The Non-Binding Nature of Letters of Intent (LoI) in Indian Public Contracts: A Doctrinal Evolution 

In the realm of public procurement

In the realm of public procurement, the Letter of Intent (LoI) serves as a preliminary communication, signaling the State’s tentative inclination to formalize a contract with a prospective vendor. However, as affirmed by a consistent line of Supreme Court precedents, an LoI does not engender vested or enforceable rights until all stipulated preconditions—such as technical validations, performance security deposits, and the issuance of an unconditional Letter of Acceptance (LoA)—are meticulously fulfilled.

This principle, recently crystallized in State of Himachal Pradesh & Anr. v. M/s OASYS Cybernatics Pvt. Ltd. 2025 INSC 1355 decided by a 3 member bench of the Apex Court very recently on 24/11/2025, portrays the LoI as a “promise in embryo,” a nascent assurance that matures only upon the satisfaction of contractual thresholds. This doctrinal stance safeguards public interest by preserving administrative flexibility while mitigating risks of arbitrary decision-making.

This article delves into the evolution of this jurisprudence, drawing from a catena of Supreme Court decisions. It examines the non-binding essence of LoIs, the limits of judicial review in tender processes, the inapplicability of legitimate expectations in conditional scenarios, and the equitable recourse of quantum meruit for appropriated work. Through direct quotes and analytical synthesis, it underscores how these rulings balance vendor protections with the imperatives of transparent and efficient public contracting.

The Doctrinal Core: LoI as a “Promise in Embryo”

The Supreme Court’s latest exposition in OASYS Cybernatics (2025) redefines the LoI’s provisional character amid a dispute over the cancellation of an LoI for supplying and maintaining ePoS devices under Himachal Pradesh’s Public Distribution System (PDS). The vendor, having invested substantially post-LoI, invoked vested rights and legitimate expectations, arguing that the State’s abrupt termination—citing failures in NIC-compatibility testing and live demonstrations—breached contractual sanctity.

The Bench, comprising Justices J.B. Pardiwala and R. Mahadevan, emphatically rejected this, holding that “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.” This metaphor encapsulates the LoI’s embryonic status: laden with conditions precedent, it lacks the mutuality and finality essential for enforceability. The Court scrutinized the LoI’s explicit caveats, which rendered the process “provisional,” thereby negating any inference of a concluded bargain.

This ruling aligns seamlessly with the public law ethos, emphasizing that LoIs in tenders are not mere formalities but safeguards ensuring compliance with technical and fiscal benchmarks. The cancellation, though “laconic” in articulation, was upheld as non-arbitrary, grounded in contemporaneous records of non-compliance, absent mala fides or favoritism.

Foundational Pillars: Early Affirmations of Non-Binding Intent

The OASYS dictum does not emerge in vacuo; it is anchored in seminal precedents that established the LoI’s presumptive non-binding nature.

These early cases lay the groundwork: LoIs are presumptively non-binding unless their terms unequivocally depart from this norm, a threshold rarely crossed in public procurement’s regulated milieu.

Reaffirmation and Refinement: South Eastern Coalfields (2021) and Beyond

The South Eastern Coalfields Ltd. v. S. Kumar’s Associates AKM (JV) (2021 SCC OnLine SC 486) reaffirmed this trajectory in a mining contract dispute. The employer issued an LoI contingent on performance security, integrity pact execution, and formal agreement within 28 days. The bidder mobilized equipment but flouted these preconditions, prompting cancellation and bid security forfeiture.

A Constitution Bench, led by Justice D.Y. Chandrachud, reiterated: “The letter of intent merely expressed an intention to enter into a contract… There was no binding legal relationship.” Parsing the tender’s clauses, the Court delineated conditions precedent (e.g., security deposit) from subsequent ones, holding non-fulfillment vitiates contract formation. Mobilization alone, sans compliance, does not consummate the deal—a critical caveat for vendors presuming partial performance binds the State.

This was echoed in Level 9 Biz Pvt. Ltd. v. HIMUDA (2024), where the Court quashed a tender withdrawal post-LoI, but underscored:

• “It hardly needs to be reiterated that the Letter of Intent is merely an expression of intention to enter into a contract.”
• “It does not create any right in favour of the party to whom it is issued.”
• “There is no binding legal relationship between the party issuing the LOI and the party to whom such LOI is issued.”

Here, the LoI’s mega-scale context necessitated a detailed agreement, reinforcing its embryonic role.

Collectively, these rulings form a doctrinal chain:

• Preconditions in Notices Inviting Tenders (NITs) and LoIs are sacrosanct.
• They enable cancellation without broader repercussions beyond bid forfeiture.

Preconditions, Public Interest, and the Contours of Judicial Review

Central to this framework is the State’s latitude to cancel tenders, a facet illuminated by Tata Cellular v. Union of India ((1994) 6 SCC 651). Challenging an oil rig tender award, Tata urged judicial substitution of the decision. The Court, per Justice S. Mohan, circumscribed review to arbitrariness, mala fides, irrationality, and procedural impropriety, averring:

“The principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. [However,] it is not for the courts to examine the relative merits of the competing tenders.”

