Introduction:
In a recent judgment, the Himachal Pradesh High Court set aside its previous order directing the state to refund over ₹280 crore to Adani Power Limited. The dispute, which originated from a global invitation for bids for hydroelectric projects in 2005, saw Brakel Corporation emerge as the highest bidder. However, due to Brakel’s failure to deposit the upfront premium and subsequent financial arrangements with Adani Power, legal battles ensued. The division bench of Justice Vivek Singh Thakur and Justice Bipin Chander Negi ruled that the financial arrangements made by Brakel Corporation with Adani Power lacked state approval, violating tender conditions and the Hydro Power Policy.
Arguments of Both Sides:
Appellant’s Arguments:
The State of Himachal Pradesh argued that Brakel Corporation’s financial arrangements with Adani Power were not approved, thereby violating the tender conditions and Hydro Power Policy. The state highlighted that Brakel’s subsidiary, Brakel Kinnaur Pvt. Ltd., deposited ₹173.43 crore, which was received from Adani Group, without prior approval from the state government as required. This arrangement was a direct violation of the tender documents which clearly stated that members of the consortium could not be changed without prior approval. The state issued multiple show-cause notices to Brakel Corporation for misrepresentation and sought forfeiture of the upfront money due to the loss caused to the state.
Respondent’s Arguments:
Adani Power Limited, not part of the original bidding process, sought to recover the upfront premium deposited with Brakel. Adani Power argued that the state played a significant role in the case by failing to recognize and rectify Brakel Corporation’s misrepresentation and procedural violations. They contended that the state’s actions in retracting the refund decision and forfeiting the upfront premium were unjust since the state had benefited from the deposit made by Adani to Brakel. Adani Power invoked Section 70 of the Contract Act, which addresses compensation for non-gratuitous acts, arguing that their financial contribution to Brakel Corporation benefited the state and thus deserved compensation. They also cited Section 65, which deals with restitution in cases where agreements become void.
Court’s Judgment:
The Himachal Pradesh High Court, upon reviewing the arguments from both sides, delivered a judgment that emphasized adherence to legal and procedural requirements in tender processes and financial arrangements. The court noted that the financial deal between Brakel Corporation and Adani Power lacked the required prior approval from the state government, as mandated by the tender documents and the Hydro Power Policy. This misrepresentation and procedural error by Brakel, coupled with Adani’s awareness of the ongoing legal issues, nullified their right to compensation.
The court highlighted that the financial arrangements made by Brakel Corporation with Adani Power were not approved by the state, violating the tender conditions and the Hydro Power Policy. It remarked, “Since the amount in question was deposited after legal proceedings had been initiated in court, therefore, investment, if any, made during the pendency of legal proceedings was at their own risk and peril, therefore, Brakel could not claim any equity in its favor.”
The court further noted that the State Government had issued multiple show-cause notices to Brakel Corporation for misrepresentation and non-compliance with tender conditions. This led to the cancellation of the project allotment to Brakel and the forfeiture of the upfront premium. The court justified the state’s decision to forfeit the upfront premium, stating, “The State’s decision was warranted due to the significant financial losses incurred from Brakel’s misrepresentation and delays.”
Regarding Adani Power’s claims, the court observed that Adani Power, while investing in Brakel, should have been aware of the ongoing litigation and bid conditions. It noted, “Adani chose a surreptitious route to becoming a member of the consortium rather than the legally acceptable mode.” The court rejected Adani Power’s invocation of Section 70 of the Contract Act, which prevents unjust enrichment, stating that the state did not unjustly enrich itself but rather suffered losses due to Brakel’s actions.
The court referred to the precedent set in AIR 1962 SC 779, which established that Section 70 prevents unjust enrichment and applies to both individuals and the state. However, in this case, the court found that the state did not unjustly enrich itself but suffered losses due to Brakel’s misrepresentation. It held that no lawful relationship existed between Adani and the state, as Adani’s involvement did not follow the required legal and procedural steps. The court emphasized that Adani’s investment was made at their own risk during ongoing litigation, and therefore, Adani could not claim restitution or compensation from the state under these provisions.
The court also highlighted the opinion expressed by the Law Department during a meeting of the Council of Ministers held on September 4, 2015, which advised that the state could not retain upfront premium money from two different parties for the same project, and therefore, a refund to Adani Power Limited was necessary. However, the court disagreed with this opinion, emphasizing that Brakel Corporation’s misrepresentation and failure to comply with tender conditions justified the forfeiture of the upfront premium. It noted that accepting the Law Department’s view would set a problematic precedent, potentially encouraging developers to make claims without adhering to proper procedures and legal requirements.
Ultimately, the High Court set aside the previous judgment, upheld the State of Himachal Pradesh’s appeal, rejected Adani Power’s appeal seeking a refund, and affirmed the forfeiture of the upfront premium.