Soliciting tender is
an invitation to offer.
Notice Inviting Tender (NIT) and the tender documents
provide the manner in which the tender has to be submitted. The tender
documents have to be completed in the specified manner. The tender also may have to be accompanied my Earnest Money
Deposit (EMD).
The important question is whether the party inviting tender
can reject a tender, if it does not meet the requirements?
M/s.BISMI ABDULLAH
AND SONS V. THE REGIONAL MANAGER, FCI, TRIVANDRUM (1986)
(Case of non payment of security deposit – Clause in tender
document ‘tenders not accompanied by the required amount of security deposit
liable to be rejected’ – B’s tender accepted by FCI without security deposit -
B does did not want to go ahead with the contract & contests that a valid
contract was not formed – Held it was upto FCI to reject the tender, since they
hadn’t a valid contract had come to be formed.)
Auctions
An auction is concluded with the auctioneer striking the
hammer, bonding the last bidder & the auctioneer. Thus the striking of the
hammer is an implied acceptance of the offer put up by the last bidder.
VERGHESE V DIVISIONAL
FOREST OFFICER, TRICHUR (2003)
(Case of failure to remit balance bid amount & failure to execute an agreement within
15 days from the date of intimation of confirmation orders – Verghese fails to
remit as per bid conditions despite
extension of period – fails to execute agreement – but plucks the usufruct –
DFO re-auctions – Verghese contests the right to re-auction – Argues that there
is no concluded contract as bid amount
is not deposited & agreement is not executed– held, mere fact that
plaintiff was reluctant to execute the agreement would not mean that there was
no concluded contract, moreover, Verghese was the one who committed the breach.)
Contracts entered
into with the Government of India
Article 299 of the Constitution of India imposes
restrictions on how government contracts would be made. Article 299 of the
constitution requires that contracts of the Govt. must be executed in the name
of the President or Governor as the case may be.
It follows that if the contract between Govt. & another
person is not in full compliance with Article 299 it would be no contract at
all and could not be enforced either by the Govt. or by the other person as a
contract.
In view of the mandatory terms of Article 299 no implied
contract could be spelled out between the government and another person at the
stage of bidding for Article 299 in effect rules out all implied contracts
between Govt. and another person.
SARDAR SUCHA SINGH
V.UNION OF INDIA (1986)
(Case of acceptance of tender by chief engineer eastern
command vide letter of acceptance stating that S Singh’s tender has been
accepted by him on behalf of the President of India and also stating the requirement of a sum of Rs. 700 as
additional security – S Singh contends (a) No contract was executed (b)
Additional deposit meant that the acceptance was conditional – Held that (a)
Section 175(3) of the Government of India Act, 1935 does not requires the
execution of a formal document. (Two essential requirements enjoined by the
said provision were that acceptance must be in writing and that it must be in
the name of the Governor General.) (b) The letter requiring the deposit of
further sum of Rs. 700 was after the tender was accepted and a contract came
into existence.)
CHAIRMAN-CUM-MD,
T.N., TEA PLANTATION CORPORATION LTD.V. M/s SRINIVASA TIMBERS (1998)
(Case of tender with conditions (a) Successful tenderer to
pay sale value of timber minus EMD within 15 days of receipt of confirmation
order (b) Execute the agreement within said period (c) the period of contract
will be from the date of execution of the agreement – Corporation cancels the
order after there is a delay in remittance of amount & execution of
agreement in spite of extensions of time – Contention as to whether contract
was formed – Held contract is not concluded. {When the requirement is in compliance
of tender conditions subject to execution of a formal agreement, such a
contract is not a concluded contract & cannot be executed or enforced})
The significance of
‘Letter of Intent’.
A letter of intent is customarily employed to reduce in writing
a preliminary understanding of parties who intend to enter into contract, or
who intend to take some other action.
WELLMAN HINDUSTAN
LTD., Vs. NCR CORPORATION (1992)
(Case of letter of intent signed by the two corporations
with a view to jointly establish a company in India with 60:40 share to
manufacture, and market the product of NCR – Parties incorporate a company
called NCR India Pvt. Ltd. – Land identified and purchased by Wellman – Govt.
clearance was also obtained for the joint venture – NCR develops cold feet and
wanted to ‘wriggle out from the joint
venture on the plea that they did not want to risk investing six million dollars
in India’ – Contention was whether the letter of intent create a contract
between the parties?)
