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APTEL carries the legal fiction created in IPT Policy to its logical conclusion

JSA successfully led Adani Power Maharashtra Ltd. (“APML”) in Cross Appeals filed by the Maharashtra Discom and Adani before the Appellate Tribunal for Electricity (“APTEL”). The dispute related to Change in Law relief (on account of domestic coal shortfall) vis-à-vis interpretation of Inter Plant Transfer (“IPT”) of coal Policy of Coal India dated 19.06.2013. APTEL held that as per the IPT Policy, APML is entitled to claim normative inland transportation cost of coal as part of landed cost of coal.

Details of Adani’s Petition before MERC: Adani had filed Case No. 132 of 2020 before Maharashtra Electricity Regulatory Commission (“MERC”) claiming restitution as Change in Law relief (on account of domestic coal shortfall) i.e., the ‘entire landed cost of coal’ (viz. cost of alternate coal + in-land transportation cost). The alternate coal in question was coal consumed under IPT Policy where coal was transferred from Adani’s Mundra Power Plant to APML’s Tiroda Power Plant.

MERC’s Order: – On 28.11.2020, MERC allowed the restitutive relief in favour of Adaniand held that: –

IPT coal consumed at Tiroda power plant be accounted at rate of imported coal cost parity on GCV equivalence basis (Paras 19.7-19.8, 20.7).
In-land transportation on normative basis (from seaport to Tiroda TPS) is allowed to be included in landed cost of imported coal which is to be used in lieu of IPT of coal consumed at Tiroda power plant (Para 20.10).

Although MERC granted the desired reliefs to Adani, however, MERC exceeded its jurisdiction by adjudicating upon certain issues raised by MSEDCL as part of its Reply to Adani’s Petition without filing a separate Petition.

Appeals before APTEL: – Cross Appeals were filed before APTEL viz.: –

Appeal No. 265 of 2022 filed by MSEDCL inter alia challenging MERC’s finding allowing Adani to recover in-land transportation on normative basis as part of landed cost of imported coal.
Appeal No. 261 of 2021 filed by APML to the extent MERC exceeded its jurisdiction by adjudicating issues raised by MSEDCL as part of its Reply.

Findings of APTEL in Judgment dated 09.07.2024

Landed cost of imported coal would include the normative in land transportation cost of such coal from nearest sea port Dahej upto the Tiroda TPS (Paras 59 & 66).
IPT scheme created a fiction that even though coal meant for a particular power plant under the FSA, is consumed at some other power plant under the IPT scheme yet it would be deemed to have been consumed at the original power plant as per the FSA and would be booked there. It is for this reason that the domestic coal and imported coal, in the present case, were deemed to have been utilized at Mundra power plant and Tiroda power plant respectively (even though it was actually vice-versa) and were accounted for in the books of these power plants (Para 58).
When the imported coal is deemed to have been consumed at Tiroda TPS due to legal fiction created by IPT scheme and has been booked there, it naturally followsthat the landed cost of imported coal must include the normative in land transportation cost from nearest sea port (Para 59).
IPT scheme affected only the Mundra power plant of Adani Mundra in Gujarat. MSEDCL cannot be claimed to be a beneficiary under the IPT scheme for the reason that it does not get any power supply from Mundra power plant (Para 41).
Rejected MSEDCL’s argument that payment by APML to Adani Mundra is without any consideration holding that: –
- Such charges have been billed by Adani Mundra and paid by APML on the basis of a transaction created by legal fiction under the IPT scheme.
- (ii)If MSEDCL’s argument is to be accepted, it would not be liable to pay even the cost of imported coal also as the same has not been actually consumed at Tiroda TPS from where it gets power supply. MSEDCL would be getting power supply free of cost. It is to avoid such an undesirable situation that the legal fiction was envisaged in the IPT scheme. (Para 63).
MERC should have confined itself to the pleadings and submissions of the parties relevant to the prayer of APML. It was not permissible for MERC to consider the pleadings of MSEDCL which were de hors and beyond the contents of APML’s petition, and to issue directions against APML (Paras 71-72).
The subject matter of the case before the Hon’ble Supreme Court in Civil Appeal No. 2908 of 2022 and the issues involved therein were totally distinct from the subject matter of the Cross Appeals before APTEL and the issues involved therein (Para 38).

This qualifies as a ‘landmark judgment’ for the issues dealt by it. This Judgment is a textbook example where the statutory expert Tribunal (APTEL) steps in to address the gaps created by the Executive/ Legislature. While the IPT Policy dated 19.06.2013 (allowing inter plant transfer of coal) laid down certain conditions, and provided for accounting by ‘original power plants’, it was silent as to how the accounting would be carried out by ‘transferee plants’ (i.e., the power plant actually utilising coal under the IPT Policy). This Judgment puts to rest the issue of accounting by ‘transferee plants’ under IPT Policy, by rightly applying the doctrine of legal fiction, and interpreting the IPT Policy to carry the legal fiction created therein to its logical conclusion. This settles a long-standing dispute between APML and the Maharashtra Discom and would also act as a binding precedent for matters pending in Electricity Regulatory Commissions involving similar issues.

