Sanchayita Lahkar

The Calcutta High Court, Single Bench of Justice Bibhas Ranjan De, dismissed a revision application filed under Article 227 of the Constitution of India. The court adjudicated upon the challenge raised against the fixation of arbitrator's fees by the sole arbitrator without party consultation. The petition was brought forward by a party aggrieved by the arbitrator's decision in a contractual dispute over a sand block lease, questioning both the arbitrator's fee fixation and rejection of counterclaims on the grounds of non-payment. The Bench recorded that "arbitrators can charge fees as agreed by the parties rather than strictly adhering to the Fourth Schedule."

The dispute arose from a contractual relationship between the petitioner, P & P Business Private Limited, and the opposite party, Marco Francesco Shoes (India) Private Limited, concerning the operation of a sand block at Gopalpur, Bankura. The opposite party had obtained the tender and sub-leased the operation to the petitioner in exchange for monetary consideration. Subsequent disputes over payment led to arbitral proceedings.

Also Read: "Honour Killing, A Wicked and Odious Crime Reflecting Caste Structure, Must Get Strong Punishment": Supreme Court Upholds Convictions and Awards Compensation in Kannagi-Murugesan Case

The arbitration commenced pursuant to an agreement dated 23.05.2018. The opposite party, as claimant, filed a statement of claim amounting to Rs. 2,56,26,000/- with interest, while the petitioner submitted a counterclaim of Rs. 6,90,98,132/-, also with interest.

During the proceedings, the arbitrator allegedly fixed a lump sum fee of Rs. 30,00,000/- to be equally shared by both parties. The petitioner objected to this fixation, arguing that it violated the Fourth Schedule of the Arbitration and Conciliation Act, 1996. The petitioner filed the present revision under Article 227, contending that such a unilateral decision breached principles of party autonomy and natural justice.

It was submitted by the petitioner, represented by Advocate Partha Pratim Roy, that Sections 11(3)(A) and 11(14) of the Act prohibit arbitrators from fixing their own fees unilaterally. The total combined claim and counterclaim being Rs. 5,57,24,132/-, the permissible fee under the Fourth Schedule would be Rs. 9,93,426.25, including the 25% extra for sole arbitrators. The petitioner argued that the arbitrator's fee of Rs. 30,00,000/- was excessive and unjustified.

Furthermore, the petitioner contended that since neither Section 34 nor Section 37 of the Arbitration and Conciliation Act provided a remedy for such grievance, Article 227 jurisdiction could be invoked. The petitioner relied on decisions including Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV, Srei Infrastructural Ltd. v. Tuff Drilling Pvt. Ltd., and Deep Industries Ltd. v. ONGC Ltd.

The opposing counsel, Advocate Sayak Ranjan Ganguly, asserted that the Arbitration and Conciliation Act, 1996, is a complete code and the Fourth Schedule is merely a model, not mandatory. In absence of specific Calcutta High Court rules under Section 11(14), the arbitrator could determine his own fee. It was also argued that Section 38(2) permits suspension or termination of claims or counterclaims in case of default in fee payment. Since the petitioner had defaulted, rejection of its counterclaim was valid.

Mr. Ganguly further submitted that judicial intervention under Article 227 should be sparing and limited to cases of jurisdictional error or patent illegality, which was not present here. He relied on Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., Union of India v. Singh Builders Syndicate, and Nivedita Sharma v. Cellular Operators Association of India.

Justice Bibhas Ranjan De framed three issues for consideration:

1. Whether the arbitrator can fix his own fees in violation of the Fourth Schedule.

2. Whether an arbitrator can reject a counterclaim on the ground of non-payment of arbitrator's fee.

3. Whether a revision under Article 227 is maintainable for challenging arbitrator's remuneration.

Regarding Issue 1, the court observed: "arbitrators indeed have the liberty to fix their own remuneration... upon deliberation and consultation with the parties." The judgment recorded that "the arbitrator is required to fix remuneration upon deliberation and consultation with the parties," but ultimately noted that "parties have fixed a fee schedule, then Fourth Schedule to the Act of 1996 does not apply." The court also stated that the petitioner failed to raise any objection during arbitration, and "made no comment while the arbitrator fixed his remuneration which fact is also duly recorded."

In addressing Issue 2, the court examined the second proviso to Section 38(2): "where the other party also does not pay the aforesaid share... the arbitral tribunal may suspend or terminate the arbitral proceedings." Justice De stated that "if the arbitrator rejects a counter claim from a party that has not paid the required remuneration, then it cannot be said that the arbitrator acted beyond his jurisdiction."

As to Issue 3, the Bench stated the limited scope of Article 227. The court held: "the High Court... does not act as an Appellate Court," and reiterated that such power "should be exercised sparingly, particularly in arbitration matters where minimal judicial intervention is the guiding principle." Further, "a party cannot file a revision application under Article 227 solely based on dissatisfaction with an arbitrator’s order regarding quantum of remuneration." The court advised the petitioner to raise the issue under Section 34 while challenging the final award.

Also Read: Andhra Pradesh High Court Dismisses Challenge to 15-Year Pension Rule, Says “Petitioners Having Derived the Benefit ; Cannot Now Challenge the Very Scheme”

The Calcutta High Court concluded the matter as follows: "Conglomeration of discussion of all the issues pertaining to the lease at hand boils down to the sole available conclusion that the revision application being no. C.O. 140 of 2023 is liable to be dismissed."

"This Court is not inclined to examine the merit of any of the contentions... solely because of the point of maintainability."

"Both the parties are absolutely free to raise their claims/counter-claims in accordance with law. All rights and contentions of the parties are left open."

“With the aforesaid observation the instant revision application stands disposed of.” “Interim Order, if there be any, stands vacated.” “Connected applications, if there be, also stand disposed of accordingly.”

Advocates Representing the Parties

For the Petitioners: Mr. Partha Pratim Roy, Adv.; Mr. Srijib Chakraborty, Adv.; Mr. Sunny Nandy, Adv.

For the Respondents: Mr. Sayak Ranjan Ganguly, Adv.; Ms. Srijani Ghosh, Adv.; Ms. Indrani Majumdar, Adv.

Case Title: P & P Business Private Limited vs. Marco Francesco Shoes (India) Private Limited

Case Number: C.O. 140 of 2023

Bench: Justice Bibhas Ranjan De

[Read/Download order]