Citation: 2025 INSC 215
Date of Judgment: February 14, 2025
Coram: Justice Sanjay Kishan Kaul, Justice Abhay S. Oka, Justice Manoj Misra

🧾 Background and Facts

The case arose from a tender dispute involving M/s ABCI Infrastructures Pvt. Ltd. (“Appellant”) and the Union of India (“Respondent”), relating to a major public works project under a government department. The appellant submitted a bid for a road construction tender issued by the Ministry of Road Transport and Highways (MoRTH).

After the bid was submitted, the appellant noticed a calculation error in the financial bid—specifically, an inadvertent typographical mistake in the quoted rates for certain items. This error led to an abnormally low total bid, which, if accepted and enforced, would have placed the company in financial jeopardy. The appellant sought to withdraw the bid before the award of the contract was finalized, citing the genuine error.

However, the Respondent rejected the withdrawal request and proceeded to forfeit the Earnest Money Deposit (EMD) or Bank Guarantee, arguing that the appellant’s action amounted to a violation of the bid terms.

The appellant filed a writ petition before the High Court, which dismissed the plea on the grounds that the terms of the bid were binding. The matter then came up before the Supreme Court.

⚖️ Issues for Consideration

1. Whether the appellant was entitled to withdraw its bid due to a genuine and demonstrable error made in good faith.
2. Whether the doctrine of proportionality should apply in the enforcement of penal provisions like forfeiture of EMD.
3. Whether the forfeiture of the Bank Guarantee was legally and constitutionally sustainable in the facts of the case.

📚 Legal Principles and Doctrines Discussed

🔹 1. Doctrine of Proportionality

The Supreme Court emphasized that government actions, particularly those that involve economic penalties or forfeiture, must be reasonable, fair, and proportionate. Even in contractual contexts, especially involving the State or public bodies, the constitutional mandate of Article 14 (equality and non-arbitrariness) continues to apply.

The Court referred to earlier decisions like:

• Central Inland Water Transport Corporation v. Brojo Nath Ganguly – on unfair and unreasonable contract clauses,
• Mahabir Auto Stores v. Indian Oil Corporation – on the State’s conduct in commercial contracts being subject to constitutional scrutiny.

🔹 2. Tender and Bid Withdrawal Jurisprudence

The Court reaffirmed that bidders are generally bound by the bid once submitted. However, an exception exists when:

• There is clear, bona fide evidence of mistake;
• No malafide intent or collusion is apparent;
• The withdrawal is before any rights are crystallized (e.g., before the issuance of Letter of Acceptance).

🔹 3. Forfeiture of Bank Guarantee

The Court acknowledged that while bank guarantees are a financial discipline mechanism, their invocation cannot be mechanical or punitive in nature. The purpose of a bid guarantee is not to enrich the State but to secure performance.

🧑‍⚖️ Judgment and Observations

The Supreme Court partially allowed the appeal, setting aside the order of forfeiture. It held:

1. The appellant had established a genuine error—supported by documentation and prompt rectification attempts.
2. The State’s decision to forfeit the bank guarantee in such circumstances was disproportionate, especially when there was no mala fide, no loss, and no award of contract.
3. Withdrawal of the bid was not an act of default, but a necessary corrective measure to avoid unjust enrichment or performance impossibility.
4. The Court observed that constitutional fairness and contractual obligations are not mutually exclusive. State entities must balance contractual rigidity with equity and reasonableness.

📌 Conclusion

The decision in M/s ABCI Infrastructures Pvt. Ltd. v. Union of India is a significant development in Indian contract law, especially in the field of public procurement and tendering. It strikes a delicate balance between contractual sanctity and fairness, ensuring that governmental authorities do not act arbitrarily under the guise of enforcing bid terms.

It adds to the growing jurisprudence where commercial contracts with the State are held to constitutional standards, making it a landmark reference for future tender-related litigation.