This case is a part of our Annual Arbitration Review 2018.

Judgment Name: National Highways Authority of India v. Gammon Engineers Contractor Private Limited

Citation: O.M.P. (T) (COMM.) 39/2018 & I.A. Nos. 6559 and 9228/2018

Court: The High Court of Delhi

Coram: Navin Chawla, J.

Date: 20th July 2017

Keywords: Arbitration Agreement, Arbitrator’s Fee, Remuneration, Fourth Schedule.

Overview

A petition had been filed under Section 14 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as (“the Act”) seeking termination of the mandate of the Arbitral Tribunal as the Tribunal was charging a fee different from the agreement between the parties. The Court held that the Tribunal was bound by the fees fixed in the agreement between the parties.

Factual Background

The parties to the agreement had agreed to settle their dispute through arbitration. The arbitration Clause had a prescribed fee payable to the arbitral Tribunal. Later, the Petitioner unilaterally issued a Circular amending the fees payable to the Tribunal.

When disputes arose between the parties, each party nominated one arbitrator to the Tribunal, who together appointed the presiding arbitrator. Before the Tribunal, the Respondent submitted that the fees decided as per the agreement was payable, whereas the Petitioner contended that the fees should be as per its Circular. Considering the conflict, the arbitral Tribunal directed that the fees shall be regulated as per the Fourth Schedule of the Arbitration and Conciliation (Amendment) Act, 2015.

As the fees fixed by the Arbitral Tribunal was more than the one prescribed in the Circular issued by the Petitioner, the Petitioner filed an application before the Tribunal. The said application was dismissed by the Arbitral Tribunal as it reasoned that the Arbitral Tribunal was competent to fix the fees regardless of the agreement of the parties.

Being aggrieved of the above-mentioned order, the Petitioner has filed the present application invoking Section 14 of the Act stating that since the Arbitral Tribunal has failed to abide by the conditions fixed by the parties in the arbitration agreement or by the Petitioner in its Circular, it should be considered as de jure and de facto unwilling to perform its functions, thereby leading to the termination of its mandate.

Issue

Whether the Arbitral Tribunal is bound by the agreement between the disputing parties with regard to fees of the Arbitral Tribunal?

Analysis

The Court assessed the object and purpose of the Fourth Schedule to the Act through an amendment. It turned to the 246th Law Commission of India Report. The Commission, in its report, recommended a model schedule of fees to address the problem faced by the Supreme Court in Union of India v. Singh Builders Syndicate, where it was observed when an arbitrator is appointed by a Court without indicating fees, it was prone to two problems. First, the parties feel constrained to agree to the fees suggested by the arbitrator, even if it is high or beyond their capacity. Secondly, if a high fee is claimed by the arbitrator and one party agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay such high fee, may not express his reservation or objection owing to an apprehension that it may prejudice his case or create a bias in favour of the other party who readily agreed to pay the high fee.

The Court observed that the Fourth Schedule to the Act was not mandatory but merely served as a guideline that may be followed by the High Court or the parties to an agreement while constituting an Arbitral Tribunal.

It further noted that Section 7 of the Act mandates that party autonomy is the most vital ingredient in an arbitration. The terms of appointment of the arbitrator are governed by the agreement between the parties and the arbitrator on the subject of the fee payable to the Arbitral Tribunal. Where there is no express agreement about fees and expenses, the right to remuneration would be on the basis of an implied term to pay reasonable remuneration to the Arbitral Tribunal for its services. However, where an offer/request for an appointment as arbitrator is made stipulating the terms of such appointment, including fee, the arbitrator cannot accept such appointment while rejecting the other terms.

It relied on the case of Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust and Others and National Highways Authority of India v. Mr. K.K. Sarin and Others, wherein it was held that the arbitrators could not impose unilateral conditions on the parties while accepting an appointment where the parties or the Court has stipulated various conditions for such appointment.

The learned Counsel for the Petitioner relied on National Highways Authority of India v. Gayatri Jhansi Roadways Limited to submit that in terms of Section 31A read with Section 31(8) of the Act; the Arbitral Tribunal was empowered to fix its own fee.

The Court found no merit in this contention as it stated that the term “costs” under Sections 31(8) and 31A of the Act refers to the costs which are awarded by the Arbitral Tribunal as part of its award in favour of one party to the proceedings and against the other as per the 246th Law Commission Report. The deletion of words “unless otherwise agreed by the parties” in Section 31A only signified that the parties, by an agreement, cannot contract out of payment of ‘costs’ and the losing party cannot denude the Arbitral Tribunal to award ‘costs’ of arbitration in favour of the successful party.

The Court also held that the judgment relied upon by the Counsel for the Respondent was per incuriam as it did not take note of the report of the Law Commission or the judgments relied on by the Court. It was passed on an appeal under Section 37 of the Act and did not consider the contours of Section 14 of the Act.

Conclusion

The Court held that the arbitration agreement between the parties is the source of the power of the Arbitral Tribunal. Hence, the Tribunal could not accept the appointment in part and rewrite the Arbitration Agreement between the parties. Therefore, it terminated the mandate of the Arbitral Tribunal and directed that the parties may appoint a substitute Tribunal in terms of the arbitration agreement, which shall proceed from the stage where the proceedings stood before the existing Arbitral Tribunal.