REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3600 OF 2018 (Arising out of SLP(C) No.23848 of 2017)

M.P. POWER MANAGEMENT COMPANY LTD.          …Appellant

Versus

RENEW CLEAN ENERGY PVT. LTD. & ANR.               ...Respondents

J U D G M E N T

R. BANUMATHI, J.

Leave granted.

2. This appeal arises out of the judgment passed by the High Court

of Madhya Pradesh, Principal Seat at Jabalpur in and by which the High

Court allowed the Writ Petition No.12432 of 2017 setting aside the order

of  termination  of  contract  dated  11.08.2017  while  maintaining  the

appellant's action on invocation of bank guarantee in terms of clause

2.5.1 of the contract.   

3. Brief facts which led to filing of this appeal are as follows:  

The  appellant-M.P.  Power  Management  Company  Ltd.  initiated  the

process of  procurement of  power from Grid Connected Solar  Energy

through  tariff  based  competitive  bidding  for  meeting  its  Renewable

Purchase obligations in the State of Madhya Pradesh.  Accordingly, a

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Request  for  Proposal  (RFP)  dated  06.05.2015  was  issued  by  the

appellant  for  long  term  procurement  of  300  MW  power  from  Grid

connected  Solar  Energy  Sources  through  tariff  based  competitive

bidding.  Out of 100 bidders who participated in the bidding process,

respondent No.1-ReNew Clean Energy Private Ltd. was selected on the

basis of cheaper merit  order rates.  The appellant issued a Letter of

Intent dated 23.10.2015 in favour of respondent No.1 allotting 51 MW

capacity at quoted tariff of Rs.5.457/kwh for twenty five years which was

accepted by respondent No.1 by its consent letter dated 26.10.2015.  A

Power  Purchase  Agreement  (PPA)  dated  10.11.2015  was  executed

between the appellant and respondent No.1 for sale and procurement of

51  MW  solar  power,  for  which,  respondent  No.1  submitted  a  bank

guarantee  from  respondent  No.2-Bank  for  an  amount  of

Rs.15,30,00,000/- valid till January, 2018.    

4. Since respondent No.1 was unable to obtain the requisite land for

establishing  the  power  plant,  respondent  No.1  requested  assistance

from the State Government.  Accordingly, the Collector, District-Rajgarh

by order dated 21.04.2016 allotted 96.73 acres of revenue land to MP

New and Renewable Energy Department for further allotment on lease

to respondent No.1.  This was done by the appellant even though the

land procurement was the obligation of the bidder.    

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5. According to respondent No.1, there were difficulties in accessing

the land, because when measurement of land was taken on 29.06.2016,

it was found encroached and the project team faced heavy resistance,

physical attacks etc. and therefore, respondent No.1 vide its letter dated

29.09.2016 requested the appellant to allow to change of location of the

project.   The  said  permission  sought  for  by  respondent  No.1  was

granted  by  the  appellant  by  its  Resolution  dated  29.12.2016.    The

relevant portion of the Resolution reads as under:-

"Resolved that  condition  for  not  allowing change of  location  after  210 days  from  signing  of  PPA  be  relaxed  and  following  Solar  Power developers be allowed to change the location of their respective project, subject to provision of clause 2.5 and 2.6 of the PPA."

6. After  permission  was  granted  to  change  the  location  of  the

project,  respondent  No.1 purchased lands to an extent  of  about  253

acres in villages Bansara and Pipriya Rai in Ashok Nagar district and

undertook  the  development/construction  activities.   On  10.07.2017,

respondent No.1 wrote to appellant that "commissioning process was in

final  stages  and  we  expect  to  commission  the  plant  on  31.08.2017

(tentative date),  which is  ahead of  scheduled commissioning date of

07.09.2017."   

7. As per clause 2.5.1 of the PPA, a maximum period of nine months

beyond 07.06.2016 for  achieving Conditions Subsequent  enables the

appellant to terminate the agreement if respondent No.1 failed to satisfy

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the Conditions Subsequent by this date along with penalty which was to

be  calculated  as  per  clause  2.5.1  of  the  PPA.   In  the  light  of  the

abovesaid  provisions  of  the  PPA,  the  appellant  by  order  dated

11.08.2017  terminated  the  PPA  and  imposed  a  penalty  of

Rs.11,95,54,200/- on respondent No.1.   Being aggrieved, respondent

No.1 filed Writ Petition No.12432 of 2017 before the High Court praying

that  the  appellant  be  directed  not  to  give  effect  to  termination  and

encashment  of  performance  bank  guarantee.   The  High  Court  vide

impugned judgment  dated 18.08.2017 partly  allowed the writ  petition

setting aside the order of termination of the contract while maintaining

the invocation of the bank guarantee.

8. We have heard the learned counsel appearing for the parties and

perused the impugned judgment and materials on record.   

