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TMI Blog2024 (12) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... a Deshmukh, Adv., Mr. Adarsh Upadhyay, AOR, Mr. Amit Singh, Adv., Mr. Aman Pathak, Adv., Ms. Pallavi Kumari, Adv., Mr. Shashank Pachauri, Adv., Mr. Pradeep Misra, AOR, Mr. Raunak Dhillon, AOR, Mr. Raunak Dhillon, Adv. and Mr. Rakesh Chatterjee, Adv. Respondent-in-person JUDGEMENT SURYA KANT, J. Leave granted. 2. The NOIDA Toll Bridge Company Limited (NTBCL), has preferred the instant appeal questioning the judgement dated 26.10.2016 passed by the High Court of Judicature at Allahabad (High Court). The issue before the High Court concerned a challenge to the collection and levying of toll, as legitimised by the provisions enumerated in the Agreement dated 12.11.1997 (Concession Agreement), executed between NTBCL, the New Okhla Industrial Development Authority (NOIDA) and the Infrastructure Leasing and Financial Services Limited (IL&FS). The Concession Agreement conferred upon NTBCL the rights necessary for the implementation of the Delhi NOIDA Bridge Project or the Delhi- NOIDA Direct Flyway (DND Flyway/Project) and, in connection thereto, the collection and levying of toll. 3. The High Court has vide the impugned judgement held Articles 13 and 14 of the Concession Agreement t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FS as the 'Sponsors' and NTBCL as the 'Concessionaire'. The aforesaid Concession Agreement expressly provided for the construction of the DND Flyway, from the Okhla Barrage in NOIDA to a location close to Maharani Bagh in Delhi. The project encompassed the development, establishment, financing, design, construction operation and maintenance of the DND Flyway, including the development, financing, design and construction of a flyover at Ashram Chowk. 4.6. In terms of Section 2.7 of the Concession Agreement, the State and the Government of NCT of Delhi entered into a State Support Agreement on 14.01.1998, which facilitated: (i) the execution of the Delhi Lands Lease Deed on 23.10.1998 between NTBCL and NOIDA; and (ii) the execution of the Ashram Flyover Site Lease Deed on 30.08.1999 between the Government of NCT of Delhi and NTBCL, for the construction of the Ashram Flyover. 4.7. The Project was thereafter initiated and completed, with the DND Flyway being opened for public use on 06.02.2001 (Commissioning Date). It consisted of: (i) the main bridge; (ii) three minor bridges; (iii) a 32-lane approach road with a 300-metre-wide toll plaza in NOIDA; (iv) an 11-lane toll plaza at Mayu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent No.2) and IL & FS Ltd. (Respondent No.9) on 12.11.1997 for development of infrastructure facility of a bridge and an access road. The Project was conceived on Build-Operate-Transfer (BOT) basis. The 9th Respondent IL & FS had to arrange the investment for the Project which could be recovered by levy of toll from the users of the road and the Project..." "...14. Prima facie, we are of the opinion that the various issues that arise in this SLP warrant a detailed scrutiny. Conflicting claims have been made regarding the recovery of the Total Cost of the Project by the Concessionaire. To resolve the dispute, it is appropriate that an independent agency is requested to examine the relevant records of the DND flyway. The said agency should examine the reports of the independent auditors appointed by the Petitioner and submit a report regarding the correctness of the Petitioner's claim that the Total Cost of the Project has not been recovered. We accept the suggestion of the Petitioner and request the Comptroller and Auditor General of India (CAG) to assist us in this matter. The Petitioner is directed to place the entire record pertaining to the recovery of the Total Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished and implemented through the Concession Agreement. It is beyond the scope of judicial review to invalidate a Government Policy decision solely based on the belief that an alternative policy might have been more appropriate. Consequently, the subject PIL was beyond the purview of judicial powers exercisable under Article 226 of the Constitution of India. (c) It was impossible during the relevant period to float tenders in order to develop the necessary infrastructure, due to the absence of non- governmental infrastructure developers from whom competitive bids could have been solicited. IL&FS was explicitly selected because it was a pioneer in the field, with 81% of its ownership held by public sector institutions. That apart, it is well-established in law that the non-floating of tenders alone does not constitute a sufficient basis to deem the actions of a public authority as arbitrary and illegal, nor does it