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

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A arbitrator or the umpire to deliver the award upon payment of such fees to the court by the applicant. Thereafter, it could assess the propriety of the fees demanded and out of the amount deposited in court, it could direct payment to the tribunal and the balance (if any) to be refunded to the applicant. The difference between Section 38(1) of the Arbitration Act 1940 and Section 39(1) of the Arbitration Act is that the former specifically refers to the payment of the arbitrators’ fee, while the latter refers to costs demanded by the tribunal. Section 39(1) seems to be wider in scope. However, since the costs under Section 39 are to be payable to the arbitral tribunal, these would typically reflect costs relating to fees of the members of the tribunal and other out-of-pocket expenses payable to the arbitrators that are necessary for the conduct of arbitral proceedings like expenses relating to travel, accommodation and any other allowances.

97Copy pinpoint97. This interpretation of costs under Section 39 as only limited to the costs owed to the arbitral tribunal is also in consonance with the purpose of Section 39, which is that it enables the arbitral tribunal to exercise a lien over the arbitral award. In Triveni Shankar Saxena v. State of UP & Ors.142, this Court defined lien as follows: “17…The word ‘lien’ originally means “binding” from the Latin ligamen. Its lexical meaning is “right to retain”. The word ‘lien’ is now variously described and used under different contexts such as ‘contractual lien’, ‘equitable lien’, ‘specific lien’, ‘general lien’, ‘partners lien’, etc. etc. in Halsbury’s Laws of England, Fourth Edition, Volume 28 at page 221, para 502 it is stated: “In its primary or legal sense “lien” means a right at common law in one man to retain that which is rightfully and continuously in his possession belonging to another until the present and accrued claims are satisfied.”” “Lien” has been defined in P Ramanatha Aiyar: The Major Law Lexiconas143: G “”Lien” defined. A right by which a person in possession of the property holds and retains it against the other in satisfaction of a demand due to the party retaining it. [O. VIII, R. 6(2), CPC (5 of 1908)and S. 47, margin, (3 of 1930)]. 142 1992 Suppl. 1 SCC 524 H 143 P Ramanatha Aiyar: The Major Law Lexicon(LexisNexis, 4 thedition)

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Right of one person to satisfy a claim against another by holding A or retaining possession of that other’s assets/property. (Finance) The right to possession of property until such time that an outstanding liability has been repaid. A banker’ s lien gives a bank the right to retain or sell the property of a debtor in lieu of payment. (Banking; Insurance & International Accounting).” B The arbitral tribunal can exercise a lien over the arbitral award and refuse to deliver it if there are outstanding payments yet to be made to the tribunal. The principle behind allowing the arbitral tribunal to exercise a lien over the arbitral award is to ensure that the tribunal is not left in the lurch without its expenses being met, while the beneficiary of the award reaps the benefits of it. In Assam State Weaving and Manufacturing Co. Ltd. v. Vinny Engineering Enterprises (P) Ltd.144, the Calcutta High Court observed that: “Section 39 of the 1996 Act, much like Section 38 of the old Act, recognises an arbitral tribunal’s lien over the award. The section conceives of a situation where there may be a dispute between the arbitral tribunal and one or more parties to the reference as to the costs of the arbitration. Upon an arbitral tribunal refusing to deliver its award unless its demand for payment of costs were met by a party, an application may be carried to court for directing the tribunal to deliver the award to the applicant. Sub-section (2) E contemplates an applicant thereunder to put into court the costs demanded by the arbitral tribunal. Upon such costs being deposited the court may order the tribunal to deliver the award to the applicant. The court can thereafter inquire into the propriety of the costs demanded and deal with the matter following the inquiry. F Sub-section (3) of Section 39 permits an application under sub- section (2) to be carried by any party to the reference only on condition that the fees demanded were not as fixed by written agreement between the applicant and the arbitral tribunal. The sub-section does not limit an application to be made under sub- G section (2) only by a party who has been refused the delivery of the award. The delivery that Section 39 speaks of is the physical delivery of the document embodying the award and not merely the pronouncement of the award. For, it is the physical receipt of 144 AIR 2010 Cal 52 H

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A the document that would entitle a party to apply for setting aside the award or for implementing it.”

98Copy pinpoint98. Hence, sub-Section (2) and (3) of Section 39, read together, govern a situation where the fees and other expenses payable to the arbitrators have not been decided through a written agreement between the party and the arbitral tribunal. While ideally, the parties and the arbitrators should arrive at an arrangement regarding the remuneration of arbitrators, the arbitral tribunal may raise a non-binding invoice regarding the arbitration costs (i.e., fees and expenses payable to arbitrator(s)) and may refuse to deliver the award unless the outstanding payments have been made. The parties are not obligated to pay such costs if they believe that such costs are unreasonable. In such a case, it is the court that determines whether the fees and other expenses demanded by the tribunal are reasonable in terms of Section 39(2).

99Copy pinpoint99. To conclude, the arbitral tribunal while deciding the allocation of costs under Sections 31(8) read with 31A or advance of costs under D Section 38 cannot issue any binding or enforceable orders regarding their own remuneration. This would violate the principle of party autonomy and the doctrine of prohibition of in rem suam decisions145, which postulates that the arbitrators cannot be the judge of their own claim against parties’ regarding their remuneration. The principles of party autonomy and the doctrine of prohibition ofin rem suam decisions do not restrict the arbitral tribunal from apportioning costs between the parties (including the arbitrator(s) remuneration) since this is merely a reimbursement of the expenses that the successful party has incurred in participating in the arbitral proceedings. Likewise, the arbitral tribunal can also demand deposits and supplementary deposits since these advances on costs are merely provisional in nature. If while fixing costs or deposits, the arbitral tribunal makes any finding relating to arbitrators’ fees (in the absence of an agreement), it cannot be enforced in favour of the arbitrators. The party can approach the court to review the fees demanded by the arbitrators.

100Copy pinpoint100. Ideally, in ad hoc arbitrations, the fees payable to the arbitrator(s) should be decided through an arrangement between the parties and the arbitrator(s). In the next section, we are issuing certain directives to govern the process of how fees payable to the arbitrator(s) have to be fixed in ad hoc arbitrations. 145 H Supra at note 120

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C.2.4 Directives governing fees of arbitrators in ad hoc arbitrations

101Copy pinpoint101. Preliminary meetings in arbitration proceedings entail a meeting convened by the arbitral tribunal with the parties to arrive at a common understanding about how the arbitration is to be conducted. It generally takes place at an early stage of the dispute resolution process, prior to the “written phase of the proceedings”. Rules of certain international arbitral institutions provide for convening a preliminary meeting146 or case-management conference147. The fees and expenses are typically addressed at this stage148. We propose that this stage of having a preliminary hearing should be adopted in the process of conducting ad hoc arbitrations in India as it will provide much needed clarity on how arbitrators are to be paid and reduce conflicts and litigation on this issue.

102Copy pinpoint102. These preliminary hearings should also be conducted when the fees are specified in the arbitration agreement. The arbitration agreement may have been entered into at an earlier point in time, even several years earlier. It is possible that at the time when the disputes between the parties arise, the fees stipulated in the arbitration agreement may have become an unrealistic estimate of the remuneration that is to be offered for the services of the arbitrator due to the passage of time. In the preliminary hearings, if all the parties and the arbitral tribunal agree to a revised fee, then that fee would be payable to the arbitrator(s). However, if any of the parties raises an objection to the fee being demanded by the arbitrator(s) and no consensus can be arrived at between such a party and the tribunal or a member of the tribunal, then the tribunal or the member of the tribunal should decline the assignment. Since the relationship between the parties and arbitrator(s) is contractual in nature, specifically with respect to the payment of remuneration, there must be a consensus on the fees to be paid.

103Copy pinpoint103. It is possible that during the preliminary hearings, the parties and the arbitral tribunal may be unsure about the extent of time that needs to be invested by the arbitrator(s) and the complexity of the dispute. G It is also possible that the arbitral proceedings may continue for much

146 Rule 19.3, SIAC Rules 147 Article 24, ICC Rules 148 Supra at note 28 H

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A longer time than was expected. In order to anticipate such contingencies, during the preliminary hearings, the parties and the arbitrator(s) should stipulate that after a certain number of sittings, the fee would stand revised at a specified rate. The number of sittings after which the revision would take place and the quantum of revision must be clearly discussed and determined during the preliminary hearings through the process of negotiation between the parties and the arbitrator(s). There is no unilateral power reserved to the arbitrator(s) to revise the fees on their own terms if they believe that an additional number of sittings would be required to settle the dispute. The fees payable to the arbitral tribunal in an ad hoc arbitration must be settled between the arbitral tribunal and the parties at the threshold during the course of the preliminary hearings. Resolution of the fees payable to the arbitral tribunal by mutual agreement during the preliminary hearings is necessary. Failing such an agreement, the arbitrator(s) who decline to accept the fee suggested by the parties (or any of them) are at liberty to decline the assignment. The fixation of arbitral fees at the threshold will obviate the grievance that the arbitrator(s) are arm-twisting parties at an advanced stage of the dispute resolution process. In such a situation, a party who is not agreeable to a unilateral revision of fees demanded by the arbitral tribunal in the midst of the proceedings has a real apprehension that its refusal may result in embarrassing consequences bearing on the substance of the dispute.

