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

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A (13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the arbitral institution within a period of thirty days from the date of service of notice on the opposite party. (14) The arbitral institution shall determine the fees of the arbitral B tribunal and the manner of its payment to the arbitral tribunal subject to the rates specified in the Fourth Schedule.”

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

9. The question of quantum of fee payable to the arbitrators can be broadly divided into three categories: (i) institutionalised arbitration where the fee payable to the arbitrator is governed by the prescribed fee schedule. In the present petition/appeals, we are not concerned with such cases8; (ii) ad hoc arbitrations where (a) the fee is prescribed in the agreement between the parties, (b) where the fee is fixed by the court while appointing the arbitral tribunal, (c) where no fee is prescribed in the agreement between the parties, or where the court while appointing the arbitral tribunal does not fix the fee or permits the arbitral tribunal to fix the fee ; and (iii) where the arbitration fee is prescribed and governed by the Fourth Schedule to the A&C Act.

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10. While deciding questions relating to the second category, I A would refer to and interpret the statutory provisions pre and post Amendment Act No.3 of 2016 and Amendment Act No.33 of 2019, and elucidate on the rights of the parties/ litigants in the fee fixation. In the second portion of my judgment, I would examine and interpret the Fourth Schedule. B Who decides the fee payable to the Arbitral Tribunal? (a) Where fee payable is fixed by an agreement between the parties, or by a court order.

11. Arbitration is contract centric and is structured on party autonomy. The parties are free to agree upon the procedure on conduct of the arbitration, which includes the right to fix the fee payable to the arbitrator. While the relationship between the parties and the arbitrator is based on the contract, the arbitrator’s status as ade-jure adjudicator stems directly from the law. The relationship between the parties and the arbitral tribunal is both contractual and statutory. Consequently, an arbitral tribunal, in addition to the contractual terms, must abide by the rules and procedure that are bare essential pre-requisites of any dispute resolution system.9 In Sanjeev Kumar Jain (supra), this court has held that when a court appoints an arbitrator, and also fixes the fee, whether in terms of the Fourth Schedule or otherwise, the fee is binding on the arbitrator/tribunal. The arbitral tribunal, while accepting an appointment, must accept the remuneration as fixed by the parties or as determined in the court order appointing the tribunal. Russell pertinently observes that the appointment of an arbitrator is a matter of contract, subject to mandatory provisions of the statute An arbitrator will not be usually entitled to increase his fee and expenses unless his agreement with the parties allows him to do so.10 The arbitrators should not exceed their authority, either under the terms of the arbitration agreement fixing their fee, or under their powers in law, which does not permit them to rewrite the agreement or ignore the court order fixing the fee. It follows that the

9 Julian D.M. Lew , Loukas A. Mistelis , et al., Comparative International Commercial G Arbitration, ‘Chapter 12 Rights and Duties of Arbitrators and Parties’, pp. 276 - 277 10 Russell on Arbitration (24th Edition). Russell also observes that attempts to increase fee have led to allegation of bias against the arbitrators and of what used to be called ‘misconduct’, and if pursued unreasonably, would lead to an application for removal of an arbitrator or even challenge to an award made by him because of the breach of duty to avoid unnecessary expense. H

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A arbitral tribunal, during the proceedings, is not entitled to unilaterally increase its fee, unless the agreement on which it is constituted allows it to do so, or all parties voluntarily agree to enhancement. Where fee is fixed by a court order, the arbitral tribunal may approach the court for modification/increase in the fee by giving reasons justifying the same. Unilateral increase is unacceptable, as explained in the judgment by B D.Y.Chandrachud J. and in my opinion this would violate the provisions of the A&C Act. This principle applies to institutional arbitration, as an arbitrator/tribunal so appointed is bound by the rules of the institution and must abide by the terms of appointment. Where an arbitral tribunal solicits higher fees, an aggrieved party, in my opinion, as explained below, can approach the court for appropriate orders under sub-sections (2) or (3) to Section 39 of the A&C Act. (b) Where fee is not fixed by a court order, or an agreement between the parties.

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the right to payment of reasonable fees under a contract implied by conduct in circumstances where a party participates in the arbitration, even if that party disputes the jurisdiction of the tribunal. Referring to the English Arbitration Act, 1996, he states that the enactment provides that the parties are jointly and severally liable to pay to the arbitrators such reasonable fee and expenses. The level of fee may be agreed directly with the arbitral tribunal, which normally occurs in ad hoc arbitration. However, in the absence of any established arrangement, it is desirable that the parties and the tribunal should negotiate and agree on the fee payable beforehand, which must be reasonable. Gary B. Born,15 referring to the 2010 UNICITRAL Rules, observes that where the parties do not discuss a method of calculation of the arbitrator’s C remuneration, the arbitrator is entitled to a reasonable fee. What is ‘reasonable’ depends on the facts and on what the national systems prescribe. This includes judicial assessment of the appropriate amount, 16 an aspect which Iwould elucidate subsequently. The model law adopted by the UNCITRAL on International Commercial Arbitration recognises that the arbitrators must be compensated for their services and this flows from the contractual relationship between the parties and the arbitrator, as well as customary practices. The 1976 UNCITRAL Rules had expressly allowed the arbitrators to determine their own fee, which should be reasonable, taking into account the sum in dispute and the complexity of the dispute. Further, the rules require the arbitrators take into account the schedule of the fee that has been issued or provided by an appointing authority, if designated by the parties. The 1976 UNICTRAL rule position was criticised as granting arbitrators undue authority to determine their compensation. The revised rules issued in 2010, while continuing with the substantial role to the arbitrators in deciding the ‘reasonable’ fee, requires the arbitrators to inform the parties as to how it proposes to determine its fee and expenses promptly after its constitution. Thereby the process of determining the fee ismadetransparent. The fee set by the arbitrators can be reduced if it is not reasonable and challenged within the prescribed period by the party moving to the appointing/ designated authority, and in absence of designated authority, the review is undertaken by the Secretary General of the Permanent Court of Arbitration.

