It is election season and the Model Code of Conduct for the Guidance of Political Parties and Candidates (MCC)[1] has been in operation since elections were announced on March 16, 2024. The MCC provides that from the time elections are announced by the Election Commission (EC), ministers and other authorities shall not announce or promise any financial grants in any form.[2] The stated purpose of this prohibition is to ensure that the party in power is not accused of using its official position for the purposes of the election campaign.[3]
The EC communication & its impact on highway concessionaires
The Model Concession Agreement for highway projects (Model CA)[4] issued by the National Highways Authority of India (NHAI) provides for revision of the highway tolls w.e.f. April 1 each year. However, this year this annual revision has been put on hold owing to elections. An EC communication, issued pursuant to a clarification sought by the Ministry of Road Transport and Highways (MORTH) regarding an earlier EC instruction, states that “The process required for the decision on the power tariff may be continued by the State Electricity Regulatory Commission. However, tariff award shall be made only on the completion of poll in the relevant state, i.e., after the poll date/dates in the state. In respect of the clarification sought, it is stated that user fee may be seen in context of the power tariff as mentioned in the Commission’s instruction cited above.”[5]
Although the EC communication suggests that decisions on power tariff can provide context for decisions relating to revision of highway tolls (user fee), the respective processes for both are different. State Electricity Regulatory Commissions (SERCs) determine power tariff through a statutory procedure that includes an application from the distribution licensee, its publication, consideration of suggestions/ objections, hearing the applicant and issuance of a tariff order.[6] Electricity consumers are thus contractually required to pay distribution licensees for electricity as per rates specified in tariff orders issued from time to time. On the other hand, the Model CA contains provisions for annual revision of the highway toll on April 1 each year.[7] The National Highways Fee (Determination of Rates and Collections) Rules, 2008 (NHAI Fee Rules)[8] lay down a pre-determined formula for revision based on wholesale price index under the Model CA.[9] There is no statutory body or process for determining the revised toll. Due to this difference between power tariff and highway tolls, it is not clear why the EC has taken the view that one can provide context for the other.
The National Highway Builders Federation (NHBF), whose membership comprises around 96 concessionaires,[10] has demanded compensation for the loss of revenue on account of NHAI’s decision to put the toll revision on hold.[11] An NHAI official has stated that any assertions by concessionaires regarding this decision will be addressed in accordance with the provisions of the respective concession agreements.[12] However, while the calculation of concessionaires’ loss is straight-forward (difference in toll rate multiplied by the number of vehicles that pass through the toll plaza during the period for which the revision remains on hold), the provisions of the Model CA suggest that the road to compensation for concessionaires is not a simple one.
Potential Contractual Remedies
Under the Model CA, the “Change in Law” provisions provide a remedy to concessionaires only if the aggregate financial effect exceeds INR 1 crore or 0.5% of the annual toll collection, whichever is higher.[13] If this financial threshold is met and no amendments or other arrangements are agreed to address the impact of the “Change in Law” then financial compensation is payable to the concessionaire.[14] However, given the short duration for which the revised toll is likely to remain on hold, there is a real possibility that this financial threshold will not be met and, accordingly, this remedy may not be available. Even the Force Majeure provisions may not provide adequate remedy because the Model CA excludes loss of toll revenue from “Force Majeure Costs”.[15] Accordingly, the loss caused to concessionaires on account of toll revision deferment may not be recoverable under the Change in Law or Force Majeure provisions of the Model CA.
The Model CA provisions relating to compensation for material default/ breach by NHAI provide for payment of compensation to the concessionaire, but once again exclude loss of toll revenue from the ambit of compensation.[16] This exclusion may not apply in cases where the loss is a direct consequence of a material default/ breach. Further, such exclusion will, in this instance, likely run afoul of a party’s statutory right to claim compensation for direct losses that naturally flow from a breach of contract.[17] Nevertheless, the existence of such an exclusion is likely to result in a protracted litigation on the issue. Concessionaires will also have to satisfy the arbitral tribunal and/or courts that NHAI has committed a material default/ breach of the concession agreement despite acting pursuant to the EC’s communication.
