Supreme Court of India
M. P. POWER MANAGEMENT COMPANY LIMITED, JABALPURversusM/S. SKY POWER SOUTHEAST SOLAR INDIA PRIVATE LIMITED & OTHERS
- Citation
- 2022 INSC 1208
- Decided
- 16 November 2022
- Disposal
- Dismissed
- Bench
- K M JOSEPH
Holding
The PPA is not a statutory contract; the appellant’s termination was invalid because it did not issue a proper default notice under Article 9.1, making the termination arbitrary and contrary to Article 14, and the High Court’s order setting aside the termination stands.
Summary
The Supreme Court examined whether the Power Purchase Agreement (PPA) between M.P. Power Management Company Limited (the appellant) and Sky Power Southeast Solar India Private Limited (the first respondent) was a statutory contract under the Electricity Act, 2003 and whether the appellant’s termination of the PPA complied with the contractual default provisions. The Court held that the PPA was not a statutory contract and that the appellant failed to issue a valid default notice under Article 9.1 before terminating the agreement, rendering the termination arbitrary and violative of Article 14. Consequently, the High Court’s order setting aside the termination was affirmed and the appeals were dismissed.
Issues considered
- Whether the PPA constitutes a statutory contract within the meaning of Sections 62 and 63 of the Electricity Act, 2003.
- The scope of judicial review of State action arising from a non‑statutory contract and the applicability of Article 14.
- Whether the appellant complied with the contractual default and termination procedure prescribed in Article 9.1 of the PPA.
- Whether the appellant’s termination was arbitrary and therefore subject to judicial review.
- Whether the writ petition is maintainable despite disputed questions of fact and the presence of an arbitration clause.
- The relevance of public interest considerations in interfering with the termination of a contract.
Legislation cited
- Companies Act, 1956/2013
- Constitution of Indias. 12, s. 14, s. 162, s. 226, s. 298, s. 299, s. 73
- Electricity Act, 2003s. 62, s. 63
Subjects
Power Purchase AgreementStatutory contractNon‑statutory contractJudicial reviewArticle 14ArbitrarinessDefault noticeTerminationElectricity ActPublic interestRenewable energyContract law
Judgment
[2022] 5 S.C.R. 1 1
M. P. POWER MANAGEMENT COMPANY LIMITED, A
JABALPUR
v.
M/S. SKY POWER SOUTHEAST SOLAR INDIA PRIVATE
LIMITED & OTHERS
B
(C.A. No. 8515-8516 of 2022)
NOVEMBER 16, 2022
[K. M. JOSPEH AND HRISHIKESH ROY, JJ.]
Electricity Laws – Electricity Act, 2003 – ss.63 and 62 –
C
Contract – Non-statutory contract – Power Purchase Agreement
(PPA) entered into by the appellant and the first respondent, if a
statutory contract – Held: The PPA was not made either in purported
compliance with the statutory dictate, either in the form of parent
enactment or a subordinate legislation – The terms and conditions
of the PPA were not transplanted into the PPA from any statutory D
provision – That tariff was arrived at in accordance with the
transparent process of bidding, which was in tune with the guidelines
u/s.63, may not be sufficient to make the PPA a Statutory Contract –
A contract containing prescribed terms and conditions being
mandatory under the Statute, results in the contract becoming a
E
Statutory Contract – If this test is applied, one fails to see how
reference to the bidding guidelines, under which the bids were made
and finally the PPA was entered into, can be treated as tantamounting
to saying that the PPA contains prescribed statutory terms and
conditions as an indispensable part of a Statute – The expression
‘terms and conditions’, which are statutory in nature, must be F
understood as those statutory terms and conditions, which provide
for rights and obligations of the contracting parties – Such reference
is conspicuous by its absence in the PPA – It may not be appropriate
to describe the PPA as a Statutory Contract.
Contract – Administrative action – Judicial Review – Scope G
of judicial review of action by the State in a matter arising from a
non-statutory contract – Held: The mere fact that relief is sought
under a contract which is not statutory, will not entitle the
respondent-State in a case by itself to ward-off scrutiny of its action
or inaction under the contract if the complaining party is able to
H
1
2 SUPREME COURT REPORTS [2022] 5 S.C.R.
A establish that the action/inaction is per se arbitrary – Even if it is a
non-statutory contract, there is no absolute bar in dealing with a
cause of action based on acts or omission by the State or its
instrumentalities even during the course of the working of a contract.
Administrative Law – Arbitrariness in State action – When an
B act is to be treated as arbitrary – Held: The court must carefully
attend to the facts and the circumstances of the case – It should
find out whether the impugned decision is based on any principle –
If not, it may unerringly point to arbitrariness – If there is absence
of good faith and the action is actuated with an oblique motive, it
could be characterised as being arbitrary – A total non-application
C of mind without due regard to the rights of the parties and public
interest may be a clear indicator of arbitrary action – A wholly
unreasonable decision which is little different from a perverse
decision under the Wednesbury doctrine would qualify as an
arbitrary decision under Art.14 – Ordinarily visiting a party with
D the consequences of its breach under a contract may not be an
arbitrary decision – Constitution of India – Art. 14.
Dismissing the appeals, the Court
HELD:1. The writ jurisdiction is a public law remedy. A
matter, which lies entirely within a private realm of affairs of public
E body, may not lend itself for being dealt with under the writ
jurisdiction of the Court. [Para 54][50-G]
2. The principle laid down in Bareilly Development Authority
that in the case of a non-statutory contract the rights are governed
only by the terms of the contract and the decisions, which are
F purported to be followed, including Radhakrishna Agarwal, may
not continue to hold good, in the light of what has been laid down
in ABL and as followed in the recent judgment in Sudhir Kumar
Singh. [Para 54][50-G; 51-A]
3. The mere fact that relief is sought under a contract which
G is not statutory, will not entitle the respondent-State in a case by
itself to ward-off scrutiny of its action or inaction under the
contract, if the complaining party is able to establish that the
action/ inaction is, per se, arbitrary. [Para 54][51-B]
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 3
POWER SOUTHEAST SOLAR INDIA PVT. LTD.
4. An action will lie, undoubtedly, when the State purports A
to award any largesse and, undoubtedly, this relates to the stage
prior to the contract being entered into. This scrutiny, no doubt,
would be undertaken within the nature of the judicial review, which
has been declared in the decision in Tata Cellular vs. Union of
India. [Para 54][51-C]
B
5. After the contract is entered into, there can be a variety
of circumstances, which may provide a cause of action to a party
to the contract with the State, to seek relief by filing a Writ Petition.
[Para 54][51-D]
6. It may include the relief of seeking payment of amounts C
due to the aggrieved party from the State. The State can, indeed,
be called upon to honour its obligations of making payment, unless
it be that there is a serious and genuine dispute raised relating
to the liability of the State to make the payment. Such dispute,
ordinarily, would include the contention that the aggrieved party
has not fulfilled its obligations and the Court finds that such a D
contention by the State is not a mere ruse or a pretence. [Para
54][51-E-F]
7. The existence of an alternate remedy, is, undoubtedly, a
matter to be borne in mind in declining relief in a Writ Petition in
a contractual matter. Again, the question as to whether the Writ E
Petitioner must be told off the gates, would depend upon the
nature of the claim and relief sought by the petitioner, the
questions, which would have to be decided, and, most importantly,
whether there are disputed questions of fact, resolution of which
is necessary, as an indispensable prelude to the grant of the relief F
sought. While there is no prohibition, in the Writ Court even
deciding disputed questions of fact, particularly when the dispute
surrounds demystifying of documents only, the Court may relegate
the party to the remedy by way of a civil suit. [Para 54][51-G; 52-
A-B]
G
8. The existence of a provision for arbitration, which is a
forum intended to quicken the pace of dispute resolution, is
viewed as a near bar to the entertainment of a Writ Petition. [Para
54][52-C]
H
4 SUPREME COURT REPORTS [2022] 5 S.C.R.
A 9. The need to deal with disputed questions of fact, cannot
be made a smokescreen to guillotine a genuine claim raised in a
Writ Petition, when actually the resolution of a disputed question
of fact is unnecessary to grant relief to a writ applicant. [Para
54][52-D]
B 10. The reach of Article 14 enables a Writ Court to deal
with arbitrary State action even after a contract is entered into by
the State. A wide variety of circumstances can generate causes of
action for invoking Article 14. The Court’s approach in dealing
with the same, would be guided by, undoubtedly, the overwhelming
need to obviate arbitrary State action, in cases where the Writ
C remedy provides an effective and fair means of preventing
miscarriage of justice arising from palpably unreasonable action
by the State. [Para 54][52-E-F]
11. Termination of contract can again arise in a wide variety
of situations. If for instance, a contract is terminated, by a person,
D who is demonstrated, without any need for any argument, to be
the person, who is completely unauthorised to cancel the contract,
there may not be any necessity to drive the party to the
unnecessary ordeal of a prolix and avoidable round of litigation.
The intervention by the High Court, in such a case, where there
E is no dispute to be resolved, would also be conducive in public
interest, apart from ensuring the Fundamental Right of the
petitioner under Article 14 of the Constitution of India. When it
comes to a challenge to the termination of a contract by the State,
which is a non-statutory body, which is acting in purported exercise
of the powers/rights under such a contract, it would be over
F simplifying a complex issue to lay down any inflexible Rule in
favour of the Court turning away the petitioner to alternate Fora.
Ordinarily, the cases of termination of contract by the State, acting
within its contractual domain, may not lend itself for appropriate
redress by the Writ Court. This is, undoubtedly, so if the Court
G is duty-bound to arrive at findings, which involve untying knots,
which are presented by disputed questions of facts. Undoubtedly,
in view of ABL Limited, if resolving the dispute, in a case of
repudiation of a contract, involves only appreciating the true scope
of documentary material in the light of pleadings, the Court may
still grant relief to an applicant. The Court must enter a caveat.
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 5
POWER SOUTHEAST SOLAR INDIA PVT. LTD.
The Courts are today reeling under the weight of a docket A
explosion, which is truly alarming. If a case involves a large body
of documents and the Court is called upon to enter upon findings
of facts and involves merely the construction of the document, it
may not be an unsound discretion to relegate the party to the
alternate remedy. This is not to deprive the Court of its
B
constitutional power as laid down in ABL. It all depends upon the
facts of each case as to whether, having regard to the scope of
the dispute to be resolved, whether the Court will still entertain
the petition. [Para 54][52-G; 53-A-F]
12. In a case the State is a party to the contract and a breach
of a contract is alleged against the State, a civil action in the C
appropriate Forum is, undoubtedly, maintainable. But this is not
the end of the matter. Having regard to the position of the State
and its duty to act fairly and to eschew arbitrariness in all its
actions, resort to the constitutional remedy on the cause of action,
that the action is arbitrary, is permissible. However, every case D
involving breach of contract by the State, cannot be dressed up
and disguised as a case of arbitrary State action. While the concept
of an arbitrary action or inaction cannot be cribbed or confined to
any immutable mantra, and must be laid bare, with reference to
the facts of each case, it cannot be a mere allegation of breach of
contract that would suffice. What must be involved in the case E
must be action/inaction, which must be palpably unreasonable or
absolutely irrational and bereft of any principle. An action, which
is completely malafide, can hardly be described as a fair action
and may, depending on the facts, amount to arbitrary action. The
question must be posed and answered by the Court and discretion F
is available to the Court to grant relief in appropriate cases. [Para
54][53-G-H; 54-A-C]
13. A lodestar, which may illumine the path of the Court,
would be the dimension of public interest subserved by the Court
interfering in the matter, rather than relegating the matter to the G
alternate Forum. [Para 54][54-D]
14. Another relevant criteria is, if the Court has entertained
the matter, then, while it is not tabooed that the Court should not
relegate the party at a later stage, ordinarily, it would be a germane
consideration, which may persuade the Court to complete what H
6 SUPREME COURT REPORTS [2022] 5 S.C.R.
A it had started, provided it is otherwise a sound exercise of
jurisdiction to decide the matter on merits in the Writ Petition
itself. [Para 54][54-E-F]
15. Violation of natural justice has been recognised as a
ground signifying the presence of a public law element and can
B found a cause of action premised on breach of Article 14. [Para
54][54-F-G]
ABL International Ltd. v. Export Credit Guarantee
Corpn. of India Ltd. (2004) 3 SCC 553; India Thermal
Power Ltd. v. State of M.P. and others (2000) 3 SCC
C 379 : [2000] 1 SCR 925; Ramana Dayaram Shetty v.
International Airport Authority of India (1979) 3 SCC
489 : [1979] 3 SCR 1014; Shrilekha Vidyarthi (Kumari)
v. State of U.P. (1991) 1 SCC 212 : [1990] 1 Suppl.
SCR 625; East Coast Railway and Another v. Mahadev
Appa Roa and Others (2010) 7 SCC 678 : [2010]
D 7 SCR 908; State of U.P. v. Sudhir Kumar Singh and
Others 2020 SCC Online 847 and Tata Cellular v. Union
of India (1994) 6 SCC 651 : [1994] 2 Suppl. SCR 122
– relied on.
Radhakrishna Agrawal and Others v. State of Bihar and
E Others (1977) 3 SCC 457 : [1977] 3 SCR 249; Bareilly
Development Authority and Another v. Ajai Pal Singh
and Others (1989) 2 SCC 116 : [1989] 1 SCR 743;
Kerala State Electricity Board and Another v. Kurien E.
Kalathil and Others (2000) 6 SCC 293 : [2000] 1 Suppl.
F SCR 581; Jaypee Kensington Boulevard Apartments
Welfare Association and others v. NBCC (India) Ltd.
and Others (2022) 1 SCC 401; Erusian Equipment and
Chemicals Limited v. State of West Bengal (1975) 1 SCC
70 : [1975] 2 SCR 674; Banchhanidhi Rath v. The State
of Orissa and Ors. (1972) 4 SCC 781; Har Shankar
G and Ors. v. The Dy. Excise and Taxation Commr. and
Ors. (1975) 1 SCC 737 : [1975] 3 SCR 254; Mahabir
Auto Stores and Others v. Indian Oil Corporation and
Others (1990) 3 SCC 752 : [1990] 1 SCR 818; State of
U.P and others v. Bridge and Roof Company (India)
H Ltd. (1996) 6 SCC 22 : [1996] 4 Suppl. SCR
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 7
POWER SOUTHEAST SOLAR INDIA PVT. LTD.
762; Verigamto Naveen v. Govt. of A.P. and others A
(2001) 8 SCC 344 : [2001] 3 Suppl. SCR 112; Binny
Ltd. and Another v. V. Sadasivan and Others (2005) 6
SCC 657 : [2005] 2 Suppl. SCR 421; G. Bassi Reddy
v. International Crops Research Institute and Another
(2003) 4 SCC 225 : [2003] 1 SCR 1174; State of Kerala
B
and Others v. K. Prasad and Another (2007) 7 SCC
140 : [2007] 8 SCR 115; Joshi Technologies
International Inc. v. Union of India and Others (2015)
7 SCC 728 : [2015] 6 SCR 1042; State of Kerala v. M.
K. Jose (2015) 9 SCC 433 : [2015] 9 SCR 17; State of
U.P. and Others v. Bridge & Roof Co. (1996) 6 SCC 22 C
: [1996] 4 Suppl. SCR 762; All India Power Engineer
Federation and Others v. Sasan Power Limited and
Others (2017) 1 SCC 487 : [2016] 9 SCR 901; Raunaq
International Ltd. v. I.V.R. Construction Ltd. and Others,
(1999) 1 SCC 492 : [1998] 3 Suppl. SCR 421; Michigan
D
Rubber (India) Limited v. State of Karnataka and Others
(2012) 8 SCC 216 : [2012] 8 SCR 128; Mohinder Singh
Gill and another v. Chief Election Commissioner, New
Delhi and Others (1978) 1 SCC 405 : [1978] 2 SCR
272 – referred to.
Case Law Reference E
[2000] 1 Suppl. SCR 581 referred to Para 10
[1977] 3 SCR 249 referred to Para 11
(2004) 3 SCC 553 relied on Para 11
F
[2000] 1 SCR 925 relied on Para 18
(2022) 1 SCC 401 referred to Para 21
[1975] 2 SCR 674 referred to Para 27
(1972) 4 SCC 781 referred to Para 27
G
[1975] 3 SCR 254 referred to Para 27
[1979] 3 SCR 1014 relied on Para 29
[1989] 1 SCR 743 referred to Para 30
[1990] 1 SCR 818 referred to Para 31
H
8 SUPREME COURT REPORTS [2022] 5 S.C.R.
A [1990] 1 Suppl. SCR 625 relied on Para 32
[1996] 4 Suppl. SCR 762 referred to Para 35
[2001] 3 Suppl. SCR 112 referred to Para 36
[2005] 2 Suppl. SCR 421 referred to Para 37
B [2003] 1 SCR 1174 referred to Para 39
[2007] 8 SCR 115 referred to Para 43
[2010] 7 SCR 908 relied on Para 47
[2015] 6 SCR 1042 referred to Para 49
C
[2015] 9 SCR 17 referred to Para 50
[1994] 2 Suppl. SCR 122 relied on Para 54(iv)
[1996] 4 Suppl. SCR 762 referred to Para 54(viii)
[1990] 1 Suppl. SCR 625 referred to Para 54(xii)
D
[2016] 9 SCR 901 referred to Para 80
[1998] 3 Suppl. SCR 421 referred to Para 85
[2012] 8 SCR 128 referred to Para 86
[1978] 2 SCR 272 referred to Para 113
E
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8515-
8516 of 2022.
From the Judgment and Order dated 27.02.2020 of the High Court
of Madhya Pradesh, Principal Seat at Jabalpur in W.P. No. 4205 of 2019
F and final Judgment and Order dated 28.12.2020 in Review Petition No.
682 of 2020.
K. M. Nataraj, ASG, Anish Kumar Gupta, Archana Preeti Gupta,
Puneet Sheoran, Venugopal Abhay, Ms. Deepshikha Bharati, Vaibhav
Verma, Advs. for the Appellant.
G Dr. Abhishek M. Singhvi, Naman Nagrath, Sr. Advs., Manpreet
Lamba, Ramanuj Kumar, Miss. Priyal Modi for M/s. Cyril Amarchand
Mangaldas, Aashish Anand Barnard, Paramhans Sahani, Sunil Kumar
Pandey, R. K. Srivastava, Rajesh Kumar, Advs. for the Respondents.
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 9
POWER SOUTHEAST SOLAR INDIA PVT. LTD.
The Judgment of the Court was delivered by A
K. M. JOSEPH, J.
1. Leave granted.
2. The appellant impugns the Judgment of the High Court dated
27.02.2020 in Writ Petition No. 420 of 2019. It further challenges the B
Order dated 28.12.2020 in Review Petition No. 682 of 2020. By the said
Judgment in the Writ Petition, the High Court allowed the Writ Petition
filed by the first respondent and quashed the Order dated 07.07.2018,
which was passed by the appellant, terminating the Power Purchase
Agreement (hereinafter referred to as ‘the PPA’, for short), which was
entered into by the appellant and the first respondent. The review filed C
by the appellant was dismissed. Hence the appeals.
THE FACTS
3. The appellant, which is “a wholly owned company of the
Government of Madhya Pradesh” (as described by the appellant in the D
Special Leave Petition), is responsible for the bulk purchase of electricity
in the State of Madhya Pradesh for onward sale/supply to the distribution
utilities (DISCOMS). The appellant issued a request for proposal (RFP)
dated 06.05.2015 for long-term procurement of 300 MW of solar energy
through tariff-based competitive bidding. The bid of M/s Sky Power
Southeast Asia Holding Limited was accepted. It was declared the E
successful bidder for three units of 50 MW each at different tariff rates.
The bidder subsequently incorporated the first respondent, viz., M/s Sky
Power Southeast Solar India Private Limited as a special purpose
company. This was for developing one project of 50 MW. The rate,
which is applicable in respect of the first respondent, was Rs.5.109 per F
unit. In respect of the other two bids, the bidder incorporated other
companies, viz., M/s Sky Power Solar India Private Limited and M/s
Sky Power Southeast Asia One Private Limited. The rates applicable in
respect of said companies for the other two projects consisting of 50
MW each was Rs.5.298 per unit and Rs.5.051 per unit, respectively.
The PPA was entered into on 18.09.2015. The agreement, inter alia, G
provided for pre-commissioning activities. They are described as
satisfaction of conditions subsequent by the seller. The first respondent
is the seller under the PPA.
4. The Agreement contemplated completion of the conditions
subsequent, within a period of 210 days. In other words, the Agreement, H
10 SUPREME COURT REPORTS [2022] 5 S.C.R.
A admittedly, provided that the first respondent was to achieve fulfilment
of conditions subsequent by 15.04.2016. The Agreement further
contemplates an extension of the period of fulfilment of the condition
subsequent on payment of penalty for a further period of nine months.
Thus, calculating 210 days and an additional nine months from 18.09.2015,
which is the date of the PPA, the period would come to an end on
B
15.01.2017. A communication was addressed dated 12.01.2017 by the
first respondent. The first respondent purported to refer to Article 2.1 of
the PPA, which, inter alia, reads as follows:
“Article 2.1 Seller agrees and undertaken to duly perform and
complete all of the following activities seller’s own cost and risk
C within 210 days from the effective Date unless such completion
is affected by any force Majeure event, or if any of the Effective
is specifically waived in writing by MPPMCL:
a) The Seller shall obtain all Consents, Clearance and Permits
required for supply of Power to MPPMCL as per the terms of
D this Agreement;”
5. The first respondent purported to present certain documents
and contend that there was compliance of its obligations under the PPA.
This led to communication dated 22.02.2017 addressed by the appellant
to the first respondent. It referred to the status of the documents, which
E the appellant noted. Furthermore, appellant sought certain documents. It
is, inter alia, pointed out by the appellant that the first respondent had
no documents in regard to 34.12 hectare of land and an unregistered
lease deed for only 12 months was submitted, which could not be
considered as fulfilment of the condition subsequent. Thereafter, it was
F stated that the PPA is liable to be terminated in terms of Article 2.5.1 of
the PPA. Explanation/justification if any was called for from the first
respondent. Acting on the request of the first respondent, the appellant
granted time for response of the first respondent till 10.03.2017. The
response, which was given on 10.03.2017, reads as follows:
G “Firstly, we are thrilled to update you that the project is under
advanced construction and all equipment order for the project
have been placed and construction happening on site we expect
that the project will be top quality using the best equipment in the
market and constructed by a top-tier EPC, for the benefit of both
Sky Power and the state of MP.
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 11
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
1. Satisfaction of Condition subsequent regarding Construction A
Financing
MPPMCL Comment: “Loan sanction letter of Mis L&T Finance
vide letter No. S07201A03/16-17 DATED 29.08.2016 Copy of
facility agreement and affecting compliance documents as stated
in above letters are required to be submitted” B
SKY POWER comment: reference is made to paragraph 2.1.1.(b)
of the PPA, reproduced below:
Sd/-
D.G.M. (Commerical-3)
R.0. MPMCL, Bhopal” C
6. Thereafter, the first respondent sent communication dated
14.03.2017. It reads as follows:
“SKY POWER GLOBAL
March 14, 2017 D
To,
The Managing Director
MP Power Management Company Limited
Bittan Market, E
Bhopal-462016
Attention:Chief General Manager Commercial, MPPMC, Jabalpur.
Ref: Submission of Documents to MP Power Management
Company limited (“MPPMCL”) for fulfilment of Conditions
subsequent by SkyPower southeast solar India private Limited F
(“Sky Power”)
Reference: 1. Sky Poer Letter dated 10 March 2017,
2. Sky Power Letter SKP2/MP/SOLAR MPPMCL/2015-16/06
dated 12 Jan 2017
G
3. Agreement (PPA) dated September 18, 2015 between
MPPMCL and Skypower
Dear Sir,
Further to our office letter dated 10 March 2017 & skyP2/MP/
SOLAR/MPPMCL/2015-16/06 dated 12 Jan 2017 we hereby H
12 SUPREME COURT REPORTS [2022] 5 S.C.R.
A submit that we have completed the entire acquisition for land 29,
85 Acres including balance 87.S Acres of land parcels.
The relevant land registration documents have been enclosed for
your perusal
We hereby submit that we have duly completed land registration
B for 249,85 Acer for the project
Thanking you in anticipation.
MIS SKYPOWER SOUTHEAST SOLAR INDIA PRIVATE
LIMITED
C Sd/- Shivani Jhariya
(Authorized Signatory)
Sd/-
D.G.M. (Commerical-3)
R.O. MPMCL, Bhopal”
D
7. After a gap of nearly five months, the next date, which is invoked
by the appellant, is 09.08.2017. It is the case of the appellant that as the
first respondent had failed to comply with the conditions subsequent, by
misrepresentation and manipulation, it purported to obtain approval from
the Chief Electrical Inspector General (CEIG) under Regulation 32 of
E the Central Electricity Authority (Measures relating to safety and
electricity supply) Regulation, 2010 read with Section 162 of the Act.
