State of Haryana & Ors. v. M/s. Jai Durgaa Finvest P. Ltd., 2026
An express contractual term excluding interest on a security deposit is not, by itself, contrary to public policy.
Judgement Details
Court
Supreme Court of India
Date of Decision
1 September 2026
Judges
Chief Justice Surya Kant and Justice V. Mohana
Citation
Acts / Provisions
Facts of the Case
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The State of Haryana awarded a mining contract for extraction of Yamuna sand from the Bega Murthal Sand Zone.
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M/s. Jai Durgaa Finvest Pvt. Ltd. emerged as the highest bidder in the auction and entered into a contract with the State on 30 November 1998.
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Clause 19 of Form-L provided that the security deposit would carry no interest and would be refunded within three months of expiry or earlier determination of the contract.
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The contractor subsequently defaulted in making monthly payments.
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The contract was terminated on 9 March 2000.
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The Punjab and Haryana High Court held Clause 19 to be unsustainable and directed payment of 9% interest from the date of deposit.
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The State challenged the High Court's decision before the Supreme Court.
Issues
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Whether a contractual clause providing that a security deposit shall carry no interest can be declared contrary to public policy merely because it does not provide for interest?
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Whether a court can rewrite an unambiguous commercial contract voluntarily accepted by parties?
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Whether the State can retain the security deposit beyond the contractual refund period without liability to pay interest?
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Whether the contractor is entitled to interest from the date of deposit despite the express terms of the contract?
Judgement
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The Supreme Court partly allowed the appeals.
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It held that Clause 19 was valid and binding and was neither unlawful nor opposed to public policy.
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The Court held that parties who voluntarily accept clear commercial terms cannot subsequently ask the court to substitute different terms merely because the agreed terms become onerous.
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The High Court's direction granting interest from the date of deposit was set aside.
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However, Clause 19 had to be read as a whole. The State was required to refund the security within three months after termination.
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Since the contract was terminated on 9 March 2000, the three-month period expired on 9 June 2000.
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The contractor was therefore held entitled to simple interest at 9% per annum from 9 June 2000 until the security was adjusted towards dues or refunded.
Held
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Courts must ordinarily interpret and enforce, rather than rewrite, clear commercial contracts.
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Where parties contract voluntarily and on equal footing, an onerous term does not automatically become legally invalid.
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Clause 19 was required to be interpreted as a whole, rather than reading its no-interest portion in isolation.
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The State could retain the security deposit without interest only for the three-month contractual refund period.
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Retention beyond that period attracted interest at 9% per annum.
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The contractor was not entitled to interest from the date of deposit.
Analysis
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The judgment reinforces the principle of freedom of contract in commercial transactions. Courts cannot substitute their own preferred bargain for one consciously accepted by the parties.
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The Supreme Court rejected the reasoning that absence of interest on the security deposit automatically made the contractual provision oppressive or contrary to public policy.
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Importantly, the Court did not treat the no-interest clause as giving the State an unrestricted right to retain the contractor's money indefinitely.
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Clause 19 contained two interconnected obligations: no interest on the deposit and refund within three months after expiry or termination.
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The Court therefore adopted a harmonious interpretation of the entire clause.
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The decision draws a useful distinction between a contractual term that excludes interest and an attempt to retain money beyond the contractual period.
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The High Court's award of interest from the date of deposit effectively added a term that the parties had never agreed upon. The Supreme Court held that such judicial alteration amounted to rewriting the contract.
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At the same time, the State could not rely upon the first limb of Clause 19 while ignoring the second limb requiring timely refund.
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The judgment therefore protects both contractual certainty and against indefinite retention of another party's money.
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The broader principle is that courts should respect clear commercial bargains, but contractual provisions must be interpreted in their entirety and according to their mutually agreed consequences.