Arbitrators doubled their own fees. Can they be removed for bias?

The arbitrators doubled their own fees mid-case. The client cried bias. The Supreme Court said: wrong move, but wrong procedure too.

Chennai Metro Rail Limited had awarded a Rs. 1566 crore contract to M/S Transtonnelstroy Afcons (JV). Disputes erupted. The matter went to a three-member arbitral tribunal. Everyone agreed on the fee: Rs. 1 lakh per hearing session. Then, without warning, the tribunal decided it deserved double.

Can a party walk straight to court and demand an arbitrator be removed for bias when the arbitrator unilaterally hikes fees — or does the law force the party to first complain to the very tribunal it no longer trusts?

When the fee doubled overnight

The tribunal was constituted on April 29, 2021. Both sides — Chennai Metro and the contractor Afcons — agreed to pay Rs. 1 lakh per session. For over a year, that arrangement held. The hearings proceeded, the arguments were made, and the arbitration machinery turned. Then, on July 1, 2022, the tribunal sent a communication — a letter, terse and unadorned — that changed everything. The fee would now be Rs. 2 lakhs per session. No consultation. No consent. Just a unilateral revision. The silence in the room when the letter was read aloud must have been heavy; the trust that underpins arbitration had been broken in a single sentence. The file, one imagines, sat on the table, its weight suddenly heavier with the knowledge that the tribunal had acted without the agreement that had launched the proceedings.

Chennai Metro objected immediately. Afcons, perhaps calculating its own interests, paid the revised fee. The stage was set for a legal confrontation that would test how far a tribunal could push its own compensation before crossing the line into bias. The smell of paper and ink, the quiet shuffle of documents — these were the only sounds as the parties realised that the very foundation of their arbitration had shifted.

The High Court says no — and the Supreme Court's own judgment changes everything

Chennai Metro filed a petition under Section 14 of the Arbitration and Conciliation Act, 1996 (a provision that allows a court to terminate an arbitrator's mandate if the arbitrator becomes unable or fails to act) before the Madras High Court. The argument was simple: a tribunal that doubles its own fees without consent cannot be impartial. The bias was baked into the act itself. The courtroom, one imagines, was tense as counsel argued that the tribunal's action had poisoned the proceedings beyond repair.

But while the High Court was considering the matter, the Supreme Court delivered a judgment in ONGC v. Afcons Gunasa JV (2022). That judgment made it clear: unilateral fee revision by an arbitral tribunal is impermissible. It cannot be done. The decision landed like a stone in still water, sending ripples through every pending arbitration where fee disputes had simmered.

The tribunal, reading the writing on the wall, reverted to the original fee of Rs. 1 lakh per session. The letter withdrawing the hike arrived, but the damage, Chennai Metro argued, was done. The bias had already manifested. The tribunal's action, they said, could not be undone by a simple retraction — the trust was gone, and the impartiality of the tribunal was now in question. The High Court, however, disagreed and dismissed the petition. Chennai Metro appealed to the Supreme Court.

Two kinds of bias, two different doors

The Supreme Court, in a judgment delivered on October 19, 2023 by a bench of Justice S. Ravindra Bhat and Justice Aravind Kumar, drew a critical distinction — one that every arbitration practitioner needs to understand. The courtroom, one imagines, was still as the bench laid out the framework. The judges' voices, calm and deliberate, cut through the silence as they parsed the statutory scheme.

The court looked at two separate provisions of the Arbitration Act. Section 12(5) read with the Seventh Schedule lists specific grounds that make an arbitrator ineligible to act — relationships with parties, financial interests, prior involvement in the dispute. This is a narrow, closed list. If any of these grounds exist, the arbitrator cannot continue, and the party can go directly to court under Section 14 to have the mandate terminated. The door is open, and the path is clear.

