Andhra HC (Pre-Telangana)
M/S.Srimannarayana Trading Company, ... vs The Tirumala Tirupathi Devasthanam, ... on 16 July, 2013
Author: M.S.Ramachandra Rao
Bench: M.S.Ramachandra Rao
THE HON'BLE SRI JUSTICE M.S.RAMACHANDRA RAO W.P.No.8148 of 2003 dated:16-07-2013 M/s.Srimannarayana Trading Company, Tirupathi...Petitioner The Tirumala Tirupathi Devasthanam, rep. by its Executive Officer, Tirupathi ...Respondents Counsel for the petitioners : Sri M.V.J.K.Kumar Standing Counsel for the respondents : Sri M.Adinarayana Raju <GIST: >HEAD NOTE: ? Cases referred 1 AIR 1970 S.C. 1955 2 AIR 1988 S.C. 1400 3 AIR 2004 Gauhati 19 4 AIR 2004 S.C. 1484 5 AIR 2006 Rajasthan 233 6 (2007) 2 S.C.C. 624 7 2012 (2) ALD 376 8 (2003) 7 S.C.C. 410 9 AIR 2011 S.C. 3574 10 AIR 1979 S.C. 1628 11 AIR 1996 S.C. 11 12 AIR 1963 SC 1405 13 AIR 1970 SC 1955 14 AIR 1998 SC 1400 15 (2007) 2 SCC 624 16 (2006) 4 SCC 209 17 (2004) 3 SCC 553 THE HON'BLE SRI JUSTICE M.S. RAMACHANDRA RAO W.P.No.8148 of 2003 ORDER :
In this writ petition, the petitioner challenges the forfeiture by respondents of earnest money deposit (for short, the 'EMD') of Rs.4,40,000/- given by it in relation to tender notification in Roc.No.ER.4/6149/ADV/42/2001 dt.30-03-2001 issued by the respondents and seeks its refund with interest @ 24% per annum.
The facts in brief are as under:
2. The 1st respondent invited sealed tenders for supply of 1500 M.T. of Agmark Sona Masuri rice and 2 other items vide tender notification in Roc.No. ER.4/6149/ADV/42/2001 dt.30-03-2001. The said tender was to be submitted by prospective bidders by 28-04-2001 along with an EMD of Rs.4,40,000/-. Clause 3 of the Notification stated that it would be refunded only after successful completion of the order in all respects and will not be carrying any interest.
Clause 4 (a) thereof stated that the rate quoted should be valid for acceptance for a period of 60 days from the date of opening of the tender; that in the event of negotiations, the tenderer will have to keep his offer valid for 60 days from the date of negotiations. Clause 15 stated that the tenderer, whose tender has been accepted, will be notified of the award by the authorities prior to the expiration of the validity period by cable, telex or facsimile confirmed by registered letter. Clause 16 stated that for breach of any of the conditions of the tender, the EMD is liable to be forfeited duly blacklisting the firm which submitted the tender. These are the relevant clauses in the tender notification.
3. The petitioner firm submitted its tender on 28-04-2001 and quoted the lowest rate amongst all the tenderers i.e. Rs.1,314/- per 100 kgs net. One M/s.Venkateswara Agencies quoted Rs.1,345.56 ps. and was the next lowest tenderer.
4. A Selection Committee consisting of the Joint Executive Officer, Tirupathi, Financial Adviser and Chief Accounts Officer, General Manager (Transport), Director (S.V.Dairy Farm) and the 2nd respondent invited the petitioner for negotiations on 16-05-2001 and 18-05-2001. The petitioner did not reduce its rate during the negotiations and gave a letter to that effect on 19-05-2001.
5. The Selection Committee suspected the bonafides of the petitioner and referred the matter to the Chief Vigilance and Security Officer of the 1st respondent. In the letter dt.19-05-2001 addressed by 2nd respondent to the Chief Vigilance and Security Officer, the 2nd respondent stated that petitioner had quoted the lowest rate in response to the above tender; that it had not supplied any commodities to the respondents in the past; that it did not file any experience certificate relating to their dealing in rice; therefore it became difficult to assess the genuineness of the petitioner to supply the tendered quantity worth around Rs.1.97 crores; that there is a discrepancy noticed in the signature of M.Muni Krishna Reddy, Partner of the petitioner in the tender submitted and his original signature, causing a suspicion about the petitioner's bonafides; and therefore the antecedents, experience and bonafides of the petitioner be enquired into by deputing an officer in the cadre of a Dy. Superintendent of Police.
