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GUIDELINES FOR CONSIDERATION OF ‘FORCE MAJEURE’ IN CGD NETWORKS

Date | Version May 30, 2022| 1.0
Keywords ‘Force Majeure’, ‘Force Majeure Event (FME)’, ‘Strict Liability’
List of Legislation Referred i. CGD Authorisation Regulations, 2008

ii. PNGRB Force Majeure Guidelines

Jurisdiction India

 

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.

  1. Existing Force Majeure provision in the CGD Authorisation Regulations:

Regulation 2 (1) (ga):

“Force Majeure” shall mean and be limited to

(i) war / hostilities;

(ii) major riots or civil commotion;

(iii) earthquake, flood, tempest, lightening or other natural physical disasters;

(iv) 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:

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:

  • 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;

    1. ‘terrorism’ is not covered while ‘major riots’ or ‘civil commotion’ are covered within the meaning of ‘force majeure’.
    2. ‘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.
    3. a physical disaster, say like the one that may be caused by an air-crash is not covered within the meaning of ‘force majeure’.
  • 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.

  • A closer examination of the words ‘relativeobligation 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 something. 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.

  1. 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.