Arbitrators are creatures of an agreement, it is for the parties to confer upon them such power and prescribe such procedure for them to follow, as they deem fit, so long as they are not bad in law (the proviso to section 41 and section 3 of the Arbitration & Conciliation Act, 1996( hereinafter referred as “1996 Act”) illustrates this point). We note, that the arbitrators plays a crucial role in amicably settling disputes between the parties and are entitled to a fee for the same ( as stated in section 11(3A) and schedule IV of the 1996 act).
Before the 2015 amendment in the 1996 Act, the situation was such that there was no fix standards to determine the fee of the arbitrators, as mentioned in the 246th Law Commission report, (stated in chapter II paragraph 10), the commission opined, that one of the main concerns in India is in relation to Ad – Hoc arbitration were the high costs associated with it, which included arbitrary, unilateral and no standards maintained whatsoever in fixation of fees of several arbitrators.
After the 2015 amendment in the 1996 Act, the IV schedule was inserted, which is retrospective in nature (w.e.f. 23rd Oct,2015); further section 11 as enacted in the 1996 Act (and as amended by act 33 of 2019) made a departure from Article 11 of the Model Law. The highlight of the IV schedule is, it has a celling limit of Rs. 30,00,000/- (Thirty Lakhs Only), where the ‘sum in dispute’ is above Rs. 20,00,00,000/-(Twenty Crore Only), at a prima facie glance, it looks as a good initiative of the legislature towards fixation of a standard fee to be charged by the arbitrators, however its far from reality, it has created an expression of exasperation in mind of the parties and a chaotic farrago in mind of the advocates.
Section 11(3A) of the 1996 Act, states that the fee of the arbitrators are to be determined in accordance with the IV schedule; However, it is not clear as to whether the fee is composite or whether each member of the tribunal is entitled to such fee as specified in the IV schedule, Let’s say if the tribunal consists of three arbitrators, and the sum in dispute is Rs. 21,00,00,000/-(Twenty One Crore Only) and each arbitrator is entitled to Rs. 30,00,000/- (Thirty Lakhs Only) then the fee of the arbitrators would amount to Rs. 90,00,000/- (Ninety Lakhs Only), which is exorbitantly expensive for the parties to bear and this may also result to liquidation of the party already suffering from financial difficulties.
If each arbitrator is entitled to aforementioned fee, the procedure becomes alarmingly expensive for the parties and therein the parties would be discouraged to take recourse to arbitration to settle disputes, which could put a complete halt to the arbitration regime. Therein
I would over the next parts decipher the fees charged by the arbitrators and try to formulate a solution to overcome this exasperating farrago.
1. Intent of the Legislature: –
The reading of section 11(3A) and section 11(14) of the 1996 Act, determines the fee of the ‘arbitrators’ in accordance with the IV schedule; whereas, when the arbitrator/arbitrator(s) are nominated by the parties it results to constitution of the arbitral tribunal. We refer to the general provisions (stated in part I chapter I) section 2(d) of the 1996 Act, which states that an arbitral tribunal means a sole arbitrator or a panel of arbitrators, therein corelating section 11(3A) with IV schedule suggests composite fee to be charged by the arbitral tribunal and not otherwise.
In the process of the creation of law, framing of statutes play a vital role. Every statue framed is mainly for the public benefit, as is held in the case of Union Bank of India, Calcutta V. Abhijit Tea Co (2000) 7 SCC 357) and it is for the legislature to frame the law and to give effect to every word thereof as is held in the case of Nathi Devi V. Radha Devi (Appeal (civil) 5027 of 1999). Therefore it may be wrong for the tribunal to go beyond the scope of the legislature and give effect to the latent meaning of the IV schedule which would simply amount to ‘latent’ illegality.
In normal course of action, if the law is clear, it is stated that literal rule of interpretation shall be given effect to, however when the law suffers ambiguity, mischief and the outcome may prejudice the case of the party/parties, It is advisable to remove the ‘Mischief’ from the law and apply the Mischief rule.
