# CASE DETAILS LOMBARDI ENGINEERING LIMITED v. UTTARAKHAND JAL VIDYUT NIGAM LIMITED

- **Citation:** 2023 INSC 976
- **Court:** Supreme Court of India
- **Decided:** 2023-11-06
- **Case number:** Arbitration Petition No. 43 of 2022
- **Bench:** Dr. Dhananjaya Y. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-lombardi-engineering-limited-v-uttarakhand-jal-vidyut-nigam-limited-36677
- **Pages:** 84

## Headnote

Issue for consideration: Whether the dictum as laid down in ICOMM
Tele Limited's case can be made applicable to the instant case, 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; whether
there is any direct confl ict between the decisions of this Court in S.K. Jain's
case and ICOMM Tele Limited 's case; whether this Court while deciding
a petition fi led u/s. 11(6) of the Arbitration and Conciliation 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; and whether the arbitration Clause No. 55
of the Contract empowering the Principal Secretary/Secretary (Irrigation)
to appoint an arbitrator of his choice is in confl ict with the decision of this
Court in Perkins Eastman's case.
Arbitration and Conciliation Act, 1996 - Arbitration agreement
- Arbitration clause - Invocation of - Clause 55 of the General
Conditions of Contract providing for a pre-deposit of 7% of the total
claim - Validity of:
Held: As regards 7% pre-deposit condition, nothing has been provided
as to how this amount of 7% is to be ultimately adjusted at the end of the
arbitral proceedings - Clauses 3 and 4 respectively 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
944
SUPREME COURT REPORTS
[2023] 13 S.C.R.
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 - Thus, the Conditions contained in Clause 55 of the GCC,
relating to 7% deposit of the total amount claimed should be ignored.
[Para 66, 68]
Arbitration and Conciliation Act, 1996 - Arbitration agreement -
Pre-deposit clause - S.K. Jain's case and ICOMM Tele Limited 's case
where substantive challenges made to the pre-deposit clause , if any
direct confl ict between the said decisions of this Court:
Held: There is no confl ict between S.K. Jain's case and ICOMM
Tele Limited's case, as the relevant arbitration clauses that fell for the
consideration of this Court in both the cases stood completely on a diff erent
footing. [Para 61]
Arbitration and Conciliation Act, 1996 - s. 11(6) - Petition under,
for appointment of arbitrator - Validity of the pre-deposit condition
as contained in the arbitration clause - If it could be looked into and
decided on the anvil of Article 14 of the C onstitution in the petition:
Held: It cannot be said that this Court while considering an application
u/s. 11(6) for the appointment of arbitrator should not test the validity or
reasonableness of the conditions stipulated in the arbitration clause on the
touchstone or anvil of Article 14 of the Constitution - It would be too much
to say that it is only the writ court in a petition u/Art. 226 that can consider
whether a particular condition in the arbitration clause is arbitrary - Concept
of "party autonomy" cannot be stretched to an extent where it violates the
fundamental rights under the Constitution - For an arbitration clause to be
legally binding it has to be in consonance with the "operation of law" which
includes the Grundnorm-the Constitution - There can be no consent against
the law and there can be no waiver of fundamental rights. [Para 70, 71, 84, 85]
Arbitration and Conciliation Act, 1996 - s. 11(6) - Appointment
of an arbitrator - Arbitration Clause of the Contract empowering the
Principal Secretary/Secretary (Irrigation) to appoint an arbitrator of his
choice, if covered by the decision of this Court in Perkins Eastman's case:
Held: If circumstances exist giving rise to justifi able doubts as
to the independence and impartiality of the person nominated or if other
945
circumstances warrant appointment of an independent arbitra

## Text

_Characters 0–39,053 of 185,071. This is a partial read: ask again with offset=39053 for what follows._

[2023] 13 S.C.R. 943 : 2023 INSC 976
943
CASE DETAILS
LOMBARDI ENGINEERING LIMITED
v.
 UTTARAKHAND JAL VIDYUT NIGAM LIMITED
(Arbitration Petition No. 43 of 2022)
NOVEMBER 6, 2023
[DR. DHANANJAYA Y. CHANDRACHUD, CJI,
J.B. PARDIWALA AND MANOJ MISRA, JJ.]
