# NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER CORPORATION LIMITED (PSPCL) & ANR

- **Citation:** [2017] 14 S.C.R. 301
- **Court:** Supreme Court of India
- **Decided:** 2017-10-05
- **Case number:** Civil Appeal No. 179 of2017
- **Bench:** R. F. Nariman, Sanjay Kishan Kaul
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/nabha-power-limited-npl-v-punjab-state-power-corporation-limited-pspcl-anr-31974
- **Pages:** 46

## Headnote

Contract:
Commercial contract - Interpretation of - Power Purchase
Agreement - Energy Charge Formula - Procurement route wav 'fuel
specific' having 'a pre-identified site' - The procurer-respondent
arranged the fuel (coal) and specified the site location for the project
A
B
c
- Energy charges were designed to vary in accordance with the
actual cost of coal and the actual quality of coal - Procurer was
D
responsible for co~·t of coal and quality of coal i.e. Gross Calorific
Value (GCV) of coal - It was clarified by the procurer that the 'coal'
to be supplied for the project would be 'washed coal' - The procurer
deducted certain components of monthly tariff i.e. component of
cost of purchasing coal comprising washing related costs;
E
consideration of mid-point GCV of ROM coal on equilibrated GCV
basis·(EGCV) to calculate energy charges; denying of road
transportation cost at the plant-end and at the mine-end; and
denying the Liasing charges, transit and handling losses and denying
third party coal testing charges etc. - Appellant filed petition before
State Commission challenging the deductions - State Commission
F
dismissed the petition - Appellate Tribunal rejected the appeal on
most of the grounds - On appeal. held: Normally a contract should
be read as it reads. as per its express terms - The explicit terms are
the final word with regard to the. intention of the parties - Reading
an implied condition into the contract is necessitated only when
G
penta-test comes into play - There has to be a strict necessity for it
- A multi-clause contract inter-se the parties has to be understood
and interpreted in a manner that any view, on a particular clause
· of the contract, should ·not do violence to another part of the
contract - In the present case, the Court has read the contract (Power
301
H
302
SUPREME COURT REPORTS
[2017] 14 S.C.R.
A Purchase Agreement) only in the manner it reads - Energy Charge
Formula alone would have to be referred to for the purposes of
calculation of the coal price - The principle of 'business efficacy'
would also require the court to read 'Monthly Energy Charges'
formula in a manner as would be normally understood - Reference
B to coal in the formula would be only a reference to 'washed' coal
and not to 'unwa~hed' coal - The prior activity of 'washing· before
receiving the coal at the project site would be part of the pricing of
coal and cost of purchasing the same - The transportation costs to
the project site have to be compensated - It is not qualified by
methodology of transfer i.e. railway or road and therefore appellant
C is entitled to it - The Calorific Value of coal has to be determined at
project-site and not at the mine-site - Appellant is not entitled to
any other charges as the formula contains only three elements and
no other element other than those would form part of the formula -
Rules of Interpretation - Principle of 'Reddendo Singula Singzilis'
D
- Electricity Act, 2003 - ss. 63 - Electricity.
Partly allowing the appeal, the Court
HELD: 1.1 Parties- indulging in commerce, act in a
commercial sense. It is this ground rule which is the basis of The
Moorcock test of giving 'business efficacy' to the transaction, as
E
must have been intended at all events by both business parties.
F
G
H
The development oflaw saw the 'five condition test' for an implied
condition to be read into the contract including the 'business
efficacy' test. It also sought to incorporate 'The Officious
Bystander Test'. This test required the requisite conditions to
be satisfied: (1) reasonable and equitable; (2) necessary to give
business efficacy to the contract; (3) it goes without saying, i.e.,
The Officious Bystander Test; (4) capable of clear expression;
and (5) must not contradict a_ny express term of the contract.
[Para 49)(338-G-H; 339-A-C]
Life Corporation of India & Anr. v. Dharam Vir Anand
(1998) 7 SCC 348 : [1998] 2 Suppl. SCR 295; Mis.
Dhanrajamal Gobindram v. Mis. Shamji Kalidas and
Co. [1961] 3 SCR 102

## Text

_Characters 0–39,981 of 105,409. This is a partial read: ask again with offset=39981 for what follows._

[2017] 14 S.C.R. 301
NABHA POWER LIMITED (NPL)
v.
PUNJAB STATE POWER
CORPORATION LIMITED (PSPCL) & ANR.
(Civil Appeal No. 179 of2017)
OCTOBER 05, 2017 .
[R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.)
