Supreme Court of India
M/S ADANI POWER (MUNDRA) LTD.versusGUJARAT ELECTRICITY REGULATORY COMMISSION AND ORS.
- Citation
- 2019 INSC 711
- Decided
- 2 July 2019
- Disposal
- Appeal(s) allowed
- Bench
- ARUN MISHRA
Holding
A termination of the PPA under Article 3.4.2 is valid when the seller fails to comply with the conditions in Article 3.1.2, without requiring a separate agreement on the breach, and the parties must approach CERC for determination of compensatory tariff.
Summary
The Gujarat Electricity Regulatory Commission (GERC) procured power through a competitive bidding process and selected M/s Adani Power (Mundra) Ltd. (the appellant) for a 1000 MW supply at Rs 2.35/kWh, contingent on an assurance from Gujarat Mineral Development Corporation (GMDC) to provide indigenous coal. When GMDC failed to finalize a Fuel Supply Agreement, the appellant issued a notice terminating the Power Purchase Agreement (PPA) on 28 December 2009, invoking Article 3.4.2 of the PPA. GERC and the Appellate Tribunal held the termination illegal, but the Supreme Court found that a harmonious reading of Articles 3.1.2 and 3.4.2 allowed either party to terminate on non‑compliance, and that the appellant’s termination was valid and entitled to liquidated damages. The Court also held that the parties should be referred to the Central Electricity Regulatory Commission (CERC) under Section 62 of the Electricity Act, 2003 to determine a compensatory tariff. Consequently, the appeal was allowed, the termination was declared valid, and the CERC was directed to fix the tariff within three months.
Issues considered
- The validity of the appellant's termination of the Power Purchase Agreement under Article 3.4.2 in view of non‑fulfilment of conditions in Article 3.1.2.
- Whether the termination can be invoked only when both parties agree that a condition has been violated.
- The appropriate interpretation of the contractual clauses using the principles of harmonious construction and business efficacy.
- The entitlement of the appellant to compensatory tariff and liquidated damages after termination.
Legislation cited
- Electricity Act, 2003s. 62, s. 86(1)(F), s. 95
Subjects
Power Purchase AgreementTerminationContract InterpretationBusiness EfficacyLiquidated DamagesElectricity Act 2003Compensatory TariffHarmonious Construction
Judgment
[2019] 8 S.C.R. 1017 1017
M/S ADANI POWER (MUNDRA) LTD. A
v.
GUJARAT ELECTRICITY REGULATORY COMMISSION AND
ORS.
(Civil Appeal No.11133 of 2011) B
JULY 02, 2019
[ARUN MISHRA, B. R. GAVAI AND SURYA KANT, JJ.]
Electricity Act, 2003 – ss. 86 (1) (F), 95 – Respondent
No. 2-Procurer initiated the process of bidding for supply of power
C
on long term basis, by issuing Request for Qualification – Three
separate bids were invited – Appellant was selected as a successful
bidder in respect of bid no. 2 for supplying 1000 MW power at the
rate of Rs. 2.35 per Kwh – Consequently, Power Purchase Agreement
(PPA) came to be entered into between the procurer and the appellant
– Appellant contended that the bid submitted by it was on the basis D
of the assurance given by Gujarat Mineral Development
Corporation (GMDC) to supply coal – It was also contended that,
the GMDC was not abiding by the said assurance – There was a
dispute between the appellant and the GMDC with regard to certain
terms and conditions of the Fuel Supply Agreement (FSA) and as
E
such FSA could not be finalized – Various communications were
exchanged between the Government of Gujarat, appellant and
GMDC to find out a solution – Finally, appellant by a communication
dated 28.12.2009, issued notice to the procurer, terminating the
PPA with effect from 04.01.2010 – Procurer filed petition u/ss.
86(1)(F), 95 of the Act, 2003 before Commission – The Commission F
held that the termination was illegal and directed the appellant to
supply the power to the procurer at the rate determined in the PPA
– Aggrieved, appellant filed appeal before the Appellate Tribunal,
which was dismissed – On appeal, held: Appellate Tribunal depicted
an erroneous approach – It is settled that to harmonize is not to
G
destroy any statutory provision or render it otiose – A harmonious
reading of Art. 3.4.2 and Art. 3.1.2 of the PPA indicated that in the
event of non-compliance of any of the conditions as stipulated in
Art. 3.1.2 within the period prescribed thereunder, either of the
parties, i.e., the seller or the procurer have the right to terminate
H
1017
1018 SUPREME COURT REPORTS [2019] 8 S.C.R.
A the contract – Further, Appellate Tribunal was totally incorrect in
holding that the provisions u/Art. 3.4.2 of the PPA can be invoked
only when there is an agreement between the parties that there is a
violation of any of the conditions specified in Art. 3.1.2 of the PPA
– If such a view of the Appellate Tribunal is accepted, it will amount
to inserting a totally new condition in Art. 3.4.2 of the PPA and
B
would amount to re-writing the contract between the parties; it would
violate the provisions of Art. 3.4.2 of the PPA – And it will make the
provisions of Art. 3.4.2 a dead letter and render them otiose – Also,
it cannot said to be a condition which is necessary to give business
efficacy to the contract – Besides, Appellate Tribunal erred in holding
C that the bid of the appellant was not on the basis of the commitment
by the GMDC to supply indigenous coal – As it is clear from various
communication between Government of Gujarat, Procurer and
GMDC that the bid of the appellant was on the basis of the
commitment by the GMDC to supply the indigenous coal – Thus,
the termination of PPA by appellant was legal and valid –
D
Interpretation of Statutes – Harmonious Construction.
Electricity Act, 2003 – s.62 – Determination of compensatory
tariff by Central Electricity Regulatory Commission (CERC) –
Respondent No.2-procurer initiated the process of bidding for supply
of power – Appellant was selected as a successful bidder for
E supplying 1000 MW power at rate of Rs. 2.35 per kwh – Appellant
contended that the bid submitted by it was on basis of the assurance
given by Gujarat Mineral Development Corporation (GMDC) to
supply coal – It was also contended that GMDC did not abide by
the said assurance – Appellant terminated the PPA – Procurer filed
F petition u/ss.86(1)(f) & 95 of the Act before the Commission – The
Commission and the Appellate Tribunal held that the termination
was illegal and directed the appellant to supply the power to the
procurer at the rate determined by PPA – On appeal, held:
Termination by appellant was valid and legal – Appellant supplied
electricity to the procurer in accordance with the decision of the
G Commission and the Appellate Tribunal – In order to do economic
justice, on the principle of business efficacy, the appellant entitled
for adjustment of cost of the project and also entitled to the interest
on the expenditure incurred by it for completion of project –
Therefore, parties relegated to the CERC for determination of the
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M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1019
ELECTRICITY REGULATORY COMMISSION
compensatory tariff payable to the appellant from the date of A
termination of the PPA – CERC (Terms and Conditions of Tariff)
Regulations 2009.
Doctrines/Principles – Principle of Business Efficacy –
Discussed.
Allowing the appeal, the Court B
HELD: 1. The observations of the Appellate Tribunal
depicted a totally erroneous approach. A harmonious reading of
Article 3.4.2 and Article 3.1.2 of Power Purchase Agreement
(PPA) clearly indicates that in the event of non-compliance of any
of the conditions as stipulated in Article 3.1.2 within the period C
prescribed thereunder, either of the parties, i.e., the seller or
the procurer have the right to terminate the contract. However,
in either of the events, it is the seller’s liability to pay the
liquidated damages at the rate of Rs. 10 lakhs per Mega Watt.
[Para 25] [1047-B-C] D
2. This Court is of the considered view that the finding of
the Appellate Tribunal that the provisions under Article 3.4.2 of
the PPA can be invoked only when there is an agreement between
the parties that there is violation of any of the conditions specified
in Article 3.1.2 of the PPA is totally incorrect. If such an argument E
is accepted, it will amount to inserting a totally new condition in
Article 3.4.2 of the PPA and would amount to re-writing the
contract between the parties; it would do total violence to the
provisions of Article 3.4.2 of the PPA. It cannot be said to be a
condition which is either reasonable or equitable; it also cannot
be said to be a condition which is necessary to give business F
efficacy to the contract; it also cannot be said to be a test which
justifies the Officious Bystander Test; it also cannot be said to
be a condition which is capable of the clear expression; it is also
not a condition which does not contradict any expressed terms of
the contract. On the contrary, is a condition which would totally G
change the tenor of Article 3.4.2 of the PPA. We are, therefore,
of the considered view that the Appellate Tribunal has grossly
erred in coming to the conclusion that Article 3.4.2 of the PPA
could be invoked only in the event that there is an agreement
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1020 SUPREME COURT REPORTS [2019] 8 S.C.R.
A with regard to violation of any of the conditions in Article 3.1.2.
[Para 26] [1047-D-F]
3. This Court finds, that both the Commission and the
Appellate Tribunal have grossly erred in arriving at finding that
termination can be effected under Article 3.4.2 only if there is an
B agreement with regard to non-compliance of condition under
Article 3.4.2 by both the parties. If the finding of the Appellate
Tribunal is accepted, it w ill be amounting to making
provisions of Article 3.4.2 a dead letter and rendering them otiose.
[Para 31] [1051-F-G]
C 4. In the present case, the perusal of various Articles would
reveal that provisions under Article 14 are general in nature.
The provision under Article 3.4.2 is specific, only to be invoked
in the case of non-compliance with any of the conditions as
provided under Article 3.1.2. As such, the special provision made
in Article 3.4.2 will exclude the applicability of general provisions
D contained in Article 14 of the contract. [Para 34] [1051-F]
5. In the brief summary of the Project given in the said bid
document, it has been specifically mentioned by the appellant
that the bid was submitted on the basis of indigenous coal supply
committed by the Gujarat Mineral Development Corporation
E (GMDC). The bid documents also form part of the PPA between
the parties. [Para 37] [1052-C]
6. It could thus be clearly seen that even the Government
of Gujarat has also clearly indicated that the bid submitted by the
appellant in the competitive bid was on the basis of the
F commitment for supply of coal from Morga-II mines by the
GMDC. It has, therefore, requested the Managing Director,
GMDC to give 50 per cent of coal from Morga block to the
appellant. The State Government had, therefore, requested that
the Managing Director of the GMDC to go for coal allotment
G from Morga block. It could thus be seen that, even the procurer
was aware that the bid of the appellant was on the basis of the
commitment by the GMDC to supply the indigenous coal.
