Srinagar, Aug 19: The High Court of J&K and Ladakh on Tuesday held that forfeiture of the security deposit cannot be construed as penalty but legitimate and agreed contractual consequence of non-performance in a contract.
The observation was recorded in a case filed by one Syed Akhlaq Hussain against Vice Chancellor of Shri Mata Vaishno Devi University (SMVDU), Katra, and its other administrators for quashing contract for his G Active Security Service company for the university, besides forfeiting his security deposit in 2021.
The university had ordered cancellation of contract for the company on the basis of what it said had understaffed manpower.
Justice Wasim Sadiq Nargal while dismissing the petition by Hussain held “this court holds that the forfeiture of the security deposit cannot be construed as a penalty but is a legitimate and agreed contractual consequence of non-performance”.
He cited Supreme Court, catena of judgments that affirmed that where essential tender obligations such as manpower deployment or timelines are not met within stipulated period, the termination of the contract and forfeiture of the security deposit are justified in accordance with the terms and conditions of the contract.
Justice Nargal cautioned the courts to “refrain from interfering in contractual matters, unless, there is clear arbitrariness or breach of statutory duty”.
“No such ground has been pleaded or canvassed by the learned counsel for the petitioner and thus in the peculiar facts and circumstances of the case, this court upholds the forfeiture of the security deposit as lawful and in accordance with the terms and conditions of the contract and action of respondents in forfeiture of the security deposit can’t be termed as illegal”, he said.
The petitioner alleged the university order of termination of his lowest bid offer contract was illegal, arbitrary, mala fide, discriminatory and against the conditions of the tender.
His petition also termed handing over of the security contract to another agency (BSS service) by the university as illegal, against the law and facts.
Per contra, reply on behalf of respondents pleaded that the petition is not maintainable and that the petitioner approached the court on misrepresented facts.
The respondents affirmed that a contract for around the clock security service was awarded to the petitioner on 02.09.2021.
However, due to the petitioner’s failure to comply with the terms and conditions of the contract, the answering respondents were constrained to terminate the contract on 16.09.2021, they argued.
“After serving the company, as many as two to three show cause notices were served, which though duly received, were not paid any heed to by the petitioner,” the counsel for the university said.
The counsel further claimed that the terms and conditions of the tender document expressly provided that the university shall be at liberty to forfeit the Earnest Money Deposit and Security Deposit.
The court concurred with the argument and concluded “the action of the respondents in forfeiting the security cannot be faulted which is in conformity with terms and conditions of the tender”.
The bench noted “this court does not find any arbitrariness or illegality in the respondents’ action and therefore, no interference is warranted by this court under writ jurisdiction”.
