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Non-Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1665 of 2015

MANGALORE ELECTRICITY SUPPLY COMPANY LIMITED

.... Appellant(s) Versus

M/S. AMR POWER PRIVATE LIMITED & ANR.

….Respondent(s)

J U D G M E N T

L. NAGESWARA RAO, J.

Mangalore  Electricity  Supply  Company  Ltd.

(MESCOM), the Appellant herein, is a distribution licensee.

M/s.  AMR  Power  Private  Limited,  the  First  Respondent

herein, is a renewable power generator which has developed

and is operating a 24.75 MW run of the river mini hydel

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power project in the State of  Karnataka.   The Karnataka

State  Electricity  Regulatory  Commission  is  the  Second

Respondent in the present Appeal.

2. The Appellant and the First Respondent entered into a

Power Purchase Agreement (hereinafter referred to as ‘PPA’)

on 02.08.2006 for the supply of 24 MW of electricity.  It was

mentioned in the PPA that  the Government of  Karnataka

accorded  its  sanction  to  the  proposal  of  the  First

Respondent for installation of a mini hydel electric power

generating  station  of  24  MW  capacity  across  River

Netravathi,  Dakshina  Kannada  District  and  that  the

Appellant was permitted to enter into a PPA with the First

Respondent for purchase of electricity.  Article 5 of the PPA

provides for payment of Rs 2.80 per kilowatt-hour for the

first 10 years for the delivered energy.  From the 11th year

onwards, the PPA provides that the Appellant shall pay to

the company a rate determined by the Commission for the

energy delivered at the metering point.  Article 6 of the PPA

deals with billing and payment, Article 9 covers the term,

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termination and default of the PPA.  As per Article 9.1.1, the

PPA shall continue to be in force for a period of 20 years

from the commercial operation date and may be renewed for

a period of 10 years on such terms and conditions as may

be mutually agreed upon.  Article 6 and Article 9 which fall

for consideration in this case will be dealt with in detail in

the  subsequent  paragraphs.   On  04.08.2008,  the  First

Respondent increased the capacity from 24 MW to 24.75

MW.

3. The  First  Respondent  started  generating  power  and

commenced  supply  of  electricity  to  the  Appellant  on

12.09.2009.  The  First  Respondent  approached  the

Karnataka Electricity Regulatory Commission,  the Second

Respondent  herein,  by  filing  O.P.  No.  28  of  2009  for  a

declaration that the PPA executed on 02.08.2006 was null

and void.  A further relief for grant of open access was also

sought  by  the  First  Respondent.   An  interim  order  was

passed  by  the  Second  Respondent  Commission  on

27.08.2009 directing the Appellant to synchronize the plant

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and  pay  for  the  power  at  the  rate  of  Rs.  2.80  per  unit

pending  final  adjudication.   The  Second  Respondent

Commission dismissed O.P. No. 28 of 2009 on 23.12.2010.

Pursuant to the observations made in the said order dated

23.12.2010, the First Respondent requested the Appellant

to  revise  the  tariff  which  was  not  considered  by  the

Appellant.   The First Respondent also filed a review of the

order passed in O.P. No. 28 of 2009 which was dismissed

on 22.12.2011.

4. The  First  Respondent  by  a  letter  dated  26.05.2011

served a Default Notice as provided in Article 9.3.2 of the

PPA  and  requested  the  Appellant  to  remedy  the  default.

The  First  Respondent  referred  to  default  in  payment  of

power  bills,  default  in  payment  of  interest  for  the  delay

caused in payment of the power bills and default in opening

a Letter of Credit.  Details of the default were annexed to

the said letter dated 26.05.2011.  The Appellant responded

to the Default Notice by sending a letter dated 04.07.2011

in which it was stated that an attempt was being made to

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clear all dues towards power purchase to all the generators

without  any  delay.   The  Appellant  also  stated  that  the

payment of bills for the month of January, February and

March 2011 were delayed because of the inter-connection

approval not being produced by the First Respondent.  It

was also stated that an endeavour would be made in the

future to make the payments without delay and that the

Letters of Credit would be opened.  The First Respondent,

not being satisfied with the reply dated 04.07.2011, issued

a Notice of Termination of the PPA on 22.07.2011.

