M/S ICOMM TELE LTD.versusPUNJAB STATE WATER SUPPLY & SEWERAGE BOARD & ANR.

984               SUPREME [2019]
                          COURT2 REPORTS
                                 S.C.R. 984              [2019] 2 S.C.R.


A                       M/S ICOMM TELE LTD.
                                     v.
                    PUNJAB STATE WATER SUPPLY &
                      SEWERAGE BOARD & ANR.
                      (Civil Appeal No. 2713 of 2019)
B
                               MARCH 11, 2019
               [R. F. NARIMAN AND VINEET SARAN, JJ.]
            Arbitration:
            Arbitration agreement – Arbitration clause in notice inviting
C     tender in commercial contracts – Pre-deposit clause-10% “deposit-
      at-call” of the amount claimed by party invoking arbitration, if
      arbitrary or discriminatory and violative of Art. 14 of the
      Constitution – Held: A pre-deposit of 10% would discourage a party
      to an arbitration from invoking this alternative dispute resolution
D     process, contrary to the object of de-clogging the court system,
      and would render the arbitral process ineffective and expensive –
      Thus, the pre deposit clause is struck down – Constitution of India
      – Art. 14.
            Allowing the appeal, the Court
E            HELD: 1.1 The 10% “deposit-at-call” before a party can
      successfully invoke the arbitration clause is on the basis that
      this is in order to avoid frivolous claims. From clause 25 (xv) of
      the notice inviting tender it also becomes clear that arbitration is
      considered to be an alternative dispute resolution process and
F     entry to the civil court is sought to be taken away if the disputes
      between the parties are covered by the arbitration clause. Clause
      25 (viii) cannot be said to be discriminatory in that it applies
      equally to both respondent No. 2 and the appellant. However,
      arbitrariness is a separate and distinct facet of Article 14. A
      frivolous claim can be dismissed with exemplary costs. Therefore,
G     it is 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.
      [Paras 7, 8, 17, 20, 21][988-H; 989-B; 995-B-C; 996-C]

H
                                      984
M/S ICOMM TELE LTD. v. PUNJAB STATE WATER SUPPLY &                      985
            SEWERAGE BOARD & ANR.

      1.2 A “deposit-at-call” of 10% of the amount claimed, which       A
can amount to large sums of money, is obviously without any direct
nexus to the filing of frivolous claims, as it applies to all claims
(frivolous or otherwise) made 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
                                                                        B
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. 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            C
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. Further, even where a claim is found to be justified and
correct, the amount that is deposited need not be refunded to
                                                                        D
the successful claimant. Take for example a claim based on a
termination of a contract being illegal and consequent damages
thereto. If the claim succeeds and the termination is set aside as
being illegal and a damages claim of one crore is finally granted
by the arbitrator at only ten lakhs, only one tenth of the deposit
made will be liable to be returned to the successful party. The         E
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
                                                                        F
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. [Para 23][996-H; 997-A-E]
       1.3 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   G
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         H
10% would discourage arbitration, contrary to the object of
986              SUPREME COURT REPORTS                 [2019] 2 S.C.R.


