Delhi High Court
Bamanbore Tollway Private Ltd vs National Highways Authority Of ... on 1 December, 2021
$~22
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 1st December, 2021
+ O.M.P.(I) (COMM.) 392/2021 & I.A. 15789/2021
BAMANBORE TOLLWAY PRIVATE LTD. ..... Petitioner
Through: Mr. Nakul Dewan, Senior Advocate
with Mr. Mahesh Sahasranaman, Ms.
Geetanjali Murti and Mr. Sambit
Nanda, Advocates.
versus
NATIONAL HIGHWAYS AUTHORITY OF INDIA & ANR.
..... Respondents
Through: Mr. Abhay Gupta, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
JUDGMENT
[VIA HYBRID MODE]
SANJEEV NARULA, J. (Oral):
1. The present petition under Section 9 of the Arbitration and
Conciliation Act, 1996 [hereinafter, "the Act"] has been filed seeking
interim measures pending constitution of the Arbitral Tribunal against
coercive recovery by NHAI towards damages due to failure of repair and
maintenance work on project assets.
THE DISPUTE
2. The facts leading to the present petition are as follows:
2.1. Petitioner - Bamanbore Tollway Private Ltd. [hereinafter, "BTPL"]
and Respondent No. 1 - National Highways Authority of India [hereinafter,
"NHAI"] entered into a Concession Agreement dated 26th April, 2018 inter
alia for 'Tolling, Operation, Management, Maintenance & Transfer of
National Highway stretch of Bamanbore to Garamore Section (from km
182+600 to km 254+537) of NH8A' [hereinafter, 'Project Highway'] in
Gujarat on a Toll-Operate-Transfer ('TOT') Basis for a period of 30 years.
2.2. Pursuant to a joint-inspection carried out on 25 th Ap ril, 2020 along
with representatives of BTPL, the Independent Engineer [hereinafter, "IE"],
vide letter dated 27 th April, 2020, listed out defects in the work that required
repair and maintenance. Subsequently the damages were quantified and
proposed at Rs. 1,55,652/- in compliance with Article 15.8.1(b) of the
Concessionaire Agreement. This was followed by another communication
dated 18 th August, 2020, wherein the IE, pursuant to inspection carried out at
the project site on 12 th August, 2020, listed out further defects. On the basis
of said defects, the IE proposed that damages under Clause 15.8.1(b) be
fixed at Rs. 2 lacs per day, till the repair work was completed by BTPL.
2.3. BTPL responded to the afore-noted communications vide letter dated
24th August, 2020 contending that defects had been rectified. It submitted a
compliance report to that effect, enclosing photographs of rep airs carried
out. In the meantime, NHAI on 31 st March, 2021, on basis of the letter of IE
proposing the damages, called upon the Petitioner to make a payment of Rs.
4,09,55,652/- as per Article 15.8.1. BTPL vide letters dated 7 th Ap ril, 2021
and 9 th June, 2021, refuted all allegations levelled against it in detail, and
also called upon NHAI to withdraw the Demand Notice dated 19 th June,
2020.
2.4. NHAI issued an escrow invocation letter dated 2 nd November, 2021
threatening recovery of an amount of Rs. 4,09,55,652/- from an escrow
account No. 038305001943 maintained by BTPL at ICICI Bank, Chembur
Basant Cinema Branch, Mumbai.
2.5. In this background, BTPL has filed the present petition seeking
interim protection of restraining NHAI from coercive recovery of damages
from the aforesaid escrow account or such other means.
3. Mr. Nakul Dewan, Senior Counsel for BTPL, states that the action of
NHAI is completely arbitrary and unreasonable, and makes the following
submissions:
3.1. The action of NHAI for recovering damages from the escrow account
is contrary to contractual terms. NHAI's right to remedial measures is
stipulated under Article 15.9 of the Concessionaire Agreement, which reads
as follows:
"15.9 Authority's right to take remedial measures
15.9.1 In the event the Concessionaire does not maintain and/or repair the Project
Highway or any part thereof in conformity with the Maintenance Requirements, the
Maintenance Manual or the Maintenance Prog ramme or Safety Requirements, as the
case may be, and fails to commence remedial works within 15 (fifteen) clays of receipt
of the O&M Inspection Report or a notice in this behalf from the Authority or the
Independent Engineer, as the case may be, the Authority shall, without prejudice to its
rights under this Agreement including Termination thereof, be entitled to undertake
such remedial measures at the risk and cost of the Concessionaire, and to recover its
cost from the Concessionaire. In addition to recovery of the aforesaid cost, a sum
equal to 50% (fifty per cent) of such cost shall be paid by the Concessionaire to the
Authority as Damages. For the avoidance of doubt, the right of the Authority under
this Clause 15.9.1 shall be without prejudice to its rights and remedies provided under
Clause 15.8.
