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REPORTABLE

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL NO.11133 OF 2011

M/S ADANI POWER (MUNDRA) LTD.    .... APPELLANT(S)

                          VERSUS  

GUJARAT ELECTRICITY REGULATORY  COMMISSION AND ORS.    ....RESPONDENT(S)

J U D G M E N T  

B.R. GAVAI, J.

1. The  appellant  has  approached  this  Court  being

aggrieved by the judgment and order passed by the Appellate

Tribunal  for  Electricity  (“the  Appellate  Tribunal”  for

short) in Appeal No. 184 of 2010 dated 07.09.2011 thereby

dismissing the appeal filed by the present appellant and

confirming the judgment and order passed by the Gujarat

Electricity  Regulatory  Commission  (“the  Commission”  for

short) dated 31.08.2010.

2. The facts in brief giving rise to the present appeal

are as under.

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Respondent No. 2, namely, Gujarat Urja Vikas Nigam

Ltd.  (hereinafter  referred  to  as  “the  procurer”)  is  a

holding company engaged in the business of bulk purchases

from the power generators and supply to the distribution

companies  in  the  State  of  Gujarat.  On  01.02.2006,  the

procurer initiated the process of bidding for supply of

power  on  long  term  basis,  by  issuing  a  Request  For

Qualification (“RFQ” for short). Three separate bids for

purchase  of  power  in  accordance  with  the  provisions  of

Section 63 of the Electricity Act, 2003 were invited. Each

of  the  three  bids  envisaged  purchase  of  power  to  the

maximum extent of 2000 Mega Watt (“MW” for short).  The RFQ

was followed by Request For Proposal (“RFP” for short) on

24.11.2006.   The  present  matter  concerns  bid  No.  2  in

respect of which the appellant was selected as a successful

bidder.

3. On  being  successful  in  the  bidding  process,  the

procurer issued a Letter of Intent (“LOI” for short) in

respect of bid no. 2, to the appellant on 11.01.2007 for

supplying 1000 MW power at the rate of Rs. 2.35 per Kwh.

Consequently,  the  Power  Purchase  Agreement  (“PPA”  for

short) came to be entered into between the procurer and the

appellant, for purchase and sale of 1000 MW power from the

appellant’s power project at Korba, Chhatisgarh, at the

delivery point at Nani Khakhar in the State of Gujarat.

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Similarly, on 06.02.2007 another PPA came to be executed by

the procurer with the appellant in respect of bid No. 1,

which project was to be executed by using imported coal.

The rate determined was Rs. 2.89 per unit in respect of bid

No. 1.

4. On  12.02.2007,  the  appellant  informed  the  procurer

that it would supply power against bid No. 2, from Mundra

Power Project in Gujarat instead of Chhatisgarh Project.

Accordingly, a supplemental PPA was entered into between

the appellant and the procurer on 18.04.2007, to off take

the contracted capacity of 1000 MW against bid No. 2, from

Mundra Power Project.

5.  The appellant contended  that, the bid submitted by

it  in  respect  of  bid  No.  2  was  on  the  basis  of  the

assurance given by Gujarat Mineral Development Corporation

(“GMDC” for short) to supply 4 million tonnes of coal.  It

also contended that, the GMDC was not abiding by the said

assurance.  So  it  addressed  a  communication  to  the

Government of Gujarat on 21.05.2007 to find out a solution.

Since the Fuel Supply Agreement (“FSA” for short) could not

be executed, as contemplated between the appellant and the

GMDC;  the  appellant  informed  the  procurer  that  the  FSA

between it and the GMDC had not yet been finalized. Again,

a communication came to be addressed by the appellant on

01.05.2008 to the Government of Gujarat, requesting it to

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impress upon the GMDC to adhere to its assurance and supply

the coal from the coal blocks allocated to the GMDC. The

procurer, thereafter, in the month of June, 2008, addressed

a communication to the appellants stating that, since it

had not complied with certain conditions stipulated in the

PPA  and  as  such,  it  should  furnish  an  additional

performance bank guarantee. The appellant addressed another

communication to the procurer on 17.01.2009, reiterating

its inability to supply the power to the procurer in the

absence of FSA with GMDC. It also informed that it had no

other option except to terminate the PPA.  On 27.02.2009,

the Government of Gujarat wrote to the GMDC, asking it to

supply coal to the appellant from Naini block.

6.    It appears that there was a dispute between the

appellant and the GMDC with regard to certain terms and

conditions of the FSA and as such the FSA could not be

finalized.  The record would further reveal, that there was

a long correspondence between the Government of Gujarat,

the GMDC, the procurer and the appellant with regard to the

commitment by the GMDC to supply coal to the appellant in

respect of bid No. 2 and non-adherence by the GMDC to abide

by  the  said  commitment.  The  appellant  addressed  a

communication dated 15.11.2008 specifically informing the

procurer that the bid was on the basis of the assurance by

the GMDC to supply coal. It also informed the procurer that

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though  it  was  in  a  position  to  comply  with  all  other

conditions subsequent but they are unable to execute the

FSA  since  the  GMDC  had  not  cooperated  in  the  matter.

Another communication was addressed by the appellant on

17.01.2009 reiterating that in the absence of FSA with the

GMDC, the appellant will not be in a position to supply

contracted capacity of power to GUVNL/the procurer in the

absence of FSA with the GMDC. It further informed that the

appellant shall have no other option than to terminate the

PPA unless the coal supply comes from the GMDC from Morga-

II coal block. However, it appears that, thereafter, there

was an attempt to amicably settle the matter between the

appellant, the procurer, the GMDC as well as the Government

of Gujarat. As such, the appellant addressed communication

dated 28.04.2009 keeping its notices dated 15.11.2008 and

17.01.2009 in abeyance till the matter was resolved between

the  appellant  and  the  GMDC/Government  of  Gujarat.  It,

however, appears that the said attempts were not fruitful.

Finally, the appellant by a communication dated 28.12.2009,

issued notice to the procurer, terminating the PPA with

effect  from  04.01.2010.  The  procurer  addressed  a

communication to the Government of Gujarat on 30.12.2009,

requesting the Government to impress upon the appellant to

withdraw its termination notice dated 28.12.2009 and also

impress  upon  the  GMDC  for  resolution  of  FSA  with  the

appellant. The procurer also addressed a communication to

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the  appellant  on  05.01.2010,  requesting  it  to  keep  the

notice  of  termination  dated  28.12.2009  in  abeyance.  On

06.01.2010, the appellant addressed another communication

to the procurer, informing it that since the period of

termination has already expired, the PPA stands terminated

with effect from 4.01.2010.  The appellant also deposited

an  amount  of  Rs.  25  crores  with  the  procurer  towards

liquidated  damages  in  addition  to  the  performance  bank

guarantee of Rs. 75 crores, which was already with the

procurer. On 13.01.2010 the procurer sent a letter to the

appellant,  returning  the  amount  of  Rs.  25  crores  and

calling  upon  it  to  withdraw  the  termination  notice.

However, the appellant asserted that termination was valid.

7. The  procurer,  thereafter,  filed  a  petition  under

Sections 86(1)(f) and 95 of the Electricity Act, 2003, for

adjudication of the dispute between the procurer and the

appellant  on  01.02.2010  before  the  Commission.  The

Commission by its judgment dated 31.08.2010 allowed the

petition of the procurer,  holding that the termination of

the PPA was illegal and directed the appellant herein to

supply the power to the procurer at the rate determined in

the PPA.  Being aggrieved, the appellant approached the

Appellate Tribunal for Electricity.  By the judgment and

order  impugned  dated  07.09.2011,  the  Appellate  Tribunal

dismissed the appeal. Hence, the present appeal.

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8. We have heard Mr. Gopal Jain, learned senior counsel

for  the  appellant,  and  Mr.  M.G.  Ramachandran,  learned

senior counsel for the respondent(s).

9. The main contention raised on behalf of the appellant

is that the bid which was submitted by the appellant in

respect of bid No. 2 was on the basis of the commitment

given to it by the GMDC that it will supply the coal. It is

submitted that the PPA executed between the appellant and

the procurer was on the premise that the GMDC would abide

by its commitment. It is also submitted that since the GMDC

had failed to abide by its commitment and had not executed

the FSA with the appellant, there was a non-compliance with

the conditions stipulated in Article 3.1.2 of the PPA and

therefore  the  appellant  was  entitled  to  terminate  the

agreement, by giving 7 days notice in writing in accordance

with the provisions of Article 3.4.2 of the PPA. So the

only liability of the appellant was to pay the liquidated

damages at the rate of Rs. 10 lakhs per Mega Watt of the

contracted capacity, which is worked out to Rs. 100 crores

for 1000 MW.

