IL&FS, NHAI may reach out-of-court settlement on select highway projects

Once cleared, these projects can be monetised

Infrastructure Leasing & Financial Services (IL&FS) and the National Highways Authority of India (NHAI) might opt for an out-of-court settlement in a couple of highway projects where the crisis-hit firm moved court, challenging the arbitration amount. 

IL&FS has argued that the amount finalised by the arbitration panel was on the lower side. On the other hand, the Ministry of Road Transport and Highways and the NHAI have taken the debt-laden company to court in some cases over high arbitration claims.

“As far as the out-of-court settlement of arbitration cases is concerned, only two such cases where IL&FS went to court over lower arbitration compensation are being looked into,” a senior official told Business Standard on condition of anonymity. 

IL&FS has made arbitration claims worth about Rs 70 billion against the NHAI, which are under various stages of resolution.

“If IL&FS is ready to accept the arbitration amount sanctioned by the arbitration panel, the road ministry and the NHAI will make the payment. Those projects, once cleared, can be further sold by IL&FS to pare debt,” said the official.

It is learnt that IL&FS’ newly appointed Non-Executive Chairman Uday Kotak and Managing Director Vineet Nayyar recently met Road Transport and Highways Secretary Y S Malik and discussed the way forward for the pending cases of the company.

“One of the prime concerns of the road ministry and the NHAI in the IL&FS case is the future of the pending projects,” another official said.

An arbitration award is subject to a bank guarantee to be submitted by the company. 

The claims by the concessionaires under the arbitration process may vary from the final outcome of the process.

Also, the NHAI makes counter-claims sometimes. For Moradabad-Bareilly Expressway, a claim of Rs 4.23 billion has been cleared by the conciliation committee meeting of independent experts appointed by the NHAI, according to an IL&FS press release issued on September 18.

In its annual report for FY18, IL&FS said the introduction of the New Land Acquisition Act had prompted many owners whose lands were acquired under the previous Act to seek additional compensation in line with the amended Act, leading to further unanticipated delays for projects.

“Another hurdle has been the delay in decision making/passing of the buck to the relevant authorities, especially with regard to compensating the concessionaire/contractor for delays and defaults on part of the Authority,” the company said in its report. 

IL&FS noted that IL&FS Transportation Networks (ITNL), a subsidiary, had incurred huge cost overruns in its projects as a result of these delays for which it had filed claims.

Road construction is undertaken by IL&FS mainly through special purpose vehicles floated by ITNL.