Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV

10 By its letter dated 21 August 2020, ONGC informed the arbitral tribunal that the revised fee was not approved by its ‗higher‘ management. Thereafter, ONGC filed a petition[5] under Section 14 read with Section 15 of the Arbitration Act before the Bombay High Court for the termination of the mandate of the arbitral tribunal and the substitution of a fresh set of arbitrators. By its order dated 7 October 2021, the petition was dismissed by the Bombay High Court on the ground of a lack of jurisdiction since the arbitration was an international commercial arbitration within the meaning of Section 2(f) of the Arbitration Act. However, ONGC was granted liberty to approach this Court and all its contentions were kept open. ONGC then filed the present arbitration petition. Commercial Arbitration Petition (Lodging) No 9590 of 2020 PART A A.[2] Facts of Special Leave Petition (Civil) No 13426 of 2021

11 This appeal arises from a final judgement and order dated 6 August 2021 of the High Court of Delhi, by which it dismissed the petition[6] filed by the petitioner, NTPC Limited[7]. 12 NTPC and the respondent, Afcons-Shetty and Company Private Limited- JV[8], entered into a contract for the construction of a ―desilting arrangement package for Koldam Hydro Electric Power (Package-3) Project‖. When disputes arose between the parties, Afcons-Shetty invoked arbitration for a claim of about Rs 37 crores. An arbitral tribunal was to be constituted in terms of Clause 67.[3] of the contract. Both parties nominated their arbitrators – NTPC nominated Shri Krishna Mohan Singh and Afcons-Shetty nominated Shri Santanu Basu Rai Chaudhuri. When the nominated arbitrators failed to appoint a presiding arbitrator, Afcons-Shetty approached the Delhi High Court under Section 11 of the Arbitration Act[9], which then appointed Justice Manmohan Sarin as the presiding arbitrator on 21 May 2018 with the consent of parties.

13 The arbitral tribunal held its first sitting on 12 July 2018, where it decided that the fees payable to the tribunal shall be in terms of the Fourth Schedule to the Arbitration Act. The Fourth Schedule was subsequently amended on 12 November 2018. 14 NTPC filed its counter-claim of approximately Rs 19 crores. By a procedural order dated 13 July 2019, the arbitral tribunal fixed a separate fee for OMP (T) (COMM) 37 of 2021 ―NTPC‖ ―Afcons-Shetty‖ Arbitration Petition No 375 of 2018 PART A the claim (Rs 28,64,520 per arbitrator) and counter-claim (Rs 19,13,615 per arbitrator), aggregating to a total fee of Rs 47,78,135 per arbitrator. In support of its position, the tribunal placed reliance upon the proviso to Section 38(1) of the Arbitration Act.

15 On 21 September 2019, NTPC filed an application seeking a modification of the procedural order dated 13 July 2019. By its reply dated 18 October 2019, Afcons-Shetty opposed the application. By its order dated 8 November 2019, the arbitral tribunal dismissed NTPC‘s application noting that: ―4. There is merit in Mr. Mukhopadhyay's submission that claims and counter claims being independent of each other for which separate fee is to be fixed the same cannot be combined for purpose of ceiling. Moreover, it cannot also be lost sight of that the Fourth Schedule of the Act can only serve as a guiding principle in the absence any rules being framed by the High Court. In view of the foregoing discussions the order passed by us does not call for any modifications or review. The application is accordingly dismissed.‖

16 On 15 October 2020, NTPC sought a modification of the tribunal‘s orders dated 13 July 2019 and 8 November 2019, so that the fee fixed in terms of the Fourth Schedule should include the fee payable for NTPC‘s counter-claim. By its reply dated 30 October 2020, Afcons-Shetty opposed the application.

17 By its order dated 14 January 2021, the tribunal rejected NTPC‘s position that the claim and counter-claim have to be cumulated to arrive at the ―sum in dispute‖ for the purposes of the Fourth Schedule. The tribunal held that:

(i) Section 31(8) of the Arbitration Act allows a tribunal to provide for the costs of arbitration. The regime for costs is provided under Section 31A. The explanation to Section 31A(1) provides that costs include those relating to the fees and expenses of the arbitrators;

(ii) The proviso to Section 38(1) stipulates that separate costs are to be fixed for claims and counter-claims. The position under proviso to Rule 3 of the DIAC (Administrative Cost & Arbitrators‘ Fees) Rules 201810 is also similar; and (iii)Nothing in the Fourth Schedule or the DIAC Rules imposes a restriction on separate costs (and thus fees) being fixed for claims and counter-claims by the tribunal.

18 Subsequently, by its order dated 19 March 2021, the tribunal held that in case NTPC does not comply with its directions contained in the order dated 14 January 2021 for payment of Rs 2 lakhs per arbitrator, the tribunal would consider whether NTPC‘s counter-claim should be suspended. 19 NTPC filed a petition under Sections 9 and 14 read with Section 31(8) before the Delhi High Court, seeking a direction that the tribunal charge a combined fee under the Fourth Schedule for adjudicating both the claim and the counter-claim or, in the alternate, for the termination of the mandate of the tribunal. The petition was opposed by Afcons-Shetty.

20 By a judgment dated 6 August 2021, a Single Judge of the Delhi High Court dismissed NTPC‘s petition. The Single Judge held that the proviso to Section 38(1), Section 31(8) and Section 31A are inextricably linked and on a ―DIAC Rules‖ combined reading, a tribunal would have the power to fix a separate fee for claims and counter-claims. The Single Judge of the Delhi High Court held thus: ―43. …the scheme of 1996 Act is such that the provisions of Section 38(1), 31(8) and 31A are inextricably interlinked. These provisions cannot be read in isolation. The proviso to Section 38(1) clearly states that, where there are claims and counter-claims before the arbitral tribunal, the Arbitral Tribunal may fix separate amount of deposits for the claim and counter-claim. Section 38(1) clarifies that the ―amount of deposit‖ is to be directed ―as an advance for the costs referred to in sub-section (8) of Section 31‖. Sub-section (8) of Section 31 requires the Arbitral Tribunal to fix the costs of arbitration in accordance with Section 31A. The explanation to Section 31A(1) clearly states that, for the purposes of Section 31A(1) the expression ―costs‖ means reasonable costs relating to, inter alia, ―the fees and expenses of the arbitrators‖. […]

48. The position becomes clear when we view the proviso to Section 38(1), Section 31(8) and the Explanation to Section 31A(1) in juxtaposition. Section 31(8) mandates that the arbitral tribunal fix the costs of arbitration, in accordance with Section 31A. Clause (i) of the Explanation to Section 31A(1) specifically includes the fees and expenses of the arbitrators as an integral part of the ―costs‖. Clearly, therefore, the arbitrator has to fix the fees payable to the arbitral tribunal, with, needless to say, consent of parties. Section 38(1) provides for advance, for such ―costs‖ fixed, by way of ―deposit‖. The expressions ―deposit‖, ―costs‖ and ―fees‖ are, therefore, intertwined by statute, and, as the interpreter thereof, the Court can hardly extricate them from each other. The proviso to Section 38(1) provides that, where the arbitral tribunal is seized of claims and counter-claims, it may fix separate amount of deposit for each. No doubt, the use of the word ―may‖ does involve an element of discretion; but, if the arbitral tribunal does fix separate fees for the claims and counter-claims, it cannot be held that it has acted irregularly, or contrary to the statutory mandate.‖

A.[3] Facts of Special Leave Petition (Civil) No 10358 of 2020

21 The appeal arises from a final judgement and order dated 10 July 2020 by which the High Court of Delhi dismissed the petition11 filed by the petitioner, Rail Vikas Nigam Limited12.

22 On 28 December 2010, RVNL awarded a contract for the ―construction of a viaduct and related works for a length of 4.748 kms in the Joka-BBD Bag Corridor of Kolkata Metro Railway Line‖ to the respondent, Simpex Infrastructures Limited13. Disputes having arisen between the parties, Simpex invoked arbitration by its letter dated 26 December 2017.

23 The parties could not agree upon the appointment of arbitrators. While Simpex nominated its arbitrator, RVNL contended that Simpex had to nominate its arbitrator from a panel of five names recommended by RVNL. Since RVNL refused to nominate their arbitrator, Simpex approached the Delhi High Court under Section 11 of the Arbitration Act14. The High Court, by its order dated 11 December 2018, nominated an arbitrator on behalf of RVNL and ordered that ―the Arbitrator[s] shall be paid fee as per Fourth Schedule to the [Arbitration] Act‖. RVNL‘s special leave petition15 against the order of the Delhi High Court was dismissed by this Court on 12 April 2019.

24 Meantime, the arbitrators nominated by the parties appointed a presiding arbitrator. The arbitral tribunal held its preliminary sitting on 15 January 2019, where it recorded that its fee shall be in accordance with the Fourth Schedule to OMP (T) (COMM) 38 of 2020 ―RVNL‖ ―Simpex‖ ARB P 519 of 2018 SLP the Arbitration Act. By its order dated 9 January 2020, the arbitral tribunal recorded that, in accordance with Fourth Schedule, the fee of each arbitrator would be Rs 49,87,500. 25 RVNL then filed an application on 27 February 2020 for the recall of the tribunal‘s order dated 9 January 2020 on the ground that the ceiling on fees for each arbitrator under the Fourth Schedule is Rs 30,00,000.

26 By its order dated 3 March 2020, the arbitral tribunal rejected RVNL‘s application. It noted that that the limitation of Rs 30,00,000 in the entry at

┌──────────────────────────────────────────────────────────────────────────────────────┐
│              See Section 11(3-A)                                                     │
│

┌──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────┐
│          See Section 11(3-A)                                                                                         │
│

┌──────────────────────────────────────────────────────────────────────┐
│                                  THE FOURTH SCHEDULE                 │
│                                    [See section 11(3A)]              │
│

┌───────────────────────────────────────────────────────────────────────────────────────┐
│        Serial No. 6, in its plain and simple language, which when read as             │
│        it   states      and     speaks,     specifies   that   for   claims   above   │
│        Rs.20,00,00,000/-, in addition to Rs.19,87,500/-, the arbitral tribunal        │
│        will be entitled to fee at the rate of 0.5% of the claim amount above          │
│        Rs.20,00,00,000/-, but the total fee is subject to ceiling of                  │
│        Rs.30,00,000/-. The expression “with the ceiling of Rs.30,00,000/-”            │
│        would apply when claims are above Rs.20,00,00,000/-. The ceiling               │
│        of Rs.30,00,000/- is not with reference to 0.5% of the claim amount            │
│        over and above Rs.20,00,00,000/-. To read it otherwise would be                │
│        overstretching the language of Serial No.6 and adding words to it.             │
└───────────────────────────────────────────────────────────────────────────────────────┘

6.[3] of Schedule III of HKIAC Administered Arbitration Rules 2013 provides: ―6.[3] Claims and counterclaims are added for the determination of the amount in dispute. The same rule applies to any set-off defence, unless the arbitral tribunal, after consulting with the parties, concludes that such set-off defence will not require significant additional work‖.

140 Chamber of Commerce171 and European Court of Arbitration172. This will, however, have no bearing on our judgment. As noted earlier in this judgment, parties have the freedom to opt for institutional arbitration and be bound by the rules of the institution. However, the judgment is currently dealing with instances of ad hoc arbitrations where the Fourth Schedule has been made applicable for the calculation of the arbitrators‘ fee. In such cases, we hold that the ―sum in dispute‖ in the Fourth Schedule of the Arbitration Act shall be considered separately for the claim amount in dispute in the claim and counter-claim. Consequently, the arbitrators‘ fee will be calculated separately for the claim and counter-claim, and the ceiling on the fee will also be applicable separately to both. E Fee Ceiling in Fourth Schedule 141 This issue revolves around the interpretation of the sixth entry of the Fourth Schedule. For convenience of the reader, the Fourth Schedule is being extracted again: ―THE FOURTH SCHEDULE See Section 11(3-A) Sl. No. Sum in dispute Model fee (1) (2) (3)

1. Up to Rs 5,00,000 Rs 45,000 Article 2 of Appendix IV of 2017 Arbitration Rules provides: ―(3) The amount in dispute shall be the aggregate value of all claims, counterclaims and set-offs. Where the amount in dispute cannot be ascertained, the Board shall determine the Fees of the Arbitral Tribunal having regard to all relevant circumstances.‖. Appendix 3 of the Arbitration Rules of the European Court of Arbitration – 2021 provides: ―For the purposes of the application of the scale range the amount to be taken into account to apply this scale will be the total of the claims made by the parties, i.e. of the claims and counterclaims.‖.

2. Above Rs 5,00,000 and up to Rs 20,00,000 Rs 45,000 plus 3.[5] per cent of the claim amount over and above Rs 5,00,000.

3. Above Rs 20,00,000 and up to Rs 1,00,00,000 Rs 97,500 plus 3 per cent of the claim amount over and above Rs 20,00,000.

4. Above Rs 1,00,00,000 and up to Rs 10,00,00,000 Rs 3,37,500 plus 1 per cent of the claim amount over and above Rs 1,00,00,000.

5. Above Rs 10,00,00,000 and up to Rs 20,00,00,000 Rs 12,37,500 plus 0.75 per cent of the claim amount over and above Rs 10,00,00,000.

