HIGH COURT OF JAMMU AND KASHMIR AND LADAKH AT JAMMU Case: OWP No. 814/2010 Reserved on: 17.07.2025. Pronounced on : 23. 07.2025 M/S Sujan Singh and co. M ….Petitioner/Appellant(s) Through :- Mr. K.S.Johal Sr. Advocate with Mr. Supreet Singh Johal Advocate. V/s Union of India and others Through :- Mr. Vishal Sharma DSGI. CORAM: HON’BLE MS. JUSTICE MOKSHA KHAJURIA KAZMI, JUDGE JUDGMENT 1 By this petition, the petitioner herein is seeking the following reliefs: (i) A Writ of Certiorari quashing the decision taken by the respondents to forfeit the earnest money of the petitioner amounting to Rs. 5,65,300/- in respect of a tender, vide tender notice dated 14.11.2009, for supply of meat dressed/broiler dressed at FSD Srinagar; and (ii) The communication addressed by respondent No. 4 on behalf of respondent No. 2 to the Branch Manager, Jammu Rural Bank, Jammu, vide No. 30704/A-15/ST-5 dated 15.06.2010, seeking the remittance of the forfeited earnest money amounting to Rs. 5,65,300/- from out of the FDR with the Bank. Factual Matrix: 2 The petitioner is a registered "A Class" contractor with the respondents. The petitioner’s firm, M/s Army Contractors and Transporters, has been working with the respondents for more than 30 years. Mr. Narinder Singh Chahal is the sole proprietor of the firm and is, therefore, entitled to maintain the present writ petition on behalf of the firm. Sealed tenders were invited from A, B, 2 and Co. class contractors by the respondents vide tender notice dated 14.11.2009 for the supply of meat dressed and broiler dressed for the period 1st April 2010 to 30th March 2011 at FSD Srinagar. The petitioner, being one of the eligible tenderers, applied and participated in the process. One of the essential pre- conditions for participation was the deposit of Rs. 5,65,300/- as earnest money, which the petitioner duly deposited. The contract was composite, covering the supply of 1,70,000 kg of meat dressed (sheep/goat – Jhatka/Halal) and 4,60,000 kg of broiler dressed (Jhatka/Halal). The earnest money was deposited accordingly. Despite participating in the tender process, the petitioner was not informed of the outcome for more than two months. The petitioner, therefore, sent a telegram dated 16.02.2010 to the respondents and to the Quarter Master General (QMG), Army Headquarters, New Delhi, stating that no sanction allocating the contract had been received. Subsequently, respondent No. 2 vide communication dated 18.02.2010 asked the petitioner to reconsider the decision of withdrawal and to intimate the same in writing, failing which action as per rules would be initiated. In response, the petitioner vide communication dated 19.02.2010 expressed its inability to execute the contract and sought a lenient view with a request to release the earnest money. 3 Instead of considering request of the petitioner, respondent No. 2 issued a show-cause notice dated 20.02.2010, asking why the petitioner’s name should not be removed from the list of registered ASC contractors for vitiating the tender process. The petitioner submitted his reply dated 28.02.2010, giving reasons for the withdrawal and urging that proceedings be dropped. The reply was received by the respondents on 04.03.2010. Despite the reply, respondent No. 2 forfeited the entire earnest money. The petitioner being aggrieved of the forfeiture, filed a representation/appeal to respondent No. 3, stating that the 3 composite contract had been bifurcated, and the petitioner was declared L1 only for supply of meat dressed, accordingly, only a proportionate amount of earnest money (approx. Rs. 1,92,300/-) could be forfeited. The remaining amount, pertaining to the broiler supply which was awarded to another enlisted contractor, should not be forfeited. The representation was not accepted. Ultimately, respondent No. 4, on behalf of respondent No. 2, encashed the FDR of Rs. 5,65,300/- vide communication dated 15.06.2010. 4 In support of his challenge to the forfeiture, the petitioner has relied upon judgments of various High Courts, viz., Security Engineers Private Ltd. v. The Electro Medical and Allied Industries Ltd. and another, [(Calcutta High Court), WPA No. 173 of 2024, decided on 05.01.2024, reliance placed on paragraphs 31, 32, 35, 36, and 37]; Durai Enterprises v. Tirumala Tirupati Devasthanams, [(Andhra Pradesh High Court), WP No. 15445 of 2011, decided on 13.12.2011, reliance placed on paragraphs 8, 13, 14, 15, 18, and 19]; Atibir Industries Company Ltd. v. Central Coalfields Limited and others, [(Jharkhand High Court), WP(C) No. 4974 of 2013, decided on 08.08.2023 reliance placed on paragraphs 15, 16, 17, and 18]; and M/s AR-Allied Subhadra v. Union of India, [(Gauhati High Court), WP(C) No. 155 of 2020, decided on 25.03.2021, reliance placed on paragraphs 13, 15, and 16]. 