TMI Blog2021 (3) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. The consent order before the High Court on 20 September 2019 was also preceded by mutual discussions between the parties and the exchange of written proposals. which have been referred to expressly by the High Court. Clause (ii) of the order dated 20 September 2019 makes it abundantly clear that the basic purpose underlying the entrustment of the reference to the CAG was the determination of the debt due as defined under the Concession Contract . The High Court, it must be emphasized, was seized of a proceeding under Article 226 of the Constitution, and its writ jurisdiction had been invoked to challenge the notices of termination issued by RMGL and RMGSL, and for ensuring that the consequence which would emanate on the expiry of the notice period of 90 days by the cessation of the metro operations could be prevented by the judicial intervention in the course of the public law jurisdiction - there was an evident interface between this element of public interest on the one hand and the contractual rights of the parties to the Concession Agreements on the other. However, when HMRTC and HSVP moved the High Court under Article 226, they did so in view of the impending threat w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht having regard to the manner in which the proceedings before the High Court were being derailed. On 12 October 2020, after HMRTC filed its affidavit, the High Court noted the appellant s submission that the matter does not brook any 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, the hearing of the writ petitions was again deferred to 8 April 2021. This course of events indicates that the whole object and purpose behind setting down the timelines in the order dated 20 September 2019 stood the risk of being defeated. This Court has been constrained to intervene in the process in order to ensure that the sanctity of the understanding that was arrived at before the High Court on 20 September 2019 is duly maintained. The invocation of the writ jurisdiction of the High Court under Article 226 of the Constitution by HMRTC and HSVP was to challenge the termination notices dated 17 June 2019, and to obviate the consequence of the cessation of the rapid metro operations, which would have ensued on the expiry of the notice period. The arbitration clause of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lead member of the consortium. HSVP accepted the bid submitted by the consortium and issued a letter of award of 16 July 2009, subject to the condition that a concession agreement would be executed within 60 days. Pursuant to the letter of award, the consortium incorporated the first appellant, Rapid MetroRail Gurgaon Limited ( RMGL ), under the Companies Act, 1956 (the Act of 1956 ) and requested HSVP to accept RMGL as the entity which would undertake, fulfill and exercise the rights of the consortium under the letter of award. 2 On 9 December 2009, HSVP entered into a Concession Agreement with RMGL for the execution of Project No 1 on a design, build, finance, operate and transfer basis. HSVP granted a concession to RMGL for a period of 99 years from the effective date, including the exclusive right, license and authority during the subsistence of the Concession Agreement to implement and operate Project No 1. 3 In 2012, HSVP issued another RFQ/RFP for developing a metro rail link from Delhi Metro Sikanderpur Station on MG Road to Sector 56, Gurugram ( Project No 2 ). 4 On 25 April 2012, IRL and ITNL entered into a consortium arrangement in the form of a Memorandum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Law Appellate Tribunal ( NCLAT ) by an order dated 4 February 2019 appointed Mr Justice D K Jain, a former Judge of this Court, to supervise the resolution process for the IL FS group of companies. The appellants, RMGL and RMGSL, were categorized as a red entity of the IL FS group of companies in an affidavit - Filed in Company Appeal (AT) No 346 of 2018 dated 11 February 2019 filed by the Union of India before the NCLAT. 9 On 7 June 2019, RMGL issued a notice of termination to HSVP seeking to bring an end to the Concession Agreement dated 9 December 2009 in terms of Article 24.5.1, upon the expiry of 90 days from the date of delivery of this termination notice. A similar termination notice was issued by RMGSL to HSVP, in terms of Article 32.5.1 of the Concession Agreement dated 3 January 2013. Further, on 7 June 2019, the appellants responded to the letter of HSVP complaining of material breaches alleged to have been committed by the appellants under their respective Concession Agreements. 10 On 26 June 2019, RMGL wrote to HSVP intimating that the divestment requirements contained in Article 25.4 and Article 25.2 of the Concession Agreement dated 9 December 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that the period of 90 days shall start from the date of permission, which had not been yet granted by Justice D K Jain. An interim direction was sought for the continuance of the operation of Project No 1 by RMGL. Another Writ Petition - WP (C) No 24951 of 2019 was instituted to challenge the notice of termination by RMGSL on similar grounds, and similar interim directions were sought in respect of Project No 2. The observations of Justice D K Jain, contained in his order dated 6 September 2019, in respect of the Concession Agreement dated 9 December 2009, were produced before the High Court, which were as follows: 20. Nevertheless, Clause 24.6 of Article 24 stipulates that upon