6. Above Rs 20,00,00,000 Rs 19,87,500 plus 0.[5] per cent of the claim amount over and above Rs 20,00,00,000 with a ceiling of Rs 30,00,000. Note: In the event the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent on the fee payable as per the above.‖ 142 The choice before this Court is between two competing interpretations of the Model Fee where the sum in dispute is above Rs 20,00,00,000. Before we explain the competing interpretations, it is important to note that there is an agreement on the following:

(i) For an arbitration with the sum in dispute is Rs 20,00,00,000, the fee would be Rs 19,87,500. This will be referred to as the base amount;

(ii) For any increase in the sum in dispute over and above Rs 20,00,00,000, 0.[5] per cent of the amount above Rs 20,00,00,000 will be added to the fee. This will be referred to as the variable amount. For instance, if the sum in dispute was Rs 21,00,00,000, the amount above Rs 20,00,00,000 is Rs 1,00,00,000. Hence, 0.[5] per cent of Rs 1,00,00,000 will be added as the variable amount; and (iii)There is a ceiling of Rs 30,00,000. The controversy before this Court is in relation to the third point, namely, to what does the ceiling apply. There are two possible interpretations:

(i) First, the ceiling is for the sum of the base amount and the variable amount. If this interpretation were to be accepted, the highest possible fee would be Rs 30,00,000; or

(ii) Second, the ceiling is for the variable amount only. If this interpretation were to be accepted, the highest possible fee would be Rs 49,87,500. E.[1] Difference between the English and Hindi translations 143 The first submission before us is that there is a difference between the English and Hindi translation of the relevant text. For ready reference, the two versions are being extracted below: Rs.19,87,500 plus 0.[5] per cent of the claim amount over and above Rs.20,00,00,000 with a ceiling of Rs.30,00,000. 19,87,500 + 20,00,00,000 र म 0.5, 30,00,000 म म

The difference between the two is the presence of a comma (―,‖) in the Hindi translation, which is absent in the English version. It has been submitted that the comma was inadvertently missed from the English version, and hence the Hindi translation should be given preference. In support of this proposition, reliance is also placed upon Article 343(1) of the Constitution which provides that ―[t]he official language of the Union shall be Hindi in Devanagari script‖. 144 We must reject this submission at the threshold since it is in teeth of Article 348(1)(b)(ii) of the Constitution, which reads thus: ―348. Language to be used in the Supreme Court and in the High Courts and for Acts, Bills, etc.—(1) Notwithstanding anything in the foregoing provisions of this Part, until Parliament by law otherwise provides— […] (b) the authoritative texts—

(i) of all Bills to be introduced or amendments thereto to be moved in either House of Parliament or in the House or either House of the Legislature of a State, […] shall be in the English language.‖ Article 348 begins with a non-obstante clause, which clarifies that it shall have precedence over other Articles in Part XVII, including Article 343(1). 145 In Nityanand Sharma v. State of Bihar173, a three-Judge Bench of this Court had to decide whether the ‗Lohar‘ community would be construed as a Scheduled Tribe since their name appeared in the Schedule in the Hindi translation while the English original had the community ―Lohra‖. Speaking for the Bench, Justice K Ramaswamy held: ―19. Article 348(1)(b) of the Constitution provides that notwithstanding anything in Part II (in Chapter II Articles 346 and 347 relate to regional languages) the authoritative text of all Bills to be introduced and amendments thereto to be moved in either House of Parliament … of all ordinances promulgated by the President… and all orders, rules, regulations and byelaws issued under the Constitution or under any law made by Parliament, shall be in the English language. By operation of sub-article (3) thereof with a non obstante clause, where the Legislature of a State has prescribed any language other than the English language for use in Bills introduced in, or Acts passed by, the Legislature of the State or in Ordinances promulgated by the Governor of the State or in any order, rule, regulation or bye-law referred to in paragraph (iii) of that sub-clause, a translation of the same in the English language published under the authority of the Governor of the State in the Official Gazette of that State shall be deemed to be the authoritative text thereof in the English language under this article. Therefore, the Act and the Schedule thereto are part of the Act, as enacted by Parliament in English language. It is the authoritative text. When the Schedules were translated into Hindi, the translator wrongly translated Lohara as Lohar omitting the letter ‗a‘ while Lohra is written as mentioned in English version. It is also clear when we compare Part XVI of the Second Schedule relating to the State of West Bengal, the word Lohar both in English as well as in the Hindi version was not mentioned. Court would take judicial notice of Acts of Parliament and would interpret the Schedule in the light of the English version being an authoritative text of the Act and the Second Schedule.‖ Similarly, in the present case, this Court shall be governed by article 348 (1)(b)(i) while interpreting the entry at Serial No 6 of the Fourth Schedule.

E.[2] Exception to literal interpretation 146 There is no comma in the English version of the sixth entry of the Fourth schedule. Hence, there is nothing to suggest conclusively (unlike the Hindi translation) that the ceiling of Rs 30,00,000 applies cumulatively to the sum of the base amount and variable amount. 147 The absence of a comma may be one indicator of the meaning of a provision. However, in his seminal treatise on Principles of Statutory Interpretation, Justice GP Singh has observed174: ―In England, before 1850, there was no punctuation in the manuscript copy of any Act which received the Royal assent; therefore, the courts cannot have any regard to punctuation for construing the older Acts. Even as regards more modern Acts, it is very doubtful if punctuation can be looked at for purposes of construction. The opinion on Indian statutes is not very much different.‖ 148 Similarly, Bennion in his treatise on Statutory Interpretation notes175: ―16.8. Punctuation is a part of an Act and may be considered in construing a provision. It is usually of little weight, however, since the sense of an Act should be the same with or without its punctuation…Although punctuation may be considered, it will generally be of little use since the sense of an Act should be the same with or without it. Punctuation is a device not for making meaning, but for making meaning plain. Its purpose is to denote the steps that ought to be made in oral reading and to point out the sense. The meaning of a well-crafted legislative proposition should not turn on the presence or absence of a punctuation mark.‖ 149 In Aswini Kumar Ghose v. Arabinda Bose176, a Constitution Bench of this Court had to interpret provisions of the Bar Councils Act 1926. A key Justice GP Singh, Principles of Statutory Interpretation (14 th edition, LexisNexis) Diggory Bailey and Luke Norbury, Bennion on Statutory Interpretation (7 th edition, LexisNexis) submission was in reference to the presence of a comma before the word ―or‖ in the non-obstante provision. Justice B K Mukherjea in his judgment observed: ―56…Punctuation is after all a minor element in the construction of a statute, and very little attention is paid to it by English courts. Cockburn, C.J. said in Stephenson v. Taylor [(1861) 1 B & S p. 101]: ―On the Parliament Roll there is no punctuation and we therefore are not bound by that in the printed copies‖. It seems, however, that in the Vellum copies printed since 1850 there are some cases of punctuation, and when they occur they can be looked upon as a sort of contemporanea exposition [See Craies on Statute Law, p. 185]. When a statute is carefully punctuated and there is doubt about its meaning, a weight should undoubtedly be given to the punctuation [Vide Crawford on Statutory Construction, p. 343]. I need not deny that punctuation may have its uses in some cases, but it cannot certainly be regarded as a controlling element and cannot be allowed to control the plain meaning of a text [Ibid].‖ Thus, Justice Mukherjea chose a middle-path where the learned Judge admitted to the use of punctuation but held that it still cannot be a controlling element in interpreting a provision. 150 Another Constitution Bench of this Court in Indore Development Authority (LAPSE-5 J.) v. Manoharlal177, has noted its support of the use of punctuation as a tool of interpretation and cited with approval the following extract from Taylor v. Caribou178: ―We are aware that it has been repeatedly asserted by courts and jurists that punctuation is no part of a statute, and that it ought not to be regarded in construction. This rule in its origin was founded upon common sense, for in England until 1849 statutes were entrolled upon parchment and enacted without punctuation…Such a rule is not applicable to conditions where, as in this State, a Bill is printed and is on the desk of 1953 SCR 1

102 Me 401: 67 A 2 (1907) every Member of the Legislature, punctuation and all, before its final passage. There is no reason why punctuation, which is intended to and does assist in making clear and plain the meaning of all things else in the English language, should be rejected in the case of the interpretation of statutes. ―Cessante ratione legis cessat ipso lex‖. Accordingly we find that it has been said that in interpreting a statute punctuation may be resorted to when other means fail…; that it may aid its construction…; that by it the meaning may often be determined; that it is one of the means of discovering the legislative intent…; that it may be of material assistance in determining the legislative intention…‖ Indeed, in Mohd. Shabir v. State of Maharashtra, a two-Judge Bench of this Court held that mere stocking was not an offence under Section 27 of Drugs and Cosmetics Act 1940 due to the absence of a comma after the word ―stock‖179. 151 In the present case, the English version of the entry at Serial No 6 of the Fourth Schedule does not have any comma. Due to its absence, it can be construed that the literal meaning of the provision is that the ceiling should only apply to the variable amount. However, Maxwell on The Interpretation of Statutes notes that the literal meaning of a provision must be rejected when it goes manifestly against the legislative intent behind the enactment180: ―WHERE the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear, it must not

P St J Langan, Maxwell on The Interpretation of Statutes (N M Tripathi Private Ltd, 1976) be reduced to a nullity by the draftsman's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used.‖ Hence, in the present case, we must aim to ascertain the legislative intent behind the Fourth Schedule. E.[3] Interpretation based on legislative intent 152 The Fourth Schedule was added to the Arbitration Act pursuant to the Arbitration Amendment Act 2015, which in itself was based upon the recommendations in the LCI 246th Report (supra). The Report referred to the judgment in Singh Builders (supra), which raised the issue of arbitrators charging exorbitant fees: ―20. Another aspect referred to by the appellant, however requires serious consideration. When the arbitration is by a tribunal consisting of serving officers, the cost of arbitration is very low. On the other hand, the cost of arbitration can be high if the Arbitral Tribunal consists of retired Judge(s).

21. When a retired Judge is appointed as arbitrator in place of serving officers, the Government is forced to bear the high cost of arbitration by way of private arbitrator‘s fee even though it had not consented for the appointment of such nontechnical non-serving persons as arbitrator(s). There is no doubt a prevalent opinion that the cost of arbitration becomes very high in many cases where retired Judge(s) are arbitrators. The large number of sittings and charging of very high fees per sitting, with several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the amount of the award.

22. When an arbitrator is appointed by a court without indicating fees, either both parties or at least one party is at a disadvantage. Firstly, the parties feel constrained to agree to whatever fees is suggested by the arbitrator, even if it is high or beyond their capacity. Secondly, if a high fee is claimed by the arbitrator and one party agrees to pay such fee, the other party, which is unable to afford such fee or reluctant to pay such high fee, is put to an embarrassing position. He will not be in a position to express his reservation or objection to the high fee, owing to an apprehension that refusal by him to agree for the fee suggested by the arbitrator, may prejudice his case or create a bias in favour of the other party which readily agreed to pay the high fee.

23. It is necessary to find an urgent solution for this problem to save arbitration from the arbitration cost. Institutional arbitration has provided a solution as the arbitrators‘ fees is not fixed by the arbitrators themselves on case-to-case basis, but is governed by a uniform rate prescribed by the institution under whose aegis the arbitration is held. Another solution is for the court to fix the fees at the time of appointing the arbitrator, with the consent of parties, if necessary in consultation with the arbitrator concerned. Third is for the retired Judges offering to serve as arbitrators, to indicate their fee structure to the Registry of the respective High Court so that the parties will have the choice of selecting an arbitrator whose fees are in their ―range‖ having regard to the stakes involved.‖ 153 After noting the judgment in Singh Builders (supra), the LCI 246th Report (supra) stated as follows: ―11. In order to provide a workable solution to this problem, the Commission has recommended a model schedule of fees and has empowered the High Court to frame appropriate rules for fixation of fees for arbitrators and for which purpose it may take the said model schedule of fees into account. The model schedule of fees are based on the fee schedule set by the Delhi High Court International Arbitration Centre, which are over 5 years old, and which have been suitably revised. The schedule of fees would require regular updating, and must be reviewed every 3-4 years to ensure that they continue to stay realistic.

12. The Commission notes that International Commercial arbitrations involve foreign parties who might have different values and standards for fees for arbitrators; similarly, institutional rules might have their own schedule of fees; and in both cases greater deference must be accorded to party autonomy. The Commission has, therefore, expressly restricted its recommendations in the context of purely domestic, ad hoc, arbitrations.‖ As a means of controlling the rising fees of arbitrators, the Law Commission proposed a model fee schedule based on the one used by the DIAC. Schedule B of the DIAC Rules provides that when the sum in dispute is above Rs 20,00,00,000, the fees shall be ―Rs.19,87,500/- + 0.5% of the claim amount over and above Rs.20 crores, with a ceiling of Rs.30,00,000/-‖. Evidently, the DIAC Rules have a comma, which would mean that the ceiling would have been applicable to the base amount and the variable amount. 154 In Mithilesh Kumari v. Prem Behari Khare181, a two-Judge Bench of this Court held that, depending on the facts and circumstances of each case, law commission reports preceding enactments of statutes can be relied on as an aid in interpretation. Speaking for the Bench, Justice K N Saikia held: ―15…where a particular enactment or amendment is the result of recommendation of the Law Commission of India, it may be permissible to refer to the relevant report as in this case. What importance can be given to it will depend on the facts and circumstances of each case.‖ 155 The LCI 246th Report (supra), indicates that the legislative intent behind the introduction of the Fourth Schedule was to put an end to the practise of arbitrators charging exorbitant fees from the parties taking their services in ad hoc arbitrations. Consequently, when we have the option of setting the ceiling of the fees in the Fourth Schedule at either Rs 30,00,000 or Rs 49,87,500, we believe that it would be appropriate to choose the lower amount since it would be in keeping with legislative intent. The 2015 Arbitration Amendment Act was clearly enacted with the intent to give effect to the recommendation of the LCI 246th Report on the point. Thus, we hold that the ceiling of Rs 30,00,000 in entry at Serial No 6 of the Fourth Schedule is applicable to the sum of base amount and the variable amount, and not just the variable amount. F Ceiling applicable to individual arbitrators 156 The final submission made before this Court was that the ceiling of Rs 30,00,000 prescribed in the entry at Serial No 6 of the Fourth Schedule will be applicable to the cumulative fee paid to the entire arbitral tribunal, i.e., in a threemember tribunal, each individual arbitrator would receive a fee of Rs 10,00,000. 157 Such a submission is erroneous, and hence we must reject it. First, there is nothing in the language of the Fourth Schedule to support such an interpretation. The header of the third column states ―Model Fee‖ and does not specify it to be in respect of the whole tribunal. Second, if such an interpretation were to be adopted, it would lead to absurd consequences. For instance, in an arbitration where the sum in dispute is large enough to trigger the ceiling of Rs 30,00,000 and it were to be adjudicated by a three-member tribunal, the maximum fee would have to be divided amongst the three arbitrators. On the other hand, if the same dispute were to be adjudicated by a sole arbitrator, the sole arbitrator would then receive the whole amount of the maximum fee, i.e., triple of what each individual arbitrator would have received in a three-member tribunal. Such a disparity is inconceivable, regardless of the extra work a sole arbitrator may have to put in. This is further bolstered by the Note to the Fourth Schedule, which states that ―[i]n the event the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent on the fee payable as per the above‖. Consequently, the sole arbitrator would not only receive Rs 30,00,000, but an additional 25 per cent over and above it. Indeed, it is clear that the Note was added to the Fourth Schedule to fairly compensate sole arbitrators who arguably would have to do more work than as a member of a larger tribunal; which is why they are allowed payment of 25 per cent of the fee over and above what they would be paid pursuant to the table given in the Fourth Schedule. The corollary of this is that the fee provided in Fourth Schedule is for each individual arbitrator, regardless of whether they are a member of a multimember tribunal or a sole arbitrator. Finally, this interpretation of the Fourth Schedule, that the fee provided therein is applicable for each individual arbitrator and not the whole arbitral tribunal, has also been fairly conceded before this Court by the learned Attorney General. G Conclusion G.[1] Findings 158 We answer the issues raised in this batch of cases in the following terms:

