BEFORE THE ARBITRAL TRIBUNAL COMPRISING OF

Transcription

1 1 BEFORE THE ARBITRAL TRIBUNAL COMPRISING OF JUSTICE S.P. BHARUCHA (RETD.), PRESIDING ARBITRATOR JUSTICE A.S. ANAND (RETD.), ARBITRATOR JUSTICE R.C. LAHOTI (RETD.), ARBITRATOR AT NEW DELHI IN THE MATTER OF: GMR AMBALA CHANDIGARH EXPRESSWAYS PRIVATE LIMITED CLAIMANT VERSUS 1. NATIONAL HIGHWAYS AUTHORITY OF INDIA 2. STATE OF HARYANA RESPONDENTS MEMO OF PARTIES GMR Ambala Chandigarh Expressways Private Limited, A Company incorporated under the provisions of Companies Act, 1956 having its Registered Office at SKIP HOUSE, 25/1, Museum Road, Bangalore Claimant Versus 1. National Highways Authority of India, No. G-5&6, Sector 10, Dwarka, New Delhi Through its General Manager (T) P&H. 2. State of Haryana, Public Works (B & R) Department, Civil Secretariat Chandigarh, Through its Principal Secretary (NH) Respondents

2 2 CLAIMANT THROUGH: LINK LEGAL ADVOCATES FOR THE CLAIMANT THAPAR HOUSE, FIRST FLOOR 124 JANPATH NEW DELHI NEW DELHI DATED: FEBRUARY 15, 2013

3 3 BEFORE THE ARBITRAL TRIBUNAL COMPRISING OF JUSTICE S.P. BHARUCHA (RETD.), PRESIDING ARBITRATOR JUSTICE A.S. ANAND (RETD.), ARBITRATOR JUSTICE R.C. LAHOTI (RETD.), ARBITRATOR AT NEW DELHI IN THE MATTER OF: GMR AMBALA CHANDIGARH EXPRESSWAYS PRIVATE LIMITED CLAIMANT VERSUS 1. NATIONAL HIGHWAYS AUTHORITY OF INDIA 2. STATE OF HARYANA RESPONDENTS STATEMENT OF CLAIM A. PARTIES 1. The Claimant is a company incorporated and existing under the provisions of the Companies Act, 1956 and having its registered office at Skip House, 25/1, Museum Road, Bangalore The present Statement of Claim is being instituted, signed and verified by Mr. G. Ambaprasad, Vice President Legal, the Authorised Representative of the Claimant having been authorized vide Resolution of the Board of the Claimant dated May 9, A copy of the Board Resolution dated May 9, 2012 is annexed hereto and marked as Annexure C The Respondent No.1 i.e. National Highways Authority of India ( NHAI ) is a statutory body constituted under the National Highways Authority of India Act, 1988 and is responsible for maintenance, management and development of the national highways or stretch of the national highway vested in or entrusted to it by the Central Government.

4 4 The Respondent No.2 is the State of Haryana represented through its Public Works (B&R) Department. B. INTRODUCTION 3.1 Traditionally, the National Highways in India were developed from the budgetary resources of the Government of India. Under entry 23 of the Union List of the Seventh Schedule to the Constitution, the Parliament has exclusive power to legislate with respect to highways declared to be the national highway by or under the law made by the Parliament. In exercise of the said power, the development and maintenance of national highways is fully financed by the Central Government. Section 5 of the National Highways Act, 1956 provides that the Central Government shall be responsible to develop and maintain such national highways. It further states that the Central Government may direct that any function in relation to the development and maintenance of national highways shall also be exercisable among others, by an officer or authority, subordinate to the Central Government. 3.2 In terms of the aforesaid provisions i.e. Section 5, the Central Government retained to itself the activities pertaining to planning, approval of design and estimates, monitoring, etc. whereas the State Governments were delegated functions of actual execution of project for which the State Government were entitled to Agency Charges from the Central Government on the expenditure incurred by them on works executed on national highways. This system was typically known as Agency System.

5 5 3.3 Although, for about 40 years, the aforesaid Agency System of execution of national highway works by the State Government had been functioning, several difficulties were experienced from time to time. This was mainly because the Central Government had no direct administrative control over the executing agency. There were instances when the Central Government had to remain helpless in case the State Government overlooked the acts of omission or commission on the part of the staff engaged in the construction and maintenance of the national highways which resulted in an anomalous situations wherein the Central Government, being constitutionally responsible for development and maintenance of national highways, had to defend the actions of State Government in various forums including the Parliament. To overcome the difficulties being faced, it was proposed that the development and maintenance of the national highways system may be taken over by the Central Government through the creation of an autonomous national highway authority. Accordingly, the National Highways Authority of India Act, 1988 was notified by the Central Government on December 16, 1988 being Act No.68 of 1988 ( NHAI Act ). 3.4 NHAI was constituted as a body corporate under Section 3 of the NHAI Act w.e.f. June 15, 1989 vide S.O. 450(E), dated June 15, 1989, published in the Gazette of India, Extra., Part II, Section 3(ii), dated June 15, In terms of Section 11 of the NHAI Act, the Central Government may, from time to time, by notification in the Official Gazette, vest in, or entrust to, the NHAI, such national highways or any stretch thereof as may be specified in such notification. Further, upon such vesting/entrustment, all obligations and liabilities of the Central

6 6 Government stands transferred to NHAI in terms of Section 12 of the NHAI Act. Under Section 13 of NHAI Act, any land required by NHAI for discharging its functions under the Act shall be deemed to be the land required for public purpose and may be acquired by NHAI under the provisions of the National Highways Act, NHAI has also been empowered under Section 14 of the NHAI Act to enter into and perform any contracts necessary for discharging its functions under the NHAI Act. Further, under Section 16 of the NHAI Act, the functions of NHAI are enumerated which include the survey, development, maintenance and management of highways vested in, or entrusted to it amongst other functions. 3.5 Iin addition to above and with a view to seek substantial private participation for the development of the national highways in the country so as to allocate the funds earmarked for the development of the national highways for other essential basic needs, a policy decision was taken by Central Government to put in place appropriate policies, institutional and regulatory mechanisms including a set of fiscal and financial incentives to encourage increased private sector participation in road sector. 3.6 In order to accomplish the above, the Central Government amended the National Highways Act, 1956 and incorporated Section 8A vide Act 26 of 1995 w.e.f which gave power to the Central Government to enter into an Agreement with any person in relation to the development and maintenance of the whole or part of national highway.

