Arbitration – Legality of condition of pre-deposit for initiation can be considered by the Court in Section 11(6) of AA application

To summarise and to describe the post on the judgment in plain & simple words but in brief – The petitioner – company based in Switzerland and engaged in design consultancy – had sought appointment of Arbitrator for resolving disputes with the respondent.

Clause 55 provided for pre-deposit of 7% of the claim by the party initiating arbitration. Secondly, for the claim upto Rs.10 crores, the Sole Arbitrator is to be appointed by the Principal Secretary of GoU.

After notice of the petitioner for arbitration, the respondent had terminated the contract. 

The petitioner filed section 11(6) application and contended that both the conditions of pre-deposit and unilateral appointment of arbitrator by GoU are violative of Article 14 of the COI.

Thus, the petitioner had earlier agreed to the conditions but challenged their legality subsequently in section 11(6) application.

The SC had held that the question of legality  of pre-deposit condition on the touchstone of Article 14 can be considered at the pre-referral stage.

In para 72 of the judgment, the SC observed that “It is not for the first time that this Court is looking into the arbitration falling foul of Article 14 of the Constitution while deciding section 11(6) application.”

In para 76, it was further observed “What is relevant to note in all the above referred decisions of this Court is the phrase “operation of law”.   This phrase is of wider connotation and covers the Act 1996 as well as the Constitution of India and any other Central or State Law.

In short, the sum and substance is that the legality of conditions for arbitration can be gone into and decided in section 11(6) application and it is not necessary to file a separate Article 226 petition.

Judgment dated 6.11.2023 in Lombardi Engineering Limited Vs. Uttarakhand Jal Vidyut Nigam Ltd in Arbitration Petition No.43 of 2022