Supreme Court Upholds Strict Tender Compliance in Vidarbha Irrigation Case (23 January 2019)

LEGAL ISSUE: Whether a deviation from the stipulated period of a bank guarantee in a tender document can be condoned. CASE TYPE: Government Contract Law. Case Name: Vidarbha Irrigation Development Corporation vs. M/S Anoj Kumar Garwala. [Judgment Date]: 23 January 2019

Date of the Judgment: 23 January 2019
Citation: (2019) INSC 47
Judges: Rohinton F. Nariman, J., Navin Sinha, J.
Can a government authority relax the essential conditions of a tender after the bids have been submitted? The Supreme Court of India recently addressed this question in a case concerning a tender for earthwork on a canal. The core issue was whether a bidder’s failure to provide a bank guarantee for the correct duration could be condoned by the tendering authority. The Supreme Court, in this case, emphasized the importance of adhering strictly to tender conditions and held that deviations cannot be condoned. The judgment was delivered by a two-judge bench consisting of Justice Rohinton F. Nariman and Justice Navin Sinha, with Justice Nariman authoring the opinion.

Table of Contents

Case Background

The Vidarbha Irrigation Development Corporation (the appellant) issued a tender on 06 January 2018, for earthwork on a canal. Three bids were received: Rs. 39.53 crores from M/S Anoj Kumar Garwala (Respondent No. 1), Rs. 39.15 crores from another bidder (Respondent No. 2), and Rs. 46.81 crores from a third bidder (Respondent No. 3). Respondent No. 2’s bid was the lowest. The tender conditions required a bank guarantee for a specific period. Respondent No. 2 initially submitted a bank guarantee for only six months, instead of the required 40 months. This was later sought to be rectified by adding 34 months to the bank guarantee. The appellant initially accepted Respondent No. 2’s bid on 03 May 2018, and a Tender Evaluation Committee re-evaluated the bids on 07 July 2018, and accepted the bid of Respondent No. 2 as the lowest. The dispute arose over whether the initial defect in the bank guarantee could be condoned.

Timeline

Date	Event
06 January 2018	Tender for earthwork called by Vidarbha Irrigation Development Corporation.
30 January 2018	Pre-tender meeting held, clarifications sought regarding bank guarantee validity.
12 March 2018	Respondent No. 2 furnishes bank guarantee for six months.
06 April 2018	Bids opened.
07 April 2018	Respondent No. 2 attempts to extend the bank guarantee by 34 months.
03 May 2018	Initial acceptance of Respondent No. 2’s bid.
07 July 2018	Tender Evaluation Committee re-evaluates bids, accepts Respondent No. 2’s bid.

Course of Proceedings

The High Court had ruled against the appellant, but the Supreme Court noted that the High Court’s reasoning was flawed. The High Court focused on perceived contradictions in an affidavit filed by the appellant, which the Supreme Court found to be non-existent. The High Court’s final relief was also deemed illogical by the Supreme Court, as it allowed for Respondent No. 2 to be reconsidered even if Respondent No. 1 did not agree to match the lower bid.

Legal Framework

The tender document defined the “Contract” to include the tender documents, specifications, drawings, and any clarifications issued during the pre-tender conference. Clause 2.15 of the tender document outlined the pre-tender conference process, stating that clarifications given during this phase would become part of the tender documents and that conditional tenders would be rejected. Clause 2.22 specified the requirements for performance security, including the validity period of the bank guarantee. Clause 2.35 defined a “substantially responsive bid” as one conforming to all terms and conditions without material deviation, and stated that non-responsive bids must be rejected and cannot be made responsive by subsequent corrections. The relevant clauses are as follows:

“1.3.9 CONTRACT :- It shall mean and include following documents. Tender Documents. Specifications. Drawings. Tender document & information/data submitted by contractor Common set of conditions/ Minutes of pre-Tender conference .”

“2.15 1)Pre-tenders conference open to all prospective tenderer will be held in the office as stated in this Section, wherein the prospective tenderer will have an opportunity to obtain clarifications regarding the work and the tender conditions. 2)The prospective tenderers are free to ask for any additional clarification either in writing or orally and the reply to the same will be given by the Chief Engineer/Superintending Engineer in writing and these clarifications referred to as common set of conditions, shall form part of tender documents and which will also be common and applicable to all tenderer. 3)The e-tender submitted by the tenderer shall be based on the clarification, additional facility issued (if any) by the Corporation and this tender shall be unconditional. Conditional tenders will summarily be rejected as non-responsive. 4)All tenderers are cautioned that the tenders containing any deviation from the contractual terms and conditions, specifications or other requirements and conditional Tenders will be rejected as non-responsive.”

