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NCLT DIRECTS CORPORATE DEBTOR TO HAND OVER POSSESSION OF LEAVE AND LICENSE PROPERTY TO LICENSOR DURING CIRP PERIOD IRRESPECTIVE OF MORATORIUM UNDER SECTION 14(1)(d) OF THE CODE

JSA successfully represented Dawat-E-Hadiyah (“DeH”), a Public Charitable Trust before the Hon’ble National Company Law Tribunal, Mumbai (“NCLT”) seeking directions from NCLT for recovering vacant possession of its warehouses i.e. Unit No.2 and Unit No.3 (collectively referred to as “Units”) which were given on leave and license basis to Future Supply Chain Solution Ltd. (“Corporate Debtor”) prior to the commencement of its Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“Code”). The Units were in possession of the Corporate Debtor in accordance with the moratorium under section 14(1)(d) of the Code. The RP was neither paying rent for the Units nor willing to handover its possession to DeH.

It was argued on behalf of DeH that the leave and licence agreement with respect to Unit No.3 was terminated prior to the commencement of CIRP and therefore, the Corporate Debtor is in illegal and wrongful possession of Unit No.3. As regards Unit No.2, it was argued that the Corporate Debtor admittedly is not utilising Unit No.2 and therefore the moratorium under Section 14(1)(d) of the Code should not be extended to the said Unit. It was submitted by the Resolution Professional of the Corporate Debtor that due to the moratorium under section 14(1)(d) of the Code, DeH is not entitled to seek possession of the Units during the CIRP of the Corporate Debtor.

The Tribunal was of the view that the Corporate Debtor cannot utilise or retain possession of the Units free of cost under the garb of moratorium under section 14 of the Code.

The Hon’ble NCLT vide its Order dated November 22, 2023 while allowing the application filed by DeH, inter alia, held that:

The leave and licence agreement with respect to Unit No.3 was terminated prior to the initiation of CIRP, hence the Corporate Debtor was in wrongful possession of Unit No.3
As regards Unit No.2 is concerned, the Corporate Debtor is not utilising the same and it is lying vacant.
Accordingly, the Hon’ble NCLT deemed it fit to direct the Resolution Professional of the Corporate Debtor to handover possession of the Units to DeH within a period of 4 weeks.
There was no order as to payment of CIRP costs as DeH agreed to waive the same if the possession of the Units were handed over within a reasonable period.

The said order in a precedential manner hands over the assets of the Licensor during the CIRP period despite the restrictions of moratorium under section 14 of the Code.

Our Disputes Team Comprised Lead Partner – Varghese Thomas, Partner – Fatema Kachwalla, Associate – Virgil Braganza and Meenakshi.

Tags CIRP, Dispute Resolution, Insolvency and Bankruptcy Code 2016, JSA, Leading Law Firm, Leading Lawyers, NCLT

JSA successfully represented Indiabulls Housing Finance Limited in admitting Shipra Leasing Private Limited into CIRP

Amidst a long-standing and multifarious litigation between Indiabulls Housing Finance Limited (“Indiabulls”) and the Shipra Group of Companies, NCLT, Delhi has admitted Shipra Leasing Private Limited to CIRP for its default to the tune of Rs.165 Crores.

The significance of this decision is that:

The NCLT rejected the Respondents’ objection to the petition on the ground that the ‘first’ date of default (a) was not a default since it is under challenge before the Allahabad High Court and (b) fell under Section 10A of the Code.

The NCLT held that the ‘date of default’ for this company petition is the subsequent date on which the cheques of the Corporate Debtor were dishonored giving a fresh cause of action for filing an application under Section 7 of the Code. The NCLT applied the principle that every subsequent default gives fresh and new cause of default for filing an application under Section 7 of the Code and accordingly, the NCLT held that the bar under Section 10A of the Code will not be applicable in the present case.

In terms of the prevailing legal position, the NCLT confined its determination of this petition to the existence of a payable debt and the default in payment thereof. The NCLT held that once there is no denial of (a) the sanction of the loan, (b) the disbursement of the loan and (c) the non-repayment of the loan, the ingredients of Section 7 of the Code are satisfied, and accordingly, allowed the company petition.

Our Disputes Team Comprised Partner – Dheeraj Nair and Manish Jha, Senior Associate – Vishrutyi Sahni and Associate – Ankit Tripathi.

Tags Allahabad High Court, CIRP, JSA, Leading Law Firm, Leading Lawyers, Litigation, NCLT, Section 7 IBC

JUDGMENT ON GROUP OF COMPANIES DOCTRINE (Cox & Kings Ltd. v. Sap India Pvt. Ltd. & Anr)

The Constitution Bench of the Supreme Court of India has delivered its judgment on the reference made regarding the applicability of the “Group Companies Doctrine” under Indian arbitration law.

JSA appeared for the Respondents SAP India Private Limited and SAP SE GmbHbefore the Constitution bench of the Supreme Court. Though the full text of the judgement is not available yet, the Court has held that the group of companies doctrine cannot have a blanket application and has clarified the parameters regarding its application. To ascertain whether a non-signatory party is bound by the arbitration agreement, the conduct and intention of the parties needs to be considered.

