The National Company Law Appellate Tribunal (NCLAT) continues to play a critical role in shaping the implementation of the Insolvency and Bankruptcy Code (IBC). In a recent NCLAT ruling, the Delhi Bench of NCLAT, led by Justice Ashok Bhushan, addressed a significant issue regarding the payment of electricity dues incurred by the Corporate Debtor during the moratorium period of the Corporate Insolvency Resolution Process (CIRP). This case involved Earthcon Infracon Pvt. Ltd., which was under CIRP, and Noida Power Company Ltd. (NPCL), raising concerns about whether current dues must be settled even during the protective moratorium phase provided by Section 14(1) of the IBC.

The NCLAT ruling sheds light on the responsibilities of the Resolution Professional (RP) in managing ongoing dues during insolvency proceedings, ensuring that essential utilities like electricity are not disrupted, provided there is no default in the payment of current dues.

The case arose when Earthcon Infracon Pvt. Ltd. (Corporate Debtor) entered into the Corporate Insolvency Resolution Process (CIRP), and a Resolution Professional (RP) was appointed to manage its affairs during the moratorium period. During this time, Noida Power Company Ltd. (NPCL) issued multiple notices regarding the non-payment of post-CIRP electricity dues. The RP initially sought relief from the Adjudicating Authority, requesting that the electricity not be disconnected and proposing an instalment plan for the dues.

Despite the interim orders passed by the Adjudicating Authority, preventing NPCL from disconnecting the electricity, the issue escalated as no resolution for the payment schedule was reached. NPCL filed further applications to vacate the interim orders, and the RP filed applications to permanently stay NPCL’s disconnection notices.

Eventually, the NCLAT ruling ordered that the RP should collect electricity dues from the homebuyers and remit them to NPCL. It was also directed that the RP could take necessary steps in case of non-payment. However, the issue of electricity disconnection for common areas such as lifts and corridors remained under dispute, leading to additional hearings and orders from the Adjudicating Authority.

The core issue before the Tribunal was whether the Appellant, Noida Power Company Ltd. (NPCL), was lawfully entitled to demand payment of current electricity dues incurred by the Corporate Debtor during the moratorium period. Additionally, NPCL sought to determine whether it had the right to disconnect the electricity connection if the dues remained unpaid.

The NCLAT ruling clarified that while the Corporate Debtor is under the protective shield of the moratorium as outlined in Section 14(1) of the Insolvency and Bankruptcy Code (IBC), this protection does not absolve the debtor from paying current dues. The Tribunal highlighted that the benefit of continued electricity supply, or any essential utility, is contingent upon there being no default in the payment of current dues. Therefore, the Resolution Professional (RP) has an obligation to ensure these payments are made to avoid disruptions.

In this specific NCLAT ruling, the Tribunal referred to previous judgements, including Shailesh Verma vs Maharashtra State Electricity Distribution Company and Sanskriti Allottee Welfare Association & Ors vs Gaurav Katiyar, both of which established that the RP is responsible for the settlement of such dues. These cases underscored the importance of ensuring that utilities remain functional while the Corporate Debtor undergoes insolvency resolution, but only when current dues are settled.

This NCLAT ruling has significant implications for both Resolution Professionals (RP) and creditors, particularly utility providers like electricity companies. It reinforces the principle that while the moratorium under Section 14(1) of the IBC protects the Corporate Debtor from legal actions during the insolvency process, this protection is conditional upon the payment of ongoing dues.

For Resolution Professionals, the NCLAT ruling serves as a reminder of their duty to manage not only the debtor’s assets but also to ensure that essential services like electricity, which are critical to the operation of the Corporate Debtor, are maintained. Failing to pay such dues can lead to the discontinuation of services, which could further complicate the Corporate Insolvency Resolution Process (CIRP). Moreover, the Tribunal’s reliance on past rulings reaffirms the obligation of the RP to collect dues from residents or other stakeholders when needed, as seen in this case with the homebuyers.

On the other hand, utility companies are assured that they are entitled to receive payments for services rendered during the CIRP. The NCLAT ruling makes it clear that utility providers are not obligated to continue offering their services free of charge, even when the Corporate Debtor is under moratorium protection, provided there are unpaid current dues.

The recent NCLAT ruling involving Noida Power Company Ltd. and Earthcon Infracon Pvt. Ltd. highlights the delicate balance between protecting the interests of the Corporate Debtor during insolvency and ensuring that current dues, such as electricity payments, are not neglected. By directing the Resolution Professional to pay the outstanding electricity dues or arrange a phased payment plan, the Tribunal has emphasized the importance of maintaining essential services while ensuring that obligations are met.

This NCLAT ruling serves as a precedent for future cases involving utility dues during the Corporate Insolvency Resolution Process (CIRP). It underscores the role of the Resolution Professional in safeguarding the debtor’s operations while simultaneously addressing the rights of creditors, including utility providers. Ultimately, the decision provides clarity on how Section 14(1) of the Insolvency and Bankruptcy Code (IBC) should be interpreted in relation to ongoing financial obligations during the moratorium period.

In a recent case, the Appellate Tribunal for Electricity vide its Judgement dated 24.09.2024 has upheld the decision passed by the Rajasthan Electricity Regulatory Commission (‘State Commission’) holding that in the absence of requisite mandatory Notices under the Power Purchase Agreement (‘PPA’), the Generator was responsible for the delay in commissioning the Project.

Arjun Green Power Private Limited (‘Arjun Green’), a Solar developer in the State of Rajasthan, challenged the Order passed by the State Commission, wherein, the State Commission rejected the prayer made by Arjun Green to extend the SCOD and increase in Tariff.

Arjun Green and Rajasthan Renewable Energy Corporation Limited (‘RREC’) entered into a PPA on the term that the SCOD was to be achieved within 12 months of the signing of the PPA.

The SCOD was extended from time to time till 21.02.2018. After the expiry of final extension, Arjun Green requested the Rajasthan Utilities to commission the Project. Rajasthan Utilities rejected the request on the ground that the extension period has expired and advised Arjun Green to approach the State Commission for the same.

Accordingly, Arjun Green approached the State Commission pursuant to which directions were given to the Rajasthan Utilities to form a committee for commissioning of the Project, and thereafter, the Project was commissioned after a delay of 3 months from the SCOD.

Since, there was a delay in commissioning of the Project, the Rajasthan Utilities imposed Liquidated Damages on Arjun Green on account of delay in commissioning of the Project. The said project got commissioned in the next financial year and Article 9 of the PPA stipulated that consequence of delay in commissioning of the project shall change the tariff and the tariff applicable at the time of commissioning of the project shall apply. In accordance with Article 9 of the PPA and the Tariff Order passed by the State Commission, the tariff for power generated and supplied by Arjun Green to Rajasthan Utilities was also reduced.

Consequently, Arjun Green approached the State Commission seeking extension of SCOD and claiming increase in the Tariff.

The State Commission dismissed the Petition filed by Arjun Green on the grounds that delay was attributable to Arjun Green and the reduction in Tariff is in accordance with the provisions of the PPA.

Arjun Green challenged the Order passed by the State Commission before the Appellate Tribunal for Electricity on the ground that Arjun Green had intimated the Rajasthan Utilities before the SCOD and the delay caused thereafter is not attributable to Arjun Green.

Rajasthan Utilities contended that issuance of Notice in the present case to the concerned authority is a mandatory requisite. In terms of the PPA, Arjun Green had to give a preliminary written notice at least 60 days in advance and final written notice of at least 30 days in advance of the date on which it intends to synchronize the Plant to the Grid, whereas, in the present case, Arjun Green has failed to issue any such notices.

Further, Article 9 of the PPA clearly stipulates that in case of delay in commissioning of the Project, agreed tariff or the applicable tariff in terms of the State Commission’s regulation for that year, whichever is lower will be paid to the power producer. The above Article does not make any distinction for the reasons for which the Project is delayed, namely, whether the same is on account of reasons attributable to Arjun Green or otherwise. Therefore, irrespective of the reasons for delay, Arjun Green would only be entitled to the tariff for the year in which the Project is actually commissioned.

