1. Arbitration dispute — Unilateral increase of arbitrator fees — Application under Section 14 of the Arbitration and Conciliation Act for termination of mandate on grounds of bias. (Para 1 , 2 , 3 , 4 , 5 )
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2023 Supreme(SC) 1067
SUPREME COURT OF INDIA
S. RAVINDRA BHAT, ARAVIND KUMAR, JJ.
Chennai Metro Rail Limited - Appellant
Versus
M/s Transtonnelstroy Afcons (JV) & Anr. - Respondents
Miscellaneous Application No(s). 184 of 2023 In Special Leave Petition (Civil) No(s). 8553 of 2022 With Civil Appeal No(s). 4591 of 2023
Decided On : 19-10-2023
Important Points
A unilateral increase in arbitrator fees, while impermissible, does not per se render a tribunal de jure unable to perform its functions under Section 14 of the Arbitration and Conciliation Act, 1996. Challenges regarding impartiality must follow the Section 13 procedure unless grounds fall within the Seventh Schedule.
Subject
Arbitration Law - Arbitration Law
Act Referred
Headnote
ARBITRATION - Chennai Metro Rail Limited - Arbitration and Conciliation Act, 1996 (Sections 12, 13, 14) - The court addressed the issue of whether the unilateral increase of fees by the tribunal, despite objections from one party, rendered the tribunal ineligible and biased. The court referred to the provisions of the Act, including Section 12(5) which outlines the grounds for ineligibility of an arbitrator, and Section 14 which deals with the termination of an arbitrator's mandate. The court held that the grounds for ineligibility should be raised before the tribunal at the earliest opportunity, and that the tribunal's mandate is terminated only if the grounds fall within the categories listed in the Seventh Schedule. The court also referred to the judgments in HRD Corporations v. Gas Authority of India Ltd. and Bharat Broadband Network Limited v. United Telecoms Ltd. which clarified the procedure for challenging an arbitrator's eligibility. The court concluded that the unilateral increase of fees did not render the tribunal ineligible and upheld the impugned order, directing the arbitrators to resume the proceedings and decide the case in accordance with the law.
Fact of the Case:
Chennai Metro Rail Limited (Chennai Metro) awarded a contract to Afcons for a project. During the arbitration proceedings, the tribunal unilaterally increased the fees, leading Chennai Metro to challenge the tribunal's eligibility and bias.Finding of the Court:
The court held that the unilateral increase of fees did not render the tribunal ineligible and biased.Ratio Decidendi:
The grounds for ineligibility should be raised before the tribunal at the earliest opportunity. The tribunal's mandate is terminated only if the grounds fall within the categories listed in the Seventh Schedule. Final Decision: The court upheld the impugned order, directing the arbitrators to resume the proceedings and decide the case in accordance with the law.Legal Category Hierarchy
Advocates appeared:
For the Petitioner(s): Ms. Neetika Bajaj, Adv. Ms. Astha Garg, Adv. Mr. Kopal Mittal, Adv. Mr. Sameer Abhyankar, AOR Ms. Nishi Sangtani, Adv. Ms. Vani Vandana Chhetri, Adv. Mr. Naman Jain, Adv. Mr. Harsh, Adv. Ms. Mithu Jain, AOR Mr. Chitranshul A. Sinha, Adv. Mr. Sairam Arjun Suresh, Adv. Mr. Jaskaran Singh Bhatia, Adv. Mr. Raghavendra Ross Divakaar, Adv. M/S. Dua Associates, AOR
For the Respondent(s): Mr. Darius Khambata, Sr. Adv. Mr. Manu Seshadri, Adv. Mr. Aveak Ganguly, Adv. Mr. Abhijit Lal, Adv. Mr. Anubhav Mishra, Adv. Mr. Sahil Manganani, Adv. Mr. Anirudh Krishnan, Adv. Mr. Adith Narayan, Adv. Ms. Mithu Jain, AOR Mr. Sanchit Garga, Adv.
For the Petitioner(s): Ms. Neetika Bajaj, Adv. Ms. Astha Garg, Adv. Mr. Kopal Mittal, Adv. Mr. Sameer Abhyankar, AOR Ms. Nishi Sangtani, Adv. Ms. Vani Vandana Chhetri, Adv. Mr. Naman Jain, Adv. Mr. Harsh, Adv. Ms. Mithu Jain, AOR Mr. Chitranshul A. Sinha, Adv. Mr. Sairam Arjun Suresh, Adv. Mr. Jaskaran Singh Bhatia, Adv. Mr. Raghavendra Ross Divakaar, Adv. M/S. Dua Associates, AOR
For the Respondent(s): Mr. Darius Khambata, Sr. Adv. Mr. Manu Seshadri, Adv. Mr. Aveak Ganguly, Adv. Mr. Abhijit Lal, Adv. Mr. Anubhav Mishra, Adv. Mr. Sahil Manganani, Adv. Mr. Anirudh Krishnan, Adv. Mr. Adith Narayan, Adv. Ms. Mithu Jain, AOR Mr. Sanchit Garga, Adv.
