RAPID METRORAIL GURGAON LIMITED ETC. versus HARYANA MASS RAPID TRANSPORT CORPORATION LIMITED & ORS. on 26 March 2021

[2021] 3 S.C.R. 639

RAPID METRORAIL GURGAON LIMITED ETC.

v.

HARYANA MASS RAPID TRANSPORT CORPORATIONLIMITED & ORS.

(Civil Appeals Nos. 925-926 of 2021)

MARCH 26, 2021

[DR. DHANANJAYA Y CHANDRACHUD, M R SHAH ANDSANJIV KHANNA, JJ.]

Constitution of India: Art. 226 – Power of High Courts toissue writ – Award of Concession Agreement to two companies-RMGL and RMSGL respectively by Haryana Shehri VikasPradhikaran-HSVP for developing metro rail – Meanwhile directionby State of Haryana that all metro projects would be handled by thefirst respondent – Thereafter, issuance of termination notice byRMGL and RMSGL to HSVP to bring an end to the ConcessionAgreement upon expiry of 90 days from delivery of the termination– Thereafter, HSVP issued their termination notices to RMGL andRMGSL, directing them to hand over the projects to HMRTC –However, since RMGL and RMGSL were entities of a groupcategorised in the Red category, they were to seek approval beforetransferring or encumbering any assets – Subsequently, RMGL andRMGSL permitted to handover possession and control of metroproject to HSVP pursuant to termination of the Agreement – On thesame day, writ petition u/Art. 226 by HSVP and HMRTC challengingthe notice of termination on the ground that it was against publicinterest – High Court granted interim direction for continuance ofthe operation of metro project for 30 days, which was furtherextended and during which the debt due under the financingdocuments in terms of concession agreements was to be determinedby the auditor and then HSVP was to deposit 80 % of the debt dueas determined in an Escrow Account in terms of ConcessionAgreement, which would be subject to order of NCLAT or any othercourt – On appeal, held: Exercise of writ jurisdiction by the HighCourt u/Art. 226 was justified since non-interference, which wouldhave inevitably led to the disruption of rapid metro lines forGurgaon, would have had disastrous consequences for the generalpublic – However, ordinarily the High Court in its jurisdiction u/

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AArt. 226 would decline to entertain a dispute which is arbitrable –Directions contained in the High Court’s consent order makes itclear that the audit team appointed by CAG was to conduct afinancial audit of the debt due and to examine the scope of theaudit, the audit being completed within 30 days and 80 % of thedebt due being deposited within 30 days after the receipt of theBaudit report; and that the rest of the disputes between the partiesarising out of the audit report were to be agitated in arbitration –HSPV and HMRTC could not avoid compliance with the High Court’sConsent Order since they willingly agreed to pay 80% of the debtdue as per the auditor’s findings – HSPV to deposit 80% of theCamount within 3 months – Amount to be maintained in the EscrowAccount subject to the orders of NCLAT or any other competentauthority – RMGL and RMGSL on the one hand and HSVP on theother hand, at liberty to pursue their rights and remedies inpursuance of the arbitration clause.

DDisposing of the appeals, the Court

HELD: 1.1 The expression ‘debt due’ is defined in Article1.1 of the Concession Agreement dated 9 December 2009. Theexpression indicates that the term debt due comprises of threecomponents: the principal amount of the debt provided by theEsenior lenders under the financing agreement; all accruedinterest, financing fees and charges payable under the financingagreement; and any subordinated debt which is included in thefinancial package. [Para 36][682-D-H; 683-A]

1.2 Article 18 provides for an Escrow Account into whichFall funds, which constitute the financing package for meeting thecapital cost of the concessionaire, are to be deposited. Duringthe operational period, all fare and non-fare revenues were alsoto be deposited exclusively in the Escrow Account by theconcessionaire. Article 18.2.1 provided for the disbursement fromthe Escrow Account, which included debt service payments dueGto the senior lenders. [Para 37][683-F-G]

1.3 Where the Concession Agreement has been terminatedby HUDA on account of a default by the concessionaire, HUDAwas required to take over the complete project and assets, andto pay to the lenders of the Project, as per the financing documents,H

an amount equal to 80 per cent of the debt due as terminationpayment. Where on the other hand, the termination is by theconcessionaire on account of a default by HUDA, theconcessionaire was entitled to receive by way of a terminationpayment, a sum equal to: the debt due; and 110 per cent of theadjusted equity. [Para 39][686-D-E]

1.4 The directions contained in the High Court’s consentorder dated 20 September 2019 makes it abundantly clear thatthe audit team appointed by CAG was to conduct a financial auditof the debt due and to examine the scope of the audit, the consentorder is the time bound process which was envisaged, with theaudit being completed within 30 days and 80 per cent of the debtdue being deposited within 30 days after the receipt of the auditreport; and that the final aspect which needs to be emphasized isthat the rest of the disputes between the parties arising out ofthe audit report were to be agitated in arbitration. The partiesclearly understood that once the debt due was ascertained interms of the audit report, 80 per cent would be deposited byHSVP in the Escrow Account while the rest of the disputes inrespect of the audit report would be governed by arbitration. Atime of 30 days was envisaged for deposit the amount in EscrowAccount, upon the receipt of the audit report. Subsequently,another order was passed by the High Court wherein clause (ii)of the earlier order was substituted and the substituted oneenvisaged that the auditors would also have to examine the scopeof the audit of the debt due suggested by HSVP. Hence, CAGwould also examine the scope of the audit of the debt duesuggested by HSVP in terms of the Concession Agreements.Moreover, it was envisaged that the rest of the dispute eitherarising out of the CAG report, the validity of the terminationnotices issued by both the parties and any past or future claims/liabilities inter se would be agitated in arbitration. On 15 October2019, there was a further clarification by the Division Bench thatCAG would examine the scope of the audit of the debt duesuggested by both the parties in terms of the ConcessionAgreements. Thus, it was understood by both the parties thatthe determination of the debt due would be in terms of theConcession Agreements. CAG specifically placed before the HighCourt its understanding of the role to be performed by it. In its A

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Awritten statement before the High Court on 19 November 2019,CAG stated that it had decided to appoint an auditor “for thefinancial audit of debt due as on the transfer date”. [Paras 45, 46][690-H; 691-A-G]

1.5 HMRTC and HSVP, as well as the appellants, wereBapprised at all material times of the work of audit being handedover by CAG to a firm appointed by it. On 24 February 2020, adraft report of the financial audit of the debt due of RMGL/RMGSL was sent to the Principal Secretary to the Governmentof Haryana in the Department of Town and Country Planning.HMRTC was requested to communicate its response on behalfCof the State government, so that it could be incorporated in thereport. On 27 February 2020, HSVP sought four weeks at theleast, in view of the ongoing Session of the State LegislativeAssembly. The Accountant General Audit, Haryana followed upthe earlier email by subsequent communications dated 18 MarchD2020 and 22 April 2020. By the later communication on behalf ofCAG, the response of the State government was requested to befurnished before the deadline of 29 April 2020, failing which thereport would be finalized without including their response.HMRTC, HSVP and the State government, however, did notfurnish their response to the draft report. Eventually, the auditEreports were finalised in respect of the debt due under theConcession Agreements with RMGL/RMGSL respectively, andwere placed before the High Court in sealed cover. Followingthe opening of the sealed cover on an application by the appellants,an objection was raised in the form of an affidavit by HMRTC onF10 October 2020. According to HMRTC, the audit report wasinconclusive and incomplete, since several aspects which willhave an impact on the debt due remain to be determined. Theauditors stated that the scope of the audit as decided by CAGwas submitted to the High Court on 19 November 2019, and it was intimated that only those issues which are relevant and relatedGto examining the debt due under the Concession Agreementswould be examined. Hence, other issues mentioned by HMRTC,such as encumbrances and liabilities on the metro project,shareholding/share in the valuation of the assets of theconcessionaire, change of shareholding rights, criminal acts andHliabilities, would require forensic and technical audit. Such audits are ongoing independently. The audit conducted by the auditorsappointed by the CAG herein, was limited to examining the debtdue as defined in the Concession Agreements. While arriving atthe principal and interest component of the debt due, the auditorsindicated that other matters had come to their attention, whichcan have a significant impact on the debt due, and that the reportwas subject to the outcome of such matters. [Para 47][692-E-H;693-A-E]

1.6 Clause (ii) of the order dated 20 September 2019 makesit abundantly clear that the basic purpose underlying theentrustment of the reference to the CAG was the determinationof the debt due “as defined under the Concession Contract”.The High Court was seized of a proceeding under Article 226 ofthe Constitution, and its writ jurisdiction had been invoked tochallenge the notices of termination issued by RMGL andRMGSL, and for ensuring that the consequence which wouldemanate on the expiry of the notice period of 90 days by thecessation of the metro operations could be prevented by thejudicial intervention in the course of the public law jurisdiction.The issuance of a notice of termination, the consequences whichwould ensue, and the resolution of disputes is specifically providedin the arbitration agreement between the parties, which is anintrinsic part of the Concession Agreements. Hence, there wasan evident interface between this element of public interest onthe one hand and the contractual rights of the parties to theConcession Agreements on the other. However, when HMRTCand HSVP moved the High Court under Article 226, they did soin view of the impending threat which was looming large on thehorizon of the rapid metro operations being brought to a standstillas a result of the proximate expiry of the notice of 90 dayspreceding termination. In the instant case, the High Court wasevidently concerned over a fundamental issue of public interest,which was the hardship that would be caused to commuters whouse the rapid metro as a vehicle for mass transport in Gurgaon.As such, the High Court’s exercise of its writ jurisdiction underArticle 226 in the instant case was justified since non-interference,which would have inevitably led to the disruption of rapid metrolines for Gurgaon, would have had disastrous consequences forthe general public. However, as a measure of abundant caution, A

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Ait is clarified that ordinarily the High Court in its jurisdiction underArticle 226 would decline to entertain a dispute which is arbitrable.Moreover, remedies are available under the Arbitration andConciliation Act, 1996 for seeking interim directions either underSection 9 before the Court vested with jurisdiction or underSection 17 before the arbitral tribunal itself. [Para 49][694-G-H;B695-A-C; 696-B-D]

1.7 The termination of the Concession Agreements hadconsequences in terms of the provisions contained in theAgreement requiring a deposit of 80 per cent of the debt dueunder Article 24.4. The contesting parties agreed to anCindependent third-party determination of this amount by a neutralentity, namely the CAG. The primary function of CAG was toappoint a team of auditors for conducting a financial audit of thedebt due and in that process of also examine the scope of theaudit. The orders dated 4 October 2019 and 15 October 2019Dissued by the High Court also envisaged that CAG would examinethe scope of the audit. While the earlier order of 4 October 2019required CAG to examine the scope of the audit of the debt duesuggested by HSVP, the subsequent order dated 15 October 2019required the examination by CAG on the scope of the audit afterbearing in mind the suggestions by both the parties “in terms ofEthe Concession Agreement”. The expression “in terms of theConcession Agreement” indicates that the basis of the audit wasto be what was envisaged in the Concession Agreements, whichspecifically defines the expression “debt due”. Pertinently, theoriginal order of 20 September 2019 specifies a strict timeFschedule within which, on a determination being made by theauditor, 80 per cent of the debt due would be deposited by HSVPin the Escrow Account. This was however subject to the safeguardthat it would be subject to any order that may be passed byNCLAT or by a competent statutory authority. However, it wasfurther clarified that the rest of the disputes between the partiesGto the lis arising out of the audit report were to be agitated inarbitration proceedings. [Para 50][696-E-H; 697-A-B]

1.8 The provision, embodied in clause (v) of the operativedirections of the High Court’s consent order dated 20 September2019, is capable of a reasonable interpretation that once aH

determination was made in the audit report, 80 per cent wouldbe deposited in the Escrow Account by HSVP and if any disputearising out of the audit report remained, that would be resolvedin arbitration. As a matter of fact, the subsequent order of 4October 2019 replaced clause (v) by envisaging that the rest ofthe disputes between the parties 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/liabilities; shall be agitatedand decided in arbitration proceedings. [Para 51][697-C-E]

1.9 HSVP and HMRTC on the one hand, and RMGL/RMGSL on the other, were in discussion at arm’s length whenthey invited the High Court to pass its order dated 20 September2019, and agreed to the modifications which have been made bythe orders dated 4 October 2019 and 15 October 2019. In theface of the clear stipulations contained in the order of the HighCourt, it would be impermissible to interdict the consequencesemanating from the working out of the directions contained inthe above orders of the High Court upon the submission of theCAG report. [Para 52][697-E-F; 698-B]

1.10 CAG in the course of its affidavit filed before this Courtand High Court by the Deputy Accountant General, clarified thatit was decided, after examining the scope of the financial audit ofthe debt due suggested by both the parties, that CAG wouldexamine only those issues which are related and relevant toexamining the debt due under the Concession Agreements. CAGfollowed a process which is fair by making a statement on thescope of the audit before the High Court in advance; examiningthe scope of the audit as suggested by the parties before makingits determination; appointing a firm of chartered accountants forconducting an audit as was envisaged in the order of the HighCourt; furnishing the contesting parities with a copy of the draftreport; allowing the parties to submit their response to the draftreport; granting an extension of time to the State of Haryana tosubmit its comments; and placing the State on notice that it wouldhave to file its objections finally by a prescribed deadline, failingwhich the report would be finalized. [Para 53][698-C-G]

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A1.11 HMRTC and HSVP are themselves to blame if theydid not submit their responses. CAG has specifically rebuttedthe objections to the audit report submitted by HMRTC on theground that as a constitutional authority, CAG decided upon thescope of the audit of the debt in terms of the ConcessionAgreements, which it submitted to the High Court. Moreover, itBhas clarified that this was a financial audit of the debt due and theauditors reported their findings in terms of the ConcessionAgreements. The FIR lodged by the Economic Offences Wing,the Income Tax Department notice, investigation by the SFIOand Forensic Audit did not form a part of the financial auditCconducted by the CAG . CAG has submitted that a financial auditof the debt due is complete and conclusive under the scope ofaudit as decided by CAG, and submitted to the High Court.[Para 54][698-G-H; 699-A-B]