The Appellate Tribunal observed that the present issue is no longer res-integra and has been held by the Hon’ble Supreme Court in its various judgements wherein it was held that PPA is a sacrosanct document and binding upon the parties. All the rights and obligations of the parties flow from the provisions of the PPA and the timelines given therein are to be adhered to. The Appellate Tribunal has made it absolute that the timelines given in a PPA have a purpose and are not a mere empty formality. Therefore, the parties cannot be given any liberty to bypass such mandatory provisions. In view of the delay, the Appellate Tribunal has also upheld the imposition of liquidated damages on the Developer. 

R Associates represented Rajasthan Urja Vikas Nigam Limited through Adv. Poorva Saigal and Adv. Shubha Arya.

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The hydrocarbon sector, integral to the global energy market, spans across exploration, extraction, refining, and distribution. Foreign investment rules, which regulate capital flow into this sector, focus primarily on aliphatic hydrocarbons such as methane, propane, and butane, as well as aromatic hydrocarbons like benzene, toluene, and xylene. Recent technological advancements in shale gas extraction, liquefied natural gas (LNG), and offshore drilling have unlocked reserves that were previously considered inaccessible, reshaping the landscape of hydrocarbon investments.

India’s hydrocarbon sector plays a crucial role in its energy security, with foreign investment rules shaping how international capital can flow into this critical industry. While the United States, Russia, and the Middle East have traditionally dominated global hydrocarbon production, India’s growing energy needs have made it an attractive market for foreign direct investment (FDI). The country’s LNG market, in particular, has seen rapid expansion, and the government has implemented policies encouraging infrastructure development for refineries and LNG terminals.

Foreign direct investment (FDI) in the hydrocarbon sector has steadily increased over the past few decades, particularly in emerging markets like India. Foreign investment rules in India play a critical role in regulating how international companies participate in exploration, extraction, and infrastructure projects within the country. India’s Foreign Direct Investment (FDI) policy, governed by the Ministry of Commerce and Industry, permits up to 100% FDI in several segments of the hydrocarbon sector, including exploration, refining, and pipeline infrastructure, subject to approval by relevant authorities.

India’s growing need for energy resources has made the country an attractive destination for foreign investors. The country’s energy consumption is expected to increase by more than 3% annually, outpacing the global average, and foreign investment in this sector is vital for sustaining growth. 

Multinational oil companies bring essential technology, financial strength, and managerial expertise, making it possible for India to explore new reserves and expand its refining capacity. However, foreign investment rules are also designed to mitigate risks such as the nationalization of assets, stringent regulations, and fluctuating tax regimes.

For foreign investors, entering the Indian hydrocarbon market often requires forming joint ventures with state-owned enterprises like ONGC or private sector players such as Reliance Industries. 

These partnerships allow international companies to navigate India’s complex regulatory landscape while tapping into significant opportunities. Foreign investment rules further regulate environmental compliance, taxation, and labour regulations, ensuring that foreign participation aligns with national objectives.

In India, the hydrocarbon sector offers several lucrative opportunities for foreign investors:

• New Exploration Zones:  India has untapped reserves in areas like the Krishna-Godavari and Rajasthan Basins, which present significant opportunities for new investments.
• Infrastructure Development: India’s demand for refining and transportation infrastructure, including pipelines and LNG terminals, has led to foreign involvement in building and upgrading such facilities.
• Energy Transition Projects: India’s push toward a green economy has opened doors for hybrid projects combining traditional hydrocarbons with renewable energy solutions, incentivized through government policies.

India has become a significant recipient of foreign investment in its hydrocarbon sector, driven by its substantial oil and natural gas reserves. The Foreign Investment Rules in India mandate compliance with the Foreign Direct Investment (FDI) policy, overseen by the Directorate General of Hydrocarbons (DGH) and the Ministry of Petroleum and Natural Gas. 

Under these regulations, foreign investors are required to obtain prior approval for investments in hydrocarbon exploration and production activities. This oversight ensures that foreign investments align with national interests and regulatory standards.

Several high-profile foreign investments highlight the attractiveness of India’s hydrocarbon sector:

• British Petroleum (BP): BP has invested heavily in India through its collaboration with Reliance Industries. This partnership has expanded into various segments, including retail gasoline distribution and aviation fuel marketing, reflecting BP’s strategic interest in the Indian market.
• Saudi Aramco: As one of the world’s largest oil companies, Saudi Aramco has made a notable investment in India’s downstream sector. The company’s joint venture with Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum aims to develop a $44 billion mega refinery and petrochemical complex on India’s west coast, underscoring Saudi Aramco’s commitment to expanding its footprint in India.
• Rosneft: In 2017, Rosneft, Russia’s state-controlled oil giant, acquired a 49% stake in Essar Oil, a prominent Indian private refiner, for $12.9 billion. This acquisition provided Rosneft access to Essar’s extensive refinery in Gujarat and its widespread network of fuel retail locations, enhancing its market presence in India.
• Shell: Shell has significantly invested in India’s liquefied natural gas (LNG) sector, operating an LNG import terminal at Hazira, Gujarat. This facility plays a crucial role in addressing India’s increasing energy demand and supports the country’s transition to cleaner energy sources.

These investments reflect India’s strategic importance in the global hydrocarbon market and the effectiveness of its Foreign Investment Rules in attracting substantial foreign capital.

The regulatory framework governing foreign investments in India’s hydrocarbon sector is multifaceted, involving a combination of local legislation, Foreign Investment Rules, and international agreements. 

Hydrocarbon resources in India are considered state-owned, and firms seeking to exploit these resources must negotiate extraction rights with the government. This is typically done through concession agreements, production-sharing agreements (PSAs), or service contracts, which are essential for securing the legal basis for exploration and production activities.

Foreign investment rules in India are designed to ensure that international investors comply with stringent requirements related to licensing, taxation, environmental protection, and operational standards. These regulations are enforced by various agencies, including the DGH and the Ministry of Petroleum and Natural Gas.

In India, foreign investments in hydrocarbons generally face several regulatory requirements:

• Licensing and Approvals: Foreign investors must obtain licenses and approvals for exploration and production activities, which involves detailed scrutiny by regulatory bodies to ensure compliance with national laws and policies.
• Environmental Regulations: Investment projects must adhere to strict environmental compliance standards. This includes conducting Environmental Impact Assessments (EIAs) to evaluate the potential environmental impacts of hydrocarbon projects and implementing mitigation strategies.
• Taxation and Financial Compliance: Foreign investors are subject to specific taxation rules and financial compliance requirements, which are designed to ensure transparency and adherence to Indian tax laws.

In contrast to India’s more open investment environment, other regions, such as the Middle East, often have stricter foreign investment policies, with significant control retained by state-owned enterprises. This difference highlights the need for foreign investors to navigate a complex array of regulations and agreements to effectively engage in the Indian hydrocarbon sector.

International treaties and agreements play a crucial role in shaping foreign investment rules for the hydrocarbon sector. In India, the Foreign Direct Investment (FDI) policy outlines specific conditions for foreign participation in hydrocarbon projects. 

Key to this policy is the New Exploration Licensing Policy (NELP), which was introduced by the Government of India in 1997 to foster a competitive environment for both public and private sector companies involved in hydrocarbon exploration and production.

NELP was designed to enhance domestic oil and gas production by attracting foreign and private investment. The policy encourages competition between National Oil Companies (NOCs) and private firms, aiming to stimulate technological advancements and efficient resource utilization. NELP has facilitated numerous investments by providing a transparent and competitive framework for awarding exploration and production contracts.

Key Aspects of NELP and Foreign Investment Rules:

• Competitive Bidding: NELP employs a transparent bidding process for awarding exploration blocks, allowing foreign investors to compete on equal terms with domestic companies.
• Revenue Sharing: Under NELP, production-sharing agreements (PSAs) are utilized, where investors share the production with the government based on agreed terms, promoting equitable resource distribution.
• Regulatory Oversight: The Directorate General of Hydrocarbons (DGH) plays a pivotal role in implementing NELP and overseeing compliance with regulatory standards.

The commitment to liberalizing the hydrocarbon sector is further reflected in India’s bilateral investment treaties (BITs) with various countries, which provide additional protections for foreign investors. These treaties typically include provisions for fair and equitable treatment, protection against expropriation, and mechanisms for resolving investment disputes.

Investing in the hydrocarbon sector presents significant opportunities, but it also comes with a set of complex challenges, especially for cross-border investments. For countries like India, which relies heavily on imported hydrocarbons, securing a stable and affordable energy supply is crucial for economic growth and development.

