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HIGH COURT OF DELHI
Date of Decision: 1st December, 2021
BAMANBORETOLLWAY PRIVATE LTD. ..... Petitioner
Through: Mr. Nakul Dewan, Senior Advocate with Mr. Mahesh Sahasranaman, Ms. Geetanjali Murti and Mr. Sambit Nanda,Advocates.
Through: Mr. Abhay Gupta, Advocate.
JUDGMENT
SANJEEVNARULA,J. (Oral):
1. The present petition under Section 9 of the Arbitration and Conciliation Act, 1996 [hereinafter, “the Act”] has been filed seeking interim measures pending constitution of the Arbitral Tribunal against coercive recovery by NHAI towards damages due to failure of repair and maintenanceworkon project assets.
THE DISPUTE
2. The facts leadingto the presentpetition areas follows: 2021:DHC:3910
2.1. Petitioner – BamanboreTollwayPrivateLtd. [hereinafter, “BTPL”] and RespondentNo. 1 – NationalHighwaysAuthority ofIndia [hereinafter, “NHAI”]entered into a Concession Agreement dated26th April, 2018 inter alia for ‘Tolling, Operation, Management, Maintenance & Transfer of National Highway stretch of Bamanbore to Garamore Section (from km 182+600 to km 254+537) of NH8A’ [hereinafter, ‘Project Highway’] in Gujaraton a Toll-Operate-Transfer (‘TOT’)Basis for a period of30 years.
2.2. Pursuantto a joint-inspectioncarried out on 25th April, 2020 along with representatives ofBTPL, theIndependent Engineer [hereinafter, “IE”], vide letter dated 27th April, 2020,listed out defects in the work thatrequired repair and maintenance. Subsequently the damages were quantified and proposed at Rs. 1,55,652/- in compliance with Article 15.8.1(b) of the ConcessionaireAgreement.This was followed by another communication dated 18th August,2020, wherein theIE, pursuantto inspectioncarriedout at theproject siteon 12th August,2020, listed out furtherdefects. On the basis of said defects, the IE proposed that damages under Clause 15.8.1(b) be fixed at Rs. 2 lacs per day, tillthe repairworkwas completedby BTPL.
2.3. BTPLresponded to theafore-notedcommunications videletter dated 24th August,2020contendingthat defects had been rectified. It submitted a compliancereportto thateffect, enclosingphotographs of repairs carried out. In the meantime, NHAIon 31st March, 2021, on basisofthe letter of IE proposingthedamages, called uponthePetitioner to makea paymentof Rs. 4,09,55,652/-as per Article15.8.1.BTPLvide letters dated 7th April, 2021 and 9th June, 2021, refuted all allegations levelled against it in detail, and also called upon NHAI to withdraw the Demand Notice dated 19th June,
2020.
2.4. NHAIissued an escrow invocationletter dated 2nd November, 2021 threatening recovery of an amount of Rs. 4,09,55,652/- from an escrow account No. 038305001943maintained by BTPLat ICICI Bank, Chembur BasantCinema Branch, Mumbai.
2.5. In this background, BTPL has filed the present petition seeking interim protectionofrestrainingNHAIfrom coerciverecovery of damages from theaforesaid escrowaccount or such othermeans.
3. Mr. NakulDewan, SeniorCounselfor BTPL, states that theaction of NHAIis completely arbitraryand unreasonable, and makes the following submissions:
3.1. The action of NHAI for recoveringdamages from theescrow account is contrary to contractual terms. NHAI’s right to remedial measures is stipulated under Article15.[9] of theConcessionaireAgreement,which reads as follows: “15.[9] Authority’s right to take remedial measures 15.9.[1] In the event the Concessionaire does not maintain and/or repair the Project Highway or any part thereof in conformity with the Maintenance Requirements, the Maintenance Manual or the Maintenance Programme or Safety Requirements, as the case may be, and fails to commence remedial works within 15 (fifteen) clays of receipt of the O&M Inspection Report or a notice in this behalf from the Authority or the Independent Engineer, as the case may be, the Authority shall, without prejudice to its rights under this Agreement including Termination thereof, be entitled to undertake such remedial measures at the risk and cost of the Concessionaire, and to recover its cost from the Concessionaire. In addition to recovery of the aforesaid cost, a sum equal to 50% (fifty per cent) of such cost shall be paid by the Concessionaire to the Authority as Damages. For the avoidance of doubt, the right of the Authority under this Clause 15.9.[1] shall be without prejudice to its rights and remedies provided under Clause 15.8. 15.9.[2] In the event of non- payment by Concessionaire of such delinquent amount forthwith and in any case within seven days of issue of written notice by Authority the Authority shall have the right and the Concessionaire hereby expressly grants to the Authority the right to recover the costs and Damages specified in Clause 15.9.[1] directly from the Escrow Account, and for that purpose, the Concessionaire hereby agrees to give irrevocable instructions to the Escrow Bank to make payment from the Escrow Account in accordance with the instructions of the Authority under this Clause 15.9.2.” [emphasis supplied]
3.2. Under Article15.9.2,NHAI’sright to recover delinquentamount and damages from the escrow account, is subject to due compliance of the conditions stipulated in Article 15.9.1. NHAI has to first carry out the remedial measures at the risk and cost of BTPL, as provided in Article 15.9.1, and only then can it make a recovery for delinquent amount and damages.
