Financing arrangements by financial institutions towards fulfilling infrastructure projects, based on the sanctity of the commercial contracts, are to be duly observed: Supreme Court of India
The NCLT is supervising the resolution process with a government-appointed Board now being in charge of the management of IL&FS and that the 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 judgment was passed by the Hon’ble Supreme court of India in the matter of Rapid Metro Rail Gurgaon Limited Etc. v. Haryana Mass Rapid Transport Corporation Limited & Ors. [Civil Appeals Nos. 925-926 of 2021] by Justice Dr. Justice Dhananjaya Y Chandrachud.
This judgment was 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
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.
Later, 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 and a petition 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 the 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 authorized to conduct its business and formulate a road map for recovery.
The court concluded that “We accordingly dispose of the appeals in terms of the following directions:
- HSVP shall within a period of three months from the date of the present judgment deposit into the Escrow Account 80 percent 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) 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 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 shall stand disposed of.