Delhi High Court
M/S. Gayatri-Dlf Consortium & ... vs National Highways Authority Of ... on 10 March, 2011
Author: Sanjay Kishan Kaul
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 09.02.2011
% Date of decision: 10.03.2011
+ WP (C) No.6833 of 2010
M/s. GAYATRI-DLF CONSORTIUM & ORS. ...PETITIONERS
Through: Mr. Arun Kathpalia & Mr. Angad
Mehta, Advocates.
Versus
NATIONAL HIGHWAYS AUTHORITY
OF INDIA & ANR. ...RESPONDENTS
Through: Mr. Sudhir Nandrajog, Sr. Advocate
with Ms. Padma Priya, Ms. Saahila
Lamba & Ms. Meenakshi Sood, Advs.
for Respondent No.1/NHAI.
Mr. Ravinder Agarwal, Advocate for
Respondent No.2/ UOI.
CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE RAJIV SHAKDHER
1. Whether the Reporters of local papers
may be allowed to see the judgment? Yes
2. To be referred to Reporter or not? Yes
3. Whether the judgment should be Yes
reported in the Digest?
SANJAY KISHAN KAUL, J.
1. Petitioner No.1 is a consortium joint venture of petitioner Nos. 2 & 3,
M/s. Gayatri Projects Limited and M/s. DLF Infra Holdings Limited.
The National Highways Authority of India (for short
„NHAI‟)/respondent No.1, vide its Invitation for Qualification dated
17.3.2009 invited applications for pre-qualification from applicants
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interested in designing, engineering, financing, procurement,
construction, operation and maintenance of the Six Laning of NH-4
from Tumkur to Chitradurga of approximate length of 114.000 kms.
excluding Tumkur and Chitradurga Bypass in the State of Karnataka
on Build, Operate and Transfer (BOT) Toll basis for a pre-agreed
concession period under NHDP Phase-V. The bidding process was
divided into two stages. The first stage was the qualification stage
and the second was the bid stage. In the qualification stage interested
parties were required to obtain the Request for Qualification (for
short „RFQ‟) and submit their applications along with information
sought for in the RFQ. Such of the applicants who fulfilled the
criteria specified in the RFQ were to be shortlisted as eligible for
Request for Proposal (for short „RFP‟). Petitioner No.1, thus,
submitted its RFQ for the said project on 17.3.2009 and was
informed by NHAI/respondent No.1 that it had been shortlisted for
consideration for subsequent bidding.
2. Petitioner No.1 was informed by the same letter that it could collect
the documents of RFP on payment of `1.80 lakh and submit their bid
along with the Bid Security Amount of `16.78 crore.
3. Petitioner No.1 submitted its bid (RFP) on 3.5.2010 along with the
requisite Power of Attorney. However, petitioner No.1 was informed
vide letter dated 21.6.2010 that its bid had been declared non-
responsive and that 5 per cent of the Bid Security Amount was liable
to be forfeited in terms of Clause 2.20.7(a) of the RFP. The reason
for declaration of the bid of the Petitioners as non-responsive was
stated to be a defect in the Power of Attorney which is an
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authorization to present the bid. The Power of Attorney was stated
not to be in conformity with the RFP. The Power of Attorney
authorizing one of the members of the consortium as Lead Member
by the other was stated not to be signed by all members of the
consortium as mandated by the RFP.
4. The aforesaid position was disputed by the petitioners vide their letter
dated 1.7.2010 informing that a proper Power of Attorney was
executed in the prescribed format and this was the same Power of
Attorney which had been submitted with the RFQ at which stage no
objection had been raised. Petitioner No.3 had executed the Power of
Attorney in favour of petitioner No.2 as Lead Member and thus there
was no necessity of petitioner No.2 to have signed the Power of
Attorney, as the Principal could not appoint itself. This issue is
stated to have been referred to the Technical Committee for further
consideration when the petitioners were called for their oral
submissions. The petitioners made written as well as oral
submissions before the Technical Committee.
