The Supreme Court has referred to a larger Bench important questions concerning contractual clauses that require contractors to deposit a percentage of their claim amount before invoking arbitration.
A Bench of Justice Manoj Misra and Justice Manmohan, while considering the matter on August 17, 2026, expressed doubts about whether the earlier three-Judge Bench ruling in S.K. Jain v. State of Haryana continues to remain binding law on such pre-deposit conditions.
The Court, however, did not finally decide the constitutional validity of the clause in the present proceedings. Instead, it requested the Chief Justice of India to consider placing the matter before a larger Bench.
Background Of The Case
The dispute arose from a contract for storm-water drainage and related works at Sector-35, Udyog Vihar, Phase-VII, Gurugram. The contract initially had a value of over ₹5.14 crore, which was later reduced to about ₹2.40 crore following a reduction in the scope of work. Disputes subsequently arose regarding the final settlement of payments.
The arbitration clause required a contractor raising a claim of ₹1 lakh or more to deposit 10% of the claim amount as security before the dispute could be referred to arbitration.
After a Sole Arbitrator was appointed by the Punjab and Haryana High Court, an objection was raised that the required deposit had not been furnished. The Arbitrator directed the contractor to deposit 10% of the claim within 15 days. On its refusal to do so, the claim was dismissed. The Commercial Court later upheld that decision.
Supreme Court's Observation
Before the Supreme Court, the contractor argued that the clause was arbitrary and violated Article 14 of the Constitution because the pre-deposit requirement operated against the contractor alone.
The Court examined the legal position emerging from S.K. Jain, ICOMM Tele Ltd., Lombardi Engineering Ltd. and the Constitution Bench decision in CORE. It noted that S.K. Jain, decided by a three-Judge Bench, had upheld a similar pre-deposit requirement as a measure to discourage frivolous and inflated claims.
At the same time, the Court noted that ICOMM Tele had subsequently held that a pre-deposit requirement could discourage arbitration and defeat its objective. The Court observed that it was “prima facie in agreement” with the reasoning in ICOMM Tele, but a two-Judge Bench could not override the ruling of a three-Judge Bench.
The Bench further held that an arbitration clause cannot impose a pre-deposit condition so burdensome that the right to pursue a claim becomes effectively unavailable at the threshold. It observed that a substantial pre-deposit could suppress claims and discourage the use of arbitration.Issues Referred To Larger Bench
The Supreme Court has asked the Chief Justice of India to consider whether a larger Bench should examine, among other issues, whether contractor-only pre-deposit clauses violate Section 18 of the Arbitration and Conciliation Act, whether such conditions discourage alternative dispute resolution, and whether they are arbitrary under Article 14 and Section 28 of the Contract Act.
The Court has also asked whether a refundable pre-deposit can nevertheless be legally sustained and, crucially, whether S.K. Jain remains a valid and binding precedent.
Decision
The Supreme Court referred the matter to the Chief Justice of India for appropriate directions, leaving the questions concerning the validity of pre-deposit conditions and the continuing authority of S.K. Jain for consideration by a larger Bench.
Case Details
Case Title: M/s Santosh Associate Private Limited v. Haryana State Industrial and Infrastructure Development Corporation Ltd.
Case Number: Civil Appeal No. of 2026 @ SLP (C) No. 31245 of 2025
Judge: Justice Manoj Misra and Justice Manmohan
Decision Date: August 17, 2026
 and NTPC Limite-300x169.webp)
