HSIIDC TOLD TO PAY ₹1,737-CR DAMAGES

Corporation is already facing financial crisis on account of huge accumulated debt with an annual interest burden of ₹1,000 crore

CHANDIGARH: In a blow to the state government already struggling with finances, a threemember arbitral tribunal has ordered Haryana State Industrial and Infrastructure Development Corporation (HSIIDC), a government owned public limited company, to pay ₹1,737 crore damages to IDBI Bank.

IDBI was the lead banker to have financed the Kundli Manesar Palwal (KMP) expressway project before the concession agreement with the initially appointed contractor was terminated in March 2015 on account of default.

The fresh financial burden comes at a time when owing to Covid lockdowns, the state government is dependent on market borrowings to raise resources for running its day to day affairs and HSIIDC is also facing financial crisis on account of huge accumulated debt and annual interest burden of Rs 1000 crore.

The bank had filed a case before the tribunal stating that HSIIDC had in 2015 awarded the execution of the balance work of the expressway to two contractors in utter disregard of rights of senior lenders and in breach of its obligation under the substitution agreement and other financing documents. The substitution agreement conferred a right to senior lenders to step in or substitute the contractor.

The tribunal comprising three former Supreme Court judges – Justices RM Lodha, KS Panicker Radhakrishnan and J Chelameswar – in its March 24 order said had HSIIDC not acted in breach of the substitution agreement, the new concessionaire while getting the contract for completion of the balance work would have taken over the liability relating to the dues of senior lenders arising from the loan disbursed to the project contractor. Actually, this is the amount claimed by the IDBI as damages, the tribunal held.

“The IDBI Bank is thus entitled to damages amounting to ₹1,737 crore from HSIIDC to offset the loss suffered due to breach of the substitution agreement. The extent of damages is the total principal amount outstanding as on May 31, 2016, (₹1,027 crore) and the interest during this period amounting to ₹709 crore,” the order said.

“The sum would be paid in four equal instalments of about ₹434 crore on or before June 30, 2020, September 30, December 32 and March 31, 2021.

When asked about the payment of damages to the lending banks, HSIIDC managing director Anurag Aggarwal said the board of directors has decided to challenge the arbitral tribunal orders in Delhi high court.

The tribunal also said that HSIIDC will be entitled to reimbursement of such amount from IDBI which it would recover from KMP Expressways Ltd, the

SPV appointed for implementing the project, towards its outstanding dues pursuant to the orders of the debt recovery tribunal.

The previous Congress regime had proposed ₹1,300 crore payment for terminating the concession agreement with the then contractor of the e-way project.

The project, which was first allotted to M/s KMP Expressways Ltd during the Congress rule, had got derailed as it was mired in legal and financial complications. Looking for a “bail out”, the then Congress government decided to go beyond the provisions of the concession agreement, thereby terminating the deal with mutual consent and giving the project to a new company.

As part of the bail-out plan, the previous government had also decided the termination payment of about ₹1,300 crore to be paid to M/s KMP Expressways and the project lenders by the new company. The ₹1,300 crore fixed as termination payment was on account of the work done on the delayed project by the then contractor. The BJP government, however, rejected the ₹1,300-crore payment, saying the project cost was less than that.

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The IDBI Bank is entitled to damages amounting to ₹1,737 crore from HSIIDC to offset the loss suffered due to breach of the substitution agreement. The extent of damages is the total principal amount outstanding as on May 31, 2016, (₹1,027 crore) and interest during this period amounting to ₹709 crore.

THREE-MEMBER ARBITRARY TRIBUNAL