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

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

(viii) Any reserve of requirements required to be settled in terms of financial document. (ix) Balance in accordance with the instructions of the Concessionaire. 18.2.2 The Concessionaire shall not in any manner modify the order of payment specified in Sub-Article 18.2.1 except with the prior written approval of HUDA 18.3 Notwithstanding anything to the contrary contained in the Escrow Agreement and subject to the provisions contained in Sub- Articles 25.5 and Article 27, upon Termination of this Concession Contract, all amounts standing to the credit of the Project Escrow C Account shall be appropriated and dealt with in the following Order: (a) all Taxes due and payable by the Concessionaire (b) all Connectivity charges / non-fare revenue share due and payable to HUDA under this Concession Contract D (c) all accrued Debt Service Payment (d) any payments and Damages due and payable by the Concessionaire to HUDA pursuant to this Concession Contract, including Termination claims (e) all accrued O&M Expenses; E

(f) any other payments required to be made under this Concession Contract; and (g) balance, if any, on the instructions of the Concessionaire. 18.4 The instructions contained in the Escrow Concession Contract F shall remain in full force and effect until the obligations set forth In Sub-Article 18.3 have been discharged,”

38Copy pinpoint38. Article 24 provides for termination. Article 24.1.1 sets down events of default on the part of the concessionaire. According to Article 24.4: G “24.4 Upon Termination by HUDA on account of occurrence of Concessionaire Event of Default during the Operations Period, the HUDA shall take over the complete system (all Project Assets), HUDA shall pay the Lenders of the Project, as per H

p. 686 Copy page pinpoint

A financial documents, an amount equal to 80% of debt “due, as Termination payment. No termination payment shall be due or payable on account of Concessionaire’s default occurring prior to COD.”

39Copy pinpoint39. Article 24.5.2 provides for the consequences of termination by the concessionaire, due to a default by HUDA: “24.5.2 Upon Termination by the Concessionaire on account of an HUDA Event of Default, HUDA shall take over the complete system (all Project Assets) and the Concessionaire shalt be entitled to receive from HUDA by way of Termination Payment a sum equal to : (a) Debt due (b) 110% of the Adjusted Equity” Accordingly, 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, 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: (a) The debt due; and (b) 110 per cent of the adjusted equity. Article 24.7 which provides for the termination payments reads as follows: “24.7 Termination Payments: The Termination Payment pursuant to this Concession Contract shall become due and payable to the Concessionaire by HUDA within thirty days of a demand being made by the Concessionaire with the necessary particulars duly certified by the Statutory Auditors. If HUDA fails to disburse the full Termination Payment within 30 (thirty) days, the amount remaining unpaid shall be disbursed along with interest an annualised rate of SBI PLR plus two per cent for the period of delay on such amount.”

p. 687 Copy page pinpoint

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

40Copy pinpoint40. Article 30 of the Concession Agreement provides for dispute A resolution. Article 30.2 contains an arbitration agreement, which reads as follows: “30.2 Arbitration B 30.2.1 Dispute Due For Arbitration Disputes or differences shall be due for arbitration only if all the conditions in Sub- Article 30.1 are fulfilled.” D Terms of the consent order dated 20 September 2019 passed by the High Court C

41Copy pinpoint41. Pursuant to the petition filed under Section 241(2) read with Section 242 of the Act of 2013 before the NCLT, the Board of IL&FS was superseded on 1 October 2018, with a new Board appointed on the recommendations of the Central government. On 6 December 2018, an FIR No 253 was registered by the Economic Offences Wing. As pointed out by the Solicitor General, RMGL and RMGSL were named as accused nos 21 and 22 in the FIR, the allegation being in respect of the procuring of fake invoices, as a result of which the cost of projects implemented were alleged to be higher than those implemented by DMRC, resulting in the rapid metro link projects at Gurgaon incurring losses. RMGL and RMGSL, which belong to the IL&FS group of companies, were thus classified as “red entities”. On 4 February 2019, Justice D K Jain was appointed by the NCLT to supervise the resolution process for the IL&FS group. On 7 June 2019, RMGL issued a notice for the termination of the Concession Agreement dated 9 December 2009 to HSVP under Article 24.5.1, with the period of notice being 90 F days. A similar notice of termination was issued by RMGSL in terms of Article 32.5.1 of Concession Agreement dated 3 January 2013. RMGL and RMGSL addressed communications on 1 August 2019 to HSVP for completing the handover of the rapid metro link Projects. On 26 August 2019, HMRTC issued a notice of termination to RMGL in G terms of the Articles 24.1 and 24.2 of the Concession Agreement dated 9 December 2009. A similar notice was issued to RMGSL. In the interim, Justice D K Jain was moved by RMGL and RMSL to grant his approval to the handing over of possession of the rapid metro link Projects. By his order dated 6 September 2019, Justice D K Jain permitted RMGL and H

