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Unilateral Fee Revision and Bias: Grounds for Terminating an Arbitral Tribunal's Mandate on Account of de jure Ineligibility?

*Madhumita L.


Indian Courts are witnessing a steadily increasing stream of cases where the fees charged by arbitral tribunals are the focal points of attack. In ONGC v. Afcons Gunanusa JV (ONGC), it was conclusively held that a fee increase can be resorted to only with the agreement of parties, and that the Tribunal has no unilateral power to revise its fees. However, in Chennai Metro Rail Limited v. Transtonnelstroy Afcons JV (Chennai Metro), when this rule on unilateral fee revision was breached, the Court held that such breach did not amount to per se ineligibility under Section 14(1)(a) of the Arbitration and Conciliaiton Act, 1996 (‘the Act’), which has the effect of terminating the tribunal’s mandate.

Unilateral action is antithetical to the ideals of arbitration, which is rooted on consensus and party autonomy. Being a creature of contract, the realm of arbitration is one of consent, and this was emphasized in Cox & Kings v. SAP India (P) Ltd. This is true for the parties as well as the arbitrator. That the Arbitral Tribunal is bound to act in terms of the contract under which it is constituted, squarely applies to the issue of fees since the parties have agreed upon certain ‘Terms of Reference’ relating to the constitution of the Arbitral Tribunal. Therefore, unilateral revision/declaration of fees by the arbitrator cannot be generally sanctioned. Nevertheless, when the Tribunal unilaterally revises its fees and one party pays without protest, is an element of bias inadvertently introduced which favors the party paying the newly declared or revised fees, and works against the party protesting? If so, does this bias pass the common law threshold and give the protesting party grounds to terminate the mandate of the Arbitral Tribunal under the ambit of de-jure ineligibility? This article answers this mixed question related to unilateral fee revision, bias and de-jure ineligibility through the judgement of the Supreme Court in Chennai Metro

This piece first establishes what the common law threshold/Indian standard on bias is, and proceeds to discuss the scope and procedure for challenge in cases of de jure ineligibility under Section 14 of the Act. Then, the piece examines several cases on termination of an arbitrator’s mandate arising out of the issue of fee fixation, both with and without combined allegations of bias, to possibly derive a determination on the matter through the trajectory of case-law. Subsequently, the judgement in Chennai Metro, which conclusively puts the issue to rest, is discussed. Finally, the ratio in Chennai Metro is further explained and justified through meaningful interpretations of other key related provisions in the Act.

What is the Common Law Threshold on Bias?

In Govt. of T.N. v. Munuswamy Mudaliar and Anr, the Court held that removing the Superintending Engineer, who was a named and agreed arbitrator, on an apprehension simpliciter of bias in the mind of one party without any tangible ground, cannot be justified. While doing so, it opined that a predisposition to decide for or against one party, without proper regard to the true merits of the dispute is bias. There must be a reasonable apprehension of that predisposition based on cogent material. The ‘real likelihood of bias’ is the ubiquitously approved standard for examining bias in Indian jurisprudence. This has been cemented through various judgements including International Airport Authority v. K.D. Bali, S. Parthasarathi v. State of Andhra Pradesh, Kumaon Mandal Vikas Nigam Ltd. v. Girja Shankat Pant and Ranjit Thakur v. Union of India. The crux of the test being whether a reasonable man or a right-minded person would infer the presence of a real likelihood of bias while being fully apprised of the circumstances. Mere surmise, conjecture or suspicion would not be enough.

Similarly, other common law jurisdictions like the U.K. and Hong Kong adopt the ‘apparent bias’ test wherein, again, an objective, fair-minded and informed observer, having considered the facts must conclude that there was a real possibility of bias on part of the Tribunal. Likewise, in ICSID arbitrations, the party proposing an arbitrator’s disqualification must show that a third party would, based on a reasonable evaluation of the facts, find that there is an evident or obvious appearance of lack of impartiality or independence. The challenge is based on an objective standard and not the subjective belief of the requesting party.  In all these standards, it is not expected that actual bias be shown, but that obvious appearance or real likelihood of bias be proved.

Examining the Scope and Procedure of Challenge in Case of de jure Ineligibility

Section 14(1)(a) deals with the possibility of failure or impossibility of the arbitral tribunal or arbitrator to act. It states that, “the mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if he becomes de jure or de facto unable to perform his functions or, for other reasons, fails to act without undue delay…”. Under Section 14(2), an application can be made directly to the Court seeking the termination of mandate if a controversy exists regarding such a de jure or de facto ineligibility.

