SOUTH EASTERN COALFIELDS LTD. & ORS. versus M/S. S. KUMAR’S ASSOCIATES AKM (JV)

Citation: [2021] 8 S.C.R. 8 · Decided: 23-07-2021 · Supreme Court of India · Bench: SANJAY KISHAN KAUL · Disposal: Dismissed

Cited by 3 judgment(s) · cites 2 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2021] 8 S.C.R.
SOUTH EASTERN COALFIELDS LTD. & ORS.
v.
M/s. S. KUMAR’s ASSOCIATES AKM (JV)
(Civil Appeal No. 4358 of 2016)
JULY 23, 2021
[SANJAY KISHAN KAUL AND HEMANT GUPTA, JJ.]
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]
[2021] 8 S.C.R. 8
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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]
SOUTH EASTERN COALFIELDS LTD. & ORS. v.
M/s. S. KUMAR’s ASSOCIATES AKM (JV)
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SUPREME COURT REPORTS
[2021] 8 S.C.R.
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

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