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JSA Brief | July 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 (July 2024).

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

Dispute Resolution | Semi-Annual Compendium 2024

This compendium consolidates all the relevant notifications and circulars pertaining to Dispute Resolution, which has been circulated during the calendar period from January 2024 till June 2024.

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Tags Arbitration Law, Dispute Resolution, High Court, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, NCLT, Newsletters, Supreme Court of India

JSA successfully represented Resolution Professional of Smaaash Entertainment Private Limited before Ld. NCLT in obtaining an order of investigation against the erstwhile promoters for concealing important information from the Resolution Professional

In landmark Judgment on the interplay of the Companies Act, 2013 (“Companies Act”) and the Insolvency and Bankruptcy Code, 2016 (“Code”), on 31.07.2024, Ld. National Company Law Tribunal (“Ld. NCLT”) passed an Order, under an application filed under Section 19 of the Code, issuing a notice under Section 213(2) of the Companies Act against the promoters of the Corporate Debtor to investigate if affairs of the Corporate Debtor was conducted to defraud the creditors. The NCLT Order provides relief to the Resolution Professional against the errant erstwhile management and discourages actions adopted by the erstwhile management in creating impediments in CIRP of the Corporate Debtor.

Our disputes team comprised: Lead Partner – Varghese Thomas, Partners – Kunal Kaul and Fatema Kachwalla, and Associate – Virgil Braganza.

Tags Educate Girls Globally, JSA, Leading Law Firm, Leading Lawyers

JSA Prism | Dispute Resolution | August 2024

Please click here to download the Prism as a PDF.

‘Effect of ‘accord and satisfaction’ or ‘full and final settlement’ on arbitration; unsuitability of ‘eye of the needle’ and ‘ex-facie meritless’ tests in modern day arbitrations; and role of the referral courts

‘Accord and satisfaction’ or ‘full and final settlement’ of claims arising under a contract, do not by themselves, preclude future arbitration in respect of such settled claims, if the party alleges fraud, coercion or undue influence in the execution of the contract. Tests such as ‘Eye of the Needle’ and ‘ex-facie meritless’, previously laid down by courts, do not conform with the principles of modern-day arbitration. Referral courts must not conduct an intricate evidentiary enquiry as to whether the claims are time barred and this determination should be reserved for the arbitrator.

In a recent judgment of SBI General Insurance Ltd. vs. Krish Spinning[1], the Hon’ble Supreme Court of India (“Supreme Court”) has held that parties may refer a dispute to arbitration even after full and final settlement of the contract, if the party said to have executed the contract (a discharge voucher in the present case) alleges that the execution was on account of fraud, coercion or undue influence exercised by the other party.

Furthermore, in exercise of its powers under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), the referral court will only look into the existence of the arbitration agreement and will refuse arbitration only where it was manifest that the claims were ex- facie time barred, or the claims are ex-facie frivolous and non-arbitrable. A referral court may reject arbitration only in exceptional cases where the plea of fraud or coercion appears to be ex-facie frivolous and devoid of merit.

The Supreme Court has reiterated and clarified that at the stage of deciding an application under Section 11 of the Arbitration Act, the referral court must not conduct an intricate evidentiary enquiry into the question as to whether the claims are time barred and must leave that determination for the arbitrator.

Brief facts

The brief facts of the case are as follows:

Krish Spinning (“Respondent”) obtained a standard fire and special perils insurance policy from SBI General Insurance Company (“Appellant”) for a total insured sum of INR 7,20,00,000 (Indian Rupees seven crore twenty lakh), with the period of insurance from March 31, 2008, to March 30, 2019.
During the policy period, 2 (two) fire incidents occurred at the Respondent’s factory; first incident on May 28, 2018, with the Respondent claiming a loss of INR 1,76,19,967 (Indian Rupees one crore seventy-six lakh nineteen thousand nine hundred and sixty-seven); and the second incident on November 17, 2018, with the Respondent claiming a loss of INR 6,32,25,967 (Indian Rupees six crore thirty-two lakh twenty-five thousand nine hundred and sixty-seven). The appeal before the Supreme Court pertained to the disputes arising out of settlement of claims with respect to the first incident. A surveyor was appointed to assess the loss due to the fire incident.
Subsequently, the Respondent signed an advance discharge voucher dated January 4, 2019, confirming receipt of INR 84,19,579 (Indian Rupees eighty-four lakh nineteen thousand five hundred and seventy-nine) from the Appellant as the full and final settlement towards its claim. The discharge voucher also stated, inter alia, that the Respondent was discharging the Appellant of the liability arising under its claim.
Disputes arose between the parties as the Respondent subsequently alleged that it had to sign the final discharge voucher as it was badly in need of money and sought balance claim settlement amounts from the Appellant.
As the parties were unable to arrive at any amicable resolution of the dispute and as no arbitrator was nominated by the Appellant in response to the notice invoking arbitration, the Respondent filed a petition for the appointment of arbitrator under Section 11(6)of the Arbitration Act, before the High Court. The High Court allowed the petition and appointed an arbitrator.
The Appellant filed a special leave petition before the Supreme Court challenging the Order of the High Court appointing an arbitrator (“Impugned Order”).

