In a major victory for the new management at Infrastructure Leasing and Financial Services (IL&FS), it has managed to receive Rs1,925 crore from the Gurgaon Metro Project.
IL&FS had to go head on with the Haryana government and the Union government via the high court and then Supreme Court to get the state government to honour contractual obligations. This throws up the peculiar challenges faced by the new board in the IL&FS resolution, where the other party to disputes in public-private contracts are always state entities.
As part of the interim termination payment, IL&FS has received Rs1,925 crore from Haryana Shehari Vikas Pradhikaran (HSVP) in its escrow accounts. This is in compliance with a Supreme Court order of 26 March 2021 in the Gurgaon Metro Project, which was being developed by two special purpose vehicles (SPVs)—Rapid Metro Rail Gurgaon Ltd (RMGL) and Rapid Metro Rail Gurgaon South Ltd (RMGSL).
The apex court had asked HSVP to deposit 80% of total debt of over Rs2,400 crore—based on an audit by the Comptroller and Auditor General (CAG) within three months into the escrow account of the two SPVs. This works out to Rs1,925 crore. As in all IL&FS projects a clutch of public sector banks were the lead banks for the SPVs.
The ruling is important because it indicates the challenge faced in the resolution process and is expected to set a precedent in several other cases that have been filed by the new board, which expects to recover over Rs60,000 crore of IL&FS’ total outstanding of nearly Rs1 lakh crore when the massive and shadowy conglomerate of 347 entities began to default and payment and had its credit rating slashed overnight from the AAA status it had dubiously enjoyed.
Before this, the high court had ruled in favour of IL&FS on 28 September 2019, giving HSVP the operations and maintenance contract (O&M) to the metro project. It also directed HSVP to pay 80% of debt due determined by CAG in the escrow account within 30 days of the report and other issues to be settled through arbitration.
HSVP had taken over the Metro Link Project operations in October 2019 following the court order, to keep the metro running. However, HSVP did not comply with the payment part forcing the IL&FS entities to move the Supreme Court in January 2021 for the money.
IL&FS had won the two-phased Gurgaon Metro Project that were developed through its subsidiary SPVs—RMGL and RMGSL—in 2009 and 2013, respectively, for the development of Metro rail link from Sikanderpur Station on M.G. Road to NH-8 and from Sikanderpur Station on M.G. Road to Sector 56, Gurugram.
Both the contracts were terminated by RMGL and RMGSL on 7 June 2019, to take effect from 8 September 2019, after the expiry of 90 days, whereas, HSVP terminated both the contracts on 26 August 2019.
In a release, IL&FS says, "Due to multiple unmet obligations by the HSVP - under the concession agreement IL&FS SPVs had terminated the concession agreements in September 2019 and demanded certain termination payments due to them under the concession agreement."
HSVP, however refuted the contention of IL&FS SPVs and challenged the matter in High Court (HC) of Punjab and Haryana.
After hearing both the parties, in September 2019 the HC ruled those operations and maintenance of the metro link be handed over to HSVP. It also directed CAG to carry out financial audit of total debt due after which HSVP would pay 80% of debt due (as determined by CAG) in the escrow account within 30 days of submission of CAG report and sought that all other disputes to be settled through arbitration.
IL&FS says, as per the orders from the HC, in October 2019, its SPVs handed over the project to the Haryana government unit.
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