Holding

The energy‑charge formula must be read as expressed, encompassing the cost of purchasing, transporting (including road) and unloading washed coal to and at the project site, with GCV measured at the project site, and no other ancillary charges or interest are recoverable.

Summary

Nabha Power Ltd (NPL) entered into a 25‑year Power Purchase Agreement (PPA) with Punjab State Power Corporation Ltd (PSPCL) for a 1200 MW plant under a fuel‑specific, pre‑identified site procurement route. The PPA’s energy‑charge formula required the cost of purchasing, transporting and unloading coal "to and at the project" to be reflected in monthly tariffs, with the coal to be supplied as washed coal. PSPCL deducted washing costs, road‑transport costs, certain GCV adjustments and other ancillary charges from NPL’s invoices, leading NPL to file a petition under the Electricity Act, 2003. The Supreme Court held that the formula must be read according to its express terms, giving effect to the principle of business efficacy, and that washing cost, transportation cost (including road) and GCV measured at the project site are recoverable, while other claimed costs and interest are not. Consequently, the appeal was partly allowed, granting NPL the specified costs and directing payment within three months.

Issues considered

The proper interpretation of the PPA’s energy‑charge formula under commercial contract principles
Whether washing cost of coal is included in the formula
Whether road‑transport cost to the project site is recoverable
How the Gross Calorific Value (GCV) of coal is to be measured for tariff calculation
Whether ancillary charges such as transit, handling losses, third‑party testing and liaising charges are covered
Whether interest on disputed amounts is claimable

Legislation cited

Electricity Act, 2003s. 63

Subjects

contract interpretationpower purchase agreementenergy charge formulabusiness efficacyimplied termscoal washingtransportation costgross calorific valueelectricity acttariff determinationcommercial contract

Judgment

[2017] 14 S.C.R. 301

NABHA POWER LIMITED (NPL) A
v.
PUNJAB STATE POWER
CORPORATION LIMITED (PSPCL) & ANR.
(Civil Appeal No. 179 of2017) B

OCTOBER 05, 2017 .
[R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.)
Contract:
Commercial contract - Interpretation of - Power Purchase
c
Agreement - Energy Charge Formula - Procurement route wav 'fuel
specific' having 'a pre-identified site' - The procurer-respondent
arranged the fuel (coal) and specified the site location for the project
- Energy charges were designed to vary in accordance with the
actual cost of coal and the actual quality of coal - Procurer was D
responsible for co~·t of coal and quality of coal i.e. Gross Calorific
Value (GCV) of coal - It was clarified by the procurer that the 'coal'
to be supplied for the project would be 'washed coal' - The procurer
deducted certain components of monthly tariff i.e. component of
cost of purchasing coal comprising washing related costs; E
consideration of mid-point GCV of ROM coal on equilibrated GCV
basis·(EGCV) to calculate energy charges; denying of road
transportation cost at the plant-end and at the mine-end; and
denying the Liasing charges, transit and handling losses and denying
third party coal testing charges etc. - Appellant filed petition before
State Commission challenging the deductions - State Commission F
dismissed the petition - Appellate Tribunal rejected the appeal on
most of the grounds - On appeal. held: Normally a contract should
be read as it reads. as per its express terms - The explicit terms are
the final word with regard to the. intention of the parties - Reading
an implied condition into the contract is necessitated only when G
penta-test comes into play - There has to be a strict necessity for it
- A multi-clause contract inter-se the parties has 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 - In the present case, the Court has read the contract (Power
H
301
302 SUPREME COURT REPORTS [2017] 14 S.C.R.

A Purchase Agreement) only in the manner it reads - Energy Charge
Formula alone would have to be referred to for the purposes of
calculation of the coal price - The principle of 'business efficacy'
would also require the court to read 'Monthly Energy Charges'
formula in a manner as would be normally understood - Reference
B to coal in the formula would be only a reference to 'washed' coal
and not to 'unwa~hed' coal - The prior activity of 'washing· before
receiving the coal at the project site would be part of the pricing of
coal and cost of purchasing the same - The transportation costs to
the project site have to be compensated - It is not qualified by
methodology of transfer i.e. railway or road and therefore appellant
C is entitled to it - The Calorific Value of coal has to be determined at
project-site and not at the mine-site - Appellant is not entitled to
any other charges as the formula contains only three elements and
no other element other than those would form part of the formula -
Rules of Interpretation - Principle of 'Reddendo Singula Singzilis'
D - Electricity Act, 2003 - ss. 63 - Electricity.
Partly allowing the appeal, the Court
HELD: 1.1 Parties- indulging in commerce, act in a
commercial sense. It is this ground rule which is the basis of The
Moorcock test of giving 'business efficacy' to the transaction, as
E must have been intended at all events by both business parties.
The development oflaw 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'. This test required the requisite conditions to
be satisfied: (1) reasonable and equitable; (2) necessary to give
F business efficacy to the contract; (3) it goes without saying, i.e.,
The Officious Bystander Test; (4) capable of clear expression;
and (5) must not contradict a_ny express term of the contract.
[Para 49)(338-G-H; 339-A-C]
Life Corporation of India & Anr. v. Dharam Vir Anand
G (1998) 7 SCC 348 : [1998] 2 Suppl. SCR 295; Mis.
Dhanrajamal Gobindram v. Mis. Shamji Kalidas and
Co. [1961] 3 SCR 1020; The Union of India v. Mis.
D.N. Revri & Co. and Ors. (1976) 4 SCC 147 : [1977)
1 SCR 483; Satya Jain (Dead) Through LRs. and Ors.
H
NABHA POWERLIMITED (NPL) v. PUNJAB STATE POWER 303
CORPORATION LIMITED (PSPCL)

v. Anis Ahmed Rushdie (Dead) Through LRs. and Ors. A
(2013) 8 SCC 131 : (2013) 3 SCR 319 - relied on.
The Moorcock (1889) 14 PD· 64; Shir/aw v. Southern
Foundries (1926) L.D. (1939) 2 KB 206; Reigate v.
Union Manufacturing Co. (Ramsbottom) Ltd. (1918) 1
K.B. 592; Liverpool City Council v. Irwin (1976) Q.B. B
319; Liverpool City Council v. Irwin /H.L.(E.)] (1976)
2 WLR 562; Shell UK. Ltd. v. Lostock Garage Ltd.
(1976) 1 WLR 1187; B.P. Refinery (Westernport)
Proprietary Limited v. The President Councillors and
Ratepayers of the Shire of Hastings (1977) UKPC 13;
. Investors Compensation Scheme Ltd. v. West Bromwich
c
Building Society (1998) 1 All ER 98; Attorney General
of Belize and Ors. v. Belize Telecom Ltd. and Anr. (2009)
1 WLR 1988 - referred to.
1.2 However, the explicit terms of a contract are always
the final word with regard to the intention of the parties. The D
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. [Para 49][339-D]
l.3 It should certainly not be an endeavour of commercial E
courts to look to.implied terms of contract. In the current day
and age, making of contracts is a matter of high technical expertise
with legal brains from all sides involved in the process of drafting
a· contract. Jt ·is even preced'ed by opportunities of seeking
clarifications and doubts so that the parties know what they are F
getting into. Thus, normally a contract should be read as if reads,
as per its express _terms. The implied terms is a concept, which
'is necessitated only when the Penta-test comes into play. There
has to be a strict necessity for it. In the present case, the Court
has only read the contract in the manner it reads. The Court has
not really read into it any 'implied term' but from the collection G
of clauses, come to a conclusion as to what the contract says.'
The formula- for energy charges was quite clear. The Court has
only expounded it in accordance to its natural grammatical contour,
keeping in mind the nature of the contract. [Para 72][346-C-E]
H
304 SUPREME COURT REPORTS [2017] 14 S.C.R.

A 2.1 In the present case, in view of the specific formula
provided for calculation of energy charges, only three aspects
relatable to coal would determine the particular co-efficient; i.e.,
(a) purchasing; (b) transporting; and (c) unloading the coal. These
three expressions are thereafter followed by the stipulation that
B the coal has to be recently supplied "to and at the project." The
word 'to' obviously would have reference to transporting whHe
the word 'at' would have relationship with unloading since it would
be 'transporting to' and 'unloading at'. Any .other construction
will fail to make grammatical sense. Not only that, all the three,
i.e., purchasing, transporting and unloading, have a reference to
C "the Project." Thus, the definition of Fc0A\ is the weighted
average actual cost incurred by the appellant of purchasing the
coal and transporting it to the project site and thereafter unloading
the coal at the project site. The fact that the property in coal ·
passed on to the appellant vis-a-vis SECL, on delivery being
taken at the mine-end would not change the definition of coal
0
pricing as is required for the purposes of calculation of the tariff.
[Paras. 53, 54)(341-A, C-E]
2.2 The principle of Reddendo Singula Singulis is where a
complex sentence has more than one subject, and more than one
object, it may be the right construction to render each to each, by
E reading the provision distributively and applying each object to
its appropriate subject. A similar principle applies to verbs and
their subjects, and to other parts of speech." The Court has also
endeavoured to read the provision distributively, by applying each
object, to the appropriate subject. Thus, the relevant preposition
F has been applied to the relevant activity. (Paras 56, 58) [342-E-F]
Koteswar Vittal Karnath v. K. Rangappa Ba/ia & Co.
(1969) 1 SCC 255 : (1969) 3 SCR 40 - relied on.
M'Neill v. Crommelin (1858) 9 Ir CLR 61 - referred
to.
G
'Principles of Statutory Interpretation' by .Justice G.P.
Singh; OSBORNE: Concise Law Dictionary, p. 269;
.WHARTON: Law Lexicon, 14'h Edition, p. 850 -
referred to.

H
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 305
. CORPORATIONLIMITED(PSPCL)

2.3 The prior activity of 'washing', before receiving the A
coal at the project site would be part of the pricing of coal and
cost of purchasing the same. The appellant did seek to obtain
clarity on the issue of the qu\}lity of coal to be used, to which the
first respondent did answer that it would have to be 'washed'
coal. In fact, this was in conformity with the Notification issued B
by the MoEF since the travel distance was more than 1,000
kilometers. The reference to coal in the formula would, thus, be
only a reference to 'washed' coal and not to 'unwashed' coal.
[Para 59)(342-G; 343-A-B]
2.4 The fact that the clarification made it clear that the
appellant had to "arrange" the washing of coal, did not imply that c
the cost of washing the coal had to be borne by the appellant, as
the energy charge formula alone would have to be referred to for
the purposes of calculation of the coal price. The operating cost
in clause 2.7.1.4(3) of the RFP would refer to the activities
mentioned. therein and the operation and maintenance of the D
power plant which would not alter the formula of the energy
charges which contains the cost of coal. The principle of 'business
efficacy' would also require the Court to read the 'Monthly Energy
Charges' formula in a manner as would be normally understood.
[Para 61}(343-D-F] ·
E
2.5 As regards the the transportation cost, once again, what
is sought to be excluded is taking the coal for 'washing' as well
as the last mile to the project, on account of the Railway siding
not being located at the project site for a certain specified period
of time. It is for that period of time that the actual transportation
cost, through road is sought to be recovered. by the appellant. F
These··costs cannot be excluded, as the transportation costs to
the project site have to be compensated to the appellant. It is
not qualified by the methodology of transfer, i.e., railways or road.
It is also a matter of necessity, since the railway siding had not
reached the project site due to some complications in acquisition G
of land. It is really the transportation cost from point to point
which would be involved and the mere mention in the RFP under
project related activity/milestone about Railway siding and the
Railway lines from nearby station to site cannot imply that the
Railways is the only mode of transportation when the siding has
H
306 SUPREME COURT REPORTS [2017] 14 S.C.R.

