# [2017] 3 S.C.R. 153

- **Citation:** [2017] 3 S.C.R. 153
- **Court:** Supreme Court of India
- **Decided:** 2017-04-11
- **Case number:** Civil Appeal Nos. 5399-5400of2016
- **Bench:** Pinaki Chandra Giiose, R. K Naiuman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/2017-3-s-c-r-153-31883
- **Pages:** 61

## Headnote

Electricity Act, 2003 - ss. 63, 79 - Determination of tariff by
bidding process - Supply of power from power project - Power
Purchase Agreement (PPA) between State Government Utilities and
power generating companies - State Commission adopted tariff
u/s. 63 for supply of power to Slate Government Utilities - However,
few years later, change in Indonesian law which increased the export
price of coal from Indonesia to international market - .Petition by
power generating companies before Ce171ral Electricity Regulatory
Commission seeking relief due to change in Indonesian law -
Commission held that the claim of power generating companies on
the grounds of force majeure and/or change in law not admissible,
however, in exercise of regulatory power uls. 79 granted .
compensatory tariff- Tribunal set aside the order of the Commission
- On appeal, held: PPA makes it clear that changes in the cost of
fuel, or the agreement becoming onerous to perform, are not treated
as force majeure events under the PPA itself-As such force /1iajeure
would not apply so as to enable the grant of co111pensatory tariff -
P PAs does not state that coal is to be procured only from Indonesia
at a particular price - Price payable for the supply of coal is entirely
for the person who sets up the power plant to bear - Unexpected
rise in the price of coal would not absolve the generating co111panies
from performing their part of the contract since this was a risk they
knowingly took - Also, expression 'any law' in Cl.13 of P PA refers
to law of India - In view thereof. though change in Indonesian law
would not qualify as a change in law under the guidelines read
with the PPA, change in Indian law certainly would - CERC to go
into the matter afresh and determine the relief to be granted to those
power generators who fall within Cl.13 of the P PA.
s. 79 - Regulatory powers of Central Commission u/s. 79{l){b)
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[2017] 3 S.C.R.
- Interpretation of - Held: General regulatory power of the
Commission u/s. 79(1}(b) is the source of the power to regulate,
which includes the power to determine or adopt tariff- I11 a situation
where the guidelines issued by the Central Government u/s. 63 cover
the situation. the Central Commission is bou11d by those guidelines
and must exercise its regulatory functions, only in accordance with
those guidelines - It is 011ly i11 a situation where there are no
guidelines framed at all or where the guidelines do not deal with a
given situation that the Commission '.I· ge11eral regulatory powers
uls. 79(1J(b) ca11 then be used.
Power Purchase Agreement - Clause of force majeure -
Application of
Disposing of the appeals, the Court
HELD: 1. The regulatory powers of the Central
Commission, so far as tariff is concerned, are specifically
mentioned in Section 79(1) of the Electricity Act, 2003. This
regulatory power is a g~neral one, and it is very difficult to state
that when the Commission adopts tariff under Section 63, it
functions de hors its general regulatory power under Section
79(1)(b). For one thing, ·such regulation takes place under the
Central Government's guidelines. l<or another, in a situation
where there are no guidelines or in a situation which is not
covered by the guidelines, the Commission's power to "regulate"
tariff is completely done away with, is not a correct way of reading
the said statutory provisions. The first rule of statutory
interpretation is that the. statute must be read as a whole. As a
concomitant of that rule, it is also clear that all the discordant
notes struck by the various Sections must be harmonized.
Considering the fact that the non-obstante clause advisedly
restricts itself to Section 62, there is no good reason to put Section
79 out of the way altogether. The reason why Section 62 alone
has been put out of the way is that determinatio~ of tariff can take
place in one of two ways-either under Section 62, where the
Commission itself determines

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[2017] 3 S.C.R. 153
ENERGY WATCHDOG
CENTRAL ELECTRICITY REGULATORY COMMISSION AND
ORS. ETC.
(Civil Appeal Nos. 5399-5400of2016)
APRIL 11, 2017
[PINAKI CHANDRA GIIOSE AND R. K NAIUMAN, JJ.)
Electricity Act, 2003 - ss. 63, 79 - Determination of tariff by
bidding process - Supply of power from power project - Power
Purchase Agreement (PPA) between State Government Utilities and
power generating companies - State Commission adopted tariff
u/s. 63 for supply of power to Slate Government Utilities - However,
few years later, change in Indonesian law which increased the export
price of coal from Indonesia to international market - .Petition by
power generating companies before Ce171ral Electricity Regulatory
Commission seeking relief due to change in Indonesian law -
Commission held that the claim of power generating companies on
the grounds of force majeure and/or change in law not admissible,
however, in exercise of regulatory power uls. 79 granted .
