SC Restores LoI After Finding No Justification for Cancellation
In a significant ruling influencing public procurement law, the Supreme Court of India has allowed OASYS Cybernetics Pvt. Ltd.’s appeal and set aside the Himachal Pradesh Government’s cancellation of a Letter of Intent (LoI) relating to the deployment of electronic Point-of-Sale (ePoS) devices in the State’s Public Distribution System.
A Bench comprising Chief Justice Surya Kant, Justice Ujjal Bhuyan, and Justice N. Kotiswar Singh held that the State’s decision was arbitrary, unreasonable, and unsupported by cogent justification, thereby violating the constitutional requirement of non-arbitrariness under Article 14.
Background: LoI Issued, Then Abruptly Withdrawn
The Himachal Pradesh Food, Civil Supplies and Consumer Affairs Department had floated a tender for installation and maintenance of ePoS devices. After bid evaluation, OASYS Cybernetics emerged as the successful bidder and was issued an LoI.
Soon after, the Department abruptly cancelled the LoI, stating only that the State had decided not to go ahead with the award. No substantive reasons appeared in the cancellation letter.
OASYS challenged the move before the Himachal Pradesh High Court, which upheld the cancellation. The company then approached the Supreme Court.
Court Emphasises Fairness, Reasonableness in Government Contracting
The Supreme Court reiterated that while governments enjoy discretion in awarding or cancelling tenders, such discretion must be exercised in a manner consistent with constitutional principles. Public authorities must act fairly, transparently, and with reasons recorded at the time of decision-making.
The Bench found the cancellation letter “laconic” and held that it contained no meaningful explanation for reversing the decision to award the contract. The Court underscored that government contracts form a part of public administration and therefore must reflect standards of accountability and procedural propriety.
State’s Post-Facto Reasons Rejected
During the appeal, the State attempted to justify the cancellation by citing internal departmental concerns and later-generated administrative notes. The Supreme Court rejected these arguments, stating that such post-facto rationalisation cannot rescue an order that was arbitrary at the outset.
The Court explained that administrative decisions must stand on the reasons contemporaneously recorded, not on explanations invented during litigation. Post-hoc justifications undermine transparency and impair judicial review by masking the absence of real reasons at the time the decision was taken. The Bench held that the State cannot retroactively manufacture logic to defend an action that originally lacked justification.
LoI Restored; State Directed to Proceed Accordingly
Finding the cancellation legally untenable, the Supreme Court restored the original LoI issued to OASYS Cybernetics and directed the Himachal Pradesh Government to act strictly in accordance with the restored LoI. The Bench cautioned that public authorities cannot deviate from established procedures or issue arbitrary reversals after awarding a tender.
Judgment Reinforces Article 14 Compliance in Procurement
The decision reinforces the principle that:
- Government discretion is not absolute,
- Reasons must exist at the time the decision is made, and
- Fairness and transparency are constitutional obligations, not procedural formalities.
The ruling is expected to strengthen scrutiny over tender cancellations and reinforce accountability in government procurement processes.
