This is a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short, “the Act 1996”) filed at the instance of a company based in Switzerland and engaged in the business of design consultancy seeking appointment of an arbitrator for the adjudication of disputes and claims emanating from the Contract dated 25.10.2019 entered into between the petitioner and respondent i.e., Uttarakhand Vidyut Nigam Limited (a wholly owned corporation of the Government of Uttarakhand). The petitioner entered into a contract with the Uttarakhand Project Development and Construction Corporation Limited (hereinafter referred to as “UPDCC”) for “Providing consultancy services and preparation of modified comprehensive and bankable Detailed Project Report of Arakot Tiuni Hydro Electric Project on river Pabar in district Uttarkashi of Uttarakhand” dated 25.10. The Clause 53 read with Clause 55 of the General Conditions of Contract (hereinafter referred to as “GCC”), which forms part and parcel of the Contract between the petitioner and the respondent, set out the Arbitration Agreement. 53.2
The contractor shall submit the details of his claims in writing including: (i) Particulars concerning the events on which the claim is based; (ii) the legal basis for the claim, whether based on a term of the Contract or otherwise, and if based on a term of the Contract, clearly identifying the specific term; vii) the facts relied upon in support of the Claim in sufficient detail to permit verification; and viii) details of the amount claimed and how it has been calculated. However, the Party initiating the arbitration claim shall have to deposit 7% of the arbitration claim in the shape of Fixed Deposit Receipt as security deposit.
In the wake of various disputes that arose between the parties, the petitioner herein issued a notice of arbitration dated 06.05.2022, calling upon the respondent to appoint an arbitrator in terms of the arbitration clause contained in the GCC referred to above. INR 32,91,020/- (Indian Rupees Thirty Two Lakh Ninety One Thousand and Twenty only) towards Invoice dated 27 July 2020 and INR. 71,41,644.86/- (Indian Rupees Seventy-One Lacs Forty-One Thousand Six Hundred and Forty-Four and Eighty Six Paise only) for financial loss suffered by the Claimant on account of abandonment of the Contract by the Respondent. The Respondent is requested to intimate its approval to the nominee proposed by the Claimant, within 15 (fifteen) days of the receipt of this Notice, failing which the Claimant will exercise all rights under applicable law for the commencement of arbitration proceedings.” 9. He submitted that under Section 11(12)(a) of the Act 1996, this Court has the requisite jurisdiction to take necessary measures for the 7 constitution of an arbitral tribunal under Section 11(6) of the Act 1996 as the case is one of international commercial arbitration. The learned counsel further submitted that the condition for pre-deposit of 7% of the claimed amount to initiate arbitration in accordance with Clause 55.1(b)(I) of the Contract is contrary to the decision of this Court in the case of ICOMM Tele Limited v. Tiwari Road Lines reported in (2007) 5 SCC 703, National Highways Authority of India and Another v. (JV) and Others reported in (2006) 10 SCC 763 and Yashwith Constructions (P)Ltd. He submitted that a three-Judge Bench of this Court in S.K. Jain (supra) found the clause providing for pre-deposit to be logical and containing a balancing factor to prevent frivolous and inflated claims. In ICOMM Tele Limited (supra), the contract expressly provided for forfeiture of the security deposit, even in the event of the award going in favour of the party which made the deposit.
It was also argued that the petitioner having consented to the pre-deposit clause cannot be permitted to turn around and question its validity at the stage when a petition under Section 11(6) of the Act, 1996 is being considered, thereby circumventing the principle of “party autonomy”. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the following issues fall for the consideration of this Court: (i) Whether the dictum as laid down in ICOMM Tele Limited (supra) can be made applicable 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? In the wake of a few decisions of this Court, the legislature thought fit to add sub section (6A) to Section 11 of the Act 1996 by way of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as “Amendment 2015”). Accordingly, we hold that the expression “existence of an arbitration agreement” in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. Ltd., (2005) 8 SCC 618] on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23-10-2015) and even post the amendments vide Act 33 of 2019 (with effect from 9-8-2019), is no longer applicable. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny.
Prima facie case in the context of Section 8 is not to be confused with the merits of the case put up by the parties which has to be established before the Arbitral Tribunal. We would not like to be too prescriptive, albeit observe that the court may for legitimate reasons, to prevent wastage of public and private resources, can exercise judicial discretion to conduct an intense yet summary prima facie review while remaining conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the Arbitral Tribunal. Accordingly, when it appears that prima facie review would be inconclusive, or on consideration inadequate as it requires detailed examination, the matter should be left for final determination by the Arbitral Tribunal selected by the parties by consent.
