NLSIR Announcement

(NLSIR Announcement is below)

The National Law School of India Review

Submission Guidelines

About NLSIR

The National Law School of India Review (NLSIR) is now accepting submissions for its upcoming issue – Volume 30(1). The NLSIR is the flagship law review of the National Law School of India University, Bangalore, India. The NLSIR is a bi-annual, student edited, peer-reviewed law journal providing incisive legal scholarship on issues that are at the forefront of contemporary legal discourse. For more than 25 years, the NLSIR has regularly featured articles authored by judges of the Indian Supreme Court, senior counsels practicing at the Indian bar, and several renowned academics from national and foreign universities.

The most recent volume of the NLSIR, Vol. 29 will feature contributions by Professor M.G. Bridge, Cassel Professor of Commercial Law at London School of Economics and Professor of Law, National University of Singapore, and Professor Richard Pierce, the Lyle T. Alverson Professor of Law at George Washington University, among several others. Moreover, in August 2009, NLSIR attained the unique distinction of being the only Indian student-run law journal to be cited by the Supreme Court of India, in Action Committee, Un-Aided Private Schools v. Director of Education. NLSIR has also recently been cited in Justice R. S. Bachawat’s Law of Arbitration and Conciliation, a leading treatise on arbitration law in India.

Categories:

Papers may be submitted under the following categories:

1.      Long Articles: Between 5000 and 8000 words, inclusive of footnotes. Papers in this category are expected to engage with the theme and literature comprehensively, and offer an innovative reassessment of the current understanding of that theme. It is advisable, though not necessary, to choose a theme that is of contemporary importance. Purely theoretical pieces are also welcome.

2.      Essays: Between 3000 and 5000 words, inclusive of footnotes. Essays are far more concise in scope. These papers usually deal with a very specific issue, and argue that the issue must be conceptualized differently. They are more engaging, and make a more easily identifiable, concrete argument.

3.      Case Notes and Legislative Comments: Between 1500 and 2500 words, inclusive of footnotes. This is an analysis of any contemporary judicial pronouncement or a new piece of legislation whether in India or elsewhere. The note must identify and examine the line of cases in which the decision in question came about, and comment on implications for the evolution of that branch of law. In case of legislative comment the note must analyze the objective of the legislation and the legal impact the same is expected to have.

Authors are requested to note that pieces engaging with a foreign theme or legal development, in any of the above categories, should also explain its relevance in the Indian context, whether by virtue of similar laws or otherwise.

Formatting and Citation Guidelines

The body of the manuscript should be in Times New Roman, font size 12 with double line spacing. The footnotes should be in Times New Roman, font size 10 with single line spacing.

The manuscript should contain only footnotes (and not end notes) as a method of citation. Citations must conform to the Bluebook (20^th edn.) style of citation.

How to submit?

The NLSIR only accepts electronic submissions. Submissions may be emailed to mail.nlsir@gmail.com under the subject heading “30(1) NLSIR – Submissions.” All submissions must contain the following:

1.      The manuscript in doc.x format. The manuscript should not contain the name of the author or his/ her institutional affiliation or any other identification mark.

2.      A cover letter containing the name of the author, professional information, the title of the manuscript, and contact information.

3.      All manuscripts must also contain an abstract of not more than 150 words.

The last date for submissions to Volume 30(1) is November 1, 2017.

More Information

For more information on NLSIR, please log on to www.nlsir.com.

Subscribe to the NLSIR

You can subscribe to the NLSIR at:

http://www.ebcwebstore.com/product_info.php?products_id=100303

PF Act, Contract Labourers & Principal Employer

Doubts are often expressed by Principal Employers on their liability vis-a-vis the Contract Labourers engaged in the Principal Employer's Establishment through Contractors. Strictly speaking, for the purposes of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, the term "Establishment" is relevant. Seen in its truest spirit, the PF Act calls for determination of the number of employees not on the basis of the number of direct employees of the Principal Employer alone but also the Contract Labourers. Consequently, it does not matter if the Contractor does not employ on his rolls 20 persons (and therefore claims exemption from the PF Act). Therefore, it is in the interest of the Principal Employer to specifically provide or agree upon in the Contract with the Contractor at the time of contract negotiations that the Contractor has to pay the PF for his workers as well.

Some courts have held that if the Contractor has his own code, then he, not the Principal Employer" is the Establishment (and the Employer). Although this is convenient for Principal Employers (and seems to find courts' acceptance), the PF Act per se does not recognise this aspect. The PF Act places the burden on the Principal Employer provided the Contract workers work in the premises of the Principal Employer. The PF authorities have tried to distinguish these judgements.

