- SEBI circular on Credit Rating Agencies.
- SEBI circular on Non-Convertible Securities, Securitized Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper
- SEBI circular on Alternative Investment Funds.
- SEBI circular on Minimum Public Shareholding.
- RBI Circular on Disclosure requirements for State Co-operative Banks and Central Co-operative Banks
- RBI circular on issuance of Prepaid Payment Instruments.
- RBI instructions on transaction code for NEFT and RTGS systems.
- Order dated 10.02.2023 issued by Maharashtra Real Estate Regulatory Authority regarding de-registration of real estate projects or part of a real estate project.
- Order dated 13.02.2023 issued by Maharashtra Real Estate Regulatory Authority regarding submission of half-yearly reports by Maha-RERA registered real estate agents.
- Circular dated 20.02.2023 issued by Maharashtra Real Estate Regulatory Authority regarding change/ transfer of the separate designated bank account from one scheduled bank/ branch to another.
- Order dated 20.02.2023 issued by Maharashtra Real Estate Regulatory Authority regarding prescribed fees payable by a proprietary concern while seeking registration or renewal of registration as real estate agents.
- Circular dated 24.02.2023 issued by Goa Real Estate Regulatory Authority regarding updated guidelines issued on 17.02.2023 in supersession of the guidelines issued earlier on 31.01.2023 by the Directorate General of Audit, Indirect Taxes and Customs, New Delhi.
- AN APPLICATION FOR WITHDRAWAL OF CORPORATE INSOLVENCY RESOLUTION PROCESS IS NOT MANDATORILY REQUIRED TO BE FILED BY THE INTERIM RESOLUTION PROFESSIONAL/ RESOLUTION PROFESSIONAL.
- Courts cannot impose their will against agreement to compound the Compoundable Offence.
- In case of any ambiguity in the terms of a contract, where such contract is drafted by one party, the principle of contra proferentem shall be applied to interpret such ambiguous terms. Therefore, the ambiguous terms should be interpreted against the party that drafted it.
- CASE ANALYSIS : GAS AUTHORITY OF INDIA LIMITED VS. INDIAN PETROCHEMICALS CORP. LIMITED AND OTHERS [PRONOUNCED BY THE HON’BLE SUPREME COURT OF INDIA ON 08.02.2023 IN 2023 SCC ONLINE SC 116]
Circular Number SEBI/HO/DDHS/DDHS-RACPOD2/P/CIR/2023/19 dated 03.02.2023 of the Securities and Exchange Board of India (“SEBI”):
- Amendments to the Operational Circular for Credit Rating Agencies
By virtue of the said circular, SEBI made amendments to Circular no. SEBI/HO/DDHS/DDHS-RACPOD2/P/CIR/2023/6 dated January 06, 2023 (“Operational Circular for Credit Rating Agencies”). The circular dated 03.02.2023 proposes several modifications and insertions to Operational Circular for Credit Rating Agencies, including the modifications to para 5.6.1, para 8.2.2, para 12.2, para 16.2 para 17, para 27.3.2, para 27.5.2, Annexure 19, 20, 21 and 24; deletion of para 11.8.3, para 12.6; and the insertion of para 11.9, para 12.3.3, para 12.4.4 and para 24A of the Operational Circular for Credit Rating Agencies.
Vide the said insertions and modifications, the said circular included the use of an Expected Loss (“EL”) based rating scale by Credit Rating Agencies (“CRAs”) for infrastructure sector projects or instruments, changes to the policy for request for review/appeal by Issuers against the rating being assigned to its securities. The said circular requires CRAs to assign a rating to securities that are listed or proposed to be listed on a recognized stock exchange and issue a press release at the time of withdrawal of any credit rating. The press release must mention the reason for withdrawal. The circular stipulates that the MD/CEO of a CRA and any person within the CRA who has business responsibility shall not be a member of rating committees of the CRA.
In cases of request by an issuer for review/appeal of the rating(s) provided to its security/ies shall be reviewed by a rating committee of the CRA that shall consist of a majority of members that are different from those in the Rating Committee of the CRA that assigned the earlier rating, and at least one-third of members are independent. The circular also requires issuers of certain instruments/products/securities to abide by the rules/regulations/directions/guidelines applicable to or governing such instruments/products/securities as prescribed by such financial sector regulator or authority.
