# LIMITED v. JSW ENERGY LIMITED (EARLIER KNOWN AS JINDAL

- **Citation:** [2022] 12 S.C.R. 937
- **Court:** Supreme Court of India
- **Decided:** 2022-11-22
- **Case number:** Civil Appeal No. 8714 of 2022
- **Bench:** K. M. Joseph, Aniruddha Bose, Hrishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/limited-v-jsw-energy-limited-earlier-known-as-jindal-35510
- **Pages:** 98

## Headnote

Karnataka Electricity Reforms Act, 1999 - s.18, Explanation
to s.19, s.25(3) r/w s.17(1) and proviso to s.27(2) - Power Purchase
Agreement (PPA) - The Act came into force with effect from
01.06.1999 - Under s.27 of the Act, unless there was a 'concluded
contract' as on 01.06.1999, the Karnataka Electricity Regulatory
Commission was to regulate the tariff - Whether before the Act came
into force, there was a concluded contract between the parties, and
therefore such a contract could not be unsettled by the regulatory
regime under the Act - Held: The parties contemplated a written
Power Purchase Agreement (PPA) containing various details apart
from the tariff rate and the tenure - The parties were not ad idem as
regards the issues which were expressly left open for negotiations -
The State Government (GoK) also contemplated 'finalising' a PPA -
The word 'finalising' and the word 'PPA', both of which did not
take place before 01.06.1999 resulted in a situation where a contract
could not be said to be concluded even within the meaning of the
proviso to s.27(2) of the Act - This is not even a case where parties
were ad idem on all the essential aspects, which go into the formation
of a complex contract as involved in the facts of this case - On
facts, there was no concluded contract and what is more, a PPA
was not a mere desire but an indispensable requirement to conclude
the terms - It is clear as day light that all through the parties
undoubtedly contemplated entering into a power purchase agreement
- From the subject matter of the contract, the position of the parties,
the implications of the working of the contract and more importantly,
the intention of the parties, it was clear that there was a concluded
contract upon negotiations and correspondence, culminating in the
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SUPREME COURT REPORTS
[2022] 12 S.C.R.
Government Order 12.05.1999 - Even the GO dated 12.05.1999
expressly contemplated only a permission by the GoK to the KEB to
finalise "a PPA" for the purchase of surplus power - The word
"finalise" in the context of the PPA cannot be played down in the
context of the previous correspondence at any rate - It was, in fact,
also contemplated that the PPA which was to be finalised must after
finalisation be submitted again to the government - GoK was
thereafter to grant its approval - This cannot be overlooked.
Contract Act, 1872 - s.10 - It is not essential to form a
contract, that it should be in writing - Where a law stipulates that a
contract be in writing in which case a contract must be reduced to
writing.
Contract Act, 1872 - ss.2 and 10 - Concluded contract -
Held: In order that there must be a contract concluded, there must
be a proposal made, which must be accepted - There must be
consideration for the promise - The proposal must be accepted,
which must be communicated - The acceptance must be unqualified
- The parties can be said to have entered into a contract or a contract
would be said to be concluded only when they are ad idem on all the
essential terms of the contract - If the proposals containing the
essential terms have been accepted, and the acceptance is
communicated and, if the other conditions in s.2 are complied with,
viz., that is there is consideration and the contract is enforceable in
law, within the meaning of s.10, it would lead to the creation of a
concluded contract.
Karnataka Electricity Reforms Act, 1999 - proviso to s.27(2)
- Concluded contract within meaning of the proviso to s.27(2) -
Held: The proviso to s.27(2) when it uses the words 'contracts
concluded', does not use the words 'contracts concluded as regards
tariffs' - There are various other aspects about which the parties
must be ad idem - The rate, the term and quantum are integrally
interconnected with other terms - There cannot be concluded
contract without parties being ad idem about those terms.
Karnataka Electricity Reforms Act, 1999 - s.41 - Appeals
against order of the Karnataka Electricity Regulatory Commis

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[2022] 12 S.C.R. 937
937
KARNATAKA POWER TRANSMISSION CORPORATION
LIMITED
v.
JSW ENERGY LIMITED (EARLIER KNOWN AS JINDAL
THERMAL POWER COMPANY LIMITED & JINDAL
TRACTABEL POWER COMPANY LIMITED) & ORS.
(Civil Appeal No. 8714 of 2022)
NOVEMBER 22, 2022
[K. M. JOSEPH, ANIRUDDHA BOSE AND
HRISHIKESH ROY, JJ.]
