Supreme Court Balances Fairness & Flexibility in Govt. Contracts, Upholds Cancellation of LoI in Himachal Case

Case Title: State of Himachal Pradesh & Anr. vs. M/s OASYS Cybermatics Pvt. Ltd.Case Title: State of Himachal Pradesh & Anr. vs. M/s OASYS Cybermatics Pvt. Ltd.
This Supreme Court judgment clarifies that a Letter of Intent is a conditional, non-binding precursor to a contract, creating no vested rights until stipulated prerequisites are fulfilled. The Court held that the State’s cancellation of such an LoI is valid if based on genuine grounds of non-compliance and public interest, and is not arbitrary per se.

Facts Of The Case:

The State of Himachal Pradesh initiated a tender process to upgrade its Public Distribution System with biometric and IRIS-enabled ePOS devices. After four rounds of tendering, M/s OASYS Cybermatics Pvt. Ltd. emerged as the sole technically qualified bidder and was issued a Letter of Intent (LoI) in September 2022. The LoI was conditional, requiring successful compatibility testing, live demonstrations, and cost disclosures before a final contract could be executed. Over the next eight months, the department corresponded with the company regarding implementation but later cancelled the LoI in June 2023 without stating reasons, citing a decision to re-tender. The company challenged the cancellation, and the High Court set it aside as arbitrary. The State appealed to the Supreme Court, arguing the LoI was non-binding and was cancelled due to the company’s non-compliance with preconditions and a complaint about alleged past blacklisting of a predecessor entity.

Procedural History:

The procedural history of this case commenced with the cancellation of the Letter of Intent by the State of Himachal Pradesh on June 6, 2023. The respondent company, M/s OASYS Cybermatics, challenged this cancellation before the High Court of Himachal Pradesh at Shimla through a writ petition. The High Court, vide its judgment dated May 30, 2024, allowed the writ petition, quashed the cancellation as arbitrary, and directed the state to proceed on the basis of the LoI. Aggrieved by this decision, the State of Himachal Pradesh filed a Special Leave Petition (SLP(C) No. 6531/2025) before the Supreme Court of India, which granted leave and registered the matter as Civil Appeal No. /2025. The Supreme Court, after hearing the parties, passed its final judgment on November 24, 2025, allowing the state’s appeal and setting aside the High Court’s impugned order.

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Court Observation:

The Supreme Court made key observations on the legal nature of a Letter of Intent (LoI) and the standards for reviewing its cancellation. It held that an LoI is a conditional, non-binding precursor to a contract that does not create vested rights until all stipulated prerequisites are fulfilled. On judicial review, the Court observed that while state action must not be arbitrary, the administrative discretion to cancel an LoI is wide, provided the decision is based on germane reasons and not mala fides. It found the cancellation in this instance was not arbitrary, as it was grounded in the bidder’s genuine non-compliance with the LoI’s preconditions, a rationale discernible from the contemporaneous record.

Final Decision & Judgement:

The Supreme Court allowed the appeal, setting aside the High Court’s judgment. It upheld the State’s decision to cancel the Letter of Intent (LoI), ruling that the LoI was a conditional, non-binding document and its cancellation due to non-compliance with prerequisites was not arbitrary. The Court directed the State to issue a fresh tender and, on principles of equity, to reimburse the respondent company for verified costs of assets or work already appropriated by the State under a quantum meruit basis, while barring any claims for loss of profit or consequential damages.

Case Details:

Case Title: State of Himachal Pradesh & Anr. vs. M/s OASYS Cybermatics Pvt. Ltd.
Citation: 2025 INSC 1355
Appeal No.:  (Arising out of SLP (C) No. 6531/2025)
Date of Judgement: November 24, 2025
Judges/Justices: Justice Surya Kant & Justice Ujjal Bhuyan & Justice Nongmeikapam Kotiswar Singh
 Download The Judgement Here

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