State of Haryana
& Ors. Vs. M/s. Malik Traders
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-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.
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Traders was forfeited and the letter of acceptance was cancelled and withdrawn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.
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 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.
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 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
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 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 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 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.
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.
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