TaxTMI 
TaxTMI 
2016 (8) TMI 1495
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....0th 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.? Part II: Facts 3. The Appellant, Gujarat Urja Vikas Nigam Ltd. ('the GUVNL'), is the successor of the Gujarat Electricity Board and is a deemed licencee Under Section 2(39) read with Sections 12 and 14 of the Act. The Respondent, ESSAR Power Limited ('the EPL'), is a generation company within the meaning of Section 2(28) of the Act. The Appellant filed a petition before the Commission Under Section 86(i)(f) of the Act for adjudication of the dispute arising out of the Power Purchase Agreement ('the PPA'). The Appellant inter alia sought compensation for wrongful allocation of electricity by the EPL to its sister concern, Essar Steel Ltd. (ESL) in preference to the Appellant. 4. According to the Appellant, the EPL was required to allocate 300 MW out of the total 515 MW of electricity and the remaining 215 MW was to be allocated to ESL. In case the quantum of generation was less than 515 MW, the allocation was to be in the proportion of 300:215. Contrary to this requirement, the EPL allocated more electricit....
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....aims were contested by the Respondent based on preliminary objections including the plea of limitation as well as on merits. Part III: Pleadings 7. As noticed in Para 4 above, the case of the Appellant in the petition filed before the Commission was that the Respondent had wrongly utilized the capacity of the generating station in favour of its sister concern, against the rights and interest of the Appellant in violation of the PPA, the Respondent allocated part of generating capacity required to be allocated to the Appellant to its sister concern. The Appellant had the obligation to pay annual fixed charges, variable charges, incentive etc. in relation to the specified allocated capacity and the sister concern of the Respondent was to pay proportionate annual fixed cost. The Agreement required the EPL to declare availability in the specified proportion even when generation was less than the total 515 MW capacity. Contrary to the said requirement, the Respondent allocated more electricity to ESL and offered proportionately less electricity to the Appellant. Thereby, not only the agreement was violated, the understanding reflected in letters issued by the Respondent was also not h....
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....llows: 9.1 The PPA was executed on 30.5.1996 and effective for a period of 20 years. The relevant clauses of the PPA have been examined. It is quite clear that under the PPA, GUVNL has an obligation to pay an annual fixed cost for the allocated capacity, which is 300 MW. Having paid the annual fixed cost for the said capacity, GUVNL has a right for an equivalent amount of electrical output. The purpose of paying annual fixed cost is to ensure that GUVNL alone has the right to the said capacity and that no part of the same can be sold to any other party. It is true that 41 the normal industry practice is that unless the allocated capacity, for which fixed charges are being paid by the beneficiary is surrendered, the beneficiary has the ability to sell/negotiate any transaction for utilisation of such allocated capacity. In this context, reference is also made to the CERC (Terms and Conditions of Determination of Tariff) Regulations, 2004. 9.2. The question that arises for consideration is whether GUVNL can claim allocation on a proportionate basis i.e. to say, that if EPL is unable to declare 300 MW capacity which is allocated to GUVNL under the PPA, EPL would then have to decla....
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....the Hon'ble Supreme Court has held in State of Andhra Pradesh v. Kone Elevators India Ltd. (2005) 3 SCC 386: It is a settled law that the substance and not the form of the contract is material in determining the nature of the transaction. Therefore, it is necessary to read the PPA as a whole in order to give a correct interpretation to the terms therein contained. The definition of 'Allocated Capacity' in the PPA has to be read in conjunction with Article 3.1. Article 3.1 clearly records the allocation of capacity between two entities i.e. GUVNL as well as Essar Steel. 9.5. From the reading of the Article 3.1 of the PPA as also the corresponding Articles in the PPA with Essar Steel, it is clear that the intention of the parties was that the capacity of the generating plant will be shared between the two beneficiaries only. The fact that Article 3.1 of the present PPA records the capacity allocated to the Essar Group companies along with the capacity allocated to GUVNL shows that intention of the parties was to provide for allocation in the proportion of 138:192 (while working in open cycle mode) and 215:300 (while working in combined cycle mode). Otherwise there i....
