Supreme Court Ruling: Arbitration Fee Structures Governed by Updated NHAI Policies Over Prior Agreements

Introduction

The case of National Highways Authority of India (NHAI) v. Gayatri Jhansi Roadways Limited, reported as 2019 INSC 744, represents a pivotal moment in Indian arbitration jurisprudence. This Supreme Court judgment addresses the intricate balance between contractual agreements on arbitration fees and statutory provisions governing such fees. The primary parties involved are the National Highways Authority of India (Appellant) and Gayatri Jhansi Roadways Limited along with Gammon Engineers and Contractors Pvt. Ltd. (Respondents).

The central issue revolves around whether the arbitrators’ fees should be determined based on the contractual agreement between the parties or in accordance with the amended Fourth Schedule of the Arbitration and Conciliation Act, 1996, especially in light of updated fee structures issued by NHAI.

Summary of the Judgment

The Supreme Court upheld the appellant's position that the arbitration fee structure should adhere to the provisions outlined in the NHAI's policy circular dated June 1, 2017, rather than the previously agreed-upon schedule or the statutory Fourth Schedule of the Arbitration Act. The Court set aside the lower court's judgment that favored the enforcement of the original fee agreement, emphasizing that the updated policy supersedes prior arrangements due to evolving administrative guidelines.

Analysis

Precedents Cited

The judgment references the Gayatri Jhansi Roadways Limited (Supra) case, wherein a Single Judge had previously held that after the 2015 Amendment to the Arbitration Act, arbitrator fees are governed by the Fourth Schedule, overriding any prior agreements. However, the Supreme Court deemed this lower court decision as per incuriam (through lack of care) because it overlooked pertinent legal provisions and the Law Commission's report. The Supreme Court's reliance on prior judgments underscores the dynamic nature of judicial interpretations in response to legislative changes.

Legal Reasoning

The Supreme Court deliberated on the applicability of contractual agreements governing arbitrator fees in the context of updated organizational policies. It acknowledged that while Section 31A of the Arbitration Act no longer allows parties to contract out of statutory provisions regarding costs, the specific fee structure was subject to NHAI's policy updates, which inherently have authority over individual agreements.

The Court reasoned that the fee schedule embedded within the NHAI's 2017 circular effectively amended the fee structure initially agreed upon in the 2006 contract, reflecting changes in administrative policies and economic factors over time. Hence, the arbitrators were constitutionally empowered to adjust their fees in alignment with the latest policy guidelines rather than being strictly bound by the original contractual terms or the statutory Fourth Schedule.

Impact

This landmark judgment clarifies the hierarchy between contractual fee agreements and statutory or policy-driven fee structures in arbitration. It establishes that when an authoritative body, such as NHAI, updates its fee policies, these new directives take precedence over previous contractual terms. Consequently, organizations entering into arbitration agreements must stay attuned to potential policy changes that could affect arbitration proceedings and costs.

Moreover, this decision diminishes the absolute supremacy of the Fourth Schedule in determining arbitrator fees, providing room for organizations to negotiate fee structures within the frameworks of updated policies. Future arbitration agreements will likely incorporate clauses referencing adherence to the latest organizational policies to avoid similar disputes.

Complex Concepts Simplified

Arbitration and Arbitral Tribunals

Arbitration is a method of alternative dispute resolution where disputes are settled outside the courts by appointed arbitrators. An arbitral tribunal is the panel, typically consisting of one or more arbitrators, that hears and decides the dispute.

Fourth Schedule of the Arbitration and Conciliation Act, 1996

The Fourth Schedule outlines a detailed fee structure for arbitrators in India. Following the 2015 Amendment, it became mandatory, meaning parties cannot derogate from it through their agreements. The schedule stipulates specific fees based on the claim's value, ensuring consistency and fairness in arbitrator compensation.

Per Incuriam

A Latin term meaning "through lack of care," used in legal contexts to describe a judgment that has been decided without considering all relevant laws or precedents, making it flawed or unsound.

Conclusion