MISCELLANEOUS

Lecture by Dr. Saltanat Sherwani

38. DEPOSITS.—
Section 38 provides power to the arbitral tribunal for the fixation of
the costs of an arbitration.

Section 38
(1) The arbitral tribunal may fix the amount of the deposit or
supplementary deposit, as the case may be, as an advance for the costs
referred to in sub-section (8) of section 31, which it expects will be
incurred in respect of the claim submitted to it:

Provided that where, apart from the claim, a counter-claim has been
submitted to the arbitral tribunal,mit may fix separate amount of deposit
for the claim and counter-claim.

(2) The deposit referred to in sub-section (1) shall be payable in equal

shares by the parties:

Provided that where one party fails to pay his share of the deposit, the
other party may pay that share:
Provided further that where the other party also does not pay the
aforesaid share in respect of the claim or the counter-claim, the arbitral
tribunal may suspend or terminate the arbitral proceedings in respect of
such claim or counter-claim, as the case may be.

(3) Upon termination of the arbitral proceedings, the arbitral tribunal shall
render an accounting to the parties of the deposits received and shall
return any unexpended balance to the party or parties, as the case may
be.

Section 38(1) deals with power given to the arbitral tribunal to fix
the amount of the deposit or supplementary deposit and also under
Section 31(8) of the Act, 1996 an approximate amount of the costs
as an advance in respect of the claim or counter-claim submitted to
the arbitral tribunal.
It is provided that in case of supplementary claim or counter-
claimsubmitted to the arbitral tribunal other than primary claim or
counter-claim, the arbitral tribunal may fix separate amount of
deposit in respect of such claim or counter-claim. The tribunal may
fix lump-sum amount of costs altogether to be deposited either
jointly or separately.

Section 38(2) provides that deposit is to be paid in equal shares

by the parties, however, if one party fails to pay his share of deposit
the other party may be ordered to pay the share of that party, i.e.,
the defaulting party.

However, under any circumstance as such if one party refused to

pay the share of the defaulting party, in such a case the arbitral
tribunal is permitted to exercise its discretionary power to suspend
or terminate the arbitral proceedings but only in respect of such
claim or counter-claim.

Thus, the arbitral tribunal has discretionary power to make sure that
fixed payment of deposit is made.

Section 38(3) provides that when under Section 33 and Section 34

the arbitral proceeding is terminated, in such a case the arbitral
tribunal is
statutorily obliged to furnish an accounting of deposits to the
parties, that how much money as deposits has been received and
spent and to make sure
that any unexpended balance is returned to the party or parties, as
the case may be.

The Schedule IV does not specify whether the 'sum in dispute'

mentioned therein would be the amount of the claim and the counter
claim separately, or cumulatively. However, in Delhi State
Industrial Infrastructure Development Corporation Ltd.
(DSIIDC) Vs. Bawana Infra Development (P) Ltd. 2018 (4)
ArbLR 168 (Delhi) ,Hon'ble Justice Navin Chawla of the Delhi High
Court interpreted the Fourth Schedule and observed that the model
schedule of fee recommended by the Law Commission is based on
the fee set by the Delhi International Arbitration Centre ("DIAC").
Since the fee schedule set by the DIAC specifically provides that the
"Sum in dispute" shall include the counter claim made by any party.
Therefore, the intent of the legislature and the purpose sought to be
achieved clearly points to the conclusion that "Sum in dispute" would
be a cumulative value of the claim and counter claim. It was further
observed in the same judgment that, "Even in the general parlance,
"sum in dispute" shall include both claim and counter claim amounts.
If the legislature intended to have the Arbitral Tribunal exceed the
ceiling limit by charging separate fee for claim and counter claim
amounts, it would have provided so in the Fourth Schedule.

The Hon'ble Delhi High Court in the matter of Chandok Machineries

Vs. S.N. Sunderson and Co. O.M.P. (COMM.)
321/2017 endeavored to interpret Section 38 of the Act and held
that a reading of Section 38 of the Act would show that the Arbitral
Tribunal may fix separate amounts of deposit for the claim and the
counter-claim.

LIEN ON ARBITRAL AWARD AND

DEPOSITS AS TO COSTS
Section 39 deals with the unpaid costs of the arbitration.

39. Lien on arbitral award and deposits as to costs.—

(1) Subject to the provisions of sub-section (2) and to any provision
to the contrary in the arbitration agreement, the arbitral tribunal
shall have a lien on the arbitral award for any unpaid costs of the
arbitration.
(2) If in any case an arbitral tribunal refuses to deliver its award
except on payment of the costs demanded by it, the Court may, on
an application in this behalf, order that the arbitral tribunal shall
deliver the arbitral award to the applicant on payment into Court by
the applicant of the costs demanded, and shall, after such inquiry, if
any, as it thinks fit, further order that out of the money so paid into
Court there shall be paid to the arbitral tribunal by way of costs
such sum as the Court may consider reasonable and that the
balance of the money, if any, shall be refunded to the applicant.

(3) An application under sub-section (2) may be made by any party

unless the fees demanded have been fixed by written agreement
between him and the arbitral tribunal, and the arbitral tribunal shall
be entitled to appear and be heard on any such application.

(4) The Court may make such orders as it thinks fit respecting the
costs of the arbitration where any question arises respecting such
costs and the arbitral award contains no sufficient provision
concerning them.

Section 39(1) provides a lien to the arbitral tribunal, if the costs of

the arbitration is not paid, however such a lien is subject to
provision contained in sub-section (2). For the purpose of this
Section the meaning of the costs is provided in explanation to
Section 31(8) of the Act, 1996.

