Case: INDSIL HYDRO POWER Vs. STATE OF KERALA

3. On 7 December 1990, the State of Kerala issued G.O (Ms) No. 23/90/PD by which private entities were permitted to construct and operate Hydel Power Projects for the generation of power, subject to certain conditions. These conditions, broadly speakinge Private Agencies would be allowed to set up sanctioned hydel schemes at their own cost.e power generated by the agencies could be utilized by them in their own factories/business premises anywhere in the State or could be sold to the KSEB.. The appellant is an EHT consumer with a contract demand of 14000 KVA. It has a power intensive unit for the manufacture of Ferro Alloys which was energized on 12 August 1994. The appellant commenced commercial production on 1 October 19946. On 6 February 1992, the Government of Kerala provided incentives to new industrial units by providing an exemption for five years from the payment of enhanced tariff of electricity from 1 January 1992. This was made available to manufacturing units which commenced commercial production on or before 31 December 1996. The pre-1992 tariff concession was allowed to the appellant for the period from 1 October 1994 to 30 September 1999. Pursuant to a policy decision of the State Government, the appellant was also granted an extension of the pre-1992 tariff for a further period commencing from 1 October 1999 until 20 August 2000. From 21 August 2000, the appellant is being billed under the prevailing tariff. The pre-1992 tariff was at the rate of Rs 0.42 per unit as against the cost of thermal power purchased by the Kerala State Electricity Board which at the material time was Rs 3.30 per unit7. In pursuance of the policy decision of the State Government to allow private agencies to set up hydel schemes, the appellant was allowed to set up a Hydro Electric Project (Kuthungal Phase I & II) at Kuthungal, Idukki District with a capacity of 21 MW as a captive power project in terms of the Government Order dated 7 December 1990. The allotment of the hydel project was confirmed in favour of the appellant in June and July 1992. An MoU was executed between the appellant and KSEB in pursuance of which the appellant was to set up a hydel project at Kuthungal in Idukki DistrictSome of the relevant terms of the agreement contemplated that:Commercial Operation i.e. the date on which power generated by the Petitioner is fed into the KSEB Grid, was to be achieved within 30 months from date of execution of the agreement. A penalty would be levied if the Company was not able to adhere to the above timelineIf the Petitioner was not able to adhere to the agreed schedule, for reasons beyond its control, the KSEB may consider the request of the company for a revised scheduleIf the Petitioner is unable to complete the project or after completion is unable to operate the project as per the schedule, the KSEB shall have the right to take overThe KSEB would build 4 kms of the transmission line required for transferring power from the power house to the nearest grid/substation at the cost of the Petitioner. The balance would be constructed by the KSEB at its own cost as a promotional measureThe power generated - 12.0% (Wheeling & Transmission Losses) would be available/delivered to the Petitioner at the EHT Terminals at the point of supply in its installationsIf the KSEB grid was not in a position to absorb the energy generated from the project for any reason beyond the control of the KSEB, the generation from the project would be restricted to the extent of generation for captive consumption as directed by the KSEB.In case of any dispute/difference between the parties, the matter would be referred to the State Govt. and their decision would be final and binding between the parties.8. The agreement contemplated that the appellant as the project agency would operate the unit for a period of 30 years from the date of commissioning. The date of commissioning was defined to mean the date from which the power generated by the appellant is fed into the KSEB grid.9. Clause 3 of the agreement stipulated that the appellant would, upon the execution of the agreement, submit a programme of construction and installation so that commercial operation is achieved within a period of 30 months. The agreement contemplated that the transmission line required for transferring power from the power house to the nearest grid sub-station or location as suggested by KSEB, upto a length of 4 kms, would be built by KSEB at the cost of the appellant. The rest of the transmission line was to be constructed by KSEB at its own cost10. Clauses 3 and 9 insofar they are material, are extracted below:3. The KSEB is entitled to check up, whenever it deems necessary to see whether the conditions stipulated - in respect of installation, operation and maintenance are being adhered to by the company. The company will furnish, within three months