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....place in the proportion that is contracted. Also, the submission of EPL that the Petitioner's only concern, under terms of the PPA, is that it must get electricity in accordance with its Dispatch Instructions, within the limits of allocated capacity is not entirely correct. The Petitioner has a right to be supplied electrical output proportionate to the declared capacity of the generating plant in terms of the PPA. EPL cannot ignore its obligation of declaring the entire capacity. Once the entire capacity of the generating plant is declared, the proportionate principle of allocation of capacity will become applicable and as a natural consequence, the electrical output will be allocated and supplied between the two beneficiaries on proportionate basis, in accordance with the dispatch instructions. It appears that EPL is avoiding its obligation to declare the entire capacity. The ability to recover deemed non generation due to difference in Schedule generation and actual generation has nothing to do with the requirement to allocate capacity and supply electrical output on a proportionate basis. 9.7. In view of the aforesaid, the Commission accepts the submission made by GUVNL t....
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....tio, EPL will have the right to sell the power to its sister concern subject to reimbursement of the proportionate of the annual fixed charges. GUVNL cannot make a submission that although it will not purchase such power as declared available by EPL, EPL cannot sell the same to its sister concern. Such a submission would defeat the purpose of the Electricity Act, 2003 and the National Electricity Policy which promotes generation and encourages sale of surplus capacity. If GUVNL does not Schedule the power to the extent of availability declared by EPL of the entire plant in terms of the PPA, it cannot complain if the power is sold to EPL's sister concern and the proportionate of the annual fixed cost is reimbursed. 9.12. The Commission is of the view that GUVNL is entitled to claim compensation for the energy diverted to Essar Steel from the capacity allocated to GUVNL under the PPA. EPL at all times has an obligation under the present PPA to declare availability for the entire plant and allocate the supply on the basis of 300:215 or 58:42. 9.13. As regards the quantum of compensation payable on account of diversion, the PPA is silent on the same. The parties in the settleme....
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.... 2000 and 4th October, 2001 by which the Respondent accepted its liability, it was held that the GUVNL never accepted or complied with its obligations and therefore, the Respondent was not bound by the stand in the said letters. It was further observed that the claim for the period from 1st July, 1996 stood settled in view letter dated 13th October, 2006 of the GUVNL to accept Rs. 64 crores for diverting electricity to ESL. Non-declaration of available capacity on proportionate basis was not shown to have resulted in any loss or damage to GUVNL. GUVNL had not proved any actual loss. It was observed that on the principle of Section 35 of the Sale of Goods Act, 1920, there was no obligation to deliver in absence of dispatch instructions. Further, the ESL supplied fuel to EPL for conversion into electricity but for supply to the GUVNL, the EPL had to procure fuel from outside. GUVNL also made default in making payment to the EPL which amounted to breach of reciprocal obligation. GUVNL also failed to establish letter of credit to secure the payment of the amount payable to the EPL which also was breach on the part of the Appellant. 16. The finding of the Tribunal is: 45. From these ....
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....ctricity Board (R-1) that EPL has conceded to its proportionate theory basis and as such it cannot go back. This contention is not tenable. EPL in those letters merely expressed its willingness to agree to the proportionate theory basis subject to the condition that Electricity Board should commit default in making the payment of dues payable under the PPA-1 to EPL and also subject to the condition that the Electricity Board shall comply with other conditions of the PPA-1. 51. Admittedly, the stipulated conditions in those letters were neither accepted nor complied with by the Electricity Board. Hence the offer made by the EPL to the Electricity Board for agreeing to the proportionate theory basis would not be construed to be conceding and as such it is binding on it. 52. In the second letter dated 04.10.2001 also, EPL stipulated the condition of making prompt payments by the Electricity Board to EPL and for establishment of Letter of Credit to secure payments under PPA-1. Even this condition, the Electricity Board was not ready to comply with. As such the proposal made by the EPL to the Electricity Board regarding proportionate theory subject to the conditions is not binding o....
