Union Of India vs Infrastructure Leasing And Financial ... on 16 March, 2022

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National Company Law Appellate Tribunal

Union Of India vs Infrastructure Leasing And Financial ... on 16 March, 2022

This Application has been filed by West Gujarat Expressway Limited, an entity, which is part of the Infrastructure Leasing & Financial Services Group ("IL&FS Group") praying for quashing the Termination Notice dated 21st December, 2021 issued by National Highways Authority of India ("NHAI").

Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 2

2. The Applicant entered into a Concession Agreement on 22nd March, 2005 with the NHAI for conversion of Jetput-Gondal-Rajkot bypass section of NH-8B into access controlled four lane highway with service lanes along certain sections and strengthening of the existing lanes from km 1117 to km 143.0 and improvement to Gondol-Rajkot section (km 143.0 to km 175) falling in the State of Gujarat, on BOT Basis, having a concession period of 20 years. The Applicant completed the construction work in the year 2008 for which Completion Certificate was issued on 14th August, 2008.

3. After issuance of Completion Certificate, the Project Highway was to be maintained by the Applicant - Concessionaire as per the provisions of the Concession Agreement. The NHAI issued various notices to the Applicant regarding compliance of safety provisions envisaged in the Concession Agreement and to rectify the default observed from time to time. A Cure Notice followed by Preliminary Notice dated 16th July, 2021 was issued by the NHAI to the Applicant and subsequent notices were also issued. By the impugned notice dated 21st December, 2021, the NHAI observing that Concessionaire has committed Concessionaire Events of Default in terms of Concession Agreement, hence, termination notice was issued in accordance with Clause 32.1.2 of the Concession Agreement and the NHAI by virtue of the Termination Notice, deemed to have taken possession and control of the Project Highway forthwith.

4. The IA No.2908 of 2021 is filed by the Applicant praying for quashing the Notice dated 21st December, 2021. On 23rd December, 2021, this Tribunal directed the Application to be taken up on 4th January, 2022 and Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 3 till then it was directed that Applicant shall not be dispossessed in pursuance of the Termination Notice dated 21st December, 2021. The interim order passed on 23rd December, 2021 was extended by this Tribunal. The NHAI has filed its reply on 25th February, 2022, to which rejoinder affidavit has also been filed by the Applicant on 10th March, 2022. The Application was heard by this Tribunal and is being disposed of by this order.

5. Shri Ramji Srinivasan, learned Senior Counsel appearing for the Applicant submits that this Tribunal vide order dated 8th April, 2019 has already directed the NHAI not to take any step to cancel any agreement with any of the companies in question, hence, as per order dated 8th April, 2019, Termination Notice dated 21st December, 2021 could not be issued and it is clear breach of the said order. It is further submitted that the Resolution Process for Resolution of various subsidiaries of IL&FS including the Applicant is at crucial stage of its Final Resolution and Termination Notice at this stage will severally prejudice the Applicant and also impact the overall Resolution of IL&FS Group. It is submitted that Applicant has liability towards its lenders and on the basis of collections made from Toll, the Applicant was discharging its debt having been categorized as 'Green entity'. The termination at this stage shall hamper the capacity of the Applicant to serve its debt. The learned Senior Counsel for the Applicant also cites subsequent order dated 23rd October, 2019 passed in IA No.3320 of 2019 to support the submission. It is submitted that to the Cure Notice issued by the NHAI, on 2nd April, 2021 Applicant Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 4 has submitted appropriate reply and further to the Preliminary Termination Notice dated 16th July, 2021, Applicant has submitted reply and there was no default on the part of the Applicant, so as to invoke the power of termination under the Concession Agreement.

