Dispute Resolution Hotline March 28, 2019

Indian Supreme Court strikes down pre-deposit requirement in arbitration agreement

This article was originally published on 26th March, 2019 in

Lexis®PSL Arbitration

The Indian Supreme Court in M/S Icomm Tele v Punjab State Water Supply & Sewerage Board [Civil Appeal No 2713 of 2019 arising out of SLP (Civil) No 3307 of 2018] held as arbitrary and unconstitutional, an arbitration clause mandating a contractor of a State’s Water Supply and Sewerage Board (the State Board) to furnish a pre-deposit of 10% of the amount of its claim in arbitration at the time of invocation of arbitration. In doing so, the Court re-affirmed the primary purpose of arbitration as ‘de-clogging the Court system.’ The Court held that such a pre-deposit clause was itself a ‘clog’ on entering the arbitral process and would render the same impermissibly ‘ineffective and expensive.’

Through this judgment, the judiciary has demonstrated the ideal way in which courts may play a guiding role in the arbitral process by stepping in constructively when parties may overstep the four corners of the constitution or may act against the very objective of arbitration, while maintaining utmost reverence for party autonomy, the very crux of alternative dispute resolution mechanism.

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Siddharth Ratho & Moazzam Khan

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