1.12 The Projects in question have been funded by aDconsortium led by banks, among which are Canara Bank andAndhra Bank. The terms of the Concession Agreementsexpressly recognized that the Projects were being publicly fundedthrough financial institutions. The audit report emphasized thatthe proportion between debt and equity was pegged at 70:30.The terms of the Concession Agreement dated 9 December 2009Eclearly envisaged the purpose of the Escrow Account in Article18. HUDA, the predecessor of HSVP, entered into a ConcessionAgreement dated 9 December 2009, which in Article 17 expresslyrecognizes the linkage between the financing package and theConcession Agreement. In fact, Article 17.2 emphasizes that theFrights of the concessionaire would stand waived if financial closurewas not to occur within six months within the cure period of sixmonths. Further, Article 18.1 envisages that all funds constitutingthe financing package for meeting the concessionaire’s capitalcost shall be credited to the Escrow Account during the period of operations, and all fare and non-fare revenues collected by theGconcessionaire shall be exclusively deposited in it. Under Article18.2, the concessionaire was required to give to the Escrow bankirrevocable instructions while opening the Escrow Account thatthe deposits into the Escrow Account would be appropriated inthe manner indicated in clauses (i) to (ii) of Article 18.2.1. ThisH

includes provision for debt service payments. These provisionsin the Concession Agreement have a vital bearing on the subjectmatter of the present dispute. Canara Bank in its affidavit filedbefore the High Court has stated that on behalf of consortium oflenders, acting as facility agent, it financed RMGSL in theaggregate of Rs 1500 crores in terms of a common loanagreement. The Escrow Account Agreement has been enteredinto in pursuance of the Concession Agreement, and to effectuatethe funding of the Project No 2. As on 31 July 2019, the lendersof RMGSL have an outstanding of Rs 1651 crores approx. Hence,the Projects which have been executed by RMGL and RMGSL,involved an outlay of funds from Andhra Bank and Canara Bank,who have a vital stake in the financials of the Projects.[Para 55][699-C-H; 700-A]

1.13 As such, HMRTC and HSVP cannot avoid at this stagecomplying with the directions which were issued by the HighCourt in its orders dated 20 September 2019, as modified on 4and 15 October 2019, on the plea that an FIR has been lodged on16 December 2018 against IL&FS group in which there areallegations against RMGL and RMGSL of producing fake invoicesand inflating the capital cost of the rapid metro Projects. Thecircumstances which have been adverted to in the affidavit filedby HMRTC in the High Court were known to it and to HSVP,when they both agreed to an order which emanated with theconsent of the parties on 20 September 2019. Both HMRTC andHSVP were conscious of their obligation to deposit 80 per centof the debt due as a consequence of the termination by theprovisions contained in the Concession Agreements. They wishedto lend an assurance to the determination of the debt due byseeking the involvement of the CAG. They made a solemncommitment before the High Court that within 30 days of thedetermination, 80 per cent of the debt due would be deposited inan Escrow Account. This amount, it must be emphasized, is notbeing handed over either to RMGL or RMGSL, which have beenclassified as “red entities” of the IL&FS group. The placementof the quantum representing 80 per cent of the debt due in EscrowAccount is to abide by such directions as may be issued by NCLATor any other competent statutory authority. Besides thisprovision, remedies are available either before the competent ABCDE

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ACourt under Section 9 or before the Arbitral tribunal under Section17 of the Arbitration and Conciliation Act, 1996. Hence, therebeing an agreement between the parties, to permit HSVP andHMRTC to obstruct or delay compliance with their obligationswould be manifestly impermissible for three reasons: firstly, theobligation to deposit 80 per cent debt due as a consequence ofBthe termination emanates from Article 24.4 of the ConcessionAgreement dated 9 December 2009; secondly, the obligation todeposit 80 per cent of the debt due as determined in the reportof the auditor has been assumed voluntarily before the High Courtby HSVP/HMRTC from which, as public bodies, they cannot beCpermitted to resile; and thirdly, there is a vital public interestelement in ensuring that the monies which are committed by banksand financial institutions towards financing infrastructure projectsare secured to them in terms of the Concession Agreements.[Para 56][700-B-H; 701-A]

D1.14 The underlying wrongdoing which was allegedlyconducted by the promoters in the erstwhile management ofIL&FS undoubtedly needs to be investigated. The process ofpursuing the forensic audit, the investigation by the SFIO and bythe law enforcement machinery must follow to its logicalconclusion. The NCLT is supervising the resolution process withEa government appointed Board now being in charge of themanagement of IL&FS. Equally, financing arrangements enteredinto by financial institutions towards fulfilling infrastructureprojects, based on the sanctity of the commercial contracts, areto be duly observed. This facet has to be emphasized since itFembodies a vital element of public interest as well. Deteriorationin loan recovery not only leads to higher provisions anddiminished profitability but also constrains banks’ lending capacity,thus affecting the economy adversely”. Unless the dues whichare assured to financial institutions as part of the arrangementswhich are envisaged in Concession Agreements are duly enforced,Gthe structure of financing for infrastructure projects may well bein jeopardy. Such a consequence must be avoided by declining toaccede to a request, such as that by HMRTC and HSVP, which isto allow it to resile from its obligations. These obligations arisenot only in terms of the Concession Agreements, but have been H

solemnly assumed before the High Court. Hence, on both counts,HMRTC and HSVP cannot be permitted to resile. [Para 57][701-B-E]

1.15 The intervention of this Court under Article 136 ofthe Constitution was sought having regard to the manner in whichthe proceedings before the High Court were being derailed. On12 October 2020, after HMRTC filed its affidavit, the High Courtnoted the appellant’s submission that “the matter does not brookany delay” and yet adjourned the matter to 16 October 2020.Thereafter, when the proceedings came up on 16 December 2020,and the response filed by CAG was taken on the record, thehearing of the writ petitions was again deferred to 8 April 2021.This course of events indicates that the whole object and purposebehind setting down the timelines in the order dated 20 September2019 stood the risk of being defeated. This Court has beenconstrained to intervene in the process in order to ensure thatthe sanctity of the understanding that was arrived at before theHigh Court on 20 September 2019 is duly maintained. There is avital public interest element in ensuring that monies which areliable to be deposited in the Escrow Account with a nationalisedbank are duly deposited. HMRTC and HSVP, it must beemphasized, are not left without remedy. The deposit into theEscrow Account has to be maintained in that form and will abideby such orders that may be passed by NCLAT or by a competentstatutory authority. Besides this, the Concession Agreementsprovides a clear-cut remedy for seeking reliefs under thearbitration agreement. [Para 58][701-F-G; 702-A-C]

1.16 The invocation of the writ jurisdiction of the High Courtunder Article 226 of the Constitution by HMRTC and HSVP wasto challenge the termination notices dated 17 June 2019, and toobviate the consequence of the cessation of the rapid metrooperations, which would have ensued on the expiry of the noticeperiod. The arbitration clause of the Concession Agreementsprovides sufficient recourse to remedies which can be availed of.That apart, the order of the High Court dated 4 October 2019has also clarified that the rest of the dispute that remains afterthe deposit of 80 per cent of the debt due, either arising out ofthe CAG report, the validity of the termination notices issued byboth the parties and any past or future inter se claims and liabilities A

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Ashall be agitated and decided in the arbitration proceedings. Inview of the order which is passed, the dispute between the HighCourt in the writ jurisdiction under Article 226 of the Constitutionshall stand worked out by granting liberty to the parties to availof their rights and remedies in accordance with law. It is directedthat HSVP shall within the stipulated period deposit into theBEscrow Account 80 per cent of the debt due as determined in thereports of the auditors dated 23 June 2020, in the case of RMGLand RMGSL respectively; the deposit into the Escrow Accountshall continue to be maintained in Escrow, subject to any orderthat may be passed by NCLAT or any competent statutoryCauthority, and shall not be appropriated by the Escrow Bankwithout specific permission; RMGL and RMGSL on the one hand,and HSVP on the other, are at liberty to pursue their rights andremedies in pursuance of the arbitration clause contained in theConcession Agreements on all matters falling within the ambit ofthe arbitration agreement, including the validity of the notices ofDtermination, any past or future inter se claims and liabilities asenvisaged in the order of the High Court dated 20 September2019, as modified on 4 October 2019 and 15 October 2019; interms of clause (v) of the order of the High Court dated 20September 2019, in the event of any dispute arising about theEcorrectness of the CAG report, in regard to the determination ofthe debt due, any of the parties would be at liberty to raise adispute in the course of arbitral proceedings; upon compliancewith the directions contained in (i) RMGL and RMGSL shallexecute and handover to HSVP all documents which are requiredfor effectuating the transfer of operations, maintenance and assetsFto HSVP or their nominees with a view to fulfill the obligation ofthe concessionaires in Article 25 of the Concession Agreementdated 9 December 2009 and clause (vi) contained in the order ofthe High Court dated 20 September 2019, as modified on 4October 2019 and 15 October 2019; and the writ petitions filedGbefore the High Court by the respondents are disposed of.[Paras 59, 60][702-D-H; 703-A-G]

Sanjana M. Wig vs Hindustan Petroleum CorporationLimited (2005) 8 SCC 242 : [2005] 3 Suppl. SCR 190;Bisra Lime Stone Co. Ltd. v. Orissa SEB, (1976) 2 SCC167 : [1976] 2 SCR 307; Manish Mohan Sharma v.H

RAPID METRORAIL GURGAON LTD. ETC. v. HARYANA MASS RAPIDTRANSPORT CORP. LTD

Ram Bahadur Thakur Limited (2006) 4 SCC 416 : [2006]3 SCR 97 – referred to.

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Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.925-926 of 2021.

From the Judgment and Orders dated 12.10.2020 and 16.12.2020of the High Court of Punjab and Haryana at Chandigarh in CM-7881-CWP-2020 in CWP-24949-2019 and CWP-24951-2019.

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Tushar Mehta, SG, Alok Sangwan, Sr. AAG, B.K. Satija, AAG,Mukul Rohatgi, Puneet Bali, Chetan Mittal, Dhruv Mehta, Sr. Advs.,Raunak Dhillon, Abhijeet Das, Aditya Marwah, Shubhankar Jain, ArupGupta (for M/s Cyril Amarchand Mangaldas), Rajesh Goel, Sumit KumarDSharma, Anurag Kulharia, Sandeep, Jatin Kumar, Udit Garg, HimanshuGupta, Devan Munjal, Akshit Jain, Dr. Monika Gusain, Sanjay Bajaj,Ms. Kanchan Kaur Dhodi, P.B.A. Srinivasan, Amit K. Nain, Parth D.Tandon, Avinash Mohapatra, Ms. Chandralekha, Keith Varghese, Ms.Ichchha Kalash, Ms. Nikitha Ross, Rajive Bhalla, Yajur Bhalla, DeepakSamota, Ashish Bajpayee, Siddharth Srivastava, Shubham Bhalla, Advs.Efor the appearing parties.

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The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, J.

This judgment has been divided into the following sections tofacilitate analysis:

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AFactual background

BSubmissions of counsel

CAnalysis of the Concession Agreements

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DTerms of the consent order dated 20 September 2019 passedby the High Court EObligations of HMRTC and HSVP to pay the debt due FConclusion H

AA Factual background

1. In 2008, Haryana Shehri Vikas Pradhikaran (“HSVP”), thesecond respondent, issued a Request for Qualification and Request forProposal (“RFQ/RFP”) for developing a metro rail link from Delhi MetroSikanderpur Station on MG Road to NH-8 (“Project No1”). ABConsortium Agreement was entered into on 1 December 2008 betweenIL&FS Rail Limited (“IRL”), IL&FS Transportation Networks Limited(“ITNL”) and DLF Metro Limited in which IRL was identified as thelead member of the consortium. HSVP accepted the bid submitted bythe consortium and issued a letter of award of 16 July 2009, subject tothe condition that a concession agreement would be executed within 60Cdays. Pursuant to the letter of award, the consortium incorporated thefirst appellant, Rapid MetroRail Gurgaon Limited (“RMGL”), under theCompanies Act, 1956 (the “Act of 1956”) and requested HSVP to acceptRMGL as the entity which would undertake, fulfill and exercise therights of the consortium under the letter of award.D

2. On 9 December 2009, HSVP entered into a ConcessionAgreement with RMGL for the execution of Project No 1 on a design,build, finance, operate and transfer basis. HSVP granted a concessionto RMGL for a period of 99 years from the effective date, including theexclusive right, license and authority during the subsistence of theEConcession Agreement to implement and operate Project No 1.

3. In 2012, HSVP issued another RFQ/RFP for developing ametro rail link from Delhi Metro Sikanderpur Station on MG Road toSector 56, Gurugram (“Project No 2”).

4. On 25 April 2012, IRL and ITNL entered into a consortiumFarrangement in the form of a Memorandum of Understanding, underwhich IRL was identified as the lead member of the consortium. Thebid submitted by the consortium was accepted by HSVP, which issued aletter of award on 1 October 2012. Pursuant to the letter of award, theconsortium promoted and incorporated the second appellant, RapidGMetroRail Gurgaon South Limited (“RMGSL”), which would fulfill theobligations and exercise the rights of the consortium under the letter ofaward. Thereafter, a Concession Agreement was entered into betweenHSVP and RMGSL for the execution of Project No 2 on 3 January2013. The term of the concession was 98 years commencing from theeffective date. RMGSL had the exclusive right, license and authorityH

during the subsistence of the Concession Agreement to implement andoperate Project No 2.

5. RMGL completed Project No 1 on 14 November 2013.RMGSL completed Project No 2 on 31 March 2017. In the meantime,on 11 January 2014, the Town and Country Planning Department of theGovernment of Haryana directed that all metro projects and projects forHaryana Mass Rapid Transport in the State would be handled by thefirst respondent, Haryana Mass Road Transport Corporation Limited(“HMRTC”).

6. On 17 July 2018, RMGL and RMGSL issued notices to HSVPto cure material breaches they alleged had been committed under theConcession Agreement. Responding to the cure notice dated 17 July2018, HSVP addressed a communication dated 11 October 2018 to bothRMGL and RMGSL.

7. On 1 October 2018, a petition[1] was instituted by the Union ofIndia under Section 241(2) read with Section 242 of the Companies Act,2013 (the “Act of 2013”) before the Mumbai Bench of the NationalCompany Law Tribunal (“NCLT”) against Infrastructure Leasing andFinancial Services Limited (“IL&FS”) and its Board of Directors(“Board”), on the ground that the affairs of the company and itssubsidiaries were being conducted in a manner prejudicial to publicinterest. Both RMGL and RMGSL form part of the IL&FS group ofcompanies. Acting on the petition, the NCLT by its order dated 1 October2018 superseded the existing Board of IL&FS with a newly constitutedBoard, which was appointed on the recommendation of the Uniongovernment. The new Board took charge of the affairs of the IL&FSand was authorised to conduct its business and formulate a road map forrecovery.

8. The National Company Law Appellate Tribunal (“NCLAT”)by an order dated 4 February 2019 appointed Mr Justice D K Jain, aformer Judge of this Court, to supervise the resolution process for theIL&FS group of companies. The appellants, RMGL and RMGSL,were categorized as a “red” entity of the IL&FS group of companies inan affidavit[2] dated 11 February 2019 filed by the Union of India beforethe NCLAT.

1 Company Petition No 3638 of 2018

2 Filed in Company Appeal (AT) No 346 of 2018

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A9. On 7 June 2019, RMGL issued a notice of termination to HSVPseeking to bring an end to the Concession Agreement dated 9 December2009 in terms of Article 24.5.1, upon the expiry of 90 days from the dateof delivery of this termination notice. A similar termination notice wasissued by RMGSL to HSVP, in terms of Article 32.5.1 of the ConcessionAgreement dated 3 January 2013. Further, on 7 June 2019, the appellantsBresponded to the letter of HSVP complaining of material breaches allegedto have been committed by the appellants under their respectiveConcession Agreements.

