The Allahabad High Court quashed NHAI's mid-term termination of Tata Projects' Rs. 940.68 crore EPC contract for widening NH-709A, holding that NHAI's action was arbitrary and violated Article 14 of the Constitution. The Court held that the existence of an arbitration clause in the contract does not preclude the exercise of writ jurisdiction where a State authority acts arbitrarily in terminating a public contract, and that a High Court may intervene where the impugned termination is demonstrably arbitrary rather than a good-faith exercise of a contractual termination right.
Legal Background
Courts have long accepted that a writ petition is not barred merely because a contract contains an arbitration clause, and that a State authority is bound by Article 14 when it deals with a contractor, as the Supreme Court recognised in ABL International Ltd. v. Export Credit Guarantee Corporation (2004). At the same time, High Courts usually exercise restraint in purely contractual disputes and in cases involving disputed questions of fact, so the availability of a writ depends on whether the action is shown to be arbitrary and on the nature of the dispute. This note summarises the reported ruling only, and the order should be read before it is relied on.