Arbitrators set their own fees. The Supreme Court said no — and fixed the ceiling.

When the Arbitrator Set His Own Fee: The Supreme Court’s Four-Part Answer

Oil and Natural Gas Corporation Ltd. had a problem. It had entered a construction contract with Afcons Gunanusa JV. A dispute arose. An arbitral tribunal was constituted. And then the tribunal did something that would trigger a chain of litigation all the way to the Supreme Court: it fixed its own fee, far beyond what the contract had agreed or what the Fourth Schedule of the Arbitration Act prescribed.

ONGC wasn’t alone. NTPC Ltd. and Rail Vikas Nigam Ltd. (RVNL) were in the same boat. Each had seen arbitrators unilaterally determine their own remuneration. Each had challenged those determinations in the Bombay and Delhi High Courts. Each had lost. The stakes were enormous: if arbitrators could set their own fees without constraint, then every government company entering a construction contract faced an unpredictable cost. The fee could eat into the award itself. The entire arbitration process could become a vehicle for arbitrator enrichment rather than dispute resolution.

The Supreme Court took up these connected matters — Arbitration Petition (Civil) No. 05 of 2022 along with Civil Appeals 5880/2022, 5879/2022, and MA 1990-1991/2019 in SLP(C) 10021-10022/2017 — and delivered a comprehensive judgment on 29 June 2022. Dr. Justice Dhananjaya Y Chandrachud, writing for the two-judge bench, settled four critical questions that every arbitration practitioner, every CFO, and every founder with an arbitration clause needs to understand.

The Fee That Kept Growing

The story begins with the Fourth Schedule of the Arbitration and Conciliation Act, 1996. Introduced by the 2015 Amendment, the Fourth Schedule provides a model fee schedule for arbitrators. It works on a sliding scale: for a sum in dispute up to Rs 5 lakh, the fee is Rs 45,000 per arbitrator. For sums between Rs 5 lakh and Rs 20 lakh, the fee is Rs 45,000 plus 3.5% of the sum over Rs 5 lakh. And so on, up to Serial No. 6, which covers sums in dispute above Rs 20 crore. At that level, the fee is Rs 30,00,000 plus 0.5% of the sum over Rs 20 crore — but with a crucial ceiling: “subject to a maximum of Rs 30,00,000.”

That ceiling became the battlefield.

In the ONGC matter, the arbitral tribunal had fixed its fee at Rs 1.5 crore per arbitrator. ONGC approached the Bombay High Court under Sections 14 and 15 of the Act, arguing that the tribunal’s mandate had terminated because it was unable to act without demanding an exorbitant fee. The Bombay High Court dismissed the petition on 7 October 2021, holding that since the arbitration was an international commercial arbitration, the Bombay High Court lacked jurisdiction. It granted ONGC liberty to approach the Supreme Court.

In the NTPC matter, the Delhi High Court had dismissed a similar petition on 6 August 2021. The tribunal there had fixed separate fees for the claim and the counter-claim, relying on the proviso to Section 38(1) of the Act. The Delhi High Court upheld that approach.

In the RVNL matter, the Delhi High Court had dismissed the petition on 10 July 2020, holding that the Rs 30 lakh ceiling in Serial No. 6 applied only to the variable component of the fee — the 0.5% over Rs 20 crore — and not to the entire fee. The total fee per arbitrator, according to that interpretation, could be as high as Rs 49,87,500.

Three different tribunals. Three different fee structures. Three different High Court outcomes. The Supreme Court had to bring order.

What the Government Companies Argued

The government companies — ONGC, NTPC, and RVNL — argued that arbitrators cannot unilaterally fix their own fees. The fee must be a matter of agreement between the parties and the arbitrators, or it must be fixed by the court or the appointing institution. They pointed to the Fourth Schedule as the statutory benchmark. They argued that the term “sum in dispute” in the Fourth Schedule should be interpreted to mean the cumulative amount of all claims and counter-claims, not separate amounts for each. They argued that the Rs 30 lakh ceiling at Serial No. 6 capped the entire fee, not just the variable component. And they argued that the ceiling applied to each arbitrator individually, not as a lump sum to be split among the tribunal members.

The arbitrators, on the other hand, argued that the Fourth Schedule was merely a model schedule, not mandatory. They argued that Section 31(8) and Section 31A of the Act gave them the power to determine costs, including their own fees. They argued that the proviso to Section 38(1) allowed them to demand separate deposits for claims and counter-claims, which meant separate fee computations. And they argued that the Rs 30 lakh ceiling was absurdly low for complex commercial arbitrations involving sums in dispute of hundreds of crores.

The Four Questions the Supreme Court Answered

The Supreme Court framed four issues for determination. The answers are now the law of the land.

First: Can arbitrators unilaterally fix their own fees?

