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

Jyoti Prakash Dutta

23 Feb 2022 6:41 AM GMT

  • Letter Of Acceptance In A Tender Cant Be Cancelled Unilaterally Without Assigning Reasons: Orissa High Court

    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' as, "'Reason' means the faculty...

    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' as,

    "'Reason' means the faculty of rational thought rather than some abstract relationship between propositions and by this faculty, it is meant the capacity to make correct inferences from propositions, to size up facts for which they are and what they imply, and to identify the best means to some end, and, in general, to distinguish what we should believe from what we merely do believe."

    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 opposite party and letter of acceptance was issued and it was called upon to furnish the security deposit. Thereafter, the petitioner submitted the security deposit, which has duly acknowledged by the authority. After submission of the amount, agreement was executed between the petitioner and opposite party.

    Pursuant to such agreement, 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, 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 direction 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 them all in the common judgment.

    Contention of the Petitioner:

    Appearing for the petitioner, Senior Counsel Budhadev Routray contended that the petitioners having satisfied the requirements of the tender call notice, submitted their bids and were selected as L-1. Thereafter, on deposit of security amount, agreements were executed and were called upon to comply the conditions by presenting the Tank Trucks.

    When the petitioners were going to comply with the same, all on a sudden the orders impugned were issued cancelling the LoA(s) without assigning any reasons thereof. Thus, the cancellation of LoA(s), cannot be sustained in the eye of law. To substantiate his contentions, he relied upon the judgment in Krishik Infracture Developers Pvt. Ltd. v. Orissa Industrial Infrastructure Development Corporation & Ors., AIR 2018 (Ori) 139.

    Contention of the Respondents:

    Mr. P.K. Rath, counsel for opposite parties tried to justify the action taken by the respondents. He argued that since it is purely a contractual matter, pursuant to execution of agreement, the respondents are well justified in cancelling the LoA(s) and, as such, the Court has no jurisdiction to interfere in a contractual matter. Thereby, he seeks for dismissal of the writ petitions.

    Observations of the Court:

    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.

    The Court then observed that requirement of giving reasons is based on sound principles and is intended to achieve the following objects and laudable purposes:

    In the first instance, the requirement to give reasons ensures application of mind to the material, for, how does one give reasons for an order unless one applies one's mind to the material which it is called upon to consider.

    Secondly, it incorporates a built-in safeguard against arbitrariness in the exercise of power. It immediately introduces an element of rationality into an executive decision-making process. The requirement makes the authority pause for a moment and articulate for itself why it was making the order. It feels that it is answerable for its order and the validity of the order would be tested on the touch-stone of reasoning, rationality and logic.

    Thirdly, it makes any further examination or review in appeal or other proceedings before courts more meaningful and effective. It enables all subsequent authorities dealing with the matter to know how the mind of the authority, which made the order, was functioning; what is it that appealed to it when it made the order and how it dealt with the objections as to why the order should or should not be made.

    Lastly, it is intended to inform the person aggrieved, if an individual, or if it involves wider rights, interests, freedoms, the public in general, as to why the action has been taken. This requirement would be particularly important where there remains a superadded requirement of publication in a Gazette. Such an order has to meet the larger public gaze. The authority in such cases is answerable to the people in general because the nature of the order is such that all of them must be informed as to what order has been made and why it has been made.

    Consequently, it observed that the petitioner, having been qualified both in technical as well as price evaluation, was declared as L-1 and contract was awarded in its favour. Thereafter, it was called upon to furnish security deposit, which had also been complied with. As a consequence, agreement was signed between the parties. In such 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.

    "in view of the fact that if there is arbitrariness and unreasonableness and the order is tell tale on the face of the record, then this Court has jurisdiction to entertain the writ petition under Article 226 of the Constitution of India. In this case, when the order of cancellation of Letter of Acceptance has been passed without assigning any reason, this Court has jurisdiction to take account of the same with the touch stone of the reasonableness, which violates Article 14 of the Constitution of India."

    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.

    Case Title: SRB Transport Sambalpur v. Union of India & Ors. and other connected matters

    Case No.: W.P.(C) No. 2430 of 2022 & other connected cases

    Date of Judgment: 14 February 2022

    Coram: B.R. Sarangi and V. Narasingh, JJ.

    Citation: 2022 LiveLaw (Ori) 15

    Click Here To Read/Download Judgment

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