Legal Advice

Forfeiture of earnest money in withdrawal of tender


I am a contractor and have some tenders in BHEL. The Bhel has forfeited earnest money because I have withdrawn a tender. So I want to know whether forfeiture of earnest money in withdrawal of tender is legal in India. BHEL has published tenders for the supply of several heavy electrical equipment. I have applied for two of them but later on I came to know that the global price of copper is likely to rise in the coming months. Therefore, I have withdrawn the tender before the opening of the technical bid. There was a process to withdraw the tender before opening of technical bid. I have intimated the technical officer for not considering my bid for the technical approval. But BHEL has considered my bid in the technical approval and opening of financial bid is pending.  After opening the technical bid and found that I have qualified I immediately sent an intimidation letter to the concerned authority. I informed him that I have previously sent an intimation that I am withdrawing my bid.  When the financial bid is likely to open I personally approach the BHEL and demand refund of security money and earnest money. But the manager refused to do so and he gave me a letter that if I withdraw my bid BHEL will forfeit earnest money.  This is an illegal act and I want your legal opinion regarding the forfeiture of earnest money on withdrawal of tender. I have withdrawn my bid before the opening of the technical bid. I informed the BHEL much before taking decision on the technical bid. What remedy do I have against forfeiture of earnest money?


You have the legal right to withdraw a bid anytime. If there is a condition that earnest money will be forfeited on withdrawal of tender, then you have no right to claim refund of earnest money. 

But, forfeiture of earnest money comes into force when the bidder does not perform a certain act. When you have entered into a bid or tender, you cannot withdraw it unilaterally. 

Participation in a bid shows the intention of making a bid. Hence, a genuine bidder must adhere to the terms and conditions of the bid. If there is a clause or condition that the bidder may withdraw the tender before a certain stage. Then the bidder has the right to withdraw and claim a refund of earnest money if he has withdrawn his offer before that stage.  

According to Section 5 of the Contract Act, a person may have a right to withdraw his offer before its acceptance. Selection in technical bid infers that the bidder’s offer has been primality accepted. If you withdraw your bid at this stage then you have to lose earnest money. 

But you have intimated far before the opening of the technical bid. Hence, you can claim a refund of earnest money. Until the consideration of bids for technical qualification, you can withdraw your offer. As per the section 5 of the Contract Act, you are withdrawing your offer before its acceptance. 

BHEL has illegally forfeited earnest money. In State of Haryana vs Malik Traders (2011) 13 SCC 200; the Supreme Court has held that the right to withdraw an offer before its acceptance cannot nullify the agreement to suffer any penalty for the withdrawal of the offer against the terms of agreement. 

Agreement itself provides that the bidder can withdraw his proposal before opening of technical bid. Hence, BHEL cannot forfeit earnest money if a bidder has withdrawn his bid before opening of technical bid. Such a forfeiture is against the terms of the agreement. 

You should file a writ petition in the High Court under Article 226 of Constitution of India. You should seek quashing of forfeiture order and refund of earnest money. 

Shivendra Pratap Singh


High Court Lucknow

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