Delhi High Court
National Highways Authority Of India … vs South Indian Bank Ltd And Union Bank Of … on 9 July, 2026
Author: V. Kameswar Rao
Bench: V. Kameswar Rao
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 10.04.2026
Judgment delivered on: 09.07.2026
Judgment uploaded on: As per Digital Signature~
+ FAO(OS) (COMM) 137/2025 & CM APPL. 56772/2025
+ FAO(OS) (COMM) 152/2025 & CM APPL. 60827/2025
NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI)
.....Appellant
versus
SOUTH INDIAN BANK LTD AND UNION
BANK OF INDIA LTD & ANR. .....Respondents
Advocates who appeared in this case
For the Appellant : Mr. Sudhir Nandrajog, Sr. Advocate with
Mr. Nishant Awana, Ms Rini Badoni and
Ms. Ankita Singh, Advs.
For the Respondents : Mr. Sandeep Sethi, Sr. Advocate with Mr.
Manish Dembla Adv. Mr. Shubham
Kaushik Advocate for R1.
CORAM:
HON'BLE MR. JUSTICE V. KAMESWAR RAO
HON'BLE MR. JUSTICE VINOD KUMAR
JUDGMENT
V. KAMESWAR RAO, J.
1. These appeals have been filed by the appellant under Section 37 of
the Arbitration and Conciliation Act, 1996 (‘the Act’, for short) challenging
the common judgment passed by the learned Single Judge in O.M.P
(Comm.) Nos.125/2025 & 126/2025, whereby the learned Single Judge has
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dismissed the petitions filed by the appellant/National Highways Authority
of India (NHAI) under Section 34 of the Act challenging the Arbitral
Awards dated 13.11.2024. The appeals are filed with the following prayers:-
FAO(OS) (COMM) 137/2025
“A. Set aside the Order dated 01.07.2025 (“Impugned Judgement”)
passed by the Ld. Single Judge of this Hon’ble Court;”
FAO(OS) (COMM) 152/2025
“A. Set aside the Order dated 01.07.2025 (“Impugned Judgement”)
passed by the Ld. Single Judge of this Hon’ble Court in O.M.P.
(COMM.) 126/2025;”
2. Since the issues in both the appeals arise out of a common impugned
judgment, against the Awards passed by the Arbitral Tribunal (‘Tribunal’)
both the appeals have been heard and decided together.
FACTS
3. On 12.07.2010, the appellant and the respondent no.2 entered into a
Concession Agreements (‘CAs’) for Two-laning of the Trichy-Karaikudi
Road Section of NH-210 (10.00 Km to 94.00 Km ), including the Trichy
bypass (110.016 Km to 135.930 Km) (“Concession Agreements I”, CA-I for
short) & Two-laning with paved shoulder of Dindigul-Theni Section from
Km 2.750 to Km 73.400 of NH -45 (Extn.) and Theni-Kumili Section of
NH-220 from Km 215.500 to Km 273.600 (“Concession Agreements II”,
CA-II, for short), in Tamil Nadu under NHDP Phase III” (‘Project’) on a
Design, Build, Finance, Operate and Transfer (“DBFOT”) Annuity basis.
4. On 08.01.2011, the respondent No. 1 (Lender) and the respondent
No.2 (the concessionaire) entered into a Common Loan Agreements (‘CLA’,
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for short) vide which the respondent No.1 agreed to make available financial
assistance to tune of ₹ 198,00,00,000/- & ₹ 187,00,00,000/- to the
respondent No. 2.
5. On 04.05.2011, An Escrow Agreement (EA) was executed between
the appellant, respondent no.1/Lenders & respondent no.2.
FACTS IN FAO(OS) (COMM) 137/2025
6. In terms of CA-I, the Scheduled Completion Date was 31.08.2013.
The Annuity Payment was to start from 07.07.2013 and to end on
07.01.2032, subjected to modification, contingent upon the appointed date
and compliance of the terms of the CA-I.
7. On 27.07.2011, the appellant under the CA-I, out of the total 133.793
Km of land required for construction of the Project, handed over 85.150 km
of land to respondent No. 2 as per the Joint Memorandum signed by the
appellant and respondent No.2, i.e., handed over 63.64% of the land to
respondent No. 2. The parties agreed that as per the CA-I, the appointed date
is 01.09.2011 and deemed the said date as commencement of concession
period and commencement of the construction. On 31.05.2013, a
Substitution Agreement (‘SA’) was entered into between the appellant, the
respondent No. 1 and 2 for granting substitution rights to the respondent No.
1 in case of occurrence of financial default by the respondent No. 2.
8. According to the appellant, the appellant has handed over 110.177
Km of the total land to respondent No. 2 as on 31.12.2013, meaning 82.34%
of the total land had been handed over to the respondent No.2. Despite
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handing over of 82.34% of the land, from April 2013 till March 2014, the
progress on the Project site was a dismal (1.83%). By December 2013, the
work on the Project site had come to a complete stop.
9. On 15.04.2014, 16.04.2014, 21.01.2015, and 25.02.2015, the
Independent Engineer (‘IE’, for short) and the Project Director of the
appellant issued letters to respondent No. 2, calling upon it to resume the
work on the Project site, however, was of no avail. On 28.02.2015, the
appellant had handed over 100% of the land qua the Project to the
respondent No. 2, i.e., a stretch of 133.793 Km.
10. During the safety audits conducted by the road safety consultant for
the Project, the consultant notified several deficiencies and lapses in the
maintenance of the highway to respondent No.2 vide a letter dated
19.03.2015. On 10.06.2015, the appellant invoked Article 37.1 of the CA
and issued a Cure Period Notice thereby detailing the non-compliance of the
provisions of the CA and directed respondent No.2 to immediately cure the
defaults enumerated in the said notice within 60 days there from, failing
which the appellant would exercise its rights and remedies under the CA.
11. On 13.08.2015, the Notice of Intention to Terminate was issued by the
appellant to respondent No. 2 under Article 37.1.2 of the CA, and gave last
and final opportunity to send its representation within 15 days, as to why the
CA should not be terminated. The appellant under Article 37.1.3 issued a
copy of the Notice of Intention to Terminate to respondent no.1 inviting it to
state its intention to substitute respondent No. 2 in accordance with the SA.
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12. On 27.08.2015, the respondent No. 1 and 2 entered into a second
Supplementary CLA. On the commitments of the respondent No. 2 and
assurances of the respondent No.1, the appellant vide letter dated 28.09.2015
to respondent No.2 decided to the keep the Intention to Terminate Notice
under abeyance for 90 days, thereby allowing respondent No.2 to resume
work at the Project site.
13. On 08.12.2016 the IE issued the ‘Provisional Completion Certificate’
(“PCC”) to respondent No.2. On 17.12.2016, the IE informed the respondent
No. 2 that the PCC is kept in abeyance until the completion of the Theni
Bypass, as was agreed by respondent No.2 qua the Supplementary
Agreement.
14. On 31.03.2018, the account of respondent No. 2 was classified as a
Non-Performing Asset (‘NPA’) as per RBI guidelines. On 11.10.2018, the
appellant issued ‘Suspension Notice’ under Article 36.1 of the CA. The
respondent No. 1 issued a Notice of Financial default dated 26.03.2019 to
the respondent No.2. On 01.04.2019, the respondent No.1 issued Notice of
Financial Default to the appellant informing it about the material breach of
the terms of the CLA and “Event of Default” under Clauses 7.1 (a) & 7.1 (b)
of the CLA.
15. The respondent No. 1 requested the appellant to terminate the CA on
account of “Financial Default” under Article 5.1 of the SA by issuing
Termination Notice in accordance with the provisions of CA.
16. On 22.05.2019, under Article 36.5 of the CA, the same was
terminated w.e.f. 09.04.2019. The appellant issued Termination Notice to
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respondent No.2, and informed respondent No.2 that, it had taken over the
Project. On 04.11.2019, the respondent no.1/Lenders filed a petition under
Section 9 of the Act being OMP (I) COMM. No.406/2019, against the
appellant to deposit the Termination Payment in the Escrow Account.
17. On 26.11.2019, the respondent No. 2 issued a notice to the appellant
invoking arbitration under the CA. On 28.01.2020, respondent No. l issued a
Notice invoking the arbitration under Clause 10 of the EA and Clause 8 of
the SA. The respondent No.1 preferred a petition under Section 11 of the
Act on 25.08.2021, seeking appointment of 3rd Arbitrator. The petition under
Section 9 of the Act was disposed of vide order dated 12.05.2022, to agitate
the same before the learned Tribunal. The learned Tribunal stood constituted
vide order dated 12.05.2022.
18. As the respondent No.2 did not enter appearance before the learned
Tribunal, it was proceeded ex-parte. The learned Tribunal framed the
following issues for its consideration:-
“78. The final issues based on these amended pleadings were
finalized on 9.8.2023by the Tribunal, as follows:
“1. Whether the present arbitral proceedings are liable to
be terminated on the ground that the claims of the Claimant
are beyond the scope of Escrow Agreement and/or the
Substitution Agreement?
2. Whether the Claimant is entitled to seek Termination
Payment or 90% Debt Due and interest thereon from the
Respondent No. 2 having invoked the arbitration under the
Escrow Agreement and/or the Substitution Agreement?
3. Whether the issue of “Debt Due” can be termed as a
“dispute” under the arbitration clause of the Escrow
Agreement or the Substitution Agreement?
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4. Whether the issue of “Debt Due” was referred to
arbitration in accordance with notice under Section 21 of
the Arbitration and Conciliation Act, 1996?
5. Whether the Claimant is entitled to a declaration that the
letter dated 17.12.2016 issued by I.E purportedly keeping
the PCC dated 08.12.2016 in abeyance was non-est, void
ab-initio and beyond the scope and powers of I.E and
Respondent No.2?
6. Whether the Claimant is entitled to a declaration that
Respondent No. 2 is liable to deposit in the Escrow
Account i.e., account no. 0246073000005523 with the
Secunderabad Branch of SIB, the termination payment?
7. Whether the Claimant is entitled to a declaration that
Respondent No. 2 is liable to deposit an amount of Rs.
393,49,97,509/- or any other amount as termination
payment in the Escrow Account as claimed in the
Statement of Claim?
8. Whether the Respondent is liable to deposit a total
termination payment of Rs.393,49,97,509/- on account of
termination of the Concession Agreement?
9. Whether Respondent No. 2 is liable to pay 90% of Debt
Due of Rs.258,13,11,357/- or any other amount to the
Claimant as damages for non-deposit of Termination
Payment in the Escrow Account?
10. Whether the Claimant can claim damages on account of
default of Respondent if the contract provides for interest?
11. Whether the Claimant is entitled to pre-reference
interest of Rs.95,21,85,647/- on 90% Debut Due at the rate
of 12% p.a. for the period 16.04.2019 to 12.05.2022 as
damages for non-deposit of Termination Payment in the
Escrow Account?
12. Whether the Claimant is entitled to pendente lite interest
on 90% Debt Due as damages for non-deposit of
Termination Payment in the Escrow Account? If so, from
which date and at what rate?
13. Whether the Claimant is entitled to future interest? If so,
at what rate?
14. Costs?””
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19. On 13.11.2024, the learned Tribunal passed the award in favour of the
respondent no.1/Lenders and directed the appellant to deposit the
Termination Payment in the Escrow Account, as under:-
“308. For the reasons provided above, the Tribunal DECIDES,
DIRECTS and ORDERS as follows:
i. Respondent No. 2 is directed to deposit into the Escrow
Account, by way of Termination Payment, a sum of Rs.
