Arbitration Fees Under NHAI Contracts: Supreme Court Clarifies Applicability
National Highways Authority of India vs Gayatri Jhansi Roadways Limited
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• 4 min readKey Takeaways
• A court cannot disregard an agreed fee structure for arbitrators merely because a new policy exists.
• Section 31(8) and Section 31A of the Arbitration Act do not override contractual agreements on arbitrator fees.
• Arbitrators are entitled to fees as per the agreement unless explicitly stated otherwise in the contract.
• The change in language of Section 31A does not affect pre-existing agreements on arbitration fees.
• An application to terminate arbitrators' mandate cannot be based solely on their adherence to a court's interpretation of fee structures.
Content
ARBITRATION FEES UNDER NHAI CONTRACTS: SUPREME COURT CLARIFIES APPLICABILITY
Introduction
The Supreme Court of India recently addressed the issue of arbitration fees in the context of contracts involving the National Highways Authority of India (NHAI). The judgment clarifies the applicability of agreed fee structures versus statutory provisions under the Arbitration and Conciliation Act, 1996. This ruling is significant for legal practitioners and parties engaged in arbitration, particularly in the infrastructure sector, where NHAI contracts are prevalent.
Case Background
The case arose from two civil appeals involving the NHAI and its contractors, Gayatri Jhansi Roadways Limited and Gammon Engineers and Contractors Pvt. Ltd. The disputes stemmed from a contract dated February 7, 2006, which included an arbitration clause stipulating the appointment of three arbitrators. The contract specified a detailed fee structure for the arbitrators, which was based on a policy decision from 2004.
As disputes emerged, arbitration was invoked by the NHAI in 2017. However, the respondent, Gayatri Jhansi Roadways, sought to apply a new fee structure introduced by a circular from NHAI dated June 1, 2017. This circular significantly increased the fees payable to arbitrators, which led to contention regarding which fee structure should apply.
What The Lower Authorities Held
The Arbitral Tribunal initially ruled that the fees would be governed by the Fourth Schedule of the Arbitration and Conciliation (Amendment) Act, 2015, rather than the agreed fee structure in the contract. This decision was contested by the respondent, who argued that the agreed fee structure should prevail.
The matter escalated to the High Court, where a learned Single Judge ruled that the Fourth Schedule was not mandatory and that the agreed terms regarding arbitrator fees must be followed. This judgment was challenged, leading to the Supreme Court's intervention.
The Court's Reasoning
The Supreme Court, led by Justice R.F. Nariman, examined the contractual obligations and the implications of the statutory provisions. The Court noted that the fee schedule was indeed fixed by the agreement between the parties and that the earlier circular from 2004 was subject to amendments over time.
The Court emphasized that the fee structure established in the June 1, 2017 circular would apply, as it was a legitimate amendment to the original agreement. The Court rejected the argument that the arbitrators had become de jure unable to perform their functions simply because they followed the law as interpreted by the Delhi High Court in a previous case.
The judgment clarified that while the Fourth Schedule of the Arbitration Act provides a framework for determining costs, it does not negate the validity of a pre-existing agreement on fees. The Court held that the learned Single Judge's interpretation of the law in the earlier case was incorrect and did not consider the broader implications of the amendments to the Arbitration Act.
Statutory Interpretation
The Supreme Court's ruling involved a critical interpretation of the Arbitration and Conciliation Act, particularly Sections 31(8) and 31A. The Court highlighted that these sections govern the costs of arbitration but do not override the specific agreements made by the parties regarding arbitrator fees. The deletion of the phrase “unless otherwise agreed by the parties” from Section 31A was significant, indicating that while parties cannot contract out of the costs awarded by the tribunal, they can still agree on the fees payable to arbitrators.
The Court's interpretation reinforces the principle that contractual agreements should be honored, particularly in arbitration, where the parties have the autonomy to define their terms.
Why This Judgment Matters
This judgment is pivotal for legal practitioners and parties involved in arbitration, particularly in the context of government contracts and infrastructure projects. It underscores the importance of adhering to agreed contractual terms, even in the face of changing statutory provisions or policy decisions. The ruling affirms that parties can negotiate and establish their fee structures, which must be respected by arbitrators and tribunals.
The decision also clarifies the limits of statutory provisions concerning arbitration fees, ensuring that the autonomy of parties in arbitration agreements is preserved. This is particularly relevant for future disputes involving NHAI contracts and similar agreements, where the fee structure may be a contentious issue.
Final Outcome
The Supreme Court allowed the appeals, set aside the impugned judgments of the lower courts, and directed the arbitrators to proceed with the arbitration expeditiously. The Court extended the timeline for the arbitrators to deliver the Arbitral Award to one year from the date of the judgment.
Case Details
- Case Title: National Highways Authority of India vs Gayatri Jhansi Roadways Limited
- Citation: 2019 INSC 744
- Court: IN THE SUPREME COURT OF INDIA
- Date of Judgment: 2019-07-10