The Supreme Court on Wednesday heard submissions made on behalf of Oil and Natural Gas Corporation Ltd (ONGC) dealing with the primary issue as to whether a separate fee under the Fourth Schedule of Arbitration and Conciliation Act, 1966 is payable on counterclaim or not.
In continuation, Attorney General K.K. Venugopal appearing for ONGC addressed the three-judge bench of Justices D.Y. Chandrachud, Sanjiv Khanna and Surya Kant that arbitrator have control over the proceedings and in international arbitration, international code of conduct prevails, but the actual problem lies in ad-hoc arbitrations.
To this, Justice Chandrachud advised to either set up institutions or govern by existing institutions.
Justice Chandrachud opined that, however, there is remedy available under Section 29A of Arbitration and Conciliation Act, 1996, but that does not apply to International Arbitration.
AG Venugopal submitted that post the 2019 amendment, Section 3A of Arbitration Act has not been enforced yet.
As per Section 3A,
“the Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which have been graded by the Council under section 43-I, for the purposes of this act.”
From the Respondent Afcons Gunanusa, it was contended that in Delhi High Court arbitration is working fine, there are 10 rooms in Delhi High Court, and more rooms are available in new building in Delhi High Court.
Further, AG argues that under Arbitration Act 1940, it provided 4 months’ time given for completion of arbitration proceedings. For the very first-time limitation brought in and a newly added Section 29A of Arbitration Act was brought in. (Section 29A of the Act, provides that an arbitral tribunal has to publish the award within a period of 12 months from the date of completion of pleadings.)
He further stated that the Fourth Schedule will follow, not what they have unilaterally fixed. Since proviso 3A was not brought into existence, Fourth Schedule was also not brought into existence.
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Soon after that, Solicitor General Tushar Mehta commenced his submissions by stating another aspect of issue is as to whether amount calculated will included claim and counterclaim or separate claim or separate counter-claim.
SG Mehta argued that there can be sole arbitrator, two arbitrators but there is no provision of five arbitrators. “These days, engineers, professors are becoming arbitrators. They are also acting as panel arbitrators/sole arbitrators.” Also, there is a distinction between claim and counterclaim. He read Section 2 (d) and Section 7 of Arbitration and Conciliation Act.
Justice Surya Kant asked SG Mehta that whether in Fourth Schedule, fee structure was mentioned in 2015? Mehta replied in the affirmative.
Justice Kant asked does statute not provide for periodically review?
Mehta replied, “No, my lord.”
Mehta argued that the power lies with the Central Government to amend Fourth Schedule and in this case, no further legislative route to be taken.
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He submitted,
“It is a composite dispute goes before tribunal and there is a notion in this regard concerning arbitration act, just like in Code of Civil Procedure, there is claim separate and counterclaim separate given.”
Justice Chandrachud said this was inserted by 2019 amendment, Fourth Schedule was substituted. And in earlier provision under Section 11 (14) of Arbitration Act, 1996 talked about Fourth Schedule. The Fourth Schedule was not binding on High Court, at the time it was amended in 2015.
Mehta submitted that there are three main issues involved, firstly as to whether Fourth Schedule separately provides for claims or separate counterclaims, secondly whether Fourth Schedule will apply on individual arbitrator or on the tribunal. Third, what is the interpretation of ceiling prescribed in column no. 6 of Fourth Schedule.
Mehta submitted,
“Who is authorised under Section 31A of Arbitration Act, that is the first test we have to look upon. The power to impose costs confers not only on the arbitrator under this section but also empowers court also to impose costs. It will not be correct rule of interpretation for tribunal to fix costs at later stage.”
Justice Chandrachud opined that Section 31 is not independently empowered with regard to costs.
SG Mehta submitted that it is not in my knowledge that arbitrator may exercise power of lien.
Justice Khanna pointed out, “I have not seen litigation depositing costs in advance.”
SG Mehta submitted that Tribunal can fix fees for court and arbitrators.
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SG Mehta further makes submissions reading the Section 8 of Arbitration Act by stating that when there is specific power to fix arbitral fees, which is at the outset. It should not read as generic to award the costs. “My respectful submission is cost is defined under Section 31a. This gives enabling power to tribunal, not for adjudication of fees. Your lordship, look at Section 31a, fees for cross examination of witnesses. When costs is being referred, it should be treated as component. My lord, kindly see Section 39. 39a may go against what I am reading now. At the end of proceedings, when it is to be terminated, a contemptuous issue would be decided by tribunal. This interpretation goes against the concept of speedy justice.”
He further submitted that CPC has different scheme and Arbitration Act has different scheme. The Court Fees Act, 1870 defines levy of fees on high courts on original side. This is the basic concept of quid pro quo. He reads out the provision Section 35 of CPC.
‘The general practise is that lordship, if costs have been awarded against a party, that is without reasons. But as per CPC, the reasons to be recorded in awarding costs,” submitted SG Mehta.
Justice Chandrachud said, “If you see Section 31A of Arbitration Act, we won’t read substantive part. The thing is whether costs are payable from one party to another. This provision does not give independent power to arbitrator to set their own fees.”
Justice Chandrachud asked SG, “Whether the issue of ceiling of 30 lakh, is troublesome?”
Justice Khanna asked SG that suppose if claim is of Rs 10 crore, counterclaim is Rs 19 crore, so is it going to be counted as composite amount?
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There is no cap in model fee. In item 1, 2, 3 of Fourth Schedule, there is no cap. The purpose of introducing Rs 30 lakh because there was no dispute in upper cap limit. The object was not so much to cap arbitrator fees. They felt that they should not exceed more than Rs 30 lakh. The variable component should not become unruly horse. Parliament has not revised from past many years, observed Justice DY Chandrachud.
“We must take a view which makes arbitration workable. What could have been the objective behind putting cap on fees? Fourth Schedule has to be read with Section 11(3)(a) of Arbitration Act,” he added.
The more expensive the arbitrator you get, the best result you get, as a concept, it is faulty, said Mehta.
The court had on March 8, 2022, issued notice and tagged the matter along with SLP Civil 13426/2021 & SLP Civil 10358/2020.
ONGC has sought the directions to terminate the existing tribunal and substitute it with a new one. In its petition before the Supreme Court, ONGC has claimed that the arbitrators, two former judges of the Supreme Court and one judge of the High Court, had increased the fees mid-way, while the arbitration was going on.
ONGC said that the new fee scale was not just against the contract terms, but also “far from the fees” fixed for the arbitrators under the fourth schedule of the Arbitration and Reconciliation Act, 1996 (A&RA), which guides proceedings when disputes arise between contracting parties.
Under the Fourth Schedule of Arbitration and Conciliation Act 1996, there is a ceiling of Rs 30 lakh per arbitrator, if the dispute between two parties is worth more than Rs 20 crore. As per the contract between the ONGC and Afcons, the upper ceiling for an arbitrator’s fee is Rs 10 lakh, with a time-limit prescribed to end the arbitration. The Centre contented that the arbitrators fixed Rs 1 lakh per arbitrator for every sitting as the fee and each sitting was for a duration of three hours. Therefore, it has been submitted that there should be some uniformity or certainty in the fees to be paid to the arbitrators, and asked the court to settle and fix a fee scale for the arbitrators.
Case Name- ONGC Vs Afcons Gunanusa JV
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