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REPORTABLE          IN THE SUPREME COURT OF INDIA

       CIVIL APPELLATE JURISDICTION

    Civil Appeal No(s).  5943-5945  of  2019  (@SLP(C) Nos. 28719-28721 of 2015)

Indsil Hydro Power & Manganese Ltd         Appellant(s)

                               Versus

State of Kerala & Ors Etc                Respondent(s)

J U D G M E N T

Dr Dhananjaya Y Chandrachud, J

1 Leave granted.

2 These appeals arise from the judgment of a Division Bench of the High

Court  of Kerala dated 21 August 2015. The High Court  has dismissed the writ

proceedings instituted by the appellant  under Article  226 of  the Constitution  of

India.

3 On 7 December 1990, the State of Kerala issued G.O (Ms) No. 23/90/PD

by which private entities were permitted to construct and operate Hydel Power

Projects  for  the  generation  of  power,  subject  to  certain  conditions.  These

conditions, broadly speaking were:

     “  The Private Agencies would be allowed to set up sanctioned

hydel schemes at their own cost.

 Where  the  power  scheme  is  located  in  an  area  owned  by  the

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Respondents, the land would be leased for a period of 30 years from the date of commissioning of the same, after which the land with  all  structures  would  vest  in  the  Government  free  from  all encumbrances.

 The  transmission  line  required  for  transferring  power  from  the captive plant of the agency to the nearest grid sub-station would be built at the cost of the agency by the KSEB  and  after construction  it  would  be  transferred  to  the  KSEB  without  any compensation.

 The captive plant energy fed into the KSEB grid – 12% wheeling charges loss would be delivered free of cost to the agency at their H.T. Terminals.

 The percentage of  12% for  Transmission & Distribution losses, wheeling charges, etc. will  be liable for review by Board during revisions of tariff rates periodically.

 Before implementation of the Scheme, an agreement setting forth all  the  above  aspects  and  such  other  conditions  as  found necessary would be entered into  between the agency and the KSEB.”

4 On 12 March 1992, the State government issued G.O (Ms) No. 5/92/PD

by  which  the  earlier  Government  Order  was  supplemented  in  terms  of  the

following conditions:

                    “

 The power generated by the agencies could be utilized by them in their  own factories/business premises anywhere in the State or could be sold to the KSEB.

 For each project, the rate of purchase of electricity generated will be notional ensuring a minimum rate of return as prescribed by the Government.”

5 The appellant is an EHT consumer with a contract demand of 14000 KVA.

It  has  a  power  intensive  unit  for  the  manufacture  of  Ferro  Alloys  which  was

energized on 12 August 1994. The appellant commenced commercial production

on 1 October 1994.

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6 On 6 February 1992,  the Government of  Kerala provided incentives to

new industrial units by providing an exemption for five years from the payment of

enhanced tariff  of electricity from 1 January 1992. This was made available to

manufacturing units which commenced commercial  production on or before 31

December 1996. The pre-1992 tariff concession was allowed to the appellant for

the period from 1 October 1994 to 30 September 1999.   Pursuant to a policy

decision of the State Government, the appellant was also granted an extension of

the pre-1992 tariff for a further period commencing from 1 October 1999 until 20

August  2000.  From  21  August  2000,  the  appellant  is  being  billed  under  the

prevailing tariff. The pre-1992 tariff was at the rate of Rs 0.42 per unit as against

the cost of thermal power purchased by the Kerala State Electricity Board which

at the material time was Rs 3.30 per unit.

7 In  pursuance  of  the  policy  decision  of  the  State  Government  to  allow

private agencies to set up hydel schemes, the appellant was allowed to set up a

Hydro Electric Project (Kuthungal Phase I & II) at Kuthungal, Idukki District with a

capacity of 21 MW as a captive power project in terms of the Government Order

dated 7 December 1990.  The allotment  of  the hydel project  was confirmed in

favour of the appellant in June and July 1992. An MoU was executed between the

appellant and KSEB in pursuance of which the appellant was to set up a hydel

project at Kuthungal in Idukki District.