Key Challenges in Cross-Border Hydrocarbon Investments:

• Geopolitical Risks: Geopolitical instability in major hydrocarbon-producing regions can disrupt supply chains and affect global oil and gas prices. Events such as geopolitical tensions, conflicts, and sanctions can create uncertainties for foreign investors. For example, geopolitical unrest in the Middle East has historically impacted global hydrocarbon markets, including India’s energy imports.
• Supply Chain Vulnerabilities: The hydrocarbon supply chain is susceptible to disruptions from various factors, including natural disasters, political instability, and infrastructural limitations. Ensuring a reliable supply of hydrocarbons involves navigating these risks and establishing resilient supply chains.
• Regulatory and Legal Risks: Foreign investors must navigate diverse regulatory environments across different countries. Variations in local laws, regulatory frameworks, and investment conditions can pose challenges. For instance, India’s regulatory landscape, while open to foreign investment, requires compliance with a range of legal and environmental requirements that can be complex and evolving.
• Economic and Market Fluctuations: Fluctuations in global oil and gas prices can impact the profitability of hydrocarbon investments. Market volatility, driven by supply and demand dynamics, can affect investment returns and project feasibility. Recent economic downturns and price fluctuations have highlighted the need for investors to adopt risk management strategies.
• Energy Security Concerns: Energy security is a strategic priority for India, given its dependence on hydrocarbon imports to meet approximately three-fourths of its energy needs. The country’s efforts to enhance domestic production and diversify energy sources are essential to reducing reliance on imports and mitigating risks associated with energy security.

Despite these challenges, the hydrocarbon sector offers substantial opportunities for foreign investors, especially in regions with underdeveloped resources and growing energy demands. Strategic planning, risk management, and adherence to legal and regulatory requirements are critical for navigating the complexities of cross-border investments.

The hydrocarbon sector represents a vital area for international investment, offering both substantial opportunities and considerable challenges. For investors, understanding and navigating the Foreign Investment Rules and regulatory frameworks are essential to successfully engaging in the Indian hydrocarbon market.

As India continues to evolve its regulatory landscape and enhance its investment climate, the hydrocarbon sector will remain a dynamic and promising field for international investors. By leveraging the opportunities and mitigating risks, foreign investors can contribute significantly to India’s energy security and economic growth, while achieving substantial returns on their investments.

In conclusion, the interplay of strategic investment, regulatory adherence, and effective management of challenges will determine the success of foreign investments in India’s hydrocarbon sector. With the right approach, investors can navigate this complex landscape and capitalize on the vast potential offered by one of the world’s largest and fastest-growing energy markets.

India allows up to 100% FDI in key segments of the hydrocarbon sector, including exploration, refining and pipeline infrastructure. However, foreign investors need approval from regulatory bodies such as the Directorate General of Hydrocarbons (DGH) and the Ministry of Petroleum and Natural Gas to ensure compliance with national policies and environmental standards.

India offers multiple investment opportunities, such as exploration of untapped reserves in regions like the Krishna-Godavari Basin, development of critical infrastructure like LNG terminals and pipelines, and projects combining hydrocarbons with renewable energy, which are incentivized by government policies promoting a greener economy.

Leading global companies such as British Petroleum (BP), Saudi Aramco, Rosneft and Shell have made significant investments in India. BP has partnered with Reliance Industries, Saudi Aramco is developing a mega refinery, Rosneft holds a stake in Essar Oil, and Shell operates an LNG terminal, all aiming to capitalize on India’s growing energy market.

Foreign investors must obtain various approvals, including exploration and production licenses, from agencies like the DGH and the Ministry of Petroleum and Natural Gas. Additionally, environmental clearances and compliance with Indian tax and labor laws are required to ensure the projects align with national interests and regulatory standards.

Challenges include geopolitical risks, especially in volatile regions like the Middle East, supply chain disruptions, regulatory complexities and fluctuating global oil and gas prices. Investors also need to navigate India’s detailed legal and environmental regulations, which can complicate project timelines and costs.

On 25.09.2024, the Hon’ble Appellate Tribunal of Electricity (‘Hon’ble Tribunal’) pronounced the judgment in the matter between Adani Power Limited (formerly Udupi Power) (‘Adani Power’) and Punjab State Electricity Regulatory Commission (‘Punjab Commission’) wherein it was held that the approval of a Power Purchase Agreements (‘PPA’) by the Punjab Commission is not only a statutory requirement but also a condition precedent to the enforceability of the contract, irrespective of whether the same is not mentioned specifically in the PPA. While doing so, the Hon’ble Tribunal ruled in the favour of Punjab State Power Corporation Limited (‘PSPCL’) and observed that while the PPA continues to exist since it has not been terminated, however it cannot be acted upon/be enforceable until the same is approved by the State commission. The cases analyses the regulatory framework governing PPA in India, particularly under Section 86(1)(b) of the Electricity Act, 2003.

Adani Power entered into PPA dated 26.12.2005 with Karnataka Distribution Licensees for sale of 90% of the power generated from its 2 X 600 MW imported coal based power project in Udupi District, Karnataka and with PSPCL on 29.06.2006 for the remaining 10%. The two units of the Project were commissioned on 11.10.2010 and 19.08.2012. PSPCL had not entered into any Transmission Service Agreement for evacuation of power and the entire 1200 MW was being sold to the Karnataka Discoms. 

In 2015, PSPCL sought to opt out of the PPA. In response, Adani agreed to sell power to third parties for a period of three years without any financial implications to PSPCL. In 2018, PSPCL requested that Adani continue to sell power to third parties, but Adani refused.

Thereafter, PSPCL filed Petition No. 41 of 2018 before the Punjab Commission seeking approval of the PPA dated 29.09.2006. The contention of Adani was that the parties are bound to discharge their respective obligation under the PPA irrespective of the date of approval of the PPA and the lack of approval of the PPA by the Punjab Commission does not affect the validity of the PPA. On the other hand, PSPCL’s main contention was that PPA is a contingent contract and it cannot be enforced until approved by the Punjab Commission in terms of the Electricity Act, 2003 and the applicable Rules/Regulations and the settled law.

 The Punjab Commission vide its Order dated 07.08.2020, rejected Adani Power’s arguments in Petition No. 41 of 2018. It concluded that there was no necessity for PSPCL to procure power from Adani on a long-term basis, as doing so would not be economically viable. The Punjab Commission highlighted that cheaper power was available in the market, and approving the PPA would not be in the best interest of consumers in Punjab.

Adani Power asserted that the Punjab Commission’s decision that the PPA becomes effective only upon its approval is contrary to the settled position of law that parties are bound to discharge their respective obligations under the PPA, irrespective of approval of the same. That as per the settled position of law whenever a contracting party is obligated to obtain approval/permission to give effect to the agreement, the contract cannot be construed as being contingent upon such obligation being complied with. It was argued that Section 32 of Contract Act, 1872 applies only where the contract itself provides for the contingencies upon happening of which contract cannot be carried out and provides the consequences. 

PSPCL’s main contention revolved around the fact that PPA becomes enforceable only upon the approval of the Punjab Commission which cannot be waived by the parties to the PPA either expressly or by conduct.  PSPCL, also contended that the tariff order passed for Average Revenue Requirement (‘ARR’) and determination of tariff under the relevant Tariff Regulations, are distinct from the ‘Conduct of Business Regulations 2005’. Further, the information in respect of power procurement submitted by PSPCL in the ARR petition is considered only for the purpose of Energy balance and determination of cost of power for the relevant year, and therefore, it cannot be considered as approval of the power procurement on long term basis as intended in Section 86(1)(b) of the Electricity Act.

The Hon’ble Tribunal while appreciating the submissions of PSPCL held that the “We, therefore, reiterate the basic legal proposition that the approval of Power Purchase agreement by the State Commission is mandatory, condition precedent without which the PPA executed between a generating company and Distribution Licensee cannot become enforceable or effective. The rights and obligations under the PPA would flow only after it is approved or consented to by the State Commission.”