15 ‘International Commercial Arbitration’, 2 nd Edition, 2914 @ paragraph 13.04. 16 Julian D.M. Lew , Loukas A. Mistelis , et al., Comparative International Commercial Arbitration, ‘Chapter 12 Rights and Duties of Arbitrators and Parties’, pp. 2167-2173 H

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A 13. I would now turn my attention to the statutory provisions of the A&C Act, and would state that my attention has not been drawn to any provision which expressly or by necessary implication barsan arbitral tribunal from determining its fee, or to infer that the prohibition of nemo judex in causa sua (judge in your own cause) applies to arbitrations in India. Section 517 of the A&C Act states that in matters governed by B Part 1, no judicial authority shall intervene except when provided in Part

1. Therefore, unless a provision in Part 1 of the A&C Act confers jurisdiction on the court in respect of the matter, by inference the subject- matter would fall within the implied jurisdiction of the arbitral tribunal. Section 2(6) of the A&C Act states that where Part 1, except for Section C 28, leaves the parties to determine a certain issue, that freedom shall authorise any person, including the arbitral tribunal, to determine that issue18. Sub-section (2) to Section 1919 states that subject to provisions of Part 1, the parties are free to agree on the procedure to be followed by the arbitral tribunal. Sub-section (3) to Section 1920 states that where the parties fail to reach an agreement, subject to adhering to the provisions D of Part 1, the arbitral tribunal is entitled to conduct the proceedings in the manner it considers appropriate. It follows that, where the parties do not agree on the fee, or the court while appointing an arbitral tribunal does not fix the fee, the arbitral tribunal by implication is authorised to fix the fee, which should be reasonable.

E 14. I would respectfully agree with D.Y. Chandrachud J. that the process of fixation of fee by the arbitral tribunal should be in accordance with public policy underlying arbitration, that is, with agreement and consensus of the parties who bear the cost of arbitration. The arbitral tribunal should be transparent and disclose the fee structure and terms of payment at the preliminary stage, so that an unwilling party can express

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its unwillingness. No party should feel compelled to agree and therefore, it is necessary that the consent of the parties in writing should be taken. This exercise undertaken at the initial stage would avoid embarrassing situations and prevent delay and litigation. The suggestion in Sanjeev Kumar Jain (supra) that the parties before nomination should ascertain the fee structure from the prospective arbitrators is salutary. At the same time, I would accept that fee fixation is a matter of the procedure and relates to conduct of arbitration, and for reasons supra and as held below, is an obligation as well as a right conferred on the arbitral tribunal. Therefore, even in cases where consensus between the parties or with the arbitral tribunal is not possible, the arbitral tribunal is entitled to fix the professional fee payable for adjudication, as without fee fixation, except in cases of pro bono arbitration, the arbitral tribunal would be unable to proceed further to decide and adjudicate the disputes. It goes without saying that the fee so fixed should be fair and reasonable.21

15. I would now proceed to examine the specific provisions which, according to me, make the legal position clear as they empower an arbitral tribunal to fix its fee. Sub-section (8) to Section 31,22 as originally enacted before its substitution by Act No. 3 of 2016, had stipulated that unless otherwise agreed by the parties, the arbitral tribunal shall fix the cost of arbitration. The explanation to this Section clarified that the expression ‘costs’, for the purpose of the sub-section, means reasonable costs E 21 The term ‘reasonable’ has been used in the explanation to the pre-amended sub- section (8) to Section 31, and post-amendment Section 31A of the A&C Act, preceding the word ‘costs’. Sub-section (2) to Section 39 also provides for costs, by way of a sum that the court may consider ‘reasonable’, to be paid to the arbitral tribunal if, after necessary inquiry, the court thinks it fit. 22 “(8) Unless otherwise agreed by the parties, –– F (a) the costs of an arbitration shall be fixed by the arbitral tribunal; (b) the arbitral tribunal shall specify–– (i) the party entitled to costs, (ii) the party who shall pay the costs, (iii) the amount of costs or method of determining that amount, and (iv) the manner in which the costs shall be paid. Explanation.––For the purpose of clause (a), “costs” means reasonable costs relating G to–– (i) the fees and expenses of the arbitrators and witnesses, (ii) legal fees and expenses, (iii) any administration fees of the institution supervising the arbitration, and (iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award.” H

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A relating to the fees and expenses of the arbitrator and the witnesses.23 The sub-section emphasised that the agreement between the parties is paramount and binding. The arbitral tribunal is entitled to fix costs of arbitration, which includes the fee and expenses of the arbitrator, if the agreement between the parties is wordless and silent as to the fee payable to the arbitral tribunal. B

16. Post enforcement of Act No. 3 of 2016, sub-section (8) to Section 31 states that the cost of arbitration shall be fixed by the arbitral tribunal in accordance with Section 31A of the A&C Act. Section 31A, as inserted by Act No. 3 of 2016 and applicable with retrospective effect from 23rd October 2015, reads: C “31A. Regime for costs.––(1) In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to determine— D (a) whether costs are payable by one party to another; (b) the amount of such costs; and (c) when such costs are to be paid. Explanation.—For the purpose of this sub-section, “costs” E means reasonable costs relating to— (i) the fees and expenses of the arbitrators, Courts and witnesses; (ii) legal fees and expenses; F (iii) any administration fees of the institution supervising the arbitration; and (iv) any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.

