Statutory contract and least-tariff policy: escrow rights denied, revised project prioritisation upheld, Pench priority quashed

A power purchase agreement entered under an enabling electricity framework was not wholly a statutory contract, because the escrow arrangement was a contractual security mechanism dependent on further agreement; no immediate enforceable right to escrow coverage arose. The electricity board could revise project prioritisation and invite fresh offers on a least-tariff basis where financial closure, escrow capacity, and lender requirements remained unresolved, and such policy choice was not shown to be mala fide or arbitrary. Prioritisation of the selected projects was upheld, but the priority accorded to the Pench project was quashed and the matter remitted for fresh consideration.

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Issues: (i) Whether the power purchase agreements and memoranda of understanding created statutory contracts binding the electricity board in respect of escrow arrangements; (ii) whether the board could revise the prioritisation of projects and invite fresh offers on the basis of the least tariff criterion; (iii) whether the decision to grant priority to some projects and to reject priority for Pench project was arbitrary or otherwise liable to be interfered with.

Issue (i): Whether the power purchase agreements and memoranda of understanding created statutory contracts binding the electricity board in respect of escrow arrangements.

Analysis: The agreements were entered into under the enabling provisions governing sale and purchase of electricity, but only the tariff-related obligations were controlled by the statutory scheme. The escrow arrangement and escrow agreement were contractual security mechanisms, not statutory requirements, and their implementation depended on further agreement between the parties. The obligation to open and maintain an escrow account was to arise later and in terms acceptable to the parties, so no enforceable right to insist on an escrow agreement at the earlier stage had accrued.

Conclusion: The agreements were not statutory contracts to the extent claimed, and no vested legal right to immediate escrow coverage was established.

Issue (ii): Whether the board could revise the prioritisation of projects and invite fresh offers on the basis of the least tariff criterion.

Analysis: The board was acting in a setting where financial closure, escrow capacity, and lender requirements had not been resolved. In that situation, revising the selection process to secure better tariff terms and to align priority with public benefit was held to be a rational policy choice. The least tariff criterion was treated as consistent with the statutory tariff framework and not shown to be adopted mala fide or to favour particular parties without basis.

Conclusion: The board was entitled to revise the prioritisation process and adopt the least tariff criterion.

Issue (iii): Whether the decision to grant priority to some projects and to reject priority for Pench project was arbitrary or otherwise liable to be interfered with.

Analysis: The prioritisation in favour of the selected projects was found to have been taken bona fide and in overall public interest on the materials then available. However, the Pench project raised separate concerns, including the absence of proper coal linkage and defects in cost evaluation. In view of the remaining escrowable capacity, a fresh decision was required for the remaining coal-based project instead of sustaining the existing priority for Pench.

Conclusion: The prioritisation of the selected projects was upheld, but the priority given to Pench project was quashed and the matter was remitted for fresh consideration.

Final Conclusion: The appeals were mainly rejected, but limited relief was granted by setting aside the priority accorded to Pench project and directing a fresh decision on remaining priority for escrow coverage.

Ratio Decidendi: A contractual arrangement entered into under an enabling statutory framework is not wholly statutory unless the disputed obligation is itself mandated by the statute, and a bona fide policy decision taken in public interest on relevant considerations will not be interfered with unless shown to be arbitrary or unreasonable.

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