Case: CLP INDIA PVT LTD Vs. GUJARAT URJA VIKAS NIGAM LTD.

recent projects such as Mejina, it was assigned debt equity ratio of 70:30 on capital structure as specified in the Regulations. This finding has become final. It was contended on behalf of the Appellant that equity has been the primary source of capital. Thereafter,in paragraph A-10, it was found by the Appellate Tribunal that owners take upon themselves business related risk and are entitled to interest on capital investment,but the return is to be governed by the scheme of determination of tariff for the supply of electricity as mandated by the law in place. The Appellate Tribunal further proceeds to hold that the scheme provides for assured Return on Equity (ROE) which is at the rate of 14% on the equity employed for the purpose of supplying electricity. The scheme does not permit return on investment made on projects other than for supply of electricity to be recovered from supply of electricity. The Tribunal went on to hold that the DVC Act does not recognise capital as borrowings and there is no reference about repayment of such capital to the participating Governments. The Appellate Tribunal proceeds to hold that the capital infused by participating Governments is in the nature of equity capital and for the determination of tariff, the same would be eligible for return on equity but the Appellate Tribunal does not end there. It clearly provides that the return on equity is as may be permitted by the tariff Regulation of 2004. It is thereafter that the Appellate Tribunal in para 15 proceeded to hold that the DVC Act provides for interest on capital which is contributed by the participating Governments. The accrued interest due to the Governments apparently has been allowed to be retained by the Appellant. The same however came to be ploughed back into the capital with the tacit consent of the participating Governments. Thereafter, it is stated that this has to be provided to the DVC as per the provisions of Section 38 of the DVC Act. It is thereafter paragraph A-16 which we have already extracted, the Tribunal proceeded to observe that under the DVC Act if there is any deficit in the capital contributed by the participating Governments,it is to be made good by taking loan on behalf of the participating Governments. The said debt would attract interest. The average interest rate of the repayment payable is to be applied on a 50:50 normative debt capital. This means that out of the aggregate equity including reserves, equity considering the normative debt ratio of 50:50 would be eligible for return on equity as specified in the Regulations and the excess of equity,if any, over the equity earning ratio of 14% is to be considered as interest bearing debt. In the example which has been given it is shown that if the debt equity ratio is 40:60, return on equity at 14% will be available on 50% equity whereas interest would be available at 10% portion of equity and 40% loan which were reduced by repayments. 21. On the basis of the remand, the Commission has worked out the debt equity ratio as directed by the Appellate Tribunal. It has further provided return on equity at the rate of 14% on the equity portion, namely 50%. In respect of the debt portion, interest has been calculated no doubt after deducting depreciation, the legality of which is the subject matter of the other contention which we will deal with separately. It is quite clear to us that Appellant has already been given return on equity in terms of the tariff Regulation in respect of capital on the basis of debt equity ratio which has been fixed by the Appellate Tribunal on a ratio which has become final between the parties. 22. Though a perusal of para A-9 of order dated 23.11.2007 may appear to show that equity has been found to be the main source of capital, a perusal of paragraph A-10,A-16 and more importantly E-13 would show that capital Under Section 38 of the DVC Act has been understood as the value of the operating assets when they were first put to commercial use. Capital is also understood not as equity alone but it has been understood both as loan and equity. The ratio between loan and equity is also fixed in respect of the old projects at 50:50 and under the new projects it is at 70:30.It is further clear from paragraph E-13 of the order of the Appellate Tribunal dated 23.11.2007 that the appellate Tribunal contemplated that the equity component would remain static and it would earn the rate of return as provided in the tariff Regulation. As far as the loan component is concerned, it would get reduced on account of repayments. Therefore, the recovery as contemplated under the Regulations was found to be in two forms, namely, either as return on equity in respect of the equity portion and as interest on the loan component. 31. In the present case, the clear agreement between the parties was that interest on the sum of `53.90 crores was payable for the specified period 01.07.2003 to 31.12.2009.Therefore, CLPs claim that any amount was payable, for any period prior to 01.07.2003, was not tenable. Had CLP wished so, nothing prevented it to claim for it during negotiations and have it included as a term of the contract. Once having settled for a specified sum, on an amount (`53.90 crores) that was only fictionally a loan - and treated as such, for purpose of fixing interest payable, considering the equity infused, in excess of the tariff regulations, the absence of any like item, such as interest for prior period, precludes a claim. But it was really part of the equity component. Therefore, interest was per se not payable, but could be paid in terms of the tariff notification or the agreement. No claim on any other legal or equitable considerations could have been made. The findings of the lower authorities are therefore, sound and reasonable.

