National Highways Authority of India v. Ganga Enterprises and Anr.

National Highways Authority of India v. Ganga Enterprises and Anr.

AIR 2003 SC 3823

(on demand performance guarantee)

FACTS:

Appellant (N) issued a tender notice for collection of toll on a part of a highway. For this purpose two types of securities were to be furnished, bank guarantee and performance security by way of a bank guarantee. One[1] of the clauses provided that the bid security could be forfeited if the bidder withdrew his bid during the period of bid validity; or if the successful bidder failed within the specified period to furnish the required performance security and sign the Agreement. Another clause[2] provided that that the bid would remain valid for 120 days after the last date of bid submission. The respondent firm (G) gave its bid and furnished an ‘on-demand bank guarantee’. G later withdrew its bid and did not furnish performance guarantee, following which N encashed the bank guarantee, already furnished. G filed a petition in HC for refund of the amount.

ISSUES:

1. Whether forfeiture of security deposit was without authority of law and without binding contract b/w parties and contrary to s 5 of ICA.
2. Whether writ petition was maintainable in a claim arising out of contractual breach.

HELD:

High Court

Since offer was withdrawn before acceptance, no contract had come into existence. A clause to the contrary in the tender documents or the guarantee, could not override provisions of a statute. Encashment of bank guarantee by N was illegal, and N should refund.

SUPREME COURT:

Contention (G): Contract, if accepted, was to commence on 1-10-1997, but N had not accepted offer till 21-11-1997, and toll plazas weren’t completed till March 1998. G was forced to withdraw because of negligence of N.

Held

S.N. VARIAVA & H.K. SEMA, JJ. (Appeal allowed. Writ petition of G dismissed)

1. (w.r.t 2^nd issue) Writ court was not the proper forum for a contractual dispute. Petition should have been dismissed on grounds of non-maintainability under Art 226 of the Indian Constitution.
2. (w.r.t 1^st issue) Bid security was not for performance, but was essentially an earnest to be given to ensure that the bidder did not withdraw. ICA merely provides for a party to withdraw its offer before it is accepted[3].Withdrawal of offer, however, is completely independent from forfeiture of earnest money given for a particular purpose. If a person has promised on the condition that earnest money will be forfeited if he withdraws, then even though he may legally withdraw his offer, he is not entitled to claim a refund of the earnest money.
3. Interference by court is justified only in case where the act is against the terms of the guarantee or there is fraud. Invocation of ‘on demand bank guarantee’ cannot be restrained because bid was withdrawn within 120 days. Also there is no case of fraud. N is not liable to refund.
4. (w.r.t G’s contention) The agreement provided that in case of delay on N’s part, which would result in delay of work; amount payable by G would be reduced. So G would not have suffered due to reasons of delay on N’s part. G was aware that N’s acceptance could be delayed. So non-acceptance till 20-11-1997 cannot be a ground justifying G’s action.