Legal Aspects of Business

Assignment - 1

Group 14:

2022MBA064 Akash Agarwall

2022MBA080 Himanshu Chaturvedi
2022MBA094 Parvathi V Khandre
2022MBA111 Sharon Burh

Q1. Make a flowchart for the contract. Where and why did it fail?
A contract is a written or spoken agreement, especially one concerning employment, sales,
or tenancy, that is intended to be forceable by law.

The Claimants:

1. PT HEXING TECHNOLOGY
2. HEXING ELECTRICAL COMPANY LIMITED
3. SMARTERING INFRATECH PRIVATE LIMITED

The Respondent:

1. ENERGY EFFICIENCY SERVICES LIMITED (EESL)

The contract:

EESL had issued a bid document dated 08.03.2018 inviting bids for procurement of 5 million
smart energy meters pan India. The Claimants had formed a consortium vide agreement
dated 03.05.2018 for the purposes of bidding for the above. Pertinently, a bid was submitted
and vide letter of award (LOA hereinafter) dated 04.12.2018, the Consortium was awarded
the project for designing, engineering, manufacturing, testing, inspection, packing, supply,
transportation and insurance of 1.5 million smart energy meters along with meter box
(Project) for a contract value of Rs. 344,47,50,000.00 (Rupees Three Hundred Forty-Four
Crores Forty-Seven Lakhs Fifty Thousand Only) excluding GST.
Q2. What are the considerations of the contract?
Ans:
1. EESL issued a bid document inviting bids for procurement of 5 million smart energy
meters pan India and a bid was submitted by the consortium. The Bid document
clearly contained a Force Majeure Clause.
2. Ernst & Young (EY) included certain technical requirements for the smart meters in
addition to the specifications provided in the contract.
3. EESL asked all the bidders to submit a declaration that they would conduct the tests
as per BIS standards and will submit BIS certificates for the meters
4. Supply of 1.5 million smart meters and for a contract value of Rs. 344,47,50,000.00
(Rupees Three Hundred Forty Four Crores Forty Seven Lakhs Fifty Thousand Only).
5. Contract price is exclusive of GST
6. Terms of Payment, payment to be made by EESL not later than 30 days after
submission of invoice
7. Any delay on account of System Integrator would not lead to imposing penalty on the
meter provider

Q3. Enumerate the issues in the performance of the contract.

The issues in the performance of the contract are as follows:

Wrong and Illegal Termination of Contract:

(1) The notice is premised on the delay of supplies, it is submitted that this is
a case for mala fide and wrongful termination.

(2) The termination is wrongful both in law and in fact, and is wholly
extraneous to the Contract, factual matrix and settled position of law.

· The grounds raised by the Respondent are not maintainable on account of the
following:

(1) Time was not of essence of the contract - The factual matrix of the case
would reveal that insofar as EESL was concerned, there was no urgency
with respect to the proposed supply and the contractual timelines.

(2) Delivery was dependent upon the performance of reciprocal promises

and the Respondent failed to perform their obligations leading to
production and supply issues.

· Delay in the implementation of the Project is attributable to EESL and the

Implementing Agencies (IAs) for the following reasons:
 (1) EESL and the Implementing Agencies repeatedly altered the hardware
specifications of the meters after the Project was awarded and delayed in
providing the specifications for firmware for the meters.

(2) EESL and the IAs failed to cooperate with the Consortium for timely
execution of the Contract.

(3) Issues with respect to firmware and effective integration of meters, which
is evident from numerous communications throughout 2019-2020.

(4) Delay in supply, if any, was due to lack of inputs from DISOCMS with
respect to anti-tamper measures and for reasons only attributable to the
respondent and the implementing agencies.

(5) The delay on account of the stickers, QR code which was substantial was
solely attributable to EESL, DISCOMs and the co-ordinating authorities.

(6) The LOA and the SCC provided for a payment schedule as to the
manner and the break-up of the payments to be made to the claimants
against the supplies made and the said schedule was very clear and
specific to the effect that the prices provided therein were exclusive of
GST.

