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TMI Blog2017 (10) TMI 1582X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orthwith deposit in the Escrow Account the sum of ₹ 354.744 Crores (i.e. 348.604 + 6.14); and (iii) the encashment of the Bank Guarantee shall be subject to the final award of the Arbitral Tribunal; and (iv) JETPUR shall keep the bank guarantee alive for unto a period of four months after the making of the final award by the Arbitration Tribunal; and (v) Parties shall comply with the provisions of Section 9(2) of the Act. 3. A Concession Agreement dated 7th February, 2011 was executed between NHAI and JSTL for construction, operation and maintenance of the four laning of Jetpur-Somnath section of National Highway 8-D from k.m. 0.00 to k.m. 127.00 in the State of Gujarat. The agreement had required the Concessionaire to on toll basis design, build, finance, operate and transfer (DBFOT) the project highway under NHDP Phase -III Project for a period of 30 years commencing from the date of appointment. The agreement had also postulated construction of Junagadh bypass for length of 19.80 k.m. 4. The concessionaire JSTL, in other words, had to incur entire costs, expenses and arrange for finances to construct the highway and operate, maintain, and manage the same. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bursements to the EPC Contractor in accordance with the express provisions contained in this behalf in the Financing Agreements. 31.3 Withdrawals during Concession Period 31.3.1 The Concessionaire shall, at the time of opening the Escrow Account, give irrevocable instructions, by way of an Escrow Agreement, to the Escrow Bank instructing, inter alia, that deposits in the Escrow Account shall be appropriated in the following order every month, or at shorter interval as necessary, 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: (a) all taxes due and payable by the Concessionaire for and in respect of the Project Highway; (b) all payments relating to construction of the Project Highway, subject to and in accordance with the conditions, if any, set forth in the Financing Agreements; (c) O M Expenses, subject to the ceiling, if any, set forth in the Financing Agreement; (d) O M Expenses and other costs and expenses incurred by the Authority in accordance with the provisions of this Agreement, and certified by the Authority as due and payable to it; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days prior to the Financial Close, three true copies of the Financial Package and the Financial Model, duly attested by a Director of the Concessionaire, along with three soft copies of the Financial Model, which was acceptable to the Senior Lenders. Senior Lenders could make direct disbursement to the specified contractor in accordance with the express provisions regarding such payments in the Finance Agreement. 7. In terms of the aforesaid agreement JSTL opened an escrow account with PNB, vide an Escrow Agreement dated 16th August, 2011, which was jointly executed and signed amongst PNB, JSTL, and NHAI. The Escrow Agreement under heading Clause 3 had prescribed deposits required to be made in the escrow account by JSTL, NHAI, and the Senior Lenders represented by PNB. Clause 4 was in relation to and regulated withdrawals from the escrow account during the period of Concession Agreement as well as withdrawal upon termination. Thus Escrow Agreement records and affirms that the Senior Lenders had agreed to finance the project in accordance with the terms and conditions set forth in the Financial Agreement. Again for clarity and convenience we reproduce, clauses 3.2 and 4.2 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Debt Due excluding Subordinate Debt. Priority of appropriation under the respective clauses is stipulated. 9. The Financing Agreement was the third agreement which was executed between PNB and JSTL on 19th August, 2011. NHAI is not a party to the Financing or Lenders Agreement, though a copy of the Lenders Agreement was furnished and given to NHAI, who as noticed above, was a party to the Escrow Agreement amongst the three parties. The Concession Agreement had stipulated in Clause 4.1.3(e) that the Concessionaire shall have executed the Financing Agreements, duly attested by the Director of the Concessionaire, as a condition precedent to be satisfied by the Concessionaire, prior to the appointed date. 10. The undisputed position is that there is an arbitration clause both in the Concession Agreement between JSTL and NHAI and in the Escrow Agreement amongst JSTL, NHAI and PNB. 11. Dispute arose between the NHAI and JSTL regarding execution of work relating to by-pass pertaining to time period, reason for delay, default and costs for execution of work. 12. On 13th May, 2016, JSTL issued a cure period notice to NHAI. NHAI in turn issued notice of termination on 10th Aug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a period of four months after making the final award by the Arbitral Tribunal. It also directs that the parties will comply with the provisions of Section 9(2) of the A C Act. 14. The impugned order holds that NHAI under Clause 37.3.1, relating to 'Termination Payment' on account of default by the Concessionaire, cannot make any deductions on account of NHAI's claims or that the recoveries or adjustments must be made by proportionately reducing equity component from the Total Project Cost to compute the termination payment. 