7 7 Section 8A further provides that any person with whom such agreement has been entered into can collect and retain fees, for services or benefits rendered by him as the Central Government may provide for by notification having regard to the expenditure involved in building, maintenance, management and operation of such national highway, interest on capital invested, reasonable return, the volume of traffic and the period of such agreement. ( emphasis supplied) 3.7 Pursuant to the above, the Government of India launched the National Highways Development Project (NHDP), one of the largest development programme to be undertaken by a single authority in the world i.e. the NHAI. NHDP envisaged widening, upgradation, strengthening and rehabilitation of about 55,000 km of roads. Most of the projects under the NHDP have been developed or are under development on Public Private Partnership (PPP) basis. 3.8 In recent years and as per the mandate of the Central Government, the Respondent No.1/NHAI has developed various sections of the national highways by private financing under Public Private Partnership (PPP) broadly under the following framework: Build Operate and Transfer (BOT)/Design Build Finance Operate and Transfer (DBFOT) - Investment by private firm and return through levy and retention of user fee, i.e., toll fees; Build Operate and Transfer (Annuity) BOT (Annuity) - Investment by private firm and return through semi-annual payments from NHAI as per bid.

8 8 3.9 The BOT framework stated above envisages a consortium of financiers, contractors and consultants offering to construct some project, at their own cost which would otherwise consume public money. They recover their cost, along with profit, over the concession period in which they operate the project by collecting and retaining toll revenues from the public who make use of the facility developed by them. In case of Annuity projects, the concessionaire will be entitled for a fixed Annuity payable half yearly during the entire concession period. Further, the NHAI projects with higher traffic volumes are also bid out on negative grant. After the concession period, the facility is transferred to the authority, i.e. the NHAI. BOT contracts are essentially the contracts where it is the entrepreneur who arranges the finances. In these, the owner i.e. the NHAI will first select an entrepreneur on the basis of several parameters such as: financial strength, capacity to raise resources from the market, capital subsidy or equity support expected from the NHAI, quality and adequacy of the organization and institutional arrangements, performance specifications of the facility offered, period of concession, cost to be charged to the users, etc. NHAI will then enter into an agreement with the concessionaire so selected, who enters into one or more contract (s) for the design, procurement of materials and equipment, completion and maintenance of the project in accordance with the provisions of the agreement with the NHAI Unlike projects wherein the NHAI provides annuity to Investors, the high traffic section of the national highway are generally bid out on negative grant (also known as Premium) basis under BOT framework. In such projects, the concessionaire offers payment of negative grant to the NHAI in lieu of the right to build and operate the project highway

9 9 during the concession period as determined by the NHAI. Such a setup is highly beneficial to the NHAI as: a) it does not have to incur costs of constructing the national highway; b) it does not have to provide a grant to the concessionaire in order to finance the construction cost. c) it has an assured return from project highway without having to incur any capital or recurring cost for the construction, maintenance or operation of such highway. d) it receives back a completed and well maintained project highway at the end of the concession period. Further, in such a framework, the investor/concessionaire is entitled to collect and retain the toll collected from public who are using the project highway to fulfill the following: Make payment of negative grant to the NHAI. Recover cost of operation and maintenance of the project highway during the period of the concession. re-payment of loans to the lenders. Recover the investment made in the project along with reasonable return on the investment made. Thus, in such project bid out on negative grant, the representations and information regarding the traffic volumes and other relevant information provided in the bid documents plays a critical role for the bidders to take an informed decision as to whether to bid on an annuity basis or on negative grant basis and in case of negative grant, the amount of such negative grant is to be paid to the NHAI Further, the viability and success of such BOT projects cannot be achieved without the proper and continuous support of the state

10 10 governments from where such project highway passes through. Accordingly, in such projects, the NHAI ensures that the governments of the state through which such project highway passes agree to grant extensive continued support and the rights to the investor/concessionaires to ensure smooth building and operation of the project and to maintain the financial viability of the same. Such support finds place in tripartite agreements entered into between NHAI, the investor and the respective state governments and these agreements generally contain a negative covenant estopping the state government from taking any action which adversely effects the financial viability of such project. Such restrictions are a common feature of BOT projects and are introduced by the Government itself as a part of its national policy to execute the infrastructure project under Public Private Participation (PPP) model and to ensure that the investors/concessionaires are given a fair and equitable opportunity to recover the huge expenditure and investments made by them in the construction, operation and maintenance of such vital public utilities. Such limited restrictions for albeit only a small period of time are but a small insurance given by the Government to the investors/concessionaire. C. FACTUAL BACKGROUND AND SUBMISSIONS IN SUPPORT OF THE CLAIMS 4. The facts and circumstances leading to the filing of the present Statement of Claim and the submissions of the Claimant are stated hereunder:

