Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2017 Supreme(SC) 335

SUPREME COURT OF INDIA
Pinaki Chandra Ghose, R.F. Nariman, JJ.
Energy Watchdog – Appellant
Versus
Central Electricity Regulatory Commission and Ors. Etc. – Respondents
Civil Appeal Nos.5399-5400 of 2016
With
Prayas (Energy Group) – Appellant
Versus
Central Electricity Regulatory Commission and Ors. – Respondents
Civil Appeal No.5347 of 2016
And
Prayas (Energy Group) – Appellant
Versus
Central Electricity Regulatory Commission and Ors. – Respondents
Civil Appeal No.5348 of 2016
And
Punjab State Power Corpn. Ltd. – Appellant
Versus
Coastal Gujarat Power Ltd. & Ors. – Respondents
Civil Appeal No.5364 of 2016
And
Ajmer Vidyut Nigam Ltd. and Ors. – Appellants
Versus
Central Electricity Regulatory Commission and Ors. – Respondents
Civil Appeal No.5346 of 2016
And
Maharashtra State Electricity Distribution Company Ltd. – Appellant
Versus
Central Electricity Regulatory Commission and Ors. – Respondents
Civil Appeal Nos.5351-5352 of 2016
And
GRIDCO LTD. – Appellant
Versus
GMR - Kamalanga Energy Ltd. and Ors. – Respondents
Civil Appeal No.5415 of 2016
And
M/S. Coastal Gujarat Power Ltd. – Appellant
Versus
Central Electricity Regulatory Commission and Ors. – Respondents
Civil Appeal Nos.9635-9642 of 2016
And
M/S Coastal Gujarat Power Ltd. – Appellant
Versus
Central Electricity Regulatory Commission and Ors. – Respondents
Civil Appeal No.9035 of 2014
Decided On : 11-04-2017

Advocates Appeared:
Pranav Sachdeva, Prashant Bhushan, G. Umapathy, Rakesh K. Sharma, Aditya Singh, Nikhil Nayyar, Kapil Sibal, Sr. Adv., C.S. Vaidyanathan, Sr. Adv., Amit Kapur, Ms. Apoorva Misra, Abhishek Munot, Kunal Kaul, Vishrov Mukherjee, Rohit Venkat, Pukhrambam Ramesh Kumar, Uday Manaktala, Ms. Raveena Dhamija, Udit Gupta, Anup Jain, K. Parameshwar, (M/s Udit Kishan and Associates), Raj Kumar Mehta, Elangbam Premjit Singh, Ms. Himanshi Andley, Mahesh Agarwal, Ms. Neeha Nagpal, E.C. Agrawala, Ms. Malav Deliwala, M.G. Ramachandran, K.V. Mohan, Ms. Ranjitha Ramachandran, Ms. Poorva Saigal, Ms. Anushree Bardhan, Shubham Arya, Sidharth Sethi, Gurmeet Singh Makker, Ms. Hemantika Wahi, Nikunj Dayal, (M/s. Karanjawala & Co.), Tushar Bakshi, Chandra Prakash, Kumar Mihir, Pradeep Misra, Advs.

IMPORTANT POINT
Unexpected rise in price of coal will not absolve generating companies from performing their part of contract.

Headnote:(A) Electricity Act, 2003 – Sections 63 and 79 – Power procurement and tariff fixation – Competitive bidding process – In a situation where guidelines issued by Central Government under Section 63 cover the situation, Central Commission is bound by those guidelines and must exercise its regulatory functions, albeit under Section 79(1)(b), only in accordance with those guidelines – It is only in a situation where there are no guidelines framed at all or where guidelines do not deal with a given situation that Commission’s general regulatory powers under Section 79(1)(b) can then be used. (Para 19)
       (B) Electricity Act, 2003 – Sections 63 and 79 – Indian Contract Act, 1872 – Section 56 – Power procurement and tariff fixation – Competitive bidding process – Doctrine of frustration cannot apply to these cases as fundamental basis of PPAs remains unaltered – Nowhere do PPAs state that coal is to be procured only from Indonesia at a particular price – Price payable for supply of coal is entirely for person who sets up power plant to bear – Fact that fuel supply agreement has to be appended to PPA is only to indicate that raw material for working of plant is there and is in order – Unexpected rise in price of coal will not absolve generating companies from performing their part of contract for very good reason that when they submitted their bids, this was a risk they knowingly took – Mere fact that bid may be non-escalable does not mean that respondents are precluded from raising plea of frustration, if otherwise it is available in law and can be pleaded by them – But, fact that a non-escalable tariff has been paid is a factor which may be taken into account only to show that risk of supplying electricity at tariff indicated was upon generating company – Though change in Indonesian law would not qualify as a change in law under guidelines read with PPA, change in Indian law certainly would – Appellate Tribunal’s judgment and Commission’s orders following said judgment set aside – Central Electricity Regulatory Commission will go into the matter afresh and determine what relief should be granted to those power generators who fall within Clause 13 of PPA. (Para 40, 53 and 54)
       Facts of Case:
       Instant matter concerns procurement of power and determination of tariff by a transparent competitive bidding process. Present appeals arise from a judgment of Appellate Tribunal for Electricity dated 7th April, 2016.
       Findings of Court:
       Both letter dated 31st July, 2013 and revised tariff policy are statutory documents being issued under Section 3 of Act and have force of law. So far as procurement of Indian coal is concerned, to the extent that supply from Coal India and other Indian sources is cut down, PPA read with these documents provides in Clause 13.2 that while determining consequences of change in law, parties shall have due regard to principle that purpose of compensating party affected by such change in law is to restore, through monthly tariff payments, affected party to economic position as if such change in law has not occurred. Further, for operation period of PPA, compensation for any increase/decrease in cost to seller shall be determined and be effective from such date as decided by Central Electricity Regulation Commission. Though change in Indonesian law would not qualify as a change in law under guidelines read with PPA, change in Indian law certainly would.
       Result – Appeals disposed of with directions.

