OIL AND NATURAL GAS CORPORATION LTD. v. AFCONS GUNANUSA JV

660 [2022]REPORTS SUPREME COURT 10 S.C.R. 660 [2022] 10 S.C.R.

(Arbitration Petition (Civil) No. 05 of 2022)

p. 661 Copy page pinpoint

GUNANUSA JV

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 – 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 – This ceiling is applicable to each individual arbitrator, and not the arbitral tribunal as a whole, where it consists of three or more arbitrators – A sole arbitrator shall be paid 25 per cent over and above this amount in accordance with the Note to the C Fourth Schedule. Arbitration Law – Concepts of costs and fees in arbitration – Distinguished. Arbitration Law – Ad hoc arbitration – Direction / guidelines issued for governing proceedings in ad hoc arbitrations. D

p. 662 Copy page pinpoint

A arbitrator(s) are determined through an agreement between the parties (of which the arbitrator(s) become aware of when they take up the assignment) or a separate agreement of the parties with the arbitrator(s). The arbitrator(s) then become bound by such contractually agreed fees; and (ii) Certain arbitration legislations give the arbitrator(s) effective power to determine B their own fees, typically when there is an absence of agreement between the parties on the subject. However, such determination of fees is subject to review by the courts who can reduce the fees if they are not reasonable. Thus, arbitrator(s) do not possess an absolute or unilateral power to determine their own fees. Parties C are involved in determining the fees of the arbitrator(s) in some form. It could be by: (i) determining the fees at the threshold in the arbitration agreement; or (ii) negotiating with the arbitrators when the dispute arises regarding the fees that are payable; or (iii) by challenging the fees determined by the tribunal before a court. [Paras 66 and 67][720-C-F] D 1.2 Party autonomy is a cardinal principle of arbitration. The arbitration agreement constitutes the foundation of the arbitral process. The arbitral tribunal is required to conduct the arbitration according to the procedure agreed by the parties. The procedure may stipulate adherence to institutional rules or ad E hoc rules or a combination of both. [Para 68][721-B] 1.3 (i) In terms of the decision of this Court in Gayatri Jhansi Roadways Ltd and the cardinal principle of party autonomy, the Fourth Schedule is not mandatory and it is open to parties by their agreement to specify the fees payable to the arbitrator(s) F or the modalities for determination of arbitrators’ fees; and (ii) Since most High Courts have not framed rules for determining arbitrators’ fees, taking into consideration Fourth Schedule of the Arbitration Act, the Fourth Schedule is by itself not mandatory on court-appointed arbitrators in the absence of rules framed by G the concerned High Court. Moreover, the Fourth Schedule is not applicable to international commercial arbitrations and arbitrations where the parties have agreed that the fees are to be determined in accordance with rules of arbitral institutions. The failure of many High Courts to notify the rules has led to a

p. 663 Copy page pinpoint

GUNANUSA JV

situation where the purpose of introducing the Fourth Schedule A and sub-Section (14) to Section 11 has been rendered nugatory, and the court-appointed arbitrator (s) are continuing to impose unilateral and arbitrary fees on parties. Such a unilateral fixation of fees goes against the principle of party autonomy which is central to the resolution of disputes through arbitration. Further, B there is no enabling provision under the Arbitration Act empowering the arbitrator(s) to unilaterally issue a binding or enforceable order regarding their fees. [Para 79][730-G-H; 731- A-D] 1.4 (i) Arbitration proceedings must be conducted expeditiously; (ii) Court interference should be minimal; and (iii) C When one or both parties, or the parties and the arbitral tribunal are unable to reach a consensus, it is open to the arbitral tribunal to charge the fee as stipulated in the Fourth Schedule, which is the model fee schedule and can be treated as binding on all. Consequently, when an arbitral tribunal fixes the fee in terms of D the Fourth Schedule, the parties should not be permitted to object the fee fixation. It is the default fee, which can be changed by mutual consensus and not otherwise. [Para 105][754-B-D] INTERPRETATION OF “SUM IN DISPUTE” IN THE FOURTH SCHEDULE E 2.1 On basis of analysis, the following principles emerge: (i) The Arbitration Act treats claims and counter-claims at par, and holds them subject to the same procedural timelines and requirements; (ii) The Arbitration Act allows the arbitral tribunal to fix a deposit of costs for claims and counter-claims separately, recognizing that they are distinct proceedings since: (a) the proceeding for adjudicating on the claim is independent of the proceeding for deciding the counter-claim; (b) distinct issues may arise before the tribunal while adjudicating on the claim and counter-claim; (c) the evidence led in support of the claim may not be dispositive of the material which would be relied on to decide the counterclaim; and (d) the decision on the claim does not necessarily conclude the adjudication of the counter-claim; and (iii)The Arbitration Act considers claims and counter-claims to be independent proceedings since the latter is not contingent upon the former. Rather, it protects the right of any respondent H

p. 664 Copy page pinpoint

A to raise a counter-claim in an arbitration proceeding, provided it arises from the arbitration agreement under dispute. Further, in the event of a default in the payment of a deposit either for the claim or counter-claim, it specifically notes that the proceedings will be terminated only in respect of the claim, or as the case may be, the counter-claim in respect of which the default has occurred; B (iv)Though a counter-claim may arise from similar facts as a claim, the counter-claim is not a set off and is not in the nature of a defence to the claim; and (v) A counter-claim will survive for independent adjudication even if the claim is dismissed or withdrawn and the respondent to a claim would be entitled to C pursue their counter-claim regardless of the pursuit of or the decision on the claim. [Para 117][760-C-H; 761-A] 2.2 On analysis of the statutory framework of the Arbitration Act and the CPC, related academic discourse and judicial pronouncements, the following conclusions emerge: (i) Claims D and counter-claims are independent and distinct proceedings; (ii) A counter-claim is not a defence to a claim and its outcome is not contingent on the outcome of the claim; (iii) Counter-claims are independent claims which could have been raised in separate proceedings but are permitted to be raised in the same proceeding as a claim to avoid a multiplicity of proceedings; and E (iv)The dismissal of proceedings in relation to the original claim does not affect the proceedings in relation to the counter-claim. [Para 135][770-A-D] 2.3 On a combined reading of Section 31(8), Section 31A and Section 38(1) of the Arbitration Act, it is clear that: (i) separate deposits are to be made for a claim and counter-claim in an arbitration proceeding; and (ii) these deposits are in relation to the costs of arbitration, which includes the fee of the arbitrators. Therefore, prima facie, the determination of the fee under the Fourth Schedule should also be calculated separately for a claim and counter-claim – i.e., the term “sum in dispute” refers to independent claim amounts for the claim and counterclaim. Such an interpretation is also supported by the definition of claim and counter-claim, and by the fact that the latter constitutes proceedings independent and distinct from the former. [Para 136]

p. 665 Copy page pinpoint

GUNANUSA JV

FEE CEILING IN FOURTH SCHEDULE A

3. The Law Commission of India (LCI) 246th Report, 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 there is a option of setting B the ceiling of the fees in the Fourth Schedule at either Rs 30,00,000 or Rs 49,87,500, 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, the ceiling of Rs 30,00,000 in entry at C 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. [Para 155][782-A-C] CEILING APPLICABLE TO INDIVIDUAL ARBITRATORS D

4. The submission 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 three member tribunal, and each individual arbitrator would receive a fee of Rs 10,00,000 is erroneous, and hence must be rejected. 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 H

p. 666 Copy page pinpoint

A 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 B 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 C 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 Attorney General. [Para 157][782-E-H; 783-A-B] D CONCLUSION

5. (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 E 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 F 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 G 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);

p. 667 Copy page pinpoint

GUNANUSA JV

(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; (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 D

(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. [Para 158][783-C-F; 784-A-E] E

