LOI Is Not A Binding Contract Unless Such An Intention Is Evident From Its Terms: SC

NAME OF THE CASE

South Eastern Coalfields Ltd. v. S. Kumar’s Associates AKM (JV)

Factual Background

• The South Eastern Coalfields Ltd. is a government company which had issued a letter of intent to the respondent during providing the contract of Rs. 387.40 lakhs.
• The firm then proceeded to file a writ petition seeking to quash the termination letter and recovery order.

High Court’s Observation

• The High Court observed the absence of a valid contract between the parties as it was subject to certain conditions fulfilment.
• Only the forfeiture of bid security was upheld, but the appellants' attempt to recover the greater amount in contract award to another contractor over the respondent was found to be unrecoverable.

Supreme Court’s Orders

• A letter of intent would not amount to a binding contract unless the intention to make it a binding contract is evident from the terms.
• It is important to make the intention clear and unambiguous as the Letter of Intention is an indication of a party’s intent to have a contract with the other party.
• The Supreme Court held that there was no contract by the parties and mobilization would not amount to contract.
• The Court stated that the maximum that it can do is forfeit the bid security amount.

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