In the matter titled Rapid MetroRail Gurgaon Limited v. Haryana Mass Rapid
Transport Corporation Limited and Ors (Instant Matter), the Honíble Supreme
Court bench comprising of Justice D.Y. Chandrachud, Justice Sanjiv Khanna, and
Justice M.R. Shah delved into the controversy as to whether public law remedy
under Article 226 of Constitution of India can be availed in arbitrable matters.
This article explores and dissects the intricacies pertaining to the factual
pattern and the rationale for the Supreme Courtís holding on the issue.
Decision of Honíble Supreme Court
- The Instant Matter concerns two Concession Agreements awarded by Haryana Shehri Vikas Pradhikaran
(HSVP) to Rapid MetroRail Gurgaon Limited (RMGL)
and Rapid MetroRail Gurgaon South Limited (RMSGL) for the purposes of the
development of a metro rail links. Subsequently, both RMGL and RMGSL sought to
terminate their Concession Agreements given material breaches by HSVP and,
accordingly, they issued notices under which the Concession Agreements would
stand terminated on the expiry of 90 (ninety) days from the date of delivery of
the termination notice.
In the aftermath of the termination notices, RMGL and
RMGSL claimed that they had ensured compliance with the disinvestment
requirements under the Concession Agreements; however, HSVP had failed to comply
with such disinvestment requirements. Moreover, HSVP sent out their own
termination notices to RMGL and RMGSL for breach of the Concession Agreements
directing them to handover the projects to Haryana Mass Road Transport
Corporation Limited (HMRTC).
- Notably, RMGL and RMGSL formed part of red entities within the IL&FS
Group which were required to secure approval before transferring or encumbering
any assets, and such approval was granted to them in relation to the handover of
projects under the Concession Agreement on September 6, 2018.
However, on the
same date, two Writ Petition under Section 226 of the Constitution of India were
instituted before the High Court of Punjab and Haryana (High Court) by the HSVP and HMRTC against the notice of termination dated June 7, 2019, sent by
RMGL and RMGSL. The petitions prayed for an interim direction for the
continuance of operation of the projects by RMGL.
- In the view of sustained negotiations between the parties and with the
objective of shielding the immediate interest of the public sector lenders,
the High Court vide its order dated September 20, 2019 (Consent Order)
took note of a consensus having been reached between senior officers of
both the parties.
Thereby, the High Court made directions for RMGL and RMGSL to continue
operations of the metro lines for 30 (thirty) days, within which period the
amount of debt due qua the Concession Agreements ascertained under the aegis
of the Comptroller and Auditor General of India. Within 30 (thirty) days of such
determination, 80% of the debt due would be transferred to the Escrow account as
per the terms of the Concession Agreement.
Thereafter, any residual disputes
amongst the parties ≠arising out of the audit report were to be resolved through
arbitration. However, in the context of repeated adjournments and disputes
regarding the audit conducted, RMGL and RMGSL filed a Special Leave Petition
challenging the aforementioned orders of the High Court which was entertained by
the Honíble Supreme Court.
The Supreme Court ventured into the ambit of the writ jurisdiction of the High
Court under Article 226 of the Constitution of India particularly, when the
dispute is arbitrable. On this issue, reference was made to the apex courtís
holding in Sanjana M. Wig v. Hindustan Petroleum Corporation Limited which
pronounced that a writ petition would be entertained where it encompasses a
public law character.
It was remarked that while the Instant Matter entailed
an interplay between the element of public interest on the one hand and the
contractual rights of the parties to the Concession Agreement on the other, the
issue at heart in the writ petition was the imminent threat that the rapid metro
lines would cease to operate upon the expiry of the 90-day notice period
preceding the termination.
Thereby, the Supreme Court held that the High Court
was manifestly dealing with a fundamental issue of public interest, and the
exercise of its writ jurisdiction under Article 226 was warranted as
non-interference would have led to the disruption of metro lines and the related
unfortunate consequences for the general public.