A     de-clogging the Court system, and would render the arbitral
      process ineffective and expensive. Clause 25(viii) of the notice
      inviting tender is struck down. The judgment of the High Court
      is set aside. [Paras 24, 27, 28][997-F, G; 999-D, E]
           Central Inland Water Transport Corpn. v. Brojo Nath
B          Ganguly, (1986) 3 SCC 156 : [1986] 2 SCR 278 –
           distinguished.
           Directorate of Education v. Educomp Datamatics Ltd., (2004)
           4 SCC 19 : [2004] 2 SCR 1010 ; Global Energy Ltd. v. Adani
           Exports Ltd., (2005) 4 SCC 435 : [2005] 3 SCR 1108 ; S.K.
C          Jain v. State of Haryana, (2009) 4 SCC 357 : [2009] 2
           SCR 1080 ; ABL International Ltd. v. Export Credit Guarantee
           Corpn. of India Ltd., (2004) 3 SCC 553 ; A.L. Kalra v. The
           Project & Equipment Corporation of India Limited, [1984] 3
           SCR 646 ; Dnyandeo Sabaji Naik v. Pradnya Prakash
           Khadekar, (2017) 5 SCC 496 : [2017] 2 SCR 95 ; General
D          Motors (I) (P) Ltd. v. Ashok Ramnik Lal Tolat, (2015) 1 SCC
           429 : [2014] 11 SCR 16 ; State of J&K v. Dev Dutt Pandit,
           (1999) 7 SCC 339 : [1999] 2 Suppl. SCR 1 ; Centrotrade
           Minerals & Metal Inc. v. Hindustan Copper Ltd., (2017) 2
           SCC 228 : [2016] 9 SCR 83; Union of India v. Varindera
E          Constructions Ltd., (2018) 7 SCC 794 : [2018] 5 SCR 587 –
           referred to.
                           Case Law Reference
      [1986] 2 SCR 278             distinguished          Para 5
      [2004] 2 SCR 1010            referred to            Para 9
F
      [2005] 3 SCR 1108            referred to            Para 10
      [2009] 2 SCR 1080            referred to            Para 12
      (2004) 3 SCC 553             referred to            Para 15
      [1984] 3 S.C.R. 646          referred to            Para 17
G     [2017] 2 SCR 95              referred to            Para 20
      [2014] 11 SCR 16             referred to            Para 22
      [1999] 2 Suppl. SCR 1        referred to            Para 24
      [2016] 9 SCR 83              referred to            Para 25
      [2018] 5 SCR 587             referred to            Para 26
H
M/S ICOMM TELE LTD. v. PUNJAB STATE WATER SUPPLY &                             987
            SEWERAGE BOARD & ANR.

      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2713                     A
of 2019.
      From the Judgment and Order dated 09.05.2017 of the High
Court of Punjab and Haryana at Chandigarh in CWP No. 4882 of 2017.
      Karan Mehra, Arjun D. Singh, Sandeep Kumar Jha, Advs. for the
Appellant.                                                                     B

      Vijay Kumar Kaushal, Vibhuti Sushant Gupta, Ram Naresh Yadav,
Advs. for the Respondents.
      The Judgment of the Court was delivered by
      R. F. NARIMAN, J. 1. Leave granted.                                      C
       2. In 2008, the Punjab State Water Supply & Sewerage Board,
Bhatinda issued notice inviting tender for extension and augmentation of
water supply, sewerage scheme, pumping station and sewerage treatment
plant for various towns mentioned therein on a turnkey basis. On
25.9.2008, the appellant company, which is involved in civil/electrical        D
works in India, was awarded the said tender after having been found to
be the best suited for the task. On 16.1.2009, a formal contract was
entered into between the appellant and respondent No. 2. It may be
mentioned that the notice inviting tender formed part and parcel of the
formal agreement. Contained in the notice inviting tender is a detailed
                                                                               E
arbitration clause. In this matter, we are concerned with clause 25(viii)
which is set out as follows:-
      “viii. It shall be an essential term of this contract that in order to
      avoid frivolous claims the party invoking arbitration shall specify
      the dispute based on facts and calculations stating the amount
                                                                               F
      claimed under each claim and shall furnish a “deposit-at-call” for
      ten percent of the amount claimed, on a schedule bank in the
      name of the Arbitrator by his official designation who shall keep
      the amount in deposit till the announcement of the award. In the
      event of an award in favour of the claimant, the deposit shall be
      refunded to him in proportion to the amount awarded w.r.t the            G
      amount claimed and the balance, if any, shall be forfeited and paid
      to the other party.”
      3. The appellant had entered into similar contracts with respondent
No. 2 which contained the same arbitration clause. It had therefore
addressed letters to respondent No. 2 with regard to appointment of            H
988                 SUPREME COURT REPORTS                        [2019] 2 S.C.R.


