Writ Petition Summary: ONGC Argues that Arbitrators Cannot Unilaterally Hike Fees

In 2015, the Oil and Natural Gas Corporation (ONGC) and Afcons Gunanusa (Afcons) commenced arbitration proceedings to resolve a dispute arising out of a joint construction project. Afcons is a Mumbai-based construction company.

As per the agreement between the parties, if the claim and counterclaim amounts in the dispute exceeded ₹10 crore, each arbitrator’s fee would be fixed at ₹10 lakh for the entire duration of the proceedings. Only arbitrators who were amenable to these terms would be appointed. In 2015, ONGC and Afcons appointed two retired Supreme Court Judges and a retired High Court Judge as arbitrators. All three agreed to the agreement’s terms.

In 2016, for reasons undisclosed in the petition, the three arbitrators unilaterally demanded that their fees be fixed in accordance with the Fourth Schedule of the Arbitration and Conciliation Act, 1996 (The Arbitration Act). Doing so would amount to a higher remuneration for the arbitrators than ONGC and Afcons had originally agreed to. In August of the same year, ONGC agreed to revise the fees as per the Fourth Schedule.

In May 2018, the arbitrators further hiked the fees, claiming that the dispute was complex and would take time to resolve. They imposed a retrospective fee of ₹1.5 lakh per sitting for each arbitrator. This meant that the parties would have to pay these additional fees for already completed sittings. After ONGC filed a petition requesting the tribunal to reconsider these revised fees, the arbitrators agreed to fees of ₹1 lakh per arbitrator for every sitting. Due to the nature of the proceedings, the arbitrators would appear for two sittings of three hours each in a single day. Under the revised fee schedule, each arbitrator would be paid ₹2 lakh for a day’s work.

Refusing to pay the fees, ONGC petitioned the Bombay High Court in 2020, requesting the Court to constitute a new tribunal. After the petition was dismissed by the High Court in 2021, ONGC approached the Supreme Court in the same year. In March 2022, a Bench comprising Chief Justice N.V. Ramana and Justices Sanjiv Khanna and Surya Kant was set up to review the pay scale listed under the Arbitration Act.

What has the petitioner prayed for?

ONGC has asked the SC to terminate the present Arbitral Tribunal under Section 14 of the Arbitration Act and to appoint a fresh tribunal. Section 14 specifies conditions under which an Arbitral Tribunal can be terminated.

Grounds

ONGC is a Public Sector Undertaking (PSU). As a PSU, it is subject to departmental and statutory audits, including those by the Comptroller and Auditor General (CAG). This makes it accountable to audit queries if it pays fees in excess of those stipulated in the arbitration agreement or in the Fourth Schedule of the Arbitration Act.

PSUs across the country are involved in numerous simultaneous arbitration proceedings. PSUs are apprehensive about agreeing to unilateral fee hikes by arbitrators as they are concerned about possible biases developing against them during the proceedings. However, contractors, such as Afcons, may not face the same issue and may be amenable to paying hiked fees as this may tilt the arbitration in their favour. ONGC argues that uniform fees must be paid to arbitrators in all arbitrations, to prevent arbitrators from unilaterally deviating from the Fourth Schedule and particularly disadvantaging PSUs.

If the mandate of the ONCG-Afcons Arbitral Tribunal is not terminated, ONGC will have to pay a higher fee to the arbitrators, despite this demand being contrary to the terms of the original agreement between the parties and the arbitrators. Further, if arbitration proceedings continue with the present Tribunal, this would disadvantage ONGC as the Tribunal may harbour bias against the PSU for challenging the demand for hiked fees.

Arbitrators cannot withdraw from the terms under which they have been appointed without the consent of the parties. In this case, the Arbitral Tribunal unilaterally hiked its fees. ONGC did not consent to this. The mandate of the Tribunal must be terminated under Section 14 of the Arbitration Act as it has become incapable of performing its functions.