M/s Icomm Tele Ltd. Vs Punjab State Water Supply & Sewerage Board & Anr.

In this case, The Punjab state water supply and sewerage board Bathinda issued a notice inviting a
tender for extension and increase of water supply, sewerage scheme sewerage treatment plant for
various towns on a key turn based basis,

A contract was entered between M/s Icomm Tele Ltd. and the board The arbitration clause 25(viii) set
out in the contract which states that in order avoid frivolous claims the party invoking arbitration shall
specify the dispute based on facts and shall furnish a "deposit-at-call" for ten percent of the amount
claimed in the bank in the name of arbitrator If the award is in favour of the claimant, the deposit shall
be refunded to him in proportion to the amount awarded w.r.t the amount claimed and the balance, if
any, shall be forfeited and paid to the other party”

Dispute arose between the parties and the company Sent letters to the board for the appointment of
the arbitrator and sought for waving 10% deposit fee. Writ petition before the high court Punjab and
Haryana was filed by the company after receiving no response from the board.

Writ petition was dismissed stating that such tender condition can in no way said to be arbitrary or
unreasonable. The company challenge the order passed by the High Court before the supreme court
and argued that the arbitration clause in the tender amounts to a contract of addition and there was no
unfair bargaining between the board and the company this clause out to be struck down following the
judgement in central inland water transport corporation v Brojo Nath Ganguly. Company also argued
that in arbitration 10% deposit would amount to clog on entering the process unreasonable claims can
be compensated by heavy costs and And also said that since award is in the favour of the claimant so
what can be refunded to him so this would also be arbitrary on the part of the board.

Board argued that There is is no violation of article 14 and section 25 (viii) applied to both equally and
cannot be struck down. Supreme Court by referring the case General Motors v Ashok ramniklal tolat
that 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. Therefore, a "deposit-at-call" of 10% of the amount claimed,
which can amount to large sums of money, is without any direct nexus to the filing of unreasonable
claims. The 10% deposit has to be made before any determination that a claim made by the party
invoking arbitration is frivolous. Such a clause would be arbitrary in the sense of being unfair and unjust
and which no reasonable man would agree to. The Hon'ble Supreme Court emphasized that deposit of
10% of a huge claim and would be even greater than court fees that may be charged for filing a suit in a
civil court.

The Hon'ble Supreme Court set aside the judgments passed by the Hon'ble High Court of Punjab and
Haryana and allowed the appeal of the company stating that 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.