‘REPORTABLE’

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5383 OF 2019 (Arising out of SLP (C)No. 3211 of 2018)

NATIONAL HIGHWAYS AUTHORITY OF INDIA          Appellant(s)

VERSUS

GAYATRI JHANSI RAODWAYS LIMITED               Respondent(s)

 WITH

CIVIL APPEAL NO. 5384 OF 2019 (Arising out of SLP (C) No. 22099 of 2018)

GAMMON ENGINEERS AND CONTRACTORS PVT. LTD.  Appellant(s)

VERSUS

NATIONAL HIGHWAYS AUTHORITY OF INDIA       Respondent(s)

J U D G M E N T

R. F. NARIMAN, J.

CIVIL APPEAL NO. 5384 OF 2019 (Arising out of SLP (C) No. 22099 of 2018)

Leave granted.  

The brief facts of the present appeal are as follows:

A contract dated 07.02.2006 was entered into between

the  appellant  and  the  respondent.   It  is  sufficient  to

state, for the purpose of this case, that insofar as the

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dispute  resolution  is  concerned,  the  arbitration  clause

referred the parties to the arbitration of three learned

arbitrators - one to be appointed by each party and the

third arbitrator to be appointed by the two arbitrators so

appointed.   The  aforesaid  contract  contained  paragraph  5

which reads as follows:  

“5. The parties are desirous that the remuneration and other expenses payable to the Arbitrators as per arbitration clause for referring the dispute between the parties arising out of the said Contract to the Arbitral Tribunal for resolution in accordance with the  procedure  laid  down  therein,  shall  be  as follows:

I. That  the  maximum  limit  for  fee  payable  to each  Arbitrator  per  day  shall  be  Rs.5000/- subject to a maximum of Rs.1.5 lakh per case.

II That each Arbitrator shall be paid a reading fees of Rs.6000/- per case.

III That each Arbitrator shall be paid Rs.5000/- by way of secretarial assistant per case.

IV. That each Arbitrator shall be paid Rs.6000/- per  case  towards  incidental  charges  like telephone, FAX, postage etc.

V. That other expenses based on actual against presentation  of  bills,  shall  also  be reimbursed to each Arbitrator subject to the following ceiling (applicable for the days of hearing only)

(a) Travelling expenses – Economy class (By Air), First class AC (By train) and AC car (By road).

(b) Lodging and boarding – Rs.8000/- per day in Metro cities (Delhi, Mumbai, Chennai & Kolkata),  Rs.5000/-  per  day  in  other cities  OR  Rs.2000/-  per  day  if  any Arbitrator makes  his own arrnagement.

(c) Local travel – Rs.700/- per day

VI Charges for publishing the Award – Maximum of Rs.10,000/-

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VII That  in  exceptional  cases,  such  as  cases involving  major  legal  implication/wider ramification/higher  financial  stakes  etc.  a special  fees  structure  could  be  fixed  in consultation  with  the  Contractor/Supervisoin consultant and with the specific approval of the Chairman, NHAI before appointment of the Arbitrator.”

Mr. P. S. Narasimha, learned senior counsel appearing

on behalf of the respondent, has informed us that the fee

schedule  that  was  so  fixed,  was  fixed  under  a  policy

decision dated 31.05.2004 of the National Highways Authority

of India (hereinafter referred to as ‘NHAI’ of brevity), a

perusal of which would show that, this is, in fact, so.   

As disputes arose between the parties, arbitration was

invoked by the appellant long after the contract was entered

into, i.e., on 23.05.2017.  The respondent wrote a letter

dated  14.07.2017  appointing  Shri  Sudesh  Dhiman  as  its

nominee arbitrator in which it reminded the arbitrator that

the fee applicable is to be considered as per the policy

circular  of  the  NHAI  dated  01.06.2017.   This  circular

substituted amounts payable to the arbitrator as per the

circular of 2004, whereby the arbitrators would now get for

any claim under Rs.100 crores, Rs.25,000 per day together

with enhanced other charges or a lumpsum fee of Rs.5 lakhs

per case  which includes  counter claims,  in place  of the

original fee structure.   