Bharat Aluminium Co. v. Kaiser Aluminium Technical Services (2016) 4 SCC 126 : [2016] 1 SCR 364; Copper Ltd Centrotrade Minerals & Metal Inc. v. Hindustan (2017) 2 SCC 228 : [2016] 9 SCR 83; Salem Advocate Bar Assn. (II) v. Union of India (2005) 6 SCC 344 : F [2005] 1 Suppl. SCR 929; Indian Oil Corpn. Ltd. v. Amritsar Gas Service (1991) 1 SCC 533 : [1990] 3 Suppl. SCR 196; Nityanand Sharma v. State of Bihar (1996) 3 SCC 576 : [1996] 2 SCR 1; Aswini Kumar Ghose v. Arabinda Bose 1953 SCR 1 and Indore G Development Authority (LAPSE-5 J.) v. Manoharlal (2020) 8 SCC 129 : [2020] 3 SCR 1 – followed. Sanjeev Kumar Jain v. RS Charitable Trust (2012) 1 SCC 455 : [2011] 12 SCR 744; Voestalpine Schienen H

p. 668 Copy page pinpoint

A GmbH v. Delhi Metro Rail Corpn. Ltd. (2017) 4 SCC 665 : [2017] 1 SCR 798; State of Goa v. Praveen Enterprises (2012) 12 SCC 581 : [2011] 10 SCR 1026; Jag Mohan Chawla v. Dera Radha Swami Satsang (1996) 4 SCC 699 : [1996] 2 Suppl. SCR 509; Aphali Pharmaceuticals Ltd. v. State of Maharashtra (1989) 4 B SCC 378 : [1989] 1 Suppl. SCR 129; Mohd. Shabir v. State of Maharashtra (1979) 1 SCC 568 : [1979] 2 SCR 997; Mithilesh Kumari v. Prem Behari Khare (1989) 2 SCC 95 : [1989] 1 SCR 621- relied on. Assam State Weaving and Manufacturing Co. Ltd. v. C Vinny Engineering Enterprises (P) Ltd. AIR 2010 Cal 52- approved. NHAI v. Gayatri Jhansi Roadways Ltd. (2020) 17 SCC 626; Union of India v.Singh Builders (2009) 4 SCC 523 : [2009] 3 SCR 563; Dattatraya Govind Mahajan D v. State of Maharashtra (1977) 2 SCC 54; Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust and Ors. (2012) 1 SCC 455 : [2011] 12 SCR 744; Triveni Shankar Saxena v. State of UP & Ors. 1992 Suppl. 1 SCC 524 : [1991] 3 Suppl. SCR 534; Voltas Ltd. v. E Rolta India Ltd. (2014) 4 SCC 516 : [2014] 2 SCR 797; Rajni Rani v. Khairati Lal (2015) 2 SCC 682 : [2014] 10 SCR 971; Thomas Mathew v. KLDC Ltd. (2018) 12 SCC 560 - referred to. Gammon Engineers and Contractors Pvt. Ltd. v. NHAI F 2018 SCC OnLine Del 10183 and NHAI v. Gayatri Jhansi Roadways Ltd. 2017 SCC OnLine Del 10285 - referred to. KS Norjarl AS v. Hyundai Heavy Indus. Co., [1992] 1 QB 863, 884; Compagnie Européenne de Céréales SA G v. Tradax Exp. SA [1986] 2 Lloyd’s Rep. 301 (QB); Jivraj v. Hashwani [2011] UKSC 40; Taylor v. Caribou 102 Me 401 : 67 A 2 (1907); Hussmann (Europe) Ltd v. Al Ameen Development & Trade, [2000] 2 Lloyd’s Rep. 83 Queen’s Bench Division (Commercial Court) – referred to. H

p. 669 Copy page pinpoint

GUNANUSA JV

p. 670 Copy page pinpoint

A of the parties, fixes the fee in terms of the Fourth Schedule, 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 B August 2019, and insertion of sub-section (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 C Act, the fee fixed by the institution “subject to the rates specified in the Fourth Schedule” would be payable. [Para 2][786-F-H; 787- A-D] 1.2. On interpretation of the Fourth Schedule, I respectfully agree with the view expressed by 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 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. [Para 3][787-E-F]

2. Sub-section (8) to Section 31, as 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. The sub-section emphasised that the agreement between the parties is paramount and binding. G 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. 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 H

p. 671 Copy page pinpoint

GUNANUSA JV

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. [Paras 15 and 23][797-D-E; 798-A-B; 805-D-F]

3. It will 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 E 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. F 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 G 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 H

p. 672 Copy page pinpoint

A 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, B 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. [Para 35][814- G-H; 815-A-H]

4. 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, 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. 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). G 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. [Paras 46, 47 and 48][822-A-C, H F-G; 823-A]

p. 673 Copy page pinpoint

GUNANUSA JV

5. The model fee mentioned in the third column of the A 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. 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. [Paras 53 and 54][825-B- E] National Highways Authority of India v. Gayatri Jhansi E Roadways Limited (2020) 17 SCC 626 – relied on. Aphali Pharmaceuticals Ltd.v. State of Maharashtra & Ors. (1989) 4 SCC 378 : [1989] 1 Suppl. SCR 129 – held inapplicable. Union of India v. Singh Builders Syndicate (2009) 4 F SCC 523 : [2009] 3 SCR 563; Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust and Others. (2012) 1 SCC 455 : [2011] 12 SCR 744; Orissa Mining Corporation Ltd. v. Prannath (1997) 3 SCC 535 – referred to. G K/S Norjarl A/S v. Hyundai Heavy Industries Co. Ltd. (1991) 3 All ER 211- referred to. Julian D.M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial Arbitration, H

p. 674 Copy page pinpoint

A ‘Chapter 12 Rights and Duties of Arbitrators and Parties’ Russell on Arbitration (24th Edition).; Robert Merkin QC, LLD,”Arbitration Law”, Service Issue No.83, November 2019; Datuk Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration B (Second Edition), 2016; Michael Mcilwrath and John Savage, International Arbitration and Mediation: A Practical Guide, (2010); Russell on Arbitration, 24th Edition; International Commercial Arbitration’, 2nd Edition, 2914; Julian D.M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial C Arbitration, ‘Chapter 12 Rights and Duties of Arbitrators and Parties’; Redfern and Hunter on International Arbitration, Oxford University Press, 6 th Edn., 2015; Russell on Arbitration, 24th Edition under the heading ‘Determination of the recovery of costs D of the arbitration’; 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; Tackaberry, and Marriott, Bernstein’s Handbook of Arbitration and Dispute Resolution Practice (4th Edn., E 2003); Mustill and Boyd, The Law and Practice of Commercial Arbitration in England, (2nd Edn., 1989); Datuk Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (Second Edition), 2016; ‘India’s Grand Advocates: A Legal Elite Flourishing in F 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; Earl T. Crawford, The Construction of Statutes, 3rd Edition; J. G. Sutherland, Statutes and G Statutory Construction, 3rd Edition, Vol.3, pp. 410-412; Earl T. Crawford, The Construction of Statutes, 3rd Edition; Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (Second Edition), 2016 – referred to.

p. 675 Copy page pinpoint

GUNANUSA JV

Case Law Reference A In the judgment of DR. DHANANJAYA Y CHANDRACHUD, J. (2020) 17 SCC 626 referred to Para 35 (i) [2009] 3 SCR 563 referred to Para 35 (xiv) [2011] 12 SCR 744 referred to Para 35 (xiv) B

(1977) 2 SCC 54 referred to Para 35 (xxi) [2016] 1 SCR 364 followed Para 69 [2016] 9 SCR 83 followed Para 69 C [2011] 12 SCR 744 relied on Para 72 [2017] 1 SCR 798 relied on Para 87 [2005] 1 Suppl. SCR 929 followed Para 89 [1991] 3 Suppl. SCR 534 referred to Para 97 D [1990] 3 Suppl. SCR 196 followed Para 123 [2011] 10 SCR 1026 relied on Para 124 [2014] 2 SCR 797 referred to Para 124 [1996] 2 Suppl. SCR 509 relied on Para 132 E [2014] 10 SCR 971 referred to Para 133 (2018) 12 SCC 560 referred to Para 134 [1989] 1 Suppl. SCR 129 relied on Para 138 F [1996] 2 SCR 1 followed Para 145 1953 SCR 1 followed Para 149 [2020] 3 SCR 1 followed Para 150 [1979] 2 SCR 997 relied on Para 150 G [1989] 1 SCR 621 relied on Para 154 In the judgment of SANJIV KHANNA, J. [2009] 3 SCR 563 referred to Para 4 [2011] 12 SCR 744 referred to Para 4 H

p. 676 Copy page pinpoint

A (2020) 17 SCC 626 relied on Para 20 (1997) 3 SCC 535 referred to Para 42 [1989] 1 Suppl. SCR 129 held inapplicable Para 45 CIVIL ORIGINAL/APPELLATE JURISDICTION: Arbitration Petition (Civil) No. 05 of 2022. B Petition Under Section 11(6) read with Section 14 and Section 15 of the Arbitration and Conciliation Act, 1996 for Termination of the Mandate of the Present Arbitral Tribunal and Appointment of a Substitute Arbitral Tribunal.