15.9.2 In the event of non- payment by Concessionaire of such delinquent amount
forthwith and in any case within seven days of issue of written notice by Authority the
Authority shall have the right and the Concessionaire hereby expressly grants to the
Authority the right to recover the costs and Damages specified in Clause 15.9.1
directly from the Escrow Account, and for that purpose, the Concessionaire hereby
agrees to give irrevocable instructions to the Escrow Bank to make payment from the
Escrow Account in accordance with the instructions of the Authority under this C l a u se
15.9.2."
[emphasis supplied]
3.2. Under Article 15.9.2, NHAI's right to recover delinquent amount and
damages from the escrow account, is subject to due compliance of the
conditions stipulated in Article 15.9.1. NHAI has to first carry out the
remedial measures at the risk and cost of BTPL, as provided in Article
15.9.1, and only then can it make a recovery for delinquent amount and
damages.
3.3. The proposed recovery by NHAI under the Demand Notice has been
done purely on the basis of damages calculated unilaterally by them - which
BTPL strongly disputes. Since the imposition of damages is in dispute,
NHAI cannot recover the same from the escrow account.
3.4. The right to recover damages under Article 15.8.1 cannot be
understood to mean that NHAI can resort to recovery from the escrow
account as provided under Article 15.9.1. NHAI can invoke t h e said Art icle
only in the event BTPL fails to commence remedial works within 15 days of
the O&M Inspection Report Notice, provided NHAI undertakes remedial
measures at the risk and cost of BTPL. Only if the BTPL fails to pay the
delinquent amount, can NHAI recover the costs and damages specified in
Article 15.9.1 from the Escrow Account.
3.5. BTPL had successfully and diligently carried out all the rectifications
despite the difficulties faced due to COVID-19 lockdowns. The same were
communicated to the IE with photographs evidencing the rep air work. The
detailed communications dated 7th April, 2021 and 9 th June, 2021 have not
been denied or responded to by NHAI.
3.6. The computation of damages at Rs. 4,09,55,652/- is completely
arbitrary and is wrongly founded on an allegation that defects remain
uncured, despite BTPL establishing to the contrary - that work had indeed
been carried out in terms of the communications referred above. On the
receipt of the letters from the IE, BTPL had vide 25th November, 2021
reiterated that it had completed all its obligations. The quantum of damages
computed by IE and NHAI is ex facie arbitrary, excessive and erroneous.
BTPL also requested for the withdrawal of the said demand and grant of an
opportunity to demonstrate as to why the imposition of liquidated damages
was not warranted, but no response was received for the same.
3.7. The recovery from the escrow account under Article 15.9 is
impermissible without taking recourse under Articles 20.6 and 37 of the
Agreement.
4. Mr. Abhay Gupta, counsel for NHAI, controverts the contentions
made by Mr. Dewan and submits that NHAI had to take recourse under
Article 15.8.1 on account of BTPL's failure to carry out the repairs, despite
having been duly notified. He submits that the terms of the contract clearly
provided the right of recovery of damages from the Escrow Account. In this
regard, he places reliance upon Articles 23A.3, reads as under:
"23A.3 Withdrawals during Concession Period
23A.3.1 The Concessionaire shall, at the time of opening of 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 intervals 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 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;
(d) monthly proportionate provision of debt service payment due in an
Accounting Year
(f) all payments and Damages certified by the Authority as due and
payable to it by the Concessionaire; and
(j) balance, if any, in accordance with the instructions of the
Concessionaire." [Emphasis supplied]
5. He argues that sub-Article (f) of the afore-noted provision evidently
includes damages certified by NHAI which can be recovered from the
escrow account. This he submits is in consonance with Clause 4.1.1.(f) of
the Escrow Agreement dated 30 th March, 2021.
ANALYSIS AND FINDINGS
6. The Court has considered the contentions of the counsels. The right of
recovery of damages and delinquent amount towards remedial measures
undertaken under Article 15.9.1 by way of recovery from the escrow
account - as provided under Article 15.9.2, is independent of the remedies
provided under Article 15.8. This becomes apparent from a bare reading of
Article 15.9.1 which inter alia provides "[...] for the avoidance of doubt, the
right of the authority under this Clause 15.9.1 shall be without prejudice to
its rights and remedies provided under Clause 15.8.". This Article further
provides that "the Authority shall, without prejudice to its rights under this
Agreement including Termination thereof, be entitled to undertake such
remedial measures at the risk and cost of the Concessionaire" thereby
suggesting that carrying out remedial measures is at the option of NHAI.