Post the 2015 Amendment Act, it can be seen that the rules for disqualification or ineligibility span across Sections 12 to 14 of the Act. They can broadly be seen under three categories - The first called the “Eligibility conditions”, is eligibility which attaches itself to the appointment of the arbitrator and is contained in Section 12(1) read with its explanation and the Fifth Schedule having 34 items. When disclosures are made, and any circumstances relating to justifiable doubts about the independence and impartiality of the arbitrator exist, the appointment of the arbitrator itself is barred. The second called “Continuing eligibility conditions”, is where the arbitrator is eligible to begin, but after appointment, becomes subject to any of the grounds under the Fifth Schedule. In such an instance, where there are justifiable doubts, the party must first seek recourse before the Tribunal by virtue of Section 13(2). If unsuccessful, Section 13(5) provides for the award to later be challenged under Section 34. The third called “absolute ineligibility conditions”, is where after the appointment, circumstances arise where the ineligibility goes to the root of the appointment and any of the grounds laid out in the Seventh Schedule having 19 items are made out. Here, the Tribunal would be ineligible to continue according to Section 12(5). With this ineligibility, the arbitrator would be de jure unable to perform his functions under Section 14(1)(a), and a challenge under Section 14(2) can be made before the Court. Therefore, as opined in HRD Corporation v. GAIL (India) Ltd. (HRD Corporation), persons who become “ineligible” to be appointed as arbitrators, and those about whom justifiable doubts exist as to their independence or impartiality, are treated differently under law.

The grounds enumerated under the Seventh and Fifth Schedule owe their origin to the Red and Orange Lists of the IBA Guidelines on Conflict of Interest respectively. Items 1 to 19 of both the lists are identical, so that the arbitrator makes a disclosure of any circumstance that may exist under the Seventh Schedule before being appointed, as required by Section 12(1). Otherwise, such a disclosure would be lacking. However, the legislative scheme is not to be misunderstood. Only the grounds under the Seventh Schedule can be treated as “ineligibility” conditions warranting intervention under Sections 14(1)(a) and 14(2). These enumerated grounds are not illustrative but exhaustive. Doubts as to impartiality and independence arising from these enumerated “ineligibility” grounds must be tested through the perspective of a reasonable third person having knowledge of the relevant facts. It must be seen whether he would conclude that there is a likelihood that the arbitrator might be influenced by factors other than the merits of the case in reaching his or her decision i.e., use of the ‘real likelihood of bias’ test.

Through such a determination, in Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd. v. Ajay Sales & Suppliers the Chairman of the petitioner Sangh was held ineligible to continue as arbitrator as a consequence of falling under Items 1, 2, 5 and 12 of the Seventh Schedule. In Bharat Broadband Network v. United Telecoms Ltd. it was held that the appointment of an arbitrator by the CMD of the appellant who himself is ineligible to be an arbitrator vide Item 5 of the Seventh Schedule, was also void ab initio.

Upon a detailed examination of the scope and procedure for challenge in cases of de jure ineligibility, the question still remains whether the unilateral revision of fees by the Tribunal and subsequent compliance by one party gives rise to doubts about the impartiality and independence of the Tribunal to the extent that it becomes an “ineligibility” condition under Section 12(5).

Illustrative Cases in Indian Jurisprudence

ONGC clarified that an Arbitral Tribunal while accepting appointment must also accept the remuneration fixed by the parties or the appointing Court. They must not exceed their authority, either under the terms of the arbitration agreement fixing their fee, or under their powers in law, which does not permit them to rewrite the agreement or ignore the court order fixing the fee. Hence, a unilateral increase in fee during the proceedings is impermissible unless allowed by the agreement or the parties. As stated in  Entertainment City Ltd. v. Aspek Media Private Ltd., an arbitrator is allowed to determine their own fees only in the absence of fee fixation in the appointing Court’s order, or the contract, or through an agreement between the parties. Here, a sufficient case for terminating the arbitrator’s mandate was not made out. However, it was categorically held that the mandate of the arbitrator would indeed be determinable under Section 14(1) on account of de jure being unable to perform their functions, if the fee charged contravenes the provisions of the Act.