A not been made, albeit on account of land acquisition problems.
[Paras 63, 64)(343-H; 344-A-C]
2.6 So far the dispute regarding the Gross Calorific Value
(GCV) of the coal is concerned, if the issue is one of SECL billing
for higher Calorific Value while actually supplying a low Calorific
B Value of coal, that would be a matter between the appellant and
the SECL and the first respondent cannot be blamed for the same.
That does not take away from the application of the formula for
energy charge which provides for PCV 0 as the weighted average
Gross Calorific Value delivered to the project. This Calorific
C Value of coal would have to be, thus, on the same parameter
determined at the project site. [Para 66)(344-F-G]
2.7 Delivery 'to the prttject' could only mean 'at the site of
the project'. It cannot be at the mine site. In fact, this is a
fundamental issue where the first respondent seems to be altering
the basic concept of the formula by seeking to replace the
D wordings in the formula relatable to the project-site to the mine-
site. Thus, the point at which the Calorific Value of the coal is to
be measured is at the project-site. The plea of the first respondent
that there is no such methodology of measuring the Calorific Value
at the project-site is belied by the sample reports of different
E financial years filed by the appellant along with the synopsis, which
itselfreferred to the joint sampling and testing of the coal received
and is duly signed by both sides. Thus, the reading of the energy
formula leads to only one conclusion that all costs of coal up to
the point of the project site have to be included and the Calorific
Value of the coal has to be taken as at the project-site. [Paras
F 67,68 and 69)(345-A-D)

2.8 There are certain other essential costs sought to be
claimed by the appellant such as the transit and handling losses,
third party testing charges, liaising charges. Since the formula
contains only three elements and thus, the appellant cannot be
G p_ermittcd to plead that any other clement, other than those would
'.llso incidentally form a part of the formula. In fact, such claims
would be hit by RFP clause 2.7.1.4(3) and the energy charges
have to be calculated only on the basis of the formula understood
in a business sense. Thus, these claims are rejected. [Para
H 70)(345-E-F]
NABHA POwER LIMITED (NPL) v. PUNJAB STATE POWER 307
CORPORATION LIMITED (PSPCL).

2.9 So far as claim for interest is concerned, no such claim A
has been laid so far, at any stage. No doubt there is a provision
for a late payment surcharge in the event of delay in payment of a
monthly bill but in the present case, it is not as if there are
undisputed bills remaining unpaid. There were serious disputes
regarding the interpretation of the contractual clauses itself. . B
Present case is a fit case, where the principle of compensation
for deprivation should enure for the benefit of the appellant as a
measure of restitution. More so as it has not been claimed by
them at any stage. [Para 71][345-G-H; 346-A]
2.10 Thus, the appellant is entitled only to the washing cost C
of coal, the transportation from the mine site via washing of coal
to the project site inclusive of cost of road transportation for the
period where it was necessary. The Calorific Value of the coal
would have to be taken at the project site. All other claims in
appeal stand rejected. [Para 73][346-F-G]
Case Law Reference D

[1998] 2 Suppl. SCR 295 relied on Para 29
[1961 J 3 SCR 1020 relied on Para 46
(19771 1 SCR 483 relied on Para47
E
(2013] 3 SCR 319 relied on Para 48
(1969] 3 SCR 40 relied on Para 57
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 179 of
2017.
From the Judgment and Order dated 14.12.2016 of the Appellate F
Tribunal for Electricity at New Delhi (APTEL) in Appeal No. 64 of
2016.
Mukul Rohatgi, C. S. Vaidyanathan, Sr. Advs., Aniket Prasoon,
Hemant Sahai, Mahesh Agarwal, Abhishek Kumar, Parul Shukla, Ms.
Sadapurna Mukherjee, Ms. Nisha Rohtagi, E. C. Agrawala, Advs. for G
the Appellant.
. V. Giri, Sr. Adv., Ms. Swapna Seshadri, Nikunj Dayal, Pramod
Dayal, Ms. Payal Dayal, Anand K. Ganesan, Ms. Neha Garg, Sakesh
Kumar, Ms. Charu Singhal, Karunakar Mahalik, Advs. for.the
Respondents. H
308 SUPREME COURT REPORTS [2017] 14 S.C.R.

A The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
Facts:
1. The Punjab State Electricity Board ('PSEB') in the year 2009
B conducted an international competitive biddingfor selection of developer
through tariff based bidding process for procurement of power on long
term basis from a power station to be set up at Village Nalash, Ra:jpura,
District Patiala, Punjab. This power station was envisaged as a Casc-2
bid project (Case-2, Scenario-4) criteria by PSEB in terms of the
competitive bidding guidelines issued by the Government of India as per
C Section 63 of the Electricity Act, 2003 (hereinafter referred to as the
'EA').
2. The significance of the aforesai~ is that Part-7 of the EA, which
contains the provisions for tariff, provides for tariff regulations to be
determined by the appropriat~ commission as per guiding principles set
D out in the Section of the EA. The tariff is determined under Section 62
of the EA. However in a scenario such as the present case, the
detennination is as per the provisions of Section 63 of the EA, which
reads as under:
"Section 63. Determination of tariff by bidding process. -
E Notwithstanding anything contained in section 62, the Appropriate
Commission shall adoptthe tariff if such tariffhas been determined
through transparent process of bidding in accordance with the
guidelines issued by the Central Government." ·
3. In order to facilitate the implementation of the project the PSEB
F incorporated Nabha Power Limited ('NPL/Appellant') on 9.4.2007 as a
special purpose vehicle ('SPV') for implementation of the project and
the successful bidder was to acquire 100 per cent shareholding of the
NPL and enter into a 25 year Power Purchase Agreement ('PPA') with
PSEB.
G 4. It may be noticed for the purpose of completion of facts that
the first respondent, Punjab State Power Corporation Limited, (' PSPCL')
is the successor entity of the erstwhile PSEB subsequent to the unbundling
of PSEB in accordance with the Punjab Power Sector Refonns Transfer
Scheme, 2010, while the second respondent is the Punjab State Electricity
Regulatory Commission ('PSERC').
H
NABHAPOWER LIMITED (NPL) v. PUNJAB STATE POWER 309
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN KAUL, .T.]

5. On 10.6.2009, a Request for Qualification ('RFQ') and a A
Request for Proposal ('RFP') inviting proposals to supply 1200 MW of
power from the Rajpura Thermal Power Project was issued. The RFQ
specified that the followingtash had already been completed:
"i. 1078 acres ofland had been acquired.
ii. Environmental clearance had been obtained. B

iii. Fuel arrangements had been tied up in the form ofLoA dated
11/18.12.2008.
· iv. Water arrangement had been tied up."
While the RFP specifically provided that: c
"i. The source of primary fuel (coal) would be coal frort1 SECL
since SECL had already issued the LoA.
ii. The Railways had given assurance for transportation of coal
from SECL over a distance of 1600 km."
D
6. On the bidding document being issued on 16.9.2009, certain
queries and clarifications were raised by the prospective bidders in terms
of the bidding documents for which clarifications were issued. The
significant clarifications qua the matter at hand; noticed even in the
impugned order, arc as under:
E
"i. SECL would supply Grade 'F' coal from KorbafRaigarh field,
with GCV of 3900 Kcal/kg to 4260 Kcal/kg, Ash Content of 35%
to 40%, total inherent moisture of 5% to 6%, Volatile matter of
24% to 32°/.,, fixed carbon of32% to 37% and Sulphur content of
0.05%.
F
ii. On a specific query of whether the coal to be supplied wotild
be washed coal or unwashed coal, it was clarified that washing of
coal was to be arranged by the successful bidder.
iii. In response to the queries raised by the bidders, clarifications
on the model PPA were also issucdon 17.09.2009. On the question G
of the costs associated with fuel supply, transportation and
unloading being pass through, it was clarified that tariff payment
will be in accordance with Schedule VII of the PPA."
7. On the bidding process being completed, Mis. L&T Power
Development Limited ('L&T PDL') was declared as the successful
H
310 SUPREME COURT REPO~TS [2017] 14 S.C.R.

A bidder and a Letter oflntent was issued on 19.11.2009. Thereafter on
18.1.2010, a Share Purchase Agreement ('SPA') was entered into
between PSEB and L&T PDL, transfemng 100 per cent of the shares
ofNPL to L&T PDL. Simultaneously the PPA was entered into between
PSEB and NPL. The contractual obligation began of the respective
B parties.
8. ln the course of the contractual obligations, various issues arose,
some of which were resolved. However, in respect of the amounts
payable to the appellant, the controversy commenced, and remained
right from the first invoice. It is the case of the appellant, that the first
C respondent made deductions from the amount due and payable under
the invoices, on the following accounts:
"i. Component of the cost of purchasing coal comprising washing
related costs including washery charges and cost of coal towards
loss of quantity on account of washing (yield loss~;
D ii. Consideration of mid-point ofGCV ofROM coal on equilibrated
acy basis ('EGCV') to calculate energy charges;
iii. Denial of road transportation cost- at the plant-end and at the
mine-end.
iv. Denial ofLiaising charges, denial ofTransit and handling losses
E and denial of Third party coal testing charges; and
v~ Non-payment of Capacity Charges for the period from
20.02.2014 to 03.03.2014 when the availability was declared on
non-linkage (alternate) coal."
F 9. The aforesaid gave rise to a cause for the appellant to file
Petition No.52 of2014 under Section 86(l)(b) & (f) of the EA before-
the State Commission seeking relief on account of wrongful deduction
of certain components of month! y tariff by the first respondent. The
State Commission, post admission, dismissed this petition vide order dated
1.2.2016. The appellant, thus, filed Appeal No.64 of 2016 before the
G Appellate Tribunal ('AT'). The appeal was, however, rejected vide order
dated 14.12.2016 on most giounds except the non-payment of capacity
charges allowed in favour of the appellant. It may be noticed that in the
course of the appeal various questions oflaw were framed but ultimately
the same were restricted only to five issues.

H
•1 NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 311
CORPORATIONLIMlTED(PSPCL)[SANJAYKISHANKAUL,J.]

10. The dispute really is about the interpretation of the provisions A
of the PPA dated 18. L2010 and is, thus, one of pure interpretation of the
terms of the contract.
The plea o(the Appellant:
11. Mr. Mukul Rohatgi, learned Senior Advocate, argued on behalf
of the appellant. Mr. Rohatgi contended that the significant aspect is B
that the bidding process for the power project was in terms of the
"Guidelines for Determination of Tariff by Bidding Process for
Procurement of Power by Distribution Licensees, 2005" (hereinafter
referred to as the 'Guidelines'), which have a statutory flavor under
Section 63 of the EA. Para 2.2 read with para 3.2(i) of the Guidelines c
envisages two routes of competitive bidding, Case-I and Case-2. The
. said paras read as under:
"2.2. The guidelines shall apply for procurement of base-load,
peak-load and seasonal power requirements through competitive
bidding, through the following mechanisms: D
(i) Where the location, technology, or fuel is not specified by
.,
the procurer (Case 1);
·(ii) For hydro power projects, load center projects or other
,, location, specific projects with specific fuel allocation such as
captive mines available, which the procurer intends to set up E
under tariff based bidding process (Case-2).
However separate RFP shall be used for procuring base load or
peak load or seasonal load req.uirements as the case may be."

