Summary
HSVP had to deposit 80% of the audited debt due for the Gurgaon rapid-metro projects in escrow under the High Court’s consent arrangement. Pending fraud investigations and objections to the financial audit did not justify withholding that deposit. Disputes over the audit, termination and inter-party claims remained arbitrable. The Supreme Court ordered deposit within three months, prohibited appropriation without permission, and preserved ongoing investigations.
Issues
- Whether pending investigations and audit objections permitted the public authorities to withhold the agreed escrow deposit.
- Whether writ intervention was justified despite contractual arbitration provisions and which disputes remained for arbitration.
Provisions considered
- Article 226, Constitution of IndiaPublic interest in preventing disruption of metro services justified writ intervention here, although arbitrable contractual disputes ordinarily belong in arbitration. (¶¶ 49, 58-59)
- Sections 9 and 17, Arbitration and Conciliation Act, 1996Interim remedies remained available alongside the parties’ arbitral remedies and the safeguarded escrow arrangement. (¶¶ 49, 56, 58)
Held
- The negotiated consent order required determination of debt due under the concession agreements, followed by deposit of 80% in escrow. Remaining disputes were reserved for arbitration. The later modifications did not make deposit conditional on resolving those disputes first. (¶¶ 44-46, 48, 50-52)
- CAG fairly defined the financial audit’s scope and afforded opportunities to respond to the draft. The authorities failed to respond despite extensions and notice. Separate forensic audits and criminal investigations did not make this audit incomplete within its agreed purpose or defeat the deposit obligation. (¶¶ 47, 53-54)
- The authorities knew of the investigations when consenting to the arrangement. Contractual obligations, their solemn undertaking to the High Court, and the public interest in infrastructure financing prevented them from resiling. Deposit safeguarded lenders and was not payment over to the concessionaire companies. (¶ 55-58)
- Article 226 intervention was justified by the public consequences of disrupted metro services. This did not create a general entitlement to writ adjudication of arbitrable contractual disputes; arbitration and statutory interim remedies remained available. (¶¶ 49, 56, 58-59)
- HSVP was directed to deposit 80% of debt due determined in the auditors’ reports within three months. The money must remain in escrow, subject to NCLAT or competent statutory orders, and the escrow bank cannot appropriate it without specific permission. Audit correctness, termination validity and other covered claims remained arbitrable. (¶ 60(i)-(iv))
- Upon deposit, the concessionaires must execute and hand over the documents necessary to effect transfer of operations, maintenance and assets. The High Court writ petitions stood disposed of. Ongoing IL&FS investigations and criminal proceedings were unaffected. (¶¶ 60(v)-(vi), 61)
Result
Appeals disposed of with directions for escrow deposit within three months and consequential documentation. High Court writ petitions disposed of; arbitral remedies and ongoing investigations preserved. No costs.