LOMBARDI ENGINEERING LIMITED v. UTTARAKHAND JAL VIDYUT NIGAM LIMITED

JUDGMENT / ORDER OF THE SUPREME COURT

JUDGMENT

J. B. PARDIWALA, J.

1Copy pinpoint1. This is a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short, “the Act 1996”) filed at the instance of a company based in Switzerland and engaged in the business of design consultancy seeking appointment of an arbitrator for the adjudication of disputes and claims emanating from the Contract dated 25.10.2019 entered into between the petitioner and respondent i.e., Uttarakhand Vidyut Nigam Limited (a wholly owned corporation of the Government of Uttarakhand). FACTUAL MATRIX

2Copy pinpoint2. The petitioner is a design consultancy firm based in Switzerland, having its registered office at Via Del Tiglio 2, PO Box 934, CH 934, CH 6512, Bellinzona-Guibiasco, Switzerland and local Indian address at B3/61, 1st Floor, Safdarjung Enclave, Delhi – 110029.

3Copy pinpoint3. The respondent is a wholly owned corporation of the Government of Uttarakhand having its registered office at Maharani Bagh, GMS Road, Dehradun, Uttarakhand, India and is engaged in the business of operating hydro power plants in the State of Uttarakhand.

4Copy pinpoint4. The petitioner entered into a contract with the Uttarakhand Project Development and Construction Corporation Limited (hereinafter referred to as “UPDCC”) for “Providing consultancy services and preparation of modified comprehensive and bankable Detailed Project Report of Arakot Tiuni Hydro Electric Project on river Pabar in district Uttarkashi of Uttarakhand” dated 25.10. 2019 (Tender Reference No. 01/DGM/ UPDCC/2018-19) (hereinafter referred to as, ‘the Contract’ or ‘the Project’). The Project was valued at Rs. 1,39,45,000/- (Rupees One Crore Thirty-Nine Lac Forty-Five Thousand only) (hereinafter referred to as the “Contract Value”). The petitioner was to commence work on the date of the execution of the Contract, i.e., 25.10.2019 and complete the work within 24 months, i.e., by 25.09.2021.

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VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]

5Copy pinpoint5. The Schedule A to Clause 5 of the Special Conditions of Contract (SCC) (hereinafter referred to as the “Schedule A”) provided for the completion period of all works that the petitioner was required to carry out under the Project. Further, the Schedule B to Clause 5 of the SCC (hereinafter referred to as the “Schedule B”) provided for the payment that was to be released to the petitioner upon the completion of each stage of work.

6Copy pinpoint6. The respondent took over the said Project from the UPDCC pursuant to an order dated 08.05.2020, passed by the Government of Uttarakhand, which directed that the Project be transferred from UPDCC to the respondent. The takeover of the Project was done by virtue of a tripartite agreement dated 06.10.2020 (hereinafter referred to as the “Tripartite Agreement”), whereby the Contract was novated to the extent that the respondent stepped into the shoes of UPDCC and took over all the obligations under the Contract.

7Copy pinpoint7. The Clause 53 read with Clause 55 of the General Conditions of Contract (hereinafter referred to as “GCC”), which forms part and parcel of the Contract between the petitioner and the respondent, set out the Arbitration Agreement. The said clauses are reproduced hereinbelow for reference: “CLAUSE-53: PROCEDURE FOR CLAIMS: 53.1 If a dispute of any kind, whatsoever, arises between the Employer and contractor in connection with or arising out of the contract for the execution of this works, whether during the execution of the works or after their completion and whether before or after repudiation or termination of the contract, including any disagreement by either party with any action, inaction, opinion, instruction determination, certificate or valuation of the Engineer, the matter in dispute shall, be referred to in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof and the rules made the under and for the time being in force, shall apply to the arbitration proceedings. 53.2 The contractor shall submit the details of his claims in writing including:

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(i) Particulars concerning the events on which the claim is based; (ii) the legal basis for the claim, whether based on a term of the Contract or otherwise, and if based on a term of the Contract, clearly identifying the specific term; vii) the facts relied upon in support of the Claim in sufficient detail to permit verification; and viii) details of the amount claimed and how it has been calculated. Xxx xxx xxx CLAUSE-55: ARBITRATION: (a) All question and disputes relating to the meaning of the specification design, drawing and instructions herein and as to the quality of workmanship or materials used on the work or as to any other question claim, right, matter or thing, whatsoever in any way arising out of or relating to the contract, designs, drawings, specifi cation, estimates instructions, orders or these condition or otherwise concerning the works or the execution or failure to execute the same, whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof, shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof and the rules made the under and for the time being in force, shall apply to the arbitration proceedings. However, the Party initiating the arbitration claim shall have to deposit 7% of the arbitration claim in the shape of Fixed Deposit Receipt as security deposit. (b) On submission of claims the Arbitrator shall be appointed as per the following procedure: I) For claim amount upto 10.00 Crores, the case shall be referred to Sole Arbitrator to be appointed by the Principal Secretary/Secretary (Irrigation), GoU,…” (Emphasis supplied)

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VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]

8Copy pinpoint8. In the wake of various disputes that arose between the parties, the petitioner herein issued a notice of arbitration dated 06.05.2022, calling upon the respondent to appoint an arbitrator in terms of the arbitration clause contained in the GCC referred to above. The relevant part of the arbitration notice reads thus: “26. The Respondent’s failure to pay the Claimant’s outstanding dues, therefore, entitles the Claimant to invoke the arbitration clause contained in 53 and 55 of the GCC for settlement of the Claimant’s claims of a total of INR 1,04,32.664.86/- (Indian Rupees One Crore Four Lacs Thirty-two Thousand Six Hundred and Sixty-Four and Eighth-Six Paise only), i.e. INR 32,91,020/- (Indian Rupees Thirty Two Lakh Ninety One Thousand and Twenty only) towards Invoice dated 27 July 2020 and INR. 71,41,644.86/- (Indian Rupees Seventy-One Lacs Forty-One Thousand Six Hundred and Forty- Four and Eighty Six Paise only) for financial loss suffered by the Claimant on account of abandonment of the Contract by the Respondent. This Notice is without prejudice to the Claimant’s rights to correct/amend/update/add any other additional figure/facts that may come to its notice in support of its claim, which rights are expressly reserved.

27. Since the Claimant’s claim is for an amount less than INR 10 Crores, under Clause 55(b)(I) of the GCC, a sole arbitrator is to be appointed by the Principal Secretary/ Secretary (Irrigation), Government of Uttarakhand. Notwithstanding the foregoing, the Claimant submits that in light of recent amendments to the Arbitration and Conciliation Act, 1996 and settled prevalent law laid down by the Hon’ble Supreme Court in the case of Perkins Eastman Architects DPC and Another v. HSCC (India) Limited [(2020) 20 SCC 760], the unilateral right of appointment given to the Respondent under the Contract, is not enforceable as on date. Therefore, the Claimant will propose the name of an arbitrator in this Notice, for consideration and appointment by the Respondent. The Claimant proposes the appointment of Mr. S.K. Sarvaria, District & Sessions Judge (Retired), Mobile No. 9910384642, as the Sole Arbitrator for the claims raised by the Claimant. The Respondent is requested to intimate its confirmation for the aforementioned nominee or provide an alternative name for appointment of the Ld. Sole Arbitrator, who shall be appointed only by mutual consent after the Claimant’s written approval.

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28. The Respondent is requested to intimate its approval to the nominee proposed by the Claimant, within 15 (fifteen) days of the receipt of this Notice, failing which the Claimant will exercise all rights under applicable law for the commencement of arbitration proceedings.”

9Copy pinpoint9. It is the case of the petitioner that instead of appropriately responding to the aforesaid notice of arbitration, the respondent issued a letter dated 09.05.2022, terminating the Contract alleging non-compliance of work and non-fulfilment of the contractual obligation.

