Oil and Natural Gas Corporation Ltd. Vs Afcons Gunanusa JV (Supreme Court of India)
Conclusion: In present facts of the case, the Hon’ble Supreme Court of India invoked Article 142 of the Constitution of India and have directed to form new arbitral Tribunal due to disputes in the fee structure provided in IV Schedule of the Arbitration and Conciliation Act, 1996.
Facts:
On 29 May 2009, an agreement was executed between the parties for a Lump Sum Turnkey Contract for the construction of an ICP-R Platform. The ICP-R Platform was alleged to have been completed on 31 October 2012. But due to ongoing disputes and differences, the Respondent in this case invoked arbitration on 20 July 2015, in accordance with Clause 1.3 of the LSTK Contract. On the same date the Petitioner also appointed their arbitrator and an arbitral tribunal was constituted.
The arbitral tribunal held a preliminary meeting on 25 November 2015 at which the members of the tribunal indicated their view that the fee schedule prescribed in the contract seemed unrealistic, the arbitral tribunal noted that the Fourth Schedule to the Arbitration and Conciliation Act 1996 recommends the fee for each arbitrator as Rs 30 lakhs, when the amount in dispute exceeds Rs 20 crore (in the present case, it was Rs 900 crores). On 16 April 2016, the arbitral tribunal informed the Petitioner, that it would no longer bargain on the amount.
On 4 August 2016, the arbitral tribunal passed a procedural order directing the parties to deposit 25 per cent of the arbitrators‘ fee, which was recorded as Rs 30 lakhs. On 22 May 2018, the arbitral tribunal passed another procedural order finalising its fee, stating that it had done so after taking into account the pleadings submitted by the parties, the complexity of the issues involved, high value of the claim (Rs 679 crores) and counter-claim (Rs 407 crores), and the voluminous nature of the documents. The tribunal fixed a fee of Rs 1.5 lakhs for each arbitrator for every sitting of a three-hour duration. The tribunal indicated that it may also charge a reading fee or conference fee (for conferences between the members), which would be indicated at a later stage.
On 22 June 2018, Petitoner filed an application before the arbitral tribunal for modifying the procedural order dated 22 May 2018 increasing the fee. The arbitral tribunal issued a procedural order dated 25 July 2019 rejecting Petitioner’s application.
By its letter dated 21 August 2020, Petitioner informed the arbitral tribunal that the revised fee was not approved by its higher management. Thereafter, Petitioner filed a petition under Section 14 read with Section 15 of the Arbitration Act before the Bombay High Court for the termination of the mandate of the arbitral tribunal and the substitution of a fresh set of arbitrators. By its order dated 7 October 2021, the petition was dismissed by the Bombay High Court on the ground of a lack of jurisdiction since the arbitration was an international commercial arbitration within the meaning of Section 2(f) of the Arbitration Act.
The Hon’ble Supreme Court of India after taking into consideration the submissions of both the sides have observed as follows:
(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.
(ii) 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;
(iii) 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
(iv) 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.
Finally, the Hon’ble Supreme Court held that in respect of Arbitration Petition (Civil) No 5 of 2022 there was no consensus between the parties and the arbitrators regarding the fee, that is to be paid to the members of the arbitral tribunal. Allowing the continuance of the arbitral tribunal would mean foisting a fee upon the parties and the arbitral tribunal to which they are not agreeable. Further, the Hon’ble Supreme Court exercised powers under Article 142 of the Constitution of India and directed the constitution of a new arbitral tribunal in accordance with the arbitration agreement. The directions was not to be construed as a finding on the conduct of the arbitration proceedings. Further, it was held that in consonance with findings, the fee payable to the earlier arbitral tribunal would be the fee payable in terms of the Fourth Schedule of the Arbitration Act. Though the Fourth Schedule is per se not applicable to an international commercial arbitration, since Petitioners had indicated (following the suggestion of the arbitral tribunal) that it would be agreeable to pay the fee payable in terms of Schedule, it cannot now take recourse to the arbitration agreement between the parties to pay a lesser fee.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
A Factual Background