Potential Public Law Remedy
Given the constraints in availing contractual remedies, concessionaires may also consider public law remedies to reduce the impact of the EC’s communication on their existing contractual rights. Courts have intervened in a few cases where the EC instructions prevented implementation of decisions taken prior to announcement of elections. For instance, in Intelligence Decisions Systems (India) Pvt. Ltd. v The Chief Election Commissioner,[18] the EC had directed the Government of Kerala not to sign an agreement even though the decision to do so was taken before elections were announced. A person who was interested in the execution of that agreement filed a writ petition challenging the said direction. The Kerala High Court allowed the writ petition holding that the MCC was not applicable since the decision to sign the agreement had already been taken.
Similarly, by including the toll revision provisions in the concession agreements, NHAI has already taken a decision on annual increases in highway tolls. The annual increase in highway tolls is, therefore, only the implementation of a decision already taken when the concession agreements were signed. Accordingly, concessionaires could reasonably argue that the EC’s communication goes beyond what is envisaged by the MCC and interferes with existing contractual rights. It is significant that MSEDCL (a distribution licensee in Maharashtra) has increased the power tariff w.e.f. April 1, 2024, since the increase is not connected to any policy decision.[19]
The wording of the EC’s communication[20] appears to leave room for it to take the position that it has not categorically directed NHAI to defer the toll revision but only clarified that the highway toll “… be seen in the context of power tariff…”. In that eventuality, concessionaires could be relegated to their contractual remedies against NHAI under the concession agreements on the ground that the toll revision has been put on hold pursuant to a decision of NHAI and not on account of a direction/ instruction of the EC. Nevertheless, such stand taken by the EC in a writ petition may help concessionaires oppose any later attempt by NHAI to rely on the EC communication as being either a Change in Law or a Force Majeure Event, or from otherwise justifying its decision on that basis.
Concluding Remarks
It is possible that NHAI may decide to compensate concessionaires in full without resorting to objections based on the minutiae of the concession agreements. That would certainly be fair to the concessionaires; ensuring they are placed in the situation they would have been in had the toll revision not been deferred. But then, the NHAI would end up footing the bill for what is effectively a moratorium on increased highway tolls for benefit of motorists. In this manner, the EC’s reported instruction to MORTH, which was undoubtedly aimed at enforcing the MCC in letter and spirit, is likely to end up having the opposite effect.
For further information, please contact:
Adarsh Saxena, Partner, Cyril Amarchand Mangaldas
adarsh.saxena@cyrilshroff.com
[1] Available at <https://www.eci.gov.in/mcc/>.
[2] Paragraph VII(6)(a) of the MCC.
[3] Paragraph VII of the MCC.
[4] Available at <https://morth.gov.in/sites/default/files/updatedbotupdted.pdf>.
[5] The Hindu, “New toll rates on highways to be effective only after Lok Sabha election” (April 2, 2024), available at <https://www.thehindu.com/news/national/new-toll-rates-on-highways-to-be-effective-only-after-lok-sabha-election/article68016976.ece> (“The Hindu Report”).
[6] Section 64 of the Electricity Act, 2003.
[7] Article 27.2.1 of the Model CA.
[8] Available at
[9] Rule 5 of the NHAI Fee Rules.
[10] List of NHBF members available at <https://www.nhbf.co.in/nhbf-member.php>.
[11] The Telegraph, “National Highways Builders Federation seeks compensation for deferment of toll hike” (April 3, 2024), available at
[12] Financial Express Report.
[13] Article 41.1 of the Model CA.
[14] Article 41.1 of the Model CA.
[15] Article 34.7.2 of the Model CA.
[16] Article 35.2 of the Model CA.
[17] Section 73 of the Indian Contract Act, 1872.
[18] 2006 SCC OnLine Ker 151.
[19] Hindustan Times, “MSEDCL hikes electricity tariff from April 2024” (April 2, 2024), available at <https://www.hindustantimes.com/cities/pune-news/msedcl-hikes-electricity-tariff-from-april-2024-101712000350734.html>.
[20] The Hindu Report.
