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JSA Prism | Energy | May 2024

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Supreme Court upholds the decision of APTEL directing that there is no statutory basis to levy additional reliability charge for uninterrupted power supply to bulk consumers.

The Hon’ble Supreme Court of India (“Supreme Court”), in Maharashtra State Electricity Distribution Company Limited v. M/s. JSW Steel Ltd. & Anr. (“Civil Appeal”)[1], has upheld the decision of the Appellate Tribunal for Electricity (“APTEL”) that the Maharashtra State Electricity Distribution Co. Ltd. (“Appellant”) had no statutory basis to impose an additional reliability charge for uninterrupted power supply to bulk consumers.

Brief Facts

In terms of the Tariff Order dated October 20, 2006, passed by the Maharashtra Electricity Regulatory Commission (“MERC”), the Appellant imposed an additional supply charge for uninterrupted power supply to its bulk consumers, including Respondent No. 1 / JSW Steel Ltd. (“JSW Steel”).
On June 20, 2008, MERC by its Tariff Order discontinued the imposition of additional supply charges and directed the Appellant to refund the additional supply charge collected during Financial Year (“FY”) 2006-07 and FY 2007-08 from bulk consumers. Pursuant to this, the Appellant preferred a petition before the MERC seeking approval for recovery of reliability charges for implementing ‘Zero Load Shedding’ in the Pen Circle area in Maharashtra.
On June 15, 2009, MERC by its order allowed the imposition of a reliability charge for the period June 16, 2009, till March 31, 2010, (“Order”) which was made payable by all the consumers in the Pen Circle area, including JSW Steel.
Aggrieved by the Order, JSW Steel challenged the said Order before APTEL in Appeal No. 135 of 2009. On December 14, 2009, APTEL by its Judgment inter alia set aside the Order. Subsequently, the Appellant challenged the Judgment of APTEL before the Supreme Court in the present Civil Appeal.
The Appellant contended that:
- The MERC has adequate powers to bring in schemes to improve the nature of Supply in a particular area in terms of Section 62(3) of the Electricity Act, 2003 (“Electricity Act”).
- Non-participation of JSW Steel in the public hearing held by MERC, despite consuming about 45% of the electricity in Pen Circle area, amounts to deemed consent given by JSW Steel to pay the reliability charges. Similar charges are being paid by the High Tension (“HT”) industrial consumers in other regions of Maharashtra.
JSW Steel contended that:
- JSW Steel, being a continuous process industry and a large-scale consumer, was not subjected to load shedding by the Appellant.
- JSW Steel was already paying higher tariffs compared to those for HT non-continuous process industries.

Issue

The issues before the Supreme Court were to adjudicate:

Whether imposition of reliability charge by the Appellant was legal?
Whether JSW Steel was liable to pay the reliability charge?
Whether JSW Steel, being affected by the levy of the reliability charge, had a right to appeal against MERC’s Order under Section 111 of the Electricity Act?

Findings

While upholding the decision of APTEL in favour of JSW Steel, the Supreme Court observed that:

There is no statutory basis, either under Section 62(3) of the Electricity Act or the Rules and Regulations framed thereunder by the MERC, which supports the levy of reliability charges. Thus, the Appellant did not have any statutory basis for imposition of reliability charge.
Vidharba Industries Association, of which JSW Steel is a member, had already objected to the imposition of the reliability supply charge, thereby representing the interest of JSW Steel.
Section 111 of the Electricity Act provides for a statutory appeal against an Order of the Appropriate Commission. JSW Steel, being directly affected by the levy of the reliability charge, was a “person aggrieved” within the purview of Section 111 of the Electricity Act and hence was entitled to challenge the legality of the Order passed by MERC.
Nothing in the Electricity Act suggests that a consumer who does not participate in the Appropriate Commission’s public hearing and is aggrieved by an order of the Appropriate Commission is disentitled to prefer an appeal.
JSW Steel, being a continuous process industry on express feeder, had paid a higher tariff during the period from July 2009 till April 2010 to get supply without load-shedding. Thus, JSW Steel had already paid a higher tariff for uninterrupted supply, negating the need for an additional reliability charge.

