The charging of fees by arbitrators had remained a controversial issue for a considerable time, until recently addressed by the legislature by adding the Fourth Schedule1 in the Arbitration and Conciliation Act, 1996 (for short, "the Act" /"the Arbitration Act").By the said amendment, the legislature has provided guidelines for determination of the fees payable to arbitrators by specifying the model rates, thus giving clarity to parties regarding the quantum of fees that may be payable to arbitrators.

This, however, is not the end of the controversy. It has been noticed that in numerous cases, during the pendency of the arbitral proceedings, parties (more often respondents) blatantly refuse to pay their share of fees to the arbitrator. Here, the questions that arise are whether an arbitrator has a remedy under the Act to deal with such a situation in the midst of arbitral proceedings? If so, whether an arbitrator can choose to stall the proceedings until payment of his fees or whether he can continue with the proceedings without receiving his entire fees and if so, till what stage?

To understand whether there exists a mechanism to resolve the issue of unpaid arbitral fees and if so, what rights does the Arbitration Act vest upon an arbitrator to protect his interests, it is necessary to examine the entire scheme of the Arbitration Act.

The Arbitration Act stipulates2 that unless otherwise agreed between the parties, the costs of an arbitration including the fees and expenses of an arbitrator are to be fixed by the arbitrator himself. In the event that one party refuses to pay his share, the other party may pay that share. There may be other scenarios for e.g., where either both the parties refuse to pay their respective shares or where one party pays his own share but refuses to pay the share of the other party. In both the said situations, the arbitrator would be within his right to suspend or terminate the arbitral proceedings in terms of the second proviso to Section 38(2) of the said Act3. However, this untimely halting of the arbitral proceedings would not only prejudice the interests of the Claimant, but also hamper the reliability on arbitration as a robust alternative to litigation before courts. The question then is whether there is any another protective mechanism available to the arbitrator under the Act which would not hamper the on-going proceedings? To deal with such a scenario, the Arbitration Act vests the arbitrators with a special right i.e., to exercise a right of lien on the arbitral award in terms of Section 39(1) of the Act without the need to halt the arbitral proceedings.

The relevant extract of Section 39 of the said Act is reproduced as under: -  

  "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. ... "

At the outset, it is imperative to understand the appropriate stage at which an arbitrator can exercise the right of lien on the award for unpaid costs of arbitration, which includes the unpaid fees of the arbitrator. The Arbitration Act does not expressly mention the stage at which this right of lien of the arbitrator can be exercised, however, it can be implied from the use of the phrase "delivery of award" in Section 39 (2) of the said Act. The use of the word "delivery" in itself has significant implications and for which it is necessary to understand the intent and purpose behind use of this word "delivery" in Section 39(2) of the Act. The legislature seems to have drawn a distinction between use of the phrases "making of an award" and "delivery of an award". The phrase "making of an award" has been used in several provisions of the Act and some of those provisions are mentioned below: -

  1. Section 31(1): "An arbitral award shall be made in writing ..."
  2. Section 31(6): "The arbitral tribunal may...make an interim arbitral award on any matter with respect to which it may make a final award."
  3. Section 29(1): "Unless otherwise... any decision of the arbitral tribunal shall be made by a majority of all its members."

On the other hand, the use of the phrase "delivery of an award" has been used only in two provisions of the Arbitration Act, namely, Sections 39 (2) and 31 (5) of the said Act. Section 31(5) of the Act states that "After the arbitral award is made, a signed copy shall be delivered to each party". On a perusal of the said provisions of the Arbitration Act, it is evident that the words "delivery" of an award and "making" of an award have not been used interchangeably by the legislature and have a different meaning and purpose in the statute. The process of writing and preparing an award has been termed as "making" of the award. Once the award is so prepared or made, the Act stipulates "delivery" of the award as a physical delivery of the award by the arbitrator to the parties. This distinction is clear from a plain reading of Section 31(5) of the Act and various judicial pronouncements4, wherein it has been categorically held that the limitation period for filing a petition under Section 34 of the Act shall commence only upon receiving a physical copy of the signed award by the party.

