Introduction:
In a recent ruling of the Hon’ble High Court of Delhi in Ahluwalia Contracts India Limited v. Union of India, O.M.P.(MISC.)(COMM.) 477/2024, the phrase “A stitch in time saves nine” has been clearly demonstrated for the Arbitral Community. The Single Bench of the High Court comprising of Justice Jasmeet Singh has laid down the significance of paying the requisite “fees” for the passing of an Arbitral Award and an Arbitrator’s right to withhold the award, in case there are disagreements concerning the determination of the fees of an Arbitrator.

Factual Matrix:
The disputes between Ahluwalia Contracts India Limited (“Petitioner”) and the Union of India, represented by the Executive Engineer, Central Public Works Department (CPWD) (“Respondent”) were referred to arbitration. The Petitioner, Ahluwalia Contracts India Limited, approached the High Court of Delhi, seeking directions under Section 39(2) of the Arbitration and Conciliation Act, 1996 (“Act”) for the release of the arbitral award. The petition arose due to a dispute over the computation of the Arbitrator’s fees, leading to an impasse between the parties concerning the payment of fees and the release of the award by the Sole Arbitrator, Mr. Rajiv Jain. On November 24, the Hon’ble Delhi High Court appointed Mr. Rajiv Jain as the Sole Arbitrator on November 24, 2020, under Section 11 of the Act, based on mutual consent between the parties. The Arbitrator’s fees were to be determined in accordance with the Fourth Schedule of the Act.

During the course of arbitration, the Arbitrator computed his fees based on a Delhi High Court judgment in Rail Vikas Nigam Ltd. vs. Simplex Infrastructures Ltd, OMP(T)(COMM) 28/2020. This led to disagreements between the parties regarding the appropriate fee structure. The Petitioner contended that the fees demanded by the Arbitrator exceeded the limits prescribed under the Fourth Schedule and were based on an incorrect interpretation of the law.

The Arbitrator, in response to the dispute, withheld the release of the arbitral award pending payment of the fees. The Petitioner, contesting the legality of this action, approached the High Court for relief, arguing that the Arbitrator’s actions were contrary to the provisions of the Act and previous judicial pronouncements.

Detailed Analysis:
The primary issue in this case revolved around the interpretation of the Arbitrator's right to withhold the arbitral award pending the payment of fees and the correct application of the Fourth Schedule in determining those fees.

The Court examined the provisions of Section 39(2) of the Act, which permits the Arbitrator to withhold the award until the payment of fees, provided those fees are justly determined and in line with the legal framework. The court also considered previous judgments that clarified the extent to which Arbitrators could exercise this right. Firstly, in response to the Petitioner’s contention that the fee computation should strictly adhere to the Fourth Schedule, which lays down the maximum fees an Arbitrator can charge based on the sum in dispute, the Court held that the Arbitrator had calculated his fees in a manner that the Petitioner considered excessive and the same did not align with the statutory limits.

The Court highlighted the importance of adhering to the statutory fee structure to avoid arbitrary fee demands by Arbitrators, which could lead to unjust delays in the release of arbitral awards. The court emphasized that while the Arbitrator does have the right to withhold the award under Section 39(2), this right is not absolute and must be exercised within the confines of the law.

In light of the Court’s findings, several directions were issued to resolve the fee dispute:

1. The Sole Arbitrator was directed to refund the excess amount paid by the petitioner within two weeks.
2. The Respondent was instructed to pay the remaining balance of their share within ten days.
3. The Sole Arbitrator was ordered to publish the Arbitral Award within one week of receiving the full payment from both parties.

The Court’s ruling emphasizes the importance of adherence to the legal framework established by higher courts, particularly concerning the calculation of arbitrator fees. It also highlights the need for transparency and fairness in arbitration proceedings, ensuring that all parties are aware of and agree to the fee structure at the outset to avoid disputes and delays in the delivery of justice.

Numen’s Viewpoint:
Previously, the Hon’ble Supreme Court of India in the case of Oil & Natural Gas Corporation Ltd. vs. Afcons Gunanusa JV, 2022 SCC OnLine SC 1122 had resolved several significant questions related to arbitrator fees and laid down clearer guidelines on various provisions of the Arbitration & Conciliation Act, 1996. In our opinion, the guidelines established by the judgment protect parties from being compelled to accept unilateral and arbitrary fees set by arbitrators. Simultaneously, it allows arbitrators the discretion to refuse unreasonable or unconscionable fees that do not correspond to the effort required in resolving disputes. Additionally, this judgment has contributed to enhancing clarity and transparency in the legal framework governing arbitration in India. The aforesaid case demonstrates the critical importance of ensuring that Arbitrators’ fees are computed in line with the statutory provisions of the Arbitration and Conciliation Act, 1996. It highlights the need for clarity and uniformity in fee determination to prevent disputes that can delay the arbitration process.

By - Swetalana Rout