termination of the Concession Contract, for any reason whatsoever HUDA shall take possession and control of Metro link forthwith, including the material, construction plan, implements, equipment, etc., on or about, the site. Therefore, except for the stipulation of a prior 90 days notice in writing to HUDA by the Concessionaire for termination of the Concession Contract, where after such termination takes effect, upon termination of the Concession Contract by either of the Parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recourse to appropriate legal proceedings to assail the validity and consequences of termination of the Concession Agreement by both of them. It is, however, clarified that HSVP, shall still be free to 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 by HSPV to run the same. 15 On 6 September 2019, the High Court, while issuing notice, adjourned the proceedings to 9 September 2019 and directed that until then the operation of the Rapid Metro Rail by the appellants shall continue on both the lines, till midnight on 9 September 2019. On 9 September 2019, the High Court deferred the hearing to 17 September 2019, with a consequent extension to its interim order as well. The High Court observed: Order dated 09.09.2019 We propose to pass this order in both the cases i.e. CWP Nos.24949 and 24951 of 2019. Although both the contracts dated 03.01.2009 and 03.01.2013 executed for both the lines of the Rapid Metro Rail at Gurgaon have been terminated by both the parties i.e. HSVP (previously known as HUDA ) on 26.08.2019 (forthwith) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and maintenance cost by the petitioners of this period. A copy of this order be given to both the parties under signatures of Bench Secretary of this Court. To be taken up in the urgent list. A photocopy of this order be placed on the file of other connected case. On 18 September 2019, the following order was passed: Order dated 18.09.2019 Learned senior counsel appearing on behalf of the Rapid Metrorail Gurgaon Ltd. (RMGL) and the Rapid Metrorail Gurgaon South Lid. (RMGSL) has made the following proposals:- i) RMGL/RMGSL will continue to operate their Metro Link for a period of 30 days (i.e. until October 16, 2019) during which (a) the debt due as per financing documents in terms of the concession agreement may be determined by an auditor appointed by the Hon'ble Court; and (b) the process for transfer of the Metro Links may be undertaken under the supervision of two Hon ble (retired) High Court Judges, one being nominated by RMGL/RMGSL and one being nominated by HSVP; ii) During this extended period since 9 September 2019 RMGL/RMGSL will act as agents of HSVP, RMGL and RMGSL will be responsible for all liabilities arising on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd HSVP has signed the said agreement on account of the fact that previously RMGL/RMGSL were not acceding to the request of HMRTC/HSVP to run the said Metrolines for sufficient period during which effective resolution of the entire matter could be achieved. Now, after having signed the said agreement with DMRC, HMRTC/HSVP is also of the view that the entire process of handover of O M for the said Metro Lines to DMRC be done under the supervision of Hon'ble (Retd.) High Court Judge as may be appointed by the Hon ble Court within reasonable time. (ii) Secondly, the aspect of the ascertainment of debt due is linked with the definition of the words debt due in the concession agreement linked with the ascertainment of the Total Project Cost. However, the HMRTC and HSVP do hereby agree with the proposal of the RMGL and RMGSL that an auditor may be appointed to ascertain the actual figures in that respect. In this, matter, the HMRTC and HSVP proposes that Comptroller and Auditor General of India (CAG) may be given the assignment of financial audits under the order of the Hon ble Court to ascertain financial aspects including determination of over invoicing into the project. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject cost which shall be ascertained by an auditor as shall be appointed by the Hon ble Court. As such the same cannot be acceded to since this would lead to multiplicity of litigation and could be a serious dampener on this entire matter. This matter is being settled under the directions of the Hon'ble Court and as such the same should be acceptable to you gracefully. (vi) That the HMRTC and HSVP hereto reserves its right to make any further submissions in the light of any further arguments or facts that may be brought to light in this matter during the audit process and course of proceedings. 17 The proposal submitted by RMGL and RMGSL, which had been responded to by HSVP and HMRTC, was then deliberated in the High Court. Accordingly, the following directions were issued by the Division Bench on 20 September 2019, recording that a consensus had been arrived at in the presence of senior officers of the contesting parties namely, the Managing Director of HMRTC, Chief Administrator of HSVP, the Managing Director of RMGSL and Director of RMGL. Thereupon, the directions which were issued by the Division Bench of the High Court on 20 September 2019 were in the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the audit report, shall be agitated and decided in the arbitration proceedings, a mode provided in the concession contracts. (vi) It is also directed that whatever documents are required for the purpose of final transfer of operation and management and the assets, the same be given by the RMGL and RMGSL