The Interpretation of “Sum in Dispute” in ONGC v. Afcons and its Application to the Bombay High Court Arbitration Rules

Introduction

More often than not, while appointing arbitrators under the Arbitration and Conciliation Act, 1996¹ (the Arbitration Act) in ad hoc arbitrations, the Bombay High Court records that the fee payable to arbitrators would be governed either by (i) the Fourth Schedule of the Arbitration Act (Fourth Schedule)²; or (ii) the Bombay High Court (Fee Payable to Arbitrators) Rules, 2018³ (the Bombay Rules); or (iii) the Fourth Schedule “read with” the Bombay Rules.

The Bombay Rules have been framed in exercise of the powers conferred by Section 11(14)⁴ of the Arbitration Act which states that (i) “for the purpose of determination of the fees of the Arbitral Tribunal”; and (ii) “the manner of its payment to the Arbitral Tribunal”, the High Court “may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule”. The Explanation to the Fourth Schedule clarifies that Section 11(14) will not apply to (i) international commercial arbitrations and where parties have agreed to a fee schedule set out by an arbitral institution in disputes other than international commercial arbitrations.

The Bombay Rules that came into force on 25-4-2019⁵ clearly states in Rule 1(3) that the Bombay Rules “apply to all the arbitrations” under the Arbitration Act, “in which the Arbitral Tribunal is appointed by the Bombay High Court”.⁶ Rule 2(1) states that the “fees payable to an Arbitral Tribunal shall be in accordance with the scales specified in the ‘Schedule’ ”.⁷ Rule 2(2) further clarifies, “Where the dispute includes both the claim and counterclaim, for the purposes of computing the fees of Arbitral Tribunal the “sum in dispute” shall be total sum of both claim and counterclaim in dispute, before Arbitral Tribunal.”⁸ Though this clarification is absent in the Fourth Schedule, the majority opinion of the Supreme Court authored by Dr D.Y. Chandrachud, J. (as he then was) in ONGC v. Afcons Gunanusa JV⁹ (ONGC v. Afcons) has held that for ad hoc arbitrations “the ‘sum in dispute’ in the Fourth Schedule of the Arbitration Act shall be considered separately for the claim amount in dispute in the claim and counterclaim”¹⁰ and in conclusion has stated:

200 (iii). The term “sum in dispute” in the Fourth Schedule of the Arbitration Act refers to the sum in dispute in a claim and counterclaim separately, and not cumulatively. Consequently, arbitrators shall be entitled to charge a separate fee for the claim and the counterclaim in an ad hoc arbitration proceeding, and the fee ceiling contained in the Fourth Schedule will separately apply to both, when the fee structure of the Fourth Schedule has been made applicable to the ad hoc arbitration;¹¹

The purpose of this column is to ascertain whether the interpretation given by the majority opinion of the Supreme Court in ONGC v. Afcons on 30-8-2022¹² to the expression “sum in dispute” would apply in cases where ad hoc arbitrators are appointed by the Bombay High Court under the Arbitration Act.

An examination of the majority opinion in ONGC v. Afcons

The appellants before the Supreme Court who were public sector corporations had similar grievances. They challenged the quantum of fee payable to the respective Arbitral Tribunals set out by them.¹³ Of the four issues framed in the majority opinion, one of the issues framed was “Whether the term ‘sum in dispute’ in the Fourth Schedule to the Arbitration Act means the cumulative total of the amounts of the claim and counterclaim.”¹⁴ The majority opinion records that Fourth Schedule “was to serve as a guide for different High Courts to frame rules for determining the fees of arbitrators”.¹⁵ and has observed the rules framed by the High Court of Bombay and Rajasthan “only govern arbitrators appointed by the courts”.¹⁶ In its summation on the Fourth Schedule, the majority opinion noted that most High Courts had not framed rules for determining fee for arbitrators, and eventually held that “the Fourth Schedule is by itself not mandatory on court-appointed arbitrators in the absence of rules framed by the High Court concerned”.¹⁷

The majority judgment thereafter proceeding to issue “certain directives” under Article 142 of the Constitution of India¹⁸ (the Constitution) for fixing of fees of ad hoc arbitrators “where arbitrators are appointed by courts in Section C.2.4”¹⁹ of its judgment. Of the eight directions issued by the majority, direction (5) states that in cases where arbitrators are appointed by the Court, “the order of the Court should expressly stipulate the fee that Arbitral Tribunal would be entitled to charge” and in cases where the Court leaves this determination to the Arbitral Tribunal, the Tribunal and parties “should agree upon the terms of reference” specified in direction (1)”.²⁰ Direction (1) states that the Arbitral Tribunal and parties must “set out the components” of the Tribunal’s fee.²¹ Direction (7) further mandates all High Courts to frame rules governing arbitrators’ fee under Section 11(14).²²

Eventually as already set out in the introduction to this column, the majority held that Arbitral Tribunals shall be entitled for a separate fee for “the claim” and “the counterclaim”.

