M/s. S. Kumar''s Associates AKM(JV) vs South Eastern Coalfields Ltd. and Others

The main point involved in this writ petition is, whether there was contract between the parties so as to attract general terms and conditions applicable to a contract. The aforesaid point arises in this case that challenges the recovery notice/order dated 16-7-2010, issued by the South Eastern Coalfields Ltd., Bhatgaon, District Surguja (the SECL) to M/s. S. Kumar''s Associates AKM (JV) (the petitioner) requiring it to deposit an amount of Rs. 78,07,573/- being the difference in getting the alleged remaining work completed.

The Facts:

The SECL invited tenders on 23-6-2009 for removal of overburden. The petitioner was the successful bidder and a letter of intent was issued to it on 5-10-2009.

In pursuance of the letter of intent, the petitioner was also required to deposit the performance security and security deposit. It neither deposited the performance security nor the security deposit as it was not in a position to carry out the work.

The SECL issued fresh advertisement inviting tenders for removal of over-burden on 27-1-2010 and the contract was given to some other bidder.

Subsequently, the SECL issued the recovery letter dated 16-7-2010 for a sum of Rs. 78,07,573/- against the petitioner being the extra amount of money that the SECL had to pay to the subsequent contractor for non-performance the work allotted to the petitioner. Hence, the present writ petition.

Points for Determination:

We have heard Counsel for the parties. The following points arise for determination:--

(i) Whether there was any completed contract between the parties;

(ii) In case the answer to the aforesaid question is in the negative, then whether the petitioner is liable to pay any amount of damages.

1st Point: There was no contract

The SECL is justifying its recovery on the basis of condition number 9.2 (attached herewith as Appendix-I) of the general terms and conditions of a contract.

The general terms and conditions of a contract apply in a case where there is a contract. In case, there was a contract between the parties then condition number 9.2 (see Appendix-I) is applicable and the recovery is valid. But, the question is, was there any completed contract between the parties.

The Notice Inviting Tenders (the NIT) contains terms and conditions. It also provide as to when a contract between the parties comes into existence. In this regard Clause Nos. 29.1.29.2 and 30.2 (attached herewith as Appendix-II) are relevant.

Clause 29.1 of NIT (see Appendix-II) provides that the successful bidders are to be notified of the award. The registered letter of this communication is the letter of acceptance. It indicates the amount to be paid by the SECL on completion of a contract.

Clause 29.2 of the NIT states,--

The notification of award will constitute the formation of Contract, subject only to the furnishing of a Performance Security/Security Deposit in accordance with Clause 30.

Section 7 of the Indian Contract Act, 1872 (the Act) is titled "Acceptance must be absolute". It provides that the acceptance must be absolute and unqualified.

In the present case, the acceptance was subject to furnishing Performance Security/Security Deposit. It was not absolute. The contract could be formed, if the successful bidder had provided performance security and the security deposit in terms of Clause 30 of the NIT.

Clause 30.2 of NIT (see Appendix-II) provides as to what would be the amount of Performance Security and in what form it is to be deposited. The last paragraph of Clause 30.2 of the NIT is as follows:--

Failure of the successful bidder to comply with the requirement as above (failure to deposit Performance Security) shall constitute sufficient ground for cancellation of the award of work and forfeiture of the bid security.

The relevant point to note is that Clause 30.2. of the NIT provides cancellation of the award and not the contract, as consequence of failure to deposit Performance Security. This shows that no contract comes into existence till Performance Security is deposited.

In our opinion,--

(i) No contract came into existence between the parties, as the Performance Security was not deposited;

(ii) Condition Number 9.2 of the general terms and the conditions is not applicable in the present case.

2nd Point: Only Bid Security can be forfeited

The last paragraph of Clause 30.2 of the NIT (see Appendix-II) also provides consequences of non-deposit of Performance Security. It states that the failure of the successful bidder to deposit Performance Security "......shall constitute sufficient ground for......forfeiture of the Bid Security".

