9911796707
TMI Blog2021 (3) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... Amit K. Nain, AOR JUDGMENT Dr Justice Dhananjaya Y Chandrachud, J This judgment has been divided into the following sections to facilitate analysis: A Factual background B Submissions of counsel C Analysis of the Concession Agreements D Terms of the consent order dated 20 September 2019 passed by the High Court E Obligations of HMRTC and HSVP to pay the debt due F Conclusion A Factual background 1 In 2008, Haryana Shehri Vikas Pradhikaran ("HSVP"), the second respondent, issued a Request for Qualification and Request for Proposal ("RFQ/RFP") for developing a metro rail link from Delhi Metro Sikanderpur Station on MG Road to NH-8 ("Project No1"). A Consortium Agreement was entered into on 1 December 2008 between IL&FS Rail Limited ("IRL"), IL&FS Transportation Networks Limited ("ITNL") and DLF Metro Limited in which IRL was identified as the lead member of the consortium. HSVP accepted the bid submitted by the consortium and issued a letter of award of 16 July 2009, subject to the condition that a concession agreement would be executed within 60 days. Pursuant to the letter of award, the consortium incorporated the first appellant, Rapid MetroRail Gurgaon Limited ("RMGL"), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Union of India under Section 241(2) read with Section 242 of the Companies Act, 2013 (the "Act of 2013") before the Mumbai Bench of the National Company Law Tribunal ("NCLT") against Infrastructure Leasing and Financial Services Limited ("IL&FS") and its Board of Directors ("Board"), on the ground that the affairs of the company and its subsidiaries were being conducted in a manner prejudicial to public interest. Both RMGL and RMGSL form part of the IL&FS group of companies. Acting on the petition, the NCLT by its order dated 1 October 2018 superseded the existing Board of IL&FS with a newly constituted Board, which was appointed on the recommendation of the Union government. The new Board took charge of the affairs of the IL&FS and was authorised to conduct its business and formulate a road map for recovery. 8 The National Company Law Appellate Tribunal ("NCLAT") by an order dated 4 February 2019 appointed Mr Justice D K Jain, a former Judge of this Court, to supervise the resolution process for the IL&FS group of companies. The appellants, RMGL and RMGSL, were categorized as a "red" entity of the IL&FS group of companies in an affidavit - Filed in Company Appeal (AT) No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MRC"). A similar notice of termination was issued to RMGSL, coupled with an analogous direction for handing over Project No 2. 13 On 6 September 2019, Justice D K Jain permitted RMGL to handover possession and control of Project No 1 to HSVP pursuant to the termination of the Concession Agreement dated 9 December 2009, on or before 9 September 2019. By a separate order on the same date, RMGSL was permitted to handover possession and control of Project No 2 by the same date. 14 Further, also on 6 September 2019, the same day as the order of Justice D K Jain permitting handover, the respondents instituted a Writ Petition - WP (C) No 24949 of 2019 under Article 32 of the Constitution before the High Court for the State of Punjab and Haryana challenging notice of termination dated 7 June 2019 issued by RMGL, inter alia, on the ground that the period of 90 days shall start from the date of permission, which had not been yet granted by Justice D K Jain. An interim direction was sought for the continuance of the operation of Project No 1 by RMGL. Another Writ Petition - WP (C) No 24951 of 2019 was instituted to challenge the notice of termination by RMGSL on similar grounds, and similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is forthcoming as to why, on the receipt of Termination Notice dated June 7, 2019, HSVP/HMRTC did not take any steps to ensure smooth handing over of the project by RMGSL to them, all this while. In so far as the question of validity of the termination notice issued RMGSL to HSVP is concerned, the issue is to be decided at an appropriate forum and not by the undersigned in terms of the afore-extracted direction by the Hon'ble NCLAT. 