229.50 crore, along with interest thereon at the rate of 3%
above the Bank Rate with effect from 16.4.2019 till the date
of such deposit.
ii. Respondent No. 2 is directed to pay the Claimant a sum
of Rs. 91,38,274/- towards costs.
iii. Respondent No. 2 is directed to pay the Claimant simple
interest at the rate of 9% per annum on the costs, to be
calculated from the date of the award till the date of
realisation.”
20. The appellant under Section 33 of the Act, 1996, sought
modification/correction in the Arbitral Award with regard to the non-
deposit of the arbitral fee by the appellant. The learned Tribunal rejected the
said application under Section 33 of the Act, on the ground that the same
was filed after the passage of 30 days from the date of the Award. However,
the Award offered to refund the excess amount paid by the respondent No. 1
on the condition that respondent No.1 would not recover the said amount
from the appellant.
FACTS IN FAO(OS) (COMM) 152/2025
21. In terms of the Concession Agreement-II (‘CA-II’), the Scheduled
Completion Date was 14.05.2013. The Annuity Payment was to start from
07.07.2013 and end on 07.01.2026 subject to compliance of the terms of the
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CA. The appellant made certain modifications in the CLA, which were
incorporated through the Supplementary CLA dated 15.04.2011.
22. On 06.03.2013, a SA was entered by the appellant and the respondent
No. 1 and 2 for granting substitution rights to the respondent No. 1 in case of
occurrence of financial default by the respondent No. 2.
23. On 17.02.2014, the PCC was granted to the respondent No. 2 and the
respondent No. 2 was notified of certain Punch-List items which remained
to be completed by the respondent No. 2. The Punch-List items remain
unexecuted by the respondent No. 2.
24. According to the appellant, from 17.02.2014 till 17.08.2017, the
appellant paid a total of ₹149.415 Crores (paid ₹ 139.294 Crores after
deduction of ₹ 10.12 crores towards default of the concessionaire to the
respondent No. 2) in 7 installments. Despite the same, no substantial
progress of the project was achieved. Details of the Annuity payments
recommended by the IE were as per Article 27.1.1. and Schedule M of the
CA-II.
25. Due to the pace of execution of the works at the Project which
remained abysmally low and no positive action, the appellant invoked
Article 37.1.1 of the CA and issued a Cure Period Notice dated 10.08.2015
and directed the respondent No.2 to immediately cure the defaults as
enumerated in the said notice within 60 days therefrom, failing which the
appellant would exercise its rights and remedies under the CA-II.
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26. The respondent No. 2 was found not performing the work.
Accordingly, 3rd Supplementary Agreement dated 30.01.2018 was entered.
The respondent No. 2 failed to complete the Project in its entirety including
the punch list items.
27. On 31.03.2018, the respondent No. 1 declared the Project loan
account as NPA as per RBI guidelines. On 05.10.2018, appellant issued
‘Suspension Notice’ under Article 36.1 of the CA. On 26.03.2019
respondent No. 1 issued a Notice of Financial default dated 26.03.2019 to
respondent No.2 detailing the events of defaults.
28. On 01.04.2019, the respondent No. 1 requested the appellant to
terminate the CA-II on account of “Financial Default” of the respondent
No.2 under Clause 5.1 of the SA by issuing Termination Notice.
29. The respondent No. 2 vide its letter dated 29.04.2019 replied to the
respondent No.l’s Notice of Financial Default and stating that the delays
were on account of reasons beyond its control. On 31.05.2019, the appellant
issued Termination Notice terminating the CA-II w.e.f. 03.04.2019 and
informed respondent No. 2 that it had taken over the Project.
30. On 16.07.2019, the appellant issued a letter to the respondent No. 2
informing that, it would appropriate a sum of ₹19,43,569/- from the
upcoming Annuity Payment on account of maintenance works, etc. being
carried by it on the Project through another agency. The appellant issued
another letter dated 17.07.2019 to the respondent No.2 informing it of
various defects in the Project. It informed that, to cure such defects, the cost
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has been estimated by the IE as ₹ 13.27 Crores. The respondent No. 2 was
directed to cure these defects within 15 days.
31. On 09.08.2019, the appellant issued a letter to the respondent No. 2
that the IE had identified certain defects and deficiencies in the Project
Highway. It was further informed that the IE has directed the respondent No.
2 to deposit a sum of ₹ 328.18 crores against the damages / recoveries and
also directed the respondent No. 2 to maintain retention money of minimum
of 5% of the Annuity in the Escrow Account to take care of the defects.
32. The respondent no.1/Lender filed a petition under Section 9 of the
Act, being OMP (I) COMM. No. 275 of 2019, seeking directions against the
appellant to deposit the Termination Payment in the Escrow Account. The
said petition was disposed of vide an Order dated 22.12.2021 with a
direction to the respondent no.1 to agitate the same before the Tribunal.
33. On 03.09.2019, the appellant issued a letter to the respondent No.1
clarifying the issues with respect to the termination of the CA. As per the
provisions of the Article 37 of the CA, on account of the occurrence of an
Event of Financial Default, to release of the Termination Payment
amounting to ₹ 278,93,30,890/- to the Escrow Account.
34. On 28.01.2020, the respondent No. 1 issued notice to the appellant &
respondent No. 2 invoking the arbitration under Clause 10 of the EA and
Clause 8 of the SA. On 05.02.2020, the respondent No.2 issued notice
invoking arbitration under Article 44.3 of CA to the appellant.
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35. On 02.09.2021, the respondent No. 1 preferred an application under
Section 11 of the Act seeking appointment of 3rd Arbitrator in terms of the
provisions of the EA/SA, since the respondent No. 2 had not appointed its
Nominee Arbitrator. This Court vide order dated 22.12.2021 in Arb. (P) No.
867 of 2021, appointed 3rd arbitrator and referred the disputes to the learned
Tribunal.
36. The learned Tribunal framed the issues based on, in the following
manner: –
“76. The final issues based on these amended pleadings were
finalized on 9.8.2023 by the Tribunal, as follows:
“1. Whether the present arbitral proceedings are liable to
be terminated on the ground that the claims of the
Claimant are beyond the scope of Escrow Agreement
and/or the Substitution Agreement?
2. Whether the Claimant is entitled to seek Termination
Payment or 90% Debt Due and interest thereon from the
Respondent No. 2 having invoked the arbitration under the
Escrow Agreement and/or the Substitution Agreement?
3. Whether the issue of “Debt Due” can be termed as a
“dispute” under the arbitration clause of the Escrow
Agreement or the Substitution Agreement?
4. Whether the issue of “Debt Due” was referred to
arbitration in accordance with notice under Section 21 of
the Arbitration and Conciliation Act, 1996?
5. Whether the Claimant is entitled to a declaration that
“Respondent No. 2 is liable to deposit in the Escrow
account, the Termination Payment and the Claimant is
entitled to release thereof in its favour to the extent of 90%
of Debt Due”?
6. Whether Respondent No. 2 is liable to deposit a total
Termination Payment of Rs. 278.93 crore on account of
termination of the Concession Agreement?
7. Whether Respondent No. 2 is liable to pay 90% of Debt
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Claimant as damages for non-deposit of Termination
Payment in the Escrow Account?
8. Whether the Claimant can claim damages on account of
default of Respondent if the contract provides for interest?
9. Whether the Claimant is entitled to a sum of
Rs.62,44,73,053/- from Respondent No. 2 towards the pre-
reference interest on 90% Debt Due at the rate of 12%
p.a. for the period from 16.04.2019 to 22.12.2021 as
damages for non-deposit of Termination Payment in the
Escrow Account?
10. Whether the Claimant is entitled to pendente lite interest
on 90% Debt Due as damages for non-deposit of
Termination Payment in the Escrow Account? If so, from
which date and at what rate?
11. Whether the Claimant is entitled to future interest? If so,
at what rate?
12. Costs?””
37. It is the case of the appellant that the Tribunal passed Arbitral Award
on 13.11.2024, in the following manner: –
“264. The Tribunal answers the issues as follows:
i. The claims with regard to the Termination Payment are
not beyond the scope of Escrow Agreement and/or the
Substitution Agreement but the claims with regard to Debt
Due are beyond the scope of the present arbitration.
ii. The Claimant is entitled to seek deposit of the
Termination Payment with interest thereon by NHAI in
the Escrow Account. The Claimant is not entitled to its
claim of 90% Debt Due and interest thereon from the
Respondent No. 2 being (a) beyond the scope of the present
arbitration and (b) premature.
iii. The issue of “Debt Due” can be termed as a “dispute”
under the arbitration clause of the Escrow Agreement or
the Substitution Agreement but the same does not arise in
the present arbitration.
iv. The issue of “Debt Due” was not referred to arbitration
in accordance with notice under Section 21 of the
Arbitration and Conciliation Act, 1996.
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v. The Claimant is entitled to a declaration that
“Respondent No. 2 is liable to deposit in the Escrow
account, the Termination Payment” but the Claimant is
not entitled in this arbitration to a declaration that it is
entitled to the release thereof in its favour to the extent of
90% of Debt Due.
vi. Respondent No. 2 is liable to deposit in the Escrow
Account, i.e., Account number 0246073000005524, with
the Secunderabad branch of SIB, the Termination
Payment of Rs. 181.81 crore on account of termination of
the Concession Agreement.
vii. Respondent No. 2 is not liable to pay 90% of the alleged
Debt Due of Rs. 193,62,27,188/- or any other amount to
the Claimant as damages for nondeposit of Termination
Payment in the Escrow Account.
viii. The Claimant cannot claim damages on account of
default of Respondent No. 2 in not depositing the
Termination Payment. There was no such obligation of
NHAI towards the Lenders (i.e., the Claimant). The
obligation was to pay the Concessionaire the Termination
Payment by depositing the same in the Escrow Account.
The remedy for delay in making such deposit was
provided in Article 37.3.3 of the Concession Agreement
by payment of interest on the Termination Payment at the
rate of 3% above the Bank Rate into the Escrow Account.
ix. The Claimant is not entitled to a sum of
Rs.62,44,73,053/- from Respondent No. 2 towards alleged
pre-reference interest on the alleged 90% Debt Due at the
alleged rate of 12% p.a. for the period from 16.04.2019 to
22.12.2021 as purported damages for non-deposit of
Termination Payment in the Escrow Account.
x. The Claimant is not entitled to any pendente lite interest
as no principal amount is payable to the Claimant.
xi. Since the deposit of the Termination Payment along with
interest is to be made by Respondent No. 2 into the
Escrow Account and the Escrow Bank, under Clause 2.3.2
of the Escrow Agreement, is mandated to maintain the
Escrow Account in accordance with the terms of the Escrow
Agreement and its usual practices and applicable
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regulations, and pay the maximum rate of interest payable
to similar customers on the balance in the said account
from time to time, the Claimant is not entitled to future
interest.
xii. The Claimant is entitled to costs. However, as the
Claimant has only partially succeeded in respect of its
claims, it would be reasonable to award about half of the
costs claimed. The Claimant has claimed Rs.
1,14,71,235/-. Accordingly, the Claimant would be entitled
to Rs. 57,35,617.50. However, the Claimant was also
directed to deposit, in terms of the Arbitration and
Conciliation Act, 1996, a sum of Rs. 34,50,000 for all the
arbitrators, as Respondent No. 2 had failed to deposit its
full share of fees. Thus, the Claimant is entitled to a
payment of Rs. 57,35,617.50 plus Rs. 34,50,000, i.e., Rs.
91,85,617.50 rounded off to Rs. 91,85,618/- towards costs
from Respondent No. 2. The Claimant is also entitled to
simple interest at the rate of 9% per annum on the costs, to
be calculated from the date of the award till realisation.”
38. On 07.02.2025, the appellant filed a petition under Section 34 of the
Act challenging the Award passed by the learned Tribunal.