F
"3.2 (i) In order to ensure timely commencement of supply of
electricity being procured and to convince the bidders about the
irrevocable intention tofthe procurer, it is necessary that various
project preparatory activities are completed in time. For long
term procurement for projects for which pre-identified sites are
to be utilized (Case-2), the following project preparatory activities G
should be completed by the procurer, or authorized representative
of the procurer, simultaneously with bid process adhering to the
milestones as indicated below:

H
312 SUPREME COURT REPORTS [2017] 14 S.C.R.

A (i) Site identification and land acquisition: If land is required to
be acquired for the power station, the notification under section
4 of the Land Acquisition Act, 1894 should have been issued
before the publication ofRFQ. The notification under section
6 of the Land Acquisition Act, 1894 should have been issued
before the issue of RFP. If the provisions of section 17 of the
B
Land Acquisition Act, 1894 regarding emergency have not been
applied, the Award under the Land Acquisition Act should have
been declared before the PPA becomes effective.
(ii) Environmental clearance for the power station: Rapid
Environmental Impact Assessment (EIA) report should be
c available before the publication ofRFQ. Requisite proposal
for the environmental clearance should have been submitted
before the concerned administrative authority responsible for
according final approval in the Central/State Govt., as the case
may be, before the issue of RFP. Environmental clearance
D should have been obtained before PPA becomes effective.
(iii) Forest Clearance (if applicable) for the land for the power
station: Requisite proposal for the forest clearance should have
been submitted before the concerned administrative authority
respopsible for according final approval in the Central/State
E Govt., as the case may be, before the issue ofRFP.
(iv) Fuel Arrangements: If fuel linkage or captive coal mine(s)
are to be provided, the same should be available before the
publication ofRFQ. In case, bidders are required to arrange
fuel, the same should be clearly specified in the RFQ.
F (v) Water linkage: It should be available before the publication
ofRFQ.
(vi) Requisite Hydrological, geological, meteorological and
seismological data necessary for preparation of Detailed Project
Report (DPR), where applicable. These should be available
G before the issue of RFP. The bidder shall be free to verify
geological data through his own sources as the geological risk
would lie with the project developer.
The project site shall be transferred to the successful bidder at a
price to be intimated at least 15 days before the due date for ·
H submission of RFP bids."
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 313
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN KAUL, J. j

12. The essential difference between Case-1 and Case-2 A
procurement route is stated to be that a Case-2 is a 'fuel specific
procurement' having a 'pre-identified site' as in the present case. It is in
these circumstances that the first respondent, being the procurer is stated
to have arranged the fuel linkage from SECL, Chhattisgarh and specified
the site location for the project near Village Na!ash, Tehsi! Rajpura, Punjab. B
The bidder's responsibility included design, engineering, procurement,
construction, testing, commissioning, financing, operation and maintenance
of the power station. Even under the Case-2 model, there are stated to
be five scenarios, and the bid parameters of each scenario is stated to
be different - the present one being scenario 4. This is stated to be
significant inasmuch as an all-inclusive fixed/capped energy charge was C
not a bidding parameter, and the energy charges were designed to vary
ill accordance with the actual cost of coal, and the actual quality of coal.
The appellant, as bidder, is thus stated to have taken the risk only of one
component of the energy charge formula, befog the efficiency of the
project, and not with respect to other two components, i.e., cost of coal D
and Gross Calorific Value (' GCV') of coal, including its constituents.
This is the reason stated for the relevant formula under Article 1.2.3 of
Schedule 7 of the PPA, which wiil be discussed hereafter.
13. It is the case of the appellant that on 16.9.2009, prior to the bid
date, PSPCL disclosed the coal quality in its pre-bid c.Jarification. The E
project was located at a distance of more than 1,000 kilometers from the
_SECL mine and the coal arranged by the respondent contained more
than 34 per cent ash. The project, thus, came under the ambit of Ministry
of Environment and Forest (for short 'MoEF') Notification of 1997,
making it mandatory for the coal to be washed for the use of generation
of electricity energy. PSPCL, also mandated that washing of coal was F
to be arranged by the successful bidder (pre-bid clarification). The query
raised by the appellant was as to whether the coal to be supplied for the
project, was washed coal or unwashed coal (query No.6). It is the plea
of the appellant that, thus, the reference to coal and fuel in the PPA;
including the energy charges formula, could only refer to washed coal G
and thus the actual cost of purchasing, transporting and unloading coal
referred to in Article 1.2.3 of Schedule 7 of the PPA, must refer to such
actual cost of washed coal. The PSPCL, however, took a contrary
stand that the term 'washing' is not part of the energy charges formula,
while the appellant sought to include-(A) the actual cost of unwashed
H
314 SUPREME COURT REPORTS [2017] 14 S.C.R.

A coal procured by NPL from SECL, including the cost of coal lost in
washing (around 20 per cent); and (B) washing charges paid for getting
the coal washed. The appellant's stand, thus, is that the clarification that
the successful bidder would have to arrange for washing of coal, would
not imply that the washing cost has to be fastened on to the appellant, as
B in terms of the PPA, the energy charge formula expressly provided for
actual cost incurred, to be reimbursed.
14. The significant contention of the appellant is that the operation
cost mentioned in clause 2.7.1.4(3) of the RFP only referred to the cost
towards operating and maintenance of power plant, and cannot refer to
C any cost associated with the cost of coal, which is a part of the energy
charges.
15. The appellant also invoked the principle of'business efficacy'
and the maxim 'Reddendo Singula Singu!is · for interpreting the terms
of the PPA and the Energy Charges Formula, as set out at Article 1.2.3
of Schedule 7 of the PPA.
D
16. The aforesaid is really the major and the first dispute inter se
the parties.
17. The second dispute relates to the GCV of the coal, and is in a
sense, linked to the first dispute. This is so as the PSPCL" takes into
E account the theoretical/Equilibrated GCV 2 ( 'EGCV') of unwashed coal
at the mine-end rather than GCV of washed coal on an As Received
Basis ('ARB') at the project-end as part of PCV" in the Energy Charges
formula. The GCV of the coal is stated to change significantly due to
transportation by rail over a period of 4 to 5 days, as coal contains
moisture. The critical stage is stated to be the measure of GCV when
F the project coal reached the site (from the mine-end in Chhattisgarh to
the project-site at Ra,jpura) when it is stated to be jointly sampled, tested
and recorded by NPL and PSPCL. This is stated to be obvious from the
definition of PCV,,. The joint sampling done at the mines ofSECL is only
of unwashed coal.
G 18. The formula, it is pleaded, of Fc0A\ is stated to refer to the
actual cost of transporting the coal to the project and the actual cost of
unloading at the project. The mere transfer of title of unwashed coal,
which cannot be used in generation of electricity charges is, thus, pleaded
not to imply delivery of coal to the project.
H
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 315
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN K{\UL, J.]

19. On the same principle, there is a third aspect of the claim of A
transportation cost of coal with respect to the first mile and the last mile.
The first mile is on account of the unwashed coal from the mine to the
washery, while the fast mile is stated to have been incurred for carriage
of coal from the nearest railway station to the prpject, on account of
incomplete !_and acquisition by the Government of Punjab on behalf of B
the PSPCL. The transportation has to be reimbursed irrespective of
mode. In a Case-2 project, the risk towards land is not assigned to the
bidder but is of the PSPCL. -
20. There arc also certain other linked charges qua coal in the
context of transit and handling charges, third party testing charges and
liaising charges. C
- · 21. In the synopsis filed, the appellant has claimed even interest
on the disputed energy charges in view ofArticle 11.3 .4 read with Article
11.6.8 requiring payment of interest/late payment surcharge on the
disputed component of the monthly bill from the date on which such
payment was originally due against whom the dispute is settled/decided. D
The absence of a separate prayer for the payment of interest, it has
been pleaded, cannot deny the appellant such benefit which must enure
in case of the appellant succeeding in the adjudication. Also the appellant
having been deprived of the use of money, this deprivation cost should
be compensated with interest/damages. We may note at the end of E
such submissions of the appellant, that along with certain synopsis, some
documents have been filed showing joint sampling in the presence of
NPL and PSPCL representatives for the coal received at the project-
site including coal received after washing, to deny the plea'ofrespondcnt
No. I that such verification was being done only at the mine-site.
F
Plea ofthe First Respondent:
22. The first respondent through Mr. V. Giri, learned Senior
-Advocate canvassed that any claim of the appellant relatable to coal has
to be considered in terms of Clause 1.2.3 of Schedule 7 of the PPA. In
terms thereof, there are stated to be only three distinct identifiable G
-components of coal recognized for tariff: (a) Purchase; (b) Transportation
· and (c) Unloading. Thus, until and unless the claims squarely fall under
Lone of these three hclJ:ds, the same cannot be included in the monthly
energy charges. It is not as if all costs relatable to coal handling from
the stage of procurement from SECL at the coal mine-site, up to stage
H
316 SUPREME COURT REPORTS [2017] 14 S.C.R.

A of firing in the boiler to generate electricity is to be included. Had that
been the intention, the stipulation would have been of actual cost of coal
used for generation of power.
23. The plea raised is that the cost of coal is payable to SECL,
which is provided on actual basis. It was abundantly clear that the coal
B supplied would not be washed coal and the obligation of washing was on .
the appellant. Such washing could have been undertaken either by
establishing a washery, or by outsourcing the washing activity to a third
party. Not only washing, there were certain other essential activities to
be undertaken in relation to coal after the purchase of coal, including
sizing of coal, crushing of coal, sprinkling and moisturisation of.coal for
C stacking and storage, sorting of coal, ash removal, removal of stones
and other undesired contents, demoisturisation of coal, pulverization of
coal, etc. The calculation formula, for monthly energy charges, is claimed
to provide for only the purchase price paid to SECL and not any other
expenditure incurred by the appellant.
D 24. The first respondent contends that the definition of the term
'fuel supply agreement' refers to the agreement between the appellant
and the fuel supplier, i.e., SECL, and thus, the transaction of purchase
referred to in Clause 1.2.3 of Schedule 7 of the PPAis identifiable to the
purchase in the definition of the fuel supply agreement.
E 25. The attention of the Court was also invited to "Project
Documents", which reads as under:
'"'Project Documents" mean
a) Construction Contracts;
F b) Fuel Supply Agreements including the Fuel Transportation
Agreement;
c) O&M contracts;
d) RfP and RfP Project Documents; and
e) any other agreements designated in writing as such, from
time to time, jointly by the Procurer and the Seller;"
26. It is, thus, pleaded that there is no separate agreement for
'washing' included in this list of what constituted "Project Documents."
The delivery point under the fuel supply agreement is the loading end of
H
NABHA POWER LIMITED (NPL) v. PUNJAB STATE.POWER 317
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.]

the colliery whereafter the title and risk of the coal is that of the appellant. A
Thus, the purchase is complete.
27. The burden to obtain any clarification being on the appellant, it
was submitted that the clarification which they actually sought was as to
whether the coal to be supplied would be washed or unwashed, to which
a categorical answer was given. Had the appellant any doubt about B
bearing the cost for the washed coal, they could easily have raised a
specific query in that behalf. This is sought to be read along with Clause
2. 7.1.4 providing for the quoted tariff to be an 'all inclusive tariff' with
no exclusion allowed. Thus, the washing of coal and other activities in
_relation thereto, are to be included in the quoted tariff, which is as per
unit tariff. The relevant clause, in this regard, reads as under: C
"2. 7.1.4 The Bidder shall inter alia take into account the following
- while preparing and submitting the financial Bid:

3. The Quoted Tariff in Format I of Annexure 4 shall be an all D
inclusive tariff and no exclusions shall be allowed. The Bidder
shall take into account all costs inCJuding capital and operating
costs, statutory taxes, duties, levies while quoting such tariff.
Availability of the inputs necessary for generation ofpower should
be ensured by the Seller at the Project Site and all costs involved E
-in procuring the inputs (including statutory taxes, duties, levies
. thereot) at the Project Site must be reflected in the Quoted Tariff."

