NATIONAL HIGHWAYS AUTHORITY OF versus GAYATRI JHANSI ROADWAYS LIMITED on 10 July 2019

1. Leave granted.

2. The brief facts of the present appeal are as follows:

3. A contract dated 07.02.2006 was entered into between theappellant and the respondent. It is sufficient to state, for the purpose ofthis case, that insofar as the dispute resolution is concerned, the arbitrationclause referred the parties to the arbitration of three learned arbitrators- one to be appointed by each party and the third arbitrator to be appointedby the two arbitrators so appointed. The aforesaid contract containedparagraph 5 which reads as follows:

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“5. The parties are desirous that the remuneration and otherexpenses payable to the Arbitrators as per arbitration clause forreferring the dispute between the parties arising out of the saidContract to the Arbitral Tribunal for resolution in accordance withthe procedure laid down therein, shall be as follows:

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I. That the maximum limit for fee payable to each Arbitrator perEday shall be Rs.5000/- subject to a maximum of Rs.1.5 lakhper case.

II That each Arbitrator shall be paid a reading fees of Rs.6000/-per case.

III That each Arbitrator shall be paid Rs.5000/- by way of secretarialassistant per case.

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IV. That each Arbitrator shall be paid Rs.6000/- per case towardsincidental charges like telephone, FAX, postage etc.

V. That other expenses based on actual against presentation ofbills, shall also be reimbursed to each Arbitrator subject to theGfollowing ceiling (applicable for the days of hearing only)

(a) Travelling expenses – Economy class (By Air), First classAC (By train) and AC car (By road).

A(b) Lodging and boarding – Rs.8000/- per day in Metro cities(Delhi, Mumbai, Chennai & Kolkata), Rs.5000/- per day inother cities OR Rs.2000/- per day if any Arbitrator makeshis own arrnagement.

(c) Local travel – Rs.700/- per day

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VI Charges for publishing the Award – Maximum ofRs.10,000/- VII That in exceptional cases, such as cases involving majorlegal implication/wider ramification/higher financial stakesetc. a special fees structure could be fixed in consultationCwith the Contractor/Supervisoin consultant and with thespecific approval of the Chairman, NHAI beforeappointment of the Arbitrator.”

4. Mr. P. S. Narasimha, learned senior counsel appearing on behalfof the respondent, has informed us that the fee schedule that was soDfixed, was fixed under a policy decision dated 31.05.2004 of the NationalHighways Authority of India (hereinafter referred to as ‘NHAI’ ofbrevity), a perusal of which would show that, this is, in fact, so.

5. As disputes arose between the parties, arbitration was invokedby the appellant long after the contract was entered into, i.e., onE23.05.2017. The respondent wrote a letter dated 14.07.2017 appointingShri Sudesh Dhiman as its nominee arbitrator in which it reminded thearbitrator that the fee applicable is to be considered as per the policycircular of the NHAI dated 01.06.2017. This circular substituted amountspayable to the arbitrator as per the circular of 2004, whereby theFarbitrators would now get for any claim under Rs.100 crores, Rs.25,000per day together with enhanced other charges or a lumpsum fee of Rs.5lakhs per case which includes counter claims, in place of the original feestructure.

6. The matter then came up before the Arbitral Tribunal, whichwas by then constituted, in which the Tribunal passed an order datedG23.08.2017, in which it stated as follows:

“1.12.1Fees:

(a) The Claimant informed that there is no agreement betweenthe parties regarding the fees of the AT.

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(b) The Respondent requested that fees of the AT may be fixed interms of the instructions issued by NHAI vide their circulardated 01.06.2017.

(c) The Tribunal considered the matter and decided that the feesof the AT shall be regulated as per provisions of the FourthSchedule of the Arbitration and Conciliation (Amendment) Act,2015.”

7. The respondent, against this order, moved an application dated13.10.2017 before the Tribunal in which it sought to remind the Tribunalthat the arbitral fees has been fixed by the agreement and that, therefore,they may be fixed in terms of the policy of 2017 and not as per theFourth Schedule of the Arbitration and Conciliation Act, 1996. The mattercame up before the Tribunal yet again on 30.01.2018. The Tribunal thenpassed the following order:

“3.8 The respondent had filed an application for review of feesfixed by the AT and to modify the same in terms of the NHAIcircular dated 01.06.2017.

It was brought out that the Claimant had inadvertently informedthe AT as per para 1.12.1(a) that there was no agreement betweenthe parties regarding the fees of the AT. In fact, the agreementprovides for a fixed rate of fee of the AT as agreed by the parties.

Oral submissions on this mater were made by both the parties.The AT deliberated on the matter and has decided that in view ofthe latest provision in the amended Act, the AT is competent to fixthe fees regardless of the agreement of the parties. This is as perjudgment dated 11.09.2017 of the Hon’ble High Court in the matterof NHAI vs Gayatri Jhansi Roadways. The AT reiterated thatthe fees fixed in the 1[st] hearing shall be followed. Accordingly,fees shall be regulated as per provisions of ‘the fourth scheduleof the amended Arbitration and Conciliation Act, 1996.”

