Padia Timbers & Contracting Through Tendering Process

A recent decision of the Supreme Court in Padia Timber v Vishakapatnam Port Trust is interesting on many counts. One, it is a rare decision by the Supreme Court construing general contract law (Sections 4 and 7 of the Indian Contract Act, 1872. Two, the Supreme Court overturned the decision of the trial court and the High Court notwithstanding that the case does not involve any new question of law that courts previously had not dealt with but that the lower courts (trial court and the High Court) did not deal with in this case. Three, the decision throws considerable light on government contracting practices and can act as a context in discussing such practices.  Four, this case relates to a notice inviting tender that was floated more than thirty years back (1990)! The matter was heard in the SC several times between 2007 and 2011 but it appears that the matter was not heard between 2011 and 2018.

The judgment reiterates the position that acceptance should be unconditional as per Section 7 and various decided cases. 

On facts, when  the appellant, Padia Timbers, submitted its bid, it made a revised quotation stating that inspection would have to be conducted at Padia Timber's depot an not otherwise. This is where government tendering practices are to be noted. Given the requirement of a rigorous and complaint free tendering process, government contracts usually state that the bidder must "accept" all the conditions stated in its offer.  If that is not the case, the Government entity generally rejects the bid if the non-acceptance pertains to a material provision. In this case, the error committed was that the Government entity went ahead with the tendering process and awarded the contract to the bidder despite deviation from the condition regarding inspection. What really happened making the port trust to proceed with the tendering process and awarding the contract is not clear and will be known if the tender file is perused.

The Court ultimately ordered the Port Trust to refund the earnest money to Padia Timber at an interest rate of 6% per annum from the date of institution of the suit (1994) till the date of refund.