Issues

Whether execution of a discharge voucher towards full and final settlement between the parties will operate as a bar to invoke arbitration?
What is the scope and standard of judicial scrutiny that an application under Section 11(6) of the Arbitration Act can be subjected to when a plea of ‘accord and satisfaction’ is taken by the defendant?
What is the effect of the decision of the Supreme Court in In Re: Interplay between arbitration agreements under the Arbitration Act and the Indian Stamp Act 1899 on the scope of powers of the referral court under Section 11 of the Arbitration Act?

Key findings of the Supreme Court

Re: Whether execution of a discharge voucher towards full and final settlement between the parties will operate as a bar to invoke arbitration.

there is no rule of an absolute kind which precludes arbitration in cases where a full and final settlement has been arrived at. In National Insurance Co. Ltd vs. M/S. Boghara Polyfab Pvt. Ltd[2], the discharge voucher was alleged to have been obtained on the ground of coercion and it was observed that a discharge voucher or a no-dues certificate extends only to those vouchers or certificates which are validly and voluntarily executed;
mere execution of a full and final settlement receipt or a discharge voucher would not by itself operate as a bar to arbitration when the validity of such a receipt or voucher is challenged by the claimant on the ground of fraud, coercion or undue influence. In other words, where the parties are not ad idem over accepting the execution of the no-claim certificate or the discharge voucher, such disputed discharge voucher may itself give rise to an arbitrable dispute; and
once the full and final settlement of the original contract itself becomes a matter of dispute and disagreement between the parties, then such a dispute can be categorised as one arising ‘in relation to’ or ‘in connection with’ or ‘upon’ the original contract. And such a dispute can be referred to arbitration under the arbitration clause contained in the original contract, notwithstanding the plea that there was a full and final settlement between the parties.

Re: Scope and standard of judicial scrutiny that an application under Section 11(6) of the Arbitration Act can be subjected to when a plea of ‘accord and satisfaction’ is taken by the defendant:

relying on Vidya Drolia and Ors vs. Durga Trading Corporation[3], it was held that in exceptional cases, where it was manifest that the claims were ex- facie time barred and deadwood, the Court could interfere and refuse reference to arbitration. In the context of ‘accord and satisfaction’, this view was recently adopted in NTPC Ltd. vs. M/s SPML Infra Ltd.[4], where the ‘eye of the needle’ test was elaborated, which permits a referral court to reject arbitration in such exceptional cases where the plea of fraud or coercion appears to be ex-facie frivolous and devoid of merit;
in the present case however, the Supreme Court held that tests like the ‘eye of the needle’ and ‘ex-facie meritless’, although try to minimize the extent of judicial interference, yet they require the referral court to examine contested facts and appreciate prima facie evidence (however limited the scope of enquiry may be). These tests, as such are not in conformity with the principles of modern arbitration which place arbitral autonomy and judicial non-interference on the highest pedestal; and
thus, the position is that ordinarily, in exercise of its powers under Section 11of the Arbitration Act, the Court will only look into the existence of the arbitration agreement and would refuse arbitration only as a demurrer when the claims are ex-facie frivolous and non-arbitrable.

Re: Interplay between arbitration agreements under the Arbitration Act and the Indian Stamp Act 1899 on the scope of powers of the referral court under Section 11 of the Arbitration Act:

relying on its seven-Judge Bench decision in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act1996 and the Indian Stamp Act 1899[5], the Supreme Court held that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else.

The Supreme Court further held that in view of its decision in In Re: Interplay (supra), the observations made in Vidya Drolia (supra) that the jurisdiction of the referral court when dealing with the issue of ‘accord and satisfaction’ under Section 11 of the Arbitration Act extends to weeding out ex-facie non-arbitrable and frivolous disputes, would no longer continue to apply; and

the dispute pertaining to the ‘accord and satisfaction’ of claims is not one which attacks or questions the existence of the arbitration agreement in any way. The arbitration agreement, being separate and independent from the underlying substantive contract in which it is contained, continues to remain in existence even after the original contract stands discharged by ‘accord and satisfaction’; and
the question of ‘accord and satisfaction’, being a mixed question of law and fact, comes within the exclusive jurisdiction of the arbitral tribunal, if not otherwise agreed upon between the parties. Thus, the negative effect of competence-competence would require that the matter falling within the exclusive domain of the arbitral tribunal, should not be examined by the referral court, even for a prima facie determination, before the arbitral tribunal first has had the opportunity of looking into it.

