Interest is a Consequential Relief for Illegal EMD Forfeiture Under the Integrity Pact

The Appellants, logistics companies, participated in a 2017 tender floated by the Respondent (ONGC)

Their bids were rejected, and they were subsequently banned from business dealings with ONGC for six months following a Show Cause Notice alleging violation of the "Integrity Pact"

ONGC also forfeited the Appellants' Earnest Money Deposit (EMD) amounting to ₹2,95,26,590/-

The Appellants challenged the banning and forfeiture via writ petitions. A Single Judge upheld the banning orders but directed the refund of the EMD (without interest)

The Appellants moved the Division Bench seeking interest on the EMD and clarification regarding future bidding. The Respondent filed cross-objections challenging the EMD refund

1. Whether the Appellant is entitled to interest on the refunded EMD amount after the forfeiture was declared illegal

2. Whether the Appellants can participate in future tenders of third parties/PSUs without reference to the past banning order

3. Whether cross-objections under Order XLI Rule 22 of the CPC are maintainable in a Letters Patent Appeal (LPA) arising from writ proceedings

4. Whether ONGC was entitled to forfeit the EMD under the Integrity Pact in the absence of proven loss

The Court relied on the principle that interest is not a penalty but a normal accretion on capital, as established in Alok Shanker Pandey v. Union of India

Explanation to Section 141 of the CPC and the precedent in Puran Singh v. State of Punjab, which clarifies that CPC provisions do not apply proprio vigore to writ proceedings under Article 226 or Letters Patent Appeals unless specifically extended

principle from Kailash Nath and Associates v. DDA regarding the necessity of showing actual loss for the forfeiture of security deposits/liquidated damages under Section 74 of the Indian Contract Act

The Court found that since the Single Judge declared the EMD forfeiture illegal, the Appellant was entitled to interest as a consequential relief to compensate for the loss of capital use

Regarding the banning orders, the Court refused to grant an omnibus declaration against third parties, noting that each tendering authority has the autonomy to set disclosure requirements

On maintainability, the Court held that since an LPA is a continuation of writ jurisdiction where the CPC is excluded by Section 141, ONGC’s cross-objections under Order XLI Rule 22 were non-maintainable

On the merits of the forfeiture, the Court observed that ONGC failed to comply with Section 4 of the Integrity Pact, which required a formal notice of demand

Furthermore, since the tender was successfully awarded to another party before the Appellants were even disqualified, ONGC failed to prove any actual loss, rendering the forfeiture invalid

Upheld the Single Judge's decision sustaining the six-month banning order but clarified that the period had already expired

Dismissed ONGC’s cross-objections as both non-maintainable and devoid of merit regarding the EMD refund

Directed the Registry to release accrued interest on the deposited amount and return the bank guarantee to the Appellant