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The article attempts to provide a brief overview of the areas of contest with regard to calculation of arbitrator's fee.
The Arbitration and Conciliation (Amendment) Act, 2015 (‘2015 Amendment Act’), alongside the various normative changes it ushered in, also sought to put in place a standardized benchmark for the determination of the fee payable to an arbitral tribunal.
The resultant Schedule IV (‘Fourth Schedule’) contains a methodology, premised on the quantum of the amount in dispute, to calculate the fee payable to an arbitral tribunal.
While it might seem that something as mundane and textually uncomplicated as the calculation of an arbitral tribunal’s fee need not be a matter of extensive debate, the experience thus far would reveal that, much like in the case of other provisions introduced by the 2015 Amendment Act, both the applicability of the Fourth Schedule as also the minutiae of calculation of fee by resorting to the methodology enshrined therein has witnessed significant controversy.
The present piece attempts to provide a brief overview of these twin areas of contestation.
As regards applicability, at the very outset it is necessary to note that as observed by the High Court of Delhi in Paschimanchal Vidyut Vitran Nigam Ltd. v. IL&FS Engineering & Construction Company Ltd.1, the Fourth Schedule is not mandatory in its application, and is merely suggestive.2
Thus, the arbitral tribunal is not bound to fix its fee in accordance with the Fourth Schedule, unless the parties specifically agree to the applicability of the said Schedule or if the competent Court while appointing an arbitral tribunal in exercise of powers under Section 11 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) specifically so directs or there are extant Rules notified by the concerned High Court specifically incorporating the Fourth Schedule as held by the Rajasthan High Court in Doshion (P) Ltd. v. Hindustan Zinc Ltd.3
What is also relevant to note, as observed by the High Court of Delhi in Chandok Machineries v. S.N. Sunderson& Co.4 is that an arbitral tribunal cannot be sought to be bound down to the Fourth Schedule if a mere reference is made in passing to the said Schedule in one of the earlier proceedings of the arbitral tribunal, and subsequently, the arbitral tribunal actually fixed its fee de-hors the Fourth Schedule.
The emphasis, therefore, seems to be on an unequivocal and conscious resort to the Fourth Schedule by the arbitral tribunal in order to postulate the applicability of the said Schedule. It is also critical to note that if the agreement between the parties already contains an agreed fee to be paid to the arbitral tribunal, then the said fixed fee cannot be sought to be overridden by the arbitral tribunal by adopting the Fourth Schedule without the consent of the parties. This position was conclusively settled by the Supreme Court in National Highways Authority of India v. Gayatri Jhansi Roadways Ltd. and Ors.5
Moving on to next area of controversy viz. the manner of calculation, it is apposite to set out the text of the Fourth Schedule hereunder:
While the manner of calculation of fee in terms of the Fourth Schedule seems relatively straightforward, once the issue of applicability itself is not in controversy, various issues have arisen nonetheless.
First, a controversy arose as to whether for the purpose of calculation of the fee the phrase “sum in dispute” referred to in the Fourth Schedule would include only the claim, with a separate fee for the counter-claim to be determined in addition, or as to whether the phrase would include the sum-total of both the claim and the counter claim?
Setting at rest the aforesaid controversy, the High Court of Delhi in Delhi State Industrial Infrastructure Development Corporation Ltd. v. Bawana Infra Development (P) Ltd.6, after an extensive review of the international bestpractices in this regard, upheld the latter interpretation, and concluded that the phrase “sum in dispute” would include the sum-total of both the claim and the counter-claim, and that a separate fee could not be fixed for a counter-claim.7
Second, the widely held understanding of the Fourth Schedule amongst arbitrators and legal practitioners has been that the fee so payable to a three-member arbitral tribunal would be paid individually to each of the three arbitrators.
For instance, to cite a hypothetical example of the sum in dispute in an arbitration being a total of Rs. 100,00,00,000/-, each individual arbitrator in a three-member arbitral tribunal would be entitled to a sum of Rs. 30,00,000/- as the fee as per this interpretation.
However, in a briefly-worded order in Punjab State Power Corporation Limited v. Union of India & Ors.8, a Division Bench of the Punjab and Haryana High Court has expressed a contrary opinion and held that the fee payable to each individual arbitrator in a three-member arbitral tribunal under the Fourth Schedule would be arrived at by a 1/3rdpro-rata distribution of the composite fee determined under the Schedule. Meaning thereby, to return to the aforesaid hypothetical example, each arbitrator would now receive an amount of Rs. 10,00,000/- as opposed to Rs. 30,00,000/-.
It is, however, difficult to subscribe to the view expressed by the Punjab and Haryana High Court. To put forth a very brief comment, it may be noted that the concerned decision, in a counter-intuitive fashion, bases its reasoning purely on the ground that the additional element of 25% payable to a sole arbitrator under the Fourth Schedule would not by itself mean that each of the individual arbitrators in a three-member arbitral tribunal are to be paid the determined fee, individually and separately.