A     arbitrator in those matters and sought for waiving the 10% deposit fee.
      After having received no response, the appellant had filed a writ petition,
      being Civil Writ Petition No. 18917 of 2016, before the High Court of
      Punjab and Haryana. This writ petition was dismissed by a judgment
      dated 14.9.2016 stating that such tender condition can in no way be said
      to be arbitrary or unreasonable.
B
             4. On 8.3.2017, the appellant approached the High Court of Punjab
      and Haryana challenging the validity of this part of the arbitration clause
      by filing 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.
C
             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.
D     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
E     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
F     argued that there is no infraction of Article 14 in the present case. It is
      clear that clause 25(viii) would apply to both the parties equally, and as
      this is so, the said sub-clause cannot be struck down as being
      discriminatory. Further, the principle contained in Central Inland Water
      Transport Corpn. (supra) cannot possibly be applied to commercial
      contracts. Also, in similar cases, this Court has not entertained this kind
G     of a challenge.
             7. Having heard learned counsel for both parties, it will be seen
      that the 10% “deposit-at-call” before a party can successfully invoke
      the arbitration clause is on the basis that this is in order to avoid frivolous
      claims. Clause 25(xv) is also material and is set out hereinbelow:
H
M/S ICOMM TELE LTD. v. PUNJAB STATE WATER SUPPLY &                               989
     SEWERAGE BOARD & ANR. [R. F. NARIMAN, J.]

       “xv. No question relating to this contract shall be brought before        A
       any civil court without first invoking and completing the arbitration
       proceedings, if the issue is covered by the scope of arbitration
       under this contract. The pending arbitration proceedings shall not
       disentitle the Engineer-in-charge to terminate the contract and to
       make alternate arrangements for completion of the works.”
                                                                                 B
       8. From this clause, it also becomes clear that arbitration is
considered to be an alternative dispute resolution process and entry to
the civil court is sought to be taken away if the disputes between the
parties are covered by the arbitration clause.
       9. It is well settled that the terms of an invitation to tender are not   C
open to judicial scrutiny, as they are in the realm of contract, unless they
are arbitrary, discriminatory, or actuated by malice. Thus, in Directorate
of Education v. Educomp Datamatics Ltd., (2004) 4 SCC 19, this
Court held:
       “9. It is well settled now that the courts can scrutinise the award       D
       of the contracts by the Government or its agencies in exercise of
       their powers of judicial review to prevent arbitrariness or
       favouritism. However, there are inherent limitations in the exercise
       of the power of judicial review in such matters. The point as to
       the extent of judicial review permissible in contractual matters
       while inviting bids by issuing tenders has been examined in depth         E
       by this Court in Tata Cellular v. Union of India [(1994) 6 SCC
       651]. After examining the entire case-law the following principles
       have been deduced:
       “94.The principles deducible from the above are:
                                                                                 F
            (1) The modern trend points to judicial restraint 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             G
            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.


                                                                                 H
990                 SUPREME COURT REPORTS                          [2019] 2 S.C.R.


A                (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.
B
                 (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
C                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 mala fides.
                 (6) Quashing decisions may impose heavy administrative
D                burden on the administration and lead to increased and
                 unbudgeted expenditure.””
                                                              (emphasis in original)
            “12. It has clearly been held in these decisions that the terms of
E           the invitation to tender are not open to judicial scrutiny, the same
            being in the realm of contract. That the Government must have a
            free hand in setting the terms of the tender. It must have reasonable
            play in its joints as a necessary concomitant for an administrative
            body in an administrative sphere. The courts would interfere with
            the administrative policy decision only if it is arbitrary, discriminatory,
F           mala fide or actuated by bias. It is entitled to pragmatic adjustments
            which may be called for by the particular circumstances. The
            courts cannot strike down the terms of the tender prescribed by
            the Government because it feels that some other terms in the
            tender would have been fair, wiser or logical. The courts can
G           interfere only if the policy decision is arbitrary, discriminatory or
            mala fide.”
           10. To similar effect is the decision in Global Energy Ltd. v.
      Adani Exports Ltd., (2005) 4 SCC 435, where this Court held:

H
M/S ICOMM TELE LTD. v. PUNJAB STATE WATER SUPPLY &                            991
     SEWERAGE BOARD & ANR. [R. F. NARIMAN, J.]

