Court’s Decision
The Delhi High Court, in a significant judgment delivered by Chief Justice Devender Kumar Upadhyay and Justice Tushar Rao Gedela, held that the National Highways Authority of India (NHAI) acted arbitrarily and contrary to its own tender terms in cancelling the Letter of Acceptance (LoA) issued to the successful bidder for the ₹307-crore highway maintenance project in Bihar and subsequently retendering the same work.
The Bench observed that the LoA constituted a concluded contract and that the petitioner had substantially complied with tender terms by furnishing the Additional Performance Security (APS) through a foreign bank (Merchant International Bank, London) advised by Indian Bank, which was permissible under International Competitive Bidding (ICB) and the Uniform Rules for Demand Guarantees (URDG 758).
The Court quashed NHAI’s communications dated 10 July 2025 (cancellation of LoA), 16 July 2025 (invocation of bid security), and fresh tender invitations issued for the same project. It directed NHAI to accept a fresh APS from an Indian scheduled bank within 15 days and to finalise the agreement within seven days thereafter, restoring the petitioner’s contractual rights.
The Court emphasised:
“The NHAI, being an instrumentality of the State, was obligated to act fairly, transparently, and in accordance with the tender conditions. Its failure to do so renders the impugned actions invalid and non-est in law.”
Facts
The NHAI had floated an international competitive tender on 10 January 2025 for strengthening and maintenance of the Muzaffarpur-Darbhanga-Purnea section of NH-27 in Bihar, estimated at ₹307.20 crores.
The petitioner’s bid, being 38.25% below the estimated cost, was declared L1, and an LoA was issued on 29 March 2025 for ₹189.69 crores. In compliance, the petitioner submitted two Bank Guarantees (BGs) from Merchant International Bank, London, advised by Indian Bank — one for ₹9.48 crores as Performance Security (PS) and another for ₹56.06 crores as Additional Performance Security (APS).
NHAI, after 35 days, raised objections via letter dated 29 May 2025, stating that foreign BGs must be confirmed by an Indian nationalised bank or accompanied by a counter-guarantee from such bank as per NHAI’s policy circulars of 2002 and 2018. Despite the petitioner’s detailed clarification on 3 June 2025 explaining that the BG was valid under international banking protocols and ICC rules, NHAI cancelled the LoA and annulled the tender on 10 July 2025 without considering the explanation or providing a hearing.
The following day, NHAI invoked the bid security and soon after, issued two fresh tenders on 16 July 2025 for the same work, compelling the petitioner to approach the High Court.
Issues
- Whether NHAI could lawfully cancel the LoA and annul the tender process after a contract had come into existence.
- Whether the APS issued by a foreign bank advised by an Indian bank satisfied the tender conditions and ICC rules.
- Whether NHAI violated the tender clauses by not granting an opportunity to rectify or extend time for furnishing APS.
- Whether the invocation of bid security and re-tendering were valid.
Petitioner’s Arguments
Senior Advocate Balbir Singh contended that once the LoA was issued, a binding contract was formed under Clause 36 of the tender, which NHAI could not unilaterally cancel. The petitioner had furnished the APS within 30 days, as required by Clause 38.1, through a foreign bank recognised under international norms and advised by Indian Bank, satisfying the requirement of authenticity.
He argued that Clause 38 contained no stipulation requiring “confirmation” by an Indian bank — unlike Clause 17, which applied only to bid security. Thus, NHAI’s insistence on confirmation was extraneous and contrary to its own tender.
It was further argued that Clauses 38.5 to 38.7 provided an additional 60-day grace period for submission or rectification of performance securities, but NHAI never granted such opportunity. The petitioner asserted that the APS met all requirements under URDG 758 (ICC Publication No. 758) and that an “advising bank” was equivalent in effect to a “confirming bank” in the international context.
Mr. Singh also alleged discrimination, pointing out that NHAI had accepted foreign bank guarantees in similar tenders under identical conditions. He relied upon Subodh Kumar Singh Rathour v. Chief Executive Officer (2024 SCC OnLine SC 1682), Mihan India Ltd. v. GMR Airports Ltd. (2022) 19 SCC 69, and SecLink Technologies v. State of Maharashtra (2024 SCC OnLine Bom 3843), which held that once a LoA is issued, judicial review must protect the sanctity of concluded contracts against arbitrary state action.
Respondent’s Arguments
Counsel for NHAI, Manish Bishnoi, maintained that the APS was defective because the issuing bank, Merchant International Bank, had no branch in India and Indian Bank acted merely as an “advising” institution, not a “confirming” one. He argued that para 13 of the Section VII Form required guarantees to be operable through a New Delhi branch of the issuing bank capable of immediate encashment.