39. After the impugned judgment, the appellant received a
communication email dated 16.07.2025 whereby the appellant has been
informed that Serious Fraud Investigation Office (“SFIO”) is conducting an
investigation into the affairs of the concessionaire and therefore, sought
certain information/ documents.
SUBMISSIONS BEFORE THE LEARNED SINGLE JUDGE: –
40. The appellant/petitioner alleged that the respondent No. 2 violated the
terms of the CAs and it issued “Suspension Notice” under Article 36.1 of
CAs to the respondent No.2. The respondent No.1 also issued a Notice of
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Financial Default dated 26.03.2019 to the respondent No.2 informing about
the material breach of the terms of the Common Loan Agreement.
41. The appellant issued Termination Notice dated 22.05.2019 thereby
terminating the CA w.e.f. 09.04.2019 and informed the respondent No. 2
that it had taken over the Project Highway. Consequently, respondent No. 1
wrote letters to the appellant/petitioner to release the Termination Payment
amounting to ₹393,49,97,509/-. along with the applicable interest. The
appellant denied depositing the Termination Payment into the Escrow
Account vide its letter dated 24.06.2019 and stated that since the
Commercial Operation Date (“COD”) for the Project could not be achieved
and the CA was terminated prior to the occurrence of COD, no Termination
Payment for the Project was payable. In its letter dated 24.06.2019, the
appellant also stated that the letter dated 17.12.2016 issued by the IE
keeping the PCC in abeyance had been issued under the instructions of the
appellant.
FINDINGS OF THE LEARNED SINGLE JUDGE
42. The learned Single Judge has noted that the Arbitral Award(s) can
only be set aside on the ground, inter alia, being in conflict with the public
policy of India, patent illegality and violation of principles of natural justice.
43. The findings of the learned Single Judge on different issues are as
under:-
a) Concession Agreement form part of the EA and SA :-
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The EA and SA by clear phraseology incorporate the CA in
both the EA as well as the SA. The recitals of EA and SA are clear
and unambiguous, there is no need for any external aid. The CA
was not merely a reference or a statement in the passing but the
parties expressly agreed to it forming and becoming a part of the
two Agreements i.e. EA and SA. The learned Single Judge
referring to paragraphs 96,126 and 132 of the Arbitral Award held
that the learned Tribunal has rightly held that the CAs forms part
of the EA and SA and the conclusion of the learned Tribunal calls
for no interference.
b) PCC cannot be kept in abeyance :-
Keeping the PCC in abeyance by the IE vide letter dated
17.12.2016, was beyond the terms of the said Article i.e. 14.5 of
CAs. The CA nowhere provides that the PCC once issued can be
kept in abeyance or withdrawn. The interpretation that IE after
realizing its mistake, kept the PCC in abeyance as 75% of the total
length of the Project Highway was not completed, is against the
Article quoted above which gives IE the only right to withhold the
PCC before it is issued but not once the PCC is issued. The PCC
was issued after inspection by the IE and approval by the
appellant/petitioner. If the interpretation propounded by the
appellant/petitioner is accepted then said Article will lead to
absurdity. The view taken by the Tribunal is the correct view and
most definitely is a plausible view and does not shake the
conscience of the Court.
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c) Jurisdiction of the AT over the disputes :-
The respondent No. 1 invoked the Arbitration Clause of the
EA which is Clause 10. On perusal of the same, it clearly indicates
that “any dispute, difference or claim arising out of or in
connection with this Agreement” shall be referred to arbitration. It
includes the disputes arising in connection with the EA which also
includes the CA.
It is the case of the respondent No.1 that the appellant/
petitioner refused to deposit the Termination Payment vide letter
dated 24.06.2019 which clearly violated Clause 3.2 of the EA.
Hence, the respondent No. 1 was constrained to invoke the
arbitration clause of the EA. The learned Tribunal had the
jurisdiction to entertain the disputes arising out of the EA and
more particularly non deposit of Termination Payment by the
petitioner in the Escrow Account. The learned Single Judge held
that the above reasoning is sound, borne out of the correct
interpretation of the contractual terms and there is no merit in the
contention of the appellant/petitioner that the learned Tribunal
lacked jurisdiction over the dispute of non deposit of Termination
Payment in the Escrow Account.
d) Contentions qua Termination Payment :-
The learned Single Judge has held that the respondent No. 2
under the CAs has been described as “concessionaire” which
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clear that there is a conscious and deliberate intent on the part of
the contracting parties to transfer and assign all rights, title, and
interest held by the concessionaire to the Lenders Representative
i.e. the respondent No. 1. After the execution of the SA, the
respondent No. 1/ lender steps into the shoes of the
concessionaire, acting in the capacity of the respondent No. 2 and
is entitled to make such demands. The argument that the
concessionaire can only demand the Termination Payment
completely ignores the plain language and “commercial purpose”
of the Agreements. This interpretation would disregard the intent
of the parties, who clearly intended that the lender, upon
substitution, would possess all the rights necessary to recover its
dues including the Termination Payment. The Termination
Payment can only be sought by respondent No. 2, is rejected.
If the CA is terminated due to the defaults committed by the
respondent No. 2 before achieving COD, the Termination
Payment shall not be due and payable. Article 37.3.1 states that, if
the Agreement is terminated on account of the concessionaire
default during the operation period then the Authority i.e. the
appellant/petitioner would pay as per the Article quoted above.
Articles 37.3.2 and 37.3.3 state the formula to be applied for
Termination Payment along with the interest component.
Once the COD is achieved on the date of issuance of PCC,
the demand made by the respondent No. 1 for Termination
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a question of fact not a question of jurisdiction. The answer to the
said contention i.e. calculation of Termination Payment, clearly
lies in Article 37 of the CA and more particularly in Article 37.3.2
and 37.3.3.
The learned Single Judge held that the appellant has not
argued that the amount of ₹ 229.50 Crore suffer from any errors or
that extra amounts have been added instead of this, only a mere
averment has been made without any evidence. On perusing the
Statement of Defence filed by the petitioner, the calculation of
Termination Payment has not been disputed. The Tribunal has
dealt with the said contention in paragraph 157 of the Arbitral
Award. Therefore, the Tribunal has rightly dealt with the said
contention and hence, no interference is required.
44. The learned Single Judge in view of its above findings has held that
no interference is required with the Arbitral Awards and dismissed the
petitions.
SUBMISSIONS ON BEHALF OF THE APPELLANT:-
45. Mr. Sudhir Nandrajog, learned Senior Counsel appearing for the
appellant submitted that the CAs are not a part of the EA or the SA. The
conclusion drawn by the learned Tribunal that CAs formed part of
agreements is erroneous; it was merely annexed to EA and SA as annexures.
The terms of the CAs were never made “part and parcel” of these
agreements. He also submitted that the learned Single Judge failed to
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consider that the learned Tribunal has erred by substituting the agreements
in its own wisdom, which is impermissible in law.
46. According to him, intention of annexing the CAs in the agreements
can be deduced from Clauses 2 & 3 in the SA and Clauses 2.5 & 2.6 of the
EA. He submitted that CAs were annexed to the agreements so that the non-
signatory to CAs, i.e., the respondent no. 1 is aware of the terms of the CAs
to enable the respondent no. 1/lender to exercise its rights under Clauses 2 &
3 in the SA and Clauses 2.5 & 2.6 of the EA.
47. He submitted that the appellant could not have been directed to
deposit Termination Payment in accordance with Clause 3.2 of the EA, as
the same never became “due and payable”. For Termination Payment to
become due and payable, the concessionaire as well as the learned Tribunal
was obligated to follow the procedure prescribed under Article 37.3 of the
CAs. The mere factum of the recital annexing the CAs to EA(s) and SA(s)
does not make the CA ‘part and parcel’ of the said agreements in the
absence of a clear or specific indication that the CAs in its entirety was
intended to be made part of the EA(s) and SA(s). In support of his
submission, he has relied on the judgment of the Supreme Court in M.R.
Engineers & Contractors (P) Limited v. Som Datt Builders Limited (2009)
7 SCC 696.
48. According to Mr. Nandrajog, the award is patently illegal as the
Termination Payment under the CAs is not payable if termination happens
due to concessionaire’s default occurring prior to COD under Article 37.3.1
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of the CAs. The COD is achieved upon issuance of Completion Certificate /
PCC which is issued by IE.
49. He submitted that the CODs were not achieved as the PCC which was
issued by IE was kept in abeyance, as 75% of the total length of the Project
was not completed by the respondent No.2/concessionaire. In terms of
Article 14.3.2 of CA, PCC could have only been issued upon completion of
75% of the total length of the Project, i.e., 100.350 KM out of the total
length of 133.793 Km. The respondent No.2 had only completed 90.671
Km. Therefore, issuance of PCC/achieving COD, raising a demand by the
concessionaire/ respondent No. 2 for the Termination Payment, and
providing necessary particulars, all were a sine qua non to the claim of
Termination Payment. He also submitted that the same was submitted by the
appellant in its Statement of Defence which was not decided by the learned
Tribunal on its merits in the Award and came to a conclusion that, act of
keeping the PCC in abeyance could not have been done without considering
Article 14.5 of the CA-I.
50. It is his submission that the learned Single Judge has failed to
consider that the learned Tribunal has failed to note that, even if the
appellant is obliged to pay the Termination Payment, it shall be upon the
demand of the respondent no.2/concessionaire within 15 days of the
termination, which was admittedly never did by the respondent No.2. He
also submitted that the learned Tribunal erred in interpreting Article 37.3.3
of the CAs and held that there is no requirement for the concessionaire to
demand Termination Payment from the Authority/appellant. The learned
Tribunal has given complete go-by to the categorical and unambiguous
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provisions of Article 37.3.3 which mandates “demand” by the
concessionaire with “necessary particulars”. Such an interpretation to Article
37.3.3 of CAs has the effect of altering the binding terms of the contract
between the parties, which is impermissible in law and is patently illegal.
51. According to him, it is settled proposition of law that, only parties to a
contract can enforce their rights and liabilities under such contract and no
stranger is allowed/ permitted to agitate claim(s) or seek to enforce terms of
such contract against the parties to such contract. The respondent no. 1 is
precluded in law from seeking enforcement of terms of CAs to which it is
not a party to. An arbitrator/Tribunal being a creature of a contract, cannot
step out of the four corners of the contract. Hence, the Tribunal erred in
travelling beyond SA and EA to adjudicate disputes which could only be
agitated and adjudicated by a competent Arbitral tribunal constituted under
the arbitration Article contained in CAs. The findings of the learned
Tribunal that Clause 10 of EA & Clause 8 of SA are widely worded and
indicate that, it would include disputes “arising out of or in connection with”
including those under the Cas, is erroneous. He submitted that the CAs were
beyond the scope of reference and the respondent no. 1 not being a party to
the CAs, could not have sought to enforce the terms.
52. He submitted that the learned Tribunal erred in relying upon Clause 2
of the SA, that, once the assignment takes place SIB/Lender steps into the
shoe of respondent no.2/concessionaire. It is his submission that the Clause
2 is subject to Clause 3.1 of the SA. The ‘substitution/assignment’ rights of
the respondent no. 1 are only restricted to appointment of a ‘Nominated
Company’ to perform the obligations under the CAs. Whereas, Clause 2.1
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nowhere reads that the Lender would step into the shoe of the respondent
no.2/concessionaire and shall be entitled to all rights under the CAs. If the
same analogy is followed, then for the claims of the appellant against the
concessionaire, the appellant can agitate and raise claims against the
respondent No.1/Lender for the wrongs/defaults of the concessionaire/
respondent no.2. He also submitted that Clause 5.1 of the SA nowhere
assigns any right to respondent No. 1 to call upon the appellant to deposit
the Termination Payments, which have not become due and payable and is
subject to Article 37.3.3 of CAs.
