Case Note & Summary
The case arose from a tender issued in 2008 by the Punjab State Water Supply & Sewerage Board for water supply and sewerage projects. The appellant, M/S ICOMM TELE LTD., was awarded the tender and entered into a formal contract on 16.1.2009. The notice inviting tender contained an arbitration clause, specifically clause 25(viii), which required a party invoking arbitration to furnish a deposit-at-call of 10% of the amount claimed, to be held by the arbitrator and refunded proportionally to the award, with the balance forfeited to the other party. The appellant had previously entered into similar contracts and sought waiver of this deposit, but received no response. It filed a writ petition before the Punjab and Haryana High Court challenging the clause as arbitrary and unreasonable, but the petition was dismissed on 14.9.2016. A subsequent writ petition in 2017 was also dismissed following the earlier judgment. The appellant then appealed to the Supreme Court. The legal issues were whether the 10% deposit condition was arbitrary, discriminatory, or unconscionable, and whether it violated Article 14 of the Constitution. The appellant argued that the clause was a contract of adhesion due to unequal bargaining power, relying on Central Inland Water Transport Corpn. v. Brojo Nath Ganguly, and that the deposit was a clog on the arbitration process. The respondents contended that the clause applied equally to both parties, was not discriminatory, and that the principle of unequal bargaining power did not apply to commercial contracts. The Supreme Court held that the terms of an invitation to tender are not open to judicial scrutiny unless arbitrary, discriminatory, or mala fide, citing Directorate of Education v. Educomp Datamatics Ltd. and Global Energy Ltd. v. Adani Exports Ltd. The Court distinguished Central Inland Water Transport Corpn., noting that the principle of unequal bargaining power does not apply to commercial contracts between businessmen. The Court further upheld the deposit condition, relying on S.K. Jain v. State of Haryana, where a similar sliding-scale deposit was upheld as a balancing factor to prevent frivolous and inflated claims. The Court found no arbitrariness or discrimination and dismissed the appeal.
Headnote
A) Constitutional Law - Article 14 - Arbitrariness - Tender Condition - The condition requiring a 10% deposit-at-call before invoking arbitration was challenged as arbitrary. The Court held that the terms of an invitation to tender are in the realm of contract and not open to judicial scrutiny unless arbitrary, discriminatory, or mala fide. The condition applied equally to both parties and was not discriminatory. (Paras 9-10) B) Contract Law - Unconscionable Contract - Unequal Bargaining Power - The appellant argued that the clause was a contract of adhesion under Central Inland Water Transport Corpn. v. Brojo Nath Ganguly. The Court held that the principle of unequal bargaining power does not apply to commercial contracts between businessmen. The contract was a commercial transaction, and the appellant was a business entity. (Para 11) C) Arbitration Law - Pre-condition to Arbitration - Deposit to Prevent Frivolous Claims - Clause 25(viii) required a 10% deposit to avoid frivolous claims. The Court upheld such clauses, citing S.K. Jain v. State of Haryana, where a similar sliding-scale deposit was upheld as a balancing factor to prevent frivolous and inflated claims. The deposit was proportionate and not a clog on arbitration. (Paras 12-14)
Issue of Consideration
Whether clause 25(viii) of the arbitration agreement requiring a 10% deposit-at-call of the claim amount before invoking arbitration is arbitrary, discriminatory, or unconscionable, and whether it violates Article 14 of the Constitution.
Final Decision
The Supreme Court dismissed the appeal, upholding the validity of clause 25(viii) requiring a 10% deposit-at-call before invoking arbitration. The Court held that the terms of the tender are not open to judicial scrutiny unless arbitrary, discriminatory, or mala fide, and the clause was not arbitrary or discriminatory. The principle of unequal bargaining power does not apply to commercial contracts between businessmen.
Law Points
- Terms of invitation to tender are not open to judicial scrutiny unless arbitrary
- discriminatory
- or mala fide
- Central Inland Water Transport Corpn. v. Brojo Nath Ganguly does not apply to commercial contracts between businessmen
- deposit condition to prevent frivolous claims is valid and proportionate.