Conclusion

The Supreme Court by the Civil Appeal has re-affirmed the law laid down by APTEL that charges cannot be levied by Distribution Companies on its consumers without any statutory basis under the Electricity Act. Bulk / Industrial consumers are already subjected to higher tariffs which negate the need for the imposition of an additional reliability charge for implementing ‘Zero Load Shedding’.

This Prism has been prepared by:

Anupam Varma
Partner

Aditya Ajay
Senior Associate

Akshata Sharma
Associate

For more details, please contact [email protected]

[1] Civil Appeal No. 8413 of 2009, dated May 17, 2024.

Tags APTEL, Energy, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Supreme Court

Delhi High Court: Arbitrators can calculate liquidated damages on the basis of “honest guesswork” and “rough methods” in case of insufficient evidence

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By a recent judgment, the Division Bench of the High Court of Delhi (“Delhi HC”) in the case of Cobra Instalaciones Y Servicios v. Haryana Vidyut Prasaran Nigam Ltd.[1] upheld the Arbitral Tribunal’s quantification of liquidated damages on the basis of “honest estimations” and “rough methods” to arrive at a fair assessment of damages in a case where the quantification was complex and there was insufficient evidence on record.

Brief Facts

Haryana Vidyut Prasaran Nigam Ltd (“Respondent”) awarded a contract to Cobra Instalaciones Y Servicios (“Appellant”) to design, supply, and install sub-stations for the Haryana Power System Improvement Project (“Project”). The contract stipulated a 450 (four hundred and fifty) day deadline and included a clause for liquidated damages (“LD”) in case of any delays.

While the project commenced on time, there were delays in the contract which triggered the LD. The Respondent initially deferred the LDs. However, later imposed the same at the maximum permissible limit under the contract.

Aggrieved, the Appellant invoked arbitration under the contract. The central question for determination in the arbitration was the quantification of losses.

Upon assessment, the Arbitral Tribunal concluded that some delays were caused by the Appellant’s actions, while others resulted from issues with third-party vendors. Accordingly, the Arbitral Tribunal awarded the Respondent 50% of the imposed LDs based on the “rough and ready” methodology established by the Supreme Court in the case of Construction and Design Services v. Delhi Development Authority[2],.

Both parties filed an appeal challenging the award by preferring respective appeals under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Ld. Single Judge, set aside the award and remanded the matter back to the Arbitral Tribunal for fresh consideration. Aggrieved, the Appellant appealed under Section 37 of the Arbitration Act.

Issues

Whether time was of the essence of the contract and if so, what percentage of liquidated damages is the Appellant entitled to?

Findings and Analysis

On the issue of whether time was of the essence, the Delhi HC observed that although stricto sensu time was not of the essence, the Respondent’s repeated reminders of timely completion of works under the contract established that delays had consequences in the contract, and it could not be assumed that the Respondent had not suffered a loss.
It was further held that the burden of the resultant loss cannot be mulcted solely on the Appellant as more than 1 (one) contractor was involved in executing the project.
With respect to the apportionment of the LDs, the Delhi HC concluded that the LD clause did not represent a genuine pre-estimate of damages and the exact contribution of loss attributable to each contractor was not possible.
Upholding the award, the Delhi HC affirmed that arbitrators have the authority to use “rough and ready” or “honest guesswork” methods while quantifying damages when the exact loss cannot be ascertained.
The Delhi HC recognized that such computation method was a tool available to the arbitrator which has received the imprimatur not only of the Supreme Court of India but also of other courts, even before the case of Construction and Design Services (supra).
The Delhi HC explained that the rationale behind this approach is that even when the evidence of loss exists, the absence of precise details shouldn’t prevent an award on damages and the arbitrators can use reasonable estimations to arrive at a fair assessment.