Karnataka Electricity Reforms Act, 1999 - s.18, Explanation
to s.19, s.25(3) r/w s.17(1) and proviso to s.27(2) - Power Purchase
Agreement (PPA) - The Act came into force with effect from
01.06.1999 - Under s.27 of the Act, unless there was a 'concluded
contract' as on 01.06.1999, the Karnataka Electricity Regulatory
Commission was to regulate the tariff - Whether before the Act came
into force, there was a concluded contract between the parties, and
therefore such a contract could not be unsettled by the regulatory
regime under the Act - Held: The parties contemplated a written
Power Purchase Agreement (PPA) containing various details apart
from the tariff rate and the tenure - The parties were not ad idem as
regards the issues which were expressly left open for negotiations -
The State Government (GoK) also contemplated 'finalising' a PPA -
The word 'finalising' and the word 'PPA', both of which did not
take place before 01.06.1999 resulted in a situation where a contract
could not be said to be concluded even within the meaning of the
proviso to s.27(2) of the Act - This is not even a case where parties
were ad idem on all the essential aspects, which go into the formation
of a complex contract as involved in the facts of this case - On
facts, there was no concluded contract and what is more, a PPA
was not a mere desire but an indispensable requirement to conclude
the terms - It is clear as day light that all through the parties
undoubtedly contemplated entering into a power purchase agreement
- From the subject matter of the contract, the position of the parties,
the implications of the working of the contract and more importantly,
the intention of the parties, it was clear that there was a concluded
contract upon negotiations and correspondence, culminating in the
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SUPREME COURT REPORTS
[2022] 12 S.C.R.
Government Order 12.05.1999 - Even the GO dated 12.05.1999
expressly contemplated only a permission by the GoK to the KEB to
finalise "a PPA" for the purchase of surplus power - The word
"finalise" in the context of the PPA cannot be played down in the
context of the previous correspondence at any rate - It was, in fact,
also contemplated that the PPA which was to be finalised must after
finalisation be submitted again to the government - GoK was
thereafter to grant its approval - This cannot be overlooked.
Contract Act, 1872 - s.10 - It is not essential to form a
contract, that it should be in writing - Where a law stipulates that a
contract be in writing in which case a contract must be reduced to
writing.
Contract Act, 1872 - ss.2 and 10 - Concluded contract -
Held: In order that there must be a contract concluded, there must
be a proposal made, which must be accepted - There must be
consideration for the promise - The proposal must be accepted,
which must be communicated - The acceptance must be unqualified
- The parties can be said to have entered into a contract or a contract
would be said to be concluded only when they are ad idem on all the
essential terms of the contract - If the proposals containing the
essential terms have been accepted, and the acceptance is
communicated and, if the other conditions in s.2 are complied with,
viz., that is there is consideration and the contract is enforceable in
law, within the meaning of s.10, it would lead to the creation of a
concluded contract.
Karnataka Electricity Reforms Act, 1999 - proviso to s.27(2)
- Concluded contract within meaning of the proviso to s.27(2) -
Held: The proviso to s.27(2) when it uses the words 'contracts
concluded', does not use the words 'contracts concluded as regards
tariffs' - There are various other aspects about which the parties
must be ad idem - The rate, the term and quantum are integrally
interconnected with other terms - There cannot be concluded
contract without parties being ad idem about those terms.
Karnataka Electricity Reforms Act, 1999 - s.41 - Appeals
against order of the Karnataka Electricity Regulatory Commission
- Any person aggrieved by any decision or order of the Commission
can file appeal to the High Court, on questions of law arising out
of such order - Held: A Right of Appeal is a creature of a Statute -
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The right can be qualified or conditioned - The ambit of the appellate
power is to be discerned from the terms of the Statute - A 'question
of law' is not the same as a 'substantial question of law' - However,
when the Statute insists on a 'question of law' to maintain an appeal,
the Appellate Body stands constrained to that extent - Appeal.
Electricity Laws - Karnataka Electricity Regulatory
Commission - The Commission is an Expert Body - Interference
with its findings cannot be sustained, to begin with, if it is bereft of
reasons - Findings of such a body must receive due deference -
Perversity in the sense of findings, which are wholly without basis
or material or which no person with the professed skills would arrive
at, may merit interference - A finding, which ill squares with a clear
statutory injunction, would leave the door ajar for overturning the
finding.
Disposing of the appeals, the Court
HELD:1.1. In the instant case, a golden thread, which runs
through the correspondence is that, both the Karnataka State
Electricity Board (KEB), the Government of Karnataka (GoK)
and the appellant and the first respondent, did contemplate the
execution of the Power Purchase Agreement (PPA). The
correspondence after 01.06.2000 also, unerringly, points to the
fact that parties did not view the PPA as a mere desire. They
clearly proceeded on the footing that the terms of the agreement
must be evidenced in writing. Quite clearly, the High Court erred
in not bearing in mind the contents of the communications and
their true purport. [Para 77][1008-F-G]
2. In order that there must be a contract concluded,
undoubtedly, there must be a proposal made, which must be
accepted. There must be consideration for the promise. The
proposal must be accepted, which must be communicated. The
acceptance must be unqualified. This is an over simplification of
a complex process. The parties can be said to have entered into
a contract or a contract would be said to be concluded only when
they are ad idem on all the essential terms of the contract. If the
proposals containing the essential terms have been accepted,
and the acceptance is communicated and, if the other conditions
in Section 2 of the Contract Act are complied with, viz., that is
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS.
