1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 5084-5085 OF 2015

RITHWIK ENERGY GENERATION PVT. LTD.    …APPELLANT

VERSUS

          BANGALORE ELECTRICITY SUPPLY CO. LTD.            & ORS.  ETC.        …RESPONDENTS

                      J U D G M E N T

R.F. Nariman, J.    

1) The  present  appeals  are  filed  by  the  appellant  -  a

Generating Company, which entered into an Agreement dated

26.09.2006, with the Government of Karnataka for setting up a

24.75 MW mini hydro-electric power plant in a certain District in

Karnataka.  On 03.05.2007, the appellant and Respondent No.1

signed  a  Power  Purchase  Agreement  (for  short  'the  PPA').

Pursuant to the Clauses of the PPA, Respondent No.1 sent the

PPA to the State Commission for its approval.  On 06.06.2007,

the State Commission did not accord its approval to the PPA

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and returned the same on the ground that Respondent No.1's

quota  of  10% under  the Karnataka Regulations of  2004 had

already been exhausted from other sources.

2) Meanwhile,  on  26.07.2008,  the  appellant  entered  into

another PPA with PTC India Limited for sale of electricity and

sought the Commission's approval for supply to PTC under the

Open Access provisions of the Electricity Act.  On 31.08.2009,

the  appellant  filed  O.P.  No.  29  of  2009  before  the  State

Commission seeking a declaration that no valid PPA subsisted

between the  appellant  and  Respondent  No.1,  as  a  result  of

which it was open to the appellant to enter into another PPA and

supply electricity under the Open Access system.

3) On  23.12.2010,  the  State  Commission  dismissed  the

appellant's  O.P. holding  that  the  return  of  the  PPA did  not

tantamount  to  rejection,  and  this  non-grant  of  approval,

therefore, did not invalidate the PPA between the parties.  An

Appeal was preferred before the Appellate Tribunal, during the

pendency of which a letter dated 05.05.2011 was sent by the

appellant to Respondent No.1.  As a great deal turns upon the

effect of this letter, the relevant paragraphs are set out herein

below:-

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The letter begins with “WITHOUT PREJUDICE” and has as its

Subject - “Permission to sell Power to Third Parties”.  The letter

then goes on to state that on the assumption that the PPA is

valid, which is pending appeal before the Appellate Tribunal, the

appellant wishes to bring to the attention of Respondent No.1

three  specific  defaults  in  the  obligations  undertaken  by

Respondent  No.1  under  the   PPA.   The  defaults  related  to

default in making payments for the Power Bills within 15 days of

submission;  default  in  payment  of  interest;  and  default  in

opening a Letter of Credit.  The letter further goes on to state:  

“Thus,  BESCOM  defaulted  in  its  financial  and  material

obligations,  that  too  for  over  a  continuous  period  of  three

months.

There, BESCOM shall permit, in terms of Article 9.2.2. of the

disputed PPA, our Company to sell power from the Project to

third  parties  and  for  entering  into  Wheeling  and  Banking

Agreement with it.

So we request you to confirm that you will permit us to sell the

power to third to pay the applicable charges.”

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4)  On  21.10.2011,  the  Appellate  Tribunal  dismissed  the

appeal  filed  by the  appellant.   On the  two  issues  that  were

raised  before  the  State  Commission,  the  Appellate  Tribunal

found  in  favour  of  Respondent  No.1  and  was  in  complete

agreement  with  the  findings  of  the  State  Commission.

However, the Appellate Tribunal then went on to advert to an

affidavit that was filed before the Appellate Tribunal seeking to

bring on record certain subsequent events as being material for

decision  of  the  appeal.   And these  subsequent  events  were

sought to be brought on record by the appellant itself.  After a

contest on whether these events ought to be brought on record,

Respondent No.1 stating that this is a new case not permissible

in  appeal,  the  Appellate  Tribunal  turned  down  the  plea  of

Respondent No.1 and felt that it was important to examine the

subsequent  events  on  merits.   It  then  referred  to  certain

provisions of  the  PPA and, in particular, Clause 9.3.2 which

deals with termination for default of Respondent No.1, and then

went on to hold as follows:

“12.12. Thus, for termination of the PPA, in the

event of payment default for a continuous period

of  three  months,  the  appellant  has  to  deliver  a

Default Notice to the second respondent in writing

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calling upon it to remedy the same.  After expiry of

30 days from delivery of notice unless the parties

have agreed otherwise or the event of default has

been  remedied,  the  appellant  can  deliver  a

Termination  Notice  to  the  second  respondent

under intimation to the State Commission.  Upon

delivery of the Termination Notice, the PPA shall

stand terminated.

