Cost of arbitration, the place of arbitration and the awards

Authors’ Note

Everyone has heard that arbitration costs less than litigation, but has anyone discussed how much it actually costs? The major part of the expense is the fees of the arbitrator.

In this blog we will discuss the fee which arbitrator’s charge. We will also tell you what remedies which an arbitrator has if you don’t pay his fees.

Table of Contents

1. How much does it cost to enter into Arbitration?
2. Where are arbitration proceedings conducted?
3. Decisions by arbitrators
   • Binding or Non-binding
   • Finality of Decision
   • Time period
   • Enforceability
   • Appeals
4. Fourth Schedule of the Arbitration and Conciliation Act, 1996

How much does it cost to enter into Arbitration?

The duration and process of the arbitration depend on the circumstances of the case. The arbitrators charge on a daily basis and that varies from individual to individual.

The parties to the arbitration usually split the fee of the Arbitrator. Sometimes, when one party cannot afford to pay the fee or decides to not pay the fee, the Arbitrator can impose costs on that party.

See the below table (Fourth Schedule of the Act) and example to get a rough idea of how much it may cost when a court appoints an arbitrator:

No other expenses are added in the fees.

NOTE: Refer to the Fourth Schedule of the Act (at the end of this blog) for a better estimate of calculation of Arbitrator’s fee.

For Example – Sum in Dispute is 15 Lakhs

Fee calculation: Rs. 45,000 + ( 3.5% of 10 Lakhs = 3500) = Rs. 48,500

If the parties have appointed a sole arbitrator then he is entitled to additional 25% of the fees i.e. Rs. 60625.

Refer to the Rule 31, 32 and 33 of the Indian Council of Arbitration Rules and the below given example for a brief estimate of how much it may cost when referring to an institute like ICA for arbitration:

The above table is an excerpt from Rule 31.

Rule 32: they shall be paid Rs.2500 for local conveyance for attending each arbitration hearing in the city of his residence.

Rule 33: if the arbitrator is outside the city of hearings, he should be paid travelling expenses. In addition to that he may be paid a maximum of Rs. 20,000/- per day for boarding, lodging and local transport.

Example:- if the sum dispute is 10 lakhs and hearing takes place for 3 days.

Fee calculation 15000 (registration fee) + 60,000 + 30,000 + 7,500×3 ( providing room facilities for hearing) + 20,000×3 = Rs. 1,87,500

The losing party often pays the cost of legal expenses incurred by the winning party. However, this differs from case to case. Arbitrators and the Arbitration Agreements are mostly guided by the will of the parties, therefore, they can lay whatever guidelines they agree to be followed in the proceedings. However, the proceedings at all times must follow the principles of natural justice and equity.

Arbitration is believed to be time saving and cost-effective but this might not be true always. Therefore, the Arbitration Agreement has to be drafted cautiously in a manner which justifies such expectations and makes arbitration less time consuming and inexpensive. If done incorrectly, it can be just as slow and expensive as litigation with the additional down side of no right of appeal.

There is always going to be only one out of these three possibilities when the question of Arbitrator’s fee might arise:

1. When a court appoints the arbitrator; or
2. When Arbitration is being conducted by an Institute; or
3. When there is ad-hoc arbitration and the parties appoint the arbitrators on their own.

If the court appoints an arbitrator to the parties than fees applicable for the arbitrator is given under Fourth Schedule of The Arbitration and Conciliation Act, 1996 (provided at the end of this article). Please go through the Fourth Schedule of the Act for a better understanding. The Supreme Court in Bawana Infra Development Corporation^[1] case the Court laid down that when a court appoints an arbitrator, charging a fee higher to what is prescribed in the Fourth Schedule of the Act would be considered a breach of the Fourth Schedule. If any arbitrator breaches the Fourth Schedule, the mandate of an Arbitrator shall be terminated under Section 14(1) of the Arbitration and Conciliation Act, 1996 if he becomes de facto unable to perform his functions.