Conclusion

The “honest guesswork” approach offers a practical solution for arbitrators when precise damage calculations are difficult, particularly in public projects with non-monetary benefits. It further saves time and resources by eliminating the need for extensive evidence gathering. However, this flexibility comes with potential drawbacks as estimates can be inaccurate, or biased, leading to unfair outcomes for one party or the other. Furthermore, a lack of transparency may even undermine the legitimacy of the arbitration process.

In view of the above, clear guidelines from the Supreme Court of India can standardize the use of estimates, which should be used as a last resort only when determining damages is truly impossible, and not simply when it is improbable. This will achieve a balance between efficiency and fairness in the assessment of damages during arbitration and strengthen the legitimacy of the arbitration process.

This Prism has been prepared by:

Dheeraj Nair
Partner

Vishrutyi Sahni
Principal Associate

Muskaan Gupta
Associate

For more details, please contact [email protected].

[1] Cobra Instalaciones Y Servicios v. Haryana Vidyut Prasaran Nigam Ltd., 2022: DHC: 1479

[2] (2015) 14 SCC 263

Tags Delhi High Court, Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates

JSA successfully represented Sundew Properties Limited (K Raheja Corp) before Supreme Court against conditional grant of distribution licence under the Electricity Act, 2003

In a landmark Judgment on the interplay of SEZ Act, 2005 and the Electricity Act, 2003, on 17.05.2024, Supreme Court passed its Judgment holding that Distribution of Electricity Licence (Additional Requirements of Capital Adequacy, Creditworthiness and Code of Conduct) Rules, 2005 (Capital Adequacy Rules) issued under the Electricity Act, 2003 do not apply to developers of SEZs who are recognised as deemed distribution licensees under Proviso to Section 14(b) of the Electricity Act. Thereby, Supreme Court reversed two negative rulings by APTEL and TSERC.

The Supreme Court’s Judgment puts to rest a decades old controversy of Electricity Regulatory Commissions applying additional regulatory stipulations while identifying deemed distribution licensees. The Judgment clarifies the role of Regulatory Commissions in identifying such deemed licensees and the scrutiny required while processing such applications.

It provides an impetus to expeditious operationalizing of distribution licensee status by SEZ developers, and therefore providing a choice of supplier to consumers in SEZs. In Telangana and Andhra Pradesh, no SEZ had operationalized their deemed distribution licensee status due to this overhang, which now stands resolved. SEZ developers (and the units in such SEZs) now gain a significant competitive edge since the incumbent non-SEZ distribution licensee’s tariff is typically higher.

Sundew Properties Limited (Sundew) is a developer of a Special Economic Zone under the SEZ Act, 2005. For ensuring consistent and high-quality power supply to these SEZ units, a Notification was issued under the SEZ Act, 2005 deeming an SEZ Developer to be a distribution licensee under the Electricity Act, 2003. Sundew had filed an application before the Telangana Commission seeking identification as a deemed distribution licensee.

Telangana Commission accorded such status to Sundew, however, this was made conditional on Sundew also satisfying requirements of Capital Adequacy Rules. Hence, Sundew was directed to infuse additional equity capital from its promoters by way of account payee cheques. This was challenged before APTEL which upheld Telangana Commission’s Order. Sundew challenged APTEL’s Judgment vide C.A. No. 8978 of 2019 before Supreme Court. Supreme Court vide Judgment dated 17.05.2025 accepted Sundew’s position and held that:

Although SEZ developers under SEZ Act, 2005 are deemed distribution licensees under the Electricity Act, 2003, they are required to apply to the relevant Electricity Regulatory Commission for verification and acceptance of their deemed licensee status. Further, 6th proviso to Section 14 is not applicable to such deemed licensees.
Capital Adequacy Rules are not applicable to deemed distribution licensees under the SEZ Act, 2005. Therefore, Sundew is not required to infuse additional capital as directed by Telangana Commission.