20. Accordingly, RMGSL is permitted to handover the possession and control of Metro link from Delhi Metro Sikanderpur Station on MG Road to Sector 56, Gurugram to ASVP, pursuant to the termination of the Concession Agreement dated January 3, 2013. It goes without saying that this permission is without prejudice to the rights and contentions of the contesting parties to take recourse to appropriate legal proceedings' to assail the validity and consequences of termination of the Concession Agreement by both of them. It is, however, clarified that HSVP, shall still be free to engage the services of RMGSL, albeit at the mutually discussed/negotiated terms and charges to run the subject Metro link till, such time, appropriate/alternative arrangements are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately; (5) RMGL/RMGSL to act as agent of HSVP for further work post 09.09.2019; (6) Cost and benefit to be on HSVP's account; (7) Indemnification of RMGL/RMGSL from any third party claims and from HSVP's actions; (8) Rights and benefits of parties get frozen on the date termination of Concession Agreement becomes effective, be-09-09-2019-- and. (9) Issuance of vesting certificate by HSVP. Learned senior counsel appearing on behalf of the petitioners has submitted that all these issues would be discussed in the joint meeting of the parties. Till the next date of hearing i.e. 17.09.2019, the respondent shall operate and manage the Rapid Metro Rail at Gurgaon on both the lines but subject to reimbursement of the insurance and operation and maintenance cost by the petitioners of this period. A copy of this order be given to both the parties under signatures of Bench Secretary of this Court. To be taken up in the urgent list. A photocopy of this order be placed on the file of other connected case." On 18 September 2019, the following order was passed: "Order dated 18.09.2019 Learned senior counsel appearing on behalf of the Rapid Metrorail Gurgaon Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor, at least 80 per cent of the amount so determined should be deposited in the Escrow Account in terms of the Concession Agreements. The respondents HMRTC and HSVP submitted their response to the proposal which was made by the appellants, which was adverted to in the earlier order. The response was in the following terms: "(i) With respect to the request of the RMGL and RMGSL to continue to operate the said Metrolines fora period of 30 days, it is stated that HMRTC and HSVP have already entered into a formal agreement with the Delhi Metro Rail Corporation Ltd. "(DMRC)" on 16" September, 2019 for Operations and Maintenance "(O&M)" of the said Metro Lines. And it is categorically stated that HMRTC and HSVP has signed the said agreement on account of the fact that previously RMGL/RMGSL were not acceding to the request of HMRTC/HSVP to run the said Metrolines for sufficient period during which effective resolution of the entire matter could be achieved. Now, after having signed the said agreement with DMRC, HMRTC/HSVP is also of the view that the entire process of handover of O&M for the said Metro Lines to DMRC be done under the supervision of Hon'ble (Retd.) High Court Judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by any other competent authority in that respect, in terms of the concession contract subject to the all other rights and entitlements in favour of both the parties arising out of the same. (v) With respect to the submission that RMGL/RMGSL is reserving their right to claim differential payment, it is apprised that by having stated that, RMGL/RMGSL are trying to keep options open to challenge whereby RMGL/RMGSL may rekindle this entire matter again after having settled the matter in the light of aforesaid statement i.e. after having settled the amount which becomes due i.e. 80% of the debt due in terms of the definition contained in the concession agreement as linked with the total project cost which shall be ascertained by an auditor as shall be appointed by the Hon'ble Court. As such the same cannot be acceded to since this would lead to multiplicity of litigation and could be a serious dampener on this entire matter. This matter is being settled under the directions of the Hon'ble Court and as such the same should be acceptable to you gracefully. (vi) That the HMRTC and HSVP hereto reserves its right to make any further submissions in the light of any further argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AG shall complete the aforesaid audit within a period of 30 days. (iii) It is directed that the arrangements made by this Court vide order dated 09.09.2019 shall continue till the process of handing over the operations is complete. (iv) It is further directed that amount of 80% of the debt due, determined in terms of the audit report of the CAG, shall be deposited by the HSVP in the Escrow account which shall be subject to any order passed by the NCLAT or any other competent statutory authority, within a period of 30 days after the receipt of the audit report. (v) It is further directed that rest of the disputes between the parties to the lis, arising out of the audit report, shall be agitated and decided in the arbitration proceedings, a mode provided in the concession contracts. (vi) It is also directed that whatever documents are required for the purpose of final transfer of operation and management and the assets, the same be given by the RMGL and RMGSL to HSVP after the payment of "debt due"." This order dated 20 September 2019 was subsequently modified by the High Court on 4 October 2019, in the following terms: "Notice in the applications was issued to which no re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of 30 days from the date of receipt of certified copy of this order." 