Additionally, the said circular modifies timelines of initial rating scenarios and makes amendments in Annexures to the Operational Circular for Credit Rating Agencies namely:
- Format for Half-Yearly Rating Summary Sheet (Annexure 19),
- Details of new credit ratings assigned during last six-months (Annexure 20),
- Movement of Each Credit Rating (Annexure 21), and
- List of Defaults Separately for Each Rating Category (on half-yearly basis) (Annexure 24).
Circular Number SEBI/HO/DDHS/DDHS-RACPOD1/P/CIR/2023/023 dated 06.02.2023 of the Securities and Exchange Board of India (“SEBI”):
- Revised Chapter IX of Operational Circular for issue and listing of Non-Convertible Securities, Securitized Debt Instruments, Security Receipts, Municipal Debt Securities, and Commercial Paper
The aim of the said circular is to align the framework for green debt securities with the updated Green Bond Principles (GBP) recognized by the International Organization of Securities Commissions (IOSCO). The revised Chapter IX sets out the initial disclosure requirements for issuers of green debt securities, which include a statement on environmental sustainability objectives, details of the decision-making process for determining project eligibility, and the details of taxonomies and green standards or certifications referenced.
The said circular also introduces continuous disclosure requirements for listed green debt securities, which include details of the utilization of proceeds, qualitative and quantitative performance indicators, and measures of the environmental impact of the projects or assets. The issuer of green debt securities must appoint an independent third-party reviewer or certifier for the initial review of the processes and project evaluation and selection criteria. The provisions of the said circular shall come into force for all issues of green debt securities launched on or after April 1, 2023.
Initial disclosure requirements for issue and listing of green debt securities:
- Include a statement on environmental sustainability objectives.
- Explain how they decided on the projects/assets eligible for funding.
- Provide details of tracking procedures for deployment of proceeds.
- Disclose intended use of proceeds and estimated distribution.
- Explain plans for unallocated and unutilized net proceeds.
- Discuss perceived social and environmental risks and mitigation plans.
- Appoint an independent third-party reviewer/certifier.
Continuous disclosure requirements for listed green debt securities: For listed green debt securities, issuers must disclose the utilization of proceeds, unutilized proceeds, and details of projects and assets where proceeds have been invested. They must also provide performance indicators and metrics of environmental impact and deployment of mitigation plans for perceived social and environmental risks. An external auditor must verify the utilization of proceeds.
Impact Reporting: Green debt issuers must report on the environmental impact of their projects, follow reporting standards, and appoint a third-party reviewer/certifier for post-issue management and impact reporting. Compliance is expected within two years or explanation of non-compliance must be provided in the annual report.
Responsibilities of the issuer: Issuer responsibilities for green debt securities include maintaining a decision-making process for project eligibility, ensuring projects meet green objectives, using proceeds only for stated purposes, and complying with SEBI regulations to prevent greenwashing.
Circular Number SEBI/HO/AFD/PoD/P/CIR/2023/017 dated 01.02.2023 of the Securities and Exchange Board of India (“SEBI”)
- Transaction in Corporate Bonds through Request for Quote (RFQ) platform by Alternative Investment Funds (AIFs)
The said circular stipulates that AIFs shall undertake at least 10% of their total secondary market trades in Corporate Bonds by value in a month by placing/seeking quotes on the RFQ platform to increase the liquidity and enhance transparency in trading in secondary market.
Circular SEBI/HO/DDHS/DDHS_Div1/P/CIR/2022/142 dated 19.10.2022 stipulated that quotes on RFQ can be placed to an identified counterparty (i.e. ‘one-to-one’ mode) or to all the participants (i.e. ‘one-to-many’ mode). In this circular, it is clarified that all transactions in Corporate Bonds wherein AIF(s) is on both sides of the trade shall be executed through RFQ platform in ‘one-to-one’ mode. However, any transaction entered by an AIF in Corporate Bonds in ‘one-to-many’ mode which gets executed with another AIF, shall be counted in ‘one-to-many’ mode and not in ‘one-to-one’ mode. This requirement will come into force with effect from 01.04.2023.