invalidate the consequential contract. (d) The Concession Agreement resulted from extensive deliberations and consultations among various Government entities over several years and thus could not be termed as an arbitrary decision. It received approval from the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject, and the Internal Rate of Return (IRR) formula employed is a standard, accepted methodology. Without the safeguard of such a formula, no developer would be willing to undertake substantial investments, particularly given the risk of premature and arbitrary termination of the contract by NOIDA. Furthermore, the return of 20% cannot be deemed arbitrary, as the project had to compete with other infrastructure sectors to secure debt funding and equity investment from the private sector. Article 14 of the Concession Agreement, in the light of these mitigating circumstances, therefore, is not opposed to public policy. (h) NTBCL is currently facing losses and has not yet recovered the Total Project Cost or returns. The CAG Report indicates that, at a minimum, Rupees 30 crores remain recoverable by the Appellant, as of date. Thus, the High Court erred in concluding that NTBCL had fully recovered the Total Project Cost and has made reasonable profits. Additionally, if the High Court's decision were upheld, NTBCL would be compelled to continue bearing maintenance costs until 2031 without any incoming revenue. Following the cessation of toll collection, NTBCL has become entirely depen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Section 6A of the 1976 Act on 14.08.1998, NOIDA lacked the authority to empower a developer to collect any tax or fee. Under Section 6A, the right to collect user fees could have been granted to NTBCL through the formulation of Regulations; however, the authority to levy such fees would remain with NOIDA as per Section 19(2)(e) of the 1976 Act. Furthermore, under the said parent Act, NOIDA had no authority to authorise the imposition of fees to another entity. Section 6A was introduced much after the execution of the Concession Agreement and it is not retroactive in nature. (d) The Concession Agreement is perpetual in nature and, therefore, contrary to public policy. Section 2.3 of the Concession Agreement stipulates that the concession period shall extend until the earlier of the two events: the completion of a 30-year period from the effective date or the date on which NTBCL recovers the Total Project Cost and returns, as determined by the Independent Engineer and Independent Auditor in accordance with Article 14 thereof. Furthermore, Section 2.4 states that if the Total Project Cost and returns are not recovered by the end of the 30-year period, the concession period sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all expenses associated with his role, including his hefty remuneration, were incorporated into the Total Project Cost. A letter circulated by Puri indicated that the unrecovered Project Cost would stand at Rupees 5330 crores as of 31.03.2031. This figure included legal fees amounting to Rupees 11 crores, travel expenses of Rupees 4 crores, and costs associated with restructuring deep discount bonds totalling Rupees 33 crores. Consequently, the Total Project Cost is substantially higher than the actual investment made, and NTBCL has already received sums far exceeding their original investment, including reasonable profits and interest accrued from toll income. D. CONTENTIONS ON BEHALF OF RESPONDENT NO. 9 (IL&FS) 7. Mr. Gopal Jain, Senior Counsel representing IL&FS, primarily supported the Appellant. The contentions put forth by him which were unique to IL&FS, may however be summarised as follows: (a) As of present day, IL&FS is under the control of the Union of India, pursuant to the order dated 01.10.2018 passed by the NCLT, Mumbai, directing the suspension of the then-existing Board of Directors of IL&FS and constitution of a new Board of Directors comprising of nominees of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted for the display of outdoor advertisements. The outstanding dues on 31.10.2021 were Rupees 37.59 crores. Additionally, the Appellant has not placed on record the amount collected from outdoor advertisements. F. ISSUES 9. Having given our thoughtful consideration to the rival submissions at length, the following issues arise for the consideration of this Court: i. Whether the Writ Petition purportedly filed in public interest was maintainable before the High Court? ii. Whether the non-floating of tenders was justified in the instant case? iii. Whether the power to levy fees could be delegated to the Appellant and if so, whether it was a case of excessive delegation? iv. Whether Article 14 of the Concession Agreement read with the formula used therein is opposed to public policy? v. Whether the Total Project Cost and Returns thereon have been recovered by the Appellant? vi. Whether NOIDA is entitled to recover dues from the Appellant, in regards to the display of outdoor advertisements? G. ANALYSIS G.1 Maintainability of the Writ Petition before the High Court 10. At the very outset, it is essential to adjudicate the prefatory issue of maintainability before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient interest in the PIL should be permitted to proceed.6 Accordingly, vexatious petitions disguised as PILs, aiming to address personal grievances, deserve rejection at the threshold. 