Contractual Limits On Termination Liability Cannot Be Ignored: Delhi HC Upholds Setting Aside ₹911 Cr Arbitral Award
The Delhi High Court recently observed that contractual words restricting termination liability must be given effect, holding that parties to a long-term public infrastructure concession could not have inserted such limitations without intending them to operate as a cap.
A Division Bench comprising Justice Anil Kshetarpal and Justice Shail Jain made the observation while upholding the setting aside of an arbitral award granting ₹911.13 crore to Kurukshetra Expressway Private Limited as termination payment from the National Highways Authority of India (NHAI).
“Words of restriction and qualification deliberately incorporated into a definition clause must be given meaning and effect.", it ruled
"Their purpose is precisely to cap the outer limit of the obligation being defined...... This court is unable to accept that commercially sophisticated parties, negotiating a public infrastructure concession running into decades, inserted words of limitation into the very definition of the Respondent's termination liability without intending them to limit anything.”, it added.
The dispute arose from the termination of the concession for the Rohtak-Bawal section of NH-71 in Haryana. Kurukshetra Expressway had invoked force majeure provisions after prolonged suspension of toll operations and sought ₹1,347.53 crore as termination payment. The arbitral tribunal later awarded ₹911.13 crore.
The central issue was whether the tribunal could calculate the payment using a ₹1,045.55-crore project cost notified by the concessionaire in a Disaggregation Letter. This was despite the agreement's definition of Total Project Cost (TPC). Article 48.1 defined TPC as the lowest of three specified figures, including a figure based on ₹650 crore less Equity Support.
Article 34.9.2 prescribed the termination-payment formula based on Debt Due and 110% of Adjusted Equity.
Kurukshetra Expressway argued that Article 34.9.2 was the specific provision governing termination payment. It also relied on NHAI's scrutiny and approval of its financing arrangements, which reflected a project cost higher than ₹650 crore.
NHAI countered that the tribunal had effectively replaced the contractual TPC ceiling with the ₹1,045.55-crore figure, thereby rewriting the parties' bargain.
The bench rejected the concessionaire's interpretation. It held that Article 34.9.2 could not be read in isolation because Debt Due and Adjusted Equity were themselves linked to the defined TPC. The termination-payment formula therefore operated within the TPC limit.
The court also rejected the reliance on the Disaggregation Letter to increase TPC, observing:
“No provision, however, permits the Concessionaire to unilaterally enhance the TPC through a Disaggregation Letter.”
The letter could disaggregate an already-determined TPC between Debt Due and Equity. It could not itself determine a higher TPC. The agreement contained a separate mechanism for revising TPC in specified circumstances involving changes in the Wholesale Price Index, but no mechanism permitting a unilateral increase through such a letter.
The bench further held that the tribunal had gone beyond interpreting the agreement and had effectively altered the contractual allocation of risk. Since its interpretation rendered the TPC limitation ineffective, the Single Judge was justified in treating it as patent illegality under Section 34 of the Arbitration and Conciliation Act.
The bench found no ground to interfere and dismissed Kurukshetra Expressway's appeal, upholding the setting aside of the ₹911.13-crore termination award and the consequential interest award.
For Petitioner (Kurukshetra Expressway Private Limited): Senior Advocates Sandeep Sethi, Rajiv Nayar and Dayan Krishnan, with Advocates Rishi Agrawala, Dr Sunil Mittal, Daksh Arora, Rajat Sinha, Ranjan Mukherjee, Anant Shukla, Krisna Gambhir and Shreya Sethi.
For Respondent (National Highways Authority of India): Advocates A.K. Nijhawan and Abdul Vahid.