Can a Contractor Claim Interest on a Security Deposit Despite a Contract Saying Otherwise? Supreme Court Answers

Case Name: State of Haryana & Others v. M/s Jai Durgaa Finvest Pvt. Ltd.

Date of Judgment: 13 July 2026

Citation: 2026 INSC 678 | Civil Appeal Nos. 3145-3146 of 2012

Bench: Chief Justice Surya Kant and Justice V. Mohana

Held: The Supreme Court held that where a commercial contract expressly provides that the contractor’s security deposit shall not carry any interest, courts cannot rewrite the contract to grant interest merely on grounds of equity or public policy. However, the Court clarified that if the contract requires the security deposit to be refunded within a specified period, the State becomes liable to pay interest if it retains the amount beyond that period.

Summary: The dispute arose out of a mining contract executed between the State of Haryana and M/s Jai Durgaa Finvest Pvt. Ltd. under the Punjab Minor Minerals Concession Rules, 1964. The contractor had deposited a security amount of ₹37 lakhs, while the agreement specifically provided that the security deposit would not carry any interest and would be refunded within three months of the expiry or termination of the contract.

After the contract was terminated due to the contractor’s default, the contractor challenged Clause 19 of the agreement, contending that it was unfair and contrary to public policy because the State charged interest on delayed payments by the contractor but denied interest on the security deposit. The High Court declared the clause unsustainable and directed payment of interest at 9% per annum from the date of deposit.

Allowing the State’s appeal in part, the Supreme Court held that commercial contracts voluntarily entered into by parties must be enforced according to their terms and courts cannot rewrite contractual clauses merely because they appear one-sided. The Court upheld the validity of Clause 19 but clarified that the State could not retain the security deposit indefinitely. Since the agreement itself required refund within three months of termination, the contractor became entitled to interest only after the expiry of that three-month period.

Decision: The Supreme Court partly allowed the appeals and upheld the validity of Clause 19 of the agreement. It held that no interest was payable on the security deposit until three months after termination of the contract. However, since the State retained the amount beyond that period, the contractor was held entitled to simple interest at the rate of 9% per annum from the expiry of three months after termination until the date the security deposit was adjusted or refunded.