According to the appellant, the Report of the CEIG came to the
knowledge of the appellant on 20.08.2017. Prior to the said date, the
appellant purported to terminate the PPA in terms of Article 2.5.1(d) of
F the PPA, considering it to be mandatory by communication dated
11.08.2017. In short, according to the appellant, as the maximum period,
within which, the conditions subsequent, had to be fulfilled, had run out
on 15.01.2017, under the PPA, the appellant had no other option but to
terminate the Agreement. This led to the first Writ Petition filed by the
first respondent. The said Writ Petition, viz., Writ Petition No. 12880 of
G 2017, came to be allowed by the High Court by Judgment dated
20.06.2018. The relevant portion of the Judgment reads as follows:
“2. The contract has been terminated on account of 54 days delay
in achieving the first milestone i.e., procurement of land, financial
closure and necessary permissions from the competent authority
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 13
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
within 210 days from the date of execution of agreement for A
completing the first part of the project. The only reason to terminate
the agreement is that the petitioner has failed to achieve first
milestone within 210 days though the condition of - procurement
of land was modified after 210 days on 20.04.2016. The delay in
achieving the first milestone is visited with penalty in terms of
B
Clause 2.5. of the agreement.
3. Similar communication terminating the contract was set aside
by this Court in Writ Petition No.12432/2017 (Renew Clean Energy
Private Limited vs M.P. Power Management Company Limited
and another) vide order dated 18.08.2017. In the said petition, the
petitioner has admittedly commissioned the power project within C
the time prescribed except that there was delay of 16 days in
achieving the first milestone. The said order has been affirmed on
05.04.2018 by the Hon’ble Supreme Court in Civil Appeal No.3600/
2018 (M.P. Power Management Company Limited vs Renew
Clean Energy Private Limited and another). D
4. The parties are not ad idem about the stage of commissioning
of the power project in the present petition.
5. Mr. Kaurav sought to justify the termination of the Power
Purchase Agreement (PPA) asserting that the petitioner has not
commissioned the power project within the time fixed in the E
agreement, but the lack of commissioning of power project is not
the reason for terminating of the contract. Since, such is not the
reason mentioned in the order terminating the agreement, therefore,
the respondents cannot supplement the reasons for termination of
the contract by virtue of additional assertions in the return and/or F
in the arguments raised in view of the Supreme Court decision in
Mohinder Singh Gill v. Chief Election Commissioner (1978) 1 SCC
405.
6. In view of the fact that the similar reason of termination of the
agreement has not been found to be justified in the matter of G
Renew Clean Energy Private Limited (supra), therefore, the
impugned communication dated 11.08.2017 is hereby set aside.
However, liberty is granted to the respondents to pass fresh orders
in terms of Power Purchase Agreement dated 18th September,
2015 in accordance with law.”
H
14 SUPREME COURT REPORTS [2022] 5 S.C.R.
A 8. On 07.07.2018, the appellant issued the fresh termination notice.
This came to be challenged by the first respondent by Writ Petition No.
420 of 2019. After exchange of pleadings, by the first impugned judgment
dated 27.02.2020, the High Court set aside the termination order.
Thereafter the appellant in September, 2020 filed review petition which
came to be dismissed by the second impugned order. On 15.04.2021 this
B
court issued notice and stayed the impugned orders.
9. We have heard Mr. K.M. Natraj, learned Additional Solicitor
General on behalf of the appellant and Dr. A.M. Singhvi, learned Senior
Counsel along with Mr. Naman Nagrath, learned Senior Counsel on
behalf of the first respondent. We also heard Shri V. Giri, learned Senior
C Counsel appearing for the fifth respondent (Madhya Pradesh State Load
Despatch Centre).
10. Shri K.M. Natraj, learned Additional Solicitor General submits
that the impugned judgments are clearly unsustainable. He would firstly
point out that the writ petition filed by the first respondent is not
D maintainable. The PPA in question is not a statutory contract and therefore
interference with the order terminating the contract was not justifiable.
In this regard he drew support from the judgment of this Court in Kerala
State Electricity Board and Another v. Kurien E. Kalathil and Others 1.
He would next contend that the PPA contemplated provisions to resolve
E disputes. He further contended that first respondent should have resorted,
if at all, to a civil suit to claim redress. He pointed out that a writ petition
is a public law remedy. The contract in question not being statutory in
nature, there was no public law element so as to justify the approach
under Article 226. He would next contend that there is no basis for the
High Court to have interfered at all. This is a case where broadly the
F contract contemplated fulfilment of conditions at two stages. The first
stage related to various conditions that had to be fulfilled by the first
respondent which are described as conditions subsequent in the PPA.
They are also aptly described as the pre-commissioning stage. The PPA
clearly contemplated fulfilment of these conditions on an indisputable
G basis on or before 15.01.2017. In arriving at this date, the maximum
period of 9 months contemplated under the PPA as the period which can
be extended on payment of penalty is also included. However, the first
respondent did not fulfil the conditions subsequent except with a further
delay of 56 days. The PPA clearly provides that if the time limit is
1
H (2000) 6 SCC 293
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 15
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
exceeded which in this case was 15.01.2017, the appellant shall terminate A
the contract. This is not a question of power or a discretion. This is a
right which inhered with the appellant, a party to a contract. In this
regard he would emphasise that while the State may be burdened with
the obligation to act in a fair manner, it does not take away the rights
available to the State as a party to a contract to exercise the right with it
B
under the contract. In other words, the appellant as State within the
meaning of Article 12 should not be denied the very right which could be
duly exercised by a private party if it stood in the shoes of the appellant
in similar circumstances. This is all that has been done by the appellant.
Coming to the second stage, namely, commissioning of the project by
the first respondent, our attention was drawn to Article 2.6 of the PPA. C
He contended that agreement contemplated commissioning of plant
within 12 months from the date of the financial closure subject to Force
Majeure. He would point out that there were no circumstances for
invoking Force Majeure. The period of 12 months from the date of
financial closure determined the maximum period within which the
D
commissioning had to take place. He would submit that first respondent
was in breach of even commissioning. Therefore, on that score also,
there is no justification for the High Court to have interfered in the matter.
He would further submit that there is another vital circumstance which
should have dissuaded the High Court from granting relief. The case
threw up disputed questions of facts. On the one hand, it was the case E
of the first respondent, that the first respondent had proceeded to do
everything within the time which is a period of two years from
18.09.2015, the date of the PPA, and it was only if commissioning was
not done within the said period that what is described in the agreement
as Seller’s default occurs. Here is a case where the first respondent had
F
not actually on the ground carried out necessary installation. In this regard,
he would contend that while the CEIG has given its approval, the approval
was granted without the first respondent having complied its obligations
under the contract. In this regard essentially two aspects are projected.
It is firstly pointed out that while the first writ petition was pending
consideration, the appellant carried out an inspection on 19.04.2018. A G
report ensued on 21.04.2018. It was revealed that the approval which is
granted by the CEIG may not advance the case of the first respondent
as certain lacunae emerged. It was found by the inspecting team of the
appellant that in the blocks 9 and 10 (the project of 50MW consisted of
10 blocks of 5 MW each), 61 inverters were missing. It was further
H
16 SUPREME COURT REPORTS [2022] 5 S.C.R.
A revealed that in regard to 258 invertors, there was duplication of numbers.
In other words, without there being the professed numbers of invertors
as required under the contract, the approval of the CEIG was procured.
In fact, this aspect, which when it was discovered by the appellant,
formed the foundation for the review petition but was not favourably
considered by the High Court. A writ petition in the facts of this case
B
would not lie. He would submit that while a writ petition may be
maintainable when the State is awarding its largesse in the form of award
of contract, once it enters into a contract there would arise no occasion
for the court to do judicial review and strike it down. Action taken by the
state as contracting party when it is within the four walls of the contract
C is immune in public law proceedings. That an action may lie for breach
of contract where the aggrieved party can seek damages should have
weighed with the court. He would further contend that there is yet another
dimension which has been overlooked by the High Court. The
overwhelming public interest in the facts of this case did not favour the
writ court interfering in the matter. In this regard he would expatiate by
D
pointing out that the interference by the High Court will produce the
following results:
The PPA casts an obligation on the appellant to purchase power
at the rate of Rs.5.109 per unit for a period of 25 years. Power is available
in the market at a far cheaper rate. The inevitable result of implementing
E the order of the High court would be that the appellant would have to
purchase power at a much higher rate and what is more disturbing and
should have troubled the High Court to decline jurisdiction is the aspect
that the increased rate would have to be passed on to the end consumer.
Put it differently, when the appellant being entitled to terminate the contract
F and would be in a position to purchase power at a cheaper rate and
charge the consumers at the lower rate, by the court granting relief to
the first respondent, the appellant is compelled to purchase power at the
higher rate and that too for a long period of 25 years, and what is more,
compelled to pass on the burden to the hapless consumer. Thus, public
interest in fact in the case lay in the court declining to grant relief to the
G first respondent. He would further point out that the impugned judgment
does not deal with any of the aspects, be it the factual dimensions or the
legal requirements. The judgment is bereft of discussion of the contentions
raised by the appellant. He would therefore contend that the impugned
judgments should be set aside and appeals allowed.
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 17
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
11. Per contra, Dr. A.M. Singhvi, learned Senior Counsel for the A
first respondent would point out that there is absolutely no basis for
maintaining the appeal in the facts. He would point out that this is a case
where the first respondent turned out to be the lowest bidder in respect
of the project in question and what is more an incredible number of 182
bidders participated. It is trouncing its competitors that the holding
B
company of the first respondent turned out to be the lowest bidder (here
we must notice that during the course of the arguments the appellant did
propose that first respondent could come up with proposal which
apparently should involve rates lower than the contract rate so that the
public interest concern is adequately addressed whereas the first
respondent pointed out since it has planned for the project on the basis C
which made it the lowest bidder, it would not be feasible for it to reduce
the rate any further). Dr. Singhvi pointed out that there is no basis for
discriminating the case of the first respondent and M/s. Renew Energy.
It is pointed out that the High Court in the first round of litigation had
interfered with the termination order following the judgment in Renew
D
Energy. In the case of Renew Energy, it could achieve fulfilment of the
conditions subsequent with a delay of 16 days which was condoned
finally. In the case of the first respondent, the delay happened to be 56
days. Otherwise, their cases are similar. Renew Energy was allowed to
commission whereas the first respondent was at the receiving end of
discrimination without any basis. He would point out that the first E
respondent under the contract had 24 months from 18.09.2015 to
commission the project. Well before the expiry of 24 months, the project
was ready. The respondent was prevented from commissioning. A party
cannot take advantage of its own wrong. He would point out that the
law has not stood still after this Court adopted a hands off approach in
F
the decision in Radhakrishna Agrawal and others v. State of Bihar
and others2. Imbibing the grand mandate in Article 14 that it behoves
the State to steer clear of unfairness in all its acts, this Court has weaved
a taboo against arbitrary action by the state even after it entered into a
contract. He would point out in this regard the judgment of this Court in
ABL International Ltd. v. Export Credit Guarantee Corpn. of India G
Ltd.3 and the decisions following the same approving of the writ court
granting relief in contractual matters also. He would point out that, present
arbitrariness, be it after a contract is entered into, the State has no place
2
(1977) 3 SCC 457
3
(2004) 3 SCC 553 H
18 SUPREME COURT REPORTS [2022] 5 S.C.R.
A to hide when action is challenged and its action must pass the scrutiny of
the constitutional court. It must demonstrate that the action was fair.
The action of the State falls far short of the exacting standard of fairness
that the Constitution demands in the case at hand for the following
reasons:
B 12. Outbidding an unusually large body of competitors, a bid based
on competitive tariff, the first respondent which is a global player in
Renewable Energy (solar power) bids at a rate which was very much
acceptable to the appellant and investment was made by the first
respondent in the region of nearly Rs. 350 crores. There was an initial
hiccup. One of the conditions subsequent was that the first respondent
C had to acquire land for the project by way of sale deeds. There were
insuperable obstacles which upon the first respondent pointing them out
to the appellant, the appellant realized the genuine difficulty and amended
the Article. This, in fact, would necessarily mean that the period of 210
days would commence not from the date of the agreement but thereafter
D on the basis of the amended Article. The first respondent engaged the
services of a company for the purposes of purchase and installation of
the parts of the project. It had procured, inter alia the invertors which
were to be installed, from abroad. There are irrefutable documents in
the form of invoices, bills of lading, lorry receipts which fortify the first
respondent in its stand that it had installed all the invertors. The project
E was ready to take off well within 24 months. The first respondent would
suffer grave avoidable financial loss, besides fall in esteem as a global
player, if the termination dated 07.07.2018 is allowed to stand. Under
the contract, the first respondent was obliged to sell power at an agreed
rate for a period of 25 years. The fact that in view of the play of market
F forces, there has been a fall in the price of solar power and it would be
open to the appellant to procure solar power at a cheaper rate should not
allow the appellant to resile from its contractual obligations. In fact, it is
pointed out that the appellant is purchasing power even now at even
higher rates. Being State under Article 12, the appellant should not be
permitted to seek shelter under the theory of alternate remedies. This
G Court is reminded of the chronology of events commencing from the
date of the PPA in the year 2015. The first respondent has succeeded
before the High court on two occasions. In this regard he would point
out that in the impugned termination order dated 07.07.2018, the appellant
has purported to revive the closed chapter relating to non-fulfilment of
H conditions subsequent. The contention runs that by the judgment in the
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 19
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
first writ petition the impugned order therein which was based on the A
first respondent not fulfilling the conditions subsequent was quashed.
This was done being inspired by the judgment of the High court in the
case of Renew Energy which has received the seal of approval by this
Court as well. As far as the only other aspect about commissioning not
being in time Dr. Singhvi addressed two submissions. Firstly, he would
B
point out that admittedly, the appellant has not issued the pre-termination
notice contemplated in Article 9.1 of the PPA. This suffices to sustain
the judgment. Secondly, equally importantly the appellant has acted
arbitrarily in not realizing that the first respondent had 24 months to
commission the project and before the expiry of the same, the respondent
was fully ready to fulfil its obligation. The learned senior counsel would C
also submit that contention of there being disputed questions of fact is
premised on red herrings. In this regard he would point out that on
09.07.2017, a notice was issued by the first respondent to the appellant
calling upon the appellant to inspect and it would be ready to commission
the project and that it was ready to supply power. However, no inspection
D
was carried by the appellant till 19.04.2018. The competent body namely
the CEIG had carried out inspection which spread over a few days. The
Body was fully satisfied with the first respondent being compliant. All
that happened was after the inspection, in September, 2017 since the
first respondent was visited with the first order of termination dated
11.08.2017 which was challenged in the High Court, there was a shortage E
of personnel around the project site. This facilitated thefts of the parts
which were installed. FIRs promptly registered in September 2017 should
rule out the possibility of the case of theft being an afterthought. This is
as the inspection was carried by the appellant much later on 19.04.2018.
It is further pointed out that as far as the duplication is concerned in the
F
number of certain invertors, it has been established as inconsequential
by the first respondent. The inspection and the report of the CEIG cannot
be lightly brushed aside on such a case. Still furthermore, it is pointed out
that having regard to the massive cost of the project which stood at
nearly Rs. 350 crores, what is involved is a miniscule percentage. In this
regard learned counsel would emphasise the contravention of Article G
9.1 under which the appellant was obliged to serve a notice in case of
the alleged seller’s default for not commissioning the project in 24 months
from the date of PPA. If such a notice had been given, the first respondent
would have had an opportunity if at all even proceeding on the basis of
appellant’s contention being tenable to procure invertors which are
H
20 SUPREME COURT REPORTS [2022] 5 S.C.R.
A portable and available in the market and redress the problem. When the
project has progressed in the manner, it had to deny the first respondent
the fruits of its labour, acting under a solemn contract awarded to it
would be clearly unfair. The mere fact that there had been a fall in the
market price of solar power should not persuade this Court to find that
there is no overwhelming public interest. In this regard he also sought to
B
draw support from recent Judgment of this Court in Vice Chairman &
Managing Director, City and Industrial Development Corporated
of Maharashtra Ltd. and Another v. Shishir Realty P. Ltd. and others.
He would further point out that solar power being renewable energy and
green energy must be encouraged and it was on this basis that the first
C respondent participated in the global tender and was selected, upon it
being the lowest bidder amongst a large number of bidders. Dr. Singhvi
would point out that for various reasons the contract in question is a
statutory contract. He would submit that any rate irrespective of being
statutory contract or not, it is but a fact in deciding whether the writ
applicant should be relegated to an alternate remedy. The jurisdiction of
D
the High Court under Article 226 in the overpowering presence of Article
14 would embrace the power to strike at arbitrary action by the State,
even in the working out of rights in a non-statutory contract.
13. Shri V. Giri, learned senior counsel for respondent No.5 would
support the appellant in its stand that the first respondent was in clear
E breach of the contract. It is the case of fifth respondent that there are
various steps to be undertaken and completed under regulations extant
before which commissioning can be permitted. It is the case of the fifth
respondent that the first respondent could not therefore be said to have
acted in compliance with the regulations and therefore cannot be heard
F to say that it had commissioned the project.
14. Shri K.M. Natraj, Additional Solicitor General would submit
that the judgment of the High court in the first-round litigation left it open
to the appellant to take fresh proceedings under the contract. It is for the
said reason that the said judgment was not challenged by the appellant.
G He would also point out at any rate even proceeding on the basis that the
High Court is bound by the earlier judgment at any rate, as far as this
Court is concerned, it would be free to consider the issue as to whether
on account of there being an admitted delay of 53 days by the first
respondent beyond the maximum time contemplated under the contract
for fulfilling conditions subsequent, whether the appellant was justified
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 21
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
being duty bound in the matter of terminating the contract? He further A
pointed out that there was a distinction in the case of the first respondent
and the case of Renew Energy. In the case of Renew Energy, this Court
while refusing to interfere with the judgment of the High Court had
made it clear that it is not pronouncing on the question as to the delay in
fulfilling the conditions subsequent and its impact. Secondly, it is pointed
B
out that in the case of Renew Energy, the said company had gone ahead
and commissioned the project and the only aspect was the delay of 16
days whereas in the case of the first respondent the contract was liable
to be terminated both for the reasons that the conditions subsequent was
not fulfilled within the maximum time and also for the reason that the
first respondent had not commissioned the project within the time provided C
under the contract.
15. After hearing the learned counsel for the parties, we find that
the following points arise for our consideration.
(1) Whether the PPA in question, is a statutory contract?
D
(2) What is the scope of judicial review of action by the State
in a matter arising from a contract and what is the effect of
the contract not being statutory? What is arbitrariness?
(3) What is the concept of public law in judicial review in a
contractual matter? E
(4) Whether there is an arbitration clause in regard to the subject
matter?
(5) Whether the order dated 07.07.2018 terminating the contract
based on first respondent not fulfilling the conditions
subsequent is sustainable having regard to the judgment F
rendered by the High Court in the earlier round of litigation
on 20.06.2018? And will the said judgment bar the appellant
from terminating the contract on the ground of non-fulfilment
of conditions subsequent?
(6) Whether the writ petition must be dismissed as the case G
involves disputed questions of facts?
(7) Whether the case of the first respondent is on par with
Renew Energy?
H
22 SUPREME COURT REPORTS [2022] 5 S.C.R.
A (8) What is the effect of non-compliance of Article 9.1 of the
PPA, namely, the effect of appellant not issuing notice
contemplated therein before issuing the impugned
termination dated 07.07.2018?
(9) What is overwhelming public interest in the context of
B judicial review in a contractual matter? Is the concept
applicable only to cases which involve challenge to award
of largesse by the State or is it applicable across the Board
irrespective of the stage when the matter arises in relation
to a contract?
C (10) Whether this Court should interfere with the judgment of
the High Court in the totality of facts?
16. Before we proceed to consider the question whether what is
involved is a statutory contract or not, we may make the following
prefatory remarks:
D Under Article 298 of the Constitution, the Executive Power
of the Union and each State, inter alia, extends to making of
contracts for any purpose. Article 299 provides for manner in
which contracts made in the exercise of the executive power of
the Union or the State is to be made.
E 17. In this case, we are dealing not with a case where a contract
has been made by the State in exercise of its executive power within the
meaning of Article 298. The PPA is a contract which has been entered
into by the appellant, which is a fully owned Government Company. It is
one thing to hold that the appellant, as a fully owned Government
F Company, would be State for the purpose of Article 12 of the Constitution
of India and, quite another, to find that a contract is one which is made in
the executive power of the State within the meaning of Article 162 of
the Constitution. What is contemplated, is the power of the Union or the
State read in conjunction with Article 73 and Article 162 of the Constitution
of India, respectively. In other words, for the purpose of Article 298, the
G broader concept of State, as defined in Article 12 of the Constitution,
which, no doubt, would include the appellant, is inapposite and inapplicable.
The appellant, being a Company, would not be entitled to exercise the
executive power contemplated in Article 162 of the Constitution, which
is the power with the Union or the State Governments. In this regard we
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 23
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
may notice that the present avtar of Article 298 is born by substituting in A
1956 the original version and the present version reads as follows: -
“298. Power to carry on trade, etc. The executive power of
the Union and of each State shall extend to the carrying on of
any trade or business and to the acquisition, holding and disposal
of property and the making of contracts for any purpose: B
Provided that —
(a) the said executive power of the Union shall, in so far as
such trade or business or such purpose is not one with respect
to which Parliament may make laws, be subject in each State
to legislation by the State; and C
(b) the said executive power of each State shall, in so far as
such trade or business or such purpose is not one with respect
to which the State Legislature may make laws, be subject to
legislation by Parliament.”
D
It is pertinent to notice the Objects and Reasons.
“Clause 19.-In this clause it is proposed to revise and amplify
the scope of article 298, mainly to make it clear that Union
Government, as well as the State Governments, are competent
to carry on any commercial or industrial undertaking, whether
E
or not it is related to a matter within the legislative competence
of the Union, or, as the case may be, of the State. Similarly, the
holding, acquisition and disposal of property and the making of
contracts by the Union or a State could be for any purpose
without constitutional impropriety. At the same time, the revised
article provides that this extended executive power of the Union F
and of the States will be subject, in the former case, to legislation
by the State, and in the latter case, to legislation by Parliament.”
WHETHER THE PPA IS A STATUTORY CONTRACT?
18. Moving on to the concept of the Statutory Contract, the learned
Additional Solicitor General, no doubt, sought to draw considerable G
support from the Judgment of this Court reported in Kerala SEB and
another v. Kurien E. Kalathil and others4. That was a case, which
involved, a Writ Petition filed by a contractor, who was awarded the
4
(2000) 6 SCC 293 H
24 SUPREME COURT REPORTS [2022] 5 S.C.R.
A work of construction of a dam, staking a claim, for enhanced minimum
wages, which the contractor claimed, he had paid to his workers. There
was no dispute that the workmen were entitled to the enhanced wages
under a Notification. The appellant-Board, however, contended that the
respondent-contractor had failed to prove the payment of the enhanced
wages to the workmen. The High Court allowed the Writ Petition and
B
this Court, while setting aside the Judgment, proceeded to make the
following statement:
“10. We find that there is a merit in the first contention of
Mr Raval. Learned counsel has rightly questioned the
maintainability of the writ petition. The interpretation and
C implementation of a clause in a contract cannot be the subject-
matter of a writ petition. Whether the contract envisages actual
payment or not is a question of construction of contract. If a term
of a contract is violated, ordinarily the remedy is not the writ petition
under Article 226. We are also unable to agree with the
D observations of the High Court that the contractor was seeking
enforcement of a statutory contract. A contract would not become
statutory simply because it is for construction of a public utility
and it has been awarded by a statutory body. We are also unable
to agree with the observation of the High Court that since the
obligations imposed by the contract on the contracting parties come
E within the purview of the Contract Act, that would not make the
contract statutory. Clearly, the High Court fell into an error in
coming to the conclusion that the contract in question was statutory
in nature.
11. A statute may expressly or impliedly confer power on a
F statutory body to enter into contracts in order to enable it to
discharge its functions. Dispute arising out of the terms of such
contracts or alleged breaches have to be settled by the ordinary
principles of law of contract. The fact that one of the parties to
the agreement is a statutory or public body will not by itself affect
G the principles to be applied. The disputes about the meaning of a
covenant in a contract or its enforceability have to be determined
according to the usual principles of the Contract Act. Every act
of a statutory body need not necessarily involve an exercise of
statutory power. Statutory bodies, like private parties, have power
to contract or deal with property. Such activities may not raise
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 25
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
any issue of public law. In the present case, it has not been shown A
how the contract is statutory. The contract between the parties is
in the realm of private law. It is not a statutory contract. The
disputes relating to interpretation of the terms and conditions of
such a contract could not have been agitated in a petition under
Article 226 of the Constitution of India. That is a matter for
B
adjudication by a civil court or in arbitration if provided for in the
contract. Whether any amount is due and if so, how much and
refusal of the appellant to pay it is justified or not, are not the
matters which could have been agitated and decided in a writ
petition. The contractor should have relegated to other remedies.”
