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SUPREME COURT OF INDIA
Sanjay Kishan Kaul, Hemant Gupta, JJ.
SOUTH EASTERN COALFIELDS LTD. & ORS. – Appellants
Versus
M/s. S. KUMAR’s ASSOCIATES AKM (JV) – Respondent
Civil Appeal No. 4358 of 2016
Decided on : 23-07-2021
Government Contract – Tender – Cancellation of work contract and forfeiture of bid security amount – A Letter of Intent (LoL) merely indicates party’s intention to enter into a contract with other party in future and is not intended to bind either party ultimately to enter into a contract – No binding relationship between parties at this stage emerges and totality of circumstances have to be considered in each case – It cannot be said that a concluded contract had been arrived at inter se parties – None of mandates of letter of award were fulfilled except that respondent mobilized equipment at site, handing over of site and date of commencement of work was fixed – Respondent neither submitted Performance Security Deposit nor signed Integrity Pact – Consequently, work order was also not issued nor was contract executed – Mobilization at site by respondent would not amount to a concluding contract inter se parties – It is possible to construe a letter of intent as a binding contract if such an intention is evident from its terms – But then 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 – Period for execution of contract was one year – Respondent worked at site for a little over month, facing certain difficulties – It is immaterial whether same was of own making of respondent or attributable to appellants – No amount was paid for work done – Respondent failed to comply with their obligations under LoI – It is not merely a case of non-furnishing of Performance Security Deposit but even Integrity Pact was never signed, nor work order issued on account of failure to execute contract – As rightly held in terms of impugned order all that appellants can do is to forfeit bid security amount – Appeal dismissed. [Contract Act, 1872 – Section 7] (Paras 11, 18, 19, 22, 24 and 25)
Facts of the case:
South Eastern Coalfields Ltd., appellant no.1, floated a tender. Division Bench of Chhattisgarh High Court opined that there was no subsisting contract inter se the parties to attract the general terms and conditions as applicable to the contract. Various clauses of NIT were referred to and it was opined that there could not be a valid contract inter se the parties as it was subject to completion of certain formalities by the respondent, which were never completed, i.e. furnishing of the performance security; and the consequence was that the appellant was within their rights to cancel the award of work and forfeit bid security. Thus, only the forfeiture of bid security was upheld while the endeavour of the appellants to recover additional amount in award of contract to another contractor as compared to the respondent was held not recoverable.
Findings of Court:
Definition of what constitutes a contract as per clause (ix) itself includes the NIT, acceptance of the tender, the formal agreement to be executed between the parties post contractor furnishing all the documents and the bid security amount. Since as a pre-condition of any coercive action against respondent, High Court called upon appellants to deposit a sum of Rs.10 lakhs in terms of interim order dated 04.08.2010, direction is made to deduct bid security amount out of sum of Rs.10 lakh and to refund balance amount to respondent. The needful would now have to be done within two months as in terms of the interim order of this Court dated 08.02.2013 such refund has been stayed.
Result : Appeal dismissed.
JUDGMENT
Sanjay Kishan Kaul, J.
South Eastern Coalfields Ltd., appellant no.1 is a Government company registered under the Companies Act, 1956. The appellant no.1 floated a tender for the work of "Hiring of HEMM and allied equipments including digging machines fitted suitable slump breaker for excavating overburden (including drilling in all kinds of strata/overburden) loading into tipples, transportation, unloading the extra waited material and silt, dumping dozing scrapping/removal bands preparation/maintenance of haul road water sprinkling and spreading of material at the site shown and as per direction of the management/Engineer In Charge of Patch-D, Mahan I OCM of Bhatgaon Area" on 23.06.2009. Bids were received and respondent was the successful bidder. In view thereof a Letter of Intent ('LoI') was issued bearing No.2415 dated 05.10.2009 awarding the contract for a total work of Rs.387.40 lakh. The LoI stated as under:
ii. The respondent was called upon to deposit Performance Security Deposit for a sum total to 5% of annualized contract amount within 28 days from the date of receipt of the LoI as per the provisions of the tender document.
iii. Sign the Integrity Pact before entering into the agreement in accordance with the tender document.
iv. The work order would be issued and the agreement would be executed at the Area Office.
v. The date of commencement of work may be intimated to the issuing office and agreement may be concluded within 28 days as per the provisions of the tender document.
2. The respondent, in pursuance of the LoI, mobilized resources at site and a measurement team was sent by appellant no.1 as intimated vide letter dated 09.10.2009. On 28.10.2009, the appellant issued a letter of site handover/acceptance certificate, which was to be taken as the date of commencement of the work.
3. The respondent apparently faced difficulties soon thereafter and the letter dated 05.12.2009 of the respondent records that though the work was started in all earnest and considerable quantity of overburden had been removed, the truck mounted drill machine employed by the respondent suffered a major breakdown. The work, thus, had to be suspended for reasons beyond the control of the respondent. The endeavour to rectify the position or arrange alternative machinery did not work out and the letter states that the purchase of new machines was expected only after about three months. The contractual relationship apparently deteriorated as on 09.12.2009, the appellants issued a letter alleging breach of terms of contract and rules and regulations applicable by the respondent. The appellant further asked the respondent to show cause as to why penal action be not initiated of - (a) termination of work; (b) blacklisting of the respondent company; and (c) award of execution of work to other contractor at the cost and risk of the respondent.
4. Communications in this behalf continued to be exchanged and vide letter dated 12.12.2009, the appellants brought to the notice of the respondents that they failed to submit the performance security deposit which was required to be submitted within 28 days from the date of the receipt of the LoI as per the terms of the tender. Another show cause notice was issued on 15.12.2009 intimating to the respondent that the appellants were left with no option except to terminate the work awarded to the respondent and get it executed by other contractor at the risk and cost of the respondent in terms of clause 9.0 of the General Terms & Conditions of the Notice Inviting Tenders ('NIT') giving a ten days' time to the respondent to respond. It appears that there was no response and on 23.12.2009, once aga
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