104Copy pinpoint104. We believe that the directives proposed by the amicus curiae, with suitable modifications, would be useful in structuring how these preliminary hearings are to be conducted. Exercising our powers conferred under Article 142 of the Constitution, we direct the adoption of the following guidelines for the conduct of ad hoc arbitrations in F India: “1. Upon the constitution of the arbitral tribunal, the parties and the arbitral tribunal shall hold preliminary hearings with a maximum cap of four hearings amongst themselves to finalise the terms of reference (the “Terms of Reference”) of the arbitral tribunal. G 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.

2. In cases where the arbitrator(s) are appointed by parties in the manner set out in the arbitration agreement, the fees payable to the arbitrators would be in accordance with the arbitration H

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

agreement. However, if the arbitral tribunal considers that the fee stipulated in the arbitration agreement is unacceptable, the fee proposed by the arbitral tribunal must be indicated with clarity in the course of the preliminary hearings in accordance with these directives. In the preliminary hearings, if all the parties and the arbitral tribunal agree to a revised fee, then that fee would be payable to the arbitrator(s). However, if any of the parties raises an objection to the fee proposed by the arbitrator(s) and no consensus can be arrived at between such a party and the tribunal or a member of the tribunal, then the tribunal or the member of the tribunal should decline the assignment.

3. 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.

4. The parties and the arbitral tribunal may make a carve out in the Terms of Reference during the preliminary hearings that the fee fixed therein may be revised upon completion of a specific number of sittings. The quantum of revision and the stage at which such revision would take place must be clearly specified. The parties and the arbitral tribunal may hold another meeting at the stage specified for revision to ascertain the additional number of sittings that may be required for the final adjudication of the dispute which number may then be incorporated in the Terms of Reference E as an additional term.

5. In cases where the arbitrator(s) are appointed by the Court, the order of the Court should 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.

6. 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 them with the consent of the parties.

7. All High Courts shall frame the rules governing arbitrators’ fees for the purposes of Section 11(14) of the Arbitration and Conciliation Act, 1996. H

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A 8. The Fourth Schedule was lastly revised in the year 2016. The fee structure contained in the Fourth Schedule cannot be static and deserves to be revised periodically. We, therefore, direct the Union of India to suitably modify the fee structure contained in the Fourth Schedule and continue to do so at least once in a period of three years.” B

105Copy pinpoint105. Conscious and aware as we are that (i) Arbitration proceedings must be conducted expeditiously; (ii) Court interference should be minimal; and (iii) Some litigants would object to even a just and fair arbitration fee, we would like to effectuate the object and purpose behind enacting the model fee schedule. 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 we would observe is the model fee schedule and can be treated as binding on all. Consequently, when an arbitral tribunal fixes the fee in terms of 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. D Interpretation of “sum in dispute” in the Fourth Schedule D.1 Statutory Framework

106Copy pinpoint106. We must begin by looking at the statutory framework of the Arbitration Act. In order to understand the genesis of the competing interpretations, it is important to first consider Sections 31(8), the Explanation to Section 31A(1) and Section 38(1).

107Copy pinpoint107. Section 31(8) of the Arbitration Act reads thus: F “31. Form and contents of arbitral award.— […] (8) The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with Section 31-A.” G Sub-Section (8) of Section 31 was amended by the Arbitration Amendment Act 2015, which also added Section 31A to the Arbitration Act.

108Copy pinpoint108. Section 31A(1) is in the following terms: “31-A. Regime for costs.—(1) In relation to any arbitration H proceeding or a proceeding under any of the provisions of this

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

Act pertaining to the arbitration, the court or arbitral tribunal, A notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to determine— (a) whether costs are payable by one party to another; (b) the amount of such costs; and B (c) when such costs are to be paid. Explanation.—For the purpose of this sub-section, “costs” means reasonable costs relating to— (i) the fees and expenses of the arbitrators, courts and witnesses; C (ii) legal fees and expenses; (iii) any administration fees of the institution supervising the arbitration; and (iv) any other expenses incurred in connection with the arbitral or D court proceedings and the arbitral award. […]” (emphasis supplied) Sub-Section (1) of Section 31A provides the court or the arbitral tribunal with the power to determine the following in regard to costs: (i) E whether they are payable by one party to the other; (ii) their amount; and (iii) when they are payable. The Explanation to Section 31A(1) defines “costs” to include four components, the first of which is “the fees and expenses of the arbitrators, courts and witnesses”.

109Copy pinpoint109. Section 31(8) is also linked to Section 38(1), which is as follows: “38. Deposits.—(1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as the case may be, as an advance for the costs referred to in sub-section (8) of Section 31, which it expects will be incurred in respect of the claim submitted to it: Provided that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix separate amount of deposit for the claim and counter-claim.” (emphasis supplied) H

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A According to sub-Section (1) of Section 38 of the Arbitration Act, the arbitral tribunal can direct the parties to make a deposit, as an advance, for the costs referred to in Section 31(8). As noted earlier, Section 31(8) states that such costs are to be determined in accordance with Section 31A. Crucially, the proviso to Section 38(1) provides that the arbitral tribunal may fix a separate amount of deposit for the claim and counter- B claim, in an arbitration where a counter-claim has been filed.

110Copy pinpoint110. The inter-connection between Section 31(8), Section 31A and Section 38(1) bears directly on the interpretation of the Fourth Schedule of the Arbitration Act. The Fourth Schedule is extracted below: “THE FOURTH SCHEDULE C See Section 11(3-A) Sl. No. Sum in dispute Model fee

D 1. Up to Rs 5,00,000 Rs 45,000

2. Above Rs 5,00,000 and up Rs 45,000 plus 3.5 per cent of to Rs 20,00,000 the claim amount over and above Rs 5,00,000.

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

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

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

6. Above Rs 20,00,00,000 Rs 19,87,500 plus 0.5 per cent of the claim amount over and above Rs 20,00,00,000 with a ceiling of Rs 30,00,000.

Note: In the event the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent on the fee payable as per the above.”

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

The issue before this Court turns on the interpretation of the term A “sum in dispute”, which is the header of the second column of the Fourth Schedule. This column provides the different categories of the amounts, corresponding to which the third column provides the relevant fee which the arbitrators can charge for that category.

111Copy pinpoint111. On the one hand, it has been argued before us that the B expression “sum in dispute” should be the cumulative sum of the claim and counter-claim raised by the parties. If such a position is adopted, the arbitrators will charge one common fee for hearing both the claim and counter-claim, and the ceiling prescribed in the Fourth Schedule will apply to their cumulative total. On the other hand, it is submitted that C “sum in dispute” refers to the individual sums in dispute in the claim and counter-claim. The consequence of adopting this position would be that the arbitrators will charge different sets of fees for the claim and counter-claim, and hence, separate fee ceilings will apply to both. D.2 Definition of claim and counter-claim D D.2.1 In re arbitration proceedings (i) Statutory Framework of the Arbitration Act

112Copy pinpoint112. The Arbitration Act does not specifically define either the expression “claim” or “counter-claim”. However, these expressions are referred to in numerous instances, which we shall now outline.

113Copy pinpoint113. Part I of the Arbitration Act is titled “Arbitration”. Section 2 is the definitions clause for Part I. Section 2(1) defines the various terms used throughout Part I. Sections 2(2) to 2(5) clarify the scope of the disputes which will be covered by Part I. Section 2(6) notes that where Part I allows parties to determine any issue, it also provides them a right to let any other person or institution determine the issue for them. Section 2(7) notes that awards passed under Part I shall be domestic awards. Section 28(1) clarifies that any reference to an agreement made by the parties (or which may be made), will also include a reference to any arbitration rules referred to in the agreement. Crucially, Section 2(9) states that “[w]here [Part I], other than clause (a) of Section 25 or clause (a) of sub-section (2) of Section 32, refers to a claim, it shall also apply to a counter-claim, and where it refers to a defence, it shall also apply to a defence to that counter-claim”. This H

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A corresponds to Article 2(f)149 of the UNCITRAL Model Law, on which the Arbitration Act is based. Section 25(a) notes that if the claimant fails to communicate his statement of claim in accordance with sub-section (1) of Section 23, the arbitral tribunal shall terminate the proceedings, while Section 32(2)(a) provides that the arbitral tribunal shall issue an order for termination of arbitration proceedings where the claimant B withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute. Hence, as is evident, other than these specific provisions which refer to only a claim filed by the claimant, the Arbitration Act treats claims and counter-claims at par. C

114Copy pinpoint114. Another reference is then made to counter-claims in sub- Section (2-A) of the Section 23, which provides as follows: “23. Statements of claim and defence. […] D (2-A) The respondent, in support of his case, may also submit a counter claim or plead a set-off, which shall be adjudicated upon by the arbitral tribunal, if such counter claim or set-off falls within the scope of the arbitration agreement.” Section 23(2-A) clarifies that an arbitral tribunal is under an obligation to also adjudicate upon a counter-claim or set-off filed by a party in an arbitration proceeding, with the limitation that they should fall within the scope of the arbitration agreement. This is in line with the requirements under the UNCITRAL Model Law150. If a party files a frivolous counter-claim which leads to a delay in the arbitration proceedings, the arbitral tribunal can take that into account while determining costs in accordance with Section 31A(3)(c).

