Author: Gargi, 1st year student at Amity University Jaipur, Rajasthan.
Date of decision: April 13, 2021
Bench: Justice Asha Menon
Original copy: view
Statutes involved: Arbitration and Conciliation Act, 1996 , §9.
Issue in question:
- Whether the termination/ suspension was valid under the Concession Agreement?
- On 9th May, 2008, the parties entered into the CA in respect of ‘Six-Laning of Panipat-Jalandhar Section of NH-1 From Km 96.00 to Km 387.10 (length of 291.10 Km) in the State of Haryana and Punjab to be executed on Build-Operate-Transfer (Toll) basis on Design- Build-Finance-Operate (DBFO) pattern under NHDP Phase-V’ (hereinafter referred to as the “Project”). The CA was entered for a period of fifteen years from 11th May, 2009 till 11th May, 2024. the parties had also executed an Escrow Agreement dated 6th May, 2009 with the Lenders, where State Bank of India The estimated cost of the project was Rs.2747.50crores but the Capital Cost submitted by the respondent/PJT amounted to Rs.4518.17 crores.
- Disputes arose between the parties even before the Provisional Completion Certificate was issued by the Independent Engineer (“I.E.”, for short) on 30th September, 2015. PJT failed to meet its O & M obligations as per the CA, in particular, relating to safety standards leading to accidents and the completion of balance work after issuance of the Provisional Completion Certificate.
- On 13th September, 2019, the NHAI issued a ‘Cure Period Notice’ highlighting the several consistent defaults by the PJT, and called upon it to cure the defaults within sixty days, failing which it would exercise its rights to terminate the CA.
- On 28th January, 2020, a ‘Notice of intention to issue termination notice’ was issued under Clauses 37.1.2 and 37.1.3 of the CA with a copy to the Senior Lenders. PJT filed a petition being O.M.P .(I)(COMM) 40/2020 under Section 9 of the Arbitration and Conciliation Act, 1996 (the “Act”, for short) seeking a stay on the NIT, which was disposed of on 10th February, 2020 on submissions made on behalf of the NHAI that no decision to terminate had yet been taken
- The Senior Lenders represented by the SBI, being the lead Bank replied on 11th February, 2020 (Annexure A-7) requesting the NHAI to withhold the termination of the CA for the period of 180 days or such other period so as to enable the PJT to cure the defaults within the period as contemplated the Senior Lenders made a similar request also stating that in case the PJT failed to cure the defects within the period of 180 days, they would exercise the right to substitute the concessionaire as provided in the CA.
- The NHAI also intimated the Escrow Banker vide letter dated 25th September, 2020 that as the PJT had, despite an opportunity of more than 180 days from the date of issuance of the NIT , not complied with the provisions of the CA and since the Lenders/Escrow Banker had failed to substitute the PJT, the NHAI was at liberty to invoke the Clause 37.1.2 i.e. termination for concessionaire’s default in terms of the orders dated 10th February, 2020 passed in FAO(OS)(COMM)34/2020.
- On 4th December, 2020, the NHAI issued a ‘Suspension Notice’ suspending all rights of the PJT under the CA. PJT herein filed a petition under Section 9 of the Act being O.M.P.(I)(COMM) 421/2020 wherein various prayers were made.
- As per order dated 3rd March, 2021, this O.M.P .(I)(COMM) No. 421/2020 is to come up for hearing on 13th April, 2021. It may be mentioned here that the Senior Lenders vide email dated 16th February, 2021 (Annexure A-19) wrote to the NHAI regarding the status of different projects, and with respect to the current project stated that if the defects were not cured by the concessionaire within the cure period, the CA may be terminated.
- The petition under Section 9 of the Act, which has given rise to the present appeal, was filed when the NHAI issued a Termination Notice dated 5th March, 2021, seeking its stay.
- The Court didn’t agree with the observation of the learned Single Judge that the NHAI is estopped from exercising its rights of termination under Article 37 or that even under Article 36, it is required to mandatorily await the lapse of 180 days before termination can occur or that once suspension has been invoked, the termination can only be on the efflux of 180 days. Also it wasn’t agreed that the Termination Notice could not have been issued by the NHAI on 5th March, 2021 or that it had to wait till June 2021.
- For the above reasons, the appeal was allowed and the impugned order dated 12th March, 2021 were set aside and vacated the stay granted by the learned Single Judge. Since the Section 9 petition being O.M.P .(I) (COMM.) 98/2021 filed by the respondent/PJT , seeks the same relief, in the light of our discussion, court held that nothing survives in the said application, which also stands dismissed vide this order. All other pending applications stand disposed of.
- The articles for suspension and termination were not applicable in the current scenario as stated by the court and the appellant has been trying to establish relevance with.
- The respondent had clarified that there were no defaults and still had gone through it to make sure but the appellant presented reports of complaints of fatal accidents.
- The agreement between the parties was not a contract that was determinable but a Concession Agreement.
- Both the parties have presented the reports of independent engineers about the situation of the road where the appellant’s report mentions the condition worse leading to fatal accidents and on the other hand the reports presented by respondent mentions that roads are in good condition.