Allahabad High Court Judgement

Allahabad High Court Judgement

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JUDGEMENT HEADLINE : ..judgement In M/s Jal Akash Cannot Be Regarded As Laying Down An Inflexible Or Universal Rule.... In Excess Of 2% Of The Estimated Cost Of Work.
JUDGEMENT TITLE : M/S Sai Construction Thru' Partner Smt. Jyoti Singh Vs. State Of U.P. & 2 Others On 11/07/2014 By Allahabad High Court
CASE NO : WRIT - C NO. 33852 OF 2014
CORAM : Hon'ble Dhananjaya Yeshwant Chandrachud,Chief Justice And Hon'ble Dilip Gupta,J.

HIGH COURT OF JUDICATURE AT ALLAHABAD

Chief Justice's Court A.F.R.

Case :- WRIT - C No. - 33852 Of 2014

Petitioner :- M/S Sai Construction Thru' Partner Smt. Jyoti Singh
Respondent :- State Of U.P. & 2 Others
Counsel For Petitioner :- Anshul Kumar Singhal,Vinod Kumar Agrawal
Counsel For Respondent :- C.S.C.

Hon'ble Dr. Dhananjaya Yeshwant Chandrachud,Chief Justice
Hon'ble Dilip Gupta,J.

A Tender Notice Has Been Issued By The Executive Engineer In The Rural Engineering Department Of Aligarh Division Inviting Tenders For Certain Work Of A Civil Nature. The Petitioner Is Aggrieved By The Condition Imposed In The Tender Notice Insofar As It Directs That 5% Of The Contract Amount Should Be Furnished As Earnest Money At The Time Of Submitting Tender Forms. The Submission Of The Petitioner Is That Under The U.P. Financial Hand Book Volume-V Part-I Schedule XIX, Para 308 (18), The Earnest Money Required To Be Deposited Is Subject To A Maximum Of 2% Of The Total Cost Of The Work Tendered. Hence, It Has Been Submitted That It Was Not Open To The Third Respondent To Fix Or Demand Earnest Money At A Rate Higher Than 2% Of The Cost Of The Work Which Has Been Tendered.
The Relevant Conditions Which Are Contained In The Financial Hand Book Are As Follows:
"17. All Tenders Must Be Submitted On The Prescribed Form Which Can Be Obtained On Application And Payment Where This Is Required. No Tender Should, As A Rule, Be Considered Unless It Is Accompanied By Earnest Money Which Should Be As Follows:
Amount Of Tender
Earnest Money

Rs.
(1) Up To Rs. 2,000
50
(2) Above Rs. 2,000 But Not Exceeding Rs.5,000
100
(3) Above Rs. 5,000 Ditto Rs. 10,000
200
(4) For Each Additional Rs. 5,000 Or Part Thereof, A Further Sum Of
100

