Case Note & Summary
The case involves appeals by the State of Haryana and its officers against a judgment of the Punjab and Haryana High Court which directed payment of interest on the security deposit refunded to the respondent-contractor, M/s Jai Durgaa Finvest P. Ltd. The respondent had participated in an auction for extraction of Yamuna sand and was the highest bidder at Rs.1.48 crores per annum for a three-year mining contract. The contract was governed by the Punjab Minor Minerals Concession Rules, 1964, and the standard Form-L agreement. Clause 19 of Form-L expressly stated that the security deposit shall not carry any interest and shall be refunded within three months from the expiry or termination of the contract. The contract was terminated by the government in public interest under Clause 17, and the security deposit was refunded after some delay. The respondent filed a writ petition seeking interest on the delayed refund, which was allowed by a learned Single Judge and affirmed by the Division Bench in LPA No. 215 of 2006 and Review Application No. 5 of 2010. The State appealed to the Supreme Court. The sole legal issue was whether the security deposit carries interest despite the express contractual stipulation to the contrary. The Supreme Court analyzed Clause 19 and found it unambiguous: the deposit shall not carry any interest. The court rejected the High Court's reasoning that Section 34 CPC or the Interest Act, 1978 would apply, holding that the contract to the contrary excludes such provisions. The court also noted that the delay in refund does not automatically entitle the contractor to interest when the contract itself bars it. The appeals were allowed, setting aside the High Court's orders and dismissing the respondent's writ petition. No order as to costs.
Headnote
A) Contract Law - Security Deposit - Interest - Clause 19 of Form-L Contract under Punjab Minor Minerals Concession Rules, 1964 - The issue was whether security deposit carries interest despite express contractual stipulation to the contrary. The Supreme Court held that Clause 19, which states that security deposit shall not carry any interest, is binding on the parties. The court reversed the High Court's decision granting interest, emphasizing that the contract expressly bars interest and no statutory provision overrides the agreement. (Paras 1, 3, 8-10) B) Civil Procedure - Interest - Section 34 CPC - Applicability to Contractual Deposits - The court held that Section 34 of the Code of Civil Procedure, 1908, which deals with interest on decrees, does not apply to contractual deposits like security deposit. The deposit is governed by the terms of the contract, not by procedural law. (Para 9) C) Interest Act, 1978 - Applicability - Contract to the Contrary - The Interest Act, 1978, allows interest only in the absence of a contract to the contrary. Since Clause 19 expressly bars interest, the Act does not apply. The court clarified that the contract to the contrary excludes the operation of the Interest Act. (Para 10)
Issue of Consideration
Whether the amount of security deposit given by the respondent-contractor will carry interest despite there being a contract to the contrary between the appellant and the respondent.
Final Decision
The Supreme Court allowed the appeals, set aside the impugned judgment and order of the High Court dated 21.03.2009 and 19.03.2010, and dismissed the writ petition filed by the respondent. No order as to costs.
Law Points
- Contractual stipulation against interest on security deposit is binding
- Section 34 CPC not applicable to contractual deposits
- Interest Act 1978 does not override express contract terms
- Security deposit refund without interest valid despite delay