Key aspects pronounced in court are as follows:

The definition of parties under Section 2(1)(h) read with Section 7 of the Arbitration Act, 1996 (“Act”) includes both signatory as well as non – signatory parties.
Conduct of the non-signatory parties could be an indicator of consent to be bound by the arbitration agreement.
The requirement of a written arbitration agreement under Section 7 of the Act does not exclude the possibility of binding non – signatory parties.
Under the Act, the concept of parties is distinct and different from the concept of “persons claiming through or under a party” to the arbitration agreement.
The underlying basis for the application of the group of companies’ doctrine rests on maintaining the corporate separateness of the group of companies while determining the common intention of the parties to bind the non-signatory to the arbitration agreement.
The principle of alter ego or piercing the corporate veil cannot be made the basis for the application of the group of companies doctrine.
The group of companies doctrine has an independent existence as a principle of law which stems from a harmonious reading of Section 2(1)(h) along with Section 7 of the Act.
To apply the group of companies doctrine, the courts or tribunals, as the case may be, have to consider all the cumulative factors laid down in Oil and Natural Gas Corporation Ltd. v. Discovery Enterprises Pvt. Ltd. and Anr. 2022 SCC OnLine SC 522. Resultantly, the principle of single economic unit cannot be the sole basis for invoking the group of companies doctrine.
Persons claiming “through or under” can only assert rights in a derivative capacity
The approach of the Supreme Court in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. (2013) 1 SCC 641to the extent that it raised the group of companies doctrine through the phrase “claiming through or under” is against the well-established principles of contract law and corporate law.
The group of companies doctrine should be retained in Indian arbitration law and jurisprudence, considering its utility in determining the intention of the parties in the context of complex transactions involving multiple parties and multiple agreements.
At the referral stage, the referral court should leave for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement.
Any authoritative interpretation in this judgment to the group of companies doctrine should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to an arbitration agreement.

The reference made to the Constitution Bench was answered in the above terms. The Registry of the Supreme Court has been directed to place the individual matters to the respective benches for directions on the administrative side. This judgement clarifies the place of the group of companies doctrine in Indian law.

The Team: Partner – Farhad Sorabjee, Dheeraj Nair, Pratik Pawar, Shanaya Cyrus Irani, Kumar Kislay, Senior Associate – Siddhesh Pradhan and Associate – Aishna Jain

The matter was led by Ritin Rai, Senior Advocate.

Tags Arbitration Act, Constitution bench of the Supreme Court, Disputes, JSA, Judgment, Leading Law Firm, Leading Lawyers, Matter

JSA successfully represents Resolution Professional before Hon’ble National Company Law Tribunal, Mumbai, in seeking annulment of fraudulent assignment of brand “SMAAASH” by the erstwhile promoters of Smaaash Entertainment Private Limited

JSA successfully represented Mr. Bhrugesh Amin (Resolution Professional of Smaaash Entertainment Private Limited), before the Hon’ble National Company Law Tribunal, Mumbai (“NCLT”), in seeking cancellation and annulment of the assignment of brand name “SMAAASH” pursuant to the Deed of Assignment dated 19.04.2022 (“Deed of Assignment”).

By the Deed of Assignment, the erstwhile promoters of Smaaash Entertainment Private Limited (“Corporate Debtor”), assigned the brand name “SMAAASH” in favour of Fun Gateway Arena Private Limited (“FGAPL”) at a paltry consideration of Rs. 1.5 Crores, merely 18 days before commencement of CIRP. The said consideration was not paid to the Corporate Debtor and was set-off against an antecedent debt owed by the Corporate Debtor to its related party, being AHA Holdings Private Limited.

By the Order dated 22.11.2023, Ld. NCLT, inter-alia, held that:

The assignment of brand name “SMAAASH” (being the most valuable asset of the Corporate Debtor) by the erstwhile promoters of the Corporate Debtor in favour of FGAPL is a fraudulent transaction and the same was executed to scuttle the CIRP process.
The assignment of brand name “SMAAASH” is an undervalued and fraudulent transaction within the look-back period under the IBC.
Accordingly, NCLT directed cancellation and annulment of Deed of Assignment and the erstwhile promoters of the Corporate Debtor are injuncted from using the brand name “SMAAASH” in any manner.

Our Disputes Team Comprised Lead Partner – Varghese Thomas, Partners – Fatema Kachwalla & Kunal Kaul and Associate – Virgil Braganza.

Tags Deed of Assignment, Disputes, Ibc, JSA, Leading Law Firm, Leading Lawyers, Matter, NCLT

Can a party raise fresh grounds for setting aside an award in proceedings under Section 37 of Arbitration Act?

In Azizur Rehman v. Radio Restaurant [2023 SCC OnLine Bom 2320], the Hon’ble Bombay High Court dismissed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (the “Act”), inter alia because the appellants raised fresh grounds of challenge that were not raised in prior proceedings under Section 34 of the Act.

While the Hon’ble Court also considered and rejected the challenges raised by the appellants on merits, it found that in any event, the appeal failed on two preliminary grounds: first, that the appellants’ entire challenge under Section 37 was against the arbitral award while the final order in the Section 34 proceedings was, in fact, not assailed; and second, that the grounds of challenge raised under Section 37 were “not taken as a ground of challenge to the Arbitral Award in the Petition filed under Section 34.” As per the Hon’ble Court, either of these preliminary grounds alone constituted sufficient reason for the Section 37 appeal to fail.

Please click here to read the full article by Divyam Agarwal and Aniket Aggarwal published in Bar & Bench.

Tags Arbitration and Conciliation Act, Bombay High Court, JSA, Leading Law Firm, Leading Lawyers, Section 34

Supreme Court has indicated the evidence required for awarding claims for loss of profit and overheads

Please click here to download the Prism as PDF.

The Supreme Court of India (“Supreme Court”), in 2 (two) judgments i.e., M/s Unibros v. All India Radio[1] (“Unibros Judgement”) and Batliboi Environmental Engineers Limited v. Hindustan Petroleum Corporation Limited[2], (“Batliboi Judgement”) has indicated the evidence required to be proved by a contractor for being entitled to a claim for loss of profit and overheads (due to delayed completion of a contract). The Supreme Court further held that in the absence of such evidence, the arbitral awards that grant claims for loss of profit or overheads (based merely on a formula), would be liable to be set aside under Section 34[3] of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”).

