Fixing Arbitrator’s Fee: Judgment Pronouncement

On August 30th 2022, Justices D.Y. Chandrachud, Sanjiv Khanna and Surya Kant delivered an important Judgment interpreting the provisions governing an arbitrator’s fee in the Fourth Schedule of the Arbitration and Conciliation Act, 1996. Emphasising the importance of party autonomy in arbitration proceedings, the Court held that an arbitrator cannot decide their own fee unilaterally, without conferring with the parties. 

Justice Chandrachud read out the majority opinion of the Bench. Justice Sanjiv Khanna read out his opinion dissenting from the majority on the limited point of fee for counterclaims. 

Arbitrator Cannot Decide Own Fees 

The Bench found that the fee model proposed in the Fourth Schedule is not mandatory—parties in an arbitration may choose a different fee structure for the arbitrator. However, if the parties have not been able to agree on a fee, the Fourth Schedule will function as a default option. The Bench advised parties to fix the arbitrator’s fee at the beginning of the proceedings to avoid later conflict with the arbitrator. 

In support of the finding that the arbitrator cannot decide their own fee unilaterally, the Bench interpreted Sections 38 and 39 of the Act. The Court found that Section 38 gives an arbitrator the power to apportion the decided fee between the parties. Section 39 gives the arbitrator power to hold the parties’ propoerty if the decided fee is unpaid. However, no provision in the Act allows the arbitrator to decide their own fee. 

Observations On the Fee Ceiling in Fourth Schedule

The Fourth Schedule provides caps to an arbitrator’s fee ceiling corresponding to the ‘sum in dispute’ in the arbitration. Justices Chandrachud and Surya Kant found that the ‘sum in dispute’ refers separately to the claim made by one party and the counterclaim made by the other. Therefore, the arbitrator is entitled to charge separate fees corresponding to both the claim and counterclaim. 

For example, one party may claim that the dispute amount is ₹60 crore but the other may counter, claiming that the amount exceeds ₹80 crore.The Bench held that the arbitrator is  entitled to charge a separate fee for the claim and counterclaim. The overall fee cap of ₹30 lakh in the Fourth Schedule would apply separately to the claim and counterclaim. That is, the arbitrator would be entitled to ₹30 lakh for the claim and another ₹30 lakh for the counter. 

Justice Khanna dissented, stating that the fee ceiling applied to the claim and counterclaim together. 

The Bench further held that the ceiling applied to each individual arbitrator, not to the entire tribunal collectively. This means that if the panel has three arbitrators, each is individually entitled to the ceiling amount as fee. The ceiling amount will not be divided three ways between them.