{"id":14240,"date":"2024-04-04T12:27:53","date_gmt":"2024-04-04T12:27:53","guid":{"rendered":"https:\/\/jgu.edu.in\/mappingADR\/?p=14240"},"modified":"2024-04-04T12:27:53","modified_gmt":"2024-04-04T12:27:53","slug":"discussion-of-supreme-court-on-the-validity-of-the-pre-deposit-clause","status":"publish","type":"post","link":"https:\/\/jgu.edu.in\/mappingADR\/discussion-of-supreme-court-on-the-validity-of-the-pre-deposit-clause\/","title":{"rendered":"Discussion of Supreme Court on the Validity of the \u201cPre-Deposit Clause\u201d"},"content":{"rendered":"\n

[This article is authored by Rajvash Singh, a final year law student at NLU, Odisha.]<\/em><\/p>\n\n\n\n

Keywords: <\/strong>Pre-Deposit Clause, Article 14, Frivolous Litigation.<\/p>\n\n\n\n

Introduction<\/strong><\/p>\n\n\n\n

Speedy and effective settlements of disputes are the two most important attributes for the smooth flow of trade. Unfortunately, the Indian Judiciary is not famous for the speedy settlement of disputes. Recently, arbitration has emerged as an efficient alternative to the public justice delivery system.<\/p>\n\n\n\n

A pre-deposit clause implies that if a party to the agreement intends to bring a claim before the arbitrator, it must first deposit security of a determinable sum, usually a percentage of the claimed amount. The underlying object behind these clauses is to prevent frivolous and extravagant claims from being brought by the parties, in the hope of \u201ctrying their luck\u201d with the arbitrators. The Hon\u2019ble Supreme Court (\u201cthe Court\u201d) in M\/S Icomm Tele Ltd.<\/em><\/a> v. <\/a>Punjab State Water Supply & Sewerage Board & Anr.<\/em><\/a> <\/a>struck down the validity of a pre-deposit clause on the ground that usage of such clauses to invoke the arbitration clause makes the arbitral process ineffective and onerous. In the current post, the author argues that the Court erred in its judgement on several grounds as certain aspects were left untouched and misconstrued.<\/p>\n\n\n\n

Factual Matrix<\/strong><\/p>\n\n\n\n

In 2008, the Punjab State Water Supply & Sewage Board, Bhatinda (\u201cRespondent\u201d) issued notice for inviting tender for the purpose of extension and augmentation of water supply, sewage scheme, pumping station and sewage treatment plants. M\/S Icomm Tele LTD. (\u201cAppellant\u201d) was awarded the said contract after having been found to be best suited for the task. A contract was entered into between the parties and it contained an arbitration clause, which included clause 25 (viii), which reads as \u2013<\/p>\n\n\n\n

\u201cIt shall be an essential term of this contract that in order to avoid frivolous claims the party invoking arbitration shall specify the dispute based on facts and calculations stating the amount claimed under each claim and shall furnish a deposit-at-call for ten per cent of the amount claimed, on a schedule bank in the name of the Arbitrator by his official designation who shall keep the amount in deposit till the announcement of the award<\/em>\u201d<\/p>\n\n\n\n

A dispute arose and the appellant wrote a letter for the appointment of an arbitrator and for waiver of the 10% of the deposit fee, which was not responded to. Subsequently, the appellant approached the High Court of Punjab and Haryana (the \u201cHigh Court\u201d) assailing the validity of the clause on the ground of arbitrary and unreasonable, but the petition was dismissed. Aggrieved by this, the appellant approached the Supreme Court.<\/p>\n\n\n\n

Arguments<\/strong><\/p>\n\n\n\n

The Counsel on behalf of the appellant contended \u2013<\/p>\n\n\n\n