Holding

CERC’s general regulatory power under Section 79(1)(b) is the source of its authority to adopt tariffs, and only changes in Indian law, not foreign law, trigger the change‑in‑law relief under clause 13 of the PPAs; the rise in Indonesian coal prices does not constitute force majeure, so compensatory tariff must be reconsidered accordingly.

Summary

The Supreme Court examined appeals by power generators challenging the Central Electricity Regulatory Commission’s (CERC) refusal to grant compensatory tariff after a rise in Indonesian coal prices. The Court clarified that CERC’s authority to adopt or determine tariffs under Section 63 is derived from its general regulatory power under Section 79(1)(b) of the Electricity Act, 2003. It held that the increase in coal price due to foreign law does not constitute a force‑majeure event or a “change in law” under the Power Purchase Agreements (PPAs), which expressly exclude cost escalations from such relief. Only changes in Indian law qualify for compensation under clause 13 of the PPAs. The Court also affirmed CERC’s jurisdiction over inter‑state generation schemes and directed it to reconsider relief for generators falling within clause 13. Consequently, the Tribunal’s judgment and the Commission’s orders were set aside, and the appeals were disposed of.

Issues considered

The scope of CERC’s regulatory power under Section 79(1)(b) vis‑à‑vis tariff adoption under Section 63.
Whether a rise in coal price caused by a change in Indonesian law qualifies as force majeure or change in law under the PPAs.
The interpretation of the ‘composite scheme’ requirement for CERC’s jurisdiction.
The applicability of clause 13’s ‘any law’ to foreign versus Indian law.
The entitlement of generators to compensatory tariff for increased fuel costs.

Legislation cited

Electricity Act, 2003s. 25, s. 3, s. 30, s. 56, s. 62, s. 63, s. 64, s. 79(1)(b), s. 79(1)(d), s. 86
Indian Contract Act, 1872s. 32, s. 56

Subjects

Electricity Acttariff determinationforce majeurechange in lawcomposite schemeCERC jurisdictionPower Purchase Agreementcompensatory tariffIndian Contract Act

Judgment

[2017] 3 S.C.R. 153

ENERGY WATCHDOG A

CENTRAL ELECTRICITY REGULATORY COMMISSION AND
ORS. ETC.
(Civil Appeal Nos. 5399-5400of2016) B
APRIL 11, 2017
[PINAKI CHANDRA GIIOSE AND R. K NAIUMAN, JJ.)
Electricity Act, 2003 - ss. 63, 79 - Determination of tariff by
bidding process - Supply of power from power project - Power c
Purchase Agreement (PPA) between State Government Utilities and
power generating companies - State Commission adopted tariff
u/s. 63 for supply of power to Slate Government Utilities - However,
few years later, change in Indonesian law which increased the export
price of coal from Indonesia to international market - .Petition by
power generating companies before Ce171ral Electricity Regulatory D
Commission seeking relief due to change in Indonesian law -
Commission held that the claim of power generating companies on
the grounds of force majeure and/or change in law not admissible,
however, in exercise of regulatory power uls. 79 granted .
compensatory tariff- Tribunal set aside the order of the Commission
E
- On appeal, held: PPA 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-As such force /1iajeure
would not apply so as to enable the grant of co111pensatory tariff -
PPAs does not state that coal is to be procured only from Indonesia
at a particular price - Price payable for the supply of coal is entirely F
for the person who sets up the power plant to bear - Unexpected
rise in the price of coal would not absolve the generating co111panies
from performing their part of the contract since this was a risk they
knowingly took - Also, expression 'any law' in Cl.13 of PPA refers
to law of India - In view thereof. though change in Indonesian law
G
would not qualify as a change in law under the guidelines read
with the PPA, change in Indian law certainly would - CERC to go
into the matter afresh and determine the relief to be granted to those
power generators who fall within Cl.13 of the PPA.
s. 79 - Regulatory powers of Central Commission u/s. 79{l){b)
H
153
154 SUPREME COURT REPORTS [2017] 3 S.C.R.

A - Interpretation of - Held: General regulatory power of the
Commission u/s. 79(1}(b) is the source of the power to regulate,
which includes the power to determine or adopt tariff- I11 a situation
where the guidelines issued by the Central Government u/s. 63 cover
the situation. the Central Commission is bou11d by those guidelines
and must exercise its regulatory functions, only in accordance with
B
those guidelines - It is 011ly i11 a situation where there are no
guidelines framed at all or where the guidelines do not deal with a
given situation that the Commission '.I· ge11eral regulatory powers
uls. 79(1J(b) ca11 then be used.
Power Purchase Agreement - Clause of force majeure -
c Application of
Disposing of the appeals, the Court
HELD: 1. The regulatory powers of the Central
Commission, so far as tariff is concerned, are specifically
D mentioned in Section 79(1) of the Electricity Act, 2003. This
regulatory power is a g~neral 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. l<or another, in a situation
E where there are no guidelines or in a situation which is not
covered by the guidelines, the Commission's power to "regulate"
tariff is completely done away with, is not a correct way of reading
the said statutory provisions. The first rule of statutory
interpretation is that the. statute must be read as a whole. As a
F 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, there is 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 determinatio~ of tariff can take
G 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 alrea~y
H .determined by a transparent process of bidding. In either case,
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 155
REGULATORY COMMISSION

the general regulatory power of the Commission under Section A
. 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 ·
del!I 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(l)(d), Section 79(1)(b) is
B
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. It is only in a situation where there are no c
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(l)(b) caii then be used. [Para 19Jll80-
E-ll; 181-A-D]
2.1 The scheme that emerges from Sections 25 and 30 is D
that whenever there is inter-Stale 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 would be seen that Section 79(1) itself in sub-sections E
(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, F
which deals with generation and supply of electricity, would 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 pla.:e in more than
one State, the Central Commission becomes the appropriate G
Commission under the Act. If the submission of the appellant is
accepted and it is held in the AD's case that there is no composite
scheme for generation and sale, it would be clear that neither
Commission would .have jurisdiction, something which would lead
H
156 SUPREME COURT REPORTS [2017] 3 S.C.R.

