In motor accident claim proceedings under Section 166 of the Motor Vehicles Act, negligence is to be determined on the touchstone of preponderance of probabilities. Greater weight ordinarily attaches to the testimony of an injured eyewitness than to photographs subsequently produced by an interested party. Where a heavy vehicle is found standing on a public roadway at night without adequate warning signals and the defence fails to produce the best available evidence explaining the occurrence, the doctrine of res ipsa loquitur applies, entitling the claimants to compensation. Concurrent findings founded upon unreliable evidence are liable to be set aside, and the Court may itself award just compensation in accordance with settled principles.

 

2026 INSC 696

Manju Singh v. Avinash Singh & Ors.

HEAD NOTES 

A. Motor Vehicles Act, 1988 — Section 166 — Motor Accident Claims — Standard of proof — Preponderance of probabilities.

(Paras 14 & 27)

Held, proceedings before the Motor Accident Claims Tribunal are civil in nature and the standard of proof is one of preponderance of probabilities and not proof beyond reasonable doubt. The Tribunal must adopt a pragmatic approach consistent with the beneficial object of the Motor Vehicles Act and should not apply the strict rules of criminal jurisprudence while determining negligence.

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B. Evidence — Injured eyewitness — Evidentiary value.

(Paras 22 & 23)

Held, testimony of an injured eyewitness carries greater evidentiary value and ordinarily deserves acceptance unless serious contradictions or inherent improbabilities are established. The evidence of such a witness cannot be discarded in preference to interested defence witnesses without cogent reasons.

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C. Evidence — Photographs — Evidentiary value.

(Paras 15 to 21)

Held, photographs taken several hours after the accident, particularly by an interested party and not during the course of official investigation, cannot by themselves constitute reliable evidence regarding the position of vehicles at the time of impact. Such photographs cannot form the sole basis for determining negligence.

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D. Evidence — Adverse inference — Non-production of material witness.

(Para 24)

Held, where the defence relies upon a particular factual version but withholds the most material witness capable of substantiating that plea without satisfactory explanation, an adverse inference is liable to be drawn against such party.

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E. Motor Vehicles Act, 1988 — Negligence — Heavy vehicle parked on roadway at night — Absence of warning signals.

(Paras 24 & 25)

Held, parking a heavy vehicle on a public road during night hours without hazard lights, reflective indicators or adequate warning signs constitutes negligence in itself, as such conduct creates a foreseeable danger to other road users. In such circumstances, the principle of res ipsa loquitur becomes applicable and the burden shifts upon the owner and driver to establish that reasonable precautions had been taken.

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F. Motor Vehicles Act, 1988 — Compensation — Concurrent findings — Interference by Supreme Court.

(Paras 27 to 38)

Held, where concurrent findings of the Tribunal and the High Court are founded upon unreliable evidence and ignore trustworthy testimony of an injured eyewitness, such findings become perverse and liable to be set aside. The Supreme Court may itself determine just compensation in accordance with the principles laid down in Sarla Verma and Pranay Sethi instead of remanding the matter.

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Analysis of Facts

Three teachers travelling in a Maruti car met with a fatal accident after collision with a tanker. Three occupants died while one occupant survived with grievous injuries and deposed as the sole injured eyewitness.

The claimants asserted that the tanker was being driven rashly and negligently. The respondents contended that the tanker had been stationary on the roadside and that the Maruti car had collided with it due to negligent driving.

The Tribunal dismissed the claim petitions under Section 166 of the Motor Vehicles Act by relying principally upon photographs produced by the owner of the tanker showing the alleged position of the vehicles. The High Court affirmed the dismissal.

The Supreme Court found that the photographs had been taken nearly ten hours after the accident, were not part of any police investigation, and had been produced by an interested party. On the other hand, the testimony of the injured eyewitness remained consistent and trustworthy. The Court also noted the respondents' failure to examine the tanker conductor and the absence of evidence showing that the tanker had been parked with proper warning signals. These circumstances, together with the police charge-sheet against the tanker driver, established negligence on the part of the tanker driver.

