Electricity Act, 2003 – ss. 86 (1) (F), 95 – Respondent No. 2-Procurer initiated the process of bidding for supply of power on long term basis, by issuing Request for Qualification – Three separate bids were invited – Appellant was selected as a successful bidder in respect of bid no. 2 for supplying 1000 MW power at the rate of Rs. 2.35 per Kwh – Consequently, Power Purchase Agreement (PPA) came to be entered into between the procurer and the appellant – Appellant contended that the bid submitted by it was on the basis of the assurance given by Gujarat Mineral Development Corporation (GMDC) to supply coal – It was also contended that, the GMDC was not abiding by the said assurance – There was a dispute between the appellant and the GMDC with regard to certain terms and conditions of the Fuel Supply Agreement (FSA) and as such FSA could not be finalized – Various communications were exchanged between the Government of Gujarat, appellant and GMDC to find out a solution – Finally, appellant by a communication dated 28.12.2009, issued notice to the procurer, terminating the PPA with effect from 04.01.2010 – Procurer filed petition u/ss. 86(1)(F), 95 of the Act, 2003 before Commission – The Commission held that the termination was illegal and directed the appellant to supply the power to the procurer at the rate determined in the PPA – Aggrieved, appellant filed appeal before the Appellate Tribunal, which was dismissed – On appeal, held: Appellate Tribunal depicted an erroneous approach – It is settled that to harmonize is not to destroy any statutory provision or render it otiose – A harmonious reading of Art. 3.4.2 and Art. 3.1.2 of the PPA indicated that in the event of non-compliance of any of the conditions as stipulated in Art. 3.1.2 within the period prescribed thereunder, either of the parties, i.e., the seller or the procurer have the right to terminate the contract – Further, Appellate Tribunal was totally incorrect in holding that the provisions u/Art. 3.4.2 of the PPA can be invoked only when there is an agreement between the parties that there is a violation of any of the conditions specified in Art. 3.1.2 of the PPA – If such a view of the Appellate Tribunal is accepted, it will amount to inserting a totally new condition in Art. 3.4.2 of the PPA and would amount to re-writing the contract between the parties; it would violate the provisions of Art. 3.4.2 of the PPA – And it will make the provisions of Art. 3.4.2 a dead letter and render them otiose – Also, it cannot said to be a condition which is necessary to give business efficacy to the contract – Besides, Appellate Tribunal erred in holding that the bid of the appellant was not on the basis of the commitment by the GMDC to supply indigenous coal – As it is clear from various communication between Government of Gujarat, Procurer and GMDC that the bid of the appellant was on the basis of the commitment by the GMDC to supply the indigenous coal – Thus, the termination of PPA by appellant was legal and valid – Interpretation of Statutes – Harmonious Construction. Electricity Act, 2003 – s.62 – Determination of compensatory tariff by Central Electricity Regulatory Commission (CERC) – Respondent No.2-procurer initiated the process of bidding for supply of power – Appellant was selected as a successful bidder for supplying 1000 MW power at rate of Rs. 2.35 per kwh – Appellant contended that the bid submitted by it was on basis of the assurance given by Gujarat Mineral Development Corporation (GMDC) to supply coal – It was also contended that GMDC did not abide by the said assurance – Appellant terminated the PPA – Procurer filed petition u/ss.86(1)(f) & 95 of the Act before the Commission – The Commission and the Appellate Tribunal held that the termination was illegal and directed the appellant to supply the power to the procurer at the rate determined by PPA – On appeal, held: Termination by appellant was valid and legal – Appellant supplied electricity to the procurer in accordance with the decision of the Commission and the Appellate Tribunal – In order to do economic justice, on the principle of business efficacy, the appellant entitled for adjustment of cost of the project and also entitled to the interest on the expenditure incurred by it for completion of project – Therefore, parties relegated to the CERC for determination of the compensatory tariff payable to the appellant from the date of termination of the PPA – CERC (Terms and Conditions of Tariff) Regulations 2009.
Doctrines/Principles – Principle of Business Efficacy – Discussed.