JSA Team comprised Joint Managing Partner – Amit Kapur, Partner – Poonam Verma Sengupta, Senior Associate – Saunak Kumar Rajguru, and Associate – Subham Bhut.

Tags APML, APTEL, JSA, Leading Law Firm, Leading Lawyers

JSA Brief | June 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 (June 2024).

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

For more details, please contact [email protected]

*In case the document is not visible on the device you are using, please click the link above.

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

JSA Prism | Dispute Resolution | July 2024

Please click here to download the Prism as a PDF.

Delay in filing a suit does not preclude a plaintiff from seeking urgent interim relief without exhausting the requirement of pre-suit mediation under the Commercial Courts Act, 2015

JSA successfully represented Chemco Plastic Industries Private Limited[1] (“Plaintiff-Respondent”) before the Bombay High Court (“Bombay HC”), which has inter alia held that in deciding whether a plaintiff has sought urgent interim relief only to bypass the bar of compulsory pre-litigation mediation under Section 12-A of the Commercial Courts Act, 2015 (“Commercial Courts Act”), delay in seeking interim relief is not a factor.

Brief Facts

The Plaintiff-Respondent had filed a Commercial IP Suit seeking an injunction restraining M/s Chemco Plast (“Defendant-Applicant”) from infringing its registered trademark and passing off its goods as those of the Plaintiff (“Suit”). Along with the Suit, the Plaintiff also filed an interim application seeking urgent interim relief. The Defendant filed an interim application under Order VII Rule 11 of the Code of Civil Procedure, 1908 seeking rejection of the plaint on the ground that the Plaintiff had failed to comply with the mandatory provision of pre-suit mediation under Section 12-A of the Commercial Courts Act (“Interim Application”).

In support of its Interim Application, the Defendant-Applicant inter alia submitted that the: (a) Supreme Court of India (“Supreme Court”) in Patil Automation Private Limited and Ors v. Rakheja Engineers Private Limited[2] and Yamini Manohar v. TKD Keerthi[3] (“Yamini Manohar”) has held that where urgent interim relief in a commercial suit is not contemplated, Section 12-A of the Commercial Courts Act which mandates pre-institution mediation is required to be complied with; (b) plaint did not contemplate urgent interim relief; and (c) delay in approaching the court is relevant to assess whether a plaintiff has contemplated urgent interim relief. The Defendant-Applicant argued that in the present case, the Suit did not contemplate any urgent interim relief as the same was filed 8 (eight) years after the Plaintiff-Respondent became aware of the cause of action.

The Plaintiff-Respondent inter alia submitted that: (a) the question of whether urgent interim relief is contemplated has to be ascertained on the basis of the pleadings in the plaint; (b) alleged delay in approaching the court is of no relevance as that would require the court to go into the merits, which could not be done at this stage; (c) as held in Bolt Technology OU v. Ujoy Technology Private Limited and Ors[4], in cases concerning intellectual property rights (“IPR”), apart from the rights of the plaintiff, the rights of consumers/the public are relevant; and (d) the Supreme Court in Yamini Manohar laid down that the limited exercise to be undertaken by commercial courts in deciding whether a suit can be entertained without exhausting the remedy of pre-institution mediation under Section 12-A of the Commercial Courts Act is whether the plaint, documents, and facts of the case indicate a need for urgent interim relief. It was argued on behalf of the Plaintiff that in the present case, the plaint did in fact contemplate urgent interim relief.

Issue

Whether the plaint ought to be rejected as being barred for failure to comply with Section 12-A of the Commercial Courts Act?

Findings and Analysis

The Bombay HC dismissed the Interim Application and inter alia observed as follows:

while considering whether a plaint deserves to be rejected for non-compliance with Section 12-A of the Commercial Courts Act, the court necessarily undertakes a limited exercise to appreciate the plaint, documents, and facts to assess whether the plaint “contemplates” urgent interim relief;
the Plaintiff-Respondent has detailed the manner in which the Defendant-Applicant has refuted the rights of the Plaintiff-Respondent despite registered trademarks in favour of the Plaintiff-Respondent. In this context, the Plaintiff-Respondent has contemplated urgent interim relief while filing the Suit and the same cannot be rejected as being barred by Section 12-A of the Commercial Courts Act;
the question of delay and the related question of acquiescence on the part of the Plaintiff-Respondent are matters concerning the merits for the grant or refusal of interim relief. The court is not expected to enter into the merits of the matter at this stage; and
in cases pertaining to IPR infringement, the cause of action arises on each occasion that the impugned mark is used by the defendant.