M/S. PROGRESSIVE
CONSTRUCTIONS LTD. Vs. BHARAT HYDRO POWER COPRORATION LTD.(1995)
(Case of following terms in a tender (a) Bid shall be
accompanied by EMD (b) Acceptance of bid will be intimated to successful bidder
through an award & the award shall conclude the contract (c) Award shall
mean acceptance by MD BHPCL (d) Effective date of agreement shall mean date of
the letter of intent/award – PCL bids for construction of dam – BHPCL issues a
letter of intent for the construction of the dam & requires PCL to reach
Calcutta for finalising & signing a formal contract – contract could not be
signed as parties could not sort out the discrepancies – BHPCL cancelled the
contract – Was the contract formed when the letter of intent was issued? – Held
that a concluded contract was reached between the parties - formal contract had
remained to be signed because there were minor discrepancies or variations in
the terms which were being negotiated between the parties - finalisation of the
details would not adversely effect the conclusion of the contract which had
stood arrived at with the acceptance of tender and award/letter of intent
issued by the respondent to the petitioner.)
The law as it stands, based on court rulings, is that a term
of a letter of intent may of course negative the contractual intention but it
would be open to the courts to hold the parties bound by the terms of the terms
of such letters, especially:
- If the parties had acted on these terms for a long period of time or
- If they had expended considerable sums of money in reliance of them.
Place of formation of
contract
A crucial issue in the formation of a contract is the place
of formation of the contract.
Contracts are voluntary acts. Parties are free to set their
terms. As a result, every business contract has stipulations on the applicable
law and jurisdiction of the court.
Based on Civil Procedure Code, every suit shall be
instituted in a Court where defendants reside or cause of action arises.
In suits arising out of contract, the cause of action arises
within the meaning of Section 20(c) of the CPC out of any of the following
place:
- The place where the contract was made;
- The place where the contract was to be performed or came to be performed;
- The place wherein performance of the contract any money due thereunder expressly or impliedly has to be carried out.
Jurisdiction of
Courts
In cases where two or more courts can validly have
jurisdictions, the parties are free to limit jurisdiction to one among them.
M/S. PROGRESSIVE
CONSTRUCTIONS LTD. Vs. BHARAT HYDRO POWER COPRORATION LTD.(1995)
(BHPCL Ltd is in Calcutta – PCL’s registered office is in
Hyderabad & Administrative office is in Noida – tender floated in Calcutta
- Letter of intent issued from Calcutta - Negotiation took place in Calcutta
-Dam to be built in Assam – Arbitration clause says venue of arbitration shall
be Guwahati/Calcutta – further provides that if the dispute is referred to
court, the jurisdiction will be the court within state of Assam – Held the
court of jurisdiction will be Calcutta.)
MESSRS HANIL ERA
TEXTILES LIMITED Vs. M/s. PURAMATIC FILTERS PVT.LTD.(2004)
(HETL is from Mumbai – Oder placed with PFL’s office in
Mumbai – Advance paid in Mumbai – PFL’s HO is in Delhi –Materials dispatched
from Delhi – Delivery of material at Patalganga – Clause in agreement states thus
‘Any legal proceedings arising out of the order shall be subject to the
jurisdiction of the courts in Mumbai’ – When HETL did not pay the balance
amount PFL filed a suit in Delhi – Case admitted – HETL Appeals – Held that
part of the action arose in Delhi & part in Mumbai but there was a clear
intention to confine the jurisdiction of the Courts in Bombay to the exclusion
of all other Courts.)
Contracting with
Government Bodies – Importance of Article 14 of the Constitution
The State shall not deny to any person equality before the
law or the equal protection of the laws within the territory of India
Prohibition of discrimination on grounds of religion, race, caste, sex or place
of birth
M/S ERUSIAN EQUIPMENT
AND CHEMICALS LTD. V. STATE OF W.B (1974)
(Party getting tender contracts from Govt. of West Bengal
subsequently was not awarded the contract despite having made the best bid as
the State Government had blacklisted the plaintiff as there was a case of
violation of FERA pending against the party – state govt. argues that it could
choose any person for entering into a contract – held that the state govt. will give an opportunity to
the petitioners to represent their case, and the authorities will hear the
petitioners as to whether their name should be put on the blacklist or not –
state government’s argument dismissed as the option of choosing any person does
not lie with the state government.)
R.D.SHETTY V.
INTERNATIONAL AIRPORT AUTHORITY OF INDIA (1979)
(Case as to whether an instrumentality of State-Authority
calling for tenders of a job could accept a tender not conforming to conditions
in notice – IAAI had stipulated in notice inviting tenders the condition for
eligibility being ‘Registered 2nd Class Hotelier having at least 5 years
experience’ – Tender accepted was of a person not fulfilling this condition –
Contention is that if this was the case R D Shetty, who was not a ‘Registered
2nd Class Hotelier having at least 5 years experience’ could also have applied
– held that IAAI could not discriminate.)
