THE RATIO. One judgment, decoded twice: once for anyone, once for the profession.

Case Details

  • Citation: 2026 INSC 872; SLP (C) No. 31245 of 2025 (leave granted; Civil Appeal registered)
  • Court: Supreme Court of India, Civil Appellate Jurisdiction
  • Decided (order of reference): August 17, 2026
  • On appeal from: Judgment dated September 12, 2025, Commercial Court, Gurugram, dismissing an appeal under Section 37(2) of the Arbitration and Conciliation Act, 1996, which had affirmed the Sole Arbitrator’s order of August 1, 2025, under Section 16 of the Act
  • Bench: Manoj Misra, J. and Manmohan, J. (author)
  • Representation: Shreeyash U. Lalit for the appellant; Harsh Mehla for the respondent
  • Governing provisions: Arbitration and Conciliation Act, 1996, ss 11(6), 16, 18, 31(8), and 37(2); Article 14, Constitution of India; Section 28, Indian Contract Act, 1872
  • Key precedents discussed: S.K. Jain v. State of Haryana, (2009) 4 SCC 357; ICOMM Tele Ltd v. Punjab State Water Supply and 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 (Constitution Bench); Municipal Corporation of Delhi v. Gurnam Kaur, (1989) 1 SCC 101; Smt. Ganga Bai v. Vijay Kumar, (1974) 2 SCC 393; Central Board of Dawoodi Bohra Community v. State of Maharashtra, (2005) 2 SCC 673; Aligarh Muslim University v. Naresh Agarwal, (2025) 6 SCC 1 (seven-judge bench)
  • Key paragraphs: [20]-[26] (reconciling S.K. Jain, ICOMM Tele, Lombardi, and CORE), [27]-[29] (the right to sue and Section 28 of the Contract Act), [30]-[32] (the order of reference and the six questions framed)
  • Outcome: Appeal not finally decided; the bench, doubting whether S.K. Jain remains binding, requests the Chief Justice of India to consider listing six framed questions before a larger bench, and directs the Registry to place the appeal before the Chief Justice accordingly

Headnote

A contractor who won a share of a drainage works contract from a Haryana state corporation found its entire arbitration claim thrown out at the first hurdle, because it had not paid a mandatory ten per cent deposit of the claim amount before the arbitration could even begin. That kind of clause has had an unsettled life in the Supreme Court: upheld by a three-judge bench in 2009, struck down by a two-judge bench in 2019 for a differently worded version, described as not actually in conflict by another three-judge bench in 2024, and mentioned favourably in parts by a Constitution Bench in 2025. Rather than pick a side, the present two-judge bench decided it could not do so consistently with the discipline that Supreme Court benches owe to larger benches, and instead asked the Chief Justice of India to consider sending the whole question to a larger bench, including the pointed question of whether the original 2009 ruling remains good law at all.

Factual Background

In November 2016, the Haryana State Industrial and Infrastructure Development Corporation invited tenders for storm water drainage works in Udyog Vihar, Gurugram. Santosh Associate won the contract in May 2017 for a little over five crore rupees. The contract’s arbitration clause required that a contractor, though not the Corporation, wishing to raise a claim above one lakh rupees had to first deposit ten per cent of the claim amount as security, refundable after the arbitration concluded, minus any costs awarded against the contractor. The project’s scope was later reduced for site related reasons, and the contract value was revised down to a little over two crore rupees in January 2021. Disputes over the final settlement followed.

In August 2024, the Punjab and Haryana High Court appointed a retired judge as sole arbitrator under Section 11(6) of the Act. At the outset, the Corporation applied under Section 16 to have the reference declared not maintainable, because Santosh Associate had not paid the roughly seventeen lakh rupee deposit required for its claim of about one crore seventy seven lakh rupees. The arbitrator agreed, gave Santosh Associate fifteen days to pay, and dismissed the claim in full when it did not. The Commercial Court at Gurugram dismissed Santosh Associate’s appeal against that order in September 2025, relying on the Supreme Court’s 2009 decision in S.K. Jain v. State of Haryana, which had upheld a broadly similar clause. Santosh Associate then approached the Supreme Court, arguing that the clause was unconstitutional and that S.K. Jain should no longer be treated as good law in light of later decisions striking down comparable clauses.

