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Report No. 246

Insertion of Section 6A

3. After section 6 of the Act, add section "6A. Regime for costs - (1) In relation to any arbitration proceeding or any proceeding under any of the provisions of this Act pertaining to such an arbitration, the court/ arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure, 1908, has the discretion to determine:

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

(b) the amount of those costs; and

(c) when they are to be paid.

Explanation. - For the purpose of clause (a), "costs" means reasonable costs relating to-

(i) the fees and expenses of the arbitrators/ courts and witnesses;

(ii) legal fees and expenses;

(iii) any administration fees of the institution supervising the arbitration; and

(iv) any other expenses incurred in connection with the arbitral/ court proceedings and the arbitral award.

(2) If the court/ arbitral tribunal decides to make an order in payment of costs -

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

(b) the court/ arbitral tribunal may make a different order for reasons to be recorded in writing.

(3) In deciding what order, if any, to make about costs, the court/ arbitral tribunal will have regard to all the circumstances, including-

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful;

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

(d) whether any reasonable offer to settle was made by a party and unreasonably refused by the other party.

(4) The orders which the court/ arbitral tribunal may make under this provision include an order that a party must 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 is only valid if made after the dispute in question has arisen."

[Note: The above principle ensures that the "costs follow the event" regime governs all arbitrations/ arbitration related court litigation. Such a regime would disincentivize frivolous proceedings and inequitable conduct. The basis of the above provisions is Rule 44 of the Civil Procedure Rules of England.

The Explanation to sub-section (1) reflects the wording of the Explanation to section 31(8) of the Arbitration and Conciliation Act, 1996 (which has now been deleted in the present draft).

The main objective of including the "costs follow the event" regime is to disincentivize the filing of frivolous claims/ applications. These provisions also further the spirit of the ruling of the Supreme Court in Salem Advocate Bar Association v. Union of India, AIR 2005 SC 3353].

Amendments to the Arbitration and Conciliation Act, 1996 Back

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