Renewable energy is inevitably the more dependable energy choice for a sustainable, green, and unperishable planet. It remains the emerging and yet the most advancing source/form of energy. According to theStanding Committee on Energy’s Report 2020-2021, India hastargeted to achieve 175 Gigawatt of renewable energy by 2022. This shallinclude 100 Gigawatt of solar energy, 5 Gigawatt of hydropower, and 60 Gigawatt of wind energy. Indiahas already installed renewable energy capacity, which stands at 159.95 Gigawatt (May 2022). However, despite these efforts, there can be numerous differences between the developers and the Government that causes a delay in renewable energy projects.
It is against this background that the authors explain through this Blog Post the procedural framework pertaining to the Dispute Resolution Committee. The Blog Post also highlights the inadequacy/flaws/loopholes in the mechanism and the resultant difficulties being triggered. The Blog Post initially focuses on the procedural mechanism for establishing a Dispute Resolution Committee and the ambit/scope of matters it is empowered to take up. Further, it lays down the requisite fee payable and the temporary disruptions in the supply of imported Solar Photo Voltaic Modules – Special Dispensation under the Dispute Resolution Mechanism. Lastly, the authors suggest reasonable solutions that might be incorporated to address the scope of any misconstruction.
“To truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy.”
India’s renewable energy sector has seen a boost inrecent times. However, since the energy sector is large, complex, and capital-intensive with alonger investment period, it is important that disputes are addressed and resolved through efficient and effective methods. In any energy sector, disputes are generally between state versus state, company versus state, company versus company, and individual versus company. The parties opt to address their issues with multiple dispute-resolution mechanisms like negotiation, mediation, arbitration, litigation, expert determination, and other similar methods.
To resolve the disputes that arise out of the contractual agreements between solar or wind power developers and the Renewable Energy Implementing Agencies, the Ministry of New and Renewable Energy Resources (MNRE) hasdevised a Dispute Resolution Mechanism (DRM) that resolves disputes between the renewable energy developers and Renewable Energy Implementing Agencies. Initially, the mechanism only concerned the Solar Energy Corporation of India Limited (SECI) and National Thermal Power Corporation Limited (NTPC). However, now, according to theMNRE Order dated 25 September 2020, MNRE has also included the National Hydroelectric Power Corporation (NHPC). Thus, the Renewable Energy Implementing Agencies are SECI, NTPC, and NHPC. The MNREdevised a Dispute Resolution Committee (DRC) in 2019, which resolves disputes quickly and at a lower litigation cost. Currently, the MNRE, in itsCircular dated 3 March 2022, has stated that due to the DRM’s success, states are to consider the setup of DRM for easy dispute resolution. Thus, this Blog Post details the procedure and functioning of the DRM that has come into existence and subsequently been amended.
2. Setting up of the DRC (via MNRE Order dated 18 June 2019)
The DRC shall be set up under the approval of the Minister of New and Renewable Energy Resources (NRE). It shall consist of 3 eminent personalities of impeccable integrity whose ceiling age limit shall be 70 years. The selection of DRC members would be in a way that ensures there will be no conflict of interest. The Minister of NRE appointed the initial DRC bench constituting former IAS officers as its members.
The DRC is empowered to hear all the schemes, programs, or projects dealing with solar, wind, and hydro energy, which are implemented through/by SECI/NTPC/NHPC. The disputing parties can directly represent their case; notably, lawyers are not involved in the process for any representation. The DRC can also hear matters arising from the dissatisfaction of the developer from the decision of the SECI/NTPC/NHPC. Consequently, the developer makes the requisite fee payment and prefers an Appeal before the DRC. The DRC, upon examination, submits its recommendations to MNRE within 21 days for MNRE’s observations. The DRC is free to interact with the relevant parties of the case or MNRE’s Division dealing with the DRM to arrive at its conclusion. The MNRE’s observations and the DRC’s recommendations shall be placed before the Minister of NRE for the final decision within the next 21 days after receiving the DRC’s recommendations.
3. Applicable Cases and Fee Payable
In theMNRE Order dated 25 September 2020, it can be seen that the scope of the Appeal and the applicable fees payable for such an Appeal have been amended to include cases against the Renewable Energy Implementing Agencies.
