IMPORTANT POINT
Merely because a contract is entered into in exercise of an enabling power conferred by a statute that by itself cannot render the contract a statutory contract. If entering into a contract containing prescribed terms and conditions is a must under the statute then that contract becomes a statutory contract. If a contract incorporates certain terms and conditions in it which are statutory then the said contract to that extent is statutory.

Headnote:(i) Contract-Statutory contract-What amounts to-If entering in to contract containing prescribed terms and conditions is a must under the Statute then that contract becomes statutory contract-Merely because a contract is entered into in exercise of enabling power conferred by a Statute that by itself cannot render contract statutory contract.
       Merely because a contract is entered into in exercise of an enabling power conferred by a statute that by itself cannot render the contract a statutory contract. If entering into a contract containing prescribed terms and conditions is a must under the statute then that contract becomes a statutory contract. If a contract incorporates certain terms and conditions in it which are statutory then the said contract to that extent is statutory. A contract may contain certain other terms and conditions which may not be of a statutory character and which have been incorporated therein as a result of mutual agreement between the parties. (Para 11)
       (ii) Contract-Government contract-MOU by M.P. Government with companies to set up power generation projects-Power generated to be purchased by MPEB-MPEB was to give escrow protection to companies generating power so as to enable them get financed for project-Banks and financial institutions accepting escrowable capacity of MPEB at about 2200 MV only-Subsequently invitation of offers for better terms in favour of MPEB so as to enable it to prioritise projects for providing Escrow Protection based on least tariff criteria-Government selecting some of the projects to give escrow protection-Challenge to decision by other companies in regard to prioritisation of projects-Held : Criteria adopted was reasonable and not arbitrary-However on facts, priority given to one project quashed and fresh decision for giving priority for Escrow Coverage after considering Escrowable Capacity ordered. (Paras 17 to 23)

JUDGMENT

G.T. Nanavati, J.-Leave granted in all the S.L.Ps.

2. These appeals arise out of the common judgment of the Division Bench of the Madhya Pradesh High Court in a batch of Letters Patent Appeals (Nos. 70 to 72, 93 to 99, 106, 108 and 117 of 1999 and Writ Petition No. 1685 of 1998) filed against the common judgment and order of a single Judge of that Court in Writ Petitions filed by India Thermal Power Ltd. (W.P. 3534/1998), Bhander Power Ltd. (W.P. 4253/98). G.V.K. Power Ltd. (W.P. 4631/98), S.I.P. Power India Ltd. (W.P. 4694/98). M/s Shahpoorji Pallanji Power Co. Ltd. (W.P. 4742/98), Bhilal Power Supply Co. Ltd. (W.P. 238/98) and Jindal Power Ltd. (W.P. 6175/98).

3. In the year 1991-92, the Government of India declared a policy of liberalisation in the electricity sector and thereby widened the scope for private participation in generation, distribution and supply of electricty. Pursuant to that policy the State of Madhya Pradesh decided to invite private companies for setting up power plants at different places within the State so as to increase its power generating capacity by about 7000 MW. On 27.2.1992 Madhya Pradesh Electricity Board (MPEB) invited offers from potential private investors for pre qualification in establishment of four power projects. One of them was Thermal Power Project at Korba (West) in the district of Bilaspur. Indian Thermal Ltd. (hereinafter referred to as ITPL ) made an application for establishment of that power plant. After considering its application the Government of Madhya Pradesh made an offer by issuing a letter of intent to ITPL to establish, operate and maintain a power plant at Korba (West) as a generating company. Similar advertisements were issued for other projects also and letter of intent were issued to those who were found qualified. In all 21 MOU s were entered into between them and the State Government and MPEB. 13 Independent Power Producers (IPPs) entered into power Purchase Agreements (PPAs) with MPEB.

4. Under the MOU and PPA the generating company has to undertake the project and offer for sale all net electrical output from the project to MPEB and the MPEB is under an obligtion to purchase the same. We are not concerned with the other terms and conditions contained in the agreements and the mutual rights and obligations flowing from them except those relating to method and amount of payment. Article 8 of the PPA provides for the same. In order to secure payment to the IPP the MPEB will have to open one or more Letters of Credit in respect of amounts payable by it. The aggregate of each Letter of Credit shall be an amount necessary to meet two months projected tariff payments. By way of further security Clause (e) of Article 8.3. of ITPL s PPA provides for maintaining an Escrow Account with MPEB s bank at all times following the First Unit Commercial Operation Date, in such form and substance, as may be mutually agreed by the parties. It further provides that such Escrow Account shall be (i) established and maintained by MPEB in accordance with Escrow Agreement and (ii) in form and substance acceptable to the parties. In the PPAs with other IPPs the provision regarding Escrow Account is differently worded. According to these agreements the Company and the MPEB have to cooperate and assist each other in establishing a practicable and appropriate Escrow Account mutually acceptable to the parties as a satisfactory security mechanism for the payment obligations of MPEB. The Escrow Account must take into account reasonable requirements of the lenders of the projects. The amount of the Escrow Account shall have to be the Escrow Account Amount which means the amount equal to one and a half (1.5) times of the estimated averages amount payable by MPEB in a billing period. They do not provide for any Escrow Agreement before opening and Escrow Account. In addition to the Letter of Credit and the Escrow Account, the Article further provides for a guarantee by the Government of Madh

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