# 5 S.C.R. IOI GUJARAT URJA VIKAS NIGAM LTD v. ESSAR POWER LIMITED

- **Citation:** [2016] 5 S.C.R. 101
- **Court:** Supreme Court of India
- **Decided:** 2016-08-09
- **Case number:** Civil Appeal No. 3455 of2010
- **Bench:** Anil R. Dave, Adarsh Kumar Goel
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/5-s-c-r-ioi-gujarat-urja-vikas-nigam-ltd-v-essar-power-limited-31327
- **Pages:** 39

## Headnote

Electricity Act, 2003:
Power Purchase Agreement between appellant-licencee and
respondent-generating company - Interpretation of to determine
whether there is obligation to declare availability of power in a
particular proportion - Held: Jn terms of the agreement, entire
capacity has been allocated in two parts in ratio of 300:215 -
Respondent generating company is under obligation as per Schedule
VJ to PPA to declare weekly schedule of capacity available and that
it shall not divert any power to its sister concern in a manner contrary
to the proportionate principle - Commission was thus right in
holding that once the entire capacity is allocated in two parts in a
particular proportion, generating company is not right in selling
power to its sister concern beyond the allocated capacity - As
regards the compensation sought by appellant for wrongful
a/location of electricity by respondent generating company to its
sister concern in preference to the appel/ant-licencee, the
Commission had left actual working out of the loss to be worked
out separately and on that basis the appellant had already filed its
claim which was pending consideration before the Commission -
The said proceeding can now be revived.
Tribunals: Constitution of Tribunals - Questions relating to
manner of appointment of members of Tribunal and duration of
appointment; desirability of providing statutory appeals directly to
Supreme Court from orders of Tribunals on issues not affecting
national and public interest and other aspects of statutory framework
in respect of Tribunals and related questions referred to Law
Commission for examination.
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[2016] 5 S.C.R.
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Allowing the appeal and passing certain directions, the Court
HELD: 1. The agreement clearly contemplates the proportion
of allocation of a capacity. The EPL has to fuel and operate the
generating station to meet the requirement of electric output that
can be generated corresponding to the allocated capacity. The
B . appellant has to pay annual fixed cost as determined in terms of
clause 7.1.1 of Schedule VII of the Agreement. The Commission is
thus, right in observing that once the entire capacity has been allocated
in two parts in a particular proportion, the contention of the EPL
that it could sell power to ESL beyond the allocated capacity could
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not be accepted. The EPL was under obligation as per Schedule VI to
declare weekly schedule of the capacity available and the dispatch
instructions were to be issued on the basis of the said declaration. It
could not thus be said that the EPL had no obligation to declare the
capacity and the obligation ofGUVNL to issue dispatch instructions
was not dependent on declaration of the available capacity by the
EPL. Contrary view of the Tribunal is clearly erroneous. The Tribunal
erred in holding that there was no obligation to declare available
capacity on proportionate basis. [Para 22) (129-C-EJ
2. The main basis of the order of the Tribunal in rejecting the
claim of the appellant is the finding that the respondent had no
obligation to allocate available power in the ratio of 58 : 42 under the
terms of the Agreement and in terms of correspondence between
the parties. Apart from this, the Tribunal held that the appellant
had claimed Rs.64 crores by way of full and final settlement and that
the appellant was in default in not opening letter of credit and not
paying Rs.519 crores. In doing so, the Tribunal ignored clear
stipulation in the letter of the appellant dated 131h December, 2004
that the amount of Rs.64 crores was not accepted by way of final
settlement. Similarly, the Tribunal ignored the supplementary
agreement between the parties dated l81h December, 2003 followed
by letter dated 19'h December, 2003 under which amount ofRs.289.40
crores was paid to-the respondent by way of settlement for the delayed
payment charges and other heads. Thus, the Tribunal was not justified
in observing that the appell

## Text

_Characters 0–39,861 of 85,879. This is a partial read: ask again with offset=39861 for what follows._

[2016) 5 S.C.R. IOI
GUJARAT URJA VIKAS NIGAM LTD.
v.
ESSAR POWER LIMITED
(Civil Appeal No. 3455 of20 I 0)
AUGUST 09, 2016
[ANIL R. DAVE AND ADARSH KUMAR GOEL, JJ.)
Electricity Act, 2003:
Power Purchase Agreement between appellant-licencee and
respondent-generating company - Interpretation of to determine
whether there is obligation to declare availability of power in a
particular proportion - Held: Jn terms of the agreement, entire
capacity has been allocated in two parts in ratio of 300:215 -
Respondent generating company is under obligation as per Schedule
VJ to PPA to declare weekly schedule of capacity available and that
it shall not divert any power to its sister concern in a manner contrary
to the proportionate principle - Commission was thus right in
holding that once the entire capacity is allocated in two parts in a
particular proportion, generating company is not right in selling
power to its sister concern beyond the allocated capacity - As
regards the compensation sought by appellant for wrongful
a/location of electricity by respondent generating company to its
sister concern in preference to the appel/ant-licencee, the
Commission had left actual working out of the loss to be worked
out separately and on that basis the appellant had already filed its
claim which was pending consideration before the Commission -
The said proceeding can now be revived.