      “10. The principle is, therefore, well settled that the terms of the    A
      invitation to tender are not open to judicial scrutiny and the courts
      cannot whittle down the terms of the tender as they are in the
      realm of contract unless they are wholly arbitrary, discriminatory
      or actuated by malice. This being the position of law, settled by a
      catena of decisions of this Court, it is rather surprising that the
                                                                              B
      learned Single Judge passed an interim direction on the very first
      day of admission hearing of the writ petition and allowed the
      appellants to deposit the earnest money by furnishing a bank
      guarantee or a bankers’ cheque till three days after the actual
      date of opening of the tender. The order of the learned Single
      Judge being wholly illegal, was, therefore, rightly set aside by the    C
      Division Bench.”
      11. As has correctly been argued by learned counsel appearing
on behalf of the respondents, this court’s judgment in Central Inland
Water Transport Corpn. (supra), which lays down that contracts of
adhesion, i.e., contracts in which there is unequal bargaining power,         D
between private persons and the State are liable to be set aside on the
ground that they are unconscionable, does 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.
                                                                              E
      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:                                                                F
        “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     G
        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—          H
992                 SUPREME COURT REPORTS                       [2019] 2 S.C.R.


A              Amount of claim                         Rate of security
                                                       deposit
               1. For claims below Rs 10,000           2% of amount claimed
               2. For claims of Rs 10,000 and
               above and below Rs 1,00,000 and 5% of amount claimed
               3. For claims of Rs 1,00,000 and
B
               above                                  7% of amount claimed.”
             13. In upholding such a clause, this Court referred to the judgment
      in Central Inland Water Transport Corpn. (supra) and distinguished
      this judgment, stating that the concept of unequal bargaining power has
      no application in the case of commercial contracts. It then went on to
C     hold:-
            “14. It has been submitted by learned counsel for the appellant
            that there should be a cap in the quantum payable in terms of sub-
            clause (7) of Clause 25-A. This plea is clearly without substance.
            It is to be noted that it is structured on the basis of the quantum
D           involved. Higher the claim, the higher is the amount of fee
            chargeable. There is a logic in it. It is the balancing factor to
            prevent frivolous and inflated claims. 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
E           makes a claim of a lesser amount.”
              14. It will be noticed that in this judgment there was no plea that
      the aforesaid condition contained in an arbitration clause was violative
      of Article 14 of the Constitution of India as such clause is arbitrary. The
      only pleas taken were that the ratio of Central Inland Water Transport
      Corpn. (supra) would apply and that there should be a cap in the
F
      quantum payable by way of security deposit, both of which pleas were
      turned down by this court. 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
G     the deposit. This clause is materially different from clause 25(viii), which,
      as we have seen, makes it clear that in all cases the deposit is to be 10%
      of the amount claimed and that refund can only be in proportion to the
      amount awarded with respect to the amount claimed, the balance being
      forfeited and paid to the other party, even though that other party may
      have lost the case. This being so, this judgment is wholly distinguishable
H
      and does not apply at all to the facts of the present case.
M/S ICOMM TELE LTD. v. PUNJAB STATE WATER SUPPLY &                               993
     SEWERAGE BOARD & ANR. [R. F. NARIMAN, J.]

      15. In ABL International Ltd. v. Export Credit Guarantee                   A
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           B
      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         C
      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
                                                                                 D
      27. From the above discussion of ours, the following legal principles
      emerge as to the maintainability of a writ petition:
        (a) In an appropriate case, a writ petition as against a State or
        an instrumentality of a State arising out of a contractual obligation
        is maintainable.                                                         E
      xxx xxx xxx
      53. From the above, it is clear that when an instrumentality of the
      State acts contrary to public good and public interest, unfairly,
      unjustly and unreasonably, in its contractual, constitutional or
      statutory obligations, it really acts contrary to the constitutional       F
      guarantee found in Article 14 of the Constitution…”
      16. Thus, it must be seen as to whether the aforesaid clause 25(viii)
can be said to be arbitrary or discriminatory and violative of Article 14 of
the Constitution of India.
      17. We agree with the learned counsel for the respondents that             G
      the aforesaid clause cannot be said to be discriminatory in that it
      applies equally to both respondent No. 2 and the appellant.
      However, arbitrariness is a separate and distinct facet of Article
      14. In A.L. Kalra v. The Project & Equipment Corporation
      of India Limited, [1984] 3 S.C.R. 646, this Court turned down a            H
994          SUPREME COURT REPORTS                       [2019] 2 S.C.R.