C With SLP (C) No.10358 of 2020, 13426 of 2021, SLP (C) Diary No.8494 of 2022, Civil Appeal Nos. 5880, 5879 of 2022 and Miscellaneous Application Nos.1990-1991 of 2019 in SLP (C) Nos. 10021-10022 of 2017. D Tushar Mehta, SG, K.K. Venugopal, AG, Huzefa Ahmadi, Sr. Adv. (A.C.), S.B. Upadhyay, Rajeev Sharma, Dr. Abhishek Manu Singhvi, Anish Dayal, Sr. Advs., Pradhuman Gohil, Ms. Taruna Singh Gohil, Ms. Ranu Purohit, R. Vishnu Kumar, Alapati Sahithya Krishna, Ms. Anushka Shah, Ms. Nooreen Sharma, Rohan Sharma, Ms. Sharukh Alam, Abhishek Gupta, Gunnam Venkateswara Rao, Ms. Ikshita Singh, Ms. E Chinmayee Chandra, Kapil Raghav, Dishant Bhati, Tarkeshwar Natha, Nishant Kumar, Harshit Singh, Lalit Mohan, Rameshwar Prasad Goyal, Udit Seth, Anil Seth, C. Kannan, Ravi Shankar, Mayank Kshirsagar, Suyash Gupta, Abhishek Birthray, Sumit R. Sharma, Tanmay Nandi, Somya Budholia, Prateek Seth, Adeem Ahmed, Ms. Sonali Jaitely Bakshi, F Jaiyesh Bakhshi, Ms. Rini Badoni, Ms. Sanjana Bakshi, Ms. Manmilan Sidhu, Ankit Tyagi, Ms. Radhika Malik, Ms. Sudiksha Saini, Ms. Ashima Chauhan, Ms. Anwesha Chaudhary, Gaurav Mishra, Tanmoy Nandi, P.V. Yogeswaran, Manu Seshadri, Aveak Ganguly, Abhijit Lal, Ms. Pallavi Anand, Mithu Jain, S.D. Singh, Rahul Kumar Singh, Ms. Meenu Singh, Dhiraj Kumar, Ram Kripal Singh, Ms. Shweta Sinha, Ms. Bharti Tyagi, G Santosh Kumar - I, R. Chandrachud, D. Venkata Krishna, Santosh Kumar, K. Parameshwar, Kailas Bajirao Autade, Ms. Sregurupriya, Ms. Sheetal Patil, Advs. for the appearing parties. # Ed. Note: There are two seperate judgments in the matter. One judgment was delivered by Hon’ble Dr. Justic D. Y. Chandrachud for himself and for Hon’ble Mr. Justice Surya H Kant. The other judgment was delivered by Hon’ble Mr. Justice Sanjiv Khanna.

p. 677 Copy page pinpoint

GUNANUSA JV

The Judgments# of the Court were delivered by A DR. DHANANJAYA Y CHANDRACHUD, J. This judgment has been divided into sections to facilitate analysis. They are: A Factual Background....................................................5* B A.1 Facts of Petition for Arbitration (Civil) No 5 of 2022..5* A.2 Facts of Special Leave Petition (Civil) No 13426 of 2021..................................................................13* A.3 Facts of Special Leave Petition (Civil) No 10358 of 2020.................................................................17* C A.4 Facts of Miscellaneous Application Nos 1990-1991 of 2019.............................................................19* B Submissions of Counsel..............................................20* B.1 Submissions on behalf of the petitioners..............21* D B.2 Submissions on behalf of the respondents.............28* B.3 Submissions on behalf of the amicus curiae........31* C Determination of arbitrators’ fee...................................38* C.1 Comparative outlook.........................................38* E C.1.1 Position of international organisations.........39* (i) United National Commission on International Trade......................................................39* (ii) Permanent Court of Arbitration ..............42* (iii) London Court of International Arbitration...43* F (iv) International Centre for Dispute Resolution..44* (v) International Chamber of Commerce.........44* (vi) Singapore International Arbitration Centre..45* (vii) Hong Kong International Arbitration Centre..45* G (viii) International Centre for Settlement of Investment Disputes.................................46* (ix) Summary..............................................46*

* Ed. Note: Pagination is as per the original judgment. H

p. 678 Copy page pinpoint

A C.1.2 Position in other national jurisdictions..........47* (i) England.......................................48* (ii) Italy.....................................................50* (iii) Sweden................................................51* B (iv) Germany..............................................52* (v) Japan...................................................54* (vi) Singapore.............................................54* (vii) United States...........................................55* C (viii) Summary..............................................56* C.2 Statutory scheme on payment of fees to arbitrators in India.............................................................57* C.2.1 Party autonomy........................................57* D C.2.2 Fourth Schedule and regulation of arbitrators’ fees........................................................59* C.2.3 Costs and fees: Two different paradigms....70* C.2.4 Directives governing fees of arbitrators in ad hoc arbitrations........................................92* E D Interpretation of “sum in dispute” in the Fourth Schedule....97* D.1 Statutory Framework......................................97* D.2 Definition of claim and counter-claim................100*

F D.2.1 In re arbitration proceedings...................100* (i) Statutory Framework of the Arbitration Act..100* (ii) Academic discourse...............................105* (iii) Judicial pronouncements.........................107* G D.2.2 In re civil proceedings............................109* (i) Statutory Framework of CPC..................109* (ii) Academic discourse...............................112* (iii) Judicial pronouncements.........................114* H D.3 Analysis.......................................................115*

p. 679 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

E Fee Ceiling in Fourth Schedule..................................119* A E.1 Difference between the English and Hindi translations...................................................121* E.2 Exception to literal interpretation......................124* E.3 Interpretation based on legislative intent............127* B F Ceiling applicable to individual arbitrators...................130* G Conclusion.............................................................131* G.1 Findings.......................................................131* G.2 Directions....................................................133* C

A Factual Background A.1 Facts of Petition for Arbitration (Civil) No 5 of 2022

1Copy pinpoint1. On 29 May 2009, the petitioner, Oil and Natural Gas Corporation D Limited1, and the respondent, Afcons Gunanusa JV2, entered into a Lump Sum Turnkey Contract3 for the construction of an ICP-R Platform. The ICP-R Platform is alleged to have been completed on 31 October 2012.

2Copy pinpoint2. Due to ongoing disputes and differences, Afcons invoked arbitration on 20 July 2015, in accordance with Clause 1.3 of the LSTK E Contract. Afcons appointed Justice Mukul Mudgal as their arbitrator.

3Copy pinpoint3. The relevant parts of Clause 1.3 of the contract are extracted below: “1.3 Laws/Arbitration F […] 1.3.2 Arbitration Except as otherwise provided elsewhere in the contract, if any dispute, difference question or disagreement arises between the parties hereto or their respective representatives or assignees, in G connection with construction, meaning, operation, effect, 1 "ONGC” 2 "Afcons” 3 "LSTK Contract” * Ed. Note: Pagination is as per the original judgment. H

p. 680 Copy page pinpoint

A Interpretation of the contract or breach thereof which parties are unable to settle mutually, the same shall be referred to Arbitration as provided hereunder: 1.3.2.1 A party wishing to commence arbitration proceeding shall Invoke Arbitration Clause by giving 60 days notice to the other B party. The notice Invoking arbitration shall specify all the points of disputes with details of the amount claimed to be referred to arbitration at the time of Invocation of arbitration and not thereafter. If the claim is in foreign currency, the claimant shall indicate its value in Indian Rupee for the purpose of constitution of the arbitral tribunal. C 1.3.2.2 The number of the arbitrators and the appointing authority will be as under:

Claim amount Number of Appointing Authority (excluding claim arbitrator D for Interest and counter claim, if any)

Upto Rs. 5 Crore Sole ONGC E Arbitrator

Above Rs. 5 Crore 3 One arbitrator by each Arbitrators party and the 3rd arbitrator, who shall be the presiding arbitrator, by the two arbitrators.

