Full Judgment Text
REPORTABLE
2025 INSC 1355
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. _________/2025
(Arising out of SLP (C) No. 6531/2025)
State of Himachal Pradesh & Anr. …Appellants
versus
M/s OASYS Cybernatics Pvt. Ltd. …Respondent
J U D G M E N T
SURYA KANT, CJI.
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
Signature Not Verified
Digitally signed by
ARJUN BISHT
Date: 2025.11.25
15:20:22 IST
Reason:
supply, installation, and maintenance of electronic Point-of-Sale
Page 1 of 40
( ePOS ) devices for use in the Appellant-State’s Fair Price Shops,
has been set aside with consequential restoration of contractual
obligations.
ACTS
A. F
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.
In the financial year 2021-22, the State Government resolved to
5.1.
upgrade this ostensibly obsolete system by introducing enhanced
ePoS devices equipped with biometric and IRIS-scanning
Page 2 of 40
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.
A was published on 28.01.2022, wherein five
5.3. second tender
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-
Page 3 of 40
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 Department
sought and obtained Government approval on 24.05.2022 to
consider and open the Respondent-company’s financial bid. The
same was opened on 07.06.2022, and negotiations ensued.
5.6. After discussions were held on 16.07.2022, the monthly rental
rate for each ePoS device, inclusive of the IRIS scanner and
related hardware, was settled at ₹ 1,050 per Fair Price Shop. In
furtherance of this beleaguered process, an LoI was ultimately
issued to the Respondent-company on 02.09.2022, for the
supply, installation and maintenance of upgraded ePoS devices
for five years. It is illuminating to note that the arrangement
between the Appellant-State and the Respondent-company was a
service contract premised on rental payments rather than
outright purchase, similar to the arrangement that had
subsisted before.
5.7. It may also be recorded, for the sake of completeness, that the
LoI itself was not unconditional. Instead, it required the
Respondent-company to fulfil several pre-requisites before any
agreement could be executed or work formally awarded. These
conditions inter alia pertained to certain technical benchmarks
Page 4 of 40
and demonstrations, apart from the provision of landing costs.
The mandate contemplated in the LoI is reproduced below:
“… your agency has been selected to supply,
install, maintain ePoS devices with IRIS
integration and developing SLA/ePoS monitoring
tool, etc. to implement Aadhaar enabled Public
Distribution System in HP for five years at Rs.
1050/- (Rupees One thousand fifty only) per FPS per
month inclusive of all taxes as per the tender
document (RFP) subject to fulfilment of pre-requisites
and compatibility of proposed devices with the NIC
software.
It is further intimated that NIC HP is the technical
partner of the department for the implementation of
ePDS project in the State.
Therefore certain pre-
requisite condition is required to be complied by
your agency in coordination with NIC before
onboarding upgraded ePDS project as discussed
in the meeting held on 26.07.2022 in the
Directorate.
In view of above, you are requested to ensure
following compliances immediately in co-ordination
with NIC, HP.
1. Testing compatibility test, etc. of proposed devices.
preferably at Hyderabad in the office of NICSI, as
discussed in the meeting held on 26.07.2022.
2. After completing all codal formality at point No. 1,
the live demo of the upgraded ePOS device with the
software and application of NIC will be given by your
agency at the Directorate of FCS&CA, HP.
3. After the successful demonstration of the
upgraded ePOS devices as per the specification
mentioned in the tender document, the
agreement will be signed with your agency and
final award letter will be issued.
4. Also, as mentioned in the tender document, please
indicate the MRP/Landing cost of the ePOS device
and other major components.
Hence, in view of above, it is requested to co-
ordinate with the NIC, HP for the requisite
Page 5 of 40
compliances on top priority so that the
agreement is executed accordingly. ”
[Emphasis supplied]
5.8. The Respondent-company acknowledged the LoI on 07.09.2022,
furnishing a broad cost estimate of the device. Meanwhile, vide a
message dated 19.09.2022, the Department requested the
Respondent-company to start providing new ePoS devices and
impart training to Fair Price Shop dealers, so that it might
smoothly transition to the upgraded system after December 2022
(when the previous contract would expire).
5.9. In reply to the same, the Respondent-company on 20.09.2022
stated that a pilot deployment of 250 devices was scheduled in
Bilaspur District and also sought clarity on certain technical
aspects of the LoI.
In the months that followed, correspondence between the
5.10.
Department and the Respondent-company continued with the
former reiterating its request for the submission of a complete
cost break-up of the devices on 28.09.2022 and 22.12.2022.
5.11. It merits noticing that during this period, the earlier 2017
contract remained in force, and the Respondent-company
continued to receive rental payments for those machines from
the Department.
Page 6 of 40
5.12. That being the status, one of the unsuccessful bidders, Linkwell
Telesystems, on 03.01.2023 addressed a complaint to the
Department alleging that the Respondent-company had
suppressed material facts which would render it unfit for
participation in the tendering process. Specifically, they alleged
that the Respondent-company and its predecessor entity had
been blacklisted in the States of Andhra Pradesh and Madhya
Pradesh for allegedly causing losses to the public exchequer due
to poor performance. The complaint was received and placed
before higher authorities for consideration. No formal inquiry or
order was passed at that stage.
interregnum
5.13. In the , due to mounting delay, the Department on
18.04.2023 asked the Respondent-company for an action plan
within a week for the installation of new devices, and directed
that the implementation be completed expeditiously in
accordance with the directions from the Government of India.
5.14. The Respondent-company, by letter dated 25.04.2023, submitted
a deployment schedule. It informed the Department on
12.05.2023 that the integration of weighing scales with ePoS
devices had been successfully tested and demonstrated. On
23.05.2023, the Respondent-company reiterated that its entire
stock of devices and accessories had been manufactured and
Page 7 of 40
kept ready for dispatch, and that continuing delay on the part of
the Department was causing it additional financial burden.
5.15. It is in this factual backdrop that on 06.06.2023, the
Department sent the Respondent-company a letter cancelling the
LoI with immediate effect, stating that a fresh tender would be
invited. The operative part thereof stated as follows:
“ …it is informed that the Government of HP has taken
a decision to invite a new/fresh tender. Therefore, the
‘Letter of Intent (LoI)’ issued to your company vide this
office letter no. eGS-FCS&CA-9984 dated 2nd
September, 2022 is hereby cancelled with immediate
effect.
A new tender/bid in this regard will be published
afresh shortly. ”
5.16. Notably, the Cancellation Letter precluded any reasons for
issuance of the same. However, the Departmental record
indicates that the cancellation was followed by internal noting
dated 12.05.2023 wherein the Chief Minister of the State, being
the Minister-in-Charge, directed that a new tender be called
“ keeping in view of irregularities ”.
5.17. In any case, within days of issuing the Cancellation Letter to the
Respondent-company, an Expression of Interest was published
afresh, inviting new bids.
5.18. Being aggrieved by the Cancellation Letter, the Respondent-
company submitted a representation to the Department on
Page 8 of 40
16.06.2023 seeking withdrawal of the same, which was not
accepted. It thus approached the High Court on 21.06.2023,
challenging the Cancellation Letter and seeking directions to the
Appellant-State to implement the LoI.
The High Court issued notice on 27.06.2023 and permitted the
5.19.
Appellant-State to proceed with the fresh tendering, but directed
that no final decision be taken without its leave.
5.20. As already iterated, the High Court vide the Impugned Judgment
allowed the writ petition. It inter alia made the following
observations:
i. The Respondent-company had cleared both the technical and
financial stages of evaluation, and the LoI had subsisted for
almost eight months, during which period the Department
maintained active correspondence and issued instructions to
the company for carrying out implementation;
ii. At no point during this period did the Department indicate
that it was contemplating cancellation. The grounds now
relied upon by the Appellant-State, concerning the receipt of a
complaint about past blacklisting and the alleged non-
fulfilment of LoI obligations, do not appear in the Cancellation
Page 9 of 40
Letter dated 06.06.2023 and are contradicted by the
Department’s correspondence;
iii. The complaint from an unsuccessful bidder was received as
early as 03.01.2023, yet the Department not only refrained
from holding any inquiry but continued to direct the
Respondent-company to proceed with integration and
training. Moreover, if the authorities genuinely intended to act
on the complaint, it ought to have been done promptly, and
not after allowing the Respondent-company to expend its
resources in furtherance of the LoI;
iv. Equally, the second ground of alleged non-performance was
contradicted by letters showing that the Respondent-company
had supplied pilot batches, developed integration software,
and furnished MRP and cost details;
v. The two grounds cited by the Appellant-State were thus
mutually irreconcilable—one imputing disqualification at
inception and the other alleging breach during performance.
In this context, the State appeared “ bent upon cancelling the
Letter of Intent and cultivating reasons for it. ”;
The Cancellation Letter was accordingly held to be arbitrary,
5.21.
devoid of reasons, and in violation of the principles of natural
Page 10 of 40
justice, and consequently quashed. The Appellant-State was
directed to proceed further in the matter on the basis of the LoI
dated 02.09.2022. Considering the public interest involved in the
project, which had already been tendered four times, both sides
were expected to complete all necessary actions expeditiously, i.e.
within six weeks.
Being aggrieved, the Appellant-State has preferred the instant
5.22.
appeal, wherein we had initially condoned the delay and issued
notice on 03.03.2025. Subsequent interim orders dated
21.04.2025 and 13.05.2025 stayed the execution of the High
Court’s order pending final adjudication.
ONTENTIONS
B. C
6. Having adequately dealt with the contextual background, we now
proceed to delineate the contentions advanced by the parties
before us.
