Case: Nabha Power Limited (NPL) Vs. Punjab State Power Corporation Limited (PSPCL) & Another


Decision reasoning: 1[ds]10. The dispute really is about the interpretation of the provisions of the PPA dated 18.1.2010 and is, thus, one of pure interpretation of the terms of the contract.The contours of the controversy show that we are really concerned with the interpretation of the commercial contract inter se theView:49. We now proceed to apply the aforesaid principles which have evolved for interpreting the terms of a commercial contract in question. Parties indulging in commerce act in a commercial sense. It is this ground rule which is the basis of The Moorcock test of giving `business efficacy to the transaction, as must have been intended at all events by both business parties. The development of law saw the `five condition test for an implied condition to be read into the contract including the `business efficacy test. It also sought to incorporate `The Officious Bystander Test [Shirlaw v. Southern Foundries (supra)]. This test has been set out in B.P. Refinery (Westernport) Proprietary Limited v. The President Councillors and Ratepayers of the Shire of Hastings (supra) requiring the requisite conditions to be satisfied: (1) reasonable and equitable; (2) necessary to give business efficacy to the contract; (3) it goes without saying, i.e., The Officious Bystander Test; (4) capable of clear expression; and (5) must not contradict any express term of the contract. The samefind reference also in Investors Compensation Scheme Ltd. v. West Bromwich Building Society (supra) and Attorney General of Belize and Ors. v. Belize Telecom Ltd. and Anr. (supra). Needless to say that the application of these principles would not be to substitute this Courts own view of the presumed understanding of commercial terms by the parties if the terms are explicit in their expression. The explicit terms of a contract are always the final word with regards to the intention of the parties. Thecontract inter se the parties has, thus, to be understood and interpreted in a manner that any view, on a particular clause of the contract, should not do violence to another part of the contract.50. The pricing of the coal is, if one may say, the crux of the problem. It is no doubt true, asby the firstrespondent, that while submitting the financial bid, clause 2.7.1.4(3) of the RFP required the tariff to be quoted inof Annexure 4 to be an `all inclusive tariff and provided that no exclusion shall be allowed. This clause has already been extracted aforesaid. The bidder/appellant was, thus, required to take into account all costs, including capital and operational costs, statutory taxes, etc.. The same clause also provides that the availability of inputs necessary for generation of power should beseller at the `Project Site, which must be reflected in the quoted tariff. The significant aspect is that the working of the contract is on the basis of `Project Site. It has to be, however, simultaneously kept in mind that the present project is in the nature of aproject which provides for a fuel specific procurement, having asite.51. The contract did not provide for a fixed energy charge, or a periodic revision of that charge, as the formula for energy charge was designed in such a manner that it would behe actual cost ofcoal. Thus, the basis is the actual cost incurred with regards to the coal. Of course, a major controversy has arisen as to whether the cost of coal has to be determined on the basis of the purchase price from SECL at thewhen the property is supposed to pass to the appellant, or whether it is the cost of coal to be used for the plant asby the appellantThe variable component of `FCOAL n refers to the `actual cost to the seller/appellant of the three components, i.e., (a) purchasing; (b) transporting; and (c) unloading the coal. The first respondent is thus right that there may be different aspects before the coal is used in the plant which are not required to beby the firstrespondent. The illustrations givenby the firstrespondent are of sizing of coal, crushing of coal, sprinkling and moisturisation of coal for stacking and storage, etc. being activities required to be undertaken prior to generation. Thus, there is no hesitation in our concluding that in view of the specific formula provided, only three aspects relatable to coal would determine the particularword `to obviously would have reference to transporting while the word `at would have relationship with unloading since it would be `transporting to and `unloading at. Any other construction will fail to make grammatical sense. Not only that, all the three, i.e., purchasing, transporting and unloading, have a reference to "the Project." Thus, the definition of FCOAL n is the weighted average actual costby the appellantof purchasing the coal and transporting it to the project site and thereafter unloading the coal at the project site. The fact that the property in coal passed on to the appellantSECL, on delivery being taken at thewould not change the definition of coal pricing as is required for the purposes of calculation of the tariff.55. Mr. Mukul Rohatgi, learned Senior Advocate, thus, rightly took support of the maxim for interpretation, `Reddendo SingulaWe have thus, also endeavoured to read the provision distributively, by applying each object, to the appropriate subject. Thus, the relevant preposition has been applied to the relevant activity.59. Once we obtain clarity on the aforesaid formula for calculation of the energy charges, the prior activity of `washing, before receiving the coal at the project site would be part of the pricing of coal and cost of purchasing the same. The appellant did seek to obtain clarity on the issue of the quality of coal to be used, to which the first respondent did answer that it would have to be `washed coal. In fact, this was in conformity with the NotificationoEF since the travel distance was more than 1,000 kilometers. The reference to coal in the formula would, thus, be only a reference to `washed coal and not to `unwashed coal.The fact that the clarification made it clear that the appellant had to "arrange" the washing of coal, did not imply that the cost of washing the coal had to be bornethe appellant, asthe energy charge formula alone would have to be referred to for the purposes of calculation of the coal price. The operating cost in clause 2.7.1.4(3) of the RFP would refer to the activities mentioned therein and the operation and maintenance