Gujarat Urja Vikas Nigam Ltd. VERSUS ESSAR POWER LIMITED - 09-08-2016

                                 REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                       CIVIL APPEAL NO. 3455  OF 2010

Gujarat Urja Vikas Nigam Ltd.                         … APPELLANT

                                   VERSUS

ESSAR POWER LIMITED                                         ...RESPONDENT

                               J U D G M E N T

ADARSH KUMAR GOEL, J.

Part I : Introductory

1.     This  appeal  has  been  preferred   under   Section   125   of   the

Electricity  Act,  2003  (‘the  Act’)  against  the   judgment   and   order

       dated 22nd February,  2010  passed  by  the  Appellate  Tribunal  for

Electricity (the Tribunal) in Appeal No.86 of 2009 whereby the Tribunal  has

set aside the order of the Gujarat Electricity Regulatory  Commission  (‘the

Commission’) which was in favour of the appellant.

2.    The substantial question of law sought to be raised by  the  appellant

is :

“Whether the Tribunal has correctly interpreted the terms of Power  Purchase

Agreement dated 30th May, 1996 (PPA)  and  is  justified  in  reversing  the

finding of the Commission based on interpretation of the said PPA and  other

documents on record.?”

Part II : Facts

3.    The appellant, Gujarat Urja Vikas Nigam Ltd.  (‘the  GUVNL’),  is  the

successor of the Gujarat Electricity Board and is a  deemed  licencee  under

Section 2 (39) read with Sections 12 and 14 of  the  Act.   The  respondent,

ESSAR Power Limited (‘the EPL’), is a generation company within the  meaning

of Section 2 (28) of the Act.   The appellant filed a  petition  before  the

Commission under Section 86 (i)(f)  of  the  Act  for  adjudication  of  the

dispute arising out of  the  Power  Purchase  Agreement  (‘the  PPA’).   The

appellant  inter  alia  sought  compensation  for  wrongful  allocation   of

electricity by the EPL to its sister concern,  Essar  Steel  Ltd.  (ESL)  in

preference to the appellant.

4.    According to the appellant, the EPL was required to  allocate  300  MW

out of the total 515 MW of electricity and the remaining 215 MW  was  to  be

allocated to ESL.  In case the quantum of generation was less than  515  MW,

the allocation was to be in the proportion of 300 : 215.  Contrary  to  this

requirement, the EPL allocated more electricity to  ESL.   The  EPL  agreed,

vide letter dated  17.02.2000,  that  the  appellant  will  be  entitled  to

electricity in the proportion of 300 : 215 but the same was not adhered  to.

 This resulted in  loss  to  the  appellant  and  gain  to  the  EPL  which,

according to the appellant,  tentatively  worked  out  to  Rs.476.22  crores

(towards principal amount).   It was further pleaded by the  appellant  that

under the agreement, the appellant  was  liable  to  pay  the  annual  fixed

charges, the variable charges, incentive etc. in relation to  the  allocated

capacity of 300 MW out of total 515 MW.  Similarly, the ESL to whom  balance

capacity of 215 MW was allocated was  to  bear  proportionate  annual  fixed

cost, thus, the EPL was  required  to  make  electricity  available  to  the

appellant in the proportion of 300 : 215 as per clause 3 of  the  Agreement.

The EPL was required to declare the availability in the same  proportion  so

that the dispatch instruction could be issued  as  per  the  Agreement.  The

appellant pleaded that it was entitled to compensation for wrong  allocation

of electricity based on the applicable HT  rate  from  time  to  time.   The

appellant  claimed  damages  equal  to  the  difference  of  rate  at  which

electricity was to be supplied to it and the rate  at  which  the  appellant

was to supply the same to its consumers.  For this purpose,  the  respondent

was liable to give true details and complete account of the allocation  made

to the appellant and to ESL. The appellant  had  also  raised  a  claim  for

recovery of Deemed Generation Incentive paid to the respondent to which  the

respondent was not entitled but the said claim is no longer  subject  matter

of this appeal, the order of the Tribunal  in  that  respect  having  become

final.

5.     It will be appropriate to refer to the prayer clause in the  petition

filed by the appellant :-

      “(a)  hold that the petitioner is entitled to  adjust  in  the  tariff

payable by the petitioner to the respondent for purchase of electricity  all

amounts received by  the respondent as  a  result  of  wrong  allocation  of

electricity; and deemed generation incentive when Naphtha is proposed to  be

used as fuel;

      (b)   award cost of the proceedings in favour of  the  petitioner  and

against the respondent; and

      (c)   pass such other or further orders as may  be  deemed  proper  to

give relief to the petitioner;

      (d)   continue to raise  bills  on  Essar  Group  Companies  based  on

proportionate methodology.”

6.     The  above  claims  were  contested  by  the  respondent   based   on

preliminary objections including the  plea  of  limitation  as  well  as  on

merits.

Part III : Pleadings

7.    As noticed in Para 4 above, the case of the appellant in the  petition

filed before the Commission was that the  respondent  had  wrongly  utilized

the capacity of the generating station in  favour  of  its  sister  concern,

against the rights and interest of the appellant in violation  of  the  PPA,

the  respondent  allocated  part  of  generating  capacity  required  to  be

allocated to the appellant to its sister concern.   The  appellant  had  the

obligation to pay annual fixed charges, variable charges, incentive etc.  in

relation to the specified allocated capacity and the sister concern  of  the

respondent was to  pay  proportionate  annual  fixed  cost.   The  Agreement

required the EPL to declare availability in the  specified  proportion  even

when generation was less than the  total 515 MW capacity.  Contrary  to  the

said requirement, the respondent  allocated  more  electricity  to  ESL  and

offered proportionately less electricity  to  the  appellant.  Thereby,  not

only the agreement was violated,  the  understanding  reflected  in  letters

issued by the respondent  was  also  not  honored.   In  para  23.0  it  was

specifically  mentioned  that  the   appellant   was   entitled   to   claim

compensation for the wrong allocation and in para  24.0,  it  was  mentioned

that the respondent was required to give detailed and  complete  account  of

the allocation made.

8.    As against the  above  stand  of  the  appellant,  the  stand  of  the

respondent in its written submission filed before  the  Commission  on  15th

January, 2009 is that its only obligation was to supply 300 MW to the  Board

as and when called upon to do so.  There was no bar to supply more than  215

MW to ESL.  There is no evidence of any  loss  suffered  by  the  appellant.

Article 3.1 of  the  Agreement  could  not  be  read  as  suggested  by  the

appellant.  Further, if supply  was  below  the  quantum  specified  in  the

dispatch instructions, penalty could be  claimed  as  per  clause  7.4.3  of

Schedule VII of the Agreement.  Further,  the  appellant  was  defaulter  in

complying with its obligations in making timely payment.

Part IV : Finding of the Commission

9.    The Commission upheld the plea of limitation raised by the  respondent

to the extent that the appellant was held entitled to its  claims  only  for

three  years  preceding  the  filing  of  the  petition,  i.e.,  from   14th

September, 2002, the petition having been filed  on  14th  September,  2005.

The Tribunal upheld the said finding.  Though the appellant had filed  Civil

Appeal No.3454 of 2010 on this aspect, the  said  appeal  was  dismissed  by

this Court vide order dated 2nd September, 2011 as follows :

“The      appeal      directed      against     the      decision      dated

22.2.2010      rendered     by      the     Appellate      Tribunal      for

Electricity  in  appeal  No.77/2009  upholding  the  finding  of  the  State

Commission that the claim of the appellant against the  respondent  for  any

period upto 14.9.2002 is barred by  time  except  to  the  extent  of  Rs.64

crores paid by the respondent to the appellant  pursuant  to  the  full  and

final settlement of claims for the period from 1998  upto  September,  2004,

is dismissed.”

10.   The Tribunal also upheld the order of  the  Commission  accepting  the

claim of the appellant under the head of a Deemed Generation  Incentive  and

the respondent has not challenged this aspect.

11.   Thus, the  only  question  for  consideration  is  the  claim  of  the

appellant for failure to declare availability of power in the proportion  of

300 : 215 MW for the period from 14th September, 2002 onwards.

12.   The Commission on this aspect held as follows :

“9.1 The PPA was executed on 30.5.1996 and effective  for  a  period  of  20

years. The relevant clauses of the PPA  have  been  examined.  It  is  quite

clear that under the PPA, GUVNL has an obligation to  pay  an  annual  fixed

cost for the allocated capacity, which is 300 MW.  Having  paid  the  annual

fixed cost for the said capacity,  GUVNL  has  a  right  for  an  equivalent

amount of electrical output. The purpose of paying annual fixed cost  is  to

ensure that GUVNL alone has the right to the said capacity and that no  part

of the same can be sold to any other party. It is true that  41  the  normal

industry practice is that unless the allocated  capacity,  for  which  fixed

charges are being paid by the beneficiary is  surrendered,  the  beneficiary

has the ability to sell/ negotiate any transaction for utilisation  of  such

allocated capacity. In this context, reference is  also  made  to  the  CERC

(Terms and Conditions of Determination of Tariff) Regulations, 2004.

9.2 The question that arises for consideration is whether  GUVNL  can  claim

allocation on a proportionate basis i.e. to say, that if EPL  is  unable  to

declare 300MW capacity which is allocated to GUVNL under the PPA, EPL  would

then have to declare capacity proportionately in the  ratio  of  58:42  from

the total declared capacity. In this context one is  required  to  carefully

review Article 3.1 of the PPA.

