LAW FOR ALL

Friday, April 2, 2021

challenging notice of termination - We accordingly dispose of the appeals in terms of the following directions: (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; (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 PART F 67 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; (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; (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; and (vi) The writ petitions filed before the High Court by the respondents shall stand disposed of. PART F 68 61 The present judgment shall not affect any ongoing investigation or criminal proceedings in respect of the IL&FS group of companies. The appeals shall be disposed of in the above terms. There shall be no order as to costs.

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeals Nos. 925-926 of 2021

Arising out of Special Leave Petition (C) Nos.1832-1833 of 2021

Rapid MetroRail Gurgaon Limited Etc. …Appellant

Versus

Haryana Mass Rapid Transport Corporation …Respondents

Limited & Ors.

J U D G M E N T

Dr Justice Dhananjaya Y Chandrachud, J

This judgment has been divided into the following sections to facilitate analysis:

A Factual background

B Submissions of counsel

C Analysis of the Concession Agreements

D Terms of the consent order dated 20 September 2019 passed by the High

Court

E Obligations of HMRTC and HSVP to pay the debt due

F Conclusion

PART A

A Factual background

1 In 2008, Haryana Shehri Vikas Pradhikaran (“HSVP”), the second

respondent, issued a Request for Qualification and Request for Proposal

(“RFQ/RFP”) for developing a metro rail link from Delhi Metro Sikanderpur Station

on MG Road to NH-8 (“Project No1”). A Consortium Agreement was entered into on

1 December 2008 between IL&FS Rail Limited (“IRL”), IL&FS Transportation

Networks Limited (“ITNL”) and DLF Metro Limited in which IRL was identified as the

lead member of the consortium. HSVP accepted the bid submitted by the

consortium and issued a letter of award of 16 July 2009, subject to the condition that

a concession agreement would be executed within 60 days. Pursuant to the letter of

award, the consortium incorporated the first appellant, Rapid MetroRail Gurgaon

Limited (“RMGL”), under the Companies Act, 1956 (the “Act of 1956”) and

requested HSVP to accept RMGL as the entity which would undertake, fulfill and

exercise the rights of the consortium under the letter of award.

2 On 9 December 2009, HSVP entered into a Concession Agreement with

RMGL for the execution of Project No 1 on a design, build, finance, operate and

transfer basis. HSVP granted a concession to RMGL for a period of 99 years from

the effective date, including the exclusive right, license and authority during the

subsistence of the Concession Agreement to implement and operate Project No 1.

PART A

3 In 2012, HSVP issued another RFQ/RFP for developing a metro rail link from

Delhi Metro Sikanderpur Station on MG Road to Sector 56, Gurugram (“Project No

2”).

4 On 25 April 2012, IRL and ITNL entered into a consortium arrangement in the

form of a Memorandum of Understanding, under which IRL was identified as the

lead member of the consortium. The bid submitted by the consortium was accepted

by HSVP, which issued a letter of award on 1 October 2012. Pursuant to the letter of

award, the consortium promoted and incorporated the second appellant, Rapid

MetroRail Gurgaon South Limited (“RMGSL”), which would fulfill the obligations and

exercise the rights of the consortium under the letter of award. Thereafter, a

Concession Agreement was entered into between HSVP and RMGSL for the

execution of Project No 2 on 3 January 2013. The term of the concession was 98

years commencing from the effective date. RMGSL had the exclusive right, license

and authority during the subsistence of the Concession Agreement to implement

and operate Project No 2.

5 RMGL completed Project No 1 on 14 November 2013. RMGSL completed

Project No 2 on 31 March 2017. 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 the first respondent, Haryana Mass Road Transport Corporation Limited

(“HMRTC”).

PART A

6 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.

7 On 1 October 2018, a petition1 was instituted by the Union of India under

Section 241(2) read with Section 242 of the Companies Act, 2013 (the “Act of

2013”) before the Mumbai Bench of the National Company Law Tribunal (“NCLT”)

against Infrastructure Leasing and Financial Services Limited (“IL&FS”) and its

Board of Directors (“Board”), on the ground that the affairs of the company and its

subsidiaries were being conducted in a manner prejudicial to public interest. Both

RMGL and RMGSL form part of the IL&FS group of companies. Acting on the

petition, the NCLT by its order dated 1 October 2018 superseded the existing Board

of IL&FS with a newly constituted Board, which was appointed on the

recommendation of the Union government. The new Board took charge of the affairs

of the IL&FS and was authorised to conduct its business and formulate a road map

for recovery.

8 The National Company Law Appellate Tribunal (“NCLAT”) by an order dated

4 February 2019 appointed Mr Justice D K Jain, a former Judge of this Court, to

supervise the resolution process for the IL&FS group of companies. The appellants,

RMGL and RMGSL, were categorized as a "red" entity of the IL&FS group of

1 Company Petition No 3638 of 2018

PART A

companies in an affidavit2 dated 11 February 2019 filed by the Union of India before

the NCLAT.

9 On 7 June 2019, RMGL issued a notice of termination to HSVP seeking to

bring an end to the Concession Agreement dated 9 December 2009 in terms of

Article 24.5.1, upon the expiry of 90 days from the date of delivery of this termination

notice. A similar termination notice was issued by RMGSL to HSVP, in terms of

Article 32.5.1 of the Concession Agreement dated 3 January 2013. Further, on 7

June 2019, the appellants responded to the letter of HSVP complaining of material

breaches alleged to have been committed by the appellants under their respective

Concession Agreements.

10 On 26 June 2019, RMGL wrote to HSVP intimating that the divestment

requirements contained in Article 25.4 and Article 25.2 of the Concession

Agreement dated 9 December 2009 had already been completed by it. However,

HSVP had failed to fulfill its obligations under Article 25.4 to verify RGML’s

compliance with such divestment requirements. A similar letter was addressed by

RMGSL in the context of the Concession Agreement dated 3 January 2013. On 1

August 2019, RMGL informed HSVP that it had completed the formalities for

handover of Project No 1, and that the Concession Agreement dated 9 December

2009 would stand terminated on the expiry of 90 days from the termination notice.

RMGL asserted that it would stop the operation and maintenance of Project No 1

2 Filed in Company Appeal (AT) No 346 of 2018

PART A

after the termination. A similar letter was addressed by RMGSL to HSVP in the

context of the Concession Agreement dated 3 January 2013 and Project No 2.

11 On 8 August 2019, NCLAT issued directions for the entities forming a part of

IL&FS group of companies which had been categorized in the “red” category,

inasmuch as that they had to seek the approval of Justice D K Jain before

alienating, encumbering, transferring or creating third party rights on assets. RMGL

presented a memorandum on 19 August 2019 to Justice D K Jain to seek his

approval for handover of the Project No 1 to HSVP. A similar approval was sought

by RMGSL in the context of Project No 2.

12 On 26 August 2019, the respondents issued a notice of termination to RMGL

under Articles 24.1 and 24.2 of the Concession Agreement dated 9 December 2009.

Terminating the agreement, they directed RMGL to handover Project No 1 to

HMRTC, which in turn would hand it over to Delhi Metro Rail Corporation (“DMRC”).

A similar notice of termination was issued to RMGSL, coupled with an analogous

direction for handing over Project No 2.

13 On 6 September 2019, Justice D K Jain permitted RMGL to handover

possession and control of Project No 1 to HSVP pursuant to the termination of the

Concession Agreement dated 9 December 2009, on or before 9 September 2019.

By a separate order on the same date, RMGSL was permitted to handover

possession and control of Project No 2 by the same date.

