Delhi High Court
Haryana State Industrial ... vs Idbi And Anr on 29 March, 2022
Author: Vibhu Bakhru
Bench: Vibhu Bakhru
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 29.03.2022
+ O.M.P. (COMM) No.441/2020 & IA No.6079/2020 & IA
No.6766/2020
HARYANA STATE INDUSTRIAL &
INFRASTRUCTURE DEVELOPMENT
CORPORATION LTD. ..... Petitioner
versus
IDBI BANK LIMITED AND ANR. ..... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr Sudhir Nandrajog, Senior Advocate with
Mr Anil Grover, Sr. Addl. Advocate General
for State of Haryana, Mr Parvinder Chauhan,
Advocate with Mr Nitin Jain, Advocates for
HSIIDC/Petitioner-Applicant.
For the Respondents : Mr Gopal Jain, Senior Advocate with Mr
Raunak Dhillon, Ms Madhavi Khanna, Ms
Isha Malik, Ms Niharika Shukla, Advocates
for IDBI Bank Ltd.
Mr Pallav Shishodia, Senior Advocate with
Mr Deepak Khurana, Mr Tejasv Anand,
Advocates for KMP Expressways Pvt. Ltd.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 1 of 43 Signing Date:30.03.2022 Introduction
1. Haryana State Industrial and Infrastructure Development Corporation Limited (hereafter 'HSIIDC') has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter the 'A&C Act') impugning an arbitral award dated 24.03.2020 (hereafter the 'impugned award') delivered by an Arbitral Tribunal comprising of two former Judges of the Supreme Court of India with a Former Chief Justice of India acting as a Presiding Arbitrator (hereafter the 'Arbitral Tribunal').
2. The impugned award was rendered in the context of claims made by respondent no.1 (hereafter 'IDBI') on its behalf as well as on behalf of the 'Senior Lenders', against HSIIDC. In this order, a reference to IDBI unless the context indicates otherwise, be construed as referring to the 'Senior Lenders' or to IDBI acting as the 'Lender's Representative'.
3. IDBI claimed that HSIIDC had breached its obligations under the tripartite Substitution Agreement dated 08.01.2007 (hereafter the 'Substitution Agreement') as HSIIDC had appointed Concessionaires after terminating the Concession in favour of respondent no.2 (hereafter 'KMPEL') to complete the development of the KMP Expressway, without safeguarding the dues of the Senior Lenders (represented by IDBI as the Lenders' Agent). The Arbitral Tribunal found in favour of IDBI and against HSIIDC and, awarded damages in favour of IDBI for a sum of ₹1737.11 crores along with future interest at the rate of 9% per annum from the date of the impugned award. The Arbitral Tribunal Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 2 of 43 Signing Date:30.03.2022 further found that HSIIDC would be entitled to reimbursement of the amount that IDBI would recover from KMPEL pursuant to the proceedings instituted before the Debts Recovery Tribunal. Further, IDBI would be liable to pay simple interest at the rate of 9% per annum on the recovered amount if the same is not paid to HSIIDC within one month from the date of recovery of such amount.
4. The Arbitral Tribunal had quantified the aforesaid damages equivalent to the amount due to IDBI from KMP against the loan disbursed by IDBI (representative of the Senior Lenders), for the development of the Kundli-Manesar-Palwal Expressway (hereafter the 'KMP Expressway').
5. HSIIDC contends that the impugned award is vitiated by patent illegality on the face of the award as HSIIDC had not incurred any liability towards IDBI. HSIIDC contends that it had entered into a Substitution Agreement only to secure Senior Lenders (represented by IDBI) in respect of financial assistance extended by the Senior Lenders to the Concessionaire (KMPEL) for development of the KMP Expressway. It is contended on behalf of HSIIDC that although IDBI has instituted proceedings against KMPEL under The Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Arbitral Tribunal has in effect directed HSIIDC to pay the debt due from KMPEL, which is ex-facie erroneous.
Factual Context Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 3 of 43 Signing Date:30.03.2022
6. The Government of Haryana had appointed HSIIDC as the Nodal Agency for Development of 135.650 km long KMP Expressway in the State of Haryana and its operation and maintenance, on a Build, Operate and Transfer basis (BOT basis).
7. HSIIDC had invited proposals for the development and operation of KMP Expressway on a BOT basis (hereafter the 'Project'). Pursuant to the said invitation, M/s Madhucon Projects Limited, M/s Apollo Enterprises Limited and M/s D.S. Constructions Limited had submitted their bid as a consortium with M/s Madhucon Projects Limited as the Consortium Leader. The said bid was accepted and, HSIIDC issued a Letter of Acceptance (hereafter the 'LOA') dated 14.11.2005 requiring execution of a Concession Agreement within a period of 45 days. The said period was subsequently extended. On 31.01.2006, KMPEL and HSIIDC entered into a Concession Agreement for the aforesaid Project (hereafter the 'Consortium Agreement'). The consortium promoted and incorporated KMPEL (respondent no.2) as a Special Purpose Vehicle for developing and operating the KMP Expressway under the Concession Agreement.
8. In terms of the Concession Agreement, KMPEL was required to make definite arrangements with 'Senior Lenders' by way of loans, guarantees, subscription to non-convertible debentures and other debt instruments for financing the development and operation of the KMP Expressway. KMPEL was required to furnish Financing Documents to secure funding from the Senior Lenders within a maximum period of 270 days from the date of the Concession Agreement (Financial Close).
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 4 of 43 Signing Date:30.03.2022In terms of the Concession Agreement, it was also agreed that HSIIDC, KMPEL and the Senior Lenders would enter into a Substitution Agreement in the format as set out under Schedule 'T' to the Concession Agreement.
9. It is stated in the petition that KMPEL failed to achieve the financial closure within the stipulated period of 270 days. However, the said parties entered into a Supplementary Agreement dated 13.09.2006, which was further amended by a Supplementary Concession Agreement dated 22.12.2006, to suitably extend the said period. On 08.01.2007, KMPEL entered into a Common Rupee Loan Agreement (hereafter the 'Loan Agreement') with the Senior Lenders. The project cost was fixed at ₹1915 crores, which was to be financed by equity capital of ₹766 crores and a rupee term loan of ₹1149 crores.
10. Pursuant thereto, the Senior Lenders disbursed an amount aggregating to ₹ 1075.03 crores for the Project. It is pertinent to note that on 31.05.2016, the principal outstanding amount due by KMPEL was ₹ 1027.87 crores and, the amount due by KMPEL inclusive of interest aggregated ₹ 1737.11 crores.
11. In terms of the Concession Agreement, HSIIDC, KMPEL and IDBI (as the Lenders Agent) entered into the Substitution Agreement dated 08.01.2007. In terms of Clause 35.3 of the Concession Agreement, the Senior Lenders had the right to step in and substitute the Concessionaire (KMPEL) in terms of the Substitution Agreement.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 5 of 43 Signing Date:30.03.202212. There was delay in execution of the Project and the Commercial Operation Date (COD) of 29.07.2009 as contemplated under the Concession Agreement was not achieved. The COD was agreed to be revised to 31.12.2010. However, the commercial operation of KMP Expressway could not be commenced by the said date.
