Writ jurisdiction in contractual disputes: court upheld refund with interest after finding arbitrary retention of performance security

Writ jurisdiction was held maintainable in a contractual dispute despite arbitration and other alternate remedies because the challenge involved undisputed facts and alleged arbitrary State action. The contract was construed to keep the defect liability period at two years; Clause 29 extended only the validity of the performance security for three months beyond that period and did not enlarge the defect liability period itself. On that reading, withholding and adjusting the performance security after expiry of the defect liability period was unjustified and arbitrary. The petitioner was therefore entitled to refund of the security, after adjustment of amounts already paid, with interest for wrongful retention.

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Issues: (i) whether the writ petition was maintainable despite the contractual dispute resolution mechanism and the availability of arbitration; (ii) whether Clause 29 of the contract data extended the defect liability period by three months or only extended the validity of the performance security beyond the two-year defect liability period; (iii) whether the respondents were justified in withholding and adjusting the performance guarantee/security instead of refunding it with interest.

Issue (i): Whether the writ petition was maintainable despite the contractual dispute resolution mechanism and the availability of arbitration.

Analysis: The alternate remedy rule is not absolute. A writ petition may still be entertained where the dispute raises a pure question of law, where the facts are undisputed, or where State action in a contractual matter is arbitrary, unreasonable, or contrary to public interest. The availability of statutory or contractual remedies does not bar writ jurisdiction when the remedy is not efficacious, particularly where interim relief is unavailable and the challenge concerns allegedly unlawful State action.

Conclusion: The writ petition was maintainable and the alternative remedy did not bar exercise of writ jurisdiction.

Issue (ii): Whether Clause 29 of the contract data extended the defect liability period by three months or only extended the validity of the performance security beyond the two-year defect liability period.

Analysis: Clause 18 fixed the defect liability period for building work at two years, while Clause 29 stated that the performance guarantee/security would remain valid for three months beyond completion of that period. Read as a whole, the contract distinguished between the defect liability period and the continued validity of security. The additional three months was intended to secure performance after the defect liability period, not to enlarge that period itself.

Conclusion: The defect liability period remained two years, and Clause 29 did not add three months to that period.

Issue (iii): Whether the respondents were justified in withholding and adjusting the performance guarantee/security instead of refunding it with interest.

Analysis: Since the defect liability period had ended and the contractual clause did not extend it by three months, the respondents had no basis to treat the security as further liable to withholding on that premise. The impugned action was inconsistent with the contractual stipulations and amounted to arbitrary State action. The petitioner was therefore entitled to refund of the security after adjustment of the amount already paid, together with interest for the period of wrongful retention.

Conclusion: The withholding and adjustment were unjustified, and the petitioner was entitled to refund with interest.

Final Conclusion: The petition succeeded on the ground that the respondents misread the contract and acted arbitrarily in retaining the security, so the petitioner obtained monetary relief with interest under writ jurisdiction.

Ratio Decidendi: In a contractual matter involving undisputed facts, writ jurisdiction can be exercised despite an alternative remedy where State action is arbitrary and the contractual clauses, properly construed, do not support the impugned retention of money.

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