- Wind power deployment in India started in the early 90s. With conducive policy environment provided at Central and State level, the country today occupies 4th position globally in terms of wind power installed capacity, which stands at over 43 GW as on May 31, 2023. While this is a remarkable achievement, the installed capacity is a small percentage of the India’s estimated wind power potential, which, as per the National Institute of Wind Energy (NIWE), stands at a staggering 1,164 GW at 150 meter above ground level, most of it located in 8 states (Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu, and Telangana).
- On July 26, 2023, in succession of the previously issued 2017 Guidelines, the Ministry of Power (MoP) introduced the Guidelines for Tariff Based Competitive Bidding Process for Procurement Power from Grid Connected Wind Power Projects (Guidelines/2023 Guidelines) under Section 63 of the Electricity Act, 2003 with the following objectives:
- Facilitating renewable capacity addition and fulfilment of Renewable Purchase Obligation (RPO) requirement of distribution licenses.
- Providing a transparent, fair, standardized procurement framework based on open competitive bidding with appropriate risk-sharing between various stakeholders to enable procurement of power at competitive prices in consumer interest, improve bankability of projects and ensure reasonable returns to the investors.
- Providing a framework for the inter-State or intra-State, long-term, sale-purchase of power as a further measure to de-risk the sector.
- The Guidelines, yet to be notified, are applicable for procurement of electricity by the procurers from grid-connected Wind Power Projects (WPP) having a bid capacity of 10 MW and above for projects connected to intra-State transmission system; and bid capacity of 50 MW and above for projects connected to inter-State transmission system. Upon notification, the erstwhile 2017 Guidelines and amendment thereto, shall not be applicable for bids issued subsequent to issuance of these Guidelines. However, the projects already awarded, under implementation, or commissioned under the erstwhile 2017 Guidelines will continue to be governed by the 2017 Guidelines. In case there are any ongoing bids wherein the last date of bid submission is after the date of notification of the 2023 Guidelines, then the bid documents in respect of such bids shall be appropriately modified to align them with the terms of the 2023 Guidelines.
- Vide the 2023 Guidelines, MoP has grand-fathered existing commercial concepts into legally binding contractual terms. Some of these are enumerated below:
- Take or pay | Clause 6.5 of the 2023 Guidelines: The Guidelines specify that in case the procurer does not off-take power scheduled by the generator, the penalty shall specifically be in accordance with the Electricity (Promotion of Generation of Electricity from Must-Run Power Plant) Rules, 2021, as amended from time to time.
- Mechanism for excess generation | Clause 6.2.1 (b) of the 2023 Guidelines: In case of availability of excess power than the CUF specified, the generator shall have all the rights to sell it to any other entity subject to first right of refusal vesting with the procurers. Such a refusal is required to be given by the procurer within a period of 15 days, otherwise it would be considered as deemed refusal.
- Payment security mechanism | Clause 6.3 of the 2023 Guidelines: The 2023 Guidelines refer to the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 including amendments and clarification, if any, thereof, issued from time to time.
- Penalty for DSM | Clause 6.2.3 of the 2023 Guidelines: In case of any deviations from the schedule, Deviation Settlement Mechanism (DSM) shall be applicable as per the prevailing regulations, and DSM charges at the generator’s end shall be settled by the wind power generator (WPG).
- Mechanism for shortfall in supply | Clause 6.2.1 (a) of the 2023 Guidelines: In case the project generates and supplies energy less than the energy corresponding to the minimum CUF, the WPG will be liable to pay the penalty to the procurer for the shortfall in availability below such contracted CUF level. The amount of such penalty will be calculated at 50 % of the PPA tariff for the shortfall in energy terms, in accordance with the terms of the PPA.
- Repowering | Clause 6.1 of the 2023 Guidelines: The generator will be at liberty to upgrade or repower their plants during the PPA period at its own risk and cost.
- Change in law | Clause 6.7 of the 2023 Guidelines: Provisions for change in law shall be in accordance with the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021 notified by MoP, including amendments thereof issued from time to time.