14. In the instant case, Respondent No. 1 is a Society duly registered under the Societies Registration Act, 1860, with the primary objective of promoting the welfare of NOIDA residents. The society acts as a bridge between the residents and public authorities, catering to the former's needs for essential civic amenities. Given this object, it is clear that Respondent No. 1 approached the High Court in good faith, with a view to safeguard the interests of NOIDA residents, who had been subjected to the levy of toll at the DND Flyway under the guise of user fees by NTBCL. Consequently, we do not find any merit in NTBCL's contention that Respondent No. 1 lacked locus standi in approaching the High Court. 15. As regard to NTBCL's contentions pertaining to the alleged collusion between Respondent No. 1 and NOIDA, we find that there is not an iota of material on record to substantiate these sweeping insinuations. G.1.2. Delay and laches 16. NTBCL contended that there was an inordinate delay on the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that the plea of delay lacks substance, as the commuters, including Respondent No. 1, were justified in trusting that NOIDA would protect their interests. However, in 2012, after learning that they were being misled and subjected to an illegal toll based on an audit report from NTBCL's Auditor and Chartered Accountant-indicating that as of 31.05.2012, Rupees 2340 crores were still to be recovered from the public, and the recovery period had extended from 30 years to 100 years-they were prompted to immediately approach the High Court. 20. Furthermore, it must be acknowledged that the levying of user fees or tolls by NTBCL constituted a continuing cause of action, which was challenged by the Association of affected commuters. An established exception to the defence of delay is the presence of a continuous injury stemming from an ongoing wrong. Union of India and another v. Tarsem Singh, (2008) 8 SCC 648. The plea of delay and laches cannot be raised in a case of a continuing cause of action. 21. In our considered view, the challenge laid by Respondent No. 1 before the High Court, regarding the levying of toll or user fees, being rooted in public interest and involving en masse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess as opposed to static, has experienced a significant shift in terms of the degree of judicial interference in contractual disputes, especially when one of the parties involved is the State or its instrumentalities. Subodh Kumar Singh Rathour v. Chief Executive Officer, 2024 SCC Online SC 1682. 27. This is because when contractual power is exercised for public purposes, the State and its instrumentalities bear the responsibility to act fairly, without arbitrariness or caprice. Silippi Constructions Contractors v. Union of India, (2020) 16 SCC 489. In such situations, where State action is challenged as arbitrary or capricious, courts are justified in intervening through judicial review to determine whether the State has adhered to the principles embodied in Article 14 of the Constitution of India, which mandates fairness and non-arbitrariness in State actions. Considering that the Concession Agreement involves not only entities like IL&FS and NTBCL but also a Public Authority such as NOIDA, it is evident that the Concession Agreement, though commercial in nature, is subject to judicial scrutiny. This is particularly true given the public interest concerns raised by Respondent No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgued that, at the time, it would not have been feasible to float tenders due to a shortage of private companies capable of undertaking such large-scale infrastructure projects. NTBCL further contended that the mere absence of a competitive tendering process was not, in itself, sufficient grounds to invalidate the agreement. 