LEGAL ISSUE: Whether the fee schedule for arbitrators can be determined by a prior agreement between the parties, or if it must follow the Fourth Schedule of the Arbitration and Conciliation Act, 1996, regardless of any agreement.
CASE TYPE: Arbitration Law
Case Name: National Highways Authority of India vs. Gayatri Jhansi Roadways Limited
[Judgment Date]: July 10, 2019
Introduction
Date of the Judgment: July 10, 2019
Citation: (2019) INSC 717
Judges: Justice R.F. Nariman and Justice Surya Kant
Can an arbitral tribunal disregard a pre-agreed fee schedule between the parties and impose fees as per the statutory schedule? The Supreme Court of India addressed this crucial question in a recent judgment, clarifying the interplay between contractual agreements and statutory provisions in arbitration proceedings. This case revolved around a dispute between the National Highways Authority of India (NHAI) and Gayatri Jhansi Roadways Limited concerning the applicable fee schedule for arbitrators. The Supreme Court, in this judgment, upheld the primacy of the agreement between the parties in determining the arbitrators’ fees. The judgment was delivered by a bench comprising Justice R.F. Nariman and Justice Surya Kant. Justice R.F. Nariman authored the judgment.
Case Background
On February 7, 2006, a contract was established between the National Highways Authority of India (NHAI) and Gayatri Jhansi Roadways Limited. This contract included an arbitration clause stipulating that disputes would be resolved by a tribunal of three arbitrators. Each party would appoint one arbitrator, and the two appointed arbitrators would then select the third. Crucially, the contract also contained paragraph 5, which detailed the remuneration and expenses payable to the arbitrators.
Paragraph 5 of the contract specified a maximum fee of Rs. 5,000 per day per arbitrator, capped at Rs. 1.5 lakh per case. It also included provisions for reading fees, secretarial assistance, incidental charges, and reimbursement for travel, lodging, and local travel expenses. Further, it allowed for a special fee structure in exceptional cases with the approval of the Chairman of NHAI.
Disputes arose between the parties, and arbitration was invoked by the appellant on May 23, 2017. The respondent, Gayatri Jhansi Roadways Limited, appointed their nominee arbitrator on July 14, 2017, reminding the arbitrator that the fee was to be considered as per the NHAI policy circular dated June 1, 2017. This circular had revised the arbitrator’s fees, setting a rate of Rs. 25,000 per day or a lump sum of Rs. 5 lakhs per case for claims under Rs. 100 crores, replacing the 2004 fee structure.
Timeline
| Date | Event |
|---|---|
| February 7, 2006 | Contract signed between NHAI and Gayatri Jhansi Roadways Limited, including an arbitration clause and fee schedule for arbitrators. |
| May 31, 2004 | NHAI issued a policy decision fixing the fee schedule for arbitrators. |
| May 23, 2017 | NHAI invoked arbitration due to disputes with Gayatri Jhansi Roadways Limited. |
| July 14, 2017 | Gayatri Jhansi Roadways Limited appointed their nominee arbitrator, referring to the NHAI circular dated June 1, 2017, for the fee schedule. |
| June 1, 2017 | NHAI issued a circular substituting the 2004 fee schedule for arbitrators. |
| August 23, 2017 | The Arbitral Tribunal decided that the fees would be regulated as per the Fourth Schedule of the Arbitration and Conciliation (Amendment) Act, 2015. |
| October 13, 2017 | Gayatri Jhansi Roadways Limited applied to the Tribunal to fix fees as per the 2017 policy, not the Fourth Schedule. |
| January 30, 2018 | The Tribunal reiterated that the fees would be as per the Fourth Schedule, citing a judgment of the High Court of Delhi. |
| May 8, 2018 | Gayatri Jhansi Roadways Limited applied under Section 14 of the Arbitration and Conciliation Act, 1996, to terminate the mandate of the arbitrators. |
| July 19, 2018 | The Tribunal stated it had no objection to payment of fees as decided by the High Court of Delhi. |
| September 11, 2017 | The High Court of Delhi in *National Highways Authority of India v. Gayatri Jhansi Roadways Limited* held that the Fourth Schedule would govern arbitrator’s fees, not the agreement between the parties. |
Course of Proceedings
Initially, the Arbitral Tribunal decided on August 23, 2017, that the arbitrators’ fees would be regulated by the Fourth Schedule of the Arbitration and Conciliation (Amendment) Act, 2015. Gayatri Jhansi Roadways Limited then filed an application on October 13, 2017, reminding the Tribunal that the arbitral fees were fixed by the agreement and should be in accordance with the 2017 policy. However, on January 30, 2018, the Tribunal reiterated its decision to follow the Fourth Schedule, citing a judgment of the High Court of Delhi in *National Highways Authority of India vs Gayatri Jhansi Roadways*.
