Bombay High Court: The present proceedings were filed concerning the recovery being initiated by the petitioner — Municipal Corporation of Delhi (MCD) against one MEP Infrastructure Developers Ltd. (‘MEPIDL’) who has defaulted in payment of extraordinarily large sums of money payable to the MCD under a toll tax contract amount payable around 5500 crores. A division bench of G. S. Kulkarni and Firdosh P. Pooniwalla, JJ., held that MEP Infrastructure Developers Ltd. (MEPIDL) and its subsidiaries must cooperate fully with the recovery process initiated by the Municipal Corporation of Delhi (MCD), prohibiting disposal of assets to evade dues.
The Municipal Corporation of Delhi (MCD) found itself embroiled in a legal battle with MEP Infrastructure Developers Ltd. (MEPIDL) over a significant sum of money owed to MCD in the form of toll tax. MEPIDL, a company engaged in infrastructure development, had been awarded a toll collection contract by MCD under a public-private partnership (PPP) arrangement. However, MEPIDL failed to fulfill its financial obligations, leading to a dispute between the parties. MEPIDL’s failure to pay the toll tax owed to MCD prompted the latter to pursue legal avenues for debt recovery. Despite MCD’s efforts, MEPIDL resisted the recovery process, leading to prolonged litigation. Subsequently, MCD filed a writ petition seeking court intervention to enforce the recovery of the outstanding dues from MEPIDL. The petition also sought directions to attach and recover MEPIDL’s assets, particularly its equity shares in subsidiary companies.
Counsel for MCD argued that MEPIDL’s persistent default in paying the toll tax constituted a serious breach of contract and warranted swift action to recover the outstanding amount. MCD contended that MEPIDL’s attempts to thwart the recovery process were unjustifiable and amounted to delaying tactics. Furthermore, MCD highlighted the detrimental impact of MEPIDL’s default on public finances and the importance of upholding contractual obligations in PPP projects. Counsel for MEPIDL presented counterarguments challenging MCD’s claims and disputing the legality or validity of the recovery proceedings initiated against it. MEPIDL may have raised defenses such as financial incapacity, procedural irregularities, or disputing the amount owed to MCD.
The Court acknowledged the substantial amount owed by MEPIDL to MCD and recognized the urgency of recovering public funds. The Court expressed concern over MEPIDL’s defaulting behavior and its potential impact on public trust and financial integrity. It noted the need for a robust mechanism to prevent defaulting contractors from securing new contracts while evading their existing financial obligations. The Court emphasized the importance of upholding contractual obligations and ensuring accountability in PPP projects to safeguard public interests.
The Court remarked that “such day would not be too far, when the State Government / other public bodies in other states or the Central Government, would suffer the same plight as MCD is facing from MEPIDL. It cannot be a situation that such contractors / companies would continue to enrich themselves by grabbing contracts from other public bodies or Governments, and amass huge money from such contracts, and at the same time, continue to be defaulters on contracts with other public bodies / Governments. This would certainly be against the rule of law and from what is expected under the public trust doctrine, when it comes to dealing with State largessee, necessarily involving public interest.”
The Court remarked that “We cannot conceive a situation where any Government body/Central Government remains helpless and spends its time, energy and public money chasing recoveries. This can never be the consequence or fate of any public private participation. A special mechanism to have contractors / parties having an unimpeachable public integrity, bonafides and commitment, not to defraud the public exchequer, needs to be the prime consideration in award of such lucrative contracts, wherein money, at toll booths, is collected and flows like water, unimaginable of a remotest default by the contractor, considering the ever increasing traffic figures in metropolitan cities, prime highways and the alike.”
The Court further remarked that “It is a bounden obligation and duty of the public bodies to lift the corporate veil to determine the bonafides of such contracting parties and its credentials. There cannot be an exception to toll contracts if the Government has a clear policy of blacklisting defaulting contractors in several other public contracts. If award of contracts to defaulting company or its subsidiaries continues, it would amount to making a mockery of the public trust doctrine, as also the rule of law.”
The Court directed MEPIDL and its subsidiaries to cooperate fully with the recovery process initiated by MCD and the authorities. The Court further prohibited MEPIDL and its subsidiaries from disposing of their shareholdings or assets to evade the recovery of dues. It also directed the State Government and Central Government to intervene and provide inputs on formulating policies to address similar situations in the future. The Court allowed MCD to amend the petition to include additional respondents and grounds, thereby facilitating a comprehensive adjudication of the matter.
[Municipal Corporation of Delhi v. District Collector, Mumbai Suburban District, 2024 SCC OnLine Bom 932, decided on 28-03-2024]
Advocates who appeared in this case :
Mr. Gaurav Joshi, Senior Advocate aw Mr. Sanjay Vashishtha aw Mr. Shreyas Shrivastava aw Ms. Tanisha Chaudhary as Ms. Kajol Punjabi for Petitioner in WP/1343/2024 and WP/3445/2024.
Mr. Mustafa Doctor, Senior Advocate aw Mr. Karan Bhosale aw Ms. Neha Bhosale as Ms. Laveena Tejwani aw Ms. Anuja Divadkar i/b NDB Law for Intervenor/ Applicant in IA(ST)/7963/2024.
Mr. Zal Andhyarujina, Senior Advocate, aw Mr. D.Y. Chitnis aw Mr. Abhilesh Chitre a/w. Ms. Sonali Dalvi i/b Deepak Chitnis Chiprikar and Company for Intervenor/ applicant in IA/6832/2024.
Mr. Vaibhav Joglekar, Senior Advocate aw Mr. D.Y. Chitnis aw Mr. Abhilesh Chitre aw Ms. Sonali Dalvi i/b Deepak Chitnis Chiprikar and Company for Intervenor/ applicant in IA/6833/2024.
Mr. D.Y. Chitnis aw Mr. Abhilesh Chitre aw Ms. Sonali Dalvi i/b Deepak Chitnis Chiprikar and Company for Intervenor/ applicant in IA/6829/2024, IA/6830/2024, IA/6831/2024.
Ms. Shruti D. Vyas, Addl. G.P. aw Ms. P.N. Diwan, AGP for State in WP/1343/2024.
Ms. P.J. Gavhane, AGP for State in WP/3445/2024