13. In 2012, KMPEL approached the Senior Lenders and requested additional financial assistance due to delay in completion of the Project. There were cost over runs and the Senior Lenders had expressed their disinclination to fund the same. They had also expressed their apprehension regarding the credit worthiness of the members of the Consortium. However, based on the proposal submitted by KMPEL for restructuring the financial assistance, the Senior Lenders agreed to sanction an additional loan for an amount of ₹230 crores by its letter dated 23.03.2012 (hereafter the 'Loan Restructuring Agreement'). It was thereby agreed to revise the payment schedule and for the COD to be extended till 31.05.2012. However, the Loan Restructuring Agreement was not implemented as HSIIDC did not provide its approval regarding the same.
14. Since the repayment obligations in respect of the loans advanced to KMPEL for development of the Project were not complied with, on 13.08.2013, IDBI as the Lenders Agent issued a Notice of Occurrence of Default to KMPEL (hereafter the 'Notice of Default'). In terms of the Notice of Default, KMPEL was called upon to cure the defaults under the Loan Agreement within thirty days from the date of receipt of the same.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 6 of 43 Signing Date:30.03.202215. KMPEL disputed that it had committed any defaults and by its letters dated 17.09.2013 and 17.10.2013 requested the Senior Lenders to withdraw the said Notice of Default. However, IDBI by its letter dated 25.10.2013 informed KMPEL that the Senior Lenders had refused to accede to the request of KMPEL for withdrawal of the Notice of Default.
16. On 13.01.2014, IDBI issued a Substitution Notice under Article 2.2(c) of the Substitution Agreement and Articles 10.4.7 and 10.4.11(iv) of the Loan Agreement, indicating its intention to substitute KMPEL as the Concessionaire by another Selectee for completion of the Project.
17. However, IDBI (as the Lender's Agent), HSIIDC, KMPEL and the State Bank of India (SBI), in its meeting with the Environment Protection Control Authority (hereafter 'EPCA') held on 15.02.2014, agreed for 'amicable substitution' of KMPEL as the Concessionaire to expedite the process of construction of the Project.
18. On 05.08.2014, HSIIDC in its letter addressed to the chairperson of the EPCA communicated its intention to terminate the Concession Agreement by mutual consent of both parties and fixed a termination payment amounting to ₹1300 crores. HSIIDC requested the chairperson of the EPCA to select a new company as the Concessionaire for the Project, as decided in the meeting held on 15.02.2014.
19. However, on 28.01.2015, HSIIDC sent a letter addressed to the chairperson of EPCA, withdrawing its approval to the termination payment amounting to ₹1300 crores. On the same date, HSIIDC issued Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 7 of 43 Signing Date:30.03.2022 a notice to KMPEL under Article 32.2 of the Concession Agreement whereby it communicated its intention to terminate the Concession Agreement if KMPEL failed to cure the defaults within a period of one month from the date of receipt of the said notice.
20. The same was placed before the Supreme Court of India and the Supreme Court of India by its order dated 30.01.2015 directed that "the State of Haryana will ensure that appropriate steps would be taken to award the contract for the project to the new concessionaire within two months' time from today. The new concessionaire shall commence the work within a month's time thereafter. For no reason, we would extend the time limit that we have fixed today."
21. In light of the aforesaid order passed by the Supreme Court of India, IDBI sent a letter dated 16.02.2015 informing HSIIDC that it intended to assist and cooperate with HSIIDC for appointment of a new Concessionaire. IDBI further clarified that the order dated 30.01.2015 passed by the Supreme Court of India does not in any manner interfere with the existing rights of the Senior Lenders under the Concession Agreement and the Substitution Agreement.
22. Whilst, HSIIDC did not respond to the aforesaid letter, it nevertheless floated a tender on 20.02.2015 inviting bids for the Manesar-Palwal stretch (52.33 KM) of the Project. In this regard, IDBI addressed a letter dated 25.02.2015 to HSIIDC seeking its confirmation that in the tender floated on 20.02.2015, it stipulated a condition for the new Concessionaire to take over the loan owed to the Senior Lenders.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 8 of 43 Signing Date:30.03.202223. Since, the concerns of the Senior Lenders remain unaddressed, IDBI along with SBI approached the Supreme Court of India by filing an interlocutory application (being I.A. No. 363 of 2015 in W.P. (C) No. 13029 of 1985) to bring to the notice of the court, the loan amount owed by KMPEL and its substitution rights under the Substitution Agreement.
24. In the meanwhile, IDBI, as the Lender's Agent informed HSIIDC on 27.02.2015 that it had approached the Supreme Court of India and further reiterated its earlier letters dated 16.02.2015 and 25.02.2015 to amend the tender documents to include the take over of the loan amount amounting to ₹1419.15 crores as on 28.02.2015.
25. HSIIDC by its letter dated 19.03.2015 terminated the Concession Agreement under Article 32.2 of the Concession Agreement as KMPEL had failed to cure the breach within the one-month cure period granted to it by its earlier letter dated 28.01.2015. On the same date, HSIIDC addressed another letter to IDBI stating that no active steps were taken by IDBI to effectively substitute KMPEL as the Concessionaire despite issuing a substitution notice on 13.01.2014 and in respect of its proposal for termination payment of ₹1300 crores to be paid by the new selected concessionaire. IDBI responded by a letter dated 16.04.2015 denying the allegations raised by HSIIDC.
26. HSIIDC proceeded to accept the bid of one M/s KCC Buildcon Private Limited (hereafter 'KCC') and M/s Dilip Buildcon Pvt. Ltd. for execution and development of 52.33 KM Manesar-Palwal stretch on Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 9 of 43 Signing Date:30.03.2022 'item rate mode'. The appointment of KCC was objected by the Senior Lenders by their letter dated 28.04.2015 as was contrary to Article 3.5(i) of the Substitution Agreement.
27. On 28.04.2015, IDBI issued a letter to HSIIDC stating that it had exercised it substitution right under the Substitution Agreement by its earlier letters dated 16.02.2015 and 25.02.2015 whereby it notified HSIIDC that its nominee shall be the 'Selectee' of the Senior Lenders. HSIIDC was further informed that any new Concessionaire was required to take over all obligations as owed to the Senior Lenders under the Substitution Agreement. This was followed by another letter dated 02.05.2015.
28. On 10.06.2015, HSIIDC in its reply to IDBI's earlier letter dated 28.04.2015 alleged that IDBI had failed to act in accordance with the procedure as stipulated under the Substitution Agreement and had also failed to exercise its rights. IDBI denied the allegations of HSIIDC by its letter dated 09.07.2015.
29. On 31.07.2015, HSIIDC also awarded a contract to M/s Essel Infra Project Limited for 83.3 KM of the Manesar-Kundli section of the KMP Expressway.
30. The Senior Lenders filed a case before the Hon'ble Debts Recovery Tribunal-II, Delhi (being Original Application No. 540 of 2015 - IDBI Bank Limited and Others v. M/s KMP Expressways Limited and Others) for recovery of debts due to the Senior Lenders.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 10 of 43 Signing Date:30.03.202231. Subsequently, the Senior Lenders filed an interlocutory application (being I.A. No. 364 of 2015) before the Supreme Court setting out the developments in the matter and for further directions. The said application was disposed of by the Supreme Court by an order dated 13.05.2016 whereby all disputes between the Senior Lenders, KMPEL and HSIIDC were referred to the Arbitral Tribunal.
32. IDBI filed its Statement of Claims on 04.07.2016 and sought damages amounting to ₹ 1737.11 crores from HSIIDC due to breach of the Substitution Agreement. The damages were computed on the basis of the principal outstanding along with interest, penal interest and other charges/expenses, which were outstanding.
