In India and all around the world arbitrator fee issue continues to remain as a debatable issue. Prior to 2015 arbitrators were fixing their fees unilaterally and the final fee became very high, and parties were discouraged from resorting to arbitration. The main issue was no one was able to estimate the total fee prior to starting of the arbitration. To manage this situation some PSUs and Government departments fixed a very low fee on hearing basis, so arbitrators were just passing time and arbitration did not conclude for any years. Government of India by way of 2015 Amendment to the Arbitration and Conciliation Act, 1996 and incorporated a fee schedule (Schedule IV) which really was welcomed by the arbitration community of India. The said fee schedule gave arbitration a new respect and dignity. The said Schedule computed the fee of the arbitrator based on the quantum in dispute with a maximum cap of Rs.30 Lakhs per arbitrator. It attracted many Judges with commercial knowledge to opt for arbitration assignments than going for government posts after their retirement from service. The lawyers also were happy since they also started getting better fee in arbitration practice. But even now many government organizations and public sector undertakings feel that the fee schedule provided in the Act is very high and hence they object to it and go for litigations

Some International Arbitrators on the other side feel that the cap of Rs.30,00,000 is not correct because when the sum in dispute is very high, work also increases and the arbitrators should be also paid accordingly. Because the disputes in international arbitrations are in millions and billions and hence that view also cannot be ignored. Mostly International Arbitral institutions do not have a ceiling and hence high value disputes result in very high arbitrator fees. In fact, the high fees work as a deterrent for making false and inflated claims and counter claims but encourage even celebrity international lawyers to take up international arbitration assignments.

There are three types of major issues faced in India relating to arbitrator fees. In the first category cases issue is that even though the claim amount is very high workload is not that much but when you apply a fee proportionate to the sum in dispute some arbitrators get a lottery out of it. For example, banking and finance cases where workload is not high but the sum in dispute is high. Then in category two cases when the sum in dispute is high but the workload is much higher, the ceiling in arbitrator fee really demotivates the arbitrators and then they try to cut down their working hours which results in injustice to the parties. We have seen some arbitrations where arbitrators do not allow parties for examination of witnesses, amend the claims even though it is necessary. For example, in high value infrastructure arbitrations the records are voluminous, witness procedure is long and award writing is also a very complex time consuming process. In category three cases, the arbitration clause provides for a three-member tribunal and parties don’t even initiate arbitrations just because the arbitrator fee may be higher than the sum in dispute or may take away the major part of the award.

To resolve all these three issues, some international arbitral institutions have come out with two different options. For the first two issues, the option is that parties jointly can decide whether they wish to pay the arbitrators on the basis of sum in dispute or on the basis of workload. HKIAC introduced this system first and many other arbitral institutions are following this system. If both the parties choose workload basis fee system, they can even negotiate the hourly fees with the arbitrators. But our Schedule IV has two deficiencies one is it is providing the fee schedule that is proportionate to sum in dispute alone and with a cap of Rs. 30 Lakhs. In a way our Act is not giving due respect to Party autonomy to decide the arbitration process fully. For the third option, institutions have devised an expedited procedure by which if the sum in dispute is less than a particular thresh hold even though arbitration agreements provide for a three-member tribunal, the institution is empowered to convert it into a sole arbitrator and help the parties to resolve their disputes.

Striking a balance is now necessary. Hence, the arbitral Institutions in India must adopt flexible fee system and allow the parties to choose as per their wish. Government of India also should consider modifying the Fee schedule and give liberty to parties to choose as per their wish. In addition to that Government of India should come forward to close the adhoc arbitration process and encourage only administered arbitrations in India. In a recent Judgment of the Supreme Court of India, in the matter of ONGC Vs Afcons Gunanusa (2022) SCC Online SC 1122 recognized the party autonomy in unequivocal terms to fix the fee schedule for arbitrators, which is a land mark step.