Why Arbitration Deposits Are Split Per Party, Not 50:50 by Side

Under Section 38(2) of the Arbitration and Conciliation Act, 1996, an arbitral tribunal's advance deposit toward costs must be paid in equal shares by each party, not split 50:50 between the claimant side and the respondent side. In a reference with one claimant and three respondents, each of the four parties owes 25 percent of the deposit, not 50 percent apiece. Institutional rules such as the ICC's often use claimant and respondent shorthand instead, which does not carry over into Indian arbitration law. This post explains why Section 38(2) requires a party-wise, not side-wise, split.

When the tribunal calls for an advance deposit toward costs, some may think that this deposit has to be split 50:50 between the "claimant side" and the "respondent side." However, that would go against the express provisions the Arbitration and Conciliation Act, 1996 .

This post sets out why deposits under Section 38(2) have to be apportioned per party rather than per side. Therefore, when in a dispute with one claimant and three respondents, each of the four parties owes 25 percent, not 50 percent for the claimant alone and 50 percent for all respondents collectively.

The Statutory Text: "Equal Shares by the Parties"

Section 38 of the Arbitration Act governs deposits toward the costs of arbitration. Sub-section (1) empowers the arbitral tribunal to fix a deposit or supplementary deposit as an advance for the costs referred to in Section 31(8), and its proviso allows the tribunal to fix a separate deposit for a counter-claim where one has been filed. Sub-section (2) then states the operative rule: the deposit "shall be payable in equal shares by the parties," failing which the tribunal may require any party to pay the whole, or may suspend or terminate the proceedings.

Two things stand out here. First, Section 38(2) does not say the deposit is payable in equal shares by "the claimant and the respondent." It says "the parties," a plural, unqualified noun that makes no reference to procedural arrays or sides. Second, the proviso to Section 38(1) treats a counter-claim as a separate deposit item tied to the claim it answers, not as an undifferentiated cost bucket absorbed into a single respondent-side total. The Act thinks in individual claims and individual contributors. Not blocs.

The Counter-Claim Proviso Shows the Act Reasons Claim by Claim, Not Camp by Camp

The proviso to Section 38(1) matters because it gives away the drafting logic of the section. Had Parliament intended deposits to be fixed and shared on a side-wise basis, there would have been no need to carve out separate deposit treatment for counter-claims: a single respondent-side figure would have sufficed regardless of how many claims sat within it. Instead the Act treats each claim, and by extension each party advancing or answering it, as generating its own cost consequence. That granularity sits awkwardly with an approach that folds three separately named respondents into one 50 percent obligation.

Who Counts as a "Party"? Section 2(1)(h) and Its Individual-Entity Focus

Section 2(1)(h) defines "party" as "a party to an arbitration agreement." That definition attaches to the individual legal entity bound by the agreement, whether as a signatory or, in circumstances the Supreme Court has recognised, as a non-signatory whose conduct shows consent to be bound. In Cox and Kings Ltd. v. SAP India Pvt. Ltd. [2023 SCC OnLine SC 1634], a Constitution Bench held that the definition of "party" under Section 2(1)(h), read with Section 7, includes both signatory and non-signatory entities where the group of companies doctrine applies, and treated the question of who is a "party" as distinct from who is a person "claiming through or under" a party. The judgment identifies parties one entity at a time, based on each one's relationship to the arbitration agreement, not by which procedural camp they happen to occupy in a given reference.

That individual-entity focus carries straight into Section 38(2). If a party is, by definition, each distinct entity bound by the arbitration agreement, then "equal shares by the parties" means equal shares calculated across every such entity before the tribunal, not equal shares calculated across two notional sides regardless of how many entities sit inside each one.

"Side" Is a Concept the Arbitration Act Never Imports

Civil procedure under the Code of Civil Procedure, 1908 is happy to group multiple plaintiffs or multiple defendants into a single array for pleading purposes. The Arbitration Act does not borrow that framework for cost-sharing. Section 18, which requires that "the parties shall be treated with equality and each party shall be given a full opportunity to present his case," speaks in terms of each party, not each side. If equal treatment under Section 18 is measured party by party, there is no principled basis for measuring an equal financial obligation under Section 38(2) any differently. A costs regime that requires a lone claimant to fund half the tribunal's advance deposit while three respondents jointly fund the other half, at roughly a sixth each, treats the claimant as four times more financially burdened than any individual respondent, even though all four are equally "parties" within the meaning of Section 2(1)(h).

Why Doesn't the ICC-Style "Claimant and Respondent" Shorthand Apply in India?

