Termination based on "impossible" performance caused by erroneous soil reports and inadequate BOQ rates is illegal.

The Plaintiff (a Joint Venture) was awarded a contract by the South East Central Railway (Defendants 2 & 3) on July 28, 2010, for the design and construction of a bridge foundation and substructure

The Plaintiffs alleged that the Defendants' sub-soil exploration report was erroneous as it indicated "soft coal/sandstone," whereas the Plaintiffs encountered "hard rock strata" during execution, making the specified "well foundation" methodology impossible without additional compensation/revised rates

The Defendants issued 7-day and 48-hour notices and ultimately rescinded the contract on March 5, 2014, forfeiting security deposits and invoking a performance bank guarantee of ₹61,53,350/-

The Plaintiffs sought a declaration that the termination and invocation were illegal and claimed damages

The Defendants filed a counterclaim of ₹15,30,09,215.53 for losses and higher costs of a second tender

1. Whether part of the cause of action arose within the jurisdiction of the High Court at Calcutta?

2. Whether the contract stood frustrated or rendered impossible of performance due to the nature of the sub-soil strata and the approved methodology?

3. Whether the termination of the contract and invocation of the Bank Guarantee were valid and justified?

4. Whether the Defendants were entitled to their counterclaim for loss of revenue and image?

The court applied Section 56 of the Indian Contract Act, 1872, regarding the doctrine of frustration or supervening impossibility

It relied on *A.B.C. Laminart (P) Ltd. v. A.P. Agencies, Salem* to define "cause of action" for jurisdictional purposes

Regarding the competency of witnesses, the court adhered to the principles in *Janki Vashdeo Bhojwani v. Indusind Bank Ltd.* and *Manisha Mahendra Gala v. Shalini Bhagwan Avatramani*, establishing that a Power-of-Attorney holder or representative cannot depose on facts outside their personal knowledge

Finally, it applied the adverse inference rule under Section 114(g) of the Evidence Act as reinforced in *Chowdamma v. Venkatappa*, where a party’s failure to produce material witnesses in their service leads to a presumption against their case

The court found jurisdiction established because the offer was made from Kolkata, the Bank Guarantee was issued/invoked there, and communications were received there

On merits, the court noted that the Defendants' own subsequent tender for the balance work included significantly higher rates and specific items for "hard rock," which proved the original "all kinds of soil" rate was inapplicable and the contract was unworkable

The court critiqued the Defendants' evidence, noting that D.W.1 and D.W.2 had no personal knowledge of the project during its execution, having joined the service years later

Crucially, the Defendants failed to examine the officers who actually supervised the work and signed the notices, despite them being in active service; this lack of "best evidence" led to an adverse inference against the Railway

The Defendants failed to prove the counterclaim as they did not produce the second contract or documents showing actual revenue loss

The suit was decreed in favor of the Plaintiffs, and the counterclaim was dismissed

The Defendants were directed to pay ₹1,93,73,650/- (comprising earnest money, security deposits, bank guarantee amount, and pending bills) with 9% interest per annum from March 5, 2014, plus ₹1,00,000/- in costs, within 60 days