115Copy pinpoint115. Section 23(2-A) was introduced by the Arbitration Amendment Act 2015, bearing in view the recommendations in the LCI 246th Report (supra). The Report had recommended the addition of G 149 Article 2(f) provides: “(f)where a provision of this Law, other than in Article 25(a) and 32(2)(a), refers to a claim, it also applies to a counter-claim, and where it refers to a defence, it also applies to a defence to such counter-claim”. 150 Howard M Holtzmann and Joseph E Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Walter Kluwers, 1989), page 649 H

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an explanation to Section 23(1) (instead of a different sub-Section) along with the following comment: “Amendment of Section 23 13.In section 23, after sub-section (1) and before sub-section (2), add the words “Explanation: In his defence the respondent may also submit a counter claim or plead a set off, which shall be treated as being within the scope of reference and be adjudicated upon by the arbitral tribunal notwithstanding that it may not fall within the scope of the initial reference to arbitration, but provided it falls within the scope of the arbitration agreement.” [NOTE: This explanation is in order to ensure that counter claims and set off can be adjudicated upon by an arbitrator without seeking a separate/new reference by the respondent so long as it falls within the scope of the arbitration agreement, in order to ensure final settlement of disputes between parties and prevent multiplicity of litigation.]” D Thus, the object of taking up a counter-claim along with the claim in the same proceeding is not because the counter-claim arises due to the claim (which it may not) but in order to prevent a multiplicity of proceedings.

116Copy pinpoint116. We have already noted Section 38(1) earlier in this judgment, E where the proviso provides the arbitral tribunal with the power to fix a separate amount of deposits (of costs determined under Section 31(8)) in instances where a claim and counter-claim have both been filed in an arbitration proceeding. We must also take note of Section 38(2) of the Arbitration Act, which provides: F “(2) The deposit referred to in sub-section (1) shall be payable in equal shares by the parties: Provided that where one party fails to pay his share of the deposit, the other party may pay that share: Provided further that where the other party also does not pay the G aforesaid share in respect of the claim or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim, as the case may be.” As a general rule, sub-Section (2) of Section 38 provides that the deposits determined under Section 38(1) have to be shared by both parties. H

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A The first proviso notes that if one party fails to pay their share, the other party may step in and pay it. Further, the second proviso notes that if the other party also does not pay that share, the arbitral tribunal can suspend proceedings. Importantly, it provides that it may terminate proceedings in relation to either the claim or counter-claim or both, depending upon whether the appropriate deposits have been made for one of them or neither of them.

117Copy pinpoint117. Consequently, on the basis of the above 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 counter-claim; 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 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; (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 H

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(v) A counter-claim will survive for independent adjudication A even if the claim is dismissed or withdrawn and the respondent to a claim would be entitled to pursue their counter-claim regardless of the pursuit of or the decision on the claim. (ii) Academic discourse B

118Copy pinpoint118. In Justice R S Bachawat’s seminal treatise on Law of Arbitration & Conciliation, it has been noted that an arbitral tribunal has the jurisdiction to decide any claim and counter-claim arising out of a dispute referred to it, and not deciding the latter would be a ground to set aside the award151: C “[s 7.44.3] Counter-claim When disputes in a pending suit are referred to arbitration, the arbitrator has jurisdiction to decide both the claim and the counterclaim…An award allowing the claim without deciding the counterclaim is liable to be set aside. Where the arbitration D agreement permitted reference of all disputes to arbitration, it could not be said that by entertaining a counterclaim, the arbitrator exceeded his jurisdiction.”

119Copy pinpoint119. Similarly, CR Dutta’s treatise on Law of Arbitration & Conciliation supports the proposition that the Arbitration Act treats a E claim and counter-claim as two separate and independent proceedings152: “4. To be paid equally The cost amount to be deposited will be in respect of the claim and separately in respect of the counter-claim by the parties in equal shares. If a party does not pay the other party may be asked to pay the shares of both the parties. If the amount directed to be deposited in respect of the claim is not made, then the proceedings in respect of the claim may be suspended or terminated but the proceedings in respect of counter-claim can proceed if the amount in respect thereof has been deposited. For the purposes of deposit of costs and expenses, the claim and counter-claim have been treated as two separate independent proceedings.”

151 Anirudh Wadha and Anirudh Krishnan, Justice R S Bachawat’s Law of Arbitration & Conciliation (6th edition, 2017) 152 CR Dutta’s Law Of Arbitration And Conciliation (LexisNexis) H

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120Copy pinpoint120. Gary Born on Arbitration (supra) notes that a party is generally not bound by any restriction in regards to its counter-claim, except that it must fall within the scope of the arbitration agreement153: “In general, there are no limits under national law on the subject matter of a respondent’s counterclaims, beyond whatever B restrictions may be contained in the parties’ arbitration agreement: the respondent may assert any counterclaim that falls within the scope of the arbitration agreement. This general freedom may be limited by the parties’ arbitration agreement or applicable institutional rules (which, however, usually do not impose further limits).” C

121Copy pinpoint121. Finally, in Procedure and Evidence in International Arbitration, a counter-claim is differentiated from a set-off by noting that it is a claim brought by the defendant and is not a defence to the claimant’s claim154:

D “4.4. A counterclaim is usually seen as a claim brought by a respondent in a civil suit against the claimant that is independent of the primary claim although it may be linked to the same facts. The term is used in contradistinction to a set-off that is seen as a defence to the primary claim, albeit one invariably related to different facts. Because it is not simply a defence, a counterclaim leads to a separate judgment that may be in excess of the judgment under the primary claim. Furthermore, the counterclaim remains alive even if the initial claim is withdrawn. Thus, it is truly a reverse claim and not a defence as such.”

122Copy pinpoint122. These academic writings a support the conclusion that claims and counter-claims within an arbitration proceeding are distinct and independent proceedings in themselves. (iii) Judicial pronouncements

123Copy pinpoint123. Even before the introduction of Section 23(2-A) through the Arbitration Amendment Act 2015, counter-claims were raised by parties in arbitration proceedings. In Indian Oil Corpn. Ltd. v. Amritsar Gas Service155, this Court had to decide on the validity of an award under 153 Supra at note 30 154 Jeffrey Waincymer, Procedure and Evidence in International Arbitration (Walters Kluwer, 2012) 155 H (1991) 1 SCC 533 (“Amritsar Gas Service”)

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the Arbitration Act 1940 where the appellant’s counter-claim had been dismissed by the arbitrator since it was not part of the reference. Speaking for the three-Judge Bench, Justice J S Verma held that when all disputes under an arbitration agreement are referred to arbitration, a party can file its counter-claim before the arbitral tribunal: “15. The appellant’s grievance regarding non-consideration of its counter-claim for the reason given in the award does appear to have some merit. In view of the fact that reference to arbitrator was made by this Court in an appeal arising out of refusal to stay the suit under Section 34 of the Arbitration Act and the reference was made of all disputes between the parties in the suit, the occasion to make a counter-claim in the written statement could arise only after the order of reference. The pleadings of the parties were filed before the arbitrator, and the reference covered all disputes between the parties in the suit. Accordingly, the counter- claim could not be made at any earlier stage. Refusal to consider the counter-claim for the only reason given in the award does, therefore, disclose an error of law apparent on the face of the award. However, in the present case, the counter-claim not being pressed at this stage by learned counsel for the appellant, it is unnecessary to examine this matter any further.”

124Copy pinpoint124. In State of Goa v. Praveen Enterprises156, a two-Judge E Bench followed the principle enunciated in Amritsar Gas Service (supra) in a case arising under the Arbitration Act. Speaking for the two-Judge Bench, Justice R V Raveendran, in the course of an erudite exposition of the law, highlighted that a respondent to a claim could well seek independent recourse to arbitration for deciding the counter-claim, but raising a counter-claim obviates a multiplicity of litigation: F

“32. A counterclaim by a respondent presupposes the pendency of proceedings relating to the disputes raised by the claimant. The respondent could no doubt raise a dispute (in respect of the subject- matter of the counterclaim) by issuing a notice seeking reference to arbitration and follow it by an application under Section 11 of G the Act for appointment of arbitrator, instead of raising a counterclaim in the pending arbitration proceedings. The object of providing for counterclaims is to avoid multiplicity of proceedings

156 (2012) 12 SCC 581 (“Praveen Enterprises”) H

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A and to avoid divergent findings. The position of a respondent in an arbitration proceeding being similar to that of a defendant in a suit, he has the choice of raising the dispute by issuing a notice to the claimant calling upon him to agree for reference of his dispute to arbitration and then resort to an independent arbitration proceeding or raise the dispute by way of a counterclaim, in the B pending arbitration proceedings.” Subsequently, in Voltas Ltd. v. Rolta India Ltd.157, another two- Judge Bench of this Court followed the reasoning in Praveen Enterprises (supra), that counter-claims were independent claim proceedings by the respondent. The Court held that the limitation for a C counter-claim would be determined with reference to the date it was instituted before the arbitral tribunal. However, it carved out an exception to this general rule for instances where the respondent had earlier raised the counter-claim as a claim in a notice for arbitration sent to the claimant, but did not subsequently file an application under Section 11 of the D Arbitration and raised it directly as a counter-claim. In such instances, the date of limitation would, it was observed, begin from when the notice of arbitration was first received by the claimant. D.2.2 In re civil proceedings (i) Statutory Framework of CPC E

