2023 (3) TMI 1420 - HC - Indian Laws

HC strikes down NIT Clause 25(viii) requiring 10% deposit-at-call following SC precedent in M/s Icomm Tele Ltd case

Bathinda Railway Transhipment Cooperative L&C Society Ltd. Bathinda Versus Punjab Mandi Board and others,

The HC struck down Clause 25(viii) of the NIT requiring 10% deposit-at-call, declaring it unconstitutional. Following SC precedent in M/s Icomm Tele Ltd., ... Legality of Clause 25(viii) contained in general conditions of contract of the NIT (Note Inviting Tender) (Annexure P-1) between petitioner and respondents - requirement to deposit 10% Deposit-at-call as per Clause 25(viii) - HELD THAT:- In the light of the decision rendered by the Supreme Court in M/s Icomm Tele Ltd. [2019 (3) TMI 600 - SUPREME COURT], which has considered absolutely an identical clause contained in the agreement between the parties and after doing so has struck down the said clause, it is not for this Court i.e. the High Court to consider the contention of the respondent and take a different view as that would be not just beyond the authority of this Court but would also be an act of impropriety. This Court being bound by the decision rendered by the Supreme Court in M/s Icomm Tele Ltd. allowed the present petition filed by the petitioner and declares the arbitration clause 25(viii) of the tender conditions, quoted above, as unconstitutional and passes the same orders in similar terms as were passed by the Supreme Court in paragraph-28 of the decision rendered in M/s Icomm Tele Ltd. In view of the fact that the Supreme Court has considered and decided the question relating to an identical clause, this Court is not required to and cannot go into any other issue raised by the petitioner, which is left open to be considered and decided in appropriate proceedings. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a contractual clause requiring a 10% 'deposit-at-call' by a party invoking arbitration (Clause 25(viii)) is constitutionally valid, or is arbitrary, unconscionable and contrary to public policy. 2. Whether a High Court is bound to follow and give effect to a Supreme Court decision striking down an identical clause, and consequently whether it can re-examine or take a different view on the validity of that clause. 3. Whether, in light of a binding supreme authority on an identical clause, the High Court ought to entertain and decide other collateral or ancillary challenges to the same clause in the same petition. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of Clause requiring 10% deposit-at-call to invoke arbitration Legal framework: The enforceability of contractual pre-deposit conditions for invoking arbitration is tested against constitutional principles, public policy and established judicial precedents governing arbitration access and anti-frivolous claim deterrence. The clause in question requires furnishing 10% of the amount claimed in the name of the arbitrator, held in deposit until award; on an award for the claimant the deposit is refunded proportionately and the balance, if any, is forfeited to the other party. Precedent treatment: Earlier decisions have reached differing conclusions. A larger bench judgment had upheld the validity of pre-deposit requirements to curb frivolous claims. A subsequent decision of the Supreme Court, however, considered an identical clause and struck it down as unconstitutional because of its specific mechanism for proportional refund and forfeiture. Interpretation and reasoning: The Court examined the exact wording of the impugned clause and compared it with the clause struck down by the apex court. The two clauses were found to be identical in stipulations-10% deposit, arbitrator as custodian, refund only in proportion to awarded amount and forfeiture of the balance. Given that the Supreme Court had considered the identical provision and struck it down, the High Court applied that precedent. The reasoning rests on the principle that a clause which operates to penalize or deter the right to arbitration by imposing a deposit with a forfeiture mechanism incompatible with accepted norms is open to constitutional challenge; where the apex court has so held in respect of identical language, the same infirmity is applicable here. Ratio vs. Obiter: The decision of the Supreme Court striking the identical clause was treated as ratio decidendi for the narrow proposition that that particular formulation (including proportional refund and forfeiture) is unconstitutional and severable from the remainder of the arbitration clause. The High Court treated that holding as authoritative and determinative of the present challenge. Conclusion: Clause 25(viii), in the exact form challenged (10% deposit-at-call with proportional refund and forfeiture), is declared unconstitutional and severed from the contract. The Court applied the higher court's ruling that identical language is void and cannot be enforced to deny access to arbitration. Issue 2 - Binding effect of Supreme Court decision on identical clause and scope for re-examination by High Court Legal framework: Lower courts are bound by the decisions of the Supreme Court on questions of law. When the Supreme Court has directly considered and decided the validity of a clause identical in material terms, a High Court cannot take a contrary view. Precedent treatment: The High Court acknowledged an earlier larger bench authority upholding pre-deposit clauses generally, but observed that the Supreme Court subsequently struck down the identical clause in question. The Court recognized the doctrine of stare decisis and the hierarchical binding effect of the higher court's ruling. Interpretation and reasoning: Because the Supreme Court had specifically considered an identical clause and struck it down, the High Court held itself bound and declined to re-examine the question de novo or adopt the alternative view advanced by the respondent relying on the earlier larger-bench authority. The Court emphasized that to adopt a different position would be beyond its authority and improper. Ratio vs. Obiter: The principle that a High Court must follow a directly applicable Supreme Court decision is ratio. The Court's refusal to re-open the issue where identical language has been adjudicated by the apex court is a direct application of that principle. Conclusion: The High Court is bound by the Supreme Court's decision on the identical clause and therefore could not uphold the clause or revisit the validity issue in a manner inconsistent with apex court precedent. Issue 3 - Scope of adjudication where a binding decision on an identical clause exists; leave of other issues Legal framework: When a higher court has conclusively decided the validity of an identical contractual provision, subsequent proceedings may be confined to giving effect to that decision; incidental or collateral issues may remain open for adjudication in appropriate forums where they do not conflict with the binding precedent. Precedent treatment: The Court relied on the fact that the Supreme Court's pronouncement settled the specific question concerning the identical clause; hence other issues raised in the petition need not be addressed in light of that decisive ruling. Interpretation and reasoning: Having declared the impugned clause unconstitutional by applying the higher court's holding, the High Court held it was not required and would not traverse other contentions raised by the petitioner in the same petition. Those other issues were left open for consideration in appropriate proceedings, consistent with the binding precedent. Ratio vs. Obiter: The limitation of the High Court's enquiry in the presence of binding apex authority is ratio: the Court may dispose of the petition on the controlling point and refrain from deciding peripheral contentions that do not affect the operative outcome. Conclusion: The Court disposed of the petition by striking down the identical clause and declined to adjudicate further issues in the petition, leaving those matters open for appropriate proceedings where they can be considered without conflicting with the binding decision on the clause.