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SUPREME COURT REPORTS
[2022] 12 S.C.R.
there is consideration and the contract is enforceable in law, within
the meaning of Section 10 of the Act, it would lead to the creation
of a concluded contract. [Para 78][1009-C-E]
3. The proviso to Section 27(2) of the Act when it uses the
words 'contracts concluded', does not use the words 'contracts
concluded as regards tariffs'. A contract of the nature, this Court
is concerned with, cannot be said to consist only of a rate and the
term or even the quantum included. In a contract of this nature,
there are various other aspects about which the parties must be
ad idem. The rate, the term and quantum are integrally
interconnected with other terms. There cannot be concluded
contract without parties being ad idem about those terms. [Para
79][1012-B-C]
4. The parties contemplated a written PPA containing
various details apart from the tariff rate and the tenure. The
parties were not ad idem as regards the issues which were
expressly left open for negotiations in the communication dated
23.04.1999. GoK also contemplated 'finalising' a PPA. The word
'finalising' and the word 'PPA', both of which did not take place
before 01.06.1999 has resulted in a situation where a contract
could not be said to be concluded even within the meaning of the
proviso to Section 27(2) of the Act. Even proceeding on the basis
that even in a given case, a contract could be concluded within
the meaning of the proviso, even in absence of a written PPA,
bearing in mind also the absence of the word 'PPA' in the said
provision and contrasting it with Section 18 where the same LawGiver has used the word 'PPA', if the parties were not ad idem
about the necessary terms and if the parties equally contemplated
a PPA to bring it into existence a contract within the meaning of
Section 27(2), then, clearly a PPA would be indispensable to attract
the proviso to Section 27(2). This is not even a case where parties
were ad idem on all the essential aspects, which go into the
formation of a complex contract as is involved in the facts of this
case. Therefore, the supply of power by the first respondent, after
01.06.1999, cannot be relied upon, in view of the facts revealed
by the correspondence, which itself makes it a stop gap
arrangement, and what is more subject to conditions which
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included execution of a PPA, to conclude that the subsequent
conduct, unerringly pointed to the fact that a contract within the
meaning of Section 27(2) stood concluded before 01.06.1999.
[Para 79][1012-C-G]
5. On facts, there was no concluded contract and what is
more, a PPA was not a mere desire but an indispensable
requirement to conclude the terms. It is clear as day light that all
through the parties undoubtedly contemplated entering into a
power purchase agreement. The subject matter of the contract,
the position of the parties, the implications of the working of the
contract and more importantly, the intention of the parties do not
persuade this Court to safely gather that there was a concluded
contract upon negotiations and correspondence, culminating in
the Government Order 12.05.1999. It is clear that even the GO
dated 12.05.1999 expressly contemplated only a permission by
the Gok to the KEB to finalise "a PPA" for the purchase of surplus
power. The word "finalise" in the context of the PPA cannot be
played down in the context of the previous correspondence at
any rate. It was, in fact, also contemplated that the PPA which
was to be finalised must after finalisation be submitted again to
the government. GoK was thereafter to grant its approval. This
cannot be overlooked. [Para 83][1017-F-H; 1018-A]
West Bengal Electricity Regulatory Commission v. CESC
Ltd. (2002) 8 SCC 715; India Thermal Power Ltd. v.
State of M.P. and others (2000) 3 SCC 379 : [2000] 1
SCR 925; All India Power Engineer Federation and
others v. Sasan Power Ltd. and others (2017) 1 SCC
487 : [2016] 9 SCR 901; K.P. Chowdhary v. State of
Madhya Pradesh and others [1966] 3 SCR 919; Ram
Narain Sons Ltd. v. Asstt. Commissioner of Sales Tax
and others AIR 1955 SC 765 : [1955] 2 SCR 483;
Dwarka Prasad v. Dwarka Das Saraf AIR 1975 SC
1758 : [1976] 1 SCR 277; Mackinnon Mackenzie &
Co. Ltd. v. Audrey D'Costa and another (1987) 2 SCC
469 : [1987] 2 SCR 659; Kollipara Sriramulu (Dead)
by His Legal Representative v. T. Aswatha Narayana
(Dead) by His Legal Representatives and others AIR
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS.
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SUPREME COURT REPORTS
[2022] 12 S.C.R.
1968 SC 1028 : [1968] 3 SCR 387; and Securities and
Exchange Board of India v. Mega Corporation Limited
MANU/SC/0362/2022 - referred to.
Alexander Brogden and others and the Directors, & c.,
of the Metropolitan Railway Company [L.R.] 2 App.
Cas. 666/HL(E) 1877 Vol.2 666 - referred to.