Conclusion

This is the first judgment from the Bombay High Court on the interplay between seeking urgent interim relief in IPR matters and the requirement for pre-suit mediation under Section 12-A of the Commercial Courts Act.

The following JSA team represented the Plaintiff/Respondent and prepared this Prism:

Farhad Sorabjee
Partner

Pratik Pawar
Partner

Siddhesh Pradhan
Principal Associate

Meher Mistri
Associate

For more details, please contact [email protected]

[1] Chemco Plast v. Chemco Plastic Industries Private Limited. Interim Application (L) No. 10014 of 2024.

[2] (2022) 10 SCC 1

[3] 2023 SCC OnLine SC 1382

[4] CS (Comm) No. 582 of 2022

Tags Bombay HC, Commercial Courts Act, Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates

JSA Prism | Dispute Resolution | July 2024

Please click here to download the Prism as a PDF.

NCLT refuses to recall order sanctioning scheme of arrangement stating that Section 230(12) cannot be invoked in a case of demerger

In the recent decision of Shri Shreans Daga v. IBM India Private Limited,[1] the Hon’ble National Company Law Tribunal (“NCLT”), Bengaluru refused to recall an order by which it had sanctioned a scheme of arrangement (“Sanction Order”) between IBM India Private Limited (“Demerged Company”) and Kyndryl Solutions Private Limited (“Resulting Company”). The NCLT held that the application for recall was liable to be dismissed at the threshold, as it had been filed under Section 230(12)[2] of the Companies Act, 2013 (“2013 Act”), which applies only in cases of takeovers and not in cases of demergers. On merits, the NCLT held that the applicants failed to prove their status as creditors of the Demerged Company entitling them to raise objections to the scheme of arrangement.

Brief Facts

The applicants were individuals who had executed a share purchase agreement (“SPA”) with the Demerged Company on October 26, 2016, for sale of their stake in another company. They claimed to be creditors of the Demerged Company to the extent of the consideration to be paid to them under the SPA. The applicants argued that the proceedings leading up to the Sanction Order stood vitiated since: (a) their names had not been disclosed in the list of creditors filed before the NCLT; and (b) statutory notice under Section 230(3) of the 2013 Act had not been issued to them. Accordingly, they filed an application under Section 230(12) of the 2013 Act read with Rule 11 of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”) praying that the Sanction Order be recalled.

Pertinently, the applicants also disclosed that arbitral proceedings for seeking payment under the SPA were also pending, with the Resultant Company substituted for the Demerged Company in pursuance of the Sanction Order.

The respondents argued that the application for recall of the Sanction Order deserves to be dismissed as: (a) the applicants could not claim to be creditors of the Demerged Company since the amount claimed by them was uncrystallized and subject matter of dispute in the pending arbitration; and (b) the application had been filed under Section 230(12) of the 2013 Act, which only applied in cases of takeovers and not in cases of demergers.

Issue

The issue before the NCLT was whether Section 230(12) of the 2013 Act could be invoked for recalling the Sanction Order and if so, whether such an order of recall was warranted in the present case.

Analysis and Findings

The NCLT found merit in the contentions of the respondents and held that:

the application was liable to be dismissed in limine as it prayed for recalling the approval of a scheme of demerger under Section 230(12) of the 2013 Act, which only concerned takeovers. Thus, the application was not maintainable; and
the applicants cannot be regarded as creditors of the Demerged Company because: (a) they have not been reflected as such in the financial statements of the Demerged Company; (b) the pending arbitration has not concluded; and (c) the applicants’ claim has not crystallized.

For these reasons, the NCLT dismissed the application and refused to recall the Sanction Order.

Conclusion

While refusing to recall the Sanction Order, the NCLT reasoned that (a) the application for recall was not maintainable; and (b) the applicants failed to prove their status as creditors of the Demerged Company. The second reason appears to be sound given that the amounts claimed to be owed to the applicants were pending adjudication and crystallization in arbitration.

However, so far as the first reason is concerned, the NCLT may have overlooked that the applicants had invoked not only Section 230(12) of the 2013 Act but also Rule 11 of the NCLT Rules. While it is true that the power to recall an order by which a scheme of arrangement was sanctioned is not available under Sections 230 – 232 of the 2013 Act, the inherent powers of the NCLT under Rule 11 of the NCLT Rules may be, and have been, exercised for this purpose.

For instance, the NCLT Benches at Chandigarh,[3] Jaipur[4] and Mumbai[5] have in the past exercised powers under Rule 11 of the NCLT Rules for recalling final orders by which schemes of arrangement had been sanctioned by them. Such orders of recall have also been passed by various High Courts under the erstwhile Companies Act, 1956 (“1956 Act”)[6]. In fact, the Hon’ble Delhi High Court expressly clarified that company courts in exercise of their inherent powers can recall orders sanctioning schemes of arrangement in peculiar facts.^[7] Since the provisions pertaining to schemes of arrangement under the 1956 Act and the 2013 Act are in pari materia, these decisions rendered under the 1956 Act still hold precedential value for proceedings under the 2013 Act. As such, the point of maintainability deserved a deeper analysis.

