Arbitrators Can't Unilaterally Modify Fee, Needs Parties' Consent: Bombay High Court

Brief Facts:

The matter pertained to a partnership deed executed between Shanklesha Construction (“Petitioner”) and Ashok Mohanraj Chhajed (“Respondent”), leading to disputes that prompted arbitration through an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in Bombay High Court (“High Court”). Later, the High Court appointed a sole arbitrator, a former Judge, without specifying the fees of the arbitrator. A preliminary meeting of arbitration established that the arbitrator would charge fees according to Schedule IV of the Arbitration Act. However, several disputes arose regarding the fees of the arbitrator. The arbitrator directed the parties to pay the balance fees.

Later, the arbitrator's mandate expired, and she indicated that only the final hearing remained. In the meantime, a third party applied to the arbitrator, seeking relief against the Petitioner. The arbitrator rejected the 3rd-party's application; however, she made several observations related to that 3rd-party in the order. Observing a need for extra time, the Respondent approached the High Court and filed a petition under Section 29-A of the Arbitration Act, seeking an extension of the arbitrator's mandate. Meanwhile, the petitioners filed a petition under Sections 14 and 29-A of the Arbitration Act before the High Court, seeking an extension and substitution of the arbitrator. Both petitions were heard together by the High Court.

The Petitioner, argued for the extension of the arbitrator's mandate, acknowledging its necessity post-expiry. However, it asserted that sufficient grounds existed for the arbitrator's substitution under Sections 14 and 29-A(6) of the Arbitration Act. It made several allegations including the arbitrator unilaterally revising fees, entertaining a third-party application, and procedural delays. Dr Abhinav Chandrachud, representing the Respondent, countered these claims, asserting that the issues regarding fees adhered to the standard set by several decisions of the Supreme Court. He argued against the Petitioner's grounds for substitution, maintaining that any grievances regarding procedure should be addressed at the Section 34 stage, after the award.

Observations by the High Court:

The High Court referred to the decision of the Supreme Court in Oil and Natural Gas Corporation Limited (ONGC) Vs. Afcons Gunanusa JV where the Supreme Court issued guidelines on determination of arbitrator's fees, emphasizing the need for a tripartite agreement, setting out the fee components. The Supreme Court further elucidated in its judgment that the 'sum in dispute' encompasses the entire amount to be adjudicated upon, allowing the arbitrator or arbitral tribunal to compute and charge fees for both the claim and the counter-claim. The High Court held that any amendments, revisions, or modifications in fees must only occur with the consent of the parties, as outlined in the tripartite agreement.

The High Court referred to the minutes of the meeting and observed that, with the consent of the rival parties, the arbitrator specified that fees would be charged according to Schedule IV of the Arbitration Act. Subsequently, in another minute of the meeting, the arbitrator informed that the fee capping limit was reached, and fees could not be charged on the counter-claim except for 1/4th of the ad valorem amount payable to the arbitrator. The subsequent order/minutes of the meeting revealed that the arbitrator, taking into account the position of law and the interpretation of Schedule IV, found that additional fees were payable by the parties. The High Court held that the observations made by the arbitrator in the minutes of the meetings do not constitute a unilateral revision or deviation from the tripartite agreement regarding fees. The understanding in the preliminary meeting was unequivocal – the arbitrator would charge fees as per Schedule IV of the Arbitration Act. In this context, the High Court held that the arbitrator was entirely within her rights to claim fees specifically according to Schedule IV.

Turning to the second ground raised by the Petitioner concerning how the proceedings were conducted by the arbitrator, allegedly causing undue delays. The High Court held that the arbitrator under Section 19 of the Arbitration Act, is not bound by the CPC or the Evidence Act. Therefore, the arbitrator is free to adopt a reasonable procedure in line with the principles of natural justice while conducting arbitral proceedings. The High Court held that grievances related to the conduct of the proceedings must be raised at the stage of proceedings under Section 34 of the Arbitration Act, provided the arbitral award goes against the Petitioner.

The High Court rejected the contentions of the Petitioner regarding the unilateral increase of fee and conduct of the proceedings and granted an extension of the Arbitrator's mandate.

Case Title: Shanklesha Construction and Others vs Ashok Mohanraj Chhajed

Case Number: COMMERCIAL ARBITRATION PETITION (L) NO.24453 OF 2023 WITH INTERIM APPLICATION (L) NO.33894 OF 2023

Advocate for the Petitioner: Mr. Mayur Khandeparkar a/w. Mr. Anosh Sequieria, Mr. Ativ Patel and Mr.Harshad Vyas i/b. AVP Partners

Advocate for the Respondent: Dr. Abhinav Chandrachud a/w. Mr Nirman Sharma, Mr Bhavesh Bellam and Mr. A. Pawar i/b. Karma Vivan for Petitioners

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