7. At this juncture, it would be apposite to refer to Article 15.8. The
same is exacted hereinbelow:
"15.8 Damages for breach of O&M obligations
15.8.1 In the event that the Concessionaire fails to repair or rectify any defect or
deficiency set forth ln the Maintenance Requirements within the period specified
therein or is in breach of the Maintenance Programme, M aintenance M anual
and/or Safety Retirements, it shall be deemed to be in breach of this Agreement
and the Authority shall be entitled to recover Damages, to be calculated and paid
for each day of delay until the preach is cured, at the higher of (a) 0.5% (zero
point five per cent) of Performance Security, and (b) 0.1% (zero point one per
cent) of the cost of such repair or rectification as estimated by the Independent
Engineer. Recovery of such Damage shall be without prejudice to the rights of
the Authority under this Agreement, including the right of Termination thereof,
and in the event of non-payment by Concessionaire of such delinquent amount
forthwith and in any case within seven days of issue of written notice by
Authority, the same shall be recovered by encashment of Performance Security in
which case the provisions of clause 9 shall apply.
15.8.2 The Damages set forth in Clause 15.8.1 may be assessed and specified
forthwith by the Independent Engineer; provided that the Authority may, in its
discretion, demand a smaller sum as Damages, if in its opinion, the breach has
been cured promptly and the Concessionaire is otherwise in compliance with its
obligations hereunder. The Concessionaire shall pay such Damages forthwith. "
[Emphasis supplied]
8. Article 15.8 pertains to damages for breach of 'Operation &
Maintenance Obligations'. Article 15.8.1 stipulates the mechanism for
calculation of damages required to be paid in the event of breaches, which is
to be calculated and paid for each day of delay until the breach is cured.
Under the said Article, damages are fixed at 0.5% of the Performance
Security and 0.1% of the cost of repairs or rectification (as estimated by the
IE). These damages can be levied till such time breach is cured and thus do
not contemplate remedial measure as a pre-condition for levy. Concededly,
NHAI has levied damages under this Article. Prima facie, damages
contemplated under Article 15.8.1 are in the nature of pre-estimation of
compensation for the damages suffered on account of breach. Therefore,
BTPL's contention that - in the event damages are suffered by NHAI, on
account of BTPL failure to repair or rectify any defect or deficiency set
forth, NHAI has to first necessarily, take remedial measure(s) - is
unmerited.
9. Article 15.8.1 provides for the recovery of the delinquent amount, by
way of encashment of performance guarantee. Although it does not
specifically provide the right to take recourse to the escrow account, this
Article has to be dealt harmoniously with Article 23A.3.(f) - whereby the
parties have agreed that withdrawals from the escrow account can also be
apportioned towards payment of damages certified by NHAI. The court does
not find merit in the submission of Mr. Dewan that damages contemplated
under Article 23A.3.(f) are to be restricted to undisputed damages. There is
no such distinction apparent from the reading of the provision.
10. The Court also does not find merit in the contention of Mr. Dewan
that permitting NHAI to take recourse to escrow account would do violence
to the contractual terms. The terms of the contract have to be given natural
and ordinary meaning by looking at the language of the Article and the
commercial context in which they were drafted. The plain reading do es not
suggest that damages referred in the Article are only those that are admitted.
Parties have categorically specified that the damages certified by NHAI as
due and payable to it by BTPL can also be recovered from the escrow
account. In the prima facie opinion of the Court, Sub-Article (f) of Article
23A.3 would also include the damages asserted under Article 15.8.1.
Although the Court at this stage would not like to venture into the question
as to whether the repairs have been indeed been carried out by BTPL, it may
be pertinent to mention that NHAI has pointed out that defects in the
Chainage mentioned in Annexure II, pointed out by IE vide letter dated 18 th
August, 2020 are with respect to Chainage 242460 etc., whereas, prima
facie, the communications placed on record by BTPL dated 24 th August,
2020 to contend that the defects had been rectified shows that defects pertain
to Chainage 183+000, 184+140 etc.
11. In view of the above, the Court does not find that the 'trinity test' has
been satisfied by BTPL for grant of an interim measure. Both, the prima
facie case and the balance of convenience are grossly missing in the present
case for the reliefs sought. Thus, there is no merit in the present petition.
12. Dismissed, along with pending application.
SANJEEV NARULA, J
DECEMBER 1, 2021
akansha