10. It  is  the  submission  of  Mr.  Jain,  learned  senior

counsel, that the Commission and the Appellate Tribunal

have grossly erred in holding that unless there was an

agreement between the parties to the effect that there was

non-compliance  with  the  conditions  mentioned  in  Article

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3.1.2 of the PPA, the appellant was not entitled to invoke

the  provisions  of  Article  3.4.2  of  the  PPA.  Mr.  Jain

further submitted that since the contract also provided for

liquidated damages, the Commission as well the Appellate

Tribunal, ought not to have given a direction for specific

performance.  Reliance  in  this  respect  is  placed  on  the

judgments  of  this  Court  in  the  case  of  Indian  Oil

Corporation  vs.  Amritsar Gas Services Ltd., (1991) 1 SCC

533 and Her Highness Maharani Shanti Devi Gaekwad  vs.

Savji Haribhai Patel & Ors. (2001) 5 SCC 101.

11. Mr. Jain further submitted that the Appellate Tribunal

by  the  impugned  judgment  has  varied  the  terms  of  the

contract  executed  between  the  parties,  which  is  not

permissible in law. Reliance in this respect is placed on

the judgments of this Court in the case of Vermagiri  vs.

Transco,  2007 SCC On Line APTEL 107 and  Gujarat Urja

Vikas Nigam Ltd.  vs. Solar Semiconductor Power Company,

(2017) 16 SCC 498.

12. Per contra, Mr. Ramachandran, learned senior counsel

appearing on behalf of the procurer, would submit that the

PPA which was entered into between the parties, was not

executed on the basis of commitment by the GMDC. He submits

that the procurer is not concerned with the issue as to

from where the appellant would arrange for its supply of

coal.  The PPA between the appellant and the procurer is

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only in respect of supply of power. It is submitted that on

the GMDC's failure to adhere to its commitment to supply

indigenous coal, it was the responsibility of the appellant

to make arrangement for an alternative source and to enter

into FSA with any other coal supplier. It is submitted that

as a matter of fact, the appellant is importing the coal

from other nations and using it for generation of power,

both for the plant under bid No. 1 and the plant under bid

No. 2. Shri Ramachandran, learned senior counsel, further

submits that, by not making arrangements for fuel supply,

it  is  the  appellant  who  had  committed  default  and,

therefore,  a  party  in  default  cannot  be  permitted  to

terminate the agreement. Reliance in this respect is placed

on various judgments of English Courts as well as this

Court. Reliance is also placed on various judgments of this

Court, in support of the proposition that in spite of the

provision of liquidated damages in the PPA, the courts are

not  powerless  to  direct  a  specific  performance  of  the

contract.

13. Shri Ramachandran further submitted that the contract

is required to be read as a whole and the provisions of the

contract  cannot  be  read  in  isolation.  He,  therefore,

submits  that  the  Commission  as  well  as  the  Appellate

Tribunal has rightly held that Article 3.4.2 and Article

14.1 and Article 14.2 have to be read together. Thus, no

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fault  could  be  found  with  the  reasoning  given  by  the

Commission  as  well  as  the  Appellate  Tribunal.   Learned

senior counsel, therefore, submits that the appeal has no

merit and deserves to be dismissed.

14. For  appraising  the  rival  submissions  it  would  be

necessary to refer to certain clauses of the PPA:

The relevant part of Article 3 reads thus:  

“3.  Article  3:  CONDITIONS  SUBSEQUENT  TO  BE SATISFIED BY THE SELLER AND THE PROCURER

3.1 Satisfaction of conditions subsequent by the Seller

3.1.1 xxx

3.1.2The  seller  agrees  and  undertakes  to  duly perform and complete the following activities within  (i)  Twelve  (12)  Months  from  the Effective Date or (ii) Fourteen (14) Months from the date of issue of Letter of Intent, whichever is later, unless such completion is affected  due  to  the  Procurer’s  failure  to comply  with  its  obligations  under  this Agreement or by any Force Majeure event or if any of the activities is specifically waived in writing by the Procurer :

i.   xxx

ii.the Seller shall have executed Fuel Supply Agreement and provided the copies of the same to the Procurer.”

The relevant part of Article 3.4 reads thus:  

“3.4 Consequences of non-fulfilment of conditions under Article 3.1

3.4.1  xxx

3.4.2 Subject to Article 3.4.3, if:

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(i) fulfilment of any of the conditions specified in Article 3.1.2 is delayed beyond the period of three (3) Months and the Seller fails to furnish any additional Performance Guarantee to the Procurer in accordance with Article 3.4.1 hereof; or

(ii) the Seller furnishes additional Performance Guarantee to the Procurer in accordance with Article 3.4.1 hereof but fails to fulfil the conditions specified in Article 3.1.2 for a period of eight (8) months beyond the period specified therein, the  procurer  or  the Seller shall have the right to terminate this Agreement by giving a notice to the Seller/ Procurer  in  writing  of  at  least  seven  (7) days.

If  the  Procurer  or  the  Seller  elects  to terminate  this  Agreement  in  the  event specified in the preceding paragraph of this Article 3.4.2, the Seller shall be liable to pay to the Procurer an amount equivalent to Rupees  Rs.  10.00  lakhs  per  MW  of  the Contracted  Capacity  as  liquidated  damages. The  Procurer  shall  be  entitled  to  recover this  amount  of  damages  by  invoking  the Performance  Guarantee  to  the  extent  of  an amount equivalent to Rupees 10.00 lakhs per MW of the Contracted Capacity and shall then return the balance Performance Guarantee, if any, to the Seller. If the Procurer is unable to  recover  the  said  amount  or  any  part thereof  from  the  Performance  Guarantee  the amount  not  recovered  from  the  Performance Guarantee, if any, shall be payable by the Seller to the Procurer within ten (10) days from the end of eight (8) Months period from the  due  date  of  completion  of  conditions subsequent. It is clarified for removal of doubt  that  this  Article  shall  survive  the termination of this Agreement.

3.4.3In case of inability to the Seller to fulfil the conditions specified in Article 3.1.2 due to any Force Majeure event, the time period for fulfilment of the Condition Subsequent as mentioned in Article 3.1.2, shall be extended for the period of such Force Majeure event, subject to a maximum extension period of ten (10) Months, continuous or non-continuous in aggregate. Thereafter, this Agreement may be

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terminated by the Procurer or the Seller by giving a notice of at least seven (7) days, in writing to the Other Party.”

Since both the Commission and the Appellate Tribunal

have referred to Article 14, we also reproduce the same.

“14.  ARTICLE  14  :  EVENTS  OF  DEFAULT  AND TERMINATION

14.1 Seller Event of Default

The  occurrence  and  continuation  of  any  of  the following events, unless any such event occurs as a result of a Force Majeure Event or a breach by Procurer  of  their  obligations  under  this Agreement,  shall  constitute  a  Seller  Event  of Default:

i) the failure to Commission any Unit by  the date  falling  twelve  (12)  Months  after  its Scheduled Commercial Operation Date, or

ii) after  the  commencement  of  construction  of the Project, the abandonment by the Seller or the Seller’s Construction Contractors of the  construction  of  the  Project  for  a continuous period of two (2) Months and such default is not rectified within thirty (30) days from the receipt of first notice from the Procurer in this regard, or

iii) if  at  any  time  following  a  Unit  being Commissioned and during its retest, as per Article  8,  such  Unit’s  Tested  Capacity  is less than ninety two (92) per cent of its Rated Capacity, as existing on the Effective Date, and such Tested Capacity remain below ninety two (92) percent even for a period of three  (3)  Months  thereafter  and  also  the Seller is unable to make available the full Contracted  Capacity  at  the  Delivery  Point from the Tested Capacity of the Unit(s) of the Power Station; or

iv) after  Commercial  Operation  Date  of Contracted  Capacity,  the  Seller  fails  to achieve Average Availability of sixty five per cent (65%), for a period of twelve (12) consecutive  Months  or  within  a  non- consecutive  period  of  twelve  (12)  Months