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The matter then came up before the Arbitral Tribunal,

which was by then constituted, in which the Tribunal passed

an order dated 23.08.2017, in which it stated as follows:  

“1.12.1 Fees:

(a) The Claimant informed that there is no agreement  between  the  parties  regarding the fees of the AT.

(b) The Respondent requested that fees of the AT  may  be  fixed  in  terms  of  the instructions  issued  by  NHAI  vide  their circular dated 01.06.2017.

(c) The  Tribunal  considered  the  matter  and decided that the fees of the AT shall be regulated as per provisions of the Fourth Schedule  of  the  Arbitration  and Conciliation (Amendment) Act, 2015.”

The  respondent,  against  this  order,  moved  an

application dated 13.10.2017 before the Tribunal in which it

sought to remind the Tribunal that the arbitral fees has

been fixed  by the agreement and that, therefore, they may

be fixed in terms of the policy of 2017 and not as per the

Fourth  Schedule  of  the  Arbitration  and  Conciliation  Act,

1996.  The matter came up before the Tribunal yet again on

30.01.2018.  The Tribunal then passed the following order:

“3.8 The respondent had filed an application for review of fees fixed by the AT and to modify the same in terms of the NHAI circular dated 01.06.2017.

It  was  brought  out  that  the  Claimant  had inadvertently informed the AT as per para 1.12.1(a) that  there  was  no  agreement  between  the  parties regarding  the  fees  of  the  AT.   In  fact,  the agreement provides for a fixed rate of fee of the AT as agreed by the parties.

Oral submissions on this mater were made  by both

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the parties.  The AT deliberated on the matter and has decided that in view of the latest provision in the amended Act, the AT is competent to fix the fees regardless of the agreement of the parties.  This is as per judgment dated 11.09.2017 of the Hon’ble High Court  in  the  matter  of  NHAI  vs  Gayatri  Jhansi Roadways.  The AT reiterated that the fees fixed in the 1st hearing shall be followed.  Accordingly, fees shall be regulated as per provisions of ‘the fourth schedule of the amended Arbitration and Conciliation Act, 1996.”

Faced  with  this  order,  the  respondent  moved  an

application  on  08.05.2018  under  Section  14  of  the

Arbitration  and  Conciliation  Act,  1996,  to  terminate  the

mandate of the arbitrators, inasmuch as, according to the

respondent,  the  arbitrators  had  wilfully  disregarded  the

agreement between the parties and were, therefore, de jure

unable to act any further in the proceedings.

Meanwhile, the Arbitral Tribunal passed yet another

order dated 19.07.2018 in which the Tribunal stated it had

no objection to payment of any fees as would be decided in

the pending proceedings by the High Court of Delhi.

The learned Single Judge, by the impugned judgment,

set out clause 5 of the agreement between the parties and

then stated that the Fourth Schedule of the Arbitration Act

not being  mandatory, whatever  terms are  laid down  as to

arbitrator’s fees in the agreement, must needs be followed.

In so doing, he disagreed with the another learned Single

Judge Bench judgment dated 11.09.2017 in  National Highways

Authority of India  v.  Gayatri Jhansi Roadways Limited in

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which, the learned Single Judge had held that Section 31(8)

and Section 31A of the Arbitration Act would govern matters

such  as  this  and  since  the  expression  ‘unless  otherwise

agreed by the parties’ had been omitted from Section 31A by

the Amendment Act of 2015, arbitrator’s fees would have to

be  fixed  in  accordance  with  the  Fourth  Schedule  of  the

Arbitration Act dehors the agreement between the parties.   

The impugned judgment violently disagreed with this

view holding the said judgment as per incuriam stating that:

“25. A reading of the above would clearly show that the “costs” under Section 31(8) and 31A of the Act are  the  costs  which  are  awarded  by  the  Arbitral Tribunal as part of its award in favour of one party to the proceedings and against the other.

