Court Emphasizes Judicial Review of State Actions in Public Interest Contracts and Directs Joint Inspection to Facilitate Timely Completion of NH-709A Project
In a significant judgment dated July 8, 2026, the Allahabad High Court (Division Bench) set aside the termination order issued by the National Highway Authority of India (NHAI) against Tata Projects Limited concerning the widening and strengthening of National Highway NH-709A in Uttar Pradesh. The High Court held that the termination was arbitrary and violative of the contractual obligations of the state authority, particularly due to the failure of NHAI to provide the petitioner with contiguous, hindrance-free land as mandated under the Engineering, Procurement and Construction (EPC) agreement.
The dispute arose from a contract awarded in March 2021 to Tata Projects for the development of a 50.254 km stretch of NH-709A, with an original deadline for completion by October 2023. Tata Projects alleged that NHAI did not honor its obligation to provide at least 90% of the project land free of encumbrances and with a 'Right of Way' as specified in the contract, causing delays in execution and hindering progress. Despite repeated requests for extensions and communications highlighting various land acquisition issues, including protests from landowners and the presence of religious structures such as mosques and temples, the NHAI issued a cure period notice followed by contract termination in January 2025.
The Court's detailed analysis revealed that while a 'Handover Memorandum' dated September 2021 claimed possession of over 94% of the project land was handed over, subsequent authoritative reports, including those by NHAI’s own Engineer, contradicted this claim. The Engineer’s reports acknowledged substantial hindrances and encumbrances persisting on significant portions of the land, with some stretches affected by buildings, trees, and utility poles, making uninterrupted work impossible.
The Court underscored the obligations of the NHAI under various provisions of the EPC agreement, notably Articles 3, 8, 9, 10, 18, and 23, which mandated timely provision of land, environmental clearances, and cooperation in shifting utilities. The failure to fulfill these obligations, despite repeated communications and recommendations from the Authority’s Engineer for time extensions, was held to constitute a breach by the NHAI, rendering the termination order arbitrary and unconstitutional under Article 14 of the Constitution.
Importantly, the Court observed that the NHAI, as a State instrumentality under Article 12, must act fairly and reasonably in contracts involving public interest projects funded by taxpayers’ money. The Court rejected the contention that the arbitration clause in the contract barred judicial intervention, holding that in cases of arbitrariness or failure by the State to perform contractual duties, judicial review under Article 226 is permissible and necessary to protect public interest.
The Court also took serious note of NHAI’s non-compliance with earlier directions to file affidavits specifying the dates of land possession and criticized the lack of application of mind in the termination decision, where the petitioner’s detailed replies to show cause notices were ignored.
Consequently, the Court quashed the termination order and related actions, including forfeiture of bank guarantees and fresh tendering. It directed the parties to conduct a joint site inspection within one month, reassess the project status in light of the Authority Engineer’s reports, and reschedule the timeline for project completion. The petitioner undertook to complete the remaining work within 14 months from the order date.
This judgment reinforces the principle that while commercial contracts involving the State are generally subject to arbitration, courts will intervene where State actions are unreasonable, arbitrary, or detrimental to public interest. It also highlights the importance of State authorities honoring their contractual duties diligently in public infrastructure projects critical to national development.
Bottom line:-
Contractual disputes involving public interest projects like national highways can be reviewed under Article 226 of the Constitution if state actions are arbitrary, unreasonable, or fail to fulfill obligations under the agreement.
Statutory provision(s): Constitution of India Article 12, Article 14, Article 226; National Highways Act, 1956; EPC Agreement clauses (Articles 3, 8, 9, 10, 18, 23, 26)
Tata Projects Limited v. Union of India, (Allahabad)(DB) : Law Finder Doc id # 2937416
