Chambers & Asia Partners-Pacific ranking 2016 edition.
This column has been authored by Sakya Singha Chaudhuri, Partner and Avijeet Lala, Associate Partner at HSA Advocates, who represented Lanco Kondapalli Power Ltd before the Hon’ble Supreme Court of India in this matter.
The judgment passed by Supreme Court on 16 October 2015 dismissing the appeals filed by distribution companies of Andhra Pradesh against Lanco Kondapalli Power Ltd. assumes significance for two reasons. Firstly, it is the most direct and authoritative ruling on the application of Limitation Act, 1963 to the actions brought before Electricity Regulatory Commissions under the Electricity Act. Secondly, it conclusively settles the continuing confusion with regard to the treatment of Minimum Alternate Tax (MAT) payable by power generation companies.
Electricity Act 2003 vests the Regulatory Commission with power to adjudicate disputes which arises between electricity licensees and generating companies. The Hon’ble Supreme Court in the case of Gujarat Urja Vikas Nigam vs Essar Power has held that all disputes between licensees and generating companies will be subject to the state commission. But the Act does not provide for any time limit within which a dispute may be brought before the Commission for adjudication. This has often resulted in agitation of belated and stale claims before the Commission. Claims which would have been otherwise time barred if raised before a civil court could be raised before the Commission. This is against the grain of public policy which requires that there should be a finality to every legal proceeding and a time frame for invoking any legal remedy, otherwise there would be a state of constant uncertainty, doubt and suspense.
For any claim made before an ordinary civil court, the law prescribes a time period within which, the claim has to be prosecuted. In the event such period expires, a person is debarred from claiming such remedy in court. While the Electricity Act vests the Regulatory Commissions with the power to adjudicate disputes between power utilities, it does not specifically indicate the time frame within which, such dispute has to be raised. In contrast, the Act however specifies the time period for filing appeals.
Filling in this gap in the Act, the Supreme Court held that even though by itself the Limitation Act is inapplicable to disputes brought before the Commission, however in light of nature of judicial power exercised by the Commission in adjudicating disputes, a claim cannot be allowed before the Commission if it would be otherwise barred by limitation for filing an ordinary suit before the civil court. This in effect means that the principles of Limitation Act would apply to actions before the Commission. The importance of this decision lies in the fact that it would curb the growing tendency of filing belated claims before the Commission, often for extraneous reasons, which was the cause of much distress to power companies.
Another concern of power generators that this judgment redresses is the treatment of MAT. There has been continuing confusion with regard to the nature of MAT, which is payable by power generating companies under Income Tax Act. Several distribution utilities in India, as the A.P. discoms in the present case, have been arguing that MAT is not in the nature of income tax and therefore not reimbursable to power generating companies who are generally entitled to reimbursement of income tax under power purchase agreements. The Court has now ruled that MAT is levied as per the provision under the Income Tax Act and it is nothing but income tax levied on the assessment of book profits of a company under specific provisions of the Income Tax Act. This lends much needed clarity and sets to rest the debate on the issue.