# M/S ADANI POWER (MUNDRA) LTD v. GUJARAT ELECTRICITY REGULATORY COMMISSION AND ORS

- **Citation:** [2019] 8 S.C.R. 1017
- **Court:** Supreme Court of India
- **Decided:** 2019-07-02
- **Case number:** Civil Appeal No.11133 of 2011
- **Bench:** Arun Mishra, B. R. Gavai, Surya Kant
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-adani-power-mundra-ltd-v-gujarat-electricity-regulatory-commission-and-ors-34046
- **Pages:** 41

## Headnote

Electricity Act, 2003 - ss. 86 (1) (F), 95 - Respondent
No. 2-Procurer initiated the process of bidding for supply of power
on long term basis, by issuing Request for Qualification - Three
separate bids were invited - Appellant was selected as a successful
bidder in respect of bid no. 2 for supplying 1000 MW power at the
rate of Rs. 2.35 per Kwh - Consequently, Power Purchase Agreement
(PPA) came to be entered into between the procurer and the appellant
- Appellant contended that the bid submitted by it was on the basis
of the assurance given by Gujarat Mineral Development
Corporation (GMDC) to supply coal - It was also contended that,
the GMDC was not abiding by the said assurance - There was a
dispute between the appellant and the GMDC with regard to certain
terms and conditions of the Fuel Supply Agreement (FSA) and as
such FSA could not be finalized - Various communications were
exchanged between the Government of Gujarat, appellant and
GMDC to find out a solution - Finally, appellant by a communication
dated 28.12.2009, issued notice to the procurer, terminating the
PPA with effect from 04.01.2010 - Procurer filed petition u/ss.
86(1)(F), 95 of the Act, 2003 before Commission - The Commission
held that the termination was illegal and directed the appellant to
supply the power to the procurer at the rate determined in the PPA
- Aggrieved, appellant filed appeal before the Appellate Tribunal,
which was dismissed - On appeal, held: Appellate Tribunal depicted
an erroneous approach - It is settled that to harmonize is not to
destroy any statutory provision or render it otiose - A harmonious
reading of Art. 3.4.2 and Art. 3.1.2 of the PPA indicated that in the
event of non-compliance of any of the conditions as stipulated in
Art. 3.1.2 within the period prescribed thereunder, either of the
parties, i.e., the seller or the procurer have the right to terminate
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the contract - Further, Appellate Tribunal was totally incorrect in
holding that the provisions u/Art. 3.4.2 of the PPA can be invoked
only when there is an agreement between the parties that there is a
violation of any of the conditions specified in Art. 3.1.2 of the PPA
- If such a view of the Appellate Tribunal is accepted, it will amount
to inserting a totally new condition in Art. 3.4.2 of the PPA and
would amount to re-writing the contract between the parties; it would
violate the provisions of Art. 3.4.2 of the PPA - And it will make the
provisions of Art. 3.4.2 a dead letter and render them otiose - Also,
it cannot said to be a condition which is necessary to give business
efficacy to the contract - Besides, Appellate Tribunal erred in holding
that the bid of the appellant was not on the basis of the commitment
by the GMDC to supply indigenous coal - As it is clear from various
communication between Government of Gujarat, Procurer and
GMDC that the bid of the appellant was on the basis of the
commitment by the GMDC to supply the indigenous coal - Thus,
the termination of PPA by appellant was legal and valid -
Interpretation of Statutes - Harmonious Construction.
Electricity Act, 2003 - s.62 - Determination of compensatory
tariff by Central Electricity Regulatory Commission (CERC) -
Respondent No.2-procurer initiated the process of bidding for supply
of power - Appellant was selected as a successful bidder for
supplying 1000 MW power at rate of Rs. 2.35 per kwh - Appellant
contended that the bid submitted by it was on basis of the assurance
given by Gujarat Mineral Development Corporation (GMDC) to
supply coal - It was also contended that GMDC did not abide by
the said assurance - Appellant terminated the PPA - Procurer filed
petition u/ss.86(1)(f) & 95 of the Act before the Commission - The
Commission and the Appellate Tribunal held that the termination
was illegal and directed the appellant to supply the power to the
procurer at the rate determined by PPA - On appeal, held:

## Text

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M/S ADANI POWER (MUNDRA) LTD.
v.
GUJARAT ELECTRICITY REGULATORY COMMISSION AND
ORS.
(Civil Appeal No.11133 of 2011)
JULY 02, 2019
[ARUN MISHRA, B. R. GAVAI AND SURYA KANT, JJ.]
