Summary
The Supreme Court struck down a State water board’s arbitration clause requiring a 10% claim deposit, refundable only in proportion to the amount awarded with the rest forfeited to the opponent. Equal application did not cure its arbitrariness: it burdened all claims before any finding of frivolousness and could penalize even a successful claimant.
Issues
- Whether the claim-deposit and proportionate-forfeiture clause violated Article 14.
- Whether commercial-contract and earlier deposit-clause precedents foreclosed the challenge.
Provisions considered
- Article 14, Constitution of IndiaState instrumentalities remain bound by fairness in contracts. Arbitrariness independently invalidated this clause despite its application to both parties. (¶¶ 15–19, 23–28)
Held
- The unequal-bargaining-power argument under Central Inland Water Transport failed for this commercial transaction. But that did not bar the separate Article 14 challenge to arbitrary State action. (¶¶ 11, 15–19)
- S.K. Jain involved a materially different deposit refundable after adjustment of awarded costs and no comparable arbitrariness plea. It did not validate proportional forfeiture here. (¶ 12–14)
- Requiring a deposit from every claimant before deciding frivolousness lacked a direct nexus with deterring frivolous claims. A rejected claim need not be frivolous, and exemplary costs can address abuse after the requisite finding. (¶ 20–23)
- The clause could transfer most of the deposit to an unsuccessful opponent even where the claimant established entitlement but recovered less than claimed. Its excessive, unfair burden also obstructed inexpensive access to arbitration. (¶ 23–27)
- The offending sub-clause was severable; the remaining arbitration provisions continued unaffected. (¶ 28)
Result
Appeal allowed; High Court judgment set aside; clause 25(viii) of the notice inviting tender struck down, leaving the remaining parts of clause 25 intact.