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....conclusive and binding on the parties. As correctly observed by the State Commission, the same is not liable to be reopened at this stage. 57. Admittedly, it is not established that there is any breach of the contract as the part of the Appellant under PPA-1 on account of non-declaration of available capacity to the Electricity Board on proportionate basis. The compensation can be claimed only when there is a breach and due to the same there was a loss or damage caused by the said breach of contract. This has to be pleaded and proved. Unless this is done, no compensation can be claimed. This is a settled law as held by the Supreme Court in (1974) Vol-2 SCC 231-Raman Foundry v. Union of India. 58. In the present case, the Electricity Board has not pleaded and proved the actual loss or damage caused to it due to the alleged breach of contract. The principle enshrined in Section 73 of the Contract Act has been incorporated in Article 10.1 of the PPA-1 which reads as follows: ...neither Party shall be liable to the other Party in contract, trot, warranty, strict liability or any other any other legal theory for any indirect, consequential, incidental, punitive or exemplary damage....
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....pacity in accordance with the Despatch Instructions, the Electricity Board had agreed and undertaken to pay the EPL the tariff as mentioned in the PPA-1. It is an admitted fact that the Electricity Board has committed default in making payment when due to be made to the EPL under the PPA-1. In fact, the EPL, the Appellant has produced materials to show that at one point of time in March 2008, the aggregate amount due to EPL was to the tune of Rs. 519 crores. EPL has produced documents to show that the Electricity Board is a defaulter in making payment of its due under the PPA-1 right from the inception of it. 76. It is also an admitted fact that EPL had written several letters to the Electricity Board to establish Letter of Credit to secure the payment of the amount payable under PPA-1 and also pay the amounts when due. But the Electricity Board did not heed to the request made by the EPL in this behalf and as a result of it the ability of EPL to purchase the fuel for generating electricity meant for sale to the Electricity Board got impaired. 77. As mentioned above, the claim for compensation made by the Electricity Board against EPL in the present case is due to the alleged b....
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....ement dated 18th December, 2003 and letter dated 19th December, 2003. Thus, the Tribunal erroneously assumed that amount of Rs. 519 crores was outstanding. Moreover, there is an error in the order of the Tribunal in observing that GUVNL had not proved suffering of any damage. Para 23 of the petition expressly asserted the damage. There is further error in interpretation of Schedule VI in regard to the obligation to declare the availability of generating power upon which the dispatch instructions could be issued. In absence of such declaration, the dispatch instructions could not be issued. Finding that the Appellant accepted Rs. 64 crores by way of settlement was against record. 19. The EPL supports the view taken by the Tribunal. It is submitted that there was no obligation for proportionate declaration of available generation capacity. The Respondent was to meet the requirement of electric output corresponding to allocated capacity of 300 MW. This obligation was subject to reciprocal performance of obligation by the Appellant. The PPA executed by the Respondent with the ESL was on different terms. The Appellant was required to make payment on due dates Under Article 5.3 of the A....
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....ramme during the period of Scheduled Outage. (ii) That to do so would not be in accordance with Good Industry Practice; (iii) That may be necessary due to circumstances relating to Safety (of personnel or plant apparatus); (iv) that to do so would be unlawful; (v) That may be necessary for reasons of Force Majeure Natural or Non-Natural. 3.2. Delivery of Active Energy The Company shall deliver Active Energy and Reactive Energy to the Board at the Delivery Point in accordance with Dispatch Instructions issued by the Board under the Dispatch procedures as specified in Schedule VI. All Active Energy delivered by the Company shall have at the Delivery Point, the voltage, frequency and the other electrical parameters associated with active/reactive power as may be decided by the Board in accordance with the Operating Characteristics. 3.3. Availability Declarations From the date of Entry into Commercial Service of the first Unit the Company shall, submit to the Board from time to time, Declared Available Generation Capacity as per the procedures set forth in Schedule VI. xxx Schedule VI 6.1. Submission of Weekly Schedules The Company will submit to the Board's Load Dispatc....