8. Faced with this order, the respondent moved an application on08.05.2018 under Section 14 of the Arbitration and Conciliation Act,1996, to terminate the mandate of the arbitrators, inasmuch as, accordingto the respondent, the arbitrators had wilfully disregarded the agreementbetween the parties and were, therefore, de jure unable to act any furtherin the proceedings.

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A9. Meanwhile, the Arbitral Tribunal passed yet another order dated19.07.2018 in which the Tribunal stated it had no objection to payment ofany fees as would be decided in the pending proceedings by the HighCourt of Delhi.

10. The learned Single Judge, by the impugned judgment, set outBclause 5 of the agreement between the parties and then stated that theFourth Schedule of the Arbitration Act not being mandatory, whateverterms are laid down as to arbitrator’s fees in the agreement, must needsbe followed. In so doing, he disagreed with the another learned SingleJudge Bench judgment dated 11.09.2017 in National HighwaysAuthority of India v. Gayatri Jhansi Roadways Limited in which, theClearned Single Judge had held that Section 31(8) and Section 31A of theArbitration Act would govern matters such as this and since the expression‘unless otherwise agreed by the parties’ had been omitted from Section31A by the Amendment Act of 2015, arbitrator’s fees would have to befixed in accordance with the Fourth Schedule of the Arbitration ActDdehors the agreement between the parties.

11. The impugned judgment violently disagreed with this viewholding the said judgment as per incuriam stating that:

“25. A reading of the above would clearly show that the “costs”under Section 31(8) and 31A of the Act are the costs which areEawarded by the Arbitral Tribunal as part of its award in favour ofone party to the proceedings and against the other.

26. The deletion of words “unless otherwise agreed by the parties”in Section 31A only signifies that the parties, by an agreement,cannot contract out of payment of ‘costs’ and denude the ArbitralFTribunal to award ‘costs’ of arbitration in favour of the successfulparty. The Judgment of this Court in Gayatri Jhansi RoadwaysLimited (Supra) relied upon by the counsel for the respondentdoes not take note of the above decisions or the report of the LawCommission. The said judgment is, therefore, per incuriam. IGam informed that the said decision is pending challenge beforethe Supreme Court by way of a Special Leave Petition. In anycase, the said Judgment was passed on an appeal under Section37 of the Act and did not consider the contours of Section 14 ofthe Act.”

12. We have heard learned counsel for the both the sides. In ourview, Shri Narasimha, learned senior counsel, is right in stating that inthe facts of this case, the fee schedule was, in fact, fixed by the agreementbetween the parties. This fee schedule, being based on an earlier circularof 2004, was now liable to be amended from time to time in view of thelong passage of time that has ensued between the date of the agreementand the date of the disputes that have arisen under the agreement. We,therefore, hold that the fee schedule that is contained in the Circulardated 01.06.2017, substituting the earlier fee schedule, will now operateand the arbitrators will be entitled to charge their fees in accordancewith this schedule and not in accordance with the Fourth Schedule to theArbitration Act.

13. We may, however, indicate that the application that was filedbefore the High Court to remove the arbitrators stating that their mandatemust terminate, is wholly disingenuous and would not lie for the simplereason that an arbitrator does not become de jure unable to perform hisfunctions if, by an order passed by such arbitrator(s), all that they havedone is to state that, in point of fact, the agreement does govern thearbitral fees to be charged, but that they were bound to follow the DelhiHigh Court in Gayatri Jhansi Roadways Limited case which clearlymandated that the Fourth Schedule and not the agreement would govern.

14. The arbitrators merely followed the law laid down by the DelhiHigh Court and cannot, on that count, be said to have done anythingwrong so that their mandate may be terminated as if they have nowbecome de jure unable to perform their functions. The learned SingleJudge, in allowing the Section 14 application, therefore, was in error andwe set aside the judgment of the learned Single Judge on this count.

15. However, the learned Single Judge’s conclusion that the changein language of section 31(8) read with Section 31A which deals onlywith the costs generally and not with arbitrator’s fees is correct in law.It is true that the arbitrator’s fees may be a component of costs to bepaid but it is a far cry thereafter to state that section 31(8) and 31Awould directly govern contracts in which a fee structure has alreadybeen laid down. To this extent, the learned Single Judge is correct. Wemay also state that the declaration of law by the learned Single Judge inGayatri Jhansi Roadways Limited is not a correct view of the law.

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A16. With these observations, this appeal is allowed, the impugnedjudgment is set aside and the arbitrators are directed to proceed with thearbitration as expeditiously as possible.

17. We extend the time, with the consent of the parties, to a periodof one year from today in which the arbitrators must deliver the ArbitralBAward in the present case.

CIVILAPPEALNO. 5383 OF 2019

(Arising out of SLP (C)No. 3211 of 2018

1. Regard being had to the judgment just pronounced in theCaforementioned Civil Appeal No. 5384 of 2019, we set aside the impugnedjudgment dated 11.09.2017 in the present case. However, the settingaside of this judgment will not, in any way, come in the way of the finalAward between the parties which has been upheld finally by this Court.

2. The appeal stands disposed of accordingly.

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Kalpana K. Tripathy

Appeals disposed of.

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