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topicnews · October 18, 2024

The Delhi High Court rejects the objection to the recalculation of arbitration fees and maintains the separate calculation of fees for claims and counterclaims

The Delhi High Court rejects the objection to the recalculation of arbitration fees and maintains the separate calculation of fees for claims and counterclaims

The Delhi High Court Bank of justice Sachin Datta found that the arbitral tribunal correctly applied Annex IV to the Arbitration and Conciliation Act of 1996 when recalculating the fees separately for claims and counterclaims.

Furthermore, the court held that invoking Section 39(2) of the Arbitration and Conciliation Act 1996 was premature as no award had yet been made.

Quick facts:

The petitioner has challenged an order of the arbitrator regarding apportionment of fees under Section 39(2) of the Act. The dispute arose out of an arbitration initiated by Shooglo Network Private Limited (formerly OMG Network) seeking recovery of ₹44,69,864 at an interest rate of 24% per annum. Further, the defendant filed a counterclaim for the amount of 2 Crores.

The dispute arose when the arbitrator fixed the arbitration fees at ₹ 6,02,747 by order dated August 12, 2024. Further, it was decided that both parties would pay 50% of the said fees each i.e. ₹3,01,373 each. Further, the respondent filed an application under Section 31A read with Section 38 of the Act. And also relied on the Supreme Court ruling Oil and Natural Gas Corporation Ltd. against Afcons Gunanusa JVwhich stated that the arbitration fees for the claim and the counterclaim should be calculated separately under the Fourth Schedule of the Act.

Furthermore, the petitioner contested the application on the grounds that the fees had already been fixed by mutual agreement between the parties. The arbitral tribunal was not free to change this at the defendant’s request.

Submissions from the parties:

The plaintiff’s lawyer submitted that the disputes payable to the arbitrator had already been agreed and recorded in the proceedings. So there was no need to revise it. In addition, they relied on the judgment in Jivanlal Joitram Patel v. National Highways Authority of Indiawhich held that fees should be based on the total amount of the claim and counterclaim and that reassessment of fees after assessment was unreasonable. In addition, they relied on the Supreme Court ruling Oil and Natural Gas Corporation Ltd. against Afcons Gunanusa JV.

However, the respondent’s lawyer strongly disputes both the viability and merits of the petition as no award has yet been issued. Furthermore, they claimed that the fees were originally based on Schedule IV of the Act and the amended fee was correctly calculated taking into account the judgment Oil and Natural Gas Corporation Ltd. against Afcons Gunanusa JV.

Court observation:

The court noted that the plaintiff relied on Section 39(2), which applies only when an arbitral tribunal exercises a lien on an award or refuses to serve the award until fees are paid. The court found that this provision did not apply because the arbitral tribunal had not yet issued an award or exercised such a lien.

Furthermore, the court explained that Section 38(2) provides remedies for non-payment of fees before making an award, but these conditions were not met in this case. Since the arbitration proceedings had not yet progressed to an award, the reliance on Section 39(2) was premature and untenable.

In addition, the court ruled that the plaintiff’s appeal McNally Bharat Engineering Company Limited v. Steel Authority of India Limited & Anr. was misplaced as this case concerned relevant provisions of the ICA Rules and not Schedule IV of the Act. The court found that the rules and circumstances in this case were different, so they did not apply to this case.

The court concluded that the original determination of fees was based on Schedule IV of the Act and that the court had followed proper legal guidelines.

“24. As already mentioned, this argument is incorrect for the simple reason that the original determination of the fees was not based on an agreement between the parties independent of Annex IV. On the contrary, when setting the fees, the arbitrator expressly claimed to apply Annex IV and make it applicable for setting the fees. Therefore, it is not the case that the impugned order seeks to disregard an agreement between the parties as to what arbitration fees should be paid.”

The Supreme Court ruling in Oil and Natural Gas Corporation Ltd. against Afcons Gunanusa JV clarified that arbitration fees must be calculated separately for claims and counterclaims, and the arbitrator properly applied this method. Ultimately, the court dismissed the lawsuit.

Case title: ICRI CORPORATES PRIVATE LIMITED vs SHOOGLO NETWORK PRIVATE LIMITED (PREVIOUSLY OMG NETWORK PRIVATE LIMITED)

Case number: OMP(MISCELLANEOUS)(COMM.) 788/2024

Plaintiff’s lawyer: Mr. Sunil Choudhary, Adv.

Counsel for Defendant Nos. 1, 2 and 4: Mr. Mayank Arora and Mr. Abhnav Agrawal, Advs.

Date of judgment: October 7, 2024

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