Case: M/S. ADANI POWER (MUNDRA) LTD Vs. GUJARAT ELECTY REG.COMMISSION

2. The facts in brief giving rise to the present appeal are as underRespondent No. 2, namely, Gujarat Urja Vikas Nigam Ltd. (hereinafter referred to as the procurer) is a holding company engaged in the business of bulk purchases from the power generators and supply to the distribution companies in the State of Gujarat. On 01.02.2006, the procurer initiated the process of bidding for supply of power on long term basis, by issuing a Request For Qualification ( RFQ for short). Three separate bids for purchase of power in accordance with the provisions of Section 63 of the Electricity Act, 2003 were invited. Each of the three bids envisaged purchase of power to the maximum extent of 2000 Mega Watt ( MW for short). The RFQ was followed by Request For Proposal ( RFP for short) on 24.11.2006. The present matter concerns bid No. 2 in respect of which the appellant was selected as a successful bidder3. On being successful in the bidding process, the procurer issued a Letter of Intent ( LOI for short) in respect of bid no. 2, to the appellant on 11.01.2007 for supplying 1000 MW power at the rate of Rs. 2.35 per Kwh. Consequently, the Power Purchase Agreement ( PPA for short) came to be entered into between the procurer and the appellant, for purchase and sale of 1000 MW power from the appellants power project at Korba, Chhatisgarh, at the delivery point at Nani Khakhar in the State of Gujarat. Similarly, on 06.02.2007 another PPA came to be executed by the procurer with the appellant in respect of bid No. 1, which project was to be executed by using imported coal. The rate determined was Rs. 2.89 per unit in respect of bid No. 14. On 12.02.2007, the appellant informed the procurer that it would supply power against bid No. 2, from Mundra Power Project in Gujarat instead of Chhatisgarh Project. Accordingly, a supplemental PPA was entered into between the appellant and the procurer on 18.04.2007, to off take the contracted capacity of 1000 MW against bid No. 2, from Mundra Power Project5. The appellant contended that, the bid submitted by it in respect of bid No. 2 was on the basis of the assurance given by Gujarat Mineral Development Corporation ( GMDC for short) to supply 4 million tonnes of coal. It also contended that, the GMDC was not abiding by the said assurance. So it addressed a communication to the Government of Gujarat on 21.05.2007 to find out a solution. Since the Fuel Supply Agreement ( FSA for short) could not be executed, as contemplated between the appellant and the GMDC; the appellant informed the procurer that the FSA between it and the GMDC had not yet been finalized. Again, a communication came to be addressed by the appellant on 01.05.2008 to the Government of Gujarat, requesting it to impress upon the GMDC to adhere to its assurance and supply the coal from the coal blocks allocated to the GMDC. The procurer, thereafter, in the month of June, 2008, addressed a communication to the appellants stating that, since it had not complied with certain conditions stipulated in the PPA and as such, it should furnish an additional performance bank guarantee. The appellant addressed another communication to the procurer on 17.01.2009, reiterating its inability to supply the power to the procurer in the absence of FSA with GMDC. It also informed that it had no other option except to terminate the PPA. On 27.02.2009, the Government of Gujarat wrote to the GMDC, asking it to supply coal to the appellant from Naini block6. It appears that there was a dispute between the appellant and the GMDC with regard to certain terms and conditions of the FSA and as such the FSA could not be finalized. The record would further reveal, that there was a long correspondence between the Government of Gujarat, the GMDC, the procurer and the appellant with regard to the commitment by the GMDC to supply coal to the appellant in respect of bid No. 2 and non-adherence by the GMDC to abide by the said commitment. The appellant addressed a communication dated 15.11.2008 specifically informing the procurer that the bid was on the basis of the assurance by the GMDC to supply coal. It also informed the procurer that though it was in a position to comply with all other conditions subsequent but they are unable to execute the FSA since the GMDC had not cooperated in the matter. Another communication was addressed by the appellant on 17.01.2009 reiterating that in the absence of FSA with the GMDC, the appellant will not be in a position to supply contracted capacity of power to GUVNL/the procurer in the absence of FSA with the GMDC. It further informed that the appellant shall have no other option than to terminate the PPA unless the coal supply comes from the GMDC from Morga- II coal block. However, it appears that, thereafter, there was an attempt to amicably settle the matter between the appellant, the procurer, the GMDC as well as the Government of Gujarat. As such, the appellant addressed communication dated 28.04.2009 keeping its notices dated 15.11.2008 and 17.01.2009 in abeyance till the matter was resolved between the appellant and the GMDC/Government of Gujarat. It, however, appears that the said attempts were not fruitful. Finally, the appellant by a communication dated 28.12.2009, issued notice to the procurer, terminating the PPA with effect from 