NCC Limited reported in (2023) 2 SCC 539, the parties were referred to arbitration, as the prima facie review in each of these cases on the objection of non-arbitrability was found to be inconclusive. Following the exception to the general principle that the court may not refer parties to arbitration when it is clear that the case is manifestly and ex- arbitrable, in Bharat Sanchar Nigam Limited and Another v. Jain (supra), the challenge was to an order passed in a writ petition filed by the appellant, wherein it had prayed to quash a memo directing it to deposit 7% of the claimed amount before the arbitral tribunal.
For claims of Rs 10,000 and above and below Rs 1,00,000 and 5% of amount claimed 3. If the appellants’ plea is accepted that there should be a cap in the figure, a claimant who is making higher claim stands on a better pedestal than one who makes a claim of a lesser amount.” MUNICIPAL CORPN., JABALPUR AND OTHERS V. Thereupon the City Engineer shall give his written instructions and/or decisions within a period of 60 days of such request. If any party is not satisfied with the decision of MPL Com, he can refer such disputes for arbitration to an Arbitration Board to be constituted by the Corporation, which shall consist of three members of whom one shall be chosen from among the officers belonging to the Urban Administration and Development Department not below the rank of BE, one retired Chief Engineer of any technical department and City Engineer, Nagar Nigam, Jabalpur. (d) Where the party invoking arbitration is the contractor no reference for arbitration shall be maintainable, unless the contractor furnishes a security deposit of a sum determined according to the table given below, and the sum so deposited shall on the determination of arbitration proceeding, be adjusted against the costs, if any awarded by the Board against the party and the balance remaining after such adjustment or in the absence of the such costs being awarded the whole of the sum shall be refunded to him within one month from the date of the award. However, 21 before doing so, the party invoking arbitration clause is required to furnish security of a sum to be determined by the Corporation. Such being the position even today, we hold that the obligation of the Corporation to constitute an Arbitration Board to resolve disputes between the parties could not arise because of failure of the respondent to furnish security as envisaged in clause 29(d) of the contract. Mr Mukherjee, appearing on behalf of the Corporation, on instruction, had submitted before us that they shall constitute an Arbitration Board as soon as the respondent furnishes security in terms of clause 29(d) of the contract and if any direction is given to the Arbitration Board to proceed from the stage the learned arbitrator had already reached, that would not be objected to. Therefore we must hold that the High Court ought not to have appointed an arbitrator in a manner, which was inconsistent with the arbitration agreement.” (Emphasis supplied) ICOMM TELE LIMITED V. On 25.09.2008, the appellant company, which was involved in civil/electrical works in India, was awarded the said tender after having been found to be the best suited for the task. In upholding such a clause, this Court referred to the judgment in Central Inland Water Transport Corpn. The only pleas taken were that the ratio of Central Inland Water Transport Corpn.
Also, the security deposit made would, on the termination of the arbitration proceedings, first be adjusted against costs if any awarded by the arbitrator against the claimant party, and the balance remaining after such adjustment then be refunded to the party making the deposit. The first important thing to notice is that the 10 per cent “deposit-at-call” of the amount claimed is in order to avoid frivolous claims by the party invoking arbitration. Indeed, a claim may be dismissed but need not be frivolous, as is obvious from the fact that where three arbitrators are appointed, there have been known to be majority and minority awards, making it clear that there may be two possible or even plausible views which would indicate that the claim is dismissed or allowed on merits and not because it is frivolous. 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. (c) Deterring a party to an arbitration from invoking the Alternative Dispute Resolution Process by pre-deposit of certain percentage would discourage 26 arbitration. The case shall be referred to the Sole Arbitrator as per AA1 delegation of powers in vogue subject to the condition that the Concessionaire shall have to deposit the disputed amount with AA1 as condition precedent and the consent shall have to be obtained from the concessionaire for acceptance of the recommendations of Arbitrator before making reference to the Arbitrator for adjudication of dispute.” (Emphasis supplied) 44.
