Jammu & Kashmir High Court
Jammu vs 3. Comptroller on 3 August, 2026
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Serial No. 180
HIGH COURT OF JAMMU & KASHMIR AND LADAKH
AT JAMMU
WP (C) No. 168/2023
Reserved on: 21.07.2026.
Pronounced o: 03.08.2026.
Uploaded on: 03 .08.2026.
M/S Construction Engineer,
54- Industrial Estate Barzulla, Srinagar.
Through its Attorney Holder,
Mohd Hussain Malik, S/o Ghulam Mohd
R/o Matto Colony Trikuta Nagar Extension
Jammu.
.... Appellant(s)/Petitioner(s)
Through: Mr. D.C. Raina, Sr. Advocate with
Mr. Anuj Dewan Raina, Advocate.
Mr. Mohd Junid, Advocate.
V/s
01. Sher-e-Kashmir University of
Agricultural Sciences & Technology, Jammu.
SKUAST-J.
Through its Registrar.
02. Estate Officer
Agricultural Sciences & Technology, Jammu.
SKUAST-J.
03. Comptroller, ..... Respondent(s)
Agricultural Sciences & Technology, Jammu.
SKUAST-J.
Main Campus Chatha, Jammu.
Through: Mr. Anil Khajuria, Advocate.
CORAM: HON'BLE MR. JUSTICE SANJAY PARIHAR, JUDGE
JUDGMENT
01. The petitioner was earlier awarded the work, namely, “Construction
of Boys Hostel Building (G+1) along with associated sanitary and
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internal electrification work of FOA, Main Campus, District
Jammu.” According to the petitioner, despite having executed the
work in terms of the contract, the respondents failed to release the
payments due to him. Aggrieved by the non-payment and claiming
interest on the delayed release of dues, the petitioner was constrained
to invoke the jurisdiction of this Court under Section 11(6) of the
Jammu and Kashmir Arbitration and Conciliation Act, 1997. The said
petition was allowed by this Court vide order dated 20.12.2013,
pursuant whereof an Arbitrator was appointed. The learned Arbitrator
rendered an award dated 31.10.2016, whereby price escalation and
interest were awarded in favour of the petitioner. The respondents
challenged the said arbitral award by filing an application for setting
aside the award before the learned Principal District Judge, Jammu;
however, the said application came to be dismissed.
02. It is further submitted that thereafter the petitioner served a legal
notice dated 01.09.2020 upon the respondents calling upon them to
release the earnest money amounting to Rs. 11,00,000/-, the
performance security of Rs. 18,00,000/-, and the bill deposit
pertaining to the aforesaid work. Since the year 2021, the petitioner
has been repeatedly pursuing the respondents for the release of the
aforesaid amounts, which continue to be unjustifiably withheld.
Finding no response from the respondents, the petitioner has been
constrained to seek writ of mandamus against respondents.
03. The respondents, on the other hand, have resisted the writ petition by
contending that the aforesaid amounts have been withheld on account
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of disputes that had arisen between the parties, which formed the
subject matter of the arbitral proceedings. According to the
respondents, although the petitioner succeeded before the learned
Arbitrator as well as before the learned Principal District Judge,
Jammu, the arbitral award has been challenged before this Court and
the matter is presently sub judice. It is, therefore, contended that the
release of the earnest money, performance security and bill deposit at
this stage would be premature.
04. The respondents have further objected to the maintainability of the
writ petition on the ground that while raising his claims before the
learned Arbitrator, the petitioner had also sought refund of the security
deposit. It is further submitted that the Arbitration and Conciliation
Act provides a complete and comprehensive mechanism for
adjudication of disputes and enforcement of arbitral awards, and,
therefore, the present writ petition amounts to an attempt to bypass the
statutory remedy available under the said Act. The respondents further
contend that, having admitted before the learned Arbitrator that the
claim included refund of the earnest money and bill deposit, the
petitioner is precluded from re-agitating the same issue by way of the
present writ proceedings.
