TaxTMI 
TaxTMI 
2017 (10) TMI 1549
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....of the EA. The tariff is determined under Section 62 of the EA. However in a scenario such as the present case, the determination is as per the provisions of Section 63 of the EA, which reads as under: "Section 63. Determination of tariff by bidding process. - Notwithstanding anything contained in section 62, the Appropriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government." 3. In order to facilitate the implementation of the project the PSEB incorporated Nabha Power Limited ('NPL/Appellant') on 9.4.2007 as a special purpose vehicle ('SPV') for implementation of the project and the successful bidder was to acquire 100 per cent shareholding of the NPL and enter into a 25 year Power Purchase Agreement ('PPA') with PSEB. 4. It may be noticed for the purpose of completion of facts that the first respondent, Punjab State Power Corporation Limited, ('PSPCL') is the successor entity of the erstwhile PSEB subsequent to the unbundling of PSEB in accordance with the Punjab Power Sector Reforms Transfer Scheme, 2010, while the second respondent is the Pu....
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....obligations, various issues arose, some of which were resolved. However, in respect of the amounts payable to the appellant, the controversy commenced, and remained right from the first invoice. It is the case of the appellant, that the first respondent made deductions from the amount due and payable under the invoices, on the following accounts: "i. Component of the cost of purchasing coal comprising washing related costs including washery charges and cost of coal towards loss of quantity on account of washing (yield loss); ii. Consideration of mid-point of GCV of ROM coal onequilibrated GCV basis ('EGCV') to calculate energy charges; iii. Denial of road transportation cost - at the plant-end and at the mine-end. iv. Denial of Liaising charges, denial of Transit and handlinglosses and denial of Third party coal testing charges; and v. Non-payment of Capacity Charges for the period from20.02.2014 to 03.03.2014 when the availability was declared on non-linkage (alternate) coal." 9. The aforesaid gave rise to a cause for the appellant to file Petition No.52 of 2014 under Section 86(1)(b) & (f) of the EA before the State Commission seeking relief....
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....ct preparatory activities should be completed by the procurer, or authorized representative of the procurer, simultaneously with bid process adhering to the milestones as indicated below: (i) Site identification and land acquisition: If land isrequired to be acquired for the power station, the notification under section 4 of the Land Acquisition Act, 1894 should have been issued before the publication of RFQ. The notification under section 6 of the Land Acquisition Act, 1894 should have been issued before the issue of RFP. If the provisions of section 17 of the Land Acquisition Act, 1894 regarding emergency have not been applied, the Award under the Land Acquisition Act should have been declared before the PPA becomes effective. (ii) Environmental clearance for the power station: RapidEnvironmental Impact Assessment (EIA) report should be available before the publication of RFQ. Requisite proposal for the environmental clearance should have been submitted before the concerned administrative authority responsible for according final approval in the Central/State Govt., as the case may be, before the issue of RFP. Environmental clearance should have been obtained be....
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....cost of coal and Gross Calorific Value ('GCV') of coal, including its constituents. This is the reason stated for the relevant formula under Article 1.2.3 of Schedule 7 of the PPA, which will be discussed hereafter. 13. It is the case of the appellant that on 16.9.2009, prior to the bid date, PSPCL disclosed the coal quality in its pre-bid clarification. The project was located at a distance of more than 1,000 kilometers from the SECL mine and the coal arranged by the respondent contained more than 34 per cent ash. The project, thus, came under the ambit of Ministry of Environment and Forest (for short 'MoEF') Notification of 1997, making it mandatory for the coal to be washed for the use of generation of electricity energy. PSPCL, also mandated that washing of coal was to be arranged by the successful bidder (pre-bid clarification). The query raised by the appellant was as to whether the coal to be supplied for the project, was washed coal or unwashed coal (query No.6). It is the plea of the appellant that, thus, the reference to coal and fuel in the PPA, including the energy charges formula, could only refer to washed coal and thus the actual cost of purchasing, transporting a....
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.... of unloading at the project. The mere transfer of title of unwashed coal, which cannot be used in generation of electricity charges is, thus, pleaded not to imply delivery of coal to the project. 19. On the same principle, there is a third aspect of the claim of transportation cost of coal with respect to the first mile and the last mile. The first mile is on account of the unwashed coal from the mine to the washery, while the last mile is stated to have been incurred for carriage of coal from the nearest railway station to the project, on account of incomplete land acquisition by the Government of Punjab on behalf of the PSPCL. The transportation has to be reimbursed irrespective of mode. In a Case-2 project, the risk towards land is not assigned to the bidder but is of the PSPCL. 20. There are also certain other linked charges qua coal in the context of transit and handling charges, third party testing charges and liaising charges. 21. In the synopsis filed, the appellant has claimed even interest on the disputed energy charges in view of Article 11.3.4 read with Article 11.6.8 requiring payment of interest/late payment surcharge on the disputed component of the monthly....
