Court Opinion Summary: ARB.A 1/2017 (Sanjeev Sachdeva, J.)

Factual and Procedural Background

The appellant filed this appeal under Section 37 of the Arbitration and Conciliation Act, 1996 challenging the Arbitral Tribunal's order dated 27.02.2017 which fixed the fee schedule for the arbitral proceedings. The appellant sought a direction that the arbitral proceedings be conducted in accordance with a National Highways Authority of India (NHAI) policy circular (referred to in the opinion as dated 27.05.2016) read with clause vii of a supplementary agreement dated 22.12.2016, which the appellant contended was agreed to by the respondent.

In its pleadings the appellant contended that the fee schedule fixed by the Tribunal was at variance with a policy circular of NHAI (the opinion refers to a policy circular dated 24.05.2016 in one place) and that the supplementary agreement dated 22.12.2016 had specifically agreed the said fee structure; the fee structure had also allegedly been communicated to, and consented to by, the appellant's nominee arbitrator.

The respondent opposed the appeal, and the respondent's senior counsel informed the Court that, following an objection by the appellant, the Arbitral Tribunal had modified its earlier fee order and fixed fees in accordance with Schedule IV to the Act as amended by the Arbitration and Conciliation (Amendment) Act, 2015. The respondent also contended that the appeal was not maintainable.

The Court delivered an oral judgment dismissing the appeal and recorded "No order as to costs." The order was made Dasti under the signature of the Court Master.

Legal Issues Presented

1. Whether an order of an Arbitral Tribunal fixing the fee schedule is an appealable order under Section 37 of the Arbitration and Conciliation Act, 1996 (specifically under Section 37(2)(a)).
2. Whether parties can agree between themselves to a fee structure for the arbitral tribunal that overrides the statutory regime (i.e., whether such an agreement can displace the fee determination mechanism now prescribed by amended Section 31(8) and Section 31A, and Schedule IV of the Act), and whether any such agreement (including consent by a party's nominee arbitrator) is effective.

Arguments of the Parties

Appellant's Arguments

• The Arbitral Tribunal's order dated 27.02.2017 fixing the fee schedule is at variance with the NHAI policy circular (the opinion refers to both 27.05.2016 and 24.05.2016 in different paragraphs) and therefore requires correction by the Court.
• The fee structure that the appellant sought to be followed was specifically agreed by the respondent by entering into a supplementary agreement dated 22.12.2016.
• The agreed fee structure had been communicated to the appellant's nominee arbitrator, who had specifically consented to it; that consent was relied upon as supporting the appellant's entitlement to the agreed fee structure.

Respondent's Arguments

• On an objection raised by the appellant, the Arbitral Tribunal modified its earlier order and fixed the fees in accordance with Schedule IV to the Arbitration and Conciliation Act, 1996, as amended by the 2015 Amendment Act.
• The appeal is not maintainable because an order fixing the fees of the arbitral tribunal does not fall within the class of orders appealable under Section 37(2)(a) of the Act.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court proceeded by addressing two interrelated strands of law and application:

1. Appealability under Section 37:

   The Court noted the limited scope of appeals under Section 37(2)(a) of the Act. An appeal to a court under Section 37(2)(a) lies only from an order of an arbitral tribunal accepting the plea referred to in sub-section (2) or sub-section (3) of Section 16 (i.e., jurisdictional challenges) or from an order granting or refusing to grant an interim measure under Section 17. The Court held that an order fixing the fee schedule does not fall within either category; therefore, such an order is not appealable under Section 37(2)(a). The Court relied on the Coordinate Bench decision in National Highways Authority of India v. D.S Toll Road Ltd. to reinforce this position.

2. Statutory regime for fixation of costs/fees:

   The Court examined the statutory text of Section 31(8) before and after the 2015 amendment. Prior to amendment, Section 31(8) began with the phrase "Unless otherwise agreed by the parties…." The 2015 amendment removed that expression. The amended Section 31(8) unambiguously states: "The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A." The Court interpreted the deletion of the "Unless otherwise agreed" clause as indicating legislative intent to remove from parties the power to determine arbitrator fees by private agreement in the general run of arbitrations.

   The Court further considered Section 11(14) (which empowers the High Court to frame rules for determination of the arbitral tribunal's fees and refers to Schedule IV for guidance) and its explanation, which carves out an exception for international commercial arbitrations and for arbitrations where parties have agreed that fees shall be determined under the rules of an arbitration institution. From these provisions, the Court concluded that the parties' right to fix fees by agreement has been restricted and is generally not effective except in the specified exceptions (international commercial arbitration and arbitrations subject to institutional rules by agreement).

   Applying these principles, the Court held that the appellant's reliance on the supplementary agreement of 22.12.2016 and the alleged consent of the appellant's nominee arbitrator to a particular fee schedule were of no legal consequence in the present domestic-arbitration context because the statutory regime now requires the arbitral tribunal to fix costs per Section 31(8) read with Section 31A and Schedule IV, subject only to the statutory exceptions.

3. Factual application:

   The Court noted that, following the appellant's objection, the arbitral tribunal itself had modified its earlier order dated 27.02.2017 and fixed the fees in terms of Schedule IV to the Act. Given that the Tribunal had fixed the fees in accordance with the statutory scheme, and given the non-appealability of fee-fixing orders under Section 37, the Court found no merit in the appeal.

Holding and Implications

Holding: The appeal is DISMISSED. The Court recorded "No order as to costs."

Implications (as stated by the Court and applied to the parties):

• The order of the Arbitral Tribunal fixing the fees (as modified to conform to Schedule IV) stands; the appeal challenging that fee order was dismissed as not maintainable under Section 37.
• The amendment to Section 31(8) (deleting the phrase "Unless otherwise agreed by the parties…") and the statutory scheme (Section 31(8) read with Section 31A and Schedule IV) indicate that fixation of the costs of an arbitration is to be carried out by the arbitral tribunal according to the statutory framework, limiting the parties' ability to determine fees by private agreement in the ordinary (non-exceptional) domestic-arbitration context.
• The statutory exception identified by the Court—preserved in the explanation to Section 11(14)—permits party-agreed fee-determination only in international commercial arbitrations and in arbitrations where parties have agreed that fees will be determined under the rules of an arbitration institution; outside these exceptions, party agreements on fees are of no consequence.
• Direct effect on the parties: the arbitral tribunal's fee schedule as fixed in terms of Schedule IV governs the arbitration costs; the appellant's contention based on the supplementary agreement and alleged arbitrator consent did not displace the statutory regime. The Court made no broader order altering the statutory scheme and recorded no costs against the parties.

Procedural note recorded in the opinion: "Order Dasti under the signatures of the Court Master."