M/S ICOMM TELE LTD. versus PUNJAB STATE WATER SUPPLY & SEWERAGE BOARD & ANR.

Citation: [2019] 2 S.C.R. 984 · Decided: 11-03-2019 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Appeal(s) allowed

Cited by 5 judgment(s) · cites 11 · see the full citation network in Lexace

Judgment (excerpt)

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984                    SUPREME COURT REPORTS            [2019] 2 S.C.R.
M/S ICOMM TELE LTD.
v.
PUNJAB STATE WATER SUPPLY &
SEWERAGE BOARD & ANR.
(Civil Appeal No. 2713 of 2019)
MARCH 11, 2019
[R. F. NARIMAN AND VINEET SARAN, JJ.]
Arbitration:
Arbitration agreement – Arbitration clause in notice inviting
tender in commercial contracts – Pre-deposit clause-10% “deposit-
at-call” of the amount claimed by party invoking arbitration, if
arbitrary or discriminatory and violative of Art. 14 of the
Constitution – Held: A pre-deposit of 10% would discourage a party
to an arbitration from invoking this alternative dispute resolution
process, contrary to the object of de-clogging the court system,
and would render the arbitral process ineffective and expensive –
Thus, the pre deposit clause is struck down – Constitution of India
– Art. 14.
Allowing the appeal, the Court
HELD: 1.1 The 10% “deposit-at-call” before a party can
successfully invoke the arbitration clause is on the basis that
this is in order to avoid frivolous claims. From clause 25 (xv) of
the notice inviting tender it also becomes clear that arbitration is
considered to be an alternative dispute resolution process and
entry to the civil court is sought to be taken away if the disputes
between the parties are covered by the arbitration clause. Clause
25 (viii) cannot be said to be discriminatory in that it applies
equally to both respondent No. 2 and the appellant. However,
arbitrariness is a separate and distinct facet of Article 14. A
frivolous claim can be dismissed with exemplary costs. Therefore,
it is always open to the party who has succeeded before the
arbitrator to invoke this principle and it is open to the arbitrator
to dismiss a claim as frivolous on imposition of exemplary costs.
[Paras 7, 8, 17, 20, 21][988-H; 989-B; 995-B-C; 996-C]
[2019] 2 S.C.R. 984
984
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1.2 A “deposit-at-call” of 10% of the amount claimed, which
can amount to large sums of money, is obviously without any direct
nexus to the filing of frivolous claims, as it applies to all claims
(frivolous or otherwise) made at the very threshold. A 10%
deposit has to be made before any determination that a claim
made by the party invoking arbitration is frivolous. This is also
one important aspect of the matter to be kept in mind in deciding
that such a clause would be arbitrary in the sense of being
something which would be unfair and unjust and which no
reasonable man would agree to. Indeed, a claim may be dismissed
but need not be frivolous, as is obvious from the fact that where
three arbitrators are appointed, there have been known to be
majority and minority awards, making it clear that there may be
two possible or even plausible views which would indicate that
the claim is dismissed or allowed on merits and not because it is
frivolous. Further, even where a claim is found to be justified and
correct, the amount that is deposited need not be refunded to
the successful claimant. Take for example a claim based on a
termination of a contract being illegal and consequent damages
thereto. If the claim succeeds and the termination is set aside as
being illegal and a damages claim of one crore is finally granted
by the arbitrator at only ten lakhs, only one tenth of the deposit
made will be liable to be returned to the successful party. The
party who has lost in the arbitration proceedings will be entitled
to forfeit nine tenths of the deposit made despite the fact that the
aforesaid party has an award against it. This would render the
entire clause wholly arbitrary, being not only excessive or
disproportionate but leading to the wholly unjust result of a party
who has lost an arbitration being entitled to forfeit such part of
the deposit as falls proportionately short of the amount awarded
as compared to what is claimed. [Para 23][996-H; 997-A-E]
1.3 Arbitration is an important alternative dispute resolution
process which is to be encouraged because of high pendency of
cases in courts and cost of litigation. Any requirement as to deposit
would certainly amount to a clog on this process. Also, it is easy
to visualize that often a deposit of 10% of a huge claim would be
even greater than court fees that may be charged for filing a suit
in a civil court. Deterring a party to an arbitration from invoking
this alternative dispute resolution process by a pre-deposit of
10% would discourage arbitration, contrary to the object of
M/S ICOMM TELE LTD. v. PUNJAB STATE WATE

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