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....on formula, for monthly energy charges, is claimed to provide for only the purchase price paid to SECL and not any other expenditure incurred by the appellant. 24. The first respondent contends that the definition of the term 'fuel supply agreement' refers to the agreement between the appellant and the fuel supplier, i.e., SECL, and thus, the transaction of purchase referred to in Clause 1.2.3 of Schedule 7 of the PPA is identifiable to the purchase in the definition of the fuel supply agreement. 25. The attention of the Court was also invited to "Project Documents", which reads as under: ""Project Documents" mean a) Construction Contracts; b) Fuel Supply Agreements including the FuelTransportation Agreement; c) O&M contracts; d) RfP and RfP Project Documents; and e) any other agreements designated in writing as such,from time to time, jointly by the Procurer and the Seller;" 26. It is, thus, pleaded that there is no separate agreement for 'washing' included in this list of what constituted "Project Documents." The delivery point under the fuel supply agreement is the loading end of the colliery whereafter the title and....
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....adistinction to the expression "to and at the project" which is used in relation to the cost of coal. Thus, with these two different expressions used, they obviously mean two different things. In support of his proposition reliance is placed on Life Corporation of India & Anr. vs. Dharam Vir Anand (1998) 7 SCC 348), wherein it was observed as under: "6. ..... In construing a particular Clause of the Contract it is only reasonable to construe that the word and the terms used therein must be given effect to. In other words one part of the Contract cannot be made otiose by giving a meaning to the policy of the contract. Then again when the same Clause of a contract uses two different expressions, ordinarily those different expressions conveying one and the same meaning." 30. Qua the issue of road transportation charges, a reference has been made to the RFP where under the heading of "Activities/Milestones to be completed before issue of RfP as per Bidding guidelines" at serial No.3 only transportation through Railways has been envisaged: Sl. No. Project Inputs/clearances Parameters Status of activities/milestones 3. Fuel Transportation For Coal approx.....
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....ontract made for the use of the jetty to a ship, for discharge of its cargo. The name of the ship was 'The Moorcock'. It was observed as under: "Bowen, L.J. : ....Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an express contract or an express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side; and I believe that if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended a....
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....igate vs. Union Manufacturing Co. (Ramsbottom) Ltd. , Scrutton L.J., discussed the developments in respect of these principles and observed as under: "These principles, however, have been clearly established: The first thing is to see what the parties have expressed in the contract; and then an implied term is not to be added because the Court thinks it would have been reasonable to have inserted it in the contract. A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, "What will happen in such a case," they would both have replied, "Of course, so and so will happen; we did not trouble to say that; it is too clear." Unless the Court comes to some such conclusion as that, it ought not to imply a term which the parties themselves have not expressed." .... .... .... .... .... "Is that a necessary implication? If this matter had been mooted at the time when the contract was being negotiated, I expect that the parties would at once have disagreed as to what the position w....
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....ent from the other. Nor did the court ask: Is it necessary to give business efficacy to the transaction? If asked, the answer would have been: "It is reasonable, but it is not necessary." The judgments in all those cases show that the courts implied a term according to whether or not it was reasonable in all the circumstances to do so. Very often it was conceded that there was some implied term. The only question was: "What was the extent of it?" Such as, was it an absolute warranty of fitness, or only a promise to use reasonable care? That cannot be solved by inquiring what they both intended, or into what was necessary. But only into what was reasonable. This is to be decided as matter of law, not as matter of fact. Lord Wright pulled the blinkers off our eyes when he said in 1935 to the Holdsworth Club: "The truth is that the court .... decides this question in accordance with what seems to be just or reasonable in its eyes. The judge finds in himself the criterion of what is reasonable. The court is in this sense making a contract for the parties - though it is almost blasphemy to say so." (Lord Wright of Durley, Legal Essays and Addresses (1939), p. 259.) In ....
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....a different view and, after referring to some out of the "stacks" of relevant cases, said, at p. 670: "...in none of them did the court ask: what did both parties intend? If asked, each party would have said he never gave it a thought: or the one would have intended something different from the other. Nor did the court ask: Is it necessary to give business efficacy to the transaction? If asked, the answer would have been: 'It is reasonable, but it is not necessary.' The judgments in all those cases show that the courts implied a term according to whether or not it was reasonable in all the circumstances to do so .... This is to be decided as matter of law, not as matter of fact." I have respectfully to say that I prefer the views of the majority in the Court of Appeal. Bowen L.J. said in the well known passage in The Moorcock, 14 P.D. 64, 68: "In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; ... to make each party promise in law as much, at all events, as it must have been in the contem....