A to absurdity. Since generation and sale of electricity is in more
than one State obviously Section 86 docs not get attracted. This
being the case, it is observed that the expression "composite
scheme" does not mean anything more than a scheme for
~:eneration and sale of electricity in more than one State. The
dictionary definitions lead to the conclusion. that the expression
8
"composite" only means "consisting of at least two elements".
In the context of the instant case, generation and sale being in
more than one State, this could be referred to as "composite".
Even otherwise, the expression used in Section 79(l)(b) is that
generating companies must enter into or otherwise. have a
c "composite scheme". This makes it clear that the expression
"composite scheme" docs not have some special meaning-it is
enough that generating companies have, in any manner, a scheme
for gcnerntion and sale of electricity which must be in more than
one State. [Paras 22-25)(182-F-G; 183-A-C)
D Dictionary of Scientific and Technical Terms by Mc-
Graw-Hill 6th Edu; Advanced Law Lexicon by P.
Ramanatha Aiyar 3rd Edn - referred to.
2.2 The tariff policy dated 6'h June, 2006 is the statutory
policy which is enunciated under Section 3 of the Electricity Act.
E The amendment of 28'h January, 2016 throws considerable light
on the expression "composite scheme". The definition of
composite scheme in the Tariff Policy is an important aid to the
construction of Section 79(1)(b) which cannot be doubted and,
correctly brings out the meaning of this expression as meaning
nothing more tlian a scheme by a generating company for
F generation and sale of electricity in more than one State. Section
. 64(5) begins with a non-obstante clause which would indicate that
in all cases involving inter-State sup11ly, transmission, or wheeling
of electricity, the Central Commission alone has jurisdiction.
Section 64(5) can only apply if, the jurisdiction otherwise being
G with the Central Commission alone, by application of the parties
concerned, jurisdiction is to be given lo the State Con1mission
having jurisdiction in respect of the licensee who intends to
distribute and make payment for electricity. Therefore, the
Central Commission had the necessary jurisdiction to embark
upon the issues raised in the instant cases. [Paras 26,27)(184-A-
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 157
REGULATORY COMMISSION

B, E-F, G-11; 185-AJ A
3.1 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 Act, 1872. The doctrine of frustration cannot apply
to these cases as the fundamental basis of the PPAs remains
unaltered. Nowhere do the PPAs stale that coal is to be procured B
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 lo 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 c
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. The mere fact 'that the bid may be 11011-escalable does not
mean that the respondents are precluded from raising the plea of· D
frustrntion, if otherwise it is available in law and can be pleaded
by them. But the fact that a 11on-cscalable tariff has been paid for,
for example, in the AD's 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. [Paras 32,
4U][ J~7-Il; 191-D-F] E

'Chitty on Contracts' 31st Edn., para 14-151; 'Trei1el
on Frustralion and Force lvfajeure' 3rd edn., para
12-034, 15-158 - referred to.
3.2 Given the fact that the PPA must be read as a whole, F
and .that clauses 12.3 and 12.7(a) are ·a part of the same scheme
of force majeure under the contrnct, 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" G
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 H
158 SUPREME COURT REPORTS [2017] 3 S.C.R.

A partly prevents the performance of the obligation under the
agreement. Clause 12.04 of PPA makes it clear that changes in
the cost of fuel, or the agreement becoming onerous to perform,
arc not treated as force majcure events under the PPA itself.
Thus, neither was the fundamental basis of the contract dislodged
nor was any frustrating cvcut, except for a rise in the price of
B
coal, excluded by clause 12.4. Alternative modes of performance
were available, albeit at a higher price. This does not lead to the
contract, as a whole, being frustrated. Consequently, neither
clause 12.3 nor 12.7, referable to Section 32 of the Contract Act,
would apply so as to enable the grant of com1>ensatory tariff to ,
.c the respondents. 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 would apply. [Paras
43-451[196-E-H; 198-F-ll; 199-A-CJ
D Satyabrata Ghose v. Mugneeram Banger & Co. (1954]
SCR 310; Mis Alopi Parshad & Sons Ltd. v. Union of
India (1960] 2 SCR 793; Nailiati Jute Mills Ltd. v.
Hyaliram Jagannath (1968] 1 SCR 821 - referred to.
Taylor v. Caldwell (1861-73) All ER Rep 24;
E Tsakiroglou & Co. Ltd. v. Noblee Thor! GmbH 1961 (2)
All ER 179; Sea Angel case 2013 (1) Lloyds Law
Report 569; Tennants (Lancashire) Ltd. 1.: GS. Wilson
and Co. Ltd. 1917 Appeal Cases 495; Peter Dixon &
Sons Ltd. v. Henderson, Craig&. Co. Ltd. 1919 (2) KB
778 - referred to.
F
4.1 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
G case, it is dear 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
H the expression "in force in India" in the definition of 'law' goes ·
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 159
REGULATORY COMMISSION

with "all laws". This is for the reason that otherwise the said A
expression would become tautologous, as electricity laws that
are in force in ~ndia arc 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
B
laws. Even otherwise, from a reading of clause 13, it is clear that
clause 13.1.l 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 c
change in the declared law of the land for the project, cost of
implementation of re-settlement anti 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. [Para 481[206-G-ll; 207-A~U]
D
4.2 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 E
(1) and (2) form part of the same contractual scheme in that sub-
clause (1) refers to the euactni'ent of laws, whereas sub-clause
(2) relates to interpretation of those very laws by a competent
Court of law!fribunal or Indian Government instrumentality.
'Competent Court', speaks only of the Indian judicial system and, F
therefore, the enactments spoken of in sub-clause (1) would
necessarily refer only to Indian enactments. 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 G
Indian law is specifically mentioned to negate this conclusion.
(Paras 4?, 5111207-E-G; 208-C]
4.3 The submission that a commercial contract is to be
interpreted in a manner which gives business efficacy to such
H
160 SUPREME COURT REPORTS [2017] 3 S.C.R.

A. 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. rnnnot be accepted.
There arc many P.PAs entered into with different generntors.
Some generators ma~· source Cud only from India. Others, as is
the case in the AD's matter, "ould ~ource fuel to the ·extent of
B
70% from lmlia and 30%P.from abroad, whereas other generators,
as in the case of GA an~ the CS case, would source coal wholl)
·' , 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
C would have to remain the same whether coal is sourced wholly in
India, partly in India and partly from outside, or wholly from
outside. 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, would not apply to the Pl'As in the instant case.
0
[Para 52)(208-D-G]
4.4 It would be seen th:1t under cl:tuse 13.1.1 if there is a
change in any consent, approval or liecnce available or obtained
for the project, otherwise than fur the default of the seller, which
results in any change in any cost of the business of selling
E electricity, then the said seller will be governed under clause
13.1.1. It is clear from a reading of the Resolution dated 21".
June, 2013, which resulted in the letter of 31" July, 2013, issued
by the Ministry of Power, that the earlier coal distribution policy
contained in the letter dated l81h March, 2007 stands modified as
F 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 would only be entitled to a certain percentage
of what was earlier allowable. [Para 53)(208-H; 209-A-C)
4.5 Both tlie letter dated 31.07.2013 and the revised tariff
G policy are statutory documents being issued u/s. 3 and have the
force oflaw. 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
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 161
REGULATORY COMMISSION