"6. The Bidders should factor the cost of the secondary fuel into
the Quoted Tariff and no separate reimbursement shall be allowed F
on this account."
28. The first respondent seeks to draw a distinction between the
purchase cost of fuel and the cost of usable fuel for the contention that
it is only the first one which is to be included.
29. On the second issue of GCV, the plea raised is that it is the G
own case of the appellant itself that SECL is actually over stating the
GCV of coal actually supplied. Since the coal is to be jointly analyzed
and tested at the stage of delivery, it is not understood how SECL is
supplying inferior coal but billing for superior coal. In any case, this is an
318 SUPREME COURT REPORTS [2017] 14 S.C.R.

A issue to be raised with SECL. The formula of energy charges in relation
to GCV, is using the expression the coal delivered "to the project." This
is in contradistinction to the expression "to and at the project" which is
used in relation to the cost of coal. Thus, with these two different
expressions used, they obviously mean two different things. In support
B of his proposition reliance is placed on Life Corporation of India &
Anr. vs. Dharam Jlir Anand1, wherein it was observed as under:
"6 ...... In construing a particular Clause of the Contract.it is only
reasonable to construe that the word and the terms used therein
must be given effect to. In other words one part of the Contract
cannot be made otiose by giving a meaning to the policy of the
c contract. Then again when the same Clause of a contract uses
two different expressions, ordinarily those different expressions
conveying one and the same meaning."
30. Qua the issue of road transportation charges 1 a reference has
been made to the RFP where under the heading of"Activities/Milestones
D to be completed before issue ofRfl> as per Bidding guidelines" at serial
No.3 only transportation through Railways has been envisaged:
SI. No. Project Paranxtcrs Status of
Inputs/clearances activitie:;/milestooes
3. Fuel Transportation For Coal Railways have given
E approx. 1600 assurance for
km transpcctation of
Coal frcm SECL

31. The land for the Railways siding was to be acquired by the
F bidder (appellant) as per the requirement, and the Government of Punjab
was to facilitate the acquisition ofland. 1078 acres ofland was already
acquired. The relevant extract of the RFP is as under:
B. Other Proiect Related Activities/Milestones
SI. No. Project Parameters Status of activities/milestones
In nuts/ clearances
G I. Land
ii) Railway sidings To be acquired by Selected
and mil lines from Bidder as per requirement.
nearby station to site Govt. of Punjab will facilitate
acquisition of land as desired
bv the Selected Bidder.

H 1
(1998)7 sec 348
NABHAPOWERLIMITED(NPL)v.PUNJABSTATEPOWER 319
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.]

32. The endea:vour to get any other linked claim arising from coal A
is also thus denied, as is the claim for interest, which was rtot even
claimed. It is added by providing a copy of the order dated 7.6.2017 of
the Commission dealing with the remand proceedings, that since the
claim for interest there has been rejected now on the ground that there
was no claim made earlier, the submission sought to be made in respect B
of the claim for interest is an attempt to get over the said defect. The
question of payment of interest arises only qua bills, which are not in
dispute, the relevant clause being, clause 11.3 .4, as under:
"11.3 .4 In the event of delay in payment of a Monthly Biil by the
Procurer beyond it Due Date month billing, a Late Payment C
Surcharge shall be payable by the Procurer to the Seller at the
rate of two (2) percent in excess of the applicable SBAR per
annum, on the amount of outstanding payment, calculated on a
day to day basis (and compounded with Monthly rest), for each
day of the delay."
Legal Principles for interpretation of a comn1ercial contract: D

33. The contours of the controversy show that we are really
'concerned with the interpretation of the commercial contract inter se
the parties. Before analyzing the relevant clauses ofthe contract including
the Definition clause and formulae, we consider it appropriate to set
'forth certain judicial pronouncements relevant for determination ·of the E
issue.
34. To begin with wetefer to the judgment of the Court ofAppeal
in The Moorcock1• Bowen, L.J., dealt with the implied warranty on the
·part of the owners of the jetty, in respect of a contraCt made for the use
of the jetty to a ship, for discharge of its cargo. The name of the ship F
'·was 'The Moorcock'. It was observed as under: ·
"Bowen, L.J.: .... Now, an implied warranty, or, as it is called,
a covenant in law, as distinguished from an express contract or an
express warranty, really is in all cases founded on the presumed
intention of the parties, and upon reason. The implication which G
the law draws from what must obviously have been the intention
of the parties, the law draws with the object of giving efficacy to
the transaction and preventing such a failure of consideration as
cannot have been within the contemplation of either side; and I
2
(1889) 14 PD 64, H
320 SUPREME COURT REPORTS r20111 14 s.c.R:

A believe that if one were to take all the cases, and they are many,
of implied warranties or covenants in law, it will be found that in
all of them the Jaw is raising an implication from the presumed
intention of the parties with the object of giving to the transaction
such efficacy as both parties must have intended that at all events
it should have. In business transactions such as this, what the
B
law desires to effect by the implication is to give such business
efficacy to the transaction as must have been intended at all
events by both parties who are business men: not impose on
one side all the perils of the transaction, or to emancipate
one side from the all chances of failure, but to make each
c 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. "
(Emphasis supplied)
35. The significant issue was the principle of 'business efficacy
D to the transactions' which are intended at all events by parties who are
businessmen.
36. The aforesaid was, once again, relied upon in Shir/aw v.
Southern Foundries (1926) L.D. 3 wherein MacKinnon, L.J., observed
as under:
E "I recognize that the right or duty of a Court to find the existence
of an in1plied term or implied terms in a written contract is a matter
to be exercised with care; and a Court is too often invited to do so
upon vague and uncertain grounds. Too often also such an invitation
is backed by the citation of a sentence or two from the judgment
F of Bowen L.J. in The Moorcock (1939) 2 KB 206. They are
~entences from an extempore judgment as sound and sensible as
all the utterances of that great judge; but I fancy that he would
have been rather surprised if he could have foreseen that these
general remarks of his would come to be a favourite citation of a
supposed principle oflaw, and I even think that he might sympathize
G with the occasional impatience of his successors when The
Moorco..:k (1939) 2 KB 206 is so often flushed for them in that
guise.
For my part, I think that there is a test that may be at least as
H '(1939) 2 KB 206
NABHAPOWER LIMITED (NPL) v.'PUNJAB STATE POWER 321
CORPORATION LIMITE.D (PSPCL) [SANJAY KISHAN KA UL, l]

usefu1 as such generalities. If I may quote from an essay which I A
wrote sdnie years ago, I then said: "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 testily B
suppress him with a common 'Oh, of course!' "
At least it is trµe, !think, that, if a term were never implied by a
judge unless it could pass that test, he- could not be held to be
wrong.".·
37. The aforesaid, thus, extended a word of caution while applying C
The Moorcock test, by bringing forth "The Officious Bystander Test" of
'Oh, of course!'. ·
38. In Reigate vs. Union Manufacturing Co. (Ramsbottom)·
Ltd. 4 , Scrutton L.J., discussed the developments in respect of these
principles and observed as under: D
"These principles, however, have been clearly established: The
first thing is to see what the parties have expressed in the contract;
and then an implied term is not to be added because the Court
thinks it would have been reasonable to have inserted it in the
contract. A term can only be implied ifit is necessary in the business · E
sense tQ give efficacy to the contract; that is, if it is such a term
'that it can confidently be said that if at the time the contract was
-. being negotiated some one had said to the parties, "What will
happen in such a case," they would both have replied, "Of course, .
so and so will happen; we did not trouble to say that; it is too
clear." Unless the Court comes to some such conclusion as that, F
it ought not to imply a term which the parties themselves have not
expressed." ·

"Is that a necessary implication? If this matter had been mooted G
at the time when the contract was being negotiated, I expect that
the parties would at once have disagreed as to ~hat the position
was. Unless we are satisfied that it is an i_mplication which must
necessarily have been in the minds of both parties, we cannot
'(1918) 1 K.B. 592
H
322 SUPREME COURT REPORTS [2017] 14 S.C.R.

A imply a term which they have not expressed, esp.ecially when I
see that they have thought sufficiently about the matter to express
two conditions on which the agreement is to be determined, first,
the obvious one on the death of the agent; and, secondly, by six
months' notice after the expiration of the seven years."
B 39. In Liverpool City Council vs. Irwin 5, Lord Denning M.R.,
observed as under:
"It is often said that the courts only imply a term in a contract
when it is reasonable and necessary to do so in order to give
business efficacy to the transaction: see The Moorcock (1889)
c 14 P.D. 64, 68. (Emphasis is put on the word "necessary": Reigate
v. Union Manufacturing Co. (Ramsbottom) Ltd. [1918] I K.B.
592, 605.) Or when it is obvious that both parties must have
intended it: so obvious indeed that if an officious bystander had
asked them whether there was to be such a term, both would
have suppressed it testily: "Yes, of course": see Shirlaw v. Southern
D Foundries (1926) Ltd. [1939] 2 K.B. 206, 227.
Those expressions have been repeated so often that it is with
some trepidation that I venture to question them. I do so because
they do not truly represent the way in which the courts a<;t. Let
me take some instances. There are stacks of them. Such as the
E terms implied by the courts into a contract for the sale of goods
- Jones v. Just (1868) L.R. 3 Q.B. 197: or the hire of goods -
Asley Industrial Trust Ltd. v. Grimley (1963] 1W.L.R.584: into a
contract for work and materials -Young & Marten Ltd. v.
McManus Childs Ltd. [1969] I A.C. 454: or into a contract for
F letting an unfurnished house -Hart v. Windsor (1843) 12 M. &
W. 68: or a furnished house -Collins v. Hopkins [1923] 2 K.B.
617: or into the carriage of a passenger by railway: see Readhead
v. Midland Railway Co. {1869) L.R. 4 Q.B. 379: or to enter on
premises: see Francis v. Cockrell (1870) L.R. 5 Q.B. 501: or to
buy a house in course of erection: see Hancock v. B. W. Brazier
G {Aneriey) Ltd. [1966] 1W.L.R.1317.
If you read the discussion in those cases, you will see that in none
of them did the court ask: what did both parties intend? If asked,
each party would have said he never gave it a thought: or the one
5 (1976) Q.B. 319
H
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 323
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN KAUL, J.]