Some of the relevant terms of the agreement contemplated that:

“‘Commercial Operation’ i.e. the date on which power generated by the Petitioner is fed into the KSEB Grid, was to be achieved within 30 months  from date  of  execution  of  the  agreement.   A penalty would be levied if the Company was not able to adhere to the above timeline.

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If the Petitioner was not able to adhere to the agreed schedule, for reasons beyond its control, the KSEB may consider the request of the company for a revised schedule.

If the Petitioner is unable to complete the project or after completion is unable to operate the project as per the schedule, the KSEB shall have the right to take over.

The KSEB would build 4 kms of the transmission line required for transferring  power from  the  power  house  to  the  nearest grid/substation at the cost of the Petitioner. The balance would be constructed by the KSEB at its own cost as a promotional measure.

The power generated - 12.0% (Wheeling & Transmission Losses) would be available/delivered to the Petitioner at the EHT Terminals at the point of supply in its installations.

If  the  KSEB  grid  was  not  in  a  position  to  absorb  the  energy generated from the project for any reason beyond the control of the KSEB, the generation from the project  would be restricted to the extent  of  generation  for  captive  consumption  as  directed  by  the KSEB.

In case of  any dispute/difference between the parties,  the matter would be referred to the State Govt. and their decision would be final and binding between the parties.”

8 The agreement  contemplated  that  the  appellant  as  the  project  agency

would operate the unit for a period of 30 years from the date of commissioning.

The date of commissioning was defined to mean the date from which the power

generated by the appellant is fed into the KSEB grid.

9 Clause 3 of the agreement stipulated that the appellant would, upon the

execution of the agreement, submit a programme of construction and installation

so  that  commercial  operation  is  achieved  within  a  period  of  30  months.  The

agreement contemplated that the transmission line required for transferring power

from the power house to the nearest grid sub-station or location as suggested by

KSEB, upto a length of 4 kms, would be built by KSEB at the cost of the appellant.

The rest of the transmission line was to be constructed by KSEB at its own cost.

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10 Clauses 3 and 9 insofar they are material, are extracted below:

“3. The KSEB is entitled to check up, whenever it deems necessary to see whether the conditions stipulated - “in respect of installation, operation and maintenance are being adhered to by the company. The  company  will  furnish,  within  three  months  of  signing  the Agreement,  a  programme  of  construction  and  installation  to  the effect  of  completing  the  project  in  such  a  manner  that  the commercial  operation  (the  term,  “commercial  operation”  in  this context  indicates  the  date  on which the power  generated  by  the company is fed into the KSEB grid) of the project is achieved within 30 (thirty) months from that date…”

***** ***** ***** *****

9.  The transmission  line  required  for  transferring  power  from the power house to the nearest grid, substation and/or other locations as suggested by the KSEB upto a length of 4 (four) km shall, be built by the KSEB at the company, as a deposit work and the balance constructed by the KSEB at its cost as a promotional measure for encouraging the private entrepreneurs for the company by KSEB it shall be transferred to the KSEB without any compensation.  Land required for construction of such transmission line will be considered as  part  of  land  required  for  the  project  as  per  conditions  as elaborated under clause (6) above and the metering equipment as per the specifications of KSEB shall be provided by the company at their  cost at a point in the generating station as approved by the KSEB and handed over to the KSEB along with transmission line, without any compensation.”

11 Clause 10 of the agreement contemplated that the energy from the hydel

units  set  up  by  the  appellant  and  fed  into  the  KSEB grid  less  12% towards

wheeling charges and transmission losses would be delivered free of cost to the

appellant.

12 Clause 12 makes the following provision for a situation where the grid of

KSEB was not in a position to absorb the energy generated from the project:

“12.   If  the  KSEB grid  is  not  in  a  position  to  absorb  the  energy generated  from the  project  for  any  reason  such  as  high  level  of storage in reservoirs, breakdown of transmission lines and/or other reasons beyond the control of KSEB, the generation from the project will  have  to  be  restricted  to  the  extent  of  generation  for  captive consumption  as  directed  by  KSEB.   The  schedule  of  power

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generation from the project shall be as directed by the KSEB.”

