REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal Nos.5399-5400 of 2016
Energy Watchdog …Appellant
Versus
Central Electricity Regulatory
Commission and Ors. Etc. …Respondents
WITH
Civil Appeal No.5347 of 2016
Prayas (Energy Group) …Appellant
Versus
Central Electricity Regulatory
Commission and Ors. …Respondents
AND
Civil Appeal No.5348 of 2016
Prayas (Energy Group) …Appellant
Versus
Central Electricity Regulatory
Commission and Ors. …Respondents
AND
Civil Appeal No.5364 of 2016
Punjab State Power Corpn. Ltd. …Appellant
Versus
Coastal Gujarat Power Ltd. & Ors. …Respondents
AND
Civil Appeal No.5346 of 2016
Ajmer Vidyut Nigam Ltd. and Ors. …Appellants
Versus
Central Electricity Regulatory
Commission and Ors. …Respondents
AND
Civil Appeal Nos.5351-5352 of 2016
Maharashtra State Electricity Distribution
Company Ltd. …Appellant
Versus
Central Electricity Regulatory
Commission and Ors. …Respondents
AND
Civil Appeal No.5415/2016
GRIDCO LTD. …Appellant
Versus
GMR – Kamalanga Energy Ltd. and Ors. …Respondents
AND
Civil Appeal Nos.9635-9642 of 2016
M/S. Coastal Gujarat Power Ltd. …Appellant
Versus
Central Electricity Regulatory
Commission and Ors. …Respondents
AND
Civil Appeal No.9035 of 2014
M/S Coastal Gujarat Power Ltd. …Appellant
Versus
Central Electricity Regulatory
Commission and Ors. …Respondents
J U D G M E N T
R.F. NARIMAN, J.
1. The present appeals arise from a judgment of the Appellate Tribunal
for Electricity dated 7th April, 2016. The facts necessary to appreciate
the issues which arise in the present case, which will cover all the cases
before us, will be taken only from Civil Appeal No.5348 of 2016, namely
Prayas (Energy) Group vs. Central Electricity Regulatory Commission.
2. Section 63 of the Electricity Act, 2003 provides for procurement of
power and determination of tariff by a transparent competitive bidding
process. Once this is done, the appropriate Commission is to “adopt” the
tariff which is accepted in the competitive bid subject to guidelines that
are made by the Central Government. On 19th January, 2005, the Central
Government issued detailed guidelines under this provision, which were
amended from time to time. On 1st February, 2006, Gujarat Urja Vikas Nigam
Limited (GUVNL) issued a public notice inviting proposals for supply of
power on long term basis under three different competitive bid processes.
The participating bidders were to decide on the tariff and quote such
tariff after competing against each other. The bidders were entitled to
quote escalable or non-escalable tariff or partly escalable and partly non-
escalable tariff, as was considered appropriate by them to cover their
respective risks so as to obtain whatever returns are available to them.
The best levelised tariff as per certain pre-disclosed criteria was to be
followed in order to arrive at the lowest tender.
3. Haryana Utilities also initiated a separate competitive bidding
process for purchase of 2000 MW on a long term basis. This was done on 25th
May, 2006. The participating bidders were also entitled to quote bids on
the lines of the GUVNL public notice. Both the Gujarat Electricity
Regulatory Commission and the Haryana State Regulatory Commission approved
the bid documents and the process proposed by GUVNL and the Haryana
Utilities, after which Requests for Proposal were issued by both of them.
On 2nd/4th January, 2007, Adani Enterprises Consortium submitted its bid
for generation and supply of 1000 MW to GUVNL, quoting a levelised tariff
of Rs.2.3495/kWh (Rs.1/kWh as the capacity charge and Rs.1.3495/kWh as non-
escalable energy charge). In the bid, the Consortium indicated that the
lead member, Adani Enterprises, had an arrangement for indigenous coal
requirement of the project with Gujarat Mineral Development Corporation, as
the said Corporation had been allotted a certain coal block in the State of
Chhattisgarh. Also, a Memorandum of Understanding was entered into
between Adani Enterprises Ltd. and a German Company for supply of non-
coking coal of 3 to 5 million tons (imported coal) on a long term basis
till the year 2032. A similar Memorandum of Understanding was also entered
into between Adani Enterprises and a Japanese agent for supply of 3 to 5
million tons of coal again on a long term basis. The two Memoranda of
Understanding were attached to the bid submitted by Adani Enterprises.
4. On 11th January, 2007, the Adani Enterprises Consortium was selected
by GUVNL as the successful bidder for supply of 1000 MW of power and a
Letter of Intent was issued in its favour. On 2nd February, 2007, a Power
Purchase Agreement was entered into between GUVNL and Adani Power and this
was for supply of power from a power project being set up at Korba in
Chhattisgarh. This was changed to a Mundra Project in Gujarat. On 18th
April, 2007, a supplementary PPA was signed to this effect.
5. As far as Haryana is concerned, Adani Power submitted their bid for
supply of 1425 MW of power to Haryana Utilities on 24th November, 2007.
This was at a levelised tariff of Rs.2.94/kWh from the Mundra Power
Project. The energy charges quoted were non-escalable. Adani Power
was declared as the successful bidder in Haryana for supply of 1424 MW
contracted capacity on 17th July, 2008 and a Letter of Intent was issued.
Two separate PPAs were executed by Adani Power with two Haryana entities
for supply of 712 MW of power to each of them from the Mundra Power
Project. The Haryana State Commission adopted the tariff under Section 63
of the Electricity Act on 31st July, 2008 (The Gujarat State Commission had
adopted the tariff under Section 63 for supply of power to GUVNL on 20th
December, 2007). An important part of the case on behalf of the
respondents is that a change in law in Indonesia took place in 2010 and
2011, which aligned the export price of coal from Indonesia to
international market prices instead of the price that was prevalent for the
last 40 years.This being the case, in both the cases, Adani Power filed a
petition before the Central Electricity Regulatory Commission being
Petition No.155 of 2012 on 5th July, 2012 under Section 79 of the
Electricity Act seeking relief on the score of the impact of the Indonesian
Regulation to either discharge them from the performance of the PPA on
account of frustration, or to evolve a mechanism to restore the petitioners
to the same economic condition prior to occurrence of the change in law.
6. On 16th October, 2012, the Central Commission held that the Power
Purchase Agreements entered into by Adani in both the cases constituted a
composite scheme for generation and sale of electricity as envisaged under
Section 79(1)(b) of the Electricity Act. This being so, it held that it
was the appropriate Commission under the Act and not the respective State
Commissions, which had jurisdiction in the matter. A review petition
against this order was dismissed on 16th January, 2013.
7. On 2nd April, 2013, the Central Commission passed an order, whereby
the claim of Adani Power on the grounds of force majeure and/or change in
law was held not to be admissible. However, the Commission held that in
exercise of the regulatory powers provided under Section 79 of the Act, the
Central Commission can provide redressal of grievances to generating
companies, considering the larger public interest, and hence constituted a
committee to look into the alleged difficulties faced by Adani and to find
an acceptable solution thereto.
8. On 16th August, 2013, pursuant to the order dated 2nd April, 2013,
the Committee constituted by the Commission submitted a report. Based on
the Committee’s report, on 21st February, 2014, the Central Commission
proceeded to grant compensatory tariff. Appeals and cross-appeals were
filed against this order, including cross objections. On 1st August, 2014,
cross-objection filed by Adani Power was rejected by the Appellate Tribunal
as not maintainable. On 31st October, 2014, the Appellate Tribunal
rejected the prayer for condonation of delay and consequently Appeal No.
10016 of 2014 was filed by Adani Power. Against this order, Adani Power
filed an appeal before the Supreme Court, and this Court, in its order
dated 31st March, 2015 held :
“the Appellant (Adani Power) is entitled to argue any proposition of law,
be it “force majeure” or “change in law” in support of the order dated
21.2.2014 quantifying the compensatory tariff, the correctness of which is
under challenge before the Appellate Tribunal in Appeal No.98 of 2014 and
Appeal No.116 of 2014 preferred by the respondents, so long as such
argument is based on the facts which are already pleaded before the Central
Commission.”
9. Finally, the Appellate Tribunal on 7th April, 2016, passed the
impugned judgment in all the aforesaid cases before us. The Tribunal held,
agreeing with the Commission, that generation and sale of power by Adani
Power to GUVNL and Haryana Utilities was a composite scheme within the
meaning of Section 79(1) (b) of the Act and that, therefore, the Central
Commission would have jurisdiction to proceed further in the matter. The
Appellate Tribunal considered the Supreme Court order dated 31st March,
2015 and felt that the argument of force majeure and change in law could be
gone into by it. It ultimately concluded, having regard to the law on
frustration contained in the Indian Contract Act, 1872 and the relevant
provisions of the PPAs, that force majeure was made out on the facts of
these cases and reversed the Commission on this score. It also reversed
the Commission on exercise of regulatory powers under Section 79, stating
that these powers could not be exercised once there was a PPA entered into
under Section 63 of the Act. It also held that change in law provisions do
not apply to foreign law and, therefore, changes in Indonesian law did not
come within the scope of the provisions. Insofar as changes in Indian law
were concerned, it held that the Government Policies that were relied upon,
do not constitute ‘law’. Accordingly, the matter was remanded to the
Commission to find out the impact of the force majeure event to grant
compensatory tariff. The Commission by its order dated 6.12.2016 has
arrived at a certain determination as to compensatory tariff to be granted
on account of force majeure.
10. We have heard learned counsel for the parties. On behalf of the
appellants Senior Counsel Shri Ramachandran, and Shri Prashant Bhushan have
argued that the liberty given to Adani Power by the order dated 31st March,
2015 of this Court was only limited to support the quantification of
compensatory tariff granted by the Central Commission by its order dated
21st February, 2014. Hence, Adani Power is not entitled to raise the issue
of force majeure and change in law as a substantive issue, the force
majeure claim and the change in law claim having been rejected by the
Central Commission in its earlier order; and there being no valid appeal
against the said order, force majeure and change in law cannot be gone
into. It is further argued, in the alternative, that in any case, force
majeure either under Section 56 of the Indian Contract Act, 1872 or under
clauses 12.3 and 7 of the respective PPAs make it clear that it must be an
unforeseen event or circumstance that wholly or partly prevents the
affected party in the performance of its obligations under the agreement.
According to learned counsel, Adani voluntarily decided to quote energy
charges as non-escalable in order to be competitive and, therefore, get the
award of the contract. It cannot now, in the guise of being affected by
force majeure, convert this into an escalable tariff. They have further
argued that the bid given by Adani Enterprises was not premised on the
import of coal from Indonesia only and this being the case it was open to
them to get coal from any source. The price of coal is the price of raw
material and if prices go up, a contract does not get frustrated merely
because it becomes commercially onerous, as the PPA itself states in clause
12.4. In any event, the fundamental basis of the PPAs between the parties
was not premised on the price of coal imported from Indonesia.
11. On a true construction of the Act, learned counsel argued in support
of the Tribunal judgment that Section 63 of the Electricity Act is a
standalone provision and is notwithstanding anything contained in Section
62. It is obvious that under Section 62 read with Section 61 and 64, the
Commission has to “determine” tariff under the Act having regard to various
factors, whereas under Section 63 of the Act, the Commission does not
“determine” but only “adopts” tariff obtained through a transparent process
of competitive bidding. This being the case, it is clear that there is no
residuary source of power contained in the Commission either in Section 79
or otherwise to fix compensatory tariffs once the tariff is adopted under
Section 63. If at all, such tariff can be modified only in accordance with
the guidelines issued by the Central Government and not otherwise. They
also argued that the Central Commission itself has no jurisdiction in view
of the fact that on facts there is no composite scheme for the reason that
the generation and sale of electricity from the power project of Adani,
under independent PPAs to Gujarat and Haryana Utilities, with different
tariffs, and from different generating units selected under different
competitive bidding processes, would show that there is no one composite
scheme containing uniform tariffs. This being the case, the State
Commissions alone would have jurisdiction. It was further argued that
there is no change in law, either for the very good reason stated by the
Commission, viz. that change in law applies to Indian and not Indonesian
law, and further, a change in the tariff policy in India will also not
constitute change in law. They, therefore, supported the Tribunal judgment
on this aspect.