 9.3 Although in the definition of allocated capacity, it is only  mentioned

that 192MW capacity during Open Cycle  mode  operation  and  300MW  capacity

during Combined Cycle mode operation is allocated  to  GUVNL,  the  same  is

further elaborated in Article 3.1. In Article 3.1, the parties  have  agreed

as follows:

“3.1 The allocation of the Capacity shall be as under:

a) During Open Cycle mode operation prior to commissioning of  the  Combined

Cycle mode operation: 138MW to the Essar Group of Companies; and 192  MW  to

the Board

 b) During Combined Cycle mode:

215 MW to the Essar Group of Companies; and

300 MW to the Board

The Company undertakes that, subject to the provisions and during  the  term

of this Agreement, it will fuel and operate the Generating Station  to  meet

the requirements of electrical output that can  be  generated  corresponding

to the allocated capacity, in accordance with its Dynamic Parameters  so  as

to comply with the Operating Characteristics except to the extent:

 (i) as anticipated under the Maintenance Programme  during  the  period  of

Scheduled Outage.

(ii) That to do so would not be in accordance with Good Industry Practice;

 (iii) That may be necessary due to circumstances  relating  to  Safety  (of

personnel or plant apparatus);

(iv) that to do so would be unlawful;

(v)  That  may  be  necessary  for  reasons  of  Force  Majeure  Natural  or

NonNatural.”

 9.4 For the interpretation of the contract the following principle as  laid

down by the Supreme Court in  Mrs.  M.N.  Clubwala  v.  Fida  Hussain  Saheb

(1964) 6 SCR 642 has to be kept in mind:

 Whether an agreement  creates  between  the  parties  the  relationship  of

landlord and tenant or merely that of licensor  and  licensee  the  decisive

consideration is the intention of the parties.  This  intention  has  to  be

ascertained on a consideration  of  "all  the  relevant  provisions  in  the

agreement.”

“…The dispute may arise between the very parties to the written  instrument,

where  on  the  construction  of  the  deed  one  party  contends  that  the

transaction is a  'licence'  and  the  other  that  it  is  a  'lease'.  The

intention to be gathered from the  document  read  as  a  whole  has,  quite

obviously, a direct bearing.” (Underline Supplied).

 Also, the Hon’ble Supreme Court has held in State of  Andhra  Pradesh.  Vs.

Kone Elevators India Ltd. (2005) 3 SCC 386:

 “It is a settled law that the substance and not the form  of  the  contract

is material in determining the nature of the transaction”.

Therefore, it is necessary to read the PPA as a whole in  order  to  give  a

correct interpretation to the terms therein  contained.  The  definition  of

‘Allocated Capacity’ in the PPA has to be read in conjunction  with  Article

3.1. Article 3.1 clearly records the  allocation  of  capacity  between  two

entities i.e. GUVNL as well as Essar Steel.

9.5  From  the  reading  of  the  Article  3.1  of  the  PPA  as  also   the

corresponding Articles in the PPA with Essar Steel, it  is  clear  that  the

intention of the parties was that the capacity of the generating plant  will

be shared between the two beneficiaries only. The fact that Article  3.1  of

the present PPA records the capacity allocated to the Essar Group  companies

along with the capacity allocated to  GUVNL  shows  that  intention  of  the

parties was to provide for allocation in the proportion  of  138:192  (while

working in open cycle mode) and 215:300 (while  working  in  combined  cycle

mode). Otherwise there is no reason for mentioning in Article  3.1.  of  PPA

about the quantum that is contracted with Essar Steel. Similarly,  the  fact

that the PPA with Essar Steel states the allocation to GUVNL  goes  to  show

that the allocation was intended to be on  a  proportionate  basis,  between

the two parties  /  purchasers  only.  During  the  arguments,  the  Learned

Counsel  for  the  Respondent  also  clarified  that  apart  from  the   two

purchasers of power there is no  other  third  party  sale  that  has  taken

place. The intention of EPL is to recover the fixed  charges  is  only  from

the two beneficiaries, in proportion to  the  allocated  capacity.  This  is

clear from the reading of the two PPAs. Hence, EPL  cannot  argue  that  the

PPA  does  not  recognise  the  proportionate  principle  at  all.  If   the

proportionate principle is acceptable for  recovery  of  fixed  charges,  it

cannot be abandoned for allocation of supply.

9.6 The submission of EPL that there is no clause in the PPA that it  cannot

supply more than 215 MW to Essar Steel is also not correct. Once the  entire

capacity has  been  allocated  between  the  two  parties  in  a  particular

proportion, EPL cannot violate the proportionate allocation for the  benefit

of any one party. Having sold the capacity of 300 MW to GUVNL and 215 MW  to

Essar Steel, for which fixed charges are paid in the  said  proportion,  EPL

cannot argue that it can sell power  to  Essar  Steel  beyond  the  capacity

allocated to it. There is no spare capacity that  allows  EPL  to  do  that.

Under the procedure for dispatch in Schedule VI  of  the  PPA,  EPL  had  to

declare weekly schedules of the “Capacity” that is available for the  entire

station  (and  not  the  “Allocated  capacity”).  On  the  basis   of   such

declaration, requirement-schedule and dispatch instructions are issued.  The

obligation of EPL is clearly to declare the  “Capacity”  of  the  generating

plant as a whole. Once the declared availability for  the  entire  plant  is

known, the beneficiaries will proceed  to  issue  dispatch  instructions  in

accordance with the terms of the PPA. Hence, the argument  of  EPL  that  it

does not have the obligation to declare capacity for  the  entire  plant  is

incorrect and contrary to  the  terms  of  Schedule  VI  of  the  PPA.  This

submission is contrary to the procedure prescribed in the  PPA  as  well  as

the normal industry practice. Once the capacity of  the  generating  station

as a whole is available, the allocation of capacity has  to  take  place  in

the proportion that is contracted. Also, the  submission  of  EPL  that  the

Petitioner's only concern, under terms of the  PPA,  is  that  it  must  get

electricity in accordance with its Dispatch Instructions, within the  limits

of allocated capacity is not entirely correct. The Petitioner  has  a  right

to be supplied electrical output proportionate to the declared  capacity  of

the generating plant in terms of the PPA. EPL cannot ignore  its  obligation

of  declaring  the  entire  capacity.  Once  the  entire  capacity  of   the

generating plant is declared, the proportionate principle of  allocation  of

capacity  will  become  applicable  and  as  a  natural   consequence,   the

electrical  output  will  be  allocated  and  supplied   between   the   two

beneficiaries on  proportionate  basis,  in  accordance  with  the  dispatch

instructions. It appears that EPL is avoiding its obligation to declare  the

entire capacity. The  ability  to  recover  deemed  non  generation  due  to

difference in schedule generation and actual generation has  nothing  to  do

with the requirement to allocate capacity and supply electrical output on  a

proportionate basis.

9.7 In view of the aforesaid, the Commission accepts the submission made  by

GUVNL to the effect that, if in a time block the declared  availability  for

the station with 515 MW of the installed capacity in only 400 MW,  the  same

should be declared available to GUVNL to the extent of 233 MW and  to  Essar

Group to the extent of 167 MW, maintaining the proportion  of            58%

: 42% (300:215). It is not valid for EPL to declare available  in  any  time

block to Essar Group to the  extent  of  215  MW  towards  their  share  and

declare available to GUVNL 185 MW. Such an act would mean that  Essar  Group

is being preferred at the cost of GUVNL. As against the GUVNL’s  entitlement

of 233 MW they will get only 185  MW  and  therefore  a  deficit  of  48  MW

equivalent of electricity. That certainly cannot be  the  intention  of  the

parties.

9.8 Under the PPA, the obligation  to  supply  power  by  EPL  to  GUVNL  is

limited to the electrical output equivalent to  the  allocated  capacity  of

300 MW. The fact that the EPL has an obligation to make  payment  of  deemed

non generation incentive and reduce annual  fixed  charges  on  a  pro  rata

basis,  cannot  in  any  manner  negate  the  proportionate   principle   of

allocation when EPL declares availability less than the allocated capacity.

9.9 In this context, EPL’s reliance on  the  letter  of  the  Government  of

Gujarat dated 05.06.1995 to argue that only the surplus, after  meeting  the

requirement of its sister companies, is to  be  supplied  to  GUVNL  is  not

correct. Once the PPA has been executed, the parties  are  governed  by  the

terms of the PPA. In fact Article 12.5 of the PPA  clarifies  that  the  PPA

and the schedules attached thereto are a complete  and  exclusive  statement

of  the  terms  of  the  agreement  and  that  all  prior  written  or  oral

understandings, offers or other communication of every  kind  pertaining  to

the sale or purchase of electrical output and  dependable  capacity  between

the parties is abrogated and withdrawn.

9.10 Furthermore, in the letter dated 17.02.2000, EPL  categorically  agreed

to the concept that power should be supplied in the ratio of 58:42  provided

certain conditions are fulfilled.  The  conditions  mentioned  in  the  said

letter will demonstrate that the each condition is either in the  nature  of

additional concessions / modification that were sought  by  EPL  or  alleged

defaults on the part of GUVNL, which was not agreed to by GUVNL.