Circular No. SEBI/HO/CFD/PoD2/P/CIR/2023/18 dated 03.02.2023 issued by Securities and Exchange Board of India (“SEBI”)
- Two additional methods introduced to maintain minimum public shareholding (MPS)
SEBI has provided different methods that may be used by listed entities to maintain compliance with MPS as given under Rule 19(2)(b) and 19A of the Securities Contracts (Regulation) Rules, 1957 (SCRR) read with Regulation 38 of the Securities and exchange Board of India (Listing Obligations and Disclosure requirements) Regulations, 2015 (LODR Regulations). As per this circular few of the existing methods have been reviewed and rationalized and two additional methods have been introduced.
The listed entities can now increase public holding by exercising of options and allotment of shares under an employee stock option scheme (ESOP), subject to a maximum of 2% of the paid-up equity share capital of the listed entity. Not only this, the shares can now be transferred to an Exchange Traded Fund (ETF) managed by SEBI-registered mutual fund, subject to a maximum of 5% of the paid-up equity share capital of the listed entity.
Circular Number RBI/2022-23/181 DOR. ACC. REC. No. 103/21. 04. 018/2022-23 dated 20.02.2023 of the Reserve Bank of India (“RBI”)
- Expansion in the applicability of RBI (Financial Statements – Presentation and Disclosures) Directions, 2021 (Master Directions)
RBI has widened the scope of the Master Directions which are applicable to commercial banks and primary Urban Co-operative Banks (UCBs). It harmonizes the regulatory instructions and presentation of disclosures in the financial statements across the banking sector.
After consultation with NABARD, the Master Direction is now also applicable to State Cooperative Banks and Central Cooperative Banks. According to the circular, the State and Central Cooperative Banks will be collectively referred to as ‘Rural Cooperative Banks / RCBs.
Circular Number RBI/2022-23/176 CO. DPSS.POLC.No. S-1907/02.14.006/2022-23 dated 10.02.2023 of the Reserve Bank of India (“RBI”)
- Allowance of access to UPI to foreign nationals/NRIs visiting India
RBI has announced that it has been decided to allow, with immediate effect, access to UPIs to Foreign Nationals/Non-Resident Indians (NRIs) visiting India. This has been extended to travelers from the G-20 countries at selected airports for their merchant payments for the time they reside in the country. This will be enabled across all entry points in the country.
Circular Number RBI/2022-23/178 CO. DPSS. RPPD. No. S1931/04-03-001/2022-23 dated 16.02.2023 of the Reserve Bank of India (“RBI”)
- Introduction of FCRA related transaction code in NEFT and RTGS systems
RBI has introduced certain changes in the FCRA with respect to the RTGS / NEFT transactions of foreign contributions which are received directly from foreign banks through SWIFT and from Indian intermediary banks through NEFT and RTGS systems. In view of the current position of law, foreign contributions must be received ‘only’ in ‘FCRA account’ of the State Bank of India (SBI), New Delhi Main Branch (NDMB).
The changes introduced pertain to the requirement with respect to the selection of mandatory fields by originating banks while remitting foreign donations to FCRA accounts at SBI. Such changes are enumerated in the annexure attached to the said circular. The format for providing donor details for ‘Sender to remitter information’ field are also provided in the said annexure to the circular.
Real Estate Brief
Order dated 10.02.2023 issued by Maharashtra Real Estate Regulatory Authority regarding de-registration of real estate projects or part of a real estate project.
- The Maharashtra Real Estate Regulatory Authority (“Maha-RERA”) vide its order no.42/2023 dated 10.02.2023 issued directions regarding the de-registration of real estate projects or part of a real estate project.