18 On 15 October 2019, the High Court allowed an extension of seven days for implementing the directions issued in its orders dated 20 September 2019 and 4 October 2019. The High Court also corrected its earlier order with the consent of the contesting parties, in the following terms: "Accordingly, the applications are allowed. However, Mr. Puneet Bali has pointed out that there is an error in the order dated 04.10.2019. He has further submitted that instead of reading the order, "The CAG will also examine the scope of the audit of debt due suggested by the HSVP in terms of the concession agreement" be read as "The CAG will also examine the scope of the audit of debt due suggested by both the parties in terms of the concession agreement." 19 In pursuance of the order of the High Court, the Comptroller and Auditor General of India ("CAG") presented a statement dated 19 November 2019 in regard to: (i) The scope of the audit; and (ii) Deliverables and timelines. The statement has a bearing on the controversy, and is hence extracted in entirety: "1. Verify that the Debt Due has been arrived a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessed Risks, 500-599 on Audit Evidence with emphasis on SA 530 on Audit Sampling and 600-699 on Using Work of Others). 10. Nature, timing and extent of audit procedure will be impacted by the audit evidence obtained. A risk assessment or problem analysis may be conducted and the scope may be revised as necessary in response to the audit findings. Unimpeded and quick access to relevant records/ documents may be ensured by the auditee. Any delay in getting records would be recorded so as to maintain Audit trail. Deliverables and timelines 1. Within two weeks from date of award, the Auditor shall submit Inception Report indicating results of risk assessment, audit methodology for conducting audit and constraints, if any. 2. Draft Audit Report to be submitted by Auditor within three months from date of award of audit. 3. Monthly appraisal meetings to be held to review the audit progress and modify the scope of audit, if necessary." 20 CAG then filed a Civil Miscellaneous Application, together with the compliance affidavit, before the High Court on 25 June 2020, stating that it had appointed a firm of chartered accountants, SARC & Associates, to undertake a financial audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the Concession Agreement dated 9 December 2009 with RMGL in the following extract: "The scope of audit was suggested by RMGL and HMRTC through communications and presentations. The scope of audit as suggested by both the parties were examined and the scope of audit of "debt due" was accordingly firmed up. The suggestions made through presentations and the scope of audit, as decided by were submitted to the Court vide CMA no. 15397 dated 20 November 2019 by CAG. It was also informed to the Court that only those Issues that are related and relevant to examination of the "debt due" as per concession agreement would be examined. The scope of audit decided by CAG and as intimated to the Court has been placed at Annexure 1B. The issues mentioned in the scope provided by HMRTC like encumbrances and liabilities on the said metro project, shareholding / share in valuation of the assets of the concessionaire company, change of shareholding fights, criminal acts and liabilities etc. which are said to have been inflicted on the Company require detailed forensic and technical audits. It is understood that such audits are ongoing. This audit is limited to the examination of "debt due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income Tax Show Cause Notice!!, dated: 15.11.2018, ref no. ADIT(INV]-3{4}/Show Cause Notice/ENSO/2018-19/251. Income tax scrutiny/assessments on-going. Table 12 - Party-wise break-up of the packages sub- contracted by IRL (Amount in crore) Related parties Sub-contracting of IRL Level IECCL 248 Unrelated Parties Others 311 Companies with irregularities as pointed out by lncome Tax Department 31 Balancing figure 33 Total 623 Our report is submitted solely for the purpose set forth in the first paragraph of this report. This report relates only to the items specified and does not extend to any financial statements of RMGL, taken as a whole." The audit report for second appellant RMGSL computed the debt due at Rs. 1,609.88 crore, including interest upto to 8 September 2019. The conclusion in the audit report is extracted below: "6. Conclusion The amount of debt-due as per the audit, which has been conducted within limited scope as detailed in earlier sections of the report, has been worked out as Rs. 1,609.88 crore including interest upto 8 September 2019. Other matters that have come to our attention and can have a significant impact on debt due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not extend to any financial statements of RMGSL, taken as a whole." 