Apex Court saves debt-ridden IL&FS; Orders Haryana Govt. to release Rs.1,925 Crore

The Supreme Court Bench of Justice D Y Chandrachud, in its judgment in case of Rapid MetroRail Gurgaon Limited Versus Haryana Mass Rapid Transport Corporation Limited, directed HSVP to deposit into the Escrow Account 80% of the debt due as determined in the reports of the auditors dated 23 June 2020, in the case of RMGL and RMGSL respectively, within a period of three months from the date of the present judgment.

The Apex Court also clarified that 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.

RMGL and RMGSL on the one hand, and HSVP on the other, are given liberty to pursue their rights and remedies in pursuance of the arbitration clause contained in the Concession Agreements on all matters falling within the ambit of the arbitration agreement, including the validity of the notices of termination, any past or future inter se claims and liabilities as envisaged in the order of the HC

Further, 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.

The Apex court also made it clear that upon compliance with the all its directions, 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.

In the background, in 2008, Haryana Urban Development Authority being desirous of developing a Metro Rail Link from Delhi Metro’s Sikanderpur Station on MG Road to National Highway 8 had issued a request for qualification and request for proposal inviting potential bidders.

In pursuance of the same, IL&FS Transportation and Network Ltd, ITNL Enso Rail Systems Ltd and DLF Metro Ltd formed a consortium and submitted their bid. After evaluating the bids, it accepted the bid of the consortium and issued a letter of award with a condition that a concession agreement would be executed.

Even after several meetings to discuss the modalities of taking over of the project, no amicable resolution was arrived at and the parties continued to be in breach of the agreement. Later on, IL&FS was found to be facing difficulty in making repayments due on its bonds.

IL&FS continued failure to service its debt and the imminent possibility of a contagion effect in the financial market led the Union of India to move an application u/s 241 & 242 of the Companies Act, before the NCLAT, wherein it sought the immediate suspension of the Board of Directors of IL&FS and the appointment of specified new directors, on grounds of massive mismanagement of public funds by the erstwhile board.

Later on, the Punjab and Haryana High Court stayed a move by Rapid MetroRail Gurgaon Ltd for terminating the operation of the Rapid Metro Rail Project in Gurugram.

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 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 Apex Court however noted that arbitration clause of the Concession Agreements provides sufficient recourse to remedies which can be availed of.

“That apart, the order of the High Court dated Oct 04, 2019 has also clarified that the rest of the dispute that remains after the deposit of 80% 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” said the Court.

Accordingly, the Apex Court proposed that 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.

Case Title: Rapid MetroRail Gurgaon Limited Versus Haryana Mass Rapid Transport Corporation Limited