compensatory tariff- Tribunal set aside the order of the Commission
- On appeal, held: PPA makes it clear that changes in the cost of
fuel, or the agreement becoming onerous to perform, are not treated
as force majeure events under the PPA itself-As such force /1iajeure
would not apply so as to enable the grant of co111pensatory tariff -
P PAs does not state that coal is to be procured only from Indonesia
at a particular price - Price payable for the supply of coal is entirely
for the person who sets up the power plant to bear - Unexpected
rise in the price of coal would not absolve the generating co111panies
from performing their part of the contract since this was a risk they
knowingly took - Also, expression 'any law' in Cl.13 of P PA refers
to law of India - In view thereof. though change in Indonesian law
would not qualify as a change in law under the guidelines read
with the PPA, change in Indian law certainly would - CERC to go
into the matter afresh and determine the relief to be granted to those
power generators who fall within Cl.13 of the P PA.
s. 79 - Regulatory powers of Central Commission u/s. 79{l){b)
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- Interpretation of - Held: General regulatory power of the
Commission u/s. 79(1}(b) is the source of the power to regulate,
which includes the power to determine or adopt tariff- I11 a situation
where the guidelines issued by the Central Government u/s. 63 cover
the situation. the Central Commission is bou11d by those guidelines
and must exercise its regulatory functions, only in accordance with
those guidelines - It is 011ly i11 a situation where there are no
guidelines framed at all or where the guidelines do not deal with a
given situation that the Commission '.I· ge11eral regulatory powers
uls. 79(1J(b) ca11 then be used.
Power Purchase Agreement - Clause of force majeure -
Application of
Disposing of the appeals, the Court
HELD: 1. The regulatory powers of the Central
Commission, so far as tariff is concerned, are specifically
mentioned in Section 79(1) of the Electricity Act, 2003. This
regulatory power is a g~neral one, and it is very difficult to state
that when the Commission adopts tariff under Section 63, it
functions de hors its general regulatory power under Section
79(1)(b). For one thing, ·such regulation takes place under the
Central Government's guidelines. l<or another, in a situation
where there are no guidelines or in a situation which is not
covered by the guidelines, the Commission's power to "regulate"
tariff is completely done away with, is not a correct way of reading
the said statutory provisions. The first rule of statutory
interpretation is that the. statute must be read as a whole. As a
concomitant of that rule, it is also clear that all the discordant
notes struck by the various Sections must be harmonized.
Considering the fact that the non-obstante clause advisedly
restricts itself to Section 62, there is no good reason to put Section
79 out of the way altogether. The reason why Section 62 alone
has been put out of the way is that determinatio~ of tariff can take
place in one of two ways-either under Section 62, where the
Commission itself determines the tariff in accordance with the
provisions of the Act, (after laying down the terms and conditions
for determination of tariff mentioned in Section 61) or under
Section 63 where the Commission adopts tariff that is alrea~y
.determined by a transparent process of bidding. In either case,
ENERGY WATCHDOG v. CENTRAL ELECTRICITY
155
REGULATORY COMMISSION
the general regulatory power of the Commission under Section
.. 79(1)(b) is the source of the power to regulate, which includes
. the power to determine or adopt tariff. In fact, Sections 62 and 63 ·
del!I with "determination" of tariff, which is part of "regulating"
tariff. Whereas "determining" tariff for inter-State transmission
of electricity is dealt with by Section 79(l)(d), Section 79(1)(b) is
a wider source of power to "regulate" tariff. It is clear that in a
situation where the guidelines issued by the Central Government
under Section 63 cover the situation, the Central Commission is
bound by those guidelines and must exercise its regulatory
functions, albeit under Section 79(1)(b), only in accordance with
those guidelines. It is only in a situation where there are no
guidelines framed at all or where the guidelines do not deal with
a given situation that the Commission's general regulatory
powers under Section 79(l)(b) caii then be used. [Para 19Jll80E-ll; 181-A-D]
2.1 The scheme that emerges from Sections 25 and 30 is
that whenever there is inter-Stale generation or supply of
electricity, it is the Central Government that is involved, and
whenever there is intra-State generation or supply of electricity,
the State Government or the State Commission is involved. This
is the precise scheme of the entire Act, including Sections 79
and 86. It would be seen that Section 79(1) itself in sub-sections
(c), (d) and (e) speaks of inter-State transmission and inter-State
operations. This is to be contrasted with Section 86 which deals
with functions of the State Commission which uses the expression
"within the State" in sub-clauses (a), (b), and (d), and "intra-state"
in sub-clause (c). This being the case, it is clear that the PPA,
which deals with generation and supply of electricity, would either
have to be governed by the State Commission or the Central
Commission. The State Commission's jurisdiction is only where
generation and supply takes place within the State. On the other
hand, the moment generation and sale takes pla.:e in more than
one State, the Central Commission becomes the appropriate
Commission under the Act. If the submission of the appellant is
accepted and it is held in the AD's case that there is no composite
scheme for generation and sale, it would be clear that neither
Commission would .have jurisdiction, something which would lead
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to absurdity. Since generation and sale of electricity is in more
than one State obviously Section 86 docs not get attracted. This
being the case, it is observed that the expression "composite
scheme" does not mean anything more than a scheme for
~:eneration and sale of electricity in more than one State. The
dictionary definitions lead to the conclusion. that the expression
"composite" only means "consisting of at least two elements".
