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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3455  OF 2010

GUJARAT URJA VIKAS NIGAM LTD.                … APPELLANT VERSUS

ESSAR POWER LIMITED                                 ...RESPONDENT

J U D G M E N T   

ADARSH KUMAR GOEL, J.

Part I : Introductory

1. This  appeal  has  been  preferred  under  Section  125  of  the

Electricity  Act,  2003 (‘the Act’)  against the judgment and order

dated 22nd February,  2010 passed by the Appellate Tribunal  for

Electricity  (the  Tribunal)  in  Appeal  No.86  of  2009  whereby  the

Tribunal  has  set  aside  the  order  of  the  Gujarat  Electricity

Regulatory Commission (‘the Commission’) which was in favour of

the appellant.  

2. The substantial question of law sought to be raised by the appellant is :  

“Whether the Tribunal has correctly interpreted the terms of Power Purchase Agreement dated 30th May, 1996 (PPA) and is

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justified in reversing the finding of the Commission based on interpretation  of  the  said  PPA  and  other  documents  on record.?”

Part II : Facts

3. The appellant, Gujarat Urja Vikas Nigam Ltd. (‘the GUVNL’), is

the successor of  the Gujarat  Electricity  Board and is  a deemed

licencee under Section 2 (39) read with Sections 12 and 14 of the

Act.   The  respondent,  ESSAR  Power  Limited  (‘the  EPL’),  is  a

generation company within the meaning of Section 2 (28) of the

Act.   The appellant filed a petition before the Commission under

Section 86 (i)(f) of the Act for adjudication of the dispute arising

out of the Power Purchase Agreement (‘the PPA’).  The appellant

inter alia sought compensation for wrongful allocation of electricity

by the EPL to its sister concern, Essar Steel Ltd. (ESL) in preference

to the appellant.   

4. According to the appellant, the EPL was required to allocate

300 MW out of the total 515 MW of electricity and the remaining

215 MW was  to  be  allocated  to  ESL.   In  case  the  quantum of

generation was less than 515 MW, the allocation was to be in the

proportion of 300 :  215.  Contrary to this  requirement,  the EPL

allocated  more  electricity  to  ESL.   The  EPL  agreed,  vide  letter

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dated 17.02.2000, that the appellant will be entitled to electricity

in the proportion of 300 : 215 but the same was not adhered to.

This resulted in loss to the appellant and gain to the EPL which,

according to  the appellant,  tentatively  worked out  to  Rs.476.22

crores (towards principal amount).   It was further pleaded by the

appellant that under the agreement, the appellant was liable to

pay the annual fixed charges, the variable charges, incentive etc.

in relation to the allocated capacity of 300 MW out of total 515

MW.  Similarly, the ESL to whom balance capacity of 215 MW was

allocated was to bear proportionate annual fixed cost, thus, the

EPL was required to make electricity available to the appellant in

the proportion of 300 : 215 as per clause 3 of the Agreement.  The

EPL was required to declare the availability in the same proportion

so  that  the  dispatch  instruction  could  be  issued  as  per  the

Agreement.  The  appellant  pleaded  that  it  was  entitled  to

compensation  for  wrong  allocation  of  electricity  based  on  the

applicable  HT  rate  from  time  to  time.   The  appellant  claimed

damages equal to the difference of rate at which electricity was to

be supplied to it and the rate at which the appellant was to supply

the same to its consumers.  For this purpose, the respondent was

liable to give true details and complete account of the allocation

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made to the appellant and to ESL. The appellant had also raised a

claim for  recovery  of  Deemed Generation Incentive paid  to  the

respondent to which the respondent was not entitled but the said

claim is no longer subject matter of this appeal, the order of the

Tribunal in that respect having become final.  

5.  It  will  be appropriate to refer to the prayer clause in the

petition filed by the appellant :-

“(a) hold that the petitioner is entitled to adjust in the tariff payable by the petitioner to the respondent for purchase of  electricity  all  amounts received by  the respondent  as  a  result  of  wrong  allocation  of electricity;  and  deemed  generation  incentive  when Naphtha is proposed to be used as fuel;

(b) award  cost  of  the  proceedings  in  favour  of  the petitioner and against the respondent; and

(c) pass  such  other  or  further  orders  as  may  be deemed proper to give relief to the petitioner;

(d) continue to raise bills on Essar Group Companies based on proportionate methodology.”

6. The above claims were contested by the respondent based

on preliminary objections including the plea of limitation as well as

on merits.

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Part III : Pleadings

7. As noticed in Para 4 above, the case of the appellant in the

petition filed before the Commission was that the respondent had

wrongly utilized the capacity of the generating station in favour of

its sister concern, against the rights and interest of the appellant

in violation of the PPA, the respondent allocated part of generating

capacity  required  to  be  allocated  to  the  appellant  to  its  sister

concern.   The appellant  had the obligation to  pay annual  fixed

charges, variable charges, incentive etc. in relation to the specified

allocated capacity and the sister concern of the respondent was to

pay proportionate annual fixed cost.  The Agreement required the

EPL to declare availability in the specified proportion even when

generation was less than the  total 515 MW capacity. Contrary to

the said requirement, the respondent allocated more electricity to

ESL and offered proportionately less electricity to the appellant.

Thereby, not only the agreement was violated, the understanding

reflected in letters issued by the respondent was also not honored.

In para 23.0 it was specifically mentioned that the appellant was

entitled  to  claim compensation  for  the  wrong  allocation  and  in

para 24.0, it was mentioned that the respondent was required to

give detailed and complete account of the allocation made.

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8. As against the above stand of the appellant, the stand of the

respondent in its written submission filed before the Commission

on 15th January, 2009 is that its only obligation was to supply 300

MW to the Board as and when called upon to do so.  There was no

bar to supply more than 215 MW to ESL.  There is no evidence of

any loss suffered by the appellant.  Article 3.1 of the Agreement

could not be read as suggested by the appellant.  Further, if supply

was  below  the  quantum  specified  in  the  dispatch  instructions,

penalty could be claimed as per clause 7.4.3 of Schedule VII of the

Agreement.  Further, the appellant was defaulter in complying with

its obligations in making timely payment.

Part IV : Finding of the Commission

9. The Commission upheld the plea of limitation raised by the

respondent to the extent that the appellant was held entitled to its

claims only for three years preceding the filing of the petition, i.e.,

from 14th September, 2002, the petition having been filed on 14th

September, 2005.  The Tribunal upheld the said finding.  Though

the  appellant  had  filed  Civil  Appeal  No.3454  of  2010  on  this

aspect,  the said appeal was dismissed by this  Court vide order

dated 2nd September, 2011 as follows :

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“The    appeal    directed    against   the    decision    dated 22.2.2010     rendered    by     the   Appellate    Tribunal for    Electricity in appeal No.77/2009 upholding the finding of  the  State  Commission  that  the  claim of  the  appellant against  the  respondent  for  any  period  upto  14.9.2002  is barred by time except to the extent of Rs.64 crores paid by the  respondent  to  the  appellant  pursuant  to  the  full  and final  settlement  of  claims  for  the  period  from 1998  upto September, 2004, is dismissed.”

10. The  Tribunal  also  upheld  the  order  of  the  Commission

accepting the claim of the appellant under the head of a Deemed

Generation Incentive and the respondent has not challenged this

aspect.   

11. Thus, the only question for consideration is the claim of the

appellant  for  failure  to  declare  availability  of  power  in  the

proportion of 300 : 215 MW for the period from 14th September,

2002 onwards.

12. The Commission on this aspect held as follows :

“9.1  The  PPA  was  executed  on  30.5.1996  and  effective  for  a period of  20 years. The relevant clauses of  the PPA have been examined.  It  is  quite  clear  that  under  the  PPA,  GUVNL has  an obligation to pay an annual fixed cost for the allocated capacity, which is 300 MW. Having paid the annual fixed cost for the said capacity, GUVNL has a right for an equivalent amount of electrical output. The purpose of paying annual fixed cost is to ensure that GUVNL alone has the right to the said capacity and that no part of the same can be sold to any other party. It is true that 41 the normal industry practice is that unless the allocated capacity, for

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which  fixed  charges  are  being  paid  by  the  beneficiary  is surrendered, the beneficiary has the ability to sell/ negotiate any transaction  for  utilisation  of  such  allocated  capacity.  In  this context, reference is also made to the CERC (Terms and Conditions of Determination of Tariff) Regulations, 2004.  

9.2 The question that arises for consideration is whether GUVNL can claim allocation on a proportionate basis i.e. to say, that if EPL is unable to declare 300MW capacity which is allocated to GUVNL under  the  PPA,  EPL  would  then  have  to  declare  capacity proportionately  in  the  ratio  of  58:42  from  the  total  declared capacity. In this context one is required to carefully review Article 3.1 of the PPA.

