Supreme Court Upholds State’s Cancellation Of Conditional LoI For ePoS Tender, Directs Fresh Tender And Limited Reimbursement

A bench of Chief Justice Surya Kant and Justices Ujjal Bhuyan and Nongmeikapam Kotiswar Singh heard the appeal by the State of Himachal Pradesh challenging a Division Bench of the Himachal Pradesh High Court which had set aside the Department’s cancellation of a Letter of Intent (LoI) issued to M/s OASYS Cybernatics Pvt. Ltd. for supply, installation and maintenance of upgraded electronic Point-of-Sale (ePoS) devices for Fair Price Shops.

The Court held that the LoI dated 02.09.2022 did not create a concluded contract and that the State lawfully exercised its administrative discretion in cancelling the LoI on 06.06.2023. The Court noted established precedents that a LoI is ordinarily a precursor to a contract and “no binding legal relationship” arises until preconditions and formal acceptance are satisfied. The Court, in its reasoning, observed: "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." The Supreme Court found that the State’s concerns about non-compliance with technical preconditions and compatibility with the NIC software were bona fide and germane to public interest, and concluded that the High Court’s interference was unsustainable. The appeal was allowed; the High Court judgment was set aside; the State was permitted to invite a fresh tender, and limited equitable relief for verified expenditure was directed to be paid to the respondent on quantum meruit.

Background

The dispute arose from the Himachal Pradesh Department of Food, Civil Supplies and Consumer Affairs’ long-running process to upgrade its AePDS ePoS infrastructure. After prior rental arrangements dating to 2017, the Department floated multiple tenders in 2021–22. Four tendering rounds produced repeated cancellations; in the third and fourth rounds the respondent alone qualified technically. Following negotiations, the Department issued an LoI on 02.09.2022 proposing a five-year rental arrangement at Rs.1,050 per FPS per month “subject to fulfilment of pre-requisites and compatibility of proposed devices with the NIC software.” The LoI expressly required compatibility testing at NICSI Hyderabad, a live demonstration before the Directorate at Shimla, execution of a formal agreement after successful verification, and disclosure of MRP/landing cost as conditions precedent.

Correspondence between the parties continued and the respondent mobilised production and pilot deployments. An unsuccessful bidder lodged a complaint alleging past blacklisting of a predecessor entity. On 06.06.2023 the Department sent a terse Cancellation Letter rescinding the LoI and announcing a fresh tender; the letter did not state reasons. The respondent challenged the cancellation in the High Court, which set aside the Cancellation Letter as arbitrary and in violation of natural justice, observing inter alia that the State appeared “bent upon cancelling the Letter of Intent and cultivating reasons for it.” The High Court directed restoration of contractual obligations and ordered expeditious completion of formalities.

On appeal the State contended that the LoI was conditional and non-binding, that the respondent had not completed the prescribed preconditions within a protracted period, and that post-tender communications did not convert the LoI into a contract; it also relied on subsequent technical inputs about incompatibility. The respondent argued that the Department had induced performance, that it had substantially complied and suffered losses, and that cancellation without reasons was arbitrary.

Supreme Court analysis surveyed a line of precedents including Dresser Rand and Tata Cellular, held that the LoI was conditional and did not create enforceable rights, and proceeded to test the substantive validity of the State’s post-hoc reasons. The Court rejected the blacklisting ground as untenable on the record and the tender terms, but found that the respondent had not completed the LoI’s specified preconditions (compatibility testing at NIC, certified live demo, itemised cost disclosure). On the touchstone of Article 14 and established administrative law, the Court concluded the cancellation was not arbitrary or mala fide and that judicial interference was inappropriate. Given the public importance and delay, the Court declined remand and issued directions: the State could re-tender; the respondent could participate; a fact-finding enquiry must verify material handed over and reimburse verified costs on quantum meruit within three months; assets used in pilots would vest in the State on payment; no claim for loss of profit or consequential damages would survive.

Case Details: Case No.: Civil Appeal No. _________/2025 (Arising out of SLP (C) No. 6531/2025); 2025 INSC 1355 Case Title: State of Himachal Pradesh & Anr. v. M/s OASYS Cybernatics Pvt. Ltd. Appearances: For the Petitioner(s): Mr. P. Chidambaram, Senior Counsel (for State of Himachal Pradesh) For the Respondent(s): Mr. Sanjeev Bhushan, Senior Counsel (for M/s OASYS Cybernatics Pvt. Ltd.)