I ^J . ,` + i¢- eF) IN THE HIGH COURT OF SIKKIM AT GANGTOK (CVIVIL EXTRA-ORDINARY JURISDICTION) DATED = /4 .10.2010 CORAM HON'BLE MR. JUSTICE P.D. DINAKARAN, CHIEF JUSTICE Writ Petition /CI No, 40 of 2005 Nar Bahadur Bhandari, Resident of Gangtok, East Sikkim. Shri Anil Lachenpa, Resident of Lachen, North Sikkim Presently residing at Tibet Road, P.O. & P.S. Gangtok, Sikkim. Shri Bal Chand Sarda, Resident of M. G. Marg, P.O. & P.S. Gangtok, East Sikkim. ... Petitioners -versus- The State of Sikkim, Represented by the Chief Secretary, Government of Sikkim, Gangtok. The Principal Chief Engineer-cum-Secretary to the Govt. of Sikkim, Energy & Power Department, Gangtok .i:I:+i ® M/s. Teesta urja Ltd., 119, Jorbagh, New Delhi -110 003, India. The Union of India, Represented by the Secretary, Ministry of Power, New Delhi. The Secretary to the Govt. of India, Ministry of Forest & Environment, New Delhi. Chairman, Central Electricity Authority, Sewa Bhavan, R. K. Puram, New Delhi -110 066, ... Respondents. Forthe petitioners : Mr. M. Z. Ahmed, Sr. Advocate with Ms. 8. Dutta, Advocate. Forthe respondents : Mr. A. Mariarputham, Advocate General, with Mr. J. 8. Pradhan, Addl. Advocate General and Mr. S. K. Chettri, Asstt. Govt. Advocate for the State-respondents. Mr. Karma Thinlay Namgyal, Central Govt. Counsel for respondents No. 4, 5 and 6. Mr. Jayanta Mitra, Sr. Advocate with Mr. Tarun Johri, and Ms. Sunita Pradhan, Advocates for respondent No. 3. ¢Sh.-...-.`..` Dinakaran, CJ JUDGMENT I. The core issue The core issue that arises for consideration in this Writ Petition is: Whether the Agreement dated 18.07.2005 entered into between the State of `Sikkim and M/s. Teesta Urja Ltd. (respondent No.3), for setting up a Hydro Electric Project - Teesta Stage Ill based on the policy of State/Letter of Intent dated 26.02.2005, is contrary to law, guidelines, and mandatory instructions of the Ministry of Power, Government of India and opposed to public interest? 11. _Public Interest Litigation_ This is a Public Interest Litigation. The first petitioner was the former Chief Minister of the State of Sikkim during the period 1979 to 1984. He was subsequently elected as a Member of Parliament and then again was the Chief Minister until 1994; the second petitioner is an active member and office bearer of the Sikkim Pradesh Congress Committee; and the third petitioner is the Treasurer of the Sikkim Pradesh Congress Committee and was also the former Mayor of Gangtok and former Member of the Legislative Assembly of Sikkim. I.-=#p... Heard Mr. M. Z. Ahmed, learned Senior Counsel for the petitioners, Mr. A. Mariarputham, learned Advocate General for respondents No. 1 and 2, Mr. Jayanta Mitra, learned Senior Counsel for respondent No. 3 and Mr. Karma Thinlay Namgyal, learned Central Government Counsel for respondents No. 4, 5 and 6' Ill. The Case of the Petitioners The relevant and undisputed factual matrix of the case is stated as follows: - (i) The proposal for carrying out Hydro Electric Projects in the State of Sikkim originated in the year 1974. The Sikkim State became part of the Indian Union in the year 1975 by the 36th Amendment of the Constitution of India. An expert team was constituted by Central Water Commission (CWC) to formulate the proposal and make suggestions for carrying out such investigations for establishing Hydro Electric Generation Schemes in Sikkim particularly in Teesta and Rangit Valleys of Sikkim. (ii) CWC prepared a detailed Project Report for the 1200 MW Teesta Stage-Ill Hydro Electric Pro].ect in the year 1987. The Ministry of Power, Government of India RE± requested the Government of Sikkim's concurrence to carry out the execution of the Pro].ect under the Central Sector with National Hydroelectric Power Corporation Ltd. (NHPC) as the implementing agency in October 1987 by a letter dated 12.10.1987. The State Government forwarded its concurrence to the said proposal on 14.03.1988. (iii) The Detailed Project Report was drawn by NHPC for the purpose of obtaining Techno Economic Clearance in December 1990, (iv) In the year 1991, the Government of India announced a new liberalized policy whereby, the Government of India permitted entry of private parties in