Electricity Act, 2003 - ss. 86 (1) (F), 95 - Respondent
No. 2-Procurer initiated the process of bidding for supply of power
on long term basis, by issuing Request for Qualification - Three
separate bids were invited - Appellant was selected as a successful
bidder in respect of bid no. 2 for supplying 1000 MW power at the
rate of Rs. 2.35 per Kwh - Consequently, Power Purchase Agreement
(PPA) came to be entered into between the procurer and the appellant
- Appellant contended that the bid submitted by it was on the basis
of the assurance given by Gujarat Mineral Development
Corporation (GMDC) to supply coal - It was also contended that,
the GMDC was not abiding by the said assurance - There was a
dispute between the appellant and the GMDC with regard to certain
terms and conditions of the Fuel Supply Agreement (FSA) and as
such FSA could not be finalized - Various communications were
exchanged between the Government of Gujarat, appellant and
GMDC to find out a solution - Finally, appellant by a communication
dated 28.12.2009, issued notice to the procurer, terminating the
PPA with effect from 04.01.2010 - Procurer filed petition u/ss.
86(1)(F), 95 of the Act, 2003 before Commission - The Commission
held that the termination was illegal and directed the appellant to
supply the power to the procurer at the rate determined in the PPA
- Aggrieved, appellant filed appeal before the Appellate Tribunal,
which was dismissed - On appeal, held: Appellate Tribunal depicted
an erroneous approach - It is settled that to harmonize is not to
destroy any statutory provision or render it otiose - A harmonious
reading of Art. 3.4.2 and Art. 3.1.2 of the PPA indicated that in the
event of non-compliance of any of the conditions as stipulated in
Art. 3.1.2 within the period prescribed thereunder, either of the
parties, i.e., the seller or the procurer have the right to terminate
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the contract - Further, Appellate Tribunal was totally incorrect in
holding that the provisions u/Art. 3.4.2 of the PPA can be invoked
only when there is an agreement between the parties that there is a
violation of any of the conditions specified in Art. 3.1.2 of the PPA
- If such a view of the Appellate Tribunal is accepted, it will amount
to inserting a totally new condition in Art. 3.4.2 of the PPA and
would amount to re-writing the contract between the parties; it would
violate the provisions of Art. 3.4.2 of the PPA - And it will make the
provisions of Art. 3.4.2 a dead letter and render them otiose - Also,
it cannot said to be a condition which is necessary to give business
efficacy to the contract - Besides, Appellate Tribunal erred in holding
that the bid of the appellant was not on the basis of the commitment
by the GMDC to supply indigenous coal - As it is clear from various
communication between Government of Gujarat, Procurer and
GMDC that the bid of the appellant was on the basis of the
commitment by the GMDC to supply the indigenous coal - Thus,
the termination of PPA by appellant was legal and valid -
Interpretation of Statutes - Harmonious Construction.
Electricity Act, 2003 - s.62 - Determination of compensatory
tariff by Central Electricity Regulatory Commission (CERC) -
Respondent No.2-procurer initiated the process of bidding for supply
of power - Appellant was selected as a successful bidder for
supplying 1000 MW power at rate of Rs. 2.35 per kwh - Appellant
contended that the bid submitted by it was on basis of the assurance
given by Gujarat Mineral Development Corporation (GMDC) to
supply coal - It was also contended that GMDC did not abide by
the said assurance - Appellant terminated the PPA - Procurer filed
petition u/ss.86(1)(f) & 95 of the Act before the Commission - The
Commission and the Appellate Tribunal held that the termination
was illegal and directed the appellant to supply the power to the
procurer at the rate determined by PPA - On appeal, held:
Termination by appellant was valid and legal - Appellant supplied
electricity to the procurer in accordance with the decision of the
Commission and the Appellate Tribunal - In order to do economic
justice, on the principle of business efficacy, the appellant entitled
for adjustment of cost of the project and also entitled to the interest
on the expenditure incurred by it for completion of project -
Therefore, parties relegated to the CERC for determination of the
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compensatory tariff payable to the appellant from the date of
termination of the PPA - CERC (Terms and Conditions of Tariff)
Regulations 2009.
Doctrines/Principles - Principle of Business Efficacy -
Discussed.
Allowing the appeal, the Court
HELD: 1. The observations of the Appellate Tribunal
depicted a totally erroneous approach. A harmonious reading of
Article 3.4.2 and Article 3.1.2 of Power Purchase Agreement
(PPA) clearly indicates that in the event of non-compliance of any
of the conditions as stipulated in Article 3.1.2 within the period
prescribed thereunder, either of the parties, i.e., the seller or
the procurer have the right to terminate the contract. However,
in either of the events, it is the seller's liability to pay the
liquidated damages at the rate of Rs. 10 lakhs per Mega Watt.
[Para 25] [1047-B-C]
2. This Court is of the considered view that the finding of
the Appellate Tribunal that the provisions under Article 3.4.2 of
the PPA can be invoked only when there is an agreement between
the parties that there is violation of any of the conditions specified
in Article 3.1.2 of the PPA is totally incorrect. If such an argument
is accepted, it will amount to inserting a totally new condition in
Article 3.4.2 of the PPA and would amount to re-writing the
contract between the parties; it would do total violence to the
provisions of Article 3.4.2 of the PPA. It cannot be said to be a
condition which is either reasonable or equitable; it also cannot
be said to be a condition which is necessary to give business
efficacy to the contract; it also cannot be said to be a test which
justifies the Officious Bystander Test; it also cannot be said to
be a condition which is capable of the clear expression; it is also
not a condition which does not contradict any expressed terms of
the contract. On the contrary, is a condition which would totally
change the tenor of Article 3.4.2 of the PPA. We are, therefore,
of the considered view that the Appellate Tribunal has grossly
erred in coming to the conclusion that Article 3.4.2 of the PPA
could be invoked only in the event that there is an agreement
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT
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with regard to violation of any of the conditions in Article 3.1.2.
