Case Note & Summary
The dispute arose from a tender issued by the State of Himachal Pradesh for the supply, installation, and maintenance of electronic Point-of-Sale (ePOS) devices for Fair Price Shops under the Public Distribution System. The Respondent, M/s OASYS Cybernatics Pvt. Ltd., was issued a Letter of Intent (LoI) on 15.12.2021. However, before the contract was formalized, the State cancelled the LoI on 18.02.2022, citing concerns over the respondent's technical compliance (failure to provide a demo of IRIS scanning) and financial capacity (adverse CIBIL report). The respondent challenged the cancellation before the High Court of Himachal Pradesh, which set aside the cancellation and directed restoration of the LoI. The State appealed to the Supreme Court. The Supreme Court allowed the appeal, holding that the cancellation was not arbitrary and was based on legitimate public interest considerations. The Court emphasized that a LoI does not create a concluded contract and that the State has the right to cancel it for valid reasons. The High Court's interference was held to be beyond the scope of judicial review in tender matters. The Supreme Court restored the cancellation and dismissed the respondent's writ petition.
Headnote
A) Constitutional Law - Article 14 - Non-Arbitrariness in State Action - Tender Cancellation - The State's decision to cancel a Letter of Intent must be tested on the anvil of Article 14, but the court's interference is limited to cases of manifest arbitrariness or mala fides. - Constitution of India, 1950, Article 14 - The Supreme Court held that the cancellation of the LoI was based on legitimate concerns regarding the respondent's technical compliance and financial capacity, and was not arbitrary. The High Court erred in substituting its own view for that of the expert tender committee. (Paras 20-35) B) Contract Law - Letter of Intent - Legal Effect - A Letter of Intent does not create a concluded contract unless it is expressly stated to be an acceptance of the offer. - Indian Contract Act, 1872, Sections 2(b), 4, 7 - The Court observed that the LoI in this case was conditional and did not amount to a binding contract, and the State retained the right to cancel it for valid reasons. (Paras 15-18) C) Administrative Law - Judicial Review - Tender Matters - Scope of Interference - Courts should not sit in appeal over tender decisions unless the decision is arbitrary, irrational, or mala fide. - Constitution of India, 1950, Article 226 - The Supreme Court held that the High Court exceeded its jurisdiction by re-evaluating the technical merits of the bid and directing restoration of the LoI, as the State's decision was within the realm of policy and public interest. (Paras 30-40)
Issue of Consideration
Whether the cancellation of a Letter of Intent (LoI) by the State was arbitrary and liable to be set aside, and whether the High Court erred in interfering with the State's decision in a tender matter.
Final Decision
The Supreme Court allowed the appeal, set aside the High Court judgment, and restored the cancellation of the Letter of Intent. The respondent's writ petition was dismissed.
Law Points
- Public interest in government contracts
- judicial review of tender cancellation
- non-arbitrariness in state action
- scope of interference under Article 226
- distinction between LoI and contract
