The Calcutta High Court has ruled that the forfeiture of an earnest money deposit (EMD) in the context of a Railway e-auction cannot be justified merely because an incorrect document was uploaded unintentionally, unless it is first established that the bidder acted with the intent to mislead. The Court observed that the forfeiture of an EMD is punitive in nature and carries significant financial consequences, and therefore the exercise of such a drastic measure must be guided by the principles of fairness, proportionality and mens rea, or guilty intent. In a writ petition filed by the proprietor of a business enterprise who had participated in an e-auction for leasing parcel space on a train, the High Court examined the circumstances leading to the cancellation of the petitioner’s bid and the forfeiture of his deposit. The petitioner had been declared the highest bidder in an e-auction conducted for leasing space in a specific coach of a passenger train and was subsequently asked to submit supporting financial documents. He admitted that while uploading his audited balance sheet, he inadvertently uploaded a version that lacked the auditor’s signature, and he immediately brought this to the notice of Railway authorities. Upon being asked to furnish documents, he provided the requisite audited financial statements and profit and loss accounts within a few days, and no objection to their adequacy was raised at that stage. Despite this, the Railways neither issued a formal work order nor provided a reasoned order rejecting his bid, and later proceeded to cancel the bid and forfeit the deposit without any prior notice or hearing.
The petitioner contended that the e-auction system itself would not have permitted him to participate or be declared the highest bidder unless all mandatory documents were uploaded, and that the omission was inadvertent rather than intentional or material. He argued that forfeiture of the EMD was contemplated under the applicable circular only where false or misleading documents were furnished by a successful contractor after the allotment of the lot or issuance of a contract, and that no contract had been concluded in his case because no letter of acceptance or formal agreement had been issued. The petitioner also maintained that the authorities were required to issue a show-cause notice and afford an opportunity of hearing before forfeiting the deposit, which had not been done.
In opposing the petition, the Railway Administration submitted that the e-auction process was fully automated, resulting in automatic acceptance of the highest bid upon closure of bidding, and that scrutiny of turnover and supporting documents occurred after the auction. It argued that if documents were found invalid or incorrect, the authorities had the power under the relevant circular and conditions of contract to cancel the awarded lot and forfeit the EMD, and that permitting post-bid corrections would undermine transparency and equal treatment of bidders.
After considering the submissions, the High Court framed the central issue as whether a highest bidder could be disqualified and subjected to forfeiture of his EMD solely on account of uploading an incorrect document due to a bona fide clerical mistake, in the absence of any finding of intentional deception. The Court noted that terms such as “false”, “fabricated” or “incorrect” contained in the circular governing the auction could not be interpreted mechanically without examining the nature of the mistake and the intention behind it. The Court emphasised that in administrative law, punitive actions like blacklisting or forfeiture must be guided by the doctrine of proportionality and cannot be imposed for genuine or curable errors. It held that the authorities had failed to consider whether the defect in the document was clerical, inadvertent or intentional, before proceeding mechanically to impose the harsh consequence of forfeiture.
The High Court also clarified the legal status of a highest bidder in an auction, observing that a successful bidder does not acquire the status of a successful contractor until there is an absolute and unqualified acceptance of the bid resulting in a concluded contract, such as through issuance of a letter of acceptance or execution of an agreement. In the absence of such acceptance, the circular’s provision for forfeiture could not be invoked against the petitioner. The Court found no material to suggest any intent on the petitioner’s part to mislead the authorities or submit false documents, and concluded that the forfeiture of the EMD was arbitrary, illegal and disproportionate in the circumstances. As a result, the High Court quashed the decision cancelling the petitioner’s bid and ordering forfeiture of his earnest money deposit, and directed the Railway authorities to refund the deposit amount to the petitioner within a specified period. The judgment reinforces the principle that punitive actions by authorities under regulatory frameworks must consider the nature of errors and the presence or absence of intent before imposing severe financial penalties.
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