26. The deletion of words “unless otherwise agreed by the parties” in Section 31A only signifies that the parties, by an agreement, cannot contract out of payment of ‘costs’ and denude the Arbitral Tribunal to award ‘costs’ of arbitration in favour of the successful party.  The Judgment of this Court in Gayatri Jhansi Roadways Limited (Supra) relied upon by the counsel for the respondent does not take note of  the  above  decisions  or  the  report  of  the  Law Commission.  The said judgment is, therefore,  per incuriam.  I am informed that the said decision is pending challenge before the Supreme Court by way of a Special Leave Petition.  In any case, the said Judgment was passed on an appeal under Section 37 of the Act and did not consider the contours of Section 14 of the Act.”

We have heard learned counsel for the both the sides.

In  our  view,  Shri  Narasimha,  learned  senior  counsel,  is

right in stating that in the facts of this case, the fee

schedule was, in fact, fixed by the agreement between the

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parties.   This  fee  schedule,  being  based  on  an  earlier

circular of 2004, was now liable to be amended from time to

time in view of the long passage of time that has ensued

between  the  date  of  the  agreement  and  the  date  of  the

disputes  that  have  arisen  under  the  agreement.   We,

therefore, hold that the fee schedule that is contained in

the Circular dated 01.06.2017, substituting the earlier fee

schedule,  will  now  operate  and  the  arbitrators  will  be

entitled  to  charge  their  fees  in  accordance  with  this

schedule and not in accordance with the Fourth Schedule to

the Arbitration Act.  

We may, however, indicate that the application that

was filed before the High Court to remove the arbitrators

stating  that  their  mandate  must  terminate,  is  wholly

disingenuous and would not lie for the simple reason that an

arbitrator does not become  de jure unable to perform his

functions if, by an order passed by such arbitrator(s), all

that they have done is to state that, in point of fact, the

agreement does govern the arbitral fees to be charged, but

that  they  were  bound  to  follow  the  Delhi  High  Court  in

Gayatri Jhansi Roadways Limited case which clearly mandated

that the Fourth Schedule and not the agreement would govern.

The arbitrators merely followed the law laid down by

the Delhi High Court and cannot, on that count, be said to

have  done  anything  wrong  so  that  their  mandate  may  be

terminated as if they have now become  de jure unable to

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perform  their  functions.   The  learned  Single  Judge,  in

allowing the Section 14 application, therefore, was in error

and we set aside the judgment of the learned Single Judge on

this count.   

However, the learned Single Judge’s conclusion that

the change in language of section 31(8) read with Section

31A which deals only with the costs generally and not with

arbitrator’s fees is correct in law.  It is true that the

arbitrator’s fees may be a component of costs to be paid but

it is a far cry thereafter to state that section 31(8) and

31A would directly govern contracts in which a fee structure

has already been laid down.  To this extent, the learned

Single  Judge  is  correct.   We  may  also  state  that  the

declaration of law by the learned Single Judge in  Gayatri

Jhansi Roadways Limited is not a correct view of the law.   

With these observations, this appeal is allowed, the

impugned  judgment is  set  aside  and  the  arbitrators  are

directed to proceed with the arbitration as expeditiously as

possible.

We extend the time, with the consent of the parties,

to a period of one year from today in which the arbitrators

must deliver the Arbitral Award in the present case.   

CIVIL APPEAL NO. 5383 OF 2019 (Arising out of SLP (C)No. 3211 of 2018

Regard being had to the judgment just pronounced in

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the aforementioned Civil Appeal No. 5384 of 2019, we set

aside the impugned judgment dated 11.09.2017 in the present

case.  However, the setting aside of this judgment will not,

in any way, come in the way of the final Award between the

parties which has been upheld finally by this Court.

The appeal stands disposed of accordingly.

…………………………………………………………………., J. [ R. F. NARIMAN ]

…………………………………………………………………., J. [ SURYA KANT ]

New Delhi; July 10, 2019.

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