Authored by R & D Law Chambers LLP Ravish Bhatt  |  Advocate, Bar Council of Gujarat (G/504/2008)  |  Dual-qualified lawyer (India and England & Wales)  |  ADIT, CIOT, London  |  SRA (non-practising) Registration No. 492 477 Published: 4 October 2026  |  Last reviewed: 4 October 2026

 

Law stated as at 4 October 2026, chiefly under State of Himachal Pradesh v OASYS Cybernatics Pvt Ltd, 2025 INSC 1355 (24 November 2025), and Subodh Kumar Singh Rathour v Chief Executive Officer, 2024 INSC 486 (9 July 2024). Rejection of a bid at evaluation is a separate question. The general rules on writ petitions in the Gujarat High Court are on the firm’s Gujarat High Court page.

 

Yes, but the court reviews the reasoning, not the State’s choice to re-tender. Under OASYS Cybernatics (2025), a cancellation letter that states no reason is defective but not automatically fatal: the State may rely on reasons already traceable on its file, never on grounds invented afterwards. A conditional Letter of Intent creates no contract, and money comes back only for what the State actually took. A concluded contract cancelled outside its own terms is open to writ.

 

Index of Topics

1. Can the State cancel a tender after receiving bids or issuing a Letter of Intent?
2. Does a Letter of Intent create a binding contract?
3. Can the State cancel a Letter of Intent without giving reasons?
4. Which grounds can the State not rely on?
5. Does a contractor’s investment protect the Letter of Intent?
6. What relief does the High Court grant for an unreasoned cancellation?
7. Can the contractor recover money after a lawful cancellation?
8. What changes once a contract has been concluded?
9. How do the stages compare?

Frequently Asked Questions

How R & D Law Chambers Works on These Matters

1. Can the State cancel a tender after receiving bids or issuing a Letter of Intent?

Yes. The Supreme Court treats a decision to cancel a tender or restart the process as itself an aspect of public interest. The decision is still State action under Article 14: even where no contract has been formed, the discretion to cancel is not unfettered, and the final decision must be traceable to reason, not to whim.

 

In State of Himachal Pradesh v OASYS Cybernatics Pvt Ltd, 2025 INSC 1355, a three-judge Bench held that the State’s decision to cancel a tender or restart the process is itself an aspect of public interest (paragraph 54, citing Tata Cellular v Union of India, (1994) 6 SCC 651, and MP Power Management Co Ltd v Sky Power Southeast Solar India Pvt Ltd, (2023) 2 SCC 703). Even when contractual rights are absent, the State’s discretion in cancelling a Letter of Intent is not unfettered; it remains subject to the requirement that State action must not be arbitrary, unreasonable or actuated by mala fides (paragraph 20).

Two further points shape any challenge. The law does not demand that the State speak only after it has made up its mind; it demands that its final decision be traceable to reason (paragraph 51). And where the effect of cancellation is a fresh tender open to all, rather than an award to another bidder behind closed doors, courts are doubly cautious before imputing mala fides (paragraph 52).

2. Does a Letter of Intent create a binding contract?

Ordinarily no. OASYS restates the settled rule that a Letter of Intent is a precursor to a contract, not the contract, and creates no vested right until it passes the threshold of final and unconditional acceptance. The Court called it a promise in embryo. Whether a particular letter is conditional depends on its words.

 

The line runs from Rajasthan Cooperative Dairy Federation Ltd v Maha Laxmi Mingrate Marketing Service (P) Ltd, (1996) 10 SCC 405, through Dresser Rand SA v Bindal Agro Chem Ltd, (2006) 1 SCC 751, to Level 9 Biz Pvt Ltd v HP Housing and Urban Development Authority, 2024 SCC OnLine SC 480. A Letter of Intent matures into a contract only on satisfaction of its preconditions or on issue of a Letter of Acceptance (OASYS, paragraphs 13 to 15).

The letter in OASYS selected the bidder “subject to fulfilment of pre-requisites”: compatibility testing, a live demonstration and cost disclosure, after which an agreement and a final award letter would follow. The Court read each as a condition precedent in a sequence of testing, demonstration, acceptance and execution (paragraphs 5.7, 16 and 17).

In Subodh Kumar Singh Rathour v Chief Executive Officer, 2024 INSC 486, by contrast, the Letters of Intent were followed by a Memorandum of Tender for Work and work orders, and work had begun (paragraphs 4 and 7). A contract existed. The first task in any cancellation dispute is to place the document on one side of that line.

3. Can the State cancel a Letter of Intent without giving reasons?

It can, but the cancellation is then tested against the file. OASYS holds that reasons need not be stated in the cancellation letter if they can be discerned from the contemporaneous record and are not post hoc justifications. Grounds invented afterwards to justify an unreasoned order are impermissible. What counts is the material that existed when the decision was taken.

