NHAI Cannot Arbitrarily Terminate EPC Contract Despite Arbitration Clause: Allahabad High Court

The Allahabad High Court, in Tata Projects Limited v. Union of India & Ors. (Writ-C No. 4559 of 2025), decided on July 8, 2026, held that the existence of an arbitration clause does not preclude the exercise of writ jurisdiction where a State authority acts arbitrarily in terminating a public contract. The Hon’ble Allahabad High Court observed that although judicial review in contractual matters is limited, a High Court may intervene where the impugned action is demonstrably arbitrary, ignores material contractual obligations, and has significant public interest implications.

The dispute arose out of an Engineering, Procurement and Construction (“EPC”) contract awarded by the National Highways Authority of India (“NHAI”) to Tata Projects Limited for the widening and strengthening of a National Highway (“NH”) in Uttar Pradesh. Tata Projects Limited contended that the project was substantially delayed because NHAI failed to provide continuous, hindrance-free stretches of land as required under the EPC Agreement. Despite repeated requests for extension of time and recommendations made by the Authority’s Engineer acknowledging such constraints, NHAI issued a cure notice, terminated the contract, forfeited the bank guarantees, and floated a fresh tender.

Tata Projects Limited argued that the termination was arbitrary as NHAI had failed to discharge its contractual obligation to provide the required right of way and had disregarded the findings of its own Authority’s Engineer while terminating the EPC contract. NHAI, on the other hand, contended that more than 90% of the project land had been handed over, that the remaining issues were contractually manageable by the contractor, and that the dispute ought to be resolved through arbitration rather than a writ petition.

The Hon’ble High Court examined the correspondence exchanged between the parties, the handover memorandum, the recommendations of the Authority’s Engineer and the contractual framework governing land handover and extensions of time. It found that although the Handover Memorandum recorded that 47.620 km out of a total project length of 50.254 km, being 94.76%, had been handed over with right of way, NHAI’s own communication dated August 8, 2022, disclosed that actual possession extended to only 29.914 km, and that possession of 90% of the land was in fact made available only towards the end of 2024. The Hon’ble High Court accordingly held that the Handover Memorandum stood reduced to mere paperwork and that NHAI had failed to ensure the availability of contiguous, hindrance-free stretches in the manner contemplated under the EPC contract. The Hon’ble High Court further noted that NHAI ignored repeated recommendations of the Authority’s Engineer seeking extension of time on account of delays attributable to the Authority itself, while simultaneously attributing the entire delay to the contractor. It held that the termination order reflected a clear lack of application of mind, as it neither dealt with the contractor’s replies nor considered the material already available on record.

On the question of maintainability, the Hon’ble High Court reiterated that while parties to commercial contracts are ordinarily relegated to arbitration, the existence of an alternative remedy does not bar judicial review where State action is arbitrary, unreasonable or violative of Article 14 of the Constitution. Relying on the decisions of the Hon’ble Supreme Court in ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd. and MP Power Management Company Ltd. v. Sky Power Southeast Solar India Pvt. Ltd., the Hon’ble High Court observed that disputed questions of fact do not, by themselves, oust writ jurisdiction where the controversy can be resolved on the basis of documentary evidence and the challenge concerns arbitrary State action rather than a purely contractual dispute.

Accordingly, the Hon’ble High Court quashed the termination order, the consequential forfeiture of bank guarantees and the fresh tender issued by NHAI. It directed the parties to undertake a fresh joint site inspection within one month and to reschedule completion of the project in accordance with the EPC Agreement, taking into consideration the recommendations of the Authority’s Engineer, the undertaking given by Tata Projects Limited to complete the balance works within fourteen months, and the larger public interest in timely completion of the highway project.