Saturday 2 July 2016

When tender committee can waive technical irregularity in compliance of terms of tender?

It is true that in submitting its tender accompanied by a cheque of the Union Bank of India and not of the State Bank the clause no. 6 of the tender notice was not obeyed literally, but the question is as to whether the said non- compliance deprived the Diesel Locomotive Works of the authority to accept the bid. As a matter of general proposition it cannot be held that an authority inviting tenders is bound to give effect to every term mentioned in the notice in meticulous detail, and is not entitled to waive even a technical irregularity of little or no significance. The requirements in a tender notice can be classified into two categories-those which lay down the essential conditions of eligibility and the others which are merely ancillary or subsidiary with the main object to be achieved by the condition. In the first case the authority issuing the tender may be required to enforce them rigidly. In the other cases it must be open to the authority to deviate from and not to insist upon the strict literal compliance of the condition in appropriate cases. This aspect was examined by this Court in GJ Fernandez v. State of Karnataka 7 Ors., [1990] 2 SCC 488 a case dealing with tenders. Although not in an entirely identical situation as the present one, the observations in the judgment support our view. The High Court has, in the impugned decision, relied upon Ramana Dayaram Shetty v. International Airport Authority of India & Ors., [1979] 3 SCC 489 but has failed to appreciate that the reported case belonged to the first category where the strict compliance of the condition could be insisted upon. The authority in that case, by not insisting upon the requirement in the tender notice which was an essential condition of eligibility, bestowed a favour on one of the bidders, which amounted to illegal discrimination. The judgment indicates that the Court closely examined the nature of the condition which had been relaxed and its impact before answering the question whether it could have validly condoned the shortcoming in the tender in question. This part of the judgment demonstrates the difference between the two categories of the conditions discussed above. However it remains to be seen as to which of the two clauses, the present case belongs.
7. The nature of payment by a certified cheque was considered by this Court in Sita Ram Jhunjhunwala v. Bombay Bullion Association Ltd. & Anr., [1965] 35 Company Cases
526. Several objections were taken there in support of the plea that the necessary condition in regard to payment was not satisfied and in that context this Court quoted the observations from the judgment in an English decision (vide Spargo's case: 1873 L.R. & Ch. App. 407) that it is a general rule of law that in every case where a transaction resolves itself into paying money by A to B and then handing it back again by B to A, if the parties meet together and agree to set one demand against the other, they need not go through the form and ceremony of handing the money backwards and forwards. This Court applied that the observations to a transaction requiring payment by one to another. The High Court's decisions in B.D. Yadav's case and T.V. Subhadra Amma's case are also illustrations where literal compliance of every term of the tender notice was not insisted upon.
8. In the instant case the certified cheque of the Union Bank of India drawn on is own branch must be treated as sufficient for the purpose of achieving the object of the condition and the Tender Committee took the abundant caution by a further verification from the bank. In this situation it is not correct to hold that the Diesel Locomotive Works had no authority to waive the technical literal compliance of clause 6, specially when it was in its interest of not to reject the said bid which was the highest. 
Supreme Court of India
Poddar Steel Corporation vs Ganesh Engineering Works And ... on 6 May, 1991
Equivalent citations: 1991 AIR 1579, 1991 SCR (2) 696

BENCH:
SHARMA, L.M. (J)
PUNCHHI, M.M.

CITATION:
 1991 AIR 1579    1991 SCR  (2) 696
 1991 SCC  (3) 273   JT 1991 (2) 577
 1991 SCALE  (1)928


ACT:
     Constitution of India: Articles 226 and 136.
     Railway  contract-Tender  notice-Conditions-Payment  of
earnest money stipulated by cash or demand draft drawn on  a
specified bank-Acceptance of banker's cheque drawn on a bank
other  than  the stipulated bank-Validity  of-Essential  and
ancilliary conditions-Distinction between.



