Pre-deposit condition of 7% claim amount before arbitration violates Article 14, deemed manifestly arbitrary under Section 11(6)

The SC allowed the petition for appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Court held that the pre-deposit condition requiring 7% of the total claim amount before invoking arbitration was violative of Article 14 of the Constitution, being manifestly arbitrary and discouraging arbitration. Following the precedent in ICOMM Tele Limited, the Court ruled that such conditions deter parties from accessing Alternative Dispute Resolution processes and run contrary to the objective of de-clogging courts. The Court also found that the clause empowering the Principal Secretary to appoint an arbitrator compromised independence and impartiality. Both conditions in Clause 55 were ignored, and an independent arbitrator was appointed.

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Issues Involved:
1. Applicability of ICOMM Tele Limited decision to the pre-deposit clause.
2. Conflict between S.K. Jain and ICOMM Tele Limited decisions.
3. Court's authority under Section 11(6) to assess the validity of pre-deposit clauses.
4. Validity of arbitration clause empowering Principal Secretary/Secretary (Irrigation) to appoint an arbitrator.

Summary:

Issue 1: Applicability of ICOMM Tele Limited Decision
The Court examined whether the pre-deposit condition in Clause 55 of the General Conditions of Contract (GCC) is arbitrary and violative of Article 14 of the Constitution of India. The Court noted that the 7% pre-deposit clause lacks clarity on how the amount is to be adjusted at the end of the arbitral proceedings, making it vulnerable to arbitrariness. The Court emphasized that if the claim is frivolous, the arbitral tribunal can award costs under Section 31A of the Arbitration and Conciliation Act, 1996. The Court concluded that the pre-deposit condition is arbitrary and violative of Article 14.

Issue 2: Conflict Between S.K. Jain and ICOMM Tele Limited Decisions
The Court observed that there is no direct conflict between S.K. Jain and ICOMM Tele Limited decisions as the arbitration clauses in both cases stand on different footings. The Court highlighted that in ICOMM Tele Limited, the clause was struck down for being arbitrary and violative of Article 14, whereas in S.K. Jain, the clause was upheld as it was found to be logical and not arbitrary.

Issue 3: Court's Authority Under Section 11(6)
The Court rejected the respondent's argument that the validity of the pre-deposit clause could only be challenged under Article 226 of the Constitution. The Court cited previous decisions, including TRF Limited v. Energo Engineering Projects Limited and Perkins Eastman Architects DPC v. HSCC (India) Limited, to assert that it has the authority to assess the validity of arbitration clauses under Section 11(6) of the Act. The Court emphasized that party autonomy cannot override fundamental rights under the Constitution.

Issue 4: Validity of Arbitration Clause Empowering Principal Secretary/Secretary (Irrigation)
The Court found that the arbitration clause empowering the Principal Secretary/Secretary (Irrigation) to appoint an arbitrator is in conflict with the decision in Perkins Eastman, which held that a person interested in the outcome of the dispute should not have the power to appoint an arbitrator. The Court referred to the amended Section 12 of the Arbitration and Conciliation Act, 1996, which emphasizes the neutrality of arbitrators.

Conclusion
The Court allowed the petition, appointing Mr. V.K. Bist, Former Chief Justice of the High Court of Sikkim, as the sole arbitrator. The fees and other modalities were to be fixed in consultation with the parties. The Court ignored the 7% pre-deposit condition and the clause empowering the Principal Secretary/Secretary (Irrigation) to appoint an arbitrator, deeming them arbitrary and violative of Article 14 of the Constitution.

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