Delhi High Court
National Highways Authority Of ... vs Punjab National Bank on 27 October, 2017
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO(OS) (COMM) 165/2017 & CM No. 31279/2017
% Reserved on: 19th September, 2017
Pronounced on: 27th October, 2017
NATIONAL HIGHWAYS AUTHORITY OF INDIA..... Appellant
Through: Mr.Parag P. Tripathi, Sr. Advocate with
Ms.Gunjan Sinha & Mr.Rishabh Kapur, Advocates
Versus
PUNJAB NATIONAL BANK ..... Respondent
Through: Mr.Rajiv Nayar, Sr.Advocate with
Mr.Manmeet Singh, Mr.Mayank Grover and
Ms.Anjali Anchayil, Advocates.
FAO(OS) (COMM) 166/2017 & CM No. 31281/2017
NATIONAL HIGHWAYS AUTHORITY OF INDIA..... Appellant
Through: Mr.Parag P. Tripathi, Sr. Advocate with
Ms.Gunjan Sinha & Mr.Rishabh Kapur, Advocates
Versus
M/S JETPUR SOMNATH TOLLWAYS LIMITED..... Respondent
Through: Mr.Sandeep Sethi, Sr. Advocate with
Mr.Ajay Sondhi & Ms.Surbhi Mehta, Advocates
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE NAVIN CHAWLA
FAO(OS) (COMM) 165/2017 & FAO(OS) (COMM) 166/2017 Page 1 of 30
SANJIV KHANNA, J.
National Highways Authority of India („NHAI‟ for short) has filed
these intra Court appeals impugning the common order dated 31 st July, 2017
passed in OMP(I) (Comm.) No.221/2017 „M/s.Jetpur Somnath Tollways
Limited Vs. National Highways Authority of India & Anr‟ and in OMP(I)
(Comm.) No.227/2017 „Punjab National Bank Vs. National Highways
Authority of India & Anr‟.
2. The impugned order allows the aforestated OMPs filed by M/s.Jetpur
Somnath Tollways Limited („JSTL‟/ JETPUR for short) and the Punjab
National Bank („PNB‟ for short) under section 9 of the Arbitration &
Conciliation Act 1996 („A&C Act‟ for short) with the following directions:
"106. In view of the above,
(i)JETPUR is directed to furnish an unconditional and
irrevocable Bank Guarantee, in favour of NHAI undertaking
to pay to NHAI an amount not exceeding Rs. 348.604
Crores [i.e. 90% of 640.86 = 576.774 (minus) 222.03
{already paid} (minus) 6.14 {agreed to be payable by
NHAI} = 348.604]; and
(ii) on deposit of the Bank Guarantee, NHAI shall forthwith
deposit in the Escrow Account the sum of Rs. 354.744
Crores (i.e. 348.604 + 6.14); and
(iii) the encashment of the Bank Guarantee shall be subject
to the final award of the Arbitral Tribunal; and
(iv) JETPUR shall keep the bank guarantee alive for unto a
period of four months after the making of the final award by
the Arbitration Tribunal; and
(v) Parties shall comply with the provisions of Section 9(2)
of the Act."
3. A Concession Agreement dated 7th February, 2011 was executed
between NHAI and JSTL for construction, operation and maintenance of the
four laning of Jetpur-Somnath section of National Highway 8-D from k.m.
0.00 to k.m. 127.00 in the State of Gujarat. The agreement had required the
Concessionaire to on toll basis design, build, finance, operate and transfer
(DBFOT) the project highway under NHDP Phase -III Project for a period of
30 years commencing from the date of appointment. The agreement had also
postulated construction of Junagadh bypass for length of 19.80 k.m.
4. The concessionaire JSTL, in other words, had to incur entire costs,
expenses and arrange for finances to construct the highway and operate,
maintain, and manage the same. In turn the Concessionaire had the right to
regulate its use by third parties, demand and collect an appropriate fees from
vehicles and users for using the project highway or any part thereof, and
refuse entry of any vehicle if fee due was not paid.
5. The Concession Agreement had mandated as a condition precedent
that JSTL would have to open an escrow account with a bank, prior to the
appointed date. For this purpose the Concessionaire was required to execute
an escrow agreement with the bank. All deposits, inflows, and receipts of
funds constituting the financial package of fees and other revenues, from or
in respect of the project highway including rental deposits or capital receipts
or insurance cover were to be deposited in the said account. Similarly, all
payments towards expenditure on construction, maintenance, taxes, etc.
including payment to NHAI after deducting cancellation fees, if any, were to
be debited and paid from the said account. For the sake of convenience, we
are reproducing clause 31.1 relating to escrow account, clause 31.2 relating to
deposit into escrow account, clause 31.3 relating to Withdrawal during
Concession Period and clause 31.4 relating to Withdrawals upon Termination
as stipulated in the Article 31 of the Concessionaire Agreement, which read
as under:
"31.1 Escrow Account
31.1.1 The Concessionaire shall, prior to the Appointed Date, open
and establish an Escrow Account with a Bank (the "Escrow Bank") in
accordance with this Agreement read with the Escrow Agreement.
31.1.2 The nature and scope of the Escrow Account are fully
described in the agreement (the "Escrow Agreement") to be entered
into amongst the Concessionaire, the Authority, the Escrow Bank and
the Senior Lenders through the Lenders‟ Representative, which shall
be substantially in the form set forth in Schedule-S.