G (2) If the Court or arbitral tribunal decides to make an order as to payment of costs, — (a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or

23 H See observations in Sanjeev Kumar Jain(supra) referred to in paragraph 4 above.

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(b) the Court or arbitral tribunal may make a different order A for reasons to be recorded in writing. (3) In determining the costs, the Court or arbitral tribunal shall have regard to all the circumstances, including— (a) the conduct of all the parties; B (b) whether a party has succeeded partly in the case; (c) whether the party had made a frivolous counter-claim leading to delay in the disposal of the arbitral proceedings; and (d) whether any reasonable offer to settle the dispute is made by a party and refused by the other party. C (4) The Court or arbitral tribunal may make any order under this section including the order that a party shall pay— (a) a proportion of another party’s costs; (b) a stated amount in respect of another party’s costs; D (c) costs from or until a certain date only; (d) costs incurred before proceedings have begun; (e) costs relating to particular steps taken in the proceedings; (f) costs relating only to a distinct part of the proceedings; and E (g) interest on costs from or until a certain date. (5) An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.”

17. The explanation to sub-section (1) to Section 31A states that, for the purpose of the sub-section, ‘costs’ means the reasonable costs relating to the fee and expenses of the arbitrator, the court and the witnesses. Further, the regime of costs introduced by the insertion of Section 31A in terms of sub-section (1) is to be given effect notwithstanding anything contained in the Code of Civil Procedure, 1908.24 Section 31A gives discretion to the arbitral tribunal to determine – (a) the costs payable by one party to the other; (b) amount of such 24 Hereinafter referred to as ‘the Code’. H

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A costs; and (c) when such costs are to be paid. Sub-sections (2), (3) and (4) to Section 31A lay down the rules and principles which the arbitral tribunal should keep in mind while exercising the discretion to apportion and award costs. Significantly, sub-section (5) to Section 31A annuls and abrogates any pre-dispute agreement which has the effect that one party is to pay the whole or part of the costs of arbitration. In other B words, an agreement between the parties as to ‘payment’ of costs would be valid only if such agreement is made after the dispute between the parties has arisen. The object and purpose behind sub-section (5) to Section 31A is to check the malpractice in standard form agreements or unequitablecontracts whereby the dominating party could incorporate a C clause in the contract or the arbitration agreement, burdening one of the parties to bear the costs of arbitration in whole or part. I would not interpret the mandate of sub-section (5) to Section 31A as an attempt to trample the freedom to contract or autonomy of parties. On the other hand, it is a check on the dominating party from incorporating an unconscionable term that the costs of arbitration would be paid entirely D or in part by one of the parties, and the general rule incorporated in clause (a) to sub-section (2) to Section 31A states that unless there is an agreement between the parties post the disputes, the unsuccessful party shall be ordered to pay costs to the successful party. In other words ‘costs follow the event.’ E

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

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Provided further that where the other party also does not pay the aforesaid share in respect of the claim or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim, as the case may be. (3) Upon termination of the arbitral proceedings, the arbitral tribunal shall render an accounting to the parties of the deposits received and shall return any unexpended balance to the party or parties, as the casemay be.” Section 38 has not been substituted or amended vide Act No. 3 of

2016. The reference made in Section 38to sub-section (8) to Section 31, C therefore, cites the said sub-section before its substitution by Act No. 3 of 2016. Be that as it may, I do not think that this would make any substantial difference, as post the substitution, sub-section (8) to Section 31 refers to Section 31A, which was inserted by Act No.3 of 2016. Sub- section (1) to Section 31A, in fact, is substantially parimateria to the earlier (pre-substitution) sub-section (8) to Section 31, except for the portion in sub-section (8) to Section 31 which gave absolute primacy to the arbitration agreement. I need not again refer to and interpret sub- sections (1) and (5) to Section 31A of the A&C Act. Sub-section (1) to Section 38 empowers the arbitral tribunal to fix the amount of the deposit or the supplementary deposit, as the case may be, as an advance for the costs referred to in sub-section (8) to Section 31. In other words, the arbitral tribunal can ask the parties to deposit the costs in advance and such deposits towards costs can be directed on more than one occasion. The expression ‘costs’ in Section 38 would obviously include the fees and expenses of the arbitral tribunal. This position is lucid beyond a F doubt in view of the language of the proviso, and vide the language and words of sub-sections (2) and (3) to Section 38. Sub-section (2) states that costs referred to in sub-section (1) shall be payable by the parties in equal shares. However, in case one party fails to pay its share of the deposit, the other party would pay that share. Further, if the other party also does not pay the aforesaid share in respect of the claim or the G counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim. The second proviso to sub-section (2) to Section 38 will have limited application where the Fourth Schedule applies to the arbitration proceedings, in which case the fee will be payable not with reference to the claim or counter-claim, but H