13 Clause  25  of  the  agreement  envisaged  that  any  dispute  or  difference

between  the  parties  would  be  referred  to  the  Government  of  Kerala  whose

decision would be final and binding.  

14 On 25 July 1998, the Chief Engineer of KSEB called upon the appellant to

deposit  2.13  crores  for  the  construction  of  4  km  of  the  transmission  line  in

pursuance  of  clause  9  of  the  agreement.  The  amount  was  deposited  by  the

appellant on 5 October 1998.  A further demand of Rs 20,55,075 /- made on 5 May

1999 was also fulfilled.

15 The case of the appellant is that civil  construction work was completed

and one of the three generators was commissioned and synchronised with the

grid on 15 May 2000. There was a delay in the setting up of the transmission lines

without which it was not possible for the hydel unit to inject power into the KSEB

grid. On 20 May 2000 and 30 June 2000, the appellant addressed representations

in  regard  to  the  delay.  According  to  the  appellant,  on  21  August  2000,  the

remaining two generators of the project were also commissioned and a certificate

was issued by the Chief Electrical Inspector of the Government of Kerala.   

16 The delay in the construction of the transmission line led to the institution

by the appellant of a writ  petition under Article 226 of the Constitution of India

before the Kerala High Court.  The reliefs which the appellant sought were in the

following terms:

“a.  Declare that the petitioner is entitled to consume power free of cost at its plant at Palakkad namely Sun Metal and Alloy  Limited  at  Kanjikode  in  Palakkad  and  Indsil

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Electrosmelts Ltd. at Pallatheri in accordance with clause 9 of Exhibit  P2  order  and  clause  10  of  Exhibit  P6  agreement calculated  on  the  basis  of  the  possible  consumption  as mentioned  by  the  Electricity  Board  in  Exhibit  P38  Budget proposal until such time as the Board lays the transmission line and is ready to evacuate the power actually generated from the Kuthungal Hydro Electric project in Kuthungal Idukki District.

b.   Issue  a  writ  in  the  nature  of  mandamus  commanding second respondent to take expeditious steps to see that the transmission  line  required  for  transmission  of  power  from Kuthungal  to  Neriaoiangalam  is  completed  as  early  as possible.

c.  Issue  a  writ  in  the  nature  of  mandamus  commanding respondents 2 and 3 to refrain from collecting any amount from the  petitioner  by  way of  electricity  charges or  related charges for  the  power  consumed by  the  petitioner  and its associate  in  accordance  with  clause  10  of  Exhibit  P6 agreement on the basis of the possible power generation as mentioned in P38 Budget until evacuation of power generated in the project at 21 MW.

d.  Issue a writ in the nature of mandamus commanding the first respondent to take appropriate decision on Exhibit P.26, 35 and 36 representations by taking appropriate directions to the  Board  to  make  available  to  the  petitioner  power  in accordance with  clause 9  of  Exhibit  P2 and Clause 10 of Exhibit P6 agreement.”

17 In pursuance of an interim order passed by the High Court on 31 August

2000, the Chief Electrical Inspector of the Government of Kerala filed a report on

14 September 2000. The Report, insofar as it is material to these proceedings,

states that the installation of transformers was completed by the appellant on 21

August 2000 but the sanction for energization of 110 KV was not issued since the

transmission lines were not  ready.  The Chief  Electrical  Inspector  stated in  his

conclusions  that  except  for  a  pre-commissioning  test  and  other  minor  work,

installation  had  been  completed.  What  remained  to  be  completed  is  the

construction of transmission lines by KSEB.

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      18 The conclusion in the report reads thus:

“Except for the pre-commissioning tests to be done prior to energisation of the 110 KV lines, and minor works connected at the time of pre- commissioning, the installation of the 3 bios of the 7 generators, 11 kv – switch gears 4 Nos. of the 11KV/110KV step-up transformers, 500 KVA uxiliary transformer and the 110kv yard is completed.

The  11  KV  switch  gears,  transformers  and  the  110  KV  yard  are completed and ready for evacuation of power generated simultaneously by the 3 Nos. of 7MW generators installed at Kuthungal only the 110 KV transmission lines are to be connected which is now incomplete. The name  plate  details  of  the  generators,  step-up  transformers  and equipment with 110 KV yard are enclosed for reference.”