Notwithstanding the same, the
Supreme Court was of the view that the High Court ought to refuse to entertain
disputes which are arbitrable in ordinary circumstances, particularly since the
Arbitration and Conciliation Act, 1996 is equipped with the remedies of granting
interim directions under Section 9 and Section 17 before the courts and the
Arbitral Tribunal, respectively.
On merits, the Supreme Court also engaged in a detailed analysis of the terms of
the Concession Agreements and the Escrow Agreement which were in dispute in the
Instant Matter, with specific emphasis on what constitutes the term debt due
deposit of 80% of debt due, the Consent Order and subsequent modifications.
Court observed that clause (v) of the Consent Order could be interpreted to mean
that when the determination of the debt due was made by the audit report, HSVP
would deposit 80 per cent of such amount in the Escrow account and the remaining
disputes, if any, would be agitated by way of arbitration.
The Supreme Court
further pronounced that HSPV and HMRTC could not avoid compliance with the
directions of the Consent Order of the High Court at this stage by relying on
allegations of fake invoices and inflation of costs as allowing HSPV and HMRTC
to intercept or delay payment in the presence of an agreement would be plainly
unallowable for the following three reasons: Firstly, the requirement to deposit
80 per cent of the debt due is enshrined in Article 24.4. of the Concession
Secondly, HSPV/HMRTC have voluntarily taken up the obligation to make
a payment of 80 per cent of the debt due as per the auditor's report, and they
could not be permitted to resile from the same as public bodies. Thirdly, the
Escrow Account Agreement had been executed in relation to the Concession
Agreement, and it effectuates the funding for projects which have been
undertaken by RMGL and RMGSL through the outlay of funds from Canara Bank and
Andhra Bank who have a significant stake in the financials concerning the
project. Thus, a crucial public interest aspect is sought to be safeguarded by
ensuring that the monies committed by banks and financial institutions towards
the financing of infrastructure projects are secured to them as under the
This Honíble Supreme Court judgment contains two important affirmations
regarding considerations of public interest in commercial disputes. Firstly, the
ruling delves into the scope of the writ jurisdiction of the High Court under
Article 226 of the Constitution of India in case of a tussle between public
interests as juxtaposed against private contractual rights.
The Supreme Court
propounds that the High Court under Article 226 must ordinarily refrain from
entertaining a dispute which is arbitrable in nature considering that the
Arbitration and Conciliation Act, 1996 has been well-equipped with a
comprehensive framework for granting reliefs and remedies, including interim
order by the Court endowed with the jurisdiction and the Arbitral Tribunal.
the same time, a crucial exception was carved out from this rule: where a
fundamental issue of public interest is entangled, the High Court would be
justified in exercising its writ jurisdiction pursuant to Article 226 as, in
such cases, non-interference by the High Court could potentially cause a
devastating hit to public interests. In the present case in hand, the public
interest was recognised to be the grave inconvenience inflicted on the general
public by the stoppage of the rapid metro owing to the termination of the
Concession Agreement. The ratio in this judgment rightly echoes the findings in
the earlier Supreme Court pronouncements of Sanjana M. Wig v. Hindustan
Petroleum Corporation Limited and Bisra Lime Stone Co. Ltd v. Orissa SEB.
Secondly, while tackling the issue of whether HSPV and HMRTC ought to be allowed
to resile from the terms of the Consent Order and the Concession Agreement,
including the requirement of depositing 80 per cent of the debt due in the
Escrow account, it was notably held that vital public interest necessitates that
the sanctity of financing arrangements with financial institutions as regards
infrastructure is maintained as the deterioration in loan recovery would not
only hurt profitability, but it would inevitably adversely impact the bankís
lending capabilities and, thereby, the economy.
For the reasons as mentioned hereinabove, this judgment would serve as a crucial
guiding factor for future commercial disputes and construed as silver lining to
- Civil Appeals No 925-926 of 2021 arising out of Special Leave Petition
(C) Nos. 1832-1833 of 2021
- (2005) 8 SCC 242.
- (1972) 2 SCC 167
- Ravi Charan Pentapati, Partner
- Sneha Kalia, Intern