In addition to the above, the Hon’ble Tribunal, after examining the scope of Section 86(1)(b) of the Act, Rule 8 of the Electricity Rules, 2005, Power procurement Regulations notified by the State Commission and the decisions of the Hon’ble Supreme Court/Hon’ble Tribunal held that “Since the approval of the PPA by the State Commission is a mandatory statutory requirement under Section 86(1)(b) of the Electricity Act, 2003 before it would be enforceable, it logically follows that such a requirement cannot be waived off by any of the parties to the PPA. It is for the reason that there can be no waiver, either by conduct or expressly, on the part of any of the parties to the PPA to such statutory requirement. We may note that the basic object of the requirement of approval of PPA by the State Commission under Section 86(1)(b) of the Electricity Act, 2003 is to safeguard the public interest by ascertaining whether the projected need for power by the Distribution Licensee is genuine and the rate quoted in the PPA is reasonable as well as economical. Therefore, waiver of the requirement of approval of PPA by the State Commission would certainly go against the public interest and for that reason also, waiver is not permissible.”

The Hon’ble Tribunal delineated the role of the State Commission, namely that it for the Commission to determine whether the Distribution Licensee actually requires the power for supply to its consumers and whether the rate quoted in. the PPA is reasonable or in consonance with the market conditions. The Hon’ble Tribunal further concluded that the basic object of the PPA approval is to safeguard public interest.

The Hon’ble Tribunal further held that the provisional approval of projections in the Annual tariff Orders cannot be construed as approval of PPA which has to be done in accordance with the provisions of Section 86(1)(b) of the Electricity Act, 2003.

Thereafter, Hon’ble Tribunal rejected Adani Power’s argument regarding the delay by PSPCL in seeking approval of the PPA and held that although the PPA was signed in 2006, Adani Power did not sell any power to PSPCL until 2018. Instead, they sold all its power to Karnataka Discoms until 2015 and they continued to sell the power to third parties. This conduct indicates that the Adani Power was satisfied with this arrangement, possibly finding it commercially advantageous.

 The Hon’ble Tribunal noted that the PPA dated 29.09.2006 still exists as none of the parties terminated or proceeded to terminate the same and that ‘it cannot be acted upon till it is approved by the State Commission.’ 

Thus, the Hon’ble Tribunal upheld the Impugned Order and dismissed the Appeal holding that the same is devoid of any merits.

Therefore, the case of Adani Power Limited v. Punjab State Electricity Regulatory Commission and Ors. emphasizes the fundamental principle that the approval of a PPA by the State Commission is not only a statutory requirement but also a condition precedent to the enforceability of the contract. Both the Punjab Commission and the Hon’ble Tribunal have unequivocally held the view that, without this approval, the rights and obligations under the PPA cannot take effect. This case reinforces the need for strict compliance with regulatory approvals to uphold the integrity and fairness of power purchase agreements.

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When an employment relationship ends, Indian labour laws provide specific guidelines to ensure fair treatment of employees. Two of the most important components in this regard are severance pay and gratuity. 

While both payments may arise at the end of employment, they serve different legal purposes and are governed by separate legislative frameworks. This article will help employers understand the distinctions between severance pay and gratuity.

The primary distinction between severance pay and gratuity lies in their legal underpinnings. 

Severance pay is governed by the Industrial Disputes Act, 1947 (IDA), which addresses retrenchment, layoffs and certain forms of employee termination. Specifically, under Section 25F, employers are obligated to provide severance compensation to employees with at least one (1) year of continuous service. This compensation is calculated at 15 days of average pay for every completed year of service​.

On the other hand, gratuity is governed by the Payment of Gratuity Act, 1972, designed to reward long-term service. Eligibility for gratuity requires a minimum of five (5) years of continuous employment. Gratuity is calculated as 15 days of salary for each year of completed service, subject to a statutory ceiling, currently capped at ₹20 lakh​. Unlike severance, gratuity is payable upon retirement, resignation, or incapacitation of the employee.

Employers, especially those engaging large workforces, must ensure compliance with these laws to avoid potential legal pitfalls. Consulting an employment lawyer in Delhi can help you understand how these provisions apply to different employee categories and contract structures.

The purposes of severance pay and gratuity further highlight their distinctions. 

Severance pay serves as a compensatory tool meant to mitigate the financial impact of sudden job loss on employees due to termination, layoffs, or business closures. It aims to provide short-term financial relief, ensuring that employees can sustain themselves until they find alternative employment​. The provision of severance is often part of broader redundancy plans, such as corporate restructuring or downsizing.

Gratuity, however, is a long-term benefit that recognizes and rewards an employee’s loyalty and continuous service. It is not linked to termination due to layoffs or redundancy but is rather seen as a retirement benefit. Gratuity incentivizes employees to stay with a company long-term and is a statutory right that an employee earns after completing five years of continuous service​.

Employers should understand that these payments are not interchangeable. Failure to comply with either obligation can result in legal disputes, where an employment lawyer in Delhi can assist in mitigating risks and ensuring adherence to statutory requirements.

The eligibility criteria for severance pay and gratuity vary significantly. 

Under the Industrial Disputes Act, 1947, severance pay applies to “workmen” who have completed at least one year of continuous service. The definition of “workmen” excludes managerial and supervisory employees, limiting the scope of individuals entitled to severance under the Act. However, severance pay can also be offered contractually to non-workmen, including executives and managers, as part of negotiated employment terms or company policy​.

Gratuity, on the other hand, under the Payment of Gratuity Act, 1972, applies to all employees (both workmen and non-workmen) who have completed a minimum of five years of continuous service with their employer. Exceptions to the five-year rule are made in cases of death or disability, in which gratuity is payable to the employee or their nominee, regardless of service length​.

This difference in eligibility criteria makes it essential for employers to consult with an employment lawyer in Delhi to assess their obligations based on the type of employee and circumstances of termination.

The methods for calculating severance pay and gratuity are distinct and are based on different criteria. 

Severance pay is typically calculated under Section 25F of the Industrial Disputes Act, 1947, which mandates that an employee who has completed at least one year of service is entitled to 15 days of average pay for each completed year of service. This calculation is simple and primarily depends on the employee’s last drawn salary and the number of years worked. Severance pay might also include additional components such as payment for unused leave, medical benefits, or other contractual perks​.

Gratuity, as governed by the Payment of Gratuity Act, 1972, follows a statutory formula:

Gratuity= 15/26 × Last drawn salary × Years of service

In this formula, 15 represents the days of pay for each completed year, 26 is the number of working days in a month, and the years of service are rounded up to the nearest completed year. Gratuity is capped at ₹20 lakh, although employers may choose to offer more under voluntary schemes​.

Employers must ensure accurate calculations in compliance with legal standards to avoid disputes, with an employment lawyer in Delhi providing expert guidance on complex cases involving high-level employees or non-standard contracts.

Another critical distinction between severance pay and gratuity lies in their tax treatment under Indian law. 

For severance pay, the compensation is typically treated as a part of the employee’s income and is thus subject to taxation under the applicable slabs of the Income Tax Act, 1961. There are no specific exemptions for severance pay, which means it could be taxed at the employee’s prevailing tax rate​.

In contrast, gratuity enjoys preferential tax treatment. Under Section 10(10) of the Income Tax Act, gratuity up to ₹20 lakh is tax-exempt for employees covered by the Payment of Gratuity Act, 1972. For those not covered, the exemption is limited to the least of the actual gratuity received, ₹20 lakh, or half of the monthly salary multiplied by the number of years of service. Any gratuity amount exceeding this threshold will be subject to taxation​.

The distinctions between severance pay and gratuity are not merely academic; they embody critical legal obligations that Indian employers must navigate with precision. 

Severance pay, dictated by the Industrial Disputes Act, 1947, serves as a crucial safety net for employees facing involuntary job loss, while gratuity, governed by the Payment of Gratuity Act, 1972, rewards loyalty and long-term service. 

Employers must recognize that these two payments are governed by different eligibility criteria, calculation methods, and tax implications. Failure to comply with either obligation could lead to significant legal repercussions, not to mention the potential erosion of employee trust and morale. 

Therefore, it is imperative for employers to seek expert legal counsel to ensure compliance with these statutory requirements and to craft policies that reflect a commitment to fair employment practices.

Severance pay is compensation given to employees when they are terminated due to retrenchment, layoffs or business closure under the Industrial Disputes Act, 1947. Gratuity, governed by the Payment of Gratuity Act, 1972, is a long-term benefit awarded to employees for loyalty and continuous service, payable on resignation, retirement or incapacitation.

