IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.SURENDRA MOHAN TUESDAY, THE 9TH DAY OF JUNE 2009/19TH JYAISHTA 1931 AS.No. 266 of 1999 ----------------------- AGAINST THE ORDER/JUDGMENT IN OS NO.59/1992 OF PRINCIPAL SUB COURT,TRIVANDRUM DATED 29-11-1997 ... APPELLANT(S):DEFENDANT: -------------------------------------------- KERALA STATE HOUSING BOARD, TRIVANDRUM, REPRESENTED BY ITS SECRETARY. BY ADVS.SRI.T.R.HARIKUMAR SRI.POOVAPPALLY M.RAMACHANDRAN NAIR,SC.KSHB RESPONDENT(S):PLAINTIFF: --------------------------------------------- K.REGHUNATHAN, SON OF KOCHUKRISHNAN, CONTRACTOR, KRISHNA BHAVAN, CONVENT ROAD, TRIVANDRUM. BY ADV. SRI.R.S.KALKURA THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 09-06-2009, ALONG WITH AS NO. 294/1999 AND AS. 796/1999, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Kss K.SURENDRA MOHAN, J --------------------------------------------- A.S.Nos.266 of 1999, 294 of 1999 and 796 of 1999 --------------------------------------------- Dated this the 9th day of June, 2009 JUDGMENT The above appeals are all filed by the Kerala State Housing Board against the common judgment dated 29.11.1997 of the Principal Sub Court, Thiruvananthapuram decreeing O.S.Nos.59 of 1992, 61 of 1992 and 63 of 1992. Since the appeals are connected, arising from a common judgment, they are disposed of together. 2. The respondent/plaintiff in all the three appeals is the same person and is a contractor. He had filed the suits for the recovery of amounts retained by the appellant, without any justification. The amount represented earnest money deposits made by the respondent, while submitting tenders for three different construction works under the appellant. According to the respondent, though he was the successful tenderer in A.S.No.266/1999 & conn.cases 2 respect of all the three works, he could not undertake the construction works, because acceptance letters in respect of his offer and work orders were not issued in time. Admittedly, the works were later re-tendered and awarded to some other contractors. 3. In O.S.No.59 of 1992, from which A.S.No.266 of 1999 arises, the appellant had invited tenders for the construction of one Block of BF 6 Type Flats comprising of 12 units and another Block of 12 units of CF-6 Type Flats, by a notification dated 16.11.1988. The last date for receipt of the tender was 12.1.1988. The respondent/ plaintiff quoted a rate which was 43% above the estimate rate. The contractor was invited for a negotiation and after negotiation, he reduced the rate to 42% above the estimate rate. On the expectation that the work would be awarded to him, the respondent/plaintiff made all arrangements for mobilising the required men and machinery for commencing the work immediately on finalisation of the contract. But, within the firm period stipulated by the offer, no work order was issued to the A.S.No.266/1999 & conn.cases 3 respondent. Later, on 15.4.1989, he was issued with a letter in respect of one of the constructions which is the one covered by the above suit. The said fact was also intimated to the Chief Engineer by letter dated 5.7.1989. Since the work was not awarded to him during the firm period, the respondent requested the Chief Engineer to release his earnest money deposit. But, by an order dated 4.4.1989, the Chief Engineer cancelled the work order and forfeited the earnest money deposit of Rs.34,550/-. According to the respondent, he had filed an original petition before this Court which was disposed of directing him to make a representation to the Housing Board for return of the earnest money. Though he submitted a representation as directed, the earnest money was not disbursed. Therefore, he prayed for a decree for realisation of the amount of Rs.34,550/- with interest at the rate of 12% per annum. 4. The suit was contested by the appellant/defendant by filing written statement. According to the appellant/defendant, the plaintiff had A.S.No.266/1999 & conn.cases 4 submitted tender for construction of the work of 12 units of BF-6 Type Flats and another 12 units of CF-6 Type Flats. The last date for submission of the tender was 12.1.1989 and on 16.11.1988, an earnest money of Rs.34,550/- was deposited. The quotation of the plaintiff was 55% above the P.A.C. (Probable Amount of Contract). Subsequently, the plaintiff was asked to reduce the rates quoted by him and the same was reduced to 45%. The work was said to be awarded to the plaintiff by letter dated 4.4.1989. As per the said letter, the plaintiff was directed to contact the Executive Engineer, Division-III before 12.4.1989 and he was also directed to execute the necessary agreement and to remit the security deposit. As per clause-11 of the notice inviting tenders, the plaintiff was warned against his failure to act in accordance with the conditions of the tender. The plaintiff had submitted tenders for two other contracts and the rates quoted by him were very high. Subsequently, the rates were reduced to 43% and 40% respectively. The said works were also awarded to the A.S.No.266/1999 & conn.cases 5 plaintiff and letters were sent to him. The three acceptance letters were all sent to the plaintiff in a single registered cover. In other words, the acceptance letters relating to contract work 8/88-89, 10/88-89 and 13/88-89 were sent by registered post in one cover paying a postage charge of Rs.19.70/-. The registration receipt is said to be No.2912 dated 7.4.1989. The plaintiff was informed of this by a letter dated 8.4.1989, by the Postal authorities. But deliberately, it was not received by the plaintiff. The appellant/defendant, thus denied the allegation of the plaintiff that no work order was issued within the firm period. The award of the contract was