- Performance Bank Guarantee (PBG) | Clause 12.2 of the 2023 Guidelines: PBG shall be the lower of 5% of the Estimated Capital Cost for WPP for the financial year in which the bids are invited, or the upper limit stipulated by Ministry of Finance from time to time.
- Commencement of supply of power | Clause 6.7 of the 2023 Guidelines: The Generator shall be liable to commence supply of power within a period of 24 months from the date of execution of the PPA for project size not more than or equal to 1,000 MW, and 30 months from the date of execution of the PPA for project size more than 1,000 MW.
- Deviations from the 2023 Guidelines | Clause 18 of the 2023 Guidelines: Any deviation from the process defined in the Guidelines shall be subject to approval by the Appropriate Commission before the initiation of the bidding process itself.
- Tariff adoption: Distribution Licensee or Intermediary Procurer is responsible for approaching the Appropriate Commission for adoption of tariff under Section 63 of the Act. If such Appropriate Commission does not decide within 60 days of submission or within 120 days from the date of the Power Sale Agreement (PSA), whichever is more, scheduled commencement of supply date shall be extended accordingly.
- The 2023 introduce a reference to already notified Rules by MoP, to avoid any ambiguity with respect to its application, in addition to introducing certain new terminologies such as the definition of ‘affiliate’ (a person who controls, is controlled by, or is under the common control with such Company) and ‘control’ (ownership of more than 50% of the voting shares of such Company or right to appoint majority Directors).
- In addition to the above, the Guidelines mandate that the bid-out tariff shall be the tariff at the delivery point, and all the cost and consequence up to the delivery point shall rest with the WPG, which may include transmission charges or losses, DSM etc. Consequently, all costs beyond the delivery point shall be borne by the procurer.
- The MoP has also provided guidelines for transmission connectivity, role of State Nodal Agency, dispute resolution, ISTS charges and losses, etc., for smooth generation and supply of power by the generator and procurement of the same by the procurer.
- The endeavour through the 2023 Guidelines is to provide a binding legal document which has the force of law and is adopted by State agencies as well, even for Intra-State bidding. The MoP has reinforced its directive that any deviation to the basic tenets to the 2023 Guidelines shall not be allowed without a prior approval of the Appropriate Commission.
The Securities and Exchange Board of India (SEBI) on June 14, 2023 amended the SEBI (Listing Obligations and Disclosure Requirements) 2015 (Principal Regulations) vide SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023 (Amendment Regulations).
The amendments introduced by the Amendment Regulation include the following:
- Definition of ‘Mainstream Media’: The term ‘Mainstream Media’ under Regulation 2(1)(r) of the Principal Regulations has been defined to include the following:
- Newspapers registered with the Registrar of Newspapers for India
- News channels permitted by the Ministry of Information and Broadcasting
- Content published by the publisher of news and current affairs as defined under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021
- Newspapers or news channels or news and current affairs content similarly registered or permitted or regulated in jurisdictions outside India
- Provision for filling any vacancy in the office of CEO, CFO, MD, whole time director or manager :
- Regulation 6(1A) of the Principal Regulations provides that any vacancy in the office of the Compliance Officer shall be filled by the Listed Entity at the earliest and in any case not later than 3 months from the date of such vacancy. The Listed Entity shall not fill such vacancy by appointing a person in interim capacity, until and unless such appointment has been made in accordance with the laws applicable in case of a fresh appointment to such office and the obligations under such laws are made applicable to such person.
- Similar provision has been enacted by the Amendment Regulations for filling the vacancy in the office of CEO, CFO, managing director, whole time director or manager by insertion of Clause 26A(1) in the Principal Regulations, which provides that any vacancy in the office of the aforesaid officers shall be filled by the Listed Entity at the earliest and in any case not later than 3 months from the date of such vacancy. Further, such vacancy cannot be fulfilled by a person appointed in interim capacity until and unless such appointment is made in accordance with laws applicable in case of a fresh appointment to such office and the obligations under such laws are made applicable to such person.