 

The letter in OASYS said only that the Government had decided to invite a fresh tender (paragraph 5.15). The Court accepted that it was laconic, but held that orders are read in light of the concomitant record (paragraphs 26 and 27). Elucidation of contemporaneous reasoning already traceable on the record is permissible; invention of fresh grounds to justify an unreasoned order after the event is not (paragraph 28).

Subodh Kumar Singh Rathour shows the other side. The notice relied on a technical fault in the tender; the internal file notings, which may be examined once a decision is made, contained no whisper of one (paragraphs 76, 85, 87 and 90). An authority is held rigorously to the standards by which it professes its actions to be judged (paragraph 88, applying Ramana Dayaram Shetty v International Airport Authority of India, (1979) 3 SCC 489).

4. Which grounds can the State not rely on?

Grounds its own record contradicts, and grounds it has already disowned. In OASYS the Supreme Court rejected the State’s reliance on a rival bidder’s blacklisting complaint: the State had defended the same tender against the same contention in earlier proceedings, and the tender condition required disclosure only of blacklisting subsisting at the date of the bid.

 

An identical contention had been repelled by the High Court in an earlier writ petition that the State did not appeal. The State, as a continuing juristic entity, is bound by its own representations in prior proceedings, and its stance cannot oscillate with changes in political leadership (paragraphs 37 and 38). The clause, moreover, demanded disclosure of subsisting disqualifications, not past and exhausted ones (paragraphs 39 and 40).

The cancellation survived on the State’s second ground: the testing, certified demonstration and itemised cost disclosure the letter required were never completed (paragraphs 42 to 44). The reasons were antecedent, bona fide and germane to the public purpose (paragraph 56).

5. Does a contractor’s investment protect the Letter of Intent?

No. The bidder in OASYS had, on its own case, manufactured more than five thousand devices and begun preparatory training. The Supreme Court held that performance in anticipation cannot become a legal right where the letter prescribes an order of steps, and that legitimate expectation cannot rest on a letter whose conditional terms negate any clear assurance.

 

The Court called the preparations commercial impatience rather than contractual compliance: compliance must be with the governing document, not the bidder’s self-chosen course, and a bidder cannot approbate and reprobate (paragraphs 45, 47 and 48). Lapse of time does not convert a provisional arrangement into a vested right; legitimate expectation needs a clear and unambiguous representation, which the letter’s conditional terms negated; and continued correspondence was deliberation, not duplicity (paragraphs 51, 53 and 55).

6. What relief does the High Court grant for an unreasoned cancellation?

Ordinarily a remand, not restoration. OASYS holds that the calibrated course is to hold the cancellation vitiated for want of reasoning and remit the matter to the competent authority to decide again on recorded reasons, after affording the bidder an opportunity. The Supreme Court decided the matter itself only because two years had passed and a welfare scheme depended on it.

 

The High Court had directed the State to proceed on the letter within six weeks (paragraph 5.21). The Supreme Court found that hurried: the absence of reasons had been treated as fatal and the State’s explanations dismissed on select contradictions (paragraphs 29 and 30). The appropriate course was to hold the cancellation vitiated for want of reasoning and remit it for a decision on cogent reasons after hearing the bidder (paragraph 31); remand was impracticable only because of delay and the welfare purpose (paragraph 32). The Court also set aside the State’s immediate fresh Expression of Interest and left the bidder free to participate in a fresh tender (paragraph 59, directions i and ii). A prayer for quashing and reasoned reconsideration tracks paragraph 31; a prayer only for restoration asks for more.

7. Can the contractor recover money after a lawful cancellation?

Only for what the State actually took. OASYS directed a fact-finding enquiry into devices, components and services the Department used or took over during the pilot and demonstration stages, and reimbursement of their verified cost on the principle of quantum meruit within three months. It expressly excluded any claim for loss of profit, expectation or consequential damages.

 

The Court did not award the bidder its costs generally. It directed the State, with the bidder, to ascertain what was supplied and its utilisation or taking over by the Department, and to reimburse the verified value and installation cost on quantum meruit; the assets then vest in the State (paragraph 59, directions iii and iv). No claim for loss of profit, expectation or consequential damages survives (direction v). The enquiry turns on records of what was delivered, integrated and used, which are the contractor’s to keep.

8. What changes once a contract has been concluded?

The question becomes whether the State acted under the contract or outside it. In Subodh Kumar Singh Rathour (2024), a concluded contract was cancelled for a supposed technical fault in the tender, a ground the contract did not provide. The Supreme Court held this to be executive action with a public law element, examined the file, and quashed the cancellation.

 

The contract permitted termination for the contractor’s failure, breach or non-compliance (paragraph 6). The authority did not invoke it; it cancelled “the tender” for a technical fault (paragraph 12). That was executive power, the dispute had a public law element, and the writ petition was maintainable (paragraphs 60 to 62). On the merits the Court compared the notice with the file and with an earlier stop-work notice that had given a different reason (paragraphs 76, 77 and 90), allowed the appeal and quashed the cancellation.