Section 12(3), on the other hand, deals with "justifiable doubts" about impartiality — a broader, more subjective test. This includes things like the fee revision in this case. But for these grounds, the law prescribes a different route: the party must first challenge the arbitrator before the tribunal itself, under Section 13(2). Only after exhausting that procedure — and only if the tribunal refuses to step down — can the party approach a court. The door is not locked, but it has a key, and the key is the challenge procedure before the tribunal.

The court held that unilateral fee revision, while impermissible, does not fall within the Seventh Schedule's list of automatic disqualifications. It is a ground for "justifiable doubt" under Section 12(3), not a ground for "ineligibility" under Section 12(5). As the court stated in its ratio, "unilateral revision of fee by an arbitral tribunal, though not permissible, will not terminate its mandate on the ground of ineligibility under Section 12(5) read with the Seventh Schedule." The words were precise, and they carried the weight of a carefully considered distinction.

Why the procedure matters more than the grievance

This distinction is not academic. It determines whether a party can walk into court immediately or must first face the very tribunal it distrusts. The Supreme Court held that Chennai Metro's direct approach under Section 14 was premature. The proper course was to first apply to the tribunal under Section 13(2), raising the objection about bias. Only if that challenge failed — or if the circumstances made it impossible to expect a fair hearing from the tribunal — could the party then approach the court.

The court cited a line of precedents, including HRD Corporation v. Gas Authority of India Ltd. (2017) and Bharat Broadband Network Ltd. v. United Telecoms Ltd. (2019), to reinforce the principle that the statutory scheme must be followed in sequence. You cannot skip the first step because you find it uncomfortable. The court also drew on S. Parthasarathi v. State of Andhra Pradesh (1974), which established the test of whether a reasonable person, in possession of the facts, would apprehend bias. The fee revision, the court implied, might create that apprehension — but the procedure for addressing it was still the one laid out in Section 13, not a direct leap to Section 14.

The distinction between the Fifth Schedule (which lists grounds for justifiable doubts) and the Seventh Schedule (which lists grounds for ineligibility) was central. The court noted that the Seventh Schedule is a narrow, closed list. Fee revision, however improper, does not appear on it. Therefore, the direct route under Section 14 — which is available only for Seventh Schedule grounds — was not open to Chennai Metro. The party had to follow the procedure under Section 13, even if that meant appearing before the very tribunal whose impartiality it questioned.

The court's reasoning also drew on Ranjit Thakur v. Union of India (1988) and International Airport Authority v. K.D. Bali & Another (1988), which reinforced the test of bias from the perspective of a reasonable person. The fee revision, while wrong, did not meet the threshold of automatic disqualification. The remedy lay in the challenge procedure, not in a direct court petition.

The message for parties and practitioners

For any party in an arbitration who believes the tribunal has crossed a line — whether by revising fees, communicating improperly with one side, or showing bias in procedural decisions — the lesson is clear: check which door you are standing at.

If the ground falls within the Seventh Schedule (specific, objective disqualifications), you can go directly to court under Section 14. If it falls under the broader category of "justifiable doubts" under Section 12(3), you must first challenge the arbitrator before the tribunal under Section 13(2).

Mixing up the two routes can cost you time, money, and credibility. The Supreme Court did not condone the fee revision. But it refused to allow a party to bypass the statutory procedure simply because the tribunal had acted improperly. The court's message was clear: even a justified grievance must follow the right path.

THE PLAY: Before filing a direct court petition to remove an arbitrator, ask: does this ground appear in the Seventh Schedule? If not, you must first challenge the arbitrator before the tribunal itself — or risk having your petition dismissed as premature.

The fee went back to Rs. 1 lakh. The tribunal stayed. And the law drew a line — not between right and wrong, but between two procedures, and warned that choosing the wrong door could leave a valid grievance unheard. As the court put it, the impermissible fee revision "does not constitute a ground under the Seventh Schedule" — a quiet but firm reminder that even a justified complaint must follow the right path. The courtroom fell silent as the judgment was read, and the parties left knowing that the law had spoken: procedure is not a formality, but a shield that protects the integrity of the arbitration process itself.