would have intended something different from the other. Nor did A
the court ask: Is it necessary to give business efficacy to the
transaction? If asked, the answer would have been: "It is
reasonable, but it is not necessary." The judgments in all those
cases show that the courts implied a term according to whether
or not it was reasonable in all the circumstances to do so. Very B
often it was conceded that there was some implied term. The
only question was: "What was the extent of it?" Such as, was it
an absolute warranty of fitness, or only a promise to use reasonable
care? That cannot be solved by inquiring what they both intended,
or into what was necessary. But only into what was reasonable.
This is to be decided as matter of law, not as matter of fact. Lord C
Wright pulled the blinkers off our eyes when he said in 193 5 to the
Holdsworth Club:
"The truth is that the court .... decides this question in accordance
with what seems to be just or reasonable in its eyes. The judge
finds in himself the criterion of what is reasonable. The court is in D
this sense making a contract for the parties - though it is almost
blasphemy to say so." (Lord Wright of Durley, Legal Essays and .
Addresses (1939), p. 259.)
In 1956, Lord Radcliffe put it elegantly when he said of the parties
to an implied-term: E
"their actual persons should be allowed to rest in peace. In their
place there rises the figure ofthe fair and reasonable man. And
the spokesman of the fair and reasonable man, who represents
after all no more than the anthropomorphic conception ofjustice,
is and.must be the court itself': see Davis Contractors Ltd. v. F
Fareham Urban District Council [1956] A.C. 696, 728.
In 1969, Lord Reid put it simply when he said: " ... no warranty
ought to be implied in a contract unless it is in all the circumstances
reasonable," see Young & Marten Ltd. v. McManus Childs Ltd.
[1969] l A.C. 454, 465: and Lord Upjohn echoed it when he said, G
at p. 471, that the implied warranty was "imposed by law.""
40. The aforesaid judgment was carried in appeal to the House of
Lords in Liverpool City Co.uncil vs. Irwin [H.L.(E.)]6. However, it
_was clarified that the touchstone for interpreting commercial documents,
6
(1976) 2 WLR 562
H
324 SUPREME COURT REPORTS (2017) 14 S.C.R.

A cannot be 'mere reasonableness' as Lord Denning had observed, but
'necessity' :
Edmund-Davies, L.J.,: "That set the Court of Appeal off on
considering in what circumstances a contractual.term could be
implied, and that understandably but unfortunately led them to
B The Moorcock , 14 P.D. 64. It had not been cited in Miller v.
Hancock but the Court ofAppeal considered that it enshrined the
only possible basis for implying such a term as that contended for
by the tenants. It is right to say, furthermore, that such was the
only basis advanced on behalf of the tenants themselves at that
time. The Court of Appeal accordingly proceeded to consider
c whether, in the light of The Moorcock , such a term could be
implied in the tenancy agreement. Roskill L.J. (with whom Onnrod
L.J. agreed) said [1975] 3 W.L.R. 663, 677:
"I cannot agree ... that it is open to us in the court at the
present day to imply a term because subjectively or objectively
D we as individual judges think it would be reasonable so to do. It
must be necessary in order to make the contract work as well
as reasonable so to do, before the court can write into a contract
as a matter of implication some term which the parties have
themselves, assumedly deliberately, omitted to do."
E Lord Denning M.R., on the other hand, "with some trepidation"
(p. 669) (which was understandable), took a different view and,
after refe1ring to some out of the "stacks" ofrelevant cases, said,
atp. 670:
" .. .in none of them did the court ask: what did both parties
F intend? If asked, each party would have said he never gave it
a thought: or the one would have intended something different
from the other. Nor did the court ask: Is it necessary to give
business efficacy to the transaction? If asked, the answer would
have been: 'It is reasonable, but it is not necessary.' The
judgments in all those cases show that the courts implied a
G term according to whether or not it was reasonable in all the
circumstances to do so .... This is to be decided as matter of
law, not as matter of fact."
I have respectfully to say that I prefer the views of the majority in
the Court of Appeal. Bowen L.J. said in the well known passage
H in The Moorcock, 14 P.D. 64, 68:
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 325
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.]

"In business p-ansactions such as this, what the law desires to A
effect by the implication is to give such business efficacy to
the transaction as must have been intended at all events by
both parties who are business men; ... 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 B
for ... "
That is not to say, of course, that consideration of what is
reasonable plays no part in determining whether or not a tenn
should be implied. Thus, inHarnlyn& Co. v. Wood& Co. [1891]
2 Q.B. 488, decided only two years after The Moorcock (to which C
he had been a party), Lord Esher M.R. said, at p. 491:
" ....the court has no right to imply in a written contract any
such stipulation, unless, on considering the tenns of the contract
in a reasonable and business manner, an implication necessarily
arises that the parties must have intended that the suggested
stipulation should exist. It is not enough to say that it would be D
a reasonable thing to make such an implication. It must be a
necessary implication in the sense that I have mentioned."
Bowen and Kay L.JJ., who had also been members of the
Moorcock court, delivered similar judgments. The touchstone is
always necessity and not merely reasonableness : see, for E
example, the judgment of Scrutton L.J, in Reigate v. Union
Manufacturing Co. (Ramsbottom) Ltd. [1918] 1 K.B. 592, 605,
and in the case cited below by Roskill L.J., In re Comptoir
Commercial Anversois v. Power, Son and Co. [1920] 1 K.B. 868.
899. .F
!1ut be the test that of necessity, (as I think, in common with
Roskill and Onnrod L.JJ.) or reasonableness, (as Lord Denning
M.R. thought), the exercise involved is that of ascertaining
the presumed intention of the parties. Whichever of these two
tests one applies to the facts of the instant case, in my judgment G
the outcome would be the same for, in the words ofRoskill L.J.
[1975] 3 W.L.R. 663, 677-fi78:
" ... I find it absolutely impossible to belie;e that the Liverpool
City Council, if asked whether it was their intention as well as
H
326 SUPREME COURT REPORTS [2017] 14 S.C.R.

A that of their tenants of these flats that any of the implied terms
contended for by Mr. Godfrey should be written into the contract,
would have given an affirmative answer. Their answers would
clearly have been 'No."' (Emphasis supplied)
4 I. In a sense, this was a turning around to what was observed in
B The Moorcock (supra).
42. Lord Denning, M.R., in Shell U.K. Ltd. vs. Lostock Garage
7
Ltd. once again, considered the law as to implied terms and summarized
,
it
"This submission makes it necessary once again to consider the
c law as to implied terms. I ventured with some trepidation to suggest
that terms implied by law could be brought within one
comprehensive category - in which the courts could imply a
term such as was just and reasonable in the circumstances: see
Greaves & Co. (Contractors) Ltd. v. Baynham Meikle & Partners
D [1975] l W.L.R.1095, 1099-1100; Liverpool City Council v. Irwin
[1976] Q.B. 319, 331-332. But, as I feared, the House of Lords
in Liverpool City Council v. Irwin [1976] 2 W.L.R. 562, have
rejected it as quite unacceptable. As I read the speeches, there
are two broad categories of implied terms.

E (i) The first category
The first category comprehends all those relationships which are
of common occurrence. Such as the relationship of seller and
buyer, owner and hirer, mast.er and servant, landlord and tenant,
carrier by land or by sea, contractor for building works, and so
F
forth. In all those relationships the courts have imposed obligations
on one party or the other, saying they are "implied terms." These
obligations are not founded on the intention of the parties, actual
or presumed, but on more general considerations: see Luxor
(Eastbourne) Ltd. v.Cooper[l94l]A.C.108, 137byLordWright;
Lister v. Romford Ice and Cold Storage Co. Ltd. [1957] A.C.
G 555, 576 by Viscount Simonds, and at p. 594 by Lord Tucker
(both of whom give interesting illustrations); and Liverpool City
Council v. Irwin [1976] 2 W.L.R. 562, 571 by Lord Cross of
Chelsea, and at p. 579 by Lord Edmund-Davies. In such
relationships the problem is not to be solved by asking what did
7
H (1976) 1WLR1187
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 327
CORPORATION LIMITED (PSPCL) [SANJAYKISHANKAUL, J.]

the parties intend? Or would they have unhesitatingly agreed to it, A
if asked? It is to be solved by asking: has the law already defined
the obligation or the extent of it? If so, let it be followed. If not,
look to see what would be reasonable in the general run of such
cases: see by Lord Cross of Chelsea at p. 570H: and then say
what the obligation shall be. The House in Liverpool City Council B
v. Irwin [1976] 2 W.L.R. 562 went through that very process.
They examined the existing law oflandlord and tenant, in particular
that relating to easements, to see if it contained the solution to the
problem: and, having found that it did not, they imposed an obligation
on the landlord to use reasonable care. In these relationships the
parties can exclude or modify the obligation by express words; C
but unless they do so, the obligation is a legal incident of the .
, relationship which is attached by the law itself and not by reason
of any implied term.
' Likewise, in the general Jaw of contract, the legal effect of
frustration does not depend on an implied term. It does not depend D
on the presumed intention of the parties, nor on what they would
have answered, if asked: but simply on what the court itself declares
to amount to a frustration: see Davis Contractors Ltd. v. Fareham
Urban District Council [1956] A.C. 696, 728 by Lord Radcliffe,
and The Eugenia [1964] 2 Q.B. 226, 238, 239.
E
(ii) The second category
The second category comprehends those cases which are not
within the first category. These are cases - not of common
occurrence - in which from the particular circumstances a term
is to be implied. In these cases the implication 'is based on an F
intention imputed to the parties from their actual circumstances:
see Luxor (Eastboume)iLtd. v. Cooper [1941] A.C. 108, 137 by
Lord Wright. Such an imputation is only to be made when it is
necessary to imply.a term to give efficacy to the contract and
make it a workable agreement in such manner as the parties would
clearly have done if they had applied their mind to the contingenc¥ G
which has arisen. These are the "officious bystander" types of
case: see Lister v. Romford Ice and Cold Storage Co. Ltd. [1957]
A.C. 555, 594, by Lord Tucker. In such cases a term is not to be
implied on the ground that it would be reasonable: but only when
it is necessary and can be formulated with a sufficient degree of H
328 SUPREME COURT REPORTS [2017] 14 S.C.R.

