Holding

No contract was concluded because the award was subject to the condition precedent of furnishing the performance security and signing the Integrity Pact, whose non‑fulfilment precluded the formation of a binding contract.

Summary

South Eastern Coalfields Ltd. (SECL) floated a tender for hiring excavation equipment and awarded the contract to M/s S. Kumar’s Associates AKM (JV) through a Letter of Intent (LoI). The LoI required the successful bidder to deposit a performance security of 5% of the contract value within 28 days and to sign an Integrity Pact before the contract could be executed. The respondent mobilised equipment and began work but failed to furnish the performance security and did not sign the Integrity Pact. SECL issued breach notices, terminated the award and sought forfeiture of the bid security and additional damages. The Chhattisgarh High Court held that no contract was concluded because the award was subject to the pre‑condition of furnishing the security and signing the pact, and only the bid security could be forfeited. The Supreme Court affirmed this view, holding that the parties never entered into a binding contract and dismissed the appeal.

Issues considered

Whether the issuance of a Letter of Intent coupled with mobilisation of equipment amounted to a concluded contract between SECL and the respondent.
Whether the requirement to furnish performance security and sign the Integrity Pact constituted a condition precedent or a condition subsequent.
Whether the respondent could be held liable for breach of contract and liable to pay differential damages.

Legislation cited

Companies Act, 1956
Indian Contract Act, 1872s. Section 7

Subjects

Letter of IntentCondition precedentPerformance securityIntegrity PactTender awardBreach of contractGovernment procurementContract formation

Judgment

8 [2021]
SUPREME COURT 8 S.C.R. 8
REPORTS [2021] 8 S.C.R.

A SOUTH EASTERN COALFIELDS LTD. & ORS.
v.
M/s. S. KUMAR’s ASSOCIATES AKM (JV)
(Civil Appeal No. 4358 of 2016)
B 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
C
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
D 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
E
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
F 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.
G 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]

H
8
SOUTH EASTERN COALFIELDS LTD. & ORS. v. 9
M/s. S. KUMAR’s ASSOCIATES AKM (JV)

2. The respondent, neither submitted the Performance A
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.
B
[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 C
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 D
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 E
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 F
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 G
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]
H
10 SUPREME COURT REPORTS [2021] 8 S.C.R.

A 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
amount. [Para 23][22-D-E]
B 7. The result of the aforesaid is that as rightly held in terms
of the impugned order all that the appellants can do is to forfeit
the bid security amount and, thus, it was so directed. Since as a
pre-condition of any coercive action against the respondent, the
High Court called upon the appellants to deposit a sum of Rs.10
lakh in terms of the interim order dated 04.08.2010, a direction
C is made to deduct the bid security amount out of the sum of Rs.10
lakh and to refund the balance amount to the respondent. [Para
24][22-E-F]
Jawahar Lal Burman v. Union of India [1962] 3 SCR
769; Dresser Rand S.A. v. Bindal Agro Chem Ltd. &
D Anr. (2006) 1 SCC 751 : [2006] 1 SCR 308; Rajasthan
Coop. Dairy Federation Ltd. v. Maha Laxmi Mingrate
Marketing Service (P) Ltd. (1996) 10 SCC 405 : [1996]
6 Suppl. SCR 368; Bhushan Power & Steel Ltd. v. State
of Odisha (2017) 2 SCC 125 and State of Madhya
E Pradesh and Anr. v. Firm Gobardhan Dass Kailash Nath
(1973) 1 SCC 668 – referred to.
Case Law Reference
[1962] 3 SCR 769 referred to Para 9

F [2006] 1 SCR 308 referred to Para 9
[1996] 6 Suppl. SCR 368 referred to Para 11
(2017) 2 SCC 125 referred to Para 13
(1973) 1 SCC 668 referred to Para 17
G CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4358
of 2016.
From the Judgment and Order dated 07.11.2012 of the High Court
of Chattisgarh, Bilaspur in Writ Petition (C) No. 4158 of 2010.

