TaxTMI 
TaxTMI 
2024 (12) TMI 1153
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Raghav Sharma, Adv., Mrs. Shradha Deshmukh, Adv., Mr. Adarsh Upadhyay, AOR, Mr. Amit Singh, Adv., Mr. Aman Pathak, Adv., Ms. Pallavi Kumari, Adv., Mr. Shashank Pachauri, Adv., Mr. Pradeep Misra, AOR, Mr. Raunak Dhillon, AOR, Mr. Raunak Dhillon, Adv. and Mr. Rakesh Chatterjee, Adv. Respondent-in-person JUDGEMENT SURYA KANT, J. Leave granted. 2. The NOIDA Toll Bridge Company Limited (NTBCL), has preferred the instant appeal questioning the judgement dated 26.10.2016 passed by the High Court of Judicature at Allahabad (High Court). The issue before the High Court concerned a challenge to the collection and levying of toll, as legitimised by the provisions enumerated in the Agreement dated 12.11.1997 (Concession Agreement), executed between NTBCL, the New Okhla Industrial Development Authority (NOIDA) and the Infrastructure Leasing and Financial Services Limited (IL&FS). The Concession Agreement conferred upon NTBCL the rights necessary for the implementation of the Delhi NOIDA Bridge Project or the Delhi- NOIDA Direct Flyway (DND Flyway/Project) and, in connection thereto, the collection and levying of toll. 3. The High Court has vide the impugned judgement held Ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement was executed on 12.11.1997, designating NOIDA and IL&FS as the 'Sponsors' and NTBCL as the 'Concessionaire'. The aforesaid Concession Agreement expressly provided for the construction of the DND Flyway, from the Okhla Barrage in NOIDA to a location close to Maharani Bagh in Delhi. The project encompassed the development, establishment, financing, design, construction operation and maintenance of the DND Flyway, including the development, financing, design and construction of a flyover at Ashram Chowk. 4.6. In terms of Section 2.7 of the Concession Agreement, the State and the Government of NCT of Delhi entered into a State Support Agreement on 14.01.1998, which facilitated: (i) the execution of the Delhi Lands Lease Deed on 23.10.1998 between NTBCL and NOIDA; and (ii) the execution of the Ashram Flyover Site Lease Deed on 30.08.1999 between the Government of NCT of Delhi and NTBCL, for the construction of the Ashram Flyover. 4.7. The Project was thereafter initiated and completed, with the DND Flyway being opened for public use on 06.02.2001 (Commissioning Date). It consisted of: (i) the main bridge; (ii) three minor bridges; (iii) a 32-lane approach road with a 300-met....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... referred to as "the Agreement") was entered into between the Petitioner, NOIDA (Respondent No.2) and IL & FS Ltd. (Respondent No.9) on 12.11.1997 for development of infrastructure facility of a bridge and an access road. The Project was conceived on Build-Operate-Transfer (BOT) basis. The 9th Respondent IL & FS had to arrange the investment for the Project which could be recovered by levy of toll from the users of the road and the Project..." "...14. Prima facie, we are of the opinion that the various issues that arise in this SLP warrant a detailed scrutiny. Conflicting claims have been made regarding the recovery of the Total Cost of the Project by the Concessionaire. To resolve the dispute, it is appropriate that an independent agency is requested to examine the relevant records of the DND flyway. The said agency should examine the reports of the independent auditors appointed by the Petitioner and submit a report regarding the correctness of the Petitioner's claim that the Total Cost of the Project has not been recovered. We accept the suggestion of the Petitioner and request the Comptroller and Auditor General of India (CAG) to assist us in this matter. The Petitione....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Concession Agreement or render it invalid. A PIL cannot be utilised to annul or modify a Government Policy established and implemented through the Concession Agreement. It is beyond the scope of judicial review to invalidate a Government Policy decision solely based on the belief that an alternative policy might have been more appropriate. Consequently, the subject PIL was beyond the purview of judicial powers exercisable under Article 226 of the Constitution of India. (c) It was impossible during the relevant period to float tenders in order to develop the necessary infrastructure, due to the absence of non- governmental infrastructure developers from whom competitive bids could have been solicited. IL&FS was explicitly selected because it was a pioneer in the field, with 81% of its ownership held by public sector institutions. That apart, it is well-established in law that the non-floating of tenders alone does not