Highway construction contract case to resume before Supreme Court

ILNS: On Tuesday, the Supreme Court will continue hearing a case involving a Build-Operate-Transfer contract case.

In this case, the parties had entered into a contractual agreement (CA) in respect of Six-Laning of Panipat-Jalandhar Section of NH-1 From Km 96.00 to Km 387.10 (length of 291.10 Km) in the State of Haryana and Punjab to be executed on Built-Operate-Transfer (Toll) basis on Design Build-Finance-Operate (DBFO) pattern under NHDP Phase-V.

The CA was entered for a period of 15 years from May 11, 2009 to May 11, 2024. The project was scheduled to be completed by November 9, 2011 (in 910 days or 2.5 years). In terms of the CA, the parties had also executed an Escrow Agreement dated May 6, 2009 with the lenders, where SBI was the Escrow Agent for the operation of the Escrow Account. The estimated cost of the project was Rs 2,747.50 crore, but the Capital Cost submitted by the respondent/PJT amounted to Rs 4,518.17 crore.

Disputes arose between the parties even before the Provisional Completion Certificate was issued by the Independent Engineer (IE) on September 30, 2015. These disputes, relating to 2013, are before an Arbitral Tribunal.

According to the NHAI, the respondent/PJT failed to meet its O & M obligations as per the CA, in particular, relating to safety standards leading to accidents and the completion of balance work after issuance of the Provisional Completion Certificate. On September 13, 2019, the NHAI issued a ‘Cure Period Notice’ under Clause 37.1.1, highlighting the several consistent defaults by the respondent/PJT, and called upon it to cure the defaults within 60 days, failing which it would exercise its rights to terminate the CA.

On January 28, 2020, a ‘Notice of intention to issue termination notice’ (NIT) was issued under Clauses 37.1.2 and 37.1.3 of the CA with a copy to the Senior Lenders. The respondent/PJT filed a petition being O.M.P.(I)(COMM) 40/2020 under Section 9 of the Arbitration and Conciliation Act, 1996 (Act) seeking a stay on the NIT, which was disposed of on February 10, 2020 on submissions made on behalf of the NHAI that no decision to terminate had yet been taken.

In an appeal – No. FAO(OS)(COMM)34/2020 – the Division Bench of this Court had directed that in the event, the NHAI decided to terminate the CA, the same would be kept in abeyance for a period of seven working days to enable the respondent/PJT herein to take legal recourse.

The Delhi High Court, via its judgment of April 13, 2021, recorded that: “This Court is, therefore, unable to agree with the observation of the learned Single Judge that the NHAI is estopped from exercising its rights of termination under Article 37 or that even under Article 36, it is required to mandatorily await the lapse of 180 days before termination can occur or that once suspension has been invoked, the termination can only be on the efflux of 180 days. We are, therefore, unable to agree with this observation of the learned Single Judge that the Termination Notice could not have been issued by the NHAI on 5th March, 2021 or that it had to wait till June 2021. For the above reasons, we allow the present appeal and set aside the impugned order dated 12th March, 2021 and vacate the stay granted by the learned Single Judge. Since the Section 9 petition being O.M.P.(I) (COMM.) 98/2021 filed by the respondent/PJT, seeks the same relief, in the light of our discussion, we hold that nothing survives in the said application, which also stands dismissed vide this order.”
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