24 On 10 October 2020, an affidavit was filed before the High Court by the Advisor (Planning) HMRTC on behalf of the respondents, objecting to the audit report. The substance of the objection was that the audit report had not considered "critical aspects...which shall have a direct bearing" on the amount of the debt due. In the course of the affidavit, the following circumstances were highlighted: (i) In exercise of powers under Section 241(2) of the Act of 2013 and in terms of the permission granted by the NCLT, the Central government had reconstituted the Board of the IL&FS, the appellants' parent company whose affairs were being conducted in prejudicial to the public interest. On 6 December 2018, a First Information Report ("FIR") had been lodged against RMGL, RMGSL and sister concerns alleging that monies had been siphoned off from the group companies. As against RMGL and RMGSL, there were allegations that fake invoices had been raised as a result of which the cost of the metro rail project was significantly higher than comparable projects of DMRC, as a result of which the rapid metro was incurring losses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine only those issues, that are related and relevant to examination of the debt due as per the concession agreements. It was also decided that the issues mentioned in the scope provided by the HMRTC like encumbrances and liabilities on the said metro projects, shareholdings/share in valuation of the assets of the concessionaire companies, change of shareholding rights, criminal acts & liabilities etc. which have been inflicted on the company are not related to the present audit. These issues as well as other issues which may have impact on the viability of the project of relate to criminal acts etc, as stated by the HMRTC can be got audited/examined by HMRC through other agencies or through a separate forensic audit. These facts and scope of audit decided by CAG was duly submitted in this Hon'ble Court vide Additional Affidavit dated 19.11.2019 submitted along with CM No. 17584 of 2019 in CM No. 15397 of 2019." CAG further noted in the course of its affidavit that it had ensured that: (i) The firm appointed for conducting the audit had no conflict of interest with RMGL/RMGSL or any group company of the IL&FS group; (ii) After the auditors had conducted the audit of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired nor delve upon / comment upon which party's 'Event of default' occurred." CAG has thus submitted that the report of the financial audit of the debt due "is complete and conclusive as per the scope of audit as decided by CAG" and stands submitted to the High Court on 19 November 2019 on affidavit. 28 On 12 October 2020, the Division Bench of the High Court noted the affidavit that had been filed by the Advisor (Planning) HMRTC and took the affidavit on record, while also noting the submission of RMGL and RMGSL that the matter "does not brook any delay". The hearing was then adjourned to 16 October 2020 to facilitate filing of replies. The proceedings then came up before the High Court on 16 December 2020, when on the request of the counsel for the petitioners before the High Court (HMRTC and the State of Haryana), the hearing was deferred to 8 April 2021. 29 At this stage, the appellants filed Special Leave Petitions challenging orders dated 12 October 2020 and 16 December 2020 passed by the High Court. The order of this Court dated 5 February 2021 issuing notice is extracted below: "1 Mr Mukul Rohatgi and Mr Puneet Bali, learned Senior Counsel appearing on behalf of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, HMRTC and HSVP had agreed to the proposed appointment of an auditor for determination of the debt due, and proposed the reference to CAG. HMRTC and HSVP specifically committed to complying with the orders that may be passed by the High Court, NCLAT or any other legal proceedings; (iv) The Metro Rail Projects, Projects No 1 and Project No 2, which were undertaken by RMGL and RMGSL were funded by a consortium of banks and finance was made available subject to execution of: a. Consortium Agreement; b. Escrow Agreement; c. Debt Due Agreement; and d. Financial documents; (v) The object and purpose hence was to secure the dues of the banks and financial institutions; (vi) Article 24.4 of the Concession Agreement dated 9 December 2009 contains specific provisions in the event of a termination by HSVP, while Article 24.5.2 contains provisions in the event that it is terminated by the concessionaire, RMGL; (vii) The requirement of depositing 80 per cent of the debt due in an Escrow Account is to protect the interest of the banks and financial institutions which were involved in funding the Projects; (viii) In pursuance of the order passed by Justice D K Jain, the Projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sheet has been filed as against one of the companies. 