Case Law Reference
(2002) 8 SCC 715
referred to
Para 30
[2000] 1 SCR 925
referred to
Para 32
[2016] 9 SCR 901
referred to
Para 32
[1966] 3 SCR 919
referred to
Para 33
[1955] 2 SCR 483
referred to
Para 35
[1976] 1 SCR 277
referred to
Para 35
[1987] 2 SCR 659
referred to
Para 35
[1968] 3 SCR 387
referred to
Para 36
[1976] 1 SCR 277
referred to
Para 52
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8714
of 2022.
From the Judgment and Order dated 08.04.2004 and modified on
16.04.2004 of the High Court of Karnataka at Bangalore in Miscellaneous
First Appeal No.4795 of 2002.
With
Civil Appeal No. 8715 of 2022.
S. S. Naganand, Dr. Abhishek M. Singhvi, Gopal Jain, Sr. Advs.,
Raghavendra S. Srivatsa, Venkita Subramonium T., Likhi Chand Bonsle,
Ms. Komal Mundhra, Rahul Prasanna Dave, L. Vishwanathan, Ramanuj
Kumar, Summit Attri, Manpreet Lamba, Aman Anand for M/s. Cyril
Amarchand Mangaldas, V. N. Raghupathy, Md. Apzal Ansari, Dhiraj
Abraham Philip, Robin Ratnakar David, Munawar Naseem, Rahul
Prasanna Dave, Advs. for the appearing parties.
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The Judgment of the Court was delivered by
K. M. JOSEPH, J.
1. Leave granted. Being connected, the appeals are being disposed
of by a common judgment.
2. The appellant, in appeal arising out of SLP (C) No. 18607/04, is
the Karnataka Power Transmission Corporation Limited and hereinafter
referred to as 'the appellant'.
3. By the impugned judgment, the High Court has allowed
Miscellaneous First Appeal No. 4795 of 2002 filed by the first respondent
herein, viz., JSW Energy Ltd., earlier known as Jindal Thermal Power
Company Limited (hereinafter referred to as the first respondent). The
appeal was filed by first respondent under Section 41 of the Karnataka
Electricity Reforms Act, 1999 (hereinafter referred to as the 'Act' for
brevity).
4. By the impugned order, the High Court has set aside the order
dated 22.05.2002 and the order dated 08.07.2002 which are orders passed
by the Karnataka Electricity Regulatory Commission (hereinafter referred
to as 'Commission' for brevity). The Commission is the appellant in the
other appeal. The High Court has after setting aside the impugned orders
directed the appellant, to comply with the tariff rate specified in the
order of the Government of Karnataka (hereinafter referred to as 'GoK'
for brevity) dated 12.05.1999. The further direction given is as follows:
"(ii) as per the interim order passed by this Court on 19th November,
2002, it is stated by Dr. Singhvi that the appellant has paid 40% of
Rs. 62.5 crores computed by the KPTCL as difference between
the PPA rates and the rates fixed by the Commission and,
therefore, we direct the KPTCL to repay the amounts recovered
from the appellant in pursuance of the interim order dated 19th
November, 2002 and also pay the adjustment arising out of
payments made by the appellant to KPTCL (i.e., the date between
the respondent No. 2/PPA rate and respondent No. 31 entered
rate of this Hon'ble Court; as the case may be) from 1st August,
2000 up to November 2002 within a period of one month from
today;"
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS.
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SUPREME COURT REPORTS
[2022] 12 S.C.R.
FACTS IN BRIEF
5. The first respondent was permitted by GoK during March 1994
to set up a 2X130 MW cortex gas/ coal based thermal power plant at
Bellary. It was apparently intended that Jindal Vijayanagar Steel Limited
(JVSL) would consume the power produced from the thermal plant to
be set up by the first respondent. The Central Electricity Authority granted
the required technical economic clearance in March 1996. Originally,
GoK gave approval to set up the power plant by JTPCL for 300 MW. It
was initially reduced from 300 to 240 MW in March 1995 and finally, it
was modified by order dated 13.02.1996 and reduced to 260 MW
(130X2). There were to be two units, that is Unit No.1 and Unit No.2.
Karnataka State Electricity Board (KEB for short) entered into a heads
of terms with JTPCL on 30.09.1995.
6. Clause 4 of the heads of terms reads as follows:
"4. SALE OF EXCESS ENERGY & CAPACITY TO KEB
If, at any stage, JTPC has excess firm capacity and/or energy for
sale to KEB, then KEB may purchase the same from JTPC subject
to agreement on price and other terms to be negotiated at the
time of such sale."
7. Heads of terms was essentially a memorandum prior to the
agreement, entered into in regard to wheeling and banking in regard to
sale to dedicated consumers by the first respondent. It was followed up
by a wheeling and banking agreement between the KEB and JTPCL
dated 23.01.1996.
8. In the said agreement also, the parties have reiterated the Clause
(Clause 2.4) relating to the sale by first respondent to KEB in similar
terms as in the Heads of terms. Somewhere in 1998, the first respondent
invoked the clause in its bid to sell power to KEB.