H
SOUTH EASTERN COALFIELDS LTD. & ORS. v. 11
M/s. S. KUMAR’s ASSOCIATES AKM (JV)

S. B. Upadhyay, Dr. Rajesh Pandey, Sr. Advs., Tarkeshwar Nath, A
Nishant Kumar, Harshit Singh, Rameshwar Prasad Goyal, Ms. Mridula
Ray Bharadwaj, Advs. for the appearing parties.
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
B
1. South Eastern Coalfields Ltd., appellant no.1 is a Government
company registered under the Companies Act, 1956. The appellant no.1
floated a tender for the work of “Hiring of HEMM and allied equipments
including digging machines fitted suitable slump breaker for excavating
overburden (including drilling in all kinds of strata/overburden) loading
into tipples, transportation, unloading the extra waited material and silt, C
dumping dozing scrapping/removal bands preparation/maintenance of
haul road water sprinkling and spreading of material at the site shown
and as per direction of the management/Engineer In Charge of Patch-
D, Mahan I OCM of Bhatgaon Area” on 23.06.2009. Bids were received
and respondent was the successful bidder. In view thereof a Letter of D
Intent (‘LoI’) was issued bearing No.2415 dated 05.10.2009 awarding
the contract for a total work of Rs. 387.40 lakh. The LoI stated as
under:
i. A direction was made to the respondents to mobilize
equipment for executing the work to handle minimum E
allotted Cu.m. per day and “commence the work
immediately.” Towards the said objective the respondent
was directed to report to the Chief General Manager,
Bhatgaon Area for “immediate commencement of work.”
ii. The respondent was called upon to deposit Performance F
Security Deposit for a sum total to 5% of annualized contract
amount within 28 days from the date of receipt of the LoI
as per the provisions of the tender document.
iii. Sign the Integrity Pact before entering into the agreement
in accordance with the tender document.
G
iv. The work order would be issued and the agreement would
be executed at the Area Office.
v. The date of commencement of work may be intimated to
the issuing office and agreement may be concluded within
H
12 SUPREME COURT REPORTS [2021] 8 S.C.R.

A 28 days as per the provisions of the tender document.
2. The respondent, in pursuance of the LoI, mobilized resources
at site and a measurement team was sent by appellant no.1 as intimated
vide letter dated 09.10.2009. On 28.10.2009, the appellant issued a letter
of site handover/acceptance certificate, which was to be taken as the
B date of commencement of the work.
3. The respondent apparently faced difficulties soon thereafter
and the letter dated 05.12.2009 of the respondent records that though
the work was started in all earnest and considerable quantity of
overburden had been removed, the truck mounted drill machine employed
C by the respondent suffered a major breakdown. 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. The contractual relationship
apparently deteriorated as on 09.12.2009, the appellants issued a letter
D alleging breach of terms of contract and rules and regulations applicable
by the respondent. The appellant further asked the respondent to show
cause as to why penal action be not initiated of – (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
E respondent.
4. Communications in this behalf continued to be exchanged and
vide letter dated 12.12.2009, the appellants brought to the notice of the
respondents that they failed to submit the performance security deposit
which was required to be submitted within 28 days from the date of the
F receipt of the LoI as per the terms of the tender. Another show cause
notice was issued on 15.12.2009 intimating to the respondent that the
appellants were left with no option except to terminate the work awarded
to the respondent and get it executed by other contractor at the risk and
cost of the respondent in terms of clause 9.0 of the General Terms &
Conditions of the Notice Inviting Tenders (‘NIT’) giving a ten days’
G time to the respondent to respond. It appears that there was no response
and on 23.12.2009, once again, a notice of termination was issued. The
respondent objected to the same, stating that the work could not be
executed at their risk and cost as the General Terms & Conditions were
never part of the NIT but form the part of the contract which was never
H executed inter se the parties. In substance, the respondent objected to
SOUTH EASTERN COALFIELDS LTD. & ORS. v. 13
M/s. S. KUMAR’s ASSOCIATES AKM (JV) [SANJAY KISHAN KAUL, J.]