p. 688 Copy page pinpoint

A RMGSL to handover possession and control of the rapid metro link Projects to HSVP on or before 9 September 2019. HMRTC and HSVP then moved the High Court in writ proceedings under Article 226 of the Constitution seeking: (i) Writ of certiorari for quashing the notices of termination B dated 7 June 2019, on the ground that there was no permission of the competent authority appointed by the NCLAT, and that it was against the public interest because the rapid metro project of Gurgaon, which was operational since 2013, would come to a halt on 8 September 2019; and C (ii) A writ of mandamus directing that the notice period of 90 days would commence only from the grant of the permission by the NCLAT.

42Copy pinpoint42. Taking note of the order passed by Justice D K Jain, the High Court by its order dated 6 September 2019 directed RMGL and RMGSL D to continue the operation of the rapid metro rail till the midnight of 9 September 2019. On 9 September 2019, the High Court observed that the dispute between the parties would have to be resolved by negotiations, and hence the order of stay, under which the rapid metro rail projects were to be continued in operation by RMGL and RMGSL, was continued till midnight of 17 September 2019. From the order of the High Court E dated 9 September 2019, it is evident that RMGL and RMGSL, while referring to the terms of the proposed discussion which HMRTC HSVP, catalogued inter alia: (a) A time bound handover of the project to HSVP and corresponding commitment for taking it over by HSVP; and F (b) A commitment to pay at least 80 per cent of the debt due as termination payment to RMGL and RMGSL by HSVP.

43Copy pinpoint43. On 18 September 2019, the appellants proposed that they would continue to operate the metro link Projects until 16 October 2019, during which period the debt due under the financing documents, in terms of G the Concession Agreements, may be determined by an auditor to be appointed by the High Court. Further, the process for transfer of the rapid metro link Projects was to be supervised by two former judges of the High Court. Both the appellants specifically stated that this proposal was subject to the condition that once the debt due is determined, HSVP H must deposit 80 per cent of the debt due as determined in an Escrow

p. 689 Copy page pinpoint

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

Account in terms of the Concession Agreement, Escrow Agreement A and Substitution Agreement. This proposal, it was clarified, was made to safeguard the interest of the public sector lenders of the Projects. Responding to the above proposal of the appellants, HMRTC and HSVP specifically stated in their written responses that: (i) An agreement had been entered into with DMRC on 16 B September 2019 for operation and maintenance of the rapid metro lines; (ii) As regards the ascertainment of the debt due, this was linked to the definition of the expression under Concession Agreements; C (iii) HMRTC/HSVP agreed with the proposal of RMGL/ RMGSL that an auditor may be appointed to ascertain the actual figures, and stated that the CAG may be entrusted with the assignment to ascertain financial aspects and determining the over invoicing of the Projects; and D (iv) The deposit of 80 per cent of the debt due as determined in an Escrow Account would depend on the outcome of the report of the auditor, and HMRTC and HSVP “commit and confirm to adhere to the directions as would be passed by the Hon’ble High Court or NCLAT or any other Court E or any other order under any other legal proceedings passed by any other competent authority” in terms of the Concession Agreements.

44Copy pinpoint44. The above course of events indicates that the entire order which was passed by the High Court on 20 September 2019 was the outcome of sustained negotiations which took place between RMGL and RMGSL on the one hand, and HMRTC and HSVP on the other, commencing from the invocation of the writ jurisdiction under Article

