The fee fixation principle: Arbitrators cannot unilaterally revise their remuneration

Arbitration Insight: Understanding the Fee Fixation Principle and the limitation on arbitrators from unilaterally revising their remuneration.

Background

In Chennai Metro Rail Limited v. Transtonnel stroy Afcons JV, (2024) 6 SCC 211, the Supreme Court was called upon to examine two related questions: first, whether a tribunal could unilaterally revise its fee after it had been fixed by agreement with all parties; and second, whether such revision, when insisted upon by the tribunal over the objection of one party, amounted to de jure incapacity warranting termination of the tribunal's mandate under Section 14 of the Arbitration and Conciliation Act, 1996.

Chennai Metro Rail Limited had engaged a three-member tribunal pursuant to a Rs. 1,566 crore construction contract. By minutes recorded at the outset, the hearing fee was fixed at Rs. 1,00,000 per session for each arbitrator. After the tenth hearing, the tribunal sought to revise this to Rs. 2,00,000 per session. Chennai Metro objected. The other party, Afcons, paid the revised fee for five hearings. Chennai Metro then filed a petition before the Madras High Court under Section 14 seeking a declaration that the tribunal's mandate stood terminated. The High Court dismissed the petition, and Chennai Metro appealed to the Supreme Court.

What the Supreme Court Held

The Court dismissed the appeal and upheld the Madras High Court's order. On the substantive fee question, it reaffirmed the position settled in ONGC v. AFCONS Gunasa JV: fee fixation is a tripartite arrangement between all parties and the tribunal. Once the Terms of Reference are signed, it is not open to the tribunal to vary either the fee fixed or the heads under which fee may be charged, without the consent of all parties. Any revision requires agreement by both contesting parties and the tribunal. A tribunal that cannot secure this agreement must either continue at the original rate or decline the assignment.

However, the Court drew a sharp distinction between a fee revision dispute and de jure incapacity under Section 14. The grounds for de jure incapacity that entitle a party to bypass the challenge procedure before the tribunal and go directly to court under Section 14 are those enumerated in the Seventh Schedule to the Act, as made ineligible by Section 12(5). The tribunal's insistence on a revised fee, though impermissible under the ONGC directives, does not fall within any of the nineteen categories in the Seventh Schedule. It does not constitute a pre-existing relationship, a financial interest in the dispute, or any other enumerated ineligibility condition.

The Court, following HRD Corporations v. Gas Authority of India Ltd. and Bharat Broadband Network Limited v. United Telecoms Ltd., reiterated that where grounds of justifiable doubt about impartiality fall outside the Seventh Schedule, the aggrieved party must first raise the objection before the tribunal under Section 13(2), within fifteen days of becoming aware of the relevant circumstance. Only if unsuccessful at that stage can the issue be carried to a court, and ultimately be raised as a ground under Section 34 after the award is made. The Section 14 route is reserved for cases of Seventh Schedule ineligibility under Section 12(5), not for all grievances about tribunal conduct.

The Court also noted that the tribunal had, upon learning of the Supreme Court's ruling in ONGC, reverted to the originally agreed fee and filed affidavits affirming its continued impartiality. The subsequent correction by the tribunal, combined with the absence of a Seventh Schedule ground, made the Section 14 application unsustainable.

Why This Matters for Commercial Dispute Resolution

The judgment settles two points of practical significance. First, fee revision without all-party consent is impermissible regardless of how the tribunal frames it. Any attempt by a tribunal to vary its remuneration mid-proceedings over a party's objection is a breach of the ONGC directives and can be resisted. Second, and equally importantly, not every act of tribunal misconduct translates into a Section 14 remedy. The architecture of Sections 12, 13, and 14 provides a carefully sequenced procedure, and parties cannot skip stages by characterising fee disputes as de jure incapacity.

For parties using institutional arbitration frameworks, the judgment underlines the protective value of transparent, pre-agreed, and capped fee structures. Where fee parameters are settled at the institutional level before proceedings commence, the risk of mid-arbitration disputes over remuneration is eliminated at the outset. ODR institutions that publish their fee schedules openly, apply them uniformly, and do not permit revision without mutual agreement provide a level of cost certainty and procedural fairness that ad-hoc arrangements cannot match. The Chennai Metro case is a reminder of what happens when fee arrangements are left to be renegotiated by the tribunal itself.

Citation: Chennai Metro Rail Limited Administrative Building v. Transtonnelstroy Afcons (JV) and Ors., Miscellaneous Application No. 184 of 2023 in SLP (Civil) No. 8553 of 2022 and Civil Appeal No. 4591 of 2023, decided on 19.10.2023, reported at (2024) 6 SCC 211.