A notice to terminate the contract cannot be issued unilaterally by one party without the adjudication of the Court: Jharkhand High Court
Case title – M/s Aditya and Rashmi Construction Pvt. Ltd. VS The State of Jharkhand & Ors
Case no. – W.P. (C) No. 2924 of 2014
Decision on – February 27, 2024
Quoram – Justice Rongon Mukhopadhyay & Justice Deepak Roshan
Facts of the case
The Petitioner, M/s Aditya and Rashmi Construction Pvt. Ltd, a Private Limited Company, participated in a tender process floated by the respondent-authorities for construction of a High-Level Bridge over Mayurkola River at 17 Km. The petitioner being the successful bidder was awarded the contract of Rs.3,00,36,287/- and the time for completion was 13 months. The Parties entered into an agreement for the same.
The Petitioner’s work got delayed due to non-acquisition of land and non-payment of compensation by the respondents. Despite, several representations to the authorities to remove such hindrances and facilitate the construction work, there was no action taken by the respondents.
Although an extension of time was granted to the Petitioner upon its application, the same was contradicted by serving a show cause notice on the potential termination of the contract and blacklisting. The Petitioner responded to the notice, but however, the contract was terminated. Further, the authorities issued an order to recover an amount of Rs. 1,04,33,493/- on the ground of fundamental breach, negligence and slow progress in the work allotted to the petitioner. Subsequently, a writ petition was filed by the Petitioner before the High Court.
Submission on behalf of the Petitioner
The Counsel appearing for the Petitioner submitted that termination of the contract issued by the respondent is in gross violation of the principle of natural justice. Moreover, though a show cause notice was issued to the petitioner, no personal hearing was given prior to such termination.
He further, submitted that the delay in the construction work is due to the lethargic attitude of the respondents in acquiring the land and thus, contended that the petitioner was not at any default.
The Counsel submitted that the respondent-authorities have unilaterally terminated the contract and issued a certificate case for realization of the damages. Further, there was also no adjudication on this matter to fix the quantum of damages.
Submission on behalf of the Respondent
The Counsel highlighted clause 49 of the SBD Agreement, which outlines that the obligation of the contractor to pay liquidated damages to the employer on account of failure of completion of the work allotted within the intended completion or on account of the fundamental breach of the contract by the contractor.
The Counsel argued that attributing project failure solely to the respondent authorities, emphasizing that the lack of land acquisition during a specific period cannot solely be deemed to be the fault of the respondent.
Court’s Analysis and Judgement
The Court noted that the construction of Bridge was not possible without the complete acquisition of the land. The Court observed that the show cause notice to terminate the contract was issued immediately after the authorities granted a time extension for the Construction. Moreover, the authorities proceeded without providing the petitioner an opportunity to be heard before the termination.
The Court asserted that the mere acquisition of the land without extending the compensation to the land holders would automatically lead to disruption in the construction process.
The Court after the perusal of the facts pointed to arbitrary action by the authorities in terminating the contract wand imposing Rs. 1,04,33,493/- as liquidated damages instead of closing the contract or refunding of the security deposit.
The Court relied upon the decisions in State of Karnataka vs Shree Rameshwara Rice Mills, J.G. Engineers Private Limited vs Union of India and Another, and Inox Air Products Limited vs Steel Authority of India Limited, which emphasized that whether either party breached the contract terms must be adjudicated by a Court or Tribunal, and cannot be unilaterally decided by one party.
The Court held that despite repeated representations by the petitioner the respondent-authorities failed to provide any response in that regard. Therefore, the Court allowed the writ petition and quashed the order terminating the contract and demanding the liquidated damages.
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Judgement Reviewed by – Keerthi K