Section 31A of the Arbitration and Conciliation Act, 1996: Regime for Costs

Section 31A lays down the statutory regime for awarding costs in arbitration proceedings and in Court proceedings under the Arbitration and Conciliation Act, 1996. It gives the Court or arbitral tribunal discretion to decide whether costs are payable, the amount of costs and the time for payment, while also prescribing the general rule and relevant factors for exercising that discretion.

Current legal position: Section 31A continues to govern costs in arbitration-related proceedings. Section 31(8) also provides that the costs of an arbitration are to be fixed by the arbitral tribunal in accordance with Section 31A.

Text of Section 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--

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

Explanation. For the purpose of this sub-section, "costs" means 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.

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

the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or
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--

the conduct of all the parties;
whether a party has succeeded partly in the case;
whether the party had made a frivolous counterclaim leading to delay in the disposal of the arbitral proceedings; and
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--

a proportion of another party's costs;
a stated amount in respect of another party's costs;
costs from or until a certain date only;
costs incurred before proceedings have begun;
costs relating to particular steps taken in the proceedings;
costs relating only to a distinct part of the proceedings; and
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.

Meaning and Scope of Section 31A

1. Court and arbitral tribunal have statutory discretion

Section 31A(1) gives both the Court and the arbitral tribunal discretion over three core issues: whether one party must pay another party's costs, the amount to be paid and the time for payment. The provision operates notwithstanding anything contained in the Code of Civil Procedure, 1908.

2. Definition of "costs"

The Explanation to Section 31A(1) defines costs broadly as reasonable costs connected with the arbitration or related Court proceedings. These include arbitrator, Court and witness expenses, legal fees, institutional administration fees and other expenses connected with the proceedings and the arbitral award.

3. General rule: unsuccessful party pays

Under Section 31A(2), where a costs order is made, the general rule is that the unsuccessful party pays the successful party's costs. The Court or tribunal may depart from that rule, but reasons for a different order must be recorded in writing.

4. Conduct and settlement offers matter

Section 31A(3) requires consideration of all the circumstances. The statute specifically identifies party conduct, partial success, frivolous counterclaims that cause delay and reasonable settlement offers that were refused. These factors can materially influence the final costs order.

5. Flexible forms of costs orders

Section 31A(4) permits flexible and tailored costs orders. A Court or tribunal can award a proportion of costs, a stated sum, costs for a particular period or step, pre-proceeding costs, costs relating to only one part of the proceedings, and interest on costs.

6. Pre-dispute costs clauses are restricted

Section 31A(5) restricts agreements that require one party to bear all or part of the arbitration costs regardless of the result. Such an agreement is valid only if it is made after the dispute has arisen.

Practical point: A costs decision under Section 31A is not limited to a simple winner-takes-costs approach. The Court or tribunal may shape the award to reflect conduct, partial success, unreasonable litigation steps, settlement behavior and other circumstances of the case.

Relationship with Section 31(8)

Section 31(8) provides that the costs of an arbitration shall be fixed by the arbitral tribunal in accordance with Section 31A. The two provisions therefore operate together when costs are determined as part of an arbitral award.

Key Points at a Glance

Section 31A applies to arbitration proceedings and related Court proceedings under the Act.
The Court or tribunal decides whether costs are payable, the amount and the time for payment.
Only reasonable costs fall within the statutory definition.
The general rule is that the unsuccessful party pays the successful party's costs.
A different costs order is permitted if reasons are recorded in writing.
Conduct, partial success, frivolous counterclaims and rejected reasonable settlement offers are relevant factors.
Costs orders may be apportioned by amount, date, procedural step or distinct part of the proceedings.
Agreements requiring one party to bear costs in any event are valid only if made after the dispute has arisen.

Official Legal Source

For the authoritative and updated statutory text, see the Arbitration and Conciliation Act, 1996 on India Code.