Mere Possibility Of More Money In Public Contract Cannot Be Sole Criteria For Terminating Contracts: Delhi High Court

Allowing petitions that had challenged National Highways Authority of India (NHAI)'s decision to invite fresh bids for collection of user fee at two toll plazas in Haryana during subsistence of ongoing contracts, the Delhi High Court has ruled that a mere possibility of more money in a public contract cannot be the sole criteria for terminating contracts and more particularly, the contracts which are for a fixed duration.

Observing that increase in traffic was the sole reason for calling the fresh Request for Proposal (RFP) by the NHAI, the division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad said the decision was arbitrary, capricious and whimsical on part of the authority.

"The same cannot be permitted by this Court while exercising its jurisdiction under Article 226 of the Constitution of India and considering the principles of equity," said the court.

While applying an analogy to the case, the bench noted that a sharp decline in traffic would not have enabled the contractors from terminating the contract as the Contract itself states that they cannot make any claim for any decrease in traffic on the ground of diversion of the traffic, even if such diversion did not exist at the time of submission of the bid by the Contractor.

"Therefore, the Contractors were not allowed to claim any decrease in profits on the ground of any diversion even if such a diversion did not exist at the time of submission of the bid. Applying this analogy, if the Contractors cannot claim any damage for decrease in traffic, then NHAI also cannot terminate the contract because of increase of traffic on the toll plaza due to commencement of operation of Trans-Haryana project on NH-152D which was under construction at the time of submission of bid by the Petitioners herein, which the NHAI also knew would be operational during the subsistence of contract," said the court.

M/S Jai Singh and Co had sought quashing of the a fresh RFP In October 2022 for engagement of User Fee Collecting Agency for Saini Majra Fee Plaza at Kilo meter 28.160 Ambala-Kaithal (PKF-1) KM 0.000 to KM 50.860 of NH-65. M/S Dimple Chaudhary through a separate petition challenged the NHAI's decision to invite fresh tender for engagement of User Fee Collecting Agency for Sirohi Bahali Fee Plaza at Kilo meter 23.00 in Mahendergardh Mor Narnaul Pacheri Kalan Section in Haryana.

The court was told that the contracts are still in subsistence and there has been no allegation of breach or non-fulfilment of conditions. It was contended that mere commercial consideration cannot give the State a leeway to cancel an ongoing contract.

The court in October 2022 had directed the NHAI to not issue any work orders in response to the tender notices. The high court orders were challenged before the Supreme Court by NHAI. However, the apex court in December dismissed the SLPs and requested the high court to decide the writ petitions at the earliest.

NHAI in response to the petitions before high court argued that increase in bid amount shows that the contractors were well aware of increase in traffic on the toll plaza due to completion of work on the Trans-Haryana project on NH-152D which is acting as a feeder route to the toll plaza in question.

"Government is using substantial amounts of money for infrastructure development and, therefore, the Respondent is well within its right to issue a fresh RFP. The practice of issuing fresh tenders when the contract is still in subsistence is not new," the counsel representing the NHAI submitted.

It was also argued that it is for the State to decide what is in the best interest of public and that there is no allegation that the NHAI has terminated the contract and has issued a fresh RFP to favour some other company or that the decision making process is opaque.

NHAI also argued that the contracts do not relate to 'build, operate and transfer' where a contractor has to invest some amount and, therefore, the petitioners cannot claim equities. The counsel relied on Section 20 of the Specific Relief Act, 1963, which prevents courts from granting injunctions in infrastructure contracts.

"In any event, the contract entered into by the Petitioners herein with the NHAI provides for an Alternate Dispute Resolution mechanism and it is always open for the Petitioners to invoke those provisions," he submitted.

The division bench at the outset said though disputes arising out of purely contract matters are not amenable to writ jurisdiction but keeping in mind the obligation of the State to act fairly and not arbitrarily or capriciously, it is now well settled that when contractual power is being used for public purpose, it is certainly amenable to judicial review.

"When a person enters into a contract with the Government the least he can expect is consistency on the part of the State and that the State will not act as a private individual to terminate contracts which are for a fixed duration just because the State can earn more profits by re-floating the tenders before expiry of the earlier contract. NHAI is a public authority and the public position it holds is fortified by the statute. As noted by the Apex Court in Shrilekha Vidyarthi (Kumari) v. State of U.P., (1991) 1 SCC 212, there is an obvious difference in contracts between private parties and contracts in which State is a party," said the court.

The court further observed that State action can be challenged on the ground of violation of Article 14 of the Constitution by alleging that the impugned act is arbitrary, unfair or unreasonable, and this can also be extended to the domain of contractual matters as the State is under an obligation to comply with the basic requirements of Article 14 of the Constitution of India and not act in an arbitrary, unfair and unreasonable manner. 

Analysing the facts of the matter, the court said it cannot be said that the NHAI was not aware of the fact that work on Trans-Haryana project on NH-152D, which is acting as feeder route to toll plazas in question, is underway and it would be operational during the subsistence of the contract.

"It also cannot be said that NHAI, which is responsible for the development and maintenance of national highways in the country, was not aware of the fact that traffic on the toll plaza in question will increase once work on Trans-Haryana project on NH-152D is complete and it becomes operational. It is not as if NHAI did not factor in these considerations at the time of floating the tender. When the earlier contracts were to end in February, 2023 and June, 2023 respectively, purely ridden by profit motives, the action of NHAI, in terminating the contract of the Petitioner herein midway without following the terms and conditions of contract, is arbitrary and blatant mis-use of the power in the hands of the State," said the court.

Observing that termination of a contract deprives a person of very valuable rights, the court said that it cannot be said that there was no investment on the part of the petitioners before they entered into the contract with NHAI. 

"A performance guarantee of Rs.2,08,00,000/- was given by [M/S Jai Singh and Co]. .... [M/S Dimple Chaudhary] had also given a performance security of Rs.2,21,12,000/-. Apart from the bank guarantee, the Petitioners had to also arrange for the manpower to man the toll plaza in question. The fact that the Petitioner in W.P.(C) 14848/2022 himself has offered a sum of Rs.44.24 crores which is equal to Rs.12,12,055/- per day as opposed to Rs.6,83,836/- cannot be the sole reason to justify premature termination of contract. State cannot be driven purely on profit motive," the court said.

The court also said that the fact M/S Jai Singh and Co had participated in the bidding process is of no consequence because it has challenged the fresh RFP even before the last date of submission of tender. "It would have been a different case had the Petitioners challenged the tender after having failed to get the tender. Since there is no delay on the part of the Petitioners in approaching this Court and the Petitioners have not been a fence sitter, this Court is not inclined to reject the instant petition only on the ground that the Petitioner in W.P.(C) 14848/2022 has participated in the tender," it added.

Title: M/S JAI SINGH AND CO versus NATIONAL HIGHWAYS AUTHORITY OF INDIA

Citation: 2023 LiveLaw (Del) 47

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