Unibros Judgment

In this case, the completion of a construction contract was delayed due to reasons attributable to the employer (i.e. on account of delay in handing over site and drawings etc.). In the arbitration, the contractor raised claims for (a) compensation for increased prices/rates after the scheduled contract period; (b) compensation for extended stay of establishment, machinery, etc.; and (c) loss of profit.

The arbitral tribunal rejected the claims for increased prices and establishment and machinery cost, due to the lack of evidence on record. However, the tribunal awarded the claim for loss of profit on the basis that:

The party responsible for the breach of contract is liable for reasonably foreseeable losses.
It was reasonable to assume earning of expected profits elsewhere by the contractor.
The contractor was not required to establish the exact amount of gain or loss with absolute certainty and instead, presenting fairly persuasive and the best available evidence was sufficient.
The tribunal used the Hudson Formula[4] to quantify the claim for loss of profit.

A single Judge of the Delhi High Court set aside the award under Section 34 of the Arbitration Act which was upheld by the Division Bench in an appeal under Section 37 of the Arbitration Act.

Finding in Unibros Judgment

In the Special Leave Petition filed against the judgment passed by the Division Bench, the Supreme Court held that:

To claim loss of profit, the contractor (claimant) will have to establish the following:
- first, that there was a delay in the completion of the contract;
- second, that such delay is not attributable to the claimant;
- third, the claimant’s status as an established contractor, handling substantial projects; and
- fourth, credible evidence to substantiate the claim of loss of profitability.
Though the evidence required would depend on the facts and circumstances of each case, it may generally include independent contemporaneous evidence, such as:
- other potential projects that the contractor had in the pipeline that could have been undertaken if not for the delays,
- the total number of tendering opportunities that the contractor received and declined owing to the prolongation of the contract,
- financial statements, or
- any clauses in the contract related to delays, extensions of time, and compensation for loss of profit.
Formulae such as the Hudson Formula are well accepted but cannot apply in vacuum. These formulae can be useful to assess losses only if the contractor has shown, with evidence, the loss of profits and opportunities it suffered owing to the prolongation of the contract.

Batliboi Judgment

In this case there was a delay in completion of a turnkey contract for detailed engineering including civil and structural design, supply and erection, testing and commissioning of a Sewage Water Reclamation Plant. After completing 80% of the work, the contractor abandoned the contract and raised a claim, inter alia, for loss of profit and overheads due to the delay caused to the project.

The arbitral tribunal awarded 10% of the contract value each, towards loss of profit and overheads.

In a petition filed under Section 34 of the Arbitration Act, a Single Judge of the Bombay High Court upheld the award. However, the Division Bench allowed the appeal under Section 37 of the Arbitration Act and set aside the award.

Finding in Batliboi Judgment

In a Special Leave Petition filed against the judgment of the Division Bench, the Supreme Court held that:

When the completion of a contract is delayed and the contractor claims (a) that he has suffered a loss arising from depletion of his income from the job and hence turnover of his business, and (b) for the overheads in the form of workforce expenses which could have been deployed in other contracts, the contractor has to prove that:
- There was other work available that he would have secured if not for the delay, by producing invitations to tender which were declined due to insufficient capacity to undertake other work.
- The same may also be proven from the books of accounts to demonstrate a drop in turnover and establish that this result is from the particular delay, rather than from extraneous causes.

- If loss of turnover resulting from the delay is not established, it is merely a delay in receipt of money, and as such, the builder/ contractor is only entitled to interest on the capital employed and not the profit.
Formulae for quantification of the claim, are only rough approximations of the cost impact of unabsorbed overhead and should therefore be applied with great care and caution to ensure fair and just computation. The court/tribunal should ensure that there is no double recovery, overlap with other claims or when payments are obtained by the contractor on account of variation(s), or any damages for breach.
Particularly, the court pointed out issues which may arise while using the Hudson formula and set out guidelines to be kept in mind if the said formula has to be applied as a last resort.

The Batliboi Judgment also re-visited in detail the scope and ambit of the court’s power to review the awards under Section 34 of the Arbitration Act.

Conclusion

In the light of the Supreme Court judgments, contractors may now find it difficult to prove their claims for loss of profit and office overhead. In construction contracts, particularly executed through special purpose vehicles[5] etc., it is difficult to prove lost opportunities and the books of accounts may not provide an accurate estimate of the loss sustained due to delay. Given the directions passed by the Supreme Court in these 2 (two) judgments, instead of awarding claims on the basis of broad estimates, arbitral tribunals would now be very conscious about the supporting evidence for the claims for loss of profit and head office overhead.

This Prism has been prepared by:

Dhirendra Negi
Partner

Pragya Chauhan
Partner

Tanya Tiwari
Senior Associate

For more details, please contact [email protected]

[1] 2023 INSC 931. Judgement dated October 19, 2023.

[2] 2023 INSC 850. Judgement dated September 21, 2023.

[3] Applications for setting aside arbitral awards are made under Section 34 of the Arbitration Act.

[4] Hudson’s formula has received legal acceptance and is generally used by courts and other judicial bodies in awarding overheads and profit. The Hudson’s formula works on the numbers and figures contemplated in the contract as envisaged by the parties at the time of signing of the contract rather than the actuals.

[5] Corporations incorporated to execute a single project.

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

India Today Infra Conclave | Getting Infrastructure Financing Right: Innovations And Possibilities

Our Joint Managing Partner Amit Kapur participated in a panel discussion at the India Today Infra Conclave on the theme “Getting Infrastructure Financing Right: Innovations and Possibilities” which was held on 18^th November in New Delhi. The session also included senior dignitaries like Punjab & Sind Bank Non-Executive Chairman Dr. Charan Singh and Harry Dhaul, Director General, Security Watch India. The session focused on addressing how India plans to finance its infrastructure upgrades.

As part of the discussion, Amit addressed whether there is a perceptible shift in the dynamics of debt markets, project structuring, and government reliance for regulatory approvals, as the government endeavours to de-risk projects, or are we potentially reverting to past challenges in project viability.

