Sum in dispute,Model fee,
Upto Rs. 5,00,000","Rs. 45,000",
Above Rs. 5,00,000 and upto Rs.
20,00,000","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 Rs. 10,00,00,000",
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",
Institute,Provision,Relevant Clause/Term
Indian Council of
Arbitration Rules of
Domestic Commercial
Arbitration",Rule 31(2),“Amount of Claim & Counter Claimâ€
Mumbai Centre for
International Arbitration",Schedule of Fees,"“*Amounts in dispute refers to total
claim and counter claim.â€
Construction Industry,Schedule of Fees,"“Sum in Dispute (Claim + Counter
Claim)â€
Delhi International
Arbitration Centre
(Administrative Cost
Arbitrators' Fees) Rules
(“DAC Rulesâ€)",Schedule C,"“*Sums in dispute mentioned in the
Schedule B and C above shall include any
counter-claim made by a party.â€
Hong Kong
International
Arbitration Centre,
2013 Administered
Arbitration Rules","Schedule 3, Article 6.3","“Claims and counterclaims are
added for the determination of the
amount in disputes.â€
Stockholm Chamber of
Commerce Arbitration
Rules","Appendix IV, Article 2(3)","“The amount in dispute shall be
the aggregate value of all claims,
counterclaims and setoffs.â€
European Court of
Arbitration, Arbitration
Rules-2015 Edition",Appendix 3,"“For the purposes of the
application of the scale range the
amount to be taken into account to
apply this scale will be the total of the
claims made by the parties, i.e. of the
claims and counterclaims.â€
12. The Commission notes that International Commercial arbitrations involve foreign parties who might have different values and standards for fees,,
for arbitrators, similarly, institutional rules might have their own schedule of fees; and in both cases greater deference must be accorded to party",,
autonomy. The Commission has, therefore, expressly restricted its recommendations in the context of purely domestic, ad hoc, arbitrations.â€",,
10. The learned counsel for the Union of India has also relied on a Judgement rendered by the Hon’ble Delhi High Court in the case of Bawana,,
Infra Development Pvt. Ltd. (supra).,,
11. I have heard the learned counsel for the parties and gone through the materials on record. This Court finds that in India, a major bone of",,
contention in arbitral proceedings has been the high cost associated with it. The arbitrators often fix fees in an arbitrary, unilateral and disproportionate",,
manner. This aspect of the matter is apparent from the relevant extract quoted hereinabove from the 246th Report of the Law Commission of India.,,
Thus, apparently, the legislature thought it proper to amend the Arbitration and Conciliation Act, 1996 and a fee schedule, as provided for in the Fourth",,
Schedule to the Act, was introduced by way of the Arbitration and Conciliation (Amendment) Act, 2015.",,
12. This Court further finds that a conjoint reading of the provisions contained in Section 11(14), Section 38 and Fourth Schedule of the Arbitration and",,
Conciliation Act, 1996 along with the 246th Law Commission Report, which has addressed the issue of fees of arbitrators and has suggested a model",,
schedule of fees as a mechanism to rationalize the fee structure, leading to coming into being of the Arbitration and Conciliation (Amendment) Act,",,
2015, which has been passed with a view to make the arbitral process costs effective and has thus inserted Schedule Fourth to the Act, providing",,
therein a model fee schedule for domestic arbitration, for the purposes of determination of fees of the arbitral tribunal, would definitely demonstrate",,
that the intention of the legislature was/is to provide a upper cap to the fee of the arbitrator in order to make the arbitral process costs effective. In,,
case, the legislature intended to permit the arbitrator(s) of the arbitral tribunal to fix a fee exceeding the ceiling amount by charging a base amount and",,
a percentage of the claim amount, which would be subject to ceiling separately, it would have provided so in the ""Fourth Schedule"". Now coming back",,
to the phrase used in the ""Fourth Schedule"", with regard to the ""sum in dispute"", it would be appropriate to reproduce the model fees prescribed for",,
claim above Rs. 20,00,00,000/-, herein below:- “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"". It is apparent from a bare reading of the phrase “with a ceiling of Rs. 30,00,000/-"", that the same cannot be considered as a",,
modifying phrase at the end, which would only refer to the ceiling being applicable to “plus 0.5% of the claim amount over and above Rs.",,
20,00,00,000â€. Thus, it would be seen that the afore-said provision is to be read conjunctively and not in a disjointed manner inasmuch as doing so",,
would defeat the intention of the legislature, resulting in exorbitant amount of fees being fixed by the learned arbitrators. At this juncture, it would be",,
apt to refer to a judgment rendered by the Hon’ble Apex Court, reported in (2012) 1 SCC 455 (Sanjeev Kumar Jain vs. Raghubir Saran Charitable",,
