TN Government passed a G.O. to waive the registration fee to be paid to register a joint venture agreement between two foreign companies. The gist of the issue is, the work order for the 150MLD DESALINATION PLANT AT NEMMELI ALONG ECR, CHENNAI was issued to M/s.Cobra & M/s. Tecton Joint Venture on 27.05.2019 and the foundation stone was laid by The Honourable Chief Minister on 20.06.2019. It is almost 18 months from the date of issue of the Work order and the work has not progressed. As per the tender conditions, the Joint Venture Agreement has to be submitted within 28 days. But the Joint Venture agreement have also not been registered till date as per the tender conditions.  On account of this, the agreement with CMWSSB has also not been signed till date. The cost of Joint Venture Registration and Stamp Duty amounts to Rs. 26.80 Crores and G.O.Ms.No. 113 of Municipal Administration and Water Supply (MW.1) Department dated 22.10.2020 was passed by the Government of Tamilnadu to waive the 1% registration fee for the registration of a particular joint venture agreement between two multinational companies. On account of this, the State Government is incurring a loss of Rs. 26.80 crores. Further due to delay in execution of the agreement, the funding agency (KFW) imposed a penalty for non-utilisation of funds.

The above referred G.O. cited Sub-clause 13.6 of the FIDIC Gold Book states as one of the reasons for waiving the registration fee. 

Sub-clause 13.6 of the FIDIC Gold Book states as follows:

“Adjustments for Changes in Legislation:

Adjustments to the execution of the Works or provision of the Operation Service necessitated by a change in Law shall be dealt with as a Variation and as provided for under Clause 13 [Variations and Adjustments]. Either Party may, by written Notice to the other, require that adjustments shall be made to the provision of the Contract as are necessary to enable the Contractor to comply with changes in Law.

The Contract Price and programme for design, execution and operation of the Works shall be adjusted to take account of any increase or decrease in cost resulting from a change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws) or in the judicial or official governmental interpretation of such Laws or changes to technical standards and regulations in accordance with Sub-Clause 5.4 [Technical Standards and Regulations], made after the Base Date, which affect the Contractor in the performance of obligations under the Contract.

If the Contractor suffers (or will suffer) delay and/or incurs (or will incur) additional cost as a result of these changes in the Laws or in such interpretations, made after the Base Date, the Contractor shall give Notice to the Employer’s Representative providing evidence supporting any adjustment, an indication of the nature of change in cost and how the Contractor proposes to implement the necessary change.

The Contractor shall be entitled, subject to Sub-Clause 20.1 [Contractor’s Claims], to:

(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 9.3 [Extension of Time for Completion of Design-Build]; and

(b) payment of any such additional Cost, which shall be included in the Contract Price.

After receiving this Notice, the Employer’s Representative shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.”

The above sub-clause is applicable only in the case of changes in law made after the base date.

Sub-clause 1.1.5 categorically states as follows:

“1.1.5 “Base Date” means the date 28 days prior to the latest date for submission of the Tender.”

So the base date is in the year 2016 as the Tender notification was issued in 2016. According to the G.O.Ms.No. 113 of Municipal Administration and Water Supply (MW.1) Department dated 22.10.2020, the revised administrative sanction was accorded on 28.07.2017 and the submission of bids was on 15.09.2017.

On 23.06.2016, the Hon’ble Madras High Court in Writ Petition No.19924 of 2016 and W.M.P.No.17179 of 2016 ” Va Tech Wabag Limited vs The Inspector General Of Registration”  ordered as follows:

“6. A perusal of the materials placed before this Court, in the form of typed set of documents, more particularly, the consortium agreement would disclose that it is entirely different from the construction agreement and thus, this Court is prima facie of the view that the said agreement does not involve in any construction of the building or super-structure like flats etc.,

7. In the light of the facts and circumstances, this Court directs the second respondent to register the consortium agreement under Article 5 (j) of Schedule-I of the Indian Stamp Act, 1889, by accepting necessary stamp duty, so as to enable the petitioner to carry on the work in terms of the said agreement.

8. It is submitted by the learned counsel for the petitioner that the extension of time granted by CMWSSB for producing the registered Consortium Agreement expires on 24.06.2016 and therefore, the second respondent shall make every endeavour to register the said document under the above said provision and release the same, after making necessary endorsement, within a period of one week from the date of presentation.”