done within time. According to the appellant, the respondent was not entitled to the return of the earnest money deposit as the same was forfeited in accordance with clause-11(a) of the notification inviting tender. In the letter, the appellant Board had directed the respondent to execute the agreement, but, he failed to execute the agreement and thereby caused loss to the appellant. Since the plaintiff did not commence the work in time, the A.S.No.266/1999 & conn.cases 6 Chief Engineer was justified in cancelling the work order on 22.7.1989. The representation submitted by the plaintiff, pursuant to O.P.No.9691 of 1989, was rightly rejected by the appellant. On the above contentions, the appellant prayed for dismissal of the suit. 5. In O.S.No.61 of 1992, the respondent/plaintiff had submitted a tender to the appellant/defendant for construction of 24 units of flats as per notification dated 16.11.1988. After submitting the tender, the plaintiff was called for a negotiation and finally, the rates quoted by him were reduced to 40% above the estimate rate. Since he had reduced his rates, the respondent expected to be awarded the contract work and in anticipation, he mobilised necessary men and machinery for commencing the work without delay. However, he was not issued an acceptance letter by the appellant/defendant. Subsequently, on 15.4.1989, he was served with a letter which was regarding another work, one Block B.F.7 (12 units) and Block C.F.6 (12 units) Type Flats. Thus, no work was awarded to the plaintiff within the firm period. A.S.No.266/1999 & conn.cases 7 Consequently, there is no concluded contract between the plaintiff and the defendant. Though the plaintiff requested the Chief Engineer to release his earnest money deposit, by letter dated 4.4.1989, the contract work awarded to the plaintiff was cancelled and the earnest money of Rs.50,000/- was forfeited. According to the plaintiff, there was no concluded contract between the parties. He was a contractor who was already doing works to the tune of Rs.50 lakhs under the appellant. He was anxious to take up the above work also, that was the reason why he reduced the rates quoted by him. However, due to the delay on the part of the appellant in not issuing a letter of acceptance within the firm period, the work could not be undertaken by him. The appellant/defendant has no authority to forfeit the money deposited by the plaintiff. Therefore, he prayed for a decree allowing recovery of an amount of Rs.50,000/- from the defendant with interest thereon at the rate of 12% per annum. A.S.No.266/1999 & conn.cases 8 6. The suit was contested by the appellant/defendant raising more or less the same contentions as in the earlier suit. It is admitted that the plaintiffs had submitted tenders for the construction of 24 units of flats pursuant to a tender notification dated 16.11.1988. Subsequently, the rates quoted by the plaintiff were reduced to 40% above the estimate, through negotiation. According to the appellant/defendant, the offer of the plaintiff was accepted and the work was awarded to him by a letter dated 4.4.1989. In the letter, the plaintiff was also directed to appear before the Executive Engineer before 12.4.1989 to execute an agreement in favour of the defendant. The intimation regarding all the three contracts were sent to the plaintiff by a registered letter dated 7.4.1989. Even though the postal authorities had informed the plaintiff regarding this letter on 8.4.1989, the plaintiff deliberately avoided receipt of the letter. Therefore, the appellant contended that there was no truth in the allegation of the plaintiff that the work was not awarded within the firm period A.S.No.266/1999 & conn.cases 9 stipulated in the tender notification. The appellant further alleges that since the respondent/defendant failed to carry out the work, the letter of acceptance issued to him was cancelled and the earnest money deposited by him was forfeited in accordance with clause-11 of the notification inviting the tender. Therefore, the appellant/ defendant contended that the plaintiff had no right to claim return of the earnest money and prayed for the dismissal of the suit. 7. In O.S.No.63 of 1992, from which A.S.No.294 of 1999 is filed, tenders were invited for construction of flats by the appellant as per a notification dated 16.11.1988. The plaintiff submitted a tender and after negotiation, his rate was reduced and fixed at 42% above the estimate rate. Though the plaintiff expected the work to be awarded to him, he did not receive any intimation regarding award of the work to him. On 15.4.1989, he received a registered cover containing a letter in respect of another work regarding 24 units, with respect to the construction of which his offer was accepted by the A.S.No.266/1999 & conn.cases 10 appellant. By his letter dated 5.7.1989, the plaintiff intimated the Chief Engineer of the appellant regarding the above matter. Thus, no work was awarded to the plaintiff during the firm period stipulated by the tender notification. Since there was no concluded contract between the plaintiff and the defendant, he requested for release of his earnest money deposit. However, the Chief Engineer cancelled the work order alleged to have been issued to him and he was intimated that his earnest money had been forfeited. Therefore, he sought for recovery of the amount of Rs.42,600 deposited by him as earnest money with interest thereon at 12% per annum from the appellant/defendant. 