A letter of intent is not a binding agreement enforceable in Courts

In Honshu Buildcon Private Limited and Ors. Vs. North Delhi Municipal Corporation, High Court of Delhi, Petitioner received a Show Cause Notice from the NDMC, alleging that Petitioner had a direct connection with certain defaulter companies which violated the terms and conditions of the tender notice (NIT) and asked Honshu to explain why its application submitted for participation in the e-auction should not be cancelled along with further actions.

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. It, requested the NDMC to withdraw the Show Cause Notice being without any merit. On NDMC cancelling the Letter of Intent (LoI) and forfeiting EMD deposited by the Petitioner, Honshu preferred the 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/blacklisted companies/entities, which is in violation of the terms and conditions of the NIT, in both the issues.

The court held that 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. 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. Thus Impugned letters of the NDMC withdrawing the LoIs is based on justifiable grounds.