33. HSIIDC filed its Statement of Defence disputing IDBI's claims. HSIIDC also filed its Counter-claims which are tabulated below:
Counter-Claim 1 Claim for damages arising due to non- ₹5024.504 crores substitution of defaulting concessionaire leading to increased cost of completion along with pre-suit, pendent-lite and future interest at 18% per annum.
Counter-Claim 2 Claim from the lender on account of ₹112.38 crores their failure to reimburse the lender along with interest at 13% per annum from 31.07.2016 till date of payment Counter-Claim 3 Claim for Damages/Loss suffered:
− Extra Cost incurred by Delhi ₹288.56 crores roads to withstand the commercial vehicles loads which travel due to delay in Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 11 of 43 Signing Date:30.03.2022 commissioning of KMP Expressway − Loss due to interest of ₹913.44 crores acquisition of land for Expressway − Loss due to non-development ₹596.99 crores of planned hubs along KMP Expressway − Accident costs on Delhi roads ₹314.55 crores due to Expressway traffic being forced to use Delhi roads − Loss due to delays suffered by ₹717.07 crores passengers − Loss due to delays suffered by goods in transit ₹27.24 crores − Loss due to higher Vehicle Operating Costs ₹201.38 crores − Loss due to pollution on Delhi ₹121.59 crores Roads Total: ₹3180.82 crores
34. HSIIDC also filed additional Counter-claims claiming damages from KMPEL.
35. The Arbitral Tribunal rendered the impugned award on 24.03.2020. The Arbitral Tribunal held that HSIIDC is liable to pay IDBI compensation amounting to ₹1737.11 crores in four equal installments of ₹434.2775 crores. The Arbitral Tribunal awarded interest at the rate of 9% per annum, on the entire awarded amount in Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 12 of 43 Signing Date:30.03.2022 the event HSIIDC failed to timely make payment of the instalments. The Arbitral Tribunal further directed that HSIIDC shall be entitled to reimbursement of the amount that IDBI would recover from KMPEL pursuant to the proceedings instituted before the Debts Recovery Tribunal and, IDBI would be liable to pay simple interest at the rate of 9% per annum on the recovered amount if the same is not paid to HSIIDC within one month from the date of recovery of such amount.
Submission of Counsel
36. Mr Nandrajog, learned senior counsel appearing for HSIIDC assailed the impugned award on, essentially, three fronts.
37. First, he contended that the finding of the Arbitral Tribunal that HSIIDC had breached the terms of the Substitution Agreement, is ex facie erroneous and vitiates the impugned award on the ground of patent illegality. He submitted that the Substitution Agreement conferred rights on IDBI, as a Lenders Agent, to substitute the Concessionaire. He submitted that in the facts of the present case IDBI had sent a letter dated 25.02.2015 accepting the new Concessionaire as its 'Selectee' and therefore, there was no question of HSIIDC breaching any obligations under the Substitution Agreement. It was IDBI's responsibility to negotiate terms with the new Concessionaire as its Selectee and HSIIDC could not be faulted for the same.
38. Second, he submitted that even if it is assumed that HSIIDC had breached the terms of the Substitution Agreement, the damages as awarded are patently erroneous. He submitted that the Arbitral Tribunal Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 13 of 43 Signing Date:30.03.2022 has awarded the entire amount claimed by IDBI as payable from KMPEL notwithstanding that IDBI had instituted proceedings before the Debt Recovery Tribunal (DRT) for recovery of the aforesaid amounts. IDBI had also secured repayment of the said amount by guarantees from the members of the Consortium that had originally bid for the Project. He stated that a breach of the Substitution Agreement had not resulted in any loss caused to IDBI as, IDBI was entitled to recover the dues from its debtor as well as sureties.
39. Third, he submitted that at best, HSIIDC may be held liable for the amount which IDBI could not recover in the DRT proceedings. He pointed out that it was IDBI's case - which was accepted by the Arbitral Tribunal - that the Substitution Agreement was entered into, to provide a security to the Senior Lenders (represented by IDBI) and the only loss that could be claimed by IDBI was a value of impairment of that security. Thus, under no circumstances could HSIIDC be held responsible for the entire dues owed by KMPEL.
40. Mr Gopal Jain, learned senior counsel appearing for IDBI proceeded to read the impugned award in extenso and submitted that the Arbitral Tribunal's view is a plausible one. He stated that the challenge laid by HSIIDC against the impugned award does not fall within the limited scope of Section 34 of the A&C Act. He submitted that the contentions advanced by Mr Nandrajog were similar to the contentions advanced before the Arbitral Tribunal and, the Arbitral Tribunal had considered and decided the same.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 14 of 43 Signing Date:30.03.202241. Mr Pallav Shishodia learned senior counsel appearing for KMPEL stated at the outset that KMPEL supports the award in favour of IDBI. He submitted that it was IDBI's stand that it was not entitled to recover any amount over and above its dues. Since the same were awarded in its favour and against HSIIDC, KMPEL was discharged of any liability towards IDBI. He stated that KMPEL had also filed an application under Section 34 of the A&C Act impugning the award [OMP(Comm) 35/2021]. However, its challenge was limited to the decision of the Arbitral Tribunal to not award cost in favour of KMPEL and to seek a further clarification that nothing stated in the operative part of the impugned award would prejudice KMPEL in other proceedings.
Reasons and Conclusion
42. The principal dispute before the Arbitral Tribunal was whether HSIIDC had breached the terms of the Substitution Agreement and if so, whether HSIIDC was liable to pay damages for the same as claimed.
43. On the basis of the pleadings filed by the parties before the Arbitral Tribunal, the Arbitral Tribunal had framed the following issues for consideration:
(1) "Whether HSIIDC has committed a breach of the tripartite Submission Agreement dated January 8, 2007?
(2) If the above issue is decided in favour of the Claimant, whether HSIIDC is liable to pay damages and if so, to what extent?Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 15 of 43 Signing Date:30.03.2022
(3) In case above issue is decided in favour of the Claimant, whether it is entitled to claim interest and, if so, at what rate and from which date?
(4) Whether the termination payment of Rs. 1,300 crores under the tripartite Substitution Agreement dated January 8, 2007 amounts to admission of liability on the part of HSIIDC and, if so, to what effect?
(5) Whether the statement of claim is not maintainable in view of Clause 3.5(ii) and other provisions of the tripartite substitution agreement dated January 8, 2007?
(6) Whether the claim petition is not maintainable in view of the Claimant having filed a petition for recovery of its dues from KMPEL before the Debt Recovery Tribunal? (7) Whether HSIIDC is entitled to the Counter-claims made by it and, if so, to what extent and whether it is entitled to any interest on the amounts claimed?
(8) Relief."
44. The Arbitral Tribunal rejected the counter-claims made by HSIIDC. It is material to note that Mr Nandrajog had not advanced any contention to assail the decision of the Arbitral Tribunal to do so. Thus, the counter-claims raised by HSIIDC are not relevant for the purposes of the present petition.
Breach of the Substitution Agreement
45. The question whether HSIIDC had committed a breach of the Substitution Agreement was required to be addressed with reference to the terms of the relevant agreements. As noted above, HSIIDC had invited bids for development and operation of the KMP Expressway on a BOT basis. The Concessionaire was required to construct the KMP Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 16 of 43 Signing Date:30.03.2022 Expressway within a period of three years (the Construction Period) and thereafter, maintain and operate the KMP Expressway for the remaining concession period of twenty years and six months.