53. According to him, the learned Tribunal erred in holding that
calculation of Termination Payment was a “mechanical exercise” whereas
there are two preconditions for the Termination Payments to become “due
and payable; Firstly, there must be demand by the respondent No. 2;
Secondly, the respondent No. 2 must submit necessary particulars. Both the
preconditions were missing and without complying with the preconditions
under Article 37.3.3 of the CAs.
54. On the issue of calculation /computation of the Termination Payment,
he submitted that the learned Tribunal could not have arrived at the figure of
₹ 229.50 Crore in CA-I and ₹ 181.81 Crore in CA-II, as the Termination
Payment is beyond the scope of reference. There is no provision in the EA
and SA which enables the learned Tribunal or the parties to these
agreements to calculate Termination Payment. The Termination Payment
can only be adjudicated and calculated arising out of the CAs, which are
subject matter of arbitral proceedings between the respondent No.2 and the
appellant. He also submitted that, it is perverse finding of the learned
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Tribunal that the appellant did not dispute the calculation made by the
respondent No.1.
55. In support of his submissions, he has relied upon the following
judgments: –
a) Associated Engineering Co. v. Government of A.P., 1991 4
SCC 93.
b) Rajasthan State Mine and Minerals Ltd. v. Eastern
Engineering Enterprises, 1999 9 SCC 283.
c) Food Corporation of India v. Chandu Construction, 2007 4
SCC 697.
d) Indian Oil Corporation Limited v. Shree Ganesh Petroleum
Rajgurunagar, 2022 4 SCC 463.
56. He submitted that the appellant approached the learned Tribunal
under Section 33 of the Act seeking modification/correction in the Arbitral
Award dated 13.11.2024 on the issue with regards to the ‘non-deposit of the
Arbitral Fee’ by the appellant. The appellant had pointed out to learned
Tribunal that it had paid full share of its Arbitral Fee to respondent no. 1. A
sum of Rs. 34.50 Lakhs towards the Arbitral Fee which was incorrectly
noted to have not been paid by the appellant, the Tribunal offered to refund
the excess amount paid by the respondent no. 1 on the condition that
respondent no. 1 would not recover the said amount from the appellant.
57. Mr. Nandrajog submitted that the appellant has the authority to
withhold PCC under the CAs and the learned Tribunal erred in holding that
the act of the IE in keeping the PCC dated 08.12.2016 in abeyance was non-
est, void ab-initio and beyond the scope and powers of the IE under Article
14.5 of CAs. He also submitted that the IE was well within its power to
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correct its own error / mistake. When a party has an administrative duty to
act and in exercise of such duty it commits an error, the same authority is
duty bound and obligated to correct it as soon as it is brought to its
knowledge and the IE rightly corrected its mistake by keeping the PCC in
abeyance vide its letter dated 17.12.2016 until 75% of the total length of the
Project Highway was completed. The learned Tribunal failed to consider
that, in terms of Article 14.3.2 of the CAs, PCC can only be issued upon the
completion of 75% of the total length of the Project Highway. Thus the
learned Tribunal erred by overruling the contractual obligation of the IE.
58. He submitted that, as per Article 37.3.1 of CA, the concessionaire
acknowledges that no Termination Payment shall be due or payable on
account of a concessionaire Default occurring prior to COD. The issue of
withholding PCC is sub judice before a Tribunal wherein the appellant and
respondent No. 2 (concessionaire) are parties.
59. In support of his submission he has relied on the following
judgments:-
a) Visa International Ltd. v. Continental Resources (USA) Ltd.,
(2009) 2 SCC 55;
b) Nandram Hanutram v. Raghunath and Sons, 1953 SCC
OnLine Cal 219;
c) Transstroy Tirupati Tiruthani Chennai Tollways Pvt. Ltd. v.
Allahabad Bank and Anr., 2019 SCC OnLine Del 9080.
60. He seeks prayer as made in the appeal.
SUBMISSION ON BEHALF OF THE RESPONDENT NO.1
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61. Mr. Sandeep Sethi, learned Senior Counsel appearing for the
respondent no.1 would submit that the only issue in FAO (OS) (COMM)
137/2025 is with regard to PCC which was kept in abeyance. No such issue
arises in FAO (OS) (COMM) 152/2025 regarding the achievement of
Commercial Operation Date (COD).
62. On the submission of the appellant that the liability to make
Termination Payment is exclusively under CAs, to which the
lender/respondent no.1 is not a party, he submitted that, under Clause 3.2 of
the EA, it is the obligation of the appellant to deposit the Termination
Payment when it becomes due and payable as the CAs forms part of EA and
SA. The dispute that was referred to arbitration arose from the appellant’s
failure to perform its obligation to deposit Termination Payment in the
Escrow Account under the EA and the SA, both of which are tripartite
agreements.
63. He submitted that, under the CAs, the Projects were awarded as a
DBFOT on an annuity basis, the appellant did not make any investment in
the Projects. The funds were independently sourced by the concessionaire
through equity contribution and/or by taking loan(s), and the Lender Banks
invested huge amounts to bring the Project to life. The Awards record this
commercial backdrop. Upon termination, the contractual mechanism is not
that the appellant unilaterally adjusts the amounts claimed by it from the
concessionaire from the Termination Payment. Rather, the parties had
agreed on a structured escrow waterfall.
64. Clause 4.2 of the EA read with Article 31.4.1 of the CA, stipulates the
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priority in which monies to be credited to the Escrow Account are to be
applied upon termination. These clauses make it clear that payment of 90%
of the Debt Due excluding Subordinated Debt is the highest priority after
payment of taxes due and payable by the concessionaire. All payments and
damages claimed by the appellant from the concessionaire are to be paid
only after the payment of taxes and 90% of Debt Due. If the appellant had
deposited Termination Payment in the Escrow Account, respondent No.1
could have appropriated an amount of at least up to 90% of the Debt Due
from the said account in terms of Clause 4.2 of the EA.
65. According to Mr. Sethi, the Clause 3.2 of the EA read with Article
37.3 of the CA, no discretion is granted to appellant in making the
Termination Payment. It is his submission that CA forms part of the EA and
SA, as both are tripartite agreement executed by the lender/respondent no.1
and as well as Escrow Bank, respondent no.2/the concessionaire and the
appellant. Both the agreements are identically worded and inter alia states
that, a copy of the CAs are annexed hereto and marked as ‘Annex-A to form
part of this agreement’ and therefore the CAs forms part of both agreements
by express incorporation.
66. On the judgment relied upon by the appellant in M. R. Engineers and
Contractors (P) Ltd. (supra), he submitted that, it is not the case that a
document is merely referred in the contract, the arbitration clause was
invoked under Clause 10.1 of the EA, the relevance of the Recital A is that,
it incorporates the CA(s) into EA(s) & SA(s) as part of contractual
framework.
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67. On the appellant’s plea that the learned Tribunal had decided the
matter beyond its scope of reference, Mr. Sethi placing reliance upon the
judgment in the case of State of Goa v. Parveen Enterprises (2012) 12 SCC
581 and Ssangyong Engineering and Construction Company Limited v.
National Highway Authority of India (2019) 15 SCC 131, submitted that
the dispute referred to the learned Tribunal was due to the refusal of the
appellant to deposit the Termination Payment in the Escrow Account.
68. On the issue of whether the lender can invoke arbitration under EA
and SA and to deposit the Termination Payment in Escrow Account upon
termination, Mr. Sethi has relied upon the judgment of this Court in the case
of National Highways Authority of India v. Punjab National Bank (2021)
SCC OnLine Del 3413 to submit that learned Single Judge of this Court has
held that once the CAs stood terminated, the loaned amount is required to be
returned. The lenders, had no concern with the inter se disputes between
parties therein (NHAI and JST). It is for this reason that the CA, rightly,
made deposit by NHAI, into the Escrow Account, as well as the withdrawal,
thereby, by the lenders, the inevitable sequitur to termination of the CA,
which has been upheld by a Coordinate Bench of this Court vide the above
judgment. The SLP filed was also dismissed.
69. On the issue of Termination Payment, had become ‘due and payable’,
Mr. Sethi submitted that under the security assignment under Clause 2.1 of
the SA, the concessionaire/respondent no.2 had assigned all its rights title,
and interest in the concession to the lenders’ representative by way of
security. According to him, the lenders assignee is entitled to enforce the
relevant Termination Payment mechanism for the purpose of ensuring that
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the Termination Payment is demanded/deposited in accordance with the
contractual scheme.
70. On the argument of the appellant that, Lenders cannot demand
Termination Payment because they could not execute the project is
misconceived because the said clause merely clarifies that the lenders cannot
themselves execute the project work. He submitted that, it neither dilute the
lenders security assignment nor does it curtail their contractual right to seek
deposit of Termination Payment into Escrow Account upon termination.
According to him, the respondent No.1 is only seeking to enforce the escrow
deposit mechanism triggered by the termination.
71. Mr. Sethi, on the submission of the appellant that, if the lenders are
treated as concessionaires then the concessionaires would go out of the
picture and claims between the appellant and the concessionaire would be
derailed. He submitted that the Clause 2.1 of the SA is a security interest
meant to be exercised to the extent necessary to protect the lenders exposure
upon the defined events. The respondent no.1’s case is limited to deposit of
Termination Payment into the Escrow Account and does not see the
adjudication of inter se disputes between the appellant and the
concessionaire/respondent no.2 under the CAs does not seek to supplant the
concessionaire in the arbitration. The respondent no.1 invoked the
arbitration only because of the appellant refusal / failure to deposit the
Termination Payment.
72. He submitted that Clause 7.2(v) of the CLA provides that, in the
event of default by the concessionaire under Clause 7.1 of the CLA, the
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lender / respondent no.1 can instruct any person who is liable to make the
payment to the borrower to pay directly to the secured parties for the
purpose of crediting the same into Escrow Account.
73. According to him, the learned Tribunal has held that the Clause 5.2.2
of the CA requires concessionaire to submit drafts of all Project agreements
for its review and comments. CLA is a “Financing Agreement” and forms
part of the definition of “Project Agreements” under Article 48.1 of the CAs.
He also submitted that, the Recitals C and D to the Supplementary CLA
dated 15.04.2011 records that the appellant had reviewed the CLA and had
stipulated certain modifications / deletions / insertions to the same on
account of which the SA was executed. As evident from the said SA, no
modifications were suggested by appellant to Clauses 7.2(v) and 10.2 B (ii)
of the CLA. Thus, the appellant had acquiesced to the said Clause 10.2 B (ii)
which recognises that the lenders can claim Termination Payment from the
appellant. Thus, the learned Tribunal has rightly held that the appellant had
acquiesced to the provisions of the CLA which provide that the lenders can
claim Termination Payment.
74. With regard to the appellant’s submission of ‘necessary particulars’,
Mr. Sethi submitted that this argument was not raised as a defence during
the arbitration and it was first raised in the petition under Section 34 of the
Act. The appellant has neither specified what “necessary particulars” were
allegedly missing, nor does it plead or demonstrate how any absence of
particulars caused prejudice or prevented computation/verification of the
Termination Payment.
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75. On the issue of the concessionaire / respondent No. 2 raising /
demanding Termination Payment, he submitted that the appellant has in its
application under Section 16 of the Act stated that the concessionaire has
invoked arbitration under the CAs; the concessionaire had raised claims
similar to those raised by Lenders/SIB. Thus, there was clearly a demand for
Termination Payment by the concessionaire as well.
76. He submitted that, as per Clauses 2.1.1 and 2.1.2 of the EA, the
Escrow Account is a trust and declares respondent No.1, respondent
No.2/concessionaire and the appellant as the beneficiaries of the said trust.
