Friday, October 28, 2016

More on judicial activism gone astray

The Allahabad High Court has abrogated the tolling contract awarded to the IL&FS owned Noida Toll Bridge Company Limited (NTBCL) on the 9.2 km eight-lane Delhi-Noida-Direct (DND) Expressway which became operational in 2001 as one the country's first PPP road projects. The court ruled the concession agreement as "unfair" and that NTBCL has "recovered all reasonable returns" from the bridge. The concessionaire has approached the Supreme Court.

This is all very sad and predictable. That the contract was deeply flawed, even fraudulent, is beyond doubt. The decision could therefore rightly be seen as divine (or democratic) retribution to crony capitalism. Populist grandstanding is therefore inevitable. 

The cavalier nature of the abrogation, with immediate effect, is increasingly becoming a feature of judicial rulings on large infrastructure contracts. The cancellation of the telecom spectrum licenses has been the most high-profile example. 

But such judicial actions impose prohibitive collateral damage on the country's institutional systems. Consider a very risky project, where the bidder bets on windfall gains, which are by definition more than "all reasonable returns", and where the risks subside significantly, for whatever reasons (and there could be many) after a couple of years of the project's commissioning. Given that most such judicial (and any investigative or audit) scrutiny is done with the benefit of hind-sight, without much appreciation of the context in which the decision was actually taken, even such fair bids run the risk of populist abrogation. 

I can understand the judicial revocation of a bad contract. But the grounds have to be legal inadequacies and established fraud in the contract. Both may never have been very difficult to establish with the instant concession, starting from 2001. But now, a fully fifteen years later, to revoke a contract on an interpretation of the gains made by the concessionaire, and that too by a judicial action and not by a technically competent entity, disturbs me. At the least, the matter could have been referred to the National Highways Authority of India or some other entity to identify the legal inadequacies and clearly quantify the cumulative construction cost and recoveries, and then adjudicate thereon.   

But the unfortunate thing is that governments and, more surprisingly, developers never learn. We will continue to have such egregious excesses, as is still happening in many states with large tenders and land allotments. And all this will only encourage more judicial actions that strike at the sanctity of contracts. 

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