determining the consequences of change in law, parties shall have A
due regard to the principle that the purpose of compensating the
party affected by such change in law is to restore, through monthly
tal'iff payments, the affected party to the economic position as if
such change in Jaw has not occurred. J<-urther, for the operation
period of the PPA, compensation for any increase/decrease in
B
cost to the seller shall be determined and be effective from such
date as decided by the CERC. 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. The tribunal's
judgment -~nd the Commission's orders following the said
judgment are set aside. CERC would go into the matter afresh c
and determine what relief should be granted to those power
generators who fall within Cl. 13 of the PPA. [Paras 53, 541[212-
B-D, G-H)
CCE v. National Tobacco Co. of India Ltd. (1972) 2
SCC 560 : [1973) 1 SCR 822 - referred to. D
Case Law Reference
[1954) SCR 310 referred to Para34
[1960] 2 SCR 793 referred to Para 35
(1968] 1 SCR 821 referred to Para 36
(1973] 1 SCR 822 referred to Para 51 E
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5399-
5400of2016.
From the Judgment and Order dated 07.04.2016 of the Appellate
Tribunal for Electricity (APTEL) at New Delhi in Appeal No. 124 of
2014 and Appeal No. 125of2014 F
WITH
C. A. No. 9035 of2014
C. A. Nos. 5347, 5348, 5364, 5346, 5351-5352, 5415 and 9635-
9642 of2016.
G
Mukul Rohtagi, Attorney General, Raitj it Kumar, Solicitor General,
P. S. Narsimha, Tushar Mehta, ASGs, H. N. Salve, Dr. A.M. Singhvi,
Vikram Nankani, Kapil Sibal, C. S. Vaidyanathan, Amit Sibal, Sr. Advs.,
Mahesh Agarwal, Saurabh Kirpal, Nakul Diwan, Ms. Neeha Nagpal,
Ms. Poonam Verma, Ms. A. Zaidi, Ms. Aanchal Basul, Ms. Malay
Deliwala, Aviskar SingLvi, Aditya Shankar, E.C. Agrawala, H
162 SUPREME COURT REPORTS [2017] 3 S.C.R.

A M.G. Ramachandran, K. V. Mohan, Ms. Ranjitha Ramachandran,
Ms. Poorva Saigal, Ms. Anushree Bardhan, Shubham Arya, Nikhil Nayyar,
N. Sai Vinod, Ms. Smriti Shah, Divyanshu Rai,Anand Ganesan, Nikunj
Dayal, Pramod Dayal, Ms. Payal Dayal, Ms. Swapna Seshadri, Sanjai
Kr. Pathak, R. Parameswaran, Dr. Nilesh Sharma, G. S. Makker,
G. Umapathy, Rakesh K. Sharma, Aditya Singh, M. A. Venkata
B
Subramanian, Ms. Hemantika Wahi, Ms. Jesal Wahi, Amit Kapur,
Ms. Apoorva Mishra, Kuna! Kaul, V. Mukherjee, Rohit Venkat,
Pukhrambam Ramesh Kumar, Abhishek Munot, Uday Manaktala,
Ms. Raveena Dhamija, Ms. Ruby Singh Ahuja, Yishal Gehrana, Anupam
Prakash, Harsh Trivedi, Mrs. Manik Karanjawala, (For Mis. Kara1tjawala
c & Co.), Udit Gupta, Anup Jain, K. Parameshwar, Abhishek Baid, Sum it
Kumar, Raj iv Srivastava, Ms. Garima Srivastava, Ms. Gargi Srivastava,
Rajesh Pathak, Saurabh Mishra, Dhan' Raj, Abhishek Singh, Raj Kumar
Mehta, Elangbam Prentjit Singh, Ms. Himanshi Andley, Ms. Udita Singh,
Rahul Dhawan, Abhijeet Rastogi, Pradeep Misra, Alok Shankar, Yikas
Upadhyay, Anup Jain, Prashant Bhushan, Pranav Sachdeva, Ms. Neha
D
Rathi, Sidharth Sethi, Chandra Prakash, Kumar Mihir, Tushar Bakshi,
Guntur Prabhakar, Ms. Prerna Singh, Mrs. D. Bharathi Reddy,
Ms. Vidyottama, Advs., with them for the appearing pa11ies.
The Judgment of the Cou11 was delivered by
R. F. NARIMAN, J. 1. The present appeals arise from a
E judgment of the Appellate Tribunal for Electricity dated 7'h 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.5348of2016, namely Prayas (Energy) Group vs. Central
Electricity Regulatory Commission.
F 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 19111 January, 2005, the
Central Government issued detailed guidelines under this provision, which
G
were amended from time to time. On I" 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 pa11icipating bidders were to decide on the tariff and
quote such tariff after competing against each other. The bidders were
H entitled to quote cscalable or non-escalable tariff or partly escalable and
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 163
REGULATORY COMMISSION [R. F. NARIMAN, J.]

partly non-escalable tariff, as was considered appropriate by them to A
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 of2000 MW on a long term basis. This was done 8
on 25'h May. 2006. The participating bidders were also entitled to quote
bids on the lines ofci1eGUVNL public notice. Both the Gujarat Electricity
Regulatory Commissioh and the Haryana State Regulatory C0111mission
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 2""/4' 11 January, 2007, Adani Enterprises Consortium c
submitted its bid for generation and supply of I 000 MW to GUYNL,
quoting a levelised tariff of Rs.2.3495/kWh (Rs. I/kWh as the capacity
charge and Rs.1.3495/kWh as 11011-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 Gtuarat D
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 Gennan Company for supply of non-coking coal
of3 to 5 million tons (imported coal) on a long term basis till the year
2032. A similar Memorandum of Understanding was also entered into E
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 J J •h January, 2007, the AJani Enterprises Consortium was
selected by GUYNL as the successful bidder for supply of I 000 MW of F
power and a Letter of Intent was issued in its favour. On 2"ct 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 1S•h April, 2007, a supplementary PPA was signed G
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 24' 11
November, 2007. This was at a levelised tariff of Rs.2.94/kWh from
the Mundra Power Project. The energy charges quoted were
H
164 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 11011-escalable. Adani Power was declared as the successful bidder in
Haryana for supply of 1424 MW contracted capacit)r on I 71h 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
B
Act on 31 SI July, 2008 (The Gujarat State Commission had adopted the
tariffun'der Section 63 for supply of power to GUVNL on 20•h December,
2007). An important part of the case on behalf ofthe respondents is that
a change in law in Indonesia took place in 20 I0 and 2011, which aligned
the cxpott price of coal from Indonesia to international market prices
c 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.155of2012 on 5•1i
July, 2012 under Section 79 of the Electricity Act seeking reliefon 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
D
evolve a mechanism to restore the petitioners to the same economic
condition prior to occurrence of the change in law.
6. On 16'" 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
E envisaged under Section 79( I)(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 l 61h January, 2013.
7. On 2"d April, 2013, the Central Commission passed an order,
F 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,
G and hence constituted a committee to look into the alleged difficulties
faced by Adani and to find an acceptable solution thereto.
8. On I 61h August, 2013, pursuant to the order dated 2"d April,
2013, the Committee constituted by the C0111i11ission submitted a rep01t.
Based on the Committee's repo11, on 21 SI February, 2014, the Central
H Commission proceeded to grant compensatory tariff. Appeals and
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 165
REGULATORY COMMISSION [R. F. NARIMAN, J.]