Tribunals: Constitution of Tribunals - Questions relating to
manner of appointment of members of Tribunal and duration of
appointment; desirability of providing statutory appeals directly to
Supreme Court from orders of Tribunals on issues not affecting
national and public interest and other aspects of statutory framework
in respect of Tribunals and related questions referred to Law
Commission for examination.
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[2016] 5 S.C.R.
A
Allowing the appeal and passing certain directions, the Court
HELD: 1. The agreement clearly contemplates the proportion
of allocation of a capacity. The EPL has to fuel and operate the
generating station to meet the requirement of electric output that
can be generated corresponding to the allocated capacity. The
B . appellant has to pay annual fixed cost as determined in terms of
clause 7.1.1 of Schedule VII of the Agreement. The Commission is
thus, right in observing that once the entire capacity has been allocated
in two parts in a particular proportion, the contention of the EPL
that it could sell power to ESL beyond the allocated capacity could
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not be accepted. The EPL was under obligation as per Schedule VI to
declare weekly schedule of the capacity available and the dispatch
instructions were to be issued on the basis of the said declaration. It
could not thus be said that the EPL had no obligation to declare the
capacity and the obligation ofGUVNL to issue dispatch instructions
was not dependent on declaration of the available capacity by the
EPL. Contrary view of the Tribunal is clearly erroneous. The Tribunal
erred in holding that there was no obligation to declare available
capacity on proportionate basis. [Para 22) (129-C-EJ
2. The main basis of the order of the Tribunal in rejecting the
claim of the appellant is the finding that the respondent had no
obligation to allocate available power in the ratio of 58 : 42 under the
terms of the Agreement and in terms of correspondence between
the parties. Apart from this, the Tribunal held that the appellant
had claimed Rs.64 crores by way of full and final settlement and that
the appellant was in default in not opening letter of credit and not
paying Rs.519 crores. In doing so, the Tribunal ignored clear
stipulation in the letter of the appellant dated 131h December, 2004
that the amount of Rs.64 crores was not accepted by way of final
settlement. Similarly, the Tribunal ignored the supplementary
agreement between the parties dated l81h December, 2003 followed
by letter dated 19'h December, 2003 under which amount ofRs.289.40
crores was paid to-the respondent by way of settlement for the delayed
payment charges and other heads. Thus, the Tribunal was not justified
in observing that the appellant had defaulted in making payment of
Rs.519 crores which was a breach of promise on the part of the
appellant, thereby absolving the respondent ofits obligation to supply
power as per the agreement. [Para 26) (131-A-D)
GUJARAT URJA VIKAS NIGAM LTD. v. ESSAR POWER
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LIMITED
Composition and functioning of Tribunal and statutory framework thereof
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especially its impact 011 worki11g o(tfle Supreme Court am/ i11 turn on
the rule of/aw.
3.1. It is well known thai in the wake of 42"d Amendment to
the Constitution of India, incorporating Article 323A and 323B of the
Constitution under Part XIVA, various Tribunals have been set up.
The Tribunals constitute alternative institutional mechanism for
dispute resolution. The declared objective of such Tribunals is inability
of the existing system of courts to cope up with the volume of work.
[Para 30)[132-C]
3.2. The composition of Tribunals under the Electricity Act or
other corresponding statutes needs to be reviewed. Appeals to this
Court on question of law or substantial question of law show that
Tribunals deal with such questions or substantial questions. Direct
appeals to this Court has the result of denial of access to the High
Court. Such Tribunals thus become substitute for High Courts
without manner of appointment to such Tribunals being the same as
the manner of appointment of High Court Judges. A perusal of
Sections 113(b)(i) to (iii) and 113(3) read with Section 78, Sections
84, 85 and 125 of the Electricity Act and corresponding provisions of
similar Acts may, thus, need a fresh look. In some Tribunals (For
example, the tribunal constituted under the Telecom Regulatory
Authority of India Act, 1997), the Tribunal exercises original
jurisdiction to the exclusion of all courts and is located only at Delhi.
Further, normally tenure of office of the Chairman and members is
of short duration of three to five years. Access to justice may not be,
thus, available with.the convenience with which it is available when
jurisdiction is with the local civil courts sought to be substituted.
Such provisions may need review in larger public interest and for
providing access to justice. Apart from the above aspect, further
question is whether providing appeals to this Court in routine, without
there being issues of general public importance, is not a serious
obstruction to the effective working of this Court. [Paras 33, 34,
35)(133-E-H; 134-A-C]
3.3. While there may be no lack of legislative competence
with the Parliament to make provision for direct appeal to the
Supreme Court from orders of Tribunals but the legislative
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SUPREME COURT REPORTS
[2016] 5 S.C.R.
competence is not the only parameter of constitutionality. It can
hardly be gainsaid that routine appeals to the highest court may
result in obstruction of the Constitutional role assigned to the
highest court as observed above.
