Tender Condition For Out-Of-State Bidders To Submit EMD Via Demand Draft Not Mandatory If Clause Uses 'May': Supreme Court

"Word 'may' is also employed in Clause 2.15 and hence it is only in the nature of an option and not a mandatory condition," Supreme Court, in a significant ruling dated May 20, 2026, held that the requirement for out-of-state bidders to submit an Earnest Money Deposit (EMD) specifically through a Demand Draft (DD) is directory and not mandatory when the tender conditions employ the word "may".

A bench of Justice K. Vinod Chandran and Justice Sanjay Kumar observed that providing EMD via a Fixed Deposit (FD) is permissible if the tender allows for "approved interest-bearing securities," as an FD inherently possesses that character.

The appellant, RR Constructions and Infrastructure India Pvt. Ltd., participated in a tender issued by the Water Resources Department, Chhattisgarh, for the "Construction of Head Work of Lamti Feeder Minor Tank Scheme." The appellant was disqualified by the High Court on the grounds that it provided its EMD via a Fixed Deposit (FD) instead of a Demand Draft (DD), which the High Court deemed mandatory for out-of-state bidders. The appellant’s bid of Rs. 120 Crores was significantly lower than the successful respondent’s bid of Rs. 149 Crores.

The primary question before the court was whether the tender conditions mandated out-of-state bidders to submit EMD only via Demand Draft. The court was also called upon to determine whether a Fixed Deposit qualifies as an "Approved Interest Bearing Security" under the specific clauses of the tender document.

Interpretation Of 'May' In Tender Documents

The Court scrutinized Clause 2.13 and Clause 2.15 of the tender document to determine the nature of the EMD requirement. The Bench noted that while Clause 2.13(a)(xiii) mentioned a bank draft for bidders from other states, Clause 2.13(b) explicitly stated that the EMD "may be" in the form of a bank draft.

The Court held that the use of the word "may" in these clauses signifies an option rather than a mandatory obligation. The bench observed that the appellant had provided an FD from Punjab National Bank in favour of the Executive Engineer, which fulfilled the substantive requirement of securing the earnest money.

"The word 'may' is also employed in Clause 2.15 and hence it is only in the nature of an option and not a mandatory condition."

Fixed Deposit Qualifies As Approved Interest Bearing Security

The Bench addressed the State's contention regarding the classification of the deposit. Under Clause 2.13(a)(iv), the tender allowed for "Approved Interest Bearing Security" as a valid form of EMD. The Court rejected the argument that "approved" required a specific separate notification by the State Government for every instrument.

The Court clarified that the term "approved" in this context loosely indicates the character of the security. Since a Fixed Deposit is undeniably an interest-bearing security, it falls within the permissible forms of EMD stipulated in the tender document.

"The word approved used is not to indicate any specific approval by the State Government... but loosely indicates Interest Bearing Security, which character a FD definitely has."

Impact Of Subsequent Disqualification On Envelope B

During the proceedings, it was revealed that the appellant faced a second disqualification regarding "Envelope B," which concerned a pre-bid qualification certificate. The State argued that the appellant failed to respond to this disqualification within the stipulated 48-hour window.

However, the Court noted that the appellant was already disqualified by the High Court judgment at that time, making a response practically redundant. The Bench observed that the appellant could not be faulted for not responding to the second disqualification while the primary disqualification by the High Court was still in force.

Court Sets Aside High Court Judgment

The Supreme Court concluded that the High Court's interpretation of the tender conditions was unsustainable. By insisting on a Demand Draft when the tender document provided an option, the High Court had overlooked the specific language of the contract.

Consequently, the Court set aside the impugned judgment and affirmed the qualification of the appellant regarding "Envelope A." The Court further directed that the appellant be allowed to approach the Tendering Authority within 48 hours of the judgment's upload to contest the subsequent disqualification regarding "Envelope B."

"The disqualification on opening Envelope A with respect to the EMD, as ordered by the High Court having been reversed by us, we are of the opinion that the appellant could approach the Tendering Authority within 48 hours of this judgment."

The appeal was allowed, restoring the appellant's technical qualification regarding the EMD submission. The Court emphasized that when tender conditions are couched in permissive language like "may," authorities cannot arbitrarily transform them into mandatory requirements to disqualify otherwise eligible and lower bidders.

Date of Decision: 20 May 2026