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within  any  continuous  aggregate  period  of thirty six (36) Months, or

v) the Seller fails to make any payment (a) of an  amount  exceeding  Rupees  One  (1)  Crore required to be made to Procurer under this Agreement, within three (3) Months after the Due Date of an undisputed invoice / demand raised by the Procurer on the Seller or (b) of  an  amount  upto  Rupees  One  (1)  Crore required to be made to Procurer under this Agreement  within  six  (6)  Months  after  the Due Date of an undisputed invoice / demand, or

vi) any  of  the  representations  and  warranties made by the Seller in Schedule 10 of this Agreement;  being  found  to  be  untrue  or inaccurate.  Further,  in  addition  to  the above, any of the undertakings submitted by the Seller at the time of submission of the Bid  being  found  to  be  breached  or inaccurate,  including  but  not  limited  to undertakings  from  its  parent company/affiliates  related  to  the  minimum equity  obligation;  Provided  however,  prior to  considering  any  event  specified  under this sub-article to be an Event of Default, the  Procurer  shall  give  a  notice  to  the Seller in writing of at least thirty (30) days, or

vii) if the Seller :

a) assigns or purports to assign any of its assets  or  rights  in  violation  of  this Agreement; or

b) transfers or novates any of its rights and / or obligations under this agreement, in violation of this Agreement; or

viii)if  (a)  the  Seller  becomes  voluntarily  or involuntarily the subject of any bankruptcy or insolvency or winding up proceedings and such  proceedings  remain  uncontested  for  a period  of  thirty  (30)  days,  or  (b)  any winding up or bankruptcy or insolvency order is  passed  against  the  Seller,  or  (c)  the Seller goes into liquidation or dissolution or  has  a  receiver  or  any  similar  officer appointed over all or substantially all of its  assets  or  official  liquidator  is appointed to manage its affairs, pursuant to

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Law,  except  where  such  dissolution  or liquidation of the Seller is for the purpose of a merger, consolidation or reorganization and  where  the  resulting  entity  has  the financial  standing  to  perform  its obligations  under  this  Agreement  and creditworthiness similar to the Seller and expressly  assumes  all  obligations  of  the Seller  under  this  Agreement  and  is  in  a position to perform them; or

ix) the  Seller  repudiates  this  Agreement  and does not rectify such breach even within a period  of  thirty  (30)  days  from  a  notice from the Procurer in this regard; or

x) except  where  due  to  Procurer’s  failure  to comply  with  its  material  obligations,  the Seller is in breach of any of its material obligations pursuant to this Agreement or of any of the RFP Documents where the Procurer and  Seller  are  parties,  and  such  material breach is not rectified by the Seller within thirty (30) days of receipt of first notice in this regard given by the Procurer to the Seller;

xi) the  Seller  fails  to  complete/fulfill  the activities /conditions specified in Article 3.1.2, beyond a period of 8 Months from the specified  period  in  Article  3.1.2  and  the right of termination under Article 3.4.2 is invoked by the Procurer; or

xii) any  direct  or  indirect  change  in  the shareholding of the Seller in contravention of the terms of the Bid RFP Documents; or

xiii)The Seller fails to provide additional bank guarantee to the Procurer in accordance with Article 3.4.1 of this Agreement, or

xiv) Occurrence  of  any  other  event  that  is specified in this Agreement to be a material breach / default of the Seller.

14.2 Procurer Event of Default

The occurrence and the continuation of any of the following events, unless any such event occurs as a result of a Force Majeure Event or a breach by the  Seller  of  its  obligations  under  this Agreement, shall constitute the Event of Default on the part of the Procurer:

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i) the Procurer fails to pay (with respect to a Monthly  Bill  or  a  Supplementary  Bill)  an amount  exceeding  15%  of  the  most  recent undisputed  Monthly  Bill  for  a  period  of ninety (90) days after the Due Date and the Seller  is  unable  to  recover  the  amount outstanding  to  the  Seller  through  the Collateral Arrangement and Letter of Credit; or

ii) the Procurer repudiates this Agreement and does not rectify such breach even within a period  of  thirty  (30)  days  from  a  notice from the Seller in this regard; or

iii) except where due to any Seller’s failure to comply with its obligations, the Procurer is in material breach of any of its obligations pursuant to this Agreement or of any of the RFP  Documents  where  the  Procurer  and  the Seller are Parties, and such material breach is  not  rectified  by  the  Procurer  within thirty  (30)  days  of  receipt  of  notice  in this regard from the Seller to the Procurer; or

iv) any  representation  and  warranties  made  by any of the Procurer in Schedule 9 of this Agreement  being  found  to  be  untrue  or inaccurate.  Provided  however,  prior  to considering any event specified under this sub-article to be an Event of Default, the Seller shall give a notice to the concerned Procurer in writing of at least thirty (30) days; or

v) if (a) the Procurer becomes voluntarily or involuntarily the subject of any bankruptcy or insolvency or winding up proceedings and such  proceedings  remain  uncontested  for  a period  of  thirty  (30)  days,  or  (b)  any winding up or bankruptcy or insolvency order is passed against the Procurer, or (c) the Procurer  goes  into  liquidation  or dissolution or has a receiver or any similar officer appointed over all or substantially all of its assets or official liquidator is appointed to manage its affairs, pursuant to Law,  except  where  such  dissolution  or liquidation  of  the  Procurer  is  for  the purpose  of  a  merger,  consolidation  or reorganization  and  where  the  resulting entity has the financial standing to perform

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its obligations under this Agreement and has creditworthiness similar to the Procurer and expressly  assumes  all  obligations  of  the Procurer under this Agreement and is in a position to perform them; or;

vi) occurrence  of  any  other  event  which  is specified in this Agreement to be a material breach or default of the Procurer.

14.3 Procedure  for  cases  of  Seller  Event  of Default

14.3.1 Upon the occurrence and continuation of any Seller Event of Default under Article 14.1, the Procurer shall have the right to deliver  to  the  Seller  a  Procurer Preliminary  Default  Notice,  which  shall specify  in  reasonable  detail,  the circumstances giving rise to the issue of such notice.

14.3.2 Following  the  issue  of  Procurer Preliminary  Default  Notice,  the Consultation Period of ninety (90) days or such  longer  period  as  the  Parties  may agree, shall apply.

14.3.3 During  the  Consultation  Period,  the Parties shall, save as otherwise provided in  this  Agreement,  continue  to  perform their  respective  obligations  under  this Agreement.

14.3.4 After a period of seven (7) days following the expiry of the Consultation Period and unless  the  Parties  shall  have  otherwise agreed to the contrary or the Seller Event of Default giving rise to the Consultation Period shall have been remedied and,

(a) in case the Contracted Capacity from a Power Station is less than 50% of the installed  capacity  of  such  Power Station,  the  Procurer  may  terminate this  Agreement.  Provided  such  seller shall  have  the  liability  to  make payments for Capacity Charges based on Normative Availability to the Procurer for  the  period  three  (3)  years  from the eighth day after the expiry of the Consultation  Period.  Provided  further that  at  the  end  of  the  three  year

17

period,  this  Agreement  shall automatically  terminate  and thereafter,  the  Seller  shall  have  no further  Capacity  Charge  liability towards  the  Procurer.  Provided further,  the  Procurer  shall  have  the right to terminate this Agreement even before the expiry of such three year period  provided  on  such  termination, the  future  Capacity  Charge  liability of the Seller shall cease immediately.

(b) in case the Contracted Capacity from a Power Station is more than or equal to 50% of the installed capacity of such Power  Station,  the  Lenders  may exercise  or  the  Procurer  may  require the  Lenders  to  exercise  their substitution  rights  and  other  rights provided  to  them,  if  any,  under Financing Agreements and the Procurer would have no objection to the Lenders exercising  their  rights  if  it  is  in consonance with provisions of Schedule 14. Alternatively, in case the Lenders do  not  exercise  their  rights  as mentioned  herein  above,  the  Capacity Charge of the Seller shall be reduced by 20% for the period of Seller Event of  Default  and  the  Procurer  may terminate  this  Agreement  and  the provisions of Article 14.3.4 (a) shall apply mutatis mutandis.

14.4    Termination  for  Procurer  Events  of Default

14.4.1 Upon  the  occurrence  and  continuation  of any Procurer Event of Default pursuant to Article 14.2 (i), the seller shall follow the  remedies  provided  under  Article 11.5.2.

14.4.2 Without in any manner affecting the rights of the Seller under Article 14.4.1, on the occurrence  of  any  Procurer  Event  of Default  specified  in  Article  14.2  the Seller shall have the right to deliver to the Procurer a Seller Preliminary Default Notice,  which  notice  shall  specify  in

18

reasonable detail the circumstances giving rise to its issue.

14.4.3 Following  the  issue  of  a  Seller Preliminary  Default  Notice,  the Consultation Period of ninety (90) days or such  longer  period  as  the  Parties  may agree, shall apply.

14.4.4 During  the  Consultation  Period,  the Parties  shall  continue  to  perform  their respective  obligations  under  this Agreement.

