalArbitration, and Construction Industry Arbitration Council. Our attentionhas also been drawn to the rules framed by the Singapore International

47 Authored by Ilias Bantekas, Pietro Ortolani, Shahla Ali, Manuel A. Gomez andHMichael Polkinghorne; published by the Cambridge University Press.

Arbitration Centre, Hong Kong International Arbitration Centre,Stockholm Chamber of Commerce Arbitration, and European Court ofArbitration, which stipulate that for the purpose of fee, the amount indispute would be the total of the claim and the counter-claim, that is, theaggregate value of all the claims, counter-claims and set-offs. If wehave to accept the contra-stand, the rules framed by the several HighCourts, as noted above, would have to be re-drawn, and the unsettlementwould cause confusion, especially in pending matters. This must beavoided.

45. We have interpreted Section 38 of the A&C Act. Suffice atthis stage is to again observe that the proviso to sub-section (1) to Section38 applies only when the arbitral tribunal is entitled to separate fee forthe claim and counter-claim. It would not apply where the Fourth Scheduleapplies, in which event the arbitral tribunal is entitled to the fee as perthe schedule, which is the cumulative figure on adding the claims andthe counter-claims. Notably, sub-section (2) to Section 38 states that thedeposit in terms of sub-section (1) shall be payable in equal share by theparties. Section 38 is part of the original enactment, whereas the FourthSchedule was inserted vide Act No. 3 of 2016. While we have toharmoniously construe Section 38 with the Fourth Schedule, we mustgive effect to the legislative intent in furtherance of the objectand purposeof introducing the Fourth Schedule, an aspect I have adverted to earlier.

This Court in Aphali Pharmaceuticals Ltd. v. State of Maharashtra& Ors.[48 ]had referred to the Schedule to the Medicinal and ToiletPreparations (Excise Duties) Act, 1955 and observed that schedule isa mere question of drafting and can be used to construe the provisions inthe body of the Act, albeit the expressions in the schedule cannot controlor prevail against the express enactment, and in case of any inconsistencybetween the schedule and the enactment, the enactmentshall prevail.These observations would not be applicable in the context of the presentcase, as the Fourth Schedule is not in conflict with the express enactment.The Fourth Schedule prescribes the quantum/scale of fee, whereasSection 38 does not prescribe the quantum or the formula for computingthe fee. Section 38 and the Fourth Schedule can be construedharmoniously without one contradicting or being inconsistent with theother. statute must be read as whole and schedule is as much apart of the statute as any other provision.

A46. High cost of arbitration is one of the prime reasons for thereluctance of the litigants to accept arbitration as an alternative to courtlitigation. Arbitration, as process of justice delivery, is substitutional incharacter, would remain unattractive unless it is affordable and lowercost alternative to litigation. This being the objective of the scheme ofthe provisions of the A&C Act in general, and Sections 2(1)(d), 2(9), 7,B8, 9, 11, 17 and 23, it would be appropriate to hold that arbitral tribunal,as statutorily conceived, is to examine and adjudicate all disputes arisingfrom the contract and, therefore, as observed earlier, the Fourth Schedulemindfully uses the expression “sum in dispute”. Any contraryinterpretation conceiving separate fee for claim and counter-claim, which,Cit is apparent, would substantially enhance the cost of arbitration,anddissuade the litigants from resorting to arbitration. Enhancement incost of arbitration would be across the board even for small cases, whenclaims/counter-claims are less than Rs.5, 00, 000/-, in which case thefee payable to the arbitrator may, in given case, double; to big amountarbitrationswith claims and counter-claims of over Rs.20, 00, 00, 000/-,Din which case the highest fee payable to the arbitral tribunal under SerialNo. 6 could increase from Rs.90, 00, 000/- to Rs.1, 80, 00, 000/- in caseof three member tribunal, and from Rs.40, 00, 000/- to Rs.80, 00, 000/-in case of sole member tribunal. This, according to me, is not postulatedand the legislative intent in enacting the Fourth Schedule. Serial No. 6 inEthe Fourth Schedule is compromise between ad valorem method, wherethe arbitrators’ fee is assessed as percentage of the total amount indispute, including any counter-claim, and the fixed fee method, as itprescribes the fee-cap when the amounts of the claim and the counter-claim exceed Rs.20, 00, 00, 000/- (rupees twenty crores only).[49]F47. For the reasons aforesaid, I would hold that the heading “sumin dispute” will mean the aggregate of all the amounts in dispute withoutany bifurcation and separate application of the fee schedule with referenceto the amount subject matter of the claim(s), and the amount subjectmatter of the counter-claim(s).