[Paras 39 and 41] [1053-B, C, F-G]
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ELECTRICITY REGULATORY COMMISSION
7. In that view thereof, after the GMDC resiling from its A
commitment and refusing to enter into Fuel Supply Agreement
(FSA) with the appellant, the appellant was justified in invoking
Article 3.4.2 of the PPA, in view of non-compliance of Condition
No. (ii) in Article 3.1.2 since it had failed to produce the Fuel
Supply Agreement. [Para 43] [1054-E]
B
8. In the light of the aforesaid finding, this Court fails to
understand as to how the Appellate Tribunal has come to a finding
that the bid of the appellant was not on the basis of the commitment
by the GMDC to supply indigenous coal. This Court is of the
considered view that the Appellate Tribunal has erred both on
facts and in law. This Court is of the considered view that the C
appellant was entitled in law as well as on facts to invoke Article
3.4.2 of the PPA and terminate the agreement. [Para 44]
[1054-H; 1055-A]
9. Now, the question would arise as to at what rate the
appellant is entitled to compensatory tariff from the date of supply D
of power. Undisputedly, even after the PPA was validly terminated,
the appellant continued to take the project to its logical end. After
commissioning of the project, it has started supplying electricity
to the procurer in accordance with the decision of the Commission
and the Appellate Tribunal. The appellant must have incurred E
huge expenditure on the same. In order to do economic justice,
on the principle of business efficacy, the appellant would be
entitled for adjustment of cost of the project and would also be
entitled to the interest on the expenditure incurred by it for
completion of the project. The expenditure towards running of
the project after obtaining the coal from the open market would F
also be required to be taken into consideration. The appellant
would also be entitled to the interest on the delay of payment
after it receives payment upon determination of the rate which
would be determined by the Central Electricity Regulatory
Commission (CERC). [Para 49] [1056-D-G] G
10. Section 62 of the Electricity Act, 2003, provides entire
mechanism for determination of the tariff by the CERC. It will
also be relevant to note that the CERC (Terms and Conditions
of Tariff) Regulations 2009 also consider various factors which
H
1022 SUPREME COURT REPORTS [2019] 8 S.C.R.
A are required to be taken into consideration by the CERC while
determining the compensatory tariff. This Court finds that it will
be appropriate to relegate the parties to CERC for determination
of the compensatory tariff payable to the appellant from the date
of termination of the PPA. After such determination, the procurer
would be entitled to adjust the amount if already paid in accordance
B
with affidavit dated 23.11.2015, from the amount so determined
by the CERC. [Para 50] [1056-G-H; 1057-A]
Calcutta Gas Company (Proprietary) Ltd. v. State of West
Bengal and others AIR 1962 SC 1044 : [1962] Suppl.
SCR 1 – followed.
C
Rajasthan State Industrial Development and Investment
Corporation and Anr. v. Diamond & Gem Development
Corporation Ltd. & Anr. (2013) 5 SCC 470 : [2013]
4 SCR 331 ; Bharat Aluminium Company v. Kaiser
Aluminium Technical Services INC (2016) 4 SCC 126 :
D [2016] 1 SCR 364 ; Nabha Power Ltd. (NPL) v. Punjab
State Power Corporation Ltd. (PSPCL) and Anr. (2018)
11 SCC 508 ; Sultana Begum v. Prem Chand Jain AIR
1997 SC 1006 : [1996] 9 Suppl. SCR 707 ; Anwar
Hasan Khan v. Mohammed Shafi and others AIR 2001
E SC 2984 ; J.K. Cotton Spinning and Weaving Mills Co.
Ltd. v. State of Uttar Pradesh, AIR 1961 SC 1170 :
[1961] SCR 185 ; Maharashtra State Board of
Secondary and Higher Secondary Education and Ors.
v. Paritosh Bhupeshkumar Sheth and Ors. (1984) 4
SCC 27 : [1985] 1 SCR 29 – relied on.
F
Indian Oil Corporation v. Amritsar Gas Services Ltd.,
(1991) 1 SCC 533 : [1990] 3 Suppl. SCR 196 ; Her
Highness Maharani Shanti Devi Gaekwad v. Savji
Haribhai Patel & Ors. (2001) 5 SCC 101 : [2001] 2
SCR 590 ; Vermagiri v. Transco, 2007 SCC online
G APTEL 107 – referred to.
Attorney General of Belize v. Belize Telecom Ltd., (2009)
1 WLR 1988 (PC) – referred to.
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ELECTRICITY REGULATORY COMMISSION
Case Law Reference A
[1990] 3 Suppl. SCR 196 referred to Para 10
[2001] 2 SCR 590 referred to Para 10
[2013] 4 SCR 331 relied on Para 16
[2016] 1 SCR 364 relied on Para 17 B
(2018) 11 SCC 508 relied on Para 18
[1962] Suppl. SCR 1 followed Para 28
[1996] 9 Suppl. SCR 707 relied on Para 29
C
AIR 2001 SC 2984 relied on Para 29
[1961] SCR 185 relied on Para 32
[1985] 1 SCR 29 relied on Para 33
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 11133
of 2011. D
From the Judgment and Order dated 07.09.2011 of the Appellate
Tribunal for Electricity in Appeal No. 184 of 2010.
Gopal Jain, Sr. Adv., Ashish Prasad, Ms. Mukta Dutta, Avinash
Tripathi, Mahfooz A. Nazki, Praveen Kumar, Advs. for the Appellant.
E
M. G. Ramachandran, Sr. Adv., Ms. Ranjeetha Ramachandran,
Ms. Vishakha, Ms. Puja Singh for Mrs. Hemantika Wahi, Ms. Swati
Bhardwaj, M/S. Parekh & Co., Prashant Bhushan, Advs. for the
Respondents.
The Judgment of the Court was delivered by F
B. R. GAVAI, J.
1. The appellant has approached this Court being aggrieved by
the judgment and order passed by the Appellate Tribunal for Electricity
(“the Appellate Tribunal” for short) in Appeal No. 184 of 2010 dated
07.09.2011 thereby dismissing the appeal filed by the present appellant G
and confirming the judgment and order passed by the Gujarat Electricity
Regulatory Commission (“the Commission” for short) dated 31.08.2010.
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1024 SUPREME COURT REPORTS [2019] 8 S.C.R.
A 2. The facts in brief giving rise to the present appeal are as under.
Respondent No. 2, namely, Gujarat Urja Vikas Nigam Ltd.
(hereinafter referred to as “the procurer”) is a holding company engaged
in the business of bulk purchases from the power generators and supply
to the distribution companies in the State of Gujarat. On 01.02.2006, the
B procurer initiated the process of bidding for supply of power on long
term basis, by issuing a Request For Qualification (“RFQ” for short).
Three separate bids for purchase of power in accordance with the
provisions of Section 63 of the Electricity Act, 2003 were invited. Each
of the three bids envisaged purchase of power to the maximum extent
of 2000 Mega Watt (“MW” for short). The RFQ was followed by
C Request For Proposal (“RFP” for short) on 24.11.2006. The present
matter concerns bid No. 2 in respect of which the appellant was selected
as a successful bidder.
3. On being successful in the bidding process, the procurer issued
a Letter of Intent (“LOI” for short) in respect of bid no. 2, to the appellant
D on 11.01.2007 for supplying 1000 MW power at the rate of Rs. 2.35 per
Kwh. Consequently, the Power Purchase Agreement (“PPA” for short)
came to be entered into between the procurer and the appellant, for
purchase and sale of 1000 MW power from the appellant’s power project
at Korba, Chhatisgarh, at the delivery point at Nani Khakhar in the State
E of Gujarat. Similarly, on 06.02.2007 another PPA came to be executed
by the procurer with the appellant in respect of bid No. 1, which project
was to be executed by using imported coal. The rate determined was
Rs. 2.89 per unit in respect of bid No. 1.
4. On 12.02.2007, the appellant informed the procurer that it would
F supply power against bid No. 2, from Mundra Power Project in Gujarat
instead of Chhatisgarh Project. Accordingly, a supplemental PPA was
entered into between the appellant and the procurer on 18.04.2007, to
off take the contracted capacity of 1000 MW against bid No. 2, from
Mundra Power Project.
G 5. The appellant contended that, the bid submitted by it in respect
of bid No. 2 was on the basis of the assurance given by Gujarat Mineral
Development Corporation (“GMDC” for short) to supply 4 million tonnes
of coal. It also contended that, the GMDC was not abiding by the said
assurance. So it addressed a communication to the Government of Gujarat
on 21.05.2007 to find out a solution. Since the Fuel Supply Agreement
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M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1025
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
(“FSA” for short) could not be executed, as contemplated between the A
appellant and the GMDC; the appellant informed the procurer that the
FSA between it and the GMDC had not yet been finalized. Again, a
communication came to be addressed by the appellant on 01.05.2008 to
the Government of Gujarat, requesting it to impress upon the GMDC to
adhere to its assurance and supply the coal from the coal blocks allocated
B
to the GMDC. The procurer, thereafter, in the month of June, 2008,
addressed a communication to the appellants stating that, since it had
not complied with certain conditions stipulated in the PPA and as such, it
should furnish an additional performance bank guarantee. The appellant
addressed another communication to the procurer on 17.01.2009,
reiterating its inability to supply the power to the procurer in the absence C
of FSA with GMDC. It also informed that it had no other option except
to terminate the PPA. On 27.02.2009, the Government of Gujarat wrote
to the GMDC, asking it to supply coal to the appellant from Naini block.