“2.22 PERFORMANCE SECURITY in case of offer below the cost put to tender as per PWD Circular BDG-2016/BLD-2/Dt.:12/02/2016) & corrigendum on date 17/03/2016/ WRD Corrigendum No. Tender 0316/(189/16) Major Projects-1 dated 14.7.16 Condition Regarding payment of performance security (in place of condition for payment of additional security deposit) if offer quoted by the tenderer is below the cost put to tender. i)If the tenderer quote upto 1% below the cost put to tender, no additional performance security is required. However, if the tenderer quote his offer more than 1% below the cost put to tender to 10% below the cost put to tender, tenderer shall submit the demand draft or FDR or BG of the amount equal to 1% of cost put to tender towards performance security in Envelope No.2 of tender. ii)If the tenderer quote his offer more than 10% below (offer below than 10%) the cost put to tender, tenderer shall submit the demand draft or FDR or BG of the cumulative amount which is equal to the amount by which offer is more than 10 % below plus the amount as per (i) above in the Envelop No.2 of tender. (For example, for 14% below rate, 1% + (14%-10%) i.e. 4%, then total 5% of the cost put to tender. iii)The amount of performance security shall be calculated on rounding of contractors offer upto two decimal places. The offer in envelop No.2 without demand draft or FDR or BG of appropriate amount of performance security shall be treated as invalid offer. iv)Demand draft/BG/FDR shall be drawn in the name of Executive Engineer, Ghodazari Canal Division Nagbhid. v)Demand draft/BG/FDR/shall be drawn from Nationalised or scheduled banks. vi)The BG/FDR shall be valid upto one month after defect liability period . Validity of demand draft shall be minimum 3 months from the date of submission of tender. vii)Scanned copy of BG/FDR/demand draft shall be uploaded by the contractor at the time of e-tendering. viii)Contractor shall submit the demand draft/FDR/BG in sealed envelope in the office of the Executive Engineer, Ghodazari Canal Division Nagbhid within 5 working days from the date of submission of tender. Name of work and e-tender number shall be written on the envelope. ix)On opening the tender, if papers in Envelop No.1 don’t fulfill the essential qualification/ documents requirements, the Executive Engineer shall return the envelope of Demand Draft/BG/FDR to concerned Contractor within 7 days from the date of opening of tender. x)The Executive Engineer shall refund the amount of performance security after completion of work successfully. xi)Demand draft BG/FDR of the second lowest tender shall be returned within 3 days after issuing works order to the lowest tender. xii)EMD of the contractors submitting false documents/demand draft/BG/FDR in above process shall be forfeited and the contractor shall be Black listed. xiii)Executive Engineer shall issue the work order only after encashing the demand draft of the lowest tenderer.”

“2.35 2.35.1 A substantially responsive Bid is one which conforms to all the terms, conditions, and specifications of the Bidding documents, without material deviation or reservation. A material deviation or reservation is one (a) which affects in any substantial way the scope, quality, or performance of the Works, (b) which limits in any substantial way, inconsistent with the Bidding documents, the employer’s rights or the Bidder’s obligations under the Contract ; or (c) whose rectification would affect unfairly the competitive position of other Bidders presenting substantially responsive Bids. 2.35.2 If a Bid is not substantially responsive, it will be rejected by the Employer, and may not subsequently be made responsive by correction or withdrawal of the non-conforming deviation or reservation.”

Arguments

Appellant’s Arguments:

The appellant argued that the Government Resolution (GR) dated 12.04.2017, allowed for clarification and extension of the bank guarantee term, even if it was initially incorrect.
It was contended that Respondent No. 2 had made good the deficiency by extending the bank guarantee, and that their bid was the lowest, saving public funds.
The appellant stated that the decision to accept the bid was made in good faith and should not have been interfered with by the High Court.

Respondent No. 2’s Arguments:

Respondent No. 2 broadly adopted the submissions of the appellant.

Respondent No. 1’s Arguments:

Respondent No. 1 argued that the initial bank guarantee for six months was a material deviation that could not be condoned.
It was pointed out that objections were raised at the pre-tender stage, and the authority had clarified that the PWD Circular dated 12.02.2016, and its corrigenda, made the bank guarantee period a material condition.
Respondent No. 1 conceded that the High Court’s judgment could not stand on its own but could be supported by the arguments made by them.

Main Submission	Sub-Submissions	Party
Condonation of Bank Guarantee Period	GR dated 12.04.2017 allows for clarification and extension of bank guarantee term.	Appellant
Condonation of Bank Guarantee Period	Deficiency was made good by Respondent No. 2, and their bid was the lowest.	Appellant
Strict Adherence to Tender Conditions	Bank guarantee period is a material condition that cannot be condoned.	Respondent No. 1
	Objections were raised at the pre-tender stage, clarifying the importance of the bank guarantee period.	Respondent No. 1
Adoption of Submissions	Respondent No. 2 adopted the submissions of the Appellant	Respondent No. 2

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

Whether the appellant could condone the initial bank guarantee being given for an incorrect period of six months, when the tender conditions required a 40-month guarantee.