12. Learned Senior counsel Shri Kapil Sibal, Shri Harish Salve, Dr.
Abhishek Manu Singhvi, and Shri C.S. Vaidyanathan, on behalf of the
respondents, on the other hand, countered each one of these submissions.
According to learned counsel, first and foremost the Central
Commission alone would have jurisdiction on the facts of these cases,
inasmuch as Sections 79 and 86 form part of one scheme. It was argued by
them that all cases fall within either Section 79 or Section 86. It is
clear that under Section 86, the State Commissions have
only to deal with generation and sale of electricity within the State.
When generation and sale takes place outside the State, as is the case
here, the State Commission would have no jurisdiction under Section 86, and
consequently Section 79(1)(b) has to be read as part of a scheme in which
the moment generation and sale of electricity is inter-State and not intra
State, the Central Commission alone would have jurisdiction. Judged in
this light, the expression “composite scheme” would only mean that
generation and sale of electricity would be in more than one State. For
this they also relied on the definition of “composite scheme” in the 2016
Central Government Policy.
13. They further argued that the scheme of the Act shows that neither 61
nor Section 79 are done away with when Section 63 applies. Section 63 does
not use the expression “notwithstanding anything contained in this Act”.
It is clear, therefore, that all these Sections have to be harmoniously
construed. Section 79 is without a doubt a repository of power to fix
tariffs and/or modify fixation even when Section 63 applies. Indeed, Shri
Sibal argued that if there were no guidelines or if a matter arose de hors
the guidelines, then obviously there cannot be a gap in the law which
remains unfilled. The residuary power of the Commission necessarily comes
in under Section 79. In any event, they also argued that the guidelines,
as amended, that are issued by the Central Government under Section 63
clearly take care of the present situation in that any change in law that
occurs and any dispute which relates to tariffs can both be resolved before
the Central Commission.
14. They also countered the submissions on force majeure by stating that
the fundamental basis of the contract was the fuel supply agreement that
was to be entered into, and pointed out various clauses in the PPAs to show
that the fuel supply agreement and imported coal were both very important
elements, both in the bid and the PPAs. Non-escalable tariffs do not lead
to the conclusion that if a source of coal becomes unavailable in a manner
that completely undermines the basis of the bid, the tariff cannot be
adjusted. If otherwise they fall within the change in law provision and/or
force majeure provision, the mere fact that a non-escalable tariff has been
quoted would make no difference. A large part of the argument was
centered around the meaning of the expression “frustration” in the Contract
Act and the correct construction of clause 12 of the PPA. A large number
of authorities, both English and Indian, were cited to show that the
contract had become commercially impracticable, and that they would have to
fold up operations, which would not be in public interest as the consumers
would then have to obtain electricity at rates much higher than were quoted
by them. According to them, a force majeure event in Clause 12 takes place
the moment performance is “hindered” and there can be no doubt that an
astronomical rise in prices of Indonesian coal, thanks to a change in law,
has certainly hindered performance. They also argued that in any event
the change in law clause is very wide and since the PPA deals with imported
coal, obviously change in law would cover foreign law. They also went on
to add that when the PPA wanted to restrict a particular clause to Indian
law, it did so expressly. They also stated that it is significant that
neither GUVNL nor Haryana Utilities had filed appeals in the present case,
and the Government had in several policy decisions and statements made it
clear that in cases like the present, where there is grave unforeseen
hardship on account of non-allocation of Indian coal, the rise in cost
should be adequately compensated. They, therefore, questioned the locus
standi of the consumer groups, who are the only appellants before us,
stating that on the estimation made by the respondents, the impact of
increase in both cases on tariff would be extremely minimal as opposed to
the huge accumulated losses suffered by these entities which would make
them fold up. Ultimately, it was argued that even the Central Commission
did not give them the entire benefit of rise in price in coal, and
consequently in the final analysis the relief granted on the ground of
force majeure by the Central Commission should not be disturbed, and relief
on the ground of change in law should, in addition, have been given to
them.
15. The learned Attorney General appearing on behalf of the Union of
India, submitted before us that he was not interested in the ultimate
outcome of the appeals before us. He was only appearing in order to
apprise us that the electricity sector, having been privatized, has largely
fulfilled the object sought to be achieved by the 2003 Act, which is that
electricity generation, being delicenced, should result in production of
far greater electricity than was earlier produced. He urged us not to
disturb the delicate balance sought to achieved by the Act i.e. that
producers or generators of electricity, in order that they set up power
plants, be entitled to a reasonable margin of profit and a reasonable
return on their capital, so that they are induced to set up more and more
power plants. This must be consistent with competitiveness among them,
which then translates itself into reasonable tariffs that are payable by
consumers of electricity. For this purpose, he relied strongly upon
Section 3 of the Electricity Act, which states that the Central Government,
shall from time to time, prepare a National Electricity Policy and a tariff
policy in consultation with the State Governments, and the authority for
development of the power system, based on optimal utilization of natural
resources. According to him, the National Electricity Policy and tariff
policy that are issued from time to time, being statutory in nature, are
binding on all concerned. This is, in fact, further recognized by Section
61(i) by which the appropriate Commission, in specifying terms and
conditions for determination of tariffs, shall be guided by the National
Electricity Policy and tariff policy. The Central Government’s role can
further be seen even in Section 63, where guidelines that are binding on
all are issued by the Central Government in cases where there is a
transparent process of bidding. Further, according to him, Section 79(4)
also points in the same direction, stating that, in discharge of its
functions, the Central Commission shall be guided by the National
Electricity Policy, National Electricity Plan, and tariff policy published
under Section 3. He also referred us to the Cabinet Committee for Economic
Affairs recognizing the overall shortfall in manufacture of domestic coal
and the new coal distribution policy issued in July, 2013 pursuant to the
Cabinet Committee which, according to him, are in the nature of binding
directions making it clear that as generators of electricity, who depend
upon indigenous coal, have been given less coal than was anticipated,
should be allowed either to import the coal themselves, or purchase
imported coal from Coal India Ltd., with the difference in price being
passed through to them. He further referred to and relied upon the revised
tariff policy of 28th January, 2016 for the same purpose.
Relevant provisions of the Electricity Act, 2003
16. The 2003 Act did away with three earlier statutes in which a
completely different regime for generating and supply of electricity was
provided for, namely, the Indian Electricity Act, 1910, the Electricity
(Supply) Act, 1928 and the Electricity Regulatory Commissions Act, 1998.
The Statement of Objects of Reasons for this Act reads as follows:
“The Electricity Supply Industry in India is presently governed by three
enactments namely, the Indian Electricity Act, 1910, the Electricity
(Supply) Act, 1948, the Electricity Regulatory Commissions Act, 1998.
1.1 The Indian Electricity Act, 1910 created the basic framework for
electric supply industry in India which was then in its infancy. The Act
envisaged growth of the electricity industry through private licensees.
Accordingly, it provided for licensees who could supply electricity in a
specified area. It created the legal framework for laying down of wires and
other works relating to the supply of electricity.
1.2 The Electricity (Supply) Act, 1948 mandated the creation of a State
Electricity Board. The State Electricity Board has the responsibility of
arranging the supply of electricity in the State. It was felt that
electrification which was limited to cities needed to be extended rapidly
and the State should step in to shoulder this responsibility through the
State Electricity Boards. Accordingly the State Electricity Boards through
the successive Five Year Plans undertook rapid growth expansion by
utilizing Plan funds.
1.3 Over a period of time, however, the performance of SEBs has
deteriorated substantially on account of various factors. For instance,
though power to fix tariffs vests with the State Electricity Boards, they
have generally been unable to take decisions on tariffs in a professional
and independent manner and tariff determination in practice has been done
by the State Governments. Cross-subsidies have reached unsustainable
levels. To address this issue and to provide for distancing of government
from determination of tariffs, the Electricity Regulatory Commissions Act,
was enacted in 1998. It created the Central Electricity Regulatory
Commission and has an enabling provision through which the State
Governments can create a State Electricity Regulatory Commission. 16 States
have so far notified/created State Electricity Regulatory Commissions
either under the Central Act or under their own Reform Acts.
2. Starting with Orissa, some State Governments have been undertaking
reforms through their own Reform Acts. These reforms have involved
unbundling of the State Electricity Boards into separate Generation,
Transmission and Distribution Companies through transfer schemes for the
transfer of the assets and staff into successor Companies. Orissa, Haryana,
Andhra Pradesh, Karnataka, Rajasthan and Uttar Pradesh have passed their
Reform Acts and unbundled their State Electricity Boards into separate
companies. Delhi and Madhya Pradesh have also enacted their Reforms Acts
which, inter alia, envisage unbundling/corporatisation of SEBs.
3. With the policy of encouraging private sector participation in
generation, transmission and distribution and the objective of distancing
the regulatory responsibilities from the Government to the Regulatory
Commissions, the need for harmonizing and rationalizing the provisions in
the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and
the Electricity Regulatory Commissions Act, 1998 in a new self-contained
comprehensive legislation arose. Accordingly, it became necessary to enact
a new legislation for regulating the electricity supply industry in the
country which would replace the existing laws, preserve its core features
other than those relating to the mandatory existence of the State
Electricity Board and the responsibilities of the State Government and the
State Electricity Board with respect to regulating licensees. There is also
need to provide for newer concepts like power trading and open access.
There is also need to obviate the requirement of each State Government to
pass its own Reforms Act. The Bill has progressive features and endeavours
to strike the right balance given the current realities of the power sector
in India. It gives the State enough flexibility to develop their power
sector in the manner they consider appropriate. The Electricity Bill, 2001
has been finalized after extensive discussions and consultations with the
States and all other stake holders and experts.
4. The main features of the Bill are as follows:-
(i) Generation is being delicensed and captive generation is being freely
permitted. Hydro projects would, however, need approval of the State
Government and clearance from the Central Electricity Authority which would
go into the issues of dam safety and optimal utilization of water
resources.
(ii) There would be a Transmission Utility at the Central as well as State
level, which would be a Government company and have the responsibility of
ensuring that the transmission network is developed in a planned and
coordinated manner to meet the requirements of the sector. The load
dispatch function could be kept with the Transmission Utility or separated.
In the case of separation the load dispatch function would have to remain
with a State Government organization/company.
(iii) There is provision for private transmission licensees.
(iv) There would be open access in transmission from the outset with
provision for surcharge for taking care of current level of cross subsidy
with the surcharge being gradually phased out.
(v) Distribution licensees would be free to undertake generation and
generating companies would be free to take up distribution licensees.
(vi) The State Electricity Regulatory Commissions may permit open access
in distribution in phases with surcharge for –
(a) current level of cross subsidy to be gradually phased out along with
cross subsidies; and
(b) obligation to supply.
(vii) For rural and remote areas stand alone systems for generation and
distribution would be permitted.
(viii) For rural areas decentralized management of distribution through
Panchayats, Users Associations, Cooperatives or Franchisees would be
permitted.