A precision. This was the test applied by the majority of this court in
Liverpool City Council v. Irwin 1 [1976] Q.B. 319. and they were
emphatically upheld by the House on this point: see [ 1976] 2 W.L.
R. 562, 571D-H by Lord Cross of Chelsea; p. 578G-579A by
Lord Edmund-Davies.
B There is this point to be noted about Liverpool City Council v.
Irwin. In this c·ourt the argument was only about an implication in
the second category. In the House of Lords that argument was
not pursued. It was only the first category.
Into which of the two categories does the present case come? I
c am tempted to say that a solus agreement between supplier and
buyer is of such common occurrence nowadays that it could be
put into the first category: so that the law could imply· a term
based on general considerations. But I do not think this would be
found acceptable. Nor do I think the case can be brought within
the second category. If the Shell company had been asked at the
D beginning: "Will you agree not to discriminate abnormally against
the buyer?" I think they would have declined. it might be a
reasonable tem1, but it is not a necessary term. Nor can it be
formulated with sufficient precision. On this point I agree with
Kerr J. It should be noticed that in the Esso case Mocatta J. also
E refused to make such an implication: see [1966] 2 Q.B. 514, 536-
541; and there was no appeal from his decision. In the
circumstances, I do not think any term can be implied."
43. A parallel development in Australia arose out of a judgment of
the Lords of the Judicial Committee of the Privy Council in the appeal
F preferred from the Full Court of the Supreme Court of Victoria in B.P.
Refinery (Westernport) Proprietary Limited vs. The President
Councillors and Ratepayers of the Shire of Hastings·'. On the
implication of the terms of contraction five conditions were laid down
and a reference was, once again, made to the The Moorcock (supra),
Reigate vs. Union Manufacturing Co. (Ramsbottom) Ltd. (supra)
G and Shirlaw v. Southern Foundries (supra) in the following terms:
"40. Their Lordships do not think it necessary to review
exhaustively the authorities on the implication of a term in a
contract which the parties have not thought fit to express. Jn their
8
[1977] UK.PC 13
H
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 329 ·
CORPORATJONLIMITED{PSPCL)[SAN.TAYKISHANKAUL,J.]

view. for a. term to be imp/ied, the following conditions (which A
may overlap) must be satisfied: (1) it must be reasonable and
equitable; (2) it must be necessary to give business efficacy to
. the contract, so that no term will be implied if the contract is
effective without it; (3) it must be so obvious that "it goes without
saying"; (4) it must be capable of clear expression; (5) it must not B .
contradict any express term of the contract.
41. Their Lordships venture to cite only three passages - albeit
they are familiar to every student of this branch of the law. In.The
Moorcock (19) Bowen LJ said:
"I believe if one were to take all the cases, and they are many, c
of implied warranties or covenants in law, it will be found bat
in El ofthem the law is raising an implication from the presumed
intention of the parties with the object of giving to the transaction
such efficacy as both parties must have intended that at all
events it should have, Iri business transactions such as this,
what the law desires to effect by the implication is to give such D
· business efficacy to the transaction as must have been intended
at all events by both parties who are business men.... " '
It is. because the implication of a term rests on the presumed
intention of the parties that the primary condition must be satisfied
that the term sought to be implied must be reasonable and equitable. E
It is not to be imputed to a party that he is assenting to an
unexpressed term which will operate unreasonably and inequitably
against himself.
In Reigate v. Union Manufacturing Co. (20), Scrutton LJ said:
F
"A term can only be implied if it is necessary in the business
sense to give efficacy to the contract i.e., if it is such a term
that .it can confidently be said that if at the time the contract ·
was being negotiated some one had said to t~e parties, 'What
~ill happen in such a case?', they would both have replied:
'Of course, so and so will happen; .we did not trouble to say G
that; it is too clear."' ·
In Shirl~w v. Southern Foundries (1926) Ltd. (21), MacKinnon ·
LJsaid:
"Prima facie that which in any contract is left to be implied
H
330 SUPREME COURT REPORTS [2017] 14 S.C.R.

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 testily suppress
him with a common, 'Oh, of course.""' (Emphasis supplied)
B 44. The next development, was in Investors Compensation
Scheme Ltd. vs. West Bromwich Building Society 9• Lord Hoffmann,
in his majority opinion, prefaced his explanation of reasons with some
general remarks about the principl~s which contractual documents are
nowadays construed - common sense principles by which any serious
utterance would be interpreted in ordinary life. Almost all the old
C intellectual baggage of'lcgal' interpretation was observed to have been
discarded, and the principles summarized as follows:
"( 1) Interpretation is the ascertainment of the meaning which the
document would convey to a reasonable person having all the
background knowledge which would reasonably have been
D available to the parties in the situation in which they were at the
time of the contract.
(2) The background was famously referred to by Lord Wilberforce
as the "matrix of fact," but this phrase is, if anything, an understated
description of what the background may include. Subject to the
E requirement that it should have been reasonably available to the
parties and to the exception to be mentioned next, it includes
absolutely anything which would have affected the way in which
the language of the document would have been understood by a
reasonable man.
F (3) The law excludes from the admissible background the previous
negotiations of the parties and their declarations of subjective
intent. They are admissible only in an action for rectification. The
law makes this distinction for reasons of practical policy and, in
this respect only, legal interpretation differs from the way we would
G
interpret utterances in ordinary life. The boundaries of this
exception are. in some respects unclear. But this is not the occasion
on which to explore them.
(4) The meaning which a document (or any other utterance) would
convey to a reasonable man is not the same thing as the meaning
'(1998) I All ER 98
H
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 331
CORPORATJONLIMITED(PSPCL)[SANJAYKISHANKAUL,J,]

of its words. The meaning of words is a matter of dictionaries arid A
grammars; the meaning of the document is what the parties using
those words against the relevant background would reasonably
have been understood to mean. The background may not merely
enable the reasonable man to choose between the possible
meanings of words which are ambiguous but even (as occasionally B
happens in ordinary life) to conclude that the parties must, for
whatever reason, have used the wrong words or syntax: see
Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co.
Ltd. [1997] A.C. 749.
(5) The "rule" that words should be given their "natural and C
ordinary meaning" reflects the common sense proposition that
we do not easily accept that people have made linguistic mistakes,
particularly in formal documents. On the other hand, if one would
nevertheless conclude from the background that something must
have gone wrong with the language, the law docs not require
judges to attribute to the.parties an intention which they plainly D
could not have had. Lord Diploek made this point more vigorously
when he said in Antaios Compania Navicra S.A. v. Salen
RederiemaA.B. [1985]A.C.191,201:
"if detailed semantic and syntactical analysis of words in a
commercial contract is going to lead to a conclusion that flouts E
business commonsense, it qiustbe made to yield to business
commonsense."'
45. Once again, Lord Hoffmann, now sitting on the Privy Council,
in Attomey General of Belize and Ors. vs. Belize Telecom Ltd. and
Anr. 10• dealt with the implied terms of the contract in the context of the F
Articles of Association of a company. It has been observed as under:

[.,
"16. Before discussing in greater detail the reasoning of the Court
of Appeal, the Board will make some general observations about
the process of implication. The court has no power to improve
upon the instrument which it is called upon to construe, whether it G
be a contract, a statute or articles of association. It cannot
· •· introduce terms to make it fairer or more reasonable. It is concerned
only to discover what the instrument means. However; that
meaning is not necessarily or always what the authors or parties
10
(2009) I WLR 1988
332 SUPREME COURT REPORTS [2017) 14 S.C.R.

A to the document would have intended. It is the meaning which the
instrument would convey to a reasonable person having all the
background knowledge which would reasonably be available to
the audience to whom the instrument is addressed: see Investors
Compensation Scheme Ltd v West Bromwich Building Society
(1998] 1 WLR 896, 912-913. It is this objective meaning which
B
is conventionally called the intention of the parties, or the intention
of Parliament, or the intention of whatever person or body was or
is deemed to have been the author of the instrument.
17. The question of implication arises when the instrument does
not expressly provide for what is to happen when some event
c 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
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
D where it falls.
18. In some cases, however, the reasonable addressee would
understand the instrument to mean something else. He would
consider that the only meaning consistent with the other provisions
of the instrument, read against the relevant background, is that
E something is to happen. The event in question is to affect the
rights of the parties. The instrument may not have expressly said
so, but this is what it must mean. In such a case, it is said that the •
court implies a term as to what will happen if the event in question
occurs. But the implication of the term is not an addition to the
instrument. It only spells out what the instrument means.
F
19. The proposition that the implication ofa term is an exercise in
the construction of the instrument as a whole is not only a matter
oflogic (since a court has no power to alter what the instrument
means) but also well supported by authority. In Trollope & Coils
Ltd v North West Metropolitan Regional Hospital Board (1973] 1
G WLR 601 , 609 Lord Pearson, with whom Lord Guest and Lord
Dip lock agreed, said:
"the court does not make a contract for the parties. The court
will not even improve the contract which the parties have made
for themselves, however desitable the improvement might be.
H
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 333
CORPORATION LIMITED (PSPCL) [SANJAY KISHAN KAUL, J.]

The court's function is to interpret and apply the contract which A
the parties have made for themselves. If the express terms
. are perfectly clear and free from ambiguity, there is no choice
to be made between different possible meanings: the clear
terms must be applied even if the court thinks some other terms
would have been more suitable. An unexpressed term can be B
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 necessary to give business efficacy to the contract, a C
term which, though tacit, formed part of the contract which
the parties made for themselves."
20. More recently, in Equitable Life Assurance Society v Hyman
[2002] l AC 408, 459, Lord Steyn said: "If a term is to be implied,
it could only be a term implied from the language of[the instrument] D
read in its commercial setting."
21. It follows that in every case in which it is said that some
provision ought to be implied in an instrument, the question forthe
court is whether such a provision would spell out in express words
what the instrument, read against the relevant background, would E
reasonably be understood to mean. It will be noticed from Lord
Pearson's speech that this question can be reformulated in various
ways which a court may find helpful in providing an answer-the
implied term must "go without saying", it must be "necessary to
give business efficacy to the contract" and so on-but these are
not in the Board's opinion to be treated as different or additional F
tests. There is only one question: is that what the instrument, read ·
as a whole against the relevant background, would reasonably be
understood to mean?
22. There are dangers in treating these alternative formulations
of the question as if they had a life of their own. Take, for example, G
the question of whether the implied term is "necessary to give
business efficacy" to the contract. That formulation serves to
underline two important points. The first, conveyed by the use of
the word "business'', is that in considering what the instrument
would have meant to a reasonable person who had knowledge of H
334 SUPREME COURT REPORTS [2017) 14 S.C.R.

A the relevant background, one assumes the notional reader will
take into account the practical consequences of deciding that it
means one thing or the other. In the case of an instrument such as
a commercial contract, he will consider whether a different
construction would frustrate the apparent business purpose of the
parties. That was the basis upon which Equitable Life Assurance
B
Society v Hyman [2002) 1 AC 408 was decided. The second,
conveyed by the use of the word "necessary", is that it is not
enough for a court to consider that the implied term expresses
what it would have been reasonable for the parties to agree to. It
must be satisfied that it is what the contract actm1lly means.
c 23. The danger lies, however, in detaching the phrase "necessary
to give bµsiness efficacy" from the basic process of construction
of the instrument. It is frequently the case that a contract may
work perfectly well in the sense that both parties can perform
their express obligations, but the consequences would contradict
D what a reasonable person would understand the contract to mean.
Lord Steyn made this point in the Equitable Life case, at p 459,
when he said that in that case an implication was necessary "to
give effect to the reasonable expectations of the parties".
24. The same point had been made many years earlier by Bowen
E LJ in his well known formulation in The Moorcock (1889) 14 PD
64,68:
"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 all events by
F both parties who are business men ... "
25. Likewise, the requirement that the implied term must "go
without saying" is no more than another way of saying that, although
the instrument does not expressly say so, that is what a reasonable
person would understand it to mean. Any attempt to make more
G
of this requirement runs the risk of diverting attention from the
objectivity which informs the whole process of construction i.nto
speculation about what the actual parties to the contract or authors
(or supposed authors) of the instrument would have thought about
the proposed implication. The imaginary conversation with an
officious bystander in Shirlaw v Southern Foundries ( 1926) Ltd
H
NABHAPOWERLIMITED(NPL)v.Pl)NJABSTATEPOWER 335
CORPORATION LIMITED (PSPCL) [SANJAY KISHAN KAUL, J.]