This may affect the balance
required to be maintained by the highest court of giving priority
to cases of national importance, for which larger Benches may be
required to be constituted. Routine direct appeals to the highest
court in commercial litigation affecting individual parties without
there being any issue of national importance may call for
reconsideration at appropriate levels. Further question is
composition of Tribunals as substitutes for High Courts and
exclusion of High Court jurisdiction on account of direct appeals
to this Court. Apart from desirability, constitutionality of such
provisions may need to be gone into. However, no opinion on
this aspect at this stage is expressed. [Para 40)[137-D-GJ
3.4. The questions which may be required to be examined
by the Law Commission are:
Whether any changes in the statutory framework
constituting various Tribunals with regard to persons
appointed, manner of appointment, duration of
appointment, etc. is necessary in the light of judgment
of this Court in Madras Bar Association or on any
other consideration from the point of view of
strengthening the rule of law; Whether it is
permissible and advisable to provide appeals routinely
to this Court only on a question of law or substantial
question of law which is not of national or public
importance without affecting the constitutional role
assigned to the Supreme Court having regard to the
desirability of decision being rendered within
reasonable time; Whether direct statutory appeals to
the Supreme Court bypassing the High Courts from
the orders of Tribunal affects access to justice to
litigants in remote areas of the country; Whether it is
desirable to exclude jurisdiction of all courts in
absence of equally effective alternative mechanism
for access to justice at grass root level as has been
GUJARAT URJA VIKAS NIGAM LTD. v. ESSAR POWER
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done in provisions of TDSAT Act (Sections 14 and
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15); Any other incidental or connected issue which
may be considered appropriate.
The Law Commission is requested to give its report as
far as possible within one year. Thereafter the matter may be
examined by concerned authorities. [Paras 43, 44](138-C-H)
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L Chandra Kumar v. Union of India (1997) 3 SCC 261
: 1997 (2) SCR 1186; Madras Bar Association v. Union
of India (2014) 10 SCC 1 : 2014 (10) SCR 1; Mathai
alias Joby v. George (2010) 4 SCC 358 : 2010 (3) SCR
533; Bihar Legal Support Society v. Chief Justice of
C
India (1986) 4 SCC 767 : 1987 (1) SCR 295 - referred
to.
Case Law Reference
1997 (2) SCR 1186
referred to
Para 31
2014 (10) SCR 1
referred to
Para 32
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2010 (3) SCR 533
referred to
Para37
1987 (1) SCR 295
referred to
Para 38
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3455
of2010.
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From the Judgment and Order dated 22.02.20 I 0 of the Appellate
Tribunal for Electricity, New Delhi in Appeal Nos. 77 and 86 of2009.
C. A. Sundaram, Sr. Adv., M. G. Ramchandran, Ms. Hemantika
Wahi, Shubham Arya, Abhishek Gupta, Zafar Inayat, Ms. Rohini Musa,
Ms. Poorva Saigal, Advs. for the Appellant.
Mihir Joshi, Sr. Adv., Keyur Gandhi, Mahesh Agarwal, Ms. Neeha
Nagpal, Abhimanyu Bhandari, E. C. Agrawala, Advs. for the Respondent.
The Judgment of the Court was delivered by
ADARSH KUMAR GOEL, J. Part I : Introductoiy
1. This appeal has been preferred under Section 125 of the
Electricity Act, 2003 ('the Act') against the judgment and order dated
22"d February, 2010 passed by the Appellate Tribunal for Electricity (the
Tribunal) in Appeal No.86 of2009 whereby the Tribunal has set aside
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SUPREME COURT REPORTS
(2016] 5 S.C.R.
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the order of the Gujarat Electricity Regulatory Commission ('the
Commission') which was in favour of the appellant.
2. The substantial question of law sought to be raised by the
appellant is:
"Whether the Tribunal has correctly interpreted the terms
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of Power Purchase Agreement dated 30•h May, 1996 (PPA)
and is justified in reversing the finding of the Commission
based on interpretation of the said PPA and other documents
on record.?"
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Part II : Facts
3. The appellant, Gujarat Urja Vikas Nigam Ltd. ('the GUVNL'),
is the successor of the Gujarat Electricity Board and is a deemed licencee
under Section 2 (39) read with Sections 12 and 14 of the Act. The
respondent, ESSAR Power Limited ('the EPL'), is a generation company
within the meaning of Section 2 (28) of the Act. The appellant filed a
petition before the Commission under Section 86 (i)(t) of the Act for
adjudication of the dispute arising out of the Power Purchase Agreement
('the PPA'). The appellant inter alia sought compensation for wrongful
allocation of electricity by the EPL to its sister concern, Essar Steel Ltd.
(ESL) in preference to the appellant.