In any event, in the present case, even if the applicants were able to satisfy the NCLT on the issue of maintainability by placing reliance on Rule 11 of the NCLT Rules (which they had in fact invoked), their application for recall of the Sanction Order could not have been allowed in view of their failure to prove their status as creditors.

This Prism has been prepared by:

Divyam Agarwal
Partner

Aniket Aggarwal
Senior Associate

Priya Chauhan
Associate

For more details, please contact [email protected]

[1] Order dated April 19, 2024 in IA(CA) No. 12/2022 in CP(CAA) No. 17/2021 before the NCLT Bengaluru Bench.

[2] As per this provision, an aggrieved party may apply to the NCLT in the event of any grievances with respect to takeover offers of companies other than listed companies.

[3] Reckitt Benckiser (India) Private Limited, order dated March 5, 2021, in CA No. 156/2020 in CP(CAA) No. 7/CHD/HRY/2019.

[4] Hem Multi Commodities Pvt. Ltd., order dated December 5, 2019, in IA No. 299/JPR/2019 in CP (CAA) No. 75/230-232/JPR/2018.

[5] HDFC Property Ventures Limited, order dated July 28, 2023 in IA(CA) No. 92/2023 in CP(CAA) No. 219/MB/2022.

[6] Vodafone Essar South Ltd., ILR (2013) III Delhi 1979; Capital 18 Fincap Pvt. Ltd., 2015 SCC OnLine Del 10707; Castron Technologies Limited v. Castron Mining Limited, 2013 SCC OnLine Cal 12914.

[7] Vodafone Essar South Ltd., ILR (2013) III Delhi 1979.

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

Sidharth Sethi | Seminar on ‘Landscape of Arbitration and Mediation in Turkey and India’

Sidharth Sethi was invited as a Speaker in an International Seminar on Arbitration and Mediation held at Ankara, Turkey on 1 June 2024.

In his address, Sidharth spoke about the below aspects having a bearing on effectiveness and efficiency of arbitrations.

Measures which arbitration institutions and users must adopt to encourage efficiency;
Role of Indian courts in arbitration – striking a balance between judicial intervention and autonomy in arbitration proceedings;
Factors influencing choice of seat; and
Collaboration between institutions, governments, judiciaries, counsels, and law students to develop best practices for international arbitration.

This conference was co-organised by the Union of Chambers and Commodity Exchanges of Turkey’s Mediation and Dispute Resolution Centre (“TOBBUYUM”) and the Asia Pacific Centre for Arbitration and Mediation (“APCAM”), in association with the Ministry of Justice, Government of Turkey.

The other distinguished speakers on the panel were:

Hon’ble Mr. Justice Surya Kant, Judge, Supreme Court of India;
Dr. Ibrahim Nihat Bayar, Secretary General of TOBB Arbitration;
Prof. Dr. Bilgin Tiryankioglu, TOBBUYUM Med-Arb Board President;
Prof. Dr. Banu Sit Kosgeroglu, TOBBUYUM Med-Arb Board Member;
Dr. Eda Manav Ozdemir, Head – International Arbitration and ADR, General Directorate of Law and Legislation.

The session was moderated by Ms. Iram Majid, Advocate and Executive Director, APCAM. The attendees included various sitting and former judges of courts in Turkey, leading arbitrators and mediators, senior lawyers, and Ministers and officers from the Ministry of Justice, Turkey.

Tags Dispute Resolution, JSA, Leading Law Firm, Leading Lawyers

Kerala High Court Rules: Property Acquired Before commission of Scheduled Offence Not ‘Proceeds of Crime’ Under PMLA, Invalidates Attachment

JSA successfully represented Petitioner in an important judgement wherein, the Kerala High Court held that property acquired prior to commission of the scheduled offence will not constitute “proceeds of crime”. Consequently, provisional attachment of such property under Section 5 of the Prevention of Money Laundering Act, 2002 (“PMLA”) is unjustified.

The scheduled offence was under Section 406/420/34 of the Indian Penal Code, 1860 (“IPC”). An FIR was registered on the allegations of cheating and inducing people to raise funds under the guise of fraudulent schemes. The Petitioner was not named in the FIR. On the strength of the FIR and scheduled offence therein, the Enforcement Directorate registered an ECIR and Petitioner was summoned to join the investigation. Subsequently, debit freeze orders were passed with respect to Petitioner’s bank accounts under Section 17 of the PMLA.