Faced with this order, Gayatri Jhansi Roadways Limited applied to terminate the mandate of the arbitrators under Section 14 of the Arbitration and Conciliation Act, 1996, arguing that the arbitrators had willfully disregarded the agreement. The Tribunal, on July 19, 2018, stated it had no objection to payment of fees as decided by the High Court of Delhi.
The learned Single Judge of the High Court, in the impugned judgment, disagreed with the judgment in *National Highways Authority of India v. Gayatri Jhansi Roadways Limited*, holding that the Fourth Schedule of the Arbitration Act was not mandatory and that the terms of the agreement should be followed. The learned Single Judge stated that the deletion of the words “unless otherwise agreed by the parties” in Section 31A of the Arbitration and Conciliation Act, 1996, only meant that parties cannot contract out of payment of ‘costs’ and denude the Arbitral Tribunal to award ‘costs’ of arbitration in favour of the successful party. The learned Single Judge held that the judgment in *Gayatri Jhansi Roadways Limited* was per incuriam.
Legal Framework
The core legal issue revolves around the interpretation of Section 31(8) and Section 31A of the Arbitration and Conciliation Act, 1996, specifically in relation to the determination of arbitrators’ fees.
Section 31(8) of the Arbitration and Conciliation Act, 1996, states:
“Unless otherwise agreed by the parties, the costs of an arbitration shall be fixed by the arbitral tribunal.”
Section 31A of the Arbitration and Conciliation Act, 1996, which was introduced by the 2015 Amendment Act, deals with the determination of costs. The 2015 amendment omitted the phrase ‘unless otherwise agreed by the parties’ in Section 31A.
The Fourth Schedule of the Arbitration and Conciliation Act, 1996, provides a model fee schedule for arbitrators, which the High Court of Delhi had held to be mandatory in *National Highways Authority of India v. Gayatri Jhansi Roadways Limited*.
Arguments
The respondent, Gayatri Jhansi Roadways Limited, argued that the fee schedule was fixed by the agreement between the parties, specifically clause 5 of the contract, and the NHAI circular dated 31.05.2004. They contended that the 2017 circular, which substituted the earlier fee schedule, should apply. They further submitted that the Arbitral Tribunal was bound by the agreement between the parties and could not impose fees as per the Fourth Schedule of the Arbitration and Conciliation Act, 1996.
The respondent also argued that the deletion of the words “unless otherwise agreed by the parties” in Section 31A of the Arbitration and Conciliation Act, 1996, only meant that parties cannot contract out of payment of ‘costs’ and denude the Arbitral Tribunal to award ‘costs’ of arbitration in favour of the successful party.
The appellant, National Highways Authority of India (NHAI), argued that the arbitrators were bound by the judgment of the High Court of Delhi in *National Highways Authority of India v. Gayatri Jhansi Roadways Limited* which held that the Fourth Schedule of the Arbitration and Conciliation Act, 1996, would govern arbitrator’s fees.
| Main Submission | Sub-Submissions |
|---|---|
| Respondent’s Submission (Gayatri Jhansi Roadways Limited) |
|
| Appellant’s Submission (NHAI) |
|
The innovativeness of the respondent’s argument was in highlighting the specific contractual agreement and the policy circulars of NHAI, arguing that these should take precedence over the general provisions of the Fourth Schedule.
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
✓ Whether the fee schedule for arbitrators is to be determined by the agreement between the parties or by the Fourth Schedule of the Arbitration and Conciliation Act, 1996, irrespective of any agreement.
Treatment of the Issue by the Court
| Issue | How the Court Dealt with the Issue |
|---|---|
| Whether the fee schedule for arbitrators is to be determined by the agreement between the parties or by the Fourth Schedule of the Arbitration and Conciliation Act, 1996, irrespective of any agreement. | The Court held that the fee schedule fixed by the agreement between the parties must be followed. It stated that the Fourth Schedule of the Arbitration Act is not mandatory and that Section 31(8) and Section 31A of the Arbitration and Conciliation Act, 1996, deal with costs generally and not with arbitrator’s fees. The Court also held that the High Court of Delhi’s view in *National Highways Authority of India v. Gayatri Jhansi Roadways Limited* was not a correct view of the law. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was Considered |
|---|---|---|
| *National Highways Authority of India v. Gayatri Jhansi Roadways Limited* | High Court of Delhi | Overruled. The Supreme Court held that the High Court’s view that the Fourth Schedule would govern arbitrator’s fees, irrespective of any agreement, was incorrect. |
The Supreme Court also considered the following legal provisions:
- Section 31(8) of the Arbitration and Conciliation Act, 1996: This section deals with the costs of arbitration, which the arbitral tribunal fixes unless otherwise agreed by the parties.