46. The Concession Agreement contemplated that the entire project cost would be funded by equity as well as from borrowings. KMPEL was enabled to avail financial assistance including by way of loans and guarantees from 'Senior Lenders' for the construction of the KMP Expressway. KMPEL and the 'Senior Lenders' would execute documents for the aforesaid purpose, which were defined as 'Financing Documents'. In terms of the Concession Agreement, it was agreed that HSIIDC and the Concessionaire (KMPEL) would enter into a Tripartite Agreement (Substitution Agreement) with the Senior Lenders in the format as set out in Schedule 'T' to the Concession Agreement for the purposes of substituting the Concessionaire by any other person in accordance, with the Concession Agreement as well as the Substitution Agreement.
47. The term 'Substitution Agreement' was defined under the Concession Agreement as under:
"Substitution Agreement" means the agreement referred to in article XXXV and to be entered among the Concessionaire, HSIDC and the Senior lenders in the form set forth in Schedule T ("Substitution Agreement") providing, inter alia, for the substitution of the Concessionaire by any other person subject to and in accordance with the provisions of this Agreement and the Substitution Agreement;Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 17 of 43 Signing Date:30.03.2022
48. Clause 35 of the Concession Agreement contemplated that the Senior Lenders may exercise their rights to step in and replace the Concessionaire as provided under the Substitution Agreement. The person so appointed (New Concessionaire) would be responsible for all obligations of the Concessionaire under the Concession Agreement. Clause 35.3 of the Concession Agreement is relevant and set out below:
"35.3 Senior Lenders may exercise the rights of step-in or substitution as provided in the Substitution Agreement to be entered into among the Concessionaire, HSIDC and Senior Lenders in the form set forth in Schedule T ("Substitution Agreement") provided that the person substituting the Concessionaire shall be deemed to be the Concessionaire under this Agreement and shall enjoy all rights and be responsible for all obligations under this Agreement as if it were the Concessionaire. Provided, however, that in the event of such step-in or substitution, an additional Cure Period of 90 (ninety) days shall be provided by HSIDC to enable the Concessionaire to cure any breach or default subsisting on the day of such step- in or substitution. Provided further that if the Senior Lenders step in to operate and manage the Concession for a period not exceeding 90 (ninety) days, their liabilities shall be restricted to the obligations relating to and arising during such 90 (ninety) days period."
49. The Concession Agreement also contemplated that the parties thereto (KMP and HSIIDC) would enter into an Escrow Agreement (substantially in the form as set forth in Schedule Q to the Concession Agreement) to open an Escrow Account "in which all inflows and Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 18 of 43 Signing Date:30.03.2022 outflows of cash on account of capital and revenue receipts and expenditures shall be credited and debited".
50. Clause 25.2 and Clause 25.3 of the Concession Agreement provide for a waterfall mechanism for disbursement from the Escrow Accounts. The funds credited to the Escrow Account during the term of the Concession Agreement were required to be disbursed in the order of preference as set out in Clause 25.2. Clause 25.3 provides for the order in which the amounts credited to the Escrow Account would be disbursed in the event of termination of the Concession Agreement.
51. Clauses 25.2 and 25.3 of the Concession Agreement are set out below:
"25.2 Disbursements from Escrow Account 25.2.1. The Concessionaire shall give, at the time of the opening of the Escrow Account, irrevocable instructions by way of an Escrow Agreement substantially in form set forth in Schedule '0' ("Escrow Agreement") to the Escrow Bank instructing, inter alia, that the deposits into the Escrow Account shall subject to clause 25.2.3, be appropriated in the following order every month and if not due in a month then appropriated proportionately, in such month and retained in the Escrow Account and paid out therefrom in the month when due unless otherwise expressly provided in the instruction letter:
a) All taxes due and payable by the Concessionaire;
b) All expenses in connection with and relevant to the Construction of KMP Expressway by way of Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 19 of 43 Signing Date:30.03.2022 payment to the EPC Contractor and such other persons as may be specified in the Financing Documents;
c) O&M Expenses including Toll collection expenses Incurred by the Concessionaire directly or through O&M Contractor and/or Tolling Contractor, if any, subject to the items and ceiling in respect thereof as set forth In the Financing Documents but not exceeding 1/12 (one twelfth) of the annual liability on this account;
d) The whole or part of the expense on repair work or O&M Expense including Toll collection expenses incurred by HSIDC on account of exercise of any of its rights under this Agreement provided HSIDC certifies to the Escrow Bank that HSIDC had incurred such expenses in accordance with the provisions of this Agreement;
e) All Concession Toll due to HSIDC from the Concessionaire under this Agreement;
f) Monthly proportionate provision of Debt Service Payments due in an Accounting Year and payment of Debt Service Payments in the month when due;
g) Any payments and Damages due and payable by the Concessionaire to HSIDC pursuant to this Agreement, including repayment of Revenue Shortfall Loans; and
h) Balance in accordance with the instructions of the Concessionaire.
25.2.2 The Concessionaire shall not in any manner modify the order of payment specified in this clause 25.2 except with the prior written approval of HSIDC.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 20 of 43 Signing Date:30.03.202225.3 Notwithstanding anything to the contrary contained in the Escrow Agreement and subject to the provisions contained in clauses 33.5 and article XXXIV, upon Termination of this Agreement, all amounts standing to the credit of the Project Escrow Account shall be appropriated and dealt with in the following order:
a) all Taxes due and payable by the Concessionaire;
b) all Concession Toll due and payable to HSIDC under this Agreement;
c) all accrued Debt Service Payment;
d) any payments and Damages due and payable by the Concessionaire to HSIDC pursuant to this Agreement, including Termination claims and repayment of Revenue Shortfall Loans;
e) all accrued O&M Expenses;
f) any other payments required to be made under this Agreement; and
g) balance, if any, on the instructions of the Concessionaire."
52. As apparent from the above, all funds to defray the project cost were required to be routed through the Escrow Account. It was also contemplated that part of the revenues generated from the operation of the KMP Expressway would be utilized to service the loans availed for the purposes of construction of the KMP Expressway.
53. The parties had agreed to enter into the Substitution Agreement with a view to secure financing for the project. In the event of the Concessionaire defaulting in its payment obligations, the Senior Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 21 of 43 Signing Date:30.03.2022 Lenders had the option to substitute the Concessionaire by their 'Selectee' on the terms of conditions mentioned therein.
54. Clause 2.1 of the Substitution Agreement is relevant and is set out below:
"2.1 HSHDC hereby irrevocably agrees to substitute the Concessionaire by a Selectee (selected by the Senior Lenders in accordance with the provisions of this Agreement and approved by· HSIIDC) by an amendment of the Concession Agreement or by execution of a fresh Concession Agreement in favour of the Selectee for the purpose of securing the payments of the Lenders Dues, provided that nothing contained herein shall entitle the Senior Lenders to operate the Concession themselves as a Concessionaire under and in accordance with Concessionaire Agreement either individually or collectively."
