Jammu & Kashmir High Court Quashes Railway’s Contract Termination for Alleged Delay in Performance Guarantee, Holding “Excluding Issuance Date, Submission Was Within Time, and Non-Issuance of Mandatory Notice Renders Termination Arbitrary” While Refusing Reinstatement Due to Efflux of Time

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Court’s Decision

The Jammu & Kashmir High Court quashed the communication dated 06.07.2018 issued by the Railway authorities terminating the petitioner’s contract for laundry services at Jammu Tawi and Katra and forfeiting the EMD, holding the termination was arbitrary and unsustainable in law since the performance guarantee was submitted within the stipulated time and the mandatory notice prior to termination was not issued. However, due to the efflux of time and the likelihood of the contract having been reallotted, the Court declined to grant reinstatement for executing the contract.

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Facts

The petitioner, a laundry service contractor with experience across railway divisions, was awarded the contract under NIT No. 17/2017 for laundry services at Jammu Tawi and Katra on 03.05.2018 with a requirement to furnish a performance guarantee within 30 days, extendable to 60 days. Due to disruptions including kidnapping of an employee and threats to the manager, the petitioner sought an extension, which was granted to 60 days. The petitioner submitted the bank guarantee on 02.07.2018 with acknowledgment from the authorities. However, the authorities terminated the contract on 06.07.2018 claiming the 60-day period expired on 01.07.2018, treated the guarantee as delayed, forfeited the EMD, and debarred the petitioner from re-tendering. The petitioner filed the writ petition seeking quashing of the termination and reinstatement to execute the contract.

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Issues

1. Whether the High Court could entertain the writ petition despite the arbitration clause in the contract.
2. Whether the High Court had territorial jurisdiction to entertain the writ petition.
3. Whether the termination of the contract was arbitrary and violated applicable guidelines, warranting its quashing.

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Petitioner’s Arguments

The petitioner argued:

• The 60-day period should exclude the issuance date of the Letter of Acceptance (03.05.2018), making 02.07.2018 the last day, thus the submission was within time.
• The Ministry of Railways’ circular dated 17.11.2017 extended the performance guarantee submission period from 60 to 90 days and mandated a notice before termination, which was not issued.
• The authorities wrongly equated the performance guarantee with payment of penal interest without raising any demand, which was an afterthought and not a valid ground for termination.
• The arbitration clause does not bar writ jurisdiction in cases of arbitrary administrative actions as held in ABL International Ltd. v. ECGC (2004) and Harbanslal Sahnia v. IOC (2003).
• The site of work was Jammu and Katra, the communication was received in Jammu, and respondent authorities were stationed at Jammu, giving the Court jurisdiction under Article 226(2).

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Respondent’s Arguments

The Railway authorities argued:

• The entire tender process including the issuance, evaluation, acceptance, and termination occurred at Ferozpur, Punjab, outside the territorial jurisdiction of the Court.
• The petitioner failed to submit the performance guarantee within 60 days from 03.05.2018, making 01.07.2018 the last day, warranting termination and forfeiture of EMD.
• Under Clauses 63 and 64 of the General Conditions of Contract, the dispute should have been referred to arbitration and not entertained in writ jurisdiction.

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Analysis of the Law

The Court examined:

1. ABL International Ltd. v. ECGC (2004) and Harbanslal Sahnia v. IOC (2003), which held that writ jurisdiction can be exercised despite an arbitration clause when the dispute involves arbitrary action or violation of fundamental rights.
2. Article 226(2) of the Constitution, noting that the place of work and receipt of termination communication in Jammu gives territorial jurisdiction.
3. Section 9 of the General Clauses Act, 1897, and State of Orissa v. Mangalam Timber Products Ltd. (2004), holding that the day of issuance should be excluded when calculating statutory periods.
4. ONGC v. Utpal Kumar Basu (1994) and Nawal Kishore Sharma v. Union of India (2014) supporting jurisdiction when part of the cause of action arises within the Court’s territorial limits.

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Precedent Analysis

1. ABL International (2004), Harbanslal Sahnia (2003) – Arbitration clause does not bar writ when arbitrariness or Article 14 violations are alleged.
2. State of Orissa v. Mangalam Timber Products (2004) – Issuance day is excluded in time calculation.
3. ONGC v. Utpal Kumar Basu (1994), Nawal Kishore Sharma (2014) – Territorial jurisdiction can be based on part cause of action.

These precedents framed the Court’s view on maintainability, jurisdiction, and the merits of arbitrary administrative action.

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Court’s Reasoning

The Court held:

• The petition was maintainable despite the arbitration clause due to allegations of arbitrary administrative action.
• The Court had territorial jurisdiction as the place of work, receipt of communication, and presence of authorities in Jammu provided part of the cause of action.
• The authorities’ calculation of the 60-day period was erroneous; excluding 03.05.2018, the last date was 02.07.2018, making the petitioner’s submission timely.
• The mandatory notice before termination as per the Ministry’s 2017 circular was not issued, rendering the termination arbitrary.
• The respondents’ argument equating the guarantee with penalty payments was an afterthought, and no demand was raised for penal interest, which could not be a valid ground for termination.

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Conclusion

1. The High Court quashed the termination communication dated 06.07.2018 and declared the contract’s termination arbitrary and illegal.
2. However, due to the efflux of time and possible reallocation of the contract, the Court refused to grant relief permitting the petitioner to execute the contract.
3. No costs were awarded.

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Implications

• Reinforces that administrative authorities must adhere to procedural safeguards and clear statutory timelines before terminating contracts.
• Confirms that arbitration clauses do not oust writ jurisdiction when arbitrary action is challenged.
• Clarifies territorial jurisdiction principles under Article 226(2) tied to the site of work and receipt of termination.

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FAQs

1. Can a High Court quash contract termination despite an arbitration clause?

Yes, if the termination is arbitrary and violates Article 14, the High Court can exercise writ jurisdiction despite an arbitration clause.

2. How is the performance guarantee submission deadline calculated legally?

The issuance date of the letter is excluded; thus, the last day is calculated by excluding the first day, ensuring accurate compliance.

3. Why did the High Court not reinstate the contract despite quashing termination?

Due to the efflux of time and potential reallocation of the contract, reinstatement was declined to avoid administrative complications.

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Short Note on Referred Cases

1. ABL International (2004), Harbanslal Sahnia (2003) – Writ maintainable despite arbitration clause for arbitrariness.
2. Mangalam Timber Products (2004) – Excludes issuance date for period calculation.
3. ONGC v. Utpal Kumar Basu (1994), Nawal Kishore Sharma (2014) – Territorial jurisdiction on partial cause of action.

These precedents anchored the High Court’s reasoning on jurisdiction, maintainability, and procedural fairness.

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