A Single Bench of the Delhi High Court (“Court”), in the case of the Indian Hotels Company Limited v. Union of India, [W.P.(C) 8779/2019], has examined the permissibility of forfeiting bid security in the absence of enabling provision in the bid document.

Background:

In the instant case, the writ petitioner is a company in the business in the hospitality sector, whereas the Union of India (“Respondent No. 1”) through NBCC (India) Limited (“Respondent No. 2”) had invited request for proposal through proposal dated December 06, 2018 (“RFP”) for selection of developer cum operators of a proposed five-star hotel at the International Exhibition Cum Convention Center [IECCC] at Pragati Maidan, New Delhi.

In relation to certain pre-bid queries, on and around December 2018, Respondent No. 2 had apprised all bidders that no refund of bid security (Rs. 20 crores) would be permitted in case the bidder chose to withdraw from further participation after opening of technical bids. A pre-reserve set price was set by the RFP.

It is pertinent to note that the e-bidding process was divided into two stages with the first being the submission of technical bids, and only the technically qualified bidders would be eligible for participation in the second stage of the bidding process which contemplated the submission of financial bids in the e-platform.

In the e-auction process, which was conducted on February 26, 2019 a bid was submitted by one other technically qualified bidder which was equivalent to the pre-set reserve price. Although the petitioner had also logged onto the e-auction portal, it did not submit, a bid higher than the existing bid amount which was equivalent to the pre-set reserve price. The singular bid was not accepted by the respondents, and the entire process was shelved, and the respondents issued a fresh request for proposal. Therefore, the petitioner requested the second respondent for refund of security, and upon failure to do the same, the petitioner preferred this instant writ. It is pertinent to note that the other technically qualified bidder was refunded the bid security.

Judgment:

The Court, whilst noting that a forfeiture of bid security would have grave civil consequences and must be “construed strictly”, noted that, the provisions of the RFP did not contain any specific clause which envisaged a forfeiture of security.

The Court relied on the position of law enunciated in Union of India v. Vertex Broadcasting Company Private Limited, [(2015) 16 SCC 198] and reiterated in Suresh Kumar Wadhwa v. State of Madhya Pradesh, [(2017) 16 SCC 757] to note that in order for punitive measure to be held to be justified, the RFP or any other similar document inviting bids must clearly and unambiguously specify the circumstances which would warrant and sanction forfeiture and therefore held that the action of forfeiture when tested on the anvil of the provisions contained in the RFP would thus clearly appear to be ultra vires.

The Court further noted that the terms of the RFP were amended on two separate occasions prior to the bidding process, however, no express stipulation of forfeiture on account of a purported withdrawal for the bidding process was inserted or introduced and that a clarification to queries regarding forfeiture of bid security, cannot be construed to have a become a substantive provision of the RFP and the queries do not instinctively acquire binding effect similar to a provision laid down in the original offer document.

The Court also considered the provisions of the RFP, and whether a bidder who has failed to better the prevailing “highest price offer” could be said to have “withdrawn” from the e-auction. The Bench noted that the submission of a bid in an auction process is essentially a commercial decision which a party is entitled to take based on its own assumption and judgement of a fair bargain. It is pertinent to note, that in the instant case, the other technically qualified bidder had bid an amount which was equal to the pre-set reserve price, and therefore the petitioner only had the option to submit a bid higher than the pre-set reserve price. The Court noted that failure to bid a higher bid than the other bidder cannot possibly amount to “withdrawal” from the auction process.

The Single Bench of the Delhi High Court therefore allowed the writ petition, and the respondents were directed to refund the forfeited amount of Rs. 20 crores to the petitioner.

Please find a copy of the judgment, here.

This update has been contributed by Arka Majumdar (Partner) and Vikram Chaudhuri (Associate).

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