9.3  Although in  the  definition  of  allocated  capacity,  it  is  only mentioned  that  192MW  capacity  during  Open  Cycle  mode operation  and  300MW  capacity  during  Combined  Cycle  mode operation is allocated to GUVNL, the same is further elaborated in Article 3.1. In Article 3.1, the parties have agreed as follows:  

“3.1 The allocation of the Capacity shall be as under:  

a)  During  Open  Cycle  mode  operation  prior  to commissioning of the Combined Cycle mode operation: 138MW to the Essar Group of Companies; and 192 MW to the Board

b) During Combined Cycle mode: 215 MW to the Essar Group of Companies; and  300 MW to the Board  

The  Company  undertakes  that,  subject  to  the  provisions  and during the term of  this  Agreement,  it  will  fuel  and operate the Generating Station to meet the requirements of electrical output that can be generated corresponding to the allocated capacity, in accordance with its Dynamic Parameters so as to comply with the Operating Characteristics except to the extent:

(i) as anticipated under the Maintenance Programme during the period of Scheduled Outage.  

(ii)  That  to  do so  would  not  be in  accordance with  Good Industry Practice;

(iii) That may be necessary due to circumstances relating to Safety (of personnel or plant apparatus);  

(iv) that to do so would be unlawful;  (v)  That  may  be  necessary  for  reasons  of  Force  Majeure

Natural or NonNatural.”

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9.4 For the interpretation of the contract the following principle as laid  down by the Supreme Court  in  Mrs.  M.N.  Clubwala  v.  Fida Hussain Saheb (1964) 6 SCR 642 has to be kept in mind:

Whether  an  agreement  creates  between the  parties  the relationship of landlord and tenant or merely that of licensor and licensee the decisive consideration is the intention of the  parties.  This  intention  has  to  be  ascertained  on  a consideration  of  "all  the  relevant  provisions  in  the agreement.”  “…The dispute may arise between the very parties to the written instrument, where on the construction of the deed one party contends that the transaction is a 'licence'  and the other that it is a 'lease'. The intention to be gathered from the document read as a whole has, quite obviously, a direct bearing.” (Underline Supplied).

Also,  the Hon’ble  Supreme Court  has  held  in  State of  Andhra Pradesh. Vs. Kone Elevators India Ltd. (2005) 3 SCC 386:

“It is a settled law that the substance and not the form of the  contract  is  material  in  determining the  nature  of  the transaction”.  

Therefore, it is necessary to read the PPA as a whole in order to give a correct interpretation to the terms therein contained. The definition  of  ‘Allocated  Capacity’  in  the  PPA  has  to  be  read  in conjunction  with  Article  3.1.  Article  3.1  clearly  records  the allocation of capacity between two entities i.e. GUVNL as well as Essar Steel.  

9.5 From the reading of the Article 3.1 of the PPA as also the corresponding Articles in the PPA with Essar Steel, it is clear that the intention of the parties was that the capacity of the generating  plant  will  be  shared  between  the  two beneficiaries only. The fact that Article 3.1 of the present PPA records the capacity allocated to the Essar Group companies along  with  the  capacity  allocated  to  GUVNL  shows  that intention of the parties was to provide for allocation in the proportion of  138:192 (while  working in open cycle mode) and  215:300  (while  working  in  combined  cycle  mode). Otherwise there is no reason for mentioning in Article 3.1. of PPA about the quantum that is contracted with Essar Steel. Similarly, the fact that the PPA with Essar Steel states the

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allocation to  GUVNL goes  to  show that  the allocation was intended to be on a proportionate basis,  between the two parties / purchasers only. During the arguments, the Learned Counsel for the Respondent also clarified that apart from the two purchasers of power there is no other third party sale that has taken place. The intention of EPL is to recover the fixed charges is only from the two beneficiaries, in proportion to the allocated capacity. This is clear from the reading of the two PPAs. Hence, EPL cannot argue that the PPA does not recognise  the  proportionate  principle  at  all.  If  the proportionate  principle  is  acceptable  for  recovery  of  fixed charges, it cannot be abandoned for allocation of supply.   

9.6 The submission of EPL that there is no clause in the PPA that it cannot supply more than 215 MW to Essar Steel is also not  correct.  Once  the  entire  capacity  has  been  allocated between  the  two  parties  in  a  particular  proportion,  EPL cannot violate the proportionate allocation for the benefit of any one party. Having sold the capacity of 300 MW to GUVNL and 215 MW to Essar Steel, for which fixed charges are paid in  the  said  proportion,  EPL  cannot  argue  that  it  can  sell power  to  Essar  Steel  beyond  the  capacity  allocated  to  it. There is no spare capacity that allows EPL to do that. Under the procedure for dispatch in Schedule VI of the PPA, EPL had to  declare  weekly  schedules  of  the  “Capacity”  that  is available  for  the  entire  station  (and  not  the  “Allocated capacity”).  On  the  basis  of  such  declaration, requirement-schedule  and dispatch instructions  are issued. The obligation of EPL is clearly to declare the “Capacity” of the  generating  plant  as  a  whole.  Once  the  declared availability for the entire plant is known, the beneficiaries will proceed to issue dispatch instructions in accordance with the terms of the PPA. Hence, the argument of EPL that it does not have the obligation to declare capacity for the entire plant is incorrect and contrary to the terms of Schedule VI of the PPA. This submission is  contrary to the procedure prescribed in the PPA as well  as the normal industry practice.  Once the capacity of the generating station as a whole is available, the allocation of capacity has to take place in the proportion that is  contracted.  Also,  the  submission  of  EPL  that  the Petitioner's only concern, under terms of the PPA, is that it must  get  electricity  in  accordance  with  its  Dispatch

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Instructions,  within  the  limits  of  allocated  capacity  is  not entirely  correct.  The  Petitioner  has  a  right  to  be  supplied electrical  output  proportionate to  the  declared capacity  of the generating plant in terms of the PPA. EPL cannot ignore its obligation of declaring the entire capacity. Once the entire capacity  of  the  generating  plant  is  declared,  the proportionate principle of allocation of capacity will become applicable  and  as  a  natural  consequence,  the  electrical output  will  be  allocated  and  supplied  between  the  two beneficiaries on proportionate basis, in accordance with the dispatch  instructions.  It  appears  that  EPL  is  avoiding  its obligation  to  declare  the  entire  capacity.  The  ability  to recover  deemed  non  generation  due  to  difference  in schedule generation and actual generation has nothing to do with  the  requirement  to  allocate  capacity  and  supply electrical output on a proportionate basis.  

9.7  In  view of  the  aforesaid,  the  Commission  accepts  the submission made by GUVNL to the effect that, if in a time block the declared availability for the station with 515 MW of the installed capacity in only 400 MW, the same should be declared available to GUVNL to the extent of 233 MW and to Essar  Group  to  the  extent  of  167  MW,  maintaining  the proportion of           58% : 42% (300:215). It is not valid for EPL to declare available in any time block to Essar Group to the  extent  of  215  MW  towards  their  share  and  declare available to GUVNL 185 MW. Such an act would mean that Essar  Group  is  being  preferred  at  the  cost  of  GUVNL.  As against  the  GUVNL’s  entitlement  of  233  MW they will  get only 185 MW and therefore a deficit of 48 MW equivalent of electricity.  That  certainly  cannot  be  the  intention  of  the parties.

9.8 Under the PPA, the obligation to supply power by EPL to GUVNL is limited to the electrical output equivalent to the allocated capacity of 300 MW. The fact that the EPL has an obligation  to  make  payment  of  deemed  non  generation incentive  and  reduce  annual  fixed  charges  on  a  pro  rata basis,  cannot  in  any  manner  negate  the  proportionate principle  of  allocation  when  EPL  declares  availability  less than the allocated capacity.

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9.9  In  this  context,  EPL’s  reliance  on  the  letter  of  the Government of Gujarat dated 05.06.1995 to argue that only the  surplus,  after  meeting  the  requirement  of  its  sister companies, is to be supplied to GUVNL is not correct. Once the PPA has been executed, the parties are governed by the terms of the PPA. In fact Article 12.5 of the PPA clarifies that the PPA and the schedules attached thereto are a complete and exclusive statement of the terms of the agreement and that all prior written or oral understandings, offers or other communication  of  every  kind  pertaining  to  the  sale  or purchase  of  electrical  output  and  dependable  capacity between the parties is abrogated and withdrawn.

9.10  Furthermore,  in  the  letter  dated  17.02.2000,  EPL categorically  agreed  to  the  concept  that  power  should  be supplied in the ratio of 58:42 provided certain conditions are fulfilled.  The  conditions  mentioned  in  the  said  letter  will demonstrate that the each condition is either in the nature of additional concessions / modification that were sought by EPL or  alleged  defaults  on  the  part  of  GUVNL,  which  was  not agreed to by GUVNL.

