Section 38 of the Arbitration and Conciliation Act, 1996 - Deposits

Updated statutory explanation of deposits and supplementary deposits in arbitral proceedings.

Section 38 empowers an arbitral tribunal to require parties to make deposits in advance towards expected arbitration costs. It also regulates separate deposits for claims and counter-claims, equal sharing of deposits, the consequences of non-payment, and refund of any unspent balance when the arbitral proceedings terminate.

Text of Section 38 - Deposits

What Section 38 means

1. Advance deposit for arbitration costs

The arbitral tribunal may estimate the costs likely to be incurred in relation to a claim and direct the parties to deposit that amount in advance. It may also require a supplementary deposit if the initial amount is insufficient as the proceedings continue.

2. Separate deposit for a counter-claim

Where a respondent files a counter-claim in addition to the claimant's claim, the tribunal may fix separate deposits for the claim and the counter-claim. This allows the tribunal to deal separately with the financial requirements of each part of the dispute.

3. Deposits are generally shared equally

Under Section 38(2), the deposit is payable in equal shares by the parties. If one party does not pay its share, the other party may pay that amount so that the arbitration can continue.

4. Consequence where the required deposit is not paid

If the defaulting party does not pay and the other party also declines to make good that share, the tribunal may suspend or terminate the proceedings relating to the relevant claim or counter-claim. The provision therefore gives the tribunal a practical mechanism to deal with non-payment of advances for costs.

5. Accounting and refund after termination

When the arbitral proceedings terminate, the tribunal must account to the parties for the deposits received and return any unexpended balance to the party or parties entitled to it.

Relationship with Sections 31(8) and 31A

Section 31(8) provides that the costs of an arbitration are to be fixed by the arbitral tribunal in accordance with Section 31A. Section 31A contains the statutory regime for costs and identifies categories of reasonable costs, including arbitrators' fees and expenses, witness expenses, legal fees and expenses, institutional administration fees, and other expenses connected with the arbitral proceedings and award.

The Supreme Court has explained that Section 38 permits advance deposits towards arbitration costs, including arbitrators' fees, and that such deposits are ordinarily shared equally during the proceedings. See Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV, Supreme Court of India, 30 August 2022.

Official statutory reference

The official text of the Arbitration and Conciliation Act, 1996 is available through India Code. India Code has also announced migration of its website to indiacode.gov.in.

Key points at a glance

• The tribunal may require an initial deposit and later supplementary deposits.
• Separate deposits may be fixed for a claim and a counter-claim.
• The parties ordinarily pay the deposit in equal shares.
• If one party defaults, the other party may pay the defaulting share.
• If the required share remains unpaid, the relevant claim or counter-claim may be suspended or terminated.
• At the end of the proceedings, the tribunal must account for the deposits and refund any unspent balance.

This page is a general legal information resource. For case-specific advice on arbitral fees, institutional rules, deposits, or termination for non-payment, consult a qualified legal professional.