Therefore, the appellant is required to deposit Termination Payment in the
Escrow Account as beneficiaries of the trust under the EA and/or as
beneficiaries under Article 31.4.1 of the CAs. He also submitted that the
appellant had admitted its liability to make Termination Payment to lender
banks in such projects in a draft shelf prospectus issued by it on 07.10.2015.
77. On the appellant’s argument that the PCC could not have been issued
because at least 75% of the Project Highway was not completed and that the
issuance of the PCC was therefore a patent mistake, rectified by keeping the
PCC in abeyance, Mr. Sethi submitted that, no such contention was taken in
the arbitration proceedings, and the same is an attempt to reargue merits
under Section 37 of the Act. The PCC was issued by the IE under the
authorisation of the appellant and strictly as per the contractual provisions as
well as the circulars issued by the appellant.
78. As per Article 10.3.5 of the CA, the issuance of the PCC shall not be
delayed due to access not being granted to any part of the site. As per Article
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14.3.1 of the CA, the IE shall not withhold the PCC for the reason of any
work remaining incomplete if the delay in completion thereof is attributable
to appellant. He submitted that the learned Single Judge held that, it was the
sole responsibility of the appellant to provide access to vacant land as per
the Appendix to the respondent No. 2/ concessionaire within the 90 days
period from the Appointed Date and if there was any delay in providing the
same, it was to attract damages payable to the respondent No.2 by the
appellant.
79. He submitted that, the IE issued a recommendation for issuance of
PCC on 07.11.2014 highlighting that, since the project began, there were
problems in handing over ‘Right of Way’ and ‘Right to Access’ and NHAI
Circular No. NHAI/CMC/2010/Misc./13873 dated 07.09.2010 permits
issuance of PCC for completed stretches in such situations. The appellant
issued a cure period notice dated 10.06.2015. After an additional portion of
the works was completed, the IE expressed its intention to issue a PCC for
the completed stretches vide its letter dated 30.09.2016. The appellant
explicitly and clearly concurred with this recommendation in its letter dated
24.10.2016, wherein, it had inspected the completed length of the Project
Highway along with the IE and found it to be safe and reliable for
commercial operation and conveyed its authorisation for the issuance of the
PCC to the IE. The IE issued the PCC through its letter dated 08.12.2016
while requiring the concessionaire to execute a SA before 25.12.2016 and
completing the balance works by 31.10.2017.
80. He submitted that, nine days after the issuance of the PCC, the IE
suddenly issued a letter dated 17.12.2016 stating that the PCC is kept in
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abeyance. The learned Single Judge has held that the CAs nowhere provides
that the PCC once issued can be kept in abeyance or withdrawn. The
submission that, IE after realising its mistake, kept the PCC in abeyance, as
75% of the total length of the Project Highway was not completed is against
the Article, which gives IE the only right to withhold the PCC ‘before’ it is
issued but not once the PCC is issued. The PCC was issued after inspection
by the IE and approval by the appellant.
81. He submitted that the learned Tribunal has held that, keeping the PCC
in abeyance, was completely different from the letter dated 08.12.2016 in
which it was stated that the concessionaire should complete either
Periyakulam Bypass or Theni bypass before the first Annuity payment
becomes due. The first annuity payment would have become due in terms of
the said letter of the Engineer on 08.05.2017 (i.e. 6 months after the issuance
of the PCC). He also submitted that the learned Tribunal has rightly held
that, under Article 14.5 of the CAs relates to withholding of PCC but does
not apply once the PCC has been issued. A series of conditions had to be
met for the applicability of Article 14.5 which had not been met in the
present case. He also submitted that the learned Tribunal has not altered any
of the terms of the agreements entered into between the parties, as contended
by the appellant.
82. He submitted that the contention of the appellant that Debt Due are
beyond the scope, and it was not referred in the notice under Section 21 of
the Act and damages could not be claimed directly by the lenders are
procedurally untenable, having neither been specifically pleaded in the
petition under Section 34 of the Act nor raised as a ground in the present
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appeals. It was raised for the first time in oral arguments without pleadings
or factual foundation, ought to be rejected.
83. He submitted that the Original Statement of Claim filed by respondent
no.1 was limited to a prayer for specific performance of appellants
contractual obligation to deposit the Termination Payment into the Escrow
Account together with interest. Subsequently, by way of an amendment,
respondent no.1 sought an alternative relief, namely damages quantified at
90% of the Debt Due, along with interest claimed as damages for delay in
deposit. Since the concerned projects are annuity projects, the Termination
Payment is the discounted value of future annuities, not 90% Debt Due. This
alternative claim and it quantification at 90% Debt Due was premised on the
escrow waterfall under Clause 4.2 of the EA, which accords priority to 90%
Debt Due after taxes. It was expressly pleaded as an alternative to, and not
in substitution of, the primary relief of escrow deposit.
84. He submitted that the learned Tribunal held that NHAI’s contractual
obligation was not to pay damages or interest directly to the lenders, but to
deposit the Termination Payment into the Escrow Account; and that the
contractual consequence for delay in such deposit was expressly provided
under Article 37.3.3 of the CAs. The learned Tribunal declined the
alternative reliefs sought by the Lenders’ (direct payment of damages and
interest), but simultaneously enforced the primary contractual obligation by
directing the appellant to deposit the Termination Payment along with
interest into the Escrow Account. The relief granted by the learned Tribunal
is limited to a direction to deposit the Termination Payment (with interest)
into the Escrow Account. There is no direction to discharge the lenders’
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outstanding debt or to make any payment directly to the lenders.
85. On the submission of the appellant that the expression “due and
payable” in Article 37.3.3 of the CAs permits the appellant to affect a
unilateral set-off of its alleged claims against the Termination Payment, Mr.
Sethi submitted that, Article 37.3.3 stipulates that the Termination Payment
becomes due and payable upon a demand made after termination. The
provision does not make the obligation to deposit the Termination Payment
contingent upon: (i) adjudication or resolution of inter se disputes between
appellant and the concessionaire, or (ii) adjustment of NHAI’s alleged
claims against the concessionaire. The contractual scheme clearly separates
appellant’s obligation to deposit the Termination Payment into escrow from
its claims against the concessionaire, which are required to be pursued
independently.
86. He submitted that the contractual structure precludes any unilateral
pre-deposit set-off against the Termination Payment. The claims against the
concessionaire are not extinguished, but they are deliberately subordinated
in the agreed priority mechanism.
87. He submitted that the argument of the appellant that, Clause 3.2 of the
EA entitles the appellant to appropriate Concession Fee due and payable
from the concessionaire from the Termination Payment which means that
there has to be an adjustment from the Termination Payment, is
misconceived. The Concession Fee is only a nominal amount of Re. 1 per
year during the term of the CAs. It has not been pleaded by the appellant in
the arbitration, Section 34 petition or in the appeal that any Concession Fee
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is outstanding to be paid by the concessionaire which should have been
adjusted from the Termination Payment directed to be deposited by the
appellant in the Escrow Account in terms of the Award. Therefore, the
appellant is not entitled to raise any such argument.
88. Mr. Sethi submitted that the learned Tribunal had made it clear that it
did not enter into any impermissible adjudication on jurisdictional facts, but
merely noted that the quantification was never disputed, no alternative
computation was provided by the appellant, and that the issue was one of
merit, not jurisdiction. Once it is accepted that the CAs forms part of the
EAs and SAs, the application of the pre-agreed contractual formula under
Article 37 of the CA for computing the Termination Payment cannot be
characterised as a jurisdictional overreach. It is, an exercise in arithmetical
application of contractual terms, which falls squarely within the learned
Tribunal’s remit. As recorded both in the Awards and the impugned
judgment, the appellant has neither disputed the computation or quantum of
the Termination Payment before the learned Tribunal nor was any
alternative calculation placed on record. The computation of Termination
Payment for concessionaire’s default under Article 37.3.1 of the CAs is
based on an objective and mechanical formula.
89. He submitted that, it is well settled that interpretation of contractual
provisions lies squarely within the domain of the learned Tribunal, and so
long as the interpretation adopted is a possible and plausible view, it is
immune from interference under Sections 34 and 37 of the Act. It is well
settled that errors of fact or even of law committed by an Arbitral Tribunal
are not grounds for setting aside an award unless they fall within the narrow
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compass of Section 34(2) or Section 34(2A) of the Act.
90. Mr. Sethi submitted that, an appeal under Section 37 of the Act is
extremely narrow and far more circumscribed than the already limited scope
of interference under Section 34 of the Act. The appellate court does not sit
in appeal over the arbitral award, nor does it undertake a re-appreciation of
facts or a re-interpretation of contractual provisions. In support of his
submission, he has relied upon the judgment of the Supreme Court in Jan
De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust, 2026 SCC
OnLine SCC33,
91. He seeks dismissal of these appeals.
ANALYSIS AND CONCLUSION
92. Having heard the learned counsel for the parties and perused the
record, the first and the foremost issue that needs to be decided is whether
the CA(s) formed part of the EA(s) & the SA(s).
93. According to Mr. Nandrajog, the CA(s) was only annexed to the
EA(s) and SA(s) and as such the learned Tribunal could not have directed
the appellant to deposit the Termination Payment in the Escrow Account. He
submitted that, according to the learned Single Judge, the phraseology used
in EA(s) and SA(s) is very clear in as much as the CA(s) is annexed and
marked as Annex-A to form part of the agreement(s) i.e., EA and SA, is
erroneous.
94. He submitted that the CA(s) was annexed to the agreements so that
the non-signatory to the CA(s) is aware of the terms of the CA(s) so as to
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enable the respondent no.1 exercise its rights. To support his submission,
Mr. Nandrajog has placed reliance on Articles 2 and 3 of the SA and
Articles 2.5 & 2.6 of the EA, which we reproduce as under:
“2 ASSIGNMENT
2.1 Assignment of rights and title
The Concessionaire hereby assigns the rights, title and interest
in the Concession to, and in favour of, the Lenders’
Representative pursuant to and in accordance with the
provisions of this Agreement and the Concession Agreement by
way of security in respect of financing by the Senior Lenders
under the Financing Agreements.
3 SUBSTITUTION OF THE CONCESSIONAIRE
3.1 Rights of substitution
3.1.1 Pursuant to the rights, title and interest assigned under
Clause 2.1, the Lenders’ Representative shall be entitled to
substitute the Concessionaire by a Nominated Company under
and in accordance with the provisions of this Agreement and
the Concession Agreement.
3.1.2 The Authority hereby agrees to substitute the
Concessionaire by endorsement on the Concession Agreement
in favour of the Nominated Company selected by the Lenders’
Representative in accordance with this Agreement. (For the
avoidance of doubt, the Senior Lenders or the Lenders’
Representative shall not be entitled to operate and maintain the
Project Highway as Concessionaire either individually or
collectively)..
—————————————————————————-
2.5 Rights of the parties
The rights of the Authority, the Lenders’ Representative and the
Concessionaire in the monies held in the Escrow Account are
set forth in their entirety in this Agreement and the Authority,
the Lenders’ Representative and the Concessionaire shall have
no other rights against or to the monies in the Escrow Account.
2.6 Substitution of the Concessionaire
The Parties hereto acknowledge and agree that upon
substitution of the Concessionaire with the Nominated
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deemed for the purposes of this Agreement that the Nominated
Company is a Party hereto and the Nominated Company shall
accordingly be deemed to have succeeded to the rights and
obligations of the Concessionaire under this Agreement on and
with effect from the date of substitution of the Concessionaire
with the Nominated Company.”
