Summary
The Supreme Court held that Clause 19 of the statutory Form-L mining contract, which provides that the contractor's security deposit carries no interest, is a valid and binding term, and that the High Court erred in striking it down as against public policy. Reading both limbs of the clause together, the State must refund the deposit within three months of the contract ending, so interest at 9% runs only from the expiry of that period until the deposit is appropriated or refunded.
Issues
- Whether Clause 19 of Form-L under the Punjab Minor Minerals Concession Rules, 1964, which bars interest on the security deposit, is unsustainable in law or opposed to public policy.
- Whether the security deposit carries interest after the contract is terminated and, if so, from what date.
- Whether the State's right to charge 24% interest on delayed instalments under Clause 2 entitles the contractor to reciprocal interest on the security deposit.
Provisions considered
- Rules 28A and 33 and Form-L, Clause 19, Punjab Minor Minerals Concession Rules, 1964Clause 19 of the prescribed Form-L contract states that the security deposit shall not carry interest and shall be refunded within three months of expiry or earlier determination of the contract. The Court held it valid and binding, but read its two limbs together, so the State cannot keep the money interest-free beyond three months after the contract ends. (¶¶ 22, 27, 28, 29, 30)
- Form-L, Clauses 2 and 16, Punjab Minor Minerals Concession Rules, 1964Clause 2 (24% interest on delayed instalments) was held to be compensation for the contractor's own default. It operates in a different field from Clause 19, which treats the deposit as a performance guarantee, so it creates no reciprocal obligation on the State to pay interest. Clause 16 permits termination with forfeiture of the deposit for default. (¶¶ 22, 27)
Held
- In contractual matters the court interprets and enforces the terms the parties agreed and will not rewrite them, however reasonable a substituted term may appear. Parties on an equal footing who accept unambiguous commercial terms with open eyes cannot later escape them because they have turned out to be onerous. (¶¶ 23, 24)
- Clause 19 of Form-L, which denies interest on the security deposit, is neither immoral nor unlawful, and public policy cannot be invoked to set it aside. A commercial bidder who took part in an open auction, executed the statutory form knowingly and without coercion, mistake or undue influence, and challenged the clause only after most of the contract period had run, cannot attack it as oppressive. (¶¶ 25, 27, 28)
- Clause 2 (interest on delayed instalments) and Clause 19 (no interest on security) serve different purposes: the first compensates for the contractor's own breach, while the second governs a performance guarantee. The State's right to interest under Clause 2 therefore creates no reciprocal duty to pay interest on the deposit, and reading such a duty in amounts to rewriting the contract, which a writ court cannot do. (¶ 27)
- The two limbs of Clause 19 are interdependent. The deposit earns no interest while it secures the contract, but the State cannot keep it interest-free indefinitely. If it retains the deposit beyond three months after expiry or termination, the contractor is entitled to interest. Here the contract was terminated on 09.03.2000, so interest at 9% runs from 09.06.2000 until the deposit was appropriated or refunded, not from the date of deposit. (¶¶ 29, 30, 31)
Result
Appeals partly allowed. The High Court's declaration that Clause 19 is unsustainable, and its award of interest from the date of deposit, set aside; Clause 19 declared valid; simple interest at 9% per annum on the Rs. 37 lakh deposit awarded from 09.06.2000 until it was appropriated or refunded; no order as to costs.