55. Clause 2.2 of the Substitution Agreement provides that in the Event of Default, the Lenders Agent would issue a Notice of Default requiring the Concessionaire to cure the default within a period of thirty days. A copy of the said Notice of Default is required to be sent to HSIIDC simultaneously. It was agreed that the Notice of Default will certify (i) the occurrence of the default; and, (ii) the lenders dues. It was further agreed that "(the "Lenders Certificate") shall be conclusive evidence of occurrence of such Event of Default and of such Lenders Dues. Such Lenders Certificate shall be final, conclusive and binding upon the Concessionaire for the purposes of this Agreement and the Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 22 of 43 Signing Date:30.03.2022 Financing Documents." Sub-clauses (c) and (d) to Clause 2.2 are material and are set out below:
"(c) HSIIDC and the Concessionaire hereby irrevocably agree that fire Lenders' Agent may within 30 (thirty) days of the date of delivery of the Notice of Default of the Concessionaire and without prejudice to any other right or remedy available to the Senior Lenders under the Financing Documents, notify HSIIDC and the Concessionaire on behalf of all the Senior Lenders about the Senior Lenders decision to invite, negotiate and procure offers, either through private negotiations or public auction process of tendering for the residual period of the Concession and the rights and obligations of the concessionaire under the Concession Agreement, by a Selectee, subject to the approval of such Selectee by HSIIDC (the "Substitution Notice").
(d) Upon assumption by the Selectee of liability and obligations of the Concessionaire under the Financing Documents and the Concession Agreement including obligation to pay any sums then due and payable to HSIIDC under the Concession Agreement, HSIIDC shall grant the Concession to the Selectee on the same terms and conditions for the residual period of the original Concession, by amendment of Concession Agreement or, if required by the Lenders' Agent by a separate agreement with the Selectee."
56. Article 3 of the Substitution Agreement provides for the modality for substitution. The parties had agreed that HSIIDC would on satisfaction of the eligibility of the Selectee, proceed to substitute the Concessionaire by the Selectee by an amendment. It was also agreed that HSIIDC would have the right to object to the substitution.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 23 of 43 Signing Date:30.03.2022However, the said objection was required to be reasoned and to be made after hearing the Lender's Agent. Clause 3.4 of the Substitution Agreement also contemplated an eventuality of no suitable Selectee being found. In such circumstances, HSIIDC was obliged to advice the Lenders Agent of all steps that it proposed to take under the Concession Agreement and for determination of the Termination Payment and, thereafter, its remittance in the Escrow Account.
57. Clauses 3.5 and 3.6 of the Substitution Agreement are relevant and are set out below:
"3.5 (i) If HSIIDC decides to substitute the Concessionaire by any other person ("HSIIDC Nominee"), it shall take into account the Senior Lender's Dues while considering offers from such persons and shall include a suitable condition as agreed to by the Lenders' Agent on behalf of the Senior Lenders for payment or take over of such dues by such HSIIDC Nominee shall similarly be bound to execute a supplementary/ fresh substitution agreement on the same terms and conditions as provided herein; and
(ii) Notwithstanding anything contained in Clause 3.4 and this Clause 3.5, HSIIDC shall not be required to take over, upon Termination of the Concession Agreement including the Concession, the liabilities representing the Lender's Dues save and except to the extent of Termination Payments due and payable upon such Termination under the Concession Agreement. In such an event HSIIDC's obligation shall be limited to assumption of such liabilities and payments of dues as HSIIDC has agreed to bear under the Concession Agreement.
3.6 Nothing contained in these presents shall mean or be interpreted as provision of any guarantee or surety by HSIIDC and it is expressly agreed that HSIIDC has not Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 24 of 43 Signing Date:30.03.2022 provided any surety, guarantee or counter guarantee whether directly or indirectly for the recovery of amount of Financial Assistance advanced by the Senior Lenders to the Concessionaire."
58. Undeniably, in the event of any breach on the part of the Concessionaire, HSIIDC was entitled to terminate the Concession Agreement. However, in terms of Article 5 of the Substitution Agreement, HSIIDC was required to inform the Senior Lenders of the said decision in advance. Clauses 5.1 and 5.2 of the Substitution Agreement read as under:
"5.1 If under the Concession Agreement an event occurs which shall entitle HSIIDC to terminate the Concession Agreement, HSIIDC shall intimate the Senior Lenders prior to exercising of its decision to the Concession and advise the Senior Lenders to ensure the cure of the event which otherwise can result in termination of the Concession and the Concession Agreement. Such a notice shall entitle the Senior Lenders to cure any financial or other default of the Concessionaire within a period of two months from the date of the notice received from the HSIIDC failing which HSIIDC without any further notice to either the Concessionaire or the Lenders' Agent/ Senior Lenders, shall be entitled to terminate the Concession Agreement.
5.2 Upon receipt of the Notice as referred to in Clause 5.1, intimating occurrence of an event which can entail Termination or the Concession Agreement including the Concession, the Senior Lenders shall be entitled to consider such notice as an Event of Default and may initiate steps to invite, negotiate and procure offers for the substitution of the Concessionaire by a Selectee in accordance with the procedure set forth in this Agreement."Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 25 of 43 Signing Date:30.03.2022
59. The Arbitral Tribunal examined the relevant provisions of the agreement and concluded that the Substitution Agreement was aimed at protecting the Senior Lenders, in the event of the Concessionaire being replaced. The relevant provisions of the Substitution Agreement would get attracted in regard to any substitution.
60. The Arbitral Tribunal noted that on 13.08.2013, IDBI had in its capacity as a Lenders Agent issued a Notice of Default and had called upon KMPEL to cure the defects within a period of thirty days from the date of receipt of the notice. KMPEL had not cured the defaults as mentioned in the said notice. Consequently, on 13.01.2014, IDBI issued a Notice of Substitution and the Arbitral Tribunal found that IDBI had taken effective steps for substitution. However, immediately thereafter, a meeting was held before the EPCA (Environment Protection Control Authority) where KMPEL had submitted a proposal for its amicable substitution and IDBI had agreed in principle for such resolution. On 15.03.2014, the Supreme Court passed an order permitting EPCA to proceed with the suggested proposal of replacing KMPEL with a credible new Concessionaire through a transparent process. Thereafter, the parties had exchanged certain emails. The Arbitral Tribunal found that HSIIDC was also informed that an Expression of Interest had been received from eight entities for completion of the balance works. Thereafter, on 23.06.2014, IDBI sent draft of a standstill agreement to HSIIDC.
61. The Arbitral Tribunal found that while the process for substitution was underway, HSIIDC sent a letter dated 05.08.2014 Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 26 of 43 Signing Date:30.03.2022 conveying its decision to terminate the Concession Agreement by mutual consent and grant of concession to a new entity as per the Lenders proposal submitted at the meeting held on 15.02.2014 and fixed the amount of ₹1300 crores towards consideration of work done.
62. On 25.08.2014, IDBI had conveyed that the Senior Lenders were in principle agreeable to fix the value of the 'completed work consideration' at ₹1300 crores. However, the same was subject to a formal approval by the Senior Lenders.
63. The Arbitral Tribunal found that thereafter, HSIIDC had changed its stand and desired a relook at the settlement amount fixed at ₹1300 crores. On 07.01.2015, an affidavit was filed on behalf of the Government of Haryana and HSIIDC before the Hon'ble Supreme Court, seeking a period of three months to complete the process of reassessment of the settlement amount of ₹1300 crores and to handover the project to the Ministry of Road Transport and Highways (MoRTH) if the same was agreeable to MoRTH. Immediately thereafter, on 28.01.2015, HSIIDC issued a Notice to Cure to KMPEL in terms of Clause 32.2 of the Concession Agreement. The said notice highlighted the Events of Defaults allegedly committed by KMPEL. A copy of the said Notice of Default was also sent to IDBI (in its capacity as the Lenders Agent) informing it to treat the same as intimation under Clause 5.1 of the Substitution Agreement.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 27 of 43 Signing Date:30.03.202264. HSIIDC, thereafter, filed an affidavit before the Supreme Court, inter alia, stating that the State Government of Haryana was not agreeable to the figure of ₹1300 crores as "work done consideration".
