Author: Snehil Srivastava, Student at Babu Banarasi Das University.
“I realized that the true fiction of a lawyer was to unite parties… A large part of my time during the 20 years of my practice as a lawyer was occupied in bringing out private compromise of hundreds of cases. I lost nothing thereby- not even money, certainly not my soul.”
– Mahatma Gandhi[1]
ABSTRACT
“Arbitration” this word is so easy to spell but hides lot of meaning. Arbitration is a form of a process in which the disputes between the two parties are resolved outside of the court without going into any litigation process in the judicial court. The arbitration process is very similar to the trail which occur in the court but the major difference is the arbitration process can be completed more quickly than the trail and it is less formal. The person who represent both the parties are known as arbitrator and the parties can choose them with their consent. The arbitration process can be both binding or non- binding. If the arbitration is binding the decision will be taken as final decision, can be enforced by a court, and can only be appealed on very narrow ground. If the arbitration in non- binding, the arbitration award is assisting and which can be concluded only if it is accepted by the parties[2]. Arbitration though it has existed from ancient time but the world has recognized it by the end of 20th century and in India Arbitration has found its utility by getting codified in The Arbitration Act, 1940 and The Arbitration and Conciliation Act, 1996. It provides Speedy justice and cost effective. The body of commission of law in India, in its 246th report noted the basic problems related to arbitration mechanism in India is the huge amount of fees taken by the arbitrators for solving the disputes[3] as per the report it shows that the fees is unilateral and disproportionate. The aw commission of body restricted their suggestion for the ad hoc arbitrations, noting that different things can be applied in the international commercial as well as institutional arbitrations so the law commission of India proposed the model for the adoption of fee schedule for court to consider while fixing the fees by framing up the rules of arbitration appointed under section 11[4]. The body of commission of law in India, in its 246th report noted the basic problems related to arbitration mechanism in India is the huge amount of fees taken by the arbitrators for solving the disputes[5] as per the report it shows that the fees is unilateral and disproportionate. The aw commission of body restricted their suggestion for the ad hoc arbitrations, noting that different things can be applied in the international commercial as well as institutional arbitrations so the law commission of India proposed the model for the adoption of fee schedule for court to consider while fixing the fees by framing up the rules of arbitration appointed under section 11[6].
INTRODUCTION
“Arbitration” this word is so easy to spell but hides lot of meaning. Arbitration is a form of a process in which the disputes between the two parties are resolved outside of the court without going into any litigation process in the judicial court. The arbitration process is very similar to the trail which occur in the court but the major difference is the arbitration process can be completed more quickly than the trail and it is less formal. The person who represent both the parties are known as arbitrator and the parties can choose them with their consent. The arbitration process can be both binding or non- binding. If the arbitration is binding the decision will be taken as final decision, can be enforced by a court, and can only be appealed on very narrow ground. If the arbitration in non- binding, the arbitration award is assisting and which can be concluded only if it is accepted by the parties[7]. Arbitration though it has existed from ancient time but the world has recognized it by the end of 20th century and in India Arbitration has found its utility by getting codified in The Arbitration Act, 1940 and The Arbitration and Conciliation Act, 1996.
Arbitration has become so popular that now every country has been opting for Arbitration process because it is less time taking and cost effective than the trails in the judicial courts. The case registered around the globe in 2019 involved more than 2000+ parties form around 140+ countries and independent territories worldwide, which is more than the recorded cases in 2017[8]. Arbitration is very useful for poor needy people as it can give speedy resolutions without taking much time. But where this process has pros but unfortunately have some cons to it. One of the basic problem which has become is Arbitrator fees. As the time is progressing to more modern era, education and knowledge has become more efficient and got more depth. So this makes the charges of Arbitrator so high. Because this process provides quick resolution so people are getting more interested toward this process. Which clearly helps the Arbitrator to raise their charges for the disputes. The study clearly shows that the maximum fees payed to each any arbitrator is Rs. 30,00,000 and in case where the arbitral tribunal consist of sole arbitrator, he will be entitled RS. 7,50,000 making the total fess payed to the sole arbitrator Rs. 37,50,000[9]. So this has created a major hype in the Arbitration Market by which poor and needy are denied by the process.
