Court Cites Violation of Natural Justice; Arbitration Clause Does Not Restrict Writ Jurisdiction
In a significant ruling, the Kerala High Court has invalidated the termination of a contract between M/s. RCC-ACC (JV) and the Cochin Port Authority, citing violations of natural justice principles. The court held that the grounds for termination were not properly outlined in the initial show cause notice, rendering the termination unlawful. The judgment emphasized that any termination must strictly adhere to the grounds specified in the show cause notice to ensure fair opportunity for the contractor to respond.
The dispute arose from a contract for the construction of cruise terminals at Mormugao Port, which was terminated by the Cochin Port Authority citing various breaches, including non-compliance with a supplementary agreement and inadequate project progress. However, the termination letter included grounds not mentioned in the show cause notice, leading the court to declare the termination as ex-facie illegal.
The judgment, delivered by Chief Justice Soumen Sen and Justice Syam Kumar V.M., highlighted the importance of maintaining procedural fairness, stressing that termination decisions should be based solely on grounds mentioned in the show cause notice, thereby upholding principles of natural justice.
Furthermore, the court addressed the maintainability of the writ petition despite the existence of an arbitration clause. It clarified that while arbitration provides an alternative remedy, it does not absolutely bar the High Court's jurisdiction under Article 226 of the Constitution. The court noted that even disputed questions of fact can be examined in writ proceedings, particularly when alternative remedies are not deemed efficacious.
The court granted temporary relief to the appellant by halting any coercive actions for six weeks, allowing them time to seek appropriate remedies through arbitration. This decision comes amidst the appellant's concerns over potential blacklisting and its impact on future contracts.
The ruling sends a clear message regarding the adherence to procedural norms and the scope of judicial review, reinforcing the notion that contractual disputes, even with arbitration clauses, may be subject to writ jurisdiction when fundamental rights and procedural fairness are at stake.
Bottom Line:
Termination of contract based on grounds not mentioned in the show cause notice is ex-facie illegal. Arbitration Clause in an agreement does not bar the writ jurisdiction of the High Court under Article 226 of the Constitution, but the Court may refrain from exercising such jurisdiction where an efficacious alternative remedy exists.
Statutory provision(s): Article 226 of the Constitution of India, Arbitration and Conciliation Act, 1996 Sections 9 and 17
M/s. RCC-ACC (JV) v. Board of Major Port Authority, (Kerala)(DB) : Law Finder Doc id # 2879405
