Arbitration Act Treats Claims, Counter Claims At Par; Arbitrators Entitled To Separate Fee For Claim & Counter Claim – SC

Th Bench of Justice DY Chandrachud and Justice Surya Kant thus held that Arbitrators shall be entitled to charge a separate fee for the claim and counter claim in an ad hoc arbitration proceeding, and the fee ceiling contained in the Fourth Schedule will apply to both, when the fee structure of the Fourth schedule has been made applicable to the ad hoc arbitration.

While Justice Sanjiv Khanna differed from this analysis, the Judge held that the term 'sum in dispute' means the sum total of both the claims and counter claims.

The Court was adjudicating upon interpreting the term 'sum in dispute' referred to in the header of the second column in the Fourth Schedule. The column provides the different categories of the amounts, corresponding to which the third column provides the relevant fee which the arbitrators can charge for that category.

On one hand it was argued before the Court that the expression ―sum in dispute should be the cumulative sum of the claim and counter-claim raised by the parties, the Court while referring to this contention observed that if such a position is adopted, the arbitrators will charge one common fee for hearing both the claim and counter-claim, and the ceiling prescribed in the Fourth Schedule will apply to their cumulative total.

While on the other hand, it was urged that ―sum in dispute refers to the individual sums in dispute in the claim and counter-claim. To this, the Court observed that the consequence of adopting this position would be that the arbitrators will charge different sets of fees for the claim and counter-claim, and hence, separate fee ceilings will apply to both.

The Court made a reference to the Arbitration Act, Academic Discourse, various Judicial Pronouncements, and the relevant provisions of CPC and thus held –

1) Claims and counter-claims are independent and distinct proceedings;

2) A counter-claim is not a defence to a claim and its outcome is not contingent on the outcome of the claim;

3) Counter-claims are independent claims which could have been raised in separate proceedings but are permitted to be raised in the same proceeding as a claim to avoid a multiplicity of proceedings; and

4) The dismissal of proceedings in relation to the original claim does not affect the proceedings in relation to the counter-claim.

The Court then referred to Sections 31(8), 31A and 38(1) of the Fourth Schedule of the Arbitration Act and held –

"On a combined reading of Section 31(8), Section 31A and Section 38(1), it is clear that: (i) separate deposits are to be made for a claim and counter-claim in an arbitration proceeding; and (ii) these deposits are in relation to the costs of arbitration, which includes the fee of the arbitrators. Therefore, prima facie, the determination of the fee under the Fourth Schedule should also be calculated separately for a claim and counter-claim – i.e., the term ―sum in dispute‖ refers to independent claim amounts for the claim and counterclaim. Such an interpretation is also supported by the definition of claim and counter-claim, and by the fact that the latter constitutes proceedings independent and distinct from the former."

The Court also held that if this interpretation were to be discarded in favour of construing "sum in dispute" as a cumulation of the claim amount for the claim and counter-claim, it would have far-reaching consequences in terms of procedural fairness.

Justice Sanjiv Khanna's separate analysis

Justice Khanna observed that that the term 'sum in dispute' means the sum total of both the claims and counter claims.

"…I would hold that the heading "sum in dispute" will mean the aggregate of all the amounts in dispute without any bifurcation and separate application of the fee schedule with reference to the amount subject matter of the claim(s), and the amount subject matter of the counter-claim(s)," the Judge held.

Cause Title - Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV

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