NABHA POWER LIMITED (NPL) versus PUNJAB STATE POWER  CORPORATION LIMITED (PSPCL) & ANR.
[2017] 14 S.C.R. 301, Supreme Court of India, 2017
Outcome: Case Partly allowed (Granted)
Segment: Ratio
[2017] 14 S.C.R. 301 
NABHA POWER LIMITED (NPL) 
v. 
PUNJAB STATE POWER 
CORPORATION LIMITED (PSPCL) & ANR. 
(Civil Appeal No. 179 of2017) 
OCTOBER 05, 2017 . 
[R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.) 
Contract: 
Commercial contract - Interpretation of - Power Purchase 
Agreement - Energy Charge Formula - Procurement route wav 'fuel 
specific' having 'a pre-identified site' - The procurer-respondent 
arranged the fuel (coal) and specified the site location for the project 
A 
B 
c 
- Energy charges were designed to vary in accordance with the 
actual cost of coal and the actual quality of coal - Procurer was 
D 
responsible for co~·t of coal and quality of coal i.e. Gross Calorific 
Value (GCV) of coal - It was clarified by the procurer that the 'coal' 
to be supplied for the project would be 'washed coal' - The procurer 
deducted certain components of monthly tariff i.e. component of 
cost of purchasing coal comprising washing related costs; 
E 
consideration of mid-point GCV of ROM coal on equilibrated GCV 
basis·(EGCV) to calculate energy charges; denying of road 
transportation cost at the plant-end and at the mine-end; and 
denying the Liasing charges, transit and handling losses and denying 
third party coal testing charges etc. - Appellant filed petition before 
State Commission challenging the deductions - State Commission 
F 
dismissed the petition - Appellate Tribunal rejected the appeal on 
most of the grounds - On appeal. held: Normally a contract should 
be
read as it reads. as per its express terms - The explicit terms are 
the final word with regard to the. intention of the parties - Reading 
an implied condition into the contract is necessitated only when 
G 
penta-test comes into play - There has to be a strict necessity for it 
- A multi-clause contract inter-se the parties has 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 - In the present case, the Court has read the contract (Power 
301 
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302 
SUPREME COURT REPORTS 
[2017] 14 S.C.R. 
A Purchase Agreement) only in the manner it reads - Energy Charge 
Formula alone would have to be referred to for the purposes of 
calculation of the coal price - The principle of 'business efficacy' 
would also require the court to read 'Monthly Energy Charges' 
formula in a manner as would be normally understood - Reference 
B to coal in the formula would be only a reference to 'washed' coal 
and not to 'unwa~hed' coal - 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 transportation costs to 
the project site have to be compensated - It is not qualified by 
methodology of transfer i.e. railway or road and therefore appellant 
C is entitled to it - The Calorific Value of coal has to be determined at 
project-site and not at the mine-site - Appellant is not entitled to 
any other charges as the formula contains only three elements and 
no other element other than those would form part of the formula -
Rules of Interpretation - Principle of 'Reddendo Singula Singzilis' 
D 
- Electricity Act, 2003 - ss. 63 - Electricity. 
Partly allowing the appeal, the Court 
HELD: 1.1 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 
E 
must have been intended at all events by both business parties. 
F 
G 
H 
The
development oflaw 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'. This test required 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 a_ny express term of the contract. 
[Para 49)(338-G-H; 339-A-C] 
Life Corporation of India & Anr. v. Dharam Vir Anand 
(1998) 7 SCC 348 : [1998] 2 Suppl. SCR 295; Mis. 
Dhanrajamal Gobindram v. Mis. Shamji Kalidas and 
Co. [1961] 3 SCR 1020; The Union of India v. Mis. 
D.N. Revri & Co. and Ors. (1976) 4 SCC 147 : [1977) 
1 SCR 483; Satya Jain (Dead) Through LRs. and Ors.
NABHA POWERLIMITED (NPL) v. PUNJAB STATE POWER 
CORPORATION LIMITED (PSPCL) 
v. Anis Ahmed Rushdie (Dead) Through LRs. and Ors. 
(2013) 8 SCC 131 : (2013) 3 SCR 319 - relied on. 
The Moorcock (1889) 14 PD· 64; Shir/aw v. Southern 
Foundries (1926) L.D. (1939) 2 KB 206; Reigate v. 
Union Manufacturing Co. (Ramsbottom) Ltd. (1918) 1 
K.B. 592; Liverpool City Council v. Irwin (1976) Q.B. 
319; Liverpool City Council v. Irwin /H.L.(E.)] (1976) 
2 WLR 562; Shell UK. Ltd. v. Lostock Garage Ltd. 
(1976) 1 WLR 1187; B.P. Refinery (Westernport) 
Proprietary Limited v. The President Councillors and 
Ratepayers of the Shire of Hastings (1977) UKPC 13; 
. Investors Compensation Scheme Ltd. v. West Bromwich 
Building Society (1998) 1 All ER 98; Attorney General 
of Belize and Ors. v. Belize Telecom Ltd. and Anr. (2009) 
1 WLR 1988 - referred to. 
303 
A 
B 
c 
1.2 However, the explicit terms of a contract are always 
the final word with regard to the intention of the parties. The D 
multi-clause contract 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. [Para 49][339-D] 
l.3 It should certainly not be an endeavour of commercial 
E 
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. Jt
·is even preced'ed by opportunities of seeking 
clarifications and doubts so that the parties know what they are 
F 
getting into. Thus, normally a contract should be read as if reads, 
as per its express _terms. The implied terms is a concept, which 
'is necessitated only when the Penta-test comes into play. There 
has to be a strict necessity for it. In the present case, the Court 
has only read the contract in the manner it reads. The Court has 
not really read into it any 'implied term' but from the collection 
G 
of clauses, come to a conclusion as to what the contract says.' 
The formula- for energy charges was quite clear. The Court has 
only expounded it in accordance to its natural grammatical contour, 
keeping in mind the nature of the contract. [Para 72][346-C-E] 
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SUPREME COURT REPORTS 
[2017] 14 S.C.R. 
A 
2.1 In the present case, in view of the specific formula 
provided for calculation of energy charges, only three aspects 
relatable to coal would determine the particular co-efficient; i.e., 
(a) purchasing; (b) transporting; and (c) unloading the coal. These 
three expressions are thereafter followed by the stipulation that 
B 
the coal has to be recently supplied "to and at the project." The 
word 'to' obviously would have reference to transporting whHe 
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 
C "the Project." Thus, the definition of Fc0A\ is the weighted 
average actual cost incurred by the appellant of 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 appellant vis-a-vis SECL, on delivery being 
0 
taken at the mine-end would not change the definition of coal 
pricing as is required for the purposes of calculation of the tariff. 
[Paras. 53, 54)(341-A, C-E] 
2.2 The principle of Reddendo Singula Singulis is where a 
complex sentence has more than one subject, and more than one 
object, it may be the right construction to render each to each, by 
E 
reading the provision
distributively and applying each object to 
its appropriate subject. A similar principle applies to verbs and 
their subjects, and to other parts of speech." The Court has also 
endeavoured to read the provision distributively, by applying each 
object, to the appropriate subject. Thus, the relevant preposition 
F 
has been applied to the relevant activity. (Paras 56, 58) [342-E-F] 
G 
H 
Koteswar Vittal Karnath v. K. Rangappa Ba/ia & Co. 
(1969) 1 SCC 255 : (1969) 3 SCR 40 - relied on. 
M'Neill v. Crommelin (1858) 9 Ir CLR 61 - referred 
to. 
'Principles of Statutory Interpretation' by .Justice G.P. 
Singh; OSBORNE: Concise Law Dictionary, p. 269; 
.WHARTON: Law Lexicon, 14'h Edition, p. 850 -
referred to.
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
305 
. 
CORPORATIONLIMITED(PSPCL) 
2.3 The prior activity of 'washing', before receiving the A 
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 qu\}lity 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 Notification issued B 
by the MoEF 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. 
[Para 59)(342-G; 343-A-B] 
2.4 The fact that the clarification made it clear that the 
appellant had to "arrange" the washing of coal, did not imply that c 
the cost of washing the coal had to be borne by the appellant, as 
the 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 D 
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 the Court to read the 'Monthly Energy 
Charges' formula in a manner as would be normally understood. 
[Para 61}(343-D-F] · 
2.5 As regards the the transportation cost, once again, what 
is
sought to be excluded is taking the coal for 'washing' as well 
as the last mile to the project, on account of the Railway siding 
not being located at the project site for a certain specified period 
of time. It is for that period of time that the actual transportation 
cost, through road is sought to be recovered. by the appellant. 
These··costs cannot be excluded, as the transportation costs to 
the project site have to be compensated to the appellant. It is 
not qualified by the methodology of transfer, i.e., railways or road. 
E 
F 
It is also a matter of necessity, since the railway siding had not 
reached the project site due to some complications in acquisition 
G 
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 
Railway lines from nearby station to site cannot imply that the 
Railways is the only mode of transportation when the siding has 
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SUPREME COURT REPORTS 
[2017] 14 S.C.R. 
A not been made, albeit on account of land acquisition problems. 
[Paras 63, 64)(343-H; 344-A-C] 
2.6 So far the dispute regarding the Gross Calorific Value 
(GCV) of the coal is concerned, if the issue is one of SECL billing 
for higher Calorific Value while actually supplying a low Calorific 
B 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 PCV 
0 as the weighted average 
Gross Calorific Value delivered to the project. This Calorific 
C Value of coal would have to be, thus, on the same parameter 
determined at the project site. [Para 66)(344-F-G] 
2.7 Delivery 'to the prttject' 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 
D wordings in the formula relatable to the project-site to the mine-
site. Thus, the point at which the Calorific Value of the coal is to 
be measured is at the project-site. The plea of the first respondent 
that there is no such methodology of measuring the Calorific Value 
at the project-site is belied by the sample reports of different 
E financial years filed by the appellant along with the synopsis, which 
itselfreferred to the joint sampling and
testing of the coal received 
and is duly signed by both sides. Thus, the reading of the energy 
formula leads to only one conclusion that all costs of coal up to 
the point of the project site have to be included and the Calorific 
F 
Value of the coal has to be taken as at the project-site. [Paras 
67,68 and 69)(345-A-D) 
2.8 There are certain other essential costs sought to be 
claimed by the appellant such as the transit and handling losses, 
third party testing charges, liaising charges. Since the formula 
contains only three elements and thus, the appellant cannot be 
G p_ermittcd to plead that any other clement, other than those would 
'.llso 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. [Para 
H 70)(345-E-F]
NABHA POwER LIMITED (NPL) v. PUNJAB STATE POWER 
307 
CORPORATION LIMITED (PSPCL). 