Contract:
Commercial contract - Interpretation of - Power Purchase
Agreement - Energy Charge Formula - Procurement route wav 'fuel
specific' having 'a pre-identified site' - The procurer-respondent
arranged the fuel (coal) and specified the site location for the project
A
B
c
- Energy charges were designed to vary in accordance with the
actual cost of coal and the actual quality of coal - Procurer was
D
responsible for co~·t of coal and quality of coal i.e. Gross Calorific
Value (GCV) of coal - It was clarified by the procurer that the 'coal'
to be supplied for the project would be 'washed coal' - The procurer
deducted certain components of monthly tariff i.e. component of
cost of purchasing coal comprising washing related costs;
E
consideration of mid-point GCV of ROM coal on equilibrated GCV
basis·(EGCV) to calculate energy charges; denying of road
transportation cost at the plant-end and at the mine-end; and
denying the Liasing charges, transit and handling losses and denying
third party coal testing charges etc. - Appellant filed petition before
State Commission challenging the deductions - State Commission
F
dismissed the petition - Appellate Tribunal rejected the appeal on
most of the grounds - On appeal. held: Normally a contract should
be read as it reads. as per its express terms - The explicit terms are
the final word with regard to the. intention of the parties - Reading
an implied condition into the contract is necessitated only when
G
penta-test comes into play - There has to be a strict necessity for it
- A multi-clause contract inter-se the parties has to be understood
and interpreted in a manner that any view, on a particular clause
· of the contract, should ·not do violence to another part of the
contract - In the present case, the Court has read the contract (Power
301
H
302
SUPREME COURT REPORTS
[2017] 14 S.C.R.
A Purchase Agreement) only in the manner it reads - Energy Charge
Formula alone would have to be referred to for the purposes of
calculation of the coal price - The principle of 'business efficacy'
would also require the court to read 'Monthly Energy Charges'
formula in a manner as would be normally understood - Reference
B to coal in the formula would be only a reference to 'washed' coal
and not to 'unwa~hed' coal - The prior activity of 'washing· before
receiving the coal at the project site would be part of the pricing of
coal and cost of purchasing the same - The transportation costs to
the project site have to be compensated - It is not qualified by
methodology of transfer i.e. railway or road and therefore appellant
C is entitled to it - The Calorific Value of coal has to be determined at
project-site and not at the mine-site - Appellant is not entitled to
any other charges as the formula contains only three elements and
no other element other than those would form part of the formula -
Rules of Interpretation - Principle of 'Reddendo Singula Singzilis'
D
- Electricity Act, 2003 - ss. 63 - Electricity.
Partly allowing the appeal, the Court
HELD: 1.1 Parties- indulging in commerce, act in a
commercial sense. It is this ground rule which is the basis of The
Moorcock test of giving 'business efficacy' to the transaction, as
E
must have been intended at all events by both business parties.
F
G
H
The development oflaw saw the 'five condition test' for an implied
condition to be read into the contract including the 'business
efficacy' test. It also sought to incorporate 'The Officious
Bystander Test'. This test required the requisite conditions to
be satisfied: (1) reasonable and equitable; (2) necessary to give
business efficacy to the contract; (3) it goes without saying, i.e.,
The Officious Bystander Test; (4) capable of clear expression;
and (5) must not contradict a_ny express term of the contract.
[Para 49)(338-G-H; 339-A-C]
Life Corporation of India & Anr. v. Dharam Vir Anand
(1998) 7 SCC 348 : [1998] 2 Suppl. SCR 295; Mis.
Dhanrajamal Gobindram v. Mis. Shamji Kalidas and
Co. [1961] 3 SCR 1020; The Union of India v. Mis.
D.N. Revri & Co. and Ors. (1976) 4 SCC 147 : [1977)
1 SCR 483; Satya Jain (Dead) Through LRs. and Ors.
NABHA POWERLIMITED (NPL) v. PUNJAB STATE POWER
CORPORATION LIMITED (PSPCL)
v. Anis Ahmed Rushdie (Dead) Through LRs. and Ors.
(2013) 8 SCC 131 : (2013) 3 SCR 319 - relied on.
The Moorcock (1889) 14 PD· 64; Shir/aw v. Southern
Foundries (1926) L.D. (1939) 2 KB 206; Reigate v.
Union Manufacturing Co. (Ramsbottom) Ltd. (1918) 1
K.B. 592; Liverpool City Council v. Irwin (1976) Q.B.
319; Liverpool City Council v. Irwin /H.L.(E.)] (1976)
2 WLR 562; Shell UK. Ltd. v. Lostock Garage Ltd.
(1976) 1 WLR 1187; B.P. Refinery (Westernport)
Proprietary Limited v. The President Councillors and
Ratepayers of the Shire of Hastings (1977) UKPC 13;
. Investors Compensation Scheme Ltd. v. West Bromwich
Building Society (1998) 1 All ER 98; Attorney General
of Belize and Ors. v. Belize Telecom Ltd. and Anr. (2009)
1 WLR 1988 - referred to.
303
A
B
c
1.2 However, the explicit terms of a contract are always
the final word with regard to the intention of the parties. The D
multi-clause contract inter se the parties has, thus, to be
understood and interpreted in a manner that any view, on a
particular clause of the contract, should not do violence to another
part of the contract. [Para 49][339-D]
l.3 It should certainly not be an endeavour of commercial
E
courts to look to.implied terms of contract. In the current day
and age, making of contracts is a matter of high technical expertise
with legal brains from all sides involved in the process of drafting
a· contract. Jt ·is even preced'ed by opportunities of seeking
clarifications and doubts so that the parties know what they are
F
getting into. Thus, normally a contract should be read as if reads,
as per its express _terms. The implied terms is a concept, which
'is necessitated only when the Penta-test comes into play. There
has to be a strict necessity for it. In the present case, the Court
has only read the contract in the manner it reads. The Court has
not really read into it any 'implied term' but from the collection
G
of clauses, come to a conclusion as to what the contract says.'