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10. On 26 June 2019, RMGL wrote to HSVP intimating that thedivestment requirements contained in Article 25.4 and Article 25.2 ofCthe Concession Agreement dated 9 December 2009 had already beencompleted by it. However, HSVP had failed to fulfill its obligations underArticle 25.4 to verify RGML’s compliance with such divestmentrequirements. A similar letter was addressed by RMGSL in the contextof the Concession Agreement dated 3 January 2013. On 1 August 2019,DRMGL informed HSVP that it had completed the formalities for handoverof Project No 1, and that the Concession Agreement dated 9 December2009 would stand terminated on the expiry of 90 days from thetermination notice. RMGL asserted that it would stop the operation andmaintenance of Project No 1 after the termination. A similar letter wasaddressed by RMGSL to HSVP in the context of the ConcessionEAgreement dated 3 January 2013 and Project No 2.

11. On 8 August 2019, NCLAT issued directions for the entitiesforming a part of IL&FS group of companies which had been categorizedin the “red” category, inasmuch as that they had to seek the approval ofJustice D K Jain before alienating, encumbering, transferring or creatingFthird party rights on assets. RMGL presented a memorandum on 19August 2019 to Justice D K Jain to seek his approval for handover ofthe Project No 1 to HSVP. A similar approval was sought by RMGSLin the context of Project No 2.

12. On 26 August 2019, the respondents issued a notice ofGtermination to RMGL under Articles 24.1 and 24.2 of the ConcessionAgreement dated 9 December 2009. Terminating the agreement, theydirected RMGL to handover Project No 1 to HMRTC, which in turnwould hand it over to Delhi Metro Rail Corporation (“DMRC”). A similarnotice of termination was issued to RMGSL, coupled with an analogousHdirection for handing over Project No 2.

13. On 6 September 2019, Justice D K Jain permitted RMGL tohandover possession and control of Project No 1 to HSVP pursuant tothe termination of the Concession Agreement dated 9 December 2009,on or before 9 September 2019. By a separate order on the same date,RMGSL was permitted to handover possession and control of ProjectNo 2 by the same date.

14. Further, also on 6 September 2019, the same day as the orderof Justice D K Jain permitting handover, the respondents instituted aWrit Petition[3] under Article 32 of the Constitution before the High Courtfor the State of Punjab and Haryana challenging notice of terminationdated 7 June 2019 issued by RMGL, inter alia, on the ground that theperiod of 90 days shall start from the date of permission, which had notbeen yet granted by Justice D K Jain. An interim direction was soughtfor the continuance of the operation of Project No 1 by RMGL. AnotherWrit Petition[4] was instituted to challenge the notice of termination byRMGSL on similar grounds, and similar interim directions were soughtin respect of Project No 2. The observations of Justice D K Jain,contained in his order dated 6 September 2019, in respect of theConcession Agreement dated 9 December 2009, were produced beforethe High Court, which were as follows:

“20. Nevertheless, Clause 24.6 of Article 24 stipulates that upontermination of the Concession Contract, “for any reasonwhatsoever” HUDA shall take possession and control of Metrolink forthwith, including the material, construction plan, implements,equipment, etc., on or about, the site. Therefore, except for thestipulation of a prior 90 days’ notice in writing to HUDA by theConcessionaire for termination of the Concession Contract, whereafter such termination takes effect, upon termination of theConcession Contract by either of the Parties, HUDA is, obligedto take possession of the Metro link forthwith. I am inclined toagree with the Ld. Counsel appearing for RMGL that requirementof the said prior notice is to enable HUDA to prepare itself totake over the possession and control of the Metro link. In thatview of the matter, the Notice of termination of the ConcessionContract having been served by RMGL on HSVP (earlier knownas HUDA), in writing on June 7, 2019, the said termination notice 3 WP (C) No 24949 of 2019

4 WP (C) No 24951 of 2019

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takes effect on the expiry of the 90 days therefrom i.e. September8, 2019 and RMGL is required to handover the possession andcontrol of the subject Metro link to HSVP on or before, September9, 2019 and HSVP is obliged to take possession and control of theMetro link forthwith. There is no explanation as why HSVP didnot take any steps to ensure smooth handing and taking over ofthe project by RMGL to HSVP, all this while. In so far as thequestion of validity of the termination notice issued by RMGL toHSVP is concerned, the issue is to be decided at an appropriateforum and not by the undersigned in terms of the afore-extracteddirection by the Hon’ble NCLAT.”

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The observations of Justice D K Jain in respect of the ConcessionAgreement dated 3 January 2013 were as follows:

“19. It is evident that both the parties are ad-idem that both theparties having issued notices for terminating the Agreement, themetro link has to be taken over by HSVP/HMRTC but the disputeDis only with regard to the time when the handing over and takingover after the same should take place. No explanation whatsoeveris forthcoming as to why, on the receipt of Termination Noticedated June 7, 2019, HSVP/HMRTC did not take any steps toensure smooth handing over of the project by RMGSL to them, allEthis while. In so far as the question of validity of the terminationnotice issued RMGSL to HSVP is concerned, the issue is to bedecided at an appropriate forum and not by the undersigned interms of the afore-extracted direction by the Hon’ble NCLAT.

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20. Accordingly, RMGSL is permitted to handover the possessionFand control of Metro link from Delhi Metro Sikanderpur Stationon MG Road to Sector 56, Gurugram to ASVP, pursuant to thetermination of the Concession Agreement dated January 3, 2013.It goes without saying that this permission is without prejudice tothe rights and contentions of the contesting parties to take recourseto appropriate legal proceedings’ to assail the validity andGconsequences of termination of the Concession Agreement byboth of them. It is, however, clarified that HSVP, shall still be freeto engage the services of RMGSL, albeit at the mutually discussed/negotiated terms and charges to run the subject Metro link till,such time, appropriate/alternative arrangements are made byHSPV to run the same.”H

15. On 6 September 2019, the High Court, while issuing notice,adjourned the proceedings to 9 September 2019 and directed that untilthen the operation of the Rapid Metro Rail by the appellants shall continueon both the lines, till midnight on 9 September 2019. On 9 September2019, the High Court deferred the hearing to 17 September 2019, with aconsequent extension to its interim order as well. The High Courtobserved:

“Order dated 09.09.2019

“We propose to pass this order in both the cases i.e. CWPNos.24949 and 24951 of 2019.

Although both the contracts dated 03.01.2009 and 03.01.2013executed for both the lines of the Rapid Metro Rail at Gurgaonhave been terminated by both the parties i.e. HSVP (previouslyknown as “HUDA”) on 26.08.2019 (forthwith) and the RMGSLby giving 90 days notice with effect from 07.06,2019 which comesto an end on 09.09.2019. But the operations are still continuingunder the orders of this Court dated 06.09.2019 till the midnight of09.09.2019.

After lengthy arguments addressed by counsel for the parties, theCourt has found that the dispute between the parties may beresolved by negotiation for which they both would require sometime and, therefore, the hearing of this case is deferred to17.09.2019 and the order of stay granted on 06.09.2019 is alsoextended till 17.09.2019 till midnight.

During the course of hearing, learned senior counsel appearingon behalf of the respondent has submitted that with the terminationof the contract with effect from 09.09.2019, the respondent wouldnot act as a concessionaire rather would act as an agent.

On the other hand, learned senior counsel for the petitioners hassubmitted that the respondent can act as a licensee.

Be that as it may, the question as to whether the respondent wouldact for the purpose of operation and management till 17.09.2019till midnight as a licensee or an agent shall be decided on the nextdate of hearing.

Learned senior counsel for the respondent has also referred tothe terms and conditions for the purpose of discussion in the meetingduring this period which are also reproduced as under:- A

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A(1)Time bound handover of the Project to HSVP;

(2) Commitment to take handover the Project by HSVP;

(3) Commitment to pay at least 80% of debt due as terminationpayment to RMGL/RMGSL by HSVP;

(4) Handover to start immediately;

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(5) RMGL/RMGSL to act as agent of HSVP for further workpost 09.09.2019;

(6) Cost and benefit to be on HSVP’s account;

(7) Indemnification of RMGL/RMGSL from any third partyCclaims and from HSVP’s actions;

(8) Rights and benefits of parties get frozen on the datetermination of Concession Agreement becomes effective,be-09-09-2019— and.

D(9)Issuance of vesting certificate by HSVP.

Learned senior counsel appearing on behalf of the petitioners hassubmitted that all these issues would be discussed in the jointmeeting of the parties.

Till the next date of hearing i.e. 17.09.2019, the respondent shallEoperate and manage the Rapid Metro Rail at Gurgaon on both thelines but subject to reimbursement of the insurance and operationand maintenance cost by the petitioners of this period.

A copy of this order be given to both the parties under signaturesof Bench Secretary of this Court.FTo be taken up in the urgent list.

A photocopy of this order be placed on the file of other connectedcase.”

On 18 September 2019, the following order was passed:

G“Order dated 18.09.2019

Learned senior counsel appearing on behalf of the Rapid MetrorailGurgaon Ltd. (RMGL) and the Rapid Metrorail Gurgaon SouthLid. (RMGSL) has made the following proposals:- H

i)RMGL/RMGSL will continue to operate their Metro Linkfor a period of 30 days (i.e. until October 16, 2019) duringwhich (a) the ‘debt due’ as per financing documents in termsof the concession agreement may be determined by anauditor appointed by the Hon’ble Court; and (b) the processfor transfer of the Metro Links may be undertaken underthe supervision of two Hon’ble (retired) High Court Judges,one being nominated by RMGL/RMGSL and one beingnominated by HSVP; A

B

ii)During this extended period since 9 September 2019 RMGL/RMGSL will act as agents of HSVP, RMGL and RMGSLCwill be responsible for all liabilities arising on account oftheir gross negligence and fraud during this time;iii)The conditions set forth in (i) and (ii) above are subject toan undertaking from HSVP that once the debt due isdetermined by the auditor appointed by the Hon’ble CourtD

iii)The conditions set forth in (i) and (ii) above are subject toan undertaking from HSVP that once the debt due isdetermined by the auditor appointed by the Hon’ble Courtat least 80% of the ‘debt due’ so determined shall be,deposited in the escrow account inter alia in terms of theConcession Agreement Escrow Agreement and SubstitutionAgreement.

iv)The above proposal is made to safeguard immediate interestof the public sector lenders of the project and is withoutprejudice to the rights and, remedies of RMGL/RMGSLunder contract or applicable laws including inter alia theright to claim any differential amounts that may be due andpayable to the lenders or RMGL/RMGSL as TerminationPayments or any other payments.

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He has also submitted that since the petitioners may take sometime to consider the aforesaid proposals, RMGL/RMGSL shallcontinue its operation and management till 20.09.2019 (midnight).

Adjourned to 20.09.2019.

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To be shown in the Urgent List.

A photocopy of this order be placed in the file of the connectedcase.”

16. In the order of the High Court dated 18 September 2019,there was a specific reference to the proposals which were made on H

Abehalf of the RMGL and RMGSL. The proposals essentially werethat: firstly, RMGL and RMGSL would continue to operate the rapidmetro link for 30 days, during which the ‘debt due’ as per the financingdocuments in terms of their respective Concession Agreements wouldbe determined by an auditor; and secondly, an undertaking would haveto be furnished by HSVP that on determination of the ‘debt due’ by theBauditor, at least 80 per cent of the amount so determined should bedeposited in the Escrow Account in terms of the Concession Agreements.The respondents HMRTC and HSVP submitted their response to theproposal which was made by the appellants, which was adverted to inthe earlier order. The response was in the following terms:C“(i) With respect to the request of the RMGL and RMGSL tocontinue to operate the said Metrolines fora period of 30 days, itis stated that HMRTC and HSVP have already entered into aformal agreement with the Delhi Metro Rail Corporation Ltd.“(DMRC)” on 16" September, 2019 for Operations andDMaintenance “(O&M)” of the said Metro Lines. And it iscategorically stated that HMRTC and HSVP has signed the saidagreement on account of the fact that previously RMGL/RMGSLwere not acceding to the request of HMRTC/HSVP to run thesaid Metrolines for sufficient period during which effectiveresolution of the entire matter could be achieved. Now, after havingEsigned the said agreement with DMRC, HMRTC/HSVP is alsoof the view that the entire process of handover of O&M for thesaid Metro Lines to DMRC be done under the supervision ofHon’ble (Retd.) High Court Judge as may be appointed by theHon’ble Court within reasonable time.

F

(ii) Secondly, the aspect of the ascertainment of “debt due” islinked with the definition of the words “debt due “in the concessionagreement linked with the ascertainment of the Total Project Cost.However, the HMRTC and HSVP do hereby agree with theproposal of the RMGL and RMGSL that an auditor may beGappointed to ascertain the actual figures in that respect. In this,matter, the HMRTC and HSVP proposes that Comptroller andAuditor General of India “(CAG)” may be given the assignmentof financial audits under the order of the Hon’ble Court to ascertainfinancial aspects including determination of over invoicing intothe project. HMRTC/HSVP are agreeable for the appointment ofH

CAG subject to full cooperation by RMGL and RMGSL and alldocuments and other information pertaining to the ‘debt due’ maybe provided to CAG or the auditor so appointed with a copy toHMRTC and HSVP.

(iii) Thirdly, during the transition period the period during whichO&M of the said Metro lines shall be transferred from RMGLand RMGSL, to DMRC, RMGL & RMGSL have proposed to actas an agent of the HMRTC and HSVP during the said period. Inthis respect it is stated that it will lead to further complications.HMRTC and HSVP have transferred the amount of insurancesand the entire control will remain with the RMGL and RMGSLduring this period. RMGL and RMGSL shall continue their O&Min terms of concession agreements and the HMRTC and HSVPhave no objection that RMGL/RMGSL may receive all therevenues arising from O&M and incur all expenses therefromitself and pay the same as is being done currently. In other wordsthe RMGL and RMGSL remain responsible and liable for all theiracts and deeds with are generally associated with the running ofthe said Metro Lines, not limited to only the Gross negligence andfraud during this time.

(iv) Fourthly, the aspect of HMRTC and HSVP undertaking todeposit the 80% of the debit due in Escrow Account as would beascertained by the auditors depends solely on the outcome of thereport as would be submitted by the learned auditor as shall beappointed by the Hon’ble Court and the HMRTC and HSVP dohereby commit and confirm to adhere to the directions as wouldbe passed by the Hon’ble High Court or NCLAT or any othercourt or any other order under any other legal proceeding(s) passedby any other competent authority in that respect, in terms of theconcession contract subject to the all other rights and entitlementsin favour of both the parties arising out of the same.