9.11 However, if  GUVNL does not take the power declared available by EPL in terms of the aforesaid ratio, EPL will have the right to sell  the power to its  sister  concern subject to reimbursement  of  the  proportionate  of  the  annual  fixed charges. GUVNL cannot make a submission that although it will not purchase such power as declared available by EPL, EPL  cannot  sell  the  same  to  its  sister  concern.  Such  a submission would defeat the purpose of the Electricity Act, 2003  and  the  National  Electricity  Policy  which  promotes generation and encourages sale of surplus capacity. If GUVNL does  not  schedule  the  power  to  the  extent  of  availability declared by EPL of the entire plant in terms of the PPA, it cannot complain if the power is sold to EPL’s sister concern and the proportionate of the annual fixed cost is reimbursed.

9.12 The Commission is of the view that GUVNL is entitled to claim compensation for the energy diverted to Essar Steel from the capacity allocated to GUVNL under the PPA. EPL at all times has an obligation under the present PPA to declare availability for the entire plant and allocate the supply on the

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basis of 300:215 or 58:42.

9.13 As regards the quantum of compensation payable on account  of  diversion,  the  PPA  is  silent  on  the  same.  The parties in the settlement for dues on account of diversion for the period between 1998 and September, 2004 agreed on a particular methodology for determining such compensation. The parties had agreed that GUVNL is entitled to the HTP 1 energy tariff after excluding the variable cost. The diversion in the circumstance should be computed on an hourly basis. This  appears  to  be  a  fair  manner  of  determining  the compensation  that  is  to  be  paid  for  the  period  after September, 2004. The parties are required to reconcile the generation data and make final calculation on the basis of the aforesaid principle.

9.14  The  Commission  also  directs  that  for  the  remaining period  of  the  PPA,  EPL  has  a  legal  obligation  to  declare availability for the entire capacity and that it shall not divert any power to its sister concern in a manner contrary to the proportionate principle. If GUVNL declines to purchase power allocated on the proportionate basis, EPL will have the right to  sell  the  power  to  its  sister  concern  subject  to reimbursement of proportionate of the fixed cost.”

Part V : Appeal to the Tribunal and the Finding of the Tribunal

13. The respondent preferred an appeal before the Tribunal being

Appeal No.86 of 2009.  Contention of the appellant was that the

EPL was not obliged to declare electricity availability in ratio of 300

: 215 MW to the appellant.  The PPA signed with the appellant and

the sister concern of the EPL were independent.  The obligation to

supply was to arise after receiving dispatch instructions only.

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14. The Tribunal framed following questions for consideration :

“ (i) Whether under the PPA I and II the supply of electrical output to be made by the Appellant shall be in the ratio of 300:215 MW, the  allocated  capacity  of  the  Electricity  Board  (R-1)  and  Essar Steels Ltd. respectively?

(ii)  Whether  the  Appellant,  which  failed  to  declare  the  entire capacity of  its generating station to the Electricity Board made the supply of electricity to its sister concern Essar Steels Ltd. in excess of  the said ratio is liable to be held responsible for the breach  of  the  terms  of  PPA  and consequently  the  Appellant  is liable to compensate the Electricity Board (R-1)”…..  

15. The Tribunal upheld the stand of the EPL.  It was held that

Articles I    and III of Schedule VI to the PPA did not require the EPL

to declare the capacity in the ratio of   300  :  215 MW.  As regards

letters dated 17th February, 2000   and 4th October, 2001 by which

the respondent accepted its liability, it was held that the GUVNL

never accepted or complied with its obligations and therefore, the

respondent was not bound by the stand in the said letters.  It was

further observed that the claim for the period from 1st July, 1996

stood  settled  in  view  letter  dated  13th  October,  2006  of  the

GUVNL  to  accept  Rs.64  crores  for  diverting  electricity  to  ESL.

Non-declaration of available capacity on proportionate basis was

not  shown to  have  resulted  in  any  loss  or  damage  to  GUVNL.

GUVNL had not proved any actual loss.   It was observed that on

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the principle of Section 35 of the Sale of Goods Act, 1920, there

was no obligation to deliver in absence of dispatch instructions.

Further, the ESL supplied fuel to EPL for conversion into electricity

but for supply to the GUVNL,  the EPL had to procure fuel  from

outside.  GUVNL also made default in making payment to the EPL

which amounted to breach of reciprocal obligation.  GUVNL also

failed to establish letter of  credit  to secure the payment of the

amount payable to the EPL which also was breach on the part of

the appellant.   

16. The finding of the Tribunal is :-

“45. From these provisions of Schedule-VI, it is clear that there is no provision, express or implied, to suggest that the EPL is liable to declare the available capacity in the said ratio to the Board and the Essar Steels Ltd. All these provisions would only say  that  the  EPL  has  to  first  give  Weekly  Schedules  to  the Electricity Board indicating the time and capacity which would be available and the Electricity Board shall thereafter issue its requirement  schedule  through  Despatch  Instructions  and thereupon  EPL  is  liable  to  operate  generating  station  in accordance  with  the  Despatch  Instructions  given  by  the Electricity Board and supply.  

46. On a combined reading of Articles 1 and 3 and Schedule VI of  the  PPA-1,  it  is  clear  that  EPL  has  to  declare  available capacity  up  to  the  allocated  capacity  to  both  the  Electricity Board as well as to Essar Steels Ltd. and not on proportionate theory basis.  

47. As a matter of fact, Article 5.2 of the PPA-1 obligates the Electricity  Board  to  pay  to  the  Appellant  its  Annual  Fixed

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Charges  including  the  cost  of  the  project  on  the  level  of generation achieved up to the allocated capacity and not on the allocated capacity itself. The Electricity Board has accordingly paid the Annual Fixed Charges on monthly basis on the level of generation achieved up to the allocated capacity.  

48. It is pointed out by the Ld. Senior Counsel for the Appellant that  so  far  as  the  payment  towards  cost  of  the  project  is concerned,  the  Electricity  Board  had  agreed  to  pay  Rs.  945 crores out of the total cost of the project amounting to Rs. 2061 crores which only comes to approximately 46%, i.e. less than 58% of the total project cost.  

49. In such circumstances, the Electricity Board (R-1) cannot claim that by reasons of it’s  making payment for the Annual Fixed  Charges  up  to  the  allocated  capacity,  it  was  always obligatory on the part of the EPL to supply power to the extent of 58% to the Electricity Board and that since EPL has sold a part of Electricity Board’s share in the power generated by the EPL  to  its  sister  concern,  EPL  is  liable  to  compensate  the Electricity Board for the same by treating such power which sold by EPL to Essar Steel Ltd. as if  it  was sold by the Electricity Board itself to Essar Steel Ltd. after purchasing the same from the EPL.  

50. On the basis of letters dated 17.02.2000 and 04.10.2001, it is contended on behalf of the Electricity Board (R-1) that EPL has conceded to its proportionate theory basis and as such it cannot go back.  This  contention is  not  tenable.  EPL in those letters  merely  expressed  its  willingness  to  agree  to  the proportionate  theory  basis  subject  to  the  condition  that Electricity Board should commit default in making the payment of dues payable under the PPA-1 to EPL and also subject to the condition  that  the  Electricity  Board  shall  comply  with  other conditions of the PPA-1.  

51. Admittedly, the stipulated conditions in those letters were neither  accepted  nor  complied  with  by  the  Electricity  Board. Hence the offer made by the EPL to the Electricity Board for agreeing  to  the  proportionate  theory  basis  would  not  be construed to be conceding and as such it is binding on it.

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52. In the second letter dated 04.10.2001 also, EPL stipulated the  condition  of  making  prompt  payments  by  the  Electricity Board to EPL and for establishment of Letter of Credit to secure payments under PPA-1. Even this condition, the Electricity Board was not ready to comply with. As such the proposal made by the EPL to the Electricity Board regarding proportionate theory subject to the conditions is not binding on the Appellant.  

53. Furthermore, when there is an amendment to the PPA-1 on 18.12.2003, there is no reference about these amendments for declaration  of  supply  of  power  in  the  ratio  of  58:42  to  the Electricity Board as well as to the Essar Steels Ltd. respectively. The  preamble  of  the  said  Supplemental  Agreement  dated 18.12.2003  clearly  establishes  that  EPL  is  only  obliged  to generate  the  electricity  up  to  300  MW  allocated  to  the Electricity Board and nothing more. In other words, there is no amendment  with  regard  to  the  declaration  of  electricity generated  on  proportionate  basis  in  the  said  Supplemental Agreement dated 18.12.2003.  

54. Under such circumstances, it is not open to the Electricity Board to rely upon the aforesaid letters dated 17.02.2000 and 04.10.2001 to advance the plea of its proportionate theory.  