Employees eligible for severance pay must have completed at least one year of continuous service and fall under the category of “workmen” as defined by the Industrial Disputes Act, 1947. Gratuity applies to all employees (both workmen and non-workmen) who have completed five years of continuous service, except in cases of death or disability.

Severance pay is calculated as 15 days of average pay for each completed year of service, under the Industrial Disputes Act. Gratuity is calculated using the formula: Gratuity = 15/26 × Last drawn salary × Years of service, and is capped at ₹20 lakh under the Payment of Gratuity Act.

Yes, while severance pay is mandatory only for “workmen” under the Industrial Disputes Act, employers may offer it contractually to managers and executives. Similarly, employers can choose to provide gratuity beyond the statutory requirements, even though the law mandates it only for employees with five years of service.

No, severance pay is not mandatory for all terminations. It is required only in cases of retrenchment, layoffs, or business closures for “workmen” under the Industrial Disputes Act, 1947. It is not applicable in cases of voluntary resignations or terminations due to employee misconduct.

In the contemporary employment landscape, the termination of employment can often lead to disputes, particularly when it is perceived to contravene legal standards or contractual obligations. “Wrongful termination” is a legal concept denoting the dismissal of an employee that breaches employment laws or violates contractual terms. 

Such terminations can occur in contravention of statutory protections or contractual commitments, rendering them unlawful. For employees facing such disputes, enlisting a qualified attorney for wrongful termination is essential to navigate the intricacies of the legal framework and to seek redress.

Legal Definitions

Wrongful termination refers to the dismissal of an employee in violation of statutory provisions or contractual agreements. The Indian legal framework surrounding wrongful termination is primarily governed by the following:

A. Employment Contracts: Under Indian law, employment is typically governed by the terms of the employment contract. A dismissal that contravenes these terms or lacks due process as specified in the contract constitutes wrongful termination. 

An employer’s failure to adhere to the notice period or other contractual stipulations can lead to a claim for wrongful dismissal.

B. Statutory Protections: Various Indian statutes provide protections against wrongful termination. Key regulations include:

• Industrial Disputes Act, 1947: This Act provides protection against arbitrary dismissal of employees in industrial establishments. Section 2(oo) defines “retrenchment” and mandates that employers must provide reasonable notice or compensation before termination.
• The Payment of Gratuity Act, 1972: This Act ensures that employees who have completed five years of continuous service are entitled to gratuity. Termination without proper settlement of dues, including gratuity, can be contested.
• The Shops and Establishments Act: This state-specific Act regulates the conditions of employment in shops and commercial establishments, including termination procedures and employee rights.

C. Public Policy Exceptions: Dismissal that violates public policy is considered wrongful termination. For instance, terminating an employee for exercising their rights under the Maternity Benefit Act, 1961 or for participating in a trade union is unlawful.

• Discriminatory Termination: Termination based on grounds such as caste, religion, gender, disability, or sexual orientation is deemed wrongful termination under the Indian Constitution and statutes like the Equal Remuneration Act, 1976. Section 15 of the Constitution of India prohibits discrimination in employment.
• Retaliatory Termination: Employees who face termination for engaging in activities protected by law, such as filing complaints about workplace harassment or reporting safety violations, may claim wrongful termination. This includes retaliation for asserting rights under the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013.
• Breach of Contract: Wrongful termination can occur when an employer terminates an employee in breach of a specific employment contract or without adhering to contractual notice periods. The Indian Contract Act, 1872 outlines the principles of contract formation and breach, which apply to employment contracts.
• Constructive Dismissal: Under this concept, if an employer’s actions create an intolerable work environment that compels the employee to resign, it may be considered wrongful termination. This is based on the premise that the resignation is not voluntary but a result of the employer’s conduct.
• Violation of Public Policy: Terminations that contravene public policy are deemed wrongful. For example, terminating an employee for participating in legal strike actions or for availing statutory benefits, such as leave under the Employees’ State Insurance Act, 1948, can be contested as wrongful.

In India, engaging a proficient attorney for wrongful termination is crucial to navigating these complex legal definitions and types. Legal representation ensures that claims are pursued effectively and in accordance with the relevant statutory and contractual provisions.

Available Remedies

Reinstatement: One of the primary remedies for wrongful termination under the Industrial Disputes Act, 1947 is reinstatement. 

This remedy requires the employer to reinstate the employee to their former position if the termination is found to be unlawful. Reinstatement may include back pay for the period of unemployment, though it is subject to the discretion of the court or tribunal.

Compensation: In cases where reinstatement is not feasible or appropriate, compensation for lost wages and benefits is a common remedy. 

This includes compensation for the period of unemployment and any consequential losses suffered due to the termination. Compensation amounts are determined based on factors such as the employee’s length of service, the nature of the dismissal, and the losses incurred.

Back Pay: Back pay refers to the wages that the employee would have earned had they not been wrongfully terminated. This includes salary, bonuses, and any other monetary benefits that would have been received during the period of unemployment.

Punitive Damages: Although less common in employment disputes in India, punitive damages may be awarded in exceptional cases where the employer’s conduct is found to be particularly egregious or malicious. These damages are intended to punish the employer and deter similar conduct in the future.

Injunctive Relief: In some cases, courts may grant injunctive relief to prevent further unlawful actions by the employer. 

For example, an injunction may be issued to prevent the employer from continuing discriminatory practices or to ensure compliance with statutory obligations.

Calculation of Damages

Lost Wages: The calculation of damages typically includes the total wages lost from the date of termination until the date of resolution of the dispute. This may also include future wages if the wrongful termination has caused long-term damage to the employee’s career prospects.

Emotional Distress: While Indian labour laws do not explicitly provide for compensation for emotional distress, courts may consider the impact of the wrongful termination on the employee’s mental health and well-being when determining the amount of compensation.

Enforcement of Awards

Execution of Orders: Once a court or tribunal issues an award or judgment, the employee must take steps to enforce the order if the employer fails to comply voluntarily. This may involve filing an execution petition to compel the employer to adhere to the court’s decision.

Appeals and Further Proceedings: In the event that the employer challenges the award or judgment, the case may proceed to higher courts. Employees must be prepared for potential appeals and additional legal proceedings, which can affect the final outcome and timing of the remedy.

Engaging a competent attorney for wrongful termination is crucial in ensuring that remedies and damages are effectively pursued and enforced. Legal representation helps navigate the complexities of labor laws, secure appropriate compensation, and ensure compliance with judicial orders.

Legal Costs: Employees may be entitled to recover legal costs incurred in pursuing the wrongful termination claim. This includes attorney fees and other litigation-related expenses. However, recovery of legal costs is not automatic and is subject to the discretion of the court or tribunal.

Conclusion

The legal landscape for wrongful termination in India underscores the importance of protecting employee rights and ensuring fair treatment in the workplace. By understanding the legal definitions, processes, and remedies available, employees and employers can better navigate disputes and uphold legal and contractual obligations. 

Seeking the assistance of a knowledgeable attorney for wrongful termination is crucial for achieving a just resolution and safeguarding one’s rights under the law.

Wrongful termination occurs when an employee is dismissed in violation of statutory provisions, employment contracts or public policy. This includes dismissals that contravene the terms of the employment contract, statutory protections under laws like the Industrial Disputes Act, 1947, or discriminatory or retaliatory dismissals.

Wrongful termination can include discriminatory termination (based on caste, gender, religion, etc.), retaliatory termination (for asserting legal rights), breach of employment contract, constructive dismissal (when an employer creates a hostile work environment) and violation of public policy.

Remedies for wrongful termination in India include reinstatement to the previous position, compensation for lost wages and benefits, back pay and in exceptional cases, punitive damages. Courts may also grant injunctive relief to prevent further unlawful actions by the employer.

Compensation is typically based on lost wages from the date of termination to the resolution of the dispute, including bonuses and other benefits. In some cases, compensation may also account for long-term damage to the employee’s career prospects or emotional distress, though emotional distress awards are less common.

A qualified lawyer can help employees navigate the legal framework, ensure compliance with contractual and statutory provisions, pursue remedies like compensation or reinstatement and enforce judicial orders. Legal representation is essential for effectively managing wrongful termination disputes and securing a fair outcome.