I am therefore of the opinion that even if the clause in the RFP is to be treated as supplementing Article 22 of the Concessionaire Agreement, the offending conditions in the RFP would have to be ignored in view of the declaration of law by the Supreme Court in the cases referred above.” (Emphasis supplied) 45. Haryana Vidyut Prasaran Nigam Ltd., ARB-127-2019 (Section 11 Petition) and CWP-13539-2021 (Civil Writ Petition) 28 Date of Order: 03.112021 Forum: High Court of Punjab and Haryana (Single-Judge) Nature of the Clause: “Clause 25A of the Contract (Annexure P-1) reads as under:- “If any question, dispute, difference of opinions whatsoever arises in any way connected with or arising out of instrument for meaning or operation of any part thereof or the rights, duties or liabilities of either party, including the termination of the contract by either party and correctness thereof at any stage whatsoever it shall be referred to arbitration of MD/Chief Engineer of HVPNL or his nominee not below the rank of Superintending Engineer subject to the following conditions:- xxx xxx xxx 7. In case the party invoking the arbitration is the contractor, the reference for arbitration shall be maintainable only after the contractor furnishes to the satisfaction of Engineering-In Charge a case security fee deposited @ 3% of the total amount claimed by him. Resultantly, the Apex Court came to the conclusion that nine times of the deposit could be forfeited by the parties who lost in the arbitration proceedings and despite the fact that the party has an award against it.
In the aforesaid decision, a learned Single Judge of the Punjab and Haryana High Court looked into both the decisions of this Court i.e., S.K. 1,00,000/- and above 7.5% of amount claimed” (Emphasis supplied) 50. ICOMM Tele Limited’s case (Supra), the objectionable clause 25(viii) was struck down finding the same to be arbitrary… 31 It is in the said factual matrix that the observations regarding the clause of pre-deposit discouraging arbitration was made and the said clause was struck down while distinguishing the earlier judgment passed by the Hon’ble Supreme Court in S.K.
ICOMM Tele Limited’s case (supra) suggests that any kind of pre-deposit has to be set aside as it necessarily leads to deterring a party to an arbitration from invoking this alternate dispute resolution system and in-fact renders the entire arbitral process ineffective, however, keeping in view the specific discussion by the Hon’ble Supreme Court in its decision in M/s. Haryana Shehri Vikas Pradhikaran, CWP-14587-2022 (O&M) (Civil Writ Petition) Date of Order: 02.08.2022 Forum: High Court of Punjab and Haryana (Single-Judge) Nature of the Clause: 32 “25(A)(vii) It is also a term of this arbitration agreement that where the party invoking arbitration is the contractor, no reference for Arbitrator shall be maintainable unless the contractor, furnishes to the satisfaction of the 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 cost, if any, awarded by the Arbitrator against the claimant party and the balance remaining after such adjustment or whole sum in the absence of any such cost being awarded the whole of the sum will be refunded to him within one month from the date of the award. Question raised for adjudication in the said writ petitions was also whether the clause in question requiring a pre-deposit for invocation of Arbitration is unreasonable, unconscionable and liable to set aside. Jain’s case (supra).” 33 xxx xxx xxx
Similar view in regard to such a pre-deposit clause has also been taken by a Co-ordinate Bench in decision dated 03.11.2020 passed in ARB-127- 2019 and in CWP No 13539 of 2021, titled as M/s The Assan Co-op L&C Society, Bahadurgarh, District Jhajjar Vs.
In the aforesaid decision of the Punjab and Haryana High Court, both the decisions of this Court i.e., ICOMM Tele Limited (supra) and S.K. This clause being severable from the rest of clause 25 will not affect the remaining parts of Clause 25. (supra) allowed the present petition filed by the petitioner and declares the arbitration clause 25(viii) of the tender conditions, quoted above, as unconstitutional and passes the same orders in similar terms as were passed by the Supreme Court in paragraph-28 of the decision rendered in M/s Icomm Tele Ltd. 66 of 2022 (Section 11 Petition) High Court of Calcutta (Single Judge) Nature of the Clause: “33(iii). … That part of Clause 33 of the agreement between the parties providing for constitution of a Dispute Resolution Committee with a stipulation that before availing of dispute resolution, the disputed amount has to be deposited, is invalid and contrary to law for more than one reason.
