The Delhi High Court has refused to interfere with an arbitral tribunal’s decision dismissing NHAI’s application to substitute itself with the concessionaire in an ongoing arbitration arising from the termination of the NH-8B concession agreement. Justice Girish Kathpalia agreed with the respondent’s submission that dropping NHAI and substituting the SPV could jeopardise the ARC’s claims, thereby frustrating the arbitral process.
The case stemmed from the termination of a 2005 highway concession awarded for the design, construction and operation of a stretch of NH-8B, executed through a special purpose vehicle (SPV) created by Infrastructure Leasing & Financial Services Ltd. (IL&FS), an infrastructure development and financing conglomerate that routinely sets up project-specific subsidiaries to deliver public infrastructure contracts. After NHAI issued a termination notice in December 2021 and took possession of the project, the concessionaire and senior lenders initiated Section 9 proceedings, leading the Delhi High Court to direct conciliation and, upon failure, reference to arbitration.
During conciliation, the lenders assigned their debt to CFM Asset Reconstruction Pvt. Ltd. (ARC), which later initiated arbitration alleging wrongful termination and violation of lender-protection obligations. NHAI then sought to exit the arbitration based on a separate settlement with the concessionaire, resulting in the present challenge after the tribunal refused substitution.
NHAI argued that because it had entered into a settlement with the concessionaire (the SPV), a settlement later approved by the NCLT, all liabilities arising out of the project had shifted to the SPV. On that basis, NHAI filed an application under Order XXII Rule 10 CPC asking the arbitral tribunal to substitute the SPV in its place and discharge NHAI from the arbitration.
However, Justice Girish Kathpalia held that this argument had no legal foundation because the claimant in the arbitration was the ARC, which had taken over the lenders’ rights by assignment. The ARC was never a party to the NCLT settlement, did not consent to it, and its rights could not be extinguished by an agreement made between NHAI and the SPV alone. Therefore, NHAI could not use that settlement as a ground to exit the arbitration.
The senior lenders’ debt was assigned to the ARC after conciliation proceedings had begun, and the ARC did not participate in the earlier resolution process. Their claims were exclusively against NHAI, especially regarding the allegation that no notice was issued to lenders prior to termination, a statutory safeguard under the concession framework, the court noted.
Rejecting NHAI’s reliance on the settlement agreement, the Court underlined that the SPV had itself opposed substitution and that the agreement did not contemplate transferring responsibility for defending claims before the arbitral tribunal. Allowing substitution, the Court warned, would not only risk frustrating the claimant’s case but also expand the dispute to encompass differences between NHAI and the concessionaire, distorting the original reference made under Section 9 orders. The Court clarified that allegations of “bad faith” against the SPV were misplaced because such considerations apply only between parties to arbitration, not outsiders being sought to be introduced after removing an existing party.
On maintainability, the Court reiterated that supervisory jurisdiction under Article 227 over arbitral orders is extremely narrow and cannot be used to revisit procedural decisions unless they are patently perverse or reflect a manifest miscarriage of justice. Since the tribunal’s order rejecting NHAI’s application was reasoned, logical and consistent with settled jurisprudence, no such exceptional ground was made out.
Finding no justifiable ground to interfere with the impugned order, the court has dismissed the petition.
Appearance
For Petitioner (NHAI): Mr. Tushar Mehta, Solicitor General of India with Mr. Nishant Awana, Ms. Rini Badoni, Ms. Rebecca Mishra, Ms. Ekta Kundu
For Respondent No. 1 (CFM ARC): Mr. Saurabh Kirpal, Senior Advocate with Mr. Atul Shanker Mathur, Ms. Priya Singh, Mr. Shubhankar, Mr. Rajat Choudhary, Mr. Junaid
For Respondent No. 2 (SPV / Concessionaire): Mr. Raunak Dhillion, Mr. Nihaad Dewan, Mr. Akshay Gupta, Ms. Isha Malik