10Copy pinpoint10. In such circumstances referred to above, the petitioner has preferred the present application for appointment of an arbitrator invoking Section 11(6) of the Act 1996. SUBMISSIONS ON BEHALF OF THE PETITIONER

11Copy pinpoint11. Mr. Sidhant Goel, the learned counsel appearing for the petitioner submitted that the case on hand, is one of “international commercial arbitration” within the meaning of Section 2(f) of the Act 1996 as his client is incorporated outside India. He submitted that under Section 11(12)(a) of the Act 1996, this Court has the requisite jurisdiction to take necessary measures for the constitution of an arbitral tribunal under Section 11(6) of the Act 1996 as the case is one of international commercial arbitration.

12Copy pinpoint12. The learned counsel submitted that Clause 55.1(b)(I) of the Contract which provides for appointment of a sole arbitrator by the Principal Secretary/Secretary (Irrigation), Government of Uttarakhand is in teeth of the decision of this Court in Perkins Eastman Architects DPC and Another v. HSCC (India) Limited reported in (2020) 20 SCC 760. He submitted that the unilateral right of appointment of the arbitrator given to the respondent under the Contract is unenforceable as on date.

13Copy pinpoint13. The learned counsel further submitted that the condition for pre- deposit of 7% of the claimed amount to initiate arbitration in accordance with Clause 55.1(b)(I) of the Contract is contrary to the decision of this Court in the case of ICOMM Tele Limited v. Punjab State Water Supply and Sewerage Board and Another reported in (2019) 4 SCC 401.

14Copy pinpoint14. It was argued that such a clause could be termed as arbitrary being violative of Article 14 of the Constitution in the sense of being unfair and

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VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]

unjust. It was also argued that such clauses in the Contract do not have any nexus in preventing any frivolous or vexatious claims in determination to such claims.

15Copy pinpoint15. In such circumstances referred to above, the learned counsel prayed that there being merit in this petition the same may be allowed and a sole arbitrator be appointed to resolve the disputes between the parties. SUBMISSIONS ON BEHALF OF THE RESPONDENT

16Copy pinpoint16. Mr. Amit Anand Tiwari, the learned counsel appearing for the respondent vehemently submitted that the present petition deserves to be outright rejected as the petitioner has failed to comply with the two pre- conditions: (i) the pre-deposit of 7% of the claimed amount and (ii) failure on the part of the petitioner to approach the Principal Secretary/Secretary (Irrigation), Government of Uttarakhand for appointment of an arbitrator as provided under Clause 55 of the Contract.

17Copy pinpoint17. In the aforesaid context, he strongly relied upon the decisions of this Court in the cases of Iron & Steel Co. Ltd. v. Tiwari Road Lines reported in (2007) 5 SCC 703, National Highways Authority of India and Another v. Bumihiway DDB Ltd. (JV) and Others reported in (2006) 10 SCC 763 and Yashwith Constructions (P)Ltd. v. Simplex Concrete Piles India Ltd. and Another reported in (2006) 6 SCC 204.

18Copy pinpoint18. He submitted that the respondent cannot be said to have failed to act as required under the prescribed procedure. He invited the attention of a three-Judge Bench of this Court to a decision in the case of S.K. Jain v. State of Haryana and Another reported in (2009) 4 SCC 357, wherein a similar clause requiring a security deposit of certain percentage of the claim amount was held to be valid. He argued that the reliance on the decision of this Court in the case of ICOMM Tele Limited (supra) by the petitioner is completely misconceived as the relevant arbitration clause therein was quite differently worded vis-a-vis the pre-deposit clause provided in the case of S.K. Jain (supra).

19Copy pinpoint19. He submitted that in the absence of any clause to the contrary, the security deposit is refundable by virtue of being only a deposit for “security”. The object of such a clause is to ensure that only valid and bona fide claims are made by the parties, and that the project is not hindered by frivolous

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and baseless claims. He submitted that a three-Judge Bench of this Court in S.K. Jain (supra) found the clause providing for pre-deposit to be logical and containing a balancing factor to prevent frivolous and inflated claims. The relevant clause in S.K. Jain (supra) provided that on the termination of arbitration proceedings, the sum would be adjusted against the costs awarded by the arbitrator and the balance amount would be refunded. In ICOMM Tele Limited (supra), the contract expressly provided for forfeiture of the security deposit, even in the event of the award going in favour of the party which made the deposit. In such circumstances, this Court held such a clause to be arbitrary being violative of Article 14 of the Constitution. In the present case, the Contract does not provide for any such forfeiture under Clause 55 and by virtue of the terminology used, the amount is to be deposited as a “security”. It was submitted that the same should be understood to be refundable upon completion of the proceedings between the parties. It was argued that in any case, Clause 4 of the GCC stipulates that the security deposit is to be refunded to the contractor on demand, after 14 days of expiry of Defects Liability Period. It does not exclude the security deposit made under Clause 55 from its purview.

20Copy pinpoint20. He submitted that as such there is no challenge to the pre-deposit clause in the petition and the present petition under Section 11(6) of the Act 1996 is only for appointment of an arbitrator. The judgments in S.K. Jain (supra) and ICOMM Tele Limited (supra), relied upon on behalf of the petitioner were delivered in appeals arising out of writ petitions before the respective High Courts, where substantive challenges were made to the pre-deposit clause.

21Copy pinpoint21. It was also argued that the petitioner having consented to the pre- deposit clause cannot be permitted to turn around and question its validity at the stage when a petition under Section 11(6) of the Act, 1996 is being considered, thereby circumventing the principle of “party autonomy”.

22Copy pinpoint22. In the last, it was argued that any order passed by this Court under Section 11(6) of the Act 1996 cannot be treated as a binding precedent in view of the decision of this Court in State of West Bengal and Others v. Associated Contractors reported in (2015) 1 SCC 32.

23Copy pinpoint23. In such circumstances referred to above, the learned counsel appearing for the respondent prayed that there being no merit in the petition, the same be rejected.

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VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]

ANAYLSIS

24Copy pinpoint24. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the following issues fall for the consideration of this Court: (i) Whether the dictum as laid down in ICOMM Tele Limited (supra) can be made applicable to the case in hand more particularly when Clause 55 of the General Conditions of Contract provides for a pre-deposit of 7% of the total claim for the purpose of invoking the arbitration clause? (ii) Whether there is any direct conflict between the decisions of this Court in S.K. Jain (supra) and ICOMM Tele Limited (supra)? (iii) Whether this Court while deciding a petition filed under Section 11(6) of the Act 1996 for appointment of a sole arbitrator can hold that the condition of pre-deposit stipulated in the arbitration clause as provided in the Contract is violative of the Article 14 of the Constitution of India being manifestly arbitrary? (iv) Whether the arbitration Clause No. 55 of the Contract empowering the Principal Secretary/Secretary (Irrigation), State of Uttarakhand to appoint an arbitrator of his choice is in conflict with the decision of this Court in the case of Perkins Eastman (supra)? JURISDICTION OF THE COURT UNDER SECTION 11(6) OF THE ACT 1996

25Copy pinpoint25. In the wake of a few decisions of this Court, the legislature thought fit to add sub section (6A) to Section 11 of the Act 1996 by way of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as “Amendment 2015”). The same reads thus: “(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under subsection (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement.” (Emphasis supplied)

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26Copy pinpoint26. Taking cognizance of the legislative change, this Court in Duro Felguera, S.A. v. Gangavaram Port Limited reported in (2017) 9 SCC 729, noted that post the 2015 Amendment, the jurisdiction of the court under Section 11(6) of the Act, 1996 is limited to examining whether an arbitration agreement exists between the parties - “nothing more, nothing less”.

27Copy pinpoint27. The entire case law on the subject was considered by a three- judge bench of this Court in Vidya Drolia and Others v. Durga Trading Corporation reported in (2021) 2 SCC 1, and an overarching principle with respect to the pre-referral jurisdiction under Section 11(6) of the Act was laid down. The relevant portion of the judgment is as follows: “153. Accordingly, we hold that the expression “existence of an arbitration agreement” in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good reasonable arguable case, etc., the court would force the parties to abide by the arbitration agreement as the Arbitral Tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability.

