South Eastern Coalfields Ltd Vs M/S S Kumars Associates AKM (2021): A Letter Of Intent Is Not A Binding Contract Unless Such An Intention Is Evident From Its Terms As Observed By The SC

Date:
23rd July 2021

Coram:
Civil Appellate Jurisdiction

Parties:
Appellant: SOUTH EASTERN COALFIELDS LTD. & ORS.

Respondent:M/s. S. KUMAR’s ASSOCIATES AKM (JV)

Subject

The firm filed writ petition before the High Court seeking quashing of the termination letter and the recovery order issued to them.

Issues

Whether the case arises out of a Letter of Intent issued by the company to the respondent firm while awarding the contract for a total work of Rs.387.40 lakhs?

Overview

1. The respondent apparently faced difficulties after the letter dated 05.12.2009. The respondent records showed 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.

2. 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.

3. 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.

4. The appellant further asked the respondent to show cause as to why penal action could not be initiated for –

(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.

Relevant Provisions

1. In Section 3 of the Indian Contract Act, a contract shall mean the notice inviting tender, the tender as accepted by the company and the formal agreement executed between the company and the contractor together with the documents referred to therein, including general terms and conditions, special conditions, if any schedule quantities with rates and amount, schedule of work.

2. In Section 7 in the Indian Contract Act, it states that in order to convert a proposal into a promise, the acceptance must-

(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.

3. Article 226 of the Indian Constitution states about empowering the High Courts to issue, to any person or authority, including the Government (in appropriate cases), directions, orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto, certiorari or any of them.

Judgement analysis

1. The Hon’ble judges discussed that respondent worked at the site for a little over the month, facing certain difficulties.
2. It was immaterial whether the same was of the own making of the respondent or attributable to the appellants and that no amount was paid for the work done.
3. The respondent had 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.

Conclusion

The High Court held that there was no valid contract inter se the parties as it was subject to completion of certain formalities by the respondent, which were never completed.

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