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A with reference to the “sum in dispute”. Iwill subsequently interpret the expression “sum in dispute” to mean the aggregate or total amount subject matter of the disputes before the arbitral tribunal. The effect of sub- section (2) to Section 38, which has to be read with the limitation incorporated vide sub-section (5) to Section 31A, is that as a general rule, the costs, including the fee of the arbitrators, would be payable in advance and shared equally by the parties. It is not the sole responsibility of the party raising the claim or counter-claim. These payments, during the course of the arbitration proceedings, are treated as advance payments and in terms of sub-section (3) to Section 38, the arbitral tribunal, upon termination of the arbitration proceedings, must render an account to the parties of the deposits received. Any unexpended balance is to be returned to the party or the parties, as the case may be, who had made the payment. The expression “termination of arbitration proceedings” not only refers to the termination of the proceedings which takes place under the second proviso to sub-section (2) to Section 38, but also to the termination of proceedings on pronouncement/making of the award in terms of Section 32, as well as under Sections 14 and 15 of the A&C Act. This is important as we do have cases wherein the arbitrators resign or recuse without pronouncing an award, but thereupon they are bound to render an account of the costs, including the fee paid to them. As per the statutory mandate of sub-section (3) to Section 38, the arbitral tribunal must render an account to the parties of the deposits received upon termination of the arbitration proceedings.25

19. Sub-section (5) to Section 31A does not apply so as to override an agreementon the quantum of thefee payable to the arbitrators, as the said provision only applies where an agreement has the effect that F a party is to pay whole or part of the cost of the arbitration. Sub- section (5) deals with the discretion of the arbitral tribunal to apportionthe costs of arbitration, and does not restrict the authority of the arbitral tribunal to fixthe cost of arbitration, including the quantum

G 25 Premature termination of arbitrator’s mandate has serious repercussions in form of loss of time, money, as well as repetition of proceedings, and the delay may lead to additional damages and interest. By accepting appointment, an arbitrator undertakes to carry out his responsibilities. Resignations must be for a good cause especially when the proceeding have continued and substantial time and money has been spent. (see - Julian D.M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial H Arbitration, ‘Chapter 12 Rights and Duties of Arbitrators and Parties’, pp. 281 – 282)

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of fee payable to it. However, any contractual term fixing the fee A payable to the arbitral tribunalis binding, and cannot be overridden by the arbitral tribunal.

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

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

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

14. However, the learned Single Judge’s conclusion that the change in language of Section 31(8) read with Section 31-A which deals 26 (2020) 17 SCC 626 H

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

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

22. Paragraph 12 of the judgment is of utmost significance as it interprets and holds that the dispute as to the payment of fee does not result in termination of proceedings under clause (a) to sub-section (1) to Section 14 of the A&C Act. If one or both the parties fail to deposit the arbitration costs, including the arbitrator’s fee, the mandate of the G arbitrator is not terminated because he has become de jure or de facto unable to perform his functions as under Section 14(1)(a). On the other hand, in such situations, the two provisos to sub-section (2) to Section 38 come into play. Where one of the parties fails to pay its share of the deposit, it is open to the other party to pay that share. However, if the other party also does not pay the share, the arbitral tribunal is entitled to H

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terminate or suspend the arbitration proceedings.27 This legal position also takes care of the argument raised by some counsels that the arbitration proceedings should be treated as terminated, where in the absence of any written agreement, the fee fixed by the arbitrator is unacceptable to a party on the ground that it is too high or even for the reason that they are unable to pay or bear the financial burden of the said fee, and such cases are to be treated as ‘de jure’ impossibility covered under Section 14(1)(a) of the A&C Act. This argument would be contrary to and unacceptable in view of the two provisos to sub- section (2) to Section 38. In all fairness, it must be stated that Mr. K.K. Venugopal, learned Attorney General for India, had accepted this legal position, and I quote… “[t]his of course would indicate that no ground of bias can be raised if the arbitrator directs one party to pay the fee payable by the party, in case the other party is not prepared to pay the fee. No question of bias would arise”.28

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

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A 24. The pre-amended sub-section (8) to Section 31 and post- amendment Section 31A and Section 38 of the A&C Act, use the expression ‘costs’, albeit they also refer to fee and expenses of the arbitrator/tribunal. The sections are, therefore, comprehensive and all- embracing provisions that equally empower and authorise the arbitral tribunal to fix the fee in the absence of any agreement between the parties or a court order fixing the fee payable to the arbitral tribunal. Any other interpretation would make the A&C Act unworkable and Sections 31A, 38 and 39 superfluous. These provisions must be given their full intended effect and they are notsupererogatory in nature. The sections should not be read as unnecessary when they refer to arbitration fee. Notably, arbitral tribunals, since time immemorial, have been fixing arbitration fee, and the legislature has not intervened or barred them from doing so even by the amendments made vide Act No. 3 of 2016. Additionally, there is no provision in the A&C Act which states that the parties can move the court for fixation of fee of the arbitral tribunal when the arbitration agreement is silent or the parties are unable to agree on the quantum of fee or where the court, while making reference, has not fixed the fee and has left it to the arbitral tribunal to decide upon its own fee. To hold to the contrary would create chaos and invalidate a number of orders passed by the High Courts and even this Court, which leave it open for the arbitral tribunal to fix its own fee.

