\n<\/p>\n
\nQUO VADIS<\/span><\/u><\/i><\/b> THE CONTRACTOR \nM. \nContractor \nThe creation of a nation\u2019s critical infrastructure \nThe outbreak and \nCentral \nThe Modi 2.0 Government stepped in with all the \nContractual \nIn continuation to the February 19, 2020 notification \nRelief \nThe Ministry of Road Transport & Highways on June \nIn case of thermal power generating companies, the \nDeferment of revenue share, royalty and equipment hire \nNo \nAn illustrative list of the measures as above \nIt has been difficult times for the contractors, \nEnd \n1. \n2. \n3. \n4. \n5. \n6.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/span>Notification F.No.12\/17\/2019-PPD dated May 15, 2020 issued by the \n7. \u00a0\u00a0\u00a0\u00a0\u00a0 <\/span>Press \n8.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span>Notification \n9.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span>Office \n10.\u00a0\u00a0\u00a0\u00a0 <\/span>Memorandum \n11.\u00a0\u00a0\u00a0\u00a0 <\/span>Office \n12.\u00a0\u00a0\u00a0\u00a0 <\/span>Press \n13.\u00a0\u00a0\u00a0\u00a0 <\/span>Office \n14.\u00a0\u00a0\u00a0\u00a0 <\/span>Office \n15.\u00a0\u00a0\u00a0\u00a0 <\/span>Press \n16.\u00a0\u00a0\u00a0\u00a0 <\/span>Notification \n18.\u00a0\u00a0\u00a0\u00a0 <\/span>Polytech Trade Foundation vs. Union of India \n19.\u00a0\u00a0\u00a0\u00a0 <\/span>Indirajith Power Private Limited vs. Union \n20.\u00a0\u00a0\u00a0\u00a0 <\/span>MEP Infrastructure Development Ltd. vs. \n21.\u00a0\u00a0\u00a0\u00a0 <\/span>Standard Retail Pvt. Ltd. vs. GS Global \n22.\u00a0\u00a0\u00a0\u00a0 <\/span>Order dated 07.04.2020 in Commercial Suit <\/div>\n\n","protected":false},"excerpt":{"rendered":" QUO VADIS THE CONTRACTOR IN THE TURBULENT TIMES OF COVID-19 ? M. SIVARAMAN Contractor Hues & Covid-19 Woes: The creation of a nation\u2019s critical infrastructure like roads, bridges, airports, seaports, dams, hydro-electric projects, power projects, telecommunication and internet, special economic zones and their continued operation and maintenance is no more the sole preserve of the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[18968,13547,32332,4319,27476,168442],"dealstore":[],"offerexpiration":[],"class_list":["post-345900","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-contractor","tag-covid19","tag-quo","tag-times","tag-turbulent","tag-vadis"],"yoast_head":"\n
\nIN THE TURBULENT TIMES OF COVID-19 ?
\nSIVARAMAN<\/b>
\nHues & Covid-19 Woes:
\nlike roads, bridges, airports, seaports, dams, hydro-electric projects, power
\nprojects, telecommunication and internet, special economic zones and their
\ncontinued operation and maintenance is no more the sole preserve of the
\nsovereign governments. Even the generally reserved activities of a national
\nlike atomic energy, defence, space technology has never been fully
\nself-reliant.\u00a0 <\/span>There have been an army of
\ncontractors, developers and concessionaires who have catered to this
\ninfrastructure development of a country and India is no exception with the
\nprivate sector contractors\u2019 role displaying a continuum ranging from a humble
\nsupply of goods or services contract through turnkey and Engineering,
\nProcurement and Construction (\u201cEPC<\/b>\u201d)
\ncontracts to the Build, Own, Operate and Transfer (\u201cBOOT<\/b>\u201d) variant concession agreements under the Public Private
\nPartnership (\u201cPPP<\/b>\u201d) formats.\u00a0\u00a0 <\/span>Besides the Central and State Governments,
\ntheir Public Sector Enterprises and the local bodies, several private
\ninfrastructure developers and other contractors who have been awarded such
\npublic contracts also in turn engage sub-contractors, suppliers, vendors and
\nother service providers from the private sector.\u00a0 <\/span>Now, what happened to all these private
\ncontractors when the Covid-19 global pandemic onslaught began in our
\ncountry?\u00a0 <\/span>
\nrapid spread of Covid-19, as a global pandemic, to almost every country in the
\nglobe wrecked catastrophic damage to precious of human lives and led to the
\nclamping down of virtual lockdown of human activity into quarantine and curfew
\nrestrictions in several parts of the globe, including India.\u00a0 <\/span>In our country, initially employees were
\nadvised to practice social distancing, very soon to be directed to work from
\nhome and thereafter abruptly directed to be confined in their homes, with the
\nresult all the contractors\u2019 offices, as well as project sites and contractual
\nperformances were constrained to be suspended since the beginning of March
\n2020.\u00a0 <\/span>Several State Governments in India
\nalso announced additional or more stringent measures, including containment
\nzone restrictions, thereby adversely affecting the ability of staff and
\nemployees of the contractors to perform their services.\u00a0 <\/span>Travel of the project \u00a0<\/span>and other staff, both domestic and
\ninternational, have been abruptly stopped with the cancellation of
\ninternational and domestic flights, cessation of train and other surface
\ntransportation in India affecting project execution and completion activities.\u00a0 <\/span>Their suppliers and vendors, both in India
\nand abroad, have also been in turn affected by similar suspension of all
