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Supreme Court on Binding Nature of a Letter of Intent - YouTube
Channel: Suyash Verma | Legal Talks by Desikanoon
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hi everyone welcome to legal talks by
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desi kanoon i am suyash and i am excited
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to have started this show
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on today's show we will talk about the
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case of southeastern coal fields limited
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and others versus escu mars associates
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akm
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joint venture in this case the court
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discussed whether a letter of
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intent executed between the parties to
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enter into a contract
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could be construed as binding or not
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the brief facts of the case are that a
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works contract relating to
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excavation and mining was sought to be
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entered into between the appellant and
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the respondent
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in furtherance to which a letter of
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intent dated
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5th of october 2009 was executed between
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the parties
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subsequently on 28th of october 2009
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the respondent got all its equipments
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and machineries at the worksite
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and commenced its work however on 5th of
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december 2009
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while performing the work the
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truck-mounted
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drill machine of the respondent suffered
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a major breakdown
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and the work got suspended for reasons
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beyond the control of the respondent
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the respondent sought three months time
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for purchase of new machines
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but on 9th of december 2009 a show-cause
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notice was issued by the appellant
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to the respondent alleging reach of
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contract
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thereafter multiple correspondences and
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notices were exchanged between the
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parties
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and on 16th of july 2010 the appellant
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issued a notice to the respondent
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seeking compensation of around rupees 78
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lakhs
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being the differential in the contract
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value between the respondent
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and the new contractor this
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notice-seeking compensation was
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challenged by the respondent before the
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high court of chhattisgard
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and the high court of chhattisgard
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passed the impugned order dated 7th of
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november 2012
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holding that there was no valid contract
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between the parties
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and only for feature of bid security was
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permitted
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but the additional amount in a word of
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contract to another contractor as
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compared to the respondent
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was held to be not recoverable
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hence the appellant appealed against the
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order dated 7th of november 2012
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before the honorable supreme court
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firstly the court observed that
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the letter of intent between the parties
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merely indicated the intention
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to enter into a contract with each other
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at a future point of time
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and a letter of intent could be
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construed as binding
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only if such an unambiguous intention is
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evident from its terms
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secondly the court noted that in the
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present case the period of execution of
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contract was one year
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whereas the respondent worked only for a
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month and no money was paid for the work
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already done according to the court the
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respondent clearly failed to comply with
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the obligations stipulated under the
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letter of intent
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however neither any performance security
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deposit was furnished by the respondent
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nor any formal work order was issued by
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the appellant in favor of the respondent
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so whether there exists a valid contract
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or not in the present case remains
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doubtful thirdly
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the court produced clause 29.2 of the
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nit
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the notice inviting tender that
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stipulated that
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the notification of award will
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constitute the formation of the contract
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subject only to furnishing of the
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performance security or security deposit
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the court also produced clause 9 of the
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nit
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that explained what constitutes the
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contract
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according to clause 9 the contract
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includes the nit
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the acceptance of the tender the formal
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agreement to be executed between the
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parties
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post contractor furnishing all the
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documents and
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the bid security amount thus only a
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letter of intent is not sufficient to be
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relied upon
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and the contract must be wholly executed
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in order to allege its breach
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therefore upon cumulative consideration
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the quote was of the view that
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the high court of chhattisgard was right
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in holding that
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the only thing that the appellant can do
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is to forfeit the bid security amount
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and refund the balance amount to the
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respondent
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any recovery of the differential value
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of the so called contract awarded to the
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respondent
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and to the new contractor was held to be
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not recoverable
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hence the appeal preferred by the
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appellant was dismissed
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those were the observations by the court
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so what are my
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concluding remarks i concur with the
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interpretation of the honorable supreme
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court
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that only in cases where a letter of
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intent mentions in
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unambiguous terms that it would be
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binding
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can it be contended that there has been
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a breach of contract
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a letter of intent is what it is it
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merely signifies the intent of the
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parties
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to enter into an agreement and it is
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akin to an acceptance of an invitation
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to offer and
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not the offer itself hence i hope you
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enjoyed listening to this show
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thank you for listening please do not
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forget to like and subscribe us
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and if you have any comments please make
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them in the comments
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section see you next time till then stay
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tuned
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