Introduction
The Supreme Court has clarified that while an arbitral tribunal cannot unilaterally revise its fees after they have been agreed upon by the parties, such conduct does not automatically render the tribunal biased or legally incapable of continuing with the arbitration. The Court also explained the distinction between challenges based on "justifiable doubts" regarding an arbitrator's impartiality and situations where an arbitrator becomes legally ineligible to continue. In Chennai Metro Rail Limited v. Transtonnelstroy (JV) & Anr., the Court dismissed the challenge to the arbitral tribunal's mandate and reaffirmed the statutory procedure for questioning an arbitrator's impartiality under the Arbitration and Conciliation Act, 1996.
Background
Chennai Metro Rail Limited awarded a major infrastructure contract to the respondent contractor, and disputes arising from the contract were referred to arbitration before a three-member arbitral tribunal. At the commencement of the proceedings, the parties agreed that each arbitrator would receive a fixed hearing fee of ₹1,00,000 per session. During the arbitration, however, the tribunal decided to increase its fee to ₹2,00,000 per hearing session and directed both parties to pay the revised fee retrospectively. Chennai Metro objected to this unilateral enhancement, whereas the contractor paid the increased amount. Subsequently, the tribunal withdrew the revised fee after the Supreme Court delivered its decision in ONGC v. AFCONS Gunanusa JV, which held that arbitrators cannot unilaterally revise their fees without the consent of all parties. Despite this withdrawal, Chennai Metro sought termination of the tribunal's mandate under Section 14 of the Arbitration and Conciliation Act, alleging reasonable apprehension of bias.
The Core Issue
The Supreme Court considered: •whether unilateral enhancement of arbitral fees gave rise to justifiable doubts regarding the tribunal's impartiality; •whether such conduct rendered the tribunal de jure incapable of performing its functions under Section 14 of the Arbitration and Conciliation Act; •whether the tribunal's mandate could be terminated without first following the challenge procedure prescribed under Sections 12 and 13 of the Act.
Supreme Court's Findings
The Court agreed that the law, as declared in ONGC v. AFCONS Gunanusa JV, clearly prohibits an arbitral tribunal from unilaterally increasing its fees after the parties have agreed upon them. Any revision of arbitral fees requires the consent of both parties because the fee arrangement constitutes a tripartite agreement between the parties and the tribunal. However, the Court held that a breach of this principle, by itself, does not automatically terminate the tribunal's mandate or establish legal incapacity under Section 14 of the Arbitration and Conciliation Act.
Difference Between Bias and Statutory Ineligibility
The Supreme Court undertook a detailed examination of Sections 12, 13 and 14 of the Arbitration and Conciliation Act. The Court explained that two distinct categories exist: •situations giving rise to "justifiable doubts" regarding an arbitrator's independence or impartiality under Sections 12(3) and 13; and •statutory ineligibility under Section 12(5) read with the Seventh Schedule. Where only doubts regarding impartiality arise, the aggrieved party must first challenge the arbitrator before the arbitral tribunal itself under Section 13. Only where the arbitrator suffers from statutory ineligibility under Section 12(5) can the party directly approach the Court under Section 14 for termination of the mandate.
Unilateral Fee Revision Does Not Automatically Establish Bias
The Court observed that although the tribunal acted contrary to the principle later affirmed in ONGC, it subsequently restored the original fee structure and expressly assured both parties that the proceedings would continue fairly and impartially. The unilateral attempt to revise fees, though improper, did not fall within any statutory ground of ineligibility contained in the Seventh Schedule. Nor did it automatically establish real likelihood of bias sufficient to terminate the tribunal's mandate.
Challenge Procedure Must Be Followed
The Supreme Court emphasised that Parliament has deliberately created a structured mechanism for challenging arbitrators. Except in cases falling within Section 12(5), parties alleging bias or lack of impartiality must first invoke the procedure under Section 13 by raising objections before the arbitral tribunal itself. If unsuccessful, such objections may subsequently be raised while challenging the arbitral award under Section 34. Permitting parties to bypass this statutory mechanism would undermine the legislative framework governing arbitration and lead to unnecessary judicial intervention during ongoing proceedings.
Application Dismissed
Finding that the tribunal's conduct did not amount to statutory ineligibility or de jure incapacity, the Supreme Court upheld the decision of the Madras High Court. The Court directed the arbitral tribunal to resume the arbitration proceedings and decide the disputes in accordance with law.
Why This Judgment Matters
The judgment provides important guidance on the distinction between allegations of bias and statutory disqualification of arbitrators. It reinforces the principle of party autonomy in determining arbitral fees while simultaneously protecting the integrity of the arbitral process by discouraging premature judicial interference during ongoing arbitrations. The decision also clarifies the procedural route parties must adopt when challenging an arbitrator's independence or impartiality.
Key Takeaways
•Arbitrators cannot unilaterally increase their fees after the parties have agreed upon them. •Any revision of arbitral fees requires the consent of all parties. •Improper enhancement of fees does not automatically terminate the tribunal's mandate. •Challenges based on doubts regarding impartiality must ordinarily follow the procedure under Sections 12 and 13 of the Arbitration and Conciliation Act. •Direct recourse to Section 14 is available only in cases of statutory ineligibility under Section 12(5) and the Seventh Schedule.
Conclusion
The Supreme Court's decision in Chennai Metro Rail Limited v. Transtonnelstroy (JV) & Anr. strengthens India's arbitration framework by balancing party autonomy with procedural discipline. While reaffirming that arbitrators cannot unilaterally alter agreed fee arrangements, the Court clarified that such conduct alone does not establish legal bias or automatically terminate an arbitral tribunal's mandate. The judgment provides valuable guidance on the proper statutory procedure for challenging arbitrators and reinforces the objective of minimising judicial interference in ongoing arbitral proceedings.
