In a recent matter, an important issue has been raised by the Supreme Court as to whether a contractor can be forced to deposit money through a contract before the process of arbitration has commenced. 

This issue came up before the Court through a contract between Santosh Associate Private Ltd. and Haryana State Industrial and Infrastructure Development Corporation Ltd. for executing the draining work in Gurugram. It was stated in the contract that the contractor shall deposit 10% of the claim amount before referring the matters involving ?1 lakh or more to arbitration.

When disputes arose between the parties and matters were to be referred to arbitration, the contractor did not deposit the money. The claim was therefore dismissed by the arbitrator and the same was upheld by the Commercial Court.

It was noted by the Apex Court that there have been different opinions when it comes to adjudication of such clauses. In the case of S.K. Jain, a three-judge Bench upheld a pre-deposit requirement. However, in the case of ICOMM Tele, such a condition was struck down and it was held that such a requirement defeats the main purpose of Arbitration.

The matter has been referred to a larger Bench for considering whether such kinds of clauses violate Section 18 of the Arbitration and Conciliation Act, Article 14 of the Constitution of India and Section 28 of the Indian Contract Act. It would also decide upon the issue as to whether the case of S.K. Jain remains binding.