Isabella Mariam

The High Court of Karnataka Single Bench of Justice Suraj Govindaraj has allowed writ petitions after railway authorities treated bank guarantees furnished for a bidder’s tenders as forged and proposed liquidated damages and debarment from future bids. The Court quashed the communications to that extent, finding no material linking the bidder to the fabrication, while keeping the tender termination and forfeiture of bid security in force. In the same order, the Court suggested illustrative measures for the Union Ministry of Finance to consider while developing a comprehensive, standardised bank-guarantee verification system to prevent fraud, after the Government said the Ministry has recognised wider systemic vulnerabilities and proposed implementing an appropriate mechanism within eight weeks.

The writ petitions arose from a tender process initiated by the South Western Railway, wherein a private infrastructure company participated by submitting bids supported by bank guarantees. Subsequently, the respondent authorities found that the bank guarantees furnished by the petitioner were forged. On this basis, the railways terminated the tender, encashed the bid security amounts, and initiated steps to levy liquidated damages and impose debarment under the relevant clauses of the Request for Proposal and the Engineering Procurement and Construction Agreement.

Also Read: Supreme Court Issues Directions On High Courts’ Handling Of Complaints Against District Judiciary Officers, Separating False And Frivolous Allegations

The petitioner did not dispute the termination of the tender or the forfeiture of bid security. The challenge was confined to the proposed levy of liquidated damages and the threat of debarment. The petitioner asserted that it had been deceived by third parties who had supplied forged bank guarantees and that it had no role in their fabrication. It relied on a criminal complaint lodged by it, registration of an FIR, and filing of a charge sheet in which neither the petitioner nor its officers were arrayed as accused.

The respondents contended that irrespective of culpability, submission of a forged bank guarantee entitled the authorities to invoke contractual clauses permitting liquidated damages and debarment. The dispute thus centered on whether the absence of the petitioner’s involvement in the fraud barred the imposition of further penal consequences beyond termination and forfeiture.

The Court recorded: “Whether, ex facie, the petitioner can be said to be involved in the fabrication of the Bank Guarantee requiring the respondents to exercise their rights under Clauses 4.1 and 4.2 of the RFP and 7.1.2 of EPC as mentioned supra?”

The Court stated: “From the documents on record, it is clear that there is no particular allegation against the petitioner having indulged in such activities. It is the person whom the petitioner had approached who has indulged in such activities and furnished the fake Bank Guarantees to the petitioner. There being no allegation against the petitioner that the petitioner has secured fake Bank Guarantees or has conspired with those accused to secure such fake Bank Guarantees.”

The Court recorded: “The bona fides of the petitioner are established by giving up the tender as also the Bid Security amount of ₹2,00,00,000/-, I am of the considered opinion that the liquidated damages cannot be levied on the petitioner, more so, when there is no contract which has been entered into between the petitioner and the respondents, that the above fabrication of a Bank Guarantee came to notice before the issuance of the work order and/or execution of the contract. Insofar as the embargo that could be imposed on the petitioner under clauses 4.1 and 4.2, that would also be dependent on the active participation of the petitioner in securing such a fabricated Bank Guarantee, which, as indicated supra, is not. Hence, the question of imposing such an embargo of 12 months under Clause 4.1 or 2 years under Section 4.2 of the RFP would also not arise. Hence, I am of the considered opinion that though the termination would stand, the threats held out by the respondents that there would be a levy of liquidated damages and/or debarring the petitioner from participating in future tenders cannot stand in view of the above.”

The Court recorded: “The issue, as submitted, is not confined to the facts of the present case alone, but reveals a wider systemic vulnerability in the existing processes governing the submission, acceptance, and verification of bank guarantees, particularly in the context of public procurement and large-scale contractual engagements. The absence of a uniform, secure, and verifiable mechanism for authentication of bank guarantees creates fertile ground for fraud, undermines commercial certainty, and poses risks to public funds and institutional trust.”

The Court recorded: “The learned ASGI submits that the Ministry of Finance has taken cognisance of the issue and proposes to flag the matter at the appropriate level and an appropriate system would be implemented within 8 weeks time is placed on record. It is further submitted that the Ministry proposes to take up the issue with the concerned authorities with a view to examining the need for, and feasibility of, evolving a comprehensive and standardised system for verification of bank guarantees furnished during the tendering process or otherwise, so as to prevent recurrence of such incidents.”

The Court stated: “This Court is of the considered view that bank guarantees occupy a position of central importance in commercial and governmental transactions and function as instruments of financial assurance upon which contracting parties and public authorities routinely rely. Any erosion of confidence in the authenticity of such instruments has ramifications that extend beyond individual disputes and directly implicates public interest, fiscal discipline, and the integrity of public procurement processes.”

