GST implementation being a “change in law” qualify as a force majeure event

The Hon’ble Delhi High Court in National Highways Authority of India v. Sahakar Global Ltd. [O.M.P. (COMM) No. 486 of 2020 decided on September 29, 2020], dismissed the petition and refused to interfere with the arbitral award passed by the Arbitrator to pay the compensation for loss generated in revenue triggered by the reduced toll collection due to implementation of GST and held that, the date of implementation of GST was not known and could not be speculated by anybody. It is a ‘change in law’ qualifying as a force majeure event.

Facts:-

The National Highways Authority of India (“the Petitioner”) invited bids from entities interested in undertaking toll collection from users. The bid by Sahakar Global Ltd. (“the Respondent”) was accepted by the Petitioner The parties entered into a contract agreement was entered on June 30, 2017 and accordingly the project site was duly handed over to the Respondent on July 2, 2017.

However, two days prior to the execution of the agreement i.e., on June 28, 2017, Notification No. 9/2017-Central Tax was issued stating that the Central Goods and Services Tax Act, 2017 (“CGST Act”) would come into effect from July 1, 2017, due to which, there was a heavy fall in the traffic volume of the commercial transport vehicles and user fee collection on the highway owing to the implementation of Goods and Services Tax (“GST”). The reduction in toll collections rendered the Respondent unable to deposit weekly remittances on time and it tried to plead its case with the Petitioner in order to revisit their agreement pertaining to toll collections or seek grant of leniency.

Subsequently, the Respondent, citing implementation of GST as a force majeure event covered under the contract agreement, submitted a statement of the losses suffered by it until July 9, 2017. The Petitioner refused to accept the Respondent’s claims and denied that the implementation of GST was a force majeure event and shortfall in toll collection was a business risk associated with the work, and the Respondent was required to forthwith deposit the outstanding toll collections with penal interest.

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