Investing in startups in India has emerged as a great opportunity, attracting domestic and international investors eager to tap into the country’s dynamic entrepreneurial landscape. However, while the potential returns are attractive, the complexities of navigating the legal framework can be daunting. Understanding the nuances of investment regulations, compliance requirements, and due diligence processes is crucial for anyone looking to invest in startups in India.

When considering to invest in startups in India, it is essential to seek startup investment legal advice from seasoned professionals who specialize in this field. Investment lawyers in India can guide you through the intricate process, from drafting agreements to ensuring regulatory compliance. Their expertise helps mitigate risks and maximize returns, offering peace of mind as you embark on your investment journey.

Startups often operate in emerging sectors with innovative products or services, offering a chance for high growth and profitability. For instance, tech startups in India have been at the forefront of creating disruptive technologies, drawing considerable interest from venture capitalists, angel investors and institutional funds. To successfully invest in startups in India, it’s crucial to navigate the complex regulatory landscape and conduct thorough due diligence.

Yet, while the rewards can be significant, the risks cannot be overlooked. Startups are inherently unpredictable, and without proper legal safeguards, investors may face challenges that can destroy their returns. This is why startup investment legal advice is crucial for anyone looking to invest in startups in India. Understanding the legal landscape helps protect your capital and ensures compliance with local regulations for investors to invest in startups in India. Investing in startups in India offers significant growth potential, driven by a vibrant entrepreneurial ecosystem and supportive government policies. 

There are various modes through which one can invest in startups in India. Each mode has its legal implications, which investors must carefully consider.

Direct investment typically involves acquiring equity in a startup. Investors can purchase common shares, preferred shares, or opt for convertible notes. Equity investments give investors ownership in the company, with the potential for profits as the startup grows.

• Common Shares: These represent basic ownership in a company, giving shareholders voting rights but placing them last in line for dividends.
• Preferred Shares: Preferred shareholders have priority over common shareholders in dividend payments and asset distribution during liquidation but generally do not have voting rights.
• Convertible Notes: These are debt instruments that convert into equity at a later stage, often during a future financing round. They are beneficial for startups that need funding but are not ready to set a valuation.

Seeking legal services for startup investors is highly recommended to navigate these complex agreements.

Venture capital (VC) and angel investing are traditional modes to invest  in startups in India.  VCs are typically institutional investors that provide capital to startups in exchange for equity, often coupled with strategic guidance. Angel investors, on the other hand, are high-net-worth individuals who invest their own money in startups, usually in the early stages.

These investment modes require careful legal consideration. Investment lawyers in India play a pivotal role in negotiating terms, conducting due diligence, and ensuring that all regulatory requirements are met. The Foreign Exchange Management Act (FEMA) and Securities and Exchange Board of India (SEBI) regulations govern these investments, particularly for foreign investors.

Crowdfunding is a relatively new method to invest in startups in India. It involves pooling small amounts of money from a large number of people, typically via online platforms, to fund a startup. While this mode of investment democratizes access to startup funding, it also comes with unique legal challenges.

Regulatory bodies like SEBI are still in the process of developing comprehensive guidelines for crowdfunding. As an investor, it’s essential to be aware of the potential risks, including fraud and the lack of liquidity. Engaging with legal services for startup investors can help mitigate these risks by ensuring that the crowdfunding platform complies with Indian laws.

The Indian government has introduced several initiatives to boost startup funding, such as the SIDBI Fund of Funds Scheme. This scheme provides equity funding support for MSMEs through VC funds. Institutional investors, including banks and financial institutions, also play a significant role to invest in startups in India.

These government schemes and institutional funds are subject to stringent regulatory oversight. For investors, understanding the legal framework governing these funds is crucial. Consulting with investment lawyers in India can provide the necessary guidance on compliance and documentation.

Before you invest in startups in India, it’s imperative to understand the legal landscape to protect your investment.

Investing in startups in India is subject to a comprehensive regulatory framework designed to ensure transparency, protect investor interests, and promote fair business practices. The key regulations governing investors to invest in startups in India and startup investments include the Foreign Exchange Management Act (FEMA), the Securities and Exchange Board of India (SEBI) regulations, and the Companies Act, 2013. Each of these plays a crucial role in shaping the investment landscape.

FEMA governs cross-border transactions, including investments into India by foreign entities or individuals. It aims to facilitate external trade and payments while maintaining the foreign exchange market in India. Under FEMA, specific regulations apply to different types of investors and investments:

• Foreign Direct Investment (FDI): FEMA outlines the permissible routes for FDI, which are either the automatic route (where no prior government approval is required) or the government route (which requires approval from relevant authorities).
• Venture Capital Funds (VCFs): VCFs with foreign funding must comply with FEMA regulations, ensuring that the source of funds and the repatriation of returns conform to Indian laws.
• Non-Resident Indians (NRIs): Special provisions allow NRIs to invest in Indian startups, subject to FEMA’s guidelines on repatriation and investment limits.

SEBI is the primary regulator for India’s securities market. It ensures that the capital markets operate in a fair and transparent manner, which is critical for maintaining investor confidence and making them invest in startups in India. For startups, SEBI’s role is particularly relevant in the following areas:

• Alternative Investment Funds (AIFs): SEBI regulates AIFs, which are pooled investment funds that cater to investors wishing to invest in startups or early-stage ventures. AIFs are categorized into different types, each subject to specific regulations concerning investor eligibility, investment limits, and reporting requirements.
• Angel Investors and Venture Capital: SEBI has specific guidelines for angel funds, a sub-category of AIFs, which often provide early-stage funding to startups. These regulations include minimum investment thresholds, investor qualifications, and lock-in periods for investments.
• Initial Public Offerings (IPOs): For startups considering going public, SEBI regulations govern the process of IPOs, ensuring that startups meet the necessary disclosure and compliance requirements before listing on stock exchanges.

The Companies Act, 2013 is the cornerstone of corporate governance in India. It sets out the legal framework for the incorporation, governance, and operation of companies in India. For startups, the Act provides:

• Incorporation Requirements: The Act prescribes the process for incorporating a company, including the need for a minimum number of directors and shareholders, the filing of incorporation documents, and the establishment of a registered office.
• Corporate Governance: Startups must adhere to the governance norms stipulated by the Act, which include the appointment of directors, holding of board and shareholder meetings, and maintenance of statutory records.

Compliance Obligations: The Act mandates various compliance requirements, such as the annual filing of financial statements, tax returns, and other statutory reports. Non-compliance can lead to penalties and legal consequences.

Investing in startups in India offers immense potential for high returns, but it also comes with significant risks. The key to mitigating these risks lies in thorough legal due diligence. Understanding the regulatory framework and properly structuring the investment are all critical steps in safeguarding your capital. Before you invest in startups in India, it is strongly recommended to seek startup investment legal advice. By doing so, you can ensure that your investment is secure, legally compliant, and positioned for success in one of the world’s most dynamic startup ecosystems.

Legal due diligence is crucial before you invest in startups in India to identify potential risks and ensure compliance with regulations. It helps investors verify the startup’s legal standing, intellectual property rights, and contractual obligations. Engaging in startup investment legal advice safeguards your investment and minimizes potential legal challenges.

Foreign investors navigate the regulatory environment when they invest in startups in India by adhering to FEMA guidelines and SEBI regulations. Engaging investment lawyers in India ensures compliance with these laws, helps structure investments legally, and provides startup investment legal advice to mitigate risks and secure their investments in the Indian market.

When you invest in startups in India, tax implications include capital gains tax on profits from equity investments. Short-term gains are taxed at higher rates, while long-term gains enjoy favourable rates.

Investors in Indian startups can consider various exit strategies, such as initial public offerings (IPOs), mergers and acquisitions (M&As), or secondary sales. Each strategy offers different benefits and tax implications. Seeking startup investment legal advice ensures that exit terms are favorable and legally sound, protecting investors’ interests.

Investors can protect their intellectual property rights by ensuring that startups have robust IP protections in place. This includes reviewing patents, trademarks, and copyrights. Engaging legal services for startup investors ensures proper IP due diligence, safeguarding valuable innovations and securing the investment against potential legal disputes.

