Forfeiture of Earnest Money Deposit Is Restricted to Grounds Enumerated in the Standard Bidding Document

In brief

The question

1. Whether the respondent authorities are legally entitled to forfeit the Earnest Money Deposit (EMD) on grounds not specifically enumerated in Clause 16.6 of the Standard Bidding Document (SBD).

The court held

The Court allowed the writ petition, holding that the act of the respondents in not refunding the EMD was arbitrary, illegal, and contrary to the NIT terms.

It also directed

The Court directed the respondent authorities to refund the sum of ₹18,51,464/- to the petitioner within four weeks from the date of receipt of the order.

01Facts

The petitioner, a partnership firm, participated in two tenders (Group Nos. 09 and 18) under NIT No. 26/SBD/2023-24 for the construction of Model Police Station buildings.

pp. 1-2

The petitioner deposited a total of ₹18,51,464/- as Earnest Money Deposit (EMD).

p. 2

The respondent authorities rejected the petitioner’s technical bids on the ground that the experience certificates submitted were false, leading to the registration of an FIR (Hawai Adda P.S. Case No. 43 of 2024).

p. 2

Subsequently, the work was allotted to other contractors under a fresh NIT.

pp. 2-3

Despite the completion of the project, the respondents refused to refund the petitioner’s EMD, prompting this writ petition for a direction to refund the said amount.

p. 3

02Issues

i.1. Whether the respondent authorities are legally entitled to forfeit the Earnest Money Deposit (EMD) on grounds not specifically enumerated in Clause 16.6 of the Standard Bidding Document (SBD).

pp. 3-4

ii.2. Whether the rejection of a technical bid due to an alleged false experience certificate justifies the forfeiture of EMD under the governing contractual terms.

pp. 4-5

03Law Applied

Clause 16.6 of the Instruction to Bidders of the Standard Bidding Document (SBD), which exhaustively lists the conditions for forfeiture of EMD: (a) withdrawal of bid after opening, (b) failure to accept price correction, or (c) failure of a successful bidder to sign the agreement or furnish performance security.

p. 4

The principles from Mohinder Singh Gill & Anr. vs. The Chief Election Commissioner, New Delhi & Ors., establishing that a counter-affidavit cannot supplement reasons not present in the original order.

p. 5

Division Bench ruling in CWJC No. 15901 of 2023, which held that forfeiture is impermissible if the grounds fall outside the specific SBD clauses.

pp. 4-5

Provisions in the judgment · 1

Commercial Documents Evidence Act, 1939 Section 16.6

04Reasoning

The Court observed that the petitioner’s EMD was withheld solely because of the alleged submission of a forged experience certificate and the resulting FIR.

pp. 3-4

Upon examining Clause 16.6 of the SBD, the Court noted that the grounds for forfeiture are specific and do not include the rejection of a technical bid due to "improper" documentation or criminal proceedings.

p. 4

The Court followed the Division Bench's reasoning that since the petitioner was never "successful" (as the bid was rejected at the technical stage), the question of failing to sign an agreement did not arise, and the grounds mentioned in Clause 16.6(c) were inapplicable.

pp. 4-5

Consequently, the Court found that the respondents acted beyond their contractual authority, rendering the forfeiture arbitrary and illegal.

p. 5

05Holding

The Court allowed the writ petition, holding that the act of the respondents in not refunding the EMD was arbitrary, illegal, and contrary to the NIT terms.

p. 5

The Court directed the respondent authorities to refund the sum of ₹18,51,464/- to the petitioner within four weeks from the date of receipt of the order.

p. 5

LawLens.Patna High Court

Original Court PDF