the field of power generation and consequently, certain private parties expressed their interest in executing Teesta Stage-Ill Hydro Electric Project for generating 1200 MW electricity. (v) The Government of Sikkim, to secure its interest in a better manner, invited interested parties for implementation of the aforesaid pro].ect. (vi) The State Government without taking any policy decision or carefully examining the proposals of the private parties in detail, arbitrarily withdrew its original proposal to execute the project with NHPC. T`-, `- _ ---- (vii) Government of Sikkim thus proposed to invite bidding from the interested developers across the globe, to develop the said Power Pro].ect on `Build, Own, Operate and Transfer' (BOOT) basis in the year 1993, and also sought permission from the Central Government to execute the above project on BOOT basis. Based on such invitation several interested parties came forward to execute the Teesta Stage-Ill Hydro Electric Power Project for generating 1200 MW electricity. Of them seven private parties were short listed. For taking further decision in the matter, a High Level Committee was formed to evaluate the bids and offers. (viii) The Ministry of Power, Government of India in their letters dated 18.01.1995 and 15.02.1995, stipulated a mandate that after 18.02.1995, private power projects whose total estimated cost exceeded Rs.100 crores, would have to be awarded only through process of competitive bidding. (ix) Thereafter, by letter dated 02.08.1996, the Government of India clarified that competitive bidding will not be necessary for selection of the private company partner in I.oint venture projects, where the State Electricity Board/Public Sector Undertakings hold the major share in tE:7-b the I.oint venture company, i.e. a minimum of 51% equity share. By the. said letter dated 02.08.1996, the Government of India also invited attention to their earlier letter dated 28.06.1996, which contemplates that International Competitive Bidding (ICB) be followed for award of Engineering, Procurement and Construction (EPC) contracts for projects awarded through the MOU/LOI route, and that, in case of joint venture projects between State Electricity Board/Public Sector Undertaking and a private company, International Competitive Bidding may be followed, only in cases where the private project developer has not been selected through competitive bidding. (x) By letter dated 10.01.1997, Ministry of Power, Government of India made it clear that MOU/LOI signed on or before 18.02.1995 by the State Government/State Electricity Boards with independent power producers for implementation of the project by the latter, would alone be considered by the Central Electricity Authority (CEA) for accord of their clearance and 31.03.1996 would be the deadline for such `in-principle' clearance; and that where the pro].ect cost is more than Rs.100 crores, the techno- economic clearance by CEA is mandatory. -1 `if 1= (xi) Out of seven parties, only three parties submitted their bids and in view of repeated requests by other parties, the final date was fixed as 24.12,1997. The bidding process continued for a long period of time but none of the bids submitted were attractive and beneficial for the State. (xii) The State, therefore, once again proposed to allot the Teesta -Ill along with Teesta I and 11 to NHPC in November, 2002. NHPC was willing to execute the project on Build, Own and Operate (BOO) basis, as per the guidelines of the Government of India. But the State- respondents wanted the pro].ect to be developed on Build, Own, Operate and Transfer (BOOT) basis. Hence, the matter was referred to a Negotiation Committee which was constituted in January, 2003 for carrying out negotiation with NHPC. But no settlement could be arrived before the Negotiation Committee. (xiii) In the year 2003, the new Electricity Act, 2003 came into force, which facilitated development of Hydro- power Projects liberally. Government of India announ`ced the 50,000 MW Hydro Power Initiative to harness the untapped hydro potential in the country. (`ch--..-..-.-...-.