Introduction
Can a mere Letter of Intent (LoI) from the government truly bind the State, or is it just a high-stakes whisper in the vast auditorium of public procurement? The legal answer is as clear as it is crucial: while an LoI feels like a firm handshake inviting bidders to invest and prepare, Indian courts have repeatedly denied it the status of a contract, firmly positioning it as a “promise in embryo.” Until every last technical, financial, and procedural precondition is met and unconditionally accepted, the LoI remains a non-binding signal, safeguarding the government’s vital discretion and ensuring that the public interest always takes precedence over a contractor’s premature expectation.
The foundation of this legal doctrine rests on the core principles of the Indian Contract Act. An enforceable contract requires an unconditional offer and an unqualified acceptance. An LoI, by its very design, is a pre-contractual step where an expression of a party’s intent to contract in the future, not the contract itself.
This position finds clear articulation in Dresser Rand S.A. v. Bindal Agro Chem Ltd. (2006)1, where the Supreme Court established that an LoI is merely a precursor to a contract, and is “not intended to bind either party ultimately to enter into any contract.” The document merely signals a party’s willingness, pending the satisfaction of certain technical, financial, or procedural preconditions. Consequently, the LoI is a procedural waypoint, not a substantive source of obligation.
The principle was further cemented in Dresser Rand S.A. v. Bindal Agro Chem Ltd. (2006), Rajasthan Cooperative Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service (P) Ltd. (1996)2, where the Court observed that the letter of intent merely expressed an intention to contract and that there was “no binding legal relationship… at this stage,” allowing the appellant to look at the totality of circumstances before entering into a final contract.
The Final Word on Conditional Contracts
The definitive clarity on this issue was powerfully reinforced in the 2025 ruling: State of Himachal Pradesh & Anr. v. M/s OASYS Cybernatics Pvt. Ltd3. Arising from the cancellation of an LoI for the supply of ePoS devices, the Bench, led by Chief Justice Surya Kant, upheld the State’s action. The Court held that an LoI, however detailed or operationally consequential, does not confer vested, enforceable, or contractual rights until all stipulated preconditions (such as compatibility testing and submission of cost details) are fulfilled. The unilateral performance or commercial expectation by the bidder, without fulfilling the specific pre-conditions, does not confer a “juridical entitlement.” The tender architecture was sequential: testing, demonstration, acceptance, then execution LoI was never intended to operate as the contract itself.
A similar line of reasoning was applied in South Eastern Coalfields Ltd. v. M/s S Kumar’s Associations AKM (JV) (2021)4, where the Supreme Court ruled that an LoI is not a binding contract unless such intention is “clear and unambiguous” from its terms. In that case, the successful bidder’s failure to furnish the mandatory performance security deposit was held to prevent the LoI from maturing into a concluded contract, thereby limiting the State’s right only to the forfeiture of the bid security, and not to recovery of the differential risk and cost of re-tendering. This underscores that a contract remains incomplete until all pre-conditions specified in the tender documents and the LoI itself are met.
State Discretion and Equitable Safeguards
The principle that a conditional LoI cannot curtail governmental discretion is rooted in the constitutional imperative of public interest. As established in Tata Cellular v. Union of India (1994)5, the government must retain the ability to withdraw or cancel a tender when public interest demands it, provided the decision is free from arbitrariness or mala fides. The LoI, being expressly conditional, cannot convert cautious administrative safeguards into unintended contractual guarantees.
Furthermore, a recurring point of contention is the invocation of the Doctrine of Legitimate Expectation. Given that LoIs in public procurement typically contain explicit disclaimers reserving the State’s discretion, courts have consistently held that a bidder’s commercial disappointment, while genuine, does not supersede the expressly conditional nature of the document. As stated in the OASYS Cybernatics case, “Legality, not commercial disappointment, is the touchstone of judicial review under Article 14.”
Finally, while the law denies contractual rights, it does not permit unjust enrichment. The principle of quantum meruit provides a limited, equitable remedy. If the contractor has supplied work or materials (such as pilot devices or partial services) that the State has appropriated and utilised, courts may direct reimbursement for the verified expenses. This ensures a balanced framework: protecting public accountability by denying premature contractual claims, while fulfilling the State’s ethical obligation to compensate for tangible services rendered.
Conclusion
The broader doctrinal takeaway is that a Letter of Intent, by design and by law, is not a source of enforceable rights until its conditions are fulfilled and the State issues a final, unqualified acceptance. The principle protects the public interest by preserving governmental discretion, prevents premature contractual claims, and ensures transparency in procurement decisions. By authoritatively reaffirming these principles, and by balancing them with the equitable doctrine of quantum meruit to prevent unjust enrichment, Indian jurisprudence maintains a coherent and robust framework that strictly distinguishes an administrative intention to contract from a legally binding obligation.
Citations
- Dresser Rand S.A. v. Bindal Agro Chem Ltd., (2006) 1 SCC 751.
- Rajasthan Cooperative Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service (P) Ltd., (1996) 11 SCC 133.
- State of Himachal Pradesh & Anr. v. M/s OASYS Cybernatics Pvt. Ltd., 2025 INSC 1355.
- South Eastern Coalfields Ltd. v. M/s S Kumar’s Associations AKM (JV), (2021) 2 SCC 796.
- Tata Cellular v. Union of India, (1994) 6 SCC 651.
Expositor(s): Adv. Archana Shukla