The dispute between Powergrid Southern Interconnector Transmission System Limited (PSITSL) and the Central Electricity Regulatory Commission (CERC) is a significant case in the domain of energy infrastructure and regulatory oversight in India. The appeal, numbered 194 of 2022, was adjudicated by the Appellate Tribunal for Electricity with a judgment delivered on 12th August 2024. This case primarily revolved around the interpretation of Force Majeure and Change in Law clauses in the context of delays and additional costs in large-scale transmission projects.

Background of the Case

PSITSL, a fully owned subsidiary of Power Grid Corporation of India Limited (PGCIL), was incorporated as a Special Purpose Vehicle (SPV) to develop the “Strengthening of Transmission System beyond Vemagiri” project. This project, critical for ensuring reliable power supply across southern India, was awarded to PGCIL under the Tariff Based Competitive Bidding route. Following the award, PGCIL acquired 100% shareholding in PSITSL and assumed responsibility for the project’s completion.

The dispute arose when PSITSL filed a petition with CERC under Section 63 read with Section 79 of the Electricity Act, 2003, seeking relief for delays in project execution caused by what they claimed were Force Majeure events and Change in Law circumstances. PSITSL argued that these unforeseen events significantly impacted their ability to meet the Scheduled Commercial Operation Date (SCOD), resulting in financial losses that they sought to recover.

Key Facts and Figures

• Petitioner: Powergrid Southern Interconnector Transmission System Limited (PSITSL)
• Respondent: Central Electricity Regulatory Commission (CERC)
• Date of Judgment: 12th August 2024
• Judges: Hon’ble Mr. Sandesh Kumar Sharma (Technical Member) and Hon’ble Mr. Virender Bhat (Judicial Member)
• Project Value Involved: Rs. 488.40 crore (as claimed by the petitioner for cost overruns)
• Relief Sought: Time extension of 289 days and an increase in the adopted annual non-escalable charges by 7.75%

Legal Arguments

Force Majeure Claims

PSITSL cited multiple events as Force Majeure, including severe right-of-way (ROW) issues, general elections, heavy rainfall, demonetization, and wildlife clearances. These, they argued, were beyond their control and had directly contributed to delays in project execution. A detailed breakdown of the delays and the reasons cited were provided to the tribunal, highlighting the challenges faced, particularly in the Krishna District of Andhra Pradesh, where local unrest and law and order issues severely impacted construction activities.

Change in Law Arguments

The Change in Law claims were centered around several regulatory changes that occurred after the project’s initiation, such as the introduction of the Goods and Services Tax (GST) and revised policies on land compensation by the state governments of Andhra Pradesh and Karnataka. PSITSL argued that these changes led to a significant increase in project costs, which they were entitled to recover under the Transmission Service Agreement (TSA).

CERC’s Position

The CERC rejected PSITSL’s petition, declining to recognize the delays as Force Majeure events and denying the requested time extensions and cost recoveries. CERC argued that the petitioner should have anticipated and mitigated the risks associated with the ROW issues and other delays, which were foreseeable and manageable through prudent utility practices.

Conclusion

The tribunal, led by Hon’ble Mr. Virender Bhat (Judicial Member), undertook a meticulous examination of the facts, legal provisions, and precedents. The tribunal acknowledged the complexity of the project and the challenges faced by PSITSL. However, it also emphasized the need for stringent adherence to contractual obligations and the importance of risk management in large infrastructure projects.

In its judgement, the tribunal partially agreed with PSITSL’s claims, recognizing that some of the Force Majeure events, particularly the ROW issues in Krishna District, were indeed beyond the petitioner’s control. The tribunal noted that these issues were severe enough to constitute Force Majeure under the TSA.

What are the compliance requirements for setting up a company in India? Understanding the compliance requirements for setting up a company in India is crucial for entrepreneurs and businesses looking to establish a foothold in one of the world’s fastest-growing economies. When you setup a company in India, it involves a series of legal formalities, including registration, obtaining licenses, and adhering to tax regulations.

Ensuring compliance is not just about meeting legal obligations; it is integral to maintaining operational efficiency and avoiding potential legal issues. Companies that adhere to compliance norms foster trust among investors and clients, which is crucial for long-term success. From obtaining a Director Identification Number (DIN) to registering with the Goods and Services Tax (GST), the steps to establish a company in India are governed by strict regulatory frameworks to ensure transparency and accountability.

Choosing the right business structure is a critical decision for any entrepreneur because it helps the entrepreneur to setup company in India. Company setup in India choice influences various aspects of your business, including liability, taxation and operational flexibility.

One of the most popular business structures in India, offering limited liability to its shareholders.

Key Features:

• Minimum of 2 and a maximum of 200 members.
• Shareholder’s liability is limited to their share capital.
• Cannot publicly trade shares.
• Requires at least two directors.

It combines the benefits of a partnership with those of limited liability.

Key Features:

• Minimum of two partners, with no upper limit.
• Limited liability protection to partners.
• Less compliance compared to a Private Limited Company.
• Separate legal entity from its partners.

It Offers shares to the general public and is suitable for large businesses seeking significant capital.

Key Features:

• Minimum of 7 shareholders, with no maximum limit.
• Shares can be freely traded on the stock exchange.
• Requires at least three directors.
• Subject to rigorous compliance and disclosure norms.

It is the simplest form of business structure, owned and managed by a single individual.

Key Features:

• Single owner with full control over business decisions.
• No separate legal entity from the owner.
• Unlimited liability for business debts.
• Minimal regulatory compliance.

An OPC is new concept introduced to support entrepreneurs who own a business individually, providing the benefits of limited liability without the need for multiple shareholders.

Key Features:

• Only one shareholder is allowed, who is the sole director and owner of the company.
• The owner’s liability is limited to the extent of their share in the company.
• It is recognized as a separate legal entity.
• No minimum paid-up capital is required to form an OPC.

A partnership firm is a type of business entity where two or more individuals, called partners, come together to operate a business and share its profits and losses.

Key Features:

• Formed through a partnership deed, outlining the roles, responsibilities, and profit-sharing ratio among partners.
• Partners have unlimited liability, meaning personal assets can be used to cover business debts.
• The firm and its partners are considered one and the same in the eyes of the law.
• Simple to establish with minimal regulatory requirements compared to incorporated entities.

The incorporation process involves legally forming a new company or business entity, which typically includes filing necessary documents with the relevant government authorities. This grants the business a separate legal identity from its owners, providing liability protection and other benefits.

It is required for digitally signing the forms submitted to the MCA. The process of obtaining is to apply to a certified DSC issuing authority, such as eMudhra or Sify.

Every director of the company must have a unique identification number. The process of obtaining is to apply for DIN using Form DIR-3 on the MCA portal, submitting proof of identity and address.

Ensures the proposed company name is unique and not already in use. The process of obtaining is to submit the proposed names through the RUN (Reserve Unique Name) service on the MCA portal. The MCA will review and approve the name if it meets all guidelines.

It is the method of Drafting and submission of essential documents to incorporate the company documents required are- 

• Memorandum of Association (MOA): Defines the company’s constitution and scope of activities.
• Articles of Association (AOA): Lays down the internal rules and regulations of the company.
• Form INC-9: Declaration by subscribers and directors.
• Form DIR-2: Consent from the directors.
• Proof of Registered Office Address: Utility bill, rent agreement, or sale deed.
• Proof of Identity and Address for Subscribers and Directors: Aadhaar, passport, voter ID, etc.

Purpose of obtaining the certificate of incorporation is official confirmation of the company’s incorporation. It is issued by the Registrar of Companies (ROC) after verifying all submitted documents and details.

Annual compliance requirements are the mandatory obligations a company must fulfill each year after a company setup in India to remain in good standing with regulatory authorities. These typically include filing annual reports, financial statements, and paying any required fees or taxes.

Once you have completed the compliance requirements for setting up a company in India, maintaining compliance through annual filings is crucial. One of the key requirements is the filing of annual returns using Form MGT-7. Form MGT-7 must be filed within 60 days from the date of the Annual General Meeting (AGM). It includes details about the company’s directors, shareholders, changes in directorship, and other significant corporate changes during the year.

Another essential part of annual compliance for companies is submitting financial statements. This is done using Form AOC-4. Form AOC-4 must be filed within 30 days from the date of the AGM. It includes the company’s balance sheet, profit and loss account, cash flow statement, and auditor’s report.