PART A

14 Further, also on 6 September 2019, the same day as the order of Justice D K

Jain permitting handover, the respondents instituted a Writ Petition3 under Article 32

of the Constitution before the High Court for the State of Punjab and Haryana

challenging notice of termination dated 7 June 2019 issued by RMGL, inter alia, on

the ground that the period of 90 days shall start from the date of permission, which

had not been yet granted by Justice D K Jain. An interim direction was sought for

the continuance of the operation of Project No 1 by RMGL. Another Writ Petition4

was instituted to challenge the notice of termination by RMGSL on similar grounds,

and similar interim directions were sought in respect of Project No 2. The

observations of Justice D K Jain, contained in his order dated 6 September 2019, in

respect of the Concession Agreement dated 9 December 2009, were produced

before the High Court, which were as follows:

“20. Nevertheless, Clause 24.6 of Article 24 stipulates that

upon termination of the Concession Contract, “for any reason

whatsoever” HUDA shall take possession and control of

Metro link forthwith, including the material, construction plan,

implements, equipment, etc., on or about, the site. Therefore,

except for the stipulation of a prior 90 days’ notice in writing to

HUDA by the Concessionaire for termination of the

Concession Contract, where after such termination takes

effect, upon termination of the Concession Contract by either

of the Parties, HUDA is, obliged to take possession of the

Metro link forthwith. I am inclined to agree with the Ld.

Counsel appearing for RMGL that requirement of the said

prior notice is to enable HUDA to prepare itself to take over

the possession and control of the Metro link. In that view of

the matter, the Notice of termination of the Concession

Contract having been served by RMGL on HSVP (earlier

known as HUDA), in writing on June 7, 2019, the said

3 WP (C) No 24949 of 2019

4 WP (C) No 24951 of 2019

PART A

termination notice takes effect on the expiry of the 90 days

therefrom i.e. September 8, 2019 and RMGL is required to

handover the possession and control of the subject Metro link

to HSVP on or before, September 9, 2019 and HSVP is

obliged to take possession and control of the Metro link

forthwith. There is no explanation as why HSVP did not take

any steps to ensure smooth handing and taking over of the

project by RMGL to HSVP, all this while. In so far as the

question of validity of the termination notice issued by RMGL

to HSVP is concerned, the issue is to be decided at an

appropriate forum and not by the undersigned in terms of the

afore-extracted direction by the Hon’ble NCLAT.”

The observations of Justice D K Jain in respect of the Concession Agreement dated

3 January 2013 were as follows:

“19. It is evident that both the parties are ad-idem that both

the parties having issued notices for terminating the

Agreement, the metro link has to be taken over by

HSVP/HMRTC but the dispute is only with regard to the time

when the handing over and taking over after the same should

take place. No explanation whatsoever is forthcoming as to

why, on the receipt of Termination Notice dated June 7, 2019,

HSVP/HMRTC did not take any steps to ensure smooth

handing over of the project by RMGSL to them, all this while.

In so far as the question of validity of the termination notice

issued RMGSL to HSVP is concerned, the issue is to be

decided at an appropriate forum and not by the undersigned

in terms of the afore-extracted direction by the Hon’ble

NCLAT.

20. Accordingly, RMGSL is permitted to handover the

possession and control of Metro link from Delhi Metro

Sikanderpur Station on MG Road to Sector 56, Gurugram to

ASVP, pursuant to the termination of the Concession

Agreement dated January 3, 2013. It goes without saying that

this permission is without prejudice to the rights and

contentions of the contesting parties to take recourse to

appropriate legal proceedings’ to assail the validity and

consequences of termination of the Concession Agreement

by both of them. It is, however, clarified that HSVP, shall still

be free to engage the services of RMGSL, albeit at the

mutually discussed/negotiated terms and charges to run the

PART A

subject Metro link till, such time, appropriate/alternative

arrangements are made by HSPV to run the same.”

15 On 6 September 2019, the High Court, while issuing notice, adjourned the

proceedings to 9 September 2019 and directed that until then the operation of the

Rapid Metro Rail by the appellants shall continue on both the lines, till midnight on 9

September 2019. On 9 September 2019, the High Court deferred the hearing to 17

September 2019, with a consequent extension to its interim order as well. The High

Court observed:

“Order dated 09.09.2019

“We propose to pass this order in both the cases i.e. CWP

Nos.24949 and 24951 of 2019.

Although both the contracts dated 03.01.2009 and

03.01.2013 executed for both the lines of the Rapid Metro

Rail at Gurgaon have been terminated by both the parties i.e.

HSVP (previously known as “HUDA") on 26.08.2019

(forthwith) and the RMGSL by giving 90 days notice with

effect from 07.06,2019 which comes to an end on

09.09.2019. But the operations are still continuing under the

orders of this Court dated 06.09.2019 till the midnight of

09.09.2019.

After lengthy arguments addressed by counsel for the parties,

the Court has found that the dispute between the parties may

be resolved by negotiation for which they both would require

some time and, therefore, the hearing of this case is deferred

to 17.09.2019 and the order of stay granted on 06.09.2019 is

also extended till 17.09.2019 till midnight.

During the course of hearing, learned senior counsel

appearing on behalf of the respondent has submitted that with

the termination of the contract with effect from 09.09.2019,

the respondent would not act as a concessionaire rather

would act as an agent.

PART A

On the other hand, learned senior counsel for the petitioners

has submitted that the respondent can act as a licensee.

Be that as it may, the question as to whether the respondent

would act for the purpose of operation and management till

17.09.2019 till midnight as a licensee or an agent shall be

decided on the next date of hearing.

Learned senior counsel for the respondent has also referred

to the terms and conditions for the purpose of discussion in

the meeting during this period which are also reproduced as

under:-

(1) Time bound handover of the Project to HSVP;

(2) Commitment to take handover the Project by HSVP;

(3) Commitment to pay at least 80% of debt due as

termination payment to RMGL/RMGSL by HSVP;

(4) Handover to start immediately;

(5) RMGL/RMGSL to act as agent of HSVP for further

work post 09.09.2019;

(6) Cost and benefit to be on HSVP's account;

(7) Indemnification of RMGL/RMGSL from any third party

claims and from HSVP's actions;

(8) Rights and benefits of parties get frozen on the date

termination of Concession Agreement becomes

effective, be-09-09-2019-- and.

(9) Issuance of vesting certificate by HSVP.

Learned senior counsel appearing on behalf of the petitioners

has submitted that all these issues would be discussed in the

joint meeting of the parties.

Till the next date of hearing i.e. 17.09.2019, the respondent

shall operate and manage the Rapid Metro Rail at Gurgaon

on both the lines but subject to reimbursement of the

insurance and operation and maintenance cost by the

petitioners of this period.

A copy of this order be given to both the parties under

signatures of Bench Secretary of this Court.

To be taken up in the urgent list.

A photocopy of this order be placed on the file of other

connected case.”

PART A

On 18 September 2019, the following order was passed:

“Order dated 18.09.2019

Learned senior counsel appearing on behalf of the Rapid

Metrorail Gurgaon Ltd. (RMGL) and the Rapid Metrorail

Gurgaon South Lid. (RMGSL) has made the following

proposals:-

i) RMGL/RMGSL will continue to operate their Metro Link

for a period of 30 days (i.e. until October 16, 2019) during

which (a) the ‘debt due’ as per financing documents in

terms of the concession agreement may be determined

by an auditor appointed by the Hon'ble Court; and (b) the

process for transfer of the Metro Links may be undertaken

under the supervision of two Hon’ble (retired) High Court

Judges, one being nominated by RMGL/RMGSL and one

being nominated by HSVP;

ii) During this extended period since 9 September 2019

RMGL/RMGSL will act as agents of HSVP, RMGL and

RMGSL will be responsible for all liabilities arising on

account of their gross negligence and fraud during this

time;

iii) The conditions set forth in (i) and (ii) above are subject to

an undertaking from HSVP that once the debt due is

determined by the auditor appointed by the Hon’ble Court

at least 80% of the ‘debt due’ so determined shall be,

deposited in the escrow account inter alia in terms of the

Concession Agreement Escrow Agreement and

Substitution Agreement.

iv) The above proposal is made to safeguard immediate

interest of the public sector lenders of the project and is

without prejudice to the rights and, remedies of

RMGL/RMGSL under contract or applicable laws

including inter alia the right to claim any differential

amounts that may be due and payable to the lenders or

RMGL/RMGSL as Termination Payments or any other

payments.

