Published on: 01st February 2026
Authored By: Urshita Sharma
D.M. Harish School of Law, affiliated with HSNC University
Court: Supreme Court of India
Equivalent Citation: 2025 INSC 1355
Case No. Civil Appeal arising out of SLP (C) No. 6531/2025
Author: Surya Kant, CJI
Bench: Chief Justice Surya Kant, Justice Ujjal Bhuyan, and Justice Nongmeikapam Kotiswar Singh
Appellants: State of Himachal Pradesh & Anr.
Respondent: Ms OASYS Cybernatics Pvt. Ltd.
Date of Judgment: 24 November 2025.
INTRODUCTION
The appeal arose from a dispute over the cancellation of a Letter of Intent (LoI) issued by the State of Himachal Pradesh for the supply, installation, and maintenance of upgraded electronic Point-of-Sale (ePoS) devices in Fair Price Shops under the Public Distribution System (PDS). The Supreme Court examined the balance between public interest in efficient welfare delivery and the constitutional mandate against arbitrary State action in tender processes.
FACTS OF THE CASE
The State sought to modernize its PDS in 2021-22 by introducing advanced ePoS devices with biometric and IRIS-scanning capabilities for Aadhaar-enabled ration distribution. An Expression of Interest was issued on 23.04.2021, followed by multiple tenders in 2021-2022. The first three tenders were cancelled due to technical disqualifications or single-vendor concerns, with the respondent company (OASYS Cybernatics) participating each time.
In the fourth tender (25.03.2022), OASYS emerged as the sole technically qualified bidder. After negotiations, an LoI was issued on 02.09.2022 for a five-year rental-based supply at Rs. 1,050 per device per Fair Price Shop, subject to preconditions like compatibility testing with National Informatics Centre (NIC) software, live demonstrations, and cost disclosures. The respondent acknowledged the LoI and began preparatory steps, including pilot deployments and training, while the prior 2017 contract continued.
On 03.01.2023, a rival bidder (Linkwell Telesystems) complained about the respondent’s alleged prior blacklisting via a predecessor entity. Despite this, the Department urged progress. However, on 06.06.2023, the LoI was cancelled without reasons, citing a Government decision for a fresh tender. The respondent challenged this before the Himachal Pradesh High Court, which quashed the cancellation as arbitrary and directed implementation of the LoI within six weeks. The State appealed.
ISSUES BEFORE THE COURT
- Whether the LoI dated 02.09.2022 created enforceable contractual rights or remained a conditional, pre-contractual communication.
- Whether the cancellation of the LoI on 06.06.2023 was arbitrary, unreasoned, or violative of natural justice principles.
CONTENTIONS
Appellants (State of Himachal Pradesh):
The LoI was merely an expression of intent, not a binding contract, as it required unfulfilled preconditions like NIC compatibility testing and cost details. Cancellation was justified due to the respondent’s non-compliance over eight months, suppression of blacklisting history, and public interest in reliable PDS technology. Judicial review in tenders is limited; the High Court overstepped by enforcing a provisional LoI, ignoring administrative discretion.
Respondent (OASYS Cybernatics):
The LoI, post-negotiation and after four tenders, represented a concluded process, with the State inducing performance through directives for deployment and training. Cancellation was unreasoned, post-facto, and arbitrary, ignoring the respondent’s substantial investments (e.g., manufacturing 5,000+ devices). The blacklisting complaint was stale, irrelevant, and already rejected in prior proceedings; no inquiry was held, violating natural justice and Article 14.
DECISION
The Supreme Court allowed the appeal, setting aside the High Court’s judgment. It upheld the LoI’s cancellation, holding it did not create enforceable rights. The State was directed to issue a fresh tender and conduct a fact-finding inquiry to reimburse the respondent for verified costs on a quantum meruit basis for any utilized assets. No claims for lost profits were allowed.
REASONING
On the first issue, the Court relied on precedents like Rajasthan Cooperative Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service P Ltd. (1996) and Dresser Rand S.A. v. Bindal Agro Chem Ltd. (2006), affirming that an LoI is typically a non-binding precursor to a contract, contingent on preconditions. Here, explicit requirements (testing, demonstration, cost disclosure) remained unmet, preventing formation of a binding agreement. The respondent’s preparatory actions did not substitute compliance, and the State consistently treated the LoI as provisional.
Regarding cancellation, the Court applied the limited scope of judicial review from Tata Cellular v. Union of India (1994) & Jagdish Mandal v. State of Orissa (2007), focusing on illegality, irrationality, or mala fides rather than merits. The unreasoned cancellation letter was a procedural lapse, but subsequent justifications were evaluated against contemporaneous records. The blacklisting complaint was invalid, already rejected in prior litigation and concerning a non-subsisting debarment unrelated to tender conditions. However, non-compliance with preconditions was substantiated by reminders and unverified testing, justifying cancellation in public interest for PDS reliability.
The Court rejected estoppel or legitimate expectation claims, as the LoI’s conditional terms negated clear assurances. While noting the High Court’s hurried analysis, remand was deemed impracticable due to time lapses affecting public welfare. Equitable relief via reimbursement balanced fairness without enforcing the LoI.
CONCLUSION
The judgment reinforces that LoIs in public tenders are conditional and do not confer vested rights until preconditions are met and a formal contract executed. State discretion to cancel for non-compliance or public interest is broad but must avoid arbitrariness; here, procedural flaws were outweighed by substantive validity. The decision prioritizes PDS efficiency for vulnerable beneficiaries, directing fresh tenders and limited reimbursement to uphold administrative integrity and equity.
