SCA/2186/2007 1 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 2186 of 2007 With SPECIAL CIVIL APPLICATION No. 3514 of 2007 with CIVIL APPLICATION Nos. 10265 and 10257 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE M.S.SHAH AND HONOURABLE MR.JUSTICE K.A.PUJ ================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ================================================= JINDAL POWER LTD. & 1 - Petitioner(s) Versus GUJARAT URJA VIKAS NIGAM LTD. & 1 - Respondent(s) ================================================= Appearance : SPECIAL CIVIL APPLICATION No. 2186 of 2007 MR KS NANAVATI, SR. ADVOCATE WITH MR NANDISH CHUDGAR FOR NANAVATI ASSOCIATES for Petitioner(s) : 1 - 2. MR KAMAL TRIVEDI, SR. ADVOCATE WITH MR NK MAJMUDAR for Respondent(s) : 1, MR PREMAL R JOSHI for Respondent(s) : 1, DELETED for Respondent(s) : 2, SPECIAL CIVIL APPLICATION No. 3514 of 2007 MR MIHIR JOSHI, SR. ADVOCATE FOR SINGHI & Co. for Petitioner(s) : 1. MR KAMAL TRIVEDI, SR. ADVOCATE WITH MR NK MAJMUDAR for Respondent(s) : 1, MR PREMAL R JOSHI for Respondent(s) : 1, MR HARIN P RAVAL for Respondent(s) : 2, ================================================= CORAM : HONOURABLE MR.JUSTICE M.S.SHAH and HONOURABLE MR.JUSTICE K.A.PUJ Date : 24/09/2007 COMMON CAV JUDGMENT (Per : HONOURABLE MR.JUSTICE M.S.SHAH) SCA/2186/2007 2 JUDGMENT These petitions filed by M/s Jindal Power Ltd. and PTC India Limited challenge the communications dated 12.1.2007 of Gujarat Urja Vikas Nigam Ltd. (hereinafter referred to as “the first respondent” or “the Corporation”) cancelling the Letters of Intent which were awarded to the petitioners on 8.12.2006 for entering into Power Purchase Agreements. 2. FACTS 2.1 M/s Jindal Power Ltd. (petitioner in SCA No. 2186 of 2007) is engaged in the business of the generation and sale of electricity. PTC India Ltd. (formerly known as Power Trading Corporation of India Ltd. - petitioner in SCA No. 3514 of 2007) is a Government of India initiated Public-Private Partnership, whose primary focus is to develop a commercially vibrant power market in the country. 2.2 The first respondent Gujarat Urja Vikas Nigam Ltd. (Gujarat Energy Development Corporation Ltd.) (hereinafter referred to as “the Corporation”) is a company incorporated under the Companies Act, 1956 and is a successor to the erstwhile Gujarat Electricity Board which is now divided into several companies for generation, transmission and distribution of electricity. The first respondent is a holding company for all these companies. The distribution companies in the State of Gujarat are required to source their requirement of power only from the first respondent which is wholly owned by the State Government and there is no dispute about its status as an instrumentality of the State within the meaning of Article 12 of the Constitution. 2.3 By Request for Qualification (RFQ) dated 7.2.2006, the first respondent - Corporation invited the bidders for submitting information for supply of power. It was specifically stated in the advertisement published in the leading newspapers on 2.2.2006 that the Corporation intended to procure power under the three SCA/2186/2007 3 JUDGMENT competitive bidding processes denoted as bid specification numbers 01, 02 and 03 and that following are the salient features of each of the bids:- Bid No. 01 Bid No. 02 Bid No. 03 Max/Min capacity 2000MW / 100MW 2000MW / 100MW 2000 MW/1000MW Fuel Coal/Lignite Unspecified Imported Coal Term of PPA 25 years 15/25/35 years 25 years Location Unspecified Unspecified Sarkhadi, Veera Sangath or any other coastal location Tariff Variable and Capacity charges are to be quoted for 25 years (year wise) on which no escalations will be allowed Capacity charges Escalable & Non- escalable Variable charges linked to Index Capacity charges Escalable & Non- escalable Variable charges linked to Index Commence- ment of supply Within 36 months from the signing of PPA Within 60 months from the signing of PPA Within 60 months from the signing of PPA Note : The period for commencement of supply for bid Nos. 2 and 3 was 48 months in the first advertisement dated 2.2.2006, but subsequently that period was changed to 60 months. 2.4 Both the petitioners submitted the required information and the response of both the petitioners to the RFQ came to be accepted by the Corporation. Both the petitioners were also informed that they were qualified to submit the Request for Proposal. 