Maharashtra State Electricity Distribution Company Limited vs Maharashtra Electricity Regulatory Commission & Ors.

Maharashtra Electricity Regulatory Commission(MERC) – Power of – Held: MERC constituted under the Electricity Act, 2003 has all the trappings of a Court – MERC is a substitute for a Civil Court in respect of all disputes between licensees and Power Generating Companies.

Dismissing the appeal, the Court

HELD : 1.1 An appeal lies to this Court under Section 125 of the Electricity Act, 2003 only on grounds permitted in Section

100 of the Code of Civil Procedure, 1908. On a conjoint reading of Section 125 of the 2003 Act with Section 100 CPC, it is absolutely clear that an appeal to this Court lies on a substantial question of law. The condition precedent for entertaining an appeal under Section 125 is the existence of a substantial question. [Para 148, 152][1122-C; 1123-E-F]

State Bank of India and Ors. v. S.N. Goyal (2008) 8 SCC 92 : [2008] 7 SCR 631; Nazir Mohamed v. J. Kamala and Others 2020 SCC OnLine SC 676; Wardha Power Company Limited v. Maharashtra State Electricity Distribution Co. Limited and Another (2016) 16 SCC 541; Tuppadahalli Energy India Private Limited v. Karnataka Electricity Regulatory Commission and Anr (2017) 11 SCC 194; Ramanuja Naidu v. V. Kanniah Naidu and Another (1996) 3 SCC 392 : [1996] 3 SCR 239; Navaneethammal v. Arjuna Chetty (1996) 6 SCC

166 : [1996] 5 Suppl. SCR 582 – referred to.

1.2 It is not for this Court to re-analyze evidence adduced before the forums below or to sit in appeal over concurrent findings of facts. [Para 159][1128-G]

1.3 There can be no doubt that a notification issued by the Reserve Bank of India constitutes law. A Reserve Bank of India notification which alters, modifies, cancels or replaces an earlier notification would tantamount to a change in law. However the notification relating to alteration of the lending rates chargeable by banks and financial institutions are not laws which relate to the Power Purchase Agreements in question, and therefore do not attract, as the case may be, Article 13 of the Stage 1 Agreements or Article 10 of the Stage 2 Agreements. [Para 160][1128-H; 1129-A-B]

1.4 The RBI circulars/guidelines referred to, are admittedly instructions issued to banks and financial institutions and are not applicable to the appellant or to the respondent-Power Generating Companies, who are engaged in the business of production, sale/purchase and/or distribution of electricity and not of advancing loans. Moreover, State Bank Advanced Rate (SBAR) as defined in the Power Purchase Agreements is admittedly not linked to any RBI guidelines or circulars. The guidelines/circulars are thus not relevant to the issues involved in this appeal. [Para 161] [1129-B-C]

1.5 The RBI circulars/guidelines to banks, advising the banks to follow certain norms, while setting their benchmark reference rates for loans, and the amendments thereto, have no legal consequence on the contract between the parties. This has been correctly appreciated by both the forums below. [Para 162][1129-D]

B.O.I. Finance Limited v. Custodian and Ors. (1997)

10 SCC 488 : [1997] 3 SCR 51 – referred to.

1.6 SBI has been notifying and continues to notify Prime Lending Rates(PLR) for its loans. The appellant itself has given the average PLR notified by SBI from 2010 till date in its application being I.A. No. 69796 of 2021. Therefore, Late Payment Surcharge(LPS) as per the Power Purchase Agreement has been calculated at the rate of 2% in excess of the SBI notified Prime Lending Rate.From the impugned judgment and order of the APTEL, it appears that the appellant conceded before the APTEL that the SBI continues to issue the PLR rates till date. [Para 164, 165][1129-F-H]

1.7 The definition of SBAR is clear and has been correctly applied by both the forums below. There are concurrent findings of fact that the SBI PLR (i.e. the benchmark reference rate mentioned in the PPA) is still being published and is available. The Court cannot, at this stage of a second appeal under Section

125 of the Electricity Act reopen the factual question of whether at all PLR rates were being notified by SBI for short term loans. Therefore, there is no substantial question of law involved in this appeal filed under section 125 of the Electricity Act, 2003. [Para 166, 167][1130-B-C]

1.8 The definition of SBAR in the Power Purchase Agreements is clear. SBAR is the Prime Lending Rate per annum fixed by the State Bank of India (SBI) from time to time for loans with one year maturity. LPS is to be calculated at the rate of 2% in excess of the PLR for loans with 1 year maturity, as fixed from time to time by SBI. Moreover, the parties have consciously agreed that in the absence of such rate, the LPS rate shall be mutually agreed to by the Parties. [Para 168][1130-D-E]