Every Arbitration Institute has its own Rules specifying the fees of their arbitrators and all the other kinds of fees which is to be paid by the parties. For e.g. the Indian Council of Arbitration provides a platform where all the arbitrators are registered and they have their set of rules called Rules of Arbitration and Conciliation (2012) of the Indian Council of Arbitration”. Under its Rule 31, it provides fees for their arbitrators.

In cases of ad-hoc arbitration arbitrators are free to charge as per their will, however, they usually stick to the competitive market rates which in order to stay in business. Therefore, the rats of fees are usually close to the figures mentioned in the Fourth Schedule and Rules of various Arbitration Institutes.

Different arbitrators charge different amounts which might be costlier but it is said that it is less than the cost of litigation and a faster procedure than court trial.

The Arbitrator should be entitled to his fee only. Any other emoluments in the form of costs and administrative surcharges pose an undesirable possibility of Arbitrators getting influenced and rendering the Arbitration proceedings obsolete and may create unnecessary pressure on parties to the Arbitration without much fault of their own.^[2]

Where are arbitration proceedings conducted?

The parties are free to agree on the place of arbitration according to Section 20(1) of the Arbitration and Conciliation Act, 1996. If the parties fail to agree on the place of arbitration, Section 20(2) of the Arbitration and Conciliation Act, 1996 gives power to the tribunal to decide on the place of the arbitration considering the circumstances and merits of the case.

In cases of institutional arbitration

Decisions by arbitrators

Binding or Non-binding

The binding part means that both the parties would agree to the decisions taken by the arbitrators. The ruling of the panel would take effect into a new contract by the parties. If they fail to do so, the non-breaching party may file an action in a Court of law to enforce the arbitration decision. Whereas a non-binding arbitration means that the trial court may look beyond the decision of arbitration and make its own determination.

Once the decision is final, the decision is binding on both parties.

NOTE: All arbitrations in India are binding and they can be appealed only on the grounds mentioned in Section 37 of the Act.

Finality of Decision

The decision must be in writing. Section 31 of the Arbitration and Conciliation Act, 1996 requires that the arbitral award must have reasons stating the basis of the decisions, unless and until the parties have agreed to state no reasons at all. The award must be signed by all the members of the tribunal and must mention the date and place of the arbitration.^[3]

Time period

Section 29A(1) of the Arbitration and Conciliation Act, 1996, mandates that the award must be delivered within 12 months from the date the disputes are referred to the panel. Although, if the parties agree an extension of 6 months can be granted to the panel.^[4]

Enforceability

The award is binding on the parties under Section 35 of the Arbitration and Conciliation Act, 1996.

Appeals

Section 37 of the Arbitration and Conciliation Act, 1996 states that in order to challenge the award, an application must be filed in the court within 3 months from the announcement of the reward. The court might set aside the award if it qualifies circumstances given under section 34.

All the appeals should be filed in the High Court of the jurisdiction of the disputes. In the case of Executive Engineer, Road Development Division No.III, Panvel & Anr. v. Atlanta Limited^[5], the Apex Court held that under the Act, it is the superior most Court exercising original civil jurisdiction, that would be termed as “Court” for the purpose of Section 2(1)(e) of the Act. It also held that even though the cause of action or the subject matters falls under the district, the appellant has to go to the High Court.

Fourth Schedule of the Arbitration and Conciliation Act, 1996

[THE FOURTH SCHEDULE]

[See section 11(14)]

NOTE: In the event the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of 25% on the fee payable as per the above.

1. Bawana Infra Development Corporation vs Delhi State Industries 2018 (4) ArbLR 168 (Delhi). ↑
2. Modi Dairy v/s Alfa Laval (India) LTD. (2018). ↑
3. Section 31 of the Arbitration and Conciliation Act, 1996 ↑
4. Section 29A(3) of the Arbitration and Conciliation Act, 1996. ↑
5. Executive Engineer, Road Development Division No.III, Panvel & Anr. V Atlanta Limited Civil Appeal No. 673 OF 2014 (Arising out of SLP (C) No.18980 of 2013. ↑