In NHAI v. Gammon Engineers and Contractor Pvt. Ltd. (NHAI) and NTPC v. Amar India Ltd. (NTPC), the mandates of the Arbitral Tribunal were terminated on account of the Tribunal charging fees in accordance with the Fourth Schedule of the Act, instead of the fee Schedules provided for in the agreement i.e. in the NHAI Circular and NTPC Circular respectively. However, herein, the de jure ineligibility arose due to the arbitrator re-writing the arbitration agreement and varying the Terms of their Appointment by charging a fee different from what the parties had contemplated. This action was considered as being contrary to the provisions of the Arbitration Act, since a party cannot circumvent the fee Schedule as provided in the Circular, which forms a part of the contract entered into between the parties. The arbitration agreement being the source of the Tribunal’s power, cannot be used to accept appointment in part. Nonetheless, if examined closely, these cases are illustrative instances of termination of an arbitrator’s mandate under Section 14(1)(a) in relation to the issue of fee fixation, but without any allegations of bias or impartiality being made by the petitioners with reference to Section 12(5) or the Seventh Schedule.

However, back in 2009, the Supreme Court in Union of India v. Singh Builders Syndicate, while commenting on the high costs of arbitration involved when retired judges are appointed as arbitrators, observed that when only one party agrees to pay a higher fee, the other party unable or reluctant to pay is put in an embarrassing position wherein expressing his reservations would lead to him having apprehensions of prejudice against his case, or bias favouring the other party. Further, in Clark Energy India Pvt. Ltd. v. SAS EPC Solution Pvt. Ltd. (Clark Energy), the High Court opined that the expression de jure should be construed to extend beyond open-and-shut legal disability while taking within its fold disability due to established loss of legitimacy. Hence, it was concluded that the scope of the section cannot be confined only to objective criteria (as provided for in the 7th Schedule) to determine the issue of bias - thereby holding that a Section 14 petition is maintainable on grounds of bias, including those arising from fee fixation wherein the Tribunal has lost its legitimacy. However, to balance such a wide interpretation of the expression in Section 14, the burden of proof must be set at a level high enough to prevent arbitral proceedings from being derailed except when warranted.

In Madras Fertilizers Ltd. v SICGIL India Ltd., the High Court, while terminating the arbitrator’s mandate highlighted that the phrase “perform his functions” in Section 14 indicates doing so effectively without any bias and with the full confidence of the parties, which would be lost if the proceedings were to continue with a higher fee. Similarly, in Govt. of Tamilnadu v. VDB projects, while dealing with the same phrase, and terminating the arbitrator’s mandate in an issue pertaining to arbitrator’s fees, the High Court stated that there must be un-biasedness and impartiality in every action. Therefore, this group of cases indicates that de jure ineligibility can indeed arise out of a successful allegation of bias or impartiality regarding the fixation of fees.

Chennai Metro: Settling the Debate

The facts in Chennai Metro show that the arbitral tribunal insisted on a revised fee during the 10th meeting/hearing in the dispute. Afcons had paid this revised fee and Chennai Metro Rail Limited filed a Section 14(2) application before the High Court for termination of the tribunal’s mandate, alleging that the tribunal’s insistence on continuing with the proceedings with a higher fee which was not agreed upon by the parties, and payment of the disputed increased fee by the other party, placed it in an embarrassing situation and caused prejudice. Soon after, upon acknowledging the ONGC judgement, the members of the tribunal filed affidavits reverting back to the originally agreed fee. They made declarations that they would continue to discharge their duty in an independent and impartial manner and that the parties need not have any apprehensions. Subsequently, the High Court dismissed the Section 14 application.

On appeal, the Supreme Court admitted that the issue of fixation of fee is contractual and therefore, that any revisions to the fee conditions must be based on consultation among, and agreement between both parties. However, the breach of this rule did not amount to a per se ineligibility resulting in the appointment becoming void, and the mandate of the tribunal being terminated. This is because the concept of de jure ineligibility due to the existence of justifiable doubts about impartiality or independence of the Tribunal, cannot be sustained on unenumerated grounds i.e., those not statutorily outlined under Section 12(5) read with the Seventh Schedule. Considering that the issue of bias arising from fee fixation is such an unenumerated ground, if an exception were made in allowing this de jure ineligibility claim, there would be an explosion in the Court docket and other unforeseen consequences would arise from skipping the statutory route to challenging an arbitrator. Further, the fact that the factual matrix of the case did not meet the common law threshold on bias was also a significant factor in the challenge being unsuccessful.