E 25. ‘Redfern and Hunter on International Arbitration’,29 referring to the expression ‘costs’, has divided the same into three categories, namely: (i) costs of the tribunal, which include charges for administration of arbitration; (ii) costs of arbitration, which includes hiring of rooms, transcript writers, amongst other things; and (iii) costs of the parties, which includes costs of legal representatives and expert witnesses, amongst other things; to observe that all three elements would include the fee of the arbitral tribunal. The expression ‘costs’, therefore, is comprehensive and broad to include fee and expenses of the arbitral tribunal.Russell30 observes that the arbitral tribunal may make an order for costs on such basis as it thinks fit. Under the same heading, he observes that normally the tribunal or the appointing authority will determine the tribunal’s fee and expenses, which would be recovered in

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and be a part of the award. However, when there is a question about the A fee and expenses of the tribunal being reasonable and appropriate, the court, in terms of Section 28(2) of the English Arbitration Act, 1996, and also while exercising power under Section 63(4) of the aforesaid Act, can examine the said question.The court can also examine the said question on an application by any of the parties under Section 64(2) of the English B Arbitration Act, 1996. For our purposes, it is relevant to state that Section 6331 deals with recovery of costs of arbitration and does not per se deal with the fee payable to the arbitral tribunal, nevertheless arbitration fee being a subset and a part of costs, can be made subject-matter of proceedings under Sections 63/64 of the English Arbitration Act, 1996.

26. Professor Sundra Rajoo has elaborately examined the question of arbitrator’s remuneration to observe that it consists of sums due to him in respect of his professional fee and expenses. Such remuneration is also known as the ‘cost of the award’, that is, the fee and expenses of the arbitrator or umpire, though the term ‘fee’ must be distinguished from the cost of the reference, that is, the legal cost incurred by the parties.32 Reference is made by him to Tackaberry and Marriott 33, who have summarised the ratio in K/S Norjarl A/S v. Hyundai Heavy Industries Co. Ltd.34 as under: (1) An arbitrator who accepts appointment with or without any stipulation as to fees thereby enters into a trilateral agreement with the parties. (2) By that agreement the arbitrator assumes the status of a quasi-judicial adjudicator with all the duties and disabilities inherent in that status. (3) Amongst those disabilities is an inability to deal unilaterally with one person for a personal benefit.

31 The recoverable costs of the arbitration. 63 (1) – xxxx; (2) xxxx; (3) The tribunal may determine by award the recoverable costs of the arbitration on such basis as it thinks fit. If it does so, it shall specify – (a) the basis on which it has acted, and (b) the items of recoverable costs and the amount referable to each; xxxx. G 32 Datuk Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (Second Edition), 2016. Chapter 24 in the said book refers to Gary Born, International Commercial Arbitration. 33 Tackaberry, and Marriott, Bernstein’s Handbook of Arbitration and Dispute Resolution Practice (4 th Edn., 2003) at pg. 2-358 34 (1991) 3 All ER 211 H

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A (4) It follows that an arbitrator who has accepted appointment on a particular basis as to the amount and payment of his fees, which may include a stipulation as to payment in advance or a commitment fee, cannot, thereafter, alter the basis of his remuneration unless all parties agree. B (5) An arbitrator who has accepted appointment without stipulation as to fees is entitled to a reasonable fee to be taxed, by him or by the court, at the conclusion of the arbitration, and cannot thereafter make any special agreement or arrangement about his fees unless all parties to the reference concur in it. C (6) So the arbitrator may not enter into any fee agreement or arrangement with a party to which any other party objects. (7) These propositions apply to a sole arbitrator, a party- appointed arbitrator, an umpire, a chairman or a third arbitrator. D The points (1) to (5) set out the correct position. However, as far as point (5) is concerned, in the context of the statutory provisions of the A&C Act, it should be understood that where an arbitrator has accepted appointment without any stipulation as to the fee, he is entitled to reasonable fee as an implied term of the contract of appointment or on the principle of quantum merit.Point (6) should be read withthe mandate ofSection 38 of the A&C Act as examined above. In this background, and in the context of statutory provisions of the A&C Act, I believe that the suggestion in Sanjeev Kumar Jain (supra), and as proposed by Mr. Huzefa Ahmedi, Senior Advocate, who was appointed by this Court as amicus curiae, and as held by brother D.Y. Chandrachud J., the arbitral tribunal should, at the very outset or during the preliminary hearings, with mutual consent of the parties and by a written agreementfix the fee, which once fixed should remain binding and should not be revised, has merit. There cannot be any unilateral deviation from the terms of fee as agreed, which terms not only bind the parties, but the arbitral tribunal as well. Any deviation, amendment, or modification can only be by a written agreement with the consent of all parties to the litigation.

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

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“39. Lien on arbitral award and deposits as to costs.—(1) A Subject to the provisions of sub-section (2) and to any provision to the contrary in the arbitration agreement, the arbitral tribunal shall have a lien on the arbitral award for any unpaid costs of the arbitration. (2) If in any case an arbitral tribunal refuses to deliver its award except on payment of the costs demanded by it, the Court may, on an application in this behalf, order that the arbitral tribunal shall deliver the arbitral award to the applicant on payment into Court by the applicant of the costs demanded, and shall, after such inquiry, if any, as it thinks fit, further order that out of the money so paid into Court there shall be paid to the arbitral tribunal by way of costs such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant. (3) An application under sub-section (2) may be made by any party unless the fees demanded have been fixed by written agreement between him and the arbitral tribunal, and the arbitral tribunal shall be entitled to appear and be heard on any such application. (4) The Court may make such orders as it thinks fit respecting the costs of the arbitration where any question arises respecting such costs and the arbitral award contains no sufficient provision concerning them.” Section 39 is a part of Chapter X, which is a miscellaneous chapter. Sub-section (1) to Section 39 states that the arbitral tribunal shall have lien over the arbitral award for any unpaid costs of arbitration. This lien is subject to provisions of sub-section (2) to Section 39, which states that where an arbitral tribunal refuses to deliver an award except on payment of costs demanded by it, the party may make an application to a court for an order that the arbitral tribunal should deliver the arbitral award to the party. The court thereupon is required to conduct an inquiry and may, if it deems proper, direct the party to deposit the costs in the court for delivery of the award to the party. After the inquiry, the court can pass orders for payment of costs to the arbitral tribunal as the court may consider reasonable. In case any deposit has been made by the party, the same would abide by the decision of the court. If extra payment has been made, the same shall be refunded to the party. H