constitute a sufficient basis to deem the actions of a public authority as arbitrary and illegal, nor does it invalidate the consequential contract. (d) The Concession Agreement resulted from extensive deliberations and consultations among various ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ility. The rationale behind the formulation of the Total Project Cost took into account that NOIDA only contributed Rupees 10 crores towards the project, and the Internal Rate of Return (IRR) formula employed is a standard, accepted methodology. Without the safeguard of such a formula, no developer would be willing to undertake substantial investments, particularly given the risk of premature and arbitrary termination of the contract by NOIDA. Furthermore, the return of 20% cannot be deemed arbitrary, as the project had to compete with other infrastructure sectors to secure debt funding and equity investment from the private sector. Article 14 of the Concession Agreement, in the light of these mitigating circumstances, therefore, is not opposed to public policy. (h) NTBCL is currently facing losses and has not yet recovered the Total Project Cost or returns. The CAG Report indicates that, at a minimum, Rupees 30 crores remain recoverable by the Appellant, as of date. Thus, the High Court erred in concluding that NTBCL had fully recovered the Total Project Cost and has made reasonable profits. Additionally, if the High Court's decision were upheld, NTBCL would be compelled ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Concession Agreement suffered from excessive delegation and was inconsistent with the provisions of the 1976 Act, thereby determining that NTBCL could not levy any user fees. Until the insertion of Section 6A of the 1976 Act on 14.08.1998, NOIDA lacked the authority to empower a developer to collect any tax or fee. Under Section 6A, the right to collect user fees could have been granted to NTBCL through the formulation of Regulations; however, the authority to levy such fees would remain with NOIDA as per Section 19(2)(e) of the 1976 Act. Furthermore, under the said parent Act, NOIDA had no authority to authorise the imposition of fees to another entity. Section 6A was introduced much after the execution of the Concession Agreement and it is not retroactive in nature. (d) The Concession Agreement is perpetual in nature and, therefore, contrary to public policy. Section 2.3 of the Concession Agreement stipulates that the concession period shall extend until the earlier of the two events: the completion of a 30-year period from the effective date or the date on which NTBCL recovers the Total Project Cost and returns, as determined by the Independent Engineer and Independent ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....loyment. The assertion that NTBCL independently raised funds for the project is thus false and misleading. (h) Pradeep Puri, designated as the Director of NTBCL, did not perform any substantive function; nevertheless, all expenses associated with his role, including his hefty remuneration, were incorporated into the Total Project Cost. A letter circulated by Puri indicated that the unrecovered Project Cost would stand at Rupees 5330 crores as of 31.03.2031. This figure included legal fees amounting to Rupees 11 crores, travel expenses of Rupees 4 crores, and costs associated with restructuring deep discount bonds totalling Rupees 33 crores. Consequently, the Total Project Cost is substantially higher than the actual investment made, and NTBCL has already received sums far exceeding their original investment, including reasonable profits and interest accrued from toll income. D. CONTENTIONS ON BEHALF OF RESPONDENT NO. 9 (IL&FS) 7. Mr. Gopal Jain, Senior Counsel representing IL&FS, primarily supported the Appellant. The contentions put forth by him which were unique to IL&FS, may however be summarised as follows: (a) As of present day, IL&FS is under the contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which continues to remain recoverable. E. SUBMISSIONS BY RESPONDENT NO. 2 (NOIDA) 8. Lastly, NOIDA, as represented by Mr. Binay Kumar Das, Advocate-on- Record, made the limited submission that the Appellant failed to pay the charges under the permission granted for the display of outdoor advertisements. The outstanding dues on 31.10.2021 were Rupees 37.59 crores. Additionally, the Appellant has not placed on record the amount collected from outdoor advertisements. F. ISSUES 9. Having given our thoughtful consideration to the rival submissions at length, the following issues arise for the consideration of this Court: i. Whether the Writ Petition purportedly filed in public interest was maintainable before the High Court? ii. Whether the non-floating of tenders was justified in the instant case? iii. Whether the power to levy fees could be delegated to the Appellant and if so, whether it was a case of excessive delegation? iv. Whether Article 14 of the Concession Agreement read with the formula used therein is opposed to public policy? v. Whether the Total Project Cost and Returns thereon have been recovered by the Appellant? ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of locus standi in a PIL. The Court held that there is no rigid litmus test to determine locus standi in a PIL, given the broad contours of such litigations. However, the Court must distinguish between genuine petitions and those filed for private gain or profit. Only individuals acting in good faith and with sufficient interest in the PIL should be permitted to proceed.6 Accordingly, vexatious petitions disguised as PILs, aiming to address personal grievances, deserve rejection at the threshold. 14. In the instant case, Respondent No. 1 is a Society duly registered under the Societies Registration Act, 1860, with the primary objective of promoting the welfare of NOIDA residents. The society acts as a bridge between the residents and public authorities, catering to the former's needs for essential civic amenities. Given this object, it is clear that Respondent No. 1 approached the High Court in good faith, with a view to safeguard the interests of NOIDA residents, who had been subjected to the levy of toll at the DND Flyway under the guise of user fees by NTBCL. Consequently, we do not find any merit in NTBCL's contention that Respondent No. 1 lacked locus standi in approaching ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed. The filing of the Writ Petition immediately after the Concession Agreement and other Supporting Agreements were entered into, would have been highly premature and ill-advised, without giving a reasonable time to the project proponent to recover the actual cost of the project. 19. In this vein, the High Court rightly observed that the plea of delay lacks substance, as the commuters, including Respondent No. 1, were justified in trusting that NOIDA would protect their interests. However, in 2012, after learning that they were being misled and subjected to an illegal toll based on an audit report from NTBCL's Auditor and Chartered Accountant-indicating that as of 31.05.2012, Rupees 2340 crores were still to be recovered from the public, and the recovery period had extended from 30 years to 100 years-they were prompted to immediately approach the High Court. 20. Furthermore, it must be acknowledged that the levying of user fees or tolls by NTBCL constituted a continuing cause of action, which was challenged by the Association of affected commuters. An established exception to the defence of delay is the presence of a continuous injury stemming from an ongoing wrong. Union of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ases, the discretion lies with the Court as held in Joshi Technologies International Inc. v. Union of India, Joshi Technologies International Inc. v. Union of India, (2015) 7 SCC 728 which summarised the legal position on judicial review of contracts entered into by public authorities with private parties. Judicial review, being a dynamic process as opposed to static, has experienced a significant shift in terms of the degree of judicial interference in contractual disputes, especially when one of the parties involved is the State or its instrumentalities. Subodh Kumar Singh Rathour v. Chief Executive Officer, 2024 SCC Online SC 1682. 27. This is because when contractual power is exercised for public purposes, the State and its instrumentalities bear the responsibility to act fairly, without arbitrariness or caprice. Silippi Constructions Contractors v. Union of India, (2020) 16 SCC 489. In such situations, where State action is challenged as arbitrary or capricious, courts are justified in intervening through judicial review to determine whether the State has adhered to the principles embodied in Article 14 of the Constitution of India, which mandates fairness and non-arbitrari....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the primary contentions raised by Respondent No. 1 before the High Court was that the contract for the development and construction of a significant project like the DND Flyway had been awarded to NTBCL without NOIDA having followed any formal tender procedure, such as advertising or issuing a notice inviting competitive tenders. In response, NTBCL argued that, at the time, it would not have been feasible to float tenders due to a shortage of private companies capable of undertaking such large-scale infrastructure projects. NTBCL further contended that the mere absence of a competitive tendering process was not, in itself, sufficient grounds to invalidate the agreement. 