125Copy pinpoint125. Order VIII of the CPC contains provisions pertaining to written statements, set-offs and counter-claims by the defendant. Rule 6 elucidates the particulars of a set-off to be given in a written statement: “6. Particulars of set-off to be given in written statement.— F (1) Where in a suit for the recovery of money the defendant claims to set-off against the plaintiff’s demand any ascertained sum of money legally recoverable by him from the plaintiff, not exceeding the pecuniary limits of the jurisdiction of the Court, and both parties fill the same character as they fill in the plaintiff’s suit, the defendant may, at the first hearing of the suit, but not afterwards unless G permitted by the Court, present a written statement containing the particulars of the debt sought to be set-off. (2) Effect of set-off.—The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Court to

157 H (2014) 4 SCC 516

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pronounce a final judgment in respect both of the original claim A and of the set-off, but this shall not affect the lien, upon the amount decreed, of any pleader in respect of the costs payable to him under the decree. (3) The rules relating to a written statement by a defendant apply to a written statement in answer to a claim of set-off.” B Rule 6(1) specifies that while filing their written statement, a defendant may mention the particulars of an ascertained sum legally recoverable from the plaintiff. Rule 6(2) notes that the effect of pleading a set-off in a written statement is the same as filing a plaint in a cross- suit. Rule 6(3) then notes that the plaintiff’s written statement in C respondent to the defendant’s set-off claim shall follow the same rules as the defendant’s written statement in response to the plaintiff’s plaint.

126Copy pinpoint126. On the other hand, a distinct provision is made for a counter- claim under Rule 6-A of Order VIII of the CPC: D “6-A. Counter-claim by defendant.—(1) A defendant in a suit may, in addition to his right of pleading a set-off under Rule 6, set up, by way of counter-claim against the claim of the plaintiff, any right or claim in respect of a cause of action accruing to the defendant against the plaintiff either before or after the filing of the suit but before the defendant has delivered his defence or E before the time limited for delivering his defence has expired, whether such counter-claim is in the nature of a claim for damages or not: Provided that such counter-claim shall not exceed the pecuniary limits of the jurisdiction of the Court. F

(2) Such counter-claim shall have the same effect as a cross-suit so as to enable the Court to pronounce a final judgment in the same suit, both on the original claim and on the counter-claim. (3) The plaintiff shall be at liberty to file a written statement in G answer to the counter-claim of the defendant within such period as may be fixed by the Court. (4) The counter-claim shall be treated as a plaint and governed by the rules applicable to plaints.” H

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A Rule 6-A(1) provides that the defendant’s counter-claim is in addition to a claim for set-off under Rule 6. It provides that the defendant may file a counter-claim based on a cause of action accruing to them against the plaintiff either before or after the filing of the suit but before the defendant has delivered his defence or before the time limited for delivering his defence has expired. The proviso notes that the value of the counter-claim cannot exceed the pecuniary jurisdiction of the court where it is being filed. Rule 6-A(2) provides that the counter-claim has the same effect as a cross-suit. Rule 6-A(3) permits a plaintiff to file a written statement against the defendant’s counter-claim. Finally, Rule 6- A(4) notes that the counter-claim shall be treated as a plaint and the rules governing plaints will be applicable to it.

127Copy pinpoint127. Rule 6-D of Order VIII is of particular importance, and it provides thus: “6-D. Effect of discontinuance of suit.—If in any case in which the defendant sets up a counter-claim, the suit of the plaintiff is stayed, discontinued or dismissed, and counter-claim may nevertheless be proceeded with.” Rule 6-D clarifies, in no uncertain terms, that even if the suit which has been instituted by the plaintiff is stayed, discontinued or dismissed, it would not affect the defendant’s counter-claim. This E highlights, once again, that counter-claims are distinct and independent from claims. The defendant’s counter-claim is equivalent to a plaint. The counter-claim is not being filed as an independent suit but as a counter-claim within a pre-existing suit so as to avoid a multiplicity of litigation. However, it is not dependant on the outcome of the original suit and is an independent proceeding. (ii) Academic discourse

128Copy pinpoint128. Mulla’s treatise on the Code of Civil Procedure notes that a counter-claim is an independent suit which exists within another pre- existing suit, in order to enable the court to pronounce final judgment on the claim and the counter-claim together158: “The very object of Rule 6A is to treat a counterclaim as an independent suit to be heard together with the plaintiff’s suit to enable the court to pronounce final judgement.” 158 H Mulla, The Code of Civil Procedure, (Volume 2, 18 th edition) page 1925

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129Copy pinpoint129. Sarkar’s Code of Civil Procedure notes that a counter- A claim is an independent action and not a defence to the plaintiff’s original claim159: “The provisions of Rule 6A(1) are in substance similar to those of RSC, 1965 [Rules of the Supreme Court of UK, 1965], Order 15, Rule 2(1). Cf Rule 6(2) with Order 8, Rule 6(2) of the Code and B Rule 6A(4) with RSC 1965, Order 18, Rule 18. The effect of this rule is from the point of view of pleading to assimilate a counter- claim with a plaint in a suit and is therefore governed by the same rules of pleading as a plaint. A counter-claim is substantially a cross-action, not merely a defence to the plaintiff’s claim. It must be of such a nature that the court would have jurisdiction to entertain it as a separate action.” (emphasis supplied) Sarkar (supra) further notes that this understanding is crystallised in Order VIII Rule 6-D, where the dismissal of a frivolous action by the plaintiff would not affect the defendant’s counter-claim: “[Rule 6-D] further illustrates the principle that a counter-claim is to be treated as a cross action, and is not affected by anything which relates solely to the plaintiff’s claim. Thus, where the plaintiff discontinues action the counter-claim has been served, he cannot prevent the defendant from enforcing against him the causes of action contained in the counter-claim. So if an action is dismissed being frivolous, the counter-claim is not affected and the defendant may be granted the relief which he seeks thereby.”

130Copy pinpoint130. The above exposition of a counter-claim is elaborated in F Halsbury’s Laws of India (Civil Procedure)160: “A “counter-claim” is a claim made by a defendant in a suit against a plaintiff. It is a claim, independent of and separable from the plaintiff’s claim, which can be enforced by a cross-action. It is a cause of action in favour of the defendant against the G plaintiff…” (emphasis supplied)

159 Sudipto Sarkar and Aditya Swarup, Sarkar’s Code of Civil Procedure (LexisNexis, 13th edition) (“Sarkar”) 160 Halsbury’s Laws of India (Civil Procedure) (2 nd edition) H

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131Copy pinpoint131. Zuckerman’s treatise on Civil Procedure, Principles of Practice also observes that counter-claims are an independent proceeding161: “4.52. A counterclaim is independent of the main claim. It may relate to the same transaction, as where the claimant claims for B the price of goods and the defendant counterclaims damages for late delivery or for defects. Equally, a counterclaim can be wholly separate from the claim, as where the defendant sues in respect of entirely different events from those that are raised in the claimant’s claim.” C (iii) Judicial pronouncements

132Copy pinpoint132. In Jag Mohan Chawla v. Dera Radha Swami Satsang162, a two-Judge Bench of this Court had to decide whether, under the CPC, a counter-claim can be made on a cause of action different from the primary claim. Speaking for the two-Judge Bench, Justice K Ramaswamy D held: “5…In sub-rule (1) of Rule 6-A, the language is so couched with words of wide width as to enable the parties to bring his own independent cause of action in respect of any claim that would be the subject-matter of an independent suit. E Thereby, it is no longer confined to money claim or to cause of action of the same nature as original action of the plaintiff. It need not relate to or be connected with the original cause of action or matter pleaded by the plaintiff. The words “any right or claim in respect of a cause of action accruing with the defendant” would show that the cause of action from which the counter-claim arises need not necessarily arise from or have any nexus with the cause of action of the plaintiff that occasioned to lay the suit…The counter-claim expressly is treated as a cross-suit with all the indicia of pleadings as a plaint including the duty to aver his cause of action and also payment of the requisite court fee thereon. Instead of relegating the defendant to an independent suit, to avert multiplicity of the proceeding and needless protection (sic protraction), the legislature

161 Zuckermann on Civil Procedure (Sweet & Maxwell, 4 th edition) 162 (1996) 4 SCC 699 H

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intended to try both the suit and the counter-claim in the same suit as suit and cross-suit and have them disposed of in the same trial. In other words, a defendant can claim any right by way of a counter-claim in respect of any cause of action that has accrued to him even though it is independent of the cause of action averred by the plaintiff and have the same cause of action adjudicated without relegating the defendant to file a separate suit…” (emphasis supplied) Hence, it was held that since the counter-claim was effectively an entirely independent suit from the claim, it could arise out of any unrelated cause of action.

