Termination of Letter of Acceptance May be Invalid on Failure to Provide Sufficient Hearing

In a decision delivered on 5 December, 2023 the Bombay High Court in the case of Proactive In & Out Advertising Pvt. Ltd. v. The Union of India and Ors. [Writ Petition No. 2261 of 2023] held that before terminating a letter of acceptance that has been awarded to a party, the concerned authority must provide the party with an opportunity for a hearing and furnish the material based on which the termination decision is made. The failure to provide such an opportunity and material may result in the termination being deemed invalid.

This is a writ petition challenging the termination letter dated 25 October, 2020 issued by Respondent No.1, which terminated the contract awarded to the petitioner. The case originated from the award of a contract to the petitioner through a Letter of Acceptance dated 24 July, 2020. Following this, on 27 July, 2020 the bid of Respondent No.2 was rejected by Respondent No.1, and Respondent No.2 was blacklisted for a period of five years. Respondent No.2 filed a Writ Petition (No. 2420 of 2022) challenging the rejection and blacklisting, but withdrew the petition on 14 August, 2020.

As per the terms of the contract, the petitioner submitted a Bank Guarantee issued by Yes Bank for Rs. 1,10,41,167. Subsequently, on 27 August, 2020 Respondent No.1 informed the petitioner, through a letter, that the commencement of the contract was put on hold due to a complaint lodged by Respondent No.2 in the Vigilance Department. The petitioner replied to this letter on September 15, 2020. An undated letter, claimed to be dated 25 October, 2020 was issued by Respondent No.1, cancelling and terminating the Letter of Acceptance to the petitioner. The court noted that the termination was done without affording the petitioner an opportunity for a hearing, a fact acknowledged in the court’s order dated 5 November, 2020.

Considering that the petitioner had been awarded the contract and had taken steps in pursuance of it, including submitting a Bank Guarantee, the court held that the petitioner should have been given the material basis and a personal hearing before terminating the acceptance letter. Therefore, the court quashed and set aside the termination letter dated 25 October, 2020. The court issued specific directions in the judgment. It ordered Respondent No.1 to take a fresh decision on the contract, providing the petitioner with the material sought to be relied upon and ensuring a personal hearing. During the pendency of the decision and for a week thereafter, the letter of 27 August, 2020, putting the contract on hold was ordered to continue to remain in force. Respondent No.1 was also directed to furnish the material within 15 days and make a decision, after an oral hearing, within four weeks from the date of the order.