By S&S Co. Advocates & Solicitors · Published 24 July 2026 · Informational content, not legal advice — see our disclaimer
Three Different Questions, Three Different Sections
Parties to an arbitration frequently conflate three distinct questions: who ultimately bears the 'costs' of the proceeding once the award is made, how the arbitrator's own fee is fixed, and who has to advance the money to the tribunal while the arbitration is still running. These are governed respectively by Section 31A (the 'costs regime' introduced by the 2015 amendment, covering arbitral fees, legal fees, administrative expenses and other costs of the proceeding), the Fourth Schedule (the fee scale the Act contemplates for arbitrators, subject to party agreement), and Section 38 (deposits the tribunal can call for from the parties as the arbitration proceeds). Treating these as one question is where most disputes over 'who pays the arbitrator' actually go wrong.
Section 38(2), in particular, is unambiguous and frequently overlooked until a dispute arises: parties to an arbitration agreement are required to share the deposit demanded by the tribunal in equal shares, and where one party fails to pay its share, the proviso to Section 38(2) obliges the other party to make up the shortfall if it wants the arbitration to proceed. A party who wants to force a tribunal to stop simply by refusing to pay its share of the deposit will usually find that the arbitration continues anyway — funded by the other side — with a right of recovery against the defaulting party built into the eventual award.
Is the Fourth Schedule Fee Scale Mandatory?
This question has been substantially settled by the Supreme Court. In National Highways Authority of India v. Gammon Engineers and Contractors Pvt. Ltd. (Civil Appeal No. 5384 of 2019), the Supreme Court held that where the parties' contract already contains an agreed fee structure for the arbitrator — for example, a rate fixed by a policy circular referenced in the arbitration clause — Section 31(8) read with Section 31A does not override that agreement in favour of the Fourth Schedule scale. The Fourth Schedule operates as a default, suggestive framework where the parties have not otherwise agreed; it is not a mandatory override of a pre-existing contractual fee arrangement.
The practical takeaway is that the enforceability of a Fourth Schedule-based fee dispute depends heavily on what the underlying contract actually says. Where the arbitration clause is silent on fees, the Fourth Schedule fills the gap and the tribunal is expected to fix fees broadly consistent with that scale. Where the clause (or a referenced policy) already fixes a rate, parties should expect that rate to govern, and a claim that the Fourth Schedule scale should apply instead is likely to fail. Reviewing exactly what your arbitration clause says about fees — not just whether it names an institution — before a dispute arises is the cheapest way to avoid this argument altogether.
What Section 31A Actually Lets the Tribunal Do
Section 31A empowers the tribunal, while making the award under Section 31, to direct that costs — a defined term including the arbitrator's fees, legal fees of the parties, administrative fees of any institution, and other expenses of the proceeding — be paid, ordinarily by the unsuccessful party to the successful party. Critically, the provisions of Section 31A(4), which list the factors the tribunal should weigh (conduct of the parties, whether a party succeeded on part of its claim, whether a reasonable offer to settle was refused, and so on) are not framed as mandatory directions the tribunal must follow in every case — they are considerations the tribunal is expected to have regard to, giving it real discretion in the final costs order.
Where a party has already advanced the full deposit under Section 38 because the counterparty defaulted on its share, that advancing party is not left without a remedy: the costs award under Section 31A, and ultimately the recovery mechanism under Section 36 (enforcement of the award as a decree), is the route by which the advancing party recovers the shortfall from the defaulting party. This two-stage structure — pay the deposit now under Section 38, recover it later through the Section 31A costs order — is precisely why parties who assume 'the losing side pays everything as it happens' are often surprised by how the cash actually flows during the arbitration itself.
Settlements Complicate — But Do Not Eliminate — the Costs Question
Where parties settle during the pendency of an arbitration, Section 30 allows the tribunal to record the settlement as an arbitral award on agreed terms. The arbitrator's fee is still, in principle, governed by the Fourth Schedule (or any prior agreement on fees), though a tribunal has discretion to reduce its fee where the matter concludes early by settlement rather than a contested hearing. Section 31A(5) specifically contemplates that a settlement agreement can include a term on how the parties will share the costs of arbitration — and where such a term exists, the tribunal is bound to give effect to it and cannot substitute its own view on cost allocation.
The critical drafting point is this: if a settlement agreement is silent on how arbitration costs are to be shared, the tribunal has no independent power to write in a cost-sharing term of its own on top of a concluded settlement — and a party that later tries to claim reimbursement of costs that were never addressed in the settlement documentation will typically find it has no contractual or statutory hook for that claim, since it does not form part of either the settlement agreement or the consent award. Any settlement negotiated mid-arbitration should therefore expressly address cost and deposit sharing, even where the parties are focused on resolving the substantive dispute.
Frequently Asked Questions
Can a party refuse to pay its share of the arbitrator's deposit?
It can refuse, but Section 38(2)'s proviso allows the other party to pay the shortfall to keep the arbitration moving, with the paying party then entitled to recover that shortfall from the defaulting party, typically through the eventual costs order and enforcement of the award.
Is the Fourth Schedule fee scale binding on all arbitrations?
No — per the Supreme Court's ruling in the Gammon Engineers case, the Fourth Schedule is a default scale that applies where the parties have not otherwise agreed on arbitrator fees; a pre-existing contractual fee arrangement will generally prevail over it.
What happens to cost-sharing if the tribunal terminates for non-payment of the full deposit?
Under Section 38, non-payment of the full deposit demanded can lead the tribunal to suspend or terminate proceedings in respect of the relevant claim, and the arbitration in respect of that claim or counterclaim may have to be recommenced once the deposit position is resolved.
References & Further Reading
This article references the following statutes, rules and judicial decisions. Case citations link to the fuller discussion in our Legal Updates archive, verified against primary sources at the time of writing.
- Arbitration and Conciliation Act, 1996, Sections 30, 31, 31A and 38, and the Fourth Schedule — costs regime, arbitral fee scale, and deposits.
- National Highways Authority of India v. Gammon Engineers and Contractors Pvt. Ltd., Civil Appeal No. 5384 of 2019 (Supreme Court of India, 10 July 2019) — on the Fourth Schedule being suggestive, not mandatory, where a fee structure is already agreed.
- See our Arbitration Notable Judgments and Legal Updates — Arbitration & Disputes archive for further recent decisions on arbitral costs.