REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2713 of 2019 (Arising out of SLP (Civil) No.3307 of 2018)

M/S ICOMM TELE LTD. …APPELLANT

VERSUS

PUNJAB STATE WATER SUPPLY  & SEWERAGE BOARD & ANR. …RESPONDENTS

J U D G M E N T

R.F. NARIMAN, J.

1. Leave granted.

2. In 2008, the Punjab State Water Supply & Sewerage Board,

Bhatinda  issued  notice  inviting  tender  for  extension  and

augmentation of water supply, sewerage scheme, pumping station

and sewerage treatment plant for various towns mentioned therein

on a turnkey basis. On 25.9.2008, the appellant company, which is

involved  in  civil/electrical  works  in  India,  was  awarded  the  said

tender after having been found to be the best suited for the task.  On

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16.1.2009, a formal contract was entered into between the appellant

and respondent No. 2.  It may be mentioned that the notice inviting

tender formed part and parcel of the formal agreement.  Contained

in the notice inviting tender is a detailed arbitration clause. In this

matter,  we are concerned with clause 25(viii)  which is set  out  as

follows:-

“viii. It shall be an essential term of this contract that in order  to  avoid  frivolous  claims  the  party  invoking arbitration shall specify the dispute based on facts and calculations  stating  the  amount  claimed  under  each claim and shall furnish a “deposit-at-call” for ten percent of the amount claimed, on a schedule bank in the name of the Arbitrator by his official designation who shall keep the  amount  in  deposit  till  the  announcement  of  the award.   In  the  event  of  an  award  in  favour  of  the claimant,  the  deposit  shall  be  refunded  to  him  in proportion  to  the  amount  awarded  w.r.t  the  amount claimed and the balance, if  any,  shall  be forfeited and paid to the other party.”

3. The  appellant  had  entered  into  similar  contracts  with

respondent No. 2 which contained the same arbitration clause.  It

had therefore addressed letters to respondent No. 2 with regard to

appointment of arbitrator in those matters and sought for waiving the

10% deposit fee.  After having received no response, the appellant

had filed a writ petition, being Civil Writ Petition No. 18917 of 2016,

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before the High Court of Punjab and Haryana.  This writ petition was

dismissed by a judgment dated 14.9.2016 stating that such tender

condition can in no way be said to be arbitrary or unreasonable.   

4. On  8.3.2017,  the  appellant  approached  the  High  Court  of

Punjab  and  Haryana  challenging  the  validity  of  this  part  of  the

arbitration clause by filing Civil Writ Petition No. 4882 of 2017.  The

High  Court  in  the  impugned  judgment  merely  followed  its  earlier

judgment and dismissed this writ petition as well.  

5. Learned  counsel  appearing  on  behalf  of  the  appellant  has

argued that the arbitration clause contained in the tender condition

amounts  to  a  contract  of  adhesion,  and  since  there  is  unfair

bargaining strength between respondent No. 2 and the appellant,

this  clause  ought  to  be  struck  down  following  the  judgment  in

Central Inland Water Transport Corpn. v. Brojo Nath Ganguly,

(1986) 3 SCC 156.  He has also argued that arbitration being an

alternative dispute resolution process, a 10% deposit would amount

to a clog on entering the aforesaid process.  Further,  claims may

ultimately be found to be untenable but need not be frivolous. Also,

frivolous claims can be compensated by heavy costs.  Further, even

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in the event that the award is in favour of the claimant, what can be

refunded to him is only in proportion to the amount awarded and the

rest  is  to  be forfeited.  This would also be a further  arbitrary and

highhanded action on the part of respondent No. 2.  

6. Learned counsel appearing on behalf of the respondents has

argued that there is no infraction of Article 14 in the present case. It

is clear that clause 25(viii) would apply to both the parties equally,

and as this is so,  the said sub-clause cannot be struck down as

being  discriminatory.   Further,  the  principle  contained  in  Central

Inland Water Transport Corpn. (supra) cannot possibly be applied

to commercial contracts. Also, in similar cases, this Court has not

entertained this kind of a challenge.   