14.4.5. (i) After a period of seven (7) days following the expiry of the Consultation Period and unless the Parties shall have otherwise agreed to the contrary or the Procurer Event of Default giving rise to the  Consultation  Period  shall  have  been remedied, the Seller shall be free to sell the  Contracted  Capacity  and  associated Available Capacity to any third party of his  choice.  Provided  the  Procurer  shall have the liability to make payments for Capacity  Charges  based  on  Normative Availability to the Seller for the period three (3) years from the eighth day after the  expiry  of  the  Consultation  Period. Provided further that in such three year period, in case the Seller is able to sell electricity to any third party at a net price at the Delivery Point which is in excess of the Energy Charges, then such excess  realization  will  reduce  the Capacity  Charge  payments  due  from  the Procurer. For the avoidance of doubt, the above excess adjustment would be applied on a cumulative basis for the three-year period.  During  such  period,  the  Seller shall  use  its  best  effort  to  sell  the Contracted  Capacity  and  associated Available Capacity generated or capable of being generated to such third parties at

19

the most reasonable terms available in the market at such time, having due regard to the  circumstances  at  such  time  and  the pricing of electricity in the market at such  time.  Provided  further,  the  Seller shall  ensure  that  sale  of  power  to  the shareholders of the Seller or any direct or  indirect  affiliate  of  the Seller/shareholders of the Seller, is not at a price less than the Tariff, without obtaining the prior written consent of the Procurer. Such request for consent would be responded to within a maximum period of three (3) days failing which it would be deemed  that  the  Procurer  has  given  his consent. Provided further that at the end of the three-year period, this Agreement shall  automatically  terminate  and thereafter,  the  Procurer  shall  have  no further Capacity Charge liability towards the Seller. Provided further, the Seller shall  have  the  right  to  terminate  this Agreement even before the expiry of such three  year  period  provided  on  such termination,  the  future  Capacity  Charge liability  of  the  Procurer  shall  cease immediately."

15. Before we proceed to consider the rival submissions,

it will be appropriate to refer to certain judgments of

this Court on the interpretation of clauses of the contract

between the parties.

16. This Court in the case of Rajasthan State Industrial

Development  and  Investment  Corporation  and  Anr.  vs.

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Diamond & Gem Development Corporation Ltd. & Anr. reported

in (2013) 5 SCC 470 observed thus:

“23.   A party cannot claim anything more than what is covered by the terms of contract, for the reason that contract is a transaction between the two parties and has been entered into with open eyes and understanding the nature of contract. Thus, contract being a creature of an agreement between  two  or  more  parties,  has  to  be interpreted giving literal meaning unless, there is some ambiguity therein. The contract is to be interpreted  giving  the  actual  meaning  to  the words contained in the contract and it is not permissible for the court to make a new contract, however reasonable, if the parties have not made it themselves. It is to be interpreted in such a way  that  its  terms  may  not  be  varied.  The contract  has  to  be  interpreted  without  any outside aid. The terms of the contract have to be construed strictly without altering the nature of the contract, as it may affect the interest of either  of  the  parties  adversely.  [Vide  United India Insurance Co. Ltd.  v. Harchand Rai Chandan Lal, (2004) 8  SCC 644, and Polymat India (P) Ltd.  v.  National Insurance Co. Ltd., (2005) 9 SCC 174.]

24. In  DLF Universal Ltd. v. Town and Country Planning  Deptt.,  (2010)  14  SCC  1,  this  Court held: (SCC pp. 14-15, paras 13-15)

“13. It is a settled principle in law that a contract is interpreted according to its purpose. The purpose of a contract is the interests, objectives, values, policy that the contract is designed to actualise. It comprises the joint intent of the parties. Every such contract expresses the autonomy of the contractual parties’ private will. It  creates  reasonable,  legally  protected expectations  between  the  parties  and reliance  on  its  results.  Consistent  with

21

the character of purposive interpretation, the  court  is  required  to  determine  the ultimate purpose of a contract primarily by the joint intent of the parties at the time of the contract so formed. It is not the intent of a single party; it is the joint intent of both the parties and the joint intent of the parties is to be discovered from the entirety of the contract and the circumstances surrounding its formation.

14. As  is  stated  in  Anson’s  Law  of Contract :

‘a basic principle of the common law of contract is that the parties are free to  determine  for  themselves  what primary  obligations  they  will accept.... Today, the position is seen in  a  different  light.  Freedom  of contract  is  generally  regarded  as  a reasonable, social, ideal only to the extent  that  equality  of  bargaining power between the contracting parties can be assumed and no injury is done to the  interests  of  the  community  at large.’

15. The Court assumes:

‘that the parties to the contract are reasonable persons who seek to achieve reasonable  results,  fairness  and efficiency... In a contract between the joint  intent  of  the  parties  and  the intent of the reasonable person, joint intent  trumps,  and  the  Judge  should interpret the contract accordingly.’ ”

17. This Court in the case of  Bharat Aluminium Company

vs.  Kaiser Aluminium Technical Services INC reported in

(2016) 4 SCC 126 observed thus:

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“10.   In  the  matter  of  interpretation,  the court has to make different approaches depending upon the instrument falling for interpretation. Legislative drafting is made by experts and is subjected to scrutiny at different stages before it  takes  final  shape  of  an  Act,  Rule  or Regulation.  There  is  another  category  of drafting by lawmen or document writers who are professionally qualified and experienced in the field like drafting deeds, treaties, settlements in  court,  etc.  And  then  there  is  the  third category of documents made by laymen who have no knowledge of law or expertise in the field. The legal quality or perfection of the document is comparatively low in the third category, high in second  and  higher  in  first.  No  doubt,  in  the process of interpretation in the first category, the  courts  do  make  an  attempt  to  gather  the purpose  of  the  legislation,  its  context  and text. In the second category also,  the text as well as the purpose is certainly important, and in  the  third  category  of  the  documents  like wills,  it  is  simply  intention  alone  of  the executor that is relevant. In the case before us, being a contract executed between the two parties, the court cannot adopt an approach for interpreting a statue. The terms of the contract will  have  to  be  understood  in  the  way  the parties wanted and intended them to be. In that context,  particularly  in  agreements  of arbitration, where party autonomy is the ground norm, how the parties worked out the agreement, is  one  of  the  indicators  to  decipher  the intention, apart from the plain or grammatical meaning of the expressions and the use of the expressions  at  the  proper  places  in  the agreement.”

18. Recently, this Court had an occasion to consider the

issue with regard to interpretation of certain clauses of

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PPA, in the case of  Nabha Power Ltd. (NPL)  vs.  Punjab

State Power Corporation Ltd. (PSPCL) and Anr. reported in

2018 (11) SCC 508. The Court referred to various English

and Australian judgments as well as the judgments by this

Court on the issue. We do not wish to burden this judgment

with all the English and Australian judgments reproduced in

the said judgment. However, it will be relevant to refer to

the following passage of the decision of the Privy Council

in the case of  Attorney General of Belize  vs.   Belize

Telecom Ltd., (2009) 1 WLR 1988 (PC): reproduced in Nabha

Power Ltd.

“17.The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen,  the  instrument  would  have  said  so. Otherwise,  the  express  provisions  of  the instrument  are  to  continue  to  operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.”

19. We  may  also  gainfully  reproduce  certain  judgments

which have been reproduced in the case of Nabha Power Ltd.

(supra).

“46.  There  were,  once  again,  parallel developments  in  India  during  this  period  in various High Courts but the views of this Court can be found expression in Dhanrajamal Gobindram

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v. Shamji Kalidas and Co., (1961) 3 SCR 1020: AIR 1961 SC 1285 (AIR pp. 1291 – 92, para 19)

“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 of Lords in Hillas & Co. v. Arcos Ltd. {1932 All ER Rep 494  (HL)},  and  the  observations  of  Lord Wright  have  become  classic,  and  have  been quoted  with  approval  both  by  the  Judicial Committee and the House of Lords ever since. The  latest  case  of  the  House  of  Lords  is Adamastos  Shipping  Co.  Ltd.  v.  Anglo-Saxon Petroleum Co. Ltd. {1959 AC 133 : (1958) 2 WLR 688 (HL)}. There, the clause was “This bill  of  lading”,  whereas  the  document  to which  it  referred  was  a  charter-party. Viscount Simonds summarised at AC p. 158 all the  rules  applicable  to  construction  of commercial  documents,  and  laid  down  that effort  should  always  be  made  to  construe commercial  agreements  broadly  and  one  must not be astute to find defects in them, or reject them as meaningless.”

