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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1852 OF 2015 (Arising out of Special Leave Petition (C) No.5811 of 2014)

National Thermal Power Corporation Ltd. …Appellant

Versus

M/s Ashok Kumar Singh & Ors. …Respondents

J U D G M E N T

T.S. THAKUR, J.

1. Leave granted.

2. This  appeal  arises  out  of  an order  dated 11/10/2013  

passed  by  the  High  Court  of  Judicature  at  Allahabad,  

whereby M.B. No. 9620 of 2013 filed by the respondents has  

been  allowed  and  order  dated  19/09/2013  passed  by  the  

appellant-corporation declining refund of the earnest money  

quashed with a direction to the corporation to refund to the  

respondents the amount deposited by them.

3. The  appellant-corporation  floated  two  tenders  one  

dated  17/10/2012  and  the  other  dated  19/11/2012  for  1

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construction of a shed and a boundary wall. The respondent-

contractor  submitted two separate tenders  in  response to  

the said  tender  notices  enclosing therewith  an amount  of  

Rs.4,41,000/- and Rs.3,34,000/- respectively towards earnest  

money deposit.  The tenders were in two parts, one technical  

and the other commercial.   While the technical  bids were  

opened and found compliant, the financial bids had yet to be  

opened  when  the  respondents  moved  an  application  

addressed to the AGM (C&M) of the appellant-corporation at  

Rai Bareilly withdrawing the bids submitted by it and asking  

for  being excluded from consideration besides praying for  

refund of the earnest money deposited with the bids. This  

was followed by a representation on 1/5/2013 whereby the  

respondent once again asked for the return of the earnest  

money  deposited  by  them.   In  response  to  the  said  

representation,  the  appellant-corporation  issued  a  letter  

dated 26/4/2013 stating that although the bids offered by the  

respondent were not being considered, the prayer for refund  

of earnest money could not be considered as the same stood  

forfeited. Aggrieved by the said order, the respondent filed  

Writ Petition No. 9620 (MB) of 2013 before the High Court  

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challenging  the  refusal  of  refund  of  the  earnest  money  

deposit.  The  said  petition  was  opposed  by  the  appellant  

herein but was allowed by a Division Bench of the High Court  

of  Judicature  at  Allahabad,  Lucknow Bench,  in  terms of  a  

brief  order  holding  that  since  respondent’s  case  was  not  

covered  by  condition  No.  2  of  the  Special  Conditions  of  

contract of the appellant-corporation, the refusal of refund of  

the  earnest  money  deposited  by  the  respondent  was  

unjustified.  The High Court observed as under:  

“Thus, the position being clear that the tender has   not been opened and the petitioner is not covered   under  any  of  the  clauses  of  condition  No.  2,  we   hereby quash the impugned order dated 19/9/2013  and direct the NTPC to refund the earnest money.

Writ petition, thus, stands disposed of.”

4. The present appeal assails the correctness of the above  

order as noticed earlier.  

5. Appearing  on  behalf  of  the  appellant-corporation  Mr.  

S.K.  Dhingra  argued  that  the  High  Court  was  in  error  in  

directing  refund  of  the  earnest  money  deposited  by  the  

respondent.   It was contended that in terms of condition No.  

2 of the Special Conditions of Contract revocation of tender  

was by itself  sufficient to call  for forfeiture of the earnest  

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money.   Inasmuch  as  the  High  Court  had  held  that  the  

respondent’s case was not covered under condition No. 2, it  

committed a palpable error.   

6. Condition No. 2 of Special Conditions of Contract may  

be extracted.  It reads:

“2. The  earnest  money shall  be  forfeited  on  the  following grounds: a. On revocation of the tender or, b. On  refusal  to  enter  into  a  Contract  

afterward to a Contractor or, c. If the work is not commenced after the work   

is awarded to a Contractor.”

7. A plain reading of the above would show that one of the  

Special  Conditions  of  Contract,  subject  to  which  the  

intending  bidders  could  submit  their  bids,  was  that  the  

earnest money accompanying the bid shall  be forfeited in  

any one of the three contingencies referred to in Condition  

No. 2 (supra).  One of these contingencies was revocation of  

the tender, which would in the context in which the special  

provision is made imply any withdrawal of the bid/tender by  

the  bidder  concerned.   The  High  Court  appears  to  have  

confused  revocation  of  the  tender  with  revocation  of  the  

tender notice.  The expression “revocation of tender” does  

not  obviously  refer  to  revocation  by  the  appellant-

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corporation, who had issued the tender notice.  There is a  