(v) With respect to the submission that RMGL/RMGSL is reservingtheir right to claim differential payment, it is apprised that by havingstated that, RMGL/RMGSL are trying to keep options open tochallenge whereby RMGL/RMGSL may rekindle this entire matteragain after having settled the matter in the light of aforesaidstatement i.e. after having settled the amount which becomesdue i.e. 80% of the debt due in terms of the definition contained in A

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Athe concession agreement as linked with the total project costwhich shall be ascertained by an auditor as shall be appointed bythe Hon’ble Court. As such the same cannot be acceded to sincethis would lead to multiplicity of litigation and could be a seriousdampener on this entire matter. This matter is being settled underthe directions of the Hon’ble Court and as such the same shouldBbe acceptable to you gracefully.

A

(vi) That the HMRTC and HSVP hereto reserves its right to makeany further submissions in the light of any further arguments orfacts that may be brought to light in this matter during the auditprocess and course of proceedings.”C

17. The proposal submitted by RMGL and RMGSL, which hadbeen responded to by HSVP and HMRTC, was then deliberated in theHigh Court. Accordingly, the following directions were issued by theDivision Bench on 20 September 2019, recording that “a consensus”had been arrived at in the presence of senior officers of the contestingDparties namely, the Managing Director of HMRTC, Chief Administratorof HSVP, the Managing Director of RMGSL and Director of RMGL.Thereupon, the directions which were issued by the Division Bench ofthe High Court on 20 September 2019 were in the following terms:

“(i) RMGL and RMGSL have decided to continue the OperationEand Maintenance (for short “O&M”) of both the metro lines forthe period of 30 days w.e.f. 16.09.2019. In the meantime, processof transfer of control and management of operation andmaintenance of both the Metro links shall start w.e.f. 23.09.2019.The operation and maintenance by RMGL and RMGSL shall beFin terms of the order dated 09.09.2019 passed by this Court.

E

It is needless to mention that in case of any clarification/modification, the parties shall be at liberty to approach this Courtby moving an appropriate application(s) in these petitions.

Both the parties have requested to appoint two retired Hon’bleGJudges of the High Court on payment of suitable remuneration tosupervise the aforesaid transfer and in this regard petitioners havesuggested the name of Hon’ble Mr. Justice Kailash Gambhir(Retd.) and the respondent(s) has suggested the name of Hon’bleMr. Justice V.K. Gupta (Retd.).

H

Keeping in view the magnitude of work involved, we direct that£10.00 Lakh, towards remuneration, shall be paid to Hon’ble Mr.Justice Kailash Gambhir (Retd.) by the HSVP and remunerationto the tune of 710.00 Lakhs shall be paid to Hon’ble Mr. JusticeV.K. Gupta (Retd.) by the — RMGL- RMGSL.

(ii) As far as “debt due” as defined under the concession contractis concerned, direction is issued to the Comptroller and AuditorGeneral of India (for short ‘CAG’) to appoint a team of auditorsfor the financial audit of the “debt due” and also for examiningthe scope of the audit of “debt due” audited by the HSVP withthe assistance of the auditors appointed by the parties to the lis.

It is needless to say that the CAG shall complete the aforesaidaudit within a period of 30 days.

(iii) It is directed that the arrangements made by this Court videorder dated 09.09.2019 shall continue till the process of handingover the operations is complete.

(iv) It is further directed that amount of 80% of the debt due,determined in terms of the audit report of the CAG, shall bedeposited by the HSVP in the Escrow account which shall besubject to any order passed by the NCLAT or any other competentstatutory authority, within a period of 30 days after the receipt ofthe audit report.

(v) It is further directed that rest of the disputes between theparties to the lis, arising out of the audit report, shall be agitatedand decided in the arbitration proceedings, a mode provided in theconcession contracts.

(vi) It is also directed that whatever documents are required forthe purpose of final transfer of operation and management andthe assets, the same be given by the RMGL and RMGSL to HSVPafter the payment of “debt due”.”

This order dated 20 September 2019 was subsequently modifiedby the High Court on 4 October 2019, in the following terms:

“Notice in the applications was issued to which no reply has beenfiled, however, suggestions made by the applicant(s)- respondent(s)are accepted by the non- applicant(s)/petitioner(s) and therefore,three Clauses i.e. Clause No. II, V and VI of the order dated A

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20.09.2019 are hereby clarified/modified to the following extent:-In Clause II at pages No. 12 and 13 of the order, the words

i.e. “also for examining the scope of the audit of “debt due” auditedby the HSVP with the assistance of the auditors appointed by theparties to the lis.” be replaced with the words “also for examiningthe scope of the audit of the debt due suggested by the HSVPwith the assistance of the auditors appointed by the parties to thelis. The CAG will also examine the scope of the audit of debt duesuggested by the HSVP in terms of the concession agreement.”

As regards to Clause V, it is being replaced with the following:-

V) It is further directed that rest of the dispute between theparties to the lis either arising out of the CAG report, the validityof the termination notices issued by both the parties and anypast or future inter se claims/liabilities shall be agitated/decidedin the arbitration proceedings, a mode provided in the concessionagreement. Needless to say that arbitration proceedings shallbe subject to any permission that may be required from NCLATor any other competent Court of law.

Insofar as Clause VI is concerned, Learned Senior Counselappearing on behalf of the applicant(s)-respondent(s), after takinginstructions from Mr. Rajiv Banga, Managing Director, RMGSLand Director RMGL, has submitted that the same be read asunder:-

VI) It is directed that whatever documents are required forthe purpose of transfer of operation and maintenance isconcerned, the same will be handed over by the RMGL andRMGSL to the petitioners or their agent/licensee DMRC interms of direction No. I and rest of the documents which arefor final transfer of the assets the same be given by the RMGLand RMGSL to HSVP after payment of the debt due. However,in the meanwhile the proposed documentation in terms ofconcession agreement may also be communicated by theRMGL and RMGSL to the petitioners.

With the aforesaid clarifications/modifications, present applicationsare hereby disposed of. Further, on the joint request, of counselfor the parties, CAG is directed to complete the audit, as ordered

by this Court, by counting the period of 30 days from the date ofreceipt of certified copy of this order.”

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18. On 15 October 2019, the High Court allowed an extension ofseven days for implementing the directions issued in its orders dated 20September 2019 and 4 October 2019. The High Court also corrected itsearlier order with the consent of the contesting parties, in the followingterms:

B

“Accordingly, the applications are allowed.

However, Mr. Puneet Bali has pointed out that there is an error inthe order dated 04.10.2019. He has further submitted that insteadof reading the order, “The CAG will also examine the scope ofthe audit of debt due suggested by the HSVP in terms of theconcession agreement” be read as “The CAG will also examinethe scope of the audit of debt due suggested by both the parties interms of the concession agreement.”

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19. In pursuance of the order of the High Court, the Comptrollerand Auditor General of India (“CAG”) presented a statement dated 19November 2019 in regard to:

(i) The scope of the audit; and

(ii) Deliverables and timelines.

E

The statement has a bearing on the controversy, and is henceextracted in entirety:

“

1. Verify that the Debt Due has been arrived at with referenceto the terms & conditions of respective ConcessionContracts and all Financing Agreements/Documents whichmay have bearing on the computation of Debt Due.

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2. Verify that all funds constituting the financial package (debtand equity) for meeting the concessionaire’s capital costhas been credited / received in the Escrow Account, as perthe quantum/ratio/priority/procedure prescribed in CommonLoan Agreement and assessing the impact on the amountof debt due.

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3. Verify that the funds of financial package, deposited in theEscrow account, were used for the project assets as definedH

Ain the Concession Contract and assess the impact on theamount of debt due.

4. Verify receipt and check that all non-fare revenues wereduly accounted for referring to the agreements governingsuch revenues. Similarly, verify receipt and deposit of allBfare revenues in the Escrow account including reconciliationwith DMRC/other relevant document assessing the impacton the amount of debt due.

5. Verify that all amounts standing to the credit of EscrowAccount has been appropriated and dealt with in the orderCprescribed in the Concession Contract and EscrowAgreement assessing the impact on the amount of debt due.

6. Verify that all other receipts and payments have been routedthrough Escrow Accounts. Review all other bank accountsmaintained/operated by the concessionaire duringDconcession period with a view to assess the impact of theoperation of such account on the amount of Debt Due.

7. Verify that the information contained in Annual Reports (i.e.Audited Financial Statements, Directors Reports andStatutory Audit Reports) of the concessionaire, to the extentEthis information has a bearing on the amount of Debt Due,has been arrived at by following the applicable AccountingStandards and Guidelines in particular, Ind_AS 11 onConstruction Contracts, Ind_AS 23 on Borrowing Costs,Ind_AS 38 on Intangible Assets, Ind_AS 115 on Revenuefrom Customer Contracts.

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8. Audit would cover verification of other aspects as may beconsidered necessary, ring the course of audit, to verify theamount of Debt Due.

9. Above Audit would be conducted for the concession period,since inception, by following the applicable standards ofGAuditing issued by CAG/CAI (inter alia 200- 299 on GeneralPrincipals and Responsibilities, 300-499 on Risk Assessmentand Response to Assessed Risks, 500-599 on AuditEvidence with emphasis on SA 530 on Audit Sampling and600-699 on Using Work of Others).

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10. Nature, timing and extent of audit procedure will be impactedby the audit evidence obtained. A risk assessment or problemanalysis may be conducted and the scope may be revisedas necessary in response to the audit findings. Unimpededand quick access to relevant records/ documents may beensured by the auditee. Any delay in getting records wouldbe recorded so as to maintain Audit trail.

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Deliverables and timelines

1. Within two weeks from date of award, the Auditor shallsubmit Inception Report indicating results of risk assessment,audit methodology for conducting audit and constraints, ifCany.

2. Draft Audit Report to be submitted by Auditor within threemonths from date of award of audit.

3. Monthly appraisal meetings to be held to review the auditprogress and modify the scope of audit, if necessary.”

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20. CAG then filed a Civil Miscellaneous Application, togetherwith the compliance affidavit, before the High Court on 25 June 2020,stating that it had appointed a firm of chartered accountants, SARC &Associates, to undertake a financial audit of the debt due betweenHMRTC/HSVP and the concessionaires, RMGL/RMGSL. It wasnoted that in terms of the audit process followed by CAG, the draft auditreport was furnished to both sets of contesting parties by emails dated19 February 2020 and 24 February 2020. Though the appellants hadresponded to the emails, HMRTC had addressed a communication on27 February 2020 stating that since the budget session of the HaryanaVidhan Sabha was in progress, it was difficult at this stage to haveconsultations and to respond to the draft audit report. As such, a periodof four weeks was sought to respond to the draft. In view of this, CAGhad sought an extension of eight weeks before the High Court by filingan application, on which notice was issued on 18 March 2020, returnableon 3 April 2020. Thereafter, the lockdown occasioned by Covid-19ensued. CAG by its further communications dated 18 March 2020 and22 April 2020 sought the response of the HMRTC and the Stategovernment by 29 April 2020, a deadline beyond which it was stated thatthe final audit report would be prepared. CAG stated before the HighCourt that the financial audit of the ‘debt due’ had been performed by E

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Athe auditors to whom the work had been assigned in accordance withthe “limited scope of audit which has been submitted in the Court earlier”.CAG stated that the financial audit had then been finalized, since noresponse had been received from HMRTC or the State government.

21. On 18 August 2020, a Civil Miscellaneous Application[5] wasBfiled before the High Court by RMGL and RMGSL, pursuant to theorder of the High Court dated 20 September 2019 in accordance withwhich the CAG had submitted its report in a sealed cover to the HighCourt, wherein the appellants sought a direction for:

(a) Opening the sealed cover submitted by CAG containing itsCreport of the financial audit of the debt due in terms of theConcession Agreements; and (b)Directing the deposit of 80 per cent of the debt due in termsof the order of the High Court dated 20 September 2019.

22. On 2 September 2020, the High Court issued notice on theDapplication filed by the appellants and listed it on 10 September 2020. On28 September 2020, the sealed cover was opened and the report of theCAG was taken on the record. The CAG report adverts to the scope ofthe audit which was undertaken in respect of the debt due under theConcession Agreement dated 9 December 2009 with RMGL in thefollowing extract:E“The scope of audit was suggested by RMGL and HMRTC throughcommunications and presentations. The scope of audit as suggestedby both the parties were examined and the scope of audit of “debtdue” was accordingly firmed up. The suggestions made throughpresentations and the scope of audit, as decided by were submittedFto the Court vide CMA no. 15397 dated 20 November 2019 byCAG.

It was also informed to the Court that only those Issues that arerelated and relevant to examination of the “debt due” as perconcession agreement would be examined. The scope of auditGdecided by CAG and as intimated to the Court has been placed atAnnexure 1B. The issues mentioned in the scope provided byHMRTC like encumbrances and liabilities on the said metroproject, shareholding / share in valuation of the assets of theconcessionaire company, change of shareholding fights, criminal H5 CM-7881-CWP-2020

acts and liabilities etc. which are said to have been inflicted on theCompany require detailed forensic and technical audits. It isunderstood that such audits are ongoing. This audit is limited tothe examination of “debt due”, as defined in the ConcessionAgreement.”

23. In computing the debt due, the audit report notes that theactual cost of the project was Rs 1,199 crores as against the budgetedcost of Rs 1,088 crores. Since the cost overrun is to be contributed bythe sponsors under the loan agreement, this would not have any impacton the debt due. Hence for the purpose of computing the debt due, theproject cost was taken as Rs 1,088 crores. In computing the debt due,the audit report took into consideration:

(i) The principal component of the term loan; and

(ii) The interest component on the term loan.

In arriving at the debt due, the conclusion which was drawn in theaudit report is extracted below:

“6. Conclusion

The amount of debt-due as per the audit, which has beenconducted within limited scope as detailed in earlier sectionsof the report, has been worked out as Rs. 797.52 croresincluding interest upto 8 September 2019.

Other matters that have come to our attention and can havea significant impact on debt due are listed below. Our reportis subject of the outcome of such matters.

•An entity specific forensic audit of RMGL is beingconducted by the lenders.

•NCLT as part of its resolution proceedings ordered on 01January 2019 for the reopening and recasting of theaccounts of IL&FS and two of its subsidiaries IL&FSTransportation Networks Limited (ITNL) and IL&FSFinancial Services Limited (IFIN) in respect of financialyears 2013-14 to 2017- 18, under Section 130 of theCompanies Act 2013.The same is one of the basis ofdisclaimer of opinion given by statutory auditors of IL&FSfor FY 2018-19. The contracts were awarded by RMGL torelated parties, i.e. IRL worth Rs.623 crore (52 per cent of A

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H

Atotal project cost) is a subsidiary of ITNL. Further, INLand IRL are the promoters in the RMGL.