7. Mr. P. Chidambaram, learned Senior Counsel appearing on
behalf of the Appellant-State, sought to negate the High Court’s
conclusions vis-à-vis alleged arbitrariness. In support thereof, he
submitted the following:
a) The High Court erred in treating the LoI dated 02.09.2022
as a concluded contract. The LoI was, by its terms, a
Page 11 of 40
conditional communication subject to the Respondent-
company’s fulfilment of specified pre-requisites, namely: ( i )
successful compatibility testing of the proposed ePoS
devices with the National Informatics Centre ( NIC ) software
at Hyderabad; ( ii ) live demonstration of the upgraded
devices before the Directorate at Shimla; and ( ) execution
iii
of a formal agreement only after successful verification.
These conditions remained unfulfilled, and the
Respondent-company’s inaction for over thirty-four weeks
frustrated timely implementation of a project of
considerable public importance.
b) The LoI could not by itself confer any contractual right.
Under settled law, a Letter of Intent merely conveys the
Government’s intention to enter into an agreement and
creates no enforceable obligation until a Letter of
Acceptance ( ) or contract is executed. The Department,
LoA
therefore, retained complete discretion to cancel the LoI in
the absence of compliance with its pre-conditions.
Despite repeated reminders dated 19.09.2022, 28.09.2022,
c)
and 22.12.2022, the Respondent-company failed to furnish
the requisite MRP and cost break-up of the devices, did not
complete testing at NIC Hyderabad, and did not produce a
Page 12 of 40
live demonstration. This persistent default compelled the
State to cancel the LoI on 06.06.2023.
d) Subsequent communications from NIC Hyderabad in
November 2024 confirmed that the Respondent-company’s
Android-based ePoS devices were not compatible with the
NIC application and failed to meet the updated technical
specifications. Allowing the deployment of such devices
would have compromised integration with the national
Aadhaar-enabled PDS and exposed the State to avoidable
financial risk.
e) The Respondent-company also suppressed material facts. A
complaint received from another participant, Linkwell
Telesystems, disclosed that the Respondent-company’s
predecessor entity, M/s Omneagate Systems Pvt. Ltd., had
been blacklisted in Andhra Pradesh and Madhya Pradesh.
This information was not revealed in the eligibility
declaration, thereby violating Clause 5.13.1 of the tender
document. Non-disclosure of such antecedents constituted
misrepresentation sufficient to justify cancellation.
The Appellant-State’s decision was taken after due
f)
consideration by the competent authority, including the
Page 13 of 40
Chief Minister, and it reflected a conscious policy choice to
re-tender the project in the interest of transparency,
competition, and technological reliability.
g) Judicial interference in matters of public tender is
circumscribed. Courts do not sit in appeal over
administrative decisions unless they are patently arbitrary
or mala fide . The High Court, in directing the enforcement
of a provisional LoI, exceeded the limited scope of review
1
recognised in Tata Cellular v. Union of India , and
subsequent precedents.
The Respondent-company’s claim of financial loss is
h)
misconceived. Any manufacturing or preparatory
expenditure was undertaken at its own peril, before the
formal award of contract. No compensation lies for self-
assumed risks at the pre-contractual stage.
Public interest in ensuring uniformity with the national
i)
AePDS infrastructure and prudent utilisation of public
funds must prevail over a bidder’s private expectation. The
Impugned Judgment, if sustained, would fetter the
Appellant-State’s discretion in executing welfare schemes
and undermine established procurement discipline.
1 (1994) 6 SCC 651.
Page 14 of 40
8. On the other hand, the Respondent-company represented by Mr.
Sanjeev Bhushan, learned Senior Counsel, ardently urged that
the High Court recognised the true form of the LoI. Additionally,
he posited that the Respondent-company must be awarded the
tender and consequent contract—given the advanced nature of
its investment and expenditure. In this regard, he canvassed the
following submissions:
a) The cancellation of the LoI was arbitrary, unreasoned, and
violative of the principles of natural justice. The
Respondent-company had emerged as the sole qualified
bidder after four successive rounds of tendering and was
issued the LoI following approval and financial
negotiations. The Appellant-State itself thereafter directed
the Respondent-company to commence phased deployment,
thereby acknowledging that the contract had attained
finality in substance.
b) All requirements enumerated in the LoI were complied
with. The Respondent-company furnished its MRP and cost
details, participated in technical meetings with NIC,
developed integration software for electronic weighing
scales, and organised training for Fair Price Shop owners.
Correspondence from departmental officers and District
Page 15 of 40
Controllers acknowledged receipt and testing of devices,
contradicting the subsequent plea of non-performance.
c) After having repeatedly directed the Respondent-company,
through letters dated 19.09.2022, 18.04.2023, and
16.05.2023, to supply machines and carry forward
implementation, the Department cannot now be allowed to
justify the sudden cancellation of the LoI. Having itself
induced performance for eight months, the State’s abrupt
withdrawal without cause or notice was plainly arbitrary
and devoid of fairness.
d) The complaint of blacklisting relied upon by the Appellant-
State was both stale and irrelevant. The debarment
concerned a separate entity—M/s Omneagate Systems Pvt.
Ltd.—whose merger with the Respondent-company had
taken place long after the period of debarment ended. The
tender required disclosure of blacklisting “ as on the date of
bid submission ”; the affidavit filed was therefore factually
accurate. No inquiry was ever held into the complaint,
which emanated from a rival bidder whose earlier challenge
to the same tender had already been dismissed by the High
Court.
Page 16 of 40
e) The Respondent-company made substantial monetary
investments, having relied upon the veracity of the LoI,
manufacturing over five thousand ePoS devices, procuring
SIM connectivity, and establishing logistic support
infrastructure. The cancellation after such performance
inflicted serious financial prejudice and disrupted the
Appellant-State’s own modernisation programme.
The communication dated 06.06.2023, cancelling the LoI
f)
“ with immediate effect ,” was devoid of reasons and issued
without any notice or opportunity of hearing. Such a non-
speaking order issued by the Department offends Article 14
of the Constitution of India and the principles of natural
justice.
g) The two grounds subsequently pleaded by the Appellant-
State, i.e. blacklisting and non-compliance, were mutually
destructive and belied by its own record. The complaint of
03.01.2023 was allowed to remain dormant while the
Respondent-company was directed to continue work; and
the charge of non-performance is contradicted by letters
acknowledging progress. The sequence of events reveals
that the cancellation was predetermined and possibly
politically motivated.
Page 17 of 40
h) The High Court’s intervention was thus justified. It merely
ensured that governmental power was exercised fairly and
in accordance with law. The direction to proceed on the
basis of the LoI did not amount to specific performance but
only restored the legal equilibrium that existed before the
arbitrary cancellation. Whereas the Appellant’s State’s
invocation of “ public interest ” was an afterthought. The
devices designed for Himachal Pradesh were of the same
specification as those used in other States under NIC’s
supervision, and no technical deficiency was ever
communicated at the relevant time. The plea of
incompatibility surfaced only after litigation commenced.
Administrative fairness requires the Appellant-State not to
i)
act contrary to its own representations. Having consistently
treated the LoI as operative and induced reliance, the
Department was estopped from withdrawing it without
justification. Upholding such action would erode confidence
in public procurement processes.
9. In sum, the Appellant-State maintains that the LoI was a
conditional, non-binding expression of intent that could be
cancelled for non-compliance and in public interest. Whereas the
Respondent-company asserts that the LoI represented the
Page 18 of 40
culmination of a concluded process, which had been
substantially acted upon under State supervision, and that its
abrupt withdrawal was arbitrary and contrary to law.
C. I SSUES
After perusing the rival contentions, the voluminous record, the
10.
statutory framework, and the factual environment colouring
these appeals, we find that the twin issues that fall for our
consideration are the following:
i. The Nature of the Letter of Intent
Whether the Letter of Intent dated 02.09.2022 created any
binding or enforceable rights in favour of the Respondent-
company, or remained a conditional, pre-award
communication subject to fulfilment of stipulated pre-
requisites?
ii. The Legality of the Cancellation Letter
Whether the Appellant-State’s decision dated 06.06.2023,
cancelling the Letter of Intent, was arbitrary, unreasoned,
or violative of the principles of natural justice, thereby
warranting interference?
D. A NALYSIS
Page 19 of 40
1. Issue No D. . I: Whether the LoI created enforceable rights in
favour of the Respondent-company?
11. The first issue that falls for our determination concerns the legal
character of the LoI dated 02.09.2022 and the nature of rights, if
any, accrued to the Respondent-company thereunder.
12. This question goes to the root of the matter, and is not one of
mere semantics, i.e. ascertaining whether the issuance of the LoI
created a concluded contract capable of enforcement, or whether
it remained a conditional and inchoate expression of intent,
leaving the Government free to reassess its position prior to
formal acceptance. The answer defines the legal threshold for the
Appellant-State’s power to cancel and the Respondent-company’s
entitlement to protection.
13. The jurisprudence on the subject is neither nascent nor
unsettled. A catena of decisions starting from Rajasthan
Cooperative Dairy Federation Ltd. v. Maha Laxmi Mingrate
2
Marketing Service (P) Ltd. , through Dresser Rand S.A. v.
3
Bindal Agro Chem Ltd. , to Level 9 Biz Pvt. Ltd. v. HP
4
Housing & Urban Development Authority , this Court has
2 (1996) 10 SCC 405.
3 (2006) 1 SCC 751.
4 2024 SCC OnLine SC 480.
Page 20 of 40
consistently held that an LoI is, in the ordinary course, a
precursor to a contract and not the contract itself.
14. In Dresser Rand ( supra ) , it was re-stated with clarity that “ a
letter of intent merely indicates a party’s intention to enter
into a contract with the other party in future. A letter of
intent is not intended to bind either party ultimately to
enter into any contract . ” The same principle animated
( ) , where this
Rajasthan Cooperative Dairy Federation supra
Court observed that until the offer is accepted unconditionally
and the preconditions are satisfied, “ no binding legal
relationship ” comes into existence. The rationale is thus simple
but fundamental: the law of contract distinguishes between a
promise to make a promise and a promise performed. The former
is not legally binding until its contingencies are fulfilled.