The Question for Determination

In everyday terms, the question was whether a government body can lawfully require only the contractor, and not itself, to pay a large deposit before the contractor is even allowed to start an arbitration, and whether the Supreme Court’s own older ruling upholding such deposit clauses can still be relied on given more recent rulings that struck similar clauses down.

Framed precisely, the issue was whether Clause 25-A(vii), requiring the contractor alone to furnish a ten per cent pre-deposit of the claim amount as a precondition to invoking arbitration, offends Article 14 of the Constitution and Section 18 of the Arbitration and Conciliation Act, 1996, which mandates equal treatment of parties at every stage of arbitration; and, given the apparently competing lines of authority in S.K. Jain, ICOMM Tele, Lombardi Engineering, and CORE, whether S.K. Jain remains binding, and if a two-judge bench with genuine doubts about that question may resolve it directly or must instead refer it upward.

The Court’s Reasoning

The bench worked through the four relevant precedents in sequence. S.K. Jain, a three-judge decision, had upheld a graduated pre-deposit clause, rejecting arguments of unequal bargaining power and unconscionability and treating the tiered deposit requirement as a legitimate check on inflated or frivolous claims. The present bench expressed real doubt about the appellant’s argument that S.K. Jain had overlooked Article 14 altogether, noting that a decision addressing whether a clause is non-arbitrary and rationally connected to its purpose is difficult to characterise as having ignored the substance of that inquiry merely because it did not use the words “Article 14”.

ICOMM Tele, a two-judge decision, had struck down a different clause that provided for forfeiture of the deposit even where the claimant succeeded, holding that pre-deposit conditions discourage arbitration and undermine the goal of easing pressure on the court system, and characterising S.K. Jain as not having considered an Article 14 challenge. Lombardi Engineering, a later three-judge decision, held that party autonomy cannot override fundamental rights, but also held expressly that there was no real conflict between S.K. Jain and ICOMM Tele, because the two clauses, one refundable and one subject to outright forfeiture, were materially different. The Constitution Bench in CORE, dealing primarily with a different question about arbitrator appointment, confirmed that Section 18’s equal treatment mandate is non-derogable at every stage of arbitration, cited S.K. Jain with approval, and summarised ICOMM Tele and Lombardi Engineering without disturbing either.

From this, the bench drew a clear conclusion about its own authority. A two-judge bench cannot override a three-judge decision merely because it finds a co-equal or lower bench’s reasoning more persuasive, and since a later three-judge bench in Lombardi Engineering had already held that S.K. Jain and ICOMM Tele do not conflict, and neither Lombardi Engineering nor the Constitution Bench in CORE had said S.K. Jain was no longer good law, this bench could not itself declare S.K. Jain wrongly decided or no longer binding.

What made a reference necessary rather than a straightforward dismissal following S.K. Jain, however, was a further argument none of the four precedents had actually addressed. The bench noted that the right to sue belongs to every person unless a statute expressly bars it, and that Section 28 of the Indian Contract Act, 1872, voids any agreement that absolutely restrains a party from enforcing its rights through the ordinary courts, arbitration being the sole statutory exception to that rule. On that footing, the bench reasoned that a pre-deposit condition demanding a substantial share of the claim amount before arbitration can even begin risks making the underlying right to sue illusory at the threshold, a concern distinct from the arbitrariness analysis in any of the earlier cases. Rather than resolve that new argument itself, against the backdrop of a precedent it was not free to overturn, the bench applied the settled rule, restated by a seven-judge bench in Aligarh Muslim University and originating in the Central Board of Dawoodi Bohra Community case, that a bench doubting the correctness of a larger bench’s ruling must refer the matter upward rather than decide it. It accordingly framed six questions, going to the equal treatment mandate under Section 18, the deterrent effect of pre-deposit clauses on arbitration generally, the relationship between such clauses and Article 14 and Section 28 of the Contract Act, the availability of costs under Section 31(8) as an alternative safeguard against frivolous claims, the relevance of refundability, and the continuing validity of S.K. Jain itself, and asked the Chief Justice of India to consider whether they warrant a larger bench.

