ONGC Ltd. v. Afcons Gunanusa JV (Arbitration Petition No. 5 of 2022)

Recently, a full bench of the Supreme Court, consisting of Justice DY Chandrachud, Justice Surya Kant and Justice Sanjiv Khanna, in the judgement of ONGC v. Afcons Gunanusa JV (Arbitration Petition No. 5 of 2022) has crystallized the law relating to arbitrator’s fees. While, the Supreme Court by a common judgement has dealt with critical issues pertaining to unilateral fixation of fees by arbitrator(s) and interpretation of the Fourth schedule to the Arbitration & Conciliation Act, 1996, which contemplates the fees payable to an Arbitral Tribunal, it has further issued directives for governing ad hoc arbitrations in India.

Mr. Manu Seshadri, Partner, Mr. Aveak Ganguly, Ms. Pallavi Anand and Mr. Abhijit Lal from MSA Partners represented Afcons-RN Shetty & Co. Pvt. JV, the Respondent in the SLP filed by NTPC on the question as to whether “sum in dispute” mentioned in the Fourth schedule to the Act includes claim and counter-claim, or alternatively, whether separate fee can be charged by the arbitrator(s) for claims and counter-claims.

While, Justice DY Chandrachud and Justice Surya Kant have delivered a common judgement, Justice Sanjiv Khanna in a separate judgement, despite agreeing with Justice Chandrachud on a number of issues, has taken a contrary view on the interpretation of the phrase “sum in dispute” as provided in the Fourth schedule, and the limited power of the arbitrators to fix a reasonable fee.

On the issue pertaining to unilateral fixation of fees by the arbitrators, the Apex Court held that the arbitrators cannot determine their own fees without consulting the parties to the dispute, as party autonomy is crucial to any arbitration proceedings.

With respect to the Fourth Schedule to the Arbitration & Conciliation Act, 1996, by a majority judgment, it has held that separate fee is payable to the Arbitral Tribunal on claims and counter-claims and the phrase “sum is dispute” refers to claim and counter-claim independently.

Apart from this, the Supreme Court while dealing with the ceiling of INR 30 Lacs as contemplated under the 6th entry to the Fourth Schedule, held that INR 30 Lacs is the maximum fees payable to an arbitrator and the ceiling is therefore applicable to the cumulative fees including the base amounts (i.e., INR 19,87,500) and the variable amount. It further held that the said ceiling is only applicable to each arbitrator’s fees and not the consolidated fees of the Arbitral Tribunal.

The Supreme Court has therefore now settled that the parties not only decide the procedure to be followed in conduct of arbitral proceedings and the arbitrator(s) who shall adjudicate upon the dispute arisen between the parties, but also the fees payable to such appointed Arbitral Tribunal.

In an attempt to resolve the issues faced by parties in ad hoc arbitrations, the Supreme Court by this judgement has issued certain directives, first being that the parties and the Arbitral Tribunal must settle the arbitrator(s) fee at the threshold of preliminary hearing. Such fees may later be revised after completion of a fix number of sessions specified during the preliminary hearing. In case of a court-appointed arbitrator, the Court should expressly mention the arbitrator’s fee to avoid any dispute at a later stage.

The full judgement can be read at https://main.sci.gov.in/supremecourt/2021/28254/28254_2021_2_1501_37867_Judgement_30-Aug-2022.pdf