REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7033  OF 2011 [arising out of S.L.P.(C) No. 24107 of 2009]  

State of Haryana & Ors. …. Appellants

v.

M/s. Malik Traders                             ….Respondent

J U D G M E N T

CYRIAC JOSEPH, J.

1. Leave granted.

2. This  appeal  is  filed  against  the  judgment  dated  7.7.2009  

rendered  by  a  Division  Bench  of  the  High  Court  of  Punjab  &  

Haryana  in  C.W.P.  No.  2266  of  2009,  allowing  the  said  writ  

petition.  The appellants were the respondents in the writ petition  

and the sole respondent herein was the petitioner therein.

3.  Facts in brief are stated hereunder:   

On 18.9.2008, the appellant State of Haryana invited tenders  

from interested persons for appointment as Entrepreneur/Agent  

for collection of toll at Toll Bridge over river Yamuna on Karnal-

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Meerut  Road,  near  U.P.  Border.   The  respondent  M/s.  Malik  

Traders was one of  the 13 bidders who submitted tenders.   As  

required by the terms and conditions of the Bid, all the bidders,  

including the respondent, deposited the Bid Security of  20 lakhs  

in the form of bank guarantee or FDR in favour of the Executive  

Engineer.   M/s. Gaurav Traders who quoted 8,83,30,000/- was  

the highest  bidder and the respondent M/s. Malik Traders who  

quoted 7,97,66,180/- was the second highest bidder.

4. As required under the terms and conditions of the bid, the  

respondent in paragraph 8 of its written offer/bid agreed to keep  

the bid open for acceptance upto 90 days after the last date of  

receipt of bid.  The respondent also agreed that it shall be bound  

by the communication of acceptance of the bid dispatched within  

the aforesaid period of 90 days.  In paragraph 10 of the offer/bid,  

the  respondent  also  agreed  that  the  full  value  of  Bid  Security  

would be forfeited without prejudice to any other right or remedy  

available to the Executive Engineer or his successor in office or his  

representative,  should  the  respondent  withdraw  or  modify  its  

bid/offer after the last date and time for the receipt of bids, during  

the period of bid validity (90 days) or extended validity period.

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5. Since  M/s.  Gaurav  Traders  was  found  to  be  the  highest  

bidder,  a  letter  of  acceptance  was  issued  to  it  on  25.9.2008.  

However,  it  failed  to  deposit  the  security  amount  and the  first  

instalment  as  per  the  letter  of  acceptance.   Therefore,  as  per  

condition No. 9.3(B) of the Detailed Notice Inviting Tender (DNIT)  

and condition No. 6 of the acceptance letter, the Bid Security of   

20 lakhs deposited by M/s. Gaurav Traders was forfeited and the  

letter of acceptance was cancelled and withdrawn vide letter dated  

16.10.2008  of  the  competent  authority.   Thereafter,  a  letter  of  

acceptance dated 26.11.2008 was issued to the respondent M/s.  

Malik  Traders  who  was  the  second  highest  bidder.   As  per  

condition No. 6 of the said letter of acceptance, the respondent  

was  required  to  deposit  the  security  amount  and  the  first  

instalment  within  21  days  from  the  receipt  of  the  letter  of  

acceptance.  However, the respondent failed to deposit the security  

amount  and  the  first  instalment  as  required  by  the  letter  of  

acceptance.  Hence, vide Memo No. 5029 dated 17.12.2008 issued  

by the Executive Engineer, Provincial Division No. III, PWD, B&R  

Branch,  Karnal,  the  letter  of  acceptance  was  cancelled  and  

withdrawn and the Bid Security of  20 lakhs was forfeited.

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6. It  has to  be  mentioned  that  before  receipt  of  the  letter  of  

acceptance,  the  respondent  had sent  a letter  dated 15.11.2008  

informing  the  Executive  Engineer  that  the  respondent  was  not  

interested in the work and, therefore, the amount of Bid Security  

deposited on 19.9.2008 may be refunded.  However, the appellants  

did not consider or act upon the said letter dated 15.11.2008 of  

the respondent, as the respondent had agreed to keep its bid open  

for acceptance upto 90 days after the last date of receipt of bid and  

the said period of 90 days had not expired.  In this connection, it  

has  also  to  be  mentioned  that  the  letter  of  acceptance  dated  

26.11.2008 was issued to the respondent before the expiry of the  

above-mentioned period of 90 days.

