A contractor making a claim of ₹1.77 crore must first hand over ₹17.7 lakh in cash, more than double the ₹7,16,300 court fees that the same suit would incur in a Haryana civil court, before a tribunal will even hear him. That is the arithmetic buried inside M/s Santosh Associate Private Limited v. Haryana State Industrial and Infrastructure Development Corporation Limited, wherein a two-judge Bench of the Supreme Court on 17 August 2026 referred to a larger Bench the validity of a contractual clause requiring the contractor to pay 10 % of the amount claimed before invoking arbitration. Yet the stronger argument is this: the requirement for a deposit before arbitration is not flawed for it may tend to dissuade from making claims; it is flawed since it singles out one party alone for being subject to a certain obligation, and Section 18 of the Arbitration and Conciliation Act, 1996, that requires equality of treatment of the parties at all stages of the proceedings, condemns such asymmetry regardless of whether the deposit is refundable. The larger Bench must strike down the clause on that very basis, and the Court's own phrasing might itself tend to obscure it.

The relevant Clause 25-A(vii) in the HSIIDC agreement provided for the possibility of arbitration only when the contractor raised a claim of ₹1 lakh or more and submitted a security deposit of 10 % of the claim amount. The deposit was to be refunded after completion of the proceedings, after set-off of any amount awarded as costs against the claimant. In the instant case, the invocation of the arbitration provision led to the rejection by the sole arbitrator of the objection of HSIIDC regarding the non-maintainability of the reference along with the dismissal of the claim. The Commercial Court, while endorsing this order, relied on S.K. Jain v. State of Haryana (2009). The Supreme Court, while expressing doubt whether the above decision of the three-Judge bench is binding, referred six questions to the Chief Justice of India, including whether the clause violates Section 18, whether it is arbitrary under Article 14, and whether S.K. Jain remains a good law. This reference is procedurally orthodox, although all the questions raised are not equally well-founded, and one question might lead the larger Bench into an error.

The Deterrence Frame Is the Weakest Ground

The overriding concern of the Court is that a pre-deposit “inevitably suppresses claims” (the Court's second question) and dissuades from arbitration, thus defeating the object of declogging the court system. This is a valid concern, but as a constitutional justification, it is tenuous because it raises an empirical dispute that the Court cannot adjudicate based on the record. Therefore, the dissuasive effect is one measure, and the respondent can argue that a small and refundable deposit is a reasonable price for filtering frivolous claims. The Court recognised how tenuous this justification was by raising, as its fourth question, whether the pre-deposit clause has any “rational relation” to discouraging frivolous claims where frivolousness cannot be known at first glance.

The answer lies in the statutory architecture, not in contested social science. Section 31(8) read with Section 31A of the Act, and the costs regime inserted by the 2015 Amendment following the recommendation of the 246th Law Commission Report, already empowers the arbitral tribunal to impose costs on a party who makes a frivolous claim, and it can do so at the end of the proceedings, once the merits are known. This is exactly why a calibrated, merit-based remedy makes a blunt, front-loaded deposit redundant as a tool against vexation. If the issue is discouraging frivolous claims, Section 31A already furnishes a surgical instrument; the pre-deposit is the sledgehammer that strikes without knowing if there is any nail.

Asymmetry, Not Deterrence, Is the Decisive Vice

The central problem with the clause is that it is binding only on the contractor, and Section 18 of the Act makes this inequality unsustainable. Section 18 stipulates that the parties “shall be treated with equality” and that each party will “be given a full opportunity to present his case,” and the Constitution Bench in Central Organisation for Railway Electrification (CORE) v. ECI-SPIC-SMO-MCML (JV) (2024) reiterated that the provision is obligatory and operates through the entire arbitral proceeding. A clause that obligates only the party, in this case the contractor, to deposit 10% of their claim, without obliging the other party, that is, invariably the respondent, to do so, clearly makes the parties unequal. However, the fifth question posed by the Court itself misrepresents the problem at hand, as refundability is an issue that speaks to the extent of the burden as opposed to the distribution of the burden.

In this regard, however, the simple answer that an equal requirement of a reciprocal deposit from both sides will settle the problem fails to overcome the deficiency. A 10% deposit split evenly between HSIIDC and the contractor will meet the literal interpretation of Section 18. Uniformity in distribution does not mean equality in capability: for HSIIDC, a 10% deposit is only a rounding error as compared with the overall budget and the obligation to pay, but for the contractor it is real money he needs to collect before he can admit even one rupee of the claim. Thus, even if a provision is literally equal, it can be substantively unequal if the parties are unequally able to shoulder the burden. The Bench should take care because such an adverse respondent to the clause could change it to a reciprocal one and comply with the requirements of Section 18.

It clarifies the reason why the basis on which the Court in ICOMM Tele Limited vs Punjab State Water Supply and Sewerage Board (2019) declared a similar 10 % clause as arbitrary is well-founded. It explains why the rationale behind the judgment in ICOMM Tele Limited v. Punjab State Water Supply and Sewerage Board (2019), which held that a similar 10% clause was arbitrary, was sound, although it came from a two-judge Bench that could not overrule S.K. Jain. The two-judge Bench in Santosh Associates was “prima facie in agreement” with ICOMM Tele, and such agreement would have been better explained by the need for equality rather than deterrence in view of the mandatory character of Section 18.

What the Larger Bench Must Actually Decide

The reference to a larger Bench is justified, but not for the reason first stated by the Court. It was not possible, as a matter of judicial discipline, for the Court to overrule the three-judge decision in S.K. Jain rendered from a two-Judge Bench, and it was proper to avoid doing so. However, the difficulty with the precedent is much more complicated than the Court's analysis suggests. In Lombardi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited (2024), the Court has said that there is no conflict between S.K. Jain and ICOMM Tele on the ground that the relevant clauses were materially different. The above argument is not convincing since it fails to consider the principle that a clause mandating a party to pay an amount as a prerequisite for arbitration is discriminatory in nature regardless of the particular amount payable. The larger Bench should not look into whether the clauses in S.K. Jain and ICOMM Tele are distinguishable on the facts; it should look into whether a pre-deposit clause applicable to contractors alone can survive in Section 18.

Clearly, the answer is in the negative based on the distinction between party autonomy and fundamental rights as explained by Lombardi Engineering. Also, party autonomy cannot be used to justify a clause which contravenes Article 14. The right to sue is inherent in every individual, as the Court recalled from Ganga Bai v. Vijay Kumar (1974), and Section 28 of the Contract Act strikes off agreements which absolutely prohibit the use of ordinary tribunals for the enforcement of any rights except for the statutory exception of arbitration. Arbitration is one such exception, but an exception that is itself just; a clause which makes the exception available after paying an unreciprocated toll transforms the remedy itself into an obstacle. In this regard, the larger bench ought to rule that a deposit that is refundable when levied only on one side is invalid under Section 18. Accordingly, S.K. Jain needs to be overruled to the extent it tolerated such inequality.

This issue is by no means limited to Santosh Associate. In case it decides the matter under Section 18, it will shut down this possibility, since no drafting can convert an unfair toll into a fair one. Therefore, this reference provides a genuine opportunity, provided it is addressed to the right party. Access to arbitration must cost the same for both parties, or it must be free. The larger bench must state this clearly.

Views are personal.