1.3.2.3 The parties agree that they shall appoint only those persons as arbitrators who accept the conditions of this arbitration clause. No person shall be appointed as arbitrator or presiding arbitrator who does not accept the conditions of this arbitration clause. […] 1.3.2.8 Arbitrators shall be paid fees at the following rates. H

p. 681 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

For the disputes above Rs. 50 lacs, the Arbitrators shall be entitled to an additional amount @ 20% of the fee payable as per the above fee structure. F

1.3.2.9 lf after commencement of Arbitration proceedings, the parties agree to settle the dispute mutually or refer the dispute to conciliation, the arbitrators shall put the proceedings in abeyance until such period as requested by the parties. Where the proceedings are put in abeyance or terminated on account of G mutual settlement of dispute by the parties, the fees payable to the arbitrators shall be determined as under: I) 25% of the fees if the claimant has not submitted statement of claim. H

p. 682 Copy page pinpoint

A II) 50% of the fees if the award is pending. 1.3.2.10 Each party shall pay its share of arbitrator’s fee in stages as under: (I) 25% of the fees on filing of reply to the statement of claims. B (II) 25% of the fees on the competition of evidence. (III) Balance 50% at the time when award is given to the parties. […] 1.3.2.14 Subject to aforesaid, provisions of the Arbitration and Conciliation Act, 1996 and any statutory modifications or re- C enactment thereof shall apply to the arbitration proceedings under this clause.” (emphasis supplied)

4Copy pinpoint4. On 20 August 2015, ONGC responded by appointing Justice D Gyan Sudha Mishra as their arbitrator. The arbitrators appointed Justice GN Ray as the presiding arbitrator, and the arbitral tribunal was constituted.

5Copy pinpoint5. The arbitral tribunal held a preliminary meeting on 25 November 2015 at which the members of the tribunal indicated their view that the fee schedule prescribed in the contract seemed unrealistic. While Afcons was agreeable to a revision in the fee, ONGC indicated that it may not be agreeable. The arbitral tribunal directed ONGC to consider are vision of the arbitrators’ fee. In a letter dated 28 January 2016 addressed to ONGC, the arbitral tribunal noted that the Fourth Schedule to the Arbitration and Conciliation Act 19964 recommends the fee for each arbitrator as Rs 30 lakhs, when the amount in dispute exceeds Rs 20 crore (in the present case, it was Rs 900 crores).

6Copy pinpoint6. On 16 April 2016, the arbitral tribunal informed ONGC that it would no longer bargain on the amount if ONGC was agreeable to the schedule provided in the Fourth Schedule to the Arbitration Act, along with a reading fee of Rs 6 lakhs for each arbitrator. However, the letter stated that the ceiling of Rs 30 lakhs provided in the Fourth Schedule was on the ‘lower side’ for an arbitration with a disputed amount of Rs 900 crores, and should be revised. The letter reads thus:

4 H "Arbitration Act”

p. 683 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

“If the appropriate authority of ONGC is inclined to accept the ceiling referred to in the schedule of the amendment of Arbitration and Conciliation Act and offer such remuneration, the Arbitrators do not intend to enter into any bargaining. We may only indicate that remuneration of Rs. 30 Lacs is in the lower side and reasonably deserves upward revision in this case. The arbitrators also expect that considering the composition of the arbitral tribunal and huge claim involved (about Rs. 1000 crore) and extraordinarily voluminous documents to be taken into consideration it may be only appropriate that as special case, a reasonable reading/ perusal fee to the tune of about 6 lacs for each arbitrator may be considered. Such reading fee is prevalent in similar other cases.” C

7Copy pinpoint7. By its letter dated 22 April 2016, ONGC informed the arbitral tribunal that the proposal for the application of the Fourth Schedule of the Arbitration Act was under consideration by them but since it did not provide for a reading fee, ONGC could not agree to it.

8Copy pinpoint8. At its second sitting on 4 August 2016, the arbitral tribunal passed D a procedural order directing the parties to deposit 25 per cent of the arbitrators’ fee, which was recorded as Rs 30 lakhs. On 22 May 2018, the arbitral tribunal passed another procedural order finalising its fee, stating that it had done so after taking into account the pleadings submitted by the parties, the complexity of the issues involved, high value of the E claim (Rs 679 crores) and counter-claim (Rs 407 crores), and the voluminous nature of the documents. The tribunal fixed a fee of Rs 1.5 lakhs for each arbitrator for every sitting of a three-hour duration. The tribunal indicated that it may also charge a reading fee or conference fee (for conferences between the members), which would be indicated at a later stage. The procedural order states as follows: F

“The first sitting of this arbitration case was held in November,

2015. The remuneration of the members of the arbitral tribunal could not be finally fixed. The claimant had agreed to pay such remuneration in its share as would be directed by the tribunal. But the respondent had requested the tribunal to fix remuneration later G on because appropriate authority was to be considered. The arbitral tribunal was also not in a position to assess the extent of claim and counter claim to be raised by the parties and also the complexity of the arbitration case at that stage. The respondent’s representative, however, had suggested for the ceiling fee at Rs. H

p. 684 Copy page pinpoint

A 30.00 lakhs for each of the Arbitrators as mentioned in the fourth schedule of amended Arbitration and Conciliation Act, 1996. It was pointed out by the tribunal that the arbitration case arose prior to amendment of the Act. Therefore, the ceiling fee referred to in the amended Act was not attracted. It was also pointed out to the respondent’s representative that the Arbitral Tribunal did not like to assert the remuneration of the members of the tribunal and it would be only appropriate if fair, pragmatic and reasonable remuneration would be fixed at the suggestion of both the parties who were expected to take pragmatic and realistic approach in suggesting the remuneration of the arbitrators by taking into consideration of the amount of claim and counter claim to be made by the parties, the composition of the arbitral tribunal, the complexities of the issues requiring adjudication and number of sittings likely to take for concluding the arbitration case, in suggesting the remuneration of the arbitrators. However, before finally fixing the remuneration to be paid to the arbitrators by the parties, 25% of Rs. 30.00 lakhs were directed to be deposited by the parties by sharing equally. After pleadings have been filed by the parties by taking substantially long time, presumably, in view of complex technical issues involved and large number of documents intended to be relied on by the parties, the members of the arbitral tribunal have been able to have a fair idea about the nature and complexities of the issues for determination and the time likely to be required for completing the arbitration case. The arbitral tribunal, therefore, holds that proper remuneration payable to the members of the arbitral tribunal should be indicated to the parties for compliance. It may be indicated here that the claimant has claimed about Rs. INR 6,79,20,52,999/- crores along with 18% interest per annum on the said sum. The respondent has made a counter claim of about Rs. INR 4,07,12,97,603/- crores and has also claimed interest at 18% per annum on the said sum. Both the parties have informed the arbitral tribunal that both the parties will examine their respective witnesses including expert witnesses. As a matter of fact, the claimant has filed affidavit of evidence of three expert witnesses. Similarly, the respondent also intends to examine witnesses including expert witness. Till date 20 sittings have been H

p. 685 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

held and examination of first witness of the claimant is estimated to be completed by holding 26 sittings. It is, therefore, quite evident that the hearing of this arbitration case will take fairly long time. Along with the pleadings, both the parties have filed volumes of documents in support of their respective case. By now the claimant has filed 68 volumes of their document. Similarly, the respondent has also filed 24 volumes as its document to be relied on. It is not unlikely that further documents may be relied on by the parties in the hearing process. Considering the amounts of claim and counter claim, the voluminous documents to be taken into consideration and a very long hearing to conclude the arbitration case and the complex technical issues required to be taken into consideration, the arbitral tribunal has decided that it will be only appropriate, fair and reasonable to fix remuneration of each of the arbitrators at Rs. D 1.50 lakhs (Rupees one lakh and fifty thousand) per sitting, each sitting confined to three hours or part thereof. Perusal fee and interse conference amongst the members of the tribunal, may not be indicated now. Such fee may be indicated later or after the case proceeds further thereby enabling the tribunal to assess the extent of exercise called for.” E