HEADNOTE:
     The  Diesel Locomotive Works, Indian  Railway,  invited
tenders  for disposal of one lot of Ferrous scrap.   One  of
the  conditions mentioned in the tender notice was that  the
earnest money should be deposited by cash or by demand draft
drawn of the State Bank of India.  The appellant, one of the
intending purchasers, submitted his tender accompanied by  a
cheque of Union Bank of India drawn on its own branch.  The
tender of the appellant, being the highest, was accepted and
tenders  of respondent no. 1 and some others were  rejected.
The  Tender Committee had verified from Union Bank of  India
the bona fide of appellant's cheque and then only decided to
accept its tender.
     Respondent no. 1 filed writ petition in the High  Court
challenging  the rejection of its tender, and acceptance  of
appellant's  tender  on the ground that the latter  did  not
comply with the necessary condition for payment of  earnest
money with the tender. The appellant contended that it  had
substantially complied with the requirement by sending with
its  tender  a banker's cheque marked and certified  by  the
Union  Bank  of India as good for payment.  The  High  Court
opined that respondent's tender was rightly for failure  to
deposit  the  earnest money, but allowed the  writ  petition
holding  that  the  appellant  also  did  not  satisfy  the
condition  regarding payment of the earnest money since  the
cheque sent  was from a bank other than the State  Bank  of
India  as  stipulated, and as such the authorities  had  no
power to  accept  appellant's  tender.    Aggrieved,  the
appellant  preferred  the appeal by special  leave  to this
Court.
     Allowing the appeal, this Court
             697
     HELD:  1. As a matter of general proposition it  cannot
be laid down that an authority inviting tenders in bound  to
give  effect  to  every  term mentioned  in  the  notice  in
meticulous  detail,  and  is not entitled to  waive  even  a
technical  irregularity of little or no  significance.  The
requirement  in a tender notice can be classified  into  two
categories-those which lay down the essential conditions  of
eligibility,  and the other which are merely  ancilliary  or
subsidiary  with  the  main object to  be  achieved  by  the
condition.   In  the first case the  authority issuing  the
tender may  be required to enforce them  rigidly.   In  the
other case it must be open to the authority to deviate from
and not to insist upon the strict literal compliance of  the
condition in appropriate case. [699E-G]
     2. In the instant case, in submitting the cheque  drawn
on  the  Union Bank of India and not on the  State  Bank  of
India, the relevant condition of the tender notice was  not
obeyed literally;  but the said cheque must be  treated  as
sufficient  for the purpose of achieving the object  of  the
condition and the Tender Committee took the abundant caution
by  a further verification from the bank.  In the  situation
it could not be said that the Diesel Locomotive Works had no
authority  to waive the technical literal compliance of  the
clause,  regarding  manner  of payment  of  earnest   money
especially  when  it was in its interest not to  reject  the
said bid which was the highest. [699D-E; 700F-G]
     GJ  Fernandez  v. State of Karnataka & Ors.,  [1990]  2
SCC  488  and  Sita  Ram  Jhunjhunwala v.  Bombay   bullion
Association Ltd. & Anr., [1965] 35 Company Cases 526, relied
on.
     Ramana   Dayaram Shetty v.   International   Airport
Authority of India & Ors., [1979] 3 SCC 489; Spargo's  Case,
1873  LR 8 Ch. App. 407; M/s B.D Yadav and M.R.  Meshram  v.
Administrator of the City of Nagpur, AIR 1984 Bombay 351 and
T.V.  Subharda Amma v. Kerala Board of Revenue and  Others,
AIR 1982 Kerala, 81, referred to.



JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2272 of 1991.
From the Judgment and Order dated 12.11.1990 of the Allahabad High Court in C.M.W.P. No. 11192 of 1990.
Sunil Gupta and S.Sukumaran for the Appellant. Dr. Anand Prakash, B.K. Prasad and S.N. Sikka for the Respondents.
The Judgment of the Court was delivered by SHARMA, J. Special Leave is granted.
2. In response to a notice inviting tenders by the Diesel Locomotive Works. Indian Railways, in connection with disposal of one lot of Ferrous Scrap, a number of tenders were submitted by the appellant, the respondent no. 1 and other intending purchasers. The tenders of the respondent no. 1 and some other bidders were rejected as defective and the appellant's offer being the highest was accepted, and accordingly the appellant deposited a sum of about Rs.15 lacs. The respondent no .1 challenged the decision by a writ petition before the Allahabad High Court contending that there was no defect in its tender and that the tender of the appellant could not have been validly accepted as the necessary condition of payment of Rs. 50,000 as earnest money with the tender had not been complied with. The application was resisted on the grounds (i) that the respondent no. 1 having not deposited the earnest money at all was not entitled to a consideration of its tender and has no locus standi in the present matter; and (ii) that the appellant had substantially complied with the requirement by sending with its tender a Banker's Cheque marked and certified by the Union Bank of India as good for payment. The High Court accepted the appellant's first ground, holding that the tender of the respondent had been rightly rejected for failure to deposit the earnest money, but allowed the writ petition on the finding that the appellant also did not satisfy the condition no.6 of the tender notice as the earnest money was offered by the Banker's Cheque of a bank other than the State Bank of India mentioned in the said clause. The High Court directed the authorities to consider the other valid tenders and further observed that should the other tenders be found to be unacceptable it would be open to the authorities to invite fresh tenders. the present appeal is directed against this judgment.
3. The case of the appellant has been that its tender mentioned the highest amount of one and a half crores rupees for the 2000 M.T. of Ferrous Scrap which was a very fair price, and the authorities were absolutely right in accepting the same. With respect to the alleged deficiency in the matter of deposit of the earnest amount, the stand is that a Banker's Cheque is as good as cash and especially so when a verification from the bank in question about its authenticity was made and the Bank's assurance to honour the same was obtained. Admittedly, the Tender Committee had taken the precaution of getting the matter confirmed from the appellant's bank before deciding to accept his tender.
4. The relevant clause 6 of the notice required the tender to be accompanied by earnest money calculated at 5% of the offer under the tender subject to a maximum of Rs 50,000 and in terms permitted the deposit by cash or by demand draft drawn on the State Bank of India. the defect pointed out by the respondent no. 1 and accepted by the High Court is in the appellant sending the cheque of the Union Bank of India drawn on its own branch and not on the State Bank. By the impugned judgment it has been held that in view of this defect the authorities had no power to accept the appellant's tender.
5. the learned counsel for the appellant has contended that having regard to the circumstances in the case it must be held that the Tender Committee had the power to accept the appellant's tender. Referring to the books "Bills of Exchange" by Byles, and "Cheques in Law and Practice" by M.S. Parthasarathy, it has been argued that certified cheques are as good as cash and the irregularity relied upon in the appellant's submitting his tender could be validly waived by the Diesel Locomotive Works. Reliance was also placed on M/s B.D. Yadav and M.R. Meshram v. Administrator of the City of Nagpur, AIR 1984 Bombay 351 and T.V Subhadra Amma v. Kerala Board of Revenue and Others, AIR 1982 Kerala
81.
6. It is true that in submitting its tender accompanied by a cheque of the Union Bank of India and not of the State Bank the clause no. 6 of the tender notice was not obeyed literally, but the question is as to whether the said non- compliance deprived the Diesel Locomotive Works of the authority to accept the bid. As a matter of general proposition it cannot be held that an authority inviting tenders is bound to give effect to every term mentioned in the notice in meticulous detail, and is not entitled to waive even a technical irregularity of little or no significance. The requirements in a tender notice can be classified into two categories-those which lay down the essential conditions of eligibility and the others which are merely ancillary or subsidiary with the main object to be achieved by the condition. In the first case the authority issuing the tender may be required to enforce them rigidly. In the other cases it must be open to the authority to deviate from and not to insist upon the strict literal compliance of the condition in appropriate cases. This aspect was examined by this Court in GJ Fernandez v. State of Karnataka 7 Ors., [1990] 2 SCC 488 a case dealing with tenders. Although not in an entirely identical situation as the present one, the observations in the judgment support our view. The High Court has, in the impugned decision, relied upon Ramana Dayaram Shetty v. International Airport Authority of India & Ors., [1979] 3 SCC 489 but has failed to appreciate that the reported case belonged to the first category where the strict compliance of the condition could be insisted upon. The authority in that case, by not insisting upon the requirement in the tender notice which was an essential condition of eligibility, bestowed a favour on one of the bidders, which amounted to illegal discrimination. The judgment indicates that the Court closely examined the nature of the condition which had been relaxed and its impact before answering the question whether it could have validly condoned the shortcoming in the tender in question. This part of the judgment demonstrates the difference between the two categories of the conditions discussed above. However it remains to be seen as to which of the two clauses, the present case belongs.
7. The nature of payment by a certified cheque was considered by this Court in Sita Ram Jhunjhunwala v. Bombay Bullion Association Ltd. & Anr., [1965] 35 Company Cases
526. Several objections were taken there in support of the plea that the necessary condition in regard to payment was not satisfied and in that context this Court quoted the observations from the judgment in an English decision (vide Spargo's case: 1873 L.R. & Ch. App. 407) that it is a general rule of law that in every case where a transaction resolves itself into paying money by A to B and then handing it back again by B to A, if the parties meet together and agree to set one demand against the other, they need not go through the form and ceremony of handing the money backwards and forwards. This Court applied that the observations to a transaction requiring payment by one to another. The High Court's decisions in B.D. Yadav's case and T.V. Subhadra Amma's case are also illustrations where literal compliance of every term of the tender notice was not insisted upon.
8. In the instant case the certified cheque of the Union Bank of India drawn on is own branch must be treated as sufficient for the purpose of achieving the object of the condition and the Tender Committee took the abundant caution by a further verification from the bank. In this situation it is not correct to hold that the Diesel Locomotive Works had no authority to waive the technical literal compliance of clause 6, specially when it was in its interest of not to reject the said bid which was the highest. We, therefore, set aside the impugned judgment and dismiss the writ petition of the respondent no. 1 filed before the High Court. The appeal is accordingly allowed with costs through out.
R.P.      Appeal allowed.



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