Safiya Malik

The Delhi High Court has set aside an arbitral award that had rejected the claim of IRB Ahmedabad Vadodara Super Express Tollway Pvt. Ltd. (IRB) for compensation from the National Highways Authority of India (NHAI). The claim arose under Article 35.4 of the Concession Agreement (CA) dated July 25, 2011. The arbitral tribunal had held that IRB was not entitled to compensation because the competing road was opened to traffic after IRB commenced toll collection. The High Court found this interpretation to be erroneous and directed that IRB may reinitiate arbitral proceedings to reassess its entitlement.

The dispute pertains to a Concession Agreement executed between IRB and NHAI on July 25, 2011, under which IRB was granted the right to develop, operate, and maintain a section of the Ahmedabad-Vadodara Expressway under a Design, Build, Finance, Operate, and Transfer (DBFOT) model.

Under the agreement, IRB was permitted to collect toll from the users of the highway for 25 years, starting from January 1, 2013. However, Article 6.3 of the agreement contained a provision restricting the construction of any competing road for ten years unless the traffic on the project highway exceeded 90% of its designed capacity. It stated: "The Authority shall procure that during the subsistence of this Agreement, neither the Authority nor any Government Instrumentality shall, at any time before the 10th (tenth) anniversary of the Appointed Date, construct or cause to be constructed any Competing Road; provided that the restriction herein shall not apply if the average traffic on the Project Highway in any year exceeds 90% (ninety percent) of its designed capacity specified in Clause 29.2.3. Upon breach of its obligations hereunder, the Authority shall be liable to payment of compensation to the Concessionaire under and in accordance with Clause 35.4."

A “Competing Road” was defined in Article 48.1 as: "A road connecting the two end points of the Project Highway and serving as an alternative route thereof, such road being an existing paved road, which has been widened by more than 2 (two) metres of paved road for at least 75% (seventy-five per cent) of the total length thereof at any time after the date of this Agreement, or a new road, which is constructed after such date, as the case may be, but does not include any road connecting the aforesaid two points if the length of such road exceeds the length of the Project Highway by 20% (twenty per cent) thereof."

IRB claimed that the Savli Road, a toll-free state highway built by the Government of Gujarat, fell within this definition and had a direct impact on its toll revenue. IRB alleged that NHAI had failed to prevent the development of this competing road, thereby breaching Article 6.3 of the agreement.

IRB formally raised a claim for compensation under Article 35.4 in 2017. Article 35.4 provided: "In the event that an Additional Tollway or a Competing Road, as the case may be, is opened to traffic in breach of this Agreement, the Authority shall pay to the Concessionaire, for each day of breach, compensation in a sum equal to the difference between the average daily Realisable Fee and the projected daily Fee (the 'Projected Fee') until the breach is cured."

The arbitral tribunal, however, rejected IRB’s claim on April 7, 2024, ruling that IRB was not entitled to compensation because the competing road was opened to traffic after IRB had begun collecting toll. IRB challenged this decision under Section 34 of the Arbitration and Conciliation Act, 1996, before the Delhi High Court.

The Delhi High Court examined whether the arbitral tribunal’s interpretation of Articles 6.3 and 35.4 was legally sustainable under Section 34 of the Arbitration and Conciliation Act, 1996.

Justice C. Hari Shankar noted that the tribunal’s reasoning introduced an extraneous condition into Article 35.4 that was not found in the Concession Agreement. The court stated: "The linking of the date of opening of the Competing Road to traffic, with the date from which IRB commenced collecting toll, as a basis to determine IRB’s entitlement to compensation under Article 35.4 of the CA, is not borne out by Article 35.4 itself and amounts, in fact, to introduction, into Article 35.4, of a consideration which is not to be found in the Article."

The court stated that the tribunal's interpretation effectively rewrote the contract:

"In fact, the view adopted by the Arbitral Tribunal, if accepted, would require Article 35.4 of the CA to be rewritten thus, adding the italicized words: ‘In the event that an Additional Tollway or a Competing Road, as the case may be, is opened to traffic in breach of this Agreement, after the date on which the Concessionaire commences collection of toll from the Project Highway, the Authority shall pay to the Concessionaire…’"

The court held that an arbitral tribunal cannot alter contractual provisions and stated:

"If an Arbitral Tribunal cannot foist, on a party, any liability by effectively rewriting the contract, neither can it deny, to a party, a right to which it is entitled under the contract, by introducing, into the concerned contractual clause, a consideration which is not to be found therein."

Additionally, the court observed that the tribunal failed to consider that the construction of the competing road had been completed before the ten-year restriction period under Article 6.3 had expired. It noted: "The terminus ad quem, by which date the construction of the Competing Road was required to be completed, to sustain a finding that NHAI had breached Article 6.3 of the CA was, therefore, the tenth Anniversary of the Appointed Date. The Appointed Date was 1 January 2013. The tenth Anniversary of the Appointed Date would, therefore, be 1 January 2023. Admittedly, the construction of the entire Competing Road was over before 1 January 2023."

Based on these findings, the High Court set aside the arbitral tribunal’s rejection of IRB’s claim but did not adjudicate on whether IRB was entitled to compensation. Instead, it allowed IRB to reinitiate arbitral proceedings to reassess the issue: "While setting aside the impugned award, the Court leaves it open to IRB to reinitiate arbitral proceedings with respect to the said claim. The new tribunal must reconsider the claim in light of this judgment’s interpretation of Articles 6.3 and 35.4."

The court stated that it was not expressing an opinion on whether IRB was actually entitled to compensation: "It is made clear that the Court has not expressed any opinion on the actual entitlement of IRB to compensation under Article 35.4 of the CA as claimed by it. The examination would, however, have to be in terms of the observations and views expressed in this judgment."

Further, the court stated that if either party was dissatisfied with the new arbitral tribunal's decision, they would have the right to seek appropriate legal remedies.

Case Title: M/S IRB Ahmedabad Vadodara Super Express Tollway Pvt. Ltd.v. National Highways Authority of India
Case Number: O.M.P. (COMM) 261/2024
Bench: Justice C. Hari Shankar

[Read/Download order]