Even if it were possible for the respondent to notify the disputed amount immediately, the clause would only be operative if the respondent was simultaneously making a counter claim more than the petitioner’s claim which was being denied by the petitioner, by seeking reference of the dispute to arbitration. In the aforesaid decision of the Calcutta High Court, ICOMM Tele Limited (supra) and Perkins Eastman (supra) 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 37 before availing of dispute resolution clause, the disputed amount has to be deposited, was held to be invalid and contrary to law. Jain (supra) in ICOMM Tele Limited (supra) made some relevant observations in para 14 of the Judgment. In para 16 of ICOMM Tele Limited (supra), the court ultimately considered whether Clause 25(viii) could be said to be arbitrary and violative of Article 14 of the Constitution of India. State of Tamil Nadu [(1974) 2 SCR 348 : (1974) 4 SCC 3 : 1974 SCC (L&S) 165 : AIR 1974 SC 555 : (1974) 1 LLJ 172] deserves special mention because that effectively answers the contention of Mr Sinha. in a concurring judgment in Royappa case [(1974) 2 SCR 348 : (1974) 4 SCC 3 : 1974 SCC (L&S) 165 : AIR 1974 SC 555 : (1974) 1 LLJ 172] observed as under: [SCC para 85, p. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch.
The Constitution Bench pertinently observed in Ajay Hasia case [(1981) 2 SCR 79 : (1981) 1 SCC 722 : 1981 SCC (L&S) 258 : AIR 1981 SC 487 : (1981) 1 LLJ 103] 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”. Union of India [(1983) 1 SCC 305 : 1983 SCC (L&S) 145 : (1983) UPSC 263 : AIR 1983 SC 130]. Union of India [ (1978) 2 SCR 621 : (1978) 1 SCC 248 : AIR 1978 SC 597] it was observed that Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. Clause 3 reads thus: “ CLAUSE-3: SECURITY DEPOSIT FOR PERFORMANCE: 3.1 The Security Deposit shall comprise of following: (i) Performance Security Deposit/Performance Guarantee to be furnished by the Contractor at the time of Award of Work. Clause 4 reads thus: “ CLAUSE-4: REFUND OF SECURITY DEPOSIT : The Security Deposit less any amount due shall, on demand, be returned to the contractor after 14 days of expiry of Defects Liability Period (referred in Clause 43 hereof). (2) If the Court or arbitral tribunal decides to make an order as to payment of costs,- (a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or (b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing. (4) The Court or arbitral tribunal may make any order under this section including the order that a party shall pay- (a) a proportion of another party’s costs; (b) a stated amount in respect of another party’s costs; (c) costs from or until a certain date only; (d) costs incurred before proceedings have begun; (e) costs relating to particular steps taken in the proceedings; (f) costs relating only to a distinct part of the proceedings; and (g) interest on costs from or until a certain date. In England, courts have awarded full indemnity costs where a party improperly ignored arbitral jurisdiction (Hugh Beale, ed., Chitty on Contracts (33rd ed. II, Specific Contracts, at para.
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WHETHER THE VALIDITY OF THE PRE-DEPOSIT CONDITION AS CONTAINED IN CLAUSE 55 OF THE AGREEMENT CAN BE 44 LOOKED INTO AND DECIDED ON THE ANVIL OF ARTICLE 14 OF THE CONSTITUTION IN A PETITION UNDER SECTION 11(6) OF THE ACT 1996? Projects Ltd., 2016 SCC OnLine Del 2532], while dealing with the applications under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for brevity, “the Act”), is justified to repel the submissions of the appellants that once the 45 person who was required to arbitrate upon the disputes arisen under the terms and conditions of the contract becomes ineligible by operation of law, he would not be eligible to nominate a person as an arbitrator, and second, a plea that pertains to statutory disqualification of the nominated arbitrator can be raised before the court in application preferred under Section 11(6) of the Act, for such an application is not incompetent. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator.
But, in our view that has to be the logical deduction from TRF Ltd. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter- balanced by equal power with the other party. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72]” (Emphasis supplied) 47 75.
Likewise, the two arbitrators nominated by the parties should be given full freedom to choose the third arbitrator from the whole panel.” (Emphasis supplied ) 76.
