Non‑Applicability of the Fourth Schedule in International Commercial Arbitrations and Upholding Party Autonomy in Fee Fixation

Non‑Applicability of the Fourth Schedule in International Commercial Arbitrations and Upholding Party Autonomy in Fee Fixation

Introduction

This commentary examines the Delhi High Court’s decision in National Highway Authority of India v. Ssangyong Engineering Construction Co. Ltd., W.P.(C) 2059/2025, pronounced on 28 March 2025. The dispute arises from a 2006 contract for four‑laning of a highway section in Madhya Pradesh (Package No. ADB‑II/C8). After disputes emerged, NHAI invoked arbitration in September 2022. The three‑member tribunal, in October 2023, proposed fees of ₹3,00,000 per arbitrator per sitting. NHAI later applied to cap the fees at ₹30,00,000 per arbitrator (the Fourth Schedule ceiling under the Arbitration & Conciliation Act, 1996). The tribunal rejected that modification, prompting NHAI to seek judicial review under Article 226 of the Constitution.

Summary of the Judgment

  • The High Court held that the tribunal’s fee schedule was not “unilateral” but was proposed in open hearings, recorded in multiple interim orders, and never contested by NHAI at the relevant times.
  • It confirmed that international commercial arbitrations (Section 2(1)(f)(ii) A&C Act) are exempt from the mandatory application of the Fourth Schedule by virtue of the Explanation to Section 11(14).
  • It found no exceptional circumstances or bad faith warranting relief under Article 226, and dismissed NHAI’s petition and pending applications.

Analysis

Precedents Cited

1. ONGC Ltd. v. Afcons Gunanusa JV, (2024) 4 SCC 481 – Supreme Court held arbitrators cannot unilaterally fix enforceable fees; they may apportion costs under Sections 31(8), 31‑A, demand deposits under Section 38, and exercise a lien under Section 39(1). It also clarified the ₹30 lakh ceiling in the Fourth Schedule applies per arbitrator.

2. Surender Kumar Singhal v. Arun Kumar Bhalotia & Ors., 2021 SCC OnLine Del 3708 – Discussed exceptional circumstances under Article 226 to interfere with tribunal proceedings.

Legal Reasoning

• Tribunal’s Procedural Conduct: The tribunal, at its first hearing (05.12.2022), informed parties about proposed fees and administrative expenses, directing an interim deposit of ₹5 lakh each. At subsequent hearings (July and August 2023), it again recorded the ₹3 lakh per arbitrator per sitting proposal, shared equally. Only on 16.05.2024 did NHAI file for modification—after acquiescing through repeated assurances to pay.

• Party Autonomy: By failing to object contemporaneously, NHAI affirmed the fee arrangement. The court underscored that late‑stage objections cannot override earlier consent or deemed consent recorded in tribunal minutes.

• Statutory Interpretation: Section 2(1)(f)(ii) defines “international commercial arbitration,” and the Explanation to Section 11(14) disapplies the Fourth Schedule in such arbitrations. Therefore, the ₹30 lakh cap is not mandatory here.

• No Exceptional Circumstances: Article 226 jurisdiction is discretionary. Absent bad faith, fraud or gross illegality, the High Court will not intervene in arbitral procedural orders.

Impact

1. This ruling confirms that international commercial arbitrations under the A&C Act are not bound by the Fourth Schedule’s fee ceilings, reinforcing tribunals’ freedom to propose and adjust fees by agreement with parties.

2. It emphasizes the critical importance of timely objections: parties who do not contemporaneously record dissent against tribunal proposals risk being bound by them.

3. It narrows the scope for courts to exercise constitutional review under Article 226 over arbitral procedural matters, reserving such intervention for genuine exceptional cases.

Complex Concepts Simplified

  • Fourth Schedule: A fee schedule in the A&C Act prescribing ceilings on arbitrators’ remuneration in domestic arbitrations.
  • Section 2(1)(f)(ii): Defines “international commercial arbitration” — disputes between parties from different countries.
  • Explanation to Section 11(14): Clarifies that the Fourth Schedule does not apply to international arbitrations.
  • Party Autonomy: The principle that parties to an arbitration can decide procedure, including fees, by mutual agreement.
  • In rem suam: Latin for “no one may be a judge in their own cause,” applied to prohibit unilateral fee fixation by arbitrators.

Conclusion

The Delhi High Court’s decision in NHAI v. Ssangyong reaffirms that international commercial arbitrations are not subject to the Fourth Schedule’s fee ceiling and underscores the sanctity of party autonomy in fee agreements. It also serves as a caution: parties must promptly challenge any procedural proposal they find objectionable, or risk acquiescing by silence. Finally, it delineates the limited scope of judicial review under Article 226 in arbitral matters, preserving the autonomy and efficiency of the arbitral process.

Case Details

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