‘Letter Of Acceptance’ In A Tender Can’t Be Cancelled Unilaterally Without Assigning Reasons: Orissa High Court

In the case of SRB Transport Sambalpur v. Union of India & Ors. and other connected matters (W.P.(C) No. 2430 of 2022 & other connected cases), the Orissa High Court has held that a Letter of Acceptance (“LoA”), issued in favour of the successful party of a tender, cannot be cancelled unilaterally without assigning reasons for the same. While granting relief to the aggrieved bidders (petitioners herein), a Division Bench of Justices B.R Sarangi and V. Narasingh defined the term ‘reason’.

Brief Background: The opposite party- Indian Oil Corporation Ltd. (IOCL) floated a tender inviting bids for the work “Road Transportation of Bulk Petroleum Products by bottom loading tank trucks at Jharsuguda terminal”. The petitioner, having satisfied all the terms and conditions of the tender, submitted its bid online. The petitioner was declared L-1 by the opposite party and a letter of acceptance was issued and it was called upon to furnish the security deposit. Thereafter, the petitioner submitted the security deposit, which was duly acknowledged by the authority. After submission of the amount, agreement was executed between the petitioner and opposite party. Pursuant to such agreement, the opposite party intimated the petitioner for physical inspection of Tank Truck. In response to said e-mail, petitioner intimated that its 9 (nine) nos. of Tank Trucks were ready for verification and sought permission to physically place all the ready built Tank Trucks for physical inspection. At this juncture, the opposite party cancelled the letter of acceptance issued to the petitioner. The petitioner sought to quash the letters/ orders, whereby LoA issued in its favour has been cancelled, and to issue directions to the opposite parties to allow it to execute the works for the entire period as per the tender documents. In the other two connected matters, facts and reliefs sought were similar. Thus, the Court dealt with them all in the common judgement.

Judgement: The Court proceeded on to cite different cases wherein ‘reason’ and ‘importance of assigning reasons’ have been discussed. It relied on Secretary of State for Education and Science v. Tameside Metropolitan Borough Council, (1976) 3 All ER 665, wherein it has been ruled that it will be often from an authority’s reasons that an error of law may be inferred. It further relied on Union of India v. Mohan Lal Capoor, AIR 1974 SC 87, where it was held that reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject-matter for a decision. The reasons assure an inbuilt support to the conclusion and decision reached.

Consequently, it observed that the petitioner, having been qualified both in technical as well as price evaluation, was declared as L-1 and the contract was awarded in its favour. Thereafter, it was called upon to furnish a security deposit, which had also been complied with. As a consequence, agreement was signed between the parties. In such a scenario, cancellation of contract at this point of time cannot have any justification, as the petitioner was all along ready for physical inspection of the Tank Trucks, as required by the opposite parties. As such, the impugned order of cancellation is without assigning any reason. Accordingly, it rejected the arguments of the respondents and allowed the writ petitions quashing the orders which had unilaterally cancelled the LoA(s) without assigning reasons.

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