Supreme Court: In a civil appeal by NOIDA Toll Bridge Company Limited (‘NTBCL’) against a decision of Allahabad High Court concerning a challenge to the collection and levying of toll on Delhi-Noida Direct Flyway (DND) wherein the agreement between NTBCL, the New Okhla Industrial Development Authority (NOIDA) and the Infrastructure Leasing and Financial Services Limited (IL&FS) was held to be bad in law and directed NTBCL to cease the imposition of toll upon commuters using the DND Flyway, the Division Bench of Surya Kant* and Ujjal Bhuyan, JJ. upheld the High Court’s decision. The Court held that NTBCL has recovered the project costs and substantial profits, hence, the continued imposition or collection of user fees or tolls was eliminated.
“NOIDA did not have any competence to delegate the power to levy fees and toll to NTBCL, and thereby overstepped its statutory bounds.”
The Court also upheld the High Court’s view on the reasonableness of the formula adopted in the concession agreement, that it was opposed to public policy, unjust, arbitrary and liable to be severed from the concession agreement.
Background
NOIDA and the Delhi Administration entered into a Memorandum of Understanding (MoU) with IL&FS on 07-04-1992, intending to construct the DND Flyway. In pursuance of the MoU, a Committee comprising representatives of the Government of India, the Government of NCT of Delhi, the State of UP and IL&FS was constituted to take important decisions relating to the Project and its implementation (Steering Committee). The Steering Committee approved the incorporation of NTBCL by IL&FS in accordance with the Companies Act, 1956, which was contemplated to operate as a Special Purpose Vehicle for developing the DND Flyway on a Build, Operate, Own and Transfer (BOOT) basis. The NTBCL would recover its investment in developing the DND Flyway infrastructural facility by imposing a toll on the commuters availing of such services.
The Concession Agreement executed on 12-11-1997, designated NOIDA and IL&FS as the ‘Sponsors’ and NTBCL as the ‘Concessionaire’. The Project was thereafter initiated and completed, with the DND Flyway being opened for public use on 06-02-2001 (‘commissioning date’).
The Federation of NOIDA Residents Welfare Association (‘respondent-association’) approached the High Court seeking a direction to discontinue toll charges to the users of the DND Flyway. The High Court, vide the impugned judgment, while considering the constitutional validity of the Concession Agreement, primarily held that: (i) Article 13 of the Concession Agreement, which governed the determination, collection, and appropriation of user fees by NTBCL, was invalid in law; (ii) Article 14 thereof, which outlined the calculation of the Total Project Cost, Returns, and their recovery by NTBCL, was to be severed from the Concession Agreement; and (iii) NTBCL was prohibited from continuing to impose or collect use fee/ toll. The High Court further held that the selection process of NTBCL for the Project violated Article 14 of the Constitution.
Analysis and Decision
Maintainability of the Writ Petition before the High Court and validity of awarding the contract to NTBCL
Regarding the locus standi of the respondent-association, the Court reiterated that while public interest litigation serves as an effective tool for addressing the grievances of the public, it must be carefully scrutinised to prevent misuse or abuse by those with ulterior motives. In the matter at hand, the respondent-association is a Society duly registered under the Societies Registration Act, 1860, with the primary objective of promoting the welfare of NOIDA residents. The society acts as a bridge between the residents and public authorities, catering to the former’s needs for essential civic amenities. Hence, it is clear that respondent-association approached the High Court in good faith, to safeguard the interests of NOIDA residents, who had been subjected to the levy of toll at the DND Flyway under the guise of user fees by NTBCL. Regarding the submission of delay and laches, the Court pointed out that writ proceedings under Articles 32 or 226 are not guided by the provisions of the Limitation Act, 1963, but instead, by the doctrine of Delay and Laches and the doctrine cannot be applied stricto senso to writ petitions invoking public interest jurisdiction, unless the Court is satisfied that the party has not approached it with clean hands. The Court upheld the High Court’s view that the plea of delay lacked substance, as the commuters, including respondent-authority, were justified in trusting that NOIDA would protect their interests.
Discussing the scope of judicial intervention by the High Court in a commercial contract (concession agreement), the Court pointed out that the issue of whether such commercial contracts, which may stem from a Government Policy decision or where one of the parties is the State or its instrumentalities, are entirely insulated from judicial review is no longer res integra and there is no absolute bar on the maintainability of writ petitions, even in matters concerning contracts or monetary claims and in such cases the discretion lies with the Court. The Court stated that “where State action is challenged as arbitrary or capricious, the Courts are justified in intervening through judicial review to determine whether the State has adhered to the principles embodied in Article 14 of the Constitution India. Therefore, the Court held that considering that the Concession Agreement involved not only entities like IL&FS and NTBCL but also a Public Authority such as NOIDA, it was evident that the concession agreement, though commercial in nature, was subject to judicial scrutiny. The Project, having been developed for public benefit, cannot escape judicial oversight, particularly when the allegations pertain to the public’s rights and interests, which are being infringed upon by the levying of user fees.
With regard to the validity of awarding the contract to NTBCL, the Court upheld the High Court’s view holding that the selection of NTBCL without following proper procedure and without giving any opportunity to bid, to other competitors, was nothing but an opaque device resorted to, in contravention of Article 14 of the Constitution of India.