11 The Ambala-Chandigarh section of the national highway is a part of NH-22 passing through the state of Punjab. The NH-22 starts at Ambala in Haryana and then goes on through the hilly state of Himachal Pradesh to join Khab at the Chinese border. A small part of it goes through the NH 21 also. Before the execution of the Concession Agreement (as defined hereinafter), the Ambala-Chandigarh section of the national highway was a two lane stretch, but with one of the highest traffic densities in the country with traffic coming in from the adjoining states of Punjab, Haryana, Himachal Pradesh and Delhi. 4.2 The stretch of the highway which starts at the beginning of NH-22 connects the town of Ambala in Haryana, and the city of Chandigarh. The stretch passes through the States of Punjab and Haryana which are the front runners in agricultural production and therefore assumes great economic importance in setting up a trade link of the States with the rest of the country. This section further assumes importance on account of its connectivity to Chandigarh which is a Union Territory in addition to being the capital of Punjab and Haryana and is the most important industrial hub of the region. Ambala is on the border of Punjab and Haryana and has one of the main railway junctions of the northern railway zone. It is also an important military location as the ammunition depot is located in this stretch and there is regular military movement. Due to its geographical location, Ambala is an important transit for traffic coming from the capital Delhi and bound for the popular tourist hill towns of Himachal such as Shimla, Chail and Kasauli. The Ambala- Chandigarh section of the national highway is the lifeline for the hilly and mountainous state of Himachal Pradesh and NH 22 and NH 21,

12 12 which connects Chandigarh to Manali. As such, the section is one of the major roads which connect Himachal Pradesh to the plains. The Ambala - Chandigarh stretch of National Highway 21 & 22 has one of the highest traffic densities in the country as it caters to vehicular traffic between Punjab, Haryana, Himachal Pradesh and New Delhi. However, before the execution of the Concession Agreement, the said stretch of the national highway, being only a two lane highway, traffic congestion was a regular feature and was proving to be a major impediment to the free flow of commercial and private vehicular traffic between the above said regions thereby increasing the travel time considerably. 4.3 Accordingly, the Ambala-Chandigarh section of the national highway was made a part of NHDP-III programme which involves upgradation of 12,109 kilometers (mainly four-laning) of high density national highways, which typically consists of stretches of national highways carrying high volume traffic connecting state capitals with the NHDP network under phases I & II and providing connectivity to places of economic, commercial and tourist importance, through BOT mode. Vide notification dated November 10, 2005 issued by the Ministry of Shipping, Road Transport and Highways (Department of Road, Transport and Highways), Government of India under Section 11 of the NHAI Act, the Central Government entrusted the stretches from km to of NH-22 and from km to km of NH-21 (Ambala-Chandigarh Section) in the States of Haryana and Punjab respectively to the Respondent No.1/NHAI.

13 In furtherance of the NHDP-III project, Ministry of Road, Transport and Highways invited proposals for empanelment of BOT entrepreneurs for Four-laning of National Highways on BOT basis pursuant to which selected BOT entrepreneurs were empanelled. The consortium comprising GMR Energy Limited (formerly known as M/s Tanvir Bavi Power Company Private Limited) and GMR Infrastructure Limited was one of such empanelled BOT entrepreneurs. 4.5 In pursuance of the above and in performance of its statutory duties and functions, NHAI/Respondent No.1 with a view to augment the capacity of the Ambala (km 5+735) Zirakpur (km )section of the NH-22 and km section of NH-21 by widening the existing 2 lane road to 4 lane dual carriageway facility with flyover/interchange, way side amenities etc.( Project Highway ) on BOT basis, invited proposals from the empanelled BOT entrepreneurs including the consortium comprising GMR Energy Limited and GMR Infrastructure Limited with GMR Energy Limited as the Lead Member ( Consortium ). In this regard, the Respondent No.1 in May, 2005 issued the bid documents to the interested parties along with the Detailed Project Report and the draft concession agreement and the draft state support agreement ( Bid Documents ). 4.6 In order to assist the bidders in taking a commercial decision to bid for the project, the Bid Document issued by the Respondent No.1 provided a detailed traffic survey report on the Project Highway. The Bid Document further gave an assurance to the interested parties that in order to maintain the project viability, Respondent No.1/Government of India/Govt. of Haryana/Govt. of Punjab shall agree not to implement

14 14 any new project which will affect the traffic flow or revenue streams of the project. In addition to the same, Respondent No.1 also laid the broad economic specification of the Project Highway including the concession period, base toll rates including permitted yearly escalations thereof, tentative cost of construction etc. The Detailed Project Report issued to the bidders further contained reports regarding extensive research conducted vis-à-vis the financial viability of the Project Highway. 4.7 The Bid Document also contained the draft concession agreement proposed to be entered into by Respondent No.1 with the successful bidder in order to apprise the interested parties of the rights and obligations of the parties to the concession agreement. It further appraised the interested parties of the inbuilt mechanisms and protections to be incorporated into the Concession Agreement in order to ensure the economic and commercial viability of the project during the concession period as mandated under Section 8A of the National Highways Act, In view of the peculiar geographical location of the project highway wherein it passes through the States of Haryana and Punjab, the draft concession agreement further represented that the Respondent No.1/ NHAI shall be responsible for ensuring that the State of Punjab and the State of Haryana provide their respective support to the Claimant for meeting its obligations for execution of project. Respondent No.1/NHAI further represented to the bidders in the Bid Document that the State Governments shall be estopped from opening any project to the public which have the effect of reducing the traffic on the Project Highway so

15 15 as to affect the economic viability of the project during the concession period and to this effect a draft of the state support agreement to be entered into with the respective states of Punjab and Haryana were also provided to the bidders as a part of the Bid Document. The Claimant states the aforesaid representations and commitments on the part of NHAI/Respondent No.1 were the fundamental terms and conditions underlying the contract, as without such representations/commitments no investor would have undertaken a contract which required huge investments when the recovery and any return on such investment can only be achieved at a later stage of the operation of the project. A copy of the relevant portions of the Bid Documents containing the draft concession agreement, the draft State Support Agreement and the Detailed Project Report as issued by the Respondent No.1 is annexed hereto and marked as Annexure C That the Consortium, based on the representations made by Respondent No.1 in the Bid Documents including the draft concession agreement and the traffic study and the projected revenue set out therein, conducted its own independent traffic study which confirmed the traffic study as well as the projections set forth by Respondent No.1 in the Bid Document and the Detailed Project Report Based on the information provided in the Bid Documents including traffic study, the projected revenue as well as the prevalent rules for determination of toll rate and collection, the Consortium evaluated that it would be in position to: (i) recover the cost of construction;