154. Discussion under the heading “Who Decides Arbitrability?” can be crystallised as under: 154.1. Ratio of the decision in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23-10-2015) and even post the amendments vide Act 33 of 2019 (with effect from 9-8-2019), is no longer applicable. 154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted. 154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all

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questions of non-arbitrability. The court has been conferred power of “second look” on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act. 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably “non-arbitrable” and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.” (Emphasis supplied)

28Copy pinpoint28. The limited scope of judicial scrutiny at the pre-referral stage is navigated through the test of a prima facie review. This is explained as under: “133. Prima facie case in the context of Section 8 is not to be confused with the merits of the case put up by the parties which has to be established before the Arbitral Tribunal. It is restricted to the subject-matter of the suit being prima facie arbitrable under a valid arbitration agreement. Prima facie case means that the assertions on these aspects are bona fide. When read with the principles of separation and competence-competence and Section 34 of the Arbitration Act, the referral court without getting bogged down would compel the parties to abide unless there are good and substantial reasons to the contrary.

134. Prima facie examination is not full review but a primary first review to weed out manifestly and ex facie non-existent and invalid

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arbitration agreements and non-arbitrable disputes. The prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage. Only when the court is certain that no valid arbitration agreement exists or the disputes/subject-matter are not arbitrable, the application under Section 8 would be rejected. At this stage, the court should not get lost in thickets and decide debatable questions of facts. Referral proceedings are preliminary and summary and not a mini trial… xxx xxx xxx 138…On the other hand, issues relating to contract formation, existence, validity and non-arbitrability would be connected and intertwined with the issues underlying the merits of the respective disputes/claims. They would be factual and disputed and for the Arbitral Tribunal to decide.

139. We would not like to be too prescriptive, albeit observe that the court may for legitimate reasons, to prevent wastage of public and private resources, can exercise judicial discretion to conduct an intense yet summary prima facie review while remaining conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the Arbitral Tribunal. Undertaking a detailed full review or a long- drawn review at the referral stage would obstruct and cause delay undermining the integrity and efficacy of arbitration as a dispute resolution mechanism. Conversely, if the court becomes too reluctant to intervene, it may undermine effectiveness of both the arbitration and the court. There are certain cases where the prima facie examination may require a deeper consideration. The court’s challenge is to find the right amount of and the context when it would examine the prima facie case or exercise restraint. The legal order needs a right balance between avoiding arbitration obstructing tactics at referral stage and protecting parties from being forced to arbitrate when the matter is clearly non-arbitrable.

140. Accordingly, when it appears that prima facie review would be inconclusive, or on consideration inadequate as it requires detailed

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examination, the matter should be left for final determination by the Arbitral Tribunal selected by the parties by consent. The underlying rationale being not to delay or defer and to discourage parties from using referral proceeding as a ruse to delay and obstruct. In such cases a full review by the courts at this stage would encroach on the jurisdiction of the Arbitral Tribunal and violate the legislative scheme allocating jurisdiction between the courts and the Arbitral Tribunal. Centralisation of litigation with the Arbitral Tribunal as the primary and first adjudicator is beneficent as it helps in quicker and efficient resolution of disputes.” (Emphasis supplied)

29Copy pinpoint29. Following the general rule and the principle laid down in Vidya Drolia (supra), this Court has consistently been holding that the arbitral tribunal is the preferred fi rst authority to determine and decide all questions of non-arbitrability. In Pravin Electricals Private Limited v. Galaxy Infra and Engineering Private Limited reported in (2021) 5 SCC 671, Sanjiv Prakash v. Seema Kukreja and Others reported in (2021) 9 SCC 732 and Indian Oil Corporation Limited v. NCC Limited reported in (2023) 2 SCC 539, the parties were referred to arbitration, as the prima facie review in each of these cases on the objection of non- arbitrability was found to be inconclusive. Following the exception to the general principle that the court may not refer parties to arbitration when it is clear that the case is manifestly and ex facie non-arbitrable, in Bharat Sanchar Nigam Limited and Another v. Nortel Networks India Private Limited reported in (2021) 5 SCC 738, Secunderabad Cantonment Board v. B. Ramachandraiah and Sons reported in (2021) 5 SCC 705 and B and T AG v. Ministry of Defence reported in 2023 SCC OnLine SC 657, arbitration was refused as the claims of the parties were demonstrably time-barred.

30Copy pinpoint30. In the case on hand, we are not concerned with the issue relating to the arbitrability of the dispute. It is not even the case of the respondent that the dispute is ex facie non-arbitrable. The case put up by the respondent is that there is definitely an arbitrable dispute and the same should be referred to the arbitral tribunal, however, the petitioner should abide by Clause 55 of the Contract.

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31Copy pinpoint31. In the case on hand, we are concerned first with the validity of the arbitration clause which provides for 7% pre-deposit of the total claim for the purpose of invoking arbitration and secondly, the discretion vested with the Principal Secretary/Secretary (Irrigation) to appoint a sole arbitrator. RE: ISSUE NOS. 1 AND 2

32Copy pinpoint32. Before, we proceed to answer the issues framed by us, we must look into few decisions referred to by us as aforesaid. S.K. JAIN V. STATE OF HARYANA

33Copy pinpoint33. In S.K. Jain (supra), the challenge was to an order passed in a writ petition filed by the appellant, wherein it had prayed to quash a memo directing it to deposit 7% of the claimed amount before the arbitral tribunal. The civil appeal was dismissed by a three-Judge Bench of this Court and the memo was accordingly upheld.

34Copy pinpoint34. In S.K. Jain (supra), the relevant arbitration clause reads as under: “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 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—

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 5% of amount claimed above and below Rs 1,00,000 and

3. For claims of Rs 1,00,000 and 7% of amount claimed” above (Emphasis supplied)

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35Copy pinpoint35. The relevant observations made by the Court in S.K. Jain (supra), more particularly, para 14 reads thus: “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 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 makes a claim of a lesser amount.” MUNICIPAL CORPN., JABALPUR AND OTHERS V. RAJESH CONSTRUCTION CO., (2007) 5 SCC 344

36Copy pinpoint36. In the said case, the appellants had floated a notice inviting tender for construction of a road. Some portion of the work was awarded to the respondent therein by entering into a contract on the terms and conditions as contained in the tender. The tender contained various clauses; one amongst the same being clause 29 which pertained to arbitration in case any dispute arose between the parties and reads thus: “29. Except as otherwise provided in this contract all questions and disputes relating to the meaning of the specifications, drawing and instructions hereinbefore mentioned and as to thing (sic anything) whatsoever, in any way arising out or relating to the contract, designs, drawings, specifications, estimates concerning the works or the execution or failure to execute the same, whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the City Engineer in writing for his decision, within a period of 30 days of such occurrence. Thereupon the City Engineer shall give his written instructions and/or decisions within a period of 60 days of such request. This period can be extended by mutual consent of the parties. Upon receipt of written instructions of decisions, the parties shall promptly proceed without delay to comply with such instructions or decisions. If the City Engineer fails to give his instructions or decisions

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in writing within a period of 60 days or mutually agreed time after being requested if the parties are aggrieved against the decision of the CE, the parties may within 30 days prefer an appeal of MPL Com who shall afford an opportunity to the parties of being heard and to offer evidence in support of his appeal. MPL Com will give his decision within 90 days. If any party is not satisfied with the decision of MPL Com, he can refer such disputes for arbitration to an Arbitration Board to be constituted by the Corporation, which shall consist of three members of whom one shall be chosen from among the officers belonging to the Urban Administration and Development Department not below the rank of BE, one retired Chief Engineer of any technical department and City Engineer, Nagar Nigam, Jabalpur. The following are also the terms of this contract, namely: (a) No person other than the aforesaid Arbitration Board constituted by the Corporation (to handle cases of all technical departments) shall act as arbitrator and if for any reason that is not possible the matter shall not be referred to arbitration at all. (b) The Corporation may at any time effect any change in the personnel of the Board and the new members or members appointed to the Arbitration Board shall be entitled to proceed with the reference from the stage it was left by his or their predecessors. (c) The party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute(s). (d) Where the party invoking arbitration is the contractor no reference for arbitration shall be maintainable, unless the contractor furnishes a security deposit of a sum determined according to the table given below, and the sum so deposited shall on the determination of arbitration proceeding, be adjusted against the costs, if any awarded by the Board against the party and the balance remaining after such adjustment or in the absence of the such costs being awarded the whole of the sum