Supreme Court’s clarification of the judgment in M/s Arif Azim Co. Ltd. vs. M/s Aptech Ltd[6]:

the Supreme Court has confirmed the earlier position that while determining the issue of limitation under Section 11 of the Arbitration Act, the referral court must limit its enquiry to examining whether such application is within the limitation period as prescribed under Article 137of the Limitation Act, 1963, i.e., 3 (three) years from the date when the right to apply accrues in favour of the applicant. The limitation period for filing a petition under Section 11(6) of the Arbitration Act only commences once a valid notice invoking arbitration has been sent by the applicant to the other party, and there has been a failure or refusal on part of that other party in complying with the requirements mentioned in such notice; and
the Supreme Court has however clarified that at the stage of deciding an application under Section 11 of the Arbitration Act, the referral court must not conduct an intricate evidentiary enquiry into the question as to whether the claims raised by the applicant are time barred and must leave that question for determination by the arbitrator.

Conclusion

This is a significant judgment augmenting the modern arbitration regime in India and examines several important issues which repeatedly arise in present day arbitrations. The Supreme Court has removed yet another obstacle in the way of arbitrations by holding that ‘accord and satisfaction’ or ‘full and final settlement’ of claims arising under a contract, do not by themselves, preclude future arbitration in respect of such settled claims, if the party (to the contract) alleges fraud, coercion or undue influence in the execution of the contract. Essentially, by doing so, the Supreme Court has underlined the presumption of separability of an arbitration agreement, distinct from the underlying contract. Moreover, the baton to determine the validity of such ‘accord and satisfaction’ or ‘full and final settlement’, has been passed on from the referral court to the arbitral tribunal.

Additionally, by reading down the test of ‘Eye of the Needle’ and ‘ex-facie meritless’, the Supreme Court has further restricted judicial interference of the referral court by limiting its powers only to a broad examination of the existence of the arbitration agreement, and refusal to refer disputes to arbitration only in exceptional cases where the claims are manifestly frivolous and non-arbitrable.

Lastly, on the issue of limitation, the Supreme Court by clarifying its earlier judgment in M/s Arif Azim (supra), has further trimmed the powers of the referral court to avoid conducting an intricate evidentiary enquiry of whether the claims are time barred; the determination of which is now reserved for the arbitrator.

This Prism is prepared by:

Sidharth Sethi
Partner

Shreya Sircar
Partner

Raghvendra Pratap Singh
Senior Associate

For more details, please contact [email protected]

[1] 2024 INSC 532. Judgment dated July 18, 2024.

[2] (2009) 1 SCC 267

[3] (2021) 2 SCC 1

[4] (2023) SCC Online SC 389

[5] 2023 INSC 1066

[6] 2024 INSC 155

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

Inter-Corporate Loans and Deposits: Treatment of Such Debts in Case of Default

Companies may give such loans, guarantees, or acquire securities up to a maximum of 60% of their paid-up share capital, securities premium account and free reserves2 or 100% of their securities premium account and free reserves, whichever is more3 [collectively, inter-corporate deposits (“ICDs”)]. Such financial assistance provided inter se companies, whether in the form of a loan, guarantee or security, plays a pivotal role in offering liquidity to group or affiliated companies to address short-term financing needs. Therefore, ICDs sustain businesses and support growth and corporate operations by ensuring a steady flow of funds for various companies in need of capital. That said, while corporates with short-term surplus may place their deposits as ICDs, such loans are offered on an uncollateralised basis and as such, are unsecured borrowings, inherently at a substantial risk and therefore, come at a high-risk premium built into higher rates of interest.

Please click here to read the full article by Sidharth Sethi and Shreya Sircar, published in SSC Times.

Tags ICDs, JSA, Leading Law Firm, Leading Lawyers, Loans and Deposits

JSA successfully advised and represented Foundation to Educate Girls Globally in proceedings for recovery of amounts due to it from the licensor before the Bombay High Court and Ld. Sole Arbitrator

JSA successfully advised and represented Foundation to Educate Girls Globally(“FEGG”), a non-profit organisation (“NGO”) focused on mobilising communities for women’s education in rural and educationally backward areas, in relation to resolution of disputes with a former licensor of a premises taken on leave and license (“Respondent”).

The dispute between FEGG and the Respondent related to the pending refund of the security deposit and additional security paid by the FEGG as per the Leave and License Agreement entered into between the parties. In this regard, owing to the continuous failure of the Respondent to refund the same, JSA on behalf of FEGG filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Act”) before the Bombay High Court, for resolution of the disputes arisen between the parties.

JSA represented FEGG before the Bombay High Court in the Section 11 application wherein an order was passed by the Bombay High Court appointing the Ld. Sole Arbitrator to adjudicate the disputes between FEGG and the Respondent.

Thereafter, JSA advised and represented FEGG before the Ld. Sole Arbitrator and was able to obtain a favourable award with directions to the Respondent to make payment towards dues owed to FEGG with interest.

As FEGG is an NGO registered under Section 8 of the Companies Act, 2013, JSA represented the party on a pro bono basis in the proceedings before the Bombay High Court and the Ld. Sole Arbitrator.

Our Disputes Team Comprised Lead Partner – Varghese Thomas, Senior Associate – Ahsan Allana, and Associate – Kabir Saund.

Tags Educate Girls Globally, JSA, Leading Law Firm, Leading Lawyers

JSA Prism | Aviation and Power (Budget) | July 2024

Please click here to download the Prism as a PDF.

