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Ker HC | Any condition that requires petitioner to make a pre-deposit of any amount for invoking the arbitration would fall foul of the law declared by SC; Petition allowed

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Kerala High Court

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Kerala High Court: A.K. Jayasankaran J., allowed the present petition, clarifying the scope and ambit of powers to be exercised by Courts under Section 11 of the Arbitration and Conciliation Act, 1996 and the effect of pre-condition imposed against invoking of an Arbitration Agreement.

Brief Facts

Facts of the case are briefly mentioned hereunder;

  1. That the petitioner is a company incorporated under the Companies Act, 1956, with its registered office at New Delhi and the respondent is the Airports Authority of India, a statutory body under the aegis of the Ministry of Civil Aviation, Government of India that is responsible for creating, maintaining, upgrading and managing civil aviation infrastructure in India.
  2. That the respondent had floated a ‘request for qualification’ (RFQ) and ‘request for proposal’ (RFP) for concession to develop, market, setup, operate, maintain and manage the food and beverage outlets (F&B outlets) at Calicut International Airport, and invited bids from intending bidders in terms of the RFP and RFQ.
  3. That the petitioner submitted its technical and financial bids and in the evaluation procedure that followed, the petitioner was found eligible and was accordingly awarded the concession referred above.
  4. That the parties consequently executed the Letter of Intent to Award (LOIA) dated 07-12-2017 and the Concession Agreement dated 22-3-2018, containing the terms and conditions of the contract between them.
  5. That the respondents allegedly raised wrong invoices against the petitioner which was anyhow paid by them.
  6. That due to continued losses the petitioner was forced to issue a termination notice dated 16-4-2019 and finally vacated the premises on 13-8-2019.
  7. That the respondent unilaterally invoked the bank guarantee that had been furnished by the petitioner as security deposit and also proceeded to blacklist the petitioner from participating in future tenders floated by the respondent for a period of three years.
  8. That the invocation of the bank guarantee was injuncted by an order dated 05-09-2019 of the Principal District Judge, Manjeri passed in an Arbitration preferred by the petitioner under Section 9 of the Arbitration and Conciliation Act, 1996.
  9. That consequently, the petitioner invoked the arbitration agreement vide notice dated 23-09-2019 and nominated its Arbitrator to act as the sole Arbitrator, to adjudicate upon the disputes between the petitioner and the respondent arising out of and in relation to the concession agreement and requesting the respondent to agree to the suggestion.
  10. That on the respondent refuting the claim of the petitioner for recourse to arbitration, the petitioner was constrained to approach this Court through the present Arbitration Request.

 Contentions

Counsel for the petitioner, Sri S. Sreekumar assisted by Sri P.Martin Jose, submitted that obliging the petitioner to choose an Arbitrator from among a panel suggested by the respondent, fall foul of the law declared by the Supreme Court in Perkins Eastman v. HSCC (India) Ltd., 2019 SCC Online SC 1517, as also by the Bombay High Court in the judgment dated 04-12-2019 in Commercial Arbitration Application No.495/2019 between the very same parties and in respect of an identical agreement. Moreover, the condition in clause 5.15 of the RFP that requires the petitioner to pre-deposit amounts as a condition for invoking the arbitration can no longer be seen as a valid clause in the light of the judgment of the Supreme Court in ICOMM Tele Ltd. v. Punjab State Water Supply and Sewerage Board, (2019) 4 SCC 401, wherein it was opined that ‘deterring a party to an arbitration from invoking the alternate dispute resolution process, by insisting on 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’. Lastly, it is pointed out that the amendment made in 2015 limits the scope of examination of this Court, in proceedings under Section 11 of the 1996 Act to the existence of an arbitration agreement and nothing more. Reliance is placed on the decision of the Supreme Court in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., (2020) 2 SCC 455  for the said proposition.

Counsel for the respondent, Sri NN Sugunapalan assisted by Sri V. Santharam, contended that the Arbitration Request is not maintainable for it being a premature step. A reference was made to clause 5.15(i) and (ii) of the RFP, which mandates that the petitioner has to deposit the disputed amount with the respondent as a condition precedent for invoking the arbitration clause. The Counsel further relied on the decision in S.K. Jain v. State of Haryana, (2009) 4 SCC 357, to contend that the Supreme Court had, in that case, found a clause, that required the party invoking arbitration to make a security deposit of an amount as a precondition for invoking the arbitration agreement, on condition that the said amount would be refunded to him if he succeeded in the action, as not illegal.

 Observations

Post Amendment Act of 2015, the role of court while entertaining a petition under Section 11 of the Arbitration and Conciliation Act, 1996 is limited to look at one aspect alone, namely, the existence of an arbitration agreement between the parties. In the instant case, the submissions advanced on behalf of the petitioner and the respondent indicates that there is no dispute among them as regards the existence of an arbitration agreement between them, the question urged being only as to whether the petitioner was required to fulfill certain preconditions before invoking the arbitration under the said agreement.

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 v. HSCC (India) Ltd., 2019 SCC Online SC 1517 and ICOMM Tele Ltd. v. Punjab State Water Supply Board, (2019) 4 SCC 401.

 Decision

While allowing the petition at hand, the Court clarified the effect of a pre-condition for invoking the Arbitration Agreement, in the light of settled precedents. The Court further appointed an Arbitrator and issued relevant directions for the conduct of arbitration proceedings.[Lite Bite Foods v. Airport Authority of India,  2020 SCC OnLine Ker 4736, decided on 28-10-2020]

Sakshi Shukla, Editorial Assistant has put this story together

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