He has also submitted that since the petitioners may take

some time to consider the aforesaid proposals,

RMGL/RMGSL shall continue its operation and management

till 20.09.2019 (midnight).

PART A

Adjourned to 20.09.2019.

To be shown in the Urgent List.

A photocopy of this order be placed in the file of the

connected case.”

16 In the order of the High Court dated 18 September 2019, there was a specific

reference to the proposals which were made on behalf of the RMGL and RMGSL.

The proposals essentially were that: firstly, RMGL and RMGSL would continue to

operate the rapid metro link for 30 days, during which the 'debt due' as per the

financing documents in terms of their respective Concession Agreements would be

determined by an auditor; and secondly, an undertaking would have to be furnished

by HSVP that on determination of the ‘debt due’ by the auditor, at least 80 per cent

of the amount so determined should be deposited in the Escrow Account in terms of

the Concession Agreements. The respondents HMRTC and HSVP submitted their

response to the proposal which was made by the appellants, which was adverted to

in the earlier order. The response was in the following terms:

“(i) With respect to the request of the RMGL and RMGSL to

continue to operate the said Metrolines fora period of 30

days, it is stated that HMRTC and HSVP have already

entered into a formal agreement with the Delhi Metro Rail

Corporation Ltd. “(DMRC)” on 16" September, 2019 for

Operations and Maintenance “(O&M)” of the said Metro Lines.

And it is categorically stated that HMRTC and HSVP has

signed the said agreement on account of the fact that

previously RMGL/RMGSL were not acceding to the request of

HMRTC/HSVP to run the said Metrolines for sufficient period

during which effective resolution of the entire matter could be

achieved. Now, after having signed the said agreement with

DMRC, HMRTC/HSVP is also of the view that the entire

process of handover of O&M for the said Metro Lines to

PART A

DMRC be done under the supervision of Hon'ble (Retd.) High

Court Judge as may be appointed by the Hon’ble Court within

reasonable time.

(ii) Secondly, the aspect of the ascertainment of “debt due” is

linked with the definition of the words “debt due "in the

concession agreement linked with the ascertainment of the

Total Project Cost. However, the HMRTC and HSVP do

hereby agree with the proposal of the RMGL and RMGSL that

an auditor may be appointed to ascertain the actual figures in

that respect. In this, matter, the HMRTC and HSVP proposes

that Comptroller and Auditor General of India “(CAG)” may be

given the assignment of financial audits under the order of the

Hon’ble Court to ascertain financial aspects including

determination of over invoicing into the project.

HMRTC/HSVP are agreeable for the appointment of CAG

subject to full cooperation by RMGL and RMGSL and all

documents and other information pertaining to the ‘debt due’

may be provided to CAG or the auditor so appointed with a

copy to HMRTC and HSVP.

(iii) Thirdly, during the transition period the period during

which O&M of the said Metro lines shall be transferred from

RMGL and RMGSL, to DMRC, RMGL & RMGSL have

proposed to act as an agent of the HMRTC and HSVP during

the said period. In this respect it is stated that it will lead to

further complications. HMRTC and HSVP have transferred

the amount of insurances and the entire control will remain

with the RMGL and RMGSL during this period. RMGL and

RMGSL shall continue their O&M in terms of concession

agreements and the HMRTC and HSVP have no objection

that RMGL/RMGSL may receive all the revenues arising from

O&M and incur all expenses therefrom itself and pay the

same as is being done currently. In other words the RMGL

and RMGSL remain responsible and liable for all their acts

and deeds with are generally associated with the running of

the said Metro Lines, not limited to only the Gross negligence

and fraud during this time.

(iv) Fourthly, the aspect of HMRTC and HSVP undertaking to

deposit the 80% of the debit due in Escrow Account as would

be ascertained by the auditors depends solely on the

outcome of the report as would be submitted by the learned

auditor as shall be appointed by the Hon’ble Court and the

HMRTC and HSVP do hereby commit and confirm to adhere

to the directions as would be passed by the Hon’ble High

PART A

Court or NCLAT or any other court or any other order under

any other legal proceeding(s) passed by any other competent

authority in that respect, in terms of the concession contract

subject to the all other rights and entitlements in favour of

both the parties arising out of the same.

(v) With respect to the submission that RMGL/RMGSL is

reserving their right to claim differential payment, it is

apprised that by having stated that, RMGL/RMGSL are trying

to keep options open to challenge whereby RMGL/RMGSL

may rekindle this entire matter again after having settled the

matter in the light of aforesaid statement i.e. after having

settled the amount which becomes due i.e. 80% of the debt

due in terms of the definition contained in the concession

agreement as linked with the total project cost which shall be

ascertained by an auditor as shall be appointed by the

Hon’ble Court. As such the same cannot be acceded to since

this would lead to multiplicity of litigation and could be a

serious dampener on this entire matter. This matter is being

settled under the directions of the Hon'ble Court and as such

the same should be acceptable to you gracefully.

(vi) That the HMRTC and HSVP hereto reserves its right to

make any further submissions in the light of any further

arguments or facts that may be brought to light in this matter

during the audit process and course of proceedings.”

17 The proposal submitted by RMGL and RMGSL, which had been responded to

by HSVP and HMRTC, was then deliberated in the High Court. Accordingly, the

following directions were issued by the Division Bench on 20 September 2019,

recording that “a consensus” had been arrived at in the presence of senior officers of

the contesting parties namely, the Managing Director of HMRTC, Chief

Administrator of HSVP, the Managing Director of RMGSL and Director of RMGL.

Thereupon, the directions which were issued by the Division Bench of the High

Court on 20 September 2019 were in the following terms:

PART A

“(i) RMGL and RMGSL have decided to continue the

Operation and Maintenance (for short “O&M”) of both the

metro lines for the period of 30 days w.e.f. 16.09.2019. In the

meantime, process of transfer of control and management of

operation and maintenance of both the Metro links shall start

w.e.f. 23.09.2019. The operation and maintenance by RMGL

and RMGSL shall be in terms of the order dated 09.09.2019

passed by this Court.

It is needless to mention that in case of any

clarification/modification, the parties shall be at liberty to

approach this Court by moving an appropriate application(s)

in these petitions.

Both the parties have requested to appoint two retired

Hon’ble Judges of the High Court on payment of suitable

remuneration to supervise the aforesaid transfer and in this

regard petitioners have suggested the name of Hon’ble Mr.

Justice Kailash Gambhir (Retd.) and the respondent(s) has

suggested the name of Hon’ble Mr. Justice V.K. Gupta

(Retd.).

Keeping in view the magnitude of work involved, we direct

that £10.00 Lakh, towards remuneration, shall be paid to

Hon’ble Mr. Justice Kailash Gambhir (Retd.) by the HSVP

and remuneration to the tune of 710.00 Lakhs shall be paid to

Hon’ble Mr. Justice V.K. Gupta (Retd.) by the — RMGLRMGSL.

(ii) As far as “debt due” as defined under the concession

contract is concerned, direction is issued to the Comptroller

and Auditor General of India (for short ‘CAG’) to appoint a

team of auditors for the financial audit of the “debt due” and

also for examining the scope of the audit of “debt due”

audited by the HSVP with the assistance of the auditors

appointed by the parties to the lis.

It is needless to say that the CAG shall complete the

aforesaid audit within a period of 30 days.

(iii) It is directed that the arrangements made by this Court

vide order dated 09.09.2019 shall continue till the process of

handing over the operations is complete.

(iv) It is further directed that amount of 80% of the debt due,

determined in terms of the audit report of the CAG, shall be

PART A

deposited by the HSVP in the Escrow account which shall be

subject to any order passed by the NCLAT or any other

competent statutory authority, within a period of 30 days after

the receipt of the audit report.

(v) It is further directed that rest of the disputes between the

parties to the lis, arising out of the audit report, shall be

agitated and decided in the arbitration proceedings, a mode

provided in the concession contracts.

(vi) It is also directed that whatever documents are required

for the purpose of final transfer of operation and management

and the assets, the same be given by the RMGL and RMGSL

to HSVP after the payment of “debt due”.”