2.9 So far as claim for interest is concerned, no such claim A 
has been laid so far, at any stage. 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. . B 
Present case 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 been claimed by 
them at any stage. [Para 71][345-G-H; 346-A] 
2.10 Thus, the appellant is entitled only to the washing cost C 
of coal, the transportation from the mine site via washing of coal 
to the project site inclusive of cost of road transportation for the 
period where it was necessary. The Calorific Value of the coal 
would have to be taken at the project site. All other claims in 
appeal stand rejected. [Para 73][346-F-G] 
Case Law Reference 
[1998] 2 Suppl. SCR 295 
relied on 
Para 29 
[1961 J 3 SCR 1020 
relied on 
Para 46 
(19771 1 SCR 483 
relied on 
Para47 
(2013] 3 SCR 319 
relied on 
Para 48 
(1969] 3 SCR 40 
relied on 
Para 57 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 179 of 
2017. 
D 
E 
From the Judgment and Order dated 14.12.2016 of the Appellate 
F 
Tribunal for Electricity at New Delhi (APTEL) in
Appeal No. 64 of 
2016. 
Mukul Rohatgi, C. S. Vaidyanathan, Sr. Advs., Aniket Prasoon, 
Hemant Sahai, Mahesh Agarwal, Abhishek Kumar, Parul Shukla, Ms. 
Sadapurna Mukherjee, Ms. Nisha Rohtagi, E. C. Agrawala, Advs. for 
G 
the Appellant. 
. V. Giri, Sr. Adv., Ms. Swapna Seshadri, Nikunj Dayal, Pramod 
Dayal, Ms. Payal Dayal, Anand K. Ganesan, Ms. Neha Garg, Sakesh 
Kumar, Ms. Charu Singhal, Karunakar Mahalik, Advs. for.the 
Respondents. 
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SUPREME COURT REPORTS 
[2017] 14 S.C.R. 
A 
The Judgment of the Court was delivered by 
SANJAY KISHAN KAUL, J. 
Facts: 
1. The Punjab State Electricity Board ('PSEB') in the year 2009 
B conducted an international competitive biddingfor selection of developer 
through tariff based bidding process for procurement of power on long 
term basis from a power station to be set up at Village Nalash, Ra:jpura, 
District Patiala, Punjab. This power station was envisaged as a Casc-2 
bid project (Case-2, Scenario-4) criteria by PSEB in terms of the 
competitive bidding guidelines issued by the Government of India as per 
C Section 63 of the Electricity Act, 2003 (hereinafter referred to as the 
'EA'). 
2. The significance of the aforesai~ is that Part-7 of the EA, which 
contains the provisions for tariff, provides for tariff regulations to be 
determined by the appropriat~ commission as per guiding principles set 
D out in the Section of the EA. The tariff is determined under Section 62 
of the EA. However in a scenario such as the present case, the 
detennination is as per the provisions of Section 63 of the EA, which 
reads as under: 
"Section 63. Determination of tariff by bidding process. -
E 
Notwithstanding anything contained in section 62, the Appropriate 
Commission shall adoptthe tariff if such tariffhas been determined 
through transparent process of bidding in accordance with the 
guidelines issued by the Central Government." · 
3. In order to facilitate the
implementation of the project the PSEB 
F 
incorporated Nabha Power Limited ('NPL/Appellant') on 9.4.2007 as a 
special purpose vehicle ('SPV') for implementation of the project and 
the successful bidder was to acquire 100 per cent shareholding of the 
NPL and enter into a 25 year Power Purchase Agreement ('PPA') with 
PSEB. 
G 
4. It may be noticed for the purpose of completion of facts that 
H 
the first respondent, Punjab State Power Corporation Limited, (' PSPCL') 
is the successor entity of the erstwhile PSEB subsequent to the unbundling 
of PSEB in accordance with the Punjab Power Sector Refonns Transfer 
Scheme, 2010, while the second respondent is the Punjab State Electricity 
Regulatory Commission ('PSERC').
NABHAPOWER LIMITED (NPL) v. PUNJAB STATE POWER 
309 
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN KAUL, .T.] 
5. On 10.6.2009, a Request for Qualification ('RFQ') and a A 
Request for Proposal ('RFP') inviting proposals to supply 1200 MW of 
power from the Rajpura Thermal Power Project was issued. The RFQ 
specified that the followingtash had already been completed: 
"i. 1078 acres ofland had been acquired. 
ii. Environmental clearance had been obtained. 
iii. Fuel arrangements had been tied up in the form ofLoA dated 
11/18.12.2008. 
· iv. Water arrangement had been tied up." 
While the RFP specifically provided that: 
"i. The source of primary fuel (coal) would be coal frort1 SECL 
since SECL had already issued the LoA. 
ii. The Railways had given assurance for transportation of coal 
from SECL over a distance of 1600 km." 
6. On the bidding document being issued on 16.9.2009, certain 
queries and clarifications were raised by the prospective bidders in terms 
of the bidding documents for which clarifications were issued. The 
significant clarifications qua the matter at hand; noticed even in the 
impugned order, arc as under: 
"i. SECL would supply Grade 'F' coal from KorbafRaigarh field, 
with GCV of 3900 Kcal/kg to 4260 Kcal/kg, Ash Content of 3 5% 
to 40%, total inherent moisture of 5% to 6%, Volatile matter of 
24% to 32°/.,, fixed carbon of32% to 37% and Sulphur content of 
0.05%. 
ii. On a specific query of whether the coal to be supplied wotild 
be washed coal or
unwashed coal, it was clarified that washing of 
coal was to be arranged by the successful bidder. 
iii. In response to the queries raised by the bidders, clarifications 
B 
c 
D 
E 
F 
on the model PPA were also issucdon 17.09.2009. On the question 
G 
of the costs associated with fuel supply, transportation and 
unloading being pass through, it was clarified that tariff payment 
will be in accordance with Schedule VII of the PPA." 
7. On the bidding process being completed, Mis. L&T Power 
Development Limited ('L&T PDL') was declared as the successful 
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SUPREME COURT REPO~TS 
[2017] 14 S.C.R. 
A 
bidder and a Letter oflntent was issued on 19.11.2009. Thereafter on 
18.1.2010, a Share Purchase Agreement ('SPA') was entered into 
between PSEB and L&T PDL, transfemng 100 per cent of the shares 
ofNPL to L&T PDL. Simultaneously the PPA was entered into between 
PSEB and NPL. The contractual obligation began of the respective 
B 
parties. 
8. ln the course of the contractual obligations, various issues arose, 
some of which were resolved. However, in respect of the amounts 
payable to the appellant, the controversy commenced, and remained 
right from the first invoice. It is the case of the appellant, that the first 
C 
respondent made deductions from the amount due and payable under 
the invoices, on the following accounts: 
"i. Component of the cost of purchasing coal comprising washing 
related costs including washery charges and cost of coal towards 
loss of quantity on account of washing (yield loss~; 
D 
ii. Consideration of mid-point ofGCV ofROM coal on equilibrated 
acy basis ('EGCV') to calculate energy charges; 
iii. Denial of road transportation cost- at the plant-end and at the 
mine-end. 
iv. Denial ofLiaising charges, denial ofTransit and handling losses 
E 
and denial of Third party coal testing charges; and 
v~ Non-payment of Capacity Charges for the period from 
20.02.2014 to 03.03.2014 when the availability was declared on 
non-linkage (alternate) coal." 
F 
9. The aforesaid gave rise to a cause for the
appellant to file 
Petition No.52 of2014 under Section 86(l)(b) & (f) of the EA before-
the State Commission seeking relief on account of wrongful deduction 
of certain components of month! y tariff by the first respondent. The 
State Commission, post admission, dismissed this petition vide order dated 
1.2.2016. The appellant, thus, filed Appeal No.64 of 2016 before the 
G 
Appellate Tribunal ('AT'). The appeal was, however, rejected vide order 
dated 14.12.2016 on most giounds except the non-payment of capacity 
charges allowed in favour of the appellant. It may be noticed that in the 
course of the appeal various questions oflaw were framed but ultimately 
the same were restricted only to five issues. 
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•1 
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
311 
CORPORATIONLIMlTED(PSPCL)[SANJAYKISHANKAUL,J.] 
10. The dispute really is about the interpretation of the provisions 
A 
of the PPA dated 18. L2010 and is, thus, one of pure interpretation of the 
terms of the contract. 
The plea o(the Appellant: 
11. Mr. Mukul Rohatgi, learned Senior Advocate, argued on behalf 
of the appellant. Mr. Rohatgi contended that the significant aspect is 
B 
that the bidding process for the power project was in terms of the 
"Guidelines for Determination of Tariff by Bidding Process for 
Procurement of Power by Distribution Licensees, 2005" (hereinafter 
referred to as the 'Guidelines'), which have a statutory flavor under 
Section 63 of the EA. Para 2.2 read with para 3.2(i) of the Guidelines c 
envisages two routes of competitive bidding, Case-I and Case-2. The 
. said paras read as under: 
., 
,, 
"2.2. The guidelines shall apply for procurement of base-load, 
peak-load and seasonal power requirements through competitive 
bidding, through the following mechanisms: 
D 
(i) Where the location, technology, or fuel is not specified by 
the procurer (Case 1 ); 
·(ii) For hydro power projects, load center projects or other 
location, specific projects with specific fuel allocation such as 
captive mines available, which the procurer intends to set up 
E 
under tariff based bidding process (Case-2). 
However separate RFP shall be used for procuring base load or 
peak load or seasonal load
req.uirements as the case may be." 
F 
"3.2 (i) In order to ensure timely commencement of supply of 
electricity being procured and to convince the bidders about the 
irrevocable intention tofthe procurer, it is necessary that various 
project preparatory activities are completed in time. For long 
term procurement for projects for which pre-identified sites are 
to be utilized (Case-2), the following project preparatory activities 
G 
should be completed by the procurer, or authorized representative 
of the procurer, simultaneously with bid process adhering to the 
milestones as indicated below: 
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312 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2017] 14 S.C.R. 
(i) Site identification and land acquisition: If land is required to 
be acquired for the power station, the notification under section 
4 of the Land Acquisition Act, 1894 should have been issued 
before the publication ofRFQ. The notification under section 
6 of the Land Acquisition Act, 1894 should have been issued 
before the issue of RFP. If the provisions of section 17 of the 
Land Acquisition Act, 1894 regarding emergency have not been 
applied, the Award under the Land Acquisition Act should have 
been declared before the PPA becomes effective. 
(ii) Environmental clearance for the power station: Rapid 
Environmental Impact Assessment (EIA) report should be 
available before the publication ofRFQ. Requisite proposal 
for the environmental clearance should have been submitted 
before the concerned administrative authority responsible for 
according final approval in the Central/State Govt., as the case 
may be, before the issue of RFP. Environmental clearance 
should have been obtained before PPA becomes effective. 