NHAI contended that the petitioner’s failure to provide confirmation rendered the APS non-compliant, justifying cancellation. It argued that urgent road repair was necessary for public safety, and hence retendering was essential. Relying on N.G. Projects Ltd. v. Vinod Kumar Jain (2022) 6 SCC 127, Central Coalfields Ltd. v. SLL-SML JV (2016) 8 SCC 622, and Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corporation Ltd. (2016) 16 SCC 818, NHAI contended that judicial review in tender matters is limited unless mala fides or perversity is established.
Analysis of the Law
The Court distinguished between Clause 17 (Bid Security) and Clause 38 (Performance Security), noting that while the former explicitly required confirmation by an Indian bank, the latter did not. Instead, Clause 38 referred to the Section VII Form, which incorporated ICC Rules (URDG 758) through para 12, making them binding in international tenders.
The Court held that paras 13 and 14 of Section VII Form, relating to Indian branch confirmation and SFMS communication, could not override para 12, as that would render the incorporation of ICC Rules nugatory. The Court reasoned that ICC Rules, being a comprehensive code governing international guarantees, provided sufficient safeguards for authenticity and enforceability.
Precedent Analysis
- Subodh Kumar Singh Rathour (2024 SCC OnLine SC 1682) — The Supreme Court held that once a LoA is issued, it constitutes a binding contract, and state entities cannot rescind it arbitrarily.
- Mihan India Ltd. v. GMR Airports Ltd. (2022) 19 SCC 69) — The Court underscored the need for consistency and good faith in state contracts, emphasising judicial protection of concluded tenders.
- SecLink Technologies (2024 SCC OnLine Bom 3843) — Reaffirmed that arbitrariness post-award violates Article 14.
- N.G. Projects Ltd. (2022) 6 SCC 127) — Recognised limited judicial review but allowed intervention where state actions are capricious or mala fide.
- Central Coalfields Ltd. (2016) 8 SCC 622) and Afcons Infrastructure (2016) 16 SCC 818) — Courts must defer to tender authorities unless arbitrariness or discrimination is apparent.
The Delhi High Court held that the present case fell squarely within the exception permitting intervention due to arbitrary cancellation and discriminatory conduct by NHAI.
Court’s Reasoning
The Bench held that NHAI’s insistence on “confirmation” by an Indian bank was unfounded, as ICC Rules already governed foreign guarantees under Clause 38. The Court found that NHAI failed to follow its own tender procedure, which allowed additional time under Clauses 38.5 to 38.7 for furnishing or correcting APS.
Further, NHAI’s 35-day delay in raising objections and its silence for over a month after receiving the petitioner’s explanation demonstrated procedural unfairness. The cancellation letter dated 10 July 2025 was found to be bereft of reasons and issued without considering the petitioner’s reply.
The Court also noted that similar foreign guarantees had been accepted by NHAI in other tenders, establishing discriminatory treatment. It held that the principle of parity under Article 14 was violated.
Conclusion
The Court declared that:
- The LoA dated 29 March 2025 constituted a concluded contract.
- NHAI’s cancellation of LoA, annulment of tender, invocation of bid security, and re-tendering were invalid and non-est in law.
- The impugned communications dated 10 July 2025 and 16 July 2025, and tender notices dated 16 July 2025, were quashed.
It directed that:
“The petitioner shall furnish the requisite Additional Performance Security from an Indian scheduled bank within fifteen days. Upon verification, NHAI shall process the same within seven days and proceed to finalise the agreement.”
The petitions were disposed of with no order as to costs.
Implications
This judgment reaffirms the sanctity of concluded government contracts and limits the discretion of state authorities to rescind LoAs post-award. It strengthens judicial oversight where procedural fairness and parity are compromised in tender processes.
The ruling also clarifies that ICC Rules (URDG 758) prevail in international tenders, allowing performance guarantees from foreign banks advised by Indian institutions, thus promoting confidence in global bidding practices.
By recognising that public interest cannot justify procedural illegality, the decision reinforces constitutional accountability in public procurement.
FAQs
1. Does a Letter of Acceptance create a binding contract?
Yes. The Court held that issuance of a LoA under tender Clause 36 constitutes formation of a contract, and unilateral cancellation without cause is impermissible.
2. Can foreign bank guarantees be valid under Indian tenders?
Yes. When ICC Rules (URDG 758) apply, guarantees from foreign banks advised by Indian banks are valid and enforceable without additional confirmation.
3. Can NHAI cancel a tender after awarding LoA?
Only for valid and justifiable reasons consistent with tender terms. Arbitrary cancellation without giving opportunity to rectify deficiencies is unlawful.