31.2 Deposits into Escrow Account
The Concessionaire shall deposit or cause to be deposited the
following inflows and receipts into the Escrow Account:
(a) all funds constituting the Financial Package;
(b) all Fee and any other revenues from or in respect of the
Project Highway, including the proceeds of any rentals,
deposits, capital receipts or insurance claims; and
(c) all payments by the Authority, after deduction of any
outstanding Concession Fee:
Provided that the Senior Lenders may make direct
disbursements to the EPC Contractor in accordance with the
express provisions contained in this behalf in the Financing
Agreements.
31.3 Withdrawals during Concession Period
31.3.1 The Concessionaire shall, at the time of opening the Escrow
Account, give irrevocable instructions, by way of an Escrow
Agreement, to the Escrow Bank instructing, inter alia, that deposits in
the Escrow Account shall be appropriated in the following order
every month, or at shorter interval as necessary, and if not due in a
month then appropriated proportionately in such month and retained
in the Escrow Account and paid out therefrom in the month when
due:
(a) all taxes due and payable by the Concessionaire for and in
respect of the Project Highway;
(b) all payments relating to construction of the Project Highway,
subject to and in accordance with the conditions, if any, set
forth in the Financing Agreements;
(c) O&M Expenses, subject to the ceiling, if any, set forth in the
Financing Agreement;
(d) O & M Expenses and other costs and expenses incurred by
the Authority in accordance with the provisions of this
Agreement, and certified by the Authority as due and payable
to it;
(e) Concession fee due and payable to the Authority;
(f) monthly proportionate provision of Debt Service due in an
Accounting Year;
(g) all payments and Damages certified by the Authority as due
and payable to it by the Concessionaire, including repayment
of Revenue Shortfall Loan;
(h) Monthly proportionate provision of debt service payments
due in an Accounting Year in respect of Subordinated Debt;
(i) any reserve requirements set forth in the Financing
Agreements; and
(j) balance, if any, in accordance with the instructions of the
Concessionaire.
31.3.2 The Concessionaire shall not in any manner modify the order
of payment specified in Clause 31.3.1, except with the prior written
approval of the Authority.
31.4 Withdrawals upon Termination
31.4.1 Notwithstanding anything to the contrary contained in this
Agreement, all amounts standing to the credit of the Escrow Account
shall, upon Termination, be appropriated in the following order:
(a) all taxes due and payable by the Concessionaire for and in
respect of the Project Highway;
(b) 90% (ninety per cent) of Debt Due excluding Subordinated
Debt;
(c) outstanding Concession Fee;
(d) all payments and Damages certified by the Authority as due
and payable to it by the Concessionaire, including Premium
and repayment of Revenue Shortfall Loan;
(e) retention and payments relating to the liability for defects and
deficiencies set forth in Article 39;
(f) outstanding Debt Service including the balance of Debt Due;
(g) outstanding Subordinated Debt;
(h) incurred or accrued O&M Expenses;
(i) any other payments required to be made under this
Agreement; and
(j) balance, if any, in accordance with the instructions of the
Concessionaire:
Provided that no appropriations shall be made under Sub-clause
(j) of this Clause 31.4.1 until a Vesting Certificate has been
issued by the Authority under the provisions of Article 38.
31.4.2 The provisions of this Article 31 and the instructions
contained in the Escrow Agreement shall remain in full force
and effect until the obligations set forth in Clause 31.4.1 have
been discharged."
6. There was also a stipulation in the Concession Agreement that the
Concessionaire, upon occurrence of Financial Close, was to notify the NHAI
forthwith and was to provide to the NHAI, at least two days prior to the
Financial Close, three true copies of the Financial Package and the Financial
Model, duly attested by a Director of the Concessionaire, along with three
soft copies of the Financial Model, which was acceptable to the Senior
Lenders. Senior Lenders could make direct disbursement to the specified
contractor in accordance with the express provisions regarding such
payments in the Finance Agreement.
7. In terms of the aforesaid agreement JSTL opened an escrow account
with PNB, vide an Escrow Agreement dated 16th August, 2011, which was
jointly executed and signed amongst PNB, JSTL, and NHAI. The Escrow
Agreement under heading Clause 3 had prescribed deposits required to be
made in the escrow account by JSTL, NHAI, and the Senior Lenders
represented by PNB. Clause 4 was in relation to and regulated withdrawals
from the escrow account during the period of Concession Agreement as well
as withdrawal upon termination. Thus Escrow Agreement records and
affirms that the Senior Lenders had agreed to finance the project in
accordance with the terms and conditions set forth in the Financial
Agreement. Again for clarity and convenience we reproduce, clauses 3.2 and
4.2 of the tripartite Escrow Agreement which stipulate as under:
3.2 Deposits by the Authority
The Authority agrees and undertakes that, as and when due and
payable, it shall deposit into and/or credit the Escrow Account
with:
Grant and any other monies disbursed by the Authority to the
Concessionaire;
(a) Revenue Shortfall Loan;
(b) all Fee collected by the Authority in exercise of its rights
under the Concession Agreement; and
(c) Termination Payments:
Provided that, nothwithstanding the provisions of Clause4.1.1,
the Authority shall be entitled to appropriate form the aforesaid
amounts, any Concession Fee due and payable to it by the
Concessionaire and the balance remaining shall be deposited into
the Escrow Account.
4.2 Withdrawals upon Termination
Upon Termination of the Concession Agreement, all amounts
standing to the credit of the Escrow Account shall,
notwithstanding anything in this Agreement, be appropriated and
dealt with in the following order:
(a) all taxes due and payable by the Concessionaire for and in
respect of the project Highway;
(b) 90% (ninety per cent) of debt Due excluding Subordinated
Debt;
(c) outstanding Concession Fee;
(d) all payments and Damages certified by the Authority as
due and payable to it by the Concessionaire pursuant to the
Concession Agreement, including { Premium,} repayment of
Revenue Shortfall Loan and any claims in connection with or
arising out of Termination;
(e) retention and payments arising out of, or in relation to,
liability for defects and deficiencies set forth in Article 39 of the
concession Agreement;
(f) outstanding Debt Service including the balance of Debt
Due;
(g) outstanding Subordinated Debt;
(h) incurred or accrued O & M Expenses;
(i) any other payments required to be made under the
Concession Agreement; and
(j) balance, if any, in accordance with the instructions of the
Concessionaire:
Provided that the disbursements specified in Sub-clause (j) of this
Clause 4.2 shall undertaken only after the Vesting Certificate has
been issued by the Authority."