However, the said decision does not seem to engage with the fact that all the arbitrators who are part of a three-member arbitral tribunal are required to equally participate in the proceedings, as also contribute towards the deliberations leading to the final conclusion in the form of an arbitral award.9
What is also overlooked is the similar timecommitment required, at least at the stage of the hearings before the arbitral tribunal, from all the individual members of the arbitral tribunal. Yet further, the practical result would be a grossly reduced fee for an individual arbitrator in a three-member arbitral tribunal, as compared to a sole arbitrator, which marks a departure from the otherwise standardized scheme sought to be put in place by the Fourth Schedule.10
Third, the final issue sought to be discussed relates to the upper-cap or ceiling of Rs. 30,00,000/- (plus 25% for a sole arbitrator) put in place by the Fourth Schedule on the fee payable, and the purport thereof. Two distinct and varied methods have been adopted by arbitral tribunals for determining the fee payable after the implementation of the said ceiling.
The first interpretation construes the ceiling as representing the upper-cap for the entirety of the fee payable to the Arbitral Tribunal. To once again go back to the hypothetical scenario of the sum in dispute in an arbitration being a total of Rs. 100,00,00,000/-, as per the first interpretation, the fee payable would be 37,50,000/- [30,00,000/- + additional 25% component of the sum total] to a sole arbitrator whereas the amount to be paid to each individual arbitrator in a three member-arbitral tribunal (subject to the controversy regarding cumulative construal pointed out hereinabove) would be Rs. 30,00,000/- each.
However, by the second interpretation, the stipulation of the component of “plus 0. 5 per cent. of the claim amount over and above Rs. 20,00,00,000 with a ceiling of Rs. 30,00,000”, is construed disjunctively from the preceding figure of Rs. 19,87,500/- i.e. the fee for the amount over and above the Rs. 20,00,00,000/- sum in dispute, is calculated separately and it is separately subjected to the ceiling of Rs. 30,00,000/-, over and above the existing fee of 19,87,500/- which has already been determined for the sum in dispute upto Rs. 20,00,00,000/-.
To better illustrate this interpretation by utilizing the hypothetical scenario already extracted hereinabove, the fee payable to a sole arbitrator would be Rs. 62,34,375/- [19,87,500/- + 30,00,000/- + additional 25% of the sum-total] whereas to each individual arbitrator in a three member-arbitral tribunal (subject to the controversy cumulative construal pointed out hereinabove) the amount to be paid would be Rs. 49,87,500/- [19,87,500/- + 30,00,000/-]each. There does not seem to be any judicial precedent specifically adjudicating upon this issue till date.
To conclude, it is relevant to note that though the further amendments brought about by the Arbitration and Conciliation (Amendment) Act, 2019 (‘2019 Amendment Act’), specifically the amended Sections 11(3A) and 11(14), do seem to indicate that the Fourth Schedule is sought to be made a generally mandatory norm, subject to certain opt-outs, on account of the fact that the said amended provisions have not yet been notified11, there is as of today no change in the status-quo as obtaining after the 2015 Amendment Act.
About the authors: Amit George and Amol Acharya are Advocates practicing before the High Court of Delhi.
2018 SCC OnLine Del 10831. The non-mandatory nature of the Fourth Schedule has been further reiterated by the High Court of Delhi in G. S. Developers & Contractors Pvt. Ltd. v. Alpha Corp Development Pvt. Ltd. & Anr. [2019 SCC OnLine Del 8844]
It is also relevant to note that the only textual reference to the Fourth Schedule in the main body of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) is contained in Section 11(14) which refers to the individual High Courts framing appropriate rules for fixing the fee of an arbitral tribunal after considering the rates in the fourth schedule, and in Section 11(A), which empowers the Central Government to amend the Fourth Schedule through a notification in the Official Gazette.
2019 SCC OnLine Raj 6
2018 SCC OnLine Del 11000
2019 SCC OnLine SC 906
2018 SCC OnLine Del 9241
It is relevant to note that the High Court of Delhi in Chandok Machineries (Supra) has observed that in the absence of the Fourth Schedule, Section 31(8) of the Arbitration Act permits an arbitral tribunal to fix a separate fee for a claim and a counter-claim.
(2018) 189 PLR 55
It is settled law that all the arbitrators are required to deliberate upon and give their united consideration to the disputes which have been referred to them. See further in this regard; Rudramani Devaru v. Shrimad Maharaj Niranjan Jagadguru [AIR 2005 KAR 313] and Faze Three Exports Ltd. v. Pankaj Trading Co. [2004 (2) Raj 573].
Though the said issue also came up before the High Court of Delhi in Chandok Machineries (Supra), the same was ultimately not decided inasmuch as the Court came to the conclusion that the Fourth Schedule itself was inapplicable. In fact, in an earlier round of litigation between the same parties, the said issue had come up before the High Court of Delhi, however, the said issue was not adjudicated upon inasmuch as the Court by its judgment in Chandok Machineries v. S.N. Sunderson & Co. [2017 SCC OnLine Del 7499] came to the conclusion that the proceeding itself in which the issue was sought to be raised was not maintainable before it.
The notification dated 30.08.2019 issued by the Ministry of Law and Justice has brought into force only Sections 1, 4-9, 11-13 and 15 of the 2019 Amendment Act, and Section 3 of the 2019 Amendment Act, which has been omitted in the notification, is the Section corresponding to the proposed amended Sections 11(3A) and 11(14) in the Arbitration Act.