Supreme Court: Unilateral Fee Hike by Arbitration Tribunal Would not Disqualify It

Supreme Court: Unilateral Fee Hike by Arbitration Tribunal Would not Disqualify It

The Supreme Court has concluded that when an arbitration panel raises its fees without the consent of both parties, it constitutes a violation of the Arbitration and Conciliation Act of 1996. The Court has also established that such a violation does not inherently disqualify the tribunal or necessitate the cessation of its authority.

In this particular case, Chennai Metro Rail Limited (Chennai Metro) awarded a ₹1,566 crore contract to Afcons. Disputes arose during the project, leading to arbitration. The tribunal initially set the hearing fee at ₹1,00,000 per session but later attempted to raise it to ₹2,00,000. Chennai Metro objected, citing a pending issue related to the applicability of Schedule IV of the Arbitration and Conciliation Act. Despite the fee dispute, the tribunal carried on proceedings. Chennai Metro raised concerns about Afcons having paid the increased fee for several hearings, which could prejudice the arbitration. Chennai Metro filed a petition with the Madras High Court under Section 14 of the Act, seeking a declaration that the tribunal's authority was terminated for the disputes. The tribunal members later acknowledged a relevant court judgment and reverted to the originally agreed fee of ₹1,00,000. The High Court initially halted the proceedings but later rejected Chennai Metro's application, allowing the arbitration to continue.

The division bench of the Supreme Court, consisting of Justices S. Ravindra Bhat and Aravind Kumar, stated that the decision in the case of Oil and Natural Gas Corporation Ltd v. Afcons Gunanusa JV [LQ/SC/2022/1075] is clear in stating that any fee increase must have the agreement of both parties. In cases of disagreement, the tribunal should either maintain the existing fee arrangement or decline to serve as an arbitrator. However, the Bench expressed the view that a breach of this rule, as seen in the current case where there was insistence on a fee increase despite one party's objection, does not automatically disqualify the tribunal.

The Bench referred to the Arbitration and Conciliation Act, which incorporates the fifth schedule as a disclosure requirement and an eligibility condition in Section 12(1), a continuing eligibility condition in Section 12(2), and absolute ineligibility conditions that render appointments illegal under Section 12(5), aims to eliminate any ambiguities in the process.

It also made an important observation, stressing that the reasons for contesting an arbitrator's appointment under Section 12(3) of the Arbitration and Conciliation Act should correspond with those enumerated in the Act's schedule. They expressed apprehension that deviating from this rule might impose additional demands on the courts and potentially disrupt the meticulously crafted statutory arbitration process.

The Supreme Court, thus, ruled that Chennai Metro's application could not prevail. The Arbitrators were instructed to recommence the proceedings and adjudicate the case in accordance with the law.