High Court Upholds Order on NHAI Payment, Affirms Lenders' Rights

The High Court upheld the impugned order directing NHAI to deposit the termination payment in the escrow account, requiring compliance with the Arbitration & Conciliation Act. It clarified the calculation of "Debt Due" and "Total Project Cost" as per the Concession Agreement, rejecting NHAI's attempts to adjust these figures. The court emphasized the rights of Senior Lenders under the Escrow Agreement, dismissing NHAI's arguments against prioritizing lender interests. The decision affirmed the protection of lenders' rights and upheld the impugned order to deposit the termination payment, dismissing NHAI's appeals.

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Issues Involved:
1. Validity of the impugned order directing NHAI to deposit termination payment in the escrow account.
2. Interpretation of the Concession Agreement, particularly clauses related to termination payment.
3. Applicability of Section 9 of the Arbitration & Conciliation Act, 1996.
4. Calculation of "Debt Due" and "Total Project Cost".
5. Rights of the Senior Lenders under the Escrow Agreement.

Detailed Analysis:

1. Validity of the Impugned Order:
The High Court upheld the impugned order dated 31st July 2017, which directed NHAI to deposit Rs. 354.744 crores in the escrow account, subject to JSTL furnishing an unconditional and irrevocable bank guarantee of Rs. 348.604 crores. The order also mandated compliance with Section 9(2) of the Arbitration & Conciliation Act, 1996 (A&C Act).

2. Interpretation of the Concession Agreement:
The Concession Agreement between NHAI and JSTL required the construction, operation, and maintenance of a highway project. Upon termination due to JSTL's default, NHAI was obligated to pay 90% of the "Debt Due" less insurance cover, as per Clause 37.3.1. The court clarified that NHAI could not make deductions for its claims or adjust the equity component from the Total Project Cost when computing the termination payment.

3. Applicability of Section 9 of the A&C Act:
The court emphasized that Section 9 of the A&C Act allows for interim measures of protection, which includes directing the deposit of amounts in dispute. The court referenced the decision in Value Source Mercantile Limited v. Span Mechnotronix Limited, which highlighted that Section 9 encompasses the power to issue interim measures of protection similar to those available to a civil court.

4. Calculation of "Debt Due" and "Total Project Cost":
The "Debt Due" was defined as the principal amount of debt provided by the Senior Lenders under the Financing Agreements for financing the Total Project Cost, including accrued interest, but excluding certain penalties and pre-payment charges. The "Total Project Cost" was the lowest of the capital cost set forth in the Financial Package, the actual capital cost upon completion, and Rs. 828 crores less equity support. The court rejected NHAI's contention to adjust the debt due by excluding the cost of unfinished construction and recoveries, affirming that the outstanding debt due was Rs. 640.86 crores.

5. Rights of the Senior Lenders under the Escrow Agreement:
The Escrow Agreement required NHAI to deposit the termination payment into the escrow account, prioritizing the rights of the Senior Lenders. The court noted that the termination payment clause was designed to protect the interests of the lenders, who financed the project. The court dismissed NHAI's argument that it could adjust the termination payment by excluding equity contributions and recoveries, emphasizing that the lenders' rights must be upheld.

Conclusion:
The High Court dismissed the appeals, upholding the impugned order and affirming the directions to deposit the termination payment in the escrow account. The court clarified that the calculations for "Debt Due" and "Total Project Cost" must adhere to the definitions in the Concession Agreement, without adjustments for equity contributions or NHAI's claims. The decision reinforced the protection of lenders' rights under the Escrow Agreement and the applicability of Section 9 of the A&C Act for interim measures of protection.

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