226. Now, it is significant to note that recourse to the proceedings under Article 226 was taken by HMRTC/HSVP, which challenged the termination notice and sought the continuation of the operation of the rapid metro lines at Gurgaon, which were under imminent threat of closure, once the notice period expired on 8 September 2019. The narration of events would make it abundantly clear that initially as a result of the order of stay granted by the High Court on 6 September 2019, and thereafter consequent upon mutual discussions, RMGL/ H

p. 690 Copy page pinpoint

A RMGSL agreed to operate the rapid metro link Projects until 16 October 2019, within which period the handover to DMRC would take place. Equally, the concerns by RMGL/RMGSL, as concessionaires, was that in terms of the Concession Agreements, 80 per cent of the debt due had to be deposited in the Escrow Account in terms of the provisions contained in Article 24.4 in Concession Agreement dated 9 December 2009. All B the parties specifically agreed before the High Court that there would be a reference to the CAG for conducting an audit for the purpose of determining the debt due. The High Court by its order dated 20 September 2019, issued directions which were specifically noted to be emanating from the “consensus...arrived at in the presence of senior officers of both the parties” namely Mr D Suresh, IAS, Managing Director, HMRTC, Chief Administrator, HSVP, Mr Rajiv Banga, Managing Director, RMGL and Director, RMGSL. The consensual order passed by the High Court envisaged that: (i) RMGL and RMGSL would continue to operate the rapid metro lines for 30 days from 16 September 2019; (ii) The transfer of the rapid metro lines would be overseen by two former judges of the High Court; (iii) The debt due as defined under the Concession Agreements would be determined under the auspices of the CAG who would appoint a team of auditors “for the financial audit of the debt due and for examining the scope of the audit of the debt due audited by the HSVP with the assistance of the auditors appointed by the parties to the lis”; (iv) The process of audit would be completed within 30 days, and 80 per cent of the debt due determined by the audit report shall be deposited by HSVP in an Escrow account, which would be subject to the orders of the NCLAT or any other competent statutory authority, within a period of 30 days of the receipt of the report; and (v) The rest of the disputes between the parties arising out the audit report, would be agitated and decided in arbitration proceedings, which was a mode already provided in the Concession Agreements.

45Copy pinpoint45. Clause (ii) of the directions contained in the High Court’s consent order dated 20 September 2019 makes it abundantly clear that H

p. 691 Copy page pinpoint

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

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 next important aspect of 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. 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.

46Copy pinpoint46. This would leave no manner of doubt that 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. Subsequent to the order dated 20 September 2019, another order was passed by the High Court on 4 October 2019. Clause (ii) of the earlier order was substituted. As substituted, it was 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 F Concession Agreements. CAG specifically placed before the High Court its understanding of the role to be performed by it. In its 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”. The terms as envisaged define the scope of the work of the auditor to be: G

(i) Verification of the debt due with reference to the terms and conditions of the Concession Agreements and all financing agreements/documents which have a bearing on the computation of the debt due; H

p. 692 Copy page pinpoint

A (ii) Verification that all funds constituting the financial package both debt and equity, for meeting the capital cost had been credited and received in the Escrow Account; (iii) Verification that the funds of the financial package were used for the project assets as defined in the Concession B Agreements and their impact on the debt due; (iv) Verification that all non-fare revenues were duly accounted and that all fare revenues were deposited in the Escrow Account; (v) Verification that the amounts standing to the credit in the C Escrow Account had been appropriated in the order prescribed in the Escrow Agreement; (vi) Verification that all other receipts and payments were routed through the Escrow Account, together with the review of all other bank accounts maintained/operated by the D appellants; and (vii) Information in the annual reports of the appellants was arrived at by following the applicable standards and guidelines. E Obligations of HMRTC and HSVP to pay the debt due E

47Copy pinpoint47. 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 F 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 G 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 H

p. 693 Copy page pinpoint

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

reports were finalised in respect of the debt due under the Concession A 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, as noticed in the earlier part of this judgment. According to HMRTC, the audit report B was inconclusive and incomplete, since several aspects which will have an impact on the debt due remain to be determined. Now, at this stage, it is necessary to note that 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 C 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. It is important to note that such audits are ongoing independently. D 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. These included: E (i) An entity specific forensic audit which is conducted by the lenders; (ii) The order passed by NCLT on 1 January 2019 for reopening and recasting the accounts of IL&FS and two of its subsidiaries (INTL and IFIM); F

(iii) The initiation by the new Board in January 2019 of third- party forensic examination for the period between April 2013 to September 2018 in relation to certain companies of the group; and G (iv) The sub-contracting by IRL of nine packages to various related and unrelated parties including companies, with irregularities pointed in a notice to show cause issued by the Income Tax department on 15 November 2018.

p. 694 Copy page pinpoint

A Indeed, the submission of the learned Solicitor General that the audit under the auspices of the CAG is incomplete and inconclusive is based on the above statements contained in the audit report noticing other matters which may have a bearing on the debt due.

