Court’s Decision:
The Delhi High Court dismissed applications seeking modification of its interim order dated May 2, 2024, which directed the respondent to maintain a minimum balance of Rs. 100 crores in the Escrow Account and to pay Rs. 10 crores monthly towards the negative grant due to the petitioner, the National Highways Authority of India (NHAI). The court ruled that the debt servicing obligations of the respondent cannot take precedence over the payment of the negative grant as per the existing Concession Agreement (CA) and Escrow Agreement.
Facts:
The petitioner and respondent entered into a Concession Agreement in 2006 for the widening and maintenance of certain portions of National Highway 47 in Kerala. The respondent was required to pay a negative grant of Rs. 215 crores in six installments to the petitioner, but defaulted after the first payment. The parties entered into an Escrow Agreement, which laid out a “waterfall mechanism” for the allocation of project revenue. Disputes regarding non-payment of the negative grant led to arbitration in 2019, resulting in multiple tribunal orders, including directions for the strict operation of the Escrow Account in accordance with the Escrow Agreement.
Issues:
- Whether the court should modify its interim order of May 2, 2024, which directs the respondent to pay Rs. 10 crores monthly and maintain a minimum balance of Rs. 100 crores in the Escrow Account.
- Whether the respondent’s debt servicing obligations should take priority over the negative grant payments as per the CA and Escrow Agreement.
- Whether the court has the jurisdiction to modify its order after the dismissal of the Special Leave Petition (SLP) by the Supreme Court.
Petitioner’s Arguments:
The petitioner argued that the SLP filed by the respondent against the interim order was dismissed by the Supreme Court, thereby affirming the directions of the interim order. The petitioner further contended that the negative grant payments were on a higher priority than debt servicing obligations as per the waterfall mechanism in the Escrow Agreement, and that the respondent’s claims of non-compliance due to insufficient funds were not justified.
Respondent’s Arguments:
The respondent sought modification of the order, arguing that compliance with the monthly payment of Rs. 10 crores and maintaining a minimum balance of Rs. 100 crores in the Escrow Account was not feasible due to the project’s cash flow constraints. The respondent claimed that its debt servicing obligations and operations and maintenance (O&M) expenses would be jeopardized if these directions were followed. The respondent also contended that the Arbitral Tribunal had not directed payment of the negative grant in its interim orders and that these financial obligations were contingent upon its ability to collect toll fees, which had been restricted by government mandates.
Analysis of the Law:
The court analyzed the provisions of the Concession Agreement and the Escrow Agreement, focusing on the “waterfall mechanism,” which prioritizes payments from the project revenue. It noted that the negative grant payments were ranked above debt servicing obligations, and there was no basis for modifying this payment structure without the approval of NHAI, as required under the agreements.
Precedent Analysis:
The court referred to the Supreme Court’s dismissal of the SLP, indicating that the interim order had not merged with the Supreme Court’s order, allowing the High Court to retain jurisdiction over the matter. Additionally, the court cited previous cases, including the Supreme Court’s judgment in Khoday Distilleries Ltd. v. Sri Mahadeshwara Sahakara Sakkare Karkhane Ltd. (2019), to emphasize that non-speaking dismissal orders from the Supreme Court do not preclude further proceedings in the High Court.
Court’s Reasoning:
The court held that the respondent’s arguments regarding financial hardship did not justify modifying the interim order. The court noted that the existing waterfall mechanism under the Escrow Agreement and Concession Agreement was designed to prioritize negative grant payments over debt servicing, and there was no reason to disturb this contractual framework. The court also found that the respondent’s claim that the negative grant was contingent upon its ability to collect toll fees was a matter to be resolved by the Arbitral Tribunal, not a ground for modification at this stage.
Conclusion:
The court concluded that the interim order of May 2, 2024, directing the respondent to pay Rs. 10 crores monthly and maintain a minimum balance of Rs. 100 crores in the Escrow Account, did not warrant modification. The applications for modification were dismissed.
Implications:
The ruling underscores the primacy of the waterfall mechanism in infrastructure projects, reaffirming that debt servicing obligations cannot override contractual provisions for the payment of negative grants. This decision also clarifies that non-speaking orders from the Supreme Court do not prevent High Courts from modifying or clarifying their interim orders. The case will continue with further hearings scheduled.
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