A three judges bench of the Supreme court consisting 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, 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.

On the issue of 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 6^th 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."

The Court also while going through the Law Commission of India 246^th Report also 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 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 PART G 131 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 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 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 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.

Finally the court concluded:-

G Conclusion
G.1 Findings
158. 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 of in 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 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. Consequently, arbitrators shall be entitled to charge a separate fee for the claim and the counter-claim in an ad hoc arbitration proceeding, and the fee ceiling contained in the Fourth Schedule will separately apply to both, when the fee structure of the Fourth schedule has been made applicable to the ad hoc arbitration;

(iv)The ceiling of Rs 30,00,000 in the entry at Serial No 6 of the Fourth Schedule is applicable to the sum of the base amount (of Rs 19,87,500) and the variable amount over and above it. Consequently, the highest fee payable shall be Rs 30,00,000; and

(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.

Case Details:-

Arbitration Petition (Civil) No. 05 of 2022 Oil and Natural Gas Corporation Ltd. Versus Afcons Gunanusa JV

Read the full Judgment/ click on the link

https://main.sci.gov.in/supremecourt/2021/28254/28254_2021_2_1501_37867_Judgement_30-Aug-2022.pdf