A     submission that arbitrariness is only a facet of discrimination. The
      contention of Shri Lal Narain Sinha was recorded thus (at page
      661):-
      “It was urged that in the absence of any specific pleading pointing
      out whether any one else was either similarly situated as the
B     appellant or dissimilarly treated the charge of discrimination cannot
      be entertained and no relief can be claimed on the allegation of
      contravention of Art. 14 or Art. 16 of the Constitution. It was
      submitted that the expression discrimination imports the concept
      of comparison between equals and if the resultant inequality is
      pointed out in the treatment so meted out the charge of
C     discrimination can be entertained and one can say that equal
      protection of law has been denied. Expanding the submission, it
      was urged that the use of the expression ‘equality’ in Art. 14
      imports duality and comparison which is predicated upon more
      than one person of situation and in the absence of available material
D     for comparison, the plea of discrimination must fail. As a corollary,
      it was urged that in the absence of material for comparative
      evaluation not only the charge of discrimination cannot be sustained
      but the executive action cannot be struck down on the ground
      that the action is per se arbitrary.”
E     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
F     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
G     “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
H     action and ensure fairness and equality of treatment. It is thus too
M/S ICOMM TELE LTD. v. PUNJAB STATE WATER SUPPLY &                              995
     SEWERAGE BOARD & ANR. [R. F. NARIMAN, J.]

      late in the day to contend that an executive action shown to be           A
      arbitrary is not either judicially reviewable or within the reach of
      Article 14.”
       19. We have thus to see whether clause 25(viii) can be said to be
arbitrary and violative of Article 14 of the Constitution of India.
       20. The first important thing to notice is that the 10% “deposit-at-     B
call” of the amount claimed is in order to avoid frivolous claims by the
party invoking arbitration. It is well settled that a frivolous claim can be
dismissed with exemplary costs. Thus, in Dnyandeo Sabaji Naik v.
Pradnya Prakash Khadekar, (2017) 5 SCC 496, this Court held:
      “14. Courts across the legal system—this Court not being an               C
      exception—are choked with litigation. Frivolous and groundless
      filings constitute a serious menace to the administration of justice.
      They consume time and clog the infrastructure. Productive
      resources which should be deployed in the handling of genuine
      causes are dissipated in attending to cases filed only to benefit         D
      from delay, by prolonging dead issues and pursuing worthless
      causes. No litigant can have a vested interest in delay.
      Unfortunately, as the present case exemplifies, the process of
      dispensing justice is misused by the unscrupulous to the detriment
      of the legitimate. The present case is an illustration of how a
      simple issue has occupied the time of the courts and of how               E
      successive applications have been filed to prolong the inevitable.
      The person in whose favour the balance of justice lies has in the
      process been left in the lurch by repeated attempts to revive a
      stale issue. This tendency can be curbed only if courts across the
      system adopt an institutional approach which penalises such               F
      behaviour. Liberal access to justice does not mean access to chaos
      and indiscipline. A strong message must be conveyed that courts
      of justice will not be allowed to be disrupted by litigative strategies
      designed to profit from the delays of the law. Unless remedial
      action is taken by all courts here and now our society will breed a
      legal culture based on evasion instead of abidance. It is the duty        G
      of every court to firmly deal with such situations. The imposition
      of exemplary costs is a necessary instrument which has to be
      deployed to weed out, as well as to prevent the filing of frivolous
      cases. It is only then that the courts can set apart time to resolve
      genuine causes and answer the concerns of those who are in                H
996                 SUPREME COURT REPORTS                        [2019] 2 S.C.R.