the invocation of the clause for the work to be carried out at their risk A
and cost. The appellant could not rely on clause 9.0 of the General Terms
& Conditions. The final termination of work was carried out vide letter
dated 15.04.2010.
5. It appears that thereafter the work was awarded to another
contractor at a higher price and on account thereof a letter dated B
16.07.2010 was issued by the appellants to the respondent seeking an
amount of Rs.78,07,573/- being the differential in the contract value
between the respondent and the new contractor.
6. The respondent filed a writ petition under Articles 226 & 227
of the Constitution of India seeking quashing of the termination letter C
dated 15.04.2010 the recovery order dated 16.07.2010. The writ petition
was contested by the appellants who filed their counter affidavit. In
terms of the impugned judgment dated 07.11.2012, the Division Bench
of the Chhattisgarh High Court opined that there was no subsisting
contract inter se the parties to attract the general terms and conditions
as applicable to the contract. Various clauses of the NIT were referred D
to and it was opined that there could not be a valid contract inter se the
parties as it was subject to completion of certain formalities by the
respondent, which were never completed, i.e. furnishing of the
performance security; and the consequence was that the appellant was
within their rights to cancel the award of work and forfeit the bid security. E
Thus, only the forfeiture of bid security was upheld while the endeavour
of the appellants to recover the additional amount in award of contract
to another contractor as compared to the respondent was held not
recoverable. We may notice at the stage of admission of the writ petition
and issuing notice, the respondent was directed to deposit a sum of Rs.10
lakh vide order dated 04.08.2010 and subject to the same the endeavour F
to recover any amount from the respondent was stayed. Thus, in the
final order it was mentioned that after deducting the bid security amount,
the balance amount out of Rs.10 lakh was to be refunded to the
respondent.
7. The appellant filed Special Leave Petition against the said order G
and notice was issued on 08.02.2013. The direction to refund the balance
amount of Rs.10 lakh after deducting the bid security amount was stayed
till further orders. Leave was granted on 13.04.2016.
Submissions of the Appellants
H
14 SUPREME COURT REPORTS [2021] 8 S.C.R.

A 8. The substratum of the case of the appellants is based on a plea
that the requirement of deposit of performance security limited to 5% of
annualized contract amount within 28 days as well as the requirement to
sign the Integrity Pact before entering into the agreement was not a pre-
condition to the execution of the agreement but a “condition subsequent”.
By starting the execution of the work from 28.10.2009, learned counsel
B
submitted, there was acceptance of the award of the work by the
respondent. In fact, the respondent vide letter dated 05.12.2009
acknowledged that they had removed considerable amount of overburden
and, thus, it is their own case that they had carried out substantive work
after mobilization of the resources immediately after the issuance of
C LoI. Thus, the absence of formal execution of the contract did not make
a difference to the claim of the appellants arising from the breach of
contract.
9. The distinction between a ‘condition precedent’ and a ‘condition
subsequent’ was pleaded to be the crux of the issue and had not been
D appreciated by the High Court. To support his contention learned counsel
referred to two judgments: (a) Jawahar Lal Burman v. Union of India1
and (b) Dresser Rand S.A. v. Bindal Agro Chem Ltd. & Anr.2
10. In Jawahar Lal Burman3 case the factual matrix was that
the tender was accepted by the respondent therein, which was alleged
E to have concluded the contract. The respondent’s case therein was that
the contract was governed by the general conditions of contract which
included an arbitration agreement. The Supreme Court inter alia
examined whether there was a concluded contract between the parties
or not. The tender submitted was on a condition that on the acceptance
of the tender, the contractor shall deposit the security deposit, at the
F option of the Secretary, Department of Supply, within the period specified
by him. A further condition stipulated that if, on being called upon to
deposit the said security, the contractor fails to provide security within
the period, such failure would constitute a breach of contract entitling
the opposite party to make other arrangements at the risk and acceptance
G of the contractor. The contractor sought to argue that the acceptance
letter changed the pre-existing position and made the security deposit a
condition precedent to the acceptance itself and, thus, there was no