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A 28. Sub-section (3) to Section 39 states that an application under sub-section (2) may be made by ‘any party’ unless the fee35 demanded has been fixed by a written agreement between him and the arbitral tribunal. Further, the arbitral tribunal is entitled to appear and be heard when an application is made under sub-section (2) to Section 39. In other words, where there is a written agreement between the arbitral tribunal and a party on the aspect of the payable fee, the party cannot file any application under sub-section (3) to Section 39 of the A&C Act. This is significant as it bars and prohibits a party to challenge the fee to be paid to the arbitral tribunal, once it has agreed to it in writing. The object and purpose is to impede such party from raising any objection to fixation of fee or costs during the course of the arbitration proceedings or after the award is made. The agreement between the parties or with the arbitral tribunal in writing as to the quantum of fee payable to the arbitral tribunal binds the parties.

29. Sub-section (3) to Section 39 of the A&C Act is ambiguous and requires interpretation to effectuate the legislative object and intent. Sub-sections (1) and (2) to Section 39, as noticed, particularly deal with cases where the arbitral tribunal does not deliver the award and claims a lien for the unpaid costs of arbitration, in which event the aggrieved party can move an application for an order directing the arbitral tribunal to deliver the award to the applicant. Such party is required to make payment into the court of the costs demanded, whereupon the court conducts an inquiry, if any, as it thinks fit and thereupon passes an order as to the money to be paid from the amount deposited with the arbitral tribunal towards costs. The amount determined by the court should be reasonable. Balance money, if any, is to be refunded to the applicant. F Sub-section (3), on the other hand, empowers ‘any party’ tomove an application before the court under sub-section (2), provided the ‘fee’ demanded has not been fixed under a written agreement between him and the arbitral tribunal. In my opinion, sub-section (3) to Section 39 of the A&C Act confers a right on ‘any party’ to move to the court if he has discontent with the ‘fee’ fixed by the arbitral tribunal, unless he has already agreed to the ‘fee’in a written agreement. Sub-section (3) is,

35 Sub-section (3) to Section 39 expressly uses the words “the fees demanded…”, which can be contrasted with the word ‘cost’, which is a more comprehensive and includes fee.

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therefore, independent and will apply even in situations not covered by sub-section (2), where the arbitral tribunal refuses to deliver the award to the applicant, except on payment of costs as demanded. No doubt, sub-section (3) to Section 39 refers to sub-section (2) thereof, but the said reference is in the context of the inquiry which the court has to conduct to determine the reasonable quantum of the ‘fee’ that should be paid/is payable to the arbitral tribunal. In terms of sub-section (3) to Section 39, the arbitral tribunal, in such event, is entitled to appear and be heard on such application. The above interpretation should be accepted for two reasons: (a) sub-section (3) to Section 39 is an independent provision and cannot be treated as a superfluous or redundant provision applicable in circumstances where sub-sections (1) and (2) to Section C 39 are applicable; and (b) it would effectuate the legislative intent and object to ensure that any party can approach the court in case there is a dispute with regard to fixation of ‘fee’ by the arbitral tribunal before an award is made. I do not find any good ground and reason to hold that the legislative intent is to prevent a party from approaching the court on ‘fee D fixation’ by the arbitrator/tribunal till an award is made. This power/right of any party to approach the court against the ‘fee fixation’ by the arbitral tribunal is notwithstanding Section 38 of the A&C Act, for the simple reason that a party may feel aggrieved and may not want to participate in the arbitration proceedings for want of high costs which it can ill- E afford to pay or would be compelled to pay in spite of its weak financial condition, as failure to pay the ‘fee’ to the arbitral tribunal may have negative consequences.

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

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A What is ‘fair and reasonable fee’?

31. I have held that in the absence of any agreement or court order, the arbitral tribunal is entitled to fix ‘fair and reasonable remuneration’. Fixation of fee by an arbitrator is a delicate matter as he is then determining the fee which he is entitled to command having regard to: (i) complexity of the disputes; (ii) difficulty or novelty of the questions involved; (iii) the skill, specialized knowledge and responsibility of the arbitral tribunal; (iv) number and importance of documents to be studied; (v) value of the property involved or the amount or the sum in issue; and (vi) importance of the dispute to the parties.36 Professor SundraRajoo37 has observed that experienced and qualified arbitrators are accustomed to receiving fees at least equivalent to the upperend of the fee charged for their profession in their home jurisdiction. If the fee structure is too low, it may be difficult to procure the services of appropriately qualified arbitrators. Even if they do, they may not be willing to dictate the amount of time required to resolve the case.Therefore, the arbitrators must openly, and in a transparent manner, state the fee that they would like to charge so as to avoid embarrassing allegations and disagreements. This should be done before acceptance of appointment or at the very commencement of the arbitration process. The arbitrators are conscious of the role they perform as adjudicators, which is very different from and cannot be equated with advocates. While it is possible to choose and change an advocate keeping in view one’s pocket, an arbitrator once appointed stands on a different footing. When an arbitral tribunal has been duly constituted, either party, irrespective of the fact whether they can afford the fee or not, is unlikely to displease the arbitral tribunal stating that the fee fixed is not reasonable.38 At the same-time, any challenge to the arbitrator’s fee by those who are willingly paying similar professional fee to those who argue for them