8. The appellant/defendant filed written statement admitting that the respondent/plaintiff was a tenderer for the work of construction of a number of flats under a notification dated 16.11.1988. The respondent/plaintiff was the lowest. Therefore, his rates were subjected to negotiation and the same was reduced and fixed at 20% above the estimate rate. The deposit of earnest money is A.S.No.266/1999 & conn.cases 11 also admitted. Subsequently, a letter was issued to the contractor intimating the acceptance of his offer and calling upon him to execute an agreement for the execution of the work. The letter of acceptance of his offer was issued on 7.4.1989. But, he received the same only after 15.4.1989, though the postal authorities had informed him of the same and directed him to receive the letter from the Post Office. Since the plaintiff did not execute necessary agreement after executing the contract, the letter of acceptance issued to him was cancelled by the Chief Engineer and his earnest money was also forfeited. According to the appellant, there was a valid and enforceable contract between the parties and hence, the respondent/plaintiff was not entitled to return of the earnest money deposit. Therefore, the appellant prayed for dismissal of the suit. 9. The court below tried all the three suits together on the above pleadings, after framing separate issues in all the suits. The evidence adduced, consists of Exts.A1, A1(a), A1(b), A2, A2(a) and A3 and the oral evidence of A.S.No.266/1999 & conn.cases 12 PW1 on the side of the plaintiff. For the defence, Exts.B1 to B3, B3(a) and B3(b) documents were marked and DW1 was examined as a witness. After considering the rival contentions of the parties and the evidence on record, the court below found that there was no concluded contract between the parties and therefore, the plaintiff/ respondent was held entitled to recover the amount deposited by him as earnest money. Accordingly, all the three suits have been decreed. The plaintiff has also been held entitled to claim interest on the amount at 12% per annum. The present appeals are filed against the common judgment and decrees in the said three suits. 10. I have heard the learned counsel for the appellant as well as the learned counsel for the respondent. The counsel for the appellant attacks the findings of the court below contending that the appellant is a Government undertaking that is functioning for the welfare of the general public, expending public money. According to him, acts of omission or commission on the part of the officials should not be viewed strictly because A.S.No.266/1999 & conn.cases 13 the resultant loss would be to the public exchequer. According to the counsel, as per clause-11 of the tender notification, the appellant had the right to forfeit the earnest money deposit. It is pointed out that the Post Office authorities had intimated the contractor about the postal article that had come in his name on 8.4.1989 itself. However, the contractor received the same only on 15.4.1989, after the firm period stipulated in the tender notification. Therefore, according to him, lack of good faith is writ large in his conduct, which requires to be taken serious note of by this Court. At any rate, it is contended by him that public money should not be directed to be given to the contractor as interest under any circumstances. The counsel for the respondent counters by pointing out that the respondent was admittedly executing other contract works to the tune of Rs.50 lakhs under the appellant during the relevant period. He was a person who was regularly in contact with the appellant and its office. The letter accepting his offer could have been personally handed over to him or A.S.No.266/1999 & conn.cases 14 delivered at his site, within the firm period. There is no justification for sending the same by registered post when the contractor was available at site. There is no justification whatsoever, for despatching the acceptance letters of three separate contracts in one single cover, as alleged. In all probability, it is contended that the story is only an afterthought to cover up the lapse on the part of the officials of the appellant. It is further pointed out that the work in question was subsequently awarded to another contractor. The said award was not at the risk and cost of the respondent. If the appellant had suffered any loss, the second tender would certainly have been awarded at the risk and cost of the respondent, it is pointed out. According to the counsel for the respondent, since the appellant had not suffered any loss, there was no justification for forfeiting the earnest money deposit. Apart from the above, it is contended that there was no concluded contract between the appellant and the respondent and therefore, there was no justification for forfeiting the earnest money deposit. In view of the A.S.No.266/1999 & conn.cases 15 above, it is submitted that the appeals are all liable to be dismissed. 11. The point that arises for consideration is : “Whether the court below was right in holding that the respondent/plaintiff was entitled to recover the earnest money deposit made by him while submitting tenders for the construction works notified by the appellant.” 12. The appellant, Kerala State Housing Board is an instrumentality of the State. It is funded by the State and functions for the welfare of the public. It is a statutory body created by the State. 