- Amendment to Regulation 15(1-A):
- Regulation 15 (1-A) of the Principal Regulations provides for the applicability of the provisions contained in Chapter IV of the Principal Regulations to a Listed Entity which has listed its non-convertible debt securities and has an outstanding value of listed non-convertible debt securities of INR 500 crore and above. Such Listed Entity has been defined as ‘high end value debt Listed Entity’ and have been directed to ensure compliance with the provisions of Chapter IV of the Principal Regulations within 6 months from the date of such trigger.
- The Amendment Regulations provides that these provisions of Chapter IV shall be applicable to a ‘high value debt Listed Entity’ on a ‘comply or explain’ basis until March 31, 2024, and on a mandatory basis thereafter.
- Insertion of Regulation 17(1D):
- Regulation 17(1D) inserted vide the Amendment Regulations provides that with effect from April 1, 2024, the continuation of the director serving on the Board of a Listed Entity shall be subject to approval of the shareholders at least once in every 5 years from the date of their appointment or reappointment, as the case maybe. Provided that the continuation of the director serving on the Board of Directors for a Listed Entity as on March 31, 2024 without the approval of the shareholders for last 5 years or more shall be subject to the approval of the shareholder in the first general meeting held after March 31, 2024.
- The exemptions under Regulation 17 (1-D) will be given to the following:
- Whole-time director, managing director, manager, independent director, or a director retiring as per the Section 152(6) of the Companies Act, 2013, if the approval of the shareholders for the reappointment or continuation of the aforesaid directors or manager otherwise as provided by Companies Act, 2013
- The director appointed pursuant to the order of a Court or a tribunal
- Nominee director of the Government on the Board of a Listed Entity other than a public sector company
- Nominee director of a financial sector regulator on the Board of a Listed Entity
- Director nominated by a financial institution registered with or regulated by the Reserve Bank of India (RBI) under a lending arrangement in its normal course of business
- The director nominated by a Debenture Trustee registered with SEBI under a Subscription Agreement for the debentures issued by the Listed Entity.
- Sub-Regulation 17 (1-E) has also been inserted in Regulation 17 which mandates the vacancy in the office of director to be filled by the Listed Entity at the earliest and, in any case, not later than 3 months from the date of such vacancy.
- Amendment to Regulation 27: Clause 27 (2)(b)(a) has been added under Regulation 27 wherein the Listed Entity, in addition to the corporate compliance report, shall also submit details of cyber security incidents or breaches or loss of data or documents on a quarterly basis.
- Substitution of Regulation 30(4)(i)(c) of the Principal Regulations: This Regulation provides for certain criteria for determination of the materiality of such events or information, and has now been substituted with the following new sub-Clause:
The omission of an event or information, whose value or the expected impact in terms of value, exceeds the lower of the following:
(1) two percent of turnover, as per the last audited consolidated financial statements of the Listed Entity;
(2) two percent of net worth, as per the last audited consolidated financial statements of the Listed Entity, except in case the arithmetic value of the net worth is negative;
(3) five percent of the average of absolute value of profit or loss after tax, as per the last three audited consolidated financial statements of the Listed Entity.
- Amendment to Regulation 30(4)(i): A new sub-Clause (d) has been inserted in Regulation 30(4)(i) which states that where the criteria specified in sub-Clauses (a)(b) and (c) is not applicable, an event or information may be treated as being material if in the opinion of the Board of Directors of the Listed Entity, the event or information is considered material. This new amendment further provides that any continuing event or information becoming material pursuant to the Amendment Regulations, shall be disclosed by the Listed Entity within 30 days from the date of coming into effect of the Amendment Regulations.
