TMI Blog2019 (3) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - CIVIL APPEAL NO. 2713 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling Civil Writ Petition No. 4882 of 2017. The High Court in the impugned judgment merely followed its earlier judgment and dismissed this writ petition as well. 5. Learned counsel appearing on behalf of the appellant has argued that the arbitration clause contained in the tender condition amounts to a contract of adhesion, and since there is unfair bargaining strength between respondent No. 2 and the appellant, this clause ought to be struck down following the judgment in Central Inland Water Transport Corpn. v. Brojo Nath Ganguly, (1986) 3 SCC 156. He has also argued that arbitration being an alternative dispute resolution process, a 10% deposit would amount to a clog on entering the aforesaid process. Further, claims may ultimately be found to be untenable but need not be frivolous. Also, frivolous claims can be compensated by heavy costs. Further, even in the event that the award is in favour of the claimant, what can be refunded to him is only in proportion to the amount awarded and the rest is to be forfeited. This would also be a further arbitrary and highhanded action on the part of respondent No. 2. 6. Learned counsel appearing on behalf of the respondents has argue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... straint in administrative action. (2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made. (3) The court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible. (4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts. (5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not apply where both parties are businessmen and the contract is a commercial transaction (see paragraph 89 of the said judgment). In this view of the matter, the argument of the appellant based on this judgment must fail. 12. In S.K. Jain v. State of Haryana, (2009) 4 SCC 357, this Court dealt with an arbitration clause in an agreement which read as follows:- 11. Sub-clause (7) of Clause 25-A of the agreement reads as follows: 25-A. (7) It is also a term of this contract agreement that where the party invoking arbitration is the contractor, no reference for arbitration shall be maintainable unless the contractor furnishes to the satisfaction of the Executive Engineer in charge of the work, a security deposit of a sum determined according to details given below and the sum so deposited shall, on the termination of the arbitration proceedings be adjusted against the costs, if any, awarded by the arbitrator against the claimant party and the balance remaining after such adjustment in the absence of any such costs being awarded, the whole of the sum will be refunded to him within one month from the date of the award- Amount of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted and paid to the other party, even though that other party may have lost the case. This being so, this judgment is wholly distinguishable and does not apply at all to the facts of the present case. 15. In ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd., (2004) 3 SCC 553, this Court has held that even within the contractual sphere, the requirement of Article 14 to act fairly, justly and reasonably by persons who are state authorities or instrumentalities continues. Thus, this Court held: 23. It is clear from the above observations of this Court, once the State or an instrumentality of the State is a party of the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India. Therefore, if by the impugned repudiation of the claim of the appellants the first respondent as an instrumentality of the State has acted in contravention of the abovesaid requirement of Article 14, then we have no hesitation in holding that a writ court can issue suitable directions to set right the arbitrary actions of the first respondent xxx xxx xxx 27. From the above discussion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the action is per se arbitrary. 18. This contention was negatived stating (at pages 662-663):- It thus appears well settled that Art. 14 strikes at arbitrariness in executive/administrative action because any action that is arbitrary must necessarily involve the negation of equality. One need not confine the denial of equality to a comparative evaluation between two persons to arrive at a conclusion of discriminatory treatment. An action per se arbitrary itself denies equal of protection by law. The Constitution Bench pertinently observed in Ajay Hasia's case [[1981] 2 S.C.R. 79] and put the matter beyond controversy when it said 'wherever therefore, there is arbitrariness in State action whether it be of the legislature or of the executive or of an authority under Article 12, Article 14 immediately springs into action and strikes down such State action. This view was further elaborated and affirmed in D.S. Nakara v. Union of India [[1983] 1 SCC 305]. In Maneka Gandhi v. Union of India [[1978] 2 S.C.R. 621] it was observed that Art. 14 strikes at arbitrariness in State action and ensure fairness and equality of treatment. It is thus too late in the day t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those who are in need of justice. Imposition of real time costs is also necessary to ensure that access to courts is available to citizens with genuine grievances. Otherwise, the doors would be shut to legitimate causes simply by the weight of undeserving cases which flood the system. Such a situation cannot be allowed to come to pass. Hence it is not merely a matter of discretion but a duty and obligation cast upon all courts to ensure that the legal system is not exploited by those who use the forms of the law to defeat or delay justice. We commend all courts to deal with frivolous filings in the same manner. (Emphasis supplied) 21. 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. 22. We may also notice this Court s judgment in General Motors (I) (P) Ltd. v. Ashok Ramnik Lal Tolat, (2015) 1 SCC 429, that punitive damages follow when a court is approached with a frivolous litigation. This court held:- 16. We proceed to deal with the issue of correctness of finding recorded by the National Commission for awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitrator at only ten lakhs, only one tenth of the deposit made will be liable to be returned to the successful party. The party who has lost in the arbitration proceedings will be entitled to forfeit nine tenths of the deposit made despite the fact that the aforesaid party has an award against it. This would render the entire clause wholly arbitrary, being not only excessive or disproportionate but leading to the wholly unjust result of a party who has lost an arbitration being entitled to forfeit such part of the deposit as falls proportionately short of the amount awarded as compared to what is claimed. 24. 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. This Court in State of J K v. Dev Dutt Pandit, (1999) 7 SCC 339, has held:- 23. Arbitration is considered to be an important alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed to, that has to be generally resorted to. (Emphasis in original) 26. Similarly, in Union of India v. Varindera Constructions Ltd., (2018) 7 SCC 794, this Court held:- 12. The primary object of the arbitration is to reach a final disposition in a speedy, effective, inexpensive and expeditious manner. In order to regulate the law regarding arbitration, legislature came up with legislation which is known as Arbitration and Conciliation Act, 1996. In order to make arbitration process more effective, the legislature restricted the role of courts in case where matter is subject to the arbitration. Section 5 of the Act specifically restricted the interference of the courts to some extent. In other words, it is only in exceptional circumstances, as provided by this Act, the court is entitled to intervene in the dispute which is the subjectmatter of arbitration. Such intervention may be before, at or after the arbitration proceeding, as the case may be. In short, court shall not intervene with the subject-matter of arbitration unless injustice is caused to either of the parties. 27. Deterring a party to an arbitration from invoking this alternative dispute res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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