The 50:50 side-wise default did not come from nowhere. It mirrors institutional drafting elsewhere. Article 37(2) of the ICC Arbitration Rules provides that the advance on costs is "payable in equal shares by the claimant and the respondent," language that explicitly names two roles rather than referring to "the parties" generally. Practitioners who move between institutional and Indian ad hoc or domestic institutional arbitration sometimes carry that ICC-style shorthand across without noticing that the Indian statute uses different words, and means something different by them.

Provision	Governing text	Framing
Section 38(2), Arbitration and Conciliation Act, 1996	"shall be payable in equal shares by the parties"	Party-wise; no reference to claimant/respondent roles
Article 37(2), ICC Arbitration Rules	"payable in equal shares by the claimant and the respondent"	Role-wise; explicitly names two sides
Illustration: 1 Claimant, 3 Respondents, deposit of ₹40,00,000	Side-wise reading	Claimant pays ₹20,00,000; each Respondent pays approximately ₹6,66,667
Illustration: 1 Claimant, 3 Respondents, deposit of ₹40,00,000	Party-wise reading (Section 38(2))	Each of the four parties pays ₹10,00,000

The contrast is not incidental. Where a rule-maker intends a two-sided split, it says so, the way Article 37(2) does. Section 38(2) says something else. Reading the Indian provision as though it carried ICC-style role-based language imports a distinction the legislature chose not to draw.

The Arithmetic Problem With a Side-Wise Split in Asymmetric Arbitrations

The distortion becomes obvious once the numbers are set out, as the table above shows. Under a side-wise reading, the claimant alone funds half the deposit while each individual respondent funds roughly a sixth: a threefold disparity in individual contribution, even though all four count as an equal "party" under the Act. Reverse the arithmetic and the distortion reverses with it. Three claimants against a single respondent would leave that one respondent funding half the deposit alone. Neither outcome flows from anything in Section 38(2). Both flow entirely from an accident of how the claims happen to be arrayed, and that is exactly the kind of result a party-wise reading avoids: under that reading, individual contribution is fixed by the number of parties before the tribunal, not by which role each one occupies.

What Happens When a Respondent Defaults on Its Deposit Share?

Section 38(2) lets the tribunal permit one party to pay another's unpaid share to keep the reference alive, and to suspend or terminate the proceedings if a share stays unpaid. Under a side-wise approach, if any one of three respondents defaults on its slice of the respondent-side 50 percent, the burden of preserving the arbitration falls either on the co-respondents or, in practice, on the claimant, who has already funded its own half and may still face a stalled reference. Under a party-wise approach, a defaulting respondent's shortfall stays isolated to that respondent's own 25 percent share. The tribunal can address it directly, including through cost consequences against that specific party in the final award under Section 31A, without inflating the co-parties' exposure. Isolating default risk to the actual defaulter fits Section 18's equal-treatment mandate far better than a scheme that lets one party's non-payment distort the burden on parties who have already paid their own equal share in full.

Practical Guidance for Tribunals and Counsel

Deposit Orders Should Name Figures Per Party From the Outset

Tribunals handling multi-party references are better served by fixing and communicating deposit amounts against each named party individually in the first procedural order, rather than issuing one consolidated "claimant side / respondent side" figure and leaving apportionment to be fought out later. A per-party order removes ambiguity. It gives each entity a clear and independently enforceable payment obligation consistent with Section 2(1)(h), and it cuts down disputes about internal contribution among co-respondents, disputes the tribunal has no jurisdiction to resolve anyway.

Deposits Are Advance Funding, Not a Prediction of Final Liability

An equal per-party deposit under Section 38 does not prejudge who bears the cost of the arbitration in the end. That question gets answered later, at the award stage, under Section 31A, which gives the tribunal discretion to allocate costs based on outcome and conduct. Equal funding at the deposit stage keeps the reference running. It says nothing about which party will be directed to bear costs, or to pay interest on arbitral awards, once the tribunal renders its final decision. Assuming that a heavier advance deposit signals a weaker case is a common but mistaken inference, and tribunals and counsel should guard against it in multi-party references.

Recourse Where a Party Resists an Equal Per-Party Order

Where a party disputes a tribunal's equal per-party deposit order, the right course is usually to raise the objection before the tribunal itself as part of its case management powers, backed by the statutory language of Section 38(2) and Section 2(1)(h). In genuinely urgent circumstances, say where non-payment threatens to stall the reference and cause irreparable prejudice, a party might also consider whether interim measures under Section 9 are warranted, though courts tend to be reluctant to interfere with a tribunal's procedural directions on cost deposits absent a clear jurisdictional error.

Frequently Asked Questions

If there is one claimant and three respondents, does each party really pay 25 percent of the deposit?

On a plain reading of Section 38(2), yes. The provision requires the deposit to be paid "in equal shares by the parties," and each of the four entities before the tribunal is a "party" within the meaning of Section 2(1)(h). Dividing the deposit by four, rather than splitting it 50:50 between a claimant side and a respondent side, follows directly from that language.