04.01.2010. The procurer addressed a communication to the Government of Gujarat on 30.12.2009, requesting the Government to impress upon the appellant to withdraw its termination notice dated 28.12.2009 and also impress upon the GMDC for resolution of FSA with the appellant. The procurer also addressed a communication to the appellant on 05.01.2010, requesting it to keep the notice of termination dated 28.12.2009 in abeyance. On 06.01.2010, the appellant addressed another communication to the procurer, informing it that since the period of termination has already expired, the PPA stands terminated with effect from 4.01.2010. The appellant also deposited an amount of Rs. 25 crores with the procurer towards liquidated damages in addition to the performance bank guarantee of Rs. 75 crores, which was already with the procurer. On 13.01.2010 the procurer sent a letter to the appellant, returning the amount of Rs. 25 crores and calling upon it to withdraw the termination notice. However, the appellant asserted that termination was valid7. The procurer, thereafter, filed a petition under Sections 86(1)(f) and 95 of the Electricity Act, 2003, for adjudication of the dispute between the procurer and the appellant on 01.02.2010 before the Commission. The Commission by its judgment dated 31.08.2010 allowed the petition of the procurer, holding that the termination of the PPA was illegal and directed the appellant herein to supply the power to the procurer at the rate determined in the PPA. Being aggrieved, the appellant approached the Appellate Tribunal for Electricity. By the judgment and order impugned dated 07.09.2011, the Appellate Tribunal dismissed the appeal. Hence, the present appeal.

Reasoning: 20. It could thus be seen that it is more than well settled that the clauses in the agreement ought to be given the plain, literal and grammatical meaning of the expression used in the same. No doubt, that the courts will also try to gather as to what intention the parties wanted to give them. As has been held by Ranjan Gogoi, J. (as His Lordship then was) the principle of business efficacy could be invoked only if by a plain literal interpretation of the term in the agreement or the contract, it is not possible to achieve the result or the consequence intended by the parties acting as prudent businessmen. This test requires that a term can only be implied, if it is necessary to give business efficacy to the contract, to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. If the contract makes business sense without the term, the courts will not imply the same. It is amply clear that courts can imply a clause only if it is found that the plain and literal meaning given to the expression used in the terms is not in a position to make out the intention of the parties. Reading an unexpressed term in an agreement would be justified on the basis that such a term was always and obviously intended by and between the parties thereto. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract. It is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them. It must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, although tacit, forms part of the contract.22. We have hereinbefore reproduced Articles 3 and 4 of the PPA. Article 3 provides for conditions subsequent to be satisfied by the seller and the procurer. Clause (ii) of Article 3.1.2 requires the seller to have executed FSA and provided the copies of the same to the procurer within 12 months from the effective date or 14 months from the date of issue of Letter of Intent, whichever is later, unless such completion is affected due to the procurers failure to comply with its obligations under the PPA or by any force majeure event. Article 3.4 provides for consequences of non-fulfilment of conditions under Article 3.1; sub- clauses (i) and (ii) of Article 3.4.2 specifically provide that if fulfilment of any of the conditions specified in Article 3.1.2 is delayed beyond the period of 3 months and the seller fails to furnish any additional performance guarantee to the procurer or if the seller after furnishing additional performance guarantee to the procurer fails to fulfil the conditions specified in Article 3.1.2 for a period of 8 months beyond the period specified therein, both the procurer or the seller shall have the right to terminate the agreement by giving a notice to the other party in writing of at least 7 days. The only requirement is that in the event of termination either by the procurer or the seller, the seller shall be liable to pay the procurer an amount equivalent to Rs. 10 lakhs per MW of the contracted capacity as liquidated damages. It is thus clear that in the event of non-compliance with any of the requirements as provided in Article 3.1.2 within the period specified in the said Article, an option is available both to the seller or the procurer to terminate the PPA. The only requirement is that, in either of the situations, the liability would be only on the seller to pay the liquidated damages at the rate of Rs. 10 lakhs per MW25. The aforesaid observations of the Appellate Tribunal, in our view, depict a totally erroneous approach. A harmonious reading of Article 3.4.2 and Article 3.1.2 clearly indicates that in the event of non-compliance of any of the conditions as stipulated in Article 3.1.2 within the period prescribed thereunder, either