Steel Corporation Vs. Ganesh Engineering Works & Ors  INSC 133 (6 May 1991)
L.M. (J) Sharma, L.M. (J) Punchhi, M.M.
1991 AIR 1579 1991 SCR (2) 696 1991 SCC (3) 273 JT 1991 (2) 577 1991 SCALE
of India: Articles 226 and 136.
contract-Tender notice-Conditions-Payment of earnest money stipulated by cash
or demand draft drawn on a specified bank-Acceptance of banker's cheque drawn
on a bank other than the stipulated bank-Validity of-Essential and ancilliary
Diesel Locomotive Works, Indian Railway, invited tenders for disposal of one
lot of Ferrous scrap. One of the conditions mentioned in the tender notice was
that the earnest money should be deposited by cash or by demand draft drawn of
the State Bank of India. The appellant, one of the
intending purchasers, submitted his tender accompanied by a cheque of Union
Bank of India drawn on its own branch. The tender
of the appellant, being the highest, was accepted and tenders of respondent no.
1 and some others were rejected.
Tender Committee had verified from Union Bank of India the bona fide of appellant's cheque and then only decided
to accept its tender.
no. 1 filed writ petition in the High Court challenging the rejection of its
tender, and acceptance of appellant's tender on the ground that the latter did
not comply with the necessary condition for payment of earnest money with the
tender. The appellant contended that it had substantially complied with the
requirement by sending with its tender a banker's cheque marked and certified
by the Union Bank of India as good for payment. The High Court
opined that respondent's tender was rightly for failure to deposit the earnest
money, but allowed the writ petition holding that the appellant also did not
satisfy the condition regarding payment of the earnest money since the cheque
sent was from a bank other than the State Bank of India as stipulated, and as
such the authorities had no power to accept appellant's tender. Aggrieved, the
appellant preferred the appeal by special leave to this Court.
the appeal, this Court 697
1. As a matter of general proposition it cannot be laid down that an authority
inviting tenders in bound to give effect to every term mentioned in the notice
in meticulous detail, and is not entitled to waive even a technical
irregularity of little or no significance. The requirement in a tender notice
can be classified into two categories-those which lay down the essential
conditions of eligibility, and the other which are merely ancilliary or
subsidiary with the main object to be achieved by the condition. In the first
case the authority issuing the tender may be required to enforce them rigidly.
In the other case it must be open to the authority to deviate from and not to
insist upon the strict literal compliance of the condition in appropriate case.
the instant case, in submitting the cheque drawn on the Union Bank of India and
not on the State Bank of India, the relevant condition of the tender notice was
not obeyed literally; but the said cheque must be treated as sufficient for the
purpose of achieving the object of the condition and the Tender Committee took
the abundant caution by a further verification from the bank. In the situation
it could not be said that the Diesel Locomotive Works had no authority to waive
the technical literal compliance of the clause, regarding manner of payment of
earnest money especially when it was in its interest not to reject the said bid
which was the highest. [699D-E; 700F-G] GJ Fernandez v. State of Karnataka
& Ors.,  2 SCC 488 and Sita Ram Jhunjhunwala v. Bombay bullion Association Ltd. & Anr.,
 35 Company Cases 526, relied on.
Dayaram Shetty v. International Airport Authority of India & Ors.,  3 SCC 489; Spargo's
Case, 1873 LR 8 Ch. App. 407; M/s B.D Yadav and M.R. Meshram v. Administrator
of the City of Nagpur, AIR 1984 Bombay 351 and T.V. Subharda Amma v. Kerala
Board of Revenue and Others, AIR 1982 Kerala, 81, referred to.
APPELLATE JURISDICTION: Civil Appeal No. 2272 of 1991.
the Judgment and Order dated 12.11.1990 of the Allahabad High Court in C.M.W.P.
No. 11192 of 1990.
Gupta and S.Sukumaran for the Appellant.
Prakash, B.K. Prasad and S.N. Sikka for the Respondents.
The Judgment of the Court was delivered by SHARMA, J. Special Leave is granted.
response to a notice inviting tenders by the Diesel Locomotive Works. Indian
Railways, in connection with disposal of one lot of Ferrous Scrap, a number of
tenders were submitted by the appellant, the respondent no. 1 and other
intending purchasers. The tenders of the respondent no. 1 and some other
bidders were rejected as defective and the appellant's offer being the highest
was accepted, and accordingly the appellant deposited a sum of about Rs.15 lacs.
The respondent no .1 challenged the decision by a writ petition before the
Allahabad High Court contending that there was no defect in its tender and that
the tender of the appellant could not have been validly accepted as the
necessary condition of payment of Rs. 50,000 as earnest money with the tender
had not been complied with.
application was resisted on the grounds (i) that the respondent no. 1 having
not deposited the earnest money at all was not entitled to a consideration of
its tender and has no locus standi in the present matter; and (ii) that the
appellant had substantially complied with the requirement by sending with its
tender a Banker's Cheque marked and certified by the Union Bank of India as
good for payment.