31. In this context, it is evident that NTBCL entered into an agreement with NOIDA to undertake a project that involved an overwhelming public element, comprising of public funds and public assets. When such a project is undertaken by the State in partnership with a private entity, the element of public interest necessitates strict adherence to Constitutional obligations. The State is obligated to ensure that its actions remain free from any arbitrariness or capriciousness, particularly when public welfare is at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Constitution, which abhors arbitrariness, imposes a duty on public authorities to ensure that bias or favouritism does not infiltrate the bidding process. A transparent bidding process is essential to fulfil Constitutional obligations. Further, in Meerut Development Authority v. Association of Management Studies, Meerut Development Authority v. Association of Management Studies, (2009) 6 SCC 171 the Court noted that while invitations to tender typically fall within the realm of contract law and are subject to limited judicial scrutiny, Courts are justified in reviewing cases where the terms of the invitation appear tailored to favour a particular person or entity, thereby excluding all others from the bidding process. 35. The golden principle thus is that Government procedures or policies pioneered in public interest must genuinely serve the public and not merely enrich private entities. When public interest is overshadowed, it does raise concerns as to whether the Government has acted in a manner that appears capricious or arbitrary. It then becomes imperative for the Court to scrutinise whether such actions vitiate the Constitutional mandate of equality. Such procedures, m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 40. The selection of NTBCL without following proper procedure and without giving any opportunity to bid, to other competitors, was nothing but an opaque device resorted to, in contravention of Article 14 of the Constitution of India. G.3 Delegation of power to levy fees and its validity 41. Delving deeper into one of the core issues, we encounter the matter of the levy and collection of user fees by NTBCL, which the Appellant claims to be duly authorised under Section 13.1 of the Concession Agreement. NTBCL has further urged that this user fee is being charged in the exercise of powers conferred upon it by NOIDA, pursuant to the Regulations formulated under Section 6A in conjunction with Section 19 of the 1976 Act. 42. Section 13.1 of the Concession Agreement deals with the 'Collection of Fee.' It grants NTBCL the right to collect, retain, and appropriate fees from users of the DND Flyway starting from the Commissioning Date. The fee amount is to be determined by the Fee Review Committee. Additionally, NTBCL is empowered to delegate the collection function to the O&M Contractor, who would collect fees on behalf of NTBCL, in accordance with the Rules framed under the 19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CL. 46. A plain reading of Section 6A makes it unequivocally clear that the 'Authority' is empowered to delegate the power to collect taxes or fees levied by it. However, under no circumstances does Section 6A authorize the delegation of the power to levy taxes or fees. Similarly, Section 19(2)(e) of the 1976 Act enables NOIDA to frame Regulations governing the levy of taxes or fees. This provision, however, cannot be interpreted as empowering NOIDA to delegate the power of levying taxes or fees through an agreement under Section 6A of the Act. It is, therefore, evident that while the power to levy taxes or fees remains exclusively vested in the Authority, from 14.08.1998 onwards, the power to collect such taxes or fees could be delegated to any person with whom an agreement for the maintenance of infrastructure or amenities has been executed. 47. However, NOIDA overstepped its authority by delegating the power to levy fees to NTBCL through the Concession Agreement and Regulations, exceeding the scope of its powers. In this context, the High Court rightly noted that it is a well-established law that an authority vested with the power to frame subordinate legislation must act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he aftermath of enacting the Concession Agreement, serving merely as an afterthought, while having no authority to do so. We thus hold that NOIDA did not have any competence to delegate the power to levy fees and toll to NTBCL, and thereby overstepped its statutory bounds. Accordingly, we are not inclined to interfere with the