The compensation that must be paid to arbitrators for their services is referred to as arbitration fees. They are entitled to receive certain amounts of financial payments for performing their duties from entities who use such services to settle disputes.
Relevant Legal Provisions for Arbitration Fees
Before it was amended in 2019, Section 11(14) of the Arbitration and Conciliation Act, 1996 (referred to as ‘Act’ hereafter) stated that for the purpose of determining the fees of the arbitral tribunal and the manner of its payment to the tribunal, the High Court may frame the necessary rules after taking into consideration the rates mentioned in the Fourth Schedule.
However, post 2019 amendment, Section 11(14) of the Act states that
the arbitral institution shall determine the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal subject to the rates specified in the Fourth Schedule.
The Fourth Schedule
The Fourth Schedule of the Act consists of provisions for model fee payable to the tribunal, which is dependent on the overall amount in dispute in the arbitration proceedings. It further states that if the arbitral tribunal is a sole arbitrator, they shall be entitled to an extra 25% on the fee payable.
A review of the Fourth Schedule reveals that the maximum amount payable to an arbitral tribunal for their services is
capped at INR 30 lakhs.Although drafted in quite a simple language, there are certain issues that must be addressed when it comes to the Fourth Schedule:
- Is the same mandatory or directory.
- Is the fee mentioned therein an amount payable to the entire tribunal or only one arbitrator.
- Is ‘sum in dispute’ only the claim amount or a sum of the claim amount and the counter claim made by the other party.
| Disputed Amount |
Model Fees |
| Up to INR 5 lakhs |
INR 45,000 |
| Above INR 5 lakhs and up to INR 20 lakhs |
INR 45,000 + 3.5% of the claim amount over and above INR 5 lakhs |
| Above INR 20 lakhs and up to INR 1 crore |
INR 97,500 + 3% of the claim amount over and above INR 20 lakhs |
| Above INR 1 crore and up to INR 10 crore |
INR 3,37,500 + 1% of the claim amount over and above INR 1 crore |
| Above INR 10 crore and up to INR 20 crore |
INR 12,37,500 + 0.75% of the claim amount over and above INR 10 crore |
| Above INR 20 crore |
INR 19,87,500 + 0.5% of the claim amount over and above INR 20 crore with a ceiling of INR 30 crore |
Legal Position in Arbitration Disputes
In the case of
Paschimanchal Vidyut Vitran Nigam Ltd. vs. IL & FS Engineering & construction Company Ltd. [MANU/DE/3098/2018], the High Court of Delhi stated that the fee stated in the Fourth Schedule is only suggestive in nature and is not mandatory.
In the matter of
ONGC vs. Afcons Gunanusa JV [Arbitration Petition (Civil) No. 5 of 2022], the Supreme Court stated that the legal position to inter alia be that the Fourth Schedule is not compulsory and is open to the parties by their agreements to specify the renumeration payable to the arbitrators.
If the entities involved in the arbitration agreement specifically suggest that the provision of the fees shall be governed by the Fourth Schedule or if the Court while appointing the Tribunal specifically states that the arbitrator’s fee would be as per the terms of the Fourth Schedule, the Arbitral Tribunal cannot establish its own fees.
It must be noted that the Fourth Schedule shall not be applicable in matters where parties have agreed to determine the arbitrator’s fees as per the rules of an arbitral institution. Further, it shall also not be applicable to international commercial arbitrations.
The Supreme Court in the matter of
ONGC vs. Afcons Gunanusa JV [Arbitration Petition (Civil) No. 5 of 2022] through its judgment on 30 August 2022 categorically held that the phrase “sum in dispute” in Fourth Schedule refers to the sum in dispute in a claim and counter claim separately.
Consequently, arbitrators are entitled to charge a separate fee for the claim and counter claim in an ad hoc arbitration proceeding and the fee ceiling under Fourth Schedule would separately apply to both, when the fee structure of Fourth Schedule has been made applicable to the ad hoc arbitration.
Furthermore, the Court deemed that the cap of INR 30 lakhs mentioned in the Fourth Schedule shall be applicable to each individual arbitrator and not the arbitral tribunal as a whole. As per Section 31A of the Act, the arbitral tribunal shall have the choice to determine if the costs are payable by one party to another, the amount of such costs and when such costs must be paid.
Note: It was furthermore clarified that ‘costs’ are the reasonable costs related to the fees and expenses of the arbitrators.The arbitral tribunal can exercise lien over the arbitral award and refuse to deliver it if there are outstanding payments yet to be made to the tribunal.
General Guidelines Arising out of Supreme Court’s Judgments
Fees payable to the arbitral tribunal in an ad hoc arbitration must be settled between the tribunal and the parties at the threshold during the course of preliminary hearings.
Quantum of fees payable as per the arbitration agreement already executed between the parties. In case the arbitrator is not comfortable with the fees already decided, and upon failure in revision thereof by mutual discussions, he should decline the assignment.
Arbitrators do not have unilateral powers to revise the fees on their own terms if they believe that additional sittings would be required.
Conclusion
Arbitration fees are the rightful compensation that arbitrators should receive in return for performing their mandate. While the payable amount may vary depending upon the specific arbitration, it cannot be fixed or finalized by the arbitrators themselves, who may potentially choose to go overboard. The amount payable to such individuals shall be determined as per the structure provided in the Fourth Schedule.
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