6. The learned Counsel appearing for the NHAI refuting the submissions of learned Senior Counsel for the Applicant contends that NHAI is not party to the present Appeal in this Tribunal, nor was heard before passing the order dated 8th April, 2019. The order dated 8th April, 2019 is not an order, which was continued by this Tribunal by its subsequent orders, including the final order passed on 12th March, 2020. It is submitted that due to Concessionaire default a portion of the retaining wall of Ch. 180 in the Project Highway collapsed on 8th June, 2020 causing death of two persons. Inquiry into the incident culminated into a Report and NHAI vide its order dated 9th March, 2021 debarred the Promoter of the Applicant, that is IL&FS. The NHAI was not provided the copy of the order dated 8th April, 2019 prior to 21st December, 2021. The learned Counsel for the Respondent submits that if the Applicant is so aggrieved by the Termination Notice, it is open for him to invoke dispute resolution process as envisaged by Clause 39 of the Concession Agreement through Arbitration and Conciliation proceedings. It is further submitted that as per Clause 32.3 of the Concession Agreement, it provides that upon termination by NHAI on account of occurrence of Concessionaire Event of Default, the NHAI shall pay to the Concessionaire by way of Termination payment of an amount equal to 90% of the debt due less insurance claims, Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 5 if any. It is submitted that Concession Agreement has nothing to do with Resolution of the applicant. The Applicant has miserably failed in honouring the obligation under the Concession Agreement. The NHAI was left with no remedy except to terminate the Agreement. It is submitted that public safety and maintenance of Project Highway cannot be compromised.

7. Mr. Abhinav Vashisht, learned Senior Counsel has appeared on behalf of the lenders of the Applicant and has also supported the submissions of the Applicant. It is submitted that on termination of the Agreement, lenders shall suffer a loss and shall not be able to recover their debt.

8. We have considered submissions of learned Counsel for the parties and have perused the record.

9. In the order dated 8th April, 2019, on which reliance has been placed by the Applicant, paragraph 10 of the same is to the following effect:

"Pursuant to the earlier order, a supplementary affidavit has been filed by the Appellant - Union of India, but it has not been filed in a format as the Appellate Tribunal wanted. The Appellate Tribunal wanted to understand with regard to each Amber Entity the amount due to one or the other 'Financial Creditor' or the 'Operational Creditor'. The learned Counsel will handover the same on 16.04.2019 at least with regard to the four Amber Entities in question. They will also try to prepare a similar chart with regard to rest of the nine Amber Entities by the same date. The 'Financial Creditor' and the 'Operational Creditor' of these four companies will also handover Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 6 their respective charts showing the amount payable and matured and the amount, if any, they have generated from Provident Fund or Pension Fund or any other Fund, e.g. Gratuity Fund or Superannuation Fund etc. by the same date, i.e., 16.04.2019 along with relevant provisions of the contract, which should not be more than two pages.

With regard to the rest of the companies, if any other company has been declared as 'Green Entity' or 'Amber Entity' or 'Red Entity', the Appellant- Union of India will also file an affidavit in regard to such company.

Post these Appeals 'for orders' on 16.04.2019 at 04:00 PM.

In the meantime, the National Highway Authority of India will not take any step to cancel any agreement with any of the companies in question."

10. The learned Counsel for the Applicant has not been able to point out any order passed in this Appeal continuing the order dated 8th April, 2019, subsequent to 16th April, 2019, nor there is any reference to the order dated 8th April, 2019 in the detailed final order passed in this Appeal on 12th March, 2020. The order dated 8th April, 2019 was not an order which contemplated the continuance of prohibition on the NHAI from cancelling any Agreement in perpetuity.

11. Much emphasis has been placed by learned Counsel for the Applicant on order dated 23rd October, 2019, which was passed in IA No.3320 of 2019. It is useful to extract the order dated 23rd October, 2019, which is to the following effect:

Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 7 "IA No.3320 of 2019 This appeal has been preferred by 'SREI Infrastructure Finance Ltd.' for direction to 'Infrastructure Leasing and Financial Services Ltd.' as well as 'NHAI' not to terminate the 'Concession Agreement' between 'NHAI' and 'Fagne Songadh Expressway Limited' which was reached for execution of 'Fagne Songadh Expressway Limited'.

Further prayer has been made to direct the Appellant (ILFS) to place the 'Resolution Plan' before the appropriate Committee.

