Pre-Deposit Clauses To Invoke Arbitration Makes Arbitral Process Ineffective And Expensive: SC [Read Judgment]

The Supreme Court has observed that pre-deposit clauses to invoke arbitration would render the arbitral process ineffective and expensive. The case of the company which was awarded the said tender was that the said arbitration clause contained in the tender condition amounts to a contract of adhesion and arbitration being an alternative dispute resolution process, a 10% deposit would amount to a clog on entering the system. 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 each claim and shall furnish a "deposit-at-call" for ten percent of the amount claimed, on a schedule bank in the name of the Arbitrator by his official designation who shall keep the amount in deposit till the announcement of the award. The Apex court bench noted that the 10% "deposit-at-call" before a party can successfully invoke the arbitration clause is on the basis that this is in order to avoid frivolous claims. Deterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10% would discourage arbitration, contrary to the object of de-clogging the Court system, and would render the arbitral process ineffective and expensive."