Highlights of the budget with focus on aviation and power

While the interim budget promised various incentives for Civil Aviation industry such as expansion of airports and introduction of new air routes, the Union Budget for 2024-25 (“Budget 2024”), seems to have focus on developing the Maintenance, Repair and Overhaul (“MRO”) facilities in India.

In the power sector, Budget 2024 demonstrates the decision of the Government of India (“GOI”) to give a boost to the renewable energy sector. The Ministry of New and Renewable Energy is allocated INR 19,100 crore (Indian Rupees nineteen thousand and one hundred crore), while INR 16,394.75 crore (Indian Rupees sixteen thousand three hundred and ninety-four point seven five crore) is allocated to the total solar energy segment, INR 851,00,00,000 (Indian Rupees eight hundred and fifty-one crore) to wind and other renewable sources and INR 600,00,00,000 (Indian rupees six hundred crore) on National Green Hydrogen Mission. The major takeaways from the Budget 2024 for aviation and power are discussed below.

Aviation

New initiatives

An overall budget of INR 2,357.14 crore (Indian Rupees two thousand three hundred fifty-seven point fourteen crore) has been allocated to the Ministry of Civil Aviation which is reduced from last years’ budget.
New airport will be constructed in Bihar for which additional allocation of capital investment will be provided by the GOI.
The GOI will obtain the legislative approval for ‘Variable Capital Company Structure’ for efficient and flexible financing for leasing of aircrafts and pooled funds of private equity through this structure.
To support domestic aviation and boat and ship MRO, the GOI has offered to extend the period for export of goods imported for repairs from 6 (six) months to 1 (one)
The GOI has extended the time limit for re-import of goods under warranty from 3 (three) to 5 (five)
Requisite airport infrastructure to be upgraded/revived by Airport Authority of India (“AAI”) and concerned States based on the proposals awarded under the Regional Connectivity Scheme (“RCS”). The proposal is for revival of 22 (twenty-two) airports across the country.
Efforts to be made towards enhancing RCS air connectivity by connecting airports, heliports and water aerodromes through 124 (one hundred and twenty-four) RCS routes.
To improve regional air connectivity in North-Eastern Region, the GOI will provide Viability Gap Funding along with a new scheme for air connectivity and aviation infrastructure for the region. The number of RCS flights to be operated in the region is estimated to be 5,000 (five thousand).
The GOI will also present the Bhartiya Vayuyan Vidheyak 2024 in the upcoming monsoon session, which will replace the existing Aircraft Act 1934, providing provisions for ease of doing business in the civil aviation sector.
The first schedule to the Customs Tariff Act, 1975 is being amended to create new tariff lines in respect of defence products, technical textiles, sustainable blended aviation fuel, products used in Indian semiconductor machines, e-bicycles, natural menthol, printer cartridge etc. This is to align the tariff lines with world customs organisation classification and better identification of goods. These changes will come into effect from October 1, 2024.

Scheme wise allocation

The budget allocation for UDAN (Ude Desh Ka Aam Nagrik) RCS is cut by 60% and fixed at INR 502,00,00,000 (Indian Rupees five hundred and two crore) from its previous record-high grant of INR 1,244 crore (Indian Rupees one thousand two hundred and forty-four crore). This funding aims at rejuvenating unused and underused airports in tier-2 and tier-3 cities.
‘Production Linked Incentive (PLI) Scheme for Drone and Drone Components’ gets an allocation of INR 57,00,00,000 (Indian Rupee fifty-seven crore) while Krishi Udaan Scheme gets INR 1,00,000 (Indian Rupees one lakh).
INR 85,00,00,000 (Indian Rupees eighty-five crore) is allocated for providing medical benefit to retired employees of Air India post disinvestment.

Budgetary allocation to authorities

The allocation for the Director General of Civil Aviation is reduced to INR 302,64,00,000 (Indian Rupees three hundred and two crore and sixty-four lakh) which will be utilised for meeting the establishment expenditure, training projects, eGCA Project, construction of DGCA Bhawan and towards India’s contribution to International Civil Aviation Organisation.
Bureau of Civil Aviation Security also gets a reduced allocation of INR 89,00,00,000 (Indian Rupees eighty nine crore) which is to be utilised for establishment expenditure, procurement of security and IT equipment, construction of Headquarter building, as well as India’s contribution for ICAO’s Cooperative Aviation Security Program and for conference and summits related to aviation security.
On the other hand, allocation to Airports Economic Regulatory Authority has been increased to INR 17,45,00,000 (Indian Rupees seventeen crore forty-five lakh) as compared to INR 13,00,00,000 (Indian Rupees thirteen crore) in Budget 2023-24.

