Supreme Court refers pre-deposit clause for arbitration to larger bench

The Supreme Court has doubted its own 2009 ruling in SK Jain v. State of Haryana that upheld arbitration clauses requiring contractors to deposit a percentage of their claim before arbitration can begin. A bench of Justices Manoj Misra and Manmohan on Tuesday requested the Chief Justice of India to refer the issue to a larger bench, flagging five legal questions including whether such a clause violates Article 14’s guarantee of equal treatment and Section 18 of the Arbitration and Conciliation Act.

The dispute stems from a 2017 drainage works contract between Santosh Associate Private Limited and the Haryana State Industrial and Infrastructure Development Corporation. The contract required the contractor to deposit 10% of any claim exceeding Rs 1 lakh as security before arbitration. The contractor did not pay, and an arbitrator dismissed its claim in full, a ruling upheld by a Gurugram commercial court citing SK Jain.

The contractor argued that the clause is unconstitutional and discriminates against contractors alone, relying on later rulings including ICOMM Tele Ltd. (2019) and Lombardi Engineering Ltd. (2024) that struck down or limited such clauses. The court noted that a two-judge bench cannot overrule a three-judge bench decision, even though it prima facie agreed with ICOMM. Watch for the Chief Justice’s decision on the size of the larger bench to hear the reference.