47. In Union of India v. D.N. Revri & Co.{(1976) 4 SCC 147}, P.N. Bhagwati, J. (as he then was), speaking for the Bench of two Judges said in para 7 as under : (SCC p. 151)

“7.  It must be remembered that a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it. It would not be right while interpreting a contract, entered into between two  lay  parties,  to  apply  strict  rules  of construction which are ordinarily applicable to a conveyance and other formal documents. The  meaning  of  such  a  contract  must  be gathered by adopting a common sense approach and it must not be allowed to be thwarted by

25

a  narrow,  pedantic  and  legalistic interpretation. ...”

48. Lastly, in Satya Jain v. Anis Ahmed Rushdie {(2013) 8 SCC 131}, Ranjan Gogoi, J., elucidated the  well-established  principles  of  the  classic test of business efficacy to achieve the result of consequences intended by the parties acting as prudent businessmen. It was opined as under: (SCC pp. 143-44, paras 33-35)

“33.  The  principle  of  business  efficacy  is normally  invoked  to  read  a  term  in  an agreement or contract so as to achieve the result  or  the  consequence  intended  by  the parties  acting  as  prudent  businessmen. Business efficacy means the power to produce intended  results.  The  classic  test  of business efficacy was proposed by Bowen, L.J. in  The Moorcock {(1889) LR 14 PD 64 (CA)}. This test requires that a term can only be implied if it is necessary to give business efficacy  to  the  contract  to  avoid  such  a failure  of  consideration  that  the  parties cannot  as  reasonable  businessmen  have intended.  But  only  the  most  limited  term should then be implied – the bare minimum to achieve  this  goal.  If  the  contract  makes business sense without the term, the courts will  not  imply  the  same.  The  following passage from the opinion of Bowen, L.J. in The Moorcock {(1889) LR 14 PD 64 (CA)}  sums up the position : (PD p. 68)

‘...... In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been  intended  at  all  events  by  both parties  who  are  businessmen;  not  to impose on one side all the perils of the transaction,  or  to  emancipate  one  side from all the chances of failure, but to make each party promise in law as much,

26

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.’

34. Though in an entirely different context, this Court  in  United  India  Insurance  Co.  Ltd.  v. Manubhai  Dharmasinhbhai  Gajera  {(2008)  10  SCC 404} had  considered  the  circumstances  when reading an unexpressed term in an agreement would be justified on the basis that such a term was always and obviously 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)

‘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 testily suppress him with a common “Oh,  of  course!”  ’  Shirlaw   v.  Southern Foundaries (1926) Ltd. {(1939) 2 KB 206 : (1939) 2 All ER 113 (CA)}, KB p. 227.”

*             *          *        *

“...An  unexpressed  term  can  be  implied  if and only if the court finds that the parties must have intended that term to form part of their  contract:  it  is  not  enough  for  the court to find that such a term would have been  adopted  by  the  parties  as  reasonable men  if  it  had  been  suggested  to  them:  it must  have  been  a  term  that  went  without saying,  a  term  necessary  to  give  business efficacy  to  the  contract,  a  term  which, although tacit, formed part of the contract

27

which  the  parties  made  for  themselves.” Trollope  and  Colls  Ltd.  v.  North  West Metropolitan Regl. Hospital Board {(1973) 1 WLR 601 : (1973) 2 All ER 260 (HL)}, WLR p. 609 C-D : All ER p. 268 a-b.’   (emphasis in original)

35. The business efficacy test, therefore, should be applied only in cases where the term that is sought to be read as implied is such which could have been clearly intended by the parties at the time of making of the agreement. ...”

After  reproducing  the  paras  from  earlier  judgment,

this Court through Sanjay Kishan Kaul, J. observed thus:

“49.   We  now  proceed  to  apply  the  aforesaid principles  which  have  evolved  for  interpreting the terms of a commercial contract in question. Parties indulging in commerce act in a commercial sense. It is this ground rule which is the basis of The Moorcock {(1889) LR 14 PD 64 (CA)} test of giving “business efficacy” to the transaction, as must have been intended at all events by both business parties. The development of law saw the “five condition test” for an implied condition to be read into the contract including the “business efficacy”  test.  It  also  sought  to  incorporate “the  Officious  Bystander  Test”  [Shirlaw  v. Southern Foundries (1926) Ltd. {(1939) 2 KB 206 : (1939) 2 All ER 113 (CA)}]. This test has been set  out  in  B.P.  Refinery  (Westernport) Proprietary Ltd. v. Shire of Hastings {1977 UKPC 13  :  (1977)  180  CLR  266  (Aus)} requiring  the requisite  conditions  to  be  satisfied  :  (1) reasonable and equitable; (2) necessary to give business efficacy to the contract; (3) it goes without saying i.e. 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

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Investors  Compensation  Scheme  Ltd.  v.  West Bromwich Building Society {(1998) 1 WLR 896 : (1998) 1 All ER 98 (HL)} and Attorney General of Belize  v.  Belize Telecom Ltd. {(2009) 1 WLR 1988 (PC)}.  Needless to say that the application of these principles would not be to substitute this  Court’s  own  view  of  the  presumed understanding of commercial terms by the parties if the terms are explicit in their expression. The explicit terms of a contract are always the final word with regard to the intention of the parties. The multi-clause contract  inter se the parties  has,  thus,  to  be  understood  and interpreted  in  a  manner  that  any  view,  on  a particular clause of the contract, should not do violence to another part of the contract.”

20. It  could  thus  be  seen  that  it  is  more  than  well

settled that the clauses in the agreement ought to be given

the  plain,  literal  and  grammatical  meaning  of  the

expression used in the same. No doubt, that the courts will

also try to gather as to what intention the parties wanted

to give them. As has been held by Ranjan Gogoi, J.  (as His

Lordship  then  was)   the  principle  of  business  efficacy

could be invoked only if by a plain literal interpretation

of the term in the agreement or the contract, it is not

possible to achieve the result or the consequence intended

by the parties acting as prudent businessmen. This test

requires  that  a  term  can  only  be  implied,  if  it  is

necessary to give business efficacy to the contract, to

avoid  such  a  failure  of  consideration  that  the  parties

cannot  as  reasonable  businessmen  have  intended.  If  the

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contract makes business sense without the term, the courts

will not imply the same. It is amply clear that courts can

imply a clause only if it is found that the plain and

literal meaning given to the expression used in the terms

is not in a position to make out the intention of the

parties. Reading an unexpressed term in an agreement would

be justified on the basis that such a term was always and

obviously intended by and between the parties thereto. An

unexpressed term can be implied if and only if the court

finds that the parties must have intended that term to form

part of their contract. It is not enough for the court to

find  that  such  a  term  would  have  been  adopted  by  the

parties as reasonable men if it had been suggested to them.

It must have been a term that went without saying, a term

necessary to give business efficacy to the contract, a term

which, although tacit, forms part of the contract.  As held

in the case of Nabha Power Ltd. (supra), for invoking the

business  efficacy  test  and  carving  out  an  implied

condition,  not  expressly  found  in  the  language  of  the

contract, the following five conditions will have to be

satisfied:

(1) Reasonable and equitable;

(2) Necessary  to  give  business  efficacy  to  the contract;

(3) It  goes  without  saying  i.e.  the  Officious Bystander Test;  

(4) Capable of clear expression; and

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(5) Must  not  contradict  any  express  term  of  the contract.

21. We  have  to  examine  the  present  case  and  the

correctness or otherwise of the judgment and order passed

by the Appellate Tribunal by applying the aforesaid tests.

22. We have hereinbefore reproduced Articles 3 and 4 of

the PPA. Article 3 provides for conditions subsequent to be

satisfied by the seller and the procurer.  Clause (ii) of

Article 3.1.2 requires the seller to have executed FSA and

provided the copies of the same to the procurer within 12

months from the effective date or 14 months from the date

of issue of Letter of Intent, whichever is later, unless

such completion is affected due to the procurer’s failure

to comply with its obligations under the PPA or by any

force majeure event.  Article 3.4 provides for consequences

of non-fulfilment of conditions under Article 3.1; sub-

clauses (i) and (ii) of Article 3.4.2 specifically provide

that if fulfilment of any of the conditions specified in

Article 3.1.2 is delayed beyond the period of 3 months and

the  seller  fails  to  furnish  any  additional  performance

guarantee to the procurer or if the seller after furnishing

additional performance guarantee to the procurer fails to

fulfil  the  conditions  specified  in  Article  3.1.2  for  a

period of 8 months beyond the period specified therein,

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both the procurer or the seller shall have the right to

terminate the agreement by giving a notice to the other

party in writing of at least 7 days.  The only requirement

is that in the event of termination either by the procurer

or  the  seller,  the  seller  shall  be  liable  to  pay  the

procurer an amount equivalent to Rs. 10 lakhs per MW of the

contracted capacity as liquidated damages. It is thus clear

that  in  the  event  of  non-compliance  with  any  of  the

requirements as provided in Article 3.1.2 within the period

specified in the said Article, an option is available both

to the seller or the procurer to terminate the PPA. The

only requirement is that, in either of the situations, the

liability would be only on the seller to pay the liquidated

damages at the rate of Rs. 10 lakhs per MW.