7. Having heard learned counsel for both parties, it will be seen

that 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.   Clause  25(xv)  is  also  material  and  is  set  out

hereinbelow:

“xv. No question relating to this contract shall be brought before  any  civil  court  without  first  invoking  and completing  the  arbitration  proceedings,  if  the  issue  is

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covered by the scope of arbitration under this contract. The pending arbitration proceedings shall  not disentitle the Engineer-in-charge to terminate the contract and to make  alternate  arrangements  for  completion  of  the works.”  

8. From  this  clause,  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.  

9. It is well settled that the terms of an invitation to tender are not

open to judicial scrutiny, as they are in the realm of contract, unless

they are arbitrary, discriminatory, or actuated by malice.  Thus, in

Directorate of Education v. Educomp Datamatics Ltd., (2004) 4

SCC 19, this Court held:

“9. It is well settled now that the courts can scrutinise the award  of  the  contracts  by  the  Government  or  its agencies in exercise of their powers of judicial review to prevent arbitrariness or favouritism. However, there are inherent limitations in the exercise of the power of judicial review in  such  matters.  The  point  as  to  the  extent  of judicial  review permissible  in  contractual  matters  while inviting bids by issuing tenders has been examined in depth  by  this  Court  in Tata  Cellular v. Union  of  India [(1994) 6 SCC 651]. After examining the entire case-law the following principles have been deduced:

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“94. The principles deducible from the above are: (1) The modern trend points to judicial restraint in administrative action. (2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made. (3)  The  court  does  not  have  the  expertise  to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting  its  own  decision,  without  the necessary expertise which itself may be fallible. (4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender  is  in  the  realm  of  contract.  Normally speaking,  the  decision  to  accept  the  tender  or award  the  contract  is  reached  by  process  of negotiations  through  several  tiers.  More  often than not, such decisions are made qualitatively by experts. (5) The  Government  must  have  freedom  of contract. In other words, a fair play in the joints is a  necessary  concomitant  for  an  administrative body functioning in  an  administrative  sphere  or quasi-administrative  sphere.  However,  the decision  must  not  only  be  tested  by  the application  of  Wednesbury  principle  of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides. (6)  Quashing  decisions  may  impose  heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.””

(emphasis in original)

“12. It has clearly been held in these decisions that the terms of the invitation to tender are not open to judicial scrutiny, the same being in the realm of contract. That the Government  must  have a free hand in  setting the

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terms of the tender. It must have reasonable play in its joints as a necessary concomitant for an administrative body  in  an  administrative  sphere.  The  courts  would interfere with the administrative policy decision only if it is arbitrary, discriminatory, mala fide or actuated by bias. It is entitled to pragmatic adjustments which may be called for  by the particular  circumstances.  The courts  cannot strike down the terms of  the tender  prescribed by the Government because it  feels that some other terms in the tender  would have been fair,  wiser  or  logical.  The courts can interfere only if the policy decision is arbitrary, discriminatory or mala fide.”

10. To  similar  effect  is  the  decision  in  Global  Energy  Ltd.  v.

Adani Exports Ltd., (2005) 4 SCC 435, where this Court held:

“10. The principle is, therefore, well settled that the terms of the invitation to tender are not open to judicial scrutiny and  the  courts  cannot  whittle  down  the  terms  of  the tender as they are in the realm of contract unless they are wholly arbitrary, discriminatory or actuated by malice. This  being  the  position of  law,  settled  by a  catena of decisions  of  this  Court,  it  is  rather  surprising  that  the learned Single Judge passed an interim direction on the very first day of admission hearing of the writ petition and allowed the appellants to deposit the earnest money by furnishing  a  bank  guarantee  or  a  bankers'  cheque  till three days after the actual date of opening of the tender. The  order  of  the  learned  Single  Judge  being  wholly illegal,  was, therefore,  rightly set  aside by the Division Bench.”