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before the arbitratorwould be discordant.39 To avoid any controversy and litigation, the fee structure fixed in the Fourth Schedule, or by the respective High Courts, when adopted by the arbitral tribunal, in my opinion should be considered as ‘fair and reasonable’. The courtwould not permit a party to question the feeif it is in terms of the Fourth Schedule, or the rules framed by the High Court. I, therefore, albeit for different grounds and reasons, concur with the observations made in paragraph 105 by my brother D.Y. Chandrachud, J. Situation post enforcement of Act No. 33 of 2019: Effect of the proviso to sub-section (3A) to Section 11 of the Arbitration and Conciliation Act, 1996. C

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

39 High cost of litigation has grave implications and consequences, a concern which must engage the attention of the senior members of the Bar. H

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

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

35. It will nowbe appropriate to summarize the legal position as under:

G (a) The arbitral tribunal is bound by the fee or remuneration fixed by the parties in the arbitration agreement, or by mutual consent, whether before or after the disputes have arisen. (b) Where the court refers disputes to an arbitral tribunal, in the absence of any agreement between the partiesfixing H the fee payable to the arbitral tribunal, it should fix the fee

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

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A Interpretation of the Fourth Schedule

36. The Fourth Schedule was introduced vide Act No. 3 of 2016 with retrospective effect from 23rd October 2015 and reads: “ B THE FOURTH SCHEDULE [See section 11(3A)]

The Fourth Schedule, post substitution by Act No. 33 of 2019, refers to Section 11(3A), instead Section 11(14) of the A&C Act.

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

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fee prescribed is for each individual member of the three member arbitral tribunal. Interpretation of the expression “sum in dispute”

38. The expression “sum in dispute” does not refer to a claim or a counter-claim. The word ‘sum’means the whole, aggregate or the total amount. Thus, the legislature has deliberately and consciously avoideda separate reference to the amounts stated either in the claim or the counter- claim.The “sum in dispute” refers to the total amount subject matter before the arbitral tribunal, which is to be adjudicated upon. Thus, it would be correct to state that the language and the words “sum in dispute”are an intended and a calculateddeparture, as the words ‘claim’ C and ‘counter-claim’ do find specific mention in Section 23(2A), which states that the respondent in support of his case may also submit a counter- claim or plead a set-off which shall be adjudicated by the arbitral tribunal if such counter-claim or set-off falls within the scope of the arbitration agreement.40 Similarly, Section 2(9) states that for the purpose of Part 1, except in the case of Section 25(a) and Section 32(2)(a), reference to a D claim shall also apply to a counter-claim, and where it refers to defence, it shall also apply to defence to that counter-claim.Likewise, proviso to Section 38(1)41 states that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix a separate amount of deposit for the claim or the counter-claim. Notwithstanding the provisions, the legislature, while enacting the Fourth Schedule, though cognizant of the difference between claim and counter claim/set-off, eschewed anyseparate reference to the amount prayed in the claim(s) or counter-claim(s)/set-off. The Fourth Schedule does nottreat them as separate for computing the fee payable to the arbitral tribunal. On the other hand, the expression “sum in dispute” before the arbitral tribunal has been made the basis for computation of fee.

40 Inserted vide Act No. 3 of 2016 with retrospective effect from 23 rd October 2015. Even before the insertion, the position in law was the same. 41

38. Deposits.– (1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as the case may be, as an advance for the costs referred to in sub-section (8) of section 31, where it expects will be incurred in respect of the claim submitted to it; Provided that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix separate amount of deposit for the claim and counter- claim. xx xx xx H

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A 39. The legislature is presumed to know the prior construction of the terms in the original act, and an amendment substituting the new term or phrase for the one previously construed indicates that the judicial or executive construction of the former terms or phrases did not correspond with the legislative intent and a different interpretation must be given to the new term or phrase. Thus, in interpreting an amendatory B act, there is a presumption of change in legal rights. A change in phraseology creates a presumption that the legislature intended a change in meaning.Conversely, when words used in the original statute are used in the re-enacted/amendatory act, they should be presumed to be used in the same sense in the new statute or amendatory act.42

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

41. In the context of the Fourth Schedule, for clarification and affirmation, it would be most appropriate if reference is made to the 246th Report of the Law Commission of India. The Law Commission, E while recommending a model schedule of fee45, had stated that the schedule was based on the fee schedule set by the Delhi High Court

11. In order to provide a workable solution to this problem, the Commission has G recommended a model schedule of fees and has empowered the High Court to frame appropriate rules for fixation of fees for arbitrators and for which purpose it may take the said model schedule of fees into account. The model schedule of fees are based on the fee schedule set by the Delhi High Court International Arbitration Centre, which are over 5 years old, and which have been suitably revised. The schedule of fees would require regular updating, and must be reviewed every 3-4 H years to ensure that they continue to stay realistic.”

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International Arbitration Centre. The schedule in the Delhi International A Arbitration Centre (Administrative Cost & Arbitrators’ Fees) Rulesusesthe identical expression, “sum in dispute”, and provides cumulative fee of both theclaim and the counter-claim. Accordingly, the expression “sum in dispute” borrowed from the Delhi High Court International Arbitration Centre, should be given an identical construction as referring to the entire amount or the sum total of the disputes which are subject matter of the arbitration, that is, the disputes raised in the claim petition as well as the counter-claim. Separate fee for the claim and counter-claim/ set off is not envisaged and postulated.