(iii) Forest Clearance (if applicable) for the land for the power 
station: Requisite proposal for the forest clearance should have 
been submitted before the concerned administrative authority 
respopsible for according final approval in the Central/State 
Govt., as the case may be, before the issue ofRFP. 
(iv) Fuel Arrangements: If fuel linkage or captive coal mine(s) 
are to be
provided, the same should be available before the 
publication ofRFQ. In case, bidders are required to arrange 
fuel, the same should be clearly specified in the RFQ. 
(v) Water linkage: It should be available before the publication 
ofRFQ. 
(vi) Requisite Hydrological, geological, meteorological and 
seismological data necessary for preparation of Detailed Project 
Report (DPR), where applicable. These should be available 
before the issue of RFP. The bidder shall be free to verify 
geological data through his own sources as the geological risk 
would lie with the project developer. 
The project site shall be transferred to the successful bidder at a 
price to be intimated at least 15 days before the due date for · 
submission of RFP bids."
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
313 
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN KAUL, J. j 
12. The essential difference between Case-1 and Case-2 A 
procurement route is stated to be that a Case-2 is a 'fuel specific 
procurement' having a 'pre-identified site' as in the present case. It is in 
these circumstances that the first respondent, being the procurer is stated 
to have arranged the fuel linkage from SECL, Chhattisgarh and specified 
the site location for the project near Village Na!ash, Tehsi! Rajpura, Punjab. 
B 
The bidder's responsibility included design, engineering, procurement, 
construction, testing, commissioning, financing, operation and maintenance 
of the power station. Even under the Case-2 model, there are stated to 
be five scenarios, and the bid parameters of each scenario is stated to 
be different - the present one being scenario 4. This is stated to be 
significant inasmuch as an all-inclusive fixed/capped energy charge was 
C 
not a bidding parameter, and the energy charges were designed to vary 
ill accordance with the actual cost of coal, and the actual quality of coal. 
The appellant, as bidder, is thus stated to have taken the risk only of one 
component of the energy charge formula, befog the efficiency of the 
project, and not with respect to other two components, i.e., cost of coal 
D 
and Gross Calorific Value (' GCV') of coal, including its constituents. 
This is the reason stated for the relevant formula under Article
1.2.3 of 
Schedule 7 of the PPA, which wiil be discussed hereafter. 
13. It is the case of the appellant that on 16.9.2009, prior to the bid 
date, PSPCL disclosed the coal quality in its pre-bid c.Jarification. The 
E 
project was located at a distance of more than 1,000 kilometers from the 
_SECL mine and the coal arranged by the respondent contained more 
than 34 per cent ash. The project, thus, came under the ambit of Ministry 
of Environment and Forest (for short 'MoEF') Notification of 1997, 
making it mandatory for the coal to be washed for the use of generation 
of electricity energy. PSPCL, also mandated that washing of coal was 
F 
to be arranged by the successful bidder (pre-bid clarification). The query 
raised by the appellant was as to whether the coal to be supplied for the 
project, was washed coal or unwashed coal (query N o.6). It is the plea 
of the appellant that, thus, the reference to coal and fuel in the PPA; 
including the energy charges formula, could only refer to washed coal 
G 
and thus the actual cost of purchasing, transporting and unloading coal 
referred to in Article 1.2.3 of Schedule 7 of the PPA, must refer to such 
actual cost of washed coal. The PSPCL, however, took a contrary 
stand that the term 'washing' is not part of the energy charges formula, 
while the appellant sought to include-(A) the actual cost of unwashed 
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A coal procured by NPL from SECL, including the cost of coal lost in 
washing (around 20 per cent); and (B) washing charges paid for getting 
the coal washed. The appellant's stand, thus, is that the clarification that 
the successful bidder would have to arrange for washing of coal, would 
not imply that the washing cost has to be fastened on to the appellant, as 
B in terms of the PPA, the energy charge formula expressly provided for 
actual cost incurred, to be reimbursed. 
14. The significant contention of the appellant is that the operation 
cost mentioned in clause 2.7.1.4(3) of the RFP only referred to the cost 
towards operating and maintenance of power plant, and cannot refer to 
C any cost associated with the cost of coal, which is a part of the energy 
charges. 
D 
15. The appellant also invoked the principle of'business efficacy' 
and the maxim 'Reddendo Singula Singu!is · for interpreting the terms 
of the PPA and the Energy Charges Formula, as set out at Article 1.2.3 
of Schedule 7 of the PPA. 
16. The aforesaid is really the major and the first dispute inter se 
the parties. 
17. The second dispute relates to the GCV of the coal, and is in a 
sense, linked to the first dispute. This is so as the PSPCL" takes into 
E account the theoretical/Equilibrated GCV2( 'EGCV') of unwashed coal 
at the mine-end rather than GCV of washed coal on an As Received 
Basis ('ARB') at the project-end as part of PCV" in the Energy
Charges 
formula. The GCV of the coal is stated to change significantly due to 
transportation by rail over a period of 4 to 5 days, as coal contains 
moisture. The critical stage is stated to be the measure of GCV when 
F the project coal reached the site (from the mine-end in Chhattisgarh to 
the project-site at Ra,jpura) when it is stated to be jointly sampled, tested 
and recorded by NPL and PSPCL. This is stated to be obvious from the 
definition of PCV,,. The joint sampling done at the mines ofSECL is only 
of unwashed coal. 
G 
18. The formula, it is pleaded, of Fc0A\ is stated to refer to the 
H 
actual cost of transporting the coal to the project and the actual cost of 
unloading at the project. The mere transfer of title of unwashed coal, 
which cannot be used in generation of electricity charges is, thus, pleaded 
not to imply delivery of coal to the project.
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
315 
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN K{\UL, J.] 
19. On the same principle, there is a third aspect of the claim of A 
transportation cost of coal with respect to the first mile and the last mile. 
The first mile is on account of the unwashed coal from the mine to the 
washery, while the fast mile is stated to have been incurred for carriage 
of coal from the nearest railway station to the prpject, on account of 
incomplete !_and acquisition by the Government of Punjab on behalf of B 
the PSPCL. The transportation has to be reimbursed irrespective of 
mode. In a Case-2 project, the risk towards land is not assigned to the 
bidder but is of the PSPCL. 
-
20. There arc also certain other linked charges qua coal in the 
context of transit and handling charges, third party testing charges and 
liaising charges. 
C 
- · 21. In the synopsis filed, the appellant has claimed even interest 
on the disputed energy charges in view of Article 11.3 .4 read with Article 
11.6.8 requiring payment of interest/late payment surcharge on the 
disputed component of the monthly bill from the date on which such 
payment was originally due against whom the dispute is settled/decided. 
D 
The absence of a separate prayer for the payment of interest, it has 
been pleaded, cannot deny the appellant such benefit which must enure 
in case of the appellant succeeding in the adjudication. Also the appellant 
having been deprived of the use of
money, this deprivation cost should 
be compensated with interest/damages. We may note at the end of E 
such submissions of the appellant, that along with certain synopsis, some 
documents have been filed showing joint sampling in the presence of 
NPL and PSPCL representatives for the coal received at the project-
site including coal received after washing, to deny the plea'ofrespondcnt 
No. I that such verification was being done only at the mine-site. 
F 
Plea ofthe First Respondent: 
22. The first respondent through Mr. V. Giri, learned Senior 
-Advocate canvassed that any claim of the appellant relatable to coal has 
to be considered in terms of Clause 1.2.3 of Schedule 7 of the PPA. In 
terms thereof, there are stated to be only three distinct identifiable 
G 
-components of coal recognized for tariff: (a) Purchase; (b) Transportation 
· and ( c) Unloading. Thus, until and unless the claims squarely fall under 
Lone of these three hclJ:ds, the same cannot be included in the monthly 
energy charges. It is not as if all costs relatable to coal handling from 
the stage of procurement from SECL at the coal mine-site, up to stage 
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A of firing in the boiler to generate electricity is to be included. Had that 
been the intention, the stipulation would have been of actual cost of coal 
used for generation of power. 
23. The plea raised is that the cost of coal is payable to SECL, 
which is provided on actual basis. It was abundantly clear that the coal 
B supplied would not be washed coal and the obligation of washing was on . 
the appellant. Such washing could have been undertaken either by 
establishing a washery, or by outsourcing the washing activity to a third 
party. Not only washing, there were certain other essential activities to 
be undertaken in relation to coal after the purchase of coal, including 
sizing of coal, crushing of coal, sprinkling and moisturisation of.coal for 
C stacking and storage, sorting of coal, ash removal, removal of stones 
and other undesired contents, demoisturisation of coal, pulverization of 
coal, etc. The calculation formula, for monthly energy charges, is claimed 
to provide for only the purchase price paid to SECL and not any other 
D 
E 
F 
H 
expenditure incurred by the appellant. 
24. The first respondent contends that the definition of the term 
'fuel supply agreement' refers to the agreement between the appellant 
and the fuel supplier, i.e., SECL, and thus, the transaction of purchase 
referred to in Clause 1.2.3 of Schedule 7 of the PPAis identifiable to the 
purchase in the definition of the fuel supply
agreement. 
25. The attention of the Court was also invited to "Project 
Documents", which reads as under: 
'"'Project Documents" mean 
a) Construction Contracts; 
b) Fuel Supply Agreements including the Fuel Transportation 
Agreement; 
c) O&M contracts; 
d) RfP and RfP Project Documents; and 
e) any other agreements designated in writing as such, from 
time to time, jointly by the Procurer and the Seller;" 
26. It is, thus, pleaded that there is no separate agreement for 
'washing' included in this list of what constituted "Project Documents." 
The delivery point under the fuel supply agreement is the loading end of
NABHA POWER LIMITED (NPL) v. PUNJAB STATE.POWER 
317 
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.] 
the colliery whereafter the title and risk of the coal is that of the appellant. 
A 
Thus, the purchase is complete. 
27. The burden to obtain any clarification being on the appellant, it 
was submitted that the clarification which they actually sought was as to 
whether the coal to be supplied would be washed or unwashed, to which 
a categorical answer was given. Had the appellant any doubt about 
B 
bearing the cost for the washed coal, they could easily have raised a 
specific query in that behalf. This is sought to be read along with Clause 
2. 7.1.4 providing for the quoted tariff to be an 'all inclusive tariff' with 
no exclusion allowed. Thus, the washing of coal and other activities in 
_ relation thereto, are to be included in the quoted tariff, which is as per 
unit tariff. The relevant clause, in this regard, reads as under: 
C 
"2. 7 .1.4 The Bidder shall inter alia take into account the following 
- while preparing and submitting the financial Bid: 
3. The Quoted Tariff in Format I of Annexure 4 shall be an all 
D 
inclusive tariff and no exclusions shall be allowed. The Bidder 
shall take into account all costs inCJuding capital and operating 
costs, statutory taxes, duties, levies while quoting such tariff. 