Amit highlighted the challenges in India’s infrastructure financing, emphasizing the mismatch between long-term asset lifespans and short-term debt structures. He adds that there is a need for a comprehensive and citizen-focused approach, efficient contract management, and regulatory reforms are underscored to address the complexities in infrastructure development and reduce the burden on consumers.

Tags Disputes, Infrastructure, JSA, JSA Live, Leading Law Firm, Leading Lawyer, Legal

Supreme Court upholds gas power plant’s entitlement to fixed charges

Please click here to download the Prism as PDF.

The Supreme Court of India (“Supreme Court”) in the case of Maharashtra State Electricity Distribution Company Limited v. Ratnagiri Gas and Power Pvt. Limited & Ors.[1] upheld the decisions rendered by both Central Electricity Regulatory Commission (“CERC”) and the Appellate Tribunal for Electricity (“APTEL”) that Ratnagiri Gas and Power Pvt. Limited (“RGPPL”) is entitled to fixed charges for the duration the Maharashtra State Electricity Distribution Company Ltd. (“MSEDCL”) did not schedule electricity from RGPPL.

MSEDCL did not schedule power from RGPPL (for a certain duration) as RGPPL executed an alternate arrangement with Gas Authority of India Ltd. (“GAIL”) for supply of Recycled Liquefied Natural Gas (“RLNG”), without taking MSECCL’s permission. RGPPL declared capacity for its gas power plant based on RLNG (to be) supplied by GAIL. The issue before CERC, APTEL and Supreme Court was whether MSEDCL should pay fixed charges to RGPPL for capacity declared based on RLNG (to be) supplied by GAIL.

CERC and APTEL recognized that this alternate arrangement was executed due to shortage of domestic gas supply since September 2011. Both CERC and APTEL held that provisions of the power purchase agreement (“PPA”) between MSEDCL and RGPPL allowed RGPPL to declare capacity based either on liquid gas or RLNG and it was only for payment of variable charges that MSEDCL’s permission was required for executing agreements for gas supply/transport.

Brief Facts

RGPPL owns a gas based generating plant with installed capacity of 1967.08 MW (one thousand nine hundred and sixty seven point zero eight megawatt). The plant has a liquid natural gas (“LNG”) terminal of 5 MMTPA (five million metric tonnes per anum). 95% of the plant’s capacity is allocated to MSEDCL with balance capacities of Daman & Diu etc.

On April 10, 2007, RGPPL and MSEDCL executed a PPA.

On August 18, 2010, CERC approved tariff for RGPPL till FY 2013-14 where CERC determined the normative annual plant availability factor as 80% from FY 2009 till FY 2013-14. CERC noted that RGPPL executed contracts with Reliance India Ltd. and Oil and Natural Gas Ltd. for supply of domestic gas.

September 2011 onward, RGPPL suffered shortage of domestic gas supply and despite efforts on part of RGPPL, the domestic gas supply could not be restored.

In December 2011, RGPPL entered into an arrangement with GAIL for supply of RLNG under spot cargo on a reasonable endeavour basis (take and pay contract). Thereafter, through communications dated December 19, 2011, and December 23, 2011, MSEDCL sent letters to RGPPL stating that if MSEDCL purchased power at high cost of INR 7.05 (Indian Rupees seven paise zero five) per unit, then the consumers would un-necessarily be overburdened.

In 2012, RGPPL had filed a petition before the CERC i.e. RGPPL v. MSEDCL & Ors.[2], seeking resolution of issues related to no availability of domestic gas etc. MSEDCL during the hearing in this petition submitted that as per Article 5.9 of the PPA, RGPPL was required to obtain MSEDCL’s permission for executing an agreement with GAIL and therefore, MSEDCL is not obligated to pay fixed charges to RGPPL for capacity declared based on agreement with GAIL.

On July 30, 2013, CERC passed its order in the abovementioned petition (“CERC Order”) holding that as per Article 4.3 of the PPA, RGPPL was permitted to use RLNG as a primary fuel. This provision suffices so far as declaration of capacity using RLNG is concerned. MSEDCL relying on Article 5.9 of the PPA for refusing to pay fixed charges is incorrect since as per Article 5.9, the only permission required is related to variable charge i.e. cost of natural gas/RLNG- Article 5.9 cannot render Article 4.3 redundant.

In 2013, MSEDCL filed an appeal challenging the CERC Order before APTEL in MSEDCL v. CERC & Ors.[3]. MSEDCL contended that as per Article 5.9, RGPPL was to take MSEDCL’s permission to execute any gas supply/transport agreement.

On April 22, 2015, APTEL passed its judgment in Appeal No. 261 of 2013 and held as under (Para 13 and 14):

It is clear from the analysis of the provisions of Article 4.3 of the PPA that the primary fuel for RGPPL is LNG, natural gas or R-LNG and the normal capacity of the generating station will be declared on gas or R-LNG. The consent or agreement by a distribution licensee will be required only in the case the power generator makes the arrangements of liquid fuel(s) for the quantum required by MSEDCL.
In the case in hand, RGPPL, due to heavy scarcity of domestic gas had to change the nature of primary fuel namely LNG/natural gas to R-LNG. The consent of MSEDCL is not required prior to entering into the GSA/GTA as this is not a case of change from LNG/natural gas or R-LNG to liquid fuel but it is a case of change of inter se primary fuel.
Since there was a heavy shortage of domestic gas at the relevant time and MSEDCL was not agreeing to schedule power for the declared availability, RGPPL was left with no other option except to enter into GSA/GTA with GAIL in order to generate electricity for which purpose the plant in question was set up after a lot of efforts between the State Government, the Government of India and different other institutions of the highest level to meet the requirements of electricity of the State as well as the centre.
Since the declared capacity is in accordance with Article 4.3 of the PPA the capacity charges as provided in Article 5.2 of the PPA are payable.

