Overview
In this matter, the Supreme Court considered whether a contract can create a liability for a contractor to deposit 10% of its claim before invoking arbitration. 

The dispute arose from a contract involving storm water drainage which was given by the Haryana State Industrial and Infrastructure Development Corporation Ltd. to M/s Santosh Associate Private Limited. When disputes arose over payment, the contractor moved towards arbitration. The Sole Arbitrator dismissed its claim since it failed to make the security deposit.

The Court examined whether such a condition was consistent with equal treatment under Section 18 of the Arbitration and Conciliation Act, Article 14 of the Constitution of India and Section 28 of the Indian Contract Act. It also considered whether the condition prevented the encouragement of ADR mechanisms and whether the case of S.K. Jain v State of Haryana was binding in the light of later decisions.

Facts of the Case

Haryana State Industrial and Infrastructure Development Corp. Ltd., the respondent herein, invited tenders on 7 November 2016, for storm water drainage works in Gurugram. 

M/s Santosh Associate Pvt. Ltd., the appellant received the contract on 17 May 2017, for ?5,14,11,635. Clause 25-A(vii) of the contract required a contractor who claimed more than ?1 lakh through arbitration to deposit 10% of the claim as security before the reference.

During the work, the difficulties at the site reduced the scope. On 19 January 2021, the contract value was changed to ?2,40,93,059. After the work was completed, disputes arose as to the final payment. The Punjab and Haryana High Court appointed Justice Surendra Gupta as the Sole Arbitrator under Section 11(6) of the Arbitration and Conciliation Act 1996. 

The reference was then challenged by the respondent under Section 16, while stating that the appellant did not deposit 10% of its ?1.77 crore claim i.e., ?17.70 lakh. The Arbitrator directed the appellant to deposit it within 15 days. When the appellant refused to do so, the claim was dismissed. The Commercial Court, Gurugram upheld the order under Section 37(2), relying on the case of S.K. Jain v. State of Haryana. The appellant then approached the Supreme Court. 

Legal Issues

1. Whether only requiring the contractor to make a deposit is a violation of Section 18 and equal treatment at all the stages.
2. Whether such a condition prevents the encouragement of arbitration and violates Article 14 of the Constitution and Section 28 of the Indian Contract Act.
3. Whether the case of S.K. Jain v State of Haryana is binding after ICOMM Tele, Lombardi Engineering and CORE.
4. Whether to check that such a condition is valid requires consideration by a larger Bench of the Court. 

Decision

The matter was referred to a larger Bench by the Supreme Court, and the registry was directed to move the appeal before the Chief Justice of India.

The Court observed that there was a difference between the case of S.K. Jain and ICOMM. In the former, a refundable pre-deposit was upheld and in the latter, a pre-deposit clause was held arbitrary because it discouraged arbitration and did not have a direct nexus with frivolous claims. The case of Lombardi Engineering and CORE stated that party autonomy cannot override the rights given under the Constitution. 

The Court observed that requiring ?17.70 lakh against ?1.77 crore claim could make access to arbitration difficult. However, as a two judge bench, it could not overrule the case of S.K. Jain. It therefore referred the issue to a larger Bench.

Case Reference :-  M/s Santosh Pvt. Ltd. Vs. Haryana State Industrial and Infrastructure Development Corp. Ltd. CIVIL APPEAL NO. OF 2026 @ SLP (C) No. 31245 of 2025 (DB, Before Manmohan and Manoj Misra, JJ.)