- In the said order, it has been mentioned that if promoters who have registered their real estate projects and are unable to commence and complete the construction of the same or having commenced the construction are not in the position to complete the construction of the project due to various reasons such as lack of funds, projects economically not viable, litigations, etc., and accordingly are desirous of discontinuing their real estate projects, then in such instances, on receiving an application from promoters and on evaluating/ scrutiny of the same, Maha-RERA may allow for de-registration of such real estate
- The procedure for the same shall be as follows:
- Pre-requisites for de-registration of a real estate project:
- Only those real estate projects having zero allottees shall be considered for de-registration.
- Where part of a registered real estate project is sought to be de-registered then there should be zero allottees in that part of the real estate project.
- In case there are bookings in real estate projects, then application for de-registration shall be entertained subject to the rights of such allottees being settled by the promoter and documents in that regard being submitted for verification along with the application for de-registration.
- When de-registration of part portion of a real estate project affects the rights of the allottees in the balance part of such real estate project then 2/3rd consent of such allottees need to be submitted along with the application for de-registration.
- Submission of application for de-registration of a real estate project:
- The promoter is required to submit an online application to the Secretary, Maha-RERA [email protected] until an online procedure is established. The application to be submitted in the format prescribed and attached to the said order.
- On the receipt on such application, Secretary, Maha-RERA shall initiate an action through the legal wing, Maha-RERA and place the matter before the Authority for appropriate orders including scheduling a hearing, if necessary.
- Filing of complaints:
- Any aggrieved person may file a complaint in the matter of de-registration of the real estate project.
- Such complaints shall be heard after sending a due notice to the promoter and decided by the Authority expeditiously.
- Terms and conditions as may be imposed by the Authority in the order passed in the complaint shall be binding upon the promoter.
Order dated 13.02.2023 issued by Maharashtra Real Estate Regulatory Authoring regarding submission of half-yearly reports by Maha-RERA registered real estate agents.
- Maha-RERA vide its order no.43/2023 dated 13.02.2023 issued the following directions regarding the submission of half-yearly reports by Maha-RERA registered real estate agents with an intent to bring transparency for ensuring the maximum information is available for public viewing to empower homebuyers/allottees for making informed choice/ decisions: –
- Maha-RERA registered real estate agents shall upload a half-yearly progress report in the prescribed format.
- The half yearly reports to be uploaded by every registered real estate agent on their respective webpage as per the financial calendar half year period which shall be from April to September and October to March.
- Maha-RERA registered real estate agent shall upload on their respective web page the half yearly progress report for the financial calendar half year period “April to September” on or before 20th October and for the financial calendar half year period “October to March” on or before 20th of April.
- In the event of the non-submission of the half yearly progress report in consonance with the timelines mentioned above, an action as deemed fit shall be initiated by the Authority.
- This order shall come into force with effect from 01.04.2023 and in view thereof the first half yearly progress report for the period April 2023 to September 2023 shall be uploaded by every registered real estate agent on their respective web page on or before 20.10.2023.
Circular dated 20.02.2023 issued by Maharashtra Real Estate Regulatory Authority regarding change/ transfer of the separate designated bank account from one scheduled bank/ branch to another.
- The Maharashtra Real Estate Regulatory Authority (“Maha-RERA”) vide its order no. 43/2023 dated 20.02.2023 issued directions regarding the change/transfer of the separate designated bank account from one scheduled bank/branch to another.
- In the said order, it has been mentioned that the change/transfer of the separate designated bank account from one scheduled bank/branch to another shall be permitted only with the approval of the Authority.
- As per the said order dated 20.02.2023, the procedure to be followed by the promoters in this regard requires submission of the following documents:
- a self-declaration on promoter letter head explaining the rationale for change/transfer of the separate designated bank account from one schedule bank/ branch to another;
- a duly notarized declaration-cum-undertaking as per the prescribed format;
- latest chartered accountant certified Form 3;
- a declaration as per the prescribed format; and
- such additional statements/documents as may be required by the Authority.
- Further, it has been mentioned that the documents submitted by the promoter in the correction module will be scrutinized and submitted for an approval of the Authority. Before submitting the proposal for approval, promoters are also required to upload on their respective web page all compliances regarding their respective real estate project.
- This circular shall come into force with effect from the date of the said order i.e., from 20.02.2023.