5 The actions of the respondents have been challenged on the following grounds: (i) That although the petitioner participated in the tender process for both items, he was declared L1 only for the meat dressed supply. The broiler supply was awarded to another party. Despite tenders opening on 10.12.2009, the petitioner was not informed of the outcome for over 66 days, unlike other tenderers. Due to the delay, market prices escalated, and the petitioner was left with no choice but to withdraw prior to issuance of the sanction letter. 4 This delay is arbitrary and unjustified. The respondents cannot be permitted to forfeit the earnest money for their own inaction. (ii) Even if forfeiture was permissible, it could only be to the extent of the value of the contract awarded to the petitioner, i.e., for meat dressed. Pro-rata forfeiture ought to have been applied, and forfeiture of the full amount is arbitrary. (iii) The reply to the show-cause notice, which clearly explained the circumstances, was not considered before deciding on forfeiture. (iv) The contract was composite, with two components. Both tenderers deposited Rs. 5,65,300/- each. Forfeiture of the full amount when the petitioner was adjudged L1 for only one component is irrational. Even this was not considered. (v) The respondents failed to act timely as per the tender notice. The petitioner is entitled to a refund of the earnest money along with interest, as the forfeiture is arbitrary and unsustainable. 6 On 29.07.2010, while issuing notice to the respondents, this Court directed the respondents to file objections. However, no interim relief was granted. 7 Per contra, in their objections, respondents have admitted participation by the petitioner in the tendering process and the deposit of earnest money. They have contended that the offer was valid up to 30.06.2010, and the petitioner withdrew five days before sanction of the broiler contract on 23.02.2010.They have claimed that the processing of tender documents at various levels caused the delay and deny arbitrariness. They have relied on Para 88 of “A Guide to ASC Contracts 1967” and Clause 10 of IAFZ-2137A to justify the forfeiture. They have stated that the petitioner, a seasoned contractor, was aware of the implications of withdrawal.They have submitted that the earnest money is for the whole tender and that partial forfeiture is not contemplated. In this regard, they have relied on Paras 24 and 25 of IAFZ-2137A and Appendix-E to the MoD letter dated 26.09.2006, as well as Rule 243 of Financial Regulations Part-I, 1983. 5 8 On 19.10.2023, the petition was admitted and objections were treated as counter affidavit. The petitioner filed a rejoinder, stating that the respondents had misinterpreted the tender terms. It has been submitted that the show-cause notice was issued after the earnest money had already been forfeited. The petitioner have submitted that he was declared L1 for meat dressed only and was wrongly treated as L1 when actual L1 had quoted fictitious rates.It is denied that full forfeiture is justified. The petitioner have submitted that there is no clause explicitly prohibiting pro-rata forfeiture. According to the petitioner, reference to Annexures R-2 and R-3 annexed with the reply of the respondents does not support full forfeiture in this case. 9 Heard learned counsel for the parties and perused the material on record. 10 To proceed further, it is relevant to reproduce paras 24 and 25 of “Instructions to Tenderers”, which reads thus: “24.I/We have no objection to issue of tenders to contractors irrespective of their classification based on either total value of a contract or on individual basis. 25.I/we understand that the authority calling for the tenders reserves the right to conclude contractors for any single item or any grouping of items considered appropriate”. 