So long as the total number of employees (including Contract Labour) working in the Establishment crosses the 20 persons threshold, the Principal Employer (and not the Contractor) is obligated to comply with the PF Act. 

In a recent circular (No. C-I/3(19)2016/Clarification/ECR/7357, Dated 21.07.2017) by the PF authorities pertaining to separate PF Code and payment mechanism for employees working in multiple locations, the PF Authorities have stated that a facility has now been provided "to such employers to furnish their location-wise employees’ particulars." This will only support the arguments of the Principal Employers that even such Contract Labourers work in their premises, the "Establishment" will refer to that of the Contractor and not the Principal Employer.

Contempt Mechanism under Section 27(5) of the A&C Act 1996

On the 6th of July, the Supreme Court passed a judgement in the case of Alka Chandewar v. Shamshul Ishrar Khan [Civil Appeal No. 8720/2017]. The Civil Appeal arose against a judgement of the Bombay High Court where the High Court construed Section 27(5) to state that teh said provision did not "empower the Tribunal to make representation to the Court for contempt if orders including interim orders passed by the Arbitrator except in respect of taking evidence are violated by the party."

The said position taken up by the High Court is correct for the following reasons:

(1) The text of Section 27(5) is based on of Regulation XVI of the Regulations for the Administration of Justice in the Courts of the Mofussil Dewannee Adaulut and in the Suddur Dewannee Adaulut, 1781 (“1781 Regulation). The said provision reads: 

“XXVI … [T]he Court shall grant the like Process as well to the Parties and Witnesses to appear before such Arbitrator and shall administer such Oath to the Parties and Witnesses as the Court is authorized to do in Causes tried before the Judge thereof And the several Persons not attending in consequence of such Process or making any Default or refusing to give their Testimony or sign their Depositions or being guilty of any Comtempt to the Munsiffs in the executing of his Office shall be subject to like Disadvantages Penalties and Punishments by Order made by the Arbitrator as they would incur for the same Causes in Suits tried before the Judge of the Court so that the Arbitrator do report such Order together with the Reason for making the same to the Judge of the Court and do obtain the Consent of the Judge thereto which shall be signified by such Judge signing such Order with his Name;” 

This provision was adopted in the Code of Civil Procedure 1859, which was then adopted in the Codes of 1877, 1882 and 1908. Section 43(2) of the Arbitration Act, 1940 borrowed this provision and the same was once again borrowed into the 1996 Act. These provisions were enacted at a time when the arbitral tribunal was not empowered to pass interim orders at all! [See for instance, Surendra Kumar Roy Chowdhury v. Sushil Kumar Roy Chowdhury AIR 1928 Cal 256]. It is not possible that the predecessors of Section 27(5) could have applied to disobedience to an interim order by the tribunal. It was only for the first time under the 1996 Act that an arbitral tribunal was empowered to order interim measures.Therefore, how can one construe the same provision to mean that the tribunal was empowered to refer matters to the High Court for contempt?

(2) The scope of Section 43(2) of the 1940 Act [the present Section 27(5)] and its predecessors was restricted to witnesses alone 

[Interestingly, the 1859 Code formed the basis on which the Jamaican Code of Civil Procedure, 1879 (“Jamaican Code”) was drafted. Section 343 of the Jamaican Code contained a provision virtually identical to Section 317 of the 1859 Code. Significantly, the Marginal Note to Section 343 read: “Non-attendance or contempt by witness”. See, GOVERNMENT OF JAMAICA, The Laws of Jamaica Passed in the Year 1879 (1879)].

In its 76th Report, the Law Commission of India has stated the following in respect of Section 43: 

"Section 43 confers powers on the court to issue processes for appearance before the arbitrator or umpire. The power is co-extensive with the corresponding power of the court in suits tried before it. There are consequential provisions in regard to persons who fail to attend, and there is a definition of the expression “processes”. No amendment is required in the section.” 

The aforesaid observations clearly imply that Section 43 dealt with the “consequential provisions” pertaining to failing to honour the summons for witnesses or for production of documents and other default by the recipient of such summons and did not encompass contempt to the arbitral tribunal for breach of its interim orders.

