State of Maharashtra v. Kalyan Sangam Infratech Ltd.

14. Mr. Andhyarujina would also point to findings rendered in the Impugned Award dealing with every single component of the Debt Due claimed by Kalyan Sangam to show that the Learned Arbitral Tribunal had emphatically rejected the computation of Debt Due presented by Kalyan Sangam. Yet, he would contend, the Learned Arbitral Tribunal embarked on a frolic to somehow deliver damages to Kalyan Sangam, without any assessment of damages. By the rejection of the claims on computing Debt Due and Equity, the Learned Arbitral Tribunal has effectively held that Kalyan Sangam had suffered no loss or damage and yet has provided for terminal payments.

15. Mr. Andhyarujina would contend that there was no breach, much less a material breach to trigger a payment of compensation because the toll notification had been disclosed to the bidders and the exemptions complained of were pre-existing conditions. He would submit that the concession to local vehicles was to be anticipated, and that TMC buses, being government vehicles were meant to be exempted from toll. These were elements well known way before Kalyan Sangam bid for and was awarded the Concession Agreement. Even the temporary ban on the traffic would, if they constituted a Change in Law, could at best entail adjustments to the Concession Period to ensure that Kalyan Sangam is placed in the very same economic position as before the Change in Law. He would contend that this was precisely the proposition from the GOM but Kalyan Sangam chose to terminate the Concession Agreement.

16. That apart, he contend that the Toll Notification dated November 16, 2011 and its amendment dated November 30, 2011, were issued because of policy of the Central Government, which would make it clear that this could not be considered an event of default on the part of GOM, since GOM was obligated to give effect to the Central Government’s notifications. Even assuming that Kalyan Sangam had suffered losses and was required to be compensated for the same, the Impugned Award would need to be set aside since no evidence was collected in the course of the arbitral proceedings to assess the damage suffered by Kalyan Sangam, for compensation to be awarded.

17. Mr. Andhyarujina has also found fault with the Learned Arbitral Tribunal for having outsourced the collection of evidence to a Commissioner appointed by the Learned Arbitral Tribunal. He would submit that even if the parties agreed upon such a procedure, it would be violative of the law inasmuch as the Learned Arbitral Tribunal that conducts the hearing ought to be the forum collecting and appreciating the evidence.

18. Finally, Mr. Andhyarujina would contend that the Impugned Award has adopted interest at the rate of 2% above the State Bank of India’s prime lending rate (“SBI-PLR”), which is contrary to contract, since the parties had agreed in the arbitration clause that interest that may be awarded by the Learned Arbitral Tribunal would need to be at a rate not exceeding the SBI-PLR.

19. Mr. Karan Bhide supplemented on behalf of GOM that the evidence collected in the course of the arbitration proceedings would point to Kalyan Sangam having voluntarily allowed TMC vehicles to cross the toll booth without payment of toll, and that Kalyan Sangam is now estopped from contending that the impact of TMC vehicles not paying toll should be visited upon the GOM.

20. In sharp contrast, Mr. Navroz Seervai, Learned Senior Advocate for Kalyan Sangam would rebut every proposition canvassed by Mr. Andhyarujina. He would point out that far from the Learned Arbitral Tribunal having gone on a frolic, the Impugned Award is impeccably consistent with all the relevant elements of the Concession Agreement. At the threshold, he would point to the original proposed toll rates being based on Schedule F to the Concession Agreement, which formed the basis on which the bidders made their bids in response to the tender. There have been material deviations from this foundational data set, which necessitated examining the impact on Kalyan Sangam.

21. Mr. Seervai would submit that traffic data had been provided by the GOM and indeed each bidder undertook his own survey of the potential traffic. Based on the implications of the traffic and the anticipated recovery of toll, every bidder had to quote the outer time limit by which Project would be transferred and handed back to the GOM. The exceptions to the tolling projected in Schedule F, pointed to monthly passes being priced at the rate of 50 one-way trips but this was altered materially by directing that anyone residing within a 5-KM radius of the toll booth would be given monthly passes at the rate of 10 one-way trip tolls as opposed to the projected rate of 50 one-way trip toll. Likewise, the notification of the Traffic Police banning traffic resulted in an indefinite entry ban for large parts of the day, to tollpaying traffic to enable flyover construction and repair. This led to a marked reduction in the traffic and thereby the toll collection, with effect from April 9, 2010. The Traffic Police being an agency of the GOM, this was indeed within the power of GOM and therefore, had to be compensated for, Mr. Seervai would contend.

