Court Reiterates Principles of Fairness and Non-Arbitrariness, Sets Aside Arbitrary Contract Termination by State Authorities
In a landmark judgment, the Calcutta High Court has set aside the termination of a construction contract between Amal Biswas, a sole proprietor of URJA INFRA, and the State of West Bengal, declaring the action by the state authorities as arbitrary and violative of the principles of fairness and non-arbitrariness. The judgment, delivered by Justice Krishna Rao, underscores the importance of adhering to contractual terms and the principles of fairness in public procurement processes.
The dispute arose from a contract for embankment protection and strengthening work along Kotalpara Kshusiganj Road, awarded to Amal Biswas. The project faced significant setbacks due to heavy rains and subsequent floods caused by the Damodar Valley Corporation's sudden release of water, leading to severe damage to the constructed road. Despite technical audits confirming that the work executed was within acceptable limits, the state authorities issued a notice terminating the contract, citing failure to repair the damages.
Justice Rao emphasized that the termination decision, made after a meeting held on January 27, 2025, which suggested foreclosure of the contract without defect liability, was not followed through appropriately. Instead, state authorities extended the rectification period and imposed penalties, which the court found to be arbitrary, especially given the prior decision to initiate a fresh tender process.
The judgment also highlighted the role of Article 226 of the Constitution in offering judicial recourse in contractual matters involving state power. It reiterated that the jurisdiction under Article 226 is not ousted merely because a dispute arises from contractual obligations, especially when there is an arbitrary exercise of power violating Article 14 of the Constitution.
Legal experts and public procurement specialists view this judgment as a reaffirmation of the doctrine of legitimate expectation, emphasizing that public authorities must act transparently and predictably, maintaining trust in public procurement processes. The court's decision to quash the termination order serves as a reminder of the need for public authorities to adhere strictly to contractual terms and principles of fairness, ensuring the stability and predictability of legal relationships.
Bottom line:-
Termination of contract by public authority must strictly adhere to the terms of the contract, and arbitrary or unreasonable actions violating principles of fairness and non-arbitrariness are subject to judicial review.
Statutory provision(s): Article 226 of the Constitution of India, Contract Law principles on termination, Doctrine of Legitimate Expectation, Article 14 of the Constitution of India.
Amal Biswas v. State of West Bengal, (Calcutta) : Law Finder Doc id # 2938143