Order dated 20.02.2023 issued by Maharashtra Real Estate Regulatory Authority regarding prescribed fees payable by a proprietary concern while seeking registration or renewal of registration as real estate agents.
- In the said order it has been mentioned that as per Rule 11 (3) and Rule 13 (1) of the Maharashtra Real Estate Rules, 2017, the prescribed fees for registration as well as for the renewal payable by a real estate agent in case of applicant being an individual will be Rs. 10,000/- (Rupees Ten Thousand Only) and for applicant being other than the individual will be Rs. 1,00,000/- (Rupees One Lakh Only).
- As per the said order, the Authority has noticed that proprietary concern is currently classified under the category of “Other than Individual”, however, the Authority believes that a proprietary concern should be classified as “Individual” and not under the category “Other than Individual”.
- Therefore, a direction has been issued in this regard vide the said order dated 20.02.2023 that the fees payable by a real estate agent who is a proprietary concern or a proprietor of a proprietary concern shall be Rs. 10,000/- (Rupees Ten Thousand Only). The same will be applicable prospectively and will come into effect from the date of the order i.e., from 20.02.2023.
Circular dated 24.02.2023 issued by Goa Real Estate Regulatory Authority regarding updated guidelines issued on 17.02.2023 in supersession of the guidelines issued earlier on 31.01.2023 by the Directorate General of Audit, Indirect Taxes and Customs, New Delhi.
Goa Real Estate Regulatory Authority (“Goa-RERA”) vide its circular no. F No.1/RERA/AML/(RE-agent)/2023/151 dated 24.02.2023 issued the updated guidelines issued by the Directorate General of Audit, Indirect Taxes and Customs, New Delhi dated 17.02.2023 regarding Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) obligations for real estate agents under the Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. The said updated guidelines have been uploaded for information and viewing by the real estate agents, buyers and sellers of properties.
AN APPLICATION FOR WITHDRAWAL OF CORPORATE INSOLVENCY RESOLUTION PROCESS IS NOT MANDATORILY REQUIRED TO BE FILED BY THE INTERIM RESOLUTION PROFESSIONAL/ RESOLUTION PROFESSIONAL.
Under Sections 7, 9 and 10 of Insolvency and Bankruptcy Code, 2016 (“IBC”), an applicant can file an application for initiating Corporate Insolvency Resolution Process (“CIRP”) proceedings against a corporate debtor before the Hon’ble National
Company Law Tribunal (“Adjudicating Authority/ NCLT”), which may also be withdrawn by the applicant either prior to the admission of the said application or even post the admission of the said application.
Section 12A was inserted into the IBC vide Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 which authorizes the Adjudicating Authority to allow the applicant to withdraw the application filed under Sections 7, 9 or 10. It provides that the Adjudicating Authority may allow the withdrawal of application admitted under sections 7, 9 or 10, as the case may be, on an application made by the applicant with the approval of ninety per cent (90%) voting share of the committee of creditors, in such manner as may be prescribed.
Further, Regulation 30A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 provides that an application of withdrawal of CIRP proceedings shall be filed through the interim resolution professional or the resolution professional.
However, the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) vide its order dated 06.02.2023 widened the horizon on who can file an application under Section 12 A of the IBC in the matter of Sandeep Kukkar Vs. Siddarth Intercrafts Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 1017 of 2022.
PROCEEDINGS BEFORE THE NCLT
In the said matter, an application under Section 12A was filed by the appellant-suspended director of the corporate debtor in light of the settlement agreement with the operational creditor, under which the outstanding dues of the operational creditor were paid off, but the operational creditor was required to make payment of the fees and expenses of the Resolution Professional. However, the Resolution Professional failed to file an application for withdrawal of the CIRP proceedings under Section 12A of IBC. Hence, the suspended director was constrained to file an application for withdrawal of CIRP proceedings before the NCLT wherein directions were passed upon the operational creditor to file a reply and further, by a subsequent order the Resolution Professional who was present was directed to file a report and reply thereto.