32 Mr Tushar Mehta, learned Solicitor General appearing on behalf of the respondents, on the other hand, submitted that: (i) Investigations are underway in respect of the IL&FS group of companies, and as a matter of fact both RMGL and RMGSL have been classified as 'red entities': (ii) FIR No 253 was registered on 6 December 2018, in which RMGL and RMGSL have been named as accused nos 21 and 22, and there are specific allegations of fake invoices and that the cost of projects implemented by them was higher than for DMRC projects, resulting in losses being incurred; (iii) Subsequent to the original order of the High Court dated 20 September 2019, a modification was effected on 4 October 2019, in terms of which it was envisaged that CAG would appoint a team of auditors to conduct a financial audit of the debt due, with the assistance of the auditors appointed by the parties to the lis. CAG was to hence examine the scope of the audit of the debt due suggested by HSVP in terms of the Concession Agreements; (iv) The reports submitted by the auditors appointed by CAG indicate that the audit was limited in nature, confined to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject No 1 to RMGL, and maintained a similar Escrow Account. In the affidavit submitted by Andhra Bank, it was noted that the debt due to all the members of the consortium led by Andhra Bank was Rs. 943 crores approx. 34 It was submitted by both the Banks that the Projects were completed by utilizing funds from the lenders, who are biggest stakeholders. On the other hand, HMRTC and HSVP have taken possession of the Projects, and are utilizing the revenue from DMRC. Supporting the contents of the affidavits filed by Canara Bank and Andhra Bank, Mr Dhruv Mehta urged that 70 per cent of the Projects' cost is comprised within debt. Hence, the deposit of 80 per cent of the debt due amounts only to 56 per cent of the Projects' cost. Further, the amount coming to the Escrow Accounts would be subject to the orders of the NCLAT. It has been submitted that the amount, upon deposit in Escrow Accounts, will be in the hands of the nationalized banks which have financed the Projects. 35 The rival submissions will now be considered. C Analysis of the Concession Agreements 36 At the outset, it is necessary to advert to some of the salient features of the Concession Agreements. For the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thwith. Financial closure was to be completed within six months within the signing of the Concession Agreement, with a cure period of six months, failing which all rights and claims under the Concession Agreement were to stand waived. Article 18 provides for an Escrow Account into which all funds, which constitute the financing package for meeting the capital cost of the concessionaire, are to be deposited. During the operational period, all fare and non-fare revenues were also to be deposited exclusively in the Escrow Account by the concessionaire. Article 18.2.1 provided for the disbursement from the Escrow Account, which included debt service payments due to the senior lenders. Article 18 insofar as is relevant is extracted below: "ARTICLE 18 ESCROW ACCOUNT 18.1 Opening of Escrow Account and Deposits into Escrow Account On Financial Close, (in any case not later than 30 days of financial close) the Concessionaire shall open and establish the Escrow Account with a Bank (the "Escrow Bank") and ail funds constituting the Financing Package for meeting the Concessionaire's capital costs shall be credited to such Escrow Account During Operations Period all Fare and Non-Fare Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HUDA pursuant to this Concession Contract, including Termination claims (e) all accrued O&M Expenses; (f) any other payments required to be made under this Concession Contract; and (g) balance, if any, on the instructions of the Concessionaire. 