Mandatory Escrow Retention Under Concession Agreements Is an Independent Obligation Not Contingent on Pending Arbitral Adjudication

The Petitioner and Respondent entered into a Concession Agreement (CA) on January 30, 2006, for the development and maintenance of a section of NH-7 on a Build-Operate-Transfer (BOT) Toll basis

In May 2024, disputes arose regarding Force Majeure and Change in Law, leading to arbitration

During the proceedings, NHAI issued a Cure Period Notice dated October 7, 2025, alleging defaults including failure to perform bituminous overlay, non-payment of damages, and failure to comply with Article 34.11 regarding the retention of funds in an Escrow Account

The Arbitral Tribunal, vide an interim order under Section 17, stayed the notice regarding overlay obligations and damages as they were sub-judice, but permitted NHAI to proceed regarding the Article 34.11 default (retention of Rs. 46.54 Crores)

The Petitioner challenged this limited portion of the order

1. Whether the obligation to retain funds or provide a Bank Guarantee under Article 34.11 of the Concession Agreement is an independent obligation or contingent upon the adjudication of disputed bituminous overlay works.

2. Whether the Arbitral Tribunal’s refusal to stay the Cure Period Notice in respect of Article 34.11 warrants interference under Section 37(2)(b) of the Arbitration Act.

Section 17 of the Arbitration and Conciliation Act, 1996 regarding interim measures by an arbitral tribunal

Section 37(2)(b) regarding the limited scope of appellate interference, which is restricted to cases of patent illegality or perversity

The principle from Dinesh Gupta v. Anand Gupta that a court should not substitute its discretion for that of the arbitrator if the arbitrator's view is plausible

"non-obstante" mandate of Article 34.11 of the Concession Agreement, which creates a substantive divestment-stage safeguard independent of other contractual disputes

The court reasoned that Article 34.11 contains a non-obstante clause ("notwithstanding anything to the contrary"), making the retention of funds a mandatory, independent obligation triggered two years prior to the expiry of the concession period

This obligation ensures a reserve for renewal works across all project assets, not just the disputed bituminous overlay

The Court found that the Independent Engineer (IE) had properly calculated the required amount as Rs. 46.54 Crores based on traffic volume, a calculation the Petitioner never challenged

Furthermore, the court noted that the issues framed in the ongoing arbitration did not overlap with the Article 34.11 mandate

Since the Petitioner failed to demonstrate any patent illegality, and the Tribunal’s view was deemed plausible, the court held that judicial interference under Section 37 was not justified

The Court held that the obligation under Article 34.11 is independent and non-derogable, and the Petitioner's failure to furnish the Bank Guarantee or retain funds justified the Respondent's pursuit of the Cure Period Notice

The Court further held that pleas of balance of convenience or irreparable injury cannot be used to bypass mandatory contractual obligations