(7) The respondent failed to make payment for the GST amount paid by the
claimant and in fact, the respondent in a clandestine manner stated that
such payment shall also be subjected to the payment schedule as
stipulated in the LOA and the SCC.

(8) The respondent was in no manner equipped or wanted to receive the bulk
load of the meters as it did not have the proper warehousing equipment and it
is for this reason that it was requested by the respondent to hold the delivery
of the meters.

· EESL did not comply with the procedure for termination of the Contract provided in
the Bid Document:

(1) The contract was terminated on account of alleged delay in supplies;

however, the LOA did not provide for termination on account of delay in
supplies.

(2) GCC 42.2 provides for procedure of termination, which is a two-stage

process wherein first the party ought to be given time of remedying the
defects and subsequently thereafter with a notice of 14 days the contract
could be terminated.

(3) EESL had the remedy to compel the Consortium to remedy defects found
in the design, engineering, materials and workmanship of the Facilities
after the Facilities had reached Completion.

· The meters supplied to EESL by the claimants were not defective, and the same is
established from the below:
 (1) The alleged defective meters were supplied on 22.02.2020, 24.02.2020
and 26.02.2020, only after the firmware uploaded on the said meters had
been approved by L&T on 03.12.2019.

(2) As pointed out by Claimant No. 1 & 2, the mail exchange which was not
communicated to the Claimants showed that the issue writ respect to the
meters was not pertaining to the hardware, and was limited to software,
and that issue was in fact resolved by L&T.

(3) The grievance regarding defective meters is nothing but a non-existing

issue that is sought to be created to try and allege that the meters were
defective.

(4) Supply of meters was deemed to be complete and without defects, as the
Project Manager did not notify any defects in the goods supplied.

(5) Claimants are not liable for purported defects discovered post-
completion.

(6) The contractual provisions regarding defective meters are contained in

GCC clause 27, which clearly states that in case any meters are
defective, the said meters have to be returned for rectification.

(7) Defective meters are not a material breach in accordance with the
contract, and cannot be the basis for termination of the contract.

· Due performance of obligations by the Claimants:

(1) The Claimants had diligently performed their obligations and there was
no delay on their part.

(2) The parties not only proposed the varied schedule of supply, but the
same were acted upon by the Parties, and therefore the contract stood
novated every time a revised timeline was mutually agreed between the
parties, thereby taking into account various factors.

(3) The readiness and intent of the Claimants to perform the contract is
sufficiently evident from email dated 25.06.2020 of Hexing in response to
suspension letter dated 23.06.2020 of EESL, whereby Hexing has
assured EESL that it will continue to focus on preparation and integration
of the meters.

Contract terminated on account of conflict between the two countries i.e.,

India and China:

The termination is nothing but a knee jerk reaction to the border dispute
between the two countries, and the same is established from the various
statements given at the relevant point of time by the highest officials.

· BIS certification- No stipulation in Contract regarding submission of BIS Certificate

within 3 months from LOA:
 (1) Vide email dated 10.07.2018, the Respondent asked all the bidders to
submit a declaration that they would conduct the tests as per BIS
standards and will submit BIS certificates for the meters within 3 months
from the date, when the LOA is awarded to them.

(2) Hexing, being the lead member of the consortium, categorically informed
ESSL on 11.07.2018 that the BIS Certification may take more than 3
months being a long, time-consuming procedure (including NABL Type
Testing) due to involvement of multiple agencies and for the fact that the
inspection was to be carried out in Indonesia and as such made it amply
clear that there would be delay in the process of obtaining the BIS
certificate.

(3) Evidently, ESSL duly took into consideration the reservation made by
Hexing on 11.07.2018 and awarded the LOA on 08.03.2018 and thereby
entered into Contract agreeing to forego the timeframe of 3 months as
previously communicated by ESSL.

