Sambar Rangpi vs Guwahati Municipal Corpn. and Another

J.N. Sarma, J.

These two writ applications raise same question of law and facts and as such they are taken up for hearing together.

Civil Rule No. 4299 has been filed for issue of a mandamus directing the Respondents to release the earnest money of Rs. 1,88,500/- along with interest thereof and with further prayer that the Clause Nos. 5 and 7 of the Notice Inviting Tender (Hereinafter called NTT) dt. 12.3.96 Annexure-No. 1 should be declared as illegal void unreasonable unfair and against the public conscience.

In Civil Rule No. 4326/96 the prayer has been made to release the earnest money of Rs. 85,000/- alongwith interest @ 10% and Clause No. 3 of Notice Inviting Tender (NIT), Annexure-1 should be declared as void, illegal, unreasonable, unfair and against the general public consience. Clause 3 is typing mistake, it should be Clause 5.

In Civil Rule No. 4299 the tender notice dt. 12.3.96 was issued by the Commissioner, Guwahati Municipal Corporation, Guwahati for settlement of checkgates under the Guwahati Municipal Corporation for the year 1996-97 and that tender notice is Annexure-1 of this writ application. Clauses 5, 6 and 7 which are relevant of that tender notice are quoted below:

Clause 5 : "Tender once submitted cannot be withdrawn under any circumstances, if any tenderer with draws his tender whatever may be the reasons the earnest deposited with me tender will be forfeited outright. Forfeited earnest money will not be released under any circumstances."

Clause : 6 "In general only highest and correct bid shall be accepted. However, the undersigned shall have the right to reject any or all tender without assigning any reason thereof."

Clause : 7 " The earnest money of unsuccessful tenderers shall be released only after completion of the lease settlement with the leassee�.

The Petitioner herein purchased the tender paper on 19.3.96 vide Annexure-3. On 20.3.96 tender paper was submitted and he quoted the value at Rs. 2.07,97,919/- and total earnest money was deposited by Four Banker''s Cheques as follows:

Cheque No. Date Amount ANX-3A 525501 19.3.96 Rs. 41,500/- ANX-4 525512 19.3.96 Rs. 49,000/- ANX-5 525520 19.3.96 Rs. 49,000/- ANX-6 525521 19.3.96 Rs. 49,000/- Total Rs. 1,88,500/- 5. On 29.3.96 i.e., before the communication of acceptance, the Petitioner made a prayer for withdrawal of the tender i.e., Annexure-7 to the writ application. That is quoted below:

With due respect I, Sri Sambar Rangpi, Guwahati have the honour to lay before your goodness following few lines:

Sir, I am a party to the tender for Khanapara Check Gate for the year 1996-97. I have quoted a sum of Rs. 2,07,97,919/- (Rupees two cror seven lacs ninety seven thousand nine hundred nineteen) only in response to your tender notice to run the said check gate for the year 1996-97. It is my hard luck that I am placed in 3rd position in the eligible list.

Under the above circumstances, I shall not be able to get the business of said check gate and as such I pray your honour kindly to let me withdraw my tender and consider sympathetically for the release of earnest money deposited.

Thanking you.

Thereafter, he made a prayer that the earnest money deposited by him may be released but in view of the Clause 5 quoted above in the tender notice that earnest money was forfeited. Hence, this writ for issue of a mandamus.

Civil Rule No. 4326/96. Here in this case the tender notice was invited on 12.3.96 for settlement of check gate by the Municipal Corporation for the year 1996-97. There is nothing in the tender notice in Clause 3 which requires interference by this Court. Sri Roy, learned Advocate for the Petitioner when confronted with this contention submits that this is a typing mistakes and it appears to be so in view of the settlement made in paragraph 4 of the writ application. There is no need to quote this clause again as that Clause has been quoted earlier in the other Civil Rule. The security deposit of Rs. 85,000/- which was deposited by Banker''s Cheque No. 525513 and 525514 dt. 19.3.96 and that was forfeited. In this case also vide Annexure-6 the offer was withdrawn on 29.3.96 and there was a prayer for release of the earnest money. This being not done, this writ application has been filed