6. It appears that there was a dispute between the appellant and
the GMDC with regard to certain terms and conditions of the FSA and D
as such the FSA could not be finalized. The record would further reveal,
that there was a long correspondence between the Government of
Gujarat, the GMDC, the procurer and the appellant with regard to the
commitment by the GMDC to supply coal to the appellant in respect of
bid No. 2 and non-adherence by the GMDC to abide by the said
commitment. The appellant addressed a communication dated 15.11.2008 E
specifically informing the procurer that the bid was on the basis of the
assurance by the GMDC to supply coal. It also informed the procurer
that though it was in a position to comply with all other conditions
subsequent but they are unable to execute the FSA since the GMDC
had not cooperated in the matter. Another communication was addressed F
by the appellant on 17.01.2009 reiterating that in the absence of FSA
with the GMDC, the appellant will not be in a position to supply contracted
capacity of power to GUVNL/the procurer in the absence of FSA with
the GMDC. It further informed that the appellant shall have no other
option than to terminate the PPA unless the coal supply comes from the
GMDC from Morga-II coal block. However, it appears that, thereafter, G
there was an attempt to amicably settle the matter between the appellant,
the procurer, the GMDC as well as the Government of Gujarat. As
such, the appellant addressed communication dated 28.04.2009 keeping
its notices dated 15.11.2008 and 17.01.2009 in abeyance till the matter
H
1026 SUPREME COURT REPORTS [2019] 8 S.C.R.
A was resolved between the appellant and the GMDC/Government of
Gujarat. It, however, appears that the said attempts were not fruitful.
Finally, the appellant by a communication dated 28.12.2009, issued
notice to the procurer, terminating the PPA with effect from 04.01.2010.
The procurer addressed a communication to the Government of Gujarat
B on 30.12.2009, requesting the Government to impress upon the appellant
to withdraw its termination notice dated 28.12.2009 and also impress
upon the GMDC for resolution of FSA with the appellant. The procurer
also addressed a communication to the appellant on 05.01.2010,
requesting it to keep the notice of termination dated 28.12.2009 in
abeyance. On 06.01.2010, the appellant addressed another communication
C to the procurer, informing it that since the period of termination has already
expired, the PPA stands terminated with effect from 4.01.2010. The
appellant also deposited an amount of Rs. 25 crores with the procurer
towards liquidated damages in addition to the performance bank
guarantee of Rs. 75 crores, which was already with the procurer. On
D 13.01.2010 the procurer sent a letter to the appellant, returning the amount
of Rs. 25 crores and calling upon it to withdraw the termination notice.
However, the appellant asserted that termination was valid.
7. The procurer, thereafter, filed a petition under Sections 86(1)(f)
and 95 of the Electricity Act, 2003, for adjudication of the dispute between
E the procurer and the appellant on 01.02.2010 before the Commission.
The Commission by its judgment dated 31.08.2010 allowed the petition
of the procurer, holding that the termination of the PPA was illegal and
directed the appellant herein to supply the power to the procurer at the
rate determined in the PPA. Being aggrieved, the appellant approached
the Appellate Tribunal for Electricity. By the judgment and order impugned
F dated 07.09.2011, the Appellate Tribunal dismissed the appeal. Hence,
the present appeal.
8. We have heard Mr. Gopal Jain, learned senior counsel for the
appellant, and Mr. M.G. Ramachandran, learned senior counsel for the
respondent(s).
G
9. The main contention raised on behalf of the appellant is that the
bid which was submitted by the appellant in respect of bid No. 2 was on
the basis of the commitment given to it by the GMDC that it will supply
the coal. It is submitted that the PPA executed between the appellant
and the procurer was on the premise that the GMDC would abide by its
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M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1027
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
commitment. It is also submitted that since the GMDC had failed to A
abide by its commitment and had not executed the FSA with the appellant,
there was a non-compliance with the conditions stipulated in Article 3.1.2
of the PPA and therefore the appellant was entitled to terminate the
agreement, by giving 7 days notice in writing in accordance with the
provisions of Article 3.4.2 of the PPA. So the only liability of the appellant
B
was to pay the liquidated damages at the rate of Rs. 10 lakhs per Mega
Watt of the contracted capacity, which is worked out to Rs. 100 crores
for 1000 MW.
10. It is the submission of Mr. Jain, learned senior counsel, that
the Commission and the Appellate Tribunal have grossly erred in holding
that unless there was an agreement between the parties to the effect C
that there was non-compliance with the conditions mentioned in Article
3.1.2 of the PPA, the appellant was not entitled to invoke the provisions
of Article 3.4.2 of the PPA. Mr. Jain further submitted that since the
contract also provided for liquidated damages, the Commission as well
the Appellate Tribunal, ought not to have given a direction for specific D
performance. Reliance in this respect is placed on the judgments of this
Court in the case of Indian Oil Corporation vs. Amritsar Gas Services
Ltd., (1991) 1 SCC 533 and Her Highness Maharani Shanti Devi
Gaekwad vs. Savji Haribhai Patel & Ors. (2001) 5 SCC 101.
11. Mr. Jain further submitted that the Appellate Tribunal by the E
impugned judgment has varied the terms of the contract executed between
the parties, which is not permissible in law. Reliance in this respect is
placed on the judgments of this Court in the case of Vermagiri vs.
Transco, 2007 SCC On Line APTEL 107 and Gujarat Urja Vikas Nigam
Ltd. vs. Solar Semiconductor Power Company, (2017) 16 SCC 498.
F
12. Per contra, Mr. Ramachandran, learned senior counsel
appearing on behalf of the procurer, would submit that the PPA which
was entered into between the parties, was not executed on the basis of
commitment by the GMDC. He submits that the procurer is not concerned
with the issue as to from where the appellant would arrange for its
supply of coal. The PPA between the appellant and the procurer is only G
in respect of supply of power. It is submitted that on the GMDC’s failure
to adhere to its commitment to supply indigenous coal, it was the
responsibility of the appellant to make arrangement for an alternative
source and to enter into FSA with any other coal supplier. It is submitted
that as a matter of fact, the appellant is importing the coal from other H
1028 SUPREME COURT REPORTS [2019] 8 S.C.R.
A nations and using it for generation of power, both for the plant under bid
No. 1 and the plant under bid No. 2. Shri Ramachandran, learned senior
counsel, further submits that, by not making arrangements for fuel supply,
it is the appellant who had committed default and, therefore, a party in
default cannot be permitted to terminate the agreement. Reliance in this
respect is placed on various judgments of English Courts as well as this
B
Court. Reliance is also placed on various judgments of this Court, in
support of the proposition that in spite of the provision of liquidated
damages in the PPA, the courts are not powerless to direct a specific
performance of the contract.
13. Shri Ramachandran further submitted that the contract is
C required to be read as a whole and the provisions of the contract cannot
be read in isolation. He, therefore, submits that the Commission as well
as the Appellate Tribunal has rightly held that Article 3.4.2 and Article
14.1 and Article 14.2 have to be read together. Thus, no fault could be
found with the reasoning given by the Commission as well as the Appellate
D Tribunal. Learned senior counsel, therefore, submits that the appeal has
no merit and deserves to be dismissed.
14. For appraising the rival submissions it would be necessary to
refer to certain clauses of the PPA:
The relevant part of Article 3 reads thus:
E
“3. Article 3: CONDITIONS SUBSEQUENT TO BE
SATISFIED BY THE SELLER AND THE
PROCURER
3.1 Satisfaction of conditions subsequent by the Seller
F 3.1.1 xxx
3.1.2 The seller agrees and undertakes to duly perform and
complete the following activities within (i) Twelve (12)
Months from the Effective Date or (ii) Fourteen (14)
Months from the date of issue of Letter of Intent,
G whichever is later, unless such completion is affected
due to the Procurer’s failure to comply with its obligations
under this Agreement or by any Force Majeure event or
if any of the activities is specifically waived in writing
by the Procurer :
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1029
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
i. xxx A
ii.the Seller shall have executed Fuel Supply Agreement
and provided the copies of the same to the Procurer.”
The relevant part of Article 3.4 reads thus: B
“3.4 Consequences of non-fulfilment of conditions under
Article 3.1
3.4.1 xxx
3.4.2 Subject to Article 3.4.3, if:
C
(i) fulfilment of any of the conditions specified in Article
3.1.2 is delayed beyond the period of three (3) Months
and the Seller fails to furnish any additional Performance
Guarantee to the Procurer in accordance with Article
3.4.1 hereof; or
D
(ii) the Seller furnishes additional Performance Guarantee
to the Procurer in accordance with Article 3.4.1 hereof
but fails to fulfil the conditions specified in Article 3.1.2
for a period of eight (8) months beyond the period
specified therein, the procurer or the Seller shall have
the right to terminate this Agreement by giving a notice E
to the Seller/ Procurer in writing of at least seven (7)
days.
If the Procurer or the Seller elects to terminate this
Agreement in the event specified in the preceding
paragraph of this Article 3.4.2, the Seller shall be liable F
to pay to the Procurer an amount equivalent to Rupees
Rs. 10.00 lakhs per MW of the Contracted Capacity as
liquidated damages. The Procurer shall be entitled to
recover this amount of damages by invoking the
Performance Guarantee to the extent of an amount G
equivalent to Rupees 10.00 lakhs per MW of the
Contracted Capacity and shall then return the balance
Performance Guarantee, if any, to the Seller. If the
Procurer is unable to recover the said amount or any
part thereof from the Performance Guarantee the
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1030 SUPREME COURT REPORTS [2019] 8 S.C.R.
A amount not recovered from the Performance Guarantee,
if any, shall be payable by the Seller to the Procurer
within ten (10) days from the end of eight (8) Months
period from the due date of completion of conditions
subsequent. It is clarified for removal of doubt that this
Article shall survive the termination of this Agreement.
B
3.4.3In case of inability to the Seller to fulfil the conditions
specified in Article 3.1.2 due to any Force Majeure event,
the time period for fulfilment of the Condition Subsequent
as mentioned in Article 3.1.2, shall be extended for the
period of such Force Majeure event, subject to a
C maximum extension period of ten (10) Months,
continuous or non-continuous in aggregate. Thereafter,
this Agreement may be terminated by the Procurer or
the Seller by giving a notice of at least seven (7) days, in
writing to the Other Party.”
D Since both the Commission and the Appellate Tribunal have
referred to Article 14, we also reproduce the same.
