SHRI. SHANKARGOUDA N HOSAMANI v. THE STATE OF KARNATAKA

Judgment

#2. THE STATE OF KARNATAKA, REPRESENTED BY ITS SECRETARY, DEPARTMENT OF WATER RESOURCES, VIKAS SOUDHA, BENGALURU - 560 001. THE MANAGING DIRECTOR, KARNATAKA NEERAVARI NIGAM LTD., 4TH FLOOR, COFFEE BOARD BUILDING NO.1 DR. B.R.AMBEDKAR VEEDHI, BENGALURU - 560 001. …PETITIONER - 2 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR

#8. THE CHIEF ENGINEER, KARNATAKA NEERAVARI NIGAM LTD., CLUB ROAD, BELAGAVI - 590 001. THE CHIEF ENGINEER, KARNATAKA NEERAVARI NIGAM LTD., TLC ZONE, SAGAR ROAD, SHIMOGGA - 577 202. THE SUPERINTENDING ENGINEER, KARNATAKA NEERAVARI NIGAM LTD., R AND R CIRCLE, ATHANI, BELGAUM - 591 304. THE SUPERINTENDING ENGINEER, KARNATAKA NEERAVARI NIGAM LTD., TLC CIRCLE, SAGAR ROAD, SHIMOGGA, SHIMOGGA - 577 202. THE EXECUTIVE ENGINEER, KARNATAKA NEERAVARI NIGAM LTD., R AND R DIVISION, ATHANI, BELGAUM - 591 304. THE EXECUTIVE ENGINEER, KARNATAKA NEERAVARI NIGAM LTD., TUNGA LIFT IRRIGATION, DANDAVATHI DIVISION, (DRP DIVISION), SHIKAARIPURA, SHIMOGGA - 577 427.

#9. SHRI. B.R. RATHOD, SUPERINTENDING ENGINEER, KARNATAKA NEERAVARI NIGAM LTD., R AND R CIRCLE, ATHANI, BELGAUM - 591 304.

#10. THE CHIEF ACCOUNTS OFFICER, KARNATAKA NEERAVARI NIGAM LTD., VIJAYA COMPLEX, SHRINAGARA CIRCLE, - 3 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR HALIYALA ROAD, DHARWAD - 580 007. …RESPONDENTS (BY SRI.MANJUNATH RAYAPPA, AGA FOR R1; SRI.PRASHANTH B.R., ADVOCATE FOR R2 TO R10) THIS WP IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT, THE RESPONDENTS CANNOT RECOVER THE REFUNDED EMD AMOUNT OF RS.33,17,000 PLUS 7,89,148 EQUAL TO TOTAL RS.41,06,148/- BY VIRTUE OF CLAUSE 3.1.8 OF THE SHORT TERM TENDER NOTIFICATION DATED 18.07.2019 ANNEXURE-B ISSUED BY THE R7 AND ETC., THIS PETITION, COMING ON FOR ORDERS, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE M.G.S. KAMAL ORAL ORDER Petitioner in this petition is seeking for the following reliefs: "i. Issue an appropriate writ, order or direction declaring that, the respondents cannot recover the refunded EMD amount of Rs.33,17,000 + 7,89,148 = Total 41,06,148/, by virtue of Clause 3.1.8 of the Short Term Tender Notification bearing No. KNNL/R & R/PB/TND/TBLIS/DC-1A/Dys/Kal-East and Kaji-West Canal/19-20/562 dated 18.07.2019 (Annexure-B) issued by the 7th respondent, in the interest of justice and equity. ii. Issue an appropriate, writ or order or direction quashing the communication Yo.Sha/ EMD.Forfeiture/ 2021-22/701 dated 15.09.2021 (Annexure - F) issued by the 7th respondent to the 8th respondent, in the interest of justice and equity. No.KNNL/ PuPuVi/ bearing iii. Issue an appropriate writ, order or direction quashing the communication bearing No.KNNL/MuLeA/Ao-1/5743 dated 24.11.2020 (Annexure-H) issue by the 10th respondent to the 7th respondent, in the interest of justice and equity. - 4 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR iv. Pass such other order as this Hon'ble Court deems fit, on the facts and circumstances of the case, including the award of costs, in the interest of justice and equity."