I have heard Sri SP Roy, learned Advocate for the Petitioner and Mr. SN Sarma, learned Standing Counsel for the Guwahati Municipal Corporation. Mr. Roy makes the following submissions:

i. That Clauses 5, 6 and 7 of the Notice Inviting Tender quoted above are unfair, unreasonable, unjustified and it is against the provisions of the Contract Act and as such it is to be declared as illegal and void.

ii. That as per Section 5 and 6 of the Indian Contract Act, a proposal may be revoked at any time before the communication of acceptance is completed as against the proposal but not afterwards.

iii. That a tenderer can withdraw his tender before he finally accepts all the award of the supply order even if there is a Clause in tender restricting his right to withdraw.

iv. That if a bid is withdrawn, the earnest amount cannot be forfeited.

v. That even when earnest money is forfeited in case of breach courts have to direct for reasonable compensation to which the party would be entitled to in the event of such a breach to the tune of loss suffered by the party.

Mr. S.N. Sarma, Learned Standing Counsel appearing on behalf of the Guwahati Municipal Corporation, on the other hand, makes the following submissions:

i. That the terms of invitation of the tender cannot be open to judicial scrutiny because the invitation of tender is in the realm of contract.

ii. That the Petitioner has waived this right to seek the refund of the earnest money in view of the fact that he submitted the tender knowing fully well that there was such a clause of forfeiture and while submitting the tender he gave the following declaration which is available at the back of Annexure-2. The declaration reads as follows:

I have gone through the terms and conditions of settlement of Checkgate...

Sri Sarma submits that by accepting this declaration, the Petitioner waived his right.

iii. That there is no proper pleading regarding the prayer to stir down the Clauses 5 and 7 as quoted above.

iv. That the Petitioner cannot have a remedy in the writ jurisdiction and he must go to the Civil Court to seek his remedy.

Let us take up the points urged by Sri Roy, Learned Advocate for the Petitioner.

An unconscionable bargain is a transaction or a contract which is unreasonable, shockingly unfair or unjust and outrageous in nature. This aspect of the matter came up for consideration in AIR 1987 SC Page 1257 K.P. Subbarama Sastri and Ors. v. K.S. Raghavan and Ors. There the Supreme Court approved the Full Bench Decision of the Kerala High Court in paragraph 6 held as follows:

The question whether a particular stipulation in a contractual agreement is in the nature of a penalty has to be determined by the court against the background of various relevant factors, such as the character of the transaction and its special nature, if any, the relative situation of the parties, the rights and obligations accruing from such a transaction under the general law and the intention of the parties in incorporating in the contract the particular stipulation which is contended to be penal in nature. If on such a comprehensive consideration, the court finds that the real purpose for which the stipulation was incorporated in the contract was that by reason of its burdensome or oppressive character it may operate in terrorem over the promiser so as to drive him to fulfil the contract, men the provision will be held to be one by way of penalty.

The Supreme Court has pointed out that if such a stipulation runs against the general law, the particular stipulation will be deemed to be penal in nature and it will be burdensome or oppressive in character and it may operate in terrorem over the promiser. In that case before the Supreme Court also certain money was forfeited on default to do certain things and the defence was taken that there was such a clause in the contract itself and as such this prayer for refund was not tenable. The Kerala High Court dismissed the appeal but the Supreme Court allowed the appeal and gave the refund. It is on this background we must consider the question of Clause 5 and 7. Clause 5 as will be evident provides that tender once submitted cannot be withdrawn under any circumstances and if he withdraws the tender the earnest money deposited with the tender will be forfeited outright. This is against the Principle of Contract. A tenderer always has a right to withdraw the tender. The clause that a tender once submitted cannot be withdrawn if that is allowed to hold the field it will create a chaotic situation. Let us assume a case where a person submits a tender and thereafter he faces some circumstances whereby he is unable to do the contract and he withdraws it. He may suffer from some ailment which may disable him from doing the contract and as such in such a situation if the tender cannot be withdrawn, it will be against the tenor of contract Act. In this connection Sri Roy places reliance on the following decisions.