This order dated 20 September 2019 was subsequently modified by the High Court

on 4 October 2019, in the following terms:

“Notice in the applications was issued to which no reply has

been filed, however, suggestions made by the applicant(s)-

respondent(s) are accepted by the nonapplicant(s)/petitioner(s) and therefore, three Clauses i.e.

Clause No. II, V and VI of the order dated 20.09.2019 are

hereby clarified/modified to the following extent:-

In Clause II at pages No. 12 and 13 of the order, the words

i.e. “also for examining the scope of the audit of “debt due”

audited by the HSVP with the assistance of the auditors

appointed by the parties to the lis.” be replaced with the

words “also for examining the scope of the audit of the debt

due suggested by the HSVP with the assistance of the

auditors appointed by the parties to the lis. The CAG will also

examine the scope of the audit of debt due suggested by the

HSVP in terms of the concession agreement.”

As regards to Clause V, it is being replaced with the

following:-

V) It is further directed that rest of the dispute between the

parties to the lis 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/liabilities

shall be agitated/decided in the arbitration proceedings, a

mode provided in the concession agreement. Needless to

say that arbitration proceedings shall be subject to any

permission that may be required from NCLAT or any

other competent Court of law.

PART A

Insofar as Clause VI is concerned, Learned Senior Counsel

appearing on behalf of the applicant(s)-respondent(s), after

taking instructions from Mr. Rajiv Banga, Managing Director,

RMGSL and Director RMGL, has submitted that the same be

read as under:-

VI) It is directed that whatever documents are required for

the purpose of transfer of operation and maintenance is

concerned, the same will be handed over by the RMGL

and RMGSL to the petitioners or their agent/licensee

DMRC in terms of direction No. I and rest of the

documents which are for final transfer of the assets the

same be given by the RMGL and RMGSL to HSVP after

payment of the debt due. However, in the meanwhile the

proposed documentation in terms of concession

agreement may also be communicated by the RMGL and

RMGSL to the petitioners.

With the aforesaid clarifications/modifications, present

applications are hereby disposed of. Further, on the joint

request, of counsel for the parties, CAG is directed to

complete the audit, as ordered by this Court, by counting the

period of 30 days from the date of receipt of certified copy of

this order.”

18 On 15 October 2019, the High Court allowed an extension of seven days for

implementing the directions issued in its orders dated 20 September 2019 and 4

October 2019. The High Court also corrected its earlier order with the consent of the

contesting parties, in the following terms:

“Accordingly, the applications are allowed.

However, Mr. Puneet Bali has pointed out that there is an

error in the order dated 04.10.2019. He has further submitted

that instead of reading the order, “The CAG will also examine

the scope of the audit of debt due suggested by the HSVP in

terms of the concession agreement” be read as “The CAG will

also examine the scope of the audit of debt due suggested by

both the parties in terms of the concession agreement.”

19 In pursuance of the order of the High Court, the Comptroller and Auditor

General of India (“CAG”) presented a statement dated 19 November 2019 in regard

to:

PART A

(i) The scope of the audit; and

(ii) Deliverables and timelines.

The statement has a bearing on the controversy, and is hence extracted in entirety:

“

1. Verify that the Debt Due has been arrived at with

reference to the terms & conditions of respective

Concession Contracts and all Financing

Agreements/Documents which may have bearing on the

computation of Debt Due.

2. Verify that all funds constituting the financial package

(debt and equity) for meeting the concessionaire’s capital

cost has been credited / received in the Escrow Account,

as per the quantum/ratio/priority/procedure prescribed in

Common Loan Agreement and assessing the impact on

the amount of debt due.

3. Verify that the funds of financial package, deposited in the

Escrow account, were used for the project assets as

defined in the Concession Contract and assess the

impact on the amount of debt due.

4. Verify receipt and check that all non-fare revenues were

duly accounted for referring to the agreements governing

such revenues. Similarly, verify receipt and deposit of all

fare revenues in the Escrow account including

reconciliation with DMRC/other relevant document

assessing the impact on the amount of debt due.

5. Verify that all amounts standing to the credit of Escrow

Account has been appropriated and dealt with in the order

prescribed in the Concession Contract and Escrow

Agreement assessing the impact on the amount of debt

due.

6. Verify that all other receipts and payments have been

routed through Escrow Accounts. Review all other bank

accounts maintained/operated by the concessionaire

during concession period with a view to assess the impact

of the operation of such account on the amount of Debt

Due.

7. Verify that the information contained in Annual Reports

(i.e. Audited Financial Statements, Directors Reports and

Statutory Audit Reports) of the concessionaire, to the

extent this information has a bearing on the amount of

Debt Due, has been arrived at by following the applicable

Accounting Standards and Guidelines in particular,

Ind_AS 11 on Construction Contracts, Ind_AS 23 on

PART A

Borrowing Costs, Ind_AS 38 on Intangible Assets, Ind_AS

115 on Revenue from Customer Contracts.

8. Audit would cover verification of other aspects as may be

considered necessary, ring the course of audit, to verify

the amount of Debt Due.

9. Above Audit would be conducted for the concession

period, since inception, by following the applicable

standards of Auditing issued by CAG/CAI (inter alia 200-

299 on General Principals and Responsibilities, 300-499

on Risk Assessment and Response to Assessed Risks,

500-599 on Audit Evidence with emphasis on SA 530 on

Audit Sampling and 600-699 on Using Work of Others).

10. Nature, timing and extent of audit procedure will be

impacted by the audit evidence obtained. A risk

assessment or problem analysis may be conducted and

the scope may be revised as necessary in response to

the audit findings. Unimpeded and quick access to

relevant records/ documents may be ensured by the

auditee. Any delay in getting records would be recorded

so as to maintain Audit trail.

Deliverables and timelines

1. Within two weeks from date of award, the Auditor shall

submit Inception Report indicating results of risk

assessment, audit methodology for conducting audit and

constraints, if any.

2. Draft Audit Report to be submitted by Auditor within three

months from date of award of audit.

3. Monthly appraisal meetings to be held to review the audit

progress and modify the scope of audit, if necessary.”

20 CAG then filed a Civil Miscellaneous Application, together with the

compliance affidavit, before the High Court on 25 June 2020, stating that it had

appointed a firm of chartered accountants, SARC & Associates, to undertake a

financial audit of the debt due between HMRTC/HSVP and the concessionaires,

RMGL/RMGSL. It was noted that in terms of the audit process followed by CAG, the

draft audit report was furnished to both sets of contesting parties by emails dated 19

February 2020 and 24 February 2020. Though the appellants had responded to the

PART A

emails, HMRTC had addressed a communication on 27 February 2020 stating that

since the budget session of the Haryana Vidhan Sabha was in progress, it was

difficult at this stage to have consultations and to respond to the draft audit report.

As such, a period of four weeks was sought to respond to the draft. In view of this,

CAG had sought an extension of eight weeks before the High Court by filing an

application, on which notice was issued on 18 March 2020, returnable on 3 April

2020. Thereafter, the lockdown occasioned by Covid-19 ensued. CAG by its further

communications dated 18 March 2020 and 22 April 2020 sought the response of the

HMRTC and the State government by 29 April 2020, a deadline beyond which it was

stated that the final audit report would be prepared. CAG stated before the High

Court that the financial audit of the ‘debt due’ had been performed by the auditors to

whom the work had been assigned in accordance with the “limited scope of audit

which has been submitted in the Court earlier”. CAG stated that the financial audit

had then been finalized, since no response had been received from HMRTC or the

State government.

21 On 18 August 2020, a Civil Miscellaneous Application5 was filed before the

High Court by RMGL and RMGSL, pursuant to the order of the High Court dated 20

September 2019 in accordance with which the CAG had submitted its report in a

sealed cover to the High Court, wherein the appellants sought a direction for:

(a) Opening the sealed cover submitted by CAG containing its report of the

financial audit of the debt due in terms of the Concession Agreements; and

5 CM-7881-CWP-2020

PART A

(b) Directing the deposit of 80 per cent of the debt due in terms of the order of

the High Court dated 20 September 2019.