22. TMC’s bus service plying on the toll road to provide municipal passenger bus services to citizens was a business service, and could never be regarded as exempt for being vehicles “of” the Central Government and State Government. The exemption of government vehicles would relate to vehicles used by these governments for their own official duty, and it could never be extrapolated to cover public transport services provided by local municipal bodies to ferry the public. TMC availed of better road infrastructure and had to pay for the improved efficiency, but they violated this requirement and created law and order problems, which resulted in Kalyan Sangam being coerced to let the buses pass by without paying toll – far from being estopped due to voluntary waiver of toll to TMC.

23. The Learned Arbitral Tribunal, Mr. Seervai would submit, had effectively dealt with the materiality of the impact of such restrictions and deviations and demonstrated that a 57% impact was discernable based on the very survey carried out by GOM itself to assess the impact of the developments complained of. This, Mr. Seervai would submit was a demonstrable material adverse effect and certainly a product of actions of the GOM and agencies of GOM, all of which reasonably fall within the terms defined GOM’s default in the Concession Agreement. Mr. Seervai would submit that a decision of a Learned Single Judge in the case of Plus BKSP[1] has squarely dealt with the issue of whether 1MSRDC v. Plus BKSP Toll Ltd – 2021 SCC OnLine BOM 607 actions of State Police or violations by Municipal Authorities in complying with toll payments would constitute actions of the State agencies, leading to an default on the part of the State.

24. Mr. Seervai would submit that the Learned Arbitral Tribunal indeed rejected the computation of Debt Due and Equity as presented by Kalyan Sangam. However, all the Learned Arbitral Tribunal has done is to hold that merely because more capital than envisaged by Kalyan Sangam had been spent, the GOM cannot be asked to make terminal payments on the basis of such expenditure. However, that would not mean that no terminal payments consistent with the contract could at all be paid. The agreed position on Project Cost based on Kalyan Sangam’s bid was Rs. 227.35 crores and the Learned Arbitral Tribunal has reasonably used this as an indicator of what the terminal payments were meant to be based on and has given lower than what Kalyan Sangam was entitled to, and this being a reasonable and plausible means to giving the contract its full meaning. That apart, far from there having been no whisper of a debt-equity ratio, Mr. Seervai would point to the debt-equity ratio 70:30 being an integral part of the bid that was accepted by issuance of the LOI on August 5, 2008. The Project Cost of Rs. 134 crores had been the initial indicative amount but was reassessed by the parties and by consent they agreed that it would be Rs.

227.35 crores. The Learned Arbitral Tribunal, he would submit, was impeccable in its approach of breaking up the aforesaid amount, applying the agreed debt-equity ratio, and applying the formula for payment of terminal payments under Clause 16.[2] of the Concession Agreement.

25. That apart, Mr. Seervai would also point to the very pleadings of the GOM in the captioned Petition (Paragraphs 3.[1] to 3.5), which are consistent with the record and indeed with the Impugned Award, inasmuch as the Project Cost in GOM’s pleadings was admittedly Rs.

227.35 crores and the debt-equity ratio was admittedly 70:30. Therefore, he would submit, the contentions made across the bar were not consistent with either the record or with GOM’s own pleadings. Admissions made in pleadings were not amenable to being secondguessed and contradicted in verbal submissions, Mr. Seervai would contend. Likewise, he would submit that the proposition that Kalyan Sangam always knew that TMC vehicles were meant to be vehicles of the State Government is also a completely new argument not being made, since this was not even the case set up before the Learned Arbitral Tribunal.

