Case: INDSIL HYDRO POWER Vs. STATE OF KERALA

a period of five years from 1994 to 1999. These concessions were independent of and would not therefore disentitle the appellant to the benefit of the agreement that was entered into with KSEB on 30 December 1994. The grant of a concessional tariff is a matter of policy to encourage new industries to set up operations in the State. 38. The claim of the appellant, however, in the present proceedings is based upon the contract for setting up a captive power generation unit relying on the hydel policy of the State dated 7 December 1990 in terms of which the agreement between the parties was executed. 39. Clause 10 of the agreement stipulated that the energy drawn from the hydel units – Phase I and Phase II – would be delivered free of cost to the appellant less an amount of 12% towards wheeling charges and transmission losses. Alternatively, it would be banked by KSEB, if the appellant so desired. KSEB would collect 1% of the energy so banked as its commission. 40. The case of the appellant is that as a result of the inability of KSEB to set up the transmission lines it was unable to receive the power which it was in a position to evacuate into the grid for its captive use. The grievance of the appellant is that as a result of this, it was compelled to purchase power from KSEB at the rates as applicable. Clause 12 of the agreement contemplates a situation where the KSEB grid is not in a position to absorb the energy generated from the project for any reason including the breakdown of transmission lines or any other reason beyond the control of KSEB. In that event, clause 12 provides that the generation from the project will have to be restricted to the extent of generation for captive consumption as directed by KSEB. These provisions indicate that the contract is not entirely silent in regard to a situation involving the inability of KSEBs grid to absorb the energy generated from the project for any reason including a reason which is beyond the control of KSEB. 41. In the present case, the essential facts are not in dispute. 42. Pursuant to the interim order that was passed by the High Court, the Chief Electrical Inspector upon inspecting the work of installation submitted a report on 14 September 2000. The report has not been questioned. The report categorically states that the installation of transformers was completed on 21 August 2000. The work which remained was in the nature of pre-commissioning tests for which the work which had to be completed was essentially the laying down of the 110 KV line on the part of KSEB. The report of the Chief Electrical inspector makes it clear that it was as a result of the delay which took place in the construction of the transmission line that the actual injection of power into the grid could not take place. There is, in other words, clear and cogent material to lead to the conclusion that the appellant had duly fulfilled its obligation of setting up Phase I and Phase II of its units and the only reason why it was unable to inject power into the grid was because the setting up of the transmission lines by KSEB could not take place. 43. The order of the State Government dated 7 February 2001 shows that there was no deliberate act or default on the part of KSEB. Indeed, it has not been seriously disputed that at the material time, there were agitations on the part of the farmers and certain other circumstances which caused delay in the construction of the transmission lines. However as significant as these reasons are, it should not lead to a situation where a private investor who has acted upon the policy of the State Government being left in the lurch as a result of supervening circumstances which have resulted in the power not being evacuated into the grid due to the non-commissioning of the transmission lines at the material time by KSEB. It is imperative that contractual obligations entered into by the State have legal sanctity. A legal regime where the sanctity of contracts is respected and commercial contracts are enforced is essential to the maintenance of the rule of law. Trade and commerce can be freely conducted in a stable legal order which provides remedies for enforcement. 44. At this stage, it is also necessary to note that though in the order of the State Government dated 7 February 2001, it was envisaged that the transmission lines would be constructed and completed by 28 February 2001, there was a further delay of approximately three months even thereafter as a result of which the evacuation of power could commence only with effect from 1 June 2001. On the basis of the factual data which has emerged from the record, on which there is no dispute, we are hence, of the view that the basis on which the State Government took a decision on 7 February 2001 and the High Court affirmed it by its impugned judgment would need to be re-visited in the light of what we have observed above. 45. We are in agreement with the view of the State Government, as accepted by the High Court, that the appellant was not entitled to the grant of deemed generation status as a matter of right. Similarly, the concessional power tariff which is applicable for a period of five years from 1994 to 1999 was extended until 20 August 2000. This is undoubtedly a matter of policy and the High Court was justified in coming to the conclusion that it is not open to the Court to foist a particular measure of policy on the State. In what manner the State should remedy the grievance of the private investor is something which should be duly considered by the State Government within the available framework of law and its own policy

