Centre-owned V O Chidambaranar Port Trust (VOCPT) in Tamil Nadu has issued termination notice to a container terminal majority owned by Singapore’s PSA International Pte Ltd after the Madras High Court on Wednesday dismissed a petition brought by the operator on a dispute over royalty payments.

PSA-Sical Terminals Ltd owes royalty dues of more than ₹1,250 crore to VOCPT from 2011 as the terminal operator and the port authority were locked in multiple litigations, all of which have now been decided in favour of the port.

“As the event of default (non-payment of royalty dues) continues, this port hereby issues termination notice as per clause 13.4.5 of the License Agreement. Further action will be taken by this port as per the terms and conditions of the License Agreement dates 15 July 1998,” the termination notice issued on Thursday, said.

PSA-Sical Terminals, the entity that has been running the container terminal at VOCPT since 1998, is 51 per cent owned by PSA International, a unit of Temasek Holdings Pte Ltd, Singapore’s sovereign wealth fund. The terminal has been roiled by tariff issues for many years and is the most litigated public-private partnership (PPP) project in the Indian ports sector.

In its petition, PSA-Sical Terminals had sought to quash a decision by the Ministry of Ports, Shipping and Waterways to scrap a panel that was formed in July 2020 for resolving disputes/issues relating to royalty payments by the terminal, stating that it was “arbitrary, unilateral and against the principles of natural justice”.

The committee was disbanded by the ministry on November 11, 2021 after the Supreme Court overturned an arbitration tribunal award that allowed PSA-Sical Terminals to rewrite the contract by switching to a revenue share format from a royalty model, in a July 28, 2021 order.

Royalty arrears

Based on the apex court order, VOCPT asked PSA-Sical Terminals to pay royalty arrears along with interest and penalty of ₹1,027.37 crore (till 2019). The port authority also issued a notice to the terminal operator on October 6 last year signalling its “intent to terminate” the contract for non-payment of royalty dues.

PSA-Sical Terminals, in the petition, also urged the court to set aside the notice of “intent to terminate” the contract, citing that it “will cause irreparable loss, hardship and prejudice”.

“Pursuant to the orders of the Hon’ble Supreme Court setting aside the award of the Arbitral Tribunal, the petitioner and its holding company are due and payable in a sum of ₹1,000 crore, which the petitioner and its holding company have not paid but proceeds with litigations one way or the other to thwart the attempt to recover the dues,” Justice M Dhandapani, wrote in the January 19 order.

“Failure to pay the same has resulted in the notice of intent to terminate, which is put to challenge. Once the Hon’ble Supreme Court has rendered its decision, the petitioner and its holding company are bound to pay the sum due to the second respondent (VOCPT). Through continuous litigative process, the petitioner (PSA-Sical Terminals) and its holding company are circumventing the second respondent (VOCPT) from collecting the enormous amount due to it from the petitioner. Therefore, in the aforesaid backdrop, the intent of the petitioner being clear, the second respondent cannot be found fault with for issuing the aforesaid notice of intent to terminate. This Court does not find any perversity or arbitrariness in the act of the second respondent and, therefore, sees no reason to interfere with the said order,” Dhandapani wrote while dismissing the petition.

In June 2011, PSA-Sical secured a stay from the district court in Tuticorin, freezing the annual royalty it is contractually mandated to pay VOCPT at the level set for 2011 (₹1,969 per TEU) as part of the 30-year contract even though the royalty rises by 20 per cent every year till the contact ends in 2028.

PSA said that it cannot give more royalty to VOCPT till it is allowed to increase rates, which it tried thrice but was rejected by the rate regulator.

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