Table of Contents
2. Whether unilateral fee enhancement creates reasonable apprehension of bias rendering the tribunal unable to act impartially — Maintainability of Section 14 application versus Section 12/13 challenge procedure. (Para 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 )
3. Distinction between statutory ineligibility under Seventh Schedule and justifiable doubts under Fifth Schedule — Fee disputes do not automatically result in de jure inability to perform functions. (Para 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 )
4. Unilateral fee revision does not constitute de jure ineligibility under Section 14 unless the arbitrator falls within the specific categories of the Seventh Schedule. (Para 34 , 39 )
5. Appeal dismissed — Impugned order upheld — Arbitral tribunal directed to resume proceedings and decide the case in accordance with law. (Para 40 )
6. How is the fee of an arbitral tribunal fixed and revised?
Fee fixation is contractual and based on a tripartite agreement. Any revision requires the consent of both parties and the tribunal; unilateral increases are impermissible. If no consensus is reached, the tribunal should continue with the previous arrangement or decline the assignment. (Para 33 )
7. What is the difference between ineligibility under Section 12(5) and justifiable doubts under Section 12(3)?
Section 12(5) (Seventh Schedule) deals with absolute ineligibility, rendering the tribunal de jure unable to perform functions, allowing direct court approach under Section 14. Section 12(3) (Fifth Schedule) concerns justifiable doubts, requiring a challenge first before the tribunal under Section 13. (Para 28 , 29 , 30 , 32 )
8. Does a dispute over arbitrator fees constitute a ground for termination of mandate under Section 14?
No. While unilateral fee increases are impermissible, such conduct does not per se amount to de jure ineligibility or a termination of mandate under Section 14, as it does not fall within the Seventh Schedule's specific categories. (Para 34 , 39 )
9. What is the legal test for determining a reasonable apprehension of bias?
The test is objective: whether a reasonable person, possessing relevant information, would conclude that there is a real likelihood of bias or that the arbitrator is disposed to decide the matter in a particular way. (Para 19 , 20 )
JUDGMENT :
S. Ravindra Bhat, J.
1. Chennai Metro Rail Limited, the applicant (hereinafter referred to as “Chennai Metro”), a joint venture between the Central Government and the Government of Tamil Nadu, had, pursuant to a public tender, awarded the contract to the respondent (hereafter referred to as “Afcons”) have called for a project the total value of Rs. 1566 crores. The contract was signed on 31.01.2011. Eventually, on 15.04.2021, Afcons sought a reference of several heads of disputes to arbitration after certain interlocutory proceedings. Eventually on 29.04.2021, it was agreed that two dispute heads (claim 2(b) to 2(d)) and the Chennai Metro’s counter claim would be referred to a three-member tribunal under the Arbitration and Conciliation Act, 1996 (hereafter “the Act”). The tribunal was then constituted.
2. The tribunal by Minutes dated 14.05.2021 recorded the agreement of parties, that the hearing fee for each arbitrator (there were three members of the Tribunal) was fixed at Rs.1,00,000/- per session of hearing date. During the course of the proceedings, one member of the tribunal passed away and had to be substituted, which was done on 12.08.2021. The parties proceeded with the conduct of arbitration. In the mean-while, another tribunal had dealt with two claims of Afcons. The award passed in those proceedings became the subject matter of challenge (by Afcons) under Section 34 which was declined by an order of the Madras High Court. The appeal against that order was thereafter pending.
3. The tribunal in the present case on 13.04.2022 decided that suspension of its proceedings due to the pendency of the appeal, to await the outcome of the Division Bench was not in the larger interest of justice and proceeded with other part of the claim which was pending before it. The 10th Meeting/hearing was held on 28.06.2022 and its minutes were issued on 01.07.2022. The tribunal sought to revise the fee payable from Rs.1,00,000/- to Rs.2,00,000/- for each session of three hours. Chennai Metro objected to this revision on 08.07.2022 through an affidavit. Expressing its disagreement with the enhancement, Afcons by its affidavit dated 10.07.2022 submitted that the applicability of Schedule IV of the Act, and the issue of increase of tribunals’ fee, after initial fixation, was subjudice before this court and the arguments were concluded on 11.05.2022. Afcons therefore requested the tribunal to keep its direction for modification of fee, in abeyance till the decision of this court. In these circumstances, the proceedings continued and cross-examination of Afcons’ witnesses was taken up by Chennai Metro on three later dates of hearing. According to Chennai Metro, the issue of fees was not taken up; yet in the minutes of these proceedings issued on 24.07.2022, the tribunal reiterated its stand about entitlement of revised fee. The tribunal also stated that the session would be considered one complete session for four and a half hours i.e. between 3.30 p.m. to 8 PM. The parties were directed to pay the revised fee from the 10th Virtual Meeting onwards i.e. in effect for the past hearings too. The Tribunal further stated that it was not known when this court would deliver its judgment and also raised doubts about the applicability of the said decision on the present tribunal.
4. Afcons, by its e-mail dated 28.07.2022 informed Chennai Metro that it had paid the revised fee for five hearings (i.e., for 10th to 14th virtual hearings). Chennai Metro therefore filed an application before the Madras High Court on 10.08.2022. In this proceeding under Section 14, the relief sought was a declaration that the mandate of the tribunal (whose members were impleaded as second to the fourth respondents, hereafter collectively referred to as “the tribunal”) was terminated in respect of the disputes referred to them. It was highlighted in these proceedings, that the payment of the disputed increased amount by one party, placed Chennai Metro “in an embarras