05. Learned counsel for the petitioner argued that the contract amount had
already been paid to the petitioner during the financial year 2011-
2012 and that the only amount remaining payable was the interest on
the delayed payment, which constituted the sole dispute requiring
adjudication before the learned Arbitrator. It was submitted that the
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respondents themselves had contended before the Arbitrator that,
since the principal amount had been paid in full, the petitioner’s claim
for interest was not maintainable. Thus, according to the petitioner,
the only issue that fell for consideration before the Arbitrator was
whether the petitioner was legally entitled to interest on the delayed
payment of the principal amount. The learned Arbitrator answered the
issue in favour of the petitioner by holding that the petitioner was
entitled to interest on the delayed payment and passed the award
accordingly.
06. It was further submitted that the arbitral proceedings were confined
exclusively to the petitioner’s claim for interest and that, under the
award, the petitioner had been granted interest, including interest upon
interest, calculated up to 31.10.2016. Learned counsel contended that
the earnest money deposit of ₹11 lakh, the performance security of
₹18 lakh, and the bill deposit were never the subject matter of the
arbitration proceedings. Had those amounts been in dispute, the
respondents would have specifically contested those claims before the
learned Arbitrator as well.
07. Responding to the objections raised by the respondents under Order II
Rule II of the Code of Civil Procedure, learned counsel for the
petitioner submitted that the said provision had no application to the
facts and circumstances of the present case.
08. Inviting the attention of the Court to the stand taken by the
respondents before the High Court in the earlier proceedings, learned
counsel argued that the respondents had never disputed the petitioner’s
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entitlement to payment for the work executed. On the contrary, their
stand was that no arbitrable dispute existed between the parties
warranting the appointment of an Arbitrator, as the dispute projected
by the petitioner was allegedly not covered by the arbitration
agreement. It was further pointed out that the University itself had
taken up the matter with the Government for early submission of the
requisite report and release of the outstanding payment.
09. In support of the petition, learned counsel placed reliance upon the
judgment of the Supreme Court in Union of India & Ors. v. Bali Ram,
reported as 2026 INS 689. It was argued that the petitioner was legally
entitled to the amounts in question, which had been unjustifiably
withheld by the respondents despite there being no counterclaim
alleging defective or incomplete execution of the work. According to
the petitioner, the respondents were seeking to deny the release of the
admitted amounts by raising purely technical objections. It was,
therefore, submitted that this Court, in exercise of its writ jurisdiction,
ought to render substantial justice by directing the release of the
amounts wrongfully withheld, particularly when there was no material
on record to suggest that the petitioner had committed any procedural
breach disentitling it to such relief.
10. Per contra, learned counsel appearing for the respondents contended
that, once the petitioner had invoked the arbitration clause and
pursued its claims before the learned Arbitrator, it was incumbent
upon the petitioner to claim all reliefs to which it considered itself
entitled, including the refund of the performance security and earnest
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money. Having consciously omitted to seek such reliefs in the arbitral
proceedings, the petitioner was now estopped from raising those
claims by invoking the writ jurisdiction of this Court. It was further
submitted that the present claim was barred by the principles of res
judicata and was also hit by the provisions of Order II Rule II of the
Code of Civil Procedure.
11. Heard counsels for the parties and have gone through record.
12. A contract entered into between the parties is required to be performed
in accordance with its terms, and the reciprocal contractual obligations
are to be discharged in the manner contemplated by law. Once the
contractual obligations stand duly performed, the corresponding
liability to make payment arises. Where the contract amount is not
paid within the stipulated time, the delay in payment gives rise to a
claim for interest. In the present case, the dispute that was referred to
arbitration pertained solely to the petitioner’s claim for interest on
account of delayed payment. The pleadings reveal that the petitioner
had been awarded the contract for the construction of the “Boys
Hostel Building (G+1) along with associated sanitary and internal
electrification works at FOA, Main Campus, District Jammu.” Upon
completion of the work, allegations surfaced that the then Vice-
Chancellor had committed certain irregularities by creating liabilities
to the tune of ₹28.44 crores and by executing a majority of the works
during his tenure without obtaining the requisite technical sanction,
allegedly amounting to an abuse of power. Consequently, the
Government constituted a Committee to inquire into the matter, and
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the respondent-University took the stand that it would furnish all
necessary information to the said Committee.
