Systra MVA Consulting (India) Pvt. Ltd. vs. MMRDA: Bombay High Court Quashes Arbitrary Termination of Tender Contract

Introduction:

This case concerns the arbitrary termination of a General Consultancy Contract by MMRDA for Mumbai Metro Line projects. The Bombay High Court examined whether a public authority can terminate a contract without assigning reasons, especially when such termination adversely impacts a private entity engaged in a public infrastructure project. The Court ruled that public authorities must act fairly and reasonably, even in contractual matters, and cannot rely solely on termination clauses to escape judicial scrutiny.

Background:

The Mumbai Metropolitan Region Development Authority (MMRDA) had issued a tender notice in February 2020 for appointing a General Consultant for Mumbai Metro Lines 5 (Thane-Bhiwandi-Kalyan), 7A (Andheri (East)-CSIA), and 9 (Mira Bhayander). Systra MVA Consulting (India) Pvt. Ltd. (Systra) secured the tender with a bid of ?90.76 crore and was issued a Letter of Acceptance (LOA) on May 31, 2021. The contract was initially for 42 months but was later extended till December 31, 2026.

However, on January 3, 2025, MMRDA issued a termination notice to Systra, cancelling the contract without assigning any reasons. Systra challenged this arbitrary termination before the Bombay High Court, arguing that:

1. MMRDA’s termination violated principles of fairness and reasonableness under Article 14 of the Constitution.
2. The termination notice failed to provide any reasons, rendering it legally unsustainable.
3. The presence of an arbitration clause does not bar judicial review when the action is arbitrary.

In response, MMRDA defended the termination by citing Clause 2.8.1(f) of the contract, which allegedly granted it absolute discretion to terminate without providing reasons.

Questions of Law:

1. Can a public authority terminate a contract without assigning reasons under a discretionary termination clause?
2. Does the presence of an arbitration clause oust the jurisdiction of the High Court under Article 226 for judicial review?
3. Are public authorities bound by principles of fairness and reasonableness even in contractual matters?

Findings and Rationale:

1. Arbitrariness and Unreasonableness in Contract Termination: The Bombay High Court found that MMRDA’s unilateral termination of the contract without assigning any reason was arbitrary, unfair, and unreasonable. The Court noted that while contractual terms may allow for termination at discretion, such power cannot be exercised in a mala fide, capricious, or unreasonable manner, especially when a public authority is involved. Rejecting MMRDA’s claim that Clause 2.8.1(f) allowed it to terminate the contract without explanation, the Court held: "Clause 2.8.1(f) of the General Conditions of Contract cannot be read to mean that MMRDA has a license to act unfairly, arbitrarily, or unreasonably in the contractual field without assigning reasons. The power under Clause 2.8.1(f) has to be exercised in consonance with the principles of fairness, reasonableness, and non-arbitrariness." Thus, the cancellation of the contract without valid justification was held to be an abuse of discretion by MMRDA.
2. Judicial Review Despite the Presence of an Arbitration Clause: MMRDA argued that since the agreement contained an arbitration clause, the petition should not be entertained, and the dispute should be referred to arbitration. The Court rejected this argument, holding that judicial review is available when State action is arbitrary and violates principles of fairness. Citing MP Power Management Co. Ltd. vs. Sky Power Southeast Solar India Pvt. Ltd. (2023 SCC OnLine SC 703), the Court reaffirmed that even non-statutory contracts executed by public authorities are subject to judicial scrutiny if they are arbitrary. It further relied on Subodh Kumar Singh Rathour vs. Chief Executive Officer (2024 SCC OnLine SC 1682), where the Supreme Court held that cancellation of public tenders without justifiable reasons is subject to judicial review. The Court observed: "The contention that since MMRDA has acted in exercise of rights available under the contract, the petitioner should be relegated to arbitration, does not deserve acceptance. This Court is not precluded from exercising the power of judicial review merely on the ground of availability of an alternate remedy in case this Court finds the action of termination of contract to be arbitrary and unreasonable." Thus, even though an arbitration clause existed, judicial review was warranted because MMRDA’s decision violated constitutional principles of fairness.
3. Requirement of Fairness in Government Contracts: The Court emphasized that State entities, even in contractual matters, are bound by the principles of fairness, transparency, and reasonableness. A public authority cannot terminate contracts arbitrarily, especially when public interest and taxpayer money are involved. Relying on LIC vs. Consumer Education and Research Center (1995) 5 SCC 482, the Court reiterated that public sector entities must act fairly in all contractual dealings. Additionally, citing Tata Cellular vs. Union of India (1994) 6 SCC 651, the Court noted that State actions, even in contracts, must adhere to constitutional principles of fairness and non-arbitrariness.The Court held: "Public authorities are bound by the principles of fairness and reasonableness in all their dealings, including contracts. MMRDA's unilateral action without assigning reasons amounts to arbitrary exercise of power."Thus, the lack of transparency in terminating the contract was held to be unconstitutional and legally unsustainable.
4. Failure to Provide a Speaking Order: The Court also noted that MMRDA failed to provide a "speaking order"—a reasoned decision that explains the basis of termination. In administrative law, public authorities must provide justifications for their actions, especially when such actions adversely affect private parties.The Court held: "The MMRDA must issue a speaking order outlining the rationale behind its decision. The lack of such an order reflects an arbitrary exercise of power." Since MMRDA failed to offer any justification, the Court quashed the termination notice and directed MMRDA to reconsider its decision after granting Systra a fair hearing.

Conclusion

The Bombay High Court quashed MMRDA’s termination notice and directed it to reconsider its decision after hearing Systra MVA Consulting Pvt. Ltd.. The ruling affirms that:

• Public authorities cannot arbitrarily terminate contracts without providing reasons.
• Judicial review is available even when arbitration clauses exist if the termination is arbitrary.
• Government contracts must be executed fairly and reasonably, ensuring transparency in decision-making.

The MMRDA must now take a fresh decision on the contract in a legally sustainable manner.

Disclaimer:

This post is for educational and informational purposes only. It is not intended to defame, discredit, or tarnish the reputation of any individual, entity, or organization. The opinions expressed are based on publicly available judicial decisions and are aimed at fostering a better understanding of legal principles. For specific legal advice, readers are encouraged to consult a professional