VILLAYATI RAM MITTAL (PVT.) LTD.versusUNION OF INDIA & ANR.

                      [2010] 11 S.C.R. 578


A               VILLAYATI RAM MITTAL (PVT.) LTD.
                                v.
                     UNION OF INDIA & ANR.
                   (SLP (C) No. 12144 of 2009)
                       SEPTEMBER 21, 2010
B
           [ALTAMAS KABIR AND A.K. PATNAIK, JJ.)

        CONTRACT:

c         Tender - Forfeiture of earnest money - Tender for
    construction work - Tender notice - Clause stipulating
    forfeiture of earnest money on revocation of offer - Tenderer
    whose bid was found lowest, sending a letter to employer
    making correction of a figure in its tender - Correction treated
    as revocation of offer and earnest money forfeited by
0
  . employer - Held: When earnest money is furnished by a
    tenaerer it forms part of the price if the offer of the tenderer is
    accepted or it is refunded to the tenderer if someone else's
    offer is accepted, but if for some fault or failure on the part of
    the tenderer the transaction or the contract does not come
E through, the party inviting the tender is entitled to forfeit the
    earnest money furnished by that tenderer - The facts, in the
    instant case, clearly establish that the tenderer was not willing
    to stand by its original offer for the work and was willing to do
    the work only at the revised bid - The High Court was thus
F right in coming to the conclusion that the tenderer had revoked
    its offer for the work - It was, thus, a case where on account of
    failure on the part of the tenderer to stand by its offer, the
    transaction or the contract did not come through and,
    therefore, the employers were entitled to forfeit the earnest
G money furnished by the tenderer in terms of Clause 6 of the
    Notice.

        Contract - Earnest money - Connotation of.

H                                  578
      VILLAYATI RAM MITTAL (PVT.) LTD. v. UNION OF        579
                     INDIA & ANR.
        Words and Phrases - 'Earnest money' - Connotation         A
of.

     Shri Hanuman Cotton Mills & Ors. v. Tata Air Craft
Limited 1970 (3) SCR 121 = (1969) 3 sec 522; H.U.D.A.
& Anr. v. Kewal Krishan Goel & Ors. etc. 1996 (2) Suppl.
                                                                  8
 SCR 587 = (1996) 4 sec 249, relied on.

     Chiranjit Singh v. Har Swarup AIR 1926 PC 1; Summer
and Leivesley v. John Brown & Co. 25 Times LR 745,
referred to.
                        Case Law Reference:
                                                                  c
        1970 (3) SCR 127              relied on     Para 7
        1996 (2) Suppl. SCR 587       relied on     Para 7
        AIR 1926 PC 1                 relied on     Para 7        D

        25 Times LR 745               relied on     Para 7
    CIVIL APPELLATE JURISDICTION : SLP (Civil) No.
12144 of 2009.
                                                                  E
    From the Judgment & Order dated 15.10.2008 of the High
Court of Delhi at New Delhi in WP (C) No. 14998 of 2004.

    Ambrish Kumar, Dhruv Mahta, Pankaj Bhagat, Dr. Sushil
Balwada for the Petit;oners.
                                                                  F
    P.P. Malhotra ASG, Purnima, Rajeev Sharma, Anil Katiyar,
B. Krishna Prasad for the Respondents;
        The Order of the court was delivered by
                                                                  G
                           ORDER

        A. K. PATNAIK, J. 1. This Special Leave Petition under
Article 136 of the Constitution of India has been filed against

                                                                  H
    580      SUPREME COURT REPORTS                   [2010] 11 S.C.R.


A the judgment dated 15.10.2008 of the Division Bench of the
  High Court of Delhi in Writ Petition (C) No.14998 of 2004.

          2. The relevant facts very briefly are that the petitioner is a
    private limited company carrying on inter a/ia the business of
    construction. In April 2004, respondent No.2 published a notice·
8
    inviting tenders for construction of married accommodation at
    Shankar Vihar-11, Pocket, Delhi Cantonment, at an estimated
    cost of Rs.40 crores (for short "the Notice"). Clause 6 of the
    Notice stipulated that the tenderer shall furnish earnest money
    of Rs.40 lacs in the form of FDR from a nationalized bank·
C   drawn in favour of the Director General, Married
    Accommodation Project, Kashmir House, Rajaji Marg, New
    Delhi. Clause 6 also stipulated that if the firm revokes its offer
    during the validity.period, the earnest money furnished by the
    firm shall be forfeited. In response to the Notice, the petitioner
D   submitted its offer along with earnest money of Rs.40 lacs.
    When the tenders were opened on 05.05.2004, the offer of the
    petitioner was found to be the lowest at Rs.32 crores for the
    work. On 06.05.2004, however, the petitioner sent a letter to
    the respondent No.2 making a correction of a figure in its tender
E   to read as Rs.32,76,000/- instead of Rs.23,76,000/-. As a
    result of this correction, the offer of the petitioner for the work
    increased from Rs.32 crores to Rs.41 crores. Respondent No.2
    treated this correction made by the petitioner in its tender as
    revocation of its offer and forfeited the earnest money of Rs.40
F   lacs furnished by the petitioner.

     . 3. Aggrieved, the petitioner filed Writ Petition (C)
  No.14998 of 2004 under Article 226 of the Constitution before
  the High Court of Delhi, but.by.the impugned judgment the High
G Court dismissed the Writ Petition after holding that the
  correction of the bid made by the petitioner amounted to
  revocation of its original offer and hence the respondent No.2
  was entitled to forfeit the earnest money furnished by the
  petitioner in terms of'Clause 6 of the Notice.

