News letter May 2017


Address:
H. No. 64, Main Nazimuddin Road,
F-8/4, Islamabad, Pakistan

Telephone:
(92-51) 8438140-2

Fax:
(92-51) 8316140

Email:
aqlaal@aqlaal.com


The Draft NEPRA (Review of Power Purchase Agreements) Regulations 2017 – A Review in view of current Market Regime

Azm

By Azm Ali (Associate Partner-Power)

Azm@aqlaal.com

The proposed review of the power purchase agreement (PPA) on the criteria provided in the draft NEPRA (Review of Power Purchase Agreements) Regulations 2017 by the regulator after completion of its negotiations seems not in sync with the development cycle of the power generation project.  This might turn into a fiasco for the project.

NEPRA has proposed draft NEPRA (Review of Power Purchase Agreements) Regulations, 2017 (the “PPA Review Regulations”).   PPA Review Regulations require that the PPA once negotiated between the project company and the power purchaser, it is required to be reviewed and approved by NEPRA before its execution.  The proposed criteria for review of PPA by NEPRA includes completeness, prudency, reasonableness, fairness, balanced combination of prices, fairness and efficiency of risk allocations, ability of power purchaser to afford the electricity, fair and even distribution of rights and obligations of the parties and the like.  The criteria is not only vague but also too broad for consideration at the time when agreement is ready for signing and makes no sense whatsoever.

It takes three to four years for any unsolicited project to reach at the stage where the PPA is completely negotiated and is ready for signing.  To reach this stage, project’s sponsors have to incur millions of dollars on feasibility study and development of the project during a period of three to four years starting from issuance of letter-of-intent up to financial closing under the letter-of -support.  PPA is normally signed close to the financial closing when the project’s sponsors are gone far ahead with the financing arrangement with the project’s lenders on the basis of a standardized PPA offered (as part of standardized security package under applicable policy) by the Government.  Review of PPA by NEPRA at this stage based on the considerations set out in the regulations makes no sense and any material change directed by NEPRA could turn out to be disastrous for the project.

We appreciate what NEPRA is trying to achieve through the PPA Review Regulations which ultimately might be favorable to the generation projects but the point of concern is the time for the evaluation of PPA proposed by the said regulations based on the considerations set out in the regulations.  Therefore, it is proposed that NEPRA review all standardized documents available in the market for various technologies and may analyze based on the considerations set out in the regulations and settle the agreements for the whole industry instead of going for case to case approvals.

Validity of an Unsigned Agreement 

abrar By Abrar Bashir (Senior Associate- Litigation) Abrar@aqlaal.com

The Supreme Court of Pakistan held, while deciding on the validity and enforceability of an agreement, that a written agreement, accepted and acted upon by both parties would suffice to be considered a legally binding contract, even if it is not signed by one of the parties. In addition, specific enforceability in accordance with any other law may be applicable.

In this case, the plaintiff made various claims for relief of specific performance of agreements to sell pertaining to immovable property. The said agreements were purportedly signed and executed by the vendors but did not bear the signatures of the vendees.

The Supreme Court also held that Section 22 of the Specific Relief Act, 1877, could not be invoked to determine the validity of an agreement; it only recognizes the discretion vested with the court to decline the specific performance of contract even in the absence of any impediment.

The Competition in Competition Laws 

Mashaal

By Mashaal Irfan (Associate-Transaction)

Mashaal@aqlaal.com

The Competition Commission of Pakistan (CCP) has had exclusive jurisdiction over competition related matters since its establishment in 2007. Recently, a slight conflict has surfaced between its jurisdiction and that of the Ministry of Information Technology and Telecommunication. The Ministry has put forward a draft of the Pakistan Telecommunication Competition Rules, 2017 (Rules), which may allow the Pakistan Telecommunications Authority (PTA) to regulate competition related matters in the telecommunications sector. However, these Rules state that they “shall be applicable without prejudice to other regulatory requirements and compliance with the Competition Act, 2010”.

