Bidders Cannot Reclaim EMD After Withdrawing Post-Acceptance: Calcutta HC

The Calcutta High Court has fortified the power of tender authorities to forfeit bid security, ruling that successful bidders who back out before executing agreements lose all claims to their earnest money regardless of statutory relief under contract law. This decision establishes that forfeiture clauses in government tenders serve as a necessary deterrent against non-genuine participants, effectively insulating such administrative actions from the restrictive compensation requirements of the Contract Act.

Justice Partha Sarathi Sen, presiding over the Constitutional Writ Jurisdiction, delivered this significant ruling while dismissing a challenge against the Hooghly River Bridge Commissioners. The Court examined whether a bidder, after being issued a letter of acceptance, could seek the refund of a substantial Earnest Money Deposit (EMD) by citing a desire to "step down" from the project on humanitarian grounds.

Key Takeaways

Primacy of Tender Conditions

Specific clauses in the 'Instructions to Bidders' regarding forfeiture take precedence over general statutory rights to withdraw offers under contract law.

EMD as a Genuineness Filter

Earnest money serves the critical administrative purpose of ensuring that only serious, capable parties participate in high-stakes government infrastructure bids.

Inapplicability of Section 74

Liquidated damages principles do not apply to the forfeiture of bid security, as EMD is given to ensure a contract comes into existence, rather than as compensation for a breach of an existing one.

Administrative Finality

Once a letter of acceptance is issued and the bidder fails to provide performance security or sign the agreement, the authority's right to terminate and forfeit becomes absolute.

Contractual Obligations vs. Statutory Revocation

The Court noted that the petitioner participated in a bid for the construction of flyovers across Kona Expressway. After being declared successful and receiving a work order, the petitioner attempted to withdraw. The respondent authorities subsequently terminated the contract and forfeited the EMD of over Rs. 73 lakhs, citing Clause 15.6 of the Instruction to Bidders. The petitioner argued that under Section 74 of the Contract Act, the state could not retain the money without proving actual loss or damages, relying on Dolphin Suppliers Pvt. Ltd. vs. Union of India & Anr. and Kailash Nath Associates vs. DDA ( "(2015) 4 SCC 136": 2015 CaseBase(SC) 937).

However, the Court distinguished these precedents, holding that the relationship was governed by the specific tender instructions. The Court, in its reasoning, observed: "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 Contract Act. Such earnest/security is given and taken to ensure that a contract comes into existence."

Judicial Reliance on Supreme Court Precedents

The High Court placed heavy reliance on the Supreme Court's decisions in National Highways Authority of India vs. Ganga Enterprises & Anr., National Thermal Power Corporation Ltd. vs. Ashok Kumar Singh & Ors., and State of Haryana & Ors. vs. Malik Traders ( "(2011) 13 SCC 200": 2011 CaseBase(SC) 692). These cases consistently maintain that in government contracts, forfeiture clauses are essential to prevent persons without the intention or capacity to execute the work from making bids. The Court found that the respondent's defense was in strict accordance with this settled law, noting that the petitioner entered the bid knowing the consequences of failing to furnish performance security.

The Court has the following directions:

"Accordingly, the instant writ petition is dismissed. With the dismissal of the instant writ petition, the interim order, if there be any, stands hereby vacated. All pending interlocutory applications, if there be any, are also dismissed. There shall be no order as to cost."

Ratio

Section 74 of the Contract Act does not apply to the forfeiture of bid security or EMD when a successful bidder fails to execute a contract or provide performance security as per the 'Instructions to Bidders'. Such forfeiture is a valid contractual deterrent to ensure the integrity of the bidding process and does not infringe upon the statutory right to withdraw a proposal under Section 5 of the Act.

Background

The dispute originated in 2016 when the Hooghly River Bridge Commissioners invited e-tenders for flyover constructions. The petitioner company emerged as the successful bidder and received a letter of acceptance-cum-work order on November 18, 2016. However, on December 5, 2016, the petitioner requested to step down from the tender. Two days later, the authorities terminated the award and invoked the forfeiture of the EMD amounting to Rs. 73,97,650/- due to the petitioner's failure to sign the agreement and deposit performance security. The petitioner spent several years seeking a refund through representations before finally filing the writ petition in 2022, following a formal rejection by the authorities in December 2021. The Court ultimately found the claim for refund lacked merit under the established legal framework for government tenders.

Case Details:
Case No.: W.P.O. 2474 OF 2022
Neutral Citation: 2026:CHC-OS:427
Case Title: Corroganon India Private Limited -Vs- The State Of West Bengal & Ors.
Appearances:
For the Petitioner(s): Mr. Jishnu Chowdhury, Sr. Adv., Ms. Pratiti Das, Adv., Ms. Ujjaini Chatterjee, Adv.
For the Respondent(s): Mr. Abhratosh Majumdar, Sr. Adv., Mr. Chayan Gupra, Adv., Mr. Sandip Dasgupta, Adv., Mr. Aviroop Mitra, Adv.

Source: 2026 CaseBase(CAL) 2929