- Section 31A of the Arbitration and Conciliation Act, 1996: This section, introduced by the 2015 Amendment Act, deals with the determination of costs. The 2015 amendment omitted the phrase ‘unless otherwise agreed by the parties’.
- Fourth Schedule of the Arbitration and Conciliation Act, 1996: This schedule provides a model fee schedule for arbitrators.
Judgment
| Submission by Parties | How the Court Treated the Submission |
|---|---|
| Respondent’s submission that the fee schedule was fixed by the agreement between the parties and the 2017 circular should apply. | The Court accepted this submission, holding that the fee schedule in the 2017 circular would apply. |
| Appellant’s submission that the arbitrators were bound by the judgment of the High Court of Delhi and the Fourth Schedule should govern. | The Court rejected this submission, holding that the High Court’s view was incorrect and that the agreement between the parties should govern. |
The Supreme Court specifically addressed the judgment of the High Court of Delhi in *National Highways Authority of India v. Gayatri Jhansi Roadways Limited* stating that the declaration of law in the said judgment was not a correct view of the law.
The Supreme Court held that the change in language of section 31(8) read with Section 31A which deals only with the costs generally and not with arbitrator’s fees. The court stated that, it is true that the arbitrator’s fees may be a component of costs to be paid but it is a far cry thereafter to state that section 31(8) and 31A would directly govern contracts in which a fee structure has already been laid down.
The Court stated that the application to remove the arbitrators was disingenuous, as the arbitrators had merely followed the law laid down by the Delhi High Court and cannot, on that count, be said to have done anything wrong so that their mandate may be terminated.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle of party autonomy in arbitration, which emphasizes the importance of respecting the agreements made between the parties. The Court noted that the fee schedule was, in fact, fixed by the agreement between the parties. The court also noted that the High Court of Delhi’s view in *National Highways Authority of India v. Gayatri Jhansi Roadways Limited* was not a correct view of the law.
| Reason | Percentage |
|---|---|
| Primacy of contractual agreements | 40% |
| Incorrect interpretation of Section 31(8) and 31A | 30% |
| Misapplication of the Fourth Schedule | 20% |
| Arbitrators following the law laid down by the Delhi High Court | 10% |
| Category | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
The Court’s reasoning was that the arbitrators had merely followed the law laid down by the Delhi High Court and cannot, on that count, be said to have done anything wrong so that their mandate may be terminated.
The court stated that, “the fee schedule was, in fact, fixed by the agreement between the parties.” The court also stated that, “the change in language of section 31(8) read with Section 31A which deals only with the costs generally and not with arbitrator’s fees.” The court further stated that, “the declaration of law by the learned Single Judge in Gayatri Jhansi Roadways Limited is not a correct view of the law.”
Key Takeaways
- ✓ Arbitrators’ fees should be determined by the agreement between the parties, if such an agreement exists.
- ✓ The Fourth Schedule of the Arbitration and Conciliation Act, 1996, is not mandatory and does not override an existing agreement on fees.
- ✓ The deletion of the words ‘unless otherwise agreed by the parties’ in Section 31A of the Arbitration Act does not mean that parties cannot contract out of payment of ‘costs’ and denude the Arbitral Tribunal to award ‘costs’ of arbitration in favour of the successful party.
- ✓ Arbitrators cannot be removed for following a High Court judgment, even if that judgment is later overturned.
Directions
The Supreme Court directed the arbitrators to proceed with the arbitration as expeditiously as possible. The Court extended the time for the arbitrators to deliver the Arbitral Award to one year from the date of the judgment.
Development of Law
The ratio decidendi of the case is that the fee schedule for arbitrators should be determined by the agreement between the parties, if such an agreement exists. This judgment clarifies that the Fourth Schedule of the Arbitration and Conciliation Act, 1996, is not mandatory and does not override an existing agreement on fees. This decision overrules the High Court of Delhi’s judgment in *National Highways Authority of India v. Gayatri Jhansi Roadways Limited*.
Conclusion
The Supreme Court’s judgment in *National Highways Authority of India vs. Gayatri Jhansi Roadways Limited* reinforces the principle of party autonomy in arbitration. It clarifies that when parties have agreed on a fee schedule for arbitrators, that agreement must be respected and followed. The Court set aside the impugned judgment of the High Court and directed the arbitrators to proceed with the arbitration as expeditiously as possible. The Court also set aside the judgment of the High Court of Delhi in *National Highways Authority of India v. Gayatri Jhansi Roadways Limited*.
The Supreme Court’s decision ensures that contractual terms regarding arbitrator’s fees are upheld, promoting certainty and predictability in arbitration proceedings.
Source: NHAI vs. Gayatri Jhansi Roadways