Arbitrators cannot unilaterally decide own fees: Supreme Court [READ JUDGMENT]

The Supreme Court on Tuesday held that arbitrators do not have the power to issue binding and enforceable orders determining their own fees as such determination would violate the principles of party autonomy [Oil and Natural Gas Corporation Ltd v Afcons Gunanusa JV]..The judgment was rendered by a bench of Justices DY Chandrachud, Surya Kant and Sanjiv Khanna.Justice Khanna authored a separate judgment differing on certain aspects with the majority.The majority judgment by Justices Chandrachud and Surya Kant reasoned that arbitrators could not be a judge of their own private claim against parties regarding remuneration.“The arbitral tribunal while deciding the allocation of costs under Sections 31(8) read with 31A or advance of costs under Section 38 cannot issue any binding or enforceable orders regarding their own remuneration. This would violate the principle of party autonomy and the doctrine of prohibition of in rem suam decisions,” the bench said..The bench stressed that party autonomy is a cardinal principle of arbitration and the agreement constitutes the foundation of the arbitral process. The principle of party autonomy plays a substantial role in the determination of arbitrators‘ fees as well, the Court underscored.The arbitral tribunal is required to conduct the arbitration according to the procedure agreed by the parties, the Court made it clear..The Court went on to note that while fixing costs or deposits, if the tribunal makes a finding relating to the arbitrators‘ fees in the absence of an agreement between the parties and arbitrators, the same could not be enforced in favour of the arbitrators..The issue came up before the bench when Oil and Natural Gas Corporation Limited (ONGC) sought termination of the mandate of an arbitral tribunal and the substitution of a fresh set of arbitrators after their fee was sought to be revised.The petitioners argued that once the fee payable to the arbitrators was specified in the agreement between the parties, arbitrators must either accept their appointment on the terms agreed in the contract or refuse the arbitration if they are not agreeable..The bench held that arbitrators were entitled to charge a separate fee for the claim and the counter-claim in an ad hoc arbitration proceeding and the fee ceiling contained in the Fourth Schedule, if made applicable, would separately apply to both. .However, it was concluded that since there was evidently no consensus between the parties and the arbitrators regarding the fee, allowing the tribunal to continue would mean foisting a fee upon the parties and the arbitral tribunal to which they are not agreeable.In view of the same, the Court ordered the constitution of a new arbitral tribunal was ordered."These directions are an attempt to ensure that the arbitral proceedings are conducted without rancour which may derail the proceedings," the judgement said..Additionally, the fee payable to the earlier arbitral tribunal was ordered to be in terms of the Fourth Schedule of the Arbitration and Conciliation Act..While Justice Sanjiv Khanna agreed to this direction for constitution of a new arbitral tribunal, he penned a separate judgment as her refused to concur that in the absence of any agreement between the parties, the tribunal was not entitled to fix the fee."As I am of the opinion that by the implied terms of the contract and as per the provisions of the Arbitration and Conciliation Act, 19961, an arbitral tribunal can fix a reasonable fee," he said.Agreeing that a unilateral increase was unacceptable, the judge opined that where an arbitral tribunal solicited higher fees, an aggrieved party could approach the court for appropriate orders under the Arbitration and Conciliation Act. .However, he stated in the judgment that in the absence of any agreement or court order, the arbitral tribunal was entitled to fix ‘fair and reasonable remuneration’, which should be done in a transparent manner and in consultation with the parties."On a challenge being raised, the court would examine the question of reasonableness of fee with reference to the factors stated above and in particular with reference to the Fourth Schedule of the A&C Act," Justice Khanna said..[Read Judgment]

Arbitrators cannot unilaterally decide own fees: Supreme Court [READ JUDGMENT]

Shagun Suryam

Related Stories