5. The decision of respondent No.1 was communicated only vide letter
dated 28.9.2010 that the Technical Committee upheld the decision to
declare the bid of petitioner No.1 as non-responsive and also upheld
the right of respondent No.1/NHAI to forfeit 5 per cent of the Bid
Security Amount as per clause 2.20.7 of the RFP and the failure to
deposit the said amount within a period of seven (7) days from the
date of issuance of the letter would result in respondent No.1 being
constrained to encash the bank guarantee for the Bid Security
Amount to the extent of the required amount equals to `89.30 lakh.
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6. In view of the aforesaid threatened action of respondent No.1, the
petitioners preferred the present writ petition under Article 226 of the
Constitution of India. The petition was listed for the first time on
6.10.2010 when it was admitted for hearing. The writ petition was
accompanied by an application for interlocutory relief, which was
disposed of on the same date by a reasoned order. The counsel for
the petitioners at that stage submitted that in view of the conduct of
respondent No.1/NHAI, the petitioners were only interested in
release of the bank guarantee given as Bid Security Amount, which
was sought to be invoked by respondent No.1/NHAI. This Court
restrained respondent No.1/NHAI from invoking the bank guarantee
in respect of the contract in question or from forfeiting and
appropriating the Bid Security Amount of the petitioners till the final
decision in the writ petition. On an application filed by respondent
No.1/NHAI an agreed order was passed on 29.10.2010 that the bank
guarantee dated 13.1.2010 would be kept alive by the petitioners to
the extent of the demand, which is stated to be 5 per cent of the bank
guarantee amount, but in case the petitioners succeed in the writ
petition, the question of reimbursement to the petitioners of charges
for the bank guarantee would be examined by the Court at the final
hearing stage.
7. In the counter affidavit filed by respondent No.1/NHAI, a
preliminary objection was taken about the Power of Attorney on the
basis of which the writ petition had been filed. In order to obviate the
stated defect, the petitioners sought to file an additional document
being a Special Power of Attorney, which was duly filed.
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8. In the aforesaid factual matrix two questions arise for consideration:
i. Whether the Power of Attorney submitted by the
petitioners was defective and/or alleged defect was of such
a nature which could be termed as a technical irregularity
or was it fatal to the bid?; and
ii. Whether respondent No.1 were entitled to encash the bank
guarantee for the bid security amount treating the bid of
the petitioner as non-responsive and/or whether the clauses
contained in the RFP in this behalf can be said to be
unconscionable or penal?
9. In order to appreciate the controversy it would be appropriate to
examine some of the relevant clauses of the RFP. The RFP contains
in the second chapter „Instructions to Bidders‟ where Part A contains
general instructions. Clause 2.1 deals with „general terms of
bidding‟. The relevant clauses dealing with the bid security amount
are clauses 2.1.7 to 2.1.10, which read as under:
"2.1.7 The Bidder shall deposit a Bid Security of `16.78 Crores
(Rupees Sixteen Crores and Seventy Eight Lakhs Only) in
accordance with the provisions of this RFP. The Bidder has the
option to provide the Bid Security either as a Demand Draft or
in the form of a Bank Guarantee acceptable to the Authority, as
per format at Appendix-II.
2.1.8 The validity period of the Bank Guarantee or Demand
Draft, as the case may be, shall not be less than 180 (one
hundred and eighty) days from the Bid Due Date, inclusive of a
claim period of 60 (sixty) days, and may be extended as may be
mutually agreed between the Authority and the Bidder. The Bid
shall be summarily rejected if it is not accompanied by the Bid
Security. The Bid Security shall be refundable no later than 60
(sixty) days from the Bid Due Date except in the case of the
Selected Bidder whose Bid Security shall be retained till it has
provided a Performance Security under the Concession
Agreement.
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2.1.9 The Bidder should submit a Power of Attorney as per the
format at Appendix-III, authorizing the signatory of the Bid to
commit the Bidder.
2.1.10 In case the Bidder is a Consortium, the Members thereof
should furnish a Power of Attorney in favour of the Lead
Member in the format at Appendix-IV."