In the context of the instant case, generation and sale being in
more than one State, this could be referred to as "composite".
Even otherwise, the expression used in Section 79(l)(b) is that
generating companies must enter into or otherwise. have a
"composite scheme". This makes it clear that the expression
"composite scheme" docs not have some special meaning-it is
enough that generating companies have, in any manner, a scheme
for gcnerntion and sale of electricity which must be in more than
one State. [Paras 22-25)(182-F-G; 183-A-C)
Dictionary of Scientific and Technical Terms by McGraw-Hill 6th Edu; Advanced Law Lexicon by P.
Ramanatha Aiyar 3rd Edn - referred to.
2.2 The tariff policy dated 6'h June, 2006 is the statutory
policy which is enunciated under Section 3 of the Electricity Act.
The amendment of 28'h January, 2016 throws considerable light
on the expression "composite scheme". The definition of
composite scheme in the Tariff Policy is an important aid to the
construction of Section 79(1)(b) which cannot be doubted and,
correctly brings out the meaning of this expression as meaning
nothing more tlian a scheme by a generating company for
generation and sale of electricity in more than one State. Section
. 64(5) begins with a non-obstante clause which would indicate that
in all cases involving inter-State sup11ly, transmission, or wheeling
of electricity, the Central Commission alone has jurisdiction.
Section 64(5) can only apply if, the jurisdiction otherwise being
with the Central Commission alone, by application of the parties
concerned, jurisdiction is to be given lo the State Con1mission
having jurisdiction in respect of the licensee who intends to
distribute and make payment for electricity. Therefore, the
Central Commission had the necessary jurisdiction to embark
upon the issues raised in the instant cases. [Paras 26,27)(184-A-
ENERGY WATCHDOG v. CENTRAL ELECTRICITY
157
REGULATORY COMMISSION
B, E-F, G-11; 185-AJ
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3.1 In so far as a force majeure event occurs de hors the
contract, it is dealt with by a rule of positive law under Section 56
of the Contract Act, 1872. The doctrine of frustration cannot apply
to these cases as the fundamental basis of the PPAs remains
unaltered. Nowhere do the PPAs stale that coal is to be procured
only from Indonesia at a particular price. In fact, it is clear on a
reading of the PPA as a whole that the price payable for the supply
of coal is entirely for the person who sets up the power plant to
bear. The fact that the fuel supply agreement has lo be appended
to the PPA is only to indicate that the raw material for the working
of the plant is there and is in order. It is clear that an unexpected
rise in the price of coal will not absolve the generating companies
from performing their part of the contract for the very good reason
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that when they submitted their bids, this was a risk they knowingly
took. The mere fact 'that the bid may be 11011-escalable does not
mean that the respondents are precluded from raising the plea of· D
frustrntion, if otherwise it is available in law and can be pleaded
by them. But the fact that a 11on-cscalable tariff has been paid for,
for example, in the AD's case, is a factor which may be taken into
account only to show that the risk of supplying electricity at the
tariff indicated was upon the generating company. [Paras 32,
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4U][ J~7-Il; 191-D-F]
'Chitty on Contracts' 31st Edn., para 14-151; 'Trei1el
on Frustralion and Force lvfajeure' 3rd edn., para
12-034, 15-158 - referred to.
3.2 Given the fact that the PPA must be read as a whole,
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and .that clauses 12.3 and 12.7(a) are ·a part of the same scheme
of force majeure under the contrnct, it is clear that the expression
"hindered" in clause 12.7(a) really goes with the expression
"partly prevents" in clause 12.3 •. Force majeure clauses are to
be narrowly construed, and obviously the expression "prevents"
in clause 12.3 is spoken of also in clause 12. 7(a). When "prevent"
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is preceded by the expression "wholly or partly", it is reasonable
to assume that the expression "prevented" in clause 12.7(a) goes
with the expression "wholly" in clause 12.3 and the expression
"hindered" in clause 12. 7(a) goes with the expression "partly".
This .being so, it is clear that there must be something which
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partly prevents the performance of the obligation under the
agreement. Clause 12.04 of PPA makes it clear that changes in
the cost of fuel, or the agreement becoming onerous to perform,
arc not treated as force majcure events under the PPA itself.
Thus, neither was the fundamental basis of the contract dislodged
nor was any frustrating cvcut, except for a rise in the price of
coal, excluded by clause 12.4. Alternative modes of performance
were available, albeit at a higher price. This does not lead to the
contract, as a whole, being frustrated. Consequently, neither
clause 12.3 nor 12.7, referable to Section 32 of the Contract Act,
would apply so as to enable the grant of com1>ensatory tariff to ,
the respondents. Having once held that clause 12.4 applies as a
result of which rise in the price of fuel cannot be regarded as a
force majeure event contractually, it is difficult to appreciate a
submission that in the alternative Section 56 would apply. [Paras
43-451[196-E-H; 198-F-ll; 199-A-CJ
Satyabrata Ghose v. Mugneeram Banger & Co. (1954]
SCR 310; Mis Alopi Parshad & Sons Ltd. v. Union of
India (1960] 2 SCR 793; Nailiati Jute Mills Ltd. v.