133Copy pinpoint133. In Rajni Rani v. Khairati Lal163, Justice Dipak Misra (as the learned Chief Justice then was), speaking for a two-Judge Bench of this Court, analysed the provisions of Order VIII and held: “9.6…a counterclaim preferred by the defendant in a suit is in the nature of a cross-suit and by a statutory command even if the suit is dismissed, counterclaim shall remain alive for adjudication. For making a counterclaim entertainable by the court, the defendant is required to pay the requisite court fee on the valuation of the counterclaim. The plaintiff is obliged to file E a written statement and in case there is default the court can pronounce the judgment against the plaintiff in relation to the counterclaim put forth by the defendant as it has an independent status. The purpose of the scheme relating to counterclaim is to avoid multiplicity of the proceedings. When a counterclaim is dismissed on being adjudicated on merits it F forecloses the rights of the defendant. As per Rule 6-A(2) the court is required to pronounce a final judgment in the same suit both on the original claim and also on the counterclaim. The...purpose is to avoid piecemeal adjudication…”

134Copy pinpoint134. In Thomas Mathew v. KLDC Ltd., another two-Judge G Bench of this Court held that a counter-claim is an independent suit and consequently, the period of limitation would be three years from the date of accrual of the cause of action164. 163 (2015) 2 SCC 682 164 (2018) 12 SCC 560 H

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A D.3 Analysis

135Copy pinpoint135. On our analysis of the statutory framework of the Arbitration Act and the CPC, related academic discourse and judicial pronouncements, the following conclusions emerge: (i) Claims 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 (iv) The dismissal of proceedings in relation to the original claim does not affect the proceedings in relation to the counter- D claim.

136Copy pinpoint136. We must now consider these principles in the context of the inter-connection between Section 31(8), Section 31A and Section 38(1) and the Fourth Schedule of the Arbitration Act. On a combined reading of Section 31(8), Section 31A and Section 38(1), it is clear that: (i) separate deposits are to be made for a claim and counter-claim in an arbitration E 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 counter- F claim. 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.

137Copy pinpoint137. If this interpretation were to be discarded in favor of construing “sum in dispute” as a cumulation of the claim amount for the G claim and counter-claim, it would have far-reaching consequences in terms of procedural fairness. First, under the proviso to Section 38(1), the arbitral tribunal can direct separate deposits for a claim and counter- claim. These are based on the cost of arbitration defined by a conjoint reading of Sections 31(8) and 31A, which includes the arbitrators’ fee. Hence, if the arbitrators were to charge a common fee for both the H

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claim and counter-claim, they would have to then equitably divide that fee while calculating individual deposits for the purpose of the proviso to Section 38(1).Second, the second proviso to Section 38(2) provides that if the deposit is not made by both the parties, the arbitral tribunal can dismiss the claim and/or counter-claim, as the case may be. If the claim was to be dismissed in such a manner, it would lead to an absurd situation where the arbitrators’ fee would have to be revised in the middle of the arbitration proceedings solely on the basis of the amount of the counter- claim. Third, under Section 23(2-A), the only requirement of a counter- claim is that it should arise out of the same arbitration agreement as the claim. However, the cause of action of a counter-claim may be entirely different from the claim and possibly far more complex. Therefore, C determining the arbitrators’ fee on a combined basis for both the claim and counter-claim would thus not match up to the separate effort they would have to put in for each individual dispute in the claim and counter- claim.

138Copy pinpoint138. In support of the proposition that “sum in dispute” in the D Fourth Schedule includes the cumulation of the sums of the claim and counter-claim, we have also been referred to the LCI 246th Report (supra). It has been argued that the Law Commission highlighted the problem of arbitrators charging an excessive fee in ad hoc arbitrations, which is what led to the introduction of the Fourth Schedule by the Arbitration Amendment Act 2015. Thus, it has been urged that “sum in dispute” in the Fourth Schedule should be interpreted keeping in mind the purpose with which it was introduced. However, we must reject the argument since it would militate against the statutory framework of the Arbitration Act as it stands today. If Parliament intended that a common fee be charged for a claim and counter-claim, it would have amended the rest of the Arbitration Act as well or introduced a specific clause in the Fourth Schedule. Parliament may in its legislative wisdom still do so. In Aphali Pharmaceuticals Ltd. v. State of Maharashtra165 speaking for a two-Judge Bench of this Court, Justice K N Saikia held: “31. A Schedule in an Act of Parliament is a mere question of drafting…The Schedule may be used in construing provisions in the body of the Act. It is as much an act of legislature as the Act itself and it must be read together with the Act for all purposes of

165 (1989) 4 SCC 378 H

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A construction. Expressions in the Schedule cannot control or prevail against the express enactment and in case of any inconsistency between the Schedule and the enactment, the enactment is to prevail and if any part of the Schedule cannot be made to correspond it must yield to the Act.” B (emphasis supplied)

139Copy pinpoint139. In a final attempt, we have also been referred to the rules of numerous arbitral institutions which provide for the calculation of arbitrators’ fees on the cumulation of the sum of the claim and counter- claim –such as the DIAC 166, Mumbai Centre for International C Arbitration167, Indian Council of Arbitration168, Construction Industry Arbitration Council169, SIAC, HKIAC170, Stockholm.

140Copy pinpoint140. Chamber of Commerce 171 and European Court of Arbitration172. This will, however, have no bearing on our judgment. As noted earlier in this judgment, parties have the freedom to opt for D institutional arbitration and be bound by the rules of the institution. However, the judgment is currently dealing with instances of ad hoc arbitrations where the Fourth Schedule has been made applicable for the calculation of the arbitrators’ fee. In such cases, we hold that the “sum in dispute” in the Fourth Schedule of the Arbitration Act shall be

E 166 Rule 3(ii) of the DIAC Rules provides: “3. Arbitrators’ Fees - (ii)The fee shall be determined and assessed on the aggregate amount of the claim(s) and counter claim(s)”. 167 Based on its online Fee Calculator available at <https://mcia.org.in/mcia-schedule- of-fees/calculate_fees/#> accessed on 29 June 2022 168 Rule 31(2) of Rules of Domestic Commercial Arbitration and Conciliation 169 Schedule of Fees available at <http://www.ciac.in/fee_arbitrator.html> accessed on F 29 June 2022 170 Article 6.3 of Schedule III of HKIAC Administered Arbitration Rules 2013 provides: “6.3 Claims and counterclaims are added for the determination of the amount in dispute. The same rule applies to any set-off defence, unless the arbitral tribunal, after consulting with the parties, concludes that such set-off defence will not require significant additional work”. 171 Article 2 of Appendix IV of 2017 Arbitration Rules provides: “(3) The amount in G dispute shall be the aggregate value of all claims, counterclaims and set-offs. Where the amount in dispute cannot be ascertained, the Board shall determine the Fees of the Arbitral Tribunal having regard to all relevant circumstances.”. 172 Appendix 3 of the Arbitration Rules of the European Court of Arbitration – 2021 provides: “For the purposes of the application of the scale range the amount to be taken into account to apply this scale will be the total of the claims made by the parties, i.e. of the claims and counterclaims.”. H

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considered separately for the claim amount in dispute in the claim and counter-claim. Consequently, the arbitrators’ fee will be calculated separately for the claim and counter-claim, and the ceiling on the fee will also be applicable separately to both. E Fee Ceiling in Fourth Schedule

141Copy pinpoint141. This issue revolves around the interpretation of the sixth entry of the Fourth Schedule. For convenience of the reader, the Fourth Schedule is being extracted again: “THE FOURTH SCHEDULE See Section 11(3-A) C

Note: In the event the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent on the fee payable as per the above.” (emphasis supplied) H

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142Copy pinpoint142. The choice before this Court is between two competing interpretations of the Model Fee where the sum in dispute is above Rs 20,00,00,000. Before we explain the competing interpretations, it is important to note that there is an agreement on the following: (i) For an arbitration with the sum in dispute is Rs 20,00,00,000, B the fee would be Rs 19,87,500. This will be referred to as the base amount; (ii) For any increase in the sum in dispute over and above Rs 20,00,00,000, 0.5 per cent of the amount above Rs 20,00,00,000 will be added to the fee. This will be referred C to as the variable amount. For instance, if the sum in dispute was Rs 21,00,00,000, the amount above Rs 20,00,00,000 is Rs 1,00,00,000. Hence, 0.5 per cent of Rs 1,00,00,000 will be added as the variable amount; and (iii) There is a ceiling of Rs 30,00,000. D The controversy before this Court is in relation to the third point, namely, to what does the ceiling apply. There are two possible interpretations: (i) First, the ceiling is for the sum of the base amount and the variable amount. If this interpretation were to be accepted, E the highest possible fee would be Rs 30,00,000; or (ii) Second, the ceiling is for the variable amount only. If this interpretation were to be accepted, the highest possible fee would be Rs 49,87,500. E.1 Difference between the English and Hindi translations F

143Copy pinpoint143. The first submission before us is that there is a difference between the English and Hindi translation of the relevant text. For ready reference, the two versions are being extracted below:

Rs.19,87,500 plus 0.5 per cent of 19]87]500 :i, $ 20]00]00]000 :i, ls G the claim amount over and above vf/kd dh nkok jde dk 0-5 izfr”kr] Rs.20,00,00,000 with a ceiling of 30]00]000 :i, dh vf/kdre lhek Rs.30,00,000. lfgrA

(emphasis supplied) H

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The difference between the two is the presence of a comma (“,”) A in the Hindi translation, which is absent in the English version. It has been submitted that the comma was inadvertently missed from the English version, and hence the Hindi translation should be given preference. In support of this proposition, reliance is also placed upon Article 343(1) of the Constitution which provides that “[t]he official language of the Union B shall be Hindi in Devanagari script”.

