This case emanated from a dispute concerning government tenders and dealt with the question – Whether a Letter of Intent created enforceable rights in favour of a bidder.

A 3-Judges Bench of the Supreme Court headed by CJI, Surya Kant held –

“15. These authorities collectively articulate a coherent doctrine: an LoI creates no vested right until it passes the threshold of final and unconditional acceptance. 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. A bidder’s expectation that such a contract will follow may be commercially genuine, but it is not a juridical entitlement. To hold otherwise would be to bind the State in contract before it has consciously chosen to be bound—a proposition foreign to both contract law and public administration.”.

The Bench further dealt with the question – Whether the Cancellation Letter was arbitrary or procedurally unjust?

The Bench reiterated the decision of M.P. Power Management Co. Ltd. v. Sky Power Southeast Solar India Pvt. Ltd., (2023) 2 SCC 703 – “judicial review in contract matters operates only where the action is “palpably unreasonable or absolutely irrational and bereft of any principle.”” and held that –

“The legitimacy of administrative reasoning must be tested with reference to the material that existed at the time the decision was made, not by subsequent embellishment. To simplify: what is permissible is elucidation of contemporaneous reasoning already traceable on record; what is impermissible is the invention of fresh grounds to retrospectively justify an otherwise unreasoned order.”.

The Bench also looked into the aspect of whether the Cancellation Letter suffered from arbitrariness and held –

“50. The test for arbitrariness under Article 14 is whether the decision is uninformed by reason or guided by irrelevant considerations.

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The law does not demand that the State speak only after it has made up its mind; it demands only that its final decision be traceable to reason, not to whim.

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Where the effect of administrative action is to enhance openness and restore competition, Courts are doubly cautious before imputing mala fides.”

and further held –

“Lapse of time does not convert a provisional arrangement into a vested right. The expectation that the Government will ultimately formalise an LoI may be legitimate in the commercial sense, but it is not enforceable in law unless the conditions for formal acceptance are met. The constitutional guarantee against arbitrariness is not a charter of commercial expectations; it is a safeguard against irrationality, and none is established in this record.”.