(ix) Trading as a distinct activity is being recognized with the safeguard
of the Regulatory Commissions being authorized to fix ceilings on trading
margins, if necessary.
(x) Where there is direct commercial relationship between a consumer and
a generating company or a trader the price of power would not be regulated
and only the transmission and wheeling charges with surcharge would be
regulated.
(xi) There is provision for a transfer scheme by which company/companies
can be created by the State Governments from the State Electricity Boards.
The State Governments have the option of continuing with the State
Electricity Boards which under the new scheme of things would be a
distribution licensee and the State Transmission Utility which would also
be owning generation assets. The service conditions of the employees would
as a result of restructuring not be inferior.
(xii) An Appellate Tribunal has been created for disposal of appeals
against the decision of the CERC and State Electricity Regulatory
Commissions so that there is speedy disposal of such matters. The State
Electricity Regulatory Commission is a mandatory requirement.
(xiii) Provisions relating to theft of electricity have a revenue
focus.
5. The Bill seeks to replace the Indian Electricity Act, 1910, the
Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions
Act, 1998.
6. The Bill seeks to achieve the above objects.”
17. In the present case, we are concerned with the following Sections:
“Section 3. National Electricity Policy and Plan. --- (1) The Central
Government shall, from time to time, prepare the National Electricity
Policy and tariff policy, in consultation with the State Governments and
the Authority for development of the power system based on optimal
utilisation of resources such as coal, natural gas, nuclear substances or
materials, hydro and renewable sources of energy.
(2) The Central Government shall publish the National Electricity Policy
and tariff policy from time to time.
(3) The Central Government may, from time to time in consultation with the
State Governments, and the Authority, review or revise, the National
Electricity Policy and tariff policy referred to in sub-section (1) .
(4) The Authority shall prepare a National Electricity Plan in accordance
with the National Electricity Policy and notify such plan once in five
years:
Provided that the Authority while preparing the National Electricity Plan
shall publish the draft National Electricity Plan and invite suggestions
and objections thereon from licensees, generating companies and the public
within such time as may be prescribed:
Provided further that the Authority shall –
(a) notify the plan after obtaining the approval of the Central Government;
(b) revise the plan incorporating therein the directions, if any, given by
the Central Government while granting approval under clause (a).
(5) The Authority may review or revise the National Electricity Plan in
accordance with the National Electricity Policy.
61. Tariff Regulations. The Appropriate Commission shall, subject to the
provisions of this Act, specify the terms and conditions for the
determination of tariff, and in doing so, shall be guided by the following,
namely:-
(a) the principles and methodologies specified by the Central Commission
for determination of the tariff applicable to generating companies and
transmission licensees;
(b) the generation, transmission, distribution and supply of electricity
are conducted on commercial principles;
(c) the factors which would encourage competition, efficiency, economical
use of the resources, good performance and optimum investments;
(d) safeguarding of consumers' interest and at the same time, recovery of
the cost of electricity in a reasonable manner;
(e) the principles rewarding efficiency in performance;
(f) multi-year tariff principles;
(g) that the tariff progressively reflects the cost of supply of
electricity and also reduces cross-subsidies in the manner specified by the
Appropriate Commission;
(h) the promotion of co-generation and generation of electricity from
renewable sources of energy;
(i) the National Electricity Policy and tariff policy:
Provided that the terms and conditions for determination of tariff under
the Electricity (Supply) Act, 1948, the Electricity Regulatory Commissions
Act, 1998 and the enactments specified in the Schedule as they stood
immediately before the appointed date, shall continue to apply for a period
of one year or until the terms and conditions for tariff are specified
under this section, whichever is earlier.
62. Determination of Tariff. (1) The Appropriate Commission shall determine
the tariff in accordance with provisions of this Act for – (a) supply of
electricity by a generating company to a distribution licensee:
Provided that the Appropriate Commission may, in case of shortage of supply
of electricity, fix the minimum and maximum ceiling of tariff for sale or
purchase of electricity in pursuance of an agreement, entered into between
a generating company and a licensee or between licensees, for a period not
exceeding one year to ensure reasonable prices of electricity;
(b) transmission of electricity ;
(c) wheeling of electricity;
(d) retail sale of electricity:
Provided that in case of distribution of electricity in the same area by
two or more distribution licensees, the Appropriate Commission may, for
promoting competition among distribution licensees, fix only maximum
ceiling of tariff for retail sale of electricity.
(2) The Appropriate Commission may require a licensee or a generating
company to furnish separate details, as may be specified in respect of
generation, transmission and distribution for determination of tariff.
(3) The Appropriate Commission shall not, while determining the tariff
under this Act, show undue preference to any consumer of electricity but
may differentiate according to the consumer's load factor, power factor,
voltage, total consumption of electricity during any specified period or
the time at which the supply is required or the geographical position of
any area, the nature of supply and the purpose for which the supply is
required.
(4) No tariff or part of any tariff may ordinarily be amended, more
frequently than once in any financial year, except in respect of any
changes expressly permitted under the terms of any fuel surcharge formula
as may be specified.
(5) The Commission may require a licensee or a generating company to comply
with such procedure as may be specified for calculating the expected
revenues from the tariff and charges which he or it is permitted to
recover.
(6) If any licensee or a generating company recovers a price or charge
exceeding the tariff determined under this section, the excess amount shall
be recoverable by the person who has paid such price or charge along with
interest equivalent to the bank rate without prejudice to any other
liability incurred by the licensee.
63. Determination of tariff by bidding process. Notwithstanding anything
contained in section 62, the Appropriate Commission shall adopt the tariff
if such tariff has been determined through transparent process of bidding
in accordance with the guidelines issued by the Central Government.
64. Procedure for tariff order. (1) An application for determination of
tariff under section 62 shall be made by a generating company or licensee
in such manner and accompanied by such fee, as may be determined by
regulations.
(2) Every applicant shall publish the application, in such abridged form
and manner, as may be specified by the Appropriate Commission.
(3) The Appropriate Commission shall, within one hundred and twenty days
from receipt of an application under sub-section (1) and after considering
all suggestions and objections received from the public,-
(a) issue a tariff order accepting the application with such modifications
or such conditions as may be specified in that order;
(b) reject the application for reasons to be recorded in writing if such
application is not in accordance with the provisions of this Act and the
rules and regulations made thereunder or the provisions of any other law
for the time being in force:
Provided that an applicant shall be given a reasonable opportunity of being
heard before rejecting his application.
(4) The Appropriate Commission shall, within seven days of making the
order, send a copy of the order to the Appropriate Government, the
Authority, and the concerned licensees and to the person concerned.
(5) Notwithstanding anything contained in Part X, the tariff for any inter-
State supply, transmission or wheeling of electricity, as the case may be,
involving the territories of two States may, upon application made to it by
the parties intending to undertake such supply, transmission or wheeling,
be determined under this section by the State Commission having
jurisdiction in respect of the licensee who intends to distribute
electricity and make payment therefor.
(6) A tariff order shall, unless amended or revoked, shall continue to be
in force for such period as may be specified in the tariff order.
79. Functions of Central Commission. (1) The Central Commission shall
discharge the following functions, namely:-
(a) to regulate the tariff of generating companies owned or controlled by
the Central Government;
(b) to regulate the tariff of generating companies other than those owned
or controlled by the Central Government specified in clause (a), if such
generating companies enter into or otherwise have a composite scheme for
generation and sale of electricity in more than one State;
(c) to regulate the inter-State transmission of electricity ;
(d) to determine tariff for inter-State transmission of electricity;
(e) to issue licenses to persons to function as transmission licensee and
electricity trader with respect to their inter-State operations;
(f) to adjudicate upon disputes involving generating companies or
transmission licensee in regard to matters connected with clauses (a) to
(d) above and to refer any dispute for arbitration;
(g) to levy fees for the purposes of this Act;
(h) to specify Grid Code having regard to Grid Standards;
(i) to specify and enforce the standards with respect to quality,
continuity and reliability of service by licensees;
(j) to fix the trading margin in the inter-State trading of electricity, if
considered, necessary;
(k) to discharge such other functions as may be assigned under this Act.
86. Functions of State Commission. – (1) The State Commission shall
discharge the following functions, namely, -
(a) determine the tariff for generation, supply, transmission and wheeling
of electricity, wholesale, bulk or retail, as the case may be, within the
State:
Provided that where open access has been permitted to a category of
consumers under Section 42, the State Commission shall determine only the
wheeling charges and surcharge thereon, if any, for the said category of
consumers;
(b) regulate electricity purchase and procurement process of distribution
licensees including the price at which electricity shall be procured from
the generating companies or licensees or from other sources through
agreements for purchase of power for distribution and supply within the
State;
(c) facilitate intra-state transmission and wheeling of electricity;
(d) issue licences to persons seeking to act as transmission licensees,
distribution licensees and electricity traders with respect to their
operations within the State;
(e) promote cogeneration and generation of electricity from renewable
sources of energy by providing suitable measures for connectivity with the
grid and sale of electricity to any person, and also specify, for purchase
of electricity from such sources, a percentage of the total consumption of
electricity in the area of a distribution licensee;
(f) adjudicate upon the disputes between the licensees, and generating
companies and to refer any dispute for arbitration;
(g) levy fee for the purposes of this Act;
(h) specify State Grid Code consistent with the Grid Code specified under
clause (h) of sub-section (1) of section 79;
(i) specify or enforce standards with respect to quality, continuity and
reliability of service by licensees;
(j) fix the trading margin in the intra-State trading of electricity, if
considered, necessary;
(k) discharge such other functions as may be assigned to it under this
Act.”
18. The construction of Section 63, when read with the other provisions
of this Act, is what comes up for decision in the present appeals. It may
be noticed that Section 63 begins with a non-obstante clause, but it is a
non-obstante clause covering only Section 62. Secondly, unlike Section 62
read with Sections 61 and 64, the appropriate Commission does not
“determine” tariff but only “adopts” tariff already determined under
Section 63. Thirdly, such “adoption” is only if such tariff has been
determined through a transparent process of bidding, and, fourthly, this
transparent process of bidding must be in accordance with the guidelines
issued by the Central Government. What has been argued before us is that
Section 63 is a stand alone provision and has to be construed on its own
terms, and that, therefore, in the case of transparent bidding nothing can
be looked at except the bid itself which must accord with guidelines issued
by the Central Government. One thing is immediately clear, that the
appropriate Commission does not act as a mere post office under Section 63.
It must adopt the tariff which has been determined through a transparent
process of bidding, but this can only be done in accordance with the
guidelines issued by the Central Government. Guidelines have been issued
under this Section on 19th January, 2005, which guidelines have been
amended from time to time. Clause 4, in particular, deals with tariff and
the appropriate Commission certainly has the jurisdiction to look into
whether the tariff determined through the process of bidding accords with
clause 4.
19. It is important to note that the regulatory powers of the Central
Commission, so far as tariff is concerned, are specifically mentioned in
Section 79(1). This regulatory power is a general one, and it is very
difficult to state that when the Commission adopts tariff under Section 63,
it functions de hors its general regulatory power under Section 79(1)(b).
For one thing, such regulation takes place under the Central Government’s
guidelines. For another, in a situation where there are no guidelines or
in a situation which is not covered by the guidelines, can it be said that
the Commission’s power to “regulate” tariff is completely done away with?