11. As has correctly been argued by learned counsel appearing on

behalf of the respondents, this court’s judgment in  Central Inland

Water Transport Corpn. (supra), which lays down that contracts of

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adhesion, i.e., contracts in which there is unequal bargaining power,

between private persons and the State are liable to be set aside on

the ground that they are unconscionable, does not apply where both

parties  are  businessmen  and  the  contract  is  a  commercial

transaction (see paragraph 89 of the said judgment).  In this view of

the matter, the argument of the appellant based on this judgment

must fail.  

12. In  S.K.  Jain  v.  State  of  Haryana,  (2009)  4 SCC 357,  this

Court dealt with an arbitration clause in an agreement which read as

follows:-

“11. Sub-clause  (7)  of  Clause  25-A of  the  agreement reads as follows:

“25-A. (7) It is also a term of this contract agreement that  where  the  party  invoking  arbitration  is  the contractor,  no  reference  for  arbitration  shall  be maintainable  unless  the  contractor  furnishes  to  the satisfaction of the Executive Engineer in charge of the work,  a  security  deposit  of  a  sum  determined according  to  details  given  below  and  the  sum  so deposited shall,  on the termination of  the arbitration proceedings  be  adjusted  against  the  costs,  if  any, awarded by the arbitrator  against  the claimant party and the balance remaining after  such adjustment  in the  absence of  any  such  costs  being  awarded,  the whole of the sum will be refunded to him within one month from the date of the award—

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Amount of claim Rate of security deposit

1 .

For claims below Rs  10,000

2% of amount claimed

2 .

For claims of Rs 10,000  and above and below Rs  1,00,000 and

5% of amount claimed

3 .

For claims of Rs 1,00,000  and above

7% of amount claimed.”

13. In upholding such a clause, this Court referred to the judgment

in  Central  Inland  Water  Transport  Corpn. (supra)  and

distinguished  this  judgment,  stating  that  the  concept  of  unequal

bargaining  power  has  no  application  in  the  case  of  commercial

contracts.  It then went on to hold:-

“14. It  has  been submitted  by  learned counsel  for  the appellant  that  there  should  be  a  cap  in  the  quantum payable in terms of sub-clause (7) of Clause 25-A. This plea is clearly without substance. It is to be noted that it is  structured  on  the  basis  of  the  quantum  involved. Higher  the  claim,  the  higher  is  the  amount  of  fee chargeable. There is a logic in it. It is the balancing factor to prevent frivolous and inflated claims. If the appellants' plea is accepted that there should be a cap in the figure, a claimant who is making higher claim stands on a better pedestal  than  one  who  makes  a  claim  of  a  lesser amount.”

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14. It will be noticed that in this judgment there was no plea that

the  aforesaid  condition  contained  in  an  arbitration  clause  was

violative of Article 14 of the Constitution of India as such clause is

arbitrary.  The only pleas taken were that the ratio of Central Inland

Water Transport Corpn. (supra) would apply and that there should

be a cap in the quantum payable by way of security deposit, both of

which  pleas  were  turned  down by  this  court.   Also,  the  security

deposit  made  would,  on  the  termination  of  the  arbitration

proceedings, first be adjusted against costs if any awarded by the

arbitrator against the claimant party, and the balance remaining after

such adjustment then be refunded to the party making the deposit.

This clause is materially different from clause 25(viii), which, as we

have seen, makes it clear that in all cases the deposit is to be 10%

of the amount claimed and that refund can only be in proportion to

the  amount  awarded  with  respect  to  the  amount  claimed,  the

balance being forfeited and paid to the other party, even though that

other party may have lost the case.  This being so, this judgment is

wholly distinguishable and does not apply at all to the facts of the

present case.  