The Petitioner filed a writ petition challenging the debit freeze order. During pendency of the writ petition, Enforcement Directorate passed provisional attachment order under Section 5 PMLA and attached the Petitioner’s bank accounts as well as his residential property. Accordingly, an amended writ was filed challenging the provisional attachment under Section 5. It was contended that the Petitioner’s immovable property was acquired in the year 2004. However, the predicate offence is alleged to have been committed between 27.01.2021 to 14.11.2022.

Relying on the Supreme Court’s judgement of Vijay Madanlal Choudhary and Ors. v. Union of India (2022) SCC Online 929 and Pavana Dibbur v. Directorate of Enforcement (2023) SCC Online 1586, it was contended that property in question had no link with the predicate offence. Considering the rival contentions, the Hon’ble High Court held the following:

Proceeds of crime will not include property which has been acquired prior to predicate offence.
Such attachment of property will not be justifiable considering constitutional and provisions of fairness and reasonableness.
If the attachment is to be affected to the extent of the monetary worth of a property which was not derived out of the predicate offence, then PMLA mandates that the property derived out of such criminal activity be taken out of India or is held outside the country.

In so far as the attachment of bank accounts is concerned, the Petitioner was relegated to alternate remedy under PMLA.

Enforcement Directorate provisionally attached property of the Petitioner which has no connection with the “proceeds of crime” and was acquired much prior to commission of scheduled offence.

The JSA Team was lead by Partners – Mr. Manish Jha and Kumar Kislay and instructed by External Counsel Mr. Abhijeet Pandey.

Tags JSA, Leading Law Firm, Leading Lawyers, Legal Updates

JSA successfully advised and represented State Bank of India before the NCLAT, New Delhi, in an appeal by a suspended director of Advantage Overseas Private Limited, challenging the admission order under Section 7 of the IBC, 2016

The National Company Law Appellate Tribunal, New Delhi (“NCLAT”), vide order dated 13 May 2024, has dismissed an appeal filed by Mr. Maneesh Kumar Singh (the “Appellant”), a suspended director of Advantage Overseas Private Limited (“AOPL”). This appeal was filed against an order dated 10 November 2023, passed by the National Company Law Tribunal, Mumbai (“NCLT”). Vide the said order, the NCLT had admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), filed by the State Bank of India (“SBI”), thereby initiating the corporate insolvency resolution process against AOPL.

In the appeal, the Appellant’s primary arguments were two-fold. First, the Appellant contended that the NCLT incorrectly held that the date of default fell outside the period prescribed under Section 10A of the IBC. Second, the Appellant contended that the NCLT incorrectly held that the petition was filed within the period of limitation.

Re Section 10A of IBC: While affirming the NCLT’s decision, the NCLAT concluded that the date of default fell outside the period prescribed under Section 10A of the IBC and noted the following:

Originally, AOPL committed default on 08 August 2018, which is prior to the period prescribed under Section 10A of the IBC.
SBI initiated proceedings before the Debt Recovery Tribunal, Jabalpur (“DRT”) under Section 19 of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, for recovery of the amount in default.
Subsequently, SBI and AOPL entered into a One Time Settlement (“OTS”) on 05 September 2020. As per the OTS, SBI had the right to cancel the OTS if any agreed installment was not received within the approved period. Upon cancellation, the entire dues would become payable to SBI.
In June 2021, SBI and AOPL jointly filed an application before the DRT for a consent decree in terms of the OTS. On 26 April 2022, the DRT acknowledged the OTS and, in its judgement recorded that ‘in the event of failure to adhere to the terms of the OTS, the entire outstanding amount would be payable’.
It was not in dispute that SBI vide letter dated 02 January 2023 had communicated to AOPL that the OTS between the parties had failed.

The NCLAT reaffirmed its findings in the case of Raghavendra Joshi v. Axis Bank Limited & Anr., 2023 SCC OnLine NCLAT 498, wherein it was held that when a default by the corporate debtor occurs prior to the period prescribed under Section 10A of the IBC and the debt is subsequently acknowledged, Section 10A cannot be invoked. Relying on Raghavendra Joshi (Supra) and considering the actions of AOPL after the default in March 2021—such as filing a DRT application, grant of undertaking, consent decree by DRT and final recall notice —the NCLAT held that the default date was correctly determined by the NCLT to be outside the period prescribed under Section 10A of the IBC.

Re issue of limitation: The NCLAT held that the date of default was 08 August 2018. AOPL submitted OTS proposals on 11 March 2020 and 05 May 2020. SBI filed the Section 7 petition on 13 March 2023, which is within three years from the submission of the OTS proposal. The OTS proposals submitted by AOPL were clearly an acknowledgement of the debt, allowing SBI to benefit from Section 18 of the Limitation Act, 1963. The NCLAT thereafter relied upon the decision of the Hon’ble Supreme Court of India in Kotak Mahindra Bank v. A. Balakrishnan, (2022) 9 SCC 186, and held that since the consent decree was passed by the DRT on 26 April 2022, the three-year period for filing the Section 7 petition would commence from that date. Consequently, the NCLAT upheld the NCLT’s finding that the Section 7 petition was not time-barred.