ARBITRATION EFFECTIVE IN NATURE
Arbitration has always been considered to be very cheaper than the litigation because slighter time to spent to resolve all the disputes occurred between the parties. Also, rules of evidence and discovery are very limited thereby it leads to a considerable reduction in the cost. Usually arbitration is very less expensive because all the sum of fees which are paid to any arbitrator is much lesser than the expenses which are paid towards any expert witnesses who comes to testify at trail (Most of the times the fees paid to the arbitrator are paid separately by the parties). There are always lesser costs in the arbitration process than the trail in the judicial courts. As we know the Arbitration Act of 1996 was initiated on the statute book as the 1940 Act, did not live up to the expectation of the citizen of India in general, and the business community in particular[10]. So the 1996 Act was enacted to fill all the loopholes of the 1940 Act, as the arbitral system which was evolved under it led to is failure. The basic purpose of enactment of 1996 Act was to revive the arbitral system to provide speedy justice and efficient dispute resolution mechanism. But after an analysis of the arbitration system, as practiced under the Act of 1996[11], and it reveals that it has failed to achieve its desired objectives.
- Speedy Justice:
In India arbitration is Uncontrolled with delays that detain the efficient exemption of dispute resolution. Though the Act of 1996 give out greater autonomy on arbitrators and cover them from the judicial interference, in arbitration proceedings there is no specified time period to complete the proceedings, but in the Act of 1940 it was clearly mentioned about the completion of Arbitrational proceedings in the fixed time period. So, the time period for completion of the arbitral proceedings was removed from the act because the temerity that the basic cause of hindrance in the arbitration is the judicial interference, so granting the greater autonomy to the arbitrator would leads to solve the problems. However, the reality is much different than the actual. Basically, most of the arbitrators are the retired judges they usually treat the arbitral proceedings in the same way as the litigation which happen the court of justice.[12]
Although the judicial intervention in the Act of 1996 has been trimmed to a greater extent, courts which have judicial intervention have made widen their scope of judicial review[13], in addition all the disputing parties usually reach the arbitration with the same thinking of litigation, that the result awards invariably end up in court, increasing the time for providing the resolution of the disputes. So basically the objectives of arbitration to provide speedy solutions for the disputes gets delayed due to certain obstructions.
- Cost Effective:
As we know arbitration is always considered much cheaper than the litigation process in the court, and this is the major reason by which the parties resort to it. But, the ground analysis clearly shows that Arbitration in India basically, ad hoc arbitration has become more expensive than the litigation. A cost analysis on arbitration V/s Litigation will clearly throws the light on the higher cost of arbitration over litigation. The following points will clearly analyse the cost of arbitration and litigation:
- Arbitration cost:
Cost of Arbitration given by the parties include the arbitrator`s fees, rent for arbitration venues, administrative expenses and professional fees for the representative of the parties (which may include lawyers and witnesses). The sum of money may differ between intuitional and ad hoc arbitrations.
There is no circulated fee structure for the arbitrators in the ad hoc arbitration. The fees of the arbitrator are decided by the consent of the parties. The fee differs from case to case but it can be in INR 1000 to INR 50,000,00 per hearing and this fees totally depends upon the professional standing of the arbitrator and also type of the case (how much critical case it is). The number of hearing and the cost of venue may differ widely. In most of the arbitrational institution bodies have its own fees structure such as Construction Industry Arbitration Council (CIAC) or India Council of Arbitration (ICA) have their own fees structure like arbitrator`s fees and administrative fees, based on claim amounts. They also charge very nominal non-refundable fee on the basis of case. For eg. The arbitrator fees of the ICA vary from INR 30,00,000 to INR 315,000,000 for claim amount up to INR 10,000,000 while INR 15,000,00 for the administrative fees. Similarly, For the CIAC the fees can be from INR 5,00,000 to INR 26,00,000 for the claim amount up to INR 1,00,00,000 and administrative fees from INR 2,750 to INR 62,000,00.
- Litigation cost:
The Cost incurred in the proceedings of the court is much limited to fees of lawyer and court, which are calculated ad valorem[14] on the claim amount or the suit value. In case of any writ petition the court fees are fixed and are very nominal. High courts across India have their own fees schedule, which fixes the court fees. In case of suits fees of the court does not exclude more than 10% of the amount to be claimed.[15] The return expenditure involved the professional fees paid to the lawyers most of the time fees of the lawyers are paid on the appearance basis. Similarly, in addition to this separate fees may be charged for various things like drafting of the suits, petitions, counter affidavits and interim applications. There is a great difference in the fees of professional lawyers depending upon the experience, seniority and reputation of the lawyer. The fees may vary from nominal INR 500 per appearance before a district court to INR 20,00,000 by senior advocates in the Supreme court of India.
