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REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 4407-4408 OF 2011

HARYANA POWER PURCHASE CENTRE   Appellant(s)

VERSUS

MAGNUM POWER GENERATION LIMITED & ANR.   Respondent(s)

WITH

CIVIL APPEAL NOS. 7446-7447 OF 2012

J U D G M E N T

R.F. Nariman, J.

Civil Appeal Nos. 7446-7447 OF 2012:

1) The present appeals arise from an Appellate Tribunal

for  Electricity  order  dated  23.03.2012,  which,  in  turn,

upheld the HERC order dated 23.03.2010.  The brief facts

necessary for decision of these appeals are as follows:-

(i) A Power Purchase Agreement (PPA) dated 12.08.1998 was

entered into between the appellant and the respondent for

sale by the appellant of energy produced by it after setting

up of a power plant.  The salient terms of this PPA are as

follows:-

“5.1. Terms  of  Agreement: This  Agreement shall  become  effective  upon  execution  and delivery  by  the  Parties  here  to  and  unless earlier terminated pursuant to Article 5 shall have a term from the date here of until fifteen (15)  years  from  the  Synchronization  Date  of last Unit. (180) days prior to the end of the full (15) Year term described above the HSEB

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shall have the right for an extension of this Agreement for an additional period as required on the same terms except the Tariff (as defined in Schedule 4) which shall be re-negotiated. Such extension shall begin upon the end of the full fifteen (15) Year term.

In  the  event  the  term  is  not  extended,  the company shall have the option to sell power to third party.

In the alternative HSEB shall have the first right to refusal to buy the Project at the book value.

5.2.  Company Default

The following events unless occurring as a result of a breach by HSEB of its obligations under  this  agreement  or  an  event  of  force majeure, shall constitute an event of default by the Company:-

(a) The Company is adjudicated bankrupt or dissolved or a receiver is appointed for its assets  or  proceedings  for  the  company’s liquidation  (except  for  the  purpose  of amalgamation  or  restructuring  on  terms  not detrimental to HSEB) are continuing more than 120 days after they were commenced.

(b) Any license or consent required by the company to perform its obligation under this Agreement is revoked or is not renewed because of the company’s default.

(c)  The Company fails to commence construction of  the  Power  station  to  a  material  extent within (6) months after the date of financial closing or abandons the Power Station due to the  company’s  default  or  repudiates  this Agreement,  contrary  to  the  terms  of  this Agreement.

(d) The Company declares neither generating unit  available,  or  no  generating  unit  is capable of generating any electricity due to company’s default for a continuous period of six (6) months.

(e) The Company commits a serious breach of this Agreement and which results in the Company being unable to carry out its obligations and

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where the breach is capable of being remedied it has not been remedied within 60 days after HSEB  notified  the  company  in  writing  of  the nature  of  the  breach  and  required  it  to  be remedied.

5.3 HSEB DEFAULT

The following events unless occurring as a result  of  a  breach  by  the  company  of  its obligations under the agreement or an event of Force  Majeure,  shall  constitute  an  event  of default by the HSEB.

(a) HSEB  is  adjudicated  bankrupt  or dissolved  or  a  receiver  is  appointed  of  the whole or any part of its assets or proceedings for its liquidation (other than for the purpose of amalgamation or restructuring on terms not detrimental  to  the  company)  which  are continuing more than 120 days after they were commenced.

(b) If an amount due equal to one months billing  at  75%  PLF,  payable  by  HSEB  to  the company shall remain unpaid more than 60 days after the payment became due.

(c) Any license or consent required by the HSEB or any of its entitled successors pursuant to clause 18.10 to purchase electricity in bulk from  the  company  or  to  transmit  that electricity  for  the  purpose  of  supplying electricity to consumers or any licensee in the State of Haryana is revoked or expires for any reason whatsoever.

(d) HSEB commits a serious breach of this Agreement which results in the company being unable to carry out its obligation and where the breach is capable of being remedied it has not  been  remedied  within  60  days  after  the company notified HSEB in writing of the nature of the breach and required it to be remedied.