65. On 30.01.2015, the Supreme Court passed an order directing the State Government of Haryana to ensure that appropriate steps are taken for award of the Project to another Concessionaire within a period of two months. On 11.02.2015, a meeting was held between HSIIDC and the Senior Lenders. The minutes of the meeting indicate that it was discussed that the Senior Lenders could also bring a Concessionaire on their own within the timelines as stipulated by the Supreme Court. However, the Arbitral Tribunal found that even prior to delivering the copy of the minutes of the said meeting, HSIIDC had issued a Notice Inviting Tender dated 20.02.2015 for construction of the balance works of the project on a BOT basis on zero grant basis.
66. In the meanwhile, on receiving a copy of the Notice to Cure dated 28.01.2015, IDBI sent a letter dated 16.02.2015 expressing its intention to "assist, support, collaborate and cooperate" with HSIIDC in its endeavors for an expeditious completion of the Project. However, it also expressed its concerns regarding servicing of the loans and further, put HSIIDC to notice that it would be responsible to ensure that the loans provided by the Senior Lenders for completion of the Project are assumed by the new Concessionaire to the satisfaction of the Senior Lenders.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 28 of 43 Signing Date:30.03.202267. On 25.02.2015, IDBI sent a letter expressing concerns of the Senior Lenders regarding the issuance of the Invitation to Tender and alleged that, HSIIDC had failed in its obligations under the Substitution Agreement by not stipulating that the new Concessionaires are required to take over the debts owed to the Senior Lenders. Thereafter, by a letter dated 27.02.2015, IDBI called upon HSIIDC to issue a corrigendum regarding the Invitation to Tender. HSIIDC sent a letter dated 19.03.2015 in response to various communications sent by IDBI, inter alia stating that, in view of the stringent timeline fixed by the Supreme Court, it could not consider the claims of the Senior Lenders. It also denied that it had any contractual obligations towards the Senior Lenders as it had already issued a Cure Notice prior to resorting to termination of the Concession Agreement. On the same date, that is, on 19.03.2015, HSIIDC also issued a letter to KMPEL terminating the Concession Agreement in terms of Clause 32.2 of the said Agreement.
68. Immediately thereafter, HSIIDC issued a letter to M/s KCC Buildcon Pvt. Ltd. (KCC) and M/s Dilip Buildcon Pvt. Ltd. accepting their bids for the Manesar - Palwal section of the Expressway (Six Lane Expressway of a length of 53.3 kms). Thereafter, on 31.07.2015, HSIIDC awarded the contract for Manesar-Kundli section (83.3 kms) of the KMP Expressway to M/s Essel Infra Project Limited.
69. There was no stipulation in the contracts awarded with the new contractors/concessionaires regarding discharge of any loan or debt due to the Senior Lenders.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 29 of 43 Signing Date:30.03.202270. The toll collection on the Manesar-Palwal Section of the KMP Expressway commenced on 15.07.2016 and on the Manesar-Kundli Section of the KMP Expressway from 12.12.2018.
71. It is apparent from the above that, there was no mechanism of repayment of the dues of IDBI from collection of toll, which was one of the fundamental premises on which the Senior Lenders had agreed to finance the construction of the KMP Expressway. After evaluating the evidence and material on record, the Arbitral Tribunal concluded as under:
"178. Once the Respondent No.1 issued a notice on 28.01.2015 to the Respondent No.2 expressing its intention to terminate the Concession Agreement and a copy of the said notice was endorsed to the Claimant, the process of substitution of the Concessionaire got triggered under the Substitution Agreement. This was done by the Respondent No.1 before the Supreme Court passed the order on 30.01.2015. It, thus, becomes clear that the Respondent No.1 took decision to substitute the Respondent No.2 before the order was passed by the Hon'ble Supreme Court on 30. 01.2015. It is true that the Hon'ble Supreme Court fixed the timelines in its order of 30.01.2015 for award of contract for completion of balance work of the Project to the new concessionaire but while giving this order, the Hon'ble Supreme Court had not changed the procedure contemplated in the Substitution Agreement. However, while issuing Tender Notice on 20.02.2015, the Respondent No.1 defeated the rights of substitution of the Senior Lenders, firstly, by not allowing them one month's time as provided in Article 5.2 to invite, negotiate and procure offers for the substitution of the Concessionaire and secondly, the Respondent No.1 flouted the contractual provision contained in Article Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 30 of 43 Signing Date:30.03.2022 3.5(i) of the Substitution Agreement by not including a suitable condition for payment or take-over of Senior Lenders Dues.
179. The Tender Notice dated 20.02.2015 effectively extinguished the rights of the Senior Lenders to substitute the Concessionaire with a selectee in terms of the Substitution Agreement.
180. When the Tender Notice was issued by the Respondent No.1 on 20.02.2015, nothing was left for the Claimant to proceed with the process to invite, negotiate and procure offers for the substitution of the Concessionaire. The Claimant's stand - that any persistence with its right of substitution by the Senior Lenders after the issuance of Tender Notice by the Respondent No.1, knowing fully well that this was a fait accompli, seemed a waste of time - appears probable. It was for this reason that the Claimant informed the Respondent No.1 that the Contractor selected by the Respondent No.1 would be treated as a Selectee of the Claimant. More importantly, the Claimant repeatedly insisted upon the Respondent No.1 to ensure that the new Concessionaire takes-over the Senior Lenders dues or makes payment of the said dues in terms of Article 3.5(i) of the Substitution Agreement."
72. The Arbitral Tribunal held that HSIIDC had taken a decision to substitute KMPL even prior to the order dated 30.01.2015 passed by the Supreme Court of India. The Arbitral Tribunal further held that although the Supreme Court had fixed timelines for award of the contract for completion of the balance works, it had not altered the procedure as contemplated under the Substitution Agreement. The Arbitral Tribunal concluded that HSIIDC had defeated the rights of substitution available to the Senior Lenders by issuing a Tender Notice Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 31 of 43 Signing Date:30.03.2022 on 20.02.2015 without allowing one month time to the Senior Lenders to invite, negotiate and procure offers for substitution of KMPEL in terms of Article 5.2 of the Substitution Agreement. The Arbitral Tribunal also found that HSIIDC had failed to comply with Clause 3.5(i) of the Substitution Agreement by not including a suitable condition for payment of the dues of the Senior Lenders by the new Concessionaire. The Tribunal found that the Tender Notice dated 20.02.2015 effectively extinguished the rights of the Senior Lenders. HSIIDC had also changed the scope of the concession by (i) changing the specification of the Expressway from a four lane Expressway to a six lane Expressway; and (ii) dividing the same into two different packages. The Kundli-Manesar Section of the KMP Expressway was to be developed and operated on a BOT Semi Annuity Basis and the Manesar-Palwal Section of the KMP Expressway was contracted on an Item Rate Mode.
73. It was contended on behalf of HSIIDC that the Substitution Agreement was over ridden by the order dated 30.01.2015 passed by the Supreme Court of India. The Arbitral Tribunal did not find any merit in the said contention and rejected the same.
