"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Saturday, October 1, 2016

Reforms on Court Fee to Set Aside Arbitral Award in Tamil Nadu

A recent Report by the Court Fee Rationalisation Committee in Tamil Nadu has recommended that the court fee for setting aside arbitral awards be made ad valorem.  Court Fee for setting aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 is currently on Rs. 5,000/- irrespective of the quantum of the award.

The Court Fee Rationalisation Committee (CFRC) was constituted by a Division Bench of the Madras High Court vide order dt.  18.12.2015 pursuant to several writ petitions. The fundamental reason why the Committee was constituted was to address the anomaly in court fee in plaints in the original side of the High Court and that of other courts ("[C]ourt fees is levied on plaints filed in the original jurisdiction of the High Court at 1% ad valorem on a tapering scale while court fees is levied on plaints filed in courts subordinate to the High Court at 7.5% ad valorem on a flat scale."). The Committee's primary recommendation was to reduce the court fee from 7.5% to 2-3%. On arbitration, the Committee noted that the court fee for challenging arbitral awards should be made ad valorem and the percentage to be charged should be same as that of suit, that is, 2-3%. The Committee further noted that the maximum court fee to be charged in such actions should be Rs. 1,00,000. The Committee was of the view that the same recommendations should apply to petitions under Section 48 as well.

It is intuitive that a party would be willing to take file a petition to set aside arbitral awards so as to postpone payment even if the grounds of challenge of the arbitral awards are frivolous, especially in a legal environment where indemnity costs are not imposed for frivolous challenges and the rate of interest awarded is less. It is also intuitive that the court fee payable for setting aside an arbitral award will have a lot of bearing on a party deciding whether to challenge an arbitral award issued against it.

The existing fee regime in Tamil Nadu, however, provided for Rs. 5,000 as the court fee for setting aside arbitral awards. This neither has the potential to deter frivolous challenges to awards nor reflects the considerable court time in hearing these matters, especially when the dispute forming the subject of the award is complicated. Therefore, the recommendation of the Committee to make the court fee ad valorem is welcome. In fact, we had previously advocated the same in several forums [See, for instance, Developing India as a Hub of International Arbitration: A Misplaced Dream? (page 107)( July 2016)and this Letter to the Government].
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However, it is doubtable if the cap would make the increase in court fee effective at all. In case of large disputes, the proposed cap on maximum court will will prove ineffective as the cap will eliminate the effect of court fee as one of the methods of reducing frivolous challenges in case of disputes with larger stakes.

Considering the policy of law towards a general deference to arbitral awards, it is suggested that the court fee for challenging awards be around 7.5% to 8%. But a provision could be made that in case of arbitral awards against individuals or other "persons" (such as Micro, Small undertakings, individuals, etc.) who establish their inability to pay the court fee, appropriate security such as bank guarantee or any other mode of security could be sought to ensure that such parties are not denied access to justice merely because of their inability to cough up court fee.

The Report can be downloaded from here.

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