The Madras High Court on Monday wondered how can it interfere with the terms of a loan agreement reached between India and Japan International Cooperation Agency (JICA) on December 21, 2018 for the implementation of the ongoing Chennai Metro Rail Limited (CMRL) Phase II project.
A Division Bench of Justices S.M. Subramaniam and K. Rajasekar raised the question during the hearing of a writ petition filed by OTIS Elevator Company (India) Limited dealing with elevators, escalators, walkalators and such other equipment.
The company had approached court to declare certain terms of the India-JICA loan agreement as unconstitutional since they lead to enforcement of tender conditions that were favourable only to Japanese companies and force even Indian bidders to procure 75% of the components from Japanese entities.
In April 2017, the Tamil Nadu government had accorded approval for three metro rail corridors (Corridors 3, 4 and 5) for a total length of 107.55 km under phase II of CMRL at an estimated completion cost of ₹85,047 crore. The project was recommended to the Centre for its approval and funding and also for posing it to JICA for external assistance.
However, after the Centre formulated a new Metro Rail Policy in 2017, the Detailed Project Report (DPR) for Phase II was revised as per the new policy and the revised DPR at an estimated completion cost of ₹79,961 crore (reduction in cost due to introduction of GST) was sent to the Centre for approval and also for posing it to JICA.
After assessing the State government’s proposal in January 2018, JICA came forward to extend loan for two priority corridors (the 35.67-km-long Corridor 3 from Madhavaram to Sholinganallur and the 16.34-km-long Corridor 5 from Madhavaram to CMBT) totalling to 52.01 km in length during the financial year 2017-18.
Of the estimated completion cost of ₹40,941 crore for the two priority corridors, JICA agreed to provide loan assistance for ₹20,196 crore. Hence, a Government Order was issued on May 9, 2018 for treating the two priority corridors as ‘State sector project’ without prejudice to further consideration of the project by the Centre for its financial assistance.
Thereafter, on December 21, 2018, a loan agreement was signed between the Government of India and JICA for providing the first tranche of 75,519 million Japanese Yen (approximately ₹4,770 crore) and it was the terms of this agreement that had been challenged now by OTIS by way of a writ petition before the High Court.
Initially, the company had filed two writ petitions challenging the validity of the tender conditions imposed by CMRL in 2024. However, Justice G.K. Ilanthiraiyan dismissed both the writ petitions on June 19, 2024. Immediately, the company filed two writ appeals and followed them up with a writ petition challenging the loan agreement too.
When the appeals as well as the third writ petition were listed together before the Bench led by Justice Subramaniam, senior counsel Satish Parasaran and A.K. Sriram argued on behalf of OTIS and contended that it was unreasonable to have tender conditions in favour of Japanese companies just because JICA was offering loan at a negligible interest rate.
Mr. Sriram urged the court to take into consideration that the interest rates for Fixed Deposits (FDs) in India was between six to eight per cent per annum whereas the interest rate for FDs in Japan was only around 0.12% per annum. Therefore, the interest rate being levied by JICA on India is not in considerable variance with what was being charged in Japan, he said.
On the other hand, Additional Solicitor General AR.L. Sundaresan said JICA had extended the loan to India at 0.01% which was as good as not levying any interest. He also said, the entire loan amount based on the 2018 loan agreement had been received and therefore, the petitioner could not be allowed to challenge the agreement after a delay of six years.
He also asked the court to take note that OTIS was basically an American company.
Senior counsel Vijay Narayan, representing CMRL, told the court the loan agreement was signed by none less than the President on behalf of the Government of India and wondered how a third party, that too an wholly owned Indian subsidiary of an American company, could challenge such an agreement between two nations.
After hearing all sides, the judges asked the counsel to submit brief notes on the issue and adjourned the cases for further hearing to February 27.