H         4. Learned counsel for the petitioner submitted that the
    VILLAYATI RAM MITTAL (PVT.) LTD. v. UNION OF              581
            INDIA & ANR. (A.K. PATNAIK, J.]
  High Court failed to appreciate that the tender of the petitioner A
  was initially defective in as much as the earnest money, which
  was furnished by the petitioner, was not. in accordance with
  Clause 6 of the Notice. He explained that Clause 6 of the Notice
  provided that the earnest money was to be in the form of FDR
  from a nationalized bank, but the FDR of Rs.40 lacs furnished B
  by the petitioner was from UTI Bank, which was not a
• nationalized bank. He further submitted that the petitioner had
  to make the correction in the figure so as ·to read as
  Rs.32,76,000/- instead of Rs.23,76,000/- because a mistake
  had been committed by the petitioner while calculating the figure   c
  and, therefore, soon after the tender was opened o·n
  05.05.2004 the petitioner submitted the letter dated 06.05.2004
  to the respondent No.2 correcting the aforesaid mistake in the
  calculation of the figure. He submitted that the respondent No.2
  ought not to have treated the letter dated 06.05.2004 as D
  revocation of the offer of the petitioner. Learned counsel for the
  petitioner further submitted that in any case the·entire Notice
  was recalled and a fresh Notice was issued by respondent No.2
  inviting tenders at a revised estimated cost. According to
  learned counsel for the petitioner, since the tender process in
  respect of which the petitioner had furnished the earnest money E
  was cancelled, respondent No.2 should have refunded the
  earnest money to the petitioner.

      5. Learned counsel for the respondents, on the other hand,
 supported the impugned judgment of the High Court and relied         F
 on the counter affidavit filed on behalf of the respondents in the
 High Court as well as in this Court.

      6. We find that Clause 6 of the Notice clearly stipulated
 that "if any firm revokes its offer during the validity period, its G
 earnest money shall be forfeited". Hence, the question that
 arose before the High Court for decision was whether the
 petitioner by revising one of the ·figures in its tender from
 Rs.23,76,000/- to Rs.32,76,000/- revoked its offer and the High
 Court has taken the view in the impugned judgment that as a
                                                                     H
    582      SUPREME COURT REPORTS                  [201 OJ 11 S.C.R.


A consequence o! the ~hange in the figures, the offer of the
  petitioner for the work was enhanced from Rs.32 crores to
  Rs.41 crores and, therefore, the original offer of Rs.32 crores
  for the work stood revoked. In para 12 of the counter affidavit
  filed in reply to the Writ Petition in the High Court the
B respondents have stated that after receiving the letter dated
  06.05.2004 of the petitioner correcting the figures in its tender,
  the respondents sent letters to the petitioner giving opportunity
  to the petitioner to withdraw its letter dated 06.05.2004 on or
  before 04.06.2004 and yet the petitioner did not withdraw its
c letter dated 06.05.2004. These facts clearly establish that the
  petitioner was not willing to stand by its original offer of Rs.32
  crores for the work and was willing to do the work only at the
  revised bid of Rs.41 crores. The High Court was thus right in
  coming to the conclusion that the petitioner had revoked its offer
  of Rs.32 crores for the work.
0
          7. The legal principles relating to "Earnest Money' are well
    settled. In Chiranjit Singh v. Har Swarup [AIR 1926 PC 1], the
    Judicial Committee of the Privy Council held:

E         "Earnest money is part of the purchase price when the
          transaction goes forward: it is forfeited when the
          transaction falls through, by reasons of the fault or failure
          of the vendee".

    These observations of the Judicial Committee have been
F   quoted in the judgment of this Court in Shri Hanuman Cotton
    Mills & Ors. v. Tata Air Craft Limited [(1969) 3 SCC 522] in
    which the principles relating to earnest money have been laid
    down.

G        8. Similarly, in H.U.D.A. & Anr. v. Kewal Krishan Goel &
    Ors.,etc. [(1996) 4 SCC 249], this Court quoted the following
    observations of Hamilton, J. in Summer and Leivesley v. John
    Brown & Co. [25 Times LR 745] with regard to the meaning of
    'earnest' :
H
  VILLAYATI RAM MITTAL (PVT.) LTD. v. UNION OF                 583
          INDIA & ANR. [A.K. PATNAIK, J.]
       '"Earnest' ... meant something given for the purpose of         A
       binding a contract, something to be used ~o put pressure
       on the defaulter if he failed to carry out his part. If the
       contract went through, the thing given in earnest was
       returned to the giver, or, if money, was deducted from the
       price. If the contract went off through the giver's fault the   s
       thing given in earnest was forfeited."

     9. It is thus clear that when earnest money is furnished by
a tenderer it forms part of the price if the offer of the tenderer
is accepted or it is refunded to the tenderer if someone else's        C
offer is accepted, but if for some fault or failure on the part of
the tenderer the transaction or the contract does not come
through, the party inviting the tender is entitled to forfeit the
earnest money furnished by that tenderer.

      10. In facts of the present case, the respondents have           D
stated in their reply to the Writ Petition before the High Court
that as a consequence of the failure of the petitioner to stand
by its offer dated 05.05.2004 the tender for the work had to be
re-invited by the respondent No.2 on revised costs of the
construction and in the circumstances, the respondent No.2 had         E
to forfeit the earnest money of the petitioner. This was thus a
case where on account of failure on the part of the petitioner
to stand by its offer, the transaction or the contract did not come
through and therefore the respondents were entitled to forfeit
the earnest money furnished by the petitioner in terms of Clause       F
6 of the Notice.

     11. For these reasons, we are not inclined to interfere with
the impugned judgment of the High Court and we accordingly
dismiss the Special Leave Petition with no order as to costs.

R.P.                                              SLP dismissed.