9. On 20.10.1998, the first respondent wrote to KEB as follows:
"This has reference to your above referred letter on the above
subject. In this connection kindly refer to our earlier letter dated
28th September 1998, wherein we have confirmed that our tariff
is in accordance with GOI notification dated 30th March 1992.
Further we have confirmed that we would offer substantial rebate
on the two-part tariff calculated on the basis of GOI norms.
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A statement giving details of Tariff calculations at 85% PLF and
68.5% PLF and 68.5% PLF is enclosed. The statement also gives
details of cost under various sub-heads. The tariff is subject to
the following assumptions:
1. Landed costs of imported coal assumed at USD 50 per tone.
2. Any variation in coal price will be to customer's account.
3. Exchange Rate assumed at USDI = Rs.42.
4. Repayment of Foreign Loan, ROE and Depreciation will vary
as per the applicable exchange rate.
5. O&M Charges will vary as per Indian Inflation Rate.
At your convenience, we can explain and furnish any clarifications
required on the tariff calculations.
Hope the details furnished along with this letter would enable you
to consider our proposal and hence request your to kindly arrange
for the approval of your board.
10. On 21.11.1998 again, there is a proposal put forth by the first
respondent to the KEB. Therein it has indicated that it has completed
100 per cent construction, erection and testing facility of Unit No.1.
11. After stating that they are scheduled to synchronise Unit No.1,
by December, 1998, it was indicated that the commissioning of unit no.2
is scheduled for July 1999. Thereafter, reference is made to clause 2.4
of the Wheeling and Banking Agreement, as already referred to. The
respondent offered 50 MW from the commissioning date of Unit No.1.
Further offer of 100 MW was made (base load basis) from the
commissioning date of Unit No.2. It further offered upto maximum of
200 MW during the time when the steel plant JVSL and JPOCL (another
dedicated consumer of first respondent) were under shut down (major
breakdown) or during the maintenance period. It further offered to pay
penalty if the supply was less than 75 MW from commissioning date of
Unit No.2. The rate was shown as 2.90/Kwh. Payment was requested
by irrevocable revolving L/C. This offer, however, was exclusive of
certain items and it is indicated that the consideration of the same was in
line with Government of India and KEB Norms. We may notice the
following terms which are set out as the elements to be excluded of the
rate:
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
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SUPREME COURT REPORTS
[2022] 12 S.C.R.
We propose to supply power on the basis outlined in this letter for
an initial period of five years from the date of commissioning of second
130 MW Unit. Since we are eligible for Income Tax Exemption for the
first five years, it is not included in the proposed tariff."
12. The promise was to supply for a period of five years from the
date of commissioning of the second unit. It is stated that the first
respondent is available for any clarification and for further negotiation.
Under the head "Utilization of Power During Stabilization Period" it is
stated as follows:
"II. UTILISATION OF POWER DURING STABILISATION
PERIOD.
(from the date of synchronization to commercial operation)
We have signed 'Wheeling and Banking' agreement with KEB
which allows us to bank Power with KEB during the period from
synchronization to commercial operation.
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During the above period we still be supplying power to our sister
company's i.e., JVSL and JPIOCL who are located adjacent to
Power Plant and within a common's with yard (owned & controlled
by JTPC). During this period since the power may not be available
on 'FIRM' basis we would like to draw power from our Banked
Power and supply to JVSL and JPOCL.
KEB has sanctioned power to JPOCL, JVSL and JTPC to meet
their star-up power requirements. KEB has sanctioned demand
for each unit separately. All the three units are availing KEB power
for plant commissioning, start-up purposes, trial operation and each
unit is paying demand and energy charges to KEB.
After synchronization of JTPCL's 1st 130 MW unit (December
98) we seek your kind consent and approval for the following
arrangements.
a. JTPCL will supply power to JPOCL and JVSL.
b. JTPCL, JVSL, JPOCL will continue the contract with
KEB and continue to pay contracted demand charges to
KEB.
c. In exceptional cases when JTPC generation is lower
than the energy requirement of JVSL and JPOCL, subject
to their individual contract demand with KEB, JTPCL draws
energy from KEB for a limited period, or during the
shutdown of the unit.
d. Bank all excess power (without limitation as per wheeling
and banking agreement) with KEB and take energy credit
for the Banked power, to utilize as and when required.
e. In case, we draw power from KEB when our bank is
zero, we will also pay energy charges to KEB as per the
applicable tariff.
Once the reliability tests are over and when JTPC declares the
commercial operation of their unit, JVSL, JPOCL and JTPC will
request KEB to cancel (withdraw) their contract demand with
KEB and JTPC will meet both demand and energy of these two
units on regular basis.
Present metering system (Annexure -1) INSTALLED by KEB
in our complex is on temporary basis and for adopting the above
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
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SUPREME COURT REPORTS
[2022] 12 S.C.R.
modalities permanent metering system is required to be established
by KEB which is detailed at Annexure- 2.