9.11 However, if GUVNL does not take the power declared available by EPL  in

terms of the aforesaid ratio, EPL will have the right to sell the  power  to

its sister concern subject to reimbursement  of  the  proportionate  of  the

annual fixed charges. GUVNL cannot make a submission that although  it  will

not purchase such power as declared available by EPL, EPL  cannot  sell  the

same to its sister concern. Such a submission would defeat  the  purpose  of

the  Electricity  Act,  2003  and  the  National  Electricity  Policy  which

promotes generation and encourages sale of surplus capacity. If  GUVNL  does

not schedule the power to the extent of availability declared by EPL of  the

entire plant in terms of the PPA, it cannot complain if the  power  is  sold

to EPL’s sister concern and the proportionate of the annual  fixed  cost  is

reimbursed.

9.12 The Commission  is  of  the  view  that  GUVNL  is  entitled  to  claim

compensation for the energy  diverted  to  Essar  Steel  from  the  capacity

allocated to GUVNL under the PPA. EPL at all times has an  obligation  under

the present PPA to declare availability for the entire  plant  and  allocate

the supply on the basis of 300:215 or 58:42.

9.13  As  regards  the  quantum  of  compensation  payable  on  account   of

diversion, the PPA is silent on the same. The parties in the settlement  for

dues on account of diversion for the  period  between  1998  and  September,

2004 agreed on a particular methodology for determining  such  compensation.

The parties had agreed that GUVNL is entitled to the  HTP  1  energy  tariff

after excluding the variable cost. The diversion in the circumstance  should

be computed on an hourly  basis.  This  appears  to  be  a  fair  manner  of

determining the compensation that  is  to  be  paid  for  the  period  after

September, 2004. The parties are required to reconcile the  generation  data

and make final calculation on the basis of the aforesaid principle.

9.14 The Commission also directs that for the remaining period of  the  PPA,

EPL has a legal obligation to declare availability for the  entire  capacity

and that it shall not divert any power to its sister  concern  in  a  manner

contrary to the proportionate  principle.  If  GUVNL  declines  to  purchase

power allocated on the proportionate basis, EPL will have the right to  sell

the power to its sister concern subject to  reimbursement  of  proportionate

of the fixed cost.”

Part V : Appeal to the Tribunal and the Finding of the Tribunal

13.   The respondent preferred an appeal before the  Tribunal  being  Appeal

No.86 of 2009.  Contention of  the  appellant  was  that  the  EPL  was  not

obliged to declare electricity availability in ratio of 300 : 215 MW to  the

appellant.  The PPA signed with the appellant and the sister concern of  the

EPL  were  independent.   The  obligation  to  supply  was  to  arise  after

receiving dispatch instructions only.

14.   The Tribunal framed following questions for consideration :

“ (i) Whether under the PPA I and II the supply of electrical output  to  be

made by the Appellant shall be in the ratio of  300:215  MW,  the  allocated

capacity of the Electricity Board (R-1) and Essar Steels Ltd. respectively?

 (ii) Whether the Appellant, which failed to declare the entire capacity  of

its  generating  station  to  the  Electricity  Board  made  the  supply  of

electricity to its sister concern Essar Steels Ltd. in excess  of  the  said

ratio is liable to be held responsible for the breach of the  terms  of  PPA

and consequently the Appellant  is  liable  to  compensate  the  Electricity

Board (R-1)”…..

15.   The Tribunal upheld the stand of the EPL.  It was held  that  Articles

I    and III of Schedule VI to the PPA did not require the  EPL  to  declare

the capacity in the ratio of   300  :  215 MW.   As  regards  letters  dated

17th February,  2000    and  4th  October,  2001  by  which  the  respondent

accepted its liability, it  was  held  that  the  GUVNL  never  accepted  or

complied with its obligations and therefore, the respondent  was  not  bound

by the stand in the said letters.  It was further observed  that  the  claim

for the period from 1st July, 1996 stood settled in view letter  dated  13th

October, 2006 of the GUVNL to accept Rs.64 crores for diverting  electricity

to ESL. Non-declaration of available capacity  on  proportionate  basis  was

not shown to have resulted in any loss or damage to GUVNL.   GUVNL  had  not

proved any actual loss.   It was observed that on the principle  of  Section

35 of the Sale of Goods Act, 1920, there was no  obligation  to  deliver  in

absence of dispatch instructions.  Further, the ESL  supplied  fuel  to  EPL

for conversion into electricity but for supply to the GUVNL, the EPL had  to

procure fuel from outside.  GUVNL also made default  in  making  payment  to

the EPL which amounted to  breach  of  reciprocal  obligation.   GUVNL  also

failed to establish letter of credit to secure the  payment  of  the  amount

payable to the EPL which also was breach on the part of the appellant.

16.   The finding of the Tribunal is :-

“45. From these provisions of Schedule-VI, it is  clear  that  there  is  no

provision, express or implied, to suggest that the EPL is liable to  declare

the available capacity in the said ratio to the Board and the  Essar  Steels

Ltd. All these provisions would only say that the  EPL  has  to  first  give

Weekly Schedules to the Electricity Board indicating the time  and  capacity

which would be available and the Electricity Board  shall  thereafter  issue

its requirement schedule through Despatch Instructions and thereupon EPL  is

liable to  operate  generating  station  in  accordance  with  the  Despatch

Instructions given by the Electricity Board and supply.

46. On a combined reading of Articles 1 and 3 and Schedule VI of the  PPA-1,

it is clear that EPL has to declare available capacity up to  the  allocated

capacity to both the Electricity Board as well as to Essar Steels  Ltd.  and

not on proportionate theory basis.

 47.  As  a  matter  of  fact,  Article  5.2  of  the  PPA-1  obligates  the

Electricity  Board  to  pay  to  the  Appellant  its  Annual  Fixed  Charges

including the cost of the project on the level of generation achieved up  to

the allocated capacity  and  not  on  the  allocated  capacity  itself.  The

Electricity Board has accordingly paid the Annual Fixed Charges  on  monthly

basis on the level of generation achieved up to the allocated capacity.

48. It is pointed out by the Ld. Senior Counsel for the  Appellant  that  so

far  as  the  payment  towards  cost  of  the  project  is  concerned,   the

Electricity Board had agreed to pay Rs. 945 crores out of the total cost  of

the project amounting to Rs. 2061 crores which only comes  to  approximately

46%, i.e. less than 58% of the total project cost.

 49. In such circumstances, the Electricity Board (R-1)  cannot  claim  that

by reasons of it’s making payment for the Annual Fixed  Charges  up  to  the

allocated capacity, it was always obligatory on  the  part  of  the  EPL  to

supply power to the extent of 58% to the Electricity Board  and  that  since

EPL has sold a part of Electricity Board’s share in the power  generated  by

the EPL to its sister concern, EPL is liable to compensate  the  Electricity

Board for the same by treating such power which sold by EPL to  Essar  Steel

Ltd. as if it was sold by the Electricity Board itself to Essar  Steel  Ltd.

after purchasing the same from the EPL.

50. On  the  basis  of  letters  dated  17.02.2000  and  04.10.2001,  it  is

contended on behalf of the Electricity Board (R-1) that EPL has conceded  to

its proportionate  theory  basis  and  as  such  it  cannot  go  back.  This

contention is not  tenable.  EPL  in  those  letters  merely  expressed  its

willingness to agree to  the  proportionate  theory  basis  subject  to  the

condition that  Electricity  Board  should  commit  default  in  making  the

payment of dues payable under the PPA-1 to  EPL  and  also  subject  to  the

condition that the Electricity Board shall comply with other  conditions  of

the PPA-1.

51. Admittedly, the stipulated conditions  in  those  letters  were  neither

accepted nor complied with by the Electricity Board. Hence  the  offer  made

by the EPL to the  Electricity  Board  for  agreeing  to  the  proportionate

theory basis would not be construed to  be  conceding  and  as  such  it  is

binding on it.

52.  In  the  second  letter  dated  04.10.2001  also,  EPL  stipulated  the

condition of making prompt payments by the Electricity Board to EPL and  for

establishment of Letter of Credit to secure payments under PPA-1. Even  this

condition, the Electricity Board was not ready to comply with. As  such  the

proposal made by the EPL to the Electricity  Board  regarding  proportionate

theory subject to the conditions is not binding on the Appellant.

53. Furthermore, when there is an amendment  to  the  PPA-1  on  18.12.2003,

there is no reference about these amendments for declaration  of  supply  of

power in the ratio of 58:42 to the Electricity  Board  as  well  as  to  the

Essar Steels Ltd.  respectively.  The  preamble  of  the  said  Supplemental

Agreement dated 18.12.2003 clearly establishes that EPL is only  obliged  to

generate the electricity up to 300 MW allocated  to  the  Electricity  Board

and nothing more. In other words, there is no amendment with regard  to  the

declaration of electricity generated on  proportionate  basis  in  the  said

Supplemental Agreement dated 18.12.2003.

54. Under such circumstances, it is not open to  the  Electricity  Board  to

rely upon the aforesaid letters dated 17.02.2000 and 04.10.2001  to  advance

the plea of its proportionate theory.

