Imagine winning the right to arbitrate a dispute, appointing your arbitrator, filing your claim of ₹1.77 crore, and then being told: pay ₹17.7 lakh in cash first, or go home. That is what happened to a Gurugram drainage contractor. On 17 August 2026, the Supreme Court took up his fight in a reportable judgment, and the question it confronts cuts to the heart of how government contracts treat the people who build public infrastructure.

The case is M/s Santosh Associate Private Limited v. Haryana State Industrial and Infrastructure Development Corporation Ltd., SLP (C) No. 31245 of 2025, reported as 2026 INSC 872, with the judgment authored by Justice Manmohan. Leave was granted and the matter converted into a civil appeal, a signal that the Court found the questions raised too substantial to dismiss at the door.

How a ₹5 Crore Contract Became a Fight Over a Deposit

The facts are ordinary, which is precisely why they matter. In November 2016, the Haryana corporation invited e-tenders for storm water drainage works at Sector-35, Udyog Vihar, Phase-VII, Gurugram. Santosh Associate won the contract on 17 May 2017 for ₹5,14,11,635.

The site threw up problems. The scope shrank, and on 19 January 2021 the contract value was revised down to ₹2,40,93,059. Then came the familiar endgame of Indian public works: a dispute over final payments.

The High Court of Punjab and Haryana, acting under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the provision under which courts appoint arbitrators), appointed Justice (Retd.) Surender Gupta as sole arbitrator on 8 August 2024. And there, at the very threshold, the machinery jammed.

Clause 25-A(vii): The Toll Gate Inside the Contract

Buried in the contract was Clause 25-A(vii). For any contractor claim above ₹1,00,000, it demanded a security deposit of ten per cent of the claim amount, furnished 'to the satisfaction of the Executive Engineer' before arbitration could even proceed. The State, notably, pays nothing to raise its own claims.

The corporation invoked Section 16 of the Act (which lets an arbitrator rule on his own jurisdiction) and objected that the reference was not maintainable without the deposit. The arbitrator agreed. He gave the contractor fifteen days to pay. When the contractor refused, on 1 August 2025 the claim was dismissed in its entirety. Not decided on merits. Dismissed unheard.

The Commercial Court, Gurugram, upheld that outcome on 12 September 2025 in an appeal under Section 37(2), calling the arbitrator's view plausible and leaning on S.K. Jain v. State of Haryana, (2009) 4 SCC 357.

The Article 14 Attack Before the Supreme Court

Before the Supreme Court, Mr. Shreeyash U. Lalit, counsel for the contractor, mounted a frontal constitutional assault. Clause 25-A(vii), he argued, violates Article 14 (the constitutional guarantee of equality) because it burdens contractors alone while exempting the State entirely.

The arithmetic he placed before the Court is telling. On a ₹1.77 crore claim, the clause extracts ₹17,70,000 as a deposit. Filing the same claim as a civil suit in Haryana would cost ₹7,16,300 in court fees. Arbitration, sold as the cheaper and faster route, becomes more than twice as expensive at the gate.

He also invoked Section 18 of the Act, which mandates equal treatment of parties at all stages of arbitral proceedings, and pointed out that frivolous claims can be punished through costs under Section 31(8) at the end of a case. A blanket entry fee, he argued, has no rational connection to weeding out bad claims.

S.K. Jain Against ICOMM, Lombardi and CORE

The real battle is between two lines of authority. The Commercial Court relied on S.K. Jain, where the Supreme Court in 2009 rejected pleas of unequal bargaining power against a similar clause. The contractor's answer: S.K. Jain never examined Article 14 at all, and a precedent that is silent on the decisive question binds nobody on that question.

Against it stands ICOMM Tele Ltd. v. Punjab State Water Supply, (2019) 4 SCC 401, where the Court struck down a comparable pre-deposit clause as arbitrary, observing that such clauses discourage arbitration and defeat its purpose of declogging courts. Then Lombardi Engineering Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd., (2024) 4 SCC 341, a three-judge Bench, which the appellant quoted:

"The concept of 'party autonomy' as pressed into service by the respondent cannot be stretched to an extent where it violates the fundamental rights under the Constitution. For an arbitration clause to be legally binding it has to be in consonance with the 'operation of law' which includes the Grundnorm i.e. the Constitution."

Counsel also relied on the Constitution Bench in Central Organisation for Railway Electrification (CORE) v. M/s ECI-SPIC-SMO-MCML (JV), (2025) 4 SCC 641, which affirmed both ICOMM and Lombardi and held that non-arbitrariness binds government instrumentalities even when they contract with private parties.

Why This Matters Beyond One Contractor

There is something almost colonial in the architecture of these clauses. The State drafts the contract, the State exempts itself, and the State's Executive Engineer sits as satisfaction-keeper of the deposit that decides whether the contractor's grievance is ever heard. The contractor signs because refusing means not working at all. Consent, in that setting, is a formality dressed as a choice.

This correspondent has tracked enough Section 34 and Section 48 enforcement battles to know that arbitration in India lives or dies at two points: the door in and the door out. Clauses like 25-A(vii) bolt the door in. Every small and mid-sized contractor working on state infrastructure across Haryana and beyond, with these clauses embedded in standard tender documents, has a direct stake in what the Court says here.

The available text of the sixteen-page judgment sets out the contractor's case in full; the Court's grant of leave and conversion of the petition into a civil appeal shows it regarded the constitutional challenge as one demanding an answer. The direction of travel in ICOMM, Lombardi and CORE is unmistakable, and Santosh Associate is the case that forces a reckoning with the older, gentler view in S.K. Jain.

For readers following related disputes over unilateral arbitrator appointments under Section 11 and enforcement resistance under Section 34, this judgment belongs on the same shelf. The pattern is one story told three ways: the State writing rules of a game it always intends to referee.