The Supreme Court on Monday (August 17) referred the question to a larger Bench as to whether pre-deposit conditions in arbitration clauses, requiring contractors to deposit a percentage of the claim amount before invoking arbitration, are valid.

A bench of Justice Manoj Misra and Justice Manmohan expressed doubt about the binding nature of the three-judge Bench decision in S.K. Jain v. State of Haryana (2009) 4 SCC 357, which had upheld the legality of pre-deposit clauses in an arbitration agreement.

The Court endorsed the decision of a two-judge bench in ICOMM Tele Ltd. vs. Punjab State Water Supply (2019), which had struck down the pre-deposit clauses, calling them ineffective and making arbitration expensive. Because the two-judge judgment of ICOMM (supra) could not override the principle of law enunciated by the three-judge Bench in S.K. Jain. (supra), the Court requested the Chief Justice of India to consider the desirability as to whether the issues formulated hereunder, or such other issues as may be deemed relevant, do warrant a reference to a larger Bench:

“A. Whether a stipulation requiring the contractor alone to make a pre-deposit of security/fees prior to reference of disputes to arbitration is contrary to Section 18 of the Act which mandates equal treatment of parties at all stages of arbitration?

B. Whether pre-deposit conditions in contracts having an arbitration clause discourages Alternative Dispute Resolution and undermine its objective of declogging the court system?

C. Whether a condition of pre-deposit of security/fees prior to reference to Arbitration is arbitrary and violative of the right to sue as well as Article 14 of the Constitution and Section 28 of the Indian Contract Act, 1872?

D. Whether requirement of pre-deposit of security/fees has any rational relation to the object of curbing frivolous claims as at that stage it cannot be said that the claims are frivolous and moreover such frivolous claims may adequately be addressed under Section 31(8) of the Act through imposition of costs at the conclusion of the arbitration proceedings?

E. Whether a pre-deposit condition is valid in an arbitration case where said deposit is refundable upon the conclusion of arbitration proceedings?

F. Whether S.K. Jain (Supra) is a valid and binding precedent?”

Background

The dispute arose from a contract awarded by the Respondent-Haryana State Industrial and Infrastructure Development Corporation Ltd. (HSIIDC) to the appellant for execution of storm water drainage systems. The contract contained Clause which mandated that a contractor, in the event of raising claims exceeding ₹1,00,000, must deposit 10% of the claim amount as security prior to reference to arbitration.

When disputes arose, the appellant invoked arbitration. The Respondent filed an application under Section 16 of the Arbitration Act, contending that the reference was not maintainable owing to the appellant's failure to furnish the mandatory 10% deposit.

The Sole Arbitrator upheld this objection and dismissed the appellant's claim in its entirety. The Commercial Court affirmed this decision, relying on the precedent in S.K. Jain v. State of Haryana (2009) 4 SCC 357.

Aggrieved, the appellant approached the Supreme Court, contending that the pre-deposit clause was arbitrary, violative of Article 14, and contrary to Section 18 of the Arbitration Act.

Noting that a three-judge bench in SK Jain (Supra) upheld the validity of the pre-deposit clauses, however, the bench expressing its agreement with a two-judge bench decision of ICOMM (supra), it framed the questions mentioned hereinabove to be decided by a larger bench to bring a quietus to the issue.

Cause Title: M/s Santosh Associate Private Limited v. Haryana State Industrial and Infrastructure Development Corporation Ltd.

Citation : 2026 LiveLaw (SC) 818

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Appearance:

For Petitioner(s) :Mr. Shreeyash U Lalit, Adv. Mr. Angad Pahel, Adv. Mr. Azad Bansala, Adv. Mr. Arun Choken, Adv. Mr. Shailendra Baisla, Adv. Mr. Aviral Mishra, Adv. Mr. Rishi Kapoor, AOR

For Respondent(s) :Mr. Alok Sangwan, Sr. A.A.G. Mr. Samar Vijay Singh, AOR Mr. Sumit Kumar Sharma, Adv. Mr. Rajat Sangwan, Adv. Mr. Vaibhav Yadav, Adv. Mr. Harsh Mehla, Adv. Ms. Divya Sharma, Adv. Ms. Sabarni Som, Adv. Mr. Aman Dev Sharma, Adv. Mr. Rajmani Mohanty, Adv. Mr. Itbar Singh, Adv. Mr. Ayush Kumar Shukla, Adv.