State Of Haryana & Ors vs M/S Malik Traders

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.

3 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.

4 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.

6 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.

12 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.