While Courts Must Restrain In Exercising Power Of Judicial Review In Contractual Commercial Matters, Doctrine Of Proportionality Applies When Error Merits Grant Of Relief: SC
The Supreme Court set aside the forfeiture of a bank guarantee in a tender dispute between the parties.
The Supreme Court has reiterated that while Courts must exercise restraint in exercising the power of judicial review in contractual commercial matters, the doctrine of proportionality applies when an error is writ large and equity merits relief.
The Court set aside the forfeiture of a bank guarantee in a tender dispute between M/s ABCI Infrastructures Pvt. Ltd. (Appellant) and the Border Roads Organisation (BRO/Respondent). The Court held that “This is an avoidable litigation” wherein the Appellant had made an obvious and unintentional error in its bid, which BRO failed to acknowledge in a “pragmatic” manner.
A Bench of CJI Sanjiv Khanna, Justice Sanjay Kumar and Justice KV Viswanathan held, “BRO justified encashing the bank guarantee by citing delays caused by issuing a second notice inviting bids. This claim is baseless, as BRO was aware of the Rs.1,569/- error. Instead of declaring the bid non est due to the clear mistake, BRO asked the appellant to justify the bid, cancelled the notice, declared the Appellant a defaulter, invoked the bank guarantee, and issued a fresh notice inviting bids.”
Senior Advocate Mukul Rohatgi represented the Appellant, while ASG Archana Pathak Dave appeared for the Respondents.
Brief Facts
A tender was issued by BRO for the design and construction of two-lane twin tunnels at Shinkun La Pass, with an estimated cost of Rs.1,504.64 Crores. The appellant, along with other bidders, submitted its technical and financial bids. When the financial bids were opened, the Appellant’s bid was recorded as Rs. 1,569 instead of Rs. 1,569 Crores. The Appellant immediately informed BRO of the typographical or system error the following day.
Despite this, BRO proceeded to treat the bid as valid and sought justification for the quoted amount. The Appellant repeatedly clarified that its actual bid was Rs.1,569 Crores, but BRO declined to consider the explanation.
Later, BRO declared the Appellant a defaulter and directed the encashment of its bank guarantee. The Appellant challenged this decision before the Himachal Pradesh High Court, which dismissed the Petition.
Court’s Reasoning
The Court referred to its decision where a relief to the bidder was apparent before this Court in M/s Omsairam Steels & Alloys Pvt. Ltd. v. Director of Mines and Geology, BBSR. It was held that “while the Court must exercise a lot of restraint in exercising the power of judicial review in contractual commercial matters, the doctrine of proportionality nevertheless applies when the error or mistake is writ large and equity merits the grant of some relief.”
Referring to West Bengal State Electricity Board v. Patel Engineering Co. Ltd. (2001), the Court reiterated that relief should be granted when a bidder promptly informs the authorities of an apparent mistake before a formal contract is executed.
“BRO justified encashing the bank guarantee by citing delays caused by issuing a second notice inviting bids. This claim is baseless, as BRO was aware of the Rs.1,569/- error. Instead of declaring the bid non est due to the clear mistake, BRO asked the appellant to justify the bid, cancelled the notice, declared the Appellant a defaulter, invoked the bank guarantee, and issued a fresh notice inviting bids,” it remarked.
The Bench noted, “Thus, BRO’s claim that the delay was entirely due to the Appellant’s mistake is flawed, ignoring BRO’s own lapses. Mistakes, including by authorities, should be resolved through corrective steps. A practical approach could have avoided the delay, which was caused by BRO’s refusal to acknowledge the Appellant’s genuine error and the unwarranted cancellation of the bid.”
Consequently, the Court set aside the impugned Order and directed, “In view of the aforesaid discussion, we direct the Appellant to pay Rs.1 crore to BRO, as a consequence of their error. Upon receiving this payment, BRO shall return the Appellant’s original bank guarantee or demand draft of Rs.15.04 crores within one week.”
Accordingly, the Supreme Court allowed the Appeal.
Cause Title: M/S. ABCI Infrastructures Pvt. Ltd. v. Union of India & Ors. (Neutral Citation: 2025 INSC 215)
Appearance:
Appellant: Senior Advocate Mukul Rohatgi; AOR Gaurav Khanna; Advocates Natasha Sahrawat, Deepali Bhanot, Gautam Barnwal, Rudraksh Pandey and Alisha Roy
Respondents: ASG Archana Pathak Dave; Advocates Yashraj Singh Bundela, Raman Yadav, Hitarth Raja, Udit Dedhiya, Mukesh Kumar Maroria, Surya Prakash, Arjun Bhatia, Shubhra Kapur and Mahima Kapur; AOR N. Visakamurthy and Sanjay Kapur