15. These authorities collectively articulate a coherent doctrine: an
LoI creates no vested right until it passes the threshold of final
and unconditional acceptance. It is but a “ promise in embryo ,”
capable of maturing into a contract only upon the satisfaction of
stipulated preconditions or upon the issue of an LoA. A bidder’s
expectation that such a contract will follow may be commercially
genuine, but it is not a juridical entitlement. To hold otherwise
would be to bind the State in contract before it has consciously
Page 21 of 40
chosen to be bound—a proposition foreign to both contract law
and public administration.
16. Turning then to the LoI before us, its conditionality is beyond
doubt. As noticed heretofore in para 5.7 , it required the
Respondent-company to:
(i) undertake compatibility testing of its proposed ePoS devices
at NICSI, Hyderabad;
(ii) provide a live demonstration of the devices with NIC’s
application before the Directorate at Shimla;
(iii) execute a formal agreement only after successful completion
of the aforesaid steps; and
(iv) furnish a detailed MRP and landing cost of the devices and
their major components.
17. Each requirement was framed as a condition precedent; the LoI
itself stated that a “ final award letter ” would issue only after
the successful completion of these tasks. This language admits
of no ambiguity. The tender architecture was sequential: testing,
demonstration, acceptance, then execution. It was never
contemplated that the LoI would operate as the contract itself.
Page 22 of 40
18. The cumulative effect of the foregoing analysis is that the LoI was
no more than a provisional communication signifying the
Appellant-State’s intent to enter into a formal arrangement upon
fulfilment of certain technical and procedural conditions. The
acceptance of tender and the consequential formation of a
binding contract were contingent upon satisfaction of these
prerequisites. The Respondent-company’s reliance upon the LoI
as a source of vested contractual rights is, therefore, wholly
misplaced.
19. As a result, the First Issue is answered in the negative . We
have no difficulty in holding that the LoI did not give rise to any
binding or enforceable rights in favour of the Respondent-
company.
20. Be that as it may, even when contractual rights are absent, the
State’s administrative discretion in rescinding or cancelling an
LoI is not unfettered. It remains subject to constitutional
discipline, particularly the requirement that State action must
not be arbitrary, unreasonable, or actuated by mala fides . In this
respect, we deem it necessary to examine the Second Issue
touching upon the legality and propriety of the Cancellation
Letter.
Page 23 of 40
D.2 . Issue No. II: Whether the Cancellation Letter was arbitrary or
procedurally unjust?
21. Having held that that the LoI did not create binding rights, the
enquiry narrows to whether the decision of the State
vide
Government to cancel it, its communication dated
06.06.2023, suffered from arbitrariness, mala fides , or
procedural unfairness so grave as to warrant intervention.
The contours of judicial review in contractual matters were
22.
defined nearly three decades ago in Tata Cellular (supra) ,
where this Court held that the exercise of judicial power over
administrative action in tenders is directed not at correcting the
decision, but the decision-making process. The Court
emphasised that the State must have the “ freedom of contract ,”
and that the scope of review is confined to testing administrative
action against the touchstones of illegality, irrationality, mala
fides , and procedural impropriety.
23. This framework was refined in
Jagdish Mandal v. State of
5
Orissa , which cautioned that a Writ Court should not interfere
unless the action of the State is so arbitrary that “ no
responsible authority acting reasonably and in accordance
with relevant law could have reached it. ”
5 (2007) 14 SCC 517.
Page 24 of 40
24. Since then, it has been reaffirmed that judicial review in contract
matters operates only where the action is “ palpably
unreasonable or absolutely irrational and bereft of any
6
principle. ”
25. These principles are neither ornamental nor abstract. They arise
from the nuanced understanding that government contracting,
unlike private commerce, is an instrument of governance. The
Rule of Law demands that Executive discretion be rational and
fair, but it equally demands that Courts respect the autonomy
necessary for effective administration. Public interest requires
not judicial micro-management but judicial assurance that
power has been exercised within lawful bounds.
D.2.1. Prima facie arbitrariness & attached consequences
26. Turning then to the factual record, the Cancellation Letter at first
blush appears to be laconic; as it does not list the grounds that
weighed upon the Department while issuing the same.
27. That being said, it is equally true that this Court has
consistently held that administrative orders must be read in light
of the concomitant record, and that reasons need not be stated
6 M.P. Power Management Co. Ltd. v. Sky Power Southeast Solar India Pvt. Ltd.,
(2023) 2 SCC 703; Subodh Kumar Singh Rathour v. Chief Executive Officer, 2024
SCC OnLine SC 1682.
Page 25 of 40
in haec verba in the communication, so long as they can be
post-hoc
discerned from the file and are not justifications.
28. This Court has, however, cautioned against the practice of post-
facto rationalisation, whereby authorities attempt to supplement
or fabricate reasons after the decision has already been taken.
Such afterthoughts cannot cure an inherently arbitrary action.
The legitimacy of administrative reasoning must be tested with
reference to the material that existed at the time the decision
was made, not by subsequent embellishment. To simplify: what
is permissible is elucidation of contemporaneous reasoning
already traceable on record; what is impermissible is the
invention of fresh grounds to retrospectively justify an otherwise
unreasoned order.
29. That is to say that when such an exercise is found to be prima
facie
unreasonable, the correct course of action — which the
High Court also employed — was to proceed to test the
justifications subsequently offered by the Appellant-State in its
pleadings. However, on a holistic reading of the Impugned
Judgment before us, we find that the exercise undertaken by the
High Court was somewhat hurried and limited.
Page 26 of 40
30. We say so, as we find that the High Court treated the initial
absence of reasons as fatal, and thereafter dismissed the
explanations advanced by the Appellant-State on the basis of
select factual contradictions, without engaging with the broader
administrative context in which the decision was taken. The
resulting analysis, though earnest, remained incomplete.
31. The more appropriate course, in our considered view, would have
been to adopt a two-step approach: first , to hold the cancellation
vitiated for want of reasoning; and second , to remit the matter to
the Competent Authority to reconsider the question upon
recording cogent reasons and affording due opportunity to the
affected bidder. Such a calibrated remedy would have preserved
both the evolving constitutional discipline of fair procedure and
the administrative necessity of efficiency in public procurement.
However, the substantial passage of time now renders remand
32.
impracticable. Nearly two years have elapsed since the impugned
cancellation, and over four years have passed since the
Expression of Interest was initially invited by the Department.
What is even more disconcerting is the admitted fact that the
tender pertains to the deployment of ePoS devices integral to the
functioning of the PDS—an exercise that directly touches the
lives of economically weaker citizens. To prolong uncertainty
Page 27 of 40
through further procedural cycles would defeat the very public
purpose underlying the tender.
33. Consequently, in these peculiar circumstances, it is both
necessary and appropriate for us to evaluate whether the
Appellant-State’s reasons tendered before the High Court and
this Court withstand judicial enquiry.
34. The enquiry that follows is therefore confined not to the
procedural lapse of the unreasoned cancellation, but to the
substantive validity of the justifications subsequently advanced
by the Appellant-State.
D.2.2. Appellant-State’s proffered reasons for the Cancellation
Letter
35. A thorough examination of the record reveals two broad strands
of contemporaneous reasoning adopted by the Appellant-State:
( ) receipt of complaints from competing bidders alleging
i
suppression of prior blacklisting and concerns regarding vendor
integrity; ( ii ) persistent non-compliance with the LoI’s
preconditions for over eight months, despite reminders. We shall
now test each of these rationales on the anvil of the
jurisprudence laid out above.
Page 28 of 40
D.2.2.1. Black-listing complaint by Linkwell Telesystems
36. The first ground relied upon by the Appellant-State to justify the
withdrawal of the LoI rests on a complaint dated 03.01.2023,
addressed by Linkwell Telesystems, an unsuccessful bidder,
alleging that the Respondent-company had previously operated
under the name M/s Omne Agate Systems Pvt. Ltd. and had been
blacklisted by certain State undertakings. This complaint was
subsequently placed before the Chief Minister, who ultimately
directed that a fresh tender be invited.
At the outset, this ground cannot sustain closer inspection. The
37.
record reveals that an identical contention raised by Linkwell
Telesystems had already been considered and repelled by the
High Court in CWP No. 5562 of 2022, decided on 12.12.2022. It
is incontrovertible that the Appellant-State did not assail that
judgment, which therefore attained finality. Having defended its
tender process at that stage, the Appellant-State cannot take an
inconsistent position before this Court and rely upon the very
complaint that it had earlier contested.
38. The State, as a continuing juristic entity, is bound by its own
representations in prior proceedings; its legal stance cannot
oscillate with changes in political leadership.
Page 29 of 40
39. Further, even on substance, the complaint does not withstand
scrutiny when tested against the tender conditions themselves.
Clause 5.13.1 required each bidder to declare that it was not
blacklisted as on the date of bid submission. The Respondent-
company’s affidavit satisfied this stipulation, since the alleged
blacklisting incidents, even if assumed to have occurred, related
to an earlier period and had ceased to operate by the time the
bid was submitted. In other words, the clause demanded a
disclosure of subsisting disqualifications, not of past and
exhausted ones.
40. Seen in this light, the tender condition could not be read as
creating a perpetual bar for a bidder once blacklisted. To
construe it in this manner would extend the disqualification
beyond its textual and purposive limits. The Appellant-State’s
reliance on such a superseded event was therefore both factually
misplaced and legally untenable.
41.
We thus find no merit in this ground. The blacklisting complaint,
by itself, could not constitute a valid basis for rescinding the LoI,
and its invocation betrays a want of administrative consistency
and adherence to due process.
D.2.2.2. Non-compliance with LoI preconditions
Page 30 of 40
42. The second justification advanced by the Appellant-State is that
the Respondent-company failed to comply with the pre-requisites
stipulated in the LoI and exhibited inadequate performance
during the months that followed. This contention requires closer
examination, as it pertains to the Respondent-company’s actual
conduct and capacity in fulfilling the stipulated conditions.
