Alternative Dispute Resolution mechanism (commonly known as ADR mechanism”) has prevailed in India since its medieval period. While the panchayat system i.e., a form of ADR mechanism, was predominant in the country for being cheap and easily accessible with liberal procedural laws, the hierarchy of court system propounded by the Britishers has changed the landscape of justice delivery system in India. So has the costs and time to access and pursue the litigation, which has changed and escalated exorbitantly over the period of time.

To tackle the above, courts in the early 2000s, started promoting the settling of disputes through the ADR mechanism with a special focus on Arbitration. However, legal costs have played a great role in determining the viability and practicability of the ADR mechanism. The savings of a party in avoiding payment of court fees is usually offset by the other costs of arbitration which include fees and expenses of the arbitrator(s), costs of venue/institution (in case of institutional arbitration), cost of lawyers and arbitration, etc.

The litigants as well as other stakeholders often complained about the high costs associated with the arbitrations in India. The arbitrary, unilateral and disproportionate fixation of fees by arbitrators has always been a subject to criticism by jurists and courts, in particular by the Hon’ble Supreme Court in Union of India v. Singh Builders Syndicate [1] (“UOI case”), wherein it was noted that “when an arbitrator is appointed by a court without indicating fees, either both parties or at least one party is at a disadvantage”. In these circumstances, the introduction of the Fourth Schedule (“Fourth Schedule”) through the Arbitration and Conciliation Amendment, Act 2015 (“2015 Act”) has relieved parties to a great extent by outlining the arbitral fees.

CONSPECTUS TO THE FOURTH SCHEDULE:

The Law Commission of India in its 246th Report [2] recommended a model schedule of fees with powers of the High Court to frame appropriate rules for fixation of fees for arbitrators. Basis the above recommendation, the Parliament introduced the Fourth Schedule with an intent to cure the mischief of the exorbitant fees of the arbitrators, especially in ad hoc arbitrations. There is also no doubt that the purpose and intent of setting/introducing a ceiling limit with respect to the arbitral fees would primarily be to rationalise the fee structure, so as to ensure that the costs of arbitral proceedings are transparent and there is a cost-effective solution for dispute resolution.

That said, the Supreme Court in National Highway Authority of India v. Gammon Engineers and Contractors Private Limited [3] has held that Fourth Schedule is not mandatory in determining the fee and the Arbitral Tribunal will be bound by the fee fixed as per the agreement between the parties. Having said that, the Fourth Schedule has run into a conundrum concerning its applicability and interpretation of the term ‘Sum In dispute” wherever the said schedule is made applicable to arbitral proceedings. Even though the issue of applicability of the Fourth Schedule was slightly clarified by the Delhi High Court [4], what constitutes a ‘sum in dispute’ is still subject matter of many litigations before various High Courts and discussion within various academicians as well as judges.

 ‘Sum in dispute’ or ‘sum of dispute’?

As pointed above, since the coming into force of the Fourth Schedule, the term ‘sum in dispute’ has fallen for consideration and interpretation before various High Courts. The Delhi High Court in the Delhi State Industrial Infrastructure Development Corporation Limited v. Bawana Infra Development Private Limited [5]  (“DSIIDC case”), after considering the Rules of several arbitration institutions as well as the judgment of the Supreme Court in UOI case, held that "sum in dispute" referred to in the Fourth Schedule of the Act shall include both claims and counter-claims, and hence, no separate fee is payable on counter-claims. The Court also held that if the legislature intended to have the Arbitral Tribunal exceed the ceiling limit by charging separate Arbitrators' fee and counter-claim amount(s), it would have provided so in the Fourth Schedule of the Act. Since then, various High Courts [6] have reiterated the interpretation drawn in the DSIIDC case.

In contrast to the above, the Delhi High Court has taken divergent view in NTPC Limited v. Afcons RN Shetty & Co Private Limited [7] (“NTPC case”), M/s Chandok Machineries v. M/s. S.N. Sunderson & Co [8] (“Chandok Machineries”) and Rail Vikas Nigam v. Simplex Infrastructure Limited [9] (“Rail Vikas case”), where it has been held that while calculating the ceiling set forth in the Fourth Schedule to the Act, the claims and counter-claims must be calculated separately.

Very recently, the division bench of the Delhi High Court in Jivanlal Joitaram Patel v. National Highways Authority of India, (“NHAI case”) [10] have aptly summed up the dispute at hand. While approving the ratio in DSIIDC case and holding in unequivocal terms that the term ‘sum in dispute’ has to be interpreted so as to include the aggregate value of the claims as well as counterclaims, the Court also carved an exception to the applicability of Section 31(8) and Section 31A of the Act wherein it held that “Sections 31(8) and Section 31A would have no application where the fees of the arbitral tribunal has been fixed by agreement between the parties, as in the case before the Supreme Court. Similarly, where the fees has been fixed by the Court in terms of 4th Schedule to the Act, as in the case at hand, Sections 38(1), 31(8) and Section 31A would have no application.”

Further, the Delhi High Court also attempted to clarify the confusion and inconsistency (if any) arising out of conflicting judgments of its coordinate benches in NTPC case, Chandok Machineries, DSIIDC case and Rail Vikas case. The Delhi High Court went on further to hold as follows:

“12. ….The said expression “sum in dispute” used in the 4th Schedule to the Act has to be given its ordinary meaning, to include the total amount of claim made by the claimant, and the total amount of counter-claim made by the respondent.

…..