23. The Appellate Tribunal has held that only in the event

there is an agreement between the parties that any of the

terms  specified  in  Article  3.1.2  is  violated,  the

provisions of Article 3.4.2 can be invoked.

24. It will be relevant to quote certain observations made

in the judgment of the Appellate Tribunal which are as

follows:

“85. The perusal of Article 3.1.2 of the PPA would make  it  clear  that  the  Appellant  undertook  to perform the condition subsequent to the execution of  the  Power  Purchase  Agreement.  The  Seller’s right to terminate the Power Purchase Agreement as mentioned  above  can  only  arises  upon  the

32

Procurer’s  default  in  complying  with  its obligation under Article 3.1.2.

...

89.(iii) Article 3.4.2 provides a situation under which  the  Power  Purchase  Agreement  can  be terminated either by the Procurer or by the Seller only when the events provided in Article 3.4.2 (i) and (ii) arise or occur. Although Article 3.4.2 appears to provide a right to both the parties to terminate  the  PPA  on  happening  of  such  events specified in Article 3.4.2 (i) and (ii), the same has  to  be  read  and  interpreted  along  with  the other Articles of the PPA. Article 3.4.2 further provides that the Seller shall be liable to pay the Procurer an amount of Rs.10 Lakhs per MW as liquidated damages if the Procurer or the Seller elects  terminate  the  agreement  on  happening  of events  specified  in  the  earlier  part  of  the Article  3.4.2.  From  the  reading  of  the  said Article 3.4.2, it is clear that either party can terminate  the  PPA,  if  the  events  specified  in Article 3.4.2 (i) and (ii) occur and in case of such termination by either party, the Seller alone has the obligation to pay liquidated damages.

...

89(vi) ..... If the seller fails to fulfill the conditions specified in Article 3.1.2, the right to terminate under Article 3.4.2 is invoked by the Procurer. Similarly, the ability of either party to  terminate  the  PPA  under  Article  3.4.2  will arise only if both the parties accept happening of events specified under Article 3.4.2 (i) and (ii). In  other  words,  the  termination  by  the  Seller under  Article  3.4.2  is  possible  if  both  the parties  agree  to  the  happening  of  the  events contemplated therein and the Seller is willing to pay the liquidated damages if a dispute arises regarding the event of termination.”

33

25. The aforesaid observations of the Appellate Tribunal,

in  our  view,  depict  a  totally  erroneous  approach.  A

harmonious  reading  of  Article  3.4.2  and  Article  3.1.2

clearly indicates that in the event of non-compliance of

any of the conditions as stipulated in Article 3.1.2 within

the period prescribed thereunder, either of the parties,

i.e.,  the  seller  or  the  procurer  have  the  right  to

terminate the contract. However, in either of the events,

it is the seller’s liability to pay the liquidated damages

at the rate of Rs. 10 lakhs per Mega Watt.  

26. We are of the considered view that the finding of the

Appellate Tribunal that the provisions under Article 3.4.2

of the PPA can be invoked only when there is an agreement

between the parties that there is violation of any of the

conditions specified in Article 3.1.2 of the PPA is totally

incorrect. If such an argument is accepted, it will amount

to inserting a totally new condition in Article 3.4.2 of

the PPA and would amount to re-writing the contract between

the parties;  it would do total violence to the provisions

of Article 3.4.2 of the PPA.  It cannot be said to be a

condition which is either reasonable or equitable; it also

cannot be said to be a condition which is necessary to give

business efficacy to the contract; it also cannot be said

to be a test which justifies the Officious Bystander Test;

it also cannot be said to be a condition which is capable

34

of the clear expression; it is also not a condition which

does not contradict any expressed terms of the contract. On

the contrary, is a condition which would totally change the

tenor of Article 3.4.2 of the PPA. We are, therefore, of

the considered view that the Appellate Tribunal has grossly

erred in coming to the conclusion that Article 3.4.2 of the

PPA could be invoked only in the event that there is an

agreement with regard to violation of any of the conditions

in Article 3.1.2.

27.    The Tribunal, while arriving at its finding, has

held that agreement has to be read as a whole and if it is

read as whole and if Articles 3.4.2 and 3.1.2 and Article

14 are harmoniously read, then the only conclusion that can

be  drawn  is  that  provisions  of  Article  3.4.2  can  be

invoked, only if there is an agreement between the parties,

that the conditions specified in Article 3.1.2 have not

been complied with. Let us test the correctness of this

finding.

28.    The Constitution Bench of this Court in the case of

Calcutta Gas Company (Proprietary) Ltd. vs. State of West

Bengal  and  others reported  in  AIR  1962  SC  1044,  while

construing the entries in the List in Schedule VII of the

Constitution has observed thus:

35

“8  ….....The Rule of construction adopted by  that  decision   for  the  purpose  of harmonizing the two apparently conflicting entries  in  the  two  Lists  would  equally apply to an apparent conflict between two entries  in  the  same  List.   Patanjali Sastri, J., as he then was, held in State of Bombay v. Narothamdas Jethabhai, 1951 SCR 51 : (AIR 1951 SC69) that the words “administration  of  justice”  and “constitution  and  organization  of  all courts”  in  item  one  of  List  II  of  the Seventh  Schedule  to  the  Government  of India Act, 1935 must be understood in a restricted  sense  excluding  from  their scope “jurisdiction and powers of courts” specifically dealt with in item 2 of List II.  In the words of the learned Judge, if such  a  construction  was  not  given  “the wider  construction  of  entry  1  would deprive entry 2 of all its contents and reduce it to useless lumber.” This rule of construction has not been dissented from in any of the subsequent decisions of this Court.  It may, therefore, be taken as a well  settled  rule  of  construction  that every attempt should be made to harmonize the  apparently  conflicting  entries  not only of different Lists but also of the same List and to reject that construction which will rob one of the entries of its entire content and make it nugatory.”  

Though the aforesaid observations are made while construing

the entries in the List in Schedule VII and though while

interpreting  the  clauses  in  the  agreement  the  strict

principle of interpretation would not be applicable, the

Court can borrow the said principle while interpreting the

same.  It has been held by this Court that every attempt

has to be made to harmonize apparently conflicting entries

not only of different Lists but also of the same List and

36

to  reject  that  construction  which  will  rob  one  of  the

entries of its entire content and make it nugatory.   

29. Again, while interpreting the provisions of Section 47

and Order XXI, Rule 2 of the CPC, this Court in the case of

Sultana Begum vs. Prem Chand Jain reported in AIR 1997 SC

1006, has observed thus:   

“12....... On a conspectus of the case law indicated  above,  the  following  principles are clearly discernible:

(1)It is the duty of the Courts to avoid a head on clash between two Sections of the Act and to construe the provisions which appear to be in conflict with each other in such a manner as to harmonize them.

(2)The  provisions  of  one  Section  of  a statute  cannot  be  used  to  defeat  the other  provisions  unless  the  Court,  in spite of its efforts finds it impossible to effect reconciliation between them.

(3)It has to be borne in mind by all the Courts all the time that when there are two  conflicting  provisions  in  an  Act, which  cannot  be  reconciled  with  each other,  they  should  be  so  interpreted that, if possible, effect should be given to both. This is the essence of the rule of “harmonious construction”.

(4)The Courts have also to keep in mind that an  interpretation  which  reduces  one  of the  provisions  as  a  “dead  letter”  or “useless  lumber”  is  not  harmonious construction.

(5)To  harmonize  is  not  to  destroy  any statutory  provision  or  to  render  it otiose.”

                           (emphasis given)

37

It could thus be seen that this Court has clearly held that

to harmonize is not to destroy any statutory provision or

to render it otiose. This principle has been reiterated in

the case of Anwar Hasan Khan vs. Mohammed Shafi and others

reported  in  AIR  2001  SC  2984.  While  considering  the

provisions of U.P. Urban Buildings (Regulation of Letting,

Rent and Eviction) Act, this Court observed thus :  

“8.  It is settled that for interpreting a particular provision of an Act, the import and effect of the meaning of the words and phrases used in the statute has to be gathered from the text, the nature of subject-matter and the purpose of intention of the statute.  It is cardinal principle of construction of statute that effort should be made in construing its provisions  by  avoiding  the  conflict  and adopting  a  harmonious  construction.  The statute  or  rules  made  thereunder  should  be read as a whole and one provision should be construed  with  reference  to  the  other provision  to  make  the  provision  consistent with  the  object  sought  to  be  achieved.  The well-known  principle  of  harmonious construction is that effect should be given to all  the  provisions  and  a  construction  that reduces  one  of  the  provision  to  a  “dead letter” is not harmonious construction.......”