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In the aforesaid context, we should look into and discuss the Kelson’s Pure Theory of Law on the basic norm that he called “Grundnorm”. As contained in Article 13, which provides that all laws which were made either before the commencement of the Constitution, or are made after it, by any competent authority, which are inconsistent with the fundamental rights enshrined in the Constitution, are, to the extent of inconsistency, void. Kulshrestha v Union of India reported in 1999 SCC OnLine All 270, the court held that ‘ According to the theory of the eminent jurist Kelson, in every country there is a hierarchy of laws, and the highest law is known as the grundnorm of law. ’ (ii) In another case of Abdur Sukur & Another v State of West Bengal & others reported in 2019 SCC Online Cal 5455, the court held that ‘…enshrined in the Constitution of India, which is the grundnorm of all Indian statutes.
Thus, in the context of the Arbitration Agreement, the layers of the Grundnorm as per Kelsen’s theory would be in the following hierarchy: (i) Constitution of India, 1950; (ii) Arbitration and Conciliation Act, 1996 & any other Central/State Law; (iii) Arbitration Agreement entered into by the parties in light of s. The observations of this Court in para 236 of Vidya Drolia (supra) should clinch the issue. Para 236 reads thus: “ 236. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.” At first blush, the Court seems to have read the existence of the arbitration agreement by limiting the examination to an examination of its factual existence. 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. For example, the concession made by a person that he does not possess and would not exercise his right to free speech and expression or the right to move freely throughout the territory of India cannot deprive him of those constitutional rights, any more than a concession that a person has no right of personal liberty can justify his detention contrary to the terms of Article 22 of the Constitution. Fundamental rights are undoubtedly conferred by the Constitution upon individuals which have to be asserted and enforced by them, if those rights are violated. How far the argument regarding the 54 existence and scope of the right claimed by the petitioners is well-founded is another matter. Bhagwati and Subba Rao, JJ.) held that not only could there be no waiver of the right conferred by Article 14, but there could be no waiver of any other fundamental right guaranteed by Part III of the Constitution. (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,— (a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Explanation 2.—The disclosure shall be made by such person in the form specified in the Sixth Schedule.] (3) An arbitrator may be challenged only if— (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (3) An arbitrator may be challenged only if— (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality….’ 55. It appears to be settled by a series of decisions of the Supreme Court (see Executive Engineer, Irrigation Division v. Gangaram Chhapolia [Executive Engineer, Irrigation Division v. Munuswamy Mudaliar, 1988 Supp SCC 651], International Airports Authority v. Gupta, (2004) 10 SCC 504] and ACE Pipeline Contracts (P) Ltd. Raja Transport (P) Ltd., (2009) 8 SCC 520 : (2009) 3 SCC (Civ) 460], carved out a minor exception in situations when the arbitrator ‘was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject-matter of the dispute’ (SCC p. Ministry of Defence, (2012) 2 SCC 759 : (2012) 2 SCC (Civ) 37 : AIR 2012 SC 817] and Bipromasz Bipron Trading Sa v. Bharat Electronics Ltd., (2012) 6 SCC 384 : (2012) 3 SCC (Civ) 702], to appoint an independent arbitrator under Section 11, this is not enough. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the Arbitral Tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles — even if the same has been agreed prior to the disputes having arisen between the parties.
In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous — and the right to natural justice cannot be said to have been waived only on the basis of a “prior” agreement between the parties at the time of the contract and before arising of the disputes. The Commission has proposed the incorporation of the 59 Fourth Schedule, which has drawn from the red and orange lists of the IBA Guidelines on Conflicts of Interest in International Arbitration, and which would be treated as a “guide” to determine whether circumstances exist which give rise to such justifiable doubts. Therefore, while the disclosure is required with respect to a broader list of categories (as set out in the Fourth Schedule, and as based on the red and orange lists of the IBA Guidelines), the ineligibility to be appointed as an arbitrator (and the consequent de jure inability to so act) follows from a smaller and more serious sub-set of situations (as set out in the Fifth Schedule, and as based on the red list of the IBA Guidelines). To deal with such situations, the Commission has proposed the proviso to Section 12(5), where parties may, subsequent to disputes having arisen between them, waive the applicability of the proposed Section 12(5) by an express agreement in writing. However, that is not the aspect which is being considered and the term “neutrality” used is relatable to impartiality and independence of the arbitrators, without any bias towards any of the parties. 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. reported in (2006) 2 SCC 638, Union of India v. reported in (2013) 4 SCC 35, Union of India v. Taking note of various judgments, the Court pointed out that the notion that the High Court was bound to appoint the arbitrator as per the contract between the parties has seen a significant erosion in recent past. [(2007) 7 SCC 684] wherein following a three-Judge Bench decision in Punj Lloyd Ltd. [(2007) 7 SCC 684] was reconciled by a three-Judge Bench of this Court 63 in Northern Railway Admn., Ministry of Railway v. Para 48 of the Report wherein the scope of Section 11 of the Act was summarised may be quoted by reproducing sub-paras (vi) and (vii) hereinbelow: (Indian Oil case [(2009) 8 SCC 520 : (2009) 3 SCC (Civ) 460],
SCC p.