Contracting Officers May Fix The Amounts Of Earnest Money At Rates Lower Than Those Prescribed Above, If For Any Particular Reason They Consider It Advisable To Do So, But In No Case Should The Earnest Money Be Less Than 1/2 Per Cent Of The Estimated Value Of The Work.
NOTES--(1) An Executive Engineer Of Public Works Department Has The Discretion To Accept Tenders Without Earnest Money For Road Metal Collection Costing Less Than Rs.5,000; And In The Case Of Works Costing Less Than Rs.10,000 An Executive Engineer Or Other Officer May, At His Discretion, Demand Earnest Money From All Tenderers Or Only From The Contractor Whose Tender Is Accepted.
(2) No Earnest Money Is Necessary In The Case Of Tenders Received By The Store Purchase Department.
(3) In The Forest Department Tenders For Works Costing Less Than Rs.5,000 May In The Discretion Of The Officer Calling For The Tender, Be Accepted Without Earnest Money.
(4) The Agricultural Engineer Is Authorized In Case Of Tenders For The Supply And Erection Of Pumping-plants To Dispense With The Demand For Earnest Money In Individual Cases And To Dispense With Such Demand From Firms Approved And Listed By Him For This Purpose. (vide G.O. No. 1262/XII-A--392, Dated October 30, 1934).
(5) The U.P. State Bridge Corporation And The Uttar Pradesh Rajkiya Nirman Nigam Have Been Exempted From Depositing The Earnest Money.
C.S. No. 86...........Dated October 17,1988
[Vitta (Lekha) Anubhag File No. 15 (6)/84]
18. Earnest Money May Be Furnished In One Of The Forms Mentioned In Paragraph 71 Of The Financial Handbook, Volume V, Part I, As Well As In Municipal Debentures, Port Trust Bond Or Bonds And/or Debentures Issued By The State Financial Corporations. The Amount Of Earnest Money To Be Furnished Should Be Stated In The Notice Calling For Tenders, Which Should Also Contain A Direction That, Instead Of Furnishing Cash, Tenderers Should Themselves Deposit The Amount In The Treasury Or Sub-Treasury Which Is Convenient To Them And Attach To Their Tender The Treasury Receipt In Support Of The Payment Of The Earnest Money. In Special Cases, Where It Would Be Inconvenient For Tenders To Deposit Earnest Money Into A Treasury Tenderers May Be Permitted To Deposit The Earnest Money With The Officer Inviting The Tender In Cash Or Currency Notes Up To A Limit Of Rs.500, Instead Of Into A Treasury. Such Deposits Will Be Treated As Public Works Department Deposits, Or Revenue Deposits, As The Case May Be."
Reliance Has Been Placed By The Petitioner On The Judgement Of A Division Bench Of This Court In M/s. Jal Akash Vs. State Of U.P. & Ors.1.
In Paragraph 25 Of The Aforesaid Judgement, It Has Been Held As Follows:
"25. 'Earnest Money' Is To Be Deposited At The Time Of Submission Of Tender At The Rate Mentioned In The Financial Hand Book Vol. V, Part I, Schedule XIX, Para 18 And It Cannot Be Charged At A Rate Higher Than That Mentioned In The Financial Hand Book. The Requirement Of Deposit Of 10% Of The Tender Amount As /kjksgj (security) Shall Come Into Play Only After Acceptance Of The Tender And Not Before That. The Two Terms (viz. Vxzhe /kujkf'k@/kjksgj Tekur) Have Been Used Loosely And Apparently They Have Been Interchanged."