95. Suffice to state that there is nothing in Clauses 2 and 3 of the SA and
Clauses 2.5 and 2.6 of the EA to show that the CA was only annexed for
information of the respondent no.1 to enable respondent no.1 to exercise its
rights. If the intention of the parties was only to annex the CA(s) in the
agreements for the knowledge of the non-signatory/respondent no.1 herein,
the wordings would have been “a copy of the CA(s) is annexed hereto” but
the express wording in the EAs & SAs, ‘to form part of this agreement’,
would surely mean that the intention of the parties was to make CA(s) to
form part of the said agreement(s).
96. As per Clause 3.2 of the EA, the appellant being signatory to the said
agreement had agreed to make deposit in the Escrow Account the
Termination Payment. Even the interpretation under Clause 1.2.2 and 1.2.4
of the EA, gives a clear indication that the CA is not merely annexed for the
knowledge of the respondent no.1 but to form part of the agreements. In this
regard, we shall reproduce Clauses 1.2.2, 1.2.4 and 3.2 of EA, as under:
“1.2.2 The words and expressions beginning with capital
letters and defined in this Agreement shall have the meaning
ascribed thereto herein, and the words and expressions used in
this Agreement and not defined herein but defined in the
Concession Agreement shall, unless repugnant to the context,
have the meaning ascribed thereto in the Concession
Agreement.
1.2.4 The rules of interpretation stated in Clauses 1.2, 1.3 and
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1.4 of the Concession Agreement shall apply, mutatis mutandis,
to this Agreement.
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:
(a) Annuity and any other monies disbursed by the Authority to
the Concessionaire;
(b) Deleted;
(c) Deleted and
(d) Termination Payments:
Provided that Authority shall be entitled to appropriate from
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.”
97. The learned Single Judge by referring to paragraphs 96, 126, 132 and
184 of the award has drawn his conclusion in paragraphs 46, 47 and 49 of
the impugned judgment, which we reproduce as under:
“46. On perusal of the above, the parties to the Agreements i.e.
EA and SA have clearly mentioned that the Concession
Agreement “forms part of this Agreement” which leaves no
manner of doubt that the Concession Agreement was an
integral part of these Agreements. Both EA and SA are
tripartite agreements wherein all the parties herein were
parties to the EA and the SA. Also, EA and SA are subsequent
agreements to the Concession Agreement meaning thereby both
these agreements were executed mainly for the purpose of the
smooth functioning of the Project Highway.
47. The argument of the learned senior counsel for the
petitioner that mere annexing does not make the Concession
Agreement part and parcel of the EA and SA in the absence of a
clear and unambiguous/declaration is devoid of merit as the
wordings of the Recital quoted above clearly indicates that the
Concession Agreement has been made part of EA and SA which
is a clear indication in itself.
xxxx xxxx xxxx xxxx
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49. Reliance on the said judgment is misplaced as the same
deals with the incorporation of an arbitral clause when a
document is merely referred to in a Contract whereas the
present case does not deal with the incorporation of an
arbitration clause. The EA and SA by clear phraseology
incorporates the Concession Agreement in both the EA as well
as the SA. When the recitals of EA and SA are clear and
unambiguous, there is no need for any external aid. A perusal
of the Recitals quoted above show that the Concession
Agreement was not merely a reference or a statement in the
passing but the parties expressly agreed to it forming and
becoming a part of the two Agreements i.e. EA and SA. Reading
anything else would be counter productive to the clear terms
agreed upon between the parties and would in effect be
rewriting the terms of the Contract.”
98. We may at this stage reproduce paragraphs 96, 126, 132 and 184 of
the Award, as under:-
“96. There are as many as four agreements that are relevant to
the present matter. The first is a Concession Agreement entered
into between the Concessionaire (Respondent No. 1) and NHAI
(Respondent No. 2). Next, there is a Common Loan Agreement
between the lenders and the Concessionaire, whereby the
lenders (the Claimant) advanced loans to the Concessionaire
for the execution of the Project. Importantly, this Common Loan
Agreement was vetted / approved by NHAI. There are also
Supplementary Loan Agreements. There are also two
agreements between the Claimant, Respondent No.1 and
Respondent No.2, i.e., an Escrow Agreement and a Substitution
Agreement. The present arbitration is invoked under these two
agreements. It is important to note that, as per the recitals of
both these agreements, the parties have agreed that the
Concession Agreement form part and parcel of these
agreements as well. All these agreements are interlinked and
define the rights and obligations of the parties, and relevant
provisions from these are discussed in more detail in the
following paragraphs.
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xxxx xxxx xxxx xxxx
126. It may be noted that as per Recital (A) of the Escrow
Agreement, the Concession Agreement now forms a part of the
Escrow Agreement.
xxxx xxxx xxxx xxxx
132. It is noted that, as per Recital (A), it is clear that the
Concession Agreement, which is annexed to this agreement,
forms a part of the Substitution Agreement as well, in a manner
similar to that which is provided in the Escrow Agreement.
xxxx xxxx xxxx xxxx
184. Recital A of both the Escrow Agreement and Substitution
Agreement are identically worded and, among other things,
states that a copy of the Concession Agreement is “annexed
hereto and marked as Annex-A to form part of this Agreement.”
Thus, the Concession Agreement forms a part of both the
Escrow Agreement and the Substitution Agreement as per the
express words used in those agreements.”
99. So, it follows, the conclusion drawn by the learned Tribunal and the
learned Single Judge is justified. It is a settled law in terms of the judgments
of the Supreme Court that, if a plausible view is taken by Arbitral Tribunal,
the same need not be interfered with under Section 34 and Section 37 of the
Act unless it shocks the conscious of the Court.
100. Insofar as the judgment in the case of M.R. Engineers & Contractors
(P) Limited (supra) relied upon by Mr. Nandrajog is concerned, the same
judgment was also relied upon by the appellant before the learned Single
Judge. The learned Single Judge did not find the same to be applicable to the
facts of these cases. In paragraph 49 of the impugned judgment which we
have already reproduced above, the learned Single Judge holds that the
recitals in EA and SA are clear in as much as the CA is not merely referred
to, but the parties expressly agreed to form part of the agreement(s). Hence
for parity of reasons, it need to be held that the said judgment is not
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applicable to the facts of this case. Hence, first plea of Mr. Nandrajog is
rejected.
101. Coming to the second submission of Mr. Nandrajog that the learned
Tribunal erred in holding that the PCC could not have been kept in
abeyance, suffice to state, the learned Single Judge agreed with the
conclusion drawn by the learned Tribunal in paragraphs 257 to 263, wherein
the learned Tribunal has held as under:
“257. The Tribunal has thoroughly examined the Concession
Agreement, and is of the view that the said agreement does not
contain any provision which provides that a PCC, once issued,
can be either kept in abeyance or withdrawn.
258. It is the Tribunal’s considered view that once the I.E.
issued the PCC, further to its letter of 08.12.2016, after being
satisfied that the tests were successful, and the requisite portion
of the highway was complete, the PCC remained validly issued,
and it could not be withdrawn or kept in abeyance for any
reason. The Tribunal also notes that the decision of the I.E. to
keep the issuance of the PCC in abeyance on grounds
mentioned in its letter of 17.12.2016 was invalid, as the PCC
had already been issued. Additionally, the letter issuing the
PCC of 08.12.2016 stated certain conditions that had to be met,
but the Concessionaire was never given the opportunity to meet
these requirements at all. In the circumstances, not only was
the decision to keep the PCC in abeyance invalid, it was also
contradictory to the position taken by the authority previously.
259. A case was made out that the PCC was withheld under the
terms of Article 14.5 of the Concession Agreement. The
Tribunal has considered the provision, and finds that several
conditions need to be met in order for Article 14.5 to operate.
Pertinently, the provision specifically relates to withholding of
PCC, but does not apply once the PCC has been issued.
Therefore, in the present case, as the PCC was already issued,
this provision would not come into operation.
260. Even if one persists with examining the applicability of
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Article 14.5 further, it becomes clear that the facts of the case
do not allow for such applicability. For Article 14.5 to apply, a
series of conditions must be met. At the outset, the I.E. ought to
have determined that the Project Highway or any part thereof
did not conform to the provisions of the Concession Agreement
and could not be safely placed in commercial operation, and
made a report to such effect. The conditions in Article 14.5
further require that upon receipt of such a report, Respondent
No. 2 would inspect the Project Highway, and notify
Respondent No. 1 of such defects and deficiencies in the Project
Highway and direct the I.E. to withhold issuance of the PCC.
261. On the contrary, what transpired was in fact quite
different. The Tribunal notes that the I.E. initially
recommended issuance of PCC, stating that delays were caused
due to Respondent No. 2. After a series of communications,
Respondent No. 2, the I.E., the Project Director and
Respondent No. 1, jointly conducted an inspection, in which it
was concluded that the portion of the highway that had been
completed was indeed fit for commercial operation. No report
suggesting that it was not fit was made, and none of the
subsequent requirements (as under Article 14.5) were met.
I.E.’s letter dated 17.12.2016 which stated that the PCC was
being kept in abeyance, said that this decision was to stand
until completion of the Theni Bypass which was supposedly
agreed by Respondent No. 1 in terms of a “draft supplementary
agreement”. The Tribunal notes that the earlier letter issued by
the I.E., dated 08.12.2016, in which it had issued the PCC, had
clearly stated that the Theni bypass was to be completed before
the first annuity payment date, i.e., 6 months after PCC date
(para 24 of the letter dated 08.12.2016). The decision to keep
the PCC in abeyance for reason of not completing the Theni
bypass, went against the earlier decision granting the
Concessionaire time to do so till 6 months thereafter. This was
a clearly contradictory exercise of authority, and cannot be
held to be valid.
262. In the Tribunal’s view, therefore, the PCC has remained
validly issued by the I.E. It follows that, after the Concession
Agreement was terminated, the Claimant’s request for
Termination Payment is also valid, and ought to be fulfilled.
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263. Accordingly, Issue No. 5 is answered as follows: Answer
to Issue No. 5. The letter dated 17.12.2016 issued by I.E.
purportedly keeping the PCC dated 08.12.2016 in abeyance
was non est, void ab-initio and beyond the scope and powers of
I.E and Respondent No. 2″
(emphasis supplied)
102. The submission of Mr. Nandrajog is that the IE has corrected its
error/mistake by keeping the PCC in abeyance. According to him, if the
contrary is held to be correct, every mistake of IE will necessarily have to be
litigated in the Courts and Arbitral Tribunal for it to be set aside and this will
entail unnecessary litigation as such when a party has an administrative duty
to act in execution of its duty, the same authority is duty bound and
obligated to correct it as soon as it is brought to its knowledge.
103. His other submission is that the learned Tribunal had failed to
consider Article 14.3.2 of CA(s) i.e., PCC could have only been issued after
75% of the total length of Project Highway has been completed. Whereas, it
has only completed 90.61 km, which is less than 75% and the IE has rightly
corrected its mistake and kept the PCC in abeyance till 75% of the total
length of the project Highway is completed. In other words, it is his
submission that, IE was obligated under the contractual provision to ensure
compliance thereto.
104. Suffice to state, the reasons for the learned Tribunal to answer the
issue relatable to PCC in the context of the facts has been noted by the
learned Tribunal under Issue no.5, which can be seen from paragraphs 248
to 256, of the award, in the following manner:
“248. It is clear that the terms of the Concession Agreement 579
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provide the vacant land and access to the project site (Article
10.3.2580), and any delays in such provision of land and right of
way would invite a daily sum of damages proportional to the
area, payable by Respondent No. 2 to the Concessionaire
(Article 10.3.4581). The Concession Agreement582 also
specifically provides that once the Concessionaire receives
such right of way, it shall complete the works within a
reasonable period of time, and also that the issuance of the
PCC shall not be delayed due to access not being granted to
any part of the site (Article 10.3.5583). The Tribunal notes, in
pertinent part, that Article 14.3.1584 clearly provides that the
I.E. shall not withhold the PCC for reason of any work
remaining incomplete if the delay in completion thereof is
attributable to Respondent No. 2.
