Case: M.P. POWER MANAGEMENT COMPANY LTD Vs. RENEW CLEAN ENERGY PVT. LTD

on respondent No.1. Being aggrieved, respondent No.1 filed Writ Petition No.12432 of 2017 before the High Court praying that the appellant be directed not to give effect to termination and encashment of performance bank guarantee. The High Court vide impugned judgment dated 18.08.2017 partly allowed the writ petition setting aside the order of termination of the contract while maintaining the invocation of the bank guarantee. 8. We have heard the learned counsel appearing for the parties and perused the impugned judgment and materials on record. 9. Clause 2.1 of the PPA required respondent No.1 to fulfil all Conditions Subsequent within a period of 210 days from the effective date i.e. 06.06.2017, failing which Article 2.5 of the PPA allowed further extension up to nine months for fulfillment of the Conditions Subsequent subject to payment of liquidated damages in terms of the PPA. Clause 2.5 of the PPA reads as follows:- 2.5 DELAY IN ACHIEVING CONDITIONS SUBSEQUENT: 2.5.1. In case of delay in achieving any of the Conditions Subsequent under clause 2.1 (a to h), as may be applicable, MPPMCL shall encash CPG (submitted by Seller @ Rs.30 Lakhs/MW) as under, subject to Force Majeure: a) Delay from 0-3 months - 1% per week. b) Delay from 3-6 months - 2% per week for the period exceeding 3 months, apart from (a) above. c) Delay from 6-9 months - 3% per week for the period exceeding 6 months, apart from (a) and (b) above. d) In case of delay of more than 9 months, MPPMCL shall terminate PPA and release balance amount of CPG. 10. Since respondent No.1 was unable to obtain the requisite land, on request by respondent No.1, the State Government allotted 96.73 acres of land at district Rajgarh to the appellant for being allotted to respondent No.1 on lease. According to respondent No.1, upon initiation of measurement and demarcation exercise by the revenue officials, the land was found to be heavily encroached and there was stiff resistance which continued every time respondent No.1 tried to approach the said land and therefore, respondent No.1 could not access the project site and commence any construction activities. On request by respondent No.1 by its letter dated 29.09.2016, respondent No.1 sought for change of location of the project. The Board of Directors considered the request of respondent No.1 and by Resolution dated 29.12.2016 allowed change of location of the project. Thereafter, respondent No.1 purchased the land to an extent of 253 acres in village Bansara and Pipriya Rai in Ashok Nagar district within a period of about eighty three days from the date of the appellants approval. After acquiring the land, respondent No.1 undertook the construction activities and the project in an advanced stage of synchronization as early as on 10.07.2017. The same was notified to the appellant by communication dated 10.07.2017 stating that the commissioning of the project is in final stage and that the expected date of commissioning of the project is 31.08.2017 which according to respondent No.1 is ahead of the scheduled commissioning date i.e. 07.09.2017 in terms of the PPA. 11. Even when respondent No.1 has undertaken the construction activities in the changed location and informed the appellant that the expected date of commissioning of the project is 31.08.2017, the appellant terminated the contract by its order dated 11.08.2017. As pointed out by respondent No.1 in its counter affidavit, on 06.06.2016, respondent No.1 has got sanction of the term debt facility of Rs.267.37 crores from PTC India Financial Services Limited and has spent huge amount in purchasing the land to an extent of 253 acres in Ashok Nagar district. Respondent No.1 has also spent substantial amount in development of the project in the changed location and reached an advanced stage of commissioning the project by 31.08.2017. The delay in commissioning the project appears to be due to unavoidable circumstances like resistance faced at the allotted site in Rajgarh district and subsequent change of location of the project. These circumstances, though not a Force Majeure event, time taken by respondent No.1 in change of location and construction of the plant have to be kept in view for counting the delay. Having invested huge amount in purchasing the land and development of the project at Ashok Nagar district and when the project is in the final stage of commissioning, the termination of the contract is not fair. 12. The High Court observed that the delay in completing the project was only for sixteen days. But according to the appellant, respondent No.1 was granted time period of 210 days to complete the Conditions Subsequent after which the penalty was leviable for the delay and if the delay exceeded more than nine months, the appellant could terminate the contract. According to appellant, the delay was not of sixteen days; but the said delay of sixteen days is beyond the period of nine months permissible under the PPA. In the light of our observations above, we are not inclined to go into the merits of this contention. Suffice to note that in cases of delay, Articles 2.5 and 2.6 provide for levy of penalty. As observed by the High Court, since the contract permits imposition of penalty, respondent No.1 is liable to pay penalty in terms of clause 2.5.1 of the PPA for the delay. But the action of the appellant in terminating the contract is arbitrary and was rightly set aside by the High Court. 13. While setting aside the termination of the contract, the High Court maintained the action of invocation of bank guarantee in terms of clause 2.5.1 of the PPA. By order dated 22.09.2017, this Court has stayed the order of the High Court subject to restitution by the appellant of the amount covered by the bank guarantee which has been invoked which is said to have been complied with by the appellant. In our view, interest of justice would be met by directing respondent No.1 to pay penalty amount of Rs.11,95,54,200/- imposed upon respondent No.1 by the appellant.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. Even when respondent No.1 has undertaken the construction activities in the changed location and informed the appellant that the expected date of commissioning of the project is 31.08.2017, the appellant terminated the contract by its order dated 11.08.2017. As pointed out by respondent No.1 in its counter affidavit, on 06.06.2016, respondent No.1 has got sanction of the term debt facility of Rs.267.37 crores from PTC India Financial Services Limited and has spent huge amount in purchasing the land to an extent of 253 acres in Ashok Nagar district. Respondent No.1 has also spent substantial amount in development of the project in the changed location and reached an advanced stage of commissioning the project by 31.08.2017. The delay in commissioning the project appears to be due to unavoidable circumstances like resistance faced at the allotted site in Rajgarh district and subsequent change of location of the project. These circumstances, though not a Force Majeure event, time taken by respondent No.1 in change of location and construction of the plant have to be kept in view for counting the delay. Having invested huge amount in purchasing the land and development of the project at Ashok Nagar district and when the project is in the final stage of commissioning, the termination of the contract is not fair.The High Court observed that the delay in completing the project was only for sixteen days.But according to the appellant, respondent No.1 was granted time period of 210 days to complete the Conditions Subsequent after which the penalty was leviable for the delay and if the delay exceeded more than nine months, the appellant could terminate the contract. According to appellant, the delay was not of sixteen days; but the said delay of sixteen days is beyond the period of nine months permissible under the PPA.In the light of our observations above, we are not inclined to go into the merits of this contention. Suffice to note that in cases of delay, Articles 2.5 and 2.6 provide for levy of penalty. As observed by the High Court, since the contract permits imposition of penalty, respondent No.1 is liable to pay penalty in terms of clause 2.5.1 of the PPA for the delay. But the action of the appellant in terminating the contract is arbitrary and was rightly set aside by the High Court.While setting aside the termination of the contract, the High Court maintained the action of invocation of bank guarantee in terms of clause 2.5.1 of the PPA. By order dated 22.09.2017, this Court has stayed the order of the High Court subject to restitution by the appellant of the amount covered by the bank guarantee which has been invoked which is said to have been complied with by the appellant. In our view, interest of justice would be met by directing respondent No.1 to pay penalty amount of Rs.11,95,54,200/imposed upon respondent No.1 by the appellant.