NLA Insights
7 September 2026
Can an Independent Engineer, after issuing a Provisional Completion Certificate (“PCC”), subsequently keep that certificate in abeyance and thereby deny the contractor the benefit of achieving the Commercial Operation Date (“COD”)? The Hon’ble Delhi High Court, in NHAI v. South Indian Bank Ltd. & Anr, held that where the contract permits withholding of the PCC before its issuance but contains no provision permitting an already-issued PCC to be kept in abeyance, such subsequent suspension of the PCC cannot defeat the contractual consequences flowing from its issuance.
The judgment is significant in the context of infrastructure and concession contracts, particularly on the validity of completion certificates, achievement of COD, entitlement to termination payment, and the rights of lenders under interconnected concession, escrow and substitution agreements.
The National Highways Authority of India (“NHAI”) had entered into Concession Agreements (“CA”) with the concessionaire for development and operation of highway projects under the Design, Build, Finance, Operate and Transfer annuity model (“DBFOT”). The projects were financed by lenders, including South Indian Bank Ltd., and an Escrow Agreement (“EA”) and Substitution Agreement (“SA”) were executed to secure and protect the interests of the lenders.
During execution of the Projects, various difficulties arose, including issues concerning the availability of the required Right of Way and access to the project site. The Independent Engineer (“IE”) recorded that substantial difficulties in handing over the required access were attributable to NHAI. The concessionaire subsequently sought issuance of the PCC. After further progress and inspection of the project, the IE issued a PCC on 8 December 2016 in respect of approximately 90.671 km of the project highway. NHAI had also inspected the project and confirmed the relevant position before the PCC was issued.
However, only nine days later, on 17 December 2016, the IE issued a communication stating that the PCC was being “kept in abeyance” until completion of the Theni Bypass and execution of a Supplementary Agreement. The concessionaire subsequently faced financial difficulties, and its loan account became a Non-Performing Asset. NHAI ultimately terminated the Concession Agreement through notice dated 22 May 2019, with termination taking effect from 9 April 2019. Following termination, the lender sought payment of the Termination Payment under the contractual mechanism.
NHAI disputed the lender’s entitlement. It principally contended that since the PCC had been kept in abeyance, COD had never been achieved. Consequently, NHAI argued that the termination had occurred before COD and that Article 37.3.1 of the CA excluded any Termination Payment in such circumstances. The dispute was thereafter referred to arbitration, and the Arbitral Tribunal upheld the lender’s claim for Termination Payment. NHAI challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The Ld. Single Judge declined to interfere, following which NHAI preferred appeals under Section 37 of the Arbitration and Conciliation Act, 1996, before the Division Bench of the Hon’ble Delhi High Court.
The following issues arose for determination before the Division Bench:
NHAI contended that the Concession Agreement had merely been annexed to the Escrow and Substitution Agreements and had not been incorporated in a manner that would permit the Tribunal to adjudicate rights arising under the CA. NHAI further argued that the PCC could not have resulted in COD because it was subsequently kept in abeyance. According to NHAI, the concessionaire’s default therefore occurred before COD, attracting the exclusion contained in Article 37.3.1 of the CA, under which no Termination Payment was payable for a Concessionaire Default occurring before COD.
It was also contended that the lender was not a party to the Concession Agreement and, therefore, could not independently enforce rights arising under it. NHAI argued that Article 37.3.3 of the CA contemplated a demand for Termination Payment by the Concessionaire and not by the lender. Finally, NHAI submitted that the Tribunal had exceeded the scope of the reference by calculating the Termination Payment, as determination of such an amount necessarily involved adjudication of rights under the Concession Agreement.
The lenders contended that the Concession Agreement formed part of the overall contractual framework and could therefore be relied upon in determining the Termination Payment. The Escrow Agreement itself contemplated NHAI’s obligation concerning amounts payable under the contractual arrangement.
On the lender’s standing, it was submitted that the Substitution Agreement had assigned the concessionaire’s rights, title and interest in the concession to the Lenders’ Representative as security for the financing. The lender could therefore exercise the relevant rights necessary to protect its financial interest and recover the amounts due.
The lenders further argued that the PCC had been validly issued on 8 December 2016, following inspection by the IE and consideration by NHAI. Article 14.5 of the CA permitted withholding of the PCC in appropriate circumstances, but did not authorise the IE to suspend or withdraw an already-issued PCC. Consequently, COD had been achieved on 8 December 2016, and the pre-COD exclusion under Article 37.3.1 of the CA could not be invoked to deny the Termination Payment.
The principal question before the Hon’ble Division Bench was whether the PCC issued on 8 December 2016 could subsequently be “kept in abeyance” so as to deprive the Concessionaire of COD and consequently defeat the lenders’ claim for Termination Payment. Examining Article 14.5 of the CA, the Court noted that the contractual scheme permitted withholding of the PCC where the conditions for completion were not satisfied, but contained no provision permitting an already-issued PCC to be subsequently placed in abeyance. The subsequent communication dated 17 December 2016 therefore could not retrospectively suspend the effect of the PCC. The Court accordingly upheld the interpretation of the Arbitral Tribunal and the Single Judge that COD stood achieved.
The Court further held that this was at least a plausible interpretation of the contractual provisions, and therefore could not be interfered with under Sections 34 and 37 of the Arbitration Act merely because another interpretation was possible. Once COD was established, NHAI could not invoke the contractual exclusion applicable to termination before COD to deny Termination Payment.
On the lenders’ entitlement, the Court examined the interconnected CA, EA and SA and accepted that the lenders could enforce the relevant contractual rights following termination. Referring to NHAI v. Punjab National Bank, 2021 SCC OnLine Del 3413, the Court recognised that the lender’s ability to step into the shoes of the Concessionaire formed part of the commercial purpose of the security and substitution mechanism. Requiring the defaulting Concessionaire to independently demand Termination Payment would therefore defeat the purpose of these arrangements.
NHAI’s reliance on Visa International Ltd. v. Continental Resources (USA) Ltd., (2009) 2 SCC 55, and Nandram Hanutram v. Raghunath and Sons, 1953 SCC OnLine Cal 219, to argue that arbitration could ordinarily be invoked only by parties to an arbitration agreement, was rejected. The Court found that the lenders’ claim was founded on their specific contractual rights under the EA and SA, and not merely on the CA.
The Court also rejected NHAI’s contention that the Arbitral Tribunal had exceeded its jurisdiction by determining the quantum of Termination Payment, holding that the Tribunal had merely applied the contractual formula for Termination Payment, and that NHAI had neither disputed the Rs. 229.50 crore computation nor produced an alternative calculation.
The Court concluded that the Tribunal had neither rewritten the contract nor travelled beyond its jurisdiction, and that its interpretation of the contractual framework was plausible and supported by the CA, EA and SA. Given the limited scope of judicial interference with arbitral awards, the Hon’ble Division Bench found no ground to disturb either the arbitral award or the Single Judge’s decision, and accordingly dismissed NHAI’s appeals.
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