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....uted by applying the prevailing rates of interest during the month on each such Debt. In respect of interest on Foreign Debt, the interest liability on the applicable Foreign Debt shall first be computed in the applicable foreign currencies and thereafter be converted to Rupees by adopting the Base Exchange Rate and such amount shall be adopted for the purposes of computing Interest on Debt. A Supplementary Invoice shall be raised for an amount equal to the difference between the amount of interest liability on Foreign Debt as determined on the basis of Base Exchange Rate and the amount of interest liability as on the due dates of the payment of interest as per the Financing Plan computed on the basis of the then prevailing exchange rate. If the amount payable to the Company is determined to be less, on account of foreign exchange variation, than the amount paid by the Board at the Base Exchange Rate, such difference shall be repaid to the Board within 14 days from the date of the determination. b) Operation and Maintenance Expenses (O&M) Expenses: O&M Expenses including Insurance Charges for the first full Accounting Year, after commissioning of Combined Cycle Operation of the....
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....the basis of annual estimated level of generation adopting the following norms: i) Fuel Cost for liquid fuels only for one month; ii) Operation & Maintenance expenses (Cash) for one month; iii) Maintenance Spares at actual but not exceeding one year's requirement, less value of One Fifth of initial spares already capitalized; and iv) Receivable equivalent to two months' average billing for sale of electricity. The Interest on Working Capital shall be computed by applying the rate of interest as applied by the Company's bankers or the Board's Bankers whichever is lower on the amount of working capital computed above. g) Base Foreign Debt Repayment Adjustment Amount: In respect of the Foreign Debt, the amounts falling due for repayment during the Accounting Year shall be first computed in the applicable foreign currencies and thereafter be converted to Rupees by adopting the Base Exchange Rate. The difference between the amounts of repayment determined as above and the amount of repayment of Foreign Debt falling due during the relevant Accounting Year and expressed in rupees adopting the exchange rate as per the Financing Plan shall be included in the Annual Fi....
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....on in paras 9.5 to 9.12 of its order quoted above is the correct interpretation of the Agreement. We hold accordingly. Re: (ii): 23. The Commission in this aspect observed: 8.4 In the present case, the PPA was executed on 30.5.1996 and remains operational for a period of twenty years. Under the terms of the PPA, the generating company i.e. EPL is required to declare availability and supply of electricity for the entire duration of the PPA, while the Petitioner GUVNL has an obligation to purchase electricity and pay the tariff in terms thereof. The dispute appears to have arisen sometime in 1998-99, when the CAG Report for the year 1998-99 rejected the contention of the Government that there was no adverse financial impact as a result of diversion of power. Thereafter, on or around 10.2.2000, a meeting was conducted with the GEB to discuss the issue of diversion. On 17.2.2000, EPL subject to certain conditions accepted that power is required to be supplied on a 58:42 basis. Attempts were made to renegotiate the PPA. By a letter dated 23.4.2002, GEB wrote to EPL identifying certain key areas for negotiation of PPA. The issue of allocation of power was also part of the agenda. Sin....
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....he parties dated 18th December, 2003 followed by letter dated 19th December, 2003 (page 337 and 341, Vol. V) under which amount of Rs. 289.40 crores was paid to the Respondent by way of settlement for the delayed payment charges and other heads. Thus, the Tribunal was not justified in observing in para 75 that the Appellant had defaulted in making payment of Rs. 519 crores which was a breach of promise on the part of the Appellant, thereby absolving the Respondent of its obligation to supply power as per the agreement. Similar is the position with regard to letter of credit referred in para 17.6 of the order of the Tribunal. We have been informed that these aspects have been gone into by the State Commission in a subsequent dispute vide order dated 22nd October, 2014 and Appeal No. 2 of 2015 against the said order before the Tribunal. We thus, make it clear that our observations may not be treated as affecting the decision of the said appeal. 27. We thus, hold that 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 o....
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.... to perform the role of a first appellate court. It was necessary that High Courts are able to exercise judicial superintendence over decisions of the Tribunals. With these observations this Court directed that "all" decisions of the Tribunals will be subject to High Court's writ jurisdiction Under Article 226/2271. It was further observed that the then existing position of direct appeal to this Court from orders of Tribunal will stand modified2. 32. In Madras Bar Association v. Union of India (2014) 10 SCC 1, the issue considered by this Court was validity of setting up of National Tax Tribunals under the National Tax Tribunal Act, 2005. While striking down the Act, this Court commented upon validity of various provisions of the said Act. Section 5 of the Act which provided for sittings to be at Delhi, it was observed that a litigant who may belong to a distant/remote State, may have to travel a long distance and may find it difficult to identify an advocate who will represent him. It was further observed that while vesting jurisdiction in an alternative court/Tribunal, it was imperative for the legislature to ensure that redress should be available with the same convenience ....