to HSVP after the payment of debt due . This order dated 20 September 2019 was subsequently modified by the High Court on 4 October 2019, in the following terms: Notice in the applications was issued to which no reply has been filed, 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 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 audited by the HSVP with the assistance of the auditors appointed by the parties to the lis. be replaced with the words also for examining the scope of the audit of the debt due suggested by the HSVP with the assistance of the auditors appointed by the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggested by the HSVP in terms of the concession agreement be read as The CAG will also examine the scope of the audit of debt due suggested by both the parties in terms of the concession agreement. 19 In pursuance of the order of the High Court, the Comptroller and Auditor General of India ( CAG ) presented a statement dated 19 November 2019 in regard to: (i) The scope of the audit; and (ii) Deliverables and timelines. The statement has a bearing on the controversy, and is hence extracted in entirety: 1. Verify that the Debt Due has been arrived at with reference to the terms conditions of respective Concession Contracts and all Financing Agreements/Documents which may have bearing on the computation of Debt Due. 2. Verify that all funds constituting the financial package (debt and equity) for meeting the concessionaire s capital cost has been credited / received in the Escrow Account, as per the quantum/ratio/priority/procedure prescribed in Common Loan Agreement and assessing the impact on the amount of debt due. 3. Verify that the funds of financial package, deposited in the Escrow account, were used for the project assets as defined in the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Auditor shall submit Inception Report indicating results of risk assessment, audit methodology for conducting audit and constraints, if any. 2. Draft Audit Report to be submitted by Auditor within three months from date of award of audit. 3. Monthly appraisal meetings to be held to review the audit progress and modify the scope of audit, if necessary. 20 CAG then filed a Civil Miscellaneous Application, together with 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 between HMRTC/HSVP and the concessionaires, RMGL/RMGSL. It was noted that in terms of the audit process followed by CAG, the draft audit report was furnished to both sets of contesting parties by emails dated 19 February 2020 and 24 February 2020. Though the appellants had responded to the emails, HMRTC had addressed a communication on 27 February 2020 stating that since the budget session of the Haryana Vidhan Sabha was in progress, it was difficult at this stage to have consultations and to respond to the draft audit report. As such, a period of four weeks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination of the debt due as per concession agreement would be examined. The scope of audit decided by CAG and as intimated to the Court has been placed at Annexure 1B. The issues mentioned in the scope provided by HMRTC like encumbrances and liabilities on the said metro project, shareholding / share in valuation of the assets of the concessionaire company, change of shareholding fights, criminal acts and liabilities etc. which are said to have been inflicted on the Company require detailed forensic and technical audits. It is understood that such audits are ongoing. This audit is limited to the examination of debt due , as defined in the Concession Agreement. 23 In computing the debt due, the audit report notes that the actual cost of the project was ₹ 1,199 crores as against the budgeted cost of ₹ 1,088 crores. Since the cost overrun is to be contributed by the sponsors under the loan agreement, this would not have any impact on the debt due. Hence for the purpose of computing the debt due, the project cost was taken as ₹ 1,088 crores. In computing the debt due, the audit report took into consideration: (i) The principal component of the term loan; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies with irregularities as pointed out by lncome Tax Department 31 Balancing figure 33 Total 623 Our report is submitted solely for the purpose set forth in the first paragraph of this report. This report relates only to the items specified and does not extend to any financial statements of RMGL, taken as a whole. The audit report for second appellant RMGSL computed the debt due at ₹ 1,609.88 crore, including interest upto to 8 September 2019. The conclusion in the audit report is extracted below: 6. Conclusion The amount of debt-due as per the audit, which has been conducted within limited scope as detailed in earlier sections of the report, has been worked out as ₹ 1,609.88 crore including interest upto 8 September 2019. Other matters that have come to our attention and can have a significant impact on debt due are listed below. Our report is subject to the outcome of such matters. An entity specific forensic audit of RMGSL is being conducted by the lenders. NCLT as part of its resolution proceedings orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29 3 IRL 75 7 Unrelated parties Siemens 595 58 Compaines with irregulariries as pointed out by Income Tax Department 66 7 Others 221 22 Balancing fiture 39 3 1,025 100 Our report is submitted solely for the purpose set forth in the first paragraph of this report. This report relates only for the items specified and does not extend to any financial statements of RMGSL, taken as a whole. 