Widening And Improvement Of An Existing Road Would Be A ‘Bypass’ When Such Improvement Diverts Traffic From Project Road Resulting In Loss Of Toll Revenue: Delhi High Court

The bench of Justices Suresh Kumar Kait and Neena Bansal Krishna upheld the setting aside of an arbitral award wherein the tribunal had rejected the claims of the contractor by observing that the widening or development of an existing road would not be a ‘bypass’ even if does lead to reduction in the traffic on the project highway.

The Court upheld the finding of the ld. Single Judge that a ‘bypass’ need not be a new road, nor does it necessarily have to have its starting and ending at points proximate to the project highway. A road that offers an alternative to the commuters to avoid the project road would amount to a bypass.

The Court held that when the agreement prohibits the creation of any additional toll way or bypass, the purpose of such contractual stipulation is to protect the interest of the contract who builds the highway on negative or BOT basis and the consideration for the contractor in such contracts is the revenue received from the traffic toll, therefore, the upgradation of an existing narrow road to an extent where it becomes viable for heavy commercial vehicles, would be a ‘bypass’ if it leads to diversion of traffic and offers to the commuters an alternative option to avoid the toll, thereby, causing loss of revenue to the contractor.

The Court also held that an arbitral award passed after ignoring crucial evidences would be liable to be set aside under Section 34 of the A&C Act.

Facts

The dispute revolved around a contract involving the National Highways Authority of India (NHAI) and GMR for the development of NH-21 and NH-22 National Highways. NHAI invited bids based on a Detailed Project Report (DPR), which projected annual toll revenue from 2009 to 2024. Bidders who opted for a "negative grant" were required to pay a specific amount to NHAI.

GMR's bid was accepted, leading to a Concession Agreement signed on November 16, 2005 Additionally, a State Support Tripartite Agreement was executed among NHAI, GMR, and the states of Haryana and Punjab. Clause 8 of Concession Agreement and Clause 3 of the State Support Agreement prohibited construction of an additional toll way on the same stretch of road and also the construction of any bypass which could divert the traffic.

The dispute arose when the State of Haryana improved and strengthened an alternative road, rendering it suitable for commercial traffic. This development was seen as a breach of the Concession Agreement and the State Support Concession Agreement, as it diverted traffic away from the project highway, reducing toll collection. GMR, which had based its bid on the expectation of increased commercial traffic, suffered revenue losses.

To quantify their loss in toll collection, GMR engaged the services of M/s ICRA Management Consultancy Service Limited. Their report indicated a significant decline in traffic on the project highway, particularly for commercial traffic, while the alternative road experienced growth in traffic.

GMR made several representations and sought relief from NHAI and the State of Haryana, even resorting to dispute resolution mechanisms outlined in the Concession Agreement. However, a resolution was not reached. Subsequently, GMR initiated arbitration proceedings under the Arbitration and Conciliation Act, 1996, claiming a substantial amount from NHAI and the State of Haryana.

Arbitral Award

The arbitral tribunal rejected the claims filed by GMR by observing that the widening, construction or improvement of the existing roads did not lead to creation of a ‘bypass’ as for a road to be constituted as a bypass it must have its start and end at points proximate to the project road and the existing roads were 23 kms away from the project road.

In the arbitral proceedings, GMR had requested the tribunal to direct NHAI to bring on record certain documents which would constitute an admission on their part about the development of the existing road acting as a bypass which resulted in the reduction of the traffic, however, despite several orders from the arbitral tribunal, NHAI did not produce such documents. The tribunal passed the award without pursuing those documents and rejected them as mere inter-departmental communications having no evidentiary value.

GMR also produced certain traffic volume reports prepared by IMACS with the consent of NHAI. However, the tribunal rejected them to be of no evidentiary value on the ground that they were in the nature of executive summaries and not the entire reports.

Aggrieved by the impugned award, GMR challenged it under Section 34 of the A&C Act. The ld. Single Judge allowed the challenge and set aside the award and remanded the case back to the tribunal to adjudicate the dispute in the light of the ignored evidences.