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VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]

shall be refunded to him within one month from the date of the award. Amount of claim Rate of security deposits For claim below Rs 10,000 5% of amount claimed For claim of Rs 10,000 and above 3% of amount claimed but below Rs 1,00,000 subject to minimum of Rs 500 For claims of Rs 1,00,000 and 2% of the amount claimed above subject to a minimum of Rs 3000” (Emphasis supplied)

37Copy pinpoint37. The relevant findings recorded in Rajesh Constructions Co. (supra) are as under: “20. Clause 29 specifically stipulates, as indicated herein earlier, that if any dispute arises between the parties, the party seeking invocation of the arbitration clause, shall first approach the Chief Engineer and on his failure to arbitrate the dispute, the party aggrieved may file an appeal to MPL Com, failing which, the Corporation shall constitute an Arbitration Board to resolve the disputes in the manner indicated in clause 29. However, before doing so, the party invoking arbitration clause is required to furnish security of a sum to be determined by the Corporation.

21. In this case, admittedly, the security has not been furnished by the respondent to the Corporation. We, in fact, asked Mr Sharma, appearing on behalf of the respondent to ascertain on the date of the hearing of the appeal, whether the security deposit was made or not. On instruction, Mr Sharma informed us that such security has not yet been deposited. Such being the position even today, we hold that the obligation of the Corporation to constitute an Arbitration Board to resolve disputes between the parties could not arise because of failure of the respondent to furnish security as envisaged in clause 29(d) of the contract. Therefore, we are of the opinion, that on account of non-furnishing of security by the respondent, the question of constituting an Arbitration Board by the Corporation could not arise at all. Accordingly, we hold that the High Court was not justified in

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appointing a retired Chief Justice of a High Court as arbitrator by the impugned order.

22. It is not disputed before us that the learned Arbitrator appointed by the High Court has already commenced the arbitration proceeding. Mr Mukherjee, appearing on behalf of the Corporation, on instruction, had submitted before us that they shall constitute an Arbitration Board as soon as the respondent furnishes security in terms of clause 29(d) of the contract and if any direction is given to the Arbitration Board to proceed from the stage the learned arbitrator had already reached, that would not be objected to. That is to say, Mr Mukherjee contended that the Arbitration Board may be directed to take over the arbitration proceedings from the stage the learned arbitrator had already reached.

23. Such being the stand taken by the Corporation, we direct the respondent to furnish the security of a sum to be determined by the Corporation within six weeks from this date and in the event security determined by the Corporation is furnished within the time mentioned herein earlier, the Corporation shall constitute an Arbitration Board in compliance with clause 29 of the contract. It is directed that the Arbitration Board shall proceed from the stage the learned arbitrator appointed by the High Court had already reached.

24. That apart, it has to be kept in mind that it is always the duty of the court to construe the arbitration agreement in a manner so as to uphold the same. Therefore we must hold that the High Court ought not to have appointed an arbitrator in a manner, which was inconsistent with the arbitration agreement.” (Emphasis supplied) ICOMM TELE LIMITED V. PUNJAB STATE WATER SUPPLY AND SEWERAGE BOARD

38Copy pinpoint38. Nature of the Clause: Clause 25(viii) of Notice Inviting Tender provided that: “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 claimed under

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each claim and shall furnish a “deposit-at-call” for ten per cent 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 with reference to the amount claimed and the balance, if any, shall be forfeited and paid to the other party.” (Emphasis supplied)

39Copy pinpoint39. 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 25.09.2008, the appellant company, which was involved in civil/electrical works in India, was awarded the said tender after having been found to be the best suited for the task. On 16.01.2009, a formal contract was entered into between the appellant and respondent No. 2 therein.

40Copy pinpoint40. On 08.03.2017, 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 merely followed its earlier judgment and dismissed the writ petition as well. The matter was carried to this Court.

41Copy pinpoint41. The relevant observations made by this Court are as under: “12. In S.K. Jain v. State of Haryana [(2009) 4 SCC 357 : (2009) 2 SCC (Civ) 163], this Court dealt with an arbitration clause in an agreement which read as follows: Xxx xxx xxx

13. In upholding such a clause, this Court referred to the judgment in Central Inland Water Transport Corpn. [Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156 : 1986 SCC (L&S) 429] and distinguished this judgment, stating that the concept of unequal bargaining power has no application in the case of commercial contracts.

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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. [Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156 : 1986 SCC (L&S) 429] would apply and that there should be a cap in the 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 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 per cent 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 and does not apply at all to the facts of the present case. xxx xxx xxx

20. The first important thing to notice is that the 10 per cent “deposit- at-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. …

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. xxx xxx xxx

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 per cent of the amount claimed, which 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

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or otherwise) made at the very threshold. A 10 per cent 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 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 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 illegal and a damages claim of Rupees 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 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. xxx xxx xxx

27. Deterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10 per cent 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...” (Emphasis supplied)

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42Copy pinpoint42. The principles of law discernible from the aforesaid observations made by this Court in ICOMM Tele Limited (supra) are as under: (a) That the pre-deposit condition in an arbitration clause is violative of Article 14 of the Constitution of India being arbitrary. (b) Unless it is first found or prima facie established that the litigation that has been embarked upon is frivolous, the exemplary costs or punitive damages cannot follow. (c) Deterring a party to an arbitration from invoking the Alternative Dispute Resolution Process by pre-deposit of certain percentage would discourage arbitration. This would run contrary to the object of de-clogging the court system and would render the arbitral process ineffective and expensive. FEW DECISIONS OF THE HIGH COURTS ON THE SUBJECT

43Copy pinpoint43. Lite Bite Foods Pvt. Ltd. v. Airports Authority of India reported in 2020 SCC OnLine Ker 4736, Nature of the Clause: “5.15. Dispute Resolution ….The Concessionaire by means of a written application can seek appointment of an Arbitrator and Authority would appoint such an Arbitrator within 30 days of receipt of the application, subject to fulfilling, the pre-requisites for appointment of the Arbitrator as laid hereunder:— i. The case shall be referred to the Sole Arbitrator as per AA1 delegation of powers in vogue subject to the condition that the Concessionaire shall have to deposit the disputed amount with AA1 as condition precedent and the consent shall have to be obtained from the concessionaire for acceptance of the recommendations of Arbitrator before making reference to the Arbitrator for adjudication of dispute.” (Emphasis supplied)

44Copy pinpoint44. The relevant extract from the Judgment reads thus:

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“11…the conditions in clause 5.15 of the RFP, that require the petitioner to choose an Arbitrator from among a panel suggested by the respondent, as also the condition that requires the petitioner to make a pre-deposit of amounts as a condition for invoking the arbitration, would fall foul of the law declared by the Supreme court in the decisions reported as Perkins Eastman Architects DPC v. HSCC (India) Ltd. - [2019 SCC OnLine SC 1517] and ICOMM Tele Ltd. v. Punjab State Water Supply and Sewerage Board - [(2019) 4 SCC 401] respectively. I am not persuaded to accept the contention of the learned senior counsel for the respondent that it is only in the event of a challenge to clause 5.15 of the RFP on the ground that it is violative of the fundamental rights of the petitioner under Article 14 of the Constitution of India, that this Court can hold the said clause, in the RFP, as illegal. After the amendment of the 1996 Act in 2015, the law must be taken to be that any clause in an agreement, that requires one of the contracting parties to make a deposit of amount as a precondition for invoking the arbitration, has to be seen as rendering the entire clause arbitrary, being not only excessive or disproportionate but leading to a wholly unjust situation in arbitration proceedings, that are ordinarily to be encouraged on account of the high pendency of cases in courts and the ever-increasing cost of litigation. I am therefore of the opinion that even if the clause in the RFP is to be treated as supplementing Article 22 of the Concessionaire Agreement, the offending conditions in the RFP would have to be ignored in view of the declaration of law by the Supreme Court in the cases referred above.” (Emphasis supplied)

45Copy pinpoint45. In the aforesaid decision of the Kerala High Court, the learned Single Judge after due consideration of the decisions of this Court in Perkins Eastman (supra) and ICOMM Tele Limited (supra), held that any clause in the agreement that requires one of the contracting parties to make a deposit of an amount as a pre-condition for invoking the arbitration should be seen as one rendering the entire clause arbitrary being not only excessive or disproportionate but something that may lead to a wholly unjust situation. Ultimately Article 22 of the concessionaire agreement therein was ignored while appointing an arbitrator in an application filed under Section 11(6) of the Act 1996.