19 The High Court of Kerala, by an order dated 1 November 2000, directed

the State Government to deal with the representations submitted by the appellant

in  terms  of  the  dispute  resolution  procedure  contained  in  clause  25  of  the

agreement. The State Government was to decide whether there was any delay in

the construction of the transmission lines by KSEB and to determine the claim of

the appellant for the grant of concessions including a deemed generation status or

an extension of the pre 1992 concessional tariff.

20 Pursuant to the order of the High Court, an order was passed by the State

Government on 7 February 2001. The State opined that:

(i) There was no penal provision in the agreement providing a consequence

for a delay in the completion of the construction of the transmission lines

by KSEB;

(ii) The appellant was not entitled to deemed generation status since this was

neither a concession provided in the agreement nor was the concession

available to an entity such as the appellant which generated power for its

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own consumption;

(iii) The  appellant  was  not  entitled  to  the  benefit  of  the  pre  1992  tariff

concession till the completion of the transmission line by KSEB;

(iv) KSEB had not deliberately delayed the construction and the delay in the

construction of the transmission lines was due to factors beyond its control

including public agitation and the inaccessibility of the terrain;

(v) Tariff concessions are provided to new industries which is a distinct issue

from captive power generation and hence the plea for a tariff concession

could not be acceded to; and

(vi) Having regard to the grievance of the appellant that it had been unable to

evacuate the power which it was positioned to generate for its captive unit,

KSEB ought to adhere to the time schedule which it  had undertaken to

fulfill  and  complete  the  construction  of  the  transmission  lines  by  28

February 2001 without fail.

Accordingly, the State Government directed that:

(i) The appellant shall continue to remit the pre-1992 tariff from August 2000

to February 2001;

(ii) The  difference  between  the  billed  and  the  concessional  tariff  shall  be

remitted to KSEB in 48 equal monthly instalments; and

(iii) The penalties shall be waived.

21 The Writ Petition filed before the High Court was eventually adjudicated

upon in the impugned order of the Division Bench dated 21 August 2015. The

Division Bench held that though the appellant was permitted to put up a captive

power plant in terms of the agreement dated 30 December 1994, the agreement

did not contemplate a situation where the transmission lines will not be ready for

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evacuation of power. The High Court held that there was no intentional delay in

the construction of the transmission lines on the part of KSEB. On whether or not

the concession should be granted to the appellant, the State Government had

already passed an order on 7 February 2001 opining that the tariff concession

was made available only to new industries.  This procedure,  according to the

State  Government,  was not  available to captive power  generation units.  The

High  Court  held  that  this  view  was  not  contrary  to  the  policy  of  the  State

Government. The High Court held that the agreement between the parties did

not disclose any specified time limit for the provision of transmission lines. The

High Court accordingly dismissed the Writ Petition.   

22 Assailing the judgment of the High Court, it has been urged on behalf of

the appellant by Mr V Giri, learned Senior Counsel that acting in pursuance of

the agreement dated 30 December 1994,  the appellant  completed the entire

construction of the two units of the hydel project. Mr Giri urged that the High

Court was not correct in proceeding on the assumption that the agreement did

not  contain a time limit  for  the construction of  the transmission lines.  In  this

context, it was submitted that clause 3 of the agreement obligated the appellant

to furnish a programme of construction within three months of the execution of

the agreement in such a manner that commercial operation was achieved within

30  months  from  that  date.  It  was  urged  that  the  expression  “commercial

operation”  has  been defined  as  the  date  on  which  power  generated  by  the

appellant  is  fed  into  the  KSEB grid.  Mr  Giri  submitted  that  these  provisions

contained in clause 3 of the agreement have to be read in the context of clause

9 under which KSEB assumed the obligation to set up four kilometers of the

transmission line at the cost of the appellant and the balance on its own cost. On

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this basis, it was submitted that it was the obligation of KSEB to achieve the

completion of the installation of transmission lines within the period stipulated by

the  agreement  for  the  commencement  of  commercial  operation  since  in  the

absence  of  the  transmission  lines,  commercial  operation  would  not  become

possible.