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15. In  ABL  International  Ltd.  v.  Export  Credit  Guarantee

Corpn. of India Ltd.,  (2004) 3 SCC 553, this Court has held that

even within the contractual sphere, the requirement of Article 14 to

act  fairly,  justly  and  reasonably  by  persons  who  are  “state”

authorities or instrumentalities continues.  Thus, this Court held:

“23. It is clear from the above observations of this Court, once  the State  or  an instrumentality  of  the State  is  a party of the contract,  it  has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. Therefore, if by the impugned repudiation of the claim of the appellants the first  respondent  as an instrumentality  of  the State has acted in contravention of the abovesaid requirement of Article 14, then we have no hesitation in holding that a writ  court  can issue suitable directions to set  right  the arbitrary actions of the first respondent… xxx xxx xxx 27. From  the  above  discussion  of  ours,  the  following legal principles emerge as to the maintainability of a writ petition:

(a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable.

xxx xxx xxx 53. From  the  above,  it  is  clear  that  when  an instrumentality of the State acts contrary to public good and public interest, unfairly, unjustly and unreasonably, in its  contractual,  constitutional  or  statutory  obligations,  it really acts contrary to the constitutional guarantee found in Article 14 of the Constitution…”

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16. Thus,  it  must  be  seen  as  to  whether  the  aforesaid  clause

25(viii) can be said to be arbitrary or discriminatory and violative of

Article 14 of the Constitution of India.  

17. We agree with the learned counsel for the respondents that

the aforesaid clause 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.

In A.L. Kalra v. The Project & Equipment Corporation of India

Limited, [1984] 3 S.C.R. 646, this Court turned down a submission

that arbitrariness is only a facet of discrimination.  The contention of

Shri Lal Narain Sinha was recorded thus (at page 661):-

“It was urged that in the absence of any specific pleading pointing out  whether any one else was either similarly situated  as  the  appellant  or  dissimilarly  treated  the charge of  discrimination cannot be entertained and no relief can be claimed on the allegation of contravention of Art.  14 or Art.  16 of the Constitution. It  was submitted that the expression discrimination imports the concept of comparison  between  equals  and  if  the  resultant inequality is pointed out in the treatment so meted out the charge of discrimination can be entertained and one can say that equal protection of law has been denied. Expanding the submission, it was urged that the use of the expression 'equality'  in  Art.  14 imports  duality  and comparison  which  is  predicated  upon  more  than  one person  of  situation  and  in  the  absence  of  available

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material for comparison, the plea of discrimination must fail. As a corollary, it was urged that in the absence of material for comparative evaluation not only the charge of discrimination cannot be sustained but the executive action  cannot  be  struck  down on  the  ground  that  the action is per se arbitrary.”  

18. This contention was negatived stating (at pages 662-663):-   

“It  thus  appears  well  settled  that  Art.  14  strikes  at arbitrariness in executive/administrative action because any action that is arbitrary must necessarily involve the negation of equality. One need not confine the denial of equality  to  a  comparative  evaluation  between  two persons  to  arrive  at  a  conclusion  of  discriminatory treatment. An action per se arbitrary itself denies equal of protection  by  law.  The  Constitution  Bench  pertinently observed in  Ajay Hasia's case [[1981] 2 S.C.R. 79] and put the matter beyond controversy when it said 'wherever therefore, there is arbitrariness in State action whether it be  of  the  legislature  or  of  the  executive  or  of  an "authority"  under  Article  12,  Article  14  immediately springs into action and strikes down such State action.’ This  view was further  elaborated and affirmed in  D.S. Nakara v. Union of India [[1983] 1 SCC 305]. In Maneka Gandhi  v.  Union of  India  [[1978]  2 S.C.R.  621]  it  was observed  that  Art.  14  strikes  at  arbitrariness  in  State action and ensure fairness and equality of treatment. It is thus  too  late  in  the  day  to  contend that  an  executive action  shown  to  be  arbitrary  is  not  either  judicially reviewable or within the reach of Article 14.”

19. We have thus to see whether clause 25(viii) can be said to be

arbitrary and violative of Article 14 of the Constitution of India.