Section 39(2) provides that in case arbitral tribunal refuses to

declare the award due to non-payment of the costs as demanded by
it the party may file an application before the court seeking delivery
of the award on payment of costs demanded to the court. In this
respect the Court may order the arbitral tribunal to deliver the
award and the court may also order an inquiry in this regard.
However, if the Court considers it appropriate it may order that the
money so paid into court shall be paid to the arbitral tribunal as the
costs for the arbitration. The balance of the money, i f any, shall be
returned to the applicant.

Section 39(3) provides that if, an application is made under sub-

section (2), the arbitral tribunal is entitled to appear and also to an
opportunity of being heard before the court on any such application
where the fees demanded have been fixed by written agreement
between him and the arbitral tribunal.
Section 39(4) provides the power to the court that in the absence
of proper and sufficiently reasonable provisions in the arbitral
award, if the question arises in respect of costs of the arbitration,
the court may regard such costs of the arbitration and pass order
accordingly, as it thinks fit.

Thus, a reasonable cost of the arbitration is payable by the party

concerned under sub-section (4).

ARBITRATION AGREEMENT NOT

TO BE DISCHARGED BY DEATH
OF PARTY THERETO
Section 40 deals with the event of the death of any party in an
arbitration agreement.

Section 40. Arbitration agreement not to be discharged by

death of party thereto.—

(1) An arbitration agreement shall not be discharged by the death of

any party thereto either in respect of the deceased or in respect of
any other party, but shall in such event be enforceable by or against
the legal representative of the deceased.

(2) The mandate of an arbitrator shall not be terminated by the

death of any party by whom he was appointed.

(3) Nothing in this section shall affect the operation of any law by
virtue of which any right of action is extinguished by the death of a
person.

As per Section 40 the Act, the arbitration agreement entered

between the parties shall not be discharged or terminated solely on
the ground of death of one of the parties to the agreement. The
same can be invoked by the legal representatives of the deceased
party.

The section 40 of The Arbitration and Conciliation Act 1996

(Amended 201 and 2019) [hereinafter called the Act] state that the
arbitration agreement shall not be discharged by the death of any
party and can be enforceable by or against the legal representatives
of the deceased. A legal representative is defined in the section
2(1)(g) of the Act as a person who in law represents the estate or a
person who intermeddles with the estate of a deceased person or a
person on whom the estate delegates upon the death of the party.

Section 40(1) provides that any party shall not be discharged by

the death, in an arbitral agreement and in such cases an arbitral
agreement shall be enforced against the legal representative of the
deceased. The expression "legal representative" is defined in
Section 2(1) of the Act, 1996.

As provided under Section 40 of the Act, 1996, on the death of

party arbitral proceedings will survive according to the terms of the
agreement.
This provision is equally applicable to all the parties in arbitration. In
fact, their legal representatives will be brought on record and
arbitral proceedings will continue as per the terms contained in the
arbitration agreement.

In Tirath Lai Day v. Smt. Bhuwan Moyee Dasi,1 the then

Federal Court observed that on the death of party the arbitrator is
under obligation to serve notice upon the legal representative of the
deceased party to appear in the arbitration proceedings and
reference will continue. If there is no service of notice upon such
legal representatives the arbitral award will not be binding on such
legal representative.

In case there is an arbitration agreement that the right of a

party shall be extinguished on death of that party-

It is clear that under Section 40(1) the death of any party will not
discharge him in the arbitration agreement, but then an arbitration
agreement shall be enforceable by the deceased’s legal
representative or against the legal representative of a deceased.
However, if there is an arbitration agreement as such that the right
of a party shall be extinguished on death of that party, in this
situation the arbitration agreement is not enforceable by the legal
representative of the deceased party or against the legal
representative of the deceased by the other party.

Section 40(2) provides that the death of any party, who has
appointed an arbitrator, the authority of that arbitrator shall not be
revoked, due to death of a party who has appointed him. Thus, once
an arbitrator is appointed, he becomes an independent authority in
every respect, even, on the death of party who appointed him.

Section 40(3) provides that Nothing in this section shall affect the
operation of any law by virtue of which any right of action is
extinguished by the death of a person. Some examples where the
right of action is extinguished by the death of a person are as
follows :—
1. Right of pre-emption. A pre-emption right, right of pre-emption, or first option to buy
is a contractual right to acquire certain property newly coming into existence before it can be
offered to any other person or entity.
2. Right of office.
4. Right of damages for defamation.
5. Suit for injunction.
6. Right of damages for malicious prosecution.
7. Suit of damages for malicious search.
8. Suit of damages for wrongful arrest.

Provisions in case of insolvency

Section 41 of the Arbitration and Conciliation Act talks about the

course to be taken if the parties to an arbitration agreement
become insolvent. This section goes hand in hand with provisions of
the Insolvency and Bankruptcy Code (IBC). With the ever evolving
law and the continuous amendments of the A&C Act as well as the
IBC, insolvency situations in arbitration have to be handled with
care.

Section 41 (1) this section makes a provision for a party who

cannot represent himself due to any legal disability such as
insolvency to be represented by receiver or assingnee in whom the
party’s right to be represented vests. Thus where party becomes
involvent after the arbitration agreement and a receiver is appointed
to administwr the estate, the right to represent the a party vests
with him.
41 (2) The involvenct Act permits the receiver either to adopt a
contract executed by invilevent or declaim it, sub section (2)
enables him or any any other party to apply to the insolvency court
and make a request for an order that matters pertaining to
arbitration agreement may be refereed to artbitral tribunal instead
of being taken by insolvency court itself for determination. It is left
to Insolvenct court to refer matter to arbitration or decides itself.