Arbitrary termination of highway project contract without fulfilling site handover obligations and considering engineer’s reports is unsustainable.

The National Highway Authority of India (NHAI) awarded Tata Projects Ltd. (Petitioner) a contract on August 26, 2021, for widening NH-709A in Uttar Pradesh

Under the EPC Agreement, NHAI was obligated to provide 90% of hindrance-free land in 5km contiguous stretches

Although a "Handover Memorandum" was signed on September 21, 2021, the Petitioner alleged that actual physical possession was not delivered due to pending land acquisition, protests, and structures (mosques, temples, buildings)

NHAI’s own Authority’s Engineer (AE) confirmed significant hindrances in reports dated July 2022 and July 2024

Despite these reports, NHAI only granted a 42-day extension and subsequently issued a cure notice for slow progress

On January 14, 2025, NHAI terminated the contract and initiated re-tendering

The Petitioner challenged the termination as arbitrary and a violation of Article 14

The court applied the principle that even in contractual matters, the State must act fairly and reasonably under Article 14 of the Constitution (ABL International Ltd. v. Export Credit Guarantee Corp.)

The doctrine that the mere existence of a dispute or an arbitration clause does not bar writ jurisdiction if the State's action is arbitrary, involves no complex factual investigation, or affects public interest (M.P. Power Management Co. Ltd. v. Sky Power Southeast Solar India; A.P. Electrical Equipment Corp. v. Tehsildar)

Judicial review is permissible if the decision is so irrational that no responsible authority could have reached it or if public interest is adversely affected (Jagdish Mandal v. State of Orissa)

The Court found that NHAI’s reliance on the 2021 Handover Memorandum was misleading, as NHAI’s own correspondence dated August 8, 2022, admitted that only 29.914 km of the 50.254 km stretch was actually available

The Authority’s Engineer’s reports (specifically July 10, 2024) unequivocally established that substantial portions of the main carriage-way remained encumbered by buildings and religious structures, which were NHAI's responsibility to clear

The Court observed that NHAI failed to perform its reciprocal obligations regarding land procurement yet penalized the contractor for the resulting delays

The Court noted a total non-application of mind in the termination process, as the final order was a verbatim reproduction of the show-cause notice and failed to address the Petitioner's detailed factual reply regarding specific site hindrances

The Court concluded that driving the Petitioner to arbitration would be a "smokescreen" for the State’s procedural failures and that public interest favored completing the project via the existing contractor to avoid massive cost escalations

The Court quashed the termination order dated January 14, 2025, and the fresh tender dated February 3, 2025, directing a joint site inspection and a revised schedule to complete the project within 14 months