55. It is an admitted fact that the Electricity Board through its letter dated 29.10.2003 demanded from EPL the payment of an aggregate  amount  of  Rs.  537  crores  on  account  of  alleged diversion of  power by EPL to  Essar  Steels  Ltd for  the period commencing from 01.07.1996 to 31st March 1999. It is also an admitted fact that the parties thereafter held several rounds of discussions and as a result of those discussions, a settlement was actually arrived at by the parties in October 2004. Pursuant to the said  settlement,  the Electricity  Board  recalculated the amount, due on the basis of power supplied by the EPL to Essar Steels Ltd in excess of the allocated capacity of 215 MW shall alone be treated as sold and supplied by the Electricity Board. On this basis, the Electricity Board itself furnished a statement to the Appellant, EPL showing that a sum of Rs. 64 crores is payable for the aforesaid period and on the aforesaid basis, the EPL  accepted  the  same  as  a  part  of  overall  package  and authorized  the  Electricity  Board  to  recover  the  same  on  a condition  that  the  same  methodology  would  be  adopted  in

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future also. Thereafter, through their letter dated 13.10.2006, the  Electricity  Board  accepted  to  receive  Rs.  64  crores  for diverting the electricity to the Essar Steels Ltd.  

56. Under those circumstances, it is clear that the claim of the Electricity  Board  against  the EPL  with  respect  to  the alleged diversion of power by the EPL to Essar Steels Ltd. for the period from 01.07.96 had already been settled by the payment and this settlement is final, conclusive and binding on the parties. As correctly observed by the State Commission, the same is not liable to be reopened at this stage.  

57. Admittedly, it is not established that there is any breach of the  contract  as  the  part  of  the  Appellant  under  PPA-1  on account  of  non-declaration  of  available  capacity  to  the Electricity Board on proportionate basis. The compensation can be claimed only when there is a breach and due to the same there  was  a  loss  or  damage  caused  by  the  said  breach  of contract.  This  has  to  be  pleaded  and  proved.  Unless  this  is done, no compensation can be claimed. This is a settled law as held by the Supreme Court in (1974) Vol-2 SCC 231 – Raman Foundry V/s Union of India.  

58. In the present case, the Electricity Board has not pleaded and proved the actual loss or damage caused to it due to the alleged breach of contract. The principle enshrined in section 73 of the Contract Act has been incorporated in Article 10.1 of the PPA-1 which reads as follows:  

“……neither Party shall  be liable to the other Party in contract, trot, warranty, strict liability or any other any other  legal  theory  for  any  indirect,  consequential, incidental,  punitive  or  exemplary  damages.  Neither Party shall have any liability to the other Party except pursuant to, or for breach of this Agreement, provided, however, that this provision is not intended to constitute a waiver of  any rights  of  one Party against  the other with regard to matters related to this Agreement or any activity contemplated by this Agreement”.  

59.  Similarly,  the  explanation  to  Section  73  of  the  Indian Contract  Act  provides  that  in  estimating  the  loss  or  damage

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arising  from breach of  contract,  the  means which  existed  of remedying the inconvenience caused by the non-performance of the contract must be taken into account. It is the duty of the court to take into account whether the party affected by breach of contract has performed its duty to mitigate the loss while estimating  the  loss  or  damage  arising  from  the  breach  of contract.  In  the  present  case,  the  Electricity  Board  merely pleads that EPL has failed to declare and supply the available capacity of electricity on proportionate basis to the Electricity Board and nothing more.  

60.  As  indicated  above,  as  per  Article  3.2  of  PPA-1,  the  EPL becomes liable to deliver the capacity to the Electricity Board at the delivery point in accordance with the Despatch Instructions. The  Despatch  Instructions  are  instructions  for  delivery  of electricity. The principle contained in Article 3.2 of PPA-1 is in terms of the provisions of Section 35 of the Sale of Goods Act, 1920.  Section 35 of  the Sale of  Goods Act  declares that the seller of goods is not bound to deliver until the buyer applies for the delivery.

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74. One more aspect needs to be mentioned. The arrangement in relation to supply of electricity up to the  allocated capacity of 300 MW between the Appellant EPL and the Electricity Board under the PPA-1 and between the EPL and its  sister  concern Essar  Steels  Ltd.  under  PPA-2  read  with  Fuel  Management Agreement dated 18.10.1996 are materially different. The Essar Steels Ltd supplies fuel  to EPL for conversion into electricity, whereas the Electricity Board is under no obligation to supply fuel to EPL. Admittedly, the EPL has to procure fuel from outside and use it for generating electricity for sale to the Electricity Board.  

75. The PPA-1 is a contract between the EPL and the Electricity Board containing reciprocal  promises.  In  consideration of  EPL supplying electricity to the Electricity Board up to the allocated capacity  in  accordance  with  the  Despatch  Instructions,  the Electricity Board had agreed and undertaken to pay the EPL the tariff as mentioned in the PPA- 1. It is an admitted fact that the

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Electricity  Board  has  committed  default  in  making  payment when due to be made to the EPL under the PPA-1. In fact, the EPL, the Appellant has produced materials to show that at one point of time in March 2008, the aggregate amount due to EPL was to the tune of Rs. 519 crores. EPL has produced documents to  show  that  the  Electricity  Board  is  a  defaulter  in  making payment of its due under the PPA-1 right from the inception of it.  

76.  It  is  also  an  admitted  fact  that  EPL  had  written  several letters to the Electricity Board to establish Letter of Credit to secure the payment of the amount payable under PPA-1 and also pay the amounts when due. But the Electricity Board did not heed to the request made by the EPL in this behalf and as a result of it the ability of EPL to purchase the fuel for generating electricity meant for sale to the Electricity Board got impaired.  

77. As mentioned above, the claim for compensation made by the Electricity Board against EPL in the present case is due to the alleged breach of contract by EPL in declaring and supplying the power to the Electricity Board in the proportion of 300MW out of the total capacity 515 MW. The grievance is that EPL has supplied less power than what is due to the Electricity Board under the PPA-1. As aforesaid, Article 3.2 of the PPA-1 obliges the Appellant to supply electricity to the Electricity Board only in  accordance  with  the  Despatch  Instructions  given  by  the Electricity Board from time to time. As a matter of fact, there is no  provision  in  the  PPA-1  which  restricts  the  right  of  the Electricity Board to demand for supply of electricity only up to the declared available capacity of the EPL. Admittedly, many a times the Electricity Board asked for supply of more quantum of electricity than what was declared as available to it by the EPL by revising its Despatch Instructions and immediately thereafter the EPL met this demand.

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81. In the light of the above position, the direction given by the State Commission with reference to reimbursement of Annual Fixed Charges to the Electricity Board when the Electricity Board has  not  secured  energy  to  the  extent  allocated  under  the

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proportionate  principle  is  not  correct  as  the  same  is misconceived. In this case we are of the view that the Annual Fixed Charges are not refundable for the surrendered portion of the electricity to the person in whose favour such electricity is surrendered.  Hence,  in  regard  to  the  issue  relating  to  the liability to pay compensation we hold that, in Electricity Board is not entitled to get the compensation as claimed and as such the  Appellant  EPL  succeeds  in  this  issue.  Consequently  the findings given by the State Commission on this issue are set aside.  “

Part VI : Rival Submissions

17. We have heard Shri C.A. Sundaram, learned senior counsel

for the appellant and Shri K.K. Venugopal, learned senior counsel

for the respondent.

18. Learned counsel for the appellant submitted that the Tribunal

had ignored the implications  of  Article  3  of  the PPA.   The  true

import of the PPA clearly casts an obligation on the EPL to allocate

electricity  in  ratio  of  300  :  215  MW.   This  interpretation  was

accepted by the EPL in its letters dated 17th February, 2000, 4th

March,  2000 and 4th October,  2001.   Issues  of  non payment of

money due or  not  opening the letter  of  credit  and not  making

advance  payment  of  fuel  stood  settled  by  Supplementary

Agreement  dated  18th December,  2003  and  letter  dated  19th

December,  2003.   Thus,  the Tribunal  erroneously  assumed that

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amount of Rs.519 crores was outstanding.    Moreover, there is an

error in the order of the Tribunal in observing that GUVNL had not

proved suffering of any damage. Para 23 of the petition expressly

asserted the damage.  There is further error in interpretation of

Schedule VI  in regard to the obligation to declare the availability

of generating power upon which the dispatch instructions could be

issued. In absence of such declaration, the dispatch instructions

could not be issued.  Finding that the appellant accepted Rs.64

crores by way of settlement was against record.

19.  The  EPL  supports  the  view  taken  by  the  Tribunal.   It  is

submitted  that  there  was  no  obligation  for  proportionate

declaration of available generation capacity.  The respondent was

to  meet  the  requirement  of  electric  output  corresponding  to

allocated  capacity  of  300  MW.   This  obligation  was  subject  to

reciprocal  performance of  obligation by the appellant.   The PPA

executed by the respondent with the ESL was on different terms.

The appellant was required to make payment on due dates under

Article 5.3 of the Agreement and was also required to establish a

letter of credit under Article 5.5.  As against this, under Article 4.1

of the PPA with the ESL, fuel is to be supplied by the ESL which

created  an  obligation  to  generate  electrical  output  upto  the

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capacity allocated to the ESL.  For supply to the appellant, fuel is

required to be arranged by the respondent.  The appellant had not

paid cost for its allocated capacity.  The cost was pegged at Rs.945

crores as against investment of Rs.2061 crores by the respondent.

