Supreme Court Faults HC Reading Of 'May' In Tender Document As 'Shall', Grants Relief To Contractor

Observing that the word “may” used in the tender document could not be interpreted as “shall”, the Supreme Court granted relief to a contractor whose bid was rejected for submitting the Earnest Money Deposit (EMD) through a Fixed Deposit instead of a Demand Draft, despite the tender conditions not mandating submission of the EMD only through a DD.

“The word “may” is also employed in Clause 2.15 and hence it is only in the nature of an option and not a mandatory condition.”, observed a bench of Justice Sanjay Kumar and Justice K Vinod Chandran, while allowing the appeal against the Chhattisgarh High Court decision which dismissed the Appellant's plea against the bid cancellation on account of non-submission of it via DD.

The Court rejected the High Court's interpretation of 'may' as 'shall', stating that the submission of the bid via DD was not the compulsion, and since the Appellant had submitted the bid via FD, that would also be considered as a valid bid.

Background

The dispute arose out of a tender floated by the Water Resources Department of Chhattisgarh for construction of the “Head Work of Lamti Feeder Minor Tank Scheme.”

The appellant-company had submitted a bid of approximately Rs. 120 crores, substantially lower than the sixth respondent's bid of Rs. 149 crores. However, the appellant was disqualified at the technical stage on the ground that, being an out-of-State bidder, it had submitted an FDR instead of a DD towards the EMD.

The High Court had upheld the disqualification, holding that submission of a DD was mandatory for out-of-State bidders under the tender conditions.

Before the Supreme Court, the appellant argued that the tender document itself permitted multiple forms of EMD, including “Approved Interest-Bearing Security” under Clause 2.13(a)(iv), and that the FDR submitted by it squarely fell within that category.

Decision

Allowing the appeal, the judgment authored by Justice Chandran held that since the tender clause provided the submission of the bid via multiple forms of EMD, mandating the EMD submission via DD was contrary to the tender's terms and conditions.

“We cannot but notice that though Clause 2.13 (a)(xiii) specifies bank draft of State Bank of India or scheduled Banks in case of tenderers of other States it is in the nature of an option as reiterated in Clause 2.13 (b), which employs the words “may submit”. The word “may” is also employed in Clause 2.15 and hence it is only in the nature of an option and not a mandatory condition. The appellant admittedly had provided a FD of the Punjab National Bank drawn on the Banjara Hills Branch, Hyderabad.”, the court observed.

Consequently, the impugned order was set aside, while the appeal was allowed.

“The disqualification on opening Envelope A with respect to the EMD, as ordered by the High Court having been reversed by us, we are of the opinion that the appellant could approach the Tendering Authority within 48 hours of this judgment being uploaded, with a representation against such disqualification or urge contentions based on the representation submitted later to the 48 hours granted by the Authorities”, the court ordered.

Headnote

Public Tender — Earnest Money Deposit (EMD) — Permissibility of Fixed Deposit (FD) vs Demand Draft (DD) for out-of-state bidders — Interpretation of tender terms — Mandatory vs Directory - The High Court disqualified the appellant (an out-of state bidder) on the ground that it submitted its EMD in the form of a Fixed Deposit (FD) instead of a Demand Draft (DD) - The High Court interpreted the relevant tender terms as rendering a DD strictly mandatory for out-of-state bidders - Reversing the High Court's view, the Supreme Court analyzed Clause 2.13 and Clause 2.15 of the Notice Inviting Tender - noted that Clause 2.13(a)(iv) permitted EMD submission via "Approved Interest Bearing Security", a character that a Fixed Deposit (FD) definitely possesses - Clause 2.13(b) and Clause 2.15 employed the permissive phrase "may submit" and "may" concerning the submission of a bank draft by out of-state bidders – Held that the terms of the tender document clearly indicate that the requirement of providing a DD for out-of-state bidders was merely an option and not a mandatory condition - A Fixed Deposit issued by a scheduled bank in favor of the tendering authority satisfies the technical requirements of the EMD under the category of an "Approved Interest Bearing Security" - The High Court erred in invalidating the appellant's technical qualification. [Paras 7- 10]

Cause Title: RR CONSTRUCTIONS AND INFRASTRUCTURE INDIA PVT. LTD. Versus GAYATRI VENTURES AND ORS.

Citation : 2026 LiveLaw (SC) 530

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