According to us, this is not a correct way of reading the aforesaid
statutory provisions. The first rule of statutory interpretation is that
the statute must be read as a whole. As a concomitant of that rule, it is
also clear that all the discordant notes struck by the various Sections
must be harmonized. Considering the fact that the non-obstante clause
advisedly restricts itself to Section 62, we see no good reason to put
Section 79 out of the way altogether. The reason why Section 62 alone has
been put out of the way is that determination of tariff can take place in
one of two ways – either under Section 62, where the Commission itself
determines the tariff in accordance with the provisions of the Act, (after
laying down the terms and conditions for determination of tariff mentioned
in Section 61) or under Section 63 where the Commission adopts tariff that
is already determined by a transparent process of bidding. In either case,
the general regulatory power of the Commission under Section 79(1)(b) is
the source of the power to regulate, which includes the power to determine
or adopt tariff. In fact, Sections 62 and 63 deal with “determination” of
tariff, which is part of “regulating” tariff. Whereas “determining” tariff
for inter-State transmission of electricity is dealt with by Section
79(1)(d), Section 79(1)(b) is a wider source of power to “regulate” tariff.
It is clear that in a situation where the guidelines issued by the Central
Government under Section 63 cover the situation, the Central Commission is
bound by those guidelines and must exercise its regulatory functions,
albeit under Section 79(1)(b), only in accordance with those guidelines.
As has been stated above, it is only in a situation where there are no
guidelines framed at all or where the guidelines do not deal with a given
situation that the Commission’s general regulatory powers under Section
79(1)(b) can then be used.
Jurisdiction of the Central Commission
20. The appellants have argued before us that the expression “composite
scheme” mentioned in Section 79(1) must necessarily be a scheme in which
there is uniformity of tariff under a PPA where there is generation and
sale of electricity in more than one State. It is not enough that
generation and sale of electricity in more than one State be the subject
matter of one or more PPAs, but that something more is necessary, namely,
that there must be a composite scheme for the same.
21. In order to appreciate and deal with this submission, it is necessary
to set out Section 2(5) of the Act which defines appropriate Government as
follows:
“2. Definitions. In this Act, unless the context otherwise requires,
(5) "Appropriate Government" means, -
(a) the Central Government, -
(i) in respect of a generating company wholly or partly owned by it;
(ii) in relation to any inter-State generation, transmission, trading or
supply of electricity and with respect to any mines, oil-fields, railways,
national highways, airports, telegraphs, broadcasting stations and any
works of defence, dockyard, nuclear power installations;
(iii) in respect of the National Load Despatch Centre; and Regional Load
Despatch Centre;
(iv) in relation to any works or electric installation belonging to it or
under its control ;
(b) in any other case, the State Government, having jurisdiction under this
Act;”
Sections 25 and 30 also have some bearing and are set out as under :
“25. Inter-State, regional and inter-regional transmission. For the
purposes of this Part, the Central Government may, make region-wise
demarcation of the country, and, from time to time, make such modifications
therein as it may consider necessary for the efficient, economical and
integrated transmission and supply of electricity, and in particular to
facilitate voluntary interconnections and co-ordination of facilities for
the inter-State, regional and inter-regional generation and transmission of
electricity.
30. Transmission within a State. The State Commission shall facilitate and
promote transmission, wheeling and inter-connection arrangements within its
territorial jurisdiction for the transmission and supply of electricity by
economical and efficient utilisation of the electricity.”
22. The scheme that emerges from these Sections is that whenever there is
inter-State generation or supply of electricity, it is the Central
Government that is involved, and whenever there is intra-State generation
or supply of electricity, the State Government or the State Commission is
involved. This is the precise scheme of the entire Act, including
Sections 79 and 86. It will be seen that Section 79(1) itself in sub-
sections (c), (d) and (e) speaks of inter-State transmission and inter-
State operations. This is to be contrasted with Section 86 which deals
with functions of the State Commission which uses the expression “within
the State” in sub-clauses (a), (b), and (d), and “intra-state” in sub-
clause (c). This being the case, it is clear that the PPA, which deals
with generation and supply of electricity, will either have to be governed
by the State Commission or the Central Commission. The State Commission’s
jurisdiction is only where generation and supply takes place within the
State. On the other hand, the moment generation and sale takes place in
more than one State, the Central Commission becomes the appropriate
Commission under the Act. What is important to remember is that if we were
to accept the argument on behalf of the appellant, and we were to hold in
the Adani case that there is no composite scheme for generation and sale,
as argued by the appellant, it would be clear that neither Commission would
have jurisdiction, something which would lead to absurdity. Since
generation and sale of electricity is in more than one State obviously
Section 86 does not get attracted. This being the case, we are constrained
to observe that the expression “composite scheme” does not mean anything
more than a scheme for generation and sale of electricity in more than one
State.
23. This also follows from the dictionary meaning [(Mc-Graw-Hill
Dictionary of Scientific and Technical Terms (6th Edition), and
P.Ramanatha Aiyar’s Advanced Law Lexicon (3rd Edition)] of the expression
“composite”:
(a) ‘Composite’ – “A re-recording consisting of at least two elements. A
material that results when two or more materials, each having its own,
usually different characteristics, are combined, giving useful properties
for specific applications. Also known as composite material.”
(b) ‘Composite character’ – “A character that is produced by two or more
characters one on top of the other.”
(c) ‘Composite unit” – “A unit made of diverse elements.”
The aforesaid dictionary definitions lead to the conclusion that the
expression “composite” only means “consisting of at least two elements”.
In the context of the present case, generation and sale being in more than
one State, this could be referred to as “composite”.
24. Even otherwise, the expression used in Section 79(1)(b) is that
generating companies must enter into or otherwise have a “composite
scheme”. This makes it clear that the expression “composite scheme” does
not have some special meaning – it is enough that generating companies
have, in any manner, a scheme for generation and sale of electricity which
must be in more than one State.
25. We must also hasten to add that the appellant’s argument that there
must be commonality and uniformity in tariff for a “composite scheme” does
not follow from the Section.
26. Another important facet of dealing with this argument is that the
tariff policy dated 6th June, 2006 is the statutory policy which is
enunciated under Section 3 of the Electricity Act. The amendment of 28th
January, 2016 throws considerable light on the expression “composite
scheme”, which has been defined for the first time as follows:
“5.11 (j) Composite Scheme: Sub-section (b) of Section 79(1) of the
Act provides that Central Commission shall regulate the tariff of
generating company, if such generating company enters into or otherwise
have a composite scheme for generation and sale of electricity in more than
one State.
Explanation: The composite scheme as specified under section 791) of the
Act shall mean a scheme by a generating company for generation and sale of
electricity in more than one State, having signed long-term or medium-term
PPA prior to the date of commercial operation of the project (the COD of
the last unit of the project will be deemed to be the date of commercial
operation of the project) for sale of at least 10% of the capacity of the
project to a distribution licensee outside the State in which such project
is located.”
27. That this definition is an important aid to the construction of
Section 79(1)(b) cannot be doubted and, according to us, correctly brings
out the meaning of this expression as meaning nothing more than a scheme by
a generating company for generation and sale of electricity in more than
one State. Section 64(5) has been relied upon by the Appellant as an
indicator that the State Commission has jurisdiction even in cases where
tariff for inter-State supply is involved. This provision begins with a
non-obstante clause which would indicate that in all cases involving inter-
State supply, transmission, or wheeling of electricity, the Central
Commission alone has jurisdiction. In fact this further supports the case
of the Respondents. Section 64(5) can only apply if, the jurisdiction
otherwise being with the Central Commission alone, by application of the
parties concerned, jurisdiction is to be given to the State Commission
having jurisdiction in respect of the licensee who intends to distribute
and make payment for electricity. We, therefore, hold that the Central
Commission had the necessary jurisdiction to embark upon the issues raised
in the present cases.
Force Majeure
28. A large part of the argument turned on the finding of the Appellate
Tribunal that the rise in price of coal consequent to change in Indonesian
law would be a force majeure event which would entitle the respondents to
claim compensatory tariff. Before embarking on the merits of this claim,
we must first advert to the argument of the appellant that force majeure
can only be argued for a very restricted purpose, as has been pointed out
in the Supreme Court judgment dated 31st March, 2015.
29. In order to appreciate this contention, it is first necessary to set
out the relevant portion of this judgment. By the judgment dated 31st
March, 2015, this Court held:
“13. By order dated 1-8-2014, the Appellate Tribunal dismissed the cross-
objections of the appellant herein as not maintainable. On 16-9-2014, the
appellant preferred Appeal No. DFR No. 2355 of 2014 before the Appellate
Tribunal against that part of the order dated 2-4-2013 which went against
the appellant. Obviously, there was a delay in preferring that appeal.
Therefore, the appellant filed an application bearing IA No. 380 of 2014
seeking condonation of delay in preferring the appeal which was rejected by
the impugned order. Hence, the instant appeal.
14. The issue before this Court is limited. It is the correctness of the
decision of the Appellate Tribunal in declining to condone the delay in
preferring the appeal against the order dated 2-4-2013 of the Central
Commission.
15. However, elaborate submissions were made regarding the scope of Order
41 Rule 22 of the Code of Civil Procedure, 1908 (for short “CPC”), and its
applicability to an appeal under Section 111 of the Act by the appellant
relying upon earlier decisions of this Court. The respondents submitted
that such an enquiry is wholly uncalled for as the cross-objections of the
appellant in Appeal No. 100 of 2013 stood rejected and became final.
16. Lastly, the learned counsel for the appellant submitted that even if
this Court comes to the conclusion that the appellant has not made out a
case for condonation of delay in preferring an appeal against the order
dated 2-4-2013 of the Central Commission, the appellant is entitled to
argue in the pending Appeals Nos. 98 and 116 of 2014 both the grounds of
“force majeure” and “change of law” not for the purpose of seeking the
relief of a declaration of the frustration of the contracts between the
appellants and the respondents, thereby relieving the appellant of his
obligations arising out of the contracts, but only for the purpose of
seeking the alternative relief of compensatory tariff. In other words, the
appellant's submission is that the facts which formed the basis of the
submission of the frustration of contracts are also relevant for supporting
the conclusion of the National Commission that the appellant is entitled
for the relief of compensatory tariff.
17. We agree with the respondents that we are not required to go into the
question of the applicability of Order 41 Rule 22 in the instant appeal as
the decision of the Appellate Tribunal to reject the cross-objections of
the appellant by its order dated 1-8-2014 has become final and no appeal
against the said order is pending before us.
18. We are also not required to go into the question whether the order of
the Central Commission dated 2-4-2013 by which it declined to grant a
declaration of frustration of the contracts either on the ground of “force
majeure” or on the ground of “change of law” is independently appealable,
since no such appeal even if maintainable, is preferred by the appellant.
19. The question whether the appellant made out a case for condonation of
delay in preferring the appeal before the Appellate Tribunal, in our
opinion, need not also be examined by us in view of the last submission
made by the appellant. If the appellant is not desirous of seeking a
declaration that the appellant is relieved of the obligation to perform the
contracts in question, the correctness of the decision of the Appellate
Tribunal in rejecting the application to condone the delay in preferring
the appeal would become purely academic. We are of the opinion that so long
as the appellant does not seek a declaration, such as the one mentioned
above, the appellant is entitled to argue any proposition of law, be it
“force majeure” or “change of law” in support of the order dated 21-2-2014
quantifying the compensatory tariff, the correctness of which is under
challenge before the Appellate Tribunal in Appeal No. 98 of 2014 and Appeal
No. 116 of 2014 preferred by the respondents, so long as such an argument
is based on the facts which are already pleaded before the Central
Commission.”
30. This Court dealt with an appeal arising out of an order of the
Appellate Tribunal dated 31st October, 2014, in which the Appellate
Tribunal declined to condone a delay of 481 days in preferring an appeal
against an order dated 2nd April, 2013.