43. As mentioned previously, the LoI explicitly required the
Respondent-company to fulfil at least four conditions including:
testing and compatibility assessment of its proposed ePoS
devices with NIC software; live demonstration(s) at the
Directorate; codal formalities, including disclosure of itemised
cost details etc. It is abundantly clear that these were not
perfunctory steps; they were preconditions designed to ensure
technical integrity and fiscal transparency before the award of a
public contract.
44. The factual record confirms that these preconditions remained
unfulfilled. The Department repeatedly called upon the
Respondent-company to furnish its depreciation policy and cost
details, as evidenced by letters dated 28.09.2022 and
22.12.2022. However, no itemised cost breakup, as mandated by
Clause 4.9(m) of the RFP, was provided. The compatibility testing
at NIC Hyderabad was not shown to have been completed, nor
Page 31 of 40
was the live demonstration certified. Despite these omissions,
the Respondent-company purportedly proceeded to manufacture
and stock more than five thousand devices, activate SIM cards,
and commence preparatory training.
45. These actions, though industrious, were undertaken unilaterally
and before the conditions of the LoI were satisfied. In our
considered view, such actions exemplify commercial impatience
rather than contractual compliance—an instance of putting the
cart before the horse. Of course, there is no gainsaying that
performance in anticipation cannot metamorphose into a legal
right where the parties themselves have prescribed a structured
order of steps.
46. It is equally important to note that the Department’s conduct
remained consistent with this understanding. Its letters were
replete with reminders and verifications; no LoA was issued; no
agreement was executed; and nor were payments released. The
Government’s record therefore never departed from its position
that the LoI was conditional.
47. In arriving at its contrary view, the High Court appears to have
proceeded on an erroneous conflation of ‘taking steps’ with
‘taking the right steps’. The Respondent-company’s diligence in
Page 32 of 40
producing hardware or training personnel was taken as evidence
of compliance, though these were not the steps demanded by the
LoI. Compliance in law must be with the document that governs
the relationship, not with the bidder’s self-chosen course of
conduct. To equate unilateral readiness with contractual
fulfilment is to disregard the essential discipline of tender law,
which binds both sides to the terms they themselves framed.
48. The High Court also overlooked a second infirmity in the
Respondent-company’s case. Having accepted the LoI and acted
upon it, the Respondent cannot now disclaim the very conditions
that the LoI imposed. It cannot approbate and reprobate—
seeking to hold the Appellant-State to the document’s benefits
while denying its burdens. In simpler terms, where a bidder has
agreed that testing, demonstration, and cost disclosure are
preconditions to finalisation, it cannot later assert that the LoI
was already complete, notwithstanding the absence of those
acts.
D.2.3. Whether the Cancellation Letter suffers from
arbitrariness?
49. Having found some weight in one of the twin grounds relied
upon by the Appellant-State, we must now examine the charge of
arbitrariness against its actions.
Page 33 of 40
50. The test for arbitrariness under Article 14 is whether the
decision is uninformed by reason or guided by irrelevant
considerations. When examined through that lens, the
Appellant-State’s action withstands scrutiny. We say so, being
mindful of the reality that the Department’s correspondence
shows repeated efforts to secure compliance, followed by
mounting concern about the feasibility of deploying devices that
had not been certified for compatibility with NIC’s national
software. These concerns were germane; they were neither
whimsical nor pretextual.
51. It is also apposite to note that the Respondent-company’s
grievance regarding the Department’s inconsistent conduct—that
it continued to correspond even as it contemplated cancellation—
does not advance its case. Administrative deliberation does not
amount to duplicity. It is entirely natural that a department
exploring compliance would keep lines of communication open
while simultaneously assessing whether continuation was
tenable. The law does not demand that the State speak only after
it has made up its mind; it demands only that its final decision
be traceable to reason, not to whim. The record before us meets
that threshold.
Page 34 of 40
52. Further, we cannot hold that the decision to cancel was actuated
by any improper motive. There is no allegation, nor any evidence,
of favouritism or collateral purpose. The cancellation led only to
a fresh tender, open to all, rather than an award to another
bidder behind closed doors. Where the effect of administrative
action is to enhance openness and restore competition, Courts
mala fides
are doubly cautious before imputing .
53. The Respondent-company’s plea that the Appellant-State was
bound, having allowed the process to run for eight months, is
equally misconceived. Lapse of time does not convert a
provisional arrangement into a vested right. The expectation that
the Government will ultimately formalise an LoI may be
legitimate in the commercial sense, but it is not enforceable in
law unless the conditions for formal acceptance are met. The
constitutional guarantee against arbitrariness is not a charter of
commercial expectations; it is a safeguard against irrationality,
and none is established in this record.
54. This Court has consistently recognised that the State’s decision
to cancel a tender or restart the process is itself an aspect of
7
public interest. The present decision to re-tender—prompted by
7 Tata Cellular v. Union of India, (1994) 6 SCC 651; M.P. Power Management Co.
Ltd. v. Sky Power Southeast Solar India Pvt. Ltd., (2023) 2 SCC 703.
Page 35 of 40
non-compliance and the desire to ensure NIC compatibility—falls
squarely within that zone of permissible discretion.
55. In this vein, the principle of legitimate expectation also does not
come to the aid of the Respondent-company. That doctrine
presupposes a clear and unambiguous representation by the
State, followed by reliance and detriment. The conditional terms
of the LoI negate the existence of any clear assurance; rather,
they expressly warned that the process was still provisional. To
invoke legitimate expectation against an explicit disclaimer would
be to transform the doctrine from a shield against arbitrariness
into a sword against caution — a proposition no Court can
endorse.
56. Accordingly, we find that the Second Issue must also be
answered in the negative . The cancellation of the LoI dated
02.09.2022 does not suffer from arbitrariness, mala fides , or
breach of natural justice, and the High Court’s interference
therewith cannot be sustained. The Department had tangible
grounds for dissatisfaction; it followed a discernible process; and
it acted within the contractual liberty reserved to it. The reasons
for cancellation were antecedent, bona fide , and germane to the
public purpose of ensuring a reliable, uniform, and lawfully
procured ePoS infrastructure.
Page 36 of 40
D. E PILOGUE
57. Before we part with the instant appeal, it bears reminding that
the tender in question was not a commercial exercise in isolation
but an instrument of social welfare, intended to secure efficient
and transparent delivery of subsidised foodgrains to the most
vulnerable citizens. The Public Distribution System remains, for
millions, the thin line between sustenance and deprivation.
When projects of such public importance are delayed or derailed
by procedural lapses, the ultimate cost is borne not by the
contracting parties but by those at the last mile of governance.
58. It is therefore incumbent upon every stakeholder—the
Government, its technical partners, and private participants—to
treat such undertakings with the seriousness their human
impact demands. Administrative caution and technological
innovation must work hand in hand to ensure that reform does
not lose sight of its moral anchor: service to the poorest. Future
exercises in public procurement, particularly those that
underpin welfare delivery, must thus be executed with greater
institutional coherence, foresight, and accountability—so that
legality, efficiency, and compassion operate in concert, and the
constitutional promise of equitable distribution finds tangible
expression.
Page 37 of 40
E. C ONCLUSION AND D IRECTIONS
59. In light of the foregoing discussion, we find that the LoI dated
02.09.2022 did not culminate into a concluded contract and that
its cancellation on 06.06.2023 was a lawful exercise of
administrative discretion. Consequently, the Impugned
Judgment of the High Court, directing continuation of the LoI, is
unsustainable in law as well as on facts. We, thus, deem it
appropriate to issue the following directions:
i. The appeal is allowed. The Impugned Judgment and order
passed by the High Court in CWP No. 4081 of 2023 is set
aside. The decision of the Appellant-State cancelling the
Letter of Intent dated 02.09.2022 stands upheld. However,
the Expression of Interest issued immediately after
cancelling the LoI in favour of Respondent-company is set
aside;
ii. The Appellant-State shall be at liberty to issue a fresh
tender for supply, installation and maintenance of ePoS
devices for Fair Price Shops across the State forthwith, in
accordance with law and the applicable financial and
procurement rules, apart from the requisite technical
specifications. The Respondent-company shall be free to
Page 38 of 40
participate in such tender process, subject to uniform
eligibility and compliance with the prescribed conditions;
iii. The Appellant-State is further directed to hold a Fact-
Finding Enquiry in association with the Respondent-
company and ascertain the details of the ePoS machines,
components, or allied services produced or supplied under
the cancelled LoI and their utilisation or taking over by the
Department during the pilot or demonstration stages.
Thereafter, the Appellant-State shall assess the value and
costs of installation of such machines, components or
services and reimburse such verified cost and expenses on
the principle of quantum meruit , to make good the losses
suffered by the Respondent-company. This entire exercise is
directed to be complied with in a period of three months;
iv. All machinery, devices, technology, or software
infrastructure handed over, integrated, or otherwise used
during such pilot or demonstration stages pursuant to the
LoI upon shall vest in the Appellant-State free of
encumbrances, subject to payment of cost and installation
expenditure to the Respondent-company, and/or
Page 39 of 40
subject to any reimbursement payable as above. The State
may retain and deploy such assets for public use or dispose
of them in accordance with the applicable policy; and
v. It is clarified that no further claim for loss of profit,
expectation, or consequential damages shall survive. The
relief granted herein is confined to equitable
reimbursement for tangible assets or work actually
appropriated by the Appellant-State.
60. The instant appeal stands allowed in the above terms.
61. Consequently, pending interlocutory applications, if any, are also
disposed of.
62. Ordered accordingly.
……………………...CJI.
(SURYA KANT)
……………………......J.
(UJJAL BHUYAN)
……………………………….……………….J.