22 On 2 September 2020, the High Court issued notice on the application filed by

the appellants and listed it on 10 September 2020. On 28 September 2020, the

sealed cover was opened and the report of the CAG was taken on the record. The

CAG report adverts to the scope of the audit which was undertaken in respect of the

debt due under the Concession Agreement dated 9 December 2009 with RMGL in

the following extract:

“The scope of audit was suggested by RMGL and HMRTC

through communications and presentations. The scope of

audit as suggested by both the parties were examined and

the scope of audit of “debt due" was accordingly firmed up.

The suggestions made through presentations and the scope

of audit, as decided by were submitted to the Court vide CMA

no. 15397 dated 20 November 2019 by CAG.

It was also informed to the Court that only those Issues that

are related and relevant to examination of the “debt due" as

per concession agreement would be examined. The scope of

audit decided by CAG and as intimated to the Court has been

placed at Annexure 1B. The issues mentioned in the scope

provided by HMRTC like encumbrances and liabilities on the

said metro project, shareholding / share in valuation of the

assets of the concessionaire company, change of

shareholding fights, criminal acts and liabilities etc. which are

said to have been inflicted on the Company require detailed

forensic and technical audits. It is understood that such audits

are ongoing. This audit is limited to the examination of “debt

due”, as defined in the Concession Agreement.”

23 In computing the debt due, the audit report notes that the actual cost of the

project was Rs 1,199 crores as against the budgeted cost of Rs 1,088 crores. Since

the cost overrun is to be contributed by the sponsors under the loan agreement, this

PART A

would not have any impact on the debt due. Hence for the purpose of computing the

debt due, the project cost was taken as Rs 1,088 crores. In computing the debt due,

the audit report took into consideration:

(i) The principal component of the term loan; and

(ii) The interest component on the term loan.

In arriving at the debt due, the conclusion which was drawn in the audit report is

extracted below:

“6. Conclusion

The amount of debt-due as per the audit, which has been

conducted within limited scope as detailed in earlier sections

of the report, has been worked out as Rs. 797.52 crores

including interest upto 8 September 2019.

Other matters that have come to our attention and can have a

significant impact on debt due are listed below. Our report is

subject of the outcome of such matters.

• An entity specific forensic audit of RMGL is being conducted

by the lenders.

• NCLT as part of its resolution proceedings ordered on 01

January 2019 for the reopening and recasting of the accounts

of IL&FS and two of its subsidiaries IL&FS Transportation

Networks Limited (ITNL) and IL&FS Financial Services

Limited (IFIN) in respect of financial years 2013-14 to 2017-

18, under Section 130 of the Companies Act 2013.The same

is one of the basis of disclaimer of opinion given by statutory

auditors of IL&FS for FY 2018-19. The contracts were

awarded by RMGL to related parties, i.e. IRL worth Rs.623

crore (52 per cent of total project cost) is a subsidiary of ITNL.

Further, INL and IRL are the

promoters in the RMGL.

• New board of Directors, in January 2019, has initiated a thirdparty forensic examination for the period from April 2013 to

September 2018, in relation to certain companies of the

Group, which is currently ongoing. The same is one

of the basis of disclaimer of opinion given by statutory

auditors of IL&FS for FY2018-19,

PART A

• 9 packages which were awarded to IRL, were sub-contracted

to various related and unrelated parties as explained by the

management. This includes companies with irregularities as

pointed out by Income Tax Department as mentioned in the

income Tax Show Cause Notice!!, dated: 15.11.2018, ref no.

ADIT(INV]-3{4}/Show Cause Notice/ENSO/2018-19/251.

Income tax scrutiny/assessments on-going.

Table 12 - Party-wise break-up of the packages subcontracted by IRL (Amount in crore)

Related parties Sub-contracting of

IRL Level

IECCL 248

Unrelated Parties

Others 311

Companies with irregularities as

pointed out by

lncome Tax Department

Balancing figure 33

Total 623

Our report is submitted solely for the purpose set forth in the

first paragraph of this report. This report relates only to the

items specified and does not extend to any financial

statements of RMGL, taken as a whole.”

The audit report for second appellant RMGSL computed the debt due at Rs

1,609.88 crore, including interest upto to 8 September 2019. The conclusion in the

audit report is extracted below:

“6. Conclusion

The amount of debt-due as per the audit, which has been

conducted within limited scope as detailed in earlier sections

of the report, has been worked out as Rs.1,609.88 crore

including interest upto 8 September 2019.

Other matters that have come to our attention and can have a

significant impact on debt due are listed below. Our report is

subject to the outcome of such matters.

PART A

• An entity specific forensic audit of RMGSL is being conducted

by the lenders.

• NCLT as part of its resolution proceedings ordered on 01

January 2019 for the reopening and recasting of the accounts

of IL&FS and two of its subsidiaries IL&FS Transportation

Networks Limited (ITNL) and IL&FS Financial Services

Limited (IFIN) in respect of financial years 2013-14 to 2017-

18, under Section 130 of the Companies Act 2013. The same

is one of the basis of disclaimer of opinion given by statutory

auditors of ILAFS for FY 2018-198. The contract was

awarded by RMGSL of related party, i.e., TNL worth Rs.

1,803 crore (77 per cent of total project cost).

• New board of Directors, in January 2019, has initiated a thirdparty forensic examination for the period from April 2013 of

September 2018, in relation to certain companies of the

Group, which is currently ongoing. The same is one of the

basis of disclaimer of opinion given by statutory auditors of

IL&FS for FY 2018-19.

• 14 packages which were awarded to ITNL, as detailed above,

were subcontracted to various related and unrelated parties.

Table 12 – Party-wise break-up of the packages subcontracted by ITNL

Sub-Contract

Parties

Package

No.

Amount

in crore

Related parties

IECCL P1 367

IRL P2, P2(a),

P4-14

1025

Unrelated

parties

Others P3 144

Balancing figure 267

Total 1,803

• IRL further sub-contracted it to the related parties and other

parties which includes companies with irregularities as

pointed out by Income Tax Department as mentioned in the

Income Tax Show Cause Notice’, dated:

15.11.2018, ref no. ADITIINV]-3(4]/Show Cause

Notice/ENSO/2018-19/251. Income tax scrutiny/assessments

is on-going.

PART A

Table 13- Party-wise break-up of the packages subcontracted by IRL

(Amount in crore)

Particulars Total

Cost

% of

Total

Cost

incurred

Related parties

IL&FS

Technologies

29 3

IRL 75 7

Unrelated

parties

Siemens

595 58

Compaines with

irregulariries as

pointed out by

Income Tax

Department

66 7

Others 221 22

Balancing fiture 39 3

1,025 100

Our report is submitted solely for the purpose set forth in the

first paragraph of this report. This report relates only for the

items specified and does not extend to any financial

statements of RMGSL, taken as a whole.”

24 On 10 October 2020, an affidavit was filed before the High Court by the

Advisor (Planning) HMRTC on behalf of the respondents, objecting to the audit

report. The substance of the objection was that the audit report had not considered

“critical aspects…which shall have a direct bearing” on the amount of the debt due.

In the course of the affidavit, the following circumstances were highlighted:

(i) In exercise of powers under Section 241(2) of the Act of 2013 and in terms

of the permission granted by the NCLT, the Central government had

reconstituted the Board of the IL&FS, the appellants’ parent company

PART A

whose affairs were being conducted in prejudicial to the public interest. On

6 December 2018, a First Information Report (“FIR”) had been lodged

against RMGL, RMGSL and sister concerns alleging that monies had

been siphoned off from the group companies. As against RMGL and

RMGSL, there were allegations that fake invoices had been raised as a

result of which the cost of the metro rail project was significantly higher

than comparable projects of DMRC, as a result of which the rapid metro

was incurring losses year on year. The losses were occasioned by high

interest cost entailed on “huge capital expenditure”, which in turn was due

to false and bogus invoices;

(ii) Notices have been issued by the Income Tax Department against IRL

indicting that the group companies were shell entities who had raised

funds through bogus and unsecured loans and invoices;

(iii) Serious Fraud and Investigation Office (“SFIO”) had commenced a probe

into the affairs of the associated companies including IL&FS Financial

Services (“IFS”) and ITNL; and

(iv) Investigations under the Prevention of Money Laundering Act, 2002 have

been initiated against IL&FS.

