Contract – Power Purchase Agreement (PPA) – Interpretation of – Predecessor of the appellant, the Andhra Pradesh State Electricity Board, in 1995 invited bids for establishing short gestation gas/Naphtha/fuel oil based power stations – Respondent was a successful bidder and had set up a power generation plant – Pursuant to the same, a PPA was executed between the parties on 31.03.1997 under which Naphtha was the primary fuel and gas an alternate fuel – In 2003, PPA was amended making gas the primary fuel and Naphtha an alternate fuel – The PPA underwent further amendment in 2007, restricting the term ‘fuel’ to ‘natural gas only’ – Respondent had sought permission to use Regasified Liquefied Natural Gas (RLNG) as fuel for generating power as RLNG is a form of natural gas – Whether the word ‘fuel’ as used in clause of the PPA means ‘natural gas only’ or includes RLNG – Held: In the event of any ambiguity arising, the terms of the contract will have to be interpreted by taking into consideration all surrounding facts and circumstances, including correspondence exchanged, to arrive at the real intendment of the parties, and not what one of the parties may contend subsequently to have been the intendment or say as included afterwards – The respondent’s letters to appellant specifically requested for permission to use RLNG to supplement shortfall in gas, requesting to acknowledge its usage – Appellant in its reply explicitly stated that under the agreement no other fuel except natural gas could be used and that RLNG was never contemplated in the definition of fuel declining to accept the spot supply agreement for RLNG supplies, citing the cost of power per unit from the same (RLNG) more costly in comparison to per unit cost from natural gas – Therefore, the intention of the parties under the agreement, as amended from time to time, was to generate power from fuel reasonably priced, so as to ultimately make available power to the consumers at reasonable rates – The choice of fuel as natural gas only has, therefore, to be understood as being confined to natural gas only in its natural form – The respondent was well aware that RLNG was never intended to be included in the definition of natural gas as understood by parties, notwithstanding that it may be a variant of natural gas – Petroleum and Natural Gas Regulatory Board Act, 2006 – s.2(za)(i).
Deeds and Documents – Commercial Document –
Interpretation of – Held: A commercial document cannot be interpreted in a manner to arrive at a complete variance with what may originally have been the intendment of the parties – Such a situation can only be contemplated when the implied term can be considered necessary to lend efficacy to the terms of the contract – If the contract is capable of interpretation on its plain meaning with regard to the true intention of the parties it will not be prudent to read implied terms on the understanding of a party, or by the court, with regard to business efficacy
Allowing the appeal, the Court
HELD: 1. It will not be a safe method to interpret a contract by picking out one clause of the same defining fuel, apply a technical scientific meaning to it and then conclude that being a form of natural gas, Regasified Liquefied Natural Gas (RLNG) was intended to be impliedly included in the definition of fuel. The terms of a contract have to be given their plain meaning with regard to the intendment of the parties as to what was intended to be included and what was not intended to be included, as distinct from an express exclusion. The commercial parlance test will also have to be applied as to whether those in the business consider the two forms of gas as synonymous and interchangeable. Quite obviously the answer has to be in the negative considering the importation of RLNG, additional processes involved and the consequent higher costs involved. [Para 19] [403-A-C]
2. In the event of any ambiguity arising, the terms of the contract will have to be interpreted by taking into consideration all surrounding facts and circumstances, including correspondence exchanged, to arrive at the real intendment of the parties, and not what one of the parties may contend subsequently to have been the intendment or to say as included afterwards. [Para 20] [403-D]
Bank of India & Anr. v. K. Mohandas & Ors. (2009) 5 SCC 313 : [2009] 5 SCR 118 – relied on.
