Grant of Contractual Extension Subject to Satisfactory Performance and Authority's Discretion is Not an Automatic Right.

The Petitioners are authorized parking contractors for the Municipal Corporation of Delhi (MCD) under a 2022 tender (NIT No. 907).

The tender stipulated a tenure of three years, "further extendable for another two years subject to satisfactory performance and as decided by the Competent Authority".

As the initial three-year period neared completion, the Petitioners sought two-year extensions, asserting satisfactory performance and no outstanding dues.

Instead of granting extensions, the MCD floated a new tender (NIT No. 1419) on 15.01.2026, including the same parking sites.

The Petitioners challenged this action as arbitrary and a breach of contractual expectations.

During proceedings, MCD produced an order dated 11.02.2026 formally declining the extensions to maximize revenue through fresh price discovery.

Whether the Petitioners have a vested contractual right to an extension of two years solely based on "satisfactory performance" under Clause 10 of the NIT.

Whether the MCD’s decision to re-tender the sites instead of granting extensions was arbitrary or violative of Article 14 of the Constitution.

Whether the principle of "legitimate expectation" or "deemed extension" applies when a contractor continues operations after applying for an extension.

The Court primarily applied the principle of contractual interpretation concerning discretionary powers of State authorities.

It relied on the precedent in Himalayan Flora and Aromas Pvt. Ltd. v. MCD (LPA 351/2025), which established that the phrase "as decided by the Commissioner/Competent Authority" grants wide administrative discretion beyond mere performance metrics.

The Court also referenced Union of India v. Dinesh Engineering Corporation regarding the limits of administrative discretion.

Section 200 of the Delhi Municipal Corporation Act, 1957, emphasizing the MCD’s fiduciary duty to maximize revenue from public resources.

The Court analyzed Clause 10 of the NIT, noting the conjunctive use of "and" between "satisfactory performance" and "as decided by the Competent Authority".

It reasoned that these are independent conditions; even if performance is satisfactory, the Competent Authority retains the discretion to deny an extension based on other relevant factors like financial prudence.

The Court distinguished the present case from S.K. Associates v. MCD, noting that the latter lacked the specific "discretionary decision" qualifier found here.

Regarding the MCD's decision-making, the Court found that the goal of "price discovery" to mitigate financial stress and align with current market trends was a rational and non-arbitrary exercise of power.

The Court rejected the "legitimate expectation" plea, holding that the conditional nature of the extension clause was known to the Petitioners from the outset.

It ruled that Clause 10 vests the MCD with the discretion to evaluate the financial viability of extensions versus re-tendering.

The Court concluded that the MCD’s decision to prioritize revenue optimization for public benefit was legally sound and did not constitute "constructive termination" since the initial three-year term had expired by efflux of time.

No costs were awarded.