This case assumes importance because the NCLAT has reaffirmed two crucial points: (i) Section 10A of the IBC cannot be invoked when the default occurred before the period prescribed under this provision, and when the debt was subsequently acknowledged by the corporate debtor; and (ii) the limitation period for filing a petition under Section 7 of the IBC is extended if the debt has been acknowledged by the corporate debtor in its balance sheet or in a settlement proposal sent to the financial creditor.

Our Disputes Team Comprised Partner – Varghese Thomas, Divyam Agarwal and Fatema Kachwalla, Principal Associate – Pallavi Kumar, Senior Associate – Ahsan Allana, Associate – Mayank Ratnaparkhe.

Tags Ibc, JSA, JSA Law Firm, Leading Lawyers, Nclat, State Bank of India

JSA Prism | Energy | June 2024

JSA successfully represented T.P. Kirnali Limited (a group company of Tata Power) before Maharashtra Electricity Regulatory Commission, in obtaining Change in Law compensation granted due to increase in rate of goods and services tax and basic customs duty

By an order dated May 21, 2024 (“Order”, the Hon’ble Maharashtra Electricity Regulatory Commission (“MERC”) in Case No. 244/AD/2022 held that T.P Kirnali Limited was impacted due to increase in rate of goods and services tax (“GST”) and basic customs duty (“BCD”) and is accordingly entitled for a total compensation of INR 15,48,00,000 (Indian Rupees fifteen crore forty-eight lakh) along with carrying cost.

Brief Facts

In order to meet Solar Renewable Purchase Obligation requirement, Maharashtra State Electricity Distribution Company Limited (“MSEDCL”) issued a request for selection for procurement of 500 MW (five hundred megawatt) of solar power from Intra-State Grid Connected Solar Plant (Phase-V), on a long-term basis, under a competitive bidding process. Tata Power Renewable Energy Ltd. (“TPREL”) was selected for supplying 100 MW (one hundred megawatt) solar power at the tariff of INR 2.90/kWh (Indian Rupees two paise ninety per kilowatt hour). Accordingly, TPREL set up T.P. Kirnali Limited (“Kirnali”) as a wholly owned special purpose vehicle for supplying power to MSEDCL. A power purchase agreement (“PPA”) was executed between Kirnali and MSEDCL on September 16, 2020.

For setting up the project, 2 (two) separate contracts (viz. Supply Contract and Civil Works/ Service Contract) were executed between Kirnali and Tata Power Solar Systems Ltd. (“TPSSL”). At the time of the submission of the bid, the taxes payable were as follows:

BCD was payable at the rate of 5% on import of solar inverters and other items. Additionally, a social welfare surcharge (“SWS”) at the rate of 10% was payable on the BCD amount. Thereafter, GST at the rate of 8.9% was payable on BCD and SWS.
A composite GST (i.e. Central GST, State GST and Integrated SGT) at the rate of 8.9% was payable on Supply and Civil Works/ Service Contracts for setting up of solar power plants [i.e., 5% on 70% (i.e. 3.5%) of the consolidated taxable value of the Supply Contract and Civil Works/ Service Contract and 18% on the remaining 30% (i.e. 5.4%) of the consolidated taxable value of the Supply Contract and Civil Works/ Service Contract].
After the bid-submission date, the Ministry of Finance, Government of India vide notification dated February 1, 2021, increased BCD from 5% to 20% on the import of solar inverters and other items like connectors etc. (i.e after cutoff date of February 28, 2020). The said notification was effective from February 2, 2021. Due to the increase in the rate of BCD, Kirnali was also impacted towards payment of SWS at the rate of 10% and GST at the rate of 8.9% payable on the increased rate of BCD.
On September 30, 2021, the Ministry of Finance on the recommendations of the GST Council issued notifications thereby increasing the rate of GST from 8.9% to 13.8%. These notifications dated February 1, 2021 and September 30, 2021 took place after the bid submission date (i.e. February 28, 2020) and hence qualified as Changes in Law for which Kirnali was entitled for compensation.

Relevant Issues

Whether notifications dated February 1, 2021 and September 30, 2021 amount to Change in Law?
Whether Kirnali is entitled to claim Change in Law considering its undertaking dated September 9, 2021, given to MSEDCL?
Whether Change in Law can be claimed for invoices raised post commissioning?
Whether MSEDCL’s claim of safeguard duty compensation is maintainable?

