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Project financing out of India’s maiden sovereign wealth National Investment and Infrastructure Fund (NIIF) is stuck as the law ministry wants sharper legal provisions in the Investment Management Agreement (IMA) to ensure that the fund advisor is held accountable for each of the investments. The law ministry last month opposed the “exemption from liability” to the investment manager which, it opined, was virtually in the same position as an individual and could be convicted of common law as well as statutory offences including those requiring mens rea (guilty intent). It quoted a 2005 Supreme Court judgment objecting to immunity to any company from any prosecution simply because it could “entail a sentence of mandatory imprisonment” and directed the finance ministry to redraft the IMA in accordance with the “settled legal position”
“Corporate bodies such as a firm or company undertake a series of activities that affect the life, liberty and property of citizens,” it quoted. “Corporate vehicle now occupies such a large portion of the industrial, commercial and sociological sectors that amenability of the corporation to a criminal law is essential to have a peaceful society with stable economy.” “In the circumstances, the provisions relating to exemption may be examined accordingly. The provisions relating to indemnity may be made subject to the specific provisions of the Indian Contract Act to avoid any ambiguity at later stage,” it wrote on February 23.
Clause 4 of the draft IMA between the NIIF trustee (government) and corporate fund manager provides for indemnification and exculpation to the latter for unfettered and speedy decisions. The signing of the IMA is important to initiate equity funding in projects. Though the government launched the Rs 40,000-crore fund in December 2015 to finance greenfield, brownfield and stalled projects in ports, highways and railways, actual funding has not started because it needs the IMA to appoint a manager to which the trustee would confer its power and privileges.
India Infrastructure Finance Company Ltd, NIIF’s interim investment advisor, has identified eight projects it plans to invest in. These include the Konkan Railways project, a power transmission project and a few highways. “The idea was to ensure that trustee does not get involved in the day-to-day management of the fund. However, the law ministry feels that this would provide blanket immunity to the investment manager to indulge in fraud,” said a finance ministry official.
Since most infrastructure projects are being promoted under the public-private partnership model with attractive concession provisions, the fear is that too much concentration of investing power with legal exemptions could result in favouritism and fraudulence.