Contract Termination and Equipment Forfeiture: Supreme Court’s Ruling

In a significant legal case, the Supreme Court of India has delivered a ruling on the contract termination and equipment forfeiture. The case involves the arbitration between the parties regarding the termination of the contract and the subsequent forfeiture of equipment. The Court’s judgment sheds light on the legal aspects surrounding the actions taken by the involved parties in this complex dispute. Stay informed about the latest developments as we explore the details of the ruling.


  • The appellant filed counter claims totaling Rs.52,00,000/- with interest @ 18% but the container missed the export schedule.
  • Some counter claims of the appellant were allowed by the Arbitrator.
  • The container was located and recovered only after Court intervention.
  • The respondent-Corporation claimed Rs.98,06,000/- with interest @ 18%.
  • Certain counter claims of the appellant, including refund of security deposit, were rejected.
  • Allegations were made against the appellant regarding the illegal detention and non-transportation of Container No.TRIU-4991702×40’ to Navi Mumbai.
  • The termination of the contract was upheld by the Arbitrator based on performance issues and non-compliance.
  • The High Court upheld the Arbitrator’s decision via a judgment in FAO(OS) No.435 of 2010.
  • The termination of the contract was under Clauses X(A) and X(B) citing poor performance and depot deterioration.
  • The dispute led to arbitration, resulting in the forfeiture of security deposit and termination of the contract.
  • Trial court released the container upon furnishing a bank guarantee of rupees ten lakhs.
  • Arbitrator justified the detention of equipments like fork lift and hand trolleys based on contract clause 5(g).
  • Arbitrator concluded no illegality in detaining the equipments as security due to heavy claims by Bhola Nath Industries and Customs/Excise Department.
  • Arbitrator held termination of the contract as legal, allowing for forfeiture of the security deposit as per the contract terms.

Also Read: High Court Acquittal Case of State of Uttar Pradesh v. Jai Prakash


  • The appellant contested the decision to withhold payment and forfeit equipment due to a claim by M/s Bhola Nath Industries and a bank guarantee of ten lakhs rupees.
  • The High Court upheld the decision of the Arbitrator to reject counter claim No.4 due to the objections raised by the appellant and claim by the respondent.
  • Counter claim No.3 was partially allowed, entitling the appellant to a refund of the security deposit if the bank guarantee by the respondent is discharged.
  • The appellant appealed to the Supreme Court focusing on counter claims 3 and 4, arguing that they took efforts to recover the detained container and the conditions for refunding the security deposit were beyond the agreement terms.
  • The appellant’s counsel contended that the lower courts did not properly consider the efforts made by the appellant and the terms of the agreement in their rulings.
  • M/s Bhola Nath Industries filed a claim of forty lakhs against the respondent for missing containers.
  • A bank guarantee of ten lakhs was furnished by the respondent to release a container detained by a third party due to pending dues.
  • The appellant failed to transport the container to the destination port on time, resulting in a missed export schedule.
  • The termination of the contract and the forfeiture of security deposit by the respondent were upheld as legal by the learned Arbitrator and the Courts.

Also Read: Judgment Review: Supreme Court’s Ruling on the Capital Punishment Appeal


  • The appellant received full payment due as per the arbitral award dated 18.03.2005 before filing the objection petition under Section 34 of the Act.
  • The civil suit related to the matter is still pending in the Ghaziabad Court at the evidence recording stage.
  • The appellant received Rs.11,06,598/- as per the arbitrator’s award dated 18.03.2005.
  • Detention of equipments was deemed justified by the respondent-Corporation due to failure to deliver the container at Navi Mumbai, time taken in recovery, and expenses incurred.
  • The appellant did not disclose the receipt of money at the time of filing the petition under Section 34 of the Act.
  • The trial court released the container on the respondent-Corporation furnishing a bank guarantee of rupees ten lakhs.
  • Rent for the space occupied by the equipments totaled Rs.41,746/- for one and Rs.89,049/- for the other until 31.05.2007.
  • Detention of equipments was carried out as per the terms of the agreement at Clause 5(g) and was accepted by the arbitrator.
  • Counter claim Nos. 4 and 5 regarding damages for alleged detention and use of hand trolleys have been rejected.
  • Concurrent findings by the Arbitrator and Courts below indicate the appellant Contractor’s failure to meet contract terms and conditions.
  • Arbitrator correctly allowed detention and forfeiture of contractor’s equipment.
  • Counter claim No. 4 of the appellant was rightly disallowed.

Also Read: Railways vs. Contractors: Arbitration Appointment Dispute


  • The Arbitrator’s award should not be interfered with
  • The impugned judgment should not be overturned
  • The appeal is liable to be dismissed
  • The High Court’s judgment dated 19.07.2010 in FAO(OS) No.435 of 2010 is affirmed
  • The appeal is dismissed with no costs


Case Number: C.A. No.-000655-000655 / 2016

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