cross-appeals were filed against this order, including cross objections. A
On I" August 2014, cross-objection filed by Adani Power was rejected
by the Appellate Tribunal as not maintainable. On 31" 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
B
Court, and this Court, in its order dated 31" 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 c
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 71h April, 2016, passed the
impugned judgment in all the aforesaid cases before us. The Tribunal D
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 jurisdictioh'to proceed
fu11her in the matter. The Appellate Tribunal considered the Supreri1e E
Cburt order dated 31" 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 F
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, G
it held that the Government Policies that were relied upon, do not
constitute 'law'. Accordingly, the matler was remanded to the
Commission to find out the impact of the force majcure 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
H
166 SUPREME COURT REPORTS [2017] 3 S.C.R.

A on account of force majeure.
I0. 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 lipe1ty given to Adani Power by tlie order
dated 31st March, 2015 of this Court was only limited to support the
13 quantification of compensatory tariff granted by the Central Commission
by its order dated 21st February, 2014. Hence, Adani Power is not entitled
.
"I 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 val id appeal against the said order, force majeure and change in law
c 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
tliat it must be an unforeseen event or circumstance that wholly or partly
prevents the affected party in the performance of its obligations under
D the agreement. Acco1:ding 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 fu1ther argued that the bid given by Adani Enterprises was
not pren~ised on the import' of coal from Indonesia only and this being
E 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
F imported from Indonesia.
l l. On a true construction of the Act, learned counsel argued in
suppo1t 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
G 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
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 167
REGULATORY COMMISSION [R. F. NARIMAN, J.]

once the tariff is adopted under Section 63. If at all, such tariff can be A
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 ofAdani, under independent PPAs
B
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 c
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 Tribunaljudgmenton this aspect.
12. Learned Senior counsel Shri Kapil Sibal, Shri Harish Salve,
Dr. Abhishek Manu Singhvi, and Shri C.S. Vaidyanathan, on behalf of D
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
E
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( I )(b) has to be read as part of a scheme in
which the moment generation and sale of electricity is inter-State and F
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 Pol icy.
G
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
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168 SUPREME COURT REPORTS [2017] 3 S.C.R.

A of power to fix tariffs and/or modify fixation even when Section 63
applies. Indeed, Shri Sibal argued that ifthere were no guidelines or ifa
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 guide Iines, as amended, that are issued by the Central
B
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 majcure by
stating that the fundamental basis of the contract was the foe) supply
c 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 ttiat completely undermines the basis
D of the bid, the tariff cannot be adjusted. lfotherwise 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
E 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 n.1ajellre event in Clause 12 takes place the
F 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 ceiiainly 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 whe1i the PPA wanted to restrict a particular
G 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 preseht
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 oflndian coal, the ri~e
H
ENERGY WATCHDOG v. CENTRAL ELECTRIC!lY 169
REGULATORY COMMISSION [R. F. NARIMAN, J.)

in cost should be adequately compensated. They, therefore, questioned A
the locus standi of the co1Jsumer 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
B
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 majcure 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 c
of India, sub111itted 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 D
far greater el~ctricity 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, E
which then translates itself into reasonable tariffs that arc payable by
consu111ers ofelectricity. For this purpose, he relied strongly upon Section
3 of the Electricity Act, which states that the Central Government, shall
fro111 time to time, prepare a National Electricity Policy and a tariff policy
in consultation with the State Governments, and the authority for F
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 ti111e to ti111e, being statuto1y in nature, are
binding on all concerned. This is, in fact, further r.ecognized by Section
6l(i) by which the appropriate Com111ission, in specifying terms and
conditions for determination of tariffs, shall be guided by the National G
Electricity Policy and tariff policy. The Central Government's role can
further be seen even in Section 63, where guidelines that arc binding on
all are issued by the Central Govcrn111ent in cases where there is a
transparent process of bidding. Further, according to him, Section 79(4)
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170 SUPREME COURT REPORTS (2017] 3 S.C.R.

A also points in the same direction, stating that, in discharge of its functions,
the Central Commission sha II 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
B
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
c through to them. He further referred to and relied upon the revised
tariff policy of 28'h 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
D provided for, namely, the Indian Electricity Act, 1910, the Electricity
(Supply)Act, 1928 and the Electricity Regulato1y Commissions Act, 1998.
The Statement of Objects of Reasons for th is Act reads as follows:
"The Electricity Supply Indust1y in India is presently governed by
three enactments namely, the Indian Electricity Act, 1910, the
E Electricity (Supply) Act, 1948, the Electricity Regulatory
Commissions Act, 1998.
I. I 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 indust1y through
F 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
G 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
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 171
REGULATORY COMMISSION [R. F. NARIMAN, J.]

Five Year Plans undertook rapid growth expansion by utilizing A
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 B
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
c
the Central Electricity Regulatory Commission and has an
enabling provision through which the State Governments can
create a State Electricity Regulatory Commission. I 6 States
have so far notified/created State Electric_ity Regulatory
Commissions either under the Central Act or under their own D
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 E
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 un bu nd Iing/ F
corporatisation of SEBs.
3. With the policy of encouraging private sector participation in
generation, transmission a1·1d distribution and the objective of
distancing the regulatory responsibilities from the Government to
the Regulatory Commissions. the need for harmonizing and G
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 H
172 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 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
B ..
~

to obviate the requirement of each State Government to pass its
own Reforms Act. The Bi II 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.
c The Electricity Bill, 200 l 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
D freely permitted. Hydro projects would, however, need approval
of the State Government and clearance from the Central·
Electricity Authority which wou Id 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
E 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 loaddispatch function could
be kept with the Transmission Utility or separated. In the case
F 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 fro1i1 the outset
with provision for surcharge fortaking care of current level of
G cross subsidy with the surcharge being gradually phased out.
(v) Distribution licensees would be free to unde1iake generation
and generating companies would be free to take up distribution
licensees.
(vi) The State Electricity Regulatory Commissions may permit
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 173
REGULATORY COMMISSION [R. F. NARIMAN, J.]

open access in distribution in phases with surcharge for - A
(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 B
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_, c
safeguard of the Regulatory Commissions being authorized to
fix ceilings on trading margins, if necessary.
(x) Where there i_s 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 D
- 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 E
under the new scheme of things would be a distribution licensee
and the State Transmission Utility which would also be owning
generation assets. The servi'cc conditions of the employees
would as a result of restructuring not be inferior.
(xii)An Appellate Tribunal has been crca~d for disposal of appeals F
·against the decision of the CE:R~ and State Electricity
Regulatory Commissions so that~ is speedy disposal of
such matters. The State Electricity Regulatory Commission is
a mandatory requirement.
(xiii)Provisions relating to theft ofelectricity liave a revenue focus. G
1'
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."
I
'

I
H
174 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 17. In the present case, we are concerned with the following
Sectioni;:
"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
B 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
c 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 (I) .
D (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
E 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;
F
(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
G Plan in accordance with the National Electricity Policy.
61. Tariff Rcgulatio.is. The Appropriate Commission shall,
subject to the provisions ofth is Act, specify the terms and conditions
for the determination of tariff, and in doing so, shall be guided by
the fol lowing, namely:-
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 175
REGULATORY COMMISSION [R. F. NARIMAN, J.)