G48. The aforesaid dictum would not apply in cases where there isan umbrella arbitration clause, which applies to different/distinct contracts,

49 Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (Second Edition),2016, has referred to four different types of remuneration agreements, namely, fixed feemethod, time spent method, brief fee and daily refresher method, and ad valorem feeHmethod.

in which case each contract would be treated as separate arbitrationproceeding viz. the claim, counter-claim and set-off relating to thatcontract.

Interpretation of Serial No. 6 of the Fourth Schedule

49. Serial No. 6 of the Fourth Schedule has been interpreted ashaving incorporated cap or ceiling of Rs.30, 00, 000/-. However, insome cases, it has been held that the fee specified of Rs.19, 87, 500/-plus 0.5% of the claim amount, over and above Rs.20, 00, 00, 000/- witha ceiling fee of Rs.30, 00, 000/-, means that the ceiling of Rs.30, 00, 000/- is not the cumulative ceiling. In other words, Serial No. 6 specifies theceiling of Rs.19, 87, 500/- plus Rs.30, 00, 000/-, which comes to Rs.49,87, 500/-.

50. perusal of the graded scale manifest from the serial numbersmentioned in the Fourth Schedule, along with the model fee prescribedtherein, exposits the legislative intent. The scales prescribed in theschedule have to be read in entirety and serial no. 6 cannot be read inisolation. The Serial Numbers 1 to 5, which have reference to the sum indispute, specify the model fee which in respect of serial numbers 2, 3, 4and 5, refers to the highest amount payable in respect of the precedingserial number and then states the additional (plus) amount payable bythe specific percentage of the claim amount over and above the amountspecified in the earlier serial number. For claims between Rs.10, 00, 00,000/- to Rs.20, 00, 00, 000/-, which is applicable to Serial Number 5, anarbitral tribunal is entitled to an arbitral fee of Rs.12, 35, 500/- plus 0.75%over and above Rs.10, 00, 00, 000/-. This means the maximum fee payableunder Serial Number 5, that is, when the sum in dispute is below Rs.20,00, 00, 000/-, is Rs.19, 87, 500/-. Serial No. 6 deals with sum in disputeabove Rs.20, 00, 00, 000/- without any higher or upper limit stipulation. Itstipulates that arbitral tribunal is entitled to the fee of Rs. 19, 87, 500/-which is the highest fee payable in Serial No.5, plus 0.5% when theamount in dispute exceeds Rs.20, 00, 00, 000/-. If this is so, andundoubtedly it is so, then the reasoning predicated on the legislative intent,is that, there is an overall ceiling of Rs.30, 00, 000/-. Contrary contentionthat the ceiling stipulated is Rs.19, 87, 500/- plus Rs.30, 00, 000/- mustbe rejected. The legislature was clearly aware that Serial No. 6 wouldapply to all arbitrations where the sum in dispute exceeds Rs.20, 00, 00,000/-. Serial No. 6, in its plain and simple language, which when read asit states and speaks, specifies that for claims above Rs.20, 00, 00, 000/-

A, in addition to Rs.19, 87, 500/-, the arbitral tribunal will be entitled to feeat the rate of 0.5% of the claim amount above Rs.20, 00, 00, 000/-, butthe total fee is subject to ceiling of Rs.30, 00, 000/-. The expression“with the ceiling of Rs.30, 00, 000/-” would applywhen claims are aboveRs.20, 00, 00, 000/-. The ceiling of Rs.30, 00, 000/- is not with referenceto 0.5% of the claim amount over and above Rs.20, 00, 00, 000/-. ToBread it otherwise would be overstretching the language of Serial No.6and adding words to it.

51. Before us, reference was made to the absence of thepunctuation mark in the form of comma after Rs.20, 00, 00, 000/-which is to be found in the Hindi language notification. Absence of theCcomma in the English language version would not make any differenceas the intent of the legislature, in my opinion, is to put ceiling of Rs.30,00, 000/-. The intent is not to fix ceiling of Rs.30, 00, 000/- in addition tothe fee of Rs.19, 87, 500/-.

Whether the Fourth Schedule prescribes fee for individualDmembers or the whole tribunal?