144Copy pinpoint144. We must reject this submission at the threshold since it is in teeth of Article 348(1)(b)(ii) of the Constitution, which reads thus: “348. Language to be used in the Supreme Court and in the High Courts and for Acts, Bills, etc.—(1) Notwithstanding C anything in the foregoing provisions of this Part, until Parliament by law otherwise provides— […] (b) the authoritative texts— D (i) of all Bills to be introduced or amendments thereto to be moved in either House of Parliament or in the House or either House of the Legislature of a State, […] shall be in the English language.” E Article 348 begins with a non-obstante clause, which clarifies that it shall have precedence over other Articles in Part XVII, including Article 343(1).

145Copy pinpoint145. In Nityanand Sharma v. State of Bihar173, a three-Judge Bench of this Court had to decide whether the ‘Lohar’ community would F be construed as a Scheduled Tribe since their name appeared in the Schedule in the Hindi translation while the English original had the community “Lohra”. Speaking for the Bench, Justice K Ramaswamy held: “19. Article 348(1)(b) of the Constitution provides that notwithstanding anything in Part II (in Chapter II Articles G 346 and 347 relate to regional languages) the authoritative text of all Bills to be introduced and amendments thereto to be moved in either House of Parliament … of all

173 (1996) 3 SCC 576 H

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A ordinances promulgated by the President… and all orders, rules, regulations and bye-laws issued under the Constitution or under any law made by Parliament, shall be in the English language. By operation of sub-article (3) thereof with a non obstante clause, where the Legislature of a State has prescribed any language other than the English language for use B in Bills introduced in, or Acts passed by, the Legislature of the State or in Ordinances promulgated by the Governor of the State or in any order, rule, regulation or bye-law referred to in paragraph (iii) of that sub-clause, a translation of the same in the English language published under the authority of the Governor of the C State in the Official Gazette of that State shall be deemed to be the authoritative text thereof in the English language under this article. Therefore, the Act and the Schedule thereto are part of the Act, as enacted by Parliament in English language. It is the authoritative text. When the Schedules were translated into Hindi, the translator wrongly translated Lohara as Lohar D omitting the letter ‘a’ while Lohra is written as mentioned in English version. It is also clear when we compare Part XVI of the Second Schedule relating to the State of West Bengal, the word Lohar both in English as well as in the Hindi version was not mentioned. Court would take judicial notice of Acts of Parliament and would E interpret the Schedule in the light of the English version being an authoritative text of the Act and the Second Schedule.” (emphasis supplied) Similarly, in the present case, this Court shall be governed by article 348 (1)(b)(i) while interpreting the entry at Serial No 6 of the Fourth F Schedule. E.2 Exception to literal interpretation

146Copy pinpoint146. There is no comma in the English version of the sixth entry of the Fourth schedule. Hence, there is nothing to suggest conclusively (unlike the Hindi translation) that the ceiling of Rs 30,00,000 applies G cumulatively to the sum of the base amount and variable amount.

147Copy pinpoint147. The absence of a comma may be one indicator of the meaning of a provision. However, in his seminal treatise on Principles of Statutory Interpretation, Justice GP Singh has observed174 : 174 H Justice GP Singh, Principles of Statutory Interpretation (14th edition, LexisNexis)

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“In England, before 1850, there was no punctuation in the manuscript copy of any Act which received the Royal assent; therefore, the courts cannot have any regard to punctuation for construing the older Acts. Even as regards more modern Acts, it is very doubtful if punctuation can be looked at for purposes of construction. The opinion on Indian statutes is not very much different.”

148Copy pinpoint148. Similarly, Bennion in his treatise on Statutory Interpretation notes175 : “16.8. Punctuation is a part of an Act and may be considered in construing a provision. It is usually of little weight, however, since the sense of an Act should be the same with or without its punctuation…Although punctuation may be considered, it will generally be of little use since the sense of an Act should be the same with or without it. Punctuation is a device not for making meaning, but for making meaning plain. Its purpose is to denote the steps that ought to be made in oral reading and to point out the sense. The meaning of a well-crafted legislative proposition should not turn on the presence or absence of a punctuation mark.”

149Copy pinpoint149. In Aswini Kumar Ghose v. Arabinda Bose 176 , a Constitution Bench of this Court had to interpret provisions of the Bar Councils Act 1926. A key submission was in reference to the presence of a comma before the word “or” in the non-obstante provision. Justice B K Mukherjea in his judgment observed: “56…Punctuation is after all a minor element in the construction of a statute, and very little attention is paid to it by English courts. Cockburn, C.J. said in Stephenson v. Taylor [(1861) 1 B & S p. F 101] : “On the Parliament Roll there is no punctuation and we therefore are not bound by that in the printed copies”. It seems, however, that in the Vellum copies printed since 1850 there are some cases of punctuation, and when they occur they can be looked upon as a sort of contemporanea exposition[See Craies on G Statute Law, p. 185]. When a statute is carefully punctuated and there is doubt about its meaning, a weight should undoubtedly be

175 Diggory Bailey and Luke Norbury, Bennion on Statutory Interpretation (7 th edition, LexisNexis) 176 1953 SCR 1 H

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A given to the punctuation [Vide Crawford on Statutory Construction, p. 343]. I need not deny that punctuation may have its uses in some cases, but it cannot certainly be regarded as a controlling element and cannot be allowed to control the plain meaning of a text [Ibid].” B Thus, Justice Mukherjea chose a middle-path where the learned Judge admitted to the use of punctuation but held that it still cannot be a controlling element in interpreting a provision.

150Copy pinpoint150. Another Constitution Bench of this Court in Indore Development Authority (LAPSE-5 J.) v. Manoharlal177, has noted its support of the use of punctuation as a tool of interpretation and cited with approval the following extract from Taylor v. Caribou178: “We are aware that it has been repeatedly asserted by courts and jurists that punctuation is no part of a statute, and that it ought not to be regarded in construction. This rule in its origin was founded upon commonsense, for in England until 1849 statutes were entrolled upon parchment and enacted without punctuation…Such a rule is not applicable to conditions where, as in this State, a Bill is printed and is on the desk of every Member of the Legislature, punctuation and all, before its final passage. There is no reason why punctuation, which is intended to and does assist in making clear and plain the meaning of all things else in the English language, should be rejected in the case of the interpretation of statutes. “Cessante ratione legis cessat ipso lex”. Accordingly we find that it has been said that in interpreting a statute punctuation may be resorted to when other means fail…; that it may aid its construction…; that by it the meaning may often be determined; that it is one of the means of discovering the legislative intent…; that it may be of material assistance in determining the legislative intention…” Indeed, in Mohd. Shabir v. State of Maharashtra, a two-Judge G Bench of this Court held that mere stocking was not an offence under Section 27 of Drugs and Cosmetics Act 1940 due to the absence of a comma after the word “stock”179.

177 (2020) 8 SCC 129 178 102 Me 401 : 67 A 2 (1907) 179 H (1979) 1 SCC 568

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151Copy pinpoint151. In the present case, the English version of the entry at Serial A No 6 of the Fourth Schedule does not have any comma. Due to its absence, it can be construed that the literal meaning of the provision is that the ceiling should only apply to the variable amount. However, Maxwell on The Interpretation of Statutes notes that the literal meaning of a provision must be rejected when it goes manifestly against the legislative intent behind the enactment180: “WHERE the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used.” E Hence, in the present case, we must aim to ascertain the legislative intent behind the Fourth Schedule. E.3 Interpretation based on legislative intent

152Copy pinpoint152. The Fourth Schedule was added to the Arbitration Act pursuant to the Arbitration Amendment Act 2015, which in itself was based upon the recommendations in the LCI 246th Report (supra). The Report referred to the judgment in Singh Builders (supra), which raised the issue of arbitrators charging exorbitant fees: “20. Another aspect referred to by the appellant, however requires serious consideration. When the arbitration is by a tribunal consisting of serving officers, the cost of arbitration is very low. On the other hand, the cost of arbitration can be high if the Arbitral Tribunal consists of retired Judge(s). 180 P St J Langan, Maxwell on The Interpretation of Statutes (N M Tripathi Private Ltd, 1976) H

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

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

23. It is necessary to find an urgent solution for this problem to save arbitration from the arbitration cost. Institutional arbitration has provided a solution as the arbitrators’ fees is not fixed by the arbitrators themselves on case-to-case basis, but is governed by a uniform rate prescribed by the institution under whose aegis the arbitration is held. Another solution is for the court to fix the fees at the time of appointing the arbitrator, with the consent of parties, if necessary in consultation with the arbitrator concerned. Third is for the retired Judges offering to serve as arbitrators, to indicate their fee structure to the Registry of the respective High Court so that the parties will have the choice of selecting an arbitrator whose fees are in their “range” having regard to the stakes involved.”

