Arbitrator still in place despite unilaterally adjusting fees

Chennai Metro Rail Limited (CMR) awarded a public tender to M/s Transtonnelstroy Afcons (JV) (Afcons). Afcons invoked arbitration when disputes arose and a three-member tribunal was constituted. The parties agreed that each arbitrator would receive INR100,000 (USD1,200) every session.

Subsequently, the tribunal demanded an increase for each arbitrator to INR200,000 every session. CMR objected, and Afcons requested the tribunal to keep the matter in abeyance as the issue was already before the Supreme Court. The tribunal agreed but later went back to its original position and directed the parties to pay the revised fees. Afcons deposited the amount, informing CMR.

CMR then applied to the Madras High Court under section 14 of the Arbitration and Conciliation Act, 1996 (act) to terminate the tribunal’s appointment. One ground was that Afcons’ payment of the revised fees would affect the tribunal’s impartiality. Each arbitrator was a respondent and filed an affidavit acknowledging the Supreme Court’s decision in ONGC Ltd v Afcons Gunanusa JV, in which it was held that fees could only be revised with the agreement of all parties. They said they would charge the original fees and the orders would not prejudice any party or affect the tribunal’s impartiality. The Madras High Court dismissed CMR’s application. CMR appealed to the Supreme Court.

CMR argued that a unilateral increase of fees despite a party’s protest was impermissible in law and contrary to ONGC, raising reasonable and justifiable doubts as to the tribunal’s impartiality. CMR contended the arbitrators’ failure to disclose that Afcons had paid, and that they had accepted the revised fee was further evidence of the possibility of bias. According to CMR, the reversal of the order revising fees would not remove apprehensions of the tribunal’s bias. This was a case in which the arbitrators’ conduct, in fact and law, made it impossible for them to act impartially as set out in section 14 of the act.

Afcons contended that the challenge was not maintainable as the act provided a comprehensive framework that addressed a tribunal’s ineligibility. Specifically, sections 12 and 13 read with the fifth and seventh schedules made it clear that there was a specific challenge procedure to decide whether there were good grounds for bringing into question an arbitrator’s independence or impartiality. If a party’s challenge failed, it could raise it at the stage of challenge to the award.

The Supreme Court held that the act contains a specific mechanism to challenge an arbitrator’s independence or impartiality, and parties could also waive the conditions of ineligibility of an arbitrator by a written agreement. Relying on HRD Corporation v GAIL Limited and Bharat Broadband, the court held that although the circumstances leading to a justifiable doubt as to an arbitrator’s independence or impartiality under the Act were not exhaustive, the act provided that the issue be raised before the arbitrator at the earliest opportunity. Further, the matters set out in the seventh schedule to the act would, unless waived, automatically render an arbitrator ineligible. However, the court also considered ONGC and held that the mere insistence on an increase of fees would not render an arbitrator ineligible and void or terminate their appointment.

This case settles the position that arbitrators cannot unilaterally revise fees that have already been agreed by the parties. It also prevents parties from terminating an arbitrator’s mandate in such an event. Parties must, therefore, be diligent. If they believe that such unilateral increase and conduct raises a justifiable doubt as to an arbitrator’s independence or impartiality, they must follow the mechanism under the act and apply to the arbitrator within 15 days of becoming aware of such conduct. If the party is unsuccessful it may elect to challenge the ruling at the stage of challenges to the award.

The court took note of the decision of the United Kingdom Supreme Court in Halliburton v Chubb Bermuda Insurance Ltd that arbitrators have a duty of disclosure. The court considered the act to be an improvement insofar as it imposed a continuing duty of disclosure on arbitrators, specifying the consequences of a breach. Parties must always insist on such disclosures when they appoint arbitrators.

Sneha Jaisingh is a partner and Zashank Mehta is an associate at Bharucha & Partners.