NATIONAL THERMAL POWER CORPORATION LTD.versusM/S. ASHOK KUMAR SINGH & ORS.

                         [2015] 2 S.C.R. 388


A      NATIONAL THERMAL POWER CORPORATION LTD.
                                  v.
               M/S. ASHOK KUMAR SINGH &ORS.
                   (Civil Appeal No. 1852 of2015)
B
                        FEBRUARY 13, 2015

                  [T.S. THAKUR, R.K. AGRAWAL
                AND ADARSH KUMAR GOEL, JJ.]
C      Government contracts: Forfeiture of earnest money on
  withdrawal of bids- Challenged- Held: In terms of condition
  no.2 of Special condition of contract, revocation of tender
  was by itself sufficient to call for forfeiture of earnest money-
D Therefore, respondents cannot contend that the right to
  withdraw the bid in terms of s. 5 of the Contract Act, 1872
  would entitle them to withdraw without suffering forfeiture of
  the earnest money.

        Allowing the appeal, the Court
E
      HELD: A plain reading of Condition no.2 of Special
  Conditions of Contract would show that one of the
  Special Conditions of Contract, subject to which the
F 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. One of these contingencies was
  revocation of the tender, which would in the context in
G 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


H                                388
 NATIONAL THERMAL POWER CORP. LTD. v. ASHOK 389
               KUMAR SINGH

the tender with revocation of the tender notice. The           A
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      B
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            C
Contract only means withdrawal/cancellation/ recall of
the bid or tender submitted by the bidder. The High
Court was in manifest error in holding that the forfeiture
did not fall within the purview of Condition No. 2. It is no
longer possible for the respondents to contend that the        D
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         E
withdrawal of the bid the earnest money stand
forfeited. [Paras 7, 13) [392-E-H; 393-A-C; 397-F-G]

     National Highways Authority of India v. Ganga
Enterprises and Anr. (2003) 7 SCC 410: 2003 (3) Suppl.         F
SCR 114; State of Maharashtra and Ors. v. A.P Paper Mills
Ltd. (2006) 4 SCC 209: 2006 (3) SCR 719; State ofHaryana
and Ors. v. Malik Traders (2011) 13 SCC 200: 2011(10) SCR
372 - relied on.
                                                               G
                    Case Law Reference

    2003 (3) Suppl. SCR 114       relied on.    Para 9

    2006 (3) SCR 719              relied on.    Para 9
                                                               H
 390        SUPREME COURT REPORTS                 [2015] 2 S.C.R.


. A        2011 (10) SCR 372             relied on.    Para 9

          CIVILAPPELLATE JURISDICTION: Civil Appeal No(S).
       1852 of 2015

 B         From the Judgment and Order dated 11.10.2013 of the
       High Court of Judicature at Allahabad Lucknow Bench
       Lucknow in Misc. Bench No. 9620 of 2013.

          S. K. Dhingra, Shefali Mitra, for the Appellant.

 C        Alka Agrawal, Ajay K. Agrawal, for the Respondents.

          The judgment of the Court was delivered by

          T.S. THAKUR, J. 1. Leave granted.

 D      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
 E 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
 F 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
 G 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-
 H corporation at Rai Bareilly withdrawing the bids submitted
 NATIONAL THERMAL POWER CORP. LTD. v. ASHOK 391
        KUMAR SINGH [T.S. THAKUR, J. ]

by it and asking for being excluded from consideration A
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 B
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 C
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
                                                                0
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:                  E

     "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 191912013
                                                               F
    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.                         G

    5. Appearing on behalf of the appellar.t-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.    H
392         SUPREME COURT REPORTS                       [2015] 2 S.C.R.


A     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.
B
          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:
c
          a. On revocation of the tender or,

          b. On refusal to enter into a Contract afterward to a
          Contractor or,
D
          c. 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
E     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
F     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
G     "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
H     prerogative of the appellant-corporation, revocation of the
  NATIONAL THERMAL POWER CORP. LTD. v. ASHOK 393
         KUMAR SINGH [T.S. THAKUR, J. ]

'tender' could be only by the bidder/tenderer concerned. The A
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.
                                                                   8
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.                        C

       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
                                                                      0
 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 anytime, before acceptance of the offer withdraw E
 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.
                                                                         F
      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 G
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. H
394        SUPREME COURT REPORTS                    [2015] 2 S.C.R.


A Dhingra upon the decisions of this Court in National Highways
  Authority of India v. Ganga Enterprises and another
  (2003) 7 SCC 41 O; 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.
B
         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
C 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
o 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
E 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
F 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
G 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
H
 NATIONAL THERMAL POWER CORP. LTD. v. ASHOK 395
        KUMAR SINGH [T.S. THAKUR, J. ]

    accepted, is a completely different aspect from           A
    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    B
    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.        c
    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
                                                              D
    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       E
    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      F
    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 tenrjer G
only on the pain of forfeiture of the earnest money. While
refusing to interfere with the forfeiture of the earnest money
this Court observed:

    "........ .Butit is a case of withdrawal of tender and
                                                              H
396      SUPREME COURT REPORTS                   [2015] 2 S.C.R.


A       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
B       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
c       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
D 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:

E       "......... 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
F      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 .days the respondent was liable to suffer the
       consequence (i.e. forfeiture of the full value of bid
G      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.
H
 NATIONAL THERMAL POWER CORP. LTD. v. ASHOK 397
        KUMAR SINGH [T.S. THAKUR, J. ]

    The right to withdraw an offer before its acceptance .       A
    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        B
    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            c
    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
                                                                 D
    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           E
    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 F
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 G
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.
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398      SUPREME COURT REPORTS                  [2015] 2 S.C.R.


A 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.
B Devika Gujral                                  Appeals allowed.