55. It is an admitted fact that the Electricity  Board  through  its  letter

dated 29.10.2003 demanded from EPL the payment of  an  aggregate  amount  of

Rs. 537 crores on account of alleged diversion of  power  by  EPL  to  Essar

Steels Ltd for the period commencing from 01.07.1996 to 31st March 1999.  It

is also an admitted fact that the parties thereafter held several rounds  of

discussions and as a result of those discussions, a settlement was  actually

arrived at by the parties in October 2004. Pursuant to the said  settlement,

the Electricity Board recalculated the amount, due on  the  basis  of  power

supplied by the EPL to Essar Steels Ltd in excess of the allocated  capacity

of 215 MW shall alone be treated as sold and  supplied  by  the  Electricity

Board. On this basis, the Electricity Board itself furnished a statement  to

the Appellant, EPL showing that a sum of Rs. 64 crores is  payable  for  the

aforesaid period and on the aforesaid basis, the EPL accepted the same as  a

part of overall package and authorized the Electricity Board to recover  the

same on a condition that the same methodology would  be  adopted  in  future

also. Thereafter, through their letter  dated  13.10.2006,  the  Electricity

Board accepted to receive Rs. 64 crores for  diverting  the  electricity  to

the Essar Steels Ltd.

56.  Under  those  circumstances,  it  is  clear  that  the  claim  of   the

Electricity Board against the EPL with respect to the alleged  diversion  of

power by the EPL to Essar Steels Ltd.  for  the  period  from  01.07.96  had

already  been  settled  by  the  payment  and  this  settlement  is   final,

conclusive and binding on the parties. As correctly observed  by  the  State

Commission, the same is not liable to be reopened at this stage.

57. Admittedly, it is not established  that  there  is  any  breach  of  the

contract as the part of  the  Appellant  under  PPA-1  on  account  of  non-

declaration of available capacity to the Electricity Board on  proportionate

basis. The compensation can be claimed only when there is a breach  and  due

to the same there was a  loss  or  damage  caused  by  the  said  breach  of

contract. This has to be  pleaded  and  proved.  Unless  this  is  done,  no

compensation can be claimed. This is a settled law as held  by  the  Supreme

Court in (1974) Vol-2 SCC 231 – Raman Foundry V/s Union of India.

58. In the present case, the Electricity Board has not  pleaded  and  proved

the actual loss or damage  caused  to  it  due  to  the  alleged  breach  of

contract. The principle enshrined in section 73  of  the  Contract  Act  has

been incorporated in Article 10.1 of the PPA-1 which reads as follows:

“……neither Party shall be liable to  the  other  Party  in  contract,  trot,

warranty, strict liability or any other  any  other  legal  theory  for  any

indirect, consequential, incidental, punitive or exemplary damages.  Neither

Party shall have any liability to the other Party  except  pursuant  to,  or

for breach of this Agreement, provided, however, that this provision is  not

intended to constitute a waiver of any  rights  of  one  Party  against  the

other with regard to matters related  to  this  Agreement  or  any  activity

contemplated by this Agreement”.

59. Similarly, the explanation to Section 73  of  the  Indian  Contract  Act

provides that in estimating the  loss  or  damage  arising  from  breach  of

contract, the means which existed of remedying the inconvenience  caused  by

the non-performance of the contract must be taken into account.  It  is  the

duty of the court to take into account whether the party affected by  breach

of contract has performed its duty to mitigate  the  loss  while  estimating

the loss or damage arising from the  breach  of  contract.  In  the  present

case, the Electricity Board merely pleads that EPL  has  failed  to  declare

and supply the available capacity of electricity on proportionate  basis  to

the Electricity Board and nothing more.

60. As indicated above, as per Article 3.2 of PPA-1, the EPL becomes  liable

to deliver the capacity to the Electricity Board at the  delivery  point  in

accordance with the Despatch Instructions.  The  Despatch  Instructions  are

instructions  for  delivery  of  electricity.  The  principle  contained  in

Article 3.2 of PPA-1 is in terms of the provisions  of  Section  35  of  the

Sale of Goods Act, 1920. Section 35 of the Sale of Goods Act  declares  that

the seller of goods is not bound to deliver until the buyer applies for  the

delivery.

xxx

74. One more aspect needs to be mentioned. The arrangement  in  relation  to

supply of electricity up to the  allocated capacity of 300  MW  between  the

Appellant EPL and the Electricity Board under the PPA-1 and between the  EPL

and its sister  concern  Essar  Steels  Ltd.  under  PPA-2  read  with  Fuel

Management Agreement dated 18.10.1996 are materially  different.  The  Essar

Steels Ltd supplies fuel to EPL for  conversion  into  electricity,  whereas

the Electricity Board  is  under  no  obligation  to  supply  fuel  to  EPL.

Admittedly, the EPL has  to  procure  fuel  from  outside  and  use  it  for

generating electricity for sale to the Electricity Board.

75. The PPA-1 is a contract  between  the  EPL  and  the  Electricity  Board

containing  reciprocal  promises.  In   consideration   of   EPL   supplying

electricity to the  Electricity  Board  up  to  the  allocated  capacity  in

accordance with the Despatch Instructions, the Electricity Board had  agreed

and undertaken to pay the EPL the tariff as mentioned in the PPA- 1.  It  is

an admitted fact that the Electricity Board has committed default in  making

payment when due to be made to the EPL under the PPA-1. In  fact,  the  EPL,

the Appellant has produced materials to show that at one point  of  time  in

March 2008, the aggregate amount due to EPL was  to  the  tune  of  Rs.  519

crores. EPL has produced documents to show that the Electricity Board  is  a

defaulter in making payment of its  due  under  the  PPA-1  right  from  the

inception of it.

76. It is also an admitted fact that EPL had written several letters to  the

Electricity Board to establish Letter of Credit to  secure  the  payment  of

the amount payable under PPA-1 and also pay the amounts when  due.  But  the

Electricity Board did not heed to the  request  made  by  the  EPL  in  this

behalf and as a result of it the ability of EPL to  purchase  the  fuel  for

generating  electricity  meant  for  sale  to  the  Electricity  Board   got

impaired.

77. As mentioned above, the claim for compensation made by  the  Electricity

Board against EPL in the present case  is  due  to  the  alleged  breach  of

contract by EPL in declaring and supplying  the  power  to  the  Electricity

Board in the proportion of 300MW out of  the  total  capacity  515  MW.  The

grievance is that EPL has supplied less  power  than  what  is  due  to  the

Electricity Board under the PPA-1. As aforesaid, Article 3.2  of  the  PPA-1

obliges the Appellant to supply electricity to the  Electricity  Board  only

in accordance with the Despatch Instructions given by the Electricity  Board

from time to time. As a matter of fact, there is no provision in  the  PPA-1

which restricts the right of the Electricity Board to demand for  supply  of

electricity  only  up  to  the  declared  available  capacity  of  the  EPL.

Admittedly, many a times the Electricity Board  asked  for  supply  of  more

quantum of electricity than what was declared as available to it by the  EPL

by revising its Despatch Instructions and  immediately  thereafter  the  EPL

met this demand.

xxx

81. In the light of the above position, the direction  given  by  the  State

Commission with reference to reimbursement of Annual Fixed  Charges  to  the

Electricity Board when the Electricity Board has not secured energy  to  the

extent allocated under the proportionate principle is  not  correct  as  the

same is misconceived. In this case we are of the view that the Annual  Fixed

Charges are not refundable for the surrendered portion  of  the  electricity

to the person in whose favour such electricity  is  surrendered.  Hence,  in

regard to the issue relating to the liability to pay  compensation  we  hold

that, in Electricity Board is  not  entitled  to  get  the  compensation  as

claimed and as such the Appellant EPL succeeds in this  issue.  Consequently

the findings given by the State Commission on this issue are set aside.  “

Part VI : Rival Submissions

17.   We have heard Shri C.A.  Sundaram,  learned  senior  counsel  for  the

appellant  and  Shri  K.K.  Venugopal,  learned  senior  counsel   for   the

respondent.

18.   Learned counsel for the appellant  submitted  that  the  Tribunal  had

ignored the implications of Article 3 of the PPA.  The true  import  of  the

PPA clearly casts an obligation on the EPL to allocate electricity in  ratio

of 300 : 215 MW.  This  interpretation  was  accepted  by  the  EPL  in  its

letters dated 17th February, 2000, 4th March, 2000 and  4th  October,  2001.

Issues of non payment of money due or not opening the letter of  credit  and

not making advance payment of fuel stood settled by Supplementary  Agreement

dated 18th December, 2003 and letter dated 19th December, 2003.   Thus,  the

Tribunal erroneously assumed that amount of Rs.519 crores  was  outstanding.

  Moreover, there is an error in the order  of  the  Tribunal  in  observing

that GUVNL had not proved suffering of any damage. Para 23 of  the  petition

expressly asserted the damage.  There is further error in interpretation  of

Schedule VI  in regard to the obligation  to  declare  the  availability  of

generating power upon which the dispatch instructions could  be  issued.  In

absence of such declaration, the dispatch instructions could not be  issued.

 Finding that the appellant accepted Rs.64 crores by way of  settlement  was

against record.

19.    The EPL supports the view taken by the  Tribunal.   It  is  submitted

that there was no obligation  for  proportionate  declaration  of  available

generation  capacity.   The  respondent  was  to  meet  the  requirement  of

electric output  corresponding  to  allocated  capacity  of  300  MW.   This

obligation was subject  to  reciprocal  performance  of  obligation  by  the

appellant.  The  PPA  executed  by  the  respondent  with  the  ESL  was  on

different terms. The appellant was required to make  payment  on  due  dates

under Article 5.3 of the Agreement and was  also  required  to  establish  a

letter of credit under Article 5.5.  As against this, under Article  4.1  of

the PPA with the ESL, fuel is to be supplied by the  ESL  which  created  an

obligation to generate electrical output upto the capacity allocated to  the

ESL.  For supply to the appellant, fuel is required to be  arranged  by  the

respondent.  The appellant had not paid cost  for  its  allocated  capacity.

