2022 (8) TMI 1462 - HC - Indian Laws

Maintainability of appeal filed by the petitioner under Section 37(2) of the Arbitration Act - direction to deposit the amount to the extent of 7.5% of the claim amount in terms of Section 25(A)(viii) of the Contract - failure to to perform contractual obligations on the part of respondents. HELD THAT - A similar controversy was sought to be raised in M/S GARG AND COMPANY VERSUS STATE OF HARYANA AND OTHERS. 2022 (4) TMI 1565 - PUNJAB AND HARYANA HIGH COURT and other connected writ petitions, which have been dismissed on 08.04.2022. Question raised for adjudication in the said writ petitions was also whether the clause in question requiring a pre-deposit for invocation of Arbitration is unreasonable, unconscionable and liable to set aside. Clause in question in the abovesaid writ petitions was identical as clause 25(A)(vii) involved in the instant writ petition. Reliance had been placed on M/s ICOMM Tele Limited 2019 (3) TMI 600 - SUPREME COURT as is the case in the present writ petition. However, while dealing with the contentions as raised and dismissing the said writ petitions, judgment of the Three Judge Bench of the Hon ble Supreme Court in S.K. Jain v. State of Haryana 2009 (2) TMI 926 - SUPREME COURT was duly considered. It was also noticed that Hon ble Supreme Court itself in the case of M/s ICOMM Tele Limited referred to the case of S.K. Jain and infact upheld the clause regarding pre-deposit in S.K. Jain s case. Thus, the question sought to be raised has been clearly answered against the petitioner. Learned counsel for the petitioner is unable to point out any distinguishing feature in the present writ petition which calls for interference. Insofar as the argument raised on behalf of the petitioner that once Chief Engineer has appointed Arbitrator on demand raised by the petitioner without any condition of pre-deposit, thus, the same amounts to waiver of said condition, is of no avail to the petitioner, for the reason that it is specifically observed by the learned Arbitrator in order dated 15.01.2022 that appointing authority did not waive the condition of pre-deposit but rather asked the Arbitrator to decide the disputes as per clause 25 and 25 (A) of the Contract instead of passing any other order after taking note of the claimant s plea that it was not liable to deposit 7 % of the claimed amount - It has been rightly held that appointment of Arbitrator in this manner cannot be construed as waiver of condition of pre-deposit. This Court is clearly bound by the judgment of the Hon ble Supreme in the case of S.K. Jain which has admittedly not been over ruled till date. Petition dismissed.

Summary

Issues Involved:
1. Quashing of the Arbitrator's order dated 15.01.2022 under Section 16 of the Arbitration and Conciliation Act, 1996.
2. Quashing of the Additional District Judge's order dated 02.04.2022 under Section 37(2) of the Arbitration Act.
3. Validity and enforceability of Clause 25(A)(vii) of the Contract requiring pre-deposit for arbitration.
4. Alleged waiver of the pre-deposit condition by the Chief Engineer.

Detailed Analysis:

1. Quashing of the Arbitrator's Order Dated 15.01.2022:
The petitioner sought the quashing of the Arbitrator's order dated 15.01.2022, which allowed the respondent's application under Section 16 of the Arbitration and Conciliation Act, 1996. The Arbitrator directed the petitioner to comply with Clause 25(A)(vii) of the agreement by furnishing a security deposit within six weeks. The amount was to be kept in a fixed deposit to earn interest and remain available for refund, if any, at the time of the award. The Arbitrator also ordered that proceedings would remain suspended until compliance.

2. Quashing of the Additional District Judge's Order Dated 02.04.2022:
The petitioner challenged the Arbitrator's order before the Additional District Judge, Gurugram, under Section 37(2) of the Arbitration Act. The appeal was dismissed on 02.04.2022, and the petitioner was directed to deposit 7.5% of the claim amount in terms of Section 25(A)(viii) of the Contract. The petitioner argued that the orders were liable to be set aside as the judgment of the Supreme Court in M/s ICOMM Tele Limited vs. Punjab State Water Supply and Sewerage Board and another, 2019 (5) RCR (Civil) 242, was not considered correctly. The petitioner contended that Clause 25(A)(vii) requiring pre-deposit was arbitrary and violative of Article 14 of the Constitution of India.

3. Validity and Enforceability of Clause 25(A)(vii) of the Contract:
Clause 25(A)(vii) of the Contract stipulates that no reference for arbitration shall be maintainable unless the contractor furnishes a security deposit. The petitioner argued that this clause was arbitrary and should be struck down. The court referred to the judgment in M/s ICOMM Tele Limited, where a similar clause requiring a "deposit-at-call" of 10% was struck down as arbitrary. However, the court distinguished this case by referring to the Supreme Court judgment in S.K. Jain v. State of Haryana, (2009) 4 SCC 357, which upheld a similar pre-deposit clause. The court noted that the clause in S.K. Jain provided for adjustment and refund of the deposit, making it materially different from the clause in M/s ICOMM Tele Limited.

4. Alleged Waiver of the Pre-Deposit Condition by the Chief Engineer:
The petitioner argued that the Chief Engineer's appointment of the Arbitrator without any condition of pre-deposit amounted to a waiver of the pre-deposit condition. The court rejected this argument, noting that the Arbitrator's order dated 15.01.2022 explicitly stated that the appointing authority did not waive the pre-deposit condition. Instead, the Arbitrator was asked to decide the disputes as per Clause 25 and 25(A) of the Contract. The court found no denial of this observation and held that the appointment of the Arbitrator could not be construed as a waiver of the pre-deposit condition.

Conclusion:
The court dismissed the writ petition, upholding the orders dated 15.01.2022 and 02.04.2022. The court emphasized that the judgment in S.K. Jain v. State of Haryana, which upheld the pre-deposit clause, was binding and had not been overruled. The court found no distinguishing feature in the present case that warranted interference and concluded that the pre-deposit clause was valid and enforceable. The petitioner's argument regarding the waiver of the pre-deposit condition was also rejected. The writ petition was dismissed with no order as to costs.