Supreme Court Upholds Forfeiture of Security Deposit in Tender Dispute: Pooja Ceratech vs. ONGC (2021)

Date of the Judgment: 3 December 2021

Citation: 2021 INSC 733

Judges: M.R. Shah, J. and B.V. Nagarathna, J.

Can a company forfeit a security deposit when a bidder tries to change their bid after the deadline? The Supreme Court of India recently addressed this question in a case involving a tender for the sale of gas. The court examined whether the Oil and Natural Gas Corporation (ONGC) was justified in forfeiting the security deposit of Pooja Ceratech Private Limited after the company attempted to modify its bid. The judgment was delivered by a two-judge bench comprising Justice M.R. Shah and Justice B.V. Nagarathna, with the opinion authored by Justice M.R. Shah.

Case Background

The Oil and Natural Gas Corporation Limited (ONGC) issued a tender for the sale of gas, in which Pooja Ceratech Private Limited participated. After submitting its bid, Pooja Ceratech received an email on 29 November 2019, informing them that the price bids would be opened on 3 December 2019. However, Pooja Ceratech requested permission to modify its price bid, claiming a mistake in the original offer. ONGC initially considered postponing the bid opening but later decided to proceed without Pooja Ceratech. Consequently, ONGC disqualified Pooja Ceratech and invoked the bank guarantees provided as security deposit, citing Clause 14.5(b) of the tender document. Pooja Ceratech challenged this decision in the High Court of Gujarat, which dismissed their petition, leading to the appeal before the Supreme Court.

Timeline

Course of Proceedings

Pooja Ceratech initially filed a writ petition before the High Court of Gujarat under Article 226 of the Constitution of India, challenging ONGC’s decision to forfeit the security deposit. The High Court dismissed the petition, addressing the merits of the case while also raising the question of the maintainability of a writ petition in a contractual matter. Aggrieved by the High Court’s decision, Pooja Ceratech filed a special leave petition before the Supreme Court of India.

Legal Framework

The Supreme Court considered Clause 14.5 of the tender document, which stated that the security deposit submitted by bidders could be forfeited if the bidder “varies or modifies the bid in a manner not acceptable to ONGC during the validity period or any extension thereof duly agreed by the bidder.” The Court also referenced Section 74 of the Indian Contract Act, which deals with compensation for breach of contract, and the case of Kailash Nath Associates Vs. Delhi Development Authority and Anr., (2015) 4 SCC 136, which discusses the principles of forfeiture of security deposits.

Arguments

Petitioner’s Arguments (Pooja Ceratech):

• The petitioner argued that the forfeiture of the security deposit was not justified as there was no actual loss or damage suffered by ONGC. They relied on the Supreme Court’s decision in Kailash Nath Associates Vs. Delhi Development Authority and Anr., (2015) 4 SCC 136, and Section 74 of the Indian Contract Act, contending that a security deposit can only be forfeited if there is a proven loss.
• The petitioner claimed that the request to modify the bid was due to an arithmetical error in calculation and not a deliberate modification of the bid.
• The petitioner contended that the offer was not varied during the validity period.

Respondent’s Arguments (ONGC):

• ONGC argued that the forfeiture was in accordance with Clause 14.5(b) of the tender document, which explicitly allows for the forfeiture of the security deposit if a bidder modifies their bid during the validity period.
• ONGC contended that the petitioner’s request to modify the bid was indeed a modification and not a mere correction of an arithmetical error.
• ONGC emphasized that the request for modification was made on 03.12.2019, while the last date for submitting the tender was 17.09.2019, thus falling within the ambit of Clause 14.5(b).

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in the judgment. However, the core issue before the court was:

1. Whether the action of ONGC to forfeit the security deposit was in consonance with the terms and conditions of the tender document, particularly Clause 14.5(b).

Treatment of the Issue by the Court

Authorities

Cases:

• Kailash Nath Associates Vs. Delhi Development Authority and Anr., (2015) 4 SCC 136 – Supreme Court of India. This case was cited by the petitioner to argue that a security deposit cannot be forfeited unless there is a proven loss.

Legal Provisions:

• Section 74 of the Indian Contract Act – This section deals with compensation for breach of contract.
• Clause 14.5 of the tender document – This clause specifies the conditions under which the security deposit can be forfeited.

