Writ jurisdiction over arbitrary contractual forfeiture was upheld where the contractor never received possession of the work site.

Writ jurisdiction remained available despite an arbitration clause where State action in a contractual matter was challenged as arbitrary, and the High Court held that disputed facts or an alternative contractual remedy did not create an absolute bar to Article 226 review. Applying that principle, the Court found the forfeiture of earnest money deposit arbitrary because the contractor had not been given effective physical possession of the work site and no reliable record showed lawful transfer of possession for performance. The forfeiture was set aside and refund directed, while other contractual disputes were left to arbitration or other appropriate remedy.

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Issues: (i) Whether a writ petition was maintainable to examine forfeiture of earnest money deposit in a contractual dispute notwithstanding the arbitration clause; (ii) Whether forfeiture of the earnest money deposit was arbitrary and liable to be set aside when the contractor had not been given physical possession of the work site.

Issue (i): Whether a writ petition was maintainable to examine forfeiture of earnest money deposit in a contractual dispute notwithstanding the arbitration clause.

Analysis: The availability of arbitration did not oust writ jurisdiction as a matter of rule. Where State action in the contractual field is alleged to be arbitrary, the High Court can interfere under Article 226 of the Constitution of India, particularly when the dispute involves fairness of State action and violation of constitutional obligations. The existence of disputed facts or a contractual remedy did not create an absolute bar to writ maintainability.

Conclusion: The writ petition was maintainable to the limited extent of testing the legality of the forfeiture of earnest money deposit.

Issue (ii): Whether forfeiture of the earnest money deposit was arbitrary and liable to be set aside when the contractor had not been given physical possession of the work site.

Analysis: The land for the work had been acquired under the Coal Bearing Areas (Acquisition and Development) Act, 1957, but the record did not show that possession of the site had been effectively handed over to the contractor before cancellation of the Letter of Intent. The tender itself indicated that physical possession was expected later, and no reliable document such as a panchnama was produced to show lawful transfer of possession to the employer and then to the contractor. In these circumstances, the contractor had a valid reason for not commencing work, and forfeiture of the earnest money deposit for non-commencement was held to be arbitrary and contrary to Article 14 of the Constitution of India.

Conclusion: The forfeiture of the earnest money deposit was set aside and refund was directed in favour of the petitioner.

Final Conclusion: The Court interfered only with the forfeiture of earnest money deposit, leaving the remaining contractual disputes to be pursued in arbitration or other appropriate remedy.

Ratio Decidendi: In a contractual dispute involving State instrumentalities, writ jurisdiction remains available where the impugned action is alleged to be arbitrary, and forfeiture of earnest money deposit cannot be sustained when the contractor was not given the work site for performance and had a reasonable cause for non-commencement.

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