8. Thus, in terms of clause 3.2 of the Escrow Agreement, NHAI has to
deposit in the Escrow Account the Termination Payment as soon as the same
becomes due and payable. In terms of Clause 4.2, after payment of taxes due
and payable by JSTL, the Senior Lenders have the right to appropriate 90%
of the Debt Due excluding Subordinate Debt. Priority of appropriation under
the respective clauses is stipulated.
9. The Financing Agreement was the third agreement which was
executed between PNB and JSTL on 19th August, 2011. NHAI is not a party
to the Financing or Lenders Agreement, though a copy of the Lenders
Agreement was furnished and given to NHAI, who as noticed above, was a
party to the Escrow Agreement amongst the three parties. The Concession
Agreement had stipulated in Clause 4.1.3(e) that the Concessionaire shall
have executed the Financing Agreements, duly attested by the Director of the
Concessionaire, as a condition precedent to be satisfied by the
Concessionaire, prior to the appointed date.
10. The undisputed position is that there is an arbitration clause both in
the Concession Agreement between JSTL and NHAI and in the Escrow
Agreement amongst JSTL, NHAI and PNB.
11. Dispute arose between the NHAI and JSTL regarding execution of
work relating to by-pass pertaining to time period, reason for delay, default
and costs for execution of work.
12. On 13th May, 2016, JSTL issued a cure period notice to NHAI. NHAI
in turn issued notice of termination on 10th August, 2016. On 5th September,
2016, a joint meeting was held amongst JSTL, NHAI, and Senior Lenders
followed by another meeting on 18th October, 2016. The dispute persisted and
could not be resolved. On 10th November, 2016, NHAI issued termination
notice under clause 37.1.2 of the Concession Agreement and took possession
and control over the project highway forthwith. On 17th November, 2016,
JSTL issued notice of termination to NHAI under clause 37.2 of the
Concession Agreement, treating the termination notice of NHAI dated 10th
November, 2016 as repudiatory breach of the Concession Agreement. PNB
on 11th November, 2016, called upon NHAI to confirm whether before taking
over the project highway they had paid the termination amount. PNB by
letters dated 21st January, 2017, 4th March, 2017, and 22nd March, 2017
informed NHAI that on account of non-release of the termination payment
JSTL was unable to meet the debt service obligation and the account of JSTL
was likely to become Non-Performing Asset. As the project highway had
been taken over by NHAI, JSTL was no longer receiving any toll revenue
and was not in a position to serve it with the debt payable by JSTL. On 27th
March, 2017, NHAI released a payment of Rs.217.59 crores (net of TDS) in
the escrow account with PNB. NHAI, however, refused to deposit any further
amount in the escrow account under the termination clause despite several
requests from PNB and JSTL. This prompted PNB to file OMP (I) (Comm.)
No.227/2017 against NHAI to direct NHAI to pay Rs. 374.51 crores into
escrow account for appropriation by the lenders, relying upon clause 37.3.1
of the Concession Agreement. JSTL also filed OMP (I) (Comm.)
No.221/2017 under Section 9 of the A&C Act for similar directions to NHAI
to deposit Rs.359.19 crores being the balance of minimum termination
payment under the Concession Agreement into the escrow account. Reliance
was placed upon Clause 37.3.2. of the Concession Agreement.
13. The impugned order dated 31st July, 2017 has directed NHAI to
deposit Rs.354.744 crores in the escrow account, subject to JSTL first
furnishing an unconditional and irrevocable bank guarantee in favour of
NHAI, undertaking to pay NHAI an amount not exceeding Rs.348.604
crores. It directs that the bank guarantee shall be subject to the final award by
the Arbitral Tribunal and would be kept alive by JSTL for a period of four
months after making the final award by the Arbitral Tribunal. It also directs
that the parties will comply with the provisions of Section 9(2) of the A&C
Act.
14. The impugned order holds that NHAI under Clause 37.3.1, relating to
„Termination Payment‟ on account of default by the Concessionaire, cannot
make any deductions on account of NHAI's claims or that the recoveries or
adjustments must be made by proportionately reducing equity component
from the Total Project Cost to compute the termination payment.
15. In order to appreciate controversy and the respective contentions
raised by the parties, we would first reproduce clause 37.3 of the Concession
Agreement, relating to termination payment which reads as under:
"37.3 Termination Payment
37.3.1 Upon Termination on account of a Concessionaire Default
during the Operation Period, the Authority shall pay to the
Concessionaire, by way of Termination Payment, an amount equal
to 90% (ninety per cent) of the Debt Due less Insurance Cover;
provided that if any insurance claims forming part of the Insurance
Cover are not admitted and paid, then 80% (eighty per cent) of
such unpaid claims shall be included in the computation of Debt
Due. For the avoidance of doubt, the Concessionaire hereby
acknowledges that no Termination Payment shall be due or payable
on account of a Concessionaire Default occurring prior to COD.
37.3.2 Upon Termination on account of an Authority Default, the
Authority shall pay to the Concessionaire, by way of Termination
Payment, an amount equal to:
(a) Debt Due; and
(b) 150% (one hundred and fifty per cent) of the Adjusted Equity.