This Decision Has Been Relied Upon To Submit That Earnest Money Deposit Cannot Be Demanded Or Charged At A Rate Which Is Higher What Has Been Mentioned In The Financial Hand Book.
The Judgement In M/s. Jal Akash (supra) Was Delivered On 28 July 2006. The Judgement Cannot Be Regarded As Laying Down An Inflexible Or Universal Norm To The Effect That Earnest Money Must Be Demanded At A Rate Which Is Not Higher Than 2% Or That This Principle Would Be Valid In All Contingencies For All Times And Irrespective Of The Nature Of The Contract.
Before We Deal With The Subsequent Decisions Of The Division Benches Which Have Considered The Judgement In M/s Jal Akash (supra), It Must Be Noted At The Outset That The General Principle Of Law Is That It Is For The Authority Which Invites Bids To Determine What Should Be The Appropriate Conditions Governing The Tender. The Process Of Tendering Is A Stage Anterior To The Execution Of A Contract. A Tender Notice Is An Invitation To Offer. The Object Of Inviting Tenders Is To Ensure That The Body On Whose Behalf The Notice Inviting Tenders Is Issued Can Obtain Competitive Bids And Can Select A Bidder Who Meets The Technical And Financial Qualifications Which Are Enunciated In The Tender Notice. This Is To Ensure That The Person Who Is Eventually Selected For The Award Of The Contract Is Qualified And Capable Of Performing The Contract. The Object Of Directing That Earnest Money Should Be Deposited With The Tender Is To Ensure That Only Serious Bidders Enter The Fray. The Bidding Process Itself Has A Sanctity And Frivolous And Non Serious Bids Should Not Be Allowed To Dislocate Or Derail The Process. Bidders Who Participate In The Tendering Process Without An Intention Of Accepting The Award Of The Contract, If The Contract Was To Be Awarded, Tend To Dislocate The Tendering Process. This Is Liable To Result In Serious Prejudice To The Performance Of Public Work. That Is Why, Once The Tender Inquiry Is Completed, The Earnest Money Of All The Unsuccessful Tenderers Is Returned, Whereas The Earnest Money Which Is Paid By The Successful Bidder Is Retained In Lieu Of The Security For The Performance Of The Work. The Reason Why The Earnest Money Of A Bidder Who Is Successful In The Tender Inquiry Is Not Returned But Is Retained Is To Ensure That A Successful Bidder Takes The Award Of The Contract To Its Logical Conclusion By Executing An Agreement As Required And By Fulfilling All The Conditions Which Are Required To Be Performed In Order To Ensure That The Work Commences And Is Carried Out In Pursuance Of The Award Of The Contract. Having Regard To This Object, It Would Be Natural To Interpret The Law To Allow The Authority Which Invites Tenders, A Measure Of Discretion To Tailor The Amount Of The Earnest Money To The Nature Of The Contract And To The Obligations Which Are Required To Be Performed.
The Decision In M/s. Jal Akash (supra) Was Initially Considered In M/s. Ashok Kumar Chhabra Construction (Pvt.) Ltd. Vs. State Of U.P. And Others2 By A Division Bench. The Division Bench Noted That The State Government Had Issued A Government Order On 5 January 2007 Laying Down Guidelines For The Allotment Of Contracts For The Execution Of Work And Held As Follows:
"26. It Is Always Open To The State Government In The Matter Of Contracts To Provide For Such Conditions As May Be Necessary For Ensuring That The Bids Are Offered In Respect Of Particular Contract By The Persons Possessed Of Requisite Experience, Expertise And Other Resources For Carrying Out The Contract Within Stipulated Time. With This Motive, If The State Government Has Come Out With A Policy Decision To Insist Upon Bid Security Of 10% At The Time Of Submission Of The Tenders. It Cannot Be Said That The State Government Has Violated Any Law Including The Provisions Of The Fundamental Rules. There Is No Quarrel So Far As The Demand Of The Earnest Money Which Is In Conformity With The Fundamental Rules, Quoted Above, However, The Issue Is As To Whether In Addition Thereto The Government Can Insist Upon Furnishing Of Bid Security Along With The Tender Bid. Such An Issue Was Neither A Subject Matter Of Examination In The Case Of Jal Akash (Supra) Nor Could Have Been Examined In The Said Judgment Inasmuch As The Government Order Imposing Such A Condition Dated 5th January, 2007 Had Not Seen The Light Of The Day.
27. It Appears That In Order To Over Come The Legal Difficulty Qua Demand Of Bid Security As Pointed Out By The Division Bench In The Case Of Jal Akash (Supra) That The State Government Had Come Out With The Government Order Dated 5th January, 2007.
28. The Power Of The State Government To Impose Such Conditions, As May Be Fair And Uniformly Applicable In The Matter Of Settling Work Contract, Which Do Not Violate Any Statutory Provision, Cannot Be Interfered With Under Article 226 Of The Constitution Of India. It Is Always Open For The State Government To Prescribe Additional Condition As May Be Relevant For The Purposes Of Deciding As To Who Should Be Permitted To Participate In The Settlement Of Contracts In Addition To Those Which May Be Prescribed Under Any Statutory Provision, The Only Restriction Being That The State Government Cannot Dilute The Statutory Provisions Relating To The Award Of The Contract But The Power For Prescription Of Conditions In Addition To Those Prescribed By Statutes Is Not Lost Nor Such Prescription Of Higher/additional Condition Can Be Said To Be Arbitrary Or Violative Of Statutory Provisions."

