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2017 (10) TMI 1582 - HC - Indian LawsExecution of work relating to by-pass pertaining to time period - Termination Payment on account of default by the Concessionaire - deductions on account of NHAI's claims or that the recoveries or adjustments - HELD THAT - Termination payment under clause 37.3.1 is not payable to the Concessionaire for the Concessionaire's default occurring prior to COD. The expression COD has been defined in the definition clause of the Concessionaire Agreement as Commercial Operation Date , which has its meaning as set forth in clause 15.1. Clause 15.1 stipulates that four-laning shall be deemed to be complete when completion certificate or provisional certificate, as the case may be, is issued under the provisions of Article/clause 14 and accordingly the Commercial Operation Date of the project shall be the date on which such completion certificate or provisional certificate is issued. The Concessionaire is entitled to collect fee and receive payments in accordance with the Article/clause 27 of the Concessionaire Agreement after issue of COD. It is clear from the reading of the definition that the expression the debt due refers to the principal amount of debt provided by the Senior lender under the Financing Agreement but excluding any part of the principal that had fallen due for repayment two years prior to the transfer date. The principal amount should be for financing the Total Project Cost. It also includes aggregate interest, financing fees, and charges which had fallen due within one year prior to the transfer date and excludes penal interest and other charges and also pre payment charges on accelerate payments. Thus, there is specific and clear-cut definition of the debt due which would become payable under clause 37.3.1 of the Concession Agreement. We would have to reject the contention of the appellant, NHAI that for the purpose of Clause 37.3.1 interest component of ₹ 19.4 crores or recoveries of ₹ 242.42 crores can be adjusted. This is impermissible and not what is stated and permitted under Clause 37.3.1 or under expressions Debt Due or Total Project Cost - we do not think that the appellant NHAI can make adjustment on account of the recoveries which it claims are payable by JSTL, or exclude accrued interest of ₹ 19.4 crores on account of alleged willful default by JSTL. The said adjustment being impermissible and not as per the mandate of the clauses mentioned above, are unsustainable. The impugned order takes care of the interest of NHAI as it directs furnishing of an unconditional, irrevocable bank guarantee in favour of the NHAI for an amount not exceeding ₹ 348.604 crores and only upon the said guarantee being furnished deposit of the same figure is to be made in the escrow account. The bank guarantee is subject to final award of the arbitral tribunal. The impugned order also notices the adverse impact and the consequences which JSTL would suffer in case of non-deposit of the termination payment in the escrow account, which would have the effect of declaring the account of JSTL as non-performing asset which would amount to irreparable loss and injury. Appeal dismissed.
Issues Involved:
1. Validity of the impugned order directing NHAI to deposit termination payment in the escrow account. 2. Interpretation of the Concession Agreement, particularly clauses related to termination payment. 3. Applicability of Section 9 of the Arbitration & Conciliation Act, 1996. 4. Calculation of "Debt Due" and "Total Project Cost". 5. Rights of the Senior Lenders under the Escrow Agreement. Detailed Analysis: 1. Validity of the Impugned Order: The High Court upheld the impugned order dated 31st July 2017, which directed NHAI to deposit ?354.744 crores in the escrow account, subject to JSTL furnishing an unconditional and irrevocable bank guarantee of ?348.604 crores. The order also mandated compliance with Section 9(2) of the Arbitration & Conciliation Act, 1996 (A&C Act). 2. Interpretation of the Concession Agreement: The Concession Agreement between NHAI and JSTL required the construction, operation, and maintenance of a highway project. Upon termination due to JSTL's default, NHAI was obligated to pay 90% of the "Debt Due" less insurance cover, as per Clause 37.3.1. The court clarified that NHAI could not make deductions for its claims or adjust the equity component from the Total Project Cost when computing the termination payment. 3. Applicability of Section 9 of the A&C Act: The court emphasized that Section 9 of the A&C Act allows for interim measures of protection, which includes directing the deposit of amounts in dispute. The court referenced the decision in Value Source Mercantile Limited v. Span Mechnotronix Limited, which highlighted that Section 9 encompasses the power to issue interim measures of protection similar to those available to a civil court. 4. Calculation of "Debt Due" and "Total Project Cost": The "Debt Due" was defined as the principal amount of debt provided by the Senior Lenders under the Financing Agreements for financing the Total Project Cost, including accrued interest, but excluding certain penalties and pre-payment charges. The "Total Project Cost" was the lowest of the capital cost set forth in the Financial Package, the actual capital cost upon completion, and ?828 crores less equity support. The court rejected NHAI's contention to adjust the debt due by excluding the cost of unfinished construction and recoveries, affirming that the outstanding debt due was ?640.86 crores. 5. Rights of the Senior Lenders under the Escrow Agreement: The Escrow Agreement required NHAI to deposit the termination payment into the escrow account, prioritizing the rights of the Senior Lenders. The court noted that the termination payment clause was designed to protect the interests of the lenders, who financed the project. The court dismissed NHAI's argument that it could adjust the termination payment by excluding equity contributions and recoveries, emphasizing that the lenders' rights must be upheld. Conclusion: The High Court dismissed the appeals, upholding the impugned order and affirming the directions to deposit the termination payment in the escrow account. The court clarified that the calculations for "Debt Due" and "Total Project Cost" must adhere to the definitions in the Concession Agreement, without adjustments for equity contributions or NHAI's claims. The decision reinforced the protection of lenders' rights under the Escrow Agreement and the applicability of Section 9 of the A&C Act for interim measures of protection.
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