Apex Court: Can’t End Private Contract Without Sufficient Reason

While presiding over a case, the Chief Justice of India asked how a private contract could be ended without giving a reason, especially when a private person makes investments after bagging a contract and has a reasonable expectation of getting a return.

The Facts of the Case

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

The firm had won a contract to maintain two underpasses on the Eastern Metropolitan Bypass in Kolkata for 10 years. As part of this agreement, the firm was permitted to display advertisements both inside and above the underpasses, for which it needed to carry out some construction work.

However, on February 7, 2023, the Kolkata Metropolitan Development Authority (KMDA) terminated the contract. Subodh Kumar Singh Rathore had moved to the Supreme Court to appeal against the order pronounced by the Calcutta High Court.

Court’s Proceedings

Senior advocate Rakesh Dwivedi, representing the Kolkata Metropolitan Development Authority (KMDA), informed the Supreme Court that a new contract has been awarded to a different party. He suggested that Rathour could be compensated accordingly.

Senior advocate Shyam Divan, representing Rathour, expressed his desire to avoid any disruption in the maintenance activities at the underpasses. However, he argued that the communication through which the contract was canceled should be invalidated.

The Chief Justice, referring to the case’s details, pointed out that no reason was provided for the cancellation of the contract. Though the court reserved its judgment, it held that contracts awarding work to private parties should not be cancelled without assigning reasons.

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