Implementing Fixed Fees for Arbitrators: A Step Towards Transparency

Arbitration in India has long been seen as a faster, more flexible alternative to traditional litigation. But one persistent concern has dogged the process for years – the cost. Specifically, how much do arbitrators charge, and who gets to decide that? The introduction of a fixed fee framework through the Fourth Schedule of the Arbitration and Conciliation Act, 1996 was designed to tackle this head-on, bringing much-needed transparency and predictability to arbitration costs in India.

Why was there a need to fix arbitrator fees? 🔗

Before the reforms, arbitrator fees in India – especially in ad hoc domestic arbitrations – were largely left to the discretion of the arbitrators themselves. This led to serious problems. The 246th Report of the Law Commission of India (2014) noted that arbitrators frequently charged fees that were arbitrary, one-sided, and disproportionate to the dispute at hand. The Supreme Court in Union of India v. Singh Builders Syndicate (2009) also flagged the issue, observing that excessively high fees were discouraging parties from opting for arbitration at all.

The lack of any standardised fee structure meant that parties entering arbitration had no way to estimate what they would end up paying. This unpredictability undermined one of arbitration’s biggest selling points – efficiency and cost-effectiveness. If arbitration costs more than going to court, the very purpose of an alternative dispute resolution mechanism is defeated.

The Fourth Schedule: how fixed fees work 🔗

Following the Law Commission’s recommendations, the Arbitration and Conciliation (Amendment) Act, 2015 introduced the Fourth Schedule under Section 11(14) of the Act. This schedule provides a model fee structure based on the amount in dispute. The fee is calculated on a slab basis, meaning it increases progressively as the disputed amount goes up, but remains capped beyond a certain threshold.

The fee slab structure 🔗

The Fourth Schedule prescribes fees as follows:

For disputes worth up to ₹5 lakh, the model fee is ₹45,000. For amounts between ₹5 lakh and ₹20 lakh, it is ₹45,000 plus 3.5% of the amount exceeding ₹5 lakh. As the disputed sum rises through higher slabs – ₹20 lakh to ₹1 crore, ₹1 crore to ₹10 crore, ₹10 crore to ₹20 crore – the base amount and percentage increase accordingly. For disputes exceeding ₹20 crore, the fee is ₹19,87,500 plus 0.5% of the excess, with an overall ceiling of ₹30 lakh per arbitrator. If the tribunal consists of a sole arbitrator, they receive an additional 25% over the standard fee.

This structured approach ensures that fees scale proportionally with the complexity and value of the dispute, while the ceiling prevents runaway costs in high-value matters.

Is the Fourth Schedule mandatory? 🔗

This is where things get nuanced. The Fourth Schedule was originally introduced as a model fee structure, not a mandatory one. Under the 2015 amendment, Section 11(14) empowered High Courts to frame rules for determining arbitrator fees, taking the Fourth Schedule rates into account. Multiple courts – including the Delhi High Court and the Bombay High Court – confirmed that the schedule was merely suggestive in nature, not binding.

However, the Arbitration and Conciliation (Amendment) Act, 2019 introduced significant changes. The amended Section 11(14) and the newly inserted Section 11(3A) sought to make it mandatory for arbitral institutions to determine fees subject to the rates in the Fourth Schedule. Importantly, this mandatory application was limited to domestic ad hoc arbitrations and did not extend to international commercial arbitrations or institutional arbitrations.

It is worth noting, though, that parts of the 2019 amendment dealing with these provisions have not yet been fully notified, which has left some ambiguity in practice about the schedule’s binding nature in all situations.

The role of party autonomy 🔗

One of the foundational principles of arbitration is party autonomy – the idea that disputing parties should have the freedom to decide the rules and procedures of their arbitration, including how much the arbitrators get paid. The fixed fee framework operates alongside this principle, not in opposition to it.

If parties have already agreed on a fee structure in their arbitration agreement, that agreement generally takes precedence. The Fourth Schedule comes into play primarily as a default mechanism – when there is no prior agreement on fees, or when the court is appointing arbitrators under Section 11. Parties remain free to negotiate different terms mutually. But what they cannot do, and what the reforms aimed to prevent, is allow arbitrators to unilaterally dictate their own fees.