Trust & Ors.), paragraphs no. 37 to 44 whereof are reproduced herein below:-",,
“37. We have referred to the effect of ab-sence of provisions for award of actual costs on civil litigation. At the other end of the spectrum is an,,
area where award of actual but unrealistic costs and delay in disposal is affecting the credibility of an al-ternative dispute resolution process. We are,,
referring to arbitration proceedings where usually huge costs are awarded (with reference to actual unregulated fees of Arbitrators and Advocates).,,
38. Clause (a) of section 31(8) of the Arbi-tration and Conciliation Act, 1996 (“the Actâ€, for short) deals with costs. It provides that unless",,
otherwise agreed by the par-ties, the costs of an arbitration shall be fixed by the arbitral tribunal. The explana-tion to sub-section (8) of section 31",,
makes it clear that “costs†means reasonable costs relating to (i) the fees and expenses of the arbitrators and witnesses, (ii) legal fees and",,
expenses, (iii) any administration fees of the institution supervising the arbi-tration, and (iv) any other expenses in-curred in connection with the arbitral",,
pro-ceedings and the arbitral award. Clause (b) of section 31(8) of the Act provides that unless otherwise agreed to by parties, the Arbitral Tribunal",,
shall specify (i) the party entitled to costs, (ii) the party who shall pay the costs, (iii) the amount of costs or method of determining the amount, and (iv)",,
the manner in which the costs shall be paid. This shows that what is awardable is not “actual†expenditure but “reasonable†costs.,,
39. Arbitrators can be appointed by the parties directly without the intervention of the court, or by an institution specified in the arbitration agreement.",,
Where there is no consensus in regard to the appointment of arbitrator(s), or if the specified institu-tion fails to perform its functions, the party who",,
seeks arbitration can file an applica-tion under section 11 of the Act for ap- pointment of arbitrators. Section 11 speaks of the Chief Justice or his,,
desig-nate “appointing†an arbitrator. The word “appoint†means not only nominating or designating the person who will act as an arbitrator,",,
but is wide enough to include stipulating the terms on which he is ap-pointed. For example, when we refer to an employer issuing a letter of",,
appointment, it not only refers to the actual act of ap-pointment, but includes the stipulation of the terms subject to which such appoint-ment is made.",,
The word “appoint†in sec-tion 11 of the Act, therefore, refers not only to the actual designation or nomina-tion as an arbitrator, but includes",,
specify-ing the terms and conditions, which the Chief Justice or his designate may lay down on the facts and circumstances of the case. Whenever",,
the Chief Justice or his designate appoint arbitrator(s), it will be open to him to stipulate the fees payable to the arbitrator(s), after hearing the par-ties",,
and if necessary after ascertaining the fee structure from the prospective arbitra-tor(s). This will avoid the embarrassment of parties having to,,
negotiate with the ar-bitrators, the fee payable to them, after their appointment.",,
40. This Court in Union of India v. Singh Builders Syndicate, dealt with the com-plaints about the arbitration cost in India: (SCC pp. 527-28, paras 20-",,
24),,
20. Another aspect referred to by the appellant, however requires serious consideration. When the arbitration is by a tribunal consisting of serving",,
offi-cers, the cost of arbitration is very low. On the other hand, the cost of arbitra-tion can be high if the Arbitral Tribunal consists of retired Judge(s).",,
21. When a retired Judge is appointed as arbitrator in place of serving offi-cers, the Government is forced to bear the high cost of arbitration by way",,
of private arbitrator's fee even though it had not consented for the appoint-ment of such non-technical, non-serv-ing persons as arbitrator(s). There is",,
no doubt a prevalent opinion that the cost of arbitration becomes very high in many cases where retired Judge(s) are arbitrators. The large number of,,
sittings and charging of very high fees per sitting, with several add-ons, with-out any ceiling, have many a time re-sulted in the cost of arbitration ap-",,
proaching or even exceeding the amount involved in the dispute or the amount of the award.,,
22. When an arbitrator is appointed by a court without indicating fees, either both parties or at least one party is at a disadvantage. Firstly, the parties",,
feel constrained to agree to whatever fees is suggested by the arbitrator, even if it is high or beyond their capacity. Sec-ondly, if a high fee is claimed",,
by the arbitrator and one party agrees to pay such fee, the other party, who is un-able to afford such fee or reluctant to pay such high fee, is put to an",,
embar-rassing position. He will not be in a po-sition to express his reservation or ob-jection to the high fee, owing to an ap-prehension that refusal by",,