- Arbitration Cost V/s Litigation Cost:
Although we know arbitration has been considered to be a cheaper process for settlement of disputes, so it has become a greater concern that arbitration India has become much costlier due to high fee of arbitrator and liberal adjournment[16]. This is advisable truly for the ad hoc arbitrations. Litigation is costlier than the arbitration only if the proceedings of arbitration is limited. The procedure of the arbitrators is as follow- firstly hearing take place, the claimant is told to file the claim and evidence to support the claims and document to support; at second hearing, the opposing parties are directed to file their reply and documents; at third hearing rejoinder is filed by the claimant. At each stage there is approx. two or three adjournments. Sometimes, applications for interim directions are too filed by either party, which increase the number of arbitration for deciding such application mostly the first occasion for considering any question of jurisdiction does not normally arise until the arbitral tribunal has issued six adjournment[17] if the respondent is the state or a public sector, the number of adjournments will be higher as these parties take much time for internally finalizing pleadings and documents that are to be filled in front of arbitral tribunal. Parties pay fees for every hearing of the arbitral proceedings and thus spend a large amount of money this is in addition to other costs involved. Basically law suits if admitted are much cheaper even they take large amount to resolve because lawyer`s fees are the major expenditure in litigation process and some of the lawyers charge the fees as per the hearing.
As per the studies litigation can be costlier than arbitration because procedural delays add to the cost of settling the conflicts between the parties. Issues of speedy justice and cost efficiency are the major trademarks of the arbitration mechanism and these two are the major reason why arbitration has surpassed the litigation process for the dispute resolution, especially for the commercial disputes. However, the points mentioned above clearly show the high cost arbitration process in India which prevents arbitration for being an effective procedure for resolving the commercial disputes. For this reasons arbitration is not progressing in the manner it should work in order to keep the pace with the increment of commercial disputes across the country.
ARBITRATOR FEES IN INDIA
The body of commission of law in India, in its 246th report noted the basic problems related to arbitration mechanism in India is the huge amount of fees taken by the arbitrators for solving the disputes[18] as per the report it shows that the fees is unilateral and disproportionate. The aw commission of body restricted their suggestion for the ad hoc arbitrations, noting that different things can be applied in the international commercial as well as institutional arbitrations so the law commission of India proposed the model for the adoption of fee schedule for court to consider while fixing the fees by framing up the rules of arbitration appointed under section 11[19].
In 2015, by the law commission of India`s recommendations Act was amended in which sub-section 11(14) was included, by this amendment it gave the power to the High Courts to frame the rules for determining the fees of an arbitral tribunal and the manner of payment after taking consideration of the charges mentioned din the fourth schedule of the amended act[20] the explanation of the amended sub-section clarify that it won`t be applicable on the institutional arbitrations and international commercial arbitration. The Act as it came earlier before the 2015 amendments the act gave power to the arbitral tribunal to fix the expenses of the proceedings of arbitration by both the parties. The commission of law proposed some recommendations in its 246th report that statutory recognition of the “costs follow the event principle” by this recommendation sub-section 31(8)[21] of the act was amended in 2015 by this the phrase “unless otherwise agreed by the parties” was removed from sub-section 31(8) and the tribunal of arbitration were given the authority to fix the costs of arbitration according to the newly introduced section 31A[22] it clarified that this section would inter alia mean reasonable cost relating for fees and expenses of the arbitrators.
In the year of 2017, the Gayatri roadways case[23] the Delhi high court illuminated sub-section 11(14) of the act and specified by altering the expression “unless otherwise agreed by the parties” from sub-section 31(8) of the amended act. So the court held that legislation pointedly taken out the power from the parties to enter into agreement for fixing the Arbitral tribunal fees and court further told that in sub-section 11(14) the parties to enter into an agreement with regards to specified the fees of arbitration has been restricted to international commercial and other arbitrations where the parties agreed to pay the charges as per the rules of arbitral institution. Recently in 2018 in the case of Gammon Engineers Case[24] Delhi High Court illuminated sub-section 31(8)of the amended act and held that “cost” under section 31A and sub section 31(8) of the act the cost which are awarded by the tribunals as part in favour of one party for the proceedings and also for against each other, as the removal of the words ”unless otherwise agreed by the parties” was known that parties can only use this to signify any agreement that parties cannot contract without the payment of cost and denude that the tribunal can offer the award of cost of payment to the favour for the successful parties. Similarly, with fixing of the fees by the tribunals the court also held that the tribunal is also bound by the arbitration agreement with the parties which is the source of powers.it was similar to the Transocean Drilling Services Case[25].