The ONGC v. Afcons Gunanusa JV decision: settling the law 🔗

The landmark ruling by the Supreme Court in ONGC v. Afcons Gunanusa JV (2022) resolved several long-standing controversies around arbitrator fees. The facts of this case are themselves instructive. ONGC and Afcons had a contract that capped arbitrator fees at ₹10 lakh each. When arbitration began in 2015, the tribunal – composed of retired Supreme Court and High Court judges – demanded a higher fee, first citing the Fourth Schedule and then unilaterally imposing a per-sitting fee. When ONGC refused, the arbitrators recused themselves, leading to years of litigation.

Key holdings of the Supreme Court 🔗

The bench comprising Justices DY Chandrachud, Surya Kant, and Sanjiv Khanna addressed four critical issues and held as follows:

First, arbitrators cannot unilaterally fix their fees. The Court emphasised that party autonomy must be respected, and the fee structure should ideally be settled at the outset of proceedings to avoid disputes later. Where the parties and the arbitrator cannot agree, the Fourth Schedule serves as the default standard.

Second, “sum in dispute” means claims and counter-claims calculated separately. The majority held that the Fourth Schedule’s fee slabs apply independently to the claim amount and the counter-claim amount, not to their cumulative total. This means arbitrators are entitled to charge separate fees for adjudicating the claim and the counter-claim.

Third, the ₹30 lakh ceiling applies to the total fee per arbitrator. The Court clarified that this cap covers the entire fee – the base amount plus the variable percentage – and not just the variable component. This prevents the fee from ballooning to nearly ₹50 lakh, which would have happened if the ceiling applied only to the variable portion.

Fourth, the ceiling is per arbitrator, not per tribunal. Each member of the arbitral tribunal is individually entitled to fees up to the capped amount, rather than the total being divided among them.

Directives issued by the Court 🔗

Beyond settling interpretation issues, the Supreme Court issued broader directives. It directed all High Courts to frame rules for governing arbitrator fees under Section 11(14). It also directed the Union of India to revise the Fourth Schedule’s fee structure periodically – at least once every three years – to keep it aligned with current economic conditions.

How do institutional arbitrations handle fees? 🔗

The Fourth Schedule specifically applies to ad hoc domestic arbitrations. Institutional arbitrations operate under their own fee rules. For example, the Delhi International Arbitration Centre (DIAC) follows the Fourth Schedule as is. The Mumbai Centre for International Arbitration (MCIA) has its own comprehensive fee slabs with minimum and maximum ranges. Other institutions like the Nani Palkhivala Arbitration Centre and the Indian Council of Arbitration maintain entirely separate fee structures.

When a High Court refers a matter to an institution like the International Arbitration and Mediation Centre, the institution’s own schedule applies unless the court directs otherwise. This layered system means the fee landscape varies depending on whether the arbitration is ad hoc or institutional, and if institutional, which institution is administering it.

The 2019 amendment and the push towards institutional arbitration 🔗

The 2019 amendment reflected a broader policy shift. Instead of relying solely on courts to appoint arbitrators in ad hoc settings, it envisioned a system where designated arbitral institutions would handle appointments and fee determination. The Supreme Court and High Courts were to designate graded institutions for this purpose. In places where no such institutions existed, the Chief Justice could maintain a panel of arbitrators who would function like a quasi-institutional setup, bound by the Fourth Schedule.

This shift was driven by a recognition that ad hoc arbitrations – particularly those involving court-appointed retired judges – were structurally vulnerable to fee disputes. By routing appointments through institutions, the 2019 amendment aimed to depersonalise the process and reduce opportunities for unilateral fee escalation.

Ongoing challenges and proposed reforms 🔗

Despite the Fourth Schedule and the ONGC ruling, challenges remain. One key issue is that the fee structure, introduced in 2015, has not been revised since. The Supreme Court’s directive for periodic revision every three years has yet to be implemented comprehensively. Over time, a static fee schedule can become out of touch with inflation and the evolving complexity of disputes.