2.5 By Request for Proposal dated 26.6.2006, the Corporation called for bids for purchase of electricity. The Request for Proposal documents contained the proforma Power Purchase Agreement (PPA) and a proforma Escrow Agreement, which had to be initialed by the bidder so as to signify the acceptance of the terms and conditions contained in the said PPA. The bidder was requested to submit a bank guarantee of Rs.5 lakhs per MW of the SCA/2186/2007 4 JUDGMENT capacity for which the bidder had offered to supply the power. Clause 4.6 of the Request for Proposal has been the subject of interpretation and controversy. Hence the entire clause 4.6 is set out hereinbelow :- “4.6 Bank Guarantee 4.6.1 The Bidder shall submit bid accompanied by a refundable deposit of Rs.5 lakhs per MW of the Capacity bid by the Bidder. The aforesaid deposit shall be in form of Bank Guarantee from a Scheduled Bank other than Co-operative Banks valid upto the validity of the bid. 4.6.2 For unsuccessful Bidders/Bidders who do not agree for extension in the validity of the bid, the Bank Guarantee shall be released within 30 (thirty) of placement of order on the selected Bidder(s). 4.6.3 If any successful Bidder fails to sign the PPA within 30 days of the letter of award, the same shall constitute sufficient ground for annulment of the award to such Bidder and invocation of Bank Guarantee provided by such Bidder. 4.6.4 The successful Bidders shall enhance the value of the Bank Guarantee to 7.5 Lakhs per MW of Contracted Capacity before execution of the PPA, at sole cost of the Bidder. The enhanced bank guarantee shall be held by GUVNL against performance of the Bidder as per terms of the PPA. This enhanced Bank Guarantee shall have validity upto six months after the envisaged Scheduled Commercial Operation Date of the project. 4.6.5.The Bank Guarantee can be invoked on account of (but not limited to) the following :- (a) Failure to sign PPA within 30 days from the date of letter of award, unless the date of signing is extended with mutual consent. (b) Failure of Bidder to complete any of the conditions subsequent on schedule as per PPA. (c) Delay in achieving Commercial Operation on schedule as detailed in the PPA. SCA/2186/2007 5 JUDGMENT (d) Any Bidder Event of Default, as detailed in PPA. 4.6.6 Wherever relevant, the provisions of the PPA shall guide the periodicity and quantum of invocation of the Bank Guarantee.” 2.6 Three parties submitted their Request for Proposal for bid No. 1. Name of Party Power offered Rate per unit in Original Bid EMD Bank Guarantee furnished M/s Adani Enterprises Ltd 500 MW Rs.3.7038 Rs.25.0 crores M/s Jindal Power Ltd. 150 MW Rs.3.4801 Rs. 7.5 crores PTC India Ltd. 190 MW (Chitarpur) Rs.3.2502 Rs. 9.5 crores 250 MW (Ratnagiri) Rs.3,4947 Rs.12.5 crores The Bid Evaluation Committee opined that the rates quoted by the bidders for bid No. 1 were on the higher side. On 9.11.2006, the Corporation, therefore, re-invited financial bids from the bidders who had already submitted their RFQ documents. 2.7 All the three parties, therefore, submitted their revised financial bids and also the quantum of power offered for sale whereupon the following picture emerged :- Name of Party Power offered Rate per unit M/s Adani Enterprises Ltd 1000 MW Rs.3.2939 M/s Jindal Power Ltd. 150 MW Rs.3.2483 PTC India Ltd. (190+250)=440 MW --------------- Rs.3.2497 Total contract capacity of all successful bidders 1590 MW Thereafter on 7.12.2006, the Bid Evaluation Committee SCA/2186/2007 6 JUDGMENT recommended that the Corporation may buy at the lowest tariff quoted under the revised financial bid offered by Jindal Power under bid No. 1 i.e. Rs.3.2483. 2.8 Both Adani Enterprises and PTC India communicated their acceptance to match the lowest levallised tariff to Rs.3.2483 per unit as offered by Jindal Power and, therefore, on 8.12.2006, the Corporation issued Letter of Intent to each of the three successful bidders for the following rates for bid No. 1 :- Name of Party Power offered Rate per unit M/s Adani Enterprises Ltd (respondent No.2) 1000 MW Rs.3.2483 M/s Jindal Power Ltd. (petitioner) 150 MW Rs.3.2483 PTC India Ltd. (petitioner) (190 + 250) 440 MW Rs.3.2483 Total contract capacity of all successful bidders ------------------- 1590 MW It appears that after receipt of the aforesaid Letter of Intent, PTC India wrote a letter on the same day expressing its intention to increase the quantum of power from 190 MW to 380 MW with reference to the supply of power from Chitarpur Coal & Power Ltd.. However, the Corporation did not consider it on the ground that it was received after issuance of the Letter of Intent. 