Supreme Court asks Chief Justice to consider larger-Bench examination of arbitration pre-deposit clauses
A two-judge Supreme Court Bench has questioned—but has not invalidated—a contractual term requiring a contractor to deposit 10% of its claim before arbitration. Bound by the earlier three-judge ruling in S.K. Jain v. State of Haryana, the Bench asked the Chief Justice of India to consider whether six questions about equality, access to arbitration and the continued authority of S.K. Jain should go to a larger Bench. The Registry must place the civil appeal before the Chief Justice for appropriate directions; the judgment does not itself constitute a completed larger-Bench reference and does not expressly allow, dismiss or dispose of the underlying appeal (paras 30–33; PDF pp. 14–16).
1. Case details
Exact signed cause title: M/S SANTOSH ASSOCIATE PRIVATE LIMITED v. HARYANA STATE INDUSTRIAL AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD.
Neutral citation: 2026 INSC 872
Case number: The signed judgment prints “CIVIL APPEAL NO. OF 2026” with the appeal number blank, followed by “@ SLP (C) No. 31245 of 2025.” The official listing identifies SLP (C) No. 31245/2025 and Diary No. 59205/2025. No missing Civil Appeal number has been inferred.
Judgment date: Aug 17, 2026
Bench/coram: Justice Manoj Misra and Justice Manmohan
Authoring judge: Justice Manmohan
Official Supreme Court listing: SCI judgment listing
Official signed PDF: SCI signed judgment PDF
Drive copy of signed PDF: Reportable Judgments PDF
2. Background and material facts
HSIIDC invited an e-tender on Nov 7, 2016 for storm-water drainage and related works in Sector 35, Udyog Vihar, Phase VII, Gurugram. It awarded the contract to Santosh Associate on May 17, 2017 for ₹5,14,11,635. Clause 25-A(vii) required a contractor advancing claims above ₹1 lakh to deposit 10% of the claim amount as security before reference to arbitration. The contract value was reduced to ₹2,40,93,059 on Jan 19, 2021 after the scope of work changed (paras 2–4; PDF pp. 2–3).
Following payment disputes, the Punjab and Haryana High Court appointed retired Justice Surender Gupta as sole arbitrator on Aug 8, 2024 . HSIIDC raised a jurisdictional objection under Section 16 of the Arbitration and Conciliation Act, 1996 because Santosh Associate had not made the 10% deposit. On Aug 1, 2025 , the arbitrator upheld the objection and gave the contractor 15 days to deposit the amount. When it declined, the claim was dismissed. The Commercial Court, Gurugram, dismissed the contractor’s Section 37(2) appeal on Sep 12, 2025 , relying on S.K. Jain (paras 4–6; PDF pp. 3–4).
3. Legal questions considered
The immediate dispute concerned whether the contractor-only 10% pre-deposit could lawfully condition access to arbitration. Because a binding three-judge precedent upheld a similar condition, the Bench ultimately proposed six questions for possible larger-Bench consideration: (i) compatibility with Section 18’s command of equal treatment; (ii) whether pre-deposits discourage alternative dispute resolution; (iii) arbitrariness under Article 14, the right to sue and Section 28 of the Contract Act; (iv) the connection between a pre-deposit and deterring frivolous claims when costs can be imposed under Section 31(8); (v) whether refundability changes validity; and (vi) whether S.K. Jain remains a valid and binding precedent (para 32; PDF pp. 15–16).
4. Parties’ principal arguments
Appellant’s submissions. Santosh Associate argued that Clause 25-A(vii) was one-sided because only contractors had to deposit money, contrary to Article 14 and Sections 18 and 38 of the 1996 Act. On its ₹1.77 crore claim, the required deposit would be about ₹17.70 lakh, compared with a stated civil-court fee of about ₹7.16 lakh. It submitted that arbitral costs could be dealt with under Section 31(8), that S.K. Jain had not considered the present constitutional and statutory objections, and that ICOMM Tele, Lombardi Engineering and Central Organisation for Railway Electrification supported invalidating the clause (paras 7–10; PDF pp. 4–6). These are recorded submissions, not findings.
Respondent’s submissions. HSIIDC maintained that S.K. Jain remained binding, that a refundable deposit rationally deterred frivolous or inflated claims, and that ICOMM Tele and Lombardi involved materially different clauses or consequences. It supported the arbitrator’s and Commercial Court’s reliance on the three-judge precedent (paras 11–12; PDF pp. 6–7). These too are submissions, not findings.
5. Court’s analysis and reasoning
Binding precedent and bench strength. The Court traced S.K. Jain, a three-judge decision that upheld a contractor-only 7% pre-deposit as a reasonable deterrent against frivolous or inflated claims. ICOMM Tele, decided by two judges, later found a pre-deposit condition arbitrary and obstructive to arbitration, but a two-judge Bench cannot overrule a three-judge Bench. The present Bench rejected the contention that S.K. Jain could simply be treated as sub silentio (paras 13–18; PDF pp. 7–10).
Later authorities did not remove S.K. Jain. Lombardi Engineering held that party autonomy cannot validate contractual terms that infringe fundamental rights, while also saying there was no conflict between S.K. Jain and ICOMM Tele because their clauses differed. The Constitution Bench in Central Organisation for Railway Electrification treated Section 18’s equality requirement as mandatory and non-derogable, but did not declare S.K. Jain bad law. The present Bench therefore treated S.K. Jain as continuing to bind it (paras 19–22; PDF pp. 10–12).