(3) Even precedents under Section 43 of the 1940 Act provided for a limited scope:

In Nihaluddin v. Tej Pratap Singh and Ors. [AIR 1968 All 157], the Consolidation Officer referred a dispute as to title to the Civil Judge, who in turn, referred the matter to the arbitrator as per Section 37 of the U.P. Consolidation of Holdings Act, 1939. One of the parties to the dispute allegedly disobeyed the injunction order passed by the statutory arbitrator. The other party filed a criminal miscellaneous petition under Section 3 of the Contempt of Courts Act, 1952 alleging contempt. The court had to decide whether the arbitrator was a “court”. Having held that the arbitrator was not a court, the Allahabad High Court went on to hold that the opposite party could not be guilty of contempt of court in having overlooked the arbitrator’s order. On the scope of the provision, the court held:

“Under Section 43 of the Arbitration Act, it is the Court (and not the Arbitrator) who has authority to issue process to the parties and their witnesses whom they or the Arbitrator want or wants to examine. It is again the Court which would enforce the production of documents before the Arbitrator. Thus the Arbitrator again lacks the power to enforce the production of parties, their witnesses and documents, which is a distinguishing feature of Courts.”

The aforementioned arbitrator could pass interim orders since the relevant statute empowered him to do so. Even in such a case, the court held that a party disobeying such arbitrator’s interim orders was not liable for contempt. It is also noteworthy that if the court had the power to initiate contempt proceedings against a party disobeying the tribunal’s orders, either the party would have invoked Section 43(2) of the 1940 Act or the court would have referred to it, especially when the court discussed Section 43 of the 1940 Act.

Similarly, in M.I. Shahdad v. Mohd. Abdullab Mir and Ors.[AIR 1967 J&K 120], the High Court of Jammu & Kashmir held that the sole purpose of Section 43 was to “ensure service or process”. In Union of India v. Bhatia Tanning Industries [AIR 1986 Delhi 195], the Division Bench of the Delhi High Court held that Section 43 was “confined to cases where a person, whether a party or a third person, is required to appear as a witness before the arbitrator” and that where a witness was guilty of contempt to the arbitrator or the umpire, he could be taken to task by the court. Notably, the High Court held that Section 43 was “confined to witnesses and witnesses alone.”. This position has been affirmed by the Supreme Court in Delta Distilleries Limited v. United Spirits Limited and Anr. [2013(4) Arb LR 47 (SC)]

(4) The interpretation affording the power to refer for contempt for all kinds of disobedience is not correct. Section 27(4) employs the term “witnesses” while Section 27(5) speaks of “persons”. Consequently, it is possible to contend that Section 27(5) is not merely restricted to witnesses but to any person, including a person who disobeys an interim order of the arbitral tribunal. However, the placement of Section 27(5) in Section 27 (which is titled “Court assistance in taking evidence”) itself militates against this argument. Even otherwise, the said contention might not hold much water. Section 27(2)(c) provides that an application under Section 27(1) shall specify the name and address of a “person” to be heard as witness or expert witness. Section 27(4) employs the term “witnesses” and not “persons”. Reading Sections 27(2)(c) with Section 27(5), it is clear that “person” employed in both sections refer either to a third party witness or to a party-witness. Consequently, the difference in references in Sections 27(4)(witness) and 27(5)(person) cannot be determinative of the applicability of Section 27(5) to disobedience of orders under Section 17.

For these reasons the decision of the Supreme Court is erroneous. 

It is pertinent to note that the Supreme Court observed that the 2015 amendments making Section 17 enforceable provide a better remedy and therefore reference to the Court under Section 27(5) may "no long be necessary".  The decision can be accessed from here.

Force Majeure under Indian Contract Law: Energy Watchdog v CERC (SCI)

Recently, newspapers reported that certain power producers proposed to sell large amount of their stake in the Ultra Mega Power Projects.  The proposal to sell their stakes is a direct outcome of the recent decision of the Supreme Court of India in Energy Watchdog & Ors. v. Central Electricity Regulatory Commission & Ors. The dispute between power producers such as the Tata Power Co. Ltd. (“Tata”) and Adani Power Ltd. (“Adani”) on the one hand and the electricity regulators on the other was adjudicated upon finally by the Supreme Court by ruling in favour of the latter.

Followers of commercial law in India would be well aware of this issue on compensatory tariff allowed by the Central Electricity Regulatory Commission and the appellate proceedings thereon in the case of these power producers. The case has enormous implications on contract law, in general, and the law on force majeure, in particular. The seminal decision also impacts energy and regulatory laws. This post analyses the decision and its possible impact on contract law and the electricity sector in India.