1
(1962) 3 SCR 769
2
(2006) 1 SCC 751
H 3
Supra
SOUTH EASTERN COALFIELDS LTD. & ORS. v. 15
M/s. S. KUMAR’s ASSOCIATES AKM (JV) [SANJAY KISHAN KAUL, J.]

concluded contract. We may notice that in the relevant letter issued by A
the awarding party in this regard, calling upon the security deposit of
10% to be deposited it was clearly mentioned that “the contract is
concluded by this acceptance and formal acceptance of tender will follow
immediately on receipt of treasury receipt.” This Court, thus, discussed
the ramification of this sentence vis-à-vis the clause stating “subject to
B
your depositing 10% as security”. In construing the true effect of the
clause such requirement of deposit of security was held not to be a
condition precedent as the letter, as well as the conditions of the tender,
clearly stated that the contract was concluded by its acceptance. Section
7 of the Indian Contract Act, 1872 requires the acceptance of an offer
to be absolute and unqualified and not conditional. In the facts of the C
case the acceptance was found to be unconditional and the steps were
taken as the contract was intended to be executed expeditiously relating
to delivery of coconut oil which had to be supplied within 21 days. The
security deposit was, thus, opined to be a subsequent condition.
11. In Dresser Rand S.A.4, the contract was to come into force D
upon receipt of the LoI by the supplier. The Supreme Court recognized
the well settled principles of law that a LoI merely indicates party’s
intention to enter into a contract with the other party in future and is not
intended to bind either party ultimately to enter into a contract. In this
behalf observations in an earlier judgment in Rajasthan Coop. Dairy
Federation Ltd. v. Maha Laxmi Mingrate Marketing Service (P) E
Ltd.5 were referred to at page 773 para 39, which reads as under:
“The letter of intent merely expressed an intention to enter into a
contract. ….There was no binding legal relationship between the
appellant and respondent No.1 at this stage and the appellant was
entitled to look at the totality of circumstances in deciding whether F
to enter into a binding contract with respondent No.1 or not.”
This was, however, followed by a caveat that it could also not be
disputed that a letter of intent may be construed as a letter of acceptance
if such intention is evident from its terms. It is not uncommon in contracts
involving detailed procedure, that in order to save time, a letter of intent G
communicating the acceptance of the offer is issued asking the contractor
to start the work with a stipulation that the detailed contract would be
drawn up later. Though such a letter may be termed as a letter of intent,
4
Supra
5
(1996) 10 SCC 405 H
16 SUPREME COURT REPORTS [2021] 8 S.C.R.