him to agree for the fee suggested by the ar-bitrator, may prejudice his case or cre-ate a bias in favour of the other party which readily agreed to pay",,
the high fee.,,
23. It is necessary to find an urgent so-lution for this problem to save arbitra-tion from the arbitration cost. Institu-tional arbitration has provided a solu-,,
tion as the arbitrators' fees is not fixed by the arbitrators themselves on case to case basis, but is governed by a uni-form rate prescribed by the",,
institution under whose aegis the arbitration is held. Another solution is for the court to fix the fees at the time of appointing the arbitrator, with the",,
consent of par-ties, if necessary in consultation with the arbitrator concerned. Third is for the retired Judges offering to serve as arbitrators, to indicate",,
their fee struc-ture to the Registry of the respective High Court so that the parties will have the choice of selecting an arbitrator whose fees are in,,
their `range' having regard to the stakes involved.,,
24. What is found to be objectionable is parties being forced to go to an arbi-trator appointed by the court and then being forced to agree for a fee,,
fixed by such arbitrator. It is unfortunate that delays, high costs, frequent and some-times unwarranted judicial interrup-tions at different stages are",,
seriously hampering the growth of arbitration as an effective dispute resolution process. Delay and high costs are two areas where the arbitrators by,,
self-regulation can bring about marked improve-ment.""",,
(emphasis supplied),,
41. There is a general feeling among con-sumers of arbitration (parties settling dis-putes by arbitration) that ad hoc arbitra-tions in India - either,,
international or do-mestic, are time consuming and dispropor-tionately expensive. Frequent complaints are made about two sessions in a day be-ing",,
treated as two hearings for the pur-pose of charging fee; or about a session of two hours being treated as full session for purposes of fee; or about,,
non-productive sittings being treated as fully chargeable hearings. It is pointed out that if there is an Arbitral Tribunal with three arbitrators and if the,,
arbitrators are from different cities and the arbitrations are to be held and the arbitrators are accommodated in five star hotels, the cost per hearing,",,
(arbi-trator's fee, lawyer's fee, cost of travel, cost of accommodation etc.) may easily run into rupees one Million to one and half million per sitting.",,
Where the stakes are very high, that kind of expenditure is not commented upon. But if the number of hearings become too many, the cost factor and",,
efficiency/effectiveness factor is com-mented. That is why this Court in Singh Builders Syndicate observed that the arbi-tration will have to be saved,,
from the arbi-tration cost.,,
42. Though what is stated above about ar-bitrations in India, may appear rather harsh, or as a universalisation of stray aberrations, we have ventured",,
to refer to these aspects in the interest of ensuring that arbitration survives in India as an ef-fective alternative forum for disputes reso-lution in India.,,
Examples are not wanting where arbitrations are being shifted to neighbouring Singapore, Kuala Lumpur, etc. on the ground that more professional-",,
ized or institutionalized arbitrations, which get concluded expeditiously at a lesser cost, are available there. The remedy for healthy development of",,
arbitration in India is to disclose the fees structure before the appointment of arbitrators so that any party who is unwilling to bear such ex- penses can,,
express his unwillingness. An-other remedy is Institutional Arbitration where the Arbitrator’s fee is pre-fixed. The third is for each High Court to,,
have a scale of Arbitrator’s fee suitably calibrated with reference to the amount involved in the dispute. This will also avoid different desig-nates,,
prescribing different fee structures. By these methods, there may be a reason-able check on the fees and the cost of ar-bitration, thereby making",,
arbitration, both national and international, attractive to the litigant public. Reasonableness and cer-tainty about total costs are the key to the",,
development of arbitration. Be that as it may.,,
Conclusion,,
43. In view of the above, the order dated 20. 1.2010 of the High Court, to the extent it levies costs of Rs. 45,28,000 on the ap-pellant is set aside and in",,
its place it is di-rected that the appellant shall pay the costs of the appeal before the High Court as per Rules plus Rs. 3000/- as exemplary costs to the,,
respondents.,,
44. We suggest appropriate changes in the provisions relating to costs contained as per paras 28 to 43 above to the Law Com-mission of India,",,
Parliament and the re- spective High Courts for making appropri-ate changes.â€,,
13. It would also be apropos to refer to a judgment dated 21.07.2017, rendered by the learned Division Bench of the Hon’ble High Court of",,
Punjab and Haryana, Chandigarh in CWJC No. 3962 of 2017 (O&M) (Punjab State Power Corporation Ltd. Vs. Union of India & Others), relevant",,
paragraphs whereof are reproduced herein below:-,,