A termination under the contract’s own clause, for default the State alleges against the contractor, is the opposite case. MP Power Management, as reproduced in Subodh (paragraph 55), states that termination by the State acting within its contractual domain ordinarily does not lend itself to redress by writ, particularly where disputed facts must be resolved.

9. How do the stages compare?

What a contractor can challenge, and what it can obtain, depends on the stage reached. Before a contract, the State’s discretion is wide and the usual remedy is a reasoned decision. A conditional Letter of Intent adds a claim for what the State took, and nothing for profit. A concluded contract adds Article 14 protection against cancellation outside its terms.

 

Stage	What the contractor holds	What the court reviews	Usual relief	Authority
Bids received, no Letter of Intent	No right to an award	Whether cancellation is traceable to reason and free of mala fides	Quashing; fresh, open process	OASYS, paragraphs 20, 51, 52, 54
Conditional Letter of Intent	No vested right until conditions are met or acceptance issues	Whether reasons are traceable on the contemporaneous file	Remand for a reasoned decision; quantum meruit for what the State took	OASYS, paragraphs 15, 27, 28, 31, 59
Concluded contract, cancelled outside its terms	Contractual rights and Article 14 protection	Executive act, including the file notings	Quashing of the cancellation	Subodh, paragraphs 60 to 62, 85 to 90
Concluded contract, terminated under its own clause for default	Contractual rights	Ordinarily not reviewed by writ where facts are disputed	The agreed forum, such as arbitration	MP Power Management, as reproduced in Subodh, paragraph 55

 

Frequently Asked Questions

Is a Letter of Intent a binding contract in India?

Ordinarily no. The Supreme Court in OASYS Cybernatics (2025) restated that a Letter of Intent is a precursor to a contract and creates no vested right until it passes the threshold of final and unconditional acceptance. A letter that makes testing, demonstration or other steps conditions precedent remains provisional until those conditions are fulfilled or a Letter of Acceptance issues.

Can a government department cancel a Letter of Intent without giving reasons?

It can, but the cancellation must be traceable to reasons on the contemporaneous record. OASYS holds that reasons need not be stated in the letter itself if they can be discerned from the file and are not post hoc. For an unreasoned cancellation, the Court said the calibrated course is to hold it vitiated for want of reasoning and remit it for a reasoned decision after hearing the bidder.

Can the State justify a cancellation with reasons it gives later in court?

Only if those reasons were already traceable on the record when the decision was taken. OASYS distinguishes permissible elucidation of contemporaneous reasoning from impermissible invention of fresh grounds to justify an unreasoned order after the event. In Subodh Kumar Singh Rathour (2024) the reason stated in the cancellation notice did not appear anywhere in the authority’s file notings.

Will the High Court restore a cancelled Letter of Intent?

Ordinarily not. In OASYS the Supreme Court set aside a High Court order directing the State to proceed on a cancelled Letter of Intent, and said the calibrated remedy for an unreasoned cancellation is to hold it vitiated and remit the matter for a reasoned decision after hearing the bidder. It also set aside the State’s immediate fresh Expression of Interest and allowed a fresh tender open to the bidder.

Can a contractor claim lost profit when a Letter of Intent is cancelled?

Not where the letter was conditional and the cancellation lawful. OASYS limited recovery to reimbursement, on quantum meruit, of the verified cost of devices and services the State actually used or took over, assessed through a fact-finding enquiry within three months. It expressly ruled out any claim for loss of profit, expectation or consequential damages.

Is a writ petition maintainable against cancellation of a concluded government contract?

Yes, where the cancellation is not an exercise of a contractual right. In Subodh Kumar Singh Rathour (2024) the Supreme Court held that cancelling a concluded contract for a technical fault in the tender, a ground the contract did not provide, was executive action with a public law element, and quashed it. Termination under the contract’s own default clause ordinarily goes to the agreed forum.

How R & D Law Chambers Works on These Matters

Cancellation disputes turn on the stage the contractor had reached and on the authority’s file, as set out above.

R & D Law Chambers advises on writ petitions under Article 226 before the Gujarat High Court against cancellation of tenders, Letters of Intent and contracts by public authorities, and on the contractual claims, including arbitration, that follow a cancellation or termination.

Related services

• Gujarat High Court Lawyers in Ahmedabad: writ petitions under Articles 226 and 227 and other proceedings before the High Court of Gujarat.
• Arbitration: domestic and international arbitration, including court proceedings under the 1996 Act.
• Dispute Resolution and Court Representation: civil and commercial litigation before courts and tribunals.

General information on Indian law as at 4 October 2026. Not legal advice, and no advocate-client relationship is created. Each matter turns on its own facts and on the authorities in force when it is decided.