Section 29A Arbitration Act & Time Limit for Filing Application

Section 29A(1) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") in its relevant portion states: 

"(1)The award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23..."

If the award is not made within this period or an extension period (of up to six months) agreed between the parties, the mandate of the arbitrator "shall terminate". The exception to this termination is where prior to or after expiry of that period, the Court extends such period. This extension is to be granted by the court on an application made by a party and for sufficient cause. Once the application for extension is filed, the mandate of the arbitrator is to continue till disposal of the application.  

In Rohan Builders v Berger Paints, 2024 INSC 686 (Rohan Builders), the question decided the important question of whether an application for extension of time u/s 29A could be filed after the expiry of the period specified in S. 29A(1) (i.e., 12 months from completion of pleadings).

The court had to construe Section 29A(4), which, in its relevant part provides:

"(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period..."

Taking note of this provision, the court held that it could be deduced from this "unambiguous language" that the Court could extend the time "where an application is filed after the expiry of the period". (Para 7). Note this the provision quoted does not explicitly talk about the application being filed after the expiry- it only deals with the power of the court to extend the period after its expiry.

The court also noted that if either party took no action, "the arbitration proceedings are terminated". (Para 10). However, this does not mean that if no application is filed within 12 months or the extended six months period (u/s 29A(3)), the mandate of the arbitrator would terminate or that the arbitrator would become de jure incapable of performing her function. Construing the effect of "terminate" in 29A(4), the Supreme Court held:

"The word “terminate” in the contextual form does not reflect termination as if the proceedings have come to a legal and final end, and cannot continue even on filing of an application for extension of time." (Para 12).

Hence, the termination contemplated in S. 29A(4) is not an "absolute" termination (Para 12). The court reasoned that if a rigid construction of the provision was made, that would amount to legislating a limitation period judicially, which was not "conspicuously" stated by the provision. (Para 13). The court also noted that "the expression and intent of the provision are to the contrary." (Para 13).

The court also gave an ex post facto justification for its construction: if a rigid construction was given to the provision, it would mean more frequent applications and interventions by courts, and worse, re-commencing the arbitration once again, which would only impede arbitration (para 14).

The court stated that this construction would not encourage rogue litigants who would be bent on making the time limit for award inconsequential since the court could, on sufficient cause alone, extend the time limit, and can also impose time limits. The SC was also conscious that in the process of application u/s 29A, the court could substitute the arbitrators, thereby eliminating the need for going through another round of appointment process or S. 11 proceedings. 

Interestingly, the court also made it clear that the arbitral tribunal could not pass the award till an application u/s 29A(5) is filed before the court. Even if the award is passed, the court could invoke its powers u/s 29A. The court held:

"Therefore, the arbitral tribunal may not pronounce the award till an application under Section 29A(5)of the A & C Act is sub-judice before the court. In a given case, where an award is pronounced during the pendency of an application for extension of period of the arbitral tribunal, the court must still decide the application under sub-section (5), and may even, where an award has been pronounced, invoke, when required and justified, sub-sections (6) to (8), or the first and third proviso to Section 29A(4) of the A & C Act." (Para 17)

In conclusion, the court answered the question before it in the following manner: 

"... an application for extension of the time period for passing an arbitral award under Section 29A(4) read with Section 29A(5) is maintainable even after the expiry of the twelve-month or the extended six-month period, as the case may be. The court while adjudicating such extension applications will be guided by the principle of sufficient cause and our observations in paragraph 15 of the judgment." (Para 19).

Nine Judge Bench of SCI in Mineral Area Development Authority v SAIL, 2024 INSC 554: Summary

One of the most important matters in the recent times has been decided by a nine-judge bench of the Hon’ble Supreme Court in Mineral Area Development Authority v. SAIL, 2024 INSC 554. It deals with the important issue of the distribution of legislative powers between the Union and the States as regards taxation of mineral rights. It also decided on the nature of royalty insofar as it is applicable to minerals.

The issue of royalty came into play in the context of its classification. It royalty is classified as a tax, prior decisions have held that State legislatures lacked competence to levy taxes on mineral rights as they were dealt with under Entry 54, List I, VII Schedule, where Union had the exclusive competence. Some decisions held that royalty was not tax and therefore the State legislatures were competent to make laws further to Entry 49, List II, VII Schedule, where States had the exclusive competence. This conflict is the subject of decision of the nine judge Bench of the Supreme Court.