Judgement Key Points

Based on the provided legal document, here are the key points:

The Supreme Court clarified that an unexpected rise in the price of coal does not absolve generating companies from their contractual obligations under Power Purchase Agreements (PPAs). The fundamental basis of the contract remains intact, and the risk of fuel price fluctuations was knowingly accepted by the bidders at the time of submission (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)

JUDGMENT

R.F. Nariman, J.

The present appeals arise from a judgment of the Appellate Tribunal for Electricity dated 7th April, 2016. The facts necessary to appreciate the issues which arise in the present case, which will cover all the cases before us, will be taken only from Civil Appeal No.5348 of 2016, namely Prayas (Energy) Group v. Central Electricity Regulatory Commission.

2. Section 63 of the Electricity Act, 2003 provides for procurement of power and determination of tariff by a transparent competitive bidding process. Once this is done, the appropriate Commission is to "adopt" the tariff which is accepted in the competitive bid subject to guidelines that are made by the Central Government. On 19th January, 2005, the Central Government issued detailed guidelines under this provision, which were amended from time to time. On 1st February, 2006, Gujarat Urja Vikas Nigam Limited (GUVNL) issued a public notice inviting proposals for supply of power on long term basis under three different competitive bid processes. The participating bidders were to decide on the tariff and quote such tariff after competing against each other. The bidders were entitled to quote escalable or non-escalable tariff or partly escalable and partly non-escalable tariff, as was considered appropriate by them to cover their respective risks so as to obtain whatever returns are available to them. The best levelised tariff as per certain pre-disclosed criteria was to be followed in order to arrive at the lowest tender.

3. Haryana Utilities also initiated a separate competitive bidding process for purchase of 2000 MW on a long term basis. This was done on 25th May, 2006. The participating bidders were also entitled to quote bids on the lines of the GUVNL public notice. Both the Gujarat Electricity Regulatory Commission and the Haryana State Regulatory Commission approved the bid documents and the process proposed by GUVNL and the Haryana Utilities, after which Requests for Proposal were issued by both of them. On 2nd/4th January, 2007, Adani Enterprises Consortium submitted its bid for generation and supply of 1000 MW to GUVNL, quoting a levelised tariff of Rs. 2.3495/kWh (Rs.1/kWh as the capacity charge and Rs. 1.3495/kWh as non-escalable energy charge). In the bid, the Consortium indicated that the lead member, Adani Enterprises, had an arrangement for indigenous coal requirement of the project with Gujarat Mineral Development Corporation, as the said Corporation had been allotted a certain coal block in the State of Chhattisgarh. Also, a Memorandum of Understanding was entered into between Adani Enterprises Ltd. and a German Company for supply of non-coking coal of 3 to 5 million tons (imported coal) on a long term basis till the year 2032. A similar Memorandum of Understanding was also entered into between Adani Enterprises and a Japanese agent for supply of 3 to 5 million tons of coal again on a long term basis. The two Memoranda of Understanding were attached to the bid submitted by Adani Enterprises.

4. On 11th January, 2007, the Adani Enterprises Consortium was selected by GUVNL as the successful bidder for supply of 1000 MW of power and a Letter of Intent was issued in its favour. On 2nd February, 2007, a Power Purchase Agreement was entered into between GUVNL and Adani Power and this was for supply of power from a power project being set up at Korba in Chhattisgarh. This was changed to a Mundra Project in Gujarat. On 18th April, 2007, a supplementary PPA was signed to this effect.

5. As far as Haryana is concerned, Adani Power submitted their bid for supply of 1425 MW of power to Haryana Utilities on 24th November, 2007. This was at a levelised tariff of Rs. 2.94/kWh from the Mundra Power Project. The energy charges quoted were non-escalable. Adani Power was declared as the successful bidder in Haryana for supply of 1424 MW contracted capacity on 17th July, 2008 and a Letter of Intent was issued. Two separate PPAs were executed by Adani Power with

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2017 Supreme(SC) 335

IMPORTANT POINTUnexpected rise in price of coal will not absolve generating companies from performing their part of contract.

Cases Referred (4)

IMPORTANT POINT
Unexpected rise in price of coal will not absolve generating companies from performing their part of contract.