Hyaliram Jagannath (1968] 1 SCR 821 - referred to.
Taylor v. Caldwell (1861-73) All ER Rep 24;
Tsakiroglou & Co. Ltd. v. Noblee Thor! GmbH 1961 (2)
All ER 179; Sea Angel case 2013 (1) Lloyds Law
Report 569; Tennants (Lancashire) Ltd. 1.: GS. Wilson
and Co. Ltd. 1917 Appeal Cases 495; Peter Dixon &
Sons Ltd. v. Henderson, Craig&. Co. Ltd. 1919 (2) KB
778 - referred to.
4.1 Both the guidelines and the model PPA, of which clause
13 is a part, have been drafted by the Central Government itself.'·
It is, therefore, clear that the PPA only fleshes out what is
mentioned in clause 4.7 of the guidelines, and goes on to explain
what the expression "any change in law" means. This being the
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case, it is dear that the definition of "law" speaks of all laws
including electricity laws in force in India. Electricity laws, as has
been seen from the definition, means the Electricity Act, .Rules
and Regulations made thereunder from time to time, and any
other law pertaining to electricity. This being so, it is clear that
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the expression "in force in India" in the definition of 'law' goes ·
ENERGY WATCHDOG v. CENTRAL ELECTRICITY
159
REGULATORY COMMISSION
with "all laws". This is for the reason that otherwise the said
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expression would become tautologous, as electricity laws that
are in force in ~ndia arc already referred to in the definition of
"electricity laws" as contained in the PPA. Once this is clear, at
least textually it is clear that "all laws" would have to be read
with "in force in India" and would, therefore, refer only to Indian
laws. Even otherwise, from a reading of clause 13, it is clear that
clause 13.1.l is in four different parts. The first part speaks of
enacted laws; the second speaks of interpretation of such laws
by Courts or other instrumentalities; the third speaks of changes
in consents, approvals or licences which result in change in cost
of the business of selling electricity; and the fourth refers to any
change in the declared law of the land for the project, cost of
implementation of re-settlement anti rehabilitation or cost of
implementing the environmental management plan. 'Competent
Court' in clause 13.1.2 is defined as meaning only the judicial
system of India. [Para 481[206-G-ll; 207-A~U]
4.2 The expression "any law" occurs in both sub-section
(1) and sub-section (2) of clause 13.1.1, which expression must
be given the same meaning in both sub-sections. This being the
case, as in sub-clause (2), this expression would refer only to
. Indian law, the same meaning will have to. be given to the very
same expression in sub-clause (1). Even otherwise, sub-clauses
(1) and (2) form part of the same contractual scheme in that subclause (1) refers to the euactni'ent of laws, whereas sub-clause
(2) relates to interpretation of those very laws by a competent
Court of law!fribunal or Indian Government instrumentality.
'Competent Court', speaks only of the Indian judicial system and,
therefore, the enactments spoken of in sub-clause (1) would
necessarily refer only to Indian enactments. It is clear that if
otherwise the expression "any law" in clause 13 when read with
the definition of"law" and "Electricity Laws" leads unequivocally
to the conclusion that it refers only to the law of India, it would be
unsafe to rely upon the other clauses of the agreement where
Indian law is specifically mentioned to negate this conclusion.
(Paras 4?, 5111207-E-G; 208-C]
4.3 The submission that a commercial contract is to be
interpreted in a manner which gives business efficacy to such
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contract, that the subject matter of the PPA being '"imported coal'',
obviously the expression "any law" would refer to laws governing
coal that is imported from other countries. rnnnot be accepted.
There arc many P.PAs entered into with different generntors.
Some generators ma~· source Cud only from India. Others, as is
the case in the AD's matter, "ould ~ource fuel to the ·extent of
70% from lmlia and 30%P.from abroad, whereas other generators,
as in the case of GA an~ the CS case, would source coal wholl)
·' , from abroad. The meaning of the expression '"change in law" in
clause 13 cannot depend upon whether coal is sourced in a
particular PPA from outside India or within India. The meaning
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would have to remain the same whether coal is sourced wholly in
India, partly in India and partly from outside, or wholly from
outside. The proposition that if performance of a contract is to be
done in a foreign country, what would be relevant would be foreign
law, this would be true.as a general statement of law, but for the
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reason given, would not apply to the Pl'As in the instant case.