31. In this context, it is evident that NTBCL entered into an agreement with NOIDA to undertake a project that involved an overwhelming public element, comprising of public funds and public assets. When such a project is undertaken by the State in partnership with a private entity, the element of public interest necessitates strict adherence to Constitutional obligations. The State is obligated to ensure that its actions remain free from any arbitrariness or capriciousness, particularly when public welfare is at stake. 32. Considering the onus placed upon the State, it requires no further elaboration that every action or decision of the State or its instrumentalities in conferring any form of largesse or benefit must be grounded in a just, transparent, and well-defined policy. Such a policy should be made known to the public through appropriate publication an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Management Studies, (2009) 6 SCC 171 the Court noted that while invitations to tender typically fall within the realm of contract law and are subject to limited judicial scrutiny, Courts are justified in reviewing cases where the terms of the invitation appear tailored to favour a particular person or entity, thereby excluding all others from the bidding process. 35. The golden principle thus is that Government procedures or policies pioneered in public interest must genuinely serve the public and not merely enrich private entities. When public interest is overshadowed, it does raise concerns as to whether the Government has acted in a manner that appears capricious or arbitrary. It then becomes imperative for the Court to scrutinise whether such actions vitiate the Constitutional mandate of equality. Such procedures, must therefore satisfy the litmus test of due application of mind, fairness, transparency and most pertinently, being bona fide. 36. Turning to the events of the case in hand, it is a matter of record that the Government made no efforts to issue tenders, invitations, or seek competitive bids from other interested entrepreneurs. There is no basis at all to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy and collection of user fees by NTBCL, which the Appellant claims to be duly authorised under Section 13.1 of the Concession Agreement. NTBCL has further urged that this user fee is being charged in the exercise of powers conferred upon it by NOIDA, pursuant to the Regulations formulated under Section 6A in conjunction with Section 19 of the 1976 Act. 42. Section 13.1 of the Concession Agreement deals with the 'Collection of Fee.' It grants NTBCL the right to collect, retain, and appropriate fees from users of the DND Flyway starting from the Commissioning Date. The fee amount is to be determined by the Fee Review Committee. Additionally, NTBCL is empowered to delegate the collection function to the O&M Contractor, who would collect fees on behalf of NTBCL, in accordance with the Rules framed under the 1976 Act. Notably, in contingencies where neither NTBCL nor the O&M Contractor is unable to collect fees as a result of any change in law or any restriction or injunction based on any process of law, NTBCL is entitled to receive compensation from NOIDA in lieu thereof. 43. It thus becomes evident that the authority to collect fees by NTBCL has been purportedly derived from cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. This provision, however, cannot be interpreted as empowering NOIDA to delegate the power of levying taxes or fees through an agreement under Section 6A of the Act. It is, therefore, evident that while the power to levy taxes or fees remains exclusively vested in the Authority, from 14.08.1998 onwards, the power to collect such taxes or fees could be delegated to any person with whom an agreement for the maintenance of infrastructure or amenities has been executed. 47. However, NOIDA overstepped its authority by delegating the power to levy fees to NTBCL through the Concession Agreement and Regulations, exceeding the scope of its powers. In this context, the High Court rightly noted that it is a well-established law that an authority vested with the power to frame subordinate legislation must act within the bounds of that power and refrain from exceeding its limits. It goes without saying that the power to delegate must be expressly discernible in the Principal Act itself and in the absence of such provisions, no circular method can be countenanced to extract such power. 