Nirmal Bhagwani
Asked August 20, 2016

security deposit

  • 1 Answer

HI I have talked to one company that I will join them in 2 months, but as mine company gave me same package I don't want to leave it. I have notified them on very next day that I will not join them, is it legal to ask for joining cheque as security amount ?

Answer 1

Default avatar
Saumya Gupta

Under the Contract Act, for forfeiture of security money, actual loss must be proved, in situations where the damages caused can be calculated. In your case, since you notified the company the very next that you won’t be joining, there is hardly any loss caused to the company and therefore, forfeiting the security money would not amount as reasonable compensation. It has been held that where it is proved that the breach of contract caused no harm to the other party, forfeiture of security amount cannot be done[1].

Even, if the terms of contract provide for a clause which provides that the entire security money is to be forfeited in case the agreement is breached, then even in such situations the courts access the amount and grant only that much amount which is reasonable.

In cases when the appellant contended that the security deposit was taken from the respondents in order to ensure the due performance of the contract and respondents having defaulted, the entire amount was liable to be forfeited; such a contention was rejected by the court.  It has been held by the courts in such circumstances that where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty[2].

Relevant Cases:

  • Fateh Chand v. Balkrishna Das [1964] 1 SCR 515.
  • Maula Baux v. Union of India [1970] 1 SCR 928
  • Anand Construction Works v. State of Bihar AIR 1973 Cal 550.
  • Union of India v. Rampur Distillery & Chemical Co. Ltd., (1973) 1 SCC 649

[1] Union of India v. Rampur Distillery & Chemical Co. Ltd., (1973) 1 SCC 649

[2] Union of India v. Rampur Distillery & Chemical Co. Ltd., (1973) 1 SCC 649

Agree Comment 1 Agree over 5 years ago
  • Default avatar
    Nirmal Bhagwani
    great this was the thing i was looking for. I had done stop payment on check, company might also tried to withdraw the amount don't know status. but I think company also not do not care about it
    Agree 0 Agrees over 5 years ago

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