PROCEEDINGS BEFORE THE NCLAT
Subsequently, the appellant-suspended director of the corporate debtor was constrained to file an appeal against the order of the NCLT. The NCLAT was of the view that the mere fact that the Resolution Professional has not filed the application under Section 12A IBC, although there is a settlement agreement in place, which required the operational creditor to pay the dues of the Resolution Professional, does not inhibit the NCLT to exercise its jurisdiction under Rule 11 of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”) which vests inherent powers with the NCLT.
In view of the above, it is thereby concluded that the intent of Section 12A of IBC is to recognize the settlement after the admission of CIRP proceedings which was introduced upon the recommendations of the Report of Insolvency Law Committee, Ministry of Corporate Affairs, irrespective of the fact whether the said application for the withdrawal of CIRP proceedings has been filed through the interim resolution professional/ resolution professional or not.
Courts cannot impose their will against agreement to compound the Compoundable Offence
Case referred: BV Seshaiah vs State of Telangana & B Vamsi Krishna vs State of Telangana (2023 SCC OnLine SC 96)
The Hon’ble Supreme Court recently set aside an order of the Telangana High Court’s convicting the Appellants under Section 138, Negotiable Instruments Act, 1881 for taking money in the guise of investments and making wrongful gain from it, enshrining that the voluntary settlement between the parties will predominate and the High Court cannot act in their free will.
The two-judge bench of Justices Krishna Murari and V Ramasubramanian held that the High Court cannot have an overriding power over the compromise made between the parties through an agreement compounding a compoundable offence.
The captioned Appeal was filed by the parties against the order of the High Court of Judicature at Hyderabad which convicted the appellant for the offence under Section 138 of the NI Act.
During the pendency of the revision before the High Court, the parties had entered a Memorandum of Understanding (MoU) for the settlement of the dispute between the parties. As per the Memorandum, the Respondent No. 2 was to file a compromise petition before the Hon’ble High Court. However, as the Respondent had failed to file the required compromise petition before the High Court, the conviction of the Appellant was upheld.
The Hon’ble Supreme Court in consideration of the facts aforesaid, observed:
According to the MoU, the parties entered into the agreement to settle the disputes amicably. If the settlement has been arrived between the parties, the conviction of the appellants cannot be made by the court, as the courts cannot have an overriding power over the compromise made between the parties through an MoU compounding the compoundable offence.
In case of any ambiguity in the terms of a contract, where such contract is drafted by one party, the principle of contra proferentem shall be applied to interpret such ambiguous terms. Therefore, the ambiguous terms should be interpreted against the party that drafted it.
The Hon’ble Supreme Court decided that, when such settlement has been concluded between the parties, the proceedings should not be carried forward. This is done to save the time and cost of the courts and parties respectively. The courts cannot impose their orders over such settlement agreements in their own free will. This is clearly allowed to the parties according to law and this cannot be overridden by any of the courts.
IN THE MATTER OF: Flowmore Limited v M/s Skipper Limited
(pronounced by the Hon’ble High Court of Delhi on 02.02.2023 in O.M.P. (COMM.) 391 OF 2022)
- The Petitioner is a Public Limited Company that primarily deals in the area of large speciated application pumps and has diversified into the power sector. Flowmore Jagabandhu JV, the Petitioner’s joint venture with Jagabandhu Enterprises Ltd. was awarded a contract for the Design, Engineering, Supply, Erection, Testing, and Commissioning of a 132/33 kV, 2 x 50 MVA grid sub-station including the construction of Control Room Building & approach road as well as other civil works for 8 transmission lines by Jharkhand Urja Sancharan Nigam Ltd ( “JUSNL”).
- The Respondent was engaged by the Petitioner as the manufacturer and supplier of customized towers and other ancillary goods as per the specifications and other details provided to the Respondent for transmission lines to be erected for its client JUSNL, in various districts vide the Contract/Purchase Order, dated 02.03.2019.
- As per the agreement, the drawings/sketches were to be drawn up by the Respondent. The Petitioner believed that the approval of these sketches/drawings was to come from the Respondent itself and the Respondent believed that the approval was to be given by JUSNL.