5. The  First  Respondent  approached  the  Second

Respondent  by  filing  O.P.  No.  48  of  2011  seeking  a

declaration that the PPA dated 02.08.2006 stood terminated

and  was  not  subsisting.   A  further  declaration  for

intra-state  open  access  was  sought.   The  Second

Respondent  Commission  by  an  order  dated  23.02.2012

passed an interim order for payment of tariff at the rate of

Rs. 2.80 per unit, pending disposal of O.P. No. 48 of 2011.

On 22.03.2012, the First Respondent moved an application

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for  withdrawal  of  O.P.  No.  48  of  2011.   The  Second

Respondent Commission dismissed O.P. No. 48 of 2011 as

withdrawn.  The First Respondent approached the Central

Electricity Regulatory Commission (CERC) by filing petition

No. 141/MP/2012 seeking permission for inter-state open

access to supply electricity to third parties.  On 23.08.2012,

the Appellant filed O.P. No. 37 of 2012 before the Second

Respondent  Commission  seeking  quashing  of  the

termination notice dated 22.07.2011 and for a declaration

that the PPA dated 02.08.2006 was valid and subsisting.  A

further direction was also sought to the First Respondent to

act in accordance with the PPA dated 02.08.2006 and to

supply  power  in  terms  thereof.   The  CERC  dismissed

Petition No. 141 of 2012 filed by the First Respondent for

grant of inter-state open access in view of the pendency of

O.P. No. 37 of 2012 before the State Commission in which

the  validity  of  the  PPA  was  challenged.   The  Second

Respondent  Commission  directed  status  quo to  be

maintained on 23.08.2012 in O.P. No. 37 of 2012.  The said

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interim order dated 23.08.2012 was challenged by the First

Respondent  before  the  Appellate  Tribunal  for  Electricity

(APTEL).   The  APTEL continued the  interim arrangement

but  clarified  that  the  order  of  status  quo passed  by  the

Second Respondent Commission would not mean that the

operation of the termination of the PPA was stayed.  By an

order  dated  14.08.2013  the  Second  Respondent

Commission dismissed O.P. No. 37 of 2012 upholding the

Termination Notice dated 22.07.2011 and declaring that the

Appellant  was  not  entitled  for  a  direction  to  the  First

Respondent  to  act  in  accordance  with  the  PPA  dated

02.08.2006.  Appeal No. 275 of 2013 filed by the Appellant

before  the  APTEL  was  dismissed  on  17.10.2014,  the

correctness of which is assailed in the present Civil Appeal.

6. The  Second  Respondent  Commission  framed  two

issues for consideration.  They are as follows:

“(1) Whether  the  termination  of  the  PPA  dated

02-08-2006 by the Respondent is illegal and invalid,

as contended by the petitioner?

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(2) Whether the petitioner has made out a case for a

direction by the Commission to the Respondent to act

in  accordance with  the  PPA dated 02-08-2006 and

supply power in terms of the PPA, as prayed for?”

7. The Commission held that the Appellant in its reply to

the Default Notice did not deny the delay in payment.  The

Commission  further  found  that  the  Appellant  made  an

attempt to justify the delay and virtually admitted the delay.

The Commission also held that in response to the Default

Notice dated 26.05.2011 the Appellant should have cleared

all  the  pending  bills  including  interest  within  the  time

specified in the PPA for curing the defects.  Issue No.1 was

held in favour of the First Respondent and the Termination

Notice dated 22.07.2011 was upheld.   As a consequence,

Issue No. 2 pertaining to a direction to the Respondent to

act in accordance with the PPA was refused.