Issue

Whether RGPPL is entitled to fixed charges for capacity declared based on execution of an alternate gas supply arrangement with GAIL for RLNG for which no permission was taken from MSEDCL by RGPPL?

Contentions of MSEDCL

MSEDCL had broadly contended as follows:

CERC and APTEL have virtually re-written the contract between the parties which is impermissible under settled principles of contractual interpretation.
There is an “organic interlinking” between Article 5.9, commercial implications, plant availability, declared capacity, and declaration of capacity in terms of choice of fuel as provided in Article 4.3. Therefore, the compartmentalization of Article 4.3 and 5.9, which is the premise of the impugned decision is flawed.

Findings of the Supreme Court

The Supreme Court interpreted the clauses of PPA and held that such permission was not required since PPA recognised RLNG as a primary fuel. The Supreme Court recognised that alternate arrangement was executed only due to domestic gas shortage i.e., circumstances beyond RGPPL’s control. Relevant paragraphs of the judgment are as follows:

“28. In accordance with settled principles governing the interpretation of contracts, the PPA is required to be read as a whole. Clause 4.3 has two parts: according to the first, primary fuels include LNG/Natural gas and/or RLNG; according to the second, the appellant’s agreement is required in case liquid fuels are to be employed. A bare reading of the clause indicates that the requirement to seek such an agreement does not attach to the first part of the clause which envisages RLNG as a primary fuel. An arrangement involving a transition from one primary fuel to another primary fuel is permissible by the clause, even without the appellant’s agreement.

29. The requirement of an agreement, mandated for an arrangement involving liquid fuel cannot be read into the plain text of the former part of Clause 4.3. Thus, the capacity declaration based on RLNG could be done unilaterally, unencumbered by the requirement of the appellant’s consent in the latter half or the prior approval requirement under Clause 5.9 of the PPA.

30. We must remain mindful of the conspectus of facts that led to the establishment of the first respondent. It was set up consequent to the failure ofM/s Enron International, and M/s Dabhol Power Company to meet the energy needs of the State of Maharashtra. The tariff requirements have been determined based on the need to preserve the viability of the unit.

31. The first respondent was compelled to make alternate arrangements in view of the country-wide shortage of domestic gas, making RLNG a viable and contractually permissible alternative. Notably, the appellant has not disputed the circumstances in which this need arose.

32. In the present case, CERC and APTEL have correctly held that the GSA/GTA with GAIL is permissible by the terms of the contract and the consent or approval of the appellant is irrelevant. Clause 5.9 and Clause 4.3 operate in different spheres and the requirements of the former cannot be foisted on an arrangement permissible by the latter…

35. A commercial document cannot be interpreted in a manner that is at odds with the original purpose and intendment of the parties to the document. A deviation from the plain terms of the contract is warranted only when it serves business efficacy better. The appellant’s arguments would entail reading in implied terms contrary to the contractual provisions which are otherwise clear. Such a reading of implied conditions is permissible only in a narrow set of circumstances.

36. In the present context, bearing in mind the background of the establishment of the first respondent, and the shortfall of domestic gas for reasons beyond the control of the first respondent, such a deviation from the plain terms is not merited and militates against business efficacy as it has a detrimental impact on the viability of the first respondent.”

Conclusion

The Supreme Court recognised that a commercial document cannot be interpreted in a manner that is at odds with the original purpose and intendment of the parties to the document – a deviation from the plain terms of the contract is warranted only when it serves business efficacy better. The Supreme Court in this way recognised the circumstances that surrounded RGPPL rather than only reading the contractual terms between the parties.

The Supreme Court recognised that there was a shortage of supply of domestic gas to RGPPL and gave the necessary interpretation to clauses of the PPA. The Supreme Court differentiated between the contractual clause permitting a generating station to declare capacity based on primary fuel versus a contractual clause putting condition on payment of energy charges i.e. mandating approval of gas supply agreements by the distribution licensee.

The Supreme Court not only recognised the circumstances of shortage of supply of gas, but also noted how in this dispute, MSEDCL never denied existence of this situation. The Supreme Court granted relief to RGPPL and protected the viability of the power generator.

This Prism has been prepared by:

Poonam Verma Sengupta
Partner

Gayatri Aryan
Senior Associate

For more details, please contact [email protected]

[1] 2023 INSC 993. Judgment dated November 9, 2023.

[2] Petition No. 166/MP/2012.

[3] Appeal No. 261 of 2013.

Tags JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Power Plant, Supreme Court

JSA Newsletter | Employment | October Edition 2023

Please click here to download the Newsletter as PDF.

This edition of the JSA Employment Newsletter provides a snapshot on key workplace compliances under the Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome (Prevention and Control) Act, 2017 and applicable notified rules (collectively, “HIV and AIDS Act”). We also discuss some recent regulatory updates and judicial precedents across several employment legislations.

Workplace compliances under the HIV and AIDS Act

The HIV and AIDS Act is a central legislation enacted to provide for prevention and control and of the spread of Human Immunodeficiency Virus (“HIV”) and Acquired Immune Deficiency Syndrome (“AIDS”) (collectively, “HIV and AIDS”) and for protection of human rights of persons affected by it. The HIV and AIDS Act prohibits discrimination of ‘protected persons’[1] on any ground[2], including, inter alia, matters of employment such as denial or termination from employment[3], unfair treatment in or in relation to employment or occupation[4], denial or discontinuation of or unfair treatment in, the opportunity to stand for or hold public or private office[5]. The statute also prohibits HIV testing as a pre-requisite for obtaining employment or accessing healthcare services or education or for accessing or using any other service or facility[6] and also prohibits compelled disclosure of HIV-positive status of self or any other person[7].