•New board of Directors, in January 2019, has initiated athird- party forensic examination for the period from April2013 to September 2018, in relation to certain companiesBof the Group, which is currently ongoing. The same isone of the basis of disclaimer of opinion given by statutoryauditors of IL&FS for FY2018-19,

•9 packages which were awarded to IRL, were sub-contracted to various related and unrelated parties asCexplained by the management. This includes companies withirregularities as pointed out by Income Tax Department asmentioned in the income Tax Show Cause Notice!!, dated:15.11.2018, ref no. ADIT(INV]-3{4}/Show Cause Notice/ENSO/2018-19/251. Income tax scrutiny/assessments on- going.D

Table 12 - Party-wise break-up of the packages sub-contracted by IRL (Amount in crore)

E

F

Our report is submitted solely for the purpose set forth inthe first paragraph of this report. This report relates only tothe items specified and does not extend to any financialstatements of RMGL, taken as a whole.”

G

The audit report for second appellant RMGSL computed the debtdue at Rs 1,609.88 crore, including interest upto to 8 September 2019.HThe conclusion in the audit report is extracted below:

“6. Conclusion

The amount of debt-due as per the audit, which has beenconducted within limited scope as detailed in earlier sectionsof the report, has been worked out as Rs.1,609.88 croreincluding interest upto 8 September 2019.

Other matters that have come to our attention and can havea significant impact on debt due are listed below. Our reportis subject to the outcome of such matters.

•An entity specific forensic audit of RMGSL is beingconducted by the lenders.

•NCLT as part of its resolution proceedings ordered on 01January 2019 for the reopening and recasting of theaccounts of IL&FS and two of its subsidiaries IL&FSTransportation Networks Limited (ITNL) and IL&FSFinancial Services Limited (IFIN) in respect of financialyears 2013-14 to 2017- 18, under Section 130 of theCompanies Act 2013. The same is one of the basis ofdisclaimer of opinion given by statutory auditors of ILAFSfor FY 2018-198. The contract was awarded by RMGSLof related party, i.e., TNL worth Rs. 1,803 crore (77 percent of total project cost).

•New board of Directors, in January 2019, has initiated athird- party forensic examination for the period from April2013 of September 2018, in relation to certain companiesof the Group, which is currently ongoing. The same is oneof the basis of disclaimer of opinion given by statutoryauditors of IL&FS for FY 2018-19.

•14 packages which were awarded to ITNL, as detailedabove, were subcontracted to various related and unrelatedparties.

Table 12 – Party-wise break-up of the packages sub-contracted by ITNL

•IRL further sub-contracted it to the related parties and otherparties which includes companies with irregularities as A

B

C

D

E

F

G

H

ABpointed out by Income Tax Department as mentioned in theIncome Tax Show Cause Notice’, dated: 15.11.2018,Cref no. ADITIINV]-3(4]/Show Cause Notice/ENSO/2018-19/251. Income tax scrutiny/assessments is on-going.

Table 13- Party-wise break-up of the packages sub-contracted by IRL

(Amount in crore)

D

Our report is submitted solely for the purpose set forth inthe first paragraph of this report. This report relates only E

F

for the items specified and does not extend to any financialstatements of RMGSL, taken as a whole.”

G24. On 10 October 2020, an affidavit was filed before the HighCourt by the Advisor (Planning) HMRTC on behalf of the respondents,objecting to the audit report. The substance of the objection was that theaudit report had not considered “critical aspects…which shall have adirect bearing” on the amount of the debt due. In the course of theaffidavit, the following circumstances were highlighted:

H

(i) In exercise of powers under Section 241(2) of the Act ofA2013 and in terms of the permission granted by the NCLT,the Central government had reconstituted the Board of theIL&FS, the appellants’ parent company whose affairs werebeing conducted in prejudicial to the public interest. On 6December 2018, a First Information Report (“FIR”) hadBbeen lodged against RMGL, RMGSL and sister concernsalleging that monies had been siphoned off from the groupcompanies. As against RMGL and RMGSL, there wereallegations that fake invoices had been raised as a result ofwhich the cost of the metro rail project was significantlyhigher than comparable projects of DMRC, as a result ofCwhich the rapid metro was incurring losses year on year.The losses were occasioned by high interest cost entailedon “huge capital expenditure”, which in turn was due tofalse and bogus invoices;

(ii) Notices have been issued by the Income Tax Departmentagainst IRL indicting that the group companies were shellentities who had raised funds through bogus and unsecuredloans and invoices; D

(iii) Serious Fraud and Investigation Office (“SFIO”) hadcommenced a probe into the affairs of the associatedcompanies including IL&FS Financial Services (“IFS”) andITNL; and E

(iv) Investigations under the Prevention of Money LaunderingAct, 2002 have been initiated against IL&FS.

F

In this backdrop, it was urged that the CAG had not audited theaccounts of the concessionaire, RMGL and RMGSL, in accordancewith the scope of audit finalised by them. The auditors, it is stated, hadindicated that the amount of the debt due is subject to the outcome ofvarious matters which can have a significant impact on the debt due.Hence, it was urged that the audit is “incomplete and inconclusive”.

G

25. HMRTC tabulated its objections to the audit report in thecourse of the affidavit before the High Court. HMRTC has submittedthat the scope of audit finalised by CAG “still remains incomplete andinconclusive”.

H

A26. RMGL submitted its reply in which, firstly, it drew attentionto the fact that the High Court’s order dated 20 September 2019unequivocally obligates the respondents herein to pay 80 per cent of thedebt due within 30 days of the CAG report, and no liberty has beengranted to challenge the report at this stage. Secondly, it was urged thatdespite ample opportunities provided by CAG, HMRTC had notBfurnished any objections to the draft report. Thirdly, it was alleged thatthe objections filed before the High Court is an attempt to delay thefulfillment of the obligation to pay 80 per cent of the debt due despite theentirety of Project No 1 having been handed over. A similar reply wasalso filed by RMGSL.C27. An affidavit was also filed before the High Court by CAG inresponse to the objections filed by HMRTC. In its affidavit dated 28October 2020, CAG noted:

A

A

“That the scope of financial audit of debt due suggested by boththe parties was examined by CAG being the ConstitutionalDauthority, and after due consideration, decided the scope of auditof debt due to be conducted and further it was decided that CAGwill examine only those issues, that are related and relevant toexamination of the debt due as per the concession agreements. Itwas also decided that the issues mentioned in the scope providedEby the HMRTC like encumbrances and liabilities on the said metroprojects, shareholdings/share in valuation of the assets of theconcessionaire companies, change of shareholding rights, criminalacts & liabilities etc. which have been inflicted on the companyare not related to the present audit. These issues as well as otherissues which may have impact on the viability of the project ofFrelate to criminal acts etc, as stated by the HMRTC can be gotaudited/examined by HMRC through other agencies or through aseparate forensic audit. These facts and scope of audit decidedby CAG was duly submitted in this Hon’ble Court vide AdditionalAffidavit dated 19.11.2019 submitted along with CM No. 17584Gof 2019 in CM No. 15397 of 2019.”

CAG further noted in the course of its affidavit that it had ensured that:

(i) The firm appointed for conducting the audit had no conflictof interest with RMGL/RMGSL or any group companyHof the IL&FS group;

(ii) After the auditors had conducted the audit of the debt due,it was examined by the office of the CAG to ensure thatthe financial audit had been conducted and completed interms of the scope of audit submitted before the High Courton 19 November 2019;

(iii) The auditors had completed the financial audit of the debtdue in terms of the Concession Agreements;

(iv) The draft audit report was submitted to both the parties byemails dated 19 February and 24 February 2020, which wasfollowed up with reminders on 18 March and 20 April 2020;

(v) Since no response had been received from HMRTC andthe State government, the report of the financial audit wasfinalised and submitted in a sealed cover to the High Court;

(vi) The objection that the audit report was incomplete andinconclusive did not hold any substance. In that context,CAG stated:

“11, That the objections/response, as submitted vide affidavitdated 11.10.2020 has been considered and the same does nothold any substance on account of the following facts:

1) CAG of India, being constitutional authority, decided thescope of audit of debt due in terms of concession agreementand the same was also submitted to the High Court on20.11.2019.

2) This is a financial audit of debt due and has been performedby the auditors M/s, SARC and Associates as per the limitedscope of audit. The Auditors have reported their findings asper the limited scope to arrive at the amount of debt due interms of the applicable Concession Agreements. The amountof debt due has been worked out after examination ofdocuments as well as verification of records, whereverrequired.

3) The draft report was shared with the HMRTC but it did notrespond despite repeated requests. So the CAG wasconstrained to finalise the report without the response ofHMRTC.

A

B

C

D

E

F

G

H

A4) The issues pointed out like reconstitution of Board of ParentCompany IL&FS and investigation against its officers byEnforcement Directorate, FIR lodged by Economic offencewing, issue of income tax notice to group company, investigationby SFIO etc. are matter of investigation / forensic audit anddoes not form part of financial audit. It was categoricallyBinformed to the High Court that issues relating criminal actsetc, can be got audited/examined by HMRTC through otheragencies or through separate forensic audit.

5) Although the debt due has been worked out as on 08September 2019, the Report was neither required nor delveCupon / comment upon which party’s ‘Event of default’occurred.”

CAG has thus submitted that the report of the financial audit ofthe debt due “is complete and conclusive as per the scope of audit asdecided by CAG” and stands submitted to the High Court on 19DNovember 2019 on affidavit.

28. On 12 October 2020, the Division Bench of the High Courtnoted the affidavit that had been filed by the Advisor (Planning) HMRTCand took the affidavit on record, while also noting the submission ofRMGL and RMGSL that the matter “does not brook any delay”. TheEhearing was then adjourned to 16 October 2020 to facilitate filing ofreplies. The proceedings then came up before the High Court on 16December 2020, when on the request of the counsel for the petitionersbefore the High Court (HMRTC and the State of Haryana), the hearingwas deferred to 8 April 2021.F29. At this stage, the appellants filed Special Leave Petitionschallenging orders dated 12 October 2020 and 16 December 2020 passedby the High Court. The order of this Court dated 5 February 2021 issuingnotice is extracted below:

“1 Mr Mukul Rohatgi and Mr Puneet Bali, learned Senior CounselGappearing on behalf of the petitioners, submit that:

(i) The High Court, by its order dated 20 September 2019(Annexure P-8), directed the CAG to prepare a report onthe debt which is due to the petitioners and 80% of the debtwas directed to be deposited in an Escrow account withinHthirty days of the report; RAPID METRORAIL GURGAON LTD. ETC. v. HARYANA MASS RAPIDTRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

(ii) Any dispute arising out of the CAG report was to be decidedAin an arbitration proceedings;

(iii) The CAG report was submitted on 23 June 2020; and

(iv) Though 80% of the debt due, as determined by the CAG,was required to be deposited in an Escrow account withinBthirty days, this has not been carried out and the High Courthas simply adjourned the proceedings to 23 April 2021.

2. Mr Mukul Rohatgi submitted that the dues which are to bedeposited in the escrow account will be to the benefit of thesecured creditors of the petitioners who form a part of theInfrastructure Leasing & Financial Services Limited group ofcompanies presently under the management of a Board ofDirectors constituted by the Union Government.

C

3. Issue notice, returnable on 22 February 2021.

4. Dasti, in addition, is permitted.”

D

30. On 22 February 2021, two financial institutions, Andhra Bankand Canara Bank, were permitted to file their responses. The SpecialLeave Petitions were listed thereafter, and have been taken up for finaldisposal. We have heard Mr Mukul Rohatgi and Mr Puneet Bali, learnedSenior Counsel appearing on behalf of the appellants, Mr Tushar Mehta,learned Solicitor General appearing on behalf of the respondents and MrDhruv Mehta, learned Senior Counsel appearing on behalf of AndhraBank and Canara Bank.

E

B Submissions of counsel

31. Mr Mukul Rohatgi and Mr Puneet Bali, learned Senior Counselappearing on behalf of the RMGL and RMGSL, submitted that:

F

(i) The directions contained in the order of the High Courtdated 20 September 2019 are by consent of parties, theHigh Court having recorded that a consensus had beenarrived at in the presence of senior officials of the contestingGparties;

(ii) The appointment of CAG has to be understood in thebackdrop of the earlier orders of the High Court dated 9September 2019 and 18

H

ASeptember 2019, which highlighted the concerns of RMGLand RMGSL that in terms of the Concession Agreementsbetween the parties 80 per cent of the debt due was requiredto be deposited as termination payment by HSVP;

(iii) Responding to these concerns, HMRTC and HSVP hadBagreed to the proposed appointment of an auditor fordetermination of the debt due, and proposed the referenceto CAG. HMRTC and HSVP specifically committed tocomplying with the orders that may be passed by the HighCourt, NCLAT or any other legal proceedings; C(iv)The Metro Rail Projects, Projects No 1 and Project No 2,which were undertaken by RMGL and RMGSL werefunded by a consortium of banks and finance was madeavailable subject to execution of:

a. Consortium Agreement;

D

b. Escrow Agreement;

c. Debt Due Agreement; and

d. Financial documents;

(v) The object and purpose hence was to secure the dues ofEthe banks and financial institutions;

(vi) Article 24.4 of the Concession Agreement dated 9December 2009 contains specific provisions in the event ofa termination by HSVP, while Article 24.5.2 containsprovisions in the event that it is terminated by theFconcessionaire, RMGL;

(vii) The requirement of depositing 80 per cent of the debt duein an Escrow Account is to protect the interest of the banksand financial institutions which were involved in fundingthe Projects; G(viii) In pursuance of the order passed by Justice D K Jain, theProjects were handed over to HMRTC and the petitioneragreed to run the Metro Rail despite the termination in viewof the necessity to avert disruption of metro services;

(ix) The order dated 20 September 2019 was passed by theHHigh Court based on consent of parties, under which:

a.RMGL/RMGSL were to continue the operation andAmaintenance of the metro lines for 30 dayscommencing from 16 September 2019, during whichperiod the process of transfer of control andmanagement of the operation and maintenance ofboth the metro links was to commence; B

b.The debt due was to be determined by the CAG interms of the Concession Agreements;

c.Upon the determination by the CAG, 80 per cent ofthe debt due was to be deposited by HSVP in anEscrow Account subject to the order of NCLT orany other statutory authorities within 30 days of thereceipt of the audit report; and C

d.All other disputes were to be decided in arbitrationproceedings, as provided in the ConcessionAgreements.

D

(x) Once a report has been submitted by CAG, there was nooccasion for HMRTC to raise any objections, since 80 percent of the debt due was required to be deposited in anEscrow Account within 30 days;

(xi) The High Court has no jurisdiction to reopen the terms of aEconsent order;

(xii) The CAG submitted the scope of audit to the High Court.Right from the inception, it was evident that the audit wasto be carried out for determining the debt due in terms ofthe Concession Agreements. CAG has specifically clarifiedin the affidavit filed before the High Court that the audit isneither incomplete nor inconclusive and that the objectionswhich have been raised by HMRTC are without anysubstance; F

(xiii) On the above facts which have been submitted, RMGL/RMGSL have handed over the entire assets consisting ofthe rapid metro links to HSVP. The ground that there is anFIR against the IL&FS group of companies cannot furnisha valid basis for defeating a contractual obligation to deposit80 percent of the debt due in Escrow Account, which has G

H

been confirmed by the consent order of the High Court.The amount will not be paid over to either RMGL/RMGSLbut would be deposited in an Escrow Account with Andhrabank and Canara bank, which are public financial institutions.The amount deposited would abide by the ultimate directionsof the NCLT or any other statutory authority; and A

B

(xiv) No charge sheet has been filed as against one of thecompanies.

