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Arbitrator Won't Become Ineligible By Unilaterally Revising Fee; Mandate Can't Be Terminated On Grounds Not Mentioned In Schedule : Supreme Court

Gyanvi Khanna

19 Oct 2023 2:09 PM GMT

    • Arbitrator Wont Become Ineligible By Unilaterally Revising Fee; Mandate Cant Be Terminated On Grounds Not Mentioned In Schedule : Supreme Court

    In a notable judgment, the Supreme Court has held that unilateral revision of fee by an arbitral tribunal, though not permissible, will not terminate its mandate on the ground of ineligibility as per Section 12 of the Arbitration and Conciliation Act 1996.Although the Supreme Court has held in Oil and Natural Gas Corporation Ltd. vs Afcons Gunanusa JV 2022 LiveLaw (SC) 723 that the...

    In a notable judgment, the Supreme Court has held that unilateral revision of fee by an arbitral tribunal, though not permissible, will not terminate its mandate on the ground of ineligibility as per Section 12 of the Arbitration and Conciliation Act 1996.

    Although the Supreme Court has held in Oil and Natural Gas Corporation Ltd. vs Afcons Gunanusa JV 2022 LiveLaw (SC) 723 that the arbitrators should revise the fee only in consultation with the parties and should not do it unilaterally, a bench comprising Justices S Ravindra Bhat and Aravind Kumar held in the present case that a breach of the rule laid down in ONGC will not render the arbitrator ineligible.

    "The ruling in ONGC (supra) is undoubtedly clear that fee increase can be resorted to only with the agreement of parties; in the event of disagreement by one party, the tribunal has to continue with the previous arrangement, or decline to act as arbitrator. Yet, whether the breach of that rule, as in the present case, by insisting that the increase of fee should prevail does not in this court's opinion, amount to a per se ineligibility, reaching to the level of voiding the tribunal's appointment, and terminating its mandate," the bench stated in the judgment in Chennai Metro Rail Ltd v. M/s Transtonnelstroy Afcons JV.

    In this regard, the bench referred to HRD Corporations v. Gas Authority of India Ltd (2017) and National Highways Authority of India & Ors. vs. Gayatri Jhansi Roadways Limited & Ors (2019)

    The bench categorically held that only the grounds specified in the Fifth and Seventh Schedule of the Arbitration and Conciliation Act can be considered to determine the ineligibility of an arbitrator. The ineligibility of the arbitrator must be something "going to the root of the jurisdiction, divesting the authority of the tribunal, thus terminating the mandate of the arbitrator", the judgment authored by Justice Bhat said.

    “The attempt by Chennai Metro to say that the concept of de jure ineligibility because of existence of justifiable doubts about impartiality or independence of the tribunal on unenumerated grounds [or other than those outlined as statutory ineligibility conditions in terms of Sections 12 (5)], therefore cannot be sustained. We can hardly conceive of grounds other than those mentioned in the said schedule, occasioning an application in terms of Section 12 (3)."

    Section 12 of the Arbitration and Conciliation Act, 1996, (Act) provides the grounds for challenge of an arbitrator. Further, Schedule 5 of the Act enunciates the grounds that give rise to justifiable doubts as to the independence or impartiality of arbitrators.

    There was an ongoing arbitration proceeding pending between the appellant (M/S.Chennai Metro Rail Limited) and respondent (M/S Transtonnelstroy Afcons (JV)). The origin of this present litigation arose when the Arbitral Tribunal revised its fees from a sum of Rs.1,00,000/- to a sum of Rs.2,00,000/- per session per Arbitrator. While the fee was remitted by the respondent, the same was objected to by the appellant.

    Aggrieved by the same, the appellant challenged the mandate of the tribunal before the Madras High Court. It was argued that there is reasonable apprehension of prejudice/bias that would operate against the appellant. Therefore, the mandate of the Tribunal is liable to be terminated on the ground that it is de jure and is unable to perform its function as required. However, the High Court dismissed the same resulting in the present appeal.

    The Supreme Court, in today's judgment, also cited UK Supreme Court's Judgment in Halliburton Company v. Chubb Bermuda Insurance Ltd. wherein it was held that to determine whether there is an appearance of bias such that removal of an arbitrator is required, English law will apply the objective test of whether an informed, fair-minded observer would conclude that there is a real possibility of bias.

    Moving forward, the Court, also observed “In other words, the de-jure condition is not the key which unlocks the doors that bar the challenges midstream and should not unlock the gate which shuts the Court out from what could potentially become causes of arbitrated challenge during the course of an arbitration proceedings other than what the Act specifically provides for.”

    Thus, for the foregoing reasons, the Court dismissed Chennai Metro's appeal.

    Additional Solicitor General N Venkataraman and Senior Advocate Ritin Rai appeared for the appellant. Senior Advocate Darius J Kambhatta appeared for the respondent.

    Impugned order

    Before the High Court, the appellant submitted that suo-motu revision of fee is not permissible and the same is against the agreed terms and conditions of the contract and also contrary to the IV schedule of the Act. It was also alleged that the payment of first respondent of his share of fee to the Tribunal, not only put the petitioner in embarrassing position as it is reluctant to pay such huge fee but there is also reasonable apprehension of prejudice/bias that would operate against the petitioner.

    Based on this, it was contended that the mandate of the Tribunal is liable to be terminated on the ground that the Tribunal is de jure and is unable to perform its function as required.

    On the other hand, the respondent emphatically refuted these contentions. It was submitted that petitioner, without any tangible basis, assumed that the Tribunal will be prejudice and not able to treat the petitioner in an impartial manner.

    The High Court in its impugned judgment observed:

    “…. in the entire pleadings of this petition, the petitioner is reiterated only the word de jure, unable to perform its function, biased and prejudice, by referring to the payment of fees by the first respondent and this will not be bias or prejudice as contended by the learned counsel for the petitioner, in view of the law laid down by the Hon'ble Supreme Court in ONGC judgement and in the manner stated above.”

    Case Title: M/S CHENNAI METRO RAIL LIMITED vs. M/S TRANSTONNELSTROY AFCONS JV, C.A. No. 4591/2023

    Citation : 2023 LiveLaw (SC) 909

    Click here to read the judgment








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    #Justice Ravindra BhatJustice Aravind KumarArbitration and Conciliation Act 1996
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