[ 1939] 2 KB 206 , 227 is celebrated throughout the common law A
world. Like the phrase "necessary to give business efficacy'', it ·
vividly emphasises the need for the court to be satisfied that the
proposed implication spells out what the contact would reasonably
be understood to mean. But it carries the danger of barren •
argument over how the actual parties would have reacted to the B
proposed amendment. That, in the Board's opinion, is irrelevant.
Likewise, it is not necessary that the need for the implied term
should be obvious in the sense of being immediately apparent,
even upon a superficial consideration of the terms of the contract
and the relevant background. The need for an implied term not
infrequently arises when the draftsman ofa complicated instrument C
has omitted to make express provision for some event because
he has not fully thought through the contingencies which might
arise, even though it is obvious after a careful consideration of the
express terms and the background that only one answer would be
consistent with the rest of the instrument. In such circumstances, D
the fact that the actual parties might have said to the officious
bystander "Could you please explain that again?" does not matter.
26. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings
(1977) 180 CLR 266, 282-283 Lord Simon ofGlaisdale, giving
the advice of the majority of the Board, said that it was "[not]
necessary to review exhaustively the authorities on the implication E
of a term in a contract" but that the following conditions ("which
may overlap") must be satisfied: ·
"(1) it must be reasonable and equitable; (2) it must be
necessary to give business efficacy to the contract, so that no
term will be implied ifthe contract is effective witho~t it; (3) it F
must be so obvious that 'it goes without saying' (4) it must be
capable of clear expression; (5) it must not contradict any
express term of the contract:"
27. The Board considers that.this list is best regarded, not as
series of independent tests which must each be surmounted, but G
rather as a collection of different ways in which judges have tried
to express the central idea that the proposed implied term must
spell out what the contract actually means, or in which they have
explained why they did not think that it did so. The Board has.
H
336 SUPREivlE COURT REPORTS [2017] 14 S.C.R.

A already discussed the significance of"necessary to give business
efficacy'' and "goes without saying". As for the other fonnulations,
the fact that the proposed implied term would be inequitable or
unreasonable, or contradict what the patties have expressly said,
or is incapable of clear expression, are all good reasons for saying
that a reasonable man would not have understood that to be what
B
the instrument meant."
46. There were, once again, parallel developments in India during
this period in various High Comts but the views of this Court can be
found expression in Mis. Dhmmljamal Gobindram vs. Mis. Slu11nji
Kalidas and Co.1 1:
c
"19 ..... Commercial documents are sometimes expressed in
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 ofLords in Hillas & Co. v. Arcos Ltd. [(1932)
All ER 494] , and the observations of Lord Wright have become
D classic, and have been quoted with approval both by the Judicial
Committee and the House of Lords ever since. The latest ease of
the House of Lords is Adamastos Shipping Co. Ltd. v. Anglo-
Saxon Petroleum Co. Ltd. [(1959) AC 133] There, the clause
was "This bill oflading", whereas the document to which it referred
E was a charter-party. Viscount Simonds summarised at p. 158 all
the rules applicable to construction of commercial documents, and
laid down that effort should always be made to construe commercial
agreements broadly Pnd one must not be astute to find defects in
them, or reject them as meaningless."

F 47. In The U11io11 ofIndia vs. Mis. D.N. Revri & Co. a11d Ors. 12 •
P.N. Bhagwati, J. (as he then was), speaking for the Bench of two
Judges said in para 7 as under:
"7. It must be remembered that a contract is a commercia I
document between the parties and it must be interpreted in such a
G
manner as to give efficacy to the contract rather than to invalidate
it. lt would not b,· right while interpreting a contract, entered into
between two lay pai ies, to apply strict rules of construction which
are ordinarily applicable to a conveyance and other fom1al
--
11 (1961) 3 SC'R 1020
12
(1976)4SCC 147
H
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 337
CORPORATION LIMITED (PSPCL) [SANJAY KISHAN KA UL, J.]

documents. The meaning of such a contract must be gathered by .•A
adopting a common sense approach and it must not be allowed to
be thwarted by a narrow, pedantic and legalistic interpretation ....."
48. Lastly in Satya Jai11 (Dead) Through LRs. a11d Ors. vs.
A11isAhmed Rushdie (Dead) Through LRs. a11d Ors. 13 , Ranjan Gogoi,
J., elucidated the well established principles of the classic test of business B
efficacy to achieve the result of consequences intended by the parties
acting as prudent businessmen. It was opined as under:
I

"33. The principle ofbusiness efficacy is normally invoked toread
a term in an agreement or contract so as to achieve the result or
the consequence intended by the parties acting as prudent C
businessmen. Business efficacy means the power to produce
intended results. The classic test ofbusiness efficacy was proposed
by Bowen, L.J. in 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 contra\:.t to avoid such a failure of
consideration that the parties cannot as reasonable businessmen D
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 passage from the opinion of Bowen, L.J.
in Moorcock [(1889) LR 14 PD 64 (CA)] sums up the ptsition: E
(PD p, 68)
" ... In business transactions such as this, what the Jaw desires
tQ effect by the implication is to give s,i1ch business efficacy to
the transaction as must have been intended at all events by
both parties who are businessmen; not to impose on one side F
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 ofboth parties that he should be responsible for
in respect of those perils or chances."
/
G
34. Though in an entirely different context, this Court in United
India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajcra.
[(2008) 10 sec 404] had considered the circumstances when
reading an unexpressed term in an agreement would be justified
"(2013) s sec 131
H
338 SUPREME COURT REPORTS [2017] 14 S.C.R.

#;
A on the basis that such a term was always and obviously 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)
B
· "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
c testily suppress him with a common 'Oh, of course!"' Shirlaw
v. Southern Foundries (1926) Ltd. [(1939) 2 KB 206: (1939) 2
All ER 113 (CA)] ,KB p. 227.'

* * *
D ' ... An expressed 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 necessary to give business
E efficacy to the contract, a term which, although tacit, formed
part of the contract which the parties made for themselves.
Trollope and Coils Ltd. v. North West Metropolitan Regl.
Hospital Board [(1973) 1WLR601 : (1973) 2 All ER 260
(HL)] ,All ERp. 268a-b."'
F 35. The business efficacy test, therefore, should be applied only
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.. ... "
pur View:
G
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 test of giving 'business
efficacy' to the transaction, as must have been intended at all events by
H
NABHAPOWERLIMITED(NPL)v. PUNJAB STATE POWER 339
CORPORATION LIMITED (PSPCL) [SANJAYKISHANKAUL, J.]

both business parties. The development oflaw saw the 'five condition A
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' [Shir/aw vs. Southern Foundries (supra)]. This test
has been set out in B.P. Refinery (Westemport) Proprietary Limited
vs. The President Councillors and Ratepayers of the. Shire of B
Hastings (supra) 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., 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. vs. West Bromwich Building C
Society (supra) and Attorney General of Belize and Ors. vs. Belize
Telecom Ltd. and Anr. (supra). 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 o_f a contract are always D
the final word with regards to the intention of the parties. The multi-
clause contract inter se the parties has, thus, to be understood and
interpreted in amanner that any view, on a particular clause ofthe contract,
should not do violence to another part of the contract.,- -
50. The pricing of the coal is, if one may say, the crux of the
problem. It is no doubt true, as contended by the first respondent, that E
while submitting the financial bid, clause 2. 7.1.4(3) of the RFP required
the tariff to be quoted in Format-I of Annexure 4 to be an 'all inclusive
tariff' and provided that no exclusion shall be allowed. This clause has
already been extracted aforesaid. The bidder/appellant was, thus,
required to take into account all costs, including capital and operational F
costs, statutory taxes, etc.. The same clause also provides that the
availability of inputs necessary for generation of power should be ensured
by the seller at the 'Project Site', which must be reflected in the quoted
tariff. The significant aspect is that the working of the contract is on the
basis of 'Project Site'. It has to be, however, simultane~usly kept in
mind that the present project is in the nature of a Case-2 project which G
provides for a fuel specific procurement, having a pre-identified site.
51. The contract did not provide for a fixed energy charge, or a
periodic revision of that charge, as the formula for energy charge was
.designed in such a manner that it would be influenced by the actual cost
H
340 SUPREME COURT REPORTS [2017] 14 S.C.R.

A of coal. Thus, the basis is the actual cost incurred with regards to the
coal. Of course, a major controversy has arisen as to whether the cost
of coal has to be determined on the basis of the purchase price from
SECL at the 'mine-end', when the property is supposed to pass to the
appellant, or whether it is the cost of coal to be used for the plant as
B incurred by the appellant at site of the project, or the 'project-end'.
52. Schedule 7 of the PPA provides for tariff payment and its
computation. The monthly energy charges fonn part of clause 1.2.3 of
the 7rh Schedule. This clause is extracted as under:
"1.2.3 Monthly Energy Charges
c The Monthly Energy Charges for Month "m" shall be calculated
as under:
MEPn = AEOm x MEPn
Where:
D AEOm is the Scheduled Energy during the month m (in kWh)
Monthly Energy Charges
MEPn NHR x pcoAL
n n

PCVn
E where,
NHR n is the Net Heat Rate for the Contract Year in
which month "m" occurs expressed in
kCal/kwh and is equal to the Quoted Net Heat
Rate of the Contract Year in which month "m"
F occurs, as provided in Schedule 11.
pCOAl.
n
is the weighted average actual cost to the Seller
of purchasing, transporting and unloading the
coal most recently supplied to and at the Project
before the beginning of month "m" (expressed
G in Rs./MT in case of domestic coal)
PCV 11 is the weighted average gross calorific value of
the coal most recently delivered to the Project
before the beginning of month "m" expressed
in kcal/kg."
H (emphasis supplied)
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 341
CORPORATION LIMITED (PSPCL) [SAN.TAY KISHA~~ KAUL. J.]