In this backdrop, it was urged that the CAG had not audited the accounts of the

concessionaire, RMGL and RMGSL, in accordance with the scope of audit finalised

by them. The auditors, it is stated, had indicated that the amount of the debt due is

PART A

subject to the outcome of various matters which can have a significant impact on the

debt due. Hence, it was urged that the audit is “incomplete and inconclusive”.

25 HMRTC tabulated its objections to the audit report in the course of the

affidavit before the High Court. HMRTC has submitted that the scope of audit

finalised by CAG “still remains incomplete and inconclusive”.

26 RMGL submitted its reply in which, firstly, it drew attention to the fact that the

High Court’s order dated 20 September 2019 unequivocally obligates the

respondents herein to pay 80 per cent of the debt due within 30 days of the CAG

report, and no liberty has been granted to challenge the report at this stage.

Secondly, it was urged that despite ample opportunities provided by CAG, HMRTC

had not furnished any objections to the draft report. Thirdly, it was alleged that the

objections filed before the High Court is an attempt to delay the fulfillment of the

obligation to pay 80 per cent of the debt due despite the entirety of Project No 1

having been handed over. A similar reply was also filed by RMGSL.

27 An affidavit was also filed before the High Court by CAG in response to the

objections filed by HMRTC. In its affidavit dated 28 October 2020, CAG noted:

"That the scope of financial audit of debt due suggested by

both the parties was examined by CAG being the

Constitutional authority, and after due consideration, decided

the scope of audit of debt due to be conducted and further it

was decided that CAG will examine only those issues, that

are related and relevant to examination of the debt due as per

the concession agreements. It was also decided that the

issues mentioned in the scope provided by the HMRTC like

encumbrances and liabilities on the said metro projects,

shareholdings/share in valuation of the assets of the

PART A

concessionaire companies, change of shareholding rights,

criminal acts & liabilities etc. which have been inflicted on the

company are not related to the present audit. These issues as

well as other issues which may have impact on the viability of

the project of relate to criminal acts etc, as stated by the

HMRTC can be got audited/examined by HMRC through

other agencies or through a separate forensic audit. These

facts and scope of audit decided by CAG was duly submitted

in this Hon’ble Court vide Additional Affidavit dated

19.11.2019 submitted along with CM No. 17584 of 2019 in

CM No. 15397 of 2019.”

CAG further noted in the course of its affidavit that it had ensured that:

(i) The firm appointed for conducting the audit had no conflict of interest with

RMGL/RMGSL or any group company of the IL&FS group;

(ii) After the auditors had conducted the audit of the debt due, it was

examined by the office of the CAG to ensure that the financial audit had

been conducted and completed in terms of the scope of audit submitted

before the High Court on 19 November 2019;

(iii) The auditors had completed the financial audit of the debt due in terms of

the Concession Agreements;

(iv) The draft audit report was submitted to both the parties by emails dated 19

February and 24 February 2020, which was followed up with reminders on

18 March and 20 April 2020;

(v) Since no response had been received from HMRTC and the State

government, the report of the financial audit was finalised and submitted in

a sealed cover to the High Court;

PART A

(vi) The objection that the audit report was incomplete and inconclusive did not

hold any substance. In that context, CAG stated:

“11, That the objections/response, as submitted vide affidavit

dated 11.10.2020 has been considered and the same does

not hold any substance on account of the following facts:

1) CAG of India, being constitutional authority, decided the

scope of audit of debt due in terms of concession agreement

and the same was also submitted to the High Court on

20.11.2019.

2) This is a financial audit of debt due and has been

performed by the auditors M/s, SARC and Associates as per

the limited scope of audit. The Auditors have reported their

findings as per the limited scope to arrive at the amount of

debt due in terms of the applicable Concession Agreements.

The amount of debt due has been worked out after

examination of documents as well as verification of records,

wherever required.

3) The draft report was shared with the HMRTC but it did not

respond despite repeated requests. So the CAG was

constrained to finalise the report without the response of

HMRTC.

4) The issues pointed out like reconstitution of Board of

Parent Company IL&FS and investigation against its officers

by Enforcement Directorate, FIR lodged by Economic offence

wing, issue of income tax notice to group company,

investigation by SFIO etc. are matter of investigation /

forensic audit and does not form part of financial audit. It was

categorically informed to the High Court that issues relating

criminal acts etc, can be got audited/examined by HMRTC

through other agencies or through separate forensic audit.

5) Although the debt due has been worked out as on 08

September 2019, the Report was neither required nor delve

upon / comment upon which party’s ‘Event of default’

occurred.”

PART A

CAG has thus submitted that the report of the financial audit of the debt due “is

complete and conclusive as per the scope of audit as decided by CAG” and stands

submitted to the High Court on 19 November 2019 on affidavit.

28 On 12 October 2020, the Division Bench of the High Court noted the affidavit

that had been filed by the Advisor (Planning) HMRTC and took the affidavit on

record, while also noting the submission of RMGL and RMGSL that the matter “does

not brook any delay”. The hearing was then adjourned to 16 October 2020 to

facilitate filing of replies. The proceedings then came up before the High Court on 16

December 2020, when on the request of the counsel for the petitioners before the

High Court (HMRTC and the State of Haryana), the hearing was deferred to 8 April

2021.

29 At this stage, the appellants filed Special Leave Petitions challenging orders

dated 12 October 2020 and 16 December 2020 passed by the High Court. The order

of this Court dated 5 February 2021 issuing notice is extracted below:

“1 Mr Mukul Rohatgi and Mr Puneet Bali, learned Senior

Counsel appearing on behalf of the petitioners, submit

that:

(i) The High Court, by its order dated 20 September 2019

(Annexure P-8), directed the CAG to prepare a report on

the debt which is due to the petitioners and 80% of the

debt was directed to be deposited in an Escrow account

within thirty days of the report;

(ii) Any dispute arising out of the CAG report was to be

decided in an arbitration proceedings;

(iii) The CAG report was submitted on 23 June 2020; and

(iv) Though 80% of the debt due, as determined by the CAG,

was required to be deposited in an Escrow account within

thirty days, this has not been carried out and the High

PART B

Court has simply adjourned the proceedings to 23 April

2021.

2 Mr Mukul Rohatgi submitted that the dues which are to be

deposited in the escrow account will be to the benefit of

the secured creditors of the petitioners who form a part of

the Infrastructure Leasing & Financial Services Limited

group of companies presently under the management of a

Board of Directors constituted by the Union Government.

3 Issue notice, returnable on 22 February 2021.

4 Dasti, in addition, is permitted.”

30 On 22 February 2021, two financial institutions, Andhra Bank and Canara

Bank, were permitted to file their responses. The Special Leave Petitions were listed

thereafter, and have been taken up for final disposal. We have heard Mr Mukul

Rohatgi and Mr Puneet Bali, learned Senior Counsel appearing on behalf of the

appellants, Mr Tushar Mehta, learned Solicitor General appearing on behalf of the

respondents and Mr Dhruv Mehta, learned Senior Counsel appearing on behalf of

Andhra Bank and Canara Bank.