(i) Arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. A unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition of in rem suam decisions, i.e., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration. However, the arbitral tribunal has the discretion to apportion the costs (including arbitrators‘ fee and expenses) between the parties in terms of Section 31(8) and Section 31A of the Arbitration Act and also demand a deposit (advance on costs) in accordance with Section 38 of the Arbitration Act. If while fixing costs or deposits, the arbitral tribunal makes any finding relating to arbitrators‘ fees (in the absence of an agreement between the parties and arbitrators), it cannot be enforced in favour of the arbitrators. The arbitral tribunal can only exercise a lien over the delivery of arbitral award if the payment to it remains outstanding under Section 39(1). The party can approach the court to review the fees demanded by the arbitrators if it believes the fees are unreasonable under Section 39(2);

(ii) Since this judgment holds that the fees of the arbitrators must be fixed at the inception to avoid unnecessary litigation and conflicts between the parties and the arbitrators at a later stage, this Court has issued certain directives to govern proceedings in ad hoc arbitrations in Section C.2.4; (iii)The term ―sum in dispute‖ in the Fourth Schedule of the Arbitration Act refers to the sum in dispute in a claim and counter-claim separately, and not cumulatively. Consequently, arbitrators shall be entitled to charge a separate fee for the claim and the counter-claim in an ad hoc arbitration proceeding, and the fee ceiling contained in the Fourth Schedule will separately apply to both, when the fee structure of the Fourth schedule has been made applicable to the ad hoc arbitration;

(iv)The ceiling of Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule is applicable to the sum of the base amount (of Rs 19,87,500) and the variable amount over and above it. Consequently, the highest fee payable shall be Rs 30,00,000; and

(v) This ceiling is applicable to each individual arbitrator, and not the arbitral tribunal as a whole, where it consists of three or more arbitrators. Of course, a sole arbitrator shall be paid 25 per cent over and above this amount in accordance with the Note to the Fourth Schedule. G.[2] Directions 159 We issue the following directions in each of the cases before this Court:

(i) In respect of Arbitration Petition (Civil) No 5 of 2022, a fee schedule for the arbitrators was already prescribed in the LSTK contract. However, during the preliminary meeting on 25 November 2015, the arbitral tribunal observed that the fee schedule in the LSTK contract was unrealistic. While Afcons agreed to revise the fees, ONGC expressed its disagreement. The tribunal directed ONGC to consider revising the fees. On 16 April 2016, the arbitral tribunal informed ONGC that it would no longer bargain on the amount of fees if ONGC was agreeable to the fee provided in the Fourth Schedule to the Arbitration Act, along with a reading fee of Rs 6 lakhs for each arbitrator. By its letter dated 22 April 2016, ONGC indicated that it was agreeable to revising the fees in terms of the Fourth Schedule. It only objected to the reading fee. Subsequently, the arbitral tribunal passed a procedural order dated 4 August 2016 directing the parties to deposit 25 per cent of the arbitrators‘ fee, which was recorded as Rs 30 lakhs. It seems a ceiling of Rs 30 lakhs was determined following the Fourth Schedule to the Arbitration Act. However, the arbitral tribunal then unilaterally decided to revise the fees and passed a procedural order fixing a fee of Rs 1.[5] lakhs for each arbitrator for every sitting of a three-hour duration. The tribunal also indicated it may also charge a reading or conference fee, which would be decided at a later stage. By an order dated 25 July 2019, the arbitral tribunal adjusted its fees to Rs 1 lakh per sitting. Around 54 sittings have been held in terms of the arbitral tribunal‘s order dated 25 July 2019. In this background, it is evident that there was no consensus between the parties and the arbitrators regarding the fee that is to be paid to the members of the arbitral tribunal. Allowing the continuance of the arbitral tribunal would mean foisting a fee upon the parties and the arbitral tribunal to which they are not agreeable. In view of our directives in Section C.2.[4] and the facts noted earlier, we exercise our powers under Article 142 of the Constitution of India and direct the constitution of a new arbitral tribunal in accordance with the arbitration agreement. For this purpose, Arbitration Petition (C) No. 5 of 2022 would be listed for directions before this Court on 21 September 2022. The above directions should not be construed as a finding on the conduct of the arbitration proceedings. These directions are an attempt to ensure that the arbitral proceedings are conducted without rancour which may derail the proceedings. In consonance with our findings, the fee payable to the earlier arbitral tribunal would be the fee payable in terms of the Fourth Schedule of the Arbitration Act. Though the Fourth Schedule is per se not applicable to an international commercial arbitration, since ONGC had indicated (following the suggestion of the arbitral tribunal) that it would be agreeable to pay the fee payable in terms of Schedule, it cannot now take recourse to the arbitration agreement between the parties to pay a lesser fee. We further clarify that if the fee in excess of the amount payable under the Fourth Schedule has been paid to the members of the arbitral tribunal, such amount will not be recovered from them;

(ii) The civil appeal arising out of Special Leave Petition (Civil) No 13426 of 2021 is dismissed and the judgment of the Single Judge of the Delhi High Court dated 6 August 2021 is upheld; (iii)The civil appeal arising out of Special Leave Petition (Civil) No 10358 of 2020 is allowed and the judgment of the Single Judge of the Delhi High Court dated 10 July 2020 is set aside; and

(iv) Miscellaneous Application Nos 1990-1991 of 2019 are dismissed.

160 Before parting, we would like to place on record our sincere appreciation for the submissions made by the amicus curiae, Mr Huzefa Ahmadi who was ably assisted by Ms Anushka Shah. 161 Pending applications, if any, stand disposed of. ….......…...….......……………… ........ J. [Dr Dhananjaya Y Chandrachud] ….....…...….......……………… ........ J. [Surya Kant] New Delhi; August 30, 2022 Arbitration Petition No. 5 of 2022 & Ors.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION ARBITRATION PETITION NO. 5 OF 2022 OIL AND NATURAL GAS CORPORATION LIMITED...

PETITIONER

VERSUS

AFCONS GUNANUSA JV.... RESPONDENT W I T H SPECIAL LEAVE PETITION (CIVIL) NO. 10358 OF 2020 SPECIAL LEAVE PETITION (CIVIL) NO. 13426 OF 2021 SPECIAL LEAVE PETITION (CIVIL) NO. OF 2022 (DIARY NO. 8494 OF 2022) A N D MISCELLANEOUS APPLICATION NOS. 1990-1991 OF 2019 (IN SPECIAL LEAVE PETITION (CIVIL) NOS. 10021-10022 OF 2017)

JUDGMENT

SANJIV KHANNA, J. Reason and cause for my separate judgment. This is an unfortunate litigation wherein one or both parties have questioned the legitimacy and reasonableness of the fee claimed by the arbitral tribunal.

2. While I am entirely in agreement with the considered view expressed by esteemed brother D.Y. Chandrachud, J. that – (a) party autonomy and arbitration agreement are the foundation of the arbitral process, and therefore, when the parties fix the fee payable to the arbitral tribunal, the law does not permit the arbitral tribunal to derogate and ask for additional or higher fee; (b) where the court while appointing an arbitrator fixes the fee, the arbitral tribunal cannot ask for supplementary or higher fee; and (c) in both cases, the fee payable to the arbitral tribunal may be enhanced either by a written agreement between the parties or by a court order. However, I am unable to concur that in the absence of any agreement between the parties, or the parties and the arbitral tribunal, or a court order fixing the fee, the arbitral tribunal is not entitled to fix the fee, as I am of the opinion that by the implied terms of the contract and as per the provisions of the Arbitration and Conciliation Act, 1996[1], an arbitral tribunal can fix a reasonable fee, which an aggrieved party, who is not a signatory to the written agreement, can question under sub-section (3) of Section 39 of the A&C Act during the pendency of the arbitration proceedings, or in case the arbitral tribunal claims lien on the award in terms of sub-

1 For short, the ‘A&C Act’. section (2) to Section 39 of the A&C Act. At the same time, I respectfully agree with brother D.Y. Chandrachud, J., that when an arbitral tribunal, even in the absence of consent of the parties, fixes the fee in terms of the Fourth Schedule[2], the parties should not be permitted to object the fee fixation. The Fourth Schedule is the default fee, declared by the legislature as fair and reasonable, which can be changed by mutual consensus, and not otherwise. Further, post the enforcement of the Arbitration Amendment Act, 2019 vide Act 33 of 2019 on 30th August 2019, and insertion of subsection (3A) to Section 11, the proviso to the sub-section states that the fee prescribed in the Fourth Schedule is mandatory and applies to all arbitrations including ad hoc arbitrations, albeit in case of institutional arbitrations, as per sub-section (14) to Section 11 of the A&C Act, the fee fixed by the institution “subject to the rates specified in the Fourth Schedule” would be payable.

3. On interpretation of the Fourth Schedule, I respectfully agree with the view expressed by learned D.Y. Chandrachud J. on interpretation of Serial No.6 and that the fee prescribed is for each member of the arbitral tribunal, with a note providing for an additional amount of twenty five percent in case of a sole/single

2 The fee schedule fixed under Section 11(14) or Section 11(3A),as the case may be, of the A&C Act. member arbitral tribunal. Even so, on these aspects I would like to give a separate reasoning, as also point anomalies in the Fourth Schedule. However, in my opinion, the expression “sum in dispute” means the sum total of both the claims and counter claims. Background of the problem of high cost of arbitration, the legislative history and remedial changes in the Arbitration and Conciliation Act, 1996.

4. The issue of skyrocketing costs of arbitration has been a subject of concern and lament in two decisions of this Court in Union of India v. Singh Builders Syndicate[3] and Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust and Others.[4] The Court in Singh Builders Syndicate (supra) judicially noticed the prevalent opinion that the cost of arbitration becomes very high when retired judges are appointed as arbitrators. A large number of sittings, fee being charged on a “per sitting” basis, and several other add-ons without any ceiling contribute to the cost of arbitration approaching or even at times exceeding the amount involved in the dispute or the award amount. When an arbitrator is appointed by the Court without prior fixation of fee, either of the parties might be at a disadvantage as they feel invariably compelled to agree to whatever fee is suggested by the arbitrator, even if it is extravagant and beyond their paying capacity. Secondly, in the event one party agrees to pay such a fee, the other party who is unable to afford or reluctant to pay such a fee is put in an embarrassing position. The party may be disinclined to express reservation or object to the high fee owing to the apprehension that this may prejudice his case or create a bias in favour of the other party. The decision in Sanjeev Kumar Jain (supra) refers to the statutory provisions of the A&C Act, namely, Section 31(8), as it existed, dealing with costs of arbitration, and the explanation that defines the expression ‘costs’ to mean reasonable costs relating to (i) the fees and expenses of arbitrators and witnesses, (ii) legal fee and expenses (iii) any administration fee of the institution supervising the arbitration, and

(iv) other expenses incurred in connection with the arbitration proceedings and the arbitral award. Interpreting Section 11 of the A&C Act which deals with the appointment of an arbitrator, the Court opined that the word ‘appointment’ not only means nominating or designating a person who will act as an arbitrator, but is wide enough to encompass stipulating terms on which he is appointed. Therefore, it is open to the Court, at the time of appointment of an arbitrator under Section 11, to stipulate the fees payable to the tribunal. This, the court commended, should be done after hearing the parties, and if necessary, after ascertaining the fee structure from the prospective arbitrators, to avoid the situation where the parties have to negotiate the terms of the fee after the appointment of the arbitral tribunal. The judgment adverts to institutionalised arbitration as the preferred mode as fixed fee is prescribed by the institution under whose aegis the arbitration is held, viz. ad hoc arbitrations, where the arbitrators are appointed by the parties with or without the intervention of the court, albeit in the absence of any agreement between the parties on the procedure to be followed, the arbitral tribunal, subject to Part 1 of the A&C Act, conducts the proceedings in the manner it deems appropriate.[5] Referring to the ad hoc arbitrations in India, the Court judicially acknowledged that frequent complaints regarding the cost of arbitration, including high fees charged by arbitrators, have adversely affected the efficiency and effectiveness of arbitration. While some of the criticism may be harsh as it would be wrong to state that there is a universalisation of stray aberrations, the court observes that these are still matters of concern and the remedy for healthy development of arbitration in India is to disclose the fee structure before the appointment of the arbitrators so that any party which is unwilling to bear such expenses can express its

5 The observations on ad hoc arbitration are my observations with reference to sub-sections (2) and (3) to Section 19 of the A&C Act, which postulate that the arbitral tribunal, subject to the agreement between the parties, is entitled to conduct the proceedings in the manner it considers appropriate. unwillingness. Consequently, the judgment ennobles and leans towards institutionalised or ad hoc arbitration, where the arbitrator’s fee is prefixed. Another remedy that the court suggested is for each High Court to have a scale of arbitrator’s fee, suitably calibrated with reference to the amount in dispute. These steps, the Court felt, would make arbitration attractive to the litigant public. Reasonableness and certainty regarding the total costs are the key to the development of arbitration.

