What is Section 38 of Arbitration and Conciliation Act

Section 38 of Arbitration and Conciliation Act

CHAPTER X
Miscellaneous

Section 38. Deposits 

(1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as the case may be, as an advance for the costs referred to in sub-section (8) of section 31, which it expects will be incurred in respect of the claim submitted to it:

Provided that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix separate amount of deposit for the claim and counter-claim.

(2) The deposit referred to in sub-section (1) shall be payable in equal shares by the parties:

Provided that where one party fails to pay his share of the deposit, the other party may pay that share:

Provided further that where the other party also does not pay the aforesaid share in respect of the claim or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim, as the case may be.

(3) Upon termination of the arbitral proceedings, the arbitral tribunal shall render an accounting to the parties of the deposits received and shall return any unexpended balance to the party or parties, as the case may be.

Scope of Section 38 of Arbitration and Conciliation Act

Section 38 of A&C Act deals with deposits to be made by the parties in relation to the arbitral proceedings. The arbitral tribunal in its wisdom is empowered to fix the amount of deposit or supplementary deposits as an advance for the costs of arbitration. Section 39 provides for arbitral tribunals' lien on the award for any unpaid cost of arbitration.

It is important to take a note that the proviso to Section 38 (1) of the Act provides that the Arbitral Tribunal may fix a separate amount of deposit for the claim and counter claim. Furthermore, proviso to Section 38 (2) of the Act provides that in case of failure of a party to pay fee towards claim and counter-claim and where other party also does not pay the aforesaid share in respect of the claim or the counter-claim, the Arbitral Tribunal may suspend or terminate the arbitration proceedings in respect of such claim or counter-claim, as the case may be. As such, it is clear that the Act has provided consequences of failure of parties to deposit the requisite fees.

In case titled Chandok Machineries Vs. S.N. Sunderson and Co. 2018 SCC Online Del 12782, Delhi HC tried to interpret Section 38 of the Act and held that a reading of Section 38 of the Act would show that the Arbitral Tribunal may fix separate amounts of deposit for the claim and the counter-claim.

Bench held that a reading of Section 38 would show that the Arbitral Tribunal may fix separate amounts of deposit for the claims and counter claims. Though the deposit is payable in equal shares by the parties, on the failure of a party to pay its share of the deposit, the other party may pay that share and in case of failure of the other party to pay the aforesaid share in respect of the claims or the counter claims, the Arbitral Tribunal may suspend or terminate the arbitration proceedings in respect of such claims or counter claims.

In case titled Gammon India Ltd. Vs.Trenchless Engineering Services (P) Ltd. 2014 ABR 389 the Hon’ble High Court has held that the Arbitral Tribunal is entitled to a separate fee for the claim and the counter-claim.