8. The APTEL after considering the submissions made by

the parties held that the Appellant failed to make out a case

of either  res judicata or issue estoppel as the scope of the

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proceedings in the petitions filed by the First Respondent

was different.  After a detailed consideration of the Default

Notice  dated  26.05.2011,  the  reply  to  the  notice  dated

04.07.2011 and the Termination Notice dated 22.07.2011 in

the light of the provisions contained in the PPA, the APTEL

confirmed the order of the Tribunal.

9. Mr. V. Giri, learned Senior Counsel appearing for the

Appellant  submitted  that  the  First  Respondent  had

repeatedly  made  valiant  efforts  to  wriggle  out  of  the

obligations  under  the  PPA.   He  submitted  that  the  First

Respondent initially  filed a petition for  a declaration that

the PPA was void. Having failed in that attempt, the First

Respondent resorted to issuance of the Termination Notice

for delay in payments.

10. Mr. Giri urged that the First Respondent should not

have  been  permitted  to  take  a  defence  justifying  the

Termination Notice and seeking open access in O.P. No. 37

of  2012,  particularly  after  O.P.  No.  48  of  2011  was

withdrawn  from  the  State  Commission  without  seeking

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permission to initiate fresh proceedings.  He submitted that

the  withdrawal  of  O.P.  No.  48  of  2011  by  the  First

Respondent before the State Commission would act as a bar

under Order 23, Rule 1 of the Code of Civil Procedure, 1908

and the Respondent should not be permitted to raise the

grounds in O.P. No. 48 of 2011 before any other forum. He

placed reliance upon the judgment of this Court in Sarguja

Transport Service v. State Transport Appellate Tribunal,

MP Gwalior and Ors. reported in (1987) SCC 5, wherein it

was held that a fresh Writ Petition was not maintainable

after withdrawal of a Writ Petition without permission to file

a fresh Petition in respect of the same subject matter.  He

also submitted that there is no admission of any default in

his letter dated 04.07.2011.  In any event, according to him,

the delay was not inordinate and there was no further delay

in making payments after May 2011.  He also stated that

the First Respondent continued to supply power even after

the Termination Notice dated 22.07.2011 which amounts to

condoning the default, if there was any, in the payment of

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earlier  bills.   He  also  stated  that  the  inter-connection

renewal  was  obtained  by  the  First  Respondent  on

23.03.2011 and the First Respondent cannot complain of

any delay in payments made prior to that date.

11. Mr.  Basava Prabhu S.  Patil,  learned Senior  Counsel

appearing for the First Respondent submitted that it is clear

from  the  reply  to  the  default  notice  that  the  Appellant

admitted  the  delay  in  payments.   He  stated  that  the

Appellant did not deal with the Letter of Credit at all in the

said reply to the default notice.  He also submitted that the

defects were not cured within a period of 30 days, as the

payment for the months of Jan 2011 and Feb 2011 which

were due on 18.02.2011 and 18.03.2011 were made only on

25.05.2011.  No interest for the delayed payment was paid

as provided for in the agreement.  A Letter of Credit was not

opened even after the default notice.  Mr. Patil stated that

the  inter-connection  approval  was  only  an  excuse  for

non-payment and that it was not a condition precedent for

payment  of  tariff  invoices.   He  relied  upon  an  earlier

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judgment  of  the  APTEL  in  Appeal  No.  152  of  2012.

Countering  the  argument  of  the  Appellant  on  Order  23,

Rule 1, Mr. Patil stated that withdrawal of a petition without

liberty  to  file  a  fresh  petition  would  not  bar  the  First

Respondent  from  taking  a  defence  in  another  round  of

litigation.   He  relied  upon  a  judgment  of  this  Court  in

Kandapazha  Nadar  &  Ors.  v.  Chitraganiammal  &  Ors.

reported in (2007) 7 SCC 65.

12. In  reply,  Mr.  Giri  submitted  that  no  time  limit  is

prescribed for payment of  bills in Article 9.2.2. Letters of

Credit  would  not  fall  within  the  purview  of  the  words

“payments default” in Clause 9.2.2.  He also submitted that

the right to terminate the contract ought not to have been

exercised  by  the  First  Respondent  for  non-opening  of  a

Letter of Credit which was not a fundamental default of the

conditions of the PPA.  He further stated that the Appellant

is a public utility and any order against the Appellant would

have a huge impact on public revenue.   

