Delhi High Court
M/S Kmp Expressways Ltd. vs Ibdi Bank Limited & 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.35/2021 & IA No. 1165/2021
M/S KMP EXPRESSWAYS LTD. ..... Petitioner
versus
IDBI BANK LIMITED AND ANR. ..... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr Pallav Shishodia, Senior Advocate with
Mr Deepak Khurana, Mr Tejasv Anand,
Advocates for KMP Expressways Pvt. Ltd.
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 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.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 1 of 17 Signing Date:30.03.2022 Introduction
1. KMP Expressways Limited (hereafter 'KMPEL') 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' as the 'Lenders' Representative', against respondent no. 2 (hereafter '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 Substitution Agreement dated 08.01.2007 (hereafter the 'Substitution Agreement') as HSIIDC had appointed new Concessionaires in place of KMPEL to complete the development of the KMP Expressway, without safeguarding its dues and those of the 'Senior Lenders'. 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 further found that HSIIDC would be entitled to reimbursement of the amount that IDBI would Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 2 of 17 Signing Date:30.03.2022 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 to be equivalent to the amount due to IDBI and the 'Senior Lenders' from KMPEL against the loan disbursed by IDBI, for the development of the Kundli-Manesar-Palwal Expressway (hereafter the 'KMP Expressway').
5. KMPEL has challenged the operative part of the impugned award to extent that (i) it directs that the KMPEL shall bear its own costs; and
(ii) it contemplates recovery of any amount by IDBI from KMPEL in proceedings instituted before the Debts Recovery Tribunal and directs reimbursement of the said amount to HSIIDC. According to KMPEL, the impugned award to the aforesaid extent is vitiated by patent illegality.
Factual Context
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).
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 3 of 17 Signing Date:30.03.20227. 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 forty-five days. The said period was subsequently extended. The Consortium promoted and incorporated KMPEL (petitioner) 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 for financing the Project including by financial assistance from Senior Lenders by way of loans, guarantees, subscription to non-convertible debentures and other debt instruments. KMPEL was required to furnish Financing Documents to secure funding from the Senior Lenders within a maximum period of two hundred and seventy days (270 days) from the date of the Concession Agreement. In terms of the Concession Agreement, it was also agreed that HSIIDC, KMPEL and the Senior Lenders would enter into the 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 Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 4 of 17 Signing Date:30.03.2022 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. At the material time, the project cost was estimated 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 ₹ 1075.03 crores for the Project. The Senior Lenders claim that on 31.05.2016, the principal outstanding amount due by the KMPEL was ₹ 1027.87 crores and, the amount due by the respondents 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 substitute the Concessionaire (KMPEL) in the Event of Default.
12. 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 the KMP Expressway could not commence by the said date.
13. In the year 2012, KMPEL approached the Senior Lenders and requested additional financial assistance due to delay in completion of Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 5 of 17 Signing Date:30.03.2022 the Project. There were cost over runs and the Senior Lenders expressed their disinclination to fund the same. They had also expressed their apprehension regarding the credit worthiness of the members of the Consortium that had bid for the concession. 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 the letter dated 23.03.2012 (hereafter the 'Loan Restructuring Agreement'). It was agreed to revise the payment schedule and extend the COD to 31.05.2012. However, the Loan Restructuring Agreement was not implemented as HSIIDC did not grant its approval to the same.
14. IDBI claims that since the repayment obligations in respect of the loans advanced to KMPEL for development of the Project were not complied with, IDBI as the Lenders Agent, issued a Notice of Occurrence of Default dated 13.08.2013 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 a period of thirty days from the date of receipt of the same.
15. 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 about the Senior Lenders refusal to accede to the request of KMPEL for withdrawal of the Notice of Default.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 6 of 17 Signing Date:30.03.202216. 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 by another 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 the termination payment amounting at ₹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 in its letter addressed to the chairperson of EPCA, withdrew its consent to making the termination payment of ₹1300 crores. On the same date, HSIIDC issued a notice to KMPEL under Article 32.2 of the Concession Agreement whereby it communicated its intention to terminate the Concession Agreement if KMPEL did not 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 Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 7 of 17 Signing Date:30.03.2022 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 as the Lender's Agent, by its letter dated 16.02.2015, informed 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 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 confirmation whether the liability to take-over the loan amount was included in the tender floated on 20.02.2015.
23. 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 HSIIDC and its substitution rights under the Substitution Agreement.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 8 of 17 Signing Date:30.03.202224. 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 request made in its earlier letters dated 16.02.2015 and 25.02.2015, to amend the tender documents to include the stipulation for take over of the loan amount amounting to ₹1419.15 crores as on 28.02.2015.
25. By its letter dated 19.03.2015, HSIIDC terminated the Concession Agreement under Article 32.2 of the Concession Agreement on the ground that KMPEL had failed to cure the breach within the one-month cure period granted to it by its earlier letter dated 28.01.2015.