- Amendment to Regulation 30(4)(ii): In terms of the Regulation 30(4)(ii) of the Principal Regulations, a Listed Entity shall frame a policy for determination of materiality, which shall be based on the criteria specified in Regulation 30(4). Such policy shall be approved by the Board of Directors of the Listed Entity and also published on its website. The Amendment Regulation has inserted a new proviso to this Regulation which provides that such a policy for determination of materiality shall not dilute any requirement specified under the provisions of these Regulations. Provided that such a policy for determination of materiality shall assist the relevant employees of the Listed Entity in identifying any potential material event or information and reporting the same to the authorized key managerial personnel, in terms of sub-Regulation (5) of Regulation 30, for determining the materiality of the said event or information and for making the necessary disclosures to the stock exchanges.
- Substitution of Regulation 30(6) of the Principal Regulations: Regulation 30(6) has been substituted by the Amendment Regulation, which provides that the material information as ascertained under Regulation 30 by the Listed Entity shall be submitted to stock exchange within the following timelines:
- 30 minutes from the closure of the meeting of the Board of Directors in which the decision pertaining to the event or information has been taken
- 12 hours from the occurrence of the event or information, in case the event or information is emanating from within the Listed Entity
- 24 hours from the occurrence of the event or information, in case the event or information is not emanating from within the Listed Entity
Provided that in case the disclosure is made after the timelines specified above, the Listed Entity shall along with such disclosure provide an explanation for the delay.
- Amendment to Regulation 30(11): A new proviso has been inserted to Regulation 30(11) of the Principal Regulations which provides that top 100 listed entities (with effect from October 1, 2023) and thereafter the top 250 listed entities, as (with effect from April 1, 2024) (determined on the basis of market capitalization) shall confirm, deny or clarify any reported event or information in the mainstream media, which is not general in nature and which indicates that rumours of an impending specific material event or information in terms of the provisions of this Regulation which are circulating amongst the investing public, as soon as reasonably possible and not later than 24 hours from reporting of such information.
- Insertion of Regulation 30(13): Under the newly inserted Regulation 30(13), the Listed Entity is also required to disclose any event or information pursuant to receipt of a communication from any regulatory, statutory, enforcement or judicial authority unless the same is prohibited by such authority.
- Insertion of Regulation 30A:
- The Amendment Regulation has introduced a new Regulation 30A, which provides that shareholders, promoters, promoter group entities, related parties, key managerial personnel and the employees of a Listed Entity or of its holding, subsidiary, and associate company who are parties to the agreements specified in Clause 5A of Para A of Part A of Schedule III of the Principal Regulations, shall inform the Listed Entity about the agreement to which such a Listed Entity is not a party, within 2 working days of entering into such agreements or signing an agreement to enter into such agreements. The Listed Entity shall then disclose such agreements to the stock exchange and on its website within the timeline as may be specified by SEBI and the same shall also be included in the annual report of the entity for the Financial Year 2022-23 or for the Financial Year 2023-24.
- Clause 5A of Para A of Part A of Schedule III of the Principal Regulations provides that agreements entered into by the shareholders, promoters, promoter group entities, related parties, directors, key managerial personnel, employees of the Listed Entity or of its holding, subsidiary or associate company, among themselves or with the Listed Entity or with a third party, solely or jointly, which, either directly or indirectly or potentially or whose purpose and effect is to, impact the management or control of the Listed Entity or impose any restriction or create any liability upon the Listed Entity, shall be disclosed to the stock exchanges, including disclosure of any rescission, amendment or alteration of such agreements thereto, whether or not the Listed Entity is a party to such agreements.
- Provided that such agreements entered into by a Listed Entity in the normal course of business shall not be required to be disclosed unless they, either directly or indirectly or potentially or whose purpose and effect is to impact the management or control of the Listed Entity or they are required to be disclosed in terms of any other provisions of these Regulations.
- The term ‘directly or indirectly’ includes agreements creating obligation on the parties to such agreements to ensure that Listed Entity shall or shall not act in a particular manner.
