Earnest Money Cannot Be Forfeited in the Absence of a Formally Executed and Concluded Contract

The Petitioner participated in a tender process (Contract Head No. 2) for “Hoarding Board Wall Painting” and deposited an earnest money amount of Rs. 2,00,000

The Petitioner was declared the second-highest bidder (H2); however, the Respondent issued a resolution on 30.03.2017 allotting the contract to the Petitioner and threatening forfeiture of the earnest money if the bid amount was not deposited within 24 hours

The Petitioner submitted multiple representations and legal notices between 2017 and 2020, arguing that as an H2 bidder, no contractual obligation existed and demanding a refund

The Respondent admitted that while a resolution was passed, no formal agreement was ever executed between the parties

1. Whether the Respondent can legally forfeit or withhold the earnest money in the absence of a concluded contract

2. Whether the Petitioner is entitled to a refund of the earnest money after being declared the second-highest bidder

The Court applied the principles of Tender Jurisprudence and Contract Law, specifically focusing on the requirement of a "concluded contract" for the enforcement of contractual obligations

The mandate of Articles 14 and 19(1)(g) of the Constitution of India, which require public authorities to act fairly, transparently, and in accordance with the principles of natural justice, preventing unjust enrichment by the state

The Court noted that since the Petitioner was merely the second-highest bidder, the Respondent's unilateral imposition of contractual terms via an ex parte resolution without a prior notice or hearing was procedurally flawed

Crucially, the Respondent admitted that no formal agreement was executed; therefore, in the eyes of the law, no concluded contract existed between the parties

Without such a contract, the Respondent lacked the legal authority to enforce obligations or forfeit the earnest money

While the Respondent claimed a right to recover administrative expenses incurred during the bidding process, the Court held that such claims must be balanced against the Petitioner’s right to a refund, necessitating a reasoned administrative decision

The Court disposed of the petition by granting the Petitioner liberty to submit a fresh, comprehensive representation to the competent authority within four weeks. The Respondent is directed to decide the representation by a reasoned and speaking order within a further four weeks, considering the actual administrative expenditure incurred, if any, and the Petitioner’s claim for refund

No order as to costs was made