Brief Facts

Mundra Ultra Mega Power Project (“MUMPP”) was conceived to be a huge power project which was to supply power to at least three states- Gujarat, Haryana and Rajasthan through the state power procurers. The tariff for the sale of power was to be determined through a competitive bidding process as per the electricity regulatory laws, which was undertaken. In the competitive bidding process, the bidders had the flexibility to choose escalable or non-escalable tariff (that is, tariff based on an increase in tariff formula). Both Adani and Tata quoted a non-escalable tariff. This was because the only major component that required an escalable tariff was an increase in fuel (coal) price. Since Adani and Tata had long term fuel supply agreements from coal mines in Indonesia at fixed/ predictable prices, there was no need to factor in price escalation.

Accordingly the lowest tariff was arrived at and power producers began to sell power at the said tariff after executing Power Purchase Agreements (PPAs) with the state power procurers. In two-three years after the determination of tariff, there was a massive jolt to the power producers in the form of new regulations passed by the Indonesian Government. The effect of these regulations was that the coal price under the long term fuel supply agreements  was to be benchmarked to the international prices instead of the then prevailing pricing mechanisms. This meant that the price under those agreements had drastically increased, thereby making the tariff at which these price producers sold price to the power procurers totally unviable. It may be recollected that a non-escalable tariff was quoted because of the long term fuel supply agreements.

Proceedings before the CERC and the APTEL

Consequently, Adani filed an application in 2012 with the Central Electricity Regulatory Commission (CERC) under the Electricity Act either to discharge them from performance of the PPA due to frustration of contract or to evolve a mechanism to restore them to the same economic position prior to occurrence of force majeure and/ change in law. The CERC did not accept the prayer of Adani but held in April 2013 that the CERC had the power to redress grievances of power producers considering larger public interest and constituted a committee to look into the difficulties of power producers so as a to find an acceptable solution. A Committee was constituted in August 2013 and the Committee recommended grant of compensatory tariff to Adani in its report. Consequent to the report, the CERC proceeded to grant compensatory tariff in February 2014.

Against this decision, appeals and cross-appeals were filed before the Appellate Tribunal for Electricity (APTEL). A summary of APTEL’s decision on the dispute is worth noting here:

• Performance of the PPAs was hit by force majeure under the provisions of the Indian Contract Act, 1872 (ICA).

• Changes in Indonesian law did not come within the purview of “Change of Law” clause in the PPA.

• The purported power exercised by the Commission in constituting a committee and awarding compensatory tariff was beyond the statutory mandate of the Commission and the terms and conditions of the sale and purchase of power was governed by the PPAs.

• Where there is an express or implied term of contract on force majeure, the same is covered under Section 31 of the ICA dealing with contingent contracts. Where there is no such term, force majeure is governed by Section 56.

• In Indian law, under Section 56, as held in Satyabrata Ghose v. Mugneeram Bangur 1954 SCR 310 impossibility is not simply physical or literal impossibility but means impracticability and futility in performance from the perspective of object and purpose of the parties.

• A more onerous performance method of performance or a mere rise in price would not amount to frustration.

• Application of the frustration doctrine required a multi-factorial approach and some of the factors that are to be considered are the contract itself, the context, the parties’ knowledge, expectations, assumptions and contemplations, especially as regards risk at the time of contracting which the parties could reasonably foresee.

• Application of the doctrine is not straightforward since it involves not only the contract but also an inquiry into the “contemplation of the parties”.

• The “Change of Law” contemplated in the PPA was only of Indian law and which were made by Indian Governmental Instrumentalities or Competent Courts in India.

• Certain clauses referred to the expression “Indian law” but such an expression nowhere found its place in the clause pertaining to “Change of Law”. Consequently, it would be dangerous to interpret the Change of Law clause merely on the basis of such usage in other parts of the PPA.

• For these reasons, the contention that since the PPA envisaged import of fuel, Law should also be taken to mean non-Indian law should also be negated.

The APTEL remanded the matter back to the Commission to determine the impact of force majeure so as to grant compensatory tariff to the power producers. The Commission arrived at a compensatory tariff in December 2016. 

Judgement of the Supreme Court

Appeals were filed to the Supreme Court. The Supreme Court held against the power producers on the force majeure as well as the change of law arguments. 

