The Delhi High Court set aside the National Highways Authority of India's debarment order against a joint-venture independent engineer, emphasizing that contractual graded procedures and statutory warnings must be observed before imposing such punitive measures.
Background & Facts
The Dispute
The petitioners, URS SCOTT WILSON INDIA PRIVATE LIMITED in joint venture with M/S LION ENGINEERING CONSULTANTS PRIVATE LIMITED (collectively the "Joint Venture"), were appointed as Independent Engineer (IE) for the six-laning of the Naidupeta Junction-Turpukanupur section and the Chillakuru Cross Road-Turpu Kanupur-South Gate sections on New NH-516W under the Hybrid Annuity Mode (HAM) of the Bharatmala Pariyojana Phase-I. The project was awarded to APCO Sri Venkateshwara Expressways Private Limited on 13.02.2023 and the Concession Agreement was executed on 01.05.2023. A Consultancy Agreement dated 02.06.2023 appointed the Joint Venture as IE for a period of 48 months for a consideration of Rs 8,91,22,800 plus GST.
Key Facts
- 13.02.2023: NHAI awarded the project to the Concessionaire.
- 01.05.2023: Concession Agreement executed.
- 02.06.2023: Consultancy Agreement executed; IE appointed.
- 23.06.2023: IE commenced services; mobilisation completed by August 2023.
- 20.10.2023: Appointed Date of the project.
- 02.12.2023 - 04.12.2023: Cyclone “Michaung” caused water-logging and revealed omitted cross-drainage structures in the DPR.
- 22.01.2024: NHAI recorded that the DPR consultant had not obtained clearances from the Irrigation Department.
- 04.04.2024: DPR consultant acknowledged possible omissions.
- 12.04.2024: IE issued a Change of Scope (CoS) Notice under Clause 16.2 of the Concession Agreement.
- May 2025: CoS proposal for Section-I approved in principle; formally approved on 01.12.2025.
- 18/19.03.2026: IE recommended CoS-02 for Section-II amounting to Rs 1,58,94,29,470 (16.54% of the bid project cost).
- 10.04.2026: NHAI issued a Show Cause Notice (SCN) alleging a delay of more than one year in finalising the CoS proposals.
- 25.04.2026: Petitioners replied to the SCN.
- 15.04.2026: NHAI sanctioned deployment of additional staff for the IE.
- 10.06.2026: Personal hearing before the Member (Projects), NHAI.
- 06.07.2026: Video-conference hearing before the Team Leader, NHAI.
- 15.07.2026: Petitioners submitted a detailed explanation of the CoS timeline.
- 20.07.2026: NHAI issued the impugned Debarment Order (No. NHAI/RO-VJA/KP Port/2026/2488), declaring the Joint Venture a “non-performer” and barring participation in all NHAI tenders for one year, i.e., up to 19.07.2027.
Procedural History
- 25.08.2026: Application for stay (CM APPL. 48445/2026) filed before the Delhi High Court, seeking interim relief pending the writ petition.
- 25.08.2026: Judgment pronounced, staying the debarment order during the pendency of the writ petition.
Relief Sought
The petitioners sought (a) a stay of the operation and effect of the debarment order dated 20.07.2026, (b) a stay of all consequential actions including publication on e-tendering platforms, (c) permission to participate in all NHAI tenders without reference to the debarment order, and (d) ex-parte interim relief pending notice and reply by NHAI.
The Legal Issue
Whether the debarment order dated 20.07.2026 issued by NHAI under its Policy Circular is valid in view of the Consultancy Agreement and the Terms of Reference (TOR), specifically the requirement under Clause 13 of the TOR that warnings and a notice-to-cure must precede any debarment, and whether the Court can stay the order pending the writ petition.
Arguments Presented
For the Petitioner
- The TOR confines the IE’s function to cost determination and does not impose a timeline for CoS proposals; therefore, no breach of contractual obligation can be established.
- No warning or notice-to-cure was issued before the debarment, violating Clause 13 of the TOR which mandates a graded performance regime.
