This article has been written by Ms. Pratibha Mittal, a 1^st year B.COM.LL.B. (Hons.) student of University Institute of Legal Studies, Panjab University, Chandigarh.

Introduction 

Arbitration is not a recent instrument used to avoid the drawbacks of current litigation; rather, arbitration has its origins in history’s most ancient societies as a preferable way to resolve conflicts. Numerous modern legal areas that favour arbitration, such as family, property, business transactions, trusts and estates, and labour, have historical roots in arbitration. Arbitral award given as a result of arbitration is decided by the arbitral tribunal. Cost is one such award which the arbitral tribunal can declare.

Arbitration

The term arbitration is nowhere clearly defined under the Arbitration and Conciliation Act, 1996. According to Section 2 (1) (a) of the act “arbitration means any arbitration whether or not administered by permanent arbitral institution.” The act encourages private dispute settlement either by mutual agreement or mediation by third person.

M. R. Romilly defined ‘Arbitration’ in Collins v. Collins, 28 Lj Ch 186; (1858) 26 Beav 306, as “a reference to the decision of one or more persons, either with or without an umpire, of some matter or matters in difference between the parties.”

Arbitral Award

The term “Arbitral Award” is not clearly defined under the Arbitration and Conciliation Act, 1996. Section 2 (1) (c) only states that ““arbitral award” includes an interim award.” The section does not give an exhaustive definition. As per Section 31 (6) “the arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.” Thus an interim award may be the arbitral award and a final award. Usually, a judgment on disputes referred to an arbitral tribunal for arbitration in called an arbitral award. According to H. Lexicon, “it is an instrument which embodies a decision of an arbitrator or arbitrators as regards matters referred to him or them.”

In the case of H. G. Bajaj v. Share Deal Finance Consultants Pvt. Ltd., AIR 2003 Bom 296, it was held that “every order that results in the termination of arbitral proceedings is not an award. An award is final determination of a claim or part of a claim or counter-claim by the arbitral tribunal.”

It was held in the Satish Kumar v. Surendra Kumar, AIR 1970 SC 833 that “an award stands at the same footing as a decree of a court, whether it has passed into a decree or not and therefore it is binding upon the parties. The Section 36 of the Arbitration and Conciliation Act of 1996 states that an award shall be enforced as if it was a decree of the court. Section 35 also provides that “subject to this Part an arbitral award shall be final and binding on the parties and persons claiming under them respectively.”

Kinds of Arbitral Awards

1. Interim award or Final award
2. Domestic award or Foreign award

Essentials of Arbitral Award

It is a well-established legal principle that an arbitral decision must contain the following essential features in order to be valid, legitimate, and enforceable:

1. A written and signed arbitral award is required.
2. In order to begin arbitration, the sides must be competent.
3. Section 31(3) of Arbitration and Conciliation Act of 1996 states that an arbitral award must be based on reasons.
4. There must be arbitration clause to assign disputes or differences before arbitral tribunal.
5. The terms of an arbitral award must relate to the issue that was the focus of the arbitration.
6. The principle of mutuality must be the basis of every arbitral award.

Form and Contents of Arbitral Award

The form and contents of arbitral award are provided in the Section 31 of the Arbitration and Conciliation Act, 1996.

“31. Form and contents of arbitral award.—

(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.

(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.

(3) The arbitral award shall state the reasons upon which it is based, unless—

(a) the parties have agreed that no reasons are to be given, or

(b) the award is an arbitral award on agreed terms under section 30.

(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.

(5) After the arbitral award is made, a signed copy shall be delivered to each party.
(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.

(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.

Explanation.—The expression “current rate of interest” shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).

(8) The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A.

Explanation.—For the purpose of clause (a), “costs” means reasonable costs relating to—

1. the fees and expenses of the arbitrators and witnesses,
2. legal fees and expenses,
3. any administration fees of the institution supervising the arbitration, and
4. any other expenses incurred in connection with the arbitral proceedings and the arbitral award.”

The Section, in precise, states that the award must be made in writing and signed by the members of the arbitral tribunal or, in any case, by the majority members. And except if the parties have specifically told that no reasons be given or if the award is in terms of a settlement reached between the parties through agreement, it must contain the reasons for making the award. The award must also include the arbitration’s place and date. Each party should also get a copy of the award, duly signed. Any case for which the arbitral tribunal also has ability to issue a final award may be the subject of an interim award. The arbitral tribunal should also define the mode in which the costs, including fees and expenses of the arbitrator or arbitrators, witnesses, as well as legal fees and other administrative costs, shall be paid by the respective parties.

Costs under Arbitration

The Section 31 (8) gives authority to the arbitral tribunal to fix the costs of arbitration to be paid by the parties. As per the explanation provided for the sub-section (8) “costs” includes “reasonable costs relating to the fees and expenses of the arbitrators 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 proceedings and the arbitral award.” In Mohd. Akbar v. Attar Singh, AIR 1945 PC 170, it was held by the Privy Council that award of costs is at the discretion of the arbitral tribunal.