6. It appears that the Chief Vigilance and Security Officer got the matter enquired into and sent his report on 02-06-2001 stating that the partners of the petitioner-Firm are young, inexperienced and unworthy persons to take up such a contract and that they are not in possession of any movable or immovable properties. Thus he doubted the petitioner's financial capacity to perform the contract.
7. Based on the said report, the Selection Committee decided to reject the tender of the petitioner and to invite the second lowest tenderer for negotiations on 08-06-2001. On that day the latter did not turn up for negotiations. The Selection Committee recommended accepting the rate quoted by the 2nd lowest tenderer M/s.Sri Venkateswara Agencies, Tirupathi.
8. Thereafter, at 22:05 hrs on 19-06-2001, a telegram was issued by the 2nd respondent to the 2nd lowest tenderer M/s Sri Venkateswara Agencies , Tirupathi stating :
"Refer your tender 28th April (.) your rate Rs.1345-46 per quintal of Sona Masuri rice accepted (.) Please supply one hundred tones of Sona Masuri rice immediately."
9. On coming to know of this, at 23:20 hrs. on 20-06-2001, the petitioner sent a telegram to the following effect:
"You have accepted the offer of Sri Venkateswara Agencies Tirupati for the supply of Sona Masuri rice of the tender dt.28-04-2001. Rejecting all other tenders. Please refund our EMD of Rs.4,40,000/- immediately."
10. Thereafter, at 23:40 hrs. on the same day, the following telegram was sent by the 2nd respondent to the petitioner:
"Refer you tender dt.28th April (.) Your offer to supply Sona Masuri rice at Rs.1314 per quintal accepted (.) Supply 100 metric tones of rice before 22nd June initially failing which action will be taken as per tender conditions."
11. The petitioner thereafter issued a telegram to the 2nd respondent on 21- 06-2001 stating that the respondents had accepted the offer of the next lowest tenderer; after coming to know of the same, it had sent a telegram on 20-06-2001 requesting for refund of the EMD as it had already withdrawn their offer by telegram dt.20-06-2001; therefore they are entitled to refund of EMD and the tender submitted by them may be treated as withdrawn/revoked.
12. In response to the above telegram sent by the petitioner, the respondents replied by telegram dt.23-06-2001 stating that the petitioner's offer was not rejected; that it was accepted on 20-06-2001 asking him to supply 100 MT of rice before 22-06-2001; that he cannot revoke his offer within 60 days of filing of tender; that his offer expires on 26-06-2001; that the petitioner's intimation to revoke it's offer implies that it is unwilling to supply; and therefore its EMD is forfeited as per tender terms and conditions. It appears that vide Resolution No.181 dt.23-06-2001, the Specified Authority of the 1st respondent approved the action taken by the Selection Committee.
13. Aggrieved by the action of the respondents in forfeiting it's EMD, the petitioner has filed the present writ petition.
14. Heard Sri M.V.J.K.Kumar, learned counsel for the petitioner and Sri M.Adinarayana Raju, learned Standing Counsel for the respondents.
15. The counsel for the petitioner contended that when the respondents doubted the bonafides of the petitioner and its creditworthiness, capacity and experience and had accepted the tender of the second lowest tenderer on 19-06- 2001, merely because the petitioner, on coming to know of the said fact, sought refund of EMD, the respondents accepted the offer of the petitioner on 20-06- 2001; such action is clearly arbitrary as no public authority can knowingly and at the risk of public funds, place a tender on a party which it believes to be dubious/unworthy; that the petitioner had withdrawn its offer on coming to know of the award of the tender to the second lowest tenderer on 20-06-2001 at 23:20 hrs prior to the respondents dispatching their telegram on 20-06-2001 at 23:40 hrs accepting its tender; that in the facts and circumstances of the case, particularly in the light of the report of the Chief Vigilance and Security Officer , it was not open to the respondents to accept petitioner's tender, after they had accepted the tender of 2nd respondent and forfeit the petitioner's EMD. The counsel for the petitioner relied upon Moula Bux Vs. Union of India1, Tarsem Singh Vs. Sukhminder Singh2, State of Tripura and Another Vs. M/s. Bhowmik & Company3, M/s. Jai Durga Finvest Pvt. Ltd. Vs. State of Haryana and Others4, M/s.Bhagwati Enterprises Vs. Rajasthan State Road Transport Corporation & Another5, Yogesh Mehta Vs. Custodian Appointed Under the Special Court and Others6 and Durai Enterprises, Patharakudi Village, Karaikudi Taluk, Tamilnadu Vs. Tirumala Tirupati Devasthanams, Tirupati AP and Another7.