5. The 246th Report of the Law Commission of India dated 5th August 2014, under the heading ‘Fees of Arbitrators’, highlighted the problem of high costs, especially associated with ad hoc arbitrations, and the complaint that several arbitrators arbitrarily and unilaterally fix disproportionate fees. To counter this, the Law Commission suggested a mechanism to rationalise the fee structure for arbitration by recommending a model schedule of fees. The Report nevertheless accepted that different values and standards of fees may be payable in international commercial arbitrations. The Report adversely commented on the ‘per sitting’ basis on which fee is charged in ad hoc arbitrations, sometimes with 2-3 sittings a day in the same matter between the same parties, and that costs further increase by continuation of proceedings for years since the dates are spread over a long period of time. The Commission suggested the model schedule of fee that should be inserted in the A&C Act.

6. In view of the recommendations made by the Law Commission, the A&C Act was amended effective from 23rd October 2015, vide Act No. 3 of 2016, with the insertion of the Fourth Schedule to the A&C Act, exemplifying a schedule of fee payable to the arbitrators. Subsection (14) to Section 11 was enacted, and read thus: “(14) For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule. Explanation.– For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.” The fee structure in the Fourth Schedule was to serve as a guide for the different High Courts to frame rules determining the fee payable to the arbitral tribunals. However, most of the High Courts did not frame rules under Section 11(14) for the purpose of determination of fee and the manner of payment to the arbitral tribunal.[6] Further, the rules, as framed by the High Courts, except

6 High Courts of Kerala, Madhya Pradesh, Delhi, Punjab and Haryana, Rajasthan, Karnataka and Madras have framed rules. for the High Court of Kerala, are applicable when the arbitrators are appointed by the Court or the parties by agreement or mutual consent agree to be governed by the applicable rules. Resultantly, the desired purpose of Section 11(14) has not been met, and remains unrealised.

7. Based on the High Level Committee Report dated 30th July 2017, vide Act No. 33 of 2019, a number of significant amendments were made to the A&C Act to promote and establish the culture of institutional arbitration. The relevant amendments, for our purpose, include the amendment to Section 2(1), by inserting clause (ca) which defines the expression “arbitral institution” as “an arbitral institution designated by the Supreme Court or a High Court under this Act”. Part IA consisting of Sections 43A to 43M have been inserted for the establishment and incorporation of an Arbitration Council of India, with Section 43D prescribing duties and functions of the said Council, which include framing policies governing gradation of arbitral institutions, recognising professional institutes providing accreditation of arbitrators, review or grading of arbitral institutions or arbitrators, making recommendations to the Central Government on various measures to be adopted and to make provisions for easy resolution of commercial disputes. Simultaneously, sub-section (3A) to Section 11 has been inserted and reads: “(3A) The Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which have been graded by the Council under section 43-I, for the purposes of this Act: Provided that in respect of those High Court jurisdictions, where no graded arbitral institution are available, then, the Chief Justice of the concerned High Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral institution and any reference to the arbitrator shall be deemed to be an arbitral institution for the purposes of this section and the arbitrator appointed by a party shall be entitled to such fee at the rate as specified in the Fourth Schedule: Provided further that the Chief Justice of the concerned High Court may, from time to time, review the panel of arbitrators.” Corresponding substitutions/insertions have been made in sub-sections (4), (5), (6), (8) and (9) to Section 11 to provide for and give effect to the provisions that appointment of an arbitrator shall be made on an application of a party by the arbitral institution designated by the Supreme Court in the case of international commercial arbitration or by the High Court in other cases. Subsection (11) to (14) to Section 11 as substituted read: “(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to different arbitral institutions, the arbitral institution to which the request has been first made under the relevant sub-section shall be competent to appoint. (12) Where the matter referred to in sub-sections (4), (5), (6) and (8) arise in an international commercial arbitration or any other arbitration, the reference to the arbitral institution in those sub-sections shall be construed as a reference to the arbitral institution designated under sub-section (3A). (13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the arbitral institution within a period of thirty days from the date of service of notice on the opposite party. (14) The arbitral institution shall determine the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal subject to the rates specified in the Fourth Schedule.”

8. However, even after the lapse of nearly three years, the Arbitration Council of India has not been fully operationalised, and Part IA, dealing with the Arbitration Council of India, from Sections 43A to 43M, have not been enforced. The substituted provisions of subsections (11) to (14) to Section 117 of the A&C Act, which came into force on 30th August 2019 vide SO No. 3154(E) dated 30th August 2019, have been effectively only partially enforced and implemented. However, on the positive side, I would record that several High Courts have taken concerted steps to establish and refer matters to the court adjunct arbitration centres. Despite these efforts, ad hoc arbitrations have continued and hold the field as they were prior to the enactment and enforcement of Act No. 33 of 2019.

7 Including newly inserted sub-section (3A) to Section 11 of the A&C Act. Therefore, the amendments made by Act No. 33 of 2019 have been somewhat a non-starter and thus, the shift envisaged by the legislature from ad hoc arbitration to institutional arbitration has not been accomplished. The legal issues required to be adjudicated.

9. The question of quantum of fee payable to the arbitrators can be broadly divided into three categories: (i) institutionalised arbitration where the fee payable to the arbitrator is governed by the prescribed fee schedule. In the present petition/appeals, we are not concerned with such cases[8]; (ii) ad hoc arbitrations where (a) the fee is prescribed in the agreement between the parties, (b) where the fee is fixed by the court while appointing the arbitral tribunal, (c) where no fee is prescribed in the agreement between the parties, or where the court while appointing the arbitral tribunal does not fix the fee or permits the arbitral tribunal to fix the fee; and (iii) where the arbitration fee is prescribed and governed by the Fourth Schedule to the A&C Act.

10. While deciding questions relating to the second category, I would refer to and interpret the statutory provisions pre and post

8 The legal effect of the substituted sub-section (14) to Section 11 vide Act 33 of 2019 requires elucidation for the present decision and has been interpreted. Amendment Act No.3 of 2016 and Amendment Act No.33 of 2019, and elucidate on the rights of the parties/ litigants in the fee fixation. In the second portion of my judgment, I would examine and interpret the Fourth Schedule. Who decides the fee payable to the Arbitral Tribunal? (a) Where fee payable is fixed by an agreement between the parties, or by a court order.

11. Arbitration is contract centric and is structured on party autonomy. The parties are free to agree upon the procedure on conduct of the arbitration, which includes the right to fix the fee payable to the arbitrator. While the relationship between the parties and the arbitrator is based on the contract, the arbitrator’s status as a dejure adjudicator stems directly from the law. The relationship between the parties and the arbitral tribunal is both contractual and statutory. Consequently, an arbitral tribunal, in addition to the contractual terms, must abide by the rules and procedure that are bare essential pre-requisites of any dispute resolution system.[9] In Sanjeev Kumar Jain (supra), this court has held that when a court appoints an arbitrator, and also fixes the fee, whether in terms of the Fourth Schedule or otherwise, the fee is binding on the 9Julian D.M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial Arbitration, 'Chapter 12 Rights and Duties of Arbitrators and Parties', pp. 276 - 277 arbitrator/tribunal. The arbitral tribunal, while accepting an appointment, must accept the remuneration as fixed by the parties or as determined in the court order appointing the tribunal. Russell pertinently observes that the appointment of an arbitrator is a matter of contract, subject to mandatory provisions of the statute. An arbitrator will not be usually entitled to increase his fee and expenses unless his agreement with the parties allows him to do so.10 The arbitrators should not exceed their authority, either under the terms of the arbitration agreement fixing their fee, or under their powers in law, which does not permit them to rewrite the agreement or ignore the court order fixing the fee. It follows that the arbitral tribunal, during the proceedings, is not entitled to unilaterally increase its fee, unless the agreement on which it is constituted allows it to do so, or all parties voluntarily agree to enhancement. Where fee is fixed by a court order, the arbitral tribunal may approach the court for modification/increase in the fee by giving reasons justifying the same. Unilateral increase is unacceptable, as explained in the judgment by D.Y. Chandrachud J. and in my opi nion this would violate the provisions of the A&C Act. This principle applies to institutional arbitration, as an arbitrator/tribunal so

10 Russell on Arbitration (24th Edition). Russell also observes that attempts to increase fee have led to allegation of bias against the arbitrators and of what used to be called ‘misconduct’, and if pursued unreasonably, would lead to an application for removal of an arbitrator or even challenge to an award made by him because of the breach of duty to avoid unnecessary expense. appointed is bound by the rules of the institution and must abide by the terms of appointment. Where an arbitral tribunal solicits higher fees, an aggrieved party, in my opinion, as explained below, can approach the court for appropriate orders under sub-sections (2) or (3) to Section 39 of the A&C Act. (b) Where fee is not fixed by a court order, or an agreement between the parties.

12. There is considerable jurisprudence and legal opinion which accepts that in the absence of an agreement or consensus between the parties, or a court order fixing the fee, the arbitral tribunal is entitled to fix the fee payable for conducting the arbitration, albeit the fee so fixed should be fair and reasonable. Robert Merkin11 states that, where the agreement between the parties or with the arbitrator is silent as to the fee, the arbitrator is nevertheless entitled to reasonable fee based either on an implied term in the agreement, or on the application of the principle of quantum meruit. Reasonable fee and expenses appropriate in such circumstances can be determined by the arbitrator. Professor Sundra Rajoo,12 while accepting that the fee of the arbitrator is an important consideration when the parties contemplate arbitrating a dispute, 11Robert Merkin QC, LLD, “Arbitration Law”, Service Issue No.83, November 2019.

12 Datuk Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (Second Edition), 2016, at pg. 341 and 346, paragraphs 24.[4] and 24.7. agrees that it is common in ad hoc arbitration proceedings for the arbitral tribunal to fix its own fee.13 He observes that, if the parties cannot agree on the remuneration in advance, the arbitral tribunal is ordinarily entitled to reasonable remuneration on quantum meruit basis for the value of the work actually done. Russell, in his work,14 observes that where there is no express agreement with the arbitrator, the arbitrator may also have the right to payment of reasonable fees under a contract implied by conduct in circumstances where a party participates in the arbitration, even if that party disputes the jurisdiction of the tribunal. Referring to the English Arbitration Act, 1996, he states that the enactment provides that the parties are jointly and severally liable to pay to the arbitrators such reasonable fee and expenses. The level of fee may be agreed directly with the arbitral tribunal, which normally occurs in ad hoc arbitration. However, in the absence of any established arrangement, it is desirable that the parties and the tribunal should negotiate and agree on the fee payable beforehand, which must be reasonable. Gary B. Born,15 referring to the 2010 UNICITRAL Rules, observes that where the parties do not discuss a method of calculation of the arbitrator’s remuneration, the arbitrator is entitled

13 Reference is made to Michael Mcilwrath and John Savage, International Arbitration and Mediation: A Practical Guide, (2010) at p.267, para 5-112.

14 Russell on Arbitration, 24th Edition, pgs. 150 and 152, paragraphs 4-052 and 4-056. 15 ‘International Commercial Arbitration’, 2nd Edition, 2914 @ paragraph 13.04. to a reasonable fee. What is ‘reasonable’ depends on the facts and on what the national systems prescribe. This includes judicial assessment of the appropriate amount,16 an aspect which I would elucidate subsequently. The model law adopted by the UNCITRAL on International Commercial Arbitration recognises that the arbitrators must be compensated for their services and this flows from the contractual relationship between the parties and the arbitrator, as well as customary practices. The 1976 UNCITRAL Rules had expressly allowed the arbitrators to determine their own fee, which should be reasonable, taking into account the sum in dispute and the complexity of the dispute. Further, the rules require the arbitrators take into account the schedule of the fee that has been issued or provided by an appointing authority, if designated by the parties. The 1976 UNICTRAL rule position was criticised as granting arbitrators undue authority to determine their compensation. The revised rules issued in 2010, while continuing with the substantial role to the arbitrators in deciding the ‘reasonable’ fee, requires the arbitrators to inform the parties as to how it proposes to determine its fee and expenses promptly after its constitution. Thereby the process of determining the fee is made 16Julian D.M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial Arbitration, 'Chapter 12 Rights and Duties of Arbitrators and Parties', pp. 2167-2173 transparent. The fee set by the arbitrators can be reduced if it is not reasonable and challenged within the prescribed period by the party moving to the appointing/designated authority, and in absence of designated authority, the review is undertaken by the Secretary General of the Permanent Court of Arbitration.

13. I would now turn my attention to the statutory provisions of the A&C Act, and would state that my attention has not been drawn to any provision which expressly or by necessary implication bars an arbitral tribunal from determining its fee, or to infer that the prohibition of nemo judex in causa sua (judge in your own cause) applies to arbitrations in India. Section 517 of the A&C Act states that in matters governed by Part 1, no judicial authority shall intervene except when provided in Part 1. Therefore, unless a provision in Part 1 of the A&C Act confers jurisdiction on the court in respect of the matter, by inference the subject-matter would fall within the implied jurisdiction of the arbitral tribunal. Section 2(6) of the A&C Act states that where Part 1, except for Section 28, leaves the parties to determine a certain issue, that freedom shall authorise 17 “5. Extent of judicial intervention.—Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” any person, including the arbitral tribunal, to determine that issue18. Sub-section (2) to Section 1919 states that subject to provisions of Part 1, the parties are free to agree on the procedure to be followed by the arbitral tribunal. Sub-section (3) to Section 1920 states that where the parties fail to reach an agreement, subject to adhering to the provisions of Part 1, the arbitral tribunal is entitled to conduct the proceedings in the manner it considers appropriate. It follows that, where the parties do not agree on the fee, or the court while appointing an arbitral tribunal does not fix the fee, the arbitral tribunal by implication is authorised to fix the fee, which should be reasonable.

14. I would respectfully agree with D.Y. Chandrachud J. that the process of fixation of fee by the arbitral tribunal should be in accordance with public policy underlying arbitration, that is, with agreement and consensus of the parties who bear the cost of arbitration. The arbitral tribunal should be transparent and disclose the fee structure and terms of payment at the preliminary stage, so that an unwilling party can express its unwillingness. No party

18 Section 2(6) reads: “(6) Where this Part, except section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorise any person including an institution, to determine that issue.”