[Para 26] [1047-D-F]
3. This Court finds, that both the Commission and the
Appellate Tribunal have grossly erred in arriving at finding that
termination can be effected under Article 3.4.2 only if there is an
agreement with regard to non-compliance of condition under
Article 3.4.2 by both the parties. If the finding of the Appellate
Tribunal is accepted, it will be amounting to making
provisions of Article 3.4.2 a dead letter and rendering them otiose.
[Para 31] [1051-F-G]
4. In the present case, the perusal of various Articles would
reveal that provisions under Article 14 are general in nature.
The provision under Article 3.4.2 is specific, only to be invoked
in the case of non-compliance with any of the conditions as
provided under Article 3.1.2. As such, the special provision made
in Article 3.4.2 will exclude the applicability of general provisions
contained in Article 14 of the contract. [Para 34] [1051-F]
5. In the brief summary of the Project given in the said bid
document, it has been specifically mentioned by the appellant
that the bid was submitted on the basis of indigenous coal supply
committed by the Gujarat Mineral Development Corporation
(GMDC). The bid documents also form part of the PPA between
the parties. [Para 37] [1052-C]
6. It could thus be clearly seen that even the Government
of Gujarat has also clearly indicated that the bid submitted by the
appellant in the competitive bid was on the basis of the
commitment for supply of coal from Morga-II mines by the
GMDC. It has, therefore, requested the Managing Director,
GMDC to give 50 per cent of coal from Morga block to the
appellant. The State Government had, therefore, requested that
the Managing Director of the GMDC to go for coal allotment
from Morga block. It could thus be seen that, even the procurer
was aware that the bid of the appellant was on the basis of the
commitment by the GMDC to supply the indigenous coal.
[Paras 39 and 41] [1053-B, C, F-G]
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7. In that view thereof, after the GMDC resiling from its
commitment and refusing to enter into Fuel Supply Agreement
(FSA) with the appellant, the appellant was justified in invoking
Article 3.4.2 of the PPA, in view of non-compliance of Condition
No. (ii) in Article 3.1.2 since it had failed to produce the Fuel
Supply Agreement. [Para 43] [1054-E]
8. In the light of the aforesaid finding, this Court fails to
understand as to how the Appellate Tribunal has come to a finding
that the bid of the appellant was not on the basis of the commitment
by the GMDC to supply indigenous coal. This Court is of the
considered view that the Appellate Tribunal has erred both on
facts and in law. This Court is of the considered view that the
appellant was entitled in law as well as on facts to invoke Article
3.4.2 of the PPA and terminate the agreement. [Para 44]
[1054-H; 1055-A]
9. Now, the question would arise as to at what rate the
appellant is entitled to compensatory tariff from the date of supply
of power. Undisputedly, even after the PPA was validly terminated,
the appellant continued to take the project to its logical end. After
commissioning of the project, it has started supplying electricity
to the procurer in accordance with the decision of the Commission
and the Appellate Tribunal. The appellant must have incurred
huge expenditure on the same. In order to do economic justice,
on the principle of business efficacy, the appellant would be
entitled for adjustment of cost of the project and would also be
entitled to the interest on the expenditure incurred by it for
completion of the project. The expenditure towards running of
the project after obtaining the coal from the open market would
also be required to be taken into consideration. The appellant
would also be entitled to the interest on the delay of payment
after it receives payment upon determination of the rate which
would be determined by the Central Electricity Regulatory
Commission (CERC). [Para 49] [1056-D-G]
10. Section 62 of the Electricity Act, 2003, provides entire
mechanism for determination of the tariff by the CERC. It will
also be relevant to note that the CERC (Terms and Conditions
of Tariff) Regulations 2009 also consider various factors which
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are required to be taken into consideration by the CERC while
determining the compensatory tariff. This Court finds that it will
be appropriate to relegate the parties to CERC for determination
of the compensatory tariff payable to the appellant from the date
of termination of the PPA. After such determination, the procurer
would be entitled to adjust the amount if already paid in accordance
with affidavit dated 23.11.2015, from the amount so determined
by the CERC. [Para 50] [1056-G-H; 1057-A]
Calcutta Gas Company (Proprietary) Ltd. v. State of West
Bengal and others AIR 1962 SC 1044 : [1962] Suppl.
SCR 1 - followed.