9Copy pinpoint9. On 22 June 2018, ONGC filed an application before the arbitral tribunal for modifying the procedural order dated 22 May 2018 increasing the fee. The arbitral tribunal issued a procedural order dated 25 July 2019rejecting ONGC’s application. The tribunal observed that: (i) At the first sitting, the tribunal indicated that the fee specified in the contract (Rs 12 lakhs per arbitrator) was unrealistic. While Afcons agreed to a revision of the fee, ONGC was not agreeable. The tribunal granted an opportunity to ONGC to propose a ‘reasonable and pragmatic’ fee schedule; (ii) While awaiting ONGC’s response, the tribunal proposed the fee schedule in the Fourth Schedule to the Arbitration Act “as an example” while noting that the ceiling of Rs 30 lakhs was also “too low”. Since ONGC seemed agreeable, the tribunal directed the parties to deposit the first tranche of fee based on Rs 30 lakhs in the interim; H

p. 686 Copy page pinpoint

A (iii) Since ONGC did not propose a revised fee schedule, the tribunal, after considering the complexity of the issues involved, the quantum of the amount in dispute and the voluminous nature of the documents, fixed its fee by a procedural order dated 22 May 2018; B (iv) ONGC has not refuted the reasons provided by the tribunal for fixing its fee. It has only contested the revision on the ground that the fee schedule in the contract was binding. Since ONGC had shown its willingness earlier to accept the schedule of fees in the Fourth Schedule, ONGC’s submission was rejected; and C (v) The ceiling of Rs 30 lakhs in the Fourth Schedule is not applicable to the present dispute since it arose before the amendment which added the Schedule. The tribunal held that the fee was set on the basis of the amount being paid in arbitrations of such nature. However, it agreed to reduce D the fee of each arbitrator to Rs 1 lakh per sitting. It noted that the reading fee was kept open, and would be decided at a later stage.

10Copy pinpoint10. 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 petition5 under Section 14 read with Section E 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 F 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. A.2 Facts of Special Leave Petition (Civil) No 13426 of 2021

11Copy pinpoint11. This appeal arises from a final judgement and order dated 6 August 2021 of the High Court of Delhi, by which it dismissed the petition6 filed by the petitioner, NTPC Limited7.

p. 687 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

12Copy pinpoint12. NTPC and the respondent, Afcons-Shetty and Company A Private Limited-JV8, 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. B 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 Act9, which then appointed Justice Manmohan Sarinas the presiding arbitrator on 21 May 2018 with the consent of parties. C

13Copy pinpoint13. 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.

14Copy pinpoint14. NTPC filed its counter-claim of approximately Rs 19 crores. D By a procedural order dated 13 July 2019, the arbitral tribunal fixed a separate fee for 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. E

15Copy pinpoint15. 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: F “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 G 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.”

8 "Afcons-Shetty” 9 Arbitration Petition No 375 of 2018 H

p. 688 Copy page pinpoint

16Copy pinpoint16. On15 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.

17Copy pinpoint17. 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.

18Copy pinpoint18. 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.

19Copy pinpoint19. 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. G

20Copy pinpoint20. 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

10 "DIAC Rules” H

p. 689 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

inextricably linked and on a combined reading, a tribunal would have the A 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) B 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 C 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”. D […]

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 E (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 F 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” G 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.” H

p. 690 Copy page pinpoint

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

21Copy pinpoint21. 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.

22Copy pinpoint22. On 28 December 2010, RVNL awarded a contract for the B “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.

23Copy pinpoint23. 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 D 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.

24Copy pinpoint24. Meantime, the arbitrators nominated by the parties appointed a presiding arbitrator. The arbitral tribunalheld its preliminary sitting on 15 January 2019, where it recorded that its fee shall be in accordance with the Fourth Schedule to the Arbitration Act. Byits 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. F

25Copy pinpoint25. 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.

26Copy pinpoint26. By its order dated 3 March 2020, the arbitral tribunal rejected G RVNL’s application. It noted that that the limitation of Rs 30,00,000 in 11 OMP (T) (COMM) 38 of 2020 12 "RVNL” 13 "Simpex” 14 ARB P 519 of 2018 H 15 SLP

p. 691 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

the entry at Serial No 6 of the Fourth Schedule does not encompass the A entire fee, comprising of the base component of Rs 19,87,500 and the variable component (0.5 per cent of the claim amount above Rs 20 crores) but was only limited to the variable component. Hence, the ceiling on fee according to the tribunal, is Rs 49,87,500, and not Rs 30,00,000.

27Copy pinpoint27. RVNL then filed a petition under Section 14 of the Arbitration B Act before the Delhi High Court, praying for the termination of the mandate of the arbitral tribunal.

28Copy pinpoint28. By a judgment dated 10 July 2020, a Single Judge of the Delhi High Court rejected RVNL’s petition. The Single Judge heldthat the ceiling of Rs 30,00,000 isapplicable only to the variable component of the entry at Serial No 6 of the Fourth Schedule. It has been held that the use the disjunctive, namely, ‘plus’ between the fixed base component and the variable component indicates that the ceiling of Rs 30,00,000 applies only to the latter. According to the judgment, such an interpretation arises not only from the English version of the Arbitration Act, but also its Hindi version. Finally, the courtheld that while this interpretation was based on the text of the entry at Serial No 6 of the Fourth Schedule, it is also supported by the 246th Report of the Law Commission (which recommended the changes to the Fourth Schedule) and the DIAC Rules Model Fee (on the basis of which the Schedule Four was crafted). A.4 Facts of Miscellaneous Application Nos 1990-1991 of E 2019

29Copy pinpoint29. The miscellaneous application has been filed by the respondent, RVNL, in relation to an order dated 16 January 2018 ofa two-Judge Bench of this Court in the main SLP. By its order dated 16 January 2018, this Court appointed Justice Vikramjit Sen as the sole arbitrator with the consent of the parties, to decide their disputes. The order of this Court recognised that “[t]he learned Arbitrator is at liberty to fix his remuneration”.

30Copy pinpoint30. By a procedural order dated 24 February 2018, the sole arbitrator, with the consent of the parties, decided that arbitral fee shall be payable in accordance with the Fourth Schedule to the Arbitration Act. On 25 March 2019, the sole arbitrator raised separate invoices for the payment of fee for claims and counter-claims.

31Copy pinpoint31. RVNL filed an application on 18 May 2019 raising an objection to the sole arbitrator raising separate invoices for payment of a fee for H

p. 692 Copy page pinpoint

A claims and counterclaims. By an email dated 20 May 2019, the petitioner HCIL-Adhikarya-Arss (JV)16, agreed to RVNL’s application and for it to be allowed.

