A concluded government contract cannot be unilaterally terminated without notice and an opportunity of hearing.

The appellant, a company providing housekeeping, security and manpower services, participated in a tender floated by the Chief Medical and Health Officer, Tikamgarh, pursuant to the outsourcing policy dated 27 June 2025. The appellant was selected by draw of lots after two bidders submitted identical rates. A work order was issued on 11 February 2026, requiring submission of a Performance Bank Guarantee (“PBG”) within seven days, and a formal agreement was executed on 12 February 2026, creating contractual relations between the parties.

The appellant claimed that technical difficulties on the banking portal prevented timely submission of the PBG. It submitted a representation dated 14 February 2026 seeking an eight-day extension, but the representation was neither considered nor decided. On 20 February 2026, the respondents terminated the work order and agreement on the grounds that the PBG had not been furnished within time and that the appellant had failed to comply with the Government Circular dated 9 September 2025 concerning management charges. The termination was made without a show-cause notice or hearing.

The appellant’s writ petition challenging the termination was dismissed by the Single Judge on 6 July 2026 solely on the ground that Clause 21 of the agreement provided an alternative contractual dispute-resolution remedy. The legality of the termination was not examined. The appellant accordingly preferred the present writ appeal.

Whether the existence of an alternative contractual remedy under Clause 21 of the agreement barred the exercise of writ jurisdiction under Article 226 where the impugned termination allegedly involved arbitrary State action and violation of natural justice?

Whether the respondents could terminate the concluded work order and agreement without issuing a show-cause notice or granting the appellant an opportunity of hearing?

Whether the failure to furnish the PBG within the stipulated period, particularly when an extension had been sought and the delay was allegedly attributable to technical difficulties, justified cancellation of the contract?

Whether the respondents were entitled to cancel the contract on the basis of the Government Circular dated 9 September 2025 concerning management charges after the appellant had been selected and the agreement had been executed?

The Court applied Article 226 of the Constitution and the principle that an alternative contractual remedy is ordinarily a discretionary bar, not an absolute prohibition, against writ jurisdiction. Exceptions arise where the impugned State action is arbitrary, violates principles of natural justice, or involves a public-law element, as recognised in ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., (2004) 3 SCC 553; Uttar Pradesh Power Transmission Corporation Ltd. v. CG Power and Industrial Solutions Ltd., (2021) 6 SCC 15; Whirlpool Corporation v. Registrar of Trade Marks; Harbanslal Sahnia v. Indian Oil Corporation Ltd.; and Radha Krishan Industries v. State of Himachal Pradesh.

The Court further relied on the audi alteram partem rule, particularly the requirement of notice and hearing before adverse termination of a concluded Government contract, with reference to Erusian Equipment & Chemicals Ltd.; Mahabir Auto Stores; Gorkha Security Services; Kulja Industries; and State of U.P. v. Sudhir Kumar Singh, (2021) 19 SCC 706. It also applied the principle that a concluded contractual arrangement cannot be unilaterally cancelled arbitrarily and that delay in furnishing security may be condoned where the default is not fundamental and no compelling justification exists for cancellation.

The Court held that the writ petition was maintainable notwithstanding Clause 21 because the challenge was not confined to a private contractual dispute: the termination represented State action allegedly undertaken without notice or hearing. The respondents did not consider the appellant’s representation seeking an extension before cancelling the contract, and the absence of any disputed facts requiring oral evidence meant that the matter could appropriately be adjudicated under Article 226.

The Court found that the appellant had already been selected, issued a work order and entered into a formal agreement; it had also mobilised manpower and infrastructure. In these circumstances, failure to furnish the PBG within the stipulated time—followed by its subsequent furnishing on 21 February 2026—was not treated as a fatal breach warranting cancellation, particularly when the appellant had sought a short extension and the authority possessed the power to condone the delay.

The Court further considered that cancellation and fresh tendering would involve additional public time and expenditure, while disclosure of the existing rates would undermine healthy competition in a subsequent tender process.

Since the contract was terminated without a show-cause notice or opportunity of hearing, the termination violated natural justice and was legally unsustainable.

The termination order dated 20 February 2026 was set aside for violation of natural justice and for improper cancellation of the concluded contractual arrangement. The Single Judge’s order dated 6 July 2026 was also set aside, and the work order dated 11 February 2026 and agreement dated 12 February 2026 were restored.

The respondents were directed to pay costs of ₹10,000 to the appellant.