(a) the principles and methodologies specified by the Central A
Commission for determination of the tariff applicable to generating
companies and transmission licensees;
(b) the generation, transmission, distribution and supply ofelectricity
are conducted on commercial principles; ,,
(c) the factors which would encourage competition, efficiency, 8
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;
c
(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; D
(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 E
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 applyfor a period of one year or until the terms
and conditions for tariff are specified under this section, whichever
is earlier. F

62. Determination of Tariff. (I) 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:
G
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
H
176 . SUPREME COURT REPORTS [2017] 3 S.C.R.

A year to ensure reasonable prices of electricity;
(b) transmission of electricity;
(c) wheeling of electricity;
(d) retail sale of electricity:
B 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
C 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
D 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 ofa11y area, the nature of supply and the
purpose for which the supply is required.
E (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
F 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
G 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
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 177
REGULATORY COMMISSION [R. F. NARIMAN, J.]

Commission shall adopt the tariff if such tariff has been determined · A
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 undet section 62 shall be made by a
generating company or licensee in such manner and accompanied B
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 c
twenty days from receipt of an application under sub-section (I)
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; D

(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:
E
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. ...-,- F

(5) Notwithstanding anything contained in Part X, the tariff for
any inter-State supply, transmission or wheeling of electricity, as
the case ma~ 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 G
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
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178 SUPREME COURT REPORTS [2017) 3 S.C.R.

A. to be in force for such period as may be specified in the tariff
order.
79. Functions of Central Commission. (I) The Central
Commission shall discharge the following functions, namely:-
(a) to regulate the tariff of generating companies owned or
B 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
c than one State;
(c) to regulate the inter-State transmission of electricity;
(d) to determine tarifffor inter-State transmission of electricity;
(e) to issue licenses to persons to function as transmission licensee
D and electricity trader with respect to their inter-State operations;
(t) 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;
E
(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;
G) to fix the trading margin in the inter-State trading of electricity,
F 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
sha.11 discharge the following functions, namely, -
G
(a) determine the tariff for generation, supply, transmissio11 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
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 179
REGULATORY COMMISSION [R. F. NARIMAN, J.]

of consumers under Section 42, the State Commission shall A
determine only the wheeling charges and surcharge thereon, if
any, for the said catego1y 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 B
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 seeki1ig to act as transmission
licensees, distribution licensees and electricity traders with respect c
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 D
percentage of the total consumption of electricity in the area ofa ·
distribution Iicensee;
(f) adjudicate upon the disputes between the licensees, and
generating compa,nies and to refer any dispute for arbitration;
E
(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 (I) of section 79;
(i) specify or enforce standards with respect to quality, continuity
and reliability of service by licensees; F
U) fix the trading margin in the intra-State tradii1g of electricity, if
considered, necessary;
(k) discharge such other functions as may be assigned to it under
this Act."
G
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
H
180 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 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
B 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
c 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 19'h 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
D
accords with clause 4.
19. It is impot1ant 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
E 63, it functions de hors its general regulatory power under Section
79(l)(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 -
F done away with? According to us, this is not a correct way of reading
the aforesaid statutory provisions. The first rule of statutoty 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
G put Section 79 out of the way altogether. The reason why Section 62
alotie 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
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 181
REGULATORY COMMISSION [R. F. NARIMAN, J.)

of tariff mentioned in Section 61) or under Section 63 where the A
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( I)(b) is !he 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"
taril'L Whereas "determining" tariff for inter-State transmission of
electricity is dealt with by Section 79( I)( d), Section 79( I )(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( I )(b ), only c
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 gµidelines do not deal with a given situation that the Commission's
general regulatory powers under Section 79( I )(b) can then be used.
Jurisdiction of the Central Commission D
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 s_ale of electricity in more than one State. It is not enough
that generation and sale of electricity in more than one State be the E
'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: F
"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 G
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
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182 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 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
B 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
c under:
"25. Inter-State, regional and i11ter-regio1ial transmission.
For the purposes of this Pai1, 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
D 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 'yithin a State. The State Commission shall
E
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
F
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( I) itself in sub-
G 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 Pl'A. which deals with
generation and supply of electricity, will either have to be governed by
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 183
REGULATORY COMMISSION [R. F. NARIMAN, J.]

the State Commission or the Central Commission. The State A
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 Oil behalf of the
B
appellant, and we were to hold in theAdani 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 c
"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 ang Technical Terms (6'11 Edition), and
P.Ramanatha Aiyar's Advanced Law Lexicon (3'd Edition)l of the D
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 ;pecific applications. Also known as E
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."
F
The aforesaid dictionary definitions lead to the conclusion that the
expression "composite" only means "consisting ofat 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
G
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 •'lore tha11 one State.
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184 ·SUPREME COURT REPORTS [2017] 3 S.C.R.

A 25. We must also hasten to add that the appellant's argumen.t 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 61h June, 2006 is the statutory policy which is
B enunciated under Section 3 of the Electricity Act. The amendment of
28'11 January, 2016 throws considerable light on the expression "composite
scheme", which has been defined for the first time as follows:
"5. 11 (j) Composite Scl1e111e: Sub-section (b) of Section 79( I)
of the Act provides that Central Commission shall regulate the
c 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
D 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 deetned to be the date of commercial operation·
of the project) for sale of at least I0% of the capacity of the
project to a distribution licensee outside the State in which such
E project is located."
27. That this definition is an important aid tq 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
F than one State. Section 64(5) has been relied upon by the Appellant as
an indicator that the State Commission hasjurisdiction 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, o(wheeling of electricity, the Oo:ntral
G
Commissio11 alone has jurisdiction. Jn fact this further supports the.case
of the Respondents. Section 64(5) 1:.111 only apply if, the jurisdiction
otherwise being with the Central Cummission alone, by application of
the parties concerned, jurisdiction is to be given to the State Commission
havingju'risdiction in respect of the licensee who intends to distribute
and make payment for electricity. We, therefore, hold that the Central
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 185
REGULATORY COMMIS.SION [R. F. NARIMAN, J.]