- (xiv) In October, 2003, the Ministry of Power clarified that in case NHPC is unable to meet the requests of the State Government, the State would be well within its right to either allot the projects to Independent Power Producers or to develop the projects under joint sector in partnership with developers. (xv) Based on the new liberal policy, the Cabinet of the State met on 25.05.2004 and decided to speed up the efforts to tap the hydro power potential in the State. Accordingly, a High Powered Hydro Power Committee was constituted on 15.06.2004 to expedite development of the Hydroelectric projects in the State of Sikkim. (xvi)The Government of Sikkim, thereafter, announced the Power Policy, which proposed that the projects above 25 MW capacity would be developed on BOOT basis under joint sector with Government of Sikkim holding 250/o of equity share in the projects and the partners would have to arrange the funds for equity participation by Government and Government shall repay the loan from the revenues accruing from the free power. (xvii)The High Power Committee constituted by Notification dated 15.06.2004 recommended 13 projects in the State of Sikkim, one of them being Teesta Stage-Ill (fu....---.. /i- ` ` ` Jr 10 Hydro Electric Project and the same was recommended to the consortium led by M/s. Athena Projects Private Limited. (xviii) The Cabinet Note dated 21.02.2005 proposing award of 13 projects to various developers as recommended by the High Powered Hydro Power Committee was considered and approved by the Cabinet in its meeting held on 22.02.2005. (xix) On 26.02.2005 the Cabinet approved the Policy of the State Government in the matter of awarding contract ® to Athena Projects Private Ltd. - a Consortium for the development of Teesta Stage-Ill Hydro Electric Power Pro].ect, 1200 MW electricity production, one of the major power pro].ects in the country, on BOOT arrangement. (xx) On 06.04.2005, M/s. Athena Pro].ects Private Limited informed the Government that it has incorporated the Company, Teesta Urja Limited, respondent No.3 herein, as a Special Purpose Vehicle for implementation of the project. (xxi) Trie Government of Sikkim by its letter dated 20.04.2005 ,approved the formation of the Company, whereunder, M/s. Athena Pro].ects Private Limited along with its consortium partners would hold 740/o of the equity ci.b---..-` t `,. Ezi 5.1 11 of Teesta Urja Limited and the Government of Sikkim would hold 260/o of the equity of Teesta ur].a Limited. (xxii)The Government of Sikkim, thereafter, entered into an Agreement with Teesta ur].a Ltd. (respondent No.3) on 18.07.2005, for the development of Teesta Stage-Ill Hydro Electric Power Project, for production of 1200 MW electricity, one of the ma].or power pro].ects in the country. Mr. M.Z. Ahmed, learned Senior Counsel for the petitioners, with the above backdrop of the case, contends that the very policy of the State Government, as chalked out by the Cabinet in the Letter of Intent dated 26.02.2005, is contrary to public interest and also various guidelines issued by the Ministry of Power, Government of India dated 18..01.1995, 28.06.1996, 02.08.1996, 09.01.1997 and 10.01.1997, which mandate: (i) that after 18.02.1995, private power projects whose total estimated cost exceeded Rs.100 crores, would have to be awarded only through International Competitive Bidding (ICB); (ii) that International Competitive Bidding (ICB) would have to be followed for award of Engineering, Procurement and Construction (EPC) contract for pro].ects routed through the Memorandum of Understanding/Letter 12 of Intent route after 18.02.1995. In the case of ].oint venture pro].ects, between the State Electricity Boards/Public Sector Undertakings and a private company, ICB may be followed only where the private project developer has not been selected through competitive bidding; (iii) that pro].ects routed through Memorandum of Understanding /Letter of Intent signed on or before 18.02.1995 by the State Governments/State Electricity Boards with Independent Power Producers (IPPs) for implementation of projects by the latter, would be considered by Central Electricity Authority (CEA) for accord of their clearance and that, where project cost exceeding Rs.loo crores, Central Electricity Authority's techno- economic clearance would be required; (iv) that International Competitive Bidding (ICB) is not necessary for selection of private company partner in joint venture projects between the State Electricity Boards / Public Sector Undertakings and a private company, where State Electricity Board/Public Sector Undertaking holds the ma].ority share in the ].oint venture company, i.e. a minimum of 51 % of equity shares of the ].oint venture company. In the instant case, the State Government holds tke---.