(NONGMEIKAPAM KOTISWAR SINGH)
NEW DELHI
DATED: 24.11.2025
Page 40 of 40
2025 INSC 1355
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. _________/2025
(Arising out of SLP (C) No. 6531/2025)
State of Himachal Pradesh & Anr. …Appellants
versus
M/s OASYS Cybernatics Pvt. Ltd. …Respondent
J U D G M E N T
SURYA KANT, CJI.
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
Signature Not Verified
Digitally signed by
ARJUN BISHT
Date: 2025.11.25
15:20:22 IST
Reason:
supply, installation, and maintenance of electronic Point-of-Sale
Page 1 of 40
( ePOS ) devices for use in the Appellant-State’s Fair Price Shops,
has been set aside with consequential restoration of contractual
obligations.
ACTS
A. F
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.
In the financial year 2021-22, the State Government resolved to
5.1.
upgrade this ostensibly obsolete system by introducing enhanced
ePoS devices equipped with biometric and IRIS-scanning
Page 2 of 40
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.
A was published on 28.01.2022, wherein five
5.3. second tender
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-
Page 3 of 40
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 Department
sought and obtained Government approval on 24.05.2022 to
consider and open the Respondent-company’s financial bid. The
same was opened on 07.06.2022, and negotiations ensued.
5.6. After discussions were held on 16.07.2022, the monthly rental
rate for each ePoS device, inclusive of the IRIS scanner and
related hardware, was settled at ₹ 1,050 per Fair Price Shop. In
furtherance of this beleaguered process, an LoI was ultimately
issued to the Respondent-company on 02.09.2022, for the
supply, installation and maintenance of upgraded ePoS devices
for five years. It is illuminating to note that the arrangement
between the Appellant-State and the Respondent-company was a
service contract premised on rental payments rather than
outright purchase, similar to the arrangement that had
subsisted before.
5.7. It may also be recorded, for the sake of completeness, that the
LoI itself was not unconditional. Instead, it required the
Respondent-company to fulfil several pre-requisites before any
agreement could be executed or work formally awarded. These
conditions inter alia pertained to certain technical benchmarks
Page 4 of 40
and demonstrations, apart from the provision of landing costs.
The mandate contemplated in the LoI is reproduced below:
“… your agency has been selected to supply,
install, maintain ePoS devices with IRIS
integration and developing SLA/ePoS monitoring
tool, etc. to implement Aadhaar enabled Public
Distribution System in HP for five years at Rs.
1050/- (Rupees One thousand fifty only) per FPS per
month inclusive of all taxes as per the tender
document (RFP) subject to fulfilment of pre-requisites
and compatibility of proposed devices with the NIC
software.
It is further intimated that NIC HP is the technical
partner of the department for the implementation of
ePDS project in the State.
Therefore certain pre-
requisite condition is required to be complied by
your agency in coordination with NIC before
onboarding upgraded ePDS project as discussed
in the meeting held on 26.07.2022 in the
Directorate.
In view of above, you are requested to ensure
following compliances immediately in co-ordination
with NIC, HP.
1. Testing compatibility test, etc. of proposed devices.
preferably at Hyderabad in the office of NICSI, as
discussed in the meeting held on 26.07.2022.
2. After completing all codal formality at point No. 1,
the live demo of the upgraded ePOS device with the
software and application of NIC will be given by your
agency at the Directorate of FCS&CA, HP.
3. After the successful demonstration of the
upgraded ePOS devices as per the specification
mentioned in the tender document, the
agreement will be signed with your agency and
final award letter will be issued.
4. Also, as mentioned in the tender document, please
indicate the MRP/Landing cost of the ePOS device
and other major components.
Hence, in view of above, it is requested to co-
ordinate with the NIC, HP for the requisite
Page 5 of 40
compliances on top priority so that the
agreement is executed accordingly. ”
[Emphasis supplied]
5.8. The Respondent-company acknowledged the LoI on 07.09.2022,
furnishing a broad cost estimate of the device. Meanwhile, vide a
message dated 19.09.2022, the Department requested the
Respondent-company to start providing new ePoS devices and
impart training to Fair Price Shop dealers, so that it might
smoothly transition to the upgraded system after December 2022
(when the previous contract would expire).
5.9. In reply to the same, the Respondent-company on 20.09.2022
stated that a pilot deployment of 250 devices was scheduled in
Bilaspur District and also sought clarity on certain technical
aspects of the LoI.
In the months that followed, correspondence between the
5.10.
Department and the Respondent-company continued with the
former reiterating its request for the submission of a complete
cost break-up of the devices on 28.09.2022 and 22.12.2022.
5.11. It merits noticing that during this period, the earlier 2017
contract remained in force, and the Respondent-company
continued to receive rental payments for those machines from
the Department.
Page 6 of 40
5.12. That being the status, one of the unsuccessful bidders, Linkwell
Telesystems, on 03.01.2023 addressed a complaint to the
Department alleging that the Respondent-company had
suppressed material facts which would render it unfit for
participation in the tendering process. Specifically, they alleged
that the Respondent-company and its predecessor entity had
been blacklisted in the States of Andhra Pradesh and Madhya
Pradesh for allegedly causing losses to the public exchequer due
to poor performance. The complaint was received and placed
before higher authorities for consideration. No formal inquiry or
order was passed at that stage.
interregnum
5.13. In the , due to mounting delay, the Department on
18.04.2023 asked the Respondent-company for an action plan
within a week for the installation of new devices, and directed
that the implementation be completed expeditiously in
accordance with the directions from the Government of India.
5.14. The Respondent-company, by letter dated 25.04.2023, submitted
a deployment schedule. It informed the Department on
12.05.2023 that the integration of weighing scales with ePoS
devices had been successfully tested and demonstrated. On
23.05.2023, the Respondent-company reiterated that its entire
stock of devices and accessories had been manufactured and
Page 7 of 40
kept ready for dispatch, and that continuing delay on the part of
the Department was causing it additional financial burden.
5.15. It is in this factual backdrop that on 06.06.2023, the
Department sent the Respondent-company a letter cancelling the
LoI with immediate effect, stating that a fresh tender would be
invited. The operative part thereof stated as follows:
“ …it is informed that the Government of HP has taken
a decision to invite a new/fresh tender. Therefore, the
‘Letter of Intent (LoI)’ issued to your company vide this
office letter no. eGS-FCS&CA-9984 dated 2nd
September, 2022 is hereby cancelled with immediate
effect.
A new tender/bid in this regard will be published
afresh shortly. ”
5.16. Notably, the Cancellation Letter precluded any reasons for
issuance of the same. However, the Departmental record
indicates that the cancellation was followed by internal noting
dated 12.05.2023 wherein the Chief Minister of the State, being
the Minister-in-Charge, directed that a new tender be called
“ keeping in view of irregularities ”.
5.17. In any case, within days of issuing the Cancellation Letter to the
Respondent-company, an Expression of Interest was published
afresh, inviting new bids.
5.18. Being aggrieved by the Cancellation Letter, the Respondent-
company submitted a representation to the Department on
Page 8 of 40
16.06.2023 seeking withdrawal of the same, which was not
accepted. It thus approached the High Court on 21.06.2023,
challenging the Cancellation Letter and seeking directions to the
Appellant-State to implement the LoI.
The High Court issued notice on 27.06.2023 and permitted the
5.19.
Appellant-State to proceed with the fresh tendering, but directed
that no final decision be taken without its leave.
5.20. As already iterated, the High Court vide the Impugned Judgment
allowed the writ petition. It inter alia made the following
observations:
i. The Respondent-company had cleared both the technical and
financial stages of evaluation, and the LoI had subsisted for
almost eight months, during which period the Department
maintained active correspondence and issued instructions to
the company for carrying out implementation;
ii. At no point during this period did the Department indicate
that it was contemplating cancellation. The grounds now
relied upon by the Appellant-State, concerning the receipt of a
complaint about past blacklisting and the alleged non-
fulfilment of LoI obligations, do not appear in the Cancellation
Page 9 of 40
Letter dated 06.06.2023 and are contradicted by the
Department’s correspondence;
iii. The complaint from an unsuccessful bidder was received as
early as 03.01.2023, yet the Department not only refrained
from holding any inquiry but continued to direct the
Respondent-company to proceed with integration and
training. Moreover, if the authorities genuinely intended to act
on the complaint, it ought to have been done promptly, and
not after allowing the Respondent-company to expend its
resources in furtherance of the LoI;
iv. Equally, the second ground of alleged non-performance was
contradicted by letters showing that the Respondent-company
had supplied pilot batches, developed integration software,
and furnished MRP and cost details;
v. The two grounds cited by the Appellant-State were thus
mutually irreconcilable—one imputing disqualification at
inception and the other alleging breach during performance.
In this context, the State appeared “ bent upon cancelling the
Letter of Intent and cultivating reasons for it. ”;
The Cancellation Letter was accordingly held to be arbitrary,
5.21.
devoid of reasons, and in violation of the principles of natural
Page 10 of 40
justice, and consequently quashed. The Appellant-State was
directed to proceed further in the matter on the basis of the LoI
dated 02.09.2022. Considering the public interest involved in the
project, which had already been tendered four times, both sides
were expected to complete all necessary actions expeditiously, i.e.
within six weeks.
Being aggrieved, the Appellant-State has preferred the instant
5.22.
appeal, wherein we had initially condoned the delay and issued
notice on 03.03.2025. Subsequent interim orders dated
21.04.2025 and 13.05.2025 stayed the execution of the High
Court’s order pending final adjudication.
ONTENTIONS
B. C
6. Having adequately dealt with the contextual background, we now
proceed to delineate the contentions advanced by the parties
before us.