In view of above, only Bid Security of the petitioner could be forfeited by the SECL.

Conclusions

Our conclusions are as follows:--

(a) The petitioner had neither deposited the Performance Security nor Security Deposit. Thus, there was no completed contract between the parties. The general terms and conditions were not applicable;

(b) In view of the last paragraph of Clause 30.2 of the Notice Inviting Tenders, only Bid Security could be forfeited.

In view of our conclusions, the order/letter dated 16-7-2010 for recovery of the difference is illegal and is set aside.

In this case, in pursuance of the interim order dated 4-8-2010, an amount of Rs. 10,00,000/- was deposited by the petitioner with the SECL. It may be returned to the petitioner after deducting the Bid Security amount.

The amount may be returned after the deduction within one month from the date of production of a certified copy of this order on the Chief General Manager, South Eastern Coalfields Ltd., Bhatgaon, District Surguja (respondent No. 2 to this writ petition). In case of failure to do so, there will be liability to pay interest @ 6% on the amount from the expiry of the period previously mentioned.

With the aforesaid observations, the writ petition is allowed.

APPENDIX-I

Clause No. 9.2 of the general terms and conditions of a contract is as follows:--

9.2. On cancellation of the contract or on termination of the contractor, the Engineer-in-Charge shall have powers--

(a) to carry out the incomplete work by any means at the risk of the contractor.

(b) to determine the amount to be recovered from the contractor for completing the remaining work or in the event the remaining work is not to do be completed the loss/damage suffered, if any, by the company after giving credit for the value of the work executed by the contractor up to the time of cancellation less on a/c payment made till date and value of contractor''s materials, plant, equipment etc. taken possession of after cancellation.

(c) to recover the amount determined as above, if any, from any money due to the contractor or any account or under any other contract and in the event of any shortfall, the contractor shall be called upon to pay the same on demand.

The need for determination of the amount of recovery of any extra cost/ expenditure or of any loss/damage suffered by the company shall not however, arise in the case of termination of the contract for death/demise of the contractor as stated in 9.1 (d).

APPENDIX-II

Clause Nos. 29.1, 29.2 and 30.2 of the Notice Inviting Tenders are as follow:--

29.1. The Bidder, whose Bid has been accepted, will be notified of the award by the employer prior to expiration of the Bid validity period by cable, telex, or facsimile confirmed by registered letter. This letter (hereinafter and in Conditions of Contract called the "Letter of Acceptance") will state the sum that the employer will pay the contractor in consideration of the execution and completion of the works by the contractor as prescribed by the contract (hereinafter and in the contract called "the Contract Price").

29.2. The notification of award will constitute the formation of contract, subject only to the furnishing of a Performance Security/Security Deposit in accordance with Clause 30.

*** **** **** ***** *****

30.2. Performance Security should be 5% of annualised value of contract amount and should be submitted within 28 days of receipt of LOA by the successful bidders in any of the form given below:--

-- A Bank Guarantee in the form given in the bid document.

-- Govt. Securities, FDR or any other form of deposit stipulated by the owner.

-- Demand Draft drawn in favour of South Eastern Coalfields Ltd., on any Scheduled Bank payable at its Branch at......

The bid security deposited in the form of Bank Guarantee shall be duly discharged and returned to the contractor. The bid security deposited in the form of Demand Draft shall be adjusted against the initial Security Deposit.

If the Performance Security is provided by the successful bidder in the form of Bank Guarantee it shall be issued either:--

(a) at bidder''s option by a nationalised/Scheduled Indian Bank; or

(b) by a foreign bank located in India and acceptable to the employer,

(c) the validity of the Bank Guarantee shall be for a period of one year or ninety days beyond the period of contract, whichever is more.

Failure of the successful bidder to comply with the requirement as above shall constitute sufficient ground for cancellation of the award of work and forfeiture of the bid security.