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2019 (3) TMI 600 - SUPREME COURTArbitration agreement - Whether the Sub-clause (7) of Clause 25-A of the agreement can be said to be arbitrary or discriminatory and violative of Article 14 of the Constitution of India? Whether the 10% “deposit-atcall” of the amount claimed is in order to avoid frivolous claims by the party invoking arbitration? - Held that:- It is well settled that a frivolous claim can be dismissed with exemplary costs - It is therefore always open to the party who has succeeded before the arbitrator to invoke this principle and it is open to the arbitrator to dismiss a claim as frivolous on imposition of exemplary costs. The important principle established by this case is that unless it is first found that the litigation that has been embarked upon is frivolous, exemplary costs or punitive damages do not follow. Clearly, therefore, a “deposit-at-call” of 10% of the amount claimed, which can amount to large sums of money, is obviously without any direct nexus to the filing of frivolous claims, as it applies to all claims (frivolous or otherwise) made at the very threshold. A 10% deposit has to be made before any determination that a claim made by the party invoking arbitration is frivolous. This is also one important aspect of the matter to be kept in mind in deciding that such a clause would be arbitrary in the sense of being something which would be unfair and unjust and which no reasonable man would agree to. Further, it is also settled law that arbitration is an important alternative dispute resolution process which is to be encouraged because of high pendency of cases in courts and cost of litigation. Any requirement as to deposit would certainly amount to a clog on this process. Also, it is easy to visualize that often a deposit of 10% of a huge claim would be even greater than court fees that may be charged for filing a suit in a civil court. Deterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10% would discourage arbitration, contrary to the object of de-clogging the Court system, and would render the arbitral process ineffective and expensive. Clause 25(viii) of the notice inviting tender is striked off - appeal allowed.
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