Our Litigation Team Comprised Partner – Abhishek Munot, Partner – Kunal Kaul, Principal Associate – Malcolm Desai, and Senior Associate – Samikrith Rao Puskuri.

Tags Electricity Act, JSA, Landmark Judgment, Leading Law Firm, Leading Lawyers, SEZ Act

JSA successfully represented Tata Power’s Mundra Ultra Mega Power Plant (4150 MW) before APTEL against illegal denial of capital cost of over Rs. 100 Crores and annual operational cost by 3.75% on account of installation of Flue Gas Desulphurisation (FGD)

On 22.06.2020, Central Electricity Regulatory Commission (CERC) allowed additional capital cost and recurring operational cost to be incurred by Tata Power on account of retrofitting of FGD, to meet the revised emission norms prescribed by Ministry of Environment, Forests and Climate Change, Government of India. While CERC allowed the capital cost and operating cost, it denied capital cost to the tune of over Rs. 100 Crores and recurring operation cost by approx. 3.75%.

Tata Power challenged CERC’s Order before APTEL. APTEL vide its Judgment dated 14.05.2024 held that CERC’s deduction is illegal and bereft of any reasoning, despite furnishing of relevant documents and submissions being advanced by Tata Power. Consequently, CERC’s Order was set aside with directions to CERC to consider this issue afresh and pass necessary orders within 3 months.

APTEL’s Judgment dissuades Regulatory Commissions from passing orders without considering relevant material and promotes principles of restitutive relief in Change in Law matters.

Our Litigation Team Comprised Joint Managing Partner – Amit Kapur, Partner – Abhishek Munot, Partner – Kunal Kaul and Senior Associate – Samikrith Rao Puskuri.

Tags Central Electricity Regulatory Commission, JSA, Leading Law Firm, Leading Lawyers, Tata Power

JSA Prism | Dispute Resolution | May 2024

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Delhi High Court refuses to interfere with order under Section 16 of the Arbitration Act; holds that order must shock the conscience for interference under writ jurisdiction

In the recent decision of Oriel Financial Solutions Private Limited v. Bestech Advisors Private Limited[1], the Hon’ble High Court of Delhi (“Delhi HC”) refused to interfere with an order by which the petitioner’s application under Section 16 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) had been rejected. The Delhi HC reasoned that since the impugned order was not so perverse so as to shock the conscience of the court, no interference was warranted in the exercise of writ jurisdiction.

Brief Facts

In an arbitral proceeding, Oriel Financial Solutions Private Limited (“Petitioner”) had filed an application under Section 16 of the Arbitration Act on the ground that the dispute was non-arbitrable since the contract in question was void ab initio.

By an order dated February 1, 2024 (“Impugned Order”), the arbitrator dismissed the Petitioner’s application, holding that the ground raised by the Petitioner required detailed examination of evidence and the application could not be decided on basis of the limited documents and evidence on record.

The Petitioner challenged the Impugned Order before the Delhi HC under Article 227 of the Constitution of India.

Issue

The issue before the Delhi HC was whether interference with the Impugned Order, which was passed in an arbitral proceeding, was warranted in the exercise of writ jurisdiction.

Findings

The Delhi HC noted that in the case of SBP & Company v. Patel Engineering Limited[2] , the Hon’ble Supreme Court of India (“Supreme Court”) deprecated the proposition that any order passed by an arbitral tribunal could be corrected by High Courts in exercise of their writ jurisdiction. The Delhi HC also applied the case of Deep Industries Limited v. Oil & Natural Gas Corporation[3] , where the Supreme Court held that interference under writ jurisdiction should be restricted to orders which are patently lacking in inherent jurisdiction. Accordingly, the Delhi HC refused to interfere with the Impugned Order, holding that it was not so perverse so as to shock the conscience of the court.