Employers and establishments[8] are generally required to ensure a conducive working environment devoid of stigma, discrimination and unfair treatment towards protected persons. Set out below are key obligations placed on employers and establishments under the HIV and AIDS Act:

Dismissal from employment: The HIV and AIDS Act prohibits termination from employment or occupation of a protected person who is otherwise qualified, except in cases where termination is supplemented with (a) a written assessment of a competent, qualified and independent healthcare provider that the protected person poses a significant risk of transmission of HIV to other person at the workplace, or is unfit to perform duties of the job; and (b) a written statement of the employer stating nature and extent of administrative or financial hardship for not providing the protected person with reasonable accommodation[9].
Adoption of data protection measures: Every establishment keeping records of HIV-related information of protected persons is required to adopt adequate data protection measures to ensure protection of such information from disclosure. In addition to measures for protection of information disclosure, establishments should implement procedures for accessing information and provision for security systems[10].
Provision for safe working environment: In the interest of ensuring a safe working environment, every establishment engaged in healthcare services with 20 (twenty) or more persons and other establishments with 100 (one hundred) or more persons, where there is a significant risk of occupational exposure to HIV (collectively, “Specified Establishments”), are required to provide prescribed universal precautions, training and post exposure prophylaxis to all persons working in such establishments[11].
Compliance and grievance redressal mechanism: Persons in charge of a Specified Establishment are responsible for ensuring compliance of the HIV and AIDS Act. Further, every Specified Establishment is required to designate a person as it deems fit as a ‘complaints officer’ to dispose complaints relating to violations of the HIV and AIDS Act[12].
Adoption of HIV and AIDS Policy: The Ministry of Health and Family Welfare, Government of India vide notification dated May 13, 2022, notified the ‘HIV and AIDS Policy for Establishments 2022’ (“Model Policy”) under the HIV and AIDS Act, which mandates employers to use this policy framework to implement an HIV and AIDS policy at their respective workplaces (“HIV and AIDs Policy”). Broadly, the Model Policy is aimed at generating awareness on HIV and AIDS amongst employees, prevention of transmission of HIV infection amongst employees, protection of rights of protected persons, ensuring a safe, non-stigmatised and non-discriminatory environment assuring equity and dignity at establishment, and maintaining confidentiality of HIV-related data for protected persons. The Model Policy additionally sets out a robust grievance redressal mechanism to be adopted at Specified Establishments for protected persons.

For more details on the Model Policy, please refer to JSA Prism of July 20, 2022.

Miscellaneous responsibilities: Chapter VII of the Model Policy sets out additional roles and responsibilities of employers and employees, as set out below:
- Employer responsibilities: Other than implementing guiding principles of the Model Policy, employers are required to ensure access by the broader public to the adopted HIV and AIDS Policy, by uploading it on their website, train employees on the basics of HIV and AIDS and related matters, train the designated complaints officer to carry out responsibilities under the policy (if applicable), organise workshops and awareness programs to sensitise employees on the HIV and AIDS Act and the HIV and AIDS Policy, and provide reasonable accommodations where minor adjustments at work would enable protected persons to enjoy equal benefits at work.
- Employee/co-worker responsibilities: Employees have been encouraged to, inter alia, refrain from discriminating against colleagues based on HIV status, maintain confidentiality with respect to HIV-status and information in relation to HIV-positive persons, and advise persons to file complaints with the complaints officer if they witness any form of discrimination against persons on the basis of HIV-status.

In a recent case, CPL Ashish Kumar Chauhan (Retd.) v. Commanding Officer & Ors.[13] the Supreme Court outlined several directives to ensure effective implementation of the HIV and AIDS Act, and directed the Seceretary, Department of Labour of every state to ensure collection of information and data relating to compliance of Specified Establishments with requirements of providing a safe working environment and grievance redressal mechanism under the HIV and AIDS Act within 10 (ten) weeks of the judgement (issued on September 26, 2023) to the Union Labour and Employment Secretary. Additionally, it has directed the Union Labour and Employment Secretary to file an affidavit of compliance with respect to implementation of provisions of the HIV and AIDS Act within 16 (sixteen) weeks of the judgement. In this judgement, the Supreme Court has also reiterated compliances to be observed by establishments under the HIV and AIDS Act. In light of this, going forward, employers can expect an increased scrutiny of compliances by establishments under the HIV and AIDS Act by the Indian government.

Regulatory Updates

Payment of minimum wages, maintenance of separate toilets and pay parity for male and female construction workers in Delhi mandated

The Labour Department, Government of National Capital Territory of Delhi vide its circular dated October 18, 2023, has directed that all employers/contractors/establishments of a construction site under the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 and Delhi Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Rules, 2002 are required to (a) ensure payment of minimum wages to construction workers as notified from time to time by the Labour Department, GNCT of Delhi; (b) pay same wages to a female worker as paid to a male worker, as mandated under the Equal Remuneration Act, 1978; and (c) maintain separate toilets for male and female construction workers on a construction site.

Standard Operating Procedure (“SOP”) notified for establishments exempted from the Employees’ Provident Fund Scheme, 1952 (“EPF Scheme”)

Establishments may, by way of government approval, be exempted from the EPF Scheme (“Exempted Establishments”) and allowed to operate a private trust for self-management of provident fund contributions made by employees and employers, subject to compliance with prescribed conditions. The Employees’ Provident Fund Organisation has, vide notification dated October 6, 2023, issued an SOP for management and regulation of provident fund contributions in Exempted Establishments, including the compliance process to be undertaken by Exempted Establishments in managing their own trust and regulations thereof. This SOP can be accessed here.

Enhancement of limit for non-claiming of interest amount payable on delayed payment of contributions Employees’ State Insurance Act, 1948 (“ESI Act”)

The Employees’ State Insurance Corporation, Government of India (“ESI Corporation”) vide notification dated October 10, 2023, has instructed that with effect from November 1, 2023, interest payable due to delayed contributions under the ESI Act for any reason in any contribution period (taken as a whole), where such contributions do not exceed INR 300 (Indian Rupees three hundred), may not be claimed by ESI Corporation field offices. The contribution threshold has been enhanced from the earlier notified amount of INR 100 (Indian Rupees one hundred).