10. Part B of Chapter 2 deals with „documents‟. Clause 2.7.1 includes
as appendices inter alia the format of the Power of Attorney for
signing of bid. The forfeiture of Bid Security Amount is dealt with in
Part D of Chapter 2. The relevant clauses of which are as under:
"D. BID SECURITY
2.20 Bid Security
2.20.1 The Bidder shall furnish as part of its Bid, a Bid Security
referred to in Clauses 2.1.7 and 2.1.8 hereinabove in the form of
a bank guarantee issued by a nationalized bank or a Scheduled
Bank in India having a net worth of at least `1,000 crore (` One
thousand crore), in favour of the Authority in the format at
Appendix-II (the "Bank Guarantee") and having a validity
period of not less than 180 (one hundred eighty) days from the
Bid Due Date, inclusive of a claim period of 60 (sixty) days, and
may be extended as may be mutually agreed between the
Authority and the Bidder from time to time. In case the Bank
Guarantee is issued by a foreign bank outside India,
confirmation of the same by any nationalized bank in India is
required. For the avoidance of doubt, Scheduled Bank shall
mean a bank as defined under Section 2(e) of the Reserve Bank
of India Act, 1934.
.... .... .... .... .... .... .... .... ....
2.20.6 The Authority shall be entitled to forfeit and
appropriate the Bid Security as Damages inter alia in any of
the events specified in Clause 2.20.7 herein below. The
Bidder, by submitting its Bidding pursuant to this RFP, shall
be deemed to have acknowledged and confirmed that the
Authority will suffer loss and damage on account of
withdrawal of its Bid or for any other default by the Bidder
during the period of Bid validity as specified in this RFP. No
relaxation of any kind on Bid Security shall be given to any
Bidder.
2.20.7 The Bid Security shall be forfeited and appropriated by
the Authority as mutually agreed genuine pre-estimated
compensation and damages payable to the Authority for, inter
alia¸ time cost and effort of the Authority without prejudice
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to any other right or remedy that may be available to the
Authority thereunder, or otherwise, under the following
conditions:
(a) If a Bidder submits a non-responsive Bid;
Subject however that in the event of encashment of
Bid Security occurring due to operation of para 2.20.7
(a), the damage so claimed by the Authority shall be
restricted to 5% of the value of the Bid Security.
(b) ....
(c) ....
(d) ....
(e) ...."
11. The evaluation of the bids is dealt with in Part 3. Clause 3.2 deals
with the Tests of responsiveness of the bid and the relevant clause
reads as under:
"3.2 Tests of responsiveness
3.2.1 Prior to evaluation of Bids, the Authority shall determine
whether each Bid is responsive to the requirements of this RFP.
A Bid shall be considered responsive if:
.... .... .... .... .... .... .... .... ....
(e) it is accompanied by the Power(s) of Attorney as
specified in Clauses 2.1.9 and 2.1.10, as the case may be;
.... .... .... .... .... .... .... .... ....
3.2.2 The Authority reserves the right to reject any Bid which
is non-responsive and no request for alteration, modification,
substitution or withdrawal shall be entertained by the Authority
in respect of such Bid."
12. Para 5 deals with „Pre-Bid Conference‟ and the same reads as under:
"5. PRE-BID CONFERENCE
5.1 Pre-Bid conferences of the Bidders shall be convened at the
designated date, time and place. Only those persons who have
purchased the RFP document shall be allowed to participate in the
Pre-Bid Conferences. A maximum of five representatives of each
Bidder shall be allowed to participate on production of authority
letter from the Bidder.
5.2 During the course of Pre-Bid conference(s), the Bidders
will be free to seek clarifications and make suggestions for
consideration of the Authority. The Authority shall endeavour to
provide clarifications and such further information as it may, in its
sole discretion, consider appropriate for facilitating a fair,
transparent and competitive Bidding Process."
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13. We have already noticed above that Appendix IV gives the format of
the Power of Attorney for a Lead Member of the consortium as per
clause 2.1.10. Since the controversy revolves around this Power of
Attorney, we consider it appropriate to reproduce the format of the
same:
"APPENDIX IV
Power of Attorney for Lead Member of Consortium
(Refer Clause 2.1.10)
Whereas the National Highways Authority of India ("the
Authority") has invited bids from pre-qualified and short-listed
parties for the Six laning of Tumkur-Chitradurga (Excluding
Tumkur-Chitradurga Byepasses) section from Km75.00 to Km
189.00 of NH-4 (approx. 114.00 km) in the State of Karnataka to
be executed as BOT (Toll) project of DBFOT Pattern under NHDP
Phase V Project (the "Project").