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13. The  point  for  determination  in  the  present  appeal

pertains  to  the  validity  of  the  Termination  Notice  dated

22.07.2011 and the entitlement of the Appellant to seek a

declaration that the PPA is valid and binding on Respondent

No.1.  It would be necessary to examine the relevant Articles

in the PPA for a proper adjudication of the lis in this case.

Article 6.3 of the PPA provides for payment of penal interest

at the rate of SBI Medium Term Lending Rate per annum in

case of delay in payment by the Appellant.  Clauses 9.2 and

9.3 are also relevant and they are as follows:

“9.2 Events of Default 9.2.1 Company’s Default [. . .]

9.2.2 MESCOM Default: The occurrence of any of the following  at  any  time  during  the  Term  of  this

Agreement  shall  constitute  an  Event  of  Default  by

Corporation:

1. Failure  or  refusal  by  MESCOM  to  perform  its

financial  and  other  material  obligations  under  this

Agreement.  

2. In  the  event  of  any  payment  default  by  the

MESCOM for a continuous period of three months, the

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Company shall be permitted to sell electricity to third

parties  by  entering  into  a  wheeling  &  banking

agreement  with  the  MESCOM for  which  it  shall  pay

transmission and other charges to the MESCOM at the

rates applicable from time to time and as approved by

the Commission.   

9.3 Termination. 9.3.1 Termination for Company’s Default. [. . .]

9.3.2 Termination for MESCOM’s Default: Upon the  occurrence  of  an  event  of  default  as  set  out  in

sub-clause  9.2.2  above,  Company  may  deliver  a

Default Notice to the MESCOM in writing which shall

specify in reasonable detail the Event of Default giving

rise  to  the  default  notice,  and  calling  upon  the

MESCOM to remedy the same.  

At the expiry of 30 (thirty) days from the delivery of

this default notice and unless the Parties have agreed

otherwise,  or  the  Event  of  Default  giving  rise  to  the

Default  Notice  has  been  remedied,  Company  may

deliver  a  Termination Notice  to  MESCOM.   Company

may  terminate  this  agreement  by  delivering  such  a

Termination Notice to MESCOM and intimate the same

to the Commission.   Upon delivery of the Termination

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Notice  this  Agreement  shall  stand  terminated  and

Company shall stand discharged of its obligations.”  

14. Article  9.2.2  contemplates  that  the  failure  of  the

Appellant  in  performing  its  financial  and  other  material

obligations  under  the  PPA  would  constitute  an  event  of

default on its part.   The said Article also provides for the

First Respondent being permitted to sell electricity to third

parties in the event of payment default by the appellant for

a  continuous  period  of  three  months.   The  procedure

prescribed  in  Article  9.3.2  for  termination  for  the

Appellant’s  default  is  that  the  First  Respondent  should

deliver a Default Notice giving details in the event of default

and  asking  the  Appellant  to  remedy  the  same.   If  the

Appellant  does  not  remedy  the  defaults  within  the

prescribed  period  of  30  days  or  any  extended  period  as

mutually agreed upon, the First  Respondent may issue a

Termination Notice.  

15. The Default Notice dated 26.05.2011 refers to default

in payments of bills, non-payment of interest for the delayed

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payments and non-opening of a Letter of Credit as provided

for  in  Article  6.5  of  the  Agreement.   In  the  reply  dated

04.07.2011, the Appellant did not expressly deal with any of

the defaults mentioned in the Default Notice.  On the other

hand  the  Appellant  stated  that  it  relied  heavily  on

Government subsidy for payment to be made, an attempt

would be made in the future to make payments promptly,

LCs  would  be  opened  and  that  payment  for  January,

February  and  March  2011  were  delayed  because  the

approval for inter-connection was given only on 23.06.2011.

