State of Haryana & Ors. v. M/s. Jai Durgaa Finvest P. Ltd.

The Supreme Court began by framing the sole issue: whether the security deposit would carry interest despite Clause 19 of Form-L expressly stating otherwise. The Court noted that Form-L is a statutory form prescribed under Rules 28A and 33 of the Punjab Minor Minerals Concession Rules, 1964, and the Respondent had voluntarily participated in the open auction, emerged as the highest bidder, and executed the contract with full knowledge of its terms, including Clause 19.

The Court reaffirmed the well-settled principle that courts will not rewrite commercial contracts or substitute their own terms for those agreed upon by the parties. It cited National Highways Authority of India v. Ganga Enterprises (2003) 7 SCC 410 and Shri Hanuman Cotton Mills v. Tata Aircraft Ltd. (1969) 3 SCC 522 for the proposition that agreed forfeiture/security stipulations must be enforced according to their terms. The Court further relied on Venkataraman Krishnamurthy v. Lodha Crown Buildmart (2024) 4 SCC 230, which held that courts must interpret contracts as expressed by the parties and cannot make a new contract however reasonable.

The Court rejected the High Court's reasoning that Clause 19 was unsustainable in law or against public policy. It held that the clause was neither immoral nor unlawful, and public policy could not be invoked to override a commercial contract voluntarily entered into. The Court distinguished Clause 2 (interest on delayed payment) from Clause 19 (no interest on security deposit), noting they operate in different fields: Clause 2 is compensation for the contractor's default, while Clause 19 is a performance guarantee held by the State, with no reciprocal obligation to pay interest.

However, the Court gave a purposive interpretation to Clause 19 by reading its two limbs together. The first limb states the deposit shall carry no interest; the second limb requires refund within three months from expiry or sooner determination. The Court held that while no interest accrues during the subsistence of the contract, the State cannot retain the deposit in perpetuity. Once the contract is determined, the State must refund within three months. If it retains beyond that period, the contractor is entitled to interest from the expiry of that three-month period until refund or adjustment.

The Court noted that the termination of the contract on 09.03.2000 was due to the Respondent's own defaults, and this finding had attained finality, as the Respondent's earlier SLP had been dismissed. Therefore, the State was justified in retaining the deposit and adjusting it against outstanding dues, but only within the three-month period stipulated. For the period beyond 09.06.2000, the Respondent was entitled to interest.

The Court upheld the rate of 9% per annum fixed by the High Court as reasonable, but modified the period for which interest would be payable. The appeal was partly allowed, with the declaration that Clause 19 is valid and binding, and interest is payable only from 09.06.2000, not from the date of deposit. This judgment clarifies the distinction between the validity of a no-interest clause during the contract and the State's obligation to refund promptly upon termination, balancing contractual freedom with fairness.