HEADNOTES
Issue for consideration: Whether the dictum as laid down in ICOMM
Tele Limited's case can be made applicable to the instant case, 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; whether
there is any direct confl ict between the decisions of this Court in S.K. Jain's
case and ICOMM Tele Limited 's case; whether this Court while deciding
a petition fi led u/s. 11(6) of the Arbitration and Conciliation 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; and whether the arbitration Clause No. 55
of the Contract empowering the Principal Secretary/Secretary (Irrigation)
to appoint an arbitrator of his choice is in confl ict with the decision of this
Court in Perkins Eastman's case.
Arbitration and Conciliation Act, 1996 - Arbitration agreement
- Arbitration clause - Invocation of - Clause 55 of the General
Conditions of Contract providing for a pre-deposit of 7% of the total
claim - Validity of:
Held: As regards 7% pre-deposit condition, nothing has been provided
as to how this amount of 7% is to be ultimately adjusted at the end of the
arbitral proceedings - Clauses 3 and 4 respectively 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
944
SUPREME COURT REPORTS
[2023] 13 S.C.R.
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 - Thus, the Conditions contained in Clause 55 of the GCC,
relating to 7% deposit of the total amount claimed should be ignored.
[Para 66, 68]
Arbitration and Conciliation Act, 1996 - Arbitration agreement -
Pre-deposit clause - S.K. Jain's case and ICOMM Tele Limited 's case
where substantive challenges made to the pre-deposit clause , if any
direct confl ict between the said decisions of this Court:
Held: There is no confl ict between S.K. Jain's case and ICOMM
Tele Limited's case, as the relevant arbitration clauses that fell for the
consideration of this Court in both the cases stood completely on a diff erent
footing. [Para 61]
Arbitration and Conciliation Act, 1996 - s. 11(6) - Petition under,
for appointment of arbitrator - Validity of the pre-deposit condition
as contained in the arbitration clause - If it could be looked into and
decided on the anvil of Article 14 of the C onstitution in the petition:
Held: It cannot be said that this Court while considering an application
u/s. 11(6) for the appointment of arbitrator should not test the validity or
reasonableness of the conditions stipulated in the arbitration clause on the
touchstone or anvil of Article 14 of the Constitution - It would be too much
to say that it is only the writ court in a petition u/Art. 226 that can consider
whether a particular condition in the arbitration clause is arbitrary - Concept
of "party autonomy" cannot be stretched to an extent where it violates the
fundamental rights under the Constitution - For an arbitration clause to be
legally binding it has to be in consonance with the "operation of law" which
includes the Grundnorm-the Constitution - There can be no consent against
the law and there can be no waiver of fundamental rights. [Para 70, 71, 84, 85]
Arbitration and Conciliation Act, 1996 - s. 11(6) - Appointment
of an arbitrator - Arbitration Clause of the Contract empowering the
Principal Secretary/Secretary (Irrigation) to appoint an arbitrator of his
choice, if covered by the decision of this Court in Perkins Eastman's case:
Held: If circumstances exist giving rise to justifi able doubts as
to the independence and impartiality of the person nominated or if other
945
circumstances warrant appointment of an independent arbitrator by ignoring
the procedure prescribed, the Chief Justice or his designate may, for reasons
to be recorded ignore the designated arbitrator and appoint someone else
