Facts of the Case

The petitioner, a road-works contractor, challenged an order dated 12.01.2023 by which the Executive Engineer, Nayagarh (R&B) Division rescinded his contract for improvement of the Sadar Police Station to Khetribarpur Khandugaon road, with a penalty of 20% of the value of leftover work. The contract, originally for a single-lane road, had been revised mid-way to a double-lane specification following a site inspection in January 2021, with the revised estimate finally approved only on 04.03.2022 — after which the petitioner resumed work and was paid a running bill for work executed up to March 2022 (valued at over Rs. 68 lakh, excluding GST). Monsoon rains then disrupted further earthwork, and the petitioner alleged he was verbally stopped by the Assistant Engineer from resuming work thereafter; his grievance to the department went unaddressed before the rescission order arrived.

The petitioner's central grievance was that the rescission order was passed without any show-cause notice or opportunity of hearing, violating natural justice. The State defended the rescission by pointing to several show-cause notices issued between 2019 and 2021 — but these, as it turned out, predated the March 2022 approval of the revised (double-lane) scope of work altogether.

Issues Involved

  1. Whether the contract-rescission order, passed without issuing a fresh show-cause notice after the scope of work was revised, violated the principles of natural justice.
  2. Whether the several show-cause notices issued between 2019 and 2021 — before the revised scope was even approved — could justify the rescission.

Petitioner's Arguments

  • The rescission letter dated 12.01.2023 was passed without any show-cause notice and without an opportunity of hearing, in violation of natural justice and Article 14 of the Constitution.
  • The revised (double-lane) scope of work was approved only on 04.03.2022; delay before that was attributable to the authorities' own failure to hand over encroachment-free land and finalise the revised estimate.
  • Encroachments and heavy monsoon rain, not any default of the petitioner, hampered the resumption of work after March 2022.

Respondent's Arguments

  • Several show-cause notices had been issued to the petitioner over 2019–2021 for failing to progress the work as committed in various Contract Management Meetings, and the rescission followed due process under Clause 2(i) of the contract.
  • The petitioner had executed only about 21% of the agreement value (Rs. 68,37,781.42, excluding GST) up to March 2022 and nothing thereafter, justifying rescission.

Court Order / Findings

  • The Court found that the State's counter-affidavit, in response to the petitioner's specific pleaded averments that no show-cause notice was issued before the rescission, was evasive and did not squarely deny those averments — amounting, under settled pleading principles, to a deemed admission.
  • It held that the show-cause notices relied upon by the State had all been issued before 04.03.2022, when the revised (double-lane) scope was approved, and therefore had no bearing on whether due process was followed for rescission after that date.
  • Applying the well-established requirement of audi alteram partem as a facet of Article 14, the Court held there was a gross violation of natural justice in the manner the rescission order was passed.
  • The rescission order dated 12.01.2023 was quashed and set aside; the writ petition was allowed, with no order as to costs.

Important Clarification

GST appears in this judgment only as part of a contract-value figure (work executed 'excluding GST'); it plays no substantive role in the decision. The real lesson is procedural: in government contracts, a fresh show-cause notice tied to the actual, current scope of work is essential before rescission — old notices issued under a superseded scope of work cannot retroactively justify termination, and a government counter-affidavit that evasively sidesteps a contractor's specific factual plea risks being treated as an admission of that plea.

Sections Involved

  • Constitution of India, 1950 — Article 14 (principles of natural justice, audi alteram partem)
  • Indian Evidence Act, 1872 — Section 58 (facts admitted need not be proved)
  • Code of Civil Procedure, 1908 — Order VI Rule 5 (effect of non-denial in pleadings)

Decision – In Favour of

Allowed in favour of the petitioner (contractor) — the contract-rescission order was quashed and set aside.

Case Details

  • Court: High Court of Orissa at Cuttack
  • Case No.: W.P.(C) No. 1754 of 2023
  • Coram: Dr. Justice B.R. Sarangi and Justice Murahari Sri Raman
  • Date of Judgment: 28.07.2023 (heard on 25.07.2023)

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