Whereas, _______________, ______________ and
_____________ (collectively the "Consortium") being Members of
the Consortium are interested in bidding for the Project in
accordance with the terms and conditions of the Request for
Proposal (RFP)and other connected documents in respect of the
Project, and
Whereas, it is necessary for the Members of the Consortium to
designate one of them as the Lead Member with all necessary
power and authority to do for and on behalf of the Consortium, all
acts, deeds and things as may be necessary in connection with the
Consortium‟s bid for the Project and its execution.
NOW THEREFORE KNOW ALL MEN BY THESE PRESENTS
We, .......................... having our registered office at
.........................., M/s. .......................... having our
registered office at .........................., and
M/s.......................... having our registered office at
.........................., (hereinafter collectively referred to as the
"Principals") do hereby irrevocably designate, nominate,
constitute, appoint and authorise M/s .......................... having
its registered office at .........................., being one of the
Members of the Consortium, as the Lead Member and true and
lawful attorney of the Consortium (hereinafter referred to as the
"Attorney") and hereby irrevocably authorise the Attorney (with
power to sub-delegate) to conduct all business for and on behalf of
the Consortium and any one of us during the bidding process and,
in the event the Consortium is awarded the concession/contract,
during the execution of the Project and in this regard, to do on our
behalf and on behalf of the Consortium, all or any of such acts,
deeds or things as are necessary or required or incidental to the
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submission of its bid for the Project, including but not limited to
signing and submission of all applications, bids and other
documents and writings, except the Letter of Award participate in
bidders‟ and other conferences, respond to queries, submit
information/documents, sign and execute contracts and
undertakings consequent to acceptance of the bid of the
Consortium and generally to represent the Consortium in all its
dealings with the Authority, and/ or any other Government Agency
or any person, in all matters in connection with or relating to or
arising out of the Consortium‟s bid for the Project and/or upon
award thereof till the Concession Agreement is entered into with
the Authority.
AND hereby agree to ratify and confirm and do hereby ratify and
confirm all acts, deeds and things done or caused to be done by our
said Attorney pursuant to and in exercise of the powers conferred
by this Power of Attorney and that all acts, deeds and things done
by our said Attorney in exercise of the powers hereby conferred
shall and shall always be deemed to have been done by us/
Consortium.
IN WITNESS WHEREOF WE THE PRINCIPALS ABOVE
NAMED HAVE EXECUTED THIS POWER OF ATTORNEY
ON THIS ...................... DAY OF ..........20.....
For ................. (Signature, Name & Title)
For ................. (Signature, Name & Title)
For ................. (Signature, Name & Title)
(Executants) (To be executed by all the Members of
the Consortium)
Witnesses:
Notes:
The mode of execution of the Power of Attorney should be in
accordance with the procedure, if any, laid down by the applicable
law and the charter documents of the executant(s) and when it is so
required, the same should be under common seal affixed in
accordance with the required procedure.
Wherever required, the Bidder should submit for verification the
extract of the charter documents and documents such as a board
or shareholders resolution/power of attorney in favour of the
person executing this Power of Attorney for the delegation of
power hereunder on behalf of the Bidder.
_____________________________________________________________________________________________
For a Power of Attorney executed and issued overseas, the
document will also have to be legalised by the Indian Embassy and
notarised in the jurisdiction where the Power of Attorney is being
issued. However, the Power of Attorney provided by Bidders from
countries that have signed the Hague Legislation Convention,
1961 are not required to be legalized by the Indian Embassy if it
carries a conforming Appostille certificate"
14. The bid has to be accompanied by a declaration in the form provided
in Appendix-I of the „letter comprising the Bid‟ and contains the
following relevant clauses:
"7. I/We declare that:
(a) I/We have examined and have no reservations to the
Bidding Documents, including any Addendum issued by the
Authority; and
(b) ....
(c) ....
(d) ....
(e) ....
8. I/We understand that you may cancel the Bidding
Process at any time and that you are neither bound to accept any
Bid that you may receive not to invite the Bidders to Bid for the
Project, without incurring any liability to the Bidders, in
accordance with Clause 2.16 of the RFP document."
