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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (C) NO. 12144 OF 2009

      Villayati Ram Mittal (Pvt.) Ltd.           …… Petitioner

Versus

   Union of India & Anr.                                    …… Respondents

O R D E R

    A. K. PATNAIK, J.

1. This  Special  Leave  Petition  under  Article  136  of  the  

Constitution  of  India  has  been  filed  against  the  judgment  

dated 15.10.2008 of the Division Bench of the High Court of  

Delhi in Writ Petition (C) No.14998 of 2004.   

2. The relevant facts very briefly are that the petitioner is  

a private limited company carrying on inter alia the business  

of construction.  In April 2004, respondent No.2 published a  

notice  inviting  tenders  for  construction  of  married  

accommodation  at  Shankar  Vihar-II,  Pocket,  Delhi  

Cantonment, at an estimated cost of Rs.40 crores (for short

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“the  Notice”).   Clause  6  of  the  Notice  stipulated  that  the  

tenderer  shall  furnish  earnest  money  of  Rs.40  lacs  in  the  

form of FDR from a nationalized bank drawn in favour of the  

Director  General,  Married  Accommodation  Project,  Kashmir  

House, Rajaji Marg, New Delhi.  Clause 6 also stipulated that  

if  the  firm revokes  its  offer  during  the  validity  period,  the  

earnest  money furnished by the firm shall  be  forfeited.   In  

response to the Notice, the petitioner submitted its offer along  

with earnest  money of Rs.40 lacs.  When the tenders  were  

opened on 05.05.2004, the offer of the petitioner was found to  

be the lowest at Rs.32 crores for the work.  On 06.05.2004,  

however, the petitioner sent a letter to the respondent No.2  

making  a  correction  of  a  figure  in  its  tender  to  read  as  

Rs.32,76,000/- instead of Rs.23,76,000/-.  As a result of this  

correction, the offer of the petitioner for the work increased  

from Rs.32 crores to Rs.41 crores.  Respondent No.2 treated  

this  correction  made  by  the  petitioner  in  its  tender  as  

revocation of its offer and forfeited the earnest money of Rs.40  

lacs furnished by the petitioner.   

3. Aggrieved,  the  petitioner  filed  Writ  Petition  (C)  

No.14998 of 2004 under Article 226 of the Constitution before  

the High Court of Delhi, but by the impugned judgment the

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High Court dismissed the Writ Petition after holding that the  

correction  of  the  bid  made  by  the  petitioner  amounted  to  

revocation of its original offer and hence the respondent No.2  

was  entitled  to  forfeit  the  earnest  money  furnished  by  the  

petitioner in terms of Clause 6 of the Notice.

4. Learned counsel  for the petitioner submitted  that the  

High  Court  failed  to  appreciate  that  the  tender  of  the  

petitioner  was  initially  defective  in  as  much as  the  earnest  

money,  which  was  furnished  by  the  petitioner,  was  not  in  

accordance with Clause 6 of the Notice.   He explained that  

Clause 6 of the Notice provided that the earnest money was to  

be in the form of FDR from a nationalized bank, but the FDR  

of Rs.40 lacs furnished by the petitioner was from UTI Bank,  

which was not a nationalized bank.  He further submitted that  

the petitioner had to make the correction in the figure so as to  

read as Rs.32,76,000/- instead of Rs.23,76,000/- because a  

mistake  had  been  committed  by  the  petitioner  while  

calculating the figure and, therefore, soon after the tender was  

opened  on  05.05.2004  the  petitioner  submitted  the  letter  

dated  06.05.2004  to  the  respondent  No.2  correcting  the  

aforesaid  mistake  in  the  calculation  of  the  figure.   He  

submitted that the respondent No.2 ought not to have treated

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the letter dated 06.05.2004 as revocation of the offer of the  

petitioner.   Learned  counsel  for  the  petitioner  further  

submitted that in any case the entire Notice was recalled and  

a fresh Notice was issued by respondent No.2 inviting tenders  

at a revised estimated cost.  According to learned counsel for  

the petitioner, since the tender process in respect of which the  

petitioner  had  furnished  the  earnest  money  was  cancelled,  

respondent No.2 should have refunded the earnest money to  

the petitioner.   

