Conditional Acceptance in Tender does not Create Concluded Contracts

Source: Calcutta High Court

Why in News? 

Justice Kausik Chanda of the Calcutta High Court, in the case of Masibul Hassan v. State of West Bengal & Others (2026), dismissed a writ petition challenging a fresh e-auction notice issued by the Murshidabad Zilla Parishad for the settlement of the Balia Shyampur Ferry Ghat.  

• The Court held that no concluded contract had come into existence as the successful bidder failed to comply with a mandatory tender condition requiring submission of a bank guarantee. The Court further clarified that extension of time to comply with conditions cannot be construed as a waiver by the authority.

What was the Background of Masibul Hassan v. State of West Bengal & Others (2026) Case? 

• The petitioner challenged an e-auction notice dated January 6, 2026, contending that he had already secured a three-year settlement of the ferry ghat from December 19, 2024 to December 18, 2027 pursuant to an earlier auction process conducted on October 3, 2024. 
• The petitioner had emerged as the highest bidder by quoting Rs. 26.74 lakh for the first year. 
• Through a Letter of Acceptance dated November 18, 2024, the Zilla Parishad accepted his bid subject to certain conditions, including deposit of the first year's lease rent, execution of a formal agreement, and submission of a bank guarantee of Rs. 32.36 lakh corresponding to the third year's lease rent. 
• While the petitioner deposited the first year's rent, he failed to furnish the bank guarantee and repeatedly sought extensions of time. 
• The authority eventually curtailed the tenure to one year, which expired on December 18, 2025, following which a temporary extension was granted to maintain ferry services until January 31, 2026. 
• Thereafter, the impugned fresh auction notice was issued, prompting the petitioner to approach the Calcutta High Court.

What were the Court's Observations? 

• The Court held that the requirement of furnishing a bank guarantee was a mandatory financial safeguard embedded in the tender conditions, and since the petitioner failed to comply even within the extended timeline, the alleged three-year contract never crystallised. 
• The Court noted that acceptance of a tender must be "absolute and unqualified" under the Indian Contract Act, 1872, and where acceptance is conditional, the contract remains incomplete until the stipulated conditions are fulfilled. 
• Justice Chanda rejected the petitioner's argument that the Zilla Parishad had waived the bank guarantee requirement by granting extensions, holding that waiver by a public authority must be clear and intentional, and mere extension of time cannot amount to relinquishment of a contractual safeguard meant to protect public revenue. 
• The Court further observed that the petitioner's conduct in repeatedly seeking extensions itself demonstrated that he recognised the subsisting obligation to submit the bank guarantee. 
• Emphasising the limits of judicial review under Article 226 of the Constitution, the Court reiterated that decisions in contractual matters involving government bodies are ordinarily not interfered with unless shown to be arbitrary, mala fide, or violative of statutory provisions. 
• Finding no such illegality in the decision of the Zilla Parishad, the Court dismissed the writ petition, upheld the fresh auction process, and vacated the interim order earlier granted in the matter.

What is a Tender under the Indian Contract Act, 1872? 

About: 

• In the legal context, a "tender" refers to an offer to perform a contractual obligation. 
• A typical procurement tender is a formal invitation by an employer for vendors to submit competitive bids to execute specified work under defined terms. 
• According to the Indian Contract Act, 1872 (ICA), a tender is typically considered an invitation to treat, rather than a legal offer. 
• Participating in a tender process and submission of a bid constitutes an "offer" in the legal sense. 
• Once the tender or offer is accepted, a contract is formed, subject to the fulfilment of certain formalities.

Tender of Performance: 

• Section 38 of the ICA deals with the performance of tender, i.e., when and how a party can legally offer to perform their promise. 
• This is distinct from "tender" in the procurement sense and refers specifically to a party's offer to discharge their contractual obligation.

Essentials of a Valid Tender of Performance: 

• Unconditional Offer: The tender must be made without any conditions. For example, a supplier cannot offer to deliver goods only if the buyer pays extra freight, as that renders the tender invalid. 
• Proper Time and Place: The offer to perform must be made at the time and place agreed in the contract. If no time is specified, it must be made within a reasonable time. 
• Proper Person: The tender must be made to the promisee or a person authorised to receive it. Offering performance to an unauthorised third party makes it legally ineffective. 
• Full Performance: The performance must be complete and in accordance with the terms of the contract. Partial or defective performance does not constitute a valid tender. For example, delivering only part of the contracted goods is not a valid tender. 
• Ability and Willingness to Perform: The promisor must be ready and willing to perform the entire obligation, and their conduct must demonstrate a real intent to fulfil the obligation.

Legal Implications of a Valid Tender of Performance: 

• If the promisor makes a valid tender and the promisee refuses to accept it, the promisor is discharged from liability for non-performance. 
• In contracts involving payment, such as goods sold, refusal to accept a valid tender may bar a claim for breach against the promisor. 
• Under Section 38 of the ICA, if a promisor has made a valid tender of performance and the promisee refuses to accept it, the promisor is not responsible for non-performance and retains their legal rights, such as the right to payment or the right to avoid liability.

Illustrative Example: 

• 'A' contracts to deliver goods to 'B' on a fixed day. 'A' arrives at B's premises with the goods on that day and offers delivery, but 'B' refuses without a valid reason. 
• In such a case, 'A' is not liable for breach of contract, as a valid tender of performance was duly made and wrongfully refused by the promisee.