19….. Judgments in M/s Chandok Machineries (supra) and NTPC (supra) were in the context of interpreting Sections 38(1) and 31A of the Act where the Arbitral Tribunal was free to fix its own fees and the fee was not fixed by the Court in terms of 4th Schedule to the Act………The judgments in M/s Chandok Machineries (supra) and NTPC (supra) cannot be resorted to for interpretation of the words “sum in dispute” as occurring in 4th Schedule to the Act. Therefore, in our view the said judgments are not applicable to the facts and circumstances of the present case.”

Even though the judgment of the Delhi High Court provides a crystal clear picture of the ‘sum in dispute’ under the Fourth Schedule, the jurisdiction of the same is limited to arbitrations and arbitral institutions with the seat in New Delhi. Further, very recently, the Delhi High Court [11], while interpreting Rule 31(2) read with Rule 37 of Indian Council of Arbitration Rules of Domestic Commercial Arbitration, held that ‘the maximum ceiling would apply with full rigour on Arbitrator's fee and administrative expenses on both claims as well as counter-claims, but independently’.

The issue now is before the Supreme Court as they are currently seized of a batch of petitions [12] pertaining to ‘fixation of fees of arbitrators’, wherein in one of the petitions [13], the Court while issuing notice expressed as under:

“The question which is involved in the present Special Leave Petition is occurring frequently and the issue is whether a separate fee is required to be paid on the counterclaim or not.”

It is clear from the above that indeed, there is a void in the Act on the actual meaning of ‘sum in dispute’ as the same has nowhere been defined in the Act. Therefore, in order to arrive at a better conclusion, it is pertinent to refer to the rules of various Domestic [14] and International [15] Arbitral Institutions wherein the term ‘sum in disputes’ for the purpose of assessment of the fees of arbitrators means ‘claims’ and ‘counterclaims’ cumulatively. The Court may also take into consideration the rationale and objective in wake of which the Fourth Schedule had been enacted.

‘Need of the Hour’: Intervention by Supreme Court:

It is obvious that the Fourth Schedule of the Act is suggestive in nature based on the court observations enumerated above. If that wasn’t the case, there would have been no need for Section 11(14) of the Act, which allows the High Courts to fix procedure for determining fees albeit after taking into account the rates listed in the Fourth Schedule. However, if the courts vis-à-vis the arbitral institutions ignore the relevancy of Fourth Schedule, the same would negate the entire objective behind the enactment of Fourth Schedule. If the said cap on arbitral fees is removed or interpreted liberally, the same may put either of the party to a disadvantage. As rightly observed by the Hon’ble Supreme Court in the UOI Case (supra) [16], if a high fee is claimed by the arbitrator and one party agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay a such high fee, is put to an embarrassing position. The party in the discomfort of paying such high fees is always faced with a situation that in case, he objects to high fee, the same may prejudice his case or create a bias in favor of the other party who has no objection to payment of the high fee. Therefore, the issue has ripened adequately to deserve the attention of the Hon’ble Supreme Court.

Authored by: Iti Agarwal, Principal Associate, DSK Legal and Praful Shukla, Associate, DSK Legal

[1] (2009) 4 SCC 523

[2] https://lawcommissionofindia.nic.in/reports/Report246.pdf

[3] 2018 SCC Online Del 10183

[4] Paschimanchal Vidyut Vitran Nigam Limited v. M/s. II & FS Engineering & Construction Company Limited, O.M.P.(MISC.)(COMM.). No. 164 of 2018, decided on 16 August 2018 (Delhi High Court)

[5] 2018 SCC OnLine Del 9241

[6] Government of Tamil Nadu, Rep. by its Superintending Engineer v. VDB Projects (P) Limited and Other, 2020 SCC OnLine Mad 15241; The State of Bihar through The Principal Secretary, v. The Bihar State Sugarcane Corporation Limited, Writ Case No. 14355 of 2019 (Patna High Court); State of UP vs GVK EMIR (UP) Private Limited and Ors, 2021 (148) ALR 145

[7] 2021 SCC OnLine Del 5588

[8] 2018 SCC OnLine Del 11000

[9] (2021) 1 RAJ 411 (Del)

[10] FAO (OS)(COMM) 70/2017, decided on 8 March 2022 (Delhi High Court)

[11] Mcnally Bharat Engineering Company Limited Versus Steel Authority of India Limited and Another, 2022 SCC Online Del 1307

[12] Rail Vikas Nigam Limited vs. Simplex Infrastructures Limited, SLP (C) No. 10358 of 2020; HCIL Adhikarya ARSS (JV) vs. Rail Vikas Nigam Limited, M.A. No. 1990/2019 in SLP (C) No. 10021 of 2017

[13] Order dated 09.09.2021 in NTPC Limited vs. Afcons R.N. Shetty and Co. Private Limited JV, SLP (C) No. 13426/2021

[14]Schedule of Fees of Mumbai Centre for International Arbitration; Schedule of Fees of Construction Industry Arbitration Council; ‘Schedule C’ of Delhi International Arbitration Centre (Administrative Cost Arbitrators’ Fees) Rules.

[15] Estimate Your Fees, 2016 of Singapore International Arbitration Centre; Schedule 3-Article 6.3 of Hong Kong International Arbitration Centre, 2013 Administered Arbitration Rules; Appendix IV, Article 2(3) of Stockholm Chamber of Commerce Arbitration Rules; Appendix 3 of European Court of Arbitration, Arbitration Rules-2015 Edition.

[16] (2009) 4 SCC 523