The cost was pegged at  Rs.945  crores  as  against  investment  of  Rs.2061

crores by the respondent.  The stand taken in the letter of  the  Respondent

dated 17th February, 2000 could not be read as obligation of the  respondent

for proportionate generation of  the  output  or  declaration  of  available

capacity in absence of compliance  of  obligations  under  the  PPA  by  the

appellant.  In letter dated 4th March, 2000,  it  was  made  clear  that  if

letter of credit was not opened by the appellant,  respondent  will  not  be

obliged to supply power.

Part VII : Points for consideration

20.   The points which arise for consideration are :

      (i)   True interpretation of PPA to determine  whether  there  is  any

obligation to declare availability of power in the ratio of 300 : 215;

      (ii)   Effect of letters dated 17th February, 2000,  4th  March,  2000

and 4th October, 2001on the rights of the parties;

       (iii)  Interpretation  of  Schedule  VI  to  determine  whether   the

obligation to  issue  dispatch  instructions  arose  before  declaration  of

availability.

(iv)  Relief to which the appellant may be entitled to.

Part VIII : Decision on above points and reasons therefor

Re : (i) :

21.   It is necessary to refer to the relevant provisions of the Agreement:

“Article 3

3.1 Allocation of the Capacity

The allocation of the Capacity shall be as under:

a) During Open Cycle mode operation prior to commissioning of  the  Combined

Cycle mode operation: 138MW to the Essar Group of Companies; and 192  MW  to

the Board

 b) During Combined Cycle mode:

215 MW to the Essar Group of Companies; and

300 MW to the Board

The Company undertakes that, subject to the provisions and during  the  term

of this Agreement, it will fuel and operate the Generating Station  to  meet

the requirements of electrical output that can  be  generated  corresponding

to the allocated capacity, in accordance with its Dynamic Parameters  so  as

to comply with the Operating Characteristics except to the extent:

 (i) as anticipated under the Maintenance Programme  during  the  period  of

Scheduled Outage.

(ii) That to do so would not be in accordance with Good Industry Practice;

 (iii) That may be necessary due to circumstances  relating  to  Safety  (of

personnel or plant apparatus);

(iv) that to do so would be unlawful;

(v) That may be necessary for reasons  of  Force  Majeure  Natural  or  Non-

Natural.”

3.2   Delivery of Active Energy

      The Company shall deliver Active Energy and  Reactive  Energy  to  the

Board at the Delivery Point in accordance with Dispatch Instructions  issued

by the Board under the Dispatch procedures  as  specified  in  Schedule  VI.

All Active Energy delivered by  the  Company  shall  have  at  the  Delivery

Point,  the  voltage,  frequency  and  the   other   electrical   parameters

associated with active/reactive power as may be  decided  by  the  Board  in

accordance with the Operating Characteristics.

3.3   Availability Declarations

      From the date of Entry into Commercial Service of the first  Unit  the

Company shall, submit to the Board from time  to  time,  Declared  Available

Generation Capacity as per the procedures set forth in Schedule VI.

xxx

Schedule VI

6.1   Submission of Weekly Schedules

      The Company will  submit  to  the  Board’s  Load  Dispatch  Centre  at

Jambua, Baroda weekly schedules indicating  the  times  and  Capacity  which

will be available from Generating Station and if not available  and  reasons

therefor.  These weekly schedules  will  be  submitted  on  or  before  each

Friday for the next week starting from Monday.  If at  any  time  after  the

issue of such schedule, there is any change in  circumstances,  the  Company

will notify the Board about the revisions necessary in the  weekly  schedule

and the reasons therefor.

6.2   Issuance of Requirement Schedule

      The Board shall issue to the Company’s Generating Station at Hazira  a

Schedule of its requirement with respect to the generation of the  Allocated

Capacity by the Generating Station  during  each  day  by  5.00  PM  on  the

preceding day.  This schedule  will  indicate  the  level  of  Active  Power

required to be produced by Generating Station.

6.3   Issuance of Dispatch Schedule

      The Board may issue Dispatch Instruction at any time  after  issue  of

the schedule as mentioned in Clause  6.2  above.  Dispatch  instruction  may

include requirements in respect of the reactive  power  output  measured  at

the Delivery Point to be maintained by the Generating Station.

6.4   Operation of Generating Station

      The Company, subject to the provisions contained  in  Article  3.3  of

this Agreement, shall operate Generating  Station  in  accordance  with  the

relevant Dispatch  Instructions  given  by  the  Board  from  time  to  time

provided that  the  Company  shall  not  be  obliged  to  comply  with  such

instructions to the extent that it would require the Company to operate  the

Generating Station otherwise than the  Dynamic  Parameters  applicable  from

time to time.

Schedule VII

7.1 TARIFF

The Tariff shall be determined as follows

Annual Fixed Charges to be determined in terms of Section 7.1.1

Variable Charges to be determined in terms of Section 7.2

Incentive Payment to be determined in terms of Section 7.3.

7.1.1 Annual Fixed Charges: Computation and payment

The Annual Fixed Charge shall be computed on the following basis:

Interest on Debt:

It shall be computed on the Debt as per the Financial Plan approved  by  the

Board.  Interest on  Debt  shall  also  include  lease  rentals  payable  in

respect of lease assistance obtained by the Company  towards  financing  the

Capital Cost.

If the Financing Plan envisages variable rates of interest on any  component

of  Debt,  the  Interest  on  Debt  shall  be  recomputed  by  applying  the

prevailing rates of interest during the month on each such Debt.

In respect of interest on  Foreign  Debt,  the  interest  liability  on  the

applicable Foreign Debt shall first be computed in  the  applicable  foreign

currencies and thereafter be  converted  to  Rupees  by  adopting  the  Base

Exchange Rate  and  such  amount  shall  be  adopted  for  the  purposes  of

computing Interest on Debt.

A Supplementary  Invoice  shall  be  raised  for  an  amount  equal  to  the

difference between the amount of  interest  liability  on  Foreign  Debt  as

determined on the basis of Base Exchange Rate and  the  amount  of  interest

liability as on the due  dates  of  the  payment  of  interest  as  per  the

Financing Plan computed on the basis of the then prevailing  exchange  rate.

If the amount payable to the Company is determined to be  less,  on  account

of foreign exchange variation, than the amount paid  by  the  Board  at  the

Base Exchange Rate, such difference shall be repaid to the Board  within  14

days from the date of the determination.

Operation and Maintenance Expenses (O&M) Expenses:

 O&M Expenses including Insurance Charges  for  the  first  full  Accounting

Year, after commissioning of Combined  Cycle  Operation  of  the  Generating

Station, shall be calculated at the rate of 2.5%  of  the  Capital  Cost  of

Rs.945 crores in respect of the Allocated Capacity.

The expenditure on the O&M expense in each subsequent year shall be  revised

on the basis of the weighted Price Index based on the Wholesale Price  Index

and Consumer Price Index in the ratio of 70:30 respectively or at  the  rate

of 10% progressively every year, whichever is  lower.   O&M  expenses  shall

not qualify for foreign exchange variations.

Depreciation

Depreciation will mean the depreciation as notified  by  the  Government  of

India from time to time and provided under  the  Electricity  (Supply)  Act,

1948 and shall be first computed on the assets  of  the  Generating  Station

and thereafter apportioned for the purposes of the  determining  the  Annual

Fixed Charges as a proportion of the Allocated  Capacity  over  the  Nominal

Installed Capacity.

Tax on Income:

Tax on Income shall be determined in accordance with the provisions  of  the

Income Tax Act, 1961 every year as under:

Tax payable by the Company   x    Return on Equity plus

Total taxable Income              Incentive Payment

For the purposes of determination of the Annual Fixed Charges,  the  Tax  on

Income shall be computed on an estimated basis.  Any under or over  recovery

of Tax on Income shall be adjusted every year on the  basis  of  certificate

of documentation of Tax paid  and  assessment  by  the  Income  Tax  Officer

concerned.

Return on Equity (ROE):

Return on Equity shall be computed on Equity at  16%  per  annum  and  shall

include ROFE.

Return on Foreign Equity (ROFE) shall be computed at the rate of 16% on  the

amount of Foreign Equity in the applicable foreign currency  and  thereafter

be converted to Rupees at the Base Exchange Rate and such  amount  shall  be

adopted for the purpose of computing ROFE.

A Supplementary Invoice shall be raised at the end of  each  Quarter  in  an

Accounting Year, for an amount equal to the difference  between  the  amount

of ROFE determined on the basis of Base Exchange  Rate  and  the  amount  of

ROFE as at the end of each  Quarter  computed  on  the  basis  of  the  then

prevailing  exchange  rate.   If  the  amount  payable  to  the  Company  is

determined to be less, on account of foreign  exchange  variation  than  the

amount paid by the Board at the Base Exchange Rate,  such  difference  shall

be re-paid to the Board within 14 days from the date of  the  determination.

