2021 (8) TMI 1348 - HC - Indian Laws

Determination of Fee and Administrative expenses payable to each of the Arbitrators in the arbitration proceedings - Erroneous impugned orders or not - whether entire order with the Vice of arbitrariness is vitiated? - HELD THAT - This Court having heard both the counsel for the petitioners as well as for the respondents, finds that the counsel for both the parties are in agreement with regard to the basic premise on which the orders impugned have been passed being erroneous, vitiating the entire order with the Vice of arbitrariness. This Court has also carefully gone through the judgments rendered by the Delhi High Court, Patna High Court and the Punjab and Haryana High Court. Although such judgments have only persuasive value and cannot be said to be binding precedings, this Court cannot ignore the observations made therein on the basis of 246th Report of the Law Commission which related to the Amendment Act of 2015. The mischief that was to be sought to be avoided was that of exorbitant costs of Arbitration, arbitrarily fixed by the Arbitral Tribunal which consisted of retired High Court and Supreme Court Judges sometimes. The arbitration proceedings were to be made an attractive proposition for Alternate dispute resolution. The observations made by the Hon'ble Supreme Court in Union of India Vs. Singh Builders Syndicate 2009 (2) TMI 794 - SUPREME COURT cannot be ignored by this Court, where it was held that A provision for serving officers of one party being appointed as arbitrator/s brings out considerable resistance from the other party, when disputes arise. Having regard to the emphasis on independence and impartiality in the new Act, government, statutory authorities and government companies should think of phasing out arbitration clauses providing for serving officers and encourage professionalism in arbitration. This Court is also of the considered opinion that the Fourth Schedule is applicable to even Arbitral Tribunals appointed under Section 11 (2) and the ceiling limit of Rs.30 lacs as Model Fee for all claims above Rs.20 crores would be applicable in the case of determination of Fee of Arbitral Tribunal and the orders impugned have erroneously ignored the Fourth Schedule saying that it would only be applicable to cases where the High Court has framed Rules or appointed Arbitrators. Whether Fee should be taken as a composite amount or is to be paid separately and individually to each Arbitrator? - HELD THAT - This Court is of the considered opinion that the arguments raised by Shri Sudeep Seth, learned Senior Counsel appeal more to reason, because under Section 2 (d) of the Act the Arbitral Tribunal is defined either as a sole arbitrator or a Panel of arbitrators and the language used in Sub Section (14) of Section 11 is for determination of Fees of the Arbitral Tribunal . Had the Legislature intended that the Fee as mentioned in the Fourth Schedule was to be given to each of the members of the Arbitral Tribunal individually, in case it was a multi member body, then it would have clarified the same by appending another note to the Fourth Schedule by saying that in the event the Tribunal is a multi member body each of its its members would be getting the Fee as mentioned in the Schedule. This Court the orders impugned deserve to be set aside. The orders impugned are set aside - Petition allowed.

Summary

Issues Involved:
1. Challenge to the Arbitral Tribunal's orders on fee and administrative expenses determination.
2. Applicability of Subsection (14) of Section 11 of the Arbitration and Conciliation Act, 1996.
3. Interpretation of "Sum in Dispute" in the Fourth Schedule.
4. Whether fees should be paid individually to each arbitrator or as a composite amount.

Detailed Analysis:

1. Challenge to the Arbitral Tribunal's Orders on Fee and Administrative Expenses Determination:
The petitioners challenged the Arbitral Tribunal's orders dated 23.06.2021, which determined the fee and administrative expenses payable to each arbitrator. The Tribunal calculated the fee at 0.125% of the total sum in dispute, treating the claim and counterclaim separately, and added 10% for secretarial and administrative expenses. The petitioners argued that this determination was erroneous and sought a direction for an appropriate fee determination.

2. Applicability of Subsection (14) of Section 11 of the Arbitration and Conciliation Act, 1996:
The petitioners contended that Subsection (14) of Section 11, which allows the High Court to frame rules for determining the fees of the arbitral tribunal, should apply. The Tribunal had ignored the Fourth Schedule, assuming it did not apply because the High Court had not framed any rules. The petitioners argued that the Fourth Schedule should still govern the fee determination, as no agreement on fees existed between the parties.

3. Interpretation of "Sum in Dispute" in the Fourth Schedule:
The petitioners cited judgments from the Delhi High Court, Patna High Court, and Punjab and Haryana High Court to argue that "Sum in Dispute" should be interpreted cumulatively, including both the claim and counterclaim. These judgments emphasized that the Fourth Schedule intended to rationalize arbitration costs, preventing exorbitant fees. The Tribunal's separate calculation for claim and counterclaim was thus argued to be contrary to legislative intent.

4. Whether Fees Should be Paid Individually to Each Arbitrator or as a Composite Amount:
The petitioners argued that the fees should be a composite amount for the entire tribunal, not paid individually to each arbitrator. They cited the Fourth Schedule and relevant judgments, which suggested that the fee structure was meant to apply to the tribunal as a whole, not to individual members. The Tribunal's interpretation that each member should receive the fee separately was thus challenged.

Court's Observations and Judgment:

On the Applicability of Subsection (14) of Section 11:
The Court agreed with the petitioners, stating that Subsection (14) of Section 11 and the Fourth Schedule are applicable to arbitral tribunals appointed by parties themselves, not just those appointed by the High Court or Supreme Court.

On the Interpretation of "Sum in Dispute":
The Court concurred with the judgments cited by the petitioners, holding that "Sum in Dispute" should be interpreted cumulatively, including both the claim and counterclaim. This interpretation aligns with the legislative intent to rationalize arbitration costs and make arbitration an attractive dispute resolution method.

On Fee Payment to Arbitrators:
The Court found merit in the petitioners' argument that the fee should be a composite amount for the entire tribunal. It noted that the Act defines the arbitral tribunal as either a sole arbitrator or a panel, and the Fourth Schedule does not specify separate payments to individual members of a multi-member tribunal.

Conclusion:
The Court set aside the impugned orders and directed the Arbitral Tribunal to determine its fees and administrative expenses afresh, considering the observations made in this judgment. The writ petition was allowed.