Availability of the inputs necessary for generation of power should 
be ensured by the Seller at the Project Site and all costs involved 
E 
-in procuring
the inputs (including statutory taxes, duties, levies 
. thereot) at the Project Site must be reflected in the Quoted Tariff." 
"6. The Bidders should factor the cost of the secondary fuel into 
the Quoted Tariff and no separate reimbursement shall be allowed 
F 
on this account." 
28. The first respondent seeks to draw a distinction between the 
purchase cost of fuel and the cost of usable fuel for the contention that 
it is only the first one which is to be included. 
29. On the second issue of GCV, the plea raised is that it is the 
G 
own case of the appellant itself that SECL is actually over stating the 
GCV of coal actually supplied. Since the coal is to be jointly analyzed 
and tested at the stage of delivery, it is not understood how SECL is 
supplying inferior coal but billing for superior coal. In any case, this is an
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[2017] 14 S.C.R. 
A issue to be raised with SECL. The formula of energy charges in relation 
to GCV, is using the expression the coal delivered "to the project." This 
is in contradistinction to the expression "to and at the project" which is 
used in relation to the cost of coal. Thus, with these two different 
expressions used, they obviously mean two different things. In support 
B of his proposition reliance is placed on Life Corporation of India & 
Anr. vs. Dharam Jlir Anand1, wherein it was observed as under: 
c 
"6 ...... In construing a particular Clause of the Contract.it is only 
reasonable to construe that the word and the terms used therein 
must be given effect to. In other words one part of the Contract 
cannot be made otiose by giving a meaning to the policy of the 
contract. Then again when the same Clause of a contract uses 
two different expressions, ordinarily those different expressions 
conveying one and the same meaning." 
30. Qua the issue of road transportation charges1 a reference has 
been made to the RFP where under the heading of"Activities/Milestones 
D to be completed before issue ofRfl> as per Bidding guidelines" at serial 
No.3 only transportation through Railways has been envisaged: 
SI. No. 
Project 
Paranxtcrs 
Status of 
Inputs/clearances 
activitie:;/milestooes 
E 
3. 
Fuel Transportation 
For Coal 
Railways have given 
approx. 1600 
assurance for 
km 
transpcctation of 
Coal frcm SECL 
31. The land for the
Railways siding was to be acquired by the 
F bidder (appellant) as per the requirement, and the Government of Punjab 
was to facilitate the acquisition ofland. 1078 acres ofland was already 
acquired. The relevant extract of the RFP is as under: 
B. Other Proiect Related Activities/Milestones 
SI. No. 
Project 
Parameters 
Status of activities/milestones 
In nuts/ clearances 
G 
I. 
Land 
ii) Railway sidings 
To be acquired by Selected 
and mil lines from 
Bidder as per requirement. 
nearby station to site 
Govt. of Punjab will facilitate 
acquisition of land as desired 
bv the Selected Bidder. 
H 
1 (1998)7 sec 348
NABHAPOWERLIMITED(NPL)v.PUNJABSTATEPOWER 
319 
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.] 
32. The endea:vour to get any other linked claim arising from coal A 
is also thus denied, as is the claim for interest, which was rtot even 
claimed. It is added by providing a copy of the order dated 7.6.2017 of 
the Commission dealing with the remand proceedings, that since the 
claim for interest there has been rejected now on the ground that there 
was no claim made earlier, the submission sought to be made in respect 
B 
of the claim for interest is an attempt to get over the said defect. The 
question of payment of interest arises only qua bills, which are not in 
dispute, the relevant clause being, clause 11.3 .4, as under: 
"11.3 .4 In the event of delay in payment of a Monthly Biil by the 
Procurer beyond it Due Date month billing, a Late Payment 
C 
Surcharge shall be payable by the Procurer to the Seller at the 
rate of two (2) percent in excess of the applicable SBAR per 
annum, on the amount of outstanding payment, calculated on a 
day to day basis (and compounded with Monthly rest), for each 
day of the delay." 
Legal Principles for interpretation of a comn1ercial contract: 
33. The contours of the controversy show that we are really 
'concerned with the interpretation of the commercial contract inter se 
the parties. Before analyzing the relevant clauses of the contract including 
D 
the Definition clause and formulae, we consider it appropriate to set 
'forth
certain judicial pronouncements relevant for determination ·of the 
E 
issue. 
34. To begin with wetefer to the judgment of the Court of Appeal 
in The Moorcock1• Bowen, L.J., dealt with the implied warranty on the 
·part of the owners of the jetty, in respect of a contraCt made for the use 
of the jetty to a ship, for discharge of its cargo. The name of the ship 
F 
'·was 'The Moorcock'. It was observed as under: · 
"Bowen, L.J.: .... Now, an implied warranty, or, as it is called, 
a covenant in law, as distinguished from an express contract or an 
express warranty, really is in all cases founded on the presumed 
intention of the parties, and upon reason. The implication which 
G 
the law draws from what must obviously have been the intention 
of the parties, the law draws with the object of giving efficacy to 
the transaction and preventing such a failure of consideration as 
cannot have been within the contemplation of either side; and I 
2 (1889) 14 PD 64, 
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B 
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believe that if one were to take all the cases, and they are many, 
of implied warranties or covenants in law, it will be found that in 
all of them the Jaw is raising an implication from the presumed 
intention of the parties with the object of giving to the transaction 
such efficacy as both parties must have intended that at all events 
it should have. In business transactions such as this, what the 
law desires to effect by the implication is to give such business 
efficacy to the transaction as must have been intended at all 
events by both parties who are business men: not impose on 
one side all the perils of the transaction, or to emancipate 
one side from the all chances of failure, but to make each 
party promise in law as much. at all events, as it must have 
been in the contemplation of both parties that he should be 
responsible for in respect of those perils or chances. " 
(Emphasis supplied) 
35. The significant issue was the principle of 'business efficacy 
D to the transactions' which are intended at all events by parties who are 
businessmen. 
E 
F 
G 
36. The aforesaid was, once again, relied upon in Shir/aw v. 
Southern Foundries (1926) L.D.3 wherein MacKinnon, L.J., observed 
as under: 
"I recognize that the right or duty of a Court to find the existence 
of an in1plied term or implied terms in a written contract is a matter 
to be exercised with care; and a Court is too often invited to do so 
upon
vague and uncertain grounds. Too often also such an invitation 
is backed by the citation of a sentence or two from the judgment 
of Bowen L.J. in The Moorcock (1939) 2 KB 206. They are 
~entences from an extempore judgment as sound and sensible as 
all the utterances of that great judge; but I fancy that he would 
have been rather surprised if he could have foreseen that these 
general remarks of his would come to be a favourite citation of a 
supposed principle oflaw, and I even think that he might sympathize 
with the occasional impatience of his successors when The 
Moorco..:k (1939) 2 KB 206 is so often flushed for them in that 
guise. 
For my part, I think that there is a test that may be at least as 
H 
'(1939) 2 KB 206
NABHAPOWER LIMITED (NPL) v.'PUNJAB STATE POWER 
321 
CORPORATION LIMITE.D (PSPCL) [SANJAY KISHAN KA UL, l] 
usefu1 as such generalities. If I may quote from an essay which I A 
wrote sdnie years ago, I then said: "Prima facie that which in any 
· contract is left to be implied and need not be expressed is something 
so obvious that it goes without saying; so that, if, while the parties 
were making their bargain, an officious bystander were to suggest 
some express provision for it.in their agreement, they would testily 
B 
suppress him with a common 'Oh, of course!' " 
At least it is trµe, !think, that, if a term were never implied by a 
judge unless it could pass that test, he- could not be held to be 
wrong.".· 
37. The aforesaid, thus, extended a word of caution while applying 
C 
The Moorcock test, by bringing forth "The Officious Bystander Test" of 
'Oh, of course!'. 
· 
38. In Reigate vs. Union Manufacturing Co. (Ramsbottom)· 
Ltd.4, Scrutton L.J., discussed the developments in respect of these 
principles and observed as under: 
D 
"These principles, however, have been clearly established: The 
first thing is to see what the parties have expressed in the contract; 
and then an implied term is not to be added because the Court 
thinks it would have been reasonable to have inserted it in the 
contract. A term can only be implied ifit is necessary in the business · E 
sense tQ give efficacy to the contract; that is, if it is such a term 
'that it can confidently be said
that if at the time the contract was 
-. being negotiated some one had said to the parties, "What will 
happen in such a case," they would both have replied, "Of course, . 
so and so will happen; we did not trouble to say that; it is too 
clear." Unless the Court comes to some such conclusion as that, 
F 
it ought not to imply a term which the parties themselves have not 
expressed." 
· 
"Is that a necessary implication? If this matter had been mooted 
G 
at the time when the contract was being negotiated, I expect that 
the parties would at once have disagreed as to ~hat the position 
was. Unless we are satisfied that it is an i_mplication which must 
necessarily have been in the minds of both parties, we cannot 
'(1918) 1 K.B. 592 
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B 
c 
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E 
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G 
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SUPREME COURT REPORTS 
[2017] 14 S.C.R. 
imply a term which they have not expressed, esp.ecially when I 
see that they have thought sufficiently about the matter to express 
two conditions on which the agreement is to be determined, first, 
the obvious one on the death of the agent; and, secondly, by six 
months' notice after the expiration of the seven years." 
39. In Liverpool City Council vs. Irwin5, Lord Denning M.R., 
observed as under: 
"It is often said that the courts only imply a term in a contract 
when it is reasonable and necessary to do so in order to give 
business efficacy to the transaction: see The Moorcock (1889) 
14 P.D. 64, 68. (Emphasis is put on the word "necessary": Reigate 
v. Union Manufacturing Co. (Ramsbottom) Ltd. [ 1918] I K.B. 
592, 605.) Or when it is obvious that both parties must have 
intended it: so obvious indeed that if an officious bystander had 
asked them whether there was to be such a term, both would 
have suppressed it testily: "Yes, of course": see Shirlaw v. Southern 
Foundries (1926) Ltd. [1939] 2 K.B. 206, 227. 
Those expressions have been repeated so often that it is with 
some trepidation that I venture to question them. I do so because 
they do not truly represent the way in which the courts a<;t. Let 
me take some instances. There are stacks of them. Such as the 
terms implied by the courts into a contract for the sale of goods 
-
Jones v. Just (1868) L.R. 3 Q .B. 197: or the hire of goods -
Asley Industrial Trust Ltd. v. Grimley (1963] 1W.L.R.584: into a 
contract for work and materials -Young & Marten Ltd. v. 
