IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA
TARLOK SINGH CHAUHAN, CHANDER BHUSAN BAROWALIA, JJ.
Adarsh Food Products (P) Ltd. - Petitioner
Versus
State of Himachal Pradesh and another - Respondents
CWP No. 1198 of 2017
Decided On : 03-05-2018
TENDER - FORFEITURE OF EARNEST MONEY - SECTION 74 OF THE CONTRACT ACT - PUBLIC DISTRIBUTION SYSTEM - BLACKLISTING - PRINCIPLES OF NATURAL JUSTICE - SHOW CAUSE NOTICE - CONDITIONS OF TENDER - BREACH OF CONTRACT - PENALTY - REASONABLE COMPENSATION - GENUINE PRE-ESTIMATE OF LOSS - CONTRACTUAL STIPULATION - PUBLIC INTEREST - GOVERNMENT CONTRACTS - STATUTORY RIGHT - INDIAN CONTRACT ACT, 1872 - STATE SPECIAL SUBSIDIZED SCHEME -
Fact of the Case:
Petitioner participated in a tender process for the procurement of pulses under the State Special Subsidized Scheme. After being declared as the lowest bidder, the petitioner informed the respondent about the withdrawal of its bid. The respondent directed the petitioner to submit the sample of Dal Chana as per the terms and conditions of the tender document. The petitioner reiterated its withdrawal from the bid and requested a refund of its EMD. The respondent issued a show cause notice to the petitioner proposing forfeiture of EMD and blacklisting. The petitioner challenged the show cause notice.
Finding of the Court:
The court held that the forfeiture of earnest money when it is made for breach of auction/tender condition at a pre-contractual stage when no contract has yet come into existence, does not infringe any statutory right under the Contract Act, 1872 since the earnest/ security is given and taken in such cases only to ensure that a contract comes into existence. The court further held that even though the tenderer has a right to withdraw his offer, he will have no right to claim refund of earnest money if such offer is subjected to the condition that earnest money will be forfeited, if the order is withdrawn. The court also held that the show cause notice with respect to blacklisting of the petitioner's firm cannot be countenanced as it did not meet the mandatory requirement of a show cause notice.
Issues: 1. Whether the forfeiture of earnest money for breach of tender condition at a pre-contractual stage infringes any statutory right under the Contract Act, 1872? 2. Whether a tenderer has the right to claim refund of earnest money if the offer is subjected to the condition that earnest money will be forfeited, if the order is withdrawn? 3. Whether a show cause notice proposing blacklisting of a firm can be countenanced if it does not meet the mandatory requirement of a show cause notice?
Ratio Decidendi: 1. The forfeiture of earnest money when it is made for breach of auction/tender condition at a pre-contractual stage when no contract has yet come into existence, does not infringe any statutory right under the Contract Act, 1872 since the earnest/ security is given and taken in such cases only to ensure that a contract comes into existence. 2. Even though the tenderer has a right to withdraw his offer, he will have no right to claim refund of earnest money if such offer is subjected to the condition that earnest money will be forfeited, if the order is withdrawn. 3. A show cause notice proposing blacklisting of a firm cannot be countenanced if it does not meet the mandatory requirement of a show cause notice, which includes stating the material/ grounds on which the action is proposed and the particular penalty/action which is proposed to be taken.
Final Decision: The writ petition was partly allowed. The show cause notice with respect to blacklisting of the petitioner's firm was quashed and set-aside. However, the respondent was allowed to issue a fresh show cause notice to the petitioner in terms and in accordance with law.
Tarlok Singh Chauhan, J.
Aggrieved by forfeiture of its earnest money of Rs.25,00,000/-, the petitioner has filed this writ petition claiming therein the following substantive reliefs:
“(a) That a writ in the form of Certiorari may be issued against the respondent.
(b) That Annexure P-8 may be quashed and setaside, being illegal and arbitrary and against the established principles of natural justice and fair play.
(c) That the respondents may be directed not to forfeit the earnest money deposited and also not to blacklist the petitioner and allow it to carry on its business legally.”