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

Explanation:
0[ds]15. At the outset, it is noticeable that on the issue, whether amounts paid to CLP, for the period 1998 to 2005 onwards, were in excess of what was actually payable by Gujarat Urja, the findings of GERC and the APTEL are concurrent. This court does not discern any unreasonableness or facial omission of material factors, to warrant appellate review19. The submissions of parties are with respect to two notifications dated 30.03.1992 and 06.11.1995. These Notifications were under Section 43(A) of the Supply Act. Concededly, these notifications are statutory and are binding on the parties. Any PPA between a generating company and the purchaser of electricity is subject to such statutory notifications; parties by agreement cannot override statutory provisions, or such notifications, as far as they relate to matters of tariff20. Therefore, the rights and obligations of the parties under the PPA have to be read subject to the statutory provisions. The provisions of the PPA, if they are contrary to the statutory provisions, cannot be given effect to22. The argument of CLP that its unit was essentially gas-based and that the definition of naphtha-based unit meant only that unit which depended entirely on naphtha as a fuel, or that which used naphtha at least to the extent of 50%, in our opinion is not correct25. There is no dispute that the PPA which the parties entered into specifically referred to the notification of 30.03.1992 and further went on to state that for the first Kwh/KW, a plant load factor of 68.5% fixed charges and variable charges were deployed. For generation achieved over and above this by the concerned unit – CLP, an incentive @ 5.75% for every 1% increase over and above the fixed and variable charge payable was agreed to. Significantly, the fixed and variable charges are in consonance with the statutory notification of 30.03.1992 (which was also later amended on 17.01.1994). This much is clear from a plain reading of clause 7.1 of the Schedule VII to the PPA itself. In view of the fact that the notification amended on 06.11.1995 was a statutory one, there cannot be any doubt that it was binding upon the parties. Therefore, the earlier notification which left it free to the parties to negotiate on various aspects, including on the incentive payable, stood amended by Note 2, which was added to clause 1.6 of the tariff. The effect of this statutory incorporation by way of amendment was that incentive no longer became payable. The arguments by the CLP, in the opinion of the Court, that the parties were bound only by the terms of the agreement and that the amendment notification being prospective, could not have altered the terms of the tariff, especially the incentive payable, are insubstantial and have no force. The concurrent findings on this aspect, therefore, are sound and do not call for interference. Likewise, the change of law provision (Clause 6.5 of the PPA) clearly contemplated that any amendment to the prevailing tariff notification (dated 30.03.1992) would bind the parties. Since Note (2) was an amendment, which dealt with the issue of incentive, it cannot now be said that it was inapplicable. The findings of the lower authorities, therefore, are correct; no interference is called forThe concurred findings on this aspect, in the opinion of this court, are reasonable. There is merit in CPLs submission that the earliest point in time, when the cause of action arose, was in May,1996, when Gujarat Urja rejected its contention that incentive was payable in terms of the PPA, notwithstanding the notification of 06.11.1995. Despite this stated position, meetings continued to be held and, what is more, incentive amounts, were paid to CLP. No doubt, no document conclusively stated that CLPs claim was accepted. We do not find any merit in the submission of Gujarat Urja that the issue was kept alive, due to a series of communications. In this regard, APTELs findings about inapplicability of Section 18 of the Limitation Act, are correct. There was no admission on the part of CLP, at least of the kind, that extended the time for preferring an application for recovery of excess payments. It has been consistently ruled by this court that repeated letters, or exchange of communications, do not extend the period of limitation, provided by law.27. The third, and last issue, is with respect to payment of interest on deemed equity. Clause 1.5 of the 30.03.1992 notification provided for interest on loan, as a component of tariff; it stipulated that interest (on outstanding loan) shall be computed as per financial package approved by the Authority (CEA). The PPA of 03.02.1994 (Schedule VII) clause 7.5.10 defined interest on loan capital as the sum of all payments of interest along with bank charges and all associated financing costs paid to the bank annually on the outstanding loans paid by GTEC. … The Central Commissions order of 21.02.2000 led to a stipulation in the tariff regulations of 2001. Eventually, the Tariff Regulations of 2004 was brought into force; it provided for a debt ratio of 70:30 for determination of tariff29. It is thus apparent, that the parties did not harbor any doubt about the period for which the specified interest was payable on such deemed loan. The rate of interest was fixed; likewise, the date from which payment obligations were to arise, too were known. Also, the date upto which the interest on such deemed loan payments were to be made, was known and fixed. In these circumstances, CLPs claim that the payment of interest for a prior period was outstanding, and constituted Gujarat Urjas liability, is insubstantial. In a recent judgment (Uttar Haryana Bijli Vitran Nigam Ltd.and Ors. vs. Adani Power Ltd. and Ors. 2019 (5) SCC 325  ) a similar issue had arisen. The court quoted from the decision in National Thermal Power Corporation Ltd. v. Madhya Pradesh State Electricity Board ((2011)15 SCC 580)   where another previous decision was cited with approval on the issue that the express provision for something, in an agreement, meant that other similar matters stood excluded31. In the present case, the clear agreement between the parties was that interest on the sum of `53.90 crores was payable for the specified period 01.07.2003 to 31.12.2009.Therefore, CLPs claim that any amount was payable, for any period prior to 01.07.2003, was not tenable. Had CLP wished so, nothing prevented it to claim for it during negotiations and have it included as a term of the contract. Once having settled for a specified sum, on an amount (`53.90 crores) that was only fictionally a loan - and treated as such, for purpose of fixing interest payable, considering the equity infused, in excess of the tariff regulations, the absence of any like item, such as interest for prior period, precludes a claim. But it was really part of the equity component. Therefore, interest was per se not payable, but could be paid in terms of the tariff notification or the agreement. No claim on any other legal or equitable considerations could have been made. The findings of the lower authorities are therefore, sound and reasonable