A it may amount to acceptance of the offer resulting in a concluded contract
between the parties. This is a matter to be decided with “reference to
the terms of the letter.” It was further observed that where the parties
to a transaction exchanged letters of intent, the terms of such letters
may have negative contractual intention but where the language does
not have negative contractual intention, it is open to the courts to hold
B
that the parties are bound by the document and the courts would be
inclined to do so where the parties have acted on the document for a
long period of time or have expended considerable sums of money in
reliance on it.
12. The terms of LoI were adverted to, more specifically clause
C (L) therein, which stated that “this contract will come into force upon
receipt of this letter of intent by supplier.” In the different clauses the
LoI were referred to as “this order” and “this contract” and it was, thus,
argued to that the LoI be treated as purchase orders. The Court
harmoniously construed the terms of the LoI to find that the effect of
D the LoI was that if the purchase orders were placed and LCs were
opened the supplier was bound to effect supplies within the stipulated
time at the prices stated in the LoI. It was not interpreted as a work
order despite the wording utilized in the LoI.
Submissions of the Respondent
E 13. Learned counsel for the respondent, on the other hand, first
sought to emphasise the aspect discussed in para 39 of the judgment in
Dresser Rand S.A.6 case, which opined what an LoI was by referring
to the earlier view of this Court in Rajasthan Coop. Dairy Federation
Ltd.7 case. He further sought to refer the judgment of this Court in
F Bhushan Power & Steel Ltd. v. State of Odisha8 and drew our attention
to what an LoI was. The nomenclature of the letter would not be the
determinative factor but the substantive nature of the letter would
determine whether it can be treated as an LoI, which as per the legal
dictionary means a preliminary understanding between the parties who
intend to make a contract or join together in another action. Some earlier
G precedents were also referred to.9 In fact the judgment in Dresser Rand
6
Supra
7
Supra
8
(2017) 2 SCC 125
9
Rishi Kiran Logistics Private Limited v. Board of Trustees of Kandla Port Trust and
Others (2015) 13 SCC 233
10
H (supra)
SOUTH EASTERN COALFIELDS LTD. & ORS. v. 17
M/s. S. KUMAR’s ASSOCIATES AKM (JV) [SANJAY KISHAN KAUL, J.]

S.A.10 case was also referred to therein, more specifically paras 39 & A
40. The LoI in question was held not to be a binding contract more
specifically because entering into a lease license with prospective
licensee would require “previous approval” of the Central Government.
The LoI was held to amount to only an intention to enter into a contract
which would take place after all other formalities are completed.
B
14. In order to substantiate his pleas, learned counsel for the
respondent referred to various clauses of the NIT and the LoI. The
relevant clauses in the tender document referred to are as under:
“29. Notification of the award and signing of agreement:
29.1 The bidder, whose bid has been accepted will be notified of C
the award by the employer prior to expiration of the bid validity
period by cable, telex and facsimile confirmed by registered letter.
This letter (hereinafter and in Conditions of Contract called the
“Letter of Acceptance”) will state the sum that the Employer will
pay the Contractor in consideration of execution and completion D
of the Works by the contractor as prescribed by the Contract
(hereinafter and in the Contract called “the Contract Price”).
29.2 The notification of award will constitute the formation of
Contract, subject only to the furnishing of a Performance Security/
Security Deposit in accordance with clause 30. E
29.3 The agreement will incorporate all agreements between the
employer and the successful bidder within 28 days following the
notification of award along with the letter of acceptance.
30. Performance Security/Security Deposit
F
30.1 Security Deposit shall consist of two parts:
a. Performance Security to be submitted at award of work and
b. Retention Money to be recovered from running bills.
The Security Deposit shall bear no interest.
G
30.2 The performance Security should be 5% of annualized value
of the contract amount and should be submitted within 28 days of
receipt of LOA by the successful bidder in any of the form given
below:
- A Bank Guarantee in the form given in the bid document.
H
18 SUPREME COURT REPORTS [2021] 8 S.C.R.

A - Govt. Securities, FDR or any other form of deposit stipulated by
the owner.
- Demand Draft drawn in favour of the South Eastern Coal Fields
Ltd. on any Schedule Bank payable at its Branch at……….
The bid security deposit in the form of Bank Guarantee
B shall be duly discharged and returned to the contractor. The bid
security deposited in the form of demand draft shall be adjusted
against the initial security deposit.
If the performance security is provided by the successful bidder
in the form of bank guarantee it shall be issued either:
C
a. at bidder’s option by a nationalized/scheduled Indian bank, or
b. by a foreign bank located in India and acceptable to the
employer,
c. the validity of the bank guarantee shall be for a period of one
D year or ninety days beyond the period of contract, whichever is
more.
Failure of the successful bidder to comply with the
requirement as above shall constitute sufficient ground for
cancellation of the award of work and forfeiture of the bid security.
E 34. Integrity Pact
SECL has signed MOU with M/s. Transparency International India
for implementation of integrity pact in contracts for works valued
at Rs.1 crore and above. The integrity pact document to be signed
by the bidders is enclosed vide Annexure “D”. Submission of
F integrity pact document duly signed, stamped and accepted is
mandatory for this tender and is integral part of the tender
document.
In case this is not submitted the tender may be considered as not
substantially responsive and may be rejected.
G
…. …. …. …. ….
Section 3: Conditions of contract/General Terms and Conditions
1. Definition: ix. The “Contract” shall mean the notice inviting
tender, the tender as accepted by the company and the formal
H agreement executed between the company and the contractor
SOUTH EASTERN COALFIELDS LTD. & ORS. v. 19
M/s. S. KUMAR’s ASSOCIATES AKM (JV) [SANJAY KISHAN KAUL, J.]

