The Blind Spot in Indian Arbitration: Fees, Power, and Structural Oversights

by Prashant Narang and Vishnu Suresh.

In India, when parties fail to agree on the composition of an arbitral tribunal, courts intervene and appoint retired judges as arbitrators, who unilaterally determine their own fees-without the consent of both parties. This process, known as "ad hoc" arbitration, has led to concerns about excessive charges. While no comprehensive dataset proves a systemic pattern of exorbitant fees, recurring judicial and committee observations suggest that the issue is widespread enough to warrant closer scrutiny. The Indian policy response has been to implement some form of fee regulation for such arbitration.

This article presents a history of the Indian policy thinking on arbitrator fees and presents an argument about why fee regulation alone may not remedy the structural inefficiencies in ad hoc arbitrations dominated by retired judges. Judges who design (or are expected to design) and implement arbitration appointment rules often later serve as arbitrators themselves, benefiting from these same rules - or the lack thereof - post-retirement. Even when they do not directly benefit, enforcing such rules against fellow judges, particularly their seniors in the profession, is challenging given the inherently hierarchical nature of the legal fraternity.

The article argues that the current fee regulation approach further entrenches judicial control over arbitration rather than reducing it. By deepening the judicialisation of the arbitration process, it raises further concerns about perpetuating systemic inefficiencies. At the same time, we explore whether a more fundamental shift towards institutional arbitration - centred on dejudicialisation and the decoupling of the judiciary from arbitration - is necessary to create a cost-effective, competitive, and independent arbitration ecosystem in India.

The evolution of the debate on arbitration fees

Concerns about high fees in arbitration were explicitly raised by the Supreme Court in Union of India v M/s Singh Builders Syndicate (2009) 4 SCC 523. The Supreme Court reiterated its concerns in Sanjeev Kumar Jain v Raghubir Saran Charitable Trust (2012) 1 SCC 455, acknowledging that high arbitration costs discouraged parties from opting for arbitration.

This focus on high fees has meant that Indian policy response has also relied on mandating "fee schedules" for tackling the problem. This is consistent with other jurisdictions as well. For example, Germany prohibits arbitrators from unilaterally deciding their own fees on the ground that it violates the prohibition on in rem suam decisions (i.e., ruling in one's own cause). Austria and Switzerland likewise disallow arbitrators to issue binding and enforceable orders regarding their own remuneration. Italy permits arbitrators to fix fees in the absence of explicit party agreement, but these fees only become binding after the parties themselves consent. Singapore, lacking a written fee agreement, lets a disputant seek assessment of fees by the Registrar of the Supreme Court under the Supreme Court of Judicature Act, 1969.

The Indian policy response

The key elements of the Indian response are as follows:

1. The Fourth Schedule under the 2015 Amendment: The 246th Report of the Law Commission of India (2014) recommended a structured fee schedule to bring uniformity to arbitration costs. This led to the introduction of the Fourth Schedule under the Arbitration and Conciliation (Amendment) Act, 2015, which provided a model fee framework for arbitrators in ad hoc arbitrations. In addition, it also inserted a provision empowering high courts to make rules for fee determination in case of domestic ad hoc arbitration.
2. Shifting towards institutional arbitration under the 2019 Amendment: The Arbitration and Conciliation (Amendment) Act, 2019 introduced a framework that shifted appointment powers from courts to arbitral institutions. The amendment required the Supreme Court and High Courts to designate arbitral institutions for making appointments under Section 11, rather than appointing arbitrators directly. The amendment goes a step further and creates a fallback mechanism for jurisdictions where graded arbitral institutions are not available. In such cases, the High Court Chief Justice can maintain a panel of arbitrators who effectively function as an arbitral institution. These empanelled arbitrators must follow the Fourth Schedule's fee structure, creating a hybrid between institutional and ad hoc arbitration. However, this part of the 2019 amendment is not notified yet.
3. Alternative fee arrangements by the TKV Report, 2024: In June 2023, the Ministry of Law and Justice constituted an expert committee, chaired by former Law Secretary T.K. Vishwanathan, to review arbitration costs and propose amendments to the Arbitration and Conciliation Act, 1996. The T.K. Vishwanathan Committee Report, 2024 identified multiple shortcomings in the existing Fourth-Schedule fee framework, most notably the reliance on "claim quantum" as the primary basis for calculating arbitrator fees. Such a simplistic approach, the Report argued, neglected case complexity and procedural variations: for instance, an ostensibly small claim requiring extensive oral evidence or expert testimony can command more arbitrator time than a large claim resolved on documents alone. In response, the TKV Report advocated Alternative Fee Arrangements (AFA), emphasising value-based pricing that accounts for factors like complexity, time, and potential cost savings. Most notably, the TKV Report suggested eliminating Section 11A and the Fourth Schedule entirely, replacing them with a more flexible framework in which the Central Government would prescribe fee structures through rules.
4. The Draft Arbitration and Conciliation (Amendment) Bill, 2024: This draft bill empowers the Arbitration Council of India (ACI) as a proxy for the Union Government to specify arbitrator fees. Under the Bill, the Fourth Schedule would be deleted, and Section 11A would be revised so that the ACI could determine fees, except where parties have explicitly negotiated their own fee arrangement or are using an arbitral institution with its own fee rules. Another significant change is the removal of the Chief Justice's consultative power in the appointment of ACI's governing board, shifting oversight from judicial control to greater executive control of the arbitration regulatory body.