of the parties, i.e., the seller or the procurer have the right to terminate the contract. However, in either of the events, it is the sellers liability to pay the liquidated damages at the rate of Rs. 10 lakhs per Mega Watt26. We are of the considered view that the finding of the Appellate Tribunal that the provisions under Article 3.4.2 of the PPA can be invoked only when there is an agreement between the parties that there is violation of any of the conditions specified in Article 3.1.2 of the PPA is totally incorrect. If such an argument is accepted, it will amount to inserting a totally new condition in Article 3.4.2 of the PPA and would amount to re-writing the contract between the parties; it would do total violence to the provisions of Article 3.4.2 of the PPA. It cannot be said to be a condition which is either reasonable or equitable; it also cannot be said to be a condition which is necessary to give business efficacy to the contract; it also cannot be said to be a test which justifies the Officious Bystander Test; it also cannot be said to be a condition which is capable of the clear expression; it is also not a condition which does not contradict any expressed terms of the contract. On the contrary, is a condition which would totally change the tenor of Article 3.4.2 of the PPA. We are, therefore, of the considered view that the Appellate Tribunal has grossly erred in coming to the conclusion that Article 3.4.2 of the PPA could be invoked only in the event that there is an agreement with regard to violation of any of the conditions in Article 3.1.227. The Tribunal, while arriving at its finding, has held that agreement has to be read as a whole and if it is read as whole and if Articles 3.4.2 and 3.1.2 and Article 14 are harmoniously read, then the only conclusion that can be drawn is that provisions of Article 3.4.2 can be invoked, only if there is an agreement between the parties, that the conditions specified in Article 3.1.2 have not been complied with. Let us test the correctness of this finding30. Applying the aforesaid principles to various clauses of the agreement, an attempt has to be made to harmoniously read the provisions of Articles 3.1.2, 3.4.2 and 14.1, 14.2, 14.3 and 14.4. An attempt has also to be made to give effect to all the provisions. If so read, it will be clear that Article 14 deals with various eventualities in which procurer or the seller can terminate the agreement. Article 14.1 provides for termination in the event of various defaults committed by the seller. Article 14.3 provides for procedure to be followed in cases of default by the seller. Article 14.2 provides various grounds with regard to default by procurer. The procedure for termination in cases of default by the procurer has been provided in Article 14.4. Perusal of grounds stated in Articles 14.1 and 14.2 would reveal that these are general in nature. Per contra, provisions of Article 3.4.2 would reveal that termination under this Article can be made only if there is non-compliance with any of the conditions in Article 3.1.2. The power is available to both procurer and seller. However, in either of the cases i.e. termination by seller or termination by procurer, there is a specific provision of damages at the rate of Rs 10 lakhs per MW, whereas consequences of the termination in Articles 14.1 and 14.2 are totally different. As such, effect will have to be given to both the provisions, which are independent of each other31. We find, that both the Commission and the Appellate Tribunal have grossly erred in arriving at finding that termination can be effected under Article 3.4.2 only if there is an agreement with regard to non-compliance of condition under Article 3.4.2 by both the parties. If the finding of the Appellate Tribunal is accepted, it will be amounting to making provisions of Article 3.4.2 a dead letter and rendering them otiose32. We further find that the Commission as well as the Appellate Tribunal has lost sight of one another important principle of law. T34. In the present case, the perusal of various Articles would reveal that provisions under Article 14 are general in nature. The provision under Article 3.4.2 is specific, only to be invoked in the case of non-compliance with any of the conditions as provided under Article 3.1.2. As such, the special provision made in Article 3.4.2 will exclude the applicability of general provisions contained in Article 14 of the contract35. After considering the legal position, let us examine some of the factual aspects of the matter. It would be relevant to note that in the bid dated 2.01.2007 submitted by the appellant, it is clearly mentioned that the project is based on coal supply from the GMDC37. In the brief summary of the Project given in the said bid document, it has been specifically mentioned by the appellant that the bid was submitted on the basis of indigenous coal supply committed by the GMDC. The bid documents also form part of the PPA between the parties39. It could thus be clearly seen that even the Government of Gujarat has also clearly indicated that the bid submitted by the appellant in the competitive bid was on the basis of the commitment for supply of coal from Morga- II mines by the GMDC. It has, therefore, requested the Managing Director, GMDC to give 50 per cent of coal from Morga block to the appellant. The