Xxx xxx xxx

12.13 Admittedly,  no  notice  to  remedy  the

default or termination notice has been served by

the  appellant  on  the  respondent  distribution

licensee,  only  a  letter  dated  5.5.2011  about

payment default  and seeking permission to third

parties in terms of Article 9.2.2. was sent to the

respondent distribution licensee on 19.5.2011 after

the interim order of the Tribunal dated 18.5.2011”

5) On  11.05.2012,  since  according  to  the  appellant,

Respondent  No.1  did  not  remedy  the  default  in  payment  of

interest despite the expiry of 30 days period from the date of the

notice dated 05.05.2011 and also from the expiry of a further

period  of  30  days  granted  by  the  Appellate  Tribunal,  the

appellant  purported  to  terminate  the   PPA.   The  letter  of

11.05.2012 specifically referred to and relied upon the notice

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dated 05.05.2011 and referred to it in para 9 thereof as a default

notice  that  was  issued  subsequent  to  which,  defaults  as

mentioned  therein,  were  not  cured  and  that  therefore,

exercising  their  rights  under  Clause  9.3.2  of  the  PPA,  a

termination  notice  was  then  issued.   It  needs  only  to  be

mentioned that on 29.05.2012, in reply to the “without prejudice”

part of the 11.05.2012 notice to pay interest, in any case, within

30 days from the said notice, Respondent No.1 paid a sum of

Rs. 3.22 lakhs as interest.  On 14.08.2012, it also substituted

the earlier Letter of Credit that was opened and opened a Letter

of Credit for an amount that was in accordance with the PPA, as

was contended by the appellant.

6) Thereafter, on 21.02.2013, Respondent No.1 filed O.P. No.

6 of 2013 before the State Commission for a declaration that

the termination of the PPA by the appellant was invalid.

7) By an  order  dated  09.05.2013,  the  Central  Commission

first asked the petitioner i.e. the appellant herein to approach

the State Commission for adjudication of the dispute regarding

subsistence or otherwise of the PPA after the termination notice

dated 11.05.2012.

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8) On 17.10.2013, Respondent No.1's O.P. No. 6 of 2013 was

allowed  by  the  State  Commission,  relying  strongly  on  the

observations  of  the  Appellate  Tribunal  in  its  judgment  dated

21.10.2011, which have been extracted above, to say that the

notice dated 05.05.2011 was not a default notice or could not be

said to be a default notice under Clause 9.3.2 of the  PPA and

that  this  being  so,  it  is  clear  that  the  subsequent  notice  of

termination based upon the 05.05.2011 notice being a default

notice could not be said to be valid in law.  It thus allowed the

O.P. filed by Respondent No.1 and held the termination of the

PPA to be invalid.

9) In appeals filed against both the 09.05.2013 order and the

17.10.2013 order, the Appellate Tribunal dismissed the appeals

of  the  appellant,  again  relying  upon  the  Appellate  Tribunal's

judgment  dated 21.10.2011 in  stating  that  the alleged notice

dated 05.05.2011, not being in conformity with Clause 9.3.2 of

the  PPA,  could  not  be said  to  be a  default  notice  and that,

therefore,  any  termination  notice  issued  thereafter  is  also

invalid.  It also ultimately found, as a matter of fact, that so far

as the Letter of Credit was concerned, since the appellant had

not gone to the State Commission to remedy the same, it did

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not  find  any  fault  with  the  State  Commission's  orders  and

ultimately  after  summarizing  its  findings,  dismissed  both  the

appeals.