Why the fee regulation approach has fallen short

Before we analyse the reasons for the failure of the 2015 amendment and the Fourth Schedule, it is useful to describe the political economy that confronts any policy change on arbitration: namely, the near-monopolistic environment created by a small group of retired judges who often command premium fees and face minimal accountability. Courts retain the ultimate power to appoint arbitrators under Section 11, and this process frequently involves the same cadre of retired judges who benefit from the laxity of fee caps. The entire appointment and fee determination process is still largely vested in the judiciary. Given that many judges become arbitrators upon retirement, they have little incentive to enforce rigorous fee caps that might constrain their own future earnings. This fundamental public choice problem has been frequently documented, including by the Vice-President's observation that "nowhere in the world is arbitration in such tight fist control as in our country".

The ONGC v Afcons Gunanusa JV (2022) provides a telling example of how court-appointed arbitrators can exploit their position. Despite initially accepting a contractual fee cap of Rs. 10 lakh per arbitrator, the tribunal - composed of retired Supreme Court and High Court judges - unilaterally enhanced their fees multiple times. They first sought adoption of the Fourth Schedule's more generous framework, then further increased their fees citing case complexity, and even attempted to apply these increases retrospectively. When ONGC, a public sector enterprise subject to audit scrutiny, refused to pay the enhanced fees, the arbitrators recused themselves, forcing the matter back to court. The Supreme Court ultimately had to terminate the tribunal's mandate, highlighting how the current system enables arbitrators to leverage their position to demand higher fees with limited accountability.

This reality was not addressed by the 2015 amendment. While the Fourth Schedule was introduced precisely to limit excessive fees, it was neither made mandatory nor accompanied by a robust enforcement mechanism. As a result, it did little to disrupt the underlying political economy that sustains high-cost ad hoc arbitration. In fact, it risked consolidating judicial influence rather than attenuating it, especially since it granted High Courts the discretion to frame their own fee rules, ultimately placing regulatory power over arbitrator remuneration in the hands of those who may later serve as arbitrators themselves.

Moreover, this one-size-fits-all imposition overlooked regional variations and pre-existing institutional successes. The Karnataka Arbitration Centre, for instance, already offered a more economical schedule capped at around Rs. 12 lakhs for disputes above Rs. 20 crores, whereas the Fourth Schedule ceiling reaches Rs. 30 lakhs based on the thresholds set by the Delhi International Arbitration Centre. Rather than drawing on such local expertise and diversity to foster competitive discipline, the reforms proceeded on a centralised model that did little to leverage market discovery or locally tailored fee structures. The Law Commission's proposals were more concerned with containing arbitrator fees than with dismantling the structural conditions (judicial appointments, confined arbitrator pools, discretionary rule-making by courts) that perpetuate high costs.

The subsequent 2019 amendment intends to reduce judicial intervention and promote institutional arbitration. It revised Section 11 so that courts could "designate" arbitral institutions for appointments. "Fallback" arrangements enable High Court panels of arbitrators - often the same retired judges or those close to the judiciary - to retain effective control over the process, with fee structures mandated by the Fourth Schedule.

