Full Judgment Text
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PETITIONER:
RAJASTHAN CO-OPERATIVE DAIRYFEDERATION LTD.
Vs.
RESPONDENT:
SHRI MAHA LAXMI MINGRATE MARKETINGSERVICE PVT. LTD & ORS.
DATE OF JUDGMENT: 17/09/1996
BENCH:
MANOHAR SUJATA V. (J)
BENCH:
MANOHAR SUJATA V. (J)
PUNCHHI, M.M.
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
Mrs.Sujata V.Manohar,J.
The appellant, Rajasthan Co-operative Dairy Federation
Ltd, issued an advertisement inviting applications for
selling agents for its various products for the territories
of Rajasthan, Punjab, Haryana,Himachal Pradesh and Delhi,on
or about 19th of November, 1988. Seventy applications were
received by the appellant Ultimately, on 1st June, 1990, a
Letter of Intent was issued by the appellant in favour of
respondent No.1 for appointing respondent No.1 as the
selling agent of the appellant for marketing of Saras Brand
Dairy Products, inter alia, on the following terms:
<SLS>
"(1) that you will sign an agreement on non-judicial stamp
paper of Rs.5/- with RCDF and this arrangement will be
enforceable from the date legally executed contract has come
into being.
(2) ............
(3) ........... The goods will be issued to you against
irrevocable bank guarantee on furnishing from schedule
bank on 15 days credit
basis.... (sic).
You are requested to submit irrevocable bank guarantee
for an amount of Rs.15 lacs in favour of RCDF, Jaipur.
This letter duly signed by you must reach GM(M&P) by
5th of June, 1990 and call on us for execution of the
agreement on 12.6.1990 (sic).
You are also requested to take preparatory action for
starting work with effect from 21st June, 1990 and also
submit us immediately the market plan for taking further
action at your end."
<SLE>
Respondent No.1, by its letter of 1st of June,1990,
acknowledged receipt of the Letter of Intent. The letter
also noted that the agreement was to be signed on 12th of
June, 1990 and that respondent No.1 was going ahead, inter
alia, with arranging an irrevocable bank guarantee from a
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scheduled bank. The letter contained a request to the
appellant to release an advertisement announcing the
appointment of respondent No.1 as the selling agent.The
appellant, however,did such advertisement.Respondent No.1,
however, issued an advertisement in which respondent No.1
incorrectly described itself as the sole selling agent and
further wrongly indicated that it was also the sole selling
agent for Polypack Milk. The appellant protested against
wrong statement in the advertisement.
The contract was not signed on 12th of,1990. The
respondent did not attend on that and asked for some time.
The irrevocable bank grantee for Rs.15 lacs was also not
submitted by respondent No-1. The appellant, by its letter
of 16th July,1990, cancelled the letter of intent. In the
letter, the appellant pointed out that the Letter of intent
issued to respondent No.1 was condition on his fulfilling
certain obligations as a condition precedent to entering
into a contract.The conditions, inter alia,were, (1)
submission of an irrevocable bank guarantee of Rs.15
lacs by 12th of June ,1990.Beside these two
condition,respondent No.1 had also promised to submit to the
appellant its profit and loss account and balance-sheet for
past year before the execution of agreement. Respondent No.1
had not done so. The letter also referred to the
unauthorized advertisement issued by respondent No.1
wrongly describing itself as the sole selling agent of the
appellant and stated that in these circumstance,since
respondent No.1 had failed to fulfil its obligations within
the stipulated period, the Letter of Intent was revoked. A
telegram of the same date to the same effect was also sent
to respondent No.1.
Respondent No.1 filed a writ petition challenging the
revocation of the Letter of Intent. The writ petition was
allowed. The High Court upheld the contention of respondent
No.1 that the reasons given by the appellant for
cancellation of the Letter of Intent were not valid. The
cancellation of the Letter of Intent was mala fide inasmuch
as there were questions asked in the Legislative Assembly
about the appointment of respondent No.1 as a selling agent
of the appellant because respondent No.1 was the brother-in-
law of the then Chief Minister. The High Court further said
that the appellant had acted arbitrarily in cancelling the
Letter of Intent and had violated the principles of natural
justice in not giving a hearing to respondent No. 1 before
cancelling the Letter of Intent. An appeal filed by the
appellant before the Division Bench of the High Court also
failed. Hence the appellant has come before this court by
way of present appeal.
In its letter of 16th of July, 1990 cancelling the
Letter of Intent issued in favour of respondent No.1, the
appellant had given several reasons for cancelling the
Letter of Intent. Respondent No.1 had not submitted to the
appellant its profit and loss account and balance-sheet for
the previous year as requested by the appellant. Respondent
No.1 had wrongly held itself out as the sole selling agent
of the appellant. These are clearly circumstances which are
relevant to the cancellation of the Letter of Intent. Also
the Letter of Intent clearly set out the conditions which
respondent No.1 had to fulfil. One such condition was
submitting an irrevocable bank guarantee for Rs. 15 lacs.
This was also not done. Respondent No.1 contends that it had
informed the appellant that it would submit the bank
guarantee within three days of the signing of the contract.
The appellant, however, is within its rights in insisting
that the bank guarantee should be submitted before the
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contract is signed. The appellant, as a prudent businessman
is entitled to satisfy itself about the financial position
of the party whom the appellant is appointing as its selling
agent. If respondent No.1 has not submitted the requisite
documents in this connection and has held itself out as the
sole selling agent when to its knowledge, there was no
intention of appointing respondent no.1 as the sole selling
agent, these are valid circumstances which the appellant can
take into account in deciding whether to enter into a
contract and bind itself legally with respondent No.1 or
not. In these circumstances, if the contract has been
cancelled it cannot be considered as arbitrary action on the
part of the appellant violative of any Fundamental Rights of
respondent No.1.
Respondent No.1 has tried to rely upon certain
extraneous circumstances to allege mala fides on the part of
the appellant in cancelling the Letter of Intent. When the
reasons for cancellation are clearly set out in the
cancellation letter and are germane to the decision not to
enter into a contract with respondent No.1, we fail to see
how these extraneous circumstances can make the decision
mala fide.
The High Court was also not right in importing the
doctrine of audi alteram partem in these circumstances. If
the conduct of respondent No.1 was such that it did not
inspire any confidence in the appellant, the appellant was
entitled to decline entering into any legal relationship
with respondent No.1 as its selling agent. The Letter of
Intent merely expressed an intention to enter into a
contract. If the conditions stipulated in the Letter of
Intent were not fulfilled by respondent No. 1 and if the
conduct of respondent No.1 was otherwise not such as would
generate confidence, the appellant was entitled to withdraw
the Letter of Intent.
There was no binding legal relationship between the
appellant and respondent No. 1 at this stage and the
appellant was entitled to look at the totality of
circumstances in deciding whether to enter into a binding
contract with respondent No 1 or not.
Respondent No.1 contends that in anticipation of
entering into a contract with the appellant respondent No.1
incurred heavy expenses. This statement of respondent No.1
has to be established on evidence. A writ petition is not an
appropriate proceeding if any claim for damages based on
disputed facts is required to be established. We to not wish
to pronounce on the question whether, in anticipation of
entering into a contract, a party which incurs expenses, can
recover them from the other party if that other party
ultimately, rightly declines to enter into a contract.
The appeal is, therefore, allowed. The judgment and
order of the High Court is set aside and the writ petition
is dismissed. In the circumstances. there will be no order
as to costs.