McManus Childs Ltd. [1969] I A.C. 454: or into a contract for 
letting an unfurnished house -Hart v. Windsor (1843) 12 M. & 
W. 68: or a furnished house -Collins v. Hopkins [1923] 2 K.B. 
617: or into the carriage of a passenger by railway: see Readhead 
v. Midland Railway Co. {1869) L.R. 4 Q.B. 379: or to enter on 
premises: see Francis v. Cockrell (1870) L.R. 5 Q.B. 501: or to 
buy a house in course of erection: see Hancock v. B. W. Brazier 
{Aneriey) Ltd. [1966] 1W.L.R.1317. 
If you read the discussion in those cases, you will see that in none 
of them did the court ask: what did both parties intend? If asked, 
each party would have said he never gave it a thought: or the one 
5 (1976) Q.B. 319
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
323 
CORPORATION LIMITED (PSPCL) [SANJAYKISHAN KAUL, J.] 
would have intended something different from the other. Nor did A 
the court ask: Is it necessary to give business efficacy to the 
transaction? If asked, the answer would have been: "It is 
reasonable, but it is not necessary." The judgments in all those 
cases show that the courts implied a term according to whether 
or not it was reasonable in all the circumstances to do so. Very 
B 
often it was conceded that there was some implied term. The 
only question was: "What was the extent of it?" Such as, was it 
an absolute warranty of fitness, or only a promise to use reasonable 
care? That cannot be solved by inquiring what they both intended, 
or into what was necessary. But only into what was reasonable. 
This is to be decided as matter of law, not as matter of fact. Lord C 
Wright pulled the blinkers off our eyes when he said in 193 5 to the 
Holdsworth Club: 
"The truth is that the court .... decides this question in accordance 
with what seems to be just or reasonable in its eyes. The judge 
finds in himself the criterion of what is reasonable. The court is in 
D 
this sense making a contract for the parties -
though it is almost 
blasphemy to say so." (Lord Wright of Durley, Legal Essays and . 
Addresses (1939), p. 259.) 
In 1956, Lord Radcliffe put it elegantly when he said of the parties 
to an implied-term: 
"their actual persons should be allowed to rest in
peace. In their 
place there rises the figure ofthe fair and reasonable man. And 
the spokesman of the fair and reasonable man, who represents 
after all no more than the anthropomorphic conception of justice, 
is and.must be the court itself': see Davis Contractors Ltd. v. 
Fareham Urban District Council [1956] A.C. 696, 728. 
E 
F 
In 1969, Lord Reid put it simply when he said: " ... no warranty 
ought to be implied in a contract unless it is in all the circumstances 
reasonable," see Young & Marten Ltd. v. McManus Childs Ltd. 
[1969] l A.C. 454, 465: and Lord Upjohn echoed it when he said, 
G 
at p. 471, that the implied warranty was "imposed by law."" 
40. The aforesaid judgment was carried in appeal to the House of 
Lords in Liverpool City Co.uncil vs. Irwin [H.L.(E.)]6. However, it 
_was clarified that the touchstone for interpreting commercial documents, 
6 (1976) 2 WLR 562 
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(2017) 14 S.C.R. 
A cannot be 'mere reasonableness' as Lord Denning had observed, but 
B 
c 
D 
E 
F 
G 
H 
'necessity' : 
Edmund-Davies, L.J.,: "That set the Court of Appeal off on 
considering in what circumstances a contractual.term could be 
implied, and that understandably but unfortunately led them to 
The Moorcock , 14 P.D. 64. It had not been cited in Miller v. 
Hancock but the Court of Appeal considered that it enshrined the 
only possible basis for implying such a term as that contended for 
by the tenants. It is right to say, furthermore, that such was the 
only basis advanced on behalf of the tenants themselves at that 
time. The Court of Appeal accordingly proceeded to consider 
whether, in the light of The Moorcock , such a term could be 
implied in the tenancy agreement. Roskill L.J. (with whom Onnrod 
L.J. agreed) said [1975] 3 W.L.R. 663, 677: 
"I cannot agree ... that it is open to us in the court at the 
present day to imply a term because subjectively or objectively 
we as individual judges think it would be reasonable so to do. It 
must be necessary in order to make the contract work as well 
as reasonable so to do, before the court can write into a contract 
as a matter of implication some term which the parties have 
themselves, assumedly deliberately, omitted to do." 
Lord Denning M.R., on the other hand, "with some trepidation" 
(p. 669) (which was understandable), took a different view and, 
after refe1ring to some out of
the "stacks" ofrelevant cases, said, 
atp. 670: 
" .. .in none of them did the court ask: what did both parties 
intend? If asked, each party would have said he never gave it 
a thought: or the one would have intended something different 
from the other. Nor did the court ask: Is it necessary to give 
business efficacy to the transaction? If asked, the answer would 
have been: 'It is reasonable, but it is not necessary.' The 
judgments in all those cases show that the courts implied a 
term according to whether or not it was reasonable in all the 
circumstances to do so .... This is to be decided as matter of 
law, not as matter of fact." 
I have respectfully to say that I prefer the views of the majority in 
the Court of Appeal. Bowen L.J. said in the well known passage 
in The Moorcock, 14 P.D. 64, 68:
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
325 
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.] 
"In business p-ansactions such as this, what the law desires to 
A 
effect by the implication is to give such business efficacy to 
the transaction as must have been intended at all events by 
both parties who are business men; ... to make each party 
promise in law as much, at all events, as it must have been in 
the. contemplation of both parties that he should be responsible 
B 
for ... " 
That is not to say, of course, that consideration of what is 
reasonable plays no part in determining whether or not a tenn 
should be implied. Thus, inHarnlyn& Co. v. Wood& Co. [1891] 
2 Q.B. 488, decided only two years after The Moorcock (to which 
C 
he had been a party), Lord Esher M.R. said, at p. 491: 
" .... the court has no right to imply in a written contract any 
such stipulation, unless, on considering the tenns of the contract 
in a reasonable and business manner, an implication necessarily 
arises that the parties must have intended that the suggested 
stipulation should exist. It is not enough to say that it would be 
D 
a reasonable thing to make such an implication. It must be a 
necessary implication in the sense that I have mentioned." 
Bowen and Kay L.JJ., who had also been members of the 
Moorcock court, delivered similar judgments. The touchstone is 
always necessity and not merely reasonableness : see, for E 
example, the judgment of Scrutton L.J, in Reigate v.
Union 
Manufacturing Co. (Ramsbottom) Ltd. [1918] 1 K.B. 592, 605, 
and in the case cited below by Roskill L.J., In re Comptoir 
Commercial Anversois v. Power, Son and Co. [1920] 1 K.B. 868. 
899. 
!1ut be the test that of necessity, (as I think, in common with 
Roskill and Onnrod L.JJ.) or reasonableness, (as Lord Denning 
M.R. thought), the exercise involved is that of ascertaining 
.F 
the presumed intention of the parties. Whichever of these two 
tests one applies to the facts of the instant case, in my judgment 
G 
the outcome would be the same for, in the words ofRoskill L.J. 
[1975] 3 W.L.R. 663, 677-fi78: 
" ... I find it absolutely impossible to belie;e that the Liverpool 
City Council, if asked whether it was their intention as well as 
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[2017] 14 S.C.R. 
A 
that of their tenants of these flats that any of the implied terms 
contended for by Mr. Godfrey should be written into the contract, 
would have given an affirmative answer. Their answers would 
clearly have been 'No."' (Emphasis supplied) 
4 I. In a sense, this was a turning around to what was observed in 
B The Moorcock (supra). 
c 
D 
E 
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42. Lord Denning, M.R., in Shell U.K. Ltd. vs. Lostock Garage 
Ltd. 7, once again, considered the law as to implied terms and summarized 
it 
"This submission makes it necessary once again to consider the 
law as to implied terms. I ventured with some trepidation to suggest 
that terms implied by law could be brought within one 
comprehensive category -
in which the courts could imply a 
term such as was just and reasonable in the circumstances: see 
Greaves & Co. (Contractors) Ltd. v. Baynham Meikle & Partners 
[1975] l W.L.R.1095, 1099-1100; Liverpool City Council v. Irwin 
[1976] Q.B. 319, 331-332. But, as I feared, the House of Lords 
in Liverpool City Council v. Irwin [1976] 2 W.L.R. 562, have 
rejected it as quite unacceptable. As I read the speeches, there 
are two broad categories of implied terms. 
(i) The first category 
The first category comprehends all those relationships which are 
of common occurrence. Such as the relationship of seller and 
buyer, owner and hirer, mast.er and servant, landlord and tenant, 
carrier by land or by sea, contractor for building works, and
so 
forth. In all those relationships the courts have imposed obligations 
on one party or the other, saying they are "implied terms." These 
obligations are not founded on the intention of the parties, actual 
or presumed, but on more general considerations: see Luxor 
(Eastbourne) Ltd. v.Cooper[l94l]A.C.108, 137byLordWright; 
Lister v. Romford Ice and Cold Storage Co. Ltd. [1957] A.C. 
555, 576 by Viscount Simonds, and at p. 594 by Lord Tucker 
(both of whom give interesting illustrations); and Liverpool City 
Council v. Irwin [1976] 2 W.L.R. 562, 571 by Lord Cross of 
Chelsea, and at p. 579 by Lord Edmund-Davies. In such 
relationships the problem is not to be solved by asking what did 
H 
7 (1976) 1WLR1187
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the parties intend? Or would they have unhesitatingly agreed to it, 
A 
if asked? It is to be solved by asking: has the law already defined 
the obligation or the extent of it? If so, let it be followed. If not, 
look to see what would be reasonable in the general run of such 
cases: see by Lord Cross of Chelsea at p. 570H: and then say 
what the obligation shall be. The House in Liverpool City Council 
B 
v. Irwin [1976] 2 W.L.R. 562 went through that very process. 
They examined the existing law oflandlord and tenant, in particular 
that relating to easements, to see if it contained the solution to the 
problem: and, having found that it did not, they imposed an obligation 
on the landlord to use reasonable care. In these relationships the 
parties can exclude or modify the obligation by express words; 
C 
but unless they do so, the obligation is a legal incident of the . 
, relationship which is attached by the law itself and not by reason 
of any implied term. 
' Likewise, in the general Jaw of contract, the legal effect of 
frustration does not depend on an implied term. It does not depend 
D 
on the presumed intention of the parties, nor on what they would 
have answered, if asked: but simply on what the court itself declares 
to amount to a frustration: see Davis Contractors Ltd. v. Fareham 
Urban District Council [1956] A.C. 696, 728 by Lord Radcliffe, 
and The
Eugenia [1964] 2 Q.B. 226, 238, 239. 
