Fixing Arbitrators Fee #4: Afcons Argues that Arbitrator Can Ask for Reasonable Change in Fee

On April 19th 2022, Justices D.Y. Chandrachud, Sanjiv Khanna, and Surya Kant continued to hear the Union government’s demand to cap arbitrators’ fees. Senior Advocate Dr. Abhishek Manu Singhvi argued on behalf of Afcons Pvt. Ltd, a company in arbitration over a dispute with ONGC, a Public Sector Undertaking (PSU). 

A group of PSUs claim 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. 

Dr. Singhvi argued today that PSUs were asking the Court to frame abstract guidelines on the issue of fees, which must be determined by close contextual analysis of the parties to the particular dispute. He implored the Bench to consider that the fee paid to arbitrators must be reasonable to ensure that they were willing to participate in the proceedings. 

AFCONS: Arbitrator Can Change Fee Demand Midway If New Fee Is Reasonable

Repeating the PSUs’ argument, Justice Chandrachud asked Dr. Singhvi whether the arbitrators’ tribunal were entitled to change their fee demand midway through the proceedings, after agreeing to the parties’ proposed fee. 

Dr. Singhvi responded, stating that the tribunal was not barred from changing fee demands midstream, as long as the demanded fee was reasonable. He argued that the Bench must attend to the context in which the tribunal revised its fee. 

In the case of ONGC and AFCONS, Dr. Singhvi submitted that the proceedings went on far longer than the tribunal was led to believe they would while agreeing to the proposed fee. Therefore, he argued that the tribunal was entitled to reasonable remuneration for the additional demands on their time. 

The arbitration agreement between ONGC and AFCONS stipulated that the proceedings would end in a year, but they dragged on for far longer. Dr. Singhvi argued that ONGC cannot selectively hold on to the fee clause in the agreement but disregard the time clause.  

AFCONS: Bias Cannot Be Grounds for Opposing Fee Demand

ONGC approached the Supreme Court seeking permission to constitute a new tribunal. ONGC stated that the tribunal would be biased against the PSU  since it was unable to pay the demanded fee, like AFCONS. 

Dr. Singhvi argued that bias was not an appropriate argument against the tribunal’s fee. He stated that ONGC should not ask for a new tribunal after  arguments had commenced to this late stage. The remedy for disagreement over fee was in Section 39, which allows the Court to assess the reasonableness of the demanded fee. If the Court found the fee unreasonable, they could direct the existing Tribunal to reconsider. 

AFCONS: Section 31(a) Empowers Arbitrator To Determine Own Fees

Dr. Singhvi further responded to Solicitor General Tushar Mehta’s argument that the tribunal’s power to fix costs at the end of the proceeding under Section 31(a) did not include the power to determine its own fees.

Dr. Singhvi argued that if the parties were unable to agree on the fees by the end of the proceedings, the tribunal was entitled to set fee itself. He stated that this was in consonance with the arbitration models in UNICTRAL (1985) and the International Chamber of Commerce Rules, which the legislation relied on while drafting the Arbitration and Reconciliation Act. Dr. Singhvi will submit a note to the Bench elaborating on this argument.

The Court will continue hearing this case on April 20th, 2022.