Findings of MERC

MERC has held the following:

Kirnali is entitled for Change in Law compensation on account of increase in GST and BCD.[1]
Any Change in Law relief would be governed by provisions of the PPA and is to be decided by MERC. A developer’s undertaking to not claim increase in project cost or upward revision of tariff for period of extension of Scheduled Commercial Operation Date (“SCOD”), pursuant to the office memorandums dated May 12, 2021 and June 29, 2021 issued by the Ministry of New and Renewable Energy (“MNRE”), cannot be held against the developer. MNRE in its subsequent office memorandums dated September 15, 2021, and November 3, 2021 has clarified that such undertaking is limited to developer not claiming termination of PPA or increase in project cost for reasons other than Change in Law for the period of extension granted.[2]
Invoices towards supply of service raised post commissioning of project are also eligible for Change in Law relief, provided such invoice are raised within 30 (thirty) days from the date of supply of such service.[3]
MSEDCL’s claim of Safeguard Duty cannot be allowed since the developer has not financially gained due to non-levy of Safeguard Duty. Notification No. 1 of 2018 dated July 30, 2018, clearly provided that there would be no Safeguard Duty after July 29, 2020. In the present case, commissioning of the project would have been beyond July 29, 2020, for which no Safeguard Duty was applicable. This was factored into the bid accordingly.
Carrying cost is allowed at the rate of 1.25% plus SBI MCLR per annum on the compensation amount from the date of payment till date of the Order.[4]
MSEDCL to choose between payment of compensation on lumpsum or per unit basis. This decision is to be communicated to the developer within a month of the Order.[5]

Conclusion

MERC in a progressive Order rightly followed the settled jurisprudence on Change in Law compensation by granting relief for impact on account of increase in GST and BCD. It disregarded extraneous submissions of MSEDCL to restrict compensation due to the developer. Kirnali’s undertaking dated September 9, 2021, was also rightly not held against its claim of Change in Law, since such undertaking only came in context of specific MNRE office memorandums. The undertakings required by these office memorandums have later been clarified to not be in context of Change in Law. In a progressive measure, MSEDCL has been afforded the opportunity at the outset to elect between lumpsum payment or a staggered payout should MSEDCL choose to save on carrying cost.

The JSA team was represented by:

Kunal Kaul
Partner

Samikrith Rao
Senior Associate

The prism is prepared by:

Abhishek Munot
Partner

Kunal Kaul
Partner

Samikrith Rao
Senior Associate

For more details, please contact [email protected]

[1] para 16-16.11 @ Pg. 16-21

[2] Para 20.3 @ Pg. 23

[3] Para 19-19.5 @ Pgs. 21-22

[4] Para 22.5 @ Pg. 26

[5] Para 23-24 @ Pgs. 26-27

Tags Energy, JSA, Leading Law Firm, Leading Lawyers

Guidelines issued for arbitration and mediation in contracts for public procurement

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By an office memorandum dated June 3, 2024, the Ministry of Finance, Government of India has issued guidelines to government entities and agencies including central public sector enterprises (“CPSEs”), public sector banks (“PSBs”), and government companies in contracts for domestic procurement (“Guidelines”). These Guidelines have been issued inter alia in the context of the enactment of the Mediation Act, 2023 (“Act”), the government’s experience of arbitration in respect of contracts where the government is a party, the peculiarities of the government as a litigant, the expenses involved in arbitrations, and routine challenges to arbitral awards.

The Guidelines issued by the government are below:

Arbitration is not to be routinely included as a method of dispute resolution in procurement contracts / tenders involving the government, particularly in large contracts.
An arbitration clause if included in a contract, may be restricted to disputes valued at less than INR 10,00,00,000 (Indian Rupees ten crore). The figure is with reference to the value of the dispute and not the value of the contract, which may be higher. It may be specifically mentioned in the bid conditions / conditions of a contract that in all other cases, arbitration will not be a method of dispute resolution in the contract.
The inclusion of an arbitration clause in respect of disputes of a value exceeding INR 10,00,00,000 (Indian Rupees ten crore) should be based on careful application of mind and recording of reasons and after obtaining the approval of:
1. In respect of government ministries / departments, attached / subordinate offices and autonomous bodies, the secretary concerned or an officer (not below the level of a joint secretary), to whom the authority is delegated by the secretary.
2. In respect of CPSEs / PSBs / financial institutions etc., the managing director.
Institutional arbitration may be given preference where appropriate, and upon consideration of the cost of arbitration relative to the value of the dispute. Challenges against awards / appeals against decisions passed against the government should not be filed in a routine manner and only when there is merit in doing so and a high probability of success.
Government departments, entities, and agencies should avoid and / or amicably settle disputes by mechanisms available in the contract. Such decisions must be taken in view of public interest, legal and practical realities, and without shirking or avoiding responsibilities or denying genuine claims of the other party.
Government departments, entities, and agencies are encouraged to adopt mediation under the Act and / or negotiate amicable settlements for resolution of disputes. Where necessary (for example in matters of high value), the following course of action may be adopted:
1. Constitution of a High-Level Committee (“HLC”) for dispute resolution, which may comprise: (i) a retired judge; (ii) a retired high-ranking officer and / or a technical expert.
2. Negotiate directly with the other party and place a tentative proposed solution before the HLC; or
3. Conduct mediation through a mediator and place the tentative mediated agreement before the HLC; or
4. Appoint the HLC as the mediator.
There may be rare situations in long duration works contracts where due to unforeseen major events, public interest may be best served by re-negotiation of the terms of the contract. The terms of the tentative re-negotiated contract may be placed before a suitably constituted HLC before approval. Approval of the appropriate authority will need to be obtained for the final accepted solution.
Mediation agreements need not be routinely or automatically included in procurement contracts / tenders since the absence of a mediation agreement in a contract does not preclude pre-litigation mediation. A mediation clause may be incorporated into contracts when the same has been consciously decided.
Disputes not covered in an arbitration clause and where the methods outlined above are unsuccessful should be adjudicated by the courts.