30. Applying the aforesaid principles to various clauses

of the agreement, an attempt has to be made to harmoniously

read  the  provisions  of  Articles  3.1.2,  3.4.2  and  14.1,

14.2, 14.3 and 14.4.  An attempt has also to be made to

give effect to all the provisions.  If so read, it will be

clear that Article 14 deals with various eventualities in

38

which procurer or the seller can terminate the agreement.

Article  14.1  provides  for  termination  in  the  event  of

various defaults committed by the seller.  Article 14.3

provides for procedure to be followed in cases of default

by the seller.  Article 14.2 provides various grounds with

regard  to  default  by  procurer.  The  procedure  for

termination in cases of default by the procurer has been

provided  in  Article  14.4.  Perusal  of  grounds  stated  in

Articles 14.1 and 14.2 would reveal that these are general

in nature.  Per contra, provisions of Article 3.4.2 would

reveal that termination under this Article can be made only

if there is non-compliance with any of the conditions in

Article 3.1.2.  The power is available to both procurer and

seller.  However, in either of the cases i.e. termination

by seller or termination by procurer, there is a specific

provision of damages at the rate of Rs 10 lakhs per MW,

whereas consequences of the termination in Articles 14.1

and 14.2 are totally different.  As such, effect will have

to be given to both the provisions, which are independent

of each other.

31. We find, that both the Commission and the Appellate

Tribunal have grossly erred in arriving at finding that

termination can be effected under Article 3.4.2 only if

there  is  an  agreement  with  regard  to  non-compliance  of

condition under Article 3.4.2 by both the parties.  If the

39

finding of the Appellate Tribunal is accepted, it will be

amounting  to  making  provisions  of  Article  3.4.2  a  dead

letter and rendering them otiose.

32.  We further find that the Commission as well as the

Appellate Tribunal has lost sight of one another important

principle of law.  This Court in the case of J.K. Cotton

Spinning and Weaving Mills Co. Ltd. vs. State of Uttar

Pradesh, reported in AIR 1961 SC 1170, while construing the

provisions  of  Clause  5(a)  and  Clause  23  of  the  U.P.

Industrial  Disputes  Act  and  the  U.P.  Government  Order

issued  under   the  U.P.  Industrial  Disputes  Act,  has

observed thus :   

“(10)  Applying this rule of construction that  in  cases  of  conflict  between  a specific  provision  and  a  general provision the specific provision prevails over  the  general  provision  and  the general  provision  applies  only  to  such cases  which  are  not  covered  by  the special provision, we must hold that  cl. 5(a) has no application in a case where a special  provisions  of  cl.  23  are applicable.”

33. The said principle has been reiterated by this Court

in its judgment in the case of Maharashtra State Board of

Secondary  and  Higher  Secondary  Education  and  Ors.   Vs.

Paritosh Bhupeshkumar Sheth and Ors. reported   in   (1984)

4 SCC 27.  Para 20 of the said judgment reads thus:

40

“20.  We consider that the above approach made  by  the  High  Court  is  totally fallacious and is vitiated by its failure to follow the well established doctrine of interpretation  that  the  provisions contained in a statutory enactment or in rules/regulations framed thereunder have to be so construed as to be in harmony with each other and that where under a specific section or rule a particular subject has received  special  treatment,  such  special provision will exclude the applicability of any general provision which might otherwise cover the said topic.........”

34. In the present case, the perusal of various Articles

would reveal that provisions under Article 14 are general

in nature.  The provision under Article 3.4.2 is specific,

only to be invoked in the case of non-compliance with any

of the conditions as provided under Article 3.1.2.  As

such,  the  special  provision  made  in  Article  3.4.2  will

exclude the applicability of general provisions contained

in Article 14 of the contract.

35. After considering the legal position, let us examine

some of the factual aspects of the matter. It would be

relevant to note that in the bid dated 2.01.2007 submitted

by the appellant, it is clearly mentioned that the project

is based on coal supply from the GMDC.

41

36. It will also be relevant to refer to Clause 1.2 of

Annexure 3 to the bid document which gives details of the

proposed project.  Clause 1.2 reads as follows:  

“1.2 Fuel: The lead member, Adani Enterprises Ltd. has tied up  the  indigenous  coal  requirement  of  the Project with GMDC, who has been allocated Morga II  coal  block  in  the  State  of  Chhatisgarh. Further  with  a  view  to  ensure  supply  of  fuel with  optimum  techno-commercial  parameters,  we have also tied up supply of imported coal with M/s  Coal  Orbis  Trading  GMBH,  Germany  and  M/s Kowa  Company  Ltd.   and  accordingly  executed separate MoUs with them dated 9th Sept 2006 and 21st Dec 2006 respectively.”

37. In the brief summary of the Project given in the said

bid document, it has been specifically mentioned by the

appellant  that  the  bid  was  submitted  on  the  basis  of

indigenous  coal  supply  committed  by  the  GMDC.  The  bid

documents also form part of the PPA between the parties.

38. It  will  be  relevant  to  note  that  after  the

communication  dated  15.11.2008  by  the  appellant  to  the

procurer thereby conveying its intention to terminate the

PPA in the wake of pending FSA with the GMDC for supply of

power under bid No. 2, the Managing Director of Gujarat

Urja  Vikas  Nigam  Ltd.,  the  procurer,  had  addressed  a

communication  to  the  Principal  Secretary,  Energy  and

Petrochemicals  Department,  Government  of  Gujarat,

requesting it to issue suitable directions since the issue

42

regarding allocation of coal from the mines allocated to

the GMDC was within the purview of Government of Gujarat.

Thereafter,  on  27.02.2009  the  Deputy  Secretary  of  the

Industries  and  Mines  Department,  Government  of  Gujarat,

addressed a communication to the Managing Director of the

GMDC. It will be relevant to record the following part of

the said letter.

“(b)  So far as Naini block is concerned, GMDC had already given a commitment for supply of coal from Morga-II mines to M/s. Adani Ltd., for a 1000 MW plant on the basis of which M/s. Adani submitted their bid in the competitive tariff bid to GUVNL at Gujarat bus-bar. Considering this aspect and the full availability to the state, 50% block may be given M/s. Adani Ltd and remaining 50% block may be given to Torrent Power Ltd., to exclusively provide power for Gujarat’s need. M/s.Adani and M/s.TPL have to sell power generated from Naini Block exclusively to  GUVNL. No merchant sale is to be allowed to anyone else.

2. You are now, therefore requested to go for coal allotment from Morga block with M/s. KSK by way of the detailed FSA and to give 50% coal from Naini block to M/s. Adani and remaining 50% coal to M/s.Torrent Power Ltd., as mentioned above.”

39. It could thus be clearly seen that even the Government

of  Gujarat  has  also  clearly  indicated  that  the  bid

submitted by the appellant in the competitive bid was on

the basis of the commitment for supply of coal from Morga-

II mines by the GMDC. It has, therefore, requested the

Managing Director, GMDC to give 50 per cent of coal from

43

Morga block to the appellant. The State Government had,

therefore, requested that the Managing Director of the GMDC

to go for coal allotment from Morga block.

40. It will also be relevant to note that on 30.12.2009,

the Executive (Finance) of the procurer has addressed a

letter  to  the  Principal  Secretary,  Energy  and

Petrochemicals Department, Government of Gujarat, referring

to the letter issued by the appellant on 28.12.2009. After

referring to Article 3.4.2 of the PPA, it is stated in the

said communication as under:

“In  light  of  above  circumstances  Government  of Gujarat is requested to impress upon M/s.APL to withdraw the Notice of Termination of PPA dated 2nd February,  2007,  executed  with  GUVNL,  for supply  of  1000  MW  under  bid  specification no.02/LTPP/2006  and  also  impress  upon  GMDC  for prompt necessary action for execution of FSA with M/s. APL to ensure supply of 1000 MW power to GUVNL at competitive rate to meet future demand of the  state.  Further  Government  of  Gujarat  is requested to kindly issue suitable directives to GUVNL for further necessary action in the matter.”

41. It could thus be seen that, even the procurer was

aware that the bid of the appellant was on the basis of the

commitment by the GMDC to supply the indigenous coal.

