Arbitration is considered as a means to liberalize India’s legal market.The the objective behind the major amendment from Arbitration Act of 1940 was to make it approachable. The aim was to comprehensively cover international, commercial and domestic arbitration as well.Through the major amendment of 2015 to the Arbitration and Conciliation Act, 1996, fast-track procedures were introduced to limit the time period for arbitral proceeding and to limit the interference of courts resulting in a speedy dispute resolution process.
The fees of the arbitrators appointed by the designated Court under Section 11(4) of the Act, is determined by the Fourth Schedule. The Fourth Schedule under the Amended Act is reproduced below:
“THE FOURTH SCHEDULE
[See section 11(14)]
|Sum in dispute||Model fee|
|Upto Rs. 5,00,000||Rs. 45,000|
|Above Rs. 5,00,000 and upto
|Rs. 45,000 plus 3.5 per cent. of the claim amount over and above Rs.5,00,000|
|Above Rs. 20,00,000 and upto Rs.1,00,00,000||Rs. 97,500 plus 3 per cent, of the claim amount over and above Rs. 20,00,000|
|Above Rs. 1,00,00,000 and upto Rs.10,00,00,000||Rs. 3,37,500 plus 1 per cent. of the claim amount over and above Rs. 1,00,00,000|
|Above Rs. 10,00,00,000 and upto Rs. 20,00,00,000||Rs. 12,37,500 plus 0.75 per cent. of the claim amount over and above
|Above Rs. 20,00,00,000||Rs. 19,87,500 plus 0.5 per cent. of the claim amount over and above Rs. 20,00,00,000 with a ceiling of Rs. 30,00,000
Note:—In the event, the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent. on the fee payable as per the table set out above.”
Although, it is the discretion of the Court at the time of appointment, under Section 11(4), whether to set fee according to Fourth Schedule or upon the discretion of the arbitrator.
One such circumstance arose in the matter of DELHI STATE INDUSTRIAL INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. (DSIIDC) v. BAWANA INFRA DEVELOPMENT (P) LTD.wherein the Delhi High Court, by Hon’ble Mr. Justice Navin Chawla gave the express definition of ‘sum in dispute’ as mentioned in the Fourth Schedule of Arbitration and Conciliation Act, 1996. The petition was filed under Section 39(2) of Arbitration and Conciliation Act, 1996, seeking an interpretation of the Fourth Schedule. The Sole Arbitrator, in this case, claimed separate fee for amounts claimed in Statement of Claim and counter claim.
Two main issues before the Hon’ble Court were:
- Whether the “sum in dispute” necessarily includes the amount in the claim and counter claim cumulatively?
- Whether the arbitrator’s fees can cross the ceiling set in the Fourth Schedule?
The Hon’ble Court after due analysis of method followed by different arbitral institutions, concluded that the concept followed in the world is that the fee of the Tribunal to be fixed on the cumulative value of the claim and counter claim. The Hon’ble Court while interpreting the term, also referred to 246th Law Commission Report and Rules of the Delhi International Arbitration Centre (DIAC) under the Delhi International Arbitration Centre (DAC) (Administrative Cost Arbitrators’ Fees) Rules. Supreme Court judgment of UOI v. Singh Builders Syndicate, was also referred, where the Court held that the high fees of arbitrator generally arises when Court appoints the arbitrator without indicating the fees, this puts one of the parties in a disadvantaged situation. In order to prevent hampering of the case, a party, even though unwilling, may have to agree to the high fee structure. These situations result in the cost of arbitration approaching or even exceeding the amount of dispute. The Hon’ble High Court was pleased to hold that high costs are hampering the growth of arbitration as an effective method.
Hon’ble Mr. Justice Navin Chawla upheld the legislative intent thereby including both claim and counter claim amounts cumulatively in “sum in dispute”. The issue of breach of the ceiling in the Fourth Schedule was also answered negatively.
The criteria of applicability of the Fourth Schedule is that it comes under the purview of Section 11(4), and the Fourth Schedule does not apply to arbitrators appointed by a method other than one mentioned under Section 11(4) of the Act. By interpreting the term ‘sum in dispute’, the cost of arbitration though has been reduced but limited to situations where the designated Court or institution appoints the arbitrator and particularly sets the fee as per Fourth Schedule. Although, India is rising as the hub for domestic and international arbitrations, a contradictory situation still persists in this field in the form of the huge amount of fees charged by the arbitrators which are often a major concern for the parties. Section 31 (8) undoubtedly states that the ‘costs’ of the arbitration shall be fixed by the arbitral tribunal in accordance with Section 31-A. Explanation to Section 31-A, sub-section (1) defines ‘costs’ to include fees and expenses of the arbitrators.
The lumpsum amount of fees charged by the arbitrator can become a hurdle to the reduction of the multiplicity of cases in courts. The Law Commission through its 246thReport has also accepted the arbitrary, unilateral and disproportionate fixation of fees by the arbitrators as one of the main complaints against arbitration in India.The Report itself states that there should be a mechanism to rationalize the fee structure. Although Fourth Schedule was introduced as a part and parcel of that mechanism but it becomes ineffective in cases of Court’s discretion and cases not falling under Section 11(4). One of the keys to development of arbitration is an effective mechanism to apply Schedules like the Fourth Schedule to all arbitrations irrespective of any discretion or a particular sub- section. Arbitration is becoming an offshoot of judiciary, therefore being associated with the responsibility of resolving disputes thereby reducing the burden upon the courts, there must be an obligatory schedule for determining the fee of the arbitrator even in circumstances when the arbitrator has the discretion. An even more comprehensive amendment might be the need of the hour to preserve the principle of ‘party autonomy’ upon which the Arbitration and Conciliation Act, 1996 is based.
India looks to become new arbitration hub, Mayer Brown, https://www.mayerbrown.com/files/News/61544b07-9a8c-4ebe-ba54-9817f78fdda2/Presentation/NewsAttachment/1444c64d-df80-49fb-a56b-998a0354c546/art_stefanini_sept17_petroleum-review.pdf.
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