13. As the petitioner had completed the contractual work but was not paid
the amounts due within time, he was constrained to invoke the
jurisdiction of this Court by filing an application under Section 11(6)
of the Arbitration and Conciliation Act, seeking the appointment of an
Arbitrator. The application was allowed, and an Arbitrator was
appointed to adjudicate the disputes between the parties.
14. Before the learned Arbitrator, the petitioner claimed interest on the
payments received on different dates in respect of Item Nos. I, II, III
and V of the contract. The respondent-University, on the other hand,
raised a counterclaim alleging that the petitioner had abandoned the
construction of the boys’ hostel along with its allied works despite
having received the mobilisation advance, thereby causing substantial
financial loss to the University.
15. During the arbitral proceedings, the respondent-University asserted
that the principal contractual amount had already been paid and placed
on record the details of the payments made to the petitioner. In view
of the admitted payment of the principal amount, the learned
Arbitrator confined the adjudication to the issue of interest and held
that the petitioner was entitled to interest on the delayed payments,
consequently passing an award directing payment of interest on the
admitted liability. The respondents challenged the arbitral award
before the District Court under Section 34 of the Arbitration and
Conciliation Act; however, the challenge was dismissed. Aggrieved
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thereof, the respondents have preferred separate proceedings before
this Court, which are presently pending adjudication. Through the
present writ petition, the petitioner seeks the release of the earnest
money deposit of ₹11 lakh and the performance security of ₹18 lakh,
contending that the said amounts have been unlawfully withheld by
the respondents despite repeated requests and the issuance of a legal
notice. According to the petitioner, since the contractual work stands
completed and the respondents have admitted their liability under the
contract, the only dispute between the parties pertains to the quantum
of interest awarded on account of delayed payment. The respondents,
however, object to the maintainability of the writ petition on the
ground that the contractual disputes are already the subject matter of
arbitral proceedings and the pending challenge before this Court.
16. The aforesaid objection, prima facie, does not appear to have any legal
merit. Once a party has duly performed its contractual obligations and
the employer has acknowledged such performance without raising any
subsisting claim regarding breach or defective execution, it cannot
subsequently contend that the performance security or earnest money
may continue to be withheld or forfeited to secure any possible future
liability. An employer who has accepted satisfactory completion of the
contract is under a legal obligation to refund the security deposit in
accordance with the terms of the contract and cannot indefinitely
retain the same in the absence of any enforceable claim. This principle
is well settled and finds support from a consistent line of judicial
precedents rendered by the constitutional courts.
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17. In Maula Bux v. Union of India, reported as AIR 1970 SC 1955, the
Supreme Court explained the nature of earnest money, holding that it
is a deposit made by the purchaser to be adjusted towards the sale
consideration upon completion of the contract and, until then, serves
as evidence of the purchaser’s intention to perform the contract. It was
held that the forfeiture of a reasonable amount of earnest money under
a contract for sale of property does not ordinarily attract the provisions
of Section 74 of the Indian Contract Act. The Court further observed
that the expression “whether or not actual damage or loss is proved to
have been caused thereby” occurring in Section 74 is intended to
cover different classes of contracts. In certain cases, the loss
occasioned by breach may be incapable of precise assessment,
whereas in others it may be readily ascertainable. In the facts of that
case, the contract empowered the Government to recover from the
contractor any additional expenditure incurred in procuring the
supplies or services agreed to be furnished under the contract.