5. Learned  counsel  for  the  respondents,  on  the  other  

hand,  supported  the impugned judgment of  the High Court  

and  relied  on  the  counter  affidavit  filed  on  behalf  of  the  

respondents in the High Court as well as in this Court.

6. We find that Clause 6 of the Notice clearly stipulated  

that “if any firm revokes its offer during the validity period, its  

earnest money shall be forfeited”.   Hence, the question that  

arose  before  the  High  Court  for  decision  was  whether  the  

petitioner  by  revising  one  of  the  figures  in its  tender  from  

Rs.23,76,000/- to Rs.32,76,000/-  revoked its  offer  and the  

High Court  has  taken  the  view in  the  impugned  judgment  

that as a consequence of the change in the figures, the offer  

of the petitioner for the work was enhanced from Rs.32 crores

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to  Rs.41  crores  and,  therefore,  the  original  offer  of  Rs.32  

crores for the work stood revoked.  In para 12 of the counter  

affidavit filed in reply to the Writ Petition in the High Court  

the  respondents  have  stated  that  after  receiving  the  letter  

dated 06.05.2004 of the petitioner correcting the figures in its  

tender,  the respondents sent letters to the petitioner giving  

opportunity  to  the  petitioner  to  withdraw  its  letter  dated  

06.05.2004 on or before 04.06.2004 and yet the petitioner did  

not withdraw its letter dated 06.05.2004.  These facts clearly  

establish that the petitioner was not willing to stand by its  

original offer of Rs.32 crores for the work and was willing to  

do the work only at the revised bid of Rs.41 crores.  The High  

Court was thus right in coming to the conclusion that the  

petitioner had revoked its offer of Rs.32 crores for the work.   

7. The legal principles relating to “Earnest Money’ are well  

settled.  In Chiranjit Singh v. Har Swarup [AIR 1926 PC 1], the  

Judicial Committee of the Privy Council held:  

“Earnest money is part of the purchase price when  the transaction goes forward: it is forfeited when the  transaction falls through, by reasons of the fault or  failure of the vendee”.   

These  observations  of  the  Judicial  Committee  have  been  

quoted in the judgment of this Court in Shri Hanuman Cotton

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Mills & Ors. v.  Tata Air Craft Limited [(1969) 3 SCC 522] in  

which the principles relating to earnest money have been laid  

down.

8. Similarly, in  H.U.D.A. & Anr. v.  Kewal Krishan Goel &  

Ors.,etc. [(1996) 4 SCC 249], this Court quoted the following  

observations of Hamilton, J. in Summer and Leivesley v. John  

Brown & Co. [25 Times LR 745] with regard to the meaning of  

‘earnest’ :

“‘Earnest’ … meant something given for the purpose  of binding a contract, something to be used to put  pressure on the defaulter if he failed to carry out his  part.  If the contract went through, the thing given  in earnest was returned to the giver, or, if money,  was deducted from the price.  If  the contract went  off  through  the  giver’s  fault  the  thing  given  in  earnest was forfeited.”

9. It is thus clear that when earnest money is furnished by  

a tenderer it forms part of the price if the offer of the tenderer  

is accepted or it is refunded to the tenderer if someone else’s  

offer is accepted, but if for some fault or failure on the part of  

the  tenderer  the  transaction  or  the  contract  does  not  come  

through, the party inviting the tender is entitled to forfeit the  

earnest money furnished by that tenderer.

10. In facts of the present case, the respondents have stated  

in their reply to the Writ Petition before the High Court that as

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a consequence of the failure of the petitioner to stand by its  

offer dated 05.05.2004 the tender for the work had to be re-

invited  by  the  respondent  No.2  on  revised  costs  of  the  

construction and in the circumstances,  the respondent No.2  

had to forfeit  the earnest  money of the petitioner.  This was  

thus a case  where  on account  of  failure  on the part  of  the  

petitioner to stand by its offer, the transaction or the contract  

did  not  come  through  and  therefore  the  respondents  were  

entitled to forfeit the earnest money furnished by the petitioner  

in terms of Clause 6 of the Notice.  

11. For these reasons, we are not inclined to interfere with  

the impugned judgment of the High Court and we accordingly  

dismiss the Special Leave Petition with no order as to costs.  

         ……………………..J.                                                                         (Altamas Kabir)

         ……………………..J.                                                                        (A. K. Patnaik) New Delhi, September 21, 2010.