Delhi High Court Upholds Arbitral Award Of About ₹229.5 Crores Against NHAI As 'Termination Payment'

The Delhi High Court bench of Justice Jasmeet Singh has upheld an Arbitral Award directing the National Highways Authority of India (“NHAI”/”Petitioner”) to deposit ₹229.50 crores as Termination Payment into the Escrow Account along with interest and costs. The court reiterated that the scope of judicial interference under Section 34 of the Arbitration and Conciliation Act, 1996 is narrow and circumscribed. The Arbitral Award can be set aside on the ground, inter alia, being in conflict with the public policy of India, patent illegality, violation of principles of natural justice. Brief Facts NHAI entered into a Concession Agreement dated 12.07.2010 with Respondent No. 2 (the Concessionaire) for constructing and operating the Dindigul-Theni and Theni-Kumili sections under a DBFOT (Design, Build, Finance, Operate and Transfer) Annuity model. The appointed date was 01.09.2011 and the Scheduled Completion Date was fixed as 31.08.2013. Respondent No. 2 and Respondent No. 1 (a banking consortium led by South Indian Bank) entered into a Common Loan Agreement for ₹198 crores. The parties also executed a Supplementary Loan Agreement, an Escrow Agreement and a Tripartite Substitution Agreement. Due to delays, Respondent No. 2 on 22.09.2014 sought a Provisional Completion Certificate (“PCC”), claiming it had completed all works in the handed over land. The Independent Engineer (“IE”) confirmed that delays in handing over land were attributable to NHAI. On 10.06.2015, NHAI issued a Cure Period Notice alleging defaults by Respondent No. 2. NHAI then issued a Notice of Intention to Terminate the Concession Agreement. The parties executed a Second Supplementary Loan Agreement acknowledging delays. NHAI temporarily kept the termination notice in abeyance. After inspection, the PCC was granted on 08.12.2016. However, on 17.12.2016, the IE put the PCC in abeyance pending completion of the Theni Bypass. Alleging violations of the Concession Agreement, NHAI issued a Termination Notice dated 22.05.2019 and took over the Project Highway w.e.f. 09.04.2019. Respondent No. 1 sought payment of ₹393.49 crores as Termination Payment. NHAI argued that no payment was due as the project had not reached Commercial Operation Date (“COD”) before termination. Respondent No. 1 approached the Court under Section 9 of the Act and invoked arbitration on 28.01.2020 under the Escrow Agreement and the Substitution Agreement. Respondent No. 1 approached the Court under Section 11, which led to appointment of the third arbitrator. The Arbitral Tribunal passed its Award on 13.11.2024. It held that the Termination Payment claim was within the scope of the agreements but the claim for “Debt Due” was beyond the arbitration. It directed Respondent No. 2 to deposit ₹229.50 crores as Termination Payment into the Escrow Account with interest. The Tribunal rejected Respondent No. 1's claim for 90% Debt Due and denied any damages, pendente lite interest or future interest. It also awarded partial costs of ₹91,38,274 with 9% simple interest. NHAI filed the petitions under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the Award dated 13.11.2024. Submissions Mr. Sudhir Nandrajog, Senior Counsel for the Petitioner, submitted that the Concession Agreement did not form part of either the Escrow Agreement or the Substitution Agreement. He submitted that the finding of the Tribunal that the IE's act of placing the PCC in abeyance was void and ultra vires was erroneous. The Concession Agreement mandated that PCC can only be issued after completion of 75% of the Project Highway. Since only 90.671 km was completed, the IE rightly corrected its mistake by placing the PCC in abeyance. He further submitted that the Substitution Agreement did not grant Respondent No. 1 any right to demand Termination Payment unless it is “due and payable”. Since neither a demand was made by Respondent No. 2 nor were particulars submitted, the preconditions for liability were absent. He contended that the issuance of PCC and achieving COD were sine qua non for the Termination Payment to become payable. As these conditions were admittedly unfulfilled, the Tribunal erred in directing deposit of Termination Payment and in computing the quantum at ₹229.50 crores. Mr. Sandeep Sethi, Senior Counsel for Respondent No. 1, contended that the petitioner's submissions challenge the Tribunal's interpretation of contractual terms which falls within the exclusive competence of the Tribunal. So long as the interpretation is plausible, the court cannot interfere under Section 34 of the Act. Mr Sethi submitted that the petitioner was contractually obligated to deposit the Termination Payment into the Escrow Account. The petitioner's refusal to deposit the same amounted to breach of the Escrow Agreement. He submitted that the Concession Agreement was expressly annexed...

Delhi High Court Upholds Arbitral Award Of About ₹229.5 Crores Against NHAI As 'Termination Payment'

Tazeen Ahmed

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