Initially, about 11 questions were recorded by a three judge Bench as having to be determined. During the hearing before the nine judge Bench, there was consensus between the counsels for the Petitioners and the Respondents as to the questions that were to be determined by the nine judge-Bench. Union of India filed an affidavit stating that Entry 53, List I, Schedule VII which related to mineral oils/ petroleum/ oil fields, was not covered in the issues before the court. So, the Supreme Court did not discuss these aspects in the decision. The questions to be determined reduced from 11 to merely five. Of the nine judges, Justice Ms. Nagaratna dissented. The majority view was penned by Chief Justice Mr. Chandrachud.

The court’s ultimate determination vis-à-vis these questions as contained in Para 342 of the Majority judgment is provided below:

Question a. What is the true nature of royalty determined under Section 9 read with Section 15(1) of the MMDR Act? Whether royalty is in the nature of tax;

Finding:

“a. Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights. The liability to pay royalty arises out of the contractual conditions of the mining lease. The payments made to the Government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears;”

b. What is the scope of Entry 50 of List II of the Seventh Schedule? What is the ambit of the limitations imposable by Parliament in exercise of its legislative powers under Entry 54 of List I? Does Section 9, or any other provision of the MMDR Act, contain any limitation with respect to the field in Entry 50 of List II?

c. Whether the expression “subject to any limitations imposed by Parliament by law relating to mineral development” in Entry 50 of List II pro tanto subjects the entry to Entry 54 of List I, which is a non-taxing general entry?  Consequently, is there any departure from the general scheme of distribution of legislative powers as enunciated in M P V Sundararamier (supra)?

Determination: “b. Entry 50 of List II does not constitute an exception to the position of law laid down in M P V Sundararamier (supra). The legislative power to tax mineral rights vests with the State legislatures. Parliament does not have legislative competence to tax mineral rights under Entry 54 of List I, it being a general entry. Since the power to tax mineral rights is enumerated in Entry 50 of List II, Parliament cannot use its residuary powers with respect to that subject-matter;”

c. Entry 50 of List II envisages that Parliament can impose “any limitations” on the legislative field created by that entry under a law relating to mineral development. The MMDR Act as it stands has not imposed any limitations as envisaged in Entry 50 of List II;

d. The scope of the expression “any limitations” under Entry 50 of List II is wide enough to include the imposition of restrictions, conditions, principles, as well as a prohibition;

d. What is the scope of Entry 49 of List II and whether it covers a tax which involves a measure based on the value of the produce of land? Would the constitutional position be any different qua mining land on account of Entry 50 of List II read with Entry 54 of List I?

e. Whether Entry 50 of List II is a specific entry in relation to Entry 49 of List II, and would consequently subtract mining land from the scope of Entry 49 of List II?”

Determination: “f. The yield of mineral bearing land, in terms of the quantity of mineral produced or the royalty, can be used as a measure to tax the land under Entry 49 of List II. The decision in Goodricke (supra) is clarified to this extent;

g. Entries 49 and 50 of List II deal with distinct subject matters and operate in ifferent fields. Mineral value or mineral produce can be used as a measure to impose a tax on lands under Entry 49 of List II;

h. The “limitations” imposed by Parliament in a law relating to mineral development with respect to Entry 50 of List II do not operate on Entry 49 of List II because there is no specific stipulation under the Constitution to that effect;”

Prior Decisions: “i. The decisions in India Cement (supra), Orissa Cement (supra), Federation of Mining Associations of Rajasthan (supra), Mahalaxmi Fabric Mills (supra), Saurashtra Cement (supra), Mahanadi Coalfields (supra), and P Kannadasan (supra) are overruled to the extent of the observations made in the present case.”

The minority judgment of Justice Ms. BV Nagarathna held that royalty was in the nature of a tax, that Sections 9, 9A and 25 of the Mines and Minerals (Development and Regulation) Act, 1957 denuded/ limited the scope of Entry 50, List II and that taxes on lands and buildings contemplated taxes directly levied on the land as a unit and did not include mineral bearing lands within its scope. The minority judgment recognized that Entry 50, List II was the only entry in Lists I and II which subjected the taxing power of the States to limitations imposed by the Parliament by law relating to mineral development.

The Supreme Court Observer (SCO) has an excellent page on the decision, providing links to the hearing transcripts and prior decisions. Link to SCO page on the case is here. Happy reading!

Bankers Thinking Twice about Funding the Nuclear Surge

 Oil Price published an interesting and important news report on April 14 regarding how bankers were not willing to fund the nuclear surge world over, especially the target to triple nuclear power by 2050. It appears that bankers view the sector with considerable pessimism owing to its project risks. The Vice-President of the European Investment Bank is reported to have stated that heavy state involvement is required to make projects bankable.