The Court observed: “While the formulation of policy measures and institutional mechanisms lies within the domain of the executive, the Court cannot be oblivious to the fact that repeated instances of fraudulent bank guarantees, if left unaddressed at a systemic level, have the potential to result in recurring financial loss, multiplicity of litigation, and diminished confidence in tendering frameworks administered by the State and its instrumentalities.”

The Court recorded: “Without expressing any opinion on the modalities to be adopted, and without trenching upon the domain of policy formulation, I’am of the considered opinion that the availability of contemporary technological and institutional solutions may merit examination by the appropriate authorities with a view to strengthening safeguards against the furnishing and acceptance of fake bank guarantees.”

The Court then set out illustrative measures:

• “By way of illustration, and without being exhaustive, such measures may include the issuance of bank guarantees in a digitally verifiable form incorporating secure and tamper-proof QR codes or similar authentication tools, enabling instant verification of the guarantee particulars, such as the issuing bank and branch, beneficiary, amount, period of validity, and subsisting status, directly from the issuer’s system.”

• “The adoption of a centralised or interoperable digital verification platform, accessible to procuring authorities, public sector undertakings, and other beneficiary institutions, may also merit consideration, so as to enable verification of bank guarantees directly from the issuing bank without reliance on physical documents or intermediaries.”

• “The feasibility of secured electronic interfaces or application programming interfaces (APIs) enabling real-time or near real-time confirmation of bank guarantees between issuing banks and beneficiary authorities, particularly at the stages of tender evaluation, award, or contract administration, may likewise be examined, with a view to reducing discretion, delay, and scope for manipulation.”

• “Further, the assignment of a unique, non-reusable identification number to each bank guarantee, capable of verification throughout its lifecycle, including issuance, amendment, extension, invocation, and discharge, may assist in preventing duplication, alteration, or reuse of fraudulent instruments.”

• “The transition towards digital-only issuance of bank guarantees, supported by bank-grade encryption, digital signatures, and date and time-stamped issuance records, may also be explored, with physical copies, if any, being treated only as non￾authoritative representations of the electronically issued instrument.”

• “For bank guarantees involving higher monetary thresholds, the requirement of direct issuer-side confirmation to the beneficiary authority, through secure electronic communication, may merit consideration as an additional safeguard against fraud.”

• “Standardisation of the minimum data fields, format, and verification parameters of bank guarantees across issuing banks may further facilitate automated verification and reduce ambiguity arising from divergent formats and practices.”

• “The maintenance of an auditable electronic trail of verification attempts, including the date, time, verifying authority, and outcome, may enhance transparency, accountability, and institutional oversight, and may also assist in vigilance, audit, and dispute resolution processes.”

The Court directed that “Writ petitions are allowed.” It ordered issuance of a writ of certiorari whereby “the notice bearing No. W.496/TK-RDG-EPC-04 dated 18.08.2025 issued by respondent No.3 at Annexure-A and the letter bearing No. W.496/TK-RDG-EPC-03 & 04 dated 08.09.2025 issued by respondent No.4 at Annexure-N, insofar as the levy of liquidated damages and/or debarring of the petitioner is concerned, is quashed” in W.P. No. 31939 of 2025.

Also Read: Mandatory Pre-Deposit Under Section 129E Of Customs Act Cannot Be Waived For Financially Sound Importer; Karnataka High Court

In respect of W.P. No. 31808 of 2025 : “the notice bearing No. W.496/TK-RDG-EPC-03 dated 18.08.2025 issued by respondent No.3 at Annexure-A and the letter bearing No. W.496/TK-RDG-EPC-03 & 04 dated 08.09.2025 issued by respondent No.4 at Annexure-M, insofar as the levy of liquidated damages and/or debarring of the petitioner is concerned, is quashed.”

“The termination of the tender will continue to be in force and that the Bid Security, which has been forfeited, will continue to stand forfeited. Though the above matter is disposed, relist on 16.03.2026, to enable the learned ASGI to place on record the system implemented by the Respondents.”

Advocates Representing the Parties

For the Petitioners: Sri. Vikram Huilgol, Senior Advocate with Sri. Aditya Bhat, Advocate;
Sri. Devadatt Kamat, Senior Advocate with Sri. Aditya Bhat, Advocate

For the Respondents: Sri. Aravind Kamath, Additional Solicitor General of India for Sri. B.S. Venkatanarayana

Case Title: M/s DRN Infrastructure Pvt. Ltd. v. Union of India & Ors.
Neutral Citation: NC: 2025: KHC:54420
Case Numbers: WP No. 31939 of 2025 c/w WP No. 31808 of 2025
Bench: Justice Suraj Govindaraj