26. I have given my anxious consideration to the contentions of the parties, the material on record and the analysis of the Learned Arbitral Tribunal in the Impugned Award. At the threshold, a word about the well-settled law on the scope of jurisdiction under Section 34 of the Act would be in order. The standard of review is well covered in multiple judgements of the Supreme Court including Dyna Technologies[2],, Ssyangyong, Konkan Railway[4] and OPG Power[5]. Even implied reasons that are discernible in an arbitral award may be inferred by the Section 34 Court, to support the just and fair outcome contained in arbitral awards. To avoid prolixity, I do not think it necessary to burden this judgement with quotations from these judgements. Material Adverse Effect and Material Breach:

27. It is seen from the Impugned Award that the issue of whether there been a material breach arising out of GOM’s breach has been well analysed by the Learned Arbitral Tribunal. A careful review of the Impugned Award would also indicate that the Learned Arbitral Tribunal

3 Associate Builders vs. Delhi Development Authority – (2015) 3 SCC 49

4 Konkan Railways v. Chenab Bridge Project Undertaking – 2023 INSC 742 5 OPG Power vs. Enoxio – (2025) 2 SCC 417 has truly not sought to compensate for damages but has applied itself to the provisions of contract that deal with making of terminal payments where there is an event of default on the part of GOM. Therefore, the finding that there was a default on the part of GOM needs discussion.

28. A close scrutiny of the Impugned Award would show that the Learned Arbitral Tribunal has returned a well reasoned and plausible analysis of the fall in traffic and the causes for the fall in traffic. The entry ban was indeed issued by the traffic police, which is but an agency of the GOM. The concessions that were provided to vehicles registered in the names of local residents within a 5 KM radius is indeed far deeper than was envisaged and projected when bidders made their bids. The Learned Arbitral Tribunal has assessed the traffic data and based on the traffic census of August 2006 the traffic intensity on that route was estimated, purely as guidance, at 42,390 PUC per day. That Kalyan Sangam had an actual traffic survey conducted for assessment by lenders who financed the project and came up with the traffic count of 30,753 PUC per day has also been noticed. Both these surveys were prior to the execution of the Concession Agreement. Thereafter, after the impact of the various GOM actions complained of, an independent consultant Samarth Softtech Pvt. Ltd. was appointed for conducting in camera traffic survey by the GOM between February 6, 2012 and February 20, 2012 and this indeed returned a finding of the traffic having fallen to 19,264 PUC per day.

29. This is the empirical basis on which the Learned Arbitral Tribunal has arrived at materiality of the impact of the toll paying traffic on the road built by Kalyan Sangam. It is also seen from Paragraph 104 of the Impugned Award that the GOM itself had itself quantified losses due to various events complained of, with an estimated loss on a per day basis in the sum of Rs. 4,36,462/-. Therefore, the percentage loss in toll collection on the basis of the estimate was in the region of 57%. This would indeed point to the effect of the breach being material in nature and therefore causing a material adverse effect.

30. The Learned Arbitral Tribunal took note of the fact that even during the construction period but after the execution of the Concession Agreement, the State had decided to construct a flyover bridge at Kapur Bavadi Junction, on Godbandar Road at Thane in 2009. The construction of such flyover bridge was never in contemplation through the tender process and the execution of the Concession Agreement. In connection with such flyover, the Traffic Police issued a notification dated April 9, 2010 banning the entry of traffic, which truly had an impact on toll collections The toll road had been completed by November 2011 and a provisional completion certificate making the road fit for commercial operation was also issued on November 9, 2011. Therefore, even before commercial operations could commence, a material impact on potential toll collection took place.

31. The Toll Notification was issued on November 16, 2011 (“Toll Notification”), which underwent a corrigendum on November 30, 2011. This was the staring point for Kalyan Sangam to collect toll. The toll booths on both sides of the traffic were located at a distance of 2.85 k.m. and as per the location of the toll booth, a smaller portion of the toll road which did not have proximity to any residential or commercial area fell on the South side of the toll road. However, a significant portion of about 5.[2] k.m. which had an intensive presence of warehouses and residential areas involving several villages were located on the North side of the toll road.