Kirloskar Pneumatic Co. Ltd Vs. National Thermal Power Corporation Ltd. and another, There the Single Judge of the Bombay High Court in paragraph 8 has pointed out that tender notice is not offer. The advertisement issued under the caption inviting a bid is generally an invitation to treat or offer to negotiate or an offer to receive offers or an offer and in paragraph 8 the law has been laid down as follows:

Tender or a Contractor:

In response to the NIT when contractors offer their bids or tenders, the promisor is only offering a bid. This bid can ripen into a contract if it is accepted. But till such an acceptance is formally communicated to the promisor it is open to him to withdraw his bid. (See Section 6-Contract Act); "Williston on Contract''. 60B. Says:

The offerer may see me approach of the offeree and know that an acceptance is contemplated. If the offerer can say ''I revoke ''before the offeree accepts, however brief the interval of time between the two acts, there is no escape from the conclusion that the offer is terminated.

I respectfully agree with this decision in as much as this is in consonance with the principle of the Contract Act and there cannot be any clause like Clause 5 in a tender notice in violation/in derogation of the Contract Act.

ii. Next case relied on is Rajendra Kumar Verma Vs. State of Madhya Pradesh and Others, where the division of the Madhya Pradesh High Court pointed out that where in pursuance of tender notice the Petitioner had given his tender but have withdrawn it before it was opened and accepted, held that when the tenders were opened there was no offer from the Petitioner and therefore, there could be no contract either express or implied between the parties. The Madhya Pradesh High Court further pointed out as follows:

A person who makes an offer is entitled to withdraw his offer or tender before its acceptance is intimated to him. The Government, by merely providing such a clause in tender notice could not take away that legal right of the Petitioner.

In that particular case, the Clause 10(b)(i) provides as follows:

A tender may be allowed to withdraw his tender of any unit of a division before the commencement of the opening of tenders of that division on the condition that on opening the remaining tenders, there should be at least one valid tender complete in all respects available for consideration.

A Division Bench of the Madhya Pradesh High Court pointed out that by inserting this clause the legal right of the Petitioner cannot be taken away. In that case also the person knew the clause and with his eyes open to the clause submitted the tender papers but inspite of it Division Bench of the Madhya Pradesh High Court held that such a declaration cannot take away the legal right of the Petitioner. I agree, with the reasoning of this decision of the Madhya Pradesh High Court. The next case is Variety Body Builders a partnership firm at Baroda Vs. The Union of India, Variety Body Builders a partnership firm at Baroda v. The Union of India That was a case for refund security deposit and the Single Judge pointed out that the amount can be forfeited only when the breach of contract occurs and results in a legal injury. Therefore, if a party wants to forfeit that amount or part of it the burden is upon it to show that necessary requirements for the forfeiture exist. That is not the case in hand. Here the question of suffering loss does not arise inasmuch as it is the admitted position that the estimated value of the checkgate by the corporation was Rs. 1,883,400/- and the checkgate was settled at a value of Rs. 1,89,99,925/- after the Petitioner withdrew his bid. So, the question of forfeiture in this case by resorting to Clause 5 appears to be unjust and improper.

Union of India (UOI) Vs. Rampur Distillery and Chemical Co., Ltd., wherein the Supreme Court pointed out that the party to a contract taking security deposit from the other party to ensure due performance of the contract is not entitled to forfeit the deposit on ground of default when no loss is caused to him in consequence of such default. The person in these two writ applications stands on a better footing inasmuch as it is not the security deposit but it is an earnest money.

Central Inland Water Transport Corporation Limited and Another Vs. Brojo Nath Ganguly and Another, wherein the Supreme Court pointed out interalia as follows:

that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power.

The Supreme Court further pointed out as follows:

Contract Act does not define the expression Public Policy or opposed to public policy. From the very nature of things, the expression public policy, opposed to public policy, contrary to public policy are incapable precise definition, but it connotes some matter which concern public good and the public interest.

Dutta Associates Pvt. Ltd. Vs. Indo Merchantiles Pvt. Ltd. and Others, . wherein the Supreme Court pointed out that while accepting the tender is the process is unfair and opposed to the norms to be followed in such a matters, the process can be struck down. This case does not help the Petitioner.