Power

New initiatives

Policy document prepared for energy transition pathways for ensuring employment, growth and environment sustainability in power sector.
The GOI will promote pumped storage project for storage of electrical power generated through renewable energy sources.
An amount of INR 600,00,00,000 (Indian Rupees six hundred crore) is allocated to 6 (six) North-Eastern States viz. Assam, Manipur, Meghalaya, Mizoram, Tripura and Nagaland for power system improvement.
Budgetary support for intra-State transmission and distribution projects for Sikkim and Arunachal Pradesh have been segregated in view of these States having sensitive borders. An amount of INR 1,315.01 crore (Indian Rupees one thousand three hundred and fifteen point zero one crore) has been allocated towards strengthening of transmission system in these 2 (two) States.
Additionally, INR 449,25,00,000 (Indian Rupees four hundred forty-nine crore and twenty-five lakh) is allocated for support for flood moderation storage at hydro-electric projects.
Development of indigenous capacity for production of high-grade steel and other materials to benefit the power sector as well.
Submission of the final mega power project certificate is extended from 120 (one hundred and twenty) months to 156 (one hundred and fifty-six) months, from the date of assent to the Finance (No.2) Bill 2024.

Nuclear power plants

The GOI to encourage Research and development (“R&D”) in small and modular nuclear reactors. The GOI to partner with private players for (a) Bharat small reactors; (b) R&D in Bharat Small modular reactors; (c) new technologies for use of nuclear energy for power generation.
Bharatiya Nabhikiya Vidyut Nigam Limited (BHAVINI) situated in Tamil Nadu, is entrusted with task of planning, executing and operating an integrated program of Fast Breeder Technology (“FBR”) based Nuclear Power Stations for generating electricity on a commercial basis. An amount of INR 1,184 crore (Indian Rupees one thousand one hundred and eighty-four crore) is allocated towards development of India’s most advanced nuclear reactor-Prototype Fast Breeder Reactor.
Amount of INR 7,597.92 crore (Indian Rupees seven thousand five hundred ninety-seven point nine two crore) is allocated to Nuclear Power Corporation of India Limited (NPCIL) which is the nodal agency to undertake the design, construction, operation and maintenance of the atomic power stations for generation of electricity under the provisions of the Atomic Energy Act, 1962.

Thermal power plants

The GOI to introduce indigenous technology for Advanced Ultra Super Critical Thermal Power plants with much higher efficiency. The joint venture between National Thermal Power Corporation and Bharat Heavy Electricals Limited will set up 800 MW (eight hundred megawatt) commercial power plant using aviation science
Power projects, including setting up of a new 2400 MW (two thousand four hundred megawatt) power plant at Pirpainti, will be taken up at a cost of INR 21,400 crore (Indian Rupees twenty-one thousand and four hundred crore).

Solar Power projects

GOI has allocated INR 24,01,00,000 (Indian Rupee twenty-four crore and one lakh) for implementation of Phase-III of the Off-grid solar PV program which covers installation of 3,00,000 (three lakh) solar street lights, distribution of 25,00,000 (twenty-five lakh) solar study lamps and installation of solar power packs of total aggregated capacity of 100 MW (one hundred megawatt). In addition, under AJAY Phase-II over 3,00,000 (three lakh) solar street lights would be installed.
An amount of INR 6,250 crore (Indian Rupee six thousand two hundred and fifty crore) is allotted in PM Surya Ghar Muft Bijli Yojana launched by Government of India, which is to subsume the existing ‘Solar Power (Grid)’ scheme.
The GOI to has also revised the Basic Customs Duties (“BCD”) subsequent to a periodic review undertaken in consultation with the trade and other ministries:
- exemption to machinery/components for initial setting up of non-conventional power generation plants (81/2005-Customs dated September 8, 2005) extended upto March 31, 2026 to encourage commissioning of grid connected solar power (ground mounted/rooftop) in the country;
- BCD on specified capital goods for use in manufacture of solar cells or solar modules, and parts for manufacture of such capital goods is reduced from 7.5% to 0%, while BCD on solar glass for manufacture of solar cells or solar modules is increased from 0% to 10% (w.e.f. from October 1, 2024) and BCD on tinned copper interconnect for manufacture of solar cells or solar modules is increased from 0% to 5% (w.e.f. from October 1, 2024). These aim at increasing domestic manufacturing of solar panels and solar cells.