15. In view of the aforesaid clauses, we now proceed to examine the rival
contentions:
The validity of Power of Attorney:
16. The Power of Attorney submitted with the bid of the petitioners has
been placed on record. There is no dispute that it is in the proper
format as per Appendix IV. It is also relevant to note that as per
Clause 2.1.10 if the bidder is a consortium the members thereof are
required to furnish a Power of Attorney "in favour of the Lead
Member" as per Appendix-IV. The manner of wording of the Power
of Attorney also shows that other members of the consortium whose
description are given and are collectively called as the „Principals‟
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irrevocably designate, nominate, constitute, appoint and authorize
one of the members of the consortium whose description is given
therein as the Lead Member to be true and lawful attorney. Thus, it
is in the nature of a unilateral document by one set of consortium
members in favour of the Lead Member. In the present case the Lead
Member is petitioner No.2. The Power of Attorney was executed by
petitioner No.3 in favour of petitioner No.2, there being only two
members of the consortium. At the designated place where
Executants have to sign the expression used is "(Executants) (To be
executed by all the Members of the Consortium)".
17. The aforesaid is the bone of controversy as it is the plea of
respondent No.1 that both the consortium members being petitioners
2 & 3 which include petitioner No.2 as the Lead Members ought to
have appended their signatures at this point. On the other hand the
submission on behalf of the petitioners is that when the phraseology
"Executants" is given and the document is a unilateral one in favour
of the Lead Member, it can only be signed by all members of the
consortium excluding the Lead Member as the alternative would be
an absurdity where the Lead Member would be authorizing itself.
18. Learned counsel for the petitioners has also drawn our attention to the
Power of Attorney Act, 1882 where the Definition clause Section 1A
reads as under:
"[1A Definition. - In this Act, "power of attorney" includes
any instrument empowering a specified person to act for and
in the name of the person executing it.]"
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19. It is, thus, submitted that in the present case it is an instrument
empowering petitioner No.2 to act for and in the name of executing
party, petitioner No.3.
20. On examination of the rival contentions, we are in complete
agreement with the submissions made on behalf of the petitioners. If
we may say so, the stand of respondent No.1/NHAI borders on
absurdity. The purpose of the Power of Attorney is to authorize a
person to submit the bid so that the bidder is bound by the bid. Not
only that, considerable money is spent even to purchase RFP which
itself shows the seriousness in the bid, which is a sum of `1.80 lakh
in the present case. The RFP was to be submitted along with the Bid
Security Amount which in the present case is `16.78 crore. There
can, thus, be no lack of seriousness on the part of the party submitting
the bid.
21. The RFP gives the format to be filled in by respective parties. The
RFP is preceded by the RFQ which analyses the competency of a
party which makes the RFP. The petitioners have explained that in
the RFQ, in the same very format the Power of Attorney signed only
by petitioner No.3 in favour of petitioner No.2 was submitted and the
RFQ was processed which ultimately resulted in the eligibility of
petitioner No.1 to submit the RFP.
22. The Power of Attorney in the present case has to be examined in
terms of the format prescribed by respondent No.1. The Power of
Attorney to be executed is by one set of persons in favour of other
person. The first set of persons are the members of the consortium
other than the Lead Member. The Lead Member nominated is the
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second set of person in whose favour the first set of persons execute
the documents. It is the first set of persons who are "Executants". At
the end of the Power of Attorney it is to be signed by the Executants.
This aspect is clarified by stating that it has to be signed by all
members of the consortium. The second part, i.e. "(to be executed by
all members of the consortium)" has to be understood in the context
of the first phrase "(Executants)". Any other interpretation would be
an absurdity. Thus, all consortium members must execute the
documents in favour of the Lead Member.
23. In the present case there are only two consortium members and thus
one member has executed the Power of Attorney in favour of the
other member, i.e. the Lead Member.
24. We have to also keep in mind the notes given at the base of the
format of the Power of Attorney which prescribe that the mode of
execution of the Power of Attorney should be in accordance with the
procedure, if any, laid down by the applicable law. It is in this
context that the Power of Attorney Act has been referred to aforesaid.