The formula- for energy charges was quite clear. The Court has
only expounded it in accordance to its natural grammatical contour,
keeping in mind the nature of the contract. [Para 72][346-C-E]
H
304
SUPREME COURT REPORTS
[2017] 14 S.C.R.
A
2.1 In the present case, in view of the specific formula
provided for calculation of energy charges, only three aspects
relatable to coal would determine the particular co-efficient; i.e.,
(a) purchasing; (b) transporting; and (c) unloading the coal. These
three expressions are thereafter followed by the stipulation that
B
the coal has to be recently supplied "to and at the project." The
word 'to' obviously would have reference to transporting whHe
the word 'at' would have relationship with unloading since it would
be 'transporting to' and 'unloading at'. Any .other construction
will fail to make grammatical sense. Not only that, all the three,
i.e., purchasing, transporting and unloading, have a reference to
C "the Project." Thus, the definition of Fc0A\ is the weighted
average actual cost incurred by the appellant of purchasing the
coal and transporting it to the project site and thereafter unloading
the coal at the project site. The fact that the property in coal ·
passed on to the appellant vis-a-vis SECL, on delivery being
0
taken at the mine-end would not change the definition of coal
pricing as is required for the purposes of calculation of the tariff.
[Paras. 53, 54)(341-A, C-E]
2.2 The principle of Reddendo Singula Singulis is where a
complex sentence has more than one subject, and more than one
object, it may be the right construction to render each to each, by
E
reading the provision distributively and applying each object to
its appropriate subject. A similar principle applies to verbs and
their subjects, and to other parts of speech." The Court has also
endeavoured to read the provision distributively, by applying each
object, to the appropriate subject. Thus, the relevant preposition
F
has been applied to the relevant activity. (Paras 56, 58) [342-E-F]
G
H
Koteswar Vittal Karnath v. K. Rangappa Ba/ia & Co.
(1969) 1 SCC 255 : (1969) 3 SCR 40 - relied on.
M'Neill v. Crommelin (1858) 9 Ir CLR 61 - referred
to.
'Principles of Statutory Interpretation' by .Justice G.P.
Singh; OSBORNE: Concise Law Dictionary, p. 269;
.WHARTON: Law Lexicon, 14'h Edition, p. 850 -
referred to.
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER
305
.
CORPORATIONLIMITED(PSPCL)
2.3 The prior activity of 'washing', before receiving the A
coal at the project site would be part of the pricing of coal and
cost of purchasing the same. The appellant did seek to obtain
clarity on the issue of the qu\}lity of coal to be used, to which the
first respondent did answer that it would have to be 'washed'
coal. In fact, this was in conformity with the Notification issued B
by the MoEF since the travel distance was more than 1,000
kilometers. The reference to coal in the formula would, thus, be
only a reference to 'washed' coal and not to 'unwashed' coal.
[Para 59)(342-G; 343-A-B]
2.4 The fact that the clarification made it clear that the
appellant had to "arrange" the washing of coal, did not imply that c
the cost of washing the coal had to be borne by the appellant, as
the energy charge formula alone would have to be referred to for
the purposes of calculation of the coal price. The operating cost
in clause 2.7.1.4(3) of the RFP would refer to the activities
mentioned. therein and the operation and maintenance of the D
power plant which would not alter the formula of the energy
charges which contains the cost of coal. The principle of 'business
efficacy' would also require the Court to read the 'Monthly Energy
Charges' formula in a manner as would be normally understood.
[Para 61}(343-D-F] ·
2.5 As regards the the transportation cost, once again, what
is sought to be excluded is taking the coal for 'washing' as well
as the last mile to the project, on account of the Railway siding
not being located at the project site for a certain specified period
of time. It is for that period of time that the actual transportation
cost, through road is sought to be recovered. by the appellant.
These··costs cannot be excluded, as the transportation costs to
the project site have to be compensated to the appellant. It is
not qualified by the methodology of transfer, i.e., railways or road.
E
F
It is also a matter of necessity, since the railway siding had not
reached the project site due to some complications in acquisition
G
of land. It is really the transportation cost from point to point
which would be involved and the mere mention in the RFP under
project related activity/milestone about Railway siding and the
Railway lines from nearby station to site cannot imply that the
Railways is the only mode of transportation when the siding has
H
306
SUPREME COURT REPORTS
[2017] 14 S.C.R.
A not been made, albeit on account of land acquisition problems.
[Paras 63, 64)(343-H; 344-A-C]
2.6 So far the dispute regarding the Gross Calorific Value
(GCV) of the coal is concerned, if the issue is one of SECL billing
for higher Calorific Value while actually supplying a low Calorific
B Value of coal, that would be a matter between the appellant and
the SECL and the first respondent cannot be blamed for the same.
