Contract Termination Post-Execution Unjustified if Delay Was Previously Accepted by Conduct: Gauhati High Court - 2025-09-16

Gauhati High Court Quashes NFR's Termination of Rs. 71 Crore Railway Station Contract, Cites Arbitrariness

Guwahati: In a significant ruling on contract law principles, the Gauhati High Court has quashed the termination of a ₹71.79 crore contract for the development of Sairang Railway Station in Mizoram. Justice Kardak Ete held that the Northeast Frontier Railway (NFR) acted arbitrarily by terminating the agreement with M/S COMT SKC JV just two days after formally executing it, especially after its own actions amounted to a waiver of the alleged procedural delays.

The court set aside the show-cause notice dated April 9, 2025, and the subsequent termination notice of May 5, 2025, branding the railway authority's actions as "unjustified and unsustainable."

Case Background

The dispute arose from a tender awarded to M/S COMT SKC JV for the development of Sairang Railway Station on an Engineering, Procurement, and Construction (EPC) basis. A Letter of Acceptance (LoA) was issued on November 6, 2024. As per the tender conditions, the joint venture was required to submit its original registered Joint Venture (JV) Agreement before the execution of the final contract.

The NFR contended that this submission, along with the contract signing, was due by December 21, 2024. The petitioner submitted the registered JV agreement on March 5, 2025. Despite this delay, the NFR accepted the document, generated a JV code for the petitioner, and proceeded to execute the formal contract agreement on April 7, 2025.

However, in a surprising turn of events, the NFR issued a show-cause notice on April 9, 2025, proposing termination. The reason cited was the 104-day delay in submitting the JV agreement, which they claimed constituted a "Contractor's Default" with a "Material Adverse Effect" on the project's timeline. The contract was officially terminated on May 5, 2025.

Arguments Presented

Petitioner's Stance: Senior Advocate Mr. K. N. Choudhury, representing the petitioner, argued that the termination was a "pre-determined and arbitrary" act. He asserted:

- Waiver by Acquiescence: By accepting the JV agreement in March 2025 and subsequently signing the contract in April, the NFR had, by its conduct, waived any objections to the earlier delay.

- No Cure Notice: The NFR incorrectly invoked a 60-day "Cure Period" without first issuing a formal notice to cure the defect, which is a mandatory pre-condition under the contract.

- Substantial Investment: At the NFR's request, the petitioner had already commenced work after the LoA, invested over ₹6 crore, mobilized men and machinery, and completed nearly 95% of the earthworks. Terminating the contract at this stage was unjust and against the public interest.

Respondent's Defence: Mr. G. Goswami, representing the NFR, maintained that the delay was a clear breach of mandatory tender conditions. He argued that the 104-day delay in executing the contract directly pushed back the project completion date, constituting a material default under the EPC agreement, which justified the termination.

Court's Pivotal Observations

Justice Kardak Ete sided firmly with the petitioner, making several critical observations that led to the quashing of the termination.

"The respondent had waived off any requirement for earlier submission of the Joint Venture Agreement on 21.12.2024 by acquiescence," the court noted, pointing out that the NFR itself had issued a notice on February 26, 2025, asking for the document, which the petitioner complied with.

The judgment emphasized the illogical sequence of the NFR's actions:

"The respondents, having subsequently accepted the Joint Venture Agreement and executed the Contract Agreement, appears to be not justified in terminating the contract on the ground of not submitting the Joint venture agreement within the stipulated time."

The court found that the very foundation of the termination—the lapse of a "Cure Period"—was flawed because the NFR had never issued the requisite notice to trigger it.

"I am of the considered view that the issuance of show cause notice dated 09.04.2025 and the termination notice dated 05.05.2025 terminating the contract by respondent authorities are unjustified and therefore, not sustainable," Justice Ete concluded.

Final Verdict and Implications

The High Court quashed the impugned notices and directed the NFR to release the petitioner's Bid Security and Earnest Money Deposit. While the court rejected the plea to allow the petitioner to continue the work, noting that a third party may have already been engaged, it granted the petitioner liberty to approach the appropriate forum for any other claims.

This judgment serves as a strong reminder to government authorities that they cannot act arbitrarily in contractual matters. Once a party's delayed compliance is accepted and a formal agreement is executed, the authority cannot "approbate and reprobate" by subsequently terminating the contract on the very grounds it had previously waived through its actions.