Judgement Name: Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa Jv

Citation: Petition for Arbitration (Civil) No.5/2022

Coram: Justice D.Y. Chandrachud, Justice Sanjiv Khanna, Justice Surya Kant

Date: 11th May 2022 (Judgement reserved)

Keywords: Pay Scale, Judges, Counterclaim.

Brief Facts of the Case:

Arbitration proceedings between Oil and Natural Gas Corporation Ltd. (ONGC) and Afcons Gunanusa (AFCONS) commenced in 2015 over a construction agreement dated 2009. Although the agreement was completed in 2012, there was a discrepancy regarding the fees to be paid to the arbitrators presiding over the dispute. As per the agreement between the parties, each arbitrator would be entitled to Rs 10 Lakhs provided that the claim and counterclaim amount in dispute exceeded Rs 10 Crores. Following the dispute, two Supreme Court Judges and a High Court Judge were appointed as arbitrators to adjudicate the proceedings.

However, in 2016, the arbitrators sought to revise the fee structure agreed upon between the parties in line with the Fourth Schedule of the AC Act, according to which each arbitrator would receive ₹12,37,500 and 0.75% of the claim amount if it exceeded ₹ one crore; the same was accepted by the parties. Following this revision, the arbitrators again revised their fees to Rs 1.5 Lakh per arbitrator in 2018, citing the complexity of the dispute as to the reason for such an increase. ONGC was allowed by the tribunal to temporarily refrain from paying the revised fees only for the tribunal to impose a retrospective fee of Rs 1 Lakh per arbitrator beginning from 2018 to 2019. ONGC approached the Bombay High Court for the constitution of a new tribunal as per Sections 14 & 15 of the Act. The petition was dismissed by the Bombay HC and has come up in appeal in the Supreme Court.

Issues for Consideration:

I. Whether the Arbitrators are bound by the fees fixed by the parties as per the arbitration agreement.

II. Whether the amount calculated will include claim and counterclaim or separate claim or separate counterclaim.

Analysis

I. Appearing on behalf of the Petitioners, Attorney General KK Venugopal submitted that the arbitration clause incorporated in the contract was agreed to by both the parties as well as the arbitrators and that they were bound by the same. Accordingly, the fees set by the arbitration clause for the Arbitrators were Rs 10 Lakhs and the same was informed to the arbitrators during their nomination. Further, the Attorney General rebutted the submission of the Amicus, that the sum in dispute should be assessed for each proceeding as opposed to a lump-sum model and relied on NHAI v. Gayatri Roadwaysto emphasise that the fee stipulated in the agreement is binding upon the parties as well as the arbitrators. To that effect, it was contended that ‘Costs’ following the arbitration do not warrant the inclusion of fees for the arbitrators. In the petitioner’s opinion, doing so would be a violation of Section 31A of the Arbitration and Conciliation Act,1996, which merely envisages costs of the arbitration—travel expenses, accommodation, etc., to be determined by the arbitrator. However, Dr.Singhvi, appearing on behalf of the Respondents, highlighted that the cap for an arbitrator’s fee is Rs 30 Lakhs as per the 4th Schedule, which, if the proceedings lasted for 100 sittings, would be sorely inadequate for the presiding retired judges.

II. The Petitioner relied on Rail Vikas v Simplexand submitted that the Arbitrators’ fees ought to be clubbed together for the claim as well as the counterclaim keeping in mind the object of the Arbitration and Conciliation Act, 1996, which is to limit the costs of disputes. Corroborating this position, the Solicitor General had earlier stated that Section 2(9) of the Arbitration and Conciliation Act, 1996 states that a composite dispute comes before an arbitrator, which is inclusive of the claim and the counterclaim. Further, a conjoint reading of Section 2(9) and section 23 would imply that the claimant’s right to file a statement of claims precedes the respondent’s right to file a counterclaim. Following the Solicitor General’s submissions, the bench seemed to have been in agreement with the same and Justice Chandrachud went on to state, “The claim and the counterclaim have to be bundled up together, with a ceiling of Rs.30 lakhs.”

Conclusion

The court reserved its judgement following the above observations and submissions by the parties.

[This case note has been authored by Mayannk Sharma, who is a Junior Editor at Mapping ADR.]