Rajasthan State Industrial Development and Investment
Corporation and Anr. v. Diamond & Gem Development
Corporation Ltd. & Anr. (2013) 5 SCC 470 : [2013]
4 SCR 331 ; Bharat Aluminium Company v. Kaiser
Aluminium Technical Services INC (2016) 4 SCC 126 :
[2016] 1 SCR 364 ; Nabha Power Ltd. (NPL) v. Punjab
State Power Corporation Ltd. (PSPCL) and Anr. (2018)
11 SCC 508 ; Sultana Begum v. Prem Chand Jain AIR
1997 SC 1006 : [1996] 9 Suppl. SCR 707 ; Anwar
Hasan Khan v. Mohammed Shafi and others AIR 2001
SC 2984 ; J.K. Cotton Spinning and Weaving Mills Co.
Ltd. v. State of Uttar Pradesh, AIR 1961 SC 1170 :
[1961] SCR 185 ; Maharashtra State Board of
Secondary and Higher Secondary Education and Ors.
v. Paritosh Bhupeshkumar Sheth and Ors. (1984) 4
SCC 27 : [1985] 1 SCR 29 - relied on.
Indian Oil Corporation v. Amritsar Gas Services Ltd.,
(1991) 1 SCC 533 : [1990] 3 Suppl. SCR 196 ; Her
Highness Maharani Shanti Devi Gaekwad v. Savji
Haribhai Patel & Ors. (2001) 5 SCC 101 : [2001] 2
SCR 590 ; Vermagiri v. Transco, 2007 SCC online
APTEL 107 - referred to.
Attorney General of Belize v. Belize Telecom Ltd., (2009)
1 WLR 1988 (PC) - referred to.
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Case Law Reference
[1990] 3 Suppl. SCR 196
 referred to
Para 10
[2001] 2 SCR 590
referred to
Para 10
[2013] 4 SCR 331
relied on
Para 16
[2016] 1 SCR 364
relied on
Para 17
(2018) 11 SCC 508
relied on
Para 18
[1962] Suppl. SCR 1
followed
Para 28
[1996] 9 Suppl. SCR 707
relied on
Para 29
AIR 2001 SC 2984
relied on
Para 29
[1961] SCR 185
relied on
Para 32
[1985] 1 SCR 29
relied on
Para 33
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 11133
of 2011.
From the Judgment and Order dated 07.09.2011 of the Appellate
Tribunal for Electricity in Appeal No. 184 of 2010.
Gopal Jain, Sr. Adv., Ashish Prasad, Ms. Mukta Dutta, Avinash
Tripathi, Mahfooz A. Nazki, Praveen Kumar, Advs. for the Appellant.
M. G. Ramachandran, Sr. Adv., Ms. Ranjeetha Ramachandran,
Ms. Vishakha, Ms. Puja Singh for Mrs. Hemantika Wahi, Ms. Swati
Bhardwaj, M/S. Parekh & Co., Prashant Bhushan, Advs. for the
Respondents.
The Judgment of the Court was delivered by
B. R. GAVAI, J.
1. The appellant has approached this Court being aggrieved by
the judgment and order passed by the Appellate Tribunal for Electricity
("the Appellate Tribunal" for short) in Appeal No. 184 of 2010 dated
07.09.2011 thereby dismissing the appeal filed by the present appellant
and confirming the judgment and order passed by the Gujarat Electricity
Regulatory Commission ("the Commission" for short) dated 31.08.2010.
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2. The facts in brief giving rise to the present appeal are as under.
Respondent No. 2, namely, Gujarat Urja Vikas Nigam Ltd.
(hereinafter referred to as "the procurer") is a holding company engaged
in the business of bulk purchases from the power generators and supply
to the distribution companies in the State of Gujarat. On 01.02.2006, the
procurer initiated the process of bidding for supply of power on long
term basis, by issuing a Request For Qualification ("RFQ" for short).
Three separate bids for purchase of power in accordance with the
provisions of Section 63 of the Electricity Act, 2003 were invited. Each
of the three bids envisaged purchase of power to the maximum extent
of 2000 Mega Watt ("MW" for short). The RFQ was followed by
Request For Proposal ("RFP" for short) on 24.11.2006. The present
matter concerns bid No. 2 in respect of which the appellant was selected
as a successful bidder.
3. On being successful in the bidding process, the procurer issued
a Letter of Intent ("LOI" for short) in respect of bid no. 2, to the appellant
on 11.01.2007 for supplying 1000 MW power at the rate of Rs. 2.35 per
Kwh. Consequently, the Power Purchase Agreement ("PPA" for short)
came to be entered into between the procurer and the appellant, for
purchase and sale of 1000 MW power from the appellant's power project
at Korba, Chhatisgarh, at the delivery point at Nani Khakhar in the State
of Gujarat. Similarly, on 06.02.2007 another PPA came to be executed
by the procurer with the appellant in respect of bid No. 1, which project
was to be executed by using imported coal. The rate determined was
Rs. 2.89 per unit in respect of bid No. 1.
