Writ jurisdiction may compel refund of contract deposits where liability is undisputed and retention unsupported.

Golden Multi Services Club Ltd. (“GMSC”) entered into two MoUs with National Insurance Company Ltd. on 2 April 2004 for group mediclaim and personal accident coverage for its members.

GMSC deposited ₹50 lakh for each policy as security and also had an unadjusted advance-premium balance of ₹41,45,696.

Following IRDA’s direction of 9 December 2004, the insurer terminated the MoUs by letter dated 14 December 2004.

GMSC sought return of the deposits; the insurer did not refund them or identify any adjustment at the time.

In its opposition to GMSC’s 2006 writ petition, the insurer alleged regulatory violations, inflated claims and potential liabilities, and asserted a right of lien or set-off.

The Court found no contemporaneous record of an adjustment or of proceedings supporting those allegations.

1. Whether the writ petition under Article 226 was maintainable to seek repayment of amounts withheld under the MoUs, despite the insurer’s objections concerning disputed facts and the availability of a civil remedy.

2. Whether the insurer could retain the ₹1 crore security deposit and ₹41,45,696 unadjusted cash balance on the basis of alleged defaults, liabilities or claims not shown to have been established or adjusted.

3. Whether interest was payable on either amount, and, if so, at what rate.

Article 226 may be invoked in a contractual matter involving a State instrumentality where the material facts are substantially undisputed and documentary, and the challenged action is arbitrary; the existence of a contractual relationship does not by itself bar writ relief (*ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd.*, as applied at para. 41).

Under *Mohinder Singh Gill v. Chief Election Commissioner*, an order must be judged by the reasons stated for it and cannot later be supported by fresh reasons introduced by affidavit.

Under the MoUs, the insurer could adjust the security deposit only against a financial default by GMSC, and no interest was payable on that security deposit; the unadjusted advance-premium balance was distinct from the security deposit and was not covered by that no-interest term.

The respondents also invoked Section 56 of the Indian Contract Act, 1872, but the Court did not rely on it in reaching its decision.

The Court held that the essential facts were undisputed and supported by the record, making the dispute suitable for determination under Article 226.

The insurer had produced no contemporaneous account, identified financial default, or adjustment under the MoUs, and the allegations of regulatory breaches, claims and potential liabilities were unsupported by documents or proceedings on the record.

Applying *ABL International*, the Court rejected the maintainability objection; applying *Mohinder Singh Gill*, it declined to accept a defence constructed later by affidavit without supporting material from the relevant time.

The MoU clause therefore did not justify retaining the security deposit, while the unconsumed advance premium was independently refundable.

The contractual no-interest provision applied only to the security deposit, not to the cash balance.

It directed the respondents to refund ₹1 crore as security deposit without interest and ₹41,45,696 as unadjusted cash balance with simple interest at 7% per annum, within one month of judgment.

If payment was not made within that period, the entire outstanding sum would carry interest at 9% per annum for the period of delay until payment.