Letter Of Intent (LoI) A Promise In Embryo; No Vested Right Until Preconditions Met : Supreme Court
Safiya Malik
The Supreme Court of India 3-judge Bench of Chief Justice Justice Surya Kant, Justice Ujjal Bhuyan and Justice Nongmeikapam Kotiswar Singh decided that a Letter of Intent does not confer enforceable rights until all conditions precedent are satisfied. The dispute concerned a private company seeking enforcement of an LoI for monthly-rental supply and integration of upgraded ePoS devices for the State’s Public Distribution System. The Court upheld the State’s decision to cancel the LoI but set aside the fresh Expression of Interest that followed. It directed the State to hold a fact-finding enquiry and reimburse verified costs for assets or work actually appropriated, on quantum meruit, within three months. The company may participate in a new tender.
The dispute arose from the State’s plan to modernize its Public Distribution System by replacing rented ePoS devices. The Food Department first engaged a private supplier in 2017 under a rental model that continued until its expiry. In 2021–22, the government initiated an upgrade to ePoS devices with biometric and IRIS scanning and integration with weighing scales under an Aadhaar-enabled ePDS framework.
An Expression of Interest was invited on 23.04.2021. A first tender was floated on 20.12.2021 and opened on 21.01.2022, but no bidder qualified technically, leading to cancellation. A second tender published on 28.01.2022 saw five companies participate, but documentation and specification requirements were not met, and it was cancelled on 22.02.2022.
The third tender on 23.02.2022 again had the same participants including the supplier and another bidder, but only the supplier met technical criteria. The process was scrapped on 24.03.2022 to avoid a single-vendor situation.
A fourth tender on 25.03.2022 saw four bidders; the supplier was again the sole technical qualifier. Government approval was obtained to open its financial bid, and a rental rate of ₹1,050 per device per month was finalized.
A conditional Letter of Intent was issued on 02.09.2022 requiring compatibility testing at NIC Hyderabad, a live demonstration before the Directorate at Shimla, execution of a formal agreement post-verification, and submission of MRP/landing costs.
The supplier acknowledged the LoI on 07.09.2022 and later claimed pilot deployment plans for 250 devices and completion of weighing scale integration tests. The Department continued to issue reminders seeking cost breakups.
An unsuccessful bidder later alleged that the supplier’s predecessor, Omneagate Systems, had been blacklisted earlier in Andhra Pradesh and Madhya Pradesh, constituting misrepresentation under LoI eligibility declarations. The tender clause invoked required disclosure of active blacklist status as of bid submission under the eligibility declaration corresponding to Article 14 constitutional fairness principles.
The Court recorded, “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.”, referencing the principle from Dresser Rand S.A. v. Bindal Agro Chem Ltd..
It observed, “an LoI creates no vested right until it passes the threshold of final and unconditional acceptance.” The judgment further recorded, “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.”
On conditionality, the Bench stated, “the LoI itself was not unconditional.” It noted, “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.” The Court also clarified, “performance in anticipation cannot metamorphose into a legal right where the parties themselves have prescribed a structured order of steps.”
On the State’s discretion, the Court recorded, “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.”, referencing the procurement principle from Tata Cellular v. Union of India, further stating that, “The present decision to re-tender—prompted by non-compliance and the desire to ensure NIC compatibility—falls squarely within that zone of permissible discretion.”
While examining allegations of concealment, the Bench noted that the blacklist complaint related to past and exhausted debarments, observing that such reliance “extend[s] the disqualification beyond its textual and purposive limits.” It recorded that the eligibility declaration clause required disclosure of subsisting blacklist status on the date of bid submission, and that the affidavit filed by the supplier was accurate in that regard.
On motive, the Court stated, “we cannot hold that the decision to cancel was actuated by any improper motive.” It added, “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.”
The Court stated, “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.”
"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.”
“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 participate in such tender process, subject to uniform eligibility and compliance with the prescribed conditions.”
“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.”
“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 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”
“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."
Advocates Representing the Parties:
For the Petitioners: Mr. P. Chidambaram, Sr. Adv. Mr. Arman Roop Sharma, Adv. Mrs. Shimpy Sharma, Adv. Mr. Mohd. Aman Khan Afghani, Adv. M/s Ram Sankar & Co, AOR Mr. Ram Sankar, Adv.
For the Respondents: Mr. Sanjeev Bhushan, Sr. Adv. Mr. Subhash Chandran K.r, AOR Mr. C. D. Negi, Adv. Ms. Krishna L R, Adv. Mr. Anirudh Kp, Adv. Mr. Bineesh K, Adv. M/s Krs Associates, Adv.
Case Title: State of Himachal Pradesh & Anr. versus M/s OASYS Cybernatics Pvt. Ltd.
Neutral Citation: 2025 INSC 1355
Case Number: Civil Appeal No. _________/2025 (Arising out of SLP (C) No. 6531/2025)
Bench: Chief Justice Surya Kant, Justice Ujjal Bhuyan, Justice Nongmeikapam Kotiswar Singh