clear  difference  between  revocation  of  a  ‘tender’  and  

revocation of the ‘tender notice’.   While revocation of the  

tender notice is the prerogative of the appellant-corporation,  

revocation  of  the  ‘tender’  could  be  only  by  the  

bidder/tenderer  concerned.  The  expression  “revocation”  

may have been loosely used by the corporation, but, in the  

context in which the same appears in the Special Conditions  

of Contract only means withdrawal/cancellation/ recall of the  

bid or tender submitted by the bidder.  In any such event,  

the earnest money deposited by the bidder would be liable  

to the forfeited is the plain and the simple meaning of the  

Condition  No.  2  extracted  above.  The  High  Court  was  in  

manifest error in holding that the forfeiture did not fall within  

the purview of Condition No. 2.  

8. It was next argued on behalf of the respondent that the  

provision empowering the appellant to forfeit earnest money  

upon  withdrawal  of  offer  even  before  such  offer  was  

opened/accepted by the authority inviting the same will be  

impermissible in law.  The financial bid in the instant case, it  

was  contended,  had  not  been  opened  by  the  appellant-

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corporation although the technical bid was opened and had  

been found to be compliant.  The respondent could even so,  

at any time, before acceptance of the offer withdraw his bid.  

Inasmuch as respondent had done so, he was well within his  

rights  to  demand refund of  earnest  money accompanying  

the bids.  The forfeiture of the amount was illegal and the  

High Court justified in holding that the respondent entitled to  

a refund.   

9. On behalf of the appellant-corporation it was contended  

that  the  submission  of  the  bid  itself  was  subject  to  the  

condition that it shall be accompanied by an earnest money  

deposit which was liable to be forfeited in the event of the  

withdrawal  of  the  bid.  Opening  of  the  bid  or  acceptance  

thereof in terms of Section 5 of the Contract Act, 1872 was,  

in that view, wholly immaterial and irrelevant to the validity  

of  the  forfeiture  ordered  by  the  appellant-corporation.  

Reliance  in  support  of  the  submission  was  placed  by  Mr.  

Dhingra  upon  the  decisions  of  this  Court  in  National  

Highways Authority of India v. Ganga Enterprises and  

another  (2003) 7 SCC 410;  State of Maharashtra and  

others v. A.P. Paper Mills Ltd.  (2006) 4 SCC 209; and  

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State of Haryana and others v. Malik Traders (2011) 13  

SCC 200.

10. In  Ganga  Enterprises case  (supra)  this  Court  was  

examining a similar question.  The argument in that case, as  

is  the position even before us,  was that withdrawal of  an  

offer before it was accepted could not result in forfeiture of  

the  earnest  money/security  money  given  by  the  bidder.  

Repelling that contention this Court held that while a person  

may have a right to withdraw his offer at any time before the  

acceptance is conveyed to him if the offer is itself subject to  

the condition that the earnest money will be forfeited for not  

entering into contract or if some other act is not performed,  

then, even though he may have a right to withdraw his offer  

he  will  have  no  right  to  claim  the  refund  of  the  earnest  

money. Forfeiture of the earnest money, in any such case,  

does not,  observed this Court,  infringe any statutory right  

under the Contract Act,  1872 for  earnest/security  is  given  

and  taken  in  such  cases  only  to  ensure  that  a  contract  

comes into existence.  What is important is that this Court  

recognised that absence of any term stipulating forfeiture of  

the earnest money may lead to situations where even those  

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who do not have the capacity or intention of entering into a  

contract  venture  into  the  bidding  process  for  at  times  

extraneous reasons.  The purpose of such a clause providing  

for forfeiture of the earnest money clearly was to see that  

only genuine bids are received.  This Court observed:

 “… … …The Indian Contract Act merely provides that   a  person  can  withdraw  his  offer  before  its   acceptance. But withdrawal of an offer, before it is   accepted,  is  a  completely  different  aspect  from  forfeiture of earnest/security money which has been  given for a particular purpose. A person may have a   right  to withdraw his  offer  but  if  he has made his   offer on a condition that some earnest money will be   forfeited for not entering into contract or if some act   is not performed, then even though he may have a   right to withdraw his offer, he has no right to claim   that  the  earnest/security  be  returned  to  him.   Forfeiture of such earnest/security, in no way, affects   any  statutory  right  under  the  Indian  Contract  Act.   Such earnest/security is given and taken to ensure   that a contract comes into existence. It would be an   anomalous situation that a person who, by his own  conduct, precludes the coming into existence of the   contract  is  then given advantage or  benefit  of  his   own  wrong  by  not  allowing  forfeiture.  It  must  be   remembered  that,  particularly  in  government   contracts, such a term is always included in order to   ensure that only a genuine party makes a bid. If such  a term was not there even a person who does not   have the capacity or a person who has no intention   of  entering  into  the contract  will  make a  bid.  The   whole purpose of such a clause i.e. to see that only   genuine bids are received would be lost if forfeiture   was not permitted.”