7. After  cancellation of  the letter  of  acceptance  issued to the  

respondent and after expiry of the above-mentioned period of 90  

days on 17.12.2008, the Executive Engineer vide Bid Notice No.  

5160 dated 31.12.2008 re-invited bids for the collection of toll at  

toll point on the Bridge over river Yamuna on Karnal-Meerut Road.  

The respondent again participated in the bid, offering an amount  

of 4,94,91,810/-.  It may be noted that the amount offered by the  

respondent in the subsequent bid was less than its offer in the  

first bid with a difference of  3.03 crores.  Since the respondent’s  

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bid was the highest bid among the bids submitted pursuant to the  

Bid Notice dated 31.12.2008, a letter of acceptance was issued to  

the  respondent  on  6.2.2009.   The  respondent  deposited  the  

security amount and the first instalment in terms of the said letter  

of acceptance.

8. After  the  second  letter  of  acceptance  dated  6.2.2009  was  

issued to the respondent, the respondent on 7.2.2009 filed C.W.P.  

No. 2266 of 2009 in the Punjab & Haryana High Court praying for  

quashing  the first  letter  of  acceptance dated 26.11.2008 of  the  

Executive  Engineer  and  the  Memo No.  5029  dated  17.12.2008  

cancelling  the  said  letter  of  acceptance  and  forfeiting  the  Bid  

Security of 20 lakhs. Even though the appellants opposed the  

grant of prayers in the writ petition, a Division Bench of the High  

Court vide order dated 7.7.2009 allowed the writ petition quashing  

the letter  of  acceptance dated 26.11.2008 and the Memo dated  

17.12.2008 and also  directed  the Executive  Engineer  (appellant  

No. 5)  to refund the Bid Security amount of   20 lakhs to the  

respondent within two months from the date of receipt of a copy of  

the order. Aggrieved by the said order dated 7.7.2009 passed by  

the High Court in C.W.P. No. 2266 of 2009, the respondents in the  

writ petition have filed this appeal.

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9. We  have  considered  the  pleadings  in  the  case,  the  

submissions made by the learned senior counsel for the parties  

and the materials placed on record.

10. For allowing the writ petition, the only reason stated by the  

High Court is that, since the writ  petitioner (respondent herein)  

had withdrawn its offer before it was accepted, there could be no  

acceptance of the offer and there could not be any consequence of  

the  petitioner  not  honouring  the  commitment.   However,  we  

cannot agree with the view taken by the High court.  It is true that  

as  per  Section  5  of  the  Indian  Contract  Act,  1872  (hereinafter  

referred to as “the Act”), a proposal may be revoked at any time  

before the communication of its acceptance is complete as against  

the proposer.   It  is also true that before receipt of the letter of  

acceptance dated  26.11.2008,  the  respondent  had sent  a  letter  

dated 15.11.2008 withdrawing its offer.  However, admittedly, in  

paragraph 8 of the written offer/bid, the respondent had agreed to  

keep the bid open for acceptance upto 90 days after the last date  

of receipt of bid.  The respondent had also agreed that it shall be  

bound by the communication of acceptance of the bid dispatched  

within the aforesaid period of  90 days.   Hence,  the respondent  

could not have withdrawn the bid before the expiry of the period of  

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90 days.  It is not disputed that the acceptance of the respondent’s  

bid was communicated to the respondent within the said period of  

90  days.   Therefore,  the  respondent  was  bound  by  the  said  

acceptance of the bid, despite its withdrawal by the respondent in  

the meanwhile.  In paragraph 10 of the offer/bid, the respondent  

had also agreed that the full value of the Bid Security would be  

forfeited without prejudice to any other right or remedy available  

to  the  Executive  Engineer  or  his  successor  in  office  or  his  

representative,  should  the  respondent  withdraw  or  modify  its  

offer/bid during the period of bid validity (90 days) or extended  

validity period.  Since the respondent withdrew its offer during the  

period  of  bid  validity  in  violation  of  the  above-mentioned  

agreement in paragraph 8 of the offer/bid, the full value of Bid  

Security  was  liable  to  be  forfeited  in  terms  of  the  agreement  

contained in paragraph 10 of the offer/bid.  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 upto  

90 days after the last date of receipt of bid and if the respondent  

withdrew its bid before the expiry of the said period of 90 days the  

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respondent was liable to suffer the consequence (i.e. forfeiture of  

the full value of Bid Security) as agreed to by the respondent in  

paragraph 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  

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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.