16. Per contra, the Standing Counsel for the respondents submitted that although initially the bonafides of the petitioner were doubted by the respondents, the Selection Committee decided to accept the rate quoted by 2nd lowest tenderer and also communicated its decision to him on 19.06.2001 accepting his tender, such action was taken in anticipation of the approval of the authorities as the stock was being exhausted and as the last date for finalizing the tender was fast approaching; that on 20-06-2001, in consultation with the Law Officer of the respondents, the matter was reviewed; it was felt that the TTD had nothing to lose even if the petitioner was not a "sound" supplier ; therefore it was decided to keep the acceptance issued to the 2nd lowest tenderer vide telegram dt.19.06.2001 in abeyance; and the offer of the petitioner was accepted and telegram issued to it to that effect on 20.06.2001. He placed on record the telegram 20.06.2001 issued to the 2nd lowest tenderer keeping in abeyance the respondents' order issued vide telegram dt.19.06.2001. It is contended that the petitioner cannot withdraw the offer made by him as it's tender would continue to be valid for 60 days from 18.05.2001 (the date of the negotiations) i.e., up to 17.07.2001; even if the 60 days period is counted from the date of opening of the tender dt.28.04.2001, it would expire only on 26.06.2001; therefore the respondents were entitled to place the order on the petitioner on 20.06.2001 (by keeping in abeyance its decision dt.19.06.2001 accepting the tender of the 2nd lowest tenderer); that the petitioner failed to supply the rice to the respondents and therefore his EMD was rightly forfeited. Reliance is placed on Clauses 3, 4 (a), 8, 15 and 16 of the Tender Notification. He also relied upon National Highways Authority of India Vs. Ganga Enterprises and Another8 and State of Haryana and Others Vs. M/s.Malik Traders9.
17. I have noted the submissions of both the parties.
18. In my opinion, the following two issues arise for consideration:
a) Whether the action of the respondents in accepting the tender of the petitioner, in spite of having material to doubt its financial capacity and bonafides, is right in law?
b) Whether the respondents were entitled to forfeit the EMD of the petitioner?
ISSUE (a) :
19. The 1st respondent is a statutory body constituted under the provisions of the Tirumala Tirupathi Devasthanams Act, 1977 which has since been repealed by the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987. Its activities are governed by Chapter XIV of the said Act. Section 97 deals with the powers and functions of the Board of Trustees of the 1st respondent and states:
"Section 97. Powers and functions of the Board:- The Board shall in addition to the powers conferred and functions entrusted to it by this Act, exercise such other powers and perform such other functions as may be prescribed in regard to matters of policy and general superintendence and review in relation to the Administration of Tirumala Tirupathi Devasthanams having due regard to public interest and the services and amenities to be provided to an welfare and safety measures to be undertaken for the pilgrims, devotees and worshippers resorting to Tirumala Tirupathi Devasthanams."
20. Under Section 137 of the Act, where the Board of Trustees of the 1st respondent, ceased to function after the expiration of its term or where the Board of Trustees has been dissolved under Section 135, the Government may for reasons to be recorded appoint a specified authority and cause any or all of the powers and functions of the Board of Trustees to be exercised and performed by such specified authority for such period not exceeding one year as they may think fit.
21. Therefore the question is whether the decision of the Specified Authority of the 1st respondent (approving the decision of the Selection Committee in accepting the tender of petitioner by keeping in abeyance the decision of 1st respondent dt.19.6.2001 , awarding the contract of 2nd lowest tenderer) in its resolution No.181 dt.23-06-2001 is proper, prudent and in public interest.
22. In Ramana Dayaram Shetty Vs. International Airport Authority of India10, the Supreme Court held:
"11. ... ... ... The discretion of the Government has been held to be not unlimited in that the Government cannot give or withhold largess in its arbitrary discretion or at its sweet will. It is insisted, as pointed out by Prof. Reich in an especially stimulating article on "The New Property" in 73 Yale Law Journal 733, "that Government action be based on standards that are not arbitrary or unauthorised." "The Government cannot be permitted to say that it will give jobs or enter into contracts or issue quotas or licences only in favour of those having grey hair or belonging to a particular political party or professing a particular religious faith. The Government is still the Government when it acts in the matter of granting largess and it cannot act arbitrarily. It does not stand in the same position as a private individual.