4. According to the appellant, the EPL was required to allocate
300 MW out of the total 5 I 5 MW of electricity and the remaining 215
MW was to be allocated to ESL. In case the quantum of generation
was less than 5 I 5 MW, the allocation was !9 be in the proportion of300
: 215. Contrary to this requirement, the EPL al located more electricity
to ESL. The EPL agreed, vi de letter dated 17 .02.2000, that the appellant
will be entitled to electricity in the proportion of300: 215 but the same
was not adhered to. This resulted in loss to the appellant and gain to the
EPL which, according to the appellant, tentatively worked out to Rs.4 76.22
crores (towards principal amount).
It was further pleaded by the
appellant that under the agreement, the appellant was liable to pay the
annual fixed charges, the variable charges, incentive etc. in relation to
the allocated capacity of300 MW out of total 5 IS MW. Similarly, the
ESL to whom balance capacity of 215 MW was allocated was to bear
proportionate annual fixed cost, thus, the EPL was required to make
electricity available to the appellant in the proportion of300: 215 as per
clause 3 of the Agreement. The EPL was required to declare the
GUJARAT URJA VIKAS NIGAM LTD. v. ESSAR POWER
LIMITED [ADARSH KUMAR GOEL, J.)
avail ab ii ity in the same proportion so that the dispatch instruction could
be issued as per the Agreement. The appellant pleaded that it was entitled
to compensation for wrong allocation of electricity based on the applicable
HT rate from time to time. The appellant claimed damages equal to the
difference of rate at which electricity was to be supplied to it and the
rate at which the appellant was to supply the same to its consumers.
For this purpose, the respondent was liable to give true details and
complete account of the allocation made to the appellant and to ESL.
The appellant had also raised a claim for recovery of Deemed Generation
Incentive paid to the respondent to which the respondent was not entitled
but the said claim is no longer subject matter of this appeal, the order of
the Tribunal in that respect having become final.
5. It will be appropriate to refer to the prayer clause in the petition
filed by the appellant:-
"(a) hold that the petitioner is entitled to adjust in the
tariff payable by the petitioner to the respondent for
purchase of electricity all amounts received by the
respondent as a result of wrong allocation of electricity;
and deemed generation incentive when Naphtha is
proposed to be used as fuel;
(b) award cost of the proceedings in favour of the
petitioner and against the respondent; and
(c) pass such other or further orders as may be deemed
proper to give relief to the petitioner;
(d) continue to raise bills on Essar Group Companies
based on proportionate methodology. "
6. The above claims were contested by the respondent based on
preliminary objections including the plea oflimitation as well as on merits.
Part III : Pleadings
7. As noticed in Para 4 above, the case of the appellant in the
petition filed before the Commission was that the respondent had wrongly
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utilized the capacity of the generating station in favour ofits sister concern,
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against the rights and interest of the appellant in violation of the PPA,
the respondent allocated part of generating capacity required to be
allocated to the appellant to its sister concern. The appellant had the
obligation to pay annual fixed charges, variable charges, incentive etc. in
relation to the specified allocated capacity and the sister concern of the
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SUPREME COURT REPORTS
[2016] 5 S.C.R.
respondent was to pay proportionate annual fixed cost. The Agreement
required the EPL to declare availability in the specified proportion even
when generation was less than the total 515 MW capacity. Contrary to
the said requirement, the respondent allocated more electricity" to ESL
and offered proportionately less electricity to the appellant. Thereby, not
only the agreement was violated, the understanding reflected in letters
issued by the respondent was also not honored. In para 23.0 it was
specifically mentioned that the appellant was entitled to claim
compensation for the wrong allocation and in para 24.0, it was mentioned
that the respondent was required to give detailed and complete account
of the allocation made.
8. As against the above stand of the appellant, the stand of the
respondent in its written submission filed before the Commission on J Sth
January, 2009 is that its only obligation was to supply 300 MW to the
Board as and when called upon to do so. There was no bar to supply
more than 215 MW to ESL. There is no evidence of any loss suffered
by the appellant. Article 3.1 of the Agreement could not be read as
suggested by the appellant. Further, if supply was below the quantum
specified in the dispatch instructions, penalty could be claimed as per
clause 7.4.3 of Schedule VII of the Agreement. Further, the appellant
was defaulter in complying with its obligations in making timely payment.
Part IV: Finding of the Commission
9. The Commission upheld the plea of limitation raised by the
respondent to the extent that the appellant was held entitled to its claims
only for three years preceding the filing of the petition, i.e., from ] 4th
September, 2002, the petition having been filed on 14th September, 2005.
