SC: Arbitrators Cannot Fix their Fee Unilaterally, Sets Rs. 30 Lakh Ceiling

Khushi Bajpai

Published on: September 1, 2022 at 20:41 IST

In a significant judgment, the Supreme Court on Tuesday held that arbitrators do not have the power to unilaterally fix their fees without the consent of the parties.

The court further held that the fee scale prescribed under the 4^th Schedule of the Arbitration And Conciliation Act 1996 is not mandatory.

Justice D.Y. Chandrachud read out the operative portion as follows:

1. Arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. A unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition of in rem sum decisions, i.e., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration.
2. However, the arbitral tribunal has the discretion to apportion the costs (including arbitrators’ fee and expenses) between the parties in terms of Section 31(8) and Section 31A of the Arbitration Act and also deemed a deposit (advance on costs) in accordance with Section 38 of the Arbitration Act.
3. If while fixing costs or deposits, the arbitral makes any finding relating to arbitrators’ fees (in absence of an agreement between the parties and arbitrators), it cannot be enforced in favor of the arbitrators. The arbitral tribunal can only exercise a lien over the delivery of arbitral award if the payment to it remains outstanding under Section 39(1).
4. The power party can approach the court to review the fees demanded by the arbitrators if it believes the fees are unreasonable under Section 39(2).
5. Since this judgment holds that the fees of the arbitrators must be fixed at the inception to avoid unnecessary litigation and conflicts between the parties and the arbitrators at a later stage, this court has issued certain has issued directives to govern proceedings in ad hoc arbitration.
6. The term “sum in dispute” in the Fourth Schedule of the Arbitration Act refers to the sum in dispute in a claim and counter-claim separately, and cumulatively.
7. Consequently, arbitrators shall be entitled to charge a separate fee for the claim and the counter-claim in an ad-hoc arbitration proceeding, and the fee ceiling contained in the Fourth Schedule will separately apply to both, when the fee structure of the Fourth Schedule has been applicable to the ad-hoc arbitration.