In fact, in para 25 of the Report in Singh Builders Syndicate [(2009) 4 SCC 523 : (2009) 2 SCC (Civ) 246] this Court had suggested that the Government, statutory authorities and government companies should consider phasing out arbitration clauses providing for appointment of serving officers and encourage professionalism in arbitration. It would be of some interest to note that in England also, Modern Arbitration Law on the lines of U NCITRAL Model Law, came to be enacted in the same year as the Indian law which is known as the English Arbitration Act, 1996 and it became effective from 31-1-1997. Insofar as the first pillar is concerned, it contains three general principles on which the entire edifice of the said Act is structured. (i) speedy, inexpensive and fair trial by an impartial tribunal; (ii) party autonomy; and (iii) minimum court intervention. However, this principle of party autonomy in the choice of procedure has been deviated from in those cases where one of the parties have committed default by not acting in accordance with the procedure prescribed.
However, the above principle of default procedure is extended by this Court in such cases as well as is clear from the judgment in Singh Builders Syndicate [Union of India v. If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent transfers, etc., then the principle of “default procedure” at least in the cases where Government has assumed the role of appointment of arbitrators to itself, has to be applied in the case of substitute arbitrators as well and the Court will step in to appoint the arbitrator by keeping aside the procedure which is agreed to between the parties. In the context of independence and impartiality of the arbitrator more particularly keeping in mind the amended Section 12 of the Act 1996, we must refer to and rely upon the observations made by this Court in paras 20 to 25 of the decision in the case of Voestalpine Schienen (supra): “20. … the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.” 21. II, No 17189 (1972) (France).], underlined that: “an independent mind is indispensable in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an arbitrator.” 22.
What was argued by the learned Senior Counsel for the petitioner was that the panel of arbitrators drawn by the respondent consists of those persons who are government employees or ex-government employees. The amended provision puts an embargo on a person to act as an arbitrator, who is the employee of the party to the dispute.
The Fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature. We also looked into a very lucid and erudite judgement on the issue of unconscionable pre-condition in the arbitration agreement delivered by a 9 Judge 70 Bench of the Supreme Court of Canada in the case of Uber Technologies v. Initially applied to protect young heirs and the “poor and ignorant” from one-sided agreements, unconscionability evolved to cover any contract with the combination of inequality of bargaining power and improvidence (Mitchell McInnes, The Canadian Law of Unjust Enrichment and Restitution (2014), at p. Unconscionability is widely accepted in Canadian contract law, but some questions remain about the content of the doctrine, and it has been applied inconsistently by the lower courts (see, among others, Morrison v. Coast Finance Ltd., (1965) 55 DLR 710 (2d) (B.C.C.A. Union of Taxation Employees, Local 70030, 2008 ONCA 809 : 305 DLR 64 (4th); see also Swan, Adamski and Na, at p. 24; see also Swan, Adamski and Na, at pp.
199-200; Alan Brudner, “Reconstructing contracts” (1993) 43 U.T.L.J. In cases where these assumptions align with reality, the arguments for enforcing contracts carry their greatest weight (Melvin Aron Eisenberg, “The Bargain Principle and Its Limits” (1982) 95 Harv.
Courts, as a result, do not ignore serious flaws in the contracting process that challenge the traditional paradigms of the common law of contract, such as faith in the capacity of the contracting parties to protect their own interests. In these kinds of circumstances, where the traditional assumptions underlying contract enforcement lose their 73 justificatory authority, the doctrine of unconscionability provides relief from improvident contracts. Simms, [1994] 3 SCR 377, at pp. Unconscionability, in our view, is meant to protect those who are vulnerable in the contracting process from loss or improvidence to that party in the bargain that was made (see Mindy Chen-Wishart, Unconscionable Bargains (1989), at p. The classic example of a “necessity” case is a rescue at sea scenario (see The Medina, [L.R.] 1 P.D. Percy, Contracts : Cases and Commentaries (4th ed.