74. In view of the above, the Arbitral Tribunal concluded that HSIIDC had committed a breach of the Substitution Agreement and IDBI's claim was maintainable. Issue Nos. 1 and 5 struck by the Arbitral Tribunal were decided accordingly.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 32 of 43 Signing Date:30.03.202275. The aforesaid conclusion of the Arbitral Tribunal is based on the construction of material clauses of the Substitution Agreement and on evaluation of the evidence and material placed before the Arbitral Tribunal. This Court finds no infirmity with the decision of the Arbitral Tribunal that in terms of the Substitution Agreement, HSIIDC was obliged to ensure that the Senior Lenders were granted the agreed period to find a substitute for KMPEL and to make a suitable arrangement for repayment or take-over of the dues owed to the Senior Lenders, in the contracts entered into with the new Concessionaire. In any view, the Arbitral Tribunal's conclusion in this regard is a plausible one and cannot be held to be patently illegal or opposed to public policy of India.
Re: Measure of damages
76. Indisputably, in view of the findings that HSIIDC had breached its obligations under the Substitution Agreement, IDBI was required to be compensated for the damages suffered by it on account of the said breach. In the given facts of this case, the question as to the measure of such damages is a vexed one.
77. There is no dispute that IDBI was not only required to establish that HSIIDC had breached the terms of the Substitution Agreement but also to establish the loss suffered by it on account of that breach. In terms of the Substitution Agreement, IDBI had the right to substitute the Concessionaire (KMPEL). In the event HSIIDC substituted KMPEL as the Concessionaire, it was also obliged to "include a Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 33 of 43 Signing Date:30.03.2022 suitable condition as agreed to by the Lenders' Agent on behalf of the Senior Lenders for payment or take over of such dues".
78. The Arbitral Tribunal held that the toll from the KMP Expressway was a tangible security as contemplated by the Master Circular dated 01.07.2014 issued by the Reserve Bank of India. The Arbitral Tribunal also reasoned that the Toll to be generated from the project was considered by the parties "as the Senior Lenders' valuable right of security interest on the loan". As noted above, the escrow arrangement under the Concession Agreement as well as under the Escrow Agreement, required that all toll collected be deposited in an Escrow Account. The said agreements also provided a waterfall mechanism setting out the order of preference in which disbursements would be made from the Escrow Account. It was contemplated that the part of the toll collected from the KMP Expressway would be utilised to service its debts after meeting the liability regarding taxes and certain other expenses for collecting the toll and for operating and maintaining the KMP Expressway. According to IDBI, the amount due to the Senior Lenders was an appropriate measure of the damages suffered by it.
79. There is no dispute that the Senior Lenders had disbursed an amount aggregating ₹1075.03 crores. As on 31.05.2016, the amount of ₹1,737.11 crores was outstanding which included the principal amount of ₹1,027.87 crores. IDBI had also set out the break up to the said amount owed to each of the Senior Lenders. In terms of the Substitution Agreement, the Lender's Certificate in this regard was conclusive and therefore, there is no question of HSIIDC disputing the same.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 34 of 43 Signing Date:30.03.202280. It is relevant to note that KMPEL had disputed its liability and had asserted that the amounts due to the Senior Lenders had not been crystallized as the dispute in this regard, was yet to be decided by the Debt Recovery Tribunal. This was noted by the Arbitral Tribunal in sub-para (iv) of Para 58 of the impugned award, which reads as under:
"58. In addition to the above note, which was given by the learned Senior Counsel for Respondent No.2 in the course of oral hearing, on behalf of Respondent No.2, the written arguments have also been filed. Inter-alia, on behalf of Respondent No.2, the following points have been raised in the written arguments:
xxxx xxxx xxxx
(iv) It is submitted that the basis for the damages being sought by the Claimant herein is essentially that loan amount that is to be recovered from KMPEL. The said amount has not been crystallized as these exists a dispute to be decided by the Hon'ble Debt Recovery Tribunal. Only after the decision of the DRT, KMPEL's liability, if any would be crystallized which may form a basis for the claim of damages."
81. However, before this Court, KMPEL has not disputed that the amount of ₹1737.11 was outstanding and payable to the Senior Lenders. It is its unequivocal stand before this Court that it supports the impugned award in favour of IDBI. The impugned award is based on the premise that the said amount of ₹ 1737.11 was due and payable to the Senior Lenders in respect of the Financial Assistance granted by it. Thus, clearly, the said amount is not in dispute. KMPEL has other Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 35 of 43 Signing Date:30.03.2022 claims against HSIIDC or the Senior Lenders but the principal amount and interest outstanding as on 31.05.2016 cannot be disputed in view of KMPEL's stand that it supports the impugned award against HSIIDC.
82. The limited question to be considered is whether the amount owed to the Senior Lenders is an apposite measure of damages suffered by it on account of breach on the part of HSIIDC to comply with its obligation under the Substitution Agreement.
83. As noticed above, the Arbitral Tribunal had reasoned that the toll collected from KMP Expressway was required to be considered as a tangible security. It would follow that the Arbitral Tribunal was required to evaluate the Net Present Value of toll that could be collected from the KMP Expressway as it existed at the material time. But the KMP Expressway was incomplete and could not be tolled.
84. The Arbitral Tribunal noted that the toll being collected from the two sections of KMP Expressway is in the vicinity of ₹52 lacs per day. The Arbitral Tribunal also noted that the annual earnings from the toll is about ₹180 crores with a potential to increase in the future. Thus, the toll was sufficient to service the debt due to the Senior Lenders. The Arbitral Tribunal accepted the contention that by depriving the Senior Lenders of payments from the said stream of revenue, the Senior Lenders had suffered a loss equivalent to the amount due to them.
85. This Court finds it difficult to concur with the aforesaid reasoning. First of all, KMP Expressway is now a six lane Expressway. The Senior Lenders had partly financed the construction of a four lane Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 36 of 43 Signing Date:30.03.2022 Expressway. Thus, the assumption that the toll collected from the KMP Expressway as it now exists would have been generated from the construction of the KMP Expressway as financed by the Senior Lenders does not hold good. More importantly, significant additional investment was made for construction of the two sections of the Expressway and clearly the toll being currently generated is also required to service those investments as well. It was also not disputed that HSIIDC has taken a further loan of ₹500 crores for completion of the Manesar-Palwal section (53.33 kms) of the KMP Expressway. Insofar as Kundli- Manesar Section of the KMP Expressway is concerned, the Arbitral Tribunal had noted that the new Concessionaire had completed the same at a cost of ₹1800 crores approximately and had also agreed to maintain the Expressway free of cost for a period of fourteen years and six months. In consideration for the same, HSIIDC had agreed to pay a semi-annual annuity of ₹157 crores. Thus, clearly, the toll now being collected from the two sections of the Expressways is largely attributed to the additional work done on the said section of the KMP Expressway at the additional cost as briefly indicated above. Clearly, the toll collected for use of KMP Expressway now developed, could not form the basis of the value of the toll that could be expected from the KMP Expressway as it existed in May 2013.
86. It is also relevant to consider that under the Concession Agreement, the entire toll was not available for servicing of the debt to the Lenders; the toll collected was required to be utilised for payment of taxes and thereafter, the expenses for tolling as well as operation and Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 37 of 43 Signing Date:30.03.2022 maintenance of the KMP Expressway. The amount in excess was available to service the debts due to the Lenders.