19. As to what is a statutory contract, fell for consideration before C
this Court in the case reported in India Thermal Power Ltd. v. State of
M.P. and others5. Incidentally, it dealt with generation, distribution and
supply of electricity and, what is more, emanated from the State of
Madhya Pradesh. While negotiations were going on between the
respondent-State, Electricity Board and independent power producers, D
on the basis of State inviting offers from potential private investors, for
establishing power projects, the Central Government amended the earlier
Tariff Notification. The Electricity Board decided to prioritize the projects,
which offered the least tariff. The appellant-independent power producer
challenged the said decision in a Writ Petition. It must be noticed that
MoU and Power Purchase Agreement had been entered into by the E
appellant therein. The Division Bench of the High Court took the view
that the PPAs therein were statutory contracts, entered into under
Sections 43 and 43(A) of the Electricity Supply Act, 1948. This Court,
while dealing with this aspect and rejecting the contention that the
Electricity Board could not unilaterally alter the conditions of the contract F
and invite bids, held as follows:
“11. It was contended by Mr Cooper, learned Senior
Counsel appearing for appellant GBL and also by some
counsel appearing for other appellants that the appellant/
IPPs had entered into PPAs under Sections 43 and 43-A of G
the Electricity Supply Act and as such they are statutory
contracts and, therefore, MPEB had no power or authority
to alter their terms and conditions. ………………
5
(2000) 3 SCC 379 H
26 SUPREME COURT REPORTS [2022] 5 S.C.R.
A ……… Merely because a contract is entered into in exercise
of an enabling power conferred by a statute that by itself
cannot render the contract a statutory contract. If entering
into a contract containing the prescribed terms and
conditions is a must under the statute then that contract
becomes a statutory contract. If a contract incorporates
B
certain terms and conditions in it which are statutory then
the said contract to that extent is statutory. A contract may
contain certain other terms and conditions which may not
be of a statutory character and which have been
incorporated therein as a result of mutual agreement
C between the parties. Therefore, the PPAs can be regarded
as statutory only to the extent that they contain provisions
regarding determination of tariff and other statutory
requirements of Section 43-A(2). Opening and maintaining
of an escrow account or an escrow agreement are not the
statutory requirements and, therefore, merely because
D
PPAs contemplate maintaining escrow accounts that
obligation cannot be regarded as statutory.”
(Emphasis supplied)
20. The decision in India Thermal Power Ltd. (supra), dealing
E with the concept of statutory contract, came to be considered in the light
of Section 6A of U.P. Industrial Area Development Act of 1976. The
said provision reads as follows:
“6A. Power to authorize a person to provide infrastructure
or amenities and collect tax or fee. - Notwithstanding
F anything to the contrary contained in any other provisions
of this Act and subject to such terms and conditions as may
be specified in the regulations, the Authority may, by
agreement, authorize any person to provide or maintain or
continue to provide or maintain any infrastructure or
amenities under this Act and to collect taxes or fees, as the
G case may be, levied therefor.”
21. This Court interpreting a contract entered into under Section
6A in Jaypee Kensington Boulevard Apartments Welfare Association
and others v. NBCC (India) Ltd. and others6, took the view that the
H 6
(2022) 1 SCC 401
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 27
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
agreement in question did not acquire the status of a statutory contract A
merely for having been executed in terms of the power under Section
6A.
22. The contention of the respondent is that the PPA is a statutory
contract since it incorporates essential features such as tariff determined
through bidding (paragraph-4.7-CUF, paragraph-4.4-change in law, B
paragraph-4.5-payment security, paragraph-4.6-and bidding process,
paragraphs-5.4 and 5.5-prescribed under the guidelines for tariff based
competitive process for grid connected power project based on renewable
energy resources issued by the MNRE under Section 63 of the Act).
23. The respondent relies on India Thermal Power Ltd. (supra) C
to contend that if the contract incorporates certain statutory terms and
conditions, it is statutory.
24. Section 63 of the Electricity Act, 2003, reads as follows:
“63 (Determination of tariff by bidding process) Notwithstanding
anything contained in Section 62, the appropriate Commission shall D
adopt the tariff, if such tariff has been determined through
transparent process of bidding in accordance with the guidelines
issued by the Central Government.”
25. In the PPA in question, under the definition clause (Article 1),
bidding guidelines have been defined as follows: E
“Bidding Guidelines” shall mean the “Guidelines for Tariff Based
Competitive Bidding Process for Grid Connected Power Projects
Based on Renewable Energy Sources” issued by Government of
lndia, Ministry of New and Renewable Energy on December, 2012
under Section - 63 of the Electricity Act and as amended from F
time to time;”
26. We are of the view that it may not be appropriate to describe
the PPA as a Statutory Contract. Section 63 of the Electricity Act, 2003
must be understood in the background of immediately preceding provision,
viz., Section 62, In a paradigm shift from the earlier regime, the task of G
determining the tariff has been conferred on the appropriate Commission.
Section 62 indicates the procedure. Section 63, on the other hand, compels
the Commission to adopt the tariff determined through a transparent
process of bidding. However, the transparent process of bidding must
be in accordance with the guidelines issued by the Central Government.
H
28 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Thus, it is for the purpose of applying the tariff determined under Section
63 for the purpose of adopting the tariff under Section 62, that the
guidelines issued by the Central Government become relevant. It is true
that there is reference to the guidelines made under Section 63 in the
PPA. However, it is for the purpose of conducting the bidding that the
guideline would become relevant. That the tariff has been arrived at in
B
accordance with the transparent process of bidding, which is in tune
with the guidelines under Section 63, may not be sufficient to make the
PPA a Statutory Contract. What is contemplated in India Thermal Power
Limited (supra), is that a contract containing prescribed terms and
conditions being mandatory under the Statute, results in the contract
C becoming a Statutory Contract. If this test is applied, we fail to see how
the reference to the bidding guidelines, under which the bids were made
and finally the PPA is entered into, can be treated as tantamounting to
saying that the PPA contains prescribed statutory terms and conditions
as an indispensable part of a Statute. We are not shown also as to how
the PPA can be described as containing terms and conditions, which are
D
statutory in nature. The expression ‘terms and conditions’, which are
statutory in nature, must be understood as those statutory terms and
conditions, which provide for rights and obligations of the contracting
parties. Such reference is conspicuous by its absence in the PPA. It is
common case that the appellant is incorporated under the Companies
E Act. It is not a statutory body or a corporation. Therefore, we would
come to the conclusion that we cannot describe the contract as a
Statutory Contract. We must also notice that the PPA is not made either
in purported compliance with the statutory dictate, either in the form of
parent enactment or a subordinate legislation. The terms and conditions
of the PPA are not transplanted into the PPA from any Statutory provision.
F
The appellant being company under the Companies Act, would be free
as any other contracting party, subject, no doubt, to its position as an
instrumentality of the State under Article 12 of the Constitution of India
and the law otherwise. Moreover, the terms, which are relevant to the
lis before us, viz, the Articles relating to the fulfilment of the condition
G subsequent and the provisions relating to commissioning, sellers’ default
and power of termination, are not demonstrated to be statutory in nature.
What is the scope of judicial review of action by the State in
a matter arising from a contract and what is the effect of the
contract not being statutory?
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 29
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
What is the concept of public law in judicial review in a A
contractual matter?
What is ‘arbitrary’ action?
27. In Radhakrishna Agarwal and Ors. v. State of Bihar and
7
Ors. writ petitions were filed against orders of the State Government
revising the rate of royalty under a lease. The contention was both against B
the revision of rate of royalty during the period of the lease and the
cancellation of the lease on various grounds. Though an attempt was
sought to draw support from the judgment of this Court in Erusian
Equipment and Chemicals Limited v. State of West Bengal8, the Court
took the view that the said case involved discrimination at the threshold C
or at the time of deciding as to whether the Government should enter
into the contract. The Court took the view that the only question which
normally arises in such cases is as to whether the action complained of
was in conformity with the agreement. We may notice the earlier opinions
of this Court which came to be dealt with in the following statement:
D
“We do not think that any of these cases could assist the appellants
or is at all relevant. None of these cases lays down that, when the
State or its officers purport to operate within the contractual field
and the only grievance of the citizen could be that the contract
between the parties is broken by the action complained of, the
appropriate remedy is by way of a petition under Article 226 of E
the Constitution and not an ordinary suit. There is a formidable
array of authority against any such a proposition. In Lekhraj
Satramdas Lalvani v. N.M.Shah, Deputy Custodian-cum-
Managing Officer, Bombay (supra) this Court said:
“In our opinion any duty or obligation falling upon a public servant F
out of a contract entered into by him as such public servant cannot
be enforced by the machinery of a writ under Article 226 of the
Constitution.”
In Banchhanidhi Rath v. The State of Orissa and Ors.9, this Court
declared: G
“If a right is claimed in terms of a contract such a right cannot be
enforced in a writ petition.”
7
(1977) 3 SCC 457
8
(1975) 1 SCC 70
9
(1972) 4 SCC 781 H
30 SUPREME COURT REPORTS [2022] 5 S.C.R.
A In Har Shankar and Ors. vs. The Dy. Excise and Taxation
Commr. and Ors.10, a Constitution Bench of this Court observed:
“The appellants have displayed ingenuity in their search for
invalidating circumstances but a writ petition is not an appropriate
remedy for impeaching contractual obligations.”
B 28. The Court also took the view “the correct view is that it is the
contract and not the executive power regulated by the Constitution which
governs the relations of the parties on facts apparent in the case before
us”. No doubt the learned Additional Solicitor General asserts that the
destiny of the appeals before us must be governed by the law laid down
C in Radhakrishna Agarwal (supra). However, as shall be presently noticed
the law has not stood still.
29. In Ramana Dayaram Shetty v. International Airport
Authority of India11 this court inter alia held as follows:
“10. Now, there can be no doubt that what para (1) of the notice
D prescribed was a condition of eligibility which was required to be
satisfied by every person submitting a tender. The condition of
eligibility was that the person submitting a tender must be
conducting or running a registered IInd Class hotel or restaurant
and he must have at least 5 years’ experience as such and if he
E did not satisfy this condition of eligibility, his tender would not be
eligible for consideration. This was the standard or norm of
eligibility laid down by Respondent 1 and since the Respondents 4
did not satisfy this standard or norm, it was not competent to
Respondent 1 to entertain the tender of Respondents 4. It is a
well-settled rule of administrative law that an executive authority
F must be rigorously held to the standards by which it professes its
actions to be judged and it must scrupulously observe those
standards on pain of invalidation of an act in violation of them.
This rule was enunciated by Mr Justice Frankfurter
in Viteralli v. Saton [359 US 535 : Law Ed (Second series) 1012]
G where the learned Judge said:
“An executive agency must be rigorously held to the standards by
which it professes its action to be judged .… Accordingly, if
dismissal from employment is based on a defined procedure, even
10
(1975) 1 SCC 737
H 11
(1979) 3 SCC 489
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 31
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
though generous beyond the requirements that bind such agency, A
that procedure must be scrupulously observed .... This judicially
evolved rule of administrative law is now firmly established and,
if I may add, rightly so. He that takes the procedural sword shall
perish with the sword.”
This Court accepted the rule as valid and applicable in India in A.S. B
Ahluwalia v. Punjab [(1975) 3 SCC 503, 504 : 1975 SCC (L&S)
27 : (1975) 3 SCR 82] and in subsequent decision given
in Sukhdev v. Bhagatram [(1975) 1 SCC 421, 462 : 1975 SCC
(L&S) 101 : (1975) 3 SCR 619], Mathew, J., quoted the above-
referred observations of Mr Justice Frankfurter with approval. It
may be noted that this rule, though supportable also as an C
emanation from Article 14, does not rest merely on that article. It
has an independent existence apart from Article 14. It is a rule of
administrative law which has been judicially evolved as a check
against exercise of arbitrary power by the executive authority. If
we turn to the judgment of Mr Justice Frankfurter and examine it, D
we find that he has not sought to draw support for the rule from
the equality clause of the United States Constitution, but evolved
it purely as a rule of administrative law. Even in England, the
recent trend in administrative law is in that direction as is evident
from what is stated at pp. 540-41 in Prof Wade’s “Administrative
Law”, 4th Edn. There is no reason why we should hesitate to E
adopt this rule as a part of our continually expanding administrative
law. Today with tremendous expansion of welfare and social
service functions, increasing control of material and economic
resources and large scale assumption of industrial and commercial
activities by the State, the power of the executive Government to F
affect the lives of the people is steadily growing. The attainment
of socio-economic justice being a conscious end of State policy,
there is a vast and inevitable increase in the frequency with which
ordinary citizens come into relationship of direct encounter with
State power-holders. This renders it necessary to structure and
restrict the power of the executive Government so as to prevent G
its arbitrary application or exercise. Whatever be the concept of
the Rule of Law, whether it be the meaning given by Dicey in his
“The Law of the Constitution” or the definition given by Hayek
in his “Road to Serfdom” and “Constitution of Liberty” or the
exposition set forth by Harry Jones in his “The Rule of Law and H
32 SUPREME COURT REPORTS [2022] 5 S.C.R.
A the Welfare State”, there is as pointed out by Mathew, J., in his
article on “The Welfare State, Rule of Law and Natural Justice”
in “Democracy, Equality and Freedom” [ Upendra Baxi, Ed. :
Eastern Book Co., Lucknow (1978) p. 28] “substantial agreement
in juristic thought that the great purpose of the rule of law notion
is the protection of the individual against arbitrary exercise of
B
power, wherever it is found”. It is indeed unthinkable that in a
democracy governed by the rule of law the executive Government
or any of its officers should possess arbitrary power over the
interests of the individual. Every action of the executive
Government must be informed with reason and should be free
C from arbitrariness. That is the very essence of the rule of law and
its bare minimal requirement. And to the application of this principle
it makes no difference whether the exercise of the power involves
affectation of some right or denial of some privilege.”
This case while it dealt with the issue of arbitrariness at the stage
D of award of largesse by the State, it paved the way for future development
in this field of law.
30. No doubt, in Bareilly Development Authority and another
v. Ajai Pal Singh and others12, the appellant-Authority constituted under
the U.P. Planning and Development Act, 1973, issued advertisement
E offering to register the names of applicants desirous of purchasing houses/
flats. The terms and conditions were sought to be revised. The Court
went on to hold as follows:
“22. There is a line of decisions where the contract entered into
between the State and the persons aggrieved is non-statutory and
F purely contractual and the rights are governed only by the terms
of the contract, no writ or order can be issued under Article 226
of the Constitution of India so as to compel the authorities to remedy
a breach of contract pure and simple — Radhakrishna
Agarwal v. State of Bihar [(1977) 3 SCC 457 : (1977) 3 SCR
249], Premji Bhai Parmar v. Delhi Development Authority
G [(1980) 2 SCC 129 : (1980) 2 SCR 704] and DFO v. Biswanath
Tea Company Ltd. [(1981) 3 SCC 238 : (1981) 3 SCR 662]”
31. In Mahabir Auto Stores and others v. Indian Oil
Corporation and others13, the appellant complained that the respondent,
12
(1989) 2 SCC 116
H 13
(1990) 3 SCC 752
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 33
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
which was a company incorporated under the Companies Act was A
denying or discontinuing to deal with the appellant, which had been
dealing with the respondent for nearly eighteen years. We listen to the
following words spoken by this Court:
“12. It is well settled that every action of the State or an
instrumentality of the State in exercise of its executive power, B
must be informed by reason. In appropriate cases, actions
uninformed by reason may be questioned as arbitrary in
proceedings under Article 226 or Article 32 of the Constitution.
Reliance in this connection may be placed on the observations of
this Court in Radha Krishna Agarwal v. State of Bihar [(1977) 3
SCC 457]. It appears to us, at the outset, that in the facts and C
circumstances of the case, the respondent company IOC is an
organ of the State or an instrumentality of the State as contemplated
under Article 12 of the Constitution. The State acts in its executive
power under Article 298 of the Constitution in entering or not
entering in contracts with individual parties. Article 14 of the D
Constitution would be applicable to those exercises of power.
Therefore, the action of State organ under Article 14 can be
checked. See Radha Krishna Agarwal v. State of Bihar [(1977) 3
SCC 457] at p. 462, but Article 14 of the Constitution cannot and
has not been construed as a charter for judicial review of State
action after the contract has been entered into, to call upon the E
State to account for its actions in its manifold activities by stating
reasons for such actions. In a situation of this nature certain
activities of the respondent company which constituted State under
Article 12 of the Constitution may be in certain circumstances
subject to Article 14 of the Constitution in entering or not entering F
into contracts and must be reasonable and taken only upon lawful
and relevant consideration; it depends upon facts and
circumstances of a particular transaction whether hearing is
necessary and reasons have to be stated. In case any right
conferred on the citizens which is sought to be interfered, such
action is subject to Article 14 of the Constitution, and must be G
reasonable and can be taken only upon lawful and relevant grounds
of public interest. Where there is arbitrariness in State action of
this type of entering or not entering into contracts, Article 14 springs
up and judicial review strikes such an action down. Every action
of the State executive authority must be subject to rule of law and H
34 SUPREME COURT REPORTS [2022] 5 S.C.R.
A must be informed by reason. So, whatever be the activity of the
public authority, in such monopoly or semi-monopoly dealings, it
should meet the test of Article 14 of the Constitution. If a
governmental action even in the matters of entering or not entering
into contracts, fails to satisfy the test of reasonableness, the same
would be unreasonable. In this connection reference may be made
B
to E.P. Royappa v. State of Tamil Nadu [(1974) 4 SCC 3 : 1974
SCC (L&S) 165], Maneka Gandhi v. Union of India [(1978) 1
SCC 248], Ajay Hasia v. Khalid Mujib Sehravardi [(1981) 1 SCC
722 : 1981 SCC (L&S) 258], R.D. Shetty v. International Airport
Authority of India [(1979) 3 SCC 489] and also Dwarkadas
C Marfatia and Sons v. Board of Trustees of the Port of Bombay
[(1989) 3 SCC 293]. It appears to us that rule of reason and rule
against arbitrariness and discrimination, rules of fair play and
natural justice are part of the rule of law applicable in situation or
action by State instrumentality in dealing with citizens in a situation
like the present one. Even though the rights of the citizens are in
D
the nature of contractual rights, the manner, the method and motive
of a decision of entering or not entering into a contract, are subject
to judicial review on the touchstone of relevance and
reasonableness, fair play, natural justice, equality and non-
discrimination in the type of the transactions and nature of the
E dealing as in the present case.
17. We are of the opinion that in all such cases whether public
law or private law rights are involved, depends upon the facts and
circumstances of the case. The dichotomy between rights and
remedies cannot be obliterated by any strait-jacket formula. It
F has to be examined in each particular case. Mr Salve sought to
urge that there are certain cases under Article 14 of arbitrary
exercise of such “power” and not cases of exercise of a “right”
arising either under a contract or under a statute. We are of the
opinion that that would depend upon the factual matrix.
G 18. Having considered the facts and circumstances of the case
and the nature of the contentions and the dealing between the
parties and in view of the present state of law, we are of the
opinion that decision of the State/public authority under Article
298 of the Constitution, is an administrative decision and can be
impeached on the ground that the decision is arbitrary or violative
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 35
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
of Article 14 of the Constitution of India on any of the grounds A
available in public law field. It is true that there is discrimination
between power and right but whether the State or the
instrumentality of a State has the right to function in public field or
private field is a matter which, in our opinion, depends upon the
facts and circumstances of the situation, but such exercise of
B
power cannot be dealt with by the State or the instrumentality of
the State without informing and taking into confidence, the party
whose rights and powers are affected or sought to be affected,
into confidence. In such situations most often people feel aggrieved
by exclusion of knowledge if not taken into confidence.”
(Emphasis supplied] C
32. In the judgment of this Court rendered by a Bench of two
learned Judges decided in Shrilekha Vidyarthi (Kumari) v. State of U.P14,
the court was concerned with a challenge to a general order by which
the appointment of all government counsel in all the districts of the state
of U.P. came to be terminated. The writ petition was filed under Article D
32 of the Constitution of India. Important and apposite are the following
observations:
“22. There is an obvious difference in the contracts between
private parties and contracts to which the State is a party. Private
parties are concerned only with their personal interest whereas E
the State while exercising its powers and discharging its functions,
acts indubitably, as is expected of it, for public good and in public
interest. The impact of every State action is also on public interest.
This factor alone is sufficient to import at least the minimal
requirements of public law obligations and impress with this F
character the contracts made by the State or its instrumentality. It
is a different matter that the scope of judicial review in respect of
disputes falling within the domain of contractual obligations may
be more limited and in doubtful cases the parties may be relegated
to adjudication of their rights by resort to remedies provided for
adjudication of purely contractual disputes. However, to the extent, G
challenge is made on the ground of violation of Article 14 by
alleging that the impugned act is arbitrary, unfair or unreasonable,
the fact that the dispute also falls within the domain of contractual
obligations would not relieve the State of its obligation to comply
14
(1991) 1 SCC 212 H
36 SUPREME COURT REPORTS [2022] 5 S.C.R.
A with the basic requirements of Article 14. To this extent, the
obligation is of a public character invariably in every case
irrespective of there being any other right or obligation in addition
thereto. An additional contractual obligation cannot divest the
claimant of the guarantee under Article 14 of non-arbitrariness at
the hands of the State in any of its actions.
B
24. The State cannot be attributed the split personality of Dr Jekyll
and Mr Hyde in the contractual field so as to impress on it all the
characteristics of the State at the threshold while making a contract
requiring it to fulfil the obligation of Article 14 of the Constitution
and thereafter permitting it to cast off its garb of State to adorn
C the new robe of a private body during the subsistence of the
contract enabling it to act arbitrarily subject only to the contractual
obligations and remedies flowing from it. It is really the nature of
its personality as State which is significant and must characterize
all its actions, in whatever field, and not the nature of function,
D contractual or otherwise, which is decisive of the nature of scrutiny
permitted for examining the validity of its act. The requirement of
Article 14 being the duty to act fairly, justly and reasonably, there
is nothing which militates against the concept of requiring the State
always to so act, even in contractual matters. There is a basic
difference between the acts of the State which must invariably
E be in pubic interest and those of a private individual, engaged in
similar activities, being primarily for personal gain, which may or
may not promote public interest. Viewed in this manner, in which
we find no conceptual difficulty or anachronism, we find no reason
why the requirement of Article 14 should not extend even in the
F sphere of contractual matters for regulating the conduct of the
State activity.
27. Unlike a private party whose acts uninformed by reason and
influenced by personal predilections in contractual matters may
result in adverse consequences to it alone without affecting the
G public interest, any such act of the State or a public body even in
this field would adversely affect the public interest.
28. Even assuming that it is necessary to import the concept of
presence of some public element in a State action to attract Article
14 and permit judicial review, we have no hesitation in saying that
H the ultimate impact of all actions of the State or a public body
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 37
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
being undoubtedly on public interest, the requisite public element A
for this purpose is present also in contractual matters. We,
therefore, find it difficult and unrealistic to exclude the State actions
in contractual matters, after the contract has been made, from
the purview of judicial review to test its validity on the anvil of
Article 14.”
B
(Emphasis supplied)
33. As to what constitutes arbitrariness is captured in paragraph
36 and it reads as follows:
“36. The meaning and true import of arbitrariness is more easily
visualized than precisely stated or defined. The question, whether C
an impugned act is arbitrary or not, is ultimately to be answered
on the facts and in the circumstances of a given case. An obvious
test to apply is to see whether there is any discernible principle
emerging from the impugned act and if so, does it satisfy the test
of reasonableness. Where a mode is prescribed for doing an act D
and there is no impediment in following that procedure,
performance of the act otherwise and in a manner which does
not disclose any discernible principle which is reasonable, may
itself attract the vice of arbitrariness. Every State action must be
informed by reason and it follows that an act uninformed by reason,
is arbitrary. Rule of law contemplates governance by laws and E
not by humour, whims or caprices of the men to whom the
governance is entrusted for the time being. It is trite that ‘be you
ever so high, the laws are above you’. This is what men in power
must remember, always.”
34. The pronouncement made by this Court would later become F
the springboard or the charter for the further evolution of the concept of
public law element as also premise for the superior courts invoking Article
14 in various contractual matters.
35. In State of U.P and others v. Bridge and Roof Company
(India) Ltd.15, the Court was dealing with a case of a writ petition filed G
by the respondent therein which was a public sector corporation and
seeking payment allegedly due from the appellant state. The Court noted
that the contract in question contained Articles providing inter alia for
15
(1996) 6 SCC 22 H
38 SUPREME COURT REPORTS [2022] 5 S.C.R.
A settlement of disputes by reference to arbitration. The very resort to
Article 226 was found to be misconceived in the circumstances.
The Court also laid down as follows: -
“Firstly, the contract between the parties is a contract in the realm
of private law. It is not a statutory contract. It is governed by the
B provisions of the Contract Act or maybe, also by certain provisions
of the Sale of Goods Act. Any dispute relating to interpretation of
the terms and conditions of such a contract cannot be agitated,
and could not have been agitated, in a writ petition. That is a
matter either for arbitration as provided by the contract or for the
C civil court, as the case may be. Whether any amount is due to the
respondent from the appellant-Government under the contract and,
if so, how much and the further question whether retention or
refusal to pay any amount by the Government is justified, or not,
are all matter which cannot be agitated in or adjudicated upon in a
writ petition. The prayer in the writ petition, viz., to restrain the
D Government from deducting a particular amount from the writ
petitioner’s bill(s) was not a prayer which could be granted by the
High Court under Article 226. Indeed, the High Court has not
granted the said prayer.”
