Arbitration In IndiaThe Arbitration Act does not have any binding provisions requiring the parties or the arbitrators to adhere, when deciding on the fees.

The Delhi High Court in Ircon International Limited v. Union of India Railway Coach Factor, [2023/DHC/001373 decided on 24.02.2023], held that where the parties decide a course of action or procedure in arbitration proceedings, which is also supported by the governing entity, the said course of action is to be given sue recognition. It was further held that there is no particular provision or procedure which shall bind the parties or arbitrators to follow or abide by in deciding the fees. The Arbitration Act does not impose any mandatory provision requiring the parties or arbitrators to adhere to a single, prescribed rule or procedure for determining the fees.

FACTS

On December 12, 2006, Ircon International Limited (hereinafter referred as “Petitioner”) and the Union of India Railway Coach Factor (hereinafter referred as “Respondent”) entered into an Agreement for “Enhancement of Coach Production Capacity to 1400 coaches at Rail Coach Factory, Kapurthala” at a cost of Rs. 50,11,34,000/-, subject to the terms and conditions of the General Conditions of Contract, 1999 (hereinafter “GCC”).

Under the  Contract the stipulated timeline for completion was January 26, 2008. However, several extensions were sought by the Petitioner and the work was completed on March 30, 2012. In the interregnum, several disputes arose between the parties and hence, as per the terms of the agreementa Review Committee came to be constituted.  The key issue was with regard to the Liquidated Damages (hereinafter referred as “LD”) due to the delay caused by the Petitioner in completing the project. The Review Committee, pursuant to hearing the parties and on the basis of the facts presented, came to the conclusion that the petitioner was not responsible for the delay in executing the work.

On April 30, 2015, the Rail Coach Factory (hereinafter “RCF”)  intimated the Railway Board that both the parties were responsible for the delay caused in the completion of the project and that token LD  shall be imposed instead of the full amount. The Respondent disregarded the Review Committee’s recommendations and deducted the LD amount from the Petitioner’s bill.

On December 11, 2015, being aggrieved by the aforesaid action of the Respondent, , the Petitioner invoked the Arbitration Clause under the Agreement,  whereby it was stated that  in case of any dispute(s) between the parties , the General Manager of RCF would appoint Arbitrators to decide the matter in accordance with the GCC. General Manager, RCF, Kapurthala, appointed an Arbitral Tribunal on a payment basis on July 8, 2017.

According to the Petitioner under Clause 9.2 of the Agreement and Clause 64(6) of the GCC, the fees of the Arbitrators would be fixed by the Railway Board from time to time. However, pursuant to the enactment of the Arbitration and Conciliation (Amendment) Act, 2015, the Railway Board amended  Clause 64 by inserting Clause 64(6) in the Agreement which stated that the fees to be paid to Arbitrators shall be borne equally by both the parties, as per the rates fixed by the Railway Board from time to time.

On September 22, 2017, the Arbitral Tribunal fixed the fees of the Arbitrators as per Schedule IV of the Arbitration and Conciliation Act, 1996 (hereinafter referred as Arbitration Act). The Petitioner raised objections to the fixation of the fees and requested clarification from the Railway Board pertaining to the ambiguity in the fees of the Arbitrator.

Thereafter, on November 3, 2017, the Deputy General Manager, RCF, Karputhala issued a corrigendum stating that the fees o the Arbitrators would be as fixed by the Railway Board from time to time.

On February 20, 2019, the Arbitral Tribunal passed Notification No. 9, intimating that the Award had been made and sealed, and directed both the parties to pay the Arbitrators’ fees in accordance with Schedule IV of the Arbitration Act, totaling Rs. 56,42,382/- (Rs. 18,80,794/- each).

The Petitioner being aggrieved by the lien on the Award by the Arbitral Tribunal, approached the Court seeking relief under Section 39(2) of the Arbitration Act as the Award had not yet been published.

ISSUES BEFORE THE HONORABLE COURT

• Whether the fee structure as prescribed under Schedule IV of the Arbitration Act would prevail over the fee structure as decided by the parties under an agreement?

CONTENTIONS OF THE PARTIES

The Petitioner argued that the appointment letter of the Arbitral Tribunal stipulates that the fees of the Arbitrator shall be as per the rates fixed by the Railway Board and hence, the the Arbitral Tribunal should release the Award. Inspite of the provision in the appointment letter, the Arbitral Tribunal passed an order fixing the rate of fees in accordance with Schedule IV of the Arbitration Act, which is a violation of the GCC. The Petitioner argued that both the parties objected to the fixation of fees as per the Arbitration Act, and the Arbitral Tribunal proceeded with the matter despite these objections. It was further argued that the as per the terms of the Agreement, the fees to be given to the Arbitrator was Rs. 75,000/-, however, the Arbitral Tribunal directed the parties to pay Rs. 18,80,794/- each in accordance with Schedule IV of the Arbitration Act.

It was further contended that  the  act of the Arbitral Tribunal of not publishing the Award despite of the parties’ request and the withholding of the Award is causing grievance to the parties. The Petitioner submitted that the only remedy left for the parties is to approach the Court.

On the other hand, the Respondent opposed the Petitioner’s arguments and stated that the Respondent has no role to play in the publishing of the Award made by the Arbitral Tribunal. The Respondent argued that the petition is not maintainable against the Respondent. The Respondent  further contended that the letter dated 11th November 2016 clearly stated that the fees of the Arbitrators would be in accordance with the rates fixed by the Railway Board and the fee claimed by the Arbitrators is unjustified and in excess of what they are entitled to.