4. On 12.02.2007, the appellant informed the procurer that it would
supply power against bid No. 2, from Mundra Power Project in Gujarat
instead of Chhatisgarh Project. Accordingly, a supplemental PPA was
entered into between the appellant and the procurer on 18.04.2007, to
off take the contracted capacity of 1000 MW against bid No. 2, from
Mundra Power Project.
5. The appellant contended that, the bid submitted by it in respect
of bid No. 2 was on the basis of the assurance given by Gujarat Mineral
Development Corporation ("GMDC" for short) to supply 4 million tonnes
of coal. It also contended that, the GMDC was not abiding by the said
assurance. So it addressed a communication to the Government of Gujarat
on 21.05.2007 to find out a solution. Since the Fuel Supply Agreement
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("FSA" for short) could not be executed, as contemplated between the
appellant and the GMDC; the appellant informed the procurer that the
FSA between it and the GMDC had not yet been finalized. Again, a
communication came to be addressed by the appellant on 01.05.2008 to
the Government of Gujarat, requesting it to impress upon the GMDC to
adhere to its assurance and supply the coal from the coal blocks allocated
to the GMDC. The procurer, thereafter, in the month of June, 2008,
addressed a communication to the appellants stating that, since it had
not complied with certain conditions stipulated in the PPA and as such, it
should furnish an additional performance bank guarantee. The appellant
addressed another communication to the procurer on 17.01.2009,
reiterating its inability to supply the power to the procurer in the absence
of FSA with GMDC. It also informed that it had no other option except
to terminate the PPA. On 27.02.2009, the Government of Gujarat wrote
to the GMDC, asking it to supply coal to the appellant from Naini block.
6. It appears that there was a dispute between the appellant and
the GMDC with regard to certain terms and conditions of the FSA and
as such the FSA could not be finalized. The record would further reveal,
that there was a long correspondence between the Government of
Gujarat, the GMDC, the procurer and the appellant with regard to the
commitment by the GMDC to supply coal to the appellant in respect of
bid No. 2 and non-adherence by the GMDC to abide by the said
commitment. The appellant addressed a communication dated 15.11.2008
specifically informing the procurer that the bid was on the basis of the
assurance by the GMDC to supply coal. It also informed the procurer
that though it was in a position to comply with all other conditions
subsequent but they are unable to execute the FSA since the GMDC
had not cooperated in the matter. Another communication was addressed
by the appellant on 17.01.2009 reiterating that in the absence of FSA
with the GMDC, the appellant will not be in a position to supply contracted
capacity of power to GUVNL/the procurer in the absence of FSA with
the GMDC. It further informed that the appellant shall have no other
option than to terminate the PPA unless the coal supply comes from the
GMDC from Morga-II coal block. However, it appears that, thereafter,
there was an attempt to amicably settle the matter between the appellant,
the procurer, the GMDC as well as the Government of Gujarat. As
such, the appellant addressed communication dated 28.04.2009 keeping
its notices dated 15.11.2008 and 17.01.2009 in abeyance till the matter
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT
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was resolved between the appellant and the GMDC/Government of
Gujarat. It, however, appears that the said attempts were not fruitful.
Finally, the appellant by a communication dated 28.12.2009, issued
notice to the procurer, terminating the PPA with effect from 04.01.2010.
The procurer addressed a communication to the Government of Gujarat
on 30.12.2009, requesting the Government to impress upon the appellant
to withdraw its termination notice dated 28.12.2009 and also impress
upon the GMDC for resolution of FSA with the appellant. The procurer
also addressed a communication to the appellant on 05.01.2010,
requesting it to keep the notice of termination dated 28.12.2009 in
abeyance. On 06.01.2010, the appellant addressed another communication
to the procurer, informing it that since the period of termination has already
expired, the PPA stands terminated with effect from 4.01.2010. The
appellant also deposited an amount of Rs. 25 crores with the procurer
towards liquidated damages in addition to the performance bank
guarantee of Rs. 75 crores, which was already with the procurer. On
13.01.2010 the procurer sent a letter to the appellant, returning the amount
of Rs. 25 crores and calling upon it to withdraw the termination notice.
However, the appellant asserted that termination was valid.
7. The procurer, thereafter, filed a petition under Sections 86(1)(f)
and 95 of the Electricity Act, 2003, for adjudication of the dispute between
the procurer and the appellant on 01.02.2010 before the Commission.
The Commission by its judgment dated 31.08.2010 allowed the petition
of the procurer, holding that the termination of the PPA was illegal and
directed the appellant herein to supply the power to the procurer at the
rate determined in the PPA. Being aggrieved, the appellant approached
the Appellate Tribunal for Electricity. By the judgment and order impugned
dated 07.09.2011, the Appellate Tribunal dismissed the appeal. Hence,
the present appeal.
8. We have heard Mr. Gopal Jain, learned senior counsel for the
appellant, and Mr. M.G. Ramachandran, learned senior counsel for the
respondent(s).