16 16 (ii) (iii) (iv) repay the debt of the lenders; receive a reasonable rate of return on its investment; and also have sufficient cash surplus to be able to share the same with the NHAI/Respondent No.1; In view of the disclosures made by NHAI in their Bid Document including the fact that the Project Highway is a high traffic corridor forming part of NHDP-III, the Consortium decided to bid for the above said project on negative grant basis and accordingly offered a total negative grant of Rs Crores to the Respondent No.1 payable during the concession period. The representations contained in the Bid Documents for the grant of the concession for the upgradation, development, operation and maintenance of the Project Highway formed the basis for making the said offer The Respondent No.1 accepted the bid of the Consortium as it was found to be the most competitive and commercially viable bid and accordingly issued a Letter of Acceptance dated June 29, 2005 to the Consortium. A copy of the Letter of Acceptance dated June 29, 2005 is annexed hereto and marked as Annexure C In terms of the bid condition, the Claimant company was incorporated by the Consortium pursuant to which, the Respondent No.1 entered into an agreement on November 16, 2005 with the Claimant for Improvement, Operation and Maintenance including Strengthening and Widening of Existing 2 lane Road to 4 lane Dual Carriageway from (I). km km of NH-22 and (II) km 0.00 to km of NH-21 (Ambala-Chandigarh Section) in the State of Haryana and the State of Punjab ( Concession Agreement ).

17 17 a) The Concession Agreement (draft of which was part of the Bid Document) granted various rights to the Claimant for the performance of its obligations. It further provided for restrictions to be adhered to by the Respondent No.1, Respondent No.2, State of Punjab as well as the Government of India so that the financial equilibrium of the project is maintained throughout the period of concession. Clause 2 of the Concession Agreement provides for the Scope of the project and the same states as under: II SCOPE OF PROJECT 2.1 The Project shall be executed on the Site, which is described in Schedule A of this Agreement. The scope of the Project shall include performance and execution by the Concessionaire of all designs, engineering, financing, procurement, construction, completion, operation and maintenance of the Project Highway as described in Schedule B and Schedule C of this Agreement. It shall include improvement, operation and maintenance of Rehabilitation and Strengthening of existing 2- lane road and widening to 4-lane Dual Carriageway of Ambala-Chandigarh Section from i) Km km of NH-22 And ii) Km Km of NH-21 except Km potion of the NH-22, DeraBassi ROB from km to km till the validity of the existing concession of M/s R S Builders & Engineers is over in accordance with the Specifications and Standards set forth in Schedule D and operation and maintenance thereof in accordance with Schedule L. It shall also include the

18 18 performance and fulfillment of other obligations by the Concessionaire under this Agreement b) Further, Clause 3 of the Concession Agreement provides for the grant of concession to the Claimant as under: 3.1 Subject to and in accordance with the terms and conditions set forth in this Agreement, NHAI hereby grants to the Concessionaire and the Concessionaire hereby accepts the Concession for a period of 20 (twenty) years commencing from the Appointed Date, including the exclusive right, license and authority during the subsistence of this Agreement to implement the Project and the Concession in respect of the Project Highway. 3.2 Subject to and in accordance with the terms and conditions set forth in this Agreement, the Concession hereby granted shall entitle the Concessionaire to enjoy, and oblige the Concessionaire to undertake the following in accordance with the provisions of this Agreement, the Applicable Laws and the Applicable Permits: i. to develop, design, engineer, finance, procure, construct, operate and maintain the Project Highway during the Concession Period; ii. upon completion of the Project Highway and during the Operation Period to manage, operate & maintain the Project Highway and regulate the use thereof by third parties;

19 19 iii. levy, demand, collect and appropriate the Fees from vehicles and persons liable to payment of Fees for using the Project Highway or any part thereof and refuse entry to any vehicle to the Project Highway if the due Fee is not paid; iv. perform and fulfill all of the Concessionaire s obligation under this Agreement; v. bear and pay all expenses, costs, and charges incurred in the fulfillment of all the Concessionaire s obligation under this Agreement; and vi. not assign or create any lien or Encumbrance on the Concession hereby granted on the whole or any part of the Project Highway nor transfer, lease or part possession therewith save and except as expressly permitted by this Agreement or the Substitution Agreement 3.3 The Concession Period shall commence on the Appointed Date and shall end on the Termination Date. c) Clause 4 of the Concession Agreement provides for certain mandatory conditions precedent which are required to be fulfilled before the rights and obligations of the Claimant under the Concession Agreement come into effect. Clause 4 provides for the following: IV CONDITION PRECEDENT 4.1 Save and except as provided in Article IV, V and XXII, the rights and obligations of the Concessionaire under this Agreement are subject to the satisfaction in full of the following conditions precedent to be fulfilled on or before the Financial

20 20 Close unless such condition has been waived as provided in Clause (d) the Concessionaire shall have entered into the State Support Agreement with NHAI, GOHR and the GOPb; Obligation to satisfy the Condition Precedent The Concessionaire shall make all reasonable endeavours to procure the satisfaction on full of the Conditions Precedent set out in Clause 4.1 above and NHAI shall make all reasonable endeavours to procure fulfilment of the conditions set forth in Sub-clauses (b), (c) and (d) of Clause 4.1. Each party shall bear its respective cost and expense of satisfying such Conditions Precedent unless otherwise expressly provided. d) The Concession Agreement also provides for collection of fees on the Project Highway by the Claimant during the Operation Period which fee shall be fixed by the Government of India in terms of the mandate of Section 8A of the National Highways Act, Clause 6.1 of the Concession Agreement provides: VI FEES 6.1 The Concessionaire shall be entitled during the Operation Period to levy and collect the Fees from the users of the Project Highway pursuant to and in accordance with the Schedule of User Fee set forth in Schedule G and this Agreement. Provided, however, that such Fee shall be rounded off to the nearest one rupee for ensuring ease of payment and collection.

