Holding

A technical non‑compliance with an ancillary tender condition may be waived, and a certified banker's cheque from another bank suffices as earnest money, allowing the tender to be validly accepted.

Summary

The Diesel Locomotive Works invited tenders for ferrous scrap, stipulating that earnest money be paid by cash or a demand draft drawn on the State Bank of India. Poddar Steel submitted the highest bid accompanied by a certified banker's cheque from Union Bank of India, which the Tender Committee verified and accepted. Respondent No.1 challenged the acceptance, arguing that the payment method violated the tender condition. The High Court held the condition was not met and set aside the acceptance, but the Supreme Court reversed, distinguishing essential from ancillary conditions and deeming the cheque sufficient to achieve the object of the clause. The Court allowed the appeal, holding that a technical irregularity in an ancillary condition may be waived, and dismissed the writ petition.

Issues considered

Whether the requirement to deposit earnest money by cash or demand draft drawn on a specified bank is an essential condition requiring strict compliance.
Whether a certified banker's cheque from a different bank can satisfy the earnest money requirement.
Whether the tender authority may waive a technical non‑compliance with a tender condition that is ancillary.

Legislation cited

Constitution of Indias. Article 136, s. Article 226

Subjects

tenderearnest moneyessential conditionancillary conditiontechnical non‑compliancewaivercertified chequepublic procurementrailway contract

Judgment

PODDAR STEEL CORPORATION
A
V.
GANESH ENGINEERING WORKS AND OTHERS.

MAY 6, 1991

B [LAUT MOHAN SHARMA AND M.M. PUNCHHI, JJ.]

Constitution of India: Articles 226 and 136.

Railway 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
C stipulated bank-Validity of-Essential and ancilliary conditions-
Distinction between.

The Diesel Locomotive Works, Indian Railways, invited tenders
for disposal of one lot of Fer.rous scrap. One of the conditions
D mentioned in the tender notice was that the earnest money shonld be
deposited by cash or by demand draft drawn on the State Bank oflndia.
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. The
E Tender Committee had verified from Union Bank of India the bona fide
of appellant's cheqne and then only decided to accept its tender.

Respondent no. 1 filed a writ petition in the High Conrt challeng-
ing the rejection of its tender, and acceptance of appellant's tender on
the gronnd that the latter did not comply with the necessary condition
F for payment of earnest money with the tender. The appellant contended
that it had snbstantially complied with the reqnirement by sending with
its tender a banker's cheqne marked and certified by the Union Bank of
India as good for payment. The High Court opined that respondent's
tender was rightly rejected for failure to deposit the earnest money, but
allowed the writ petition holding that the appellant also did not satisfy
G 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.

H Allowing the appeal, this Court

696
PODDAR STEEL v. GANESH ENGINEERING 697

HELD: 1. As a matter of general proposition it cannot be laid
A
down 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
requirement in a tender notice can be classified into two categorie~
those which lay down the essential conditions of eligibility, and the
..J
others which are merely ancilliary or subsidiary with tbe main object to B
be achieved by the condition. In the first case the authority issuing tbe
tender may be required to enforce them rigidly. In the 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. [699E-G)

2. In the instant c~, in submitting the cheque drawn on the
Union Bank of India and not on the State Bank of India, the relevant c
condition of the tender notice was not obeyed literally; but tbe 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 bad no authority to waive D
the technical literal compliance of the clause, regarding manner of pay-
ment of earnest money especially when it was in its interest not to reject
the said bid which was tbe highest. [699D-E; 700F-G)

GJ Fernandez v. State of Karnataka & Ors., [1990] 2 SCC 488
and Sita Ram Jhunjhunwala v. Bombay Bullion Association Ltd. & E
Anr., [1965] 35 Company Cases 526, relied on.

Ramana Dayaram Shetty v. International Airport Authority of
India & Ors., [1979] 3 SCC 489; Spargo's Case, 1873 LR 8 Ch. App.
407; Mis B.D. Yadav and M.R. Meshram v. Administrator of the City
;
of Nagpur, AIR 1984 Bombay 351 and T. V. Subhadra Amma v. Kera/a F
Board of Revenue and Others, AIR 1982 Kerala, 81, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2272
of 1991.

/ From the Judgment and Order dated 12.11.1990 of the Allaha- G
bad High Court in C.M.W.P. No. 11192 of 1990.

Sunil Gupta and S. Sukumaran for the Appellant.

Dr. Anand Prakash, B.K. Prasad and S.N. Sikka for the
Respondents. H
698 SUPREME COURT REPORTS [1991] 2 S.C.R.

The Judgment of the Court was delivered by
A
SHARMA, J. Special Leave is granted.

2.In response to a notice inviting tenders by the Diesel Locomo-
tive Works, Indian Railways, in connection with disposal of one lot of
B 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 defec-
tive 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. I challenged the decision by a writ petition before the
Allahabad High Court contending that there was no defect in its
c 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. The appli-
cation was resisted on the grounds (i) that the respondent no. I having
not deposited the earnest money at all was not entitled to a considera-
D tion 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. The 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
E 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
F open to the authorities to invite fresh tenders. The present appeal is
directed against this judgment.

3. The 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
G 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. Admit-
tedly, the Tender Committee had taken the precaution of getting the
H matter confirmed from the appellant's bank before deciding to accept
his tendei'.
PODDAR STEEL v. GANESH ENGINEERING [SHARMA, J.] 699

4. The relevant clause 6 of the notice required ·the tender to .be
A
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 B
impugned judgment it has been held that in view of this defect the
authorities had no power to accept the appellant's tender.

5. The 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 c
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 D
1984 Bombay 351 and T.V. Subhadra Amma v. Kera/a Board of
Revenue and Others, AIR 1982 Kerala 81.

6. It 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 E
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 irregu-
larity of little or no significance. The requirements in a tender notice F
can be classified into two categories-those which lay down the essen-
tial 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. In the other cases it must be open to the autho-
rity to deviate from and not to insist upon the strict literal compliance G
of the condition in appropriate cases. This aspect was examined by
this Court in GI Fernandez v. State of Karnataka & Ors., [1990] 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 & H
700 SUPREME COURT REPORTS [1991] 2 S.C.R.

Ors., [1979] 3 SCC 489 but has failed to appreciate that the reported
A
case belonged to the first category where the strict compliance of the
condition could be insisted upon. The 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 indi-
B cates that the Court closely examined the nature of the condition
which had been relaxed and its impact before answering the question
whether it cou)d have validly condoned the shortcoming in the tender
in question. This 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.
c
7. The nature of payment by a certified cheque was considered
by this Court in Sita Ram Jhunjhunwa/a v. Bombay Bullion Associa-
tion Ltd. & Anr., [ 1965] 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
D
quoted the observations from the judgment in an English decision
( vide Spargo's case: 1873 LR. 8 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
E money backwards and forwards. This Court applied that the observa-
tions 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.
F 8. In the instant case the certified cheque of the Union Bank of
India drawn on its own branch must be treated as sufficient for the
purpose of achieving the object of the condition and the Tender Com-
mittee took the abundant caution by a further verification from the
bank. In this situation it is not correct to hold that the Diesel Locomo-
tive Works had no authority to waive the technical literal compliance
G 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 judg-
ment and dismiss the writ petition of the respondent no. 1 filed before
the High Court. The appeal is accordingly allowed with costs through
out.
R.P. Appeal allowed.