- Insertion of Regulation 31B: A new Regulation 31B has been inserted after Regulation 31A by the Amendment Regulation which provides that if any special right is granted to a shareholder of a Listed Entity, then the same shall be subject to the approval of other shareholders in general meeting by way of a special resolution once in every 5 years from the date of grant of such special right. Further, the special rights available to the shareholders of a Listed Entity as on the date of coming into force of the Amendment Regulations shall be subject to the approval of the shareholders by way of a special resolution within a period of 5 years from the date of coming into force of the Amendment Regulation. Further any special right given to financial institution registered with or regulated by the RBI or a debenture trustee registered with the SEBI shall be exempted from the requirement specified under this Regulation if such financial institution or the debenture trustee becomes a shareholder of the Listed Entity as a consequence of a lending arrangement or a subscription agreement for the debentures.
- Insertion of Clause (j) under Regulation 33(3): Regulation 33 of the Principal Regulations elaborates the manner in which the Listed Entity shall comply while preparing and disclosing the financial results. The Amendment Regulation has inserted the Clause (j) under Regulation 33(3) which provides that the Listed Entity shall, subsequent to the listing, submit its financial results for the quarter or the Financial Year immediately succeeding the period for which the financial statements have been disclosed in the offer document for the initial public offer, in accordance with the timeline specified in Clause (a) of this sub-Regulation (i.e. within 45 days of end of each quarter, other than the last quarter )or Clause (d) of this sub-Regulation ( i.e. the Listed Entity shall submit [annual] audited standalone financial results for the Financial Year, within 60 days from the end of the Financial Year along with the audit report and statement on impact of audit qualifications (applicable only for audit report with modified opinion), as the case may be, or within 21 days from the date of its listing, whichever is later.
- Amendment to Regulation 34(2)(f): Under the Principal Regulations, Regulation 34(2)(f) provided for discontinuance of submitting business responsibility report from Financial Year 2021-22 has been substituted by the Amendment Regulation. This new substituted clause provides that a business responsibility and sustainability report on environmental, social and governance disclosures shall be submitted by top 1000 listed entities based on market capitalization and assurance of business responsibility and sustainability report core shall also be obtained by such entities. Further, other entities not covered under the top 1000 entities including the securities listed on Small Medium Enterprise Exchange (SME Exchange) can comply with this Regulation voluntarily. The ‘Business Responsibility Report’ which earlier just contained environmental, social and governance measures has now been replaced by ‘Business Responsibility and Sustainability Report.’
- Insertion of Regulation 37A:
- The Amendment Regulation has introduced a new Regulation 37A which deals with the sale, lease, or disposal of an undertaking outside the scheme of arrangement. This Regulation provides that a Listed Entity carrying out sale, lease, or the disposal of the whole or substantially the whole of the undertaking of such entity or where it owns more than one undertaking, of the whole or substantially the whole of any of such undertakings, shall:
- Take prior approval of shareholders by way of special resolution
- Disclose the object of and commercial rationale for carrying out such sale, lease or disposal and the use of proceeds arising therefrom, in the statement annexed to the notice to be sent to the shareholders
- The special resolution shall be acted upon only if the votes cast by the public shareholders in favour of the resolution are more than votes cast by such public shareholders against the resolution. Further, no such public shareholder shall be entitled to vote on the resolution if he is a party, directly or indirectly, to such sale, lease or otherwise disposal of such undertaking of the Listed Entity.
- The requirement of passing a special resolution or attaching the statement as mentioned above shall not be applicable for any sale, lease or otherwise disposal of the undertaking by a Listed Entity to its wholly owned subsidiary whose accounts are consolidated with such Listed Entity. However, prior to such wholly owned subsidiary selling, leasing or otherwise disposing of such undertaking received from the Listed Entity, whether in whole or in part, to any other entity, such Listed Entity shall comply with the aforesaid requirements. However, the Listed Entity before diluting its share below hundred percent in such wholly owned subsidiary to which such undertaking has been transferred, shall have to comply with the aforesaid requirements as mentioned above.
