Karnataka Electricity Reforms Act, 1999 – s.18, Explanation to s.19, s.25(3) r/w s.17(1) and proviso to s.27(2) – Power Purchase Agreement (PPA) – The Act came into force with effect from 01.06.1999 – Under s.27 of the Act, unless there was a ‘concluded contract’ as on 01.06.1999, the Karnataka Electricity Regulatory Commission was to regulate the tariff – Whether before the Act came into force, there was a concluded contract between the parties, and therefore such a contract could not be unsettled by the regulatory regime under the Act – Held: The parties contemplated a written Power Purchase Agreement (PPA) containing various details apart from the tariff rate and the tenure – The parties were not ad idem as regards the issues which were expressly left open for negotiations – The State Government (GoK) also contemplated ‘finalising’ a PPA – The word ‘finalising’ and the word ‘PPA’, both of which did not take place before 01.06.1999 resulted in a situation where a contract could not be said to be concluded even within the meaning of the proviso to s.27(2) of the Act – This is not even a case where parties were ad idem on all the essential aspects, which go into the formation of a complex contract as involved in the facts of this case – On facts, there was no concluded contract and what is more, a PPA was not a mere desire but an indispensable requirement to conclude the terms – It is clear as day light that all through the parties undoubtedly contemplated entering into a power purchase agreement – From the subject matter of the contract, the position of the parties, the implications of the working of the contract and more importantly, the intention of the parties, it was clear that there was a concluded contract upon negotiations and correspondence, culminating in the Government Order 12.05.1999 – Even the GO dated 12.05.1999 expressly contemplated only a permission by the GoK to the KEB to finalise “a PPA” for the purchase of surplus power – The word “finalise” in the context of the PPA cannot be played down in the context of the previous correspondence at any rate – It was, in fact, also contemplated that the PPA which was to be finalised must after finalisation be submitted again to the government – GoK was thereafter to grant its approval – This cannot be overlooked. Contract Act, 1872 – s.10 – It is not essential to form a contract, that it should be in writing – Where a law stipulates that a contract be in writing in which case a contract must be reduced to writing.
Contract Act, 1872 – ss.2 and 10 – Concluded contract – Held: In order that there must be a contract concluded, there must be a proposal made, which must be accepted – There must be consideration for the promise – The proposal must be accepted, which must be communicated – The acceptance must be unqualified – The parties can be said to have entered into a contract or a contract would be said to be concluded only when they are ad idem on all the essential terms of the contract – If the proposals containing the essential terms have been accepted, and the acceptance is communicated and, if the other conditions in s.2 are complied with, viz., that is there is consideration and the contract is enforceable in law, within the meaning of s.10, it would lead to the creation of a concluded contract.
Karnataka Electricity Reforms Act, 1999 – proviso to s.27(2) – Concluded contract within meaning of the proviso to s.27(2) – Held: The proviso to s.27(2) when it uses the words ‘contracts concluded’, does not use the words ‘contracts concluded as regards tariffs’ – There are various other aspects about which the parties must be ad idem – The rate, the term and quantum are integrally interconnected with other terms – There cannot be concluded contract without parties being ad idem about those terms.
Karnataka Electricity Reforms Act, 1999 – s.41 – Appeals against order of the Karnataka Electricity Regulatory Commission – Any person aggrieved by any decision or order of the Commission can file appeal to the High Court, on questions of law arising out of such order – Held: A Right of Appeal is a creature of a Statute – LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS.
The right can be qualified or conditioned – The ambit of the appellate power is to be discerned from the terms of the Statute – A ‘question of law’ is not the same as a ‘substantial question of law’ – However, when the Statute insists on a ‘question of law’ to maintain an appeal, the Appellate Body stands constrained to that extent – Appeal.
Electricity Laws – Karnataka Electricity Regulatory Commission – The Commission is an Expert Body – Interference with its findings cannot be sustained, to begin with, if it is bereft of reasons – Findings of such a body must receive due deference – Perversity in the sense of findings, which are wholly without basis or material or which no person with the professed skills would arrive at, may merit interference – A finding, which ill squares with a clear statutory injunction, would leave the door ajar for overturning the finding.
