Case Title: M/s ICOMM Tele Ltd. v. Punjab State Water Supply & Sewage Board & Anr.
The Supreme Court has noted that pre-deposit clause in arbitration agreements would make the arbitration procedure expensive and useless. The Punjab State Water Supply & Sewerage Board's clause that invited bids was invalidated by the bench.
In the present instance, in case of the business (ICOMM Tele Ltd) that won the aforementioned tender, the arbitration clause amounted to a contract of adhesion, and as arbitration is an alternative dispute resolution method, a 10% deposit would immediately cause a clog in the system. They went to the Supreme Court after the High Court rejected their appeal against the disputed clause.
The learned counsel for the appellant placing heavy reliance on the case of Central Inland Water Transport Corpn. V. Brojo Nath Ganguly claimed that because the respondent has an unfair bargaining power over the appellant, the arbitration language in the tender condition amounts to a contract of adhesion and should be invalidated. He has also claimed that since it is an arbitration procedure, requiring a 10% deposit in the beginning of the procedure in question would defeat the whole purpose of the agreement. Furthermore, even if the claims may ultimately be deemed untenable, a heavy compensation may be given for outrightly baseless claims. Additionally, even if the claimant receives a favourable award, the remainder must be forfeited and can only be repaid to him in proportion to the amount granted.
The 10% "deposit-at-call" requirement can be incorporated, before a party can successfully activate the arbitration clause, according to the Apex court bench, can help in preventing false claims. The bench noted that a false claim can also be discharged with exemplary costs, either at the party's insistence or the arbitrator himself/herself may utilise this principle and dismiss the claim by imposition of exemplary costs. The claims should never be malicious and arbitrary.
The bench placing reliance on State of J&K v. Dev Dutt Pandit, and Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. reaffirmed that arbitration is a crucial alternative dispute resolution method that should be promoted due to the lengthy backlog of cases in courts and the high cost of litigation. The bench declared that the primary goal of arbitration is to settle disputes effectively and expeditiously while invalidating the pre-deposit requirement. Discouraging arbitration goes against the goal of clearing the court system, and by requiring a 10% pre-deposit, the arbitral process would become inefficient and expensive.