Arbitrary arbitration deposit condition struck down for lacking rational nexus and burdening access to arbitration

A contractual term imposed by a State instrumentality may be struck down under Article 14 if it is per se arbitrary, disproportionate, and lacks a rational nexus with its stated object, even in a tender setting. A blanket pre-deposit of 10% of the claimed amount as a condition to invoke arbitration was found excessive because frivolous claims can already be controlled through adjudication and costs, while the deposit burdened access to arbitration and could operate unfairly even where a claim succeeded only in part. The clause was therefore held violative of Article 14 and invalidated.

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Issues: Whether the tender condition requiring a party invoking arbitration to deposit 10% of the amount claimed as a precondition to arbitration, with proportional refund and forfeiture of the balance, is arbitrary and violative of Article 14 of the Constitution of India.

Analysis: The clause was examined in the context of contractual autonomy in tenders and the limited scope of judicial review, but Article 14 continues to apply where a State instrumentality acts unfairly or arbitrarily in contractual matters. The Court held that the impugned condition was not merely a device to deter frivolous claims, because frivolous litigation can already be controlled through dismissal and exemplary costs after adjudication. A blanket pre-deposit at the threshold had no direct nexus with the identification of frivolous claims, would burden access to arbitration, and could operate unjustly even where a claim succeeds only in part, since forfeiture is tied to the amount awarded rather than to any finding of frivolousness. The clause was therefore found to be excessive, disproportionate, and lacking rational connection to its stated object.

Conclusion: The clause was held to be arbitrary and violative of Article 14, and was struck down.

Final Conclusion: The impugned arbitration deposit condition could not be sustained in public law and the appellant obtained relief by invalidation of that clause.

Ratio Decidendi: A contractual term imposed by a State instrumentality is vulnerable under Article 14 if it is per se arbitrary, disproportionate, and lacks a rational nexus with its stated object, even when framed as a condition for access to arbitration.

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