An examination of the separate opinion of Khanna, J. in ONGC v. Afcons

Sanjiv Khanna, J. who delivered a separate opinion, disagreed with Chandrachud, J. on two counts:

(a) Khanna, J. disagreed that in the absence of an agreement between parties inter se or between the parties and the Arbitral Tribunal or a court order fixing the fee, the Arbitral Tribunal is not entitled to fix the fee. This according to Khanna, J. was not correct because “by the implied terms of the contract” and as per the provisions of the Arbitration Act, “an Arbitral Tribunal can fix a reasonable fee”.²³

(b) The “sum in dispute” according to Khanna, J. would mean “the aggregate of all the amounts in dispute without any bifurcation”.²⁴ According to Khanna, J. the Fourth Schedule does not treat the claim and counterclaim as separate for computing the fee payable to the Arbitral Tribunal and the expression “sum in dispute” that was borrowed from the Delhi High Court International Arbitration Center “should be given an identical construction as referring to the entire amount or the sum total of the disputes which are the subject-matter of the arbitration” i.e. claim and counterclaim.²⁵ Khanna, J. drew support from the clarification offered by Article 2(f)²⁶ of the UNCITRAL Model Law (which has stated that claim also applies to counterclaim) and drew further support from the rules framed by the Singapore International Arbitration Centre, Hong Kong International Arbitration Centre, Stockholm Chamber of Commerce, the European Court of Arbitration and the rules framed by various High Courts in India including the Bombay Rules to hold that “the arbitrator’s fee shall be calculated on the aggregate of the claim and the counterclaim”.²⁷ On the expression “the rate” specified in the Fourth Schedule, Khanna, J. stated that it refers to the fee mentioned in the Fourth Schedule.²⁸

Thus, in light of the above, Khanna, J. apprehended that if the claim and counterclaim were to be treated separately while calculating the fee for the Arbitral Tribunal, the rules framed by several High Courts “would have to be redrawn, and the unsettlement would cause confusion, especially in pending matters”.²⁹ This according to Khanna, J. “must be avoided”.³⁰

Whether the interpretation given by the majority in ONGC v. Afcons to the expression “sum in dispute” applies to the Bombay Rules

According to the author, the interpretation to “sum in dispute” given in the majority opinion in ONGC v. Afcons³¹ will not apply to the Bombay Rules for the following reasons:

(a) Section 11(14) of the Arbitration Act states that the High Court may frame rules “after taking into consideration” the rates specified in the Fourth Schedule. The Bombay High Court has done so. The Schedule in the Bombay Rules is identical to the fee structure of the Fourth Schedule. Beyond this, legislature does not and cannot prevent the High Court from framing additional rules which are not factored into the Fourth Schedule such as an explanation of the expression “sum in dispute” and cannot mandate the High Court to strictly follow the Fourth Schedule. Albeit in a different context, while interpreting the expression “as far as possible” in the proviso to Clause 37 of the Letters Patent Act of 1865, the Full Bench of the Calcutta High Court in Manickchand Durgaprasad v. Pratabmull Rameswar³² held,

24. The restriction upon the power of the Court as contained in the proviso to Clause 37 of the Letters Patent is that the rules framed under that clause should, “as far as possible” be in conformity with the provisions of the Code of Civil Procedure³³. This restriction as the phrase “as far as possible” indicates is merely directory. The provisions of the Code of Civil Procedure are intended for the purpose of guidance of this Court in framing rules under Clause 37 of the Letters Patent. Consequently, if any rule framed by the High Court under Clause 37 be inconsistent with or confers any additional power besides what is granted by the Code of Civil Procedure, the rule framed under Clause 37 will prevail over the corresponding provisions of the Code of Civil Procedure. (emphasis supplied)

The decision of the Calcutta High Court has been followed by the Supreme Court in Iridium India Telecom Ltd. v. Motorola Inc.³⁴ Therefore, applying the same principle, assuming for a moment that the Bombay Rules are inconsistent with the Fourth Schedule; the Bombay Rules would still prevail over the Fourth Schedule. In any event, once the Bombay Rules are in force, the Fourth Schedule and any interpretation given to it would not apply to court-appointed arbitrators by the Bombay High Court.

(b) Chandrachud, J. has not stated in any part of his opinion that the interpretation given to “sum in dispute” would apply to High Courts who have framed rules to regulate arbitrators’ fee prior to his judgment. Apart from declaring that the Fourth Schedule is “by itself not mandatory on court-appointed arbitrators”, the directions issued in his judgment under Article 142 of the Constitution are also silent on this aspect. Directions under Article 142 are issued by the Supreme Court “when there has been a total vacuum in law” (see Pravasi Bhalai Sangathan v. Union of India³⁵). Therefore, the directions by Chandrachud, J. have only been issued to fill the vacuum. Since the Bombay Rules have already clarified that “sum in dispute” means an aggregate of the claim and counterclaim, the Supreme Court in all probability has not issued any directions on this particular aspect since there is no vacuum on the aspect of the fee of court-appointed arbitrators by the Bombay High Court.

Concluding comments

While the author has attempted to decode this anomaly, clarification by the Supreme Court on the aforesaid issue would go a long way in settling this confusion.

In the absence of such a clarification by the Supreme Court, the Bombay High Court may clarify in an appropriate proceeding whether the interpretation given to “sum in dispute” by the majority in ONGC v. Afcons³⁶ applies to the Bombay Rules; pending such clarification, the Bombay High Court may in its appointment orders state that the fee of the arbitrators shall be only as set out by the Bombay Rules in light of the clear mandate of Rule 1(3) of the said Rules and not the Fourth Schedule.

In the alternative, the Bombay High Court may altogether decide to amend the Bombay Rules in line with the majority view in ONGC v. Afcons.³⁷

The aforesaid clarifications/steps would help eliminate any differences that may arise between parties to a dispute and the Arbitral Tribunal on the issue of the arbitrator’s fee.