Contract Law Case: Gauri Parbati Nirman Sewa Pvt. Ltd. v. Kathmandu Greater Municipality, NKP, 2065, No. 8, P. 1048, D.No. 8007
Case: Certiorari and Mandamus
Plaintiff: Gauri Parbati Nirman Sewa Pvt. Ltd.
Defendants: Kathmandu Greater Municipality
Decision Number: 8007
This Case is related to Certiorari and Mandamus.
Facts of the Case:
Kathmandu Metropolitan City invited sealed bids to collect annual vehicle taxes for the fiscal year 2061/62 B.S. under a one-year contract, petitioner submitted the highest bid of Rs. 70,01,000/- and deposited a bank guarantee of Rs. 4,00,000/- After accepting petitioner’s bid, KMC delayed the contract process because it had to publish additional tender notices due to an insufficient number of bidders. Later, instead of offering the advertised one-year contract, KMC asked petitioner to sign a contract only for the remaining period until the end of the fiscal year about nine months. petitioner objected, stating that it had bid on the basis of a one-year contract and refused to sign a contract with the shortened period. KMC treated this as a refusal to execute the contract and decided to forfeit petitioner’s bank guarantee. petitioner then filed a writ petition seeking cancellation of the forfeiture decision and return of the bank guarantee.
Plaintiff’s Claim:
Petitioner argued that the tender notice clearly offered a one-year contract. After accepting the bid, KMC illegally changed the basic condition by offering a contract only until the end of the fiscal year. petitioner never refused the original contract it only refused the altered contract. Therefore, forfeiting the bank guarantee was arbitrary, illegal, and violated its constitutional property rights and requested court to quash the forfeiture decision, order the return of the bank guarantee, and direct KMC to act according to the original tender conditions.
Defendants’ Arguments:
Defendant argued that the delay occurred because the law required repeated publication of tender notices after an insufficient number of bids were received and petitioner was informed to come and sign the contract but failed to do so within the prescribed time also argued that under the Local Bodies Rules, the security deposit of a bidder who refuses to execute the contract can be forfeited therefore, the forfeiture of the bank guarantee was lawful and the writ petition should be dismissed.
Legal Issues:
- Whether a public authority can legally forfeit a bidder’s bank guarantee after changing a fundamental condition of the tender, when the bidder refuses to sign the modified contract instead of the contract originally advertised?
Decisions of the Courts:
Supreme Court:
Court held that KMC itself changed the fundamental condition of the tender by reducing the contract period from one year to the remaining part of the fiscal year. Because petitioner had refused the altered contract, not the original advertised contract KMC had no legal basis to forfeit the bank guarantee and decision dated on 2061/05/30 B.S. of forfeiting the bank guarantee was quashed by a writ of Certiorari. Court further issued a writ of Mandamus directing Kathmandu Metropolitan City and Nepal Bangladesh Bank to return the bank guarantee of Rs. 4,00,000/- to petitioner.
Established Principles:
- A public authority cannot rely on rules allowing forfeiture of a bidder’s security deposit after it has itself changed a fundamental condition of the tender.
- The power to forfeit a bank guarantee exists only when the original tender conditions remain unchanged and the successful bidder unjustifiably refuses to execute the contract.
- Public authorities must act fairly, reasonably, rationally, and without arbitrariness when exercising statutory powers.
- When a public authority unilaterally changes the basic terms of a tender, the bidder is entitled to refuse the altered contract and recover the bank guarantee.
- Arbitrary forfeiture of a bank guarantee contrary to the published tender conditions amounts to an unlawful interference with the bidder’s constitutional property rights.