Commission had the necessary jurisdiction to embark upon the issues A
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 B
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. c
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 Cou11 held:
"13. By order dated 1-8-2014, the Appellate Tribunal dismissed
the cross-objections of the appellant herein as not maintainable. D
On 16-9-2014, the appellant preferred Appeal No. DFR No. 2355
of2014 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. 380of2014 seeking condonation E
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 F
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
G
this Court. The respondents submitted that such an enquiry is
wholly uncalled for as the cross-objections of the appellant in
Appeal No. I00 of2013 stood rejected and became final.

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186 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 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 116of2014 both the grounds of"force majeure" and "change
B
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
c appellant's submission is that the facts which formed the ba.sis of
the submission of the frustration of contracts are also relevant for
supporting the conclusion of the National Commission that the
appel Iant is entitled for the relief of compensatory tariff.
17. We agree with the respondents that we are not required to go
D 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.
E 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
oflaw" is independently appealable, since no such appeal even if
maintainable, is preferred by the appellant.
F
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 appel !ant is relieved
G 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
H above, the appellant is entitled to argue any proposition of law, be
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 187
REGULATORY COMMISSION [R. F. NARIMAN, J .]

it "force majeure" or "cha11ge of law" in suppo1t of the order A
dated 21-2-20 I 4 quantifying the compensatory tariff, the
correctness of which is under challenge before the Appel late
Tribunal in Appeal No. 98 of 2014 and Appeal No. I I 6 of 2014
preferred by the respondents, so long as ;rnch an argument is
based on the facts which are already pleaded before the Central
8
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 2"d April, 2013.
c
31. As has been stated by this Cou1t, the issue before .the Comt
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 of20 I4.
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 D
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 suppo11 of the Commission's order of2 Ist February, E
2014, which quantified compensatory tariff, the correctness of which is
under challenge in Appeal Nos.98 a11d 116of2014. 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 appel !ants do not F
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. G
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 maje.ure event occurs de hors the contract, it is dealt
with by a rule of positive law under Section 56 of the Contract. Sections H
188 Su'PREME COURT REPORTS [20171 3 S.C.R.

A 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 e\ cnt has happened. If the event becomes
B 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,
c becomes impossible or, by reason of some event which the
promisor could not prevent, unlawful, becomes void when t!1e act
becomes impossible or unlawful.
Compensation for loss through non-performance of act
known to be impossible or unlawful. Where one person has
D 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."
E 33. Prior to the decision in Taylor vs. Calli\\ ell, (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
F the common law in which the absolute sanctity of contract was upheld
was loosened somewhat by tl1e 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.
G
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
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 1.89
REGULATORY COMMISSION ~R. F. NARIMAN, J.]

the sense of physical or literal impossibility. The performance ofan act A
may not be literally impossible but it may be nfipracticable and useless
from the point of view of the object and purpose of the parti';!s. 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
B
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 c
will be governed by Section 56.
3 S. In Mis Alo pi 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 igi1ore the
express covenants thereof and to claim payment of considerntion, for D
performance of the contract at rates different from the stipulated rates,
on a vague plea of equity. Parties to an executable ~ontract !\re 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
E
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 becallse it may become onerous F
to one of the parties.
36. Similarly, in Naihati Jute Mills Ltd. v. Hyaliram Jagannath,
1968 (1) SCR 821, this Col!rt went into the English law on frus~ration in
some detail, and then cited the celebrated judgment of Satyabrata Gl10se
v. Mugneeram Bangur & Co. Ultimately, this Court concluded that G
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 performan~e ofits part of the contract merely because
' its performance has become onerous on account of an unforeseen tum
of events.
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190 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 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 Thor! Gmbll, 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
B
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
c 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 wou Id not
allow one of the _parties to say that the contract was discharg~o by
impossibility of performance.
D 38. This view of the law has been echoed in 'Chitty on Contracts',
31" 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', )'d 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
E 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)
F 39. Indeed, in England, in the celebrated Sea Angel case, 2013
(1) Lloyds Law Report 569, the modernapproach 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
G to be considered are the terms of the contract itself, its matrix or
context, the patties' knowledge, expectations, assumptions and
contemplations; in particular as to risk, as atthe 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'
H reasonable and objectively ascertainable calculations as to the
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 191
REGULATORY COMMISSION [R. F. NARIMAN, J.]

possibilities offuture performance in the new circumstances. Since A
the subject matter of the doctrine of frustration is contract, and
contracts are about the allocation ofrisk, 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
B
can often be a difficult one. Jn 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 c011tract as provided for and
contemplated and its performance in the new circumstances." c
40. It is clear from the above thatthe doctrine of frustration cannot
apply to these cases as the fundamental basis of the PPAs remains
unaltered. Nowl1ere do the PPAs state that coal is to be procured only
from Indonesia at a particular price. In fact, it is clear on a r(;ading of
the PPA as a whole that the price payable for the supply of coal is D
entirely for the person wJ10 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, E
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, ifotherwise 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 F
may be taken into account only to show that the risk of supplying electricity
at the tariff in~icated 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: G
"12.3 Force Majeure
'Force Majeure' means any event or circumstance or
combination of events and circumstances including those stated
below that wholly or patily prevents or unavoidably delays an ·
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192 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 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:
B
i. Natural Force Majeure Events:
act of God, including, but not limited to lightning, drought. lire and
explosion (to the extent originating fr01,n a source external to the
Site), earthquake. volcanic eruption, landslide, food, cyclone,.
c · typhoon, tornado, or excepti.onally adverse weather conditions
which are in excess of the statistical measures for the last hundred
(100) years,
ii.Non-Natural Force Ma,ieure Events:
1. Direct Non-Natural Force Majeure Events
D
·a) Nationalization or compulsory acquisition by any Indian
Government Instrumentality or any material assets or rights of
the Seller or the Seller's <?On tractors; or
b) The unlawful, unreason&ble or discriminatory revocation of, or
refusal to renew, any Consent required by the Seller or any of the
E
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 Qfthe Project, provided that an appropriate court oflaw
declares the revocation or refusal to be u11lawful, unreasonable
F and discriminatory and strikes the same down; or
c) 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
G and discriminatory and strikes the same down.
2. Indirect Non - Natural Force Majeure Events .
a) Any act of war (whether declared or undeclared), invasion,
armed conflict or act of foreign enemy, blockade, embargo,
revolution, riot, insurrection, terr<?rist or military action; or
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 193
REGULATORY COMMISSION [R. F. NARIMAN, J.]

b) Radio active contamination or ionising radiation originating from A
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
B
c) Industry wide strikes and labor disturbances having a nationwide
impact in India.
12.7 Available Relief for a }'orce Majeure Event
SubjecttothisArticle 12:
c
(a) 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;
(b) Every Party shall be entitled to claim relief in relation to a
Force Majeure Event in regard to its obligations, including but not
D
limited to those specified under Article 4.5.
(c) 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
E
part of the Contracted Capacity, the Procurer shall pay the Tariff
to the Seller, provided during such period ofNatural Force Majeure
Event, the balance pa11 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.
F
(d) 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 G
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
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194 SUPREME COURT REPORTS (2017] 3 S.C.R.

