A security deposit is refundable on the terms of the agreement, usually on termination after adjusting agreed dues. Withholding it without a documented, agreed deduction is a debt. FundRaksha's advocate sends a notice demanding the refund with interest, negotiates release and, if needed, files a summary suit or invokes the arbitration clause. The fee is 30% of the amount recovered.
Deposits businesses struggle to get back
- Dealer and distributor deposits paid to a manufacturer or brand, withheld after the dealership ends citing "pending reconciliation".
- Franchise deposits retained by the franchisor after termination, sometimes claiming forfeiture.
- Commercial lease deposits for shops, offices and warehouses, withheld by the landlord for alleged damage or notice-period dues.
- Vendor registration and tender deposits (EMD) not refunded after the tender process or contract completion.
- Performance and retention deposits under works contracts; see retention money recovery.
- Advance paid to a supplier who never delivered and never refunded.
In each case the paying business is usually the smaller party, and the holder relies on that. The remedy is the same: a formal demand, interest, and a forum.
What the holder can and cannot deduct
A deposit secures specific obligations: unpaid invoices, rent, damage beyond normal wear, return of stock or equipment. The holder may deduct amounts actually due under those heads, documented and reconciled. The holder may not deduct for unquantified "losses", for claims never raised during the relationship, or for a penalty the contract does not provide. Forfeiture clauses are read against the party relying on them and are enforceable only to the extent of genuine loss, under Section 74 of the Contract Act.
The practical pattern is familiar: the holder announces a deduction without a statement, then goes quiet. The advocate's notice demands the statement of account and puts the holder to proof of each deduction.
How FundRaksha recovers a deposit
- Free consultation: send the agreement, the deposit receipt or bank entry, the termination correspondence and the holder's stated deductions.
- Legal notice within 24 hours demanding refund with interest and a reconciled statement of any deductions.
- Negotiation. Many holders refund once the deductions have to be itemised and proved; the advocate reviews any settlement document so you do not waive other claims.
- Filing: summary suit under Order XXXVII CPC where the deposit is a fixed sum under a written agreement, arbitration where the agreement has a clause, or MSME Samadhaan where the deposit relates to a supply by a registered enterprise.
- Execution against the holder's bank accounts or receivables if the order is not honoured.
Fee: 30% of the amount recovered. Court fee, where a suit is filed, is quoted upfront and is often awarded as costs.
Deposit disputes by type
| Deposit | Common defence | Usual outcome |
|---|---|---|
| Dealer deposit | Unsold stock, scheme reconciliation | Refund after reconciliation; stock returned or valued |
| Franchise deposit | Forfeiture on termination | Forfeiture limited to actual loss; balance refunded |
| Commercial lease | Damage, lock-in period | Deduction for proven damage only; lock-in rent only if clause valid and loss shown |
| EMD or tender deposit | Process still open, bid default | Refund unless bidder actually defaulted |
| Supplier advance | Goods ready, buyer refused | Refund with interest if supplier failed to deliver on time |
Where we help
Dealers in FMCG distribution and auto components, franchisees in education services and hospitality suppliers, and tenants of commercial premises across India. For deposits tangled with unpaid commissions or credit notes, see distributor dues recovery. Book a free consultation and we will tell you honestly whether the deposit is recoverable and how fast.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.