2025 (2) TMI 587 - SC - Indian Laws

Contractor wins appeal against bank guarantee encashment after typographical error in bid submission under Section 20

M/s. ABCI INFRASTRUCTURES PVT. LTD. Versus UNION OF INDIA AND OTHERS

SC held that while appellant was at fault for submitting bid of Rs.1,569 due to typographical error (failing to add zeros), BRO was unjustified in ... Acceptance of bid and subsequently encashing the bank guarantee - typographical error - valid agreement or not - Section 20 of the Indian Contract Act, 1872 - whether BRO was justified in accepting the bid of Rs.1,569, and on the failure of the Appellant to execute the agreement asking for forfeiture vide encashment of bank guarantee of Rs.15,04,64,000? - HELD THAT:- A mistake may be unilateral or mutual, but it is always unintentional. If it is intentional, it ceases to be a mistake. Mistakes or errors, though avoidable, are committed inadvertently. They have varied consequences in law. As per Section 20 of the Indian Contract Act, 1872 whereby both parties to an agreement are under a mistake as to matter of fact essential to an agreement, the agreement is void. The explanation to Section 20 says that an erroneous opinion as to the value of the thing which forms the subject matter of an agreement is not deemed to be a mistake as a matter of fact. This will not be a case covered by Section 20 of the Contract Act. However, this is not the first time that this question has arisen either before this Court or Courts outside of India. In West Bengal State Electricity Board [2001 (1) TMI 921 - SUPREME COURT], the private party, the bidder did not succeed for several reasons, including the factum that the error was not obvious and self-evident. Further, the correction of such mistakes after one and a half months after the opening of the bids would have violated the express clauses relating to the computation of the bid amount. Thus, waiver of the rule or conditions in favour of the one bidder would have created unjustifiable doubts in the minds of others impairing the rule of transparency and fairness and providing room for manipulation for awarding contracts. The Appellant was at fault and had made the mistake, of having failed to add the required zeros in the financial bid. The plea of a system glitch should not be accepted, as others had successfully uploaded their bids without a problem - BRO justified encashing the bank guarantee by citing delays caused by issuing a second notice inviting bids. This claim is baseless, as BRO was aware of the Rs.1,569/- error. Instead of declaring the bid non est due to the clear mistake, BRO asked the appellant to justify the bid, cancelled the notice, declared the Appellant a defaulter, invoked the bank guarantee, and issued a fresh notice inviting bids. BRO’s claim that the delay was entirely due to the Appellant’s mistake is flawed, ignoring BRO’s own lapses. Mistakes, including by authorities, should be resolved through corrective steps. A practical approach could have avoided the delay, which was caused by BRO’s refusal to acknowledge the Appellant’s genuine error and the unwarranted cancellation of the bid - the Appellant is directed to pay Rs.1 crore to BRO, as a consequence of their error. Upon receiving this payment, BRO shall return the Appellant’s original bank guarantee or demand draft of Rs.15.04 crores within one week. Conclusion - M/s ABCI was at fault for the mistake but criticized BRO for not acknowledging the error promptly. The BRO's refusal to acknowledge the mistake and its subsequent actions caused unnecessary delays in the project. Appeal allowed. The Supreme Court analyzed a case involving a bidding process for a construction project by M/s ABCI Infrastructure Private Limited and the Border Road Organisation (BRO) under the Ministry of Defence, Union of India. The core issue was whether BRO was justified in accepting M/s ABCI's bid of Rs.1,569 and subsequently encashing the bank guarantee of Rs.15.04 crores after M/s ABCI claimed it was a typographical error.The Court considered the legal framework under Section 20 of the Indian Contract Act, 1872, which deems an agreement void if both parties are mistaken about a material fact. The Court referred to the principle that equitable relief may be granted to a bidder who promptly informs authorities of a material mistake before entering into a contract. The Court cited American and US Supreme Court decisions emphasizing the need for clear, explicit, and undisputed mistakes for equitable relief.The Court also discussed exceptions to granting relief based on mistakes, such as the bidder's failure to act promptly, follow bid withdrawal rules, or rectify errors before bid opening. The Court referenced a New Jersey case where an error in bid specifications could be disregarded if the true intent of the bidder was clear. The Court highlighted the importance of transparency and fairness in bid processes.In analyzing the present case, the Court found that the error in M/s ABCI's bid of Rs.1,569 was self-evident and could not be debated given the project's scale and nature. The Court agreed that M/s ABCI was at fault for the mistake but criticized BRO for not acknowledging the error promptly. The Court noted that BRO's refusal to acknowledge the mistake and its subsequent actions caused unnecessary delays in the project.Ultimately, the Court directed M/s ABCI to pay Rs.1 crore to BRO as a consequence of the error. Upon receipt of this payment, BRO was instructed to return M/s ABCI's original bank guarantee within one week. The Court set aside the impugned judgment and allowed the appeal without costs.In conclusion, the Court emphasized the importance of acknowledging mistakes promptly and adopting a practical approach to resolve issues in contractual matters. The decision aimed to balance the interests of both parties while ensuring fairness and transparency in bidding processes.