Due Process Termination by Awardee Blocks Subsequent Novation

In a significant ruling, the Hon’ble High Court of Rajasthan, in the case of PMP Infratech Private Limited & Ors. v. Rajasthan State Mines and Minerals Limited (RSMML) (2024 SCC OnLine Raj 2071) dated July 19, 2024, ruled that a contract once terminated by an awardee following due process, cannot be subsequently revived by the awardee itself. This decision underscores the principle that an administrative order cannot override a duly considered decision or adjudicated order that impacts the civil or business rights of contracting parties.

RSMML had floated a tender for the contract to load limestone gitti. United Coal Carrier (“UCC”) was awarded the contract but failed to commence work within the stipulated time. Dissatisfied with the quality of work, RSMML terminated the contract with UCC on December 24, 2023, and subsequently awarded the contract to PMP Infratech Pvt Ltd. (“PMP”). On December 26, 2023, after receiving a call from the chairman of RSMML, the managing director of RSMML put both the termination of UCC’s contract and PMP’s new acceptance in abeyance. PMP filed a petition, arguing that the contract process must be transparent and fair. They contended that the revocation of a terminated contract, based on an unreasoned telephonic conversation and an administrative order, was improper. RSMML defended the move, claiming that the Chairman, as the head of the company, had the authority to issue such directions.

The Hon’ble High Court of Rajasthan opined that the termination of a contract following due process amounts to the civil death of a business deal. It stated that such a contract cannot normally be revived, even by the court, Appellate Authority, or Arbitrator, let alone by the Managing Director or the Chairman of the awardee company. The court referred to the case of Indian Oil Corporation Ltd. vs. Amritsar Gas Service & Ors. (1991 SCC (1) 533), dated November 19, 1990, highlighting that if a contract was terminated illegally, the remedy would be damages or compensation, not novation of the contract. Furthermore, the court held that the Chairman, not being the appellate authority, lacked the power to direct the revival of a terminated contract, as the granting and termination of contracts are within the domain of the managing director. The chairman’s intervention was deemed arbitrary and without legal basis. The court stressed that an administrative order cannot override a duly considered decision or adjudicated order affecting business rights.

Hence, the Hon’ble High Court of Rajasthan declared the chairman’s verbal direction as unauthorized and arbitrary, setting aside the order of December 26, 2023, that had placed the termination and new acceptance on hold. RSMML was instructed to initiate a new tender process, reaffirming that contractual decisions must be made transparently and fairly.