Supreme Court: In the case where a Notice Inviting Tender had a clause asking the parties invoking arbitration to furnish a “deposit-at-call” for 10% of the amount claimed, the bench of RF Nariman and Vineet Saran, JJ struck down the said clause on the premise that:
“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.”
The Court was hearing the matter where the Punjab State Water Supply & Sewerage Board Bhatinda had 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. Clause 25(viii) of the Notice inviting Tender was challenged before the Court which read
“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.”
Noticing that a 10% deposit has to be made before any determination that a claim made by the party invoking arbitration is frivolous, the Court said that such a clause would be unfair and unjust and which no reasonable man would agree to.
The Court said that since 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. It also said:
“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.”
Striking down the said clause, the Court said 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.”
[ICOMM Tele Ltd. v. Punjab State Water Supply & Sewerage Board, 2019 SCC OnLine SC 361, decided on 11.03.2019]