The Tribunal upheld the said finding. Though the appellant had filed
Civil Appeal No.3454 of20 I 0 on this aspect, the said appeal was dismissed
by this Court vide order dated 2"d September, 20 l I as fol lows :
"The
appeal
directed
against
the
decision
dated
22.2.2010
rendered
by
the Appellate
Tribunal
for
Electricity in appeal No. 7712009
upholding the finding of the State Commission that the
claim of the appellant against the respondent for any
period upto 14.9.2002 is barred by time except to the
extent of Rs.64 crores paid by the respondent to the
appellant pursuant to the full and final settlement of
GUJARAT URJA VIKAS NIGAM LTD. v. ESSAR POWER
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LIMITED [ADARSH KUMAR GOEL, J.]
claims for the period from 1998 upto September, 2004,
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is dismissed. "
I 0. The Tribunal also upheld the order of the Commission accepting
the claim of the appellant under the head of a Deemed Generation
Incentive and the respondent has not challenge.cl this aspect.
11. Thus, the only question for consideration is the claim of the
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appellant for failure to declare availability of power in the proportion of
300 : 215 MW for the period from I 41h September, 2002 onwards.
12. The Commission on this aspect held as follows:
"9.1 The PPA was executed on 30.5.1996 and effective
for a period of20 years. The relevant clauses of the PPA
have been examined. It is quite clear that under the PPA,
GUVNL has an obligation to pay an annual fixed cost for
the allocated capacity, which is 300 MW. Having paid the
annual fixed cost for the said capacity, GUVNL has a
right for an equivalent amount of electrical output. The
purpose of paying annual fixed cost is to ensure that
GUVNL alone has the right to the said capacity and that
no part of the same can be sold to any other party. It is
true that 41 the normal industry practice is that unless the
allocated capacity, for which fixed charges are being paid
by the beneficiary is surrendered, the beneficiary has the
ability to sell/ negotiate any transaction for utilisation of
such allocated capacity. In this context, reference is also
made to the CERC (Terms and Conditions of
Determination of Tariff) Regulations, 2004.
9.2 The question that arises for consideration is whether
GUVNL can claim allocation on a proportionate basis i.e.
to say, that if EPL is unable to declare 300MW capacity
which is allocated to GUVNL under the PPA, EPL would
then have to declare capacity proportionately in the ratio
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of 58:42 from the total declared capacity. In this context
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one is required to carefully review Article 3.1 of the PPA.
9.3 Although in the definition of allocated capacity, it is
only mentioned that I 92MW capacity during Open Cycle
mode operation and 300MW capacity during Combined
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Cycle mode operation is allocated to GUVNL, the same
is further elaborated in Article 3.1. ln Article 3.1, the parties
have agreed as follows:
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"3.1 The allocation of the Capacity shall be as under:
a) During Open Cycle mode operation prior to
commissioning of the Combined Cycle mode operation:
138MW to the Essar Group of Companies; and 192
MW to the Board
b) During Combined Cycle mode:
215 MW to the Essar Group of Companies; and
300 MW to the Board
The Company undertakes that, subject to the provisions and
during the tenn of this Agreement, it will fuel and operate
the Generating Station to meet the requirements of electrical
output that can be generated corresponding to the allocated
capacity, in accordance with its Dynamic Parameters so
as to comply with the Operating Characteristics except to
the extent:
(i) as anticipated under the Maintenance Programme
during the period of~cheduled Outage.
(ii) That to do so would not be in accordance with Good
Industry Practice;
(iii) That may be necessary due to circumstances
relating to Safety (of personnel or plant apparatus);
(iv) that to do so would betmlawful;
(v) That may be necessary for reasons ofForce Majeure
Natural or NonNatural."
9.4 For the interpretation of the contract the following
principle as laid down by the Supreme Court in Mrs. M.N.
Clubwala v. Fida Hussain Saheb ( 1964) 6 SCR 642 has to
be kept in mind:
Whether an agreement creates between the parties the
relationship of landlord and tenant or merely that of
licensor and licensee the decisive consideration is the
intention of the parties. This intention has to be
ascertained on a consideration of "all the relevant
provisions in the agreement."
GUJARAT URJA VIKAS NIGAM LTD. v. ESSAR POWER
LIMITED [ADARSHKUMAR GOEL, J.]
" ... The dispute may arise between the very parties to
the written instrument, where on the construction of
the deed one party contends that the transaction is a
'licence' and the other that it is a 'lease'. The intention
to be gathered from the document read as a whole has,
quite obviously, a-dir_ect bearing." (Underline Supplied).
Also, the Hon'ble Supreme Court has held in State of Andhra
Pradesh. Vs. Kone Elevators India Ltd. (2005) 3 SCC 386:
"It is a settled law that the substance and not the form of the
contract is material in determining the nature of the transaction".
Therefore, it is necessary to read the PPA as a whole in order to
give a correct interpretation to the terms therein contained. The
definition of 'Allocated Capacity' in the PPA has to be read in
conjunction with Article 3. I. Article 3 .1 clearly records the
allocation of capacity between two entities i.e. GUVNL as well
as Essar S tee I. ,
9.5 From the reading of the Article 3.1 of the PPA as also the
corresponding Articles in the PPA with Essar Steel, it is clear that
the intention of the parties was that the capaeity of the generating
plant will be shared between the two beneficiaries only. The fact
that Article 3.1 of the present PPA records the capacity allocated
to the Essar Group companies along with the capacity allocated
to GUVNL shows that intention of the parties was to provide for
allocation in the proportion of 138: 192 (while working in open cycle
mode) and 215:300 (while working in combined cycle mode).