37.3.3 Termination Payment shall become due and payable to the
Concessionaire within 15 (fifteen) days of a demand being made by
the Concessionaire to the Authority with the necessary particulars,
and in the event of any delay, the Authority shall pay interest at a
rate equal to 3% (three per cent) above the Bank Rate on the
amount of Termination Payment remaining unpaid; provided that
such delay shall not exceed 90 (ninety) days. For the avoidance of
doubt, it is expressly agreed that Termination Payment shall
constitute full discharge by the Authority of its payment obligations
in respect thereof hereunder.
37.3.4 The Concessionaire expressly agrees that Termination
Payment under this Article 37 shall constitute a full and final
settlement of all claims of the Concessionaire on account of
Termination of this Agreement for any reason whatsoever and that
the Concessionaire or any shareholder thereof shall not have any
further right or claim under any law, treaty, convention, contract or
otherwise.
37.4 Other rights and obligations of the Authority
Upon Termination for any reason whatsoever, the Authority shall:
(a) be deemed to have taken possession and control of the Project
Highway forthwith;
(b) take possession and control of all materials, stores, implements,
construction plants and equipment on or about the Site;
(c) be entitled to restrain the Concessionaire and any person
claiming through or under the Concessionaire from entering
upon the Site or any part of the Project;
(d) require the Concessionaire to comply with the Divestment
Requirements set forth in Clause 38.1; and
(e) succeed upon election by the Authority, without the necessity of
any further action by the Concessionaire, to the interests of the
Concessionaire under such of the Project Agreements as the
Authority may in its discretion deem appropriate, and shall upon
such election be liable to the Contractors only for compensation
accruing and becoming due and payable to them under the terms
of their respective Project Agreements from and after the date
the Authority elects to succeed to the interests of the
Concessionaire. For the avoidance of doubt, the Concessionaire
acknowledges and agrees that all sums claimed by such
Contractors as being due and owing for works and services
performed or accruing on account of any act, omission or event
prior to such date shall constitute debt between the
Concessionaire and such Contractors, and the Authority shall not
in any manner be liable for such sums. It is further agreed that
in the event the Authority elects to cure any outstanding defaults
under such Project Agreements, the amount expended by the
Authority for this purpose shall be deducted from the
Termination Payment.
(underlining supplied)
Clause 37.3.2 relates to termination on account of an Authority
Default, i.e. NHAI default. In such cases NHAI is to pay to the
Concessionaire i.e. JSTL, by way of termination payment, an amount equal
to debt due and 150% of the adjusted equity. Clause 37.3.1 on the other hand
applies to termination on account of a Concessionaire Default i.e. JSTL‟s
default, during the operation period. NHAI, thereunder, would be liable to
pay JSTL, by way of termination payment, an amount of 90% of the debt due
less insurance cover. Therefore, it is clear from the reading of the aforesaid
clauses that NHAI is to make payment either under Clause 37.3.1 or under
Clause 37.3.2 whenever the Concession Agreement is terminated. In case
termination is on account of Authority/NHAI‟s default the amount payable is
the entire debt due plus 150% of the adjusted equity, whereas if the
termination is on account of Concessionaire/JSTL's default an amount equal
to 90% of the debt due less insurance cover is required to be paid. The reason
is that upon termination of the Concession Agreement, for whatsoever
reason, NHAI is deemed to have taken possession and control of the
Highway Project forthwith which includes taking over possession and control
of all material, stores, implements, construction plants, and equipments etc.,
and the Concessionaire is restrained from entering into the site or any part of
the project. As noted above, cost of operation, construction, and maintenance
of the project was to be spent and undertaken by the Concessionaire i.e.
JSTL, and NHAI was not required to spend money on construction,
operation, and maintenance. Intent and objective behind this clause as
explained and elucidated below is to protect interest of the Senior Lenders
who the financed construction of the highway project.
16. Termination payment under clause 37.3.1 is not payable to the
Concessionaire for the Concessionaire's default occuring prior to COD. The
expression "COD" has been defined in the definition clause of the
Concessionaire Agreement as "Commercial Operation Date", which has its
meaning as set forth in clause 15.1. Clause 15.1 stipulates that four-laning
shall be deemed to be complete when completion certificate or provisional
certificate, as the case may be, is issued under the provisions of Article/
clause 14 and accordingly the Commercial Operation Date of the project
shall be the date on which such completion certificate or provisional
certificate is issued. The Concessionaire is entitled to collect fee and receive
payments in accordance with the Article/clause 27 of the Concessionaire
Agreement after issue of COD. The NHAI in the grounds of appeal have
stated and accepted that they had issued provisional certificate on 4th May,
2015 and as per Article/clause 15, the Project Highway was put to
commercial use from 4th May, 2015. This aspect is important and relevant
when we examine the contention of the NHAI that they are entitled to set off
the alleged recoveries of Rs.242.42 Crores while making payment under
clause 37.3.1.