32. Toll collection commenced on November 17, 2011. The benchmark for the toll collection and the pricing in the bid which led to the Concession Agreement was the notification dated July 30, 2009, which was the basis of Schedule F to the Concession Agreement. The GOM imposed a condition of granting a significant discounts that were far deeper than Schedule F. The monthly pass for vehicles registered by local residents was to be charged at a discounted rate of Rs.250. The Learned Arbitral Tribunal analysed this and found that a pass that would have cost Rs.1,250/- was discounted to a mere Rs.250/-. Moreover, the Toll Notification directed Kalyan Sangam to collect toll only from four categories of vehicles and at rates prescribed that were significantly different from the toll rates indicated in Schedule F, which informed the assessments made by bidders.

33. Upon commencement of the toll collection, evidently, the Learned Arbitral Tribunal found a drastic fall in the revenue levels to the extent of 26 to 35% of the estimates on which the bidding was based. The attribution to the fall and toll collection was essentially to three factors, namely, the no entry ban imposed of by the traffic police in connection with the flyover project; the monthly pass concession granted to local residents for light motor vehicles and the non-payment of toll by busses plied by the TMC.

34. Having examined the reasons for the drastic fall, the Learned Arbitral Tribunal compared the surveys conducted the GOM and by Kalyan Sangam prior to execution of the Concession Agreement with the study conducted by an independent consultant who studied the traffic on the toll road between February 6, 2012 and February 20, 2012. The loss attributed in this survey to each of the causes complained of has been examined. What is writ large us that there has been a wellreasoned empirical basis to the findings of material adverse effect. The sheer scale of the impact indeed would make the Learned Arbitral Tribunal’s finding of material adversity plausible and reasonable.

35. Mr. Seervai is right in his reliance upon Plus BKSP to the extent that in that case too events of a similar nature and its impact on a toll concession agreement had led to a drastic fall in toll collections. A Learned Single Judge has analysed the factual matrix and concluded that notifications such as the Toll Notification could indeed lead to being treated as an event of default. While each contract must be examined for its own terms, in principle and in concept, the approach to toll was the same, namely, the bidder responded to the tender and bid for the period within which the toll road would be handed back free of cost to the State. The shorter the period of promised hand over of the infrastructure to the State, the greater was the merit of the bid. Therefore, the basis on which the costs and cash flows are assessed and the period within which the road is promised to be handed over to the State are material facets in the operation of the contract. Therefore, where there is a material impact on the cash flows and toll earnings, it would indeed be open to the Learned Arbitral Tribunal to examine the materiality of the impact and consider the adversity of the effect of the development.

36. Having examined the Impugned Award and the material on record, in my opinion, no fault can be found with the finding of the Learned Arbitral Tribunal that there has been a material impact at the hands of the three developments, all of which were under the control of the GOM.

37. I am unable to accept Mr. Andhyarujina’s contention that TMC buses should be treated as vehicles of the Central or State Government for more than one reason. The passenger buses are a municipal transportation utility service that benefits from the efficiency of a toll road. The vehicles are not transported for purposes of GOM’s business or the Central Government’s business. Just as any other bus operator would need to pay toll, the TMC buses needed to pay toll. Kalyan Sangam was indeed pressured and coerced into letting TMC buses drive off risking a law and order situation and the public disorder that would emerge from not raising the barrier to let the TMC buses pass. It was incumbent on the GOM to use its powers to issue directions to municipal authorities – Section 450A of the Maharashtra Municipal Corporations Act, 1949 could have been pressed into service by the GOM to direct the TMC to ensure that its buses pay toll. The said provision reads as follows:- 450A. Notwithstanding anything contained in this Act, the State Government may issue to the Corporation general instructions as to matters of policy to be followed by the Corporation in respect of its duties and functions, and in particular it may issue directions in the larger public interest or for implementation of the policies of the Central Government or the State Government and the National or the State level programmes, projects and schemes. Upon the issue of such instructions or directions it shall be the duty of the Corporation to give effect to such instructions or directions: Provided that, the State Government shall, before issuing any instructions or directions under this section, give an opportunity to the Corporation to make representation within fifteen days as to why such instructions or directions shall not be issued. If the Corporation fails to represent within fifteen days or, after having represented, the State Government, on considering the representation, is of the opinion that issuing of such instructions or directions is necessary, the State Government may issue the same [Emphasis Supplied]