10) Mr. Dhruv Mehta, learned Senior Advocate, appearing on

behalf  of  the  appellant  has  raised  three  points  before  us.

According to him, the finding based on the letter of 05.05.2011

by the Appellate Tribunal in its judgment dated 21.10.2011 was

not  on a matter  directly and substantially in issue, but  being

merely collateral, could not be said to be res judicata.  He next

argued that,  in any case, the notice dated 05.05.2011 was a

notice,  which  substantially  conformed  to  Clause  9.3.2  of  the

PPA,  and,  therefore,  ought  to  have  been  held  as  a  default

notice.  This being so, the termination notice dated 11.05.2012

was  valid  in  law and,  therefore,  the  judgments  of  the  State

Commission as well the Appellate Tribunal are incorrect on this

score.  He cited certain judgments, which will be dealt with by

us.  He also argued that despite the relevant period under the

PPA  having  long  elapsed,  defaults  continued  and  were

remedied long after the period so stated.

11) Ms.  Pratiksha Mishra,  learned counsel appearing for  the

respondent(s), on the other hand, first argued that Mr. Mehta's

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client ought to be estopped from taking the plea that there was

no res judicata in the instant case, and it is the appellant itself

that filed an affidavit before the Appellate Tribunal and called for

a  finding  on  subsequent  events  which,  according  to  the

appellant, was important for determination of the issue at hand.

She also adverted to the relevant portions of the judgment of

the Appellate Tribunal dated 21.10.2011, and stated that, in any

case, it was correct in law.  So far as the opening of the Letter

of Credit was concerned, it was her case that a Letter of Credit

was  opened and there was,  therefore,  no default.   Only the

amount for which it was opened being lower than what the PPA

required,  when  such  default  was  pointed  out,  rectification

followed and the Letter of Credit as it stands after 14.08.2012 is

opened in accordance with the PPA.

12) Having  heard  the  learned  counsel  appearing  for  the

parties, we are of the view that there is no doubt whatsoever

that the appellant itself invited the Appellate Tribunal to go into a

subsequent  event,  which,  according  to  it,  was  of  extreme

importance in deciding the appeal.  This being the case, it is

clear that, after contest, and after the Appellate Tribunal held in

favour of the appellant that such subsequent event is indeed

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important and will be decided by the Tribunal, and then suffering

a finding which was found, on merits, to be against it, we are of

the view that the appellant is clearly estopped from attempting

to argue now that  the very important  issue raised by way of

subsequent events according to the appellant itself should be

held,  as  a  matter  of  law,  to  be  only  a  collateral  issue  and

therefore, not res judicata.

13) In  Pasupuleti Venkateswarlu vs.  The Motor & General

Traders,  [1975]  3  S.C.R.  958,  this  Court  adverted  to  the

cautious taking into account of events that arise subsequent to

the  filing  of  a  petition.    Krishna  Iyer,  J.,  in  the  aforesaid

decision, stated:

“We feel the submissions devoid of substance.

First about the jurisdiction and propriety vis a

vis  circumstances  which  come  into  being

subsequent  to  the  commencement  of  the

proceedings.   It  is  basic  to  our  processual

jurisprudence  that  the  right  to  relief  must  be

judged to exist as on the date a suitor institutes

the  legal  proceeding.   Equally  clear  is  the

principle  that  procedure is  the  handmaid  and

not  the mistress of  the judicial  process.   If  a

fact, arising after the lis has come to court and

has a fundamental impact on the right to relief

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or  the  manner  of  moulding  it,  is  brought

diligently to the notice of the tribunal, it cannot

blink at it or be blind to events which stultify or

render  inept  the  decretal  remedy.   Equity

justifies bending the rules of procedure, where

no specific provision or fairplay is violated, with

a view to promote substantial justice-subject, of

course,  to  the  absence  of  other  disentitling

factors  or  just  circumstances.   Nor  can  we

contemplate any limitation on this power to take

note of  updated facts to confine it  to the trial

Court.  If the litigation pends, the power exists,

absent  other  special  circumstances  repelling

resort to that course in law or justice.  Rulings

on this point are legion, even as situations for

applications of  this  equitable  rule  are myraid.