153Copy pinpoint153. After noting the judgment in Singh Builders (supra), the LCI 246th Report (supra) stated as follows: H

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“11. In order to provide a workable solution to this problem, the A Commission has recommended a model schedule of fees and has empowered the High Court to frame appropriate rules for fixation of fees for arbitrators and for which purpose it may take the said model schedule of fees into account. The model schedule of fees are based on the fee schedule set by the Delhi High Court B International Arbitration Centre, which are over 5 years old, and which have been suitably revised. The schedule of fees would require regular updating, and must be reviewed every 3-4 years to ensure that they continue to stay realistic. 12.The Commission notes that International Commercial arbitrations involve foreign parties who might have different values C and standards for fees for arbitrators; similarly, institutional rules might have their own schedule of fees; and in both cases greater deference must be accorded to party autonomy. The Commission has, therefore, expressly restricted its recommendations in the context of purely domestic, ad hoc, arbitrations.” D As a means of controlling the rising fees of arbitrators, the Law Commission proposed a model fee schedule based on the one used by the DIAC. Schedule B of the DIAC Rules provides that when the sum in dispute is above Rs 20,00,00,000, the fees shall be “Rs.19,87,500/- + 0.5% of the claim amount over and above Rs.20 crores, with a ceiling of E Rs.30,00,000/-”. Evidently, the DIAC Rules have a comma, which would mean that the ceiling would have been applicable to the base amount and the variable amount.

154Copy pinpoint154. In Mithilesh Kumari v. Prem Behari Khare181, a two- Judge Bench of this Court held that, depending on the facts and circumstances of each case, law commission reports preceding enactments of statutes can be relied on as an aid in interpretation. Speaking for the Bench, Justice K N Saikia held: “15…where a particular enactment or amendment is the result of recommendation of the Law Commission of India, it may be permissible to refer to the relevant report as in this case. What importance can be given to it will depend on the facts and circumstances of each case.”

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155Copy pinpoint155. The LCI 246th Report (supra), indicates that the legislative intent behind the introduction of the Fourth Schedule was to put an end to the practise of arbitrators charging exorbitant fees from the parties taking their services in ad hoc arbitrations. Consequently, when we have the option of setting the ceiling of the fees in the Fourth Schedule at either Rs 30,00,000 or Rs 49,87,500, we believe that it would be appropriate to choose the lower amount since it would be in keeping with legislative intent. The 2015 Arbitration Amendment Act was clearly enacted with the intent to give effect to the recommendation of the LCI 246th Report on the point. Thus, we hold that the ceiling of Rs 30,00,000 in entry at Serial No 6 of the Fourth Schedule is applicable to the sum of base amount and the variable amount, and not just the variable amount. F Ceiling applicable to individual arbitrators

156Copy pinpoint156. The final submission made before this Court was that the ceiling of Rs 30,00,000 prescribed in the entry at Serial No 6 of the Fourth Schedule will be applicable to the cumulative fee paid to the entire arbitral tribunal, i.e., in a three-member tribunal, each individual arbitrator would receive a fee of Rs 10,00,000.

157Copy pinpoint157. Such a submission is erroneous, and hence we must reject it.First, there is nothing in the language of the Fourth Schedule to support such an interpretation. The header of the third column states “Model E Fee” and does not specify it to be in respect of the whole tribunal. Second, if such an interpretation were to be adopted, it would lead to absurd consequences. For instance, in an arbitration where the sum in dispute is large enough to trigger the ceiling of Rs 30,00,000 and it were to be adjudicated by a three-member tribunal, the maximum fee would have to be divided amongst the three arbitrators. On the other hand, if the same dispute were to be adjudicated by a sole arbitrator, the sole arbitrator would then receive the whole amount of the maximum fee, i.e., triple of what each individual arbitrator would have received in a three-member tribunal. Such a disparity is inconceivable, regardless of the extra work a sole arbitrator may have to put in. This is further bolstered by the Note to the Fourth Schedule, which states that “[i]n the event the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty- five per cent on the fee payable as per the above”. Consequently, the sole arbitrator would not only receive Rs 30,00,000, but an additional 25 per cent over and above it. Indeed, it is clear that the Note was added to the H Fourth Schedule to fairly compensate sole arbitrators who arguably would

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have to do more work than as a member of a larger tribunal; which is why A 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 multi- member tribunal or a sole arbitrator. Finally, this interpretation of the Fourth B Schedule, that the fee provided therein is applicable for each individual arbitrator and not the whole arbitral tribunal, has also been fairly conceded before this Court by the learned Attorney General. G Conclusion G.1 Findings C

158Copy pinpoint158. We answer the issues raised in this batch of cases in the following terms: (i) Arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. A unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition ofin rem suam decisions, i.e., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration. However, the arbitral tribunal has the discretion to apportion the costs (including arbitrators’ fee and expenses) between the parties in terms of Section 31(8) and Section 31A of the Arbitration Act and also demand a deposit (advance on costs) in accordance with Section 38 of the Arbitration Act. If while fixing costs or deposits, the arbitral tribunal makes any finding relating to arbitrators’ fees (in the absence of an agreement between the parties and arbitrators), it cannot be enforced in favour of the arbitrators. The arbitral tribunal can only exercise a lien over the delivery of arbitral award if the payment to it remains outstanding under Section 39(1). The party can approach the court to review the fees demanded by the arbitrators if it believes the fees are unreasonable under Section 39(2); (ii) Since this judgment holds that the fees of the arbitrators must be fixed at the inception to avoid unnecessary litigation and conflicts between the parties and the arbitrators at a H

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A later stage, this Court has issued certain directives to govern proceedings in ad hoc arbitrations in Section C.2.4; (iii) The term “sum in dispute” in the Fourth Schedule of the Arbitration Act refers to the sum in dispute in a claim and counter-claim separately, and not cumulatively. B 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; C (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. E G.2 Directions

159Copy pinpoint159. We issue the following directions in each of the cases before this Court: (i) In respect of Arbitration Petition (Civil) No 5 of 2022, a fee schedule for the arbitrators was already prescribed in the LSTK contract. However, during the preliminary meeting on 25 November 2015, the arbitral tribunal observed that the fee schedule in the LSTK contract was unrealistic. While Afcons agreed to revise the fees, ONGC expressed its disagreement. The tribunal directed ONGC to consider revising the fees. On 16 April 2016,the arbitral tribunal informed ONGC that it would no longer bargain on the amount of fees if ONGC was agreeable to the fee provided in the Fourth Schedule to the Arbitration Act, along with a reading fee of Rs 6 lakhs for each arbitrator. By its letter dated 22 April 2016, ONGC indicated that it was agreeable

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to revising the fees in terms of the Fourth Schedule. It only A objected to the reading fee. Subsequently, the arbitral tribunal passed a procedural order dated 4 August 2016 directing the parties to deposit 25 per cent of the arbitrators’ fee, which was recorded as Rs 30 lakhs. It seems a ceiling of Rs 30 lakhs was determined following the Fourth Schedule B to the Arbitration Act. However, the arbitral tribunal then unilaterally decided to revise the fees and passed a procedural order fixing a fee of Rs 1.5 lakhs for each arbitrator for every sitting of a three-hour duration. The tribunal also indicated it may also charge a reading or conference fee, which would be decided at a later stage. C By an order dated 25 July 2019, the arbitral tribunal adjusted its fees to Rs 1 lakh per sitting. Around 54 sittings have been held in terms of the arbitral tribunal’s order dated 25 July 2019. In this background, it is evident that there was no consensus between the parties and the arbitrators regarding the fee that is to be paid to the members of the D arbitral tribunal. Allowing the continuance of the arbitral tribunal would mean foisting a fee upon the parties and the arbitral tribunal to which they are not agreeable. In view of our directives in Section C.2.4 and the facts noted earlier, we exercise our powers under Article 142 of the Constitution E of India and direct the constitution of a new arbitral tribunal in accordance with the arbitration agreement. For this purpose, Arbitration Petition (C) No. 5 of 2022 would be listed for directions before this Court on 21 September 2022. The above directions should not be construed as a finding on the conduct of the arbitration proceedings. These F directions are an attempt to ensure that the arbitral proceedings are conducted without rancour which may derail the proceedings. In consonance with our findings, the fee payable to the earlier arbitral tribunal would be the fee payable in terms of the Fourth Schedule of the Arbitration G Act. Though the Fourth Schedule is per se not applicable to an international commercial arbitration, since ONGC had indicated (following the suggestion of the arbitral tribunal) that it would be agreeable to pay the fee payable in terms of Schedule, it cannot now take recourse to the arbitration agreement between the parties to pay a lesser fee. We H

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160Copy pinpoint160. Before parting, we would like to place on record our sincere D appreciation for the submissions made by the amicus curiae, Mr Huzefa Ahmadi who was ably assisted by Ms Anushka Shah.

161Copy pinpoint161. Pending applications, if any, stand disposed of.