The CCP had previously issued the Government a Policy Note urging it to review the Telecom Policy, 2015 in relation to these Rules for the Telecom Sector. The Commission also questioned whether PTA can impose ex-post behavioral remedies for competition law violations, which are already being enforced by the Commission under the Competition Act. The Commission has also informed the Senate Committee on Finance, Revenue, Economic Affairs, Statistics and Privatization that these rules will take the telecommunication sector out of their domain of authority

Some key areas governed by these Rules are Anti-Competitive Conduct, Market Definition, Mergers and Acquisitions in the Telecom Sector. A separate provision regarding Consumer Protection is made within these rules, which begs the question that apart from colliding with the jurisdiction of the Competition Commission whether these rules also overlap with the Consumers Protection Acts. These Rules widen the ambit of exemptions provided to “Prohibited Agreements” under the 2010 Act as the new Rules shift this discretion onto PTA. These Rules may allow operators to agree to fix prices and have cartel arrangements with prior approval of PTA, under the pretense of as such an agreement being “ancillary to efficiency-enhancing integration of economic activity” as long as it is “no broader than necessary to achieve a pro-competitive benefit”.

With provisions for such violations already made under dedicated legislations, there seems little need for these Rules. It may be pragmatic to allow existent law to maintain status quo rather than to promulgate new laws that instigate confusion in authority and jurisdiction.

ADR Act 2017: Mediation is too complex to be dealt with a one size fits all legislation 

Ikram

By Dr. Ikram Ullah (PhD-Arb)

Ikram@aqlaal.com

The Parliament has finally come up with a long awaited Alternative Dispute Resolution Act, 2017 (the Act). This Act is an overambitious attempt from the Parliament to cover all forms of alternative dispute resolution by a single instrument. We can hope that it would succeed! This encompasses the subjects, inter alia, reference of matter to mediation and the situations when mediation can be avoided; nomination and appointment of neutrals; establishment and the role of ADR Centre; ADR proceedings, their culmination into settlement agreement and its enforcement; failure of ADR; and, the matters amenable to mediator’s jurisdiction.

The Act treats all forms of ADR alike, despite the fact that each kind of ADR has inherently discrete characteristics. This will end up in confusion, especially when Arbitration Act, 1940 is still holding the ground because the Act has scant guidance on conduct of arbitration, enforcement of arbitral award, supervision by the court, misconduct of arbitrators, and other matters.

Section 3 deals with the reference of a matter to mediation. It says that there will be no mediation if court is satisfied that there is no possibility of resolution of the dispute through mediation. It is undeniably impossible for court to know beforehand the possibility of resolution of dispute in mediation because its success depends largely on the caliber, skills and overall personality of the mediator. Similarly, the same provision does away with the possibility of mediation if intricate questions of law and facts are involved. This ground is again problematic because complex mediations very often involve complex questions of facts and law. If, on this ground the mediation is negated, it will not help to reduce the case log of courts, a mischief for which the Act is enacted.

Section 9(5) empowers the neutral to award costs while overlooking the fact that mediators normally do not have such powers. Furthermore, if they award unreasonable costs, neither a writ nor an appeal has been envisaged against such order. Even otherwise, a neutral’s cost cannot be enforced under the Act or any other law.

Power of court under section 16 to appoint Evaluator is illogical because ADR Evaluators evaluate the likely decision of the court if the case proceeds to litigation. However, court does not need such kind of evaluation for its likely decision.

Mandating the mediator to witness the settlement agreement (section 10) is contrary to international practices for a mediator does not approve or endorse the settlement agreement. Similarly, this provision becomes redundant on the face of section 19 which says that a mediator cannot be called to court as witness. A party will not be able to prove the settlement agreement in court if it is disputed by the other party because witness to the document must appear in the witness-box.

