Discontinuing Contract Without Giving Reasons Arbitrary: Bombay HC Quashes MMRDA's Contract Termination Notice For Mumbai Metro Consultancy

The tender concerned the appointment of General Consultant for the purposes of design, assistance in procurement, construction, management supervision for Mumbai Metro Lines 5 (Thane-Bhiwandi-Kalyan), 7A (Andheri (East)-CSIA) and 9 (Mira Bhayander).

Systra had submitted a bid of Rs. 90.76 crore for the tender. The MMRDA issued a Letter of Acceptance on 31 May 2021 and Systra was appointed as a General Consultant. The initial term of appointment to Systra was for a period of 42) months. Subsequently, the term of appointment was extended upto 31 December, 2026.

However, by a notice dated 3 January 2025, MMRDA cancelled the tender without assigning any reasons for doing so. Systra MVA Consulting (India) Pvt Ltd (petitioner) thus challenged the MMRDA's notice terminating the contract before the High Court.

MMRDA contended that the notice was issued pursuant to Clause 2.8.1(f) of the General Conditions of Contract and argued that it enables it to terminate the contract without assigning any reasons. However, Systra argued it was necessary for MMRDA to assign reasons, without which the clause would be unreasonable, oppressive and violative of basic principles of public law.

A division bench of Chief Justice Alok Aradhe and Justice Arif S. Doctor placed reliance of several cases dealing with judicial review in contractual disputes.

The Court referred to MP Power Management Company Limited vs. Sky Power Southeast Solar India Private Limited (2022 LiveLaw (SC) 966, where the Supreme Court observed that the mere fact that relief is sought under a contract which is not statutory, will not entitle the State in a case by itself to ward-off scrutiny of its action or inaction under the contract if the complaining party is able to establish that the action/ inaction is per se arbitrary.

It further relied on Subodh Kumar Singh Rathour Vs. Chief Executive Officer & Ors (2024 LiveLaw (SC) 455), where the Apex Court cautioned public authorities against cancelling public tenders arbitrarily and stated that the decision of the State to cancel the public tender must be based on bona fide consideration being reflected in its decision-making process, and not on extraneous grounds. It was observed that the failure of the Public Authority to record valid reasons for the cancellation of the Tender awarded for the public purpose warrants judicial review.

Pursuing MMRDA's notice, the Court noted that MMRDA did not assign any reasons for discontinuation of services to Systra.

The Court rejected MMRDA's contention that it could terminate the contract without assigning any reasons. It stated that discontinuation of the contract without any reason was arbitrary and unreasonable.

“Clause 2.8.1(f) of the General Conditions of Contract cannot be read to mean that the MMRDA has a licence to act unfairly, arbitrarily or unreasonably in the contractual field without assigning reasons. The power under Clause 2.8.1(f) of the Contract has to be exercised in consonance with the principles of fairness, reasonableness and non-arbitrariness. We find that the action of the MMRDA in discontinuation of the terms of the contract, which was extended upto 31st December, 2026, without assigning any reasons, is arbitrary, unfair, and unreasonable.”

The MMRDA also contended that since the agreement executed with Systra contained an arbitration clause, the petition ought not to be entertained.

However, Systra submitted that the court can exercise the power of judicial review if the termination of the contract was arbitrary. It also argued that as the issue concerned public law, the arbitral tribunal could only deal with the terms of the contract between the parties and not the questions of public law.

The Court rejected MMRDA's view and stated that judicial review is available despite alternate remedy being available, if the termination of the contract was arbitrary and unreasonable.

“The contention that since the MMRDA has acted in exercise of rights available to it under the contract and therefore the petitioner should be relegated to the remedy of arbitration, does not deserve acceptance, as we find that the action of the MMRDA in discontinuing the consultancy services provided to the petitioner is arbitrary and unfair. This Court is not precluded from exercising the power of judicial review merely on the ground of availability of alternate remedy in case this Court finds the action of termination of contract to be arbitrary and unreasonable.”

The Court thus quashed the MMRDA's notice and directed it to take a fresh decision after hearing Systra and by way of a speaking order.

Case title: Systra MVA Consulting (India) Pvt. Ltd. vs. Mumbai Metropolitan Region Development Authority (WRIT PETITION (L) NO.2889 OF 2025)

Citation: 2025 LiveLaw (Bom) 74