Primarily, in the case of Gayatri Roadways the Delhi high Court held that the arbitral tribunals can only fix its fees and they are free to do it in the case of ad hoc arbitration although, after a year in the case of Gammon Engineer the court held that the arbitral tribunal will be bound by the party’s agreement as it will be tribunal`s fees. In order to this special leave petition was filled which challenged the order which was passed by the High Court of Delhi in both the cases of Gayatri roadways and Gammon Engineering case. The apex court notice that the fees of the arbitrator can be the part of cost that to be paid but it is a long haul to the state that sub-section 31(8) and 31A of the Act would directly monitor the contract in which the fees are mentioned for the arbitral proceedings. The apex court overturned the judgment which was given by the High Court of Delhi in the both the cases of Gayatri Roadways and put the stay on the judgment which was given by the High Court of Delhi in the Gammon Engineers case. The 2019 amendment which was made in section 11 of the Act which made it mandatory for the authority who will appoint to fix the charges of arbitration which is mentioned in the fourth schedule to the Act[26]. This mentioned provision is not applicable to any international commercial arbitration or institutional arbitration and it is also not applicable to ad hoc arbitration where the arbitral tribunal which is appointed by the respective parties without alternative to section 11[27] of the amended act.
The hypothesis for the difference which is marginalised between the institutional arbitration and ad hoc arbitration and also international commercial arbitration by so far as fixing of arbitration n fees is concerned is quite not much clear. For example, the maximum fees which is payable to any arbitrator under the Fourth Schedule to the act is INR 30,00,000, whereas the maximum amount of fees which can be payed under this Fourth Schedule of the Mumbai Centre for International Arbitration is More than INR 8,50,00,000. For an instance consider a situation where an arbitrator name X is attached with the institutions and also take up the appointments from the courts for the ad hoc arbitrations. Under the present authority of arbitration, it depends upon the parties whether they have agreed or not on the solution of the disputes through institutional arbitration then the X arbitrator will be paid with the higher fees or lower fees for the same disputes it depends upon the parties. Therefore, Parties can lay down the arbitration tribunal fees by making the agreement it is said that the judiciary has strongly attempted to protect party’s autonomy, by such agreement which is made between the parties can be simply ignored whenever the appointments are made under the section 11 of the Act[28].
Categorical respect to the party’s autonomy by fixing the tribunal fees it has various and difficult challenges to maintain its autonomy as all the contracts which are made in which the state owned entities are involved, for instance they are made much difference from the contract that may stipulate reasonably low arbitrator fees. In other situation or cases many of the parties may agree to pay the fees to arbitrators in advance before the disputes actually began. Demand on obedience to the party autonomy and therefore the adherence to reasonably low rates of arbitrator fees would result in a leaner pool of experienced arbitrator who are ready and willing to solve the dispute, with this it may result fleeting the process of arbitration, as the most competent arbitrator to resolve the dispute will refuse to do so since adjudication would take much time and extensive efforts and it won`t be commercially achievable for them. Another the major problems which are faced by the party autonomy in the respect of fixing the tribunal fees is the pre-disputes agreement on tribunal fees and it depends upon that how much twisted and complex the dispute is referred to the arbitration can be. All the agreement s which are made that prescribe on the ad volerem[29] basis from which the calculation can be made of the tribunal fees which cannot account fully the complexities which will be involved in further disputes. However, it is not clearly said or does not necessarily follow that a dispute which carries more or larger claim amount will be complex or the dispute which carries small claim amount will be much easy to resolve. All the institutional rules (which often prescribe tribunal fees on the ad volerem basis) on the account for managing the arbitral fees and the variation to it may be allowed that depends upon the complexities and circumstances of the case of the parties. So this are the problems which are faced to maintain the party autonomy.
