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M/S Sanjay Iron Steel vs. Steel Authority Of India And Anr.

Original Miscellaneous Petition (Commercial) · 2026:DHC:7423Decided 2 Sept 2026New Delhi Bench
O.M.P. (COMM) 441/2024CNR: DLHC010716612024
Justice Om Prakash Shukla

Background

The petitioner had been appointed as SAIL's steel distributor for a cluster of dealers but, alleging SAIL itself was undercutting it by selling directly to customers at lower prices, tried to prematurely surrender its five-year distributorship and refused to renew its Rs. 1.28 crore performance bank guarantee (PBG). SAIL terminated the contract, encashed the PBG, and separately claimed over Rs. 2.3 crore in damages for the distributor's alleged breach; the arbitrator upheld the termination and PBG forfeiture but rejected SAIL's separate damages claim for lack of proof.

Decision Breakdown

The distributor argued it was inconsistent to forfeit its Rs. 1.28 crore guarantee while simultaneously finding SAIL hadn't actually proven any financial loss. The High Court disagreed, holding that the contract had two separate clauses: one letting SAIL recover proven losses/damages (which failed for lack of evidence), and a separate clause automatically letting SAIL forfeit the security/PBG whenever the contract was validly terminated for the distributor's failure to perform, with no requirement to first prove a specific loss. Since the distributor's breach and the termination's validity were themselves not challenged, the PBG forfeiture stood independently of the failed damages claim.

Lesson Learnt

A contract can validly have two different forfeiture mechanisms, one requiring proof of actual loss, and a separate automatic one triggered simply by termination for breach, so losing a damages claim for lack of proof doesn't automatically mean a separately-forfeited security deposit must be returned.

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