24 On 10 October 2020, an affidavit was filed before the High Court by the Advisor (Planning) HMRTC on behalf of the respondents, objecting to the audit report. The substance of the objection was that the audit report had not considered critical aspects which shall have a direct bearing on the amount of the debt due. In the course of the affidavit, the following circumstances were highlighted: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not furnished any objections to the draft report. Thirdly, it was alleged that the objections filed before the High Court is an attempt to delay the fulfillment of the obligation to pay 80 per cent of the debt due despite the entirety of Project No 1 having been handed over. A similar reply was also filed by RMGSL. 27 An affidavit was also filed before the High Court by CAG in response to the objections filed by HMRTC. In its affidavit dated 28 October 2020, CAG noted: That the scope of financial audit of debt due suggested by both the parties was examined by CAG being the Constitutional authority, and after due consideration, decided the scope of audit of debt due to be conducted and further it was decided that CAG will examine only those issues, that are related and relevant to examination of the debt due as per the concession agreements. It was also decided that the issues mentioned in the scope provided by the HMRTC like encumbrances and liabilities on the said metro projects, shareholdings/share in valuation of the assets of the concessionaire companies, change of shareholding rights, criminal acts liabilities etc. which have been inflicted on the company are not rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut it did not respond despite repeated requests. So the CAG was constrained to finalise the report without the response of HMRTC. 4) The issues pointed out like reconstitution of Board of Parent Company IL FS and investigation against its officers by Enforcement Directorate, FIR lodged by Economic offence wing, issue of income tax notice to group company, investigation by SFIO etc. are matter of investigation / forensic audit and does not form part of financial audit. It was categorically informed to the High Court that issues relating criminal acts etc, can be got audited/examined by HMRTC through other agencies or through separate forensic audit. 5) Although the debt due has been worked out as on 08 September 2019, the Report was neither required nor delve upon / comment upon which party s Event of default occurred. CAG has thus submitted that the report of the financial audit of the debt due is complete and conclusive as per the scope of audit as decided by CAG and stands submitted to the High Court on 19 November 2019 on affidavit. 28 On 12 October 2020, the Division Bench of the High Court noted the affidavit that had been filed by the Advisor (Planning) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Canara Bank. B Submissions of counsel 31 Mr Mukul Rohatgi and Mr Puneet Bali, learned Senior Counsel appearing on behalf of the RMGL and RMGSL, submitted that: (i) The directions contained in the order of the High Court dated 20 September 2019 are by consent of parties, the High Court having recorded that a consensus had been arrived at in the presence of senior officials of the contesting parties; (ii) The appointment of CAG has to be understood in the backdrop of the earlier orders of the High Court dated 9 September 2019 and 18 September 2019, which highlighted the concerns of RMGL and RMGSL that in terms of the Concession Agreements between the parties 80 per cent of the debt due was required to be deposited as termination payment by HSVP; (iii) Responding to these concerns, HMRTC and HSVP had agreed to the proposed appointment of an auditor for determination of the debt due, and proposed the reference to CAG. HMRTC and HSVP specifically committed to complying with the orders that may be passed by the High Court, NCLAT or any other legal proceedings; (iv) The Metro Rail Projects, Projects No 1 and Project No 2, which were undertaken by RMGL and RMGSL wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is neither incomplete nor inconclusive and that the objections which have been raised by HMRTC are without any substance; (xiii) On the above facts which have been submitted, RMGL/RMGSL have handed over the entire assets consisting of the rapid metro links to HSVP. The ground that there is an FIR against the IL FS group of companies cannot furnish a valid basis for defeating a contractual obligation to deposit 80 percent of the debt due in Escrow Account, which has been confirmed by the consent order of the High Court. The amount will not be paid over to either RMGL/RMGSL but would be deposited in an Escrow Account with Andhra bank and Canara bank, which are public financial institutions. The amount deposited would abide by the ultimate directions of the NCLT or any other statutory authority; and (xiv) No charge sheet has been filed as against one of the companies. 