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

Explanation:
1[ds]33. While assessing the merits of the rival contentions, this Court must be cognizant of the fact that the invocation of the power of judicial review under Article 226 of the Constitution of India was in the context of a contract which was entered into between the appellant and KSEB in pursuance of a policy initiative of the Government of Kerala. Evidently, in announcing the policy initiative on 7 December 1990, the State Government intended to encourage the setting up of hydel power projects by private agencies and hence, a slew of concessions came to be provided. The agreement that was entered into between the appellant and the KSEB is undoubtedly a matter in the contractual arena. It is now a settled principle of law that the exercise of writ jurisdiction under Article 226 is not excluded in matters pertaining to contract Shrilekha Vidyarthi (Kumari) v. State of U.P., (1991) 1 SCC 212 ; ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd., (2004) 3 SCC 553 ; Noble Resources Ltd. v. State of Orissa, (2006) 10 SCC 236. 34. In the present case, under its agreement with KSEB the appellant assumed the obligation to set up Phases I and II of a hydel project with a capacity of 21 MW and to operate the project for a period of 30 years. After the expiry of 30 years, the project would be handed over to the State free of cost35. It was in this background that the agreement stipulated that the date of commissioning would be construed as the date from which the power generated by the units set up by the appellant was fed into KSEB grid. Under clause 3 of the agreement, the appellant was to furnish within three months a programme for construction and installation towards the completion of the project. Commercial operation was to be achieved within a period of 30 months from that date. Under clause 9 of the contract, KSEB assumed the obligation to set up the transmission line. Though the contract does not specify the exact length of the transmission line, clause 9 makes it clear that for a length of 4 kms, construction would be at the cost and expense of the appellant while the balance would be constructed by KSEB at its own cost. While a superficial reading of clause 9 alone is liable to lead to the interpretation that no time was fixed for the completion of the transmission lines, this in our opinion, would not be a correct reading of the contract. In construing a commercial document, the contract must be read and understood in its entirety so as to attribute to it a business meaning which was within the understanding of the contracting partiesThus, the reasonable construction of the contract would be that the commencement of commercial operations within 30 months postulated that both the appellant and KSEB must perform their respective obligations under the contract within that period so as to adhere to the date of commencing commercial operations. Hence, the High Court was not correct in coming to the conclusion that the contract did not stipulate any timelines for the completion of the work of constructing the transmission line. Such a requirement was implicit in clause 3 of the agreement and clause 9 must necessarily be read in that context.37. The submission which has been urged on behalf of KSEB principally relies on the concessions which have been provided to the appellant in regard to the tariff which is applicable to its industrial unit. These concessions, it must be noted, were available to all new industries to whom a concessional tariff was provided over a period of five years from 1994 to 1999. These concessions were independent of and would not therefore disentitle the appellant to the benefit of the agreement that was entered into with KSEB on 30 December 1994. The grant of a concessional tariff is a matter of policy to encourage new industries to set up operations in the State38. The claim of the appellant, however, in the present proceedings is based upon the contract for setting up a captive power generation unit relying on the hydel policy of the State dated 7 December 1990 in terms of which the agreement between the parties was executed41. In the present case, the essential facts are not in dispute.42. Pursuant to the interim order that was passed by the High Court, the Chief Electrical Inspector upon inspecting the work of installation submitted a report on 14 September 2000. The report has not been questioned. The report categorically states that the installation of transformers was completed on 21 August 2000. The work which remained was in the nature of pre-commissioning tests for which the work which had to be completed was essentially the laying down of the 110 KV line on the part of KSEB. The report of the Chief Electrical inspector makes it clear that it was as a result of the delay which took place in the construction of the transmission line that the actual injection of power into the grid could not take place. There is, in other words, clear and cogent material to lead to the conclusion that the appellant had duly fulfilled its obligation of setting up Phase I and Phase II of its units and the only reason why it was unable to inject power into the grid was because the setting up of the transmission lines by KSEB could not take place43. The order of the State Government dated 7 February 2001 shows that there was no deliberate act or default on the part of KSEB. Indeed, it has not been seriously disputed that at the material time, there were agitations on the part of the farmers and certain other circumstances which caused delay in the construction of the transmission lines. However as significant as these reasons are, it should not lead to a situation where a private investor who has acted upon the policy of the State Government being left in the lurch as a result of supervening circumstances which have resulted in the power not being evacuated into the grid due to the non-commissioning of the transmission lines at the material time by KSEB. It is imperative that contractual obligations entered into by the State have legal sanctity. A legal regime where the sanctity of contracts is respected and commercial contracts are enforced is essential to the maintenance of the rule of law. Trade and commerce can be freely conducted in a stable legal order which provides remedies for enforcement.44. At this stage, it is also necessary to note that though in the order of the State Government dated 7 February 2001, it was envisaged that the transmission lines would be constructed and completed by 28 February 2001, there was a further delay of approximately three months even thereafter as a result of which the evacuation of power could commence only with effect from 1 June 2001. On the basis of the factual data which has emerged from the record, on which there is no dispute, we are hence, of the view that the basis on which the State Government took a decision on 7 February 2001 and the High Court affirmed it by its impugned judgment would need to be re-visited in the light of what we have observed above.45. We are in agreement with the view of the State Government, as accepted by the High Court, that the appellant was not entitled to the grant of deemed generation status as a matter of right. Similarly, the concessional power tariff which is applicable for a period of five years from 1994 to 1999 was extended until 20 August 2000. This is undoubtedly a matter of policy and the High Court was justified in coming to the conclusion that it is not open to the Court to foist a particular measure of policy on the State. In what manner the State should remedy the grievance of the private investor is something which should be duly considered by the State Government within the available framework of law and its own policy