Safiya Malik

The Bombay High Court has set aside a termination notice issued by the Mumbai Metropolitan Region Development Authority (MMRDA) against a consulting firm, directing the authority to reconsider its decision after affording the petitioner an opportunity to be heard.

The dispute arose when the MMRDA issued a notice on January 3, 2025, terminating the services of Systra MVA Consulting (India) Pvt. Ltd., a company that had been engaged as a General Consultant for system works of certain Mumbai Metro lines. The firm had been awarded the contract on May 31, 2021, for a 42-month period, later extended until December 31, 2026.

The petitioner was responsible for consultancy services, including design, assistance in procurement, project management, and supervision for Mumbai Metro Lines 5 (Thane-Bhiwandi-Kalyan), 7A (Andheri East-CSIA), and 9 (Mira Bhayander). The contract, initially valid until November 30, 2024, was later extended until December 31, 2026, following a request for extension in July 2024, which was granted by MMRDA in October 2024.

On receiving the termination notice, the petitioner challenged the decision on the grounds that the termination was arbitrary, issued without prior notice or reasons, and violated principles of fairness and non-arbitrariness under Article 14 of the Constitution. The petition stated that, despite an arbitration clause in the contract, the High Court could intervene in cases of arbitrary state action.

The petitioner relied on precedents from the Supreme Court, arguing that contractual agreements with state instrumentalities must comply with constitutional principles. It was further contended that the absence of a stated reason in the termination notice deprived the petitioner of an opportunity to respond or rectify any alleged deficiencies.

Conversely, the MMRDA defended its position by invoking Clause 2.8.1(f) of the General Conditions of Contract, which allows the authority to terminate the contract at its sole discretion and without assigning reasons. The MMRDA argued that the petitioner had voluntarily agreed to these terms and that disputes related to the contract should be resolved through arbitration rather than judicial intervention under Article 226.

The Bombay High Court examined whether MMRDA's termination notice met the standards of fairness and non-arbitrariness required of state action. The court held that state instrumentalities, even in contractual matters, must adhere to constitutional principles. It was stated in the judgment:

"The State or its instrumentalities, even while acting in a contractual field, must adhere to principles of fairness, reasonableness, and non-arbitrariness."

The court examined Clause 2.8.1(f) of the contract, which permits termination at MMRDA's sole discretion, and held that the provision could not be used to justify arbitrary action. The judgment recorded:

"Clause 2.8.1(f) cannot be interpreted as granting the MMRDA an unfettered license to act arbitrarily without any justification."

The court further distinguished between contractual disputes suitable for arbitration and cases involving arbitrary state action, stating:

"The presence of an arbitration clause does not curtail the power of this Court to intervene when a state action violates constitutional guarantees."

The court referred to judicial precedents where courts had intervened in contractual disputes where state entities had acted arbitrarily. It noted that a mere contractual clause allowing termination without reason could not override the fundamental principles of fairness required under Article 14 of the Constitution. The judgment stated that, despite the presence of a termination clause, MMRDA was required to exercise this power in a non-arbitrary manner and provide some basis for its decision.

The court observed that contracts involving state entities carry an element of public interest and that abrupt terminations without reason can discourage private parties from engaging in public projects. It was noted that:

"A state entity exercising discretionary contractual powers must do so in a manner that is fair and does not create uncertainty in public procurement and infrastructure development."

The court further stated that allowing terminations without reasons could create an environment were state entities exercise power arbitrarily, affecting business confidence in government projects.

After examining the arguments, the Bombay High Court quashed the termination notice issued on January 3, 2025. The court directed the MMRDA to reconsider its decision and issue a fresh order after granting the petitioner a fair hearing. The ruling stated:

"The impugned notice dated 3rd January 2025 is quashed and set aside. The MMRDA is directed to take a fresh decision with regard to either discontinuation or otherwise of the contract awarded to the petitioner afresh after hearing it, by way of a speaking order."

The High Court did not grant any relief for specific performance of the agreement but stated that the MMRDA must act in a fair and reasonable manner while exercising its discretion. The judgment stated that the petitioner was not seeking to rewrite contractual terms but was challenging the arbitrary exercise of state power.

Case Title: Systra MVA Consulting (India) Pvt. Ltd. v. Mumbai Metropolitan Region Development Authority
Case Number: WRIT PETITION (L) NO.2889 OF 2025
Bench: Chief Justice Alok Aradhe and Justice Arif S. Doctor

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