Summary of the judgement of the Supreme Court on contentions relating to force majeure is given below:

• The doctrine of frustration is inapplicable to the present case as the fundamental basis of the PPA remains unaltered, the PPA nowhere states that coal is to be procured only from Indonesia at a particular price, and the fuel supply agreement is only a part of the PPA to establish that fuel supply is available and is in order. When the power producers quoted the tariff, they very well knew the existence of the risk of increased prices of Indonesian coal and knowingly took it by quoting a non-escalable tariff. However, mere fact that they quoted non-escalable tariff does not mean that they would be disentitled from raising a plea of frustration if they were otherwise entitled to under law.
• Force majeure clauses are to be narrowly construed. On a construction of the force majeure clause in the PPA, “Hindrance” could mean an event wholly or partly preventing performance.
  But mere rise in prices is not hindrance, whole or part. Clause 12.4 specifically excluded rise in fuel cost or agreement becoming onerous to perform from the purview of force majeure. 
• Since Clause 12.4 specifically excluded rise in fuel cost from force majeure, since the fundamental basis of the contract was never dislodged and since alternative modes of performance were available even though at a higher price, there was no force majeure. Further, since there was a specific clause addressing force majeure, Section 56 did not have any application.

Another argument taken up by the power producers was that the change in Indonesian regulations fell within the scope of the “change of law” clause in the PPA and that they were entitled to relief under the said clause. Among other things, the PPA defined “Law” to mean “all laws including Electricity Laws in force in India… and any statute…. Or any interpretation of any of them by an Indian Governmental Instrumentality... and shall include all applicable rules… by an Indian Governmental Instrumentality…” Article 13.2 of the PPA provided that in case a party was affected by Change of Law, such party was entitled to be restored through Monthly Tariff Payments to the same economic position as if such change had not occurred. The Court dismissed the argument of the power producers and the following is a summary of the judgement on this aspect:

On facts, the court also noted that there was a Change of Law insofar as a change in India law was concerned. During the currency of the PPAs, the Ministry of Power issued a Notification in 2013, which was reflected in the Revised Tariff Policy of 2016. The Court held that if these notifications resulted in affecting Indian coal procurement, the Change of Law clause would be applicable. But change in Indonesian law affecting coal supply or prices would not amount of “Change of Law” for PPA purposes.

The Court ultimately set aside the decisions of the APTEL and the Commission and remanded the matter back to the Commission on the minor issue as to determination of effect on Change of Indian law on the power producers.

The decision of the Supreme Court clarifying the law on the issue is of fundamental importance on several counts. First, the judgement constitutes an important restatement on the law of force majeure. Second, special word about RF Nariman, J. Since assuming judgeship, he has passed several judgements clarifying and restating various aspects of commercial law thereby rendering clarity and updating various contract law concepts to the present times and breathing in fresh air to the 145 year old Indian Contract Act, 1872. Third, in the context of regulatory law, the decision offers clarity in the extent to which a tribunal/ court can go in balancing the competing interests of protecting consumers on the one hand and preserving the efficacy of the industry sought to be regulated on the other. Balancing the competing aims of preserving the efficacy of the industry by upholding the legitimate interests of the regulated on the one hand and protecting consumer interests on the other is the fundamental challenge in regulatory law. This case affords considerable clarity in the extent to which a regulator of a tribunal could or could not rewrite contractual terms between the regulator and the regulated.

The decision calls for an off-the-cuff remark. One of the arguments of the power producers was that Section 56 ICA operated de hors the force majeure clause in PPA. It may be recollected from the above analysis that the court negatived this contention. It would have been great if RF Nariman, J. referred to the concept of default rules to explain away how Section 56 operated as a default rule and how the PPA clause on force majeure eclipsed Section 56 and occupied its field instead. Even so, the effect of RF Nariman, J’s analysis remains the same.

One last remark. The decision of the Supreme Court has received considerable criticisms from the power industry. A direct result of the judgement has been that both Adani and Tata have asked the State power procurers to take control of the power projects (see here). Adani seems to have discontinued power supply from its power plant (see here). Experts also argue that the once-power surplus state of Gujarat could be facing the risk of power scarcity (See here). There is a strong argument that the power producers are to be protected considering that they had invested in public goods which was meant for consumption of the economy and that in case of failure to protect such investors, economy, and ultimately, the consumers will suffer. From the other end of the spectrum it has been argued that the power producers attempted to engage in crony capitalism by entering into unviable contracts knowing fully well that they could later demand renegotiation of the PPAs (see here). The reality, perhaps, lies somewhere in between.

Power producers have suggested two alternatives for the current arrangement. The first one is that they would forego their security deposits under the PPA and that fresh bids should be called from power generators. The second alternative is that the state power procurers should import coal directly and that the power producers would offer their power generation capacity (see here). It will be interesting how this issue would be resolved. For now, the Centre has taken a stand that the issue is for the power producers and the State power procurers to resolve but it doubtable if the stance is correct considering that the problem pertains to the nation as a whole.