3. The respondent’s letters dated 07.08.2012 and 27.08.2012 become crucially relevant for the understanding that it was itself under no misapprehension that RLNG was never intended to be included within the definition of natural gas under the contract. The respondent requested for permission to use RLNG to supplement shortfall in gas from the KG-D6 Basin, requesting to acknowledge its usage. The contention of the respondent that these were only intimations and not request for permission to use RLNG stands belied from the plain language used in them. The appellant in its reply dated 10.09.2012 explicitly stated that under the agreement no other fuel except natural gas could be used and that RLNG was never contemplated in the definition of fuel declining to accept the spot supply agreement for RLNG supplies, citing the cost of power per unit from the same at Rs.9-10 in comparison to Rs.3/- per unit from natural gas. It is only thereafter the respondent approached the Commission. The pleadings of the respondent further confirm its own understanding that RLNG was never intended to be included in the definition of fuel which was confined to natural gas. [Para 21] [403-G-H; 404-A-C]
4. The sporadic use of RLNG on one or two occasions under pressing circumstances, after due orders under Section 11 of the Electricity Act, 2003, for short durations, cannot make the exception the norm to contend either that RLNG was included in the term fuel or that the appellant had agreed to its use. The question of waiver by the appellant or application of the principle of approbate and reprobate does not arise in the facts of the case. [Para 22] [404-F-G]
5. The present was a contract for purchase of power generated from fuel which was reasonably priced so as to keep in check the cost of power generated from the same, in the interest of the consumer. Undoubtedly, cost of fuel was a primary consideration in the mind of the appellant. The contextual background in which the PPA originally came to be made, the subsequent amendments, the understanding of the respondent of the agreement as reflected from its own communications and pleadings make it extremely relevant that a contextual interpretation be given to the question whether RLNG was ever intended to be included within the term “Natural Gas”. [Para 23] [404-G-H; 405-A-B]
Bihar State Electricity Board v. Green Rubber Industries, (1990) 1 SCC 731 : [1989] 2 Suppl. SCR 275 – referred to.
6. In the facts and circumstances of the present case, there can be no manner of doubt that the parties by their conduct and dealings right up to the institution of proceedings by the respondent before the Commission were clear in their understanding that RLNG was not to be included within the term “Natural Gas” under the PPA. [Para 24] [405-C-D] Gedela Satchidananda Murthy v. Dy. Commissioner, Endowments Department, A.P. & Ors., (2007) 5 SCC
677 : [2007] 6 SCR 762 – relied on.
7. A commercial document cannot be interpreted in a manner to arrive at a complete variance with what may originally have been the intendment of the parties. Such a situation can only be contemplated when the implied term can be considered necessary to lend efficacy to the terms of the contract. If the contract is capable of interpretation on its plain meaning with regard to the true intention of the parties it will not be prudent to read implied terms on the understanding of a party, or by the court, with regard to business efficacy. [Para 25] [405-H; 406-A-B]
Satya Jain (D) thr. Lrs. & Ors. v. Anis Ahmed Rushdie (D) thr. Lrs. & Ors. (2013) 8 SCC 131 : [2013]
3 SCR 319 – relied on.
8. Therefore, it leads to the inevitable conclusion that the intention of the parties under the agreement, as amended from time to time, was to generate power from fuel reasonably priced, so as to ultimately make available power to the consumers at reasonable rates. The choice of fuel as natural gas only has, therefore, to be understood as being confined to natural gas only in its natural form. The respondent was well aware that RLNG was never intended to be included in the definition of natural gas as understood by the parties, notwithstanding that it may be a variant of natural gas. [Para 27] [407-H; 408-A-B] Polymat India (P) Ltd. & Anr. v. National Insurance Co. Ltd. & Ors. (2005) 9 SCC 174 : [2004] 6 Suppl. SCR 535; Timblo Irmaos Ltd., Margo v. Jorge Anibal Matos Sequeira & Anr. (1977) 3 SCC 474 : [1977]
2 SCR 451; Sappani Mohamed Mohideen and Anr. v. R. V. Sethusubramania Pillai and Ors., (1974) 1 SCC
615 : [1974] 2 SCR 594; Trutuf Safety Glass Industries v. Commissioner of Sales Tax, U.P. (2007) 7 SCC 242 : [2007] 8 SCR 860; The Union of India v. M/s. D. N. Revri and Co. and Ors. (1976) 4 SCC 147 : [1977]
1 SCR 483; Nabha Power Ltd. v. Punjab State Power Corporation Ltd. & Anr. (2017) SCC Online 1239; Bharat Aluminum Company v. Kaiser Aluminum
Technical Services Inc., (2016) 4 SCC 126 : [2016] 1 SCR 364; Association of Natural Gas & Ors. v. Union of India & Ors. (2004) 4 SCC 489 : [2004] 3 SCR 534; Khardah Company Ltd. v. Raymon & Co. (India) Private, Ltd. [1963] 3 SCR 183 – 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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