of signing the Agreement, a programme of construction and installation to the effect of completing the project in such a manner that the commercial operation (the term, commercial operation in this context indicates the date on which the power generated by the company is fed into the KSEB grid) of the project is achieved within 30 (thirty) months from that date…9. The transmission line required for transferring power from the power house to the nearest grid, substation and/or other locations as suggested by the KSEB upto a length of 4 (four) km shall, be built by the KSEB at the company, as a deposit work and the balance constructed by the KSEB at its cost as a promotional measure for encouraging the private entrepreneurs for the company by KSEB it shall be transferred to the KSEB without any compensation. Land required for construction of such transmission line will be considered as part of land required for the project as per conditions as elaborated under clause (6) above and the metering equipment as per the specifications of KSEB shall be provided by the company at their cost at a point in the generating station as approved by the KSEB and handed over to the KSEB along with transmission line, without any compensation.11. Clause 10 of the agreement contemplated that the energy from the hydel units set up by the appellant and fed into the KSEB grid less 12% towards wheeling charges and transmission losses would be delivered free of cost to the appellant12. Clause 12 makes the following provision for a situation where the grid of KSEB was not in a position to absorb the energy generated from the project:12. If the KSEB grid is not in a position to absorb the energy generated from the project for any reason such as high level of storage in reservoirs, breakdown of transmission lines and/or other reasons beyond the control of KSEB, the generation from the project will have to be restricted to the extent of generation for captive consumption as directed by KSEB. The schedule of power generation from the project shall be as directed by the KSEB.13. Clause 25 of the agreement envisaged that any dispute or difference between the parties would be referred to the Government of Kerala whose decision would be final and binding.14. On 25 July 1998, the Chief Engineer of KSEB called upon the appellant to deposit 2.13 crores for the construction of 4 km of the transmission line in pursuance of clause 9 of the agreement. The amount was deposited by the appellant on 5 October 1998. A further demand of Rs 20,55,075 /- made on 5 May 1999 was also fulfilled15. The case of the appellant is that civil construction work was completed and one of the three generators was commissioned and synchronised with the grid on 15 May 2000. There was a delay in the setting up of the transmission lines without which it was not possible for the hydel unit to inject power into the KSEB grid. On 20 May 2000 and 30 June 2000, the appellant addressed representations in regard to the delay. According to the appellant, on 21 August 2000, the remaining two generators of the project were also commissioned and a certificate was issued by the Chief Electrical Inspector of the Government of Kerala.16. The delay in the construction of the transmission line led to the institution by the appellant of a writ petition under Article 226 of the Constitution of India before the Kerala High Court. The reliefs which the appellant sought were in the following terms:a. Declare that the petitioner is entitled to consume power free of cost at its plant at Palakkad namely Sun Metal and Alloy Limited at Kanjikode in Palakkad and Indsil Electrosmelts Ltd. at Pallatheri in accordance with clause 9 of Exhibit P2 order and clause 10 of Exhibit P6 agreement calculated on the basis of the possible consumption as mentioned by the Electricity Board in Exhibit P38 Budget proposal until such time as the Board lays the transmission line and is ready to evacuate the power actually generated from the Kuthungal Hydro Electric project in Kuthungal Idukki District.b. Issue a writ in the nature of mandamus commanding second respondent to take expeditious steps to see that the transmission line required for transmission of power from Kuthungal to Neriaoiangalam is completed as early as possiblec. Issue a writ in the nature of mandamus commanding respondents 2 and 3 to refrain from collecting any amount from the petitioner by way of electricity charges or related charges for the power consumed by the petitioner and its associate in accordance with clause 10 of Exhibit P6 agreement on the basis of the possible power generation as mentioned in P38 Budget until evacuation of power generated in the project at 21 MWd. Issue a writ in the nature of mandamus commanding the first respondent to take appropriate decision on Exhibit P.26, 35 and 36 representations by taking appropriate directions to the Board to make available to