(ii) The second category 
The second category comprehends those cases which are not 
within the first category. These are cases -
not of common 
occurrence -
in which from the particular circumstances a term 
E 
is to be implied. In these cases the implication 'is based on an 
F 
intention imputed to the parties from their actual circumstances: 
see Luxor (Eastboume)iLtd. v. Cooper [1941] A.C. 108, 137 by 
Lord Wright. Such an imputation is only to be made when it is 
necessary to imply.a term to give efficacy to the contract and 
make it a workable agreement in such manner as the parties would 
clearly have done if they had applied their mind to the contingenc¥ G 
which has arisen. These are the "officious bystander" types of 
case: see Lister v. Romford Ice and Cold Storage Co. Ltd. [1957] 
A.C. 555, 594, by Lord Tucker. In such cases a term is not to be 
implied on the ground that it would be reasonable: but only when 
it is necessary and can be formulated with a sufficient degree of H
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precision. This was the test applied by the majority of this court in 
Liverpool City Council v. Irwin 1 [1976] Q.B. 319. and they were 
emphatically upheld by the House on this point: see [ 197 6] 2 W.L. 
R. 562, 571D-H by Lord Cross of Chelsea; p. 578G-579A by 
Lord Edmund-Davies. 
There is this point to be noted about Liverpool City Council v. 
Irwin. In this c·ourt the argument was only about an implication in 
the second category. In the House of Lords that argument was 
not pursued. It was only the first category. 
Into which of the two categories does the present case come? I 
am tempted to say that a solus agreement between supplier and 
buyer is of such common occurrence nowadays that it could be 
put into the first category: so that the law could imply· a term 
based on general considerations. But I do not think this would be 
found acceptable. Nor do I think the case can be brought within 
the second category. If the Shell company had been asked at the 
beginning: "Will you agree not to discriminate abnormally against 
the buyer?" I think they would have declined. it might be a 
reasonable tem1, but it is not a necessary term. Nor can it be 
formulated with sufficient precision. On this point I agree with 
Kerr J. It should be noticed that in the Esso case Mocatta J. also 
refused to make such an implication: see [1966] 2 Q.B. 514, 536-
541; and there was no appeal from his decision. In the
circumstances, I do not think any term can be implied." 
43. A parallel development in Australia arose out of a judgment of 
the Lords of the Judicial Committee of the Privy Council in the appeal 
F preferred from the Full Court of the Supreme Court of Victoria in B.P. 
Refinery (Westernport) Proprietary Limited vs. The President 
Councillors and Ratepayers of the Shire of Hastings·'. On the 
implication of the terms of contraction five conditions were laid down 
and a reference was, once again, made to the The Moorcock (supra), 
Reigate vs. Union Manufacturing Co. (Ramsbottom) Ltd. (supra) 
G and Shirlaw v. Southern Foundries (supra) in the following terms: 
H 
"40. Their Lordships do not think it necessary to review 
exhaustively the authorities on the implication of a term in a 
contract which the parties have not thought fit to express. Jn their 
8 [1977] UK.PC 13
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view. for a. term to be imp/ ied, the following conditions (which 
A 
may overlap) must be satisfied: (1) it must be reasonable and 
equitable; (2) it must be necessary to give business efficacy to 
. the contract, so that no term will be implied if the contract is 
effective without it; (3) it must be so obvious that "it goes without 
saying"; (4) it must be capable of clear expression; (5) it must not 
B . 
contradict any express term of the contract. 
41. Their Lordships venture to cite only three passages - albeit 
they are familiar to every student of this branch of the law. In.The 
Moorcock (19) Bowen LJ said: 
"I believe if one were to take all the cases, and they are many, c 
of implied warranties or covenants in law, it will be found bat 
in El ofthem the law is raising an implication from the presumed 
intention of the parties with the object of giving to the transaction 
such efficacy as both parties must have intended that at all 
events it should have, Iri business transactions such as this, 
what the law desires to effect by the implication is to give such 
D 
· business efficacy to the transaction as must have been intended 
at all events by both parties who are business men .... " 
' 
It is. because the implication of a term rests on the presumed 
intention of the parties that the primary condition must be satisfied 
that the term sought to be implied must
be reasonable and equitable. 
E 
It is not to be imputed to a party that he is assenting to an 
unexpressed term which will operate unreasonably and inequitably 
against himself. 
In Reigate v. Union Manufacturing Co. (20), Scrutton LJ said: 
F 
"A term can only be implied if it is necessary in the business 
sense to give efficacy to the contract i.e., if it is such a term 
that .it can confidently be said that if at the time the contract · 
was being negotiated some one had said to t~e parties, 'What 
~ill happen in such a case?', they would both have replied: 
'Of course, so and so will happen; .we did not trouble to say G 
that; it is too clear."' 
· 
In Shirl~w v. Southern Foundries (1926) Ltd. (21), MacKinnon · 
LJsaid: 
"Prima facie that which in any contract is left to be implied 
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and need not be expressed is something so obvious that it goes 
without saying; so that, if, while the parties were making their 
bargain, an officious bystander were to suggest some express 
provision for it in their agreement, they would testily suppress 
him with a common, 'Oh, of course.""' (Emphasis supplied) 
B 
44. The next development, was in Investors Compensation 
Scheme Ltd. vs. West Bromwich Building Society9• Lord Hoffmann, 
in his majority opinion, prefaced his explanation of reasons with some 
general remarks about the principl~s which contractual documents are 
nowadays construed - common sense principles by which any serious 
utterance would be interpreted in ordinary life. Almost all the old 
C intellectual baggage of'lcgal' interpretation was observed to have been 
discarded, and the principles summarized as follows: 
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E 
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G 
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"( 1) Interpretation is the ascertainment of the meaning which the 
document would convey to a reasonable person having all the 
background knowledge which would reasonably have been 
available to the parties in the situation in which they were at the 
time of the contract. 
(2) The background was famously referred to by Lord Wilberforce 
as the "matrix of fact," but this phrase is, if anything, an understated 
description of what the background may include. Subject to the 
requirement that it should have been reasonably available to the 
parties and to the exception to be mentioned
next, it includes 
absolutely anything which would have affected the way in which 
the language of the document would have been understood by a 
reasonable man. 
(3) The law excludes from the admissible background the previous 
negotiations of the parties and their declarations of subjective 
intent. They are admissible only in an action for rectification. The 
law makes this distinction for reasons of practical policy and, in 
this respect only, legal interpretation differs from the way we would 
interpret utterances in ordinary life. The boundaries of this 
exception are. in some respects unclear. But this is not the occasion 
on which to explore them. 
( 4) The meaning which a document (or any other utterance) would 
convey to a reasonable man is not the same thing as the meaning 
'(1998) I All ER 98
[., 
NAB HA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
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of its words. The meaning of words is a matter of dictionaries arid 
A 
grammars; the meaning of the document is what the parties using 
those words against the relevant background would reasonably 
have been understood to mean. The background may not merely 
enable the reasonable man to choose between the possible 
meanings of words which are ambiguous but even (as occasionally B 
happens in ordinary life) to conclude that the parties must, for 
whatever reason, have used the wrong words or syntax: see 
Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. 
Ltd. [1997] A.C. 749. 
( 5) The "rule" that words should be given their "natural and 
C 
ordinary meaning" reflects the common sense proposition that 
we do not easily accept that people have made linguistic mistakes, 
particularly in formal documents. On the other hand, if one would 
nevertheless conclude from the background that something must 
have gone wrong with the language, the law docs not require 
judges to attribute to the.parties an intention which they plainly D 
could not have had. Lord Diploek made this point more vigorously 
when he said in Antaios Compania Navicra S.A. v. Salen 
RederiemaA.B. [1985]A.C.191,201: 
"if detailed semantic and syntactical analysis of words in a 
commercial contract is going to lead to a conclusion that flouts 
E 
business commonsense, it qiustbe made to yield to
business 
commonsense."' 
45. Once again, Lord Hoffmann, now sitting on the Privy Council, 
in Attomey General of Belize and Ors. vs. Belize Telecom Ltd. and 
Anr.10• dealt with the implied terms of the contract in the context of the 
Articles of Association of a company. It has been observed as under: 
"16. Before discussing in greater detail the reasoning of the Court 
of Appeal, the Board will make some general observations about 
F 
the process of implication. The court has no power to improve 
upon the instrument which it is called upon to construe, whether it 
G 
be a contract, a statute or articles of association. It cannot 
· •· 
introduce terms to make it fairer or more reasonable. It is concerned 
only to discover what the instrument means. However; that 
meaning is not necessarily or always what the authors or parties 
10 (2009) I WLR 1988
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to the document would have intended. It is the meaning which the 
instrument would convey to a reasonable person having all the 
background knowledge which would reasonably be available to 
the audience to whom the instrument is addressed: see Investors 
Compensation Scheme Ltd v West Bromwich Building Society 
(1998] 1 WLR 896, 912-913. It is this objective meaning which 
is conventionally called the intention of the parties, or the intention 
of Parliament, or the intention of whatever person or body was or 
is deemed to have been the author of the instrument. 
17. The question of implication arises when the instrument does 
not expressly provide for what is to happen when some event 
occurs. The most usual inference in such a case is that nothing is 
to happen. If the parties had intended something to happen, the 
instrument would have said so. Otherwise, the express provisions 
of the instrument are to continue to operate undisturbed. If the 
event has caused loss to one or other of the parties, the loss lies 
where it falls. 
18. In some cases, however, the reasonable addressee would 
understand the instrument to mean something else. He would 
consider that the only meaning consistent with the other provisions 
of the instrument, read against the relevant background, is that 
something is to happen. The event in question is to affect the 
rights of the parties. The instrument may not have expressly
said 
so, but this is what it must mean. In such a case, it is said that the • 
court implies a term as to what will happen if the event in question 
occurs. But the implication of the term is not an addition to the 
instrument. It only spells out what the instrument means. 
19. The proposition that the implication ofa term is an exercise in 
the construction of the instrument as a whole is not only a matter 
oflogic (since a court has no power to alter what the instrument 
means) but also well supported by authority. In Trollope & Coils 
Ltd v North West Metropolitan Regional Hospital Board (1973] 1 
WLR 601 , 609 Lord Pearson, with whom Lord Guest and Lord 
Dip lock agreed, said: 
"the court does not make a contract for the parties. The court 
will not even improve the contract which the parties have made 
for themselves, however desitable the improvement might be.
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
333 
CORPORATION LIMITED (PSPCL) [SANJAY KISHAN KAUL, J.] 
The court's function is to interpret and apply the contract which A 
the parties have made for themselves. If the express terms 
. are perfectly clear and free from ambiguity, there is no choice 
to be made between different possible meanings: the clear 
terms must be applied even if the court thinks some other terms 
would have been more suitable. An unexpressed term can be 
B 
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 C 
term which, though tacit, formed part of the contract which 
the parties made for themselves." 