Critical Assessment

The bench’s restraint here is worth crediting. It would have been easy to accept the appellant’s argument that S.K. Jain was decided sub silentio on Article 14, a characterisation that would have let the bench sidestep the precedent hierarchy problem entirely and rule for the appellant directly. Instead, the bench tested that argument against Gurnam Kaur’s own definition of sub silentio and against what S.K. Jain actually reasoned, concluded the argument did not hold up, and followed the disciplined path of referring its doubts upward rather than found a preferred outcome on a weaker doctrinal basis. That is exactly the kind of self-restraint the precedent hierarchy is meant to produce, and the bench applied it even though the result was more work for itself, not less.

The reasoning leans a good deal of weight on Lombardi Engineering’s finding that S.K. Jain and ICOMM Tele do not actually conflict, treating that finding as closing off any possibility that ICOMM Tele impliedly narrowed or displaced S.K. Jain. The bench does not independently test whether that distinction, refundable deposit against forfeiture regardless of outcome, is doing as much work as Lombardi Engineering assumed, particularly once the newly raised right to sue and Section 28 argument is on the table. A refundable deposit still operates as a real financial precondition on getting into arbitration at all, whatever happens to the money afterward, and the judgment does not explain why that difference should matter less to the right to sue than it evidently mattered to the forfeiture analysis in ICOMM Tele.

There is also a structural point worth naming. The Constitution Bench in CORE had the opportunity, while surveying this same line of authority for its own purposes, to settle where S.K. Jain now stands relative to ICOMM Tele and Lombardi Engineering, but did not do so squarely. That gap is a significant part of why this two-judge bench now finds itself unable to resolve a dispute that has effectively been alive within the Court’s own jurisprudence since 2009, and Santosh Associate’s own claim, along with any other pending dispute turning on a similar clause, now waits on a larger bench that has yet to be constituted.

One further point is worth flagging for readers rather than lawyers specifically. The judgment includes an extended quotation from a well known senior advocate’s writing on the historical scepticism toward alternative dispute resolution in Indian legal practice. That passage functions as colour and context rather than as part of the operative legal reasoning, which rests on the right to sue and Section 28 points, and should not be mistaken for an independent ground of decision.

It is worth noting, as an aside, that the very state whose contract produced the 2009 precedent in S.K. Jain is also the party relying on that precedent here, through one of its own corporations, against a different Haryana contractor seventeen years later.

Implications

If you’re not a lawyer: This order does not decide whether the deposit clause in this contractor’s agreement was fair or lawful. It explains why the two judges hearing the case, though they seem to lean toward thinking such clauses are problematic, could not simply say so themselves, because an older and larger panel of the same Court had already upheld a similar clause, and only an equally large or larger panel can say that earlier ruling was wrong. The judges have asked the Chief Justice of India to consider having a bigger panel take up the question properly. Until that happens, this contractor’s own claim, and likely many similar disputes with public bodies, are effectively on hold on this specific point.

For the profession: The order is a clean, practically useful illustration of the precedent discipline rules from Central Board of Dawoodi Bohra Community, as reaffirmed by the seven-judge bench in Aligarh Muslim University: a bench that doubts a larger bench’s ruling must refer the question rather than decide around it, and cannot achieve the same result informally by stretching a sub silentio or per incuriam argument to reach a preferred outcome. It also surfaces an argument, grounded in the general right to sue and Section 28 of the Indian Contract Act, that has not featured in the earlier pre-deposit line of cases and will likely become central to the eventual larger bench ruling. Practitioners with contracts containing pre-deposit clauses, refundable or otherwise, should treat the validity of S.K. Jain as formally open pending that reference, and should watch for how the larger bench treats the interaction between Section 18’s mandatory equal treatment rule, as entrenched in CORE, and the newly raised threshold access to justice argument.