Arbitration deposit clause upheld where a commercial contract validly required a claim-linked precondition to invoke arbitration.

A contractual clause requiring a contractor to deposit 7% of the claim amount before invoking arbitration was upheld as valid and enforceable. The Court held that unequal bargaining power does not apply to freely entered commercial contracts, and that fairness or reasonableness cannot be used to rewrite express contractual terms. Sections 31(8) and 38 of the Arbitration and Conciliation Act, 1996 operate only where the parties have made no agreement, so they do not override an agreed deposit mechanism. The clause was also found to have a rational basis because it was linked to the claim value and helped deter frivolous or inflated claims.

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Issues: Whether the contractual stipulation requiring a contractor invoking arbitration to deposit 7% of the claim amount was invalid on the grounds of unequal bargaining power, unconscionability, or conflict with the Arbitration and Conciliation Act, 1996 and the Indian Contract Act, 1872.

Analysis: The challenged clause was part of a commercial contract freely entered into by the parties. The principle of unequal bargaining power was held inapplicable to commercial contracts. The provisions relating to arbitral costs and deposits under Sections 31(8) and 38 of the Arbitration and Conciliation Act, 1996 operate only in the absence of an agreement and therefore do not override an express contractual stipulation governing deposit for arbitration. The doctrine of fairness and reasonableness cannot be used to alter or rewrite the express terms of a contract. The stipulation was also upheld as having a rational basis, since the deposit was linked to the quantum of the claim and served to discourage frivolous or inflated claims. The plea for a cap on the deposit amount was rejected as lacking substance.

Conclusion: The contractual requirement to deposit 7% of the claim amount was valid and enforceable, and the challenge to the clause failed.

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