In the present case as the matter is being looked into by the Board of Directors and Committee constituted for individual group companies including two Expressway Ltd. including 'Fagne Songadh Expressway Limited', we are not inclined to deliberate on the issue, however, we are giving liberty to the Appellant to bring the facts to the notice of Board of Directors of 'ILFS' and Committee if constituted that it has already filed the 'Resolution Plan' which is viable and feasible and for the said purpose, it is desirable to continue with the 'Concession Agreement'. If the matter is brought to the notice of the Board of Directors, it will consider the same in accordance with law and the order dated 8th April, 2019 passed by this Appellate Tribunal.

IA stands disposed of."

12. Perusal of the above order indicates that in the Application, direction was sought to IL&FS as well as NHAI not to terminate the 'Concession Agreement' between NHAI and Fagne Songadh Expressway Limited, which Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 8 have been noticed in the first paragraph of the order. However, in the interim passed on 23rd October, 2019, no such direction was issued as prayed for, that is, not to terminate the Concession Agreement between NHAI and Fagne Songadh Expressway Limited. What was observed by this Tribunal was that liberty was given to the Appellant to bring the facts to the notice of the Board of Directors of the IL&FS and Committee if constituted that it has already filed its Resolution Plan, which is viable and feasible and for the said purpose, it was desirable to continue with the Concession Agreement. Interim direction was "If the matter is brought to the notice of the Board of Directors, it will consider the same in accordance with law and the order dated 8th April, 2019 passed by this Appellate Tribunal. IA stands disposed of". The reference of order dated 8th April, 2019 was not for purpose of referring to restrain in cancelling of any Agreement by the NHAI, rather reference to 8th April, 2019 order was with regard to the earlier part of the order where Union of India was directed to file an affidavit with regard to declare 'Green Entity' or 'Amber Entity' or 'Red Entity'. Thus, in order dated 23rd October, 2019, the interim direction passed on 8th April, 2019 restraining the NHAI not to take any step to cancel the Agreement was not continued. We thus are not persuaded to submission of Shri Ramji Srinivasan that order dated 23rd October, 2019 continued the restraint order, which was passed against the NHAI from taking any action to cancel the Agreement.

13. Learned Counsel for the parties have raised the submission and counter submissions with regard to allegations made in the Termination Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 9 Notice dated 21st December, 2021. We are of the view that in this Application, we are not required to adjudicate the factual dispute between the parties or return any finding as to whether Termination Notice was issued on sufficient ground or not. The remedy of the Applicant lies elsewhere. The Applicant is entitled to seek remedy against actions of the NHAI as per the Concession Agreement dated 22nd March, 2005. We thus are not inclined to entertain the challenge to Notice dated 21st December, 2021 on merits in the present proceedings. It is, however, relevant to notice that as per the affidavit filed on behalf of Union of India and directions issued in this Appeal by this Tribunal from time to time, it is clear that Resolution Process of IL&FS Group Company is at the final stage and as submitted by learned Counsel for the Applicant, it is likely to be completed before 31st March, 2021. In so far as submission raised by learned Counsel for the lenders is concerned that by termination of Concession Agreement, they shall be unable to recover their debt, when we are not entertaining the application at the instance of the Applicant, who is directly aggrieved by Termination Notice dated 21st December, 2021, the claim of lenders needs no consideration. On the submission made by learned Counsel for the lenders, we are not inclined to entertain this Application.

14. In view of the foregoing, we are of the view that I.A. No.2908 of 2021 does not deserve to be entertained and decided in these proceedings. I.A. No.2908 of 2021 is dismissed. The interim order dated 23rd December, 2021 passed in this Application is discharged. However, looking to the fact that the Resolution of IL&FS Group Companies including the Applicant is Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 10 in critical stage and may be completed by 31st March, 2021, we further direct that Termination Notice dated 21st December, 2021 issued by NHAI be implemented with effect from 1st April, 2021. Subject to direction as above, the I.A. No.2908 of 2021 is dismissed.

[Justice Ashok Bhushan] Chairperson [Dr. Alok Srivastava] Member (Technical) NEW DELHI 16th March, 2022 Ash/NN Interlocutory Application No.2908 of 2021 in Company Appeal (AT) No. 346 of 2018 11

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