- The Force Majeure event (Cyclone Michaung) automatically extended time under Clause 2.7 of the General Conditions.
- The delay was largely attributable to NHAI’s internal multi-tiered approval process and the Concessionaire’s deficiencies, not to the IE.
- The debarment is disproportionate, arbitrary and violative of natural justice, Articles 14 and 19(1)(g) of the Constitution.
For the Respondent (NHAI)
- The debarment is an administrative action under NHAI Policy Circular No. 16.12/2022, which operates independently of the Consultancy Agreement.
- The SCN dated 10.04.2026 and the debarment order expressly invoked the Policy Circular, which authorises debarment for delay in processing CoS proposals.
- NHAI complied with the procedural requirements of the Circular, including issuance of the SCN, opportunity to reply, and personal hearings.
- The petitioner did not raise any objection to the applicability of the Circular during the SCN proceedings; such a ground cannot be introduced for the first time before this Court.
- Judicial review is limited to perverse or irrational decisions; the Court found no such infirmity in NHAI’s action.
The Court's Analysis
The Court first examined the contractual framework governing the relationship between the IE and NHAI. It noted that Clause 13 of the TOR expressly provides a graded performance clause requiring a series of warnings before any debarment can be imposed. The petitioners demonstrated that no warning or notice-to-cure was ever issued, and that the debarment was imposed at the first instance, contrary to the contractual regime.
"the contractual procedure contemplated under Clause 13 of the TOR, including the issuance of warnings prior to resorting to debarment, has not been followed in the present case."
The Court then considered the argument that the debarment stemmed from the Policy Circular, an independent regulatory instrument. While acknowledging that NHAI possesses statutory power to debar consultants under the Circular, the Court held that such power cannot override the explicit procedural safeguards embedded in the Consultancy Agreement and TOR without violating the principle of pacta sunt servanda. The Court emphasized that the parties cannot be compelled to abandon contractual rights by reference to a policy document unless the contract itself incorporates the Circular, which was not the case here.
Furthermore, the Court evaluated the claim of force majeure. Clause 2.7 of the General Conditions recognises storm and flood as force-majeure events, excusing the party from breach for the period of the event. The Court accepted that the cyclone’s impact on the DPR and the subsequent need for redesign justified an extension of time, thereby negating any alleged delay attributable to the IE.
Having found that the contractual procedural requirements were not satisfied, the Court concluded that the debarment order was prima facie ultra vires and therefore liable to be stayed pending the outcome of the writ petition. The Court refrained from adjudicating the merits of the writ petition itself, limiting its intervention to preserving the status quo.
The Verdict
The Delhi High Court stayed the debarment order dated 20.07.2026, which had barred the petitioners from participating in NHAI tenders for one year up to 19.07.2027. The stay remains in effect for the duration of the pending writ petition. No monetary award or penalty was granted.
What This Means For Similar Cases
Contractual Graded Procedures Must Be Honoured
- Parties to a consultancy or engineering contract cannot be debarred without first complying with the warning and notice-to-cure regime stipulated in the agreement.
- Courts will scrutinise the contractual terms even when an administrative policy is invoked, and will not allow a policy circular to supersede explicit contractual safeguards.
Force Majeure Can Suspend Performance Obligations
- Events classified as force majeure under the General Conditions automatically extend time for performance and shield the contractor from breach allegations.
- Practitioners should ensure that force-majeure clauses are expressly invoked in correspondence to pre-empt claims of delay.
Administrative Actions Are Subject to Judicial Review for Procedural Fairness
- Even where a statutory authority relies on a policy circular, the action must satisfy principles of natural justice, including the right to be heard and the provision of reasons.
- Failure to follow the procedural ladder set out in the contract may render the administrative action ultra vires and liable to be stayed.
Practical Takeaways
- Review all contractual clauses on performance, warnings, and debarment before contesting an administrative order.
- Document any force-majeure events and obtain written acknowledgment from the authority.
- Raise objections to the applicability of policy circulars at the earliest stage of any show-cause or disciplinary proceeding.
