M.C. Mehta v. Union of India & Ors. (Kundli-Manesar-Palwal Expressway lenders' applications)
Background
Within the long-running M.C. Mehta environmental PIL monitoring the Kundli-Manesar-Palwal Expressway project near Delhi, a consortium of lender banks (led by IDBI Bank and State Bank of India) had financed the original concessionaire building the expressway. When the original concessionaire failed to complete the project on time, the Supreme Court had earlier directed the Haryana state agency (HSIIDC) to replace it, and the work was split between two new entities. The lender banks approached the Court complaining that HSIIDC had gone ahead with the new concessionaires without honouring its contractual commitment to ensure the new entities took over the outstanding dues owed to the banks by the old concessionaire.
Decision Breakdown
The Court declined to itself rewrite the new concession agreements to force the new concessionaires to assume the old lenders' dues, holding that this would improperly vary contractual terms between other parties and was a dispute more suited to adjudication elsewhere. Noting that a tripartite agreement between the banks, HSIIDC and the old concessionaire already contained an arbitration clause, the Court referred all disputes between the lender banks, HSIIDC and the outgoing concessionaire to the arbitral tribunal already handling a related arbitration (headed by Justice N.K. Sodhi). As an interim protective measure pending that arbitration, it directed that 80% of toll revenue collected on the already-built stretch of the expressway be deposited in an escrow account with the lead bank, with the remaining 20% available to HSIIDC for maintenance, and directed that this arrangement not hold up the new concessionaire's construction work. The Court expressly clarified it was not expressing any view on the merits of the banks' underlying contractual claims, leaving those entirely to the arbitral tribunal.
Lesson Learnt
When a dispute is already covered by an arbitration clause in a contract, courts will generally decline to decide the merits themselves and will instead send the parties to arbitration, while still using their interim powers (such as directing an escrow account) to protect a party's financial interests until that arbitration concludes.