20. More recently, in Equitable Life Assurance Society v Hyman 
[2002] l AC 408, 459, Lord Steyn said: "If a term is to be implied, 
it could only be a term implied from the language of[the instrument] 
D 
read in its commercial setting." 
21. It follows that in every case in which it is said that some 
provision ought to be implied in an instrument, the question forthe 
court is whether such a provision would spell out in express words 
what the instrument, read against the relevant background, would 
E 
reasonably be
understood to mean. It will be noticed from Lord 
Pearson's speech that this question can be reformulated in various 
ways which a court may find helpful in providing an answer-the 
implied term must "go without saying", it must be "necessary to 
give business efficacy to the contract" and so on-but these are 
F 
not in the Board's opinion to be treated as different or additional 
tests. There is only one question: is that what the instrument, read · 
as a whole against the relevant background, would reasonably be 
understood to mean? 
22. There are dangers in treating these alternative formulations 
of the question as if they had a life of their own. Take, for example, 
G 
the question of whether the implied term is "necessary to give 
business efficacy" to the contract. That formulation serves to 
underline two important points. The first, conveyed by the use of 
the word "business'', is that in considering what the instrument 
would have meant to a reasonable person who had knowledge of H
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the relevant background, one assumes the notional reader will 
take into account the practical consequences of deciding that it 
means one thing or the other. In the case of an instrument such as 
a commercial contract, he will consider whether a different 
construction would frustrate the apparent business purpose of the 
parties. That was the basis upon which Equitable Life Assurance 
Society v Hyman [2002) 1 AC 408 was decided. The second, 
conveyed by the use of the word "necessary", is that it is not 
enough for a court to consider that the implied term expresses 
what it would have been reasonable for the parties to agree to. It 
must be satisfied that it is what the contract actm1lly means. 
23. The danger lies, however, in detaching the phrase "necessary 
to give bµsiness efficacy" from the basic process of construction 
of the instrument. It is frequently the case that a contract may 
work perfectly well in the sense that both parties can perform 
their express obligations, but the consequences would contradict 
what a reasonable person would understand the contract to mean. 
Lord Steyn made this point in the Equitable Life case, at p 459, 
when he said that in that case an implication was necessary "to 
give effect to the reasonable expectations of the parties". 
24. The same point had been made many years earlier by Bowen 
LJ in his well known formulation in The Moorcock (1889) 14 PD 
64,68:
"In business transactions such as this, what the law desires to 
effect by the implication is to give such business efficacy to 
the transaction as must have been intended at all events by 
both parties who are business men ... " 
25. Likewise, the requirement that the implied term must "go 
without saying" is no more than another way of saying that, although 
the instrument does not expressly say so, that is what a reasonable 
person would understand it to mean. Any attempt to make more 
of this requirement runs the risk of diverting attention from the 
objectivity which informs the whole process of construction i.nto 
speculation about what the actual parties to the contract or authors 
(or supposed authors) of the instrument would have thought about 
the proposed implication. The imaginary conversation with an 
officious bystander in Shirlaw v Southern Foundries ( 1926) Ltd
NABHAPOWERLIMITED(NPL)v.Pl)NJABSTATEPOWER 
335 
CORPORATION LIMITED (PSPCL) [SANJAY KISHAN KAUL, J.] 
[ 1939] 2 KB 206 , 227 is celebrated throughout the common law 
A 
world. Like the phrase "necessary to give business efficacy'', it · 
vividly emphasises the need for the court to be satisfied that the 
proposed implication spells out what the contact would reasonably 
be understood to mean. But it carries the danger of barren • 
argument over how the actual parties would have reacted to the 
B 
proposed amendment. That, in the Board's opinion, is irrelevant. 
Likewise, it is not necessary that the need for the implied term 
should be obvious in the sense of being immediately apparent, 
even upon a superficial consideration of the terms of the contract 
and the relevant background. The need for an implied term not 
infrequently arises when the draftsman of a complicated instrument 
C 
has omitted to make express provision for some event because 
he has not fully thought through the contingencies which might 
arise, even though it is obvious after a careful consideration of the 
express terms and the background that only one answer would be 
consistent with the rest of the instrument. In such circumstances, D 
the fact that the actual parties might have said to the officious 
bystander "Could you please explain that again?" does not matter. 
26. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings 
(1977) 180 CLR 266, 282-283 Lord Simon ofGlaisdale, giving 
the advice of
the majority of the Board, said that it was "[not] 
necessary to review exhaustively the authorities on the implication 
E 
of a term in a contract" but that the following conditions ("which 
may overlap") must be satisfied: 
· 
"(1) it must be reasonable and equitable; (2) it must be 
necessary to give business efficacy to the contract, so that no 
term will be implied ifthe contract is effective witho~t it; (3) it 
F 
must be so obvious that 'it goes without saying' ( 4) it must be 
capable of clear expression; (5) it must not contradict any 
express term of the contract:" 
27. The Board considers that.this list is best regarded, not as 
series of independent tests which must each be surmounted, but 
G 
rather as a collection of different ways in which judges have tried 
to express the central idea that the proposed implied term must 
spell out what the contract actually means, or in which they have 
explained why they did not think that it did so. The Board has. 
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already discussed the significance of"necessary to give business 
efficacy'' and "goes without saying". As for the other fonnulations, 
the fact that the proposed implied term would be inequitable or 
unreasonable, or contradict what the patties have expressly said, 
or is incapable of clear expression, are all good reasons for saying 
that a reasonable man would not have understood that to be what 
the instrument meant." 
46. There were, once again, parallel developments in India during 
this period in various High Comts but the views of this Court can be 
found expression in Mis. Dhmmljamal Gobindram vs. Mis. Slu11nji 
Kalidas and Co.1 1: 
"19 ..... Commercial documents are sometimes expressed in 
language which does not, on its face, bear a clear meaning. The 
effort of Courts is to give a meaning. if possible. This was laid 
down by the House ofLords in Hillas & Co. v. Arcos Ltd. [(1932) 
All ER 494] , and the observations of Lord Wright have become 
classic, and have been quoted with approval both by the Judicial 
Committee and the House of Lords ever since. The latest ease of 
the House of Lords is Adamastos Shipping Co. Ltd. v. Anglo-
Saxon Petroleum Co. Ltd. [(1959) AC 133] There, the clause 
was "This bill oflading", whereas the document to which it referred 
was a charter-party. Viscount Simonds summarised at p. 158 all 
the rules applicable to construction of commercial documents, and 
laid
down that effort should always be made to construe commercial 
agreements broadly Pnd one must not be astute to find defects in 
them, or reject them as meaningless." 
47. In The U11io11 of India vs. Mis. D.N. Revri & Co. a11d Ors. 12• 
P.N. Bhagwati, J. (as he then was), speaking for the Bench of two 
Judges said in para 7 as under: 
"7. It must be remembered that a contract is a commercia I 
document between the parties and it must be interpreted in such a 
manner as to give efficacy to the contract rather than to invalidate 
it. lt would not b,· right while interpreting a contract, entered into 
between two lay pai ies, to apply strict rules of construction which 
are ordinarily applicable to a conveyance and other fom1al 
--
11 (1961) 3 SC'R 1020 
12 (1976)4SCC 147
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
337 
CORPORATION LIMITED (PSPCL) [SA NJ A Y KISHAN KA UL, J.] 
documents. The meaning of such a contract must be gathered by .•A 
adopting a common sense approach and it must not be allowed to 
be thwarted by a narrow, pedantic and legalistic interpretation ..... " 
48. Lastly in Satya Jai11 (Dead) Through LRs. a11d Ors. vs. 
A11isAhmed Rushdie (Dead) Through LRs. a11d Ors. 13, Ranjan Gogoi, 
J., elucidated the well established principles of the classic test of business 
B 
efficacy to achieve the result of consequences intended by the parties 
acting as prudent businessmen. It was opined as under: 
I 
"33. The principle ofbusiness efficacy is normally invoked toread 
a term in an agreement or contract so as to achieve the result or 
the consequence intended by the parties acting as prudent C 
businessmen. Business efficacy means the power to produce 
intended results. The classic test ofbusiness efficacy was proposed 
by Bowen, L.J. in Moorcock [(1889) LR 14 PD 64 (CA)]. This 
test requires that a term can only be implied if it is necessary to 
give business efficacy to the contra\:.t to avoid such a failure of 
consideration that the parties cannot as reasonable businessmen 
D 
have intended. But only the most limited term should then be 
implied-the bare minimum to achieve this goal. If the contract 
makes business sense without the term,. the courts will not imply 
the same. The following passage from the opinion of Bowen,
L.J. 
in Moorcock [(1889) LR 14 PD 64 (CA)] sums up the ptsition: 
E 
(PD p, 68) 
" ... In business transactions such as this, what the Jaw desires 
tQ effect by the implication is to give s,i1ch business efficacy to 
the transaction as must have been intended at all events by 
both parties who are businessmen; not to impose on one side 
all the perils of the transaction, or to emancipate one side from 
all the chances of failure, but to make each party promise in 
law as much, at all events, as it must have been in the 
contemplation ofboth parties that he should be responsible for 
in respect of those perils or chances." 
/ 
34. Though in an entirely different context, this Court in United 
India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajcra. 
[(2008) 10 sec 404] had considered the circumstances when 
reading an unexpressed term in an agreement would be justified 
"(2013) s sec 131 
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on the basis that such a term was always and obviously intended 
by and between the parties thereto. Certain observations in this 
regard expressed by courts in some foreign jurisdictions were 
noticed by this Court in para 51 of the Report. As the same may 
have application to the present case it would be useful to notice 
the said observations: (SCC p. 434) 
· "51 .... ' ... "Prima facie that which in any contract is left to 
be implied and need not be expressed is something so obvious 
that it goes without saying; so that, if, while the parties were 
making their bargain, an officious bystander, were to suggest 
some express provision for it in their agreement, they would 
testily suppress him with a common 'Oh, of course!"' Shirlaw 
v. Southern Foundries (1926) Ltd. [(1939) 2 KB 206: (1939) 2 
All ER 113 (CA)] ,KB p. 227.' 
* 
* 
* 
' ... An expressed 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, formed 
part of the contract which the parties made for themselves. 
Trollope and Coils Ltd. v. North West Metropolitan Regl.
Hospital Board [(1973) 1WLR601 : (1973) 2 All ER 260 
(HL)] ,All ERp. 268a-b."' 
