# RAPID METRORAIL GURGAON LIMITED ETC v. HARYANA MASS RAPID TRANSPORT CORPORATION LIMITED & ORS

- **Citation:** [2021] 3 S.C.R. 639
- **Court:** Supreme Court of India
- **Decided:** 2021-03-26
- **Case number:** Civil Appeals Nos. 925-926 of 2021
- **Bench:** Dr. Dhananjaya Y Chandrachud, M R Shah, Sanjiv Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/rapid-metrorail-gurgaon-limited-etc-v-haryana-mass-rapid-transport-corporation-35015
- **Pages:** 65

## Headnote

Constitution of India: Art. 226 - Power of High Courts to
issue writ - Award of Concession Agreement to two companiesRMGL and RMSGL respectively by Haryana Shehri Vikas
Pradhikaran-HSVP for developing metro rail - Meanwhile direction
by State of Haryana that all metro projects would be handled by the
first respondent - Thereafter, issuance of termination notice by
RMGL and RMSGL to HSVP to bring an end to the Concession
Agreement upon expiry of 90 days from delivery of the termination
- Thereafter, HSVP issued their termination notices to RMGL and
RMGSL, directing them to hand over the projects to HMRTC -
However, since RMGL and RMGSL were entities of a group
categorised in the Red category, they were to seek approval before
transferring or encumbering any assets - Subsequently, RMGL and
RMGSL permitted to handover possession and control of metro
project to HSVP pursuant to termination of the Agreement - On the
same day, writ petition u/Art. 226 by HSVP and HMRTC challenging
the notice of termination on the ground that it was against public
interest - High Court granted interim direction for continuance of
the operation of metro project for 30 days, which was further
extended and during which the debt due under the financing
documents in terms of concession agreements was to be determined
by the auditor and then HSVP was to deposit 80 % of the debt due
as determined in an Escrow Account in terms of Concession
Agreement, which would be subject to order of NCLAT or any other
court - On appeal, held: Exercise of writ jurisdiction by the High
Court u/Art. 226 was justified since non-interference, which would
have inevitably led to the disruption of rapid metro lines for
Gurgaon, would have had disastrous consequences for the general
public - However, ordinarily the High Court in its jurisdiction u/
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Art. 226 would decline to entertain a dispute which is arbitrable -
Directions contained in the High Court's consent order makes it
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 audit being completed within 30 days and 80 % of the
debt due being deposited within 30 days after the receipt of the
audit report; and that the rest of the disputes between the parties
arising out of the audit report were to be agitated in arbitration -
HSPV and HMRTC could not avoid compliance with the High Court's
Consent Order since they willingly agreed to pay 80% of the debt
due as per the auditor's findings - HSPV to deposit 80% of the
amount within 3 months - Amount to be maintained in the Escrow
Account subject to the orders of NCLAT or any other competent
authority - RMGL and RMGSL on the one hand and HSVP on the
other hand, at liberty to pursue their rights and remedies in
pursuance of the arbitration clause.
Disposing of the appeals, the Court
HELD: 1.1 The expression 'debt due' is defined in Article
1.1 of the Concession Agreement dated 9 December 2009. The
expression indicates that the term debt due comprises of three
components: the principal amount of the debt provided by the
senior lenders under the financing agreement; all accrued
interest, financing fees and charges payable under the financing
agreement; and any subordinated debt which is included in the
financial package. [Para 36][682-D-H; 683-A]
1.2 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. [Para 37][683-F-G]
1.3 Where the Concession Agreement has been terminated
by HUDA on account of a default by the concessionaire, HUDA
was required to ta

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 [2021] 3 S.C.R. 639
639
RAPID METRORAIL GURGAON LIMITED ETC.
v.
HARYANA MASS RAPID TRANSPORT CORPORATION
LIMITED & ORS.
(Civil Appeals Nos. 925-926 of 2021)
MARCH 26, 2021
[DR. DHANANJAYA Y CHANDRACHUD, M R SHAH AND
SANJIV KHANNA, JJ.]