32Copy pinpoint32. The sole arbitrator dismissed RVNL’s application on 20 May 2019, holding that in terms of the proviso to Section 38(1) of the Arbitration B Act and Order VIII Rule 6A of the Civil Procedure Code 190817, claims and counter-claims haveto be treated separately. Further, the sole arbitrator noted that since he had been appointed by this Court in an adhoc arbitration with liberty to fix hisown fee, a separate fee could be charged for the claim (Rs 325,89,48,831) and counter-claim (Rs 21,59,56,092). C

33Copy pinpoint33. RVNL has filed a miscellaneous application before this Court, seeking a determination of whether a fee can be charged separately by the arbitral tribunal for the claim and counter-claim and whether the tribunal was justified in doing so after fixing its fee in terms of the Fourth schedule. D B Submissions of Counsel

34Copy pinpoint34. We have heard Mr KK Venugopal the learned Attorney General, and Mr Tushar Mehta, learned Solicitor General, on behalf of the petitioners. Dr Abhishek Manu Singhvi led the arguments on behalf E of the respondents. Mr Manu Sheshadri and Mr K. Parmeshwar addressed the court for the intervenors. Mr Huzefa Ahmadi, has rendered objective assistance to this Court as amicus curiae. B.1 Submissions on behalf of the petitioners

35Copy pinpoint35. On behalf of the various public sector undertakings that have instituted proceedings before this Court, the following submissions have been made by the Attorney General and the Solicitor General: (i) The arbitration clause of a contract is binding on the parties and the arbitrators. Once the fee payable to the arbitrators G has been specified in the agreement between the parties, the arbitrators must either accept their appointment on the terms agreed in the contract between the parties or refuse the arbitration if they are not agreeable to accept the 16 "HCIL” 17 H "CPC”

p. 693 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

assignment on the fee which has been fixed by parties in their agreement. In NHAI v. Gayatri Jhansi Roadways Ltd.18, this Court has held that the fee fixed in the agreement is binding. In Russellon Arbitration19 (24th Edition) it has been noted that the appointment of arbitrators is a matter of contract subject to the mandatory provisions of the governing law. Arbitrators cannot increase their fees and expenses unless their agreement with the parties entitles them to do so. Gary Born in his treatise titled International Commercial Arbitration20 has observed that arbitrators, in principle, should not be permitted to unilaterally determine their own fee in the absence of any agreement between the parties since that violates the principle that one cannot be the judge of their own cause; (ii) If either one party or both parties are not willing to pay the fees desired by the arbitrators or if the arbitrators deviate from the fees stipulated under the agreement, the mandate of the arbitral tribunal would have to be terminated in its entirety; (iii) Section 11(14) of the Arbitration Act provides that the “High Court may frame such rules [for determination of fees] as may be necessary, after taking into consideration the rate specified in the Fourth Schedule”. Therefore, the Fourth Schedule should serve as a template or a guide for the High Courts in fixing fees for the arbitrators; (iv) Sub-Section (3A) of Section 11, inserted by the Arbitration and Conciliation (Amendment) Act 201921, also stipulates that the arbitrator appointed by a party shall be entitled to the fees at the rates specified in the Fourth Schedule; (v) Conflicting views have emerged from the High Courts as regards the nature of the Fourth Schedule to the Arbitration Act. Typically, it is considered suggestive in cases where G

18 (2020) 17 SCC 626 (“Gayatri Jhansi Roadways Ltd”) 19 David St John Sutton, Judith Gill and Matthew Gearing, Russell on Arbitration (24 th edition, 2015) (“Russell on Arbitration”) 20 Gary B Born, International Commercial Arbitration (2 nd edition, 2014) 21 "Arbitration Amendment Act 2019" H

p. 694 Copy page pinpoint

A arbitrators are appointed by parties and mandatory when arbitrators are appointed by the court; (vi) The entry at Serial No 6 of the Fourth Schedule to the Arbitration Act provides a cap on the fees payable to the arbitral tribunal. There is an apparent mismatch between B the English and Hindi versions, since a comma which is present in the Hindi version is absent in the English version, before the phrase “with a ceiling of Rs 30,00,000”. The comma disjoins the phrase “with a ceiling of Rs.30,00,000” from the words preceding the comma, “Rs. 19,87,500 plus C 0.5 % of the claim amount over and above Rs. 20 Cr.” The use of the comma in the Hindi version suggests that the ceiling is applicable to the entire clause. Thus, the total fees payable to the arbitrators cannot exceed Rs 30,00,000; (vii) The omission of the comma in the English version is an D inadvertent grammatical mistake. Commas have a crucial role to play in interpretation and due regard must be given to it when multiple interpretations are possible; (viii) If the comma is not given its due effect, the upper limit on the fees can be interpreted to mean Rs 49,87,500 [19,87,500 E + 30,00,000]. Such an interpretation would be contrary to the legislative intent of making arbitration cost-effective and economical; (ix) The Fourth Schedule is based on the Delhi International Arbitration Centre22 fees’ schedule which contains a comma F like the Hindi version, which disjoints the applicable fees and establishes a ceiling of Rs 30,00,000 towards arbitrators’ fees. This ceiling applies to the aggregate amount of the claim and counter-claim; (x) Section 2(9) of the Arbitration Act provides that wherever G Part - I of the Arbitration Act refers to a claim, it shall be applicable to a counter-claim and where it refers to defence, it shall include a reference to the defence of a counter- claim;

22 H "DIAC”

p. 695 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

(xi) The legislative intent behind using the phrase “sum in A dispute” in the Fourth Schedule of the Arbitration Act was to refer to the cumulative sum of the claim and counter- claim. If the legislative intent was to charge separate fees for both the claim and counter-claim, it would have been explicitly stated; B (xii) The plain English meaning of the term “sum” means aggregate and of the term “dispute” means the totality of all the claims and counter-claims. The term “sum” or “dispute” cannot be bifurcated through legal interpretation to refer to claims and counter-claims as separate concepts; C (xiii) The rules of various institutions in India and abroad that conduct arbitration proceedings also fortify the position that the “sum in dispute” includes the claim and counter-claim; (xiv) In Union of India v. Singh Builders 23 and Sanjeev Kumar Jain v. RS Charitable Trust24, this Court observed D that arbitrators are charging exorbitant fees, without any ceilings. The Law Commission of India in its 246th Report25 identified the above mischief and recommended the introduction of the Fourth Schedule to address this issue; (xv) It is evident from the LCI 246th Report (supra) that the E Fourth Schedule was introduced to make arbitration a cost- effective solution for dispute resolution domestically by providing some mechanism to rationalise the fee structure for arbitration. The Law Commission stated that the model schedule of fees recommended by it is based on the fee set by DIAC. The fee schedule set by DIAC specifically F provides that the “sum in dispute” includes the counter-claim made by any party. Thus, the interpretation that the “sum in dispute” includes the counter-claim would be in tandem with the legislative intent and the object that was sought to be achieved with the introduction of the Fourth Schedule; G

23 (2009) 4 SCC 523 (“Singh Builders”) 24 (2012) 1 SCC 455 25 Law Commission of India, ‘Amendments to the Arbitration and Conciliation Act 1996’ (246th Report, August 2014) available at <https://lawcommissionofindia.nic.in/ reports/report246.pdf> accessed on 29 June 2022 (“LCI 246 th Report”) H

p. 696 Copy page pinpoint

A (xvi) The proviso to Section 38(1) of the Arbitration Act, providing for a separate “deposit” for claim and counter-claim as an advance for the costs referred to in Section 31(8), cannot be construed to include arbitrators’ fees because that would negate the requirement of the Fourth Schedule framed either under Section 11(14) or Section 11(3A) of the Arbitration B Act, as the case may be. This can be harmoniously reconciled by excluding “fees” from the ambit of “costs”; (xvii) Fees and costs are completely distinct. Fees are a return or consideration for professional services rendered, where there is an element of quid pro quo. Fees can be fixed by C agreement between the parties in an ad hoc arbitration or by rules in an institutional arbitration. On the other hand, costs are expenses incurred in the facilitation of the arbitration, which include expenses for the venue of arbitration, transportations costs and secretarial expenses; D (xviii) Section 31(8) of the Arbitration Act states that the cost of arbitration is fixed by the arbitral tribunal in accordance with Section 31A. There is no involvement of party autonomy in the determination of costs, unlike the concept of fees which is based on party autonomy; E (xix) Sub-Sections (3) and (4) of Section 31A of the Arbitration Act enumerate the circumstances which may be taken into account by the arbitral tribunal to determine costs. None of these circumstances make any references to arbitrators’ fees but refer to expenses incurred in the process of facilitating the arbitration proceedings; (xx) In Gayatri Jhansi Roadways Ltd (supra), this Court held that while arbitrators’ fees may be a component of costs to be paid but it is a far cry to state that Section 31(8) and 31A would directly govern contracts in which the fee structure has already been laid down. Section 31(8) read with Section 31A deals with costs generally but not with arbitrator(s) fees; (xxi) The Explanation to Section 31A(1) of the Arbitration Act states for the purpose of this sub-Section, “costs” means reasonable costs relating to the “fees” and expenses of the H