18.4 The instructions contained in the Escrow Concession Contract shall remain in full force and effect until the obligations set forth In Sub-Article 18.3 have been discharged," 38 Article 24 provides for termination. Article 24.1.1 sets down events of default on the part of the concessionaire. According to Article 24.4: "24.4 Upon Termination by HUDA on account of occurrence of Concessionaire Event of Default during the Operations Period, the HUDA shall take over the complete system (all Project Assets), HUDA shall pay the Lenders of the Project, as per financial documents, an amount equal to 80% of debt "due, as Termination payment. No termination payment shall be due or payable on account of Concessionaire's default occurring prior to COD." 39 Article 24.5.2 provides for the consequences of termination by the concessionaire, due to a default by HUDA: "24.5.2 Upon Termination by the Concessionaire on account of an HUDA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her than those implemented by DMRC, resulting in the rapid metro link projects at Gurgaon incurring losses. RMGL and RMGSL, which belong to the IL&FS group of companies, were thus classified as "red entities". On 4 February 2019, Justice D K Jain was appointed by the NCLT to supervise the resolution process for the IL&FS group. On 7 June 2019, RMGL issued a notice for the termination of the Concession Agreement dated 9 December 2009 to HSVP under Article 24.5.1, with the period of notice being 90 days. A similar notice of termination was issued by RMGSL in terms of Article 32.5.1 of Concession Agreement dated 3 January 2013. RMGL and RMGSL addressed communications on 1 August 2019 to HSVP for completing the handover of the rapid metro link Projects. On 26 August 2019, HMRTC issued a notice of termination to RMGL in terms of the Articles 24.1 and 24.2 of the Concession Agreement dated 9 December 2009. A similar notice was issued to RMGSL. In the interim, Justice D K Jain was moved by RMGL and RMSL to grant his approval to the handing over of possession of the rapid metro link Projects. By his order dated 6 September 2019, Justice D K Jain permitted RMGL and RMGSL to handover possess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the public sector lenders of the Projects. Responding to the above proposal of the appellants, HMRTC and HSVP specifically stated in their written responses that: (i) An agreement had been entered into with DMRC on 16 September 2019 for operation and maintenance of the rapid metro lines; (ii) As regards the ascertainment of the debt due, this was linked to the definition of the expression under Concession Agreements; (iii) HMRTC/HSVP agreed with the proposal of RMGL/RMGSL that an auditor may be appointed to ascertain the actual figures, and stated that the CAG may be entrusted with the assignment to ascertain financial aspects and determining the over invoicing of the Projects; and (iv) The deposit of 80 per cent of the debt due as determined in an Escrow Account would depend on the outcome of the report of the auditor, and HMRTC and HSVP "commit and confirm to adhere to the directions as would be passed by the Hon'ble High Court or NCLAT or any other Court or any other order under any other legal proceedings passed by any other competent authority" in terms of the Concession Agreements. 44 The above course of events indicates that the entire order which was passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt due determined by the audit report shall be deposited by HSVP in an Escrow account, which would be subject to the orders of the NCLAT or any other competent statutory authority, within a period of 30 days of the receipt of the report; and (v) The rest of the disputes between the parties arising out the audit report, would be agitated and decided in arbitration proceedings, which was a mode already provided in the Concession Agreements. 45 Clause (ii) of the directions contained in the High Court's consent order dated 20 September 2019 makes it abundantly clear that the audit team appointed by CAG was to conduct a financial audit of the debt due and to examine the scope of the audit. The next important aspect of the consent order is the time bound process which was envisaged, with the audit being completed within 30 days and 80 per cent of the debt due being deposited within 30 days after the receipt of the audit report. The final aspect which needs to be emphasized is that the rest of the disputes between the parties arising out of the audit report were to be agitated in arbitration. 