-.- 13 only 26 0/o of the equity shares and, therefore, International Competitive Bidding (in the matter of EPC contract/turnkey contract) could not be dispensed with; (v) that the Central Electricity Authority's techno- economic clearance is also mandatory as per Section 29 of the Electricity (Supply) Act, 1948 and Section 8 of the Electricity Act, 2003, but the same has not been complied with in the instant case; (vi) that the impugned Agreement dated 18.07.2005 is contrary to the recommendations of the Carrying Capacity Study of Teesta Basin in Sikkim by the Centre for Inter-Disciplinary Studies of Mountain & Hill Environment (CISMHE), University of Delhi, an Expert Body constituted by the Ministry of Environment and Forests, Government of India, which thoroughly weighed the impacts of the impugned project on ecology and environment as weH as biodiversity in Teesta Basin in Sikkim. 5.2 Mr. M. Z. Ahmed, the learned Senior Counsel for the petitioners, further contends that the Teesta Ur].a Ltd. (respondent No.3), has not declared technical and financial capacity of its Board of Directors. If the proj.ect ultimately fails, not only the State Government, but the Nation alst CiEL------.. would suffer •{ tl 14 on account of ecological and environmental imbalance, as the forest lands are diverted for the purpose of the impugned pro].ect. That apart, the private parties, whose lands would be acquired for the impugned project, would also be put into irreparable loss and hardship. In any event, it is argued that 12% free power to the State for the first 15 years and 150/o free power to the State from the 16th to the end of the 35th year, as provided in the Agreement, would not compensate the loss that would be caused to the eco-friendly environment and bio- diversity conditions that prevail in the impugned Teesta basin. 5.3 According to Mr. M.Z. Ahmed, learned Senior Counsel for the petitioners, the impugned Agreement dated 18.07.2005 is illegal, because the Letter of Intent dated 26.02.2005, which is also called the Policy of the State, was issued to Athena Pro].ects Private Limited, the leader of the consortium members, while the Agreement was signed by a third party namely Teesta Urja Limited (respondent No.3), the Special Purpose Vehicle, who is in no way connected with the Letter of Intent dated 26.02.2005. 5.4 In any event, it is contended that the special purpose Vehicle (SPV) Teesta urja Limited (respondent No.3) could not be treated as a Public Sector Undertaking as the State does not possess 51 % of equity shares but has got only limited interest in (.,_ _ -----.. -}.` •.t 15 the said Special Purpose Vehicle i.e. 26 % of the equity shares, whereas the consortium members of Athena Pro].ects Private Ltd. have 74 % of equity shares with them. 5.5 The decision making process adopted in awarding the impugned contract js therefore, arbitrary, discriminatory and jllega,. The petitioners have also filed two miscellaneous applications, viz. Civil Misc. Application No.114 of 2006 and No. 127 of 2006 for amendment of the prayers, whereunder, the petitioners propose to challenge the policy of the State Government drawn by the Letter of Intent dated 26.02.2005 and raise additional pleadjngs respectively. But the petitioners did not press the C.M.A No, 114 of 2006 and, therefore, the same was dismissed as withdrawn by order dated 17.03.2008. The C.M.A. No.127 of 2006, for raising additional pleadings, was ordered vide this Court's order dated 17.03.2008. IV. Case of the state Government 7. Mr. A. Mariarputham, learned Advocate General appearing for the respondents No. 1 and 2 (viz. State of Sikkim) co ntends., qE_. 