High Court accepted the appellant's first ground, holding that the tender of
the respondent had been rightly rejected for failure to deposit the earnest
money, but allowed the writ petition on the finding that the appellant also did
not satisfy the condition no.6 of the tender notice as the earnest money was
offered by the Banker's Cheque of a bank other than the State Bank of India
mentioned in the said clause. The High Court directed the authorities to
consider the other valid tenders and further observed that should the other
tenders be found to be unacceptable it would be open to the authorities to
invite fresh tenders.
present appeal is directed against this judgment.
case of the appellant has been that its tender mentioned the highest amount of
one and a half crores rupees for the 2000 M.T. of Ferrous Scrap which was a
very fair price, and the authorities were absolutely right in accepting the same.
With respect to the alleged deficiency in the matter of deposit of the earnest
amount, the stand is that a Banker's Cheque is as good as cash and especially
so when a verification from the bank in question about its authenticity was
made and the Bank's assurance to honour the same was obtained. Admittedly, the
Tender Committee had taken the precaution of getting the matter confirmed from
the appellant's bank before deciding to accept his tender.
relevant clause 6 of the notice required the tender to be accompanied by
earnest money calculated at 5% of the offer under the tender subject to a
maximum of Rs 50,000 and in terms permitted the deposit by cash or by demand
draft drawn on the State Bank of India. the defect pointed out by the respondent no. 1 and accepted by the
High Court is in the appellant sending the cheque of the Union Bank of India drawn on its own branch and not on
the State Bank. By the impugned judgment it has been held that in view of this
defect the authorities had no power to accept the appellant's tender.
learned counsel for the appellant has contended that having regard to the
circumstances in the case it must be held that the Tender Committee had the
power to accept the appellant's tender. Referring to the books "Bills of
Exchange" by Byles, and "Cheques in Law and Practice" by M.S. Parthasarathy,
it has been argued that certified cheques are as good as cash and the
irregularity relied upon in the appellant's submitting his tender could be
validly waived by the Diesel Locomotive Works. Reliance was also placed on M/s
B.D. Yadav and M.R. Meshram v. Administrator of the City of Nagpur, AIR 1984
Bombay 351 and T.V Subhadra Amma v. Kerala Board of Revenue and Others, AIR
1982 Kerala 81.
is true that in submitting its tender accompanied by a cheque of the Union Bank
of India and not of the State Bank the clause no. 6 of the tender notice was
not obeyed literally, but the question is as to whether the said non-
compliance deprived the Diesel Locomotive Works of the authority to accept the
bid. As a matter of general proposition it cannot be held that an authority
inviting tenders is bound to give effect to every term mentioned in the notice
in meticulous detail, and is not entitled to waive even a technical irregularity
of little or no significance. The requirements in a tender notice can be
classified into two categories-those which lay down the essential conditions of
eligibility and the others which are merely ancillary or subsidiary with the
main object to be achieved by the condition. In the first case the authority
issuing the tender may be required to enforce them rigidly.
other cases it must be open to the authority to deviate from and not to insist
upon the strict literal compliance of the condition in appropriate cases. This
aspect was examined by this Court in GJ Fernandez v. State of Karnataka 7 Ors.,
 2 SCC 488 a case dealing with tenders. Although not in an entirely
identical situation as the present one, the observations in the judgment support
our view. The High Court has, in the impugned decision, relied upon Ramana Dayaram
Shetty v. International Airport Authority of India & 700 Ors.,  3 SCC
489 but has failed to appreciate that the reported case belonged to the first
category where the strict compliance of the condition could be insisted upon.
authority in that case, by not insisting upon the requirement in the tender
notice which was an essential condition of eligibility, bestowed a favour on
one of the bidders, which amounted to illegal discrimination. The judgment
indicates that the Court closely examined the nature of the condition which had
been relaxed and its impact before answering the question whether it could have
validly condoned the shortcoming in the tender in question.
part of the judgment demonstrates the difference between the two categories of
the conditions discussed above. However it remains to be seen as to which of
the two clauses, the present case belongs.
nature of payment by a certified cheque was considered by this Court in Sita
Ram Jhunjhunwala v. Bombay Bullion Association Ltd. & Anr.,  35
Company Cases 526. Several objections were taken there in support of the plea
that the necessary condition in regard to payment was not satisfied and in that
context this Court quoted the observations from the judgment in an English
decision (vide Spargo's case: 1873 L.R. & Ch. App. 407) that it is a
general rule of law that in every case where a transaction resolves itself into
paying money by A to B and then handing it back again by B to A, if the parties
meet together and agree to set one demand against the other, they need not go
through the form and ceremony of handing the money backwards and forwards. This
Court applied that the observations to a transaction requiring payment by one
to another. The High Court's decisions in B.D. Yadav's case and T.V. Subhadra Amma's
case are also illustrations where literal compliance of every term of the
tender notice was not insisted upon.
the instant case the certified cheque of the Union Bank of India drawn on is
own branch must be treated as sufficient for the purpose of achieving the
object of the condition and the Tender Committee took the abundant caution by a
further verification from the bank. In this situation it is not correct to hold
that the Diesel Locomotive Works had no authority to waive the technical
literal compliance of clause 6, specially when it was in its interest of not to
reject the said bid which was the highest. We, therefore, set aside the
impugned judgment and dismiss the writ petition of the respondent no. 1 filed
before the High Court. The appeal is accordingly allowed with costs through