Contracts awarding work to private parties should not be cancelled without assigning reasons: SC

NEW DELHI: Contracts awarding work to private parties should not be cancelled without assigning reasons, the Supreme Court said on Wednesday, as it reserved its judgement on an appeal against a Calcutta High Court order.

A bench comprising Chief Justice D Y Chandrachud and justices JB Pardiwala and Manoj Misra said private parties, who make investments after bagging a contract, have reasonable expectation of getting a return.

"How can a contract be terminated without assigning any reason? A private person invests in pursuance of award of contract," the CJI said.

Referring to the facts of the case, the CJI said no reason was given for cancellation of the contract.

A division bench of the high court had on May 25, 2023 upheld the verdict of a single judge bench which had approved the cancellation of the contract awarded to a firm headed by Subodh Kumar Singh Rathour. The firm had secured a contract for maintaining two underpasses on the Eastern Metropolitan Bypass in Kolkata for 10 years.

As part of the contract, the firm was allowed to place advertisements both inside and above the underpasses for which he was required to undertake some construction work. However, the contract was terminated by KMDA (Kolkata Metropolitan Development Authority) on February 7, 2023.

The KMDA had made it clear that it would refund the license fee deposited by Rathour and the cost incurred by him on construction activity, maintenance etc. Senior advocate Rakesh Dwivedi, appearing for the KMDA, told the Supreme Court that a fresh contract has now been awarded to another party and Rathour can be compensated.

Senior advocate Shyam Divan, who represented Rahour, said though he did not want disruption of maintenance activities at the underpasses, the impugned communication by which the contract was cancelled, has to be set aside. "We will close it for the judgement," the CJI said.