- On facts, the condition contained in Clause 55 of the GCC as regards the
stipulation empowering the Principal Secretary (Irrigation) Government of
Uttarakhand to appoint a sole arbitrator is ignored and proceed to appoint
an independent arbitrator. [Para 87, 102]
s. 12(5) - Neutrality of Arbitrators:
Held: Term "neutrality" used is relatable to impartiality and
independence of the arbitrators, without any bias towards any of the parties -
Sub-section (5) of s. 12 lays down that notwithstanding any prior agreement
to the contrary, any person whose relationship with the parties or counsel or
the subject-matter of the dispute falls under any of the categories specifi ed in
the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator -
In such an eventuality, when the arbitration clause fi nds foul with the amended
provisions, the appointment of an arbitrator would be beyond pale of the
arbitration agreement, empowering the court to appoint such arbitrator(s)
as may be permissible - That would be the eff ect of the non obstante clause
contained in s. 12(5) and the other party cannot insist on appointment of the
arbitrator in terms of the arbitration agreement. [Para 90, 91]
Jurisprudence - Kelson's Pure Theory of Law on the basic norm -
Application of "Grundnorm" in India:
Held: In the context of the Arbitration Agreement, the layers of the Grundnorm
as per Kelsen's theory would be in the following hierarchy-Constitution of India;
Arbitration and Conciliation Act, 1996 & any other Central/State Law;
and Arbitration Agreement entered into by the parties in light of s. 7 of the
Arbitration and Conciliation Act, 1996 - Thus, the Arbitration Agreement
has to comply with the requirements of the following and cannot fall foul
of s. 7 of the Arbitration and Conciliation Act; any other provisions of
the Arbitration and Conciliation Act, 1 996 & Central/State Law; and the
Constitution of India - Arbit ration and Conciliation Act, 1996 - Constitution
of India .[Paras 78,81,82]
Doctrines/Principles - Doctrine o f unconscionability - Discussed.
[Para 95-101]
LOMBARDI ENGINEERING LTD. v. UTTARAKHAND JAL
VIDYUT NIGAM LTD.
946
SUPREME COURT REPORTS
[2023] 13 S.C.R.
LIST OF CITATIONS AND OTHER REFERENCES
Perkins Eastman Architects DPC and Another v. HSCC (India) Limited
(2020) 20 SCC 760; ICOMM Tele Limited v. Punjab State Water Supply and
Sewerage Board and Another (2019) 4 SCC 401: [2019] 2 SCR 984; Iron &
Steel Co. Ltd. v. Tiwari Road Lines (2007) 5 SCC 703: [2007] 6 SCR 156;
National Highways Authority of India and Another v. Bumihiway DDB Ltd.
(JV) and Others (2006) 10 SCC 763: [2006] 6 Suppl. SCR 586; Yash with
Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. and Another
(2006) 6 SCC 204: [2006] 3 Suppl. SCR 96; S.K. Jain v. State of Haryana
and Another (2009) 4 SCC 357: [2009] 2 SCR 1080; State of West Bengal
and Others v. Associated Contractors (2015) 1 SCC 32: [2014] 10 SCR
426; Duro Felguera, S.A. v. Gangavaram Port Limited (2017) 9 SCC 729:
[2017] 10 SCR 285; Vidya Drolia and Others v. Durga Trading Corporation
(2021) 2 SCC 1: [2020] 11 SCR 1001; Pravin Electricals Private Limited
v. Galaxy Infra and Engineering Private Limited (2021) 5 SCC 671: [2021]
1 SCR 1162; Sanjiv Prakash v. Seema Kukreja and Others (2021) 9 SCC
732; Indian Oil Corporation Limited v. NCC Limited (2023) 2 SCC 539;
Bharat Sanchar Nigam Limited and Another v. Nortel Networks India Private
Limited (2021) 5 SCC 738: [2021] 2 SCR 644; Secunderabad Cantonment
Board v. B. Ramachandraiah and Sons (2021) 5 SCC 705: [2021] 3 SCR 68;
B and T AG v. Ministry of Defence 2023 SCC OnLine SC 657; Municipal
Corpn., Jabalpur And Others V. Rajesh Construction Co. (2007) 5 SCC