19 Section 19(2) reads: “(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings.”

20 Section 19(3) reads: “(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.” should feel compelled to agree and therefore, it is necessary that the consent of the parties in writing should be taken. This exercise undertaken at the initial stage would avoid embarrassing situations and prevent delay and litigation. The suggestion in Sanjeev Kumar Jain (supra) that the parties before nomination should ascertain the fee structure from the prospective arbitrators is salutary. At the same time, I would accept that fee fixation is a matter of the procedure and relates to conduct of arbitration, and for reasons supra and as held below, is an obligation as well as a right conferred on the arbitral tribunal. Therefore, even in cases where consensus between the parties or with the arbitral tribunal is not possible, the arbitral tribunal is entitled to fix the professional fee payable for adjudication, as without fee fixation, except in cases of pro bono arbitration, the arbitral tribunal would be unable to proceed further to decide and adjudicate the disputes. It goes without saying that the fee so fixed should be fair and reasonable.21

15. I would now proceed to examine the specific provisions which, according to me, make the legal position clear as they empower an arbitral tribunal to fix its fee. Sub-section (8) to Section 31,22 as

21 The term ‘reasonable’ has been used in the explanation to the pre-amended sub-section (8) to Section 31, and post-amendment Section 31A of the A&C Act, preceding the word ‘costs’. Sub-section (2) to Section 39 also provides for costs, by way of a sum that the court may consider ‘reasonable’, to be paid to the arbitral tribunal if, after necessary inquiry, the court thinks it fit. 22 “(8) Unless otherwise agreed by the parties,–– Arbitration Petition No. 5 of 2022 & Ors. originally enacted before its substitution by Act No. 3 of 2016, had stipulated that unless otherwise agreed by the parties, the arbitral tribunal shall fix the cost of arbitration. The explanation to this Section clarified that the expression ‘costs’, for the purpose of the sub-section, means reasonable costs relating to the fees and expenses of the arbitrator and the witnesses.23 The sub-section emphasised that the agreement between the parties is paramount and binding. The arbitral tribunal is entitled to fix costs of arbitration, which includes the fee and expenses of the arbitrator, if the agreement between the parties is wordless and silent as to the fee payable to the arbitral tribunal.

16. Post enforcement of Act No. 3 of 2016, sub-section (8) to Section 31 states that the cost of arbitration shall be fixed by the arbitral tribunal in accordance with Section 31A of the A&C Act. Section 31A, as inserted by Act No. 3 of 2016 and applicable with retrospective effect from 23rd October 2015, reads: (a) the costs of an arbitration shall be fixed by the arbitral tribunal; (b) the arbitral tribunal shall specify––

(i) the party entitled to costs,

(ii) the party who shall pay the costs,

(iii) the amount of costs or method of determining that amount, and

(iv) the manner in which the costs shall be paid.

(i) the fees and expenses of the arbitrators and witnesses,

(ii) legal fees and expenses,

(iii) any administration fees of the institution supervising the arbitration, and

(iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award.”

23 See observations in Sanjeev Kumar Jain(supra) referred to in paragraph 4 above. “31A. Regime for costs.––(1) In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure,1908 (5 of 1908), shall have the discretion to determine— Explanation.—For the purpose of this sub-section, “costs” means reasonable costs relating to—

(i) the fees and expenses of the arbitrators,

(iii) any administration fees of the institution supervising the arbitration; and

(iv) any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award. (2) If the Court or arbitral tribunal decides to make an order as to payment of costs,— (a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or (b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing. (3) In determining the costs, the Court or arbitral tribunal shall have regard to all the circumstances, including— (a) the conduct of all the parties;

(c) whether the party had made a frivolous counterclaim leading to delay in the disposal of the arbitral proceedings; and

(d) whether any reasonable offer to settle the dispute is made by a party and refused by the other party. (4) The Court or arbitral tribunal may make any order under this section including the order that a party shall pay— (a) a proportion of another party’s costs; (b) a stated amount in respect of another party’s costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings; (f) costs relating only to a distinct part of the proceedings; and (g) interest on costs from or until a certain date. (5) An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.”

17. The explanation to sub-section (1) to Section 31A states that, for the purpose of the sub-section, ‘costs’ means the reasonable costs relating to the fee and expenses of the arbitrator, the court and the witnesses. Further, the regime of costs introduced by the insertion of Section 31A in terms of sub-section (1) is to be given effect notwithstanding anything contained in the Code of Civil Procedure, 1908.24 Section 31A gives discretion to the arbitral tribunal to determine – (a) the costs payable by one party to the other; (b) amount of such costs; and (c) when such costs are to be paid. Subsections (2), (3) and (4) to Section 31A lay down the rules and principles which the arbitral tribunal should keep in mind while exercising the discretion to apportion and award costs. Significantly, sub-section (5) to Section 31A annuls and abrogates any pre-dispute agreement which has the effect that one party is to pay the whole or part of the costs of arbitration. In other words, an agreement between the parties as to ‘payment’ of costs would be valid only if such agreement is made after the dispute between the parties has arisen. The object and purpose behind sub-section (5) to Section 31A is to check the malpractice in standard form agreements or unequitable contracts whereby the dominating party could incorporate a clause in the contract or the arbitration agreement, burdening one of the parties to bear the costs of arbitration in whole or part. I would not interpret the mandate of subsection (5) to Section 31A as an attempt to trample the freedom to contract or autonomy of parties. On the other hand, it is a check on the dominating party from incorporating an unconscionable term

24 Hereinafter referred to as ‘the Code’. that the costs of arbitration would be paid entirely or in part by one of the parties, and the general rule incorporated in clause (a) to subsection (2) to Section 31A states that unless there is an agreement between the parties post the disputes, the unsuccessful party shall be ordered to pay costs to the successful party. In other words ‘costs follow the event.’

18. What is of importance for the decision and issue raised in the present case is Section 38 of the A&C Act, which reads thus:

2016. The reference made in Section 38 to sub-section (8) to Section 31, therefore, cites the said sub-section before its substitution by Act No. 3 of 2016. Be that as it may, I do not think that this would make any substantial difference, as post the substitution, sub-section (8) to Section 31 refers to Section 31A, which was inserted by Act No.3 of 2016. Sub-section (1) to Section 31A, in fact, is substantially pari materia to the earlier (presubstitution) sub-section (8) to Section 31, except for the portion in sub-section (8) to Section 31 which gave absolute primacy to the arbitration agreement. I need not again refer to and interpret subsections (1) and (5) to Section 31A of the A&C Act. Sub-section (1) to Section 38 empowers the arbitral tribunal to fix the amount of the deposit or the supplementary deposit, as the case may be, as an advance for the costs referred to in sub-section (8) to Section 31. In other words, the arbitral tribunal can ask the parties to deposit the costs in advance and such deposits towards costs can be directed on more than one occasion. The expression ‘costs’ in Section 38 would obviously include the fees and expenses of the arbitral tribunal. This position is lucid beyond a doubt in view of the language of the proviso, and vide the language and words of sub- sections (2) and (3) to Section 38. Sub-section (2) states that costs referred to in sub-section (1) shall be payable by the parties in equal shares. However, in case one party fails to pay its share of the deposit, the other party would pay that share. Further, if the other party also does not pay the aforesaid share in respect of the claim or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim. The second proviso to sub-section (2) to Section 38 will have limited application where the Fourth Schedule applies to the arbitration proceedings, in which case the fee will be payable not with reference to the claim or counter-claim, but with reference to the “sum in dispute”. I will subsequently interpret the expression “sum in dispute” to mean the aggregate or total amount subject matter of the disputes before the arbitral tribunal. The effect of sub-section (2) to Section 38, which has to be read with the limitation incorporated vide sub-section (5) to Section 31A, is that as a general rule, the costs, including the fee of the arbitrators, would be payable in advance and shared equally by the parties. It is not the sole responsibility of the party raising the claim or counter-claim. These payments, during the course of the arbitration proceedings, are treated as advance payments and in terms of sub-section (3) to Section 38, the arbitral tribunal, upon termination of the arbitration proceedings, must render an account to the parties of the deposits received. Any unexpended balance is to be returned to the party or the parties, as the case may be, who had made the payment. The expression “termination of arbitration proceedings” not only refers to the termination of the proceedings which takes place under the second proviso to sub-section (2) to Section 38, but also to the termination of proceedings on pronouncement/making of the award in terms of Section 32, as well as under Sections 14 and 15 of the A&C Act. This is important as we do have cases wherein the arbitrators resign or recuse without pronouncing an award, but thereupon they are bound to render an account of the costs, including the fee paid to them. As per the statutory mandate of subsection (3) to Section 38, the arbitral tribunal must render an account to the parties of the deposits received upon termination of the arbitration proceedings.25

19. Sub-section (5) to Section 31A does not apply so as to override an agreement on the quantum of the fee payable to the arbitrators, as the said provision only applies where an agreement has the effect

25 Premature termination of arbitrator’s mandate has serious repercussions in form of loss of time, money, as well as repetition of proceedings, and the delay may lead to additional damages and interest. By accepting appointment, an arbitrator undertakes to carry out his responsibilities. Resignations must be for a good cause especially when the proceeding have continued and substantial time and money has been spent. (see - Julian D.M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial Arbitration, 'Chapter 12 Rights and Duties of Arbitrators and Parties', pp. 281 – 282) that a party is to pay whole or part of the cost of the arbitration. Subsection (5) deals with the discretion of the arbitral tribunal to apportion the costs of arbitration, and does not restrict the authority of the arbitral tribunal to fix the cost of arbitration, including the quantum of fee payable to it. However, any contractual term fixing the fee payable to the arbitral tribunal is binding, and cannot be overridden by the arbitral tribunal.

20. The aforesaid legal exposition is in consonance with the decision of this Court in National Highways Authority of India v. Gayatri Jhansi Roadways Limited,26 wherein a Division Bench of this Court has held as under: “ xx xx xx

11. We have heard the learned counsel for the both the sides. In our view, Shri Narasimha, learned Senior Counsel, is right in stating that in the facts of this case, the fee schedule was, in fact, fixed by the agreement between the parties. This fee schedule, being based on an earlier circular of 2004, was now liable to be amended from time to time in view of the long passage of time that has ensued between the date of the agreement and the date of the disputes that have arisen under the agreement. We, therefore, hold that the fee schedule that is contained in the Circular dated 1-6- 2017, substituting the earlier fee schedule, will now operate and the arbitrators will be entitled to charge their fees in accordance with this schedule and not in accordance with the Fourth Schedule to the Arbitration Act.

12. We may, however, indicate that the application that was filed before the High Court to remove the arbitrators stating that their mandate must terminate, is wholly disingenuous and would not lie for the simple reason that an arbitrator does not become de jure unable to perform his functions if, by an order passed by such arbitrator(s), all that they have done is to state that, in point of fact, the agreement does govern the arbitral fees to be charged, but that they were bound to follow the Delhi High Court in Gayatri Jhansi Roadways Ltd. case which clearly mandated that the Fourth Schedule and not the agreement would govern. xx xx xx

14. However, the learned Single Judge's conclusion that the change in language of Section 31(8) read with Section 31-A which deals only with the costs generally and not with arbitrator's fees is correct in law. It is true that the arbitrator's fees may be a component of costs to be paid but it is a far cry thereafter to state that Sections 31(8) and 31-A would directly govern contracts in which a fee structure has already been laid down. To this extent, the learned Single Judge is correct. We may also state that the declaration of law by the learned Single Judge in Gayatri Jhansi Roadways Ltd. is not a correct view of the law.” We would, however, explain the mandate as stated in paragraphs 12 and 14 in this decision.

21. Paragraph 14, as quoted, refers to Section 31(8) read with Section 31A, to state that it deals with costs in general and not with arbitrator’s fee. This reasoning has to be read with my interpretation, which refers to and takes into account Section 38 of the A&C Act. In my opinion, arbitrator’s fee, being a component of cost, can be fixed by the arbitral tribunal when it is not already predetermined by way of an agreement between the parties, or by a court order. This is because the arbitral tribunal has the power to fix and direct the parties to make payment of deposits in advance and during the course of the arbitration proceedings, subject to the arbitral tribunal rendering an account on termination of the arbitration proceedings. In Gayatri Jhansi Roadways Limited (supra), there was an agreement between the parties on the quantum of fee payable to the arbitral tribunal, and in this context the Division Bench has observed that Sections 31(8) and 31A would not directly govern the contracts in which the fee structure has been laid down.

22. Paragraph 12 of the judgment is of utmost significance as it interprets and holds that the dispute as to the payment of fee does not result in termination of proceedings under clause (a) to subsection (1) to Section 14 of the A&C Act. If one or both the parties fail to deposit the arbitration costs, including the arbitrator’s fee, the mandate of the arbitrator is not terminated because he has become de jure or de facto unable to perform his functions as under Section 14(1)(a). On the other hand, in such situations, the two provisos to sub-section (2) to Section 38 come into play. Where one of the parties fails to pay its share of the deposit, it is open to the other party to pay that share. However, if the other party also does not pay the share, the arbitral tribunal is entitled to terminate or suspend the arbitration proceedings.27 This legal position also takes care of the argument raised by some counsels that the arbitration proceedings should be treated as terminated, where in the absence of any written agreement, the fee fixed by the arbitrator is unacceptable to a party on the ground that it is too high or even for the reason that they are unable to pay or bear the financial burden of the said fee, and such cases are to be treated as ‘de jure’ impossibility covered under Section 14(1)(a) of the A&C Act. This argument would be contrary to and unacceptable in view of the two provisos to sub-section (2) to Section 38. In all fairness, it must be stated that Mr. K.K. Venugopal, learned Attorney General for India, had accepted this legal position, and I quote… “[t]his of course would indicate that no ground of bias can be raised if the arbitrator directs one party to pay the fee payable by the party, in case the

27 The International Arbitration Rulebook: A Guide to Arbitral Regimes published by Kluwer Arbitration in Chapter 8: Costs and Fees observes that the arbitrators and arbitration institutions have to be paid for their services and reimbursed for the expenses incurred for fulfilling their duties. Each party is to pay equal proportion of costs in advance. Further the parties are jointly and severally liable, and if one party fails to pay, the other party will be invited to pay that share of costs in addition to its own. If the fees are not paid, as a general matter, it is quite possible that the arbitration may not proceed. other party is not prepared to pay the fee. No question of bias would arise”.28

23. The word ‘cost’, it is argued, is different from the arbitrator’s fee and therefore, the arbitral tribunal is not competent or authorised to fix its own fee on the principle of nemo judex in causa sua, that is, ‘no one should be judge in their own cause’. The principle would apply where the parties have fixed the fee payable to the arbitral tribunal, either as a term in the arbitration agreement or otherwise by an agreement, either before or after the appointment of the arbitral tribunal. This principle will apply equally where the court fixes the fee as a term of appointment. However, this principle will have no application where the parties or the court has left it to the arbitral tribunal to fix its own fee. In other words when the arbitration agreement is silent and the parties have not agreed on the quantum of fee payable to the arbitral tribunal, or the court order does not fix the fee, the arbitral tribunal has the right and power to fix its own fee.