Conclusion

As observed by the Supreme Court in Rohtas Industries Ltd. v. Rohtas Industries Staff Union[4] , High Courts have expansive and extraordinary powers under writ jurisdiction, which can affect any person and be available for any purpose. However, certain restraints on use of these extraordinary powers have been spelt out, and those restraints should not be ignored, except where “the monstrosity of the situation or other exceptional circumstances” so demand.

One such restraint formulated by courts over the years is that while exercising writ jurisdiction, High Courts must be extremely circumspect in interfering with orders passed in arbitral proceedings. The circumstances in which such interference may be warranted are quite limited and fairly well settled.

As summarised by the Supreme Court in Navayuga Engineering Company v. Bangalore Metro Rail Corporation[5], interference with orders of arbitrators would be warranted under Articles 226 and 227 of the Constitution of India only in 2 (two) scenarios – either “in cases of exceptional rarity or cases which are stated to be patently lacking in inherent jurisdiction”.

Other decisions of the Supreme Court provide guidance as to when these grounds can be invoked:

As per the decision in Bhaven Construction v. Executive Engineer, Sardar Sarovar Narmada Nigam Limited[6], interference on basis of the first ground, i.e., that of ‘exceptional rarity,’ may be warranted in cases where “one party is left remediless under the statute or a clear “bad faith” [is] shown by one of the parties”.
As per the decision in Punjab State Power Corporation v. EMTA Coal Limited^[7], interference on basis of the second ground, i.e., that of ‘patent lack of inherent jurisdiction,’ would be warranted in cases that require “no argument whatsoever – it must be the perversity of the order that must stare one in the face”.

Therefore, the circumstances in which orders passed by arbitrators can be interfered with in the exercise of writ jurisdiction are quite limited and fairly well settled. In the case at hand, the Petitioner’s challenge to the Impugned Order did not fall within either of the said limited circumstances. As such, in our view, the rejection of such a challenge was not only in consonance with applicable precedent, but also aligned with the larger objective of ensuring minimal judicial interference with the arbitral process.

This Prism has been prepared by:

Divyam Agarwal
Partner

Aniket Aggarwal
Senior Associate

For more details, please contact [email protected].

[1] 2024:DHC:2390

[2] 2005 (8) SCC 618

[3] 2020 (15) SCC 706

[4] (1976) 2 SCC 82

[5] 2021 SCC OnLine SC 469

[6] (2022) 1 SCC 75

[7] (2020) 17 SCC 93

Tags Delhi High Court, Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates

JSA secures 5-year electricity duty exemption for UltraTech Cement Limited’s captive coal mine

JSA successfully represented UltraTech Cement Limited (“UTCL”) before Hon’ble Madhya Pradesh High Court at Jabalpur in securing exemption from payment of Electricity Duty for 5 years for its captive coal mine.

To promote industrialization, the State of Madhya Pradesh granted a 5-year exemption to new High-Tension consumers, from payment of Electricity Duty if a new connection was taken on or before 03.03.2019 (cut-off date).

While UTCL completed all formalities (including laying and handing over the electricity supply line) before the cut-off date for securing a new connection, the line was charged by the distribution licensee and supply given to UTCL only after the cut-off date. The exemption was denied because of this delay in charging.

UTCL challenged this denial of exemption before the Energy Secretary, Govt. of Madhya Pradesh (being the appellate authority under the MP ED Act, 2012) on the ground that UTCL’s obligations were completed within the cut-off date and charging of line was not necessary to qualify as a ‘consumer’. However, no exemption was granted. UTCL then approached Hon’ble Madhya Pradesh High Court.

Hon’ble Madhya Pradesh High Court held that UTCL’s captive coal mine qualifies for the exemption since:

The line was handed over to the distribution licensee before deadline. There is no role thereafter to be played by UTCL.
As per MP ED Act read with the Electricity Act, 2003, UTCL had attained the status of a ‘consumer’ after its line was connected with the works of a licensee for purpose of receiving electricity.
The Notification applied to ‘new HT consumers’, and it did not stipulate that electricity supply ought to be started to qualify for exemption.