Prima facie concern, not final invalidation. The Bench said it was “prima facie in agreement” with ICOMM Tele’s reasoning. It considered whether a substantial pre-deposit could make the right to sue illusory, suppress legitimate claims and defeat arbitration’s accessibility, and referred to Ganga Bai on the inherent right to institute a civil action absent a statutory bar. It also examined Section 28 of the Contract Act and questioned whether a payment demanded before claims are assessed rationally identifies frivolous claims when costs remain available later. These observations explain why reconsideration was sought; they do not finally strike down Clause 25-A(vii) or overrule S.K. Jain (paras 23–29; PDF pp. 12–14).
Judicial discipline. Drawing on Aligarh Muslim University and Central Board of Dawoodi Bohra Community, the Bench reaffirmed that a smaller Bench cannot disagree with a larger one. Its available course was to state its doubts and invite the Chief Justice to consider constituting a larger Bench (paras 30–31; PDF pp. 14–15).
6. Decision and exact operative directions
The Court requested the Chief Justice of India to consider whether the six formulated issues, or other relevant issues, warrant a reference to a larger Bench. It directed the Registry to place the civil appeal before the Chief Justice for appropriate directions (paras 32–33; PDF pp. 15–16).
What the judgment did not do is equally important. It did not itself constitute a larger Bench, did not finally decide that the 10% clause is valid or invalid, did not overrule S.K. Jain, and did not expressly allow, dismiss or dispose of the civil appeal. It also did not expressly set aside the arbitrator’s order or the Commercial Court judgment. The current procedural result is therefore placement before the Chief Justice, with the proposed reference and the appeal’s ultimate disposition left open.
7. Statutes and provisions
Article 14, Constitution of India: invoked in the challenge to the contractor-only condition; no final constitutional ruling was made.
Arbitration and Conciliation Act, 1996: Section 16 (tribunal’s jurisdictional ruling); Section 18 (equal treatment); Section 31(8) (costs, as discussed in the judgment); Section 37(2) (appeal from the arbitrator’s order); and Section 38 (deposits/costs). The Bench treated the equality issue as warranting possible larger-Bench consideration, not as finally resolved here.
Indian Contract Act, 1872, Section 28: considered in relation to agreements restraining legal proceedings and the statutory exception for arbitration; the Bench framed, but did not finally answer, the validity question.
8. Important precedents and their treatment
S.K. Jain v. State of Haryana: followed as binding on bench strength; its correctness was doubted and proposed for larger-Bench reconsideration, but it was not overruled.
ICOMM Tele Ltd. v. Punjab State Water Supply & Sewerage Board: its reasoning was viewed favourably on a prima facie basis; it could not displace S.K. Jain because it was a two-judge decision.
Lombardi Engineering Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd.: applied for the proposition that party autonomy remains subject to constitutional limits; also noted for finding no conflict between S.K. Jain and ICOMM Tele on their facts.
Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV): referred to for Section 18’s mandatory equality principle and its account of the earlier cases; it was not treated as overruling S.K. Jain.
Smt. Ganga Bai v. Vijay Kumar: applied on the right to institute a civil suit unless legislation bars it.
Aligarh Muslim University v. Mansoor Ali Khan and Central Board of Dawoodi Bohra Community v. State of Maharashtra: applied on judicial discipline and the procedure a smaller Bench must follow when doubting a larger-Bench precedent.
9. Ratio, observations and unresolved matters
Procedural holding. A two-judge Bench remained bound by S.K. Jain and could not declare it incorrect; the proper course was to ask the Chief Justice to consider a larger Bench and to place the appeal before the Chief Justice.
Prima facie observations. The Court’s concerns about equality, access to arbitration, the right to sue and the rational connection between pre-deposit and frivolous claims support the request for reconsideration. They should not be reported as a final ratio invalidating all arbitration pre-deposit clauses.
Unresolved. The validity of Clause 25-A(vii), the continued authority of S.K. Jain, whether a larger Bench will be constituted, and the final disposition of this appeal all remain open on the face of the operative portion.
10. Practical legal significance and key takeaways
Express effect. For now, S.K. Jain remains binding, and the six questions await the Chief Justice’s administrative or judicial directions. Parties should not treat this judgment as having already struck down pre-deposit clauses or as a final ruling that every such clause is unconstitutional.
Editorial analysis. The judgment may lead to authoritative larger-Bench guidance on when financial gateways to arbitration conflict with equality and effective access to dispute resolution. Until that happens, the clause’s wording, the amount demanded, refundability, allocation between parties and governing precedent will remain important in individual disputes. This is inference, not an express holding.
11. Source note and verification
Controlling sources: official SCI listing ; official signed judgment PDF ; Drive PDF .
Official statutory verification: India Code — Arbitration and Conciliation Act, 1996 .
Independent cross-checks: LiveLaw report ; LiveLaw Business report .
Cross-check note. LiveLaw’s headline and opening say the Court “referred” the question to a larger Bench, although the same report later reproduces the judgment’s narrower request to the Chief Justice. The signed PDF controls: the Bench asked the Chief Justice to consider whether a reference is warranted and directed Registry placement. LiveLaw Business accurately states that narrower result. No secondary source was used as a substitute for the complete signed judgment.