State Government had, therefore, requested that the Managing Director of the GMDC to go for coal allotment from Morga block41. It could thus be seen that, even the procurer was aware that the bid of the appellant was on the basis of the commitment by the GMDC to supply the indigenous coal42. In view of the aforesaid, it could be seen that the appellant as well as the procurer and also the Government of Gujarat clearly understood that the bid submitted by the appellant was on the basis of the commitment of the GMDC to supply indigenous coal to it. It will be pertinent to mention that the appellant had sent notices intimating its intention to terminate the PPA on account of non- finalisation of FSA with the GMDC and also terminate the contract much prior to commissioning of the project and commencement of power supply to the procurer. Annexure III to the PPA would itself show that expected commercial date of operation is January, 2012, whereas termination is vide notice dated 28.12.2009. The materials placed on record would reveal that the appellant has supplied the power at the rate of Rs. 2.35 per unit (as per bid) after the PPA was terminated by it, to abide by the directions issued by the Commission. It may not be out of place to mention that the appellant was a successful bidder in respect of the two bids i.e. bid No. 1 and bid No. 2. Insofar as bid No. 2, which is the subject matter of the present proceedings, the bid of the appellant was accepted at the rate of Rs. 2.35 per unit whereas in the same bidding process, bid of the appellant for bid No. 1 was accepted at the rate of Rs. 2.89 per unit. The said Project was to be executed on the basis of imported coal supply. It is thus clear that the parties were very much aware that bid of the purchaser for bid No. 1 which was at a much lower price than the price for bid No. 2 was on account of the commitment to the appellant from the GMDC that it would supply indigenous coal to it43. In that view of the matter, after the GMDC resiling from its commitment and refusing to enter into FSA with the appellant, the appellant was justified in invoking Article 3.4.2 of the PPA, in view of non-compliance of Condition No. (ii) in Article 3.1.2 since it had failed to produce the Fuel Supply Agreement.44. In the light of the aforesaid finding, we fail to understand as to how the Appellate Tribunal has come to a finding that the bid of the appellant was not on the basis of the commitment by the GMDC to supply indigenous coal. We are of the considered view that the Appellate Tribunal has erred both on facts and in law. We are of the considered view that the appellant was entitled in law as well as on facts to invoke Article 3.4.2 of the PPA and terminate the agreement45. Having held that the termination was legal and valid the question arises as to what relief is to be granted to the appellant. On the basis of the Order of the Commission and the Appellate Tribunal, the appellant is continuing supply of electricity to the respondent No. 2, the procurer, though it is the contention of the appellant that it has been sustaining losses by doing so48. This Court after hearing the parties observed that insofar as the question of permitting the supplier/procurer to pay the compensatory tariff, as indicated in its counter affidavit is concerned, it requires no permission from this Court and it was for the supplier/procurer to take a decision in accordance with law49. Once we hold that termination is valid and legal, question would arise as to at what rate the appellant is entitled to compensatory tariff from the date of supply of power. Undisputedly, even after the PPA was validly terminated, the appellant continued to take the project to its logical end. After commissioning of the project, it has started supplying electricity to the procurer in accordance with the decision of the Commission and the Appellate Tribunal. The appellant must have incurred huge expenditure on the same. In order to do economic justice, on the principle of business efficacy, the appellant would be entitled for adjustment of cost of the project and would also be entitled to the interest on the expenditure incurred by it for completion of the project. The expenditure towards running of the project after obtaining the coal from the open market would also be required to be taken into consideration. The appellant would also be entitled to the interest on the delay of payment after it receives payment upon determination of the rate which would be determined by the Central Electricity Regulatory Commission ( CERC for short). However, we find that it will not be appropriate for us to go into that exercise50. Section 62 of the Electricity Act, 2003, provides entire mechanism for determination of the tariff by the CERC. It will also be relevant to note that the CERC (Terms and Conditions of Tariff) Regulations 2009 also consider various factors which are required to be taken into consideration by the CERC while determining the compensatory tariff. We find that it will be appropriate to relegate the parties to CERC for determination of the compensatory tariff payable to the appellant from the date of termination of the PPA. After such determination, the procurer would be entitled to adjust the amount if already paid in accordance with affidavit dated 23.11.2015, from the amount so determined by the CERC.