December 2022 - S&R Associates

Renewed Challenges to the IBC Distribution Waterfall

Insights | December 28, 2022 | Practice Area: General Corporate, Mergers and Acquisitions, Regulatory, Restructuring and Insolvency

The Insolvency and Bankruptcy Code, 2016 (“IBC”) ushered in a new era in the Indian insolvency regime by introducing a distribution waterfall mechanism under Section 53 of the IBC. The waterfall mechanism prioritizes dues owed to financial creditors over dues owed to operational creditors and government authorities.
The waterfall mechanism in the IBC is based on the recommendations of the Bankruptcy Law Reforms Committee. The preamble to the IBC also highlights its objective of balancing the interests of the stakeholders, including by alteration in the order of priority of payment of government dues.
There has recently been a rising trend of courts and tribunals seeking to deviate from the distribution waterfall under the IBC. Unfortunately, this tends to put the success of an insolvency resolution process at risk. In this note, we examine three recent examples and discuss why any such deviation could disturb the delicate balance sought to be achieved under the IBC.

The Promise of ‘Virtual’ Power Purchase Agreements

Insights | December 9, 2022 | Practice Area: Clean Energy, Corporate Governance and ESG, Projects; Infrastructure and Energy, Regulatory

In the US and elsewhere, ‘virtual’ power purchase agreements (VPPAs) have appealed to a wide variety of corporate buyers, including for the purpose of meeting renewable energy (RE) targets quickly. Further, compliance with ‘green’ mandates by procuring renewables through a VPPA has become an important element of business branding across the world. With regard to India, too, recent reports suggest that VPPAs are essential to meet corporate needs and wants, particularly in the country’s expanding commerce and industry (C&I) segment.
However, in response to investor demand with respect to environment, social, and governance (ESG) standards, if a company seeks to shift completely to RE, it may not be able to do so for various reasons, including on account of inherent risks in RE generation. Further, ‘physical’ PPAs are not viable for projects below a logistical minimum. Accordingly, C&I consumers with lower load requirements and/or fragmented demand may not yet have a cost-effective mechanism to procure RE, despite India’s newly democratized ‘open access’ regime. In this regard, VPPAs may still be the answer.
Nevertheless, given that your company needs/wants to acquire or generate RE – should, and can, you enter into a VPPA in India?

Bilateral Courts: Wooing Europe with Investor-friendly Free Trade Deal

Insights | December 7, 2022 | Practice Area: Litigation and Arbitration, Mergers and Acquisitions, Regulatory

Negotiations between the EU and India in respect of a significant trade and investment deal are currently ongoing. This EU-India deal involves three separate agreements: (1) a free trade agreement (FTA), (2) an investment protection agreement (IPA), and (3) an agreement on geographical indications. Of particular interest is the proposed investment court system (ICS) in the IPA. Although ICS marks a break from standard dispute-resolution mechanisms under investment treaties, it has been used by the EU in the past across FTA-plus deals signed with Canada, Vietnam, and Singapore. Previously, investor-state arbitration (ISA) was the standard template for resolving international investment disputes. Now, the EU wants to include ICS in all its future treaties. While it remains to be seen whether ICS offers a superior paradigm relative to ISA, the EU itself has argued, including before UNCITRAL, that ICS will ensure a more consistent jurisprudence and improve judicial accountability. Nevertheless, as India looks to export more capital in the future, whether ICS will be able to protect investors better in the long run is something that India needs to think about.

Liberalized Rules for Overseas Investment by Indian Entities: Laying the “Round Tripping” Ghost to Rest (or not just yet)

Insights | December 5, 2022 | Practice Area: General Corporate, Mergers and Acquisitions, Private Equity

Although the objectives of the erstwhile restriction on “round tripping” were laudable, such restriction had an unintended chilling effect on legitimate transactions. The new overseas investment regime introduced in August 2022 eases such restriction to a large extent. However, certain interpretational issues remain.