findings of the High Court on this issue. G.4 Dissonance between Article 14 of the Concession Agreement read with the formula vis-à-vis public policy 53. Article 14 of the Concession Agreement defines the 'Total Cost of the Project' and its calculation methodology, as elaborated in Annexure F. The issue herein concerns whether this provision aligns with the principles of public policy and the Constitution of India. To elucidate, the relevant language of Article 14 of the Concession Agreement states: "Article 14: Costs and Accounting Section 14.1: Total Cost of Project (a) The Project Cost shall be determined as on the Project Commissioning Date by the Independent Auditor who shall seek the assistance of the Independent Engineer to determine the Cost of Construction component of the Project Cost. (b) The To....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xure F 56. NTBCL contended that the formula in Annexure F of the Concession Agreement was reasonable and computed by experts. It asserted that the Concession Agreement was executed after proper application of mind entailing extensive deliberations and consultations over the years between the two State governments and their agencies. It was further explained that the Steering Committee decided the Project to be implemented by NTBCL. Subsequently, the State approved the Project and constituted an Empowered Committee to make recommendations on the Concession Agreement. Finally, the World Bank approved funding for the Project via a line of credit to IL&FS. The rationale behind adopting such a formula was that the Project was the first of its kind in India, interest rates were at an all-time high, and investors had to be guaranteed adequate returns. It was also adopted with the justification that, sans such a formula, no developer would have shouldered the risks of the Project. 57. The High Court while analysing the reasonableness of the formula adopted, held that Article 14 of the Concession Agreement was perpetual in nature and it entitled NTBCL to recover user fees/ toll indefi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompetitive bidding was held, the Project Cost was not decided in advance nor capped. Thus, NTBCL had no incentive to control the Project Cost and minimise expenses. This violates the principles of financial propriety. iii. The Project Cost, determined by the Independent Auditor, was inflated by Rupees 44.87 crores. The Project Cost on the Commissioning Date should have been Rupees 281.12 crores instead of Rupees 325.99 crores. Such inflated project cost occurred only because returns were allowed before the date of commissioning. The Independent Auditor's certificate stated that there was an unrecovered Project Cost of Rupees 407.64 crores as on 06.02.2001, which included Rupees 325.99 crores (Project Cost) and Rupees 81.65 crores (unrecovered returns at the rate of 20% from 30.12.1998 to 06.02.2001). The Project Cost prior to the commissioning date should have been taken as nil since no returns before 06.02.2001 were recoverable, as per Sections 14.1 and 14.2 of the Concession Agreement. iv. The Independent Auditor certified O&M expenses of Rupees 272.40 crores from 06.02.2001 to 31.03.2016. NTBCL booked excessively high O&M expenses of Rupees 272.40 crores during....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led to foresee that this formula would impose an undue and unfair burden on the users-the general public. Such an outcome could only arise through extraneous considerations influencing several stakeholders. This blatant misuse of power and breach of public trust has profoundly shocked the conscience of this Court. The manner in which some senior bureaucrats manipulated the siphoning of project funds for their personal gains clearly make out a fit case for investigation under the Prevention of Corruption Act, 1988, although the ship might have sailed for such action at this stage. 65. In our considered view, the method used to calculate the Total Project Cost was fundamentally a mechanism for unjust enrichment by a select few and, as such was rightly deemed to be inherently arbitrary by the High Court. Accordingly, we have no hesitation to hold that the formula outlined in Annexure F of the Concession Agreement is unreasonable and contravenes Article 14 of the Constitution. G.4.2. Perpetuity of the Concession Agreement 66. NTBCL argued that under Section 2.4 of the Concession Agreement, the concession period could not be extended without NOIDA's explicit consent. Sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A. As NTBCL is a subsidiary of IL&FS, this arrangement positioned NOIDA as a minority member without meaningful authority in the appointments. Thus, IL&FS and NTBCL effectively controlled the selection, which casts serious doubts on the transparency and so-called independence of these appointments. This structure enables IL&FS and NTBCL to unilaterally influence as to whether the Total Project Cost and returns are deemed recovered, with NOIDA obliged to accept these determinations with hardly any other alternative. 