7. Mr. P. Chidambaram, learned Senior Counsel appearing on
behalf of the Appellant-State, sought to negate the High Court’s
conclusions vis-à-vis alleged arbitrariness. In support thereof, he
submitted the following:
a) The High Court erred in treating the LoI dated 02.09.2022
as a concluded contract. The LoI was, by its terms, a
Page 11 of 40
conditional communication subject to the Respondent-
company’s fulfilment of specified pre-requisites, namely: ( i )
successful compatibility testing of the proposed ePoS
devices with the National Informatics Centre ( NIC ) software
at Hyderabad; ( ii ) live demonstration of the upgraded
devices before the Directorate at Shimla; and ( ) execution
iii
of a formal agreement only after successful verification.
These conditions remained unfulfilled, and the
Respondent-company’s inaction for over thirty-four weeks
frustrated timely implementation of a project of
considerable public importance.
b) The LoI could not by itself confer any contractual right.
Under settled law, a Letter of Intent merely conveys the
Government’s intention to enter into an agreement and
creates no enforceable obligation until a Letter of
Acceptance ( ) or contract is executed. The Department,
LoA
therefore, retained complete discretion to cancel the LoI in
the absence of compliance with its pre-conditions.
Despite repeated reminders dated 19.09.2022, 28.09.2022,
c)
and 22.12.2022, the Respondent-company failed to furnish
the requisite MRP and cost break-up of the devices, did not
complete testing at NIC Hyderabad, and did not produce a
Page 12 of 40
live demonstration. This persistent default compelled the
State to cancel the LoI on 06.06.2023.
d) Subsequent communications from NIC Hyderabad in
November 2024 confirmed that the Respondent-company’s
Android-based ePoS devices were not compatible with the
NIC application and failed to meet the updated technical
specifications. Allowing the deployment of such devices
would have compromised integration with the national
Aadhaar-enabled PDS and exposed the State to avoidable
financial risk.
e) The Respondent-company also suppressed material facts. A
complaint received from another participant, Linkwell
Telesystems, disclosed that the Respondent-company’s
predecessor entity, M/s Omneagate Systems Pvt. Ltd., had
been blacklisted in Andhra Pradesh and Madhya Pradesh.
This information was not revealed in the eligibility
declaration, thereby violating Clause 5.13.1 of the tender
document. Non-disclosure of such antecedents constituted
misrepresentation sufficient to justify cancellation.
The Appellant-State’s decision was taken after due
f)
consideration by the competent authority, including the
Page 13 of 40
Chief Minister, and it reflected a conscious policy choice to
re-tender the project in the interest of transparency,
competition, and technological reliability.
g) Judicial interference in matters of public tender is
circumscribed. Courts do not sit in appeal over
administrative decisions unless they are patently arbitrary
or mala fide . The High Court, in directing the enforcement
of a provisional LoI, exceeded the limited scope of review
1
recognised in Tata Cellular v. Union of India , and
subsequent precedents.
The Respondent-company’s claim of financial loss is
h)
misconceived. Any manufacturing or preparatory
expenditure was undertaken at its own peril, before the
formal award of contract. No compensation lies for self-
assumed risks at the pre-contractual stage.
Public interest in ensuring uniformity with the national
i)
AePDS infrastructure and prudent utilisation of public
funds must prevail over a bidder’s private expectation. The
Impugned Judgment, if sustained, would fetter the
Appellant-State’s discretion in executing welfare schemes
and undermine established procurement discipline.
1 (1994) 6 SCC 651.
Page 14 of 40
8. On the other hand, the Respondent-company represented by Mr.
Sanjeev Bhushan, learned Senior Counsel, ardently urged that
the High Court recognised the true form of the LoI. Additionally,
he posited that the Respondent-company must be awarded the
tender and consequent contract—given the advanced nature of
its investment and expenditure. In this regard, he canvassed the
following submissions:
a) The cancellation of the LoI was arbitrary, unreasoned, and
violative of the principles of natural justice. The
Respondent-company had emerged as the sole qualified
bidder after four successive rounds of tendering and was
issued the LoI following approval and financial
negotiations. The Appellant-State itself thereafter directed
the Respondent-company to commence phased deployment,
thereby acknowledging that the contract had attained
finality in substance.
b) All requirements enumerated in the LoI were complied
with. The Respondent-company furnished its MRP and cost
details, participated in technical meetings with NIC,
developed integration software for electronic weighing
scales, and organised training for Fair Price Shop owners.
Correspondence from departmental officers and District
Page 15 of 40
Controllers acknowledged receipt and testing of devices,
contradicting the subsequent plea of non-performance.
c) After having repeatedly directed the Respondent-company,
through letters dated 19.09.2022, 18.04.2023, and
16.05.2023, to supply machines and carry forward
implementation, the Department cannot now be allowed to
justify the sudden cancellation of the LoI. Having itself
induced performance for eight months, the State’s abrupt
withdrawal without cause or notice was plainly arbitrary
and devoid of fairness.
d) The complaint of blacklisting relied upon by the Appellant-
State was both stale and irrelevant. The debarment
concerned a separate entity—M/s Omneagate Systems Pvt.
Ltd.—whose merger with the Respondent-company had
taken place long after the period of debarment ended. The
tender required disclosure of blacklisting “ as on the date of
bid submission ”; the affidavit filed was therefore factually
accurate. No inquiry was ever held into the complaint,
which emanated from a rival bidder whose earlier challenge
to the same tender had already been dismissed by the High
Court.
Page 16 of 40
e) The Respondent-company made substantial monetary
investments, having relied upon the veracity of the LoI,
manufacturing over five thousand ePoS devices, procuring
SIM connectivity, and establishing logistic support
infrastructure. The cancellation after such performance
inflicted serious financial prejudice and disrupted the
Appellant-State’s own modernisation programme.
The communication dated 06.06.2023, cancelling the LoI
f)
“ with immediate effect ,” was devoid of reasons and issued
without any notice or opportunity of hearing. Such a non-
speaking order issued by the Department offends Article 14
of the Constitution of India and the principles of natural
justice.
g) The two grounds subsequently pleaded by the Appellant-
State, i.e. blacklisting and non-compliance, were mutually
destructive and belied by its own record. The complaint of
03.01.2023 was allowed to remain dormant while the
Respondent-company was directed to continue work; and
the charge of non-performance is contradicted by letters
acknowledging progress. The sequence of events reveals
that the cancellation was predetermined and possibly
politically motivated.
Page 17 of 40
h) The High Court’s intervention was thus justified. It merely
ensured that governmental power was exercised fairly and
in accordance with law. The direction to proceed on the
basis of the LoI did not amount to specific performance but
only restored the legal equilibrium that existed before the
arbitrary cancellation. Whereas the Appellant’s State’s
invocation of “ public interest ” was an afterthought. The
devices designed for Himachal Pradesh were of the same
specification as those used in other States under NIC’s
supervision, and no technical deficiency was ever
communicated at the relevant time. The plea of
incompatibility surfaced only after litigation commenced.
Administrative fairness requires the Appellant-State not to
i)
act contrary to its own representations. Having consistently
treated the LoI as operative and induced reliance, the
Department was estopped from withdrawing it without
justification. Upholding such action would erode confidence
in public procurement processes.
9. In sum, the Appellant-State maintains that the LoI was a
conditional, non-binding expression of intent that could be
cancelled for non-compliance and in public interest. Whereas the
Respondent-company asserts that the LoI represented the
Page 18 of 40
culmination of a concluded process, which had been
substantially acted upon under State supervision, and that its
abrupt withdrawal was arbitrary and contrary to law.
C. I SSUES
After perusing the rival contentions, the voluminous record, the
10.
statutory framework, and the factual environment colouring
these appeals, we find that the twin issues that fall for our
consideration are the following:
i. The Nature of the Letter of Intent
Whether the Letter of Intent dated 02.09.2022 created any
binding or enforceable rights in favour of the Respondent-
company, or remained a conditional, pre-award
communication subject to fulfilment of stipulated pre-
requisites?
ii. The Legality of the Cancellation Letter
Whether the Appellant-State’s decision dated 06.06.2023,
cancelling the Letter of Intent, was arbitrary, unreasoned,
or violative of the principles of natural justice, thereby
warranting interference?
D. A NALYSIS
Page 19 of 40
1. Issue No D. . I: Whether the LoI created enforceable rights in
favour of the Respondent-company?
11. The first issue that falls for our determination concerns the legal
character of the LoI dated 02.09.2022 and the nature of rights, if
any, accrued to the Respondent-company thereunder.
12. This question goes to the root of the matter, and is not one of
mere semantics, i.e. ascertaining whether the issuance of the LoI
created a concluded contract capable of enforcement, or whether
it remained a conditional and inchoate expression of intent,
leaving the Government free to reassess its position prior to
formal acceptance. The answer defines the legal threshold for the
Appellant-State’s power to cancel and the Respondent-company’s
entitlement to protection.
13. The jurisprudence on the subject is neither nascent nor
unsettled. A catena of decisions starting from Rajasthan
Cooperative Dairy Federation Ltd. v. Maha Laxmi Mingrate
2
Marketing Service (P) Ltd. , through Dresser Rand S.A. v.
3
Bindal Agro Chem Ltd. , to Level 9 Biz Pvt. Ltd. v. HP
4
Housing & Urban Development Authority , this Court has
2 (1996) 10 SCC 405.
3 (2006) 1 SCC 751.
4 2024 SCC OnLine SC 480.
Page 20 of 40
consistently held that an LoI is, in the ordinary course, a
precursor to a contract and not the contract itself.
14. In Dresser Rand ( supra ) , it was re-stated with clarity that “ a
letter of intent merely indicates a party’s intention to enter
into a contract with the other party in future. A letter of
intent is not intended to bind either party ultimately to
enter into any contract . ” The same principle animated
( ) , where this
Rajasthan Cooperative Dairy Federation supra
Court observed that until the offer is accepted unconditionally
and the preconditions are satisfied, “ no binding legal
relationship ” comes into existence. The rationale is thus simple
but fundamental: the law of contract distinguishes between a
promise to make a promise and a promise performed. The former
is not legally binding until its contingencies are fulfilled.
