Report No. 176
2.17 Time limits for completion of domestic arbitration and guidelines in respect of fee stipulations
Under the 1940 Act, there was a provision of four months from date of extending a reference, for passing of the award, (First Schedule, para 3) subject to parties seeking time from the court for extension. The court could extend time under sec. 28. This applied to domestic arbitrations.
The Commission recommended in its 76th Report on Arbitration Act, 1940 inter alia that the proviso should be inserted below section 28 so as to provide that no extension should be granted so as to allow the making of the award more than one year after the arbitrator's entering on the reference unless the court, for special and adequate reasons, to be recorded in writing, is satisfied that such extension is necessary. Accordingly, it recommended the insertion of the following proviso below section 28:-
"Provided that no extension shall be granted so as to allow the making of the award more than one year after entering on the reference, unless the court, for special and adequate reasons to be recorded in writing, is satisfied that such extension is necessary."
In the 1996 Act, there is no time limit fixed for the passing of the award either for domestic or international arbitration. Question is whether, so far as domestic arbitrations are concerned, any time limit is to be imposed. (Of course under ICC Rules, time limits are prescribed even for international arbitration but the Model law does not prescribe any time limit.)
From the point of view of the parties, in any type of arbitration, the question of time is important. Parties expect arbitrations to be completed early enough and that they do not suffer the same delays as in courts. But experience shows that there are, by and large, more cases of delayed arbitrations in our country. The fixation of sitting fee for each day (or different sessions on same day) for the arbitrators has to some extent come under serious public criticism.
So far as the counsel appearing before the arbitrators are concerned, their conduct does not fall for direct consideration under the Arbitration Act but may be governed by other laws. But, once the arbitrators' fee structure is allowed to pass through certain broad guidelines, it is hoped the arbitrators will be able to control the adjournments that may be sought by the lawyers appearing before them.
Section 31(8) of the 1996 Act which refers to the matters to be specified in an award, reference is made to 'costs' of an arbitration "to be fixed by the arbitral tribunal. The Explanation below that provision refers to the following:-
(i) 'fee and expenses of the arbitrators and witnesses'
(ii) legal fees and expenses
(iii) any administrative fees or
(iv) other expenses.
Sec. 39(2) of the 1996 Act (corresponding to old sec.38(1) refers to 'lien on arbitral award and deposit as to costs'. Section 39(1) provides a lien for unpaid 'costs'. Under sec. 39(2), the courts can have the 'demanded costs' deposited into court by the party, and pay the said amount of costs to the arbitral tribunal.
The payment to the arbitral tribunal can be restricted to the amount 'the court may consider reasonable' and balance can be refunded to the party. Sub clause (4) of sec. 39 permits the court to make such orders as it thinks fit respecting the costs of arbitration where any question arises respecting such costs and the arbitral award contains no sufficient provision concerning them.
The ICC and LCIA have fixed rules in regard to payment of fee for arbitrators. The ICC rules are based on time spent, the complexity of the dispute and relevant circumstances and percentages of the value of the subject matter as fixed in Appendix 3 of ICC Rules. LCIA rules are based on time spent. Russell suggests (1999) (para 4.094) a method for the arbitrators to fix fee as follows:
"to agree to a lump sum for the whole arbitration, but if a case does not proceed to an award, disputes could arise over the arbitrator's right to payment: or, if the case goes on much longer than expected, the arbitrator's rate of renumeration can decline considerably."
In para 4.097, Russell says, 'excessive fee' charge has been held to be 'misconduct; Suggestions could therefore be made as to how the scale or rate of fee for the arbitrators can be fixed depending upon the extent of reasonable progress of the case and as to how payment of fee can be reduced if the case does not progress fast and where the parties are not responsible for the adjournments.
We also recommend that the Code of Ethics for the arbitrators and the lawyers appearing before the arbitral tribunals, be evolved, so far as the domestic arbitrations are concerned. Such a Code will help reduce unreasonable delays in concluding arbitral proceedings and would help expedite the proceedings. Such a Code should be made an appendix to the Act. Suggestions are invited in this behalf.