2017 (4) TMI 1385 - SC - Indian Laws

Supreme Court rules on jurisdiction & force majeure in electricity contracts

The Supreme Court held that the Central Commission had jurisdiction under Section 79(1)(b) of the Electricity Act for matters involving generation and ... Adoption of tariff under competitive bidding (Section 63) - Regulatory power of the Central Commission under Section 79(1)(b) - Composite scheme for generation and sale in more than one State - Force majeure and frustration (Indian Contract Act, Sections 32 and 56) - Change in law - scope of contractual clause and Central Government guidelinesAdoption of tariff under competitive bidding (Section 63) - Regulatory power of the Central Commission under Section 79(1)(b) - Composite scheme for generation and sale in more than one State - Jurisdiction of the Central Commission and interaction between Section 63 and Section 79(1)(b). - HELD THAT: - Section 63 is a limited non-obstante provision displacing only Section 62; it requires the Appropriate Commission to adopt tariffs determined through a transparent bidding process in accordance with Central Government guidelines. The general regulatory power to 'regulate' tariff under Section 79(1)(b) is not ousted by Section 63; where guidelines cover a situation the Commission must act within them, but in the absence of relevant guidelines the Commission's general regulatory powers under Section 79(1)(b) remain available. The expression 'composite scheme' in Section 79(1)(b) means a scheme for generation and sale of electricity in more than one State (i.e., consisting of at least two elements), and does not require uniformity of tariff across different PPAs. Read contextually and aided by the tariff policy definition, the Central Commission had jurisdiction to decide the disputes in these cases. [Paras 19, 22, 24, 26, 27]Central Commission possessed jurisdiction under Section 79(1)(b) to adjudicate the matters and Section 63 must be harmoniously read with Section 79; 'composite scheme' is satisfied where generation and sale occur in more than one State.Force majeure and frustration (Indian Contract Act, Sections 32 and 56) - Interpretation of contractual force majeure clause and exclusions - Whether the rise in Indonesian coal price constituted force majeure or frustration discharging performance or entitling to compensatory tariff. - HELD THAT: - The Court examined the doctrine of frustration under Section 56 and contingent contracts under Section 32, and applied Indian and English authorities. The PPAs' force majeure clause (clauses 12.3 and 12.7) must be read with the exclusions in clause 12.4. Clause 12.4 expressly excludes changes in cost of fuel and situations where the agreement becomes onerous. The PPAs did not make procurement of coal from Indonesia at a fixed price the fundamental basis of performance; alternative modes of performance existed. A mere increase in fuel price, rendering performance more onerous, does not amount to frustration or a force majeure event entitling discharge. Because clause 12.4 applies, Section 56 cannot be invoked to override the contractual allocation of risk. [Paras 34, 40, 41, 44, 45]Force majeure / frustration was not made out on the facts; the rise in Indonesian coal price is excluded by the PPA and does not discharge performance or justify grant of compensatory tariff on that ground.Change in law - scope of contractual clause and Central Government guidelines - Interaction of PPA clause 13 with Central Government guidelines and statutory tariff policy - Whether change in foreign law (Indonesian) or change in Indian law qualified as 'Change in Law' under the PPA and guidelines and whether compensatory relief could be granted. - HELD THAT: - The model PPA and the Central Government guidelines (and subsequent statutory policy pronouncements) define 'law' and 'change in law' with textual emphasis on laws 'in force in India' and the Indian judicial system as the 'Competent Court'. Accordingly, a change in foreign law (Indonesia) does not fall within the PPA's contractual definition of 'Change in Law'. By contrast, the Government's 2013 communications and the revised tariff policy (statutory instruments under Section 3) modified the domestic coal allocation regime and envisaged that increased costs due to shortfall in domestic coal supply could be considered for pass-through by the Appropriate Commission. Clause 13 of the PPA and the guidelines permit adjustment where an applicable change in Indian law or governmental policy impacts costs; such matters are to be determined by the Appropriate Commission. [Paras 46, 48, 49, 52, 53]Change in Indonesian law does not qualify under the contractual 'Change in Law'; changes in Indian law/policy (including the 2013 government decision