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20. The first important thing to notice is that the 10% “deposit-at-

call” of the amount claimed is in order to avoid frivolous claims by

the party invoking arbitration.  It is well settled that a frivolous claim

can be dismissed with exemplary costs.  Thus, in Dnyandeo Sabaji

Naik v. Pradnya Prakash Khadekar, (2017) 5 SCC 496, this Court

held:

“14. Courts  across  the  legal  system—this  Court  not being an exception—are choked with litigation. Frivolous and groundless filings constitute a serious menace to the administration of  justice.  They consume time and clog the infrastructure. Productive resources which should be deployed  in  the  handling  of  genuine  causes  are dissipated in attending to cases filed only to benefit from delay, by prolonging dead issues and pursuing worthless causes. No litigant can have a vested interest in delay. Unfortunately,  as  the  present  case  exemplifies,  the process  of  dispensing  justice  is  misused  by  the unscrupulous  to  the  detriment  of  the  legitimate.  The present case is an illustration of how a simple issue has occupied the time of the courts and of how successive applications  have  been  filed  to  prolong  the  inevitable. The person in whose favour the balance of justice lies has  in  the process been left  in  the  lurch  by  repeated attempts to revive a stale issue. This tendency can be curbed  only  if  courts  across  the  system  adopt  an institutional  approach  which  penalises  such  behaviour. Liberal access to justice does not mean access to chaos and indiscipline.  A strong message must  be conveyed that courts of justice will not be allowed to be disrupted by litigative strategies designed to profit from the delays of the law. Unless remedial action is taken by all courts here and now our society will breed a legal culture based

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on evasion instead of abidance. It  is the duty of every court to firmly deal with such situations. The imposition of exemplary costs is a necessary instrument which has to be deployed to weed out, as well as to prevent the filing of frivolous cases. It is only then that the courts can set apart  time to  resolve genuine causes and answer  the concerns of those who are in need of justice. Imposition of real time costs is also necessary to ensure that access to courts is available to citizens with genuine grievances. Otherwise, the doors would be shut to legitimate causes simply by the weight of undeserving cases which flood the system. Such a situation cannot be allowed to come to pass. Hence it is not merely a matter of discretion but a duty and obligation cast upon all courts to ensure that the legal system is not exploited by those who use the forms of the law to defeat or delay justice. We commend all  courts  to  deal  with  frivolous  filings  in  the  same manner.”

(Emphasis supplied)

21. It is therefore 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.   

22. We may also notice this Court’s judgment in General Motors

(I)  (P) Ltd.  v.  Ashok Ramnik Lal Tolat,  (2015) 1 SCC 429, that

punitive damages follow when a court is approached with a frivolous

litigation. This court held:-

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“16. We proceed to deal with the issue of correctness of finding  recorded  by  the  National  Commission  for awarding punitive damages.  Before  doing so,  we may notice  that  the  respondent  complainant  appearing  in person,  in  his  written  submissions  has  raised  various questions,  including  the  question  that  the  appellant should  be  asked  to  account  for  the  proceeds  of  the vehicles sold by it. Admittedly, the vehicle in question has been ordered to be handed back to the appellant against which the respondent complainant has no claim. Thus, the  plea  raised  is  without  any  merit.  The  other  issue raised for further punitive damages of Rs. 100 crores and also damages for dragging him in this Court, merits no consideration being beyond the claim of the complainant in the complaint filed by him. Moreover, no litigant can be punished  by  way  of  punitive  damages  for  merely approaching this Court,  unless its  case is found to be frivolous.”

23. The important principle established by this case is that unless

it is first found that the litigation that has been embarked upon is

frivolous,  exemplary  costs  or  punitive  damages  do  not  follow.

Clearly, therefore, 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

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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 learned 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

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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.  

24. Further, it  is  also settled law that 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. This Court in State of J&K v.