Apart from Section 31(5) of the Act, the manner in which the phrase "delivery of an award" is used in Section 39(2) of the Act seems to reflect a conscious and specific intent of the legislature of distinguishing it from the phrase "making of an award". This intent of the legislature can be understood from the fact that lien, by its definition, is the right to retain possession of a thing which belongs to another until certain demands are satisfied. In the context of an arbitrator, he has a right of lien on the "arbitral award", which presupposes the existence of the arbitral award at the time the arbitrator exercises his said right.

The question that arises here is when does an arbitral award come in existence? An arbitral award must conform to the conditions enumerated in Section 31(1) of the Act, which includes, inter alia, an award to be in writing and signed by an arbitrator. The Arbitration Act is completely silent on the aspect of pronouncement of the arbitral award by the arbitrator. Reference here is made to Order XX of the Code of Civil Procedure, 1908, as per which a judgment is to be signed at the time of its pronouncement. A cumulative reading of the aforesaid provisions would indicate that until an award is written, signed and pronounced, it cannot be said to have come in existence and, hence, until this stage is reached, an arbitrator would not be able to exercise his right of lien in terms of Section 39(1) of the Act. So, evidently, Section 39 (1) of the Act seems to presume the existence of an arbitral award, i.e., amongst other conditions, the award has been written, signed and pronounced by the arbitrator.

Where an arbitrator has refused to deliver the award, any party can take recourse to Section 39 (2) of the Act, and for invoking this Section 39 (2) of the Act, the conditions of Section 39 (1) of the Act must have also been met i.e., (a) the arbitral award must be in existence; (b) the arbitrator must have exercised his lien on such award made, but not physically delivered the signed copy of the award to the parties; and (c) notice must have been given to the parties for payment of unpaid costs. For the same reason as explained above, even Section 39(2) of the Act cannot be triggered by any party until an arbitral award is "made" by the arbitrator and no court can interfere unless an arbitrator has exercised lien in terms of Section 39(1) of the Act and issued notice to parties to that effect.

From the above analysis, it can be deduced that arbitrators do not have a right to exercise lien in terms of Section 39 of the Act at any time before an award comes in existence. Hence, if an arbitrator exercises discretion to continue with the proceedings instead of exercising his right to terminate or suspend the proceedings under the second proviso to Section 38(2) of the Act upon refusal of payment of fees by one or all parties, the arbitrator cannot then take recourse to Section 39(1)at any stage until the award is prepared and made, to stall the on-going proceedings by demanding the unpaid fees as a pre-condition for making the award. Any understanding to the contrary would render Section 39 of the Act redundant. The sole purpose of the principle of 'lien on arbitral award' is to protect the rights of the arbitrators to receive their fees and other costs before the physical copies of the arbitral award are handed over to the parties. In fact, as apparent from the scheme of the Act, Section 39 of the Act balances the rights of the arbitrators as well the parties, by ensuring a mechanism for payment of unpaid fees and costs without hampering the on-going proceedings but restricting both the award-holder5 and award-debtor6 from availing remedies under Section 36 (enforcing the arbitral award) and Section 34 (challenging the arbitral award) respectively until the dues of the arbitrators are cleared by the parties.


1 The Arbitration and Conciliation (Amendment) Act, 2015

2 Explanation to Section 31A(1) (as also Explanation of Section 31(8) of un amended Act) 3Gammon India Ltd. vs. Trenchless Engineering Services (P) Ltd.: Arb.P. 1975/2013: High Court of Bombay

4 Union of India vs. Tecco Trichy Engineers & Contractors: (2005) 4 SCC 239

5 Section 36(1) stipulates that an award shall be enforced when the time for making an application to set aside the award under Section 34 has expired.   

6 Section 34(3) stipulates that an application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award.

Originally published May 18, 2020.

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