36. In Verigamto Naveen v. Govt. of A.P. and others16, the case
E involved, mining leases granted to a corporation and a sub-lease, which
was permitted by the Government. Thereafter, the permission was sought
to be withdrawn. The withdrawal of the permission, was the subject
matter of challenge in writ proceedings, inter alia. Against, the Order of
the Full Bench of the High Court, (which is reported in AIR 1995 A.P.1),
F appeals were carried to this Court. On the issue relating to the jurisdiction
of the Court in cases arising out of contract, this Court held as follows:
“21. … Though there is one set of cases rendered by this Court
of the type arising in Radhakrishna Agarwal case [(1977) 3 SCC
457 : AIR 1977 SC 1496] much water has flown in the stream of
G judicial review in contractual field. In cases where the decision-
making authority exceeded its statutory power or committed breach
of rules or principles of natural justice in exercise of such power
or its decision is perverse or passed an irrational order, this Court
has interceded even after the contract was entered into between
16
H (2001) 8 SCC 344
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 39
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
the parties and the Government and its agencies. We may advert A
to three decisions of this Court in Dwarkadas Marfatia &
Sons v. Board of Trustees of the Port of Bombay [(1989) 3 SCC
293], Mahabir Auto Stores v. Indian Oil Corpn. [(1990) 3 SCC
752] and Shrilekha Vidyarthi (Kumari) v. State of U.P. [(1991)
1 SCC 212 : 1991 SCC (L&S) 742 : AIR 1991 SC 537] Where the
B
breach of contract involves breach of statutory obligation when
the order complained of was made in exercise of statutory power
by a statutory authority, though cause of action arises out of or
pertains to contract, brings it within the sphere of public law because
the power exercised is apart from contract. The freedom of the
Government to enter into business with anybody it likes is subject C
to the condition of reasonableness and fair play as well as public
interest. After entering into a contract, in cancelling the contract
which is subject to terms of the statutory provisions, as in the
present case, it cannot be said that the matter falls purely in a
contractual field. Therefore, we do not think it would be appropriate
D
to suggest that the case on hand is a matter arising purely out of a
contract and, therefore, interference under Article 226 of the
Constitution is not called for. This contention also stands rejected.”
(Emphasis supplied)
The basis for interference was located in a statute which made E
its presence felt.
37. In Binny Ltd. and Another v. V. Sadasivan and Others17,
this Court was dealing with termination of services of respondents who
were working as Members of the Management, staff of the appellant
company. The appellant company purported to terminate their services. F
The respondents thereupon filed a writ petition under Article 226 of the
constitution of India. The appellant company contended that it was neither
a public authority nor did its action involve a public law element, and a
writ of Mandamus would not lie. The High Court granted only the
declaratory relief to the effect that the termination was illegal. We notice
the following: - G
“30. A contract would not become statutory simply because it is
for construction of a public utility and it has been awarded by a
statutory body. But nevertheless, it may be noticed that the
17
(2005) 6 SCC 657 H
40 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Government or government authorities at all levels are increasingly
employing contractual techniques to achieve their regulatory aims.
It cannot be said that the exercise of those powers are free from
the zone of judicial review and that there would be no limits to the
exercise of such powers, but in normal circumstances, judicial
review principles cannot be used to enforce contractual obligations.
B
When that contractual power is being used for public purpose, it
is certainly amenable to judicial review. The power must be used
for lawful purposes and not unreasonably.”
(Emphasis supplied)
C 38. The Court went to hold that the decision of the employer to
terminate the services of the employees could not be said to have any
element of public policy. The Court did not find any public element in the
termination of the employees. We may at once notice that the appellant
in the said case was not a public sector unit as the appellant in the
present case.
D
39. In G. Bassi Reddy v. International Crops Research Institute
and another18, the services of the appellant came to be terminated by
the respondent-ICRISAT. The Court went on to hold that the respondent
could not be treated as State under Article 12. The Court further
proceeded to hold that the Writ Petition was not maintainable against the
E respondent, noticing that neither was the respondent set up by a Statute
nor were its activities statutorily controlled.
40. ABL (supra) marks a milestone, as it were, in the matter of
the superior court interfering in contractual matters where the State is a
player even after the contract is entered into. A petition was filed under
F Article 226 wherein the respondent which was incorporated under the
Companies Act repudiated an insurance claim made by the appellant-
writ petitioner. This Court undertook an elaborate discussion of the earlier
case law. We find that this Court dealt with several obstacles which
were sought to be posed by the respondent. They included disputed
G questions of facts being involved, availability of alternate remedy, and
the case involving entertaining a money claim. This court went on to
hold as follows:
“27. From the above discussion of ours, the following legal principles
emerge as to the maintainability of a writ petition:
18
H (2003) 4 SCC 225
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 41
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
(a) In an appropriate case, a writ petition as against a State or an A
instrumentality of a State arising out of a contractual obligation is
maintainable.
(b) Merely because some disputed questions of fact arise for
consideration, same cannot be a ground to refuse to entertain a
writ petition in all cases as a matter of rule. B
(c) A writ petition involving a consequential relief of monetary
claim is also maintainable.”
41. No doubt, we must also notice para 28 which serves as an
admonition against considering the availability of the remedy under Article
226 as an absolute charter to invoke jurisdiction in all cases. C
“28. However, while entertaining an objection as to the
maintainability of a writ petition under Article 226 of the Constitution
of India, the court should bear in mind the fact that the power to
issue prerogative writs under Article 226 of the Constitution is
plenary in nature and is not limited by any other provisions of the D
Constitution. The High Court having regard to the facts of the
case, has a discretion to entertain or not to entertain a writ petition.
The Court has imposed upon itself certain restrictions in the
exercise of this power. (See Whirlpool Corpn. v. Registrar of
Trade Marks [(1998) 8 SCC 1].) And this plenary right of the E
High Court to issue a prerogative writ will not normally be exercised
by the Court to the exclusion of other available remedies unless
such action of the State or its instrumentality is arbitrary and
unreasonable so as to violate the constitutional mandate of Article
14 or for other valid and legitimate reasons, for which the Court
thinks it necessary to exercise the said jurisdiction.” F
(Emphasis supplied)
42. We may also notice how this Court steered clear of the
criticism that it was not following the principle laid down by this Court in
State of U.P. v. Bridge & Roof Co. (India) Ltd.19. The Court noted
G
that the said case did involve a contract which contained an arbitration
clause. It is found that in the case before it there was no arbitration
clause. In regard to the question as to whether the first respondent in the
said case was discharging a public duty or public function was involved
19
(1996) 6 SCC 22 H
42 SUPREME COURT REPORTS [2022] 5 S.C.R.
A while repudiating the claim of the appellants arising out of the contract,
the Court drew support from the judgment in Kumari Shrilekha
Vidyarthi (supra).
43. In Noble Resources Ltd. v. State of Orissa 20, this court
followed ABL (supra). However, in the facts of the said case again the
B matter involving refusal by a public authority to honour the contract in
the matter of purchase of Iron ore, the Court held as follows:
“15. It is trite that if an action on the part of the State is violative
of the equality clause contained in Article 14 of the Constitution
of India, a writ petition would be maintainable even in the
C contractual field. A distinction indisputably must be made between
a matter which is at the threshold of a contract and a breach of
contract; whereas in the former the court’s scrutiny would be
more intrusive, in the latter the court may not ordinarily exercise
its discretionary jurisdiction of judicial review, unless it is found to
be violative of Article 14 of the Constitution. While exercising
D contractual powers also, the government bodies may be subjected
to judicial review in order to prevent arbitrariness or favouritism
on their part. Indisputably, inherent limitations exist, but it would
not be correct to opine that under no circumstances a writ will lie
only because it involves a contractual matter.”
E 44. The court went on to approve of ABL (supra) and observed
that this Court had declared that no decision lays down as an absolute
rule that in all cases of disputed questions of fact, the parties should be
relegated to a civil Court. We may also notice paragraph 29:
“29. Although the scope of judicial review or the development of
F law in this field has been noticed hereinbefore particularly in the
light of the decision of this Court in ABL International Ltd. [(2004)
3 SCC 553] each case, however, must be decided on its own
facts. Public interest as noticed hereinbefore, may be one of the
factors to exercise the power of judicial review. In a case where
G a public law element is involved, judicial review may be permissible.
(See Binny Ltd. v. V. Sadasivan [(2005) 6 SCC 657 : 2005 SCC
(L&S) 881] and G.B. Mahajan v. Jalgaon Municipal Council
[(1991) 3 SCC 91]”
20
H (2006) 10 SCC 236
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 43
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
45. Of further relevance to notice is the case of the respondent A
therein that only because the price of iron ore increased in the international
market, the appellant had filed the writ petition only in February 2004. It
was found that the said contention was not wholly misconceived.
Thereafter the court went on to following observations:
“41. The submission of Mr Desai that rise in international price B
would not by itself be a relevant consideration to rescind the
contract may be correct, but then the same was not the sole ground
for Respondent 2 to refuse to supply iron ore fines to the appellant.
42. Moreover, certain serious disputed questions of fact have arisen
for determination. Such disputed questions of fact ordinarily could C
not have been entertained by the High Court in exercise of its
power of judicial review.”
46. In the context of upgradation of aided schools and a complaint
of discrimination, we notice the following observations of this court in
State Of Kerala and others v. K. Prasad and another 21. D
“ Para 11. This Court in Shrilekha Vidyarthi v. State of U.P. [(1991)
1 SCC 212: 1991 SCC (L&S) 742] held that every State action, in
order to survive, must not be susceptible to the vice of arbitrariness
which is the crux of Article 14 and basic to the rule of law, the
system which governs us, arbitrariness being the negation of the E
rule of law. Non-arbitrariness, being a necessary concomitant of
the rule of law, it is imperative that all actions of every public
functionary in whatever sphere must be guided by reason and not
humour, whim, caprice or personal predilections of the persons
entrusted with the task on behalf of the State and exercise of all
powers must be for public good instead of being an abuse of F
power.”
47. We may notice that as to what constitutes arbitrariness fell
for consideration by this court in a case which involved cancellation of
the examination held as part of a recruitment process, in East Coast
Railway and another v. Mahadev Appa Roa and others22. We notice G
the following passages which are apposite for this case.
“19. Black’s Law Dictionary describes the term “arbitrary” in the
following words:
21
(2007) 7 SCC 140
22
(2010) 7 SCC 678 H
44 SUPREME COURT REPORTS [2022] 5 S.C.R.
A “Arbitrary. —1. Depending on individual discretion; specif.,
determined by a judge rather than by fixed rules, procedures, or
law. 2. (Of a judicial decision) founded on prejudice or preference
rather than on reason or fact. This type of decision is often termed
arbitrary and capricious.”
B 20. To the same effect is the meaning given to the expression
“arbitrary” by Corpus Juris Secundum which explains the term in
the following words:
“Arbitrary.—Based alone upon one’s will, and not upon any course
of reasoning and exercise of judgment; bound by no law;
C capricious; exercised according to one’s own will or caprice and
therefore conveying a notion of a tendency to abuse possession
of power; fixed or done capriciously or at pleasure, without
adequate determining principle, non-rational, or not done or acting
according to reason or judgment; not based upon actuality but
beyond a reasonable extent; not founded in the nature of things;
D not governed by any fixed rules or standard; also, in a somewhat
different sense, absolute in power, despotic, or tyrannical; harsh
and unforbearing. When applied to acts, ‘arbitrary’ has been held
to connote a disregard of evidence or of the proper weight thereof;
to express an idea opposed to administrative, executive, judicial,
E or legislative discretion; and to imply at least an element of bad
faith, and has been compared with ‘willful’.”
xxx xxx xxx
23. Arbitrariness in the making of an order by an authority can
manifest itself in different forms. Non-application of mind by the
F authority making the order is only one of them. Every order passed
by a public authority must disclose due and proper application of
mind by the person making the order. This may be evident from
the order itself or the record contemporaneously maintained.
Application of mind is best demonstrated by disclosure of mind by
G the authority making the order. And disclosure is best done by
recording the reasons that led the authority to pass the order in
question. Absence of reasons either in the order passed by the
authority or in the record contemporaneously maintained is clearly
suggestive of the order being arbitrary hence legally unsustainable.”
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 45
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
48. We would, therefore, sum up as to when an act is to be treated A
as arbitrary. The court must carefully attend to the facts and the
circumstances of the case. It should find out whether the impugned
decision is based on any principle. If not, it may unerringly point to
arbitrariness. If the act betrays caprice or the mere exhibition of the
whim of the authority it would sufficiently bear the insignia of arbitrariness.
B
In this regard supporting an order with a rationale which in the
circumstances is found to be reasonable will go a long way to repel a
challenge to state action. No doubt the reasons need not in every case
be part of the order as such. If there is absence of good faith and the
action is actuated with an oblique motive, it could be characterised as
being arbitrary. A total non-application of mind without due regard to the C
rights of the parties and public interest may be a clear indicator of arbitrary
action. A wholly unreasonable decision which is little different from a
perverse decision under the Wednesbury doctrine would qualify as an
arbitrary decision under Article 14. Ordinarily visiting a party with the
consequences of its breach under a contract may not be an arbitrary
D
decision.
49. We may now notice the judgment of this court in Joshi
Technologies International Inc. v. Union of India and others 23, which
is also relied upon by the learned Additional Solicitor General. The said
case actually involved the complaint of the writ petitioner therein that it
was entitled to the benefit of Section 42 of the Income Tax Act, 1961 E
which provided for certain deductions. The petitioner had entered into
an agreement with the respondent, the Government of India. The case
of the respondent, inter alia, was one denying the case of the petitioner
that the omission of Section 42 was by oversight. The prayer in the writ
petition itself inter alia was essentially to declare entitlement to the F
deduction under Section 42, inter alia. It is while dealing with the said
case that this court no doubt proceeds to, inter alia, lay down as following
after adverting to ABL limited (supra) also:-
“69. The position thus summarised in the aforesaid principles has
to be understood in the context of discussion that preceded which G
we have pointed out above. As per this, no doubt, there is no
absolute bar to the maintainability of the writ petition even in
contractual matters or where there are disputed questions of fact
or even when monetary claim is raised. At the same time,
23
(2015) 7 SCC 728 H
46 SUPREME COURT REPORTS [2022] 5 S.C.R.
A discretion lies with the High Court which under certain
circumstances, it can refuse to exercise. It also follows that under
the following circumstances, “normally”, the Court would not
exercise such a discretion:
69.1. The Court may not examine the issue unless the action has
B some public law character attached to it.
69.2. Whenever a particular mode of settlement of dispute is
provided in the contract, the High Court would refuse to exercise
its discretion under Article 226 of the Constitution and relegate
the party to the said mode of settlement, particularly when
C settlement of disputes is to be resorted to through the means of
arbitration.
69.3. If there are very serious disputed questions of fact which
are of complex nature and require oral evidence for their
determination.
D 69.4. Money claims per se particularly arising out of contractual
obligations are normally not to be entertained except in exceptional
circumstances.”
“70. Further, the legal position which emerges from various
judgments of this Court dealing with different situations/aspects
E relating to contracts entered into by the State/public authority with
private parties, can be summarised as under:
70.1. At the stage of entering into a contract, the State acts purely
in its executive capacity and is bound by the obligations of fairness.
70.2. State in its executive capacity, even in the contractual field,
F
is under obligation to act fairly and cannot practise some
discriminations.
70.3. Even in cases where question is of choice or consideration
of competing claims before entering into the field of contract,
facts have to be investigated and found before the question of a
G violation of Article 14 of the Constitution could arise. If those
facts are disputed and require assessment of evidence the
correctness of which can only be tested satisfactorily by taking
detailed evidence, involving examination and cross-examination
of witnesses, the case could not be conveniently or satisfactorily
H decided in proceedings under Article 226 of the Constitution. In
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 47
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
such cases the Court can direct the aggrieved party to resort to A
alternate remedy of civil suit, etc.
70.4. Writ jurisdiction of the High Court under Article 226 of the
Constitution was not intended to facilitate avoidance of obligation
voluntarily incurred.
70.5. Writ petition was not maintainable to avoid contractual B
obligation. Occurrence of commercial difficulty, inconvenience
or hardship in performance of the conditions agreed to in the
contract can provide no justification in not complying with the
terms of contract which the parties had accepted with open eyes.
It cannot ever be that a licensee can work out the licence if he C
finds it profitable to do so: and he can challenge the conditions
under which he agreed to take the licence, if he finds it
commercially inexpedient to conduct his business.
70.6. Ordinarily, where a breach of contract is complained of, the
party complaining of such breach may sue for specific D
performance of the contract, if contract is capable of being
specifically performed. Otherwise, the party may sue for damages.
70.7. Writ can be issued where there is executive action
unsupported by law or even in respect of a corporation there is
denial of equality before law or equal protection of law or if it can E
be shown that action of the public authorities was without giving
any hearing and violation of principles of natural justice after holding
that action could not have been taken without observing principles
of natural justice.
70.8. If the contract between private party and the State/ F
instrumentality and/or agency of the State is under the realm of a
private law and there is no element of public law, the normal course
for the aggrieved party, is to invoke the remedies provided under
ordinary civil law rather than approaching the High Court under
Article 226 of the Constitution of India and invoking its
extraordinary jurisdiction. G
70.9. The distinction between public law and private law element
in the contract with the State is getting blurred. However, it has
not been totally obliterated and where the matter falls purely in
private field of contract, this Court has maintained the position
that writ petition is not maintainable. The dichotomy between public H
48 SUPREME COURT REPORTS [2022] 5 S.C.R.
A law and private law rights and remedies would depend on the
factual matrix of each case and the distinction between the public
law remedies and private law field, cannot be demarcated with
precision. In fact, each case has to be examined, on its facts
whether the contractual relations between the parties bear insignia
of public element. Once on the facts of a particular case it is
B
found that nature of the activity or controversy involves public
law element, then the matter can be examined by the High Court
in writ petitions under Article 226 of the Constitution of India to
see whether action of the State and/or instrumentality or agency
of the State is fair, just and equitable or that relevant factors are
C taken into consideration and irrelevant factors have not gone into
the decision-making process or that the decision is not arbitrary.
70.10. Mere reasonable or legitimate expectation of a citizen, in
such a situation, may not by itself be a distinct enforceable right,
but failure to consider and give due weight to it may render the
D decision arbitrary, and this is how the requirements of due
consideration of a legitimate expectation forms part of the principle
of non-arbitrariness.
70.11. The scope of judicial review in respect of disputes falling
within the domain of contractual obligations may be more limited
E and in doubtful cases the parties may be relegated to adjudication
of their rights by resort to remedies provided for adjudication of
purely contractual disputes.”
50. In State of Kerala v. M.K. Jose24, the specific question with
which we are concerned with, namely, entertaining a writ petition in a
F contractual matter and where the specific question was the validity of
the termination of the contract, fell for consideration. We may notice
the following:
“13. A writ court should ordinarily not entertain a writ petition, if
there is a breach of contract involving disputed questions of fact.
G The present case clearly indicates that the factual disputes are
involved.”
51. Thereafter, the court went on to consider in detail the judgment
of this Court in ABL (supra) and found that it was a case where the
court granted relief as the facts were absolutely clear from the
24
H (2015) 9 SCC 433
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 49
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
documentary evidence and it pertained to interpretation of such clauses A
of the contract of insurance. We need notice only paragraph 20 in M.K.
Jose (supra). It reads as under:
“20. We have referred to the aforesaid authorities to highlight under
what circumstances in respect of contractual claim or challenge
to violation of contract can be entertained by a writ court. It depends B
upon facts of each case. The issue that had arisen in ABL
International [(2004) 3 SCC 553] was that an instrumentality of
a State was placing a different construction on the clauses of the
contract of insurance and the insured was interpreting the contract
differently. The Court thought it apt merely because something is
disputed by the insurer, it should not enter into the realm of disputed C
questions of fact. In fact, there was no disputed question of fact,
but it required interpretation of the terms of the contract of
insurance. Similarly, if the materials that come on record from
which it is clearly evincible, the writ court may exercise the power
of judicial review but, a pregnant one, in the case at hand, the D
High Court has appointed a Commission to collect the evidence,
accepted the same without calling for objections from the
respondent and quashed the order of termination of contract.”
(Emphasis supplied)
52. In State of U.P. v. Sudhir Kumar Singh and Others 25, the E
first respondent the successful tenderer had worked the contract for a
year when he was visited with cancellation. This Court exhaustively
referred to the earlier case law including ABL (supra) and Joshi
Technology (supra) and held, inter alia, as follows: -
“23. It may be added that every case in which a citizen/person F
knocks at the doors of the writ court for breach of his or its
fundamental rights is a matter which contains a “public law
element”, as opposed to a case which is concerned only with
breach of contract and damages flowing therefrom. Whenever a
plea of breach of natural justice is made against the State, the G
said plea, if found sustainable, sounds in constitutional law as
arbitrary State action, which attracts the provisions of Article 14
of the Constitution of India - see Nawabkhan Abbaskhan v. State
of Gujarat (1974) 2 SCC 121 at paragraph 7. The present case is,
25
2020 SCC Online 847 H
50 SUPREME COURT REPORTS [2022] 5 S.C.R.
A therefore, a case which involves a “public law element” in that
the petitioner (Respondent No. 1 before us) who knocked at the
doors of the writ court alleged breach of the audi alteram partem
rule, as the entire proceedings leading to cancellation of the tender,
together with the cancellation itself, were done on an ex parte
appraisal of the facts behind his back.”
B
53. We have already concluded that PPA is not a Statutory
Contract. However, that would not be the end of enquiry. Dr. A.M.
Singhvi, learned Senior Counsel, would point out that the contract, not
being a statutory contract, assumes relevance only for the purpose of
deciding as to whether the Court should relegate the writ applicant, to
C alternate remedies. In other words, while the Court would retain its
discretion to entertain the petition or decline to do so, in the facts of each
case, there is no absolute taboo against the Court granting relief, even if
the challenge to the termination of a contract is made in the case of a
contract, which is not statutory in nature, when the offending party is the
D State. In other words, the contention is that the law in this field has
witnessed an evolution and, what is more, a revolution of sorts and a
transformatory change with a growing realisation of the true ambit of
Article 14 of the Constitution of India. The State, he points out, cannot
play the Dr. Jekyll and Hyde game anymore. Its nature is cast in stone.
Its character is inflexible. This is irrespective of the activity it indulges
E in. It will continue to be haunted by the mandate of Article 14 to act
fairly. There has been a stunning expansion of the frontiers of the Court’s
jurisdiction to strike at State action in matters arising out of contract,
based, undoubtedly, on the facts of each case. It remains open to the
Court to refuse to reject a case, involving State action, on the basis that
F the action is, per se, arbitrary.