p. 697 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

arbitrator. The Explanation takes away the effect of the A legislative intent enshrined in Sections 11(14) read with the Fourth Schedule and Section 38(1) of the Arbitration Act. In Dattatraya Govind Mahajan v. State of Maharashtra26, this Court has held that the intention of the legislature is paramount; B (xxii) Further, the Explanation to Section 31A(1) which provides that costs include the “fees and expenses of arbitrators, Courts and witnesses” has to be read in conjunction with Section 31A(1)(a) which provides that the arbitral tribunal has the discretion to determine “whether costs are payable by one party to another”. The implication of the above is that when costs are awarded to the successful party, it would recoup the entirety of the amount that has been spent on arbitration, including fees and expenses of the arbitrators, court and witnesses as compensation for the arbitration which has failed against it. This does not refer to a new determination of fees by the arbitrators; they are only entitled to what the agreement states. It would be extraordinary to state that the arbitrators can stipulate a new fee at the final stage of determining costs under Section 31A; (xxiii) The Fourth Schedule uses the phrase “sum in dispute” and there is no mention of this phrase in the Arbitration Act. On the other hand, Section 38 pertains to deposits and that too at a preliminary stage as an advance for costs as referred to in Section 31(8). These provisions cannot be used to interpret the term “sum in dispute”. If the language of the enacting part is ambiguous, then the Schedule should be referred to for understanding the intent of the legislature. Thus, the Fourth Schedule would supersede the provisions of Section 38 on the basis of which, it can be concluded that arbitral fee refers to a cumulative amount of claim and counter-claim; G (xxiv) The Fourth Schedule was introduced by the Arbitration and Conciliation (Amendment) Act 201527. The legislature was

26 (1977) 2 SCC 54 27 "Arbitration Amendment Act 2015" H

p. 698 Copy page pinpoint

A aware of the terminology used in Section 38(1) and could have used the terms “costs” or “deposits” but yet it still chose to use the term “sum in dispute”; and (xxv) Public sector undertakings, unlike private companies, cannot afford the high fees that are charged by the arbitrators. A B failure to pay the hefty fees being charged by arbitrators could lead to a situation where the arbitral tribunal forms a bias against such public sector undertakings. B.2 Submissions on behalf of the respondents

36Copy pinpoint36. On behalf of the respondents, the following submissions have been urged by Dr Abhishek Manu Singhvi, Senior Counsel: (i) If the parties have prescribed a fee schedule and the arbitral tribunal agrees to be bound by it unconditionally, without any caveat, then the agreed schedule would apply. However, there is nothing in the Arbitration Act to indicate what is to be done in a circumstance where the parties are unable to agree to a fee schedule. The question then arises if the arbitral tribunal can fix its own fees; (ii) The issue of fee fixation is dealt with as a part of “costs” under Section 31(8) (prior to the Arbitration Amendment E Act 2015) or Section 31(8) read with Section 31A (after the Arbitration Amendment Act 2015); (iii) Sections 31(8) and 31A are part of Chapter VI titled “Making of Arbitral Award and Termination of Proceedings”, which implies that the issue of fees remains open to determination till the award is made. A similar practice is followed under the English Arbitration Act 1996, UNICITRAL Rules and International Chamber of Commerce Rules. Therefore, if there is no agreement between the parties regarding the fees of the arbitrators and the arbitration has proceeded, the arbitral tribunal would be entitled to its right to remuneration, which is crystallized as a part of “reasonable costs” as provided under the Explanation to Section 31A(1); (iv) It has been suggested that this Court may provide guidelines where three case management hearings can be conducted H

p. 699 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

at the initial stage of arbitration leading to the fixation of the fee of the arbitrators, which shall not be changed except under extraordinary circumstances; (v) Arbitrator(s) may demand an increase in fees if there is an undue delay in the completion of the arbitration proceedings; (vi) The right to remuneration of the arbitrator(s) is secured by empowering the arbitral tribunal to fix an amount of deposit or supplementary deposit in advance under Section 38(1) of the Arbitration Act, which is a part of final accounting upon the termination of arbitral proceedings under Section 38(3). The enforcement of this right is ensured by empowering the arbitral tribunal to exercise a lien on the award under Section 39(1); (vii) Section 39(1) of the Arbitration Act permits a party to approach the court to resolve the issue of costs (including fees) as the court “may consider reasonable”. The arbitral tribunal’s right to fix reasonable costs (including its final determination of fee) is judicially reviewable under Section 39 read with Section 31A of the Arbitration Act; (viii) Section 31(8) of the Arbitration Act provides that the costs of arbitration shall be fixed in terms of Section 31A of the E Act. The Explanation to Section 31A(1) provides that “costs” shall mean reasonable costs relating to the fees and expenses of arbitrators; (ix) The proviso to Section 38(1) of the Arbitration Act in clear and unambiguous terms provides that a separate amount may be fixed for deposit towards the claim and the counter- claim, if any counter-claim is preferred apart from the claim; (x) The fees of arbitrators are an integral part of the costs to be fixed by the arbitral tribunal under Section 31(8) towards deposits, for which the arbitral tribunal is empowered to fix separate amounts for claims and counter-claims; (xi) The phrase “sum in dispute” mentioned in the Fourth Schedule has to be interpreted in the above context; (xii) Any reliance on the inconsistency between the Hindi and English versions of the Arbitration Act with respect to the H

p. 700 Copy page pinpoint

37Copy pinpoint37. Mr Huzefa Ahmadi, learned Senior Counsel, assisting this Court as amicus curiae made the following submissions: (i) Party autonomy is the overarching principle of arbitration and is crystallised in Section 2(6) of the Arbitration Act. It H allows parties to determine the relevant law and procedure

p. 701 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

that will govern the arbitration and limits court intervention. A The principle of party autonomy extends to parties’ freedom to decide the fees payable to the arbitrator(s); (ii) Prior to the amendment of the Arbitration Act in 2015, the issue of arbitrators’ fees would have been a subject of agreement between the parties and the arbitrators. B However, this Court in Singh Builders (supra) noted that the arbitrators have been unilaterally, arbitrarily and disproportionately fixing their fees. This observation was made in the context of court-appointed arbitrators where this Court was concerned with the fact that parties were being sent for arbitration by courts and were being forced to pay the fees fixed by such arbitrators. This Court noted that institutional arbitration has already remedied this problem since the arbitral institution fixes the fees and not the arbitrators in terms of the rules of the institution; (iii) In the above backdrop, the Law Commission recognised that the issue of arbitrator fees in ad hoc arbitration must be resolved by the introduction of a mechanism to rationalise the fee structure. A model schedule of fees, the Fourth Schedule, was added to the Arbitration Act through the Arbitration Amendment Act 2015, which was to serve as a E guide for High Courts to frame rules governing the fixation of fees payable to the arbitrators. This model schedule of fees was based on the schedule of fees developed by DIAC and was suitably revised; (iv) The Fourth Schedule is to be read along with provisions for appointment of arbitrators under Section11. It does not apply to international commercial arbitration and is not applicable when the parties have agreed to the fees in terms of the rules of an arbitral institution; (v) The High Courts have been slow in framing rules for the determination of fees payable to arbitrator(s); (vi) Some High Courts have been of the view that the Fourth Schedule is merely suggestive and not mandatory, while others have held that it is mandatory. Thus, there is an uncertainty regarding the nature of the Fourth Schedule. In H

