Name of the Case: M/s. South Eastern Coalfields Ltd. & Ors Vs. S. Kumar’s Associates Akm (Jv)

Case Number: Civil Appeal No. 4358 OF 2016

Judges Name: Hon’ble Judges Sanjay Kishan Kaul J, Hemant Gupta J. 

Order dated: 23.07.2021

“Letter of intent is NOT a binding contract if the intention of the parties is evident from its terms.”

Facts of the Case:

• The Appellant floated a tender for certain works in June 2009. The Respondent was the successful bidder. A Letter of Intent (‘LoI’) was issued by the Appellant in 2009 awarding the contract to the Respondent. The Appellant issued a letter of site handover/acceptance certificate which was taken as date of commencement of the work.
• Thereafter, the work was suspended due to breakdown of the machinery deployed by the Respondent. The Appellant informed the Respondent on the failure of the Respondent to submit the performance security deposit within 28 days from the LoI. The Appellant issued a notice to Respondent for terminating the work and getting such work executed by another contractor and the LoI was finally terminated against such order. Thereafter, the work was awarded to another contractor at a higher price.
  
• The Appellants sent a letter to the Respondent seeking certain payments the differential amount in the contract value between the Respondent and the new contractor. The Respondent filed a writ petition before the Chhattisgarh High Court for quashing the termination letter and the recovery order. The High court upheld the forfeiture of bid security and held that the endeavour of the Appellant to recover the additional amount in award of contract to another contractor as compared to the Respondent was not recoverable. The Appellants filed an appeal in the Supreme Court. 

Supreme Court observed/held:

• The Respondent failed to fulfill its obligations as per the LoI except for mobilizing the equipment at site.
  
• The Performance Security Deposit was not submitted by Respondent and the Integrity Pact was not signed by the Respondent.
• A Letter of Intent indicates a party’s intention to enter into a contract with the other party in future.
  
• It is not possible to construe a letter of intent as a binding contract if such an intention is evident from its terms.
  
• The failure of the Respondent to comply with the requirement shall constitute sufficient ground for cancellation of the award work and forfeiture of the bid security” 

Therefore, the Appeal was dismissed.