(e) HSEB  fails  to  provide,  maintain, restore or replenish the letter of Credit and Escrow  Account  as  per  provisions  of  this Agreement.”

ii) The appellant covenanted and agreed with the HSEB to

design, construct and complete the Project, arrange fuel for

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the Plant and make available to the HSEB not later than the

Required Synchronization Date, the Contracted energy and the

Contracted Operating Characteristics of each Unit.  Clause

8.2 which deals with “operation” is important and is set out

herein below:

“8.2 Operation

(a)  The  HSEB  shall  issue  daily  Dispatch Instructions directing the Company’s generating plant operator to comply with clause 5.2(a) of Schedule  6  but  ensuring  annual  PLF  of  75% failing which the Company will be compensated for the Constant Component of the tariff for the short fall.  The adjustment for PLF will be on  semi  annual  basis.   However,  if  in subsequent six months declared availability is not  sufficient  to  achieve  75%  PLF  then  the overall annual PLF shall be considered on the basis of declared availability over the year.  

(b)  Procedures  for  despatch  of  the  Project shall be in accordance with despatch procedures set out in Schedule 6.  

(c) The HSEB shall have the right to request that  the  Project  be  shutdown  subject  to ensuring annual PLF of 75%.

(d)  The  company  shall  not  be  required  to operate the Project other than in accordance with  Prudent  Utility  Practices  or  except  as provided in Section 8.4, the Technical Limits as such limits may be temporarily modified.

(e) The company shall make reasonable efforts to employ qualified personnel preferably from within the State of Haryana in the operation and maintenance of the Project and to institute appropriate  training  programs  for  such personnel; provided, however, that the Company shall have sole discretion as to the personnel employed for the operation and maintenance of the  project  within  the  bounds  permitted  by law.”  

(iii) Schedule-3  of  the  PPA  laid  down  a  Formula  for

Contracted Electrical Output as well as Annual Plant Load

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Factor as follows:-

“3.1 Formula for Contracted Electrical Output

Contracted  Electrical  output  per  year  in Million KWH (MU)

=(8760x0.75x1000) (1-Aux Cons%) x Tested Capacity in MW 1000000

3.2  Annual  Plant  Load  Factor  (PLF)  shall  be calculated as under:

PLF% = Actual net electrical output in interconnection point, in MU by the project x 100 Net electrical output plant is capable of  delivery at the interconnection point as per  tested capacity of the project.

Note:  Auxiliary  consumption  maximum  allowed 3.5% including transformation losses.”

(iv) Schedule-4  which  spoke  of  “determination  of  tariff”

laid down the tariff as the applicable rate upto 75% Plant

Load Factor (PLF) which shall be Rs. 2.40 for every KWH

respondent delivered out of Rs.2.40; Rs. 1.29 shall be the

constant component during the term of the PPA and Rs. 1.11

is adjustable as per a certain formula with which we are not

directly concerned.   

(v) Under Schedule-6, which speaks of Despatch Procedure,

the appellant is first to make an Availability Declaration

as follows:

“Availability Declaration:

Magnum  Power  Generation  Ltd.  shall,  by  not later than 10.00 hrs each day, submit HSEB an Availability  Declaration,  prepared  as  a  best estimate  on  good  faith,  in  respect  of  an Availability  Period  during  the  following Scheduled Day.”   

The respondent is then to give the appellant a Generation

Schedule under Clause 5 as follows:-

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“5. Generation Schedule

5.1. HSEB shall issue to the Company a schedule of its energy requirement with respect to the generation  by  the  Power  Plant  during  each Schedule  day  by  17:00  hrs  on  the  proceeding Day, provided that the Company had submitted an Availability  Declaration  containing  all  the necessary  information  by  10:00  hrs  on  such proceeding Schedule Day.  However, if HSEB is unable to furnish its energy requirements by the stipulated time of 17.00 hrs. on preceding day,  the  energy  generated  as  per  the availability declaration shall be deemed to be the energy requirement.

5.2 Each Generation Schedule will contain the following  information  in  respect  of  each relevant Schedule day:

(a) The level of Active Power which the Power Plant is required to produce by way of base load  generation.  The  level  of  Active  Power shall be within (-) 10% (minus ten per cent) of the Declared Availability of that Schedule Day; subject  to  minimum  of  75%  of  the  contracted energy.  

