IL&FS to operate Gurugram Rapid Metro till Sept 17, arbitration on cards

Meanwhile, the Rapid Metro and Haryana government are expected to continue negotiations regarding transfer of assets, operation and maintenance of the service.
On June 7, the Rapid Metro had served a termination notice to the Haryana government, citing inability to operate the service beyond September 8 due to lack of funds.
On June 7, the Rapid Metro had served a termination notice to the Haryana government, citing inability to operate the service beyond September 8 due to lack of funds.
Updated on Sep 09, 2019 11:24 PM IST
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Gurugram | ByPrayag Arora-Desai, Gurugram

Days after IL&FS Infrastructure announced that it would no longer be able to operate the Rapid Metro Rail service—country’s first fully privately financed rapid Metro project —and got legal permission to hand over operations to the Haryana Shehri Vikas Pradhikaran (HSVP) by September 9, the Punjab and Haryana High Court (HC), on Monday, ordered the firm to continue running the service till September 17 midnight. Meanwhile, the Rapid Metro and Haryana government are expected to continue negotiations regarding transfer of assets, operation and maintenance of the service.

IL&FS is facing bankruptcy proceedings in the National Company Law Appellate Tribunal (NCLAT).

“The Court has found that the dispute between the parties may be resolved by negotiation for which they both would require some time and, therefore, the hearing of this case is deferred to 17.09.2019 and the order of stay granted on 06.09.2019 is also extended till 17.09.2019 midnight,” stated Monday’s order, a copy of which is with the HT.

On June 7, the Rapid Metro had served a termination notice to the Haryana government, citing inability to operate the service beyond September 8 due to lack of funds. The termination notice was challenged by the HSVP last Friday. The same day, however, in a parallel development, the NCLAT also upheld the Rapid Metro’s termination notice and allowed it to transfer the service to Haryana.

At least two senior government officers, who are in the know of the matter, and HSVP advocate Chetan Mittal confirmed to the HT that the Haryana government would be taking charge of the Rapid Metro line. However, the terms of the transfer are still being negotiated.

The question underlying this dispute now is which party breached the terms of the original contract, and the final payout by the Haryana government. While the Rapid Metro is demanding a payout to the tune of 3,500 crore, the Haryana government said the payout should not exceed 1,900 crore.

Representatives of both parties confirmed to the HT that they would approach the NCLAT for permission to resolve the matter by arbitration this week.

Chetan Mittal, an advocate representing HSVP in the matter, said, “We believe the operator is at fault, whereas their stand is that the Haryana government is at fault. The matter will need to be resolved by arbitration, failing which we will approach the Court once again.”

Explaining the terms of payout, a senior IL&FS functionary, who did not wish to be named, said, “There are two termination clauses. One states that if Haryana is in breach of the original contract, they have to pay us at least 80% of the debt accrued by the service in order for the assets to be transferred, in addition to 110% of equity shared, and the accrued interest amount. This amounts to around 3,500 crore. If we are in breach (of the contract), then Haryana needs to pay us only 80% of the debt accrued by the service, which is about 1,900 crore. We have already put it on record that we believe Haryana to have defaulted on its terms.”

Mittal, on the other hand, said that the Haryana government would first conduct a forensic audit of the Rapid Metro’s books. “There have been allegations of over-billing by the company to the tune of 300 crore. In this case, the amount to be paid by Haryana will reduce. As we enter intro arbitration, a thorough audit needs to be done to ensure that the Haryana government does not pick up any undue financial liabilities,” he said. Presently, the original contract stands terminated by both parties.

On Monday, the IL&FS’s two special purpose vehicles—RMGL and RMGSL, which have been running the Rapid Metro since 2013 and 2017—also put certain conditions before the Court, which the HSVP has agreed to discuss in ensuing meetings. The conditions include a time-bound handover of the project to HSVP, commitment by HSVP to accept the handover, commitment to pay at least 80% of debt due as termination, immediate commencement of the handover, indemnification of RMGL/RMGSL from third-party claims and HSVP’s actions, among others.

The SPVs also stated that they would no longer operate the service as concessionaires, but as an agent. “The question as to whether the respondent (Rapid Metro) would act for the purpose of operation and management till 17.09.2019 till midnight as a licensee or an agent shall be decided on the next date of hearing,” the Court said in response. However, the Court also said that continued operations would be “subject to reimbursement of the insurance and operation and maintenance cost by the petitioners.”

The matter will be heard next on September 17.

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