Bombay HC quashes MMRDA notice terminating French firm Systra's Mumbai Metro contract

The Bombay High Court has set aside the cancellation of the contract and directed the MMRDA to consider the decision afresh.

The Mumbai Metropolitan Region Development Authority (MMRDA) received a setback as the Bombay High Court on Tuesday set aside a notice issued in November, terminating the contract awarded to Systra MVA Consulting (India) Pvt Ltd, ruling that the cancellation was arbitrary and unreasonable.

The High Court's bench of Chief Justice Alok Aradhe and Justice Arif S Doctor directed the MMRDA to decide afresh on whether or not to discontinue the contract awarded to the French-origin consulting and engineering firm after hearing Systra, reports Live Law.

The bench asked MMRDA to pass a reasoned order after hearing the company which has a 70 percent stake in Systra-SMCIPL Consortium. The company was providing design consultancy services for three Metro lines in the city. The tender concerned the appointment of General Consultant for the purposes of design, assistance in procurement, construction, management supervision for Mumbai Metro Lines 5 (Thane-Bhiwandi-Kalyan), 7A (Andheri (East)-CSIA) and 9 (Mira Bhayander).

Systra had submitted a bid of Rs. 90.76 crore for the tender. On May 31, 2021, the MMRDA issued a Letter of Acceptance and Systra was eventually appointed as a General Consultant. The initial term of appointment to Systra was for a period of 42 months which was extended up to December 31, 2026.

However, in a notice dated January 3, 2025, MMRDA cancelled the tender without assigning any reasons for doing so. Systra MVA Consulting (India) Pvt Ltd then challenged the MMRDA's notice terminating the contract before the High Court.

Pursuing MMRDA's notice, the High Court noted that MMRDA did not assign any reasons for discontinuation of services to Systra. The court also rejected MMRDA's contention that it could terminate the contract without assigning any reasons and held that discontinuation of the contract without any reason was arbitrary and unreasonable.

“Clause 2.8.1(f) of the General Conditions of Contract cannot be read to mean that the MMRDA has a licence to act unfairly, arbitrarily or unreasonably in the contractual field without assigning reasons. The power under Clause 2.8.1(f) of the Contract has to be exercised in consonance with the principles of fairness, reasonableness and non-arbitrariness. We find that the action of the MMRDA in discontinuation of the terms of the contract, which was extended upto 31st December, 2026, without assigning any reasons, is arbitrary, unfair, and unreasonable,” the court held.

During the hearing, the MMRDA had contended that since the agreement executed with Systra contained an arbitration clause, the petition ought not to be entertained. However, Systra argued that the court can exercise the power of judicial review if the termination of the contract was arbitrary. It also argued that as the issue concerned public law, the arbitral tribunal could only deal with the terms of the contract between the parties and not the questions of public law.