21 21 Within 90 days prior to the COD of the Project Highway, as certified by Independent Consultant, the Schedule of User Fees as per Schedule G shall be notified by MoSRT&H as Fees Notification. e) Further, as represented in the Bid Documents, the Respondent No.1, in order to maintain the financial equilibrium of the Project Highway also agreed to the following covenant under Clause 8 of the Concession Agreement: VIII. ADDITIONAL TOLLWAY 8.1 Notwithstanding anything to the contrary contained in this Agreement, any of NHAI, GOI, GOHR or GOPb may construct and operate either itself or have the same, inter alia, built and operated on BOT basis or otherwise any Expressway or other toll road, not being a bye-pass, between, inter alia, Ambala- Chandigarh Section from (i) Km km of NH-22 and (ii) Km Km of NH-21 (the Additional Tollway ) provided that such Additional Tollway shall not be opened to traffic before expiry of 8 (eight) years from the Appointed Date. 8.2 In the event of NHAI, GOI, GOHR or GOPB, as the case may be, constructing or permitting construction of any Additional Tollway as set forth in this Clause 8.2, and the Additional Tollway is commissioned at any time after 8 (eight) years from the Appointed Date, then the Concession Period shall be increased by half the number of years by which such commissioning precedes the expiry of the Concession Period.

22 Upon commissioning of the Additional Tollway, the Concessionaire shall continue to levy and collect the Fee under this Agreement and shall not offer any discounts or reductions in such Fee except with the prior written consent of NHAI. Provided, however, that any such discounts or reductions that the Concessionaire had offered to any general or special class of users or vehicles for a continuous period of three years prior to the commissioning of the Additional Tollway may continue in the same form and manner after the commissioning of such Additional Tollway. 8.4 NHAI shall ensure that the per kilometer fee to be levied and collected from any vehicle or class of vehicles using the Additional Tollway shall at no time be less than an amount which is 133% of the per kilometer Fee levied and collected form similar vehicles or class of vehicles using the Project Highway. f) Clause 9 of the Concession Agreement provides for the obligations of the Claimant under the Concession Agreement, some of which are as under: IX. OBLIGATIONS OF THE CONCESSIONAIRE. (iii) Submit to NHAI certified true copies of each of the Project Agreements within 7 (seven) days of their execution...

23 23 (xiii) levy and collect Fees from users of the Project Highway at the rates set forth in the Fee Notification and in accordance with this Agreement and regulate the traffic on the Project Highway in accordance with the Applicable Laws The Concessionaire shall submit to NHAI the drafts of the Project Agreements including in particular the EPC Contract, the Financing Documents, the O&M Contract and the Tolling Contract for its review. NHAI shall have the right but not the obligation to provide its comments and observations, if any, in respect of the Project Agreements within 30 (thirty) days of the receipt thereof by NHAI and the Concessionaire shall consider all such comments/observations. Any such comments/observations by NHAI on any Project Agreements or the failure to provide such comments shall not relieve or absolve in any manner whatsoever the Concessionaire of its obligations, duties and liabilities under this Agreement nor shall it make NHAI and/or Independent Consultant liable to the Concessionaire in any manner whatsoever and shall be without prejudice to the rights of NHAI hereunder. g) The Respondent No.1/ NHAI and the Claimant were ad-idem to each and every aspect of the concession including the foundational economics required for the implementation and performance of the respective obligations of the parties under the Concession Agreement. In fact, a perusal of Clause 8 and 9 of the Concession Agreement clarifies that the performance of its obligation under Clause 8 of the Concession Agreement by the Respondent No.1 which is one of the

24 24 foundational pillar of the contract, is a pre-requisite for the performance of its obligation by the Claimant under Clause 9 of the Concession Agreement. Also, Clause 10 of the Concession Agreement provides for the obligations of the Respondent No.1. Some of the relevant obligations of Respondent No.1 under Clause 10 are as follows: X. OBLIGATIONS OF NHAI (vii) Enter into the State Support Agreement with the concessionaire, the GOHR and GoPb.. (x) Observe and comply with its obligations set forth in this Agreement. h) On the basis of representations made in the Bid Documents, the Claimant had offered to pay to the Respondent No.1, a negative grant of INR Crores, the payment of which is to be made in terms of Clause 23 of the Concession Agreement as under: XXIII. NEGATIVE GRANT/GRANT 23.2 The Concessionaire agrees to provide to NHAI cash payment (the Negative Grant ) equal to the sum, if any, set forth in the Bid of the Bidder and accepted by NHAI amounting to Rs Crores (Rupees One Hundred Seventy Four Crores Seventy Five Lacs Twenty Thousand Only) as per details tabulated below:- Rs. In Crores

25 25 Year Construction Period Operations Period Yearly Grant (+)/Negati ve Grant (-) (-) (-) (-) (-) (-) (-) (-) (-) Year Operation Period TOTAL Yearly Grant (+)/Negative Grant (-) (-) (-) Negative Grant shall be paid in advance within 90 (Ninety) days of the commencement of the year for which it is due and payable. i) Clause 31 of the Concession Agreement provides for compensation to be paid by the Respondent No.1 to the Claimant in case of breach by the Respondent No.1 of its obligations under the Concession Agreement. It states as under XXXI. COMPENSATION FOR BREACH OF AGREEMENT 31.2 In the event of NHAI being in material default of this Agreement and such default is cured before Termination, NHAI shall pay to the Concessionaire as compensation, all direct additional costs suffered or incurred by the Concessionaire arising out of such material default by NHAI, in one lumpsum within 30 (thirty) days of receiving the demand or at NHAI s option in 3 (three) equal semi-annual installments with SBI PLR plus 2% (two per cent). j) Further, since under the Concession Agreement, it is the responsibility of the Respondent No.1 to ensure that the respective State