13. As per the tender notification, it is stipulated that a period of three months from the date of opening the tender is to be treated as the firm period during which the offer cannot be revoked. According to clause 11(a) of the tender conditions, the stipulations contained therein are binding on the contractor and shall be construed as a preliminary agreement between the successful tenderer and the Board, pending execution of a proper agreement. The successful tenderer shall, within seven days of receipt A.S.No.266/1999 & conn.cases 16 of the letter of acceptance, deposit a sum equivalent to the 5% of the probable value of the work as security. After remitting the security amount, within the prescribed period, an agreement has to be executed. As per clause- 10 of the tender conditions, the contractor should keep the tender firm and alive for a period of three months from the date of opening the tender or till the tenders are decided, whichever is earlier. Any withdrawal within the firm period shall entail forfeiture of the earnest money deposit. It is further stipulated that if due to administrative or other reasons it is necessary to keep the tender open for a longer period, prior consent of the tenderer shall be obtained for a further period of one month. The combined effect of clauses 10 and 11 is that the tenderer should keep the offer submitted by him firm and alive for a period of three months from the date of opening of the tender and this can be extended with the prior consent of the tenderer. Within seven days of receipt of the selection notice, security has to be furnished and an agreement has to be executed. If there A.S.No.266/1999 & conn.cases 17 is failure to execute the agreement or if there is failure to honour any of the other stipulations that form part of the tender conditions, the earnest money can be forfeited. It is further provided that by submitting the tender or a quotation and on the same being accepted, there comes into existence a preliminary agreement between the tenderer and the Board regarding all the above conditions. Therefore, according to the appellant, there would be a binding and concluded contract between the parties by virtue of the above clauses, which would entitle the appellant to forfeit the earnest money that was deposited. 14. In the above appeals, on the admitted facts, it is clear that the respondent was a successful tenderer. He was called for negotiations and thereafter by an agreement his rates were reduced and fixed at a suitable amount acceptable to the appellant. His conduct shows that he was willing to abide by the terms of the tender notification. No instance of non-co-operation with the authorities has been pointed out by the counsel. The A.S.No.266/1999 & conn.cases 18 evidence and the material on record does not show that the appellant has suffered any loss due to an act on the part of the respondent. According to the appellant, the letters of acceptance in respect of the three tenders submitted by him were despatched to him by registered post which were received by him only on 15.4.1989, after the expiry of the firm period. The subsequent tender and award of work to a different contractor was not at his risk and cost. Thus, there are no circumstances indicating any default on the part of the respondent justifying forfeiture of his earnest money deposit. 15. The earnest money deposit of the respondent has been forfeited, because he had allegedly failed to execute the contract work. It is contended by the respondent that there is no concluded contract between the appellant and the respondent, though at best, it could be said that there was an offer and acceptance. When the law says that a specific contract can be entered into only by following certain legal formalities, a concluded contract can come into existence only when the A.S.No.266/1999 & conn.cases 19 formalities stipulated are complied with. 16. Article 299 of the Constitution stipulates that all contracts made in exercise of the executive power of the Union or of a State shall be expressed to be made by the President or by the Governor of the State, as the case may be. In the absence of a written contract, it cannot be said that there is a valid contract under Article 299 of the Constitution of India. The counsel for the respondent relies on the decision reported in State of Kerala v T.Sreeramulu (1970 KLT 523). After taking note of the decisions on the point it has been laid down by this Court that three conditions should be satisfied for a valid contract under Article 299 to come into existence. First of all, it must be expressed to be made by the Governor, secondly it must be executed and thirdly the execution should be by such persons and in such manner as the Governor may direct or authorise. The Supreme Court has affirmed the above position in the decision reported in State of Punjab v Omprakash (1988(2) KLT S.N.52 (Case No.71). The Hon'ble Supreme Court has also laid A.S.No.266/1999 & conn.cases 20 down that for any Government contract to be valid under Article 299, the three conditions referred to above would have to be satisfied. 17. Thus, for a contractual liability to be created, there must be a contract in existence which satisfies the requirements of Article 299 of the Constitution of India. For the purpose, there should be a written contract, which is significantly absent in the above cases. In these cases, admittedly, no written contract was entered into between the parties. The provisions of the tender notification referred to above cannot satisfy the requirements of Article 299 of the Constitution of India. In the absence of a valid and enforceable contract, the appellant is not entitled to appropriate the earnest money deposit made by the respondent. It is also worth noticing that the respondent has not violated any of the terms of the tender conditions entitling the appellant to forfeit his earnest money deposit. Therefore, the trial court was right in decreeing the suits as prayed for. A.S.No.266/1999 & conn.cases 21 18. In view of the above, the judgment and decrees of the court below do not call for any interference. The appeals are therefore dismissed. No costs. sd/- K.SURENDRA MOHAN JUDGE css/ true copy P.S.TO JUDGE