Debarment was stayed where mandatory contractual warnings preceding such action were bypassed.

The National Highways Authority of India (NHAI) awarded a highway project to M/s APCO Sri Venkateshwara Expressways Private Limited, and appointed Petitioner No. 1 as the Independent Engineer under a Consultancy Agreement dated 2 June 2023.

Following Cyclone Michaung and the discovery of deficiencies and omitted drainage structures in the Detailed Project Report, the Independent Engineer issued a Change of Scope (CoS) Notice and processed various CoS proposals during 2024–2025.

NHAI issued a Show Cause Notice dated 10 April 2026 alleging delay in submission/recommendation of the comprehensive CoS proposal and proposed suspension or debarment.

After receiving the petitioners’ replies and conducting personal hearings, NHAI issued a debarment order dated 20 July 2026 declaring the petitioners “non-performers” and debarring the joint venture and its constituent members from participating in NHAI bids for one year.

The petitioners challenged the order and sought interim protection.

Whether NHAI could impose debarment without first complying with the warning-based and graded procedure prescribed under Clause 13 of the TOR.

Whether the debarment order could be sustained at the interim stage notwithstanding NHAI’s reliance on its independent Policy Circular and the petitioners’ alleged delay in processing the CoS proposals.

The Court applied the contractual principle that parties must comply with mandatory procedural requirements contained in their agreement before imposing contractual consequences.

Clause 13 of the TOR contemplated a graded performance regime involving warnings before resort to debarment.

The Court held, prima facie, that a party’s failure to object to the contractual requirement during the show-cause proceedings does not relieve the other contracting party of its obligation to follow that requirement.

The Court also considered NHAI’s Policy Circular No. 16.12/2022, which authorises action against Authority Engineers, Independent Engineers and consultants for service deficiencies, including delay in processing EOT/CoS proposals.

The principles of judicial review under Article 226, including scrutiny of administrative action for arbitrariness, irrationality and procedural impropriety, were relevant.

NHAI relied on Patel Engineering Ltd. v. Union of India, (2012) 11 SCC 257, concerning restraint in judicial review of debarment decisions affecting public interest.

The Court found a prima facie case in favour of the petitioners because Clause 13 of the TOR required warnings before debarment, and NHAI did not dispute that no such warning had been issued.

The Court rejected, at the interim stage, NHAI’s contention that the petitioners’ failure to raise Clause 13 during the show-cause proceedings excused NHAI from complying with it.

The show-cause notice alleged delay over a period of nearly two years, yet no contemporaneous warning or communication directing cure had been issued during that period.

The Court also noted the petitioners’ reliance on Cyclone Michaung, deficiencies in the DPR, additional drawings and the multi-tiered approval process, without finally adjudicating those factual disputes.

Since the contractual warning procedure appeared to have been bypassed, the Court considered it unnecessary at the interim stage to conclusively determine whether the Policy Circular independently empowered NHAI to debar the petitioners or whether the alleged delay was attributable to them.

Accordingly, the debarment order dated 20 July 2026 was stayed during the pendency of the writ petition.

The interim application was disposed of, and the writ petition was listed for final hearing on 22 January 2027.