In conclusion, we hope that legislature will soon empower Islamabad High court to make ADR Rules; formulate Code of Conduct for mediators and ADR Centre; pass a separate law on soft ADR such as conciliation, Panchayat, Evaluators, etc.; and, if all have to be covered in the same Act, will enact comprehensive law.

SECP Letting Go Advanced Electronic Signatures – Costs triumphs over Security

Hasnain

By Hasnain Ashraf (Associate Partner -Transaction)

Hasnain@aqlaal.com

SECP has introduced a new e-filing process for filing of returns which is user centric and has left the process of application of electronic digital signatures issued by NIFT introduced in 2008.

Under the new e-filing system an individual is required to provide his national identification or passport number, cell phone number and email address.  The user is sent an email to activate the online link and a pass code is sent on the given cell number.   On activation, a user gets access to all companies and applicable processes in which he is a shareholder or an office bearer. The same is accessible even in those companies where the shareholder holds only one share.

This process is amenable to exploitation of identity theft as any person having access to CNIC of an unsuspecting individual can get access to all companies of that person in which he is a shareholder.  SECP’s view is that under this initiative users can save processing time of two days and annual costs of approximately Rs. 1300/-. However, security and protection of electronic digital signatures has been compromised for costs by the corporate regulator.

Damages and Performance Guarantees

Shahid

 By Shahid Saleem (Associate-Litigation)

Shahid@aqlaal.com

In Atlas Cables (Pvt.) Limited vs. IESCO (2016 CLC 1677 Islamabad), the Islamabad High Court held that in a contract of supply where the supplier provided the performance bonds to the purchaser and the purchaser claimed for encashment of the performance bonds as damages in lieu of breach of the contract by the supplier, the purchaser must prove any loss caused by such breach through its pleadings. In the instant case, the purchaser could not encash performance bonds which were furnished to compensate the purchaser for the losses it was to suffer on account of such breach. The purchaser was not entitled to invoke provisions of performance bonds or encash the same unless it was established through adjudicatory process that the supplier committed default of the provisions of purchase orders and as a result of such default the purchaser suffered damages. Once such default on the part of the supplier and loss suffered by purchaser as a result of such default was proved, performance bonds could have been encashed to the extent of such loss.

The supplier, Atlas Cables (Pvt.) Limited, was represented by AQLAAL Advocates.  

Concurrent Jurisdictions: Existent or Non-existent 

Ayesha

By Ayesha Munir (Associate-Litigation) (Editor)

Ayesha@aqlaal.com

The Supreme Court, recently passed a judgment regarding concurrent jurisdiction of multiple forums with respect to financial offences. It was held in Syed Mushahid Shah etc. versus FIA and others that Banking Courts constituted under the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the Ordinance) have exclusive jurisdiction to try the offences mentioned therein to the exclusion of the Special Courts constituted under the Offences in Respect of Banks (Special Courts) Ordinance, 1984 (the ORBO), the courts of ordinary criminal jurisdiction under the Code of Criminal Procedure, 1898 (the Code) read with the Pakistan Penal Code, 1860 (the PPC) and from inquiry and investigation by the Federal Investigation Agency (the Agency) under the Federal Investigation Agency Act, 1974 (the Act, 1974).

The facts of the cases pertained to cheques issued by the customers to the financial institutions which were dishonored and cases (FIRs) were registered against the former under the provisions of Section 489-F of the PPC. Aggrieved, the customers approached the learned High Court directly by filing either constitution or revision petitions, or under Section 561-A of the Code, claiming that action could only be taken against them under the Ordinance, 2001 (in particular Section 20 thereof) and no other law, and exclusive jurisdiction vests with the Banking Courts constituted under the Ordinance. Through the impugned judgments, the learned High Court dismissed the matters holding that concurrent jurisdiction vests in the Courts constituted under the Ordinance, 2001, the Special Courts constituted under the ORBO, the ordinary criminal courts and the Agency, and the jurisdiction of the latter two courts and the Agency would not be ousted on account of Sections 4 and 20 of the Ordinance.