25. The petitioners had given elaborate written submissions before the
Technical Committee which dealt with all aspects in question. It had
been pointed out that even in the RFQ Clause 2.2.6(c) prescribed
Power of Attorney as per format to be signed by all other members of
the consortium, i.e. other than the Lead Member. This RFQ
submitted on behalf of the petitioners had been scrutinized by the
concerned authorities.
26. A factual aspect pointed out in the present case that the members of
the consortium had entered into a Joint Bidding Agreement dated
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28.1.2010 under clause 2.2.6(g) of the RFQ whereby petitioner No.2
was a Lead Member and therefore as per Section 1A of the Power of
Attorney Act was an agent/attorney of petitioner No.3. There was, in
fact, no need to execute a Power of Attorney but that being the
format provided for by respondent No.1, it was duly completed.
27. We have no hesitation in concluding that the Power of Attorney was
executed in a proper format and in a proper manner as prescribed in
law and as required by the terms of the RFP. The wordings
immediately following "NOW, THEREFORE, KNOW ALL, MEN
BY THESE PRESENTS" uses the word "We". However, the word
"We" is used in the context of multiple members of consortium
whose names have to be set out who in turn appoint as per the format
one of the members of the consortium as the Lead Member whose
name had to be given thereafter. It cannot be that after "We" the
name of the Lead Member is also to be given and then while
authorizing the Lead Member the name is again to be given as the
Lead Member would not nominate itself.
28. We may notice that in Poddar Steel Corporation Vs. Ganesh
Engineering Works & Ors. (1991) 3 SCC 273 it was held that
deviations from non-essential or ancillary/subsidiary requirement
being a minor technical irregularity can be waived. In the present
case, however, there is not even a minor technical irregularity which
can be stated to arise.
29. The declaration of the bid of the petitioners as non-responsive on the
aforesaid ground is, thus, completely illegal and set aside. However,
the petitioners did not claim a right to award of the contract on the
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first date of hearing itself. Thus, the only question is the ramification
of the same on the demand of 5 per cent of the Bid Security Amount
on account of the bid of the petitioners having been declared as non-
responsive which would certainly not arise in view of our finding that
the bid is responsive.
Forfeiture of Bank Guarantee:
30. We have already held that the bid is responsive and thus there is no
question of forfeiture of the Bid Security Amount. We may,
however, notice that submissions were advanced by parties as to why
even if the bid of the petitioners is treated as non-responsive on
account of the Power of Attorney the Bid Security Amount was not
liable to be forfeited. This was, in fact, a common question involved
in three writ petitions filed against respondent No.1 in which
arguments took place on the same date. We have separately
pronounced an order in WP (C) No.8418/2010 where we have dealt
with this issue. We do not want to record a discussion on this aspect
and consider it appropriate to extract our discussion and finding on
this aspect as contained in WP (C) No.8418/2010 as under:
"50. Learned counsel for respondent No.1 submitted that
the bid security amount was a specific term of the RFP clause
2.1.7. Respondent No.1 was entitled to forfeit and
appropriate damages inter alia in the event specified in Clause
2.20.7 in view of what is set out in clause 2.20.6. The said
clause also provides that the bidder is deemed to have
acknowledged and confirmed that the authority will suffer
loss and damage on account of withdrawal of its bid or for
any other default by the bidder during the period of bid
validity as specified in the RFP. Clause 2.20.7 states that the
amount is mutually agreed genuine pre-estimated
compensation and damages payable to the authority for inter
alia time cost and effort of the Authority. The conditions
under which it applies includes where a bid is a non-
responsive bid. However, as per the latter part of sub-clause
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(a) of clause 2.20.7 if the bid is a non-responsive bid, the
damages are restricted to 5 per cent of the value of the bid
security. The question, thus, arises whether in case of a non-
responsive bid could it be said that 5 per cent of the value of
the bid security was the genuine pre-estimate of damages?
51. It must be borne in mind that the stage for submission
of the RFP is the second stage in the tendering process. There
is an earlier scrutiny in pursuance of the RFQ submitted by
the parties in terms whereof certain parties are enlisted for
submitting the RFP. At the stage of the RFP a sum of `3.00
lakh is paid to procure the documents. This amount cannot be
the cost of the form but is really a pre-estimated cost of
processing the RFP. A non-responsive bid is one where at the
threshold on the opening of the bid it is found to be defective
on one account or the other and is, thus, shut out from the
process of scrutiny. This can have no co-relation with the
value of the bid which would be the eventuality even if 5 per
cent of the bid amount is encashed.
