CAN PRE-DEPOSIT BE MANDATED TO INVOKE ARBITRATION? SUPREME COURT REFERS TO LARGER BENCH, DOUBTS 2009 PRECEDENT 

SUMMARY:

⁴In M/s Santosh Associate Pvt. Ltd. v. Haryana State Industrial and Infrastructure Development Corporation Ltd., 2026 INSC 872, the Supreme Court considered a contractual clause requiring a contractor to deposit 10% of the claim amount before invoking arbitration. The Sole Arbitrator dismissed the appellant’s claim for failing to make the deposit; the Commercial Court, on appeal, upheld this relying on S.K. Jain v. State of Haryana. 

The Supreme Court examined S.K. Jain, ICOMM Tele, Lombardi Engineering and CORE. It observed that a substantial pre-deposit may discourage parties from pursuing arbitration and make the right to sue ineffective. However, since S.K. Jain was decided by a three-Judge Bench, the present two-Judge Bench could not overrule it. The Court therefore referred the issue to a larger Bench to determine whether such pre-deposit conditions are valid under Article 14, Section 18 of the Arbitration Act and Section 28 of the Contract Act, including whether the fact that the deposit is refundable affects its validity.  

FACTS:

Haryana State Industrial and Infrastructure Development Corporation Ltd. invited tenders on 7 November 2016 for storm-water drainage work at Sector-35, Udyog Vihar, Gurugram. Santosh Associate was awarded the contract on 17 May 2017 for ₹5.14 crore. 

The contract contained Clause 25-A(vii), which required the contractor to deposit 10% of the claim amount as security before referring a claim ₹1 lakh ad above to arbitration. The deposit was refundable after the arbitration proceedings, subject to adjustment towards costs.  

Due to site-related difficulties, the scope of work was reduced and the contract value was revised to about ₹2.40 crore on 19 January 2021. Disputes subsequently arose regarding the final payment. 

The High Court appointed a sole arbitrator on 8 August 2024. The respondent raised an objection under Section 16 of the Arbitration Act, arguing that the claim was not maintainable because the appellant had not deposited the required 10%. 

The arbitrator directed the appellant to make the deposit within 15 days. When the appellant refused, its claim was dismissed entirely. The Commercial Court upheld this decision on 12 September 2025, relying on S.K. Jain v. State of Haryana. 

ISSUE:

The main question was whether a contractual clause requiring only the contractor to make a substantial pre-deposit before invoking arbitration is legally valid. More specifically, the Court considered whether such a clause: 

• violates Article 14 of the Constitution;  
• violates Section 18 of the Arbitration and Conciliation Act, which requires equal treatment of parties;  
• violates Section 28 of the Contract Act; and  
• discourages access to arbitration;  
• remains valid when the deposit is refundable. 
• S.K. Jain itself remains a valid and binding precedent 

JUDGMENT:

The Supreme Court did not finally decide the validity of the 10% pre-deposit clause. Instead, it found that the issue requires consideration by a larger Bench.  The Court examined four important decisions: 

• S.K. Jain v. State of Haryana, (2009) 4 SCC 357  
• ICOMM Tele Ltd. v. Punjab State Water Supply & Sewerage Board, (2019) 4 SCC 401  
• Lombardi Engineering Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd., (2024) 4 SCC 341  
• Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), (2025) 4 SCC 641  

The difficulty was that S.K. Jain, a three-Judge Bench decision, had upheld a similar pre-deposit requirement, whereas ICOMM Tele had treated such a requirement as arbitrary. Lombardi subsequently held that there was no conflict between the two decisions because the clauses involved were materially different.  

The present two-Judge Bench stated that it was prima facie difficult to accept that Article 14 was not argued in S.K. Jain and also expressed serious concerns about requiring a claimant to deposit a substantial percentage of its claim before even accessing arbitration.  

The Court observed that an arbitration clause cannot impose such an onerous pre-deposit condition that the right to sue becomes practically illusory or ineffective. Such a condition may discourage genuine claims and defeat the purpose of arbitration.  However, because S.K. Jain was decided by a larger Bench, the present two-Judge Bench could not overrule it. Therefore, the matter was referred for consideration by a larger Bench. 

ANALYSIS:

The judgment highlights the tension between S.K. Jain, which upheld refundable pre-deposit clauses, and later decisions such as ICOMM Tele and Lombardi Engineering, which questioned such requirements as potentially arbitrary and discouraging access to arbitration. The Court observed that a substantial pre-deposit should not make the right to invoke arbitration practically ineffective. However, since S.K. Jain was a three-Judge Bench decision, the present two-Judge Bench could not overrule it. The Court therefore referred the issue to a larger Bench to decide whether such clauses violate Article 14, Section 18 of the Arbitration Act and Section 28 of the Contract Act, and whether their being refundable affects their validity.  

Last Updated on 25 September, 2026