1.9 The provision in the Power Purchase Agreement, whereby the parties are to mutually agree on a rate of interest, in case there is no SBI Prime Lending Rate, in itself excludes the applicability of the general provision for Change in Law contained in Article 13 of the Power Purchase Agreement to Late Payment Surcharge. [Para 170][1130-F]

1.10 This Court is unable to accept the submission that the conclusion of APTEL that LPS is not tariff is erroneous. The meaning of the expression tariff has to be considered, and has rightly been considered by APTEL in the context of the relevant provision of the Power Purchase Agreements. The dictionary meaning of tariff may be charge. However, in Article 13 of the Stage 1 and Article 10 of the Stage 2 Power Purchase Agreements, tariff means monthly tariff and tariff adjustment consequential to change in law, is of monthly tariff in respect of supply of electricity. [Para 173][1131-B-C]

1.11 It was submitted by the Power Generating Companies respectively, LPS is only payable when payment against monthly bills is delayed and not otherwise.The object of LPS is to enforce and/or encourage timely payment of charges by the procurer, i.e. the appellant. In other words, LPS dissuades the procurer from delaying payment of charges. The rate of LPS has no bearing or impact on tariff. Changes in the basis of the rates of LPS do not affect the rate at which power was agreed to be sold and purchased under the Power Purchase Agreements. The principle of restitution under the Change in Law provisions of the Power Purchase Agreements are attracted in respect of tariff. [Para 174, 175][1131-D-F]

1.12 LPS cannot be equated with carrying cost or actual cost incurred for the supply of power. The appellant has a contractual obligation to make timely payment of the invoices raised by the Power Generating Companies, subject, of course, to scrutiny and verification of the same. The counsel for the respondent has a point that if the funding cost was so much lesser than the rate of LPS, as contended by the appellant, the appellant could have raised funds at a lower rate of interest, made timely payment of the invoices raised by the Power Generating Companies, and avoided LPS. [Para 176][1131-F-G]

1.13 The proposition that Courts cannot rewrite a contract mutually executed between the parties, is well settled. The Court cannot, through its interpretative process, rewrite or create a new contract between the parties. The Court has to simply apply the terms and conditions of the agreement as agreed between the parties. As submitted, this appeal is renegotiate the terms of the PPA. It is well settled that Courts cannot substitute their own view of the presumed understanding of commercial terms by the parties, if the terms are explicitly expressed. The explicit terms of a contract are always the final word with regard to the intention of the parties. [Para 177][1131-H; 1132-A-C] Shree Ambica Medical Stores and Others. v. Surat People’s Cooperative Bank Limited and Others (2020)

13 SCC 564 : [2020] 3 SCR 359; Nabha Power Limited v. Punjab State ower Corporation Limited (PSPCL) And Another (2018) 11 SCC 508 : [2017] 14 SCR 301 – referred to.

1.14 The appellant is obliged to seek amendment of the provisions of the Power Purchase Agreement only in accordance with the agreed procedure for amendment of the terms thereof. The agreed rate of Late Payment Surcharge can only be amended in the absence of SBI PLR and that too with the mutual consent of the parties to the Power Purchase Agreement.The submission that the Power Generating Companies are availing loans at a lesser rate of interest, but charging LPS on the basis of a higher rate of interest, leading to unjust enrichment, is untenable in law. LPS under the Power Purchase Agreements do not correspond to the actual interest paid by the Power Generating Companies for funds raised by them. The payment of Late Payment Surcharge LPS penalty suffered by the Procurer, that is, the appellant, on account of default in timely payment. [Para 178, 179][1132-D-E]

1.15 The parties to the Power Purchase Agreements have mutually and consciously agreed to the incorporation of the PLR as notified by SBI from time to time, as the rate for levy of LPS. Therefore, by virtue of the doctrine of incorporation, the PLR as notified by SBI each year gets incorporated in the Power Purchasing Agreements, as binding between the parties. Thus, any other system notified by the Reserve Bank of India by its circulars has no bearing on the terms of the Power Purchase Agreement and cannot be deemed to be incorporated in the Power Purchase Agreement, except in case of mutual agreement between the parties, in the event of absence of SBI PLR, and approved by the MERC. [Para 180][1132-F-H]