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46Copy pinpoint46. The Assan Co-Op. L & C Society v. Haryana Vidyut Prasaran Nigam Ltd., ARB-127-2019 (Section 11 Petition) and CWP-13539-2021 (Civil Writ Petition) Date of Order: 03.112021 Forum: High Court of Punjab and Haryana (Single-Judge) Nature of the Clause: “Clause 25A of the Contract (Annexure P-1) reads as under:- “If any question, dispute, difference of opinions whatsoever arises in any way connected with or arising out of instrument for meaning or operation of any part thereof or the rights, duties or liabilities of either party, including the termination of the contract by either party and correctness thereof at any stage whatsoever it shall be referred to arbitration of MD/Chief Engineer of HVPNL or his nominee not below the rank of Superintending Engineer subject to the following conditions:- xxx xxx xxx

7. In case the party invoking the arbitration is the contractor, the reference for arbitration shall be maintainable only after the contractor furnishes to the satisfaction of Engineering-In Charge a case security fee deposited @ 3% of the total amount claimed by him. The sum so deposited by the contractor shall on the termination of the arbitration proceedings be adjusted against the cost and any amount awarded against the contractor. The remaining amount shall be refunded to the contractor with-in one month from the date of the award.” (Emphasis supplied)

47Copy pinpoint47. The relevant observations from the Judgment are as under: “23. Resultantly, the issue of pre-deposit now arises. Counsel for the petitioner has heavily relied upon the judgment passed in M/s ICOMM Tele Ltd. (supra), which has been rightly distinguished by the learned counsel for the respondent …

24. Thereafter, in ‘S.K. Jain Vs. State of Haryana and another’, 2008 AIR (Punjab) 30 the challenge was to the clause of 7% of the total

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amount claimed. While placing reliance upon the judgment of the Apex Court in ‘Municipal Corporation, Jabalpur & others Vs. M/s Rajesh Construction Co.’, 2007 (5) SCC 344, the writ petition was dismissed. The said judgment was upheld by the Apex Court in ‘S.K. Jain Vs. State of Haryana and another’ 2009 (2) SCC (Civil) 163 by holding that there is logic in providing the said cap. …

25. In M/s ICOMM Tele Ltd. (supra) the objectionable clause 25 (viii) was struck down which was for 10% deposit. In the event of an award in favour of the claimant, the deposit was to be refunded to him in proportion to the amount awarded with regard to the amount claimed and the balance if any was to be forfeited and paid to the other party. Resultantly, the Apex Court came to the conclusion that nine times of the deposit could be forfeited by the parties who lost in the arbitration proceedings and despite the fact that the party has an award against it. Thus, the clause was held to be wholly arbitrary …

26. It was on such account the observations were made that the pre- deposit would discourage arbitration and the said clause as such was struck down by the distinguishing the judgment passed in S.K. Jain (supra). …” (Emphasis supplied)

48Copy pinpoint48. In the aforesaid decision, a learned Single Judge of the Punjab and Haryana High Court looked into both the decisions of this Court i.e., S.K. Jain (supra) and ICOMM Tele Limited (supra). The High Court went on to look into the relevant arbitration clause contained in both the decisions of this Court referred to above and thought fit to follow the dictum as laid in S.K. Jain’s case being a decision rendered by a Bench of three Judges.

49Copy pinpoint49. Garg and Company v. State of Haryana & Ors., CWP Nos. 21840 of 2020, 21857 of 2020 and 21858 of 2020 (O&M) (Civil Writ Petitions) Date of Order : 08.04.2022 Forum: High Court of Punjab and Haryana (Single-Judge Bench) Nature of the Clause: “33(7). It is also a term of this arbitration agreement that where the party invoking arbitration is the contractor, no reference for Arbitrator

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shall be maintainable unless the contractor furnishes to the satisfaction of the Executive Engineer of the work, a security deposit of a sum determined according to details given below and the sum so deposited shall, on the termination of the arbitration proceedings, be adjusted against the cost, if any, awarded by the Arbitrator against the claimant party and the balance remaining after such adjustment, in the absence of any such cost being awarded the whole of the sum will be refunded to him within one month from the date of the award:

S r . Amount Claims Rate of Security Deposit No. i. For claims below Rs. 10,000/ 2% of amount claimed ii. For claims of Rs. 10,000/- & 5% of amount claimed above but below Rs. 1,00,000/- iii. For claims of Rs. 1,00,000/- and 7.5% of amount claimed” above (Emphasis supplied)

50Copy pinpoint50. The relevant observations from the Judgment are as under: “All the questions and grounds sought to be raised by learned counsel for the petitioner are succinctly answered by the Hon’ble Supreme Court in M/s. ICOMM Tele Limited’s case (supra) itself while discussing S.K. Jain’s case (supra). It is obvious that a clear cut distinction has been made in respect to the type of pre-deposit clause. Discussion of the judgment of S.K. Jain’s case (supra) makes it crystal clear that such like clauses, which provide for adjustment and refund to the party making the deposit after the passing of the award are materially different from the clause which was under challenge in M/s. ICOMM Tele Limited’s case (supra). In case of M/s. ICOMM Tele Limited’s case (Supra), the objectionable clause 25(viii) was struck down finding the same to be arbitrary… It is in the said factual matrix that the observations regarding the clause of pre-deposit discouraging arbitration was made and the said clause was struck down while distinguishing the earlier judgment passed by the Hon’ble Supreme Court in S.K. Jain’s case (supra).

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Learned counsel for the petitioner is unable to deny that Clause 33(7) of the Agreement in the present writ petitions is identical to Clause 25(7) of the Agreement, which was under consideration in S.K. Jain’s case (supra). Though learned senior counsel for the petitioner/s was at pains to submit that the ratio of M/s. ICOMM Tele Limited’s case (supra) suggests that any kind of pre-deposit has to be set aside as it necessarily leads to deterring a party to an arbitration from invoking this alternate dispute resolution system and in-fact renders the entire arbitral process ineffective, however, keeping in view the specific discussion by the Hon’ble Supreme Court in its decision in M/s. ICOMM Tele Limited’s case (supra) of S.K. Jain’s case (supra), I do not find any merit in the argument raised by learned counsel for the petitioner. The same is accordingly rejected as it is clear that this Court is bound by the judgment of the Hon’ble Supreme Court in S.K. Jain’s case (supra), which has not been overruled till date.” (Emphasis Supplied)

51Copy pinpoint51. In the aforesaid decision of the Punjab and Haryana High Court, both the decisions of this Court i.e., ICOMM Tele Limited (supra) as well as S.K. Jain (supra) were looked into and the Court thought fit to follow the dictum as laid in S.K. Jain (supra).