Constitution of India: Art. 226 - Power of High Courts to
issue writ - Award of Concession Agreement to two companiesRMGL and RMSGL respectively by Haryana Shehri Vikas
Pradhikaran-HSVP for developing metro rail - Meanwhile direction
by State of Haryana that all metro projects would be handled by the
first respondent - Thereafter, issuance of termination notice by
RMGL and RMSGL to HSVP to bring an end to the Concession
Agreement upon expiry of 90 days from delivery of the termination
- Thereafter, HSVP issued their termination notices to RMGL and
RMGSL, directing them to hand over the projects to HMRTC -
However, since RMGL and RMGSL were entities of a group
categorised in the Red category, they were to seek approval before
transferring or encumbering any assets - Subsequently, RMGL and
RMGSL permitted to handover possession and control of metro
project to HSVP pursuant to termination of the Agreement - On the
same day, writ petition u/Art. 226 by HSVP and HMRTC challenging
the notice of termination on the ground that it was against public
interest - High Court granted interim direction for continuance of
the operation of metro project for 30 days, which was further
extended and during which the debt due under the financing
documents in terms of concession agreements was to be determined
by the auditor and then HSVP was to deposit 80 % of the debt due
as determined in an Escrow Account in terms of Concession
Agreement, which would be subject to order of NCLAT or any other
court - On appeal, held: Exercise of writ jurisdiction by the High
Court u/Art. 226 was justified since non-interference, which would
have inevitably led to the disruption of rapid metro lines for
Gurgaon, would have had disastrous consequences for the general
public - However, ordinarily the High Court in its jurisdiction u/
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Art. 226 would decline to entertain a dispute which is arbitrable -
Directions contained in the High Court's consent order makes it
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 audit being completed within 30 days and 80 % of the
debt due being deposited within 30 days after the receipt of the
audit report; and that the rest of the disputes between the parties
arising out of the audit report were to be agitated in arbitration -
HSPV and HMRTC could not avoid compliance with the High Court's
Consent Order since they willingly agreed to pay 80% of the debt
due as per the auditor's findings - HSPV to deposit 80% of the
amount within 3 months - Amount to be maintained in the Escrow
Account subject to the orders of NCLAT or any other competent
authority - RMGL and RMGSL on the one hand and HSVP on the
other hand, at liberty to pursue their rights and remedies in
pursuance of the arbitration clause.
Disposing of the appeals, the Court
HELD: 1.1 The expression 'debt due' is defined in Article
1.1 of the Concession Agreement dated 9 December 2009. The
expression indicates that the term debt due comprises of three
components: the principal amount of the debt provided by the
senior lenders under the financing agreement; all accrued
interest, financing fees and charges payable under the financing
agreement; and any subordinated debt which is included in the
financial package. [Para 36][682-D-H; 683-A]
1.2 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. [Para 37][683-F-G]
1.3 Where the Concession Agreement has been terminated
by HUDA on account of a default by the concessionaire, HUDA
was required to take over the complete project and assets, and
to pay to the lenders of the Project, as per the financing documents,
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an amount equal to 80 per cent of the debt due as termination
payment. Where on the other hand, the termination is by the
concessionaire on account of a default by HUDA, the
concessionaire was entitled to receive by way of a termination
payment, a sum equal to: the debt due; and 110 per cent of the
adjusted equity. [Para 39][686-D-E]
1.4 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 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; and that 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. The parties
clearly understood that once the debt due was ascertained in
terms of the audit report, 80 per cent would be deposited by
HSVP in the Escrow Account while the rest of the disputes in
respect of the audit report would be governed by arbitration. A
time of 30 days was envisaged for deposit the amount in Escrow
Account, upon the receipt of the audit report. Subsequently,
another order was passed by the High Court wherein clause (ii)
of the earlier order was substituted and the substituted one
envisaged that the auditors would also have to examine the scope
of the audit of the debt due suggested by HSVP. Hence, CAG
would also examine the scope of the audit of the debt due
suggested by HSVP in terms of the Concession Agreements.
Moreover, it was envisaged that the rest of the dispute either
arising out of the CAG report, the validity of the termination
notices issued by both the parties and any past or future claims/
liabilities inter se would be agitated in arbitration. On 15 October
2019, there was a further clarification by the Division Bench that
CAG would examine the scope of the audit of the debt due
suggested by both the parties in terms of the Concession
Agreements. Thus, it was understood by both the parties that
the determination of the debt due would be in terms of the
Concession Agreements. CAG specifically placed before the High
Court its understanding of the role to be performed by it. In its
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written statement before the High Court on 19 November 2019,
CAG stated that it had decided to appoint an auditor "for the
financial audit of debt due as on the transfer date". [Paras 45, 46]
[690-H; 691-A-G]
1.5 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 communications dated 18 March
2020 and 22 April 2020. By the later communication on behalf of
CAG, the response of the State government was requested to be
furnished before the deadline of 29 April 2020, failing which the
report would be finalized without including their response.
