Manish Kumar of SBI Cap Securities and Abhimanyu Bhandari of Axon Partners explain, in a discussion on CNBC-TV18, that the legal duel between GMR and NHAI regarding the termination of a significant road-project due to delays in the grant of environmental licences, will mark a precedent for projects across all sectors in the economy.
Manish Kumar adds that according a study around 40 projects are in a state of limbo due to delays in issue of clearences or presentation of inadequate documents.
Below is an edited transcript of the discussion on CNBC-TV18
Q: What is the legal standing for the National Highways Authority of India (NHAI) to take the ministry of environment and forests (MoEF) to court? NHAI has a contract with GMR and doesn’t have a contract with MoEF. So is it on firm ground to take the ministry to court?
Bhandari: There are two aspects here- firstly, the contract with GMR and the inherent legal implications and secondly, the issue with the MoEF. The NHAI of course, doesn’t have a contract with MoEF. Like every other institution in the country, the NHAI has to apply to the MoEF for clearances. Now, the question here is whether the NHAI applied to MoEF for clearances at the right time, supplied all the documentation including the impact studies and assessment reports.
If the NHAI feels it has done everything required and the MoEF just sat on the file and did not move on it, the NHAI has the right to approach the right court and seek the court’s direction that the MoEF dispose off the matter quickly..
Q: The MoEF has made an environment clearance (EC) contingent upon the projects getting a forest clearance. It is apparent that the forest clearance, which is to be issued by the state government, has not come on time. Can the failure to issue the clearance be attributed to the state-government ?
Bhandari: Let us not forget that the state ministry of environment falls under the Union ministry of environment and forests. Therefore, the issue of a forest clearance is an integral responsibility of the same ministry. So, the question that needs to be raised again is - did the NHAI provide the MoEF with all the documentation required? Did NHAI do everything in its control and in time to satisfy the MoEF? That’s something that will be tested in court.
But the more important aspect is set of legal and financial implications arising from the termination of the contract between GMR and NHAI. A performance guarantee given by GMR has been stayed by the court. That shows that GMR has certain highly reasonable and strong grounds to terminate the contract. There could also be delays on the part of NHAI which are not explainable.
Q: This project is huge – an order worth Rs 7,200-crore. Now that it has been terminated by GMR, do you see NHAI re-tendering the road project? What kind of excitement does it provide for other participants in the industry? Do you expect any kind of re-tendering to take place going ahead?
Kumar: Right now, the project has been terminated by GMR. But NHAI has served notice to GMR stating that it had not given the 90-days’ notice period required for termination. If in 90 days the NHAI is able to provide the required clearances, then the project will begin.
According to our study, almost 40 projects are in a limbo because of either delays by the NHAI or the developer.
Q: What exactly could the legal and the financial implications be for GMR going ahead now?
Bhandari: The first financial implication is on the performance guarantee. A performance guarantee is a guarantee that is given upfront to the NHAI and it can be encashed. The law of the land is very clear that these guarantees can be encashed unless a very high threshold of fraud or wrong-doing has been broken.
So it is going to be keenly observed whether this huge bank guarantee which GMR has now got an interim stay on is opposed by the court. If that guarantee is encashed, it can be only recovered by a long and lengthy arbitration process. The good news for GMR right now is that it has am interim relief in its favour.
Q: Does this become a marquee case now? Innumerable projects and renewals in India are being delayed. Mining leases have been delayed by several state-governments. If the court were to indeed take cognisance of this and give an executive order literally to the MoEF to issue its decision within a certain period, does this not become a precedent across all administrative bodies and ministries?
Bhandari: Of course it does. This is a case that is going to be keenly watched. The case is similar in the allocation of coal-blocks where the MoEF delay in issuing clearances resulted in private companies losing their coal-blocks.