17. The expression "debt due" has been defined in the Concession
Agreement, the relevant portion of which reads as under:
"Debt Due" means the aggregate of the following sums expressed
in Indian Rupees outstanding on the Transfer Date:
(a) the principal amount of the debt provided by the Senior Lenders
under the Financing Agreements for financing the Total Project
Cost (the "principal") but excluding any part of the principal that
had fallen due for repayment two years prior to the Transfer
Date;
(b) all accrued interest, financing fees and charges payable under
the Financing Agreements on or in respect of, the debt referred
to in sub-clause (a) above until the Transfer Date but excluding
(i) any interest, fees or charges that had fallen due one year prior
to the Transfer Date, (ii) any penal interest or charges payable
under the Financing Agreements to any Senior Lender, and (iii)
any pre-payment charges in relation to accelerated repayment of
debt except where such charges have arisen due to Authority
Default; and
(c) any Subordinated Debt which is included in the Financial
Package and disbursed by lenders for financing the Total Project
Cost;
provided that if all or any part of the Debt Due is convertible into
Equity at the option of Senior Lenders and/or the Concessionaire, it
shall for the purposes of this Agreement be deemed to be Debt Due
even after such conversion and the principal thereof shall be dealt
with as if such conversion had not been undertaken;"
18. As per the said clause the "debt due" means aggregate of the sums
mentioned in the clauses (a), (b) and (c) outstanding in the Indian Rupees on
the transfer date. Clause (a) is the principal amount of debt provided by the
Senior Lender under the Financing Agreement for financing the Total Project
Cost, but it excludes any part of the principal that had fallen due for
repayment two years prior to the transfer date. Thus, the principal amount
financed by the Senior Lender under Clause (a) cannot exceed the Total
Project Cost. Under Clause (b) all accrued interest, financing fee, and charges
payable under the Financing Agreement with respect to the "debt due"
referred to in Clause (a) above, till the transfer date, is to be added. However,
any interest, fees, and charges that had fallen due one year prior to the
transfer debt, any penal interest, and any pre-payment charges in relation to
accelerated repayment of debt except where such charges have arisen due to
NHAI's default, are to be excluded. Under Clause (c) subordinated debt
which is included in the financial package and disbursed by the lenders for
financing of the Total Project Cost is to be added. Clause (c) like Clause (a)
refers to the financing of the Total Project Cost. Proviso thereto stipulates
that any debt due convertible into equity at the option of the Senior Lender or
the Concessionaire shall be deemed to be debt due even after conversion, and
the principal thereof shall be dealt with as if conversion had not been
undertaken. It is clear from the reading of the definition that the expression
the "debt due" refers to the principal amount of debt provided by the Senior
lender under the Financing Agreement but excluding any part of the principal
that had fallen due for repayment two years prior to the transfer date. The
principal amount should be for financing the Total Project Cost. It also
includes aggregate interest, financing fees, and charges which had fallen due
within one year prior to the transfer date and excludes penal interest and
other charges and also pre payment charges on accelerate payments. Thus,
there is specific and clear-cut definition of the "debt due" which would
become payable under clause 37.3.1 of the Concession Agreement.
19. The first contention of the appellant is that under Clause (a) of the
definition clause defining debt due, the principal amount of debt should be
for financing of the Total Project Cost. It is submitted that in the present case
there was reduction of the Total Project Cost by Rs. 106.60 Crores, as
Junagadh bypass was not constructed. The second submission is that the
NHAI is also entitled to set off recoveries, they had to make, of Rs.242.42
Crores. Thirdly, equity contributed by the promoters other than the equity
issued to the Senior Lenders has to be excluded and therefore, an adjustment
is required to be made for computing the debt due which would be payable
under clause 37.3.1 of the Concession Agreement.
20. In order to appreciate the controversy and the contentions it is
necessary for us to reproduce the definition of the Total Project Cost in the
Concession Agreement, which is as under:
"Total Project Cost" means the lowest of;
(a) the capital cost of the Project less Equity Support as set forth in the
Financial Package;
(b) the actual capital cost of the Project upon completion of Four-
Laning of the Project Highway less Equity Support; and
(c) a sum of Rs. 828.00 crore (Rupees Eight Hundred and Twenty
Eight crore), less Equity Support;
provided that in the event of Termination, the Total Project Cost
shall be deemed to be modified to the extent of variation in WPI or
Reference Exchange Rate occurring in respect of Adjusted Equity
and Debt Due as the case may be, in accordance with the provisions
of this Agreement provided further that in the event WPI increases,
on an average, by more than 6% (six per cent) per annum for the
period between the date hereof and COD, the Parties shall meet, as
soon as reasonably practicable, and agree upon revision of the
amount hereinbefore specified such that the effect of increase in
WPI, in excess of such 6%(six per cent), is reflected in the Total
Project Cost;"
The expression Total Project Cost as per the aforesaid definition means the
lowest amount computed under Clauses (a), (b) and (c). Clause (a) refers to
the capital cost of the project less equity support as set forth in the financial
package i.e. the Finance Agreement between the Concessionaire/JSTL and
the Senior Lenders. As per clause (b) the Total Project Cost is the actual
capital cost of the project upon conclusion of the four laning of the project
less equity support. Clause (b), therefore, refers the actual capital cost of the
project upon completion. From this amount equity support has to be
excluded or reduced. The distinction between Clauses (a) and (b) is that
Clause (a) relates to capital cost of the project as per the Finance Agreement
and Clause (b) relates to actual capital cost of the project upon conclusion.
Clause (a) would therefore be applicable even when the actual cost of the
project upon completion is unavailable or lower. Under the two clauses
equity support is to be reduced but for clause (a) equity support to be reduced
would be as set forth in the financial package and under clause (b) from the
actual capital cost on completion. Clause (c) refers to the pre-determined
figure of Rs. 828.00 Crores and states that Total Project Cost for the said
clause would be the above figure less equity support. It is submitted by
NHAI that this amount of Rs. 828.00 crores was the estimated or projected
cost of the Project Highway. This is correct. Thus, the projected or estimated
cost need not be the actual or financed capital cost, a facet which is
recognized and accepted in Clauses (b) and (a). As per NHAI, adjustment is
required to be made from this figure of Rs.828 Crores for in this case JSTL
had not executed and constructed Junagadh bypass 19.80km in length, the
cost of construction of which was Rs.106.60 crores. This figure of Rs.106.60
crores was included in Rs. 828 crores. We shall subsequently examine the
said contention. However, at this stage, we would only record that Total
Project Cost being the lowest of the amount computed under Clauses (a), (b)
and (c), it is required that we compute the amount payable under Clauses (a)
and (b), and also the amount under Clause (c). The lowest amount would be
the Total Project Cost which would be taken into consideration for
determination and quantifying the upper limit of debt due under clause (a) of
the definition of debt due, and accordingly the termination payment. Even if
the actual or financed capital cost is more than Rs. 828 crores, the total
project cost cannot exceed Rs. 828 crores. Under Clause (c) equity support
has to be reduced or deducted. The proviso has been interpreted and
examined in paragraph 26 below.