- The Petitioner on 25th July 2019 terminated the contract/agreement for the alleged delay and breach of contractual obligations by the Respondent. Thereafter, the Parties submitted to arbitration and the Ld. Sole Arbitrator rendered the Award, dated 05.07.2022 (“Impugned Award”), and awarded a sum of Rs, 8,15,05,674/- to the Respondent, aggrieved by which the Petitioner filed the Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”).
- Whether the Arbitral Award is erroneous, patently illegal, or contrary to fundamental policy and passed without considering the material evidence on record?
- Whether the Arbitral Award correctly interprets the terms of the contract/agreement between the Parties?
Courts Observations and Findings:
- The Hon’ble High Court of Delhi, while adjudicating on the first issue, relied on the case of PSA Sical Terminals Pvt. Ltd. vs. The Board of Trustees of V. O. Chidambranar Port Trust, Tuticorin and Ors. wherein the Hon’ble Supreme Court held that a finding based on no evidence at all or an award that ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
- The Hon’ble High Court of Delhi stated that the decisive test to see whether an arbitral award is patently illegal is that: first, the learned arbitrator had to adopt a judicial approach; second, the principles of natural justice had to be upheld; third, the decision must not have been egregious, or rather, perverse.
- In the present case, the Court opined that a careful reading of the Award proves that the Arbitrator has rightly relied on relevant evidence to adjudicate and as such the Petitioner cannot have the benefit of the “ground of patent illegality” to assail the impugned Arbitral Award under Section 34 of the Act.
- The Ld. Judge while adjudicating the upon the second issue relied on Foo Jong Peng and others v Phua Kiah Mai and another wherein the Hon’ble Supreme Court of Singapore delved into the interpretation of contracts by the Learned Arbitrator during the Arbitral process and emphasised the importance of the test of business efficacy in interpreting the terms of a contract.
- The Hon’ble High Court of Delhi further explained and applied the principle of contra proferentem. It was held that the principle is that if arbitrators use the contract itself to determine a dispute, clauses should, in principle, be construed contra proferentem, meaning that they should be interpreted against the party that drafted it.
- The Court placed reliance on ICC Case No. 7110, wherein the Arbitral Tribunal made it clear that it is a general principle of interpretation widely accepted by national legal systems and by the practice of International Arbitral Tribunals, including ICC Arbitral Tribunals, that in case of doubt or ambiguity, contractual provisions, terms or clauses should be interpreted against the drafting party.
- The Court held that in the present case the Petitioner had drafted the Purchase Contract in which the Respondent was a signatory. The Learned Arbitrator having observed various interpretations of the contract, chose to endorse the interpretation that was favourable to the Respondent (in other words was against the Petitioner i.e., the drafting party). Therefore, the application of the rule of contra proferentem validated the learned Arbitrator’s findings and observations regarding the interpretation of the contract.
- Therefore, the Impugned Award, dated 05.07.2022, was upheld by the Hon’ble High Court of the Delhi and the Petition under Section 34 of the Act was dismissed.
CASE ANALYSIS : GAS AUTHORITY OF INDIA LIMITED VS. INDIAN PETROCHEMICALS CORP. LIMITED AND OTHERS [PRONOUNCED BY THE HON’BLE SUPREME COURT OF INDIA ON 08.02.2023 IN 2023 SCC ONLINE SC 116]
In the captioned Appeal preferred by Gas Authority of India Limited, a Division Bench of Justices Sanjay Kishan Kaul and Abhay S Oka held that the writ jurisdiction of the High Court under Article 226 of the Constitution of India can be exercised even in contractual dealings, if the Government fails to exercise fairness or practices discrimination.
Brief Background :
- Gas Authority of India Limited (“GAIL”) is a Government of India undertaking, engaged primarily in the activity of providing services for the utilization of natural or associated gas. Indian Petrochemicals Corporation Limited (“IPCL”), formerly a public sector undertaking, is engaged in the manufacture of petrochemicals. It ceased to be a public sector undertaking w.e.f. June 2002 when 26% of its shares were sold to Reliance Petroinvestments Limited.
