Sections 38 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 38 lets the arbitral tribunal ask the parties for an advance on its costs, to be paid in equal shares, and section 39 gives the tribunal a lien on the award for unpaid costs, with a Court application to break a standoff. Together they decide who funds the arbitration while it runs (our arbitration support page covers help with this) and what happens if the tribunal will not hand over the award until it is paid. This article follows the India Code consolidated text consulted.
Under section 38, the tribunal may fix a deposit (and a supplementary deposit) as an advance for costs, payable in equal shares. If one side does not pay, the other may pay that share; if neither does, the tribunal may suspend or terminate the proceedings in respect of that claim or counter-claim. Under section 39, the tribunal has a lien on the award for unpaid costs unless the arbitration agreement says otherwise, and a party can apply to the Court to have the award delivered on payment of the demanded costs into Court.
Section 38: deposits
Sub-section (1): the tribunal fixes the deposit
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". The amount is fixed by the tribunal; the section sets no figure and no ceiling.
The first proviso adds that where a counter-claim has been submitted as well as the claim, the tribunal "may fix separate amount of deposit for the claim and counter-claim". So the respondent who counter-claims can face a separate deposit for that counter-claim.
The costs in section 31(8) are, as printed in the text consulted, costs fixed by the tribunal in accordance with section 31A. The Explanation printed after section 31(8) says "costs" means 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 award. See our articles on section 31 and on the regime for costs in section 31A.
Sub-section (2): equal shares and what happens on default
The deposit "shall be payable in equal shares by the parties". Two provisos deal with non-payment:
- First proviso: where one party fails to pay his share, "the other party may pay that share".
- Second proviso: where the other party also does not pay the share in respect of the claim or counter-claim, the tribunal "may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim, as the case may be".
The words "in respect of such claim or counter-claim" matter. The consequence is tied to the claim or counter-claim whose deposit is unpaid, not to the whole arbitration.
Sub-section (3): accounting and refund
On termination of the arbitral proceedings, the 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". The section does not say in what proportion the balance is returned; the text is silent on that.
Section 39: lien and the Court's role
Sub-section (1): the lien
"Subject to the provisions of sub-section (2) and to any provision to the contrary in the arbitration agreement", the tribunal "shall have a lien on the arbitral award for any unpaid costs of the arbitration". Two limits are built in: the arbitration agreement can provide otherwise, and sub-section (2) applies.
Sub-section (2): application to the Court
If the tribunal "refuses to deliver its award except on payment of the costs demanded by it", the Court may, on an application, order that the tribunal "shall deliver the arbitral award to the applicant on payment into Court by the applicant of the costs demanded". The Court then, "after such inquiry, if any, as it thinks fit", orders that out of the money paid in there be paid to the tribunal "such sum as the Court may consider reasonable", and that the balance, if any, be refunded to the applicant.
Sub-section (3): who may apply
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". The tribunal is "entitled to appear and be heard" on the application. So a party who has signed a written fee agreement with the tribunal cannot use this route as to those fees, but a party who has not may.
Sub-section (4): costs where the award is silent
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". This is a residual power when the award itself does not deal adequately with costs.
Side by side: sections 38 and 39
| Point | Section 38 | Section 39 |
|---|---|---|
| Who acts | Arbitral tribunal | Tribunal (lien); the Court (orders) |
| What it deals with | Advance deposit for costs | Unpaid costs and delivery of the award |
| Shares | Equal shares; the other party may pay a defaulting party's share | Court decides the reasonable sum out of the money paid in |
| Consequence of default | Tribunal may suspend or terminate in respect of the claim or counter-claim | Tribunal may hold the award until costs are paid, subject to sub-section (2) and the agreement |
| Can the agreement change it? | Not stated | Yes, the lien is subject to "any provision to the contrary in the arbitration agreement" |
An example
Harbour Retail LLP claims Rs 40 lakh from Meridian Fabrics Pvt Ltd, and Meridian counter-claims. The tribunal fixes a deposit for the claim and a separate deposit for the counter-claim (first proviso to section 38(1)), each payable in equal shares. Meridian does not pay its share of the deposit for the claim. Harbour Retail pays that share too (first proviso to section 38(2)). Had neither paid, the tribunal could suspend or terminate the proceedings on that claim.
At the end, the tribunal declines to release the award until its demanded costs are paid. If no written fee agreement fixes those fees, Meridian or Harbour Retail may apply to the Court under section 39(2). The Court may order delivery on payment of the demanded costs into Court, and then decide what reasonable sum goes to the tribunal and what is refunded.
Related provisions
- Section 31A gives the Court or the tribunal discretion on costs between the parties, which is a different matter from the tribunal's own costs claimed under sections 38 and 39.
- Part III has a deposit provision for conciliation in section 79: the conciliator may direct each party to deposit an equal amount, and if the required deposits are not paid in full by both parties within thirty days, the conciliator may suspend the proceedings or make a written declaration of termination. Our article on costs and deposits in conciliation sets sections 78 and 79 out; check whether the Mediation Act, 2023 change to Part III is in force before relying on them.
- Section 42 (the Court that hears later applications) is explained in our article on section 42.
Need help with deposits and costs in an arbitration?
If a tribunal has asked for a deposit or is holding an award for costs, the first questions are the arbitration agreement, any written fee agreement and the exact demand. Our arbitration support team can go through them with you and advise on the steps under sections 38 and 39.
Key takeaways
- The tribunal may fix a deposit and supplementary deposit as an advance for costs, with a separate amount for a counter-claim.
- The deposit is payable in equal shares; the other party may pay a defaulting party's share.
- If neither side pays, the tribunal may suspend or terminate the proceedings in respect of that claim or counter-claim.
- The tribunal has a lien on the award for unpaid costs, subject to the arbitration agreement and sub-section (2).
- A party may apply to the Court for delivery of the award on payment of the demanded costs into Court, unless the fees were fixed by written agreement.
Read next
- Sections 40–41: death of a party and insolvency
- Section 37: appealable orders
- Section 31A: regime for costs
- Section 34: challenge to an arbitral award
Disclaimer: Based on the India Code consolidated text of the Arbitration and Conciliation Act, 1996, whose footnotes show amendments up to Act 3 of 2021 and a latest date of 12 October 2023, as consulted on 2 October 2026. Rules, regulations and notifications under the Act, later amendments and the commencement of the Mediation Act, 2023 should be checked. This article is general information, not legal advice; check the official text before acting.