The concept of unconscionable clauses in a contract and the unequal bargaining power of the parties were central to the judgment.

M.M.KUMAR, J.

1. The prayer made by the petitioners in this petition filed under Article 226 of the Constitution is to declare paras VIII and XV of Clause 25 of the arbitration agreement, dated 8-11-2002 (Annexure P-2 as illegal and ultra vires. It has further been prayed to quash letter dated 18-8-2006 (Annexure P-8), issued by the Arbitrator-cum-Superintending Engineer, respondent No.2, to the petitioner calling upon it to deposit 10% of the amount of the claim submitted by him as per Clause VIII of the contract agreement before entering into arbitration.

2. Brief facts of the case are that the petitioner, which is a registered company owned by the Government of India, is engaged, inter alia, in execution of construction projects of national importance. It has its registered office at New Delhi. The instant petition is filed through the General Manager (Law) Mrs. Meera Shankar, who has Power of Attorney in her favour (Annexure P-1). The State of Punjab, respondent No.1, issued tenders for the erection, testing, commissioning, starting, stabilization and operation, monitoring and performance of 152 MLD STP based on USAB Technology at Balloke Zone C Ludhiana under Satluj Action Plan. The tender submitted by the petitioner was accepted and the work was awarded to it, which was valued at Rs. 2832.85 lakhs. Accordingly, agreement dated 8-11-2002 (Annexure P-2) was executed between the parties which stipulated a period of 18 months for completion of the work. It has been alleged that the petitioner started the work but on account of breaches and defaults on the part of the respondents it was prevented from timely execution. As a result, the petitioner could complete the work to the extent of Rs. 1345 lakhs only up to 31-3-2005. It had left the work incomplete on 1-4-2005. It has further been alleged that the respondent vide letter dated 2-8-2005 (Annexure P-3), illegally and arbitrarily terminated the contract. The petitioner submitted final bill on 27-9-2005. He had also lodged a claim amounting to Rs. 721.34 lakhs (Annexure P-4), which is claimed to be in accordance with the provisions of the contract. The Executive Engineer, however, declined the prayer of the petitioner as is evident from the letter dated 10-1-2006, by holding that the such claims are not as per the provisions of the agreement and were barred by limitation (Annexure P-5). The petitioner sent his reply to the aforementioned rejection on 20-1-2006 (Annexure P-5A).

3. The petitioner eventually lodged a claim before the Arbitration-cum-Superintending Engineer, respondent No. 2 on 7-3-2006. However, the Arbitrator-cum-Superintending Engineer, respondent No. 2, on 18-8-2006 called upon the petitioner to deposit the amount of 10% in pursuance to Clause 25 sub-clauses VIII and XV of the agreement so as to enable him to proceed further in the matter (P-8). It was claimed by the petitioner that the requirement of deposit at call amount at the rate of 10% of the claimed amount, as provided by Clause 25 sub-clauses VIII and XV, were void and requested the Arbitrator to adjudicate upon the said claim without insisting on the requirement of deposit at call amount at the rate of 10% (P-6). A reminder was sent on 7-6-2006 (P-7). The aforementioned clauses have now been challenged in this petition. It is appropriate to extract the aforementioned clauses, which reads as under :-

"VIII. 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 per cent 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. In the event of an award in favour of the claimant, the deposit shall be refunded to him in proportion to the amount awarded w.r.t. the amount cla