Fair Play in Public Contracts: Examining the Bombay High Court’s Arbitrary Termination Position

The Hon’ble High Court (“HC”) of Bombay  (“BOM”) in a recent judgement resolved a dispute between Systra MVA Consulting (India) Pvt. Ltd. v. Mumbai Metropolitan Region Development Authority^[1] emphasising the need for public authorities to work within the bounds of justice and reason while addressing contractual obligations. It emphasises that the huge capabilities afforded by commercial agreements are not a licence for reckless action. This ruling may encourage public institutions to review present contractual arrangements to ensure that they include language regarding responsibility and openness in decision-making.

Brief Facts

On 31^st May 2021, Systra MVA Consulting (India) Pvt. Ltd. was awarded the General Consultant contract for Mumbai Metro Lines 5, 7A, and 9 by Mumbai Metropolitan Region Development Authority (“MMRDA”) after successfully bidding ₹90.76 crore. Originally scheduled for 42 months, the contract included design, procurement support, construction, and management control. Due to MMRDA’s ongoing need for Systra’s expertise, the project plan was extended to 31^st December 2026. Thereafter, MMRDA terminated the contract without explanation on 3^rd January 2025, prompting Systra to challenge the decision in the Bombay High Court. 

MMRDA defended its termination by invoking Clause 2.8.1(f) of the General Conditions of Contract, which permitted termination without explanation. Systra argued that the conduct was arbitrary and violated fundamental principles of public law. The current case examined the validity of MMRDA’s decision to cancel the contract without cause, determining if it was an arbitrary and unjust exercise of power.

Legislation

The court determined whether MMRDA’s action was acceptable based on legal precedents. It referred to MP Power Management Co. Ltd. v. Sky Power Southeast Solar India Pvt. Ltd.,^[2] in which the Supreme Court (”SC”) ruled that even if a government contract was not statutory, it might nevertheless be rigorously reviewed for arbitration. The SC recommended against arbitrarily cancelling public bids in Subodh Kumar Singh Rathour v. Chief Executive Officer & Ors.,^[3] emphasising that such decisions must be based on reasonable, bona fide considerations. These verdicts emphasised the necessity for public entities to provide explanations for contract termination, ensuring transparency and fairness.

Analysis of the Court

The BOM HC ruled that MMRDA’s contract termination without cause was illogical. The court rejected MMRDA’s claim that Clause 2.8.1(f) allowed it to cancel the contract without providing a reason, stating that such a reading would allow for arbitrary decision-making. The judges emphasised that public entities have contractual rights, but they also must work fairly and honestly. Furthermore, the court dismissed MMRDA’s argument that Systra should seek arbitration rather than court review. It ruled that the presence of an arbitration provision does not exclude judicial review in circumstances when a contract termination appears arbitrary. After hearing Systra’s side, the court concluded that MMRDA’s actions were unreasonable, arbitrary, and contrary to public law values, directing the agency to revisit its decision and issue a reasoned ruling.

Conclusion

This ruling is a significant step towards ensuring responsibility and fairness in government contracts. The court’s decision makes it very clear that public organisations must justify their contract terminations rather than unilaterally terminating them. If government agencies terminate contracts without cause, business conditions will become unstable and unfair. This prohibition of private enterprises from competing on public projects resulted in MMRDA having a valid cause for termination; hence, failing to disclose it was a significant error. In my opinion, public contracts include public cash and critical infrastructure; thus, decisions concerning them should be transparent and equal. This court rightly prohibits government agencies from misusing their contractual authority and establishes a key precedent that public-sector decisions must be made carefully and responsibly.

^[1] (2025) SCC OnLine Bom 342.

^[2] (2022) SCC OnLine SC 1591.

^[3] (2024) SCC OnLine SC 1682.