32. Mr Tushar Mehta, learned Solicitor General appearing onbehalf of the respondents, on the other hand, submitted that:

C

(i) Investigations are underway in respect of the IL&FS groupof companies, and as a matter of fact both RMGL andRMGSL have been classified as ‘red entities’:

(ii) FIR No 253 was registered on 6 December 2018, in whichRMGL and RMGSL have been named as accused nos 21Dand 22, and there are specific allegations of fake invoicesand that the cost of projects implemented by them was higherthan for DMRC projects, resulting in losses being incurred;

(iii) Subsequent to the original order of the High Court dated 20September 2019, a modification was effected on 4 OctoberE2019, in terms of which it was envisaged that CAG wouldappoint a team of auditors to conduct a financial audit ofthe debt due, with the assistance of the auditors appointedby the parties to the lis. CAG was to hence examine thescope of the audit of the debt due suggested by HSVP interms of the Concession Agreements; F

(iv) The reports submitted by the auditors appointed by CAGindicate that the audit was limited in nature, confined toascertaining the debt due under the Concession Agreements.On the other hand, the conclusions in the audit reports woulddemonstrate that “other matters had come to the attentionGof the auditors which could have significant impact on thedebt due”;

(v) The detailed objections filed by HMRTC would indicatethat the audit is incomplete and incomprehensive; and H

(vi) Since the proceedings are pending before the High Court,there is no reason for the appellants to move this Court,and the objections raised by HMRTC to the audit reportswould have to be determined on their merit.

33. Mr Dhruv Mehta, learned Senior Counsel appearing on behalfof the Canara Bank and Andhra Bank, submitted that on the request ofRMGSL, the consortium led by Canara Bank provided facilities inaggregate of Rs 1,500 crores in the form of a Rupee Term Loan Facilityunder a Common Loan Agreement dated 26 March 2013. Thereafter,RMGSL also availed the External Commercial Borrower as well asDerivate Facility. Hence, on the basis of supplementary documentsexecuted on 29 September 2014, a sum of Rs 1,109 crores was availedof by RMGLS from the Senior Lenders, Rs 391 crores from IndiaInfrastructure Finance Company (UK) Limited, ECB Lenders (formingpart of Senior Debt) as well as USD 30 million from IndusInd BankLimited, being the Derivate Facility Lender. As such, an Escrow AccountAgreement dated 2 July 2013, read with Supplementary Agreementsdated 15 January 2014 and 24 September 2014, was executed betweenRMGSL, HSVP and Canara Bank, under which Canara Bank wasappointed as the Escrow Agent. It was stated that as on 31 July 2019,the lenders of RMGSL had an outstanding claim of Rs 1651 crores approx.Hence, on termination of the Concession Agreement dated 3 January2013 by “HUDA”, now HSVP, under Article 32.4 of the ConcessionAgreement dated 3 January 2013, an amount of 80 per cent of the debtdue has to be paid to the lenders of Project No 2. The lenders had fileda reply before Justice D K Jain stating that they had no objection of thehanding over of the assets to HMRTC, subject to the deposit of theamount due to the lenders in an Escrow Account. Hence, the debt duehaving now been determined in terms of the audit report, it has to bedeposited in the Escrow Account maintained by Canara Bank. Similarly,the consortium led by Andhra Bank provided credit facilities for ProjectNo 1 to RMGL, and maintained a similar Escrow Account. In theaffidavit submitted by Andhra Bank, it was noted that the debt due to allthe members of the consortium led by Andhra Bank was Rs 943 croresapprox.

34. It was submitted by both the Banks that the Projects werecompleted by utilizing funds from the lenders, who are biggeststakeholders. On the other hand, HMRTC and HSVP have taken A

B

D

E

F

G

H

Apossession of the Projects, and are utilizing the revenue from DMRC.Supporting the contents of the affidavits filed by Canara Bank and AndhraBank, Mr Dhruv Mehta urged that 70 per cent of the Projects’ cost iscomprised within debt. Hence, the deposit of 80 per cent of the debt dueamounts only to 56 per cent of the Projects’ cost. Further, the amountcoming to the Escrow Accounts would be subject to the orders of theBNCLAT. It has been submitted that the amount, upon deposit in EscrowAccounts, will be in the hands of the nationalized banks which havefinanced the Projects.

35. The rival submissions will now be considered.

CC Analysis of the Concession Agreements

36. At the outset, it is necessary to advert to some of the salientfeatures of the Concession Agreements. For the purposes of thediscussion, we are referring to the terms of the Concession Agreementdated 9 December 2009, but similar terms are also present withinDConcession Agreement dated 3 January 2013. The expression ‘debt due’is defined in Article 1.1 of the Concession Agreement dated 9 December2009 in the following terms:

“Debt Due” means the aggregate of the following sumsexpressed in Indian Rupees outstanding on the Transfer Date:

E(a)the principal amount of the debt provided by the SeniorLenders under the Financing Agreements for financing theTotal Project Cost (the “Principal”) but excluding any partof the Principal that had fallen due for repayment two yearsprior to the Termination Date;

F(b)all accrued interest, financing fees and charges payableunder the Financing Agreements on, or in respect of, thedebt referred to in Sub-clause (a) above until the TransferDate but excluding (i) any interest, fees or charges thathad fallen due one year prior to the Transfer Date, (ii) anypenal interest or charges payable under FinancingGAgreements to any Senior Lender, and (iii) any pre-paymentcharges in relation to accelerated repayment of debt exceptwhere such charges have arisen due to Authority Default;and H

(c) any Subordinated Debt and all accrued interest thereon,which is included in the Financial Package and disbursedby Lenders for financing the Total Project Cost as per theFinancing Documents.”

The above expression indicates that the term debt due comprisesof three components:

(i) The principal amount of the debt provided by the seniorlenders under the financing agreement;

(ii) All accrued interest, financing fees and charges payableunder the financing agreement; and

(iii) Any subordinated debt which is included in the financialpackage.

37. In terms of Article 3.1, HUDA granted to the concessionairethe exclusive right, license and authority during the subsistence of theConcession Agreement to implement the project and the concession overa period of 99 years. Under Article 17.1, the concessionaire was toprovide to HUDA a copy of the financing package furnished by it to theprospective lenders. As and when the financing package was agreedupon by the lenders and the Concession Agreement was confirmed bythe signing of the agreed financing package by both the concessionaireand the lenders, a copy was required to be furnished to HUDA forthwith.Financial closure was to be completed within six months within the signingof the Concession Agreement, with a cure period of six months, failingwhich all rights and claims under the Concession Agreement were tostand waived. Article 18 provides for an Escrow Account into which allfunds, which constitute the financing package for meeting the capitalcost of the concessionaire, are to be deposited. During the operationalperiod, all fare and non-fare revenues were also to be depositedexclusively in the Escrow Account by the concessionaire. Article 18.2.1provided for the disbursement from the Escrow Account, which includeddebt service payments due to the senior lenders. Article 18 insofar as isrelevant is extracted below:

“ARTICLE 18

ESCROW ACCOUNT

18.1 Opening of Escrow Account and Deposits into EscrowAccount On Financial Close, (in any case not later than 30 days A

B

C

DE

F

G

H

SUPREME COURT REPORTS

of financial close) the Concessionaire shall open and establish theEscrow Account with a Bank (the “Escrow Bank”) and ail fundsconstituting the Financing Package for meeting theConcessionaire’s capital costs shall be credited to such EscrowAccount During Operations Period all Fare and Non-FareRevenues collected by the Concessionaire shall be exclusivelydeposited therein, separately.

A

B

18.2 Disbursements from Escrow Account

18.2.1 The Concessionaire shall give, at the time of the openingof the Escrow Account, irrevocable Instructions by way of anCEscrow Agreement substantially in form set forth in Schedule ‘F’(the “Escrow Agreement’) to the Escrow Bank instructing, interalia, that the deposits Into the Escrow Account shall, beappropriated in the following order every month and if not due ina month then appropriated proportionately in such month andretained in the Escrow Account and paid out there from in theDmonth when due unless otherwise expressly provided in theinstruction latter:

(i) All taxes due and payable by the Concessionaire

(ii) All Lease charges payable to HUDA as per LeaseAgreement E

(iii) All expenses in connection with and relevant to theConcessionaire’s Works by way of payment to the EPCContractor and such other persons as may be specified inthe Financing Documents F

(iv) O&M Expenses subject to the ceiling, if any set forth in theFinancial Documents

(v) Connectivity charges and Revenue Share due to HUDAfrom the Concessionaire under this Concession Contract

(vi) Monthly proportionate provision of debt service paymentsGdue to Senior Lenders in an accounting year and paymentof Debt Service Payments to Senior Lenders in the monthwhen due

(vii) Debt service payment in respect of Subordinate Debt; H

(viii) Any reserve of requirements required to be settled in termsof financial document.

(ix) Balance in accordance with the instructions of theConcessionaire.

18.2.2 The Concessionaire shall not in any manner modify theorder of payment specified in Sub-Article 18.2.1 except with theprior written approval of HUDA

18.3 Notwithstanding anything to the contrary contained in theEscrow Agreement and subject to the provisions contained in Sub-Articles 25.5 and Article 27, upon Termination of this ConcessionContract, all amounts standing to the credit of the Project EscrowAccount shall be appropriated and dealt with in the following Order:

(a) all Taxes due and payable by the Concessionaire (b) all Connectivity charges / non-fare revenue share due andpayable to HUDA under this Concession Contract

(c) all accrued Debt Service Payment

(d) any payments and Damages due and payable by theConcessionaire to HUDA pursuant to this Concession Contract,including Termination claims (e) all accrued O&M Expenses; (f) any other payments required to be made under this ConcessionContract; and (g) balance, if any, on the instructions of the Concessionaire.

18.4 The instructions contained in the Escrow Concession Contractshall remain in full force and effect until the obligations set forthIn Sub-Article 18.3 have been discharged,”

38. Article 24 provides for termination. Article 24.1.1 sets downevents of default on the part of the concessionaire. According to Article24.4:

“24.4 Upon Termination by HUDA on account of occurrence ofConcessionaire Event of Default during the Operations Period,the HUDA shall take over the complete system (all ProjectAssets), HUDA shall pay the Lenders of the Project, as per A

B

C

D

E

F

G

H

Afinancial documents, an amount equal to 80% of debt “due, asTermination payment. No termination payment shall be due orpayable on account of Concessionaire’s default occurring prior toCOD.”

39. Article 24.5.2 provides for the consequences of terminationBby the concessionaire, due to a default by HUDA:

“24.5.2 Upon Termination by the Concessionaire on account ofan HUDA Event of Default, HUDA shall take over the completesystem (all Project Assets) and the Concessionaire shalt be entitledto receive from HUDA by way of Termination Payment a sumCequal to :

(a) Debt due

(b) 110% of the Adjusted Equity”

Accordingly, where the Concession Agreement has beenDterminated by HUDA on account of a default by the concessionaire,HUDA was required to take over the complete project and assets, andto pay to the lenders of the Project, as per the financing documents, anamount equal to 80 per cent of the debt due as termination payment.Where on the other hand, the termination is by the concessionaire onaccount of a default by HUDA, the concessionaire was entitled to receiveEby way of a termination payment, a sum equal to:

(a) The debt due; and

(b) 110 per cent of the adjusted equity.

Article 24.7 which provides for the termination payments readsFas follows:

“24.7 Termination Payments: The Termination Paymentpursuant to this Concession Contract shall become due and payableto the Concessionaire by HUDA within thirty days of a demandbeing made by the Concessionaire with the necessary particularsGduly certified by the Statutory Auditors. If HUDA fails to disbursethe full Termination Payment within 30 (thirty) days, the amountremaining unpaid shall be disbursed along with interest anannualised rate of SBI PLR plus two per cent for the period ofdelay on such amount.”

H

RAPID METRORAIL GURGAON LTD. ETC. v. HARYANA MASS RAPIDTRANS. CORP. LTD [DR. DHANANJAYA Y CHANDRACHUD, J.]

40. Article 30 of the Concession Agreement provides for disputeresolution.

Article 30.2 contains an arbitration agreement, which reads asfollows:

“30.2 Arbitration

30.2.1 Dispute Due For Arbitration

Disputes or differences shall be due for arbitration only if all theconditions in Sub- Article 30.1 are fulfilled.”

D Terms of the consent order dated 20 September 2019passed by the High Court

41. Pursuant to the petition filed under Section 241(2) read withSection 242 of the Act of 2013 before the NCLT, the Board of IL&FSwas superseded on 1 October 2018, with a new Board appointed on therecommendations of the Central government. On 6 December 2018, anFIR No 253 was registered by the Economic Offences Wing. As pointedout by the Solicitor General, RMGL and RMGSL were named asaccused nos 21 and 22 in the FIR, the allegation being in respect of theprocuring of fake invoices, as a result of which the cost of projectsimplemented were alleged to be higher than those implemented byDMRC, resulting in the rapid metro link projects at Gurgaon incurringlosses. RMGL and RMGSL, which belong to the IL&FS group ofcompanies, were thus classified as “red entities”. On 4 February 2019,Justice D K Jain was appointed by the NCLT to supervise the resolutionprocess for the IL&FS group. On 7 June 2019, RMGL issued a noticefor the termination of the Concession Agreement dated 9 December2009 to HSVP under Article 24.5.1, with the period of notice being 90days. A similar notice of termination was issued by RMGSL in terms ofArticle 32.5.1 of Concession Agreement dated 3 January 2013. RMGLand RMGSL addressed communications on 1 August 2019 to HSVPfor completing the handover of the rapid metro link Projects. On 26August 2019, HMRTC issued a notice of termination to RMGL interms of the Articles 24.1 and 24.2 of the Concession Agreement dated9 December 2009. A similar notice was issued to RMGSL. In the interim,Justice D K Jain was moved by RMGL and RMSL to grant his approvalto the handing over of possession of the rapid metro link Projects. By hisorder dated 6 September 2019, Justice D K Jain permitted RMGL and A

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C

DEF

G

H

ARMGSL to handover possession and control of the rapid metro linkProjects to HSVP on or before 9 September 2019. HMRTC and HSVPthen moved the High Court in writ proceedings under Article 226 of theConstitution seeking:

(i) Writ of certiorari for quashing the notices of terminationBdated 7 June 2019, on the ground that there was nopermission of the competent authority appointed by theNCLAT, and that it was against the public interest becausethe rapid metro project of Gurgaon, which was operationalsince 2013, would come to a halt on 8 September 2019; and C(ii)A writ of mandamus directing that the notice period of 90days would commence only from the grant of the permissionby the NCLAT.