26 26 Governments or the Government of India do not create a situation which adversely effects the financial viability of the Project Highway, the same has been specifically incorporated into the Concession Agreement wherein any act of commission or omission by either the Government of India or the respective State Governments which create circumstances that have a Material Adverse Effect on the performance of its obligations by the Claimant is treated as a default of the Respondent No.1. In this regard, the relevant provisions of Clause 32 states as under: XXXII TERMINATION Termination for NHAI Event of Default The Concessionaire may after giving 90 (ninety) days notice in writing to NHAI terminate this Agreement upon the occurrence and continuation of any of the following events (each a NHAI Event of Default ), unless any such NHAI Event of Default has occurred as a result of Concessionaire Event of Default or due to a Force Majeure Events:... (3). GoI, GOHR or GOPb or any Governmental Agency have by an act of commission or omission created circumstances that have a Material Adverse Effect on the performance of its obligations by the Concessionaire and have failed to cure the same within 90 (ninety) days of receipt of notice by NHAI in this behalf from the Concessionaire;...

27 27 Further, Material Adverse Effect has been defined under the Concession Agreement as under: Material Adverse Effect means material adverse effect of any act or event on the ability of either Party to perform any of its obligations under and in accordance with the provisions of this Agreement k) In terms of Clause 37 of the Concession Agreement, Respondent No.1/NHAI has agreed to indemnify the Claimant as under: XXXVII LIABILITY AND INDEMINITY 37.1 General Indemnity (ii) NHAI will, indemnify, defend and hold harmless the Concessionaire against any and all proceedings, actions, third party claims for loss, damage and expense of whatever kind and nature arising out of defect in title and/or the rights of NHAI in the land comprised in the Site adversely affecting the performance of the Concessionaire s obligation under this Agreement and/or arising out of the acts done in discharge of their lawful functions by NHAI, its Officers, servants, agents, subsidiaries and contractors ( NHAI Indemnified Persons ) including NHAI Events of Default except to the extent that any such claim has arisen due to a negligent act or omission, breach of contract or breach of statutory duty on the part of the Concessionaire, its Subsidiaries, affiliates, contractors, servants or agents including due to the Concessionaire Event of Default

28 28 It may further be noted that in terms of its statutory obligations under the National Highways Act, 1956 and based upon its assurance under the Bid Documents, the NHAI/Respondent No.1 agreed to ensure that a Toll Fee notification is issued by the Government of India having regard to the expenditure involved in building, maintenance, management and operation of the Project Highway, interest on capital invested, reasonable return in terms of Schedule G as under: PART-III: Non-Technical Schedules SCHEDULE G SCHEDULE OF USER FEE Now, therefore, in exercise of powers conferred by Section 8A of the National Highways Act, 1956 (48 of 1956), read with rule 3 of the National Highways (Collection of Fees by any person for the use of section of the National Highway/Permanent Bridge/ Temporary Bridge or National Highway) Rules, 1997, the Central Government having regard to the expenditure involved in building, maintenance, management and operation of the said section of the said National Highway, interest on capital invested, reasonable return, the volume of traffic and the period of such agreement entered into between the Authority and the Concessionaire, hereby notifies that there shall be levied an collected fees on mechanical vehicles for the use of the said section starting from km to.. of the National Highway number.. in the States of. At the rate specified in the Schedule below, and authorizes the said concessionaire to

29 29 collect and retain the said fees from the date of commercial operation till the termination date. A copy of the Concession Agreement along with its schedules is annexed hereto and marked as Annexure C Recognising the fact that to ensure the continued financial viability of the Project Highway and the implementation of the concession by the Claimant in terms of the Concession Agreement required extensive continued support and grant of certain rights and authorities by the Respondent No.2 and State of Punjab, the Respondent No.1, as represented in the Bid Document, undertook upon itself, the responsibility of ensuring execution of agreement with the Respondent No.2 and the State of Punjab for their continued support. The Respondent No.1 also undertook the responsibility to ensure that the respective State Governments do not breach their obligations under their respective state support agreements. The execution of such state support agreements was so vital to maintain the financial viability of the project that the execution of the same was made a condition precedent for effectiveness of the Concession Agreement. The Respondent No.1 accordingly entered into a tripartite State Support Agreement with the Respondent No.2 and the Claimant on February 21, 2006 ( State Support Agreement ) thereby taking upon itself the primary responsibility of ensuring continued financial viability of the Project Highway during the Concession Period. In terms of the State Support Agreement, the Respondent No.2 agreed to provide extensive continuous support including grant of certain rights to the Claimant. It was this joint representation of the Respondents as assured in the Bid

30 30 Document and reflected in the Concession Agreement and the State Support Agreement that made the Claimant bid for the project The relevant provisions of the State Support Agreement laying down the obligations of the States for ensuring the continued financial viability of the project are being reproduced hereunder for ready reference of the Hon ble Tribunal:... WHEREAS G GOHR, NHAI and the Concessionaire agree that the implementation of the Concession including performance of its obligations by the Concessionaire under and in accordance with the Concession Agreement requires extensive continued support and grant of certain rights and authorities as hereinafter set forth by GOHR and is an essential pre-condition for mobilization of resources therefore by the Concessionaire. NOW THEREFORE THE PARTIES HERETO HEREBY AGREE AND THIS AGREMENT WITNESSETH AS FOLLOWS: SUPPORT OF GOHR 3.1 Upon and with effect from the date hereof GOHR agrees... (xi) not do or omit to do any act, deed or thing which may in any manner be violative of or cause the Concessionaire to violate any of the provisions of the Concession Agreement.