11 Appendix-E to the Government of India, Ministry of Defence letter dated 26.09.2006, relied upon by the respondents, is relevant to the context and is reproduced hereunder: “IMPOSIION OF PENALITIES ON ASC CONTRACTORS ON DEFAULT Compensation imposable under Clause 9 of IAFZ-2137A 6 (1) Clause 9 of IAFZ-2137A (Instruction to tenders) provides that tenderer is being permitted to tender in consideration of the stipulation on his part that after submitting his tender, he will not resile form his offer or modifiy the terms or conditions thereof till the date of validity of his offer. Should the tenderer fail to observe and comply with the foregoing condition, the earnest money shall be forfeited to the Government without prejudice to any other right of the Government under the contract law. This penality draws its sanction form the fact that every contract on behalf of the Government have to comply with the provision of Articles 299(1) of the Constitution, and that the tender signed by the tenderer and addressed to the President of India complies with the requirement of the Articles ibid. Now if the invitation to tender is treated as an offer, the tender which complies with the requirement of Article 299(1) of the Consitt5uiton and is submitted in terms of the offer would constitute a distinct subsidiary contract to keep the offer firm and open upto a particular date. This consideration which the Government proposed to take in examining the offer of the tenderer and the benefit which he might derive as a result of his offer being considered would constitute consideration for this subs9idiary contract under clause 9 of IAFZ-2137A. In that view thereof the subsidiary contract would not be void for want of consideration. The subsidiary contract as per clause 9 of IAFZ-2137A, therefore, binds the tender4er to keep the offer open upto a specific date and which the tenders are opened publicly no tenderer should be in a position to withdraw or modify his offer after gaining knowledge about the position of his tender vis- à-vis other tenderers. It is with this object of binding the tenderers to their offer that an invitation to tender stipulated specifically that the tender must accompany earnest money deposit which should be subject to forfeiture in case teneders are modified/revoked before the specified date of validity. (2) From the above, it follows that when a tenderer resiles from his offer or modifies his offer within the validity period and before issue of acceptance notice i.e acceptance of offer, forfeiture of earnest money deposited in terms of clause 9 of IAFZ-2137A would be legally sustainable. Compensation under clause 2 of IAFZ-2120 (3)…………………………………………………………………….. (4)…………………………………………………………………….” 12 The aforesaid provision has been further clarified vide Rule 243 of the Financial Regulations, Part-I, 1983, which reads thus: 7 “243. Earnest money need not be taken from jails or large and reliable firms. The earnest money of the accepted tenderer should alone be retained unless the acceptance of the tender rests with higher authority in which case the earnest money of the lower tenderers will also be retained until sanction is received. No order is required for the forfeiture of earnest money which follows on default and should be at once credited to Government. Ernest money once forfeited cannot be restored without the sanctioned of the next higher authority”. 13 Clause 10 of Annexure R-4, the terms and conditions whereof have been signed by the petitioner and relied upon by the respondents, is also relevant to the context and is reproduced hereunder: “10. The tenderer shall hold the offer open up to and including 30th June 2010. It is understood that the tender documents have been sold/issued to the tenderer and the tenderer is being permitted to tender in consideration of the stipulation on his part that after submitting his tender he will not resile from his offer or modify the terms and conditions thereof. Should the tenderer fail to observe and comply with the foregoing stipulation, the earnest money shall be forfeited to the Government without prejudice to any other rights of the Government under this contract and the law. The earnest money shall also be liable to be forfeited in full if the tenderer fails to furnish security deposit by the due date. No interest will be payable on the amount of the earnest money in any case.” 14 From the pleadings of the parties and upon perusal of the record, the following issues arise for determination before this Court. (i)Whether the forfeiture of the entire earnest money was arbitrary or violative of contractual norms? (ii)Whether the petitioner, having withdrawn before issuance of formal sanction, is entitled to a refund (in full or part) of the earnest money? (iii)Whether a proportional (pro-rata) forfeiture of earnest money is permissible in law? 8 (iv)Whether the delay in awarding the contract absolved the petitioner from the consequences of withdrawal? Issue 1: 15 Clause 10 of the General Conditions (Annexure