21. Before we proceed further, we would like to reproduce calculation
made by NHAI for making payment of the termination amount under Clause
37.3.1. Their calculation is as under:
"
S. Particulars Amount in
No. INR/Crores
1. NHAI Total Project Cost (TPC) 828.00
2. Less Cost of unfinished construction (details 106.60
enclosed as Appendix-I)
3. Adjusted TPC 721.40
4, Debt (72.58% of adjusted TPC) 523.59
5. Debt repaid 0.71
6. Outstanding Debt Due 522.88
7. Accrued Interest of Rs. 19.4 Cr (Wilful default, Nil
hence no payment)
8. 90% of debt due 470.59
9. Less Recoveries (details enclosed as Appendix-II 242.42
10. Net Termination Payment 228.17
11. Paid by NHAI to Concessionaire 222.03
12. Balance to be paid 6.14
"
22. A reading of the aforesaid table would indicate that NHAI has made a
reduction in the Total Project Cost and has excluded cost of unfinished
construction of Rs. 106.60 Crores. This amount has been reduced from the
Total Project Cost of Rs.828 crores mentioned at Clause (c) to come at a
figure of the Total Project Cost of Rs.721.40 Crores. Serial No.4 in the
aforesaid table records the debt due as Rs.532.59 Crores by making
adjustment and reducing the principal amount of debt to 72.58%. From the
said amount Rs.71.0 lacs towards payment made by JSTL to PNB was
reduced leaving a balance outstanding debt due of Rs.522.88 crores. The
NHAI has excluded Rs.19.4 crores on account of aggregate interest on the
ground that this was a case of willful default and therefore NHAI is not liable
to make payment. Thereafter 90% of the debt due has been computed as
Rs.470.59 crores and from this amount another amount of Rs.242.42 crores
was deducted on account of recovery to arrive at the figure under Serial
No.10, described as „Net Termination Payment‟, of Rs.228.17 crores. Out of
this Rs.222.03 crores was already deposited and Rs.6.14 crores has been paid
by NHAI to escrow account with PNB during the pendency of the present
appeal.
23. However, factual position is that outstanding debt due as on
termination date was Rs.640.86 Crores i.e. 621.45 towards principal and
Rs.19.4 crores towards interest. The aforesaid principal and the interest
amount have been calculated in terms of the definition clause of debt due,
quoted above. Ninety percent (90%) of the debt due is Rs.576.774 crores out
of which an amount of Rs.222.03 crores and 6.14 crores totaling to Rs.228.17
have been deposited by NHAI in the escrow account. Thus, the balance
amount payable as per JSTL and PNB is Rs.348.60 Crores. The impugned
order refers to the figure of Rs. 354.774 crores that includes Rs. 6.14 crores
which now stands paid.
24. At the outset, we would have to reject the contention of the appellant,
NHAI that for the purpose of Clause 37.3.1 interest component of Rs.19.4
crores or recoveries of Rs.242.42 crores can be adjusted. This is
impermissible and not what is stated and permitted under Clause 37.3.1 or
under expressions Debt Due or Total Project Cost. We do not, therefore,
think that the appellant NHAI can make adjustment on account of the
recoveries which it claims are payable by JSTL, or exclude accrued interest
of Rs.19.4 crores on account of alleged willful default by JSTL. The said
adjustment being impermissible and not as per the mandate of the clauses
mentioned above, are unsustainable.
25. NHAI‟s claim for damages is yet to be adjudicated and remains a mere
inchoate demand till it is determined and decided. It is not a crystalised and
ascertained liability. Only after adjudication as per law, the amount qualified
as payable is a liability payable or to adjusted from the dues payable to the
JSTL. (See [1] Union of India Vs. Raman Iron Foundry (1974) 2 SCC 231;
[2] J.G. Engineers (P) Ltd. Vs. Union of India (2011) 5 SCC 758, which
holds that adjudication of breach can only be decided by a Court or a
Tribunal and not by the alleged aggrieved party. No pecuniary liability arises
till the determination of the claim of the party complaining of breach and
entitlement to damages. [3] Gangotri Enterprises Ltd. Vs. Union of India
(2016) 11, SCC 720.)
26. This leaves us with the question of adjustment of debt on account of
equity. Presumably NHAI relies upon proviso to the Total Project Cost
definition. The proviso, as stipulated, becomes applicable in the event of
termination but not in all cases of termination. The Total Project Cost under
the proviso is deemed to be modified to the extent of variation in Wholesale
Price Index or Reference Exchange Rate. However, in the present case none
of the parties have raised the question of modification on account of variation
in Wholesale Price Index or Reference Exchange Rate. The proviso,
therefore, would not be applicable and, thus, NHAI cannot ask for
modification or adjustment of equity and debt due. The aforesaid conclusion
is fortified by the definition of the term "adjusted equity" under the heading
"definition" Article/clause 48.1.
