Article Type: Article

Building electric public transport infrastructure

Authored by Akshay Malhotra & Esha Nair

In a country largely dependent on public transportation, it is important to adopt eco-friendly modes of transportation. The government has set a target of running 100% electric vehicles in public transport by 2030. Achieving this appears to be a challenge as replacing conventionally fuelled vehicles alone may not encourage people using other forms of transportation to adopt public transport.

The government has actively taken steps in this direction by launching the Green Urban Transport Scheme (GUTS) and Faster Adoption and Manufacturing of Hybrid & Electric Vehicles (FAME)to promote the adoption of electric mobility in the country. The Ministry of Urban Affairs launched GUTS in 2017 to address infrastructure and financing in e-mobility, and to reduce carbon emissions from vehicles, especially government-owned public transportation.

The scheme proposes reforms like establishing a Unified Metropolitan Transport Authority and an Urban Transport Fund, and, adopting and implementing transit-oriented development, travel demand management measures, policy for urban street vendors etc. Similarly, FAME was introduced to enhance electric vehicle production and to facilitate the creation of electric transportation infrastructure.

The Ministry of Heavy Industries and Public Enterprises has notified the second phase of the FAME (FAME II) to boost clean mobility. Under the scheme, the government has decided set aside INR 100 billion (USD 1.45 billion) as subsidies to buy 7,000 buses over the next three years. The scheme offers various incentives to manufacturers, such as exemption from paying road tax, registration fee and parking charges for various categories of electric and strong hybrid vehicles. FAME II lays emphasis on charging infrastructure.

The government has sanctioned ₹85.96 billion for incentives, of which ₹10 billion has been earmarked for setting up charging stations for electric vehicles in India. FAME II has been proposed to provide one slow-charging unit for every electric bus and one fast-charging station for every 10 electric buses. Given the amount of capital required for the procurement of electric buses, a feasible way to accelerate growth is through public private partnership (PPP). Under the PPP model, the government would select a private entity to perform some or all of its functions.

PPPs are an effective mechanism as they aid the government in getting the infrastructure by partnering with private entities, which have the finances and the expertise. This can be put into practice through a gross cost model where the operator (selected through a competitive bid process) operates and maintains the project for a mutually decided term. The capital cost for procurement of buses along with the maintenance and charging infrastructure would be borne by the operator. Revenue from users would be collected and appropriated by the government, thereby, absorbing the revenue risks for the operator. The operator can be compensated through an annuity payment calculated on the basis of the total distance covered, adjusted for any deductions on account of failure to comply with performance parameters.

Another model that may be adopted is shifting the onus of revenue risks on the private participant, where the revenue generated through user fare, advertising at the depots and bus stops and real estate development, etc., is collected and appropriated by the operator. Additionally, the capital cost may be offset through viability gap funding (VGF). The VGF scheme, initiated by the Ministry of Finance, lends support to projects that are economically justified but not financially viable. The usual grant amount is up to 20% of the total capital cost of the project and funds for VGF are provided from the government’s budgetary allocation, which is revised annually.

With the available technology, buying an electric bus is capital intensive but the costs are likely to reduce with technological advancements. However, the biggest operating cost for electric buses would be electricity and the operator would require some sort of protection. This may be achieved by compensating the operator for any increase in cost of electricity exceeding a prescribed threshold, calculated at periodic intervals.

Certain states such as Karnataka, Kerala and Maharashtra have already set out electric vehicle policies. These policies lay down rules for charging infrastructure, road tax, motor vehicle tax etc. There is a need to provide robust policy framework at the national level. The NITI Aayog (the government think tank) has developed a model concession agreement on the gross cost model and it is up to the state transport authorities to take the initiative and adopt the PPP model.

Source: India Business Law Journal

Lenders face a choice between debtor, guarantor

Authored by Partner Ramya Hariharan along with Associate Asmita Rakhecha

Guarantee as a form of collateral security is popular in financing deals as the liability of a guarantor and the principal debtor are coextensive. Thus, the creditor has a remedy against both the principal debtor and the surety without having to exhaust the remedy against one of the parties before proceeding against the other. Despite this well-established principle, the question of whether simultaneous proceedings can be initiated against the principal debtor and guarantor was the subject of debates under the Insolvency and Bankruptcy Code, 2016 (code).

The National Company Law Appellate Tribunal (NCLAT), in the Vishnu Kumar Agarwal v Piramal Enterprises Ltd case, did not allow simultaneous proceedings against corporate guarantors for the same debt. Piramal Enterprises, a financial creditor, had instituted a corporate insolvency resolution process (CIRP) against the two corporate guarantors – Sunrise Naturopathy and Resorts and Sun system Institute of Information Technology for a debt owed to it by All India Society for Advance Education and Research. It had not initiated a CIRP against the borrower. The NCLAT was faced with two questions – whether a CIRP can be initiated against corporate guarantors without initiating one against the principal borrower, and whether a CIRP can be initiated against two corporate guarantors simultaneously.

The NCLAT answered the first question in the affirmative. However, with regards to the second question, the NCLAT held that though there is no bar in the code for filing applications simultaneously, once one of the applications is admitted, the financial creditor cannot proceed against the others. The rationale was that the code does not have the provision for filing a joint application against multiple corporate debtors unless they are combined in a joint venture company. The NCLAT held that for the same set of debts, a claim cannot be filed by the same financial creditor in two separate CIRPs. This means the lender is barred from pursuing parallel proceedings and it cannot participate in the CIRP of both the borrower and the guarantor even if such proceedings or one of them have been initiated by any other creditor or by the debtor itself.