9. Clause  2.1  of  the  PPA required  respondent  No.1  to  fulfil  all

Conditions Subsequent within a period of 210 days from the effective

date i.e. 06.06.2017, failing which Article 2.5 of the PPA allowed further

extension up to nine months for fulfillment of the Conditions Subsequent

subject to payment of liquidated damages in terms of the PPA.  Clause

2.5 of the PPA reads as follows:-

2.5 DELAY IN ACHIEVING CONDITIONS SUBSEQUENT

2.5.1. In case of  delay in achieving any of  the Conditions Subsequent under clause 2.1 (a to h), as may be applicable, MPPMCL shall

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encash CPG (submitted by Seller @ Rs.30 Lakhs/MW) as under, subject to Force Majeure:

a) Delay from 0-3 months - 1% per week.

b) Delay  from  3-6  months  -  2%  per  week  for  the period exceeding 3 months, apart from (a) above.

c) Delay  from  6-9  months  -  3%  per  week  for  the period exceeding 6 months, apart from (a) and (b) above.

d) In case of delay of more than 9 months, MPPMCL shall terminate PPA and release balance amount of CPG.

10. Since respondent No.1 was unable to obtain the requisite land, on

request by respondent No.1, the State Government allotted 96.73 acres

of  land  at  district  Rajgarh  to  the  appellant  for  being  allotted  to

respondent  No.1  on  lease.   According  to  respondent  No.1,  upon

initiation  of  measurement  and  demarcation  exercise  by  the  revenue

officials, the land was found to be heavily encroached and there was

stiff  resistance  which  continued  every  time respondent  No.1  tried  to

approach  the  said  land  and  therefore,  respondent  No.1  could  not

access the project site and commence any construction activities.  On

request by respondent No.1 by its letter dated 29.09.2016, respondent

No.1  sought  for  change  of  location  of  the  project.   The  Board  of

Directors considered the request of respondent No.1 and by Resolution

dated 29.12.2016 allowed change of location of the project.  Thereafter,

respondent No.1 purchased the land to an extent of 253 acres in village

Bansara and Pipriya Rai in Ashok Nagar district within a period of about

eighty  three  days  from  the  date  of  the  appellant's  approval.   After

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acquiring  the  land,  respondent  No.1  undertook  the  construction

activities and the project in an advanced stage of synchronization as

early  as on 10.07.2017.   The same was notified to the appellant  by

communication dated 10.07.2017 stating that the commissioning of the

project is in final stage and that the expected date of commissioning of

the project is 31.08.2017 which according to respondent No.1 is ahead

of the scheduled commissioning date i.e.  07.09.2017 in terms of  the

PPA.

11. Even  when  respondent  No.1  has  undertaken  the  construction

activities in the changed location and informed the appellant  that the

expected  date  of  commissioning  of  the  project  is  31.08.2017,  the

appellant  terminated the contract  by  its  order  dated 11.08.2017.   As

pointed out by respondent No.1 in its counter affidavit, on 06.06.2016,

respondent No.1 has got sanction of the term debt facility of Rs.267.37

crores from PTC India Financial Services Limited and has spent huge

amount in purchasing the land to an extent of 253 acres in Ashok Nagar

district.   Respondent  No.1  has  also  spent  substantial  amount  in

development  of  the  project  in  the  changed location  and reached an

advanced stage of commissioning the project by 31.08.2017.  The delay

in  commissioning  the  project  appears  to  be  due  to  unavoidable

circumstances like resistance faced at the allotted site in Rajgarh district

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and subsequent change of location of the project. These circumstances,

though not a  Force Majeure event, time taken by respondent No.1 in

change of location and construction of the plant have to be kept in view

for counting the delay.  Having invested huge amount in purchasing the

land and development of the project at Ashok Nagar district and when

the project is in the final stage of commissioning, the termination of the

contract is not fair.   

12. The High Court observed that the delay in completing the project

was only for sixteen days.  But according to the appellant, respondent

No.1 was granted time period of 210 days to complete the Conditions

Subsequent after which the penalty was leviable for the delay and if the

delay exceeded more than nine months, the appellant could terminate

the contract.  According to appellant, the delay was not of sixteen days;

but the said delay of sixteen days is beyond the period of nine months

permissible under the PPA.  In the light of our observations above, we

are not inclined to go into the merits of this contention.  Suffice to note

that in cases of delay, Articles 2.5 and 2.6 provide for levy of penalty.  As

observed by the High Court,  since the contract  permits imposition of

penalty, respondent No.1 is liable to pay penalty in terms of clause 2.5.1

of the PPA for the delay.  But the action of the appellant in terminating

the contract is arbitrary and was rightly set aside by the High Court.

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13. While setting aside the termination of the contract, the High Court

maintained the action of invocation of bank guarantee in terms of clause

2.5.1 of the PPA.  By order dated 22.09.2017, this Court has stayed the

order of  the High Court  subject  to restitution by the appellant  of  the

amount covered by the bank guarantee which has been invoked which

is  said  to  have  been  complied  with  by  the  appellant.   In  our  view,

interest  of  justice would be met by directing respondent  No.1 to pay

penalty amount of Rs.11,95,54,200/- imposed upon respondent No.1 by

the appellant.

14. In the result, the appeal is dismissed.  The respondent No.1 shall

pay the penalty of Rs.11,95,54,200/- to the appellant within a period of

four weeks from the date of this judgment.  No costs.

.…….…………...………J.        [RANJAN GOGOI]

…………….……………J.        [R. BANUMATHI]

New Delhi; April 05, 2018

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