The  stand  taken  in  the  letter  of  the  Respondent  dated  17th

February, 2000 could not be read as obligation of the respondent

for  proportionate  generation  of  the  output  or  declaration  of

available capacity in absence of compliance of obligations under

the PPA by the appellant.  In letter dated 4th March, 2000, it was

made clear that if letter of credit was not opened by the appellant,

respondent will not be obliged to supply power.

Part VII : Points for consideration

20. The points which arise for consideration are :

(i) True  interpretation  of  PPA  to  determine  whether there is any obligation to declare availability of power in the ratio of 300 : 215;

(ii)  Effect  of  letters  dated  17th February,  2000,  4th March, 2000 and 4th October, 2001on the rights of the parties;

(iii) Interpretation of Schedule VI to determine whether the  obligation  to  issue  dispatch  instructions  arose before declaration of availability.  

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(iv) Relief to which the appellant may be entitled to.

Part VIII : Decision on above points and reasons therefor

Re : (i) :

21. It  is  necessary  to  refer  to  the  relevant  provisions  of  the

Agreement:

“Article 3

3.1 Allocation of the Capacity The allocation of the Capacity shall be as under:  a) During Open Cycle mode operation prior to commissioning of the Combined Cycle mode operation: 138MW to the Essar Group of Companies; and 192 MW to the Board  b) During Combined Cycle mode: 215 MW to the Essar Group of Companies; and  300 MW to the Board  

The  Company  undertakes  that,  subject  to  the  provisions  and during the term of  this  Agreement,  it  will  fuel  and operate the Generating Station to meet the requirements of electrical output that can be generated corresponding to the allocated capacity, in accordance with its Dynamic Parameters so as to comply with the Operating Characteristics except to the extent:  (i) as anticipated under the Maintenance Programme during the period of Scheduled Outage.  (ii) That to do so would not be in accordance with Good Industry Practice;  (iii)  That  may  be  necessary  due  to  circumstances  relating  to Safety (of personnel or plant apparatus);  (iv) that to do so would be unlawful;  (v) That may be necessary for reasons of Force Majeure Natural or Non-Natural.”

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3.2 Delivery of Active Energy

The  Company  shall  deliver  Active  Energy  and  Reactive Energy  to  the  Board  at  the  Delivery  Point  in  accordance  with Dispatch  Instructions  issued  by  the  Board  under  the  Dispatch procedures  as  specified  in  Schedule  VI.   All  Active  Energy delivered by the Company shall  have at the Delivery Point,  the voltage, frequency and the other electrical parameters associated with  active/reactive power  as may be decided by the Board in accordance with the Operating Characteristics.

3.3 Availability Declarations

From the date of Entry into Commercial Service of the first Unit the Company shall, submit to the Board from time to time, Declared Available Generation Capacity as per the procedures set forth in Schedule VI.

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Schedule VI

6.1 Submission of Weekly Schedules

The  Company  will  submit  to  the  Board’s  Load  Dispatch Centre at Jambua, Baroda weekly schedules indicating the times and Capacity which will be available from Generating Station and if not available and reasons therefor.  These weekly schedules will be submitted on or before each Friday for the next week starting from Monday.   If  at  any time after  the issue of  such schedule, there is any change in circumstances, the Company will notify the Board about the revisions necessary in the weekly schedule and the reasons therefor.

6.2 Issuance of Requirement Schedule

The Board shall issue to the Company’s Generating Station at  Hazira  a  Schedule  of  its  requirement  with  respect  to  the generation of  the Allocated Capacity  by the Generating Station during each day by 5.00 PM on the preceding day.  This schedule will indicate the level of Active Power required to be produced by Generating Station.

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6.3 Issuance of Dispatch Schedule

The Board may issue Dispatch Instruction at any time after issue of the schedule as mentioned in Clause 6.2 above. Dispatch instruction may include requirements  in respect  of  the reactive power output measured at the Delivery Point to be maintained by the Generating Station.

6.4 Operation of Generating Station

The Company, subject to the provisions contained in Article 3.3  of  this  Agreement,  shall  operate  Generating  Station  in accordance with the relevant Dispatch Instructions given by the Board from time to time provided that the Company shall not be obliged  to  comply  with  such  instructions  to  the  extent  that  it would  require  the  Company  to  operate  the  Generating  Station otherwise than the Dynamic Parameters applicable from time to time.

Schedule VII

7.1 TARIFF

The Tariff shall be determined as follows

a) Annual Fixed Charges to be determined in terms of Section 7.1.1

b) Variable Charges to be determined in terms of Section 7.2

c) Incentive Payment to be determined in terms of Section 7.3.

7.1.1 Annual Fixed Charges: Computation and payment

The  Annual  Fixed  Charge  shall  be  computed  on  the  following basis:

a) Interest on Debt:

It  shall  be  computed  on  the  Debt  as  per  the  Financial  Plan

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approved by the Board.  Interest on Debt shall also include lease rentals  payable  in  respect  of  lease  assistance obtained  by  the Company towards financing the Capital Cost.

If the Financing Plan envisages variable rates of interest on any component of Debt, the Interest on Debt shall be recomputed by applying the prevailing rates of interest during the month on each such Debt.

In respect of interest on Foreign Debt, the interest liability on the applicable Foreign Debt shall first be computed in the applicable foreign  currencies  and  thereafter  be  converted  to  Rupees  by adopting  the  Base  Exchange  Rate  and  such  amount  shall  be adopted for the purposes of computing Interest on Debt.

A Supplementary Invoice shall be raised for an amount equal to the difference between the amount of interest liability on Foreign Debt as determined on the basis of Base Exchange Rate and the amount of interest liability as on the due dates of the payment of interest as per the Financing Plan computed on the basis of the then  prevailing  exchange  rate.   If  the  amount  payable  to  the Company is determined to be less, on account of foreign exchange variation,  than  the  amount  paid  by  the  Board  at  the  Base Exchange Rate, such difference shall be repaid to the Board within 14 days from the date of the determination.

b) Operation and Maintenance Expenses (O&M) Expenses:

O&M  Expenses  including  Insurance  Charges  for  the  first  full Accounting  Year,  after  commissioning  of  Combined  Cycle Operation of  the Generating Station,  shall  be calculated at  the rate of 2.5% of the Capital Cost of Rs.945 crores in respect of the Allocated Capacity.

The expenditure on the O&M expense in each subsequent year shall be revised on the basis of the weighted Price Index based on the Wholesale Price Index and Consumer Price Index in the ratio of 70:30 respectively or at the rate of 10% progressively every year, whichever is lower.  O&M expenses shall  not qualify for foreign exchange variations.

c) Depreciation

Depreciation  will  mean  the  depreciation  as  notified  by  the

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Government of India from time to time and provided under the Electricity (Supply) Act, 1948 and shall be first computed on the assets of  the Generating Station and thereafter apportioned for the purposes of the determining the Annual Fixed Charges as a proportion of  the Allocated Capacity  over the Nominal  Installed Capacity.

d) Tax on Income:

Tax  on  Income  shall  be  determined  in  accordance  with  the provisions of the Income Tax Act, 1961 every year as under:

Tax payable by the Company   x Return on Equity plus  Total taxable Income      Incentive Payment

For the purposes of determination of the Annual Fixed Charges, the Tax on Income shall be computed on an estimated basis.  Any under or over recovery of Tax on Income shall be adjusted every year on the basis of certificate of documentation of Tax paid and assessment by the Income Tax Officer concerned.

e) Return on Equity (ROE):  

Return on Equity shall be computed on Equity at 16% per annum and shall include ROFE.

Return on Foreign Equity (ROFE) shall be computed at the rate of 16% on the amount of  Foreign Equity  in  the applicable  foreign currency  and  thereafter  be  converted  to  Rupees  at  the  Base Exchange Rate and such amount shall be adopted for the purpose of computing ROFE.

A  Supplementary  Invoice  shall  be  raised  at  the  end  of  each Quarter  in  an  Accounting  Year,  for  an  amount  equal  to  the difference between the amount of ROFE determined on the basis of Base Exchange Rate and the amount of ROFE as at the end of each  Quarter  computed  on  the  basis  of  the  then  prevailing exchange  rate.   If  the  amount  payable  to  the  Company  is determined to be less, on account of foreign exchange variation than the amount paid by the Board at the Base Exchange Rate, such difference shall be re-paid to the Board within 14 days from the date of the determination.  

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f) Interest on Working Capital :  

The amount of working capital on the Allocated Capacity shall be computed on the basis of  annual estimated level  of  generation adopting the following norms:  

i) Fuel Cost for liquid fuels only for one month;

ii) Operation & Maintenance expenses (Cash) for one month;  

iii) Maintenance Spares at actual but not exceeding one year’s requirement,  less  value  of  One  Fifth  of  initial  spares  already capitalized; and  

iv) Receivable equivalent to two months’ average billing for sale of electricity.  