24. The pre-amended sub-section (8) to Section 31 and postamendment Section 31A and Section 38 of the A&C Act, use the

28 Petitioner’s submission in rejoinder in Arbitration Case (C) No. 5 of 2022 filed by Mr. Gunnam Venkateswara Rao, Advocate. expression ‘costs’, albeit they also refer to fee and expenses of the arbitrator/tribunal. The sections are, therefore, comprehensive and all-embracing provisions that equally empower and authorise the arbitral tribunal to fix the fee in the absence of any agreement between the parties or a court order fixing the fee payable to the arbitral tribunal. Any other interpretation would make the A&C Act unworkable and Sections 31A, 38 and 39 superfluous. These provisions must be given their full intended effect and they are not supererogatory in nature. The sections should not be read as unnecessary when they refer to arbitration fee. Notably, arbitral tribunals, since time immemorial, have been fixing arbitration fee, and the legislature has not intervened or barred them from doing so even by the amendments made vide Act No. 3 of 2016. Additionally, there is no provision in the A&C Act which states that the parties can move the court for fixation of fee of the arbitral tribunal when the arbitration agreement is silent or the parties are unable to agree on the quantum of fee or where the court, while making reference, has not fixed the fee and has left it to the arbitral tribunal to decide upon its own fee. To hold to the contrary would create chaos and invalidate a number of orders passed by the High Courts and even this Court, which leave it open for the arbitral tribunal to fix its own fee.

25. ‘Redfern and Hunter on International Arbitration’,29 referring to the expression ‘costs’, has divided the same into three categories, namely: (i) costs of the tribunal, which include charges for administration of arbitration; (ii) costs of arbitration, which includes hiring of rooms, transcript writers, amongst other things; and (iii) costs of the parties, which includes costs of legal representatives and expert witnesses, amongst other things; to observe that all three elements would include the fee of the arbitral tribunal. The expression ‘costs’, therefore, is comprehensive and broad to include fee and expenses of the arbitral tribunal. Russell30 observes that the arbitral tribunal may make an order for costs on such basis as it thinks fit. Under the same heading, he observes that normally the tribunal or the appointing authority will determine the tribunal’s fee and expenses, which would be recovered in and be a part of the award. However, when there is a question about the fee and expenses of the tribunal being reasonable and appropriate, the court, in terms of Section 28(2) of the English Arbitration Act, 1996, and also while exercising power under Section 63(4) of the aforesaid Act, can examine the said question. The court can also

537.

30 Russell on Arbitration, 24th Edition, pg. 461, paragraphs 7-217 to 7-222, under the heading ‘Determination of the recovery of costs of the arbitration’. examine the said question on an application by any of the parties under Section 64(2) of the English Arbitration Act, 1996. For our purposes, it is relevant to state that Section 6331 deals with recovery of costs of arbitration and does not per se deal with the fee payable to the arbitral tribunal, nevertheless arbitration fee being a subset and a part of costs, can be made subject-matter of proceedings under Sections 63/64 of the English Arbitration Act,1996.

26. Professor Sundra Rajoo has elaborately examined the question of arbitrator’s remuneration to observe that it consists of sums due to him in respect of his professional fee and expenses. Such remuneration is also known as the ‘cost of the award’, that is, the fee and expenses of the arbitrator or umpire, though the term ‘fee’ must be distinguished from the cost of the reference, that is, the legal cost incurred by the parties.32 Reference is made by him to Tackaberry and Marriott33, who have summarised the ratio in K/S Norjarl A/S v. Hyundai Heavy Industries Co. Ltd.34 as under:

31 The recoverable costs of the arbitration. 63 (1) – xxxx; (2) xxxx; (3) The tribunal may determine by award the recoverable costs of the arbitration on such basis as it thinks fit. If it does so, it shall specify – (a) the basis on which it has acted, and (b) the items of recoverable costs and the amount referable to each; xxxx.

32 Datuk Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (Second Edition), 2016. Chapter 24 in the said book refers to Gary Born, International Commercial Arbitration.

33 Tackaberry, and Marriott, Bernstein’s Handbook of Arbitration and Dispute Resolution Practice (4th Edn., 2003) at pg. 2-358 34 (1991) 3 All ER 211 Arbitration Petition No. 5 of 2022 & Ors. (1) An arbitrator who accepts appointment with or without any stipulation as to fees thereby enters into a trilateral agreement with the parties. (2) By that agreement the arbitrator assumes the status of a quasijudicial adjudicator with all the duties and disabilities inherent in that status. (3) Amongst those disabilities is an inability to deal unilaterally with one person for a personal benefit. (4) It follows that an arbitrator who has accepted appointment on a particular basis as to the amount and payment of his fees, which may include a stipulation as to payment in advance or a commitment fee, cannot, thereafter, alter the basis of his remuneration unless all parties agree. (5) An arbitrator who has accepted appointment without stipulation as to fees is entitled to a reasonable fee to be taxed, by him or by the court, at the conclusion of the arbitration, and cannot thereafter make any special agreement or arrangement about his fees unless all parties to the reference concur in it. (6) So the arbitrator may not enter into any fee agreement or arrangement with a party to which any other party objects. (7) These propositions apply to a sole arbitrator, a party-appointed arbitrator, an umpire, a chairman or a third arbitrator. The points (1) to (5) set out the correct position. However, as far as point (5) is concerned, in the context of the statutory provisions of the A&C Act, it should be understood that where an arbitrator has accepted appointment without any stipulation as to the fee, he is entitled to reasonable fee as an implied term of the contract of appointment or on the principle of quantum merit. Point (6) should be read with the mandate of Section 38 of the A&C Act as examined above. In this background, and in the context of statutory provisions of the A&C Act, I believe that the suggestion in Sanjeev Kumar Jain (supra), and as proposed by Mr. Huzefa Ahmedi, Senior Advocate, who was appointed by this Court as amicus curiae, and as held by brother D.Y. Chandrachud J., the arbitral tribunal should, at the very outset or during the preliminary hearings, with mutual consent of the parties and by a written agreement fix the fee, which once fixed should remain binding and should not be revised, has merit. There cannot be any unilateral deviation from the terms of fee as agreed, which terms not only bind the parties, but the arbitral tribunal as well. Any deviation, amendment, or modification can only be by a written agreement with the consent of all parties to the litigation.

27. In the context of the situation where the arbitrator and the parties are unable to agree on the remuneration to be paid to the arbitral tribunal, and the arbitral tribunal fixes the fee payable, I would like to refer to Section 39 of the A&C Act which reads thus:

Section 39 is a part of Chapter X, which is a miscellaneous chapter. Sub-section (1) to Section 39 states that the arbitral tribunal shall have lien over the arbitral award for any unpaid costs of arbitration. This lien is subject to provisions of sub-section (2) to Section 39, which states that where an arbitral tribunal refuses to deliver an award except on payment of costs demanded by it, the party may make an application to a court for an order that the arbitral tribunal should deliver the arbitral award to the party. The court thereupon is required to conduct an inquiry and may, if it deems proper, direct the party to deposit the costs in the court for delivery of the award to the party. After the inquiry, the court can pass orders for payment of costs to the arbitral tribunal as the court may consider reasonable. In case any deposit has been made by the party, the same would abide by the decision of the court. If extra payment has been made, the same shall be refunded to the party.

28. Sub-section (3) to Section 39 states that an application under subsection (2) may be made by ‘any party’ unless the fee35 demanded has been fixed by a written agreement between him and the arbitral tribunal. Further, the arbitral tribunal is entitled to appear and be heard when an application is made under sub-section (2) to Section

39. In other words, where there is a written agreement between the arbitral tribunal and a party on the aspect of the payable fee, the party cannot file any application under sub-section (3) to Section 39 of the A&C Act. This is significant as it bars and prohibits a party to challenge the fee to be paid to the arbitral tribunal, once it has

35 Sub-section (3) to Section 39 expressly uses the words “the fees demanded…”, which can be contrasted with the word ‘cost’, which is a more comprehensive and includes fee. agreed to it in writing. The object and purpose is to impede such party from raising any objection to fixation of fee or costs during the course of the arbitration proceedings or after the award is made. The agreement between the parties or with the arbitral tribunal in writing as to the quantum of fee payable to the arbitral tribunal binds the parties.

29. Sub-section (3) to Section 39 of the A&C Act is ambiguous and requires interpretation to effectuate the legislative object and intent. Sub-sections (1) and (2) to Section 39, as noticed, particularly deal with cases where the arbitral tribunal does not deliver the award and claims a lien for the unpaid costs of arbitration, in which event the aggrieved party can move an application for an order directing the arbitral tribunal to deliver the award to the applicant. Such party is required to make payment into the court of the costs demanded, whereupon the court conducts an inquiry, if any, as it thinks fit and thereupon passes an order as to the money to be paid from the amount deposited with the arbitral tribunal towards costs. The amount determined by the court should be reasonable. Balance money, if any, is to be refunded to the applicant. Sub-section (3), on the other hand, empowers ‘any party’ to move an application before the court under sub-section (2), provided the ‘fee’ demanded has not been fixed under a written agreement between him and the arbitral tribunal. In my opinion, sub-section (3) to Section 39 of the A&C Act confers a right on ‘any party’ to move to the court if he has discontent with the ‘fee’ fixed by the arbitral tribunal, unless he has already agreed to the ‘fee’ in a written agreement. Sub-section (3) is, therefore, independent and will apply even in situations not covered by sub-section (2), where the arbitral tribunal refuses to deliver the award to the applicant, except on payment of costs as demanded. No doubt, sub-section (3) to Section 39 refers to subsection (2) thereof, but the said reference is in the context of the inquiry which the court has to conduct to determine the reasonable quantum of the ‘fee’ that should be paid/is payable to the arbitral tribunal. In terms of sub-section (3) to Section 39, the arbitral tribunal, in such event, is entitled to appear and be heard on such application. The above interpretation should be accepted for two reasons: (a) sub-section (3) to Section 39 is an independent provision and cannot be treated as a superfluous or redundant provision applicable in circumstances where sub-sections (1) and (2) to Section 39 are applicable; and (b) it would effectuate the legislative intent and object to ensure that any party can approach the court in case there is a dispute with regard to fixation of ‘fee’ by the arbitral tribunal before an award is made. I do not find any good ground and reason to hold that the legislative intent is to prevent a party from approaching the court on ‘fee fixation’ by the arbitrator/tribunal till an award is made. This power/right of any party to approach the court against the ‘fee fixation’ by the arbitral tribunal is notwithstanding Section 38 of the A&C Act, for the simple reason that a party may feel aggrieved and may not want to participate in the arbitration proceedings for want of high costs which it can ill-afford to pay or would be compelled to pay in spite of its weak financial condition, as failure to pay the ‘fee’ to the arbitral tribunal may have negative consequences.

30. Sub-section (4) to Section 39 empowers the court to make such orders as it thinks fit respecting the costs of arbitration where a question arises respecting such costs and the arbitral award contains no sufficient provision concerning them. The power conferred under sub-section (4) to Section 39 is, therefore, wide and can even apply post the award, when the award itself contains no sufficient direction concerning the costs. Thus, in my opinion, sub-sections (2) and (3) to Section 39 are independent provisions, and the latter sub-section can be invoked whenever a party does not agree to the ‘fee’ fixed by the arbitral tribunal in a situation where the ‘fee’ is not fixed by a written agreement. Section 39(3) applies when both parties or one of the parties does not agree to the ‘fee’ fixed by the arbitral tribunal. What is ‘fair and reasonable fee’?

31. I have held that in the absence of any agreement or court order, the arbitral tribunal is entitled to fix ‘fair and reasonable remuneration’. Fixation of fee by an arbitrator is a delicate matter as he is then determining the fee which he is entitled to command having regard to: (i) complexity of the disputes; (ii) difficulty or novelty of the questions involved; (iii) the skill, specialized knowledge and responsibility of the arbitral tribunal; (iv) number and importance of documents to be studied; (v) value of the property involved or the amount or the sum in issue; and (vi) importance of the dispute to the parties.36 Professor Sundra Rajoo37 has observed that experienced and qualified arbitrators are accustomed to receiving fees at least equivalent to the upper end of the fee charged for their profession in their home jurisdiction. If the fee structure is too low, it may be difficult to procure the services of appropriately qualified arbitrators. Even if they do, they may not be willing to dictate the amount of time required to resolve the case. Therefore, the arbitrators must openly, and in a transparent manner, state the fee that they would like to charge so as to avoid embarrassing allegations and disagreements. This should be done before

37 Datuk Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (Second Edition), 2016. acceptance of appointment or at the very commencement of the arbitration process. The arbitrators are conscious of the role they perform as adjudicators, which is very different from and cannot be equated with advocates. While it is possible to choose and change an advocate keeping in view one’s pocket, an arbitrator once appointed stands on a different footing. When an arbitral tribunal has been duly constituted, either party, irrespective of the fact whether they can afford the fee or not, is unlikely to displease the arbitral tribunal stating that the fee fixed is not reasonable.38 At the same-time, any challenge to the arbitrator’s fee by those who are willingly paying similar professional fee to those who argue for them before the arbitrator would be discordant.39 To avoid any controversy and litigation, the fee structure fixed in the Fourth Schedule, or by the respective High Courts, when adopted by the arbitral tribunal, in my opinion should be considered as ‘fair and reasonable’. The court would not permit a party to question the fee if it is in terms of the Fourth Schedule, or the rules framed by the High Court. I, therefore, albeit for different grounds and reasons,

38 The high fee charged by senior advocates has been the subject matter of several articles, including the write-up ‘India’s Grand Advocates: A Legal Elite Flourishing in the Era of Globalization’, by Marc Galanter and Nick Robinson, published by the Harvard Law School, and ‘Litigation Expenses: High Cost of Justice’, by Usha Rani Das. The latter article, in fact, refers to several quotations by leading advocates who have acknowledged the problem.