That does not take away from the application of the formula for
energy charge which provides for PCV
0 as the weighted average
Gross Calorific Value delivered to the project. This Calorific
C Value of coal would have to be, thus, on the same parameter
determined at the project site. [Para 66)(344-F-G]
2.7 Delivery 'to the prttject' could only mean 'at the site of
the project'. It cannot be at the mine site. In fact, this is a
fundamental issue where the first respondent seems to be altering
the basic concept of the formula by seeking to replace the
D wordings in the formula relatable to the project-site to the minesite. Thus, the point at which the Calorific Value of the coal is to
be measured is at the project-site. The plea of the first respondent
that there is no such methodology of measuring the Calorific Value
at the project-site is belied by the sample reports of different
E financial years filed by the appellant along with the synopsis, which
itselfreferred to the joint sampling and testing of the coal received
and is duly signed by both sides. Thus, the reading of the energy
formula leads to only one conclusion that all costs of coal up to
the point of the project site have to be included and the Calorific
F
Value of the coal has to be taken as at the project-site. [Paras
67,68 and 69)(345-A-D)
2.8 There are certain other essential costs sought to be
claimed by the appellant such as the transit and handling losses,
third party testing charges, liaising charges. Since the formula
contains only three elements and thus, the appellant cannot be
G p_ermittcd to plead that any other clement, other than those would
'.llso incidentally form a part of the formula. In fact, such claims
would be hit by RFP clause 2.7.1.4(3) and the energy charges
have to be calculated only on the basis of the formula understood
in a business sense. Thus, these claims are rejected. [Para
H 70)(345-E-F]
NABHA POwER LIMITED (NPL) v. PUNJAB STATE POWER
307
CORPORATION LIMITED (PSPCL).
2.9 So far as claim for interest is concerned, no such claim A
has been laid so far, at any stage. No doubt there is a provision
for a late payment surcharge in the event of delay in payment of a
monthly bill but in the present case, it is not as if there are
undisputed bills remaining unpaid. There were serious disputes
regarding the interpretation of the contractual clauses itself. . B
Present case is a fit case, where the principle of compensation
for deprivation should enure for the benefit of the appellant as a
measure of restitution. More so as it has not been claimed by
them at any stage. [Para 71][345-G-H; 346-A]
2.10 Thus, the appellant is entitled only to the washing cost C
of coal, the transportation from the mine site via washing of coal
to the project site inclusive of cost of road transportation for the
period where it was necessary. The Calorific Value of the coal
would have to be taken at the project site. All other claims in
appeal stand rejected. [Para 73][346-F-G]
Case Law Reference
[1998] 2 Suppl. SCR 295
relied on
Para 29
[1961 J 3 SCR 1020
relied on
Para 46
(19771 1 SCR 483
relied on
Para47
(2013] 3 SCR 319
relied on
Para 48
(1969] 3 SCR 40
relied on
Para 57
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 179 of
2017.
D
E
From the Judgment and Order dated 14.12.2016 of the Appellate
F
Tribunal for Electricity at New Delhi (APTEL) in Appeal No. 64 of
2016.
Mukul Rohatgi, C. S. Vaidyanathan, Sr. Advs., Aniket Prasoon,
Hemant Sahai, Mahesh Agarwal, Abhishek Kumar, Parul Shukla, Ms.
Sadapurna Mukherjee, Ms. Nisha Rohtagi, E. C. Agrawala, Advs. for
G
the Appellant.
. V. Giri, Sr. Adv., Ms. Swapna Seshadri, Nikunj Dayal, Pramod
Dayal, Ms. Payal Dayal, Anand K. Ganesan, Ms. Neha Garg, Sakesh
Kumar, Ms. Charu Singhal, Karunakar Mahalik, Advs. for.the
Respondents.
H
308
SUPREME COURT REPORTS
[2017] 14 S.C.R.
A
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
Facts:
1. The Punjab State Electricity Board ('PSEB') in the year 2009
B conducted an international competitive biddingfor selection of developer
through tariff based bidding process for procurement of power on long
term basis from a power station to be set up at Village Nalash, Ra:jpura,
District Patiala, Punjab. This power station was envisaged as a Casc-2
bid project (Case-2, Scenario-4) criteria by PSEB in terms of the
competitive bidding guidelines issued by the Government of India as per
C Section 63 of the Electricity Act, 2003 (hereinafter referred to as the
'EA').
2. The significance of the aforesai~ is that Part-7 of the EA, which
contains the provisions for tariff, provides for tariff regulations to be
determined by the appropriat~ commission as per guiding principles set
D out in the Section of the EA. The tariff is determined under Section 62
of the EA. However in a scenario such as the present case, the
detennination is as per the provisions of Section 63 of the EA, which
reads as under:
"Section 63. Determination of tariff by bidding process. -
E
Notwithstanding anything contained in section 62, the Appropriate
Commission shall adoptthe tariff if such tariffhas been determined
through transparent process of bidding in accordance with the
guidelines issued by the Central Government." ·
3. In order to facilitate the implementation of the project the PSEB
F
incorporated Nabha Power Limited ('NPL/Appellant') on 9.4.2007 as a
special purpose vehicle ('SPV') for implementation of the project and
the successful bidder was to acquire 100 per cent shareholding of the
NPL and enter into a 25 year Power Purchase Agreement ('PPA') with
PSEB.
