Arbitrators empowered to charge separate fees for claim and counterclaim in arbitration proceedings: Supreme Court

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The Supreme Court has held that the term “amount in dispute” in the Fourth Schedule to the Arbitration Act refers to the amount in dispute in a claim and counterclaim separately, not cumulatively.

“The arbitrators are entitled to charge separate fees for the claim and the counterclaim in ad hoc arbitration proceedings, and the fee cap contained in the Fourth Schedule shall apply separately to both, where the fee structure of the Fourth Schedule will have been made applicable to the ad hoc arbitrationn,” concluded the majority judgment written by Judge DY Chandrachud.

Judge Sanjiv Khanna, in a separate judgment, held that the phrase “sum in dispute” means the sum total of the claims and counterclaims.

The court was interpreting the term “disputed amount” which is the heading of the second column of the fourth schedule. This column provides the different categories of amounts, to which the third column indicates the relevant fees that arbitrators can charge for this category. One suggestion is that the term “amount in dispute” should be the cumulative sum of the claim and the counterclaim raised by the parties. If such a position is taken, the arbitrators will charge a joint fee to hear both the claim and the counterclaim, and the cap set out in the Fourth Schedule will apply to their combined total. Another possible interpretation was that the “amount in dispute” referred to the individual amounts in dispute in the claim and the counterclaim. The issue was whether the term “amount in dispute” referred to the entire claim and counterclaim, or whether the fee payable under the Schedule should be calculated separately for the claim(s) and the counterclaims. without aggregating them;

Referring to the Arbitration Law and Code of Civil Procedure, academic discourses and related court decisions, the Panel found the following:

(i) Claims and Counterclaims are independent and separate proceedings;

(ii) A counterclaim is not a defense to a claim and its outcome is not contingent upon the outcome of the claim;

(iii) counterclaims are independent claims which could have been raised in separate proceedings, but which may be raised in the same proceeding as a claim in order to avoid multiple proceedings; and

(iv) The dismissal of the proceedings relating to the original claim does not affect the proceedings relating to the counterclaim.

The court therefore held as follows:

“On a combined reading of Article 31(8), Article 31A and Article 38(1), it is clear that: (i) separate filings must be made for a claim and a counterclaim in an arbitration proceeding; and (ii) such deposits relate to the costs of the arbitration, which include the fees of the arbitrators. Therefore, prima facie, the determination of fees under the Fourth Schedule should also be calculated separately for a claim and a counterclaim – that is, the term “amount in dispute” refers to the amounts of the independent claims for the claim and the counterclaim. Such an interpretation is further supported by the definition of the claim and the counterclaim, and by the fact that the latter constitutes an independent and distinct proceeding from the former.”

If this interpretation were to be set aside in favor of interpreting the “amount in dispute” as an accumulation of the amount of the claim and the counterclaim, this would have considerable consequences in terms of procedural fairness. First, under the proviso of Article 38(1), the arbitral tribunal may order separate filings for a claim and a counterclaim. These are based on the cost of the arbitration defined by a joint reading of Articles 31(8) and 31A, which includes the fees of the arbitrators. Therefore, if arbitrators were to charge a common fee for the claim and the counterclaim, they would then have to divide those fees equally when calculating the individual filings for the purposes of the proviso of Article 38(1). Secondly, the second conditional clause of Article 38(2) provides that if the filing is not made by both parties, the arbitral tribunal may dismiss the claim and/or the counterclaim, as the case may be. If the claim were to be dismissed in this way, it would lead to an absurd situation where the arbitrators’ fees would have to be revised in the middle of the arbitration proceedings solely on the basis of the amount of the counterclaim. Third, under Article 23(2-A), the only requirement for a counterclaim is that it must arise out of the same arbitration agreement as the claim. However, the cause of action for a counterclaim may be entirely different from the claim and perhaps much more complex. Therefore, determining the arbitrators’ fees on a combined basis for the claim and the counterclaim would therefore not correspond to the separate effort they would have to expend for each individual dispute in the claim and the counterclaim.

“Amount in dispute” shall mean the aggregate of all amounts in dispute: Justice Sanjiv Khanna

Judge Sanjiv Khanna, in his separate opinion, noted that this interpretation disregards the legal position that the counterclaim and set-off raised before an arbitral tribunal must fall within the scope of the arbitration agreement, which is the subject and basis of any claim in the arbitration proceeding.

“I will retain that the heading “amount in dispute” shall mean the sum of all the amounts in dispute without any bifurcation and separate application of the scale of fees in reference to the amount subject to the claim(s), and to the amount subject matter of the counterclaim(s) the claim, the counterclaim and the set-off relating to this contract.“, observed the judge

The cap on arbitrators’ fees is Rs 30 Lakhs, cap applicable to individual arbitrators, not the tribunal as a whole: Supreme Court

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