However, the Trial Court found that the Government of India had
failed to adduce any evidence to establish that it had suffered any loss
on account of the plaintiff’s alleged default and, consequently, held
that the security deposit was not liable to be forfeited. Although the
High Court observed that the contractual terms permitted forfeiture of
the security deposit upon the contractor’s failure to perform his
obligations, it was also noticed that, despite having ample opportunity,
the Government had failed to prove either the alleged breach or the
loss suffered by it. The Supreme Court declined the Government’s
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request for a further opportunity to lead evidence regarding the alleged
loss and, while modifying the High Court’s direction relating to
interest, upheld the contractor’s entitlement to the refund of the
performance security, directing the Union of India to release the same.
18. In Union of India v. Rampur Distillery and Chemical Co., reported as
AIR 1973 SC 1098, the Supreme Court considered the issue of
forfeiture of a security deposit furnished to ensure due performance of
a contract. The Court observed that the security deposit had been
furnished solely as a guarantee for the proper performance of the
contractual obligations and that, in the event of a default, the contract
contemplated forfeiture of the deposit. However, as the appellants had
failed to establish that they had suffered any loss or damage on
account of the alleged breach committed by the respondents, the
Supreme Court held that the security deposit could not be treated as
earnest money so as to justify its forfeiture. Following the principles
laid down in Maula Bux v. Union of India, the Court rejected the
appellants’ claim to forfeit the security deposit in the absence of proof
of any loss suffered by them.
19. Similarly, in Bharat Sanchar Nigam Limited v. Teracom Limited
[O.M.P. (COMM) 431/2019 & I.A. No. 14326/2019], the Delhi High
Court, while dealing with a similar issue, held that there was no
justification for BSNL to forfeit or retain any amount recovered
against the performance bank guarantee in the absence of any claim
alleging failure on the part of the contractor to perform its contractual
obligations. The Court observed that, once BSNL had acknowledged
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due performance of the contract and had not asserted any subsisting
claim for breach or damages, there existed no legal principle that
would entitle it to continue retaining the performance security.
Accordingly, it was held that the employer was under an obligation to
release the performance security after accepting satisfactory
completion of the contractual work.
20. In the present case, the respondents, in their objections, have
unequivocally admitted that at no point of time did they dispute the
satisfactory execution of the contract by the petitioner. In fact, the
stand now advanced by the learned counsel for the respondents is
contrary to the consistent position adopted by the University
throughout the arbitral proceedings and the earlier litigation. During
the course of hearing, learned counsel for the petitioner invited the
attention of the Court to the objections filed by the University in the
proceedings instituted by the petitioner under Section 11(6) of the
Arbitration and Conciliation Act, wherein it was specifically pleaded
that the Works Committee of the University, in its meeting held on
11.02.2010, had resolved to release 60% of the work-done liabilities,
subject to fulfilment of the requisite codal formalities. The University
had, in fact, maintained that no dispute existed between the parties
warranting reference to arbitration and had opposed the appointment
of an Arbitrator on the ground that the existence of an arbitrable
dispute is a condition precedent for invoking Section 11 of the Act.
The respondents had further pleaded, particularly in paragraph 12 of
their objections, that no dispute subsisted between the parties and that
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the University had already approached the Government for the early
submission of the report of the Committee constituted to examine the
liabilities incurred during the tenure of the then Vice-Chancellor.
According to the University, in the absence of the said report, it was
unable to release the remaining payments and, therefore, the request
for appointment of an Arbitrator was premature.
21. The aforesaid stand of the University clearly demonstrates that,
insofar as the contractual dues were concerned, the respondents never
disputed their liability and intended to discharge the contractual
obligations upon completion of the requisite formalities. The only
issue that ultimately came to be referred to arbitration related to the
petitioner’s claim for interest on account of delayed payment, and the
award rendered thereon is admittedly the subject matter of separate
proceedings pending before this Court. The question, therefore, that
falls for consideration in the present petition is whether the petitioner
can be deprived of the refund of the earnest money and performance
security, which continue to remain with the respondents despite there
being no allegation of breach of contract or unsatisfactory execution
of work on the part of the petitioner.