A            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
B
             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)
C
             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
D     (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 awarding punitive
E            damages. Before doing so, we may notice that the respondent
             complainant appearing in person, in his written submissions has
             raised various questions, including the question that the appellant
             should be asked to account for the proceeds of the vehicles sold
             by it. Admittedly, the vehicle in question has been ordered to be
             handed back to the appellant against which the respondent
F            complainant has no claim. Thus, the plea raised is without any
             merit. The other issue raised for further punitive damages of Rs.
             100 crores and also damages for dragging him in this Court, merits
             no consideration being beyond the claim of the complainant in the
             complaint filed by him. Moreover, no litigant can be punished by
G            way of punitive damages for merely approaching this Court, unless
             its case is found to be frivolous.”
               23. The important principle established by this case 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. Clearly, therefore, a
      “deposit-at-call” of 10% of the amount claimed, which can amount to
H
M/S ICOMM TELE LTD. v. PUNJAB STATE WATER SUPPLY &                             997
     SEWERAGE BOARD & ANR. [R. F. NARIMAN, J.]

large sums of money, is obviously without any direct nexus to the filing       A
of frivolous claims, as it applies to all claims (frivolous or otherwise)
made 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
                                                                               B
being something which would be unfair and unjust and which no
reasonable man would agree to. 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    C
on merits and not because it is frivolous. Further, even where a claim is
found to be justified and correct, the amount that is deposited need not
be refunded to the successful claimant. Take for example a claim based
on a termination of a contract being illegal and consequent damages
thereto. If the claim succeeds and the termination is set aside as being
                                                                               D
illegal and a damages claim of one crore is finally granted by the learned
arbitrator 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        E
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    F
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           G
SCC 339, has held:-
      “23. Arbitration is considered to be an important alternative
      disputes redressal process which is to be encouraged because of
      high pendency of cases in the courts and cost of litigation.
      Arbitration has to be looked up to with all earnestness so that the      H
998                 SUPREME COURT REPORTS                      [2019] 2 S.C.R.


A           litigant public has faith in the speedy process of resolving their
            disputes by this process. What happened in the present case is
            certainly a paradoxical situation which should be avoided. Total
            contract is for Rs. 12,23,500. When the contractor has done less
            than 50% of the work the contract is terminated. He has been
            paid Rs 5,71,900. In a Section 20 petition he makes a claim of
B
            Rs. 39,47,000 and before the arbitrator the claim is inflated to
            Rs. 63,61,000. He gets away with Rs. 20,08,000 with interest at
            the rate of 10% per annum and penal interest at the rate of 18%
            per annum. Such type of arbitration becomes subject of witticism
            and do not help the institution of arbitration. Rather it brings a bad
C           name to the arbitration process as a whole. When claims are
            inflated out of all proportions not only that heavy cost should be
            awarded to the other party but the party making such inflated
            claims should be deprived of the cost. We, therefore, set aside the
            award of cost of Rs. 7500 given in favour of the contractor and
            against the State of Jammu and Kashmir.”
D
                                                            (Emphasis supplied)
            25. Several judgments of this Court have also reiterated that the
      primary object of arbitration is to reach a final disposal of disputes in a
      speedy, effective, inexpensive and expeditious manner. Thus, in
E     Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd.,
      (2017) 2 SCC 228, this court held:
            “39. In Union of India v. U.P. State Bridge Corpn. Ltd. [(2015)
            2 SCC 52] this Court accepted the view [O.P. Malhotra on the
            Law and Practice of Arbitration and Conciliation (3rd Edn. revised
F           by Ms Indu Malhotra, Senior Advocate)] that the A&C Act has
            four foundational pillars and then observed in para 16 of the Report
            [sic] that:
                “16. First and paramount principle of the first pillar is ‘fair,
                speedy and inexpensive trial by an Arbitral Tribunal’.
G               Unnecessary delay or expense would frustrate the very purpose
                of arbitration. Interestingly, the second principle which is
                recognised in the Act is the party autonomy in the choice
                of procedure. This means that if a particular procedure is
                prescribed in the arbitration agreement which the parties have
                agreed to, that has to be generally resorted to.””
H                                                        (Emphasis in original)
M/S ICOMM TELE LTD. v. PUNJAB STATE WATER SUPPLY &                                 999
     SEWERAGE BOARD & ANR. [R. F. NARIMAN, J.]

       26. Similarly, in Union of India v. Varindera Constructions                 A
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         B
        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    C
        the subject-matter 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      D
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.
       28. For all these reasons, we strike down clause 25(viii) of the
notice inviting tender. This clause being severable from the rest of clause        E
25 will not affect the remaining parts of clause 25. The judgment of the
High Court is set aside and the appeal allowed.

Nidhi Jain                                                       Appeal allowed.

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