HPCL ordered to pay ₹15.78 lakh to dealership applicant after cancelling location advertised in error following his investment under a Letter of Intent

Hindustan Petroleum Corporation Ltd. advertised a retail outlet dealership location between Mahavir Mandir and Bhadaura Stand on SH-99, Ghazipur. The petitioner was selected in the draw of lots and received a Letter of Intent (LOI) on 2 August 2019, which required him to develop the site and construct retaining and compound walls; the dealership agreement was conditional on compliance.

The respondents later cancelled the location, explaining that the road had been notified as National Highway No. 124-C before the advertisement and that the advertisement was therefore defective.

The petitioner challenged the cancellation and sought compensation for the expenditure incurred in developing the site. He claimed expenses of Rs. 15,78,486, supported by a breakdown and photographs; the respondents did not specifically deny the investment.

1. Whether the respondents could cancel the advertised dealership location after issuing the petitioner an LOI.

2. Whether the petitioner was entitled to compensation for expenditure incurred in complying with the LOI where cancellation was not attributable to any breach or fault on his part.

The advertisement’s general condition reserved the Corporation’s right to cancel or withdraw it at its discretion.

An LOI ordinarily does not itself create a concluded contract; it may be a precursor to an agreement, subject to fulfilment of stated conditions, as reflected in MSEDCL v. R.Z. Malpani, Rajasthan Co-operative Dairy Federation Ltd. v. Shri Maha Laxmi Mingrate Marketing Service (P) Ltd., Dresser Rand S.A. v. Bindal Agro Chem Ltd., and Level 9 Biz Pvt. Ltd. v. HIMUDA.

Legitimate expectation may arise from a clear representation on which a person relies to their detriment, but it does not by itself guarantee relief; judicial intervention depends on the circumstances, including arbitrariness and public interest, as explained in Sethi Auto Service Station v. DDA.

The Court also relied on Chairman, Railway Board v. Chandrima Das for the availability of public-law compensation under Article 226, and State of Rajasthan v. Vidyawati on governmental liability for loss caused by public officials.

The Court accepted that the Corporation could withdraw the advertisement under its reserved power and that cancellation was rational once it emerged that the location had been notified as a national highway before the advertisement.

However, the petitioner had acted on the LOI’s representation by making investments to meet its conditions, and the LOI contemplated withdrawal for non-compliance—not cancellation due to an error attributable to the authorities.

Because the cancellation was not caused by the petitioner’s breach, and the claimed expenditure was not specifically denied, the Court held that fairness required compensation rather than leaving him to bear the resulting loss.

It allowed the writ petition and directed the respondents to pay Rs. 15,78,486 within one month of production of a certified copy of the order; failing payment within that period, the amount would carry simple interest at 8% per annum until payment.