and revised tariff policy) can qualify and merit consideration by the Appropriate Commission.Remand to Appropriate Commission for fresh determination - Scope of adjudication under PPA clause 13 and regulatory guidelines - Extent and purpose of remand to the Central Electricity Regulatory Commission. - HELD THAT: - Having held that force majeure was not established and that foreign law changes do not qualify under the PPA, the Court concluded that change in Indian law/policy could give rise to compensatory relief under PPA clause 13 and the Central Government guidelines. The Appellate Tribunal's and the Commission's earlier orders are set aside to the extent they rested on findings inconsistent with this reasoning. The Central Commission is directed to consider afresh which generators fall within clause 13 of the PPA and, in accordance with the contractual scheme and statutory guidelines and policy, determine the appropriate relief/compensatory tariff. [Paras 53, 54]Proceedings remitted to the Central Commission to determine, in accordance with this judgment, relief under clause 13/guidelines insofar as change in Indian law/policy applies; earlier orders on these aspects set aside.Final Conclusion: The Central Commission has jurisdiction under Section 79(1)(b) to adjudicate the disputes despite adoption of tariff under Section 63; the Appellate Tribunal erred in upholding force majeure/frustration based on rise in Indonesian coal prices (such increase is excluded by the PPA and does not frustrate performance); change in foreign law is not covered by the PPA, but changes in Indian law/policy (including the 2013 Government decision and revised tariff policy) may qualify as 'Change in Law' and warrant compensation. The Appellate Tribunal's and Commission's orders are set aside to the extent indicated and the matter is remitted to the Central Commission for fresh determination of relief under the PPA clause 13 and the applicable guidelines/policy. Issues Involved:1. Jurisdiction of the Central Commission under Section 79(1)(b) of the Electricity Act.2. Applicability of the force majeure clause in the Power Purchase Agreements (PPAs).3. Interpretation of 'Change in Law' under the guidelines and PPAs.Issue-wise Detailed Analysis:Jurisdiction of the Central Commission:The Supreme Court addressed whether the Central Commission had jurisdiction under Section 79(1)(b) of the Electricity Act. The appellants argued that a 'composite scheme' must involve uniform tariffs across multiple states. The court clarified that 'composite scheme' means a scheme for generation and sale of electricity in more than one state, without requiring uniform tariffs. The court emphasized that the Central Commission's jurisdiction is triggered when generation and sale occur in multiple states, aligning with the Act's scheme distinguishing between inter-state and intra-state matters. The court held that the Central Commission had jurisdiction to address the issues raised.Force Majeure:The court examined whether the rise in Indonesian coal prices constituted a force majeure event under the PPAs. The force majeure clause was found to be inclusive but not exhaustive. The court noted that force majeure clauses are to be narrowly construed and that a mere rise in price does not constitute a force majeure event. The court highlighted that the PPAs explicitly excluded changes in the cost of fuel and the agreement becoming onerous to perform from being considered force majeure events. The court concluded that the rise in coal prices did not qualify as a force majeure event, and thus, compensatory tariff could not be granted on this basis.Change in Law:The court analyzed the interpretation of 'Change in Law' under the guidelines and PPAs. The respondents argued that 'any change in law' should include foreign laws, given the context of imported coal. The court disagreed, stating that the definition of 'law' in the PPAs referred only to Indian laws. The court emphasized that the guidelines and PPAs, both drafted by the Central Government, intended 'any change in law' to mean changes in Indian laws only. However, the court acknowledged that changes in Indian coal distribution policy in 2013, which modified the 2007 policy, constituted a change in law under the PPAs. The court held that relief was available under the PPAs for changes in Indian law affecting coal supply from indigenous sources.Conclusion:The Supreme Court set aside the Appellate Tribunal's judgment and the Central Commission's orders, directing the Central Electricity Regulatory Commission to re-evaluate the relief to be granted to power generators under the PPAs, considering the court's interpretation of 'Change in Law' and excluding the force majeure claim related to the rise in Indonesian coal prices.