- Further, the provisions of this Regulation shall not be applicable where sale, lease or otherwise disposal of such undertaking of a Listed Entity is by virtue of a covenant covered under an agreement with a financial institution regulated by or registered with the RBI or with a debenture trustee registered with SEBI.
- Substitution of Regulation 57: Regulation 57 of the Principal Regulations has been substituted entirely by Amendment Regulation wherein now a certificate regarding status of payment of interest or dividend or repayment or redemption of principal of non-convertible securities shall be submitted to the stock exchange, within 1 working day of it becoming due, the format and manner again in this case shall be prescribed by the Board from time to time.
The Regulator has taken a cue from some of the recent controversies surrounding India Inc. As an example, the insertion of the new proviso to Regulation 30(11) of the Principal Regulations which mandates certain category of listed entities to confirm, deny or clarify any reported event or information in the mainstream media, which is not general in nature, and which indicates that rumours of an impending specific material event or information circulating amongst the investing public can be the outcome of the recent controversy relating to Adani – Hindenburg report. SEBI has taken a rightful step to protect the interest of the public shareholders from such rumours by putting the onus on listed entities to confirm/deny/clarify such rumours.
Similarly, insertion of new Regulation 30A, which mandates the shareholders, promoters, promoter group entities, related parties, key managerial personnel and the employees of a Listed Entity or of its holding, subsidiary, and associate company who are parties to the agreements specified in Clause 5A of Para A of Part A of Schedule III of the Principal Regulations, to inform the Listed Entity about the agreement to which such a Listed Entity is not a party, within 2 working days of entering into such agreements or signing an agreement to enter into such agreements, has widened the scope of disclosure requirements relating to agreements which shall impact the management or control of the Listed Entity or impose any restriction or create any liability upon the Listed Entity. Furthermore, insertion of new Regulation 31B which provides that any special right can be granted to a shareholder of a Listed Entity only with the approval of other shareholders in general meeting by way of a special resolution once in every 5 years from the date of grant of such special right, ensures that no special treatment can be bestowed on any particular shareholder unilaterally by the Listed Entity.
These amendments will have an impact on the future acquisition of shares of listed entities other than through stock exchanges. The amendments strengthen the corporate governance framework in India by introducing comprehensive and significant disclosure requirements to be followed by the listed entities, thereby bringing transparency in the operations of such companies, and ensuring that the general interest of the public shareholders is upheld.
In a press release dated June 11, 2023, the Union Finance Minister, Mrs. Nirmala Sitharaman, announced the outcome of the 50th Goods and Services Tax (GST) Council Meeting and the significant reforms encompassing changes in GST tax rates for various products and services, as well as measures to enhance trade facilitation and streamline compliance processes.
One of the key objectives of the Council was to review a report submitted by the Group of Ministers (GOM), appointed to examine the taxation aspects of casinos, horse racing, and online gaming, and to finalize the applicable GST rate for these services. The key recommendations are summarized here below.
- Uniform rate of 28% GST on full face value on casinos, horse racing, and online gaming.
- Reduction in the GST rate on uncooked or unfried snack pellets to 5% and regularized payment of GST on the same during the past period on ‘as is basis’.
- Exemption of IGST on Dinutuximab (Quarziba) medicine, when imported for personal use.
- Reduction of IGST on medicines and Food for Special Medical Purposes (FSMP) used in the treatment of rare diseases listed under the National Policy for Rare Diseases, 2021 when imported for personal use subject to existing conditions.
- Clarification on supply of raw cotton, including kala cotton, by agriculturists to cooperatives, which is taxable under the reverse charge mechanism.
- Reduce GST on imitation zari thread or yarn from 12% to 5% and regularize issues relating for the past period on ‘as is basis’.
- Amendment to the entry in the compensation cess notification to include all utility vehicles meeting specific parameters.
- Reduction in the GST rate on LD slag from 18% to 5% to encourage better utilization and environmental protection.