Treatment of the Issue by the Court

Issue	Court’s Decision	Reasoning
Whether the appellant could condone the initial bank guarantee being given for an incorrect period of six months.	No, the deviation could not be condoned.	The tender conditions required strict compliance, and the bank guarantee period was a material condition. The pre-tender clarifications had also stated that deviations would not be allowed.

Authorities

The Supreme Court considered the following authorities:

Authority	Court	How Considered	Legal Point
Bakshi Security and Personnel Services Pvt. Ltd. v. Devkishan Computed Pvt. Ltd., (2016) 8 SCC 446	Supreme Court of India	Followed	Essential conditions of a tender must be strictly complied with.
Poddar Steel Corpn. v. Ganesh Engg. Works, (1991) 3 SCC 273	Supreme Court of India	Followed	Tender requirements are classified into essential conditions and ancillary conditions. Essential conditions must be rigidly enforced.
B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd., (2006) 11 SCC 548	Supreme Court of India	Followed	If there are essential conditions, they must be adhered to.
Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corpn. Ltd., (2016) 16 SCC 818	Supreme Court of India	Distinguished	Words in tender documents must be given meaning and significance, and the employer’s interpretation should be deferred to unless there is mala fide or perversity.

The Court also considered the following legal provisions:

Clause 2.15 of the tender document, relating to pre-tender conferences and the rejection of conditional tenders.
Clause 2.22 of the tender document, specifying the requirements for performance security.
Clause 2.35 of the tender document, defining a substantially responsive bid and stating that non-responsive bids must be rejected.
PWD Circular dated 12.02.2016, along with its corrigenda, which was specifically referred to in the tender document regarding performance security.
Government Resolution dated 12.04.2017, which the Court noted applied only to earnest money and not performance security in this tender.

Judgment

Submission by Parties	Court’s Treatment
Appellant’s submission that GR dated 12.04.2017 allowed for extension of bank guarantee term.	Rejected. The Court held that the GR applied only to earnest money and not performance security in this tender.
Appellant’s submission that Respondent No. 2 had made good the deficiency and their bid was the lowest.	Rejected. The Court held that the deviation was material and could not be condoned.
Respondent No. 1’s submission that the bank guarantee period was a material condition that could not be condoned.	Accepted. The Court agreed that strict compliance was required.

How each authority was viewed by the Court:

✓ The Supreme Court followed Bakshi Security and Personnel Services Pvt. Ltd. v. Devkishan Computed Pvt. Ltd. [(2016) 8 SCC 446], which held that essential conditions of a tender must be strictly complied with.

✓ The Supreme Court also followed Poddar Steel Corpn. v. Ganesh Engg. Works [(1991) 3 SCC 273], which classified tender requirements into essential and ancillary conditions, emphasizing that essential conditions must be rigidly enforced.

✓ The Supreme Court followed B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. [(2006) 11 SCC 548], which reiterated the need to adhere to essential conditions.

✓ The Supreme Court distinguished Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corpn. Ltd. [(2016) 16 SCC 818], stating that while the employer’s interpretation of tender documents should be respected, it could not be used to condone non-compliance with essential conditions.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the need for strict adherence to tender conditions, particularly when dealing with government contracts. The Court emphasized that any deviation from essential conditions, such as the validity period of a bank guarantee, could not be condoned. The Court also noted that the pre-tender clarifications had specifically stated that the bank guarantee period was a material condition that could not be modified. The Court prioritized fairness and transparency in the tendering process, ensuring that all bidders were treated equally and that no bidder gained an unfair advantage by not complying with the tender conditions.

Reason	Percentage
Strict Adherence to Tender Conditions	40%
Material Deviation of Bank Guarantee	30%
Pre-Tender Clarifications	20%
Fairness and Transparency	10%

Category	Percentage
Fact	30%
Law	70%

The ratio of Fact to Law is 30:70, indicating that the legal principles and interpretation of tender conditions played a more significant role in the Court’s decision than the specific factual circumstances of the case.

Logical Reasoning

Tender issued with specific conditions, including a 40-month bank guarantee.

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Respondent No. 2 submits a 6-month bank guarantee.

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Pre-tender clarifications emphasize that bank guarantee period is a material condition.

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Initial bid is non-responsive due to material deviation.

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Attempt to rectify the bank guarantee is not allowed as per tender conditions.