42. Taking note of the order passed by Justice D K Jain, the HighCourt by its order dated 6 September 2019 directed RMGL and RMGSLDto continue the operation of the rapid metro rail till the midnight of 9September 2019. On 9 September 2019, the High Court observed thatthe dispute between the parties would have to be resolved by negotiations,and hence the order of stay, under which the rapid metro rail projectswere to be continued in operation by RMGL and RMGSL, was continuedtill midnight of 17 September 2019. From the order of the High CourtEdated 9 September 2019, it is evident that RMGL and RMGSL, whilereferring to the terms of the proposed discussion which HMRTCHSVP, catalogued inter alia:

(a) A time bound handover of the project to HSVP andcorresponding commitment for taking it over by HSVP; and F

(b) A commitment to pay at least 80 per cent of the debt dueas termination payment to RMGL and RMGSL by HSVP.

43. On 18 September 2019, the appellants proposed that they wouldcontinue to operate the metro link Projects until 16 October 2019, duringwhich period the debt due under the financing documents, in terms ofGthe Concession Agreements, may be determined by an auditor to beappointed by the High Court. Further, the process for transfer of therapid metro link Projects was to be supervised by two former judges ofthe High Court. Both the appellants specifically stated that this proposalwas subject to the condition that once the debt due is determined, HSVPHmust deposit 80 per cent of the debt due as determined in an Escrow Account in terms of the Concession Agreement, Escrow Agreementand Substitution Agreement. This proposal, it was clarified, was made tosafeguard the interest of the public sector lenders of the Projects.Responding to the above proposal of the appellants, HMRTC and HSVPspecifically stated in their written responses that:

(i) An agreement had been entered into with DMRC on 16September 2019 for operation and maintenance of the rapidmetro lines;

(ii) As regards the ascertainment of the debt due, this was linkedto the definition of the expression under ConcessionAgreements;

(iii) HMRTC/HSVP agreed with the proposal of RMGL/RMGSL that an auditor may be appointed to ascertain theactual figures, and stated that the CAG may be entrustedwith the assignment to ascertain financial aspects anddetermining the over invoicing of the Projects; and

(iv) The deposit of 80 per cent of the debt due as determined inan Escrow Account would depend on the outcome of thereport of the auditor, and HMRTC and HSVP “commitand confirm to adhere to the directions as would be passedby the Hon’ble High Court or NCLAT or any other Courtor any other order under any other legal proceedings passedby any other competent authority” in terms of theConcession Agreements.

44. The above course of events indicates that the entire orderwhich was passed by the High Court on 20 September 2019 was theoutcome of sustained negotiations which took place between RMGLand RMGSL on the one hand, and HMRTC and HSVP on the other,commencing from the invocation of the writ jurisdiction under Article226. Now, it is significant to note that recourse to the proceedings underArticle 226 was taken by HMRTC/HSVP, which challenged thetermination notice and sought the continuation of the operation of therapid metro lines at Gurgaon, which were under imminent threat ofclosure, once the notice period expired on 8 September 2019. Thenarration of events would make it abundantly clear that initially as aresult of the order of stay granted by the High Court on 6 September2019, and thereafter consequent upon mutual discussions, RMGL/

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ARMGSL agreed to operate the rapid metro link Projects until 16 October2019, within which period the handover to DMRC would take place.Equally, the concerns by RMGL/RMGSL, as concessionaires, was thatin terms of the Concession Agreements, 80 per cent of the debt due hadto be deposited in the Escrow Account in terms of the provisions containedin Article 24.4 in Concession Agreement dated 9 December 2009. AllBthe parties specifically agreed before the High Court that there wouldbe a reference to the CAG for conducting an audit for the purpose ofdetermining the debt due. The High Court by its order dated 20 September2019, issued directions which were specifically noted to be emanatingfrom the “consensus...arrived at in the presence of senior officers ofCboth the parties” namely Mr D Suresh, IAS, Managing Director,HMRTC, Chief Administrator, HSVP, Mr Rajiv Banga, ManagingDirector, RMGL and Director, RMGSL. The consensual order passedby the High Court envisaged that:

(i) RMGL and RMGSL would continue to operate the rapidDmetro lines for 30 days from 16 September 2019;

(ii) The transfer of the rapid metro lines would be overseen bytwo former judges of the High Court;

(iii) The debt due as defined under the Concession Agreementswould be determined under the auspices of the CAG whoEwould appoint a team of auditors “for the financial audit ofthe debt due and for examining the scope of the audit of thedebt due audited by the HSVP with the assistance of theauditors appointed by the parties to the lis”;

(iv) The process of audit would be completed within 30 days,Fand 80 per cent of the debt due determined by the auditreport shall be deposited by HSVP in an Escrow account,which would be subject to the orders of the NCLAT or anyother competent statutory authority, within a period of 30days of the receipt of the report; and

(v) The rest of the disputes between the parties arising out theGaudit report, would be agitated and decided in arbitrationproceedings, which was a mode already provided in theConcession Agreements.

45. Clause (ii) of the directions contained in the High Court’sconsent order dated 20 September 2019 makes it abundantly clear thatH

the audit team appointed by CAG was to conduct a financial audit of thedebt due and to examine the scope of the audit. The next importantaspect of the consent order is the time bound process which wasenvisaged, with the audit being completed within 30 days and 80 percent of the debt due being deposited within 30 days after the receipt ofthe audit report. The final aspect which needs to be emphasized is thatthe rest of the disputes between the parties arising out of the audit reportwere to be agitated in arbitration.

46. This would leave no manner of doubt that parties clearlyunderstood that once the debt due was ascertained in terms of the auditreport, 80 per cent would be deposited by HSVP in the Escrow Accountwhile the rest of the disputes in respect of the audit report would begoverned by arbitration. A time of 30 days was envisaged for deposit theamount in Escrow Account, upon the receipt of the audit report.Subsequent to the order dated 20 September 2019, another order waspassed by the High Court on 4 October 2019. Clause (ii) of the earlierorder was substituted. As substituted, it was envisaged that the auditorswould also have to examine the scope of the audit of the debt duesuggested by HSVP. Hence, CAG would also examine the scope of theaudit of the debt due suggested by HSVP in terms of the ConcessionAgreements. Moreover, it was envisaged that the rest of the disputeeither arising out of the CAG report, the validity of the termination noticesissued by both the parties and any past or future claims/liabilities interse would be agitated in arbitration. On 15 October 2019, there was afurther clarification by the Division Bench that CAG would examine thescope of the audit of the debt due suggested by both the parties in termsof the Concession Agreements. Thus, it was understood by both theparties that the determination of the debt due would be in terms of theConcession Agreements. CAG specifically placed before the High Courtits understanding of the role to be performed by it. In its written statementbefore the High Court on 19 November 2019, CAG stated that it haddecided to appoint an auditor “for the financial audit of debt due as onthe transfer date”. The terms as envisaged define the scope of the workof the auditor to be:

(i) Verification of the debt due with reference to the termsand conditions of the Concession Agreements and allfinancing agreements/documents which have a bearing onthe computation of the debt due; AB

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A(ii)Verification that all funds constituting the financial packageboth debt and equity, for meeting the capital cost had beencredited and received in the Escrow Account;

(iii) Verification that the funds of the financial package wereused for the project assets as defined in the ConcessionBAgreements and their impact on the debt due;

(iv) Verification that all non-fare revenues were duly accountedand that all fare revenues were deposited in the EscrowAccount;

(v) Verification that the amounts standing to the credit in theCEscrow Account had been appropriated in the orderprescribed in the Escrow Agreement;

(vi) Verification that all other receipts and payments were routedthrough the Escrow Account, together with the review ofall other bank accounts maintained/operated by theDappellants; and

(vii) Information in the annual reports of the appellants wasarrived at by following the applicable standards andguidelines.

E Obligations of HMRTC and HSVP to pay the debt dueE

47. HMRTC and HSVP, as well as the appellants, were apprisedat all material times of the work of audit being handed over by CAG toa firm appointed by it. On 24 February 2020, a draft report of the financialaudit of the debt due of RMGL/RMGSL was sent to the PrincipalSecretary to the Government of Haryana in the Department of TownFand Country Planning. HMRTC was requested to communicate itsresponse on behalf of the State government, so that it could be incorporatedin the report. On 27 February 2020, HSVP sought four weeks at theleast, in view of the ongoing Session of the State Legislative Assembly.The Accountant General Audit, Haryana followed up the earlier emailGby subsequent communications dated 18 March 2020 and 22 April 2020.By the later communication on behalf of CAG, the response of the Stategovernment was requested to be furnished before the deadline of 29April 2020, failing which the report would be finalized without includingtheir response. HMRTC, HSVP and the State government, however,did not furnish their response to the draft report. Eventually, the auditH

reports were finalised in respect of the debt due under the ConcessionAgreements with RMGL/RMGSL respectively, and were placed beforethe High Court in sealed cover. Following the opening of the sealedcover on an application by the appellants, an objection was raised in theform of an affidavit by HMRTC on 10 October 2020, as noticed in theearlier part of this judgment. According to HMRTC, the audit reportwas inconclusive and incomplete, since several aspects which will havean impact on the debt due remain to be determined. Now, at this stage,it is necessary to note that the auditors stated that the scope of the auditas decided by CAG was submitted to the High Court on 19 November2019, and it was intimated that only those issues which are relevant andrelated to examining the debt due under the Concession Agreementswould be examined. Hence, other issues mentioned by HMRTC, suchas encumbrances and liabilities on the metro project, shareholding/sharein the valuation of the assets of the concessionaire, change of shareholdingrights, criminal acts and liabilities, would require forensic and technicalaudit. It is important to note that such audits are ongoing independently.The audit conducted by the auditors appointed by the CAG herein, waslimited to examining the debt due as defined in the ConcessionAgreements. While arriving at the principal and interest component ofthe debt due, the auditors indicated that other matters had come to theirattention, which can have a significant impact on the debt due, and thatthe report was subject to the outcome of such matters. These included:

(i) An entity specific forensic audit which is conducted by thelenders;

(ii) The order passed by NCLT on 1 January 2019 for reopeningand recasting the accounts of IL&FS and two of itssubsidiaries (INTL and IFIM);

(iii) The initiation by the new Board in January 2019 of third-party forensic examination for the period between April 2013to September 2018 in relation to certain companies of thegroup; and

(iv) The sub-contracting by IRL of nine packages to variousrelated and unrelated parties including companies, withirregularities pointed in a notice to show cause issued bythe Income Tax department on 15 November 2018.

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AIndeed, the submission of the learned Solicitor General that theaudit under the auspices of the CAG is incomplete and inconclusive isbased on the above statements contained in the audit report noticingother matters which may have a bearing on the debt due.

48. Now the issue before the Court in this backdrop is whetherBthe consequences envisaged in the consent order of the High Courtdated 20 September 2019 can stand obviated on the above grounds. Atthe very outset, it is important to note that the FIR in respect of IL&FSgroup of companies was lodged on 6 December 2018. The terminationnotices of June and August 2019, and the institution of the writproceedings, took place thereafter. Evidently the appellants on the oneChand, as well as HSVP/HMRTC on the other, were conscious of thedevelopments which were taking place in respect of the IL&FS groupof companies in the proceedings before Justice D K Jain on 19 August2019. When the consent order was passed before the High Court, HSVPwas represented by counsel as well as the Chief Administrator of HSVPDand Managing Director of HMRTC who were also present. The financialinstitutions including Andhra Bank were also in appearance. The consentorder before the High Court on 20 September 2019 was also precededby mutual discussions between the parties and the exchange of writtenproposals. which have been referred to expressly by the High Court.The consent order of the High Court envisages:E

(i) The manner in which the expression ‘debt due’ would bedetermined;

(ii) The manner in which the scope of the audit report wouldbe prescribed; and F(iii)The consequence of the determination by the auditors tobe appointed by the CAG.

49. Clause (ii) of the order dated 20 September 2019 makes itabundantly clear that the basic purpose underlying the entrustment ofthe reference to the CAG was the determination of the debt due “asGdefined under the Concession Contract”. The High Court, it must beemphasized, was seized of a proceeding under Article 226 of theConstitution, and its writ jurisdiction had been invoked to challenge thenotices of termination issued by RMGL and RMGSL, and for ensuringthat the consequence which would emanate on the expiry of the noticeperiod of 90 days by the cessation of the metro operations could beH

prevented by the judicial intervention in the course of the public lawjurisdiction. The issuance of a notice of termination, the consequenceswhich would ensue, and the resolution of disputes is specifically providedin the arbitration agreement between the parties, which is an intrinsicpart of the Concession Agreements. Hence, there was an evidentinterface between this element of public interest on the one hand andthe contractual rights of the parties to the Concession Agreements onthe other. However, when HMRTC and HSVP moved the High Courtunder Article 226, they did so in view of the impending threat which waslooming large on the horizon of the rapid metro operations being broughtto a standstill as a result of the proximate expiry of the notice of 90 dayspreceding termination. In Sanjana M. Wig vs Hindustan PetroleumCorporation Limited[6], a two judge Bench of this Court, speakingthrough Justice S B Sinha, has observed:

“12. The principal question which arises for consideration is as towhether a discretionary jurisdiction would be refused to beexercised solely on the ground of existence of an alternative remedywhich is more efficacious…

13. However, access to justice by way of public law remedywould not be denied when a lis involves public law characterand when the forum chosen by the parties would not be in aposition to grant appropriate relief.

[…]

18. It may be true that in a given case when an action of the partyis dehors the terms and conditions contained in an agreement asalso beyond the scope and ambit of the domestic forum createdtherefor, the writ petition may be held to be maintainable; butindisputably therefor such a case has to be made out. It may alsobe true, as has been held by this Court in Amritsar Gas Service[(1991) 1 SCC 533] and E. Venkatakrishna [(2000) 7 SCC 764]that the arbitrator may not have the requisite jurisdiction to directrestoration of distributorship having regard to the provisionscontained in Section 14 of the Specific Relief Act, 1963; but whileentertaining a writ petition even in such a case, the court may notlose sight of the fact that if a serious disputed question of fact isinvolved arising out of a contract qua contract, ordinarily a writ A

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Apetition would not be entertained. A writ petition, however, willbe entertained when it involves a public law character orinvolves a question arising out of public law functions on the partof the respondent.”

(emphasis supplied)

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In the present case, the High Court was evidently concerned overa fundamental issue of public interest, which was the hardship that wouldbe caused to commuters who use the rapid metro as a vehicle for masstransport in Gurgaon. As such, the High Court’s exercise of its writjurisdiction under Article 226 in the present case was justified since non-Cinterference, which would have inevitably led to the disruption of rapidmetro lines for Gurgaon, would have had disastrous consequences forthe general public. However, as a measure of abundant caution, weclarify that ordinarily the High Court in its jurisdiction under Article 226would decline to entertain adispute which is arbitrable[7]. Moreover,remedies are available under the Arbitration and Conciliation Act, 1996Dfor seeking interim directions either under Section 9 before the Courtvested with jurisdiction or under Section 17 before the Arbitral Tribunalitself.