16 (i) that the above writ petition is politically motivated, and therefore, the same js not a Public Interest Litigation. In this regard, the learned Advocate General invited my attention to the earlier order of the Division Bench of this Court dated 28.04.2008, made in a similar Public Interest Litigation vjz. W.P,(C) No. 25 of 2006, filed by the very same writ petitioners on the same cause of action, challenging the resolution of the Cabinet dated 22.02.2005 and the consequential Letter of Intent dated 26.02.2005 (vjz. the Power Policy of the Government of Sikkim) for implementing 13 Hydro Electric Pro].ects, including the impugned Teesta Stage Ill Hydro Electric ProJ'ect; (ii) that after the new enactment of the Electricity Act, 2003, the Central Government liberalized the National Electricity Policy, encouraging private participation in implementjng such pro].ects liberally, smoothly and effectively; and that the Central Government has given discretion to the respective State Governments to work out their own modalities. The new National Electricity Policy dated 12.02.2005 of the Central Government, is made in comphancewlthsection3oftheE#003,and \\ +,`. •.i- 17 the same provides for private participation for speedy implementation of the Hydro Electric Projects in the Country; (iii) that the terms of Letter of Intent dated 26.02.2005 (viz. the Power Policy of the Government of Sikkim) and the Agreement dated 18.07.2005 of the impugned project would financiaHy benefit the State, Nation as well as public at large to the maximum; (iv) that since the petitioners had withdrawn their CMA No. 114 of 2006 for amendment, challenging the Cabinet decision dated 22.02.2005 and consequential Letter of Intent dated 26.02.2005 (viz. the Power Policy of the Government of Sikkim) as well as Agreement dated 18.07.2005, they had given up their rights to challenge the implementation of the impugned Teesta Stage-Ill Hydro Electric Project. In this regard, the learned Advocate General invites my attention to the order dated 17.03.2008 passed by the Division Bench of this Court in CMA No.114 Of 2006; (v) that the petitioners have no locus standi to challenge the implementation of the impugned Teesta :;..`h` _-.. •t 18 StageTIII Hydro Electric Project as they had neither shown any interest in the development of the impugned Teesta Stage-Ill Hydro Electric Pro].ect; nor was a competitor along with M/s. Athena Consortium; nor was one among those other entities who showed their interest, namely, (i) NHPC, (ij) NTPC' (iii) SutlezJal vjdyut Ltd., and (iv) Cosmos Electric Supply Pvt. Ltd, Consortium etc. (vi) that the Hydro Electric Power Projects in the State of Sikkim are decades-old proposals. Wide publicity was given inviting participation of developers of Hydro Electric Power Projects under j.oint venture, even before the Electricity Act, 2003 came into force, Forty one (41) developers showed their interest for implementing the Hydro Electric Power Projects; but many of them were not willing to accept the terms proposed by the Government of Sikkim. After the new Electricity Act, 2003 came into force, extensive exercises were taken by the Government of Sikkim during the period of November, 2004 and February, 2005, inviting various developers to present their credentials and plans before the High Powered Hydro Power Committee, constituted to study the offers of the 19 developers and also to determine the terms of the policy of the Government of Sikkim in this regard. It is only on the recommendations of the said High Powered Hydro Power Committee, a Letter of Intent dated 26.02.2005, which is the policy of the State of Sikkim, was drawn and approved by the Cabinet; pursuant to which an Agreement dated 18.07.2005 was also executed for implementation of the impugned Teesta Stage-Ill Hydro Electric Project. Thus the power policy of the Government of Sikkim namely, the Letter of Intent dated 26.02.2005, drawn and approved by the Cabinet was well within the public domain; (vii) that the power policy of the State of Sikkim was drawn in consonance with the National Power Policy of the Central Government, which was formulated in compliance with Section 3 of the Electricity Act, 2003 and, therefore, no malafide could be attributed either against the High Powered Hydro Power Committee or the Cabinet or the Government of Sikkim in formulating the said power policy of the State, as the same is not contrary to or in contravention to the law of land; nor the petitioners have alleged malafide in the selection of M/s Athena Consortium among the five developers, who envisaged interest in i--....,.._...