54. We may cull out our conclusions in regard to the points, which
we have framed:
i. It is, undoubtedly, true that the writ jurisdiction is a public
law remedy. A matter, which lies entirely within a private
G realm of affairs of public body, may not lend itself for being
dealt with under the writ jurisdiction of the Court.
ii. The principle laid down in Bareilly Development Authority
(supra) that in the case of a non-statutory contract the rights
are governed only by the terms of the contract and the
H decisions, which are purported to be followed, including
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 51
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
Radhakrishna Agarwal (supra), may not continue to hold A
good, in the light of what has been laid down in ABL (supra)
and as followed in the recent judgment in Sudhir Kumar
Singh (supra).
iii. The mere fact that relief is sought under a contract which
is not statutory, will not entitle the respondent-State in a B
case by itself to ward-off scrutiny of its action or inaction
under the contract, if the complaining party is able to
establish that the action/ inaction is, per se, arbitrary.
iv. An action will lie, undoubtedly, when the State purports to
award any largesse and, undoubtedly, this relates to the stage C
prior to the contract being entered into [See R.D. Shetty
(supra)]. This scrutiny, no doubt, would be undertaken within
the nature of the judicial review, which has been declared
in the decision in Tata Cellular vs. Union of India26.
v. After the contract is entered into, there can be a variety of D
circumstances, which may provide a cause of action to a
party to the contract with the State, to seek relief by filing a
Writ Petition.
vi. Without intending to be exhaustive, it may include the relief
of seeking payment of amounts due to the aggrieved party E
from the State. The State can, indeed, be called upon to
honour its obligations of making payment, unless it be that
there is a serious and genuine dispute raised relating to the
liability of the State to make the payment. Such dispute,
ordinarily, would include the contention that the aggrieved
party has not fulfilled its obligations and the Court finds that F
such a contention by the State is not a mere ruse or a
pretence.
vii. The existence of an alternate remedy, is, undoubtedly, a
matter to be borne in mind in declining relief in a Writ Petition
in a contractual matter. Again, the question as to whether G
the Writ Petitioner must be told off the gates, would depend
upon the nature of the claim and relief sought by the
petitioner, the questions, which would have to be decided,
26
(1994) 6 SCC 651 H
52 SUPREME COURT REPORTS [2022] 5 S.C.R.
A and, most importantly, whether there are disputed questions
of fact, resolution of which is necessary, as an indispensable
prelude to the grant of the relief sought. Undoubtedly, while
there is no prohibition, in the Writ Court even deciding
disputed questions of fact, particularly when the dispute
surrounds demystifying of documents only, the Court may
B
relegate the party to the remedy by way of a civil suit.
viii. The existence of a provision for arbitration, which is a forum
intended to quicken the pace of dispute resolution, is viewed
as a near bar to the entertainment of a Writ Petition (See in
this regard, the view of this Court even in ABL (supra)
C explaining how it distinguished the decision of this Court in
State of U.P. and others v. Bridge & Roof Co.27, by its
observations in paragraph-14 in ABL (supra)].
ix. The need to deal with disputed questions of fact, cannot be
made a smokescreen to guillotine a genuine claim raised in
D a Writ Petition, when actually the resolution of a disputed
question of fact is unnecessary to grant relief to a writ
applicant.
x. The reach of Article 14 enables a Writ Court to deal with
arbitrary State action even after a contract is entered into
E by the State. A wide variety of circumstances can generate
causes of action for invoking Article 14. The Court’s
approach in dealing with the same, would be guided by,
undoubtedly, the overwhelming need to obviate arbitrary
State action, in cases where the Writ remedy provides an
F effective and fair means of preventing miscarriage of justice
arising from palpably unreasonable action by the State.
xi. Termination of contract can again arise in a wide variety of
situations. If for instance, a contract is terminated, by a
person, who is demonstrated, without any need for any
G argument, to be the person, who is completely unauthorised
to cancel the contract, there may not be any necessity to
drive the party to the unnecessary ordeal of a prolix and
avoidable round of litigation. The intervention by the High
Court, in such a case, where there is no dispute to be
27
H (1996) 6 SCC 22
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 53
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
resolved, would also be conducive in public interest, apart A
from ensuring the Fundamental Right of the petitioner under
Article 14 of the Constitution of India. When it comes to a
challenge to the termination of a contract by the State, which
is a non-statutory body, which is acting in purported exercise
of the powers/rights under such a contract, it would be over
B
simplifying a complex issue to lay down any inflexible Rule
in favour of the Court turning away the petitioner to alternate
Fora. Ordinarily, the cases of termination of contract by
the State, acting within its contractual domain, may not lend
itself for appropriate redress by the Writ Court. This is,
undoubtedly, so if the Court is duty-bound to arrive at C
findings, which involve untying knots, which are presented
by disputed questions of facts. Undoubtedly, in view of
ABL Limited (supra), if resolving the dispute, in a case of
repudiation of a contract, involves only appreciating the true
scope of documentary material in the light of pleadings, the
D
Court may still grant relief to an applicant. We must enter a
caveat. The Courts are today reeling under the weight of a
docket explosion, which is truly alarming. If a case involves
a large body of documents and the Court is called upon to
enter upon findings of facts and involves merely the
construction of the document, it may not be an unsound E
discretion to relegate the party to the alternate remedy. This
is not to deprive the Court of its constitutional power as laid
down in ABL (supra). It all depends upon the facts of each
case as to whether, having regard to the scope of the dispute
to be resolved, whether the Court will still entertain the
F
petition.
xii. In a case the State is a party to the contract and a breach
of a contract is alleged against the State, a civil action in
the appropriate Forum is, undoubtedly, maintainable. But
this is not the end of the matter. Having regard to the position
of the State and its duty to act fairly and to eschew G
arbitrariness in all its actions, resort to the constitutional
remedy on the cause of action, that the action is arbitrary,
is permissible (See in this regard Kumari Shrilekha
Vidyarthi and others v. State of U.P. and others 28).
28
(1991) 1 SCC 212) H
54 SUPREME COURT REPORTS [2022] 5 S.C.R.
A However, it must be made clear that every case involving
breach of contract by the State, cannot be dressed up and
disguised as a case of arbitrary State action. While the
concept of an arbitrary action or inaction cannot be cribbed
or confined to any immutable mantra, and must be laid bare,
with reference to the facts of each case, it cannot be a
B
mere allegation of breach of contract that would suffice.
What must be involved in the case must be action/inaction,
which must be palpably unreasonable or absolutely irrational
and bereft of any principle. An action, which is completely
malafide, can hardly be described as a fair action and may,
C depending on the facts, amount to arbitrary action. The
question must be posed and answered by the Court and all
we intend to lay down is that there is a discretion available
to the Court to grant relief in appropriate cases.
xiii. A lodestar, which may illumine the path of the Court, would
D be the dimension of public interest subserved by the Court
interfering in the matter, rather than relegating the matter
to the alternate Forum.
xiv. Another relevant criteria is, if the Court has entertained the
matter, then, while it is not tabooed that the Court should
E not relegate the party at a later stage, ordinarily, it would be
a germane consideration, which may persuade the Court to
complete what it had started, provided it is otherwise a sound
exercise of jurisdiction to decide the matter on merits in the
Writ Petition itself.
F xv. Violation of natural justice has been recognised as a ground
signifying the presence of a public law element and can
found a cause of action premised on breach of Article 14.
[See Sudhir Kumar Singh and Others (supra)].
WHETHER THERE IS AN ARBITRATION CLAUSE?
G 55. Before we proceed to deal further with the matter, we would
have to first find whether there is any arbitration clause. We have already
referred to the dispute resolution clause, namely, Article 13.2.1 and Article
13.2.3. They would appear to indicate that the clauses may not constitute
an arbitration clause. As far as Article 13.3.1. is concerned, to which
resort is to be made when the dispute remains unresolved under 13.2.3,
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 55
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
it deals with disputes arising from a claim for any matter relating to the A
tariff. Therefore, we would take the view that it may not be a case
where the PPA provides for an arbitration clause capable of determining
the lis in question. The situation therefore contemplated in U.P. Roof
(supra) as laid down in ABL (supra) does not exist.
THE IMPACT OF THE JUDGMENT IN THE FIRST B
WRIT PETITION
56. Taking up point no. 5., viz., the effect of the judgment of the
High Court in the earlier round, we must notice indeed that this is a case
which represents the second round of the litigation. In the earlier round
the respondents had successfully invoked the jurisdiction under Article C
226 when it was served with the order of termination of the contract
dated 11.08.2017. We have already noticed the fate of the said case.
The first battle which commenced in the year 2017 resumed as it were
with the present writ petition. We are not oblivious to the fact that the
appellant did not think it fit to challenge the verdict in the first round of
litigation. No doubt, the case of the appellant is that the appellant was of D
the view that the court has left it free to the appellant to take steps under
the contract for termination of the contract. It is the case of the appellant
in fact, that the judgment of the High Court in the earlier round would
not be an obstacle for the appellant to revisit and terminate the contract
for the reason that the PPA made it incumbent on the appellant to E
terminate the contract under Article 2.1(d) if the contractor did not fulfil
the conditions subsequent even after the expiry of 210 days and a further
period of nine months after the commencement of PPA. We must
examine whether the earlier judgment, in fact, in law permits the appellant
to re-open the said issue. A perusal of the judgment dated 20.6.2017
would reveal that the court was dealing with the challenge to the order F
dated 11.08.2017. The order dated 11.08.2017 would reveal that the
appellant has found that there is a delay of 54 days in achieving the
condition subsequent deadline. After considering the representation by
the respondent, the appellant found that there is no merit in the case of
force majeure and there was no justification for the delay in achieving G
conditions subsequent. Thereafter, the appellant, in terms of Article
2.5.1(d), terminated the PPA. Still further, a sum of Rs.1180.50 lakhs
was found recoverable as penalty in terms of Article 2.5. It is this order
which was challenged. Thereafter we find that the High court went on
to notice that in a similar case, viz., relating to New Clean Energy Pvt.
H
56 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Ltd., the petitioner therein admittedly commissioned the project within
the time prescribed except that there was a delay of 16 days in achieving
the first milestone.
57. Here we must understand the word ‘first milestone’ as
fulfilment of the conditions subsequent. In regard to fulfilment of said
B milestone for which there was a delay of 16 days in the case of Renew
clean Energy, there was a delay of 54 days in the case of the first
respondent. It is further noticed by the High Court that there was an
order passed in favour of the Renew clean energy setting aside the
termination of the contract in the said petitioner’s case as confirmed by
this Court. Next the High Court went on to record that there is a dispute
C as to whether the respondent had commissioned the power project in
the present case. We notice that an attempt was made by the appellant
to justify the termination on the basis that the respondent had not
commissioned the power project within the time fixed. The High Court
proceeds to notice that the aspect of commissioning the project was not
D the basis for terminating the contract. Relying on Mohinder Singh Gill29,
the appellants were not permitted to supplement the reasons for
termination. Finally, the High court has proceeded to find that since the
similar reason for termination of the agreement in the communication
dated 11.8.2017 was not found justified in the case of Renew Clean
Energy, the impugned communication dated 11.08.2017 was set aside.
E It is thereafter that the liberty was given to the appellants to pass fresh
orders in terms of the PPA in accordance with law.
58. The appellants would persuade us to hold that the High Court
intended, by the liberty granted to leave it open to the appellant to pass
orders invoking its power under the PPA which would not only include
F termination of the PPA based on respondent not commissioning the project
within the time but also revisit the aspect relating to non-fulfilment of the
conditions subsequent. The respondent would join issue with the appellant
on the score that judgment of the High Court must be understood as
meaning that on the issue relating to non-fulfilment of the conditions
G subsequent the court made its pronouncement on merits with reference
to the decision in Renew Clean Energy. All that was left open was the
question related to the delay in commissioning the project.
59. Learned Additional Solicitor General apart from reiterating
his contention would point out that the earlier judgment should not be
H 29
(1978) 1 SCC 405
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 57
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
treated as res judicata and the only reason appellant did not challenge A
the High court judgment, dated 20.06.2018, was the liberty granted. He
would further submit that at any rate even proceeding on the basis that
the High court could not revisit the issue of the non-fulfilment of the
conditions subsequent, the decision of the High Court would not stand in
the way of this Court considering whether the order which is impugned
B
in this case which includes the issue relating to non-fulfilment of the
conditions subsequent is sustainable. This is apart from pointing out that
even in the case of Renew Clean Energy, this Court in its order refusing
to interfere in the judgment of the High Court has made it clear that it
was not going into the merits of the said contention having regard to
observations which had been made, namely, that the contractor therein C
being faced with unavoidable circumstances as also the factum of huge
investment made in the project.
60. Having noticed the contents of the decision of the High court
dated 20.06.2018 and also bearing in mind the terms of the notice of
termination dated 11.08.2017 we are of the view that the High Court D
must be treated as having interfered with the order based no doubt on
the order of the said court as affirmed by this Court in the case of
Renew Clean Energy. Noticing, however, the contentions based on the
aspect relating to project not being commissioned by the respondent
within time and further clearly finding that the impugned order was not
premised on project not being commissioned the impugned order was E
set aside finding that the termination was not justified as regards to non-
fulfilment of conditions subsequent. It is thereafter that the liberty was
granted and it had to pass fresh order in terms of the PPA. We have to
take the order as it is and we are of the firm view that the analysis of the
order leads us to only one conclusion which is that the High Court intended F
to only leave open the right of the appellant to invoke its power under the
contract in regard to the issue relating to commissioning of the project or
rather in the matter of default in commissioning the project. It would
neither be legal nor equitable to permit the appellant to contend that the
issue relating to not having fulfilled the conditions subsequent can be
canvassed all over again. G
AN ASIDE?
THE STATE LOAD DISPATCH CENTRE (RESPONDENT
NO.5): ITS STAND AND THE IMPACT OF THE SAME
H
58 SUPREME COURT REPORTS [2022] 5 S.C.R.
A 61. Respondent No.5 filed a counter affidavit in this Court. It
claims to be the ‘Authority charged to perform functions under Section
32 (2) of the Electricity Act, 2003. Its responsibility is limited to monitoring
and controlling of existing Grid elements and generating stations keeping
the account of energy transmitted through the Grid. It specifically states
that its role emerges after commissioning of the generating plant. It further
B
states all activities prior to readiness of generator to inject power into
the Grid are beyond its purview. The further stand is that none of the
regulatory provisions allows it to interfere in pre-requisite regulatory
compliance by the generator before injecting of power into the Grid.
There is reference to short-term open access for which there are
C regulations. In respect of Renewable Energy generators intending to
connect with the Grid, certain regulatory requirements, before injecting
of power therein, are to be complied with. They are registration, data
and speech communication facility, interface metering and communication
of meter data through automatic meter reading.
D Single line diagram indicating connectivity with the grid duly
certified by MPPTCL (fourth respondent), when connected to 132KV
and above, inter alia, copy of connection agreement with the fourth
respondent, inter alia, information regarding sale of power under long-
term access, medium-term open access or short-term open access,
approval of CEIG for construction, operation and maintenance of electrical
E plans and electrical lines under Section 73C of the Electricity Act, 2003
and approval of Power, Telecommunication and Coordination Committee
(PTCC). It is further stated that on compliance with procedures it first
issues a unique code for charging power evacuation line. When the line
holds for a reasonable time, unique code for injection is issued. Real
F time generation is monitored. If it is satisfied with the data recorded by
the interface meters (Main and check) then a generating station is deemed
to be commissioned. It is pointed out by letters dated 2.12.2015 and
3.11.2016 respondent No.5 requested Respondent No.1 for compliance
of the procedure/response. Mandatory documents were not submitted
for injecting of Grid except registration. CEIG approval is only for
G renewable energy generation units and equipments installed in the
Switchyard. Respondent No.1 has not obtained CEIG approval of
transmission line. The details of the interface meters, metering equipments
are not mentioned in the report of CGIG. It is pointed out that other units
including M/s. New Clean Energy was ready for evacuation of power
H with all regulatory requirements.
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 59
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
62. In the reply affidavit filed by the first respondent to the said A
counter affidavit, it is complained that respondent No.5 though a party in
the earlier writ petition as also in the present writ petition it never
responded, objecting to the readiness of first respondent in August 2017.
The belated reply in the High Court is stated to seem as ill motivated and
done at the instance of the appellant. Furthermore, the first respondent
B
points out that it is not the case of the first respondent that its project
was commissioned. Its case was that it was complete in all respects and
would have commissioned before the expiry of 24 months but for the
illegal termination on two occasions as noted. In regard to non-compliance
with certain regulatory requirements, various steps taken by it are referred
to. C
63. As far as registration is concerned, it was completed on
15.12.2016. In regard to data and speech communication facility, it is
stated by Respondent No.1 that it is completed on 23.03.2017. In the
said communication, on a letterhead showing the name of the fourth
respondent and also showing the name of the fifth respondent, it is stated D
that the telemetry scheme for the 100MW solar power plant was generally
in order and accepted for implementation, subject to four conditions
stipulated therein. Thereafter, it is stated that “it is, therefore, required
that the telemetry and voice communication from the control centre
of the proposed power plant upto Back Up SLDC Bhopal/Sub-LDC
Indore/SLDC Jabalpur be arranged before synchronization of your E
power plant. It may please be noted that synchronization of plant
with grid shall not be allowed without commissioning of telemetry
and voice communication.” It is seen signed by the Superintending
Engineer (LD:E&T), SLDC, MPPTCL, Jabalpur. As far as the
requirement of connection agreement, it has been stated in the reply F
affidavit of the first respondent that such connection agreement was,
indeed, executed between Respondent No.1 and Respondent No.4. The
agreement is dated 18.05.2017. At this juncture, we may notice that a
Sur-Rejoinder has been filed by Respondent No.5. Having regard to the
connection agreement, all that is stated is, till date, Respondent No.5
was not provided with a copy by the first respondent. It is also stated G
that Respondent Nos. 4 and 5 are two distinct entities and, therefore, it
was required for compliance that the same should have been submitted
to Respondent No. 5. We have already noticed that letter dated 23.07.2017
is on the same letterhead, showing the names of Respondent Nos. 4 and
5 and signed by the Superintending Engineer, wherein also, the names of H
60 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Respondent Nos. 4 and 5 appear. It is a little intriguing and strange, that
the fifth respondent did not know about the agreement and referred to it
as a requirement and as though it had not been complied with by the first
respondent. The first respondent has stated that, with regard to the single-
line diagram indicating connectivity with the grid, that it was completed
on 19.10.2016. An extension was sought for by Respondent No.1, in
B
which required diagrams were furnished to Respondent No. 4.
Respondent No.4, it is stated, has granted permission for charging the
transmission line connected from the project to the STU. Diagrams were
also, it is stated, approved by the CEIG. The answer of Respondent
No.5 in the Sur-Rejoinder that the letter dated 29.08.2017 was not issued
C by Respondent No.5 but by Respondent No.4. It is admitted that it is
stated therein that the line is ready for charging but further necessary
action, like issuing of charging code, has to be taken from Respondent
No.5 by Respondent No.1. It is again stated that Respondent No.1 has
never approached Respondent No.5 with copy of letter dated 29.08.2017
and CEIG approval for readiness of evacuating line. It is again stated
D
that Respondent No.5 is not an arm or even unit of Respondent No.4. In
regard to the contention that information regarding sale of power for
access, including long-term access, was not made available by the first
respondent. It is pointed out that the first respondent set up the project to
supply power to the appellant only as per the PPA and the said
E requirement was not applicable.
64. The fifth respondent in the Sur-Rejoinder responded by pointing
out that Respondent No.5 is the Nodal Body for managing the grid
operations and within the State and it is generally seen that if the plant is
commissioned the same cannot be left idle and be allowed to inject power
F into the grid, and it was in this regard, it was mentioned that if a third-
party sale was to be undertaken by Respondent No.1 so that its plant
was not left idle, then, it was incumbent on Respondent No.1 to have
obtained open access. We find that as per Article 9.8 of the PPA, the
first respondent was obliged to sell the contracted capacity for a period
of twenty-five years from COD. Elaborate provisions have been made,
G which would visit the first respondent with monetary compensation to
be paid to the appellant, in case of breach. Article 9.7 also provides for
the obligation of the appellant to buy power for twenty-five years. It is
only if there was refusal or inability to buy by the appellant, fully or
partially, or in the event of default, as per Article 9.5, leading to termination,
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 61
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
the first respondent was left free to sell power to a third party, which A
sale was to be regulated by certain terms.
65. As regards another requirement, viz., approval of the CEIG
for construction, operation and maintenance of the electrical plants and
electrical lines, it is the case of the first respondent that such approval
was obtained by letter dated 10.08.2017. It was also marked to B
Respondent No.4. CEIG approval for the electrical plant was received
on 09.08.2017. Respondent No.4, it is pointed out, had also, on 24.08.2017,
issued a Joint Inspection Report certifying that the project may be
charged. In fact, we find, in the Joint Inspection Report issued by the
fourth respondent that:
C
“Newly constructed 132KV D.C.D.S. line from 400KV PS
Chhegaon to 50MW Pooling Station of M/S Sky Power Solar
India Pvt. Ltd. And 50MW Pooling Station of M/S Sky Power
Southeast Solar India Pvt. Ltd. At village Chhirbel has been
jointly inspected with EE (EHT-M) MPPTCL, Indore on dt.24/
08/2017. During Joint Inspection No. any major defects has D
been found and line. May be charged.”
(Emphasis supplied)
66. In regard to the same, Respondent No.5 in the Sur-Rejoinder
would state that it is misleading and incorrect on the basis that it has E
been averred by Respondent No.1 that the approval of the CEIG for
readiness of 132KV double circuit line for connection with the grid was
submitted by the sister concern of Respondent No.1, while requesting
code for charging the 132KV line for the sister concern. It is stated that
in the approval issued on 10.08.2017, there is no mention that the second
line will be utilised by Respondent No.1. The letter of the CEIG dated F
10.08.2017 is said to be addressed to the sister concern. There was to
be a specific approval of CEIG in favour of Respondent No.1. Copy
was not marked to Respondent No.5 but only marked to Respondent
No.4. It again reiterated that they are two different entities.
67. It appears to us that though letter dated 10.08.2017 is addressed G
to the sister concern of Respondent No.1, viz., Sky Power Solar India
Pvt. Ltd., what was the subject matter of the communication was for
100MW solar power project, and what is more, and it was for the
establishment of 132KV ‘dual’ circuit transmission. This understanding
of this CEIG Report is clear from the Joint Inspection Report of
H
62 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Respondent No.4 as Respondent No.1 has entered into a PPA for 50MW,
and the sister concern, apparently, had a PPA for 50MW. Lastly, even
given an opportunity, this is a matter which could have been clarified by
the CEIG, for which no opportunity appears to have been given. We
bear in mind Article 9.1 of the PPA. From the Joint Inspection Report,
bearing in mind that 132KV line had a dual circuit, the same line was to
B
be used by the first respondent and its sister concern. This appears to be
the only possible meaning on a joint reading of the CEIG Report dated
10.08.2017 and Joint Inspection Report dated 24.08.2017. We stand
fortified in this regard by the report dated 21.04.2018 also where it is
inter alia stated as follows:-
C “1. Present Status of Transmission Line for power evacuation
from Power Plant to Grid Substation
132 kV DCDS line is found erected between Pooling Substation
to 400 kV Chhegaon (Torni)Substation. One circuit is used for
already existing 50 MW plant of M/s Sky Power and 2nd circuit is
D proposed to be used for M/s Sky Power South East Solar India
Pvt. Ltd. at village Chirbel, Distt. Khandwa, for which site
verification visit is conducted.”
68. The next requirement, according to the fifth respondent was
that approval of the PTCC was required. The first respondent has, in
E the reply, stated the said requirement was completed on 05.09.2017. We
find that Chief Engineer (Procurement) of the fourth respondent has
recorded in the communication dated 05.09.2017 that PTCC had accorded
PTCC route approval:
“With reference to the subject cited above, DET (PTCC), Mumbai
F has accorded PTCC route approval for charging 132KV DCDS
line from 400kV S/s Chhegaon to 100MW Solar Power Project
of M/s SkyPower Solar India & M/s SkyPower Southeast Solar
India Pvt. Ltd. Chhirbel, Dist. Khandwa.”
69. The fifth respondent, in the Sur-Rejoinder, in response to the
G same, would respond by stating that the Respondent No.4 granting
approval, did not mean that the same was issued with the knowledge or
concurrence of Respondent No.5. We only remind ourselves that in the
Counter Affidavit filed by Respondent No.5, Respondent No.5 had only
stated against Requirement No.VIII that there was the requirement of
approval of PTCC. What is reflected in letter dated 05.09.2017 is that
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 63
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
DET [PTCC] has accorded PTCC route approval. The approval is not A
granted by the fourth respondent. We are a little mystified by the
statement that the PTCC approval should be one issued with the
knowledge and concurrence of the fifth respondent.
70. It is, no doubt, true that as regards the contention of the fifth
respondent that there must be interface metering and communication of B
the meter data through automatic meter reading (AMR), which details
are to be provided to the SLDC before the commissioning of the plant,
there is no specific averment by the first respondent. Here we must
notice that it is for the first time such a plea is being raised by the fifth
respondent. Even proceeding on the basis that it was a requirement; it is
required to be provided before commissioning. This is not a matter, which C
could not be set right at any rate, if an opportunity to remove a defect
was provided, as we shall see, may be contemplated under Article 9.1.
It is also true that as far as the data and speech communication facility,
the first respondent has claimed that it was completed on 23.03.2017.
We have already referred to it also. The stand of the fifth respondent is D
that there is approval but it is only in principle. It is complained that till
date, the telemetry and voice communication was not working, in spite
of the fact that by letter dated 03.04.2017, relevant IP address for real
time data communication was furnished. It is not functional till date, in
the case of the first respondent, whereas, in regard to its sister concern,
it is operational. A letter dated 14.10.2021 is produced to indicate that E
the telemetry of the first respondent was not integrated and no real time
data was received from the IP address provided to it. Even, in regard to
this matter, if an opportunity was to be given in law, to the first respondent
under Article 9.1, it is not something which may be not achievable.
71. We are also dealing with these aspects on the basis of an F
affidavit filed raising such issues for the first time by the fifth respondent.
The fifth respondent had all the opportunity in the writ petition to raise
such contentions. Even in the Review Petition, there is only adoption of
the contentions of the appellant.
72. Emphasis is placed on the statement of Respondent no.5 by G
respondent no.1 wherein it is stated “whereas though the generating
station is ready for generation of power but the power cannot be
evacuated into the grid in the absence of transmission line”. This is taken
as an admission of the readiness of the first respondent for generation of
power. It is pointed out further that necessary approval was taken before H
64 SUPREME COURT REPORTS [2022] 5 S.C.R.
A December 2016 to August 2017 for operating the transmission line.
Respondent No.1 was not allowed to commission. Reliance is also placed
on the inspection report of the appellant to show that the transmission
line was ready. The examples about other operators are brushed aside
as irrelevant. It is the generator’s prerogative to sell power in the open
market.
B
73. A Sur-Rejoinder is filed by respondent No.5. Therein, it has
interestingly produced its return in the review petition filed by the appellant
before the High court. Therein we may notice that it referred to Section
32(2) of the Electricity Act and its functions. Thereafter it has stated as
follows:
C
“3. That, in accordance with Electricity act, 2003, role of SLDC
comes after commissioning of the generating plant and its
evacuating transmission lines. On receipt of commissioning
certificate of a generator, connectivity with the Grid, metering
arrangement and other regulatory compliances, SLDC accords
D permission of injection of power into the Grid. Further, SLDC
schedules power of generator to the beneficiary/consumer if the
valid Power Purchase Agreement exists between buyer and seller.
4. That, writ proceeding in the instant petition is regarding
completion of commissioning of solar Generating Plant of M/s.
E Sky Power Southeast Solar India Pvt. Ltd., whereas the
responsibility of SLDC begins after commissioning of the Solar
Generating Plant and other regulatory compliances. As per
provisions of Electricity Act, 2003 and MPEGC, commissioning
certification is beyond the jurisdiction of SLDC.