Dev Dutt Pandit, (1999) 7 SCC 339, has held:-

“23. Arbitration  is  considered  to  be  an  important alternative  disputes  redressal  process  which  is  to  be encouraged because of high pendency of cases in the courts and cost of litigation. Arbitration has to be looked up to with all earnestness so that the litigant public has faith in the speedy process of resolving their disputes by this  process.  What  happened  in  the  present  case  is certainly  a  paradoxical  situation  which  should  be avoided. Total contract is for Rs. 12,23,500. When the contractor  has  done  less  than  50%  of  the  work  the contract is terminated. He has been paid Rs 5,71,900. In a Section 20 petition he makes a claim of Rs. 39,47,000 and  before  the  arbitrator  the  claim  is  inflated  to  Rs.

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63,61,000. He gets away with Rs. 20,08,000 with interest at the rate of 10% per annum and penal interest at the rate  of  18%  per  annum.  Such  type  of  arbitration becomes  subject  of  witticism  and  do  not  help  the institution of arbitration. Rather it brings a bad name to the  arbitration  process  as  a  whole.  When  claims  are inflated out  of  all  proportions not  only that  heavy cost should  be  awarded  to  the  other  party  but  the  party making such inflated claims should be deprived of  the cost. We, therefore, set aside the award of cost of Rs. 7500 given in favour of the contractor and against the State of Jammu and Kashmir.”

(Emphasis supplied)

25. Several judgments of this Court have also reiterated that the

primary object of arbitration is to reach a final disposal of disputes in

a speedy, effective, inexpensive and expeditious manner.  Thus, in

Centrotrade  Minerals  &  Metal  Inc.  v.  Hindustan  Copper  Ltd.,

(2017) 2 SCC 228, this court held:

“39. In Union  of  India v. U.P.  State  Bridge  Corpn. Ltd. [(2015) 2 SCC 52] this Court accepted the view [O.P. Malhotra  on  the  Law  and  Practice  of  Arbitration  and Conciliation  (3rd  Edn.  revised  by  Ms  Indu  Malhotra, Senior Advocate)] that the A&C Act has four foundational pillars and then observed in para 16 of the Report [sic] that:

“16. First and paramount principle of the first pillar is ‘fair,  speedy  and  inexpensive  trial  by  an  Arbitral Tribunal’.  Unnecessary  delay  or  expense  would frustrate  the  very  purpose  of  arbitration. Interestingly, the second principle which is recognised in  the  Act  is  the  party  autonomy  in  the  choice  of procedure. This means that if a particular procedure is

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prescribed  in  the  arbitration  agreement  which  the parties  have  agreed  to,  that  has  to  be  generally resorted to.””

(Emphasis in original)

26. Similarly, in Union of India v. Varindera Constructions Ltd.,

(2018) 7 SCC 794, this Court held:-

“12. The primary object  of  the arbitration is to reach a final disposition in a speedy, effective, inexpensive and expeditious  manner.  In  order  to  regulate  the  law regarding arbitration, legislature came up with legislation which is known as Arbitration and Conciliation Act, 1996. In order to make arbitration process more effective, the legislature  restricted  the  role  of  courts  in  case  where matter is subject to the arbitration. Section 5 of the Act specifically  restricted  the  interference  of  the  courts  to some  extent.  In  other  words,  it  is  only  in  exceptional circumstances,  as  provided  by  this  Act,  the  court  is entitled to intervene in the dispute which is the subject- matter of arbitration. Such intervention may be before, at or after the arbitration proceeding, as the case may be. In short, court shall not intervene with the subject-matter of arbitration unless injustice is caused to either of the parties.”

27. 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  de-clogging  the

Court system, and would render the arbitral process ineffective and

expensive.

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28. For  all  these reasons, we strike down clause 25(viii)  of  the

notice inviting tender.  This clause being severable from the rest of

clause  25  will  not  affect  the  remaining  parts  of  clause  25.   The

judgment of the High Court is set aside and the appeal allowed.  

………..……………… J. (R. F. Nariman)

…..…………………… J. (Vineet Saran)

New Delhi. March 11, 2019.

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