Case Note & Summary
The matter arose from a dispute between a contractor and a state industrial development corporation concerning final payment for storm water drainage works. The respondent invited e-tenders in November 2016, and the appellant was awarded the contract in May 2017 for a total consideration of Rs.5,14,11,635. The contract contained Clause 25-A(vii), which required a contractor invoking arbitration for claims above Rs.1,00,000 to furnish a security deposit of 10% of the claim amount. During execution, the project scope was reduced and the contract value revised to Rs.2,40,93,059 in January 2021. After completion, disputes arose regarding final settlement. The High Court appointed a sole arbitrator in August 2024 under Section 11(6) of the Arbitration and Conciliation Act, 1996. The respondent filed a Section 16 application contending that the reference was not maintainable due to non-furnishing of the mandatory 10% deposit. The sole arbitrator upheld the objection, directed deposit within fifteen days, and upon refusal dismissed the appellant's claim in entirety on 1 August 2025. The appellant's appeal under Section 37(2) was dismissed by the Commercial Court, Gurugram on 12 September 2025, which held the arbitrator's view plausible and relied on S.K. Jain v. State of Haryana. The appellant then approached the Supreme Court. Before the Supreme Court, the appellant argued that Clause 25-A(vii) was unconstitutional under Article 14, discriminatory against contractors, and lacked rational nexus because costs could be imposed at the conclusion of arbitration under Section 31(8). The appellant also contended that the clause violated Section 18 equal treatment mandate and relied on ICOMM Tele Ltd., Lombardi Engineering Ltd., and Central Organisation for Railway Electrification (CORE) where similar clauses were struck down. The appellant submitted that S.K. Jain was sub silentio on Article 14 and not a binding precedent, citing Municipal Corporation of Delhi v. Gurnam Kaur on sub silentio and per incuriam. The respondent argued that S.K. Jain remained binding, upheld refundable pre-deposit clauses as deterring frivolous disputes, and distinguished the clauses in the cited cases. The provided judgment text ends during these submissions and does not contain the Supreme Court's final analysis or decision; therefore, the ultimate holding and directions are not available in the extracted text.
Headnote
A) Constitutional Law - Arbitrability - Article 14, Constitution of India - Clause 25-A(vii) requiring contractor to furnish 10% security deposit for claims above Rs.1,00,000 challenged as arbitrary, discriminatory, and lacking rational nexus; Appellant contended that costs under Section 31(8) of the Arbitration and Conciliation Act, 1996 suffice. The Commercial Court had upheld the clause relying on S.K. Jain, but Appellant relied on ICOMM Tele, Lombardi, and CORE for striking down similar clauses. (Paras 8-11, 13) B) Precedent - Binding Precedent and Sub Silentio - S.K. Jain v. State of Haryana, (2009) 4 SCC 357 - Appellant argued S.K. Jain did not examine Article 14 and Sections 18 and 38 and was therefore sub silentio, not a binding precedent; Respondent submitted S.K. Jain remains binding and upheld refundable pre-deposit clauses as deterring frivolous disputes. Comparison of clauses in S.K. Jain, ICOMM Tele, and Lombardi undertaken. (Paras 10, 14-16) C) Arbitration Law - Equal Treatment of Parties - Section 18, Arbitration and Conciliation Act, 1996 - Clause alleged as one-sided operating solely against contractors and contrary to statutory mandate of equal treatment at all stages; Appellant argued pre-deposit discourages arbitration and undermines declogging objective; Respondent distinguished clauses on material differences. (Paras 10-11, 15-16) D) Doctrines - Sub Silentio and Per Incuriam - Municipal Corporation of Delhi v. Gurnam Kaur, (1989) 1 SCC 101 - Court explained that a decision passes sub silentio when a point of law is not perceived or addressed; per incuriam when given in ignorance of statute; precedents sub silentio and without argument are of no moment. (Paras 14)
Issue of Consideration
Whether Clause 25-A(vii) requiring contractor to furnish 10% security deposit before arbitration is violative of Article 14 and Section 18 of the Arbitration and Conciliation Act, 1996; Whether S.K. Jain v. State of Haryana is binding precedent or sub silentio; Whether appeal under Section 37(2) should be allowed
Law Points
- Pre-deposit clauses in arbitration agreements can be challenged as arbitrary under Article 14
- Equal treatment of parties under Section 18 of Arbitration and Conciliation Act
- 1996
- Precedent value of S.K. Jain v. State of Haryana
- Sub silentio and per incuriam doctrines
- Party autonomy cannot override constitutional fundamental rights
- Pre-deposit discourages arbitration and undermines declogging objective
- Costs under Section 31(8) may suffice
