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The Supreme Court recently in ONGC Vs Afcons Gunanusa JV judgment ruled that the Rs 30,00,000/- ceiling in Serial No. 6 of the Fourth Schedule of the Arbitration and Conciliation Act applies to the aggregate of the base and variable amounts, not solely the variable amount. This means that the highest fee payable will be Rs 30,00,000, as observed by the bench consisting of Hon’ble Justice DY Chandrachud, Justice Surya Kant, and Justice Sanjiv Khanna.

The dispute arose when Oil and Natural Gas Corporation Limited(ONGC) filed a plea saying during arbitration proceedings, arbitrators unilaterally increased their fees in the middle of the hearings.

The court also ruled that where there are three or more arbitrators, the ceiling applies to each individual arbitrator & not to the arbitral tribunal in its entirety. Since there is no change in the Note under the fourth schedule that reads, “In the event, the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five percent on the fee payable as per the table set out above”, a sole arbitrator shall still be paid 25% over and above this amount. 

There are two possible interpretations on the issue of the ceiling, that must be analyzed along with the sixth entry of the fourth schedule of the said Act which states that when the sum in dispute is above Rs. 20,00,00,000 the fee shall be “Rs. 19,87,500 plus 0.5 percent of the claim amount over and above Rs. 20,00,00,000 with a ceiling of Rs. 30,00,000”.

The first permutation possible is when the ceiling is for the variable amount added to the base amount, in which case, the highest possible fee shall turn out to be Rs 30,00,000. The second one is when the ceiling is for the variable amount only and in this case, the highest possible fee shall be Rs. 49,87,500.

The court stated, citing the Law Commission of India's 246th Report, that the legislative intent behind the Fourth Schedule was to put an end to the practice of arbitrators charging extortionate fees from parties using their services in ad hoc arbitrations. They said, “Consequently when we have the option of setting the ceiling of the fees in the Fourth Schedule at either Rs 30,00,000 or Rs 49,87,500, we believe that it would be appropriate to choose the lower amount since it would be in keeping with legislative intent. The 2015 Arbitration Amendment Act was clearly enacted with the intent to give effect to the recommendation of the LCI 246th Report on the point. Thus, we hold that the ceiling of Rs 30,00,000 in entry at Serial No 6 of the Fourth Schedule is applicable to the sum of the base amount and the variable amount, and not just the variable amount."

Justices Chandrachud and Surya Kant were of the opinion that the ‘sum in dispute’ refers to the claim made by one party and the counterclaim made by the other. As a result, the arbitrator has the authority to levy separate fees for both the claim and the counterclaim. While the dissenting judge, Justice Khanna said that the ceiling applies to both claim and counterclaim together.

The operative part of the judgment specified that the fourth schedule of the act isn’t mandatory, Arbitrators cannot issue binding orders governing their fees, unilaterally and these fees should be fixed at the beginning of the hearing to avoid unnecessary conflict between arbitrators and parties at a later stage. 

This isn’t the first time such a dispute has been seen between parties and arbitrators, previously In Union of India v. Singh Builders ((2009) 4 SCC 523) and Sanjeev Kumar Jain v. RS Charitable Trust ((2012) 1 SCC 455), the apex Court observed that arbitrators are charging exorbitant fees, without any ceilings. in Rail Vikas Nigam Ltd. v Simplex Infrastructure Ltd. (Special Leave Petition (Civil) No 10358 of 2020) the High Court of Delhi held that The Rs. 30,00,000 ceiling solely applies to the variable component of the entry at Serial No. 6 of the Fourth Schedule. The employment of the disjunctive, namely, 'plus,' between the fixed base component and the variable component implies that the Rs. 30,00,000 ceiling applies only to the latter. According to the decision, such an interpretation stems not only from the English text of the Arbitration Act, but also from its Hindi translation. Finally, the court determined that, while this interpretation is based on the content of the item at Serial No. 6 of the Fourth Schedule, it is also supported by the Law Commission's 246th Report and DIAC Rules Model Fee.

The court in the ONGC Vs Afcons Gunanusa JV case, also took into consideration other national jurisdictions such as England, Italy, Sweden, Germany, Japan, USA etc. and summarized it as follows: “Typically, when an arbitration is conducted under the auspices of an arbitral institution, the fees payable to the arbitrator(s) are fixed by the institution itself. However, some arbitral institutions like ICDR, SIAC and HKIAC allow a certain level of negotiations between the parties and arbitrator(s) for the determination of fees payable to the arbitrators, upholding the principle of party autonomy.”

The apex court also commented on the ludicrous disparity that would’ve been caused in instances in which an arbitration dispute is large enough to activate the ceiling of Rs 30,00,000 which in the case of a three-member tribunal will end up being divided amongst them while the sole arbitrator will get not only three times the amount that each arbitrator is getting in a tribunal but also 25% over and above it additionally owing to the note in the fourth schedule. The Note, as the court observed was added to fairly compensate sole arbitrators whole would have to put in more work than members of a tribunal working together, hence arbitrators’ fee cap is Rs 30 Lakhs and the ceiling limit is applicable to individual arbitrators and not the tribunal as a whole and the sole arbitrators are entitled to the extra 25% over and above the cap.