31 Notwithstanding anything to the contrary contained in the Agreement, GOHR may construct and operate either itself or have the same, inter alia, built and operated on BOT basis or otherwise any Expressway or other toll road, not being a byepass, between inter alia, Ambla-Chandigarh Section from i) Km Km of NH-22 and ii) Km Km of NH-21 (the Additional Tollway ), provided that such Additional Tollway shall not be opened to traffic before expiry of 8 (eight) years from the Appointed Date BREACH AND COMPENSATION 7.1 In case GOHR is in breach of any of its obligations under this Agreement, which breach is not cured within 30 days of receipt of a notice in writing from the Concessionaire to GOHR and NHAI and which has not occurred as a result of Concessionaire s breach of its obligations under this Agreement or the Concession Agreement, GOHR shall pay to the Concessionaire, all direct additional costs suffered or incurred by the Concessionaire, determined by NHAI as arising out of such material default by GOHR. 7.2 In case of any dispute by GOHR on admissibility of the claim or extent of compensation determined by NHAI, the claim shall be settled as per provisions of the Dispute Settlement mechanism provided in Article IX of this Agreement.

32 Any such compensation payable shall be paid to the Concessionaire, in one lump sum within 90 (ninety) days of receiving NHAI s determination of compensation. A copy of the State Support Agreement executed by Respondents with the Claimant is annexed hereto and marked as Annexure C-5. An identical tripartite agreement was also entered into by the Respondent No.1 with the State of Punjab and the Claimant The assurances and representations of the Respondent No.1 in the Bid Document find a place in both the Concession Agreement and the State Support Agreement (under Clause 8 of the Concession Agreement and Clause 3 of the State Support Agreement respectively) creating a complete prohibition for a period of eight years upon the Respondent No.1/NHAI, Respondent No.2 and the State of Punjab, from operating/implementing any new project which will have an adverse effect on the traffic flow or revenue streams of the Project Highway being implemented by the Claimant. Both the said provisions under the Concession Agreement and the State Support Agreement provide for: a) prohibition form opening to traffic, before expiry of eight years from the Appointed Date, any Expressway or other toll road between inter alia Ambala Chandigarh section of the national highway; b) absolute prohibition from opening to traffic any bye-pass between inter alia Ambala Chandigarh section of the national highway; and c) increase in the Concession Period, in case such Expressway or other toll road between inter alia Ambala Chandigarh section is

33 33 commissioned or opened to traffic after eight years from the Appointed Date. Such clauses have been incorporated in both the agreements because any such acts by the Respondent No.1/NHAI, Respondent No.2 or the State of Punjab will adversely effect the financially viability of the Project Highway which in turn will disturb the fundamental premise upon which the Respondent No.1 has granted the concession to the Claimant and the Claimant has agreed to undertake its obligations/responsibilities under the Concession Agreement. The Respondent No.1/NHAI, Respondent No.2 and the State of Punjab all being beneficiaries of the Project Highway have expressly agreed for the inclusion of such a negative covenant in the Concession Agreement and the State Support Agreement In terms of the provisions of the Concession Agreement the Claimant submitted to the Respondent No.1, the Financing Documents for its review and approval pursuant to which the Claimant in order to perform its obligations under the Concession Agreement and with the prior knowledge and consent of the Respondent No.1, availed financial assistance from Lenders viz., various financial institutions and banks and incurred a total cost of Rs.498 Crores in completion of the Project Highway. The Claimant also states that it completed the construction of the Project Highway as per the Concession Agreement within the stipulated time and to the satisfaction of the Respondents pursuant to which the Respondent issued a Completion Certificate. A copy of the Completion Certificate dated March 14, 2009 issued by Respondent No.1 is annexed hereto and marked as Annexure C-6.

34 Pursuant to the completion of the Project Highway and in terms of the statutory mandate under Section 8A of the National Highways Act, 1956 as well as the commitment made in the Bid Document and the Concession Agreement, the Respondent No.1 through the Government of India issued the toll notification dated November 21, 2008 in terms of Schedule G of the Concession Agreement having regard to the expenditure incurred by the Claimant in building, maintenance, management and operation of the Project Highway, interest on capital invested, reasonable return, the volume of traffic and the period of concession. Pursuant to the same, the Commercial Operations of the Project Highway commenced on November 14, 2008 and thereafter the Claimant started collecting toll from the traffic from December 10, 2008 in terms of the Concession Agreement read with Schedule G thereto. A copy of the toll notification dated November 21, 2008 issued by the Government of India is annexed hereto and marked as Annexure C During the period 2006 to 2010, Respondent No.2, in gross violation of the letter and spirit of Concession Agreement as also reflected in the State Support Agreement, developed, improved and strengthened the peripheral roads, around the Project Highway namely: a) Railway Over Bridge on Saha and Shahabad of SH 31 at Kesri ( RoB ). b) Strengthening and Widening of NH 73 between Saha to Panchkula Due to the said improvement, development and strengthening of the aforesaid sections of the State Highway namely Railway Over Bridge

35 35 on Saha and Shahabad of SH 31 at Kesri and strengthening and widening of NH-73 between Saha to Panchkula in the State of Haryana ( Alternate Routes/Competing Roads ) which hereto were not capable of catering to heavy commercial vehicles, the commercial vehicles which were otherwise using the Project Highway started opting to ply on these roads by avoiding and bypassing the toll plaza of the Claimant thereby substantially reducing the commercial traffic on the Project Highway passing through the toll plaza of the Claimant and lead to substantial loss of toll which would have otherwise have been collected by the Claimants from such vehicles It is stated that the commercial decision to bid for the project was taken by the Consortium on the basis of the traffic data, period of concession and other representations made by the Respondent No.1/NHAI at the time of bidding which were found to be correct. Further, the Claimant had agreed to undertake the development of the Project Highway based on the representations of the Respondent No.1/NHAI that the traffic projected in the Bid Documents would ply on the Project Highway and the same is only bound to increase as per the detailed projections contained in the Bid Document keeping in view the normal trend of economic development in the Country. The traffic study conducted by the Claimant, Respondent No.1 and even by the Project Lenders (before the bid, during the bid and subsequent to the bid respectively) revealed almost similar traffic trends along the Project Highway which in turn strengthened the faith of the Claimant in the representations of the Respondent No.l /NHAI made in the Bid Document.

