Clipped from: https://economictimes.indiatimes.com/opinion/et-commentary/view-arbitration-in-india-not-only-needs-to-be-institutionalised-but-also-should-be-assuring-and-affordable/articleshow/82505262.cmsSynopsis
The Supreme Court took note of this malaise in the 2009 ‘Union of India vs Singh Builders Syndicate’ case by observing that ‘…the cost of arbitration becomes very high in many cases where retired judge/s are arbitrators…’
In January 2019, the Rajasthan High Court terminated an arbitrator’s appointment on the ground that the latter’s demand of ₹75 lakh as fee was exorbitant. After objections, the arbitrator reduced its fee to ₹55 lakh as ‘discount’. The high court called these terms as ‘avoidable’.
In another case, after 83 hearings and charging ₹1 crore as arbitral fee, the arbitral tribunal dismissed a claim petition on a hypertechnical ground that the statement of claim was not ‘properly signed’. In yet another instance, the tribunal — comprising a retired Supreme Court judge, a former high court justice and a retired IAS officer — settled its fee at ₹49 lakh per arbitrator. But in its eighth hearing, when the counterclaim was also filed, the tribunal doubled the fee to ₹98 lakh per arbitrator.
There are far too many such cases of the arbitral tribunal charging exorbitant fees. An award by the tribunal is often preceded by a prolonged fight in courts when parties fail to nominate their arbitrator(s). This defeats the very mandate of the Arbitration and Conciliation Act (ACA), and the object of incorporating an arbitration clause in commercial contracts — speedy and effective resolution of commercial disputes and avoidance of courts.
The idea was to let the parties choose a summary adjudicatory procedure and nominate a tribunal, which would act as amiable compositeur. When parties fail to nominate their arbitrator(s), the high court is invoked for such an appointment. All high courts have the proclivity to appoint only retired Supreme Court and high court judges as arbitrators. Most of these retired judges charge exorbitant fees for sessions that last for about two hours. The cost for a session of hearing before the tribunal can go up to ₹10 lakh, irrespective of whether the hearing was for completion of pleadings, fixing of schedule or for other miscellaneous purposes involving no adjudication.
The Supreme Court took note of this malaise in the 2009 ‘Union of India vs Singh Builders Syndicate’ case by observing that ‘…the cost of arbitration becomes very high in many cases where retired judge/s are arbitrators…’ The court also recognised the precarious situation of the parties where they cannot afford to prejudice their case even before commencement of the proceedings by negotiating the fee as demanded by the arbitrators. ‘…if a high fee is claimed by the arbitrator and one party agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay such high fee, is put to an embarrassing position. He will not be in a position to express his reservation or objection to the high fee, owing to an apprehension that refusal by him to agree for the fee suggested by the arbitrator, may prejudice his case…’ the court noted.
In its 246th report, the Law Commission noted that if arbitration is really to become a cost-effective solution for dispute resolution in India, there should be some mechanism to rationalise the fee structure. It recommended a ‘model schedule of fees,’ empowering the high court to frame appropriate rules for fixing fees in the prescribed terms.
The ‘fourth schedule’ of ACA was introduced to prescribe model fee structure and capping the maximum fee slab for varying claim amounts. The schedule is suggestive in character. Which is why the tribunal invariably decides its fee after recording the ‘so called consent of the parties’, knowing fully well that parties are in non- bargaining position.
One solution is to make the fee structure of the arbitrator — whether appointed by the parties or otherwise —predetermined, non-alterable and in accordance with the prescribed rules. Charging higher fees even with ‘consent by parties’ must be treated as misconduct. There can be a system of pro-rata fees based on the volume of the dispute or the standing of an arbitrator. However, once this fee is prescribed, it has to be non-negotiable.
The cost of arbitration percolates to the end-consumer and the public exchequer, since government is the biggest litigator. Arbitration in India not only needs to be institutionalised, but also should be assuring, accessible and affordable.
(The writer is a senior advocate)