Supreme Court: The question before the Court was whether refund of the earnest money deposit is allowed on the ground of revocation of contract and the right to claim the earnest money/deposit is granted on the withdrawal of the bid. The case came up before the Court challenging the decision of the Division Bench of Allahabad High Court where it was ordered that since the case is not covered by Condition 2 of Special Conditions of Contract, the refusal of refund of the earnest money deposited was unjustified. The Supreme Court, comprising of the bench of T.S. Thakur, R.K. Agrawal and Adarsh Kumar Goel JJ., further held that the High Court committed an error while directing the refund of earnest money. Therefore, the order passed by the High Court was set aside and Writ Petition was dismissed.
The Counsel on behalf of appellant-corporation, Mr S.K. Dhingra argued that in Special Conditions of Contract, revocation of tender was by itself sufficient to call for forfeiture of the earnest money. Special Conditions of Contract only means withdrawal/cancellation/recall of the bid submitted by the bidder. In any such event the earnest money deposited by the bidder would be liable to the forfeited is the simple meaning of Condition 2. Opening of the bid or acceptance thereof in terms of Section 5 of the Contract Act, 1872 was immaterial and irrelevant. It was held that absence of any term stipulating forfeiture of
the earnest money may lead to situations where even those who do not have the capacity or intention of entering into a contract venture into the bidding process for at times extraneous reasons. The purpose of such a clause providing for forfeiture of the earnest money clearly was to see that only genuine bids are received. The Court further held that the forfeiture of earnest security in the present case in no way affected any statutory right under the Contract Act and rejected the contention that right to withdraw the bid in terms of Section 5 of the Contract Act, 1872 would entitle them to withdraw without suffering forfeiture of the earnest money even in cases where the submission and receipt of bids is itself subject to the condition that in the event of a withdrawal of the bid the earnest money stand forfeited.. National Thermal Power Corporation Ltd. v. Ashok Kumar Singh, 2015 SCC OnLine SC 120, decided on 13-2-2015