Delegation of power to levy fees and its validity
The Court perused Section 13.1 of the concession agreement which deals with the ‘Collection of Fee’ and grants NTBCL the right to collect, retain, and appropriate fees from users of the DND Flyway starting from the commissioning date. The Court noted that Section 6 of the Uttar Pradesh Industrial Area Development Act, 1976 (1976 Act) outlines the ‘functions of the authority’, and this ‘authority’ means the corporate body constituted by the State of Uttar Pradesh. Section 11 of the 1976 Act provides that the Authority may levy taxes to provide, maintain, or continue amenities within the industrial development area, subject to the approval of the State Government.
Further, the Court noted that Section 6A of the 1976 Act was inserted vide the Uttar Pradesh Act No. 2 of 1999, with effect from 14-08-1998, which laid down that the ‘authority may by agreement authorise any person to provide or maintain or continue to provide or maintain any infrastructure or amenities, and to collect taxes or fees, as the case may be, levied thereof’. In furtherance of the power conferred under Section 6A, read with Section 19(2)(e) of the 1976 Act, NOIDA framed the NOIDA (Levy of Infrastructure Fee) Regulations, 1998, which came into force in September 1998, which empowered NOIDA to authorise the designated developer to levy and collect the applicable fee, which would in turn, be based on a mutually agreed formula between the parties. In the matter at hand, the ‘designated developer’ would be NTBCL.
However, the Court pointed out that in complete contradiction and violation of the scheme of the 1976 Act, NOIDA in purported exercise of its power to formulate Regulations not only delegated the power to collect fee but also authorised NTBCL to revise and levy such charges. The Court stated that under our Constitutional framework, no private entity can be granted the authority to levy taxes or fees, for such powers are exclusively vested in public authorities. The collection of fees or toll can be assigned to a developer or contractor for a defined period, including for the purpose of recovery of the investment made in developing the infrastructure. Thus, the Court concurred with the High Court’s conclusion that the concession agreement, in so far as it sub-delegates the power to levy and collect fees to NTBCL, was unlawful, and the Regulations justifying such sub-delegation undermined the objective of Section 6A of the 1976 Act. 51. The Court added that NTBCL and NOIDA indulged in trickery and placed the cart before the horse, in attempting to authorise actions post facto, thereby obscuring the full extent of misuse of power.
Regarding the reasonableness of the formula, the Court opined that the method used to calculate the total project cost was fundamentally a mechanism for unjust enrichment by a select few and, as such was rightly deemed to be inherently arbitrary by the High Court. Accordingly, the formula outlined in concession agreement was unreasonable and contravened Article 14 of the Constitution.
Perpetuity of the Concession Agreement
The Court noted that Section 2.3 of the concession agreement establishes a concession period of either 30 years from the effective date or until NTBCL recovers the total project cost and returns, based on determinations made by the independent engineer and auditor per Article 14 of the concession agreement. Should recovery not be achieved within 30 years, Section 2.4 provides for two-year extensions, repeating as necessary, until full recovery is realized.
The Court pointed out that as NTBCL is a subsidiary of IL&FS, this arrangement positioned NOIDA as a minority member without meaningful authority in the appointments, thus, IL&FS and NTBCL effectively controlled the selection, which casts serious doubts on the transparency and so-called independence of these appointments. Perusing CAG’s Report, the Court noted that if NTBCL continues to operate under the current terms of the concession agreement, with extensions as per its provisions, the unrecovered total project cost could rise to around Rupees 7,200 crores by 31-03-2020 and Rupees 15,200 crores by 31-03-2029. The Court said that this unending escalation in the total project cost reflected that the concession agreement was cleverly designed to remain perpetually operational. The Court also noted that the annual toll income of NTBCL during 2001-2016 was Rupees 892.51 crores.
“An exhaustive reading of the CAG Report highlights the extent to which the public has been defrauded. The general public has been forced to part with hundreds of crores by IL&FS and NTBCL, under the guise of providing necessary public infrastructure. This could not have been done but for the collusion of the then officers of the two State Governments and of NOIDA, who closed their eyes while the contractual obligations were incurred.”
The Court stated that NTBCL has been making profits for the last 11 years; has no accumulated losses as of 31-03-2016; has paid dividends of Rupees 243.07 crores till 31-03-2016 to its shareholders; and repaid all its debt with interest. Hence, the Court held that by 31-03-2016, NTBCL recovered the project costs, the maintenance costs, and a significant profit on its initial investment. There is no rhyme or reason for the collection of user fees/tolls to continue.
[NOIDA Toll Bridge Company Ltd. v. Federation of NOIDA Residents Welfare Association, 2024 SCC OnLine SC 3831, decided on: 20-12-2024]
*Judgment Authored by: Justice Surya Kant
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Very true. In order to get the DND flyway built, Noida offered the toll collection rights which it had no right to do so.
Noida has unjustly benefited from a huge appreciation of it’s land bank which became easily accessible from Delhi once the DND flyway was built (with an investment of just 10 cr contribution by Noida) while the investors in NTBCL who pumped in over 300 cr to build the DND flyway based on the assignment of toll collection rights, have not even recovered their their original investment – let alone make any profit.
In order to protect the public investors who have been defrauded and in the interest of justice, the Supreme Court is fully order Noida to immediately compensate NTBCL and it’s investors based on the agreement terms and further impose a hefty penalty of at least 1000 cr to make an example to prevent future scams