Arbitration Costs Award – Principles and Practice – Bombay HC Reduces Costs of Rs.1.6 crores to Rs.25 lakhs .

Judgment dated 19.12.2025 of the High Court of Bombay in Writ Petition No.559 of 2024 of Hindustan Petroleum Corporation Ltd   Vs.  Aegis Logistics Pvt Ltd

On 25.11.2014, the petitioner had given contract vide Operating and Services Agreement dated 5.5.2015, for operation, management and maintenance of Guntakal Depot spread over 12.6 acres of land with several tankers for storage of petroleum products.

On 3.3.2017, the petitioner terminated the contract and demanded Rs.1,72,55,998/-.

The main reason for the termination that the respondent had given stop work notice dated 26.9.2016 to operate railway siding.

The Arbitral award dated 3.3.2017 granting claim of the Respondent for Rs.1,93,79,734/- towards the works done, damages of Rs.2,31,78,733/- for loss of profits  and Rs.13,05,135/- for wrongful invocation of the Bank guarantee, all with interest and arbitration cost of Rs.1.60 crores.   All the counter claims of the petitioner were rejected.

HELD that The operation of Guntakal Depot commenced on 22 February 2015 and the stop work notice was issued by the Respondent on 26 September 2016. Ordinarily, no prudent business entity, who has earned a contract with State Oil Company would voluntarily surrender the same or seek excuses for walking out of the contract within 1 and 1/2 years. In the present case, Respondent No.1 got alarmed by the scathing report of OISD which directed ‘partial/full shut down of the siding’.

The Tribunal has awarded the entire sum claimed to have been spent by the Respondent in arbitration as costs. It is not that in every case, actual costs of the arbitration must be awarded. Explanation to sub-section (1) of Section 31-A uses the expression ‘reasonable costs’. While ordinarily the loosing party must bear the entire costs of arbitration, the Arbitrator and the Court is empowered to make a different order by recording reasons. Conduct of parties can be taken into consideration while determining the quantum of costs. In the present case, Respondent is not found to be entirely blemish free by the Arbitral Tribunal. Respondent’s conduct in indenting the rakes after issuance of stop work notice and not decanting the product therein also needs to be borne in mind. In the facts of the present case, entire costs of arbitration allegedly incurred by the Respondent need not be awarded to it. In my view, therefore award of reasonable costs of Rs. 25,00,000/- in favour of the Respondent would be appropriate considering the facts and circumstances of the case and provisions of Section 31-A of the Arbitration Act. To this extent only, slight modification is warranted in the impugned award by following the severance doctrine propounded in Gayatri Balasamy vs. ISG Novasoft Technologies Limited.