Arbitration and Conciliation Act, 1996
Section 78: Costs of Conciliation Proceedings
Section 78 of the Arbitration and Conciliation Act, 1996 explains how the costs of conciliation are fixed, what expenses are included in those costs, and how the parties must bear them after the conciliation proceedings terminate.
Text of Section 78
Section 78 - Costs.
(1) Upon termination of the conciliation proceedings, the conciliator shall fix the costs of the conciliation and give written notice thereof to the parties.
(2) For the purpose of sub-section (1), "costs" means reasonable costs relating to-
- the fee and expenses of the conciliator and witnesses requested by the conciliator with the consent of the parties;
- any expert advice requested by the conciliator with the consent of the parties;
- any assistance provided pursuant to clause (b) of sub-section (2) of section 64 and section 68;
- any other expenses incurred in connection with the conciliation proceedings and the settlement agreement.
(3) The costs shall be borne equally by the parties unless the settlement agreement provides for a different apportionment. All other expenses incurred by a party shall be borne by that party.
Meaning and Purpose of Section 78
Section 78 provides a statutory mechanism for dealing with the common costs of conciliation. When conciliation ends, the conciliator determines the reasonable costs falling within the categories specified in the section and gives written notice to the parties.
The provision separates common conciliation costs from expenses incurred independently by an individual party. Common costs are ordinarily shared equally, while a party generally bears its own separate expenses unless the settlement agreement changes the apportionment of the common conciliation costs.
What Does "Costs" Include Under Section 78?
| Category | What Section 78 Covers |
|---|---|
| Conciliator and witness expenses | Reasonable fees and expenses of the conciliator and of witnesses requested by the conciliator with the consent of the parties. |
| Expert advice | Reasonable cost of expert advice requested by the conciliator with the consent of the parties. |
| Administrative assistance | Costs of assistance falling within Section 64(2)(b) and Section 68. |
| Other conciliation expenses | Other reasonable expenses incurred in connection with the conciliation proceedings and the settlement agreement. |
Who Fixes the Costs?
Under Section 78(1), the conciliator fixes the costs after termination of the conciliation proceedings. The conciliator must then give written notice of the amount to the parties.
How Are the Costs Shared?
Section 78(3) provides the default rule that the costs are borne equally by the parties. The settlement agreement may, however, provide for a different allocation. Expenses incurred independently by one party are borne by that party.
Section 64(2)(b): Appointment Through an Institution or Person
Section 78(2)(c) refers to clause (b) of Section 64(2). That provision permits the parties to agree that one or more conciliators may be appointed directly by a suitable institution or person. Reasonable costs connected with assistance of this kind may therefore fall within Section 78.
Section 68: Administrative Assistance
Section 68 permits the parties, or the conciliator with the consent of the parties, to arrange administrative assistance from a suitable institution or person in order to facilitate the conciliation proceedings. Section 78 expressly includes relevant costs of such assistance within the statutory meaning of conciliation costs.
Relationship Between Sections 78 and 79
Section 79 of the Arbitration and Conciliation Act, 1996 deals with deposits towards the costs referred to in Section 78. A conciliator may require equal advance deposits and supplementary deposits. On termination, the conciliator must account for the deposits received and return any unexpended balance.
Relationship With Termination of Conciliation Under Section 76
Section 76 explains when conciliation proceedings terminate. Section 78 becomes particularly relevant at that stage because the conciliator is then required to determine and notify the costs of the conciliation.
Practical Effect of Section 78
- The conciliator determines the statutory conciliation costs when the proceedings terminate.
- The amount must represent reasonable costs falling within the categories specified in Section 78(2).
- Consent of the parties is expressly relevant to witness expenses, expert advice and specified assistance.
- The default rule is equal sharing of common conciliation costs.
- The settlement agreement can provide a different apportionment.
- A party remains responsible for its own other expenses.
Current Legal Position
Section 78 continues to appear in the current official India Code text of the Arbitration and Conciliation Act, 1996 as part of Part III dealing with conciliation. Its statutory text continues to provide for fixing of costs on termination, the categories of reasonable conciliation costs, and equal sharing unless the settlement agreement provides otherwise.
Related Provisions
Frequently Asked Questions
Who fixes the costs of conciliation under Section 78?
The conciliator fixes the costs upon termination of the conciliation proceedings and gives written notice of those costs to the parties.
Are conciliation costs always shared equally?
Equal sharing is the statutory default. The settlement agreement may provide for a different apportionment.
Does Section 78 include expert fees?
Yes. Reasonable costs of expert advice requested by the conciliator with the consent of the parties are included.
Does Section 78 cover administrative assistance?
Yes. Section 78 expressly refers to assistance under Section 64(2)(b) and Section 68.
Who bears expenses incurred separately by one party?
Section 78(3) states that all other expenses incurred by a party are borne by that party.