2.9 On 11.12.2006, the Corporation sent a soft copy of the Power Purchase Agreement (PPA) to each successful bidder with a request to fill in the relevant information in the soft copy and return the same to the Corporation. On 18.12.2006, Jindal Power returned the soft copy of the PPA to the Corporation incorporating the relevant details. Similarly on 22.12.2006, PTC India informed the Corporation that the soft copy of the PPA was sent by e-mail and that it may be informed about the date for signing the PPA. On 28 & 30.12.2006, all the three bidders visited the Office of the SCA/2186/2007 7 JUDGMENT Corporation. On 1.1.2007, Jindal Power requested the corporation to indicate the convenient date for signing of PPA. On 6.1.2007, Adani Enterprises furnished the bank guarantees for Rs.7.50 lacs per MW aggregating to Rs.75 Crores for 1000 MW of power offered under bid No. 1. On 8.1.2007, Adani Enterprises held a meeting with the Corporation and agreed to reduce the levallised tariff from Rs.3.2483 per unit to Rs.2.89 per unit. On the same day, the Corporation took a decision to cancel the Letter of Intent issued to Jindal Power and to PTC India on the ground that they failed to submit the performance bank guarantee of Rs.7.5 lacs per MW for the offer accepted within the time limit of 30 days from the date of issuance of Letter of Intent. On 10.1.2007, Jindal Power requested the Corporation to indicate the convenient date for signing of PPA. On 12.1.2006, the Corporation issued revised Letter of Intent to Adani Enterprises for supply of power at the rate of Rs.2,89 per unit and cancelled the Letter of Intent issued to the petitioners i.e. Jindal Power and PTC India and returned back their earnest money bank guarantees of Rs. 7.5 Crores and Rs. 22 Crores respectively. 3. ORDERS IN THE PETITION OF M/S JINDAL POWER LTD. 3.1 On 22.1.2007, Jindal Power filed Special Civil Application No. 2186 of 2007. When the petition came up for preliminary hearing on 24.1.2007, another Division Bench of this Court issued notice and granted ex-pate ad-interim injunction in the following terms :- “Notice returnable on 9th February, 2007. Shri N.K. Majmudar appearing on caveat wavies service for respondent. Shri N.K. Majmudar prays for time to file affidavit opposing admission and grant of interim relief in the matter, as according to him the respondent had already sent a letter of intent to third party. Shri Shantibhushan SCA/2186/2007 8 JUDGMENT learned Senior Advocate appearing with Shri Nandish Chudgar for the petitioners has no objection to it. However, Shri Shantibhushan submitted that till the next date of hearing, the respondent may stay their hands in executing contract in favour of the third party. Shri Majmudar learned counsel for the respondent is not in a position to make any statement. In view of the above, till next date of hearing, the respondent is directed to maintain status quo as on today. Put up on 9th February, 2007.” 3.2 Adani Enterprises Ltd. (respondent No.2) filed Civil Application No.1592 of 2007 for being joined as a party respondent in the writ petition of Jindal Power Ltd.. By the same application, Adani Enterprises Ltd. also prayed for vacating the ad-interim injunction. By order dated 2.2.2007, the Court granted the prayer for joining Adani Enterprises Ltd. as a party respondent and preponed the hearing of the main writ petition to 6.2.2007. 3.3 On 6.2.2007, the Division Bench vacated the stay order by passing the following order in the matter of M/s Jindal Power Ltd. :- “Learned Advocate General Shri Trivedi for the respondent No.1 – Nigam states that in the event of the petitioners finally succeeding in the matter they will be accommodated for the purpose of bid No.1 in respect of their offered quantity of 150 MW of Power. On this statement being made, learned Counsel Shri Shanti Bhushan, appearing for the petitioner states that he is not pressing interim relief prayed in this petition and he seeks permission to delete newly added respondent No.2 from the arena of cause title of this petition. Accordingly, respondent No.2 stands deleted from the cause title of this petition. Rule. Learned Counsel Shri N.K.Majmudar waives service for respondent No.1 – Nigam. We clarify that ad interim relief granted earlier stands vacated and pendency of this petition shall not come in the way of respondent No.1 in entering into contract with the former respondent No.2.” SCA/2186/2007 9 JUDGMENT [emphasis supplied] 4. Orders in Petition of PTC India Ltd. 4.1 On 5.2.2007, PTC India filed Special Civil Application No. 3514 of 2007 and on 6.2.2007 when the petition of Jindal Power came up for hearing, a request was made on behalf of PTC India to take up their matter for hearing. However, the petition of PTC India was permitted for circulation on 7.2.2007. 