31. As has been stated by this Court, the issue before the Court was
limited. This Court held that the appellant is entitled to argue force
majeure and change in law in pending Appeals Nos.98 and 116 of 2014. This
was because what was concluded by the Central Commission was force majeure
and change of law for the purpose of seeking the relief of declaration of
frustration of the contract between the appellant and the respondents,
thereby relieving the appellant of its obligations arising out of the
contract. Since the appellant was not desirous of seeking a declaration
that the appellant is relieved of the obligation of performing the contract
in question, the appellant is entitled to argue force majeure or change of
law in support of the Commission’s order of 21st February, 2014, which
quantified compensatory tariff, the correctness of which is under challenge
in Appeal Nos.98 and 116 of 2014. This being the case, it is clear that
this Court did not give any truncated right to argue force majeure or
change of law. This Court explicitly stated that both force majeure and
change of law can be argued in all its plenitude to support an order
quantifying compensatory tariff so long as the appellants do not claim that
they are relieved of performance of the PPAs altogether. This being the
case, we are of the view that the preliminary submission of the appellant
before us is without any force. Accordingly, the Appellate Tribunal
rightly went into force majeure and change of law.
32. “Force majeure” is governed by the Indian Contract Act, 1872. In so
far as it is relatable to an express or implied clause in a contract, such
as the PPAs before us, it is governed by Chapter III dealing with the
contingent contracts, and more particularly, Section 32 thereof. In so far
as a force majeure event occurs de hors the contract, it is dealt with by a
rule of positive law under Section 56 of the Contract. Sections 32 and 56
are set out herein:
“32. Enforcement of Contracts contingent on an event happening - Contingent
contracts to do or not to do anything if an uncertain future event happens,
cannot be enforced by law unless and until that event has happened. If the
event becomes impossible, such contracts become void.
56. Agreement to do impossible act - An agreement to do an act impossible
in itself is void.
Contract to do act afterwards becoming impossible or unlawful. A contract
to do an act which, after the contract made, becomes impossible or, by
reason of some event which the promisor could not prevent, unlawful,
becomes void when the act becomes impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible
or unlawful. Where one person has promised to do something which he knew
or, with reasonable diligence, might have known, and which the promisee did
not know, to be impossible or unlawful, such promisor must make
compensation to such promise for any loss which such promisee sustains
through the non-performance of the promise.”
33. Prior to the decision in Taylor vs. Caldwell, (1861-73) All ER Rep
24, the law in England was extremely rigid. A contract had to be
performed, notwithstanding the fact that it had become impossible of
performance, owing to some unforeseen event, after it was made, which was
not the fault of either of the parties to the contract. This rigidity of
the common law in which the absolute sanctity of contract was upheld was
loosened somewhat by the decision in Taylor vs. Caldwell in which it was
held that if some unforeseen event occurs during the performance of a
contract which makes it impossible of performance, in the sense that the
fundamental basis of the contract goes, it need not be further performed,
as insisting upon such performance would be unjust.
34. The law in India has been laid down in the seminal decision of
Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310. The second
paragraph of Section 56 has been adverted to, and it was stated that this
is exhaustive of the law as it stands in India. What was held was that the
word “impossible” has not been used in the Section in the sense of physical
or literal impossibility. The performance of an act may not be literally
impossible but it may be impracticable and useless from the point of view
of the object and purpose of the parties. If an untoward event or change
of circumstance totally upsets the very foundation upon which the parties
entered their agreement, it can be said that the promisor finds it
impossible to do the act which he had promised to do. It was further held
that where the Court finds that the contract itself either impliedly or
expressly contains a term, according to which performance would stand
discharged under certain circumstances, the dissolution of the contract
would take place under the terms of the contract itself and such cases
would be dealt with under Section 32 of the Act. If, however, frustration
is to take place de hors the contract, it will be governed by Section 56.
35. In M/s Alopi Parshad & Sons Ltd. v. Union of India, 1960 (2) SCR 793,
this Court, after setting out Section 56 of the Contract Act, held that the
Act does not enable a party to a contract to ignore the express covenants
thereof and to claim payment of consideration, for performance of the
contract at rates different from the stipulated rates, on a vague plea of
equity. Parties to an executable contract are often faced, in the course
of carrying it out, with a turn of events which they did not at all
anticipate, for example, a wholly abnormal rise or fall in prices which is
an unexpected obstacle to execution. This does not in itself get rid of
the bargain they have made. It is only when a consideration of the terms of
the contract, in the light of the circumstances existing when it was made,
showed that they never agreed to be bound in a fundamentally different
situation which had unexpectedly emerged, that the contract ceases to bind.
It was further held that the performance of a contract is never discharged
merely because it may become onerous to one of the parties.
36. Similarly, in Naihati Jute Mills Ltd. v. Hyaliram Jagannath, 1968 (1)
SCR 821, this Court went into the English law on frustration in some
detail, and then cited the celebrated judgment of Satyabrata Ghose v.
Mugneeram Bangur & Co. Ultimately, this Court concluded that a contract
is not frustrated merely because the circumstances in which it was made are
altered. The Courts have no general power to absolve a party from the
performance of its part of the contract merely because its performance has
become onerous on account of an unforeseen turn of events.
37. It has also been held that applying the doctrine of frustration must
always be within narrow limits. In an instructive English judgment namely,
Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH, 1961 (2) All ER 179, despite
the closure of the Suez canal, and despite the fact that the customary
route for shipping the goods was only through the Suez canal, it was held
that the contract of sale of groundnuts in that case was not frustrated,
even though it would have to be performed by an alternative mode of
performance which was much more expensive, namely, that the ship would now
have to go around the Cape of Good Hope, which is three times the distance
from Hamburg to Port Sudan. The freight for such journey was also double.
Despite this, the House of Lords held that even though the contract had
become more onerous to perform, it was not fundamentally altered. Where
performance is otherwise possible, it is clear that a mere rise in freight
price would not allow one of the parties to say that the contract was
discharged by impossibility of performance.
38. This view of the law has been echoed in ‘Chitty on Contracts’, 31st
edition. In paragraph 14-151 a rise in cost or expense has been stated not
to frustrate a contract. Similarly, in ‘Treitel on Frustration and Force
Majeure’, 3rd edition, the learned author has opined, at paragraph 12-034,
that the cases provide many illustrations of the principle that a force
majeure clause will not normally be construed to apply where the contract
provides for an alternative mode of performance. It is clear that a more
onerous method of performance by itself would not amount to an frustrating
event. The same learned author also states that a mere rise in price
rendering the contract more expensive to perform does not constitute
frustration. (See paragraph 15-158)
39. Indeed, in England, in the celebrated Sea Angel case, 2013 (1) Lloyds
Law Report 569, the modern approach to frustration is well put, and the
same reads as under:
“111. In my judgment, the application of the doctrine of frustration
requires a multi-factorial approach. Among the factors which have to be
considered are the terms of the contract itself, its matrix or context, the
parties’ knowledge, expectations, assumptions and contemplations, in
particular as to risk, as at the time of the contract, at any rate so far
as these can be ascribed mutually and objectively, and then the nature of
the supervening event, and the parties’ reasonable and objectively
ascertainable calculations as to the possibilities of future performance in
the new circumstances. Since the subject matter of the doctrine of
frustration is contract, and contracts are about the allocation of risk,
and since the allocation and assumption of risk is not simply a matter of
express or implied provision but may also depend on less easily defined
matters such as “the contemplation of the parties”, the application of the
doctrine can often be a difficult one. In such circumstances, the test of
“radically different” is important: it tells us that the doctrine is not to
be lightly invoked; that mere incidence of expense or delay or onerousness
is not sufficient; and that there has to be as it were a break in identity
between the contract as provided for and contemplated and its performance
in the new circumstances.”
40. It is clear from the above that the doctrine of frustration cannot
apply to these cases as the fundamental basis of the PPAs remains
unaltered. Nowhere do the PPAs state that coal is to be procured only from
Indonesia at a particular price. In fact, it is clear on a reading of the
PPA as a whole that the price payable for the supply of coal is entirely
for the person who sets up the power plant to bear. The fact that the fuel
supply agreement has to be appended to the PPA is only to indicate that the
raw material for the working of the plant is there and is in order. It is
clear that an unexpected rise in the price of coal will not absolve the
generating companies from performing their part of the contract for the
very good reason that when they submitted their bids, this was a risk they
knowingly took. We are of the view that the mere fact that the bid may be
non-escalable does not mean that the respondents are precluded from raising
the plea of frustration, if otherwise it is available in law and can be
pleaded by them. But the fact that a non-escalable tariff has been paid
for, for example, in the Adani case, is a factor which may be taken into
account only to show that the risk of supplying electricity at the tariff
indicated was upon the generating company.
41. Coming to the PPAs themselves, we find that the force majeure clause
contained in all of them is in a standard form and is as follows :
“12.3 Force Majeure
‘Force Majeure’ means any event or circumstance or combination of
events and circumstances including those stated below that wholly or partly
prevents or unavoidably delays an Affected Party in the performance of its
obligations under this Agreement, but only if and to the extent that such
events or circumstances are not within the reasonable control, directly or
indirectly, of the Affected Party and could not have been avoided if the
Affected Party had taken reasonable care or complied with Prudent Utility
Practices:
i. Natural Force Majeure Events:
act of God, including, but not limited to lightning, drought, fire and
explosion (to the extent originating from a source external to the Site),
earthquake, volcanic eruption, landslide, food, cyclone, typhoon, tornado,
or exceptionally adverse weather conditions which are in excess of the
statistical measures for the last hundred (100) years,
ii. Non-Natural Force Majeure Events:
Direct Non-Natural Force Majeure Events
Nationalization or compulsory acquisition by any Indian Government
Instrumentality or any material assets or rights of the Seller or the
Seller’s contractors; or
The unlawful, unreasonable or discriminatory revocation of, or refusal to
renew, any Consent required by the Seller or any of the Seller’s
contractors to perform their obligations under the Project Documents or any
unlawful, unreasonable or discriminatory refusal to grant any other consent
required for the development/ operation of the Project, provided that an
appropriate court of law declares the revocation or refusal to be unlawful,
unreasonable and discriminatory and strikes the same down; or
Any other unlawful, unreasonable or discriminatory action on the part of an
Indian Government Instrumentality which is directed against the Project,
provided that an appropriate court of law declares the revocation or
refusal to be unlawful, unreasonable and discriminatory and strikes the
same down.
Indirect Non – Natural Force Majeure Events
Any act of war (whether declared or undeclared), invasion, armed conflict
or act of foreign enemy, blockade, embargo, revolution, riot, insurrection,
terrorist or military action; or
Radio active contamination or ionising radiation originating from a source
in India or resulting from another Indirect Non Natural Force Majeure Event
excluding circumstances where the source or cause of contamination or
radiation is brought or has been brought into or near the site by the
affected party or those employed or engaged by the affected party; or
Industry wide strikes and labor disturbances having a nationwide impact in
India.
12.7 Available Relief for a Force Majeure Event
Subject to this Article 12:
No Party shall be in breach of its obligations pursuant to this Agreement
to the extent that the performance of its obligations was prevented,
hindered or delayed due to a Force Majeure Event;
Every Party shall be entitled to claim relief in relation to a Force
Majeure Event in regard to its obligations, including but not limited to
those specified under Article 4.5.
For the avoidance of doubt, it is clarified that no Tariff shall be paid by
the Procurers for the part of Contracted Capacity affected by a Natural
Force Majeure Event affecting the Seller, for the duration of such Natural
Force Majeure Event. For the balance part of the Contracted Capacity, the
Procurer shall pay the Tariff to the Seller, provided during such period of
Natural Force Majeure Event, the balance part of the Power Station is
declared to be Available for scheduling and dispatch as per ABT for supply
of power by the Seller to the Procurers.