32 Mr Tushar Mehta, learned Solicitor General appearing on behalf of the respondents, on the other hand, submitted that: (i) Investigations are underway in respect of the IL FS group of companies, and as a matter of fact both RMGL and RMGSL have been classified as red entities : (ii) FIR No 253 was regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Canara Bank was appointed as the Escrow Agent. It was stated that as on 31 July 2019, the lenders of RMGSL had an outstanding claim of ₹ 1651 crores approx. Hence, on termination of the Concession Agreement dated 3 January 2013 by HUDA , now HSVP, under Article 32.4 of the Concession Agreement dated 3 January 2013, an amount of 80 per cent of the debt due has to be paid to the lenders of Project No 2. The lenders had filed a reply before Justice D K Jain stating that they had no objection of the handing over of the assets to HMRTC, subject to the deposit of the amount due to the lenders in an Escrow Account. Hence, the debt due having now been determined in terms of the audit report, it has to be deposited in the Escrow Account maintained by Canara Bank. Similarly, the consortium led by Andhra Bank provided credit facilities for Project No 1 to RMGL, and maintained a similar Escrow Account. In the affidavit submitted by Andhra Bank, it was noted that the debt due to all the members of the consortium led by Andhra Bank was ₹ 943 crores approx. 34 It was submitted by both the Banks that the Projects were completed by utilizing funds from the lenders, who are bigges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The principal amount of the debt provided by the senior lenders under the financing agreement; (ii) All accrued interest, financing fees and charges payable under the financing agreement; and (iii) Any subordinated debt which is included in the financial package. 37 In terms of Article 3.1, HUDA granted to the concessionaire the exclusive right, license and authority during the subsistence of the Concession Agreement to implement the project and the concession over a period of 99 years. Under Article 17.1, the concessionaire was to provide to HUDA a copy of the financing package furnished by it to the prospective lenders. As and when the financing package was agreed upon by the lenders and the Concession Agreement was confirmed by the signing of the agreed financing package by both the concessionaire and the lenders, a copy was required to be furnished to HUDA forthwith. Financial closure was to be completed within six months within the signing of the Concession Agreement, with a cure period of six months, failing which all rights and claims under the Concession Agreement were to stand waived. Article 18 provides for an Escrow Account into which all funds, which constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Any reserve of requirements required to be settled in terms of financial document. (ix) Balance in accordance with the instructions of the Concessionaire. 18.2.2 The Concessionaire shall not in any manner modify the order of payment specified in Sub-Article 18.2.1 except with the prior written approval of HUDA 18.3 Notwithstanding anything to the contrary contained in the Escrow Agreement and subject to the provisions contained in Sub-Articles 25.5 and Article 27, upon Termination of this Concession Contract, all amounts standing to the credit of the Project Escrow Account 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 and payable to HUDA under this Concession Contract (c) all accrued Debt Service Payment (d) any payments and Damages due and payable by the Concessionaire 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 Concession Contract; and (g) balance, if any, on the instructions of the Concessionai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 40 Article 30 of the Concession Agreement provides for dispute resolution. Article 30.2 contains an arbitration agreement, which reads as follows: 30.2 Arbitration 30.2.1 Dispute Due For Arbitration Disputes or differences shall be due for arbitration only if all the conditions in Sub- Article 30.1 are fulfilled. D Terms of the consent order dated 20 September 2019 passed by the High Court 41 Pursuant to the petition filed under Section 241(2) read with Section 242 of the Act of 2013 before the NCLT, the Board of IL FS was superseded on 1 October 2018, with a new Board appointed on the recommendations of the Central government. On 6 December 2018, an FIR No 253 was registered by the Economic Offences Wing. As pointed out by the Solicitor General, RMGL and RMGSL were named as accused nos 21 and 22 in the FIR, the allegation being in respect of the procuring of fake invoices, as a result of which the cost of projects implemented were alleged to be higher than those implemented by DMRC, resulting in the rapid metro link projects at Gurgaon incurring losses. RMGL and RMGSL, which belong to the IL FS group of companies, were thus classified as red e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time bound handover of the project to HSVP and corresponding commitment for taking it over by HSVP; and (b) A commitment to pay at least 80 per cent of the debt due as termination payment to RMGL and RMGSL by HSVP. 43 On 18 September 2019, the appellants proposed that they would continue to operate the metro link Projects until 16 October 2019, during which period the debt due under the financing documents, in terms of the Concession Agreements, may be determined by an auditor to be appointed by the High Court. Further, the process for transfer of the rapid metro link Projects was to be supervised by two former judges of the High Court. Both the appellants specifically stated that this proposal was subject to the condition that once the debt due is determined, HSVP must deposit 80 per cent of the debt due as determined in an Escrow Account in terms of the Concession Agreement, Escrow Agreement and Substitution Agreement. This proposal, it was clarified, was made to safeguard the interest of the public sector lenders of the Projects. Responding to the above proposal of the appellants, HMRTC