Unequal bargaining power can be established in these scenarios even if duress and undue influence have not been demonstrated (see Norberg, at pp. Unconscionability, moreover, can be established without proof that the stronger party knowingly took advantage of the weaker. Such a requirement is closely associated with theories of unconscionability that focus on wrongdoing by the defendant (see Boustany, at p. A rigid requirement based on the stronger party’s state of mind would also erode the modern relevance of the unconscionability doctrine, effectively shielding from its reach improvident contracts of adhesion where the parties did not interact or negotiate.
There has been accompanying that basic deal another which… at least involves a plain expression of confidence, asked and accepted, with a corresponding limit on the powers granted : the boiler-plate is assented to en bloc, “unsight, unseen,” on the implicit assumption and to the full extent that (1) it does not alter or impair the fair meaning of the dickered terms when read alone, and (2) that its terms are neither in the particular nor in the net manifestly unreasonable and unfair. Some standard form contracts may clearly and effectively communicate the meaning of clauses with unusual or onerous effects (Benson, at p. Woodward, Jr., “Finding the Contract in Contracts for Law, Forum and Arbitration” (2006) 2 Hastings Bus. So too is their potential to enhance the advantage of the stronger party at the expense of the more vulnerable one, particularly through choice of law, forum selection, and arbitration clauses that violate the adhering party’s reasonable expectations by depriving them of remedies. This development of the law of unconscionability in connection with standard form contracts is not radical. The link between standard form contracts and unconscionability has been suggested in judicial decisions, textbooks, and academic articles for years (see, e.g., Douez, at para. Heller’s arbitration clause with Uber is unconscionable.
Heller was the rare fellow who would have read through the contract in its entirety before signing it, he would have had no reason to suspect that behind an innocuous reference to mandatory mediation “under the International Chamber of Commerce Mediation Rules” that could be followed by “arbitration under the Rules of Arbitration of the International Chamber of Commerce”, there lay a US$14,500 hurdle to relief. Heller and other Uber drivers in Ontario the clear impression that they have little choice but to travel at their own expense to the Netherlands to individually pursue claims against Uber through mandatory mediation and arbitration in Uber’s home jurisdiction. The arbitration clause, in effect, modifies every other substantive right in the contract such that all rights that Mr. 909 (H.L. ), an arbitration agreement “constitutes a self-contained contract collateral or ancillary to the [main] agreement” (p. 12, ousting the jurisdiction of the courts is harmful in itself and “injurious to public interests” (see also Kain and Yoshida, at pp. There is nothing novel about the proposition that contracting parties, as a matter of public policy, 80 cannot oust the court’s supervisory jurisdiction to resolve contractual disputes (see e.g. This head of public policy serves to uphold the rule of law, which, at a minimum, guarantees Canadian citizens and residents “a stable, predictable and ordered society in which to conduct their affairs” (Reference re Secession of Quebec, [1998] 2 SCR 217, at para. Indeed, “[t]here cannot be a rule of law without access, otherwise the rule of law is replaced by a rule of men and women who decide who shall and who shall not have access to justice” (B.C.G.E.U. Unless private parties can enforce their legal rights and publicly adjudicate their disputes, “the rule of law is threatened and the development of the common law undermined” (Hryniak v. Thus, the harm to the public that would result from holding contracting parties to a bargain they cannot enforce is “substantially incontestable” (Millar Estate, at p. explained, was “capable of operating as a powerful disincentive to the franchisee to take proceedings of any kind against [the franchisor], no matter how strong a case the franchisee may have that it has suffered wrong” (p. A disincentive to a person to exercise this right of recourse to the court can, depending upon how powerfully it operates to discourage litigation, amount to a denial of this right just as complete as an express contractual prohibition against litigation. If judicial intervention was ruled out, however, the legislator had to ensure that the process would guarantee litigants the same measure of justice as that provided by the courts, and for this reason, rules of procedure were developed to ensure that the arbitrator is impartial and that the rules of fundamental justice… ‘s assertion, an agreement to submit all future unknown disputes to arbitration is not simply a substitute for the parties’ negotiations (para.
Case Title: LOMBARDI ENGINEERING LIMITED Vs. UTTARAKHAND JAL VIDYUT NIGAM LIMITED
Case Number: ARBIT.PETITON No.-000043 / 2022 (2023 INSC 976)