HMRTC, HSVP and the State government, however, did not
furnish their response to the draft report. Eventually, the audit
reports were finalised in respect of the debt due under the
Concession Agreements with RMGL/RMGSL respectively, and
were placed before the High Court in sealed cover. Following
the opening of the sealed cover on an application by the appellants,
an objection was raised in the form of an affidavit by HMRTC on
10 October 2020. According to HMRTC, the audit report was
inconclusive and incomplete, since several aspects which will
have an impact on the debt due remain to be determined. The
auditors stated that the scope of the audit as decided by CAG
was submitted to the High Court on 19 November 2019, and it
was intimated that only those issues which are relevant and related
to examining the debt due under the Concession Agreements
would be examined. Hence, other issues mentioned by HMRTC,
such as encumbrances and liabilities on the metro project,
shareholding/share in the valuation of the assets of the
concessionaire, change of shareholding rights, criminal acts and
liabilities, would require forensic and technical audit. Such audits
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are ongoing independently. The audit conducted by the auditors
appointed by the CAG herein, was limited to examining the debt
due as defined in the Concession Agreements. While arriving at
the principal and interest component of the debt due, the auditors
indicated that other matters had come to their attention, which
can have a significant impact on the debt due, and that the report
was subject to the outcome of such matters. [Para 47][692-E-H;
693-A-E]
1.6 Clause (ii) of the order dated 20 September 2019 makes
it abundantly clear that the basic purpose underlying the
entrustment of the reference to the CAG was the determination
of the debt due "as defined under the Concession Contract".
The High Court was seized of a proceeding under Article 226 of
the Constitution, and its writ jurisdiction had been invoked to
challenge the notices of termination issued by RMGL and
RMGSL, and for ensuring that the consequence which would
emanate on the expiry of the notice period of 90 days by the
cessation of the metro operations could be prevented by the
judicial intervention in the course of the public law jurisdiction.
The issuance of a notice of termination, the consequences which
would ensue, and the resolution of disputes is specifically provided
in the arbitration agreement between the parties, which is an
intrinsic part of the Concession Agreements. Hence, there was
an evident interface between this element of public interest on
the one hand and the contractual rights of the parties to the
Concession Agreements on the other. However, when HMRTC
and HSVP moved the High Court under Article 226, they did so
in view of the impending threat which was looming large on the
horizon of the rapid metro operations being brought to a standstill
as a result of the proximate expiry of the notice of 90 days
preceding termination. In the instant case, the High Court was
evidently concerned over a fundamental issue of public interest,
which was the hardship that would be caused to commuters who
use the rapid metro as a vehicle for mass transport in Gurgaon.
As such, the High Court's exercise of its writ jurisdiction under
Article 226 in the instant case was justified since non-interference,
which would have inevitably led to the disruption of rapid metro
lines for Gurgaon, would have had disastrous consequences for
the general public. However, as a measure of abundant caution,
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it is clarified that ordinarily the High Court in its jurisdiction under
Article 226 would decline to entertain a dispute which is arbitrable.
