2003 (8) TMI 546 - SC - Indian Laws

Supreme Court Rules Bank Guarantee Enforceable, Reverses High Court on Bid Security Forfeiture in Contractual Dispute.

The SC set aside the HC's judgment, dismissing the writ petition and upholding the forfeiture of bid security. It ruled that the bank guarantee was ... Forfeiture of bid security - Tender notice calling for tenders for collection of toll on a portion of the highway running through Rajasthan - Jurisdiction of a Writ Court in contractual disputes - HELD THAT:- It is settled law that a contract of guarantee is a complete and separate contract by itself. The law regarding enforcement of an 'on demand bank guarantee' is very clear. If the enforcement is in terms of the guarantee, then Courts must not interfere with the enforcement of bank guarantee. The Court can only interfere if the invocation is against terms of the guarantee or if there is any fraud. Courts cannot restrain invocation of an 'on demand guarantee' in accordance with its terms by looking at terms of the underlying contract. The existence or non-existence of an underlying contract become irrelevant when the invocation is in terms of the bank guarantee. The bank guarantee stipulated that if the bid was withdrawn within 120 days or if the performance security was not given or if an Agreement was not signed, the guarantee could be enforced. The bank guarantee was enforced because the bid was withdrawn within 120 days. Therefore, it could not be said that the invocation of the bank guarantee was against the terms of the bank guarantee. If it was in terms of the bank guarantee, one fails to understand as to how the High Court could say that the guarantee could not have been invoked. If the guarantee was rightly invoked, there was no question of directing refund as has been done by the High Court. The Bid security was given to meet a specific contingency viz. non-withdrawal of the offer within 120 days. The contingency having arisen, Appellants were entitled to forfeit. It may only be mentioned that in the proposed Agreement there is a clause which provides that if there is a delay on the part of the Appellants, which results in delay in the work of collection of toll, the amount payable by the Respondent would be reduced pro-rata. Thus by reason of the delay Respondent would not have suffered. Also Respondent was well aware that 120 days would end on 28th November, 1997. Thus the Respondent was aware when he gave his offer, that acceptance could be delayed till 28th November, 1997. Thus non-acceptance till 20th November, 1997 was not a ground would justify action of Respondent in withdrawing his offer. Thus, the impugned Judgment is set aside. The Appeal is accordingly allowed. The Writ Petition of the Respondents shall stand dismissed. There will be no order as to costs. Issues Involved:The issues involved in this case are the forfeiture of bid security, withdrawal of bid offer, enforceability of bank guarantee, and the jurisdiction of a Writ Court in contractual disputes.Forfeiture of Bid Security:The appellant issued a tender notice for toll collection, requiring bid security of Rs. 50 lakhs. The respondent withdrew the bid before the expiry of 120 days, leading to the appellant encashing the bank guarantee. The High Court allowed the writ petition for refund, stating that no completed contract existed. However, the Supreme Court held that forfeiture of bid security was valid as it was given to ensure non-withdrawal of the offer within the specified period.Withdrawal of Bid Offer:The respondent withdrew the bid before acceptance, citing incomplete toll plazas by the appellant. The Supreme Court ruled that the bid security was forfeited rightfully as it was meant to prevent withdrawal within the stipulated period. The delay in acceptance did not justify the respondent's withdrawal of the offer.Enforceability of Bank Guarantee:The bank guarantee provided for enforcement if the bid was withdrawn within 120 days, which the appellant rightfully invoked. The Supreme Court emphasized that a bank guarantee is a separate contract, and courts should not interfere unless against the guarantee's terms or in case of fraud. The invocation of the bank guarantee was in accordance with its terms, making the refund ordered by the High Court unjustified.Jurisdiction of Writ Court in Contractual Disputes:The High Court allowed the writ petition, stating that the bank guarantee's invocation was illegal. However, the Supreme Court held that contractual disputes cannot be addressed under Article 226 of the Constitution. The petition should have been dismissed on grounds of maintainability, as disputes regarding contract terms fall outside the Writ Court's jurisdiction.In conclusion, the Supreme Court set aside the High Court's judgment, allowing the appeal and dismissing the writ petition. The forfeiture of bid security was upheld, emphasizing the purpose of bid security and the enforceability of the bank guarantee as per its terms. The jurisdiction of a Writ Court in contractual disputes was clarified, highlighting that such disputes cannot be entertained under Article 226 of the Constitution.