71. The next point to address is whether NOIDA's consent is required to extend the concession period or whether the concession period automatically extends based on the certification by the Independent Auditor and Independent Engineer regarding the recovery of the Total Project Cost after 30 years. 72. It is important to note that Article 18 of the Concession Agreement stipulates that if NOIDA decides to terminate the Concession Agreement before the Total Project Cost and returns are fully recovered, in that case NOIDA is obligated to compensate NTBCL the deficiency in Total Project Cost, returns, and any other expenses, as specified in Section 8.1 of the Agreement....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yment of the Total Project Cost and returns, knowing as early as 2007 that 30 years would not suffice for recovery; and finally, NOIDA was left with no real choice but to extend the concession period due to the ultimatum presented in Article 18, masked as 'consent.' 77. Contracts loaded with terms which are so unfair and unreasonable, that they truly baffle this Court, are undoubtedly opposed to public policy and must be adjudged void. Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156. The Court is always cautious when determining if a particular contract or action is opposed to public policy, but in doing so, it cannot shirk from its duty and approve helplessly the interpretation of a Statute or a document or of an action which is certain to subvert the societal goals and endanger the public good. Rattan Chand Hira Chand v. Askar Nawaz Jung, (1991) 3 SCC 67. 78. To do so, the Court may invoke the Doctrine of Severability and sever the incurable parts of the contract from the whole. The Court can do so only when the rest of the contract can breathe and survive without the aid of its void covenants. The Court must ask itself whether the parties....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficient profits from the revenue generated via the user fees. The Project could thus be handed over to NOIDA even before the expiry of the concession period, i.e. 30 years. 81. NTBCL contended that the impugned judgment failed to account for: (i) the total user fee collected, considering only the provisional project cost of Rupees 377 crores; (ii) the interest on debt paid by NTBCL until March 2014; (iii) the repayment of the principal by NTBCL, which amounted to Rupees 280.36 crores; and (iv) other expenses of Rupees 22.9 crores and additional taxes, including MAT and FBT, totalling Rupees 50.42 crores. NTBCL argued that since these amounts were not kept in view by the High Court, it still needed to recover an aggregate sum of Rupees 454.71 crores from user fees and other income, which was the computation of losses it had suffered as on 31.03.2014. 82. NTBCL further contended that it generated a revenue of Rupees 743.34 lakhs (out of Rupees 2028.88 lakhs) from the display of advertisement hoardings on the NOIDA side of the Project in 2019-2020, which increased to Rupees 399.81 lakhs in 2020-2021. Out of this advertising revenue, Rupees 339.87 lakhs were paid towards....
X X X X Extracts X X X X
X X X X Extracts X X X X
....L during 2001-2016 was Rupees 892.51 crores. NTBCL has been making profits for the last 11 years; has no accumulated losses as of 31.03.2016; has paid dividends of Rupees 243.07 crores till 31.03.2016 to its shareholders; and repaid all its debt with interest. NTBCL had thus, by 31.03.2016, recovered the project costs, the maintenance costs, and a significant profit on its initial investment. There is no rhyme or reason for the collection of user fees/tolls to continue. 87. An exhaustive reading of the CAG Report highlights the extent to which the public has been defrauded. The general public has been forced to part with hundreds of crores by IL&FS and NTBCL, under the guise of providing necessary public infrastructure. This could not have been done but for the collusion of the then officers of the two State Governments and of NOIDA, who closed their eyes while the contractual obligations were incurred. Had Respondent No. 1 not been vigilant of their rights, the public funds would have continued to be misappropriated for private profiteering. Furthermore, the role played by IL&FS in this entire scheme is highly questionable. We say nothing except that the facts speak for themsel....