(4) Furthermore, the Respondent did not object or protested against

submission of BIS Certificates for single phase and three phase meters
on 16.07.2019 and 08.01.2020, respectively.

(5) Finalization of the delivery schedule and integration of meters was not
dependent on submission of BIS Certification, and no loss has
occasioned to the Respondent on account of the purported delay in
procurement of BIS Certificates, as the predominant cause for delay in the
implementation of the Project was the admitted failures of the Respondent
and the Implementing Agencies.

· EESL’s unreasonable request for diversion of meters to Andaman & Nicobar Islands:

(1) EESL, On 1 January 2020, the Parties had a meeting at EESL’s office
when the first-time supply of the meters to the Andamans was discussed
between the Parties. In the email of 2.1.2020 EESL stated that all the
meters from Lot nos. 6 and 7 along with 20,000 meters from Lot no. 8
would have to be fully diverted to the Andamans. This request for
diversion of meters was contrary to the Consortium’s legitimate
expectations and the Second Delivery Schedule, i.e., the delivery
schedule for the meters agreed upon by the Parties on 16 December
2019 which is 2 weeks prior to the meeting on 1 January 2020.

(2) After EESL had asked Hexing to divert the lots of meters to the
Andamans, Hexing had a discussion with its R&D team regarding supply
of meters to the Andamans. Hexing’s R&D team recommended a silicon
coating on PCB and capacitor optimisation of the meters to suit the island
conditions of the Andamans, which are materially different from anywhere
else in mainland India.

(3) The changes which were required to be made to the meters were at the
print circuit board (PCB) level, which is the foundation of any assembled
electronic item such as the meters in the present. Since by January 2020
various lots of meters were past the PCB level, Hexing communicated to
EESL that it was possible to divert Lot no. 10 meters to the Andamans,
 which, as per the schedule agreed upon between the Parties, could be
supplied from Indonesia to Andamans from 20 February 2020 onwards.

· Wrongful invocation of CPG by EESL:

(1) The CPG was invoked in breach of the Terms of the Contract since the
Respondent has failed to establish reasons for invocation of Bank
Guarantee.

(2) The Delay in submission of CPG is attributable to EESL alone, as soon

after issuance of LOA on 04.12.2018, the clarifications regarding Bank
Guarantees were duly sought for by the Claimants from ESSL on
13.12.2018, and thereafter several reminders were sent for the same,
however, it was ESSL who failed to respond to the same until
08.03.2019, after a delay of 3 months.

(3) Sufficiency of CPG has been duly accepted by EESL. No concerns were
admittedly raised by the Respondent for over one year about the
insufficiency of the CPG.

Q4. Nature of liability.

● EESL was contractually obligated to reimburse Claimant No. 3 towards the payment
of the Custom Duties paid by Claimant No. 3 on behalf of EESL, however, the
Respondent has failed to reimburse/ pay Custom Duty amounts including the GST
components to the Claimants for the smart energy meters been provided to the
Respondent.
● Claimants have incurred the foregoing expenses, such amounts remain unpaid,
and on account of wrongful termination and non-payment of bills, the expenses so
incurred have caused huge losses to the Claimant.
● Extensive R&D was required for provision of meters to the Respondent to meet the
desired specifications as per the Bid Documents and the repeated variations as
requested by EESL and Implementing Agencies.
● The Claimant has paid enormous labour charges in order to get the works done and
further for ensuring completion of the Project, Claimant No. 3 has deployed its own
personnel for which Claimant is entitled to get a refund.
● The Claimants continued to perform towards execution and completion of the Project
till the date of termination based on assurances and commitments of the
Respondents which has caused grave losses to the Claimants. Claimant is also
entitled for the loss of interest on such profit for the period in which the work was
prolonged since the delay in the completion of the work was caused on account of
failures and defaults of the respondent in fulfilling its contractual obligation.
● The wrongful termination has led to the Claimant now bearing an unnecessary and
totally unwarranted loss of goodwill which had directly affected its chances of
success in the region and in the foreign market.