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Computation of Arbitrator’s Fees on Claim And Counter Claim 

April 22, 2022
arbitration

By Nihit Nagpal and Devika Mehra

The Arbitration and Conciliation Act, 1996 is a very comprehensive act which is quite clear regarding the procedure to be followed before institution of arbitral tribunal, procedure to be followed by an arbitral tribunal, as well as procedure to be followed by a party not content with the award passed by the Learned Arbitrator. The Act also defines quite clearly the fees payable to the Arbitrator(s) under its Fourth Schedule which is payable by the parties equally, and where one party defaults, the other party may pay the share of the defaulting party.

Section 38 (1) of the Act specifies that the arbitral tribunal has the discretion in fixing the amount of fee for costs that might be incurred and Section 31(8) provides that the arbitral tribunal has the power to fix the cost of arbitration in accordance with Section 31A. Section 31A specifies that the court or the tribunal has the discretion to determine whether costs are payable, when are they to be paid, and the amount of such costs.

The Fourth Schedule, on the other hand, provides a model fee schedule according to which the court or the arbitral tribunal may fix the fees of arbitration. Entry 6 of this schedule, specifies that for claim above INR 20 crores, there is an upper ceiling of INR 30 lakhs on the fee of the arbitral tribunal (with 25% extra fee where there is a sole arbitrator).

Where a matter has been referred to the DIAC or competent authority, the Arbitrator’s fees is computed as per the concerned authority’s rules.

The computation of the fee payable to the Arbitral Tribunal, however, has caught many eyelids as different arbitrators have adopted different approach towards the computation of their professional fee, especially in cases where a Claim as well as Counter Claim has been filed before the Learned Tribunal for adjudication. The parties, however, have had their reservations from paying the Arbitrator’s fees calculated over the Claim / Counter Claim of the opposing party. Through a plethora of judgments, there has been a dichotomy of views between various High Courts on the manner in which the arbitrator’s fees is to be computed where there lies a Claim as well as a Counter Claim.

Recent judicial trends

In a recent judgment of Ntpc Limited vs Afcons R.N. Shetty And Co. Pvt. Ltd. dated August 06, 2021, the Hon’ble Delhi High Court has held that the Arbitral Tribunal is not wrong in charging separate fees for claims and counter claims, and that the same is in consonance with the statutory provisions of law, specifically Section 38 of the Act. It is imperative to mention here that NTPC has challenged this judgment and the same is pending before the Hon’ble Supreme Court of India wherein the question “whether a separate fee is required to be paid on the Counter Claim or not” is under consideration before the Apex Court.

The following were the dichotomist views of the Delhi High Court itself that came under consideration that led the Hon’ble Delhi High Court to pass the above stated judgment:

  1. The Hon’ble Delhi High Court observed that the Counter Claim, in its nature, is like a suit which has an independent cause of action. Even if the main suit fails, the counter claim shall survive. The Arbitral Tribunal would be burdened with adjudicating the Counter-Claim in addition to the Claim, which may require separate evidence, without payment of additional fees to the Arbitrator, which is unfair to the Arbitrators.
  2. The Hon’ble Court further observed that there may be cases wherein the Claim amount and the Counter-Claim amount differ by a significant gap, and consolidation of the claims to calculate the Arbitrator’s fees would burden the party claiming the smaller amount to pay a higher fees. This observation was made keeping in view the judgment of M/s Chandok Machineries vs. M/s S.N. Sunderson & Co.[1].This practice is more akin to how court fees is paid on reliefs prayed for by the Plaintiff on its Plaint and the Defendant on its Counter-Claim.
  3. NTPC stressed on the submission that the Fourth Schedule of the Act has fixed the upper ceiling of INR 30 lakhs for “sum in dispute” i.e., claim amount as well as the counter-claim amount. Since the parties had agreed to abide by the Fourth Schedule of the Act, there could be no question of revisiting the matter by resorting to Section 38(1), 31(8) or 31A. Reliance was placed by NTPC on the judgment of co-ordinate bench in the case of DSIIDC v. Bawana Infra Development Pvt. Ltd.[2] where the court of HMJ Navin Chawla had held that the arbitrators’ fee prescribed in the Fourth Schedule is to be calculated on basis of “sum in dispute”, which includes Claim and Counter-Claim and that total fee payable to the arbitrators cannot breach the ceiling given in Fourth Schedule. However, the Hon’ble Delhi High Court in the judgment under discussion was not aligned with this submission of NTPC.
  4. It is the Arbitrator’s discretion to decide whether the compute his professional fees on the consolidated sum in dispute or on the claim and counter claim separately, keeping in view the provisions of Sections 31(8), 31A, and 38(1).
  5. Further, NTPC’s contention that Delhi International Arbitration Centre Rules (DIAC rules), contemplate consolidation of the amount of the claim and counter-claim, and therefore, not separate but one fees for claim and counter-claim, was rejected by the Hon’ble Court. The Hon’ble Court held that the DIAC rules apply only to arbitration under DIAC and even then, proviso to Rule 3 of DIAC Rules contemplates a situate where claim and counter claim are assessed separately for the purposes of the arbitrator’s fees.

The Hon’ble Court in its decision held that the arbitrator is entitled to charge fees separately for claims and counter-claims. There is no requirement under the law to consolidate both the amounts in determining the ceiling price.

Comment

While the Hon’ble High Court has made certain observations in this regard, it is another observation made in various arbitrations that the fees decided under the Act for the Ld. Arbitrator(s) is very high keeping in view that eventually, either party who does not receive a favorable award is compelled to approach the appellate body to challenge the same, thereby adding to the cost borne by the parties, making the whole process of Arbitrations an expensive process.

Conclusion

Considering the varying judgments of the co-ordinate benches of the Hon’ble Delhi High Court in DSIIDC judgment, Chandok judgment, and now this NTPC judgment, it has become imperative for the Hon’ble Supreme Court to intervene and lay down the precedent settling the varying points of view to rest. Hence, the appeal filed by NTPC against the said judgment is under consideration and the detailed view of the Apex Court is awaited.

While, recently, the Hon’ble Supreme Court made verbal comments that arbitrator’s fees ought to be decided on claim and counter claim amount consolidated, a detailed judgment in this regard is awaited.

[1] Delhi High Court, August 28, 2018

[2] Delhi High Court , May 15, 2018

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