If the average Availability of the Power Station is reduced below sixty
(60) percent for over two (2) consecutive months or for any non consecutive
period of four (4) months both within any continuous period of sixty (60)
months, as a result of an Indirect Non Natural Force Majeure, then, with
effect from the end of that period and for so long as the daily average
Availability of the Power Station continues to be reduced below sixty (60)
percent as a result of an Indirect Non Natural Force Majeure of any kind,
the Procurers shall make payments for Debt Service, relatable to such Unit,
which are due under the Financing Agreements, subject to a maximum of
Capacity Charges based on Normative Availability, and these amounts shall
be paid from the date, being the later of a) the date of cessation of such
Indirect Non Natural Force Majeure Event and b) the completion of sixty
(60) days from the receipt of the Financing Agreements by the Procurer(s)
from the Seller, in the form of an increase in Capacity Charge. Provided
such Capacity Charge increase shall be determined by CERC on the basis of
putting the Seller in the same economic position as the Seller would have
been in case the Seller had been paid Debt Service in a situation when the
Indirect Non Natural Force Majeure had not occurred.
Provided that the Procurers will have the above obligation to make payment
for the Debt Service only (a) after the Unit(s) affected by such Indirect
Non Natural Force Majeure Event has been Commissioned, and (b) only if in
the absence of such Indirect Non Natural Force Majeure Event, the
Availability of such Commissioned Unit(s) would have resulted in Capacity
Charges equal to Debt Services.
e) If the average Availability of the Power Station is reduced below
eighty (80) percent for over two (2) consecutive months or for any non
consecutive period of four (4) months both within any continuous period of
sixty (60) months, as a result of a Direct Non Natural Force Majeure, then,
with effect from the end of that period and for so long as the daily
average Availability of the Power Station continues to be reduced below
eighty (80) percent as a result of a Direct Non Natural Force Majeure of
any kind, the Seller may elect in a written notice to the Procurers, to
deem the Availability of the Power Station to be eighty (80) percentage
from the end of such period, regardless of its actual Available Capacity.
In such a case, the Procurers shall be liable to make payment to the Seller
of Capacity Charges calculated on such deemed Normative Availability, after
the cessation of the effects of Non Natural Direct Force Majeure in the
form of an increase in Capacity Charge. Provided such Capacity Charge
increase shall be determined by CERC on the basis of putting the Seller in
the same economic position as the Seller would have been in case the Seller
had been paid Capacity Charges in a situation where the Direct Non Natural
Force Majeure had not occurred.
For so long as the Seller is claiming relief due to any Non Natural Force
Majeure Event (or Natural Force Majeure Event affecting the Procurer/s)
under this Agreement, the Procurers may from time to time on one (1) days
notice inspect the Project and the Seller shall provide Procurer’s
personnel with access to the Project to carry out such inspections, subject
to the Procurer’s personnel complying with all reasonable safety
precautions and standards. Provided further the Procurers shall be
entitled at all times to request Repeat Performance Test, as per Article
8.1, of the Unit(s) Commissioned earlier and now affected by Direct or
Indirect Non Natural Force Majeure Event (or Natural Force Majeure event
affecting the Procurer/s), where such Testing is possible to be undertaken
in spite of the Direct or Indirect Non Natural Force Majeure Event (or
Natural Force Majeure Event affecting the Procurer/s), and the Independent
Engineer accepts and issues a Final Test Certificate certifying such
Unit(s) being capable of delivering the Contracted Capacity and being
Available, had there been no such Direct or Indirect Non Natural Force
Majeure Event (or Natural Force Majeure Event affecting the Procurer/s).
In case, the Available Capacity as established by the said Repeat
Performance Test (provided that such Repeat Performance Test, the
limitation imposed by Article 8.1.1 shall not apply) and Final Test
Certificate issued by the Independent Engineer is less than the Available
Capacity corresponding to which the Seller would have been paid Capacity
Charges equal to Debt Service in case of Indirect Non Natural Force Majeure
Event (or Natural Force Majeure Event affecting the Procurer/s), then the
Procurers shall make pro-rata payment of Debt Service but only with respect
to such reduced Availability. For the avoidance of doubt, if Debt Service
would have been payable at an Availability of 60% and pursuant to a Repeat
Performance Test it is established that the Availability would have been
40%, then Procurers shall make payment equal to Debt Service multiplied by
40% and divided by 60%. Similarly, the payments in case of Direct Non
Natural Force Majeure Event (and Natural Force Majeure Event affecting the
Procurer/s) shall also be adjusted pro-rata for reduction in Available
Capacity.
(g) In case of a Natural Force Majeure Event affecting the Procurer/s which
adversely affects the performance obligations of the Seller under this
Agreement, the provisions of sub-proviso (d) and (f) shall apply.
(h) For the avoidance of doubt, it is specified that the charges payable
under this Article 12 shall be paid by the Procurers in proportion to their
then existing Allocated Contracted Capacity.”
42. It has strongly been contended by counsel for the respondents that,
first and foremost, the force majeure clause is not exhaustive, but is only
inclusive. Further, it may wholly or partly prevent an affected party from
performance of obligations under the agreement. Rise in the price of
Indonesian coal, according to them, was unforeseen inasmuch as the PPAs
have been entered into sometime in 2006 to 2008, and the rise in price took
place only in 2010 and 2011. Such rise in price is also not within their
control at all and, therefore, clause 12.3 read with clause 12.7 would
apply. They further argued that the force majeure clause in the present
case went further and stated that so long as performance of their
obligation was “hindered” due to a force majeure event, they can claim
compensatory tariff.
43. First and foremost, the respondents are correct in stating that the
force majeure clause does not exhaust the possibility of unforeseen events
occurring outside natural and/or non-natural events. But the thrust of
their argument was really that so long as their performance is hindered by
an unforeseen event, the clause applies. ‘Chitty on Contracts’, 31st
edition at para 14-151 cites a number of judgments for the proposition that
the expression “hindered” must be construed with regard to words which
precede and follow it, and also with regard to the nature and general terms
of the contract. Given the fact that the PPA must be read as a whole, and
that clauses 12.3 and 12.7(a) are a part of the same scheme of force
majeure under the contract, it is clear that the expression “hindered” in
clause 12.7(a) really goes with the expression “partly prevents” in clause
12.3. Force majeure clauses are to be narrowly construed, and obviously
the expression “prevents” in clause 12.3 is spoken of also in clause
12.7(a). When “prevent” is preceded by the expression “wholly or partly”,
it is reasonable to assume that the expression “prevented” in clause
12.7(a) goes with the expression “wholly” in clause 12.3 and the expression
“hindered” in clause 12.7(a) goes with the expression “partly”. This
being so, it is clear that there must be something which partly prevents
the performance of the obligation under the agreement. Also, ‘Treitel on
Frustration and Force Majeure’, 3rd edition, in paragraph 15-158 cites the
English judgment of Tennants (Lancashire) Ltd. v. G.S. Wilson and Co. Ltd.,
1917 Appeal Cases 495 for the proposition that a mere rise in price
rendering the contract more expensive to perform will not constitute
“hindrance”. This is echoed in the celebrated judgment of Peter Dixon &
Sons Ltd. v. Henderson, Craig & Co. Ltd., 1919(2) KB 778 in which it was
held that the expression “hinders the delivery” in a contract would only be
attracted if there was not merely a question of rise in price, but a
serious hindrance in performance of the contract as a whole. At the
beginning of the First World War, British ships were no longer available,
and although foreign shipping could be obtained at an increased freight,
such foreign ships were liable to be captured by the enemy and destroyed
through mines or sub-marines, and could be detained by British or allied
warships. In the circumstances, the Tennants (Lancashire) Ltd. judgment
was applied, and the Court of Appeals held:
“Under the circumstances, can it be said that the sellers were not
“hindered or prevented” within the meaning of the contract? It is not a
question of price, merely an increase of freight. Tonnage had to be
obtained to bring the pulp in Scandinavian ships, and although the
difficulty in obtaining tonnage may be reflected in the increase of
freight, it was not a mere matter of increase of freight; if so, there were
standing contracts that ought to have been fulfilled. Counsel for the
respondents urged that certain shipowners, for reasons of their own, chose
not to fulfil standing contracts. It was not only shipowners but pulp
buyers and sellers. The whole trade was dislocated, by reason of the
difficulty that had arisen in tonnage. It seems to me that the language of
Lord Dunedin in Tennants, Ld. v. Wilson & Co. is applicable to the present
case: “Where I think, with deference to the learned judges, the majority of
the Court below have gone wrong is that they have seemingly assumed that
price was the only drawback. I do not think that price as price has
anything to do with it. Price may be evidence, but it is only one of many
kinds of evidence as to shortage. If the appellants had alleged nothing but
advanced price they would have failed. But they have shown much more.” That
is exactly so here. Price, as price only, would not have affected it. They
were all standing contracts, but the position has so changed by reason of
the war that buyers and sellers and the whole trade were hindered or
prevented from carrying out those contracts.”
44. As a matter of fact, clause 12.4 of the PPA, which deals with force
majeure exclusions, reads as follows :
“12.4 Force Majeure Exclusions
Force Majeure shall not include (i) any event or circumstance which is
within the reasonable control of the parties and (ii) the following
conditions, except to the extent that they are consequences of an event of
Force Majeure:
Unavailability, late delivery, or changes in cost of the plant, machinery,
equipment, materials, spare parts, fuel or consumables for the Project;
Delay in the performance of any contractor, sub-contractors or their agents
excluding the conditions as mentioned in Article 12.2;
Non-performance resulting from normal wear and tear typically experienced
in power generation materials and equipment;
Strikes or labour disturbance at the facilities of the Affected Party;
Insufficiency of finances or funds or the agreement becoming onerous to
perform; and
Non-performance caused by, or connected with, the Affected Party’s:
Negligent or intentional acts, errors or omissions;
Failure to comply with an Indian Law; or
Breach of, or default under this Agreement or any Project Documents.”
This clause makes it clear that changes in the cost of fuel, or the
agreement becoming onerous to perform, are not treated as force majeure
events under the PPA itself.
45. We are, therefore, of the view that neither was the fundamental basis
of the contract dislodged nor was any frustrating event, except for a rise
in the price of coal, excluded by clause 12.4, pointed out. Alternative
modes of performance were available, albeit at a higher price. This does
not lead to the contract, as a whole, being frustrated. Consequently, we
are of the view that neither clause 12.3 nor 12.7, referable to Section 32
of the Contract Act, will apply so as to enable the grant of compensatory
tariff to the respondents. Dr. Singhvi, however, argued that even if clause
12 is held inapplicable, the law laid down on frustration under Section 56
will apply so as to give the respondents the necessary relief on the ground
of force majeure. Having once held that clause 12.4 applies as a result of
which rise in the price of fuel cannot be regarded as a force majeure event
contractually, it is difficult to appreciate a submission that in the
alternative Section 56 will apply. As has been held in particular, in the
Satyabrata Ghose case, when a contract contains a force majeure clause
which on construction by the Court is held attracted to the facts of the
case, Section 56 can have no application. On this short ground, this
alternative submission stands disposed of.
Change in Law
46. It has been submitted on behalf of the counsel for the respondents,
that the guidelines of 19th January, 2005, as amended by the 18th August,
2006 amendment, make it clear that any change in law, either abroad or in
India, would result in the consequential rise in price of coal being given
to the power generators. Since various provisions of the guidelines as
well as the power purchase agreements are referred to, we set them out
herein:
Guidelines
“Clause 2.3.