Does Section 38(2) distinguish between claimants and respondents at all?

No. Unlike Article 37(2) of the ICC Arbitration Rules, which expressly refers to "the claimant and the respondent," Section 38(2) uses the neutral term "the parties" without reference to procedural role. The absence of role-based language is itself significant when construing the provision.

What happens if one of three respondents refuses to pay its share of the deposit?

Section 38(2) permits the tribunal to require another party to pay the defaulting party's share to keep the arbitration going, and empowers the tribunal to suspend or terminate the proceedings if the shortfall is not made good. Under a party-wise reading, the shortfall is limited to that one respondent's individual share, which keeps the financial consequence proportionate to the actual default.

Does the equal share in advance deposits rule apply to partnership and LLP deposits?

Yes. If there is an arbitration where one partner has filed against a Firm or LLP and other partners then the claimant-partner, the Firm/LLP and the other respondent-partners would have to pay the deposits equally and not 50% by claimant and 50% by all respondents collectively.

Can the tribunal still order unequal costs at the end of the case even if the deposit was collected equally?

Yes. The deposit under Section 38 is advance funding for the arbitration and is separate from the tribunal's power under Section 31A to allocate the costs of the arbitration in the final award, generally based on the outcome and the conduct of the parties. An equal deposit at the outset does not fix or predict the final costs liability.

Does this reasoning apply equally where there are multiple claimants and a single respondent?

Yes. The same statutory language applies regardless of which role has more parties. If three claimants proceed against one respondent, a party-wise reading of Section 38(2) would similarly require each of the four parties to contribute 25 percent, rather than requiring the sole respondent to fund half the deposit alone.

Is there any Indian judgment that has directly ruled on per-party versus per-side deposit sharing under Section 38(2)?

At present, this specific apportionment question has not been the subject of a reported Supreme Court or Bombay High Court decision squarely on Section 38(2) in a multi-party context. The analysis in this post is drawn from the plain text of Section 38(2) and Section 2(1)(h), read together with the Supreme Court's construction of "party" in Cox and Kings, and with Section 18's equal-treatment mandate.

Can parties contract around Section 38(2) and agree to a different cost-sharing formula in their arbitration agreement?

Parties retain considerable autonomy to agree on procedural matters, and an arbitration agreement or the applicable institutional rules chosen by the parties could expressly adopt a side-wise or other cost-sharing formula. Absent such an express agreement or a chosen institutional rule that departs from the statutory default, however, Section 38(2) governs and points toward a party-wise, equal-shares reading.

Does Section 38(2) apply to domestic arbitrations only, or also to international commercial arbitrations seated in India?

Section 38(2) of the Arbitration and Conciliation Act, 1996 falls within Part I of the Act, which applies to arbitrations seated in India regardless of whether the parties are domestic or foreign, subject to the limited carve-outs recognised for certain international commercial arbitrations. Where the seat is outside India, Part I, and therefore Section 38(2), does not govern the tribunal's deposit directions at all.

What happens to the Section 38 deposit if the arbitration settles before a final award is rendered?

Where parties settle before a final award, the tribunal typically accounts for the deposits already collected under Section 38 against the fees and expenses actually incurred up to settlement, and returns any surplus to the parties in the same shares in which it was contributed. The precise mechanics are usually addressed in the tribunal's terms of appointment or the parties' settlement agreement rather than in the Act itself.

Does Section 38(2) apply the same way in a three-member tribunal as in a sole-arbitrator reference?

Yes. Section 38(2) of the Arbitration and Conciliation Act, 1996 governs how the deposit is shared among the parties, not how many arbitrators sit on the tribunal, so the equal per-party sharing rule applies identically whether the reference is before a sole arbitrator or a three-member tribunal. The number of arbitrators affects the total quantum of fees the deposit is meant to cover, not the method of apportioning it among the parties.

If a new party is impleaded midway through the arbitration, how is that party's deposit share calculated?

Where a new party is impleaded after the tribunal has already fixed deposit shares under Section 38(2), the tribunal typically revises the apportionment so that the deposit is shared equally among all parties then before it, which may require the newly added party to contribute its equal share and can adjust the amounts already paid by the original parties. The precise recalculation is a matter for the tribunal's case management directions rather than anything fixed in the statute itself.

Vikrant D. Shetty | Vikrant D. Shetty leads the Arbitration Practice at the Mumbai-based law firm - Vikrant D. Shetty & Associates, Advocates & Solicitors. The firm represents parties in domestic and international commercial arbitrations seated in India and abroad, including matters involving deposit and cost apportionment, enforcement, and challenge proceedings before the Bombay High Court.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.