F 6. That, the answering respondent is more of a formal respondent
as the agreement was entered into between MPPMCL and the
Original Petitioner in Writ Proceedings which is M/s. Sky Power.”
74. No doubt, it has also stated in paragraph-7 that it adopts all the
facts and grounds raised by the review petitioner, namely, the appellant.
G
75. It will be noticed that though respondent no.5 was a party to
the earlier writ petition as much as it is a party in the present writ petition,
respondent no.5 has not filed any counter affidavit in either of the writ
petitions. It is only in the review petition that the respondent no.5 has
filed a reply and we have noticed its stand. The stand appears to be that
H it is more of a formal respondent. Its role comes in only after
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 65
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
commissioning. It is in this Court that there has been blossoming of its A
case for the first time. It is also admitted by respondent No.5 that it is
not concerned with the pre-commissioning. It is its specific stand that all
the activities prior to readiness of the generator to inject power are beyond
its purview. It has specifically stated that its role comes only after
commissioning the project. First respondent states that it has not
B
commissioned the project. Its only case is that it was ready to commission
the project within 24 months as provided in the PPA but it was illegally
prevented from doing it.
76. We may only observe that the fifth respondent has, in the Sur-
Rejoinder, owned up letter dated 23.03.2017 as the letter it has sent. The
said letter is in the letterhead of the fourth respondent and therein the C
name of the fifth respondent is also shown. It would appear that the fifth
respondent is created under Section 31 of the Electricity Act, 2003.
Section 31 reads as follows:
“Constitution of State Load Despatch Centres.—(1) The State
Government shall establish a Centre to be known as the State D
Load Despatch Centre for the purpose of exercising the powers
and discharging the functions under this Part.
(2) The State Load Despatch Centre shall be operated by a
Government company or any authority or corporation established
or constituted by or under any State Act, as may be notified by E
the State Government:
Provided that until a Government company or any authority
or corporation is notified by the State Government, the State
Transmission Utility shall operate the State Load Despatch Centre:
F
Provided further that no State Load Despatch Centre shall
engage in the business of trading in electricity.”
77. Therefore, it would appear to us that actually the fifth
respondent is to be operated by the State Transmission Utility, which is
defined in Section 2(67) as the Board (defined as the State Electricity
G
Board) or the Government company specified by the State Government
under Section 39(1), unless it is operated by a Government company or
any authority or corporation established or constituted by or under and
State Act. It would, therefore, appear to us that if the fourth respondent
is the State Transmission Utility, it would be the Body to operate the fifth
respondent. The attempted disassociating of the fifth respondent from H
66 SUPREME COURT REPORTS [2022] 5 S.C.R.
A the fourth respondent, appears to us to be without justification. However,
we leave the matter there. We may conclude nearly that all the
requirements were met. There remained the metering requests and the
aspects about furnishing data. They clearly appear to be matters which
could have been remedied at any rate if a default notice was given.
B THE NARRATIVE RESUMES
78. At this juncture, we must make certain observations. While
the law has evolved from the hands-off approach to one of contracts
lending ground for writ courts making a foray into decisions by State and
its instrumentalities even in contractual matter, there are certain principles
C which we have already in fact generally noticed. We have already found
that the contract in question, i.e., the PPA, is not a statutory contract.
We have also noticed that even if it is a non-statutory contract, there is
no absolute bar in dealing with a cause of action based on acts or omission
by the State or its instrumentalities even during the course of the working
of a contract. We again reiterate that a monetary claim arising from a
D contract may be successfully urged by a writ applicant but the premise
would not be a mere breach of contract. Being part of public law the
case must proceed on the basis of there being arbitrariness vitiating the
decision. The matter should not fall within a genuinely disputed question
of facts scenario. The dispute which must be capable of being resolved
E on a proper understanding of documents which are not in dispute may
furnish a cause of action in a writ court. Such was the case in ABL
(supra). What is this litigation all about? This litigation is not about
enforcing a monetary claim. The writ petition lays a challenge to the
termination of the contract. A termination of the contract, no doubt, again
may not be immune if it is found to be afflicted with the vice of
F arbitrariness. Interference again may be refused if the court finds that
the case really belongs to the small area with unclear contours where it
can be appropriated as a private law dispute. The distinction between
public law and private law has concededly been reduced to nearly
imperceptible terms but the distinction in law remains. As far as the
G public law aspect is concerned, we are inclined to take the view that in
view of what has been laid down in Shri Vidhyarthi Lekha (supra), the
impact of the action in a contractual matter in the facts by public authority
is felt in public domain. We are dealing with the action of the appellant in
terminating the contract dealing with the right to generate renewable
energy and for supplying it to the consumers. Supply of power and its
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 67
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
consumption are imperative and indispensable needs for not only the A
common man but also for the efficient functioning of trade and industry.
Decisions in this domain do impinge on public interest. Therefore, we
would not be inclined to shut the doors on the first respondent in this
matter. We also bear in mind that this is the second round of litigation.
As noticed already, in the first round, the first respondent did succeed.
B
79. Having found that though a non-statutory contract and that
there is no absolute prohibition against judicial review on the score that
action is shown to be arbitrary, the questions which would fall for further
consideration are: (1) whether action is arbitrary (2) the projected disputes
of facts and their impact; (3) what is the impact of the principle that
there must be overwhelming public interest in favour of the writ applicant C
for the writ court to interfere.
THE ARGUMENT OF ‘OVERWHELMING PUBLIC
INTEREST’
80. The case based on ‘overwhelming public interest not being D
present in this case is based on the following submissions by the learned
Additional Solicitor General. It is pointed out that under the PPA, if the
appellants are compelled to comply with the impugned Judgment and
that too for a period of twenty-five years, it would be liable to purchase
power at the rate of Rs. 5.109/- unit. On the other hand, if the Writ
Petition filed by the first respondent is dismissed, there would be no E
obligation and consequent burden. It is important to notice that the
appellant would be compelled to pass on the burden to the ultimate
consumers. All of this is to be viewed in the scenario, when power is
available at a cheaper rate in the market. In other words, public interest
lies not in favour of exercise of jurisdiction under Article 226 of the F
Constitution of India. The High Court erred in not bearing in mind this
fundamental principle the argument runs. The appellant relied on the
decision in All India Power Engineer Federation and others v. Sasan
Power Limited and others30, for the proposition that the Court must be
mindful of public interest, which consists of interest of the consumers
ultimately. G
81. Per contra, the submission of the first respondent is that the
Court must not be oblivious to certain facts. The rate per unit, in the
case of the first respondent, is Rs.5.109 per unit. In respect of another
30
(2017) 1 SCC 487 H
68 SUPREME COURT REPORTS [2022] 5 S.C.R.
A project, where the PPA was entered into with a sister concern of the
first respondent, the project price was Rs.5.298 per unit. The project
stands commissioned. The tariff was arrived at on the basis of highly
competitive bids. There were, in fact, 183 bids. It is further contended
that the bid of the first respondent was found to be the lowest in the
competitive bidding. The appellant is, in fact, buying power at higher
B
tariff from at least 5 generators, who commissioned their projects in the
year 2017-2018. It was further contended that the daily demand of the
appellant is approximately 15000 megawatts. The quantum of the project
of the first respondent is only 50 megawatts, which constitutes 0.33 per
cent of the total demand. Purchasing such a small capacity, in terms of
C the rate under the PPA, would make no difference to the consumer
tariff. This is apart from countenancing the appellant reneging on a binding
contract, which involves reaching a reward for arbitrary State action,
besides, destroying an investment of Rs.331 crores. In this regard, reliance
is placed on the Judgment of this Court in Vice Chairman & Managing
Director, City and Industrial Development Corporation of Maharashtra
D
Ltd. and another v. Shishir Realty Private Limited and others31. Public
interest cannot be determined with reference to monetary considerations
alone, it is pointed out.
82. As far as All India Power Engineer Federation (supra) is
concerned, in fact, the Court was dealing with Civil Appeals, which were
E filed under the Electricity Act, 2003. The question about public interest
arose in the context of the provision in the contract, which provided for
waiver, which would be a unilateral act under Article 18.3 of the PPA
therein. The Court also discussed the effect of Section 63 of the Indian
Contract Act, 1872. The Court, while dealing with waiver and public
F interest, held as follows:
“21. Regard being had to the aforesaid decisions, it is clear
that when waiver is spoken of in the realm of contract, Section 63
of the Contract Act, 1872 governs. But it is important to note that
waiver is an intentional relinquishment of a known right, and that,
G therefore, unless there is a clear intention to relinquish a right that
is fully known to a party, a party cannot be said to waive it. But
the matter does not end here. It is also clear that if any element of
public interest is involved and a waiver takes place by one of the
parties to an agreement, such waiver will not be given effect to if
31
H (2021) SCC Online SC 1141
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 69
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
it is contrary to such public interest. This is clear from a reading A
of the following authorities.
xxx xxx xxx
25. It is thus clear that if there is any element of public
interest involved, the court steps in to thwart any waiver which
may be contrary to such public interest.” B
83. In the said case, the Court further held that the moment the
electricity tariff gets affected, the consumer interest comes in and public
interest gets affected and further that there is a statutory recognition for
the same in Sections 61 to 63 of the Electricity Act, 2003. Therefore,
this Judgment, though in the context of a Statutory Appeal, has laid down C
that consumer interest in tariff is intertwined with public interest.
84. On the other hand, in Vice Chairman & Managing Director,
City and Industrial Development Corporation of Maharashtra Ltd. (supra),
this Court, while dealing with a case involving the question of award of
contract, held as follows: D
“58. When a contract is being evaluated, the mere possibility of
more money in the public coffers, does not in itself serve public
interest. A blanket claim by the State claiming loss of public money
cannot be used to forgo contractual obligations, especially when it
is not based on any evidence or examination. The larger public E
interest of upholding contracts and the fairness of public authorities
is also in play. Courts need to have a broader understanding of
public interest, while reviewing such contracts.”
85. In fact, the principle of public interest has found expression in
cases which involved challenge to the legality of the award of F
contract.[See in this regard Tata Cellular v. Union of India (1994) 6
SCC 65132 (supra) and Raunaq International Ltd. v. I.V.R. Construction
Ltd. and Others, (1999) 1 SCC 492.
86. In Michigan Rubber (India) Limited v. State of Karnataka
and Others33 after referring to Tata Cellular and Raunaq International G
Limited (supra), the Court inter alia held as follows: -
“35. As observed earlier, the Court would not normally interfere
with the policy decision and in matters challenging the award of
32
(2017) 1 SCC 487
33
(2012) 8 SCC 216 H
70 SUPREME COURT REPORTS [2022] 5 S.C.R.
A contract by the State or public authorities. In view of the above,
the appellant has failed to establish that the same was contrary to
public interest and beyond the pale of discrimination or
unreasonable.”
87. In Raunaq International Ltd. v. I.V.R. Construction Ltd.
B and Others34 the case involved award of contract for the purpose of
Thermal Power Station. In fact, the Appeals in this court were maintained
against the grant of an interim order against the appellant to whom the
contracts stood awarded. The case also involved relaxation of the criteria
which was based on valid principles it was found. It was further found
that the construction of two Thermal Power Units was being held up
C due to the dispute. The Court, inter alia, held as follows: -
“9. However, because the State or a public body or an agency of
the State enters into such a contract, there could be, in a given
case, an element of public law or public interest involved even in
such a commercial transaction.
D
10. The elements of public interest are: (1) Public money would
be expended for the purposes of the contract. (2) The goods or
services which are being commissioned could be for a public
purpose, such as, construction of roads, public buildings, power
plants or other public utilities. (3) The public would be directly
E interested in the timely fulfilment of the contract so that the services
become available to the public expeditiously. (4) The public would
also be interested in the quality of the work undertaken or goods
supplied by the tenderer. Poor quality of work or goods can lead
to tremendous public hardship and substantial financial outlay either
F in correcting mistakes or in rectifying defects or even at times in
redoing the entire work — thus involving larger outlays of public
money and delaying the availability of services, facilities or goods,
e.g., a delay in commissioning a power project, as in the present
case, could lead to power shortages, retardation of industrial
development, hardship to the general public and substantial cost
G escalation.
11. When a writ petition is filed in the High Court challenging the
award of a contract by a public authority or the State, the court
must be satisfied that there is some element of public interest
34
H (1999) 1 SCC 492
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 71
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
involved in entertaining such a petition. If, for example, the dispute A
is purely between two tenderers, the court must be very careful
to see if there is any element of public interest involved in the
litigation. A mere difference in the prices offered by the two
tenderers may or may not be decisive in deciding whether any
public interest is involved in intervening in such a commercial
B
transaction. Price may not always be the sole criterion for awarding
a contract.”
88. Therefore, on a conspectus of the case law, we find that the
concept of overwhelming public interest has essentially evolved in the
context of cases relating to the award of contract by the State. It becomes
an important consideration in the question as to whether then the State C
with whatever free play it has in its joints decides to award a contract, to
hold up the matter or to interfere with the same should be accompanied
by a careful consideration of the harm to public interest. We do not go
on to say that consideration of public interest should not at all enter the
mind of the court when it deals with a case involving repudiation of a D
claim under a contract or for that matter in the termination of the contract.
However, there is a qualitative difference in the latter categories of cases.
Once the State enters into the contract, rights are created. If the case is
brought to the constitutional court and it is invited to interfere with State
action on the score that its action is palpably arbitrary, if the action is so
found then an appeal to public interest must be viewed depending on the E
facts of each case. If the aspect of public interest flows entirely on the
basis that the rates embodied in the contract which is arbitrarily terminated
has with the passage of time become less appealing to the State or that
because of the free play of market forces or other developments, there
is a fall in the rate of price of the services or goods then this cannot F
become determinative of the question as to whether court should decline
jurisdiction. In this case, it is noteworthy that the rates were in fact
settled on the basis of international competitive bidding and in which as
many as 182 bidders participated and the rate offered by the first
respondent was undoubtedly the lowest. The fact that power has become
cheaper in the market subsequently by itself should not result in non- G
suiting of the complaint of the first respondent, if it is found that a case
of clear arbitrariness has been established by the first respondent.
89. In other words, public interest cannot also be conflated with
an evaluation of the monetary gain or loss alone.
H
72 SUPREME COURT REPORTS [2022] 5 S.C.R.
A POINTS NO. 6 - 8 AND 10
90. The time is now ripe to take a closer look at the relevant
clauses of the PPA. Article 2 deals with the pre commissioning activities.
Article 2.1 deals with satisfaction of the conditions subsequent by the
respondent. Clause 2.1.1 contemplates that the respondent must complete
B all the conditions which are set out at his own cost and risk within 210
days from the effective date. The only two exceptions were ‘force
maejure’ or if any of the conditions subsequent was specifically waived
by the appellant in writing. The consequences of non-fulfilling the condition
subsequent is dealt with in Article 2.2 which related to force majeure
obstructing the fulfilment of the conditions subsequent. Article 2.2.2 in
C fact provided that any increase in the time period for completion of the
conditions subsequent mentioned under Article 2.1 would also lead to an
equal extension in the scheduled commissioning date. Article 2.5 provided
for delay in achieving the conditions subsequent. Article 2.5.1 reads as
follows:
D “2.5.1. In case of delay in achieving any of the Conditions
Subsequent under clause 2.1 (a to h), as may be applicable,
MPPMCL shall encash CPG (submitted by Seller @ Rs. 30 Lakhs/
MW) as under, subject to Force Majeure: -
a) Delay from 0-3 months - 1 % per week.
E
b) Delay from 3-6 months - 2% per week for the period
exceeding 3 months, apart from (a) above.
c) Delay from 6-9 months - 3% per week for the period
exceeding 6 months, apart from (a) and (b) above.
F d) In case of delay of more than 9 months, MPPMCL shall
terminate PPA and release balance amount of CPG.”
91. Thereafter, PPA deals with the aspect of commissioning.
Article 2.6 deals with commissioning and it reads as follows:
“2.6. COMMISSIONING
G
In case of Solar Project of capacity up to 50 MW, commissioning
of plant shall be within 12 months from the date of financial closure
subject to Force Majeure. In case of Solar Project of capacity
beyond 50 MW and up to 100 MW, commissioning of plant shall
be within 15 months from the date of financial closure subject to
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 73
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
Force Majeure For capacity beyond 100 MW, commissioning A
period shall be within 18 months from the date of financial closure
subject to Force Majeure..1
In case of failure to achieve this milestone, provision of PPA as
mentioned below shall apply: -
MPPMCL shall en cash the CPG in the following manner for the B
capacity not commissioned, subject to Force Majeure:-
a) Delay from 0-3 months - 1% per week.
b) Delay from 3-6 months - 2% per week for the period exceeding
3 months, apart from (a) above.. C
c) Delay of more than 6 months – 3% per week for the period
exceeding 6 months, apart from (a) and (b) above.
Part Commissioning: In case of Solar PV Projects, Part
commissioning of the Project shall be accepted by MPPMCL
subject to the condition that the minimum capacity for acceptance D
of part commissioning shall be 5 MW. Or in multiple of 5 MW
COD means the commissioning date of just units (s) of the power
project where upon the seller starts injecting power from full
contracted capacity of the power project to the delivery point; as
approved by competent authority of the Transco/Discom. The E
PPA will remain in force for a period of25 month from the COD.”
92. There are other Articles which need not detain us. Article 3
deals with Supply Arrangements under Open Access. Article 3.1.1 reads
as under:
“3.1.1. The power generated through 50 MW Solar Power Project F
(PY/Thermal Technology) installed by the Seller Located at Village
bedhsya, Tai: Khandwa, Dist: Khandwa, State: Madhya Pradesh
shall be injected into the Transmission/Distribution system of
Transco/Discom on 33kV or above side of 33kV /EHV Substation
situated at Deshgaon at injection point for sale to MPPMCL, subject G
to fulfilling the terms and conditions and protection schemes by
the Seller as approved by the concerned
Transco/Discom’s.
3.1.2. The Seller shall ensure to interconnect and operate the solar
power plant in parallel with the grid of Transco/Discom (in the H
74 SUPREME COURT REPORTS [2022] 5 S.C.R.
A area of the location of the generating unit) system subject to the
terms and provisions of this agreement. The Seller shall be fully
responsible for obtaining and maintaining any or all licenses and
permissions required by law. The Seller shall abide by any law,
rules, regulations or any notification or order issued there under
by the Central Govt. or State Govt. or Commission or Local
B
Authority or any other Authority prescribed under the law
connected with the project of the Seller.
The Seller shall be fully responsible for the design, construction,
testing, operation and maintenance of the solar power plant in
accordance with Standard Utility Practices, relevant technical
C standards and specifications.
b) For the power plant situated in MP State, the power evacuation
infrastructure laid by the Seller shall be the property of the
concerned licensee (Transco/Discom) in whose territorial area
the above lines are located - notwithstanding the fact that the cost
D of the said infrastructure has been paid by the Seller and the same
. shall then be maintained by the concerned licensee at its cost. A
separate transfer agreement shall be subsequently signed in this
regard with the concerned licensee, if required.
3.1.3. The Seller shall obtain all statutory and non-statutory
E permissions as required. The seller supplying power from outside
of MP State shall require to obtain long term open access
permission as per relevant regulations of central and state
regulators, as the case may be, from the state or regional load
dispatch center and/or the state/central transmission utilities.”
F 93. Article 4 deals with System Operations. Article 4.2 deals with
system operation and scheduling. We may notice Articles 4.2.1 and 4.2.4.
“4.2.1. The State Load Despatch Center shall be the Nodal
Agency if the project is located in MP, for system operation, power
accounting, scheduling, etc. The foes and charges of SLDC as
G approved by the MPERC shall be payable by the Seller to the
SLDC. In case of the system is located in any other state, the
Seller has to follow the regulations of the particular SLDCIRLDC
and the fees and charges shall be payable by the seller accordingly.”
“4.2.4. SLDCs/Control Centers of the States/UTs/DVC, in which
H the solar power plant is located, shall provide the 15-minute block-
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 75
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
wise data of schedule and actual generation from Solar Grid A
Connected Power Plant as recorded in the Energy Meters to the
concerned RLDC and NLDC on a weekly basis as per the
requirement of SLDCIRLDC/NLDC. All the data shall be
submitted in the form prescribed by the NLDC.”
94. Article 4.3 deals with open access. Article 5.1 deals with B
commercial operations date (COD). COD has been defined in the
agreement as meaning the commissioning date of the last unit(s) of the
power project whereupon the seller starts injecting power from full
contracted capacity of the power project to the delivery point as approved
by competent authority of the TRANSCO/DISCOM. DISCOM has
been defined as a licensee authorised to operate and maintain a C
distribution system for supplying electricity to the consumers in the State
of Madhya Pradesh. Article 5.1 reads as under:
“5.1. COMMERCIAL OPERATIONS DATE
The Commercial Operation Date of the plant shall mean the D
commissioning date of last unit (s) of the power project where
upon the seller starts injecting power from contracted capacity of
the power project to the delivery point as approved by competent
authority of the Transco/discom.
After Each part commissioning and/por CoD of the contracted E
capacity, the commissioning certificate (s) certified by Transco/
Discom shall be attached as Annezure- XII to the Power Purchase
Agreement
However part commissioning of the plant shall be accepted as
laid out in clause 2.6 and the energy supplied from the same shall F
be considered for billing and payment of the energy supplied from
such commissioned units.”
95. Article 5.2. deals with Pre-Commercial Operations and it inter
alia provides that the discom shall take all power produced through the
STU/CTU during the testing of the plant without any charges. Thereafter
G
5.3 deals with Notice of Commercial Operations. It reads as follows:-
“5.3 NOTICE OF COMMERCIAL OPERATIONS:-
The Seller will specify in a written notice to the MPPMCL that:
H
76 SUPREME COURT REPORTS [2022] 5 S.C.R.
A a) The Plant is constructed in accordance with this Agreement
and is ready to deliver Solar Power in accordance with the
terms hereof;
b) All permissions and approvals required for the Plant to sell
Solar Power at the rates and terms specified under this
B Agreement have been obtained and
c) All interconnection facilities are available to receive Solar
Power from the Plant.
Such notice shall take effect and the Commercial Operations Date
will be achieved following the Transco/Discom’s declaration that
C all of the conditions set forth in this Article have been satisfied or
waived by the STU/CTU/MPPMCL/Transco/Discom i.e.:
a) The Seller has successfully completed the testing of
the Plant in accordance with the manufacturer’s
recommendations and the Seller has obtained and
D provided to the STU/CTU/Transco/Discom Certificates
from the Electrical Inspectorate of GoMP or any other
state government authorised agency, and the STU/
Transco/Discom’s officer as may be designated; in case
project is located in MP. In case project is located outside
E MP, similar certificates be obtained from the concern
authority of respective state.
b) The Seller has delivered to the Transco/Discom a list
of the Plant’s equipment, showing the make, model,
serial number and certified the installed capacity of the
F Plant;
c) The Plant has achived initial synchronization with the
Transco/Discom’s/STU/CTU Grid System and has
demonstrated the reliability of its communications
systems and communications with the STU/CTU/
Transco/Discom;
G
d) The Seller has operated the Plant without experiencing
any abnormal or unsafe operating conditions on any
interconnected system;
e) The Seller shall also have notified the MPPMCL/
H Trancso/Discom/STU/CTU no later than 30 days prior
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 77
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
to the Commercial Operations Date that all the A
Conditions Subsequent as laid out in clause 1.01 have
been met and MPPMCL shall verify the same and shall
provide the Seller a written endorsement in this behalf
acknowledging the documents, certificates, approvals
etc provided by the Seller in this regard.”
B
The respondent was duty bound to notify to the appellant that the
plant is constructed as per PPA and it was ready to produce solar power
and that all permissions and approvals to sell power at the rates and
terms under the agreement had been obtained and all inter connection
facilities were available to receive solar power from the plant. The PPA
further contemplates that the said notice would take effect and the COD C
be achieved upon the TRANSCO/DISCOM declaring that all conditions
in this Article were either fulfilled or waived. The PPA further deals
with Sale and Purchase of Solar Power in Article 6 commencing at
COD date. The seller, that is, the respondent was to sell and the appellant
was to purchase and accept 50MW solar power at the point of delivery. D
The respondent undertook not to sell any solar power (all of which is
committed to the appellant) to any other person. Article 7 deals with
Metering and Measuring. Article 8 deals with Billing and Power
Accounting. Article 9 deals with Events of Default and Remedies. Article
9.1 is relevant and it deals as follows:
E
“9.1. DEFAULTS AND TERMINATION.
In case of default, the non-defaulting party shall issue a default
notice to the defaulting party. If the default is not fully set right
within three months from the date of issue of the default notice,
then in case of default by the Seller, the MPPMC.L by giving F
seven days termination notice in writing, may terminate the
agreement. In case of default by MPPMCL, the Seller may in the
same way terminate the agreement.”