p. 702 Copy page pinpoint

A Gayatri Jhansi Roadways Ltd (supra), this Court held that if the fee schedule is fixed by the parties in an agreement, they would not be bound by the Fourth Schedule. Pursuant to this decision, many High Courts have proceeded to hold that the Fourth Schedule is only applicable to court- appointed arbitrators if stated expressly or if the parties and arbitrators have agreed to its applicability; (vii) Section 11 has been further amended by the Arbitration Amendment Act 2019. Sub-Section (14) of Section 11 now reads that “[t]he 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”. The amended Section 11 has not been brought into force and is subject to two exceptions. Crucially, once the amendment comes into force, the fee of the arbitral tribunal would be fixed by the arbitral institution appointing the arbitrator. This Court’s interpretation regarding the nature of the Fourth Schedule would also have an impact on the amended Section 11 when it is brought into force; (viii) To determine if the term “sum in dispute” refers to both the claim and counter-claim, it has to be considered whether a E counter claim can be treated as an independent claim for which a legal proceeding may be instituted. Section 23 of the Arbitration Act provides the basis on which a counter- claim is to be adjudicated. Section 23 does not stipulate that the counter-claim must be linked or related to the claim; rather it only states that the counter-claim must come within F the scope of the arbitration agreement; (ix) The independent nature of the counter-claim is recognised under Sections 38(1) and 38(2) of the Arbitration Act in the following terms, where the arbitral tribunal is empowered to: G (a) Determine separate amount of deposits on a claim and counter-claim; and (b) Suspend or terminate the proceedings in respect of the claim or counter-claim, in the event, the deposit directed to be paid by the tribunal is not paid by the parties; H

p. 703 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

(x) Claims and counter-claims are treated separately under the A analogous provisions of Order VIII of the CPC; (xi) Proceedings relating to a counter-claim can survive even if the proceedings relating to a claim are terminated; (xii) Section 2(9) only provides that provisions of the Arbitration Act relating to a claim would mutatis mutandis apply to a B counter-claim. It is not a definition clause but it is intended to apply to only procedural aspects. In fact, it fortifies the argument that the “claim amount” under the Fourth Schedule would mutatis mutandis apply to counter-claims and is not an aggregate of claims and counter-claims; C (xiii) An arbitral tribunal is not restrained from deciding its fees under the Fourth Schedule for claims and counter-claims separately; (xiv) The Fourth Schedule does not explicitly state that the “sum in dispute” includes a counter-claim; D (xv) Until the amendment to Section 11 is notified, the court appointing arbitrators should ensure that the parties are made aware of the terms on which the appointment is made and specifically whether or not the Fourth Schedule is applicable. The court should also ensure that the parties have clarity on the fees and expenses payable to the arbitrator(s); (xvi) This Court may recommend that either prior to or at the time of notifying the amendments to Section 11, the rates specified in the Fourth Schedule may be revised to reflect the rates that are realistic in present times; (xvii) None of the provisions of the Arbitration Act entitle the arbitrators to fix their own fees. The scheme of the Act indicates that the arbitral tribunal is only empowered to apportion costs (including the arbitrators’ fee) incurred during the arbitration as between the parties at the time of passing the award; (xviii) Remuneration of arbitrators is subject to direct negotiation and agreement between the arbitrators and the parties and ought to be determined at the inception of the proceedings. H

p. 704 Copy page pinpoint

A The fee that has been agreed upon between the parties and the arbitrators is apportioned as a part of the costs at the time when the award is passed. This view is supported by the decision of this Court in Gayatri Jhansi Roadways Ltd (supra), where it was observed that “…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 section 31(8) and 31A would directly govern contracts in which a fee structure has already been laid down”; (xix) Section 39 of the Arbitration Act also empowers the arbitral tribunal to only hold the award from the parties for any unpaid costs of arbitration. These unpaid costs could include arbitrators’ fees previously agreed upon between the parties and not paid; (xx) Any deviation from the fees agreed between the parties and the arbitrator(s) would require the consent of the parties. D It would be unreasonable and unfair to the parties if the arbitral tribunal is allowed to alter its fees at a later stage of the arbitration proceedings. At an advanced stage, parties may be apprehensive to disagree with the arbitral tribunal and may agree to an unreasonable and arbitrary fee sought by it; (xxi) The fee payable under the Fourth Schedule would be applicable to each member of the arbitral tribunal. It cannot be considered as a lump sum to be split among the members. The Note to the Fourth Schedule provides that where the tribunal consists of a sole arbitrator, they would be entitled to 25 per cent over and above the fee payable under the Fourth Schedule. It would be absurd if the sole arbitrator would be entitled to 25 per cent over and above the stipulated sum under the Fourth Schedule but in the case of an arbitral tribunal consisting of three or more members, the entire fee would have to split; (xxii) Under Section 10 of the Arbitration Act, parties are free to determine the number of arbitrators. If there is no agreement, then the default rule is of appointing a sole arbitrator. Parties can always appoint a sole arbitrator, but if there are unwilling to derogate from the agreement which provides for

p. 705 Copy page pinpoint

GUNANUSA JV [DR. DHANANJAYA Y CHANDRACHUD, J.]

appointment of three or more arbitrators, then they would A have to bear the costs accordingly; (xxiii) The ceiling of Rs 30,00,000 in the Fourth Schedule is only applicable to the sum of 0.5% of the claim amount over and above Rs 20 crores. The expression “+” that appears after Rs 19,87,500 is disjunctive; and B (xxiv) The Fourth Schedule was introduced in English while the Hindi version was the translation. Thus, precedence must be given to the English version. A comma is not conclusive for determining the meaning of a statutory provision.

38Copy pinpoint38. Mr Ahmadi also urged the court to issue certain directives for governing ad hoc arbitrations in India. These are reproduced below: “1. In cases where the arbitrator(s) are appointed by parties in the manner set out in the arbitration agreement, upon constitution of the arbitral tribunal, the parties and the arbitral tribunal shall hold a preliminary hearing amongst themselves to finalise the terms of reference (the “Terms of Reference”) of the arbitral tribunal. The arbitral tribunal must set out the components of its fee in the Terms of Reference which would serve as a tripartite agreement between the parties and the arbitral tribunal. Once the Terms of Reference have been finalised and issued, it would not be open for the arbitral tribunal to vary either the fee fixed or the heads under which the fee may be charged.

2. The parties and the arbitral tribunal may make a carve out in the Terms of Reference that the fee fixed therein may be analysed upon completion of pleadings. The parties and the arbitral tribunal may hold another meeting to ascertain the number of sittings that may be required for the final adjudication of the dispute which number may then be incorporated the Terms of Reference as an additional term.

3. In cases where the arbitrator(s) are appointed by the Court, G the order of the Court should ideally expressly stipulate the fee that arbitral tribunal would be entitled to charge. However, where the Court leaves this determination to the arbitral tribunal in its appointment order, the arbitral tribunal and the parties should agree upon the Terms of Reference as specified in the manner set out in draft practice direction (1) above. H

p. 706 Copy page pinpoint

A 4. There can be no unilateral deviation from the Terms of Reference. The Terms of Reference being a tripartite agreement between the parties and the arbitral tribunal, any amendments, revisions, additions or modifications may only be made to it with the consent of the parties.

B 5. All High Courts shall frame the rules for arbitrator fee for the purposes of Section 11(14) of the Arbitration and Conciliation Act, 1996.”

39Copy pinpoint39. On the basis of these submissions, this Court has now been called to determine the following issues in relation to the arbitrators’ C fees: (i) Whether the arbitrator(s) are entitled to unilaterally determine their own fees; (ii) Whether the term “sum in dispute” in the Fourth Schedule to the Arbitration Act means the cumulative total of the D amounts of the claim and counter-claim; (iii) Whether the ceiling of Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule of the Arbitration Act is applicable only to the variable amount of the fee or the entire fee amount; and E (iv) Whether the ceiling of Rs 30,00,000 applies as a cumulative fee payable to the arbitral tribunal or it represents the fee payable to each arbitrator. C Determination of arbitrators’ fee C.1 Comparative outlook F

40Copy pinpoint40. The issue whether the remuneration of arbitrators has to be decided by the parties or by the arbitrator(s) on their own has not been exhaustively addressed in India. People and businesses across the world have increasingly become interconnected with the advent of globalisation. Hence, it will be useful to look at the practices adopted by international G organisations and in national jurisdictions on the determination of arbitrators’ fees. We must at the outset distinguish between arbitrations administered by institutions and ad hoc arbitrations. Typically, when an arbitration is conducted under the aegis of an arbitral institution, the fees payable to the arbitrators is fixed by the institution, sometimes independently or in consultation with the sole or presiding arbitrator. The H