2022 (4) TMI 1565 - HC - Indian Laws

Petition challenging Clause 33(7) pre-deposit requirement for arbitration dismissed, no waiver found despite arbitrator appointment

M/s Garg and Company Versus State of Haryana and others.

The HC dismissed the petition challenging Clause 33(7) requiring pre-deposit for arbitration. The contractor argued the clause was unreasonable and that ... Reasonableness of Clause 33 (7) of the Agreement/s between the petitioner and respondents - requirement of pre-deposit for invoking the arbitration - HELD THAT:- Clause 33(7) of the Agreement, which has been reproduced in the foregoing paras, especially provides that where the party invoking arbitration is the contractor, no reference for Arbitrator shall be maintainable unless the contractor furnishes a security deposit of a sum determined as per the table given therein. A specific percentage based on the claim amount is provided in Clause 33 (c). It is further provided that the sum so deposited on termination of Arbitration proceedings shall be adjusted against the cost, if any, awarded by the Arbitrator against the claimant party and the balance remaining after such adjustment, in the absence of any such cost being awarded, the whole of the sum shall be refunded to the contractor within one month from the date of the Award. Admittedly, in the case of M/s ICOMM Tele Limited’s case [2019 (3) TMI 600 - SUPREME COURT], the requirement was of ‘deposit – at-call’ of 10% of the amount claimed. Moreover, it was provided that in the event of an award in favour of the claimant, the deposit would be refunded to him in proportion to the amount awarded with respect to the amount claimed and the balance, if any, would be forfeited and paid to the other party. There was admittedly no provision of any refund or adjustment of the amount. Discussion of the judgement of S.K. Jain’s case [2009 (2) TMI 926 - SUPREME COURT] makes it crystal clear that such like clauses, which provide for adjustment and refund to the party making the deposit after the passing of the award are materially different from the clause which was under challenge in M/s ICOMM Tele Limited’s case. In case of M/s ICOMM Tele Limited’s case, the objectionable clause 25 (viii) was struck down finding the same to be arbitrary. Argument raised by learned counsel for the petitioner/s that once the Arbitrator was appointed by the Chief Administrator himself without the pre-deposit being made, there is no question of insistence upon the same, is an argument which is devoid of any merit, hence rejected. This is so for the reason that it is clearly mentioned in impugned order dated 09.11.2020 itself that Chief Administrator Housing Board Haryana, while appointing the Arbitrator directed the Arbitrator to ensure compliance of the Arbitration Agreement including the clause regarding the security deposit in respect of the claims (counter claims). Therefore, appointment of the Arbitrator cannot be in any manner be construed to be a waiver of the clause requiring pre-deposit by the petitioner. There are no illegality, irregularity or perversity in the impugned order dated 09.11.2020, Annexure P-4, passed by the learned Arbitrator - petition dismissed. Issues Involved:1. Validity of Clause 33(7) of the Agreement requiring a pre-deposit for invoking arbitration.2. Applicability of Supreme Court judgments on the pre-deposit clause.3. Argument of unequal bargaining power in commercial contracts.4. Waiver of pre-deposit condition by the Chief Administrator while appointing the Arbitrator.Issue-wise Detailed Analysis:1. Validity of Clause 33(7) of the Agreement:The primary issue in these writ petitions is whether Clause 33(7) of the Agreement, which mandates a pre-deposit for invoking arbitration, is 'unreasonable, unconscionable and liable to be set aside.' The clause specifies that the contractor must furnish a security deposit based on the claim amount, which will be adjusted against the arbitration costs or refunded after the arbitration award. The petitioner argued that this clause is arbitrary and contrary to the Arbitration Act, as it deters parties from invoking arbitration due to the high pre-deposit amounts.2. Applicability of Supreme Court Judgments:The petitioner cited the Supreme Court's judgment in M/s ICOMM Tele Limited vs. Punjab State Water Supply and Sewerage Board, where a similar pre-deposit clause was deemed arbitrary and violative of Article 14 of the Constitution. The petitioner argued that this judgment should apply to the present case, making Clause 33(7) invalid. However, the respondents and the Arbitrator relied on another Supreme Court judgment in S.K. Jain vs. State of Haryana, which upheld a similar pre-deposit clause, distinguishing it from the clause in M/s ICOMM Tele Limited’s case. The High Court noted that the clause in S.K. Jain's case provided for adjustment and refund of the deposit, unlike the clause in M/s ICOMM Tele Limited’s case, which led to forfeiture of the deposit.3. Argument of Unequal Bargaining Power:The petitioner contended that the contract was a 'contract of adhesion' where they had no bargaining power, making the pre-deposit clause unfair. The High Court referred to the Supreme Court's observation in S.K. Jain's case, which stated that the concept of unequal bargaining power does not apply to commercial contracts. The court also cited the judgment in Central Inland Water Transport Corporation Ltd. vs. Brojo Nath Ganguly, which supported this view.4. Waiver of Pre-deposit Condition by Chief Administrator:The petitioner argued that the Chief Administrator's appointment of the Arbitrator without insisting on a pre-deposit amounted to a waiver of the pre-deposit condition. The High Court rejected this argument, noting that the Arbitrator's appointment letter explicitly required compliance with the arbitration agreement, including the pre-deposit clause.Conclusion:The High Court dismissed the writ petitions, upholding the validity of Clause 33(7) of the Agreement. The court found no merit in the petitioner's arguments, emphasizing that the pre-deposit clause in the present case was materially different from the one struck down in M/s ICOMM Tele Limited’s case. The court concluded that it was bound by the Supreme Court's judgment in S.K. Jain's case, which upheld similar pre-deposit clauses in commercial contracts. The petitions were dismissed with no order as to costs.