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The State of Haryana v. M/s Jai Durgaa Finvest P. Ltd.

Civil Appeal · 2026 INSC 678Decided 13 Jul 2026
C.A. No.-003145-003146 - 2012
Justice V. Mohana · Justice Joymalya Bagchi

Background

The respondent company won a state-run auction for a three-year sand-mining contract in Haryana, agreeing to pay contract money in advance each month. The contract's standard terms said the security deposit would not carry interest while the contract lasted, but had to be refunded within three months of the contract ending. After the company defaulted on payments, the State terminated the contract and forfeited the security deposit. The company challenged this in the High Court, which held the no-interest clause invalid and awarded 9% interest on the deposit running from the date it was originally deposited.

Decision Breakdown

The Supreme Court held that the "no interest" clause was valid and enforceable while the contract was still running, so the High Court was wrong to award interest from the date of deposit. However, it read the same clause's three-month refund deadline literally: once the contract ended, if the State did not return the deposit within three months, interest liability would begin running from the expiry of that three-month window, not the deposit date. Applying this, the Court fixed interest at 9% per annum starting three months after termination until the amount was actually adjusted or refunded, partly allowing the State's appeal.

Lesson Learnt

A contract clause barring interest on a security deposit can be perfectly valid while the contract subsists, but a party, including the government, that fails to honor its own contractual deadline for refunding that deposit after termination can still become liable for interest from the point that deadline was missed.

Official source (sci.gov.in)View Judgment (PDF)

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