27. The expression "Total Project Cost" requires deduction of equity
support and not equity provided by the Concessionaire. The expression
"equity support" defined in Article/clause 48.1 has the meaning as set forth in
clause 25.2.1. The clause 25.2.1 falls under the heading "Grant" under Article
25 and is deleted. Hence, the term "equity support" remains undefined. The
expression "equity support" before deletion of clause 25.2.1 had referred to
the Grant credited to the escrow account to be applied by the Concessionaire
for meeting the Total Project Cost. It was to be restricted and not exceed
20% of the Total Project Cost. In the present case, we would only hold that
there was no "equity support". Hence, deduction was not required to be made
while computing the amount under clauses (a) to (c) for computing the figure
of Total Project Cost.
28. The financing agreement had computed the estimated total cost on
development of the highway project at Rs.981 crores instead of estimated
cost of the project mentioned in Clause (c) by NHAI of Rs.828 crores.
Relevant clause in the Financing Agreement reads as under:
"The total cost of construction and development of the Project High
Way (defined hereinafter) is estimated to be Rs. 981,00,00,000
(Rupees Nine Hundred and Eighty One Crores Only), which is
proposed to be funded, as follows:
Particulars Amount in Rupees
Crores
"
29. The Senior Lenders had agreed to provide financing facility to the
extent of Rs.712 crores and the promoters were required to provide equity
capital to the extent of Rs.269 crores to make up the capital cost of Rs.981
crores. NHAI, accordingly submits that the debt and equity ratio on total
project cost of Rs.981 crores was 72.58 : 27.42. Applying the said formula of
debt and equity ratio they have calculated adjustment what is called adjusted
total project cost as 523.59 crores, after excluding Rs. 106 crores from total
project costs of Rs.828 crores.
30. The aforesaid contention of NHAI, is contested by JSTL and PNB. The
figure of Rs.828 Crores it is stated is taken from Clause (c) of the definition
of Total Project Cost. The said figure of Rs.828 crores is not to be found or
recorded in Clauses (a) and (b) and is not the capital cost of the project under
the Finance Agreement and actual capital cost of the completed project.
Under Clause (c) equity support has to be reduced from Rs.828 Crores. In the
present case no equity support has been provided and therefore no reduction
on the said account is to be made. Proviso to definition clause Total Project
Cost as explained above is not applicable. Therefore the adjustment on
account of equity and principal amount is un-explainable and cannot be
justified.
31. This figure of Rs. 828 crores cannot be reduced or adjusted on account
of equity utilised for part financing of the capital cost of the project. Debt due
does not exclude the equity funded by the Concessionaire. Debt due as
defined refers to principal amount of debt, interest and subordinate debt as
stipulated. We would also observe there is no specific stipulation in the
Concession Agreement with regard to the equity, which must be provided on
the basis of estimated project cost of Rs.828 crores. Equity capital which is to
be provided by the promoters/shareholders of the Concessionaire of Rs.269
crores is with reference to Rs.981 crores, which was estimated as the project
cost of the construction and development of the highways by the Senior
Lenders as per the Finance Agreement. It is accepted case that JSTL had
availed of loan facility to the extent of Rs.622 crores only, and not the entire
amount of Rs 712 crores. As per NHAI the project is about 75% complete.
As per the JSTL the project is nearly complete. Thus clearly the project
equity capital of Rs.269 crores is with reference to total project cost of
Rs.981 crores.
32. The next question, which arises for consideration is what would be the
capital cost of project under clause (a) for determining the Total Project Cost
under the definition clause. It appears to us that the capital cost of project for
the purpose of clause (a) would mean the capital cost incurred on a particular
date. In the context of the present case, it would mean the capital cost
incurred for construction, maintenance etc. on the date of termination. On
the said aspect, it appears that the factual position was that capital cost of
more than Rs.640.86 Crores had already been incurred. This would be also
the figure under Clause (b), if we treat the project as complete. This figure of
Rs.640.86 Crores was the debt due as on the termination date. Further,
NHAI has not relied upon clauses (a) or (b) of the Total Project Cost in their
computation. NHAI in their computation quoted in paragraph 20 above have
applied clause (c) of the total project cost for they have referred to the figure
of Rs.828 Crores.
33. The contention of NHAI is that they are entitled to reduce and exclude
from Rs.828 crores, Rs.106.60 crores for the unconstructed Jungadh bypass.
On the said reduction, the Total Project Cost would be Rs. 721.40 Crores.
Even if we accept the said contention as correct, it would not make any
difference for this figure of Rs.721.40 Crores is higher or more than the
amount calculated under clauses (a) and (c), defining the expression "debt
due". The accepted position is that Rs.640.86 crores i.e. Rs.621.45 crores
towards principal and Rs.19.4 Crores as interest is payable under clauses (a)
(or even clause (b) if we treat the project as completed) or clause (c) of the
definition "debt due".
34. As held by the learned Single Judge the clause relating to termination
payment is apparently to protect the interest of the lenders, who would have
been reluctant to provide finance for the Highway Project without their
principal and interest being secured in the event dispute arises between the
NHAI and the Concessionaire, which would then become subject matter of
legal proceedings. NHAI has to pay termination payment even if the
concessionaire is at fault. As per the terms stipulated in Clause 37.3.1, upon
termination on account of concessionaire default the interest of NHAI is also
protected because upon termination they step in and are entitled to collect
user fee from third parties. JSTL, it is pertinent to record, had spent and paid
the construction and maintenance costs of the project highway. NHAI is not
to make the payment of equity component but pay as termination payment
i.e. 90% of the "debt due" which excludes equity component and less
insurance.