2.3 Unless explicitly specified in these guidelines, the provisions of
these guidelines shall be binding on the procurer. The process to be
adopted in event of any deviation proposed from these guidelines is
specified later in these guidelines under para 5.16.
Clause 4.3
4.3. Tariffs shall be designated in Indian Rupees only. Foreign exchange
risks, if any, shall be borne by the supplier. Transmission charges in all
cases shall be borne by the procurer.
Provided that the foreign exchange rate variation would be permitted in the
payment of energy charges [in the manner stipulated in para 4.11 (iii)] if
the procurer mandates use of imported fuel for coastal power station in
case-2.
Clause 4.7. (unamended)
Any change in tax on generation or sale of electricity as a result of any
change in Law with respect to that applicable on the date of bid submission
shall be adjusted separately.
Clause 4.7 (amended).
Any change in law impacting cost or revenue from the business of selling
electricity to the procurer with respect to the law applicable on the date
which is 7 days before the last date for RFP bid submission shall be
adjusted separately. In case of any dispute regarding the impact of any
change in law, the decision of the Appropriate Commission shall apply.
5.4. Standard documentation to be provided by the procurer in the RFQ shall
include - (ii) Model PPA proposed to be entered into with the seller of
electricity. The PPA shall include necessary details on:
Risk allocation between parties;
Technical requirements on minimum load conditions;
Assured offtake levels;
Force majeure clauses as per industry standards;
Lead times for scheduling of power;
Default conditions and cure thereof, and penalties;
Payment security proposed to be offered by the procurer.
Clause 5.6. Standard documentation to be provided by the procurer in the
RFP shall include - (ii) PPA proposed to be entered with the selected
bidder.
The model PPA proposed in the RFQ stage may be amended based on the inputs
received from the interested parties, and shall be provided to all parties
responding to the RFP. No further amendments shall be carried out beyond
the RFP stage;
Clause 5.16 (old)
Deviation from process defined in the guidelines
Clause 5.16. In case there is any deviation from these guidelines, the
same shall be subject to approval by the Appropriate Commission. The
Appropriate Commission shall approve or require modification to the bid
documents within a reasonable time not exceeding 90 days.
Clause 5.17 (old)
Arbitration
Clause 5.17. The procurer will establish an Amicable Dispute Resolution
(ADR) mechanism in accordance with the provisions of the Indian Arbitration
and Conciliation Act, 1996. The ADR shall be mandatory and time-bound to
minimize disputes regarding the bid process and the documentation thereof.
If the ADR fails to resolve the dispute, the same will be subject to
jurisdiction of the appropriate Regulatory Commission under the provisions
of the Electricity Act, 2003.
Clause 5.16 (new)
Deviation from process defined in the guidelines
5.16 In case there is any deviation from these guidelines, the same shall
be subject to approval by the Appropriate Commission. The Appropriate
Commission shall approve or require modification to the bid documents
within a reasonable time not exceeding 90 days.
Clause 5.17 (new)
Arbitration
Clause 5.17 Where any dispute arises claiming any change in or regarding
determination of the tariff or any tariff related matters, or which partly
or wholly could result in change in tariff, such dispute shall be
adjudicated by the Appropriate Commission.
All other disputes shall be resolved by arbitration under the Indian
Arbitration and Conciliation Act, 1996.
Power purchase agreement
“Bid Deadline” shall mean the last date for submission of the Bid in
response to the RFP, specified in Clause 2.8 of the RFP;
“Dispute” means any dispute or difference of any kind between a Procurer
and the Seller or between the Procurers (jointly) and the Seller, in
connection with or arising out of this Agreement including any issue on the
interpretation and scope of the terms of this Agreement as provided in
Article 17;
“Electricity Laws” means the Electricity Act, 2003 and the rules and
regulations made thereunder from time to time along with amendments thereto
and replacements thereof and any other Law pertaining to electricity
including regulations framed by the Appropriate Commission;
“Fuel” means primary fuel used to generate electricity namely,
_______________”,
“Fuel Supply Agreements” means the agreement(s) entered into between the
Seller and the Fuel Supplier for the purchase, transportation and handling
of the Fuel, required for the operation of the Power Station. In case the
transportation of the Fuel is not the responsibility of the Fuel Supplier,
the term shall also include the separate agreement between the Seller and
the Fuel Transporter for the transportation of Fuel in addition to the
agreement between the Seller and the Fuel Supplier for the supply of the
Fuel;
“Law” means, in relation to this Agreement, all laws including Electricity
Laws in force in India and any statute, ordinance, regulation, notification
or code, rule, or any interpretation of any of them by an Indian Government
Instrumentality and having force of law and shall further include all
applicable rules, regulations, orders, notifications by an Indian
Governmental Instrumentality pursuant to or under any of them and shall
include all rules, regulations, decisions and orders of the Appropriate
Commission;
“Project Documents” mean
Construction Contracts;
Fuel Supply Agreements, including the Fuel Transportation Agreement, if
any;
O&M contacts;
RFP and RFP Project Documents; and
Any other agreements designated in writing as such, from time to time,
jointly by the Procurers and the Seller;
13. ARTICLE 13: CHANGE IN LAW
13.1 Definitions
In this Article 13, the following terms shall have the following meanings:
13.1.1 “Change in Law” means the occurrence of any of the following
events after the date, which is seven (7) days prior to the Bid Deadline:
(i) the enactment, bringing into effect, adoption, promulgation,
amendment, modification or repeal, of any Law or (ii) a change in
interpretation of any Law by a competent Court of law, tribunal or Indian
Governmental Instrumentality provided such Court of law, tribunal or Indian
Governmental Instrumentality is final authority under law for such
interpretation or (iii) change in any consents, approvals or licenses
available or obtained for the Project, otherwise than for default of the
Seller, which results in any change in any cost of or revenue from the
business of selling electricity by the Seller to the Procurers under the
terms of this Agreement, or (iv) any change in the (a) Declared value of
Land for the Project or (b) the cost of implementation of resettlement and
rehabilitation package of the land for the Project mentioned in the RFP or
(c) the cost of implementing Environmental Management Plan for the Power
Station mentioned in the RFP, indicated under the RFP and the PPA;
but shall not include (i) any change in any withholding tax on income or
dividends distributed to the shareholders of the Seller, or (ii) change in
respect of UI Charges or frequency intervals by an Appropriate Commission.
Provided that if Government of India does not extend the income tax holiday
for power generation projects under Section 80 IA of the Income Tax Act,
upto the Scheduled Commercial Operation Date of the Power Station, such non-
extension shall be deemed to be a Change in Law.
13.1.2 “Competent Court” means:
The Supreme Court or any High Court, or any tribunal or any similar
judicial or quasi-judicial body in India that has jurisdiction to
adjudicate upon issues relating to the Project.
13.2 Application and Principles for computing impact of Change in Law
While determining the consequence of Change in Law under this Article 13,
the Parties shall have due regard to the principle that the purpose of
compensating the Party affected by such Change in Law, is to restore
through Monthly Tariff Payments, to the extent contemplated in this Article
13, the affected Party to the same economic position as if such Change in
Law has not occurred.
Construction Period
As a result of any Change in Law, the impact of increase/decrease of
Capital Cost of the Project in the Tariff shall be governed by the formula
given below:
For every cumulative increase/decrease of each Rupees Fifty crores (Rs.50
crores) in the Capital Cost over the term of this Agreement, the
increase/decrease in Non Escalable Capacity Charges shall be an amount
equal to zero point two six seven (0.267%) of the Non Escalable Capacity
Charges. Provided that the Seller provides to the Procurers documentary
proof of such increase/decrease in Capital Cost for establishing the impact
of such Change in Law. In case of Dispute, Article 17 shall apply.
It is clarified that the above mentioned compensation shall be payable to
either Party, only with effect from the date on which the total
increase/decrease exceeds amount of Rs.fifty (50) crores.
Operation Period
As a result of Change in Law, the compensation for any increase/decrease in
revenues or cost to the Seller shall be determined and effective from such
date, as decided by the Central Electricity Regulatory Commission whose
decision shall be final and binding on both the Parties, subject to rights
of appeal provided under applicable Law.
Provided that the above mentioned compensation shall be payable only if and
for increase/decrease in revenues or cost to the Seller is in excess of an
amount equivalent to 1% of Letter of Credit in aggregate for a Contract
Year.
13.3 Notification of Change in Law
13.3.1 If the Seller is affected by a Change in Law in accordance with
Article 13.2 and wishes to claim a Change in Law under this Article, it
shall give notice to the Procurers of such Change in Law as soon as
reasonably practicable after becoming aware of the same or should
reasonably have known of the Change in Law.
13.3.2 Notwithstanding Article 13.3.1, the Seller shall be obliged to serve
a notice to all the Procurers under this Article 13.3.2 if it is
beneficially affected by a Change in Law. Without prejudice to the factor
of materiality or other provisions contained in this Agreement, the
obligation to inform the Procurers contained herein shall be material.
Provided that in case the Seller has not provided such notice, the
Procurers shall jointly have the right to issue such notice to the Seller.
13.3.3 Any notice served pursuant to this Article 13.3.2 shall
provide, amongst other things, precise details of:
(a) the Change in Law; and
(b) the effects on the Seller of the matters referred to in Article 13.2.
13.4 Tariff Adjustment Payment on account of Change in Law
13.4.1 Subject to Article 13.2, the adjustment in Monthly Tariff
Payment shall be effective from:
(i) the date of adoption, promulgation, amendment, re-enactment or repeal
of the Law or Change in Law; or
(ii) the date of order/judgment of the Competent Court or tribunal or
Indian Governmental Instrumentality, if the Change in Law is on account of
a change in interpretation of Law.
13.4.2 The payment for Changes in Law shall be through Supplementary
Bill as mentioned in Article 11.8. However, in case of any change in
Tariff by reason of Change in Law, as determined in accordance with this
Agreement, the Monthly Invoice to be raised by the Seller after such change
in Tariff shall appropriately reflect the changed Tariff.
17.3.1 Where any Dispute arises from a claim made by any Party for any
change in or determination of the Tariff or any matter related to Tariff or
claims made by any Party which partly or wholly relate to any change in the
Tariff or determination of any of such claims could result in change in the
Tariff or (ii) relates to any matter agreed to be referred to the
Appropriate Commission under Articles 4.7.1, 13.2, 18.1 or clause 10.1.3 of
Schedule 17 hereof, such Dispute shall be submitted to adjudication by the
Appropriate Commission. Appeal against the decisions of the Appropriate
Commission shall be made only as per the provisions of the Electricity Act,
2003, as amended from time to time.
18.1 Amendment
This Agreement may only be amended or supplemented by a written
agreement between the Parties and after duly obtaining the approval of the
Appropriate Commission, where necessary.”
47. The respondents have argued before us that it is clear from the
change made in clause 4.7 of the guidelines read with clause 5.17 that any
change in law impacting cost or revenue from the business of selling
electricity shall be adjusted separately. Learned counsel for the
respondents have argued that “any change in law” is not qualified and,
therefore, would include foreign law. According to them, the power
purchase agreement is subservient to the guidelines and can never negate
the terms of the guidelines. Under clauses 4.7 and 5.1.7 of the
guidelines, these guidelines are binding on all parties including the
procurers and any deviation therefrom has to be approved by the appropriate
Commission. Therefore, according to them, the PPA must be read as
including foreign laws as well. On the other hand, our attention was
invited to the definition of “electricity laws” and it was argued that
clause 13 would have to be read in the light of the PPA provisions and so
read it would not include changes in Indonesian law, being foreign and not
Indian Law.