B Submissions of counsel

31 Mr Mukul Rohatgi and Mr Puneet Bali, learned Senior Counsel appearing on

behalf of the RMGL and RMGSL, submitted that:

(i) The directions contained in the order of the High Court dated 20

September 2019 are by consent of parties, the High Court having recorded

that a consensus had been arrived at in the presence of senior officials of

the contesting parties;

(ii) The appointment of CAG has to be understood in the backdrop of the

earlier orders of the High Court dated 9 September 2019 and 18

PART B

September 2019, which highlighted the concerns of RMGL and RMGSL

that in terms of the Concession Agreements between the parties 80 per

cent of the debt due was required to be deposited as termination payment

by HSVP;

(iii) Responding to these concerns, HMRTC and HSVP had agreed to the

proposed appointment of an auditor for determination of the debt due, and

proposed the reference to CAG. HMRTC and HSVP specifically committed

to complying with the orders that may be passed by the High Court,

NCLAT or any other legal proceedings;

(iv) The Metro Rail Projects, Projects No 1 and Project No 2, which were

undertaken by RMGL and RMGSL were funded by a consortium of banks

and finance was made available subject to execution of:

a. Consortium Agreement;

b. Escrow Agreement;

c. Debt Due Agreement; and

d. Financial documents;

(v) The object and purpose hence was to secure the dues of the banks and

financial institutions;

(vi) Article 24.4 of the Concession Agreement dated 9 December 2009

contains specific provisions in the event of a termination by HSVP, while

Article 24.5.2 contains provisions in the event that it is terminated by the

concessionaire, RMGL;

PART B

(vii) The requirement of depositing 80 per cent of the debt due in an Escrow

Account is to protect the interest of the banks and financial institutions

which were involved in funding the Projects;

(viii) In pursuance of the order passed by Justice D K Jain, the Projects were

handed over to HMRTC and the petitioner agreed to run the Metro Rail

despite the termination in view of the necessity to avert disruption of metro

services;

(ix) The order dated 20 September 2019 was passed by the High Court based

on consent of parties, under which:

a. RMGL/RMGSL were to continue the operation and maintenance of the

metro lines for 30 days commencing from 16 September 2019, during

which period the process of transfer of control and management of the

operation and maintenance of both the metro links was to commence;

b. The debt due was to be determined by the CAG in terms of the

Concession Agreements;

c. Upon the determination by the CAG, 80 per cent of the debt due was to

be deposited by HSVP in an Escrow Account subject to the order of

NCLT or any other statutory authorities within 30 days of the receipt of

the audit report; and

d. All other disputes were to be decided in arbitration proceedings, as

provided in the Concession Agreements.

PART B

(x) Once a report has been submitted by CAG, there was no occasion for

HMRTC to raise any objections, since 80 per cent of the debt due was

required to be deposited in an Escrow Account within 30 days;

(xi) The High Court has no jurisdiction to reopen the terms of a consent order;

(xii) The CAG submitted the scope of audit to the High Court. Right from the

inception, it was evident that the audit was to be carried out for

determining the debt due in terms of the Concession Agreements. CAG

has specifically clarified in the affidavit filed before the High Court that the

audit is neither incomplete nor inconclusive and that the objections which

have been raised by HMRTC are without any substance;

(xiii) On the above facts which have been submitted, RMGL/RMGSL have

handed over the entire assets consisting of the rapid metro links to HSVP.

The ground that there is an FIR against the IL&FS group of companies

cannot furnish a valid basis for defeating a contractual obligation to deposit

80 percent of the debt due in Escrow Account, which has been confirmed

by the consent order of the High Court. The amount will not be paid over to

either RMGL/RMGSL but would be deposited in an Escrow Account with

Andhra bank and Canara bank, which are public financial institutions. The

amount deposited would abide by the ultimate directions of the NCLT or

any other statutory authority; and

(xiv) No charge sheet has been filed as against one of the companies.

PART B

32 Mr Tushar Mehta, learned Solicitor General appearing on behalf of the

respondents, on the other hand, submitted that:

(i) Investigations are underway in respect of the IL&FS group of companies, and

as a matter of fact both RMGL and RMGSL have been classified as ‘red

entities’:

(ii) FIR No 253 was registered on 6 December 2018, in which RMGL and

RMGSL have been named as accused nos 21 and 22, and there are specific

allegations of fake invoices and that the cost of projects implemented by them

was higher than for DMRC projects, resulting in losses being incurred;

(iii) Subsequent to the original order of the High Court dated 20 September 2019,

a modification was effected on 4 October 2019, in terms of which it was

envisaged that CAG would appoint a team of auditors to conduct a financial

audit of the debt due, with the assistance of the auditors appointed by the

parties to the lis. CAG was to hence examine the scope of the audit of the

debt due suggested by HSVP in terms of the Concession Agreements;

(iv) The reports submitted by the auditors appointed by CAG indicate that the

audit was limited in nature, confined to ascertaining the debt due under the

Concession Agreements. On the other hand, the conclusions in the audit

reports would demonstrate that “other matters had come to the attention of

the auditors which could have significant impact on the debt due”;

(v) The detailed objections filed by HMRTC would indicate that the audit is

incomplete and incomprehensive; and

PART B

(vi) Since the proceedings are pending before the High Court, there is no reason

for the appellants to move this Court, and the objections raised by HMRTC to

the audit reports would have to be determined on their merit.

33 Mr Dhruv Mehta, learned Senior Counsel appearing on behalf of the Canara

Bank and Andhra Bank, submitted that on the request of RMGSL, the consortium

led by Canara Bank provided facilities in aggregate of Rs 1,500 crores in the form of

a Rupee Term Loan Facility under a Common Loan Agreement dated 26 March

2013. Thereafter, RMGSL also availed the External Commercial Borrower as well as

Derivate Facility. Hence, on the basis of supplementary documents executed on 29

September 2014, a sum of Rs 1,109 crores was availed of by RMGLS from the

Senior Lenders, Rs 391 crores from India Infrastructure Finance Company (UK)

Limited, ECB Lenders (forming part of Senior Debt) as well as USD 30 million from

IndusInd Bank Limited, being the Derivate Facility Lender. As such, an Escrow

Account Agreement dated 2 July 2013, read with Supplementary Agreements dated

15 January 2014 and 24 September 2014, was executed between RMGSL, HSVP

and Canara Bank, under which Canara Bank was appointed as the Escrow Agent. It

was stated that as on 31 July 2019, the lenders of RMGSL had an outstanding claim

of Rs 1651 crores approx. Hence, on termination of the Concession Agreement

dated 3 January 2013 by “HUDA”, now HSVP, under Article 32.4 of the Concession

Agreement dated 3 January 2013, an amount of 80 per cent of the debt due has to

be paid to the lenders of Project No 2. The lenders had filed a reply before Justice D

K Jain stating that they had no objection of the handing over of the assets to

PART C

HMRTC, subject to the deposit of the amount due to the lenders in an Escrow

Account. Hence, the debt due having now been determined in terms of the audit

report, it has to be deposited in the Escrow Account maintained by Canara Bank.

Similarly, the consortium led by Andhra Bank provided credit facilities for Project No

1 to RMGL, and maintained a similar Escrow Account. In the affidavit submitted by

Andhra Bank, it was noted that the debt due to all the members of the consortium

led by Andhra Bank was Rs 943 crores approx.

34 It was submitted by both the Banks that the Projects were completed by

utilizing funds from the lenders, who are biggest stakeholders. On the other hand,

HMRTC and HSVP have taken possession of the Projects, and are utilizing the

revenue from DMRC. Supporting the contents of the affidavits filed by Canara Bank

and Andhra Bank, Mr Dhruv Mehta urged that 70 per cent of the Projects’ cost is

comprised within debt. Hence, the deposit of 80 per cent of the debt due amounts

only to 56 per cent of the Projects’ cost. Further, the amount coming to the Escrow

Accounts would be subject to the orders of the NCLAT. It has been submitted that

the amount, upon deposit in Escrow Accounts, will be in the hands of the

nationalized banks which have financed the Projects.

