Fixing Arbitrators Fee #7: Attorney General Submits Rejoinder, Judgment Reserved

On May 11th 2022, Justices D.Y. Chandrachud, Sanjiv Khanna, and Surya Kant reserved Judgment in the ONGC v Afcons dispute. The Bench heard the Union Government’s demands to cap arbitrator’s fees, as well as whether fees should be determined based on the claim and counterclaim amounts separately.

In the previous hearing, Amicus Curiae Senior Advocate Huzefa Ahmadi submitted that the ‘sum in dispute’—based on which the arbitrator’s fee is calculated—should be assessed for each arbitration proceeding. If the term comprises both the claim and counterclaim amounts, the fee levied would be a proportion of the sum of these figures. However, if claim and counterclaim amounts are distinct, then the arbitration fee levied should also be distinct. Counterclaim amounts should be considered as an independent dispute from a claim. Each counterclaim requires a separate examination of evidence and witnesses. The treatment of a counterclaim, therefore, should be charged separately from a claim.

In today’s hearing, Attorney General K.K. Venugopal submitted a rejoinder pointing out that the parties and the arbitrators were bound by the arbitration agreement signed before the dispute began—they cannot deviate from the fees stipulated in the agreement. Further, he relied on various cases to argue that the mandate of the arbitrator ends when they either deviate from the fees, or if they insist on fees that are not agreeable to the parties involved. 

Additionally, Mr. Venugopal argued that arbitrators’ fees is only a part of ‘fees and expenses of arbitrators’ as laid out in Section 31A of the Arbitration and Conciliation Act, 1996 (Arbitration Act). It does not refer to the entire fee determined by the arbitration agreement. 

AG Venugopal: Parties and Arbitrators Bound by the Arbitration Agreement

The Attorney General pointed out that in the contract between ONGC and Afcons drawn in 2009, the parties had agreed to a fees ceiling of ₹10 lakh per arbitrator. The agreement further stipulated that the parties would only appoint arbitrators that accepted the ₹10 lakh ceiling. Neither the parties nor the arbitrators can deviate from this condition. 

Mr. Venugopal relied on NHAI v Gayatri Jhansi Roadways Ltd. (2020) where the SC held that the fee fixed in the agreement is binding. Unless the agreement itself allows the arbitrator to change the fee, they are restricted to the scope laid out by the contract. Mr. Venugopal argued that the arbitrators unlawfully increased the fee to ₹1.5 lakh per arbitrator, per sitting, during the examination of the first witness. Despite ONGC’s protests, the arbitrators refused to return to the fee structure laid out under the IVth Schedule of the Arbitration Act. 

AG Venugopal: Determination of ‘Costs’ at the end of an Arbitration Does Not Include Fees for Arbitrators. 

The Attorney General argued that Section 31A of the Arbitration Act allows arbitrators to determine the costs that the parties will pay each other—this is not a newly determined fee for the arbitrators. Here, the Act refers to costs of the arbitration, such as travel expenses, accommodation, and money spent on witnesses. This also includes the arbitrators’ fees that the so-called losing party will pay to the winning party, for ‘dragging’ them into the arbitration in the first place. 

The arbitrators are only entitled to what the agreement stipulates. To say that arbitrators have the power to stipulate a new fee at the final stage of determining costs under Section 31A would be ‘extraordinary’. 

Attorney General and Amicus Discuss: Claim and Counterclaim to be Clubbed Together?

Attorney General Venugopal, arguing in the connected matter of Rail Vikas v Simplex, argued that claim and counterclaim amounts must be clubbed together. 

Justice D.Y. Chandrachud, evidently convinced by the Amicus Curiae Senior Advocate Huzefa Ahmadi’s submissions in the previous hearing, pointed out that counterclaims are often vastly different than claims. They require a different investigation, witness examination, and subsequent determination of facts and law. To consider these efforts and those made to decide the original claim as one single amount would be unfair to the arbitrators—they would effectively be hearing two cases for the fees of one. 

AG Venugopal: Rely on Delhi International Arbitration Centre Reading of ₹30 Lakh Limit in the IVth Schedule

Arguing for in another connected case involving the National Highway Authority of India Mr. Venugopal argued that for companies as large as the National Highway Authority of India, it is vital that there is clarity on the price ceiling. They undertake numerous road construction activities across India, where arbitration proceedings often arise. If clarity is not provided, tax-payers’ money is wasted. 

He pointed out that the Delhi International Arbitration Centre (DIAC) reads the Schedule with a comma, indicating that the arbitrators’ fees ceiling applies to the entire amount. That is, the maximum fee that can be charged is capped at ₹30 lakh. He suggested that the Court rely on the DIAC’s interpretation of the schedule. 

The Bench reserved the Judgment.