together with the documents referred to therein including general A
terms and conditions, special conditions, if any, schedule quantities
with rates and amount, schedule of work.
2.0 Contract Documents
i. Articles of agreement,
B
ii. Notice inviting tender,
iii. Letter of Acceptance of tender indicating deviations, if any,
from the conditions of contract incorporated in the bid/tender
document issued to the bidder,
iv. Conditions of contract including general terms and conditions, C
additional terms and conditions, special conditions, if any etc.
forming part of agreement,
v. Scope of works/Bills of quantities and
vi. Finalised work programme.”
D
15. Learned counsel laid great emphasis on clause 29.2 aforesaid,
which provided that notification of award will constitute the formation of
contract, “subject only” to the furnishing of a Performance Security/
Security Deposit in accordance with clause 30. The agreement to be
executed was to incorporate all the terms inter se the parties. The
consequence of not furnishing the security deposit was specified in clause E
30.2 at the end, i.e., it was to constitute sufficient ground for cancellation
of the award work and forfeiture of the bid security. In terms of clause
34 requiring Integrity Pact document to be submitted duly signed, the
consequence of not doing so was that the tender was to be considered
as not substantially responsive and may be rejected. Lastly under Section F
3, the Conditions of contract/General Terms and Conditions where it
was defined in clause (ix) that a contract would mean the NIT and the
formal agreement to be executed between the appellants and the
respondent together with the documents referred to therein indicating
the general terms and conditions, special conditions, if any, schedule
quantities with rates and amount, schedule of work. G

16. It was further contended that after acceptance of tender and
on execution of contract, work order had to be issued which had also not
been issued as the preliminaries were not complied with. The LoI was
also referred to in the aforesaid context to show that nothing was done
H
20 SUPREME COURT REPORTS [2021] 8 S.C.R.

A in pursuance thereto except mobilization of the resources and
commencement of the work, and that by itself could not be said to be a
concluded contract. In fact, what was submitted by learned counsel for
the respondent was that seeing the ground realities, the respondent found
that it was not feasible to execute the contract and, thus, walked away
from it, the consequence of which could only be the forfeiture of the bid
B
security amount as directed by the impugned order, an aspect assailed
by the respondent by filing a cross appeal. The respondent has not been
paid by the appellant for whatever they may have done.
17. A reference was also made to the judgment in State of Madhya
Pradesh And Anr. v. Firm Gobardhan Dass Kailash Nath11 where in
C respect of a tender for Government sale initial deposit of 25% of purchase
price was an essential pre-condition for acceptance or sanction of tender
was not complied with. It was held that taking into consideration what
was required to enter into a contract, i.e., in writing and in prescribed
form and 25% amount not being deposited, it could not be said that any
D concluded contract was arrived at between the parties.
Conclusion
18. A consideration of the matter in the conspectus of the aforesaid
pleas leads to a conclusion that it cannot be said that a concluded contract
had been arrived at inter se the parties.
E
19. We have already reproduced aforesaid the terms of the letter
of award and what it mandated the respondent to do. None of the
mandates were fulfilled except that the respondent mobilized the
equipment at site, handing over of the site and the date of commencement
of work was fixed vide letter dated 28.10.2009. Interestingly this letter
F has been addressed to the Sub Area Manager of the appellant by the
office of the appellant. The respondent, thus, 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
G would amount to a concluding contract inter se the parties. The answer
to the same would be in the negative.
20. We would like to state the issue whether a concluded contract
had been arrived at inter se the parties is in turn dependent on the terms
11
AIR 1973 SC 1164 :: (1973) 1 SCC 668
12
H Dresser Rand S.A. (supra); Rajasthan Coop. Dairy Federation Ltd. (supra)
SOUTH EASTERN COALFIELDS LTD. & ORS. v. 21
M/s. S. KUMAR’s ASSOCIATES AKM (JV) [SANJAY KISHAN KAUL, J.]

