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Patna High Court Orders Refund of Bank Guarantee Without Interest in Imaging Centre Tender Dispute
Patna High Court Orders Refund of Bank Guarantee Without Interest in Imaging Centre Tender Dispute
This case involves a dispute between the State Health Society, Bihar, and M/s Suraksha Diagnostics Pvt. Ltd. over the encashment of a bank guarantee submitted as earnest money for a government tender. The main issue was whether the State Health Society was justified in encashing the bank guarantee before the expiry of its term, and whether the amount should be refunded with interest. The court ultimately ordered the refund of the encashed amount to Suraksha Diagnostics, but without any interest, based on a mutual agreement between the parties during the appeal hearing.
Get the full picture - access the original judgement of the court order here
Case Name
The Secretary, Health-cum-Executive Director, State Health Society, Bihar & Anr. Vs. M/s Suraksha Diagnostics Pvt. Ltd. & Ors. (High Court of Patna)
Letters Patent Appeal No. 1271 of 2024 in Civil Writ Jurisdiction Case No. 15034 of 2014
Date: 24th April 2025
Key Takeaways
- Refund Ordered: The Patna High Court directed the State Health Society, Bihar, to refund the encashed bank guarantee amount of ₹1.5 crores to Suraksha Diagnostics within 15 days, but without any interest.
- No Interest Payable: Although the single judge had earlier ordered payment of 9% simple interest, the division bench modified this based on the parties’ consent during the appeal.
- Tender Dispute: The case highlights the importance of clear communication and adherence to tender and contract procedures, especially regarding earnest money and bank guarantees.
- Resolution by Consent: The final order was based on an agreement between the parties, not a strict legal determination on the merits of the original dispute.
Issue
Was the State Health Society, Bihar, justified in encashing the bank guarantee deposited by Suraksha Diagnostics as earnest money before the expiry of its term, and is Suraksha Diagnostics entitled to a refund of the amount with interest?
Facts
- The State Health Society, Bihar, issued a Request for Proposal (RFP) on 7 March 2014 for the design, installation, refurbishment, operationalization, and maintenance of imaging centres in six government medical colleges and hospitals.
- M/s Suraksha Diagnostics Pvt. Ltd. participated in the tender and was selected. They deposited earnest money via five bank guarantees of ₹30 lakhs each (totaling ₹1.5 crores).
- A draft Memorandum of Understanding (MoU) was provided to Suraksha Diagnostics on 11 August 2014. There were ongoing communications about amending the MoU.
- Due to delays in finalizing the MoU, the State Health Society encashed the bank guarantees before their expiry.
- Suraksha Diagnostics requested the return of the encashed amount, stating they were no longer interested in finalizing the MoU.
- The single judge ordered the State Health Society to refund the amount with 9% simple interest from the date of encashment.
- The State Health Society appealed, arguing against the payment of interest.
Arguments
For Suraksha Diagnostics (Respondent No. 1)
- The encashment of the bank guarantee before its expiry was arbitrary and discriminatory.
- Suraksha Diagnostics only sought amendments to the MoU, which could have been accepted or rejected, but the State Health Society did not respond and instead encashed the guarantee unilaterally.
- The action was taken in haste and with hostile intent.
For State Health Society, Bihar (Appellant)
- The encashment was permitted under the finance regulations of Bihar, which allow the tenderer to encash the bank guarantee if the selected party fails to sign the MoU and commence work.
- The State Health Society was only willing to refund the principal amount, not any interest.
Key Legal Precedents
The judgment does not explicitly cite any previous case law or specific statutory provisions by name or section number. The arguments reference “the finance regulation of the State of Bihar” as the basis for encashment of the bank guarantee, but no verbatim case law names or exact section/rule numbers are mentioned in the judgment text provided.
Judgement
- The court recorded that both parties agreed to resolve the matter by refunding the encashed amount of ₹1.5 crores to Suraksha Diagnostics within 15 days, but without any interest.
- This arrangement was accepted as a final settlement, and the litigation on this aspect was concluded.
- The appeal was disposed of with this modification to the single judge’s order (removing the interest component).
FAQs
Q1: Why did the court order a refund without interest?
A: The parties mutually agreed during the appeal hearing that the State Health Society would refund the principal amount without interest, and the court recorded this consent as the basis for its order.
Q2: Was the State Health Society’s encashment of the bank guarantee legal?
A: The State Health Society argued it was permitted under Bihar’s finance regulations, but the court did not make a final legal determination on this point, as the matter was settled by consent.
Q3: What happens if the refund is not made within 15 days?
A: The judgment requires the refund within 15 days, but does not specify consequences for non-compliance. Typically, failure to comply could lead to further legal action.
Q4: Does this case set a precedent for similar disputes?
A: Since the decision was based on mutual consent rather than a detailed legal analysis, its value as a precedent is limited.
Q5: What was the original order of the single judge?
A: The single judge had directed the State Health Society to refund the amount with 9% simple interest from the date of encashment. The division bench modified this to exclude interest.
