Fixed Deposit Is Valid EMD for Out-of-State Bidders Where Tender Clause Uses "May"
A Supreme Court bench of Justices Sanjay Kumar and K. Vinod Chandran reverses a High Court ruling that mandated demand drafts for out-of-state bidders, restoring the appellant's tender qualification.
The Supreme Court on 20 May 2026 set aside a High Court judgment that had disqualified RR Constructions and Infrastructure India Pvt. Ltd. from a public works tender solely because it submitted a Fixed Deposit (FD) as Earnest Money Deposit (EMD) instead of a Demand Draft (DD). The Court found that the relevant tender clauses used the word “may”, making the DD an option rather than a mandatory requirement for out-of-state bidders. The ruling restores the appellant's qualification on the opening of Envelope A and directs it to approach the Tendering Authority within 48 hours of the judgment being uploaded to address a separate, subsequent disqualification on Envelope B, on which the Court made no finding.
The Tender and the Disqualification
The Water Resources Department issued a Notice Inviting Tender for the “Construction of Head Work of Lamti Feeder Minor Tank Scheme”. The estimated project value was Rs. 13,72,98,000. Bids were to be submitted in three envelopes: Envelope A for technical qualification documents including EMD, Envelope B for a pre-bid qualification certificate, and Envelope C for the financial bid.
RR Constructions, an out-of-state bidder, submitted its EMD in the form of an FD issued by Punjab National Bank, Banjara Hills Branch, Hyderabad, drawn in favour of the Executive Engineer, Water Resources Division, Chhuikhadan (CG). The Tender Scrutiny Committee initially found the appellant qualified. A subsequent disqualification was then made by the Tendering Authority, but the appellant did not respond within the 48-hour window given, because by that point the High Court had already disqualified it.
The High Court upheld the disqualification, holding that out-of-state bidders were mandatorily required to submit EMD by way of a DD. It also relied on a prior judgment of that Court on identical conditions reaching the same conclusion. The financial bid of the appellant stood at Rs. 120 Crores. The sixth respondent, Gayatri Ventures, whose bid of Rs. 149 Crores was accepted only because the appellant was disqualified, contested the appeal before the Supreme Court.
What the Tender Clauses Actually Said
The Court examined Clause 2.13 of the tender document closely. Clause 2.13(a)(iv) listed “Approved Interest Bearing Security” as one of the approved forms of EMD. Clause 2.13(a)(xiii) specified a bank draft of State Bank of India or scheduled banks in the case of tenderers from other states.
Clause 2.13(b), which specifically addresses out-of-state bidders, uses the words “may submit” when referring to the bank draft option. Clause 2.15, headed “Earnest Money for Tenders from other State”, also employs the word “may” in relation to the DD requirement. The Court held that the use of “may” in both clauses meant the DD was an option, not a mandate.
On the FD itself, the appellant argued it fell within Clause 2.13(a)(iv) as an “Approved Interest Bearing Security”. The State had argued that the word “approved” required specific approval by the State Government. The Court rejected that reading, finding that the word “approved” was used loosely to indicate interest-bearing security, a character that an FD plainly possesses.
The Court also noted that the State, through its Senior Counsel, admitted that as per accepted practice, FDRs had been accepted even from out-of-state bidders. The Tendering Authority itself had, on the appellant's representation, reversed the first disqualification, finding that submission of an FDR could not lead to disqualification even for out-of-state bidders.
The Suppression Allegation and the Second Disqualification
The sixth respondent raised a preliminary objection: the appellant had suppressed the second disqualification from this Court. The timeline was material. The appellant's disqualification on Envelope A was reversed by the Tendering Authority on its representation. The sixth respondent then filed a Writ Petition on 12 October 2025, which the High Court allowed on 11 December 2025. The present SLP was filed on 17 December 2025. The subsequent disqualification on Envelope B was made on 26 December 2025, after the SLP was filed.
The sixth respondent argued that even though the second disqualification came after the SLP, the appellant did not bring it to the Court's notice even when a status quo order was passed, which was later in time than the disqualification.
The Court declined to treat this as fatal suppression. It reasoned that the appellant could not be faulted for not responding to the Envelope B disqualification notice within 48 hours, because the High Court had already disqualified it on Envelope A grounds, making any response to a further disqualification futile at that stage. The appellant also submitted that though not within time, a representation was filed against the second disqualification as well.
The Court’s Reasoning on the Main Issue
The Court's analysis was textual and direct. Where a clause uses “may”, it cannot be read as imposing a mandatory condition. Both Clause 2.13(b) and Clause 2.15 used that word in relation to the DD requirement for out-of-state bidders. The High Court's conclusion that a DD was mandatory was therefore not borne out by the specific terms of the tender document.
The Court held that the impugned order was not sustainable and set it aside. It declared the appellant qualified on the opening of Envelope A, as had been declared by the Tendering Authority itself before the High Court intervened.
On the Envelope B disqualification, the Court was careful to make no finding on the merits. It directed the appellant to approach the Tendering Authority within 48 hours of the judgment being uploaded, with a representation against that disqualification, or to urge contentions based on the representation it had already submitted after the 48-hour window granted by the authorities.
Outcome
The appeal was allowed. The impugned judgment of the High Court was set aside. The appellant's qualification on the opening of Envelope A was affirmed. The Court made clear it had not made any observation on the qualification or disqualification arising from the opening of Envelope B. Pending applications, if any, were disposed of. The judgment was delivered on 20 May 2026 by a bench of Justice Sanjay Kumar and Justice K. Vinod Chandran, with the opinion authored by Justice K. Vinod Chandran.