Fixing Arbitrators’ Fee #2: SG Argues that IVth Schedule Places Rs. 30 Lakhs Limit on Fee

On April 6th 2022, Justices D.Y. Chandrachud, Sanjiv Khanna, and Surya Kant heard Solicitor General (SG) Tushar Mehta argue in favour of capping arbitrators’ fees.  Mr. Mehta was appearing on behalf of N.T.P.C. Limited and Rail Vikas Nigam.

The two companies are among a group of Public Sector Undertakings (PSUs) claiming that unlike their private sector adversaries, they cannot afford the high fees demanded by arbitrators. The PSUs have argued in this case that the Court must interpret the Fourth Schedule of the Arbitration and Reconciliation Act 1996 (Arbitration Act) to make arbitration affordable. 

As opposed to arbitrators fixing their own fees, the Fourth 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. 

PSUs incurred Chief Justice Ramana’s wrath last month, when he was informed that the Union government was refusing to pay arbitrators—many of whom are retired Judges—their demanded fee. CJI Ramana constituted the present special Bench to resolve the dispute. 

At the outset, SG Tushar Mehta clarified that most arbitrators in India are technocrats, engineers or industry experts. He implored the Bench to consider the Fourth Schedule with the knowledge that it applied to a wide group—of which retired Judges are a small part. Mr. Mehta further emphasised that arbitrators, like sitting Judges, are performing a service to society. Those arbitrators who seek to profit from this work should take on arbitrations where the parties are not guided by the Fourth Schedule. 

Mr. Mehta focused on two arguments. First, he submitted that the Schedule 4’s fee cap on the highest dispute amount applied to the full fee and not only to the variable component. Second, as per the Schedule, the claim and counterclaim amounts must be bundled and treated as a whole. 

SG: Total Arbitrator’s Fee Is Capped At ₹30 Lakh By Schedule 4

The Fourth Schedule is divided into six entries. Each entry sets a lower and upper bracket for the dispute amount  and a corresponding fee the arbitrator may charge. The sixth and final entry pertains to disputes of and above ₹20 crore. For dispute amounts exceeding ₹20 crore, the arbitrator may charge a fixed fee of ₹19.875 lakh and an additional fee of 0.5% of amount exceeding ₹20 crore. This fee can be charged up to a ceiling of ₹30 lakh. 

Mr. Mehta argued that the ₹30 lakh ceiling applied to the entire fee amount, not to just the variable 0.5%. Limiting it to the latter would substantially raise the additional fee, affecting the overall arbitration fee. He stated that the Hindi version of the Arbitration Act made this clear by adding a comma indicating that the limit applied to both the fixed and variable portions . The English version erroneously misses the comma. 

Justice Chandrachud appeared to disagree with Mr. Mehta. He stated that the cap was introduced to ensure that the additional charge did not become disproportionate—not to cap the arbitrator’s lump sum fee. Justice Rekha Palli’s decision in this case at the Delhi High Court on July 10th 2020 concurs with Justice Chandrachud’s view. 

SG: Arbitrator May Not Charge Separate Fee For Claim and Counterclaim

Mr. Mehta further argued that the dispute amount set out in the Fourth Schedule is the total dispute amount, including 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. Mr. Mehta stated that the arbitrator is not entitled to charge a separate fee for the claim and counterclaim. The overall fee cap of ₹30 lakh would apply to the entire dispute. That is, the arbitrator would not be entitled to ₹30 lakh for the claim and another ₹30 lakh for the counter. 

To support this argument, Mr. Mehta submitted that while calculating costs the Code of Civil Procedure treats the claim and the counterclaim as separate petitions. However, the Arbitration Act deliberately avoids this definition, indicating that both must be treated as one single dispute during arbitrations. 

The Bench agreed with this argument, stating that the claim and counterclaim must be ‘bundled up’. 

The hearings will continue on April 7th, 2022.