TRIUMPHANT TCG ARBITRATION VICTORY AGAINST BENGAL

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The Chatterjee Group (TCG) recently achieved a favorable outcome in an arbitration case against the Bengal government, stemming from a commercial dispute regarding the non-payment of financial incentives totaling Rs 3,285 crore to Haldia Petrochemicals Ltd (HPL). The arbitration panel, comprised of three retired Supreme Court judges, including two former Chief Justices of India, ruled in favor of Essex, a TCG group company, while dismissing objections raised by the state government.

The arbitration award, declared in September, signifies the initial stage of an ongoing legal battle TCG has undertaken to establish its commercial rights over HPL, which is considered a prized asset within the group. Sources within the Bengal government have indicated that the state has lodged an appeal against the verdict, implying that this legal dispute may continue for an extended period.

Unlike other legal disputes related to unpaid incentives in Bengal, the HPL case emerges from a private commercial agreement between the involved parties and doesn’t stem from any specific incentive scheme implemented by the state over time. Given the financial challenges faced by the state government, further exacerbated by delays in central fund disbursements, it has prioritized expenditure on pro-people policies over the payment of incentives to industries.

The history of the HPL case involves an ownership dispute between the state government and TCG, which was ultimately resolved about a decade ago. As per the agreement reached, TCG acquired 52 crore shares from West Bengal Industrial Development Corporation in two tranches at Rs 25.10 per share, granting it majority control of HPL.

A tripartite share purchase agreement was executed among HPL, TCG, and the Bengal government on September 11, 2014. This agreement also stipulated that HPL could avail 75 percent of its unutilized incentives amounting to Rs 3,285 crore over a 19-year period, beginning on January 1, 2016. Importantly, the agreement included a provision related to the introduction of the Goods and Services Tax (GST), which would limit the incentives to the state GST imposed on HPL production sales.

TCG assumed management control by acquiring the first tranche of HPL shares in December 2015, paying Rs 635 crore. Under TCG’s leadership, HPL experienced a significant turnaround, achieving record profits and overcoming its previous financial challenges.

Between January 1, 2016, and June 30, 2017, HPL collected value-added tax (VAT) from product sales but retained this tax instead of depositing it with the state, adjusting it in line with the share purchase agreement. However, after the implementation of GST on July 1, 2017, there was no provision for retaining the collected tax, as it now fell under the jurisdiction of federal authorities. The state’s share of GST was to be distributed later from a centralized pool.

Despite HPL’s efforts to deposit the GST and anticipate SGST reimbursement, it did not receive the funds due to the state government’s fiscal constraints and competing priorities. Following demand and dispute notices, Essex, a promoter company of HPL, invoked the arbitration clause in 2019-20 as per the SPA terms and appointed an arbitrator in March 2020.

Essex successfully argued that it was the state government’s responsibility to return the state’s share (SGST) collected and deposited by HPL. As of June 30, 2023, the company’s accumulated recoverable balance stood at Rs 1,539.5 crore.

The arbitral tribunal, comprising former Chief Justices Jagdish Singh Khehar and R.M. Lodha, as well as former SC Justice A.K. Sikri, ruled that HPL was entitled to financial incentives accrued since July 1, 2017. The recoverable amount up to March 31, 2022, was Rs 1,084.7 crore. HPL will continue to enjoy tax benefits until it receives the entire Rs 3,285 crore or a lesser amount, depending on the 19-year period’s conclusion. The tribunal also awarded 6 percent interest on the unpaid amount and the cost of the arbitral proceedings.

Despite attempts to contact both HPL and the state government, neither party provided a response to The Telegraph’s inquiry.

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