G
4. It may be noticed for the purpose of completion of facts that
H
the first respondent, Punjab State Power Corporation Limited, (' PSPCL')
is the successor entity of the erstwhile PSEB subsequent to the unbundling
of PSEB in accordance with the Punjab Power Sector Refonns Transfer
Scheme, 2010, while the second respondent is the Punjab State Electricity
Regulatory Commission ('PSERC').
NABHAPOWER LIMITED (NPL) v. PUNJAB STATE POWER
309
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN KAUL, .T.]
5. On 10.6.2009, a Request for Qualification ('RFQ') and a A
Request for Proposal ('RFP') inviting proposals to supply 1200 MW of
power from the Rajpura Thermal Power Project was issued. The RFQ
specified that the followingtash had already been completed:
"i. 1078 acres ofland had been acquired.
ii. Environmental clearance had been obtained.
iii. Fuel arrangements had been tied up in the form ofLoA dated
11/18.12.2008.
· iv. Water arrangement had been tied up."
While the RFP specifically provided that:
"i. The source of primary fuel (coal) would be coal frort1 SECL
since SECL had already issued the LoA.
ii. The Railways had given assurance for transportation of coal
from SECL over a distance of 1600 km."
6. On the bidding document being issued on 16.9.2009, certain
queries and clarifications were raised by the prospective bidders in terms
of the bidding documents for which clarifications were issued. The
significant clarifications qua the matter at hand; noticed even in the
impugned order, arc as under:
"i. SECL would supply Grade 'F' coal from KorbafRaigarh field,
with GCV of 3900 Kcal/kg to 4260 Kcal/kg, Ash Content of 3 5%
to 40%, total inherent moisture of 5% to 6%, Volatile matter of
24% to 32°/.,, fixed carbon of32% to 37% and Sulphur content of
0.05%.
ii. On a specific query of whether the coal to be supplied wotild
be washed coal or unwashed coal, it was clarified that washing of
coal was to be arranged by the successful bidder.
iii. In response to the queries raised by the bidders, clarifications
B
c
D
E
F
on the model PPA were also issucdon 17.09.2009. On the question
G
of the costs associated with fuel supply, transportation and
unloading being pass through, it was clarified that tariff payment
will be in accordance with Schedule VII of the PPA."
7. On the bidding process being completed, Mis. L&T Power
Development Limited ('L&T PDL') was declared as the successful
H
310
SUPREME COURT REPO~TS
[2017] 14 S.C.R.
A
bidder and a Letter oflntent was issued on 19.11.2009. Thereafter on
18.1.2010, a Share Purchase Agreement ('SPA') was entered into
between PSEB and L&T PDL, transfemng 100 per cent of the shares
ofNPL to L&T PDL. Simultaneously the PPA was entered into between
PSEB and NPL. The contractual obligation began of the respective
B
parties.
8. ln the course of the contractual obligations, various issues arose,
some of which were resolved. However, in respect of the amounts
payable to the appellant, the controversy commenced, and remained
right from the first invoice. It is the case of the appellant, that the first
C
respondent made deductions from the amount due and payable under
the invoices, on the following accounts:
"i. Component of the cost of purchasing coal comprising washing
related costs including washery charges and cost of coal towards
loss of quantity on account of washing (yield loss~;
D
ii. Consideration of mid-point ofGCV ofROM coal on equilibrated
acy basis ('EGCV') to calculate energy charges;
iii. Denial of road transportation cost- at the plant-end and at the
mine-end.
iv. Denial ofLiaising charges, denial ofTransit and handling losses
E
and denial of Third party coal testing charges; and
v~ Non-payment of Capacity Charges for the period from
20.02.2014 to 03.03.2014 when the availability was declared on
non-linkage (alternate) coal."
F
9. The aforesaid gave rise to a cause for the appellant to file
Petition No.52 of2014 under Section 86(l)(b) & (f) of the EA beforethe State Commission seeking relief on account of wrongful deduction
of certain components of month! y tariff by the first respondent. The
State Commission, post admission, dismissed this petition vide order dated
1.2.2016. The appellant, thus, filed Appeal No.64 of 2016 before the
G
Appellate Tribunal ('AT'). The appeal was, however, rejected vide order
dated 14.12.2016 on most giounds except the non-payment of capacity
charges allowed in favour of the appellant. It may be noticed that in the
course of the appeal various questions oflaw were framed but ultimately
the same were restricted only to five issues.
H
•1
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER
311
CORPORATIONLIMlTED(PSPCL)[SANJAYKISHANKAUL,J.]
10. The dispute really is about the interpretation of the provisions
A
of the PPA dated 18. L2010 and is, thus, one of pure interpretation of the
terms of the contract.