46 This would leave no manner of doubt that parties clearly understood that once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s standing to the credit in the Escrow Account had been appropriated in the order prescribed in the Escrow Agreement; (vi) Verification that all other receipts and payments were routed through the Escrow Account, together with the review of all other bank accounts maintained/operated by the appellants; and (vii) Information in the annual reports of the appellants was arrived at by following the applicable standards and guidelines. E Obligations of HMRTC and HSVP to pay the debt due 47 HMRTC and HSVP, as well as the appellants, were apprised at all material times of the work of audit being handed over by CAG to a firm appointed by it. On 24 February 2020, a draft report of the financial audit of the debt due of RMGL/RMGSL was sent to the Principal Secretary to the Government of Haryana in the Department of Town and Country Planning. HMRTC was requested to communicate its response on behalf of the State government, so that it could be incorporated in the report. On 27 February 2020, HSVP sought four weeks at the least, in view of the ongoing Session of the State Legislative Assembly. The Accountant General Audit, Haryana followed up the earlier email by subsequent communication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies of the group; and (iv) The sub-contracting by IRL of nine packages to various related and unrelated parties including companies, with irregularities pointed in a notice to show cause issued by the Income Tax department on 15 November 2018. Indeed, the submission of the learned Solicitor General that the audit under the auspices of the CAG is incomplete and inconclusive is based on the above statements contained in the audit report noticing other matters which may have a bearing on the debt due. 48 Now the issue before the Court in this backdrop is whether the consequences envisaged in the consent order of the High Court dated 20 September 2019 can stand obviated on the above grounds. At the very outset, it is important to note that the FIR in respect of IL&FS group of companies was lodged on 6 December 2018. The termination notices of June and August 2019, and the institution of the writ proceedings, took place thereafter. Evidently the appellants on the one hand, as well as HSVP/HMRTC on the other, were conscious of the developments which were taking place in respect of the IL&FS group of companies in the proceedings before Justice D K Jain on 19 August 2019. When the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether a discretionary jurisdiction would be refused to be exercised solely on the ground of existence of an alternative remedy which is more efficacious... 13. However, access to justice by way of public law remedy would not be denied when a lis involves public law character and when the forum chosen by the parties would not be in a position to grant appropriate relief. [...] 18. It may be true that in a given case when an action of the party is dehors the terms and conditions contained in an agreement as also beyond the scope and ambit of the domestic forum created therefor, the writ petition may be held to be maintainable; but indisputably therefor such a case has to be made out. It may also be true, as has been held by this Court in Amritsar Gas Service [(1991) 1 SCC 533] and E. Venkatakrishna [(2000) 7 SCC 764] that the arbitrator may not have the requisite jurisdiction to direct restoration of distributorship having regard to the provisions contained in Section 14 of the Specific Relief Act, 1963; but while entertaining a writ petition even in such a case, the court may not lose sight of the fact that if a serious disputed question of fact is involved arising out of a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich specifically defines the expression "debt due". Pertinently, the original order of 20 September 2019 specifies a strict time schedule within which, on a determination being made by the auditor, 80 per cent of the debt due would be deposited by HSVP in the Escrow Account. This was however subject to the safeguard that it would be subject to any order that may be passed by NCLAT or by a competent statutory authority. However, it was further clarified that the rest of the disputes between the parties to the lis arising out of the audit report were to be agitated in arbitration proceedings. 51 This provision, which is embodied in clause (v) of the operative directions of the High Court's consent order dated 20 September 2019, is capable of a reasonable interpretation that once a determination was made in the audit report, 80 per cent would be deposited in the Escrow Account by HSVP and if any dispute arising out of the audit report remained, that would be resolved in arbitration. As a matter of fact, the subsequent order of 4 October 2019 replaced clause (v) by envisaging that the rest of the disputes between the parties arising out of: (i) the CAG report; (ii) the validity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opy of the draft report; (v) allowing the parties to submit their response to the draft report; (vi) granting an extension of time to the State of Haryana to submit its comments; and (vii) placing the State on notice that it would have to file its objections finally by a prescribed deadline, failing which the report would be finalized. 