87. It was also brought on record that HSIIDC had filed 'work done quantification affidavit' affirming that the work done by the concessionaire on the project was ₹790,49,72,636/-. The Arbitral Tribunal noted that the said affidavit only records the cost of work done but does not falsify that the Senior Lenders had disbursed ₹1075.03 crores. Thus, the Arbitral Tribunal did not reject HSIIDC's evaluation of the work done.
88. The Arbitral Tribunal's reasoning that the toll to be collected from the KMP Expressway was a valuable security available to the Senior Lenders is certainly a plausible view. However, what portion of the toll would be available to the Senior Lenders is a contentious question considering that the Commercial Operation Date had not been achieved in May 2013. The Arbitral Tribunal's finding that the new Concessionaire would readily take over the liability towards the Senior Lenders as 68% of the KMP Expressway was already completed, is also based on an assumption, which is not supported by any material.
89. This Court is of the view that an apposite measure of damages would be the value of the tangible asset financed by the Senior Lenders
- being the KMP Expressway to the extent completed at the material time. The tolling of the KMP Expressway was only a method of monetising the asset. Since tolling had not commenced on account of the KMP Expressway being incomplete, the value of the work done Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 38 of 43 Signing Date:30.03.2022 would represent the value of the security available with Senior Lenders. Clearly, the Senior Lenders could not hope to recover from a third party, a value higher than the value of the work done. It would be reasonable to assume that any new Concessionaire would not accept a liability higher than the value of the asset available. Since the only asset available to a new Concessionaire is the KMP Expressway to the extent completed; that would be the measure of the maximum liability that a new concessionaire could assume. The parties had also proceeded to discuss on the aforesaid lines. The Arbitral Tribunal had noted that at one stage the parties were in agreement that ₹1300 crores be paid as the termination payment. This would, essentially, be the value of the work done. HSIIDC had thereafter, resiled from the same. As according to it, the value of the asset (work done) was ₹7,90,49,72,636/-.
90. The Arbitral Tribunal did not compute the measure of damages on these lines, but instead decided to award the entire amount claimed by the Senior Lenders as payable and outstanding by KMPEL. However, the Arbitral Tribunal further directed that any amount recovered by the Senior Lenders from KMPEL would be paid to HSIIDC.
91. The principal question to be addressed is whether the aforesaid view is patently illegal or falls foul of the public policy of India. Whilst, the measure of damages adopted is unconventional, this Court is unable to accept that the same falls within the parameters of the grounds under Section 34(2A) or Section 34(2)(b)(ii) of the A&C Act. The Arbitral Tribunal's view is certainly not one that no reasonable person could Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 39 of 43 Signing Date:30.03.2022 possibly accept. It is trite law that the measure of damages is not always precise and in the given circumstances, there may be multiple methods for computing the measure of damages. The methodology adopted by the Arbitral Tribunal is a novel one, but certainly a possible view.
92. It is well settled that the Arbitral Tribunal is the final adjudicator of the disputes between the parties. The question as to what is the value of the right of the Senior Lenders to receive part of the revenue generated from tolling of the KMP Expressway, is clearly a matter where the decision of the Arbitral Tribunal must be accepted as final. It is well settled that this Court cannot re-appreciate and re-evaluate evidence as a court considering a first appeal and supplant its view in place of the Arbitral Tribunal.
93. Next, this Court is required to consider the contention advanced on behalf of HSIIDC that the Senior Lenders had lent funds to KMPEL and in effect, the Arbitral Tribunal had directed recovery of the said amount from HSIIDC. It was also submitted that the repayment obligations of KMPEL are guaranteed by members of the Consortium, which had bid for the Project. And, therefore, the loss suffered by the Senior Lenders cannot exceed the amount that they are unable to recover from KMPEL and the Guarantors.
94. Mr Nandrajog had earnestly contended that the loss suffered by the Senior Lenders could not be quantified till after the Senior Lenders had exhausted their remedy against KMPEL and/or the Gurantors.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 40 of 43 Signing Date:30.03.202295. The Arbitral Tribunal had rejected the said contention. It had clarified that IDBI's claim was founded on breach committed by HSIIDC of the Substitution Agreement, which had resulted in the substitution right of the Senior Lenders being frustrated. This was different from the cause of action that had led IDBI to commence recovery proceedings before DRT. The said proceedings were for recovery of dues and the default committed by KMPEL in compliance with its repayment obligations under the Loan Agreement. The Arbitral Tribunal had further explained that merely because the measure of damages for breach of the Substitution Agreement happens to be the dues owed to the Senior Lenders, that would not legally affect the maintainability of the claim petition.
96. In order to address the issue of IDBI recovering a similar amount twice over - once as dues from KMPEL and the other as damages suffered by it on account of the Substitution Agreement - the Arbitral Tribunal had held that HSIIDC would be entitled to reimbursement of the amounts recovered by IDBI from KMPEL, pursuant to the orders of the DRT or otherwise. The Arbitral Tribunal has evolved a novel method of awarding the entire dues owed by KMPEL to the Senior Lenders with the direction that whatever is recovered from KMPEL would be made over to HSIIDC.
97. Although, the cause of action for IDBI/Senior Lenders to institute a claim against HSIIDC and to commence recovery proceedings from KMPEL, are different, however, it would be erroneous to consider them as disjunct. The principal grievance of the Senior Lenders is regarding Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 41 of 43 Signing Date:30.03.2022 recovery of their dues from KMPEL. They are aggrieved by the breach of the Substitution Agreement to the extent it frustrates their ability to enforce the security covering the loan advanced to KMPEL (the principal borrower). Any amount recovered from enforcement of a security interest would discharge the principal debtor (KMPEL) to that extent. Plainly, any compensation for extinguishment of the security interest, would ordinarily, discharge the principal debtor to the same extent. It was also conceded case of IDBI that it would not retain a sum higher than what was due to them as repayment of a financial assistance advanced to KMPEL.
98. In a case where the repayment by a principal borrower is guaranteed by a surety, the liability of the surety is co-terminus. The creditor is entitled to recover the amount due, either from the principal borrower or the surety or both. In case any amount is recovered from the surety, the surety is entitled to recover the same from the principal borrower.
99. In the present case, the Arbitral Tribunal has awarded damages for breach of the Substitution Agreement as it accepted that the same offered a valuable security to the Senior Lenders, which had been destroyed by HSIIDC by breaching the terms of the Substitution Agreement. HSIIDC was in effect called upon to make good the value of the security. However, it is important to note that HSIIDC had never guaranteed the payment obligations of KMPEL nor had agreed to stand as a surety for due performance by KMPEL. Keeping that in mind, the Arbitral Tribunal has evolved the mechanism of directing IDBI to Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 42 of 43 Signing Date:30.03.2022 proceed with recovering the amount due from KMPEL to the full extent. This may, in one sense, be akin to IDBI's obligation to mitigate its loss. Since the entire amount has been awarded against HSIIDC, IDBI has been directed to repay any amount that it recovers from KMPEL in the proceedings instituted before the DRT. In a normal course, a party is required to mitigate the losses and recover the balance from a person who is in breach. However, in this case, in effect the Arbitral tribunal has awarded the entire damages but has also imposed an obligation on the party receiving the damages (IDBI/Senior Lenders) to repay the amount as recovered from KMPEL.
100. This Court is unable to accept that the said approach is in conflict with the public policy of India or vitiates the impugned award on the ground of patent illegality.
101. The petition is, accordingly, dismissed. The pending application is also disposed of.
VIBHU BAKHRU, J MARCH 29, 2022 RK/v Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No.441/2020 Page 43 of 43 Signing Date:30.03.2022