Contract – Termination of Contract – Appellant issued a Request for Proposal (RFP) for long term procurement of 300 MV power from Grid connected Solar Energy Sources through tariff based competitive bidding – Respondent no.1 was selected – Pursuant thereto, Power Purchase Agreement (PPA) was executed between the appellant and respondent no.1 for sale and procurement of solar power, for which, respondent no.1 submitted bank guarantee – Respondent no.1 was unable to fulfill prescribed conditions within stipulated period – Consequently, PPA terminated by the appellant and further, imposed penalty on respondent no.1 – Penalty amount was to be encashed from bank guarantee – High Court set aside the order of termination of the contract, however, maintained the invocation of bank guarantee – On appeal, held: – The termination of contract was not fair – Respondent no.1 was unable to obtain the requisite land for establishing the power plant and on its request, the State allotted land to the respondent on lease – However, land was found to be heavily encroached and there was stiff resistance every time respondent no.1 tried to approach the land – Respondent no.1 sought for change of location of the project, which was granted – Thereafter respondent no.1 purchased another land and undertook the construction activities and the project in an advance stage of synchronization – The same was notified to the appellant by communication dated 10.07.2017 stating that the commissioning of the project was in final stage – However, still appellant terminated the contract by its order dated 11.08.2017 – Respondent No.1 had spent substantial amount in development of the project in the changed location – The delay in commissioning the project was due to unavoidable circumstances like resistance faced at the allotted site and subsequent change of location of the project – These circumstances, though not a Force Majeure event, time taken by respondent No.1 in change of location and construction of the plant have to be kept in view for counting the delay – Further, since the contract permits imposition of penalty, respondent no.1 liable to pay penalty in terms of clause 2.5.1 of the PPA for delay – But the action of the appellant in terminating the contract arbitrary and rightly set aside by the High Court – Insofar as bank guarantee is concerned, Supreme Court stayed the order of the High Court subject to restitution by the appellant of the amount covered by the bank guarantee which has been invoked which is said to have been complied with by the appellant. Dismissing the appeal, the Court
HELD: 1. Respondent No.1 was unable to obtain the requisite land, for establishing the power plant and on its request, the State Government had allotted 96.73 acres of land at district Rajgarh to the appellant on lease. According to respondent No.1, upon initiation of measurement and demarcation exercise by the revenue officials, the land was found to be heavily encroached and there was stiff resistance which continued every time respondent No.1 tried to approach the said land and therefore, respondent No.1 could not access the project site and commence any construction activities. On request by respondent No.1 by its letter dated 29.09.2016, respondent No.1 sought for change of location of the project. The Board of Directors considered the request of respondent No.1 and by Resolution dated 29.12.2016 allowed change of location of the project. Thereafter, respondent No.1 purchased the land to an extent of 253 acres in village Bansara and Pipriya Rai in Ashok Nagar district within a period of about eighty three days from the date of the appellant’s approval. After acquiring the land, respondent No.1 undertook the construction activities and the project in an advanced stage of synchronization as early as on 10.07.2017. The same was notified to the appellant by communication dated 10.07.2017 stating that the commissioning of the project is in final stage and that the expected date of commissioning of the project is 31.08.2017 which according to respondent No.1 is ahead of the scheduled commissioning date i.e. 07.09.2017 in terms of the PPA.[Para 10][834-H; 835-A-D]
2. Even when respondent No.1 has undertaken the construction activities in the changed location and informed the appellant that the expected date of commissioning of the project is 31.08.2017, the appellant terminated the contract by its order dated 11.08.2017. Respondent No.1 stated in its counter affidavit, that it has got sanction of the term debt facility of Rs.267.37 crores from PTC India Financial Services Limited and has spent huge amount in purchasing the land to an extent of 253 acres in Ashok Nagar district. Respondent No.1 has also spent substantial amount in development of the project in the changed location and reached an advanced stage of commissioning the project by 31.08.2017. The delay in commissioning the project appears to be due to unavoidable circumstances like resistance faced at the allotted site in Rajgarh district and subsequent change of location of the project. These circumstances, though not a Force Majeure event, time taken by respondent No.1 in change of location and construction of the plant have to be kept in view for counting the delay. Having invested huge amount in purchasing the land and development of the project at Ashok Nagar district and when the project is in the final stage of commissioning, the termination of the contract is not fair. [Para 11][835-E-H; 836-A]
3. The High Court observed that the delay in completing the project was only for sixteen days. But according to the appellant, respondent No.1 was granted time period of 210 days to complete the Conditions Subsequent after which the penalty was leviable for the delay and if the delay exceeded more than nine months, the appellant could terminate the contract. According to appellant, the delay was not of sixteen days; but the said delay of sixteen days is beyond the period of nine months permissible under the PPA. Suffice to note that in cases of delay, Articles 2.5 and 2.6 provide for levy of penalty. As observed by the High Court, since the contract permits imposition of penalty, respondent No.1 is liable to pay penalty in terms of clause 2.5.1 of the PPA for the delay. But the action of the appellant in terminating the contract is arbitrary and was rightly set aside by the High Court. [Para 12][836-B-D]
4. While setting aside the termination of the contract, the High Court maintained the action of invocation of bank guarantee in terms of clause 2.5.1 of the PPA. This Court has stayed the order of the High Court subject to restitution by the appellant of the amount covered by the bank guarantee which has been invoked which is said to have been complied with by the appellant. Interest of justice would be met by directing respondent No.1 to pay penalty amount of Rs.11,95,54,200/- imposed upon respondent No.1 by the appellant. [Para 13][836-E]
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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