IMPORTANT POINT
When a party raises a subsequent event before a forum as being important and the forum decides the issue on merits against that party, it would operate as res judicata against that party.

JUDGMENT :

R.F. NARIMAN, J.

1. The present appeals are filed by the appellant - a Generating Company, which entered into an Agreement dated 26.09.2006, with the Government of Karnataka for setting up a 24.75 MW mini hydro-electric power plant in a certain District in Karnataka. On 03.05.2007, the appellant and Respondent No.1 signed a Power Purchase Agreement (for short 'the PPA'). Pursuant to the Clauses of the PPA, Respondent No.1 sent the PPA to the State Commission for its approval. On 06.06.2007, the State Commission did not accord its approval to the PPA and returned the same on the ground that Respondent No.1's quota of 10% under the Karnataka Regulations of 2004 had already been exhausted from other sources.

2. Meanwhile, on 26.07.2008, the appellant entered into another PPA with PTC India Limited for sale of electricity and sought the Commission's approval for supply to PTC under the Open Access provisions of the Electricity Act. On 31.08.2009, the appellant filed O.P. No. 29 of 2009 before the State Commission seeking a declaration that no valid PPA subsisted between the appellant and Respondent No.1, as a result of which it was open to the appellant to enter into another PPA and supply electricity under the Open Access system.

3. On 23.12.2010, the State Commission dismissed the appellant's O.P. holding that the return of the PPA did not tantamount to rejection, and this non-grant of approval, therefore, did not invalidate the PPA between the parties. An Appeal was preferred before the Appellate Tribunal, during the pendency of which a letter dated 05.05.2011 was sent by the appellant to Respondent No.1. As a great deal turns upon the effect of this letter, the relevant paragraphs are set out herein below:-

The letter begins with “WITHOUT PREJUDICE” and has as its Subject -“Permission to sell Power to Third Parties”. The letter then goes on to state that on the assumption that the PPA is valid, which is pending appeal before the Appellate Tribunal, the appellant wishes to bring to the attention of Respondent No.1 three specific defaults in the obligations undertaken by Respondent No.1 under the PPA. The defaults related to default in making payments for the Power Bills within 15 days of submission; default in payment of interest; and default in opening a Letter of Credit. The letter further goes on to state:

“Thus, BESCOM defaulted in its financial and material obligations, that too for over a continuous period of three months.

There, BESCOM shall permit, in terms of Article 9.2.2. of the disputed PPA, our Company to sell power from the Project to third parties and for entering into Wheeling and Banking Agreement with it.

So we request you to confirm that you will permit us to sell the power to third to pay the applicable charges.”

4. On 21.10.2011, the Appellate Tribunal dismissed the appeal filed by the appellant. On the two issues that were raised before the State Commission, the Appellate Tribunal found in favour of Respondent No.1 and was in complete agreement with the findings of the State Commission. However, the Appellate Tribunal then went on to advert to an affidavit that was filed before the Appellate Tribunal seeking to bring on record certain subsequent events as being material for decision of the appeal. And these subsequent events were sought to be brought on record by the appellant itself. After a contest on whether these events ought to be brought on record, Respondent No.1 stating that this is a new case not permissible in appeal, the Appellate Tribunal turned down the plea of Respondent No.1 and felt that it was important to examine the subsequent events on merits. It then referred to certain provisions of the PPA and, in particular, Clause 9.3.2 which deals with termination for default of Respondent No.1, and then went on to hold as follows:

“12.12. Thus, for termination of the PPA, in the event of payment default for a continuous period of three months, the appellant has to deliver a Default Notice to the