Introduction
Recently, Delhi High Court in NTPC vs. Afcons, held that the arbitral tribunal was not wrong in charging separate fees for claims and counter-claims. NTPC has challenged the decision and the issue “whether a separate fee is required to be paid on the counter claim or not”, is pending before the Supreme Court. In this article, I discuss this decision.
NTPC vs. Afcons:
The arbitral tribunal had fixed a separate fee for claims and counter-claims. NTPC challenged the order of the tribunal before the High Court, under Section 14 of the Arbitration and Conciliation Act, 1996 (“Act”).
The main issue was whether the arbitral tribunal was correct in interpreting the Fourth Schedule, r.w.s. 38(1), 31(8) and 31A of the Act, to mean that separate fee is payable to the tribunal for claims and counter-claims. The other issue was regarding interpretation of Entry 6 in Fourth Schedule i.e., whether the ceiling of Rs. 30 lakh applies to both the base amount and the percentage of claim amount over and above Rs. 20 Cr. or only to the percentage of the claim amount over and above Rs. 20 Cr.. In other words, whether the ceiling is Rs. 30 lakh or Rs. 49.87 lakh.
Statutory provisions:
Section 38 (1) of the Act specifies that the arbitral tribunal has the discretion in fixing the amount of fee for costs that might be incurred. The proviso specifies that where counter-claim is in addition to the claim, the arbitral tribunal has the discretion to fix separate amounts of deposit for the claim and the counter-claim.
Section 31(8) provides that the arbitral tribunal has the power to fix the cost of arbitration in accordance with Section 31A.
Section 31A specifies that the court or the tribunal has the discretion to determine whether costs are payable, when are they to be paid, and the amount of such costs. The explanation to this section specifies that fees and expenses of the arbitrators constitute ‘costs’.
The Fourth Schedule, on the other hand, provides a model fee schedule according to which the court or the arbitral tribunal may fix the fees of arbitration. Entry 6 of this schedule, specifies that for claim above Rs. 20 crores, there is an upper ceiling of Rs. 30 lakhs on the fee of the arbitral tribunal (with some extra fee where there is a sole arbitrator).
Arguments in NTPC vs. Afcon:
NTPC raised three main arguments to advance its case that the arbitral tribunal is not entitled to charge a separate fee for claim and counter-claim.
- Fourth Schedule fixes the upper ceiling of Rs.30 lakhs for “sum in dispute” i.e., claim and counter-claim. Since the parties had agreed to abide by the Fourth Schedule, there could be no question of revisiting the matter by resort to Section 38(1), 31(8) or 31A. NTPC relied on the judgment of co-ordinate bench in the case of DSIIDC v. Bawana Infra Development Pvt. Ltd. where the court had held that the arbitrators’ fee prescribed in the Fourth Schedule is to be calculated on basis of “sum in dispute”, which includes claim and counter-claim and that total fee payable to the arbitrators cannot breach the ceiling given in Fourth Schedule.
- NTPC filed an application for modification of order of tribunal directing parties to pay fee computed separately for claim and counter-claim, by relying on Delhi International Arbitration Centre (DIAC) Rules and claimed that these rules contemplate consolidation of claim and counter-claim for deciding the fees payable to the arbitral tribunal.
- Thirdly, the perceived inconsistency between the Entry 6 in Fourth Schedule, as contained in Devanagari and English versions is resolved by relying on the text of Devanagari script where the ceiling of Rs. 30 lakh is on both the base amount and the percentage of claim amount added together. NTPC argued that the Devanagari version should be preferred over the English version.
Afcon raised the following arguments.
- Proviso to Section 38(1) specifies that if a counter-claim exists apart from the claim then the arbitral tribunal may fix the fees separately for claim and counter-claim. It relied on Chandok Machineries vs. S.N. Sunderson, The court affirmed the order of the arbitral tribunal directing that while claimant shall pay the arbitral fee on its claim, the respondent shall pay the arbitral fee on its counter-claim. It passed this order stating that a party cannot lay exorbitant claim on the premise that the cost would be shared by the opposite party, and when the opposite party refuses to share such cost, claim bias as it has been made to share the entire cost of such an exorbitant claim. It was held that according to the proviso to Section 38(1) of the Act, the arbitral tribunal may fix separate amounts of deposit for the claim and counter-claim.
- This was an ad hoc arbitration, conducted without the intervention of the court, therefore it was not bound by the statutory compulsions regarding fees payable to the arbitral tribunal as contained in the Act. However, as the parties had agreed to fixing of fees in accordance with the Fourth Schedule, they were bound by such agreement.