52Copy pinpoint52. Brij Gopal Construction Co. Pvt. Ltd. v. Haryana Shehri Vikas Pradhikaran, CWP-14587-2022 (O&M) (Civil Writ Petition) Date of Order: 02.08.2022 Forum: High Court of Punjab and Haryana (Single-Judge) Nature of the Clause: “25(A)(vii) It is also a term of this arbitration agreement that where the party invoking arbitration is the contractor, no reference for Arbitrator shall be maintainable unless the contractor, furnishes to the satisfaction of the Engineer In charge of the work, a security deposit of a sum determined according to details given below and the sum so deposited shall, on the termination of the arbitration proceedings, be adjusted against the cost, if any, awarded by the Arbitrator against the claimant party and the balance remaining after such adjustment or whole sum

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in the absence of any such cost being awarded the whole of the sum will be refunded to him within one month from the date of the award.

AMOUNT OF CLAIMS RATE OF SECURITY DEPOSIT i) For claims below Rs. 10,000/- 2% of amount claimed ii) For claims of Rs. 10,000/- & 5% of amount claimed above & below Rs. 1,00,000/- iii) For claims of Rs. 1,00,000/- 7.5 % of amount claimed and above”

53Copy pinpoint53. The relevant observations from the Judgment are as under: “A similar controversy was sought to be raised in CWP-21840-2020 and other connected writ petitions, which have been dismissed on 08.04.2022. Question raised for adjudication in the said writ petitions was also whether the clause in question requiring a pre-deposit for invocation of Arbitration is unreasonable, unconscionable and liable to set aside. Clause in question in the abovesaid writ petitions was identical as clause 25(A)(vii) involved in the instant writ petition. Reliance had been placed on M/s ICOMM Tele Limited (supra) as is the case in the present writ petition. However, while dealing with the contentions as raised and dismissing the said writ petitions, judgment of the Three Judge Bench of the Hon’ble Supreme Court in S.K. Jain v. State of Haryana, (2009) 4 SCC 357 was duly considered. It was also noticed that Hon’ble Supreme Court itself in the case of M/s ICOMM Tele Limited (supra) referred to the case of S.K. Jain (supra) and infact upheld the clause regarding pre-deposit in S.K. Jain’s case (supra).” xxx xxx xxx Similar view in regard to such a pre-deposit clause has also been taken by a Co-ordinate Bench in decision dated 03.11.2020 passed in ARB- 127- 2019 and in CWP No. 13539 of 2021, titled as M/s The Assan Co-op L&C Society, Bahadurgarh, District Jhajjar Vs. Haryana Vidyut Prasaran Nigam Limited (HVPNL). Thus, in view of judgment of the Hon’ble Supreme Court in S.K. Jain vs. State of Haryana, 2009(2) RCR (Civil) 202 as discussed in M/s ICOMM Tele Limited(supra), order dated 15.01.2022 (Annexure P9) and dated 02.04.2022 (Annexure P11) have been correctly passed. This Court is clearly bound by the

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judgment of the Hon’ble Supreme in the case of S.K. Jain (supra) which has admittedly not been over ruled till date.” (Emphasis supplied)

54Copy pinpoint54. In the aforesaid decision of the Punjab and Haryana High Court, both the decisions of this Court i.e., ICOMM Tele Limited (supra) and S.K. Jain (supra) were taken into consideration and ultimately, the Court followed the dictum as laid down in S.K. Jain (supra).

55Copy pinpoint55. Bathinda Railway Transhipment Cooperative L&C Society Ltd. v. Punjab Mandi Board & Ors., Civil Writ Petition No. 28981 of 2019 (O&M) Date of Order : 27.03.2023 Forum: High Court of Punjab and Haryana (Division Bench) Nature of Clause: “8. … 25(viii) It shall be an essential term of this contract that in order to avoid frivolous claims, the party invoking arbitration shall specify the disputes based upon facts and calculations stating the amount claimed under each claim and shall furnish a “deposit-at call” for ten percent of the amount claimed, on a scheduled bank in the name of the Arbitrator/Chairman of the Arbitral Tribunal, 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 with respect to the amount claimed and the balance, if any, shall be forfeited and paid to the other party.” (Emphasis supplied)

56Copy pinpoint56. The relevant observations from the Judgment are as under: “10. From a perusal of the aforesaid two clauses (supra) i.e. one that has been assailed by the petitioner and the other that has been quashed by the Supreme Court in juxta position makes it absolutely clear that they are identical containing the same stipulations. The Supreme Court in the case of M/s Icomm Tele Ltd. (supra) after considering the validity of the said clause has held as under:-

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“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 25 will not affect the remaining parts of Clause 25. The judgment of the High Court is set aside and the appeal allowed.”

11. In the light of the aforesaid decision rendered by the Supreme Court in M/s Icomm Tele Ltd. (supra), which has considered absolutely an identical clause contained in the agreement between the parties and after doing so has struck down the said clause, it is not for this Court i.e. the High Court to consider the contention of the respondent and take a different view as that would be not just beyond the authority of this Court but would also be an act of impropriety. This Court being bound by the decision rendered by the Supreme Court in M/s Icomm Tele Ltd. (supra) allowed the present petition filed by the petitioner and declares the arbitration clause 25(viii) of the tender conditions, quoted above, as unconstitutional and passes the same orders in similar terms as were passed by the Supreme Court in paragraph-28 of the decision rendered in M/s Icomm Tele Ltd. (supra).” (Emphasis supplied)

57Copy pinpoint57. In the aforesaid decision of the Punjab and Haryana High Court, the decisions of this Court in the case of ICOMM Tele Limited (supra) as well as S.K. Jain (supra) were taken into consideration and ultimately, the Court followed the dictum as laid in ICOMM Tele Limited (supra), as the relevant arbitration clause in the said matter was almost identical to the one in ICOMM Tele Limited (supra).

58Copy pinpoint58. Amazing India Contractors Pvt. Ltd. v. Airport Authority of India and Others reported in 2023 SCC OnLine Cal 1704, C.O. 66 of 2022 (Section 11 Petition) High Court of Calcutta (Single Judge) Nature of the Clause: “33(iii). All disputes and differences arising out of or in any way touching or concerning this Agreement (except those the decision whereof is otherwise herein before expressly provided for or to which the public premises [Eviction of Unauthorized Occupants] Act and

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the rules framed there under which are now enforced or which may hereafter come into force are applicable), shall, in the first instance, be referred to a Dispute Resolution Committee (DRC) setup at the airports, for which a written application should be obtained from the party and the points clearly spelt out. In case the dispute is not resolved within 45 days of reference, then the case shall be referred to sole arbitration of a person to be appointed by the Chairman/Member of the Authority. The award of the arbitrator so appointed shall be final and binding on the parties. The Arbitration & Conciliation Act, 1996 shall be applicable. Once the arbitration clause has been invoked, the DRC process will cease to be operative. It will be no bar that the Arbitrator appointed as aforesaid is or has been an employee of the Authority and the appointment of the Arbitrator will not be challenged; or be open to Question in any Court of Law, on this account.”

59Copy pinpoint59. The relevant observations from the Judgment are as under: “25. … That part of Clause 33 of the agreement between the parties providing for constitution of a Dispute Resolution Committee with a stipulation that before availing of dispute resolution, the disputed amount has to be deposited, is invalid and contrary to law for more than one reason. The first and foremost is that it fetters the right of the petitioner, a party to the arbitration agreement to avail of arbitration which is a statutory right. [ICOMM Tele Ltd. v. Punjab State Water Supply and Sewerage Board reported in (2019) 4 SCC 401]. Secondly, it is most ambiguous. If the petitioner is making a claim which is then and there disputed by the respondent, why should the petitioner, being the claimant be asked to deposit the disputed amount? When the petitioner is making a claim against the respondent, it is unable, at that point of time, to know whether the whole claim or part of it would be admitted, or the whole of it denied by the latter. Hence, it is unable to gauge the disputed amount. Even if it were possible for the respondent to notify the disputed amount immediately, the clause would only be operative if the respondent was simultaneously making a counter claim more than the petitioner’s claim which was being denied by the petitioner, by seeking reference of the dispute to arbitration. If

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the respondent was first making the claim which was disputed by the petitioner, still the matter could not be referred to the Committee in as much as the clause suggests an application for dispute resolution by the petitioner only. For all these reasons, this clause itself is vague for uncertainty and invalid.” (Emphasis supplied)

60Copy pinpoint60. In the aforesaid decision of the Calcutta High Court, ICOMM Tele Limited (supra) and Perkins Eastman (supra) were relied upon and ultimately, it was held that Clause 33 of the agreement therein between the parties providing for constitution of a “Dispute Resolution Committee” with a stipulation that before availing of dispute resolution clause, the disputed amount has to be deposited, was held to be invalid and contrary to law.