However, in case the arbitral tribunal did not renounce the increased fee, an argument that the Terms of Appointment were circumvented and therefore, that the tribunal re-wrote the arbitration agreement, could have been explored in seeking to terminate its mandate under Section 14, as illustrated in NHAI or NTPC, without bringing the issue of bias to the fore.

Considerations Vis-à-Vis Other Provisions in the Act

Clark Energy opined that charging a high fee per se cannot lead to an inference of bias, if charged equally for both the parties. Now, even if one party deposits the costs including the arbitrator’s high fee and the other does not, the mandate of the arbitrator would not terminate for de jure or de facto ineligibility under Section 14(1)(a). This is because it would leave room for the applicability of the first proviso to Section 38(2), wherein the other party can pay the deposit on behalf of both parties. Such a situation where an arbitrator can direct one party to pay what the other party is incapable or unprepared to pay cannot directly give rise to bias and rightly so, and the same was admitted by the Advocate General for India in ONGC. Holding that bias exists in such a scenario would question the integrity of the proviso to Section 38(2) and render it infructuous, which must be avoided. Therefore, the judgement in Chennai Metro has implicitly considered the first proviso to Section 38(2) in arriving at its decision.

Further, Section 39(2) provides recourse to a party alleging high arbitration costs to which they did not agree in writing. Here, when the arbitral tribunal places a lien on the award for non-payment of the costs demanded, an application can be made to the Court to determine the reasonability of such costs (including the arbitrator’s fee). Such an application can be made by a party only when the fees demanded have not been fixed by written agreement between the parties and the arbitral tribunal. This condition applies to a situation where the tribunal unilaterally increases its fees. Similar review mechanisms are available under Section 41 of the Singapore Arbitration Act, 2002, and Section 56 of the English Arbitration Act, 1996. Therefore, a dedicated channel has been legislatively carved out to voice any grievances regarding high/unilateral revision in fees by an arbitrator, instead of seeking relief through Section 14(1)(a).

However, to address issues such as ours more effectively, it would indeed be better if the parties were not required to wait until the rendering of the award to raise this issue of fees/costs of arbitration under Section 39(2), and if the fee review procedure could be parallelly pursued during the pendency of arbitral proceedings but without staying its progress.  Presently, Section 39 leads to a scenario wherein either the parties or the arbitrators are left dissatisfied i.e., either the party pays the unilateral/high fees that it is unwilling or unable to pay just to continue with the proceedings, or on non-payment of fees, the arbitrators are forced to place a lien on the award. Since Section 14(1)(a) is not available as a recourse anymore, in order to forge a win-win situation, the inclusion of a provision which allows for a fee review procedure by the Court during the continuance of arbitral proceedings, and one that is not contingent on placing a lien on the award, akin to Section 28(2) of the English Arbitration Act, is required. There, upon notice to the other parties and the arbitrators, any party can apply to the Court for consideration and adjustment of the arbitrator’s fees. This jurisdiction of the Court was confirmed in Enterprise Insurance Company PLC v. U-Drive Solutions (Gibraltar) Ltd and Anr. If considered reasonable under the circumstances, the Court’s power also extends to ordering a repayment of the amount in excess. The provision contains no restriction on the stage at which such an application to the Court can be made. While the author is conscious of the principle of minimal judicial intervention in arbitration, such a provision is nonetheless necessary to ensure the efficacy of arbitration as a cost-effective and consensual dispute resolution mechanism.


No international body, arbitral institution or foreign jurisdiction confers an absolute or unilateral power to arbitrators to decide their own fees. The parties must be involved in some form, either by determining the fees in the arbitration agreement, or by entering into subsequent negotiations or agreements with the arbitrators when the issue arises, or by challenging or requesting a Court review of the fee charged. Certain High Courts are of the opinion that if arbitrators breach this rule, they can indeed be declared de jure ineligible, but with the only condition being that the arbitration agreement must be rewritten. However, it is now settled that a standalone allegation of bias/impartiality resulting from such unilateral fee declaration/revision cannot be sustained within the framework of Indian arbitration law, since it is not contemplated as a ground for de jure inability under Section 12(5) and the 7th Schedule. Further, the issue of bias vis-à-vis fee fixation must also be examined by meaningfully interpreting Sections 38(2) and 39(2) of the Act. That being said, in order to completely nip the problem in the bud, arbitral tribunals must scrupulously abide by the guidelines regarding fixation of fees for the conduct of ad hoc arbitrations as elaborated in ONGC.


Madhumita L. is an advocate practising law in Delhi, India.


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