Case Note & Summary
The dispute arose out of a tender process floated by the Maharashtra State Electricity Distribution Company Limited for supply, construction, and commissioning of sub-transmission lines and power transformers. Vijai Electricals Limited submitted e-bids for three tenders on 21 September 2011, the last day for submission. As required, it furnished three bank guarantees from Axis Bank as bid security. Clause 19.6 of the tender conditions provided that bid security may be forfeited if a bidder withdraws its bid after the deadline for submission, except if written notice of withdrawal is received prior to the deadline. On 15 October 2011, Vijai Electricals sent a letter to the petitioner expressing its desire to withdraw from the three tenders and requested return of the bank guarantees. The petitioner contended that the withdrawal was after the deadline and thus in violation, warranting forfeiture. The board of directors resolved on 7 December 2011 to forfeit the bid securities. The bank guarantees were extended by the respondent from time to time at the petitioner's request till 31 March 2012. On 21 March 2012, the petitioner invoked the bank guarantees. Vijai Electricals filed a writ petition and obtained an ad-interim injunction, and the dispute was referred to sole arbitration by order dated 12 June 2012. The arbitrator, a former Supreme Court judge, passed an award on 26 October 2012 holding that the petitioner was not entitled to forfeit or invoke the bank guarantees and directed their return to the respondent. The award also set aside the invocation letter. The petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 before the High Court, contending that the arbitrator misconstrued clause 19.6 and the law on bank guarantees. The matter was heard on 15 January 2015, and the judgment was pronounced on 4 February 2015. The provided text of the judgment, however, is incomplete and does not include the court's analysis or final decision on the Section 34 petition.
Issue of Consideration
Whether the arbitral award dated 26 October 2012 is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on the grounds raised by the petitioners, including misinterpretation of clause 19.6 of the tender conditions.
Law Points
- Interpretation of bid conditions for forfeiture of bid security
- scope of Section 34 of Arbitration and Conciliation Act
- 1996
- invocation of unconditional bank guarantees
- arbitral award on bank guarantee dispute
Case Details
2015 LawText (BOM) (02) 60
ARBITRATION PETITION NO.240 OF 2013
Kevic Setalvad, Awais Abmediji, S.D. Shetty, Rakesh Singh, Zal Andhyarujina, Harsh Meghan, Z. Jariwala, Jayesh Gawde
Maharashtra State Electricity Distribution Company Limited
Vijai Electricals Limited
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Nature of Litigation
Challenge to arbitral award under Section 34 of Arbitration and Conciliation Act, 1996 regarding entitlement to forfeit bid securities/invoke bank guarantees furnished in tender process.
Remedy Sought
The petitioners (original respondents) seek to set aside the arbitral award dated 26 October 2012 which allowed the respondents' claims and directed return of bank guarantees and restrained forfeiture.
Filing Reason
The petitioners contend that the arbitrator erred in holding that the respondents' withdrawal of bids after the deadline did not entitle petitioners to forfeit the bid securities, contrary to clause 19.6 of the tender conditions.
Previous Decisions
The dispute was originally a writ petition (No. 831 of 2012) before the High Court, which by order dated 12 June 2012 referred it to sole arbitration. The sole arbitrator (a former Supreme Court judge) rendered an award dated 26 October 2012 in favor of the respondents, declaring that petitioners were not entitled to invoke the bank guarantees and directing return of the guarantees.
Issues
Whether the arbitral award dated 26 October 2012 is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on the grounds raised by the petitioners.
Whether the arbitrator misconstrued clause 19.6 of the tender conditions regarding forfeiture of bid security after deadline for submission of bids.
Submissions/Arguments
Petitioners submit that under clause 19.6 of the instructions to bidders, the bid securities submitted by the respondents were liable to be forfeited since the respondents withdrew their bid after the deadline for submission of the bids (21 September 2011), and the withdrawal on 15 October 2011 was in violation.
Judgment Excerpts
The bid security may be forfeited; c) If the bidder withdraws its bid, except that written notice of the withdrawal of bid is received by the employer prior to the deadline for submission of bids;
We undertake to pay to the Employer up to the above amount upon receipt of its first written demand, without the Employer having to substantiate his demand...
You are called upon to pay Rs.4,48,42,000/- ... in terms of the Bank Guarantee ... M/s.Vijal Electricals Ltd. has failed, as per the terms & conditions of Tender as per Agency has withdrawn the Bids after the deadline of submission date.
By an award dated 26th October, 2012, the learned arbitrator rendered a finding that the respondents herein were entitled to return all 3 bank guarantees and held that the petitioners were not entitled to forfeit the said bank guarantees as extended.
Procedural History
In 2011, the petitioner floated tenders; the last date for e-bids was 21 September 2011. Respondents submitted bids with bank guarantees on 21 September 2011. On 15 October 2011, respondents wrote a letter withdrawing their bids. The petitioner's board resolved on 7 December 2011 to forfeit bid securities. On 21 March 2012, the petitioner invoked the bank guarantees. On 22 March 2012, respondents filed Writ Petition No. 831 of 2012 and obtained ad-interim injunction. By order dated 12 June 2012, the Division Bench referred the dispute to sole arbitration. The arbitrator passed an award on 26 October 2012, allowing respondents' claims. The petitioner filed the present Section 34 petition; the matter was heard on 15 January 2015 and judgment was pronounced on 4 February 2015.
Acts & Sections
- Arbitration and Conciliation Act, 1996: 34
