Debarment is valid where a bidder fails to furnish tender-mandated performance security despite expressly undertaking the consequence.

The petitioner participated in an online GeM tender issued by CGHS for the supply of allopathic medicines to three Wellness Centres in Dehradun, under a three-year contract with an estimated value of ₹19.37 crores.

Clause 10 of the tender required the successful bidder to furnish performance security equivalent to 5% of the average annual expected business for each Wellness Centre, with the specific amounts set out in Annexure-D.

The petitioner was declared the H1 bidder and communicated unconditional acceptance of the offer on 16 March 2024.

However, instead of furnishing the stipulated Performance Bank Guarantee, it disputed the quantum of security and contended that the amount should be calculated at 3% of the contract value under Rule 171 of the General Financial Rules, 2017.

The respondents issued a show-cause notice requiring the petitioner to explain its failure to furnish the performance security.

The petitioner’s offer was thereafter withdrawn, the contract was cancelled, and the petitioner was debarred for two years from submitting bids for CGHS contracts under the Bid Securing Declaration furnished with its bid.

The contract was subsequently re-tendered, which was also challenged in the writ petition.

The petitioner alleged that the show-cause notice had not been served and sought revival of its bid upon acceptance of performance security of ₹51,00,000.

Whether the performance security was required to be calculated at 5% of the average annual expected business as specified in Clause 10 and Annexure-D, or at 3% of the contract value under Rule 171(1) of the GFR, 2017.

Whether the respondents were justified in withdrawing the petitioner’s offer and cancelling the contract for failure to furnish the stipulated performance security within the prescribed period.

Whether the petitioner was validly served with the show-cause notice and whether its debarment for two years violated the principles of natural justice.

Whether the consequential re-tender and the petitioner’s claim for revival of its bid and acceptance of performance security were sustainable.

The Court applied Clause 10 of the tender conditions, which required the successful bidder to furnish performance security equal to 5% of the average annual expected business for the allotted Wellness Centres, as quantified in Annexure-D.

It further applied Rule 171(1) of the General Financial Rules, 2017, which permits performance security within a range of 3% to 10% of the contract value, with the applicable percentage to be specified in the bid documents; the Rule does not mandate a uniform rate of 3%.

The Court also applied the contractual Bid Securing Declaration in Annexure-G, under which failure to furnish performance security within the stipulated deadline attracted debarment for two years.

The principles of natural justice required service of the show-cause notice, but service through the GeM portal and the bidder’s registered email was held sufficient in the circumstances.

The Court held that Clause 10 expressly fixed the performance security at 5% and that Annexure-D clearly specified the amount payable for each Wellness Centre.

The petitioner’s interpretation—that the figures in Annexure-D should be divided by three before applying 5%—would render the words “for three years” redundant and was therefore rejected.

Rule 171(1) of the GFR did not assist the petitioner because it prescribed a permissible range of 3% to 10%, within which the tender authority had validly selected 5%.

The calculation placed on record by the respondents, based on the expenditure of the three Wellness Centres during the preceding three financial years, disclosed no arbitrariness, and the petitioner had participated with knowledge of the stated conditions and had furnished an unconditional undertaking to comply.

The Court further found that the show-cause notice had been uploaded on the GeM portal and also sent to the email address used by the petitioner in its correspondence.

Accordingly, the allegation of non-service and violation of natural justice was rejected.

Since failure to furnish the performance security constituted a breach of an essential tender condition and attracted the expressly agreed consequence under Annexure-G, withdrawal of the offer, cancellation of the contract and two-year debarment were upheld.

The Court held that the petitioner was required to furnish performance security at the amounts specified in Annexure-D, calculated at 5% of the average annual expected business, and that its failure to do so justified withdrawal of its offer and cancellation of the contract.

The two-year debarment was held to be a valid contractual consequence, and the challenge to the re-tender and the request for revival of the petitioner’s bid were rejected.

Any pending application was also disposed of.