IN THE HIGH COURT OF DELHI
Yashwant Varma, J.
Indian Hotels Company Ltd. - Appellant
Versus
Union of India - Respondent
W.P.(C) 8779 of 2019, CM Appls. 36308 of 2019 & 44738 of 2019
Decided On : 31-03-2022

Forfeiture of bid security must be explicitly stipulated in the contract terms, and failure to bid higher does not equate to withdrawal from the bidding process.

Headnote:(A) Indian Contract Act, 1872 - Section 74 - Bid security - Forfeiture of bid security amounting to Rs.20 crores upon withdrawal from bidding process challenged - Respondent did not follow stipulated procedures in the Request for Proposals (RFP) - RFP did not explicitly allow forfeiture for failure to submit a higher bid - Clarification during pre-bid queries not incorporated as a binding term in the RFP - Action deemed arbitrary and ultra vires. (Paras 24, 28, 35)

(B) Contract Terms - Requirement of specific clauses for forfeiture - Bidder must be made aware of conditions under which forfeiture may be invoked - Forfeiture as a punitive measure must be explicitly stated to be enforceable. (Paras 22, 34)

Facts of the case:
The writ petitioner contested the forfeiture of bid security in a contract for a hotel development, claiming the RFP did not authorize such forfeiture in circumstances where only no higher bid was placed. After the petitioner qualified the technical stage, it failed to submit a bid during the e-auction, leading the authority to forfeit the security. The petitioner argued this was arbitrary as it led to unjust enrichment of the authority.

Findings of Court:
The Court found the forfeiture was not authorized by the RFP and was therefore unjustified. The authority failed to demonstrate any loss from the petitioner’s failure to bid higher. The final ruling mandated the return of the forfeited amount.

Issues: The court addressed whether the RFP allowed for forfeiture situations and the interpretation of withdrawal from bidding.

Ratio Decidendi: The court ruled that the failure to submit a higher bid does not constitute a withdrawal from the auction process and that forfeiture clauses must be clearly outlined in the RFP to be enforceable. The authority's actions were deemed arbitrary given the lack of explicit terms governing forfeiture.

Result: Petition allowed; forfeited amount directed to be refunded.