Conducting an Annual General Meeting is a statutory requirement for every company to ensure shareholders are informed and involved in critical company decisions. The AGM must be held within six months from the end of the financial year, with a maximum gap of 15 months between two AGMs. It typically includes approval of financial statements, declaration of dividends, appointment/reappointment of directors and appointment of auditors.

The maintenance of statutory registers involves keeping accurate and up-to-date records of a company’s key details, such as its shareholders, directors and financial transactions. These registers are crucial for legal compliance, transparency and corporate governance to establish company in India.

• Register of Members: Contains details of all shareholders, including their names, addresses, shareholding,and changes therein.

• Register of Directors and Key Managerial Personnel: Records details of the company’s directors, including their names, addresses, directorships held in other companies, and changes thereto.

• Register of Charges: Documents details of any charges created on the company’s assets, such as mortgages or loans secured against company property.

• Register of Loans, Guarantees, Security, and Investments: Maintains records of loans given, guarantees provided, securities offered, and investments made by the company.

• Minutes Book: Records the minutes of all meetings of the board of directors, shareholders, and committees, detailing the decisions made and resolutions passed.

Director disclosures are crucial for maintaining transparency and adhering to compliance requirements for setting up a company in India. 

• Form MBP-1 (Declaration of Interest): Directors must declare their interest in other companies and entities, including any related party transactions. This declaration must be submitted at the time of appointment and updated whenever there is a change in interest. Information about the director’s shareholding, directorships, and other interests that might conflict with their role in the company.
• Form DIR-8 (Declaration of Non-Disqualification): Directors must declare that they are not disqualified from being appointed as directors under the provisions of the Companies Act, 2013. This declaration should be provided at the time of appointment and annually thereafter. Confirmation that the director meets all qualifications and is not barred from holding directorship under any statutory provisions.

The appointment of auditors is a critical component of the compliance requirements for setting up a company in India. An auditor must be appointed within 30 days from the date of the company’s incorporation. The appointment is made by the Board of Directors at the first Annual General Meeting (AGM). File Form ADT-1 with the Registrar of Companies (ROC) within 30 days of the appointment. This form includes details of the appointed auditor, such as name, address, and their professional qualifications. Auditors are typically appointed for a term of five years, with the possibility of reappointment.

The auditor’s report should provide an opinion on whether the company’s financial statements give a true and fair view of its financial position and performance, in compliance with ICAI auditing standards and the Companies Act, 2013. All material information should be disclosed in the financial statements and any discrepancies or issues identified during the audit must be reported. The auditor’s report must be submitted to the ROC in Form AOC-4 along with the financial statements, ensuring compliance with filing deadlines to avoid penalties.

Adhering to the compliance requirements for setting up a company in India is essential for ensuring legal, operational efficiency and to establish company in India. This involves selecting the appropriate business structure, completing the incorporation process, fulfilling annual compliance obligations, maintaining statutory registers and managing auditor appointments. Staying updated with regulatory changes is crucial as laws and guidelines evolve, affecting how businesses operate. To navigate these complexities effectively and ensure compliance, it is advisable to seek professional assistance, which can provide expert guidance and mitigate risks associated with non-compliance.

The key compliance requirements for setting up a company in India include selecting the appropriate business structure, obtaining a Digital Signature Certificate (DSC) and Director Identification Number (DIN), registering the company name, filing incorporation documents with the Registrar of Companies (ROC), and obtaining a Certificate of Incorporation. Additionally, companies must comply with statutory requirements such as appointing auditors, maintaining statutory registers, and adhering to tax and labor laws for proper company setup in India. 

To incorporate a company in India, the essential documents include the Memorandum of Association (MOA), Articles of Association (AOA), proof of identity and address of directors (such as PAN and Aadhar cards), proof of registered office address, and the subscription sheet with details of shareholders. Additionally, a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the proposed directors are required. Adhering to requirements will lead to easy company setup in India. 

Annual returns, filed using Form MGT-7, must be submitted within 60 days from the date of the Annual General Meeting (AGM). Financial statements, submitted using Form AOC-4, must be filed within 30 days from the date of the AGM. Adherence to these timelines ensures compliance with the compliance requirements for setting up a company in India.

Companies in India are required to obtain several mandatory tax registrations, including Goods and Services Tax (GST) registration if their turnover exceeds the threshold limit, Permanent Account Number (PAN), and Tax Deducted at Source (TDS) registration.

Compliance with employment laws in India involves maintaining proper employee contracts, adhering to minimum wage regulations and registering with the Provident Fund (PF) and Employee State Insurance (ESI) authorities. Companies must also comply with labour laws, including those related to working conditions, safety and gratuity payments.

The Appellate Tribunal for Electricity in an important and far-reaching judgement has upheld and continued the practices of reallocation of bays at substations considering the vicinity/complex approach adopted by Central Transmission Utility of India Limited (CTU), until the Central Electricity Regulatory Commission (CERC) notifies the Regulation governing the field.

The issue involved related to the methodology and principles adopted by CTUIL on the aspects of how the reallocation of bays in a substation, which has become available on account of surrender/revocation by Grantees to existing Grantees of other substations or new applicants for connectivity adopting vicinity/Complex approach.

The above issue involved the interpretation of Regulations, namely, CERC (Grant of Connectivity, Long Term Access and Medium Term Access in Inter-State Transmission and Related Matters) 2009 [Connectivity Regulations] and CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022 [GNA Regulations] and the Detailed Procedure notified thereunder.

The Appeals filed by CTU and another Generator, namely, Project Nine Renewables challenged the order dated 19.01.2024 passed by CERC. The order dated 19.01.2024 was passed by CERC on Petitions filed by Generators- Eden Renewables seeking directions to be issued to CTUI for shifting of connectivity of their 300 MW Solar Power Project each from Fatehgarh-II Pooling Sub-Station (‘Fatehgarh-II PS’) to Fatehgarh-III Pooling Sub-Station (‘Fatehgarh-III PS’) or Bhadla II Pooling Sub-Station (‘Bhadla-II PS’) on account of the situation faced by Eden Bercy & Eden Passy regarding the requirement of underground dedicated transmission line from its Solar Power Projects to Fatehgarh II PS.

By order dated 19.01.2024, CERC held as under:

• CTU to stop the exercise of reallocation of bays holding that the re-allocation of bays was based on a criteria adopted on a case-to-case basis in a non-transparent and non-uniform basis;
• Issued the Practice Directions on which the reallocation exercise be conducted henceforth until appropriate amendments to the Regulations are issued;
• Reallocation carried out pursuant to minutes of meeting for reallocation meetings held on 20.06.2023 and 03.08.2023 or any subsequent reallocation meeting held for substations in Rajasthan be reconsidered in light of our observations

The Appellate Tribunal after critically analyzing the contentions of relevant parties including CERC set aside the order dated 19.01.2024 passed by CERC and directed that till the Regulations are amended, the existing practice of reallocation considering vicinity/complex approach adopted by CTU shall continue.

As regards the finding that CTU adopted a non-transparent approach in the reallocation exercise, the Appellate Tribunal held that the reallocation meetings were held in consultation with various other important stakeholders responsible for planning, development and operation of the electricity system, optimal utilization of resources including the development of renewable energy sources like CEA, SECI, Grid Controller of India, respective Load dispatch centres and therefore, the findings of non-transparent approach cannot be sustained. The Appellate Tribunal, however, agreed with the views of CERC regarding non-transparency as far as disclosure of procedure, Agenda and Minutes of such reallocation meetings on the website of CTU is concerned.

As regards the finding that CTU adopted a case to case approach in reallocation exercise, the Appellate Tribunal while disagreeing with the finding held that the process adopted by CTU has been followed since 2018 and Eden Renewables itself has been a beneficiary of the process and more importantly, apart from the Petition filed by Eden Renewables, there had been no complaint in regard to the process adopted by CTU.

As regards the Practice Directions issued by CERC, the Appellate Tribunal held that existing Regulations are fraught with the problems indicated by CTU. Further, it has been held that while the practice directions, according to CERC, has prospective application, it has the effect of unsettling some of the decisions taken in reallocation meetings/CMETS meetings on & prior to the date of the impugned order i.e. 19.01.2024, resulting in some decisions being re-opened.