The NCLAT dismissed the CIRP against the first guarantor as a CIRP against the second guarantor had already been admitted. The NCLAT held that the once a CIRP is admitted against the second guarantor, the first guarantor can say that the debt in question is not due as it is not payable in law, because it has been shown that the debt is payable by the second guarantor. This reasoning goes against the law relating to guarantees, where the guarantors may be jointly or severally liable for the debt. The admission of claim against one cannot constitute extinction of the right against the other.

The NCLAT had, in the ICICI Bank v Vista Steel Private Limited case, allowed a CIRP against the respondent guarantor despite a CIRP being admitted against the borrower and a resolution plan approved for the borrower. Thus, it appears that the NCLAT has been taking contrary positions on the question of simultaneous proceedings against guarantors and borrowers.

The Insolvency Law Committee (ILC), in a report, observed that having a remedy against both the surety and the debtor without the obligation to exhaust the remedy against one before proceeding against the other, is of utmost importance for the creditor and is the hallmark of a guarantee contract. The availability of such a remedy is in most cases the basis on which the loan may have been offered. The ILC’s observation was also relied upon by the Supreme Court in the State Bank of India v V Ramakrishnan & Ors case, albeit in the context of section 14 of the code, while arriving at the decision that a moratorium on a corporate debtor should not constitute a bar to the institution of proceedings against the personal guarantor.

The decision in the Piramal case, therefore, appears to be contrary to the cardinal principles of guarantees. Pursuant to this decision, the lenders seeking remedies under the code will now have to make a choice between the debtor and the guarantor. Further, the decisions where tribunals have allowed simultaneous proceedings are now open to challenge.

Simultaneous insolvency proceedings against the borrower and guarantor may result in complications especially where the CIRP of one of the parties is concluded while the other is still pending. To address these concerns, a framework for the consolidation of proceedings is needed. Denying the lender, the right to pursue simultaneous remedies may not be the answer.

Source: India Business Law Journal

Smart cities mission risk ushering in orwellian future

Authored by Rachika A Sahay, Partner along with Aakash Sharma, Associate, HSA Advocates

The Smart Cities Mission was launched by the government in June 2015 with a goal to develop 100 smart cities by 2020 (the deadline has been revised to 2023 now). Though a “smart city” is not defined under the mission statement and guidelines, it includes certain core infrastructure elements essential for a smart city.

It focuses on e-governance, information technology connectivity and digitalization. It envisages rapid exchange of information between citizens, government bodies and third-party service providers.

The computing infrastructure, which includes city data centres, gives rise to privacy concerns and the risk of increased surveillance under the guise of promoting safety. Most smart city proposals received by the government under the mission include extensive installation of closed-circuit television (CCTV) cameras across cities.

The creation of a consolidated electronic database of information could exponentially expand the potential for identity theft. The wide range of connected devices also raises cybersecurity risks, especially with hackers now capable of affecting city-scale infrastructure. The storage and transmission channels of data in smart cities are also vulnerable to cybercrimes.

Although not specifically mentioned in the Constitution of India, the right to privacy has been read into the fundamental right to life and personal liberty under article 21 of the constitution by the Supreme Court as early as 1964. The right to privacy can be understood to have been established in India over the preceding six decades by six major decisions given by the Supreme Court as “not being absolute”. In a more recent judgment, in the case of KS Puttuswamy (2017), the constitution bench of the Supreme Court underlined the importance of privacy in a public place.

Eye on legislature: In view of the threats to privacy that arise out of the smart cities mission, it is the duty of the state to put in place a data protection framework, which, while protecting citizens from the dangers to privacy from state and non-state actors, serves the common good. Currently, the law does little to protect individuals against such harm in India.

The transfer of personal data is governed by the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (SPD rules), issued under section 43A of the Information Technology Act, 2000. While the SPD rules are an attempt at data protection, the pace of development of the digital economy has made the definition of sensitive personal data unduly narrow leaving out several categories of personal data from their boundaries. Moreover, they can only protect an individual against a breach by a “body corporate”, breaches by other individuals and the state being outside their scope.

Though the government has introduced various draft policies for the smooth transition to smart cities, these have yet to be implemented into laws that can govern the mission. The Personal Data Protection Bill, 2018, is one such vital legislation.

The bill categorizes data into three different categories – personal data, sensitive personal data and critical personal data. Each category of data is (subject to the degree of sensitivity) required to be treated, procured and processed with a higher level of caution.

However, “critical personal data” has not been defined under the bill and the Data Protection Authority (to be constituted under the bill) has been tasked with notifying certain categories as critical personal data. Though the bill proposes safeguards, including some that have extra-territorial applicability, it may have to be revisited to remove the wide discretionary powers of the state and include specific mechanisms and processes instead.

A report on data privacy released by a committee of experts under the chairmanship of BN Srikrishna has taken a vociferous stand against state surveillance. The committee identified a list of 50 statutes and regulations that have potential overlap with the proposed data protection framework. Involving the relevant ministries early on is important to ensure appropriate consultation and complementary amendments. At this stage, a more pragmatic approach would be to devote all focus on stakeholder consultations and subsequently revisit the bill with a more holistic outlook.

The balance between the right to privacy and ease of doing business would be a tightrope walk. The buck, however, stops at effective implementation.

Source: India Business Law Journal