Recent developments, including the constitution of a new committee chaired by T.K. Vishwanathan in 2023, reflect growing discontent with the rigid claim-quantum basis that underlies the Fourth Schedule. The TKV Report contends that arbitrator fees should account more flexibly for complexity, time, and the overall resources required. While the proposed reforms contemplate eliminating the Fourth Schedule, transferring fee-setting authority to the Arbitration Council of India, and moving towards executive rather than judicial oversight of arbitration rule-making, they too risk replicating hierarchical models unless accompanied by genuine plurality and transparency in the appointment of arbitrators and the choice of fee structures.

Ultimately, each successive round of reform, from the 2015 amendment and the introduction of the Fourth Schedule to the latest proposals from the TKV Report, has prioritised adjusting fee schedules over reducing systemic reliance on a narrow circle of retired judges. The 2019 amendment and its stillborn promise of institutional appointments is an exception. As a result, what begins as a nominal attempt at "dejudicialisation" typically ends in reaffirming the dominance of court-nominated arbitrators, with little recourse for parties subjected to escalating costs. The persistent gap between nominal regulatory interventions and the practical realities of enforcement serves as a stark reminder that fee caps and model schedules, however laudable, are unlikely to produce fundamental change unless the structural incentives and entrenched hierarchies that govern Indian arbitration are addressed in earnest. Indeed, the recurring inclination to concentrate power - first in the High Courts, now potentially in the central government which is also the largest litigant - overlooks the fundamentally decentralised ethos of arbitration, which thrives on party autonomy and market-driven checks.

The next chapter in arbitration reform: Evidence-based vs. assumption-driven reforms

India's ongoing journey toward arbitration reform reveals a classic illustration of the "knowledge problem" that arises when policymakers attempt top-down interventions without robust, localised information. Observations from courts and committees certainly highlight inefficiencies - especially in court-appointed arbitrations that often lean on retired judges. Yet the absence of systematic, comparative data on whether these inefficiencies truly amount to a widespread market failure should give us pause before imposing sweeping fee controls or rigid schedules.

We must ask: do we need price caps because parties stuck in deadlock are unable to negotiate with court-appointed arbitrators? Or because retirees form a monopoly and pose barriers to entry? Excessive or poorly calibrated regulation can distort incentives and stifle innovation in arbitration services - problems that often follow when market-based processes are replaced by bureaucratic mandates. Fee ceilings, in particular, risk becoming a blunt tool that overrides local knowledge and decentralised experimentation. If parties truly had meaningful alternatives - like institutional forums or specialised arbitrators - they would naturally gravitate toward more cost-effective options, compelling fee discipline through competition rather than imposed caps.

Likewise, the unilateral fee determination by certain court-appointed arbitrators raises critical questions about capture - what might be called a narrowly "clubby" arrangement favouring a select group. But imposing top-down reforms in the absence of clear data on how widespread or severe this dynamic is invites "presumptive regulation". Such policy-by-assumption can inadvertently lead to higher costs, reduced choice, and entrenched favouritism - precisely the path we want to avoid.

By contrast, implementing the 2019 amendments and cultivating robust institutional arbitration offers a more polycentric and evidence-driven approach. This would expand the pool of competent arbitrators, reduce dependence on judge-led ad hoc appointments, and ultimately let competition, reputation, and local knowledge discipline fees. Notably, India's largest litigant - its own government - has already started shifting away from ad hoc arbitration, indicating that when parties sense an overcharge or imbalance, they do respond by seeking out better alternatives.

Before erecting rigid structures such as a universal Fourth Schedule, policymakers should verify that the alleged market failures cannot be resolved through the competitive process. Empirical, comparative research - analysing cost differentials between judge-led ad hoc arbitration and institutional arbitration - would illuminate whether exorbitant fees reflect a systemic shortcoming or isolated pockets of inefficiency. Only when we ground policy in such evidence can we ensure that reforms address real problems and do not accidentally lock in the very system they aim to correct.

Prashant Narang and Vishnu Suresh are researchers at the TrustBridge Rule of Law Foundation. We thank our colleagues Renuka Sane, Bhavin Patel, as well as two anonymous reviewers, for their comments.