15. In order to appreciate controversy and the respective contentions raised by the parties, we would first reproduce clause 37.3 of the Concession Agreement, relating to termination payment which reads as under: 37.3 Termination Payment 37.3.1 Upon Termination on account of a Concessionaire Default during the Operation Period, the Authority shall pay to the Concessionaire, by way of Termination Payment, an amount equal to 90% (ninety per cent) of the Debt Due less Insurance Cover; provided that if any insurance claims forming part of the Insurance Cover are not admitted and paid, then 80% (eighty per cent) of such unpaid claims shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Contractors only for compensation accruing and becoming due and payable to them under the terms of their respective Project Agreements from and after the date the Authority elects to succeed to the interests of the Concessionaire. For the avoidance of doubt, the Concessionaire acknowledges and agrees that all sums claimed by such Contractors as being due and owing for works and services performed or accruing on account of any act, omission or event prior to such date shall constitute debt between the Concessionaire and such Contractors, and the Authority shall not in any manner be liable for such sums. It is further agreed that in the event the Authority elects to cure any outstanding defaults under such Project Agreements, the amount expended by the Authority for this purpose shall be deducted from the Termination Payment. (underlining supplied) Clause 37.3.2 relates to termination on account of an Authority Default, i.e. NHAI default. In such cases NHAI is to pay to the Concessionaire i.e. JSTL, by way of termination payment, an amount equal to debt due and 150% of the adjusted equity. Clause 37.3.1 on the other hand applies to termination on account of a Concessionaire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued provisional certificate on 4th May, 2015 and as per Article/clause 15, the Project Highway was put to commercial use from 4th May, 2015. This aspect is important and relevant when we examine the contention of the NHAI that they are entitled to set off the alleged recoveries of ₹ 242.42 Crores while making payment under clause 37.3.1. 17. The expression debt due has been defined in the Concession Agreement, the relevant portion of which reads as under: Debt Due means the aggregate of the following sums expressed in Indian Rupees outstanding on the Transfer Date: (a) the principal amount of the debt provided by the Senior Lenders under the Financing Agreements for financing the Total Project Cost (the principal ) but excluding any part of the principal that had fallen due for repayment two years prior to the Transfer Date; (b) all accrued interest, financing fees and charges payable under the Financing Agreements on or in respect of, the debt referred to in sub-clause (a) above until the Transfer Date but excluding (i) any interest, fees or charges that had fallen due one year prior to the Transfer Date, (ii) any penal interest or charges payable und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. 19. The first contention of the appellant is that under Clause (a) of the definition clause defining debt due, the principal amount of debt should be for financing of the Total Project Cost. It is submitted that in the present case there was reduction of the Total Project Cost by ₹ 106.60 Crores, as Junagadh bypass was not constructed. The second submission is that the NHAI is also entitled to set off recoveries, they had to make, of ₹ 242.42 Crores. Thirdly, equity contributed by the promoters other than the equity issued to the Senior Lenders has to be excluded and therefore, an adjustment is required to be made for computing the debt due which wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th in the financial package and under clause (b) from the actual capital cost on completion. Clause (c) refers to the pre-determined figure of ₹ 828.00 Crores and states that Total Project Cost for the said clause would be the above figure less equity support. It is submitted by NHAI that this amount of ₹ 828.00 crores was the estimated or projected cost of the Project Highway. This is correct. Thus, the projected or estimated cost need not be the actual or financed capital cost, a facet which is recognized and accepted in Clauses (b) and (a). As per NHAI, adjustment is required to be made from this figure of ₹ 828 Crores for in this case JSTL had not executed and constructed Junagadh bypass 19.80km in length, the cost of construction of which was ₹ 106.60 crores. This figure of ₹ 106.60 crores was included in ₹ 828 crores. We shall subsequently examine the said contention. However, at this stage, we would only record that Total Project Cost being the lowest of the amount computed under Clauses (a), (b) and (c), it is required that we compute the amount payable under Clauses (a) and (b), and also the amount under Clause (c). The lowest amount wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 crores and 6.14 crores totaling to ₹ 228.17 have been deposited by NHAI in the escrow account. Thus, the balance amount payable as per JSTL and PNB is ₹ 348.60 Crores. The impugned order refers to the figure of ₹ 354.774 crores that includes ₹ 6.14 crores which now stands paid. 24. At the outset, 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, therefore, 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. 