If tender obligations aren’t met, security deposit forfeiture is no penalty: HC

Srinagar, Aug 19: If tender obligations are not met within a stipulated period, forfeiture of the security deposit cannot be construed as a penalty but a legitimate and agreed contractual consequence of non-performance, the High Court of J&K and Ladakh said on Tuesday.

“Forfeiture aligns with the established legal principles that when a party to a tender fails to meet essential terms such as the number of manpower or timelines, the contract may be terminated, and any security deposit may be forfeited as per the agreed terms,” a bench of Justice Wasim Sadiq Nargal said, while dismissing a petition filed by a contractor providing security services.

In support of its decision, the bench noted that the Supreme Court in a catena of judgments has consistently affirmed that where essential tender obligations such as manpower deployment or timelines are not met within the 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.

The bench held that courts must refrain from interfering in contractual matters, unless there is clear arbitrariness or breach of statutory duty.

The court’s remarks came in response to the plea by the contractor who had challenged Shri Mata Vaishno Devi University (SMVDU)’s orders regarding forfeiture of the deposits in 2021.

The court noted that the contractor was under an obligation to provide around the clock security services in the form of 115 security guards for the Mata Vaishno Devi University saying he supplied only 53 security guards.

The court observed that the contractor thereby has breached the terms and conditions of the tender notice or contract, constraining the varsity to terminate the contract in question by forfeiting the security amount to the tune of Rs 5 lakh.

The court, in the peculiar facts and circumstances of the case, upheld the forfeiture of the security deposit as lawful and in accordance with the terms and conditions of the contract.

“The action of respondents in forfeiture of the security deposit can’t be termed as illegal,” the bench said.

Accordingly, the court dismissed the petition.