A 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 Procurcr(s)
from the Seller, in the form of an increase in Capacity Charge.
Provided such Capacity Charge increase shall be determined by
B
CERC on the basis of pulling 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
c payment for the Debt Service only (a) after the Unit(s) affected
by such Indirect Non Natural Force Majeure Event has been
Co111missioned, 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
D 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
E 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 wriiten notice to the Procurers, to deem
the Availability of the Power Station to be eighty (80) percentage
F 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 Majcure in the form of an increase
G 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.

H (f) For so long as the Seller is claiming relil!f due to any Non
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 195
REGULATORY COMMISSION [R. F. NARIMAN, J.J

Natural Force Majeure Event (or Natural Force Majeure Event A
affecting the Procurer/s) under this Agreement, the Procurers
may from time to time on one (I) 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
B
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 c
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
D
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 E
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 affocting 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 F
of 60% and pursuant to a Repeat Performance Test it is cstabl ished
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 Majcure Event (and Natural Force Majeure Event affecting G
the Procurer/s) shall also be adjusted pro-rala for reduction in
Available Capacity.
(g) In case of a Natural Force Majeure Event affec.ting the
Procurer/s which adversely affects the performance obligations
1-1
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196 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 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 AIlocated Contracted Cap~city."
8 42. It has strongly been contended by counsel for the respondents
that, first and foremost, the force rnajcure 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
oflndonesian coal, according to them, was unforeseen inasmuch as the
c PPAs have been entered into sometime in 2006 to 2008, and the rise in
price took place only in 20 I0 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
D 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
E by an unforeseen event, the clause applies. 'Chitty on Contracts', 31"
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
F 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
G 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
H under the agreement. Also, 'Treitel on Frustration and Force Majeure',
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 197
REGULATORY COMMISSION [R. F. NARIMAN, J.]

3rd edition, in paragraph 15-158 cites the English judgment ofTennants A
(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
B
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 c
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 Cou11 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 D
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 E
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 F
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 G
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
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198 SUPREME COURT REPORTS (2017) 3 S.C.R.

A 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 I<orce Majcure .Exclusions
B 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:
a. Unavailability, late delivery, or changes in cost of the plant,
C machine1y, equipment, materials, spare parts, fuel or consumables
for Jhe Project;
b. Delay in the performance of any contractor, sub-c;ontractors or
their agents excluding the conditions as mentioned in A11icle I 2.2;
c. Non-performance resulting from normal wear and tear typically
D experienced in power generation materials and equipment;
d. Strikes or labour disturbance at the facilities of the Affected
Party;
e. Insufficiency of finances or funds or the agreement becoming
onerous to perform; and
E
f. Non-performance caused by, or connected with, the Affected
Party's:
i. Negligent or intentional acts, errors or omissions;
ii. Failure to comply with an Indian Law; or
F
iii. 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.
G
45. We are, therefore, of the view that neither was the fundan1ental
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.
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 199
REGULATORY COMMISSION [R. F. NARIMf..N, J.]

Consequently, we are of the view that neither clause 12.3 nor 12.7, A
referable to Section 32 oft he 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
8
clause 12.4 applies as a result of which rise in the price offuel 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, S.ection 56 can have no application. c
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 19'h Janua1y, 2005, as amended by
the 18'h August, 2006 amendment, make it clear that any change in law, D
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 E

''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 F
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, ifany, shall be borne by the supplier. Transmission
charges in all cases shall be borne by the procurer. G
Provided that the foreign exchange rate variation would be
permitted in the payment of energy charges [in the manner
stipulated in para4.11 (iii)] ifthe procurer mandates use of imported
fuel for coastal power station in case-2.
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200 SUPREME COURT REPORTS (2017] 3 S.C.R.

A 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).
B
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
c 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 sell~r of electricity. The PPA shall include necessary
details on:
D
• Risk allocation between parties;
• Technical requirements on minimum load conditions;
• Assured offlake levels;
• Force majeure clauses as per industry standarJs;
E
• Lead times for scheduling of power;
• Default conditions and cure thereof, and penalties;
• Payment security proposed to be offered by the procurer.

F 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
G
amendments shall be carried out beyond the RFP stage;
Clause5.16(old)
Deviation from process defined in the guidelines
Clause 5.16. In case there is any deviation from these guidelines,
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ENERGY WATCHDOG v. CENTRAL ELECTRICITY 201
REGULATORY COMMISSION [R. F. NARIMAN, J.]

the same shall be subject to approval by the Appropriate A
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 B

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. c
IftheADR 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)
D
Deviation from process defined in the guidelines
5.16 ln 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 with!n a reasonable time not exceeding 90 days. E
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, F
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 G
"Bid Deadline" shall mean the last date for submission of the Bid
in respouse to the RFP, specified in Clause 2.8 of the RFP;

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202 SUPREME COURT REPORTS [2017] 3 S.C.R.

A "Dispute" means any dispute or difference of any kind between
a Procurer and the Seller or between the Procurers Uointly) 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;
B "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;
c "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
D 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;
E
"Law" means, in relation to this Agreement. all laws including
Electricity Laws in force in India and any statute, ordinance,
regulatio11, notification or code, rule, or any interpretation of any
of them by an Indian Government Instrumentality and having force
of law and shall fu11her include all applicable rules, regulations,
F 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
a) Construction Contracts;
G
b) Fuel Supply Agreements, including the Fuel Transportation
Agreement, if any;
c) O&M contacts;
d) RFP and RFP Project Documents; and
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 203
REGULATORY COMMISSION [R. F. NARIMAN, J.]

e) Any other agreements designated in writing as such, from time A
to time, jointly by the Procurers and the Seller;
13. ARTICLE 13: CHANGE IN LAW
13. I Definitions
In this Article 13, the following terms shall have the following Il
meanings:
13; I. I "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, c
amendment, modification or repeal, of any Law or (ii) a change in
interpretation of any Law by a competent Court of Jaw, tribunal
or Indian Governmental Instrumentality provided such Cou1i of
law, tribunal or Indian Governmental Instrumentality is final
authority under law for such interpretation or (iii) change in any D
consents, approvals or licenses available orobtained forthe Project,
otherwise than for defaLdt 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 E
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 F
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 oflndia does not extend the income
tax holiday for power generation projects under Section 80 IA of G
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:
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204 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 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
B 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 Pa11y 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
c same economic position as if such Change in Law has not occurred.
a) 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:
D
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
E 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
F the total increase/decrease exceeds amount of Rs.fifty (50) crores.
01>eration 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
G Regulatory Commission .whose decision shall be final and binding
on both the Pai1ies, 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
H
ENERGY WATCHDOG v. CENTRAL ELECTRICITY 205
REGULATORY COMMISSION [R. F. NARIMAN, J.]

is in excess of an amount equivalentto I% of Letter of Credit in A
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 B
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 A1iicle 13 .3 .2 if it
is beneficially affected by a Change in Law. Without prejudice to c
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. D
13.3.3 Any notice served pursuant to this A11icle 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
E
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: F
(i) the date of adoption, promulgation, amendment, re-enactment
or repeal of the Law or Change in Law; or
(ii) the date oforder/judgment of the Competent Court or tribunal
or Indian Governmental Instrumentality, ifthe Change in Law is
on account of a change in interpretation of Law. G
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
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206. SUPREME COURT REPORTS [2017] 3 S.C.R.

