Public Authority Must Compensate Successful Applicant For Investments Made Under LOI If Cancellation Is Due To Its Own Fault: Allahabad High Court
The Court directed Hindustan Petroleum Corporation Limited to reimburse ₹15.78 lakh spent on developing the proposed retail-outlet site after the company withdrew an advertisement issued for a location outside its purview.
The Allahabad High Court has held that a public authority must compensate a successful applicant for investments made under a Letter of Intent if the subsequent cancellation results from the authority’s own fault.
The Court directed Hindustan Petroleum Corporation Limited (HPCL) to pay the petitioner ₹15,78,486 as compensation within one month. It further ordered that the amount would carry simple interest at 8% per annum if it was not paid within that period.
The Court was hearing a writ petition challenging the cancellation of a location advertised for a retail-outlet dealership between Mahavir Mandir and Bhadaura stand on either side of a road in Ghazipur.
A Division Bench of Justices Saral Srivastava and Siddharth Nandan observed: “It is admittedly the fault of the Authorities concerned, for issuing an advertisement which was beyond its purview and therefore the fault can only be attributed to the authorities concerned, to require the incumbent to make investment, in pursuance of the conditions enumerated in the Letter of Intent; and when after the investments have been made, it seeks to withdraw the advertisement, which also has the effect of withdrawal of the Letter of Intent and consequential loss to the incumbent, for no fault of his own, but the Petroleum Company itself, the said incumbent has to be compensated.”
Advocate Anand Kumar Pandey appeared for the petitioner. Advocate Krishna Agarwal represented HPCL, while the Standing Counsel appeared for the State.
Background
HPCL issued an advertisement on November 25, 2018, inviting applications for the retail-outlet dealership. The petitioner applied, deposited ₹10,000 and was selected through a draw of lots in February 2019. HPCL subsequently issued him a Letter of Intent on August 2, 2019.
The Letter of Intent required the petitioner to develop the site up to road level and construct a retaining wall and a 1.5-metre compound wall. The execution of the dealership agreement was contingent upon compliance with these conditions. The petitioner also obtained no-objection certificates from the concerned departments.
HPCL cancelled the advertised location on March 11, 2021, after finding that the road had already been notified as a national highway before the advertisement was issued.
The petitioner contended that he had incurred substantial expenditure in complying with the Letter of Intent and had a legitimate expectation that the dealership agreement would be executed. HPCL relied on a condition in the advertisement reserving its right to cancel or withdraw the advertisement without assigning reasons. It also argued that a Letter of Intent was only a precursor to a contract and did not create a binding contractual relationship.
Court’s Observations
Letter Of Intent Created A Positive Representation
The Court accepted the proposition that a Letter of Intent ordinarily did not constitute a final or binding offer of dealership. It observed, however, that the Letter of Intent in the present case required the petitioner to satisfy specified conditions before the agreement could be executed.
The Bench stated: “It is not disputed that Letter of Intent, cannot be construed as a ‘firm offer’ of the dealership; but however it constitutes a ‘promise’ that once the conditions enumerated in the Letter of Intent are met, the Agreement shall be executed; and it is in pursuance of this ‘promise and positive representation’, by way of a Letter of Intent, that the petitioner has proceeded to make investments in the development of the land.”
The Court noted that the petitioner could not have first demanded execution of a permanent dealership agreement and then complied with the conditions. The agreement itself was contingent upon the prior development of the site and fulfilment of the Letter of Intent’s requirements.
The Court therefore held that although HPCL possessed the power to withdraw the advertisement, it would be unjust to require the petitioner to bear losses incurred in complying with the company’s conditions when the cancellation was unrelated to any breach on his part.
Legitimate Expectation Required Fair Treatment
The Court observed that the Letter of Intent contained a positive representation that the dealership would be formalised if the stipulated conditions were fulfilled. The petitioner had acted upon that representation and invested in the property.
Referring to Sethi Auto Service Station v. Delhi Development Authority (2009), the Bench stated that legitimate expectation could arise where a public body’s representation or conduct created an expectation that was within its power to fulfil and the person had acted upon that representation to their detriment.
The Court clarified that the cancellation of the advertisement was rational because the location had already been notified as a national highway. However, it held that executive discretion to cancel the advertisement did not answer whether fairness required compensation for the loss suffered by a person who had acted upon the authority’s promise without fault.
The Bench observed: “The taking out of an advertisement, with respect to a location, which has already been notified as a National Highway No. 134-C, prior to the advertisement dated 25.11.2018, cannot be a fault of the incumbent who takes part in the process of allotment and after being successful, being issued a Letter of Intent also, which requires him to make an investment in the project, and accordingly he cannot be rendered remedy-less, without there being any fault of his own.”
Compensation Could Be Awarded Under Article 226
The Court relied on Chairman, Railway Board v. Chandrima Das (2000) while observing that public-law remedies extended to awarding compensation under Article 226 of the Constitution. It also referred to State of Rajasthan v. Vidyawati (1962) concerning governmental liability for tortious acts.
The Bench stated that just compensation had to bear a direct relationship to the loss suffered. It noted that the petitioner had claimed ₹15,78,486 towards expenditure incurred between February 2019 and March 2021 on land development, filling, construction of the boundary wall and obtaining licences.
The Court observed that HPCL had not specifically denied the expenditure in its counter-affidavit and had merely disputed the petitioner’s entitlement to reimbursement. It also considered the time spent in the selection process and the petitioner’s loss of opportunity to pursue another profession, occupation, trade or business.
Conclusion
The Court allowed the writ petition and awarded the petitioner ₹15,78,486 as compensation for the investment made in compliance with the Letter of Intent.
It directed HPCL to pay the amount within one month from the production of a certified copy of the judgment. In case of default, the petitioner would be entitled to simple interest at 8% per annum until actual payment.
Cause Title: Shantanu Singh v. State of Uttar Pradesh and Others (Neutral Citation: 2026:AHC:213205-DB)
Appearances
Petitioner: Advocates Anand Kumar Pandey, Prabhakar Awasthi, Ramesh Kumar Yadav, Subhash Chandra Tiwari and Sudhakar Singh
Respondents: Standing Counsel; Advocates Komal Mehrotra and Krishna Agarwal