[Para 52)(208-D-G]
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4.4 It would be seen th:1t under cl:tuse 13.1.1 if there is a
change in any consent, approval or liecnce available or obtained
for the project, otherwise than fur the default of the seller, which
results in any change in any cost of the business of selling
electricity, then the said seller will be governed under clause
13.1.1. It is clear from a reading of the Resolution dated 21".
June, 2013, which resulted in the letter of 31" July, 2013, issued
by the Ministry of Power, that the earlier coal distribution policy
contained in the letter dated l81h March, 2007 stands modified as
the Government has now approved a revised arrangement for
supply of coal. It has been decided that, seeing the overall
domestic availability and the likely requirement of power projects,
the power projects would only be entitled to a certain percentage
of what was earlier allowable. [Para 53)(208-H; 209-A-C)
4.5 Both tlie letter dated 31.07.2013 and the revised tariff
policy are statutory documents being issued u/s. 3 and have the
force oflaw. This being so, it is clear that so far as the procurement
of Indian coal is concerned, to the extent that the supply from
Coal India and other Indian sources is cut down, the PPA read
with these documents provides in clause 13.2 that while
ENERGY WATCHDOG v. CENTRAL ELECTRICITY
REGULATORY COMMISSION
determining the consequences of change in law, parties shall have
due regard to the principle that the purpose of compensating the
party affected by such change in law is to restore, through monthly
tal'iff payments, the affected party to the economic position as if
such change in Jaw has not occurred. J<-urther, for the operation
period of the PPA, compensation for any increase/decrease in
cost to the seller shall be determined and be effective from such
date as decided by the CERC. Though change in Indonesian law
would not qualify as a change in law under the guidelines read
with the PPA, change in Indian law certainly would. The tribunal's
judgment -~nd the Commission's orders following the said
judgment are set aside. CERC would go into the matter afresh
and determine what relief should be granted to those power
generators who fall within Cl. 13 of the PPA. [Paras 53, 541[212B-D, G-H)
CCE v. National Tobacco Co. of India Ltd. (1972) 2
SCC 560 : [1973) 1 SCR 822 - referred to.
Case Law Reference
[1954) SCR 310
[1960] 2 SCR 793
(1968] 1 SCR 821
referred to
referred to
referred to
Para34
Para 35
Para 36
(1973] 1 SCR 822
referred to
Para 51
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 53995400of2016.
From the Judgment and Order dated 07.04.2016 of the Appellate
Tribunal for Electricity (APTEL) at New Delhi in Appeal No. 124 of
2014 and Appeal No. 125of2014
WITH
C. A. No. 9035 of2014
C. A. Nos. 5347, 5348, 5364, 5346, 5351-5352, 5415 and 96359642 of2016.
Mukul Rohtagi, Attorney General, Raitj it Kumar, Solicitor General,
P. S. Narsimha, Tushar Mehta, ASGs, H. N. Salve, Dr. A.M. Singhvi,
Vikram Nankani, Kapil Sibal, C. S. Vaidyanathan, Amit Sibal, Sr. Advs.,
Mahesh Agarwal, Saurabh Kirpal, Nakul Diwan, Ms. Neeha Nagpal,
Ms. Poonam Verma, Ms. A. Zaidi, Ms. Aanchal Basul, Ms. Malay
Deliwala, Aviskar SingLvi, Aditya Shankar, E.C. Agrawala,
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[2017] 3 S.C.R.
M.G. Ramachandran, K. V. Mohan, Ms. Ranjitha Ramachandran,
Ms. Poorva Saigal, Ms. Anushree Bardhan, Shubham Arya, Nikhil Nayyar,
N. Sai Vinod, Ms. Smriti Shah, Divyanshu Rai,Anand Ganesan, Nikunj
Dayal, Pramod Dayal, Ms. Payal Dayal, Ms. Swapna Seshadri, Sanjai
Kr. Pathak, R. Parameswaran, Dr. Nilesh Sharma, G. S. Makker,
G. Umapathy, Rakesh K. Sharma, Aditya Singh, M. A. Venkata
Subramanian, Ms. Hemantika Wahi, Ms. Jesal Wahi, Amit Kapur,
Ms. Apoorva Mishra, Kuna! Kaul, V. Mukherjee, Rohit Venkat,
Pukhrambam Ramesh Kumar, Abhishek Munot, Uday Manaktala,
Ms. Raveena Dhamija, Ms. Ruby Singh Ahuja, Yishal Gehrana, Anupam
Prakash, Harsh Trivedi, Mrs. Manik Karanjawala, (For Mis. Kara1tjawala
& Co.), Udit Gupta, Anup Jain, K. Parameshwar, Abhishek Baid, Sum it
Kumar, Raj iv Srivastava, Ms. Garima Srivastava, Ms. Gargi Srivastava,
Rajesh Pathak, Saurabh Mishra, Dhan' Raj, Abhishek Singh, Raj Kumar
Mehta, Elangbam Prentjit Singh, Ms. Himanshi Andley, Ms. Udita Singh,
Rahul Dhawan, Abhijeet Rastogi, Pradeep Misra, Alok Shankar, Yikas
Upadhyay, Anup Jain, Prashant Bhushan, Pranav Sachdeva, Ms. Neha
Rathi, Sidharth Sethi, Chandra Prakash, Kumar Mihir, Tushar Bakshi,
Guntur Prabhakar, Ms. Prerna Singh, Mrs. D. Bharathi Reddy,
Ms. Vidyottama, Advs., with them for the appearing pa11ies.
The Judgment of the Cou11 was delivered by
R. F. NARIMAN, J. 1. The present appeals arise from a
judgment of the Appellate Tribunal for Electricity dated 7'h April, 2016.