Hence, It Was Held That A Clause Requiring Prospective Bidders To Submit Bid Security To The Extent Of 10% Of The Total Estimated Cost Of The Contract Cannot Be Regarded As Being In Violation Of Any Statutory Provision.
In Para 29 Of The Judgment, The Division Bench Held As Follows:
"...Such Condition Appears To Have Been Incorporated By The State Government For The Purposes Of Ensuring That Only Contractor Possessed Of The Requisite Funds And The Material To Execute The Work Contract For Which Tenders Were Being Invited, Alone Offer The Bid. It Is To Be Kept In Mind That The Time For Completion Of The Project Is One Of The Important Aspect To Be Considered By The State Government In All Such Contracts."

Subsequently, In M/s. Dharmendra Singh Traders And Another Vs. State Of U.P. And Others3, A Division Bench Held That The Fixation Of Earnest Money Is Not Static But Is Capable Of Modification. The Observations In That Regard Are As Follows:
"4. Therefore, According To Us, Fixation Of Earnest Money Is Not Static In Nature Nor It Will Be Made Static For Years Together. It Will Be Dependent Upon The Circumstances And The Decision Of The State In This Regard, Who Is The Financial Guardian. It Is Also Necessary For The State To Maintain The Standard Of Work Through A Contractor And On The Basis Of Earnest Money It Is Necessary To See Whether Such Contractor Is Financially Sound Or Not. The Judgment As Referred By The Petitioners I.e. M/s Jal Akash (Supra) Is Silent On This Score."

However, In The Operative Direction, Since The Tender Was Being Opened On The Next Day, The Division Bench Directed A Deposit Of Earnest Money At The Rate Of 2% In Accordance With The Judgement In M/s Jal Akash Without Prejudice To The Contentions Of The Parties And The Matter Was Remitted To The State Government For Taking A Fresh Decision.
In The Subsequent Decision In Jakir Ali Contractor Vs. State Of U.P. And Others4, A Writ Of Certiorari Was Sought For Quashing A Tender Notice Which Required The Furnishing Of 10% Of The Contract Amount As Earnest Money And A Direction In The Nature Of Mandamus Was Prayed To Accept Only 2% Of The Contract Amount As Earnest Money At The Time Of Submission Of The Tender Form. After Setting Out The Provisions Of The Financial Hand Book, The Division Bench Held As Follows:
"16. A Perusal Of Clause 17 Indicates That No Tender Should, As A Rule, Be Considered Unless It Is Accompanied By Earnest Money Which Should Be As Mentioned In The Relevant Paragraphs. There Is A Provision In Clause 17 For Fixing The Earnest Money At The Rates Lower Than The Rate Prescribed Above, But In No Case Should The Earnest Money Be Less Than ½ Percent Of The Estimated Value Of The Work.

17. The Notes Given In Paragraph 17 Further Provides No Earnest Money Is Necessary In The Case Of Tenders Received By The Store Purchase Department. There Is A Specific Provision In The Financial Hand Book Regarding Lowering Of Earnest Money From One That Has Been Prescribed, But The Provisions Of Paragraph 17 Nowhere Prohibits Fixing Of Earnest Money At Any Higher Rate. It Is Well Settled That In A Rule Unless The Particular Procedure Is Not Prohibited The Same Is Always Permissible. Had The Provision Intended That The Earnest Money Can Never Be More Than 2%, There Should Have Been Express Provision..."