Another challenge involves the interplay between party agreements and the Fourth Schedule. The Delhi High Court, in a 2023 ruling involving NHAI, held that where an agreement specifically defines how fees should be computed – for example, by combining claims and counter-claims – the ONGC interpretation does not override that agreement. Party autonomy, the court reiterated, remains paramount.

Looking ahead, the Draft Arbitration and Conciliation (Amendment) Bill, 2024, based on recommendations from the T.K. Vishwanathan Committee (constituted in 2023), proposes deleting the Fourth Schedule altogether. Under this proposal, the Arbitration Council of India (ACI) would take over fee-setting authority, allowing for more flexible fee determination that accounts for complexity, time, and resources – not just the monetary value of the claim. This reform, if enacted, would mark a significant departure from the slab-based model currently in place.

What fixed fees mean for access to justice 🔗

The broader purpose of introducing fixed fees for arbitrators goes beyond cost control. It is about making arbitration genuinely accessible. When fees are predictable, parties can budget for dispute resolution from the start. Small and medium enterprises, public sector undertakings, and individual litigants – who are typically more cost-sensitive – benefit the most.

Standardised fees also reduce the power imbalance between arbitrators and parties. Without a fixed framework, parties (especially those who cannot afford to antagonise their arbitrator) are vulnerable to accepting inflated fees under pressure. The Section 31A framework, introduced alongside the Fourth Schedule, further supports this by empowering the tribunal to determine which party bears the costs, generally following the principle that the unsuccessful party pays.

At the same time, the fixed fee approach is not without criticism. Some argue that a rigid slab-based system fails to account for the wide variation in dispute complexity. A ₹20 crore dispute involving simple contractual interpretation is very different from one requiring expert testimony across multiple technical domains – yet the fee under the Fourth Schedule would be the same. This is one reason the T.K. Vishwanathan Committee has recommended moving toward a more flexible model.

Summing it up 🔗

The journey of fixed fees for arbitrators in India reflects the broader evolution of the country’s arbitration ecosystem. From a regime with no fee regulation – where arbitrators could charge what they wished – India has moved to a structured, slab-based model under the Fourth Schedule, upheld and clarified by the Supreme Court in the ONGC v. Afcons decision. The system is not perfect. It needs periodic updates, clearer enforcement, and perhaps greater flexibility. But the direction is clear: transparency, predictability, and fairness in arbitration costs are essential if India wants to become a credible hub for dispute resolution.

What do you think? Should India continue refining the fixed fee model under the Fourth Schedule, or would a flexible fee framework administered by a centralised body like the Arbitration Council of India better serve the needs of modern disputes? And given the reliance on retired judges as arbitrators, can any fee regulation truly work without addressing the structural dynamics of who gets appointed and how?

References

1. https://upload.indiacode.nic.in/schedulefile?aid=AC_CEN_3_46_00004_199626_1517807323919&rid=66
2. https://cdnbbsr.s3waas.gov.in/s3ca0daec69b5adc880fb464895726dbdf/uploads/2022/08/2022081615.pdf
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7. https://www.scobserver.in/cases/revising-fee-scale-for-arbitrators/
8. https://www.lexology.com/library/detail.aspx?g=57763509-fb5a-45d3-83a0-5bbd4d6ccb8b
9. https://www.livelaw.in/law-firms/law-firm-articles-/arbitral-tribunal-arbitration-and-conciliation-act-nhai-ad-hoc-arbitration-counter-claim-code-of-civil-procedure-singhania-and-partners-220691
10. https://www.barandbench.com/columns/arbitrary-arbitrator-fees-and-the-law-post-2019-amendment
11. https://iamch.org.in/arbitration/fees
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13. https://www.livelaw.in/news-updates/arbitral-tribunal-erred-in-fixing-fees-separately-for-claims-and-counter-claims-contrary-to-the-agreement-between-parties-delhi-high-court-224300
14. https://blog.ipleaders.in/fourth-schedule-arbitration/