1.16 As submitted, conceptually, PLR, Base Rate and MCLR are not comparable. The submission that the definition of SBAR should be read in the context of MCLR instead of PLR, is therefore not tenable. PLR is the internal benchmark rate for charging of interest on floating rate loans, calculated on the basis of average cost of funds and the loans were offered at a discount on their existing PLR. However, Base Rate is the lending rate calculated based on the total cost of funds of the banks and is the minimum interest rate at which a bank can lend, except for loans to its own employees, its retired employees and against bank’s own deposits. MCLR is a lending rate calculated on the cost of raising new funds for the bank which include the cost of maintaining CRR/SLR (Credit Reserve Ratio/Statutory Liquidity Ratio), operating costs of banks and tenor premium. MCLR is the lowest interest rate that a bank or lender can offer. Thus, loans are offered at a markup on the MCLR. Thus, the basis of both the rates are different and cannot be compared, as has been sought to be done by the appellant. When PLR, Base Rate and MCLR are compared side by side. The difference is that very stark. Loans are advanced at a mark-up over Base Rate and MCLR, while during the PLR regime, loans were offered at a discount on PLR. [Para 181][1133-A-D]

1.17 In any case, the appellant cannot submit that the Reserve Bank of India circulars are to be considered as Change in Law, since Article 13.3.1 of the Stage 1 agreements corresponding to Article 10.4.1 of the Stage 2 agreements provides that notices of Change in Law events are to be issued by the affected party, as soon as reasonably practicable, after the affected party becomes aware of Change in Law event or when it should reasonably have known of the Change in Law.In this case, the changes cited by the appellant were effected by RBI from July 2010 and April 2016 and notified in advance. The appellant issued notices of Change in Law as late as in September 2016, more than six years after the Reserve Bank of India introduced the base rate system in place of the BPLR system. Furthermore, while the guidelines on the base rate system were published on 9th April 2010 and introduced with effect from 01.07.2010, the appellant entered into Power Purchase Agreements with the Respondent No. 2 on 9th August 2010 and on 16th February 2013 incorporating PLR as the Late Payment Surcharge rate for supply of contracted quantum of electricity to the appellant. [Para 182, 183][1133-E-H]

1.18 Significantly, the appellant charges interest from its consumers for delay in payment @ 1.25% per month and/or in other words 15% per annum as per the MYT Regulations of MERC. This also shows that interest rate is not co-related to the actual interest rate on loans taken by the appellant or by Power Generating Companies. According to the Respondent-Power Generating Companies, no other distribution licencee other than the appellant has raised the claim of Change in Law. All other Distribution Licencees procuring electricity from producers of electricity pay LPS in accordance with the respective Power Purchase Agreements.Admittedly, the appellant has landed itself in its present predicament, due to delay in making timely payments to the respondent Power Generating Companies. There was no pandemic at the time of filing of the petition before the MERC in 2017 and the Appeal before the APTEL in 2018. It, cannot, therefore be said that the appellant defaulted in payment of bills by reason of its financial predicament as a result of the outbreak of COVID 19 in India, which was in March 2020. [Para 184, 186][1134-A-B]

1.19 Extensive submissions that the appellant committed default in payment of the bills raised by the Power Generating Companies on account of various circumstances, beyond its control. The various circumstances mentioned by the appellant, which allegedly impacted the financial position of the appellant, have no bearing on the merits of the Appeal. The counsels submitted in one voice that the delays in payment and/or nonpayment of the invoices raised by the Power Generating Companies for the supply of power to the appellant, had put the respondent-Power Generating Companies under immense financial stress, as their source of revenue is from the sale and supply of power generated from their power plants. The respondent Power Generating Companies cannot be burdened with the consequences of the appellant’s defaults. [Para 187][1134-F-H; 1135-A]

M/s Kailash Nath Associates v. Delhi Development Authority and Anr (2015) 4 SCC 136 : [2015] 1 SCR

627 – distinguished.

Halliburton Offshore Services Inc. v. Vedanta Limited & Anr., O.M.P (I) (COMM.) No. 88/2020, decided on 29.05.2020 – referred to.