Scheme wise allocation

Energy Conservation: An allocation of INR 25,00,00,000 (Indian Rupees twenty-five crore) is made towards ‘Energy Conservation’ project which will be utilised for (a) carrying out awareness creation on Energy Conservation through print, electronic and other media for general public, (b) continuation of EC awards and painting competition on Energy Conservation, (c) implementation of the National Mission for Enhanced Energy Efficiency (NMEEE) (d) the upscaling of the efforts to create and sustain market for energy efficiency to unlock investments and (e) shields and certificates given by the Ministry of Power to generating stations, transmission and distribution utilities and rural distribution franchise for recognising meritorious performance in operation, project management and environmental protection.
National Electricity Fund: GOI has allocated INR 500,00,00,000 (Indian Rupees five hundred crore) to National Electricity Fund which will provide interest subsidy on loans to be disbursed to the distribution companies both in the public and private sector, to improve the distribution network for areas not covered by Rajiv Gandhi Grameen Vidyutikaran Yojana (for rural areas) or Restructured Accelerated Power Development and Reforms Programme (for towns with population greater than 30,000) schemes (since subsumed in DDUGJY and IPDS respectively).
Power System Development Fund: An amount of INR 1,200 crore (Indian Rupees one thousand two hundred crore) is allocated towards Power System Development Fund for enhanced execution of projects to bring improvement in grid safety and operation.
Reform Linked Distribution Scheme: The Reform Linked Distribution Scheme aimed to ensure 24×7 sustainable power along with a financially viable and operationally efficient distribution sector, is allocated a budget of INR 12,585 Crore (Indian Rupee twelve thousand five hundred eighty-five crore) in this budget.
Manufacturing zones under the Atmanirbhar Bharat Package: GOI has also allocated INR 80,00,00,000 (Indian Rupees Eighty Crore) for setting up of 3 (three) Manufacturing zones under Atmanirbhar Bharat Package for Power and Renewable equipment in 3 (three) different States. The manufacturing facilities in the zones shall be based on cutting edge, clean and energy efficient technology for minimising dependency on import of equipment, critical components, basic raw material, critical spares etc. required for Power sector and renewable.
Green Energy Corridor: GOI has allocated INR 600,00,00,000 (Indian Rupees six hundred crore) towards Green Energy Corridor for construction of transmission system in 10 (ten) implementing States and grid integration of large-scale renewable generation capacity in the states.
National Green Hydrogen Mission: With a budget of INR 600,00,00,000 (Indian Rupees six hundred crore), National Green Hydrogen Mission aims to make India the global hub for production, usage and export of green hydrogen and its derivatives and to achieve the aim of being self-sufficient through clean energy and serve as an inspiration for the global Clean Energy Transition.
Bio energy program: A total of INR 300,00,00,000 (Indian Rupees three hundred crore) has been allocated to Bio energy program.

Sector wise allocation

The overall budgetary allocations for various sectors stand as under:
- Ministry of Power: INR 20,502 Crore (Indian Rupees twenty thousand five hundred and two crore) allocated.
  - Solar energy segment – INR 16,394.75 Crore (Indian Rupees sixteen thousand three hundred and ninety- four point seventy-five crore)
  - Wind and other renewable sources – INR 851,00,00,000 crore (Indian Rupees eight hundred fifty-one crore)
  - Bio energy – INR 300,00,00,000 (Indian Rupees three hundred crore)

- Ministry of Petroleum and natural gas: INR 15,930.26 crore (Indian Rupees fifteen thousand nine hundred thirty point twenty six crore)
- Ministry of New and Renewable Energy: INR 19,100 Crore (Indian Rupees nineteen thousand one hundred crore) allocated.

This Prism has been prepared by:

Poonam Verma Sengupta
Partner

Priyakshi Bhatnagar
Senior Associate

For more details, please contact [email protected]

Tags Aviation Industry, Energy, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Renewable Energy, Union Budget

JSA Prism | Dispute Resolution | July 2024

Please click here to download the Prism as a PDF.

Supreme Court resolves conflict on the issue of territorial jurisdiction for seeking extension of time in an arbitration

In the recent decision of Chief Engineer (NH) PWD (Roads) vs. BSC&C and C JV,[1] the Hon’ble Supreme Court of India (“Supreme Court”) held that the power to extend time for making an arbitral award under Section 29A of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) vests in the ‘court’ defined under Section 2(1)(e) of the Arbitration Act, i.e., the principal civil court of original jurisdiction (including a High Court, provided the High Court has ordinary original civil jurisdiction). In the wake of multiple conflicting decisions on the point rendered by courts across the country, the Supreme Court’s decision provides much needed quietus and settles the question of territorial jurisdiction for seeking extension of time in an arbitration.

Brief Facts

Due to the arbitral tribunal’s failure to render the award within the prescribed time,[2] the respondent – a joint venture company had applied for an extension of time before the Ld. Commercial Court at Shillong, Meghalaya. The petitioner, on the other hand, contested the jurisdiction of the commercial court to entertain the application for extension of time under Section 29A of the Arbitration Act.

By judgment and order dated February 16, 2024, the commercial court held that it had the requisite jurisdiction to extend the mandate of the arbitral tribunal. This decision was challenged by the petitioner through a revision petition before the Hon’ble High Court of Meghalaya at Shillong (“Meghalaya HC”).[3]

By judgment and order dated April 22, 2024, the Meghalaya HC upheld the decision of the commercial court. The petitioner challenged the Meghalaya HC’s decision through SLP (Civil) No. 10544/2024 before the Supreme Court.

Issue

The core issue considered by the Meghalaya HC, and the Supreme Court, was whether the expression ‘court’ used in Sections 29A(4), (5) and (6) of the Arbitration Act would mean the High Court or the principal civil court of original jurisdiction in a district. Put simply, the question to be decided was whether an application for extension of time for making an arbitral award ought to be filed before the concerned commercial/ district court or the High Court.