“14. ARTICLE 14 : EVENTS OF DEFAULT AND
TERMINATION
E 14.1 Seller Event of Default
The occurrence and continuation of any of the following events,
unless any such event occurs as a result of a Force Majeure
Event or a breach by Procurer of their obligations under this
Agreement, shall constitute a Seller Event of Default:
F i) the failure to Commission any Unit by the date falling
twelve (12) Months after its Scheduled Commercial
Operation Date, or
ii) after the commencement of construction of the Project,
the abandonment by the Seller or the Seller’s
G Construction Contractors of the construction of the
Project for a continuous period of two (2) Months and
such default is not rectified within thirty (30) days from
the receipt of first notice from the Procurer in this regard,
or
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1031
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
iii) if at any time following a Unit being Commissioned and A
during its retest, as per Article 8, such Unit’s Tested
Capacity is less than ninety two (92) per cent of its
Rated Capacity, as existing on the Effective Date, and
such Tested Capacity remain below ninety two (92)
percent even for a period of three (3) Months thereafter
B
and also the Seller is unable to make available the full
Contracted Capacity at the Delivery Point from the
Tested Capacity of the Unit(s) of the Power Station; or
iv) after Commercial Operation Date of Contracted
Capacity, the Seller fails to achieve Average Availability
of sixty five per cent (65%), for a period of twelve (12) C
consecutive Months or within a non-consecutive period
of twelve (12) Months within any continuous aggregate
period of thirty six (36) Months, or
v) the Seller fails to make any payment (a) of an amount
exceeding Rupees One (1) Crore required to be made D
to Procurer under this Agreement, within three (3)
Months after the Due Date of an undisputed invoice /
demand raised by the Procurer on the Seller or (b) of
an amount upto Rupees One (1) Crore required to be
made to Procurer under this Agreement within six (6) E
Months after the Due Date of an undisputed invoice /
demand, or
vi) any of the representations and warranties made by the
Seller in Schedule 10 of this Agreement; being found to
be untrue or inaccurate. Further, in addition to the above, F
any of the undertakings submitted by the Seller at the
time of submission of the Bid being found to be breached
or inaccurate, including but not limited to undertakings
from its parent company/affiliates related to the
minimum equity obligation; Provided however, prior to
considering any event specified under this sub-article G
to be an Event of Default, the Procurer shall give a
notice to the Seller in writing of at least thirty (30) days,
or
H
1032 SUPREME COURT REPORTS [2019] 8 S.C.R.
A vii) if the Seller :
a) assigns or purports to assign any of its assets or
rights in violation of this Agreement; or
b) transfers or novates any of its rights and / or
obligations under this agreement, in violation of this
B Agreement; or
viii) if (a) the Seller becomes voluntarily or involuntarily the
subject of any bankruptcy or insolvency or winding up
proceedings and such proceedings remain uncontested
for a period of thirty (30) days, or (b) any winding up or
C bankruptcy or insolvency order is passed against the
Seller, or (c) the Seller goes into liquidation or dissolution
or has a receiver or any similar officer appointed over
all or substantially all of its assets or official liquidator is
appointed to manage its affairs, pursuant to Law, except
D where such dissolution or liquidation of the Seller is for
the purpose of a merger, consolidation or reorganization
and where the resulting entity has the financial standing
to perform its obligations under this Agreement and
creditworthiness similar to the Seller and expressly
assumes all obligations of the Seller under this
E Agreement and is in a position to perform them; or
ix) the Seller repudiates this Agreement and does not rectify
such breach even within a period of thirty (30) days
from a notice from the Procurer in this regard; or
F x) except where due to Procurer’s failure to comply with
its material obligations, the Seller is in breach of any of
its material obligations pursuant to this Agreement or of
any of the RFP Documents where the Procurer and
Seller are parties, and such material breach is not
rectified by the Seller within thirty (30) days of receipt
G of first notice in this regard given by the Procurer to the
Seller;
xi) the Seller fails to complete/fulfill the activities /conditions
specified in Article 3.1.2, beyond a period of 8 Months
from the specified period in Article 3.1.2 and the right
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1033
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
of termination under Article 3.4.2 is invoked by the A
Procurer; or
xii) any direct or indirect change in the shareholding of the
Seller in contravention of the terms of the Bid RFP
Documents; or
xiii) The Seller fails to provide additional bank guarantee to B
the Procurer in accordance with Article 3.4.1 of this
Agreement, or
xiv) Occurrence of any other event that is specified in this
Agreement to be a material breach / default of the Seller.
C
14.2 Procurer Event of Default
The occurrence and the continuation of any of the following
events, unless any such event occurs as a result of a Force
Majeure Event or a breach by the Seller of its obligations under
this Agreement, shall constitute the Event of Default on the D
part of the Procurer:
i) the Procurer fails to pay (with respect to a Monthly Bill
or a Supplementary Bill) an amount exceeding 15% of
the most recent undisputed Monthly Bill for a period of
ninety (90) days after the Due Date and the Seller is
E
unable to recover the amount outstanding to the Seller
through the Collateral Arrangement and Letter of Credit;
or
ii) the Procurer repudiates this Agreement and does not
rectify such breach even within a period of thirty (30)
F
days from a notice from the Seller in this regard; or
iii) except where due to any Seller’s failure to comply with
its obligations, the Procurer is in material breach of any
of its obligations pursuant to this Agreement or of any
of the RFP Documents where the Procurer and the
Seller are Parties, and such material breach is not G
rectified by the Procurer within thirty (30) days of
receipt of notice in this regard from the Seller to the
Procurer; or
H
1034 SUPREME COURT REPORTS [2019] 8 S.C.R.
A iv) any representation and warranties made by any of the
Procurer in Schedule 9 of this Agreement being found
to be untrue or inaccurate. Provided however, prior to
considering any event specified under this sub-article
to be an Event of Default, the Seller shall give a notice
to the concerned Procurer in writing of at least thirty
B
(30) days; or
v) if (a) the Procurer becomes voluntarily or involuntarily
the subject of any bankruptcy or insolvency or winding
up proceedings and such proceedings remain
uncontested for a period of thirty (30) days, or (b) any
C winding up or bankruptcy or insolvency order is passed
against the Procurer, or (c) the Procurer goes into
liquidation or dissolution or has a receiver or any similar
officer appointed over all or substantially all of its assets
or official liquidator is appointed to manage its affairs,
D pursuant to Law, except where such dissolution or
liquidation of the Procurer is for the purpose of a merger,
consolidation or reorganization and where the resulting
entity has the financial standing to perform its obligations
under this Agreement and has creditworthiness similar
to the Procurer and expressly assumes all obligations
E of the Procurer under this Agreement and is in a position
to perform them; or;
vi) occurrence of any other event which is specified in this
Agreement to be a material breach or default of the
Procurer.
F
14.3 Procedure for cases of Seller Event of Default
14.3.1 Upon the occurrence and continuation of any Seller
Event of Default under Article 14.1, the Procurer
shall have the right to deliver to the Seller a
G Procurer Preliminary Default Notice, which shall
specify in reasonable detail, the circumstances
giving rise to the issue of such notice.
14.3.2 Following the issue of Procurer Preliminary
Default Notice, the Consultation Period of ninety
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1035
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
(90) days or such longer period as the Parties A
may agree, shall apply.
14.3.3 During the Consultation Period, the Parties shall,
save as otherwise provided in this Agreement,
continue to perform their respective obligations
under this Agreement. B
14.3.4 After a period of seven (7) days following the
expiry of the Consultation Period and unless the
Parties shall have otherwise agreed to the contrary
or the Seller Event of Default giving rise to the
Consultation Period shall have been remedied and, C
(a) in case the Contracted Capacity from a Power
Station is less than 50% of the installed
capacity of such Power Station, the Procurer
may terminate this Agreement. Provided such
seller shall have the liability to make payments D
for Capacity Charges based on Normative
Availability to the Procurer for the period three
(3) years from the eighth day after the expiry
of the Consultation Period. Provided further
that at the end of the three year period, this
Agreement shall automatically terminate and E
thereafter, the Seller shall have no further
Capacity Charge liability towards the
Procurer. Provided further, the Procurer shall
have the right to terminate this Agreement
even before the expiry of such three year F
period provided on such termination, the future
Capacity Charge liability of the Seller shall
cease immediately.
(b) in case the Contracted Capacity from a Power
Station is more than or equal to 50% of the G
installed capacity of such Power Station, the
Lenders may exercise or the Procurer may
require the Lenders to exercise their
substitution rights and other rights provided to
them, if any, under Financing Agreements and
the Procurer would have no objection to the H
1036 SUPREME COURT REPORTS [2019] 8 S.C.R.
A Lenders exercising their rights if it is in
consonance with provisions of Schedule 14.
Alternatively, in case the Lenders do not
exercise their rights as mentioned herein
above, the Capacity Charge of the Seller shall
be reduced by 20% for the period of Seller
B
Event of Default and the Procurer may
terminate this Agreement and the provisions
of Article 14.3.4 (a) shall apply mutatis
mutandis.
14.4 Termination for Procurer Events of Default
C
14.4.1 Upon the occurrence and continuation of any
Procurer Event of Default pursuant to Article 14.2
(i), the seller shall follow the remedies provided
under Article 11.5.2.
D 14.4.2 Without in any manner affecting the rights of the
Seller under Article 14.4.1, on the occurrence of
any Procurer Event of Default specified in Article
14.2 the Seller shall have the right to deliver to
the Procurer a Seller Preliminary Default Notice,
which notice shall specify in reasonable detail the
E circumstances giving rise to its issue.
14.4.3 Following the issue of a Seller Preliminary Default
Notice, the Consultation Period of ninety (90) days
or such longer period as the Parties may agree,
shall apply.
F
14.4.4 During the Consultation Period, the Parties shall
continue to perform their respective obligations
under this Agreement.
14.4.5. (i) After a period of seven (7) days following the
expiry of the Consultation Period and unless the
G
Parties shall have otherwise agreed to the contrary
or the Procurer Event of Default giving rise to
the Consultation Period shall have been remedied,
the Seller shall be free to sell the Contracted
Capacity and associated Available Capacity to any
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1037
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
third party of his choice. Provided the Procurer A
shall have the liability to make payments for
Capacity Charges based on Normative Availability
to the Seller for the period three (3) years from
the eighth day after the expiry of the Consultation
Period. Provided further that in such three year
B
period, in case the Seller is able to sell electricity
to any third party at a net price at the Delivery
Point which is in excess of the Energy Charges,
then such excess realization will reduce the
Capacity Charge payments due from the Procurer.
