Villayati Ram Mittal P.Ltd vs Union Of India & Anr

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (C) NO. 12144 OF 2009

Villayati Ram Mittal (Pvt.) Ltd. ...... Petitioner

Versus

Union of India & Anr. ...... Respondents

ORDER

A. K. PATNAIK, J.

1. This Special Leave Petition under Article 136 of the

Constitution of India has been filed against the judgment

dated 15.10.2008 of the Division Bench of the High Court of

Delhi in Writ Petition (C) No.14998 of 2004.

2. The relevant facts very briefly are that the petitioner is

a private limited company carrying on inter alia the business

of construction. In April 2004, respondent No.2 published a

notice inviting tenders for construction of married

accommodation at Shankar Vihar-II, Pocket, Delhi

Cantonment, at an estimated cost of Rs.40 crores (for short 2

"the Notice"). Clause 6 of the Notice stipulated that the

tenderer shall furnish earnest money of Rs.40 lacs in the

form of FDR from a nationalized bank drawn in favour of the

Director General, Married Accommodation Project, Kashmir

House, Rajaji Marg, New Delhi. Clause 6 also stipulated that

if the firm revokes its offer during the validity period, the

earnest money furnished by the firm shall be forfeited. In

response to the Notice, the petitioner submitted its offer along

with earnest money of Rs.40 lacs. When the tenders were

opened on 05.05.2004, the offer of the petitioner was found to

be the lowest at Rs.32 crores for the work. On 06.05.2004,

however, the petitioner sent a letter to the respondent No.2

making a correction of a figure in its tender to read as

Rs.32,76,000/- instead of Rs.23,76,000/-. As a result of this

correction, the offer of the petitioner for the work increased

from Rs.32 crores to Rs.41 crores. Respondent No.2 treated

this correction made by the petitioner in its tender as

revocation of its offer and forfeited the earnest money of Rs.40

lacs furnished by the petitioner.

3. Aggrieved, the petitioner filed Writ Petition (C)

No.14998 of 2004 under Article 226 of the Constitution before

the High Court of Delhi, but by the impugned judgment the 3

High Court dismissed the Writ Petition after holding that the

correction of the bid made by the petitioner amounted to

revocation of its original offer and hence the respondent No.2

was entitled to forfeit the earnest money furnished by the

petitioner in terms of Clause 6 of the Notice.

4. Learned counsel for the petitioner submitted that the

High Court failed to appreciate that the tender of the

petitioner was initially defective in as much as the earnest

money, which was furnished by the petitioner, was not in

accordance with Clause 6 of the Notice. He explained that

Clause 6 of the Notice provided that the earnest money was to

be in the form of FDR from a nationalized bank, but the FDR

of Rs.40 lacs furnished by the petitioner was from UTI Bank,

which was not a nationalized bank. He further submitted that

the petitioner had to make the correction in the figure so as to

read as Rs.32,76,000/- instead of Rs.23,76,000/- because a

mistake had been committed by the petitioner while

calculating the figure and, therefore, soon after the tender was

opened on 05.05.2004 the petitioner submitted the letter

dated 06.05.2004 to the respondent No.2 correcting the

aforesaid mistake in the calculation of the figure. He

submitted that the respondent No.2 ought not to have treated 4

the letter dated 06.05.2004 as revocation of the offer of the

petitioner. Learned counsel for the petitioner further

submitted that in any case the entire Notice was recalled and

a fresh Notice was issued by respondent No.2 inviting tenders

at a revised estimated cost. According to learned counsel for

the petitioner, since the tender process in respect of which the

petitioner had furnished the earnest money was cancelled,

respondent No.2 should have refunded the earnest money to

the petitioner.

5. Learned counsel for the respondents, on the other

hand, supported the impugned judgment of the High Court

and relied on the counter affidavit filed on behalf of the

respondents in the High Court as well as in this Court.

6. We find that Clause 6 of the Notice clearly stipulated

that "if any firm revokes its offer during the validity period, its

earnest money shall be forfeited". Hence, the question that

arose before the High Court for decision was whether the

petitioner by revising one of the figures in its tender from

Rs.23,76,000/- to Rs.32,76,000/- revoked its offer and the

High Court has taken the view in the impugned judgment

that as a consequence of the change in the figures, the offer

of the petitioner for the work was enhanced from Rs.32 crores 5

to Rs.41 crores and, therefore, the original offer of Rs.32

crores for the work stood revoked. In para 12 of the counter

affidavit filed in reply to the Writ Petition in the High Court

the respondents have stated that after receiving the letter

dated 06.05.2004 of the petitioner correcting the figures in its

tender, the respondents sent letters to the petitioner giving

opportunity to the petitioner to withdraw its letter dated

06.05.2004 on or before 04.06.2004 and yet the petitioner did

not withdraw its letter dated 06.05.2004. These facts clearly

establish that the petitioner was not willing to stand by its

original offer of Rs.32 crores for the work and was willing to

do the work only at the revised bid of Rs.41 crores. The High

Court was thus right in coming to the conclusion that the

petitioner had revoked its offer of Rs.32 crores for the work.

7. The legal principles relating to "Earnest Money' are well

settled. In Chiranjit Singh v. Har Swarup [AIR 1926 PC 1], the

Judicial Committee of the Privy Council held:

"Earnest money is part of the purchase price when the transaction goes forward: it is forfeited when the transaction falls through, by reasons of the fault or failure of the vendee".

These observations of the Judicial Committee have been

quoted in the judgment of this Court in Shri Hanuman Cotton 6

Mills & Ors. v. Tata Air Craft Limited [(1969) 3 SCC 522] in

which the principles relating to earnest money have been laid

down.

8. Similarly, in H.U.D.A. & Anr. v. Kewal Krishan Goel &

Ors.,etc. [(1996) 4 SCC 249], this Court quoted the following

observations of Hamilton, J. in Summer and Leivesley v. John

Brown & Co. [25 Times LR 745] with regard to the meaning of

`earnest' :

"`Earnest' ... meant something given for the purpose of binding a contract, something to be used to put pressure on the defaulter if he failed to carry out his part. If the contract went through, the thing given in earnest was returned to the giver, or, if money, was deducted from the price. If the contract went off through the giver's fault the thing given in earnest was forfeited."

9. It is thus clear that when earnest money is furnished by

a tenderer it forms part of the price if the offer of the tenderer

is accepted or it is refunded to the tenderer if someone else's

offer is accepted, but if for some fault or failure on the part of

the tenderer the transaction or the contract does not come

through, the party inviting the tender is entitled to forfeit the

earnest money furnished by that tenderer.

10. In facts of the present case, the respondents have stated

in their reply to the Writ Petition before the High Court that as 7

a consequence of the failure of the petitioner to stand by its

offer dated 05.05.2004 the tender for the work had to be re-

invited by the respondent No.2 on revised costs of the

construction and in the circumstances, the respondent No.2

had to forfeit the earnest money of the petitioner. This was

thus a case where on account of failure on the part of the

petitioner to stand by its offer, the transaction or the contract

did not come through and therefore the respondents were

entitled to forfeit the earnest money furnished by the petitioner

in terms of Clause 6 of the Notice.

11. For these reasons, we are not inclined to interfere with

the impugned judgment of the High Court and we accordingly

dismiss the Special Leave Petition with no order as to costs.

..........................J. (Altamas Kabir)

..........................J. (A. K. Patnaik) New Delhi, September 21, 2010.