A contractor builds a drainage system for a state corporation. Midway through, the scope of work is cut down, the final bill is disputed, and the contractor wants to arbitrate for what he says he's still owed — ₹1.77 crore.
Before he can even get a hearing, the contract tells him to pay a deposit. Ten per cent of the claim, in cash, upfront: ₹17.7 lakh. Not a filing fee — a condition on the right to arbitrate at all.
That is roughly double what he would have paid in court fees to file the identical claim as an ordinary civil suit. The clause that was supposed to make dispute resolution faster and cheaper than litigation had, for this contractor, become considerably more expensive than litigation.
The facts. Haryana State Industrial and Infrastructure Development Corporation awarded the drainage contract to M/s Santosh Associate in May 2017, originally valued at ₹5.14 crore. By January 2021, after the scope was reduced, the contract value had dropped to ₹2.41 crore, and a payment dispute followed. Clause 25-A(vii) of the agreement said no reference to arbitration would be maintainable unless the contractor first deposited 10 per cent of any claim above ₹1 lakh.
When the contractor refused to pay, the sole arbitrator dismissed the claim outright, without hearing it on the merits. The Commercial Court at Gurugram upheld that dismissal, relying on a 2009 Supreme Court judgment, S.K. Jain v. State of Haryana, which had treated pre-deposit clauses as a legitimate "balancing factor" against frivolous claims.
What changed. On 17 August 2026, a bench of Justices Manoj Misra and Manmohan doubted that reasoning. A pre-deposit condition doesn't filter out frivolous claims, the bench observed — it filters out claims by contractors who can't front the cash, regardless of merit. A clause like this "inevitably suppresses claims, deters recourse to alternative dispute resolution, and thereby defeats its very object."
Rather than overrule S.K. Jain itself, the bench referred the question to a larger bench, along with connected questions: whether a pre-deposit that applies only to the contractor, never to the government body on the other side, violates the equal-treatment mandate in Section 18 of the Arbitration Act; whether it discourages recourse to arbitration in the first place; whether it survives scrutiny under Article 14 and the freedom-of-contract principles in the Contract Act; whether "preventing frivolous claims" is a rational justification when frivolousness can't be assessed before the claim is even heard; and whether the fact that the deposit is eventually refundable is enough to save the clause.
Why this matters beyond one contractor. Pre-deposit and pre-condition clauses of this kind are common in government and PSU construction and infrastructure contracts across India — usually drafted into the tender terms, not negotiated, which is exactly the imbalance the Court is now scrutinising. Any business holding a contract with a similar clause is, for now, in a holding pattern: the clause hasn't been struck down, but its main supporting precedent has been placed in serious doubt, and a larger bench is expected to settle the question either way.
The practical takeaway for now: if your contract has a pre-deposit or pre-condition clause standing between you and arbitration, don't assume it's enforceable simply because it was in writing and it was in your contract when you signed it. That assumption is precisely what's under review.
Santosh Associate (P) Ltd. v. Haryana State Industrial and Infrastructure Development Corporation Ltd., 2026 SCC OnLine SC 1584 — Supreme Court of India, Justices Manoj Misra and Manmohan, referred to a larger Bench on 17 August 2026.