The facts necessary to appreciate the issues which arise in the present
case, which will cover all the cases before us, will be taken only from
Civil Appeal No.5348of2016, namely Prayas (Energy) Group vs. Central
Electricity Regulatory Commission.
2. Section 63 of the Electricity Act, 2003 provides for procurement
of power and determination of tariff by a transparent competitive bidding
process. Once this is done, the appropriate Commission is to "adopt"
the tariff which is accepted in the competitive bid subject to guidelines
that are made by the Central Government. On 19111 January, 2005, the
Central Government issued detailed guidelines under this provision, which
were amended from time to time. On I" February, 2006, Gujarat Urja
Vikas Nigam Limited (GUVNL) issued a public notice inviting proposals
for supply of power on long term basis under three different competitive
bid processes. The pa11icipating bidders were to decide on the tariff and
quote such tariff after competing against each other. The bidders were
entitled to quote cscalable or non-escalable tariff or partly escalable and
ENERGY WATCHDOG v. CENTRAL ELECTRICITY
REGULATORY COMMISSION [R. F. NARIMAN, J.]
partly non-escalable tariff, as was considered appropriate by them to
cover their respective risks so as to obtain whatever returns are available
to them. The best levelised tariff as per certain pre-disclosed criteria
was to be followed in order to arrive at the lowest tender.
3. Haryana Utilities also initiated a separate competitive bidding
process for purchase of2000 MW on a long term basis. This was done
on 25'h May. 2006. The participating bidders were also entitled to quote
bids on the lines ofci1eGUVNL public notice. Both the Gujarat Electricity
Regulatory Commissioh and the Haryana State Regulatory C0111mission
approved the bid documents and the process proposed by GUVNL and
the Haryana Utilities, after which Requests for Proposal were issued by
both of them. On 2""/4'
11 January, 2007, Adani Enterprises Consortium
submitted its bid for generation and supply of I 000 MW to GUYNL,
quoting a levelised tariff of Rs.2.3495/kWh (Rs. I /kWh as the capacity
charge and Rs.1.3495/kWh as 11011-escalable energy charge). In the bid,
the Consortium indicated that the lead member, Adani Enterprises, had
an arrangement for indigenous coal requirement of the project with Gtuarat
Mineral Development Corporation, as the said Corporation had been
allotted a certain coal block in the State of Chhattisgarh. Also, a
Memorandum of Understanding was entered into between Adani
Enterprises Ltd. and a Gennan Company for supply of non-coking coal
of3 to 5 million tons (imported coal) on a long term basis till the year
2032. A similar Memorandum of Understanding was also entered into
between Adani Enterprises and a Japanese agent for supply of 3 to 5
million tons of coal again on a long term basis. The two Memoranda of
Understanding were attached to the bid submitted by Adani Enterprises.
4. On J J •h January, 2007, the AJani Enterprises Consortium was
selected by GUYNL as the successful bidder for supply of I 000 MW of
power and a Letter of Intent was issued in its favour. On 2"ct February,
2007, a Power Purchase Agreement was entered into between GUVNL
and Adani Power and this was for supply of power from a power project
being set up at Korba in Chhattisgarh. This was changed to a Mundra
Project in Gujarat. On 1 S•h April, 2007, a supplementary PPA was signed
to this effect.
5. As far as Haryana is concerned, Adani Power submitted their
bid for supply of 1425 MW of power to Haryana Utilities on 24'
11
November, 2007. This was at a levelised tariff of Rs.2.94/kWh from
the Mundra Power Project. The energy charges quoted were
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11011-escalable. Adani Power was declared as the successful bidder in
Haryana for supply of 1424 MW contracted capacit)r on I 71h July. 2008
and a Letter of Intent was issued. Two separate PPAs were executed
by Adani Power with two Haryana entities for supply of 712 MW of
power to each of them from the Mundra Power Project. The Haryana
State Commission adopted the tariff under Section 63 of the Electricity
Act on 31 SI July, 2008 (The Gujarat State Commission had adopted the
tariffun'der Section 63 for supply of power to GUVNL on 20•h December,
2007). An important part of the case on behalf ofthe respondents is that
a change in law in Indonesia took place in 20 I 0 and 2011, which aligned
the cxpott price of coal from Indonesia to international market prices
instead of the price that was prevalent for the last 40 years.This being
the case, in both the cases, Adani Power filed a petition before the Central
Electricity Regulatory Commission being Petition No.155of2012 on 5•1i
July, 2012 under Section 79 of the Electricity Act seeking reliefon the
score of the impact of the Indonesian Regulation to either discharge
them from the performance of the PPA on account of frustration, or to
evolve a mechanism to restore the petitioners to the same economic
condition prior to occurrence of the change in law.
6. On 16'" October, 2012, the Central Commission held that the
Power Purchase Agreements entered into by Adani in both the cases
constituted a composite scheme for generation and sale of electricity as
envisaged under Section 79( I )(b) of the Electricity Act. This being so, it
. held that it was the appropriate Commission under the Act and not the
respective State Commissions, which had jurisdiction in the matter. A
review petition against this order was dismissed on l 61h January, 2013.