15. These authorities collectively articulate a coherent doctrine: an
LoI creates no vested right until it passes the threshold of final
and unconditional acceptance. It is but a “ promise in embryo ,”
capable of maturing into a contract only upon the satisfaction of
stipulated preconditions or upon the issue of an LoA. A bidder’s
expectation that such a contract will follow may be commercially
genuine, but it is not a juridical entitlement. To hold otherwise
would be to bind the State in contract before it has consciously
Page 21 of 40
chosen to be bound—a proposition foreign to both contract law
and public administration.
16. Turning then to the LoI before us, its conditionality is beyond
doubt. As noticed heretofore in para 5.7 , it required the
Respondent-company to:
(i) undertake compatibility testing of its proposed ePoS devices
at NICSI, Hyderabad;
(ii) provide a live demonstration of the devices with NIC’s
application before the Directorate at Shimla;
(iii) execute a formal agreement only after successful completion
of the aforesaid steps; and
(iv) furnish a detailed MRP and landing cost of the devices and
their major components.
17. Each requirement was framed as a condition precedent; the LoI
itself stated that a “ final award letter ” would issue only after
the successful completion of these tasks. This language admits
of no ambiguity. The tender architecture was sequential: testing,
demonstration, acceptance, then execution. It was never
contemplated that the LoI would operate as the contract itself.
Page 22 of 40
18. The cumulative effect of the foregoing analysis is that the LoI was
no more than a provisional communication signifying the
Appellant-State’s intent to enter into a formal arrangement upon
fulfilment of certain technical and procedural conditions. The
acceptance of tender and the consequential formation of a
binding contract were contingent upon satisfaction of these
prerequisites. The Respondent-company’s reliance upon the LoI
as a source of vested contractual rights is, therefore, wholly
misplaced.
19. As a result, the First Issue is answered in the negative . We
have no difficulty in holding that the LoI did not give rise to any
binding or enforceable rights in favour of the Respondent-
company.
20. Be that as it may, even when contractual rights are absent, the
State’s administrative discretion in rescinding or cancelling an
LoI is not unfettered. It remains subject to constitutional
discipline, particularly the requirement that State action must
not be arbitrary, unreasonable, or actuated by mala fides . In this
respect, we deem it necessary to examine the Second Issue
touching upon the legality and propriety of the Cancellation
Letter.
Page 23 of 40
D.2 . Issue No. II: Whether the Cancellation Letter was arbitrary or
procedurally unjust?
21. Having held that that the LoI did not create binding rights, the
enquiry narrows to whether the decision of the State
vide
Government to cancel it, its communication dated
06.06.2023, suffered from arbitrariness, mala fides , or
procedural unfairness so grave as to warrant intervention.
The contours of judicial review in contractual matters were
22.
defined nearly three decades ago in Tata Cellular (supra) ,
where this Court held that the exercise of judicial power over
administrative action in tenders is directed not at correcting the
decision, but the decision-making process. The Court
emphasised that the State must have the “ freedom of contract ,”
and that the scope of review is confined to testing administrative
action against the touchstones of illegality, irrationality, mala
fides , and procedural impropriety.
23. This framework was refined in
Jagdish Mandal v. State of
5
Orissa , which cautioned that a Writ Court should not interfere
unless the action of the State is so arbitrary that “ no
responsible authority acting reasonably and in accordance
with relevant law could have reached it. ”
5 (2007) 14 SCC 517.
Page 24 of 40
24. Since then, it has been reaffirmed that judicial review in contract
matters operates only where the action is “ palpably
unreasonable or absolutely irrational and bereft of any
6
principle. ”
25. These principles are neither ornamental nor abstract. They arise
from the nuanced understanding that government contracting,
unlike private commerce, is an instrument of governance. The
Rule of Law demands that Executive discretion be rational and
fair, but it equally demands that Courts respect the autonomy
necessary for effective administration. Public interest requires
not judicial micro-management but judicial assurance that
power has been exercised within lawful bounds.
D.2.1. Prima facie arbitrariness & attached consequences
26. Turning then to the factual record, the Cancellation Letter at first
blush appears to be laconic; as it does not list the grounds that
weighed upon the Department while issuing the same.
27. That being said, it is equally true that this Court has
consistently held that administrative orders must be read in light
of the concomitant record, and that reasons need not be stated
6 M.P. Power Management Co. Ltd. v. Sky Power Southeast Solar India Pvt. Ltd.,
(2023) 2 SCC 703; Subodh Kumar Singh Rathour v. Chief Executive Officer, 2024
SCC OnLine SC 1682.
Page 25 of 40
in haec verba in the communication, so long as they can be
post-hoc
discerned from the file and are not justifications.
28. This Court has, however, cautioned against the practice of post-
facto rationalisation, whereby authorities attempt to supplement
or fabricate reasons after the decision has already been taken.
Such afterthoughts cannot cure an inherently arbitrary action.
The legitimacy of administrative reasoning must be tested with
reference to the material that existed at the time the decision
was made, not by subsequent embellishment. To simplify: what
is permissible is elucidation of contemporaneous reasoning
already traceable on record; what is impermissible is the
invention of fresh grounds to retrospectively justify an otherwise
unreasoned order.
29. That is to say that when such an exercise is found to be prima
facie
unreasonable, the correct course of action — which the
High Court also employed — was to proceed to test the
justifications subsequently offered by the Appellant-State in its
pleadings. However, on a holistic reading of the Impugned
Judgment before us, we find that the exercise undertaken by the
High Court was somewhat hurried and limited.
Page 26 of 40
30. We say so, as we find that the High Court treated the initial
absence of reasons as fatal, and thereafter dismissed the
explanations advanced by the Appellant-State on the basis of
select factual contradictions, without engaging with the broader
administrative context in which the decision was taken. The
resulting analysis, though earnest, remained incomplete.
31. The more appropriate course, in our considered view, would have
been to adopt a two-step approach: first , to hold the cancellation
vitiated for want of reasoning; and second , to remit the matter to
the Competent Authority to reconsider the question upon
recording cogent reasons and affording due opportunity to the
affected bidder. Such a calibrated remedy would have preserved
both the evolving constitutional discipline of fair procedure and
the administrative necessity of efficiency in public procurement.
However, the substantial passage of time now renders remand
32.
impracticable. Nearly two years have elapsed since the impugned
cancellation, and over four years have passed since the
Expression of Interest was initially invited by the Department.
What is even more disconcerting is the admitted fact that the
tender pertains to the deployment of ePoS devices integral to the
functioning of the PDS—an exercise that directly touches the
lives of economically weaker citizens. To prolong uncertainty
Page 27 of 40
through further procedural cycles would defeat the very public
purpose underlying the tender.
33. Consequently, in these peculiar circumstances, it is both
necessary and appropriate for us to evaluate whether the
Appellant-State’s reasons tendered before the High Court and
this Court withstand judicial enquiry.
34. The enquiry that follows is therefore confined not to the
procedural lapse of the unreasoned cancellation, but to the
substantive validity of the justifications subsequently advanced
by the Appellant-State.
D.2.2. Appellant-State’s proffered reasons for the Cancellation
Letter
35. A thorough examination of the record reveals two broad strands
of contemporaneous reasoning adopted by the Appellant-State:
( ) receipt of complaints from competing bidders alleging
i
suppression of prior blacklisting and concerns regarding vendor
integrity; ( ii ) persistent non-compliance with the LoI’s
preconditions for over eight months, despite reminders. We shall
now test each of these rationales on the anvil of the
jurisprudence laid out above.
Page 28 of 40
D.2.2.1. Black-listing complaint by Linkwell Telesystems
36. The first ground relied upon by the Appellant-State to justify the
withdrawal of the LoI rests on a complaint dated 03.01.2023,
addressed by Linkwell Telesystems, an unsuccessful bidder,
alleging that the Respondent-company had previously operated
under the name M/s Omne Agate Systems Pvt. Ltd. and had been
blacklisted by certain State undertakings. This complaint was
subsequently placed before the Chief Minister, who ultimately
directed that a fresh tender be invited.
At the outset, this ground cannot sustain closer inspection. The
37.
record reveals that an identical contention raised by Linkwell
Telesystems had already been considered and repelled by the
High Court in CWP No. 5562 of 2022, decided on 12.12.2022. It
is incontrovertible that the Appellant-State did not assail that
judgment, which therefore attained finality. Having defended its
tender process at that stage, the Appellant-State cannot take an
inconsistent position before this Court and rely upon the very
complaint that it had earlier contested.
38. The State, as a continuing juristic entity, is bound by its own
representations in prior proceedings; its legal stance cannot
oscillate with changes in political leadership.
Page 29 of 40
39. Further, even on substance, the complaint does not withstand
scrutiny when tested against the tender conditions themselves.
Clause 5.13.1 required each bidder to declare that it was not
blacklisted as on the date of bid submission. The Respondent-
company’s affidavit satisfied this stipulation, since the alleged
blacklisting incidents, even if assumed to have occurred, related
to an earlier period and had ceased to operate by the time the
bid was submitted. In other words, the clause demanded a
disclosure of subsisting disqualifications, not of past and
exhausted ones.
40. Seen in this light, the tender condition could not be read as
creating a perpetual bar for a bidder once blacklisted. To
construe it in this manner would extend the disqualification
beyond its textual and purposive limits. The Appellant-State’s
reliance on such a superseded event was therefore both factually
misplaced and legally untenable.
41.
We thus find no merit in this ground. The blacklisting complaint,
by itself, could not constitute a valid basis for rescinding the LoI,
and its invocation betrays a want of administrative consistency
and adherence to due process.
D.2.2.2. Non-compliance with LoI preconditions
Page 30 of 40
42. The second justification advanced by the Appellant-State is that
the Respondent-company failed to comply with the pre-requisites
stipulated in the LoI and exhibited inadequate performance
during the months that followed. This contention requires closer
examination, as it pertains to the Respondent-company’s actual
conduct and capacity in fulfilling the stipulated conditions.
