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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.
