Contracts must not be cancelled without assigning reasons: SC

The Supreme Court on Wednesday said contracts awarding work to private parties should not be cancelled without assigning reasons and reserved its judgment on an appeal against a Calcutta high court order.

A bench comprising Chief Justice of India D.Y. Chandrachud and Justices J.B. Pardiwala and Manoj Misra said private parties, making investments after bagging a contract, have reasonable expectation of getting a return.

Justice Chandrachud said, “How can a contract be terminated without assigning any reason? A private person invests in pursuance of award of contract.”

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

On May 25, 2023, a division bench of the Calcutta high court had upheld the verdict of a single judge bench, which had approved the cancellation of the contract awarded to a firm headed by Subodh Kumar Singh Rathour.

Mr Rathour has challenged the high court order.

Mr Rathour’s firm had secured a contract for maintaining two underpasses on the Eastern Metropolitan Bypass in Kolkata for 10 years.

As part of the contract, the firm was allowed to place advertisements both inside and above the underpasses for which he was required to undertake some construction work.

On February 7 last year, the Kolkata metropolitan development authority (KMDA) terminated the contract.

The KMDA has agreed to refund the licence fee deposited by Mr Rathour and the cost incurred by him on construction activity and maintenance.

Senior advocate Rakesh Dwivedi, appearing for the KMDA, told the apex court that a fresh contract has now been awarded to another party and Mr Rathour can be compensated.

Senior advocate Shyam Divan, representing Mr Rahour, said though he did not want disruption of maintenance activities at the underpasses, the impugned communication by which the contract was cancelled, has to be set aside.