For the avoidance of doubt, the above excess C
adjustment would be applied on a cumulative basis
for the three-year period. During such period, the
Seller shall use its best effort to sell the Contracted
Capacity and associated Available Capacity
generated or capable of being generated to such
D
third parties at the most reasonable terms available
in the market at such time, having due regard to
the circumstances at such time and the pricing of
electricity in the market at such time. Provided
further, the Seller shall ensure that sale of power
to the shareholders of the Seller or any direct or E
indirect affiliate of the Seller/shareholders of the
Seller, is not at a price less than the Tariff, without
obtaining the prior written consent of the Procurer.
Such request for consent would be responded to
within a maximum period of three (3) days failing
F
which it would be deemed that the Procurer has
given his consent. Provided further that at the end
of the three-year period, this Agreement shall
automatically terminate and thereafter, the
Procurer shall have no further Capacity Charge
liability towards the Seller. Provided further, the G
Seller shall have the right to terminate this
Agreement even before the expiry of such three
year period provided on such termination, the
future Capacity Charge liability of the Procurer
shall cease immediately.”
H
1038 SUPREME COURT REPORTS [2019] 8 S.C.R.
A 15. Before we proceed to consider the rival submissions, it will be
appropriate to refer to certain judgments of this Court on the interpretation
of clauses of the contract between the parties.
16. This Court in the case of Rajasthan State Industrial
Development and Investment Corporation and Anr. vs. Diamond &
B Gem Development Corporation Ltd. & Anr. reported in (2013) 5 SCC
470 observed thus:
“23. A party cannot claim anything more than what is covered
by the terms of contract, for the reason that contract is a
transaction between the two parties and has been entered into
C with open eyes and understanding the nature of contract. Thus,
contract being a creature of an agreement between two or more
parties, has to be interpreted giving literal meaning unless, there is
some ambiguity therein. The contract is to be interpreted giving
the actual meaning to the words contained in the contract and it is
not permissible for the court to make a new contract, however
D reasonable, if the parties have not made it themselves. It is to be
interpreted in such a way that its terms may not be varied. The
contract has to be interpreted without any outside aid. The terms
of the contract have to be construed strictly without altering the
nature of the contract, as it may affect the interest of either of the
E parties adversely. [Vide United India Insurance Co. Ltd. v.
Harchand Rai Chandan Lal, (2004) 8 SCC 644, and Polymat
India (P) Ltd. v. National Insurance Co. Ltd., (2005) 9 SCC
174.]
24. In DLF Universal Ltd. v. Town and Country Planning
F Deptt., (2010) 14 SCC 1, this Court held: (SCC pp. 14-15, paras
13-15)
“13. It is a settled principle in law that a contract is interpreted
according to its purpose. The purpose of a contract is the
interests, objectives, values, policy that the contract is designed
G to actualise. It comprises the joint intent of the parties. Every
such contract expresses the autonomy of the contractual parties’
private will. It creates reasonable, legally protected expectations
between the parties and reliance on its results. Consistent with
the character of purposive interpretation, the court is required
to determine the ultimate purpose of a contract primarily by
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1039
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
the joint intent of the parties at the time of the contract so A
formed. It is not the intent of a single party; it is the joint intent
of both the parties and the joint intent of the parties is to be
discovered from the entirety of the contract and the
circumstances surrounding its formation.
14. As is stated in Anson’s Law of Contract : B
‘a basic principle of the common law of contract is that the
parties are free to determine for themselves what primary
obligations they will accept.... Today, the position is seen in
a different light. Freedom of contract is generally regarded
as a reasonable, social, ideal only to the extent that equality C
of bargaining power between the contracting parties can
be assumed and no injury is done to the interests of the
community at large.’
15. The Court assumes:
‘that the parties to the contract are reasonable persons who D
seek to achieve reasonable results, fairness and efficiency...
In a contract between the joint intent of the parties and the
intent of the reasonable person, joint intent trumps, and the
Judge should interpret the contract accordingly.’ “
17. This Court in the case of Bharat Aluminium Company vs. E
Kaiser Aluminium Technical Services INC reported in (2016) 4 SCC
126 observed thus:
“10. In the matter of interpretation, the court has to make different
approaches depending upon the instrument falling for interpretation.
Legislative drafting is made by experts and is subjected to scrutiny F
at different stages before it takes final shape of an Act, Rule or
Regulation. There is another category of drafting by lawmen or
document writers who are professionally qualified and experienced
in the field like drafting deeds, treaties, settlements in court, etc.
And then there is the third category of documents made by laymen
G
who have no knowledge of law or expertise in the field. The legal
quality or perfection of the document is comparatively low in the
third category, high in second and higher in first. No doubt, in the
process of interpretation in the first category, the courts do make
an attempt to gather the purpose of the legislation, its context and
text. In the second category also, the text as well as the purpose H
1040 SUPREME COURT REPORTS [2019] 8 S.C.R.
A is certainly important, and in the third category of the documents
like wills, it is simply intention alone of the executor that is relevant.
In the case before us, being a contract executed between the two
parties, the court cannot adopt an approach for interpreting a statue.
The terms of the contract will have to be understood in the way
the parties wanted and intended them to be. In that context,
B
particularly in agreements of arbitration, where party autonomy is
the ground norm, how the parties worked out the agreement, is
one of the indicators to decipher the intention, apart from the plain
or grammatical meaning of the expressions and the use of the
expressions at the proper places in the agreement.”
C 18. Recently, this Court had an occasion to consider the issue
with regard to interpretation of certain clauses of PPA, in the case of
Nabha Power Ltd. (NPL) vs. Punjab State Power Corporation Ltd.
(PSPCL) and Anr. reported in 2018 (11) SCC 508. The Court referred
to various English and Australian judgments as well as the judgments by
D this Court on the issue. We do not wish to burden this judgment with all
the English and Australian judgments reproduced in the said judgment.
However, it will be relevant to refer to the following passage of the
decision of the Privy Council in the case of Attorney General of Belize
vs. Belize Telecom Ltd., (2009) 1 WLR 1988 (PC): reproduced in Nabha
Power Ltd.
E
“17. The question of implication arises when the instrument does
not expressly provide for what is to happen when some event
occurs. The most usual inference in such a case is that nothing is
to happen. If the parties had intended something to happen, the
instrument would have said so. Otherwise, the express provisions
F of the instrument are to continue to operate undisturbed. If the
event has caused loss to one or other of the parties, the loss lies
where it falls.”
19. We may also gainfully reproduce certain judgments which
have been reproduced in the case of Nabha Power Ltd. (supra).
G
“46. There were, once again, parallel developments in India during
this period in various High Courts but the views of this Court can
be found expression in Dhanrajamal Gobindram v. Shamji
Kalidas and Co., (1961) 3 SCR 1020: AIR 1961 SC 1285
(AIR pp. 1291 – 92, para 19)
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1041
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
“19. .... Commercial documents are sometimes expressed in A
language which does not, on its face, bear a clear meaning.
The effort of courts is to give a meaning, if possible. This was
laid down by the House of Lords in Hillas & Co. v. Arcos
Ltd. {1932 All ER Rep 494 (HL)}, and the observations of
Lord Wright have become classic, and have been quoted with
B
approval both by the Judicial Committee and the House of Lords
ever since. The latest case of the House of Lords is Adamastos
Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. {1959
AC 133 : (1958) 2 WLR 688 (HL)}. There, the clause was
“This bill of lading”, whereas the document to which it referred
was a charter-party. Viscount Simonds summarised at AC p. C
158 all the rules applicable to construction of commercial
documents, and laid down that effort should always be made
to construe commercial agreements broadly and one must not
be astute to find defects in them, or reject them as
meaningless.”
D
47. In Union of India v. D.N. Revri & Co.{(1976) 4 SCC 147},
P.N. Bhagwati, J. (as he then was), speaking for the Bench of
two Judges said in para 7 as under : (SCC p. 151)
“7. It must be remembered that a contract is a commercial
document between the parties and it must be interpreted in E
such a manner as to give efficacy to the contract rather than
to invalidate it. It would not be right while interpreting a contract,
entered into between two lay parties, to apply strict rules of
construction which are ordinarily applicable to a conveyance
and other formal documents. The meaning of such a contract
must be gathered by adopting a common sense approach and F
it must not be allowed to be thwarted by a narrow, pedantic
and legalistic interpretation. ...”
48. Lastly, in Satya Jain v. Anis Ahmed Rushdie {(2013) 8 SCC
131}, Ranjan Gogoi, J., elucidated the well-established principles
of the classic test of business efficacy to achieve the result of G
consequences intended by the parties acting as prudent
businessmen. It was opined as under: (SCC pp. 143-44, paras 33-
35)
“33. The principle of business efficacy is normally invoked to
read a term in an agreement or contract so as to achieve the H
1042 SUPREME COURT REPORTS [2019] 8 S.C.R.
A result or the consequence intended by the parties acting as
prudent businessmen. Business efficacy means the power to
produce intended results. The classic test of business efficacy
was proposed by Bowen, L.J. in The Moorcock {(1889) LR
14 PD 64 (CA)}. This test requires that a term can only be
implied if it is necessary to give business efficacy to the contract
B
to avoid such a failure of consideration that the parties cannot
as reasonable businessmen have intended. But only the most
limited term should then be implied – the bare minimum to
achieve this goal. If the contract makes business sense without
the term, the courts will not imply the same. The following
C passage from the opinion of Bowen, L.J. in The Moorcock
{(1889) LR 14 PD 64 (CA)} sums up the position : (PD p. 68)
‘...... In business transactions such as this, what the law
desires to effect by the implication is to give such business
efficacy to the transaction as must have been intended at
D all events by both parties who are businessmen; not to impose
on one side all the perils of the transaction, or to emancipate
one side from all the chances of failure, but to make each
party promise in law as much, at all events, as it must have
been in the contemplation of both parties that he should be
responsible for in respect of those perils or chances.’
