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COVID-19 India: Bharat Stage VI rollout- Time for Equanimity?

  • 7 April 2020 7 April 2020
  • Asia Pacific

  • Coronavirus

“Disaster gave two things: a moment to react and a decision to overcome”

In recent times, the automobile industry in India has probably witnessed its worst slump, starting with the ban on sale of large engine capacity diesel vehicles and thereafter the switch to Bharat Stage (‘BS’) VI standards straight from BS-IV or Euro IV with effect from 1 April, 2020.  From the perspective of the automobile industry, there could not have been any worse time for the COVID-19 pandemic to hit India. Usually, March end is one of the peak seasons for the automobile industry as most of the sales take place during this time for inter-alia seeking depreciation benefit. However, owing the current situation, the industry has been severely impacted with no sales and complete lock down of vehicle registration offices.  

Background

By Order dated 24 October 2018[1], the Hon’ble Supreme Court of India in exercise of its powers under Article 142 of the Constitution of India[2] prohibited sale or registration of any motor vehicle conforming to the emission standard BS­IV with effect from 01 April 2020.    

The above Order found its rationale inter-alia in the following:-

  • Sufficient time for the manufacturers to change over to BS-VI emission norms.
  • Government has been pro­active in spending huge amounts of money to move to the BS­VI technology and investing huge sums to ensure fuel available in the country is BS-VI compliant.
  • If there is a conflict between health and wealth, health will have to be given precedence.

One would think that a period of one and a half years is sufficient to change over to the new technology, especially if that technology has been developed by manufacturers.

However, at ground level, this period could indeed be insufficient considering the following illustrative aspects:-

  • This transition is extremely capital intensive and requires significant capital to be invested for integrating new emission control and engine technologies;
  • Earlier BS-VI fuel was to be introduced with effect from 01 April 2024, which was preponed to 01 April 2023 and it was then preponed to 01 April 2021 and finally the date was advanced to 01 April 2020;
  • It was decided to leapfrog from BS-IV fuel to BS-VI fuel without shifting to BS-V fuel;
  • Large volume of accumulated stocks of non BS-VI compliant vehicles coupled with a crisis in the automobile sector.

In an ordinary circumstance, there may not be too many pigeonholes for seeking modification of the Supreme Court’s Order which clearly gave precedence to health of citizens vis-à-vis pecuniary interests of the industry. However, COVID-19 has presented an unprecedented situation in terms of seeking relief from Courts, continuity of business as well as health of citizens.

The authors examine whether COVID-19 was that moment to react and the Supreme Court’s Order was that decision to overcome particularly, in light of the 27 March 2020 Order passed by the Court. By the said Order, the Hon’ble Court inter-alia granted some leverage to sell a certain percentage of BS-IV compliant vehicles outside Delhi and NCR region within a period of 10 days of lifting of the lock-down operating.

The Issue

In October 2018, the Society of Indian Automobile Manufacturers (‘SIAM’) contended before the Supreme Court that as per the general practice in Europe, the manufacturers are given about a year’s time when a higher quality fuel is introduced and the fuel is introduced much earlier. Thereafter an outer limit is fixed for sale of compliant vehicles.

Therefore, some reasonable time should be given to the manufacturers for sale of the   accumulated stocks of non BS­VI (i.e. BS­IV) compliant vehicles. It was further pleaded that six to nine months’ time would be required to shift the assembly line to   make BS­VI compliant vehicles. If this time period would not be granted, manufacturers would have to start manufacturing BS­VI compliant vehicles well before 31 March 2020.

Primarily, SIAM sought to canvass that the shift to BS-VI compliant vehicles is a long drawn out process requiring huge changes in technology and therefore, manufacturers would face difficulties if the deadline for sale of non BS-VI vehicles is not extended.

The Supreme Court, however, contrasted the positive effects of BS-VI fuel on the environment with the already cascading effect of pollution on environment and health. In this regard, the Court observed that once the new emission norms are enforced, there will be a 68% improvement in PM2.5.

The automobile manufacturers were thus required to utilize the year and a half leading up to 1 April 2020 to gradually phase into BS-VI compliant vehicles by starting the production and sale of BS-VI compliant vehicles much in advance.

Accordingly, in a conflict between health and commercial interests, the Supreme Court made a conscious decision to give precedence to the health of the citizens. The reason for this is not far to seek. The air pollution in the national capital over the years has been severely affecting the health of the citizens. According to a report dated 7 August 2018 by the Parliamentary Standing Committee, one out of every three children in Delhi suffers from respiratory problems.

COVID-19- the reaction

As noticed above, the 1 April 2020 deadline gave automobile dealers and manufacturers almost one and a half years to make the transition from BS IV to BS VI standards. This timeline needs emphasis since some manufacturers admittedly developed the superior technology at the material time. Therefore, the averment on the general practice when a high quality fuel is introduced stood diluted to that extent. Manufacturers were thence required to channelize all their resources in selling the accumulated BS-IV stock.

Towards the last quarter of the one and a half year period, COVID-19, the pandemic struck, bringing the world to scathing halt. The State was constrained to declare a nationwide lockdown for 21 days starting 25 March 2020 in order to control the spread of the COVID-19 pandemic before the problem became uncontrollable in India.