The invoice for December 2010 which was due to be paid on

19.01.2011 was actually paid on 24.02.2011.  The payment

to be made for the months of January 2011 and February

2011 due on 18.02.2011 and 18.03.2011 was actually done

on  25.05.2011.   Admittedly,  interest  on  the  delayed

payments as provided for in Article 6 was not paid and a

Letter  of  Credit  was  not  opened.   In  view  of  the  default

mentioned by the First Respondent in the notice not being

remedied within a period of 30 days, we are of the opinion

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that  the  Second Respondent  Commission and the APTEL

were  correct  in  upholding  the  termination  notice

dated22.07.2011.  We do not agree with the submissions of

Mr. Giri that non-opening of Letter of Credit would not be a

default  covered  by  Article  9.2.2.  As  per  Article  9.2.1,  a

failure or refusal by the Appellant to perform its financial

and other material obligations under a PPA constitutes an

event of default.  Both the parties to the PPA are bound by

the terms thereof and they are free to resort to action in

accordance with the provisions contained therein.

16. This Court in Sarguja Transport Service (  supra  ) held

that  withdrawal  of  a  Writ  Petition  without  seeking

permission to file a fresh Writ Petition would bar filing of a

fresh Writ Petition. But there is no bar for taking a defence

in a fresh round of litigation in respect of the same point

involved  in  a  suit  which  was  withdrawn without  seeking

liberty.   (See  Kandapazha  Nadar,  (  supra  )).   The  First

Respondent  initially  sought  for  open  access  for  sale  of

electricity to third parties intra-state by filing O.P. No. 48 of

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2011.   After  withdrawing  O.P.  No.  48  of  2011,  the  First

Respondent filed a Petition before the CERC for inter-state

open access.  It is no doubt true that in O.P. No. 48 of 2011,

the First Respondent also sought for a relief of a declaration

that the PPA is not binding on it.   Strictly speaking, there

was no  need for  such a  declaration being  sought  by the

First Respondent as the PPA was terminated by issuance of

a notice dated 22.07.2011.  In any event, we are at present

concerned  with  O.P.No.37  of  2012  in  which  the  First

Respondent raised a defence that Termination Notice was

valid and that it was entitled to open access, which is legally

permissible.   

17. The APTEL found that  the  grant  of  inter-connection

approval  on  26.03.2011  could  not  be  a  justification  for

delayed payment of bills.  It was held that there was delay

in payment of  bills  for  January and February 2011 even

after  the  inter-connection  approval  was  given  on

23.03.2011, as admittedly the payments were made only on

26.05.2011.  The APTEL relied upon an earlier order passed

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by  it  in  Appeal  No.152  of  20121 to  hold  that  an

inter-connection approval was not a condition precedent for

payment of tariff invoices.   We approve the above findings

recorded by the APTEL.

18. It  is  an  admitted  fact  that  the  First  Respondent

continued to supply power to the Appellant on payment of

Rs.2.80 per unit even after the notice of termination dated

22.07.2011.  There was a refusal of open access to the First

Respondent in the pending proceedings.  There was also an

interim order for maintenance of status quo in O.P.No.37 of

2012 by the Second Respondent Commission.  In view of

the fact that  the power was being generated by the First

Respondent and had to be supplied, the continuation of the

supply made by the First Respondent after the Termination

Notice  dated  22.07.2011  cannot  be  taken  to  be  a

condonation of the events of default by the Appellant.

1 M/s.  Soham Manipatlu Power Pvt. Ltd. v. Karnataka Power Transmission  

Corp. & Ors. (decided on 12.02.2014)

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19. In view of the foregoing, we do not find any error in the

judgment of the APTEL confirming the Order of the Second

Respondent  Commission.   The  Civil  Appeal  is  dismissed.

No order as to costs.   

.…............................J. [ANIL R. DAVE]

               ................................J. [L. NAGESWARA RAO]

New Delhi, September 15, 2016.

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