1. The issue involved in this appeal is, whether the appellant is entitled to refund of the Earnest Money Deposit on withdrawal of the offer by the appellant.
2. This appeal is by the original plaintiff who had filed Regular Civil Suit NO. 52 of 1982 praying to pass decree of Rs.17892.00 with interest at the rate of 12% p.a. on the ground that the above said amount was given by way of earnest money deposit to comply with one of the conditions of tender and since the offer was withdrawn by the appellant within the validity period of 120 days, the appellant was entitled to refund of the said amount of earnest money deposit. Learned trial Judge allowed the suit and declared the plaintiff entitled to recover Rs.17892.00 with interest at the rate of 12% p.a. till its realization. The respondent No. 2 challenged the above judgment and decree passed by the learned trial Judge by filing Regular Civil Appeal No. 5 of 1990. The learned appellate Judge on interpretation of clause 18 of the tender, came to the conclusion that the appellant was bound by the said condition and, therefore, even if the appellant was entitled to withdraw the offer within the validity period, the appellant was not entitled to refund of the earnest money. The learned appellate Judge, thus, allowed the appeal and quashed and set aside the judgment and decree passed by the learned trial Judge and consequently, dismissed the suit of the appellant. It is this judgment and decree which is under challenge in this second appeal.
3. This appeal was admitted by order dated 27.3.1998 on following two substantial questions of law:
(1) Whether the earnest money could be forfeited even though the offer was revoked before it was accepted by the Competent Authority?
(2) Whether such forfeiture of earnest money amounts to penalty?
4. This appeal was earlier taken up for hearing but since the learned advocate for the respondent No.2 was not present, the Court had adjourned the matter. Today also, when this appeal is taken up for hearing, none has remained present for the respondent No.2. The Court has, therefore, proceeded to decide this appeal by hearing the learned advocate for the appellant only.
5. Learned advocate Shri Sukhwani for the appellant has submitted that under the terms of tender, the appellant was entitled to withdraw the offer within the validity period of 120 days. He submitted that the tenders were opened 8.5.1980 and the appellant had withdrawn the offer on 10.6.1980 and thereafter, on 19.6.1980, the tender was accepted. He submitted that since the withdrawal of the offer of the appellant was within 120 days, the appellant would not remain bound by the conditions of forfeiture of the earnest money deposit.
6. Learned advocate Mr. Sukhwani also relied on section 5 of the Contract Act and pointed out that the proposal of offer could be revoked at any time before the communication of its acceptance. He pointed out that the proposal-offer was revoked/withdrawn by the appellant before the respondents communicated to the appellant about acceptance of proposal and, therefore, by virtue of section-5 of the Contract Act, the respondent No.2 was not entitled to invoke the condition of tender for the purpose of forfeiture of the amount of earnest money. He submitted that the learned trial Judge has rightly allowed the suit of the appellant by considering the vital and relevant fact that the respondent No.2 has not suffered any loss because of appellant withdrawing proposal/offer before the validity period. The learned appellate Judge ought not to have interfered with such finding of fact recorded by the learned trial Judge and ought not to have allowed the appeal of the respondents especially when the learned appellant Judge has not recorded any finding of fact that there was loss to the respondents. He, thus, urged to allow this appeal.
7. Having heard the learned advocate for the appellant and having perused the judgment and decree passed by the Courts below, it appears that the tender was invited to carry out the work of Diodar- Surana-Shihori Road. One of the conditions of such tender was to deposit an amount of Rs.17892.00 as earnest money along with the tender form duly filled in. The deposit of earnest money was made by the appellant on 7.5.80 and thereafter the tenders were opened on 8.5.1980. It appears that the appellant was called for negotiation which he could not attend but submitted an application requesting the respondents to accept his tender as the same was lowest amongst other. It further appears that the appellants by letter dated 10.6.1980 declared that because of the sudden rise in the prices, it was not possible for him to carry out the work and, therefore, he decided to withdraw his offer. The respondent vide letter dated 19.6.80 communicated acceptance of tender of the appellant. However, the case of the appellant is that before acceptance could be communicated, withdrawal of the offer was already there on the part of the appellant and, therefore, the appellant was entitled to refund of the amount of earnest money. Such plea of the appellant is based on section 5 of the Contract Act. However, at this stage, clause 18 of the tender is required to be referred. Same reads as under:
“The tender for the work shall remain open for a period of 120 days from the date of opening of the tenders for this work and that the tenderer shall not be allowed to withdraw or modify the offer on his own during this period. If any tenderer withdraws or makes any modifications or additions in the terms and conditions of his tender not acceptable to the Government (Public Works Department) then the Government shall, without prejudice to any right or remedy be at liberty to forfeit in full the said earnest money absolutely. In this connection, G.R. PWD No.CAT-1269-59643-64-C Dt/ 25/1/82 should be referred to (*)This blank space should be filled in while preparing the draft tender papers.”