1.20 In this case, the appellant admittedly did not pay the bills raised by the Power Generating Companies within time. The Power Purchase Agreements provided for Late Payment Surcharge on the presumption that delayed payment of bills causes prejudice and loss to the seller whose bill remains outstanding. Accordingly, the appellant also imposes delayed payment charges on its consumers, who pay their bills after the stipulated due date for payment of the bills at the rate of 1.5% per month and/or in other 18% per annum. LPS rate of 2% above the SBAR is neither unreasonably exorbitant nor arbitrary. It cannot be said that the LPS agreed upon is not a genuine pre estimate of damages. [Para 189][1135-C-E]

Union of India v. Association of Unified Telecom Service Providers of India & Ors. 2020 (3) SCC 525 : [2019]

16 SCR 672; Hindustan Steel Ltd. v. State of Orissa 1969 (2) SCC 627 : [1970] 1 SCR 753; Akbar Badrudin Giwani v. Collector of Customs 1990 (2) SCC 203 : [1990] 1 SCR 369; Jaiprakash Industries Ltd. v. Commissioner of Central Excise, Chandigarh 2003 (1) SCC 67; Tecumseh Products India Ltd. v. Commissioner of Central Excise, Hyderabad 2004 (6) SCC 30 : [2004]

2 Suppl. SCR 202; J.K. Synthetics Ltd. v. Commercial Taxes Officer 1994 (4) SCC 276:[1994] 3 SCR 964 ; Central Bank of India v. Ravindra and Others 2002 (1) SCC 367 : [2001] 4 Suppl. SCR 323; M/s Kailash Nath Associates v. Delhi Development Authority and Anr (2015) 4 SCC 136 : [2015] 1 SCR 627 – referred to.

1.21 It would perhaps be pertinent to note that stereotype Power Purchase Agreements containing identical terms and conditions are executed by the appellant with different Power Generating Companies. It is patently obvious that the Power Generating Companies only agree to terms and conditions of an agreement prepared by the appellant. It is difficult to accept that the appellant should incorporate in their stereotype Power Purchase Agreements, a provision for payment of LPS at a rate 2% higher than the SBAR, in case of late payment of invoices/bills, without any pre-estimation of the loss likely to be suffered by a Power Generating Company, by reason of non payment of bills in time, more so when the Late Payment Surcharge is linked to the rate of interest in respect of specific types of loan, charged by a leading nationalised bank with the largest numbers of branches spread all over the country including in mofussil and rural areas. [Para 192][1137-C-E]

1.22 In any case, in this second appeal under Section 125 of the Electricity Act 2003, which is only to be heard on a substantial question of law, this Court would not embark upon the exercise of making a factual enquiry into the mode and manner in which the Power Generating Companies meet their working capital requirements and interest that individual Power Generating Companies pay to their lenders. [Para 193] [1137-E-F]

1.23 It is axiomatic that the Power Purchase Agreements provide for computation of Late Payment Surcharge in a particular manner to avoid the time consuming exercise of assessing the losses of individual Power Generating Companies by reason of late payment of their bills. The SBAR has been made the bench mark for computation of Late Payment Surcharge, irrespective of whether the Power Generating Companies are financed by the State Bank of India or any of its subsidiaries. The LPS provision is in the nature of a caution to arrange their affairs and finances keeping the upper limit of LPS of 2% above the SBAR in view, so that the Power Generating Company desists from borrowing at uneconomic rate of interest. [Para 194][1137-G-H]

1.24 There being no dispute in the instant case with regard to the principal sums due under the monthly bills, interest on delayed payment at 2% in excess of SBI PLR cannot be said to be arbitrarily high. There is no reason for this Court to reduce the contractual rate of interest and thereby alter or modify the contract between the parties, in exercise of its powers under Article 142 of the Constitution of India. [Para 195][1138-B]

1.25 The question whether or not the appellant has funds to clear its interest liability are not gone into. The appellant cannot continue to get supply of electricity without having appropriate funds. The appellant would necessarily have to raise funds to clear its contractual obligations. [Para 196][1138-C]

1.26 Even assuming that the burden of interest would have to be passed on to the consumers, that cannot be the ground for the appellant to resile from its contractual commitment to the Power Generating Companies. The appellant cannot pass on the burden for delay in making payment to the Power Generating Companies. In any case the claims pertains to a period of three years before filing of the petition before the MERC on 2nd December, 2016 and therefore barred by limitation. [Para 197][1138-D]

1.27 Reliance by the appellant, upon the tariff regulations framed by MERC for determination of tariff for Power Generating Companies under Section 62 of the Electricity Act 2003, is untenable since the Tariff Regulations have no application in this case where PPAs have been executed pursuant to a bidding process, under Section 63 of the Electricity Act. [Para 198][1138E-F]

1.28 The challenge to the impugned judgment and order on the ground of the directions on the appellant to make payment of the LPS found due and payable, within a stipulated date, is also not sustainable. [Para 203][1140-B-C]

1.29 APTEL is not bound by the procedure laid down in the Civil Procedure Code. Directions for time bound payment within a prescribed time frame are in conformity with the judgment of this Court in Jaipur Vidyut Vitran Nigam Ltd. v. Adani Power’s case which has been upheld by this Court. Moreover, one of the objectives of the Electricity Act is time bound disposal of matters. This is evident from various provisions of the said Act including in particular Section 111(5) of the Act. Since APTEL and MERC are not bound by the procedure as laid down in the Civil Procedure Code, it was open to APTEL to pass such orders as would finally put an end to litigation. [Para 204][1140-C-D] Jaipur Vidyut Vitaran Nigam Limited & Ors. v. Adani Power Rajasthan Limited and Anr 2020 SCC Online SC 697 – distinguished.