48Copy pinpoint48. Now the issue before the Court in this backdrop is whether the consequences envisaged in the consent order of the High Court dated 20 September 2019 can stand obviated on the above grounds. At the very outset, it is important to note that the FIR in respect of IL&FS group of companies was lodged on 6 December 2018. The termination notices of June and August 2019, and the institution of the writ proceedings, took place thereafter. Evidently the appellants on the one hand, as well as HSVP/HMRTC on the other, were conscious of the developments which were taking place in respect of the IL&FS group of companies in the proceedings before Justice D K Jain on 19 August

2019. When the consent order was passed before the High Court, HSVP was represented by counsel as well as the Chief Administrator of HSVP D and Managing Director of HMRTC who were also present. The financial institutions including Andhra Bank were also in appearance. The consent order before the High Court on 20 September 2019 was also preceded by mutual discussions between the parties and the exchange of written proposals. which have been referred to expressly by the High Court. The consent order of the High Court envisages: E (i) The manner in which the expression ‘debt due’ would be determined; (ii) The manner in which the scope of the audit report would be prescribed; and F (iii) The consequence of the determination by the auditors to be appointed by the CAG.

49Copy pinpoint49. 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 G defined under the Concession Contract”. The High Court, it must be emphasized, 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 H

p. 695 Copy page pinpoint

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

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 Sanjana M. Wig vs Hindustan Petroleum C Corporation Limited6, a two judge Bench of this Court, speaking through Justice S B Sinha, has observed: “12. The principal question which arises for consideration is as to whether a discretionary jurisdiction would be refused to be exercised solely on the ground of existence of an alternative remedy D which is more efficacious…

13. However, access to justice by way of public law remedy would not be denied when a lis involves public law character and when the forum chosen by the parties would not be in a position to grant appropriate relief. E […]

18. It may be true that in a given case when an action of the party is dehors the terms and conditions contained in an agreement as also beyond the scope and ambit of the domestic forum created therefor, the writ petition may be held to be maintainable; but indisputably therefor such a case has to be made out. It may also be true, as has been held by this Court in Amritsar Gas Service [(1991) 1 SCC 533] and E. Venkatakrishna [(2000) 7 SCC 764] that the arbitrator may not have the requisite jurisdiction to direct restoration of distributorship having regard to the provisions contained in Section 14 of the Specific Relief Act, 1963; but while entertaining a writ petition even in such a case, the court may not lose sight of the fact that if a serious disputed question of fact is involved arising out of a contract qua contract, ordinarily a writ 6 (2005) 8 SCC 242 H

p. 696 Copy page pinpoint

A petition would not be entertained. A writ petition, however, will be entertained when it involves a public law character or involves a question arising out of public law functions on the part of the respondent.” (emphasis supplied) B In the present 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 present case was justified since non- C 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, we clarify that ordinarily the High Court in its jurisdiction under Article 226 would decline to entertain adispute which is arbitrable 7. Moreover, remedies are available under the Arbitration and Conciliation Act, 1996 D for seeking interim directions either under Section 9 before the Court vested with jurisdiction or under Section 17 before the Arbitral Tribunal itself.

50Copy pinpoint50. It is also important to note that 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 7 H Bisra Lime Stone Co. Ltd. vs Orissa SEB, (1976) 2 SCC 167

p. 697 Copy page pinpoint

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

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 7 Bisra Lime Stone Co. Ltd. vs Orissa SEB, (1976) 2 SCC 167 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.

51Copy pinpoint51. This provision, which is 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 determination was made in the audit report, 80 per cent would be deposited in the Escrow C 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: (i) the CAG report; D

(ii) the validity of the termination notices issued by both the parties; and (iii) any past or future inter se claims/ liabilities; shall be agitated and decided in arbitration proceedings. E

52Copy pinpoint52. 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. A two judge Bench of this Court, speaking F through Justice Ruma Pal, in Manish Mohan Sharma vs Ram Bahadur Thakur Limited8 has observed: “28…A consent decree has been held to be a contract with the imprimatur of the Court superadded. It is something more than a mere contract and has the elements of both a command and a G contract. (See: Wentworth v. Bullen 141 ELR 769; C.F. Angadi v. Y.S. Hirannayya [1972] 2 SCR 515). As was said by the Privy Council as early as 1929, “The only difference in this respect between an order made by consent and one not so made is that 8 (2006) 4 SCC 416 H

p. 698 Copy page pinpoint

A the first stands unless and until it is discharged by mutual agreement or is set aside by another order of the Court; the second stands until and unless it is discharged on an appeal (See: Charles Hubert Kinch v. Edward Keith Walcott and Ors.).” In the face of the clear stipulations contained in the order of the B 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.

