Delhi High Court Directed That Final Relief in a Concession Agreement Cannot Be Granted Under Section 9 of the Arbitration and Conciliation Act, 1996

Excerpt

The Petitioner filed the appeal under Section 37(1)(b) of the Arbitration Act read with Section 13 of the Commercial Courts Act, 2015. The Petitioner has challenged the competency of the Court in granting final relief under Section 9 of the Arbitration and Conciliation Act, 1996. 

Facts of the Case

BEPL and NHAI had a Concession Agreement. BEPL had completed 80% of the product. NHAI terminated the payment after the project had achieved commercial operation. NHAI was responsible for the delays caused in the project. BEPL applied Section 9 of the Arbitration Act. The Court under Section 9 of the Arbitration Act directed the Appellant National Highways Authority of India (NHAI) to deposit a sum of Rs.337,73,19,434.10 paise, to BEPL towards termination payment under the Concession Agreement between NHAI and BEPL. The Respondent had to furnish an unconditional and irrevocable bank guarantee in favour of the Appellant. The Commercial Division allowed the application and stated that even where the termination is on account of the default of BEPL, NHAI was liable to make Termination Payment equal to 90% of the debt due.

Arguments presented before the Court

Petitioner

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The Senior counsel for NHAI stated that the Concession Agreement does not permit the merger of the entities of the lenders and the equity participants in the concessionaire. It envisages funding of the project only by banks and financial institutions. The counsel further argued that the termination payment is for the benefit of the lenders who have guaranteed to finance the project. 

The assignment of debt in the present case is a private agreement and not under the provisions of the SARFAESI Act. He also submitted that though debt can be assigned by a private arrangement the assignee would not step into the shoes of the bank. Thus, the debt due does not include debt due to the shareholders of the concessionaire

Respondent 

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The Senior counsel for BEPL stated that a provision for termination payment in Concession Agreements must be included. No bank or financial institution was willing to finance the projects because disputes often arise between NHAI and its concessionaires. The concession period is very long i.e. 29 years and thus the banks/financial institutions require security. 

They hold pari passu charge on the assets, rights, title, and interest of the concessionaire thus the debt does not disentitle BEPL to termination payment. He further added that the compensation awarded to BEPL in the first round of arbitration is merely to put back BEPL in the same position it would have been but for the delays on the part of NHAI.

Observation of the Court

BEPL did not approach the Commercial Division to secure the said termination payment. Thus, BEPL will not be able to recover the same from NHAI. The claim of BEPL for termination payment of 90% of the debt due, could only be adjudicated by the Arbitral Tribunal and could not be adjudicated in a Section 9 proceeding. BEPL is claiming the amount in the enforcement of a clause of the Concession Agreement and not by way of interim measure. 

Court’s Decision

The Court allowed the appeal setting aside the judgment dated 25th November 2019. Thus dismissed the application of BEPL under Section 9 of the Act. 

Click here to view the judgment


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