E
34. Though in an entirely different context, this Court in United
India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai
Gajera {(2008) 10 SCC 404} had considered the circumstances
when reading an unexpressed term in an agreement would be
justified on the basis that such a term was always and obviously
F intended by and between the parties thereto. Certain observations
in this regard expressed by courts in some foreign jurisdictions
were noticed by this Court in para 51 of the Report. As the same
may have application to the present case it would be useful to
notice the said observations : (SCC p. 434)
G ‘51. ... “... ‘Prima facie that which in any contract is left to be
implied and need not be expressed is something so obvious
that it goes without saying; so that, if, while the parties were
making their bargain, an officious bystander, were to suggest
some express provision for it in their agreement, they would
H testily suppress him with a common “Oh, of course!” ’ Shirlaw
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1043
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
v. Southern Foundaries (1926) Ltd. {(1939) 2 KB 206 : A
(1939) 2 All ER 113 (CA)}, KB p. 227.”
* * * *
“...An unexpressed term can be implied if and only if the court
finds that the parties must have intended that term to form part
of their contract: it is not enough for the court to find that such B
a term would have been adopted by the parties as reasonable
men if it had been suggested to them: it must have been a term
that went without saying, a term necessary to give business
efficacy to the contract, a term which, although tacit, formed
part of the contract which the parties made for themselves.” C
Trollope and Colls Ltd. v. North West Metropolitan Regl.
Hospital Board {(1973) 1 WLR 601 : (1973) 2 All ER 260
(HL)}, WLR p. 609 C-D : All ER p. 268 a-b.’ (emphasis in
original)
35. The business efficacy test, therefore, should be applied only D
in cases where the term that is sought to be read as implied is
such which could have been clearly intended by the parties at the
time of making of the agreement. ...”
After reproducing the paras from earlier judgment, this Court
through Sanjay Kishan Kaul, J. observed thus: E
“49. We now proceed to apply the aforesaid principles which
have evolved for interpreting the terms of a commercial contract
in question. Parties indulging in commerce act in a commercial
sense. It is this ground rule which is the basis of The Moorcock
{(1889) LR 14 PD 64 (CA)} test of giving “business efficacy” to F
the transaction, as must have been intended at all events by both
business parties. The development of law saw the “five condition
test” for an implied condition to be read into the contract including
the “business efficacy” test. It also sought to incorporate “the
Officious Bystander Test” [Shirlaw v. Southern Foundries
(1926) Ltd. {(1939) 2 KB 206 : (1939) 2 All ER 113 (CA)}]. G
This test has been set out in B.P. Refinery (Westernport)
Proprietary Ltd. v. Shire of Hastings {1977 UKPC 13 : (1977)
180 CLR 266 (Aus)} requiring the requisite conditions to be
satisfied : (1) reasonable and equitable; (2) necessary to give
business efficacy to the contract; (3) it goes without saying i.e.
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1044 SUPREME COURT REPORTS [2019] 8 S.C.R.
A the Officious Bystander Test; (4) capable of clear expression;
and (5) must not contradict any express term of the contract. The
same penta-principles find reference also in Investors
Compensation Scheme Ltd. v. West Bromwich Building Society
{(1998) 1 WLR 896 : (1998) 1 All ER 98 (HL)} and Attorney
General of Belize v. Belize Telecom Ltd. {(2009) 1 WLR 1988
B
(PC)}. Needless to say that the application of these principles
would not be to substitute this Court’s own view of the presumed
understanding of commercial terms by the parties if the terms are
explicit in their expression. The explicit terms of a contract are
always the final word with regard to the intention of the parties.
C The multi-clause contract inter se the parties has, thus, to be
understood and interpreted in a manner that any view, on a particular
clause of the contract, should not do violence to another part of
the contract.”
20. It could thus be seen that it is more than well settled that the
D clauses in the agreement ought to be given the plain, literal and
grammatical meaning of the expression used in the same. No doubt, that
the courts will also try to gather as to what intention the parties wanted
to give them. As has been held by Ranjan Gogoi, J. (as His Lordship
then was) the principle of business efficacy could be invoked only if by
a plain literal interpretation of the term in the agreement or the contract,
E it is not possible to achieve the result or the consequence intended by the
parties acting as prudent businessmen. This test requires that a term can
only be implied, if it is necessary to give business efficacy to the contract,
to avoid such a failure of consideration that the parties cannot as
reasonable businessmen have intended. If the contract makes business
F sense without the term, the courts will not imply the same. It is amply
clear that courts can imply a clause only if it is found that the plain and
literal meaning given to the expression used in the terms is not in a
position to make out the intention of the parties. Reading an unexpressed
term in an agreement would be justified on the basis that such a term
was always and obviously intended by and between the parties thereto.
G An unexpressed term can be implied if and only if the court finds that
the parties must have intended that term to form part of their contract. It
is not enough for the court to find that such a term would have been
adopted by the parties as reasonable men if it had been suggested to
them. It must have been a term that went without saying, a term
H necessary to give business efficacy to the contract, a term which,
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1045
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
although tacit, forms part of the contract. As held in the case of Nabha A
Power Ltd. (supra), for invoking the business efficacy test and carving
out an implied condition, not expressly found in the language of the
contract, the following five conditions will have to be satisfied:
(1) Reasonable and equitable;
(2) Necessary to give business efficacy to the contract; B
(3) It goes without saying i.e. the Officious Bystander Test;
(4) Capable of clear expression; and
(5) Must not contradict any express term of the contract.
C
21. We have to examine the present case and the correctness or
otherwise of the judgment and order passed by the Appellate Tribunal
by applying the aforesaid tests.
22. We have hereinbefore reproduced Articles 3 and 4 of the
PPA. Article 3 provides for conditions subsequent to be satisfied by the
D
seller and the procurer. Clause (ii) of Article 3.1.2 requires the seller to
have executed FSA and provided the copies of the same to the procurer
within 12 months from the effective date or 14 months from the date of
issue of Letter of Intent, whichever is later, unless such completion is
affected due to the procurer’s failure to comply with its obligations under
the PPA or by any force majeure event. Article 3.4 provides for E
consequences of non-fulfilment of conditions under Article 3.1; sub-
clauses (i) and (ii) of Article 3.4.2 specifically provide that if fulfilment
of any of the conditions specified in Article 3.1.2 is delayed beyond the
period of 3 months and the seller fails to furnish any additional
performance guarantee to the procurer or if the seller after furnishing
F
additional performance guarantee to the procurer fails to fulfil the
conditions specified in Article 3.1.2 for a period of 8 months beyond the
period specified therein, both the procurer or the seller shall have the
right to terminate the agreement by giving a notice to the other party in
writing of at least 7 days. The only requirement is that in the event of
termination either by the procurer or the seller, the seller shall be liable G
to pay the procurer an amount equivalent to Rs. 10 lakhs per MW of the
contracted capacity as liquidated damages. It is thus clear that in the
event of non-compliance with any of the requirements as provided in
Article 3.1.2 within the period specified in the said Article, an option is
available both to the seller or the procurer to terminate the PPA. The
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1046 SUPREME COURT REPORTS [2019] 8 S.C.R.
A only requirement is that, in either of the situations, the liability would be
only on the seller to pay the liquidated damages at the rate of Rs. 10
lakhs per MW.
23. The Appellate Tribunal has held that only in the event there is
an agreement between the parties that any of the terms specified in
B Article 3.1.2 is violated, the provisions of Article 3.4.2 can be invoked.
24. It will be relevant to quote certain observations made in the
judgment of the Appellate Tribunal which are as follows:
“85. The perusal of Article 3.1.2 of the PPA would make it clear
that the Appellant undertook to perform the condition subsequent
C to the execution of the Power Purchase Agreement. The Seller’s
right to terminate the Power Purchase Agreement as mentioned
above can only arises upon the Procurer’s default in complying
with its obligation under Article 3.1.2.
...
D
89.(iii) Article 3.4.2 provides a situation under which the Power
Purchase Agreement can be terminated either by the Procurer or
by the Seller only when the events provided in Article 3.4.2 (i)
and (ii) arise or occur. Although Article 3.4.2 appears to provide a
right to both the parties to terminate the PPA on happening of
E such events specified in Article 3.4.2 (i) and (ii), the same has to
be read and interpreted along with the other Articles of the PPA.
Article 3.4.2 further provides that the Seller shall be liable to pay
the Procurer an amount of Rs.10 Lakhs per MW as liquidated
damages if the Procurer or the Seller elects terminate the
F agreement on happening of events specified in the earlier part of
the Article 3.4.2. From the reading of the said Article 3.4.2, it is
clear that either party can terminate the PPA, if the events
specified in Article 3.4.2 (i) and (ii) occur and in case of such
termination by either party, the Seller alone has the obligation to
pay liquidated damages.
G
...
89(vi) ..... If the seller fails to fulfill the conditions specified in
Article 3.1.2, the right to terminate under Article 3.4.2 is invoked
by the Procurer. Similarly, the ability of either party to terminate
the PPA under Article 3.4.2 will arise only if both the parties accept
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1047
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
happening of events specified under Article 3.4.2 (i) and (ii). In A
other words, the termination by the Seller under Article 3.4.2 is
possible if both the parties agree to the happening of the events
contemplated therein and the Seller is willing to pay the liquidated
damages if a dispute arises regarding the event of termination.”
25. The aforesaid observations of the Appellate Tribunal, in our B
view, depict a totally erroneous approach. A harmonious reading of Article
3.4.2 and Article 3.1.2 clearly indicates that in the event of non-compliance
of any of the conditions as stipulated in Article 3.1.2 within the period
prescribed thereunder, either of the parties, i.e., the seller or the procurer
have the right to terminate the contract. However, in either of the events,
it is the seller’s liability to pay the liquidated damages at the rate of Rs. C
10 lakhs per Mega Watt.
26. We are of the considered view that the finding of the Appellate
Tribunal that the provisions under Article 3.4.2 of the PPA can be invoked
only when there is an agreement between the parties that there is violation
of any of the conditions specified in Article 3.1.2 of the PPA is totally D
incorrect. If such an argument is accepted, it will amount to inserting a
totally new condition in Article 3.4.2 of the PPA and would amount to
re-writing the contract between the parties; it would do total violence to
the provisions of Article 3.4.2 of the PPA. It cannot be said to be a
condition which is either reasonable or equitable; it also cannot be said E
to be a condition which is necessary to give business efficacy to the
contract; it also cannot be said to be a test which justifies the Officious
Bystander Test; it also cannot be said to be a condition which is capable
of the clear expression; it is also not a condition which does not contradict
any expressed terms of the contract. On the contrary, is a condition
which would totally change the tenor of Article 3.4.2 of the PPA. We F
are, therefore, of the considered view that the Appellate Tribunal has
grossly erred in coming to the conclusion that Article 3.4.2 of the PPA
could be invoked only in the event that there is an agreement with regard
to violation of any of the conditions in Article 3.1.2.