This Prism has been prepared by:

Farhad Sorabjee
Partner

Siddhesh Pradhan
Principal Associate

Meher Mistri
Associate

For more details, please contact [email protected]

Tags Arbitration, Dispute Resolution, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Procurement

JSA Prism | Dispute Resolution | June 2024

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The Supreme Court holds that the time spent pursuing a matter in good faith before the wrong forum will be excluded when computing the period of limitation

In a recent iteration, the Supreme Court of India (“Supreme Court”) in the case of Purni Devi and Another v. Babu Ram and Another[1] has held that in terms of Section 14 of the Limitation Act, 1963 (“Limitation Act”) the time period during which a plaintiff has pursued a matter diligently and in good faith against the same party before a wrong forum should be excluded when computing the limitation period before the court of competent jurisdiction.

Brief Facts

A suit for possession of property was decreed in favour of the predecessors in interest of Purni Devi (hereinafter referred to as the “Plaintiff”) by which Babu Ram and another (hereinafter referred to as the “Defendants”) were directed to deliver vacant and peaceful possession of property to the Plaintiff. The first and second appeals filed by the Defendants came to be dismissed in November 2000, resulting in the decree attaining finality.

In December 2000, the predecessor of the Plaintiff filed an application for execution of the decree before the Ld. Tehsildar (Settlement), which came to be rejected in January 2005 since it had not been filed before the court with appropriate jurisdiction. The Plaintiff filed a fresh application for execution of the decree before the Ld. Munsiff in October 2005 (“Application”), which was dismissed on account of being barred by limitation under the J&K Limitation Act. The revision application filed by the Plaintiff before the J&K HC was dismissed and the order of the Ld. Munsiff came to be affirmed for the reason that the Application was barred by limitation (“Impugned Order”). Being aggrieved by the Impugned Order, the Plaintiff filed an appeal before the Supreme Court.

Issue Before the Supreme Court

Whether the period spent by the Plaintiff in diligently pursuing the execution petition before the Ld. Tehsildar would be excluded for the purposes of computing the period of limitation?

Findings and Analysis

The Supreme Court allowed the appeal and set aside the Impugned Order while inter alia observing as follows:

Section 14(2) of the Limitation Act, which is applicable to the State of Jammu and Kashmir and is pari materia to the Limitation Act excludes the period of limitation when proceedings are pursued with due diligence and good faith in a court “which from defect of jurisdiction or other cause of a like nature, is unable to entertain it”.
In Consolidated Engg. Enterprises v. Principle Secy, Irrigation Department[2], the Supreme Court had laid down the following conditions to be satisfied under Section 14 (2) of the Limitation Act – (a) both the prior and subsequent proceedings are civil proceedings prosecuted by the same party; (b) the prior proceeding had been prosecuted with due diligence and in good faith; (c) the failure of the prior proceeding was due to defect of jurisdiction or other cause of like nature; (d) the earlier proceeding and latter proceeding must relate to the same matter in issue; and (e) both proceedings are in a court. In the present case, these conditions were satisfied.
No substantial averment was made by the Defendants to substantiate the claim that the predecessor of the Plaintiff had approached the Ld. Tehsildar with any mala fide intention, in the absence of good faith, or with the knowledge that it was not the court having competent justification to execute the decree.
The Plaintiff had pursued the matter diligently and in a bona fide manner before what it believed to be the appropriate forum. Therefore, such period is bound to be excluded when computing limitation before the court having competent jurisdiction.

Conclusion

While parties must be diligent in pursuing matters before an appropriate forum, the findings in this judgment assist parties that may have pursued proceedings before an incorrect forum in good faith. It reiterates that such proceedings would not be barred by limitation.

This Prism has been prepared by:

Siddhesh Pradhan
Principal Associate

Meher Mistri
Associate

For more details, please contact [email protected]

[1] 2024 SCC OnLine SC 482

[2] (2008) 7 SCC 169