We affirm the proposition that for making  the

right or remedy claimed by the party just and

meaningful  as  also  legally  and  factually  in

accord with the current realities, the court can,

and  in  many  cases  must,  take  cautious

cognizance  of  events  and  developments

subsequent to the institution of the proceedings

provided the rules of fairness to both sides are

scrupulously obeyed.”

It is clear therefore, that once a Court or Tribunal decides to

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look into a subsequent event at the behest of any of the parties,

the Court itself thinks that it is important to do so, otherwise it

would not look into such subsequent event.

14) In  Sajjadanashin Sayed Md. B.E. EDR. (D) by LRs. vs.

Musa Dadabhai Ummer and Others, (2000) 3 SCC 350, one

of the issues that arose for consideration was what exactly is an

issue which is directly and substantially in issue, as opposed to

being collaterally and incidentally  in  issue.   After  referring to

various  authorities,  both  English  and  American,  this  Court

ultimately referred to and relied upon Mulla’s Civil  Procedure

Code (15th Edition) in which two tests were set out.  One test is

that if the issue was “necessary” to be decided for adjudicating

on the principal issue, and was decided, it would be treated as

directly and substantially in issue as the judgment was, in fact,

based upon such a decision.   The other principle is that  the

issue must be decided on the facts of each case, the material

test  to  be  applied  being  whether  the  Court  considers  the

adjudication  of  the  said  issue  material  and  essential  for  its

decision.

15) As  seen  from  the  Appellate  Tribunal’s  judgment  dated

21.10.2011,  not  only  did  the  appellant  considered  the

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subsequent  event  as  directly  and  substantially  in  issue  for

deciding  the  appeal,  which  incidentally  was  not  opposed  by

Respondent No.1 on this ground but on the ground that it would

be  bringing  in  a  new issue  at  the  stage  of  appeal,  but  the

Appellate Tribunal having turned down the Respondent No.1’s

plea, and having examined subsequent events, it cannot but be

said that the Appellate Tribunal itself considered the issue No.3

raised by it, based on subsequent events brought to its notice,

as being directly and immediately in issue.  On this ground also,

therefore,  we  are  of  the  view that,  apart  from the  appellant

being estopped in law from raising such a plea, the plea itself

has no legs to stand down.

16) We now come  to  the  other  main  plank  of  Mr.  Mehta’s

submission.  Mr. Mehta read to us Clause 9.3.2 of the PPA and

contended  that  the  letter  dated  05.05.2011  substantially

complied with the requirements of the said clause and should

be treated to be a notice of default under the said clause.  To

appreciate this plea, Clause 9.3.2 of the PPA needs to be set

out:

“9.3.2  Termination for corporation's Default: Upon the occurrence of an event of default as

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set  out  in  sub-clause  9.2.2  above,  Company

may deliver a Default Notice to the Corporation

in  writing  which  shall  specify  in  reasonable

detail  the  Event  of  Default  giving  rise  to  the

default notice, and calling upon the BESCOM to

remedy the same.

At  the  expiry  of  30  (thirty)  days  from  the

delivery  of  this  default  notice  and  unless  the

Parties have agreed otherwise or the Event of

Default  giving  rise  to  the  Default  Notice  has

been  remedied,  Company  may  deliver  a

Termination Notice  to  Corporation.   Company

may  terminate  this  Agreement  by  delivering

such a Termination Notice to Corporation and

intimate  the  same  to  the  Commission.  Upon

delivery  of  the  Termination  Notice  this

Agreement shall stand terminated.

Where a Default  Notice has been issued with

respect  to  an Event of  Default  which requires

the  co-operative  of  both  BESCOM  and  the

Company to remedy, BESCOM shall render all

reasonable cooperation to enable the Event of

Default to be remedied.”  

