Excusal of Infrastructure Concession Fees Under Force Majeure and Contract Extension

Excusal of Infrastructure Concession Fees Under Force Majeure and Contract Extension

Introduction

Airports Authority of India (AAI) and Delhi International Airport Limited (DIAL) entered into an Operation, Management and Development Agreement (OMDA) in April 2006 by which DIAL took over the operation and development of Indira Gandhi International Airport. In December 2023, an arbitral tribunal granted DIAL relief from paying its monthly concession fee (Monthly Annual Fee or MAF) from March 19, 2020 to February 28, 2022 on account of the COVID‑19 pandemic, and extended the concession term by the same period. AAI challenged that award under Section 34 of the Arbitration and Conciliation Act, 1996, contending that (i) no force majeure existed in the contractual sense, (ii) the tribunal rewrote the contract by excusing fee payments and extending the term, and (iii) the award was unreasoned and perverse. On March 7, 2025 the Delhi High Court dismissed AAI’s challenge, upholding the tribunal’s interpretation of Chapter XVI (Force Majeure) of the OMDA and its decision to excuse payments and extend the concession period.

Summary of the Judgment

Justice Dinesh Kumar Sharma held that:

  • The COVID‑19 pandemic qualified as a force majeure event under Article 16.1.3(vii) of the OMDA, satisfying all five pre‑conditions of Article 16.1.2.
  • During the pandemic, DIAL was legally compelled to operate and maintain the airport even though its revenues fell far below operating costs; this “inability to perform” triggered the relief under Article 16.1.1.
  • The tribunal was entitled to “excuse” DIAL’s fee payments entirely, as provided in the clause, not merely “suspend” them.
  • Article 16.1.5(c) allowed extension of the time for performance “by the period during which such Force Majeure continues and by such additional period thereafter as is necessary to enable the affected Party to achieve the level of activity prevailing before the event of Force Majeure.” The tribunal reasonably chose February 28, 2022 as the cutoff date.
  • AAI’s challenge under Section 34 failed: the award was neither perverse nor contrary to public policy, nor did it violate Section 31(3) by lacking reasons.

Analysis

1. Precedents Cited

  • Dyna Technologies v. Crompton Greaves – clarified when an award is “unintelligible” or “inadequate” under Section 31(3).
  • Associate Builders v. DDA – an award can be set aside if it is based on no evidence or ignores vital evidence.
  • Energy Watchdog v. CERC – force majeure clauses displace Section 56 of the Contract Act, but do not permit discharge merely because performance becomes onerous.
  • Ssangyong Engineering & Construction v. NHAI – arbitral tribunals may be reviewed where they take a view that no reasonable person could take.
  • Sumitomo Heavy Industries v. ONGC – courts must respect plausible contractual interpretations by tribunals.
  • DMRC Ltd. v. Delhi Airport Metro Express – perverse awards in public‑fund cases can be set aside for unreasoned, “uncalled‑for” interpretations.
  • UHL Power Co. v. State of Himachal Pradesh – commercial construction requires business‑efficacy analysis.

2. Legal Reasoning

Scope of Review: Under Section 34, judicial interference is limited to patent illegality, perversity, or fundamental violation of public policy. A plausible interpretation of the contract by the tribunal, even if not the only one, cannot be disturbed.

Force Majeure Clause (Chapter XVI):

  • Article 16.1.1 grants the right to “suspend or excuse” performance “to the extent that” a party is “unable” to perform due to a force majeure event.
  • Article 16.1.2 enumerates five cumulative conditions (materially adverse impact; beyond control; unforeseeable; not self‑induced; must cause “inability”).
  • Article 16.1.3(vii) lists “epidemic or plague” among covered events.
  • Article 16.1.5(c) provides for extending the time for performance “by the period during which such Force Majeure continues and by such additional period thereafter as is necessary to enable the affected Party to achieve the level of activity prevailing before the event of Force Majeure.”

Tribunal’s Findings: The COVID‑19 outbreak and governmental lockdowns satisfied Articles 16.1.2(b)–(d). AAI’s own annual report acknowledged the pandemic’s “material adverse effect.” Traffic and revenue data proved airport operating costs exceeded revenues. DIAL had to keep the airport running by law, incurring fixed costs, thus demonstrating the “inability” required under Article 16.1.1.

Excusal vs. Suspension: The tribunal interpreted “excuse” to mean full relief from fee payment during the force majeure period, not mere deferral. AAI’s view would render “excuse” otiose.

Extension of Concession Period: In light of Article 16.1.5(c) and industry usage for long‐term infrastructure deals, the tribunal granted a two‑year extension. Choosing February 28, 2022 matched the Supreme Court’s nationwide limitation suspension and reflected evidence that traffic had not returned to pre‑COVID levels by then.

3. Impact

This precedent clarifies that in long‑term infrastructure and concession agreements:

  • Force majeure may excuse payment obligations—rather than merely suspend them—if performance becomes impossible or commercially impracticable, even when operations must continue.
  • Tribunals may extend concession terms in line with contractual clauses that preserve business efficacy post‑force majeure.
  • Court review under Section 34 will respect reasonable, well‑reasoned tribunal interpretations that draw on commercial context and industry practice.

Complex Concepts Simplified

  • Force Majeure: A contract clause excusing or suspending obligations when an unforeseeable, uncontrollable event (like a pandemic) makes performance impossible or impracticable.
  • Excusal vs. Suspension: Suspension pauses obligations until the storm passes; excusal wipes out obligations that cannot be performed at all.
  • Material Adverse Effect: A change so significant it “materially and adversely” prevents contractual duties.
  • Business Efficacy: Courts and tribunals interpret infrastructure contracts to preserve their commercial purpose and avoid absurd results.
  • Section 34 Review: Courts intervene only for patent errors of jurisdiction or public‐policy violations, not to choose between two plausible contract readings.

Conclusion

This judgment establishes that in large‐scale public‐private infrastructure pacts, a well‑crafted force majeure clause can fully excuse concession payments when performance is rendered impossible—even if operations continue—and may also extend the contract tenure to preserve business equilibrium. The Delhi High Court’s confirmation reinforces minimal judicial interference, upholding reasoned arbitral interpretations grounded in evidence, contract text, and commercial reality. Future concessionaires and authorities will look to this ruling for guidance on drafting force majeure and term‑extension provisions, and arbitrators will take comfort in the limited scope of Section 34 review when applying business efficacy to unforeseen global disruptions.

Case Details

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