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

2. While I am entirely in agreement with the considered view expressed by esteemed brother D.Y. Chandrachud, J. that –(a) party autonomy and arbitration agreement are the foundation of the arbitral process, and therefore, when the parties fix the fee payable to the arbitral tribunal, the law does not permit the arbitral tribunal to derogate and ask for additional or higher fee; (b) where the court while appointing an arbitrator fixes the fee, the arbitral tribunal cannot ask for supplementary or higher fee; and (c) in both cases, the fee payable to the arbitral tribunal may be enhanced either by a written agreement between the parties or by a court order. However, I am unable to concur that in the absence of any agreement between the parties, or the parties and the arbitral tribunal,

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or a court order fixing the fee, the arbitral tribunal is not entitled to fix the fee, as I am of the opinion that by the implied terms of the contract and as per the provisions of the Arbitration and Conciliation Act, 19961, an arbitral tribunal can fix a reasonable fee, which an aggrieved party, who is not a signatory to the written agreement, can question under sub- section (3) of Section 39 of the A&C Act during the pendency of the arbitration proceedings, or in case the arbitral tribunal claims lien on the award in terms of sub-section (2) to Section 39 of the A&C Act. At the same time, I respectfully agree with brother D.Y. Chandrachud, J., that when an arbitral tribunal, even in the absence of consent of the parties, fixes the fee in terms of the Fourth Schedule2, the parties should not be permitted to object the fee fixation. The Fourth Schedule is the default fee, declared by the legislature as fair and reasonable, which can be changed by mutual consensus, and not otherwise. Further, post the enforcement of the Arbitration Amendment Act, 2019 vide Act 33 of 2019 on 30th August 2019, and insertion of 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 Act, the fee fixed by the institution “subject to the rates specified in the Fourth Schedule” would be payable.

3. On interpretation of the Fourth Schedule, I respectfully agree with the view expressed by learned D.Y. Chandrachud J. on interpretation of Serial No.6 and that the fee prescribed is for each member of the arbitral tribunal, with a note providing for an additional amount of twenty five percent in case of a sole/single 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 F “sum in dispute” means the sum total of both the claims and counter claims. Background of the problem of high cost of arbitration, the legislative history and remedial changes in the Arbitration and Conciliation Act, 1996. G

4. The issue of skyrocketing costs of arbitration has been a subject of concern and lament in two decisions of this Court in Union of India

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A v. Singh Builders Syndicate3 and Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust and Others.4 The Court in Singh Builders Syndicate (supra) judicially noticed the prevalent opinion that the cost of arbitration becomes very high when retired judges are appointed as arbitrators. A large number of sittings, fee being charged on a “per sitting” basis, and several other add-ons without any ceiling contribute to the cost of arbitration approaching or even at times exceeding the amount involved in the dispute or the award amount. When an arbitrator is appointed by the Court without prior fixation of fee, either of the parties might be at a disadvantage as they feel invariably compelled to agree to whatever fee is suggested by the arbitrator, even if it is extravagant and beyond their paying capacity. Secondly, in the event one party agrees to pay such a fee, the other party who is unable to afford or reluctant to pay such a fee is put in an embarrassing position. The party may be disinclined to express reservation or object to the high fee owing to the apprehension that this may prejudice his case or create a bias in favour of the other party. The decision in Sanjeev Kumar Jain (supra) refers to the statutory provisions of the A&C Act, namely, Section 31(8), as it existed, dealing with costs of arbitration, and the explanation that defines the expression ‘costs’ to mean reasonable costs relating to (i) the fees and expenses of arbitrators and witnesses, (ii) legal fee and expenses (iii) any administration fee of the institution supervising the arbitration, and (iv) other expenses incurred in connection with the arbitration proceedings and the arbitral award. Interpreting Section 11 of the A&C Act which deals with the appointment of an arbitrator, the Court opined that the word ‘appointment’ not only means nominating or designating a person who will act as an arbitrator, but is wide enough to encompass stipulating terms on which he is appointed. Therefore, it is open to the F Court, at the time of appointment of an arbitrator under Section 11, to stipulate the fees payable to the tribunal. This, the court commended, should be done after hearing the parties, and if necessary, after ascertaining the fee structure from the prospective arbitrators, to avoid the situation where the parties have to negotiate the terms of the fee G after the appointment of the arbitral tribunal. The judgment adverts to institutionalised arbitration as the preferred mode as fixed fee is prescribed by the institution under whose aegis the arbitration is held, viz.ad hoc arbitrations, where the arbitrators are appointed by the parties 3 (2009) 4 SCC 523 4 H (2012) 1 SCC 455

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with or without the intervention of the court, albeit in the absence of any agreement between the parties on the procedure to be followed, the arbitral tribunal, subject to Part 1 of the A&C Act, conducts the proceedings in the manner it deems appropriate.5 Referring to the ad hoc arbitrations in India, the Court judicially acknowledged that frequent complaints regarding the cost of arbitration, including high fees charged by arbitrators, have adversely affected the efficiency and effectiveness of arbitration. While some of the criticism may be harsh as it would be wrong to state that there is a universalisation of stray aberrations, the court observes that these are still matters of concern and the remedy for healthy development of arbitration in India is to disclose the fee structure before the appointment of the arbitrators so that any party which is unwilling to bear such expenses can express its unwillingness. Consequently, the judgment ennobles and leans towards institutionalised or ad hoc arbitration, where the arbitrator’s fee is prefixed. Another remedy that the court suggested is for each High Court to have a scale of arbitrator’s fee, suitably calibrated with reference to the amount in dispute. These steps, the Court felt, would make arbitration attractive to the litigant public. Reasonableness and certainty regarding the total costs are the key to the development of arbitration.

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

5 The observations on ad hoc arbitration are my observations with reference to sub- sections (2) and (3) to Section 19 of the A&C Act, which postulate that the arbitral tribunal, subject to the agreement between the parties, is entitled to conduct the proceedings in the manner it considers appropriate. H

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A 6. In view of the recommendations made by the Law Commission, the A&C Act was amended effective from23rd October 2015, vide Act No. 3 of 2016, with the insertion of the Fourth Schedule to the A&C Act, exemplifying a schedule of fee payable to the arbitrators. Sub-section (14) to Section 11was enacted, and read thus: B “(14) For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule. Explanation.– For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.” The fee structure in the Fourth Schedule was to serve as a guide for the different High Courts to frame rules determining the fee payable to the arbitral tribunals. However, most of the High Courts did not frame rules under Section 11(14) for the purpose of determination of fee and the manner of payment to the arbitral tribunal.6 Further, the rules, as framed by the High Courts, except for the High Court of Kerala, are applicable when the arbitrators are appointed by the Court or the parties by agreement or mutual consent agree to be governed by the applicable rules. Resultantly, the desired purpose of Section 11(14) has not been met, and remains unrealised.

7. Based on the High Level Committee Report dated 30th July 2017, vide Act No. 33 of 2019, a number of significant amendments were made to the A&C Act to promote and establish the culture of institutional arbitration. The relevant amendments, for our purpose, include the amendment to Section 2(1), by inserting clause (ca) which defines the expression “arbitral institution” as “an arbitral institution designated by the Supreme Court or a High Court under this Act”. PartIA consisting of Sections 43A to 43M have been inserted for the establishment and incorporation of an Arbitration Council of India, with Section 43D prescribing duties and functions of the said Council, which include framing policies governing gradation of arbitral institutions, recognising professional 6 High Courts of Kerala, Madhya Pradesh, Delhi, Punjab and Haryana, Rajasthan, H Karnatakaand Madras have framed rules.

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institutes providing accreditation of arbitrators, review or grading of arbitral institutions or arbitrators, making recommendations to the Central Government on various measures to be adopted and to make provisions for easy resolution of commercial disputes. Simultaneously, sub-section (3A) to Section 11 has been inserted and reads: “(3A) The Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which have been graded by the Council under section 43-I, for the purposes of this Act: Provided that in respect of those High Court jurisdictions, where no graded arbitral institution are available, then, the Chief Justice C of the concerned High Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral institution and any reference to the arbitrator shall be deemed to be an arbitral institution for the purposes of this section and the arbitrator appointed by a party shall be entitled to such fee at the rate as specified in the Fourth Schedule: Provided further that the Chief Justice of the concerned High Court may, from time to time, review the panel of arbitrators.” Corresponding substitutions/insertions have been made in sub- sections (4), (5), (6), (8) and (9) to Section 11 to provide for and give effect to the provisions that appointment of an arbitrator shall be made on an application of a party by the arbitral institution designated by the Supreme Court in the case of international commercial arbitration or by the High Court in other cases. Sub-section (11) to (14) to Section 11 as substituted read: F “(11) Where more than one request has been made under sub- section (4) or sub-section (5) or sub-section (6) to different arbitral institutions, the arbitral institution to which the request has been first made under the relevant sub-section shall be competent to appoint. G (12) Where the matter referred to in sub-sections (4), (5), (6) and (8) arise in an international commercial arbitration or any other arbitration, the reference to the arbitral institution in those sub- sections shall be construed as a reference to the arbitral institution designated under sub-section (3A). H