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....ral public importance, is not a serious obstruction to the effective working of this Court. 36. This issue has already been subject matter of debate. In an Article by Shri T.R. Andhyarujina former Solicitor General of India, titled "Restoring the Character and Stature of the Supreme Court of India (2013) 9 SCC (J) 43)" learned author states that it was necessary to restore the character and stature of the Supreme Court. The jurisdiction of the Supreme Court should by and large be limited to matters of constitutional importance and matters involving substantial questions of law of general importance. The Supreme Court of India, like apex Courts in other jurisdictions, was not to be a final court to decide ordinary disputes between parties. The highest court has its unique assigned role. But after the year 1990, the Supreme Court is losing its original character and becoming a general court of appeal by entertaining and deciding cases which do not involve important constitutional issues or issues of law of national importance. The adverse effect of this trend is that matters of constitutional importance are not getting the due priority and are pending for several years. Reference ha....
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....nt should get more than two chances in litigation. It is further stated that "The Supreme Court of India must cease to be a mere court of appeal to litigants and a daily mentor of the Government, if it is to preserve its pristine character, dignity and stature comparable to the Supreme Court in other jurisdictions." The Article ends with observation "This requires a national debate by Judges, Lawyers, jurists and informed public." 37. In Mathai alias Joby v. George (2010) 4 SCC 358, this Court referred to the R.K. Jain Memorial Lecture delivered on 30th January, 2010 by Shri K.K. Venugopal, senior advocate to the effect that "an alarming state of affairs has developed in this Court because this Court has gradually converted itself into a mere court of appeal which has sought to correct every error which it finds in the judgments of the High Courts of the country as well as the vast number of tribunals8. The court has strayed from its original character as a constitutional court and the apex court of the country. Failure to hear and dispose of cases within reasonable time erode confidence of the litigants in the apex court. Reference was made to an Article by Justice K.K. Mathew to....
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....ded upon a local law i.e. a law made by the legislature of a State, etc., I do not see any harm befalling the nation, if the judgment of the High Court is to become final. At least in these areas of litigation, the time worn cliche "we are not final because we are infallible, but we are infallible only because we are final" might as well be extended to the decisions of the High Courts which are equally constitutional courts. 40. While there may be no lack of legislative competence with the Parliament to make provision for direct appeal to the Supreme Court from orders of Tribunals but the legislative competence is not the only parameter of constitutionality. It can hardly be gainsaid that routine appeals to the highest court may result in obstruction of the Constitutional role assigned to the highest court as observed above. This may affect the balance required to be maintained by the highest court of giving priority to cases of national importance, for which larger Benches may be required to be constituted. Routine direct appeals to the highest court in commercial litigation affecting individual parties without there being any issue of national importance may call for reconsidera....
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....ts report as far as possible within one year. Thereafter the matter may be examined by concerned authorities. 45. Action taken by the Central Government, after its consideration, may be placed on record. List the matter in November, 2017 before an appropriate Bench, preferably of three Judges to consider the above issue. 46. Hon'ble Mr. Justice Adarsh Kumar Goel pronounced the judgment of the Bench comprising Hon'ble Mr. Justice Anil R. Dave and His Lordship. 47. The appeal is allowed in terms of the signed Reportable judgment inter alia with following observations. We are thus of the view that in the first instance the Law Commission may look into the matter with the involvement of all the stakeholders. We make it clear that as far as heavy pendency in this Court on account of liberal exercise of jurisdiction Under Article 136 of the Constitution of India is concerned, we do not wish to make any comment as this is a matter in the discretion of the Court and it is for the Court to address this issue. Our discussion is limited to the consideration of desirability of providing statutory appeals directly to this Court from orders of Tribunals on issues not affecting natio....