(b) HSEB shall ensure that the Power Station is despatched as per the Generation Schedule given to the Company for the Schedule Day.  

(c)  In  exceptional  cases  during  the  monsoon season, HSEB shall have the right to despatch below 75% PLF, irrespective of the provisions of Clause 5.2 (a) above.“

(vi) The Commission issued a Tariff Order dated 12.08.2003

in which it heard the Haryana Vidyut Prasaran Nigam Limited,

the HERC and members of the public.  In the finding insofar

as the present appellant is concerned, the Commission in

sub-para (G) held as follows:-

“G. Availability of power from IPPs (Magnum) Magnum (liquid fuel based plant) provided 94.9 MUs  to  HVPNL  during  FY  2002-03.   HVPNL  has proposed to procure 160 MUs from this source. This being the most expensive source is being dis-allowed by the Commission.”

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The Commission then held as follows:-

“The Commission has not allowed any power to be sourced  from  Magnum.   However,  against  the volume of 160 MUs proposed by the licensee the fixed cost at the rate of Rs. 1.29 per unit is being allowed.”

Ultimately, the Commission concluded:

“For  Magnum,  the  fixed  cost  of  Rs.  206.4 million based on the HVPNL projected volume of 160 MUs and per unit fixed charge of Rs. 1.29 has been considered.  The Commission has not approved any purchase from this source in FY 2003-04,  however,  Commission  recognizes  the Fixed Cost that has to be paid to the generator irrespective of the fact whether any energy is purchased or not.”  

(vii) This Tariff Order which binds both parties was a

final order, not being challenged by either party.  

(viii) Despite this order and the clear direction of the

Commission that fixed costs have to be paid to the generator

irrespective of whether energy is purchased or not, the HERC

order dated 23.03.2010 ultimately dismissed the appellant’s

appeal filed under Section 86(1)(f) of the Electricity Act

as follows:-

“Final Order

The above order of the Commission on each issue needs to be given a concrete shape by calculating  the  due  amount  payable  to  the either party and whatever is the net to be paid to  the  petitioner  as  per  the  following directions:-

After calculating the due amount within a period of one month, first instalment of the same may be paid within a period of two months and the balance amount two months thereafter. This amount however would not be reimbursed by HERC through any claim or through FSA since the respondents have been claiming FSA in respect of  MPGL  under  the  head  “Deemed  Generation

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Charges” and the same stands recovered from the electricity consumers.  Hence, whatsoever the excess  recovery  they  have  made  from  the consumer on this account, after settlement of account with MPGL in the light of the findings in the earlier paragraphs, the remaining amount either be refunded back to the consumer or to be adjusted against the future filing with the prior approval of HERC.  FSA formula approved by  the  Commission  itself  provides  for subsequent adjustment of/under/over recovery of the same.

In passing, the Commission would wish for the  revival  of  the  plant  to  augment  the generating  capacity  in  the  State.   It  is advised  that  both  the  parties  may  request  a generation  expert  at  the  Central  Electricity Authority (CEA) Govt. Of India to pay a visit to the site to check up the present state of the plant in presence of both the parties.  The fees for this maybe equally shared.  Thereafter the  parties  may  work  out  a  scheme  for operationalising the plant for the benefit of all the stakeholders by entering into a fresh PPA/renegotiating  the  existing  one  which  is workable and takes into account the financial interest of both the parties and the interest of the consumers of Haryana at large.

(ix) An appeal from this order was also dismissed by the

Appellate Tribunal by judgment dated 23.03.2012 in which

after  setting  out  the  various  clauses  of  the  PPA,  the

Appellate Tribunal held as follows:-

“33. The above analysis of Article 8.2 would indicate  that  the  Appellant  was  under obligation  to  make  available  the  plant  to generate atleast 148.79 MU at 75% PLF.  This conclusion is supported by Article 6.1(j) & (k) under  which  the  Appellant  has  undertaken  to supply the Contracted Capacity as defined in Schedule 3 of the PPA and works out to 143.79 for  tested  capacity  of  the  Plant.   These provisions  are  reproduced  below  for  better understanding and completeness.