The applicable cases that DRC will consider against SECI/NTPC/NHPC and the fees payable for such cases are as follows:
|Applicable cases||Fees payable|
1. Extension of Time owing to Force Majeure, based on terms of the contract:
|In case of an EoT dispute, the fee payable shall be 1% (one percent) of the impact of SECl/NTPC/NHPC’s decision being challenged, with the impact being limited to the Performance Bank Guarantee (PBG) submitted for the project concerned, and which in no case be less than Rs. 1,00,000/- (Rupees one lakh) and not more than Rs. 50,00,000/- (Rupees fifty lakh).|
2. EoT not covered under the contractual agreement:
3. Other Disputes:
In case of disputes not coming under EoT, and in case there is no PBG covering the dispute, then the fee shall be 1% (one percent) of the total impact of the dispute, which in no case be less than Rs. 1,00,000/- (Rupees one lakh) and not more than Rs. 50,00,000/- (Rupees fifty lakh).
Disputes not coming under the head of EoT, but in case there is a PBG covering the dispute, then the fee shall be the same as EoT with PBG.
Such a fee collected shall be deposited in the appropriate Payment Security Fund, which is maintained by SECI/NTPC/NHPC. If the Government upholds the Appeal as a whole after considering DRC’s recommendations and strikes down SECI/NTPC/NHPC’s Order, the fee shall be refunded to the developers. For such a refund, the DRC recommendation and a Governmental Order giving effect to the same are necessary. In other cases where the fee is received but not required to be refunded, the fee shall be credited to the appropriate Payment Security Fund maintained by SECI/NTPC/NHPC.
It has now beenclarified that if the number of days for EoT allowed by the Government after considering the DRC’s recommendation is less than the number of days for EoT claimed by the solar/wind power developer, the fee refund shall be proportional to the number of days allowed in comparison to the total number of days claimed by the developer. In circumstances where the Government’s Order has already been communicated to the DRC or SECI, NTPC, and NHPC, the reimbursement may be issued based on this clarification without needing a DRC recommendation and a Governmental Order.
|DRC Fee Paid||Rs. 5 lakhs|
|Number of days of EoT claimed by the developer||50 days|
|Number of days of EoT recommended by the DRC and agreed upon by the Government||25 days|
|The fee which may be refunded||[(5,00,000 x 25)/(50)] = Rs. 2,50,000|
4. Procedural Guidelines to Set up DRC (via MNRE Order dated 20 September 2019)
The DRC shall have a Secretariat as provided by SECI/NTPC/NHPC, which shall be headed by the Secretary appointed, who shall not be below the rank of General Manager. The names and contact addresses of the respective Secretaries shall be made available on the respective websites. For the smooth processing of applications, SECI/NTPC/NHPC shall support the DRC Secretariat in terms of supporting staff, Information Technology support, and other related amenities. The working process as per theMNRE Order dated 20 September 2019 is depicted below:
The Secretary of DRC shall convene meetings for making the final decision in the matter, provided such meetings are held in the frequency and manner that 21 days is observed for making the final decision.
It isobservable that for the 21-day period when an Appeal has been preferred, the developer does not face any repercussion or financial impact with respect to the Order of SECI/NTPC/NPHC. Thereafter as well, in case of acceptance of the Appeal, no action can be taken up until the final disposal of the appeal by the DRC/MNRE. Hence, the developer gets off scot-free for a prolonged period during which the matters remain lis pendens.
In case of rejection of the Appeal for want of requisite fee or Appeal not being filed within the appropriate time, SECI/NTPC/NPHC shall carry forth appropriate action.
5. Temporary Disruptions in Supply of Imported Solar Photo Voltaic Modules – Special Dispensation under the DRM (viaMNRE Order dated 3 November 2021)
Owing to various circumstances, the MNRE interrupted the import of Solar Photo Voltaic (PV) Modulesarising from the imposition of Basic Customs Duty (BCD) on Solar PV Modules. In light of this, several requests weresent to MRNE for an extension of project commissioning deadlines and postponement of the scheduled date for the imposition of BCD on the import of Solar Cells and Modules.
After considering the projects under implementation through MNRE’s Renewable Energy Implementing Agencies and projects having Scheduled Commissioning Date (SCD) before 1 April 2022, the DRC wasempowered to examine the necessity of further extension of the concerned projects and subsequently make a recommendation to MNRE on a case-to-case basis.
Despite the rosy picture and expectations of energy sector stakeholders for an effective and efficient DRM, the existing structure adds to the woes rather than resolving them. There is a saying that too many cooks spoil the broth. Usually, the Power Purchase Agreements (PPAs) contain DRM clauses. When such PPAs are silent or have not incorporated any DRM clause, the DRM becomes open-ended, and the developer may opt for DRM as mentioned above. The mere absence of a DRM clause in PPAs does not automatically oust the jurisdiction exercisable by the DRM. Parties must incorporate the DRM of their choice in their agreements, and it is unlikely that parties will move to DRC from arbitration clauses to resolve their disputes. The DRC will not wholly fill for an absent arbitration clause or supplant dispute resolution terms.