Moreover, remedies are available under the Arbitration and
Conciliation Act, 1996 for seeking interim directions either under
Section 9 before the Court vested with jurisdiction or under
Section 17 before the arbitral tribunal itself. [Para 49][694-G-H;
695-A-C; 696-B-D]
1.7 The termination of the Concession Agreements had
consequences in terms of the provisions contained in the
Agreement requiring a deposit of 80 per cent of the debt due
under Article 24.4. The contesting parties agreed to an
independent third-party determination of this amount by a neutral
entity, namely the CAG. The primary function of CAG was to
appoint a team of auditors for conducting a financial audit of the
debt due and in that process of also examine the scope of the
audit. The orders dated 4 October 2019 and 15 October 2019
issued by the High Court also envisaged that CAG would examine
the scope of the audit. While the earlier order of 4 October 2019
required CAG to examine the scope of the audit of the debt due
suggested by HSVP, the subsequent order dated 15 October 2019
required the examination by CAG on the scope of the audit after
bearing in mind the suggestions by both the parties "in terms of
the Concession Agreement". The expression "in terms of the
Concession Agreement" indicates that the basis of the audit was
to be what was envisaged in the Concession Agreements, which
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. [Para 50][696-E-H; 697-A-B]
1.8 The provision, 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
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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: the CAG report;
the validity of the termination notices issued by both the parties;
and any past or future inter se claims/liabilities; shall be agitated
and decided in arbitration proceedings. [Para 51][697-C-E]
1.9 HSVP and HMRTC on the one hand, and RMGL/
RMGSL on the other, were in discussion at arm's length when
they invited the High Court to pass its order dated 20 September
2019, and agreed to the modifications which have been made by
the orders dated 4 October 2019 and 15 October 2019. In the
face of the clear stipulations contained in the order of the High
Court, it would be impermissible to interdict the consequences
emanating from the working out of the directions contained in
the above orders of the High Court upon the submission of the
CAG report. [Para 52][697-E-F; 698-B]
1.10 CAG in the course of its affidavit filed before this Court
and High Court by the Deputy Accountant General, clarified that
it was decided, after examining the scope of the financial audit of
the debt due suggested by both the parties, that CAG would
examine only those issues which are related and relevant to
examining the debt due under the Concession Agreements. CAG
followed a process which is fair by making a statement on the
scope of the audit before the High Court in advance; examining
the scope of the audit as suggested by the parties before making
its determination; appointing a firm of chartered accountants for
conducting an audit as was envisaged in the order of the High
Court; furnishing the contesting parities with a copy of the draft
report; allowing the parties to submit their response to the draft
report; granting an extension of time to the State of Haryana to
submit its comments; and 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. [Para 53][698-C-G]
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1.11 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.
[Para 54][698-G-H; 699-A-B]
1.12 The Projects in question have been funded by a
consortium led by banks, among which are Canara Bank and
Andhra Bank. The terms of the Concession Agreements
expressly recognized that the Projects were being publicly funded
through financial institutions. The audit report emphasized that
the proportion between debt and equity was pegged at 70:30.
The terms of the Concession Agreement dated 9 December 2009
clearly envisaged the purpose of the Escrow Account in Article
18. HUDA, the predecessor of HSVP, entered into a Concession
Agreement dated 9 December 2009, which in Article 17 expressly
recognizes the linkage between the financing package and the
Concession Agreement. In fact, Article 17.2 emphasizes that the
rights of the concessionaire would stand waived if financial closure
was not to occur within six months within the cure period of six
months. Further, Article 18.1 envisages that all funds constituting
the financing package for meeting the concessionaire's capital
cost shall be credited to the Escrow Account during the period of
operations, and all fare and non-fare revenues collected by the
concessionaire shall be exclusively deposited in it. Under Article
18.2, the concessionaire was required to give to the Escrow bank
irrevocable instructions while opening the Escrow Account that
the deposits into the Escrow Account would be appropriated in
the manner indicated in clauses (i) to (ii) of Article 18.2.1. This
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includes provision for debt service payments. These provisions
in the Concession Agreement have a vital bearing on the subject
matter of the present dispute. Canara Bank in its affidavit filed
before the High Court has stated that on behalf of consortium of
lenders, acting as facility agent, it financed RMGSL in the
aggregate of Rs 1500 crores in terms of a common loan
agreement. The Escrow Account Agreement has been entered
into in pursuance of the Concession Agreement, and to effectuate
the funding of the Project No 2. As on 31 July 2019, the lenders
of RMGSL have an outstanding of Rs 1651 crores approx. Hence,
the Projects which have been executed by RMGL and RMGSL,
involved an outlay of funds from Andhra Bank and Canara Bank,
who have a vital stake in the financials of the Projects.
