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ARBITRATORS CANNOT UNILATERALLY DECIDE OWN FEES Supreme Court

Team SoOLEGAL 1 Sep 2022 8:54am

ARBITRATORS CANNOT UNILATERALLY DECIDE OWN FEES Supreme Court

The Supreme Court ruled on Tuesday that arbitrators do not have the authority to make decisions regarding their own fees since doing so would go against the principles of party autonomy.

A bench of Justices DY Chandrachud, Surya Kant, and Sanjiv Khanna gave the decision.

Justice Khanna wrote a separate judgment that differed from the majority in some ways.

The majority judgment, written by Justices Chandrachud and Surya Kant, reasoned that arbitrators could not be judges of their own private remuneration claims against parties.

The arbitral tribunal cannot issue any binding or enforceable orders regarding their own remuneration while deciding the allocation of costs under Sections 31(8) read with 31A or advance of costs under Section 38. This would be a violation of the principle of party autonomy as well as the doctrine of in rem suam decisions, according to the bench.

The bench emphasized that party autonomy is a fundamental principle of arbitration and that the agreement serves as the foundation for the arbitral process.

The principle of party autonomy is also important in determining arbitrators' fees, according to the Court.

The arbitral tribunal is obligated by the Court to conduct the arbitration in accordance with the procedure agreed upon by the parties.

The Court went on to say that while determining costs or deposits if the tribunal makes a finding regarding the arbitrators' fees in the absence of an agreement among the parties and arbitrators, the finding cannot be enforced in favor of the arbitrators.

The matter came before the bench when Oil and Natural Gas Corporation Limited (ONGC) requested that the mandate of an arbitral tribunal be terminated and a new set of arbitrators be appointed after their fee was revised.

The petitioners contended that once the fee payable to the arbitrators was specified in the parties' agreement, the arbitrators were required to accept their appointment on the terms agreed in the contract or reject the arbitration if they were not agreeable.

The bench ruled that in an ad hoc arbitration proceeding, arbitrators could charge separate fees for the claim as well as the counter-claim and that the fee ceiling in the Fourth Schedule if made applicable, would apply to both separately.

However, since there was no agreement between the parties and the arbitrators on the fee, it was determined that allowing the tribunal to continue would mean imposing a fee on the parties and the arbitral tribunal with which they were not happy.

In light of this, the Court ordered the formation of a new arbitral tribunal.

These instructions are an attempt to ensure that the arbitral proceedings are performed without rancour, which may derail the proceedings, according to the judgment.

Furthermore, the earlier arbitral tribunal's fee was ordered to be in accordance with the Fourth Schedule of the Arbitration and Conciliation Act.

While Justice Sanjiv Khanna consented to this direction for the formation of a new arbitral tribunal, he wrote a separate judgment because he refused to agree that the tribunal was not entitled to fix the fee in the absence of any agreement between the parties.

While agreeing that a unilateral rise was unacceptable, the judge stated that if an arbitral tribunal requested higher fees, an aggrieved party could seek appropriate orders from the court under the Arbitration and Conciliation Act.

In the judgment, he stated that in the absence of any agreement or court order, the arbitral tribunal was permitted to fix 'fair and reasonable remuneration,' which must be done transparently and in consultation with both parties.



Tagged: arbitrators  
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