1. Government tender for electronic devices — Issuance of conditional Letter of Intent — Cancellation of said letter — Challenge against arbitrariness and violation of natural justice. (Para 3 , 4 , 5 )
Back
Next 
2025 Supreme(SC) 1355
SUPREME COURT OF INDIA
SURYA KANT, CJI, UJJAL BHUYAN, NONGMEIKAPAM KOTISWAR SINGH, JJ.
State of Himachal Pradesh and Another – Appellants
Versus
M/s OASYS Cybernatics Pvt. Ltd. – Respondent
Civil Appeal No. 14199 of 2025 [Arising Out of SLP (C) No. 6531 of 2025]
Decided On : 24-11-2025
Advocates Appeared:
For the Petitioner(s): Mr. P. Chidambaram, Sr. Adv. Mr. Arman Roop Sharma, Adv. Mrs. Shimpy Sharma, Adv. Mr. Mohd. Aman Khan Afghani, Adv. Ms. Yeshasvi Srivastava, Adv. Mr. Ram Sankar, Adv. M/s Ram Sankar & Co, AOR
For the Respondent(s): Mr. Sanjeev Bhushan, Sr. Adv. Mr. Subhash Chandran K.R, AOR Mr. C.D. Negi, Adv. Ms. Krishna LR, Adv. Mr. Anirudh KP, Adv. M/s KRS Associates, Adv.
For the Petitioner(s): Mr. P. Chidambaram, Sr. Adv. Mr. Arman Roop Sharma, Adv. Mrs. Shimpy Sharma, Adv. Mr. Mohd. Aman Khan Afghani, Adv. Ms. Yeshasvi Srivastava, Adv. Mr. Ram Sankar, Adv. M/s Ram Sankar & Co, AOR
For the Respondent(s): Mr. Sanjeev Bhushan, Sr. Adv. Mr. Subhash Chandran K.R, AOR Mr. C.D. Negi, Adv. Ms. Krishna LR, Adv. Mr. Anirudh KP, Adv. M/s KRS Associates, Adv.
The cancellation of a Letter of Intent, though procedurally defective, was justified due to non-compliance with its conditions, emphasizing the need for public interest in government contracting.
Headnote:(A) Tender Law - Cancellation of Letter of Intent (LoI) - Administrative discretion - High Court set aside the cancellation of LoI issued to contractor by State; Court held cancelation was arbitrary and void of reasons. (Paras 20, 21, 56)
(B) Administrative Law - Principles of natural justice - Cancellation of LoI without reasons contravenes established norms; non-fulfillment of pre-requisites cited by State re-evaluated. (Paras 39, 43, 56)
(C) Public Interest - Emphasis on public welfare and procurement ethics in government contracting. (Para 57)
Facts of the case:
The Appellant-State issued an LoI for ePoS devices after multiple tendering attempts; subsequently, the LoI was cancelled citing non-compliance and alleged blacklisting complaints against the Respondent. The High Court ruled against the State, stating the cancellation was arbitrary and unreasoned.
Findings of Court:
The LoI did not constitute a concluded agreement, and its cancellation was legally justified despite procedural lapses regarding reason-giving.
Issues: (i) Did the LoI create binding rights for the Respondent? (ii) Was the cancellation by the Appellant arbitrary or violative of natural justice?
Ratio Decidendi: The LoI was contingent, not a binding contract. The cancellation was procedurally defective but justified in public interest, prioritizing efficiency and compliance.
Result: Appeal allowed; High Court's judgment set aside.
Legal Category Hierarchy
- administrative law
- constitutional law
- contract law
Table of Contents
2. Whether a conditional Letter of Intent creates binding contractual rights — Legality of cancellation based on non-compliance with preconditions and alleged suppression of material facts. (Para 7 , 8 , 9 )
3. Letter of Intent is a provisional communication — Non-fulfillment of technical preconditions justifies cancellation — Administrative discretion in public procurement is subject to constitutional non-arbitrariness. (Para 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 )
4. A conditional Letter of Intent is a precursor to a contract and creates no vested rights until all stipulated preconditions are satisfied and final acceptance is issued. (Para 13 , 14 , 15 , 18 , 19 )
5. Appeal allowed — High Court judgment set aside — Cancellation of Letter of Intent upheld — Direction for fresh tender and reimbursement of verified costs on quantum meruit basis. (Para 59 , 60 )
6. Does a Letter of Intent (LoI) automatically create a binding contract between the State and a bidder?
No. An LoI is generally a precursor to a contract, indicating an intention to enter into one in the future. It creates no vested rights until all stipulated preconditions are fulfilled and a final, unconditional acceptance or formal agreement is executed. (Para 13 , 14 , 15 , 18 , 19 )