23 Mr Giri submitted that clause 9 of the agreement casts an obligation on

KSEB to carry out construction of the transmission lines. Hence, though clause 9

does not expressly provide for a period of completion, it must be read in the

context of clause 3 under which commercial operations, with reference to the

injection of power into the power grid, were to commence within a period of 30

months. Consequently,  it  is  urged that  the duty to complete the transmission

lines must necessarily be fulfilled within the period of 30 months stipulated for

commencement of commercial operation.

24 Mr Giri urged that the failure to complete the construction of transmission

lines  had  a  direct  bearing  on  the  appellant.  If  the  transmission  lines  were

constructed, the appellant would have been in a position to utilise the power

generated by the hydel unit for captive consumption. Instead, the appellant had

to purchase electrical power from KSEB and to pay for the purchase.

25 In this backdrop, it was submitted that the High Court was not justified in

coming to the conclusion that  no period was stipulated for the completion of

transmission lines. Moreover, it was submitted that the finding that the appellant

would  not  be  entitled  to  an  extension  of  the  concessional  tariff  or  deemed

generation  status  would  not  solve  the  issue.   The  appellant  has  to  be

compensated for the situation which has been caused by the default of KSEB.

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26 Mr Giri submitted that even after the State Government passed an order

on 7 February 2001, it is a matter of record that the transmission lines were not

completed by the date envisaged i.e. 28 February 2001.  As a result, evacuation

of power could commence only with effect from 1 June 2001.

27 It  has  been  urged  that  as  a  result  of  the  demand  for  interest  on  the

differential tariff, the appellant will face a serious financial problem. Mr Giri urged

that though the appellant had not taken recourse to the remedy of a civil suit for

the recovery of damages, this was in view of the ongoing relationship with the

State Government and KSEB and it would be appropriate if this Court were to

direct  that  the State Government should reconsider  the matter  afresh having

regard to the grievances of the appellant.

28 Mr  Giri  has  also  urged  that  clause  12  of  the  agreement  specifically

contemplates a situation in which the KSEB grid is not in a position to absorb the

energy generated by the project for any reason, in the event of which, it  has

been provided that the generation from the project will be restricted to the extent

of generation for captive consumption as directed by KSEB.

29 On the other hand, it has been urged on behalf of the KSEB by Mr P V

Dinesh, learned counsel, that in the present case, the contract was a commercial

bargain between the appellant and KSEB.  Learned counsel submitted that in

terms of the policy decision of the State of Kerala, substantial tariff concessions

have already been granted to the appellant initially for a period of  five years

between 1 October 1994 and 30 September 1999 and thereafter by a further

extension until 20 August 2000.  Learned counsel submitted that whereas the

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pre 1992 tariff  to  industries was at  the rate of  Rs 0.42 per  unit,  the  cost  of

thermal power purchased by KSEB is Rs 3.30 per unit.  Hence, the appellant

has paid approximately 19.84 crores on account of the concessional tariff  as

against  an amount  of  Rs  51.32  crores towards energy  charges  alone  which

would not have been possible had the normal rate of tariff been applicable.

30 Moreover, it has been submitted that under the terms of the agreement,

KSEB undertook the obligation to fund a portion of the transmission line over

and  above the  distance  of  4  kms which  was  constructed  at  the  cost  of  the

appellant.  For drawing the entire line of 16.77 kms, KSEB acquired a substantial

tract of land which involved the payment of compensation.   

31 Mr Dinesh urged that as a result of the acquisition, there were protests

from the farmers due to which construction of the towers was delayed. It was

urged that in the order of the State Government dated 7 February 2001, a finding

of  fact  was  recorded  to  the  effect  that  the  delay  in  the  construction  of  the

transmission  lines  was  not  occasioned  by  any  deliberate  act  on  the  part  of

KSEB. In this background, it has been submitted that the appellant which had

pressed its claim for grant of deemed generation status and for a concessional

tariff beyond 20 August 2000 is clearly not entitled to it in law. It was urged that

the deemed generation status cannot  be allowed to the appellant which is  a

captive power unit and, similarly, a concessional tariff is made available to new

industries which had already been availed of by the appellant. In this view of the

matter, it was urged that particularly in the background of the fact that there was

no  deliberate  act  on  the  part  of  KSEB,  the  High  Court  was  not  in  error  in

dismissing the Writ Petition. It was urged that the contract between the parties

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does not envisage any consequence for a delay on the part of KSEB in erecting

the transmission lines and there is no specific provision in regard to the period

within which the transmission lines have to be set up.   