9. The main contention raised on behalf of the appellant is that the
bid which was submitted by the appellant in respect of bid No. 2 was on
the basis of the commitment given to it by the GMDC that it will supply
the coal. It is submitted that the PPA executed between the appellant
and the procurer was on the premise that the GMDC would abide by its
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commitment. It is also submitted that since the GMDC had failed to
abide by its commitment and had not executed the FSA with the appellant,
there was a non-compliance with the conditions stipulated in Article 3.1.2
of the PPA and therefore the appellant was entitled to terminate the
agreement, by giving 7 days notice in writing in accordance with the
provisions of Article 3.4.2 of the PPA. So the only liability of the appellant
was to pay the liquidated damages at the rate of Rs. 10 lakhs per Mega
Watt of the contracted capacity, which is worked out to Rs. 100 crores
for 1000 MW.
10. It is the submission of Mr. Jain, learned senior counsel, that
the Commission and the Appellate Tribunal have grossly erred in holding
that unless there was an agreement between the parties to the effect
that there was non-compliance with the conditions mentioned in Article
3.1.2 of the PPA, the appellant was not entitled to invoke the provisions
of Article 3.4.2 of the PPA. Mr. Jain further submitted that since the
contract also provided for liquidated damages, the Commission as well
the Appellate Tribunal, ought not to have given a direction for specific
performance. Reliance in this respect is placed on the judgments of this
Court in the case of Indian Oil Corporation vs. Amritsar Gas Services
Ltd., (1991) 1 SCC 533 and Her Highness Maharani Shanti Devi
Gaekwad vs. Savji Haribhai Patel & Ors. (2001) 5 SCC 101.
11. Mr. Jain further submitted that the Appellate Tribunal by the
impugned judgment has varied the terms of the contract executed between
the parties, which is not permissible in law. Reliance in this respect is
placed on the judgments of this Court in the case of Vermagiri vs.
Transco, 2007 SCC On Line APTEL 107 and Gujarat Urja Vikas Nigam
Ltd. vs. Solar Semiconductor Power Company, (2017) 16 SCC 498.
12. Per contra, Mr. Ramachandran, learned senior counsel
appearing on behalf of the procurer, would submit that the PPA which
was entered into between the parties, was not executed on the basis of
commitment by the GMDC. He submits that the procurer is not concerned
with the issue as to from where the appellant would arrange for its
supply of coal. The PPA between the appellant and the procurer is only
in respect of supply of power. It is submitted that on the GMDC's failure
to adhere to its commitment to supply indigenous coal, it was the
responsibility of the appellant to make arrangement for an alternative
source and to enter into FSA with any other coal supplier. It is submitted
that as a matter of fact, the appellant is importing the coal from other
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nations and using it for generation of power, both for the plant under bid
No. 1 and the plant under bid No. 2. Shri Ramachandran, learned senior
counsel, further submits that, by not making arrangements for fuel supply,
it is the appellant who had committed default and, therefore, a party in
default cannot be permitted to terminate the agreement. Reliance in this
respect is placed on various judgments of English Courts as well as this
Court. Reliance is also placed on various judgments of this Court, in
support of the proposition that in spite of the provision of liquidated
damages in the PPA, the courts are not powerless to direct a specific
performance of the contract.
13. Shri Ramachandran further submitted that the contract is
required to be read as a whole and the provisions of the contract cannot
be read in isolation. He, therefore, submits that the Commission as well
as the Appellate Tribunal has rightly held that Article 3.4.2 and Article
14.1 and Article 14.2 have to be read together. Thus, no fault could be
found with the reasoning given by the Commission as well as the Appellate
Tribunal. Learned senior counsel, therefore, submits that the appeal has
no merit and deserves to be dismissed.
14. For appraising the rival submissions it would be necessary to
refer to certain clauses of the PPA:
The relevant part of Article 3 reads thus:
"3. Article 3: CONDITIONS SUBSEQUENT TO BE
SATISFIED BY THE SELLER AND THE
PROCURER
3.1
Satisfaction of conditions subsequent by the Seller
3.1.1
xxx
3.1.2
The seller agrees and undertakes to duly perform and
complete the following activities within (i) Twelve (12)
Months from the Effective Date or (ii) Fourteen (14)
Months from the date of issue of Letter of Intent,
whichever is later, unless such completion is affected
due to the Procurer's failure to comply with its obligations
under this Agreement or by any Force Majeure event or
if any of the activities is specifically waived in writing
by the Procurer :
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i. xxx
ii.the Seller shall have executed Fuel Supply Agreement
and provided the copies of the same to the Procurer."