and HSVP specifically stated in their written responses that: (i) An agreement had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 20 September 2019, issued directions which were specifically noted to be emanating from the consensus...arrived at in the presence of senior officers of both the parties namely Mr D Suresh, IAS, Managing Director, HMRTC, Chief Administrator, HSVP, Mr Rajiv Banga, Managing Director, RMGL and Director, RMGSL. The consensual order passed by the High Court envisaged that: (i) RMGL and RMGSL would continue to operate the rapid metro lines for 30 days from 16 September 2019; (ii) The transfer of the rapid metro lines would be overseen by two former judges of the High Court; (iii) The debt due as defined under the Concession Agreements would be determined under the auspices of the CAG who would appoint a team of auditors for the financial audit of the debt due and for examining the scope of the audit of the debt due audited by the HSVP with the assistance of the auditors appointed by the parties to the lis ; (iv) The process of audit would be completed within 30 days, and 80 per cent of the debt due determined by the audit report shall be deposited by HSVP in an Escrow account, which would be subject to the orders of the NCLAT or any other competent statutory autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its understanding of the role to be performed by it. In its written statement before the High Court on 19 November 2019, CAG stated that it had decided to appoint an auditor for the financial audit of debt due as on the transfer date . The terms as envisaged define the scope of the work of the auditor to be: (i) Verification of the debt due with reference to the terms and conditions of the Concession Agreements and all financing agreements/documents which have a bearing on the computation of the debt due; (ii) Verification that all funds constituting the financial package both debt and equity, for meeting the capital cost had been credited and received in the Escrow Account; (iii) Verification that the funds of the financial package were used for the project assets as defined in the Concession Agreements and their impact on the debt due; (iv) Verification that all non-fare revenues were duly accounted and that all fare revenues were deposited in the Escrow Account; (v) Verification that the amounts standing to the credit in the Escrow Account had been appropriated in the order prescribed in the Escrow Agreement; (vi) Verification that all other receipts and payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the valuation of the assets of the concessionaire, change of shareholding rights, criminal acts and liabilities, would require forensic and technical audit. It is important to note that such audits are ongoing independently. The audit conducted by the auditors appointed by the CAG herein, was limited to examining the debt due as defined in the Concession Agreements. While arriving at the principal and interest component of the debt due, the auditors indicated that other matters had come to their attention, which can have a significant impact on the debt due, and that the report was subject to the outcome of such matters. These included: (i) An entity specific forensic audit which is conducted by the lenders; (ii) The order passed by NCLT on 1 January 2019 for reopening and recasting the accounts of IL FS and two of its subsidiaries (INTL and IFIM); (iii) The initiation by the new Board in January 2019 of third-party forensic examination for the period between April 2013 to September 2018 in relation to certain companies of the group; and (iv) The sub-contracting by IRL of nine packages to various related and unrelated parties including companies, with irregularities p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions could be prevented by the judicial intervention in the course of the public law jurisdiction. The issuance of a notice of termination, the consequences which would ensue, and the resolution of disputes is specifically provided in the arbitration agreement between the parties, which is an intrinsic part of the Concession Agreements. Hence, there was an evident interface between this element of public interest on the one hand and the contractual rights of the parties to the Concession Agreements on the other. However, when HMRTC and HSVP moved the High Court under Article 226, they did so in view of the impending threat which was looming large on the horizon of the rapid metro operations being brought to a standstill as a result of the proximate expiry of the notice of 90 days preceding termination. In Sanjana M. Wig vs Hindustan Petroleum Corporation Limited (2005) 8 SCC 242 , a two judge Bench of this Court, speaking through Justice S B Sinha, has observed: 12. The principal question which arises for consideration is as to whether a discretionary jurisdiction would be refused to be exercised solely on the ground of existence of an alternative remedy which is more effica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Agreements had consequences in terms of the provisions contained in the Agreement requiring a deposit of 80 per cent of the debt due under Article 24.4. The contesting parties agreed to an independent third-party determination of this amount by a neutral entity, namely the CAG. The primary function of CAG was to appoint a team of auditors for conducting a financial audit of the debt due and in that process of also examine the scope of the audit. The orders dated 4 October 2019 and 15 October 2019 issued