Summary
The Supreme Court appointed an independent sole arbitrator for the consultancy dispute, disregarding the contractual requirement to deposit 7% of the claim and the State Secretary’s unilateral appointment power. The deposit clause contained no adjustment mechanism and the performance-security provisions did not cure it. Article 14 scrutiny was available in the Section 11 proceedings, and contractual consent could not validate unconstitutional conditions. S.K. Jain and ICOMM Tele were distinguished on their different clauses and issues.
Issues
- Whether the 7% pre-deposit condition could obstruct reference to arbitration.
- Whether the Court could examine that condition under Article 14 in a Section 11 petition.
- Whether the contractual unilateral appointment procedure should govern constitution of the tribunal.
Provisions considered
- Sections 11(6), 11(6A) and 11(12), Arbitration and Conciliation Act, 1996The Court exercised appointment jurisdiction, explaining that existence includes legal validity at the prima facie referral stage and permitting scrutiny of the challenged conditions. (¶¶ 25–31, 70–85, 102–104)
- Section 12(5), read with the Seventh Schedule, Arbitration and Conciliation Act, 1996The neutrality requirement and the rule in Perkins Eastman precluded insistence on the contractual unilateral sole-arbitrator appointment mechanism. (¶¶ 73–76, 86–94)
- Section 31A, Arbitration and Conciliation Act, 1996Costs powers were available to address frivolous claims rather than requiring the challenged threshold deposit. (¶ 65–69)
- Article 14, Constitution of IndiaThe vague pre-deposit condition was held arbitrary; the Court could test it in appointment proceedings despite prior contractual consent. (¶ 61–85)
Held
- S.K. Jain and ICOMM Tele were not in conflict: their clauses and challenges materially differed. The latter distinguished the absence of an Article 14 plea and the adjustment-and-refund arrangement in the former. (¶ 61–65)
- Clause 55 did not explain how the 7% deposit would be adjusted at the end of arbitration. The distinct performance-security and defects-liability provisions could not supply that missing mechanism; the vague barrier was arbitrary. (¶ 66–68)
- Frivolous claims could be dealt with through costs under Section 31A. A threshold deposit hindering access to arbitration could not be justified merely by invoking prevention of frivolous claims. (¶¶ 42, 65–69)
- Constitutional scrutiny of an arbitration condition was not confined to a separate writ petition. The Section 11 court could consider the challenged condition’s legal validity, while respecting the limited referral jurisdiction. (¶¶ 25–31, 70–85)
- Party autonomy and prior consent cannot override the Constitution or constitute waiver of fundamental rights. The respondent could not insist on the arbitrary condition simply because the petitioner signed the contract. (¶ 79–85)
- The Secretary’s unilateral power to select the sole arbitrator was contrary to the independence principles applied in Perkins Eastman. Both challenged conditions were disregarded, preserving reference to an independent arbitrator. (¶¶ 86–94, 102–104)
Result
Application allowed. The 7% pre-deposit and Secretary’s unilateral appointment conditions disregarded; V.K. Bist, former Chief Justice of the Sikkim High Court, appointed sole arbitrator. Fees and other modalities to be fixed in consultation with the parties.