The Interest on Working Capital shall be computed by applying the rate  of  interest  as  applied  by  the  Company’s  bankers  or  the Board’s  Bankers  whichever  is  lower  on  the  amount  of  working capital computed above.  

g) Base Foreign Debt Repayment Adjustment Amount:  

In  respect  of  the  Foreign  Debt,  the  amounts  falling  due  for repayment during the Accounting Year shall be first computed in the applicable foreign currencies and thereafter be converted to Rupees  by  adopting  the  Base  Exchange  Rate.   The  difference between the amounts of repayment determined as above and the amount  of  repayment  of  Foreign  Debt  falling  due  during  the relevant Accounting Year and expressed in rupees adopting the exchange rate as per the Financing Plan shall be included in the Annual Fixed Charges.  

A Supplementary Invoice shall be raised for an amount equal to the difference between the amount of repayment on Foreign Debt determined on the basis of Base Exchange Rate and the amount of repayment on Foreign Debt as on the due dates of repayment of  Foreign  Debt  as  per  Financing  Plan  on  the  then  prevailing exchange  rates.   If  the  amount  payable  to  the  Company  is determined to be less on account of foreign exchange variation than the amount paid by the Board at the Base Exchange Rate, such difference shall be re-paid to the Board within 14 days from

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the date of the determination.   

The  amount  of  Annual  Fixed  Charges  for  the  purposes  of  this Agreement shall  the aggregate of  (a)  to  (g),  but  excluding the amounts of supplementary Invoices under (a), (e) and (g) above. For  the purpose of  monthly  Invoice 1/  12th of  the Annual  Fixed Charges will be claimed.   

The Invoice  in  each month shall  further  specify  the  number  of units of Active Energy and Deemed Generation expressed in Kwh achieved  during  such  month  and  the  cumulative  Level  of Generation  including  Deemed  Generation  less  Deemed Non-Generation achieved upto end of such month.   

22. The  agreement  clearly  contemplates  the  proportion  of

allocation  of  a  capacity.   The  EPL  has  to  fuel  and  operate  the

generating station to meet the requirement of electric output that

can be generated corresponding to the allocated capacity.   The

appellant has to pay annual fixed cost as determined in terms of

clause 7.1.1 of Schedule VII of the Agreement.  The Commission is

thus,  right in observing that once the entire capacity  has been

allocated in two parts in a particular proportion, the contention of

the  EPL  that  it  could  sell  power  to  ESL  beyond  the  allocated

capacity could not be accepted. The EPL was under obligation as

per  Schedule  VI  to  declare  weekly  schedule  of  the  capacity

available and the dispatch instructions were to be issued on the

basis of the said declaration.  It could not thus be said that the EPL

had no obligation to  declare the capacity  and the obligation of

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GUVNL  to  issue  dispatch  instructions  was  not  dependent  on

declaration of the available capacity by the EPL.  Contrary view of

the  Tribunal  is  clearly  erroneous.   In  paras  45  and  46  and

elsewhere in its judgment, the Tribunal erred in holding that there

was no obligation to declare available capacity on proportionate

basis.  The finding of the Commission in paras 9.5 to 9.12 of its

order quoted above is the correct interpretation of the Agreement.

We hold accordingly.

Re : (ii) :

23. The Commission in this aspect observed :

“8.4 In the present case, the PPA was executed on 30.5.1996 and remains operational for a period of twenty years. Under the terms of the PPA, the generating company i.e. EPL is required to declare availability and supply of electricity for the entire duration of the PPA, while the Petitioner GUVNL has an obligation to purchase electricity and pay the tariff in terms thereof. The dispute appears to have arisen sometime in 1998-99, when the CAG Report for the year 1998-99 rejected the contention of the Government that there was no adverse financial impact as a result of diversion of power.  Thereafter,  on  or  around  10.2.2000,  a  meeting  was conducted  with  the  GEB to  discuss  the  issue of  diversion.  On 17.2.2000, EPL subject to certain conditions accepted that power is required to be supplied on a 58:42 basis. Attempts were made to renegotiate the PPA. By a letter dated 23.4.2002, GEB wrote to EPL identifying certain key areas for negotiation of PPA. The issue of  allocation  of  power  was also  part  of  the agenda.  Since  the issue of allocation of power could not be settled, GEB by its letter dated 29.10.2003 raised a claim of Rs. 537 crores for the period 1.7.1996 to 31.3.1999.  EPL by its  letters  dated 1.11.2003 and 1.12.2003 denied the claim of GUVNL.

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xxxx

9.10  Furthermore,  in  the  letter  dated  17.02.2000,  EPL categorically  agreed  to  the  concept  that  power  should  be supplied  in  the  ratio  of  58:42  provided  certain  conditions  are fulfilled.  The  conditions  mentioned  in  the  said  letter  will demonstrate that the each condition is  either in  the nature of additional concessions / modification that were sought by EPL or alleged defaults on the part of GUVNL, which was not agreed to by GUVNL. “

24. It is clear from the above that the letters of the respondent

acknowledged its liability to allocate the generated power to the

appellant and to the ESL in the ratio of 58 : 42.  The Tribunal in

para 54 quoted above, held that the said letters could not be relied

upon in support of the claim that the appellant was entitled to be

allocated generated power in proportion of            58 : 42.  This

finding is clearly erroneous and is without any basis and is liable to

be set aside.  The finding of the Commission is based on record.

Re : (iii) :

25. In interpreting  Schedule VI,  the Commission held that the

EPL was liable to declare weekly capacity available and on that

basis dispatch instructions were  required to be issued (para 9.6).

The contrary view taken by the Tribunal in para 45 and elsewhere

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is  clearly  contrary  to  the  agreement  between  the  parties  as

reflected in Schedule VI quoted above.

Re : (iv) :

26. The main basis of the order of the Tribunal in rejecting the

claim of the appellant is the finding that the respondent had no

obligation to allocate available power in the ratio of 58 : 42 under

the  terms  of  the  Agreement  and  in  terms  of  correspondence

between the parties.  Apart from this, the Tribunal held that the

appellant  had  claimed  Rs.64  crores  by  way  of  full  and  final

settlement (para 55) and that the appellant was in default in not

opening letter of credit and not paying Rs.519 crores.  In doing so,

the  Tribunal  has  ignored  clear  stipulation  in  the  letter  of  the

appellant dated 13th December, 2004 referred to in para 8.14 of

the Commission that the amount of Rs.64 crores was not accepted

by way of final settlement.  Similarly, the Tribunal has ignored the

supplementary  agreement  between  the  parties  dated  18th

December,  2003 followed by letter  dated  19th December,  2003

(page 337 and 341,Vol.V) under which amount of Rs.289.40 crores

was paid to the respondent by way of settlement for the delayed

payment charges and other heads.   Thus,  the Tribunal  was not

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justified in observing in para 75 that the appellant had defaulted in

making payment of Rs.519 crores which was a breach of promise

on the part of the appellant, thereby absolving the respondent of

its obligation to supply power as per the agreement.  Similar is the

position with regard to letter of credit referred in para 17.6 of the

order of the Tribunal.  We have been informed that these aspects

have been gone into by the State Commission in a subsequent

dispute vide order dated 22nd October, 2014 and Appeal No.2 of

2015 against the said order before the Tribunal.  We thus, make it

clear that our observations may not be treated as affecting the

decision of the said appeal.

27. We thus, hold that the order of the Tribunal is erroneous.  The

said order has given rise to the substantial question of law which

has  been  discussed  above,  i.e.,  the  interpretation  of  the

Agreement  between  the  parties  and  the  obligation  of  the

respondent to declare availability of generated power in the ratio

of  58  :  42   and  consequence  of  default  therein.   The  Tribunal

erroneously held that there was no pleading for making the claim.

Thus, the Tribunal has committed error of law as well as of record

in recording its finding as demonstrated above.  It  may also be

noted that the Commission has left actual working out of the loss

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to be worked out separately and on that basis the appellant has

already filed its claim which was pending consideration before the

Commission.  The said proceeding can now be revived in the light

of our finding.

28. Accordingly, we allow this appeal, set aside the order of the

Tribunal and restore that of the Commission.

An Epilogue  

29. Before we part with this judgment, it appears to be necessary

to draw attention of all concerned to a vital issue of composition

and  functioning  of  Tribunals  and  statutory  framework  thereof

especially its impact on working of this Court and in turn on the

rule of law.   

30. It is well known that in the wake of 42nd Amendment to the

Constitution of India, incorporating Article 323A and 323B of the

Constitution under Part XIVA, various Tribunals have been set up.