42. In view of the aforesaid, it could be seen that the

appellant as well as the procurer and also the Government

of Gujarat clearly understood that the bid submitted by the

appellant was on the basis of the commitment of the GMDC to

44

supply  indigenous  coal  to  it.  It  will  be  pertinent  to

mention that the appellant had sent notices intimating its

intention  to  terminate  the  PPA  on  account  of  non-

finalisation of FSA with the GMDC and also terminate the

contract much prior to commissioning of the project and

commencement of power supply to the procurer. Annexure III

to the PPA would itself show that expected commercial date

of operation is January, 2012, whereas termination is vide

notice dated 28.12.2009. The materials placed on record

would reveal that the appellant has supplied the power at

the rate of Rs. 2.35 per unit (as per bid) after the PPA

was terminated by it, to abide by the directions issued by

the Commission. It may not be out of place to mention that

the appellant was a successful bidder in respect of the two

bids i.e. bid No. 1 and bid No. 2. Insofar as bid No. 2,

which is the subject matter of the present proceedings,

the bid of the appellant was accepted at the rate of Rs.

2.35 per unit whereas in the same bidding process, bid of

the appellant for bid No. 1 was accepted at the rate of Rs.

2.89 per unit. The said Project was to be executed on the

basis of imported coal supply. It is thus clear that the

parties were very much aware that bid of the purchaser for

bid No. 1 which was at a much lower price than the price

for bid No. 2 was on account of the commitment to the

appellant from the GMDC that it would supply indigenous

coal to it.

45

43. In that view of the matter, after the GMDC resiling

from its commitment and refusing to enter into FSA with the

appellant, the appellant was justified in invoking Article

3.4.2 of the PPA, in view of non-compliance of Condition

No. (ii) in Article 3.1.2 since it had failed to produce

the Fuel Supply Agreement. It will also be relevant to

refer to Paragraph 70 of the judgment of the Appellate

Tribunal. Paragraph 70 reads as under:

“Admittedly,  the  Seller,  the  Appellant mentioned  in  the  bid  documents  that  “Adani Enterprises Limited has tied-up indigenous coal requirements  of the  project with  the Gujarat Mineral Development Corporation, who has been allocated  Morga-II  Block  in  the  State  of Chhatisgarh”. The Appellant has also mentioned in the bid documents that with a view to ensure the supply of fuel, they have tied-up supply of imported  coal with  two foreign  Companies and accordingly  executed  separate  Memorandum  of Understanding  with  them  dated  9.9.2006  and 21.12.2006.”

44. In the light of the aforesaid finding, we fail to

understand as to how the Appellate Tribunal has come to a

finding that the bid of the appellant was not on the basis

of the commitment by the GMDC to supply indigenous coal. We

are of the considered view that the Appellate Tribunal has

erred both on facts and in law. We are of the considered

view that the appellant was entitled in law as well as on

facts to invoke Article 3.4.2 of the PPA and terminate the

agreement.

46

45. Having held that the termination was legal and valid

the question arises as to what relief is to be granted to

the appellant. On the basis of the Order of the Commission

and the Appellate Tribunal, the appellant is continuing

supply  of  electricity  to  the  respondent  No.  2,  the

procurer, though it is the contention of the appellant that

it has been sustaining losses by doing so.

46. It will be relevant to refer to certain subsequent

developments. The appellant had approached this Court by

Interlocutory Application No. 4 of 2015 for the following

reliefs:

“(a)  to  stay  the  operation  of  the  impugned judgment dated 7.9.2011 and suspend further supply  of  electricity  in  terms  of  the  PPA during the pendency of this Appeal.

(b)   in  the  alternative  to  prayer  (a)  above, during   the  pendency  of  the  accompanying Civil Appeal the Hon’ble Court may direct the Respondent(s) to pay the tariff as per CERC norms for tariff on cost plus basis; and also make the payment from the date of the supply of power under the PPA of the differential amount between the PPA tariff and the tariff as per CERC norms for tariff on cost plus basis on the such terms and condition as this Hon’ble court deems fit as just and proper.”

47. The said application came up for consideration before

the Bench consisting of J. Chelameswar, and Abhay Manohar

Sapre, JJ. It appears that in the said I.A. an affidavit

dated  23.11.2015  came  to  be  filed  on  behalf  of  the

47

respondent No. 2, the procurer. It will be relevant to note

the averments made in the affidavit quoted in the Order

dated 3.12.2015 passed by this Court.

“15.  I submit that, without prejudice to the rights of the Respondent No.2 to contest the present appeal, the answering Respondent with the approval of Government of Gujarat has  already  shown  its  willingness  to  pay compensatory tariff prospectively (from next month of CERC order i.e. March 2014) subject to  paras  12  and  13  above  to  resolve  the issue  by  making  suitable  adjustments  in tariff  which  till  date  is  not  implemented because of non acceptance by Appellant and other stakeholders.

16.   I say that without prejudice to its rights in the present appeals the Respondent No.2 is willing to implement the decisions of  State  Govt.  for  paying  compensatory tariff  prospectively  (from  next  month  of CERC order i.e. March 2014) to resolve the issue  by  making  suitable  adjustment  in tariff  on  the  directions  of  the  Hon’ble Court. ...”

48. This Court after hearing the parties observed that

insofar as the question of permitting the supplier/procurer

to pay the compensatory tariff, as indicated in its counter

affidavit is concerned, it requires no permission from this

Court  and  it  was  for  the  supplier/procurer  to  take  a

decision in accordance with law.

49. Once  we  hold  that  termination  is  valid  and  legal,

question would arise as to at what rate the appellant is

48

entitled to compensatory tariff from the date of supply of

power.  Undisputedly,  even  after  the  PPA  was  validly

terminated, the appellant continued to take the project to

its logical end. After commissioning of the project, it has

started supplying electricity to the procurer in accordance

with  the  decision  of  the  Commission  and  the  Appellate

Tribunal. The appellant must have incurred huge expenditure

on  the  same.  In  order  to  do  economic  justice,  on  the

principle  of  business  efficacy,  the  appellant  would  be

entitled for adjustment of cost of the project and would

also  be  entitled  to  the  interest  on  the  expenditure

incurred  by  it  for  completion  of  the  project.  The

expenditure towards running of the project after obtaining

the coal from the open market would also be required to be

taken  into  consideration.  The  appellant  would  also  be

entitled to the interest on the delay of payment after it

receives payment upon determination of the rate which would

be  determined  by  the  Central  Electricity  Regulatory

Commission (“CERC” for short). However, we find that it

will not be appropriate for us to go into that exercise.

50. Section  62  of  the  Electricity  Act,  2003,  provides

entire mechanism for determination of the tariff by the

CERC. It will also be relevant to note that the CERC (Terms

and Conditions of Tariff) Regulations 2009 also consider

various  factors  which  are  required  to  be  taken  into

49

consideration  by  the  CERC  while  determining  the

compensatory tariff. We find that it will be appropriate to

relegate  the  parties  to  CERC for  determination  of  the

compensatory tariff payable to the appellant from the date

of termination of the PPA. After such determination, the

procurer would be entitled to adjust the amount if already

paid in accordance with affidavit dated 23.11.2015, from

the amount so determined by the CERC.

51. Hence, the following order:

(i) The appeal is allowed. (ii) The  notice  of  termination  of  the  PPA  dated

28.12.2009 is held to be legal and valid. It is

also  declared  that  the  PPA  stood  validly

terminated with effect from 04.01.2010. (iii)The appellant would be at liberty to approach the

CERC  for  determination  of  the  compensatory

tariff, including  various  aspects  mentioned  in

paragraph  49,  payable  to  it  from  the  date  of

supply of electricity by it to the procurer. The

CERC is directed to decide the said issue in the

light of what has been observed by us hereinabove

and in the light of the provisions of Section 62

of the Electricity Act so also the CERC (Terms

and  Conditions  of  Tariff)  Regulations,  2009

within  a  period  of  three  months  from  the

appellant’s approaching it.

50

(iv) The  procurer  shall  make  the  payment  to  the

appellant  as  determined  by  the  CERC  within  a

period  of  three  months  from  the  date  of  its

determination.

(v) The  procurer  would  be  entitled  to  adjust  the

amount if already paid by it in pursuance of its

affidavit  dated  23.11.2015  from  the  amount  so

determined by the supplier. The procurer shall

be  entitled  to  adjust  the  balance  amount

recoverable  by  it  from  the  appellant  towards

liquidated damages of Rs. 100 Crore.

(vi) No order as to cost.

...................J. [ARUN MISHRA]

...................J. [B.R. GAVAI]

...................J. [SURYA KANT]

NEW DELHI; JULY 2, 2019.