HC asks NHAI to deposit more than Rs 300 Crores in Escrow Account in an Arbitration Dispute [Read Order]

While deciding an Interlocutory Application (IA) preferred by Bhubneshwar Expressways Pvt Ltd against NHAI, the Delhi High Court gave a very significant decision, directing NHAI to deposit a sum of Rs. 3,37,73,19,434.10/- in the Applicant’s designated Escrow Account.

Factual Background

The High Court, by an earlier order last year held that the Applicant was to furnish an unconditional and irrevocable bank guarantee (BG) in favour NHAI undertaking to pay the NHAI, the above stated sum of money towards an unsettled debt. On furnishing the BG, the NHAI was to deposit the amount in Applicant’s designated account and encashment of the BG was conditioned on the final Award of the Arbitral Tribunal.

Contentions of the Parties

The case of the Applicant was that; in accordance with the Court’s Order, it had furnished an unconditional and irrevocable BG issued by Hongkong and Shanghai Banking Pvt. Ltd at the request of Arcelor Mittal India Pvt. Ltd. (Applicant’s lender). The NHAI however, opposed the BG so issued on the dual grounds of; (a) non- compliance of the Court’s Order; and (b) issuance of BG at the instance of a third party, who is stranger to the Contract and thus not maintaining ‘privity of Contract.’ It was vehemently contended by NHAI that the BG was issues by Hongkong and Shanghai Bank at the instance of Arcelor Mittal, who is a stranger to the Contract and therefore it did not satisfy the requirements of Sec 126 of Indian Contract Act and that Arcelor Mittal could not be trusted with, in case encashment of BG was required.

Reasoning of the Court

Noting that the Respondent NHAI’s plea was “misleading” and “mere technical arguments were made” to discharge liabilities arising out of Court’s earlier Order, the Court held that; for the purpose of BG, the NHAI has to deal that guarantor that is the Hongkong and Shanghai Bank and ‘not’ with Arcelor Mittal, on whose instance the BG was issued. However, in order to do away with all fears of the respondent, the Court direct Arcelor Mittal to undertake on an affidavit to abide by decisions of the Court or Award of Arbitral tribunal ‘unconditionally’ and to waive off any right to institute legal action in any matter arising out of this case before any legal forum.  

Decision of the Court

Thus, NHAI was directed to deposit a sum of 3,37,73,19,434.10/- in applicant’s designated Escrow Account within the time specified.

Case Details

Before- Delhi High Court

Coram- Hon’ble Mr. Justice Jayant Nath

Applicant- Bhubneshwar Expressways

Respondent- National Highway Authority of India (NHAI)  

Date of decision- June 03, 2020

Read Order @ Latest Laws