54 HMRTC and HSVP are themselves to blame if they did not submit their responses. CAG has specifically rebutted the objections to the audit report submitted by HMRTC on the ground that as a constitutional authority, CAG decided upon the scope of the audit of the debt in terms of the Concession Agreements, which it submitted to the High Court. Moreover, it has clarified that this was a financial audit of the debt due and the auditors reported their findings in terms of the Concession Agreements. The FIR lodged by the Economic Offences Wing, the Income Tax Department notice, investigation by the SFIO and Forensic Audit did not form a part of the financial audit conducted by the CAG. CAG has submitted that a financial audit of the debt due is complete and conclusive under the scope of audit as decided by CAG, and submitted to the High Court. 55 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders dated 20 September 2019, as modified on 4 and 15 October 2019, on the plea that an FIR has been lodged on 16 December 2018 against IL&FS group in which there are allegations against RMGL and RMGSL of producing fake invoices and inflating the capital cost of the rapid metro Projects. The circumstances which have been adverted to in the affidavit filed by HMRTC in the High Court were known to it and to HSVP, when they both agreed to an order which emanated with the consent of the parties on 20 September 2019. Both HMRTC and HSVP were conscious of their obligation to deposit 80 per cent of the debt due as a consequence of the termination by the provisions contained in the Concession Agreements. They wished to lend an assurance to the determination of the debt due by seeking the involvement of the CAG. They made a solemn commitment before the High Court that within 30 days of the determination, 80 per cent of the debt due would be deposited in an Escrow Account. This amount, it must be emphasized, is not being handed over either to RMGL or RMGSL, which have been classified as "red entities" of the IL&FS group. The placement of the quantum representing 80 per cent of the debt du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cession Agreements are duly enforced, the structure of financing for infrastructure projects may well be in jeopardy. Such a consequence must be avoided by declining to accede to a request, such as that by HMRTC and HSVP, which is to allow it to resile from its obligations. These obligations arise not only in terms of the Concession Agreements, but have been solemnly assumed before the High Court. Hence, on both counts, HMRTC and HSVP cannot be permitted to resile. 58 The intervention of this Court under Article 136 of the Constitution was sought having regard to the manner in which the proceedings before the High Court were being derailed. On 12 October 2020, after HMRTC filed its affidavit, the High Court noted the appellant's submission that "the matter does not brook any delay" and yet adjourned the matter to 16 October 2020. Thereafter, when the proceedings came up on 16 December 2020, and the response filed by CAG was taken on the record, the hearing of the writ petitions was again deferred to 8 April 2021. This course of events indicates that the whole object and purpose behind setting down the timelines in the order dated 20 September 2019 stood the risk of being defeated. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not be appropriated by the Escrow Bank without specific permission; (iii) RMGL and RMGSL on the one hand, and HSVP on the other, are at liberty to pursue their rights and remedies in pursuance of the arbitration clause contained in the Concession Agreements on all matters falling within the ambit of the arbitration agreement, including the validity of the notices of termination, any past or future inter se claims and liabilities as envisaged in the order of the High Court dated 20 September 2019, as modified on 4 October 2019 and 15 October 2019; (iv) In terms of clause (v) of the order of the High Court dated 20 September 2019, in the event of any dispute arising about the correctness of the CAG report, in regard to the determination of the debt due, any of the parties would be at liberty to raise a dispute in the course of arbitral proceedings; (v) Upon compliance with the directions contained in (i) above, RMGL and RMGSL shall execute and handover to HSVP all documents which are required for effectuating the transfer of operations, maintenance and assets to HSVP or their nominees with a view to fulfill the obligation of the concessionaires in Article 25 of the Conces ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
