The Bombay High Court, in a recent judgment in the case relating to an infrastructure project, has ruled that the issue of a letter of award results in a concluded contract between the parties. The cancellation of the letter of award by the implementing agency is arbitrary, unfair, and unreasonable and deserves to be quashed and set aside. The Court further added that the case involves enforcement of contractual obligations and an issue of enforcement of public law rights arising out of contractual obligations.

Although the case is related to the aviation sector, the landmark ruling of the Nagpur bench of the Court could have implications for other sectors, including the renewable energy sector, which has seen arbitrary cancellations of auctions by government agencies for solar projects in recent years.

The case

GMR had emerged as the highest bidder in the tender process conducted by MIHAN, a joint venture of the Maharashtra Airport Development Authority and Airports Authority of India, for the Nagpur airport in 2019. The authority also issued a Letter of Award to GMR in March 2019. However, in March 2020, the Maharashtra government canceled the tender process and issued a letter annulling the bid process.

GMR challenged the annulment of the tender process in the High Court.

Upholding GMR’s plea, the two-judge bench termed the cancellation of the bidding process ‘unfair and arbitrary.’

The Court has set aside the cancellation of the project awarded to GMR Airports to upgrade Nagpur airport and directed MIHAN India Limited to execute the concession agreement within six weeks.

Similar issues in the solar sector

Solar developers were at the receiving end of similar arbitrariness when in 2018. The Gujarat Urja Vikas Nigam scrapped a 500 MW solar auction. In 2019 a 700 MW solar auction was also canceled, citing high tariffs, after handing over letters of award to the winning bidders.

Aditya Singh, the Associate Partner at Link Legal, said, “This judgment has reiterated the established principle that the contract gets concluded post acceptance of the offer. This judgment may not have a direct impact on the electricity sector. However, this case law may be relied upon by developers against frequent bid cancellations by the distribution companies. In the recent past, we have seen distribution companies frequently cancel the bid process post-issuance of the letter of award on the grounds that are not mentioned in the bid document.”

“In the instant matter, the Bombay High Court, in clear terms, held that if there is a communication of the acceptance, the contract gets concluded. Relying upon this precedent, one can also challenge those cases where results have simply been announced without entering any formal arrangement. The only difference between this case and the electricity matter will be the role of the regulator,” he said.

Singh said that the Supreme Court had earlier held that the Electricity Regulatory Commission had a mandatory obligation to adopt the tariff if such tariff has been determined through a transparent bidding process in terms of the guidelines issued by the Government.

Background

In its petition, GMR Airports Limited said it had submitted its bid for the project on September 29, 2018, and was adjudged to be the highest bidder. After that, MIHAN India issued a letter of acceptance dated March 7, 2019, to GMR Airports.

GMR Airports stated that it took various steps to implement the project as required per the letter of acceptance. It added that MIHAN India also acted in the direction of the implementation of the project.

However, later MIHAN India sent a letter to GMR Airports informing that it has canceled the bidding process without award of contract as per the directives received from the Government of Maharashtra.

GMR submitted that letter of acceptance is a Letter of Award. Therefore, the contract is concluded by both parties, which should lead to the execution of the Concession Agreement.

MIHAN India’s response

MIHAN India stated that it only communicated its acceptance of revised bids for a 14.49% share in the gross revenue by GMR Airports through the letter of acceptance, and it is not a case of any concluded contract. It opined that GMR’s offer of 14.49% gross revenue share is low and financially unviable and could cause loss to the public exchequer. Therefore, it has canceled the tender process within its rights and in terms of the tender document and opted for the fresh tender process in the public interest.

MIHAN said the acceptance of the bid was subject to the approval of the Government of India regarding the alienation of land owned by the Airport Authority of India. However, the Ministry of Civil Aviation (MoCA), through its communication dated August 20, 2019, raised questions regarding the present tender process. In addition, the secretary of MoCA also expressed dissatisfaction with the revenue share offered by GMR Airports and questioned the financial viability of the project.

High Court’s analysis

The High Court noted that MIHAN India accepted the revised offer of 14.49% gross revenue share by GMR Airports. It also noted that MIHAN India accepted the offer through its letter of acceptance.

After examining the letter of content, clauses of request for proposals, and intentions of the parties, the High Court stated that the letter of acceptance dated March 7, 2019, is a Letter of Award and not a letter of acceptance for a revised bid of 14.49% gross revenue share.

Regarding the cancellation of the bidding process, the High Court noted that the letter dated March 7, 2019, is a Letter of Award that means the contract has been concluded between both the parties. Therefore, GMR Airports holds the rights for the execution of the project through its subsidiary. The High Court found MIHAN India’s arguments regarding the cancellation of tender and re-tendering of the project arbitrary.