38. Even a plain reading of the foregoing provision would show that it was within the powers of the GOM to issue a policy direction to the TMC to comply with the GOM’s policy of advancing the State’s infrastructure by private investment in the road sector, which was to be serviced by payment of tolls. Clearly, this is an implied reason in the Impugned Award. The GOM cannot wash its hands off the TMC and plead estoppel, which implicitly expects Kalyan Sangam to have precipitated matters and gone through with a confrontation with TMC’s drivers. In the same breach the GOM cannot wash its hands off by trying to persuade this Court by stating that all TMC buses are but vehicles of the GOM.

39. The toll concession granted to plying of vehicles registered by local residents also entailed a far deeper discount than anticipated. the Learned Arbitral Tribunal has rightly observed that the parameters of Schedule F informed the bid by Kalyan Sangam. If the monthly pass was going to be priced at 50 times a one-way toll, and that is inexplicably changed to 10 times a one-way toll, on the face of it, it is a material change in terms. Whether such change in terms had a material impact on the overall toll collections has been empirically studied by the Learned Arbitral Tribunal which is the master of the evidence and the Learned Arbitral Tribunal word on findings of fact. So long as the findings are reasonable, not arbitrary and based on an objective assessment, this Court in exercise of jurisdiction under Section 34 cannot second-guess the Learned Arbitral Tribunal.

40. The traffic ban too was by the local police to regulate traffic movement pending construction of a flyover. It cannot be said that the GOM has no role at all to play. The flyover project and the potential traffic ban ought to have been made known to bidders. Kalyan Sangam would have factored it into the Concession Period since lower toll collections to finance the construction cost incurred would then have had its impact in its judgement.

41. On all three counts – the traffic entry ban, the deeper concessions to local vehicles, and the non-compliance by TMC – there has indeed been a material adverse effect on the ability to exercise Kalyan Sangam’s right to collect toll, which lies at the heart of the Concession Agreement. Evidently, the agreed Project Cost wa Rs.

227.63 crores to be spent in the first three years, and the cash flows from toll collections were to be Rs. 27.98 crores in the first year alone and a total of Rs. 1,733.18 crores over the Concession Period. There has been an evident impact on the toll collections. With time and cost overruns in implementation of public projects, the entry ban indeed had a deeper impact. The Learned Arbitral Tribunal has analysed these well and arrived at a plausible conclusion. No fault can be found with it.

42. Therefore, there has been a material adverse impact as defined – a material adverse effect on the exercise of the right to collect toll. Such material adverse effect is attributable to the GOM’s commitments and promises on which the Concession Agreement is based. Therefore, the finding of there having occurred a material breach by GOM cannot be disturbed. Indeed, a cure notice was issued and the default was not cured. There is serious doubt about whether a proposal to extend the Concession Period to compensate for the loss of toll collection in terms of Clause 17 of the Concession Agreement (which sets out the Change in Law provisions), was actually communicated by GOM to Kalyan Sangam. The Learned Arbitral Tribunal has not been presented with this facet. Even before this Court, the parties have not been able to show where this was communicated. Therefore, the naturally corollary was that the termination after the cure notice was legitimate. Terminal Payments:

43. This brings me to the other core issue – the implication of the material breach for terminal payments due under the Concession Agreement. Clause 16.2(b) of the Concession Agreement provides for the terminal payments already described earlier in this judgement. What this entails is the computation of Debt Due and Equity. These are defined terms. The definition of Equity was deleted while the definition of Debt Due and the Clause 16.2(b) was retained undisturbed.

44. The short point is that the monies that have been invested by Kalyan Sangam towards the Project, is meant to have been financed by Debt Due and Equity. Upon termination of the Concession Agreement due to a GOM Event of Default, the terminal payment entailed aggregating 120% of the Equity and 100% of the Debt Due. This was contracted as a measure of compensation – Kalyan Sangam should be able to pay the debts and recover its investment since for no fault and due to the fault of GOM, the Concession Agreement was getting terminated.