The  Tribunals  constitute  alternative  institutional  mechanism  for

dispute  resolution.   The  declared  objective  of  such  Tribunals  is

inability  of  the  existing  system  of  courts  to  cope  up  with  the

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volume of work.  This Court has gone into the question of validity

of scheme under which the High Court is bypassed without the

alternative institutional mechanism being equally effective for the

access to justice which was necessary component of rule of law

and this Court being over burdened with routine matters in several

judgments to which reference may be made.

31. In L Chandra Kumar Vs. Union of India1, in the course of

considering the constitutional validity of exclusion of jurisdiction of

the  High  Courts  in  service  matters  against  the  orders  of  the

Central  Administrative  Tribunal,  this  Court  observed  that  the

manner  in  which  justice  is  dispensed with  by the  Tribunals  left

much to be desired.  The remedy of appeal to this Court from the

order of the Tribunals was too costly and inaccessible for it to be

real  and  effective.  Furthermore,  the  result  of  providing  such

remedy  was  that  the  docket  of  this  Court  was  crowded  with

decisions of the Tribunals and this Court was forced to perform the

role of a first appellate court.  It was necessary that High Courts

are able to exercise judicial superintendence over decisions of the

Tribunals.  With these observations this Court directed that “all”

decisions  of  the  Tribunals  will  be  subject  to  High  Court’s  writ

1 (1997) 3 SCC 261

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jurisdiction under Article 226/2272.   It was further observed that

the then existing position of direct appeal to this Court from orders

of Tribunal will stand modified3.   

32. In Madras Bar Association Vs. Union of India4, the issue

considered by this Court was validity of setting up of National Tax

Tribunals under the National Tax Tribunal Act, 2005.   While striking

down  the  Act,  this  Court  commented  upon  validity  of  various

provisions of the said Act.  Section 5 of the Act which provided for

sittings to be at Delhi,  it  was observed that a litigant who may

belong  to  a  distant/remote  State,  may  have  to  travel  a  long

distance and may find it difficult to identify an advocate who will

represent  him.   It  was  further  observed  that  while  vesting

jurisdiction in an alternative court/Tribunal, it was imperative for

the legislature to ensure that redress should be available with the

same  convenience  and  expediency  as  it  was  prior  to  the

introduction  of  the  newly  created  court/tribunal5.   As  regards

Section  6  dealing  with  the  qualification  for  appointment  of  a

member, it was observed that it was difficult to appreciate how

non judicial members could handle complicated questions of law

2 Para 91 3 Para 92 4 (2014) 10 SCC 1 5 Para 123

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which  the  Tribunal  was  required  to  deal  with6.   Further,

composition of  tribunals which were like courts of first  instance

whose decisions are amenable to challenge under Article 226/227

and which are subservient to jurisdiction of the High Court stood

on  a  different  footing  from  the  Tribunals  whose  appeals  were

directly  provided  to  Supreme  Court.   Such  Tribunals  were

practically substitute for the High Courts.  Process of selection and

appointment of Chairperson and members of such Tribunals could

not be different from the manner of selection of the High Court

Judges7.   

33. The above resume of law laid down by this Court may call for

review  of  composition  of  Tribunals  under  the  Electricity  Act  or

other corresponding statutes. Appeals to this Court on question of

law or substantial question of law show that Tribunals deal with

such questions  or  substantial  questions.   Direct  appeals  to  this

Court has the result of denial of access to the High Court.  Such

Tribunals thus become substitute for High Courts without manner

of appointment to such Tribunals being the same as the manner of

appointment of High Court Judges.  A perusal of Sections 113(b)(i)

to (iii) and 113(3) read with Section 78, Sections 84, 85 and 125 of

6 Para 126 7 Para 130

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the  Electricity  Act  and  corresponding  provisions  of  similar  Acts

may, thus, need a fresh look.   

34. It may also be noted that in some Tribunals (For example, the

tribunal  constituted  under  the  Telecom  Regulatory  Authority  of

India Act, 1997), the Tribunal exercises original jurisdiction to the

exclusion of all courts and is located only at Delhi8.  It may further

be  noted  that  normally  tenure  of  office  of  the  Chairman  and

members is of  short duration of three to five years.   Access to

justice  may  not  be,  thus,  available  with  the  convenience  with

which it is available when jurisdiction is with the local civil courts

sought  to  be substituted.   Such provisions  may need review in

larger public interest and for providing access to justice.  

35. Apart  from the  above  aspect,  further  question  is  whether

providing  appeals  to  this  Court  in  routine,  without  there  being

issues of general public importance, is not a serious obstruction to

the effective working of this Court.  

36.  This issue has already been subject matter of debate.  In an

Article by Shri T.R. Andhyarujina former Solicitor General of India,

titled “Restoring the Character and Stature of the Supreme Court

8 Sections 14 and 15

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of India9” learned author states that it was necessary to restore

the character and stature of the Supreme Court.  The jurisdiction

of the Supreme Court should by and large be limited to matters of

constitutional  importance  and  matters  involving  substantial

questions of law of general  importance.  The Supreme Court of

India, like apex Courts in other jurisdictions, was not to be a final

court to decide ordinary disputes between parties.   The highest

court has its unique assigned role.  But after the year 1990, the

Supreme  Court  is  losing  its  original  character  and  becoming  a

general court of appeal by entertaining and deciding cases which

do not involve important constitutional issues or issues of law of

national  importance.   The  adverse  effect  of  this  trend  is  that

matters  of  constitutional  importance  are  not  getting  the  due

priority and are pending for several years.  Reference has been

made  to  the  Statement  of  Objects  for  amending  the  Supreme

Court (Number of Judges) Act, 1956 in the year 2008, to the effect

that  “it  has  not  been  possible  for  the  Chief  Justice  of  India  to

constitute a five-judge Bench on a regular basis to hear the cases

involving interpretation of constitutional law as doing that would

result in constitution of less number of Division Benches which in

turn would result  in delay in hearing of  other civil  and criminal

9 (2013) 9 SCC (J) 43

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cases”.  In spite of the said amendment to increase strength of

judges  to  31,  larger  Benches  to  decide  constitutional  and

important cases have not been regularly functioning.  On account

of increase in number of issues other than constitutional law or

substantial questions of general importance, all the Benches are

engaged in handling the heavy routine work.  The court rooms are

so crowded that it is hardly possible to enter a court room or to

pass  through  the  corridors.  “No  other  Supreme  Court  presents

such an undignified sight.”  Further reference has been made to

functioning  of  other  Supreme/highest  courts  in  the  world  to

emphasize that the highest courts are engaged in deciding cases

of national importance by larger benches of 9/11 judges while the

Supreme Court of India is deciding most of the cases by Benches

of two-judges, which has its own adverse implications.  Reference

has also been made to the discussion between Sir B.N. Rau, the

Constitutional Advisor and Justice Frankfurter of the U.S. Supreme

Court  that  the  jurisdiction  exercisable  by  the  Supreme  Court

should be exercised by Full  Court.   It  is  further stated that the

highest court should have limited number of cases and should not

be overloaded.  On an average, in a year 80 cases are decided by

Supreme  Court  of  U.K.,  the  Canadian  Supreme  Court  and  the

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Australian  High  Court.   38  cases  are  decided  by  Constitutional

Court of South Africa in a year.  Supreme Court of India is deciding

large number of cases and the reports in the cases sometimes run

upto  19  volumes  in  a  year  with  only  a  few  cases  of  real

constitutional or of national importance.  In Australia there is no

appeal  to  the  highest  court  as  of  right  and  the  cases  are

entertained only if  they are of  public  importance.   They are to

resolve  difference  of  opinion  in  different  courts.   This  was

necessary to preserve efficiency and standing.  Reference is also

made to the expert opinion that no litigant should get more than

two chances in litigation.  It is further stated that “The Supreme

Court of India must cease to be a mere court of appeal to litigants

and  a  daily  mentor  of  the  Government,  if  it  is  to  preserve  its

pristine character, dignity and stature comparable to the Supreme

Court  in  other  jurisdictions.”   The Article  ends with observation

“This requires a national debate by Judges, Lawyers, jurists and

informed public.”

37. In Mathai alias Joby Vs. George10, this Court referred to the

R.K. Jain Memorial Lecture delivered on 30th January, 2010 by Shri

K.K. Venugopal,  senior advocate to the effect that “an alarming

10 .(2010) 4 SCC 358

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state of affairs has developed in this Court because this Court has

gradually converted itself into a mere court of appeal which has

sought to correct every error which it finds in the judgments of the

High  Courts  of  the  country  as  well  as  the  vast  number  of

tribunals11.   The court has strayed from its original character as a

constitutional court and the apex court of the country.  Failure to

hear and dispose of cases within reasonable time erode confidence

of  the  litigants  in  the  apex  court.   Reference  was  made to  an

Article by Justice K.K. Mathew to the effect that time, attention and

energy  should  be  devoted  to  matters  of  larger  public  concern.

