Pioneer Urban Land And Infrastructure Ltd V Govindan Raghavan CIVIL APPEAL NO.

12238 OF
2018

Facts :
In the matter before the Supreme Court, the buyer of the apartment on account of the developer
not having applied for the occupancy certificate much after the promised date of delivery, asked for
refund of the amount paid along with interest and compensation. They buyer also filed a consumer
complaint to seek relief.

“The National Commission after considering the facts asked the developer to refund the money
along with interest @10.7% which was greater than the rate of interest prescribed in the agreement
after considering the cost of borrowing of the loan and rate prescribed under the Haryana Real
Estate (Regulation and Development) Rules, 2017. It also held that although the developer obtained
the Occupancy certificate during the pendency of the complaint before the court, owing to the delay
being more than 2 years and also since the buyer had already bought another flat, the developer
could not thrust upon the buyer the possession of the flat,” says Sandeep Shah, Partner, N.A Shah
Associates LLP.

The Supreme Court also noted the recommendation of The Law Commission of India in its 199th
Report, relating to the issue of ‘Unfair (Procedural & Substantive) Terms in Contract’ which had
recommended that a legislation be enacted to counter such unfair terms in contracts. In the draft
legislation provided in the Report, it was stated that: “A contract or a term thereof is substantively
unfair if such contract or the term thereof is in itself harsh, oppressive or unconscionable to one of
the parties.”

The Supreme Court analyzed the agreement and compared the options available to the builder and
to the buyer in matter of right of cancellation/ termination, rate of interest and when the amount
should be refunded. The Court noted that there were stark incongruities between the remedies
available to both the parties and it had no hesitation in holding that agreement was one-sided and
the buyer was made to sign on the dotted lines

Held:
The Supreme Court has held that terms of a contract will not be final and binding if it is shown that
the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder.
It further held that incorporation of one-sided clauses in an agreement constitutes an unfair trade
practice as per Section 2 (r) of the Consumer Protection Act, 1986 since it adopts unfair methods or
practices for the purpose of selling the flats by the builder.
M/s Inox Wind Ltd. v/s M/s Thermocables Ltd., 2018

Facts:
M/s Inox Wind Ltd. manufactured Wind Turbine Generators (WTGs) and M/s Thermocables Ltd.
manufactured wind power and other types of cables. M/s Inox Ltd. placed two orders with M/s
Thermocables Ltd. for the supply of cables. As per the Purchase Order, supply was to be according to
the terms mentioned in the order and Standard Terms and Conditions that were attached thereto.
The Standard Terms and Conditions, among other conditions, contained a clause pertaining to
dispute resolution which said that any dispute shall be resolved by a sole arbitrator in accordance
with the provisions of the Arbitration and Conciliation Act, 1996. M/s Thermocables Ltd. accepted all
the terms and conditions except the delivery period, which they informed M/s Inox Wind Ltd. by a
letter. M/s Thermocables Ltd. supplied the order contents but while laying the cables, M/s Inox Wind
Ltd. discovered that outer sheaths of cables were cracked due to which their work was aborted. M/s
Thermocables did not replace the cables. M/s Inox Wind was forced to propose the name of the sole
arbitrator for dispute resolution as per the aforesaid terms. When M/s Thermocables Ltd. did not
reply, M/s Inox Wind Ltd. moved to Allahabad High Court to file an application under Section 11(6)
of the Arbitration and Conciliation Act, 1996. The court dismissed the application by holding that an
arbitrator cannot be appealed as M/s Inox Wind Ltd. could not prove the existence of an arbitration
agreement.

Held:
The accepted rule is that a general reference to a standard form of contract cannot make
incorporation of arbitration clause successful. Yet an exception to the rule is that in cases involving
parties (which are trade associations or professional institutions) entering into a contract
incorporating terms previously agreed between the parties in another contract(s) to which they both
were parties, a general reference would suffice for incorporation of an arbitration clause from a
standard form of contract. The case in hand is a ‘single contract’ case, i.e., the standard form of
contract of one party (here, M/s Inox Winds Ltd.) and so the exception to the rule applies. Yet, by
virtue of various cases, an exception, which is applicable in the case in hand, arose. Thus, applying
the exception, the Supreme Court allowed the appeal and rejected Allahabad High Court’s decision
and subsequently appointed an arbitrator for dispute resolution in accordance with the contract.
ICOMM Tele Ltd. v Punjab State Water Supply and Sewerage Board & Anr.,

Facts
In 2008, the Punjab State Water Supply and Sewerage Board (First Respondent) issued a notice for
tender for the extension and augmentation of water supply, sewerage scheme, pumping station and
sewerage treatment plant for various towns. ICOMM Tele Ltd. (Appellant) successfully contested for
the same and on 16 January 2009, a formal contract was entered into between the Appellant and
the Executive Engineer, Punjab State Water Supply and Sewerage (Second Respondent), which
contract incorporated the notice for tender.

The notice for tender contained a detailed arbitration clause, which, in Clause 25(viii) provided that
any party invoking arbitration shall, inter alia, "furnish a 'deposit-at-call' for 10% of the amount
claimed." In the event of the award being passed in the claimant's favour, this deposit would be
refunded to the claimant "in proportion to the amount awarded with respect to the amount
claimed." Furthermore, the balance, if any, would be "forfeited and paid to the other party". The
arbitration clause specified that such condition was incorporated with a view to prevent 'frivolous
claims.' The arbitration clause further barred parties from agitating issues relating to the contract
before a civil court unless the same had first been decided in arbitral proceedings.

The Appellant and the Second Respondent had entered into other similar contracts, which also
contained the same arbitration clause. Following the emergence of disputes, the Appellant
communicated with the Second Respondent regarding the appointment of the arbitrator and waiver
of the deposit requirement. On receiving no response, the Appellant made two unsuccessful
attempts at challenging Clause 25(viii) by way of writ petitions before the High Court of Punjab and
Haryana. Thereafter, the Appellant approached the Supreme Court against the same.

The question before the Supreme Court was whether Clause 25(viii) ought to be struck down on
ground(s) that it –

 amounted to a contract of adhesion and therefore, violated Article 14 of the Indian

Constitution (Art. 14);

 was arbitrary and/or discriminatory and therefore, violated Art. 14; and/or

 deters arbitration.

Held
The Court then considered the effect of Clause 25(viii) on the ability of the parties to settle their
disputes through arbitration.

The Court, while noting that the aim of Clause 25(viii) was to deter frivolous claims, observed that
the clause is arbitrary in the sense of being unfair and unjust and that no reasonable person would
agree to the same. The Court further noted that not every claim is necessarily frivolous. A claim may
be dismissed or allowed on merits and not because it is frivolous. The Court observed that in case a
claim is found to be frivolous, it is always open for an arbitrator to dismiss the claim with exemplary
costs.

The Court also concluded that Clause 25(viii) was arbitrary, excessive and unjust because it could
potentially result in a situation where despite an award against it, the party who has lost would be
entitled to forfeit such part of the deposit as falls proportionately short of the amount awarded as
compared to the sum claimed.

Finally, after noting that arbitration is an important alternate dispute resolution mechanism, the
Court held that the requirement of a pre-deposit, as contained in Clause 25(viii) would discourage
arbitration – contrary to the object of de-clogging the Court system.

For these reasons, the Court struck down Clause 25(viii).