This Judgment clarifies that supply of electricity is not sine qua non to qualify as a ‘consumer’ under the ED Act read with Electricity Act. The decision of the HC could provide relief to several other entities who are dealing with delay on part of the licensee, due to which fiscal benefits are being denied.

Our Litigation Team Comprised Lead Partner – Abhishek Munot, Partner – Kunal Kaul and Senior Associate – Samikrith Rao Puskuri.

Tags JSA, Leading Law Firm, Leading Lawyer, Ultratech Cement

JSA Brief | April 2024

This edition of the JSA Brief showcases JSA authored articles, updates & newsletters and achievements such as deals and events in all practice area over the preceding month (April 2024).

To read further details, click here or refer to the below document.

For more details, please contact [email protected]

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Tags Articles, Deal Making, Events, JSA, JSA Prism, Legal Updates, Newsletters, Publications, Recognitions

JSA Prism | Dispute Resolution | May 2024

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Supreme Court: For the parties to be referred to arbitration, there must be a specific and conscious incorporation of an arbitration clause from another contract

In NBCC (India) Limited vs. Zillion Infraprojects Pvt.Ltd.[1], the Supreme Court has held that a general reference in a contract (“Contract 1”) to a separate contract (“Contract 2”) would not incorporate the arbitration clause contained in Contract 2 for resolution of disputes that arise under Contract 1. In view of this judgment, if the parties want to incorporate an arbitration clause from another contract, they should ensure that there is a specific reference in Contract 1 to the arbitration clause contained in Contract 2.

Brief Facts

NBCC (India) Limited (“NBCC”) and Zillion Infraprojects Pvt. Ltd. (“Zillion”) entered into a contract (“NBCC Contract”) for construction of Weir with Allied Structures across river Damodar.
The NBCC Contract provided that:
- All terms and conditions as contained in the tender (“DVC Contract”) issued by Damodar Valley Corporation (“DVC”) to NBCC would apply mutatis mutandis except where these were expressly modified by NBCC (clause 2).
- The redressal of disputes between the NBCC and Zillion would only be through civil courts at Delhi (clause 7).
The DVC Contract contained an arbitration clause.
When disputes arose between Zillion and NBCC under the NBCC Contract, Zillion referred the dispute to arbitration in terms of the arbitration clause contained in the DVC Contract. Zillion filed a petition under Section 11 of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”) praying for appointment of an arbitrator.
Though NBCC objected to the appointment of an arbitrator on the ground that no arbitration clause existed under the NBCC Contract, the Delhi High Court held that an arbitration clause existed between the parties (as per the DVC Contract) and appointed an arbitrator.
NBCC challenged the judgment passed by the High Court before the Supreme Court.

Issue

The issue before the Supreme Court was whether by referring to the DVC Contract, the parties had also incorporated the arbitration agreement contained in the DVC Contract to the NBCC Contract.

Findings and Analysis

The Supreme Court reiterated the following law relating to incorporation of an arbitration clause by reference:
- Section 7(5) of the Arbitration Act provides for a conscious acceptance of the arbitration clause from another document by the parties, before such arbitration clause could be read as a part of the contract between the parties. Reference in terms of Section 7 (5) of the Arbitration Act should be such that shows the intention to incorporate the arbitration clause contained in the document into the contract.
- When parties enter into a contract, making a general reference to another contract (for execution, performance etc.) would not have the effect of ipso facto incorporating the arbitration clause from that contract. Arbitration clause from another contract can be incorporated only by a specific reference to such arbitration clause.
- Where the contract provides that the standard form of terms and conditions of (i) an independent trade or professional institution; or of (ii) one of the parties to the contract will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, will be deemed to be incorporated by reference. The court held that such cases (where standard terms and conditions are incorporated) are ‘single-contract’ cases and not ‘two-contract’ cases (as in the present case).