[Para 55][699-C-H; 700-A]
1.13 As such, HMRTC and HSVP cannot avoid at this stage
complying with the directions which were issued by the High
Court in its 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 due in Escrow
Account is to abide by such directions as may be issued by NCLAT
or any other competent statutory authority. Besides this
provision, remedies are available either before the competent
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Court under Section 9 or before the Arbitral tribunal under Section
17 of the Arbitration and Conciliation Act, 1996. Hence, there
being an agreement between the parties, to permit HSVP and
HMRTC to obstruct or delay compliance with their obligations
would be manifestly impermissible for three reasons: firstly, the
obligation to deposit 80 per cent debt due as a consequence of
the termination emanates from Article 24.4 of the Concession
Agreement dated 9 December 2009; secondly, the obligation to
deposit 80 per cent of the debt due as determined in the report
of the auditor has been assumed voluntarily before the High Court
by HSVP/HMRTC from which, as public bodies, they cannot be
permitted to resile; and thirdly, there is a vital public interest
element in ensuring that the monies which are committed by banks
and financial institutions towards financing infrastructure projects
are secured to them in terms of the Concession Agreements.
[Para 56][700-B-H; 701-A]
1.14 The underlying wrongdoing which was allegedly
conducted by the promoters in the erstwhile management of
IL&FS undoubtedly needs to be investigated. The process of
pursuing the forensic audit, the investigation by the SFIO and by
the law enforcement machinery must follow to its logical
conclusion. The NCLT is supervising the resolution process with
a government appointed Board now being in charge of the
management of IL&FS. Equally, financing arrangements entered
into by financial institutions towards fulfilling infrastructure
projects, based on the sanctity of the commercial contracts, are
to be duly observed. This facet has to be emphasized since it
embodies a vital element of public interest as well. Deterioration
in loan recovery not only leads to higher provisions and
diminished profitability but also constrains banks' lending capacity,
thus affecting the economy adversely". Unless the dues which
are assured to financial institutions as part of the arrangements
which are envisaged in Concession 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
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solemnly assumed before the High Court. Hence, on both counts,
HMRTC and HSVP cannot be permitted to resile. [Para 57]
[701-B-E]
1.15 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. This Court has been
constrained to intervene in the process in order to ensure that
the sanctity of the understanding that was arrived at before the
High Court on 20 September 2019 is duly maintained. There is a
vital public interest element in ensuring that monies which are
liable to be deposited in the Escrow Account with a nationalised
bank are duly deposited. HMRTC and HSVP, it must be
emphasized, are not left without remedy. The deposit into the
Escrow Account has to be maintained in that form and will abide
by such orders that may be passed by NCLAT or by a competent
statutory authority. Besides this, the Concession Agreements
provides a clear-cut remedy for seeking reliefs under the
arbitration agreement. [Para 58][701-F-G; 702-A-C]
1.16 The invocation of the writ jurisdiction of the High Court
under Article 226 of the Constitution by HMRTC and HSVP was
to challenge the termination notices dated 17 June 2019, and to
obviate the consequence of the cessation of the rapid metro
operations, which would have ensued on the expiry of the notice
period. The arbitration clause of the Concession Agreements
provides sufficient recourse to remedies which can be availed of.
That apart, the order of the High Court dated 4 October 2019
has also clarified that the rest of the dispute that remains after
the deposit of 80 per cent of the debt due, either arising out of
the CAG report, the validity of the termination notices issued by
both the parties and any past or future inter se claims and liabilities
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shall be agitated and decided in the arbitration proceedings. In
view of the order which is passed, the dispute between the High
Court in the writ jurisdiction under Article 226 of the Constitution
shall stand worked out by granting liberty to the parties to avail
of their rights and remedies in accordance with law. It is directed
that HSVP shall within the stipulated period deposit into the
Escrow Account 80 per cent of the debt due as determined in the
reports of the auditors dated 23 June 2020, in the case of RMGL
and RMGSL respectively; the deposit into the Escrow Account
shall continue to be maintained in Escrow, subject to any order
that may be passed by NCLAT or any competent statutory
authority, and shall not be appropriated by the Escrow Bank
without specific permission; 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; 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; upon compliance
with the directions contained in (i) 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 Concession Agreement
dated 9 December 2009 and clause (vi) contained in the order of
the High Court dated 20 September 2019, as modified on 4
October 2019 and 15 October 2019; and the writ petitions filed
before the High Court by the respondents are disposed of.