11. In A.P. Paper Mills (supra) this Court was dealing with  

almost similar situation where according to Clause 5 of the  

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tender notice the tenderer would withdraw the tender only  

on  the  pain  of  forfeiture  of  the  earnest  money.  While  

refusing to interfere with the forfeiture of the earnest money  

this Court observed:

“… … …But it is a case of withdrawal of tender and  the effect of it is to be considered. Since the tender   is  valid  for  a  period of  45 days and withdrawal  is   before expiry of the period the earnest money is to   be  forfeited.  The  stand  of  the  respondent  that  because  of  delay  in  declaration  of  the  final  sale   results there was no bar on withdrawal of the tender   is  clearly  untenable.  Once the tender is  withdrawn  the  result  is  that  the  tenderer  who withdraws  the  tender cannot take the stand that since the final sale   result has not been declared there is no bar on the   withdrawal.”

12. Reference may also be made to a decision of this Court  

in Malik Traders (supra).  Even in this case this Court was  

dealing  with  the  effect  of  withdrawal  of  a  bid  before  

acceptance in the context of Section 5 of the Contract Act,  

1872.   Rejecting  the  submission  that  the  bid  can  be  

withdrawn without any forfeiture in view of Section 5 of the  

Contract Act, this Court observed:

“… … …Thus, even though under Section 5 of  the  Act a proposal may be revoked at any time before   the communication of its acceptance is complete as   against the proposer, the respondent was bound by  the agreement contained in its offer/bid to keep the  bid open for acceptance up to 90 days after the last   date of receipt of bid and if the respondent withdrew   

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its bid before the expiry of the said period of 90 days  the respondent was liable to suffer the consequence   (i.e.  forfeiture  of  the  full  value  of  bid  security)  as   agreed  to  by  the  respondent  in  Para  10  of  the   offer/bid. Under the cover of the provisions contained  in  Section  5  of  the  Act,  the  respondent  cannot   escape from the obligations and liabilities under the  agreements contained in its offer/bid.

The right to withdraw an offer before its acceptance   cannot nullify  the agreement to suffer any penalty   for the withdrawal of the offer against the terms of   agreement. A person may have a right to withdraw  his offer, but if he has made his offer on a condition   that the bid security amount can be forfeited in case  he  withdraws  the  offer  during  the  period  of  bid   validity, he has no right to claim that the bid security   should not be forfeited and it should be returned to   him. Forfeiture of such bid security amount does not,   in any way, affect any statutory right under Section 5   of  the  Act.  The  bid  security  was  given  by  the  respondent  and taken by the appellants to ensure   that the offer is not withdrawn during the bid validity   period  of  90  days  and  a  contract  comes  into   existence.  Such  conditions  are  included  to  ensure   that  only  genuine  parties  make  the  bids.  In  the   absence of such conditions, persons who do not have   the capacity or have no intention of entering into the   contract will make bids. The very purpose of such a   condition  in  the  offer/bid  will  be  defeated,  if   forfeiture  is  not  permitted  when  the  offer  is   withdrawn in violation of the agreement.”

13. The upshot of the above discussion is that it is no  

longer possible for the respondents to contend that the  

right  to  withdraw the  bid  in  terms  of  Section  5  of  the  

Contract Act, 1872 would entitle them to withdraw without  

suffering forfeiture of the earnest  money even in cases  

where the submission and receipt of bids is itself subject  

to the condition that in the event of a withdrawal of the  10

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bid the earnest money stand forfeited.  Inasmuch as the  

High  Court  remained  totally  oblivious  of  the  true  legal  

position while directing refund of  the earnest  money,  it  

committed an error.   

14. In the result this appeal succeeds and is, hereby,  

allowed. The order passed by the High Court is set aside  

and  Writ  Petition  No.9620  (MB)  of  2013  dismissed  but  

without any order as to costs.  

………………………………….…..…J.        (T.S. THAKUR)

………………………………….…..…J.        (R.K. AGRAWAL)

     …………………………..……………...         (ADARSH KUMAR GOEL)

New Delhi; February 13, 2015

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