Supreme Court ruling that a Letter of Intent is only a provisional promise and creates no vested rights unless all mandatory tender and contractual conditions are fulfilled.
Case in NewsLetter of Intent Creates No Vested Contractual Rights reaffirmed by the Supreme Court. |
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Case Overview
Case Name: State of Himachal Pradesh & Anr. vs. M/s OASYS Cybernetics Pvt. Ltd.
A three-judge bench of the Supreme Court comprising Chief Justice Surya Kant, Justice Ujjal Bhuyan and Justice N Kotiswar Singh examined whether a Letter of Intent (LoI) grants any enforceable rights before fulfilling its preconditions . The dispute arose after the Himachal Pradesh government cancelled an LoI issued for supplying ePoS devices under the PDS . The High Court restored the LoI, terming the cancellation arbitrary, prompting the State to appeal .
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Key Aspects
Before considering the factual issues, the Court reiterated that an LoI is only a preliminary expression of intention, not a binding commitment . Courts must scrutinise whether preconditions were satisfied before any contractual rights can crystallise .
- Whether an LoI creates vested rights without final acceptance or fulfilment of conditions .
- Whether cancellation was arbitrary despite the company’s investment during preparation .
- Whether technical preconditions—NIC software compatibility, testing, demonstrations—were satisfactorily met .
- Whether legitimate expectation applies where the LoI expressly states its provisional nature .
Legal Insights
The Court relied heavily on established contractual principles under public procurement law . It reiterated that rights flow only from a concluded contract, not an LoI .
- Contract Act, 1872 – a contract requires lawful acceptance and fulfilment of conditions .
- Public Procurement Rules – State retains discretion to cancel tenders in public interest .
- Dresser Rand S.A. v. Bindal Agro Chem Ltd., (2006) 1 SCC 751 – LoI is merely an intention .
- Tata Cellular v. Union of India (1994) 6 SCC 651 – judicial restraint in tender matters; wide administrative discretion .
- Doctrine of Legitimate Expectation – inapplicable where terms clearly indicate provisionality .
Court’s Verdict
The Supreme Court set aside the High Court’s decision and upheld the State’s cancellation of the Letter of Intent, holding that no contractual or vested rights accrued . It directed the State to reimburse verified costs based on quantum meruit, vest supplied assets in the State and conduct a fresh tender process . No claims for loss of profit or consequential damages were permitted .
Source – Supreme Court of India
Read also – Contract Act, 1872
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