Who bears the Cost of Arbitration

Section 31A was added to the Act in 2016 to lay down the cost regime which is in line with the international costs regime. The losing party bears the cost of arbitration which innocent party from bearing the costs.

The court or tribunal has the power to determine which party is liable to pay costs, what would be the amount and when the payment has to be made.

Costs would relate to fees and expenses of arbitrators, courts and witnesses, legal fees, administration fees of supervising institution, other expenses in connection with the arbitral or court proceedings and the award award.

The general rule followed by the court and tribunal is that the unsuccessful party shall bear the cost of the successful party or a different order can be passed for the reasons recorded in writing.

While taking this decision the court or the tribunal shall consider the conduct of the parties, whether a party has succeeded, whether a frivolous counter claim has been made leading to delay and whether a reasonable offer to settle has been made by a party and refused by the other party.

The court or the tribunal may order to pay a proportion or a stated amount in another party’s costs, costs from certain date only, costs before the proceedings have begun, costs related to particular steps or a distinct part of the proceedings and interest on costs from or until a certain date.

Parties can agree that a party would pay whole or part of the costs only after the dispute in question has arisen.

The text of the Section 31A can be found below:

“31A. Regime for costs- (1) In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to determine-

1. whether costs are payable by one party to another;
2. the amount of such costs; and
3. when such costs are to be paid.

Explanation- For the purpose of this sub-section, "costs" means reasonable costs relating to-

1. the fees and expenses of the arbitrators, Courts and witnesses;
2. legal fees and expenses;
3. any administration fees of the institution supervising the arbitration; and
4. any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.

(2) If the Court or arbitral tribunal decides to make an order as to payment of costs,

1. the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or
2. the Court or arbitral tribunal may make a different order for reasons to be recorded in writing.

(3) In determining the costs, the Court or arbitral tribunal shall have regard to all the circumstances, including-

1. the conduct of all the parties;
2. whether a party has succeeded partly in the case;
3. whether the party had made a frivolous counterclaim leading to delay in the disposal of the arbitral proceedings; and
4. whether any reasonable offer to settle the dispute is made by a party and refused by the other party.

(4) The Court or arbitral tribunal may make any order under this section including the order that a party shall pay-

1. a proportion of another party's costs;
2. a stated amount in respect of another party's costs;
3. costs from or until a certain date only;
4. costs incurred before proceedings have begun;
5. costs relating to particular steps taken in the proceedings;
6. costs relating only to a distinct part of the proceedings; and
7. interest on costs from or until a certain date.

(5) An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.”