The following note is a brief summary of the order pronounced by the High Court of Allahabad in matter of Noida Toll Bridge Limited. The emphasis laid on some parts is mine and may not be a part of the judgement.
Also incorporated in brackets and in italics are my thoughts on some of the arguments/ counter arguments put forth by different parties to the case. My thoughts should not be construed as comments on the judgement. This is an academic exercise to understand reasoning behind the order and risks undermining the contracts, more so when one of the parties is an instrument of the State.
To fully understand and get a grip on the arguments, you should read the complete order at this link.
CASE: Public Interest Litigation (PIL) No. 60214 of 2012
Petitioner: Federation of NOIDA Residents Welfare Association
Respondent No. 1:- NOIDA Toll Bridge Company Ltd
Respondent No. 2:- NOIDA
Respondent No. 9:- IL & FS
Matter at hand: This is a public interest litigation challenging the levy and collection of toll as User fee by NOIDA Toll Bridge Company from the commuters for using the Eight-lane DND Flyway having stretch of 9.2 km. from NOIDA to Delhi.
The Concession Agreement was executed on Nov 12th, 1997 between the Noida Authority, IL&FS and Noida Toll Bridge Company Limited.
Crux of the case:
1. Submission of the petitioner :
a) Cost of construction of the project plus reasonable returns (no figure has been supplied for reasonable returns) have been achieved by the Concessionaire. Now, there is no justification for continuing the toll.
b) Based on the formula in the concession agreement, till 31.3.2016, the total cost of project based on 20% assured returns reached a figure of Rs. 5,000 Crores plus. This amount will go on increasing further in view of the formula adopted in Article 14 of the Concession Agreement to determine the Total cost of project. The Total cost of Project can never be recovered and the bridge will never be free from levy of Toll.
(Courts will be inclined to take a very strong view on this point. Any project aimed to have a limited life for collection of fee, if transforms itself to a perpetual money collecting machine, courts might not take a kind view. This kind of an agreement is like bonded labour.)
c) Various clauses of the Concession Agreement are against the public interest.
d) There is no cap on the Total Project Cost and O&M expenses which are to be ultimately borne by Users.
e) No tender was invited before grant of contract for DND Flyover, there was no advertisement, no bidding. It was a clandestine deal that too with the view to benefit a private company at the cost of public. The award of the contract is, therefore, in violation of Article 14 of the Constitution of India.
(This is a charge with very serious ramifications. If the award of contract is in violation of the Constitution, it can be declared null and void. Calculation of returns and shortfall of returns will be out of the picture, then)
f) Only the cost of actual construction and some reasonable amount towards maintenance of roads can be recovered that too only by the State Government which can charge the toll tax.
(Only the State Government is allowed to charge the toll tax, and nobody else. That puts the whole agreement allowing Noida Toll Bridge Company to charge user fee bad in law.)
g) The action of NOIDA in awarding the Concession Agreement dated 12.11.1997 in favour of NOIDA Toll Bridge Company i.e. the Concessionaire fails to satisfy the test of reasonableness and public interest as has been laid down by the Apex Court in M/s. Kasturi Lal Lakshmi Reddy vs. State of Jammu & Kashmir.
2. Submission of NOIDA
NOIDA has admitted in its counter affidavit that Section 14 of the Agreement read with Annexure 'F', i.e. the method of computing total project cost is not in public interest. The Concession Agreement, therefore, is not serving public interest. The unfair, untenable and irrational clauses in the contract make it arbitrary, unjust, opposed to public policy and amenable to judicial review.
3. Response of Noida Toll Bridge Company Limited
a) The present petition is liable to be dismissed on the ground of latches. (From Wikipedia: Laches from Old French laschesse refers to a lack of diligence and activity in making a legal claim)
The petitioners herein did not challenge the project when it commenced rather the residents of NOIDA at that point of time wrote to the Chief Minister and the Government to fast-track the project as there was urgent need for another connectivity between Delhi and NOIDA.
The Steering Committee was chaired by the Secretary of the Ministry of Urban Affairs and Development, Government of India (presently Ministry of Urban Development), however, the Ministry of Urban Development has not been made party in the petition.