Paid holidays declared on account of state assembly elections in Rajasthan and Telangana

The Government of Rajasthan and Government of Telangana, vide notifications dated October 16, 2023, have declared November 25, 2023, and November 30, 2023, respectively, as paid holidays on account of upcoming state legislative assembly elections.

Aadhar authentication a pre-requisite for availment of benefits under welfare schemes implemented by Delhi Building & Construction Workers Welfare Board

The Government of National Capital Territory of Delhi, Labour Department vide notification dated October 20, 2023 has notified that individuals desirous of availing benefits under welfare schemes implemented by the Delhi Building & Other Construction Workers Welfare Board, Government of National Capital Territory of Delhi (including maternity benefit, financial assistance in case of miscarriage, pension benefit and advance for purchase or construction of house) are required to furnish proof of possession of Aadhar, or undergo Aadhar authentication for availment of such benefits. Those not in possession of Aadhar number are required to apply for Aadhar enrolment, by visiting any Aadhar enrolment centre.

Case Law Ratios

Woman employed on contractual basis entitled to maternity benefits

In Neelam Kumari v. The University of Delhi & Ors. ^[14], the petitioner was denied maternity rights by her employer under the Maternity Benefit Act, 1961 on grounds of being a contract worker, and was terminated without notice. Placing reliance on the Supreme Court’s judgement in Kavita Yadav v. Ministry of Health & Family Welfare Department[15], the Delhi High Court reiterated that female employees employed on a contractual basis are entitled to maternity benefits, even if it exceeds their contract period and noted that “denial of the said benefits is inhumane and in violation of fundamental rights”. Taking note of the illegality of her termination, the court passed an order directing the respondent to reinstate the petitioner along-with payment of maternity benefits.

Non-wilful and non-negligent absence from work, though unsanctioned does not amount to misconduct

In Amrutamma v. Managing Director, APSRTC^[16], the petitioner claimed inclusion of the period between her husband’s (employee) dismissal from service till his death, in computation of attendant benefits. The employee was dismissed from service by his employer on account of his unauthorised absence from service prior to his demise. The Telangana High Court evaluating the petitioner’s claim noted that though the employee’s absence was unauthorised, absence was on account of “severe health setback” suffered by the employee and not “wilful or by negligence”. Based on this, the court held that the employee’s absence would not amount to misconduct warranting punishment of dismissal and upheld the petitioner’s claim.

ESI Act will continue to apply even after number of persons employed falls below specified limit

In Beldih Club Jameshdpur v. State of Jharkhand[17], the Jharkhand High Court while evaluating applicability of ESI Act provisions on the petitioner, relied on judgement of the Supreme Court in ESI Corporation v. Radhika Theatre[18] to reiterate that the “ESI Act shall be applicable irrespective of the number of persons employed or notwithstanding that the number of persons employed at any time falls below the limit specified by or under the ESI Act”. The court noted that “the obligation to pay the contribution commences from the date of the application of the Act to such factory or establishment”.

Employer’s duty to lead evidence during inquiry not absolved upon employee’s failure to respond to charges

In Devendra Prasad v. State of Bihar[19], the petitioner was dismissed by his employer without any evidence being adduced during disciplinary proceedings to find the employee’s guilt. The Patna High Court held that the petitioner-employee’s failure to respond to charges levelled against him did not absolve his employer from “responsibility to lead evidence at the inquiry”. The court also noted that disciplinary inquiries are required to be held in “strict compliance of principles of natural justice; affording ever opportunity to the delinquent employee to controvert his charges, if the delinquent employee does not cooperate, findings can be entered into on the evidence led” and on account of failure thereof in the present case, set aside the disciplinary inquiry and punishment imposed on the petitioner-employee.

This Newsletter has been prepared by:

Gerald Manoharan
Partner

Sonakshi Das
Principal Associate

Sandhya Swaminathan
Associate

For more details, please contact [email protected]

[1] Defined under Section 2(s) of the HIV and AIDS Act as a person who is (a) HIV-positive; or (b) ordinarily living, residing or cohabiting with a person who is HIV-positive person; or (c) ordinarily lived, resided or cohabited with person who was HIV-positive.

[2] Section 3, HIV and AIDS Act.

[3] Section 3(a), HIV and AIDS Act.

[4] Section 3(b), HIV and AIDS Act.

[5] Section 3(h), HIV and AIDS Act.

[6] Section 3(l), HIV and AIDS Act.

[7] Section 8, HIV and AIDS Act.

[8] Defined under Section 2(f) of the HIV and AIDS Act, as a “a body corporate or co-operative society or any organisation or institution or 2 (two) or more persons jointly carrying out a systematic activity for a period of 12 (twelve) months or more at one or more places for consideration or otherwise, for the production, supply or distribution of goods or services”

[9] Section 3(a), HIV and AIDS Act.

[10] Section 11, HIV and AIDS Act.

[11] Section 19, HIV and AIDS Act.

[12] Section 21, HIV and AIDS Act.

[13] CA 7175/2021 (SC)

[14] WP(C) 2959/2023 (Delhi HC)

[15] 2023 SCC OnLine SC 1067 (SC)

[16] 2023 SCC OnLine TS 3023 (Telangana HC)

[17] L.P.A. No. 187/2023 (Jharkhand HC)

[18] CA 312/2023 (SC)

[19] Civil Writ Jurisdiction Case No. 934/206 (Patna HC)

Tags Employment Law, HIV and AIDS Policy, JSA, Leading Law Firm, Leading Lawyers, Legal Updates

JSA Prism | Dispute Resolution | November 2023

Please click here to download the Prism as PDF.

