While granting relief to Tata Projects Limited, the Allahabad High Court has held that the National Highways Authority of India, being “State” under Article 12 of the Constitution, cannot arbitrarily terminate a highway construction contract mid-term and fasten the contractor with liability for delay when the delay was caused by the Authority's own failure to hand over encumbrance-free land with a clear right of way, as it was bound to do under the contract.

Justice Ajit Kumar and Justice Swarupama Chaturvedi held,

“The act of a party which is State under Article 12 in this case is found to be arbitrary one against affect work of public importance and so this Court will not shirk away from its responsibility in arresting any miscarriage of justice in larger public interest. Delay in construction of national highway as a project, if caused due to reasons for the negligence and carelessness and arbitrariness on the part of the State as one of the parties of the contract, the Court is certainly justified lift the corporate veil to understand the exact reasons for such actions impugned in this petition.”

The Court further held that such arbitrary action by a State instrumentality can be challenged in writ jurisdiction under Article 226 notwithstanding an arbitration clause in the agreement, where the controversy turns on the interpretation of documents and the Authority's own record amounts to a fair admission, rather than on any genuinely disputed question of fact.

NHAI had issued a request for proposals in December 2018 for widening and upgrading a 50.254 km stretch of NH-709A between Garhmukteshwar and Meerut, at a cost of Rs. 940.68 crore. Tata Projects Limited was selected and issued a letter of acceptance in March 2021. The appointed day was fixed as 10 October 2021, with completion due by 10 October 2023.

A Handover Memorandum dated 21 September 2021 recorded delivery of 47.620 km, or 94.76%, of the total length. The petitioner, however, repeatedly complained that hindrance-free stretches were not being made available. Thereafter, mid-term contract was terminated, amongst others, on grounds of not completing the project within time.

This termination and consequential action was challenged before the High Court in writ jurisdiction.

The Court observed that under the Engineering, Procurement and Construction (EPC) agreement, the Authority was obliged to provide at least 90% of the required right of way, free from encumbrances and in contiguous stretches of not less than 5 km, within 30 days of the agreement. Article 8.2 required the parties and the Authority's Engineer to prepare a “Handover Memorandum” recording an inventory of the site, including the vacant and unencumbered land and any buildings, structures, trees or other immovable property on it, its signing being deemed valid evidence that the right of way had been given to the contractor.

The Court observed that the Authority's own record contradicted the Handover Memorandum. A letter of the Authority dated 8 August 2022 acknowledged that only 29.914 km of the 50.254 km had in fact been handed over. The report of the Authority's Engineer dated 10 July 2024, the Court noted, had gone undenied in the counter affidavit. The report recorded that hindrances and land issues persisted and recommended a further extension of 247 days.

Noting that the appendix to the Handover Memorandum listed only minor utilities such as electric poles, a stray pipeline and a few hand pumps, but omitted the buildings, temple and land issues, the Court held the possession it recorded to be “only a paper work” and the appendix itself “an eye wash and misleading in itself”.

The Court held that the termination was vitiated by non-application of mind, as the wording of the termination order was same as the show cause notice, and that the contractor's detailed reply, with documents, was not considered at all. It described the Authority's conduct as “an unfair practice on part of the State” and its termination as “an absolute arbitrariness, apparent on the face of record”.

On the Authority's contention that the contractor should be relegated to arbitration under Article 26 of the agreement, the Court held that the mere existence of an arbitration clause, or of a purportedly disputed question of fact, does not oust writ jurisdiction where the State's own documents disclose a fair admission and the dispute is one of law turning on the construction of those documents.

Relying on the Supreme Court's decisions in ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., MP Power Management Company Ltd. v. Sky Power Southeast Solar India Pvt. Ltd. and A.P. Electrical Equipment Corporation v. Tehsildar, the Court held that a disputed question of fact cannot be used to defeat a genuine claim, and that the overwhelming public interest in completing a stalled national highway justified deciding the petition on merits.

“When the first party to the contract itself failed to discharge its duties and obligations, then it cannot be said to be in a driver's seat under an agreement to navigate through the provisions that empower to it to terminate the contract unilaterally...what is very surprising is that detailed reply submitted by the petitioner referring to the various progress related reports, photographs, hindrances and the issues like land issues etc...nothing was considered as if authority was sitting with a pre-determined mind to terminate the contract of the petitioner mid-term, whatever be his reply.”

Allowing the petition, the Court quashed the termination order dated 14 January 2025, the consequent forfeiting of the bank guarantees, and the fresh tender issued on 3 February 2025. Recording the contractor's undertaking to complete the work within 14 months, and noting that no third-party rights had been created and possession remained with the contractor, the Court directed the parties to conduct a fresh joint site inspection within a month and to re-schedule and complete the project in the larger public interest under the EPC agreement.

Case Title: Tata Projects Limited v. Union of India and 2 others

Counsel for Petitioner : Amit Saxena, Senior advocate assisted by Varad Nath and Vineet Kumar

Counsel for Respondent : Rakesh Pandey, senior advocate assisted by Pranjal Mehrotra

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