Facts
The respondent was awarded a mining contract under the Punjab Minor Minerals Concession Rules, 1964 and deposited a security amount of ₹37 lakhs. The contract was terminated for the respondent’s default in payment of instalments. Under Clause 19 of Form-L, the security deposit was to carry no interest and was to be refunded within three months of expiry or termination of the contract. The High Court held Clause 19 to be invalid and directed payment of interest at 9% per annum from the date of deposit. The State challenged that decision.
Issues Framed
Whether the security deposit furnished under the contract would carry interest despite an express contractual stipulation to the contrary.
Court’s Reasoning
(a) The Court reiterated that in commercial contracts, courts must enforce the terms agreed by parties and cannot rewrite or substitute contractual clauses merely on grounds of fairness. The respondent had voluntarily accepted Clause 19, which expressly excluded interest on the security deposit.
(b) The Court held that Clause 19 was neither unconscionable nor opposed to public policy. The provision denying interest on the security deposit operated in a different field from Clause 2, which imposed interest for delayed payment by the contractor as compensation for breach.
(c) However, the Court interpreted Clause 19 as a composite provision. While the security deposit would not earn interest during the subsistence of the contract, the State was obligated to refund it within three months from expiry or termination. The State could not retain an interest-free deposit indefinitely. If it retained the amount beyond the stipulated three months, interest became payable thereafter.
Held
The appeals were partly allowed. Clause 19 was upheld as valid. No interest was payable until three months after termination of the contract. The respondent was entitled to simple interest at 9% per annum only from 09.06.2000 (three months after termination) until the date of adjustment or refund of the security deposit.
Ratio
An express contractual clause excluding interest on a security deposit is enforceable; nevertheless, where the contract also prescribes a time for refund, interest becomes payable if the deposit is retained beyond that stipulated period.
Relevant Para
Para 29
“The two limbs of the Clause 19 have to be read together, and they are interdependent. While the first portion states that ‘it shall not carry any interest’ and second portion of the same clause reads that ‘shall be refunded to the contractor within three months from the date of expiry or sooner determination of the contract.’ The correct interpretation of this Clause would mean the Respondent’s deposit will earn no interest and it will be returned to the Respondent within three months of the contract coming to an end or within three months of the termination of the contract. On a proper reading of the Clause 19 it is clear that the Appellant cannot retain the money which is interest free, in perpetuity. It does not clothe the Appellant with the power to read the first portion of the Clause in isolation without any limitation on time… Once the contract is determined then it is the obligation upon the State to refund the security deposit within the period prescribed in the agreement. If the State retains the security deposit beyond three months the Respondent-contractor is entitled for interest…”
Case Details
Citation: 2026 INSC 678
Decided on: 13 July 2026
Case Title: State of Haryana & Ors. v. M/s. Jai Durgaa Finvest Pvt. Ltd.
Court: Supreme Court of India
Bench: Surya Kant, CJI; V. Mohana, J.