35 The rival submissions will now be considered.

C Analysis of the Concession Agreements

36 At the outset, it is necessary to advert to some of the salient features of the

Concession Agreements. For the purposes of the discussion, we are referring to the

PART C

terms of the Concession Agreement dated 9 December 2009, but similar terms are

also present within Concession Agreement dated 3 January 2013. The expression

‘debt due’ is defined in Article 1.1 of the Concession Agreement dated 9 December

2009 in the following terms:

“Debt Due” means the aggregate of the following sums

expressed in Indian Rupees outstanding on the Transfer

Date:

(a) the principal amount of the debt provided by the Senior

Lenders under the Financing Agreements for financing the

Total Project Cost (the “Principal”) but excluding any part of

the Principal that had fallen due for repayment two years prior

to the Termination Date;

(b) all accrued interest, financing fees and charges payable

under the Financing Agreements on, or in respect of, the debt

referred to in Sub-clause (a) above until the Transfer Date but

excluding (i) any interest, fees or charges that had fallen due

one year prior to the Transfer Date, (ii) any penal interest or

charges payable under Financing Agreements to any Senior

Lender, and (iii) any pre-payment charges in relation to

accelerated repayment of debt except where such charges

have arisen due to Authority Default; and

which is included in the Financial Package and disbursed by

Lenders for financing the Total Project Cost as per the

Financing Documents.”

The above expression indicates that the term debt due comprises of three

components:

(i) The principal amount of the debt provided by the senior lenders under the

financing agreement;

(ii) All accrued interest, financing fees and charges payable under the

financing agreement; and

(iii) Any subordinated debt which is included in the financial package.

PART C

37 In terms of Article 3.1, HUDA granted to the concessionaire the exclusive

right, license and authority during the subsistence of the Concession Agreement to

implement the project and the concession over a period of 99 years. Under Article

17.1, the concessionaire was to provide to HUDA a copy of the financing package

furnished by it to the prospective lenders. As and when the financing package was

agreed upon by the lenders and the Concession Agreement was confirmed by the

signing of the agreed financing package by both the concessionaire and the lenders,

a copy was required to be furnished to HUDA forthwith. Financial closure was to be

completed within six months within the signing of the Concession Agreement, with a

cure period of six months, failing which all rights and claims under the Concession

Agreement were to stand waived. Article 18 provides for an Escrow Account into

which all funds, which constitute the financing package for meeting the capital cost

of the concessionaire, are to be deposited. During the operational period, all fare

and non-fare revenues were also to be deposited exclusively in the Escrow Account

by the concessionaire. Article 18.2.1 provided for the disbursement from the Escrow

Account, which included debt service payments due to the senior lenders. Article 18

insofar as is relevant is extracted below:

“ARTICLE 18

ESCROW ACCOUNT

18.1 Opening of Escrow Account and Deposits into Escrow

Account On Financial Close, (in any case not later than 30

days of financial close) the Concessionaire shall open and

establish the Escrow Account with a Bank (the “Escrow

Bank") and ail funds constituting the Financing Package for

meeting the Concessionaire's capital costs shall be credited

to such Escrow Account During Operations Period all Fare

PART C

and Non-Fare Revenues collected by the Concessionaire

shall be exclusively deposited therein, separately.

18.2 Disbursements from Escrow Account

18.2.1 The Concessionaire shall give, at the time of the

opening of the Escrow Account, irrevocable Instructions by

way of an Escrow Agreement substantially in form set forth in

Schedule ‘F’ (the “Escrow Agreement’) to the Escrow Bank

instructing, inter alia, that the deposits Into the Escrow

Account shall, be appropriated in the following order every

month and if not due in a month then appropriated

proportionately in such month and retained in the Escrow

Account and paid out there from in the month when due

unless otherwise expressly provided in the instruction latter:

(i) All taxes due and payable by the Concessionaire

(ii) All Lease charges payable to HUDA as per Lease

Agreement

(iii) All expenses in connection with and relevant to the

Concessionaire’s Works by way of payment to the

EPC Contractor and such other persons as may be

specified in the Financing Documents

(iv) O&M Expenses subject to the ceiling, if any set forth

in the Financial Documents

(v) Connectivity charges and Revenue Share due to

HUDA from the Concessionaire under this

Concession Contract

(vi) Monthly proportionate provision of debt service

payments due to Senior Lenders in an accounting

year and payment of Debt Service Payments to

Senior Lenders in the month when due

(vii) Debt service payment in respect of Subordinate Debt;

(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

PART C

Project Escrow 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) 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;

(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 shall remain in full force and effect until the

obligations set forth In Sub-Article 18.3 have been

discharged,”

38 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:

“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 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.”

39 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

PART C

(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.”

40 Article 30 of the Concession Agreement provides for dispute resolution.

Article 30.2 contains an arbitration agreement, which reads as follows:

“30.2 Arbitration

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.”

PART D

D Terms of the consent order dated 20 September 2019 passed by the

High Court

41 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 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

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

PART D

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 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 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

(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.

42 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 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 dated 9 September 2019, it is evident that RMGL and RMGSL, while

PART D

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

(b) A commitment to pay at least 80 per cent of the debt due as termination

payment to RMGL and RMGSL by HSVP.

43 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 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 must

deposit 80 per cent of the debt due as determined in an Escrow Account in terms of

the Concession Agreement, Escrow Agreement 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 September 2019 for

operation and maintenance of the rapid metro lines;

PART D

(ii) As regards the ascertainment of the debt due, this was linked to the definition

of the expression under Concession Agreements;

(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

(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 or any

other order under any other legal proceedings passed by any other competent

authority” in terms of the Concession Agreements.

44 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

PART D

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. All 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

PART D

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.

45 Clause (ii) of the directions contained in the High Court’s consent order dated

20 September 2019 makes it abundantly clear that 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.

46 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

PART D

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 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:

(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;

PART E

(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 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 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 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

47 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 and Country Planning. HMRTC was requested to

PART E

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 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 reports were finalised in respect of the debt due under the

Concession 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 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 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

PART E

require forensic and technical audit. It is important to note that such audits are

ongoing independently. 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:

(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);

(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

(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.

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.

PART E

48 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 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:

(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

(iii) The consequence of the determination by the auditors to be appointed by the

CAG.

49 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

PART E

the determination of the debt due “as 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 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 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 which is more efficacious…

13. However, access to justice by way of public law

remedy would not be denied when a lis involves public

6 (2005) 8 SCC 242

PART E

law character and when the forum chosen by the parties

would not be in a position to grant appropriate relief.

[…]

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 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)

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-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 a

PART E

dispute which is arbitrable7

. Moreover, remedies are available under the Arbitration

and Conciliation Act, 1996 for seeking interim directions either under Section 9

before the Court vested with jurisdiction or under Section 17 before the Arbitral

Tribunal itself.

50 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 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

PART E

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.

51 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 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;

(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.

52 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

PART E

Court, speaking 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 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 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 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.

53 CAG in the course of its affidavit filed before this Court and High Court by the

Deputy Accountant General Shri KSN Prasad, IAS 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:

(i) making a statement on the scope of the audit before the High Court in

advance;

8 (2006) 4 SCC 416

PART E

(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 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;

(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.

54 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 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.

PART E

55 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, 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

PART E

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, involved an outlay of

funds from Andhra Bank and Canara Bank, who have a vital stake in the financials

of the Projects.

56 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, 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 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. 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.

PART 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 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 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 permitted to resile; and

(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.

57 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

PART E

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.

58 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

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.

PART E

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 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 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 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. Besides this, the

Concession Agreements provides a clear-cut remedy for seeking reliefs under the

arbitration agreement.

59 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

PART F

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

shall stand worked out by granting liberty to the parties to avail of their rights and

remedies in accordance with law.

F Conclusion

60 We accordingly dispose of the appeals in terms of the following directions:

(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;

(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

PART F

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;

(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;

(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; and

(vi) The writ petitions filed before the High Court by the respondents shall

stand disposed of.

PART F

61 The present judgment shall not affect any ongoing investigation or criminal

proceedings in respect of the IL&FS group of companies. The appeals shall be

disposed of in the above terms. There shall be no order as to costs.

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

….……..………...…...….......………………........J.

[Dr Dhananjaya Y Chandrachud]

…...………….…....…........……………….…........J.

[M R Shah]

…………....…..…....…........……………….…........J.

[Sanjiv Khanna]

New Delhi;

March 26, 2021

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