On facts, the Supreme Court set aside the High Court’s judgment and held that no arbitration clause existed between NBCC and Zillion because:
- Clause 7 in the present case used the word “only” before the words “be through civil courts having jurisdiction of Delhi alone” and therefore, the intention of the parties was to give jurisdiction to only courts at Delhi (and not to submit to arbitration).
- Zillion’s argument that clause 7 only modified the jurisdiction of court from Calcutta (as in the DVC Contract) to Delhi but did not have the effect of modifying the arbitration agreement contained in the DVC Contract was rejected.

Conclusion

The parties would have to be careful in drafting their contracts and if the intention is to be bound by an arbitration clause contained in another contract, the parties should ensure that a ‘specific’ reference is made to incorporate the arbitration clause of the other contract. As stated in the judgment, this principle should not apply in cases where standard terms and conditions are incorporated (in which case, the arbitration clause is deemed to be specifically incorporated).

This Prism has been prepared by:

Dhirendra Negi
Partner

Pragya Chauhan
Partner

For more details, please contact [email protected].

[1] 2024 INSC 218

Tags Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Supreme Court

JSA successfully represented foreign directors and an authorised signatory of an Indian JV entity in contempt of court proceedings before the Bombay High Court

By a judgment of 26 April 2024, a single judge of the Bombay High Court dismissed a contempt petition filed by a company against an Indian JV company for failing to deposit certain amounts with the Court registry within the period prescribed in the order of the court (“Order”). The Order also stated that the JV company’s right to file a statement of defence or counter claim in pending arbitration proceedings with the applicant company was conditional upon the deposit being made. The deposit was not made, and the entity’s right of defence in the arbitration was lost.

The contempt petition, filed by the applicant company, was admitted and show cause notices were issued to the directors and the authorised signatory of the Indian JV entity. At the final hearing of the contempt petition, the directors and authorised signatory of the Indian JV entity contended, amongst other things, that –

Given the non-compliance with the Order, a contempt petition was filed and subsequently admitted; and show cause notices were issued to the directors and the authorised signatory of the Indian JV entity. In the contempt proceedings, the directors and authorised signatory of the Indian JV entity contended that there was no wilful disobedience of the Order since –

the Indian JV entity was in a precarious financial condition and did not have the requisite funds to comply with the Order.
amounts available with the Indian JV entity during the concerned period were expended to meet legitimate expenses, including tax dues and staff salaries.
the Indian JV entity had expected to recover substantial amounts from its creditors to comply with the Order, but no amounts were recovered on account of the COVID-19 pandemic.
the Order was self-operating and provided for drastic consequences for non-compliance, which had in fact taken place.

The Hon’ble High Court observed that in the face of the self-operative clause in the Order for adverse consequences upon failure to make the deposit, such an order could not be the basis for initiating contempt proceedings, and the consequences of the failure to deposit had been suffered and execution proceedings were being faced by the Indian JV entity. The Hon’ble Court also took into consideration the financial crunch suffered by the JV entity, the closure of its business, and the impact of the Covid-19 pandemic and the lockdowns. It concluded that while the fact that the Order could not be obeyed was made out, the court was not inclined to hold that there was wilful disobedience of the order. Accordingly, the contempt petition was dismissed.

Our Disputes Team Comprised Lead Partner – Farhad Sorabjee, Partner – Shanaya Cyrus Irani and Principal Associate – Siddhesh Pradhan.

Tags Joint Venture, JSA, Leading Law Firm, Leading Lawyers

Challenges of change and judiciary: Key learnings from SC judgement in GIB case

The GIB case has brought to fore a larger critical issue at a juncture when the National Litigation Policy is under review, the need for a holistic and informed adjudication by courts. This becomes critical in cases involving challenges to scientific, economic, social or environmental policies; or decisions with significant public implications.

Please click here to read the full article by Amit Kapur, published in The Economic Times – ET Energy World.