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.

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