The Delhi High Court, in an appeal under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996, upheld an interim order of the Arbitral Tribunal and refused to restrain the National Highways Authority of India (NHAI) from enforcing escrow-related obligations under a concession agreement with N.K. Toll Road Ltd.
The dispute arose from a Concession Agreement executed in 2006 for development and operation of a highway project on a Build-Operate-Transfer (BOT) toll basis. During the subsistence of arbitration proceedings between the parties, NHAI issued a Cure Period Notice alleging multiple defaults, including failure to carry out overlay works, non-payment of damages, non-remittance of FASTag dues, and non-compliance with divestment requirements mandating retention of funds in an escrow account.
The Arbitral Tribunal, while granting partial relief, restrained NHAI from acting on certain alleged defaults that were already under adjudication. However, it permitted NHAI to proceed in respect of the alleged non-compliance with Article 34.11 of the Concession Agreement, which required the concessionaire to retain a specified amount in the escrow account or furnish a bank guarantee.
Before the High Court, the appellant contended that enforcement of this obligation was intertwined with disputes pending before the Tribunal and allowing its enforcement would effectively pre-judge issues. It was argued that the obligation under Article 34.11 was not independent but part of the broader defects liability framework.
Rejecting these submissions, the Court held that Article 34.11 creates a standalone and independent obligation, triggered two years prior to the expiry of the concession period, requiring retention of funds based on projected toll revenues or estimated renewal costs. The Court noted that the Independent Engineer had quantified the amount at approximately ₹46.54 crore, and the concessionaire had neither complied with the requirement nor challenged the computation.
Importantly, the Court emphasised that this obligation is not contingent upon disputes relating to overlay works or other contractual breaches, and is aimed at ensuring adequate funds for renewal works before handover of the project.
On the scope of interference under Section 37, the Court reiterated that appellate review of arbitral interim orders is extremely limited, and interference is warranted only in cases of patent illegality or perversity. Finding the Tribunal’s view to be plausible and well-reasoned, the Court declined to interfere.
Accordingly, the appeal was dismissed, reaffirming that contractual obligations especially financial safeguards like escrow requirements cannot be avoided merely because related disputes are pending before an arbitral tribunal.
Appearances:
For the Petitioner: Mr. Ankur Kashyap, Mr. Hasan Murtaza, Mr. Aman Bajaj, Mr. Sameer Sharma, Mr. Aman Bajaj, Mr. Purushartha Singh, Mr. Ankit Kr. Singh and Mr. Siddharth Dua, Mr. Jaideep Khot, Advs.
For the Respondent: Mr. Nishant Awana, Ms. Rini Badoni and Ms. Nitya Sharma, Advs.