and conditions of the NIT, the LoI and the conduct of the parties. The A
judicial views before us leave little doubt over the proposition that an LoI
merely indicates a party’s intention to enter into a contract with the
other party in future.12 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
B
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.
This Court did consider in Dresser Rand S.A.13 case that there are
cases where a detailed contract is drawn up later on account of anxiety
to start work on an urgent basis. In that case it was clearly stated that C
the contract will come into force upon receipt of letter by the supplier,
and yet on a holistic analysis – it was held that the LoI could not be
interpreted as a work order.
21. Similarly if we construe the documents as discussed in the
judgment of this Court in Jawahar Lal Burman14 case it is unequivocally D
mentioned that “contract is concluded by this acceptance and formal
acceptance of tender will follow immediately on receipt of treasury
receipt.” Thus, once again, it has been stipulated as to at what time a
contract would stand concluded even though it was later subject to deposit
of the security amount. It was in these circumstances that the requirement
of security deposit was treated not as a condition precedent but as a E
condition subsequent. We have to also appreciate the nature of contract
which was for immediate requirement of the full quantity of coconut oil
to be supplied within 21 days. It was also explicitly mentioned in the LoI
itself that any failure to deposit the stipulated amount would be treated
as a breach of contact. This is not the case here, where the consequence F
was simply forfeiture of the bid security amount, and cancellation of the
‘award’ and not the ‘contract’.
22. If we compare the aforesaid scenario 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 G
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

13
Supra
14
Supra H
22 SUPREME COURT REPORTS [2021] 8 S.C.R.

A 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. We are, thus, of the
view that none of the judgments cited by learned counsel for the appellants
would come to their aid in the contractual situation of the present case.
The judgments referred by learned counsel for the appellants Jawahar
B
Lal Burman15 case and Dresser Rand S.A.16 case, if one may say so
are not directly supporting either of the parties but suffice to say that to
determine the issue what has to be seen are the relevant clauses of the
NIT and the LoI. On having discussed the non-compliance by the
respondent of the terms of the LoI we turn to the NIT. Clause 29.2
C 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
D
the bid security” as per clause 30.2. If we analyse clause 34 dealing
with the Integrity Pact the failure to submit the same would make the
tender bid “as not substantially responsive and may be rejected.”
23. We may also add that the definition of what constitutes a
contract as per clause (ix) itself includes the NIT, the acceptance of the
E tender, the formal agreement to be executed between the parties post
contractor furnishing all the documents and the bid security amount.
24. The result of the aforesaid is that as rightly held in terms of
the impugned order all that the appellants can do is to forfeit the bid
security amount and, thus, it was so directed. Since as a pre-condition of
F any coercive action against the respondent, the High Court called upon
the appellants to deposit a sum of Rs.10 lakh in terms of the interim
order dated 04.08.2010, a direction is made to deduct the bid security
amount out of the sum of Rs.10 lakh and to refund the balance amount
to the respondent. The needful would now have to be done within two
G months as in terms of the interim order of this Court dated 08.02.2013
such refund has been stayed.
25. We accordingly dismiss the appeal leaving the parties to bear
their own costs.
15
Supra26. Interim order stands discharged.
H 16
Supra

Devika Gujral Appeal dismissed.