NATIONAL THERMAL POWER CORP. LTD. Vs M/S ASHOK KUMAR SINGH .
Bench: T.S. THAKUR,R.K. AGRAWAL,ADARSH KUMAR GOEL
Case number: C.A. No.-001852-001852 / 2015
Diary number: 6052 / 2014
Advocates: S. K. DHINGRA Vs
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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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