India: Arbitration And Conciliation Act, 1996 - Arbitrator Is Only Entitled To His Fees, Not The Costs Imposed On Parties

Last Updated: 6 December 2018
Article by AMLEGALS  

IN THE HIGH COURT OF BOMBAY
MODI DAIRY V. ALFA LAVAL (INDIA) LTD.
[ARBITRATION PETITION NO.104 OF 2018]
DATED: 08.10.2018

FACTS

To decide the disputes between the Petitioner (hereinafter referred to as "Modi") and Respondent (hereinafter referred to as "Alfa"), a retired Ld. Judge of the Bombay High Court was appointed as the Sole Arbitrator. This appointment was done vide an Order dated 13.10.2017 passed in Arbitration Petition No.36 of 2017.

In the meeting held on 04.01.2018, certain directions for filing Statement of Claim, Written Statement and Statement of Counter Claim were made by the Ld. Arbitrator.

The Arbitrator informed the parties that 'no extensions/adjournments would be granted except in the gravest of circumstances and subject to payment of costs of a minimum of Rs. 20,000.'

Subsequently when Alfa (the Claimant in the Arbitration proceedings) sought an extension for filing the Statement of Claim, on the basis of the above direction, a cost of Rs. 50,000 was imposed on them.

Similarly, later on, the Arbitrator also imposed a cost of Rs. 1,00,000 on Modi (the Respondent in the Arbitration proceedings), when they sought an extension of time to file the Statement of Defence on two occasions.

Aggrieved by such orders of the Arbitrator to pay costs to himself for condonation of delay in filing pleadings, the Counsels for Modi intimated Alfa, vide letter dated 24.08.2018, that the practice of imposing costs to be paid to the Arbitrator is against the provisions of law and the Arbitration Agreement and that they are willing to challenge it in the High Court.

After receiving no response from Alfa, Modi approached the High Court for terminating the mandate of the Arbitrator and for appointment of a new Arbitrator under Section 15(1)(b).

ISSUES BEFORE HC

Whether an Arbitrator is entitled to administrative costs in addition to his fees?

OBSERVATION

The High Court made a reference to the impugned directions dated 04.01.2018 by the Arbitrator.

"9. The parties are informed that the deadlines set above are to be strictly adhered to. No extensions / adjournments will be granted except in the gravest of circumstances and subject to payment of costs. Parties must note that such costs shall be a minimum of Rs.20,000/-. No further notice will be given of the dates mentioned above.", and

"10. The parties are informed that the fees of the arbitrator are Rs. 70,000/- (Rs. Seventy Thousand only) for session of two hours or part thereof to be shared equally by both sides, at this stage. This does not include reasonable administrative costs incurred by the Arbitrator which shall be charged as they are incurred."

With regards to these directions, the Honorable High Court observed that:

"4. Reading of the said Clause conveys only one meaning/interpretation, namely that no extension would be granted unless grave circumstances are shown and even if such circumstances are shown, time will not be granted without payment of costs. Such costs are always payable to the other side and certainly not to the Learned Arbitrator. The Learned Arbitrator is certainly entitled to his fees. Even if a party/parties seek/s and obtains adjournment/s on the days fixed for hearing, the Arbitrator/s may still insist that his/their fees or part thereof be paid. However, the Arbitrator/s, apart from charging his / their fees, cannot direct any party to pay coststo him / them on any ground, including the ground that the pleadings are not filed on time by the parties, or for granting extension/s to file pleadings."

The Court further observed that the Arbitrator cannot direct the parties to pay costs to him. He only has the power to reject the Application seeking extension, if he is of the view that the party is seeking time without showing any grave circumstances.

CONCLUDING VIEW

The Honorable Court noted that the Arbitrator had clarified that no extensions / adjournments shall be granted except in the gravest circumstances, that too upon payment of costs.

However, despite recording in his Order that no specific ground is mentioned for seeking extension, he has proceeded to grant time to the parties upon payment of costs to him.

The Court held that the Arbitrator is only entitled to receive his fee for the days on which the meetings are fixed by him, and not the costs that he imposes on the parties.

Since both the Petitioner (Modi) and the Respondent (Alfa) agreed to terminate the mandate of the Arbitrator, the mandate automatically stood terminated under Section 15(1)(b) of the Act.

AMLEGALS REMARKS

The role of the Arbitrator is to serve as the decision-maker and 'referee' in an arbitration proceeding, and the arbitrator is bound to act under the parameters of the Arbitration & Conciliation Act read with the parties' arbitration agreement.

Imposing unnecessary exemplary costs, like in the instant case, would raise questions on the stand of the Arbitrator and may bring him in disrepute. As pointed out by the Honorable High Court, such acts are outside the scope of the arbitration agreement as well as the Arbitration Act.

The Arbitrator should be entitled to his fee only. Any other emoluments in the form of costs and administrative surcharges pose undesirable possibility of Arbitrators getting influenced and rendering the Arbitration proceedings obsolete and may create unnecessary pressure on parties to the Arbitration without much fault of their own.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Reade should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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