Government contracts cannot be terminated for alleged forged securities without an effective show-cause notice.

M/s N.S. Enterprises held 57 agreements with the Public Health Engineering Department for water-supply works in Araria district.

After the Executive Engineer received information from IndusInd Bank that fixed deposits furnished as security were either closed or not issued by the Bank, the Department cancelled the agreements, forfeited the security and recommended blacklisting.

The contractor challenged the cancellation on the ground that no show-cause notice or hearing had been provided.

In a connected petition, it sought payment of ₹1,85,98,200 for completed work.

The contractor relied on completion certificates and asserted that it had completed the remaining work pursuant to an interim court order.

The State maintained that the security documents were non-genuine, that fraud vitiated the contracts, and that the contractor should pursue the contractual arbitration mechanism.

Whether the cancellation of the 57 agreements, forfeiture of security and recommendation for blacklisting were invalid for want of prior notice and a reasonable opportunity to be heard.

Whether the contractor was entitled to payment of the admitted amount for work completed and accepted by the Department.

Administrative action is subject to judicial review for illegality, irrationality and procedural impropriety; the audi alteram partem rule ordinarily requires notice of the case against a person and a meaningful opportunity to respond before action with civil consequences is taken.

Under UMC Technologies Pvt. Ltd. v. Food Corporation of India, a show-cause notice must identify the grounds for action and the proposed consequence; an order cannot travel beyond the notice.

State of U.P. v. Sudhir Kumar Singh addresses when prejudice must be shown, while Madhyamam Broadcasting Ltd. v. Union of India recognises procedural fairness as having inherent value.

Allegations of fraud require a factual basis linking the allegedly false document to the person’s knowledge and intention; subsequent discovery of a defect does not, by itself, establish fraud, particularly where the authority had an opportunity to verify the document.

Section 70 of the Indian Contract Act, 1872 obliges a person who voluntarily enjoys the benefit of a lawful, non-gratuitous act to compensate the person who performed it; State of West Bengal v. B.K. Mondal & Sons explains the conditions for that obligation, and Ramesh Kumar Jain v. BALCO recognises Section 70 as an independent restitutionary obligation.

The Department relied on the Bank’s verification to cancel the agreements and impose serious consequences, but did so without giving the contractor notice of the specific allegation of fraud or the proposed action.

The Court held that the Bank’s communication warranted inquiry but did not, by itself, establish that the contractor knowingly submitted false securities or intended to deceive; the Department could consider the allegation afresh after following due process.

The cancellation and recommendation for blacklisting were therefore procedurally unsustainable.

As to payment, the Court relied on the completion certificates and the Department’s acceptance and enjoyment of the completed work and maintenance services.

It held that the contractor’s services were not gratuitous and that retaining their benefit without compensation would result in unjust enrichment, attracting Section 70.

It expressed no opinion on the merits of the security-document or fraud allegations and left the competent authority free to proceed in accordance with law after following due process.

The Court also directed the respondents to pay the contractor the admitted amount of ₹1,85,98,200 within two months of receipt or production of the order, taking account of the completed work and completion certificates.

The writ applications were allowed; no separate award of the claimed 12% interest appears in the operative directions.