Interpretation of 'Sum in Dispute' in Arbitration and Conciliation Act: Supreme Court's Ruling on Arbitrators' Fees

Introduction

The Supreme Court of India, in its landmark judgment OIL AND NATURAL GAS CORPORATION LTD. v. AFCONS GUNANUSA JV (2022 INSC 884), delved into the intricate dynamics of arbitrators' fees within the framework of the Arbitration and Conciliation Act, 1996. The case primarily revolved around the interpretation of the term 'sum in dispute' as stipulated in the Fourth Schedule of the Act, and its implications on the fee structure applicable to arbitrators in both claim and counter-claim scenarios.

The parties involved were the Oil and Natural Gas Corporation Limited (ONGC) as the petitioner and Afcons Gunanusa JV as the respondent. Disputes arose from a Lump Sum Turnkey Contract regarding the construction of an ICP-R Platform, leading Afcons to invoke arbitration. The crux of the disagreements centered on the fee schedule prescribed in the contract and its realism, with subsequent disputes over fee revisions and the applicability of the Fourth Schedule.

Summary of the Judgment

The Supreme Court held that the term 'sum in dispute' in the Fourth Schedule refers to the aggregate sum of both the claim and the counter-claim. Consequently, the fee ceiling specified in the Fourth Schedule applies to the total fees payable to each arbitrator, not individually to each component of the fee. The Court further clarified that the fee prescribed is applicable to each member of a multi-member arbitral tribunal, ensuring consistency and preventing exorbitant arbitration costs that could deter parties from opting for arbitration over litigation.

Analysis

Precedents Cited

• Singh Builders Syndicate v. National Highways Authority of India: Highlighted the issue of high arbitration fees, especially when retired judges are appointed as arbitrators, rendering arbitration cost-prohibitive.
• Gayatri Jhansi Roadways Ltd.: Addressed the application of the Fourth Schedule, emphasizing that it is not mandatory when parties have an agreement on arbitrator fees.
• Arbitration Amendment Act, 2015 and Arbitration Amendment Act, 2019: Introduced the Fourth Schedule and provisions to regulate arbitrators' fees, aiming to make arbitration more accessible and standardized.

Legal Reasoning

The Court meticulously interpreted the statutory provisions, focusing on the Fourth Schedule's provision regarding the 'sum in dispute'. By examining the legislative intent, especially as influenced by the Law Commission's 246th Report, the Court determined that the term should encompass the total of both claims and counter-claims. This aggregate approach ensures that the fee ceiling is effective in controlling arbitration costs, preventing arbitrary and exorbitant fee demands by arbitrators.

Furthermore, the Court emphasized the principle of party autonomy in arbitration, asserting that fees agreed upon by the parties are binding and cannot be unilaterally altered by the arbitral tribunal. This interpretation aligns with international best practices where institutional arbitration bodies set standardized fee structures to ensure fairness and predictability.

Impact

This judgment has profound implications for future arbitration proceedings in India:

• Standardization of Fees: By interpreting 'sum in dispute' as the total of claims and counter-claims, the Court enforces a standardized fee structure, curbing the ability of arbitrators to impose excessive fees.
• Accessibility of Arbitration: Lower and predictable arbitration costs make arbitration a more viable and attractive alternative to court litigation, especially for smaller disputes.
• Compliance with Legislative Intent: The ruling ensures that amendments introduced to the Act, aimed at regulating arbitration costs, are effectively enforced, promoting transparency and fairness.

Complex Concepts Simplified

'Sum in Dispute'

Sum in Dispute refers to the total amount under consideration in an arbitration, encompassing both the main claim and any counter-claims. This ensures that arbitrators' fees are calculated based on the entire scope of the dispute, rather than individual components, preventing disproportionate fee demands.

Party Autonomy

Party Autonomy is a foundational principle in arbitration, granting the disputing parties the freedom to determine various aspects of the arbitration process, including the selection of arbitrators and the agreement on fees. This principle ensures that arbitration remains flexible and tailored to the needs of the parties involved.

Fourth Schedule

The Fourth Schedule of the Arbitration and Conciliation Act outlines the model fee structure for arbitrators based on the 'sum in dispute'. Its primary purpose is to standardize arbitration fees, making the process more predictable and fair, thereby enhancing the efficiency and accessibility of arbitration in India.

Conclusion

In this pivotal judgment, the Supreme Court of India has reinforced the governance of arbitration fees through statutory interpretations that prioritize fairness, transparency, and accessibility. By defining 'sum in dispute' as the aggregate of all claims and counter-claims, and by applying a standardized fee ceiling, the Court has effectively curtailed the potential for exorbitant arbitration costs. This aligns with both national objectives of efficient dispute resolution and international arbitration best practices, ensuring that arbitration remains a robust and equitable alternative to traditional litigation.

Moving forward, arbitrators and parties engaged in arbitration within India must adhere to these clarified interpretations to foster a more predictable and just arbitration landscape. This judgment not only upholds legislative intent but also fortifies the principles of equity and reasonableness central to arbitration.