Who Pays the Costs of an Arbitration in India?

The default answer is that the loser pays. Section 31A of the Arbitration and Conciliation Act, 1996 states the general rule that the unsuccessful party shall be ordered to pay the costs of the successful party, and a tribunal or court that wants to depart from it must record reasons in writing. That rule governs arbitration costs in India only at the end, though. While the reference is running, both sides fund it in equal shares through deposits under Section 38, and the tribunal holds a lien on the award under Section 39 until its costs are paid.

So there are really three money questions in every arbitration: who advances the cash, what the arbitrators are entitled to charge, and who ultimately bears the bill once the award is made. They are answered by different provisions and they are decided at different times.

What the statute counts as costs

Section 31(8) says the costs of an arbitration shall be fixed by the tribunal in accordance with Section 31A. The Explanation to Section 31A(1) defines costs as the reasonable costs relating to the fees and expenses of the arbitrators, courts and witnesses, legal fees and expenses, any administration fees of the institution supervising the arbitration, and any other expenses incurred in connection with the arbitral or court proceedings and the arbitral award.

That definition is wider than most parties expect. It picks up counsel's fees, the institution's charges, expert and witness expenses, and the costs of related court proceedings such as a Section 9 application or a Section 11 petition. A party that keeps no record of these heads through a three year reference is not in a position to claim them at the end, and tribunals do notice the difference between a costs claim supported by invoices and one asserted in a paragraph of written submissions.

Three provisions carry the money side of a reference, and each of them bites at a different stage.

The default rule on arbitration costs in India, and how tribunals depart from it

Section 31A(2) sets the general rule that the unsuccessful party pays, while allowing a different order for reasons recorded in writing. Section 31A(3) lists what the tribunal must weigh: the conduct of all the parties, whether a party has succeeded partly, whether a party made a frivolous counter claim leading to delay, and whether a reasonable offer to settle was made by one party and refused by the other.

Section 31A(4) then gives the tribunal a menu rather than an all or nothing choice. It may order a party to pay a proportion of the other side's costs, a stated amount, costs from or until a certain date only, costs incurred before proceedings began, costs of particular steps, costs of a distinct part of the proceedings, and interest on costs from or until a certain date.

Key takeaway. Section 31A(5) makes an agreement that one party will bear the whole or part of the costs in any event valid only if it was made after the dispute arose. A clause in the original contract saying each side bears its own costs whatever happens does not survive that provision.

Who funds the arbitration while it is running

Section 38 is the provision that decides who writes cheques before the award. The tribunal may fix a deposit or supplementary deposit as an advance towards the costs referred to in Section 31(8), and where a counter claim has been filed it may fix separate amounts for the claim and the counter claim. The deposit is payable in equal shares by the parties. If one party does not pay its share, the other may pay it. If neither pays in respect of a claim or counter claim, the tribunal may suspend or terminate the proceedings in respect of that claim or counter claim. On termination, Section 38(3) requires the tribunal to render an accounting of deposits received and return any unexpended balance.

Two practical consequences follow. First, a respondent who refuses to fund the reference does not stall it. The claimant can pay both shares and add the amount to its costs claim. Second, a claimant who will not fund its own claim risks having that claim suspended while the counter claim proceeds.

Common mistake. Treating the deposit as the final cost. Deposits are advances towards costs, and supplementary deposits are common when hearings run longer than planned. Budget for the supplementary calls, not just the first one.

Arbitrator fees, the Fourth Schedule, and what ONGC v. Afcons decided

The Fourth Schedule to the Act sets model fees by reference to the sum in dispute. The principal slabs are set out below.

There is a further slab for sums above Rs 10,00,00,000 and up to Rs 20,00,00,000. The Note to the Schedule adds that a sole arbitrator is entitled to twenty five per cent over the fee in the table.

In Oil and Natural Gas Corporation Ltd v. Afcons Gunanusa JV, decided on 30 August 2022, the Supreme Court settled several of the arguments that used to consume the first year of a reference. Arbitrators cannot unilaterally issue binding and enforceable orders fixing their own fees, because that makes them a judge in their own cause. The tribunal can still apportion costs under Sections 31(8) and 31A and demand deposits under Section 38, but a finding on its own fees made without agreement is not enforceable in its favour. Its remedy is the lien under Section 39(1), and a party who thinks the demand is unreasonable may apply to court under Section 39(2).

The Court also held that the Fourth Schedule is not mandatory, so parties remain free to agree the fees or the method of fixing them. Where the Schedule has been made applicable to an ad hoc arbitration, the expression sum in dispute means the claim and the counter claim separately rather than cumulatively, so a separate fee may be charged for each and the ceiling applies separately to both. The ceiling of Rs 30,00,000 in the last entry applies to the total of the base amount and the variable component, and it applies to each individual arbitrator rather than to a three member tribunal as a whole.

