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Abstract- This write-up examines the efficacy of the
‘force majeure’ provision under the Petroleum and Natural
Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate
or Expand City or Local Natural Gas Distribution Networks)
Regulations, 2008 (‘CGD Authorisation
Regulations‘).
1. Why Force Majeure:
What is the necessity of a ‘force majeure’ provision?
Arguably strict liability should be imposed in case of public
infrastructure projects. Accordingly, liquidated damages should
apply even if performance was not possible on account of events
beyond the control of the entity concerned. Counter-arguably, if a
project is not economically sustainable, it will result in several
undesirable outcomes because stakeholders will seek an escape
route.
It seems that there is a valid argument for a balanced force
majeure provision.
2. Existing Force Majeure provision in the CGD Authorisation
Regulations:
Regulation 2 (1) (ga): [Definitions]
“Force Majeure” shall mean and be limited
to
- war / hostilities;
- major riots or civil commotion;
- earthquake, flood, tempest, lightening [sic] or other
natural physical disasters; - restrictions imposed by Central Government or State
Governments, that have arisen after last date of submission of bid,
which prevents or delays the execution of obligations under these
Regulations
Regulation 14 (11) (12) (13): Service obligations of authorized
entity (post commissioning)]
(11) In the event of authorised entity being rendered unable
to perform any obligation required to be performed by it as per the
work program, due to force majeure, the relative obligation of the
entity affected by such force majeure shall be suspended for the
period during which such force majeure lasts and the decision of
the Board in this regard shall be final and binding on the
entity.
(12) Upon the occurrence of such force majeure and upon its
termination, the entity alleging that it has been rendered unable
as specified in sub-regulation (11), the entity must inform the
Board giving full particulars of the force majeure and duly
certified by statutory authorities, the beginning and end of the
delay due to such force majeure immediately but not later than 15
days from the end of such force majeure.
(13) Time for performance of the relative obligation
suspended by such force majeure shall stand extended by the period
during which such force majeure lasts.
Regulation 16 (2), second proviso: [Consequences of default,
pre-determined penalties and termination of authorisation
procedure, -]
Provided further that due cognisance of force majeure duly
accepted by the Board shall be taken in computing the
pre-determined penalty.
The PNGRB issued ‘Guidelines following requests of the CGD
Entities for extension of MWP Targets, on account of ‘Force
Majeure’ as defined under the CGD Authorisation Regulations
(“PNGRB Force Majeure Guidelines”).
Process for availing relaxation for delay in completion of work
program is set out in the PNGRB Force Majeure Guidelines.
(i) If authorised entity (a term defined under the PNGRB Act) is
unable to perform WP due to a FME, then within 15 days from the
date of occurrence of the FME authorised entity is to inform the
PNGRB.
Such information to cover full particulars of the FME, start
date of FME, area covered by FME along with supporting documents
and any other relevant information.
(ii) Within 15 days of the date on which FME ends either in
whole or part of the area where FME had occurred, the authorised
entity is to inform the PNGRB of the termination of FME.
Such information to cover details of the area in which FME has
terminated, along with supporting documents, details of the
activities affected due to the event in the implementation of the
CGD network and any other relevant information.
(iii) The PNGRB may ask the authorised entity to submit any
further information to verify its claim. The Board may upon
consideration of information submitted by the authorised entity or
otherwise available with it, by order, allow,
- whole or a part of the period claimed by the authorised entity
to be covered by FME, - whole or a part of the area claimed by the authorised entity to
be covered by FME - whole or a part of the CGD activities claimed by the authorised
entity to be affected by FME.
The PNGRB may also allow a period deemed reasonable by it as
restoration period after the termination of the FME for restoration
of the activities after termination of FME. The decision of PNGRB
in this regard shall be final and binding on the authorised
entity.
3. Points to Ponder:
(i) The definition of FME is exhaustive. It covers only those
events or class(es) of events which are stated. This would mean
that a strict interpretation of warranted.
It is noted that;
- ‘terrorism’ is not covered while ‘major riots’
or ‘civil commotion’ are covered within the meaning of
‘force majeure’. - ‘natural physical disasters’ are covered. This
expression is bound to stir debate since there is a divide between
natural, man-made and man-accelerated physical disasters. - a physical disaster, say like the one that may be caused by an
air-crash is not covered within the meaning of ‘force
majeure’.
(ii) Should there be a time frame within which the PNGRB should
respond? Would it be safe to understand that the PNGRB would in all
cases deliver a well-reasoned decision given that PNGRB is entitled
to consider additional information for reaching a decision.
As per Regulation 14(11) of the CGD Authorisation Regulation, if
the authorised entity is unable to perform as per work program due
to force majeure, the ‘relative obligation of the entity
affected by such force majeure shall be suspended for the period
during which such force majeure lasts’. As per the PNGRB
Force Majeure Guidelines, the PNGRB may also allow, a period deemed
reasonable by it as restoration period after the termination of the
FME for restoration of the activities after termination of FME.
Arguably, a ‘guideline’ cannot exceed the scope of the
regulation pursuant to which it is framed.
(iii) A closer examination of the words ‘relative
obligation of the entity affected by such force majeure
shall be suspended for the period during which such force
majeure lasts’ reveals that arguably there is some
inconsistency in the intent. The expression ‘relative’ has
been used to describe what ‘obligation’ shall be suspended-
‘relative obligation’ shall be suspended.
‘Relative’, in an adjective sense would mean, ‘having
relation or connection’ with some thing. In other words,
‘obligations’ connected with the force majeure which the
authorised entity was unable to perform on account of such force
majeure. Clearly, such obligations could easily survive the
cessation of the force majeure event. But the latter part of the
sentence says that suspension shall be for the period during which
such force majeure lasts.
The issue is that while the CGD Authorisation Regulation uses
the word ‘shall’ thereby mandating suspension of
‘relative obligations’, the PNGRB Force Majeure Guidelines
allow discretion to the PNGRB to allow restoration period after
force majeure.
4. Way forward:
Evidently, there is an urgent need to relook at the force
majeure regime under the CGD Authorisation Regulation for reasons
enumerated above.
It would be right to argue that it is better if the industry
expends resources to undertake its business activities instead of
battling not so reasonable challenges posed by the legal
framework.
Guidelines For Consideration Of ‘Force
Majeure’ In CGD Networks
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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