39 High cost of litigation has grave implications and consequences, a concern which must engage the attention of the senior members of the Bar. concur with the observations made in paragraph 105 by my brother D.Y. Chandrachud, J. Situation post enforcement of Act No. 33 of 2019: Effect of the proviso to sub-section (3A) to Section 11 of the Arbitration and Conciliation Act, 1996.

32. Sub-section (3A) to Section 11 states that the Supreme Court and the High Courts shall have the power to designate arbitral institutions from time to time, which institutions have been graded by the Council under Section 43-I of the A&C Act. In the absence of any designation and gradation, the sub-section (3A) to Section 11 is not effectively and de-facto enforced. However, the first proviso would be applicable as it applies in respect of those High Courts’ jurisdiction where no graded arbitral institution is available. In such cases, the Chief Justice of the concerned High Court may maintain a panel of arbitrators in discharging the functions and duties of an arbitral institution. Further, reference to the arbitrator is deemed to be an arbitral institution for the purpose of Section 11 and the arbitrator is entitled to such fee as the rates specify in the Fourth Schedule. In other words, the Fourth Schedule is binding. Sub-section (14) to Section 11 states that the arbitral institution shall determine the fee of the arbitral tribunal and the manner of payment to the arbitral tribunal, subject to the rates specified in the Fourth Schedule. When we read the first proviso to sub-section (3A) to Section 11 and sub-section (14) to Section 11 together and in a harmonious manner, it is lucid that the rate of fee specified in the Fourth Schedule is obligatory. The expression ‘the rate’ specified in the Fourth Schedule refers to the fee mentioned in the Forth Schedule and Section 11(14), when it uses the expression “subject to the Fourth Schedule”, it requires that the fee cannot exceed the fee fixed in the schedule, albeit may be lower than the figure mentioned in the schedule.

33. Therefore, post enforcement of Act No. 33 of 2019 in terms of the proviso to sub-section (3A) to Section 11, which applies to ad hoc arbitrations, the fee structure fixed by the Fourth Schedule is imperative and binding. In the case of institutional arbitrations, the fee structure should be fixed in terms of the Fourth Schedule. However, both sub-sections (3A) and (14) to Section 11 of the A&C Act do not bar the arbitral tribunal, or the arbitral institution, from fixing fee which is lower than the Fourth Schedule. Power of the arbitral tribunal to direct advance deposit of costs, including supplementary costs, under Section 38 of the Arbitration and Conciliation Act, 1996:

34. I am conscious that the aforesaid determination on the remuneration/ fee payable to the arbitral tribunal may lead to difficulty, especially in cases where one party deliberately delays and prolongs the proceedings, as a result of which, a number of hearings are required to be held. In such situations, the arbitral tribunal is entitled to take recourse to Section 38 of the A&C Act and call upon the party to make supplementary deposits in the form of costs of arbitration, which, while not including any ‘supplementary’ fee payable to the arbitral tribunal, would mean the ‘cost incurred by the parties’ payable in terms of Section 31A of the A&C Act. Of course, the deposit would finally abide by the directions given in the award on payment of costs. The power and authority given to the arbitral tribunal to direct the parties or a party to make advance deposit of costs, including supplementary costs, remains, and has not been limited or obliterated by Act No. 33 of 2019. Summary

35. It will now be appropriate to summarize the legal position as under: (a) The arbitral tribunal is bound by the fee or remuneration fixed by the parties in the arbitration agreement, or by mutual consent, whether before or after the disputes have arisen. (b) Where the court refers disputes to an arbitral tribunal, in the absence of any agreement between the parties fixing the fee payable to the arbitral tribunal, it should fix the fee so payable. The fee fixed by the court is binding on the arbitral tribunal.

(c) It is desirable that the parties/court should ascertain the fee structure from the prospective arbitrators before an arbitrator is nominated/appointed.

(d) In the absence of a written agreement or a court order fixing the fee of the arbitral tribunal, the arbitral tribunal is entitled to ‘fair and reasonable fee’, which should be done in a transparent manner and in consultation with the parties. This exercise should be undertaken at the initial/preliminary stage. However, lack of consensus, would not bar an arbitral tribunal from fixing ‘fair and reasonable fee’. An aggrieved party would be entitled to question the fee fixed by the arbitral tribunal in terms of Section 39 of the A&C Act. On a challenge being raised, the court would examine the question of reasonableness of fee with reference to the factors stated above and in particular with reference to the Fourth Schedule of the A&C Act. The fee structure mentioned in the Fourth Schedule or by the respective High Courts would be per se treated and regarded as ‘fair and reasonable fee’. (e) Fee once fixed cannot be increased or enhanced except with the consent of all the parties or by an order of the court. (f) Post the enactment and enforcement of Act No. 33 of 2019, and in terms of the first proviso to sub-section (3A) of Section 11 of the A&C Act, the arbitral tribunal is entitled to the fee at the rate specified in the Fourth Schedule. Consequently, the arbitral tribunal is not entitled to deviate and fix a higher fee. Similarly, arbitral institutions, in terms of Section 11(14), are bound to follow the fee structure mentioned in the Fourth Schedule. However, sub-sections (3A) and (14) of Section 11 do not bar or prohibit the ad hoc arbitral tribunal or the arbitral institution to charge arbitration fee which is less or lower than what is stipulated in the Fourth Schedule. Sub-sections (3A) and (14) of Section 11 are binding on the parties and the arbitral tribunal. Interpretation of the Fourth Schedule

36. The Fourth Schedule was introduced vide Act No. 3 of 2016 with retrospective effect from 23rd October 2015 and reads: “ THE FOURTH

1. UptoRs.5,00,000 Rs.45,000

2. Above Rs. 5,00,000 and uptoRs.20,00,000 Rs.45,000plus[3].5percent.ofthe claim amount over and above Rs. 5,00,000

3. Above Rs. 20,00,000 and uptoRs.1,00,00,000 Rs. 97,500 plus 3 per cent. of the claim amount over and above Rs. 20,00,000

4. Above Rs. 1,00,00,000 and uptoRs.10,00,00,000 Rs.3,37,500plus1percent.ofthe claim amount over and above Rs. 1,00,00,000

5. Above Rs. 10,00,00,000 anduptoRs.20,00,00,000 Rs.12,37,500plus0.75percent.of the claim amount over and above Rs.1,00,00,000

6. AboveRs.20,00,00,000 Rs. 19,87,500 plus 0.[5] per cent. of the claim amount over and above Rs. 20,00,00,000 with a ceiling of Rs.30,00,000 The Fourth Schedule, post substitution by Act No. 33 of 2019, refers to Section 11(3A), instead Section 11(14) of the A&C Act.

37. The three aspects of the Fourth Schedule which require interpretation are: (a) whether the expression ‘sum in dispute’ refers to the aggregate of the claim and the counter-claim, or the fee payable as per the schedule has to be separately computed for the claim(s) and counter-claim(s) without aggregating them; (b) do the words in Serial No.6 - “Rs.19,87,500/- plus 0.5% of the claim amount over and above Rs.20,00,000/- with the ceiling of Rs.30,00,000/-” mean Rs.19,87,500/- plus 0.5% of the total claims, subject to the ceiling of Rs.30,00,000/-, or the maximum fee payable is Rs.30,00,000/- plus Rs.19,87,500/-, that is, Rs.49,87,500/-; and (c) whether the fee prescribed in the Fourth Schedule is cumulative for the three-member arbitral tribunal, to be shared/divided between the three members, or the fee prescribed is for each individual member of the three member arbitral tribunal. Interpretation of the expression “sum in dispute”

38. The expression “sum in dispute” does not refer to a claim or a counter-claim. The word ‘sum’ means the whole, aggregate or the total amount. Thus, the legislature has deliberately and consciously avoided a separate reference to the amounts stated either in the claim or the counter-claim. The “sum in dispute” refers to the total amount subject matter before the arbitral tribunal, which is to be adjudicated upon. Thus, it would be correct to state that the language and the words “sum in dispute” are an intended and a calculated departure, as the words ‘claim’ and ‘counter-claim’ do find specific mention in Section 23(2A), which states that the respondent in support of his case may also submit a counter-claim or plead a set-off which shall be adjudicated by the arbitral tribunal if such counter-claim or set-off falls within the scope of the arbitration agreement. 40 Similarly, Section 2(9) states that for the purpose of Part 1, except in the case of Section 25(a) and Section 32(2)(a), reference to a claim shall also apply to a counter-claim, and where it refers to defence, it shall also apply to defence to that

40 Inserted vide Act No. 3 of 2016 with retrospective effect from 23rd October 2015. Even before the insertion, the position in law was the same. counter-claim. Likewise, proviso to Section 38(1)41 states that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix a separate amount of deposit for the claim or the counter-claim. Notwithstanding the provisions, the legislature, while enacting the Fourth Schedule, though cognizant of the difference between claim and counter claim/set-off, eschewed any separate reference to the amount prayed in the claim(s) or counter-claim(s)/set-off. The Fourth Schedule does not treat them as separate for computing the fee payable to the arbitral tribunal. On the other hand, the expression “sum in dispute” before the arbitral tribunal has been made the basis for computation of fee.

39. The legislature is presumed to know the prior construction of the terms in the original act, and an amendment substituting the new term or phrase for the one previously construed indicates that the judicial or executive construction of the former terms or phrases did not correspond with the legislative intent and a different interpretation must be given to the new term or phrase. Thus, in 41 38. Deposits.– (1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as the case may be, as an advance for the costs referred to in sub-section (8) of section 31, where it expects will be incurred in respect of the claim submitted to it; Provided that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix separate amount of deposit for the claim and counter-claim. xx xx xx interpreting an amendatory act, there is a presumption of change in legal rights. A change in phraseology creates a presumption that the legislature intended a change in meaning. Conversely, when words used in the original statute are used in the reenacted/amendatory act, they should be presumed to be used in the same sense in the new statute or amendatory act.42

40. Further, while interpreting a provision in an amendatory act, an additional principle of construction is to examine the object of the amendatory act to determine the legislative intent. For this purpose, the court should give effect to every word, and in case of ambiguity, refer to the surrounding circumstances in the form of legislative proceedings and reports of the legislative committees concerning the amendments.43 Statutes in pari materia may also be resorted to for assistance.44

41. In the context of the Fourth Schedule, for clarification and affirmation, it would be most appropriate if reference is made to the 246th Report of the Law Commission of India. The Law Commission, while recommending a model schedule of fee45, had

42 Earl T. Crawford, The Construction of Statutes, 3rd Edition, pp. 617 and 619 43 J. G. Sutherland, Statutes and Statutory Construction, 3rd Edition, Vol.3, pp. 410-412

44 Earl T. Crawford, The Construction of Statutes, 3rd Edition, pp. 616-617 “10. One of the main complaints against arbitration in India, especially ad hoc arbitration, is the high costs associated with the same – including the arbitrary, unilateral and disproportionate fixation of fees by several arbitrators. The commission stated that the schedule was based on the fee schedule set by the Delhi High Court International Arbitration Centre. The schedule in the Delhi International Arbitration Centre (Administrative Cost & Arbitrators’ Fees) Rules uses the identical expression, “sum in dispute”, and provides cumulative fee of both the claim and the counter-claim. Accordingly, the expression “sum in dispute” borrowed from the Delhi High Court International Arbitration Centre, should be given an identical construction as referring to the entire amount or the sum total of the disputes which are subject matter of the arbitration, that is, the disputes raised in the claim petition as well as the counter-claim. Separate fee for the claim and counterclaim/ set off is not envisaged and postulated.

42. One of the objectives of the A&C Act is to ensure cohesion of the remedy. Sections 2(9) and 23(2-A) incorporate the rule against fragmentation of remedies and nothing more. This is a marked and deliberate departure from the earlier Arbitration Act, 1940 wherein believes that if arbitration is really to become a cost-effective solution for dispute resolution in the domestic context, there should be some mechanism to rationalize the fee structure for arbitrations.

11. In order to provide a workable solution to this problem, the Commission has recommended a model schedule of fees and has empowered the High Court to frame appropriate rules for fixation of fees for arbitrators and for which purpose it may take the said model schedule of fees into account. The model schedule of fees are based on the fee schedule set by the Delhi High Court International Arbitration Centre, which are over 5 years old, and which have been suitably revised. The schedule of fees would require regular updating, and must be reviewed every 3-4 years to ensure that they continue to stay realistic.” an arbitrator’s jurisdiction was confined to the disputes referred to him by way of an order of reference. The arbitrator could not enlarge the scope of reference and entertain fresh claims or even a counterclaim/set-off without a fresh order of reference.46

43. The argument that a counter-claim and set-off should be treated as separate, as adjudication of the claim and counter-claim are distinct and treated differently under the A&C Act and the Code, and entail separate adjudication, though an attractive argument at the first blush, overlooks the legal position that the counter-claim and setoff raised before an arbitral tribunal must fall within the scope of the arbitration agreement, which is the subject matter and basis of any claim in the arbitration proceedings. A counter-claim can only be filed before an arbitral tribunal, if it is covered and governed by the arbitration agreement relied upon by the claimant, and not in respect of the cause of action not covered by the subject matter of the arbitration agreement. Necessarily, therefore, there would be a connect between the claim and the counter-claim/set-off. A set-off is a defence to the action and claims made by the claimant, which may be both legal and equitable. Equitable set-offs are not recognised under Order VIII Rule 6 of the Code but are permitted

46 See Section 20 of the Arbitration Act, 1940. Refer to Orissa Mining Corporation Ltd. v. Prannath, to be raised by the defendant as the Code is not exhaustive. However, equitable set-offs must arise out of the same transaction or one that is so connected that they may be looked upon as part of the same transaction. Counter-claim, on the other hand, is regarded as a cross-action. When a counter-claim is not connected with the claim in the suit, the Court, in exercise of power under Rule 6(c) to Order VIII of the Code, can direct that such counter-claim may be excluded and tried as an independent suit.

