Deductions From Performance Security to Be Made Within Period Specified in Contract

In a decision dated March 13, 2024, delivered by the Calcutta High Court in the case of M/s. UCC – RLA – STA (JV) and Another v. Eastern Coalfields Limited and others (WPA No. 26622 of 2023) it was held that deductions or appropriations from the performance security and retention money had to be made within the period specified within the contract for the refund of the security deposit, after such a period has lapsed, withholding of such refunds in the absence of any defect or deficiency in work was not justifiable.

In the present case, the petitioners were successful in a tender for the hiring of Heavy Earth Moving Machinery and Extraction of Coal and were accordingly awarded the contract. According to the petitioners, the work was completed, and a Job Completion Certificate was also issued to them. However, the respondents withheld the final bills, performance security and retention amounts received from the petitioners, contrary to the terms of the contract. The petitioners have brought the present suit claiming that, as per the terms of the contract, they were entitled to receive a refund of their security deposit within six months of the completion certificate, subject to the respondent’s right to deduct its dues against the petitioners.

The court looked into the relevant clause of the contract in question, and observed that since the term “shall be refunded” had been used, the respondents were mandated to refund the entire security deposit, half immediately upon completion of the work and the other half within a period of six months from the date of completion, according to the contract. Further, since no deficiency or defect in the work of the petitioners was informed to them within the six months performance guarantee period, there was no justifiable reason to withhold the security refund from the petitioners and the right of the respondents to deduct their dues, when read in context with the relevant clause, had to be exercised within the period of six months as specified therein. The court also granted interest on the deposited sum. Regarding the final bills, the court held that it ought to restrain its hands since the particulars for the claim were disputed and a separate suit had to be filed for the same.