26. HSIIDC accepted the bid of one M/s KCC Buildcon Private Limited (hereafter 'KCC') for execution and development of 52.33 KM (Manesar-Palwal) stretch on 'item rate mode'. The appointment of KCC was objected by the Senior Lenders by their letter dated 28.04.2015 as being 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 the New Concessionaire would require 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.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 9 of 17 Signing Date:30.03.202228. On 10.06.2015, HSIIDC in its reply to IDBI's 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. By IDBI by its letter dated 09.07.2015, IDBI denied the allegations made by HSIIDC.
29. The Senior Lenders filed an Original Application under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 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.
30. Subsequently, IDBI (representative of 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 its order dated 13.05.2016, whereby all disputes between the Senior Lenders, KMPEL and HSIIDC were referred to the Arbitral Tribunal.
31. 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 amount along with interest, penal interest and other charges/expenses, which remained outstanding.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 10 of 17 Signing Date:30.03.202232. KMPEL filed its Statement of Defence on 02.09.2016 however, it did not raise any counter-claims at the initial stage.
33. KMPEL filed an application on 06.05.2017 before the Arbitral Tribunal for being deleted as a party to the arbitral proceedings since IDBI (Claimant) had not sought any reliefs against KMPEL. However, the said application was dismissed by the Arbitral Tribunal on 11.07.2017.
34. Thereafter, KMPEL filed its Counter-claims against IDBI. The Counter-claims raised by KMPEL are set out below:
"Claim No. 1 - Claim of 40% of the amount recovered from the respondent no. 1 based on the Debt Related Liabilities of the Respondent No. 2 Claim No. 2 - Loss of Profit of Rs. 500 crores because of the termination of the Contract due to defaults of the claimant and respondent no. 1 Claim No. 3 - A declaration that the liability of the Respondent No. 2 under the Financing Agreements came to an end on 14th May, 2014."
35. The Arbitral Tribunal dismissed the said Counter-claims by an order dated 03.09.2017. KMPEL impugned the said order by filing an appeal [in Arb. A. (COMM.) 41/2017 titled as KMP Expressways Limited v. IDBI Bank Limited & Anr.]. However, this Court dismissed the said appeal by an order dated 16.10.2017. The Court concurred with the view of the Arbitral Tribunal that the Counter-claims filed by KMPEL did not arise in relation to the Substitution Agreement and, that the same were filed at a belated stage.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 11 of 17 Signing Date:30.03.202236. KMPEL carried the matter to the Supreme Court of India by filing a Special Leave Petition (SLP) [being SLP (C) Nos. 33038- 33040/2017] seeking leave to appeal the aforesaid order passed by this Court. By an order dated 06.04.2018, the Supreme Court of India disposed of the said SLP by reserving KMPEL's right to institute independent arbitral proceeding against IDBI/HSIIDC. Thereafter, KMPEL instituted and is pursuing a separate arbitral proceeding before another arbitral tribunal.
37. 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 also awarded simple interest at the rate of 9% per annum from the date of the award, on the entire awarded amount in 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 was not paid to HSIIDC within one month from the date of recovery of such amount.
38. As noted above, KMPEL has confined its challenged to the impugned award to the extent the Arbitral Tribunal has not awarded any Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 12 of 17 Signing Date:30.03.2022 costs in favour of KMPEL. KMPEL is also aggrieved to the extent that the Arbitral Tribunal contemplates that the Senior Lenders (represented through IDBI) would recover further amounts from KMPEL pursuant to the recovery proceedings instituted before the Debts Recovery Tribunal.
Submissions
39. Mr. Shishodia, learned senior counsel appearing for KMPEL pointed out that the Arbitral Tribunal, while dismissing KMPEL's application to be deleted as a party to the arbitral proceedings, had observed that if it was found that KMPEL was wrongly impleaded, it could be compensated by way of costs. He submitted that the Arbitral Tribunal had not considered KMPEL's submissions on merits, however, had accepted KMPEL's contention that the disputes arising from the Substitution Agreement which were subject matter of the arbitral proceedings were different from the disputes arising from the Concession Agreement, which were subject matter of another proceeding. He submitted that in this view, the Arbitral Tribunal was required to compensate KMPEL for costs incurred by it in participating in the arbitral proceedings.
40. Next, he submitted that since the entire outstanding amount claimed by the Senior Lenders had been awarded in their favour, there was no scope for the Senior Lenders to recover any further amount from KMPEL. He submitted that KMPEL in effect stood discharged from all of its obligations towards IDBI/Senior Lenders and thus, the entire Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 13 of 17 Signing Date:30.03.2022 claim of the Senior Lenders stood satisfied. In the circumstances, the observation made by the Arbitral Tribunal directing IDBI to reimburse HSIIDC, any amount recovered from KMPEL, pursuant to proceedings before the Debts Recovery Tribunal, is patently illegal.