42. One of the objectives of the A&C Act is to ensure cohesion of the remedy.Sections 2(9) and 23(2-A) incorporate the rule against fragmentation of remedies and nothing more. This is a marked and deliberate departure from the earlier Arbitration Act, 1940 wherein an arbitrator’s jurisdiction was confined to the disputes referred to him by way of an order of reference. The arbitrator could not enlarge the scope of reference and entertain fresh claims or even a counter-claim/set-off without a fresh order of reference.46

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

46 See Section 20 of the Arbitration Act, 1940. Refer to Orissa Mining Corporation Ltd. v. Prannath, (1997) 3 SCC 535. H

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A connected that they may be looked upon as part of the same transaction. Counter-claim, on the other hand, is regarded as a cross-action. When a counter-claim is not connected with the claim in the suit, the Court, in exercise of power under Rule 6(c) to Order VIII of the Code, can direct that such counter-claim may be excluded and tried as an independent suit. B

44. Arbitral tribunal derives its jurisdiction from Section 7 of the A&C Act, which extends to “all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”. As stated above, the A&C Act does not contemplate separate jurisdictions for arbitral tribunal on the basis of number or nature of claims, and, therefore, does not afford to the tribunal the liberty to treat claim and counter-claim separately. Commentary on the UNCITRAL Model Law on International Commercial Arbitration47 observes that when two or more parties have entered into an agreement to arbitrate, any of them normally has a power to commence arbitral proceedings. It is a common practice that more than one party put forth their claims in same arbitration. The labels that are appended to these claims presented by opposing parties, namely, the claim or counter-claim, are nothing more than an acknowledgement of the chronological order in which actions have been brought in the arbitration, and they do not entail any type of structural differentiation. It is for this reason that clarification is offered by Article 2(f) of the UNCITRAL Model Law which states that claim also applies to counter-claim and whenever it refers to defence, it also applies to a defence to a counter-claim. As noticed above, these facets of the UNCITRAL Model Law have been incorporated in the A&C Act. A reading of the rules published by the F High Courts of Delhi, Bombay, Madhya Pradesh, Karnataka, Rajasthan and Madras indicate that they, in unison, have stated that the sum in dispute or the arbitrator’s fee shall be calculated on the aggregate of the claim and the counter-claim. The fee is not to be calculated independently, first with reference to the claim and then the counter-claim. This is also postulated in the rules framed by the Indian Council of Arbitration Rules G of Domestic Commercial Arbitration, Mumbai Centre for International Arbitration, and Construction Industry Arbitration Council. Our attention has also been drawn to the rules framed by the Singapore International

47 Authored by Ilias Bantekas, Pietro Ortolani, Shahla Ali, Manuel A. Gomez and H Michael Polkinghorne; published by the Cambridge University Press.

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Arbitration Centre, Hong Kong International Arbitration Centre, A Stockholm Chamber of Commerce Arbitration, and European Court of Arbitration, which stipulate that for the purpose of fee, the amount in dispute would be the total of the claim and the counter-claim, that is, the aggregate value of all the claims, counter-claims and set-offs. If we have to accept the contra-stand, the rules framed by the several High B Courts, as noted above, would have to be re-drawn, and the unsettlement would cause confusion, especially in pending matters. This must be avoided.

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

48 (1989) 4 SCC 378 H

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

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

G 48. The aforesaid dictum would not apply in cases where there is an umbrella arbitration clause, which applies to different/distinct contracts,

49 Professor Sundra Rajoo, Law, Practice and Procedure of Arbitration (Second Edition), 2016, has referred to four different types of remuneration agreements, namely, fixed fee method, time spent method, brief fee and daily refresher method, and ad valorem fee H method.

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in which case each contract would be treated as a separate arbitration proceeding viz. the claim, counter-claim and set-off relating to that contract. Interpretation of Serial No. 6 of the Fourth Schedule

49. Serial No. 6 of the Fourth Schedule has been interpreted as having incorporated a cap or ceiling of Rs.30, 00, 000/-. However, in some cases, it has been held that the fee specified of Rs.19, 87, 500/- plus 0.5% of the claim amount, over and above Rs.20, 00, 00, 000/- with a ceiling fee of Rs.30, 00, 000/-, means that the ceiling of Rs.30, 00, 000/ - is not the cumulative ceiling. In other words, Serial No. 6 specifies the ceiling of Rs.19, 87, 500/- plus Rs.30, 00, 000/-, which comes to Rs.49, C 87, 500/-.

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

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A , in addition to Rs.19, 87, 500/-, the arbitral tribunal will be entitled to fee at the rate of 0.5% of the claim amount above Rs.20, 00, 00, 000/-, but the total fee is subject to ceiling of Rs.30, 00, 000/-. The expression “with the ceiling of Rs.30, 00, 000/-” would applywhen claims are above Rs.20, 00, 00, 000/-. The ceiling of Rs.30, 00, 000/- is not with reference to 0.5% of the claim amount over and above Rs.20, 00, 00, 000/-. To B read it otherwise would be overstretching the language of Serial No.6 and adding words to it.

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

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

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tribunal’ can refer to a three member or sole member arbitral tribunal, A the Note, it can be argued, affirms the interpretation that the amounts mentioned in the Fourth Schedule refer to the fee payable to each member of the three member arbitral tribunal, and not cumulative fee which is to be divided amongst the three member arbitral tribunal.

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

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

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

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

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

E Bibhuti Bhushan Bose Appeals disposed of. (Assisted by : Shubhanshu Das, LCRA)

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