36 The proposal of the Claimant to pay a Negative Grant to the Respondent No.1/NHAI for grant of the Concession was derived on the basis of the traffic data provided by the Respondent No.1 in the Bid Document and the projections of traffic growth depicted therein. Based on the projected traffic and the toll rate prescribed by the Government of India the Claimant estimated the collection at Rs Lakh per day on an average towards toll revenue in the year of its commissioning i.e and the same was expected to grow during the concession period keeping in view the increase in the commercial traffic movement from Delhi to State of Haryana and the State of Punjab. Even the Bid Document while making a representation with regard to the financial viability of the Project Highway to interested bidders reflected a similar average daily toll collection figure to be expected when the Project Highway would become operational However, on account of the aforesaid diversion of the substantial commercial traffic from the Project Highway to the above said Alternate Routes/Competing Roads on account of the development including strengthening and widening of the said Alternate Routes/Competing Roads by Respondent No.2 and the Government of Punjab substantially reducing the flow of traffic on the Project Highway so much so that the average collection reduced to only Rs.5 Lakh (approx.) per day as against Respondent No.1 s projection of an average of Rs Lakh per day in the year 2008 which was the assured collection calculated on the basis of traffic data disclosed by the Respondent No.1 and found to be correct. Further, the following table would show that there has been no improvement in the toll revenue even in subsequent years: [Rs. in Crores]

37 37 Year Projected Actual Toll Difference Difference Toll Revenues Revenues in % Dec Mar (upto Dec, ) Thus, the actual toll revenue collection by the Claimant is less than even 50% of the projected revenue. This substantially altered the basic understanding between the Claimant and the Respondent as to the commercial and financial viability of the Project Highway thereby altering the fundamental premise underlying the contract and thus disturbing the financial equilibrium agreed to be maintained by the parties during the concession period It is stated that in the month of August-September, 2009, the Claimant appointed an independent agency namely M/s ICRA Management Consulting Services Ltd. ( IMaCS ) to undertake a detailed traffic validation study in and around the Ambala-Chandigarh section of the National Highway in order to establish the existing and future (over the entire concession period) tollable traffic on the Project Highway and the impact of the major competing highways/alternate roads on the Project Highway. After a detailed study, IMaCS prepared a detailed report dated September 29, 2009 whereby the key reasons for the diversion of traffic from the Project Highway to Alternate Routes/Competing Roads were derived as follows:

38 38 a) NH-73 was a single lane road without good surface quality during bidding process. i) Presently it is a two lane road with Shoulders with good surface quality. ii) NH- 73 is connected to NH-1 at Shahabad and traffic is diverted. b) SH-31 which was a single lane road during the bid stage has undergone substantial improvement with development of RoB at Kesri and widening and improvement of carriageway. A copy of the Executive Summary dated September 29, 2009 prepared by IMaCS is annexed hereto and marked as Annexure C-8. It is further stated that the same agency namely IMaCS has carried out another study of the traffic on the Project Highway in October 2012 and concluded in its report as under: a) Detailed Project Report carried out in July 2004 by Respondent No.1/NHAI s Consultant (M/s CES) characterized the Project Highway as commercial and industrial corridor with very high growth potential and observed a growth of 7% and 9% for cars and commercial vehicles respectively between 2000 and b) With reference to the bid forecasts for Project Highway, the total vehicular traffic is showing about 40% decline with around 80% decline in commercial/goods traffic. c) While the commercial traffic has shown steep decline on Project Highway, the traffic on the neighbouring corridors has shown strong and aggressive growth i.e., above 25% during 2005 to 2009 (Post COD) and above 10% CAGR between 2005 and 2012.

39 39 d) Also, the traffic plying through Delhi/Haryana/Rajasthan/South India and Mohali/Kalka/Panchkula which was earlier traveling on Project Highway is now found moving along alternate routes i.e., Banur Thepla Kharar and Sahabad Saha Panchkula sections in states of Punjab and Haryana respectively. e) The above trends establish the fact that the traffic which was earlier (during pre-bid i.e., ) using the Project Highway has since COD (i.e., since ) has diverted to the alternate roads which have undergone substantial improvement in terms of capacity and riding quality and are toll free. A copy of the Executive Summary prepared and issued in December, 2012 by IMaCS is annexed hereto and marked as Annexure C It is stated that the flow of vehicular traffic on the Project Highway has reduced only after the Respondent No.1 in gross violations of its obligations under the Concession Agreement allowed the operation of the strengthened and widened alternate/peripheral routes by the Respondent No.2 during the year 2006 onwards. It is stated that the Project Highway crosses the Ambala Kalka Northern Railway lines at Dehra Bassi (of a length of 2.085km) where a rail over bridge was already existing being constructed by M/s R.S. Builders and Engineers Ltd. under a separate BOT Contract and toll was being levied from user. The severe reduction in the traffic on the Project Highway after the opening of the Alternate Routes/Competing Roads to traffic is also evident from the toll data of M/s. R.S. Builders and Engineers Limited at RoB Toll Plaza, Derabassi (situated on the Project Highway). The said Toll Data is as follows:-

40 40 From the above, it is clear that the average traffic passing through the Project Highway has fallen much below the level of traffic within two years of the Claimant entering into the Concession Agreement As stated hereinabove, at the time of bidding and entering into the Concession Agreement by the Claimant, the Alternate Routes/Competing Roads (since developed by the Respondent No.2 and the State of Punjab) which are now facilitating the commercial vehicles in bypassing the Project Highway were not strong enough to cater to the commercial traffic. Further, in terms of Concession Agreement and consequently the State Support Agreement entered into with the Respondents, the Respondent No.1 had assured the Claimant, the extensive and continuous support of the Respondent No.2 including grant of certain rights to the Claimant under Clause 3.2 of the State Support Agreement for ensuring the continued financial viability of the Project Highway during the concession period Further, under the Concession Agreement and the State Support Agreement, the Respondents have agreed/assured not to operate any