61Copy pinpoint61. We are of the view that as such there is no conflict between S.K. Jain (supra) and ICOMM Tele Limited (supra), as the relevant arbitration clauses that fell for the consideration of this Court in both the cases stood completely on a different footing. What is relevant to note are the points of law on which S.K. Jain (supra) was distinguished and explained in ICOMM Tele Limited (supra).

62Copy pinpoint62. The Court while distinguishing S.K. Jain (supra) in ICOMM Tele Limited (supra) made some relevant observations in para 14 of the Judgment. Para 14 reads thus: “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. [Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156 : 1986 SCC (L&S) 429] would apply and that there should be a cap in the 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 the deposit. This clause is materially different from Clause 25(viii), which, as we have

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seen, makes it clear that in all cases the deposit is to be 10 per cent 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 and does not apply at all to the facts of the present case.” (Emphasis supplied)

63Copy pinpoint63. In para 16 of ICOMM Tele Limited (supra), the court ultimately considered whether Clause 25(viii) could be said to be arbitrary and violative of Article 14 of the Constitution of India. Para 16 reads thus: “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.”

64Copy pinpoint64. Thereafter, the Court proceeded to observe that Clause 25(viii) therein could not be said to be discriminatory as the same applied equally to both the parties, however, arbitrariness could be said to be a separate and distinct facet of Article 14 of the Constitution. Saying so, the Court referred to and relied upon para 19 of this Court’s decision in A.L. Kalra v. Project and Equipment Corporation of India Ltd. reported in (1984) 3 SCC 316. Para 19 reads thus: “19. The scope and ambit of Article 14 have been the subject-matter of a catena of decisions. One facet of Article 14 which has been noticed in E.P. Royappa v. State of Tamil Nadu [(1974) 2 SCR 348 : (1974) 4 SCC 3 : 1974 SCC (L&S) 165 : AIR 1974 SC 555 : (1974) 1 LLJ 172] deserves special mention because that effectively answers the contention of Mr Sinha. The Constitution Bench speaking through Bhagwati, J. in a concurring judgment in Royappa case [(1974) 2 SCR 348 : (1974) 4 SCC 3 : 1974 SCC (L&S) 165 : AIR 1974 SC 555 : (1974) 1 LLJ 172] observed as under: [SCC para 85, p. 38: SCC (L&S) p. 200] “The basic principle which, therefore, informs both Articles 14 and 16 is equality and inhibition against discrimination. Now, what is the content and reach of this great equalising principle?

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It is a founding faith, to use the words of Bose, J., “a way of life”, and it must not be subjected to a narrow pedantic or lexicographic approach. We cannot countenance any attempt to truncate its all- embracing scope and meaning, for to do so would be to violate its activist magnitude. Equality is a dynamic concept with many aspects and dimensions and it cannot be “cribbed, cabined and confined” within traditional and doctrinaire limits. From a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Article 14, and if it affects any matter relating to public employment, it is also violative of Article 16. Articles 14 and 16 strike at arbitrariness in State action and ensure fairness and equality of treatment.” This view was approved by the Constitution Bench in Ajay Hasia case [(1981) 2 SCR 79 : (1981) 1 SCC 722 : 1981 SCC (L&S) 258 : AIR 1981 SC 487 : (1981) 1 LLJ 103]. It thus appears well-settled that Article 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 two persons to arrive at a conclusion of discriminatory treatment. An action per se arbitrary itself denies equal of (sic) protection by law. The Constitution Bench pertinently observed in Ajay Hasia case [(1981) 2 SCR 79 : (1981) 1 SCC 722 : 1981 SCC (L&S) 258 : AIR 1981 SC 487 : (1981) 1 LLJ 103] 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 ‘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 : 1983 SCC (L&S) 145 : (1983) UPSC 263 : AIR 1983 SC 130]. In Maneka Gandhi v. Union of India [ (1978) 2 SCR 621 : (1978) 1 SCC 248 : AIR 1978 SC 597] it was observed that Article 14 strikes at arbitrariness in State action

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and ensures fairness and equality of treatment. It is thus too late in the day to contend that an executive action shown to be arbitrary is not either judicially reviewable or within the reach of Article 14. The contention as formulated by Mr Sinha must accordingly be negatived. ” (Emphasis supplied)

65Copy pinpoint65. The Court thereafter, took notice of the fact that the 10 % “deposit- at-call” of the amount claimed therein was to avoid frivolous claims by the party invoking arbitration. This Court went on to say that a frivolous claim can always be dismissed with exemplary costs.

66Copy pinpoint66. Keeping the aforesaid in mind, if we look into the 7% pre-deposit condition in the case on hand, as contained in Clause 55 of the GCC it is evident that nothing has been provided as to how this amount of 7% is to be ultimately adjusted at the end of the arbitral proceedings. With a view to salvage this situation, the learned counsel appearing for the respondent invited the attention of this Court to Clause 3 of the GCC, which relates to the security deposit for performance. Clause 3 reads thus: “CLAUSE-3: SECURITY DEPOSIT FOR PERFORMANCE: 3.1 The Security Deposit shall comprise of following: (i) Performance Security Deposit/Performance Guarantee to be furnished by the Contractor at the time of Award of Work. (ii) Retention Money/Security Deposit to be recovered from Interim bills of the Contractor. 3.2 The Contractor within 28 (Twenty Eight) days from the date of issue of Letter of Acceptance, shall furnish a Performance security deposit of 10% (Ten percent) of the Contract Price for due performance of contract, in any one of the following forms: (a) Demand draft on any Nationalized/scheduled Bank of India in the name of Employer; or FDR/CDR in the manner as specified in Section-I. (b) Bank Guarantee from an Indian Nationalized/Scheduled Bank of India or a foreign bank through its branch located in India acceptable to Employer in the prescribed proforma.”

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67Copy pinpoint67. Thereafter our attention was drawn to Clause 4 which provides for refund of security deposit. Clause 4 reads thus: “CLAUSE-4: REFUND OF SECURITY DEPOSIT: The Security Deposit less any amount due shall, on demand, be returned to the contractor after 14 days of expiry of Defects Liability Period (referred in Clause 43 hereof). No interest on the amount of Security Deposit shall be paid to the Contractor at the time of release of Security Deposit as stated above.”

68Copy pinpoint68. We are of the view that Clauses 3 and 4 respectively as above relating to security deposit for performance and refund of the same has no nexus at all with the pre-deposit amount of 7% as stipulated in Clause 55 of the GCC. Such vague and ambiguous condition of 7% pre-deposit of the total claim makes the same more vulnerable to arbitrariness thereby violating Article 14 of the Constitution. Even otherwise, as explained in ICOMM Tele Limited (supra) if the claim of the petitioner herein is ultimately found to be frivolous the arbitral tribunal can always award costs in accordance with Section 31A of the Act 1996, which reads thus: “31A. Regime for costs.— (1) In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to determine— (a) whether costs are payable by one party to another; (b) the amount of such costs; and (c) when such costs are to be paid. Explanation.—For the purpose of this sub-section, “costs” means reasonable costs relating to— (i) the fees and expenses of the arbitrators, Courts and witnesses; (ii) legal fees and expenses; (iii) any administration fees of the institution supervising the arbitration; and

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(iv) any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award. (2) If the Court or arbitral tribunal decides to make an order as to payment of costs,- (a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or (b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing. (3) In determining the costs, the Court or arbitral tribunal shall have regard to all the circumstances, including- (a) the conduct of all the parties; (b) whether a party has succeeded partly in the case; (c) whether the party had made a frivolous counterclaim leading to delay in the disposal of the arbitral proceedings; and (d) whether any reasonable offer to settle the dispute is made by a party and refused by the other party. (4) The Court or arbitral tribunal may make any order under this section including the order that a party shall pay- (a) a proportion of another party’s costs; (b) a stated amount in respect of another party’s costs; (c) costs from or until a certain date only; (d) costs incurred before proceedings have begun; (e) costs relating to particular steps taken in the proceedings; (f) costs relating only to a distinct part of the proceedings; and (g) interest on costs from or until a certain date. (5) An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.”