The mischief rule is based on the premise that the true interpretation of all the statutes in general, are as follows. The office of all the judges is to make such construction as shall suppress the mischief and advance the remedy and therefore add force and life to the cure and remedy, according to the true intent of the makers of the act pro bono publico (for the public good) as is held in the case of Bengal Immunity Co. Ltd. V. State of Bihar ([1955] 2 S.C.R. 603 ) In simple words, when a statute (in this case section 11(3A) & IV schedule of the 1996 Act) is capable of bearing two construction (in this case fee maybe ‘composite’ or ‘each’) the court must adopt the construction which supersedes the mischief and advances the remedy as is held in Raipur Development Authoirty V. Anupam Sahkari Griha Nirman Samiti [2000]2SCR781.
2. Whether the fee be Composite or Each in case of Multi Member Body?
In presence of equivocal interpretation of IV schedule and absence of any explanation in section 11(3A) and section 11(14) of the 1996 Act, it leads to a state of complete confusion as to ‘determination of the fees of the arbitrators’. Many times this confusion tends to become a big hindrance for the party trying to claim relief, when exorbitant fees are charged on the parties by the arbitrators.
With regard to question as to whether the fee should be taken as a composite amount or is to be paid individually to each arbitrators, we need to do a joint reading of section 2(d) and section 11(14) of the 1996 Act, which states about ‘determination of fees by the arbitral tribunal’, had the legislature intended that the fee as mentioned in the IV schedule is to be given to each arbitrator, then it would have clarified the same by appending a note to the IV schedule by stating that in event there are more than one arbitrator then each arbitrator is entitled to the fee as mentioned in the IV schedule, as is held in the case of State of UP, Princ Secy. V. GVK Emri (UP) Pvt. Ltd.( misc. bench no. – 10362 of 2020).
Reiterating to the 246th Law Commission Report (stated in chapter II), which stated the fee of the arbitrators were to be regulated even in case of Ad – Hoc arbitration, therein it is clear to us that the arbitrators, are not vested with the power to have unlimited discretion to charge fee and are subject to be regulation by the model fee for the purpose of the 1996 Act.
3. Conclusion: –
Based on the aforementioned analysis, it shall be noted, that the fees charged by the arbitrators under the IV schedule suffers mischief which may jeopardize the case of the parties. We reiterate to the aforementioned illustration i.e. were the tribunal consists of three arbitrators, and the sum in dispute is Rs. 21,00,00,000/- (Twenty One Crore Only) and each arbitrator is entitled to Rs. 30,00,000/- (Thirty Lakhs Only) then the fee of the arbitrators would amount to Rs. 90,00,000/- (Ninety Lakhs Only), in this case even if the tribunal is pleased to give the direction that the fee of the arbitrators, shall be equally born by both the parties (which is claimant and respondent) even in that case each party has to spend Rs. 30,00,000/- (Thirty Lakh only) which is still exorbitant in nature.
In order to avoid such complications, it is advisable to the parties to pre determine the fee of the arbitrators in the contract itself, therein when such occasion arises which calls for dispute resolution through arbitration, it becomes non-mandatory to follow IV schedule of the 1996 Act for the purposes of determining the fee of the arbitrator as is held in the case of National Highway Authority of India & ors. v. Gayatri Jhansi Roadways Limited & ors ( civil appeal no. 5383 of 2019)
It is high time that we shall rise up to the occasion and resolve the farrago once and for all. Arbitrators, don’t have unfettered discretion to charge fee at their free will but are subject to regulation under the model law in the 1996 Act, The arbitrators have obligation vested in them to give effect to every word thereof as is held in the case of Nathi Devi (supra).
A note shall be added to the explanatory memorandum under the IV schedule of the 1996 Act, which would explain that the fee charged by the arbitrator are composite in nature or otherwise, this could bring us from the darkness and emerge as ‘Heavens Light Our Guide.’
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Very well written. Best wishes