27. The Tribunal, while arriving at its finding, has held that agreement G
has to be read as a whole and if it is read as whole and if Articles 3.4.2
and 3.1.2 and Article 14 are harmoniously read, then the only conclusion
that can be drawn is that provisions of Article 3.4.2 can be invoked, only
if there is an agreement between the parties, that the conditions specified
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1048 SUPREME COURT REPORTS [2019] 8 S.C.R.
A in Article 3.1.2 have not been complied with. Let us test the correctness
of this finding.
28. The Constitution Bench of this Court in the case of Calcutta
Gas Company (Proprietary) Ltd. vs. State of West Bengal and others
reported in AIR 1962 SC 1044, while construing the entries in the List in
B Schedule VII of the Constitution has observed thus:
“8 ….....The Rule of construction adopted by that decision for
the purpose of harmonizing the two apparently conflicting entries
in the two Lists would equally apply to an apparent conflict
between two entries in the same List. Patanjali Sastri, J., as he
C then was, held in State of Bombay v. Narothamdas Jethabhai,
1951 SCR 51 : (AIR 1951 SC69) that the words “administration
of justice” and “constitution and organization of all courts” in item
one of List II of the Seventh Schedule to the Government of India
Act, 1935 must be understood in a restricted sense excluding from
their scope “jurisdiction and powers of courts” specifically dealt
D with in item 2 of List II. In the words of the learned Judge, if such
a construction was not given “the wider construction of entry 1
would deprive entry 2 of all its contents and reduce it to useless
lumber.” This rule of construction has not been dissented from in
any of the subsequent decisions of this Court. It may, therefore,
E be taken as a well settled rule of construction that every attempt
should be made to harmonize the apparently conflicting entries
not only of different Lists but also of the same List and to reject
that construction which will rob one of the entries of its entire
content and make it nugatory.”
F Though the aforesaid observations are made while construing the
entries in the List in Schedule VII and though while interpreting the
clauses in the agreement the strict principle of interpretation would not
be applicable, the Court can borrow the said principle while interpreting
the same. It has been held by this Court that every attempt has to be
made to harmonize apparently conflicting entries not only of different
G Lists but also of the same List and to reject that construction which will
rob one of the entries of its entire content and make it nugatory.
29. Again, while interpreting the provisions of Section 47 and Order
XXI, Rule 2 of the CPC, this Court in the case of Sultana Begum vs.
Prem Chand Jain reported in AIR 1997 SC 1006, has observed thus:
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1049
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
“12....... On a conspectus of the case law indicated above, the A
following principles are clearly discernible:
(1) It is the duty of the Courts to avoid a head on clash
between two Sections of the Act and to construe the
provisions which appear to be in conflict with each
other in such a manner as to harmonize them. B
(2) The provisions of one Section of a statute cannot be
used to defeat the other provisions unless the Court, in
spite of its efforts finds it impossible to effect
reconciliation between them.
(3) It has to be borne in mind by all the Courts all the time C
that when there are two conflicting provisions in an
Act, which cannot be reconciled with each other, they
should be so interpreted that, if possible, effect should
be given to both. This is the essence of the rule of
“harmonious construction”. D
(4) The Courts have also to keep in mind that an
interpretation which reduces one of the provisions as
a “dead letter” or “useless lumber” is not harmonious
construction.
(5) To harmonize is not to destroy any statutory provision E
or to render it otiose.”
(emphasis given)
It could thus be seen that this Court has clearly held that to
harmonize is not to destroy any statutory provision or to render it otiose.
F
This principle has been reiterated in the case of Anwar Hasan Khan
vs. Mohammed Shafi and others reported in AIR 2001 SC 2984. While
considering the provisions of U.P. Urban Buildings (Regulation of Letting,
Rent and Eviction) Act, this Court observed thus :
“8. It is settled that for interpreting a particular provision of an
Act, the import and effect of the meaning of the words and phrases G
used in the statute has to be gathered from the text, the nature of
subject-matter and the purpose of intention of the statute. It is
cardinal principle of construction of statute that effort should be
made in construing its provisions by avoiding the conflict and
adopting a harmonious construction. The statute or rules made H
1050 SUPREME COURT REPORTS [2019] 8 S.C.R.
A thereunder should be read as a whole and one provision should be
construed with reference to the other provision to make the
provision consistent with the object sought to be achieved. The
well-known principle of harmonious construction is that effect
should be given to all the provisions and a construction that reduces
one of the provision to a “dead letter” is not harmonious
B
construction.......”
30. Applying the aforesaid principles to various clauses of the
agreement, an attempt has to be made to harmoniously read the provisions
of Articles 3.1.2, 3.4.2 and 14.1, 14.2, 14.3 and 14.4. An attempt has
also to be made to give effect to all the provisions. If so read, it will be
C clear that Article 14 deals with various eventualities in which procurer
or the seller can terminate the agreement. Article 14.1 provides for
termination in the event of various defaults committed by the seller. Article
14.3 provides for procedure to be followed in cases of default by the
seller. Article 14.2 provides various grounds with regard to default by
D procurer. The procedure for termination in cases of default by the procurer
has been provided in Article 14.4. Perusal of grounds stated in Articles
14.1 and 14.2 would reveal that these are general in nature. Per contra,
provisions of Article 3.4.2 would reveal that termination under this Article
can be made only if there is non-compliance with any of the conditions
in Article 3.1.2. The power is available to both procurer and seller.
E However, in either of the cases i.e. termination by seller or termination
by procurer, there is a specific provision of damages at the rate of Rs 10
lakhs per MW, whereas consequences of the termination in Articles
14.1 and 14.2 are totally different. As such, effect will have to be given
to both the provisions, which are independent of each other.
F 31. We find, that both the Commission and the Appellate Tribunal
have grossly erred in arriving at finding that termination can be effected
under Article 3.4.2 only if there is an agreement with regard to non-
compliance of condition under Article 3.4.2 by both the parties. If the
finding of the Appellate Tribunal is accepted, it will be amounting to
G making provisions of Article 3.4.2 a dead letter and rendering them otiose.
32. We further find that the Commission as well as the Appellate
Tribunal has lost sight of one another important principle of law. This
Court in the case of J.K. Cotton Spinning and Weaving Mills Co.
Ltd. vs. State of Uttar Pradesh, reported in AIR 1961 SC 1170, while
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1051
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
construing the provisions of Clause 5(a) and Clause 23 of the U.P. A
Industrial Disputes Act and the U.P. Government Order issued under
the U.P. Industrial Disputes Act, has observed thus :
“(10) Applying this rule of construction that in cases of conflict
between a specific provision and a general provision the specific
provision prevails over the general provision and the general B
provision applies only to such cases which are not covered by the
special provision, we must hold that cl. 5(a) has no application in
a case where a special provisions of cl. 23 are applicable.”
33. The said principle has been reiterated by this Court in its
judgment in the case of Maharashtra State Board of Secondary and C
Higher Secondary Education and Ors. Vs. Paritosh Bhupeshkumar
Sheth and Ors. reported in (1984) 4 SCC 27. Para 20 of the said
judgment reads thus:
“20. We consider that the above approach made by the High
Court is totally fallacious and is vitiated by its failure to follow the D
well established doctrine of interpretation that the provisions
contained in a statutory enactment or in rules/regulations framed
thereunder have to be so construed as to be in harmony with each
other and that where under a specific section or rule a particular
subject has received special treatment, such special provision will
exclude the applicability of any general provision which might E
otherwise cover the said topic.........”
34. In the present case, the perusal of various Articles would
reveal that provisions under Article 14 are general in nature. The provision
under Article 3.4.2 is specific, only to be invoked in the case of non-
compliance with any of the conditions as provided under Article 3.1.2. F
As such, the special provision made in Article 3.4.2 will exclude the
applicability of general provisions contained in Article 14 of the contract.
35. After considering the legal position, let us examine some of
the factual aspects of the matter. It would be relevant to note that in the
bid dated 2.01.2007 submitted by the appellant, it is clearly mentioned G
that the project is based on coal supply from the GMDC.
36. It will also be relevant to refer to Clause 1.2 of Annexure 3 to
the bid document which gives details of the proposed project. Clause
1.2 reads as follows:
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1052 SUPREME COURT REPORTS [2019] 8 S.C.R.
A “1.2 Fuel:
The lead member, Adani Enterprises Ltd. has tied up the indigenous
coal requirement of the Project with GMDC, who has been
allocated Morga II coal block in the State of Chhatisgarh. Further
with a view to ensure supply of fuel with optimum techno-
B commercial parameters, we have also tied up supply of imported
coal with M/s Coal Orbis Trading GMBH, Germany and M/s Kowa
Company Ltd. and accordingly executed separate MoUs with
them dated 9th Sept 2006 and 21st Dec 2006 respectively.”
37. In the brief summary of the Project given in the said bid
C document, it has been specifically mentioned by the appellant that the
bid was submitted on the basis of indigenous coal supply committed by
the GMDC. The bid documents also form part of the PPA between the
parties.
38. It will be relevant to note that after the communication dated
D 15.11.2008 by the appellant to the procurer thereby conveying its intention
to terminate the PPA in the wake of pending FSA with the GMDC for
supply of power under bid No. 2, the Managing Director of Gujarat Urja
Vikas Nigam Ltd., the procurer, had addressed a communication to the
Principal Secretary, Energy and Petrochemicals Department, Government
of Gujarat, requesting it to issue suitable directions since the issue
E regarding allocation of coal from the mines allocated to the GMDC was
within the purview of Government of Gujarat. Thereafter, on 27.02.2009
the Deputy Secretary of the Industries and Mines Department,
Government of Gujarat, addressed a communication to the Managing
Director of the GMDC. It will be relevant to record the following part of
F the said letter.
“(b) So far as Naini block is concerned, GMDC had already given
a commitment for supply of coal from Morga-II mines to M/s.
Adani Ltd., for a 1000 MW plant on the basis of which M/s.
