Disintegrating ‘Sum in dispute’ in Fourth Schedule for Arbitration Fees

by Mohammad Atik Saiyed and Shukla Pooja Sunilkumar, Third year students at GNLU, Gujarat


We are living in a global village with transforming commercial realities and with such radical evolutions – the corporate entities are driving forces of economic value additions. In correspondence to the novel societal structure, interdependent and entangled utility alternatives, new perspectives, disagreements, questions, and jurisprudential mechanisms have also evolved. Arbitration has developed as the core effective means for alternative dispute resolution and the exponential increase in its practice unveils a question of how much fees are to be paid for the arbitration, which was recently revisited by the Apex Court in the case of Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV.

Constructing the substructure of arbitration fees

Constructing the sub-structural root of the legal question, Section 31(8) of the Arbitration and Conciliation Act, 1996 (the “Act”) empowers the arbitral tribunal with the authority to ascertain the costs in accordance with Section 31ASection 31A accredits the ‘discretion’ of the tribunal to determine three aspects revolving around the regime of costs – Firstly, whether costs are payable by one party to another; secondly, the amount of costs and thirdly, the time of payment of costs. Within the horizon of the present analogy, the explanation to Section 31(8)(a) and Section 31A(1) provides that the term ‘costs’ symbolizes “reasonable costs relating to the fees and expenses of the arbitrators and witnesses”, among other things. Moving further in the prism, Section 38(1) of the Act encompasses the authority of the tribunal to fix the amount of deposits, separately for claims and counter-claims, as an advance for the arbitration fees which is an integral part of ‘costs’ in Section 31(8)

The tribunal holds the power to determine costs and deposits as enshrined in the sections highlighted but the tribunal cannot be granted unbridled authority to unilaterally determine its own fees. This unveils the central question of how much fees are to be paid for the arbitration. Comprehensively dealing with ad hoc arbitrations, the Fourth Schedule (the “Schedule”) of the Act advances a model framework for the determination of arbitration fees. Rooting out the parliamentary purpose, the Schedule was introduced by the 2015 amendment on the recommendation of the 246th LCI report, which addressed the issue of arbitrators charging exorbitant fees in ad hoc arbitrations. The Fourth Schedule sets out ‘Sum in dispute’ as a standard for ascertaining the fees of arbitrators based on the model prescribed. Ergo, for the determination of fees, the undefined terminology gives rise to a substantial legal dilemma regarding the interpretation of ‘Sum in dispute’ in the fourth schedule as to whether the sum for the determination of fees has to be accounted for claims and counter-claims, cumulatively or separately? Settling the two competing interpretations holds core importance, as the applicability of the ceiling enshrined in the Schedule will be resolved on that premise. 

Cumulatively or separately? – Weighing ‘Sum in dispute’ on both ends

Navigating the two arguments based on the interpretation conundrum, firstly, if ‘Sum in dispute’ is regarded as the cumulative total of claim and counter-claim, on acceptance, there will be a common fee for adjudicating both the proceedings and the fee ceiling within the Schedule will apply to the cumulative total, whereas, secondly, if ‘Sum in dispute’ is considered separately for claim and counter-claim, with adoption, there will be different fees for claim and counter-claim proceedings and the fee ceiling within the Schedule will be administered separately to each proceeding. For instance, the sixth entry in the Schedule provides that if the ‘Sum in dispute’ is above Rs.20 Crore then the model fees would be “Rs. 19,87,500 plus ‘0.5 percent’ of the claim amount over and above Rs.20 Crores with a ceiling of Rs.30 Crores.” Consider a situation wherein, the claim is INR 20 Crores and the counter-claim is INR 20 Crores, ergo, with an interpretation of ‘Sum in dispute’ as cumulative of claim and counter-claim, then the fee ceiling will be INR 30 Lakhs, whereas, understanding ‘Sum in dispute’ separately for claim as well as counter-claim, then the fee ceiling stands at INR 39,75,000/-. 

Comprehensive analysis and interpretation of ‘Claim’ and ‘Counter-claim’

Importantly, the terms, ‘Claim’ and ‘Counter-claim’ are not defined within the Act, and since the issue revolves around the two terminologies, to settle the question, it is foremost to comprehensively understand ‘Claim’ and ‘Counter-claim’ along with their nature in the proceedings. Understanding the nature of ‘Claim’ and ‘Counter-claim’ proceedings is important since the amount of deposits can be ascertained on that basis by the tribunal, wherein, if both proceedings are distinct and independent of each other, then separate deposits for claims and counter-claims would be required. As highlighted earlier, arbitration fee is an integral part of deposits and consequently, separate deposits imply that separate fees would be charged for ‘Claim’ and ‘Counter-claim’, and subsequently, the model in ‘Fourth Schedule’ will apply independently. Whereas, if a contrary interpretation is considered then ‘Claim’ and ‘Counter-claim’ will constitute the same proceeding, ergo, a combined deposit for both proceedings would be required. 

To serve the interpretation question of whether the ‘Claim’ and ‘Counter-claim’ are independent proceedings or not, reference is made to diversified sources of legal jurisprudence on two dimensions – arbitration proceedings and civil proceedings.