50. It is also important to note that the termination of theConcession Agreements had consequences in terms of the provisionsEcontained in the Agreement requiring a deposit of 80 per cent of the debtdue under Article 24.4. The contesting parties agreed to an independentthird-party determination of this amount by a neutral entity, namely theCAG. The primary function of CAG was to appoint a team of auditorsfor conducting a financial audit of the debt due and in that process ofFalso examine the scope of the audit. The orders dated 4 October 2019and 15 October 2019 issued by the High Court also envisaged that CAGwould examine the scope of the audit. While the earlier order of 4 October2019 required CAG to examine the scope of the audit of the debt duesuggested by HSVP, the subsequent order dated 15 October 2019 requiredthe examination by CAG on the scope of the audit after bearing in mindGthe suggestions by both the parties “in terms of the ConcessionAgreement”. The expression “in terms of the Concession Agreement”indicates that the basis of the audit was to be what was envisaged in theConcession Agreements, which specifically defines the expression “debtdue”. Pertinently, the original order of 20 September 2019 specifies aH7 Bisra Lime Stone Co. Ltd. vs Orissa SEB, (1976) 2 SCC 167

strict time schedule within which, on a determination being made by theauditor, 80 per cent of the debt due would be deposited by HSVP [7]Bisra Lime Stone Co. Ltd. vs Orissa SEB, (1976) 2 SCC 167 in theEscrow Account. This was however subject to the safeguard that itwould be subject to any order that may be passed by NCLAT or by acompetent statutory authority. However, it was further clarified that therest of the disputes between the parties to the lis arising out of the auditreport were to be agitated in arbitration proceedings.

51. This provision, which is embodied in clause (v) of the operativedirections of the High Court’s consent order dated 20 September 2019,is capable of a reasonable interpretation that once a determination wasmade in the audit report, 80 per cent would be deposited in the EscrowAccount by HSVP and if any dispute arising out of the audit reportremained, that would be resolved in arbitration. As a matter of fact, thesubsequent order of 4 October 2019 replaced clause (v) by envisagingthat the rest of the disputes between the parties arising out of:

(i) the CAG report;

(ii) the validity of the termination notices issued by both theparties; and

(iii) any past or future inter se claims/ liabilities; shall be agitatedand decided in arbitration proceedings.

52. HSVP and HMRTC on the one hand, and RMGL/RMGSLon the other, were in discussion at arm’s length when they invited theHigh Court to pass its order dated 20 September 2019, and agreed to themodifications which have been made by the orders dated 4 October2019 and 15 October 2019. A two judge Bench of this Court, speakingthrough Justice Ruma Pal, in Manish Mohan Sharma vs Ram BahadurThakur Limited[8] has observed:

“28…A consent decree has been held to be a contract with theimprimatur of the Court superadded. It is something more than amere contract and has the elements of both a command and acontract. (See: Wentworth v. Bullen 141 ELR 769; C.F. Angadi v.Y.S. Hirannayya [1972] 2 SCR 515). As was said by the PrivyCouncil as early as 1929, “The only difference in this respectbetween an order made by consent and one not so made is that AB

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Athe first stands unless and until it is discharged by mutual agreementor is set aside by another order of the Court; the second standsuntil and unless it is discharged on an appeal (See: Charles HubertKinch v. Edward Keith Walcott and Ors.).”

In the face of the clear stipulations contained in the order of theBHigh Court, it would be impermissible to interdict the consequencesemanating from the working out of the directions contained in the aboveorders of the High Court upon the submission of the CAG report.

53. CAG in the course of its affidavit filed before this Court andHigh Court by the Deputy Accountant General Shri KSN Prasad, IASCand AS (Deputy General (Administration), has clarified that it wasdecided, after examining the scope of the financial audit of the debt duesuggested by both the parties, that CAG would examine only those issueswhich are related and relevant to examining the debt due under theConcession Agreements. CAG followed a process which is fair by:

D(i)making a statement on the scope of the audit before theHigh Court in advance;

(ii) examining the scope of the audit as suggested by the partiesbefore making its determination;

(iii) appointing a firm of chartered accountants for conductingEan audit as was envisaged in the order of the High Court;

(iv) furnishing the contesting parities with a copy of the draftreport;

(v) allowing the parties to submit their response to the draftreport;F

(vi) granting an extension of time to the State of Haryana tosubmit its comments; and

(vii) placing the State on notice that it would have to file itsobjections finally by a prescribed deadline, failing whichGthe report would be finalized.

54. HMRTC and HSVP are themselves to blame if they did notsubmit their responses. CAG has specifically rebutted the objections tothe audit report submitted by HMRTC on the ground that as aconstitutional authority, CAG decided upon the scope of the audit of theHdebt in terms of the Concession Agreements, which it submitted to the High Court. Moreover, it has clarified that this was a financial audit ofthe debt due and the auditors reported their findings in terms of theConcession Agreements. The FIR lodged by the Economic OffencesWing, the Income Tax Department notice, investigation by the SFIO andForensic Audit did not form a part of the financial audit conducted by theCAG. CAG has submitted that a financial audit of the debt due is completeand conclusive under the scope of audit as decided by CAG, and submittedto the High Court.

55. It is pertinent to remember that the Projects in question havebeen funded by a consortium led by banks, among which are CanaraBank and Andhra Bank. The terms of the Concession Agreementsexpressly recognized that the Projects were being publicly funded throughfinancial institutions. The audit report emphasized that the proportionbetween debt and equity was pegged at 70:30. The terms of theConcession Agreement dated 9 December 2009 clearly envisaged thepurpose of the Escrow Account in Article 18. HUDA, the predecessorof HSVP, entered into a Concession Agreement dated 9 December 2009,which in Article 17 expressly recognizes the linkage between the financingpackage and the Concession Agreement. In fact, Article 17.2 emphasizesthat the rights of the concessionaire would stand waived if financialclosure was not to occur within six months within the cure period of sixmonths. Further, Article 18.1 envisages that all funds constituting thefinancing package for meeting the concessionaire’s capital cost shall becredited to the Escrow Account during the period of operations, and allfare and non-fare revenues collected by the concessionaire shall beexclusively deposited in it. Under Article 18.2, the concessionaire wasrequired to give to the Escrow bank irrevocable instructions while openingthe Escrow Account that the deposits into the Escrow Account wouldbe appropriated in the manner indicated in clauses (i) to (ii) of Article18.2.1. This includes provision for debt service payments. Theseprovisions in the Concession Agreement have a vital bearing on the subjectmatter of the present dispute. Canara Bank in its affidavit filed beforethe High Court has stated that on behalf of consortium of lenders, actingas facility agent, it financed RMGSL in the aggregate of Rs 1500 croresin terms of a common loan agreement. The Escrow Account Agreementhas been entered into in pursuance of the Concession Agreement, andto effectuate the funding of the Project No 2. As on 31 July 2019, thelenders of RMGSL have an outstanding of Rs 1651 crores approx.Hence, the Projects which have been executed by RMGL and RMGSL, AB

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Ainvolved an outlay of funds from Andhra Bank and Canara Bank, whohave a vital stake in the financials of the Projects.

56. As such, HMRTC and HSVP cannot avoid at this stagecomplying with the directions which were issued by the High Court in itsorders dated 20 September 2019, as modified on 4 and 15 October 2019,Bon the plea that an FIR has been lodged on 16 December 2018 againstIL&FS group in which there are allegations against RMGL and RMGSLof producing fake invoices and inflating the capital cost of the rapidmetro Projects. The circumstances which have been adverted to in theaffidavit filed by HMRTC in the High Court were known to it and toHSVP, when they both agreed to an order which emanated with theCconsent of the parties on 20 September 2019. Both HMRTC and HSVPwere conscious of their obligation to deposit 80 per cent of the debt dueas a consequence of the termination by the provisions contained in theConcession Agreements. They wished to lend an assurance to thedetermination of the debt due by seeking the involvement of the CAG.DThey made a solemn commitment before the High Court that within 30days of the determination, 80 per cent of the debt due would be depositedin an Escrow Account. This amount, it must be emphasized, is not beinghanded over either to RMGL or RMGSL, which have been classifiedas “red entities” of the IL&FS group.

EThe placement of the quantum representing 80 per cent of thedebt due in Escrow Account is to abide by such directions as may beissued by NCLAT or any other competent statutory authority. Besidesthis provision, remedies are available either before the competent Courtunder Section 9 or before the Arbitral tribunal under Section 17 of theArbitration and Conciliation Act, 1996. Hence, there being an agreementFbetween the parties, to permit HSVP and HMRTC to obstruct or delaycompliance with their obligations would be manifestly impermissible forthree reasons:

(i) Firstly, the obligation to deposit 80 per cent debt due as aconsequence of the termination emanates from Article 24.4Gof the Concession Agreement dated 9 December 2009;

(ii) Secondly, the obligation to deposit 80 per cent of the debtdue as determined in the report of the auditor has beenassumed voluntarily before the High Court by HSVP/HMRTC from which, as public bodies, they cannot beHpermitted to resile; and

(iii) Thirdly, there is a vital public interest element in ensuringthat the monies which are committed by banks and financialinstitutions towards financing infrastructure projects aresecured to them in terms of the Concession Agreements.

57. The underlying wrongdoing which was allegedly conductedby the promoters in the erstwhile management of IL&FS undoubtedlyneeds to be investigated. The process of pursuing the forensic audit, theinvestigation by the SFIO and by the law enforcement machinery mustfollow to its logical conclusion. The NCLT is supervising the resolutionprocess with a government appointed Board now being in charge of themanagement of IL&FS. Equally, financing arrangements entered intoby financial institutions towards fulfilling infrastructure projects, basedon the sanctity of the commercial contracts, are to be duly observed.This facet has to be emphasized since it embodies a vital element ofpublic interest as well. Commentators have noted that, “[d]eteriorationin loan recovery not only leads to higher provisions and diminishedprofitability but also constrains banks’ lending capacity, thus affectingthe economy adversely” [9] . Unless the dues which are assured to financialinstitutions as part of the arrangements which are envisaged in ConcessionAgreements are duly enforced, the structure of financing for infrastructureprojects may well be in jeopardy. Such a consequence must be avoidedby declining to accede to a request, such as that by HMRTC and HSVP,which is to allow it to resile from its obligations. These obligations arisenot only in terms of the Concession Agreements, but have been solemnlyassumed before the High Court. Hence, on both counts, HMRTC andHSVP cannot be permitted to resile.

58. The intervention of this Court under Article 136 of theConstitution was sought having regard to the manner in which theproceedings before the High Court were being derailed. On 12 October2020, after HMRTC filed its affidavit, the High Court noted theappellant’s submission that “the matter does not brook any delay” andyet adjourned the matter to 16 October 2020. Thereafter, when theproceedings came up on 16 December 2020, and the response filed byCAG was taken on the record, the hearing of the writ petitions wasagain deferred to 8 April 2021. This course of events indicates that the 9Rekha Mishra, Rajmal and Radheshyam Verma, “Determinants of Recovery of StressedAssets in India: An Empirical Study”. Economics and Political Weekly, Vol. 51, IssueNo. 43, 22 Oct, 2016.

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Awhole object and purpose behind setting down the timelines in the orderdated 20 September 2019 stood the risk of being defeated. This Courthas been constrained to intervene in the process in order to ensure thatthe sanctity of the understanding that was arrived at before the HighCourt on 20 September 2019 is duly maintained. As we have alreadyobserved earlier, there is a vital public interest element in ensuring thatBmonies which are liable to be deposited in the Escrow Account with anationalised bank are duly deposited. HMRTC and HSVP, it must beemphasized, are not left without remedy. The deposit into the EscrowAccount has to be maintained in that form and will abide by such ordersthat may be passed by NCLAT or by a competent statutory authority.CBesides this, the Concession Agreements provides a clear-cut remedyfor seeking reliefs under the arbitration agreement.

59. As noted earlier, the invocation of the writ jurisdiction of theHigh Court under Article 226 of the Constitution by HMRTC and HSVPwas to challenge the termination notices dated 17 June 2019, and toDobviate the consequence of the cessation of the rapid metro operations,which would have ensued on the expiry of the notice period. Thearbitration clause of the Concession Agreements provides sufficientrecourse to remedies which can be availed of. That apart, the order ofthe High Court dated 4 October 2019 has also clarified that the rest ofthe dispute that remains after the deposit of 80 per cent of the debt due,Eeither arising out of the CAG report, the validity of the termination noticesissued by both the parties and any past or future inter se claims andliabilities shall be agitated and decided in the arbitration proceedings. Inview of the order which we propose to pass, the dispute between theHigh Court in the writ jurisdiction under Article 226 of the Constitution Fshall stand worked out by granting liberty to the parties to avail of theirrights and remedies in accordance with law.

F Conclusion

60. We accordingly dispose of the appeals in terms of the followingdirections:G

(i) HSVP shall within a period of three months from the dateof the present judgment deposit into the Escrow Account80 per cent of the debt due as determined in the reports ofthe auditors dated 23 June 2020, in the case of RMGL andRMGSL respectively; H

(ii) The deposit into the Escrow Account shall continue to beAmaintained in Escrow, subject to any order that may bepassed by NCLAT or any competent statutory authority,and shall not be appropriated by the Escrow Bank withoutspecific permission;(iii)RMGL and RMGSL on the one hand, and HSVP on theBother, are at liberty to pursue their rights and remedies inpursuance of the arbitration clause contained in theConcession Agreements on all matters falling within theambit of the arbitration agreement, including the validity ofthe notices of termination, any past or future inter se claimsand liabilities as envisaged in the order of the High CourtCdated 20 September 2019, as modified on 4 October 2019and 15 October 2019;(iv)In terms of clause (v) of the order of the High Court dated20 September 2019, in the event of any dispute arising aboutthe correctness of the CAG report, in regard to theDdetermination of the debt due, any of the parties would beat liberty to raise a dispute in the course of arbitralproceedings;(v)Upon compliance with the directions contained in (i) above,RMGL and RMGSL shall execute and handover to HSVPEall documents which are required for effectuating thetransfer of operations, maintenance and assets to HSVP ortheir nominees with a view to fulfill the obligation of theconcessionaires in Article 25 of the Concession Agreementdated 9 December 2009 and clause (vi) contained in theorder of the High Court dated 20 September 2019, asFmodified on 4 October 2019 and 15 October 2019; and(vi)The writ petitions filed before the High Court by therespondents shall stand disposed of.

61. The present judgment shall not affect any ongoing investigationor criminal proceedings in respect of the IL&FS group of companies.The appeals shall be disposed of in the above terms. There shall be noorder as to costs.

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62. Pending application(s), if any, stand disposed of.

Nidhi Jain

Appeals disposed of.

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