45. The Learned Arbitral Tribunal has examined the data presented by Kalyan Sangam on the Debt Due and the Equity. In the absence of a specific demonstration of how the Debt Due was appropriately incurred for the Project and of how the equity funds were actually invested in the Project, the Learned Arbitral Tribunal was not satisfied with the data presented by Kalyan Sangam. Therefore, the Learned Arbitral Tribunal rejected the claim of Debt Due being measured in the sum of Rs. 335 crores and Equity being measured at Rs.

227.99 crores. Instead, the Learned Arbitral Tribunal took the view that the Project Cost would be the minimal measure of what was agreed as being the reasonable investment that ought to have been made in the Project. This was taken as a reasonable measure of what the reasonable Debt Due and the reasonable Equity ought to have been. Therefore, the Project Cost of Rs. 227.67 crores would be a fair estimate of what the components would be. To this figure the debt-equity ratio of 70:30 was applied and the terminal payments were arrived at in terms of Clause 16.2(b) of the Concession Agreement.

46. I have given the material on record a careful read in this regard, particularly factoring in Mr. Andhyarujina’s submissions. It is not accurate to state that the figure of Rs. 227.67 crores was a cash flow figure and not the project cost. It is also wrong to state that the project cost was Rs. 134.70 crores. Indeed the “Contract Data” presented to the bidders was the figure of Rs. 134.70 crores. However, the bid that was approved by GOM actually provided for a Project Cost of Rs. 227.67 crores. This is not the figure of cash flows but forms part of the document that is titled “Approved Cash Flows by Govt of Maha” but clearly shown as “Project Cost”. Likewise, it is not correct to state that there is no mention of any debt-equity ratio of 70:30. The very document titled “Contract Data” relied upon to claim that the Project Cost was Rs. 134.70 crores actually provides for the debt-equity ratio to be applied.

47. Therefore, all the objections about the computation being based on non-existent debt-equity ratio and wrong value of Project Cost stand undermined. I find no reason to reject the adoption of this measure by the Learned Arbitral Tribunal, which has indeed been conservative in granting terminal payments to Kalyan Sangam. The Learned Arbitral Tribunal rejected the higher values of Debt Due and Equity and simply took the agreed values. Mr. Seervai is right that these figures even form part of GOM’s pleadings and it is not open to GOM to now instruct its advocates make submissions contrary to the pleaded and admitted position. Interest Rate Applied:

48. The next issue is that of the interest rate that has been awarded by the Learned Arbitral Tribunal. The contention that interest awarded at the rate of 2% above the SBI-PLR is contrary to the terms of the contract is also proven wrong. Indeed, the arbitration clause provides for the Learned Arbitral Tribunal granting interest at SBI-PLR. However, Clause 16.[4] of the Concession Agreement which deals with when the terminal payments under Clause 16.[2] has to be paid, provides for payment within 90 days of demand with certification from the statutory auditors. After that, another 30 days of grace is provided, after which the terminal payments would attract simple interest at the rate of SBI-PLR plus 2% per annum.

49. This is precisely what the Learned Arbitral Tribunal has interpreted and implemented. The Learned Arbitral Tribunal was not granting interest on its own discretion but merely applied the contracted interest rate. The specific interest rate agreed by the parties for this specific payment is SBI-PLR plus 2% per annum and this is what the Learned Arbitral Tribunal has done. Therefore, the Learned Arbitral Tribunal cannot be faulted on this count too.

50. In these circumstances, I am not satisfied that a case has been made out for interference with the Impugned Award. Therefore, the Petition is dismissed without any interference. Interim Applications, if any shall also be disposed of accordingly.

51. Any amounts deposited in Court shall be released within a week of the expiry of one month from the date on which this judgement is uploaded on this Court’s website. This being a commercial dispute, costs must follow the event. A token sum of costs of Rs. 5 lakhs is considered appropriate and shall be paid to Kalyan Sangam within the same deadline as aforesaid.

52. This order will be Secretary/Personal Assistant of this Court. All concerned will act on [ SOMASEKHAR SUNDARESAN, J.]