Otherwise there is no reason for mentioning in Article 3. I. of
PPA about the quantum that is contracted with Essar Steel.
Similarly, the fact that the PPA with Essar Steel states the allocation
to GUVNL goes to show that the allocation was intended to be on
a proportionate basis, between the two parties I purchasers only.
During the arguments, the Learned Counsel for the Respondent
also clarified that apart from the two purchasers of power there
is no other third party sale that has taken place. The intention of
EPL is to recover the fixed charges is only from the two
beneficiaries, in proportion to the allocated capacity. This is clear
from the reading of the two PPAs. Hence, EPL cannot argue that
the PPA does not recognise the proportionate principle at all. If
the proportionate principle is acceptable for recovery of fixed
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[2016) 5 S.C.R.
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charges, it cannot be abandoned for al location of supply.
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9.6 The submission ofEPL that there is no clause in the PPA that
it cannot supply more than 215 MW to Essar Steel is also not
correct. Once the entire capacity has been al located between the
two parties in a particular proportion, EPL cannot violate the
proportionate allocation for the benefit of any one party. Having
sold the capacity of 300 MW to GUVNL and 215 MW to Essar
Steel, for which fixed charges are paid in the said propo11ion, EPL
cannot argue that it can sell power to Essar Steel beyond the
capacity allocated to it. There is no spare capacity that allows
EPL to do that. Under the procedure for dispatch in Schedule VI
of the PPA, EPL had to declare weekly schedules of the
"Capacity" that is available for the entire station (and not the
"Allocated capacity"). On the basis of such declaration,
requirement-schedule and dispatch instructions are issued. The
obligation of EPL is clearly to declare the "Capacity" of the
generating plant as a whole. Once the declared availability forthe
entire plant is known, the beneficiaries will proceed to issue
dispatch instructions in accordance with the terms of the PPA.
Hence, the argument of EPL that it does not have the obligation
to declare capacity forthe entire plant is incorrect and contrary to
the terms of Schedule VI of the PPA. This submission is contrary
to the procedure prescribed in the PPA as well as the normal
industry practice. Once the capacity of the generating station as
a whole is available, the allocation of capacity has to take place in
the proportion that is contracted. Also, the submission of EPL that
the Petitioner's only concern, under terms of the PPA, is that it
must get electricity in accordance with its Dispatch Instructions,
within the limits of allocated capacity is not entirely correct. The
Petitioner has a right to be supplied electrical output proportionate
to the declared capacity of the generating plant in terms of the
PPA. EPL cannot ignore its obligation of declaring the entire
capacity. Once the entire capacity of the generating plant is
declared, the proportionate principle of allocation of capacity will
become applicable and as a natural consequence, the electrical
output will be allocated and supplied between the two beneficiaries
on proportionate basis, in accordance with the dispatch instructions.
It appears that EPL is avoiding its obligation to declare the entire
GUJARAT URJA VIKAS NIGAM LTD. v. ESSAR POWER
LIMITED [ADARSH KUMAR GOEL, J.]
capacity. The ability to recover deemed non generation due to
difference in schedule generation and actual generation has nothing
to do with the requirement to allocate capacity and supply electrical
output on a proportionate basis.
9.7 In view of the aforesaid, the Commission accepts the
submission made by GUVNL to the effect that, if in a time block
the declared availability forthe station with 515 MW of the installed
capacity in only 400 MW, the same should be declared available
to GUVNL to the extent of 233 MW and to Essar Group to the
extent of 167 MW, maintaining the proportion of
58%: 42%
(300:215). It is not valid for EPL to declare available in any time
block to Essar Group to the extent of 215 MW towards their
share and declare available to GUVNL 185 MW. Such an act
would mean that Essar Group is being preferred at the cost of
GUVNL. As against the GUVNL's entitlement of233 MW they
will get only 185 MW and therefore a deficit of 48 MW equivalent
of electricity. That certainly cannot be the intention of the parties.
9.8 Under the PPA, the obligation to supply power by EPL to
GUVNL is limited to the electrical output equivalent to the allocated
capacity of300 MW. The fact that the EPL has an obligation to
make payment of deemed non generation inceritive and reduce
annual fixed charges on a pro rata basis, cannot in any manner
negate the proportiona,te principle of allocation when EPL declares
availability less than the allocated capacity.
9.9 In this context, EPL's reliance on the letterofthe Government
of Gujarat dated 05.06.1995 to argue that only the surplus, after
meeting the requirement of its sister companies, is to be supplied
to GUVNL is not correct. Once the PPA has been executed, the
parties are governed by the terms of the PPA. In fact Article 12.5
of the PPA clarifies that the PPA and the schedules attached
thereto are a complete and exclusive statement of the terms of
the agreement and that all prior written or oral understandings,
offers or other communication of every kind pertaining to the ~ale
or purchase of electrical output and dependable capacity between
the parties is abrogated and withdrawn ..