44. Arbitral tribunal derives its jurisdiction from Section 7 of the A&C Act, which extends to “all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”. As stated above, the A&C Act does not contemplate separate jurisdictions for arbitral tribunal on the basis of number or nature of claims, and, therefore, does not afford to the tribunal the liberty to treat claim and counter-claim separately. Commentary on the UNCITRAL Model Law on International Commercial Arbitration47 observes that when two or more parties have entered into an agreement to arbitrate, any of them normally has a power to commence arbitral proceedings. It is a common practice that more than one party put forth their claims

47 Authored by Ilias Bantekas, Pietro Ortolani, Shahla Ali, Manuel A. Gomez and Michael Polkinghorne; published by the Cambridge University Press. in same arbitration. The labels that are appended to these claims presented by opposing parties, namely, the claim or counter-claim, are nothing more than an acknowledgement of the chronological order in which actions have been brought in the arbitration, and they do not entail any type of structural differentiation. It is for this reason that clarification is offered by Article 2(f) of the UNCITRAL Model Law which states that claim also applies to counter-claim and whenever it refers to defence, it also applies to a defence to a counter-claim. As noticed above, these facets of the UNCITRAL Model Law have been incorporated in the A&C Act. A reading of the rules published by the High Courts of Delhi, Bombay, Madhya Pradesh, Karnataka, Rajasthan and Madras indicate that they, in unison, have stated that the sum in dispute or the arbitrator’s fee shall be calculated on the aggregate of the claim and the counterclaim. The fee is not to be calculated independently, first with reference to the claim and then the counter-claim. This is also postulated in the rules framed by the Indian Council of Arbitration Rules of Domestic Commercial Arbitration, Mumbai Centre for International Arbitration, and Construction Industry Arbitration Council. Our attention has also been drawn to the rules framed by the Singapore International Arbitration Centre, Hong Kong International Arbitration Centre, Stockholm Chamber of Commerce Arbitration, and European Court of Arbitration, which stipulate that for the purpose of fee, the amount in dispute would be the total of the claim and the counter-claim, that is, the aggregate value of all the claims, counter-claims and set-offs. If we have to accept the contra-stand, the rules framed by the several High Courts, as noted above, would have to be re-drawn, and the unsettlement would cause confusion, especially in pending matters. This must be avoided.

45. We have interpreted Section 38 of the A&C Act. Suffice at this stage is to again observe that the proviso to sub-section (1) to Section 38 applies only when the arbitral tribunal is entitled to a separate fee for the claim and counter-claim. It would not apply where the Fourth Schedule applies, in which event the arbitral tribunal is entitled to the fee as per the schedule, which is the cumulative figure on adding the claims and the counter-claims. Notably, sub-section (2) to Section 38 states that the deposit in terms of sub-section (1) shall be payable in equal share by the parties. Section 38 is a part of the original enactment, whereas the Fourth Schedule was inserted vide Act No. 3 of 2016. While we have to harmoniously construe Section 38 with the Fourth Schedule, we must give effect to the legislative intent in furtherance of the object and purpose of introducing the Fourth Schedule, an aspect I have adverted to earlier. This Court in Aphali Pharmaceuticals Ltd. v. State of Maharashtra & Ors.48 had referred to the Schedule to the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 and observed that a schedule is a mere question of drafting and can be used to construe the provisions in the body of the Act, albeit the expressions in the schedule cannot control or prevail against the express enactment, and in case of any inconsistency between the schedule and the enactment, the enactment shall prevail. These observations would not be applicable in the context of the present case, as the Fourth Schedule is not in conflict with the express enactment. The Fourth Schedule prescribes the quantum/scale of fee, whereas Section 38 does not prescribe the quantum or the formula for computing the fee. Section 38 and the Fourth Schedule can be construed harmoniously without one contradicting or being inconsistent with the other. A statute must be read as a whole and a schedule is as much a part of the statute as any other provision.

46. High cost of arbitration is one of the prime reasons for the reluctance of the litigants to accept arbitration as an alternative to court litigation. Arbitration, as a process of justice delivery, is substitutional in character, would remain unattractive unless it is affordable and a lower cost alternative to litigation. This being the objective of the scheme of the provisions of the A&C Act in general, and Sections 2(1)(d), 2(9), 7, 8, 9, 11, 17 and 23, it would be appropriate to hold that arbitral tribunal, as statutorily conceived, is to examine and adjudicate all disputes arising from the contract and, therefore, as observed earlier, the Fourth Schedule mindfully uses the expression “sum in dispute”. Any contrary interpretation conceiving separate fee for claim and counter-claim, which, it is apparent, would substantially enhance the cost of arbitration, and dissuade the litigants from resorting to arbitration. Enhancement in cost of arbitration would be across the board even for small cases, when claims/counter-claims are less than Rs.5,00,000/-, in which case the fee payable to the arbitrator may, in a given case, double; to big amount arbitrations with claims and counter-claims of over Rs.20,00,00,000/-, in which case the highest fee payable to the arbitral tribunal under Serial No. 6 could increase from Rs.90,00,000/- to Rs.1,80,00,000/- in case of three member tribunal, and from Rs.40,00,000/- to Rs.80,00,000/- in case of a sole member tribunal. This, according to me, is not postulated and the legislative intent in enacting the Fourth Schedule. Serial No. 6 in the Fourth Schedule is a compromise between ad valorem method, where the arbitrators’ fee is assessed as a percentage of the total amount in dispute, including any counter-claim, and the fixed fee method, as it prescribes the fee-cap when the amounts of the claim and the counter-claim exceed Rs.20,00,00,000/- (rupees twenty crores only).49

47. For the reasons aforesaid, I would hold that the heading “sum in dispute” will mean the aggregate of all the amounts in dispute without any bifurcation and separate application of the fee schedule with reference to the amount subject matter of the claim(s), and the amount subject matter of the counter-claim(s).

48. The aforesaid dictum would not apply in cases where there is an umbrella arbitration clause, which applies to different/distinct contracts, in which case each contract would be treated as a separate arbitration proceeding viz. the claim, counter-claim and set-off relating to that contract. Interpretation of Serial No. 6 of the Fourth Schedule

49. Serial No. 6 of the Fourth Schedule has been interpreted as having incorporated a cap or ceiling of Rs.30,00,000/-. However, in some cases, it has been held that the fee specified of Rs.19,87,500/- plus 0.5% of the claim amount, over and above Rs.20,00,00,000/- with

49 Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (Second Edition), 2016, has referred to four different types of remuneration agreements, namely, fixed fee method, time spent method, brief fee and daily refresher method, and ad valorem fee method. a ceiling fee of Rs.30,00,000/-, means that the ceiling of Rs.30,00,000/- is not the cumulative ceiling. In other words, Serial No. 6 specifies the ceiling of Rs.19,87,500/- plus Rs.30,00,000/-, which comes to Rs.49,87,500/-.

50. A perusal of the graded scale manifest from the serial numbers mentioned in the Fourth Schedule, along with the model fee prescribed therein, exposits the legislative intent. The scales prescribed in the schedule have to be read in entirety and serial NO. 6 cannot be read in isolation. The Serial Numbers 1 to 5, which have reference to the sum in dispute, specify the model fee which in respect of serial numbers 2, 3, 4 and 5, refers to the highest amount payable in respect of the preceding serial number and then states the additional (plus) amount payable by the specific percentage of the claim amount over and above the amount specified in the earlier serial number. For claims between Rs.10,00,00,000/- to Rs.20,00,00,000/-, which is applicable to Serial Number 5, an arbitral tribunal is entitled to an arbitral fee of Rs.12,35,500/- plus 0.75% over and above Rs.10,00,00,000/-. This means the maximum fee payable under Serial Number 5, that is, when the sum in dispute is below Rs.20,00,00,000/-, is Rs.19,87,500/-. Serial No. 6 deals with sum in dispute above Rs.20,00,00,000/- without any higher or upper limit stipulation. It stipulates that arbitral tribunal is entitled to the fee of Rs. 19,87,500/- which is the highest fee payable in Serial No.5, plus 0.5% when the amount in dispute exceeds Rs.20,00,00,000/-. If this is so, and undoubtedly it is so, then the reasoning predicated on the legislative intent, is that, there is an overall ceiling of Rs.30,00,000/-. Contrary contention that the ceiling stipulated is Rs.19,87,500/- plus Rs.30,00,000/- must be rejected. The legislature was clearly aware that Serial No. 6 would apply to all arbitrations where the sum in dispute exceeds Rs.20,00,00,000/-. Serial No. 6, in its plain and simple language, which when read as it states and speaks, specifies that for claims above Rs.20,00,00,000/-, in addition to Rs.19,87,500/-, the arbitral tribunal will be entitled to fee at the rate of 0.5% of the claim amount above Rs.20,00,00,000/-, but the total fee is subject to ceiling of Rs.30,00,000/-. The expression “with the ceiling of Rs.30,00,000/-” would apply when claims are above Rs.20,00,00,000/-. The ceiling of Rs.30,00,000/- is not with reference to 0.5% of the claim amount over and above Rs.20,00,00,000/-. To read it otherwise would be overstretching the language of Serial No.6 and adding words to it.

51. Before us, reference was made to the absence of the punctuation mark in the form of a comma after Rs.20,00,00,000/- which is to be found in the Hindi language notification. Absence of the comma in the English language version would not make any difference as the intent of the legislature, in my opinion, is to put a ceiling of Rs.30,00,000/-. The intent is not to fix ceiling of Rs.30,00,000/- in addition to the fee of Rs.19,87,500/-. Whether the Fourth Schedule prescribes fee for individual members or the whole tribunal?

52. The last aspect relating to the interpretation of the Fourth Schedule is debatable as both views are plausible. The expression ‘arbitral tribunal’, as defined in Section 2(1)(d) means a sole arbitrator or a panel of arbitrators. Section 10 of the A&C Act states that the parties are free to determine the number of arbitrators, provided the number shall not be an even number. Failing such determination, the arbitral tribunal shall consist of the sole member. Thus, by default, the expression ‘arbitral tribunal’ refers to a sole member. Section 11, which relates to appointment of arbitrators, vide subsection (2), states that the parties are free to agree on a procedure for appointment of an arbitrator or arbitrators. As per sub-section (3), failing such an agreement in an arbitration with three arbitrators, each party shall appoint one arbitrator and the two arbitrators so appointed shall appoint the third arbitrator, who shall act as the presiding arbitrator. If we accept Section 10 as the default rule, it is possible to interpret that the model fee prescribed in the Fourth Schedule is for one-member arbitral tribunal. This interpretation, however, seems to be at variance with the wordings of the appended Note to the Fourth Schedule which applies in the event the arbitral tribunal is a sole arbitrator. Wordings in the note-‘sole arbitrator shall be entitled to additional amount of twenty-five per cent on the fee payable as per above’, can also be read to make the other interpretation more acceptable. As the expression ‘arbitral tribunal’ can refer to a three member or sole member arbitral tribunal, the Note, it can be argued, affirms the interpretation that the amounts mentioned in the Fourth Schedule refer to the fee payable to each member of the three member arbitral tribunal, and not cumulative fee which is to be divided amongst the three member arbitral tribunal.

53. I would respectfully prefer the interpretation placed by D.Y. Chandrachud J. In other words, the model fee mentioned in the third column of the Fourth Schedule would be the fee payable to each member of the arbitral tribunal, and in cases where the arbitral tribunal consists of a sole arbitrator, he shall be entitled to an additional amount of 25% above the amount specified in the model fee. It is apparent that this interpretation has been accepted and followed by several arbitral tribunals since introduction of the Fourth Schedule. This interpretation has gained acceptance. To interpret it differently would lead to confusion and chaos which must be avoided, even if the other interpretation is plausible.

54. However, in view of the above interpretation, the Fourth Schedule does require modification and moderation. For example, where the sum in dispute is Rs.5,00,000/-, in case of the sole arbitrator, the amount payable to him would be Rs.56,250/-, that is, Rs.45,000/plus 25% (Rs.11,250) of Rs.45,000/-. In case of an arbitral tribunal of three arbitrators, the fee payable would be Rs.1,50,000/-. This fee is too high and would be unacceptable to most of the litigants as they would be liable to pay minimum arbitration fee of nearly 11% in case of sole arbitrator and nearly 30% in case of an arbitral tribunal consisting of three members. Similar may be the situation in case of claims falling under Serial Nos. 2 and 3. A high fee payout at serial numbers 1 to 3 as framed by the legislature makes arbitration unaffordable and beyond reach for a common litigant. Public perception that arbitration is costly and for moneyed litigants must be dispelled, if arbitration is to gain mass acceptance as the preferred alternative. High fee structure denies access to arbitration. In fact, the above figures would suggest that the fee specified in the Fourth Schedule is the cumulative fee to be divided between the three-member arbitral tribunal. Nevertheless, for the sake of certainty and to avoid confusion, it may not be advisable to overturn the settled and accepted position. For example, the fee schedule of the Delhi High Court International Arbitration Center, as amended with effect from 1st July 2018, clearly states that the schedule of fee mentioned in the table is for each arbitrator in a three-member tribunal, and not the cumulative fee to be divided amongst the three-member arbitral tribunal.

55. Section 11A states that the Central Government, when satisfied that it is necessary or expedient, can amend the Fourth Schedule from time to time, which exercise has not been undertaken.50 Final directions

56. I respectfully agree with the findings recorded by brother D.Y. Chandrachud, J. under the Heading G-2 Directions, in paragraph 158(i), in respect of Arbitration Petition (Civil) No. 5 of 2022, whereby in exercise of the power under Article 142 of the Constitution of India, direction for constitution of a new arbitral tribunal in accordance with the arbitration agreement have been issued to ensure that the arbitration proceedings are conducted without any discomfort and rancour, which could derail the proceedings.

50 Periodical updation, without repeated legislation or notifications, can be achieved by yearly increase based or indexed on appropriate price index, as in case of Dearness Allowance.

57. In view of my findings on the first aspect, it will be appropriate and proper in other cases to hear the learned counsel for the parties individually to examine-whether or not interference is required in terms of sub-section (3) to Section 39 of the A&C Act. In a given matter, an order of remit may be required for fresh decision by the High Court. Accordingly, I would list each appeal/petition for hearing and appropriate orders and decision ....................................... J. (SANJIV KHANNA) NEW DELHI; AUGUST 30, 2022.