53. The variable component of 'fCOALn 'refers to the 'actual' cost A
to the seller/appellant of the three components, i.e., (a) purchasing; (b)
transporting; and (c) unloading the coal. The first respondent is thus
right that there may be different aspects before the coal is used in the
plant which are not required to be reimbursed by the first respondent.
The illustrations given by the first respondent arc of sizing of coal, crushing B
of coal, sprinkling and moisturisation of coal for stacking and storage,
etc. being activities required to be undertaken prior to generation. Thus,
there is no hesitation in our concluding that in view of the specific formula
provided, only three aspects relatable to coal would determine the
particular co-efficient.
54. These three expressions arc thereafter followed by the
c
stipulation that the coal has to be recently supplied "to and at the project."
The question is, what is the meaning of this expression? The word 'to'
obviously would have reference to transporting while the word 'at' would
have relationship with unloading since it would be 'transporting to' and
'unloading at'. Any other construction will fail to make grammatical D
sense. Not only that, all the three, i.e., purchasing, transporting and
unloading, have a reference to "the Project." Thus, the definition of
fCOA\ is the weighted average actual cost incurred by the appellant of
purchasing the coal and transporting it to the project site and thereafter
unloading the coal at the project site. The fact that the property in coal
passed on to the appellant vis-a-vis SECL, on delivery being taken at the E
mine-end would not change the definition of coal pricing as is required
for the purposes of calculation of the tariff.
55. Mr. Mukul Rohatgi, learned Senior Advocate, thus, rightly took
support of the maxim for interpretation, 'Reddendo Singula Singulis'
This principle is set out as under: .F

"387. Reddendo Singula Singulis principle 14
Where a complex sentence has more than one subject, and more
than one object, it may be the right constrnction to render each
to each, by reading the provision distributively and applying each G
object to its appropriate subject. A similar principle applies to
verbs and their subjects, and to other parts of speech."
56. In 'Principles of Statutory Interpretation' by Justice GP. Singh
14
Francis Bennion - Statutory Interpretation (Butteiworths - 1984, London); (Part
~n~ H
342 SUPREME COURT REPORTS [2017] 14 S.C.R.

A (former Chief Justice, Madhya Pradesh High Court), it has been
expressed as under:
"(e) Reddendo Singula Singulis15
The rule may be stated from an Irish case in the following words
Where there are general words of description, following an
B enumeration of particular things such general words are to be
construed distributively, redden do singula singulis; and ifthe general
words will apply to some things and not to others, the general
words are to be applied to those things to which they will, and not
to those to which they will not apply; that rule is beyond all
c controversy 16". Thus, 'I devise and 'bequeath' all my real and
personal property to A' will be construed, reddendo singula singulis
by applying 'devise' to 'real' property and 'bequeath' to 'personal'
property 17 and in the sentence: 'If any one shall draw or load ant
sword or gun' the word 'draw' is applied to 'sword' only and the
word 'load' to gun only, because it is impossible to load a sword or
D draw a gun. 18 "
57. The aforesaid also refers to Koteswar Vittal Kamath v. K.
Rangappa Bafia & Co. 19, which in tum has referred to the Black's
Interpretation of Laws to define this expression as:

E "Where a sentences in a statue contains several antecedents and
several consequences, they are to be read distributively; that is to
say, each phrase or expression is to be referred to its appropriate
object."
58. We have thus, also endeavoured to read the provision
F
distributively, by applying each object, to the appropriate subject. Thus,
the relevant preposition has been applied to the relevant activity.
59. Once we obtain clarity on the aforesaid formula for calculation
of the energy charges, the prior activity of 'washing', before receiving
the coal at the project site would be part of the pricing of coal and cost
G of purchasing the same. The appellant did seek to obtain clarity on the
" Principles of Statutory Interpretation by Justice GP. Singh (fom1er Chief Justice
M.P. High Court) Fourth Edition 1988
"M'Neill v. Crommelin (1858) 9 IrCLR 61 : 62 Digest, p. 672.
17 OSBORNE: Concise Law Dictionary, p. 269 ·
18 WHARTON: Law Lexicon, 14" Edition, p. 850.

• (1969) 1 sec 255
1
H
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 343
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.]

issue of the quality of coal to be used, to which the first respondent did A
answer that it would have to be 'washed' coal. In fact, this was in
conformity with the Notification issued by the MoEF since the travel
distance was more than 1,000 kilometers. The reference to coal in the
formula would, thus, be only a reference to 'washed' coal and not to
'unwashed' coal. B
60. The appellant has correctly sought to point out that the manner
in which the first respondent seeks to read the definition is different
from the actual definition by giving the following illustration:
"Actual definition in the PPA: pcoA\ is the weighted average
actual cost to the Seller of purchasing, transporting and unloading C
the coal most recently supplied to and at the Project
PSPCL:~ Interpretation: pcoALn is the weighted average actual
cost to the Seller of purchasing unwashed coal, transporting
washed and unloading the washed coal most recently supplied to
and at the Project" D
61. The fact that the clarification made it clear that the appellant
had to "arrange" the washing of coal, did not imply that the cost of
washing the coal had to be borne by the appellant, .as the energy charge
formula alone would have to be referred to for the purposes of calculation
of the coal price. The operating cost in clause 2.7.1.4(3) of the RFP E
would refer to the activities mentioned therein and the operation and
maintenance of the power plant which would not alter the formula of the
energy charges which contains the cost of coal. The principle of'business
efficacy' would also require us to read the 'Monthly Energy Charge~'
formula in a manner as would be normally understood.
F
62. The plea of the first respondent that the fuel supply agreement
and the fuel transportation agreement are part of the 'project documents'
which does not include the component of 'washing', does not hold much
water for the reason that 'washed' coal is a necessity for the project as
a quality requirement for the formula envisaging the requisite quality of
coal to be obtained at the project site and, thus, including all the relevant G
costs up to that quality. The mere term 'coal', therefore, would have to
mean 'washed' coal, as no other type of coal could be used in the matter
at hand. ·
63. Now turning to the transportation cost, once again, what is
sought to be excluded is taking the coal for 'washing' as well as the last H ·
344 SUPREME COlJR'r REPORTS [2017) 14 S.CR.

A mile to the project, on account of the Railway siding not being located at
the project site for a certain specified period of time. It is for that period
of time that the actua 1 transportation cost through road is sought to be
rccowrcd by the appellant.
64. We fail to appreciate as to how these costs can be excluded,
B as the tratbportation costs to the project site have to be compensated to
the appcli<'::t. lt is not qualified by the methodology of transfer, i.e.,
railway-. Vi r"ed. It is also a matter of necessity, since the railway siding
had not reached the project site due to some complications in acquisition
of land. It i, tcally the transportation cost from point to point which
would be im nlved and the mere mention in the RFP under project related
c activily11nikstonc about Railway siding and the Railway lines from nearby
station to site canno: imply that the Railways is the only mode of
transportatir.n when the siding has not been made. albeit on account of
land acqui-;it1l··11 problems.
65. The r~-·,1 c·i' the lir't respondent that despite the absence of
D rail siding.if the apnellant pro.:eeJed to operate the plant. that was their
'business decision·. cannot be sustained for the reason that the project
was set up for obtaining electricity for the first respondent and as a
prudent business decision for both. it would be required to operate the
plant at the earliest. The complication in obtaining land by the State
E Government. cannot imply that the project should be on hold for two
years. causing loss to everyone and bck of availability of electricity.
Such a plea would be in defiance of the very object of the setting up of
the po\Y~r plant.
M. Now turning to the other aspect of the GCV of the coal. If
F the issue is one ofSECL billing for higher Calorific Value while actually
supplying a low Calorific Value of coal, that would be a matter between
the appellant and the SECL and the first respondent cannot be blamed
for the same. That does not take away from the application of the
formula for energy charge which provides for PCV,, as the weighted
average Gross Calorific Value delivered to the project. This Calorific
G Value of coal would have to be. thus. on the same parameter determined
at the project site.
67. On behalfof the first respondent an endeavour has been made
to make a distinction between 'at the site' and 'to the project' in the
definition of fCO•L and PCV . However, this is not of much assistance
H " "
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 345
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.]

to the first respondent, in our view, as delivery 'to the project' could only A
mean 'at the site of the project'. It cannot be at the mine site. In fact,
this is a fundamental issue where the first respondent seems to be altering
the basic concept of the formula by seeking to replace the wordings in
the fo1mula relatable to the project-site to the mine-site.
68. In view of our discussion we have no hesitation in concluding B
that the point at which the Calorific Value of the coal is to be measured
is at the project-site. The plea of the first respondent that there is no ·
such methodology of measuring the Calorific Value at the project-site is
belied by the sample reports of different financial years filed by the
appellant along with the synopsis, which itselfreferred to the joint sampling C
and testing of the coal received and is duly signed by both sides. It is
surprising how such a bald denial was made despite the position existing
at the site. These sample reports are for years 2014, 2015, 2016 and
2017.
69. We arc, thus, of the view that the reading of the energy formula
leads to only one conclusion that all costs of coal up to the point of the D
project site have to be included and the Calorific Value of the coal has to
be taken as at the project-site.
70. We may notice that there are certain other essential costs
sought to be claimed by the appellant such as the transit and handling
losses, third party testing charges, liaising charges. We have already E
held that the formula contains only three elements and thus, the appellant
cannot be permitted to plead that any other clement, other than those
would also incidentally form a part of the formula. In fact, such claims
would be hit by RFP clause 2.7.1.4(3) and the energy charges have to
be calculated only on the basis of the formula understood in a business F
sense. Thus, these claims arc rejected.
71. Last but not the least is the claim for interest. It is undisputed
that no such claim has been laid so far, at any stage. The appellant
claims to rely upon clause 11.3.4 read with clause 11.6.8. We have
extra~tcd the relevant clause aforesaid. No doubt there is a provision
G
for a late payment surcharge in the event of delay in payment of a
monthly bill but in the present case it is not as ifthere arc undisputed bills
remaining unpaid. There were serious disputes regarding the
interpretation of the contractual clauses itself. We do not think that the
present one is a fit case where the principle of compensation for
H
346 SUPREME COURT REPORTS [2017) 14 S.C.R.

A deprivation should enure for the benefit of the appellant as a measure of
restitution. More so as it has not been claimed by them at any stage. It
does appear that this inclusion in the written synopsis docs seem to arise
as canvassed by the learned Senior Advocate for the first respondent on
account of the Tribunal not finding favour with such claim in the remand
B proceedings by reason of no claim being laid towards the same. We arc,
thus, not inclined to grant this claim.
72. We may, however, in the end, extend a word of caution. It
should certainly not be an endeavour of commercial courts to look to
implied terms of contract. In the current day and age, making of contracts
C is a matter of high technical expertise with legal brains from all sides
involved in the process of drafting a contract. It is even preceded by
opportunities of seeking clarifications and doubts so that the parties know
what they arc getting into. Thus, normally a contract should be read as
it reads, as per its express terms. The implied terms is a concept, which
is necessitated only when the Penta-test referred to aforesaid comes
D into play. There has to be a strict necessity for it. In the present case,
we have really only read the contract in the manner it reads. We have
not really read into it any 'implied term' but from the collection of clauses,
come to a· conclusion as to what the contract says. The formula for
energy charges, to our mind, was quite clear. We have only expounded
it in accordance to its natural grammatical contour, keeping in mind the
E nature of the contract.
Conclusion:
73. We, thus, partly allow the appeal to the extent that the appellant
is held entitled to the washing cost of coal, the transportation from the
F mine site via washing of coal to the project site inclusive of cost of road
transportation for the period where it was necessary. The Calorific
Value of the coal would have to be taken at the project site. All other
claims in appeal stand rejected. The amount payable to the appellant as
the consequences thereof be remitted within a period of three (3) months
from the date of this order, failing which it would carry interest@ 12 per
G cent per annum (simple interest). No costs.

Kalpana K. Tripathy Appeal partly allowed.