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Analysis of Law

The Court reiterated the following principles:

1. Proceedings under the Motor Vehicles Act are governed by the standard of preponderance of probabilities.

2. Greater evidentiary value ordinarily attaches to the testimony of an injured eyewitness.

3. Photographs taken long after the accident by an interested party cannot conclusively establish negligence.

4. Non-production of the best available witness invites an adverse inference.

5. Parking a heavy vehicle on a roadway at night without adequate warning devices amounts to actionable negligence and attracts the doctrine of res ipsa loquitur.

6. Where concurrent findings are based on unreliable evidence and ignore material evidence, the Supreme Court may interfere and itself compute just compensation instead of remanding the matter.

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Ratio Decidendi

In motor accident claim proceedings under Section 166 of the Motor Vehicles Act, negligence is to be determined on the touchstone of preponderance of probabilities. Greater weight ordinarily attaches to the testimony of an injured eyewitness than to photographs subsequently produced by an interested party. Where a heavy vehicle is found standing on a public roadway at night without adequate warning signals and the defence fails to produce the best available evidence explaining the occurrence, the doctrine of res ipsa loquitur applies, entitling the claimants to compensation. Concurrent findings founded upon unreliable evidence are liable to be set aside, and the Court may itself award just compensation in accordance with settled principles.

An order of an Arbitral Tribunal rejecting a jurisdictional objection under Section 16 of the Arbitration and Conciliation Act cannot ordinarily be challenged under Article 227 of the Constitution. Supervisory jurisdiction may be exercised only where the Tribunal's order ex facie discloses a patent lack of inherent jurisdiction. Questions relating to the status of non-signatories under the Group of Companies doctrine fall within the Tribunal's competence under Section 16, and the statutory remedy against such determination ordinarily lies only under Section 34 after the final arbitral award.

 

2026 INSC 701

Manash Kamal Bezboruah v. M/s Bokahola Tea Company Pvt. Ltd. & Ors.

HEAD NOTES 

A. Arbitration and Conciliation Act, 1996 — Ss. 5, 16 & 34 — Constitution of India — Art. 227 — Supervisory jurisdiction — Challenge to order under Section 16 — Scope.

(Paras 22, 25 to 30 & 33)

Held, although the constitutional power of judicial superintendence under Article 227 cannot be excluded by legislation, interference with orders passed by an Arbitral Tribunal under Section 16 of the Arbitration and Conciliation Act is permissible only in the rarest of cases involving a patent lack of inherent jurisdiction. Ordinarily, the aggrieved party must await the final award and avail the statutory remedy under Section 34 of the Act.

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B. Arbitration and Conciliation Act, 1996 — Ss. 5 & 16 — Principle of Kompetenz-Kompetenz — Jurisdiction of Arbitral Tribunal.

(Paras 22, 30 & 31)

Held, Section 16 embodies the doctrine of kompetenz-kompetenz, empowering the Arbitral Tribunal to rule upon its own jurisdiction, including objections relating to the existence, scope and applicability of the arbitration agreement. Judicial interference at the interlocutory stage defeats the legislative policy of minimal court intervention.

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C. Arbitration — Non-signatory parties — "Group of Companies" doctrine — Determination by Arbitral Tribunal.

(Paras 31 & 34)

Held, determination whether a non-signatory is a "veritable party" bound by an arbitration agreement under the Group of Companies doctrine involves mixed questions of fact and law. Such determination falls primarily within the jurisdiction of the Arbitral Tribunal under Section 16 and should ordinarily not be pre-empted by supervisory jurisdiction under Article 227.

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D. Constitution of India — Art. 227 — Arbitration proceedings — Patent lack of inherent jurisdiction — Meaning.

(Paras 27 to 30)

Held, interference under Article 227 is justified only where the Tribunal's order suffers from a patent lack of inherent jurisdiction apparent on the face of the record. Mere disagreement with the Tribunal's reasoning or possible legal error does not attract supervisory jurisdiction.

