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2023 (11) TMI 406 - SC - Indian LawsSeeking appointment of an arbitrator for the adjudication of disputes - Section 11(6) of the Arbitration and Conciliation Act, 1996 - It is the case of the petitioner that instead of appropriately responding to the notice of arbitration, the respondent issued a letter dated 09.05.2022, terminating the Contract alleging non-compliance of work and nonfulfilment of the contractual obligation. Whether the dictum as laid down in ICOMM TELE LTD. VERSUS PUNJAB STATE WATER SUPPLY AND SEWERAGE BOARD AND ORS. 2019 (3) TMI 600 - SUPREME COURT can be made applicabl e to the case in hand more particularly when Clause 55 of the General Conditions of Contract provides for a pre-deposit of 7% of the total claim for the purpose of invoking the arbitration clause? - Whether there is any direct conflict between the decisions of this Court in S.K. Jain 2009 (2) TMI 926 - SUPREME COURT and ICOMM Tele Limited? - HELD THAT - The principles of law discernible from the aforesaid observations made by this Court in ICOMM Tele Limited are as under (a) That the pre-deposit condition in an arbitration clause is violative of Article 14 of the Constitution of India being arbitrary. (b) Unless it is first found or prima facie established that the litigation that has been embarked upon is frivolous, the exemplary costs or punitive damages cannot follow. (c) Deterring a party to an arbitration from invoking the Alternative Dispute Resolution Process by pre-deposit of certain percentage would discourage arbitration. This would run contrary to the object of de-clogging the court system and would render the arbitral process ineffective and expensive. In the decision of the Calcutta High Court in M/S AMAZING INDIA CONTRACTORS PVT. LTD. VERSUS THE AIRPORT AUTHORITY OF INDIA AND ORS. 2023 (6) TMI 1331 - CALCUTTA HIGH COURT , ICOMM Tele Limited and PERKINS EASTMAN ARCHITECTS DPC ANOTHER VERSUS HSCC (INDIA) LTD. 2019 (11) TMI 1154 - SUPREME COURT were relied upon and ultimately, it was held that Clause 33 of the agreement therein between the parties providing for constitution of a Dispute Resolution Committee with a stipulation that before availing of dispute resolution clause, the disputed amount has to be deposited, was held to be invalid and contrary to law. As such there is no conflict between S.K. Jain and ICOMM Tele Limited, as the relevant arbitration clauses that fell for the consideration of this Court in both the cases stood completely on a different footing. What is relevant to note are the points of law on which S.K. Jain 2009 (2) TMI 926 - SUPREME COURT was distinguished and explained in ICOMM Tele Limited. Keeping the aforesaid in mind, on looking into the 7% pre-deposit condition in the case on hand, as contained in Clause 55 of the GCC it is evident that nothing has been provided as to how this amount of 7% is to be ultimately adjusted at the end of the arbitral proceedings. With a view to salvage this situation, the learned counsel appearing for the respondent invited the attention of this Court to Clause 3 of the GCC, which relates to the security deposit for performance. Whether this Court while deciding a petition filed under Section 11(6) of the Act 1996 for appointment of a sole arbitrator can hold that the condition of pre-deposit stipulated in the arbitration clause as provided in the Contract is violative of the Article 14 of the Constitution of India being manifestly arbitrary? - HELD THAT - Kelson s pure theory of law has its pyramidical structure of hierarchy based on the basic norm of Grundnorm. The word Grundnorm is a German word meaning fundamental norm. He has defined it as the postulated ultimate rule according to which the norms of this order are established and annulled, receive or lose their validity . It is the Grundnorm which determines the content and validates the other norms derived from it. But from where it derives its validity, was a question which Kelson did not answer, stating it to be a metaphysical question. Grundnorm is a fiction, rather than a hypothesis as proposed by the jurist - The argument canvassed on behalf of the respondent that the petitioner having consented to the pre-deposit clause at the time of execution of the agreement, cannot turn around and tell the court in a Section 11(6) petition that the same is arbitrary and falling foul of Article 14 of the Constitution is without any merit. It is a settled position of law that there can be no consent against the law and there can be no waiver of fundamental rights. Whether the arbitration Clause No. 55 of the Contract empowering the Principal Secretary/Secretary (Irrigation), State of Uttarakhand to appoint an arbitrator of his choice is in conflict with the decision of this Court in the case of Perkins Eastman 2019 (11) TMI 1154 - SUPREME COURT ? - HELD THAT - There are a plethora of judgments of this Court even prior to the amendment of Section 12, where courts have appointed the arbitrators, giving a go-by to the agreed arbitration clause in certain contingencies and situations, having regard to the provisions of unamended Section 11(8) of the Act which, inter alia, provided that while appointing the arbitrator, Chief Justice, or the person or the institution designated by him, shall have regard to the other conditions as are likely to secure the appointment of an independent and impartial arbitrator. The courts in the United States of America have also deliberated upon the doctrine of unconscionability on numerous occasions. The Court of Appeal of California in the case of Patterson v. ITT Consumer Financial Corporation, had the occasion to consider whether the requirement for the claimants to pay a filing fee along with hearing fees for the purpose of resolving the matter could be said to be unconscionable. The Court of Appeals held that such a condition was incomprehensible and discouraged the borrowers from pursuing their claims. The two conditions contained in Clause 55 of the GCC, one relating to 7% deposit of the total amount claimed and the second one relating to the stipulation empowering the Principal Secretary (Irrigation) Government of Uttarakhand to appoint a sole arbitrator should be ignored and it is proceeded to appoint an independent arbitrator. Application allowed.
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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