We request you to kindly accord your approval for the above two
proposals. Proposal 2 requires implementation of metering system
before synchronization of unit scheduled in the last week of
December 1998 and hence approval may please be accorded at
the earliest.
Thanking you we remain
Yours faithfully
For JINDAL TRACTEBEL POWER CO. LTD.
Sd/-
S.S. Rao
Dy. MD & CEO"
13. The response of the KEB is found in communication dated 1st
December, 1998. It is stated as follows:
"The Board is in principle willing to purchase surplus power from
your plants as already discussed. Your proposal regarding the tariff
is under evaluation by the Board".
14. Next, it is relevant to notice the communication dated
19.01.1999 made by KEB to GoK. It reads as under:
"KARNATAKA ELECTRICITY BOARD
K.P. SINGH, I.A.S.
CAUVERY BHAVAN,
CHAIRMAN
 BANGALORE-560001
D.O.No./KEB/B2/B13/6306/93-94
Date: 19/1/1999
My dear Chaubey,
Sub: Purchase of power generated by the captive power plant
of M/s. Jindal Tractebel Power Company at Hospet.
Government of Karnataka vide GO No. de 221 PPC 93 Bangalore
dated 7-3-1994 had permitted M/s. Jindal Tractebel Power
Company to set up a 2xl20 MW power plant at Hospet, which
was subsequently enhanced to 2xl30 MWs. This plant, which was
set up as a captive power plant was given an IPP status later on
vide Government letter No. DE 221 DPC 93 (P) dated 1-2-1996
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as the shareholders of the power plant and steel plant were
different. TEC for the above project was issued by CEA vide
their letter dated 22-3-1996. As the company proposed to utilize
the power generated for their own use and to sell to other industries
in the State, after initial round of discussions with the Company,
only a wheeling and banking agreement was proposed. In January
1996, Board entered into a Wheeling and Banking Agreement
with the Company. In the Wheeling and Banking Agreement, as
per Clause 2.4, the Company could sell excess capacity and/or
energy to KEB and KEB had an option to purchase the same at a
negotiated rate. The relevant clause is reproduced below:
"'If at any stage, the Company offers excess firm capacity
and/or energy for sale to the Board, then the Board may
purchase the same from the Company, subject to agreement
on price and other terms to be negotiated at the time of such
sale."
Jindal Tractebel Power Company is the first IPP to have
achieved Financial Closure. Subsequent to achieving Financial
Closure, the company took up the work of construction of the
plant and the first unit of the plant has also been synchronised
with the KEB grid recently.
M/s. JTPC during discussion have stated that due to downward
trend in the Steel industry, the requirement of the steel has reduced
and consequently progress of the Corex Plant has slowed down.
As a consequence of the above, the Company, vide their letter
No.4 JTPC/KEB dated 20-10-1998 have offered to sell 50 Mw
after the first unit is commissioned and 100 MW after the second
unit is commissioned to KEB on basis. Also, in case of shut down
of the JVSL Plant or its subsidiaries for maintenance purposes,
they have offered to sell nearly 200 MWs to KEB.
Though KEB has signed PPAs with various IPPs, the progress
of these plants is not satisfactory. As of today, only the 200 MW
Barge Mounted Power Plant being set up by M/s. Tanir Bavi
Power Company has neared financial closure. A table indicating
the first-year tariffs payable to various IPPs, whose projects have
been sanctioned under the bid route is given below. The present
rate of Rs.42.50 to a dollar has been taken for the purpose of
calculating the tariff.
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
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It is also to be stated that of the above mentioned plants, some of
the plants may not come up. The doubtful plants are that of M/s.
DLF, Scintilla and lnnox Power. In case of M/s. Rayalseema,
even though the plant had intimated that they have achieved
financial closure nearly 8 months back, they have requested for
enhancement of capacity of the plant to double its size to make it
economically viable. This issue is under examination.
Because of the shortfall in generation in the State and the steady
demand for power, KEB is purchasing power from MSEB in
addition to that from Central Generating Stations. The tariff we
are paying for power of MSEB is Rs.2.30/unit for power availed
during off peak hours and Rs.2.65 for power availed during peak
hours. We are at present purchasing nearly 100 MWs during peak
hours and upto 200 MWs during off peak hours. MSEB has asked
for revision of prices from 1-1-1999 for the power supplied by
them. The revised rates are Rs.2.50 + FEC for off peak power
and Rs.3.00 + FEC for power supplied during peak hours. Tamil
Nadu is also purchasing power from MSEB at Rs.2.65 /unit during
peak hours and Rs.2.30/unit during off peak hours. Tamil Nadu
Electricity Board is also purchasing power from Eastern Grid at
Rs.2.74/unit. KPCL is proposing to synchronize their V and VI
unit in the coming months. Though the actual cost is yet to be
finalized, as the project cost is yet to be frozen, it is indicated that
the tariff for the power generated by these plants vary between
Rs.2.75 to Rs.2.80. It has also been reported in the press that for
the power proposed to be generated from the Kayamkulam
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Thermal power plant being set up by M/s. NTPC, KSEB would
have to pay nearly Rs.3.90/unit and after the intervention of the
Prime Minister, the rate payable would be around Rs.3.52/unit.