No. The Court held that arbitrators are not entitled to unilaterally determine their own fees. The fee must be a matter of agreement between the parties and the arbitrators, or it must be fixed by the court or the appointing institution. The Court relied on its earlier decision in NHAI v. Gayatri Jhansi Roadways Ltd. (2020) 17 SCC 626, which had held that a fee fixed in the arbitration agreement is binding on the arbitrators. The Court extended that principle: if the parties have not agreed on a fee, the arbitrators cannot simply decide what they think they are worth. They must either negotiate with the parties or seek the court’s intervention.

The Court also conducted a comprehensive comparative analysis of international arbitral institutions — the ICC, the LCIA, the SIAC, the HKIAC, and others. The finding was striking: none of these institutions confer unilateral fee-fixing power on arbitrators. In every major institutional framework, the fee is determined by the institution, not the arbitrator. The Court used this as a persuasive benchmark against arbitrator self-determination of fees.

Second: What does “sum in dispute” mean in the Fourth Schedule?

The Court held that the term “sum in dispute” must be interpreted to mean the cumulative amount of all claims and counter-claims. This is consistent with Section 2(9) of the Act, which provides that a “claim” includes a counter-claim. The Court rejected the argument that claims and counter-claims should be treated separately for fee computation purposes. The fee is calculated on the total amount in dispute, not on each claim separately.

This has a direct practical consequence: if a contractor claims Rs 50 crore and the government company counter-claims Rs 30 crore, the “sum in dispute” is Rs 80 crore, not Rs 50 crore and Rs 30 crore separately. The fee is computed on Rs 80 crore.

Third: Does the Rs 30 lakh ceiling cap the entire fee or only the variable component?

The Court held that the Rs 30 lakh ceiling at Serial No. 6 of the Fourth Schedule caps the entire fee, not just the variable component. The Delhi High Court in the RVNL matter had interpreted the ceiling as applying only to the 0.5% variable component, allowing a total fee of Rs 49,87,500. The Supreme Court overruled that interpretation. The ceiling of Rs 30 lakh is the maximum fee per arbitrator, regardless of how high the sum in dispute goes.

The Court acknowledged that the Fourth Schedule rates are on the “lower side” and may need upward revision to reflect realistic rates in present times. But that is a matter for the legislature, not for arbitrators to fix unilaterally.

Fourth: Does the ceiling apply per arbitrator or to the whole tribunal?

The Court held that the Fourth Schedule fee ceiling applies to each individual arbitrator, not as a lump sum to be split among tribunal members. This means that in a three-member tribunal, each arbitrator is entitled to a fee up to Rs 30 lakh, for a total tribunal fee of up to Rs 90 lakh. The ceiling is per arbitrator, not per tribunal.

This is a significant clarification. Some tribunals had argued that the Rs 30 lakh ceiling was the total fee for the entire tribunal, to be divided among the members. The Court rejected that interpretation. Each arbitrator is independently entitled to the fee computed under the Fourth Schedule, subject to the Rs 30 lakh ceiling per arbitrator.

THE PLAY: When drafting an arbitration agreement, specify the fee structure explicitly. If you rely on the Fourth Schedule, state that the fee shall be computed in accordance with the Fourth Schedule, with the ceiling of Rs 30 lakh per arbitrator, and that the “sum in dispute” includes all claims and counter-claims cumulatively. This prevents arbitrators from later claiming a higher fee.

Why This Matters in Practice

For advocates, this judgment is a toolkit. When an arbitrator demands a fee beyond the Fourth Schedule limits, you now have a clear argument: the arbitrator cannot unilaterally fix the fee. You can move an application under Section 14 of the Act to terminate the arbitrator’s mandate on the ground that the arbitrator is unable to act — because demanding an exorbitant fee is a form of inability to act. The Court has given you the ammunition.

For CFOs and founders, this judgment is a cost-control mechanism. If your company has an arbitration clause that does not specify the fee structure, the default is now the Fourth Schedule. The maximum fee per arbitrator is Rs 30 lakh. For a three-member tribunal, the maximum is Rs 90 lakh. That is a predictable, manageable cost. You no longer face the risk of an arbitrator demanding Rs 1.5 crore per arbitrator, as happened in the ONGC matter.

The Court also noted that High Courts have been slow in framing rules for arbitrators’ fee determination under Section 11(14) of the Act. This is an obiter observation, but it carries weight. If your arbitration is pending in a High Court that has not framed fee rules, you can cite this judgment to argue that the Fourth Schedule should apply by default.

The Bottom Line

Arbitrators cannot set their own fees. The Fourth Schedule is the default. The ceiling is Rs 30 lakh per arbitrator. The “sum in dispute” includes all claims and counter-claims. And the ceiling applies to each arbitrator individually. Draft your arbitration agreements accordingly, or face the consequences.