‘Claim’ and ‘Counter-claim’ in Arbitration Proceedings

  • Within the statutory frame of the Arbitration Act, Section 2(9) highlights that if under the Arbitration part of the Act, there is any reference to claim & defense to claim, it must also apply to counter-claim and defense to counter-claim respectively. Thereby, the act treats both proceedings separately. Furthermore, Section 23(2A)  obligates the tribunal to adjudicate upon a counter-claim or set-off, if the subject is covered within the ambit of the arbitration agreement directing ‘independence’. On the same lines, attributing Section 38(2) relating to deposits, the tribunal has the discretion to terminate the proceedings ‘separately’ for the claim, counter-claim, or both with failure to provide appropriate deposits. Ergo, the act principally provides that both are different proceedings drawing inference for separate deposits. 
  • Unfolding extensive analysis of ‘Claim’ and ‘Counter-claim’ by investigating academic opinions and references, it can be derived from Justice Bachawat’s seminal treatise on Law of Arbitration and Conciliation[i] that the tribunal has the jurisdiction and the obligation to adjudge both claims and counter-claims ‘autonomously’, and CR Dutta’s treatise[ii] reinforces the inference that the Arbitration Act perceives and handles claim and counter-claim as two separate and independent proceedings. Citing Gary Born on arbitration, it can be extracted that counter-claims are not restricted to claims wherein the subject of the counter-claim can be absolutely unlinked, provided that it falls within the ambit of the agreement. To dissolve, the Procedure and Evidence in International Arbitration, by noting that the counter-claim is not a defense to the claim and stands completely independent, corroborates the autonomy of claims and counter-claims.
  • Progressing to the dimension of judicial behavior even before the introduction of Section 23(2A) in 2015, there existed various pronouncements including IOCL v. Amritsar Gas Servicewhose position was supplemented in State of Goa v. Praveen Enterprises, that unanimously substantiate the obligation of the tribunal to ‘independently’ adjudicate counter-claims and provide that the rationale for recourse to the same arbitration is to eliminate the multiplicity of proceedings, Additionally, from Voltas Ltd. v. Rolta India Ltd., the independent nature of the claim, and counter-claim proceedings can be noted.

(B) Civil Proceedings

Parallelly, understanding whether civil proceedings treat ‘Claim’ and ‘Counter-claim’ as independent and separate proceedings or not is also important for an extensive analysis. Advancing the statutory structure of the Code of Civil Procedure, 1908 (“CPC”) and explicitly concentrating on Order VIII of the CPC associated with written statements, set-offs, and counter-claims, the distinction between set-offs and counter-claims can be constructed, as set-offs are covered within Rule 6, and Rule 6-A deals ‘explicitly’ with the counter-claims by the defendant. Emphasis has to be placed on Rule 6-D of Order VIII, which provides that “even if the suit which has been instituted by the plaintiff is stayed, discontinued, or dismissed, it will not affect the defendant‘s counter-claim”, concludes that counter-claims are not simply set-offs but stand distinct and independent as a separate proceeding. Moreover, investigation of academic convictions such as Mulla’sSarkar’s, and Zuckerman’s treatise on the Code of Civil Procedure consonantly points that counter-claim is an ‘independent action’ and they also crystalize Rule 6-D acknowledging that counter-claims remain unaffected by the dismissal of claims. Correspondingly, Halsbury’s Laws of India (Civil Procedure) describes a counter-claim as “a claim, independent of and separable from the plaintiff’s claim, which can be enforced by a cross-action.” Moreover, examining judicial precedents, Jag Mohan Chawla v. Dera Radha Swami Satsang and Rajni Rani v. Khairati Lal, among others, unanimously establish the aspect that counter-claims can arise out of the unconnected cause of actions and are ‘absolutely independent.’ 

Forecasting perspectives of ‘Sum in dispute’ as a cumulative

Advancing a different viewpoint, if we consider ‘Sum in dispute’ as a cumulative of claim and counter-claim, extensive repercussions on procedural fairness can be forecasted, such as, firstly, equitable division of fees between parties while accounting for individual deposits within Section 38(1)secondly, intermediate revision of arbitration fees in case of dismissal under Section 38(2) and thirdly, combined fees unproportionate to separate efforts for unique subject matters raised in same proceedings as empowered by Section 23(2-A). Taking note of the purposive interpretation of the insertion of the Fourth Schedule emphasized by the 246th LCI Report, which highlighted the problem of exorbitant fees being charged by arbitrators in ad hoc arbitration; however, the lucid legislative meaning in the statute would have an overriding effect and if the contrary is required, there exists parliamentary wisdom for the amendment. 

Concluding Perspective

In line with the stark contrasts and reasonable conflicts in the comprehensive legal and logical analogy of the multidimensional prism of “Sum in dispute,” the distinction and independence of proceedings of claim and counter-claim can be lucidly outlined and accordingly, both are capable of being raised in individual proceedings, but the primary rationale for consideration to same arbitration is to eliminate the multiplicity of proceedings. Conclusively, a counter-claim is not a rebuttal to the claim, besides, the dismissal or result of the claim will have no bearing on the counter-claim proceedings. Wherefore, it is reflected that in an arbitration case, deposits in respect of arbitration costs, including arbitrator fees, have to be filed separately for both. Dissolving the color of the same horizon to the interrelated prism of Section 31(8)Section 31ASection 38(1), as well as the Fourth Schedule of the Arbitration Act, it can be outlined that the standard of “Sum in dispute” in the Fourth Schedule for ascertaining arbitrator fees has to be considered distinctively and independently for ‘Claims’ and ‘Counter-claims,’ thereby, the fee ceiling will be applicable autonomously and differently for claims and counter-claims, that will further enhance income for arbitrators. 

[i] Justice R S Bachawat, Law of Arbitration and Conciliation (Volume I & II, 6th Edition, LexisNexis, 2017)

[ii] C R Datta, Law of Arbitration and Conciliation (Including Commercial Arbitration) (LexisNexis, 2008)

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