Detailed provisions regarding fees and expenses incurred for arbitration proceeding and award are given in the Rules of the Indian Council of Arbitration. According to Rules 28 and 29, the arbitral tribunal has the discretion to determine incidental charges and costs of reference and awards etc. Rule 30 outlines the scale of fees chargeable for administrative work and arbitrators’ fees.

In GTM Builders & Promoters Pvt. Ltd. v. Sneh Developers Pvt. Ltd., OMP (COMM) 10/2016, taking a note of the judgments of the Supreme Court relied upon by the Arbitral Tribunal, it was held that “none of the referred decisions are authorities for the proposition that claim for loss of profits can be awarded without any rudimentary evidence or material indicating the same. Further, it is open to the courts to estimate the quantum of loss of profits; however, it would be necessary for a party to establish that in the normal course, the contract would have yielded profits to the extent as claimed.”

The provision gives the Arbitral Tribunal a considerable measure of freedom in determining the arbitration costs. The Tribunal has the authority to determine who is responsible for paying the costs, how much, to whom, and how. The Tribunal might divide the expenses between the person who is entitled to them and his counsel. In order to compensate the costs incurred in preparing the award, its fees, and the expenditures borne by the parties during the entirety of the proceedings, the Tribunal may levy a tax on the costs.

According to the decision in Lloyd Del Pacifico v. Board of Trade, 1930 46 TLR 476, “the discretion as to costs should be judicially exercised.” In Perry v. Stopher, 1959 1 WLR 415, it was held that “Judicial rules as to costs should be followed, that is, unless there are circumstances justifying a departure from the rule, costs should be awarded to the successful party. If they are not so awarded the arbitrator should record his reasons for the same.” “If the costs are fixed in an extravagant manner that may amount to misconduct sufficient for setting aside the award” was held in Govt. of Ceylon v Chand, 1963 2 QB 327.

The court may at the request of a party remit the award back to the arbitrator for reconsideration if his decision as to costs is arbitrary. In Blue Horizon Shipping Co. v. E. D. & F. Man Ltd., 1979 1 Lloyd’s Rep 475, a ship had suffered damage at two berthing. The umpire found that only on one of these occasions the master was at fault and the ship-owner was entitled to recover for that but not for the other. As to costs he decided that each party must bear his own costs because there was only partial success. The case was sent back for reconsideration because the apportionment of the costs was not in accordance with the established principles.

Regime for Costs

Provisions relating to regime for costs are given under Section 31A. The Section 31A has been introduced by the Amendment Act of 2015 which gives wide powers to the arbitral tribunal to award costs. The expansive regime to award costs based on rational and realistic criterion rule, as recommended in the Law Commission Report, has been accepted. The arbitral tribunal can decide whether the costs are payable, the amount of costs to be paid and when they need to be paid. The provision further provides that generally the unsuccessful party will be ordered to pay the costs to the successful party. The costs may include fees and expenses or the arbitrators, courts and witnesses, legal fees and expenses, administrative costs of the institution and any other costs incurred in relation to the arbitral or court proceedings and the arbitral award. The conduct of parties, Success of a party 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, are important a determining factors in awarding costs. The Court or arbitral tribunal has been empowered to make any order under this Section. 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.

“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—

(a) whether costs are payable by one party to another;

(b) the amount of such costs; and

(c) when such costs are to be paid.

Explanation.—For the purpose of this sub-section, “costs” means reasonable costs relating to—

1. the fees and expenses of the arbitrators, Courts and witnesses;
2. legal fees and expenses;
3. any administration fees of the institution supervising the arbitration; and
4. 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,—

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

(b) 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— (a) the conduct of all the parties;

(b) whether a party has succeeded partly in the case;

(c) whether the party had made a frivolous counterclaim leading to delay in the disposal of the arbitral proceedings; and

(d) 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) a proportion of another party’s costs;

(b) a stated amount in respect of another party’s costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; and

(g) 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.”

Conclusion

Result of an arbitration is an arbitral award which is a judgment of arbitral tribunal on the dispute referred to it. Such award should be written and signed by the arbitral tribunal. It should specify the reason and the date and place of arbitration. The tribunal can decide the amount of cost, by whom and to whom it will be paid. Such costs will be determined considering various factors. Thus, wide powers relating to the costs of arbitration are given to the arbitral tribunal.

References

1. Tripathi, S. C., The Arbitration and Conciliation Act, 1996, 2010, Central Law Publications, Allahabad
2. Singh, Avtar, Law of Arbitration and Conciliation, 2013, Eastern Book Company, Lucknow
3. Sullar, Harman Shergill, Alternative Dispute Resolution, 2022, Shree Ram Law House, Chandigarh
4. Paranjape, N. V., Law relating to Arbitration and Conciliation in India, 2013, Central Law Agency, Allahabad

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