Mahabir Kishore and others Vs. State of Madhya Pradesh, This is a case based on Section 72 of the Contract Act and the Supreme Court pointed out that a person cannot be allowed to have unjust enrichment at the cost of the Plaintiff. Mr. Roy urges that the retention/forfeiture of the earnest money is nothing but unjust enrichment on the part of the Corporation and as such he is entitled to refund of the money.

The first point urged by Sri Sarma learned standing counsel for the Corporation is that the terms of invitation of the tender cannot be opened to the judicial scrutiny and in this connection he relies on Tata Cellular Vs. Union of India, Tata Cellular v. Union of India wherein this principle was laid down and that principle has been reiterated again in Raunaq International Limited Vs. I.V.R. Construction Ltd. and Others, This law laid down by the Apex Court is squarely binding on me. But if the terms are illegal terms meaning thereby that such terms cannot be incorporated in a notice inviting tender those terms must be struck down by the court as pointed out by the Apex Court. Regarding waiving the right of the Petitioner what can be said is that the person cannot usually waive his legal/statutory right and if it is done under the mistaken belief his right cannot be wiped out. So, both these arguments advanced by Sri Sarma cannot be accepted.

Next argument advanced by Sri Sarma is that this writ court does not have the jurisdiction, this argument is not tenable inasmuch as that this amount was received by the Corporation and having received this amount the corporation is duty bound to refund the amount as and when the tender was withdrawn by the Petitioner, and in this connection he relies on in State of U.P. and others Vs. Bridge and Roof Co. (India) Ltd., wherein it has been held by the Apex Court as follows:

If any amount is wrongly withheld by the Government, the remedy of the Respondent is to raise a dispute as provided by the contract or to approach the civil court, as the case may be according to law.

In the facts of this case the law laid down by the Apex Court does not apply to the facts of this particular case the same is distinguishable from the facts of the case before the Apex court. Sri Sarma also relies on a decision reported in Bhanwarlal Vs. The State of Rajasthan and Others, wherein the law has been laid down as follows by the Rajasthan High Court:

Fact that the tender as submitted by a person for retail sale of country liquor for group shops in a city for one year has been withdrawn by him earlier to the acceptance of the same by the Excise Authority concerned does not by itself entitle the person submitting the tender immunity from forfeiture of earnest money. Sections 5 and 6 of the Contract Act will not be attracted when aforesaid person is bound by the statutory conditions in the tender form. The whole procedure of tender and acceptance is provided by these statutory rules and conditions and the person having given their tender subject to those conditions is bound by them. If in law the tender has not been rejected it is immaterial that the excise authorities attempted to auction the individual shops when the tender is for group shops.

In the case the form was a statutory form and that was incorporated in the tender notice. Otherwise also this decision is absolutely without any reason with regard to interpretation of Sections 5 and 6 of the contract Act, and with all humility I do no accept this decision to be a correct decision. Sri Sarma further contends that there is no specific pleading with regard to reliefs prayed and in this connection he relies on Rani Laxmibai Kshetriya Vs. Chand Behari Kapoor and Others, wherein it has been held as follows:

It is too well settled that the Petitioner who approaches the court invoking the extraordinary jurisdiction of the court under Article 226 must fully aver and establish his rights flowing from the bundle of facts thereby requiring the Respondents to indicate its stand either by denial or by positive assertions. But in the absence of any averments in the writ petition or even in the rejoinder-affidavit, it is not permissible for a court to arrive at a conclusion on a factual position merely on the basis of submissions made in the course of hearing.

Here in this case, the facts are very simple. The money was deposited and that is the admitted position also. The further admitted position also is that before the acceptance was made and there was a contract in the eye of law it was withdrawn and it was in that background the prayer has been made for the refund of the earnest money. I do not find any absence or vagueness in the pleading as such for getting the relief in the writ applications. In that view of the matter, I hold as follows:

i. Clause 5 of the notice inviting tender quoted above for the period of 1996-97 is unreasonable, unfair and arbitrary and the same shall stand struck down.

ii. That the Petitioner is entitled to refund of the earnest money as indicated above but I do not grant interest as prayed for by the Petitioner. The amount shall be refunded within a period of 6 (six) months from the date of receipt of this order failing with the amount shall carry interest @ 10% from the date when it became due.