32 Mr C K Sasi, learned counsel appearing on behalf of the State of Kerala

has placed reliance on the decision of the State Government dated 7 February

2001 in  support  of  the  submission  that  relevant  facts  have  been taken  into

account.

33 While assessing the merits of  the rival  contentions, this Court  must be

cognizant of the fact that the invocation of the power of judicial review under

Article 226 of the Constitution of India was in the context of a contract which was

entered into between the appellant and KSEB in pursuance of a policy initiative

of the Government of Kerala. Evidently, in announcing the policy initiative on 7

December 1990, the State Government intended to encourage the setting up of

hydel  power  projects  by private  agencies and hence,  a  slew of  concessions

came  to  be  provided.  The  agreement  that  was  entered  into  between  the

appellant and the KSEB is undoubtedly a matter in the contractual arena.  It is

now a settled principle of law that the exercise of writ jurisdiction under Article

226 is not excluded in matters pertaining to contract. The States and its agencies

are duty bound to act in a manner which is fair and transparent. The State and

its instrumentalities cannot act arbitrarily in dealings with private parties.1  This

must particularly be the governing principle where the State as a measure of

1 Shrilekha Vidyarthi (Kumari) v. State of U.P., (1991) 1 SCC 212 ; ABL International Ltd. v. Export Credit Guarantee  Corpn. of India Ltd., (2004) 3 SCC 553 ; Noble Resources Ltd. v. State of Orissa, (2006) 10 SCC 236

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encouraging  industrialisation  invites  the  participation  of  private  industries  to

respond to the policy initiative of the State.

34 In  the  present  case,  under  its  agreement  with  KSEB  the  appellant

assumed the obligation  to  set  up Phases  I  and II  of  a  hydel  project  with  a

capacity of 21 MW and to operate the project for a period of 30 years. After the

expiry of 30 years, the project would be handed over to the State free of cost.

35 It was in this background that the agreement stipulated that the date of

commissioning would be construed as the date from which the power generated

by the units set up by the appellant was fed into KSEB grid.  Under clause 3 of

the agreement, the appellant was to furnish within three months a programme

for  construction  and  installation  towards  the  completion  of  the  project.

Commercial operation was to be achieved within a period of 30 months from that

date.  Under clause 9 of the contract, KSEB assumed the obligation to set up the

transmission line. Though the contract does not specify the exact length of the

transmission line, clause 9 makes it clear that for a length of 4 kms, construction

would be at the cost and expense of the appellant while the balance would be

constructed by KSEB at its own cost.  While a superficial reading of clause 9

alone  is  liable  to  lead  to  the  interpretation  that  no  time  was  fixed  for  the

completion of the transmission lines, this in our opinion, would not be a correct

reading of the contract. In construing a commercial document, the contract must

be read and understood in its entirety so as to attribute to it a business meaning

which was within the understanding of the contracting parties.

36 Clause  3  postulates  that  commercial  operations  would  begin  within  a

period of 30 months. The only reasonable construction of the contract would be

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that  the  obligations  which  were  to  be  performed  by  KSEB,  namely,  the

construction of the transmission line must necessarily be completed within the

same period. Otherwise imposing an obligation upon the appellant to commence

commercial operations within 30 months would have no meaning. This would

result  in  a specific  term of  the contract  being rendered redundant  which the

Court must as a principle of interpretation seek to avoid. Thus, the reasonable

construction of  the contract would be that the commencement of commercial

operations within 30 months postulated that both the appellant and KSEB must

perform their respective obligations under the contract within that period so as to

adhere  to  the  date  of  commencing  commercial  operations.  Hence,  the  High

Court  was  not  correct  in  coming  to  the  conclusion  that  the contract  did  not

stipulate  any  timelines  for  the  completion  of  the  work  of  constructing  the

transmission line. Such a requirement was implicit in clause 3 of the agreement

and clause 9 must necessarily be read in that context.