(i) Make available to HSEB not later than the Required  Synchronization  Date,  the  Contracted energy  and  the  Contracted  operating

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Characteristics of each Units; and

(k) Operate and maintain the Project so as to provide the HSEB with the Contracted energy and the Contracted Operating Characteristics of the Units reliably over the Term of this Agreement, taking into account permissible degradation.

3.1 Formula for Contracted Electrical Output Contracted  Electrical  output  per  year  in Million Kwh (MU) = (8760 x 0.75 x 1000) (1-AuxCons.%)xTested Capacity in MW

1000000

= 8760 x 0.75 x 0.965 x 22.67/1000 = 143.79 MU.

34. In the light of above analysis, we hold that  the  Appellant  was  under  obligation  to declare  annual  availability  of  the  plant  to atleast 75% of tested capacity so as to obtain an annual PLF of 75%.”

2) Mr. Jayant Bhushan, learned senior counsel appearing on

behalf  of  the  appellant  has  argued  that  because  of  the

Commission’s  order  of  12.08.2002  and  because  the  power

generated  by  the  appellant  would  impact  the  consumer  as

electricity  charges  would  then  become  very  high,  the

Commission made it clear that the appellant’s electrical

energy was not a source of power which could at all be

tapped as a result of which not even a single mega watt of

power  was  supplied  or  sold  by  the  appellant  to  the

respondent.   He,  however,  contended  that  this  very

Commission’s  order  made  it  clear  that  this  was  in  the

consumer interest, but that the appellant would be entitled

to  recover  its  fixed  cost,  which  unfortunately  has  been

missed  by  both  the  Commission  as  well  as  the  Appellate

Tribunal in the impugned order.  He also argued that both

the orders were faulty in their reading of Clause 8.2 of the

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PPA which cannot be read so that supply at atleast 75% of

the Plant Load Factor be made a condition precedent for

claiming fixed energy charges, as that clause when properly

read makes it clear that the PPA itself made it clear that

once the power project has been set up by the appellant, the

fixed energy cost will have to be paid in any event.  

3) As  against  this,  Mr.  Gurinder  Singh  Gill,  learned

senior  counsel  appearing  on  behalf  of  the  respondent,

supported the judgments of the Commission and the Tribunal,

and argued that a proper reading of Article 8.2 would make

it clear that it would become operative only when declared

availability is more than 75% of the Plant Load Factor.  

4) Having  heard  learned  counsel  for  both  sides,  these

appeals can be disposed of on the short ground that the

Commission’s Tariff Order of 12.08.2003 had made it clear

that fixed costs during the currency of the agreement for

generating electricity must be paid despite no supply having

been made because the tariff order itself interdicted such

supply in consumer interest.  We have also noted that for

the years in question it is clear that the fixed cost that

has been demanded by the appellant from the respondent has

in fact been collected from the consumer but not paid over

to the appellant, which would result in an unjust windfall

for the respondent.  On this ground, therefore, we set aside

the  impugned  order  and  declare  that  for  the  years  in

question the demanded amount by the appellant towards fixed

cost of running their unit @ Rs. 1.29 per unit be paid by

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the respondent within a period of 3 months from today.   

5) Given the fact that the appellant has lost in both the

original forum as well as the appellate forum, and which has

taken over 15 years to decide, and given the fact that the

respondent is a Government-Company, we deem it appropriate

that  this  amount  be  paid  with  simple  interest  @  3%  per

annum.  In case the amounts are not paid within three months

from today, the interest component shall become 6% p.a. for

payment made beyond 3 months.  The impugned judgment is set

aside to the extent that the appeals are decided against the

respondent.  The appeals are accordingly allowed.  

Civil Appeal Nos. 4407-4408 OF 2011:

6) The  appeals  before  the  Appellate  Tribunal  were

dismissed on the ground that 327 days delay be not condoned.

In any case, we find that nothing survives in these appeals

after we have partly allowed the appeals in Civil Appeal

Nos.  7446-7447  OF  2012.   These  appeals  are  disposed  of

accordingly.

   .......................... J.

       (ROHINTON FALI NARIMAN)

                     .......................... J.   (V. RAMASUBRAMANIAN)

New Delhi; January 21, 2020.