Analysis and Findings

Before the Meghalaya HC, the petitioner contended that the expression ‘court’ used in Sections 29A(4), (5) and (6) of the Arbitration Act should be read as the “court which has the power to appoint an arbitrator under Section 11” of the Arbitration Act. Placing reliance on decisions of various High Courts,[4] the petitioner argued that: (a) Section 29A(6) of the Arbitration Act provides that a court while extending the time period for making an award may substitute any of the arbitrators; (b) such a power of appointing a new/ substitute arbitrator vests with the High Court under Section 11 of the Arbitration Act; and therefore (c) the powers under Section 29A ought to be exercised only by High Courts, to prevent anomalous situations where commercial/ district courts may be called upon to substitute arbitrators originally appointed by High Courts.

On the other hand, the respondent contended that the language used in Section 2(1)(e) of the Arbitration Act was clear and unambiguous in providing that a High Court will exercise powers under Section 29A only if it possesses original civil jurisdiction. Citing decisions of various High Courts[5] conflicting with those cited by the petitioner, the respondent argued that: (a) had the legislature intended to provide the power of extension of time in arbitration to High Courts, they would have provided so in Section 29A, as they did for appointment of arbitrators in Section 11; and (b) as commercial/ district courts are empowered under Section 34 to set aside awards passed by arbitrators who may have been appointed by High Courts, there is no basis to the contention that such arbitrators cannot be substituted by commercial/ district courts.

After hearing the parties, the Meghalaya HC held that:

a plain reading of Section 2(1)(e) of the Arbitration Act makes it clear that the ‘court’ is defined to mean the principal civil court of original jurisdiction in a district, including the High Court in exercise of its ordinary civil jurisdiction;
in cases where the arbitral tribunal was not appointed by the High Court under Section 11 of the Arbitration Act, the principal civil court of original jurisdiction would have the power to extend the mandate of the arbitral tribunal under Section 29A; and
in the given facts, since the Meghalaya HC neither appointed the arbitral tribunal nor possessed original civil jurisdiction, the commercial court correctly exercised jurisdiction to extend the mandate of the arbitral tribunal under Section 29A.

In challenge, the Supreme Court upheld the Meghalaya HC’s decision and unequivocally held that:

the power to extend the time under Section 29A(4) of the Arbitration Act vests with the principal civil court of original jurisdiction (including a High Court, provided the High Court has ordinary original civil jurisdiction); and
the power of substituting arbitrators while extending the mandate of the arbitral tribunal is only a consequential power, which has to be exercised by the same court which has the power to extend the time under Section 29A(4) of the Arbitration Act.

Conclusion

As is clear from the parties’ arguments, High Courts across India have provided conflicting answers to the question of which court to approach for seeking extension of time in an arbitration. While some decisions hold that only High Courts would have the power to extend the mandate of an arbitral tribunal,^[6] other decisions conclude that this power would be exercised by High Courts only if they have ordinary original civil jurisdiction.^[7] In view of such conflicting decisions, the Hon’ble Allahabad High Court[8] and the Hon’ble Bombay High Court[9] have, in fact, referred this question to larger benches for consideration as well.

The rationale provided in earlier decisions for holding that the power to extend time in arbitration ought to be exercised only by High Courts was the prevention of anomalous situations where subordinate courts may be required to substitute arbitrators originally appointed by High Courts. In the present case, the Meghalaya HC addressed that argument by drawing a distinction on facts, holding that such an anomaly cannot arise in cases where the arbitral tribunal was not appointed by the High Court under Section 11 of the Arbitration Act, and therefore, in such cases, the principal civil court of original jurisdiction would have the power to extend the mandate of the arbitral tribunal under Section 29A. Even this distinction has been eliminated by the Supreme Court’s ruling in Chief Engineer (supra), which unequivocally settles that the power to extend the time for making an arbitral award vests with principal civil court of original jurisdiction (including a High Court, provided the High Court has ordinary original civil jurisdiction).

This decision provides a welcome quietus to the cacophony of decisions on the question of territorial jurisdiction under Section 29A. Now, it is clear that:

an application for extension of time can be filed before the concerned High Court only if it has ordinary original civil jurisdiction. In other words, subject to satisfaction of applicable pecuniary limits, only the Hon’ble High Courts at Delhi, Bombay, Calcutta, Madras and Himachal Pradesh can adjudicate an application for extension of time under Section 29A of the Arbitration Act; and
in states where High Courts do not have ordinary original civil jurisdiction, applications for extension of time must be filed before the principal civil court of original jurisdiction in the district where the seat of arbitration is located (i.e., the commercial/ district court).

This Prism is prepared by:

Divyam Agarwal
Partner

Aniket Aggarwal
Senior Associate

Mayank Ratnaparkhe
Associate

For more details, please contact [email protected]

[1] Order dated May 13, 2024, in SLP (Civil) No. 10544/2024

[2] As per Section 29A of the Arbitration Act, in a domestic arbitration, the award is required to be passed within 12 (twelve) months from the date of completion of pleadings. This period is extendable by 6 (six) months by the parties’ consent, and thereafter, by an order of the court. As per Section 23(4) of the Arbitration Act, pleadings are required to be completed within 6 (six) months from the date of constitution of the arbitral tribunal.