9.10 Furthermore, in the letter dated 17.02.2000, EPL categorically
agreed to the concept that power should be supplied in the ratio of
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58:42 provided certain conditions are fulfilled. The conditions
mentioned in the said letter will demonstratethatthe each condition
is either in the nature of additional concessions I modification that
were sought by EPL or alleged defaults on the part of GUVNL,
which was not agreed to by GUVNL.
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9.11 However, if GUVNL does not take the power declared
available by EPL in terms of the aforesaid ratio, EPL will have
the right to sell the power to its sister concern subject to
reimbursement of the proportionate of the annual fixed charges.
GUVNL cannot make a submission that although it will not
purchase such power as declared available by EPL, EPL cannot
sell the same to its sister concern. Such a submission would defeat
the purpose of the Electricity Act, 2003 and the National Electricity
Policy which promotes generation and encourages sale of surplus
capacity. IfGUVNL does not schedule the power to the extent of
availability declared by EPL of the entire plant in terms of the
PPA, it cannot complain ifthe power is sold to EPL's sister concern
and the proportionate of the annual fixed cost is reimbursed.
9.12 The Commission is of the view that GUVNL is entitled to
claim compensation for the energy diverted to Essar Steel from
the capacity allocated tQ GUVNL under the PPA. EPL at all times
has an obligation under the present PPA to declare avai !ability for
the entire plant and allocate the supply on the basis of300:215 or
58:42.
9.13 As regards the quantum of compensation payable on account
o( diversion, the PPA is silent on the same. The parties in the
settlement for dues on account of diversion for the period between
1998 and September, 2004 agreed on a particular methodology
for determining such compensation. The parties had agreed that
GUVNL is entitled to the HTP I energy tariff after excluding the
variable cost. The diversion in the circumstance should be computed
on an hourly basis. This appears to be a fair manner of determining
the compensation that is to be paid for the period after September,
2004. The parties are required to reconcile the generation data
and make final calculation on the basis of the aforesaid principle.
9.14 The Commission also directs that for the remaining
period of the PPA, EPL has a legal obligation to declare
GUJARAT URJA VIKAS NIGAM LTD. v. ESSAR POWER
LIMITED [ADARSH KUMAR GOEL, J.]
availability for the entire capacity and that it shall not divert
any power to its sister concern in a manner contrary to the
proportionate principle. If GUVNL declines to purchase
power allocated on the proportionate basis, EPL will have
the right to sell the power to its sister concern subject to
.reimbursement of proportionate of the fixed cost."
Part V: Appeal to the Tribunal and the Finding of the Tribunal
13. The respondent preferred an appeal before the Tribunal being
.Appeal No.86 of2009. Contention of the appellant was that the EPL
was not obliged to declare electricity availability in ratio of 300 : 2 l S
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MW to the appellant. The PPA signed with the appellant and the sister c ·
concern ofthe EPL were independent The obligation to supply was to
. arise after receiving dispatch instructions only.
14. The Tribunal framed following questions for consideration :
" (i) Whether under the PPA 1and11 the supply of electrical
output to be made by the Appellant shall be in the ratio of D
300:2_15 MW; the allocated capacity of the Electricity Board
(R-1) diid Essar Steels Ltd. respectively?.
(ii) Whether the Appellant, which failed to declare the entire
capacity of its generating station to the Electricity Board made
the supply of electricity to its sister concern Essar Steels Ltd.
in excess of the said ratio is liable to_ be held responsible for
the 'breach of the terms of PPA and conseq.uently the Appellant
is liable to compensate the Electricity Board (R-1) " ..... .
.
'
.
15. The Tribunal upheld the stand of the EPL. It was held that
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Articles I and III of Schedule VI to the PPA did not re·quire the EPL to
declare the capacity in the ratio of 300 : 215 MW. As regards letters
dated 17th February, 2000 and 4'h October, 2001 by which the respondent
accepted its liability, it was held that the GUVNL never accepted or
complied with its obligations and therefore, the respondent was not bound
by the stand in the said letters. It was further observed that the claim
for the period from 1" July, 1996 stood settled in view letter dated 13th
October, 2006 of the GUVNL to accept Rs.64 crores for diverting
electricity to ESL. Non-declaration of available capacity on proportionate
basis was not shown to have resulted in any loss or damage to GUVNL.
GUVNL had not proved any actual loss; It was observed tha:t on the
principle of Section 35 of the Sale of Goods Act, 1920, there was no
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obligation to deliver in absence of dispatch instructions. Further, the
ESL supplied fuel to EPL for conversion into electricity but for supply to
the GUVNL, the EPL had to procure fuel from outside. GUVNL also
made default in making payment to the EPL which amounted to breach
ofreciprocal obligation. GUVNL also failed to establish letter of credit
to secure the payment of the amount payable to the EPL which also was
breach on the part of the appellant.