The project of M/s. JTPCL was under the Captive route and it
was contemplated that the entire power generated would be used
by JVSL and its subsidiaries. Though a provision was there in the
wheeling and Banking agreement for KEB to purchase any surplus
power from this project at a later date, it was clearly mentioned
that the price at which this power would be purchased would be
at negotiated rates. This was because, KEB did not feel it
necessary to go into the details of the capital costs of this project
as this project was contemplated as a captive power plant and
only surplus power, if any, was to be sold to KEB, at a later date.
M/s. JTPCL vide their letter dated 20-10-1998 had offered to sell
power to KEB at Rs.2.90/unit.
During internal meetings it was also decided that as this project
was meant as a captive power plant and KEB did not go into the
details of the project cost earlier or anticipate in the meetings at
CEA before the TEC was issued, it would not be possible to
negotiate tariff based on two-part tariff notification of GoI. Also,
as we would be paying only a fixed price per unit, it was felt that
going into the details such as the actual heat rate, the O&M
charges, the working capital, foreign exchange protection to be
provided, etc. should not be done and only the cost per unit presently
being offered from other sources should be compared. Further, to
compensate for the variation in Rupee against the dollar, the
increase in Consumer Price Index, interest rate on working capital
etc., it was also decided that some annual increase in the fixed
price should be allowed to take care of the above-mentioned items
as has been done in case of MOU Route projects.
With this background, negotiations were held with M/s. JTPCL.
During discussions, it was stated that the cost per unit will have to
be split into two parts, viz. Fixed Component and Variable charges.
The variable charges would be based on the actual price of coal
which JTPCL would buy. After detailed discussions, it was decided
that a price of Rs.2.60/unit can be offered, comprising of Rs.l.70
as fixed charges and Rs.0.90 as variable charges. To compensate
for depreciation of rupee against dollar, escalation of O&M charges
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
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[2022] 12 S.C.R.
due to increase in cost of price index, working capital requirements,
etc. It was also decided that the fixed charges should be escalated
by 5% every year beginning from the second year after we
purchase power from JTPC.
As regards the variable cost, which depends on the cost of coal,
the company will have to invite bids from global markets and satisfy
KEB about the correctness of the procedure followed and the
price arrived at. These bids can be either of I year duration or a
longer period. Depending on the actual cost of coal, the variable
price will be paid.
Regarding the term of the agreement, it is to be stated that the
major thermal power projects , i.e. that of M/s Mangalore Power
Company and M/s. Nagrujuna Power Company may not be
available for the next five years. There is a case pending in
Supreme Court regarding Mangalore Power Company and only
after the judgment is known, Gol will consider extending counter
guarantee to this project. After the counter guarantee is given, it
may take anything between 4 to 5 years for the project to be
issued. Again, it may take 4 to 5 years for the project to be put up,
since the company will have to achieve financial closure. Hence
it is considered prudent to limit the period of the agreement to
purchase power from Ms. JTPCL to 5 years initially.
The cost per unit of power purchased from M/s Jindal Tractebel
during the five year period keeping the variable cost constant would
be as follows:
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Even with the increase of Fixed Charges by 5% every year, it is
to be stated that in the 5th year, the cost of power with the variable
charges remaining the same will be Rs.2.07 + Rs.0.90, i.e. Rs.2.97
per unit which is lower than the tariff now being offered by MSEB
during peak hours.
The company has offered to sell 100 MWs on a guaranteed basis,
it will be necessary to assure a minimum level of offtake failing
which Deemed Generation Charges will have to be paid. As per
two part tariff notification the minimum assured off-take should
be 68.5% PLF. As this project is essentially meant as a captive
power plant, it is suggested that the minimum off-take below which
deemed generation would be payable should be 50% of the
contracted/declared capacity, whichever is lower. It is also
suggested that a penalty be levied on M/s. JTPCL if there is any
shortfall in power below 75% of the quantity assured by the
company.
Keeping all the above in mind, it is suggested that we can purchase
power from M/s JTPCL at Rs.2.60/unit (FC Rs.1.70 + VC Rs.0.90)
with the fixed charge being escalated by 5% from the second
year with the conditions of penalty to be paid by the firm for short
supply of power and assured off-take mentioned above.
For all IPPs, Government is giving guarantee for the payments to
be made by KEB for the power it receives. Apart from this,
irrevocable letter of credit and escrow accounts are also being
opened by KEB as additional security for power supplied by these
companies. In case of JTPCL, as the question of providing
government guarantee does not arise as the plant was essentially
set up as a captive power plant and majority of the power
generated is being sold to captive industries. However, irrevocable
revolving Letter of Credit and backup escrow can be provided to
the Company.
Approval of the Government is sought for the above proposal.