Authorities Considered by the Court

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court distinguished the case of Kailash Nath Associates Vs. Delhi Development Authority and Anr., (2015) 4 SCC 136* stating that the present case was governed by the specific terms of the tender document, which allowed for forfeiture upon modification of the bid, regardless of actual loss.
• The Court noted that while Section 74 of the Indian Contract Act deals with compensation for breach of contract, the forfeiture in this case was governed by the specific clause in the tender document.
• The Court upheld the validity and applicability of Clause 14.5 of the tender document, which allowed for forfeiture of the security deposit if the bidder modifies the bid during the validity period.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the specific terms of the tender document, particularly Clause 14.5(b). The Court emphasized that the petitioner’s attempt to modify the bid after the submission deadline was a clear violation of the tender conditions, justifying the forfeiture of the security deposit. The Court distinguished the case from previous rulings that required proof of actual loss for forfeiture, highlighting that the tender conditions explicitly allowed forfeiture in this scenario.

Fact:Law Ratio

Logical Reasoning

Judgment

The Supreme Court upheld the High Court’s decision, dismissing the special leave petition filed by Pooja Ceratech. The Court reasoned that the action of the Corporation was absolutely in consonance with the terms and conditions of the tender document. The Court specifically noted that Clause 14.5 of the tender document allowed for the forfeiture of the security deposit if the bidder varied or modified the bid in a manner not acceptable to ONGC during the validity period. The Court also clarified that the petitioner’s request to modify the bid was not a mere arithmetical correction but a modification, which was made after the last date of submitting the tender. The court stated, “As per Clause 14.5, the security deposit submitted by the bidders shall be forfeited by the Corporation in the event…… “bidder varies or modifies the bid in a manner not acceptable to ONGC during the validity period or any extension thereof duly agreed by the bidder”.” The Court further observed, “In the communication dated 03.12.2019, it is submitted that there was a misunderstanding in the price calculations of the bidding price.” The Court concluded, “Therefore clause 14.5(b) of the tender document shall be applicable.” There were no dissenting opinions in this case.

Key Takeaways

• Bidders must adhere strictly to the terms and conditions of tender documents.
• Attempting to modify a bid after the submission deadline can lead to forfeiture of the security deposit.
• Specific clauses in tender documents that allow for forfeiture upon modification of bids are legally valid.
• The court may not require proof of actual loss if the tender document explicitly allows for forfeiture under specific conditions.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that specific clauses in tender documents that allow for the forfeiture of security deposits upon modification of bids are valid and enforceable, even if there is no actual loss suffered by the tendering authority. This judgment clarifies that the terms of the contract, as specified in the tender document, are paramount and that bidders must strictly adhere to them. This case also distinguishes itself from previous judgments that required proof of actual loss for forfeiture, emphasizing that the specific terms of the tender document can override such general principles.

Conclusion

The Supreme Court dismissed the special leave petition filed by Pooja Ceratech, upholding the decision of the High Court of Gujarat. The Court ruled that the forfeiture of the security deposit by ONGC was valid, as it was in accordance with Clause 14.5(b) of the tender document. The Court emphasized that bidders must adhere strictly to the terms of the tender and that any attempt to modify a bid after the deadline can result in the forfeiture of the security deposit, regardless of whether any actual loss is incurred.

Category

Parent Category: Contract Law

Child Categories:

• Tender Process
• Forfeiture of Security Deposit
• Section 74, Indian Contract Act

FAQ

Q: Can a company forfeit my security deposit if I make a mistake in my bid?

A: Yes, if the tender document has a clause that allows for forfeiture if you modify your bid after the deadline, as seen in the Pooja Ceratech vs. ONGC case. It’s important to carefully review all tender terms.

Q: What if the mistake is just a small arithmetical error?

A: Even if the mistake is minor, if it is considered a modification of the bid and the tender terms allow for forfeiture in such cases, your security deposit can be forfeited, as per this judgment.

Q: Does the company have to prove they suffered a loss to forfeit my deposit?

A: Not necessarily. If the tender document explicitly states that the security deposit can be forfeited upon modification of the bid, the company may not need to prove actual loss, as clarified in this case.

Q: What should I do to avoid losing my security deposit?

A: Carefully review all tender documents before submitting your bid. Ensure that your bid is accurate and that you do not attempt to modify it after the submission deadline.