\nactivities, including the lockdown, non-processing or production and consequent
\nnon-supply of equipment\/materials, non-rendering of services to the Indian
\ncontractors, affecting the entire supply chain.\u00a0
\n<\/span>Almost the entire migrant labour who were working in all the project
\nsites have fled to their home states thereby crippling the project execution
\ncapabilities.\u00a0 <\/span>Besides, there are severe
\nlockdown and interstate as well as intrastate movement restrictions in several
\nparts of the country which is also affecting project execution activities.\u00a0 <\/span>Project and contractual collections from the
\nemployers drastically fell through to nil and the contractors were soon left
\nwith no revenue realisation, despite their obligation to provide for staff
\nsalary, overhead, statutory and tax outgoings. The scope, effect and impact of
\nthis global pandemic on various aspects of human resource availability and
\napplicability, closure of offices and project operations, inability to achieve
\nproject milestones, loss of projected revenues, statutory and tax outgoings,
\nidle wages to employees, repayment obligations towards lenders and operational
\ncreditors is presently incalculable, unprecedented and unpredictable and way
\nbeyond the reasonable control of the contractors.\u00a0 <\/span>Under these circumstances, it is only just
\nand necessary that the contractual obligations need to be excused from
\nperformance till such circumstances cease to exist.\u00a0\u00a0 <\/span>
\nGovernment Succor to the Contractors:<\/span><\/u><\/b><\/p>\n
\nalacrity it deserved and unleashed a slew of relief measures to tide over
\nCovid-19 pandemic.\u00a0 <\/span>It readily came
\nforward to extend force majeure condition<\/i>
\nto the outbreak of Covid-19 so as to ensure that contractors do not end up in
\ndefault in relation to all supply contracts with the Central Government(1).\u00a0
\n<\/span><\/b>For its part, the Reserve Bank of India (\u201cRBI<\/b>\u201d) had declared and extended moratorium on term loans and
\nworking capital facilities effectively for a period of 6 months(2)<\/b>.\u00a0
\n<\/span>The Central Government realized the need to prevent the defaulting
\ncontractors, inter-alia<\/i>, from being
\nhauled over the coals of the Insolvency and Bankruptcy Code, 2016 (\u201cIBC<\/b>\u201d) which could render them
\ncommercially extinct by promulgating relaxations, moratorium on initiation of
\ncorporate insolvency resolution process and associated liquidation process(3)<\/b>.\u00a0
\n<\/span>However, while ensuring liquidity of cash into the hands of the
\ncontractors and preventing a financial default and its resolution under the
\naegis of IBC are welcome, it was a dire legal imperative that the contractors
\nneed to be provided contractual reprieves and relaxations in their contract
\nconditions and stipulations, which was also duly taken cognizance of by the
\nModi 2.0 Government.
\nPerformance Relaxations:
\nof the Finance Ministry permitting Covid-19 as a force majeure<\/i> condition, the Finance Minister announced <\/span>on May 15, 2020, inter-alia<\/i>, to the effect that \u201c<\/span>All central agencies like Railways,
\nMinistry of Road Transport and Highways and CPWD will give extension of up to 6
\nmonths for completion of contractual obligations, including in respect of EPC
\nand concession agreements.\u201d <\/span><\/i>\u00a0\u00a0<\/span>The Finance Ministry further clarified that
\nfor all contracts which were due to be completed on or after February 20, 2020
\nshall be duly extended by a period of 3 months to 6 months without imposition
\nof any cost or penalty on the contractors or the PPP concessionaires(4)<\/b>. \u00a0\u00a0<\/span>Besides the above, in order to ease the
\nworking capital requirements and save the bank guarantee commission charges,
\nthe Central Government also issued orders to the Government Departments and
\ncentral agencies to reduce the value of the performance bank guarantees submitted
\nby the contractors to the extent of work already completed by them(5).\u00a0
\n<\/span><\/b><\/span>In order to
\nsupport the Indian contracting companies, the Central Government also notified
\nthat no global competitive tendering shall be any more mandatory for contracts
\nvalued less than Rs.200 crores(6).\u00a0 <\/span><\/b>The Ministry of Defence also extended the
\ndelivery time of Indian contractors for all capital acquisition contracts by
\nfour months without computing the said period for imposition of liquidated
\ndamages(7). <\/b>
\nto PPP Concessionaires:
\n3, 2020 announced relief measures to the contractors, concessionaires and
\ndevelopers in the road sector, inter-alia<\/i>,
\nproviding for release of the retention money pro-rata<\/i> to the work completed by them; extension of time under the
\ncontracts between 3 to 6 months depending on site conditions; direct payment to
\nsub-contractors through escrow accounts; waiver of penalty for delay in
\nsubmission of performance bank guarantee; extension of the concession period to
\ncompensate the loss in toll fee collections etc.(8).\u00a0 <\/span><\/b>Real estate developers
\nwere also accorded extended timelines for registration and completion of their
\nprojects in terms of the Real Estate (Regulation & Development) Act, 2016(9)<\/b>.