4.2 When the petition of PTC India as well as the application filed by PTC India for joining Adani Enterprises as a party respondent (Civil Application No.1891 of 2007) came up for hearing on 7.2.2007, the Court passed the following order:- “Learned Advocate General Shri Trivedi appearing for the respondent-Nigam (Corporation) vehemently objected regarding grant of Civil Application No.1891 of 2007 for impleading third party (Adani Enterprises Ltd.) as party respondent to this petition. According to him, the third party is not a necessary party and the dispute is between the petitioner and the respondent-Nigam. On the advance copy of the petition being served upon him, he states that they will file a detailed reply-affidavit on or before 12th February 2007. Rejoinder, if any, to be filed on or before 15th February 2007. Put up on 19th February 2007.” 4.3 When the petition came up for hearing on 22.2.2007, the Court admitted the petition of PTC India and passed the following order on the question of interim relief and also ordered the petition to be heard with the writ petition of Jindal Power :- “Learned Advocate General Shri Trivedi for the respondent- Nigam states that in the event of the petitioner finally succeeding in the matter, they will be accommodated for the purpose of bid No.1 in respect of their offered quantity of 440 MW of power. In view of the above statement, there is no question of granting of any interim relief in this matter, as the same was refused as not pressed in Special Civil Application No.2187 SCA/2186/2007 10 JUDGMENT of 2007 on 6th February 2007.” [emphasis supplied] 4.4 PTC India carried the matter before the Hon'ble Supreme Court and the Special Leave Petition came to be disposed of on 26.3.2007 in terms of the following order:- “We do not want to interfere with the impugned interim order passed by the High Court specially in view of the statement made by the Advocate General of the State that in the event the petitioner succeeds, they would be accommodated for the purpose of bid No.1 in respect of their offered quantity. We would request Hon'ble Chief Justice of the Gujarat High Court to direct the office to list the matter for final disposal at an early date and if possible, within six months from today.” [emphasis supplied] 4.5 Civil Application No.1891 of 2007 thereafter again came up for hearing and by our order dated 26.4.2007 we permitted PTC India to join Adani Enterprises Ltd. and M/s. Adani Power Ltd. as respondent Nos.2 and 3 respectively. The petitioner was also permitted to amend the petition to refer to the Power Purchase Agreement executed by the respondent-Corporation in favour of M/s. Adani Power Pvt. Ltd. on 6.2.2007 in bid No.1 for 1000 MW at the rate of Rs.2.89 per unit. 5. Both the writ petitions were accordingly listed before us for final hearing. Several affidavits have been filed on behalf of the respondent-Corporation. Affidavits-in-rejoinder have also been filed by the petitioners. We have heard the learned counsel for the parties. During the course of hearing, the petitioners filed Civil Application for production of documents. By our order dated 22.8.2007, we directed the Corporation to place on record the details of power purchase agreements executed and also particulars about power purchased from different parties on short term basis since April 2006. SCA/2186/2007 11 JUDGMENT 6. Petitioners' stand regarding Rate Mr KS Nanavati, learned Senior Counsel for Jindal Power and Mr Mihir Joshi, learned Senior Counsel for PTC India made common ground in challenging communications dated 12.1.2007 cancelling the Letters of Intent dated 8.12.2006 granted in favour of the respective petitioners, but Mr Nanavati for Jindal Power submitted that since the Letter of Intent dated 8.12.2006 was for supplying power at the rate of Rs.3.2483 per unit, Jindal Power was prepared to supply power only at that rate under bid No.1 and that it was not prepared to match the rate of Rs.2.89 per unit at which rate the Power Purchase Agreement has been signed by the respondent-Corporation and M/s. Adani Power Pvt. Ltd. However, Mr Mihir Joshi for PTC India specifically stated that PTC India was and is ready and willing to sign the Power Purchase Agreement with the respondent-Corporation for offering 440 MW of power at the rate of Rs.2.89 per unit and that the other terms and conditions of the Power Purchase Agreement should be the same as the terms and conditions of the Power Purchase Agreement already executed by the respondent- Corporation in favour of respondent No.3-M/s. Adani Power Pvt. Ltd. 7. Petitioners' Submissions on Merits regarding legality of the cancellation of LOI 7.1 As regards the challenge to the communications dated 12.1.2007 (based on the respondent-Corporation's decision dated 8.1.2007) to cancel the Letters of Intent dated 8.12.2006, both the learned counsel for the petitioners have vehemently submitted that SCA/2186/2007 12 JUDGMENT as per Clause 4.6.1 the petitioners had submitted the bank guarantees for Rs.7.50 crores (Jindal Power) and Rs.22 Crores (PTC India) respectively. As per Clauses 4.6.3 and 4.6.5 of the RFP, a successful bidder was required to sign