{"id":246820,"date":"2021-04-09T15:52:48","date_gmt":"2021-04-09T10:22:48","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=246820"},"modified":"2021-04-16T12:33:35","modified_gmt":"2021-04-16T07:03:35","slug":"the-rapid-metrorail-controversy-high-courts-consensual-order-and-supreme-courts-order-directing-hsvp-to-deposit-80-of-debt-due-in-escrow-account","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2021\/04\/09\/the-rapid-metrorail-controversy-high-courts-consensual-order-and-supreme-courts-order-directing-hsvp-to-deposit-80-of-debt-due-in-escrow-account\/","title":{"rendered":"The Rapid MetroRail controversy; High Court’s “consensual order” and Supreme Court’s order directing HSVP to deposit 80% of debt due in Escrow Account"},"content":{"rendered":"

Supreme Court<\/strong>: The 3-judge bench of Dr. DY Chandrachud*<\/strong>, MR Shah and Sanjiv Khanna, JJ has directed Haryana Shehri Vikas\u00a0Pradhikaran<\/span>\u00a0to deposit\u00a0<\/span>almost 2000 crores<\/span>\u00a0<\/span>in<\/span>\u00a0the Escrow Account within 3 months.\u00a0<\/span>Th<\/span>is amount is the 80% of the debt due to the e IL&FS group<\/span>\u00a0as\u00a0<\/span>determined in audit report dated June 23, 2020.\u00a0<\/span>HSVP Had\u00a0<\/span>entered<\/span>\u00a0into\u00a0a contract with IL&FS Group for the construction of Rapid Metro Rail Gurgaon.\u00a0<\/span>\u00a0<\/span><\/p>\n

What led to the controversy?<\/span><\/h3>\n
    \n
  • On 9 December 2009, HSVP entered into a Concession Agreement with Rapid MetroRail Gurgaon Limited (RMGL) for the execution of Project No 1 on a design, build, finance, operate and transfer basis. RMGL completed Project No 1 on 14 November 2013.<\/li>\n
  • On January 3, 2013, a Concession Agreement was entered into between HSVP and Rapid MetroRail Gurgaon South Limited (RMGSL) for the execution of Project No 2. RMGSL completed Project No 2 on 31 March 2017.<\/li>\n
  • In the meantime, on 11 January 2014, the Town and Country Planning Department of the Government of Haryana directed that all metro projects and projects for Haryana Mass Rapid Transport in the State would be handled by Haryana Mass Road Transport Corporation Limited.<\/li>\n
  • On 17 July 2018, RMGL and RMGSL issued notices to HSVP to cure material breaches they alleged had been committed under the Concession Agreement. Responding to the cure notice dated 17 July 2018, HSVP addressed a communication dated 11 October 2018 to both RMGL and RMGSL.<\/li>\n
  • Both RMGL and RMGSL, forming part of the IL&FS group of companies, terminated the Agreements in 2019 owing to material breaches by HSVP.<\/li>\n
  • High Court\u2019s order dated 20 September 2019 directed HSVP to pay 80 per cent of the debt due within 30 days of the CAG report.<\/li>\n<\/ul>\n

    What did High Court’s \u201cconsensual order\u201d state?<\/strong><\/span><\/h3>\n

    (i) RMGL and RMGSL would continue to operate the rapid metro lines for 30 days from 16 September 2019;<\/p>\n

    (ii) The transfer of the rapid metro lines would be overseen by two former judges of the High Court;<\/p>\n

    (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 \u201cfor 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\u201d;<\/p>\n

    (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<\/p>\n

    (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.<\/p>\n

    What did the Supreme Court hold?<\/strong><\/span><\/h3>\n

    The Court noticed 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.<\/p>\n

    The 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.<\/p>\n

    It is pertinent to note 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\/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.<\/p>\n

    \n

    \u201cAll 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.\u201d<\/span><\/p>\n<\/blockquote>\n

    On the issue over High Court\u2019s power to interfere in the matter, the Court noticed that 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.<\/em><\/strong> Hence,<\/p>\n

    \n

    “the High Court\u2019s exercise of its writ jurisdiction under Article 226 in the present case was justified since non-interference, which would have inevitably led to the disruption of rapid metro lines for Gurgaon, would have had disastrous consequences for the general public.”<\/span><\/p>\n<\/blockquote>\n

    However, \u201cas a measure of abundant caution\u201d<\/strong>, the Court clarified that ordinarily the High Court in its jurisdiction under Article 226 would decline to entertain a dispute which is arbitrable<\/em><\/strong> .<\/span><\/p>\n

    Directions<\/strong><\/span><\/h3>\n

    (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;<\/p>\n

    (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;<\/p>\n

    (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 dated 20 September 2019, as modified on 4 October 2019 and 15 October 2019;<\/p>\n

    (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 determination of the debt due, any of the parties would be at liberty to raise a dispute in the course of arbitral proceedings;<\/p>\n

    (v) Upon compliance with the directions contained in (i) above, RMGL and RMGSL shall execute and handover to HSVP 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 modified on 4 October 2019 and 15 October 2019;<\/p>\n

    (vi) The writ petitions filed before the High Court by the respondents shall stand disposed of.<\/p>\n

    [Rapid MetroRail Gurgaon Ltd. v. Haryana Mass Rapid Transport Corporation Ltd., 2021 SCC OnLine SC 269<\/b><\/a>, decided on 26.03.2021]<\/p>\n

    \n

    *Judgment by Justice Dr. DY Chandrachud<\/strong><\/p>\n

    Know Thy Judge| Justice Dr. DY Chandrachud<\/a><\/p><\/blockquote>\n