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E. Arbitration and Conciliation Act, 1996 — Legislative policy — Minimal judicial intervention.

(Paras 22, 25 to 30 & 32)

Held, the Arbitration and Conciliation Act is a self-contained Code intended to secure expeditious dispute resolution with minimal judicial interference. Frequent challenges before constitutional courts during pendency of arbitral proceedings frustrate the legislative object and unnecessarily delay arbitration.

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F. Arbitration — Consent order of Supreme Court referring disputes to arbitration — Subsequent challenge by party remaining silent earlier — Maintainability.

(Paras 23, 24 & 32)

Held, where parties were impleaded in proceedings before the Supreme Court and did not object to the order referring disputes to arbitration or seek its modification or review, they cannot subsequently invoke collateral proceedings to challenge the arbitral reference, thereby initiating avoidable rounds of litigation.

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G. Arbitration — High Court — Entertaining petition under Article 227 against Section 16 order — Requirement.

(Para 30)

Held, before entertaining a petition under Article 227 against an order passed under Section 16 of the Arbitration and Conciliation Act, the High Court should first record a prima facie finding that the Tribunal suffers from a patent lack of inherent jurisdiction, after affording an opportunity of hearing to all affected parties.

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Analysis of Facts

The appellant instituted a civil suit alleging mismanagement and financial irregularities in a partnership firm and associated companies. Though the Trial Court and the High Court initially declined reference to arbitration, the Supreme Court, with the consent of the parties, subsequently appointed a sole arbitrator to adjudicate all disputes.

During arbitration, certain respondent companies, claiming to be non-signatories to the arbitration agreement, sought deletion of their names from the arbitral proceedings by raising jurisdictional objections. The Arbitral Tribunal treated the objections as falling under Section 16 of the Arbitration and Conciliation Act and rejected them.

The respondents invoked the High Court's supervisory jurisdiction under Article 227 of the Constitution. The High Court entertained the revision petition, stayed notices issued by the Tribunal and held that the petition was maintainable.

The Supreme Court found that the High Court had neither recorded any finding of patent lack of inherent jurisdiction nor demonstrated perversity in the Tribunal's order and had thereby interfered contrary to the statutory framework governing arbitration.

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Analysis of Law

The Court reaffirmed the following principles:

1. The Arbitration and Conciliation Act is a self-contained code intended to minimise judicial intervention.

2. Section 16 incorporates the doctrine of kompetenz-kompetenz, empowering the Arbitral Tribunal to determine its own jurisdiction.

3. Orders rejecting jurisdictional objections under Section 16 are ordinarily challengeable only under Section 34 after the final award.

4. Supervisory jurisdiction under Article 227 survives but is exercisable only in exceptional cases involving patent lack of inherent jurisdiction.

5. The determination whether a non-signatory is bound by an arbitration agreement under the Group of Companies doctrine primarily falls within the Tribunal's jurisdiction.

6. Parties who fail to challenge or seek clarification of an order referring disputes to arbitration cannot subsequently initiate collateral proceedings raising the same objections.

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Ratio Decidendi

An order of an Arbitral Tribunal rejecting a jurisdictional objection under Section 16 of the Arbitration and Conciliation Act cannot ordinarily be challenged under Article 227 of the Constitution. Supervisory jurisdiction may be exercised only where the Tribunal's order ex facie discloses a patent lack of inherent jurisdiction. Questions relating to the status of non-signatories under the Group of Companies doctrine fall within the Tribunal's competence under Section 16, and the statutory remedy against such determination ordinarily lies only under Section 34 after the final arbitral award.

Nominated members of Town Panchayats, who are constitutionally denied voting rights in municipal affairs under Article 243-R of the Constitution, cannot be treated as members of the electoral college for elections to the Legislative Council from Local Authorities' Constituencies. The expressions "members of municipalities" in Article 171(3)(a) of the Constitution and "every member" in Section 27(2)(b) of the Representation of the People Act, 1950 must receive a purposive and harmonious interpretation confined to democratically elected members. Consequently, votes cast by constitutionally ineligible nominated members are void and, where such votes materially affect the election result, the election is liable to be set aside.

