2016 (8) TMI 1495 - SC - Indian Laws

Supreme Court Upholds Commission Decision on Power Purchase Agreement Interpretation

Gujarat Urja Vikas Nigam Ltd. Versus Essar Power Limited

The Supreme Court allowed the appeal, setting aside the Tribunal's order and restoring the Commission's decision. The Court upheld the Commission's ... Interpretation of statute - Failure to declare availability of power in the proportion of 300:215 MW for the period from 14th September, 2002 onwards - Whether the Tribunal has correctly interpreted the terms of Power Purchase Agreement dated 30th May, 1996 (PPA) and is justified in reversing the finding of the Commission based on interpretation of the said PPA and other documents on record.? True interpretation of PPA to determine whether there is any obligation to declare availability of power in the ratio of 300:215 - HELD THAT:- The EPL was under obligation as per Schedule VI to declare weekly Schedule of the capacity available and the dispatch instructions were to be issued on the basis of the said declaration. It could not thus be said that the EPL had no obligation to declare the capacity and the obligation of GUVNL to issue dispatch instructions was not dependent on declaration of the available capacity by the EPL. Contrary view of the Tribunal is clearly erroneous. In paras 45 and 46 and elsewhere in its judgment, the Tribunal erred in holding that there was no obligation to declare available capacity on proportionate basis. The finding of the Commission in paras 9.5 to 9.12 of its order quoted above is the correct interpretation of the Agreement. Effect of letters dated 17th February, 2000, 4th March, 2000 and 4th October, 2001 on the rights of the parties - HELD THAT:- The letters of the Respondent acknowledged its liability to allocate the generated power to the Appellant and to the ESL in the ratio of 58: 42. The Tribunal in para 54 quoted above, held that the said letters could not be relied upon in support of the claim that the Appellant was entitled to be allocated generated power in proportion of 58: 42. This finding is clearly erroneous and is without any basis and is liable to be set aside. The finding of the Commission is based on record. Interpretation of Schedule VI to determine whether the obligation to issue dispatch instructions arose before declaration of availability - HELD THAT:- In interpreting Schedule VI, the Commission held that the EPL was liable to declare weekly capacity available and on that basis dispatch instructions were required to be issued (para 9.6). The contrary view taken by the Tribunal in para 45 and elsewhere is clearly contrary to the agreement between the parties as reflected in Schedule VI. The order of the Tribunal is erroneous. The said order has given rise to the substantial question of law which has been discussed above, i.e., the interpretation of the Agreement between the parties and the obligation of the Respondent to declare availability of generated power in the ratio of 58: 42 and consequence of default therein. The Tribunal erroneously held that there was no pleading for making the claim. Thus, the Tribunal has committed error of law as well as of record in recording its finding as demonstrated above. It may also be noted that the Commission has left actual working out of the loss to be worked out separately and on that basis the Appellant has already filed its claim which was pending consideration before the Commission. The said proceeding can now be revived in the light of our finding. Appeal allowed. Issues Involved:1. Interpretation of the Power Purchase Agreement (PPA) dated 30th May 1996.2. Obligation to declare availability of power in the ratio of 300:215 MW.3. Effect of letters dated 17th February 2000, 4th March 2000, and 4th October 2001.4. Interpretation of Schedule VI regarding dispatch instructions.5. Relief and compensation entitlement.Issue-wise Detailed Analysis:1. Interpretation of the Power Purchase Agreement (PPA) dated 30th May 1996:The primary issue was whether the Tribunal correctly interpreted the terms of the PPA and justified reversing the Commission's finding. The PPA stipulated that the EPL was required to allocate 300 MW to GUVNL and 215 MW to ESL, and this allocation should be proportionate if the total generation was less than 515 MW. The Tribunal's interpretation that there was no obligation for proportionate allocation was found erroneous. The Supreme Court held that the PPA clearly contemplated proportionate allocation of capacity, and EPL was obliged to declare availability and allocate power accordingly.2. Obligation to declare availability of power in the ratio of 300:215 MW:The Commission found that EPL had an obligation to declare available capacity and allocate power proportionately between GUVNL and ESL. The Tribunal's finding that there was no such obligation was incorrect. The Supreme Court upheld the Commission's view that EPL must declare availability and allocate power in the ratio of 300:215 MW, maintaining the proportionate principle.3. Effect of letters dated 17th February 2000, 4th March 2000, and 4th October 2001:The Commission observed that EPL acknowledged its liability to allocate generated power in the ratio of 58:42 through these letters. The Tribunal's finding that these letters could not be relied upon was erroneous. The Supreme Court held that the letters clearly indicated EPL's acceptance of the proportionate allocation principle, subject to certain conditions, which were not fulfilled by GUVNL.4. Interpretation of Schedule VI regarding dispatch instructions:The Commission interpreted Schedule VI to mean that EPL was required to declare weekly capacity available, and dispatch instructions were to be issued based on this declaration. The Tribunal's contrary view was incorrect. The Supreme Court agreed with the Commission's interpretation that EPL had to declare the available capacity, and GUVNL's dispatch instructions were dependent on this declaration.5. Relief and compensation entitlement:The Tribunal rejected GUVNL's claim for compensation, citing several reasons, including the settlement of Rs. 64 crores and GUVNL's alleged default in payments. The Supreme Court found that the Tribunal ignored the supplementary agreement and the letter clarifying that Rs. 64 crores was not a final settlement. The Tribunal's observation of GUVNL's default in payments was also incorrect. The Supreme Court restored the Commission's order, allowing GUVNL to claim compensation for the energy diverted to ESL from the capacity allocated to GUVNL under the PPA.Conclusion:The Supreme Court allowed the appeal, set aside the Tribunal's order, and restored the Commission's decision. The Commission's interpretation of the PPA and the proportionate allocation principle was upheld. The Supreme Court also highlighted the need for a review of the statutory framework and functioning of Tribunals, suggesting that the Law Commission examine the matter. The appeal was allowed with directions for the Law Commission to report within a year.Epilogue:The judgment also discussed the broader issue of the functioning of Tribunals and their impact on the Supreme Court's workload. It suggested that the Law Commission examine the statutory framework, appointment processes, and the advisability of direct appeals to the Supreme Court from Tribunals. The matter was to be listed in November 2017 for further consideration.