Subsequent to the approval, negotiations will be held with M/s
JTPCL for finalizing the PPA."
15. The GoK in its response by communication dated 05.03.1999
wrote as follows to the KEB:
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
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"R.No.DE 18 FEB 99
Dated 05-03-1999
I invite your to your D.O. letter dated 19-1-99 regarding your
proposal to purchase power from M/s Jindal Tractabel Power
Company at Rs.2.60/unit with a 5% escalation on fixed charges.
The proposal has been examined in detail. The efforts of the KEB
to bridge the gap in power availability by entering into a short -
term agreement with Jindal Tractebel Power Company Limited
(JTPCL) is well appreciated. Government recognizes the fact
that inspite of the best efforts made by the State Government to
augment the power supply position there still continues to be a big
gap between demand and supply. Government also note that
presently KEB is supplying more than 75 Million units per day
which is a record. The demand may further go up in the coming
months and the situation may not change easily in the next few
years on account of the substantial delay in the starting up of the
Mega power projects in the State. Under these circumstances
there is a need to tie up with IPP/other States/NTPC, for
augmenting the power supply within the State urgently. There is
no doubt all out efforts have to be made within the short time to
tide over the problems of increased demand during the summer.
The present proposal of the KEB keeps the tariff open ended and
possible revision. The PP A being for a period of 5 years, KEB is
advised to negotiate with the Jindal Tractebel for a fixed tariff for
the next 5 years.
This may kindly be got examined by KEB and the revised proposal
may be sent to the government.
Yours,
Sri K.P. Singh, IAS."
16. On 31.03.1999 after referring to the proposal dated 21.11.1998
and a series of discussions and the further meeting with the KEB officials
on 26.03.1999, the first respondent indicated that in the meeting, KEB
officials informed that it was willing to buy power from the first respondent
subject to the following terms and conditions:
"1. The term of the agreement could be 5 years.
2. The tariff should be a single part tariff. Escalation at a fixed
percentage could be applied on the total price on an annual basis.
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KEB will not consider any request either for two-part tariff based
on CEA guidelines or for payment of fuel cost at actuals.
3. KEB will open irrevocable revolving letter of credit under which
JTPC can get payments. It will also be supported by Escrow
mechanism.
4. There can be penalty clause both for short supplies and short
drawals.
5. The PPA should be a simple document."
[Emphasis supplied]
17. Thereafter, it is stated that KEB asked for a formal proposal
within aforesaid parameters. Thereafter in the communication, it is stated:
"1.
JTPC offers 50 MW (Energy 36 MU per month) of power
from the commissioning date of Unit 1 and 100 MW (Energy
72 MU per Month) of power from the commissioning date
of Unit 2. The first Unit of 130MW is expected to be
commissioned in June 1999 and the second unit of 130 MW
is expected to be commissioned in August 1999.
2.
JTPC would have an option to supply in excess of 50MW
(Energy 36 MU per month) after commissioning of Unit 1
and 100 MW (Energy 72 MU per month) after
commissioning of Unit 2, with KEB's approval, as and when
JTPC has surplus power available.
3.
The tariff will be as follows:
I year (Upto 31" March 2000)Rs. 2.60 I kwhr.
II Year (Financial Year 2000-2001) Rs. 2.73 I kwhr.
III Year (Financial Year 2001-2002)Rs. 2.87 I kwhr.
IV Year (Financial Year 2002-2003) Rs. 3.01 l kwhr.
V Year (Financial Year 2003-2004) Rs. 3.16 I kwhr.
4.
There will be no Wheeling charges or Electricity Tax on
supplies to KEB.
5.
To maintain uniformity in penalty on either side, JTPC
proposes as follows as from COD of Unit 2:
(a) JTPC guarantees minimum supply of the Threshold
Power Value after commissioning of JTPC Unit 2. If the
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
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[2022] 12 S.C.R.
supply is less than the Threshold Power Value, JTPC will
pay penalty at 10% of the tariff, for supplies below the
Threshold Power Value.
(b) KEB shall guarantee that it will consume the Threshold
Power Value. In case the consumption is less than the
Threshold Power Value, KEB shall pay to JTPC the full
value of Threshold Power at the applicable tariff as above.
(c) The Threshold Power Value is 75 MW (Energy 54 MU
per month).
6.
The minimum supply and the minimum consumption as per
para 5(a) and 5(b) above are applicable on a monthly basis.
7.
If there is escalation in fuel cost beyond 5% at any time,
JTPC reserves the right to terminate the contract with 3
months' notice, if KEB does not agree to compensate for
such escalation.
8.
KEB shall open irrevocable revolving letter of credit
corresponding to 100 MW (Energy 72 MU per month) power
sales under which JTPC can get payment for its monthly
bills. It shall also be supported by Escrow mechanism.
9.
The initial term of the agreement should be 5 years till March
31, 2004, with a provision for renewal on terms mutually
acceptable.
We request you to agree to the above terms and conditions and
convey your acceptance at the earliest.