96. Article 9.4 deals with various events which are described as
seller event of default. The relevant provision reads, inter alia: G
“9.4. SELLER EVENT OF DEFAULT
The occurrence and continuation of any of the following events,
unless any such event occurs as a result ofa Force Majeure Event,
shall constitute Seller Event of Default:
H
78 SUPREME COURT REPORTS [2022] 5 S.C.R.
A a) The failure to commence supply of power to MPPMCL up to
the Contracted, Capacity, relevant to the Scheduled Commissioning
Date, by the end of 24 months; or”
97. Article 9.5 provides for appellant’s events of default. Article
9.7 falling under 9.6 which generally deals with ‘Remedy’. It reads as
B follows:
“9.7. MPPMCL commits to buy power, as indicated in Article
Error! Reference source not found. of PPA, from Seller at Rs.
5.051 per kWh for a period of 25 years from COD. In case
MPPMCL refuses or is unable to buy the said power, fully or
C partially, or there is an event of default as per Clause 9 .5 of PPA
leading to termination of the PPA, the seller would be free to sell
the said power to a Third Party at any rate which will be decided
between the Seller and the said Third Party and such sale would
be governed by the following principles:”
D (Emphasis supplied)
The principles are set out providing for two cases.
98. Article 11.6.3 deals with Change in Law. Article 13 deals
with Jurisdiction and Dispute Resolution. Article 13.2.1 reads as follows:
“13.2.1. Either Party is entitled to raise any claim, dispute or
E
difference of whatever nature arising under, out of or in connection
with this Agreement (“Dispute”) by giving a written notice (Dispute
Notice) to the other Party, which shall contain:
• a description of the Dispute;
F • the grounds for such Dispute; and
• all written material in support of its claim
13.2.2. The other Party shall, within thirty (30) days of issue of
Dispute Notice issued under 13.2.1, furnish:
G • counter-claim and defences, if any, regarding the Dispute; and
• all written material m support of its defences and counter-claim.
13.2.3. Within thirty (30) days of issue of Dispute Notice by any
Party pursuant to Article 13 .2.1 if the other Party does - not
furnish any counter claim or defence under Article 13.2.2 or thirty
H (30) days from the date of furnishing counter claims or defence
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 79
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
by the other Party, both the Parties to the Dispute shall meet to A
settle such Dispute amicably. If the Parties fail to resolve the
Dispute amicably within thirty (30) days from the later of the
dates mentioned in this Article, the Dispute shall be referred for
dispute resolution in accordance with Article 13.3.”
99. Article 12.2 reads as follows: B
“12.2 GRID CODE DISCIPLINE
The concerned Transco/Discom and the Seller shall
observe the State/Indian Electricity Grid Code or its amendment
if any, and operate their systems to the best of their capacity
and resources.” C
100. Article 13.3.1 reads as follows:
“13.3.1. Where any Dispute arising from a claim made by any
Party for any matter related to Tariff or claims made by any
Party which partly or wholly relate to any change in the Tariff D
or determination of any of such claims could result in change
in the Tariff, shall be submitted to adjudication by the MPERC.
Appeal against the decisions of MPERC shall be made only as
per the provisions of the Electricity Act, 2003, as amended
from time to time.”
E
101. Article 15.1.4. deals with Compliance with Law and in
substance it provides that the provisions of the Electricity Act, 2003 will
prevail in case of repugnancy or deviation from the terms of the
agreement from the Act.
102. In the impugned judgment the High Court has proceeded to
F
hold inter alia that the respondent has invested Rs. 350 crores in
establishing the unit and after replacing the stolen parts, the unit is ready
for commissioning on any date. The High court has further proceeded
on the basis that the project involved two milestones and the High court
has set aside the earlier order which dealt with delay in achieving the
first milestone. Thereafter, the finding is that the project was certified to G
be completed much prior to 24 months which period ended on 19.9.2017
and the notice of commissioning was given on 4.7.2017. The CEIG
approval was also granted on 9.8.2017. It is further found that another
inspection was done on 19.04.2018 after nine months of the notice of
commissioning and the CEIG approval. It is despite the same that the
H
80 SUPREME COURT REPORTS [2022] 5 S.C.R.
A impugned order has been passed. Still further the High court proceeds
to find that it is undisputedly established that both the milestones of the
project were completed whereas only some of the invertors were stolen
for which an FIR was also lodged. It is again found that it is not in
dispute that the aforesaid parts have been replaced by the respondent.
Support was drawn from the case of Renew Energy and the courts
B
discretion to interfere in the matter was reiterated. The decision was
found to be arbitrary. The court directed the respondent to file necessary
application for statutory sanction for operation of the unit and the appellant
was to decide on the application. To complete the narrative a review
petition, was filed by the appellant. The appellant sought to project the
C aspect of fraud. The fraud consisted of the act of the respondent relying
on unique/distinctive serial numbers of the invertors in regard to a number
of invertors which were found to be common/duplicate. In other words,
the case of the appellant was that the project for 50 MV was divided
into 10 blocks of 5 megawatt. Each block had 116/117 invertors. A fraud
was committed on the CEIG. In other words, it was the appellants case
D
that the respondent had not complied with the PPA in regard to the
installing of the required number of invertors. The first respondent took
the stand that the all the serial number of the invertors were quite legible
though the contrary was contended. The CEIG reported the physical
readiness of the project for commissioning. The respondent also drew
E upon the inspection report of the appellant itself. The High Court bearing
in mind the limited jurisdiction dismissed the review.
103. In the impugned Termination Notice dated 07.07.2018, after
referring to the delay of 54 days in fulfilling condition subsequent, it is
mentioned that the commercial operation date, as per Article 2.6, was
F 14.04.2017. It was indicated that there was no indication regarding
commissioning against the column ‘readiness of plant’ as on 11.08.2017.
The last date for commencement of supply was shown as 18.09.2017.
The expiry date of three months period for commencement of supply
from the last due date was 18.12.2017. It is further provided that the
expiry date of seven days of PPA Termination Notice period was
G 25.12.2017. The status of the project as on 19.04.2018 was indicated as
‘not ready for commissioning’. Thereafter, it is pointed out that there is
no justification for delay in achieving condition subsequent. Still further,
reference is made to the Order passed by the High Court in the earlier
Writ Petition. Physical verification was carried out on 19.04.2018,
H whereupon, it was found that installation work of plant and equipment
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 81
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
was incomplete in Blocks 9 and 10. It was further pointed out that the A
copy of the Inspection Report was enclosed, where installation of
invertors, installation of solar EV panels, cabelling and earthing work,
was yet to be completed. It was further pointed out that even after more
than six months, after deadline of commissioning of project, the plant is
not ready for commissioning. Thus, there was not only failure to achieve
B
condition subsequent but also failure to commission the project within
time. In comparison with the case of Renew Clean Energy, it is pointed
out that apart from failure to comply with condition subsequent, even the
outer timeline has not been observed, whereas, in the case of Renew
Clean Energy, they were ready to commission by the scheduled
commissioning date. The timeline under Article 9.1 was not conformed C
to. After referring to the Order of the High Court, it was found that, with
reference to Article 2.5.1(d) and Article 9.1 of the PPA, the PPA was
terminated.
104. Let us demystify the case for termination. Apart from non-
fulfilment of the condition subsequent, apparently, in tune with the liberty D
granted by the High Court, the appellant has set out a case that the last
date of commencement of supply was 18.09.2017, and even as on
19.04.2018, the respondent was not ready for commissioning of the
project. With reference to Articles 5.1, 5.2 and 5.3 of the PPA, which
consisted of the commercial operation date, pre-commercial operation
and notice of commercial operation, it is stated that the respondent has E
not intimated regarding the schedule of commissioning, till the date of
the Termination Notice. A distinction is sought to be drawn between
Renew Clean Energy and the respondent, in that the case of the first
respondent, even the first respondent was not ready to commission the
project within the stipulated time. F
105. The case that the first respondent has projected in the Writ
Petition, on the other hand, is, inter alia, as follows:
On 04.07.2017, while issuing letter to respondent no.4, it
issued notice for commissioning by 31.07.2017, in terms of Article
5.1(c) of the PPA. Site inspection by the appellant was solicited G
through its EPC. The respondent obtained approval from the CEIG
for commissioning on 09.08.2017. The CEIG certified that all
infrastructure and installation pertaining to the project were ready
and the respondent may proceed with the commissioning activities.
CEIG approval is requirement under Article 5.3(a). However, the H
82 SUPREME COURT REPORTS [2022] 5 S.C.R.
A appellant proceeded to terminate the PPA by Order dated
07.07.2018. Thus, it is stated that the appellant, for reasons best
known to it, chose to ignore the first respondent’s request for
proceeding with the commissioning of the project. The respondent
also obtained in principle connectivity for the project from the
appellant. It is the specific case of the respondent that prior to
B
11.08.2017, first respondent had received intimation from its EPC
Contractor that the project was ready for commissioning barring
minor works pending completion such as construction of shed/
cubical for the Guard which would have no bearing on the project
commissioning. The respondent pointed out that the appellant was
C obliged to issue default notice under Article 9.1 of the PPA. The
respondent was entitled for a period of three months. No such
notice was issued. As far as the Report of the Inquiry Committee
dated 19.04.2018, relied on by the appellant, it is pointed out that
the challenge to the earlier termination notice was pending and
the respondent was constrained to demobilise its staff/security
D
guards. Thefts took place. It is pointed out that these thefts took
place after the certification by the CEIG. In other words, the
respondent would blame the appellant for not conducting an inquiry
immediately after the certification by the CEIG. It is also the case
of the first respondent that, through its EPC Contractor, it had
E procured, inter alia, 1163 string invertors. Some of the string
invertors were stolen, as stated earlier. That the case of the
respondent is not that the project had been commissioned but that
the appellant prevented it from commissioning the project before
the last date. It is also seen stated that the project was complete
in all respects from the side of the respondent but on account of
F
theft of a very small number of equipment, highlighted by the
appellant in its Inspection Report, the first respondent had, in the
meanwhile ensured to get these miscellaneous equipments and
parts reinstalled and the project was complete in all respects as
on that date. As far as the theft is concerned, the first respondent
G had lodged two FIRs through its EPC Contractor well before the
inspection carried out on 19.04.2018.
THE ASPECT OF DISPUTED QUESTIONS OF FACTS
106. What are the disputed questions of facts? The most important
disputed question of fact is as to whether the first respondent was, in
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 83
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
fact, ready to commission the project by the end of the peremptory date, A
which was fixed as a period of twenty-four months from the date of the
agreement. On the one hand, the appellant would contend that first
respondent was not ready to commission the project. This is for the
reason that in the 9th and the 10th Blocks, certain string invertors were
found missing. On the other hand, the case of the respondent is based on
B
the Report of the CEIG, which would show that the respondent was
ready to commission the project. As far as the CEIG Report is concerned,
the case of the appellant appears to be that the respondent had played a
fraud in obtaining the CEIG Report. This was unsuccessfully canvassed
before the High Court in the Review Petition. In other words, the case
sought to be set up by the appellant is that as many as 272 string invertors C
were bearing duplicate numbers and, therefore, it was being held out by
the first respondent that it had performed its contractual obligation, when
it was not the case. As far as the delay of 53 days in fulfilling the conditions
subsequent is concerned, there is no dispute that there was such a delay.
Though, an attempt was made by the first respondent to contend that in
D
view of the amendment substituting one of the conditions subsequent,
viz., the condition relating to land and, therefore, there would be further
extension of time. We do not think that we can allow the first respondent
to set up such a plea. However, we have already concluded that the
issue as to the right or power of the appellant to terminate the PPA on
account of the delay of 53 days, may not be open to the appellant, in E
view of the Judgment of the High Court.
107. The learned Senior Counsel for the first respondent, Dr. A.M.
Singhvi, would, in fact, contend that this Court may proceed on the basis
that actually there is a disputed question of fact. This is on the reasoning
that even if this Court proceeds on the basis of the Inspection Report F
dated 19.04.2018, a miniscule percentage of Rs. 350 crores would be
the subject matter of the lacunae that was pointed out by the Inspecting
Team in its Report dated 19.04.2018. It is pointed out that the first
respondent should not be visited with the highly arbitrary decision to
terminate the PPA when nearly Rs. 350 crores have been sunk into the
project. The project itself is an environment friendly project. An unusually G
large number of competitors had bid in the bidding process and the first
respondent had emerged as a lowest bidder, which, at that time was
hailed.
H
84 SUPREME COURT REPORTS [2022] 5 S.C.R.
A THE CASE UNDER ARTICLE 9.1 READ WITH
ARTICLE 9.4(a)
108. One of the grounds taken by the first respondent against the
termination notices is that it is issued without complying with Article 9.1
of the PPA. We have already adverted to the said Article. We have also
B referred to Article 9.4.(a). Let us divine what is contemplated under the
PPA. The PPA contemplates Article 9 with its sub-divisions to provide
for events of default and remedies. Under Article 9, the sub-Articles
provide for seller’s event of default and the appellant’s Event of default.
Reading Article 9.1 with Article 9.4 and, more particularly, Article 9.4.(a),
which alone is relevant, we understand the following to be what is
C contemplated by the parties. Article 9.1 begins with the words ‘in case
of default’. The default in the case of seller’s event of default would be
the default, which is the subject matter of the termination. Here, we can
safely conclude that the seller’s event of default, which is apposite, is
the failure to commence the supply of power to the appellant at the
D contracted capacity, relevant to the scheduled commissioning date by
the end of twenty-four months. The words ‘scheduled commissioning
date’, have been defined in the PPA itself, to mean, for solar project of
capacity 50MW as per the quantum indicated in LOI, the commissioning
period allowed shall be nineteen months from the date of signing of the
PPA. The period of twenty-four months must be reckoned from the
E date of the PPA and, so understood, since the date of the PPA is
18.09.2015, twenty-four months therefrom would expire on 18.09.2017.
We, therefore, proceed on the basis that such an event, constituting default
on the part of the first respondent, had taken place. Continuing with the
analysis of Article 9.1, what was expected of the appellant was, as the
F non-defaulting party, to issue a default notice to the defaulting party, viz.,
the seller, which in this case is the first respondent. Article 9.1 further
clearly contemplates that if the default is not fully set right within three
months from the date of issue of the default notice, then, in the case of
default by the seller, the appellant was to serve a seven days’ notice of
termination. The notice was, undoubtedly, to be in writing. It is by the
G second notice, which is to be of the duration of seven days that the
appellant could validly terminate the agreement. Thus, PPA clearly
indicates the issuance of a default notice when seller commits an act of
default. Without issuing the first default notice, giving three months’ time
from the date of issue of the notice, the second notice, which would be
H a notice of termination, cannot be issued.
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 85
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
109. Now, let us find whether the appellant has followed this A
procedure. In the impugned termination notice dated 07.07.2018, what
is indicated in a Table in paragraph-9 is that there was a delay of 54 days
in the matter of fulfilment of conditions subsequent and the scheduled
commercial operation date, as per Article 2.6 was 14.04.2017. 11.08.2017
is noted as the date of notice of termination. 18.09.2017, being the end
B
of twenty-four months from the date of signing of the PPA is shown as
the last date of commencement of supply of the contracted capacity and
Article 9.4 is referred to. 18.12.2017 is shown as the expiry date of
three months, apparently, from 18.09.2017, for commencement of supply
from the last due date. Thereafter, 25.12.2017 is shown as the expiry
date of seven days of the PPA termination notice period. In paragraphs- C
21, 22 and 23 of the impugned notices, the appellant takes the following
stand:
“21. As per table-I, time line for commissioning of project has
been indicated. You were required to adhere to st1pulated
provisions of the PPA. Whereas this has not been achieved by D
you, within the time line even considering provisions of Article 9.1
of the PPA i.e., 24 months (supply to power to. contracted capacity
from date of PPA) + 3 months (default notice period) + 7 days
(termination notice period), from the signing of the PPA have
already being exhausted.
E
22. Whereas, in light of showcause notice issued vide this office
letter no. 108 dated 22.02.2017 and liberty granted “ by Hon’ble
Court to MPPMCL, in its order dated 20.06.2018 for issuing fresh
order in terms of PPA dated 18.09.2015 to you, in accordance
with law, it is evident that you have failed to fulfil your contractual
obligation as per PPA executed with you on 18.09.2015. Thus, F
the PPA qualifies for termination.
23. Therefore, in line and in compliance to the Hon’ble High Court
judgment dated 20.06.2018 and pursuant to the provision under
Article-2.5.1 (d) along with the consideration of the timeline
stipulated in Article 9 .1 of the PPA and showcause notice dated G
22.02.2017, the PPA signed on 18 Sept. 2015, between Mis Sky
Power Southeast Solar India Pvt. Ltd. New -Delhi, (SPV of
Parent Company Sky power Southeast Asia Holding 2 Ltd.) and
MPPMCL, for supply of Power from the proposed, 50MW. Solar
PY plant located at Village-Bedhaya District - Khandwa and H
86 SUPREME COURT REPORTS [2022] 5 S.C.R.
A subsequently location changed to Village Chhibel, Teb-Khalliiwa,
Distt- Khandwa at a rate of Rs. 5.091 per unit, is hereby
terminated.”
110. Thus, we find the twenty-four months period from the date
of the PPA, plus three months default notice period, plus seven days
B termination notice period, had been already exhausted. In paragraph-22,
support is sought to be drawn from the show-cause notice dated
‘22.02.2017’ and the liberty granted by the High Court in the first Writ
Petition, for issuing a fresh Order. The PPA, it was found by the appellant,
qualified for termination. In paragraph-23, it is explicitly stated that based
on Article 2.1.1(d) along with the timeline stipulated in Article 9.1 and
C the show-cause notice dated 22.02.2017, the PPA was terminated.
111. Therefore, the show-cause notice dated 22.02.2017 is what
the appellant lays store by to conclude that it was acting in compliance
with the requirement of issuance of the default notice under Article 9.1.
It, therefore, becomes necessary to advert to the notice dated 22.02.2017.
D We may extract the following:
“MP POWER MANAGEMENT COMPANY LIMITED
CIN: U4010MP2006SGC018637
(A Govt. of M.P. UNDERTAKING)
E Regd. Office: Shakti Bhawan, Rampur, Jabalpur, Madhya Pradesh,
india-482008, Tel: 0761-2661111;-2660500, Fax: 0761- 261696,
website:-www.mppmcl.com, email: md@mppmcl.com,
No. 05-01/Solar Bidding-III/PP A/108
‘Jabalpur Date 22.02.2017
F
To,
M/s Sky Power Southeast Solar Pvt. Ltd.
16A/20 W.E.A. Main Ajmal Khan Road,
G Karol Bagh,
New Delhi-110005.
Subject: submission of documents for fulfilment of condition
subsequent in respect of your 50MW Solar Power project proposed
at Village Chhirbel, Tallika Dist Khandwa under Phase-III solar
H competitive bidding.
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 87
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
Ref: 1. Power purchase Agreement executed on 18.09.2015. A
2. Your letter No. SKP/MP/SOLAR/MPPMCL/2015-116/06,
dated 12.01.2017
Dear Sir,
With reference to your latter cited above, this is to intimate that B
on scrutiny of the documents submitted by you for fulfilment of
condition subsequent after 210 days from signing of PPA. In
respect of your 50 MW solar power project proposed at village
Chhirbel, Taluka & dist Khandwa, status of the documents found
as under:
C
D
E
F
D.G.M. (Commercial-3)
R.0., MPPMCL, Bhopal
G
Chief General Manager (Commercial): Block No. 11, Shakti
Bhawan, Rampur, Jabalpur (MP) 482008
Tel: 0761-2661245, 2702404, Fax: 0761-2661245,
email: makarand.chincholkar@mppmcl.com
H
88 SUPREME COURT REPORTS [2022] 5 S.C.R.
A It needs to be mentioned here that as per provisions of amended
clause 2.1 (f) of the PPA pertaining to acquisition of land for the
project, Seller shall be required to furnish the following ~
documentary evidence:-
• Ownership or lease hold right (for at least 30 years) or right to
B use permission (for revenue land in Madhya Pradesh) in the name
of seller and possession of 100% of the area of the land required
for the allotted project.
• Requisite documents from the concerned and competent
revenue registered authority for the acquisition ownership vesting
C of the land in the name of the seller and in case of private land
clear title for ownership and/ or registered lease deed for land
taken on lease.
As can be seen from the above table you have submitted clear
title for ownership for only 64.94 hectare land. whereas for 34.12
D hectare land you have submitted unregistered lease deed for only
12 months, which cannot be considered for fulfilment of condition
subsequent as per provisions of the PPA as mentioned above.
Further, as per provision of clause 2.5.l (dO of the PPA, referred
PPA is liable for termination. Therefore, you are requested to
E submit your explanation/ justifications, if any, within 10 days from
the issue of this letter, for further - necessary action in the matter.
Chief General Manager Commercial
MPPMCL, Jabalpur”
F
112. A perusal of this notice, would reveal the following:
The subject matter of the said notice appears to be the fulfilment
of condition subsequent. It is clearly mentioned that as per
Article 2.5.1, the PPA was liable for termination. The first
respondent was asked for the explanation within ten days from
G the date of the letter for further necessary action in the matter.
We are of the view that the said notice cannot qualify as one
which was issued as a default notice under Article 9.1. We
have already found that Article 9.1, dealing with default, which
in this case, is the default by the seller, and, furthermore, the
H default being non-observance of the time limit of twenty-four
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 89
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
months from the date of agreement dated 18.09.2015, the notice A
dated 22.02.2017, could not have been issued, even before the
expiry of the period of twenty-four months from 18.09.2015.
In other words, the seller’s event of default under Article 9.4(a)
could have become the subject matter of a notice under Article
9.1 only if there was failure on the part of the first respondent
B
to supply power, as provided in Article 9.4(a), within twenty-
four months. That point of time, viz., the expiry of twenty-four
months from 18.09.2015, would arrive, at the earliest, only on
18.09.2017. Therefore, it is only after 18.09.2017 that the first
notice or, what is described as the default notice, could have
been issued by the respondent under Article 9.1. Apparently, C
what has happened is the appellant has combined the default
alleged with reference to Article 2.5.1(d), to which, undoubtedly,
notice dated 22.02.2017, could be said to be related and has
projected the said show-cause notice as the default notice within
the meaning of Article 9.1 read with Article 9.4. Article 9.1
D
contemplates a default, the issuance of default notice and, most
importantly, giving a period of three months for the seller (first
respondent) to set right things. It is if the seller does not remedy
the matter within three months, that the second notice, which
is essentially an Order of termination of the PPA, can be issued.
A perusal of the notice dated 22.02.2017 does not make any E
reference to the seller’s event of default contemplated in Article
9.4.(a). The reasons are not far to seek. For the reasons, which
we have indicated hereinbefore, the notice could not have been
issued based on there being a seller’s default within the meaning
of Article 9.4.(a) on 22.02.2017. We reiterate that as on
F
22.02.2017, the seller’s event of default under Article 9.4.(a),
could not exist in law or in facts. Still further, we notice from
the tenor of the notice dated 22.02.2017 that the first respondent
was, in fact, asked to give its justification within ten days from
the date of issue of the notice for necessary action in the matter.
This is totally incompatible with the notice contemplated as a G
default notice within the meaning of Article 9.1. Article 9.1
contemplates the existence of a default by the seller and the
giving of a period of three months to the seller to remove the
defect. We are unable to understand how notice dated
22.02.2017 could be understood as affording any such
H
90 SUPREME COURT REPORTS [2022] 5 S.C.R.
A opportunity as is contemplated under Article 9.1. Therefore,
we have no hesitation in holding that the appellant cannot seek
shelter under notice dated 22.02.2017 to justify the notice of
termination dated 07.07.2018, if reliance is to be placed on
Article 9.1 read with Article 9.4.(a). We have already found
that the appellant cannot be permitted to reopen the issue relating
B
to the non-fulfilment of the conditions subsequent, as the issue
has attained finality by virtue of the Judgment of the High Court
dated 20.06.2018.
113. Appellant has attempted to justify the notice dated 22.02.2017
as the show-cause notice within the meaning of Article 9.1 based on the
C Judgment of the High Court in the first round of litigation. We are of the
view that appellant would not be justified in drawing support from the
said Judgment to contend that the issuance of notice dated 22.02.2017,
would suffice and it absolves the appellant from complying with Article
9.1. From a perusal of the said Judgment in Writ Petition No. 12880 of
D 2017, we find that the High Court found that an attempt was made by
the appellant to justify the earlier termination dated 11.08.2017 on the
ground that respondent had not commissioned the power project within
the time fixed in the agreement. The High Court was not impressed as it
found that the lack of commissioning of the power project was not the
reason for terminating the contract and the appellant could not supplement
E the reason in view of Judgment of this Court in Mohinder Singh Gill
and another v. Chief Election Commissioner, New Delhi and others35.