7. On 2"d April, 2013, the Central Commission passed an order,
whereby the claim of Adani Power on the grounds of force majeure
and/or change in law was held not to be admissible. However, the
Commission held that in exercise of the regulatory powers provided under
Section 79 of the Act, the Central Commission can provide redressal of
grievances to generating companies, considering the larger public interest,
and hence constituted a committee to look into the alleged difficulties
faced by Adani and to find an acceptable solution thereto.
8. On I 61h August, 2013, pursuant to the order dated 2"d April,
2013, the Committee constituted by the C0111i11ission submitted a rep01t.
Based on the Committee's repo11, on 21 SI February, 2014, the Central
Commission proceeded to grant compensatory tariff. Appeals and
ENERGY WATCHDOG v. CENTRAL ELECTRICITY
REGULATORY COMMISSION [R. F. NARIMAN, J.]
cross-appeals were filed against this order, including cross objections.
On I" August 2014, cross-objection filed by Adani Power was rejected
by the Appellate Tribunal as not maintainable. On 31" October, 2014,
the Appellate Tribunal rejected the prayer for condonation of delay and
consequently Appeal No. 10016 of 2014 was filed by Adani Power.
Against this order, Adani Power filed an appeal before the Supreme
Court, and this Court, in its order dated 31" March, 2015 held:
"the Appellant (Adani Power) is entitled to argue any proposition
of law, be it "force majeure" or "change in law" in support of the
order dated 21.2.2014 quantifying the compensatory tariff, the
correctness of which is under challenge before the_ Appellate
Tribunal in Appeal No.98 'of 2014 and Appeal No.116 of 2014
preferred by the respondents, so long as such argument is based ·
on the facts which are already pleaded before the Central
Commission."
9. Finally, the Appellate Tribunal on 71h April, 2016, passed the
impugned judgment in all the aforesaid cases before us. The Tribunal
held, agreeing with the Commission, that generation and sale of power
by Adani Power to GUVNL and Haryana Utilities was a composite
scheme within the meaning of Section 79(1) (b) of the Act and that,
therefore, the Central Commission would have jurisdictioh'to proceed
fu11her in the matter. The Appellate Tribunal considered the Supreri1e
Cburt order dated 31" March, 2015 and felt that the argument of force
majeure and change in law could be gone into by it. It ultimately
concluded, having regard to the law on frustration contained in the Indian
Contract Act, 1872 and the relevant provisions of the PP As, that force
majeure was made out on the facts of these cases and reversed the
Commission on this score. It also reversed the Commission on exercise
of regulatory powers under Section 79, stating that these powers could
not be exercised once there was a PPA entered into under Section 63 of
the Act. It also held that change in law provisions do not apply to foreign
law and, therefore, changes in Indonesian law did not come within the
scope of the provisions. Insofar as changes in Indian law were concerned,
it held that the Government Policies that were relied upon, do not
constitute 'law'. Accordingly, the matler was remanded to the
Commission to find out the impact of the force majcure event to grant
compensatory tariff. The Commission by its order dated 6.12.2016 has
arrived at a certain determination as to compensatory tariff to be granted
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on account of force majeure.
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I 0. We have heard learned counsel for the parties. On behalf of
the appellants Senior Counsel Shri Ramachandran, and Shri Prashant
Bhushan have argued that the lipe1ty given to Adani Power by tlie order
dated 31st March, 2015 of this Court was only limited to support the
quantification of compensatory tariff granted by the Central Commission
by its order dated 21st February, 2014. Hence, Adani Power is not entitled
to raise the issue of force majeure and change in law as a substantive
issue, the force majeure claim and the change in law claim having been
rejected by the Central Commission in its earlier order; and there being
no val id appeal against the said order, force majeure and change in law
cannot be gone into. It is further argued, in the alternative, that in any
case, force majeure either under Section 56 of the Indian Contract Act,
1872 or under clauses 12.3 and 7 of the respective PPAs make it clear
tliat it must be an unforeseen event or circumstance that wholly or partly
prevents the affected party in the performance of its obligations under
the agreement. Acco1:ding to learned counsel, Adani voluntarily decided
to quote energy charges as non-escalable in order to be competitive and,
therefore, get the award of the contract. It cannot now, in the guise of
being affected by force majeure, convert this into an escalable tariff.