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69Copy pinpoint69. In the aforesaid context, we may refer to and rely upon a nine- Judge Bench decision of the Supreme Court of Canada in the case of Uber Technologies Inc., Uber Canada, Inc., Uber B.V. and Rasier Operations B.V. v. David Heller reported in 2020 SCC OnLine Can SC 13. We quote the relevant observations as under: “42. In our view, there are ways to mitigate this concern that make the overall calculus favour departing from the general rule of referring the matter to the arbitrator in these situations. Courts have many ways of preventing the misuse of court processes for improper ends. Proceedings that appear vexatious can be handled by requiring security for costs and by suitable awards of costs. In England, courts have awarded full indemnity costs where a party improperly ignored arbitral jurisdiction (Hugh Beale, ed., Chitty on Contracts (33rd ed. 2018), vol. II, Specific Contracts, at para. 32-065; A. v. B. (No. 2), [2007] EWHC 54 (Comm.) : [2007] 1 All ER 633 (Comm.), at para. 15; Kyrgyz Mobil Tel Limited v. Fellowes International Holdings Limited, [2005] EWHC 1329 : 2005 WL 6514129 (Q.B.), at paras. 43-44). Further, if the party who successfully enforced an arbitration agreement were to bring an action, depending on the circumstances they might be able to recover damages for breach of contract, that contract being the agreement to arbitrate (Beale, at para. 32-052; West Tankers Inc. v. Allianz SpA, [2012] EWHC 854 (Comm.) : [2012] 2 All ER 395 (Comm.), at para. 77).” (Emphasis supplied) RE: ISSUE NO. 3 WHETHER THE VALIDITY OF THE PRE-DEPOSIT CONDITION AS CONTAINED IN CLAUSE 55 OF THE AGREEMENT CAN BE LOOKED INTO AND DECIDED ON THE ANVIL OF ARTICLE 14 OF THE CONSTITUTION IN A PETITION UNDER SECTION 11(6) OF THE ACT 1996?

70Copy pinpoint70. The vociferous submission on the part of the learned counsel appearing for the respondent, that this Court while considering an application under Section 11(6) of the Act 1996 for the appointment of arbitrator should not test the validity or reasonableness of the conditions stipulated in the

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arbitration clause on the touchstone or anvil of Article 14 of the Constitution, is without any merit or substance.

71Copy pinpoint71. It would be too much for the respondent to say that it is only the writ court in a petition under Article 226 of the Constitution that can consider whether a particular condition in the arbitration clause is arbitrary.

72Copy pinpoint72. It is not for the first time that this Court is looking into the arbitration clause falling foul of Article 14 of the Constitution while deciding Section 11(6) application.

73Copy pinpoint73. In the case of TRF Limited v. Energo Engineering Projects Limited reported in (2017) 8 SCC 377, this Court observed as under: - “In this batch of appeals, by special leave, the seminal issues that emanate for consideration are; whether the High Court [TRF Ltd. v. Energo Engg. Projects Ltd., 2016 SCC OnLine Del 2532] , while dealing with the applications under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for brevity, “the Act”), is justified to repel the submissions of the appellants that once the person who was required to arbitrate upon the disputes arisen under the terms and conditions of the contract becomes ineligible by operation of law, he would not be eligible to nominate a person as an arbitrator, and second, a plea that pertains to statutory disqualification of the nominated arbitrator can be raised before the court in application preferred under Section 11(6) of the Act, for such an application is not incompetent. For the sake of clarity, convenience and apposite appreciation, we shall state the facts from Civil Appeal No. 5306 of 2017.” xxx xxx xxx

54. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription

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contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so.” (Emphasis supplied)

74Copy pinpoint74. In Perkins Eastman (supra), this Court held as under: “This application under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996 (“the Act”) and under the Appointment of Arbitrators by the Chief Justice of India Scheme, 1996 (“the Scheme”) prays for the following principal relief: “(a) appoint a sole arbitrator, in accordance with Clause 24 of the contract dated 22-5-2017 executed between the parties and the sole arbitrator so appointed may adjudicate the disputes and differences between the parties arising from the said contract.” xxx xxx xxx

21. But, in our view that has to be the logical deduction from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator” The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever

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advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72]” (Emphasis supplied)

75Copy pinpoint75. In Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited reported in (2017) 4 SCC 665, this Court held as under: “28. Before we part with, we deem it necessary to make certain comments on the procedure contained in the arbitration agreement for constituting the Arbitral Tribunal. Even when there are a number of persons empanelled, discretion is with DMRC to pick five persons therefrom and forward their names to the other side which is to select one of these fi ve persons as its nominee (though in this case, it is now done away with). Not only this, DMRC is also to nominate its arbitrator from the said list. Above all, the two arbitrators have also limited choice of picking upon the third arbitrator from the very same list i.e. from remaining three persons. This procedure has two adverse consequences. In the first place, the choice given to the opposite party is limited as it has to choose one out of the five names that are forwarded by the other side. There is no free choice to nominate a person out of the entire panel prepared by DMRC. Secondly, with the discretion given to DMRC to choose five persons, a room for suspicion is created in the mind of the other side that DMRC may have picked up its own favourites. Such a situation has to be countenanced. We are, therefore, of the opinion that sub-clauses (b) & (c) of Clause 9.2 of SCC need to be deleted and instead choice should be given to the parties to nominate any person from the entire panel of arbitrators. Likewise, the two

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arbitrators nominated by the parties should be given full freedom to choose the third arbitrator from the whole panel.” (Emphasis supplied)

76Copy pinpoint76. 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.

77Copy pinpoint77. In the aforesaid context, we should look into and discuss the Kelson’s Pure Theory of Law on the basic norm that he called “Grundnorm”.

78Copy pinpoint78. Kelson’s pure theory of law has its pyramidical structure of hierarchy based on the basic norm of Grundnorm. The word ‘Grundnorm’ is a German word meaning fundamental norm. He has defined it as ‘the postulated ultimate rule according to which the norms of this order are established and annulled, receive or lose their validity’. It is the Grundnorm which determines the content and validates the other norms derived from it. But from where it derives its validity, was a question which Kelson did not answer, stating it to be a meta-physical question. Grundnorm is a fiction, rather than a hypothesis as proposed by the jurist. The Grundnorm is the starting point in a legal system and from this base; a legal system broadens down in gradation becoming more and more detailed and specific as it progresses. This is a dynamic process. At the top of the pyramid is the Grundnorm, which is independent. The subordinate norms are controlled by norms superior to them in hierarchical order. The system of norms proceeds from downwards to upwards and finally closes at Grundnorm. (Reference: Application of Grundnorm in India, Zainab Arif Khan, Aligarh Muslim University)

79Copy pinpoint79. Our Constitution is the paramount source of law in our country. All other laws assume validity because they are in conformity with the Constitution. The Constitution itself contain provisions that clearly provide that any law which is in violation of its provisions is unlawful and is liable to be struck down. As contained in Article 13, which provides that all laws which were made either before the commencement of the Constitution, or are made after it, by any competent authority, which are inconsistent with the fundamental rights enshrined in the Constitution, are, to the extent of

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