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Honshu Buildcon Private Limited and Ors. Vs. North Delhi Municipal Corporation - (High Court of Delhi) (18 Jan 2018)

A letter of intent is not a binding agreement enforceable in Courts, and nor it is a promise to issue a subsequent allotment letter



In facts of present case, Petitioner received a Show Cause Notice from the NDMC, by it (the NDMC) while referring to clause 1(i) of NIT, which provides "in case an individual whether in person or as a part of the company/firm etc. is a defaulter is debarred from some reason, any other company where the above individual has an interest will not be allowed to participate in the auction", alleged that Petitioner (Honshu) had a direct connection with certain defaulter companies which violated the terms and conditions of the NIT and asked Honshu to explain why its application submitted for participation in the e-auction held on 13th April, 2016 for the Civil Line Zone Cluster should not be cancelled and further action not be initiated against them for submission of facts as per the Delhi Municipal Corporation Act.

On receipt of the Show Cause Notice Honshu confirmed that its directors, as well as its shareholders had no direct relation with the defaulter companies as alleged, and requested the NDMC to withdraw the said Show Cause Notice on this ground alone. By the said letter, Honshu also confirmed of having appeared before the concerned officer of the NDMC. It, requested the NDMC to withdraw the Show Cause Notice being without any merit. The NDMC, on receipt of Honshu's reply, by the impugned letter, cancelled the Letter of Intent (LoI) dated 17th May, 2016 issued to the Petitioner No. 1 and also forfeited EMD amount deposited by the Petitioner in respect of Cluster No. 04 Civil Lines Zone. Honshu is aggrieved by the actions of the NDMC, and has preferred writ petition alleging that, the cancellation is arbitrary and mala fide.

NDMC alleges to have discovered that Honshu and Reihen had relations with certain defaulter companies/entities, which is in violation of the terms and conditions of the NIT, in both the issues. When the State invites tender bids, it ought to adhere to the terms of the NIT, and ideally not waver from complying with the conditions set forth in the NIT. This was highlighted in the Supreme Court decision of Harminder Singh Arora v. Union of India and Ors. The terms of the NIT are the guidelines that enable the procedure of conducting the tender process, thus, in order to ensure that the same is conducted efficiently, they should not be digressed from, as far as applicable. The Supreme Court in Central Coalfields Limited and Ors. upheld the sanctity of administrative decision making, This judgment has found resonance in numerous decisions thereafter to ensure and enforce adherence to this principle. Hence, as a state agency, the NDMC has invited tenders extended through the respective NITs, and has carried out the bidding process accordingly; and due regard ought to be given to such decision making process.

The scope of judicial review in the award of tender of a contract by the State or a state agency has the subject of discussion in a number of Supreme Court decisions. Therefore, consistent judicial view has been that, public law review of tender matters ought to be exercised, judiciously. Such judicial review must be restrained to ensure that the choice or decision is made "lawfully" and not to exercise oversight over whether choice or decision is "sound". This Court, therefore, will apply the same standard in the present cases. Public and state contracts involve expenditure of substantial public money. Therefore, it is quite crucial to ensure that no anomaly arises that could jeopardise such expenditure. The fact that, the Petitioners were found to have relations with black-listed companies not only violates the clauses of the NIT, but also emerge as red flags to the safe and effective implementation of public resources. These considerations have been given due regard by the administrative authorities in arriving at its decision.

As regards cancellation of the letters of intent initially issued to the petitioners, the Court has to be mindful of the fact that, a letter of intent is not a binding agreement enforceable in Courts, and neither is it a promise to issue a subsequent allotment letter. As regards the arbitrariness alleged to be the basis on which the NDMC cancelled the letters of intent, the Court observes that, the Petitioners have merely denied the grounds of the respective Show Cause Notices, without countering them substantially. Particularly, in light of the bank statements that clearly indicate a strong financial relationship between the Petitioners and a list of black-listed companies, a mere denial of such association cannot be accepted.

Impugned letters of the NDMC withdrawing the LoIs is based on justifiable grounds, inter alia: violation of the conditions of the NIT by the Petitioners (such as, non-deposit of the security money and request for "adjustments" not provided for in the NIT, in the case of Honshu), and engaging in business relationships with black-listed companies in violation of the conditions of the NIT. In Central Coalfields Limited, the terms of the NIT cannot be ignored, hence, neither can be their violation. Such violation of the NIT conditions tempered the decision of withdrawal of the LoIs by the NDMC. Further, in light of judicial precedence, particularly, Jagdish Mandal v. State of Orissa, Tata Cellular v Union of India and Bakshi Security and Personnel Services Pvt. Ltd., present Court in appreciation of the judicious exercise of judicial review, given the facts and circumstances of the present writ petitions, finds no reason to interfere with the decisions of the NDMC. The decision to award a public contract is not premised merely on fulfillment of technical qualification and financial viability of the offer of a given bidder; the larger public interest is a necessary condition which invariably informs every decision of the executive authority or agency that is to award the contract. The vital public interest in ensuring that, contracts are awarded to genuine bidders, and not to those who devise myriad devices to keep out true competition on one hand, and corner contracts- in this case, in relation to parking lots cannot be undermined. The NDMC thus, had a vital interest in ensuring that, the group of individuals, who adopted the stratagem of ensuing that they "rotated" the contracts, through different entities, which came to light in the financial linkage between them - as well as controls through the same set of people does not hamper the transparency of the bidding process. This linkage was also evident from other materials such as common email identities of some of the entities; common premises and, in some cases, common directors or individuals controlling the entities.

Further, the cancellation of the letters of intent by NDMC and thereby rejecting the tender bids of the Petitioners cannot be accepted to be arbitrary and malafide as such decision is based on concrete grounds, and opportunity was afforded to the Petitioners to negate the same and make their stance when Show Cause Notices to that end were sent to them by the NDMC, as mentioned previously. The writ petitions are accordingly dismissed.

Relevant : Harminder Singh Arora v. Union of India and Ors. MANU/SC/0148/1986: AIR 1986 SC 1527, Central Coalfields Limited and Ors. vs. SLL-SML (Joint Venture Consortium) and Ors. MANU/SC/0919/2016


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