 

2026 INSC 716

Pranesh M.K. v. A.V. Gayathri Shanthegowda & Ors.

HEAD NOTES 

A. Constitution of India — Arts. 171(3)(a) & 243-R — Legislative Council Elections — Local Authorities' Constituency — Nominated members of Town Panchayats — Right to vote — No such right.

(Paras 29 to 38 & 48)

Held, nominated members appointed under Section 352(1)(b) of the Karnataka Municipalities Act, 1964 do not possess the right to vote in elections to the Legislative Council from a Local Authorities' Constituency. Article 243-R of the Constitution makes a deliberate distinction between elected representatives and nominated members, whose role is merely advisory. The expressions "members of municipalities" in Article 171(3)(a) and "every member" in Section 27(2)(b) of the Representation of the People Act, 1950 must receive a purposive and harmonious interpretation consistent with the constitutional scheme of democratic local self-government and therefore refer only to elected members having voting rights in the concerned local authority.

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B. Constitution of India — Art. 226 — Electoral Roll — Writ Petition — Maintainability.

(Paras 22 to 26)

Held, a writ petition challenging the constitutional validity of inclusion of nominated members in the electoral roll before commencement of the election process is maintainable. Where the controversy raises a pure question of constitutional and statutory interpretation and the statutory remedy is ineffective or illusory, existence of an alternative remedy does not bar exercise of writ jurisdiction.

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C. Representation of the People Act, 1950 — S.27(2)(b) — Electoral Roll — Expression "every member" — Interpretation.

(Paras 27 to 38)

Held, the expression "every member" occurring in Section 27(2)(b) of the Representation of the People Act, 1950 cannot be interpreted literally in isolation. It must be harmoniously construed with Article 243-R of the Constitution and therefore includes only those members who are democratically elected and possess voting rights in the local authority.

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D. Representation of the People Act, 1951 — S.100(1)(d)(iii) — Void votes — Materially affecting election result.

(Paras 43 & 44)

Held, where constitutionally ineligible persons participate in the election and the number of such invalid votes exceeds the margin of victory, the requirement of "materially affected" under Section 100(1)(d)(iii) stands satisfied and the election is liable to be declared void.

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E. Electoral Rolls — Finality — Constitutional illegality — Effect.

(Paras 39 to 42)

Held, the principle of finality of electoral rolls cannot validate participation of persons whose inclusion is constitutionally void ab initio. While ordinary defects or irregularities in electoral rolls cannot ordinarily be reopened after the election, constitutional ineligibility affecting the composition of the electoral college stands on a different footing and cannot be protected by the doctrine of finality.

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F. Elections — Secrecy of Ballot — Scope.

(Paras 45 & 46)

Held, secrecy of the ballot, though a fundamental feature of the electoral process, is not absolute. Where exclusion of constitutionally void votes requires identification of ballot papers through legally permissible statutory records without conducting an inquiry into voting preferences, such exercise does not violate the principle of ballot secrecy.

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G. Constitutional Interpretation — Purposive and Harmonious Construction.

(Paras 29 to 38)

Held, constitutional provisions relating to democratic institutions must be interpreted harmoniously so as to advance the objective of representative democracy. A literal interpretation leading to a situation where nominated members, though denied voting rights in municipal affairs, are nevertheless permitted to elect members of the Legislative Council would defeat the constitutional purpose underlying Part IX-A of the Constitution.

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Analysis of Facts

The appellant was declared elected to the Karnataka Legislative Council from the Chikkamagaluru Local Authorities' Constituency by a margin of six votes. Twelve nominated members of various Town Panchayats had been included in the electoral roll and had participated in the election.

