Electricity Act, 2003 – APTEL affirmed the order dated 28.01.2015 of the Karnataka Electricity Regulatory Commission (State Commission/KERC), whereby the State Commission directed Chamundeshwari Electricity Supply Corporation Limited, the appellant herein, to restore to the Developer i.e. respondent no.1 herein, the amount realised from the encashment of the performance bank guarantee; extend the timelines for fulfilment of contractual obligations; and to undertake renegotiation of the tariff under the Power Purchase Agreement (PPA) for a solar power project:
Held: 1. Appellant’s invocation and encashment of the performance security was in full conformity with the contractual framework under the PPA – The non-fulfilment of the respondent no.1/Developer’s obligations within the stipulated time, non-seeking of extension under Article 5.7 or valid Force Majeure claim under Article 14, necessarily attracted Article 4.4 of the PPA – The impugned judgment dated 21.03.2018 of the APTEL passed in Appeal No.176 of 2015, and the order dated 28.01.2015 of the State Commission in O.P. No.24 of 2014 are set aside. [Paras 44-45]
2. The record discloses beyond dispute that the evacuation system, integral for delivery of power, was to be executed by respondent no.2/KPTCL through the construction of two 220 kV double-circuit lines – By its communication dated 19.08.2014, respondent no.2/KPTCL itself acknowledged that the lines would be commissioned only in August 2015, well beyond the contractual timelines – The respondent no.1/Developer submission that such delay, being beyond its control, automatically extended the contractual schedule, cannot be accepted – The contractual framework does not operate on automaticity – Contractual rights and remedies must be asserted within the framework of the agreement, not dehors it. [Paras 37-38]
3. Turning then to the invocation of the performance bank guarantee, in the present case, supply did not commence within the agreed period; no formal extension was obtained under Article 5.7 of the PPA; and no notice of Force Majeure was issued under Article
14.5 of the PPA – The preconditions for invocation of Article 4.4 of the PPA thus stood satisfied – Appellant’s invocation of the bank guarantee was, therefore, an exercise of a remedy specifically conferred by the contract, and to deny it would be to disregard the allocation of risk embodied in the PPA. [Para 39]
4. The finding of Force Majeure by the State Commission cannot be sustained for the reason that Article 14.5 of the PPA stipulates that the affected party “shall” issue notice within seven days of knowledge of the event – This requirement is not merely directory; it is a condition precedent for invoking the clause – Even if the delay in completion of the evacuation system was beyond the respondent no.1/Developer’s control, the appropriate provision for relief was Article 5.7, not Article 14 of the PPA – Significantly, Article 14.3.1 of the PPA details the events and circumstances which constitute Force Majeure and delay in the readiness of the evacuation system, even if attributable to Respondent No.2/KPTCL, does not constitute a Force Majeure. [Para 40]
5. The completion of the evacuation system by respondent no.2/KPTCL was indeed an uncertain event outside the respondent no.1/Developer’s control, and in a practical sense, supply of power was dependent upon it – Yet, the PPA does not treat such completion as a condition precedent in law to the Respondent No.1/Developer’s obligations – It instead provides specific contractual mechanism(s)-Article 5.7 for delays attributable to the appellant and Article 14 for events of Force Majeure – Unless relief is sought and secured under those provisions, the time-bound obligations under the PPA remain enforceable and the Appellant’s remedies for default intact. [Para 41]
6. Finally, as to the competence of the regulatory fora, appellant and respondent no. 2/KPTCL, though both State instrumentalities, are parties to a commercial contract concluded through competitive bidding – Their relationship is governed not by overarching notions of equity but by the terms of the PPA – The jurisdiction of the regulatory bodies is to ensure compliance with law and to adjudicate disputes within the four corners of the contract. [Para 43] Law of Contract – Explicit terms of contract – Intention of parties:
Held: It is settled that the explicit terms of a contract are always the final word with regard to the intention of the parties – This Court has, in a consistent line of judgements, reiterated that regulatory or adjudicatory fora cannot, under the guise of equity or fairness, rewrite the contractual framework or superimpose obligations alien to the agreement – The PPA, being the product of a competitive bidding process and having received regulatory approval, must be construed and enforced strictly in accordance with its express stipulations – To permit otherwise would be to allow the State Commission or the APTEL to override the parties own allocation of risk under the contract. [Para 42]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Ankit Gyan. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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