Authority: Supreme Court of India, Civil Appellate Jurisdiction
Order Date: 17 August 2026
Case Overview
- Parties: Appellant – M/S Santosh Associate Private Limited; Respondent – Haryana State Industrial and Infrastructure Development Corporation Ltd. (HSIDC).
- Contract Background: HSIDC invited e‑tenders on 7 Nov 2016 for storm‑water drainage works at Sector‑35, Udyog Vihar, Phase‑VII, Gurugram. Santosh Associate won the bid and was awarded the contract on 17 May 2017 for ₹5,14,11,635. Clause 25‑A(vii) of the contract required a security deposit of 10 % of any claim exceeding ₹1,00,000, with a sliding scale for smaller claims.
- Scope Reduction: Due to site‑related challenges, the contract value was revised to ₹2,40,93,059 on 19 Jan 2021. After completion, a dispute arose over final settlement.
- Arbitration Proceedings: On 8 Aug 2024, the High Court of Punjab & Haryana, under Section 11(6) of the Arbitration & Conciliation Act, 1996, appointed Justice (Retd.) Surender Gupta as Sole Arbitrator. The Respondent filed a Section 16 application alleging non‑compliance with the 10 % pre‑deposit requirement for a claim of ₹1,77,00,000, which would have required a deposit of ₹17,70,000.
- Arbitrator’s Decision: The Sole Arbitrator upheld the Respondent’s objection, directed the Appellant to deposit 10 % within 15 days, and dismissed the claim when the deposit was not furnished.
- Commercial Court Appeal: The Appellant appealed to the Commercial Court, Gurugram under Section 37(2). On 12 Sep 2025, the Court dismissed the appeal, relying on S.K. Jain vs. State of Haryana (2009) 4 SCC 357, finding the pre‑deposit clause reasonable.
- Submissions – Appellant: Counsel Mr. Shreeyash U. Lalit argued that Clause 25‑A(vii) violates Article 14 by discriminating against contractors, lacks rational nexus, and is excessive compared with ordinary court fees. He cited ICOMM Tele Ltd. vs. Punjab State Water Supply (2019) 4 SCC 401, Lombardi Engineering Ltd. vs. Uttarakhand Jal Vidyut Nigam Ltd. (2024) 4 SCC 341, and CORE vs. M/s ECI‑SPIC‑SMO‑MCML (JV) (2025) 4 SCC 641, asserting that pre‑deposit clauses are arbitrary and contrary to Section 18 of the Act.
- Submissions – Respondent: Counsel Mr. Harsh Mehla contended that S.K. Jain remains binding, that the clause is merely refundable and therefore valid, and distinguished the present clause from those struck down in ICOMM Tele and Lombardi.
- Court’s Reasoning: The Bench recapitulated the ratio of the cited precedents:
- S.K. Jain upheld a refundable pre‑deposit as a balancing factor to deter frivolous claims.
- ICOMM Tele held a 10 % pre‑deposit without proof of frivolousness to be arbitrary and contrary to the arbitration objective.
- Lombardi observed no conflict between S.K. Jain and ICOMM Tele as the clauses differed materially.
- CORE affirmed the mandatory nature of Section 18 and reiterated that excessive pre‑deposit clauses violate Article 14.
- The Court emphasized that a two‑Judge Bench cannot override a three‑Judge precedent (S.K. Jain) despite agreeing with ICOMM Tele reasoning, and noted that Lombardi and CORE did not declare S.K. Jain invalid.
- The Court also highlighted constitutional principles: the right to sue cannot be curtailed by onerous pre‑deposit conditions, and Section 28 of the Indian Contract Act voids agreements that restrain enforcement of contractual rights except where arbitration is expressly provided.
Final Outcome
- The Supreme Court granted leave to appeal and, expressing doubt about the binding nature of S.K. Jain, ordered the matter to be referred to a larger Bench.
- Six specific questions (A‑F) were framed concerning: (A) compatibility of contractor‑only pre‑deposit with Section 18, (B) impact on ADR, (C) arbitrariness and violation of Article 14 and Section 28, (D) rationality of the deposit in curbing frivolous claims, (E) validity of refundable deposits, and (F) whether S.K. Jain remains binding.
- The Registry was directed to place the appeal before the Chief Justice of India for appropriate directions.
Topics: Arbitration Law, Constitutional Law