52. The last aspect relating to the interpretation of the FourthSchedule is debatable as both views are plausible. The expression ‘arbitraltribunal’, as defined in Section 2(1)(d) means sole arbitrator or panelof arbitrators. Section 10 of the A&C Act states that the parties are freeEto determine the number of arbitrators, provided the number shall not bean even number. Failing such determination, the arbitral tribunal shallconsist of the sole member. Thus, by default, the expression ‘arbitraltribunal’ refers to sole member. Section 11, which relates to appointmentof arbitrators, vide sub-section (2), states that the parties are free toFagree on procedure for appointment of an arbitrator or arbitrators. Asper sub-section (3), failing such an agreement in an arbitration with threearbitrators, each party shall appoint one arbitrator and the two arbitratorsso appointedshall appoint the third arbitrator, who shall act as the presidingarbitrator. If we accept Section 10 as the default rule, it is possible tointerpret that the model fee prescribed in the Fourth Schedule is for one-Gmember arbitral tribunal. This interpretation, however, seems to be atvariancewith the wordings of the appended Note to the Fourth Schedulewhich applies in the event the arbitral tribunal is sole arbitrator. Wordingsin thenote-‘sole arbitrator shall be entitled to additional amount of twenty-five per cent on the fee payable as per above’, can also be read to makeHthe other interpretation more acceptable.As the expression ‘arbitral

tribunal’ can refer to three member or sole member arbitral tribunal,the Note, it can be argued, affirms the interpretation that the amountsmentioned in the Fourth Schedule refer to the fee payable to each memberof the three member arbitral tribunal, and not cumulative fee which is tobe divided amongst the three member arbitral tribunal.

53. I would respectfully prefer the interpretation placed by D.Y.Chandrachud J. In other words, the model fee mentioned in the thirdcolumn of the Fourth Schedule would be the fee payable to each memberof the arbitral tribunal, and in cases where the arbitral tribunal consistsof sole arbitrator, he shall be entitled to an additional amount of 25%above the amount specified in the model fee. It is apparent that thisinterpretation has been accepted and followed by several arbitral tribunalssince introduction of the Fourth Schedule. This interpretation has gainedacceptance. To interpret it differently would lead to confusion and chaoswhich must be avoided, even if the other interpretation is plausible.54. However, in view of the above interpretation, the FourthSchedule does require modification and moderation. For example, wherethe sum in dispute is Rs.5, 00, 000/-, in case of the sole arbitrator, theamount payable to him would be Rs.56, 250/-, that is, Rs.45, 000/- plus25% (Rs.11, 250) of Rs.45, 000/-.In case of an arbitral tribunal of threearbitrators, the fee payable would be Rs.1, 50, 000/-. This fee is too highand would be unacceptable to most of the litigants as they would beliable to pay minimum arbitration fee of nearly 11% in case of solearbitrator and nearly 30% in case of an arbitral tribunal consisting ofthree members. Similar may be the situation in case of claims fallingunder Serial Nos. 2 and 3.A high fee pay-out at serial numbers 1 to 3 asframed by the legislature makes arbitration unaffordable and beyondreach for common litigant. Public perception that arbitration is costlyand for moneyed litigants must be dispelled, if arbitration is to gain massacceptance as the preferred alternative. High fee structure denies accessto arbitration. In fact, the above figures would suggest that the feespecified in the Fourth Schedule is the cumulative fee to be dividedbetween the three-member arbitral tribunal.Nevertheless, for the sakeof certainty and to avoid confusion, it may not be advisable to overturnthe settled and accepted position. For example, the fee schedule of theDelhi High Court International Arbitration Center, as amended with effectfrom 1[st] July 2018, clearly states that the schedule of fee mentioned inthe table is for each arbitrator in three-member tribunal, and not thecumulative fee to be divided amongst the three-member arbitral tribunal.

55. Section 11A states that the Central Government, when satisfiedthat it is necessary or expedient, can amend the Fourth Schedule fromtime to time, which exercise has not been undertaken.[50]

Final directions

56. I respectfully agree with the findings recorded by brother D.Y.BChandrachud, J. under the Heading G-2 Directions, in paragraph 158(i),in respect of Arbitration Petition (Civil) No. 5 of 2022, whereby in exerciseof the power under Article 142 of the Constitution of India, direction forconstitution of new arbitral tribunal in accordance with the arbitrationagreement have been issued to ensure that the arbitration proceedingsCare conducted without any discomfort and rancour, which couldderailthe proceedings.

57. In view of my findingson the first aspect, it will be appropriateand proper in other cases to hear the learned counsel for the partiesindividuallyto examine-whether or not interference is required in termsDof sub-section (3) to Section 39 of the A&C Act. In given matter, anorder of remit may be required for fresh decision by the High Court.Accordingly, I would list each appeal/petitionfor hearing and appropriateorders and decision.

EBibhuti Bhushan Bose(Assisted by : Shubhanshu Das, LCRA)

Appeals disposed of.

50 Periodical updation, without repeated legislation or notifications, can be achieved byyearly increase based or indexed on appropriate price index, as in case of DearnessAllowance.