35. The business efficacy test, therefore, should be applied only 
in cases where the term that is sought to be read as implied is 
such which could have been clearly intended by the parties at the 
time of making of the agreement.. ... " 
pur View: 
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
NABHAPOWERLIMITED(NPL)v. PUNJAB STATE POWER 
339 
CORPORATION LIMITED (PSPCL) [SANJAYKISHANKAUL, J.] 
both business parties. The development oflaw saw the 'five condition A 
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' [Shir/aw vs. Southern Foundries (supra)]. This test 
has been set out in B.P. Refinery (Westemport) Proprietary Limited 
vs. The President Councillors and Ratepayers of the. Shire of B 
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 same penta-principles find reference also in 
Investors Compensation Scheme Ltd. vs. West Bromwich Building 
C 
Society (supra) and Attorney General of Belize and Ors. vs. Belize 
Telecom Ltd. and Anr. (supra). Needless to say that the application of 
these principles would not be to substitute this Court's own view of the 
presumed understanding of commercial terms by the parties if the terms 
are explicit in their expression. The explicit terms o_f a contract are always 
D 
the final word with regards to the intention of the parties. The multi-
clause contract 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, as contended by the first respondent, that 
E 
while submitting the financial bid, clause 2. 7 .1.4(3) of the RFP required 
the tariff to be quoted in Format-I of 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 
F 
costs, statutory taxes, etc.. The same clause also provides that the 
availability of inputs necessary for generation of power should be ensured 
by the seller 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, simultane~usly kept in 
mind that the present project is in the nature of a Case-2 project which G 
provides for a fuel specific procurement, having a pre-identified site. 
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 be influenced by the actual cost 
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A of coal. 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 the 'mine-end', when the property is supposed to pass to the 
appellant, or whether it is the cost of coal to be used for the plant as 
B 
incurred by the appellant at site of the project, or the 'project-end'. 
c 
52. Schedule 7 of the PPA provides for tariff payment and its 
computation. The monthly energy charges fonn part of clause 1.2.3 of 
the 7rh Schedule. This clause is extracted as under: 
"1.2.3 Monthly Energy Charges 
The Monthly Energy Charges for Month "m" shall be calculated 
as under: 
MEPn = AEOm x MEPn 
Where: 
D 
AEOm is the Scheduled Energy during the month m (in kWh) 
Monthly Energy Charges 
MEPn 
E 
where, 
NHR n 
F 
pCOAl. 
n 
G 
PCV
11 
H 
NHR x pcoAL 
n 
n 
PCV n 
is the Net Heat Rate for the Contract Year in 
which month "m" occurs expressed in 
kCal/kwh and is equal to the Quoted Net Heat 
Rate of the Contract Year in which month "m" 
occurs, as provided in Schedule 11. 
is the weighted average actual cost to the Seller 
of purchasing, transporting and unloading the 
coal most recently supplied to and at the Project 
before the beginning of month "m" (expressed 
in Rs./MT in case of domestic coal) 
is the weighted average gross calorific value of 
the coal most recently delivered to
the Project 
before the beginning of month "m" expressed 
in kcal/kg." 
(emphasis supplied)
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
341 
CORPORATION LIMITED (PSPCL) [SAN.TAY KISHA~~ KAUL. J.] 
53. The variable component of 'fCOAL 'refers to the 'actual' cost A 
n 
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 be reimbursed by the first respondent. 
The illustrations given by the first respondent arc of sizing of coal, crushing B 
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 
particular co-efficient. 
54. These three expressions arc thereafter followed by the c 
stipulation that the coal has to be recently supplied "to and at the project." 
The question is, what is the meaning of this expression? The word '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 D 
sense. Not only that, all the three, i.e., purchasing, transporting and 
unloading, have a reference to "the Project." Thus, the definition of 
fCOA\ is the weighted average actual
cost incurred by the appellant of 
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 appellant vis-a-vis SECL, on delivery being taken at the 
E 
mine-end would 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 Singula Singulis' 
This principle is set out as under: 
"387. Reddendo Singula Singulis principle14 
Where a complex sentence has more than one subject, and more 
than one object, it may be the right constrnction to render each 
.F 
to each, by reading the provision distributively and applying each G 
object to its appropriate subject. A similar principle applies to 
verbs and their subjects, and to other parts of speech." 
56. In 'Principles of Statutory Interpretation' by Justice GP. Singh 
14 Francis Bennion - Statutory Interpretation (Butteiworths - 1984, London); (Part 
~n~ 
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A (former Chief Justice, Madhya Pradesh High Court), it has been 
B 
c 
D 
E 
F 
expressed as under: 
"(e) Reddendo Singula Singulis15 
The rule may be stated from an Irish case in the following words 
Where there are general words of description, following an 
enumeration of particular things such general words are to be 
construed distributively, redden do singula singulis; and if the general 
words will apply to some things and not to others, the general 
words are to be applied to those things to which they will, and not 
to those to which they will not apply; that rule is beyond all 
controversy16". Thus, 'I devise and 'bequeath' all my real and 
personal property to A' will be construed, reddendo singula singulis 
by applying 'devise' to 'real' property and 'bequeath' to 'personal' 
property17 and in the sentence: 'If any one shall draw or load ant 
sword or gun' the word 'draw' is applied to 'sword' only and the 
word 'load' to gun only, because it is impossible to load a sword or 
draw a gun. 18" 
57. The aforesaid also refers to Koteswar Vittal Kamath v. K. 
Rangappa Bafia & Co. 19, which in tum has referred to the Black's 
Interpretation of Laws to define this expression as: 
"Where a sentences in a statue contains several antecedents and 
several consequences, they are to be read distributively; that is to 
say, each phrase or expression is to be referred to its appropriate 
object." 
58. We 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 
G of purchasing the same. The appellant did seek to obtain clarity on the 
H 
" Principles of Statutory Interpretation by Justice GP. Singh (fom1er Chief Justice 
M.P. High Court) Fourth Edition 1988 
"M'Neill v. Crommelin (1858) 9 IrCLR 61 : 62 Digest, p. 672. 
17 OSBORNE: Concise Law Dictionary, p. 269 · 
18 WHARTON: Law Lexicon, 14" Edition, p. 850. 
1• (1969) 1 sec 255
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
343 
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.] 
issue of the quality of coal to be used, to which the first respondent did A 
answer that it would have to be 'washed' coal. In fact, this was in 
conformity with the Notification issued by the MoEF 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. 
60. The appellant has correctly sought to point out that the manner 
in which the first respondent seeks to read the definition is different 
from the actual definition by giving the following illustration: 
B 
"Actual definition in the PPA: pcoA\ is the weighted average 
actual cost to the Seller of purchasing, transporting and unloading 
C 
the coal most recently supplied to and at the Project 
PSPCL:~ Interpretation: pcoALn is the weighted average actual 
cost to the Seller of purchasing unwashed coal, transporting 
washed and unloading the washed coal most recently supplied to 
and at the Project" 
61. 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 borne by the appellant, .as the 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 Charge~' 
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 
at hand. 
· 
D 
E 
F 
G 
63. Now turning to the transportation cost, once again, what is 
sought to be excluded is taking the coal for 'washing' as well as the last H ·
344 
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SUPREME COlJR'r REPORTS 
[2017) 14 S.CR. 
mile to the project, on account of the Railway siding not being located at 
the project site for a certain specified period of time. It is for that period 
of time that the actua 1 transportation cost through road is sought to be 
rccowrcd by the appellant. 
64. We fail to appreciate as to how these costs can be excluded, 
as the tratbportation costs to the project site have to be compensated to 
the appcli<'::t. lt is not qualified by the methodology of transfer, i.e., 
railway-. Vi r"ed. 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 i, tcally the transportation cost from point to point which 
would be im nlved and the mere mention in the RFP under project related 
activily11nikstonc about Railway siding and the Railway lines from nearby 
station to site canno: imply that the Railways is the only mode of 
transportatir.n when the siding has not been made. albeit on account of 
land acqui-;it1l··11 problems. 
65. The r~-·,1 c·i' the lir't respondent that despite the absence of 
rail siding.if the apnellant pro.:eeJed 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 obtaining land by the State 
Government. cannot imply that the project should be on hold for two 
years. causing loss to everyone and bck of availability of electricity. 
Such a plea would be in defiance of the very object of the setting up of 
the po\Y~r plant. 
M. Now turning to the other aspect of the GCV of the coal. If 
the issue is one ofSECL 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 PCV,, 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 behalfof the first respondent an endeavour has been made 
to make a distinction between 'at the site' and 'to the project' in the 
definition of fCO•L and PCV . However, this is not of much assistance 
" 
"
NABHA POWER LIMITED (NPL) v. PUNJAB STATE POWER 
345 
CORPORATIONLIMITED(PSPCL)[SANJAYKISHANKAUL,J.] 
to the first respondent, in our view, as delivery 'to the project' could only 
A 
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 fo1mula relatable to the project-site to the mine-site. 
68. In view of our discussion we have no hesitation in concluding 
B 
that the point at which the Calorific Value of the coal is to be measured 
is at the project-site. The plea of the first respondent that there is no · 
such methodology of measuring the Calorific Value at the project-site is 
belied by the sample reports of different financial years filed by the 
appellant along with the synopsis, which itselfreferred to the joint sampling 
C 
and testing of the coal received and is duly signed by both sides. It is 
surprising how such a bald denial was made despite the position existing 
at the site. These sample reports are for years 2014, 2015, 2016 and 
2017. 
69. We arc, thus, of the view that the reading of the energy formula 
leads to only one conclusion that all costs of coal up to the point of the 
D 
project site have to be included and the Calorific Value of the coal has to 
be taken as at the project-site. 
70. We may notice that there are certain other essential costs 
sought to be claimed by the
appellant such 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 clement, 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 arc 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 
extra~tcd 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 ifthere arc 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 
E 
F 
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[2017) 14 S.C.R. 
A deprivation should enure for the benefit of the appellant as a measure of 
restitution. More so as it has not been claimed by them at any stage. It 
does appear that this inclusion in the written synopsis docs seem to arise 
as canvassed by the learned Senior Advocate for the first respondent on 
account of the Tribunal not finding favour with such claim in the remand 
B proceedings by reason of no claim being laid towards the same. We arc, 
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 
C is a matter of high technical expertise with legal brains from all sides 
involved in the process of drafting a contract. It is even preceded by 
opportunities of seeking clarifications and doubts so that the parties know 
what they arc 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 the Penta-test referred to aforesaid comes 
D 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 
E nature of the contract. 
Conclusion: 
73. We, thus, partly allow the appeal to the extent that the appellant 
is held entitled to the washing cost of coal, the transportation from the 
F mine site via washing of coal to the project site inclusive of cost of road 
transportation for the period where it was necessary. The Calorific 
Value of the coal would have to be taken at the project site. All other 
claims in appeal stand rejected. The amount payable to the appellant as 
the consequences thereof be remitted within a period of three (3) months 
from the date of this order, failing which it would carry interest@ 12 per 
G cent per annum (simple interest). No costs. 
Kalpana K. Tripathy 
Appeal partly allowed.