1.30 An Electricity Regulatory Commission such as MERC constituted under the Electricity Act, 2003 has all the trappings of a Court. The MERC is a substitute for a Civil Court in respect of all disputes between licensees and Power Generating Companies. MERC acted within the scope of its power of regulatory supervision in directing the appellant to make payment of LPS within the time stipulated in the order of MERC. The APTEL rightly upheld the direction. In any case, such a direction cannot be interfered with in exercise of powers under Section

125 of the Electricity Act which corresponds to the power of Second Appeal under Section 100 of the CPC, since the sine qua non for entertaining an appeal is the existence of a substantial question of law. [Page 205, 207][1140-E-F; 1141-B-C] Tamil Nadu Generation & Distribution Corporation Ltd. v. PPN Power Generating Company Private Limted (2014) 11 SCC 53 : [2014] 4 SCR 667; Andhra Pradesh Power Coordination Committee & Others v. Lanco Kondapalli Power Ltd & Ors. (2016) 3 SCC 468 : [2015] 12 SCR 447; Gujarat Urja Vikas Nigam Limited v. Amit Gupta and Others (2021) SCC OnLine 194; State of Karnataka v. Vishwabharathi House Building Cooperative Society and Others (2003) 2 SCC 412 : [2003] 1 SCR 397; All India Power Engineering Federation & Ors. vs. Sasan Power Limited & Others (2017) 1 SCC 487 : [2016] 9 SCR 901 – referred to.

1.31 After the the hearing of this appeal was concluded and the appeal was reserved for judgment, the appellant filed an application to bring on record additional facts and documents in the form of queries under the Right to Information Act, 2005 made to the State Bank of India and the responses thereto in an attempt to show that PLR would not apply to short term loans advanced by SBI after transition to the Base Rate/MCLR system. This Court cannot take note of any documents sought to be introduced after the conclusion of hearing. In any case, this Court cannot in a second appeal under Section 125 of the Electricity Act, 2003 interfere with concurrent factual findings arrived at by MERC and APTEL on the basis of facts admitted by the appellant. The appellant had been accepting the invoices raised by the respondent–Power Generating companies and accounts had duly been reconciled by the appellant. The LPS charged by the respondent Power Generating Companies was never disputed. Further more, this Court cannot look into documents introduced for the first time in this second appeal, which were not tendered in evidence before the MERC or the APTEL. Even otherwise, queries made by a rank outsider as late as on 12th July 2021 or replies thereto cannot be relied upon in evidence, by the appellant. [Para 208][1141-C-F]

1.32 There is no ground to interfere with the judgment and order of the APTEL confirming the judgment and order passed by MERC. [Para 209][1141-G]

DSR Steel (P). Ltd. v. State of Rajasthan and others (2012) 6 SCC 782 : [2012] 5 SCR 583; Power Grid Corporation of India and Ors. v. Tamil Nadu Generation and Distribution Company Limited and Others. (2019)

7 SCC 34 : [2019] 7 SCR 724; Bharat Sanchar Nigam Ltd. v. Pawan Kumar Gupta (2016) 1 SCC 363 : [2015]

11 SCR 402; Adani Power (Mundra) Ltd. v. Gujarat Electricity Regulatory Commission and Others (2019)

19 SCC 9; Uttar Haryana Bijli Vitran Nigam Limited and Another v Adani Power Limited and Others (2019)

5 SCC 325 : [2019] 4 SCR 487; CLP India Private Limited v. Gujarat Urja Vikas Nigam Limited and Another 2020 (5) SCC 185; Transmission Corporation of Andhra Pradesh Ltd . And Others v. GMR Vemagiri Power Generation Ltd. And Another (2018) 3 SCC 716; Indian Council for Enviro-Legal Action v. Union of India (2011) 8 SCC 161 : [2011] 9 SCR 146; Gujarat Urja Vikas Nigam Ltd. v. Essar Power Limited (2008) 4 SCC

755 : [2008] 4 SCR 822 – referred to.

https://www.merriam-webster.com/dictionary/tariff – referred to.