The Petitioner contended that the Arbitral Tribunal has acted arbitrarily by fixing the rate of fees in accordance with the Schedule IV of the Arbitration Act, which is significantly higher than the limit set by the GCC.

DECISION AND FINDINGS

The Court before delving in into the findings of the present case, analyzed the order dated September 22, 2017 whereby, the Arbitral Tribunal made a particular observation that Schedule IV of the Arbitration Act will serve as the guiding law for determining the rate of the arbitrators’ fees. The Arbitrators had further instructed the parties to pay the first installment of the fees, which is equal to Rs. 6 lakhs for each Arbitrator, to the Arbitrators in accordance with the aforementioned Schedule. According to the aforesaid order, the parties were informed that the expenses of the arbitration will be paid in accordance with the Arbitration Act.

However, the Arbitral Tribunal has neither made any observation of the guiding clauses of the agreement nor has made any reference to the Board of RCF’s notification The judgment states that the decision to determine the charge rate shall be determined after consulting both parties; however parties have raised objections to the arbitrators’ decision to set the cost as per Schedule IV of the Arbitration Act, before this Court.  . Additionally, it was discovered that the Arbitral Tribunal’s findings about the fixing of fees in accordance with the Arbitration Act lacked any justification.

Hence, there was no need for the Arbitrators to establish a different formula for determining the Tribunal’s fees or even to cite a different law in order to determine how much should be paid by the parties. At this point, it is important to remember the ruling in ONGC vs. Afcons Gunanusa JV, 2022 SCC OnLine SC 1122, where the Hon’ble Supreme Court decided the matter of compensation in cases of arbitration proceedings held as follows:- The arbitral tribunal cannot issue any legally binding or enforceable orders regarding their own remuneration when deciding the allocation of costs under Sections 31(8) read with Section 31A or an advance of costs under Section 38.

The doctrine of prohibition of in rem suam rulings, which holds that arbitrators cannot be the judge of their own claim against parties about their remuneration, and the principle of party autonomy would both be violated by this. Since this is merely a reimbursement of the costs incurred by the successful party in taking part in the arbitration proceedings, the arbitral tribunal is not constrained by the principles of party autonomy and the doctrine of prohibition of in rem suam decisions in allocating costs between the parties [including the compensation of the arbitrator(s)].

As these advances on fees are only provisional in nature, the arbitral tribunal may also request deposits and supplemental deposits. If the arbitral tribunal determines anything regarding arbitrators’ fees, when determining expenses or deposits (in the absence of a contract), it cannot be enforced in the arbitrators’ favour. The party may ask the court to look over the fees that the arbitrators are seeking.

It is crucial that the parties’ chosen course of action or procedure in arbitration proceedings be given the proper acknowledgment and observance. This is especially true when the controlling entity supports the course of action or method in question. When the fees are completely in contravention of the parties’ agreement as well as the clear and explicit instructions provided by the Railway Board and RCF in their communications/notifications, the Arbitrators are not permitted to pass or issue any orders relating to the fees that could be made binding on the parties.

One of the fundamental principles of arbitration is party autonomy. The purpose of the Arbitration Act was to allow parties to disputes to be resolved quickly without having to go through the formal legal processes that go along with it. By implementing a reliable, efficient, and effective procedure, the goal is also to minimise the strain on the courts. The entire nature of an arbitration proceeding or any other kind of ADR is to ensure that the parties decide the path of the proceedings, including any procedural details, with their own free choice, decision, and agreement.

The Arbitration Act’s intent and the parties’ preferred method of dispute resolution cannot be compromised by an intervention that makes the procedure ineffective. Therefore, the entire spirit and purpose of the Act would be destroyed in situations like the present one if the parties become mired in the procedural formalities and technicalities and the Arbitral Tribunal attempts to impose its will and wishes without justification or cause.

AMLEGALS REMARKS

The doctrine of prohibition of in rem suam decisions restrict the arbitral tribunal from issuing binding or enforceable orders regarding their own remuneration. While the arbitral tribunal can demand deposits and supplementary deposits, and can apportion costs between the parties (including the arbitrator(s) remuneration), any finding relating to arbitrators’ fees made by the arbitral tribunal (in the absence of an agreement) cannot be enforced in favour of the arbitrators.

Moreover, under the Arbitration Act, there is no binding provision obligating the parties or the arbitrators to follow and abide by one fixed rule or procedure to decide the fees. Party autonomy plays a crucial role in deciding the procedure of an arbitration proceeding, and the parties’ agreement regarding the course of action or procedure in arbitration proceedings should be given due recognition and observation.

Based on this, if the parties have agreed on a specific method or procedure for calculating the fees of the Tribunal, and this agreement is supported by the governing entity, then the said course of action or procedure should be followed by the Arbitrators. The Arbitrators cannot pass and issue any directions regarding the fees that may be made binding on the parties when the same are in complete violation of the agreement between the parties as well as the specific and explicit directions of the governing entity.

The Arbitration Act does not provide a fixed rule or procedure that parties or arbitrators must follow when deciding on the fees for arbitration proceedings. Instead, parties are generally free to agree on the fees and expenses for the arbitration, including the fees of the arbitrators, and the arbitral tribunal can also make determinations about costs and deposits based on the circumstances of the case. However, the parties and the arbitrators must follow any specific procedures or guidelines that they have agreed upon, and any determinations made by the arbitral tribunal regarding arbitrator fees cannot be binding or enforceable if they are made in violation of party agreements or governing entity directions.

– Team AMLEGALS 

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com.