25. NHAI's claim for damages is yet to be adjudicated and remains a mere inchoate demand till it is determined and decided. It is not a crystalised and ascertained liability. Only af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 981 crores instead of estimated cost of the project mentioned in Clause (c) by NHAI of ₹ 828 crores. Relevant clause in the Financing Agreement reads as under: The total cost of construction and development of the Project High Way (defined hereinafter) is estimated to be ₹ 9,81,00,00,000 (Rupees Nine Hundred and Eighty One Crores Only), which is proposed to be funded, as follows: 29. The Senior Lenders had agreed to provide financing facility to the extent of ₹ 712 crores and the promoters were required to provide equity capital to the extent of ₹ 269 crores to make up the capital cost of ₹ 981 crores. NHAI, accordingly submits that the debt and equity ratio on total project cost of ₹ 981 crores was 72.58 : 27.42. Applying the said formula of debt and equity ratio they have calculated adjustment what is called adjusted total project cost as 523.59 crores, after excluding ₹ 106 crores from total project costs of ₹ 828 crores. 30. The aforesaid contention of NHAI, is contested by JSTL and PNB. The figure of ₹ 828 Crores it is stated is taken from Clause (c) of the definition of Total Project Cost. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be also the figure under Clause (b), if we treat the project as complete. This figure of ₹ 640.86 Crores was the debt due as on the termination date. Further, NHAI has not relied upon clauses (a) or (b) of the Total Project Cost in their computation. NHAI in their computation quoted in paragraph 20 above have applied clause (c) of the total project cost for they have referred to the figure of ₹ 828 Crores. 33. The contention of NHAI is that they are entitled to reduce and exclude from ₹ 828 crores, ₹ 106.60 crores for the unconstructed Jungadh bypass. On the said reduction, the Total Project Cost would be ₹ 721.40 Crores. Even if we accept the said contention as correct, it would not make any difference for this figure of ₹ 721.40 Crores is higher or more than the amount calculated under clauses (a) and (c), defining the expression debt due . The accepted position is that ₹ 640.86 crores i.e. ₹ 621.45 crores towards principal and ₹ 19.4 Crores as interest is payable under clauses (a) (or even clause (b) if we treat the project as completed) or clause (c) of the definition debt due . 34. As held by the learned Single Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection as may appear to the court to be just and convenient. Section 9 encompass the power of making orders as the Civil Court has for the purpose of, and in relation to any proceedings before it. This decision refers to Rule 10 of Order XXXIX of the aforesaid Code which empowers the Court to direct to deposit payment of the admitted amount. Therefore the court exercising power under Section 9 of the A C Act has the same power as that of a civil court during pendency of the suit. 36. The aforesaid dictum is re-enforced and reiterated in the recent decision of another Division Bench of this Court in Ajay Singh v. Kal Airways Private Limited FAO(OS)(Comm.) No. 62/2016 decided on 03rd July, 2017. Explaining the scope and ambit of Section 9 of the A C Act it was held as under: 26. Though apparently, there seem to be two divergent strands of thought, in judicial thinking, this court is of the opinion that the matter is one of the weight to be given to the materials on record, a fact dependent exercise, rather than of principle. That Section 9 grants wide powers to the courts in fashioning an appropriate interim order, is apparent from its text. Nevertheless, what the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (underlining supplied) 37. 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. However, we are more concerned and want to protect the rights of the lenders i.e. PNB, who would suffer a grave injury and adverse consequences, which will follow in case NHAI does not make the termination payment as agreed and stipulated in Clause 37.3.1 of the Concessionaire Agreement on fault of Concessionaire read with Clauses 3.2 and 4.2 of the Tripartite Escrow Agreement which formed the basis of the finance. 38. In view of the aforesaid discussion, we do not f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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