35. On the question of exercise of power under Section 9 of the A&C Act,
we have already referred to Clauses 37.3.1 of the Concessionaire Agreement
which is an express and mandatory provision when said agreement is
terminated on account of concessionaire fault. We have also referred to
Clauses 3.2 and 4.2 of the tripartite Escrow Agreement which refers to
termination payment. To accept the plea of NHAI that section 9 of the A&C
Act cannot be invoked, would negate and obliterate the aforesaid Clauses and
their effect. In the aforesaid circumstances the ratio of decision of the
Division Bench of this Court in Value Source Mercantile Limited Vs. Span
Mechnotronix Limited (2014) 143 DRJ 505, is apposite, if not definite and
conclusive. Referring to Section 9 of the A&C Act, this decision emphasized
that the said provision uses the expression „interim measure of protection‟ as
distinct from the expression „temporary injunction‟ used in Rules 1 and 2 of
Order XXXIX of the Code of Civil Procedure, 1908. Interim injunction is
one of the measures or orders prescribed in Clause (d) to Section 9 (ii) of the
A&C Act, albeit a party to the arbitration agreement is entitled to apply for
and seek „interim measure of protection‟. Clause (e) to Section 9(ii) is a
residuary power of the court to issue or direct other "interim measures of
protection". Thus, the court has the power to issue or direct other interim
measures of protection as may appear to the court to be just and convenient.
Section 9 encompass the power of making orders as the Civil Court has for
the purpose of, and in relation to any proceedings before it. This decision
refers to Rule 10 of Order XXXIX of the aforesaid Code which empowers
the Court to direct to deposit payment of the admitted amount. Therefore the
court exercising power under Section 9 of the A&C Act has the same power
as that of a civil court during pendency of the suit.
36. The aforesaid dictum is re-enforced and reiterated in the recent
decision of another Division Bench of this Court in Ajay Singh Vs. Kal
Airways Private Limited FAO(OS)(Comm.)No.62/2016 decided on 03 rd July,
2017. Explaining the scope and ambit of Section 9 of the A&C Act it was
held as under:
"26. Though apparently, there seem to be two divergent strands
of thought, in judicial thinking, this court is of the opinion that
the matter is one of the weight to be given to the materials on
record, a fact dependent exercise, rather than of principle. That
Section 9 grants wide powers to the courts in fashioning an
appropriate interim order, is apparent from its text.
Nevertheless, what the authorities stress is that the exercise of
such power should be principled, premised on some known
guidelines - therefore, the analogy of Orders 38 and 39. Equally,
the court should not find itself unduly bound by the text of those
provisions rather it is to follow the underlying principles. In this
regard, the observations of Lord Hoffman in Films Rover
International Ltd. v. Cannon Film Sales Ltd.(1986) 3 All ER 772
are fitting:
"But I think it is important in this area to distinguish between
fundamental principles and what are sometimes described as
„guidelines‟, i.e useful generalisations about the way to deal
with the normal run of cases falling within a particular
category. The principal dilemma about the grant of interlocutory
injunctions, whether prohibitory or mandatory, is that there is
by definition a risk that the court may make the „wrong‟
decision, in the sense of granting an injunction to a party who
fails to establish his right at the trial (or would fail if there was a
trial) or alternatively, in failing to grant an injunction to a party
who succeeds (or would succeed) at trial. A fundamental
principle is therefore that the court should take whichever
course appears to carry the lower risk of injustice if it should
turn out to have been „wrong‟ in the sense I have described. The
guidelines for the grant of both kinds of interlocutory injunctions
are derived from this principle."
27. It was observed later, in the same judgment that:
"The question of substance is whether the granting of the
injunction would carry that higher risk of injustice which is
normally associated with the grant of a mandatory injunction.
The second point is that in cases in which there can be no
dispute about the use of the term „mandatory‟ to describe the
injunction, the same question of substance will determine
whether the case is „normal‟ and therefore within the guideline
or „exceptional‟ and therefore requiring special treatment. If it
appears to the court that, exceptionally, the case is one in which
withholding a mandatory interlocutory injunction would in fact
carry a greater risk of injustice than granting it even though the
court does not feel a „high degree of assurance‟ about the
plaintiff's chances of establishing his right, there cannot be any
rational basis for withholding the injunction."
(underlining supplied)
37. The impugned order takes care of the interest of NHAI as it directs
furnishing of an unconditional, irrevocable bank guarantee in favour of the
NHAI for an amount not exceeding Rs.348.604 crores and only upon the said
guarantee being furnished deposit of the same figure is to be made in the
escrow account. The bank guarantee is subject to final award of the arbitral
tribunal. The impugned order also notices the adverse impact and the
consequences which JSTL would suffer in case of non-deposit of the
termination payment in the escrow account, which would have the effect of
declaring the account of JSTL as non-performing asset which would amount
to irreparable loss and injury. However, we are more concerned and want to
protect the rights of the lenders i.e. PNB, who would suffer a grave injury and
adverse consequences, which will follow in case NHAI does not make the
termination payment as agreed and stipulated in Clause 37.3.1 of the
Concessionaire Agreement on fault of Concessionaire read with Clauses 3.2
and 4.2 of the Tripartite Escrow Agreement which formed the basis of the
finance.
38. In view of the aforesaid discussion, we do not find any reason to
interfere with the impugned order dated 31st July, 2017. The appeals are
accordingly dismissed and the directions issued under the impugned order are
upheld. We would clarify that observations made in this order are for disposal
of the appeals and would not be construed and treated as findings and
observations on merit which would be binding on the arbitrator. The
respondents would be entitled to costs as per High Court Rules.
-sd-
(SANJIV KHANNA)
JUDGE
-sd-
(NAVIN CHAWLA)
JUDGE
October 27th, 2017
ssn/VKR
