Arbitrators Raising Fees In The Middle Of Arbitration May Amount To Misconduct, Supreme Court Says During Hearing

The Supreme Court on Thursday continued hearing on the issue of fixation of standards for fees for arbitrators. The bench of Justices D. Y. Chandrachud, Sanjiv Khanna and Surya Kant were considering the issue regarding the mandatory nature of the 'model' fee scale for arbitrators prescribed under the Fourth Schedule of the Arbitration and Conciliation Act 1996. In the hearing today, the bench, in order to render confidence in the whole process of arbitration, expressed its inclination to hold that there must be an upfront determination of fees by the arbitrator. The bench further observed that the practice of the arbitrators demanding a raised fee in the middle should stop as this gives a very wrong name to the arbitrator. "We're inclined to hold that there must be an upfront determination of fees by the arbitrator because that would render a lot of confidence in the whole process. This practice of demandinga raised fees in the middle should stop. That may even tantamount to misconduct. It gives a very bad name to the arbitrator," the bench remarked orally. For Determination Of Arbitrator's Fees Claim & Counterclaim Should Be Charged Separately; Legislature Has Been Very Conscious Since Its Mindfulness To Situation That Counterclaim Puts Separate Cause Of Action; There Has To Be Overarching Dignity Which Must Encompass Arbitration Proceeding & While Keeping This Overarching Dignity, Rules Of Engagement Must Be Set At Outset. : Senior Advocate Hufeza Ahmadi Senior Advocate Hufeza Ahmadi, appointed as Amicus Curiae in the case, submitted that interpretation of the 4th schedule suggested that the claim and counterclaim should be charged separately. In this regard, the amicus submitted that there are conflicting decisions by High Courts on whether separate fees are payable on claim and counterclaim. To further substantiate his contention, Amicus relied on section 2(9), section 11(14), section 21 and section 38 of the Arbitration and Conciliation Act, 1996. While reflecting on the submissions made by amicus, Justice DY Chandrachud, the presiding judge of the bench said, "38 proviso seems to suggest that when you make assessment of advance, tribunal can make separate assessment of claim and counterclaim but 38 proviso is not a mandate but it is enabling. So if the Arbitral Tribunal is of the view that it has to be earmarked separately, then only you can make determination of cost but with that the Tribunal can't say from day 1 that they will charge different amount for claim and counterclaim. If the tribunal believes that for the counterclaim the same would be argued separately then 38 is an indicator that fees can be fixed separately." Responding to the remarks posed by the judge, Senior Advocate while drawing reference to the difference between a "Set Off" and "Counter Claim" said, "Here we're interpreting Schedule 4 since here there is lump sum pay. Suppose you only have a claim. One is the concept of set off and one is of counter claim. Legislature has been very conscious since its mindfulness to the situation that counterclaim puts a separate cause of action. Take it from another perspective, suppose there was only a claim- arbitrator could charge X. Can one say that since it's only a counterclaim, it doesn't involve diff set of work? Under the schedule it may have been fair to say that if this is a counter claim you'll get a 50% set amount. Please also be mindful of one other claim, if the party chooses not to file a counter- he will have to pay a separate fee." Cost Should Be Saddled On Parties Who Raise Frivolous Counterclaim: Supreme Court "If you don't impose restrictions, the moment you have a claim and counterclaim- you'll have a separate set of fees for claim and counterclaim. Accepting your submission would mean that the moment there is counterclaim you will have to pay separate fees. If you raise a frivolous counterclaim, then the cost should be saddled to the party that has raised a frivolous counterclaim," Justice Chandrachud remarked. Amicus further submitted that once a counter claim is made- it would lengthen adjudication in arbitration proceedings because the issues which arise would involve a lot of work, evidence, adjudication. "But the fact that the legislature has included counter claims separately is very significant. Would it be fair to say that if it takes 50 hearings to wrap up the case, then the arbitrator will get the same amount?" he further added. Where 4th Schedule Does Not Apply, You Can't Charge Ipso Facto Charge For Claim & Counterclaim: Supreme Court During the course of hearing, the bench observed that arbitrators could not charge ipso facto for claim and counterclaim in cases where the parties do not agree for the application of the Arbitrator's fees laid down in the 4th schedule. "Where the 4th schedule doesn't apply- then there is agreement b/w the parties...

Arbitrators Raising Fees In The Middle Of Arbitration May Amount To Misconduct, Supreme Court Says During Hearing

Shruti Kakkar

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