2025 INSC 1355 REPORTABLE

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

supply, installation, and maintenance of electronic Point-of-Sale

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(ePOS) devices for use in the Appellant-State’s Fair Price Shops,

has been set aside with consequential restoration of contractual

obligations.

A.FACTS

4.Prior to proceeding with charting out the competing submissions

and the questions of law that arise for determination, it is

necessary to first demarcate the relevant facts in some detail, as

they form the quintessential setting against which the present

controversy must be considered.

5.The dispute essentially emanates from the endeavour of the

Appellant-State to modernise the functioning of its Public

Distribution System (PDS). To that end, in 2017, the Appellant-

State’s Department of Food, Civil Supplies and Consumer Affairs

(the Department)—which is the second Appellant before us—

had engaged the Respondent-company for the supply and

maintenance of ePoS devices at Fair Price Shops across the

State. The said arrangement, being a rental model, continued in

operation for several years and formed the technological base for

the State’s PDS till its expiry.

5.1.In the financial year 2021-22, the State Government resolved to

upgrade this ostensibly obsolete system by introducing enhanced

ePoS devices equipped with biometric and IRIS-scanning

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facilities, making them inter alia capable of integration with

electronic weighing scales. The reform was intended to allow an

Aadhaar-enabled Public Distribution System (AePDS) to ensure

transparency and better service to the beneficiaries. Pursuant

thereto, the Department on 23.04.2021 invited an Expression of

Interest from eligible manufacturers and system integrators to

supply and maintain such upgraded devices. Several agencies

participated in that process, one of which was the Respondent-

company itself.

5.2.The Department thereafter initiated a series of tendering

exercises throughout 2021 and 2022. Although the first tender

was floated on 20.12.2021 and bids were opened on 21.01.2022,

none of the bidders, including the Respondent-company, were

deemed technically qualified. As a result, the process was

cancelled.

5.3.A second tender was published on 28.01.2022, wherein five

companies participated, but a technical evaluation again

revealed deficiencies in documentation and non-conformity with

the requisite specifications. This tender, too, was cancelled on

22.02.2022.

5.4.The process for the third tender commenced on 23.02.2022.

Once again, the same set of five companies, including the

Respondent-company and one M/s Linkwell Telesystems Pvt. Ltd.

(brand name Visiontek) (Linkwell Telesystems), participated in

the process. Upon evaluation, only the Respondent-company was

found to have satisfied the technical criteria. The Department

nonetheless elected to scrap the process yet again in order to

afford equal opportunity to all bidders and to avoid a single-

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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

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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

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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.

5.10.In the months that followed, correspondence between the

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.

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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.

5.13.In the interregnum, 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

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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

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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.

5.19.The High Court issued notice on 27.06.2023 and permitted the

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

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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.”;

5.21.The Cancellation Letter was accordingly held to be arbitrary,

devoid of reasons, and in violation of the principles of natural

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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.

5.22.Being aggrieved, the Appellant-State has preferred the instant

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.

B.CONTENTIONS

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

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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 (iii) execution

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 (LoA) or contract is executed. The Department,

therefore, retained complete discretion to cancel the LoI in

the absence of compliance with its pre-conditions.

c)Despite repeated reminders dated 19.09.2022, 28.09.2022,

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

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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.

f)The Appellant-State’s decision was taken after due

consideration by the competent authority, including the

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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

recognised in Tata Cellular v. Union of India ,

1

and

subsequent precedents.

h)The Respondent-company’s claim of financial loss is

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.

i)Public interest in ensuring uniformity with the national

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.

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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

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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.

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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.

f)The communication dated 06.06.2023, cancelling the LoI

“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.

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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.

i)Administrative fairness requires the Appellant-State not to

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

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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.ISSUES

10.After perusing the rival contentions, the voluminous record, the

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.ANALYSIS

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D. 1. Issue No . 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

Marketing Service (P) Ltd.,

2

through Dresser Rand S.A. v.

Bindal Agro Chem Ltd. ,

3

to Level 9 Biz Pvt. Ltd. v. HP

Housing & Urban Development Authority ,

4

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

Rajasthan Cooperative Dairy Federation (supra), where this

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

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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.

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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

Government to cancel it, vide its communication dated

06.06.2023, suffered from arbitrariness, mala fides, or

procedural unfairness so grave as to warrant intervention.

22.The contours of judicial review in contractual matters were

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

Orissa,

5

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

principle.”

6

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

discerned from the file and are not post-hoc 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.

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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.

32.However, the substantial passage of time now renders remand

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

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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:

(i) receipt of complaints from competing bidders alleging

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.

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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.

37.At the outset, this ground cannot sustain closer inspection. The

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.

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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

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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

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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

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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.

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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.

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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

are doubly cautious before imputing mala fides.

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

public interest.

7

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.

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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.

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D. EPILOGUE

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.

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E.CONCLUSION AND DIRECTIONS

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

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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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