of the power plant which would not alter the formula of the energy charges which contains the cost of coal. The principle of `business efficacy would also require us to read the `Monthly Energy Charges formula in a manner as would be normally understood.62. The plea of the first respondent that the fuel supply agreement and the fuel transportation agreement are part of the `project documents which does not include the component of `washing, does not hold much water for the reason that `washed coal is a necessity for the project as a quality requirement for the formula envisaging the requisite quality of coal to be obtained at the project site and, thus, including all the relevant costs up to that quality. The mere term `coal, therefore, would have to mean `washed coal, as no other type of coal could be used in the matter atis for that period of time that the actual transportation cost through road is sought to be64. We fail to appreciate as to how these costs can be excluded, as the transportation costs to the project site have to be compensated to the appellant. It is notogy of transfer, i.e., railways or road. It is also a matter of necessity, since the railway siding had not reached the project site due to some complications in acquisition of land. It is really the transportation cost from point to point which would be involved and the mere mention in the RFP under project related activity/milestone about Railway siding and the Railwaylines from nearby station to sitecannot imply that the Railways is the only mode of transportation when the siding has not been made, albeit on account of land acquisition problems.65. The plea of the first respondent that despite the absence of rail siding, if the appellant proceeded to operate the plant, that was their `business decision, cannot be sustained for the reason that the project was set up for obtaining electricity for the first respondent and as a prudent business decision for both, it would be required to operate the plant at the earliest. The complication in obtainingState Government, cannot imply that the project should be on hold for two years, causing loss to everyone and lack of availability of electricity. Such a plea would be in defiance of the very object of the setting up of the power plant.66. Now turning to the other aspect of the GCV of the coal. If the issue is one of SECL billing for higher Calorific Value while actually supplying a low Calorific Value of coal, that would be a matter between the appellant and the SECL and the first respondent cannot be blamed for the same. That does not take away from the application of the formula for energy charge which provides for PCVn as the weighted average Gross Calorific Value delivered to the project. This Calorific Value of coal would have to be, thus, on the same parameter determined at the project site.67. On behalf of the first respondent an endeavour has been made to make a distinction between `at the site and `to the project in the definition of FCOAL n and PCVn. However, this is not of much assistance to the first respondent, in our view, as delivery `to the project could only mean `at the site of the project. It cannot be at the mine site. In fact, this is a fundamental issue where the first respondent seems to be altering the basic concept of the formula by seeking to replace the wordings in the formula relatable to the68. In view of our discussion we have no hesitation in concluding that the point at which the Calorific Value of the coal is to be measured is at theThe plea of the first respondent that there is no such methodology of measuring the Calorific Value at theed bysample reports of different financial yearsby the appellantalong with the synopsis, which itself referred to the joint sampling and testing of the coal received and is dulyWe may notice that there are certain other essential costs sought to beby the appellantsuch as the transit and handling losses, third party testing charges, liaising charges. We have already held that the formula contains only three elements and thus, the appellant cannot be permitted to plead that any other element, other than those would also incidentally form a part of the formula. In fact, such claims would be hit by RFP clause 2.7.1.4(3) and the energy charges have to be calculated only on the basis of the formula understood in a business sense. Thus, these claims are rejected.71. Last but not the least is the claim for interest. It is undisputed that no such claim has been laid so far, at any stage. The appellant claims to rely upon clause 11.3.4 read with clause 11.6.8. We have extracted the relevant clause aforesaid. No doubt there is a provision for a late payment surcharge in the event of delay in payment of a monthly bill but in the present case it is not as if there are undisputed bills remaining unpaid. There were serious disputes regarding the interpretation of the contractual clauses itself. We do not think that the present one is a fit case where the principle of compensation for deprivation should enure for the benefit of the appellant as a measure of restitution. More so as it has not beenat any stage. It does appear that this inclusion in the written synopsis does seem to arise asned Senior Advocate for the first respondent on account of the Tribunal not finding favour with such claim in the remand proceedings by reason of no claim being laid towards the same. We are, thus, not inclined to grant this claim.72. We may, however, in the end, extend a word of caution. It should certainly not be an endeavour of commercial courts to look to implied terms of contract. In the current day and age, making of contracts is a matter of high technical expertise with legal brains from all sides involved in the process of drafting a contract. It is evenes of seeking clarifications and doubts so that the parties know what they are getting into. Thus, normally a contract should be read as it reads, as per its express terms. The implied terms is a concept, which is necessitated only when thereferred to aforesaid comes into play. There has to be a strict necessity for it. In the present case, we have really only read the contract in the manner it reads. We have not really read into it any `implied term but from the collection of clauses, come to a conclusion as to what the contract says. The formula for energy charges, to our mind, was quite clear. We have only expounded it in accordance to its natural grammatical contour, keeping in mind the nature of the contract.