2. Brief facts leading to filing of the present writ petition are that respondent No.2 invited global tenders for the procurement of assorted pulses namely (i) Malka (Red Lentil); (ii) Urd Sabut; (iii) Moong Sabut and (iv) Dal Channa. The last date for submission of online tender alongwith Earnest Money Deposit (for short EMD), tender document fee and processing fee was 15.3.2017 upto 5.00 p.m. and the tenders in question was to be opened on 16.3.2017 at 11.00 AM. The petitioner accordingly submitted his tender for Dal Chana on 11.3.2017 after completing all the formalities including the deposit of EMD. According to the petitioner, the bids were not opened on the stipulated date and time and in the meanwhile due to abnormal change in the market condition, the petitioner was forced to withdraw his bid vide its letter dated 30.3.2017 wherein the petitioner also requested the respondent-Corporation to refund the EMD of Rs. 25 lacs. However, before the said letter could reach the respondents, the respondent No.2 vide letter dated 31.3.2017 asked the petitioner to submit revised lower rates of pulses within two days, whereas according to the petitioner he had already withdrawn from the bid on 30.3.2017.
3. The respondents vide their letter dated 13.4.2017 directed the petitioner to submit the samples of Dal Chana contained in 25 KG bag for lab testing. The petitioner vide its reply dated 15.4.2017 again reiterated and informed the respondent No.2 that it had already withdrawn its bid vide letter dated 30.3.2017 and, therefore, there was no occasion left for the petitioner to submit the samples for testing and its earlier request to refund the EMD was also reiterated. However, instead of refunding the EMD, the respondent No.2 by citing condition No.2(2) of the tender document, sent a letter dated 17.4.2017 to the petitioner whereby it threatened the petitioner-firm of adverse action in case the sample was not submitted by the petitioner within two days. In the letter it was mentioned that the State Government had already approved the rate submitted by the petitioner for supplying of Dal Chana, but the petitioner would claim that no intimation in regard to the same had earlier been communicated to him and the fact that its bid has been accepted, was only came to his knowledge vide the aforesaid letter. The petitioner sent its reply dated 19.4.2017 whereby it drew the attention of respondent No. 2 that the reliance being placed by respondent No.2 on the condition No.2(2) of the tender document was not correct. However, instead of refunding the petitioner’s EMD, respondent No.2 sent it a show cause notice dated 3.5.2017 whereby the petitioner has been asked to show cause as to why its earnest money deposited be not forfeited and why the petitioner should not be black listed from participating in further tenders issued by the respondent No.2-Corporation.
4. The petitioner submitted the reply dated 12.5.2017 reiterating therein that respondent No.2 was liable to refund EMD of the petitioner as it had already withdrawn from the tender vide letter dated 30.3.2017. However, when no action was taken, the petitioner was compelled to approach this Court by filing the instant writ petition for the reliefs as already set out above.
5. The respondent No.2, who otherwise only is the contesting party, has filed its reply wherein number of preliminary submissions/obje
Maula Bux vs. Union of India 1969 (2) SCC 554
Saurabh Prakash vs. DLF Universal Ltd. (2007) 1 SCC 228
Yogesh Mehta vs. Custodian Appointed under the Special Court and others (2007) 2 SCC 624
Kailash Nath Associates vs. Delhi Development Authority and another (2015) 4 SCC 136
Similarly, in Maula Bux v. Union of India (UOI)
National Thermal Power Corporation Limited vs. Ashok Kumar Singh and others (2015) 4 SCC 252
National Highways Authority of India v. Ganga Enterprises and another (2003) 7 SCC 410
State of Maharashtra and others v. A.P. Paper Mills Ltd. (2006) 4 SCC 209
State of Haryana and others v. Malik Traders (2011) 13 SCC 200
Gorkha Security Services vs. Government (NCT of Delhi) and others (2014) 9 SCC 105
M/s. Erusian Equipment & Chemicals Ltd. v. State of West Bengal & Anr. (1975) 1 SCC 70
Patel Engineering Ltd. v. Union of India and Anr. (2012) 11 SCC 257
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