“Unraveling the complexities of arbitration fee disputes and the interpretation of ‘Sum in dispute’ in the Fourth Schedule under the Arbitration and Conciliation Act. Insights from the Supreme Court’s landmark decision in Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV.”
In today’s interconnected world, characterised by fast changes in commercial dynamics, corporate entities have grown up as powerful drivers of economic advancement. New perspectives, conflicts, issues, and legal procedures have evolved within this changing societal framework, where interconnectedness and complicated utility alternatives abound. Arbitration is one such process that has gained recognition as an efficient form of alternative conflict settlement. As the use of arbitration continues to expand at an exponential rate, a critical question arises: how should arbitration fees be determined? The Supreme Court has examined this topic in the historic decision of Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV, putting light on this complex issue.
Arbitration has emerged as a viable alternative to conventional litigation, becoming a vital tool in modern jurisprudence. It provides parties with a flexible and confidential platform for conflict resolution, which typically results in efficient and enforceable decisions. However, as the importance of arbitration grows, determining suitable costs becomes an important factor. The Supreme Court’s reconsideration of this issue in the aforementioned case reflects the Court’s commitment to resolving the increasing issues surrounding arbitration fees.
Unravelling the Architecture of Arbitration Fees
The legal issue concerns how to interpret Section 31(8) of the Arbitration and Conciliation Act of 1996 (the ‘Act’). This clause empowers the arbitral tribunal to award expenses in line with Section 31A. Section 31A delegated discretionary authority to the tribunal to evaluate three critical aspects of costs: (1) whether one party is obligated to pay costs to another party, (2) the amount of costs, and (3) the time of payment. The word ‘costs’ includes reasonable expenditures linked to arbitrators’ and witnesses’ fees, as well as other relevant fees, according to the explanation provided in Section 31(8)(a) and Section 31A(1). In addition to this analysis, Section 38(1) of the Act gives the tribunal the authority to set the number of deposits for claims and counter-claims, which acts as an advance for arbitration fees and is included in the overall ‘costs’ under Section 31(8). As a result, in the context of arbitration procedures governed by the Act, these provisions together establish the arbitral tribunal’s jurisdiction and discretion in deciding costs, including the payment of fees and expenses.
To understand the quandary surrounding the arbitrator’s fee, it is necessary to go into the background of Schedule IV. The 2015 Amendment, which was influenced by the suggestions made in the 246th Law Commission Report, resulted in the addition of the Fourth Schedule under the Act. The report criticised the previous fee structure as arbitrary, unilateral, and disproportionate. The purpose of creating the schedule was to create a standardised structure for setting arbitrator costs. The idea of using the “Sum in dispute” as a benchmark for computing arbitrators’ fees based on the defined model is introduced in the Fourth Schedule. However, the usage of this ambiguous phrase creates a substantial legal conundrum when interpreted in the context of the fourth schedule. The important question is whether the “Sum in dispute” should be determined by taking the claims and counter-claims together or separately. This argument must be resolved because it directly affects the implementation of the fee ceiling established in the Schedule. As a result, identifying the precise understanding of the word is critical in deciding the appropriate fees for arbitrators in a particular case.
Legal Implications of Claim and Counter-Claim
It is crucial to note that the Arbitration and Conciliation Act does not define the terms ‘Claim’ and ‘Counter-claim’. As a result, in order to answer the subject at hand, it is required to have a thorough grasp of these terminology and their significance in legal procedures. Comprehensive knowledge of the nature of Claim and Counter-claim processes is critical since it directly influences the tribunal’s assessment of deposits. If the Claim and Counter-claim processes are different and independent of one another, separate deposits would be required for each. Because the arbitration cost is included in these deposits, separate fees for Claim and Counter-claim would be levied, with the ‘Fourth Schedule’ model applicable to each separately.
Exploring the Dynamics of Claim and Counter-Claim in Arbitral Disputes
According to Section 2(9) of the Act, every reference to a claim and defence to a claim under the Act shall equally apply to a counter-claim and defence to a counter-claim, handling both procedures independently. Section 23(2A) further requires the tribunal to rule on a counter-claim or set-off if it comes within the scope of the arbitration agreement, emphasising the tribunal’s independence. Section 38(2) empowers the tribunal to end proceedings separately for the claim, counter-claim, or both if proper deposits are not provided, underlining the demand for separate deposits. This interpretation is supported by notable legal authorities. The tribunal’s authority to resolve claims and counter-claims independently is highlighted in Justice Bachawat’s book on the Law of Arbitration and Conciliation. Various judicial decisions, such as the cases of IOCL v. Amritsar Gas Service and State of Goa v. Praveen Enterprises, affirmed the consistent requirement of arbitral tribunals to independently adjudicate counter-claims prior to the implementation of Section 23(2A) in 2015. These decisions emphasised that the goal of combining claims and counterclaims in the same arbitration is to avoid the necessity for additional hearings.
Analyzing the Prospects of Interpreting Sum in Dispute as a Cumulative Amount
Adopting a stance that views ‘Sum in dispute’ as a total sum of claim and counter-claim raises questions about procedural fairness and may have far-reaching consequences. To begin, if fees are to be equally split between parties while considering individual contributions as per Section 38(1), determining a fair allocation may become difficult when claims and counter-claims are merged. Second, the intermediate adjustment of arbitration fees, as specified in Section 38(2), may cause problems if the case or any part of it is dismissed because the combined fees might not reflect the efforts made in addressing diverse subject topics within the same procedures in a proportionate manner. Furthermore, this interpretation contradicts the intent of the Fourth Schedule, as stated in the 246th Law Commission Report, which sought to address the issue of high costs levied by arbitrators in ad hoc arbitration. However, it is critical to recognise that statutory text and legislative purpose take precedence over reports, and if a contrary interpretation is intended, a special amendment expressing the parliamentary sense behind it would be required.
Concluding Remarks
Finally, determining arbitration fees has emerged as a critical component in the field of alternative dispute resolution. The Supreme Court’s analysis of the Afcons case demonstrates the Court’s dedication to resolving the growing issues involving arbitration fees. Sections 31(8), 31A, and 38(1) of the Act interact to establish the foundation for the arbitral tribunal’s power and discretion in deciding costs, including the payment of fees and expenses. The vagueness surrounding the interpretation of ‘Sum in dispute’ in the Fourth Schedule, on the other hand, offers a serious legal problem. The determination of whether the total for claims and counter-claims should be regarded as cumulative or distinct has consequences for the fairness and efficiency of arbitration processes.
Furthermore, in arbitration processes, comprehending the terms ‘Claim’ and ‘Counter-claim’ is critical in calculating the necessary costs and deposits. Even though the terms are not specified in the Act, many legal authorities have emphasised the independence of claim and counter-claim proceedings. The demand for separate deposits, as well as the tribunal’s jurisdiction to adjudicate them independently, emphasise the uniqueness of these procedures. Nevertheless, interpreting ‘Sum in dispute’ as cumulative might jeopardise the norms of procedural fairness and fee proportionality.
This article is written by Mr Aayush Akar & Mr Aditya Gautam, students of National Law University Odisha.
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