Impossibility &
frustration of a contract.
TAYLOR Vs.
CLADWELL(1863)
(Case of burning down of Music Hall – The destruction of the
music hall was the fault of neither party, and rendered the performance of the
contract by either party impossible - held that both parties were excused from
their obligations under their contract.)
KRELL Vs. HENRY(1903)
(The defendant, CS Henry, agreed by contract on June 20,
1902, to rent a flat located at 56A Pall Mall from the plaintiff, Paul Krell,
for the purpose of watching the coronation procession of Edward VII scheduled
for June 26 and 27. The housekeeper of the premises informed Henry that he
would have an excellent view of the procession from the room. The parties
agreed on a price of £75, but nowhere in their written correspondence did
either of them explicitly mention the coronation ceremony. Henry paid a deposit
of £25 to Krell for the use of the flat, but when the procession did not take
place on the days originally set (on the grounds of the King’s illness), Henry
refused to pay the remaining £50. Krell brought suit against Henry to recover
the remaining balance of £50, and Henry countersued to recover his deposit in
the amount of £25. – Held that parties had not made any provision for the
unexpected in their contract – if parties foresee but make no provisions their
contract is frustrated.)
OCEAN TRAMP TANKERS
CORPORATION V V/O SOVFRACHT (1964)
(Ship hired to transport iron from a port in black sea to
Vishakhapatnam - customary route was the
Suez Canal – Govt. of Egypt nationalised the Canal – UK & France began to
build up military forces in Cyprus – by the time ship neared the canal Egyptian
anti aircraft guns were in action against hostile reconnaissance planes –
Shipping company claimed frustration of contract – held there is no frustration
- difference in time was 108 days from Genoa via the Suez and 138 days via the
Cape - goods would not be adversely affected - the only trouble was it took longer
– court firmly rejected, however, that frustration can only apply where the
event is unforeseen or unexpected.)
Force Majeure: (a
clause that lists the events which could cause impossibility)
A superior force, an event that no human foresight could anticipate
or which if anticipated, is too strong to be considered, e.g. an industrial
strike which leads to loss of profits. Circumstances must be abnormal and
unforeseeable, so that the consequences could not have been avoided through the
exercise of all due care.
STATE OF UTTAR
PRADESH Vs. ALLIED CONSTRUCTIONS (2003)
(Under a contract entered into by and between the appellant
and the respondent, the respondent undertook construction of bridge-cum-fall -
While the work was in progress, the work area was flooded in the night of
August 25 and 26, 1991 - The respondent-contractor herein filed a claim on
account of loss sustained by him due to flooding of the work area - the matter
was referred to an arbitrator - arbitrator gave an award for payment of a sum of
Rs. 12,55,365/- together with interest at the rate of 18 per cent from
1.11.1991 till the date of the award and 6 per cent thereafter - the respondent
filed the award for being made rule of the Court - appellant herein filed a
petition, inter alia, on the ground that the arbitrator has misconducted the
proceedings, inasmuch as the force majeure contained in Clause 47 disentitled
the respondent from making any claim which was on account of unprecedented rain
– having failed in lower courts State of UP petitioned the Supreme Court – Held
that State of UP could not prove that flood which has caused loss was due to
unprecedented rain & that it was an act of God.)
Compensation &
Damages
FATEH CHAND Vs.
BALKISHAN DASS (1963)
(BD sells his rights in land & building to FC – terms:
24,000 first installment – BD to give possession to FC – FC to get the sale
deed down within next two months and pay balance of 87,500 – if registration
was delayed contract deemed to be cancelled – FC to give back the possession,
24,000 paid to be forfeited & 25,000 to be paid as additional damages –
Held: (a) The forfeiture of money if found reasonable will be allowed by court
of law (b) in present case as there was
no loss sustained and the property had not depreciated in value, damages were
disallowed.)
MAULA BUX Vs. UNION
OF INDIA (1969)
(MB enters into a contract with the government of India to
supply potatoes, poultry, eggs & fish at the Military HQ, UP Area – MB
required to deposit 18,500 for due performance of the contract – contract
provided that it could be rescinded & security deposit be forfeited in case
of ‘neglect or delay to comply with any demand or requisition’ – MB made
persistent delay in making regular & full supplies of the commodities
agreed to be supplied – Government of India rescinded the contract &
forfeited the money – Held that the loss has to be proved if it can be
determined – if no attempt is made to prove loss, money cannot be forfeited.)
