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Paulmech Infrastructure Private Limited v. The State of Orissa

Civil Appeal · 2021 INSC 600Decided 4 Oct 2021
Civil Appeal No. 6023 of 2021
Justice M.R. Shah · Justice A.S. Bopanna

Background

Paulmech won a tender to lease the shut-down "Hotel Nilachal Ashok" in Puri from Utkal Ashok Hotel Corporation Limited (UAHCL), a state entity, and was issued a Letter of Intent requiring upfront payment of about Rs. 9.34 crores before the lease could be formally executed. Paulmech repeatedly failed to pay on time despite UAHCL granting extensions, eventually paying only Rs. 4.41 crores of the required amount before UAHCL terminated the Letter of Intent. Paulmech's writ petition challenging the termination was rejected by the Orissa High Court on the ground that it involved disputed questions of fact unsuitable for writ jurisdiction, and Paulmech appealed to the Supreme Court.

Decision Breakdown

The Supreme Court upheld the termination of the Letter of Intent, agreeing that Paulmech's prolonged failure to pay the required upfront amount on time justified UAHCL's decision, and declined to direct execution of the lease. However, it modified the High Court's order to direct UAHCL to refund the Rs. 4.11 crores Paulmech had actually paid within the agreed extended timeline, while granting Paulmech liberty to file a separate civil suit to recover the remaining Rs. 4.41 crores it had paid late, leaving all contentions, including any set-off for UAHCL's losses, open for the civil court to decide. A further Rs. 3 crores deposited by Paulmech before the Supreme Court (with accrued interest) was also ordered to be refunded.

Lesson Learnt

In commercial tenders with strict payment deadlines, courts will generally uphold a cancellation for persistent non-payment, but a party is still entitled to recover money it already paid: disputed questions like interest or set-off claims are properly resolved through a civil suit, not a writ petition.

Official source (sci.gov.in)View Judgment (PDF)

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