8. Above said condition provided that the tender of the work shall remain open for a period of 120 days from the date of opening of the tenders and the tenderer shall not be allowed to withdraw or modify the tender at his own during such period. It also provides that if any tenderer withdraw or makes any modification or addition in the terms and conditions which is not acceptable to the Government, then, the Government shall without prejudice to any right or remedy be at liberty to forfeit in full the said earnest money absolutely.
9. The issue about the withdrawal of the offer and the claim for refund of the amount of earnest money deposit of tenderer on such withdrawal of the offer is no longer res-integra in view of the decision of Hon'ble the Supreme Court in the case of National Highways Authority of India versus Ganga Enterprises and another reported in 2003 (7) SCC page 410. Hon'ble the Supreme Court has held and observed in para 9 as under:
“9. In our view, the High Court fell in error in so holding. By invoking the bank guarantee and/or enforcing the bid security, there is no statutory right, exercise of which was being fettered. There is no term in the contract which is contrary to the provisions of the Indian Contract Act. 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 right under the Indian Contract Act. Such earnest/security is given and taken to ensure that a contract comes into existence. 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. It must be remembered that, particularly in government contracts, such a term is always included in order to ensure that only a genuine party makes a bid. If such a term was not there even a person who does not have the capacity or a person who has no intention of entering into the contract will make a bid. 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.”
10. In State of Haryana and others versus Malik Traders reported in 2011 (13) SCC page 200, Hon'ble the Supreme Court has held and observed in para 12 as under:
“12. The right to withdraw an offer before its acceptance cannot nullify the agreement to suffer any penalty for the withdrawal of the offer against the terms of agreement. A person may have a right to withdraw his offer, but if he has made his offer on a condition that the Bid Security amount can be forfeited in case he withdraws the offer during the period of bid validity, he has no right to claim that the Bid Security should not be forfeited and it should be returned to him. Forfeiture of such Bid Security amount does not, in any way, affect any statutory right under Section 5 of the Act. The Bid Security was given by the respondent and taken by the appellants to ensure that the offer is not withdrawn during the bid validity period of 90 days and a contract comes into existence. Such conditions are included to ensure that only genuine parties make the bids. In the absence of such conditions, persons who do not have the capacity or have no intention of entering into the contract will make bids. The very purpose of such a condition in the offer/bid will be defeated, if forfeiture is not permitted when the offer is withdrawn in violation of the agreement.”
11. Thus, as held by Hon'ble the Supreme Court, A person may have a right to withdraw his offer, but if he has made his offer on a condition that the Bid Security amount can be forfeited in case he withdraws the offer during the period of bid validity, he has no right to claim that the Bid Security should not be forfeited and it should be returned to him. The Bid Security was given by the respondent and taken by the appellants to ensure that the offer is not withdrawn during the bid validity period of 90 days and a contract comes into existence. Such conditions are included to ensure that only genuine parties make the bids. In the absence of such conditions, persons who do not have the capacity or have no intention of entering into the contract will make bids. The very purpose of such a condition in the offer/bid will be defeated, if forfeiture is not permitted when the offer is withdrawn in violation of the agreement.
12. In light of the above, learned appellate Judge has rightly held that the respondent No.2 was entitled to forfeit the amount of earnest money deposit even though the offer of the appellant was revoked before acceptance thereof by the competent authority. In view of the condition of tender, as per the law laid down by Hon'ble the Supreme Court, it can not be said that such forfeiture of the earnest money deposit amounts to penalty. Therefore, I do not find that the learned appellate Judge has committed any error in reversing the judgment and decree passed by the learned trial Judge. The appeal is, therefore, required to be dismissed. Hence same is dismissed.
(C.L. Soni,J.) an vyas