Court Orders Refund of Forfeited Earnest Money Due to Inadvertent Mistake by Bidder
In a significant judgment, the Calcutta High Court has quashed the decision of the Railway Authority to forfeit the earnest money deposit (EMD) of a bidder due to a clerical error in document submission during the tender process. The court, presided over by Justice Smita Das De, emphasized the principles of natural justice and ruled that the punitive action was disproportionate and illegal.
The case involved petitioner Shri Manoj Kumar Verma, who operates under Vishal Enterprise, and had emerged as the highest bidder for leasing parcel space in a railway coach. However, his bid was rejected, and the EMD amounting to Rs. 7,45,321 was forfeited by the railway authorities without a formal notice, following a clerical error in document submission.
The court highlighted that the forfeiture was executed without issuing a show-cause notice or allowing the petitioner an opportunity to rectify the mistake, thereby violating the doctrine of audi alteram partem. It was further noted that the error was inadvertent and lacked any intent to mislead, with the petitioner having fulfilled the essential eligibility criteria.
Justice Das De referred to the Railway Circular No. 11 of 2022, which the authorities cited to justify the forfeiture. The court clarified that this circular applies only to successful contractors and not bidders at the pre-contractual stage. It was determined that the petitioner, being the highest bidder, had not yet entered into a concluded contract with the railway authorities.
The judgment relied on several precedents, including a case involving Vedanta Ltd., emphasizing that an acceptance must be absolute and unqualified to constitute a concluded contract. The court underscored that mere participation in a tender process does not form a binding contract unless the offer is accepted unconditionally.
The court ordered the railway authorities to refund the forfeited amount to the petitioner within 60 days, concluding that the rejection of the bid and forfeiture of the EMD were arbitrary and lacked legal sanction.
Bottom Line:
Forfeiture of Earnest Money Deposit (EMD) on uploading incorrect documents during the tender process cannot be sustained if the error is inadvertent and lacks intent to mislead. A bidder cannot be penalized for a bona fide clerical error as long as essential eligibility criteria are undisputed.
Statutory provision(s): Indian Contract Act, 1872, Section 7; Principles of Natural Justice; Railway Circular No. 11 of 2022; Judicial Precedents.
Shri Manoj Kumar Verma v. Union of India, (Calcutta) : Law Finder Doc Id # 2824521