So what are the implications of these from a legal point of view? How could India create a legal environment for addressing these problems? If and when India opens up the nuclear sector for private players, especially for Small and Modular Reactors, the following aspects could be thought about:

• Permitting unincorporated joint ventures to build, transfer and operate nuclear power plants, similar to petroleum exploration and production, which is also a high risk venture.
• Use of standard forms such as FIDIC and other similar forms, which will take a balanced approach.
• Effective dispute resolution through conciliation, Dispute Adjudication/ Avoidance Boards, and arbitration.  
• Designing effective insurance policies to cater to risks, etc.

All these require development of expertise in India and it is important for law universities and government institutions to play a crucial role in the next decade in developing that expertise.

Hydrogen Hubs in India: Recent Regulatory Developments

The Ministry of New & Renewable Energy (MNRE) came up with the National Green Hydrogen Mission (NGHM) in January 2023, which aimed: "to provide a comprehensive action plan for establishing a Green Hydrogen ecosystem and catalysing a systemic response to the opportunities and challenges of this sunrise sector." The NGHM recognised India's Net Zero Target of 2070 but also underscored another important but relatively less talked about target: Energy Independence by 2047. The NGHM stated that green hydrogen was seen as playing a critical role in achieving these objectives.

For the uninitiated green hydrogen refers to hydrogen produced by electrolysis using renewable energy. There are other types of hydrogen depending on the emission the process of manufacture gives out. See here, for information on such other types of hydrogen. 

Hydrogen Hubs in the NGHM

The NGHM recognises that transportation of hydrogen would be a challenge, both technically and logistically, and therefore provides for cluster production, which would have the following features:

• Large scale production in a given area;
• Utilisation of the produced hydrogen also in the given area;

The NGHM contemplates development of clusters where there are refineries/ fertilizer plants and where pilot projects for application of hydrogen in areas such as steel production, ports development, mobility, etc. would be promoted.

The Mission also contemplates infrastructure for storage and deliver of green hydrogen, port infrastructure for export of derivatives of green hydrogen, pipelines for bulk transportation, coordinated financing, etc.

Scheme for Setting up Hydrogen Hubs, 2024

Further to the Mission, MNRE recently came up with a Scheme for setting up of hydrogen hubs with the following objectives:

"(i) To identify and develop regions capable of supporting large-scale production and/or utilization of Hydrogen as Green Hydrogen Hubs. 

(ii) Development of Green Hydrogen Projects inside the Hubs in an integrated manner to allow pooling of resources and achievement of scale 

(iii) Enhance the cost-competitiveness of Green Hydrogen and its derivatives vis-a-vis fossil-based alternatives 

(iv) Maximize production of Green Hydrogen and its derivatives in India within the stated financial support 

(v) Encourage large-scale utilization and exports of Green Hydrogen and its derivatives 

(vi) Enhance viability of Green Hydrogen assets across the value chain." (Para 3)

The Scheme contemplates the core infrastructure in hydrogen hubs, including Storage and transportation facilities for Green Hydrogen/its derivatives, Development/ upgradation of pipeline infrastructure, Green Hydrogen powered vehicle re-fuelling facility, Hydrogen compression and/or liquefaction technologies, as required, and so on (Para 2). 

The Scheme recognises the plan to set up two hydrogen hubs by 2025-26 and a budget outlay of about Rs. 200 crores.

Features of Hydrogen Hub under the Scheme

 

The Scheme contemplates a hydrogen hub with the following salient features:

• Hydrogen hubs will cater to domestic demand as well as to exports
• The hub will have a network of producers, users and supporting infrastructure
• Development of hydrogen infrastructure would have to be done in a coordinated manner and by pooling resources from the Central Govt., State Govt., Local Govt. and the industry
• A hydrogen hub should have a planned/announced capacity of a minimum of 1,00,000 MTPA. Higher production capacity would get more priority under the Scheme.
• Infrastructure, projects and resources would be mapped under the PM Gati Shakti.
• Recognition of hydrogen hubs by MNRE in other places is possible but without financial assistance.

Evaluation Criteria for Proposals

The Scheme recognises that detailed evaluation criteria would be provided in the Call for Proposals and would be based on the following:

Funding

Rs. 100 crores (Central Financial Assistance) per hydrogen hub would be allocated in order to support core infrastructure in the following manner and would be released on the basis of conditions detailed in the Call for Proposals:

Provisions regarding failure to utilise grants or complete the project would be mentioned in the Call for Proposals.

A Steering Committee (overall monitoring of scheme) and a Project Appraisal Committee (project review) will be constituted. MNRE would nominate Scheme Implementing Agencies (SIAs) to implement the Scheme and hydrogen hubs.

Comments

It would be interesting to see how the Call for Proposals shape up and how hydrogen hubs would be created. The timelines contemplated (2025-26) is very tight. Interesting times ahead for renewables and energy security in India.