- Relying on Article 348 of the Constitution and Nityanand Sharma vs. State of Bihar, the court should take judicial notice of Acts of Parliament and interpret the Fourth Schedule in the light of the English version being an authoritative text of the Act and the Second Schedule.
Decision:
The court found itself in agreement with the view taken by the arbitral tribunal and dismissed NTPC’s petition, holding that the fee for claim and counter-claim will be separate and will have a separate ceiling.
Analysis of decision of the Delhi High Court:
The main reasons for the decision are:
- The nature of counter-claim is like a suit and has an independent cause of action. Even if the main suit fails, counter-claim will survive.
A situation might occur where the claim crosses the ceiling of Fourth Schedule and thereafter counter-claim is filed. The arbitral tribunal observed that counter-claim may have a different purchase order or agreement or terms requiring separate evidence to be led, raising different issues and questions of law to be determined. The tribunal would be burdened with adjudicating counter-claim in addition to claims, which may require separate evidence, without any additional fee. This is against the cause and course of speedy and effective justice and will be unfair to arbitrators. [see para 17]
Comment
The court in para 11 holds that the language of the proviso to Section 38 is clear and unambiguous. Section 38(1) specifies that the arbitral tribunal may fix amount of ‘deposits’ as an advance for the costs. The proviso states that the arbitral tribunal may fix separate amount of ‘deposit’ for the claim and counter-claim.
It does not say that the tribunal may fix separate amount of ‘cost’ for claim and counter-claim. It is not clear whether the legislature intended to allow the tribunal to fix separate ‘costs’ i.e., fee and expenses to be paid separately for claim and counter-claim or did it intend to just allow separate amounts to be deposited by the claimant and the respondent as an advance for the consolidated cost.
Further, the tribunal or the High Court did not examine whether even the counter-claim in this case pertained to a different purchase order? Was there separate evidence needed for counter-claim in this case? From the decision, there is no evidence to suggest that the counter-claim was based on completely distinct evidence. This point could have been appreciated by the High Court and it might have had a bearing on the outcome.
- There might be a situation where the claim is small and the counter-claim is large. If the amounts are consolidated for determination of fee and then shared by the parties, it would result in the claimant being burdened with exorbitant cost of funding a counter-claim. This will not advance the cause of justice. [see para 17]
Comment
The observation in para 54, which cites para 37 of the judgment in Chandok Machineries vs. S.N. Sunderson, indicates that the tribunal in NTPC vs. Afcons required the claimant to pay fee on the claim only and the respondent to pay fee on only counter-claim. This is more akin to how court fee is payable in courts, plaintiff pays for court fee on reliefs prayed for in the plaint and the defendant pays court fee on counter-claim, if any. However, there is no precedent on this manner of computing fee in arbitration. There is nothing to indicate that the fee of the tribunal is not to be shared equally by the parties but unequally and each party has to pay the fee dependent on its claim or counter-claim. Section 38 requires the parties to pay equal share of the fee.
- In the absence of any rules being framed by the High Court, Fourth Schedule can only serve as a guiding principle. [see para 17]
Comment
When court appoints an arbitrator under Section 11, it either refers to some institutional rules to be followed for fee or suggests Fourth Schedule or leaves it to the discretion of the tribunal.
The High Courts at the time of appointing the arbitral tribunal have been recommending Fourth Schedule to be followed, irrespective of whether the High Court has notified the rules or not. However, after the 2019 amendment, there is no requirement of framing of rules by High Courts. The High Courts have to designate arbitral institutions to discharge necessary and proper functions which will include appointing arbitral tribunal and fixing its fees.
- It rejected NTPC’s contention that Delhi International Arbitration Centre Rules (DIAC Rules), contemplate consolidation of the amount of claim and counter-claim and therefore, not separate but one fee for claim and counter-claim. The court held that DIAC Rules apply only to arbitration under the DIAC and even then, proviso to Rule 3 of DIAC Rules, contemplates a situation where claim and counter-claim are assessed separately for calculating arbitral fee. [see para 14]
Comment
Even though this was not a matter under DIAC Rules, the court dismissed NTPC’s argument that DIAC Rules contemplate a consolidation of claim and counter-claim amounts. This observation will make it problematic for a party to argue that under DIAC Rules consolidated fee is contemplated. Therefore, the decision of the Supreme Court on this issue will be a welcome clarification.
***Research assistance by Ms. Deeksha Pokhriyal, a 3rd year B.A., LL.B. (Hons.) student at NALSAR University of Law.
Source: http://www.lawstreetindia.com/experts/column?sid=642