2007 (1) TMI 649 - HC - Indian Laws

Summary

Issues:
The issues involved in this case are the challenge to the legality and vires of paras VIII and XV of Clause 28 of the arbitration agreement, and the requirement to deposit 10% of the claim amount before entering into arbitration.

Challenge to Paras VIII and XV of Clause 28:
The petitioners sought to declare paras VIII and XV of the arbitration agreement as illegal and ultra vires, along with quashing a letter requiring a 10% deposit before arbitration. The petitioner, a government-owned company, was engaged in a construction project in Punjab. Disputes arose due to alleged breaches by the respondents, leading to termination of the contract and a claim of Rs. 721.34 lakhs. The Arbitrator-cum-Superintending Engineer requested a 10% deposit as per the agreement, which the petitioner challenged as confiscatory and violative of Article 14 of the Constitution and Section 28 of the Contract Act, 1872.

Validity of Impugned Clauses:
The Court considered the argument that the clauses were confiscatory and took away the right of arbitration. Reference was made to the concept of unconscionable clauses in contracts, especially in cases of unequal bargaining power. The Court cited precedents and legislative provisions to analyze the reasonableness and fairness of the clauses. It was concluded that the clauses did not exhibit unequal bargaining power and were not unconscionable, unfair, or irrational, thus upholding their validity.

Decision and Dismissal of the Petition:
The Court dismissed the petition, stating that the impugned clauses requiring a 10% deposit served the purpose of preventing frivolous claims. It was noted that the clauses had mutuality and were not found to be unfair or unconscionable. The argument regarding maintainability of the writ petition against a state agency was addressed, emphasizing that the jurisdiction under Article 226 could be invoked but was not warranted in this case due to the clauses being deemed reasonable. Consequently, the petition was dismissed based on the lack of unfairness or unconscionability in the impugned clauses.