7. What is the scope of judicial review regarding the State's decision to cancel a government tender or LoI?
Judicial review focuses on the decision-making process rather than the decision itself. Courts examine whether the action was illegal, irrational, mala fide, or procedurally improper, respecting the State's freedom of contract unless the action is palpably unreasonable. (Para 22 , 23 , 24 , 25 )
8. Is a lack of explicit reasons in a cancellation letter always fatal to the legality of the administrative action?
Not necessarily. Administrative orders must be read in light of the concomitant record. Reasons need not be stated in the communication itself, provided they can be discerned from the file and are not post-hoc justifications fabricated after the decision. (Para 26 , 27 , 28 )
9. Can a bidder claim legitimate expectation to be awarded a contract based on a conditional LoI?
No. The doctrine of legitimate expectation requires a clear and unambiguous representation. Conditional terms in an LoI, which explicitly state that the process is provisional and subject to preconditions, negate the existence of such a clear assurance. (Para 55 )
10. Is a bidder entitled to compensation if a conditional LoI is cancelled after they have already invested in resources?
While a bidder has no right to loss of profit or damages for self-assumed risks at the pre-contractual stage, they may be entitled to equitable reimbursement on a quantum meruit basis for tangible assets or work actually appropriated by the State. (Para 59 )
JUDGMENT :
SURYA KANT, CJI.
1. Leave granted.
2. The instant appeal, emanating from a dispute concerning government tenders, brings into sharp focus the delicate balance between considerations of public interest and the constitutional prohibition on arbitrariness in State action.
3. To briefly explicate, the State of Himachal Pradesh (Appellant-State) is in appeal against a Division Bench judgment of the High Court of Himachal Pradesh at Shimla (High Court) dated 30.05.2024 (Impugned Judgment), whereby the cancellation of a Letter of Intent (LoI) issued to M/s OASYS Cybernetics Pvt. Ltd. (Respondent-company) in connection with a tender for the supply, installation, and maintenance of electronic Point-of-Sale (ePOS) devices for use in the Appellant-State’s Fair Price Shops, has been set aside with consequential restoration of contractual obligations.
A. FACTS
4. Prior to proceeding with charting out the competing submissions and the questions of law that arise for determination, it is necessary to first demarcate the relevant facts in some detail, as they form the quintessential setting against which the present controversy must be considered.
5. The dispute essentially emanates from the endeavour of the Appellant-State to modernise the functioning of its Public Distribution System (PDS). To that end, in 2017, the Appellant-State’s Department of Food, Civil Supplies and Consumer Affairs (the Department)-which is the second Appellant before us-had engaged the Respondent-company for the supply and maintenance of ePoS devices at Fair Price Shops across the State. The said arrangement, being a rental model, continued in operation for several years and formed the technological base for the State’s PDS till its expiry.
5.1. In the financial year 2021-22, the State Government resolved to upgrade this ostensibly obsolete system by introducing enhanced ePoS devices equipped with biometric and IRIS-scanning facilities, making them inter alia capable of integration with electronic weighing scales. The reform was intended to allow an Aadhaar-enabled Public Distribution System (AePDS) to ensure transparency and better service to the beneficiaries. Pursuant thereto, the Department on 23.04.2021 invited an Expression of Interest from eligible manufacturers and system integrators to supply and maintain such upgraded devices. Several agencies participated in that process, one of which was the Respondent- company itself.
5.2. The Department thereafter initiated a series of tendering exercises throughout 2021 and 2022. Although the first tender was floated on 20.12.2021 and bids were opened on 21.01.2022, none of the bidders, including the Respondent-company, were deemed technically qualified. As a result, the process was cancelled.
5.3. A second tender was published on 28.01.2022, wherein five companies participated, but a technical evaluation again revealed deficiencies in documentation and non-conformity with the requisite specifications. This tender, too, was cancelled on 22.02.2022.
5.4. The process for the third tender commenced on 23.02.2022. Once again, the same set of five companies, including the Respondent-company and one M/s Linkwell Telesystems Pvt. Ltd. (brand name Visiontek) (Linkwell Telesystems), participated in the process. Upon evaluation, only the Respondent-company was found to have satisfied the technical criteria. The Department nonetheless elected to scrap the process yet again in order to afford equal opportunity to all bidders and to avoid a single-vendor situation. The tender accordingly stood cancelled on 24.03.2022.
5.5. The Department consequently notified a fourth tender on 25.03.2022. Four conglomerates, including the Respondent-company and Linkwell Telesystems, again participated; and on evaluation, the Respondent-company was yet again the sole technical qualifier. However, on this occasion, in view of the pressing need to maintain continuity in ration distribution and given the repeated failure of earlier rounds, the Depar