12............that the Government is not like a private individual who can pick and choose the person with whom it will deal, but the Government is still a Government when it enters into contract or when it is administering largess and it cannot, without adequate reason, exclude any person from dealing with it or take away largess arbitrarily. The learned Chief Justice said that when the Government is trading with the public, "the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions. The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with anyone, but if it does so, it must do so fairly without discrimination and without unfair procedure." This proposition would hold good in all cases of dealing by the Government with the public, where the interest sought to be protected is a privilege. It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largess, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norms which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largess including award of jobs, contracts, quotas, licences etc., must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory."
23. In Tata Cellular Vs. Union of India11, the Supreme Court reiterated:
"85. It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, it must be clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down."
... ... ...
"99. (1) It is open to the court to review the decision-maker's evaluation of the facts. The court will intervene where the facts taken as a whole could not logically warrant the conclusion of the decision-maker. If the weight of facts pointing to one course of action is overwhelming, then a decision the other way, cannot be upheld."
24. Keeping in mind these principles, I will now consider the facts of this case. The decision of the 1st respondent in initially accepting on 19.06.2001 the tender of the second lowest bidder M/s.Sri Venkateshwara Agencies (on the ground that the petitioner-Firm is not financially sound and was unworthy to take up the contract work worth Rs.2 crores), appears reasonable and valid. But its subsequent decision on 20.6.2001 (keeping its acceptance of the tender of the 2nd lowest bidder in abeyance) and awarding the tender to the petitioner appears to be clearly unsustainable. When the 1st respondent doubted the bonafides of the petitioner, and felt on the basis of the report of its Chief Vigilance and Security Officer that the petitioner is unworthy of award of such a contract, as a trustee of public finances and as a statutory body exercising powers under the provisions of the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987, it could not have accepted the tender of the petitioner at all. It cannot put at risk the public interest by awarding the tender to a person who it believes is lacking in bonafides. Such a decision is contrary to public interest and to the financial interests of the institution and no reasonable man, knowing these facts, could have logically taken the decision which the 1st respondent did. Its decision is reckless and irrational apart from being arbitrary and violative of Article 14 of the Constitution of India.
25. The counsel for the respondents sought to justify it on the ground that under Clause 8 of the tender conditions, the 1st respondent had the right to accept or reject tenders without assigning any reason. This contention is unacceptable as even such a clause would not empower the respondents to violate Article 14 of the Constitution of India.
26. Therefore, Issue (a) is answered against the respondents. ISSUE (b) :
27. In the light of the finding of this Court on Issue (a) that the 1st respondent could not have accepted the tender of the petitioner at all, we have to consider whether the respondents are entitled to forfeit the petitioner's EMD.
28. In my opinion, since the respondents had material in the form of a report dt.02.06.2001 of the Chief Vigilance and Security Officer that the petitioner is unworthy and lacking in financial resources to execute the contract, when the petitioner sent a telegram dt.20.06.2001 (stating that on acceptance of the tender of the 2nd lowest tenderer M/s. Sri Venkateshwara Agencies, the other tenders stood rejected and sought refund of the EMD), the respondents, as a reasonable and prudent public institution, should have acted on it and refunded the EMD. They should have been happy that the petitioner, without insisting on award of the contract, has voluntarily withdrawn it's tender and sought refund of the EMD. But not only did they not do so, it appears from the facts and the sequence of events that , in order to thwart petitioner's demand for refund of the EMD, they accepted the petitioner's tender so that they can forfeit it's EMD. This conduct is clearly arbitrary and appears to be sadistic.
29. It is not disputed by the respondents that subsequent to the refusal of the petitioner to perform the contract, the 2nd lowest tenderer was asked to supply the rice vide telegram dt.23.06.2001 and it did. Thus, the respondents' decision to award the contract initially to the 2nd lowest tenderer stood vindicated even by the subsequent events and proved that its decision to award the contract to the petitioner was clearly wrong.
30. Section 74 of the Contract Act, 1872 provides :
"when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not, actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount shown in or, as the case may be, the penalty stipulated for."