Exercise of powers by the Supreme Court under Article 142 cannot ignore substantive statutory provisions.

On October 4, 2023, a 2 (two) judge bench of the Hon’ble Supreme Court of India (“Supreme Court”) in the case of Union Bank of India v. Rajat Infrastructure Pvt. Ltd and Sunview Assets Pvt Ltd.[1] held that the powers of the Supreme Court under Article 142 of the Constitution of India, 1950 (“Constitution”), being inherent in nature, are complementary to those powers which are specifically conferred by statute.

Brief Facts

Zoom Developers Pvt. Ltd. and Zoom Vallabh Steel Ltd. (collectively referred as “Borrowers”) had availed credit facilities / loan from Union Bank of India (“Bank”). To secure the credit facilities, Rajat Infrastructure Pvt. Ltd. (“Rajat”) had mortgaged a property owned by it in favour of the Bank (“Secured Asset”).
As the Borrowers failed to repay the credit facilities, the Bank initiated proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) were initiated by the Bank. Thereafter various proceedings ensued between the Bank and Rajat and the Borrowers.
Further, in the auction conducted by the Bank, Sunview Assets Pvt. Ltd. (“Sunview”) was declared as the highest bidder for an amount of INR 65,62,00,000 (Indian Rupees sixty five crore sixty two lakh) (“Total Sale Consideration”).
Aggrieved by an observation passed by the Bombay High Court in a writ petition filed by Rajat that that there was no requirement of a pre-deposit before the Debts Recovery Appellate Tribunal (“DRAT”), the Bank and Sunview filed their respective civil appeals. By way of a common order dated March 2, 2020, the Supreme Court allowed the appeals and set aside the orders passed by the Bombay High Court. In the common order, the Supreme Court extended the time given to Sunview to deposit the Total Sale Consideration till March 20, 2020.
Thereafter, Sunview filed a Miscellaneous Application^[2] seeking extension of time to pay the balance Total Sale Consideration amounting to INR 49,21,50,000 (Indian Rupees forty nine crore twenty one lakh fifty thousand), on the ground that, due to the impact of the Covid-19 pandemic, Sunview was unable to deposit the same. The Supreme Court vide an order dated March 20, 2020 granted an extension to Sunview till April 30, 2020 and stated that no further extension would be granted.
Sunview filed another Miscellaneous Application invoking powers of the Supreme Court under Article 142 of the Constitution seeking extension of time to deposit the balance Total Sale Consideration amounting to INR 34,41,50,000 (Indian Rupees thirty four crore forty one lakh fifty thousand).
On July 11, 2022, the Supreme Court passed an interim order in the above applications wherein the Supreme Court refused to pass any order extending the time or any order refusing to extend the time for Sunview to make payment of the balance Total Sale Consideration. In the order, the Supreme Court recorded that it was open for Sunview to make the payment prior to the next date. Accordingly, on July 22, 2022, Sunview deposited an amount of RS. 34,41,50,000 (Indian Rupees thirty four crore forty one lakh fifty thousand) after deducting 1% TDS of the Total Sale Consideration. Thereafter, Sunview made a payment of Rs. 7,17,02,859.45(Indian Rupees seven crore seventeen lakh two thousand eighty fifty nine and paise forty five) towards interest amount, which was acknowledged by the Bank vide its letter dated August 26, 2022.

Post the above and being aggrieved by the Bank’s failure to confirm the sale of the Secured Asset in favour of Sunview, Sunview filed a Miscellaneous Application No. 1126 of 2022 under Article 142 of the Constitution seeking directions against the Bank to confirm the sale and issue sale certificate for the Secured Asset, in favour of Rajat.

Issue

Whether the Supreme Court could invoke the provisions of Article 142 of the Constitution which would in effect override substantive provisions of a statute.

Analysis and Findings of the Supreme Court

Whilst dismissing the Miscellaneous Application, the Supreme Court held as follows:

The SARFAESI Act read with the SARFAESI Rules, more specifically Rule 9(4), requires the successful purchaser to pay the balance consideration to the authorised officer of the secured creditor within 3 (three) months from the date of confirmation of the sale. In the present case, taking into account the covid related extension granted to Sunview, the balance consideration was to be paid by April 30, 2022. However, Sunview failed to comply.
Sunview’s plea that the Supreme Court ought to extend the time limit for payment of balance consideration by invoking Article 142 of the Constitution and/or Section 148 of the CPC was rejected by the Supreme Court. Whilst invoking Article 142 of the Constitution, the Supreme Court cannot ignore the substantive provisions of a statute.
The inherent powers under Article 142 of the Constitution must complement the powers which are specifically conferred on courts/tribunals by statute. Albeit the powers under Article 142 of the Constitution are of wide amplitude, such powers cannot be used to supplant substantive provisions of law.
Reliance was placed on its decision in Supreme Court Bar Association v. Union of India & Anr.[3], wherein it was held that Article 142 of the Constitution cannot be used to introduce a new edifice in ignorance of express statutory provisions. What cannot be achieved directly, cannot be sought to be achieved indirectly by invoking Article 142 of the Constitution.

Conclusion

By way of the judgment, the Supreme Court has delineated the extent to which Article 142 of the Constitution can be invoked. As the language of Article 142 of the Constitution suggests, the plenary powers are to be invoked “to meet the ends of justice”. To meet the ends of justice can never be interpreted to mean that its powers can be used by the Supreme Court to override statutory provisions. If powers under Article 142 of the Constitution are invoked to override statutory provisions (such as timelines under the SARFAESI Act and SARFAESI Rules), then it would have the effect of reducing statutory provisions to a dead letter.

Whilst there has been an increasing trend by the Supreme Court in invoking Article 142 of the Constitution, it has always been circumspect in invoking Article 142 of the Constitution and must continue to do so.

This Prism has been prepared by: