Supreme Court judgment on Arbitrators Fee Capping
Recently a three judges bench of the Supreme court comprising of Justice DY Chandrachud, Surya Kant, and Sanjiv Khanna observed that the ceiling of Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule is applicable to the sum of the base amount (of Rs 19,87,500) and the variable amount over and above it. Consequently, the highest fee payable shall be Rs 30,00,000.
This ceiling is applicable to each individual arbitrator, and not the arbitral tribunal as a whole, which consists of three or more arbitrators. Of course, a sole arbitrator shall be paid 25 percent over and above this amount in accordance with the Note to the Fourth Schedule.
On the issue of the ceiling, the court noticed that 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, 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.
The bench noticed that there is a difference between the English and Hindi translation of the relevant text of the 6th entry which is the presence of a comma in the Hindi translation, which is absent in the English version, and observed "The English version of the entry at Serial 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."
While going through the Law Commission of India 246th Report, The top court observed that the intent of the legislative was to curb the exorbitant fee charged by the arbitrator. The Bench observed as “Ceiling applicable to individual arbitrators 156 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. 157 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 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 was 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.
The Supreme Court ultimately held that such a disparity is inconceivable, regardless of the extra work a sole arbitrator may have to put in. This is further strengthened 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 percent on the fee payable as per the above”.
Consequently, the sole arbitrator would not only receive Rs 30,00,000/- but an additional 25 percent over and above it. Indeed, it is clear that the Note was added to the Fourth Schedule to fairly compensate sole arbitrators who arguably would have to do more work than as a member of a larger tribunal; which is why he is allowed payment of 25 percent of the fee over and above what they would be paid pursuant to the table given in the Fourth Schedule.
The Three judges bench of the Supreme Court held that “the corollary of this is that the fee provided in the Fourth Schedule is for each individual arbitrator, regardless of whether they are a member of a multimember tribunal or a sole arbitrator. Finally, this interpretation of the Fourth Schedule, that the fee provided therein is applicable for each individual arbitrator and not the whole arbitral tribunal, has also been fairly conceded before this Court by the learned Attorney General.”
Case Details:-
Arbitration Petition (Civil) No. 05 of 2022 Oil and Natural Gas Corporation Ltd. Versus Afcons Gunanusa JV