Contract: Invitation of tender for hiring of equipments and machine for excavation and drilling work – Respondent was successful bidder – Issuance of Letter of Intent (LOI) – In terms of LOI, the respondent was to mobilize equipment for executing the work; Respondent was called upon to deposit Performance Security Deposit for a sum total of 5% of annualized contract amount within
28 days from the date of receipt of the LOI; sign the Integrity Pact before entering into the agreement in accordance with the tender document – Respondent mobilized resources at site and appellant issued letter of site handover – Respondent faced difficulties soon thereafter as the truck mounted drill machine suffered a major breakdown – Respondent wrote to appellant that the purchase of machine was expected only after about three months – Appellant issued letter alleging breach of contract – Held: Clause 29.2 of NIT clearly stipulates that the notification of award will constitute the formation of the contract “subject only” to furnishing of the Performance Security/Security Deposit – Thus, it was clearly put as a pre-condition and that too to be done within 28 days following notification of the award – The respondent, neither submitted the Performance Security Deposit nor signed the Integrity Pact – Consequently, the work order was also not issued nor was the contract executed – Therefore, it cannot be said that a concluded contract had been arrived at inter se the parties – Thus, case for breach of contract not made out.
Dismissing the appeal, the Court
HELD: 1. It cannot be said that a concluded contract had been arrived at inter se the parties. [Para 18][20-D]
2. The respondent, neither submitted the Performance Security Deposit nor signed the Integrity Pact. Consequently, the work order was also not issued nor was the contract executed. Thus, the moot point would be whether mobilization at site by the respondent would amount to a concluding contract inter se the parties. The answer to the same would be in the negative. [Para 19][20-E-G]
3. An LoI merely indicates a party’s intention to enter into a contract with the other party in future. No binding relationship between the parties at this stage emerges and the totality of the circumstances have to be considered in each case. It is no doubt possible to construe a letter of intent as a binding contract if such an intention is evident from its terms. But then the intention to do so must be clear and unambiguous as it takes a deviation from how normally a letter of intent has to be understood. [Para 20][20-G-H; 21-A-B]
4. In the present case, the period for execution of the contract was one year. The respondent worked at the site for a little over the month, facing certain difficulties – it is immaterial whether the same was of the own making of the respondent or attributable to the appellants. No amount was paid for the work done. The respondent failed to comply with their obligations under the LoI. It is not merely a case of the non-furnishing of Performance Security Deposit but even the Integrity Pact was never signed, nor work order issued on account of failure to execute the contract. [Para 22][21-F-H]
5. Clause 29.2 of NIT clearly stipulates that the notification of award will constitute the formation of the contract “subject only” to furnishing of the Performance Security/Security Deposit. Thus, it was clearly put as a pre-condition and that too to be done within 28 days following notification of the award. The failure of the successful bidder to comply with the requirement “shall constitute sufficient ground for cancellation of the award work and forfeiture of the bid security” as per clause 30.2. In terms of Clause 34, the failure to submit the Integrated Pact make the tender bid “as not substantially responsive and may be rejected.” [Para 22][22-B-D]
6. The definition of what constitutes a contract as per clause (ix) itself includes the NIT, the acceptance of the tender, the formal agreement to be executed between the parties post contractor furnishing all the documents and the bid security amount. [Para 23][22-D-E]
7. The result of the aforesaid is that as rightly held in terms of the impugned order all that the appellants can do is to forfeit the bid security amount and, thus, it was so directed. Since as a pre-condition of any coercive action against the respondent, the High Court called upon the appellants to deposit a sum of Rs.10 lakh in terms of the interim order dated 04.08.2010, a direction is made to deduct the bid security amount out of the sum of Rs.10 lakh and to refund the balance amount to the respondent. [Para 24][22-E-F]
Jawahar Lal Burman v. Union of India [1962] 3 SCR 769; Dresser Rand S.A. v. Bindal Agro Chem Ltd. & Anr. (2006) 1 SCC 751 : [2006] 1 SCR 308; Rajasthan Coop. Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service (P) Ltd. (1996) 10 SCC 405 : [1996]
6 Suppl. SCR 368; Bhushan Power & Steel Ltd. v. State of Odisha (2017) 2 SCC 125 and State of Madhya Pradesh and Anr. v. Firm Gobardhan Dass Kailash Nath (1973) 1 SCC 668 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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