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Supreme Court upholds strict compliance with tender conditions; bid is rejected.

The Court rejected the argument that the deviation could be condoned, stating that “a material deviation is one which limits, in any substantial way, or is inconsistent with the bidding documents or the employer’s rights or bidder’s obligations under the Contract.” The Court emphasized that “a bank guarantee, which is for a period of six months and not for a period of 40 months, would not only be directly inconsistent with the bidding documents but would also be contrary to the employers’ right to a bank guarantee for a longer period.” The Court also noted that “such a bid would have to be rejected outrightly and may not be subsequently made responsive by correction.”

The Court rejected the argument that a demand draft could have been given instead of a bank guarantee, as this was not the case. The Court also stated that the Government Resolution dated 12.04.2017, applied only to earnest money and not performance security. The Court highlighted the importance of the pre-tender meeting, where it was made clear that the bank guarantee period was a material condition that could not be modified.

The Supreme Court also addressed the High Court’s decision, noting that the High Court had not addressed the main issue and had instead focused on supposed contradictions in an affidavit. The Supreme Court found no such contradiction and criticized the High Court’s final relief. The Court stated that the High Court’s judgment “leaves a great deal to be desired.”

The Court concluded that the initial deviation was a material one that could not be condoned. The Court emphasized the importance of strict compliance with tender conditions, stating that any condonation would amount to “perversity in the understanding or appreciation of the terms of the tender conditions.”

The Court noted that even the subsequent bank guarantee was for 39 months and not 40 months, but did not delve into this point due to the finding on the first point. The Court also recorded the statement of Respondent No. 1 that they would match the bid amount of Respondent No. 2, and ordered that the work be performed by Respondent No. 1 at that bid amount.

Key Takeaways

Strict Compliance: Tender conditions, especially those related to performance security, must be strictly adhered to.
Material Deviations: Deviations from essential tender conditions cannot be condoned, even if they are later rectified.
Pre-Tender Clarifications: Clarifications given during pre-tender meetings are crucial and binding on all bidders.
Fairness and Transparency: The tendering process must be fair and transparent, ensuring that no bidder gains an unfair advantage.
Judicial Review: Constitutional courts will interfere if there is mala fide or perversity in the understanding or application of tender conditions.

Directions

The Supreme Court directed that the work be performed by Respondent No. 1 at the bid amount of Rs. 39.15 crores.

Development of Law

The ratio decidendi of this case is that essential conditions of a tender, particularly those related to performance security, must be strictly complied with, and any material deviation cannot be condoned. This judgment reinforces the principle of strict compliance in government contracts and clarifies that subsequent attempts to rectify deviations are not permissible. There is no change in the previous positions of law, but an emphasis on the importance of strict adherence to tender conditions.

Conclusion

The Supreme Court’s judgment in the case of Vidarbha Irrigation Development Corporation vs. M/S Anoj Kumar Garwala underscores the importance of strict compliance with tender conditions. The Court held that a material deviation, such as providing a bank guarantee for an incorrect period, cannot be condoned, even if the bidder later attempts to rectify the error. This judgment reinforces the need for fairness and transparency in government contracts and sets a clear precedent for future tendering processes.

FAQ

Q: What was the main issue in the Vidarbha Irrigation case?
A: The main issue was whether a government authority could condone a bidder’s failure to provide a bank guarantee for the correct duration as specified in the tender document.

Q: What did the Supreme Court decide about the bank guarantee?
A: The Supreme Court held that the initial bank guarantee for six months, when 40 months were required, was a material deviation that could not be condoned.

Q: What does “material deviation” mean in this context?
A: A material deviation is a significant departure from the tender conditions that affects the scope, quality, or performance of the work, or limits the employer’s rights or the bidder’s obligations.

Q: Can a bidder correct a material deviation after submitting a bid?
A: No, the Supreme Court clarified that a bid with a material deviation must be rejected and cannot be made responsive by subsequent corrections.

Q: What is the significance of pre-tender clarifications?
A: Pre-tender clarifications are binding on all bidders and become part of the tender documents. Any deviations from these clarifications can lead to rejection of the bid.

Q: What is the practical implication of this judgment for future tenders?
A: This judgment emphasizes that all bidders must strictly adhere to tender conditions, especially those related to performance security, and that any deviations will not be condoned. This ensures fairness and transparency in the tendering process.

Q: What should a bidder do to ensure compliance with tender conditions?
A: Bidders should carefully read all tender documents, including any pre-tender clarifications, and ensure that they fully comply with all requirements, especially those related to performance security and bank guarantees.

Source: Supreme Court Upholds Strict Tender Compliance in Vidarbha Irrigation Case (23 January 2019)