CONCLUSION
As the Arbitration proceedings or methods is best way to solve the case without going to court as it takes lesser time than the litigation process. Arbitration method provides speedy justice and cost effective as this method is quite useful for the economical weaker class as they can solve the disputes timely but due to the inflation in every field of justice is also becoming costlier day by day. Firstly, there are many loopholes in the Act (The Arbitration and conciliation Act, 1996) which are slowly and steadily getting back on track by the amendments[30] which are made in the act, the act should be revised and the correction should be made. Secondly, Arbitration though is a very old process for justice but in India it has been used quite often so the Arbitration should be used in full fledge by this it release the stress from the court, and the public should know every advantages of the arbitration mechanism, thirdly and most important on which this chapter is based on the rise in charges of fees of the arbitrator, as we know arbitration is a cost effective in nature but as the time is proceedings it has become most expensive trail because the most experienced arbitrators are the lawyers which works in court appointment too and the parties go for more experienced arbitrator to solve the disputes, as the large claim amount the greed has become much higher so they charge more and more fees like some charges before the proceedings and some after the disputes are resolve so they charge according to the dispute amount form which the economical weaker people are stepping back from the arbitration. So the Amount of fees which is charged is much higher. There should be formation of rules and a proper stipulation of charges should be made that there will be no biasness for the fees and it should follow the Fourth schedule of the act (the Arbitration and Conciliation Act). Fourthly, while we know that there is much challenges to maintain party autonomy so all the challenges which we are facing should be resolve and determining the arbitrator fess is necessary, the fixing fess depends upon the arbitral tribunal so they won’t be able to charge much fees after the dispute has arisen. For the fees the discussion should be made with the parties and then they should agree on the compatible fees choice. Perhaps any pre-disputes agreement which arise out of the parties in relation to the fees of arbitrator or the fees which is prescribed under the Fourth schedule of the act could be served as starting point for discussion between the tribunals and the parties. By all this process arbitration proceeding will not only solve the disputes of international or commercial arbitration but also the disputes among the individual and by lowering the charges of the arbitration proceedings will not only regain the trust of the people but also it will promote the arbitration process. All the steps which are mentioned above in this part can bring the arbitration back on track and Arbitration will be economical on paper are economical in real.
REFERENCES
[1] www. Quotes.com
[2] https://www.americanbar.org/groups/dispute_resolution/resources/DisputeResolutionProcesses/arbitration/
[3] Law Commission of India, Report No. 246, “Amendments to the Arbitration and Conciliation Act, 1996”, (August 2014)
[4] Section 11 of the Arbitration and Conciliation Act, 1996
[5] Law Commission of India, Report No. 246, “Amendments to the Arbitration and Conciliation Act, 1996”, (August 2014)
[6] Section 11 of the Arbitration and Conciliation Act, 1996
[7] https://www.americanbar.org/groups/dispute_resolution/resources/DisputeResolutionProcesses/arbitration/
[8] https://www.jdsupra.com/legalnews/icc-arbitration-case-statistics-show-41108/
[9] https://www.scconline.com/blog/post/2020/06/11/fee-schedule-of-arbitral-tribunal-focusing-on-the-sole-arbitrators-fee/#:~:text=Keeping%20in%20mind%20that%20the,sole%20arbitrator%20INR%2037%2C50%2C000.
[10] Professor Anurag Agarwal, ‘Resolving Business Disputes in India by Arbitration: Problems due to the Definition of ‘Court’, Indian Institute of Management, Ahmedabad, 2008 at p10.
[11] The Arbitration and Conciliation Act, of 1996.
[13] Article 10 of the Indian constitution 1947
[14] “according to value”
[15] The court fees payable on suit claim differs from state to state.
[16] Samar Bhoite, ‘Mediation, a process less practiced in India in Business Disputes Resolution’ published in the website www.manupatra.com.
[17] Law Commission of India, 176th Report on Arbitration and Conciliation (Amendment) Bill, 2001 at p 68
[18] Law Commission of India, Report No. 246, “Amendments to the Arbitration and Conciliation Act, 1996”, (August 2014)
[19] Section 11 of the Arbitration and Conciliation Act, 1996
[20] The Arbitration and Conciliation Act, 1996
[21] The Arbitration and Conciliation Act, 1996
[22] The arbitration and conciliation act (amendment), 2015
[23] The national Highway Authority of India v. Gayatri Jhansi Roadways Limited 2017 SCC OnLine Del 10285
[24] National Highways Authority of India v. Gammon Engineers and Contractor Pvt. Ltd 2018 SCC OnLine Del 10183.
[25] Transocean Drilling Services (India) Pvt. Ltd. v. Oil and Natural Gas Corporation Ltd
[26] The Arbitration and Conciliation Act, 1996
[27] The arbitration and conciliation act, 1996
[29] In proportion to the estimated value of the goods or transaction concerned.
[30] The Arbitration and Conciliation Act (amendment) 2015