The plea of violation of Article 14 of the Constitution of India is not available after so many years.
(These are weak arguments in my view. I believe that there is never a wrong time to do the right thing.)
b) NOIDA is a signatory to the agreement, it cannot dispute the clauses of the agreement and it is not permissible for NOIDA to challenge the agreement after so many years.
c) It is submitted that scope of interference in contractual matters for adjudicating the constitutional validity relating to economic policy matters of State is neither within the domain of the Courts, nor amenable to judicial review.
d) The power to levy the User fee can be traced to Section 6-A of U.P. Industrial Area Development Act, 1976 read with New Okhla Development Area (Levy of Infrastructure Fee) Regulations, 1998 framed under section 19 of the Act, 1976. The validity of these provisions is not subject matter of challenge in the present PIL.
e) The amount of user fee paid by the commuters is also independent and does not get affected by the increasing value of the total cost of project.
(This again is quite a weak argument. If the term of the agreement gets extended due to shortfalls in returns, the commuters would have to pay to use the bridge and hence it is not independent of total cost of the project. This argument doesn’t have legs to stand.)
f) Amendment to the terms of the contract is under negotiation between the parties.
g) “Doctrine of Unconscionable Contract” is not applicable in relation to the Concession Agreement. This doctrine is attracted in a case, where the contracting parties have grossly unequal bargaining power, to the point where free consent may not be presumed on behalf of the weaker party.
h) In case the concession agreement is considered unconscionable, even by applying the “Doctrine of Severability”, the concession period of 30 years will remain intact.
i) “Doctrine of Frustration of Contract” shall not apply as it is the case of default of NOIDA itself.
4. Comments of the Honourable High Court of Allahabad
a) Where the public interest is affected, the power of judicial review will be permissible even in contractual matters.
b) The Government has the freedom in the matters of contract; the decision/action of the Government is to be tested on the touchstone of “Wednesbury principles of unreasonableness”. If there is procedural impropriety, the court would intervene and set right the decision making process.
c) Under UP Industrial Area Development Act 1976; there was no provision of levying “User Fee” on the date of the Concession Agreement, Nov 12th 1997. Only the Government could levy toll or User Fee. A private company couldn’t do that. Insertion of Section 6 A to the Act was made through an Amendment to the regulations on 14.08.1998 which is after the execution of the concession agreement i.e. 12.11.1997. There is no retrospective operation of Section 6 A which is specified in law.
In Zile Singh vs. State of Haryana and others, the Apex Court held in paragraph '13' as under:-
“It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the Legislature to affect existing rights, it is deemed to be prospective only 'nova constitutio futuris formam imponere debet non praeteritis' __ a new law ought to regulate what is to follow, not the past."
Hence, sub-delegation of power to levy and thereafter collect the toll/user fee upon a private company under the Concession Agreement is bad.
(This is an important point. On the date of execution of the concession agreement, the State Government did not have the power to authorise any private player to levy and collect fee. Due to lack of a legal provision to do so, the whole concession agreement then becomes illegal.)
d) In Breen v. Amalgamated Engineering Union (1971) 2 QB 175, Lord Denning MR said: "The discretion of a statutory body is never unfettered. It is a discretion which is to be exercised according to law. That means at least this: the statutory body must be guided by relevant considerations and not by irrelevantly. If its decision is influenced by extraneous considerations which it ought not to have taken into account, then the decision cannot stand. No matter that the statutory body may have acted in good faith; nevertheless the decision will be set aside.
e) Agreement/ Contract itself hit by Article 14 of the constitution of India and therefore, liable to be declared null and void.
In light of the above arguments more elaborately dealt upon in the order, the High Court pronounced that no user fee can legally be levied/ charged by the Concessionaire and in light of the facts that the concessionaire has already recovered the cost of project in addition to reasonable returns, the Concessionaire cannot collect any user fee from the commuters, hereon.
This is quite a complex situation in my opinion. The whole business and its earnings stream are now overcast. More than returns, the constitutional and legal validity of concession agreement is in question. If the Supreme Court were to uphold the judgement of the Allahabad High Court, the whole business of Noida Toll Bridge stands to get decimated. Only time and the Supreme Court will tell which way the shareholders of Noida Toll are headed.