Fixing Arbitrators’ Fee #6: Amicus Submits that Claim and Counterclaim Should be Charged Separately

On April 21st, Justices D.Y. Chandrachud, Sanjiv Khanna, and Surya Kant continued hearing the Union Government’s demands to cap arbitrator’s fees. The Court engaged Senior Advocate Huzefa Ahmadi to assist the Court as amicus curiae.

Today, Mr. Ahmadi pointed out the divergent interpretations of the term ‘sum in dispute’ by different High Courts—questioning whether they were inclusive of both the claim and counterclaim amounts. 

Mr. Ahmadi submitted that a counterclaim ought to be considered as a distinct ‘dispute’ from a claim. That is, the ‘sum in dispute’ defined by the IVth Schedule of the Arbitration and Conciliation Act, 1996 (Arbitration Act) ought to be considered an independent claim—not the aggregate of the claim and counterclaim.  Arbitrators are thus entitled to separate fees for both claims. 

Amicus: Treatment of ‘Sum In Dispute’ Determines Arbitrators’ Fees Under IVth Schedule

Mr. Ahmadi argued that if the ‘sum in dispute’ refers to the distinct claim and counterclaim amounts, then separate fees are payable to the arbitrator under the IVth Schedule of the Arbitration Act. However, if it refers to both claim and counterclaim amounts, then the fees paid under the IVth Schedule would be determined on the cumulative basis of the two amounts.

The correct construction of the ‘sum in dispute’, according to Mr. Ahmadi, depends on whether the counterclaim is treated as a distinct basis for a legal proceeding, and therefore as an independent dispute. 

Chandrachud J noted that Section 38 of the Arbitration Act suggests that the arbitral tribunal make separate assessments for the claim and counterclaim. So, Section 38 could be considered an enabling provision and not a mandate. Chandrachud J further questioned whether arbitral tribunals could charge fees for both the claim and counterclaim from Day 1 of the arbitral proceedings. If a counterclaim was raised, then the matter would have to be taken separately and an advance determination of costs could be made.

Mr. Ahmadi pointed out that determining fees in such cases would be based on the interpretation of the IVth Schedule. The question of fees for separate sittings does not arise when a lump sum payment has already been decided by the parties.

The amicus was also of the view that where the arbitral tribunal comprises three or more members, the fees payable under the IVth Schedule would be applicable to each member. They would not be paid as a lump sum to be split between members of the tribunal.

Amicus: Counterclaims Remain Independent Once Introduced or Withdrawn

Khanna J remarked that the arbitrator is paid for his acumen and the time he spends on the proceedings. Determining arbitrators’ fees on the basis of the quantum involved is only for convenience. Further, when the IVth Schedule of the Arbitration Act was enacted, it did not use distinct terms for ‘claim’ and ‘counterclaim”. Instead, it used the term ‘sum in dispute. 

Mr. Ahmadi argued that whether the claim and counterclaim were intertwined was subjective. Notwithstanding this, a counterclaim ordinarily lengthens arbitration. Both parties will still have to separately provide evidence and examine witnesses. 

Further, a counterclaim remains an independent claim even after it has been introduced in arbitration or once withdrawn. This is supported by Order VIII Rule 6(a) of the Code of Civil Procedure, 1908 (CPC). It asserts the independence of a counterclaim by allowing it to be filed in respect of a cause of action accruing to the defendant against the plaintiff before or after the filing of the suit. Order VIII Rule 6(d) of the CPC further states that where the defendant sets up a counterclaim, even if the suit of the plaintiff is stayed, discontinued or dismissed, the counterclaim may nevertheless be proceeded with.

Mr. Ahmadi argued that Section 38 of the Act makes it clear that when a deposit for a claim or counterclaim is not made, the arbitral tribunal may suspend the proceedings for such claim or counterclaim, while continuing the proceedings for the other. Therefore, a counterclaim is recognised to be independent of a claim even in a unified arbitral proceeding.

Notably, the IVth Schedule does not expressly set out that the sum in dispute includes a counterclaim. 

The matter will next be heard on April 26th 2022.