3.3. The proposedrecovery by NHAIunder theDemandNotice has been donepurely on thebasis ofdamages calculated unilaterally by them – which BTPL strongly disputes. Since the imposition of damages is in dispute, NHAIcannot recover thesame from theescrow account.
3.4. The right to recover damages under Article 15.8.[1] cannot be understood to mean that NHAI can resort to recovery from the escrow account as providedunder Article15.9.1. NHAI can invoke the said Article only in the event BTPL fails to commence remedial works within 15 days of the O&M Inspection Report Notice, provided NHAI undertakes remedial measures at the risk and cost of BTPL. Only if the BTPL fails to pay the delinquent amount, can NHAI recover the costs and damages specified in Article 15.9.[1] from the Escrow Account.
3.5. BTPLhad successfully and diligently carried outallthe rectifications despitethedifficulties faced dueto COVID-19 lockdowns. The same were communicated to theIE with photographsevidencingtherepair work. The detailed communicationsdated7th April, 2021and 9th June, 2021 have not been denied or respondedto by NHAI.
3.6. The computation of damages at Rs. 4,09,55,652/- is completely arbitrary and is wrongly founded on an allegation that defects remain uncured, despiteBTPLestablishingto thecontrary– that work had indeed been carried out in terms of the communications referred above. On the receipt of the letters from the IE, BTPL had vide 25th November, 2021 reiteratedthatit had completedallits obligations.Thequantum of damages computed by IE and NHAI is ex facie arbitrary, excessive and erroneous. BTPLalso requested for thewithdrawalofthe said demand andgrant of an opportunityto demonstrateas to why theimposition ofliquidated damages was not warranted, butno responsewas received for the same.
3.7. The recovery from the escrow account under Article 15.[9] is impermissible without taking recourse under Articles 20.[6] and 37 of the Agreement.
4. Mr. Abhay Gupta, counsel for NHAI, controverts the contentions made by Mr. Dewan and submits that NHAI had to take recourse under Article 15.8.1on accountof BTPL’s failureto carry outtherepairs, despite havingbeen duly notified. He submitsthat theterms ofthe contract clearly providedtheright of recovery ofdamages from theEscrowAccount. In this regard, heplaces reliance upon Articles 23A.3, readsas under: “23A.[3] Withdrawals during Concession Period 23A.3.[1] The Concessionaire shall, at the time of opening of 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 intervals 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 and other costs and expenses incurred by the
(d) monthly proportionate provision of debt service payment due in an
Accounting Year (f) all payments and Damages certified by the Authority as due and payable to it by the Concessionaire; and (j) balance, if any, in accordance with the instructions of the Concessionaire.” [Emphasis supplied]
5. He argues that sub-Article(f) of theafore-notedprovision evidently includes damages certified by NHAI which can be recovered from the escrow account.This hesubmitsis in consonancewith Clause 4.1.1.(f) of theEscrow Agreement dated30th March, 2021.
ANALYSIS AND FINDINGS
6. The Courthas consideredthecontentions ofthe counsels. Theright of recovery of damages and delinquent amount towards remedial measures undertaken under Article 15.9.[1] by way of recovery from the escrow account – as providedunder Article15.9.2, is independent of the remedies providedunder Article15.8. This becomes apparentfrom a bare reading of Article 15.9.1which inter alia provides“[…] for the avoidanceofdoubt, the right of the authorityunderthis Clause15.9.[1] shallbe withoutprejudice to its rights and remedies provided under Clause 15.8.”. This Article further providesthat“theAuthority shall, withoutprejudice to its rights under this Agreement including Termination thereof, be entitled to undertake such remedial measures at the risk and cost of the Concessionaire” thereby suggestingthat carryingout remedialmeasuresis at the optionof NHAI.
