Food Corporation of India Vs. M/s. Kamdhenu Cattle Feed Industries

The Food Corporation of India (FCI) invited tenders for the sale of stocks of damaged food grains. The respondent‟s bid was the highest. Since the FCI was not satisfied about the adequacy of the amount offered even in the highest tender, it invited all the tenders to participate in the negotiations, instead of accepting the highest tender. During the course of negotiations, the respondent refused to revise the rates in its offer. On the basis of the highest bid made during the negotiations, the appellant disposed of the stocks of damaged food grains to a third party, rejecting the highest tenders. The respondent, whose tender was the highest, challenged the decision of the FCL on the ground that the action of the appellant was arbitrary and hence violated Article 14 of the Constitution.

The Supreme Court in this case observed that, as per the terms of the tender, the appellant reserved the right to reject all tenders and the inadequacy of the price is a cogent reason to reject it. Since an equal opportunity was given to all the applicants to revise their bid by inviting them to negotiate, the grant of tender to a third party whose bid significantly superseded the bid of the respondent cannot be considered valid and so dismissed the appeal.

The Letter of Award is the decision notice sent out to the successful bidder by the public entity on completion of the evaluation and selection of the preferred bidder. There may be certain conditions such as the formation of a special purpose vehicle/project company to implement the project, the submission of a bank guarantee towards performance security, the payment of an upfront payment etc. which the successful bidder may have to fulfil before the parties enter into a contractual relationship. These conditions, along with the timeline for execution of the agreement, should be mentioned in the Letter of Award, which the successful bidder must fulfil before coming forward for execution of the Agreement. The Letter of Award has to be acknowledged by the successful bidder within the period stipulated. Failure to do so, or failure to execute the agreement within the time period stipulated in the Letter of Award or any extended period, permits the contracting Authority to forfeit the bid security and cancel the award.

M/s. Lotus Constructions vs. the Government of Andhra Pradesh and another [AIR1997AP200]

The Government of Andhra Pradesh invited tenders from reputed groups for the development of tourism and inter-related activities at three different places. The tender submitted by the petitioner was found to be in order and the latter was invited for discussion with the necessary documents. At this point, the Government decided to entrust the project to the respondent and an order were issued in this connection, directing the concerned Authority to prepare a MoU and also issue a work order after the signing of the MoU and after the finalization of the terms and conditions. Before the signing of the MoU as well the issue of the work order, the Government passed an order cancelling its earlier order entrusting the projects to the respondent. This order of the Government was questioned in a writ petition on the ground that there already exists a contract between the petitioner and the respondent.

The court observed that the letter of communication of acceptance itself is not enough unless it is followed by an agreement and if no agreement/MoU is entered within the stipulated period, the letter of acceptance stands cancelled. Entering into an agreement is not a mere formality, but one of the necessary conditions for concluding the contract.

As the order entrusting the project to the petitioner itself contained directions to issue the necessary work order after the MoU is signed by both the parties and after finalizing the terms and conditions, it would conclusively show that the contract would be concluded only after the finalisation of the terms and conditions. It is thus clear that in the absence of MoU/agreement, no concluded contract has come into existence.