16. The finding of the Tribunal is:-
"45. From these provisions of Schedule-VI, it is clear that there is
no provision, express or implied, to suggest that the EPL is liable
to declare the available capacity in the said ratio to the Board and
the Essar Steels Ltd. All these provisions would only say that the
EPL has to first give Weekly Schedules to the Electricity Board
indicating the time and capacity which would be available and the
Electricity Board shall thereafter issue its requirement schedule
through Despatch Instructions and thereupon EPL is liable to
operate generating station in accordance with the Despatch
Instructions given by the i::iectricity Board and supply.
46. On a combined reading of Articles I and 3 and Schedule VI
of the PPA-1, it is clear that EPL has to declare available capacity
up to the allocated capacity to both the Electricity Board as well
as to Essar Steels Ltd. and not on proportionate theory basis.
47. As a matter of fact, Article 5.2 of the PPA-1 obligates the
Electricity Board to pay to the Appellant its Annual Fixed Charges
including the cost of the project on the level of generation achieved
up to the allocated capacity and not on the allocated capacity
itself. The Electricity Board has accordingly paid the Annual Fixed
Charges on monthly basis on the level of generation achieved up
to the allocated capa~ity.
48. It is pointed out by the Ld. Senior Counsel for the Appellant
that so far as the payment towards cost of the project is concerned,
the Electricity Board had agreed to pay Rs. 945 crores out of the
total cost of the project amounting to Rs. 2061 crores which only
-comes to approximately 46%, i.e. less than 58% of the total project
cost.
49. In such circumstances, the Electricity Board (R-1) cannot
GUJARAT lJRJA VJKAS NIGAM LTD. v. ESSAR POWER
LIMITED [ADARSH KUMAR GOEL, J.]
claim that by reasons of it's making payment for the Annual Fixed
Charge~ up to the allocated capacity, it was always obligatory on
the part of the EPL to supply power to the extent of 58% to the
Electricity Board and that since EPL has sold a part of Electricity
Board's share in the power generated by the EPL to its sister
concern, EPL is liable to compensate the Electricity Board for the
same by treating such power which sold by EPL to Essar Steel
Ltd. as if it was sold by the Electricity Board itself to Essar Steel
Ltd. after purchasing the same from the EPL.
50. On the basis of letters dated 17.02.2000 and 04.10.200 I, it is
contended on behalf of the Electricity Board (R-1) that EPL has
conceded to its proportionate theory basis and as such it cannot
go back. This contention is not tenable. EPL in those letters merely
expressed its willingness to agree to the proportionate theory basis
subject to the condition that Electricity Board should commit default
in making the payment of dues payable under the PPA-1 to EPL
and also subject to the condition that the Electricity Board shall
comply with other conditions of the PPA-1.
51. Admittedly, the stipulated conditions in those letters were neither
accepted nor complied with by the Electricity Board. Hence the
offer made by the EPL to the Electricity Board for agreeing to
the proportionate theory basis would not be construed to be
conceding and as such it is binding on it.
52. In the second letter dated 04. I 0.2001 also, EPL stipulated the
condition of making prompt payments by the Electricity Board to
EPL and for establishment of Letter of Credit to secure payments
under PPA-1. Even this condition, the Electricity Board was not
ready to comply with. As such the proposal made by the EPL to
the Electricity Board regarding proportionate theory subject to
the conditions is not binding on the Appellant.
53. Furthermore, when there is an amendment to the PPA-1 on
18.12.2003, there is no reference about these amendments for
declaration of supply of power in the ratio Of58:42 to the Electricity
Board as well as to the Essar Steels Ltd. respectively. The preamble
of the said Supplemental Agreement dated 18.12.2003 clearly
establishes that EPL is only obliged to generate the electricity up
to 300 MW allocated to the Electricity Board and nothing more.
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In other words, there is no amendment with regard to the
declaration of electricity generated on proportionate basis in the
said Supplemental Agreement dated 18.12.2003.
54. Under such circumstances, it is not open to the Electricity
Board to rely upon the aforesaid letters dated 17.02.2000 and
04.10.2001 to advance the plea of its proporti_onate theory.
55, It is an admitted fact that the Electricity Board through its
letter dated 29.10.2003 demanded from EPL the payment of an
aggregate amount of Rs. 537 crores on account ofalleged diversion
of power by EPL to Essar Steels Ltd for the period commencing
from 01.07 .1996 to 31st March 1999. It is also an admitted fact
'
that the parties thereafter held several rounds ofdiscussions and
as a result of those discussions, a settlement was actually arrived
at by the parties in October 2004. Pursuant to the said settlement,
the Electricity Board recalculated the amount, due on the basis of
power supplied by the EPL to Essar Steels Ltd in excess of the
allocated capacity of215 MW shall alone be treated as sold arid
supplied by the Electricity Board. On this basis, the Electricity
Board itself furnished a statement to the Appellant, EPL showing
that a sum of Rs.