Delhi High Court Sets Aside Arbitral Tribunal's Unilateral Fee Hike, Reiterates Consent is Key

New Delhi: In a significant ruling reinforcing the principle of party autonomy in arbitration, the Delhi High Court has set aside an arbitral tribunal's order that unilaterally enhanced its fees during ongoing proceedings. Justice Dinesh KumarSharma , presiding over the matter, held that such unilateral revisions are impermissible under the Arbitration and Conciliation Act, 1996, relying heavily on the Supreme Court's authoritative pronouncements in the ONGC v. Afcons Gunanusa JV case.

However, the Court declined the petitioner's plea to substitute the arbitral tribunal on grounds of alleged bias, noting that the issue of bias was not first raised before the tribunal itself, as required by established legal principles and precedents.

The judgment came in response to two petitions, O.M.P.(MISC.)(COMM.) 286/2023 and O.M.P. (T) (COMM.) 79/2023, filed by SPML INFRA LTD against Power Grid Corporation of India Limited .

Background of the Dispute

The case arose from disputes concerning Rural Electrification Works in Bihar. An Arbitral Tribunal, comprising Justice Deepak Verma (Presiding), Justice Dilip Rao saheb Deshmukh , and Justice Krishn Kumar Lahoti , was constituted to adjudicate the claims.

Initially, in a preliminary hearing on August 2, 2018, the tribunal's fees were agreed to be in accordance with the Fourth Schedule of the A&C Act, with an additional 10% for the Presiding Arbitrator for administrative expenses.

However, via an order dated October 28, 2022, citing the long duration of hearings and voluminous records, the tribunal directed both parties to pay a "further fee" of Rs. 15,00,000/- to each member, along with an additional 10% to the Presiding Arbitrator. This enhancement amounted to a significant increase over the initially agreed fees.

Aggrieved by this unilateral enhancement, SPML INFRA LTD initially sought an extension of the tribunal's mandate and substitution before the High Court. While the mandate was extended by order dated March 27, 2023, the High Court directed the petitioner to first raise the fee dispute before the tribunal and granted liberty to file a fresh application if still dissatisfied.

Pursuant to this liberty, SPML filed an application before the tribunal seeking withdrawal of the October 28, 2022 fee enhancement order and continuation at the original agreed fees. This application was dismissed by the tribunal on June 1, 2023, which noted that no objection had been raised by the petitioner's representatives on earlier dates and that an undertaking to pay the balance fee had been recorded.

Petitioner's Submissions

Before the High Court, senior counsel for the petitioner, Mr. Raman Kapur, argued that the tribunal had unilaterally enhanced the fees by Rs. 45,00,000/- without the petitioner's consent and without providing justification, which was contrary to the Fourth Schedule. It was contended that the undertaking to pay was given under pressure and that arbitrators do not have the power to unilaterally issue binding orders regarding their fees, citing the Supreme Court's ruling in ONGC v. Afcons Gunanusa JV .

The petitioner also alleged bias against the tribunal, particularly the Presiding Arbitrator, on the ground that he had adjudicated similar disputes between the same parties and passed orders against the petitioner previously. It was argued that such conduct amounted to misconduct and demonstrated a reasonable apprehension of bias, justifying substitution under Section 14 of the A&C Act.

Respondent's Counter-Arguments

Mr. S. B. Upadhyay, senior counsel for the respondent, Power Grid Corporation, opposed the petitions, arguing that the bias allegations did not meet the criteria of Section 14(1)(a) or the Seventh Schedule. He contended that prior adverse awards by an arbitrator against a party in unrelated matters do not, by themselves, constitute bias, citing HRD Corporation v. GAIL and UOI v. Reliance Industries Ltd. .

Regarding the fee enhancement, the respondent argued that the petitioner did not show disagreement initially and had undertaken to pay the fees, implying consent. It was further submitted, relying on Chennai Metro Rail Ltd. v. M/S Transtonnelstroy Afcons (JV) , that an increase in fees during arbitration is not a ground for termination or substitution under Section 14(1)(a).

Court's Analysis and Findings

Justice Sharma meticulously analyzed the submissions in light of key Supreme Court precedents.

On Unilateral Fee Enhancement: The Court relied heavily on ONGC v. Afcons Gunanusa JV , quoting extensively from the judgment, which unequivocally held that arbitrators cannot unilaterally determine their own fees. The Supreme Court emphasized party autonomy as the guiding spirit of arbitration and stated that any fee revision requires the consent of all parties and the tribunal. If a party objects and no consensus is reached, the tribunal member should decline the assignment.

Applying these principles, the High Court found that the tribunal's order dated October 28, 2022, was indeed a "binding direction" for fee enhancement passed "without any consent of the parties." The Court rejected the respondent's argument that the petitioner's lack of immediate objection or subsequent undertaking to pay amounted to consent, stating that "giving 'consent' and having 'no objection' may be two different things in particular circumstances."

The Court concluded, "the unilateral enhancement of fees as directed vide order dated 28.10.2022 cannot sustain and is liable to be set aside."

On Bias and Substitution: Turning to the prayer for substitution of the tribunal on grounds of bias (prior adverse awards and the fee dispute), the Court examined the scope of Section 14(1) of the A&C Act, which deals with the termination of an arbitrator's mandate due to de jure or de facto inability or failure to act without undue delay.

The Court referred to the Supreme Court's judgment in Chennai Metro Rail Ltd. v. M/S Transtonnelstroy Afcons (JV) , which clarified that challenges to an arbitrator's impartiality based on grounds not falling under the statutory ineligibility conditions (like the Seventh Schedule) or not causing de jure inability, must first be raised before the arbitral tribunal itself under Section 13(2). This procedure allows the tribunal an opportunity to address the party's concerns. The principle aligns with the long-standing rule that allegations of bias should be raised at the earliest opportunity before the same forum.

Crucially, the High Court noted that in the application filed by SPML before the tribunal (leading to the June 1, 2023 order), the prayers were limited to recalling the fee enhancement and seeking continuation at the original fees. The petitioner "has not made any submissions regarding bias or has raised any issue of ineligibility" before the tribunal in that application.

Following the Chennai Metro precedent, which indicated that a unilateral fee increase, while contrary to law, does not per se amount to de jure ineligibility requiring mid-stream termination under Section 14 unless other grounds are met, the Court held that the bias issue raised before the High Court was not sustainable because it was not first presented to the arbitral tribunal.

Conclusion and Directions

Based on its analysis, the Delhi High Court:

1. Set aside the Arbitral Tribunal's order dated October 28, 2022, concerning the unilateral enhancement of fees.
2. Denied the prayer for substitution of the arbitral tribunal.
3. Extended the mandate of the tribunal, which had expired on November 28, 2023, until March 30, 2025, to enable the completion of proceedings.
4. Directed that the learned Arbitral Tribunal "may continue with the fees already decided in the preliminary hearing held on 02.08.2018" (the original Fourth Schedule fees).
5. Granted liberty to the parties to approach the Court again if the learned Arbitral Tribunal chooses not to continue with the proceedings based on the earlier decided fees.

The petitions were disposed of in these terms. The judgment underscores the binding nature of fee agreements in arbitration and the procedural requirement of raising challenges to the arbitrator's mandate, including those related to bias, before the tribunal itself in the first instance.