Interest on Working Capital :

The amount of working capital on the Allocated Capacity  shall  be  computed

on the basis of annual estimated level of generation adopting the  following

norms:

Fuel Cost for liquid fuels only for one month;

Operation & Maintenance expenses (Cash) for one month;

Maintenance Spares at actual but not exceeding one year’s requirement,  less

value of One Fifth of initial spares already capitalized; and

Receivable  equivalent  to  two  months’  average  billing   for   sale   of

electricity.

The Interest on Working Capital shall be computed by applying  the  rate  of

interest as  applied  by  the  Company’s  bankers  or  the  Board’s  Bankers

whichever is lower on the amount of working capital computed above.

Base Foreign Debt Repayment Adjustment Amount:

In respect of the Foreign  Debt,  the  amounts  falling  due  for  repayment

during the Accounting  Year  shall  be  first  computed  in  the  applicable

foreign currencies and thereafter be converted to  Rupees  by  adopting  the

Base Exchange  Rate.   The  difference  between  the  amounts  of  repayment

determined as above and the amount of repayment of Foreign Debt falling  due

during the relevant Accounting Year and expressed  in  rupees  adopting  the

exchange rate as per the Financing Plan shall  be  included  in  the  Annual

Fixed Charges.

A Supplementary  Invoice  shall  be  raised  for  an  amount  equal  to  the

difference between the amount of repayment on  Foreign  Debt  determined  on

the basis of Base Exchange Rate and the amount of repayment on Foreign  Debt

as on the due dates of repayment of Foreign Debt as per  Financing  Plan  on

the then prevailing exchange rates.  If the amount payable  to  the  Company

is determined to be less on account of foreign exchange variation  than  the

amount paid by the Board at the Base Exchange Rate,  such  difference  shall

be re-paid to the Board within 14 days from the date of  the  determination.

The amount of Annual Fixed Charges for the purposes of this Agreement  shall

the aggregate of (a) to (g), but  excluding  the  amounts  of  supplementary

Invoices under (a), (e) and (g) above.  For the purpose of  monthly  Invoice

1/ 12th of the Annual Fixed Charges will be claimed.

The Invoice in each month shall further  specify  the  number  of  units  of

Active Energy and Deemed Generation expressed in Kwh  achieved  during  such

month and the cumulative Level of  Generation  including  Deemed  Generation

less Deemed Non-Generation achieved upto end of such month.

22.   The agreement clearly contemplates the proportion of allocation  of  a

capacity.  The EPL has to fuel and operate the generating  station  to  meet

the requirement of electric output that can be  generated  corresponding  to

the allocated capacity.  The appellant has  to  pay  annual  fixed  cost  as

determined in terms of clause 7.1.1 of Schedule VII of the  Agreement.   The

Commission is thus, right in observing that once  the  entire  capacity  has

been allocated in two parts in a particular proportion,  the  contention  of

the EPL that it could sell power to ESL beyond the allocated capacity  could

not be accepted. The EPL was under obligation as per Schedule VI to  declare

weekly schedule of the capacity  available  and  the  dispatch  instructions

were to be issued on the basis of the said declaration.  It could  not  thus

be said that the EPL had no obligation  to  declare  the  capacity  and  the

obligation of GUVNL to issue dispatch  instructions  was  not  dependent  on

declaration of the available capacity by the  EPL.   Contrary  view  of  the

Tribunal is clearly erroneous.  In paras 45 and  46  and  elsewhere  in  its

judgment, the Tribunal erred in holding that  there  was  no  obligation  to

declare available capacity on  proportionate  basis.   The  finding  of  the

Commission in paras 9.5 to 9.12 of its order quoted  above  is  the  correct

interpretation of the Agreement.  We hold accordingly.

Re : (ii) :

23.   The Commission in this aspect observed :

“8.4 In the present case, the PPA was  executed  on  30.5.1996  and  remains

operational for a period of twenty years. Under the terms of  the  PPA,  the

generating company i.e. EPL is required to declare availability  and  supply

of electricity for the entire duration of  the  PPA,  while  the  Petitioner

GUVNL has an obligation to purchase electricity and pay the tariff in  terms

thereof. The dispute appears to have arisen sometime in  1998-99,  when  the

CAG Report for the year 1998-99 rejected the contention  of  the  Government

that there was no adverse financial impact  as  a  result  of  diversion  of

power. Thereafter, on or around 10.2.2000, a meeting was conducted with  the

GEB to discuss the issue of diversion. On 17.2.2000, EPL subject to  certain

conditions accepted that power is required to be supplied on a 58:42  basis.

Attempts were made to renegotiate the PPA. By a letter dated 23.4.2002,  GEB

wrote to EPL identifying certain key  areas  for  negotiation  of  PPA.  The

issue of allocation of power was also part of the agenda.  Since  the  issue

of allocation of power could  not  be  settled,  GEB  by  its  letter  dated

29.10.2003 raised a claim of Rs. 537  crores  for  the  period  1.7.1996  to

31.3.1999. EPL by its letters  dated  1.11.2003  and  1.12.2003  denied  the

claim of GUVNL.

xxxx

9.10 Furthermore, in the letter dated 17.02.2000, EPL  categorically  agreed

to the concept that power should be supplied in the ratio of 58:42  provided

certain conditions are fulfilled.  The  conditions  mentioned  in  the  said

letter will demonstrate that the each condition is either in the  nature  of

additional concessions / modification that were sought  by  EPL  or  alleged

defaults on the part of GUVNL, which was not agreed to by GUVNL. “

24.   It is clear  from  the  above  that  the  letters  of  the  respondent

acknowledged its liability to allocate the generated power to the  appellant

and to the ESL in the ratio of 58 : 42.  The  Tribunal  in  para  54  quoted

above, held that the said letters could not be relied  upon  in  support  of

the claim that the appellant was entitled to be  allocated  generated  power

in proportion of            58 : 42.  This finding is clearly erroneous  and

is without any basis and is liable to be set  aside.   The  finding  of  the

Commission is based on record.

Re : (iii) :

25.   In interpreting  Schedule VI, the Commission held  that  the  EPL  was

liable to declare weekly capacity  available  and  on  that  basis  dispatch

instructions were  required to be issued  (para  9.6).   The  contrary  view

taken by the Tribunal in para 45 and elsewhere is clearly  contrary  to  the

agreement between the parties as reflected in Schedule VI quoted above.

Re : (iv) :

26.   The main basis of the order of the Tribunal in rejecting the claim  of

the appellant is the finding  that  the  respondent  had  no  obligation  to

allocate available power in the ratio of 58 : 42  under  the  terms  of  the

Agreement and in terms of correspondence between the  parties.   Apart  from

this, the Tribunal held that the appellant had claimed Rs.64 crores  by  way

of full and final settlement  (para  55)  and  that  the  appellant  was  in

default in not opening letter of credit and not paying  Rs.519  crores.   In

doing so, the Tribunal has ignored clear stipulation in the  letter  of  the

appellant dated 13th  December,  2004  referred  to  in  para  8.14  of  the

Commission that the amount of Rs.64 crores was not accepted by way of  final

settlement.   Similarly,  the  Tribunal  has   ignored   the   supplementary

agreement between the parties dated 18th December, 2003 followed  by  letter

dated 19th December, 2003 (page 337 and 341,Vol.V)  under  which  amount  of

Rs.289.40 crores was paid to the respondent by way  of  settlement  for  the

delayed payment charges  and  other  heads.   Thus,  the  Tribunal  was  not

justified in observing in para  75  that  the  appellant  had  defaulted  in

making payment of Rs.519 crores which was a breach of promise  on  the  part

of the appellant, thereby absolving the  respondent  of  its  obligation  to

supply power as per the agreement.  Similar is the position with  regard  to

letter of credit referred in para 17.6 of the order  of  the  Tribunal.   We

have been informed that these aspects have  been  gone  into  by  the  State

Commission in a subsequent dispute vide order dated 22nd October,  2014  and

Appeal No.2 of 2015 against the said order before the  Tribunal.   We  thus,

make it clear that our observations may not  be  treated  as  affecting  the

decision of the said appeal.

27.   We thus, hold that the order of the Tribunal is erroneous.   The  said

order has given rise to the substantial  question  of  law  which  has  been

discussed above, i.e., the  interpretation  of  the  Agreement  between  the

parties and the obligation of the  respondent  to  declare  availability  of

generated power in the  ratio  of  58  :  42   and  consequence  of  default

therein.  The Tribunal erroneously held  that  there  was  no  pleading  for

making the claim.  Thus, the Tribunal has committed error of law as well  as

of record in recording its finding as demonstrated above.  It  may  also  be

noted that the Commission has left actual working out  of  the  loss  to  be

worked out separately and on that basis the appellant has already filed  its

claim which was pending  consideration  before  the  Commission.   The  said

proceeding can now be revived in the light of our finding.

28.   Accordingly, we  allow  this  appeal,  set  aside  the  order  of  the

Tribunal and restore that of the Commission.

An Epilogue

29.   Before we part with this judgment, it appears to be necessary to  draw

attention of all concerned to a vital issue of composition  and  functioning

of Tribunals and  statutory  framework  thereof  especially  its  impact  on

working of this Court and in turn on the rule of law.