A reading of this clause would show that upon occurrence of an

event  of  default,  a  default  notice  may  be  served  to  the

Corporation in writing.  The requirements of the aforesaid notice

are two fold – (1) to specify in reasonable detail the event of

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default  giving  rise  to  the  notice,  and  (2)  calling  upon

Respondent  No.1 to remedy the same within  a period of  30

days from the delivery of the default notice unless the parties

have agreed otherwise.  It is only then that the Company may

deliver a termination notice to the Corporation.

17) On a perusal of the letter dated 05.05.2011, what is clear is

that the letter speaks only of events of default, but does not call

upon Respondent No.1 to remedy the same within the period

specified.   This,  according  to  Mr.  Mehta,  is  in  any  event

substantial compliance with the aforesaid clause.  We cannot

agree.   Both  parts  of  Clause  9.3.2  are  important  -  one

specifying  in  reasonable  detail  the  event  of  default  and  the

second,  calling  upon Respondent  No.1 to  remedy the  same

within a period of 30 days.  It is also important to note that the

parties  may otherwise agree,  in  which case the Respondent

No.1 may remedy the defaults mentioned in the notice either

before or after the expiry of 30 days period laid down, showing

that the parties considered that this part of Clause 9.3.2 is as

important as the first part, for otherwise, a termination notice

could,  de hors the second part  of  Clause 9.3.2 have issued

straight away without more.  This being the case, we are unable

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to  agree  with  Mr.  Mehta’s  submission  that  there  has  been

substantial compliance of Clause 9.3.2 of the PPA.

18) Mr. Mehta cited three judgments before us to persuade us

that  the  letter  dated  05.05.2011 substantially  complied  with

Clause 9.3.2 of the PPA.

19) In  Nani Gopal Biswas vs.  The Municipality of Howrah,

[1958  S.C.R.  774,  this  Court  was  concerned  with  a  notice

issued under Section 299 of the Calcutta Municipal Act, 1923.

Since Section 300 of  the Municipal  Act  was attracted to the

facts of the case and not Section 299, this Court held that even

though the notice may be headed as being under Section 299

of the Act, it would make no difference as, in substance, the

effective part of the notice leaves no doubt in the minds of the

parties  concerned  that  the  requisition  is  to  remove  an

encroachment caused by a compound wall which is a structure

which  falls  within  Section  300.   This  case  is  wholly

distinguishable inasmuch as all that was required by Section

300 of the Calcutta Municipal Act was the fact that a compound

wall  was  an  encroachment.   This  was  clearly  stated  in  the

notice,  and the fact  that  it  was stated to  be under  a wrong

provision of  law would,  therefore,  make no difference to the

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substance of the notice.  

20) Similarly, in Thakur Pratap Singh vs. Shri Krishna Gupta

and Others,  [1955] 2 S.C.R. 1029, this Court dealt with the

filling up of a nomination paper in order to stand for the office of

President of a Municipal Committee.  Here again, this Court

held that the fact that the word “occupation” in the form was

either struck out or left blank would make no difference since a

man’s occupation is not one of the qualifications for the office

of President.  It was, therefore, held that this part of the form

was  only  directory,  and  is  part  of  the  description  of  the

candidate, but does not go to the root of the matter, so long as

there  is  enough  material  in  the  paper  to  enable  him  to  be

identified  beyond  doubt.   This  judgment  again  is  wholly

distinguishable  on  facts  in  that,  as  has  been  found  by  us

above,  the  part  of  Clause  9.3.2  relating  to  calling  upon

Respondent No.1 to remedy defaults within a period of 30 days

unless  otherwise  agreed  is  as  important  as  the  events  of

default that have been stated to have taken place. Substantial

compliance, therefore, can be no answer to such a mandatory

requirement.

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21) It  is  unnecessary  for  us  to  pronounce  on  any  further

aspect, including the aspect of late payment and late opening

of  Letter  of  Credit.   We are  of  the  view that  the  Appellate

Tribunal in the impugned judgment cannot be faulted on any

score.    

22) The appeals are, accordingly, dismissed.  

                                                 .…………………………J.     (R.F. Nariman)

           ………………………..…..J.

            (Navin Sinha) New Delhi; February 06, 2018