They have fu1ther argued that the bid given by Adani Enterprises was
'
not pren~ised on the import of coal from Indonesia only and this being
the case it was open to them to get coal from any source. The price of
coal is the price of raw material and if prices go up, a contract does not
get frustrated merely because it becomes commercially onerous, as the
PPA itself states in clause 12.4. In any event, the fundamental basis of
the PPAs between the parties was not premised on the price of coal
imported from Indonesia.
l l. On a true construction of the Act, learned counsel argued in
suppo1t of the Tribunal judgment that Section 63 of the Electricity Act is
a standalone provision and is notwithstanding anything contained in
Section 62. It is obvious that under Section 62 read with Section 61 and
64, the Commission has to "determine" tariff under the Act having regard
to various factors, whereas under Section 63 of the Act, the Commission
does not "determine" but only "adopts" tariff obtained through a
transparent process of competitive bidding. This being the case, it is
clear that there is no residuary source of power contained in the
Commission either in Section 79 or otherwise to fix compensatory tariffs
ENERGY WATCHDOG v. CENTRAL ELECTRICITY
REGULATORY COMMISSION [R. F. NARIMAN, J.]
once the tariff is adopted under Section 63. If at all, such tariff can be
modified only in accordance with the guidelines issued by the Central
Government and not otherwise. They also argued that the Central
Commission itself has no jurisdiction in view of the fact that on facts
there is no composite scheme for the reason that the generation and sale
of electricity from the power project ofAdani, under independent PPAs
to Gujarat and Haryana Utilities, with different tariffs, and from different
generating units selected under different competitive bidding processes,
would show that there is no one composite scheme containing uniform
tariffs. This being the case, the State Commissions alone would have
. jurisdiction. It was further argued that there is no change in law, either
for the very good reason stated by the Commission, viz. that change in
law applies to Indian and not Indonesian law, and further, a change in the
tariff policy in India will also not constitute change in law. They, therefore,
supported the Tribunaljudgmenton this aspect.
12. Learned Senior counsel Shri Kapil Sibal, Shri Harish Salve,
Dr. Abhishek Manu Singhvi, and Shri C.S. Vaidyanathan, on behalf of
the respondents, on the other hand, countered each one of these
submissions. According to learned counsel, first and foremost the Central
Commission alone would have jurisdiction on the facts of these cases,
inasmuch as Sections 79 and 86 form part of one scheme. It was argued
by them that all cases fall within either Section 79 or Section 86. It is
clear that under Section 86, the State Commissions have only
to deal with generation and sale of electricity within the State. When
. generation and sale takes place outside the State, as is the case here, the
State Commission would have no jurisdiction under Section 86, and
consequently Section 79( I )(b) has to be read as part of a scheme in
which the moment generation and sale of electricity is inter-State and
not intra State, the Central Commission alone would have jurisdiction.
Judged in this light, the expression "composite scheme" would only mean
that generation and sale of electricity would be in more than one State.
For this they also relied on the definition of"composite scheme" in the
2016 Central Government Pol icy.
13. They further argued that the scheme of the Act shows that
neither 61 nor Section 79 are done away with when Section 63 applies.
Section 63 does not use the expression "notwithstanding anything
contained in this Act". It is clear, therefore, that all these Sections have
to be harmoniously construed. Section 79 is without a doubt a repository
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of power to fix tariffs and/or modify fixation even when Section 63
applies. Indeed, Shri Sibal argued that ifthere were no guidelines or ifa
matter arose de hors the guidelines, then obviously there cannot be a
gap in the law which remains unfilled. The residuary power of the
Commission necessarily comes in under Section 79. In any event, they
also argued that the guide I ines, as amended, that are issued by the Central
Government under Section 63 clearly take care of the present situation
: in that any change in law that occurs and any dispute which relates to
tariffs can both be resolved before the Central Commission.
14. They also countered the submissions on force majcure by
stating that the fundamental basis of the contract was the foe) supply
agreement that was to be entered into, and pointed out various clauses
in the PPAs to show that the fuel supply agreement and imported coal
were both very important elements, both in the bid and the PPAs. Nonescalable tariffs do not lead to the conclusion that if a source of coal
becomes unavailable in a manner ttiat completely undermines the basis
of the bid, the tariff cannot be adjusted. lfotherwise they fall within the
change in law provision and/or force majeure provision, the mere fact
that a non-escalable tariff has been quoted would make no difference.
A large part of the argument was centered around the meaning of the
expression "frustration" in the Contract Act and the correct construction
of clause 12 of the PPA. A large number of authorities, both English and
Indian, were cited to show that the contract had become commercially
impracticable, and that they would have to fold up operations, which
would not be in public interest as the consumers would then have to
obtain electricity at rates much higher than were quoted by them.
According to them, a force n.1ajellre event in Clause 12 takes place the
moment performance is "hindered" and there can be no doubt that an
astronomical rise in prices of Indonesian coal, thanks to a change in law,
has ceiiainly hindered performance. They also argued that in any event
the change in law clause is very wide and since the PPA deals with
imported coal, obviously change in law would cover foreign law. They
also went on to add that whe1i the PPA wanted to restrict a particular
clause to Indian law, it did so expressly. They also stated that it is significant
that neither GUVNL nor Haryana Utilities had filed appeals in the preseht
case, and the Government had in several policy decisions and statements
made it clear that in cases like the present, where there is grave
unforeseen hardship on account of non-allocation oflndian coal, the ri~e
ENERGY WATCHDOG v. CENTRAL ELECTRIC!lY
REGULATORY COMMISSION [R. F. NARIMAN, J.)
in cost should be adequately compensated. They, therefore, questioned
the locus standi of the co1Jsumer groups.