30.   It  is  well  known  that  in  the  wake  of  42nd  Amendment  to  the

Constitution  of  India,  incorporating  Article  323A  and  323B   of   the

Constitution under Part XIVA, various  Tribunals  have  been  set  up.   The

Tribunals  constitute  alternative  institutional  mechanism   for   dispute

resolution.  The declared objective of such Tribunals is  inability  of  the

existing system of courts to cope up with the volume of  work.   This  Court

has gone into the question of validity of scheme under which the High  Court

is bypassed without the alternative institutional  mechanism  being  equally

effective for the access to justice which was necessary  component  of  rule

of law and this Court being over burdened with routine  matters  in  several

judgments to which reference may be made.

31.    In  L  Chandra  Kumar  Vs.  Union  of  India[1],  in  the  course  of

considering the constitutional validity of exclusion of jurisdiction of  the

High  Courts  in  service  matters  against  the  orders  of   the   Central

Administrative Tribunal, this  Court  observed  that  the  manner  in  which

justice is dispensed with by the Tribunals left much  to  be  desired.   The

remedy of appeal to this Court from the  order  of  the  Tribunals  was  too

costly and inaccessible for it to be real and  effective.  Furthermore,  the

result of providing such remedy was  that  the  docket  of  this  Court  was

crowded with decisions of  the  Tribunals  and  this  Court  was  forced  to

perform the role of a first appellate court.  It  was  necessary  that  High

Courts are able to exercise judicial superintendence over decisions  of  the

Tribunals.   With  these  observations  this  Court  directed   that   “all”

decisions  of  the  Tribunals  will  be  subject  to   High   Court’s   writ

jurisdiction under Article 226/227[2].  It was  further  observed  that  the

then existing position of  direct  appeal  to  this  Court  from  orders  of

Tribunal will stand modified[3].

32.   In Madras Bar Association Vs. Union of India[4], the issue  considered

by this Court was validity of setting up of  National  Tax  Tribunals  under

the National Tax Tribunal Act, 2005.   While striking  down  the  Act,  this

Court commented upon  validity  of  various  provisions  of  the  said  Act.

Section 5 of the Act which provided for sittings to  be  at  Delhi,  it  was

observed that a litigant who may belong to a distant/remote State, may  have

to travel a long distance and may find it difficult to identify an  advocate

who will  represent  him.   It  was  further  observed  that  while  vesting

jurisdiction in an alternative court/Tribunal, it  was  imperative  for  the

legislature to ensure  that  redress  should  be  available  with  the  same

convenience and expediency as it was prior to the introduction of the  newly

created  court/tribunal[5].   As  regards  Section  6   dealing   with   the

qualification for appointment of a member,  it  was  observed  that  it  was

difficult to appreciate how non judicial members  could  handle  complicated

questions of law which the Tribunal was required to deal with[6].   Further,

composition of tribunals which were like  courts  of  first  instance  whose

decisions are amenable to challenge under  Article  226/227  and  which  are

subservient to jurisdiction of the High Court stood on a  different  footing

from the Tribunals whose appeals were directly provided  to  Supreme  Court.

Such Tribunals were practically substitute for the High Courts.  Process  of

selection and appointment of  Chairperson  and  members  of  such  Tribunals

could not be different from the  manner  of  selection  of  the  High  Court

Judges[7].

33.   The above resume of law laid down by this Court may  call  for  review

of  composition  of  Tribunals  under   the   Electricity   Act   or   other

corresponding statutes.  Appeals  to  this  Court  on  question  of  law  or

substantial question of law show that Tribunals deal with such questions  or

substantial questions.  Direct appeals to  this  Court  has  the  result  of

denial of access to the High Court.  Such Tribunals thus  become  substitute

for High Courts without manner of appointment to such  Tribunals  being  the

same as the manner of appointment  of  High  Court  Judges.   A  perusal  of

Sections 113(b)(i) to (iii) and 113(3) read with Section  78,  Sections  84,

85 and 125 of the Electricity Act and corresponding  provisions  of  similar

Acts may, thus, need a fresh look.

34.   It may also  be  noted  that  in  some  Tribunals  (For  example,  the

tribunal constituted under the Telecom Regulatory Authority  of  India  Act,

1997), the Tribunal exercises original jurisdiction to the exclusion of  all

courts and is located only at  Delhi[8].   It  may  further  be  noted  that

normally tenure of office of the Chairman and members is of  short  duration

of three to five years.  Access to justice may not be, thus, available  with

the convenience with which it is available when  jurisdiction  is  with  the

local civil courts sought to  be  substituted.   Such  provisions  may  need

review in larger public interest and for providing access to justice.

35.   Apart from the above aspect, further  question  is  whether  providing

appeals to this Court in routine, without  there  being  issues  of  general

public importance, is not a serious obstruction to the effective working  of

this Court.

36.    This issue has already been subject matter of debate.  In an  Article

by  Shri  T.R.  Andhyarujina  former  Solicitor  General  of  India,  titled

“Restoring the Character and Stature  of  the  Supreme  Court  of  India[9]”

learned author states that it was necessary to  restore  the  character  and

stature of the Supreme Court.  The jurisdiction of the Supreme Court  should

by and large be limited to matters of constitutional importance and  matters

involving substantial questions of law of general importance.   The  Supreme

Court of India, like apex Courts in other jurisdictions, was  not  to  be  a

final court to decide  ordinary  disputes  between  parties.    The  highest

court has its unique assigned role.  But after the year  1990,  the  Supreme

Court is losing its original character  and  becoming  a  general  court  of

appeal by entertaining and deciding cases which  do  not  involve  important

constitutional issues or issues of law of national importance.  The  adverse

effect of this trend is that matters of constitutional  importance  are  not

getting the due priority and are pending for several years.   Reference  has

been made to the  Statement  of  Objects  for  amending  the  Supreme  Court

(Number of Judges) Act, 1956 in the year 2008, to the effect  that  “it  has

not been possible for the Chief Justice of India to constitute a  five-judge

Bench on a regular basis to  hear  the  cases  involving  interpretation  of

constitutional law as doing  that  would  result  in  constitution  of  less

number of Division Benches which in turn would result in  delay  in  hearing

of other civil and criminal cases”.  In  spite  of  the  said  amendment  to

increase strength of judges to 31, larger Benches to  decide  constitutional

and important cases have not been  regularly  functioning.   On  account  of

increase in number of issues other than constitutional  law  or  substantial

questions of general importance, all the Benches  are  engaged  in  handling

the heavy routine work.  The court rooms are so crowded that  it  is  hardly

possible to enter a court room or to pass through the corridors.  “No  other

Supreme Court presents such an undignified sight.”   Further  reference  has

been made to functioning of other Supreme/highest courts  in  the  world  to

emphasize that the highest courts are engaged in deciding cases of  national

importance by larger benches of 9/11  judges  while  the  Supreme  Court  of

India is deciding most of the cases by Benches of two-judges, which has  its

own adverse implications.  Reference has also been made  to  the  discussion

between Sir B.N. Rau, the Constitutional Advisor and Justice Frankfurter  of

the U.S. Supreme Court that the  jurisdiction  exercisable  by  the  Supreme

Court should be exercised by Full Court.  It  is  further  stated  that  the

highest court should  have  limited  number  of  cases  and  should  not  be

overloaded.  On an average, in a year 80 cases are decided by Supreme  Court

of U.K., the Canadian Supreme Court  and  the  Australian  High  Court.   38

cases are decided by  Constitutional  Court  of  South  Africa  in  a  year.

Supreme Court of India is deciding large number of cases and the reports  in

the cases sometimes run upto 19 volumes in a year with only a few  cases  of

real constitutional or of national importance.  In  Australia  there  is  no

appeal to the highest court as of right and the cases are  entertained  only

if they are of  public  importance.   They  are  to  resolve  difference  of

opinion in different courts.  This was necessary to preserve efficiency  and

standing.  Reference is also made to the expert  opinion  that  no  litigant

should get more than two chances in litigation.  It is further  stated  that

“The Supreme Court of India must cease to be  a  mere  court  of  appeal  to

litigants and a daily mentor of the Government, if it  is  to  preserve  its

pristine character, dignity and stature comparable to the Supreme  Court  in

other jurisdictions.”  The Article ends with observation  “This  requires  a

national debate by Judges, Lawyers, jurists and informed public.”

37.   In Mathai alias Joby Vs. George[10], this Court referred to  the  R.K.

Jain  Memorial  Lecture  delivered  on  30th  January,  2010  by  Shri  K.K.

Venugopal, senior advocate to the effect that “an alarming state of  affairs

has developed in this Court  because  this  Court  has  gradually  converted

itself into a mere court of appeal which has sought to correct  every  error

which it finds in the judgments of the High Courts of the  country  as  well

as the vast number of  tribunals[11].    The  court  has  strayed  from  its

original character as a constitutional court  and  the  apex  court  of  the

country.  Failure to hear and dispose of cases within reasonable time  erode

confidence of the litigants in the apex court.  Reference  was  made  to  an

Article by Justice K.K. Mathew  to  the  effect  that  time,  attention  and

energy should be devoted to matters of larger public  concern.   Functioning

of Supreme Court was not  to  remedy  a  particular  litigant’s  wrong,  but

consideration of cases involving principles of wide public  or  governmental

interest which ought to be authoritatively  declared  by  the  final  court.