344: [2007] 5 SCR 137; Lite Bite Foods Pvt. Ltd. v. Airports Authority of
India reported in 2020 SCC OnLine Ker 4736, The Assan Co-Op. L & C
Society v. Haryana Vidyut Prasaran Nigam Ltd., ARB-127-2019 (Section
11 Petition); CWP-13539-2021 (Civil Writ Petition); Garg and Company
v. State of Haryana & Ors., CWP Nos. 21840 of 2020, 21857 of 2020 and
21858 of 2020 (O&M); Brij Gopal Construction Co. Pvt. Ltd. v. Haryana
Shehri Vikas Pradhikaran, CWP-14587-2022 (O&M); Bathinda Railway
Transhipment Cooperative L&C Society Ltd. v. Punjab Mandi Board & Ors.,
Civil Writ Petition No. 28981 of 2019 (O&M); Amazing India Contractors
Pvt. Ltd. v. Airport Authority of India and Others reported in 2023 SCC
OnLine Cal 1704, C.O. 66 of 2022; A.L. Kalra v. Project and Equipment
Corporation of India Ltd. (1984) 3 SCC 316: [1984] 3 SCR 646; TRF Limited
v. Energo Engineering Projects Limited (2017) 8 SCC 377: [2017] 7 SCR
409; Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited
947
(2017) 4 SCC 665: [2017] 1 SCR 798; Squadron Leader H. S. Kulshrestha v
Union of India 1999 SCC OnLine All 270; Abdur Sukur & Another v State
of West Bengal & others 2019 SCC Online Cal 5455; Om Prakash Gupta
v Hindustan Petroleum Corporation Ltd. & Anr. 2009 SCC OnLine Raj
1381; Sunil v State of M. P. & Another reported in 2016 SCC OnLine MP
8551; Government of Andhra Pradesh & Ors vs Smt. P. Laxmi Devi (2008)
4 SCC 720: [2008] 3 SCR 330; Olga Tellis and Others v. Bombay Municipal
Corporation and Others (1985) 3 SCC 545: [1985] 2 Suppl. SCR 51; Datar
Switchgears Ltd. v. Tata Finance Ltd (2000) 8 SCC 151; Punj Lloyd Ltd.
v. Petronet MHB Ltd. (2006) 2 SCC 638; Union of India v. Bharat Battery
Mfg. Co. (P) Ltd. (2007) 7 SCC 684: [2007] 8 SCR 993; Deep Trading Co.
v. Indian Oil Corpn. (2013) 4 SCC 35: [2013] 2 SCR 470; Union of India
v. Singh Builders Syndicate (2009) 4 SCC 523: [2009] 3 SCR 563; North
Eastern Railway v. Tripple Engg. Works (2014) 9 SCC 288: [2014] 6 SCR
1143; Union of India and Others v. Uttar Pradesh State Bridge Corporation
Limited (2015) 2 SCC 52: [2014] 13 SCR 1180 - referred to.
Uber Technologies Inc., Uber Canada, Inc., Uber B.V. and Rasier
Operations B.V. v. David Heller 2020 SCC OnLine Can SC 13; Patterson
v. ITT Consumer Financial Corporation reported in 18 Cal. Rptr. 2d 563
(Cal. Ct. App. 1993); Vegter v. Forecast Financial Corporation reported in
2007 WL 4178947 - referred to.
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL ORIGINAL JURISDICTION : Arbitration Petition No.43 of
2022.
Petition Under Section 11 (6) read with Section 11 (12) of the
Arbitration and Conciliation Act, 1996.
Appearances:
Sidhant Goel, Mohit Goel, Ms. Garima Bajaj, Shubham Saxena,
Abhishek Kotnala, Karmanya Dev Sharma, Advs. for the Petitioner.
Amit Anand Tiwari, K. K. Sinha, Ms. Devyani Gupta, Ms. Tanvi
Anand, Ms. Saushriya Havelia, Anirudh Singh, Ms. Arjoo Rawat, Advs.
for the Respondent.
LOMBARDI ENGINEERING LTD. v. UTTARAKHAND JAL
VIDYUT NIGAM LTD.
948
SUPREME COURT REPORTS
[2023] 13 S.C.R.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
J. B. PARDIWALA, J.
1. This is a petition under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (for short, "the Act 1996") fi led 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
2. The petitioner is a design consultancy fi rm based in Switzerland,
having its registered offi ce 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.
3. The respondent is a wholly owned corporation of the Government
of Uttarakhand having its registered offi ce at Maharani Bagh, GMS Road,
Dehradun, Uttarakhand, India and is engaged in the business of operating
hydro power plants in the State of Uttarakhand.
