Arbitrators Fixing Their Own Fee Would Amount To Misconduct; PSUs Can't Meet Exorbitant Fee Demand As They Are Answerable To CAG : Attorney General Tells Supreme Court

The Supreme Court on Thursday continued hearing the case in which the issue related to fixation of standards for fees for arbitrators was raised.The bench of Justices DY Chandrachud, Sanjiv Khanna and Surya Kant was considering arbitration petition filed by the Oil and Natural Gas Corporation (ONGC) on the issue related to the mandatory nature of the 'model' fee scale for arbitrators prescribed under the Fourth Schedule of the Arbitration and Conciliation Act 1996. Earlier, the bench had pondered on solutions such as - (a) parties indicating to the arbitrator the estimated number of sittings before the commencement of proceedings and fixing the fees accordingly; (b) allowing the arbitrator to increase the fees beyond the agreed scale to a certain percentage (say 10%) of the sittings exceed the estimate; (c) allowing the arbitrator to approach the Court for increasing fee beyond the allowable percentage; (d) stopping the practice of splitting a day into different hearings and applying Fourth Schedule scale day wise. In the hearing today, Attorney General for India KK Venugopal made his submissions on behalf of ONGC. PSU's Not Only Answerable To Department But Also CAG; Issue Pertaining To Public Interest; All Aspects Of Arbitration Including Arbitrator's Fees Should Be Arbitration Friendly When the matter was called for hearing, Attorney General for India KK Venugopal at the outset, apprised the bench with regards to the issues related to fixation of fees by the Arbitrator in the ONGC Arbitration. "Before the arbitrator was appointed, an arbitration agreement containing also the fees capped at 10 lakh was sent to each one of them and accepted with open eyes. In the 1st sitting, the arbitrator said that the fees are not realistic and the next sitting fixed the wrong fees by asking us to deposit 25% of the 4th schedule. We then proceeded. When the 1st witness called for an examination- the arbitrator said we'll fix 1.5 lakh per sitting and each day was for 2 sitting and this took us by surprise," submitted AG. Terming the issue as public interest which would affect all the PSU's, AG continued to argue that as a PSU, it was not only answerable to the Department but the CAG. He added that all the facets of arbitration including the aspect of fixation of fees should be made arbitration friendly. In this regards, AG KK Venugopal further said, "As PSU we are not only answerable to the department but CAG this will affect all PSU. This is happening in NHAI also. Therefore it is really a public interest issue. People are forced to opt for arbitration for simple reasons because if you go by way of suit it takes 8 years. HC 8 years, SC 8 years and total 25 to 26 years. Corporation prefers arbitrations and therefore arbitration should be treated as an alternative of choice with all its facets being made arbitration friendly and fees is one of the aspects which has to be arbitration friendly" AFCON's Contention That Supreme Court Does Not Have Jurisdiction U/S 14 To Terminate The Mandate Of Arbitrator Leaves ONGC "Remediless" It was also his contention that on ONGC's objection, the arbitrators reduced the fees to Rupees 1 lakh per sitting and despite ONGC filing a protest, there was no response which forced them to approach the Court u/s 14 of the Arbitration Act for terminating the mandate of Arbitrator. Attorney further said ONGC was remediless since the Bombay High Court did not entertain the plea saying that it had "no jurisdiction" and when they approached the Supreme Court, the respondents raised an objection that the Supreme Court does not have jurisdiction. Against this backdrop, he further said that the issue of "fixation of fees" by the Arbitrator was a matter of significance so far as PSU's were concerned. "This is ad hoc international arbitration so part 1 would not apply right?," asked Justice Chandrachud. "Since the seat is in India, part 1 will apply," responded the AG. Arbitrator Asking Claimants To Deposit Enhanced Fees & Later Recover Is "Humiliating" Another concern which AG raised during the course of hearing was related to the humiliation which PSUs had to face on Arbitrator's directing the claimant to deposit the increased fee and then recover it from the other party later. To further substantiate his contention, AG said, "What one finds is the claimant willingly agrees because they believe to be on the right side of arbitrators would be to their advantage when they are asking for claims which are exaggerated. In this case, when it has increased to 1.5 per sitting, parties were asked to deposit for the previous sittings as well as 26 sittings. We were not prepared and we protested. They direct the claimant to deposit not only his arrear for sitting but also fees which I was supposed to deposit. This was very humiliating. We had already protested and it was in this background that Section 14...

Arbitrators Fixing Their Own Fee Would Amount To Misconduct; PSUs Can't Meet Exorbitant Fee Demand As They Are Answerable To CAG : Attorney General Tells Supreme Court

Shruti Kakkar

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