\nMinistry of Power exhorted them to utilize domestic coal for blending purposes in
\nthe face disruption in global supply chain and offered to make the same
\navailable on priority basis(10).\u00a0 <\/span><\/b>The Ministry of New & Renewable
\nEnergy permitted the granting of suitable extension of time for the achievement
\nof Scheduled Commissioning Date for the renewable energy projects(11) <\/b>and subsequently the entire
\nlockdown period plus 30 days normalization period was also directed to be
\nautomatically granted as force majeure<\/i>
\nperiod(12) <\/b>and it also permitted
\nthat all the renewable energy projects can raise invoices and bills through
\nemails by relaxing the mandatory norm of hard copy submission(13).\u00a0
\n<\/span><\/b>DISCOMS were also directed to avail power from the renewable energy
\ngenerators with a \u2018must-run<\/i>\u2019 status
\nduring the lockdown period and that DISCOMS should make payments to the
\nrenewable energy generators as done prior to lockdown(14).\u00a0 <\/span><\/b>Certain relaxations
\nand extension of time was also provided to the developers, co-developers as
\nwell as units functioning in the Special Economic Zones(15).\u00a0 <\/span>
\ncharges was directed to be provided to port concessionaires, besides granting waiver
\nof lease rentals and licence fees as well as relaxation in minimum guaranteed
\nthrough-put (\u201cMGT<\/b>\u201d) obligations and
\nperformance standards obligations(16).\u00a0 <\/span><\/b>In order to enhance the competitiveness
\nof the Indian contractors and to ward off Chinese contractors, the Minister for
\nRoad Transport & Highways recently declared a ban on Chinese contractors in
\nall road projects and recommended the lowering of the project experience
\nqualifications and financial eligibility criteria for Indian contractors(17)<\/b>.
\nPanacea for Contractors<\/span><\/u><\/b>:
\nhighlighted may accord an impression that that the contractors, developers and
\nconcessionaires have been ring-fenced against all the adversities caused by the
\nCovid-19 pandemic in India.\u00a0
\n<\/span>Unfortunately, the fact is otherwise.\u00a0
\n<\/span>It would be palpable that all the above advisories and relief measures
\nhave been announced by the Central Government and are therefore binding only on
\nthe Central Ministries and Departments and the central agencies and their
\npublic sector.\u00a0 <\/span>Firstly<\/i>, even these Central Government advisories did not have any
\nsalutary effect to secure interim measure of protection\/ mandatory injunctions
\nagainst private parties(18).\u00a0 <\/span><\/b>Secondly,<\/i> <\/b>in the matter of granting injunction
\nagainst bank guarantees and letters of credit, the courts have held that
\nalthough Covid-19 qualifies as a force
\nmajeure<\/i>, if there had been defaults committed by the contractors prior to
\nthe outbreak of this pandemic and continued thereafter, then, no relief could
\nbe granted in their favour(19).\u00a0 <\/span><\/b>Delhi High Court gave certain reliefs to
\na road concessionaire by applying the advisories of the Ministry of Road
\nTransport & Highways, although it did not effectively prevent the
\ninvocation of bank guarantees(20).\u00a0 <\/span><\/b>No injunction was granted to restrain payments
\nunder letters of credit during Covid-19 pandemic(21).\u00a0 <\/span><\/b>Thirdly, <\/i>the State Governments who have also awarded several
\ncontractors and concession agreements under PPP format have left the
\ncontractors in the lurch without any written down policy and advisory
\npronouncements on granting any relaxation, reliefs or extensions or waivers in
\nrelation to contractual compliance, thus, exposing them to the vagaries of subjective
\nand unpredictable interpretation in matters relating to determination of force majeure<\/i> protection for their
\ncontractors.