31. In Fateh Chand v. Balkishan Das12, the Supreme Court held that where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the Court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amounts specified in the contract as liable to forfeiture in view of Section 74 of the Contract Act.
32. In Maula Bux v. Union of India13, the Supreme Court reiterated the above principle and stated that forfeiture of earnest money under a contract for sale of moveable or immovable property, if the amount is reasonable, does not fall within Section 74. It held that where the loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him. In the present case, the loss suffered by respondents, if any, is capable of proof but they have not established that they suffered loss to the tune of Rs.4,40,000/-. Therefore their decision to forfeit the entire EMD is clearly contrary to law.
33. In Tarsem Singh v. Sukhminder Singh14, the Supreme Court held that Section 74 also contemplates a valid and binding agreement between the parties and that since the stipulation for forfeiture of earnest money is part of the contract, it is necessary for the enforcement of that stipulation, that the contract between the parties is valid.
34. In Yogesh Mehta v. Custodian appointed under the Special Court15, also the Supreme Court reiterated that forfeiture of EMD is permissible only when a concluded contract has come into being and not prior thereto.
35. The counsel for the respondents relied upon the decision in State of Maharashtra v. A.P. Paper Mills Ltd.16, National Highways Authority of India v. Ganga Enterprises and Another (8 supra) and State of Haryana v. M/s. Malik Traders (9 supra) and contended that the offer/tender of the petitioner under Clause 4(a) of the tender notification was valid for a period of sixty days from the date of the negotiations; therefore, it is valid up to 17.07.2001 and therefore it was not open to the petitioner to withdraw its tender on 20.05.2001. He contended that, as the petitioner has withdrawn it's tender before 17.7.2001, the respondents were justified in forfeiting the EMD.
36. In the cases referred to in para 35 supra, no doubt the Supreme Court has held that if there is a condition in the tender that an offer made by a tenderer is valid for a particular period, it is not open to a tenderer to withdraw his tender before the expiry of the said period and that in such an event the EMD is liable to be forfeited. But these are not cases like the present one where knowing that the lowest tenderer like the petitioner lacks bonafides and capacity to fulfill the contract, the authority insists on awarding the contract to such a tenderer. As stated supra, it is highly arbitrary and irrational for the respondents to accept the tender of the petitioner knowing that the petitioner did not have bonafides or capacity to perform the contract. In the facts and circumstances of the case, the respondents ought to have been happy that the petitioner has withdrawn his offer and sought refund of EMD. It is not open to the respondents to accept petitioner's offer, after they had accepted the offer of the 2nd lowest tenderer, and then forfeit the EMD of petitioner on the ground that the petitioner was unwilling to supply and had revoked it's offer within the period mentioned above. So I hold that it would be unreasonable and arbitrary, in the facts and circumstances of the case, to allow the respondents to forfeit the entire EMD given by the petitioner. It is not the case of the respondents that the loss suffered by them on account of the failure of the petitioner to perform the contract of supply of rice was to the tune of entire Rs.4,40,000/- submitted by it as EMD. So permitting them to forfeit the entire amount would be therefore impermissible in view of the decisions in Fateh Chand (1 supra) and Maula Bux (2 supra).
37. In ABL International Ltd v. Export Credit Guarantee Corporation17, the Supreme Court clearly held that in an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable; that if the action of a State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, the High Court can exercise its power to issue prerogative writs under Article 226 of the Constitution of India and grant relief.
38. As the respondents, in the facts and circumstances of this case, have been found to have acted arbitrarily, irrationally in accepting on 20.6.2001, the petitioner's tender (after they had accepted on 19.6.2001, the tender of the 2nd lowest tenderer knowing that the petitioner is inexperienced, not financially sound and not worthy of award of the contract), and forfeited it's EMD arbitrarily on the ground that it withdrew it (after coming to know of the award of the contract to the 2nd lowest tenderer) and did not perform the contract, I am of the view that this is a fit case to exercise jurisdiction under Article 226 of the Constitution of India and grant relief to the petitioner.
39. The Writ Petition is therefore allowed and the respondents are directed to refund the EMD of Rs.4,40,000/- given by the petitioner in relation to the tender in ROC.No.PR4/6149/ADB42/2001, dt.30.03.2001 in respect of supply of Agmark Sona Masoori rice with interest @ 9% per annum from 23.06.2001 till the date of payment. No costs.
__________________________________ JUSTICE M.S. RAMACHANDRA RAO Date : 16-07-2013