Contracts awarding work to private parties should not be canceled without giving reasons: SC

Contracts awarding work to private parties should not be canceled without justification, the Supreme Court said on May 8, reserving judgment on an appeal against a Calcutta High Court order.

A bench comprising Chief Justice DY Chandrachud and Justices JB Pardiwala and Manoj Misra said private parties, who invest after entering into a contract, have a reasonable expectation of getting a return. “How can a contract be terminated without giving any reason? A private person invests pursuant to the award of the contract,” the CJI said.

Referring to the facts of the case, the CJI said no reason was given for the cancellation of the contract.

A division bench of the Calcutta High Court had on May 25, 2023 upheld the verdict of a single bench which had approved the cancellation of the contract awarded to a company headed by Subodh Kumar Singh Rathour.

The company had secured a contract to maintain two underpasses on the Kolkata Eastern Metropolitan Bypass for 10 years. As part of the contract, the company was allowed to place advertisements inside and above the underpasses for which it was to undertake certain construction works.

However, the contract was terminated by KMDA (Kolkata Metropolitan Development Authority) on February 7, 2023.

The KMDA had made it clear that it would reimburse the license fees deposited by Rathour and the costs incurred by him for construction activities, maintenance, etc.

Senior advocate Rakesh Dwivedi, appearing for KMDA, told the Supreme Court that a new contract had now been awarded to another party and Rathour could be compensated.

Senior advocate Shyam Divan, who represented Rahour, said that while he did not want the maintenance activities of the underpasses to be disrupted, the disputed communication by which the contract was canceled must be set aside. “We will close it for judgment,” the CJI said.