Overview
In this matter, the Delhi High Court examined whether the NHAI Termination Payment could be claimed by the lenders under the Escrow and Substitution Agreements after the Concession Agreements (CAs) were terminated. The dispute also involved the question as to the validity of a Provisional Completion Certificate(PCC). It was as to whether a PCC, once issued validly, could later be kept in abeyance.

The appeals were filed by NHAI under Section 37 of the Arbitration and Conciliation Act 1996. NHAI challenged the decision of the Single Judge who refused to interfere with two arbitral awards directing payment into the Escrow Accounts.

Facts of the Case

National Highways Authority of India (NHAI) entered into two CAs for highway projects in Tamil Nadu. These projects involved the Trichy-Karaikudi road section and the Dindigul-Theni and Theni-Kumli sections.

South Indian Bank, the respondent herein, financed the project through loans. Escrow Agreements and Substitution Agreements were also executed to protect the interests of the lender.

For the first project, the Independent Engineer issued a PCC on 8 December 2016 for the completed 90.671 km stretch. NHAI, inspected the completed portion and authorised its issuance. However, after nine days, it was stated by the engineer that the PCC would remain in abeyance until the Theni Bypass was completed.

The concessionaire later faced financial issues. Its account was classified as an NPA in 2018, and the CAs were eventually terminated by NHAI in 2019. The respondent then moved to arbitration under the Escrow and Substitution Agreements. 

The Arbitral Tribunals directed NHAI to deposit ? 229.50 crore and ? 181.81 crore as Termination Payments. These awards were challenged by NHAI, but the Single Judge declined to interfere. 

Following the same, the NHAI approached the Division Bench under Section 37 of the Arbitration and Conciliation Act 1996.

Legal Issues

1. Whether the Concession Agreements formed part of the Escrow and Substitution Agreements.
2. Whether an Independent Engineer could keep a PCC in abeyance after it has already been issued.
3. Whether the lender could claim Termination Payment under contractual security.
4. Whether the Arbitral Tribunal had the authority to determine the amount of Termination Payment.
5. Whether the awards passed required interference under the limited scope of Section 37 of the Arbitration and Conciliation Act 1996.

Decision

The Delhi High Court dismissed the appeals and the arbitral awards directing NHAI Termination Payment into the Escrow Accounts were upheld.

It was held that the CAs were a part of the Escrow and Substitution Agreements. The drafting of those agreements showed that they were not merely attached for reference. They were incorporated into the contract with a particular intent.

The Court also ruled that the PCC which was issued on 8 December 2016 could not subsequently be kept in abeyance. The relevant contractual provision allowed withholding before issuance. Since NHAI inspected the complete stretch and authorised the PCC, the Court found no reason to interfere with the Tribunal’s conclusion.

The Court further held that the lender could enforce the relevant rights under the Substitution Agreement. The contractual assignment allowed the lender to step into the concessionaire’s position for this particular purpose.

At last, it was found that the Tribunal’s calculation of the Termination Payments was based on the contractual framework. NHAI had not disputed the calculation before the Tribunal. The narrow scope of Section 37 therefore did not justify the interference.

The appeals were dismissed, and the pending applications were also dismissed as infructuous.

Case Reference :- National Highways Authority of India Vs. South Indian Bank Ltd. and Union Bank of India Ltd. & Anr. FAO(OS) (Comm) 137/2025 & CM Appl. 56772/2025 and FAO(OS) (Comm) 152/2025 & CM Appl. 60827/2025 (DB, Before V. Kameswar Rao and Vinod Kumar, JJ.)