“Upon hearing learned counsel for the parties on this issue, we are of the opinion that Tribunal has gone wrong in interpreting the note in the",,
manner reflected in the award which we may extract herein below:-,,
“With regard to submissions of the respondent No.1 as to whether the fee is payable to each Arbitrator or all the Members of the Arbitral Tribunal,,
as per the detailed calculations already given in the 13th hearing, it is clarified that each Member of the Arbitral Tribunal is entitled to receive the",,
amount already intimated to the parties. The Note below the Fourth Schedule clearly states that if the Arbitral Tribunal comprises of a Sole Arbitrator,",,
he shall be entitled to an additional amount of 25% on the fee payable as per the Fourth Schedule. This leads to the obvious interpretation that the fee,,
set out in the Fourth Schedule is for each individual Member of the Arbitral Tribunal.â€,,
Evidently the intent of the aforesaid is that in the eventuality of a sole Arbitrator being asked to enter upon an arbitration he would be entitled to an,,
additional amount of 25% of the fee table, as per the table set out above (i.e Fourth Schedule). It cannot thus be interpreted that since sole arbitrator is",,
entitled to 25% additional amount over and above the Schedule it should be construed to mean that other members of the Tribunal would be entitled to,,
the model fee as per the Fourth Schedule with the principal Arbitrator getting 25% additional fee thereto. It means only that in the eventuality of,,
Arbitral Tribunal consisting of a solitary member it could entitle him to additional fee of 25% of the model fee but if it is a multi member body then they,,
would be entitled to a composite fee as set out in the Schedule.â€,,
14. Having considered the aforesaid aspect of the matter as also the law laid down by the Hon’ble Courts, as referred to hereinabove in the",,
preceding paragraphs, apart from taking into account the 246th Law Commission Report and the 2015 amendment made in the Arbitration and",,
Conciliation Act, 1996, this Court is of the considered view that a sound interpretation of the ""Fourth Schedule"", especially keeping in mind the",,
legislative intent as also taking into cogitation the plain and simple understanding of the afore-mentioned provision in simple English language used for,,
the purposes of defining the model fee, as far as sum in dispute being above Rs. 20,00,00,000/- is concerned, can only have one meaning i.e - ""the",,
ceiling of Rs. 30,00,000/- has to be applied to the summation of the base amount and the percentage of claim added together, however, in cases,",,
where the arbitral tribunal consists of a sole arbitrator, he would be entitled to an additional amount of 25% of the maximum amount which, in any",,
case, cannot be more than a sum of Rs. 7,50,000/-(25% of Rs. 30,00,000/-). It is thus held that the ceiling of Rs. 30,00,000/- in the Fourth Schedule to",,
the Arbitration and Conciliation Act, 1996 is not only on the variable amount of fees to be calculated at the rate of 0.5% of the claim amount, leaving",,
aside the fee amount of Rs. 19,87,500/-, but also on both the base amount and the percentage of claim amount added together. It is further held that",,
the sum in dispute, as referred to in Schedule Fourth to the Arbitration and Conciliation Act, 1996 shall include both claim and counter claim amounts,",,
as has also been held by the Hon’ble Delhi High Court in the case of Bawana Infra Private Ltd. (supra). It is needless to state that the ""Fourth",,
Schedule"", to the Arbitration and Conciliation Act, 1996, is not mandatory in determining the fee structure where the fee structure has been agreed to",,
in the agreement between the parties. Moreover, since no rules have been framed by the Hon’ble Patna High Court, providing for the fee",,
schedule for domestic arbitration, the aforesaid ""Fourth Schedule"", to the Arbitration and Conciliation Act, 1996 shall govern the field regarding",,
determination of fee of the arbitral tribunal. In fact, the learned arbitrators also claim to have fixed the fee as per the Fourth Schedule to the",,
Arbitration and Conciliation Act, 1996. Thus, this Court finds that the fee fixed by the learned arbitrators in both the aforesaid cases is illegal,",,
exorbitant, arbitrary, disproportionate and contrary to the provisions contained in the ""Fourth Schedule"" to the Arbitration and Conciliation Act, 1996.",,
Consequently, the impugned orders dated 26.03.2019 and 08.05.2019 (as far as the first case i.e. CWJC No. 14355 of 2019 is concerned) and the",,
ones dated 16.09.2018 and 03.11.2018 (as far as second case i.e. CWJC No. 23934 of 2018 is concerned) are quashed, however, with liberty to the",,
learned arbitrators to fix their fees afresh, strictly as per the mandate of the ""Fourth Schedule"" to the Arbitration and Conciliation Act, 1996, as",,
interpreted by this Court hereinabove in the preceding paragraphs.,,
15. Both the aforesaid writ petitions stand allowed.,,