Against the above judgment, Writ Appeal was preferred in W.A.No.1742 of 2018 and C.M.P.No.13925 of 2018. On 14.8.2018, the Hon’ble Madras High Court disposed the above Writ Appeal modifying the above judgment and the directive portion of the order is as follows:

” 8. Having heard the learned Special Government Pleader appearing for the appellants and the learned counsel appearing for the respondent on the issue on hand, we are of the view that the learned Single Judge has failed to take into consideration that the consortium agreement was required to be presented by the respondent herein as a consequence that they were the successful bidder and a letter of acceptance dated 3.3.2016 was issued by CMWSSB in favour of the respondent herein accepting their total offer of Rs.594.09 crores. It is also not in dispute that for all practical purposes, any transaction involving value of more than Rs.100/-, requires compulsory registration, otherwise, the document would not have any sanctity. Therefore, we find no illegality in the action of the appellants in levying the registration fee of 1% of the contract amount for registering the consortium agreement.

9. In such view of the matter, we find that the stand taken by the appellant Inspector General of Registration that unless payment of 1% of the contract amount as registration fee, the consortium agreement deed cannot be accepted for registration holds good. The order passed by the learned Single Judge is modified to the above extent. The writ appeal is disposed of accordingly. No costs. The connected miscellaneous petition is closed.”

Citing the above modification as “Change in Law” under Sub-Clause 13.6  of the FIDIC Gold Book the impugned G.O was passed in order to clandestinely support the successful bidder.

First of all, there is no change in law as alleged. Both the above referred orders are not blanket orders. These orders are applicable only to the instrument filed for registration by the Va Tech Wabag Limited. Further Consortium Agreement and Joint Venture Agreement are not same, although it may contain similar terms.

For the Joint Venture Agreement between Cobra Instalaciones Y Servicious of Spain and Tecton Engineering and Construction of the UAE, there is no change in law as purported in the impugned G.O.

The judgment in Writ Petition No.19924 of 2016 and W.M.P.No.17179 of 2016 dated 23.06.2016 categorically stated as “more particularly, the consortium agreement would disclose that it is entirely different from the construction agreement and thus, this Court is prima facie of the view that the said agreement does not involve in any construction of the building or super-structure like flats etc.,”

The above averment is not applicable in the present case as this Joint Venture is for construction of the 150 MLD Desalination Plant. Only in case of the agreements “If not otherwise provided for” Article 5 (j) of Schedule-I of the Indian Stamp Act will be applicable.

The present case is for a Joint Venture Agreement for construction of the 150 MLD Desalination Plant and hence Article 5 (j) of Schedule-I of the Indian Stamp Act shall apply for any agreement having value of more than Rs.100. This preposition has never changed and hence the alleged claim of change in law is unacceptable. Hence under Article 5 (j), for agreement relating to construction of building the stamp duty and registration fee are 1 % on the cost of the proposed construction or the value of construction or the consideration specified in the agreement whichever is higher.

Regarding the purported claim of reimbursement, the BID Document Sub Clause 21.6 (c) states as follows:

c. The Employer will not be bound to pay any upward revision in Indirect Taxes, other than on account of Change in Law as provided in Clause 13.6[Adjustments for Changes in Legislation].

As there is no change in law, there is no question of reimbursement. In order to facilitate the successful bidder, such contentions were raised in the impugned G.O with malafide intentions.

The Para VIII of the impugned G.O. states that “According to the Loan agreement, all taxes and duties are to be met by Government of Tamilnadu. Thus the additional amount arising out of 1% registration charges will have to be reimbursed to the successful bidder by the Government.”  The loan agreement is between KfW, Germany and Government of Tamilnadu for partial funding as the rest of the funds are raised from AMRUT and State resources.  Article 8 of the said loan agreement stated that Stamp Duties accruing in connection with that loan agreement has to be met by the borrower (Government of Tamilnadu). Nattily worded impugned G.O. misconstrued the above article and stated as if the stamp duty referred in the loan agreement is the stamp duty for JV.

Further the BID Document states as follows:

” 43.2 The successful Bidder is to submit the required Performance Guarantee to CMWSSB within 28 days of receipt of Letter of Acceptance. In case of JV/Consortium, the Performance Guarantee shall be furnished in name of the JV/Consortium.

Further, the Successful Bidder to submit the JV/Consortium agreement duly Registered at Chennai before signing of contracts Within twenty eight (28) days of receipt of the Contract Agreement, the successful Bidder shall sign, date, and return it to the Employer.”

The above requirement has not complied. Thus it is apparent that the State Government passed the G.O. only to facilitate the multi-national companies to fill their coffers and there is no public interest in it.

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