2026 INSC 678
State of Haryana & Ors. v. M/s. Jai Durgaa Finvest (P) Ltd.
HEAD NOTES
A. Contract — Commercial Contracts — Interpretation — Courts cannot rewrite contractual terms.
(Paras 23 to 28)
Held, in commercial contracts voluntarily entered into by parties standing on an equal footing, courts are bound to enforce the contract according to its express terms. The court cannot rewrite, modify or substitute contractual stipulations merely because an alternative arrangement appears more equitable or reasonable. Parties who knowingly accept unambiguous contractual conditions remain bound by them.
B. Contract — Security Deposit — Clause providing that security deposit shall carry no interest — Validity.
(Paras 27 to 30)
Held, a contractual stipulation expressly providing that the security deposit shall carry no interest is neither unconscionable nor opposed to public policy. Such a clause, voluntarily accepted in an open commercial tender, is valid and binding upon the parties.
C. Contract — Interpretation — Security deposit — Refund within stipulated period — Liability to pay interest after delay.
(Paras 29 to 31)
Held, where the contract provides both that the security deposit shall carry no interest and that it shall be refunded within three months of expiry or earlier determination of the contract, both stipulations must be read harmoniously. No interest is payable during the contractual period or for three months thereafter; however, if the employer retains the security deposit beyond the stipulated period, interest becomes payable for the period of unauthorised retention.
D. Contract — Public Policy — Commercial bargains.
(Para 27)
Held, the doctrine of public policy cannot be invoked to invalidate a freely negotiated commercial bargain merely because one party subsequently considers its terms to be onerous. A commercial contract voluntarily executed pursuant to statutory rules cannot be avoided on grounds of perceived inequality after substantial performance.
E. Contract — Security Deposit and Interest on Delayed Instalments — Distinction.
(Para 27)
Held, a clause imposing interest on delayed payment of contractual instalments and a clause denying interest on security deposit operate in distinct fields. Interest on delayed instalments constitutes compensation for breach by the contractor, whereas the security deposit serves as a performance guarantee. The existence of one obligation does not create a reciprocal obligation upon the employer to pay interest on the security deposit.
F. Commercial Contracts — Binding Nature of Standard Form Contracts.
(Paras 24 to 28)
Held, where a bidder voluntarily participates in an open auction, accepts the statutory standard form agreement and executes the contract without coercion, fraud or undue influence, the contractual terms remain binding and enforceable. Subsequent challenge to such terms merely because they operate adversely cannot be entertained.
Analysis of Facts
The respondent was awarded a mining contract under the Punjab Minor Minerals Concession Rules, 1964, and executed the prescribed statutory Form-L agreement. The agreement required the contractor to furnish a security deposit, expressly stipulating that such deposit would not carry any interest and would be refunded within three months of expiry or earlier determination of the contract.
Following repeated defaults in payment of contractual instalments, the State terminated the contract. The contractor challenged the termination and also sought interest on the security deposit, contending that while the State charged interest on delayed instalments, denial of interest on the security deposit was arbitrary and opposed to public policy.
The High Court held Clause 19 to be unsustainable and awarded interest from the date of deposit. The State appealed.
The Supreme Court held that the contractor had voluntarily accepted the contractual terms and that Clause 19 was valid. However, the Court also held that the State could not retain the security deposit indefinitely beyond the period expressly stipulated for refund.
Analysis of Law
The Court reiterated the following principles:
Courts must enforce commercial contracts according to their express terms and cannot rewrite contractual obligations.
Freely negotiated commercial agreements voluntarily accepted by parties are binding unless vitiated by recognised legal grounds.
A contractual stipulation denying interest on a security deposit is valid and not opposed to public policy.
Contractual clauses must be construed harmoniously so that every part of the agreement is given effect.
While no interest is payable during the contractually agreed interest-free period, wrongful retention of the security deposit beyond the stipulated refund period gives rise to liability to pay interest.
Interest payable on delayed contractual instalments is compensatory for breach and cannot be equated with interest on security deposits held as performance guarantees.
Ratio Decidendi
A contractual clause providing that a security deposit shall carry no interest is valid and enforceable where it forms part of a freely accepted commercial agreement. However, where the same clause obligates the employer to refund the security deposit within a specified period after expiry or determination of the contract, the employer cannot retain the amount beyond that period without liability to pay reasonable interest for the delayed retention.