37 The submission which has been urged on behalf of KSEB principally relies

on the concessions which have been provided to the appellant in regard to the

tariff  which is  applicable  to  its  industrial  unit.  These concessions,  it  must  be

noted, were available to all  new industries to whom a concessional tariff  was

provided over a period of five years from 1994 to 1999. These concessions were

independent of and would not therefore disentitle the appellant to the benefit of

the agreement that was entered into with KSEB on 30 December 1994.  The

grant of a concessional tariff is a matter of policy to encourage new industries to

set up operations in the State.

38 The claim of the appellant, however, in the present proceedings is based

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upon the contract for setting up a captive power generation unit relying on the

hydel  policy  of  the  State  dated  7  December  1990  in  terms  of  which  the

agreement between the parties was executed.

39 Clause 10 of  the agreement stipulated that the energy drawn from the

hydel units – Phase I  and Phase II  – would be delivered free of  cost to the

appellant less an amount of 12% towards wheeling charges and transmission

losses. Alternatively, it would be banked by KSEB, if the appellant so desired.

KSEB would collect 1% of the energy so banked as its commission.

40 The case of the appellant is that as a result of the inability of KSEB to set

up the transmission lines it was unable to receive the power which it was in a

position  to  evacuate  into  the  grid  for  its  captive  use.  The  grievance  of  the

appellant is that as a result of this, it was compelled to purchase power from

KSEB at the rates as applicable. Clause 12 of the agreement contemplates a

situation  where  the  KSEB  grid  is  not  in  a  position  to  absorb  the  energy

generated  from  the  project  for  any  reason  including  the  breakdown  of

transmission  lines  or  any  other  reason  beyond the  control  of  KSEB.  In  that

event, clause 12 provides that the generation from the project will  have to be

restricted to the extent  of  generation for  captive  consumption as directed by

KSEB. These provisions indicate that the contract is not entirely silent in regard

to  a  situation  involving  the  inability  of  KSEB’s  grid  to  absorb  the  energy

generated from the project for any reason including a reason which is beyond

the control of KSEB.    

                    41 In the present case, the essential facts are not in dispute.

42 Pursuant to the interim order that was passed by the High Court, the Chief

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Electrical Inspector upon inspecting the work of installation submitted a report on

14  September  2000.  The  report  has  not  been  questioned.  The  report

categorically states that the installation of  transformers was completed on 21

August 2000.  The work which remained was in the nature of pre-commissioning

tests for which the work which had to be completed was essentially the laying

down of the 110 KV line on the part of KSEB. The report of the Chief Electrical

inspector makes it clear that it was as a result of the delay which took place in

the construction of the transmission line that the actual injection of power into the

grid could not take place.  There is, in other words, clear and cogent material to

lead to the conclusion that the appellant had duly fulfilled its obligation of setting

up Phase I and Phase II of its units and the only reason why it was unable to

inject power into the grid was because the setting up of the transmission lines by

KSEB could not take place.

43 The order of  the State Government dated 7 February 2001 shows that

there was no deliberate act or default on the part of KSEB.  Indeed, it has not

been seriously disputed that at the material time, there were agitations on the

part of the farmers and certain other circumstances which caused delay in the

construction of the transmission lines. However as significant as these reasons

are, it should not lead to a situation where a private investor who has acted upon

the  policy  of  the  State  Government  being  left  in  the  lurch  as  a  result  of

supervening  circumstances  which  have  resulted  in  the  power  not  being

evacuated into the grid due to the non-commissioning of the transmission lines

at the material time by KSEB. It is imperative that contractual obligations entered

into  by  the  State  have  legal  sanctity.  A legal  regime  where  the  sanctity  of

contracts is respected and commercial contracts are enforced is essential to the

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maintenance of the rule of law. Trade and commerce can be freely conducted in

a stable legal order which provides remedies for enforcement.  