48. Both the guidelines and the model PPA, of which clause 13 is a part,
have been drafted by the Central Government itself. It is, therefore,
clear that the PPA only fleshes out what is mentioned in clause 4.7 of the
guidelines, and goes on to explain what the expression “any change in law”
means. This being the case, it is clear that the definition of “law”
speaks of all laws including electricity laws in force in India.
Electricity laws, as has been seen from the definition, means the
Electricity Act, rules and regulations made thereunder from time to time,
and any other law pertaining to electricity. This being so, it is clear
that the expression “in force in India” in the definition of ‘law’ goes
with “all laws”. This is for the reason that otherwise the said expression
would become tautologous, as electricity laws that are in force in India
are already referred to in the definition of “electricity laws” as
contained in the PPA. Once this is clear, at least textually it is clear
that “all laws” would have to be read with “in force in India” and would,
therefore, refer only to Indian laws. Even otherwise, from a reading of
clause 13, it is clear that clause 13.1.1 is in four different parts. The
first part speaks of enacted laws; the second speaks of interpretation of
such laws by Courts or other instrumentalities; the third speaks of changes
in consents, approvals or licences which result in change in cost of the
business of selling electricity; and the fourth refers to any change in the
declared law of the land for the project, cost of implementation of re-
settlement and rehabilitation or cost of implementing the environmental
management plan. ‘Competent Court’ in clause 13.1.2 is defined as meaning
only the judicial system of India.
49. First and foremost, the expression “any law” occurs in both sub-
section (1) and sub-section (2) of clause 13.1.1, which expression must be
given the same meaning in both sub-sections. This being the case, as in
sub-clause (2), this expression would refer only to Indian law, the same
meaning will have to be given to the very same expression in sub-clause
(1). Even otherwise, sub-clauses (1) and (2) form part of the same
contractual scheme in that sub-clause (1) refers to the enactment of laws,
whereas sub-clause (2) relates to interpretation of those very laws by a
competent Court of law/Tribunal or Indian Government instrumentality.
‘Competent Court’, as we have seen above, speaks only of the Indian
judicial system and, therefore, the enactments spoken of in sub-clause (1)
would necessarily refer only to Indian enactments.
50. However, we were referred to other clauses in the PPA, for example,
clauses 12.4(f)(ii), 4.1.1(a) and 17.1, all of which speak of Indian law.
It was, therefore, argued that wherever the parties wanted to refer to
Indian law, they did so explicitly, and from this it should be inferred
that the expression “law” would otherwise include all laws whether Indian
or otherwise.
51. This argument is based on the Latin maxim expressio unius est
exclusio alterius. This maxim has been referred to in a number of
judgments of this Court in which it has been described as a ‘useful servant
but a dangerous master’. (See for example CCE v. National Tobacco Co. of
India Ltd., (1972) 2 SCC 560 at Para 30).
From a reading of the above, it is clear that if otherwise the
expression “any law” in clause 13 when read with the definition of “law”
and “Electricity Laws” leads unequivocally to the conclusion that it refers
only to the law of India, it would be unsafe to rely upon the other clauses
of the agreement where Indian law is specifically mentioned to negate this
conclusion.
52. It was also argued, placing reliance upon the fact that a commercial
contract is to be interpreted in a manner which gives business efficacy to
such contract, that the subject matter of the PPA being “imported coal”,
obviously the expression “any law” would refer to laws governing coal that
is imported from other countries. We are afraid, we cannot agree with this
argument. There are many PPAs entered into with different generators.
Some generators may source fuel only from India. Others, as is the case in
the Adani Haryana matter, would source fuel to the extent of 70% from India
and 30% from abroad, whereas other generators, as in the case of Gujarat
Adani and the Coastal case, would source coal wholly from abroad. The
meaning of the expression “change in law” in clause 13 cannot depend upon
whether coal is sourced in a particular PPA from outside India or within
India. The meaning will have to remain the same whether coal is sourced
wholly in India, partly in India and partly from outside, or wholly from
outside. This being the case, the meaning of the expression “any law” in
clause 13 cannot possibly be interpreted in the manner suggested by the
respondents. English judgments and authorities were cited for the
proposition that if performance of a contract is to be done in a foreign
country, what would be relevant would be foreign law. This would be true
as a general statement of law, but for the reason given above, would not
apply to the PPAs in the present case.
53. However, in so far as the applicability of clause 13 to a change in
Indian law is concerned, the respondents are on firm ground. It will be
seen that under clause 13.1.1 if there is a change in any consent, approval
or licence available or obtained for the project, otherwise than for the
default of the seller, which results in any change in any cost of the
business of selling electricity, then the said seller will be governed
under clause 13.1.1. It is clear from a reading of the Resolution dated
21st June, 2013, which resulted in the letter of 31st July, 2013, issued by
the Ministry of Power, that the earlier coal distribution policy contained
in the letter dated 18th March, 2007 stands modified as the Government has
now approved a revised arrangement for supply of coal. It has been decided
that, seeing the overall domestic availability and the likely requirement
of power projects, the power projects will only be entitled to a certain
percentage of what was earlier allowable. This being the case, on 31st
July, 2013, the following letter, which is set out in extenso states as
follows :
FU-12/2011-IPC (Vol-III)
Government of India
Ministry of Power
Shram Shakti Bhawan, New Delhi
Dated 31st July, 2013
To,
The Secretary,
Central Electricity Regulatory Commission,
Chanderlok Building, Janpath,
New Delhi
Subject: Impact on tariff in the concluded PPAs due to shortage in domestic
coal availability and consequent changes in NCDP.
Ref. CERC’s D.O. No.10/5/2013-Statutory Advice/CERC dated 20.05.13
Sir,
In view of the demand for coal of power plants that were provided
coal linkage by Govt. of India and CIL not signing any Fuel Supply
Agreement (FSA) after March, 2009, several meetings at different levels in
the Government were held to review the situation. In February 2012, it was
decided that FSAs will be signed for full quantity of coal mentioned in the
Letter of Assurance (LOAs) for a period of 20 years with a trigger level of
80% for levy of disincentive and 90% for levy of incentive. Subsequently,
MOC indicated that CIL will not be able to supply domestic coal at 80%
level of ACQ and coal will have to be imported by CIL to bridge the gap.
The issue of increased cost of power due to import of coal/e-auction and
its impact on the tariff of concluded PPAs were also discussed and CERC’s
advice sought.
2. After considering all aspects and the advice of CERC in this regard,
Government has decided the following in June 2013:
i) taking into account the overall domestic availability and actual
requirements, FSAs to be signed for domestic coal component for the levy of
disincentive at the quantity of 65%, 65%, 67% and 75% of Annual Contracted
Quantity (ACQ) for the remaining four years of the 12th Plan.
ii) to meet its balance FSA obligations, CIL may import coal and supply
the same to the willing TPPs on cost plus basis. TPPs may also import coal
themselves if they so opt.
iii) higher cost of imported coal to be considered for pass through as per
modalities suggested by CERC.
3. Ministry of Coal vide letter dated 26th July 2013 has notified the
changes in the New Coal Distribution Policy (NCDP) as approved by the CCEA
in relation to be coal supply for the next four years of the 12th Plan
(copy enclosed).
4. As per decision of the Government, the higher cost of import/market
based e-auction coal be considered for being made a pass through on a case
to case basis by CERC/SERC to the extent of shortfall in the quantity
indicated in the LoA/FSA and the CIL supply of domestic coal which would be
minimum of 65%, 65%, 67% and 75% of LOA for the remaining four years of the
12th Plan for the already concluded PPAs based on tariff based competitive
bidding.
5. The ERCs are advised to consider the request of individual power
producers in this regard as per due process on a case to case basis in
public interest. The Appropriate Commissions are requested to take
immediate steps for the implementation of the above decision of the
Government.
This issues with the approval of MOS(P)I/C.
Encl: as above
Yours faithfully,
Sd/-
(V.Apparao)
Director
This is further reflected in the revised tariff policy dated 28th January,
2016, which in paragraph 1.1 states as under :
In compliance with Section 3 of the Electricity Act 2003, the Central
Government notified the Tariff Policy on 6th January, 2006. Further
amendments to the Tariff Policy were notified on 31st March, 2008, 20th
January, 2011 and 8th July, 2011. In exercise of powers conferred under
Section 3(3) of Electricity Act, 2003, the Central Government hereby
notifies the revised Tariff Policy to be effective from the date of
publication of the resolution in the Gazette of India.
Notwithstanding anything done or any action taken or purported to have been
done or taken under the provisions of the Tariff Policy notified on 6th
January, 2006 and amendments made thereunder, shall, in so far as it is not
inconsistent with this Policy, be deemed to have been done or taken under
provisions of this revised policy.
Clause 6.1 states:
6.1 Procurement of Power
As stipulated in para 5.1, power procurement for future requirements should
be through a transparent competitive bidding mechanism using the guidelines
issued by the Central Government from time to time. These guidelines
provide for procurement of electricity separately for base load
requirements and for peak load requirements. This would facilitate setting
up of generation capacities specifically for meeting such requirements.
However, some of the competitively bid projects as per the guidelines dated
19th January, 2005 have experienced difficulties in getting the required
quantity of coal from Coal India Limited (CIL). In case of reduced
quantity of domestic coal supplied by CIL, vis-Ã -vis the assured quantity
or quantity indicated in Letter of Assurance/FSA the cost of
imported/market based e-auction coal procured for making up the shortfall,
shall be considered for being made a pass through by Appropriate Commission
on a case to case basis, as per advisory issued by Ministry of Power vide
OM NO.FU-12/2011-IPC (Vol-III) dated 31.7.2013.
Both the letter dated 31st July, 2013 and the revised tariff policy
are statutory documents being issued under Section 3 of the Act and have
the force of law. This being so, it is clear that so far as the
procurement of Indian coal is concerned, to the extent that the supply from
Coal India and other Indian sources is cut down, the PPA read with these
documents provides in clause 13.2 that while determining the consequences
of change in law, parties shall have due regard to the principle that the
purpose of compensating the party affected by such change in law is to
restore, through monthly tariff payments, the affected party to the
economic position as if such change in law has not occurred. Further, for
the operation period of the PPA, compensation for any increase/decrease in
cost to the seller shall be determined and be effective from such date as
decided by the Central Electricity Regulation Commission. This being the
case, we are of the view that though change in Indonesian law would not
qualify as a change in law under the guidelines read with the PPA, change
in Indian law certainly would.
54. However, Shri Ramachandran, learned senior counsel for the
appellants, argued that the policy dated 18th October, 2007 was announced
even before the effective date of the PPAs, and made it clear to all
generators that coal may not be given to the extent of the entire quantity
allocated. We are afraid that we cannot accede to this argument for the
reason that the change in law has only taken place only in 2013, which
modifies the 2007 policy and to the extent that it does so, relief is
available under the PPA itself to persons who source supply of coal from
indigenous sources. It is to this limited extent that change in law is
held in favour of the respondents. Certain other minor contentions that
are raised on behalf of both sides are not being addressed by us for the
reason that we find it unnecessary to go into the same. The Appellate
Tribunal’s judgment and the Commission’s orders following the said judgment
are set aside. The Central Electricity Regulatory Commission will, as a
result of this judgment, go into the matter afresh and determine what
relief should be granted to those power generators who fall within clause
13 of the PPA as has been held by us in this judgment.
55. All the appeals are disposed of accordingly.
…………………………………..J.
(PINAKI CHANDRA GHOSE )
…….…………………………… J.
(R.F. NARIMAN)
New Delhi;
April 11, 2017