Functioning  of  Supreme  Court  was  not  to  remedy  a  particular

litigant’s wrong, but consideration of cases involving principles of

wide  public  or  governmental  interest  which  ought  to  be

authoritatively declared by the final court.  The docket of the court

should  be  kept  down so  that  its  volume did  not  preclude wise

adjudication.   The  matter  was  referred for  consideration  of  the

larger  Bench for  interpretation  of  Article  136.  By  the  time,  the

matter  came  up  for  consideration  of  the  larger  Bench  on  11th

January, 2016, the SLP became infructuous as the suit in which the

impugned interim order was passed itself had been decided.  This

Court while dismissing the SLP as infructuous observed that while

11 Para 15

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Article 136 could be used with circumspection but its scope could

not be limited.   

38. In  Bihar  Legal  Support  Society  Vs. Chief  Justice  of

India12,  it  was observed that Supreme Court was not a regular

court  of  appeal.   If  an additional  forum above the Tribunal  was

required to be set up, a separate national court of appeal could be

created.  In this respect, the matter was also considered in 229th

Report  of  the  Law  Commission  submitted  in  August,  2009.

However, that is a different issue particularly when this aspect is

being separately considered by a different Bench in Writ Petition

(C) No.36 of 2016 titled V. Vasanthakumar Vs. Sri H.C. Bhatia.

39. In  Justice  H.R.  Khanna  Memorial  Lecture  delivered  on  8th

September,  2014 by  Hon’ble  Mr.  Justice  J.  Chelameswar  of  this

Court, the topic was “the Supreme Court of India, its jurisdiction

and problem of arrears”13.   It was stated that :

“The law declared by the Supreme Court in Hindustan Commercial Bank Ltd. v. Bhagwan Dass [AIR 1965 SC 1142] was that normally a party should approach the Supreme Court with a certificate of the  High  Court.  Only  in  exceptional  circumstances  would  the Supreme  Court  relax  that  requirement,  is  simply  ignored.  The

12 (1986) 4 SCC 767 13 (2015) 9 SCC (J-I)

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exception has become the rule now. The result is more and more unsuccessful people getting encouraged to have another go at it by approaching the Supreme Court. In most of the cases, what is sought  is  a  simple  second  or  third  “guess  on  facts”  or  taking another plausible view of the matter. xxxx

Coming to matters where the rights and obligations of the parties are  purely  founded  upon  a  local  law  i.e.  a  law  made  by  the legislature of a State, etc., I  do not see any harm befalling the nation, if the judgment of the High Court is to become final. At least in these areas of litigation, the time worn cliche “we are not final because we are infallible, but we are infallible only because we are final” might as well be extended to the decisions of the High Courts which are equally constitutional courts.”

40. While there may be no lack of legislative competence with

the Parliament to make provision for direct appeal to the Supreme

Court from orders of Tribunals but the legislative competence is

not  the  only  parameter  of  constitutionality.   It  can  hardly  be

gainsaid that routine appeals to the highest court may result in

obstruction of the Constitutional role assigned to the highest court

as observed above.   This may affect the balance required to be

maintained  by  the  highest  court  of  giving  priority  to  cases  of

national importance, for which larger Benches may be required to

be  constituted.   Routine  direct  appeals  to  the  highest  court  in

commercial  litigation  affecting  individual  parties  without  there

being  any  issue  of  national  importance  may  call  for

reconsideration  at  appropriate  levels.   Further  question  is

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composition  of  Tribunals  as  substitutes  for  High  Courts  and

exclusion of High Court jurisdiction on account of direct appeals to

this  Court.     Apart  from  desirability,  constitutionality  of  such

provisions  may  need  to  be  gone  into.   We  are,  however,  not

expressing any opinion on this aspect at this stage.  

41. We are thus of the view that in the first instance the Law

Commission may look into the matter with the involvement of all

the stakeholders.

42. We make it clear that as far as heavy pendency in this Court

on account of liberal exercise of jurisdiction under Article 136 of

the Constitution of India is concerned, we do not wish to make any

comment as this is a matter in the discretion of the Court and it is

for the Court to address this issue.  Our discussion is limited to the

consideration of desirability of providing statutory appeals directly

to  this  Court  from  orders  of  Tribunals  on  issues  not  affecting

national  or  public  interest  and  other  aspects  of  statutory

framework in respect of Tribunals as discussed above.

43. The questions which may be required to be examined by the

Law Commission are :

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I Whether  any  changes  in  the  statutory  framework

constituting various  Tribunals  with  regard to  persons

appointed,  manner  of  appointment,  duration  of

appointment, etc. is necessary in the light of judgment

of this Court in  Madras Bar Association (supra) or

on any other consideration from the point of view of

strengthening the rule of law?

II Whether  it  is  permissible  and  advisable  to  provide

appeals routinely to this Court only on a question of

law  or  substantial  question  of  law  which  is  not  of

national  or  public  importance  without  affecting  the

constitutional  role  assigned  to  the  Supreme  Court

having  regard  to  the  desirability  of  decision  being

rendered within reasonable time?

III Whether direct statutory appeals to the Supreme Court

bypassing the High Courts from the orders of Tribunal

affects access to justice to litigants in remote areas of

the country?

IV Whether  it  is  desirable  to  exclude  jurisdiction  of  all

courts  in  absence  of  equally  effective  alternative

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mechanism for access to justice at grass root level as

has been done in provisions of TDSAT Act (Sections 14

and 15).

V Any other incidental or connected issue which may be

considered appropriate.   

44. We request the Law Commission to give its report as far as

possible within one year.  Thereafter the matter may be examined

by concerned authorities.   

45. Action  taken  by  the  Central  Government,  after  its

consideration,  may  be  placed  on  record.   List  the  matter  in

November, 2017 before an appropriate Bench, preferably of three

Judges to consider the above issue.   

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

………………………………………………..J.        [ ADARSH KUMAR GOEL ]

NEW DELHI; AUGUST 09, 2016.

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1A-FOR JUDGMENT            COURT NO.13               SECTION XVII                S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS Civil Appeal  No(s).  3455/2010 GUJARAT URJA VIKAS NIGAM LTD.                      Appellant(s)                                 VERSUS ESSAR POWER LIMITED                                Respondent(s) Date : 09/08/2016 This appeal was called on for pronouncement of  JUDGMENT today.

For Appellant(s)                      Ms. Hemantika Wahi,Adv.    

Ms. Puja Singh, Adv.  Mr. Shubham Arya, Adv.                   

For Respondent(s)  Ms. N. Nagpal, Adv.                      Mr. E. C. Agrawala,Adv.                                

Hon'ble  Mr.  Justice  Adarsh  Kumar  Goel pronounced  the  judgment  of  the  Bench  comprising Hon'ble Mr. Justice Anil R. Dave and His Lordship.

The appeal is allowed in terms of the signed Reportable  Judgment  inter  alia  with  following observations.

“We are thus of the view that in the first instance the Law Commission may look into the matter with the involvement of all the stakeholders.

We make it clear that as far as heavy pendency  in  this  Court  on  account  of liberal  exercise  of  jurisdiction  under

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Article 136 of the Constitution of India is concerned, we do not wish to make any comment  as  this  is  a  matter  in  the discretion of the Court and it is for the Court  to  address  this  issue.   Our discussion is limited to the consideration of  desirability  of  providing  statutory appeals directly to this Court from orders of  Tribunals  on  issues  not  affecting national  or  public  interest  and  other aspects of statutory framework in respect of Tribunals as discussed above.

The questions which may be required to be examined by the Law Commission are :  I Whether any changes in the statutory framework  constituting  various  Tribunals with regard to persons appointed, manner of appointment, duration of appointment, etc. is necessary in the light of judgment of this Court in  Madras Bar Association (supra) or on any other consideration from the  point  of  view  of  strengthening  the rule of law? II Whether  it  is  permissible  and advisable to provide appeals routinely to this Court only on a question of law or substantial question of law which is not of national or public importance without affecting the constitutional role assigned to the Supreme Court having regard to the desirability  of  decision  being  rendered within reasonable time? IIIWhether  direct  statutory  appeals  to the  Supreme  Court  bypassing  the  High Courts from the orders of Tribunal affects access to justice to litigants in remote areas of the country? IV Whether  it  is  desirable  to  exclude jurisdiction of all courts in absence of equally  effective  alternative  mechanism for access to justice at grass root level as has been done in provisions of TDSAT

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Act (Sections 14 and 15). V Any  other  incidental  or  connected issue which may be considered appropriate.

We request the Law Commission to give its report as far as possible within one year.   Thereafter  the  matter  may  be examined by concerned authorities.   

Action  taken  by  the  Central Government, after its consideration, may be placed on record.  List the matter in November,  2017  before  an  appropriate Bench,  preferably  of  three  Judges  to consider the above issue.”   

             (VINOD KUMAR JHA)

      AR-CUM-PS         (SUMAN JAIN)         COURT MASTER

    (Signed Reportable judgment is placed on the file)