Introduction:
The Allahabad High Court, in Tata Projects Limited v. Union of India and Others, 2026 LiveLaw (AB) 386, delivered a significant judgment reaffirming that a State instrumentality cannot act arbitrarily while exercising contractual powers. A Division Bench comprising Justice Ajit Kumar and Justice Swarupama Chaturvedi held that the National Highways Authority of India (NHAI), being “State” within the meaning of Article 12 of the Constitution, could not terminate a highway construction contract by blaming the contractor for delay when the delay was substantially caused by its own failure to provide encumbrance-free land and the required right of way under the Engineering, Procurement and Construction (EPC) Agreement.
The dispute arose from an EPC contract awarded for widening and upgrading a 50.254 km stretch of National Highway-709A between Garhmukteshwar and Meerut. Although a Handover Memorandum recorded that over 94% of the project land had been handed over, the contractor consistently complained that the stretches were neither free from encumbrances nor available in the continuous manner required under the contract. Despite these objections, NHAI terminated the contract in January 2025 for alleged delay, forfeited the bank guarantees, and issued a fresh tender.
Aggrieved by the termination, Tata Projects Limited approached the High Court under Article 226 of the Constitution, contending that the delay was attributable to NHAI’s own failure to discharge its contractual obligations. The case also raised an important issue regarding the maintainability of a writ petition despite the existence of an arbitration clause in the agreement.
Arguments of the Parties:
The petitioner argued that under the EPC Agreement, NHAI was contractually bound to provide at least 90% of the required right of way free from encumbrances in contiguous stretches within the prescribed period. However, despite the Handover Memorandum, the land actually handed over was incomplete and obstructed by buildings, religious structures, utilities and unresolved land acquisition issues. The contractor submitted that repeated representations highlighting these hindrances were ignored, making timely completion of the project impossible.
The petitioner further contended that NHAI’s own documents disproved its stand. A letter issued by the Authority acknowledged that substantially less land had actually been handed over than what was recorded in the Handover Memorandum. The report of the Authority’s Engineer also confirmed the existence of continuing land-related obstacles and recommended extension of time. It was argued that despite these official records, NHAI proceeded to terminate the contract without considering the petitioner’s detailed reply, thereby acting arbitrarily and in violation of the principles of natural justice.
NHAI opposed the writ petition by contending that disputes arising out of the EPC Agreement were contractual in nature and were required to be resolved through arbitration under Article 26 of the agreement. It argued that the controversy involved disputed questions of fact regarding delay and project execution, which could not be adjudicated in writ proceedings. According to the Authority, the contractor had failed to complete the work within the stipulated time and the termination was therefore justified under the terms of the contract.
Court’s Judgment:
The Allahabad High Court allowed the writ petition and held that NHAI had acted arbitrarily in terminating the contract. The Court observed that although the Handover Memorandum recorded delivery of more than 94% of the land, the Authority’s own subsequent records admitted that only about 29.914 km of the total project length had actually been handed over. The report of the Authority’s Engineer further established that major hindrances and land issues continued to exist and recommended a further extension of time. Since these facts remained substantially undisputed, the Court found that the Handover Memorandum did not reflect the actual position on the ground.
The Bench held that the appendix to the Handover Memorandum mentioned only minor utilities while completely omitting significant obstructions such as buildings, temple structures and unresolved land issues. It therefore described the memorandum as mere “paperwork” that failed to establish actual delivery of a clear and obstruction-free right of way as required under the contract.
The Court further held that NHAI, being a State instrumentality under Article 12, was expected to act fairly, reasonably and without arbitrariness even while exercising contractual powers. Once the Authority itself failed to perform its primary obligation of providing encumbrance-free land, it could not invoke contractual provisions to penalise the contractor for delays resulting from its own default. Such conduct, the Court observed, amounted to arbitrary State action attracting judicial review under Article 226.
Rejecting the objection regarding the arbitration clause, the Court held that the existence of an arbitration agreement does not automatically bar the exercise of writ jurisdiction where the dispute turns on interpretation of undisputed documents and the State’s own records amount to admissions. Relying on the Supreme Court’s decisions in ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., MP Power Management Company Ltd. v. Sky Power Southeast Solar India Pvt. Ltd., and A.P. Electrical Equipment Corporation v. Tehsildar, the Court reiterated that writ jurisdiction can be exercised where arbitrariness of State action is evident and larger public interest is involved.
The Bench also found that the termination order reflected complete non-application of mind. It noticed that the language of the termination order was substantially identical to the earlier show cause notice, demonstrating that the petitioner’s detailed reply, documents, photographs and explanations had not been considered. According to the Court, the decision appeared to have been taken with a predetermined intention to terminate the contract irrespective of the contractor’s response.
Holding the termination to be arbitrary, unfair and unsustainable in law, the Court quashed the termination order dated 14 January 2025, set aside the consequential forfeiture of the bank guarantees, and also quashed the fresh tender issued on 3 February 2025. Taking note of the contractor’s undertaking to complete the remaining work within fourteen months and observing that no third-party rights had been created, the Court directed both parties to undertake a fresh joint site inspection within one month and to prepare a revised schedule for completion of the highway project in the larger public interest.