4. 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.
949
5. 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.
6. 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.
7. 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,
certifi cate 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 modifi cation 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:
LOMBARDI ENGINEERING LTD. v. UTTARAKHAND JAL
VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]
950
SUPREME COURT REPORTS
[2023] 13 S.C.R.
(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 specifi c term;
vii) the facts relied upon in support of the Claim in suffi cient detail to
permit verifi cation; 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
specifi cation 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 modifi cation 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)
951
8. 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 FortyFour and Eighty Six Paise only) for fi nancial loss suff ered 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 fi gure/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 confi rmation 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.
LOMBARDI ENGINEERING LTD. v. UTTARAKHAND JAL
VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]
952
SUPREME COURT REPORTS
[2023] 13 S.C.R.
28. The Respondent is requested to intimate its approval to the nominee
proposed by the Claimant, within 15 (fi fteen) days of the receipt of this Notice,
failing which the Claimant will exercise all rights under applicable law for
the commencement of arbitration proceedings."
9. 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-fulfi lment of the contractual obligation.
10. 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
11. 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.
12. 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.
13. The learned counsel further submitted that the condition for predeposit 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.
14. 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
953
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.
15. 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
16. 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 preconditions: (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.
17. 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.
18. 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 diff erently worded vis-a-vis the pre-deposit clause provided in the
case of S.K. Jain (supra).
19. 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 fi de claims
are made by the parties, and that the project is not hindered by frivolous
LOMBARDI ENGINEERING LTD. v. UTTARAKHAND JAL
VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]
954
SUPREME COURT REPORTS
[2023] 13 S.C.R.
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 infl ated 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.
20. 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.
21. It was also argued that the petitioner having consented to the predeposit 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".
22. 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.
23. 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.
955
ANAYLSIS
24. 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 confl ict between the decisions of this
Court in S.K. Jain (supra) and ICOMM Tele Limited (supra)?
(iii) Whether this Court while deciding a petition fi led 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 confl ict
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
25. In the wake of a few decisions of this Court, the legislature thought
fi t 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, confi ne to the examination of the existence of an
arbitration agreement."
(Emphasis supplied)
LOMBARDI ENGINEERING LTD. v. UTTARAKHAND JAL
VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]
956
SUPREME COURT REPORTS
[2023] 13 S.C.R.
26. 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".
27. The entire case law on the subject was considered by a threejudge 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 eff ect from 23-10-2015) and even post the amendments
vide Act 33 of 2019 (with eff ect 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 fi rst authority to determine and decide all
957
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 insuffi cient
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 affi rm and uphold integrity and effi cacy of arbitration
as an alternative dispute resolution mechanism."
(Emphasis supplied)
28. 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 fi de. 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 fi rst
review to weed out manifestly and ex facie non-existent and invalid
LOMBARDI ENGINEERING LTD. v. UTTARAKHAND JAL
VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]
958
SUPREME COURT REPORTS
[2023] 13 S.C.R.
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 fi rst 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 longdrawn review at the referral stage would obstruct and cause delay
undermining the integrity and effi cacy of arbitration as a dispute
resolution mechanism. Conversely, if the court becomes too reluctant
to intervene, it may undermine eff ectiveness 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 fi nd
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
959
examination, the matter should be left for fi nal 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 fi rst adjudicator is benefi cent as it helps in quicker and effi cient
resolution of disputes."
(Emphasis supplied)
29. 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 nonarbitrability 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.
30. 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 defi nitely an arbitrable dispute and the same should be referred
to the arbitral tribunal, however, the petitioner should abide by Clause 55
of the Contract.
LOMBARDI ENGINEERING LTD. v. UTTARAKHAND JAL
VIDYUT NIGAM LTD. [J. B. PARDIWALA, J.]
960
SUPREME COURT REPORTS
[2023] 13 S.C.R.
31. In the case on hand, we are concerned fi rst 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
32. 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
33. In S.K. Jain (supra), the challenge was to an order passed in a
writ petition fi led 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.
34. In S.K. Jain (supra), the relevant arbitration clause reads as under:
"25-A.