R-4) signed by the petitioner explicitly provides that the tenderer shall hold the offer open up to and including 30th June 2010. Should the tenderer fail to observe and comply with the foregoing stipulation, the earnest money shall be forfeited to the Government.This clause is reinforced by Clause 9 of IAFZ-2137A, which states that the failure to keep the offer open within the validity period attracts forfeiture of the earnest money without prejudice to other rights. Further, Appendix-E to MoD Letter dated 26.09.2006 clearly explains the legal rationale behind such forfeiture, referencing Article 299(1) of the Constitution, treating the act of submitting a tender as a subsidiary contract. Withdrawal of the tender within the validity period breaches this contract and justifies forfeiture. This is also supported by Rule 243 of the Financial Regulations, Part-I, 1983, which states that no order is required for the forfeiture of earnest money which follows on default and should be at once credited to Government.Therefore, the forfeiture is not only contractually but also legally justified. Issue NO.2: 16 The Supreme Court in Union of India vs. Rampur Distillery & Chemical Co. Ltd., (1973) 1 SCC 649 has held that once a tender is submitted with an earnest money clause stating that it is liable to be forfeited on withdrawal, such withdrawal within the validity period results in automatic forfeiture. Para (03) is relevant to the context and is reproduced hereunder: 3. Only one contention was urged on behalf, of the appellants before us: that the security deposit was taken from the respondents in order to ensure the due performance the contract and respondents having defaulted, the entire amount was liable to be forfeited. A similar 9 contention was advanced before this Court but was rejected in Maula Bux v. Union of India . The appellant therein had entered into a contract with the Government of India for the supply of certain goods and had deposited a certain amount of security for the due performance of the contract. As in the instant case, it was stipulated in the contract there that the amount of security deposit was to stand forfeited in case the appellant neglected to perform his part of the contract. On the appellant committing default in the supply, the Government rescinded the contract and forfeited the security deposit. It was held by this Court that forfeiture of earnest money under a contract for sale of property does not fall within Section 70 of the Contract Act, if the amount is reasonable, because the forfeiture of a reasonable sum paid as earnest money does not amount to the imposition of a penalty. But, "where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he was already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty." It was further held that the amount deposited by way of security for guaranteeing the due performance of the contract cannot be regarded as earnest money”. 17 Similarly, in Kailash Nath Associates vs. DDA, (2015) 4 SCC 136, the Supreme Court has held that forfeiture of earnest money is permissible when there is a breach of contract. 18 In view of the legal position enunciated in the aforesaid decisions, the act of withdrawal by the petitioner on 16.02.2010, admittedly prior to the date of sanction of the contract i.e., 23.02.2010, was within the validity period of the offer. Consequently, such withdrawal would, in the facts and circumstances of the case, attract the clause for forfeiture of earnest money. Issue No.3: 19 The petitioner has argued for proportionate forfeiture, contending that since it was L1 for meat dressed only, the earnest money should be bifurcated accordingly.This argument is not supported by any clause of the tender or instructions. On the contrary, Para 25 of the Instructions to Tenderers makes it clear that the authority calling for the tenders reserves the right to conclude 10 contractors for any single item or any grouping of items.This indicates that the contract, while composite, is unified for the purposes of earnest money. No clause contemplates or obligates the respondents to refund or bifurcate earnest money in proportion to the awarded item. 20 The Supreme Court in Shree Hanuman Cotton Mills vs. Tata Air Craft Ltd., (1969) 3 SCC 522 has held that earnest money is a deposit made to secure the due performance of the contract and is liable to be forfeited in the event of default or non-adherence to the terms by the tenderer. Para (11) of the judgment is relevant to the context and is reproduced hereunder: “The learned Single Judge