The inclusion of these nominated members was challenged before the High Court, which held that they were constitutionally ineligible to vote and directed deletion of their names from the electoral roll. Consequential election petitions sought exclusion of the votes cast by the nominated members and recounting.

The High Court ordered opening of the ballot boxes, segregation of votes cast by the nominated members and recount of votes. The returned candidate challenged the legality of these directions before the Supreme Court.

The Supreme Court affirmed the High Court's view that nominated members were constitutionally ineligible to participate in the electoral college and upheld the consequential directions for recount.

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Analysis of Law

The Court laid down the following principles:

1. Article 243-R creates a clear constitutional distinction between elected representatives and nominated members of municipalities.

2. The expressions "members of municipalities" in Article 171(3)(a) and "every member" in Section 27(2)(b) of the Representation of the People Act, 1950 must be interpreted in harmony with the constitutional scheme introduced by the Seventy-Fourth Constitutional Amendment.

3. Nominated members, having only advisory functions and lacking democratic mandate, cannot constitute part of the electoral college for Legislative Council elections.

4. Writ jurisdiction remains available where the challenge concerns the constitutional validity of the electoral roll itself and the statutory remedy is ineffective.

5. The doctrine of finality of electoral rolls cannot override constitutional invalidity.

6. Where constitutionally void votes materially affect the election result, the election is liable to be declared void under Section 100(1)(d)(iii) of the Representation of the People Act, 1951.

7. Limited identification and exclusion of constitutionally void votes does not violate ballot secrecy where carried out in accordance with statutory safeguards.

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Ratio Decidendi

Nominated members of Town Panchayats, who are constitutionally denied voting rights in municipal affairs under Article 243-R of the Constitution, cannot be treated as members of the electoral college for elections to the Legislative Council from Local Authorities' Constituencies. The expressions "members of municipalities" in Article 171(3)(a) of the Constitution and "every member" in Section 27(2)(b) of the Representation of the People Act, 1950 must receive a purposive and harmonious interpretation confined to democratically elected members. Consequently, votes cast by constitutionally ineligible nominated members are void and, where such votes materially affect the election result, the election is liable to be set aside.

Where the prosecution case rests entirely on circumstantial evidence, failure to establish motive, uncertainty regarding the last seen circumstance, contradictions in electronic evidence, procedural defects in recovery of material objects and breaks in the chain of forensic evidence render the prosecution case insufficient to sustain conviction for murder or criminal conspiracy. However, independent evidence proving conscious disposal or attempted disposal of the dead body may validly sustain conviction under Section 201 read with Section 34 IPC notwithstanding acquittal on the principal charge of murder.

2026 INSC 685

State of Maharashtra v. Monika Kiran Suryawanshi & Ors.

HEAD NOTES 

A. Evidence Act, 1872 — Circumstantial Evidence — Principles governing conviction.

(Paras 19, 33 & 38 to 41)

Held, where the prosecution case rests entirely on circumstantial evidence, every incriminating circumstance must be firmly established and the chain of circumstances must be complete, consistent only with the guilt of the accused and inconsistent with every reasonable hypothesis of innocence. If any vital link in the chain is missing, the accused is entitled to the benefit of doubt.

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B. Criminal Law — Murder — Circumstantial Evidence — Motive — Extramarital relationship — Proof.

(Paras 20 & 21)

Held, mere suspicion of an extramarital relationship, unsubstantiated by cogent and reliable evidence, cannot constitute proof of motive for murder. Telephone records or unilateral assertions, in the absence of convincing evidence of a reciprocal relationship or criminal intent, are insufficient to establish motive.

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C. Evidence — Last Seen Theory — Evidentiary Value.

(Paras 22 & 23)

Held, the "last seen" theory is a weak piece of circumstantial evidence unless the prosecution conclusively establishes the time of death and proves that the deceased was last seen alive with the accused in circumstances excluding every other possibility. Where the time of death remains uncertain and the surrounding circumstances are doubtful, conviction cannot be founded solely upon the last seen theory.

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D. Evidence Act, 1872 — Recovery under Section 27 — Sealing of seized articles — Importance.