The Division Bench Also Noticed That The Decision In M/s Jal Akash Was Delivered In 2006 Which Is Prior To The Issuance Of The Government Order Dated 5 June 2007 Which Had Made Certain Modifications In Regard To The Provisions Relating To Furnishing Of Bid Security. The Division Bench Held As Follows:
"23. From The Above, It Is Clear That The Requirement Of Submission Of NSC/FDR/TDR Up To 10% Of The Value Of The Contract At The Time Of Submission Of Tender Has Been Introduced For The Purpose And Object That Only Financially Viable Contractors Who Have Capacity To Complete The Work Should Submit Their Bid Which Object Is Also Clearly Spelled Out From The Tender Notice Itself. As Observed By The Division Bench In The Case Of M/s Dharmendra Singh (supra) That State Is The Financial Guardian, Who Has To See That The Standard Of Work Is Maintained Ensuring That The Contractor Is Financially Sound. The Requirement Of Submission Of NSC/ FDR/TDR As A Bid Security/earnest Money Is Towards The Aforesaid Object; We Fail To See Any Prohibition In The U.P. Financial Hand Book Volume 5 Part-1 Schedule XIX, Para 307 (18) Which Prohibits The State Government From Demanding The Bid Security."

Consequently, The Judgement In M/s Jal Akash Cannot Be Regarded As Laying Down An Inflexible Or Universal Rule Prohibiting The Tender Inviting Authority From Demanding Any Amount By Way Of Bid Security In Excess Of 2% Of The Estimated Cost Of Work.
But, Learned Counsel Appearing On Behalf Of The Petitioner Has In Addition Relied Upon Two Orders Of The Division Benches. The First Is In M/s Uday Builders And Others Vs. State Of U.P. And Others.5 As A Matter Of Fact, The Following Observation Of The Division Bench Would Indicate That The Court Did Not Regard The Stipulation As Inflexible Which Would Brook No Variation:
"We Are In Agreement With The Contention Advanced On Behalf Of The Petitioners That The Provisions In The Financial Handbook Reflect The Policy Of The Concerned Department Of The State And Generally Such Policy Should Be Adhered To And Any Departure From Such Policy Must Be Explained By Very Good Reasons..."

The Division Bench Also Left It Open To The State To Alter The Provisions In The Financial Handbook.
The Second Decision In Siddharth Gupta Vs. The State Of U.P. And 3 Others6 Has Again Adverted To The Decision In M/s Jal Akash. While Upholding A Requirement That The Petitioner Should Deposit 2% Of The Amount Of The Contract As Earnest Money At The Time Of Submitting The Tender, The Division Bench Expressly Observed Thus:
"After Hearing Learned Counsel Appearing For The Parties, We Do Not Find That Any Fresh Reasons Are Available On Record Nor Any Such Special Facts And Circumstances Or Subsequent Events Or Rules Or Resolution Has Been Pointed Out By The Respondents To Take A Different View."

Thus, It Is Clear That Neither Any Special Facts And Circumstances Were Pointed Out Nor Any Subsequent Rules Or Resolution Were Brought To The Attention Of The Division Bench. In Fact, The Division Bench Was Not Apprised Of The Decisions Rendered In M/s. Dharmendra Singh Traders (supra), M/s. Ashok Kumar Chhabra Construction (Pvt.) Ltd. (supra) And Jakir Ali Contractor (supra).
Learned Standing Counsel, In The Present Case, Has Placed On Record His Instructions, According To Which The Demand Of 5% Of The Value Of Work As Earnest Money Is In Terms Of The Government Order Dated 5 January 2007.
Learned Counsel Appearing On Behalf Of The Petitioner Has Adverted To A Government Order Dated 29 June 2007. But This, It Appears Was In Compliance Of The Directions Which Were Issued By The Lucknow Bench On 9 November 2006 In Certain Writ Proceedings.
The Issue, However, In The Present Case Is Whether The Law Which Has Been Laid Down By The Division Bench In M/s Jal Akash Can Be Regarded As Providing A General Or Inflexible Principle. For The Reasons, Which We Have Noted, We Are Unable To Accept This Submission.
For The Aforesaid Reasons And Following The View Which Has Been Taken By The Subsequent Division Benches, Which Have Considered The Judgement In M/s Jal Akash, We Do Not Find Any Merit In The Petition.
The Petition Is, Accordingly, Dismissed. There Shall Be No Order As To Costs.

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