High court’s decision was, thus, overruled by the august court. The Ordinance established banking courts which deal with disputes (civil and criminal) between financial institutions and customers in respect of finances availed by the latter. Therefore, if an offence is committed by a customer of a financial institution then the same will be tried by banking courts to the exclusion of other jurisdictions. However, the scope of ORBO is much wider than that of the Ordinance as all those offences not falling under the Ordinance will be amenable to the jurisdiction of ORBO.

Legal Updates

New Memorandum under the Companies Bill 2017 

Sumbal

By Sumbal Mustafa (Intern)  

sumbal@aqlaal.com

One of the key changes introduced by the Companies Bill 2017 is the simplification of the process of forming and doing business. All forms of legal business practices have been allowed under the new law except for the ones falling under the prohibited categories. The memorandum of association has been reduced to a humble one pager and the concept of a brief principle line of business has been introduced. The principle line of business is defined as a business in which substantial assets of the company are held or from which substantial revenue is earned by a company, whichever is higher.  A brief description may suffice for the principle business line rather than ineffectual details of the operation of a business.  Also, now the payment of the initial subscription amount should be made within fifteen (15) days of incorporation of a company, with a confirmation to this effect via a receipt issued by the company’s auditor.

Benami Transactions (Prohibition) Act 2017

Umais

 By Muhammad Umais (Associate)

umais@aqlaal.com

The Benami Transactions (Prohibition) Act” (the Act) has been enacted with the motive to curb the practice of holding a property in benami and setting grounds for confiscation of such property.

By definition benami property is any property which is the subject matter of a benami transaction, which would include proceeds from such property. Benami transaction is an arrangement where a property is held by a person and its consideration is provided by another person, or where it is held for the immediate or future benefit, directly or indirectly of the person providing the consideration with a few exceptions to it. In other words, it’s a transaction or an arrangement in respect of property carried out or made in a fictitious name where the owner of the property is unaware or is in denial of ownership.

The Act prohibits such sham transactions, including retransfer of the benami property to the beneficiaries, or any other person acting on his behalf; providing rigorous punishment for the offenders. The Federal Government is empowered to confiscate such property. Adjudication procedures are provided therein.

The purpose behind the Act is to encounter issues in relation to tax evasion and black money, focusing on the real estate sector. It would also help diminish fraud on creditors and avoid social and political risks in holding a property.

AQLAAL’s Recent Success

Abuse of dominant position by Bahria Town- Competition Concerns 

faisal

By Muhammad Faisal Khan   (Associate Partner)

Faisal@aqlaal.com

The Competition Commission of Pakistan (Commission) held Bahria Town (Pvt) Limited (Bahria) to have abused its dominant position. Bahria permitted only Pakistan Telecommunication Company Limited (PTCL) to provide cable, internet and telephony services (CIT) to residents of Bahria (Phases I to VI) and did not permit Nayatel and other telecom operators to lay their network. A fine of Rs.2 million was also imposed on Bahria. Consequently, appeals were filed, by both Bahria and PTCL, before the Competition Appellate Tribunal (Tribunal) and the Tribunal dismissed the appeals.

The Commission and the Tribunal held that the conduct of Bahria is adversely affecting competition within the relevant market i.e. Phases I to VI of Bahria. Bahria failed to provide any rational commercial or objective justification for its exclusionary and anti-competitive conduct. Furthermore, it is discouraging investors to the consumers’ detriment and proliferation of CIT service which in turn is affecting the national economy as well as competition inter-se PTCL, Nayatel and other service providers. The conditions of competition are homogeneous in Phases I to VI in Bahria and evidently different than neighbouring areas where multiple CIT service Providers are operating. Thus the residents of these phases cannot switch to CIT service providers in the neighbouring areas of DHA, CDA and RDA.






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