and, on appeal, the Division Bench, have held that the sum of Rs. 2,50,000 paid by the appellants was so paid as and by way of deposit or earnest money and that it is only when the plaintiffs pay the entire price of the goods and perform the conditions of the contract that the deposit of Rs. 2,50,000 will go towards the payment of the price. It is the further view of the Courts that the amount representing earnest money is primarily a security for the performance of the contract and, in the absence of any provision to the contrary in the contract, the defendants are entitled to forfeit the deposit amount when the plaintiffs have committed a breach of contract. In this view the defendant's right to forfeit the sum of Rs. 2,50,000 was accepted and it has been held that the plaintiffs are not entitled to claim refund of the said amount. The plaintiffs' suit, in the result, was dismissed by the learned Single Judge and, on appeal, the decree of dismissal has been confirmed”. Issue 4: 21 The petitioner’s main grievance is the delay of 66 days in declaring results and issuing sanction. However, this delay, as explained by respondents, was procedural and administrative, owing to scrutiny at multiple levels.The delay does not exonerate the petitioner from the contractual obligation to hold the offer valid until 30.06.2010, as per Clause 10 of the tender conditions. In the present case, there is no evidence of mala fides, discrimination, or violation of fundamental rights. Therefore, the delay does not vitiate the respondent's action. 11 22 The petitioner has cited various High Court decisions to challenge the forfeiture of earnest money as arbitrary. However, these cases do not apply to the present facts. In the case of Security Engineers Pvt. Ltd, forfeiture was excused due to the COVID-19 pandemic being a force majeure event. No such exceptional circumstances exist in the present case, the petitioner withdrew its offer voluntarily during the validity period. In the case of Durai Enterprises, forfeiture was disallowed due to absence of a specific clause. In contrast, Clause 10 of the present tender clearly permits forfeiture for withdrawal during the validity period, which the petitioner did. In the case of Atibir Industries, forfeiture was found arbitrary due to no proven loss. But in the present case, forfeiture is based on Clause 9 of Form IAFZ-2137A, which binds the petitioner to keep the offer valid regardless of actual loss. In the case of AR-Allied Subhadra, there was no concluded contract. But in the present case, the petitioner had contractually agreed to keep the offer valid till 30.06.2010, and breached that obligation. Therefore, the judgments relied on by the petitioner do not apply to the facts of this case. On the other hand, Supreme Court’s decisions viz., Kailash Nath Associates v. DDA and Shree Hanuman Cotton Mills v. Tata Aircraft Ltd (supra) support the view that forfeiture is valid where it arises from breach of a clear contractual term. 23 In light of the foregoing discussion, it is evident that the petitioner, with full knowledge and understanding, agreed to the stipulation requiring the tender offer to remain valid and open for acceptance until 30.06.2010. The act of withdrawal on 16.02.2010, therefore, constituted a clear and deliberate breach of the terms and conditions governing the tender. The consequent forfeiture of the entire amount of earnest money is thus both contractually justified and legally sustainable. There is no provision, either in the contract or in the tender 12 documentation, that warrants a proportionate or partial forfeiture of the earnest money. Moreover, any procedural delay on the part of the respondents in according sanction does not dilute or absolve the petitioner of its unequivocal obligation under Clause 10 of the contract. 24 Accordingly, this Court finds no merit in the writ petition. The same is hereby dismissed. 25 Before parting with the judgment, it is considered necessary to observe that while parties are bound by their contractual obligations, it is incumbent upon the Authorities to act with transparency, fairness, and in consonance with constitutional principles. In future tenders, it would be desirable that greater clarity is ensured with respect to the permissibility of partial awards and the circumstances under which forfeiture of earnest money whether in whole or in part may be effected, so as to obviate avoidable disputes and consequent litigation. (MOKSHA KHAJURIA KAZMI) JUDGE ` Jammu 23.07.2025. Sanjeev Whether order is reportable:Yes/No