[Paras 59, 60][702-D-H; 703-A-G]
Sanjana M. Wig vs Hindustan Petroleum Corporation
Limited (2005) 8 SCC 242 : [2005] 3 Suppl. SCR 190;
Bisra Lime Stone Co. Ltd. v. Orissa SEB, (1976) 2 SCC
167 : [1976] 2 SCR 307; Manish Mohan Sharma v.
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Ram Bahadur Thakur Limited (2006) 4 SCC 416 : [2006]
3 SCR 97 - referred to.
Case Law Reference
[2005] 3 Suppl. SCR 190
referred to
Para 49
[1976] 2 SCR 307
referred to
Para 49
[2006] 3 SCR 97
referred to
Para 52
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.925926 of 2021.
From the Judgment and Orders dated 12.10.2020 and 16.12.2020
of the High Court of Punjab and Haryana at Chandigarh in CM-7881CWP-2020 in CWP-24949-2019 and CWP-24951-2019.
Tushar Mehta, SG, Alok Sangwan, Sr. AAG, B.K. Satija, AAG,
Mukul Rohatgi, Puneet Bali, Chetan Mittal, Dhruv Mehta, Sr. Advs.,
Raunak Dhillon, Abhijeet Das, Aditya Marwah, Shubhankar Jain, Arup
Gupta (for M/s Cyril Amarchand Mangaldas), Rajesh Goel, Sumit Kumar
Sharma, Anurag Kulharia, Sandeep, Jatin Kumar, Udit Garg, Himanshu
Gupta, Devan Munjal, Akshit Jain, Dr. Monika Gusain, Sanjay Bajaj,
Ms. Kanchan Kaur Dhodi, P.B.A. Srinivasan, Amit K. Nain, Parth D.
Tandon, Avinash Mohapatra, Ms. Chandralekha, Keith Varghese, Ms.
Ichchha Kalash, Ms. Nikitha Ross, Rajive Bhalla, Yajur Bhalla, Deepak
Samota, Ashish Bajpayee, Siddharth Srivastava, Shubham Bhalla, Advs.
for the appearing parties.
The Judgment of the Court was delivered by
DR. 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
RAPID METRORAIL GURGAON LTD. ETC. v. HARYANA MASS RAPID
TRANSPORT CORP. LTD
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SUPREME COURT REPORTS
[2021] 3 S.C.R.
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"), under the
Companies Act, 1956 (the "Act of 1956") and requested HSVP to accept
RMGL as the entity which would undertake, fulfill and exercise the
rights of the consortium under the letter of award.
2. On 9 December 2009, HSVP entered into a Concession
Agreement with RMGL for the execution of Project No 1 on a design,
build, finance, operate and transfer basis. HSVP granted a concession
to RMGL for a period of 99 years from the effective date, including the
exclusive right, license and authority during the subsistence of the
Concession Agreement to implement and operate Project No 1.
3. In 2012, HSVP issued another RFQ/RFP for developing a
metro rail link from Delhi Metro Sikanderpur Station on MG Road to
Sector 56, Gurugram ("Project No 2").
4. On 25 April 2012, IRL and ITNL entered into a consortium
arrangement in the form of a Memorandum of Understanding, under
which IRL was identified as the lead member of the consortium. The
bid submitted by the consortium was accepted by HSVP, which issued a
letter of award on 1 October 2012. Pursuant to the letter of award, the
consortium promoted and incorporated the second appellant, Rapid
MetroRail Gurgaon South Limited ("RMGSL"), which would fulfill the
obligations and exercise the rights of the consortium under the letter of
award. Thereafter, a Concession Agreement was entered into between
HSVP and RMGSL for the execution of Project No 2 on 3 January
2013. The term of the concession was 98 years commencing from the
effective date. RMGSL had the exclusive right, license and authority
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during the subsistence of the Concession Agreement to implement and
operate Project No 2.
5. RMGL completed Project No 1 on 14 November 2013.
RMGSL completed Project No 2 on 31 March 2017. In the meantime,
on 11 January 2014, the Town and Country Planning Department of the
Government of Haryana directed that all metro projects and projects for
Haryana Mass Rapid Transport in the State would be handled by the
first respondent, Haryana Mass Road Transport Corporation Limited
("HMRTC").
6. On 17 July 2018, RMGL and RMGSL issued notices to HSVP
to cure material breaches they alleged had been committed under the
Concession Agreement. Responding to the cure notice dated 17 July
2018, HSVP addressed a communication dated 11 October 2018 to both
RMGL and RMGSL.