\ndevelopers and the concessionaires to navigate through the turbulent Covid-19
\ntimes and there has to be not only policy pronouncements by the Central
\nGovernment, but, the State Government should also emulate the same in relation
\nto the contracts in their realm.\u00a0 <\/span>The
\nregulators and the judiciary have by and large appreciated the difficulties
\nfaced by the contractors, but, have been generally averse to intervene in
\nmatters of injuncting bank guarantees and letters of credit (possibly as these
\nare independent contracts between the banks and the beneficiaries) especially
\nwhen defaults have been committed by the contractors prior to the onset of the
\nCovid-19 pandemic.\u00a0 <\/span>However, the
\njudiciary and the regulators have not fought shy to come to the rescue of the
\ncontractors who had been diligent in their contractual performances, but, bonafide<\/i> came to be affected by the
\nCovid-19 force majeure<\/i> circumstances(22<\/b>).
\nNotes:-
\nOffice Memorandum No.F.18\/4\/2020-PPD dated February 19, 2020 of the Ministry of
\nFinance, Government of India.
\nFor more details on this subject, see my earlier post dated June 6, 2020 titled
\n\u201c<\/i><\/span>RBI\u2019s Covid-19 Loan
\nMoratorium & Judicial Responses\u201d<\/span><\/i>\u00a0 <\/span>in this blog.
\nFor more details on this subject, see my earlier post dated June 13, 2020
\ntitled \u201c<\/span>Covid-19 & Modi 2.0\u2019s Relaxing the Rigours of the
\nInsolvency and Bankruptcy Code<\/span><\/i>\u201d in this blog.
\nOffice Memorandum No.F.18\/4\/2020-PPD dated May 13, 2020 of the Ministry of
\nFinance, Government of India.
\n\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span>Office Memorandum No.F.18\/4\/2020-PPD
\ndated May 13, 2020 of the Ministry of Finance, Government of India.
\nMinistry of Finance, Government of India.
\nRelease dated June 12, 2010 by the Ministry of Defence, Government of India.
\nNo.COVID-19\/RoadMap\/JS(H)\/2020 dated June 3, 2020 issued by the Ministry of
\nRoad Transport & Highways, Government of India.
\nMemorandum No.O-17024\/230\/2018-Housing-UD\/EFS-9056405 dated May 13, 2020 issued
\nby the Ministry of Housing & Urban Affairs, Government of India.
\nNo.F.No.FU\/21\/2020-FSC dated April 28, 2020 issued by the Ministry of Power,
\nGovernment of India.
\nMemorandum No.283\/18\/2020-GRID SOLAR dated March 20, 2020 issued by the
\nMinistry of New & Renewable Energy, Govt. of India.
\nRelease dated April 21, 2020 issued by the Ministry of New & Renewable
\nEnergy, Govt. of India.
\nMemorandum No.283\/18\/2020-GRID SOLAR dated April 1, 2020 issued by the Ministry
\nof New & Renewable Energy, Govt. of India.
\nMemorandum No.283\/18\/2020-GRID SOLAR(ii) dated April 1, 2020 issued by the
\nMinistry of New & Renewable Energy, Govt. of India.
\nRelease dated March 30, 2020 issued by the Ministry of Commerce & Industry,
\nGovernment of India.
\ndated April 21, 2020 of the Ministry of Shipping, Government of India.
\n& Ors<\/i> decided on May 22, 2020 by the Delhi High Court;\u00a0 <\/span>Rashmi
\nCements Ltd. vs. World Metals & Alloys (FZC) & Anr.<\/i> decided on\u00a0 <\/span>June 18, 2020 by the Delhi High Court.
\nof India & Ors<\/i>. Decided on April 28, 2020 by the Delhi High Court; <\/span>Halliburton Offshore Services Inc.
\nvs. Vedanta Limited & Anr.<\/span><\/i> decided on\u00a0 <\/span>29.05.2020 by the Delhi High Court.
\nSouth Delhi Municipal Corporation & Ors<\/i>. Decided on June 12, 2020 by
\nthe Delhi High Court.
\nCorp. and Ors.<\/i> Decided on April 8, 2020 by the Mumbai High Court.
\nNo.LD-VC-7 of 2020 alongwith IA No.LD-VC-7(IA) of 2020 and \u00a0\u00a0\u00a0\u00a0 <\/span>Transcon
\nSkycity Pvt. Ltd. And Ors vs. ICICI Bank and Ors.<\/i> Order dated 11.04.2020
\npassed in W.P. Nos.LD-VC No.28 & 30 of 2020 by the Mumbai High Court.