Allowing the appeal, the Court
HELD: 1. The observations of the Appellate Tribunal depicted a totally erroneous approach. A harmonious reading of Article 3.4.2 and Article 3.1.2 of Power Purchase Agreement (PPA) clearly indicates that in the event of non-compliance of any of the conditions as stipulated in Article 3.1.2 within the period prescribed thereunder, either of the parties, i.e., the seller or the procurer have the right to terminate the contract. However, in either of the events, it is the seller’s liability to pay the liquidated damages at the rate of Rs. 10 lakhs per Mega Watt. [Para 25] [1047-B-C]
2. This Court is of the considered view that the finding of the Appellate Tribunal that the provisions under Article 3.4.2 of the PPA can be invoked only when there is an agreement between the parties that there is violation of any of the conditions specified in Article 3.1.2 of the PPA is totally incorrect. If such an argument is accepted, it will amount to inserting a totally new condition in Article 3.4.2 of the PPA and would amount to re-writing the contract between the parties; it would do total violence to the provisions of Article 3.4.2 of the PPA. It cannot be said to be a condition which is either reasonable or equitable; it also cannot be said to be a condition which is necessary to give business efficacy to the contract; it also cannot be said to be a test which justifies the Officious Bystander Test; it also cannot be said to be a condition which is capable of the clear expression; it is also not a condition which does not contradict any expressed terms of the contract. On the contrary, is a condition which would totally change the tenor of Article 3.4.2 of the PPA. We are, therefore, of the considered view that the Appellate Tribunal has grossly erred in coming to the conclusion that Article 3.4.2 of the PPA could be invoked only in the event that there is an agreement with regard to violation of any of the conditions in Article 3.1.2. [Para 26] [1047-D-F]
3. This Court finds, that both the Commission and the Appellate Tribunal have grossly erred in arriving at finding that termination can be effected under Article 3.4.2 only if there is an agreement with regard to non-compliance of condition under Article 3.4.2 by both the parties. If the finding of the Appellate Tribunal is accepted, it w ill be amounting to making provisions of Article 3.4.2 a dead letter and rendering them otiose. [Para 31] [1051-F-G]
4. In the present case, the perusal of various Articles would reveal that provisions under Article 14 are general in nature. The provision under Article 3.4.2 is specific, only to be invoked in the case of non-compliance with any of the conditions as provided under Article 3.1.2. As such, the special provision made in Article 3.4.2 will exclude the applicability of general provisions contained in Article 14 of the contract. [Para 34] [1051-F]
5. In the brief summary of the Project given in the said bid document, it has been specifically mentioned by the appellant that the bid was submitted on the basis of indigenous coal supply committed by the Gujarat Mineral Development Corporation (GMDC). The bid documents also form part of the PPA between the parties. [Para 37] [1052-C]
6. It could thus be clearly seen that even the Government of Gujarat has also clearly indicated that the bid submitted by the appellant in the competitive bid was on the basis of the commitment for supply of coal from Morga-II mines by the GMDC. It has, therefore, requested the Managing Director, GMDC to give 50 per cent of coal from Morga block to the appellant. The State Government had, therefore, requested that the Managing Director of the GMDC to go for coal allotment from Morga block. It could thus be seen that, even the procurer was aware that the bid of the appellant was on the basis of the commitment by the GMDC to supply the indigenous coal. [Paras 39 and 41] [1053-B, C, F-G]
7. In that view thereof, after the GMDC resiling from its commitment and refusing to enter into Fuel Supply Agreement (FSA) with the appellant, the appellant was justified in invoking Article 3.4.2 of the PPA, in view of non-compliance of Condition No. (ii) in Article 3.1.2 since it had failed to produce the Fuel Supply Agreement. [Para 43] [1054-E]
8. In the light of the aforesaid finding, this Court fails to understand as to how the Appellate Tribunal has come to a finding that the bid of the appellant was not on the basis of the commitment by the GMDC to supply indigenous coal. This Court is of the considered view that the Appellate Tribunal has erred both on facts and in law. This Court is of the considered view that the appellant was entitled in law as well as on facts to invoke Article
3.4.2 of the PPA and terminate the agreement. [Para 44] [1054-H; 1055-A]
9. Now, the question would arise as to at what rate the appellant is entitled to compensatory tariff from the date of supply of power. Undisputedly, even after the PPA was validly terminated, the appellant continued to take the project to its logical end. After commissioning of the project, it has started supplying electricity to the procurer in accordance with the decision of the Commission and the Appellate Tribunal. The appellant must have incurred huge expenditure on the same. In order to do economic justice, on the principle of business efficacy, the appellant would be entitled for adjustment of cost of the project and would also be entitled to the interest on the expenditure incurred by it for completion of the project. The expenditure towards running of the project after obtaining the coal from the open market would also be required to be taken into consideration. The appellant would also be entitled to the interest on the delay of payment after it receives payment upon determination of the rate which would be determined by the Central Electricity Regulatory Commission (CERC). [Para 49] [1056-D-G]
10. Section 62 of the Electricity Act, 2003, provides entire mechanism for determination of the tariff by the CERC. It will also be relevant to note that the CERC (Terms and Conditions of Tariff) Regulations 2009 also consider various factors which are required to be taken into consideration by the CERC while determining the compensatory tariff. This Court finds that it will be appropriate to relegate the parties to CERC for determination of the compensatory tariff payable to the appellant from the date of termination of the PPA. After such determination, the procurer would be entitled to adjust the amount if already paid in accordance with affidavit dated 23.11.2015, from the amount so determined by the CERC. [Para 50] [1056-G-H; 1057-A]
Calcutta Gas Company (Proprietary) Ltd. v. State of West Bengal and others AIR 1962 SC 1044 : [1962] Suppl. SCR 1 – followed.
Rajasthan State Industrial Development and Investment Corporation and Anr. v. Diamond & Gem Development Corporation Ltd. & Anr. (2013) 5 SCC 470 : [2013]
4 SCR 331 ; Bharat Aluminium Company v. Kaiser Aluminium Technical Services INC (2016) 4 SCC 126 : [2016] 1 SCR 364 ; Nabha Power Ltd. (NPL) v. Punjab State Power Corporation Ltd. (PSPCL) and Anr. (2018)
11 SCC 508 ; Sultana Begum v. Prem Chand Jain AIR 1997 SC 1006 : [1996] 9 Suppl. SCR 707 ; Anwar Hasan Khan v. Mohammed Shafi and others AIR 2001 SC 2984 ; J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. State of Uttar Pradesh, AIR 1961 SC 1170 : [1961] SCR 185 ; Maharashtra State Board of
Secondary and Higher Secondary Education and Ors. v. Paritosh Bhupeshkumar Sheth and Ors. (1984) 4 SCC 27 : [1985] 1 SCR 29 – relied on.
Indian Oil Corporation v. Amritsar Gas Services Ltd., (1991) 1 SCC 533 : [1990] 3 Suppl. SCR 196 ; Her Highness Maharani Shanti Devi Gaekwad v. Savji Haribhai Patel & Ors. (2001) 5 SCC 101 : [2001] 2 SCR 590 ; Vermagiri v. Transco, 2007 SCC online APTEL 107 – referred to.
Attorney General of Belize v. Belize Telecom Ltd., (2009)
1 WLR 1988 (PC) – 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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