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IN THE HIGH COURT OF BOMBAY
V.V. Vaze, J.
Kirloskar Pneumatic Company Ltd. .... Appellants.
Versus
National Thermal Power Corporation Ltd. other.... Respondents.
Appeal From Order No. 61 of 1986, with Civil Application No.386 of 1986, decided on 26-9-1986.
Advocates appeared :
I.M. Chagla, M.B. Kele, i/by Manilal Kher Ambalal and Co. for petitioners-appellants.
M.V. Paranjape, i/ by Singhania and Co., for respondent No. 1.
A.R. Kini, for respondent. No. 2
Sections 6 and 126-Contract-Forfeitnre of hid guarantee-Invitation of hids for certain works by company-K one of hidders-K withdrawing hid before acceptance by company-Whether contract existed between K and company-Bid guarantee if could he forfeited-Held-No contract came into existence between K and company-Hence question of forfeiting bid guarantee would not arise-Contingencies in which hid guarantee could be forfeited.
The question of forfeiture of the bid guarantee was to arise only when first, the contract is awarded to the bidder, secondly the bidder is asked furnish coo tract performance guarantee and thirdly if the successful bidder fails to submit the contract performance guarantee after the contract is awarded. It is only when these three contingencies take place, then the bid guarantee amount can be forfeited by the owner.
Section 126-Code of Civil Procedure, 1908, Order 39 Rule 1-Invocation of Bank Guarantee-Held that there was no contract between "N" and UK" to keep the bid alive that the bid could he revolved before the acceptance as "K" had done, that "N" did not act to their detriment relying on their bid on "K", that bid guarantee could only he Invoked if the contract were to be awarded to "K" and they had failed to pay the amount or to perform their part which stage never arose, that "N" could not Invoke the bid guarantee In terms of the contract and thence a clear prima facie case existed of issuing an injunction restraining the bank from making the payment.
The "N" could have invoked the bank guarantee if, and only if, having been awarded contract had failed to submit a contract performance guarantee as stipulated in the contract document. The dealings between the parties were only at the stage of offer. No contract was awarded to K and the question of their furnishing a performance guarantee did not arise. N wrote to the Bank to say that "In terms of the Bank Guarantee. Bank Guarantee is hereby invoked and is made demand on you to immediately pay an amount of Rs. 4 lacs". The Bank could not question whether the invocation is "in terms of the Bank Guarantee". It was for "N" to verify whether under the terms of the contract they could invoke bank guarantee. As observed earlier, the contract having not been awarded, the question of submitting contract performance guarantee did not arise nor did the question of forfeiting of bid guarantee. In this view of the matter the action of "N" invoking the bank guarantee was itself unlawful though it is correct to say that the bank could not refuse the payment under the guarantee.
The upshot of the above discussion shows firstly that there was no contract between "N" and "K" to keep the bid alive, that the bid could be revoked before the acceptance of "K" have done, that the "N" did not act to their detriment relying on their bid on "K" that the bid guarantee could only be invoked if the contract were to be awarded to the "K" and they had failed to pay the amount or to perform their part which stage never arose, that "N" could not invoke the bid guarantee in terms of the contract and hence a clear prima facie case exists of issuing an injunction restraining the hank from making the payment.
2. So observed Atiyah in "The Rise and Fall of Freedom of Contract" page 689. The famous dictum written by Maine Way back in 1861 in his "Ancient Law" that the movement of progressive societies has been a movement from status to contract is being eroded in modern times by the emergence of the State and State controlled institutions dominating the field of contract. The pre-industrial revolution are left little freedom to the employee to offer his services to any one he pleases because the number of employers were limited and the status or class of the employer and employee was well-defined and demarcated. The industrial revolution gave impetus to the development of a free economic society and the resultant mobility of labour afforded freedom of contract both to the employer and the servant or contractor. This gave rise to the traditional concept of contract each term of which was individually negotiated between and agreed upon by the contracting parties. Negotiation as a prominent feature of contract formation is now relegated to the background with the State or State controlled employers laying down uniform set of terms and conditions and asking the contractors to sign on the dotted line or not at all. But as observed by Atiyah, can we recognise the sanctity of promises to the extent of making a gratuitous promise a binding contract? This appeal throws up just that question.
3. The National Thermal Powers Corporation Limited ("NTPC" or "the Owner"), a Government of India Enterprise, carries on the business of setting up, maintenance and running of Thermal Power Stations. The NTPC issued a Notice inviting tender (NIT) by publishing of the same in newspaper inviting bids for the design, engineering, manufacture, erection, testing and commissioning of Air-Conditioning and Ventilation Systems to be installed at Singrauli, Korba and Ramagundam Satellite Earth Station Sites. The NIT gave the description of the work as :
"Two Nos. water chilling type Air-conditioning plans of capacity 82 TR for each Satellite Earth Station."
The scope of work was indicative only and detailed scope had been described in the bid documents. The cost of bid documents was put at Rs. 500/-. The last date and time for submission of bid was 10.30 A.M. on 26th February, 1985 and the bids were to be opened the same day after half an hour i.e. at 11.00 A.M. The NIT made it clear to the bidders that the "Bidder will be required to furnish a bid guarantee for an amount of 2% of the bid price along with the bid and a contract performance guarantee for 10% of the contract value at the time of award of contract." The contract documents dilated on the submissions of bid guarantee and performance guarantee thus:
"7.2. The Bid Guarantee shall be made payable without any condition to the Owner. The Bid Guarantee shall be valid for a period of seven (7) calendar months from the date set for the opening of the bids.
7.3. The Bid Guarantee of the successful Bidder to whom a Contract is awarded will be returned after the said Bidder provides the Contract Performance Guarantee as required in the Contract Documents.
7.4. If the successful Bidder fails to submit a Contract Performance Guarantee as specified in the Contract document within thirty (30) calendar days after date of Notice of Award of the Contract, then the Bid Guarantee amount will be forfeited by the Owner.
7.5. The Bid Guarantee of all unsuccessful bidders except that of the successful bidder will be returned after the award of the Contract.
7.6. Any bid not accompanied by a Bid Guarantee shall be disqualified.
7.7. No interest will be payable by the owner on the above Bid Guarant
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