Legal Question in Business Law in India

21.02.2014

Dear Sir / Madam,

1 & 2. In National Highways Authority of India v. Ganga Enterprises1 (hereinafter �NHAI case�), the Supreme Court considered an interesting issue relating to invocation of bid security.2 The tender conditions required furnishing of bid security and forbid withdrawal of any bid for a specified period. A bidder, who had tendered for a contract, withdrew his bid prior to the period fixed under the tender and sought return of the bank guarantee submitted as bid security, on the principle that under the Indian Contract Act, 1872, he could withdraw an offer prior to acceptance without any punitive consequences � in this case invocation of the bank guarantee. The Supreme Court while reversing the judgment of the High Court that a person could withdraw the offer prior to acceptance without penal consequences, held as under: (SCC p. 416, para 9)

�9. � 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 rightunder the Indian Contract Act. � 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. � 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.�

Regards,