The plea o(the Appellant:
11. Mr. Mukul Rohatgi, learned Senior Advocate, argued on behalf
of the appellant. Mr. Rohatgi contended that the significant aspect is
B
that the bidding process for the power project was in terms of the
"Guidelines for Determination of Tariff by Bidding Process for
Procurement of Power by Distribution Licensees, 2005" (hereinafter
referred to as the 'Guidelines'), which have a statutory flavor under
Section 63 of the EA. Para 2.2 read with para 3.2(i) of the Guidelines c
envisages two routes of competitive bidding, Case-I and Case-2. The
. said paras read as under:
.,
,,
"2.2. The guidelines shall apply for procurement of base-load,
peak-load and seasonal power requirements through competitive
bidding, through the following mechanisms:
D
(i) Where the location, technology, or fuel is not specified by
the procurer (Case 1 );
·(ii) For hydro power projects, load center projects or other
location, specific projects with specific fuel allocation such as
captive mines available, which the procurer intends to set up
E
under tariff based bidding process (Case-2).
However separate RFP shall be used for procuring base load or
peak load or seasonal load req.uirements as the case may be."
F
"3.2 (i) In order to ensure timely commencement of supply of
electricity being procured and to convince the bidders about the
irrevocable intention tofthe procurer, it is necessary that various
project preparatory activities are completed in time. For long
term procurement for projects for which pre-identified sites are
to be utilized (Case-2), the following project preparatory activities
G
should be completed by the procurer, or authorized representative
of the procurer, simultaneously with bid process adhering to the
milestones as indicated below:
H
312
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SUPREME COURT REPORTS
[2017] 14 S.C.R.
(i) Site identification and land acquisition: If land is required to
be acquired for the power station, the notification under section
4 of the Land Acquisition Act, 1894 should have been issued
before the publication ofRFQ. The notification under section
6 of the Land Acquisition Act, 1894 should have been issued
before the issue of RFP. If the provisions of section 17 of the
Land Acquisition Act, 1894 regarding emergency have not been
applied, the Award under the Land Acquisition Act should have
been declared before the PPA becomes effective.
(ii) Environmental clearance for the power station: Rapid
Environmental Impact Assessment (EIA) report should be
available before the publication ofRFQ. Requisite proposal
for the environmental clearance should have been submitted
before the concerned administrative authority responsible for
according final approval in the Central/State Govt., as the case
may be, before the issue of RFP. Environmental clearance
should have been obtained before PPA becomes effective.
(iii) Forest Clearance (if applicable) for the land for the power
station: Requisite proposal for the forest clearance should have
been submitted before the concerned administrative authority
respopsible for according final approval in the Central/State
Govt., as the case may be, before the issue ofRFP.
(iv) Fuel Arrangements: If fuel linkage or captive coal mine(s)
are to be provided, the same should be available before the
publication ofRFQ. In case, bidders are required to arrange
fuel, the same should be clearly specified in the RFQ.
(v) Water linkage: It should be available before the publication
ofRFQ.
(vi) Requisite Hydrological, geological, meteorological and
seismological data necessary for preparation of Detailed Project
Report (DPR), where applicable. These should be available
before the issue of RFP. The bidder shall be free to verify
geological data through his own sources as the geological risk
would lie with the project developer.
The project site shall be transferred to the successful bidder at a
price to be intimated at least 15 days before the due date for ·
submission of RFP bids."
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER
313
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN KAUL, J. j
12. The essential difference between Case-1 and Case-2 A
procurement route is stated to be that a Case-2 is a 'fuel specific
procurement' having a 'pre-identified site' as in the present case. It is in
these circumstances that the first respondent, being the procurer is stated
to have arranged the fuel linkage from SECL, Chhattisgarh and specified
the site location for the project near Village Na!ash, Tehsi! Rajpura, Punjab.
B
The bidder's responsibility included design, engineering, procurement,
construction, testing, commissioning, financing, operation and maintenance
of the power station. Even under the Case-2 model, there are stated to
be five scenarios, and the bid parameters of each scenario is stated to
be different - the present one being scenario 4. This is stated to be
significant inasmuch as an all-inclusive fixed/capped energy charge was
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not a bidding parameter, and the energy charges were designed to vary
ill accordance with the actual cost of coal, and the actual quality of coal.
The appellant, as bidder, is thus stated to have taken the risk only of one
component of the energy charge formula, befog the efficiency of the
project, and not with respect to other two components, i.e., cost of coal
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and Gross Calorific Value (' GCV') of coal, including its constituents.
This is the reason stated for the relevant formula under Article 1.2.3 of
Schedule 7 of the PPA, which wiil be discussed hereafter.
