Delhi High Court Says NHAI Cannot Avoid Payments After PCC Issuance, Upholds ₹411 Crore Escrow Awards

The Delhi High Court on 9 July held that a party cannot avoid contractual obligations arising from a Provisional Completion Certificate (PCC) after its issuance by subsequently keeping the certificate in abeyance.

A Division Bench comprising Justices V. Kameswar Rao and Vinod Kumar dismissed two appeals filed by the National Highways Authority of India (NHAI) against lender banks led by South Indian Bank Limited. It observed:

“The aforesaid conclusion of the learned Tribunal and the learned Single Judge is justified and cannot be said to be perverse in law. It is a plausible interpretation, which cannot be interfered with.”

The dispute arose from two concession agreements executed on 12 July 2010, under which NHAI awarded contracts for the Trichy-Karaikudi and Dindigul-Theni highway projects in Tamil Nadu on a design, build, finance, operate and transfer (DBFOT) annuity basis.

South Indian Bank financed the projects under common loan agreements dated 8 January 2011, following which the parties entered into escrow and substitution agreements. The lenders sought enforcement of the escrow mechanism after NHAI terminated the concession agreements.

A PCC for the Dindigul-Theni project was issued on 17 February 2014, while a PCC for the Trichy-Karaikudi project was issued on 8 December 2016. The latter certificate was subsequently kept in abeyance by the Independent Engineer.

NHAI terminated the concession agreements on 31 May 2019 and 22 May 2019 respectively after the concessionaire defaulted on its loan obligations. Following the termination, NHAI did not deposit the contractual termination payments into the escrow accounts.

By separate arbitral awards dated 13 November 2024, the tribunals directed NHAI to deposit Rs. 229,50,00,000 and Rs. 181,81,00,000, along with contractual interest, into the respective escrow accounts.

The tribunals held that the concession agreements formed an integral part of the escrow and substitution agreements, enabling lender banks to enforce the contractual escrow mechanism. They further held that NHAI could not defeat its obligation to make termination payments by subsequently keeping an already issued PCC in abeyance.

NHAI challenged the awards under Section 34 of the Arbitration and Conciliation Act, 1996 (which permits courts to set aside arbitral awards on limited grounds). The Single Judge dismissed the challenges on 1 July 2025, leading to the present appeals under Section 37 of the Act (which provides for appeals against certain arbitration orders).

Before the Division Bench, NHAI argued that lender banks could not claim termination payments under agreements to which they were not parties and that no payment obligation had arisen since the PCC had been kept in abeyance, preventing the projects from achieving commercial operation. South Indian Bank argued that the concession agreements were incorporated into the escrow and substitution agreements and that NHAI was contractually bound to deposit the termination payments into the escrow accounts upon termination.

Agreeing with the arbitral tribunals and the Single Judge, the Division Bench held that the concession agreements were incorporated into the escrow and substitution agreements, that an issued PCC could not subsequently be kept in abeyance, and that the lender banks were entitled to enforce the contractual escrow mechanism.

Accordingly, the High Court found no patent illegality or perversity in the arbitral awards and dismissed both appeals, upholding the directions requiring NHAI to deposit the termination payments with contractual interest into the escrow accounts.

Appearances for appellant (National Highways Authority of India): Senior Advocate Sudhir Nandrajog with Advocates Nishant Awana, Rini Badoni and Ankita Singh.

Appearances for respondent no. 1 (South Indian Bank Ltd.): Senior Advocate Sandeep Sethi with Advocates Manish Dembla and Shubham Kaushik.