44 At this stage, it is also necessary to note that though in the order of the

State  Government  dated  7  February  2001,  it  was  envisaged  that  the

transmission lines would be constructed and completed by 28 February 2001,

there was a further delay of approximately three months even thereafter as a

result of which the evacuation of power could commence only with effect from 1

June 2001.  On the basis of the factual data which has emerged from the record,

on which there is no dispute, we are hence, of the view that the basis on which

the State Government took a decision on 7 February 2001 and the High Court

affirmed it by its impugned judgment would need to be re-visited in the light of

what we have observed above.

45 We are in agreement with the view of the State Government, as accepted

by the High Court, that the appellant was not entitled to the grant of deemed

generation status as a matter of right.  Similarly, the concessional power tariff

which is applicable for a period of five years from 1994 to 1999 was extended

until 20 August 2000. This is undoubtedly a matter of policy and the High Court

was justified in coming to the conclusion that it is not open to the Court to foist a

particular  measure of  policy on the State.   In  what  manner the State should

remedy the grievance of the private investor is something which should be duly

considered by the State Government within the available framework of law and

its own policy.

46 To facilitate this exercise, we are of the view that it would be appropriate if

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both the State Government and KSEB together re-visit the entire matter afresh

and take an appropriate  decision in  accordance with  law preferably  within  a

period of  four  months from the receipt  of  a certified  copy of  this  order.  The

appellant  would  be  at  liberty  to  supplement  its  earlier  representations  with

whatever, in addition, it may wish to submit before the State Government within

a period of one month of the receipt of a certified copy of this order.

47 We would expect  that  the State Government would now re-assess the

matter in a fair and proper perspective so that the dispute can attain finality with

the ultimate decision.

48 To  facilitate  this  exercise,  we  allow  the  appeals  and  set  aside  the

impugned judgment and order of the High Court dated 21 August 2015.  

49 The appeals shall  accordingly stand disposed of in terms of the above

directions. There shall be no order as to costs.

…..…………................................J.           (Dr  Dhananjaya Y Chandrachud)

.…………………………...............J.              (Indira Banerjee )

New Delhi July 30, 2019

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ITEM NO.22               COURT NO.9               SECTION XI-A

              S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS

Petition(s)  for  Special  Leave  to  Appeal  (C)   No(s).   28719- 28721/2015

(Arising out of impugned final judgment and order dated  21-08-2015 in OP No. 6030/2001 21-08-2015 in OP No. 25360/2000 21-08-2015 in WPC No. 20393/2003 passed by the High Court of Kerala at Ernakulam)

INDSIL HYDRO POWER & MANGANESE LTD.            Petitioner(s)                                 VERSUS

STATE OF KERALA & ANR. ETC.                       Respondent(s)   Date : 30-07-2019 These petitions were called on for hearing today.

CORAM :  HON'BLE DR. JUSTICE D.Y. CHANDRACHUD          HON'BLE MS. JUSTICE INDIRA BANERJEE

For Petitioner(s) Mr V Giri, Sr Adv Mr Joseph Kodianthara, Sr Adv Mr Amit, Adv.

                   Mr R Gopalakrishnan, AOR                     For Respondent(s)   Mr C K Sasi, AOR

Nayantara Roy, Adv Mr Abdulla Naseeh V J, Adv

                   Mr P. V. Dinesh, AOR Ms Sindhu T.P., Adv. Mr Mukund P. Unny, Adv. Mr R S Lakshman, Adv Mr Bineesh K, Adv Mr Ashwini Kumar Singh, Adv

Ms Bina Madhavan, Adv Ms Anthony Elizabeth, Adv Ms Akanksha Mehra, Adv

                   for M/S.  Lawyer S Knit & Co, AOR               

         UPON hearing the counsel the Court made the following                              O R D E R

Leave granted.

The appeals are disposed of in terms of the signed reportable

judgment.

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Pending application(s), if any, shall stand disposed of.

(MANISH SETHI)                                  (SAROJ KUMARI GAUR) COURT MASTER (SH)                                  BRANCH OFFICER

(Signed reportable judgment is placed on the file)