249. Critically, the Tribunal notes that the Concessionaire’s
obligation to complete the affected works subsists only if
Respondent No. 2 has paid the damages as specified (Article
10.3.5585), and if Respondent No. 2 stops paying such damages,
the Concessionaire is no longer obliged to complete such works
on such part of the Site.
250. In the present case, it is recorded (Respondent No. 1’s
letter dated 22.09.2014586 ) that Respondent No. 1 had
completed all works in the land handed over by Respondent No.
2 within 90 days from the Appointed Date, following which, as
per due process, it requested the I.E. to issue the PCC. This
was in accordance with Article 14.3587 of the Concession
Agreement.588 The I.E. recommended onwards that the PCC be
issued for a length of 80.561 km vide its letter No. ICT 654
TPV:2911 dated 13.03.2014 had recommended the issuance of
PCC to the Project Director of Respondent No. 2 for a length of
80.561 km. However, in a subsequent letter no. ICT:654 TPV:
4302 dated 17.04.2014, the I.E. informed the Concessionaire
that its recommendation for issuance of PCC was rejected by
Respondent No. 2 as the completed stretches of the Project
Highway (i.e., 80.561 km) was less than 75% of the Project
Highway. Upon a request for reconsideration by the
Concessionaire, it was invited by the NHAI vide letter dated
01.09.2014 to submit a proposal for issuance of PCC to the I.E.
for further action, which it duly did by letter dated 22.09.2014.
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251. Thereafter, the I.E., in its letter dated 07.11.2014 589 to the
Project Director of Respondent No. 2, categorically
recommending the issue of PCC for the completed stretches of
80.561 kms, highlighting that:
i. since the project began, there were problems in handing over
‘Right of Way’ and ‘Right to Access’ for highway construction;
ii. Respondent No. 1 had substantially completed the works in
the length of the hindrance free highway available to it;
iii. As per Article 14.2590 of the Concession Agreement,591 on
completion of the construction works and the I.E. determining
the Tests to be successful, the I.E. must issue a PCC. These
required tests had already been carried out in March 2014;
iv. Once a PCC is issued, it cannot be withheld, if reasons for
delay in completion of the whole Highway is attributable to
Respondent No. 2 for delay in handing over of land and State
Government Authorities for delay in shifting of utilities as per
Articles 10.3.5,592 14.3.1593 and 11.2594 of the Concession
Agreement;595
v. NHAI Circular No. NHAI/CMC/2010/Misc./13873 dated
07.09.2010596 permits issuance of PCC for completed stretches
in such situations; vi. Respondent No. 1 is entitled to receive
full Annuity Payment of Rs. 20.5 crore on completion of the
first six months after the date of issue of PCC since the delay in
completion of the Project within the Scheduled Two-Laning
Completion Date of 31.08.2013 was due to the delay in handing
over of encumbrance free and vacant access to the
Concessionaire.
252. The Tribunal notes that the response of Respondent No. 2,
to issue a cure period notice dated 10.06.2015 instead, in which
it blamed Respondent No. 1 for the delays, according to the
Claimant, was contradictory to the position taken by the I.E.
253. The Tribunal also notes that in the intervening period,
Respondent No. 1 had had to resort to seeking additional loans
and raising additional funds. However, according to the
Claimant, if Respondent No. 2 had approved the PCC upon the
recommendation of the I.E., the annuity payments would have
started flowing to Respondent No. 1, and it would not have had
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impediments.
254. The Tribunal notes that after an additional portion of the
works was completed, the I.E. wrote, in a letter of
30.09.2016,597 to the Chief General Manger cum RO of
Respondent No. 2, expressing its intention to issue a PCC for
the completed stretches. Respondent No. 2, in its letter dated
24.10.2016,598 also explicitly and clearly concurred with this
recommendation, stating as much in the said letter, after
recording that it had inspected the completed length of 90.671
km of the Project Highway, along with the I.E., the Project
Director and Respondent No. 1, and found it to be safe and
reliable for commercial operation. Respondent No. 2, besides
confirming its concurrence with I.E.’s recommendation to issue
the PCC, conveyed its authorization for the issuance as well, as
is clear from the language of the letter, which states that
“Undersigned therefore concurs with your recommendation for
issuance of PCC…. and accordingly authorization is hereby
conveyed for issue of Provisional Completion Certificate for
the completed length of 90.671 km.”
255. The Tribunal notes that thereafter, the I.E. issued the PCC
for the completed stretch of 90.671 Km by its letter
08.12.2016,599 but also required the Concessionaire to execute
a Supplementary Agreement before 25.12.2016, and completion
of balance works by 31.10.2017. However, before either of
these requirements could be fulfilled, the I.E. issued another
letter, on 17.12.2016,600 that the PCC is kept in abeyance until
“completion of Theni Bypass as agreed by the Concessionaire
in the draft Supplementary Agreement and signing of the
Supplementary Agreement as mentioned in paras 24 and 26
respectively of our aforesaid letter dated 08.12.2016.”
256. The Tribunal notes the Claimant’s position that this was
completely different from the I.E.’s previous letter dated
08.12.2016,601 in which it was stated that the Concessionaire
should complete either Periyakulam Bypass or Theni bypass
before the first Annuity payment becomes due. Had the terms of
the 08.12.2016 been followed, the first annuity payment would
have become on 08.05.2017 (i.e., 6 months after the issuance of
the PCC).”
(emphasis supplied)
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105. If the aforesaid paragraphs are read along with paragraphs 257 to 263
of the Award, it is clear that the PCC was issued, pursuant to a letter written
by the IE dated 30.09.2016 to the Chief General Manager (of the appellant)
expressing his intention to issue a PCC for the completed stretches. The
appellant in its letter dated 24.10.2016 concurred with the recommendation
in as much as the appellant in the said letter has stated that, it had inspected
the completed length of 90.671 KM of the project Highway along with the
IE, the project director and respondent no.1, wherein it is found to be safe
and feasible for commercial operation. The appellant confirming its
concurrence, authorised the IE to issue the PCC. So, it follows that the
conclusion drawn by the learned Tribunal as upheld by the learned Single
Judge is justified and needs no interference under section 37 of the Act.
106. The plea of Mr. Nandrajog that, it was a mistake on the part of the IE
to issue the PCC cannot be accepted in the facts which have been noted by
the learned Tribunal. The learned Single Judge has in paragraphs 54, 55, 56,
57, 59, 60,61 and 62 of the impugned judgment has held as under:
“54. On conjoint reading of Clauses 10.3.2, 10.3.4 and 10.3.5,
it was the sole responsibility of the Authority (in the present
case, the petitioner) to provide access and vacant land as per
the Appendix to the respondent No. 2 within the 90 days period
from the date of Appointed Date and if there was any delay in
providing the same, it was to attract damages payable to the
respondent No. 2 by the petitioner. Further, the construction
work on the land provided was to be completed within 90 days
and the issuance of PCC was not be delayed due to access
being not granted to any part of the site. It is necessary to
highlight the said clauses as in the present case as it is a case
where the project site was not fully handed over by the
petitioner to the respondent No. 2.
55. As per Clause 14.3.1 and 14.3.2, upon the request of the
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Concessionaire (in the present case, the respondent No. 2), the
IE may issue PCC subject to tests being successful and if the
Project Highway could be safely and reliably placed in
commercial operation. Further, the IE was not to withhold the
PCC if the work was incomplete due to delay attributable to the
petitioner. Also, PCC was only to be issued if the 75% of the
total length of the project highway was completed. Clause 14.5
states that if the IE determined that Project Highway was not in
conformity with the provisions of the Concession Agreement
and could not be safely placed in commercial operation, IE
should forthwith send a report to the petitioner and respondent
No. 2. If the petitioner was also of the same opinion, then the
petitioner could direct the IE to withhold the PCC.
56. The respondent No. 2, after completion of the construction
work within 90 days from the appointed date, issued a letter
dated 22.09.2014 to IE requesting grant of PCC. IE responded
to the said letter of the petitioner, vide letter dated 07.11.2014
by stating that respondent No. 2 had completed the work in the
length available and there were major problems at the
petitioner’s end in handing over the “Right of Way” and
“Right to access” for construction meaning thereby that the
respondent No. 2 was entitled to Annuity Payment as there was
delay in handing over of encumbrance free and vacant access
to the respondent No. 2 by the petitioner. Vide letter dated
17.04.2014, IE informed the respondent No. 2 that PCC request
has been rejected by the petitioner on the ground that 75% of
the Project Highway was not completed.
57. IE again wrote a letter dated 07.11.2014 to the petitioner
by reiterating the above grounds. In the meanwhile, the
petitioner issued Cure Period Notice on 10.06.2015. Again,
after the additional work was completed, IE vide letter dated
30.09.2016 expressed its intention to issue PCC. The petitioner
vide letter dated 24.10.2016 confirmed the request of the IE
after inspecting the 90.671 km of the Project Highway.
Thereafter, the IE vide letter dated 08.12.2016 issued PCC for
the completed stretch of 90.671 KM of the Project Highway and
further stated that the respondent No. 2 shall complete the
Periyakulam Bypass or Theni Bypass before the first annuity
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PCC) and the remaining bypasses before 31.10.2017 and to
execute SA.
xxxx xxxx xxxx xxxx
59. IE again issued a letter dated 17.12.2016 informing the
respondent No. 2 that PCC had been kept in abeyance by
stating that “until completion of the Theni Bypass as agreed by
the Concessionaire in the draft Supplementary Agreement and
signing of the Supplementary Agreement as mentioned in paras
24 and 26 respectively of our aforesaid letter dated
08.12.2016”.The operative part of letter dated 17.12.2016 is
extracted below:-
“Ref: ICT letter no.ICT:654:TPV:10532 dt. 08.12.2016
Dear Sir, In continuation to our letter no.10532 dated
08.12.2016, it is hereby notified that Provisional
Certificate dated 08.12.2016 enclosed herewith for the
above mentioned project is kept in abeyance, until
completion of the Theni Bypass as agreed by the
Concessionaire in the draft Supplementary Agreement
and signing of the Supplementary Agreement as
mentioned in paras 24 and 26 respectively of our
aforesaid letter dated 08.12.2016.”
60. To my mind, the letter dated 17.12.2016 is contrary to the
letter dated 08.12.2016 as the former is against the
deadlines/instructions provided in the latter.
61. A perusal of the letter dated 17.12.2016 show that the PCC
was kept in abeyance till Theni bypass is completed and the SA
is signed. However, the letter dated 08.12.2016, while issuing
PCC, the IE himself had granted time to complete the bypasses
and signing of the SA. Respondent No. 2 was not given time to
complete the requirements as mentioned in the letter of
08.12.2016. Further, clause 14.5 of Concession Agreement only
gives the liberty to withhold the PCC before it is issued by the
IE but does not give any liberty to withhold the PCC once it is
issued.
62. Keeping the PCC in abeyance by the IE vide letter dated
17.12.2016 was beyond the terms of the said clause i.e. 14.5.
The fact that the PCC was granted after the petitioner
confirmed its concurrence and recommended its authorization
then its issuance cannot be ignored. The Concession Agreement
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nowhere provides that the PCC once issued can be kept in
abeyance or withdrawn. The interpretation given by the learned
senior counsel for the petitioner that IE after realizing its
mistake, kept the PCC in abeyance as 75% of the total length of
the Project Highway was not completed is against the clause
quoted above which gives IE the only right to withhold the PCC
„before‟ it is issued but not once the PCC is issued.