The relevant part of Article 3.4 reads thus:
"3.4 Consequences of non-fulfilment of conditions under
Article 3.1
3.4.1
 xxx
3.4.2
Subject to Article 3.4.3, if:
(i)
fulfilment of any of the conditions specified in Article
3.1.2 is delayed beyond the period of three (3) Months
and the Seller fails to furnish any additional Performance
Guarantee to the Procurer in accordance with Article
3.4.1 hereof; or
(ii)
the Seller furnishes additional Performance Guarantee
to the Procurer in accordance with Article 3.4.1 hereof
but fails to fulfil the conditions specified in Article 3.1.2
for a period of eight (8) months beyond the period
specified therein, the procurer or the Seller shall have
the right to terminate this Agreement by giving a notice
to the Seller/ Procurer in writing of at least seven (7)
days.
If the Procurer or the Seller elects to terminate this
Agreement in the event specified in the preceding
paragraph of this Article 3.4.2, the Seller shall be liable
to pay to the Procurer an amount equivalent to Rupees
Rs. 10.00 lakhs per MW of the Contracted Capacity as
liquidated damages. The Procurer shall be entitled to
recover this amount of damages by invoking the
Performance Guarantee to the extent of an amount
equivalent to Rupees 10.00 lakhs per MW of the
Contracted Capacity and shall then return the balance
Performance Guarantee, if any, to the Seller. If the
Procurer is unable to recover the said amount or any
part thereof from the Performance Guarantee the
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amount not recovered from the Performance Guarantee,
if any, shall be payable by the Seller to the Procurer
within ten (10) days from the end of eight (8) Months
period from the due date of completion of conditions
subsequent. It is clarified for removal of doubt that this
Article shall survive the termination of this Agreement.
3.4.3In case of inability to the Seller to fulfil the conditions
specified in Article 3.1.2 due to any Force Majeure event,
the time period for fulfilment of the Condition Subsequent
as mentioned in Article 3.1.2, shall be extended for the
period of such Force Majeure event, subject to a
maximum extension period of ten (10) Months,
continuous or non-continuous in aggregate. Thereafter,
this Agreement may be terminated by the Procurer or
the Seller by giving a notice of at least seven (7) days, in
writing to the Other Party."
Since both the Commission and the Appellate Tribunal have
referred to Article 14, we also reproduce the same.
"14. ARTICLE 14 : EVENTS OF DEFAULT AND
TERMINATION
14.1
Seller Event of Default
The occurrence and continuation of any of the following events,
unless any such event occurs as a result of a Force Majeure
Event or a breach by Procurer of their obligations under this
Agreement, shall constitute a Seller Event of Default:
i)
the failure to Commission any Unit by the date falling
twelve (12) Months after its Scheduled Commercial
Operation Date, or
ii)
after the commencement of construction of the Project,
the abandonment by the Seller or the Seller's
Construction Contractors of the construction of the
Project for a continuous period of two (2) Months and
such default is not rectified within thirty (30) days from
the receipt of first notice from the Procurer in this regard,
or
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iii)
if at any time following a Unit being Commissioned and
during its retest, as per Article 8, such Unit's Tested
Capacity is less than ninety two (92) per cent of its
Rated Capacity, as existing on the Effective Date, and
such Tested Capacity remain below ninety two (92)
percent even for a period of three (3) Months thereafter
and also the Seller is unable to make available the full
Contracted Capacity at the Delivery Point from the
Tested Capacity of the Unit(s) of the Power Station; or
iv)
after Commercial Operation Date of Contracted
Capacity, the Seller fails to achieve Average Availability
of sixty five per cent (65%), for a period of twelve (12)
consecutive Months or within a non-consecutive period
of twelve (12) Months within any continuous aggregate
period of thirty six (36) Months, or
v)
the Seller fails to make any payment (a) of an amount
exceeding Rupees One (1) Crore required to be made
to Procurer under this Agreement, within three (3)
Months after the Due Date of an undisputed invoice /
demand raised by the Procurer on the Seller or (b) of
an amount upto Rupees One (1) Crore required to be
made to Procurer under this Agreement within six (6)
Months after the Due Date of an undisputed invoice /
demand, or
vi)
any of the representations and warranties made by the
Seller in Schedule 10 of this Agreement; being found to
be untrue or inaccurate. Further, in addition to the above,
any of the undertakings submitted by the Seller at the
time of submission of the Bid being found to be breached
or inaccurate, including but not limited to undertakings
from its parent company/affiliates related to the
minimum equity obligation; Provided however, prior to
considering any event specified under this sub-article
to be an Event of Default, the Procurer shall give a
notice to the Seller in writing of at least thirty (30) days,
or
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vii)
if the Seller :
a) assigns or purports to assign any of its assets or
rights in violation of this Agreement; or
b) transfers or novates any of its rights and / or
obligations under this agreement, in violation of this
Agreement; or
viii)
if (a) the Seller becomes voluntarily or involuntarily the
subject of any bankruptcy or insolvency or winding up
proceedings and such proceedings remain uncontested
for a period of thirty (30) days, or (b) any winding up or
bankruptcy or insolvency order is passed against the
Seller, or (c) the Seller goes into liquidation or dissolution
or has a receiver or any similar officer appointed over
all or substantially all of its assets or official liquidator is
appointed to manage its affairs, pursuant to Law, except
where such dissolution or liquidation of the Seller is for
the purpose of a merger, consolidation or reorganization
and where the resulting entity has the financial standing
to perform its obligations under this Agreement and
creditworthiness similar to the Seller and expressly
assumes all obligations of the Seller under this
Agreement and is in a position to perform them; or
ix)
the Seller repudiates this Agreement and does not rectify
such breach even within a period of thirty (30) days
from a notice from the Procurer in this regard; or
x)
except where due to Procurer's failure to comply with
its material obligations, the Seller is in breach of any of
its material obligations pursuant to this Agreement or of
any of the RFP Documents where the Procurer and
Seller are parties, and such material breach is not
rectified by the Seller within thirty (30) days of receipt
of first notice in this regard given by the Procurer to the
Seller;
xi)
the Seller fails to complete/fulfill the activities /conditions
specified in Article 3.1.2, beyond a period of 8 Months
from the specified period in Article 3.1.2 and the right
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of termination under Article 3.4.2 is invoked by the
Procurer; or
xii)
any direct or indirect change in the shareholding of the
Seller in contravention of the terms of the Bid RFP
Documents; or
xiii)
The Seller fails to provide additional bank guarantee to
the Procurer in accordance with Article 3.4.1 of this
Agreement, or
xiv)
Occurrence of any other event that is specified in this
Agreement to be a material breach / default of the Seller.