Another issue with the DRC structure is that it does not hold the final adjudication. The current structure is subject to the final decision of the MNRE in the present situation. Since the final adjudication does not rest with DRC, there is room for potential litigation and parties reaching courts for adjudication of their disputes if they opt for the DRM route, which may include negotiation, mediation, and DRC’s process, amongst others. This defeats the very purpose of having DRM. Further, if a developer wants to approach DRC for adjudication of disputes, it must deposit a fee of 1% (one percent) of the total impact of the dispute, which in no case be less than Rs. 1,00,000/- (Rupees one lakh) and not more than Rs. 50,00,000/- (Rupees fifty lakh). Such a hefty amount mandated by the authority for adjudication of disputes will act as a deterrent as it places a financial embargo/threshold for the developer to approach DRC for adjudication of its disputes. This also minimizes any attempts at fallacious/fabricated matters.
TheMNRE Order dated 3 March 2022 allows DRC to interact with relevant parties of the case freely and record their views. No lawyers are permitted to present the case before DRC. SECI/NTPC/NHPC is allowed to present its views or arguments on the pleas made by the applicant. DRC can also interact with MNRE’s Division dealing with the DRM to address the issues if necessary. The absence of legal members, be it in adjudicatory roles or as lawyers, defeats the purpose of such dispute resolution. Disputes are not simpliciter issues related to technicalities but a mix of legal and technical problems. Ousting legal members from such a resolution process creates more problems as the technical members, without any expertise in legal matters, attempt to address legal problems. The DRC submits its recommendation to the MNRE, which is then examined by the MNRE and placed before the Minister of MNRE for final decision. The entire process is bereft of legal members and might get challenged before Courts for proper adjudication. This will further burden the existing dispute resolution structure, and parties might opt for arbitration as being captured generally across the PPAs. Further, this is a unique proposition where SECI/NTPC/NHPC are allowed to give their opinion in disputes. This is problematic because they are party to such a dispute, and allowing them to render their opinion on the dispute does not bring the requisite objectivity like that of a traditional dispute redressal forum.
The application will be summarily rejected if the applicant has come directly to the DRC without first taking recourse to SECI/NTPC/NHPC. This summary rejection in the absence of legal members will lead to litigation, thereby delaying the dispute-resolution process. Since the entire dispute resolution process does not involve any legal member, the aggrieved party will approach the judiciary to adjudicate the dispute. InRojer Mathew v South Indian Bank Limited, the Supreme Court held that judicial functions cannot be performed by technical members who do not possess any “adjudicatory experience.” Thus, the current DRC structure enables it to resolve disputes without legal competency.
The DRC must give its recommendations on SECI/NTPC/NHPC’s Order within 21 days of such reference. If the DRC cannot give its decision within 21 days, the Secretary (DRC) will inform the MNRE in furtherance of the matter to allow for an additional 14 days for DRC to reach a conclusion and share its findings with MNRE. The strict timeline could fall short if the various matters are clubbed to be heard by DRC. With no lawyers involved and a strict time frame, developers will be reluctant to approach DRC for dispute resolution.
The purpose of setting up DRC is to facilitate the resolution of disputes and enhance investors’ confidence in the system. However, the currently placed system has inherent issues that will make the process more complicated and time-consuming. Therefore, the system must include legal members and remove the pre-dispute deposits as a pre-requisite for dispute submission to DRM. Further, the final decision should rest with legal and technical experts, not just bureaucrats. A clarified and sound DRM must be placed to gain investors’ confidence and India’s ranking in ease of doing business, but the same cannot stand only on the legs of technical members as this will only create layers of forums and not a speedy determination of disputes.
The views expressed in this article are the original views of the author. The Journal has no contribution to the ideas expressed.
About the Authors
Ms. Aarvi Singh and Ms. Nischala Maruvada are Associates at Argus Partners.
Managing Editor: Naman Anand
Editors-in-Chief: Muskaan Singh and Hamna Viriyam
Senior Editor: Pushpit Singh
Associate Editor: Harshita Tyagi
Junior Editor: Sathvik Sudireddy
Preferred Method of Citation
Aarvi Singh and Nischala Maruvada, “Dispute Redressal Mechanism in the Renewable Energy Sector in India” (IJPIEL, 12 December 2022)