Reasons and Conclusion
41. This Court is unable to accept that the impugned award is vitiated by patent illegality as the Arbitral Tribunal has not found it apposite to award costs to KMPEL. Although, the Arbitral Tribunal had declined KMPEL's request to be deleted from the array of parties in the arbitral proceedings, the same did not necessarily mean that KMPEL was required to be compensated by costs, if no relief was granted against it. The observations made by the Arbitral Tribunal in the order dated 11.07.2017, to the effect that KMPEL could always be compensated in terms of money if it was found to be wrongfully impleaded, does not necessarily imply that KMPEL was entitled to payment of costs.
42. KMPEL was undoubtedly a proper party to the arbitral proceedings as it was a party to the Substitution Agreement. This Court finds no infirmity with the impugned award to the extent that it does not award any costs in favour of KMPEL.
43. The contention that the impugned award is vitiated by patent illegality as the Arbitral Tribunal had directed IDBI to pay any amount that it recovered from KMPEL pursuant to proceedings before the Debts Recovery Tribunal, to HSIIDC, is also unmerited. The Arbitral Tribunal had found that HSIIDC had breached the Substitution Agreement and Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 14 of 17 Signing Date:30.03.2022 IDBI was liable to be compensated for such breach. The direction that IDBI would reimburse HSIIDC any amount recovered from KMPEL is an integral part of the method evolved by the Arbitral Tribunal for computing the quantum of damages.
44. The Arbitral Tribunal held that HSIIDC had destroyed IDBI's right of substituting KMPEL by another Concessionaire. The projected toll from the KMP Expressway is a valuable security available to IDBI and HSIIDC's action to grant concession to new Concessionaires without stipulating any obligations on them to take over the liability towards IDBI, effectively deprived IDBI of its valuable security.
45. KMPEL is the principal borrower and the award of damages for breach of the Substitution Agreement, in favour of IDBI did not absolve KMPEL of repaying its debts. As noted above, the Arbitral Tribunal had merely confined itself to examining the disputes arising under the Substitution Agreement. It was contended on behalf of HSIIDC that the quantum of damages recoverable from HSIIDC could at best be the amount that remained unrecovered from KMPEL, as KMPEL was the principal debtor. The Arbitral Tribunal had rejected the said contention but evolved a novel method for determining the measure of damages. It awarded the entire amount owed to IDBI as a measure of loss suffered by it on account of destruction of its security interest in the KMP Expressway with a rider that IDBI would pursue the proceedings against KMPEL and reimburse the said amount to HSIIDC. This was an alternative to permitting IDBI to pursue its claim against KMPEL Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 15 of 17 Signing Date:30.03.2022 for recovery of its dues and awarding the balance outstanding amount that remained unrecovered, as damages for loss of security.
46. The question whether the impugned award was vitiated by patent illegality in view of the measure of damages adopted by the Arbitral Tribunal, has been considered by this Court in a petition filed by HSIIDC for setting aside the impugned award [OMP(COMM) No.441/2020] which has been decided by a separate order rendered on date. This Court has rejected the contention that the impugned award is vitiated by patent illegality on the said ground. The reasons for the same are set out in the said order and the same are not being repeated for the sake of brevity. The same may be considered as a part of this judgement.
47. Thus, no interference with the impugned award is warranted in this proceeding.
48. Mr Shishodia, had contended that KMPEL's principal concern is that its rights to pursue any claims against HSIIDC or IDBI should not be prejudiced.
49. In this regard, it is relevant to note that the Arbitral Tribunal had clarified that the impugned award was only in respect of disputes arising from the Substitution Agreement and not disputes arising from the Concession Agreement. It was further clarified that the findings recorded in the impugned award would have no bearing in the arbitral disputes between KMPEL and HSIIDC.
Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 16 of 17 Signing Date:30.03.202250. In view of the above, no clarifications in this regard are necessary. The impugned award does not in any manner prejudice KMPEL's right to pursue its claims against HSIIDC in respect of the Concession Agreement. In respect of IDBI's claim is concerned, it is necessary to note that KMPEL had supported the impugned award against HSIIDC and in favour of IDBI. The measure of damages as awarded to IDBI is premised on the outstanding amount payable against the loan advanced by the Senior Lenders to KMPEL. Thus, to that extent, the findings are binding on KMPEL. KMPEL is not precluded from raising any defence against IDBI / Senior Lenders as may be advised in the recovery proceedings instituted by IDBI / Senior Lenders before the Debts Recovery Tribunal save and except the quantum of amount outstanding against the loan advanced by the Senior Lenders.
51. The petition is unmerited, and is accordingly, dismissed. The pending application is also disposed of.
VIBHU BAKHRU, J MARCH 29, 2022 'gsr'/v Signature Not Verified Digitally Signed By:Dushyant Rawal OMP(COMM) No. 35/2021 Page 17 of 17 Signing Date:30.03.2022