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PETITIONER: PODDAR STEEL CORPORATION

       Vs.

RESPONDENT: GANESH ENGINEERING WORKS AND OTHERS.

DATE OF JUDGMENT06/05/1991

BENCH: SHARMA, L.M. (J) 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

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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.                                                        698      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

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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.                                                        699      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

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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 &                                                        700 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.                                                    701

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