Adani submitted their bid in the competitive tariff bid to GUVNL
G at Gujarat bus-bar. Considering this aspect and the full availability
to the state, 50% block may be given M/s. Adani Ltd and remaining
50% block may be given to Torrent Power Ltd., to exclusively
provide power for Gujarat’s need. M/s.Adani and M/s.TPL have
to sell power generated from Naini Block exclusively to GUVNL.
No merchant sale is to be allowed to anyone else.
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1053
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
2. You are now, therefore requested to go for coal allotment from A
Morga block with M/s. KSK by way of the detailed FSA and to
give 50% coal from Naini block to M/s. Adani and remaining
50% coal to M/s.Torrent Power Ltd., as mentioned above.”
39. It could thus be clearly seen that even the Government of
Gujarat has also clearly indicated that the bid submitted by the appellant B
in the competitive bid was on the basis of the commitment for supply of
coal from Morga-II mines by the GMDC. It has, therefore, requested
the Managing Director, GMDC to give 50 per cent of coal from Morga
block to the appellant. The State Government had, therefore, requested
that the Managing Director of the GMDC to go for coal allotment from
Morga block. C
40. It will also be relevant to note that on 30.12.2009, the Executive
(Finance) of the procurer has addressed a letter to the Principal Secretary,
Energy and Petrochemicals Department, Government of Gujarat,
referring to the letter issued by the appellant on 28.12.2009. After referring
to Article 3.4.2 of the PPA, it is stated in the said communication as D
under:
“In light of above circumstances Government of Gujarat is
requested to impress upon M/s.APL to withdraw the Notice of
Termination of PPA dated 2nd February, 2007, executed with
GUVNL, for supply of 1000 MW under bid specification no.02/ E
LTPP/2006 and also impress upon GMDC for prompt necessary
action for execution of FSA with M/s. APL to ensure supply of
1000 MW power to GUVNL at competitive rate to meet future
demand of the state. Further Government of Gujarat is requested
to kindly issue suitable directives to GUVNL for further necessary F
action in the matter.”
41. It could thus be seen that, even the procurer was aware that
the bid of the appellant was on the basis of the commitment by the
GMDC to supply the indigenous coal.
42. In view of the aforesaid, it could be seen that the appellant as G
well as the procurer and also the Government of Gujarat clearly
understood that the bid submitted by the appellant was on the basis of
the commitment of the GMDC to supply indigenous coal to it. It will be
pertinent to mention that the appellant had sent notices intimating its
intention to terminate the PPA on account of non-finalisation of FSA
H
1054 SUPREME COURT REPORTS [2019] 8 S.C.R.
A with the GMDC and also terminate the contract much prior to
commissioning of the project and commencement of power supply to
the procurer. Annexure III to the PPA would itself show that expected
commercial date of operation is January, 2012, whereas termination is
vide notice dated 28.12.2009. The materials placed on record would
reveal that the appellant has supplied the power at the rate of Rs. 2.35
B
per unit (as per bid) after the PPA was terminated by it, to abide by the
directions issued by the Commission. It may not be out of place to mention
that the appellant was a successful bidder in respect of the two bids i.e.
bid No. 1 and bid No. 2. Insofar as bid No. 2, which is the subject matter
of the present proceedings, the bid of the appellant was accepted at the
C rate of Rs. 2.35 per unit whereas in the same bidding process, bid of the
appellant for bid No. 1 was accepted at the rate of Rs. 2.89 per unit.
The said Project was to be executed on the basis of imported coal supply.
It is thus clear that the parties were very much aware that bid of the
purchaser for bid No. 1 which was at a much lower price than the price
for bid No. 2 was on account of the commitment to the appellant from
D
the GMDC that it would supply indigenous coal to it.
43. In that view of the matter, after the GMDC resiling from its
commitment and refusing to enter into FSA with the appellant, the
appellant was justified in invoking Article 3.4.2 of the PPA, in view of
non-compliance of Condition No. (ii) in Article 3.1.2 since it had failed to
E produce the Fuel Supply Agreement. It will also be relevant to refer to
Paragraph 70 of the judgment of the Appellate Tribunal. Paragraph 70
reads as under:
“Admittedly, the Seller, the Appellant mentioned in the bid
documents that “Adani Enterprises Limited has tied-up indigenous
F coal requirements of the project with the Gujarat Mineral
Development Corporation, who has been allocated Morga-II Block
in the State of Chhatisgarh”. The Appellant has also mentioned in
the bid documents that with a view to ensure the supply of fuel,
they have tied-up supply of imported coal with two foreign
G Companies and accordingly executed separate Memorandum of
Understanding with them dated 9.9.2006 and 21.12.2006.”
44. In the light of the aforesaid finding, we fail to understand as to
how the Appellate Tribunal has come to a finding that the bid of the
appellant was not on the basis of the commitment by the GMDC to
H
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1055
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
supply indigenous coal. We are of the considered view that the Appellate A
Tribunal has erred both on facts and in law. We are of the considered
view that the appellant was entitled in law as well as on facts to invoke
Article 3.4.2 of the PPA and terminate the agreement.
45. Having held that the termination was legal and valid the question
arises as to what relief is to be granted to the appellant. On the basis of B
the Order of the Commission and the Appellate Tribunal, the appellant is
continuing supply of electricity to the respondent No. 2, the procurer,
though it is the contention of the appellant that it has been sustaining
losses by doing so.
46. It will be relevant to refer to certain subsequent developments. C
The appellant had approached this Court by Interlocutory Application
No. 4 of 2015 for the following reliefs:
“(a) to stay the operation of the impugned judgment dated
7.9.2011 and suspend further supply of electricity in terms
of the PPA during the pendency of this Appeal. D
(b) in the alternative to prayer (a) above, during the pendency
of the accompanying Civil Appeal the Hon’ble Court
may direct the Respondent(s) to pay the tariff as per
CERC norms for tariff on cost plus basis; and also make
the payment from the date of the supply of power under E
the PPA of the differential amount between the PPA
tariff and the tariff as per CERC norms for tariff on
cost plus basis on the such terms and condition as this
Hon’ble court deems fit as just and proper.”
47. The said application came up for consideration before the F
Bench consisting of J. Chelameswar, and Abhay Manohar Sapre, JJ. It
appears that in the said I.A. an affidavit dated 23.11.2015 came to be
filed on behalf of the respondent No. 2, the procurer. It will be relevant
to note the averments made in the affidavit quoted in the Order dated
3.12.2015 passed by this Court.
G
“15. I submit that, without prejudice to the rights of the Respondent
No.2 to contest the present appeal, the answering Respondent
with the approval of Government of Gujarat has already shown
its willingness to pay compensatory tariff prospectively (from
next month of CERC order i.e. March 2014) subject to paras
H
1056 SUPREME COURT REPORTS [2019] 8 S.C.R.
A 12 and 13 above to resolve the issue by making suitable
adjustments in tariff which till date is not implemented because
of non acceptance by Appellant and other stakeholders.
16. I say that without prejudice to its rights in the present appeals
the Respondent No.2 is willing to implement the decisions of
B State Govt. for paying compensatory tariff prospectively (from
next month of CERC order i.e. March 2014) to resolve the
issue by making suitable adjustment in tariff on the directions
of the Hon’ble Court. ...”
48. This Court after hearing the parties observed that insofar as
C the question of permitting the supplier/procurer to pay the compensatory
tariff, as indicated in its counter affidavit is concerned, it requires no
permission from this Court and it was for the supplier/procurer to take a
decision in accordance with law.
49. Once we hold that termination is valid and legal, question would
D arise as to at what rate the appellant is entitled to compensatory tariff
from the date of supply of power. Undisputedly, even after the PPA was
validly terminated, the appellant continued to take the project to its logical
end. After commissioning of the project, it has started supplying electricity
to the procurer in accordance with the decision of the Commission and
the Appellate Tribunal. The appellant must have incurred huge expenditure
E on the same. In order to do economic justice, on the principle of business
efficacy, the appellant would be entitled for adjustment of cost of the
project and would also be entitled to the interest on the expenditure
incurred by it for completion of the project. The expenditure towards
running of the project after obtaining the coal from the open market
F would also be required to be taken into consideration. The appellant
would also be entitled to the interest on the delay of payment after it
receives payment upon determination of the rate which would be
determined by the Central Electricity Regulatory Commission (“CERC”
for short). However, we find that it will not be appropriate for us to go
into that exercise.
G
50. Section 62 of the Electricity Act, 2003, provides entire
mechanism for determination of the tariff by the CERC. It will also be
relevant to note that the CERC (Terms and Conditions of Tariff)
Regulations 2009 also consider various factors which are required to be
taken into consideration by the CERC while determining the
H compensatory tariff. We find that it will be appropriate to relegate the
M/S ADANI POWER (MUNDRA) LTD. v. GUJARAT 1057
ELECTRICITY REGULATORY COMMISSION [B. R. GAVAI, J.]
parties to CERC for determination of the compensatory tariff payable to A
the appellant from the date of termination of the PPA. After such
determination, the procurer would be entitled to adjust the amount if
already paid in accordance with affidavit dated 23.11.2015, from the
amount so determined by the CERC.
51. Hence, the following order: B
(i) The appeal is allowed.
(ii) The notice of termination of the PPA dated 28.12.2009
is held to be legal and valid. It is also declared that the
PPA stood validly terminated with effect from
04.01.2010. C
(iii) The appellant would be at liberty to approach the CERC
for determination of the compensatory tariff, including
various aspects mentioned in paragraph 49, payable to it
from the date of supply of electricity by it to the procurer.
The CERC is directed to decide the said issue in the D
light of what has been observed by us hereinabove and
in the light of the provisions of Section 62 of the
Electricity Act so also the CERC (Terms and Conditions
of Tariff) Regulations, 2009 within a period of three
months from the appellant’s approaching it. E
(iv) The procurer shall make the payment to the appellant
as determined by the CERC within a period of three
months from the date of its determination.
(v) The procurer would be entitled to adjust the amount if
already paid by it in pursuance of its affidavit dated F
23.11.2015 from the amount so determined by the
supplier. The procurer shall be entitled to adjust the
balance amount recoverable by it from the appellant
towards liquidated damages of Rs. 100 Crore.
(vi) No order as to cost. G
Ankit Gyan Appeal allowed.
H
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