the petitioner power in accordance with clause 9 of Exhibit P2 and Clause 10 of Exhibit P6 agreement.17. In pursuance of an interim order passed by the High Court on 31 August 2000, the Chief Electrical Inspector of the Government of Kerala filed a report on 14 September 2000. The Report, insofar as it is material to these proceedings, states that the installation of transformers was completed by the appellant on 21 August 2000 but the sanction for energization of 110 KV was not issued since the transmission lines were not ready. The Chief Electrical Inspector stated in his conclusions that except for a pre-commissioning test and other minor work, installation had been completed. What remained to be completed is the construction of transmission lines by KSEB18. The conclusion in the report reads thus:Except for the pre-commissioning tests to be done prior to energisation of the 110 KV lines, and minor works connected at the time of precommissioning, the installation of the 3 bios of the 7 generators, 11 kv – switch gears 4 Nos. of the 11KV/110KV step-up transformers, 500 KVA uxiliary transformer and the 110kv yard is completedThe 11 KV switch gears, transformers and the 110 KV yard are completed and ready for evacuation of power generated simultaneously by the 3 Nos. of 7MW generators installed at Kuthungal only the 110 KV transmission lines are to be connected which is now incomplete. The name plate details of the generators, step-up transformers and equipment with 110 KV yard are enclosed for reference.19. The High Court of Kerala, by an order dated 1 November 2000, directed the State Government to deal with the representations submitted by the appellant in terms of the dispute resolution procedure contained in clause 25 of the agreement. The State Government was to decide whether there was any delay in the construction of the transmission lines by KSEB and to determine the claim of the appellant for the grant of concessions including a deemed generation status or an extension of the pre 1992 concessional tariff.20. Pursuant to the order of the High Court, an order was passed by the State Government on 7 February 2001. The State opined(i) There was no penal provision in the agreement providing a consequence for a delay in the completion of the construction of the transmission lines by KSEB;(ii) The appellant was not entitled to deemed generation status since this was neither a concession provided in the agreement nor was the concession available to an entity such as the appellant which generated power for its own consumption;(iii) The appellant was not entitled to the benefit of the pre 1992 tariff concession till the completion of the transmission line by KSEB;(iv) KSEB had not deliberately delayed the construction and the delay in the construction of the transmission lines was due to factors beyond its control including public agitation and the inaccessibility of the terrain;(v) Tariff concessions are provided to new industries which is a distinct issue from captive power generation and hence the plea for a tariff concession could not be acceded to; and(vi) Having regard to the grievance of the appellant that it had been unable to evacuate the power which it was positioned to generate for its captive unit, KSEB ought to adhere to the time schedule which it had undertaken to fulfill and complete the construction of the transmission lines by 28 February 2001 without failAccordingly, the State Government directed(i) The appellant shall continue to remit the pre-1992 tariff from August 2000 to February 2001;(ii) The difference between the billed and the concessional tariff shall be remitted to KSEB in 48 equal monthly instalments; and(iii) The penalties shall be waived21. The Writ Petition filed before the High Court was eventually adjudicated upon in the impugned order of the Division Bench dated 21 August 2015. The Division Bench held that though the appellant was permitted to put up a captive power plant in terms of the agreement dated 30 December 1994, the agreement did not contemplate a situation where the transmission lines will not be ready for evacuation of power. The High Court held that there was no intentional delay in the construction of the transmission lines on the part of KSEB. On whether or not the concession should be granted to the appellant, the State Government had already passed an order on 7 February 2001 opining that the tariff concession was made available only to new industries. This procedure, according to the State Government, was not available to captive power generation units. The High Court held that this view was not contrary to the policy of the State Government. The High Court held that the agreement between the parties did not disclose any specified time limit for the provision of transmission lines. The High Court accordingly dismissed the Writ Petition.

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