Termination Without Hearing Violates Natural Justice: Gauhati High Court Quashes Railway Contract Rescission

“Contractor went completely unheard... Rescission without addressing representations is arbitrary and unsustainable” – In a major verdict reinforcing the foundational requirement of natural justice in contractual disputes involving public authorities, the Gauhati High Court struck down the termination of a railway contract executed under Clause 62 of the Standard General Conditions of Contract (Railways), holding that the termination was arbitrary, violative of natural justice, and carried out without due consideration of the contractor's replies and representations.

Justice Rajesh Mazumdar held that the railway authorities failed to demonstrate that any of the replies sent by the petitioner were ever considered before terminating the contract and forfeiting his security deposit and performance guarantee. The Court ordered that the termination notices dated 16.11.2021 and 25.11.2021 and rescission order dated 20.01.2022 be quashed, and further directed that the forfeited sum of Rs. 10.76 lakhs be refunded within two months.

“Arbitrariness cannot hide behind a contractual clause” – Court holds Clause 62 does not override constitutional duty to act fairly

Rejecting the Railways’ contention that its termination action under Clause 62 was final and immune from judicial scrutiny due to arbitration being excluded for such matters, the Court clarified:

“The petitioner’s grievance is rooted not in mere contractual interpretation, but in the lack of fair hearing. Once a public authority exercises coercive powers such as rescission and forfeiture, it is bound by constitutional mandates of fair play.” [Para 16–18]

It was further noted that Clause 64, which contains the arbitration clause, specifically excludes “excepted matters” like Clause 62, making the termination non-arbitrable and thus squarely within the High Court’s jurisdiction under Article 226.

“Notices devoid of particulars, representations ignored — action predetermined”

One of the core reasons for setting aside the termination was the Court’s finding that the show-cause notices were vague, without citing which exact default under Clause 62 had been triggered, even though Clause 62 contains seventeen separate grounds.

Justice Mazumdar observed: “The notice dated 16.11.2021 does not indicate which of the reasons had been resorted to by the respondents. It was devoid of material particulars. No finding was recorded on the petitioner’s detailed replies.” [Para 17]

The petitioner had, through letters dated 22.11.2021, 29.11.2021, and 19.01.2022, explained the delay, cited technical variations, requested formal approval of those variations, and expressed readiness to complete the work. The Court noted:

“The representations filed by the petitioner did not receive any response from the respondents... The contract was rescinded immediately after being informed that the petitioner had purchased all required materials.” [Para 18]

This, the Court held, revealed a lack of application of mind and a clear breach of procedural fairness, vitiating the rescission process entirely.

Contractor's Offer to Complete Work Ignored; Termination Came Day After He Reported Material Procurement

Highlighting the sequence of events, the Court pointed out that after several unanswered communications, the petitioner wrote on 19.01.2022 informing the Railway that he had procured all necessary materials and was ready to resume the work. Yet, on the very next day, the contract was rescinded via a terse letter dated 20.01.2022, also threatening forfeiture and encashment of bank guarantees.

“This Court is of the opinion that the rescinding of the contract was the outcome of a process where the petitioner went completely unheard... no decision having been taken on his representations.” [Para 18]

Natural Justice Trumps Contractual Clauses — High Court Follows Precedent in WP(C) No. 2958/2016

The Court reaffirmed that the presence of an alternative remedy or arbitration clause does not bar constitutional review, especially when natural justice has been violated. Referring to its earlier judgment in WP(C) No. 2958/2016, Justice Mazumdar ruled:

“When failure to adhere to the principles of natural justice is demonstrated, the existence of an alternative remedy is of no consequence. This Court does not find any impediment to adjudicate the petitioner’s grievance.” [Para 16]

This decision aligns with the settled principle that public authorities, even while exercising contractual rights, are bound by constitutional obligations, particularly when punitive consequences such as forfeiture and blacklisting are imposed.

Termination Set Aside, Forfeited Money to Be Refunded

Finding the termination order to be legally unsustainable, the Court allowed the writ petition and held: “The notices dated 16.11.2021, 25.11.2021 and the termination notice dated 20.01.2022 are set aside and quashed. The respondents are now required to refund the security money and performance guarantee within two months from the date of this order.” [Para 18–19]

A Clear Mandate — No Termination Without Hearing

This judgment reinforces a critical principle of contractual and administrative jurisprudence: even where a contract provides discretion to terminate, such discretion must be exercised judiciously, transparently, and fairly.

The Gauhati High Court’s ruling reaffirms that arbitrariness, opacity, and disregard for fair hearing will render administrative actions unlawful, even in matters involving government contracts and standard conditions. Public authorities cannot rely on contractual clauses as a shield against constitutional accountability.

As Justice Mazumdar aptly concluded, the petitioner was terminated not for his lack of will to work, but because he was never truly heard:

“The decision to rescind the contract was not preceded by fair consideration. It was a one-sided process that failed the test of fairness under Article 14 of the Constitution.”

Date of Decision: 10 December 2025