Disposing of the appeals, the Court
HELD:1.1. In the instant case, a golden thread, which runs through the correspondence is that, both the Karnataka State Electricity Board (KEB), the Government of Karnataka (GoK) and the appellant and the first respondent, did contemplate the execution of the Power Purchase Agreement (PPA). The correspondence after 01.06.2000 also, unerringly, points to the fact that parties did not view the PPA as a mere desire. They clearly proceeded on the footing that the terms of the agreement must be evidenced in writing. Quite clearly, the High Court erred in not bearing in mind the contents of the communications and their true purport. [Para 77][1008-F-G]
2. In order that there must be a contract concluded, undoubtedly, there must be a proposal made, which must be accepted. There must be consideration for the promise. The proposal must be accepted, which must be communicated. The acceptance must be unqualified. This is an over simplification of a complex process. The parties can be said to have entered into a contract or a contract would be said to be concluded only when they are ad idem on all the essential terms of the contract. If the proposals containing the essential terms have been accepted, and the acceptance is communicated and, if the other conditions in Section 2 of the Contract Act are complied with, viz., that is there is consideration and the contract is enforceable in law, within the meaning of Section 10 of the Act, it would lead to the creation of a concluded contract. [Para 78][1009-C-E]
3. The proviso to Section 27(2) of the Act when it uses the words ‘contracts concluded’, does not use the words ‘contracts concluded as regards tariffs’. A contract of the nature, this Court is concerned with, cannot be said to consist only of a rate and the term or even the quantum included. In a contract of this nature, there are various other aspects about which the parties must be ad idem. The rate, the term and quantum are integrally interconnected with other terms. There cannot be concluded contract without parties being ad idem about those terms. [Para 79][1012-B-C]
4. The parties contemplated a written PPA containing various details apart from the tariff rate and the tenure. The parties were not ad idem as regards the issues which were expressly left open for negotiations in the communication dated 23.04.1999. GoK also contemplated ‘finalising’ a PPA. The word ‘finalising’ and the word ‘PPA’, both of which did not take place before 01.06.1999 has resulted in a situation where a contract could not be said to be concluded even within the meaning of the proviso to Section 27(2) of the Act. Even proceeding on the basis that even in a given case, a contract could be concluded within the meaning of the proviso, even in absence of a written PPA, bearing in mind also the absence of the word ‘PPA’ in the said provision and contrasting it with Section 18 where the same LawGiver has used the word ‘PPA’, if the parties were not ad idem about the necessary terms and if the parties equally contemplated a PPA to bring it into existence a contract within the meaning of Section 27(2), then, clearly a PPA would be indispensable to attract the proviso to Section 27(2). This is not even a case where parties were ad idem on all the essential aspects, which go into the formation of a complex contract as is involved in the facts of this case. Therefore, the supply of power by the first respondent, after 01.06.1999, cannot be relied upon, in view of the facts revealed by the correspondence, which itself makes it a stop gap arrangement, and what is more subject to conditions which LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS.
included execution of a PPA, to conclude that the subsequent conduct, unerringly pointed to the fact that a contract within the meaning of Section 27(2) stood concluded before 01.06.1999. [Para 79][1012-C-G]
5. On facts, there was no concluded contract and what is more, a PPA was not a mere desire but an indispensable requirement to conclude the terms. It is clear as day light that all through the parties undoubtedly contemplated entering into a power purchase agreement. The subject matter of the contract, the position of the parties, the implications of the working of the contract and more importantly, the intention of the parties do not persuade this Court to safely gather that there was a concluded contract upon negotiations and correspondence, culminating in the Government Order 12.05.1999. It is clear that even the GO dated 12.05.1999 expressly contemplated only a permission by the Gok to the KEB to finalise “a PPA” for the purchase of surplus power. The word “finalise” in the context of the PPA cannot be played down in the context of the previous correspondence at any rate. It was, in fact, also contemplated that the PPA which was to be finalised must after finalisation be submitted again to the government. GoK was thereafter to grant its approval. This cannot be overlooked. [Para 83][1017-F-H; 1018-A] West Bengal Electricity Regulatory Commission v. CESC Ltd. (2002) 8 SCC 715; India Thermal Power Ltd. v. State of M.P. and others (2000) 3 SCC 379 : [2000] 1 SCR 925; All India Power Engineer Federation and others v. Sasan Power Ltd. and others (2017) 1 SCC
487 : [2016] 9 SCR 901; K.P. Chowdhary v. State of Madhya Pradesh and others [1966] 3 SCR 919; Ram Narain Sons Ltd. v. Asstt. Commissioner of Sales Tax and others AIR 1955 SC 765 : [1955] 2 SCR 483; Dwarka Prasad v. Dwarka Das Saraf AIR 1975 SC
1758 : [1976] 1 SCR 277; Mackinnon Mackenzie & Co. Ltd. v. Audrey D’Costa and another (1987) 2 SCC
469 : [1987] 2 SCR 659; Kollipara Sriramulu (Dead) by His Legal Representative v. T. Aswatha Narayana (Dead) by His Legal Representatives and others AIR 1968 SC 1028 : [1968] 3 SCR 387; and Securities and Exchange Board of India v. Mega Corporation Limited MANU/SC/0362/2022 – referred to.
Alexander Brogden and others and the Directors, & c., of the Metropolitan Railway Company [L.R.] 2 App. Cas. 666/HL(E) 1877 Vol.2 666 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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