13. It is the case of the appellant that on 16.9.2009, prior to the bid
date, PSPCL disclosed the coal quality in its pre-bid c.Jarification. The
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project was located at a distance of more than 1,000 kilometers from the
_SECL mine and the coal arranged by the respondent contained more
than 34 per cent ash. The project, thus, came under the ambit of Ministry
of Environment and Forest (for short 'MoEF') Notification of 1997,
making it mandatory for the coal to be washed for the use of generation
of electricity energy. PSPCL, also mandated that washing of coal was
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to be arranged by the successful bidder (pre-bid clarification). The query
raised by the appellant was as to whether the coal to be supplied for the
project, was washed coal or unwashed coal (query N o.6). It is the plea
of the appellant that, thus, the reference to coal and fuel in the PPA;
including the energy charges formula, could only refer to washed coal
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and thus the actual cost of purchasing, transporting and unloading coal
referred to in Article 1.2.3 of Schedule 7 of the PPA, must refer to such
actual cost of washed coal. The PSPCL, however, took a contrary
stand that the term 'washing' is not part of the energy charges formula,
while the appellant sought to include-(A) the actual cost of unwashed
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A coal procured by NPL from SECL, including the cost of coal lost in
washing (around 20 per cent); and (B) washing charges paid for getting
the coal washed. The appellant's stand, thus, is that the clarification that
the successful bidder would have to arrange for washing of coal, would
not imply that the washing cost has to be fastened on to the appellant, as
B in terms of the PPA, the energy charge formula expressly provided for
actual cost incurred, to be reimbursed.
14. The significant contention of the appellant is that the operation
cost mentioned in clause 2.7.1.4(3) of the RFP only referred to the cost
towards operating and maintenance of power plant, and cannot refer to
C any cost associated with the cost of coal, which is a part of the energy
charges.
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15. The appellant also invoked the principle of'business efficacy'
and the maxim 'Reddendo Singula Singu!is · for interpreting the terms
of the PPA and the Energy Charges Formula, as set out at Article 1.2.3
of Schedule 7 of the PPA.
16. The aforesaid is really the major and the first dispute inter se
the parties.
17. The second dispute relates to the GCV of the coal, and is in a
sense, linked to the first dispute. This is so as the PSPCL" takes into
E account the theoretical/Equilibrated GCV2( 'EGCV') of unwashed coal
at the mine-end rather than GCV of washed coal on an As Received
Basis ('ARB') at the project-end as part of PCV" in the Energy Charges
formula. The GCV of the coal is stated to change significantly due to
transportation by rail over a period of 4 to 5 days, as coal contains
moisture. The critical stage is stated to be the measure of GCV when
F the project coal reached the site (from the mine-end in Chhattisgarh to
the project-site at Ra,jpura) when it is stated to be jointly sampled, tested
and recorded by NPL and PSPCL. This is stated to be obvious from the
definition of PCV,,. The joint sampling done at the mines ofSECL is only
of unwashed coal.
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18. The formula, it is pleaded, of Fc0A\ is stated to refer to the
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actual cost of transporting the coal to the project and the actual cost of
unloading at the project. The mere transfer of title of unwashed coal,
which cannot be used in generation of electricity charges is, thus, pleaded
not to imply delivery of coal to the project.
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER
315
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN K{\UL, J.]
19. On the same principle, there is a third aspect of the claim of A
transportation cost of coal with respect to the first mile and the last mile.
The first mile is on account of the unwashed coal from the mine to the
washery, while the fast mile is stated to have been incurred for carriage
of coal from the nearest railway station to the prpject, on account of
incomplete !_and acquisition by the Government of Punjab on behalf of B
the PSPCL. The transportation has to be reimbursed irrespective of
mode. In a Case-2 project, the risk towards land is not assigned to the
bidder but is of the PSPCL.
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20. There arc also certain other linked charges qua coal in the
context of transit and handling charges, third party testing charges and
liaising charges.
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- · 21. In the synopsis filed, the appellant has claimed even interest
on the disputed energy charges in view of Article 11.3 .4 read with Article
11.6.8 requiring payment of interest/late payment surcharge on the
disputed component of the monthly bill from the date on which such
payment was originally due against whom the dispute is settled/decided.
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The absence of a separate prayer for the payment of interest, it has
been pleaded, cannot deny the appellant such benefit which must enure
in case of the appellant succeeding in the adjudication. Also the appellant
having been deprived of the use of money, this deprivation cost should
be compensated with interest/damages. We may note at the end of E
such submissions of the appellant, that along with certain synopsis, some
documents have been filed showing joint sampling in the presence of
NPL and PSPCL representatives for the coal received at the projectsite including coal received after washing, to deny the plea'ofrespondcnt
No. I that such verification was being done only at the mine-site.
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Plea ofthe First Respondent:
22. The first respondent through Mr. V. Giri, learned Senior
-Advocate canvassed that any claim of the appellant relatable to coal has
to be considered in terms of Clause 1.2.3 of Schedule 7 of the PPA. In
terms thereof, there are stated to be only three distinct identifiable
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-components of coal recognized for tariff: (a) Purchase; (b) Transportation
· and ( c) Unloading. Thus, until and unless the claims squarely fall under
Lone of these three hclJ:ds, the same cannot be included in the monthly
energy charges. It is not as if all costs relatable to coal handling from
the stage of procurement from SECL at the coal mine-site, up to stage
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A of firing in the boiler to generate electricity is to be included. Had that
been the intention, the stipulation would have been of actual cost of coal
used for generation of power.