Additionally, the PCC was issued after inspection by the IE and
approval by the petitioner. If the interpretation propounded by
the petitioner is accepted then the said clause will lead to
absurdity.”
(emphasis supplied)
107. At this stage, we may refer to the finding of the learned Tribunal in
paragraph 259 of the Award on the interpretation of Article 14.5 of the CA.
The paragraph 259 is already reproduced in paragraph 101 above.
108. The aforesaid conclusion of the learned Tribunal and the learned
Single Judge is justified and cannot be said to be perverse in law. It is a
plausible interpretation, which cannot be interfered with. Hence, this
submission of Mr. Nandrajog is liable to be rejected.
109. Insofar as the submission of Mr. Nandrajog that the learned Tribunal
has directed the deposit of Termination Payment is erroneous as according
to him, the Termination Payment under the CAs is not payable if termination
happens due to concessionaire’s default. He has heavily relied upon the
Article 37.3.1 of the CA(s) which stipulates that, concessionaire
acknowledges that no Termination Payment shall be due or payable on
account of a concessionaire default occurred prior to COD. He also
submitted that the COD is achieved upon issuance of Completion Certificate
/ PCC which is issued by the IE. Since the COD was not achieved as the
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PCC issued by IE was kept in abeyance, the Termination Payment is not
payable. He has also submitted that the Termination Payment becomes only
payable when the concessionaire raises the demand for the same. According
to him, only the parties to the contract can enforce their rights and liabilities
under such contract, as such, respondent no.1 is precluded from seeking
enforcement of CA(s)/ Termination Payment
110. According to the learned Tribunal, the PCC was validly issued on
08.12.2016. Therefore, COD was achieved on the date of issuance of PCC
as per Article 15 of the CA. In this regard, the learned Single Judge has in
paragraphs 73 to 84 of the impugned judgment has held as under:
“73. Clause 40 of the Concession Agreement reads as under:-
“40.3 Substitution Agreement
40.3.1 The Lenders’ Representative, on behalf of Senior
Lenders, may exercise the right to substitute the
Concessionaire pursuant to the agreement for
substitution of the Concessionaire(the “Substitution
Agreement”) to be entered into amongst the
Concessionaire, the Authority and the Lenders’
Representative, on behalf of Senior Lenders,
substantially in the form set forth in Schedule – V.”
74. A perusal of the said clause makes it evident that the parties
herein were obligated to enter into SA. Pursuant to the said
clause, the parties herein entered into the SA on 31.05.2013.
75. Clause 2 of the SA reads as under:-
“2. ASSIGNMENT
2.1 Assignment of rights and title The Concessionaire
hereby assigns the rights, title and interest in the
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Representative pursuant to and in accordance with the
provisions of this Agreement and the Concession
Agreement by way of security in respect of financing by
the Senior Lenders under the Financing Agreements.”
76. On perusal, it is clear that the Concessionaire has assigned
its rights, title and interest in favour of the Lenders
Representative, pursuant to execution of the SA, i.e. the
respondent No. 1. Furthermore, the respondent No. 2 under the
Concession Agreement has been described as
“Concessionaire” which includes its successors and permitted
assigns and substitutes. On conjoint reading, it is clear that
there is a conscious and deliberate intent on the part of the
contracting parties to transfer and assign all rights, title, and
interest held by the Concessionaire to the Lenders
Representative i.e. the respondent No. 1. Consequently, the
respondent No. 1 after execution of the SA, steps into the shoes
of the Concessionaire. Hence, the respondent No. 1 acting in
the capacity of the respondent No. 2 is entitled to make such
demands.
77. Assuming for the sake of argument that the Concessionaire
can only demand the Termination Payment, such a contention
completely ignores the plain language and “commercial
purpose” of the Agreements and if it is implemented, it will
render effective the carefully crafted substitution mechanism.
This interpretation would disregard the intent of the parties,
who clearly intended that the lender, upon substitution, would
possess all the rights necessary to recover its dues including
the Termination Payment.
78. In somewhat similar circumstances, a coordinate bench of
this Court in PNB II observed as under:-
“36. Besides, the debt had been extended, by the
lenders, led by PNB, to JST, for the project forming
subject matter of the Concession Agreement. Once the
Concession Agreement itself stood terminated, the
loaned amount was required to be returned. The
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disputes between NHAI and JST. It is for this reason
that the Concession Agreement, rightly, made deposit by
NHAI, into the Escrow Account, as well as the
withdrawal, thereby, by the lenders, the inevitable
sequitur to termination of the Concession Agreement.
The amounts claimed by NHAI from JST were subject
matter of the inter se dispute between NHAI and JST.
The right of NHAI to claim these amounts from JST
cannot be gainsaid. That, however, was rightly made
subject matter of a separate arbitral proceeding, which
is presently pending. Whatever be the outcome of the
arbitral proceeding, the fact that the Concession
Agreement stands terminated and that, thereby, NHAI
became liable to deposit, into the Escrow Account, at
least 90 of the Debt Due, is an undeniable, even if
uncomfortable (to NHAI), contractual reality. The
attempt of NHAI to “adjust”, from the said figure, the
amounts which, according to it, are liable to be paid by
JST, amounts to taking, from Peter, what is due from
Paul. NHAI and Paul may be at loggerheads in the first
arbitral proceeding; that cannot delegate from the right
of Peter, to the return of the debt extended by it.”
(Emphasis added)
79. The AT in paragraph 275 of the Arbitral Award in this
regard has observed as under:-
“275. Respondent No. 2 maintains that the demand for
Termination Payment should and could have been made
only by the Concessionaire in order for the Termination
Payment to become due and payable. However, this
argument, as discussed earlier, has no merits. The
Tribunal is of the view that the Concessionaire need not
request for the Termination Payment at all; making
such a request mandatory would nullify and effectively
defeat the entire purpose of the scheme laid out in
Article 37.3 of the Concession Agreement read with the
Escrow Agreement and the Substitution Agreement”
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80. Hence, the contention of the petitioner that the demand of
the Termination Payment can only be made by respondent No.
2 is rejected.
81. It is also argued that if the Concession Agreement is
terminated due to the defaults committed by the respondent No.
2 before achieving COD, the Termination Payment shall not be
due and payable.
82. Clause 37.3 of the Concession Agreement 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 the
discounted value of future Annuity payments, the
discounting factor applied being the then SBI PLR +
(plus) 3% less Insurance Cover; provided that if any
insurance claims forming part of the Insurance Cover
are not admitted and paid, then 80%(eight per cent) of
such unpaid claims shall be deducted from the
Termination Payment so assessed. 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 any Authority
Default, the Authority shall pay to the Concessionaire,
by way of Termination Payment, an amount equal to the
discounted value of future Annuity payments, the
discounting factor applied being the then SBI PLR –
(minus) 3%.
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
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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.”
83. On perusal, Clause 37.3.1 states that the if the Agreement is
terminated on account of the Concessionaire default during the
operation period then the Authority i.e. the petitioner would
pay as per the clause quoted above. Further, if the Agreement
terminated prior to COD on the Concessionaire default, no
amount shall be due or payable. Clause 37.3.2 and 37.3.3
states the formula to be applied for Termination Payment
alongwith the interest component.
84. I have already observed that the letter dated 17.12.2016 is
contrary to the letter dated 08.12.20216 and once PCC is
issued in terms of the Concession Agreement, the same cannot
be kept in abeyance and/or withdrawn. PCC was validly issued
on 08.12.2016. Therefore, COD was achieved on the date of
issuance of PCC as per Article 15 of the Concession Agreement
and the demand made by the respondent No. 1 for Termination
Payment was valid. Further the Concession Agreement was
terminated vide Termination Notice dated 22.05.2019 w.e.f.
09.04.2019. The argument of the petitioner that the Agreement
was terminated prior to COD is devoid of merit as PCC
(08.12.2016) was issued before the Termination Notice dated
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22.05.2019 w.e.f. 09.04.2019.”
(emphasis supplied)
111. Suffice to state that this plea of Mr. Nandrajog is also unmerited in
view of our conclusion on his previous submission, based on the
interpretation of Article 14.5 of the CA and the same has been rightly dealt
with by the learned Single Judge in paragraph 84 of the impugned judgment.
So, we find no reason to interfere with the conclusion drawn by the learned
Single Judge. Hence, the plea of Termination Payment not becoming due
and payable is not sustainable.
112. One of the pleas of Mr. Nandrajog is that the learned Tribunal has
erred in arriving at figures of Rs.229.50 and Rs.181.81 Crores as
Termination Payment is erroneous, as according to him, adjudication of
quantum of Termination Payment is beyond the scope of reference as there
is no provision in the EA or SA that enables the learned Tribunal to
calculate Termination Payment. To put it straight, he stated that Termination
Payment can only be calculated while entertaining disputes/claims arising
out of CA(s) which are/shall be subject matter of Arbitral proceedings
between the concessionaire and the appellant. We note the learned Single
Judge has decided identical plea by stating in paragraph 87 of the impugned
judgment, in the following manner: –
“87. I have already observed above that the Concession
Agreement forms part of the EA and SA. Hence, there is no
question that the AT exceeded its jurisdiction. Also, the
calculation of the Termination Payment is a question of fact not
a question of jurisdiction. The answer to the said contention i.e.
calculation of Termination Payment, clearly lies in Clause 37
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37.3.2 and 37.3.3. Further, the petitioner has not argued that
the amount of Rs. 229.50 crores suffer from any errors or that
extra amounts have been added instead of this, only a mere
averment has been made without any evidence. On perusing the
SOD filed by the petitioner, the calculation of Termination
Payment has not been disputed.”
(emphasis supplied)
113. We agree that the said conclusion drawn by the Learned Single
Judge, which is a factual finding. Hence, this plea of Mr. Nandrajog is also
liable to be rejected. We order so.
114. In so far as judgments relied upon by Mr. Nandrajog in the cases of
Associated Engineering Co. (supra), Rajasthan State Mine and Minerals
Ltd. (supra), Food Corporation of India (supra) & Indian Oil Corporation
Limited (supra) are concerned, they have no applicability to the facts of the
case, as the aspect of calculation of Termination Payment was never
disputed before the learned Tribunal. The learned Single Judge has reiterated
the finding of the learned Tribunal in paragraph 87 of the impugned
judgment, which we have reproduced above. Hence, the contention of the
appellant that the learned Tribunal exercised jurisdiction beyond the
provisions of the contract, is devoid of any merit.
115. In so far as judgments in the case of Visa International Ltd. (supra)
& Nandram Hanutram (supra) are concerned, Mr. Nandrajog submitted
that the application for arbitration can be made only when a dispute arises
between the parties to the arbitration agreement. It is the finding of the
learned Tribunal on facts that the arbitration has been invoked by the
respondent no.1 under EA & SA for the Termination Payment to be
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deposited in the Escrow Account. The submission that the dispute is
between the appellant and the concessionaire, and whether the
lender/respondent no.1 can step into the shoes of the concessionaire is
settled by the learned Single Judge in paragraph 76 of the impugned
judgment as reproduced by us in paragraph 110 and no interference is called
for. This answers the submission made by Mr. Nandrajog, as noted by us in
paragraph 52 above.
116. In so far as judgment in the case of Transstroy Tirupati Tiruthani
Chennai Tollways Pvt. Ltd. (supra) is concerned, the issue before the Court
was with regard to the Bank’s right to substitution upon the occurrence of
concessionaire’s default. The said judgment has no applicability to the facts
of this case and in view of our findings above.
117. In view of our above discussion, these appeals being devoid of
merits are dismissed. Pending applications are dismissed as infructuous.
V. KAMESWAR RAO, J
VINOD KUMAR, J
JULY 09, 2026
rt
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