INDIAN SUPREME COURT RULES THAT PRE-DEPOSIT REQUIREMENT IN AN ARBITRATION AGREEMENT IS UNCONSTITUTIONAL

In a decision of 11 March 2019, the Supreme Court of India (the “Court“) struck down part of an arbitration clause which required a claimant to deposit 10 per cent of the amount claimed with the arbitrator before the arbitration went ahead. The contract was between a government entity and a private party and the Court relied on principles of Indian constitutional and administrative law to hold that the clause was arbitrary and therefore liable to be struck down. The Court also emphasised the need for arbitration to be speedy, effective and inexpensive so that it can “de-clog” the overburdened court system in India. This is an important decision for parties with arbitration agreements with Indian state or state-owned entities, and another encouraging indicator of the pro-arbitration mindset shown by the highest echelons of the Indian judiciary.

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