IMPORTANT POINTS
1. Disputes relating to contracts cannot be agitated under Article 226 of Constitution of India.
2. A person may have a right to withdraw his offer but if he had made his offer on a condition that some earnest money will be forfeited for not entering into contract, then even though he may have a right to withdraw his offer, he has no right to claim earnest money be refunded.

Headnote:(i) Constitution of India-Article 226-Writ jurisdiction-Disputes relating to contracts cannot be agitated under Article 226 of Constitution of India-Appellant had forfeited earnest money by invoking bank guarantee when respondent had withdrawn the bid/offer-Writ petition was liable to be dismissed. (Para 6)
       (ii) Contract Act, 1872-Section 5-Tenders called for collection of toll-Bid security of Rs. 50 lakhs by way of bank guarantee and performance security were stipulated-Bank guarantee of bid security realised when respondent with drew the bid-High Court allowing writ petition held that offer was withdrawn before it was accepted and thus no concluded contract had come into existence-Appeal-Withdrawal of offer before it was accepted was a different aspect from forfeiture of earnest/security money-Forfeiture of earnest/security would not affect any statutory right under Contract Act-Impugned order allowing claim in writ was unsustainable.
       Held : 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. (Para 8)
       (iii) Bank Guarantee-Contract of bank guarantee is a complete and separate by itself-If enforcement is in terms of the guarantee, Courts must not interfere with enforcement of bank guarantee.
       Held : It is settled law that a contract of guarantee is a complete and separate contract by itself. The law regarding enforcement of an "on demand bank guarantee" is very clear. If the enforcement is in terms of the guarantee, then Courts must not interfere with the enforcement of bank guarantee. The Court can only interfere if the invocation is against terms of the guarantee or if there is any fraud. Courts cannot restrain invocation of an "on demand guarantee" in accordance with its terms by looking at terms of the underlying contract. The existence or non-existence of an underlying contract become irrelevant when the invocation is in terms of the bank guarantee. The bank guarantee stipulated that if the bid was withdrawn within 120 days or if the performance security was not given or if an Agreement was not signed, the guarantee could be enforced. The bank guarantee was enforced because the bid was withdrawn within 120 days. Therefore, it could not be said that the invocation of the bank guarantee was against the terms of the bank guarantee. If it was in terms of the bank guarantee, one fails to understand as to how the High Court could say that the guarantee could not have been invoked. If the guarantee was rightly invoked, there was no question of directing refund as has been done by the High Court. (Para 9)

ORDER

This appeal is against the Judgment of the High Court of Delhi dated 30th October, 1998.

2. Briefly stated, the facts are as follows:

The Appellant issued a tender notice calling for tenders for collection of toll on a portion of the highway running through Rajasthan. The last date of submission of bid was 31st July, 1997. It was also provided that toll plazas would be got completed by the authority and handed over to the selected enterprise. There were two types of securities to be furnished, one being a bid security in an amount of Rs. 50 lakhs (Rupees fifty lakhs only). The other was a performance security by way of a bank guarantee of Rs. 2 Crores (Rupees Two crores only). Clauses 7.1 to 8 deal with bid security. They read as under:"

"7. Bid Security.

7.1 The bidder shall furnish, as a part of his bid, a Bid Security in an amount of Rs. 50 Lakhs (Rupees Fifty Lakhs only), or an equivalent amount in a freely convertible currency. The Bid Security shall, at the bidder s opinion, be in the form of a Bank Draft, or Guarantee from a Bank located in India. The Bank Guarantee shall be in the Form of Bank Guarantee for Bid Security included herein, valid of 150 days after the last date for submission of the bid.

7.2 A bid not accompanied by an acceptable bid security shall be rejected by National Highways Authority of India as non-responsive.

7.3 The Bid Security of unsuccessful bidders will be returned by National Highways Authority of India as promptly as possible but not later than 30 days after the expiration of the period of bid validity.

7.4 The Bid Security of the successful bidders will be returned by National Highways Authority of India soon after the bidder has furnished the required Performance Security.

7.5 The Bid Security may be forfeited;

(a) if the bidder withdraws his bid during the period of bid validity; or

(b) in case the successful bidder fails within the specified period to

(i) furnish the required Performance Security; and

(ii) sign the Agreement.

8. Bid Validity.

Bid shall remain valid for a period of 120 days after the last date of bid submission."

Thus, it is to be seen that the bid security of Rs. 50 lakhs was not for performance of the contract. It was in essence an earnest to be given to ensure that the bidder did not withdraw his bid during the period of bid validity and/or that after acceptance the performance security is furnished and the Agreement signed. The other terms pertained to the anticipated contract for collection of toll. It must be mentioned that the bid validity period was 120 days.

3. In terms of this tender document the Respondent gave his bid or offer. The offer/bid was in terms of the tender and thus it was also in two parts. The first part being an offer that the bid would not be withdrawn during the bid validity period and/or that on acceptance the performance security would be furnished and the Agreement signed. The second part of the offer dealt with the terms and conditions pertaining to the performance of the contract of collection of tolls, if the offer was accepted. As earnest/security for performance (of the first part of the offer) the Respondent along with his bid furnished a bank guarantee in a sum of Rs. 50 Lakhs as bid security. The bank guarantee furnished was a "on demand guarantee" which specifically provided that the bank guarantee could be enforced "on demand" if the bidder withdraws his bid during the period of bid validity or if the bidder, having been notified of the acceptance of his bids, fails to furnish the performance security or fails to sign the Agreement. The amount of the Bank Guarantee was to be paid by the bank without demur on a written demand merely stating that one of these conditions had been fulfilled. The moment the bank guarantee was given and accepted by the Appellants the first portion of the offer, regarding bid security, stood accepted. Of course, this did not me

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2003 Supreme(SC) 824

Cases Referred (5)