43. As mentioned previously, the LoI explicitly required the
Respondent-company to fulfil at least four conditions including:
testing and compatibility assessment of its proposed ePoS
devices with NIC software; live demonstration(s) at the
Directorate; codal formalities, including disclosure of itemised
cost details etc. It is abundantly clear that these were not
perfunctory steps; they were preconditions designed to ensure
technical integrity and fiscal transparency before the award of a
public contract.
44. The factual record confirms that these preconditions remained
unfulfilled. The Department repeatedly called upon the
Respondent-company to furnish its depreciation policy and cost
details, as evidenced by letters dated 28.09.2022 and
22.12.2022. However, no itemised cost breakup, as mandated by
Clause 4.9(m) of the RFP, was provided. The compatibility testing
at NIC Hyderabad was not shown to have been completed, nor
Page 31 of 40
was the live demonstration certified. Despite these omissions,
the Respondent-company purportedly proceeded to manufacture
and stock more than five thousand devices, activate SIM cards,
and commence preparatory training.
45. These actions, though industrious, were undertaken unilaterally
and before the conditions of the LoI were satisfied. In our
considered view, such actions exemplify commercial impatience
rather than contractual compliance—an instance of putting the
cart before the horse. Of course, there is no gainsaying that
performance in anticipation cannot metamorphose into a legal
right where the parties themselves have prescribed a structured
order of steps.
46. It is equally important to note that the Department’s conduct
remained consistent with this understanding. Its letters were
replete with reminders and verifications; no LoA was issued; no
agreement was executed; and nor were payments released. The
Government’s record therefore never departed from its position
that the LoI was conditional.
47. In arriving at its contrary view, the High Court appears to have
proceeded on an erroneous conflation of ‘taking steps’ with
‘taking the right steps’. The Respondent-company’s diligence in
Page 32 of 40
producing hardware or training personnel was taken as evidence
of compliance, though these were not the steps demanded by the
LoI. Compliance in law must be with the document that governs
the relationship, not with the bidder’s self-chosen course of
conduct. To equate unilateral readiness with contractual
fulfilment is to disregard the essential discipline of tender law,
which binds both sides to the terms they themselves framed.
48. The High Court also overlooked a second infirmity in the
Respondent-company’s case. Having accepted the LoI and acted
upon it, the Respondent cannot now disclaim the very conditions
that the LoI imposed. It cannot approbate and reprobate—
seeking to hold the Appellant-State to the document’s benefits
while denying its burdens. In simpler terms, where a bidder has
agreed that testing, demonstration, and cost disclosure are
preconditions to finalisation, it cannot later assert that the LoI
was already complete, notwithstanding the absence of those
acts.
D.2.3. Whether the Cancellation Letter suffers from
arbitrariness?
49. Having found some weight in one of the twin grounds relied
upon by the Appellant-State, we must now examine the charge of
arbitrariness against its actions.
Page 33 of 40
50. The test for arbitrariness under Article 14 is whether the
decision is uninformed by reason or guided by irrelevant
considerations. When examined through that lens, the
Appellant-State’s action withstands scrutiny. We say so, being
mindful of the reality that the Department’s correspondence
shows repeated efforts to secure compliance, followed by
mounting concern about the feasibility of deploying devices that
had not been certified for compatibility with NIC’s national
software. These concerns were germane; they were neither
whimsical nor pretextual.
51. It is also apposite to note that the Respondent-company’s
grievance regarding the Department’s inconsistent conduct—that
it continued to correspond even as it contemplated cancellation—
does not advance its case. Administrative deliberation does not
amount to duplicity. It is entirely natural that a department
exploring compliance would keep lines of communication open
while simultaneously assessing whether continuation was
tenable. The law does not demand that the State speak only after
it has made up its mind; it demands only that its final decision
be traceable to reason, not to whim. The record before us meets
that threshold.
Page 34 of 40
52. Further, we cannot hold that the decision to cancel was actuated
by any improper motive. There is no allegation, nor any evidence,
of favouritism or collateral purpose. The cancellation led only to
a fresh tender, open to all, rather than an award to another
bidder behind closed doors. Where the effect of administrative
action is to enhance openness and restore competition, Courts
mala fides
are doubly cautious before imputing .
53. The Respondent-company’s plea that the Appellant-State was
bound, having allowed the process to run for eight months, is
equally misconceived. Lapse of time does not convert a
provisional arrangement into a vested right. The expectation that
the Government will ultimately formalise an LoI may be
legitimate in the commercial sense, but it is not enforceable in
law unless the conditions for formal acceptance are met. The
constitutional guarantee against arbitrariness is not a charter of
commercial expectations; it is a safeguard against irrationality,
and none is established in this record.
54. This Court has consistently recognised that the State’s decision
to cancel a tender or restart the process is itself an aspect of
7
public interest. The present decision to re-tender—prompted by
7 Tata Cellular v. Union of India, (1994) 6 SCC 651; M.P. Power Management Co.
Ltd. v. Sky Power Southeast Solar India Pvt. Ltd., (2023) 2 SCC 703.
Page 35 of 40
non-compliance and the desire to ensure NIC compatibility—falls
squarely within that zone of permissible discretion.
55. In this vein, the principle of legitimate expectation also does not
come to the aid of the Respondent-company. That doctrine
presupposes a clear and unambiguous representation by the
State, followed by reliance and detriment. The conditional terms
of the LoI negate the existence of any clear assurance; rather,
they expressly warned that the process was still provisional. To
invoke legitimate expectation against an explicit disclaimer would
be to transform the doctrine from a shield against arbitrariness
into a sword against caution — a proposition no Court can
endorse.
56. Accordingly, we find that the Second Issue must also be
answered in the negative . The cancellation of the LoI dated
02.09.2022 does not suffer from arbitrariness, mala fides , or
breach of natural justice, and the High Court’s interference
therewith cannot be sustained. The Department had tangible
grounds for dissatisfaction; it followed a discernible process; and
it acted within the contractual liberty reserved to it. The reasons
for cancellation were antecedent, bona fide , and germane to the
public purpose of ensuring a reliable, uniform, and lawfully
procured ePoS infrastructure.
Page 36 of 40
D. E PILOGUE
57. Before we part with the instant appeal, it bears reminding that
the tender in question was not a commercial exercise in isolation
but an instrument of social welfare, intended to secure efficient
and transparent delivery of subsidised foodgrains to the most
vulnerable citizens. The Public Distribution System remains, for
millions, the thin line between sustenance and deprivation.
When projects of such public importance are delayed or derailed
by procedural lapses, the ultimate cost is borne not by the
contracting parties but by those at the last mile of governance.
58. It is therefore incumbent upon every stakeholder—the
Government, its technical partners, and private participants—to
treat such undertakings with the seriousness their human
impact demands. Administrative caution and technological
innovation must work hand in hand to ensure that reform does
not lose sight of its moral anchor: service to the poorest. Future
exercises in public procurement, particularly those that
underpin welfare delivery, must thus be executed with greater
institutional coherence, foresight, and accountability—so that
legality, efficiency, and compassion operate in concert, and the
constitutional promise of equitable distribution finds tangible
expression.
Page 37 of 40
E. C ONCLUSION AND D IRECTIONS
59. In light of the foregoing discussion, we find that the LoI dated
02.09.2022 did not culminate into a concluded contract and that
its cancellation on 06.06.2023 was a lawful exercise of
administrative discretion. Consequently, the Impugned
Judgment of the High Court, directing continuation of the LoI, is
unsustainable in law as well as on facts. We, thus, deem it
appropriate to issue the following directions:
i. The appeal is allowed. The Impugned Judgment and order
passed by the High Court in CWP No. 4081 of 2023 is set
aside. The decision of the Appellant-State cancelling the
Letter of Intent dated 02.09.2022 stands upheld. However,
the Expression of Interest issued immediately after
cancelling the LoI in favour of Respondent-company is set
aside;
ii. The Appellant-State shall be at liberty to issue a fresh
tender for supply, installation and maintenance of ePoS
devices for Fair Price Shops across the State forthwith, in
accordance with law and the applicable financial and
procurement rules, apart from the requisite technical
specifications. The Respondent-company shall be free to
Page 38 of 40
participate in such tender process, subject to uniform
eligibility and compliance with the prescribed conditions;
iii. The Appellant-State is further directed to hold a Fact-
Finding Enquiry in association with the Respondent-
company and ascertain the details of the ePoS machines,
components, or allied services produced or supplied under
the cancelled LoI and their utilisation or taking over by the
Department during the pilot or demonstration stages.
Thereafter, the Appellant-State shall assess the value and
costs of installation of such machines, components or
services and reimburse such verified cost and expenses on
the principle of quantum meruit , to make good the losses
suffered by the Respondent-company. This entire exercise is
directed to be complied with in a period of three months;
iv. All machinery, devices, technology, or software
infrastructure handed over, integrated, or otherwise used
during such pilot or demonstration stages pursuant to the
LoI upon shall vest in the Appellant-State free of
encumbrances, subject to payment of cost and installation
expenditure to the Respondent-company, and/or
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subject to any reimbursement payable as above. The State
may retain and deploy such assets for public use or dispose
of them in accordance with the applicable policy; and
v. It is clarified that no further claim for loss of profit,
expectation, or consequential damages shall survive. The
relief granted herein is confined to equitable
reimbursement for tangible assets or work actually
appropriated by the Appellant-State.
60. The instant appeal stands allowed in the above terms.
61. Consequently, pending interlocutory applications, if any, are also
disposed of.
62. Ordered accordingly.
……………………...CJI.
(SURYA KANT)
……………………......J.
(UJJAL BHUYAN)
……………………………….……………….J.
(NONGMEIKAPAM KOTISWAR SINGH)
NEW DELHI
DATED: 24.11.2025
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