48. In complete contradiction and violation of the scheme of the Statute, NOIDA in purported exercise of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 14 of the Concession Agreement read with the formula vis-à-vis public policy 53. Article 14 of the Concession Agreement defines the 'Total Cost of the Project' and its calculation methodology, as elaborated in Annexure F. The issue herein concerns whether this provision aligns with the principles of public policy and the Constitution of India. To elucidate, the relevant language of Article 14 of the Concession Agreement states: "Article 14: Costs and Accounting Section 14.1: Total Cost of Project (a) The Project Cost shall be determined as on the Project Commissioning Date by the Independent Auditor who shall seek the assistance of the Independent Engineer to determine the Cost of Construction component of the Project Cost. (b) The Total Cost of Project shall be the aggregate of: (i) Project Cost; (ii) Major Maintenance Expenses; and (iii) Shortfall in the recovery of Returns in a specific financial year as per the formula in Section 14.2(a). Section 14.2: Calculation of Returns (a) The amounts available for appropriation by the Concessionaire for the purpose of recovering the Total Cost of Project and the Returns thereon, as illustrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd constituted an Empowered Committee to make recommendations on the Concession Agreement. Finally, the World Bank approved funding for the Project via a line of credit to IL&FS. The rationale behind adopting such a formula was that the Project was the first of its kind in India, interest rates were at an all-time high, and investors had to be guaranteed adequate returns. It was also adopted with the justification that, sans such a formula, no developer would have shouldered the risks of the Project. 57. The High Court while analysing the reasonableness of the formula adopted, held that Article 14 of the Concession Agreement was perpetual in nature and it entitled NTBCL to recover user fees/ toll indefinitely. Such a clause, therefore, being opposed to public policy was unjust and arbitrary and liable to be severed from the Concession Agreement. 58. We find no error in the analysis undertaken by the High Court. It is pertinent to understand that the formula in Annexure F of the Concession Agreement calculates the Total Project Cost and returns. As per the formula, the Total Project Cost is the aggregate of (a) the Project cost; (b) major maintenance expenses; and (c) shortfall in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of commissioning. The Independent Auditor's certificate stated that there was an unrecovered Project Cost of Rupees 407.64 crores as on 06.02.2001, which included Rupees 325.99 crores (Project Cost) and Rupees 81.65 crores (unrecovered returns at the rate of 20% from 30.12.1998 to 06.02.2001). The Project Cost prior to the commissioning date should have been taken as nil since no returns before 06.02.2001 were recoverable, as per Sections 14.1 and 14.2 of the Concession Agreement. iv. The Independent Auditor certified O&M expenses of Rupees 272.40 crores from 06.02.2001 to 31.03.2016. NTBCL booked excessively high O&M expenses of Rupees 272.40 crores during 2000-01 to 2015-16, which was higher than the standard norms used by NHAI/MoRTH, as well as the Feasibility Report of the DND Flyway itself. v. After the appointment of the ITNL Toll Management Services Limited, a subsidiary of NTBCL, as the O&M contractor, the expenditure on account of the O&M contractor's fee increased from Rupees 5.16 crores between 2008-09 to Rupees 10.49 crores between 2015-16. Thus, the O&M contractor's fee increased by 103% over eight years from 2008-09 to 2015-16. vi. NTBCL did not apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have sailed for such action at this stage. 65. In our considered view, the method used to calculate the Total Project Cost was fundamentally a mechanism for unjust enrichment by a select few and, as such was rightly deemed to be inherently arbitrary by the High Court. Accordingly, we have no hesitation to hold that the formula outlined in Annexure F of the Concession Agreement is unreasonable and contravenes Article 14 of the Constitution. G.4.2. Perpetuity of the Concession Agreement 66. NTBCL argued that under Section 2.4 of the Concession Agreement, the concession period could not be extended without NOIDA's explicit consent. Section 2.4 lacks any provision for an automatic or 'deemed' extension, requiring instead that NOIDA actively extend the Concession Agreement by two-year increments. If NOIDA does not approve an extension in advance, the day following the concession period's final day becomes the transfer date, at which point NTBCL must transfer the Project. The language of Section 2.4 does not imply that an unrecovered Total Project Cost or returns would automatically extend the concession period. Rather, it grants NOIDA the sole discretion to determine extens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether NOIDA's consent is required to extend the concession period or whether the concession period automatically extends based on the certification by the Independent Auditor and Independent Engineer regarding the recovery of the Total Project Cost after 30 years. 