The docket of the court should be kept down  so  that  its  volume  did  not

preclude wise adjudication.  The matter was referred  for  consideration  of

the larger Bench for interpretation of Article 136. By the time, the  matter

came up for consideration of the larger Bench on  11th  January,  2016,  the

SLP became infructuous as the suit in which the impugned interim  order  was

passed itself had been decided.  This Court  while  dismissing  the  SLP  as

infructuous  observed  that  while  Article   136   could   be   used   with

circumspection but its scope could not be limited.

38.   In Bihar Legal Support Society Vs. Chief Justice of India[12], it  was

observed that Supreme Court was not  a  regular  court  of  appeal.   If  an

additional forum above the Tribunal was required to be set  up,  a  separate

national court of appeal could be created.  In this respect, the matter  was

also considered in 229th Report of the Law Commission submitted  in  August,

2009.  However, that is a different issue particularly when this  aspect  is

being separately considered by a different Bench in Writ Petition (C)  No.36

of 2016 titled V. Vasanthakumar Vs. Sri H.C. Bhatia.

39.   In Justice H.R. Khanna Memorial Lecture delivered  on  8th  September,

2014 by Hon’ble Mr. Justice J. Chelameswar of  this  Court,  the  topic  was

“the Supreme Court of India, its jurisdiction and problem  of  arrears”[13].

 It was stated that :

“The law declared by the Supreme Court in Hindustan Commercial Bank Ltd.  v.

Bhagwan Dass [AIR 1965 SC 1142] was that normally a  party  should  approach

the Supreme Court with a certificate of the High Court. Only in  exceptional

circumstances would the Supreme Court  relax  that  requirement,  is  simply

ignored. The exception has become the rule now. The result is more and  more

unsuccessful  people  getting  encouraged  to  have  another  go  at  it  by

approaching the Supreme Court. In most of the cases, what  is  sought  is  a

simple second or third “guess on facts” or taking another plausible view  of

the matter.

xxxx

Coming to matters where the  rights  and  obligations  of  the  parties  are

purely founded upon a local law i.e. a law made  by  the  legislature  of  a

State, etc., I do not see any harm befalling the nation, if the judgment  of

the High Court is to become final. At least in these  areas  of  litigation,

the time worn cliche “we are not final because we  are  infallible,  but  we

are infallible only because we are final” might as well be extended  to  the

decisions of the High Courts which are equally constitutional courts.”

40.   While there  may  be  no  lack  of  legislative  competence  with  the

Parliament to make provision for direct appeal to  the  Supreme  Court  from

orders  of  Tribunals  but  the  legislative  competence  is  not  the  only

parameter of constitutionality.  It can  hardly  be  gainsaid  that  routine

appeals  to  the  highest  court  may   result   in   obstruction   of   the

Constitutional role assigned to the highest court as observed above.    This

may affect the balance required to be maintained by  the  highest  court  of

giving priority to cases of national importance, for  which  larger  Benches

may be required to be constituted.  Routine direct appeals  to  the  highest

court in commercial litigation affecting individual  parties  without  there

being any issue of national  importance  may  call  for  reconsideration  at

appropriate  levels.   Further  question  is  composition  of  Tribunals  as

substitutes for High Courts and exclusion  of  High  Court  jurisdiction  on

account of  direct  appeals  to  this  Court.     Apart  from  desirability,

constitutionality of such provisions may need to  be  gone  into.   We  are,

however, not expressing any opinion on this aspect at this stage.

41.   We are thus of the view that in the first instance the Law  Commission

may look into the matter with the involvement of all the stakeholders.

42.   We make it clear that as far  as  heavy  pendency  in  this  Court  on

account of liberal  exercise  of  jurisdiction  under  Article  136  of  the

Constitution of India is concerned, we do not wish to make  any  comment  as

this is a matter in the discretion of the Court and it is for the  Court  to

address this issue.  Our discussion  is  limited  to  the  consideration  of

desirability of providing statutory appeals  directly  to  this  Court  from

orders of Tribunals on issues not affecting national or public interest  and

other aspects of statutory framework in respect of  Tribunals  as  discussed

above.

43.   The questions which  may  be  required  to  be  examined  by  the  Law

Commission are :

I     Whether any changes in the statutory  framework  constituting  various

Tribunals with regard to persons appointed, manner of appointment,  duration

of appointment, etc. is necessary in the light of judgment of this Court  in

Madras Bar Association (supra) or on any other consideration from the  point

of view of strengthening the rule of law?

II    Whether it is permissible and advisable to provide  appeals  routinely

to this Court only on a question of  law  or  substantial  question  of  law

which is  not  of  national  or  public  importance  without  affecting  the

constitutional role assigned to the  Supreme  Court  having  regard  to  the

desirability of decision being rendered within reasonable time?

III   Whether direct statutory appeals to the Supreme  Court  bypassing  the

High Courts from the  orders  of  Tribunal  affects  access  to  justice  to

litigants in remote areas of the country?

IV    Whether it is desirable to  exclude  jurisdiction  of  all  courts  in

absence of equally effective alternative mechanism for access to justice  at

grass root level as has been done in provisions of TDSAT  Act  (Sections  14

     and 15).

V     Any other incidental  or  connected  issue  which  may  be  considered

appropriate.

44.   We request the Law Commission to give its report as  far  as  possible

within one year.   Thereafter  the  matter  may  be  examined  by  concerned

authorities.

45.   Action taken by the Central Government, after its  consideration,  may

be  placed  on  record.   List  the  matter  in  November,  2017  before  an

appropriate Bench, preferably of three Judges to consider the  above  issue.

                                                      ………………………………………………..J.

                                                            [ ANIL R. DAVE ]

                                                      ………………………………………………..J.

                                                       [ ADARSH KUMAR GOEL ]

NEW DELHI;

AUGUST 09, 2016.

1A-FOR JUDGMENT            COURT NO.13               SECTION XVII

               S U P R E M E  C O U R T  O F  I N D I A

                       RECORD OF PROCEEDINGS

Civil Appeal  No(s).  3455/2010

GUJARAT URJA VIKAS NIGAM LTD.                      Appellant(s)

                                VERSUS

ESSAR POWER LIMITED                                Respondent(s)

Date : 09/08/2016 This appeal was called on for pronouncement of JUDGMENT

today.

For Appellant(s)

                     Ms. Hemantika Wahi,Adv.

                        Ms. Puja Singh, Adv.

                        Mr. Shubham Arya, Adv.

For Respondent(s)       Ms. N. Nagpal, Adv.

                     Mr. E. C. Agrawala,Adv.

      Hon'ble Mr. Justice Adarsh Kumar Goel pronounced the judgment  of  the

Bench comprising Hon'ble Mr. Justice Anil R. Dave and His Lordship.

      The appeal is allowed in  terms  of  the  signed  Reportable  Judgment

inter alia with following observations.

“We are thus of the view that in the first instance the Law  Commission  may

look into the matter with the involvement of all the stakeholders.

      We make it clear that as far  as  heavy  pendency  in  this  Court  on

account of liberal  exercise  of  jurisdiction  under  Article  136  of  the

Constitution of India is concerned, we do not wish to make  any  comment  as

this is a matter in the discretion of the Court and it is for the  Court  to

address this issue.  Our discussion  is  limited  to  the  consideration  of

desirability of providing statutory appeals  directly  to  this  Court  from

orders of Tribunals on issues not affecting national or public interest  and

other aspects of statutory framework in respect of  Tribunals  as  discussed

above.

      The questions which  may  be  required  to  be  examined  by  the  Law

Commission are :

I     Whether any changes in the statutory  framework  constituting  various

Tribunals with regard to persons appointed, manner of appointment,  duration

of appointment, etc. is necessary in the light of judgment of this Court  in

Madras Bar Association (supra) or on any other consideration from the  point

of view of strengthening the rule of law?

II    Whether it is permissible and advisable to provide  appeals  routinely

to this Court only on a question of  law  or  substantial  question  of  law

which is  not  of  national  or  public  importance  without  affecting  the

constitutional role assigned to the  Supreme  Court  having  regard  to  the

desirability of decision being rendered within reasonable time?

III   Whether direct statutory appeals to the Supreme  Court  bypassing  the

High Courts from the  orders  of  Tribunal  affects  access  to  justice  to

litigants in remote areas of the country?

IV    Whether it is desirable to  exclude  jurisdiction  of  all  courts  in

absence of equally effective alternative mechanism for access to justice  at

grass root level as has been done in provisions of TDSAT  Act  (Sections  14

and 15).

V     Any other incidental  or  connected  issue  which  may  be  considered

appropriate.

      We request the Law Commission to give its report as  far  as  possible

within one year.   Thereafter  the  matter  may  be  examined  by  concerned

authorities.

      Action taken by the Central Government, after its  consideration,  may

be  placed  on  record.   List  the  matter  in  November,  2017  before  an

appropriate Bench, preferably of three Judges to consider the above  issue.”

|       (VINOD KUMAR JHA)               | |        (SUMAN JAIN)                  |

|AR-CUM-PS                              | |COURT MASTER                          |

                 (Signed Reportable judgment is placed on the file)

|                                       | |                                      |

-----------------------

[1]    (1997) 3 SCC 261

[2]    Para 91

[3]    Para 92

[4]    (2014) 10 SCC 1

[5]    Para 123

[6]    Para 126

[7]    Para 130

[8]    Sections 14 and 15

[9]    (2013) 9 SCC (J) 43

[10]   .(2010) 4 SCC 358

[11]   Para 15

[12]   (1986) 4 SCC 767

[13]   (2015) 9 SCC (J-I)