(Paras 26 to 29)

Held, recovery of incriminating articles without sealing them at the place of seizure and without establishing an unbroken chain of custody renders the recovery unreliable. Failure to preserve the integrity of seized articles seriously undermines the evidentiary value of forensic reports based upon such recoveries.

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E. Indian Penal Code, 1860 — Section 120-B — Criminal Conspiracy — Proof.

(Paras 30 to 33)

Held, conviction for criminal conspiracy requires proof of an agreement or meeting of minds to commit an illegal act. Mere suspicion, association between accused persons or inconclusive circumstantial evidence is insufficient to establish the offence under Section 120-B IPC.

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F. Indian Penal Code, 1860 — Section 201 read with Section 34 — Causing disappearance of evidence — Conviction.

(Paras 34 to 40)

Held, where accused persons are apprehended while transporting the dead body of the deceased for disposal and the surrounding circumstances establish conscious participation in screening the offender from legal punishment, conviction under Section 201 read with Section 34 IPC is justified even though the prosecution fails to prove the charge of murder.

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Analysis of Facts

The prosecution alleged that accused No. 1, wife of the deceased, conspired with accused Nos. 2 and 3 to murder her husband owing to an alleged extramarital relationship with accused No. 2. The case rested entirely upon circumstantial evidence, including alleged motive, last seen evidence, recoveries under Section 27 of the Evidence Act, telephonic records and forensic reports.

The Trial Court convicted accused Nos. 1 to 3 under Sections 302, 120-B and 201 read with Section 34 IPC.

The High Court, however, found that the prosecution failed to establish the alleged motive, the last seen theory remained doubtful, the telephonic evidence contradicted the prosecution's own version, and the recoveries were rendered unreliable due to serious procedural lapses, particularly failure to seal the seized articles. It therefore acquitted all accused of murder and conspiracy but maintained the conviction of accused Nos. 2 and 3 under Section 201 IPC as they were apprehended while transporting the dead body.

The Supreme Court affirmed the High Court's appreciation of evidence.

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Analysis of Law

The Court reiterated the following principles:

1. Conviction based solely on circumstantial evidence requires a complete and unbroken chain of incriminating circumstances.

2. Motive assumes greater significance where there is no direct evidence and must itself be proved by reliable evidence.

3. The last seen theory is not conclusive unless closely connected with the time of death and supported by other incriminating circumstances.

4. Recovery under Section 27 of the Evidence Act must satisfy strict procedural safeguards, including proper sealing and preservation of seized articles.

5. Criminal conspiracy requires proof of an agreement or meeting of minds and cannot be inferred merely from suspicion or association.

6. Independent evidence establishing conscious attempts to dispose of a dead body may sustain conviction under Section 201 IPC even where the charge of murder is not proved.

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Ratio Decidendi

Where the prosecution case rests entirely on circumstantial evidence, failure to establish motive, uncertainty regarding the last seen circumstance, contradictions in electronic evidence, procedural defects in recovery of material objects and breaks in the chain of forensic evidence render the prosecution case insufficient to sustain conviction for murder or criminal conspiracy. However, independent evidence proving conscious disposal or attempted disposal of the dead body may validly sustain conviction under Section 201 read with Section 34 IPC notwithstanding acquittal on the principal charge of murder.

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.

 

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.

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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.

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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.

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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.

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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.

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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.

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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.

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Analysis of Law

The Court reiterated the following principles:

1. Courts must enforce commercial contracts according to their express terms and cannot rewrite contractual obligations.

2. Freely negotiated commercial agreements voluntarily accepted by parties are binding unless vitiated by recognised legal grounds.

3. A contractual stipulation denying interest on a security deposit is valid and not opposed to public policy.

4. Contractual clauses must be construed harmoniously so that every part of the agreement is given effect.

5. 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.

6. Interest payable on delayed contractual instalments is compensatory for breach and cannot be equated with interest on security deposits held as performance guarantees.

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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.