Lowest Bidder Has No Vested Right To Contract; Budgetary Constraints Valid Ground To Cancel Tender: Jharkhand High Court

"A Letter of Intent merely indicates a party’s intention to enter into a contract with the other party in future. A letter of intent is not intended to bind either party ultimately to enter into any contract," Jharkhand High Court, in a significant ruling dated April 27, 2026, held that the state and its instrumentalities are entitled to cancel a tender process if the bids received exceed the allocated budgetary provisions.

A division bench comprising Chief Justice M.S. Sonak and Justice Rajesh Shankar observed that the issuance of a Letter of Intent (LOI) does not constitute a concluded contract and the government, as the "guardian of the State’s finances," retains the inherent right to refuse the lowest tender to protect public interest.

The Court emphasized that Article 14 of the Constitution of India does not grant a vested right to the lowest bidder (L-1) to insist that their offer must be accepted under all circumstances. The bench noted that as long as the decision-making process is transparent and free from mala fides, the court will not interfere with the administrative discretion to cancel a tender and initiate a fresh procurement process.

The petitioner, Terracis Technologies Limited, was declared the L-1 bidder for a tender involving the purchase and integration of server systems for the Jharkhand High Court Data Center. Although a computer-generated Letter of Intent was issued and the petitioner furnished a performance bank guarantee of Rs. 1.52 crores, the respondents later called for negotiations because the bid of Rs. 30.52 crores far exceeded the High Court’s budget of Rs. 22-23 crores. After the petitioner refused to reduce the price despite scaled-down specifications, the respondents cancelled the tender, prompting this writ petition.

The primary question before the court was whether the issuance of an LOI and the subsequent submission of a bank guarantee created a concluded contract between the parties. The court was also called upon to determine whether the cancellation of the tender process due to budgetary constraints was arbitrary, unreasonable, or violative of the doctrine of legitimate expectation.

Letter Of Intent Does Not Constitute A Concluded Contract

The Court rejected the petitioner’s contention that a binding contract had come into existence upon the issuance of the LOI. Referring to the Supreme Court's decision in Dresser Rand S.A. v. Bindal Agro Chem Ltd., the bench clarified that an LOI is merely an expression of intention to enter into a contract in the future. The court observed that since no formal work order was issued and no agreement was signed, there was no binding legal relationship.

The bench noted that the relief sought by the petitioner—a direction to execute the contract—was essentially a prayer for specific performance. The Court held that such reliefs are ordinarily not entertainable under the extraordinary jurisdiction of Article 226 of the Constitution of India, particularly when they involve the adjudication of disputed questions of fact in the contractual sphere.

"The petitioner cannot seek relief requiring the respondents to execute a contract with the petitioner at the bid price of Rs. 30.52 crores, though this bid amount was well beyond the High Court's budgetary limits."

Government Entitled To Protect State Finances

The Court highlighted the role of the government as the custodian of public funds. It held that the state must have "free play in the joints" to ensure that the best deal is obtained within the available financial limits. The bench observed that the High Court’s budgetary constraint of Rs. 22-23 crores was a "cogent and valid reason" for refusing to accept a bid exceeding Rs. 30 crores.

The judges remarked that the respondents acted reasonably by offering the petitioner an opportunity to negotiate and even scaling down the technical specifications to bring the project within the budget. The petitioner’s refusal to adjust the price left the authorities with no option but to cancel the process and seek fresh, competitive bids under revised financial caps.

"The Government is the guardian of the State’s finances and is expected to protect the State’s financial interests. The right to refuse the lowest or any other tender is always available to the Government."

Limited Scope Of Judicial Review In Tender Matters

The bench reiterated the settled legal position that judicial review in tender matters is confined to the decision-making process and not the merits of the decision itself. Citing Tata Cellular v. Union of India, the Court stated that it would only interfere if the process was vitiated by illegality, irrationality, procedural impropriety, or mala fides.

In the present case, the Court found no evidence of nepotism or extraneous considerations. The bench emphasized that constitutional courts must exercise "utmost restraint" and should not substitute their own wisdom for that of the administrative authorities. A mere disagreement with the decision or a perception that a different approach could have been taken is not a ground for interference.

"Constitutional Courts are expected to exercise restraint when interfering with administrative decisions and ought not to substitute their view for that of the administrative authority."

Suppression Of Facts Disentitles Equitable Relief

The Court also took a serious view of the petitioner’s failure to disclose that their Earnest Money Deposit (EMD) of Rs. 60 lakhs had been refunded and accepted without protest a day after the tender was cancelled. The bench noted that such suppression of material facts and the act of acquiescence generally disentitle a litigant to equitable relief under Article 226.

However, the Court chose to decide the matter on merits rather than dismissing it solely on technical grounds, as the respondents had not raised these specific issues in their counter-affidavits. Ultimately, the bench found the cancellation to be transparent and justified by the lack of financial viability of the petitioner’s bid.

The writ petition was dismissed as the Court found no merit in the challenge to the tender cancellation. The bench concluded that the respondents acted within their rights to initiate a fresh procurement process that aligns with the High Court's budgetary limits, ensuring that public money is spent judiciously.

Date of Decision: 27 April 2026