[3] CRP No. 2/2024.

[4] Nilesh Ramanbhai Patel vs. Bhanubhai Ramanbhai Patel, 2018 SCC OnLine Guj 5017; KV Ramana Reddy vs. Rashtriya Ispat Nigam Limited, 2023 SCC OnLine AP 398; Amit Kumar Gupta vs. Dipak Prasad, 2021 SCC OnLine Cal 2174; Indian Farmers Fertilizers Cooperative vs. Manish Engineering Enterprises, 2022 SCC OnLine All 150

[5] A’Xykno Capital Services Private Limited vs. State of U.P., 2023/AHC -LKO/37194; Aplus Projects and Technology vs. Oil India, (2020) 1 Gau LR 99; URC Construction vs. BEML Ltd., 2017 SCC OnLine Ker 20520

[6] Nilesh Ramanbhai Patel vs. Bhanubhai Ramanbhai Patel, 2018 SCC OnLine Guj 5017; DDA vs. Tara Chand, 2020 SCC OnLine Del 2501; Lots Shipping Company vs. Cochin Port Trust, 2020 SCC OnLine Ker 21443; Amit Kumar Gupta vs. Dipak Prasad, 2021 SCC OnLine Cal 2174; Indian Farmers Fertilizers Cooperative vs. Manish Engineering Enterprises, 2022 SCC OnLine All 150; KV Ramana Reddy vs. Rashtriya Ispat Nigam Limited, 2023 SCC OnLine AP 398

[7] URC Construction vs. BEML Ltd., 2017 SCC OnLine Ker 20520; Lucknow Agencies vs. UP Avas Vikas Parishad, 2019 SCC OnLine All 4369; Aplus Projects and Technology vs. Oil India, (2020) 1 Gau LR 99; Mormugao Port Trust vs. Ganesh Benzoplast, Writ Petition No. 3/2020 (Bombay High Court); A’Xykno Capital Services Private Limited vs. State of U.P., 2023/AHC -LKO/37194

[8] Jaypee Infratech vs. Ehbh Services Private Limited, 2024 SCC OnLine All 444

[9] Sheela Chowgule vs. Vijay Chowgule, 2024 SCC OnLine Bom 1069

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

High Court applies equity, restitution and res judicata; upholds levy of interest on YEIDA’s additional demand from allottees

JSA successfully advised and represented Yamuna Expressway Industrial Development Authority (“YEIDA”) in proceedings before the Hon’ble High Court of Allahabad (“HC“) in writ proceedings challenging levy of interest on additional amounts demanded by YEIDA from its allottees towards cost of land. Relying on the principles of restitution, res judicata, and ‘interest in equity’, the HC dismissed the writ petitions and held that interest would be payable to YEIDA, even if it was not stipulated in the terms of allotment.

YEIDA’s principal demand of additional compensation (~USD 677 million) was earlier upheld by the Hon’ble Supreme Court (“SC“) in YEIDA v. Shakuntla(“Shakuntla – I“; reported as 2022 SCC OnLine SC 655), with the SC reasoning that the demand was in public interest and, thus, overrode private contracts. After the pronouncement of Shakuntla – I, the petitioners again approached the HC, this time contesting their liability towards interest on the amount of additional compensation. The petitioners argued that the levy of interest was supported neither by contract nor by law.

Agreeing with the submissions of YEIDA, the HC observed that the petitioners failed to pay additional compensation, despite the crystallisation of that liability in Shakuntla – I. Applying the doctrine of restitution, the HC held that the petitioners are liable to pay the interest for the entire period during which litigation challenging additional compensation remained pending. Further, it observed that the interest amount deserves to be paid as compensation for the period during which payment of YEIDA’s lawful dues were withheld.

The HC also applied the principle of ‘interest in equity’ and reiterated that interest would be payable to YEIDA in equity, even if not provided for under contract.

On the point of res judicata, the HC held that it was not open for the petitioners to challenge the levy of interest on additional compensation since they never raised this issue in their challenge to the principal demand, which culminated into the Shakuntla – I decision of the SC. The HC held that the petitioners cannot split their claims and vex YEIDA twice by first challenging the principal demand and, thereafter, separately challenging the levy of interest on it.

Our Disputes Team Comprised Lead Partner – Amar Gupta, Senior Associates – Aniket Aggarwal, Pranav Tanwar and Zain Maqbool and Associate – Abhay Pratap Singh.

Tags High Court of Allahabad, JSA, Leading Law Firm, Leading Lawyers, YEIDA

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

New Filters: Dispute Resolution and Arbitration

‘Effect of ‘accord and satisfaction’ or ‘full and final settlement’ on arbitration; unsuitability of ‘eye of the needle’ and ‘ex-facie meritless’ tests in modern day arbitrations; and role of the referral courts

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