Grounds of Appeal

• The Single Judge in proceedings under Section 34 of the Act, exceeded its jurisdiction by interfering into the merits of the arbitral decision.
• The Single Judge overlooked the principle that when an Arbitral Tribunal thoroughly examines issues and records evidence, the Award should not be overturned. It could not reinterpret the contract as the same falls exclusively within the power of the tribunal.
• The Single Judge failed to appreciate that in terms of Clause 8.1 of the Concession Agreement, what it prohibited is the creation of an additional toll way or a bypass, however, mere improvement of an existing road would not be considered a bypass.
• The Single Judge also failed to appreciate that in terms of the provisions of National Highways Act, the governments are duty bound to regularly improve the conditions of the existing road.
• The Single Judge also failed to appreciate that at the time of the submissions of the bid, the information regarding the improvement of the nearing existing roads was already available in the public domain, therefore, the contractor should have submitted its bid taking into account all these factors after doing proper due diligence.
• The Single Judge ordered the repetition of pleadings and evidence in violation of Section 15(3) of the Arbitration and Conciliation Act.

Analysis by the Court

The Court observed that tribunal rejected the claims filed by GMR by observing that the widening, construction or improvement of the existing roads did not lead to creation of a ‘bypass’ as for a road to be constituted as a bypass it must have its start and end at points proximate to the project road and the existing roads were 23 kms away from the project road.

The Court also observed that GMR had sought certain documents but NHAI had failed to produce the crucial documents despite repeated directions by the Arbitral Tribunal. It was never pleaded by NHAI that those documents were not available and yet, the learned tribunal failed to draw an adverse inference and choose to ignore such documents merely as internal documents having no evidentiary value to prove admission on part of NHAI. The Court observed that non production of documents by the NHAI has led to denial of an opportunity to the GMR to establish that officers of NHAI had acknowledged the fact that with the widening and strengthening of alternate route had resulted in becoming by-pass to the project highway.

The Court also perused Clause 8.1 of the Concession Agreement and Clause 3 of the State Support Agreement. The Court held that the clauses did not define the term ‘bypass’, however, it is understood as a road which reduces traffic congestion and offers an alternative route to commuters.

The Court held that development, improvement, widening and construction over an existing narrow highway would be considered to be a ‘bypass’ when such improvement makes the road viable for heavy vehicles and becomes an alternate road, resulting in reduction of the traffic from the project highway, affecting the toll revenue.

The Court upheld the finding of the ld. Single Judge that a ‘bypass’ need not be a new road, nor does it necessarily have to have its starting and ending at points proximate to the project highway. A road that offers an alternative to the commuters to avoid the project road would amount to a bypass.

The Court held that when the agreement prohibits the creation of any additional toll way or bypass, the purpose of such contractual stipulation is to protect the interest of the contract who builds the highway on negative or BOT basis and the consideration for the contractor in such contracts is the revenue received from the traffic toll, therefore, the upgradation of an existing narrow road to an extent where it becomes viable for heavy commercial vehicles, would be a ‘bypass’ if it leads to diversion of traffic and offers to the commuters an alternative option to avoid the toll, thereby, causing loss of revenue to the contractor.

Accordingly, the Court dismissed the appeal.

Case Title: NHAI v. GMR Ambala Chandigarh Expressway Private Limited

Citation: 2023 LiveLaw (Del) 915

Date: 20.09.2023

Counsel for the Appellant: Ms.Maninder Acharya, Senior Advocate with Mr.Suman Jyoti Khaitan, Mr. Vikas Kumar, Mr.Viplav Acharya & Ms.Aarzu Khattar, Advocates

Counsel for the Respondent: Mr.Parag Tripathi, Senior Advocate with Mr.Atul Sharma, Mr. Milanka Chaudhary, Mr.Pranay Chitale, Ms.Abhilasha Sharma, Mr.Ankit Banati, Mr.Anirudh Dusaj, Mr.Kanav Vir Singh, Mr.Dipan Sethi & Mr. Pranshul Kulshrestha, Advocates for respondent No.1

Mr.Rajive Bhalla, Senior Advocate with Dr.Ashwinie Kumar Bansal, Mr.Pankaj Mehta, Ms.Shweta Soni, Ms.Akansha Singh. Mr. Sumeir Ahuja, Mr.Niranjan Sen & Mr.Bhavya Kohli, Advocates for State of Haryana (Respondent No. 2)

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