The lockdown came at a very crucial time when the automobile manufacturers and dealers were in their last phase of trying to sell off the remaining BS-IV stock. However, with the sales dropping to almost zero in light of the lockdown, they were left with significant unsold BS-IV inventory, which possibly could not have been cleared out by March 31, 2020. Moreover, all the automobile manufacturers in India have already suspended production in light of the lockdowns and the COVID-19 outbreak.

Owing to the lockdown, the automobile dealers and manufacturers would have missed out on some crucial days during the peak season of sales of their BS-IV vehicles. As such, even if there was some hope to reinvent the wheel of the automobile sector, COVID-19 brought the wheels to a screeching halt. Depleting demand, a looming deadline and COVID-19 left only a moment for the stakeholders to react.

In view of the events as they unfolded and approximately, ten days lost to the COVID-19 pandemic, the automobile dealers and manufacturers moved urgent petitions before the Supreme Court of India seeking some relaxation on the 31 March 2020 deadline.

Decision to overcome

The 24 October 2018 Order passed by the Supreme Court in no uncertain terms provided that:-

Every vehicle sold after the cut-off date of 01.04.2020 is bound to cause more pollution and, therefore, the manufacturers, in our considered view, cannot be permitted to sell any non-BS-VI compliant vehicle on or after 01.04.2020.

The Government has developed a policy of phasing out polluting vehicles and discouraging the manufacturers of polluting vehicles. This has been done in a gradual manner. Europe introduced Euro-IV fuel in the year 2009 and Euro-VI standards in 2015. We are already many years behind them. We cannot afford to fall back further even by a single day. The need of the hour is to move to a cleaner fuel as early as possible.

The intent was clear and left no scope for leniency particularly when the fundamental right to life enshrined under Article 21 of the Constitution was involved. But, when a pandemic like COVID-19 struck which is making the world stare at a possible recession, was it time to request the Court for some leniency?

Accordingly, the Federation of Automobile Dealers Associations (FADA), on behalf of its 25,000 members, approached the Supreme Court seeking an extension to the deadline till May 31, 2020. It is pertinent to mention that the Supreme Court had refused to entertain an earlier request for extension made by FADA in February 2020.

In their submission before the Apex Court, FADA stated that:

  1. 1,05,000 two-wheelers, 2250 passenger cars and 2000 commercial vehicles have been sold but not registered throughout India
  2. 7,00,000 two-wheelers, 15,000 passenger cars and 12,000 commercial vehicles remain unsold throughout India

Supreme Court’s balancing act

After hearing the submission made on behalf of FADA and considering the lockdown situation, the Supreme Court partially allowed FADA’s application seeking extension of deadline.

The Supreme Court’s Order makes a clear distinction between BS-IV sold and unsold inventory. The Court permitted the sold but unregistered vehicles to be registered by the concerned authorities by 30 April 2020. FADA was directed to furnish the details of the purchasers, on affidavit, of the said vehicles through email within 7 days.

With respect to the unsold vehicles, the Court observed that the manufacturers had sufficient time to sell the BS-IV vehicles since the deadline long back and there is no justification to extend the same.

However, considering the extraordinary circumstances, the Court permitted only upto 10% out of the abovementioned remaining vehicles to be sold in all parts of the country barring Delhi and NCR region within 10 days of the lifting of the lock-down.

It will be interesting to see if the respective extensions granted by the Supreme Court above, both for registration of the sold vehicles and sale of the unsold vehicles, will automatically stand extended by the respective time periods, should the lockdown extend.  

FADA has been directed to furnish details such as engine and chassis numbers of the vehicles sold in terms of the Order within seven days of sale and only those vehicles shall be permitted to be registered about which the affidavit is filed.

Thus, some of the factors which may have contributed to the Supreme Court passing its Order could be, the cascading effects of COVID-19 on the overall economic health of the Country, source of livelihood of employees, which is a facet of the right to life under Article 21 of the Constitution of India and downturn of the automobile sector. The Order appears to a limited extent, to harmonize Article 21 and Article 19 of the Constitution.

Slowdown in the automobile sector- the saga continues

DG, SIAM, in the past has stated that area of emission and environmental sustainability is extremely high on the industry’s agenda. Notwithstanding the proactiveness of manufacturers to integrate and introduce new technology, the Apex Court has made it amply clear that can be no compromise with the health of the citizens.

COVID-19 has only added to the woes of the automobile industry which is already facing a rough patch. In the wake of this bumpy ride, the Supreme Court’s latest Order exhibiting some leniency should be well received by the automobile sector.

As per FADA’s estimates, the value of the unsold inventory lying with the dealers currently is approximately INR 7000 crores. The loss caused to the economy if this inventory is not permitted to be sold would be substantial.

It now remains to be seen whether the dealers will be able to sell even the permitted quantities within the short window of ten days of lifting of the lockdown, when the country will just be recovering from a major economic slump. Even with this brief respite purchase of vehicles may not be an immediate priority soon after economic activities resume.

 

[1] M.C. Mehta vs Union of India Writ Petition (Civil) No. 13029 of 1985 

[2] 142. Enforcement of decrees and orders of Supreme Court and unless as to discovery, etc ( 1 ) The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or orders so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, in such manner as the President may by order prescribe

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