72. It is important to note that Article 18 of the Concession Agreement stipulates that if NOIDA decides to terminate the Concession Agreement before the Total Project Cost and returns are fully recovered, in that case NOIDA is obligated to compensate NTBCL the deficiency in Total Project Cost, returns, and any other expenses, as specified in Section 8.1 of the Agreement. 73. As previously mentioned, a letter dated 29.08.2007 from the CEO of the Appellant to NOIDA indicated that the Total Project Cost after 30 years would be approximately Rupees 5,353 crores, suggesting that the term of the Project should be extended to 100 years. The CAG Report pertinently states that, if NTBCL continues to operate under the current terms of the Concession Agreement, with extensions as per its provisions, the unrecovered Total Project Cost could rise to around Rupees 7,200 crores by 31.03.2020 and Rupees 15,200 crores by 31.03.2029. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng if a particular contract or action is opposed to public policy, but in doing so, it cannot shirk from its duty and approve helplessly the interpretation of a Statute or a document or of an action which is certain to subvert the societal goals and endanger the public good. Rattan Chand Hira Chand v. Askar Nawaz Jung, (1991) 3 SCC 67. 78. To do so, the Court may invoke the Doctrine of Severability and sever the incurable parts of the contract from the whole. The Court can do so only when the rest of the contract can breathe and survive without the aid of its void covenants. The Court must ask itself whether the parties would have agreed to the valid terms of the agreement if they knew that the invalid terms would be removed. Beed District Central Coop. Bank Ltd. v. State of Maharashtra, (2006) 8 SCC 514. Given the extent of manipulation in the instant case, we must intervene and hold that Article 14 of the Concession Agreement, read with the formula in Annexure F, is opposed to public policy and must be cut apart from the Concession Agreement. G.5. Recovery of Total Project Cost and returns thereon by NTBCL 79. It is pertinent to note that NTBCL has consistently claimed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since these amounts were not kept in view by the High Court, it still needed to recover an aggregate sum of Rupees 454.71 crores from user fees and other income, which was the computation of losses it had suffered as on 31.03.2014. 82. NTBCL further contended that it generated a revenue of Rupees 743.34 lakhs (out of Rupees 2028.88 lakhs) from the display of advertisement hoardings on the NOIDA side of the Project in 2019-2020, which increased to Rupees 399.81 lakhs in 2020-2021. Out of this advertising revenue, Rupees 339.87 lakhs were paid towards license fees in 2019- 2020, and Rupees 84.97 lakhs in 2020-2021. After the collection of tolls was discontinued, NTBCL became solely reliant on the revenue generated from advertisement hoardings. 83. We find that no independent evaluation of these competing claims is required to be undertaken by us as the issues raised by NTBCL have been effectively answered by the independent arbiter, namely the CAG, through its Report submitted to this Court concluding that: (i) The total expenses incurred by NTBCL are Rupees 1,136.26 crores. (ii) The total income generated by NTBCL is Rupees 1,103 crores. (iii) The Total Project Cost has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guise of providing necessary public infrastructure. This could not have been done but for the collusion of the then officers of the two State Governments and of NOIDA, who closed their eyes while the contractual obligations were incurred. Had Respondent No. 1 not been vigilant of their rights, the public funds would have continued to be misappropriated for private profiteering. Furthermore, the role played by IL&FS in this entire scheme is highly questionable. We say nothing except that the facts speak for themselves. Res ipsa loquiter. 88. That being said, since NTBCL has recovered the costs of the project and substantial profits thereon by virtue of imposition of user fees/tolls and given the existing position of law, we find no error in the High Court's judgment and its directions in restraining the imposition and collection of user fees/tolls. G.6 Recovery of dues arising out of display of outdoor advertisements 89. The question pertaining to outdoor advertisements does not constitute the subject matter of the present appeal, where the matter assailed by the Respondent Welfare Association before the High Court was restricted to the imposition and levy of user fees or toll b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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