by the High Court also envisaged that CAG would examine the scope of the audit. While the earlier order of 4 October 2019 required CAG to examine the scope of the audit of the debt due suggested by HSVP, the subsequent order dated 15 October 2019 required the examination by CAG on the scope of the audit after bearing in mind the suggestions by both the parties in terms of the Concession Agreement . The expression in terms of the Concession Agreement indicates that the basis of the audit was to be what was envisaged in the Concession Agreements, which specifically defines the expression debt due . Pertinently, the original order of 20 September 2019 specifies a strict time sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulations contained in the order of the High Court, it would be impermissible to interdict the consequences emanating from the working out of the directions contained in the above orders of the High Court upon the submission of the CAG report. 53 CAG in the course of its affidavit filed before this Court and High Court by the Deputy Accountant General Shri KSN Prasad, IAS and AS (Deputy General (Administration), has clarified that it was decided, after examining the scope of the financial audit of the debt due suggested by both the parties, that CAG would examine only those issues which are related and relevant to examining the debt due under the Concession Agreements. CAG followed a process which is fair by: (i) making a statement on the scope of the audit before the High Court in advance; (ii) examining the scope of the audit as suggested by the parties before making its determination; (iii) appointing a firm of chartered accountants for conducting an audit as was envisaged in the order of the High Court; (iv) furnishing the contesting parities with a copy of the draft report; (v) allowing the parties to submit their response to the draft report; (vi) grantin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le opening the Escrow Account that the deposits into the Escrow Account would be appropriated in the manner indicated in clauses (i) to (ii) of Article 18.2.1. This includes provision for debt service payments. These provisions in the Concession Agreement have a vital bearing on the subject matter of the present dispute. Canara Bank in its affidavit filed before the High Court has stated that on behalf of consortium of lenders, acting as facility agent, it financed RMGSL in the aggregate of ₹ 1500 crores in terms of a common loan agreement. The Escrow Account Agreement has been entered into in pursuance of the Concession Agreement, and to effectuate the funding of the Project No 2. As on 31 July 2019, the lenders of RMGSL have an outstanding of ₹ 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. 56 As such, HMRTC and HSVP cannot avoid at this stage complying with the directions which were issued by the High Court in its orders dated 20 September 2019, as modified on 4 and 15 October 2019, on the plea that an FIR has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly needs to be investigated. The process of pursuing the forensic audit, the investigation by the SFIO and by the law enforcement machinery must follow to its logical conclusion. The NCLT is supervising the resolution process with a government appointed Board now being in charge of the management of IL FS. Equally, financing arrangements entered into by financial institutions towards fulfilling infrastructure projects, based on the sanctity of the commercial contracts, are to be duly observed. This facet has to be emphasized since it embodies a vital element of public interest as well. Commentators have noted that, [d]eterioration in loan recovery not only leads to higher provisions and diminished profitability but also constrains banks lending capacity, thus affecting the economy adversely - Rekha Mishra, Rajmal and Radheshyam Verma, Determinants of Recovery of Stressed Assets in India: An Empirical Study . Economics and Political Weekly, Vol. 51, Issue No. 43, 22 Oct, 2016 . Unless the dues which are assured to financial institutions as part of the arrangements which are envisaged in Concession Agreements are duly enforced, the structure of financing for infrastructure proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarified that the rest of the dispute that remains after the deposit of 80 per cent of the debt due, either arising out of the CAG report, the validity of the termination notices issued by both the parties and any past or future inter se claims and liabilities shall be agitated and decided in the arbitration proceedings. In view of the order which we propose to pass, the dispute between the High Court in the writ jurisdiction under Article 226 of the Constitution shall stand worked out by granting liberty to the parties to avail of their rights and remedies in accordance with law. F Conclusion 60 We accordingly dispose of the appeals in terms of the following directions: (i) HSVP shall within a period of three months from the date of the present judgment deposit into the Escrow Account 80 per cent of the debt due as determined in the reports of the auditors dated 23 June 2020, in the case of RMGL and RMGSL respectively; (ii) The deposit into the Escrow Account shall continue to be maintained in Escrow, subject to any order that may be passed by NCLAT or any competent statutory authority, and shall not be appropriated by the Escrow Bank without specific permission; ..... X X X X Extracts X X X X X X X X Extracts X X X X
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