Interest on security deposits cannot be awarded if contractually prohibited, except upon wrongful withholding beyond prescribed refund timelines.

The Respondent was the successful bidder in an auction for the extraction of Yamuna sand for a three-year period ending 31.03.2001

A contract was executed on 30.11.1998 in Form-L, as prescribed under the Punjab Minor Minerals Concession Rules, 1964

On 09.03.2000, the Appellant terminated the contract due to the Respondent's default in paying monthly installments and forfeited the security deposit

The Appellate Authority later ordered that the forfeited security be adjusted against outstanding dues

The Respondent challenged the validity of Clause 19 of Form-L, which stipulated that security deposits would carry no interest

The High Court’s Division Bench upheld a Single Judge's finding that Clause 19 was "unsustainable in law" and "against public policy," directing the State to pay 9% interest from the date of deposit

1. Whether the amount of security deposit given by a contractor carries interest despite an express contractual provision to the contrary

2. Whether a Writ Court can rewrite the terms of a commercial contract or declare a standard statutory clause as "unsustainable" when voluntarily accepted by a party

in commercial contracts, parties are bound by unambiguous terms they voluntarily accept, and courts cannot rewrite such terms even if they appear onerous

National Highways Authority of India v. Ganga Enterprises and Shri Hanuman Cotton Mills v. Tata Aircraft Limited regarding the enforcement of forfeiture and security stipulations

Venkataraman Krishnamurthy v. Lodha Crown Buildmart Private Limited, which held that courts must interpret words as expressed and cannot substitute their own views for the intended commercial terms

Punjab Minor Minerals Concession Rules, 1964, specifically Rule 33 and the prescribed Form-L

The Supreme Court observed that the Respondent entered the contract with full knowledge of Clause 19, which explicitly states that security deposits carry no interest

The court noted that the Respondent only challenged this clause after the contract was terminated for their own defaults, which had been factually established in lower proceedings

The Court reasoned that Clause 2 (charging interest on delayed payments) and Clause 19 (denying interest on security) serve different purposes: the former is a penalty for breach, while the latter is a performance guarantee

Consequently, declaring Clause 19 "against public policy" was erroneous as it was a valid commercial term

The Court interpreted Clause 19 as having two interdependent limbs: while the deposit earns no interest during the contract, the State is obligated to refund or adjust it within three months of the contract’s determination. Retention beyond this period creates a liability for interest

The Supreme Court partly allowed the appeals, setting aside the High Court's order declaring Clause 19 unsustainable. The Respondent is entitled to simple interest at 9% per annum only for the period starting from 09.06.2000 until the date the amount was actually adjusted or refunded.