22. Mr. Anil Khajuria, learned counsel appearing for the respondents,
argued that the counterclaim raised by the University in the arbitral
proceedings is still pending adjudication in the challenge proceedings
and that any liability which may ultimately be fastened upon the
petitioner could be satisfied out of the earnest money and performance
security lying with the University. It was, therefore, contended that the
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respondents possess a lien over the said amounts and are justified in
withholding their release. The said contention was refuted by the
learned counsel for the petitioner, who submitted that once the
contractual work stands completed and the respondents themselves
have admitted the contractual liability, there exists no legal
justification for retaining the earnest money or performance security.
It was further submitted that, even assuming the respondents’
contention to be correct, the petitioner is willing to furnish an
undertaking that any liability which may hereafter be determined
against him shall be duly discharged in accordance with law.
23. The respondents further contended that the relief sought in the present
writ petition is barred by the provisions of Order II Rule II of the Code
of Civil Procedure, inasmuch as the petitioner, while pursuing the
arbitral proceedings, did not seek refund of the earnest money and
performance security. Although the submission appears attractive at
first blush, it cannot withstand judicial scrutiny in the factual matrix of
the present case. Once the contract had been fully performed and the
respondents had accepted the completion of the work without alleging
any breach or deficiency, the petitioner’s reference to arbitration was
confined solely to his claim for interest on delayed payment of the
admitted contractual dues. The petitioner had no occasion to seek
refund of the earnest money and performance security before the
Arbitrator, particularly when the respondents themselves had
consistently maintained that no dispute existed which was capable of
being referred to arbitration. Having adopted such a stand, the
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respondents cannot now be permitted to contend that the petitioner
ought to have included the relief of refund of the security deposits in
the arbitral proceedings. A party which admits due performance of the
contract and raises no claim for breach cannot assert any lien over the
contractor’s security deposit merely on the speculative ground that
some liability may arise in future. Such retention is contrary to the
contractual relationship between the parties and cannot be sustained in
law. Even otherwise, the petitioner has invoked the extraordinary
jurisdiction of this Court seeking a writ of mandamus for enforcement
of an undisputed legal right, namely, the refund of amounts which the
respondents are under a legal obligation to release. The bar contained
in Order II Rule II CPC, therefore, has no application to the facts of
the present case.
24. The reliance placed by the respondents on the judgment of the
Supreme Court in Devilal Modi v. Sales Tax Officer, Ratlam & Ors.,
AIR 1965 SC 1150, is wholly misconceived. Learned counsel for the
respondents has been unable to demonstrate how the principles laid
down in the said decision are attracted to the facts of the present case.
The reliance is, therefore, misplaced and does not advance the case of
the respondents.
25. The respondents cannot be permitted to take refuge behind procedural
or technical objections in order to evade their legal obligation to
refund the earnest money and performance security. In the absence of
any order of forfeiture founded upon breach of contract or proof of
loss, the continued retention of the petitioner’s money is wholly
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arbitrary and contrary to the settled principles governing contractual
obligations. As noticed hereinabove, such forfeiture cannot be
sustained in law.
26. For all the foregoing reasons, the objections raised by the respondents
are devoid of merit and deserve to be rejected. This Court is
persuaded, particularly in the light of the principles enunciated by the
apex court in Union of India & Ors. v. Bali Ram, (supra) to exercise
its writ jurisdiction and compel the respondents to perform their
contractual obligation by refunding the earnest money and
performance security to the petitioner.
27. Accordingly, the writ petition is allowed. A writ of mandamus is
issued directing the respondents-University to forthwith release the
earnest money amounting to ₹11,00,000/- and the performance
security amounting to ₹18,00,000/- in favour of the petitioner.
However, having regard to the facts and circumstances of the case, the
aforesaid amounts shall not carry any further interest.
28. The writ petition is, accordingly, disposed of, along with all connected
application(s).
(Sanjay Parihar)
Judge
Jammu
03.08.2026
Renu
Whether the judgment is speaking: Yes
Whether the judgment is reportable: Yes
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