Ad hoc or institutional: where the money actually goes

The cheapest arbitration is not the one with the lowest arbitrator fee. It is the one that finishes. A reference that drifts across five years accumulates counsel fees, sitting fees and supplementary deposits that dwarf any saving at the appointment stage. Our note comparing institutional and ad hoc arbitration deals with the wider trade off, and the mechanics of appointment are covered in our note on appointment of an arbitrator under Section 11.

The cost consequences the statute builds in

Delay has a price for everyone. Under Section 29A(1), an award in a domestic arbitration must be made within twelve months of the completion of pleadings, extendable by six months with the parties' consent under Section 29A(3). Beyond that the mandate terminates unless the court extends time, and the proviso to Section 29A(4) allows the court, where it finds delay attributable to the tribunal, to reduce the arbitrators' fees by up to five per cent for each month of delay, after giving the arbitrator a hearing.

On the other side, Section 31(7)(b) provides that a sum directed to be paid by an award carries interest, unless the award directs otherwise, at two per cent higher than the current rate of interest prevalent on the date of the award, from the date of award until payment. Combined with the power in Section 31A(4)(g) to award interest on costs, that is a serious incentive for a losing party not to sit on an award while a Section 34 challenge is prepared.

Deadline warning. Section 29A is not a soft target. If the twelve month period and the six month consent extension both lapse without a court extension, the mandate of the arbitrator terminates, and everything spent up to that point is at risk of being spent twice.

Four statutory levers decide what delay and non payment cost each side once the award is in sight.

How to control what an arbitration costs you

1. Fix the arbitrator's fees in writing at the first procedural hearing, and record whether the Fourth Schedule applies, whether the claim and counter claim are charged separately, and what a sitting is.
2. Agree the ancillary heads at the same time: reading fees, cancellation charges for adjourned hearings, transcription and venue.
3. Consider adopting institutional rules even in an ad hoc reference, so that a published fee schedule replaces a negotiation with your own tribunal.
4. Keep a running costs ledger from day one, with counsel invoices, deposit receipts, institution charges and expert fees, so the Section 31A claim is evidenced rather than asserted.
5. Make a written offer to settle if the case warrants it. Section 31A(3)(d) makes a reasonable offer that was refused a relevant circumstance in the costs order.
6. Track the Section 29A clock from the date pleadings complete, and apply for extension before expiry rather than after.
7. Object to a unilateral fee revision immediately and in writing. Afcons makes the point available, but a party that pays without protest for two years has a much weaker complaint.
8. Plead costs properly in the statement of claim or defence, with the heads identified, so the tribunal is not left to improvise a figure at the end.

Indicative ranges

Any figure here is a planning range and not a quotation. Arbitrator fees in a domestic ad hoc reference are commonly anchored to the Fourth Schedule, so the statutory ceiling of Rs 30,00,000 per arbitrator marks the top of that scale for very large claims, with the sole arbitrator uplift of twenty five per cent on top. Institutional administration charges are usually a small fraction of the arbitrator fees and are published, so they can be modelled precisely before you file. Counsel fees are the largest and least predictable head in most references. On timing, a straightforward domestic arbitration that stays within Section 29A tends to run from twelve to eighteen months from the completion of pleadings, while a document heavy construction or shareholder dispute with extensions and interlocutory applications commonly runs longer. A Section 34 challenge and any Section 37 appeal add their own time and their own costs, which is why the costs claim should be framed to cover related court proceedings as Section 31A permits. Our note on setting aside an arbitral award under Section 34 covers that stage.

A note from practice

The single most avoidable cost in Indian arbitration is the fee argument itself. Parties reach the first procedural hearing focused on the timetable, treat fees as an awkward subject to be settled later, and then spend the next year exchanging letters about sitting fees and reading fees while the merits stand still. Afcons removed much of the legal uncertainty, but it cannot supply the agreement that should have been recorded on day one. The second avoidable cost is a costs claim that arrives unsupported. Section 31A gives a tribunal wide discretion, and discretion tends to follow the party that has done the arithmetic. Anyone facing a live reference should take advice on their own contract and rules, because whether the Fourth Schedule applies at all depends on what the arbitration agreement and any adopted institutional rules actually say. You can read more about our work in arbitration and alternative dispute resolution.

Related guides and where to get help

If this is a live problem rather than background reading, our arbitration and ADR practice handles these matters from Bengaluru, including for clients who cannot attend court in person. These guides go deeper on the neighbouring questions:

• Section 9 vs Section 17 Arbitration: Interim Relief
• Institutional vs Ad Hoc Arbitration in India: A Guide
• Judicial Interference in Arbitration in India: Explained

Frequently Asked Questions

This article is general information and not legal advice. What an arbitration costs, and who bears it, depends on the arbitration agreement, the rules adopted and the conduct of the reference.