14.2
Procurer Event of Default
The occurrence and the continuation of any of the following
events, unless any such event occurs as a result of a Force
Majeure Event or a breach by the Seller of its obligations under
this Agreement, shall constitute the Event of Default on the
part of the Procurer:
i)
the Procurer fails to pay (with respect to a Monthly Bill
or a Supplementary Bill) an amount exceeding 15% of
the most recent undisputed Monthly Bill for a period of
ninety (90) days after the Due Date and the Seller is
unable to recover the amount outstanding to the Seller
through the Collateral Arrangement and Letter of Credit;
or
ii)
the Procurer repudiates this Agreement and does not
rectify such breach even within a period of thirty (30)
days from a notice from the Seller in this regard; or
iii)
except where due to any Seller's failure to comply with
its obligations, the Procurer is in material breach of any
of its obligations pursuant to this Agreement or of any
of the RFP Documents where the Procurer and the
Seller are Parties, and such material breach is not
rectified by the Procurer within thirty (30) days of
receipt of notice in this regard from the Seller to the
Procurer; or
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iv)
any representation and warranties made by any of the
Procurer in Schedule 9 of this Agreement being found
to be untrue or inaccurate. Provided however, prior to
considering any event specified under this sub-article
to be an Event of Default, the Seller shall give a notice
to the concerned Procurer in writing of at least thirty
(30) days; or
v)
if (a) the Procurer becomes voluntarily or involuntarily
the subject of any bankruptcy or insolvency or winding
up proceedings and such proceedings remain
uncontested for a period of thirty (30) days, or (b) any
winding up or bankruptcy or insolvency order is passed
against the Procurer, or (c) the Procurer goes into
liquidation or dissolution or has a receiver or any similar
officer appointed over all or substantially all of its assets
or official liquidator is appointed to manage its affairs,
pursuant to Law, except where such dissolution or
liquidation of the Procurer is for the purpose of a merger,
consolidation or reorganization and where the resulting
entity has the financial standing to perform its obligations
under this Agreement and has creditworthiness similar
to the Procurer and expressly assumes all obligations
of the Procurer under this Agreement and is in a position
to perform them; or;
vi)
occurrence of any other event which is specified in this
Agreement to be a material breach or default of the
Procurer.
14.3
Procedure for cases of Seller Event of Default
14.3.1 Upon the occurrence and continuation of any Seller
Event of Default under Article 14.1, the Procurer
shall have the right to deliver to the Seller a
Procurer Preliminary Default Notice, which shall
specify in reasonable detail, the circumstances
giving rise to the issue of such notice.
14.3.2 Following the issue of Procurer Preliminary
Default Notice, the Consultation Period of ninety
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(90) days or such longer period as the Parties
may agree, shall apply.
14.3.3 During the Consultation Period, the Parties shall,
save as otherwise provided in this Agreement,
continue to perform their respective obligations
under this Agreement.
14.3.4 After a period of seven (7) days following the
expiry of the Consultation Period and unless the
Parties shall have otherwise agreed to the contrary
or the Seller Event of Default giving rise to the
Consultation Period shall have been remedied and,
(a) in case the Contracted Capacity from a Power
Station is less than 50% of the installed
capacity of such Power Station, the Procurer
may terminate this Agreement. Provided such
seller shall have the liability to make payments
for Capacity Charges based on Normative
Availability to the Procurer for the period three
(3) years from the eighth day after the expiry
of the Consultation Period. Provided further
that at the end of the three year period, this
Agreement shall automatically terminate and
thereafter, the Seller shall have no further
Capacity Charge liability towards the
Procurer.