7. On 1 October 2018, a petition1 was instituted 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 affidavit2 dated 11 February 2019 filed by the Union of India before
the NCLAT.
1 Company Petition No 3638 of 2018
2 Filed in Company Appeal (AT) No 346 of 2018
RAPID METRORAIL GURGAON LTD. ETC. v. HARYANA MASS RAPID
TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]
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SUPREME COURT REPORTS
[2021] 3 S.C.R.
9. On 7 June 2019, RMGL issued a notice of termination to HSVP
seeking to bring an end to the Concession Agreement dated 9 December
2009 in terms of Article 24.5.1, upon the expiry of 90 days from the date
of delivery of this termination notice. A similar termination notice was
issued by RMGSL to HSVP, in terms of Article 32.5.1 of the Concession
Agreement dated 3 January 2013. Further, on 7 June 2019, the appellants
responded to the letter of HSVP complaining of material breaches alleged
to have been committed by the appellants under their respective
Concession Agreements.
10. On 26 June 2019, RMGL wrote to HSVP intimating that the
divestment requirements contained in Article 25.4 and Article 25.2 of
the Concession Agreement dated 9 December 2009 had already been
completed by it. However, HSVP had failed to fulfill its obligations under
Article 25.4 to verify RGML's compliance with such divestment
requirements. A similar letter was addressed by RMGSL in the context
of the Concession Agreement dated 3 January 2013. On 1 August 2019,
RMGL informed HSVP that it had completed the formalities for handover
of Project No 1, and that the Concession Agreement dated 9 December
2009 would stand terminated on the expiry of 90 days from the
termination notice. RMGL asserted that it would stop the operation and
maintenance of Project No 1 after the termination. A similar letter was
addressed by RMGSL to HSVP in the context of the Concession
Agreement dated 3 January 2013 and Project No 2.
11. On 8 August 2019, NCLAT issued directions for the entities
forming a part of IL&FS group of companies which had been categorized
in the "red" category, inasmuch as that they had to seek the approval of
Justice D K Jain before alienating, encumbering, transferring or creating
third party rights on assets. RMGL presented a memorandum on 19
August 2019 to Justice D K Jain to seek his approval for handover of
the Project No 1 to HSVP. A similar approval was sought by RMGSL
in the context of Project No 2.
12. On 26 August 2019, the respondents issued a notice of
termination to RMGL under Articles 24.1 and 24.2 of the Concession
Agreement dated 9 December 2009. Terminating the agreement, they
directed RMGL to handover Project No 1 to HMRTC, which in turn
would hand it over to Delhi Metro Rail Corporation ("DMRC"). A similar
notice of termination was issued to RMGSL, coupled with an analogous
direction for handing over Project No 2.
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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 Petition3 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 Petition4 was instituted to challenge the notice of termination by
RMGSL on similar grounds, and similar interim directions were sought
in respect of Project No 2. The observations of Justice D K Jain,
contained in his order dated 6 September 2019, in respect of the
Concession Agreement dated 9 December 2009, were produced before
the High Court, which were as follows:
"20. Nevertheless, Clause 24.6 of Article 24 stipulates that upon
termination of the Concession Contract, "for any reason
whatsoever" HUDA shall take possession and control of Metro
link forthwith, including the material, construction plan, implements,
equipment, etc., on or about, the site. Therefore, except for the
stipulation of a prior 90 days' notice in writing to HUDA by the
Concessionaire for termination of the Concession Contract, where
after such termination takes effect, upon termination of the
Concession Contract by either of the Parties, HUDA is, obliged
to take possession of the Metro link forthwith. I am inclined to
agree with the Ld. Counsel appearing for RMGL that requirement
of the said prior notice is to enable HUDA to prepare itself to
take over the possession and control of the Metro link. In that
view of the matter, the Notice of termination of the Concession
Contract having been served by RMGL on HSVP (earlier known
as HUDA), in writing on June 7, 2019, the said termination notice
3 WP (C) No 24949 of 2019
4 WP (C) No 24951 of 2019
RAPID METRORAIL GURGAON LTD. ETC. v. HARYANA MASS RAPID
TRANS. CORP. LTD [DR.