advocatemmmohan

My photo

ADVOCATEMMMOHAN -  Practicing both IN CIVIL, CRIMINAL AND FAMILY LAWS,Etc.,

WELCOME TO LEGAL WORLD

WELCOME TO MY LEGAL WORLD - FOR KNOWLEDGE IN LAW & FOR LEGAL OPINIONS - SHARE THIS

Saturday, February 14, 2015

withdrawal of a bid before acceptance in the context of Section 5 of the Contract Act, 1872= 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 Rejecting the submission that the bid can be withdrawn without any forfeiture in view of Section 5 of the Contract Act, this Court observed: "...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 its bid before the expiry of the said period of 90 [pic]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 The bid security was given by the respondent and taken by the appellants to ensure that the offer is not withdrawn during the bid validity period of 90 days and a contract comes into existence.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 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.

                                 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 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
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  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:
On revocation of the tender or,
On refusal to enter into a Contract afterward to a Contractor or,
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-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-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
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 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  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
its bid before the expiry of the said period of 90 [pic]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 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

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.