Fixing Arbitrators’ Fee #5: Amicus Argues That Party Autonomy Must be Focus of Arbitration

On April 20th 2022, Justices D.Y. Chandrachud, Sanjiv Khanna, and Surya Kant continued to hear the Union government’s demands to cap arbitrators’ fees. Various companies in arbitration for disputes with Public Sector Undertakings (PSUs) are expected to counter the Union’s recommended guidelines for arbitrators’ fee today.  

A group of PSUs claim that unlike their private sector adversaries, they cannot afford the high fees demanded by arbitrators. The PSUs have argued that in order to make arbitration affordable, the Court must interpret the Fourth Schedule of the Arbitration and Reconciliation Act 1996 (Arbitration Act). 

As opposed to arbitrators fixing their own fees, the IVth Schedule provides a model for fixing an arbitrator’s fee. Following the model is not mandatory—but arbitrators cannot deviate from it if the arbitrating parties decide to be governed by it. 

Today, the Bench heard Amicus Curiae Senior Advocate Hufeza Ahmadi argued that party autonomy must trump all other factors in arbitrations. Mr. K. Parameshwar, appearing for intervenor Newasa Bar Association, argued that the Bench must additionally direct the High Courts to frame arbitration rules for district and taluka level proceedings. 

Amicus: Party Autonomy Essential to Guarantee the Essence of Arbitration 

Mr. Ahmadi submitted that fairness, integrity, and efficiency are the essence of any arbitration. To ensure these aspects are maintained, he emphasised the need for party autonomy. As long as parties are not contravening the law, they must be allowed the flexibility to decide on a mutually convenient fee structure for the arbitrator. Accordingly, he emphasised that the fee structure in  the IVth Schedule is not binding—parties have the option of choosing to be governed by it. 

Not following these options will affect the proceedings. The efficiency of arbitration is harmed if the arbitrator leaves the proceedings midway due to disagreements over fees. 

To avoid such situations, Mr. Ahmadi stated the arbitrator must propose a fee after assessing the nature and length of the proceedings in the first 2 to 3 sittings. If the parties are unable to agree to the proposed fee, the arbitrator may decline to participate—allowing the parties to choose another arbitrator at an early stage. Mr. Ahmadi further argued that the arbitrator cannot use the power to determine costs at  the end of the proceedings to unilaterally re-fix their fees (held under Section 38 of the Arbitration Act). 

Finally, Mr. Ahmadi emphasised that setting up the Arbitration Council of India, as recommended in Justice B.N. Srikrishna’s Committee Report (2017), would resolve most of the problems put forth in this case. The Council would be responsible for determining arbitrators’ fees. 

HCs Must Devise Rules for District Level Arbitrations to Achieve Certainty Of Forum 

Section 11(4) of the Arbitration Act allows High Courts to frame local rules for tribunals’ fees based on the guidelines in the IVth Schedule. Mr. K. Parameshwar stated that only three High Courts (Bombay, Rajasthan, and Kerala) had framed such rules. He argued that there was no country-wide uniformity in the rules for arbitrators’ fees. 

Mr. Parameshwar pointed to a larger problem at the district- and taluka-levels. Even when localised arbitration rules existed, the High Courts focused on proceedings taking place at the High Courts. Smaller disputes overseen by the District and Taluka courts were ignored. Without reliable rules, there was no  certainty of forum. This, Mr. Parameshwar submitted, harmed access to justice and stopped arbitration from being a viable alternative to litigation at all levels of the judiciary. 

The Bench will continue to hear the case on April 21st 2022.