SC Strikes Down Arbitration Deposit Clause as Unconstitutional

Key Judicial Interpretation:

The court interpreted that the 10% deposit requirement for invoking arbitration was arbitrary and violated Article 14 of the Constitution. This interpretation is crucial in understanding the fairness required in arbitration clauses (Para 27).

Court’s View:

The court viewed the 10% “deposit-at-call” as an unnecessary deterrent to accessing arbitration, which could discourage the use of arbitration as an alternative dispute resolution process. It emphasized the need for arbitration to be speedy, effective, inexpensive, and accessible (Paras 23-24, 27).

Conclusion:

The Supreme Court struck down clause 25(viii) of the notice inviting tender, which required a 10% deposit for invoking arbitration, deeming it arbitrary and violative of Article 14 of the Constitution. The judgment of the High Court was set aside and the appeal allowed (Para 28).

Relevant Acts, Sections, Provisions, and Rules:

Article 14 of the Constitution of India, Clause 25(viii) of the notice inviting tender.

Case of the Appellant:

The appellant argued that the 10% deposit requirement in the arbitration clause was unfair, creating a barrier to the arbitration process. They claimed this clause amounted to a contract of adhesion and cited the principle of unfair bargaining strength.

Appellant Relied On:

Central Inland Water Transport Corpn. v. Brojo Nath Ganguly, (1986) 3 SCC 156.

Case of the Respondent:

The respondents argued that the clause was not discriminatory as it applied equally to both parties. They contended that it aimed to prevent frivolous claims and that similar arbitration clauses had been upheld in past judgments.

Respondent Relied On:

S.K. Jain v. State of Haryana, (2009) 4 SCC 357, Global Energy Ltd. v. Adani Exports Ltd., (2005) 4 SCC 435.

Question & Answer

Question: What was the main issue in the case? Answer: The main issue was the validity of the 10% deposit requirement for invoking arbitration under clause 25(viii) of the notice inviting tender (Para 2).

Question: Why did the appellant challenge the arbitration clause? Answer: The appellant challenged the clause as being unfair and creating an unnecessary barrier to accessing arbitration, amounting to a contract of adhesion with unequal bargaining power (Para 5).

Question: What did the Supreme Court rule about the 10% deposit requirement? Answer: The Supreme Court ruled that the 10% deposit requirement was arbitrary, violative of Article 14 of the Constitution, and discouraged the use of arbitration (Paras 23, 27).

Question: How did the court view arbitration in the context of dispute resolution? Answer: The court viewed arbitration as an important alternative dispute resolution process that should be encouraged for being speedy, effective, inexpensive, and accessible (Para 24).

Question: What was the final decision of the Supreme Court? Answer: The Supreme Court struck down clause 25(viii) of the notice inviting tender, set aside the High Court’s judgment, and allowed the appeal (Para 28).

Details of Case

Court: Supreme Court of India
Bench: R.F. Nariman, Vineet Saran
Date of Order: March 11, 2019
Case Name: M/S ICOMM Tele Ltd. vs. Punjab State Water Supply & Sewerage Board & Anr.
Case No.: Civil Appeal No. 2713 of 2019