--. 20 Teesta Stage-Ill Hydro Electric Project, and agreed with all the terms of the Power Policy of the Government of Sikkim; because the other developers viz. NTPC, NHPC and Sutlez Jal Vidyut Ltd. were not willing to accept the terms of the Power Policy of Government of Sikkim; the Cosmos Electric Supply Pvt. Ltd., even though had agreed with the terms of the Power Policy of the Government of Sikkim, wanted 45 years instead of 35 years for BOOT basis; (viii) that in the absence of any such allegation of malafide in formulating the public policy of the Government of Sikkim, based on well defined reasons and the interest of the people, by the High Powered Hydro Power Committee, or in selection of the M/s Athena Consortium for implementing the impugned pro].ect, it may not be proper to have a judicial scrutiny of the said policy decision dated 26.02.2005 or the consequential agreement dated 18.07.2005 by way of a judicial review, as this Court is concerned with only the decision making process but not the decision itself while exercising its powers under Article 226 of the Constitution of India; (ix) that the implementation of the impugned Teesta Stage-Ill Hydro Electric Pro].ect is, therefore, neither -it 21 irrational, nor arbitrary, nor malafide, nor unreasonable, nor against any provisions of law, nor opposed to public policy, nor opposed to public interest; and therefore no reasonable person could have any grievance against the impugned project; (x) that the letters dated 18.01.1995, 02.08.1996 and 09.01.1997 issued by the Ministry of Power, Government of India relied upon by the petitioners are all related to clarifications provided under the Electricity (Supply) Act, 1948 and the policy framed thereunder, requiring to adopt competitive bidding process for selection of private participants to the joint venture power projects; but the said letters do not survive after the National Power Policy dated 12.02.2005 formulated under Section 3 of the Electricity Act, 2003; (xi) that the impugned pro].ect is not violative of any provisions of the Electricity Act, 2003, the National Electricity Policy 2005, the Forest Conservation Act, 1980, the Environmental (Protection) Act, 1986, the Wild Life (Protection) Act, 1972 and the Biological Diversity Act, 2002 or any of the policies, guidelines, circulars, instructions, or proceedings of the competent statutory authorities under ...-.-..:}A .- 22 the said statutes, nor in violation to any of the provisions of Sikkim State Financial Rules, 1979. In this regard, Mr. Mariarputham, learned Advocate General invited my attention to Sections 3, 7, 8 and 185 of the Electricity Act, 2003 and the National Electricity Policy, 2005; (xii) that the power policy of the State of Sikkim drawn as Letter of Intent dated 26.02.2005 in consonance with the National Electricity Policy dated 12.02.2005 is nothing but Open Axis Policy to develop their own public private partnership model. (xiii) that the State Government had taken a decision on 22.02.2005 to proceed with the Letter of Intent dated 26.02.2005 and to entrust the impugned project to the respondent No. 3, because NHPC was not willing to implement the impugned project on BOOT basis; but they were willing to undertake the impugned project on BOO basis which is not favourable to the State Government and therefore, the contention of the petitioners that the Government of Sikkim deliberately avoided NHPC is in,sleading; fir rr 23 (xiv) that the National Power Policy, 2005 permits the State Government to frame its own policy in consonance with the National Electricity Policy, 2005 formulated under Section 3 of the Electricity Act, 2003. The Government of Sikkim, therefore, as recommended by the High Powered Hydro Power Committee, decided to invite the private participants who evinced interest in Hydra Power Pro].ects, as per the terms of the