- Regularization of matters relating to trauma, spine, and arthroplasty implants for the period before July 18, 2022 on ‘as is basis’ in view of genuine interpretational issues.
- Reduction in the GST rate on fish soluble paste from 18% to 5% and regularized payment of GST on the past period on ‘as is basis’.
- On pan masala, tobacco products etc, where it is not legally required to declare the retail sale price, the earlier ad valorem rate as was applicable on March 31, 2023 may be notified in order for levy of Compensation Cess.
- Inclusion of RBL Bank and ICBC Bank in the list of specified banks eligible for IGST exemption on imports of gold, silver, or platinum.
- Consequential changes to be made in notifications based on the new Foreign Trade Policy, 2023.
- Regularize issues relating to GST on plates and cups made of areca leaves before October 01, 2019.
- Regularize the issues relating to GST on biomass briquettes for the period July 01, 2017 to October 12, 2017.
Impact of changes on the online gaming industry:
- Over the past 5 years, the online gaming industry in India has experienced remarkable growth, driven by the widespread availability of affordable smartphones and inexpensive mobile data. This has allowed the sector to attract USD 2.5 billion in FDI, making it one of the fastest-growing industries in India, with an annual compounded growth rate of 28-30%. The decision by the GST Council to impose a 28% GST rate on the full-face value of gaming transactions is expected to have far-reaching consequences, significantly impacting the entire industry and proving detrimental to the growth of this industries in India.
- An immediate and visible impact of the implementation of 28% GST on online gaming in India will be on total prize pools and the face value of online games. Essentially, this tax will be applied to the funds collected by gaming companies from consumers. Consequently, consumers themselves will bear the burden of this tax, leading to increased costs for players.
- In essence, for every INR 100 spent by a player, there will be an additional ‘sunk cost’ of INR 28 towards GST, on top of the INR 5-10 charged by the gaming platform and a 30% tax deducted at source (TDS) on any winnings earned by the player. This will severely discourage consumers from participating in online gaming, thereby negatively impacting the overall growth of the industry.
- Following the implementation of the new GST rules, taxes on online gaming will be imposed without differentiation based on whether the games require skill or are based on chance. This will eliminate the distinction between games of chance (betting, gambling, etc.) and games of skill, as defined by the Constitution and various State laws, effectively bringing the entire online gaming sector under the umbrella of gambling and, therefore, could be prone to judicial scrutiny.
The increase in GST may result in a substantial fall in the share prices of companies involved in the online gaming industry and may lead to a major adverse impact on the flourishing online gaming industry in India. Considering that consumers will bear the burden of this tax, they will likely be discouraged from participating in online gaming activities, thereby negatively impacting the overall growth of the industry.
In the recent case of B and T AG v. Ministry of Defence, the Supreme Court held that limitation period of 3 years for filing an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) would initiate from the date of the cause of action and mere negotiations will not result in postponement of the date of limitation.
- B and T AG (Petitioner) had approached the Supreme Court of India under Section 11(6) of the Arbitration Act praying for appointment of an Arbitrator for the adjudication of disputes and claims arising out of a contract dated March 27, 2012 executed with the Government of India through its Ministry of Defence (Respondent). The Petitioner had bid for an urgent tender for procurement of 1,568 sub machine guns under a fast-track procedure, and disputes arose between the parties in relation to the alleged wrongful encashment of warranty bond by the Respondent.
- The Respondent vide its letter dated February 16, 2016 directed the Joint Chief Executive Officer, State Bank of India, Frankfurt Branch, Germany to encash WBG No. 12/380 for its full value i.e., INR 18,100,672.65 (Bank Guarantee) and remit the amount through direct bank transfer to the Principal Controller of Defence Account (PCDA, Government Account), whilst also imposing liquidated damages to the tune of INR 357,920,053.70 (LD).
- The parties continued to engage in bilateral discussions in order to resolve their disputes regarding the imposition of LDs and encashment of the bank guarantee by the Respondent. However, the disputes could not be resolved and on November 08, 2021 the Petitioner issued notice invoking arbitration.