11. In taking the above view, we are supported by the decision of  

this Court in  National Highways Authority of India v.  Ganga  

Enterprises & Anr. [(2003) 7 SCC 410] which was rendered in a  

similar case.  In the said case, the appellant, National Highways  

Authority of India, by a notice, called for tenders by 31.7.1997 for  

collection of toll on a portion of a particular highway.  The notice  

provided that toll plazas would be got completed by the appellant  

and handed over to the selected enterprise.  The notice required  

the bidders to furnish: (i) a bid security in a sum of 50 lakhs in  

the form of a bank draft or bank guarantee, and (ii) a performance  

security in the form of a bank guarantee of  2 crores.  The bid  

security was liable to forfeiture in case the bidder withdrew his bid  

during the validity period of the bid or failed within the specified  

period  to  furnish  the  performance  security  and  sign  the  

agreement.  The bid was to remain valid for a period of 120 days  

after  the  last  date  of  bid  submission.   In  terms  of  the  tender  

document, the respondent firm gave its bid or offer and furnished  

a bank guarantee in a sum of 50 lakhs.  It was an “on-demand  

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bank guarantee” stating that it could be enforced on demand if the  

bidder withdrew his bid during the period of bid validity or failed  

to  furnish  the  performance  security  or  failed  to  sign  the  

agreement.   While  the validity  period of  the bid was to end on  

28.11.1997, the respondent withdrew its bid on 20.11.1997 and  

did  not  furnish  the  performance  guarantee.   Therefore,  the  

appellant although found the respondent to be the highest bidder  

and  accepted  its  offer  on  21.11.1997,  encashed  the  bank  

guarantee for 50 lakhs.  The respondent then filed a writ petition  

in  the  High  Court  for  refund of  the  amount.   The  High  Court  

formulated two questions viz.: (a) whether the forfeiture of security  

deposit  was  without  authority  of  law  and  without  any  binding  

contract between the parties and also contrary to Section 5 of the  

Contract Act; and (b) whether the writ petition was maintainable  

in a claim arising out of a breach of contract.  Without considering  

Question  (b),  the  High  Court  allowed  the  writ  petition  on  the  

ground that the offer was withdrawn before it was accepted and  

thus no completed contract had come into existence.  The High  

Court observed that in law a party could always withdraw its offer  

before  acceptance.   Therefore,  it  held  that  the  invocation  and  

encashment of the bank guarantee was illegal and void and was  

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liable to be set aside.  The appellant then approached the Supreme  

Court.  Allowing the appeal, this Court held as follows:

“In  our  view,  the  High  Court  fell  in  error  in  so  holding.  By  invoking  the  bank  guarantee  and/or  enforcing  the  bid  security,  there  is  no  statutory  right, exercise of which was being fettered. There is  no  term in  the  contract  which is  contrary  to  the  provisions  of  the  Indian Contract  Act.  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.”

We respectfully agree with the above view of this Court.    

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12. Hence, the High Court was not justified in quashing the letter  

dated  26.11.2008  accepting  the  bid  of  the  respondent  and the  

letter dated 17.12.2008 forfeiting the Bid Security amount of  20  

lakhs.  The appeal is allowed and the order dated 7.7.2009 passed  

by the High Court of Punjab & Haryana in C.W.P. No. 2266 of  

2009  is  set  aside.   Consequently,  the  writ  petition  stands  

dismissed.  There will be no order as to costs.

          …………………………..J.  (V.S. Sirpurkar)

 …………………………..J.  (Cyriac Joseph)

New Delhi; August 17, 2011.  

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