7. At this juncture, it would be apposite to refer to Article 15.8. The sameis exacted hereinbelow: “15.[8] Damages for breach of O&M obligations 15.8.[1] In the event that the Concessionaire fails to repair or rectify any defect or deficiency set forth ln the Maintenance Requirements within the period specified therein or is in breach of the Maintenance Programme, Maintenance Manual and/or Safety Retirements, it shall be deemed to be in breach of this Agreement and the Authority shall be entitled to recover Damages,to be calculated and paid for each day of delay until the preach is cured, at the higher of (a) 0.5% (zero point five per cent) of Performance Security, and (b)0.1% (zero point one per cent) of the cost of such repairor rectification as estimated by the Independent Engineer.Recovery of such Damage shall be without prejudice to the rights of the Authority under this Agreement, including the right of Termination thereof, and in the event of non-payment by Concessionaire of such delinquent amount forthwith and in any case within seven days of issue of written notice by Authority, the same shall be recovered by encashment of Performance Security in which case the provisions of clause 9 shall apply. 15.8.[2] The Damages set forth in Clause 15.8.[1] may be assessed and specified forthwith by the Independent Engineer; provided that the Authority may, in its discretion,demand a smaller sumas Damages, if in its opinion, the breach has been cured promptly and the Concessionaire is otherwise in compliance with its obligations hereunder. The Concessionaire shall pay such Damages forthwith. ” [Emphasis supplied]
8. Article 15.[8] pertains to damages for breach of ‘Operation & Maintenance Obligations’. Article 15.8.[1] stipulates the mechanism for calculation ofdamages required to bepaid in the event of breaches, which is to be calculated and paid for each day of delay until the breach is cured. Under the said Article, damages are fixed at 0.5% of the Performance Security and 0.1%ofthe cost of repairs or rectification (as estimated by the IE). Thesedamages can be levied till such time breach is cured and thus do not contemplateremedialmeasureas a pre-conditionfor levy. Concededly, NHAI has levied damages under this Article. Prima facie, damages contemplated under Article 15.8.[1] are in the nature of pre-estimation of compensation for the damages suffered on account of breach. Therefore, BTPL’s contention that– in the event damages are suffered by NHAI, on account of BTPL failure to repair or rectify any defect or deficiency set forth, NHAI has to first necessarily, take remedial measure(s) – is unmerited.
9. Article 15.8.1providesfor the recovery ofthedelinquent amount, by way of encashment of performance guarantee. Although it does not specifically provide the right to take recourse to the escrow account, this Article has to be dealt harmoniouslywith Article23A.3.(f) – whereby the parties haveagreed that withdrawals from theescrow account can also be apportionedtowards payment ofdamages certified by NHAI. The court does not find merit in thesubmissionofMr. Dewan that damages contemplated under Article23A.3.(f)areto be restrictedto undisputeddamages. There is no such distinctionapparentfrom thereadingofthe provision.
10. The Court also does not find merit in the contention of Mr. Dewan that permittingNHAIto takerecourse to escrow account would do violence to the contractual terms.Theterms ofthe contract haveto be given natural and ordinary meaning by looking at the language of the Article and the commercialcontext in which they were drafted.Theplain reading does not suggest that damages referredin the Articleare only thosethatareadmitted. Parties havecategorically specified that thedamages certified by NHAI as due and payable to it by BTPL can also be recovered from the escrow account. In theprima facie opinionofthe Court, Sub-Article (f) of Article 23A.[3] would also include the damages asserted under Article 15.8.1. Although theCourtat this stage would not liketo ventureinto the question as to whether therepairs havebeen indeed been carried out by BTPL, it may be pertinent to mention that NHAI has pointed out that defects in the Chainagementioned in AnnexureII, pointed out by IE vide letter dated 18th August, 2020 are with respect to Chainage 242460 etc., whereas, prima facie, the communications placed on record by BTPL dated 24th August, 2020 to contendthatthedefects had been rectified shows that defects pertain to Chainage183+000, 184+140etc.
11. In view of the above, theCourtdoes notfind that the‘trinity test’ has been satisfied by BTPL for grant of an interim measure. Both, the prima facie case and thebalanceof convenience aregrossly missingin thepresent case for the reliefs sought. Thus,thereis no merit in thepresentpetition.
12. Dismissed,alongwith pendingapplication. SANJEEVNARULA,J DECEMBER 1, 2021 akansha