- The Ministry of Petroleum and Natural Gas (“MoPNG”) issued a letter, dated 01.01.1999, for allocation of natural gas to IPCL. Pursuant thereto, IPCL was allotted 0.85 MMSCMD of semi- rich gas on firm basis from Hazira to IPCL’s Gandhar Unit. IPCL thus entered into a contract with GAIL on 09.11.2001 for supply of natural gas, and set up and installed a plant at Gandhar by investing approximately INR 4500 Crores. It also laid down pipelines between Hazira and Gandhar at a cost of approximately INR 354 Crores.
- As per the contract, the methodology of supply of gas was that GAIL received natural gas from the producer -i.e., ONGC, which procured the same at Hazira from the Bombay High Project. Thereafter, the gas was transported from Hazira to IPCL’s Gandhar plant through pipelines laid down by IPCL. The unutilized gas was then sent back to Hazira, also using IPCL’s pipelines. On one hand, as per allocation terms, IPCL had to lay down its own pipelines for carrying gas. On the other hand, the charge was levied by GAIL for ‘loss of transportation charges’ in terms of the contract.
- It is this aspect of the manner in which the gas was carried, which was the subject matter of the adjudication in writ proceedings filed by IPCL under Article 226, before the Hon’ble High Court. The Ld. Single Judge quashed the charges amounting to INR 134 crores which were levied by GAIL. The Ld. Division Bench affirmed the Ld. Single Judge’s observations vide order, dated 17.06.2008, thereby leading to the captioned Appeal by GAIL.
Contentions by GAIL :
- GAIL contested the very maintainability of the Writ Petition filed by IPCL on the grounds that since the matter was stated to be purely contractual in nature, involving the enforceability and validity of the terms of the contract, hence, no case was made out for violation of Fundamental Rights.
- They further contended that the presence of a public law element was a sine qua non for the exercise of writ jurisdiction. It was alleged that the endeavour of IPCL, by invoking such writ jurisdiction, was an attempt to bypass the law of limitation.
Defence by IPCL :
- IPCL sought to defend the maintainability of writ proceedings with respect to a private contract. The transportation charges were alleged to have a discriminatory effect as IPCL was being treated on par with consumers who were using the HBJ pipeline, whereas IPCL was transporting the gas through its own pipelines. It was urged that the writ jurisdiction was the appropriate remedy as there were questions of arbitrary state action violating the mandate of Article 14.
One of the issues before the Hon’ble Supreme Court was whether the Writ Petition filed by IPCL challenging the clauses of the Contract, was maintainable. The other issues dealt with the technical aspects of the Contract and the case.
Court’s observations and conclusion with respect to the maintainability :
- The Hon’ble Court observed that it is not disputed that GAIL is a Public Sector Undertaking and thus qualifies under the definition of ‘State’ as per Article 12 of the Constitution. At the time of entering into contract, GAIL was enjoying a monopolistic position with respect to the supply of natural in the country. IPCL, having incurred a significant expense in setting up the appropriate infrastructure, had no choice but to enter into agreement with GAIL.
- Thus, there was a clear public element involved in the dealings between the parties. Further, the Hon’ble Court observed that writ jurisdiction can be exercises when the State, even in its contractual dealings, fails to exercise a degree of fairness or practices any discrimination. The Hon’ble Court relied on the judgement in ABL International Limited vs. Export Credit Guarantee Corporation of India.
- The Hon’ble Court further observed that GAIL’s action in levying ‘loss of transportation charges’ was ex facie discriminatory, insofar as IPCL was mandated to build its own pipeline in terms of the allocation letter and was not using GAIL’s pipelines.
- The Hon’ble Supreme Court thus held that merely because an alternative remedy is available, it cannot be said that the Court should opt out of exercising jurisdiction under Article 226 of the Constitution and relegate the parties to a civil remedy.
- In the aforesaid background, the Hon’ble Court dismissed the captioned Appeal qua the aspect of maintainability of the Writ Petition and the quashing of the clauses dealing with loss of transportation charges in the case of IPCL.
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 AIR 2021 SC 4661.
  4 SLR 1267.
 (1999) 10 ICC Bulletin 39, 44.