the Power Purchase Agreement within 30 days of the letter of award, unless the date of signing was extended with mutual consent. After sending the Letters of Intent dated 8.12.2006, the Corporation sent on 11.12.2006 a soft copy of the Power Purchase Agreement to the successful bidders (i.e. Adani Enterprises, Jindal Power and PTC India) with a request to fill in the relevant information in the soft copy and return the same to the Corporation. The petitioners filled in all the relevant details in the soft copy of the Power Purchase Agreement in the month of December 2006 itself and were requesting the respondent-Corporation to indicate the date on which the Power Purchase Agreements were to be signed by the respondent-Corporation with the petitioners. To be precise -- (a) Jindal Power returned the soft copy of the PPA to the Corporation incorporating the relevant details on 18.12.2006. On 28 & 30.12.2006, a representative of Jindal Power visited the office of the Corporation and by letter dated 1.1.2007 (Annexure - P10) Jindal Power requested the Corporation to indicate the convenient date for signing of PPA and again repeated that request on 10.1.2007 (Annexure - P11). (b) Similarly, PTC India informed the Corporation on 22.12.2006 (Annexure “K”) that the soft copy of the PPA was sent by e-mail and requested that it may be informed about the date for signing PPA and representative of PTC India also visited the office of the Corporation on 28 & 30.12.2006. In paragraph 17 of the petition of PTC India, the following averments are made :- SCA/2186/2007 13 JUDGMENT “The petitioner submits that they had completed and returned the Draft Power Purchase Agreement with a request to the Respondent to inform them the formal date of signing the same. Thereafter the Respondent's representatives even met the Petitioners' representatives on 11th of January 2007, and informed the Petitioners that the same would be signed on 12th January 2007 at the venue of the “Vibrant Gujarat Meeting” in Ahmedabad. Hence for the Respondent to then cancel the Letter of Intent is clearly non-est and in violation of the terms of the Agreement as well as the principles of natural justice and thus without jurisdiction and de hors any authority and illegal.” Accordingly, within a week of receiving the soft copy of the Power Purchase Agreement, the petitioners filled in the relevant information in the soft copy and returned the same to the respondent Corporation by 18/22.12.2006 and both the parties requested the respondent Corporation by letters dated 22.12.2006 (PTC India) and 1.1.2007 (Jindal Power) requesting the respondent Corporation to indicate the convenient date for signing the Power Purchase Agreement. 7.2 Both the petitioners were ready and willing to enhance the value of the bank guarantee to Rs.7.5 crores per MW of contracted capacity before execution of the Power Purchase Agreement as required by Clause 4.6.4 of RFP. It is submitted that both the petitioners had financial capability to furnish such bank guarantees to the tune of Rs.11.25 crores in case of Jindal Power and Rs. (14.25 + 18.75 = 33) crores in case of PTC India. In fact, PTC India had already got ready the bank guarantee for Rs.14.25 crores on 5.1.2007 and photostat copy of such bank guarantee No.1 of 2007 for the amount for Rs.14.25 crores issued by Syndicate Bank is also produced at Annexure-”L”, which was sufficient for SCA/2186/2007 14 JUDGMENT the capacity of 190 MW of power, to be supplied from Chitrapur. Jindal Power has also produced letter dated 11.06.2007 of State Bank of India stating that State Bank of India, New Delhi could have issued additional bank guarantee for Jindal Power at a very short notice and that Jindal Power has financial capability to furnish the bank guarantee of at least ten times the additional guarantee required to be furnished. 7.3 The learned counsel have submitted that the time limit stipulated in Clause 4.6.3 of RFP was for signing PPA for which the petitioners had filled in the required details in the soft copy and sent the same to the respondent Corporation as far back as on 18.12.2006 (Jindal Power) and on 22.12.2006 (PTC India). If the respondent Corporation had indicated the date for signing PPA, the petitioners would have immediately furnished the bank guarantee before the date which was to be indicated by the Corporation for signing PPA. It is also submitted that sub-clause (a) of 4.6.5 of the RFP also specifically provided that the date of signing PPA could be extended with mutual consent and, therefore, the petitioners were of the bona fide belief that there could be no question of cancellation of the Letters of Intent dated 8.12.2006 unless and until the petitioners did not turn up to sign PPA on the date to be