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Case analysis of the Judgement on Arbitral Tribunal for revision of fees


Arbitration, often hailed as a preferred alternative to traditional litigation, has emerged as a cornerstone of dispute resolution in India, offering speed, flexibility, and cost-efficiency. However, within this realm of alternative dispute resolution, disputes and controversies occasionally arise, casting a spotlight on critical issues such as arbitrator appointments, eligibility, and remuneration. The recent Supreme Court judgment in the case of Chennai Metro Rail Ltd v. M/s Transtonnelstroy Afcons JV has explored one such contentious question: Can an arbitral tribunal unilaterally revise its fee once arbitration proceedings have commenced, and does this revision affect its eligibility under Section 12 of the Arbitration and Conciliation Act, 1996 (the Act)? This case study delves into the intricacies of this landmark judgment.

The Stage: Chennai Metro Rail vs. Afcons JV

At the heart of this legal drama was Chennai Metro Rail Ltd (CMRL), a joint venture between the Central Government and the Government of Tamil Nadu. CMRL had awarded a substantial contract worth Rs. 1566 crores to M/s Transtonnelstroy Afcons JV (Afcons), a joint venture between a Russian company and an Indian company. The contract entailed the construction of underground metro rail tunnels and stations in Chennai, complete with an arbitration clause for dispute resolution. As disputes between the parties mushroomed, they invoked arbitration proceedings, forming a three-member tribunal under the Act. The parties mutually agreed to a hearing fee of Rs. 1,00,000 per session. However, circumstances took a twist as one arbitrator passed away, and a new arbitrator stepped in to replace the vacancy.

The pivotal moment arrived when the tribunal unilaterally decided to revise its fee from Rs. 1,00,000 to Rs. 2,00,000 per session of three hours, sans consultation with or consent from the parties. CMRL vehemently objected to this revision and challenged the tribunal's eligibility under Section 12 of the Act, citing justifiable doubts about its impartiality or independence. Afcons, while disagreeing with the revision, urged the tribunal to suspend it until the Supreme Court decided a related case on the same issue.

Section 12 of the Act: The Threshold

Section 12 of the Act stands as the threshold for challenging the appointment of an arbitrator. It mandates that any individual approached for possible appointment as an arbitrator must disclose in writing any circumstances that may raise justifiable doubts about their independence or impartiality. Furthermore, an arbitrator may be challenged if justifiable doubts regarding their independence or impartiality arise, or if they lack the qualifications agreed upon by the parties. The Act provides guidance on what constitutes "justifiable doubts" through its Fifth Schedule, which lists factors that could cast a shadow over an arbitrator's independence or impartiality. The Seventh Schedule identifies grounds that render an individual ineligible for appointment as an arbitrator unless otherwise agreed upon by the parties.

The Supreme Court's Verdict: Striking a Balance

In its groundbreaking judgment, the Supreme Court unequivocally established that unilateral fee revision by an arbitral tribunal contravenes the Act. It stands in direct opposition to the principles of party autonomy and contractual sanctity, which lie at the core of arbitration. The Court underscored that fee determination is a matter of mutual agreement between the parties and the arbitrators. Any deviation from this agreement necessitates the consent of all involved parties. Such unilateral revisions, the Court noted, have the potential to cast doubt on the arbitrators' motives, making it appear as though they prioritize monetary interests over their duty to dispense justice. This principle finds support in the Court's earlier judgments in HRD Corporations v. Gas Authority of India Ltd (2017) and National Highways Authority of India & Ors. v. Gayatri Jhansi Roadways Limited & Ors. (2019).

Nevertheless, the Supreme Court clarified that unilateral fee revisions, while problematic, do not serve as grounds for terminating the arbitrator's mandate based on ineligibility under Section 12 of the Act. According to the Court, only the grounds delineated in the Fifth and Seventh Schedules of the Act can determine an arbitrator's ineligibility. The Court emphasized that an arbitrator's ineligibility should pertain to an issue that strikes at the very core of their jurisdiction, effectively divesting them of their authority to act in the capacity of an arbitrator and resulting in automatic termination. CMRL's argument, asserting that the fee revision bred justifiable doubts about the tribunal's impartiality or independence under Section 12(1)(a) read in conjunction with the Fifth Schedule, was dismissed.

The Court thus dismissed CMRL's application challenging the tribunal's eligibility and granted Afcons' application, suspending the fee revision until further orders. It also directed the arbitral tribunal to expedite the proceedings, mandating a conclusion within six months.

Conclusion: Setting a Precedent

The Supreme Court's verdict in Chennai Metro Rail Ltd v. M/s Transtonnelstroy Afcons JV offers a defining interpretation of the arbitration landscape in India. It offers clarity on fee determination and revision by arbitrators, solidifying the significance of party autonomy and contractual sanctity in arbitration. The judgment serves as a reminder of the necessity for transparency and accountability in arbitrators' conduct. Furthermore, it opens the door to future considerations of arbitrators' fees' regulation in India, as the Court has left the question of Schedule IV's applicability, which outlines a model fee structure for arbitrators, unresolved.

In conclusion, the ruling reinforces the pivotal role of arbitration in dispute resolution and the crucial balance between respecting party autonomy and upholding ethical standards, ensuring the enduring integrity of arbitration in India. It heralds a new dawn for arbitration practitioners and sets the stage for future legal deliberations on this critical aspect of arbitration.




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