1996 (9) TMI 631 - SC - Indian Laws

Summary

Issues:
1. Validity of the cancellation of the Letter of Intent by the appellant.
2. Allegations of mala fide and violation of principles of natural justice.
3. Applicability of the doctrine of audi alteram partem.
4. Claim for damages based on expenses incurred in anticipation of a contract.

Analysis:

1. The appellant issued an advertisement inviting applications for selling agents and subsequently issued a Letter of Intent to appoint respondent No. 1 as a selling agent. However, the contract was not signed on the specified date, and the irrevocable bank guarantee was not submitted by respondent No. 1. The appellant then cancelled the Letter of Intent citing non-fulfillment of obligations, including the failure to submit financial documents and the unauthorized advertisement by respondent No. 1.

2. Respondent No. 1 challenged the cancellation through a writ petition, alleging mala fide intent on the part of the appellant. The High Court upheld the petition, citing arbitrary action and violation of natural justice principles. The appellant contended that the reasons for cancellation were valid, including the failure to submit the bank guarantee and financial documents, justifying the cancellation as a prudent business decision.

3. The appellant argued that there was no binding legal relationship at the Letter of Intent stage, allowing it to consider the totality of circumstances before entering a contract. The appellant's decision to withdraw the Letter of Intent was deemed valid, and the doctrine of audi alteram partem was considered inapplicable in this context.

4. Respondent No. 1 claimed to have incurred expenses in anticipation of the contract and sought damages. However, the court noted that a writ petition was not suitable for adjudicating claims based on disputed facts. The court refrained from ruling on the recovery of expenses incurred in anticipation of a contract.

In conclusion, the Supreme Court allowed the appeal, setting aside the High Court's judgment and dismissing the writ petition without costs. The court upheld the appellant's right to cancel the Letter of Intent based on valid reasons, emphasizing the absence of a binding legal relationship at that stage and rejecting claims for damages without sufficient evidence.