23. The plea raised is that the cost of coal is payable to SECL,
which is provided on actual basis. It was abundantly clear that the coal
B supplied would not be washed coal and the obligation of washing was on .
the appellant. Such washing could have been undertaken either by
establishing a washery, or by outsourcing the washing activity to a third
party. Not only washing, there were certain other essential activities to
be undertaken in relation to coal after the purchase of coal, including
sizing of coal, crushing of coal, sprinkling and moisturisation of.coal for
C stacking and storage, sorting of coal, ash removal, removal of stones
and other undesired contents, demoisturisation of coal, pulverization of
coal, etc. The calculation formula, for monthly energy charges, is claimed
to provide for only the purchase price paid to SECL and not any other
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expenditure incurred by the appellant.
24. The first respondent contends that the definition of the term
'fuel supply agreement' refers to the agreement between the appellant
and the fuel supplier, i.e., SECL, and thus, the transaction of purchase
referred to in Clause 1.2.3 of Schedule 7 of the PPAis identifiable to the
purchase in the definition of the fuel supply agreement.
25. The attention of the Court was also invited to "Project
Documents", which reads as under:
'"'Project Documents" mean
a) Construction Contracts;
b) Fuel Supply Agreements including the Fuel Transportation
Agreement;
c) O&M contracts;
d) RfP and RfP Project Documents; and
e) any other agreements designated in writing as such, from
time to time, jointly by the Procurer and the Seller;"
26. It is, thus, pleaded that there is no separate agreement for
'washing' included in this list of what constituted "Project Documents."
The delivery point under the fuel supply agreement is the loading end of
NABHA POWER LIMITED (NPL) v. PUNJAB STATE.POWER
317
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.]
the colliery whereafter the title and risk of the coal is that of the appellant.
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Thus, the purchase is complete.
27. The burden to obtain any clarification being on the appellant, it
was submitted that the clarification which they actually sought was as to
whether the coal to be supplied would be washed or unwashed, to which
a categorical answer was given. Had the appellant any doubt about
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bearing the cost for the washed coal, they could easily have raised a
specific query in that behalf. This is sought to be read along with Clause
2. 7.1.4 providing for the quoted tariff to be an 'all inclusive tariff' with
no exclusion allowed. Thus, the washing of coal and other activities in
_ relation thereto, are to be included in the quoted tariff, which is as per
unit tariff. The relevant clause, in this regard, reads as under:
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"2. 7 .1.4 The Bidder shall inter alia take into account the following
- while preparing and submitting the financial Bid:
3. The Quoted Tariff in Format I of Annexure 4 shall be an all
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inclusive tariff and no exclusions shall be allowed. The Bidder
shall take into account all costs inCJuding capital and operating
costs, statutory taxes, duties, levies while quoting such tariff.
Availability of the inputs necessary for generation of power should
be ensured by the Seller at the Project Site and all costs involved
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-in procuring the inputs (including statutory taxes, duties, levies
. thereot) at the Project Site must be reflected in the Quoted Tariff."
"6. The Bidders should factor the cost of the secondary fuel into
the Quoted Tariff and no separate reimbursement shall be allowed
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on this account."
28. The first respondent seeks to draw a distinction between the
purchase cost of fuel and the cost of usable fuel for the contention that
it is only the first one which is to be included.
29. On the second issue of GCV, the plea raised is that it is the
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own case of the appellant itself that SECL is actually over stating the
GCV of coal actually supplied. Since the coal is to be jointly analyzed
and tested at the stage of delivery, it is not understood how SECL is
supplying inferior coal but billing for superior coal. In any case, this is an
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[2017] 14 S.C.R.
A issue to be raised with SECL. The formula of energy charges in relation
to GCV, is using the expression the coal delivered "to the project." This
is in contradistinction to the expression "to and at the project" which is
used in relation to the cost of coal. Thus, with these two different
expressions used, they obviously mean two different things. In support
B of his proposition reliance is placed on Life Corporation of India &
Anr. vs. Dharam Jlir Anand1, wherein it was observed as under:
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"6 ...... In construing a particular Clause of the Contract.it is only
reasonable to construe that the word and the terms used therein
must be given effect to. In other words one part of the Contract
cannot be made otiose by giving a meaning to the policy of the
contract. Then again when the same Clause of a contract uses
two different expressions, ordinarily those different expressions
conveying one and the same meaning."
30. Qua the issue of road transportation charges1 a reference has
been made to the RFP where under the heading of"Activities/Milestones
D to be completed before issue ofRfl> as per Bidding guidelines" at serial
No.3 only transportation through Railways has been envisaged:
SI. No.
Project
Paranxtcrs
Status of
Inputs/clearances
activitie:;/milestooes
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3.
Fuel Transportation
For Coal
Railways have given
approx. 1600
assurance for
km
transpcctation of
Coal frcm SECL
31. The land for the Railways siding was to be acquired by the
F bidder (appellant) as per the requirement, and the Government of Punjab
was to facilitate the acquisition ofland. 1078 acres ofland was already
acquired. The relevant extract of the RFP is as under:
B. Other Proiect Related Activities/Milestones
SI.