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Synopsis

The Supreme Court has on April 2, 2024 said the Letter of Intent is merely an expression of intention to enter into a contract and it does not create any right in favour of the party to whom it is issued as a detailed contract is to be drawn for execution of the project.

A bench of Justices Bela M Trivedi and Pankaj Mithal made the observation while allowing an appeal filed against the Himachal Pradesh High Court's order of October 18, 2022.

The court found the High Court brushed aside an independent committee's findings on irregularities and illegalities by the public sector Himachal Pradesh Housing and Urban Development Authority (HIMUDA) in tender issued in 2018 related to construction of a commercial complex at Shimla at the cost of Rs 45.05 Cr.

The bench imposed Rs five lakh cost on HIMUDA, noting the agency, though ‘State’ within the meaning of Article 12 of the Constitution of India, had acted malafide and in collusion with M/s Vasu Constructions had taken the High Court for a ride.

Appellant Level 9 Biz Pvt Ltd filed a special leave petition against the HC's order of October 18, 2022.

The HC allowed HIMUDA to withdraw its order on cancellation of February 5, 2021 of initial tendering process in view of a statement of M/s Vasu Constructions that it was ready to execute the contract in terms and conditions and rates as per initial tender of 2018.

The said tender was already withdrawn by HIMUDA in view of the irregularities and illegalities committed by it, as recorded by an independent committee appointed by the High Court in earlier writ petitions filed by the appellant and one unsuccessful bidder Dalip S Rathore.

However, acting upon a petition filed by M/s Vasu Constructions, the HIMUDA withdrew the cancellation of tendering process.

"We are at loss to understand as to how the said petition could have been disposed of by the Division Bench by merely recording and accepting the statements...We are also at loss to understand as to how the Executive Engineer of HIMUDA, could have made the statements that the competent authority wanted to withdraw the cancellation of the initial tendering process," the bench said.

The court said, "It hardly needs to be reiterated that the Letter of Intent is merely an expression of intention to enter into a contract. It does not create any right in favour of the party to whom it is issued. There is no binding legal relationship between the party issuing the LOI and the party to whom such LOI is issued. A detailed agreement/contract is required to be drawn up between the parties after the LOI is received by the other party more particularly in case of contract of such a mega scale."

The court said since HIMUDA accepted the recommendations of the independent committee, it could not have agreed to allow the M/s Vasu Constructions, who was found to be not technically qualified, to go ahead with the execution of the project in question and that too without giving the other two parties any opportunity to negotiate. 

"If HIMUDA was so keen to provide the facilities to the public without causing any additional burden on the public exchequer, all the three parties who had participated in the original tender should have been given the opportunity to negotiate with it," the bench said.

Having noted the entire chain of events, and the conduct of the parties, the bench said it has no hesitation in holding that the HIMUDA in collusion with M/s Vasu Constructions had taken the High Court for a ride and misused the process of law for covering up the irregularities and illegalities committed in the tender process by the officers, and for anyhow awarding the contract under the guise of the court’s order. 

"It is a matter of surprise for us that the High Court also could not notice the ill-intention of HIMUDA and M/s Vasu Constructions and disposed of the petition, permitting them to go ahead with the original tender, ignoring the reports of the independent committee and the observations made by the Single Bench in the Order dated 08.01.2021 with regard to the irregularities and illegalities committed by the officers of HIMUDA," the bench said.

The court quashed and set aside the HC's order of 2022, holding it was passed without proper application of mind and without assigning any cogent reason for brushing aside the findings recorded by the independent committee and the observations made by the Single Bench in the order of January 08, 2021.

The bench allowed HIMUDA to initiate a fresh tender process in accordance with law and after following the due process of law.

Case Title: LEVEL 9 BIZ PVT. LTD. vs. HIMACHAL PRADESH HOUSING AND URBAN DEVELOPMENT AUTHORITY & ANOTHER