Whether a Condition of Pre-Deposit for Invoking Arbitration is Valid?

Recently, the Kerala High Court clarified the scope of power to be exercised by the Courts u/s 11 of Arbitration and Conciliation Act,1996 and also, the effect of pre-condition imposed against invoking of an Arbitration Agreement.

Background of the Case:-

The petitioner in the case was a company incorporated under Companies Act,1956 with its office in Delhi and the respondent was Airport Authority of India a statutory body responsible for creating, maintaining, managing and upgrading civil aviation infrastructure of India.

Respondents had floated a request for proposal(RFP) and a request for Qualification(RFQ) for concession to develop, setup, market, maintain, operate and manage Food and Beverage outlets at Calicut Airport and had invited bids for the same.

The petitioners submitted financial and technical bids, and the petitioner was awarded the concession.

The parties executed the Concession Agreement and Letter of Intent to Award.

It was alleged that the respondents raised wrong invoices by the petitioner paid them anyhow.

Due to losses sustained, the petitioner issued a termination notice and vacated the premises.

Respondent invoked a bank guarantee that was furnished by the petitioner as security and also blacklisted the petitioner for three years.

The Principal District Judge injuncted the invocation of Bank Guarantee.

Consequently, the petitioner invoked the arbitration agreement vide notice dated 23.09.2019 and nominated its Arbitrator as the Sole Arbitrator.

The respondent refutes the recourse of Arbitration. Aggrieved, the petitioner moved the Supreme Court with an Arbitration Request.

Contentions raised before the Court:-

Learned Counsel for the petitioner submitted that making the petitioner choose an arbitrator from a panel suggested by the respondent has been declared bad in law by the Apex Court in Perkin Eastman vs HSCC Ltd.

It was argued that the condition of the respondent to make a pre-deposit to invoke Arbitration could not be seen as valid in light of the Supreme Court’s judgement in ICOMM Tele vs Punjab Water Supply Board.

The Counsel also submitted that after the amendment of 2015, in proceedings u/s 11 of the Arbitration Act, the Court can only examine the existence of the Arbitration agreement and nothing more.

Counsel for the respondent argued that the Arbitration request was not maintainable for it being a premature step. He also referred to clause 5.15(i) and (ii) of the RFP where it was stated that to invoke Arbitration, the petitioner will have to pre-deposit the disputed amount.

Reasoning of the Court:

The Court observed that post the amendment of 2015, the role of the Court while entertaining a petition u/s 11 of Arbitration and Conciliation Act has become limited to one aspect, i.e. the existence of arbitration agreement between the parties.

It was further observed that there was no dispute between the parties regarding the existence of the arbitration agreement, but the issue was whether the petitioner was required to fulfil any pre-conditions before invoking Arbitration.

A reference was made to Perkins Eastman vs HSCC and ICOMM Tele Ltd vs Punjab Water Supply Board where it was held that pre-deposit of an amount as a condition for invoking Arbitration was bad in law.

Decision of the Court:-

The instant petition was allowed by the Hon’ble Supreme Court, and an Arbitrator was appointed by the Court to conduct the arbitration proceedings.

Case Details:

Title: Lite Bite Foods Pvt. Ltd Vs Airports Authority Of India

Case No.: A.R. No. 103 of 2019

Coram: Hon’ble Mr. Justice A.K.Jayasankaran Nambiar

Date of Judgment: 28.10.2020

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