This Wednesbury reasonableness standard preserves “the zone of permissible discretion” for administrators, treating cancellations—rooted in public interest—as immune from merits-based scrutiny unless vitiated. In OASYS, the Court invoked Tata Cellular to validate the LoI revocation, noting fresh tenders post-cancellation furthered transparency, untainted by collateral motives.

Legitimate Expectation: A Shield, Not a Sword

Vendors often invoke legitimate expectation to estop the State, claiming reliance on LoI-induced investments bars revocation. Yet, courts consistently rebuff this where disclaimers abound.

In OASYS Cybernatics, the plea foundered:

• The doctrine demands “a clear, unambiguous representation” sans caveats.
• The LoI’s provisional stipulations defeated any such expectation.
• Courts warn against turning legitimate expectation into a tool against administrative caution.

This resonates with South Eastern Coalfields and Tata Cellular, reinforcing that bidders aware of conditions cannot claim surprise when enforcement follows.

Restitutionary Equipoise: Quantum Meruit as Equitable Relief

While denying contractual damages, courts temper rigidity with equity. OASYS Cybernatics directed reimbursement for verified costs of appropriated ePoS devices under quantum meruit, vesting them encumbrance-free in the State, sans profit claims. This invokes unjust enrichment: “even in absence of a concluded contract, the State cannot retain the benefit of assets or services without compensating the supplier.”

This calibrated remedy—restitution for tangible value, not speculative losses—harmonizes non-binding LoIs with fairness, echoing South Eastern Coalfields’ confinement to bid security forfeiture.

Synthesis: Implications for Practice and Policy

The catena—from Rajasthan Co-op (1996) and Tata Cellular (1994) to Dresser Rand (2006), South Eastern Coalfields (2021), HIMUDA (2024), and OASYS (2025)—yields immutable propositions:

• (i) LoIs presumptively confer no vested rights, maturing only post-preconditions;
• (ii) unambiguous intent alone binds;
• (iii) legitimate expectations yield to explicit disclaimers; and
• (iv) quantum meruit limits restitution to appropriated value.

For public authorities, this mandates crystalline LoI drafting—embedding reservations for cancellation—and robust records against challenges. Bidders must calibrate risks, viewing post-LoI investments as ventures, redeemable at best via limited equity.

In sum, these precedents fortify public procurement’s integrity, ensuring LoIs remain embryonic promises, not fetters on the State’s duty to serve the common weal. As OASYS poignantly notes, they embody “a promise in embryo,” gestating judiciously toward contractual fruition.

Key Takeaways from the Supreme Court Judgments on Letters of Intent (LoIs) in Public Contracts

The catena of Supreme Court decisions, spanning from Tata Cellular v. Union of India (1994) to the recent State of Himachal Pradesh v. M/s OASYS Cybernatics Pvt. Ltd. (2025), provides a robust framework for understanding the provisional and non-binding nature of LoIs in Indian public procurement. These rulings emphasize administrative flexibility, public interest safeguards, and equitable remedies while curbing vendor overreach. Here are the principal takeaways:

LoI as a Provisional “Promise in Embryo”

• An LoI signals mere intent to contract and creates no vested or enforceable rights until all preconditions (e.g., technical approvals, performance security, or issuance of a Letter of Acceptance) are fulfilled.

As held in OASYS Cybernatics (2025), it is “but a ‘promise in embryo,’ capable of maturing into a contract only upon the satisfaction of stipulated preconditions.” This echoes Dresser Rand S.A. v. Bindal Agro Chem Ltd. (2006), where the Court clarified that an LoI “merely indicates a party’s intention to enter into a contract” and does not bind parties unless explicitly so.

State’s Prerogative to Cancel for Non-Compliance

Cancellation of an LoI for failure to meet preconditions is a valid exercise of discretion, rooted in public interest, and immune from judicial substitution unless tainted by arbitrariness, mala fides, or irrationality.

No Legitimate Expectation from Conditional LoIs

Vendors cannot invoke legitimate expectation based on post-LoI investments, as explicit disclaimers in the LoI negate any “clear, unambiguous representation.” OASYS Cybernatics warned that such claims would turn the doctrine “from a shield against arbitrariness into a sword against administrative caution,” aligning with Tata Cellular’s insistence that bidders are bound by tender terms.

Equitable Relief via Quantum Meruit

Absent a binding contract, courts may grant restitution for work or assets actually appropriated by the State, but strictly limited to verified costs without profits or damages. In OASYS Cybernatics, this ensured the State reimbursed ePoS devices utilized during pilots, vesting them encumbrance-free, harmonizing non-binding status with unjust enrichment principles.

Drafting and Litigation Imperatives

• Public authorities must embed clear conditional language and maintain records for cancellations.
• Bidders assume risks on pre-LoA investments.
• Only LoIs with unambiguous binding intent (rare in public tenders) deviate from this presumption, as per South Eastern Coalfields (2021) and Level 9 Biz Pvt. Ltd. v. HIMUDA (2024).

These principles fortify transparent procurement, balancing vendor incentives with fiscal prudence.

Written By: Inder Chand Jain
Ph no: 8279945021, Email: [email protected]