The bench led by CJI Chandrachud Today (May 8th), emphasized that contracts awarded to private parties should not be cancelled without providing reasons. This statement came as the bench reserved its judgment on an appeal challenging a decision of the Calcutta High Court. The Apex court marked that private parties, having made investments after securing a contract, hold a reasonable expectation of receiving returns.
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The Supreme Court of India today emphasized that contracts involving private parties should not be terminated without clear, articulated reasons, marking a significant assertion on the expectations and securities in private-public contractual relationships.
This principle was underscored during the court’s deliberation over an appeal against a decision by the Calcutta High Court, as it reserved its judgement, a verdict from the apex court now eagerly awaited.
Presiding over the matter, Chief Justice D.Y. Chandrachud, along with Justices J.B. Pardiwala and Manoj Misra, articulated concerns about the fundamental fairness in contractual obligations.
“How can a contract be terminated without assigning any reason? A private person invests in pursuance of award of contract,”
-stated the Chief Justice, highlighting the investment and expectations set by private entities upon entering such agreements.
The case in question involved a contract awarded to a firm led by Subodh Kumar Singh Rathour for the maintenance of two underpasses along the Eastern Metropolitan Bypass in Kolkata. This ten-year contract also permitted Rathour’s firm to display advertisements within and above these underpasses, necessitating certain construction efforts on his part.
However, the contract was abruptly terminated by the Kolkata Metropolitan Development Authority (KMDA) on February 7, 2023, with assurances given to refund Rathour’s license fee and cover the costs incurred for construction and maintenance activities. Despite this, the situation escalated to legal scrutiny due to the lack of justification provided at the time of cancellation.
Representing KMDA, Senior Advocate Rakesh Dwivedi acknowledged the termination but mentioned that a new contract had been assigned and proposed compensation for Rathour. Conversely, Rathour’s counsel, Senior Advocate Shyam Divan, argued for the necessity of overturning the cancellation notice, despite not wanting to disrupt ongoing maintenance operations.
“We will close it for the judgement,”
-declared the Chief Justice, indicating the court’s readiness to finalize its decision.
This case not only underscores the judiciary’s stance on protecting the interests of private investors against abrupt contractual terminations but also sets a precedent for how similar disputes should be handled, ensuring that contractual obligations are not discarded arbitrarily without sufficient grounds.
The Supreme Court’s impending judgement is set to clarify the legal stance on such matters, potentially influencing future public-private contractual relationships across India.
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