SC: EMD via Fixed Deposit Not a Ground for Automatic Disqualification

In a significant clarification regarding tender procedures, the Supreme Court held that providing Earnest Money Deposit (EMD) through a Fixed Deposit (FD) instead of a Demand Draft (DD) does not constitute a mandatory ground for disqualification if the tender terms suggest the same as an optional requirement. The Court emphasized that technicalities in security deposits should not override the substantive qualification of bidders when the terms allow for flexibility.

A bench comprising Justice Sanjay Kumar and Justice K. Vinod Chandran set aside a High Court judgment that had previously disqualified an out-of-state bidder for submitting an FD. The Court examined the specific clauses of the tender document to determine whether the requirement for a Demand Draft for out-of-state bidders was mandatory or directory in nature.

Interpretation of Tender Clauses: 'May' vs 'Must'

The dispute centered on the interpretation of the Notice Inviting Tender issued by the Water Resources Department. The High Court had ruled that out-of-state bidders were strictly required to submit EMD via Demand Draft. However, the Supreme Court noted that the language used in the tender document was permissive rather than restrictive.

The Court, in its reasoning, observed: "We cannot but notice that though Clause 2.13 (a)(xiii) specifies bank draft of State Bank of India or scheduled Banks in case of tenderers of other States it is in the nature of an option as reiterated in Clause 2.13 (b), which employs the words “may submit”. The word “may” is also employed in Clause 2.15 and hence it is only in the nature of an option and not a mandatory condition."

Fixed Deposit as Approved Security

Addressing the state's contention regarding 'Approved Interest Bearing Security', the Court clarified that a Fixed Deposit inherently possesses the characteristics of such a security. The Court noted that the term 'approved' did not necessitate a specific prior approval from the State Government for every individual instrument but rather referred to the nature of the security itself.

Background:

The matter arose from a tender for the 'Construction of Head Work of Lamti Feeder Minor Tank Scheme' with an estimated value of over Rs. 13 Crores. The appellant, an out-of-state entity, submitted its EMD in the form of a Fixed Deposit from Punjab National Bank in favor of the Tendering Authority. While the Technical Committee initially qualified the appellant, a subsequent disqualification was triggered following a High Court order in a writ petition filed by a competing bidder.

The High Court had relied on its own previous precedents to hold that out-of-state bidders must strictly provide Demand Drafts. The appellant argued that this was a hyper-technical interpretation and that the State had a practice of accepting FDRs. During the pendency of the Special Leave Petition, the appellant was further disqualified during the opening of 'Envelope B' (pre-bid qualification), a matter the appellant claimed they could not effectively contest due to the existing High Court disqualification.

Allowing the appeal, the Supreme Court restored the appellant's qualification regarding 'Envelope A' and granted them a 48-hour window to contest the subsequent technical disqualification before the relevant authorities.

Case Details:
Case No.: Civil Appeal No. of 2026 (@ SLP (C) No.37099 of 2025)
Case Title: RR CONSTRUCTIONS AND INFRASTRUCTURE INDIA PVT. LTD. v. GAYATRI VENTURES AND ORS.
Appearances:
For the Petitioner(s): Sri Amit Anand Tiwari, Senior Counsel
For the Respondent(s): Sri Gagan Gupta, Senior Counsel; Sri Dama Sesadhri Naidu, Senior Counsel

Source: 2026 CaseBase(SC) 443