53Copy pinpoint53. CAG in the course of its affidavit filed before this Court and High Court by the Deputy Accountant General Shri KSN Prasad, IAS C and AS (Deputy General (Administration), has 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:

D (i) making a statement on the scope of the audit before the High Court in advance; (ii) examining the scope of the audit as suggested by the parties before making its determination; (iii) appointing a firm of chartered accountants for conducting E an audit as was envisaged in the order of the High Court; (iv) furnishing the contesting parities with a copy of the draft report; (v) allowing the parties to submit their response to the draft report; F (vi) granting an extension of time to the State of Haryana to submit its comments; and (vii) 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.

54Copy pinpoint54. 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

p. 699 Copy page pinpoint

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

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.

55Copy pinpoint55. It is pertinent to remember that 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, D 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 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, H

p. 700 Copy page pinpoint

A involved an outlay of funds from Andhra Bank and Canara Bank, who have a vital stake in the financials of the Projects.

56Copy pinpoint56. 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, B 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 C 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. D 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. E 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 Court under Section 9 or before the Arbitral tribunal under Section 17 of the Arbitration and Conciliation Act, 1996. Hence, there being an agreement F between the parties, to permit HSVP and HMRTC to obstruct or delay compliance with their obligations would be manifestly impermissible for three reasons: (i) Firstly, the obligation to deposit 80 per cent debt due as a consequence of the termination emanates from Article 24.4 G of the Concession Agreement dated 9 December 2009; (ii) 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 H permitted to resile; and

p. 701 Copy page pinpoint

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

(iii) 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.

57Copy pinpoint57. 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. Commentators have noted that, “[d]eterioration in loan recovery not only leads to higher provisions and diminished profitability but also constrains banks’ lending capacity, thus affecting the economy adversely” 9 . 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 solemnly assumed before the High Court. Hence, on both counts, HMRTC and HSVP cannot be permitted to resile.

58Copy pinpoint58. 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 G 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 9 Rekha Mishra, Rajmal and Radheshyam Verma, “Determinants of Recovery of Stressed Assets in India: An Empirical Study”. Economics and Political Weekly, Vol. 51, Issue No. 43, 22 Oct, 2016. H

p. 702 Copy page pinpoint

A 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. As we have already observed earlier, there is a vital public interest element in ensuring that B 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. C Besides this, the Concession Agreements provides a clear-cut remedy for seeking reliefs under the arbitration agreement.

59Copy pinpoint59. As noted earlier, 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 shall be agitated and decided in the arbitration proceedings. In view of the order which we propose to pass, the dispute between the High Court in the writ jurisdiction under Article 226 of the Constitution F shall stand worked out by granting liberty to the parties to avail of their rights and remedies in accordance with law. F Conclusion

60Copy pinpoint60. We accordingly dispose of the appeals in terms of the following directions: G (i) HSVP shall within a period of three months from the date of the present judgment 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; H

p. 703 Copy page pinpoint

TRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

(ii) 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; (iii) 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 C dated 20 September 2019, as modified on 4 October 2019 and 15 October 2019; (iv) 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 D determination of the debt due, any of the parties would be at liberty to raise a dispute in the course of arbitral proceedings; (v) Upon compliance with the directions contained in (i) above, RMGL and RMGSL shall execute and handover to HSVP E 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 F modified on 4 October 2019 and 15 October 2019; and (vi) The writ petitions filed before the High Court by the respondents shall stand disposed of.

61Copy pinpoint61. The present judgment shall not affect any ongoing investigation or criminal proceedings in respect of the IL&FS group of companies. G The appeals shall be disposed of in the above terms. There shall be no order as to costs.

62Copy pinpoint62. Pending application(s), if any, stand disposed of.

Nidhi Jain Appeals disposed of. H