#2. The brief facts of the case are that a tender notification bearing No. KNNL/2019 - 20/CN/WORK_INDENT27548 dated 02.07.2019 had been issued by 7th respondent - Executive Engineer, Athani Karntaka Neeravaril Nigam Limited (hereinafter "KNNL" for short) for construction of a Distributary of an estimated value of Rs. 33,16,56,710.34/-.

#3. Clause No. 3.00 of the tender notification provides following Calendar of Events: Sl. No. 1 2 3 4 5 Calendar of Events Dates The contractor can request for e-tendering documents From 19.07.2019 @ 10.30AM to 09-08-2019 upto 4.00 PM Last date &time for tender queries

30.07.2019 upto 4.00 PM Pre bid meeting will be held in the office of the M D KNNL Bengaluru

29.07.2019 at 11.00 AM Submission of completed e- tendering document From 19.07.2019 @ 10.30 AM to 09.08.2019 upto 4.00 PM Opening of Technical Bid at EE KNNL R & R Division Athani

13.08.2019 @ 11.0 AM 6 Opening of Financial Bid at 20.08.2019 @ 11.00 AM or after - 5 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR EE KNNL R & R Division Athani on approval of technical bid.

#4. Thereafter, a Corrigendum dated 07.09.2019 was issued extending the time for submission of tender which reads as under: Sl. No. Tender Schedule Dates 1 2 3 4 5 Last date & time for tender queries/clarifications

11.09-2019 upto 5:30 PM Pre bid meeting Date (MD KNNL Bengaluru)

16.09.2019 At 11:00 PM Last date & time for receipt of tender

24.09.2019 upto 4:00 PM Date and Time for Opening of Technical Bid (EE KNNL R & R Division Athani) Date and Time for Opening of Financial Bid. (EE KNNL R & R Division Athani)

26.09.2019 At 11:00 AM

30.09.2019 At 11:00 AM or after approval of technical bid. Thus, as per the said Calendar of Events, last date and time for submission of tender was 24.09.2019 upto 04.00 p.m.

#5. Clause No. 3.1.8 of the tender notification reads as under: "Any bidder who is otherwise technically qualified withdraws from the bidding process at any stage before a final decision is taken on the tender, the EMD of such bidder shall be forfeited, the name of such bidder shall be removed from the category list of contractors at least for a minimum period of - 6 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR one year in KNNL, besides making such bidders liable for blacklisting."

#6. It appears, petitioner had made a request for withdrawal of the tender on 21.09.2019 as per Annexure-D. Pursuant to which, the EMD of Rs.33,17,000/- which was paid by the petitioner along with the tender documents, was returned/refunded to the petitioner as per Annexure-E on

26.12.2019.

#7. When the things stood thus, a communication had been forwarded by the Executive Engineer of KNNL instructing to recover the EMD amount of Rs.33,17,000/- with interest thereon. It communication consequent correspondence which has constrained the petitioner to approach this Court.

#8. Learned counsel for the petitioner taking this Court to the records submits that though the petitioner had submitted the tender documents along with the EMD as required, he had sought for withdrawal of the same on

21.09.2019, i.e., much prior to the last date and time for submission of the tender and even before opening of the technical or financial bid as provided thereunder. He submits in - 7 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR terms of Clause No.3.1.8, the question of forfeiture would arise only if the petitioner was found to be technically qualified and despite thereof seeks withdrawal of the tender notification before the final decision was taken. He submits that in the instant case, request for withdrawal of the tender was made much prior to the last date and time for submission of tender. Therefore the respondent authorities cannot invoke Clause No.3.1.8 of the tender document and insist the petitioner to refund the amount with interest thereon. In support of his submissions, he relies upon the judgment of the Apex Court in the case of KAILASH NATH ASSOCIATES vs. DELHI DEVELOPMENT AUTHORITY AND ANOTHER reported in (2015) 4 SCC 136. Referring to at paragraphs Nos.29, 43 and 44 thereof he submits that the submission of tender by itself would not constitute a contract, providing ground respondent authorities to claim for damages. Even before the acceptance of the tender, petitioner has withdrew the same. Therefore the Ingredients of offer and acceptance had not culminated into a contract justifying forfeiture of the EMD amount as sought to be done in this case and seeks for allowing the petition. - 8 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR

#9. Per contra, learned counsel appearing respondent Nos. 2 to 10 vehemently opposing the petition submits that the process of submission of the tender was not manual but through the online/e-portal process where the tender receiving authorities have no say in the matter. Though petitioner has made the request for withdrawal, since the tender receiving authority will not be knowing the persons who have submitted the tender document, no action or order could be passed thereon. He further submits that as per the records maintained by the respondents, the tender document submitted by the petitioner was indeed opened and his technical bid was found to be acceptable. Therefore, Clause No. 3.1.8 kicks in and the petitioner who had submitted the EMD is bound by the said terms. The refund was by a mistake of facts. Therefore, the process was initiated to recover the same.

#10. Be that as it is. A plain reading of Clause No. 3.1.8 extracted hereinabove, which indicate implicit liberty being reserved for withdrawal of the tender by a person before ascertainment of his technical qualification. It only prohibits withdrawal of the tender by a bidder who is otherwise - 9 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR technically qualified before the final decision was taken on his tender.

#11. Admitted facts as narrated above indicate that petitioner herein had sought for withdrawal of his tender document on 21.09.2019 instant, which is much prior to the last date and time for submission of tender document i.e.,

24.09.2019. Therefore, the question of determination of its technical qualification which was to be made on 26.09.2019 would not arise.

#12. As rightly pointed out by learned counsel for the petitioner, mere submission of the tender document unless accepted, constitute a contract. There is also force in the submission made by learned counsel for the petitioner that the provision for forfeiture is to prevent breach of contract and as a compensation thereof. When the contract itself has not come into existence, the question of breach and consequent payment of compensation towards damages would not arise. - 10 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR

#13. In the circumstances, it is appropriate to refer to paragraph Nos. 29, 43 and 44 of the Judgment of the Apex Court in KAILASH NATH supra as under: "29. Based on the facts of this case, it would be arbitrary for the DDA to forfeit the earnest money on two fundamental grounds. First, there is no breach of contract on the part of the appellant as has been held above. And second, DDA not having been put to any loss, even if DDA could insist on a contractual stipulation in its favour, it would be arbitrary to allow DDA as a public authority to appropriate Rs.78,00,000/- (Rupees Seventy Eight Lakhs) without any loss being caused. It is clear, therefore, that Article 14 would apply in the field of contract in this case and the finding of the Division Bench on this aspect is hereby reversed.

#43. On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows:-

43.1.Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.

43.2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.

43.3.Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section. - 11 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR

43.4. The Section applies whether a person is a plaintiff or a defendant in a suit.

43.5.The sum spoken of may already be paid or be payable in future.

43.6.The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.

43.7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application.

#44. The Division Bench has gone wrong in principle. As has been pointed out above, there has been no breach of contract by the appellant. Further, we cannot accept the view of the Division Bench that the fact that the DDA made a profit from re-auction is irrelevant, as that would fly in the face of the most basic principle on the award of damages - namely, that compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall."

#14. In the light of the aforesaid facts and the position of law, the following; ORDER i) The petition is allowed. ii) Consequently, the impugned Communications bearing No.KNNL/ PuPuVi/Yo.Sha/EMD.Forfeiture/2021-22/701 dated

15.09.2021 (Annexure - F) issued by the 7th respondent and - 12 - NC: 2026:KHC:25642 WP No. 24365 of 2021 HC-KAR No.KNNL/MuLeA/Ao-1/5743 dated 24.11.2020 (Annexure-H) issued by the 10th respondent the 7th respondent respectively, are hereby stand quashed. Sd/- (M.G.S. KAMAL) JUDGE BSV, List No.: 1 Sl No.: 7