A Invoice to be raised by the Seller afier such change in Tariff shall
appropriately reflect the changed Tariff.
.17.3.1 Where any Dispute arises from a claim made by any Pa11y
for any change in or determination of the Tariff or any matter
related to Tariff or claims made by any Party which partly or
B 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.I 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
c 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
D 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 c Iear 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
E 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 tenns of the guidelines. Under clauses 4. 7 and 5. l.7 of the guidelines,
these guidelines are binding on all parties including the procurers and
F 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
G it would not include changes in Indonesian law, being foreign and not
Indian Law.
48. Both the guidelines and tlie 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
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ENERGY WATCHDOG v. CENTRAL ELECTRICITY 207
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change in law" means. This being the case, it is clear that the definition A
of "law" speaks of all laws including elecfricity 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
B
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, c
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 fou1th refers to any change in the
D
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. I. I, which expression E
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 (I) and (2) form part of
the -same contractual scheme in that sub-clause (I) refers to the F
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 Cou1t', as we have seen above,
speaks only of the Indianjudieial system and, therefore, the enactments
spoken of in sub-clause (I) would necessarily refer only to Indian
enactments. G

50. However, we were referred to other clauses in the PPA, for
example, clauses 12.4(f)(ii), 4.1.l(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, ai1d from this it should be
1-1
208 SUPREME COURT REPORTS (2017] 3 S.C.R.

A 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
B 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
c only to the law oflndia, 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
D efficacy to such contract, that the subject matter of the PPA being
"impo1ted coal", obviously the expression "any law" would refer to laws
governing coal that is impo1ted 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 Ha1yana matter, would source
E 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
F have to remain the same whether coal is sourced wholly in India, paitly
in lndia and partly from outside, or wholly from outside. This being the
case, the i11eaning 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
G 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
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ENERGY WATCHDOG v. CENTRAL ELECTRICITY 209
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be seen that under clause 13.1.1 if there is a change in any consent, A
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 of3 I" July, 2013, issued by
B
the Ministry of Power. that the earlier coal distribution policy contained
in the letter dated I 8111 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 w.as earlier allowable. This being the c
case, on 3 J.st July. 2013, the following letter, which is set out in extenso
states as follows :
FU-12/2011-IPC (Vol-111)
Government oflndia
Ministry of Power D
Shram Shakti Bhawan, New Delhi
Dated 31st July, 2013
To,
The Secretary,
Central Electricity Regulato1y Commission,
E
Chanderlok Building, Janpath,
New Delhi
Subject: Impact on tariff in the concluded PPAs due to sho1tage
in domestic coal availability and consequent changes in NCDP.
Ref. CERC's D.O. No. I 01512013-Statutory Advic,e/CERC dated F
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 G
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 of20 years with a trigger level of 80% for
levy of disincentive and 90% for levy of incentive. Subsequently,
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210 SUPREME COURT REPORTS [2017] 3 S.C.R.

A MOC indicated that CIL \\ill 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 increa)cd cost of power due to
import of coal/e-auction and its impact on the tari If of concluded
PPAs were also discussed and CERC's advice sought.
B 2. After considering all aspects allll the advice of CERC in this
regard, Government has decided the fol lowing 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
c 75% of Annual Contracted Quantity (ACQ) for the remaining
four years of the 12 Plan.
1
"

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 impo11 coal themselves if they so opt.
D iii) higher coJt of imported coal to be considered for pass through
as per modalities suggested by CERC.
3. Ministry of Coal vide letter dated 261h July 2013 has notified the
changes in the New CQ\11 Distribution Policy (NCDP) as approved
by the CCEA in relation to be·coal supply for the next four years
E 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
sho1tfall in the quantity indicated in the LoA/FSA and the CIL
F 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 ER Cs are advised to consider the request of individual
G power producers in this regard as per due process 011 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 Govern111cnt. ·
This issues 11 ilh the approval of MOS(P)l/C.
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ENERGY WATCHDOG v. CENTRAL ELECTRICITY 211
REGULATORY COMMISSION [R. F. NARIMAN, J.]

Encl: as above A
Yours faithfully,
Sd/-
(V.Apparao)
Director
B
This is fu11her reflected in the revised tariff policy dated 28 1h
January, 2016, which in paragraph I .I states as under:
I. I In compliance with Section 3 of the Electricity Act 2003, the
Central Government notified the Tariff Policy on 61h January, 2006.
Further amendments to the Tariff Pol icy were notified on 31" C
March, 2008, 20'h January, 2011 and 81hJuly, 2011. In exercise.of
powers conferred under Section 3(3) of Electricity Act, 2003, the
.Central Government hereby notifies the revised Tariff Pol icy to
be effective from the date of publication of the resolution in the
Gazette of India.
D
Notwithstanding anything done or any action taken or purported
to have been done or taken under the provisions of the Tariff -·
Policy notified on 61h 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. E
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 F
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.
G
However, some of the competitively bid projects as per the
guidelines dated I91h January, 2005 have experienced difficulties
in getting the required quantity of coal from Coal India Limited
(CIL). In case ofreduced quantity of domestic coal supplied by
CIL, vis-a-vis the assured quantity or quantity indicated in Letter
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212 SUPREME COURT REPORTS [2017] 3 S.C.R.

A 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 issucu by Ministry of Power vide
OM NO.FU-12/2011-!PC (Vol-Ill) dated 31.7.2013.
B Both the letter dated 31" July, 20 I3 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 I3.2 that while determining the
c 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
D 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.

E 54. However, Shri Ramachandran, learned senior counsel for the
appellants, argued that the policy dateu IS•h 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
F modifies the 2007 pol icy 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
G find it unnecessary to go into the same. The Appel late Tribunal's judgment
and the Commission's orders fol lowing 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 with in clause I 3 of the PPA
as has been held by us in this judgment.
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ENERGY WATCHDOG v. CENTRAL ELECTRICITY 213
REGULATORY COMMISSION [R. F. NARIMAN, J.]

55. All the appeals are disposed of accordingly. A

Nidhi Jain Appeals disposed of.

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