- The parties were unable to appoint an Arbitrator and the Petitioner filed the present petition for appointment of an Arbitrator under Section 11(6) of the Arbitration Act.
Issues at hand
- Whether the time barred claims can be considered live claims referrable to arbitration by virtue of negotiation between the parties?
- What would amount to ‘breaking point’ of negotiation between the parties?
- The Respondent’s contention was that the Petitioner’s claim in relation to the wrongful invocation of Bank Guarantee was time barred given that the cause of action had arisen back in 2016 at the time of invocation of Bank Guarantee, however, the notice invoking arbitration had only been issued in 2021, way beyond the limitation period of 3 years.
- The Petitioner relied on the decision of the Apex Court in the case of Geo Miller & Company Pvt Ltd v. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd (Geo Miller) and submitted that the time spent in pre-arbitration negotiations, held in good faith, may be excluded for the purpose of computation of the period of limitation. The Geo Miller decision states that ‘The Court upon careful consideration of such history must find out what was the ‘breaking point’ at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This ‘breaking point’ would then be treated as the date on which the cause of action arises, for the purpose of limitation’.
- The counsel for the Petitioner submitted the ‘breaking point’ was sometime in September, 2019 and not February 16, 2016 i.e., date of encashment of the Bank Guarantee. Further, the Petitioner argued that as such, the issue of limitation, being a mixed question of law and fact, ought to be decided by the Arbitrator and cannot be gone into at the stage of a Section 11 application.
Findings of the Court
- The Supreme Court while relying on Bharat Sanchar Nigam Ltd & Anr v. Nortel Networks India Pvt Ltd, noted that in cases where claims are ex facie time barred, the Court may refuse to make reference under Section 11 of the 1996 Act.
- The Supreme Court while pacing reliance on its decision in Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, was of the opinion that a dispute arises when there is a claim/assertion by one side and denial/repudiation of the same by the other and such accrual of cause of action cannot be delayed or postponed by indefinite discussions/negotiations.
- While drawing reference from Geo Miller, the Supreme Court observed that although time spent in bona fide negotiations may be excluded for the purposes of computing limitation for reference of disputes to arbitration, it is necessary for the Court to go into the entire history of negotiations between the parties. ‘61. ….The entire history of the negotiation between the parties must be specifically pleaded and placed on record. It is only after the entire history of negotiation is pleaded and placed on record that the Court would be in a position to consider such history so as to find out what was the ‘Breaking Point’ at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration.’
- In the present case, the Supreme Court observed that disputes arose between the parties in 2014, leading the Petitioner to put forth its representation to the Respondent. Upon consideration of the Petitioner’s submissions, the Respondent then proceeded to encash the Bank Guarantee and deduct the LD in 2016. The Supreme Court was of the view the ‘breaking point’ between the parties in this case is the date of encashment of the Bank Guarantee and that is the day on which the cause of action arose for reference of disputes to arbitration.
- The Supreme Court held that ‘breaking point’, in the current scenario is when Bank Guarantee came to be encashed in the year 2016 and the requisite amount stood transferred to the Government Account. Mere negotiations will not postpone the ‘cause of action’ for the purpose of limitation. The Legislature has prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating.
The Apex Court has specified and defined a key condition for the invocation of the arbitration proceedings, that is the ‘breaking point’ where the differences between parties is evident and when the cause of action can arise. A party cannot postpone the accrual of cause of action by repeatedly writing letters or sending reminders. ‘Bilateral discussions’ for an indefinite period of time would not save the situation so far as the accrual of cause of action and the right to apply for appointment of Arbitrator is concerned.
 Arbitration Petition (C) No. 13 of 2023; 2023 SCC OnLine SC 657
 (2020) 14 SCC 643
 (2021) 5 SCC 738
 AIR 1988 SC 1887
 See Paragraph 61
 See Paragraph 63