The High Court of Delhi, in the case of Jivanlal Joitaram Patel v. National Highways Authority of India, FAO (OS)(COMM)70/2017, decided on 08.03.2022, held that the ‘sum in dispute’ under Fourth Schedule of the Arbitration and Conciliation Act, 1996 (“the Act”) shall include the aggregate value of claims as well as counterclaims.
FACTS
Jivanlal Joitaram Patel (“the Appellant”) and the National Highways Authority of India (“the Respondent” or “NHAI”), being parties to an Arbitration Agreement, referred their dispute to Arbitration. The Arbitral Tribunal entered into reference and noted that the whole amount of claim was Rs. 33,53,27,205/- and the total amount of the counterclaim, including interest, was Rs. 11,43,40,050/-.
Thus, the Arbitral Tribunal fixed the arbitral fees as Rs. 40,44,795/- in accordance with the ratio of the Delhi High Court’s decision in Rail Vikas Nigam v. Simplex Infrastructure Ltd. OMP (T) COMM 28/2020, and both the parties consented to the fixation of the said arbitral fees.
However, after a hearing with both the parties, the Arbitral Tribunal observed that the arbitral fee in the current case had to be calculated individually for the claim and counterclaim pursuant to the Proviso to Section 38(1) of the Act.
The Arbitral Tribunal granted the parties the liberty to approach the High Court for clarification on the issue of fixing of arbitral fee. Accordingly, the present application was filed by the Appellant before the High Court of Delhi (“the High Court”) seeking clarification on the determination of arbitral fees.
ISSUE BEFORE THE HIGH COURT
Whether the value of counterclaim(s) should be included in the expression “sum in dispute” appearing in the Fourth Schedule of the Act, or should it be considered separately in accordance with the Proviso to Section 38(1) of the Act?
CONTENTIONS OF THE PARTIES
Both the Appellant and the Respondent relied on the Single Judge’s decision in Delhi State Industrial and Infrastructure Development Corp Limited v. Bawana Infra Development Private Limited 2018 SCC OnLine Del 9241 (“DSIIDC”) and submitted that it laid down the correct law for determining arbitral fees under Fourth Schedule of the Act, where the Arbitral Tribunal is adjudicating a claim as well as a counterclaim.
The Appellant and the Respondent mutually contended that Sections 38(1) and 31A of the Act only apply when the Arbitral Tribunal sets its own fees, and not when the fees of the Arbitral Tribunal are fixed by the Court in accordance with Fourth Schedule of the Act.
The parties further argued that the Arbitral Tribunal’s reliance on the Proviso to Rule 3 of the Delhi International Arbitration Centre Rules (“DIAC Rules”) is misplaced, as the said Proviso becomes applicable only when a party fails to pay its portion of the fees.
DECISION AND FINDINGS
The High Court referred to the judgment in DSIIDC and noted that the facts of the said decision were similar to the present case, wherein the Arbitral Tribunal was of the view that the ‘sum in dispute’ would include the value of claim and counterclaim taken separately, and not cumulatively.
The High Court concurred with the decision of the Ld. Single Judge in DSIIDC and held that the term ‘sum in dispute’ “has to be given its ordinary meaning, to include the total amount of claim made by the claimant, and the total amount of counter claim made by the respondent.”
The High Court observed that the Proviso to Section 38(1) of the Act would only apply when the Arbitral Tribunal fixed its own fees, as in most cases of ad hoc arbitrations. However, it would not be applicable when the arbitral fees were fixed in terms of Fourth Schedule of the Act, and could not be resorted to for interpreting the ‘sum in dispute’.
With reference to Rule 3 of the DIAC Rules, the High Court noted that the said Rule is unambiguous insofar as the arbitral fee is to be determined on the basis of aggregate amount of claim and counterclaim. The High Court further stated that the Proviso to Rule 3 would kick in only when the party does not pay its share of the aggregate amount of claim and counterclaim.
The High Court refuted the Arbitral Tribunal’s observation that the counterclaim would be an “independent” cause of action, and observed that the counterclaim arises from the same subject matter/transaction, as it has to necessarily be in relation to the Arbitration Agreement.
Thus, the High Court held that as the parties agreed to the appointment of the Sole Arbitrator and the fee being fixed in accordance with the Fourth Schedule of the Act; Sections 38(1), 31(8) and 31A of the Act would have no application. The High Court stated as follows:
“Similarly, where the fees has been fixed by the Court in terms of 4th Schedule to the Act, as in the case at hand, Sections 38(1), 31(8) and Section 31A would have no application. The term “sum in dispute” provided in the 4th Schedule to the Act has to be interpreted so as to include the aggregate value of the claims as well as counter claims.”
AMLEGALS REMARKS
Through this decision, the High Court clarified certain questions regarding the fixing of arbitral fees where the claim(s) is/are followed by counterclaim(s) from the other party. The judgment emphasized on the primary aspect to be considered for determination of arbitral fees, i.e., whether the duty to fix the arbitral fees lies on the Arbitral Tribunal itself, or the Court under Fourth Schedule of the Act.
The High Court highlighted the principle that if the Arbitral Tribunal is themselves tasked with fixing the arbitral fees, then they are at liberty to include the value of claims and counterclaims separately.
However, if the arbitral fees are to be determined by the Court as per Fourth Schedule of the Act, then in that case the ‘sum in dispute’ would be inclusive of the value of claims and counterclaims cumulatively. Thus, the arbitral fees in such a case would be determined taking into consideration the aggregate of claims and counterclaims.
For any queries or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or riddhi.dutta@amlegals.com.
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