52. Learned counsel for respondent No.1 sought to
canvass that the objective is to prevent non-serious persons
from submitting the bids. This, in our considered view, is
taken care of by charging an amount for purchase of RFP
documents and in other eventualities of say a party backing
out, the bid security amount being forfeited. The occasion for
non-responsive bid would only be a defect in submission of
the RFP.
53. Learned counsel for respondent No.1 could not
seriously dispute that the amount really is in the nature of a
penalty. If it is so it cannot be said to be a reasonable pre-
estimate of damages and the parties suffering losses must
prove that it is suffering damages to that extent. We are of
the view that there is hardly any quibble over the settled legal
position in this behalf. Suffice it to say that in Maula Bux Vs.
Union of India AIR 1970 SC 1955 the scope and ambit of
Section 74 of the Contract Act, 1872 (hereinafter referred to
as the „Contract Act‟) was discussed. It was observed that if
the forfeiture of earnest money is in the nature of penalty
Section 74 of the Contract Act would apply. In such a case
proof of actual loss or damage would be essential. However,
if the forfeiture amount is reasonable pre-estimate, it would
not fall within Section 74 of the Contract Act. The legal
position in this behalf has not changed. Section 74 of the
Contract Act reads as under:
"74- Compensation for breach of contract where
penalty stipulated for- [When a contract has been broken,
if a sum is named in the contract as the amount to be paid
in case of such breach, or if the contract contains any other
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stipulation by way of penalty, the party complaining of the
breach is entitled, whether or not actual damage or loss is
proved to have been caused thereby, to receive from the
party who has broken the contract reasonable compensation
not exceeding the amount so named or, as the case may be,
the penalty stipulated for."
54. The 5 per cent of the bid security amount would be
`73.95 lakh approx. This cannot be said to be the charges for
processing the bids. That charge, in fact, already stands
recovered which had been pre-estimated at `3.00 lakh for
purchase of the RFP document.
55. We have no hesitation to hold that the aforementioned
clause permitting 5 per cent bid security amount to be
forfeited in case of a non-responsive bid is clearly penal in
nature and thus provisions of Section 74 of the Contract Act
would apply. It cannot be categorized as a reasonable pre-
estimate of damages for a non-responsive bid and thus the
bank guarantee for 5 per cent of the bid amount cannot be
encashed in such an eventuality.
56. Thus, even on the second issue we are of the view that
even if the bid was non-responsive, the 5 per cent of the bid
security amount could not have been forfeited."
31. The result of the aforesaid is, thus, the same even in the present case.
Conclusion:
32. We are, thus, of the view that the RFP submitted by the petitioners
being responsive as also by reason of our finding that there could not
have been forfeiture of the Bid Security Amount to the extent of 5 per
cent, the action of respondent No.1 in seeking to demand the said
amount and threatening to forfeit the bank guarantee in default of the
same is illegal and all communications addressed in this behalf by
respondent No.1 are accordingly quashed.
33. We had already observed in our order dated 29.10.2010 that if the
petitioners succeed in the writ petition cost of keeping the bank
guarantee alive to the extent of 5 per cent of the bank guarantee
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amount for a further period would be liable to be reimbursed to the
petitioners by respondent No.1. We, thus, permit the petitioners to
obtain a certificate from their bankers for bank guarantee charges in
this behalf and to forward the same to respondent No.1 for
reimbursement within a period of fifteen (15) days of receipt of the
same. The bank guarantee would stand discharged forthwith.
34. The writ petition is allowed in the aforesaid terms.
35. We had asked the parties to file their bill of fee & costs. The amount
stated by the petitioners is `6.00 lakh while respondent No.1 has filed
a total bill of `1,24,100.00. In view of what we consider as
absolutely illegal and unreasonable stand of respondent No.1 and
taking into consideration the nature of controversy, we grant actual
costs to the petitioners of `6.00 lakh to be reimbursed by respondent
No.1.
SANJAY KISHAN KAUL, J.
MARCH 10, 2011 RAJIV SHAKDHER, J.
b'nesh
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