It is thereafter, after setting aside the Order dated 11.08.2017, that liberty
was granted to the appellants to pass fresh Order in terms of the PPA,
in accordance with law. High Court, therefore, only permitted the
F appellants to invoke the PPA with respect to the lack of commissioning,
and moreover, in accordance with law. It becomes clear as day light that
since by the date of the Judgment, i.e., 20.06.2018, the period of twenty-
four months from the date of the agreement, had expired, and if, in
terms of the liberty granted by the High Court, the appellant was to
lawfully terminate the contract, it could not have acted in breach of the
G mandate of the PPA, which, in fact, the High Court had specifically
directed appellant to comply with. In other words, though nearly nine
months had gone by from 18.09.2017, when the High Court pronounced
Judgment on 20.06.2018, if the appellant wanted to terminate the
agreement, at least under the contract, the appellant was obliged to issue
35
H (1978) 1 SCC 405
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 91
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
the default notice. As we have noticed, the appellant was perhaps A
persuaded to issue the impugned termination notice on the basis of the
earlier notice dated 22.02.2017 as it felt that it was entitled to ask the
Court to revisit the issue relating to the non-fulfilment of the condition
subsequent as well. The appellant has, in fact, proceeded in the notice of
termination that the three months period, contemplated in Article 9.1,
B
came to an end automatically, on 18.12.2017 and things had not changed
on the ground, entitling it to issue the notice dated 07.07.2018, after the
further expiry of seven days on 25.12.2017. The appellant, in this regard,
appears to have laboured under the apprehension that the mere expiry
of the period of three months, after the occurring of the event of seller
default, within the meaning of Article 9.4.(a) and the further expiry of C
another seven days, entitled it to issue the notice of termination. What,
on the other hand, Article 9.1 read with Article 9.4.(a) contemplated
was not the mere running of time for a period of three months, after the
occurrence of the seller’s event of default but an opportunity to the
seller by the giving of a notice of default and waiting for three months. It
D
is only after the seller was put on notice of the default, which it had
committed and an opportunity was granted to remove fully the default
and it persevered in breach, that a valid Order of termination could be
passed. On this reasoning, there can be no dispute that the appellant has
clearly failed to act in terms of the clear mandate of Article 9.1 read
with Article 9.4.(a). E
114. There is another vital aspect to be borne in mind. The
impugned notice dated 11.08.2017, brought about the termination of the
contract. This is while notice dated 04.07.2017 was issued by the first
respondent, as noticed. Therein, the appellant was specifically asked to
inspect the premises. The CEIG also issued the certificate on 09.08.2017. F
Now the really significant fact is that after the appellant terminated the
contract on 11.08.2017, it is wholly inconceivable and arbitrary to predicate
that the first respondent should have commenced the project and complied
with Article 9.4(a) by 18.09.2017. Even more unfair it would be to find
that the first respondent had three months period from 18.09.2017 to
cure the defect which period came to an end on 18.12.2017. Yet, this G
very premise is reflected in the impugned notice dated 07.07.2018. There
is no case at all for the appellant that immediately on the expiry of 24
months contemplated in Article 9.4(a), a notice was given under Article
9.1. This could not be, also for the reason that the appellant had well
before 18.09.2017, on 11.08.2017, terminated the contract. This is H
92 SUPREME COURT REPORTS [2022] 5 S.C.R.
A indisputable. Equally significantly, termination of the contract dated
11.08.2017 clearly was illegal though it was found later and set aside by
judgment dated 20.06.2018. Thus, we cannot also brush aside the
complaint of the first respondent that this is a case where it stood prevented
from commencing supply within the meaning of Article 9.4(a). The fact
of termination by order dated 11.08.2017 and its invalidation by the High
B
court on 20.06.2018 are again not matters of dispute.
115. There is another aspect to the matter. The termination of a
contract, undoubtedly, results in the intrusion into and deprivation of
valuable rights, which are vouchsafed to the awardee of the contract. It
could be argued that dehors a contractual provision, unless it be that the
C contract peremptorily provides for the termination of the contract
expressly without service of the notice on the occurrence of certain
stipulated events, principles of natural justice may not be out of place
and under the Theory of Fair State Action, in consonance with Article
14, an opportunity to the awardee as to why the contract should not be
D terminated, may be just. In this regard, we may recapitulate what this
Court in State of U.P. v. Sudhir Kumar Singh and Others36 has, inter
alia, held:
“23. It may be added that every case in which a citizen/person
knocks at the doors of the writ court for breach of his or its
E fundamental rights is a matter which contains a “public law
element”, as opposed to a case which is concerned only with
breach of contract and damages flowing therefrom. Whenever a
plea of breach of natural justice is made against the State, the
said plea, if found sustainable, sounds in constitutional law as
arbitrary State action, which attracts the provisions of Article 14
F of the Constitution of India - see Nawabkhan Abbaskhan v. State
of Gujarat (1974) 2 SCC 121 at paragraph 7. The present case
is, therefore, a case which involves a “public law element” in that
the petitioner (Respondent No. 1 before us) who knocked at the
doors of the writ court alleged breach of the audi alteram
G partem rule, as the entire proceedings leading to cancellation of
the tender, together with the cancellation itself, were done on an ex
parte appraisal of the facts behind his back.”
No doubt, it related to a case of cancellation of the tender after
the tenderer had worked thereunder for over a year and based on two
36
H (2020) SCConline SC 847
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 93
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
ex parte enquiries. We may bear in mind that Article 9.1 captures not A
really the principles of natural justice as such but an opportunity to set
right a default by the seller.
116. Having found that the impugned termination Order dated
07.07.2018 ill squares with the requirement of Article 9.1, the question
may arise, whether this is a matter which should be the basis for B
interference in powers of judicial review under Article 226. This is not
the basis on which the impugned Judgment is based. Could it be said that
this is a matter, which should have formed the subject matter of a
proceeding in a civil court. In this regard, we may notice the following
aspects:
C
The object behind giving the default notice under Article 9.1 is to
provide an opportunity to the seller under the PPA to comply with the
PPA and remove the default within the period of three months. If it is a
case where it is demonstrated that removal of the default was an
impossibility, then, it would, indeed, be a futile exercise and perhaps, at
least, in a writ proceeding based on infraction of Article 14 or that the D
action is arbitrary, the Court may have refused to exercise the
extraordinary jurisdiction and relegate the party to other forum to seek
whatever relief it may be entitled to. If on the other hand, complying
with Article 9.1 was, indeed, meaningful and the default (Article 9.4.(a)
could have been removed as contemplated under Article 9.1, then, E
undoubtedly, it may constitute arbitrariness to deprive the first respondent
of the benefit of a default notice.
We cannot be totally unmindful of the fact that such a Clause like
Article 9.1 was inserted with the understanding, that, in such large
complex projects, involving large sums of money being invested, and F
furthermore, the successful completion of the project being intended to
augment the production of energy, in this case solar energy, there was
an element of public interest also involved in not allowing the curtains to
be rung down by an abrupt termination without affording an opportunity
to the seller to remove the default. Therefore, we would also examine
whether there is a case where, it could be said that the case of the first G
respondent is totally bereft of bonafides or merit.
117. In this case, on 04.07.2017, the first respondent addressed
what it purports to be the notice of commercial operations within the
meaning of Article 5.3. It reads as follows:
H
94 SUPREME COURT REPORTS [2022] 5 S.C.R.
A “Ref No. SKP-2/MP/SOLAR/COMM/2017-18/026
Date: 04-07-2017
To
B The Chief Engineer (Planning & Design)
M P Power Transmission Company Limited,
Shakti Bhawan, Rampur,
Jabalpur – 482008, Madhya Pradesh.
C Subject: Notice to Commission on the 50 MW Solar Power Project
of SkyPower Southeast Solar India Private Limited located at
Village Chirbel, District Khandwa (“Project”), and Evacuation of
Power from the Project to the 400 KV Chhagaon Sostation.
Reference: Power Purchase Agreement dated September 18, 2015
D between Southeast Solar India Private Limited and MP Power
Management Company Limited (“PPA”).
Dear Sir,
As per above cited subject matter and reference, we hereby
intimate you of our intention to commission the project by 31st
E July, 2017 (“Proposed Commissioning Date”). By the Proposed
Commissioning Date, we are likely to procure and obtain all
permissions and approvals required for the Plant and fulfil and
obligations specified in Article 5.3 read with Annexure XII of the
PPA.
F In relating to the commissioning of the Project by the Proposed
Commissioning Date, we would like to apprise you of the progress
made by use in relation to completion of some of the critical path
items for the Project-
• Transmission Line – 95% work has been completed as on
G 28th June, 2017 for the 132KV DCDS (double circuit double
string) transmission line from location of the Project to the
400KV substation Chhegaon. Balance 5% is expected to
be completed by 15th July, 2017 in all respect.
• Bay construction- 90% work on the 132 KV bay is
H completed (post receipt of connectivity approval from MP
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 95
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
Power Transmission Company Limited (“MPPTCL”) for A
the Project along with installation of specified equipment
as required by MPPTCL. Balance 10% of the work,
including testing, meter and CRP panel, is expected to be
completed by 20th July, 2017.
• Connecting Agreement-Connection agreements have B
already been signed on 18th May, 2017 between Madhya
Pradesh Power Transmission Company Limited, Jabalpur
and M/s SkyPower Solar India Private Limited.
• SLDC connectivity- Connectivity from plant to the SLDC-
Indore is already established through dedicated 2nox2mbps C
point to point lease lines from BSNL (as per approved
scheme of SLDC on 23rd March, 2017 through letter no.
SE./LD. E&T/880, data can be transferred immediately on
charging of plant). Specified equipment as per approved
scheme of SLDC has been installed at SLDC-Indore and
at the Project. Even, IP scheme for both the routers has D
been allocated by the SLDC, Jabalpur (through letter no.
SE/LD.E&T/06, dated 3rd April, 2017).
• CEIG Certification-We have initiated the process to obtain
the CEIG certification, and the CEIG certification is expected
by 20th July, 2017. The CEIG certificate shall be produced E
to MPPTCL as an annexure to obtain the commissioning
certificate, as required under the PPA.
Considering above facts on project progress we hereby request
your kind needful and depute necessary officials and personnels
to our site to undertake necessary inspection and testing and help F
us in the target commissioning dated of 31st July, 2017.
In the event, you require any further information from us, we will
be happy to provide the same upon your request.”
(Emphasis supplied)
G
118. No doubt, Article 5.3 contemplates a notice whereunder the
seller specifies that the plant was constructed as per the agreement and
it was ready to deliver the solar power in accordance with its terms.
Secondly, it must be indicated that all permissions and approvals required
for the plant to sell solar power at the rates and terms had been obtained.
H
96 SUPREME COURT REPORTS [2022] 5 S.C.R.
A Still further, all interconnection facilities were available to receive solar
power. Notice is to take effect, however, only when the TRANSCO/
DISCOM declares that all the conditions in Article 5.3 stood satisfied
(or waived by it), inter alia, i.e., that the seller had successfully completed
the testing of the plant in accordance with the manufacturer’s
recommendations and the seller had obtained and provided from the
B
Electrical Inspectorate of the Government of Madhya Pradesh or other
authorised agency, a certificate and the seller had delivered a list of the
equipments with details. The further condition is that the plant had achieved
initial synchronisation with the appellant and had demonstrated reliability
of its communication system, inter alia, that the seller had operated the
C plant without experiencing any abnormal or any unsafe operating condition
on any interconnected system. The seller was also to notify the appellant
within no later than 30 days prior to the commercial operations date, that
the conditions, as laid down in Article 1.01 have been met.
119. However, the first respondent in the letter dated 04.07.2017
D has intimated about the intention to commission the project by 31.07.2017,
which is on the 27th day after the notice. As far as transmission line was
concerned, 95 per cent of the work was claimed to have been completed
as on the 28.06.2017. Balance 5 per cent, it is stated, would be completed
by the 15.07.2017 in all respects. In regard to bay construction, 90 per
cent of work was stated to be completed along with installation of certified
E equipment. Here also, it is stated that the balance 10 per cent of the
work including, testing, meter and CRP panel would be completed by
20.07.2017. Connection agreement is stated to have been signed on
18.05.2017. As far as SLDC connectivity is concerned, it is stated that
connectivity to SLDC indoor was already established through dedicated
F 2nox2mbps point to point lease lines from BSNL. As far as the
certification by the CEIG, it is stated that the process to obtain the CEIG
certification would be initiated and it is expected by 20.07.2017. Inspection
was prayed for so as to achieve the target commissioning date by
31.07.2017. No doubt, the appellant has proceeded on the basis that the
notice dated 04.07.2017 cannot be treated under Article 5.3 of the PPA.
G As far as the CEIG Report is concerned, it appears to be dated
09.08.2017. It could no doubt be found that what Article 5.3 notice
contemplates is a state of accomplishment of conditions when the notice
is sent. However, the notice dated 04.07.2017 promised completion by
31.07.2017. Article 5.3 provides for waiver. If a default notice under
H Article 9.1, was given on 07.07.2018, in place of the termination notice,
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 97
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
then, with the state of completion attained and, if anything further remained, A
doing that also, and issuing the notice, if insisted, the defect could have
been removed.
120. In this regard, we may notice a significant distinction between
Article 2.5.1 (d) which was used as the sheet anchor by the appellant to
contend that in the event of non-achievement of condition subsequent B
termination was mandatory. Article 2.5.1(d) is as follows:
“d) In case of delay of more than 9 months, MPPMCL shall
terminate PPA and release balance amount of CPG.”
(Emphasis supplied)
C
121. When it comes to Article 9.1, we have noticed that it
contemplates the giving of default notice when an event of default takes
place. The seller is given three months’ time to set right things fully.
Thereafter, Article 9.1 provides that in case of the default by the seller
not being removed fully, apparently, the appellant by giving seven days
termination notice ‘may’ terminate the agreement. The choice of the D
word ‘may’ importing discretion in Article 9.1 is in stark contrast with
Article 2.5.1 (d).
122. Apparently, it was so drafted so that in an event like in a
seller event of default under Article 9.4.(a), i.e., failure by the seller to
supply power within 24 months, bearing in mind the nature of project E
and the stakes involved for both the appellant and the seller, there may
be cases where the seller may wish to grant more time so that a project
which has progressed to a state of near completion may not be aborted
by the termination and grant of time would, on the other hand, witness
the full blossoming of the project. F
123. It would appear that the appellant did not carry out any
inspection. The inspection carried out by the CEIG in first week of August,
2017 was an inspection conducted by the five-member team and it is
further claimed that this inspection lasted for 3-4 days beginning from
01.08.2017. The CEIG has certified that the project was ready and that
G
the first respondent can proceed with the commissioning activity. We
bear in mind that the period of twenty-four months contemplated in Article
9.4(a), would expire only on 18.09.2017. The CEIG has given its Report
on 09.08.2017 that the project was ready for commissioning. The factum
of the Report cannot be treated as a disputed question of fact as it is
covered by a document. In fact, we find that, the appellant proceeded H
98 SUPREME COURT REPORTS [2022] 5 S.C.R.
A on the basis admittedly that it was reliable, but, however, on 11.08.2017
issued the termination notice solely based on non-fulfilment of conditions
subsequent. This notice stood set aside on 20.06.2018. Maybe the manner
in which the inspection was carried out and the pitfalls in the same may
be characterised as the disputed questions of facts. Also, though the
appellant was invited to carry out the inspection on 04.07.2017, the
B
appellant carried out the inspection only on 19.04.2018 and the Report
was dated 21.04.2018.
124. If we go by the Report of the CEIG, the project of the
respondent would appear to have been completed for the purposes of
effecting commissioning. It may be another matter that other formalities
C had to be completed. When the team of the appellant carried out the
physical inspection, (it was done on 19.04.2018), the appellant’s team
also substantially endorsed the Report of the CEIG. However, it was
found that a certain number of string inverters inter alia, were not found
at many locations in Block Nos. 9 and 10. It was found as follows:
D “4. Any other specified observation in respect of installation of
solar P.V plant
In block 9 and 10, string inverters were not found at many location
but those location had solar panels installed interconnections of
PV panel (cabling) string work at there location are not found
E connected with each other Further, at some location the cable
and earthing work is observed incomplieto & suspended.”
125. It is here that we must notice the case of the first respondent
to be that though the equipment was installed as certified in the Report
of the CEIG and what remained was formal connectivity to the grid
F upon which commissioning certificate would be issued, the final event
remained on account of non-issuance of connectivity code for connection
to the grid. It is while so, when the challenge against the first termination
notice was under consideration and there was demobilisation of
manpower, certain string inverters were stolen, the cost of which is stated
G to be Rs.172000 per string inverter. Based on safety concerns, the
equipment was, according to the first respondent, removed and kept in
safe custody. The first respondent has laid store by two first information
reports lodged. The first FIR was lodged on 12.09.2017 and another
FIR was lodged on 04.03.2018 relating to the theft of certain equipments.
This is a case where the first respondent has alleged that it has already
H invested Rs.331 crores.
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 99
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
126. We will proceed on the basis that there was a CEIG Report A
dated 09.08.2017 certifying that the project of the first respondent was
complete. This is well before 18.09.2017, which was the date by which
the commissioning had to be done. It is also clear that the commissioning,
as such, was not completed. Still further, if we go by the CEIG Report,
the case of the first respondent of it being on the verge of commissioning
B
could not be brushed aside as wanting in bonafides or merit. Still further,
there is a case of the appellant that the inspection carried out on
19.04.2018, resulting in Report dated 21.04.2018, revealed certain
deficiencies in the form of missing inverters inter alia from Block Nos.
9 and 10 inter alia. First respondent has a case of thefts occurring. In
fact, the first respondent has a definite case that about 39 inverters C
involved were also replaced in June, 2018 based on Purchase Order of
May 2018 [See Annexure R12 produced before the High Court in Review
Petition No.682 of 2020]. This is even before 07.07.2018. No doubt, the
appellant has a case that the FIRs relied on by the first respondent did
not refer to inverters. As to whether, it was a result of thefts that the
D
inverters etc. which were already there as on the date of the CEIG
inspection went subsequently missing or as to whether it was as a result
of the Report of the CEIG being flawed and, therefore, the inverters
etc. were not there in the first place, even as on the date of the CEIG
Report, appears to us to be a disputed question of fact. We proceed on
the basis that the inverters in question were not there. But as noticed, E
about 39 stolen invertors were already replaced in June 2018. At any
rate, if a default notice had been given pointing out this aspect, the matter
could possibly be put right within three months of such a notice. We
recall here the few complaints (essentially two in number) which remained
of Respondent No.5. It could have been pointed out as part of aspect of
F
default if it was so understood. We have also found that the joint inspection
of the respondent No.4 had found on 24.08.2017 that the line may be
charged. What we can find is only that this is not a case where the first
respondent could be said to be in a position where it could be said that it
would be unable to comply with the terms of the default notice if it was
warranted. In other words, if as on 07.07.2018, instead of issuing a G
termination notice, if notice had been given within the meaning of Article
9.1, it is quite possible that the first respondent would have remedied the
defect as alleged. We have also noted that even in 2017, no notice was
given under Article 9.1 and even the contract was terminated illegally as
found by the High Court by notice dated 11.08.2017. The whole idea
H
100 SUPREME COURT REPORTS [2022] 5 S.C.R.
A behind the default notice under Article 9.1 was lost sight of by the
appellant. We have unravelled also, the impact of the use of the word
‘may’ in Article 9.1. The action of the appellant in departing from
unambiguous regime of the PPA without any justification would make
its actions arbitrary.
B 127. The other aspect projected by the appellant is what was
projected in the Review Petition filed before the High Court. It was
contended essentially as follows:
The first respondent had committed a fraud on the Office
of the Chief Electrical Inspector, the appellant and on the Court.
C It was alleged that the project was divided into 10 blocks of 5MW
each and each Block of 5MW would have 116/117 Inverters
approximately. Each of the Inverter was to have a unique
distinctive serial number. Each inverter was to have 43KV rating,
as indicated in the CEIG Report. The fraud consisted of a
discovery by the appellant on an alleged ‘detailed’ analysis of the
D serial numbers of the inverters, that in each Block, there were
several Inverters having numbers which were common/duplicate
and interchangeably used in the same or other blocks. It was
alleged that for about 186 Invertors serial numbers were
commonly, duplicably and interchangeably used. Some of the
E inverter numbers were not legible. Therefore, it was alleged that
there was lack of due diligence by the authorised personnel of the
CEIG.
128. In this regard, the first respondent has countered the case of
the appellant not only by producing invoices supplied by the overseas
F supplier and the bill of entry issued by the Customs Department but the
Lorry Receipts, to establish the procurement of 1175 Inverters required
for the first respondent Unit in 2017. It is also their case that the inverter
serial numbers themselves carry no significance. They were mere
identifiers for the purpose of record keeping, warranty claims, etc. All
the 1163 Inverters installed by the first respondent had identical mechanical
G specification and the mere mention of incorrect serial numbers in the
Report of the CEIG did not establish that the first respondent was not
ready to commission the project. The first respondent also has pointed
out that on learning of the duplication of the few inverters serial numbers
in the Report of the CEIG, it promptly approached the CEIG on 16.09.2020
H with details of the correct unique serial numbers and the corresponding
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 101
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
location of the inverters. It requested the CEIG to inspect and verify the A
inverters and to issue a corrigendum to the first Report dated 09.08.2017.
In fact, there is reference to first respondent in compliance with the first
impugned Judgment writing to the CEIG earlier on 15.04.2020, to visit
the project site for reissuing/revalidating the approval for commissioning
the project, since the validity of the first report dated 09.08.2017 had
B
lapsed. It is specifically contended in the reply to the Review Petition
that due to non-cooperation of the appellant on the excuse of Covid-19,
the CEIG inspection could not be undertaken. This stand is reiterated, in
fact, in the counter affidavit in this Court also. It would appear that the
first respondent had deposited the inspection fee of Rs.66,14,000/- which
is said to be equipment based meaning thereby that it was paid reckoning C
all the inverters. It would appear that no inspection has been carried by
the CEIG based on the request for revisit. As far as this aspect is
concerned, apart from the fact that the CEIG has conducted an inspection
and given a Report on 09.08.2017, certifying the readiness of the Unit of
the first respondent, the first respondent has produced documents like
D
invoices from overseas sellers, bill of entry with the Customs Department
and certain lorry receipts. The alleged fraud is the common number
found in 186 inverters in the Report of the CEIG. A physical inspection
by the CEIG, which was necessitated in terms of the original Judgement,
at any rate, for revalidation of the Report was and is necessary and
inevitable even if the appeals fail. The first respondent had alerted the E
CEIG for the need for a reinspection for ascertaining the aspect relating
to duplication in numbers. It would appear that such inspection has not
been carried out. In this regard, it is important to notice that the appellant
carried out an inspection on 19.04.2018 and it had not found out any
such discrepancy as it has not projected in regard to the aspect of common
F
numbers or illegibility of numbers, in the inverters, in its Report dated
21.04.2018. At any rate, the PPA clearly provided for the issuance of a
default notice, providing an opportunity to remove the defect. This
obligation has been observed in its breach.
129. Therefore, we would find that an inspection by the CEIG
would necessarily have to be carried out in which the appellant would G
have to be involved to facilitate the exercise. In the facts of this case, on
being satisfied, the CEIG would necessarily have to grant the re-validation
of the earlier Report. It would also involve an opportunity to the CEIG to
look into the aspects which have been projected by the fist respondent
itself in its letter dated 16.09.2020. The report would indeed indicate the H
102 SUPREME COURT REPORTS [2022] 5 S.C.R.
A state of affairs about all the facets. As already noticed, even under the
impugned Judgement dated 27.02.2020, the first respondent would have
to submit necessary applications. We only clarify that it may involve
removing any remaining deficiencies with the fifth respondent.
130. It may not be wholly irrelevant to notice the following aspect
B which is reflected in the counter affidavit filed by the respondent No.1
before this Court.
“It is of utmost importance to mention here that while the challenge
to the 2018 Termination Notice was pending, the Petitioner had
proposed a so-called amicable resolution of the dispute with the
C Respondent No.1 and convened a meeting for this purpose on
February 6, 2020. Occurrence of this meeting and the discussions
held are recorded at paragraphs 7 and 8 of the Impugned Order
1. During this meeting, the Petitioner had attempted to impress
upon the Respondent No.1 to explore ‘Third Party Sale’ from the
project or, agree to a reduction in tariff in line with the recent
D auctions conducted by SECI for other solar power projects.
Respondent No.1 had rejected both the option of ‘third Party Sale’
or, the attempts to reduce tariff specified in Article 9.7 of the
PPA, which was discovered through a transparent competitive
bidding process. The very fact that the Petitioner had proposed to
E the respondent No.1 to explore sale of power from the Project to
third parties is proof enough that the Project was complete and
ready for commissioning.”
In this regard, we may notice paragraph 4 of the minutes of the
meeting dated 06.02.2020 which reads as follows: -
F “4. MPPMCL further stated that, as the commissioning of the
project has been substantially delayed and, in the meantime solar
binding tariffs have been considerable reduced up to Rs. 2.61/
Unit for which MPPMCL has already entered into PPAs, therefore
MPPMCL offered M/s Sky Power to supply power at reduced
G tariff of the project was the lowest in the bid and their investment
was made during the FY 2016-2017 therefore, supplying power
to MPPMCL at reduced tariff will not be viable hence not
possible.”
We would think that essentially the appellant’s attempt was to
secure a reduction in the rate. The rate of the first respondent was
H
M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKY 103
POWER SOUTHEAST SOLAR INDIA PVT. LTD. [K. M. JOSEPH, J.]
found to be the lowest after a clearly keenly competitive international A
bidding, involving a large number of bidders.
131. In the totality of facts, we would, therefore, think that though
for reasons, which may not be the same as in the impugned judgment,
we need not interfere with the view taken by the High Court. The appeals
fail and are dismissed. Parties to bear their own costs. B
Bibhuti Bhushan Bose Appeals dismissed.
(Assisted by : Neha Sharma, LCRA)
C
D
E
F
G
H
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Power Purchase Agreement"Sign in to search