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....th some trepidation to suggest that terms implied by law could be brought within one comprehensive category - in which the courts could imply a term such as was just and reasonable in the circumstances: see Greaves & Co. (Contractors) Ltd. v. Baynham Meikle & Partners [1975] 1 W.L.R. 1095, 1099-1100; Liverpool City Council v. Irwin [1976] Q.B. 319, 331-332. But, as I feared, the House of Lords in Liverpool City Council v. Irwin [1976] 2 W.L.R. 562, have rejected it as quite unacceptable. As I read the speeches, there are two broad categories of implied terms. (i) The first category The first category comprehends all those relationships which are of common occurrence. Such as the relationship of seller and buyer, owner and hirer, master and servant, landlord and tenant, carrier by land or by sea, contractor for building works, and so forth. In all those relationships the courts have imposed obligations on one party or the other, saying they are "implied terms." These obligations are not founded on the intention of the parties, actual or presumed, but on more general considerations: see Luxor (Eastbourne) Ltd. v. Cooper [1941] A.C. 108, 137 by Lord Wright; Lister v.....
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....r mind to the contingency which has arisen. These are the "officious bystander" types of case: see Lister v. Romford Ice and Cold Storage Co. Ltd. [1957] A.C. 555, 594, by Lord Tucker. In such cases a term is not to be implied on the ground that it would be reasonable: but only when it is necessary and can be formulated with a sufficient degree of precision. This was the test applied by the majority of this court in Liverpool City Council v. Irwin 1 [1976] Q.B. 319. and they were emphatically upheld by the House on this point: see [1976] 2 W.L. R. 562, 571D-H by Lord Cross of Chelsea; p. 578G-579A by Lord Edmund-Davies. There is this point to be noted about Liverpool City Council v. Irwin. In this court the argument was only about an implication in the second category. In the House of Lords that argument was not pursued. It was only the first category. Into which of the two categories does the present case come? I am tempted to say that a solus agreement between supplier and buyer is of such common occurrence nowadays that it could be put into the first category: so that the law could imply a term based on general considerations. But I do not think this would be f....
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....ss transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men.. . ." It is because the implication of a term rests on the presumed intention of the parties that the primary condition must be satisfied that the term sought to be implied must be reasonable and equitable. It is not to be imputed to a party that he is assenting to an unexpressed term which will operate unreasonably and inequitably against himself. In Reigate v. Union Manufacturing Co. (20), Scrutton LJ said: "A term can only be implied if it is necessary in the business sense to give efficacy to the contract i.e., if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, 'What will happen in such a case?', they would both have replied: 'Of course, so and so will happen; we did not trouble to say that; it is too clear."' In Shirlaw v. Southern Foundries (1926) Ltd. (21), MacKinnon LJ said: "Prima facie that which in any contract is ....
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....inst the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749. (5) The "rule" that words should be given their "natural andordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201: "if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, ....
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.... the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means. 19. The proposition that the implication of a term is an exercisein the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority. In Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 , 609 Lord Pearson, with whom Lord Guest and Lord Diplock agreed, said: "the court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court's function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have inten....
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....ry", is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means. 23. The danger lies, however, in detaching the phrase "necessaryto give business efficacy" from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case, at p 459, when he said that in that case an implication was necessary "to give effect to the reasonable expectations of the parties". 24. The same point had been made many years earlier by BowenLJ in his well known formulation in The Moorcock (1889) 14 PD 64, 68: "In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men ..." 25. Likewise, th....
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....ffective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract." 27. The Board considers that this list is best regarded, not asseries of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of "necessary to give business efficacy" and "goes without saying". As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant." 46. There were, once again, parallel developments in India during this period in various High Courts but the views of this Court can be found expression in M/s. Dhanrajama....
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....by Bowen, L.J. in Moorcock [(1889) LR 14 PD 64 (CA)] . This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied-the bare minimum to achieve this goal. If the contract makes business sense without the term, the courts will not imply the same. The following passage from the opinion of Bowen, L.J. in Moorcock [(1889) LR 14 PD 64 (CA)] sums up the position: (PD p. 68) "... In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances." 34. Though in an entirely different context, this Court in Un....
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....ad into the contract including the 'business efficacy' test. It also sought to incorporate 'The Officious Bystander Test' [Shirlaw vs. Southern Foundries (supra)]. This test has been set out in B.P. Refinery (Westernport) Proprietary Limited vs. The President Councillors and Ratepayers of the Shire of Hastings (supra) requiring the requisite conditions to be satisfied: (1) reasonable and equitable; (2) necessary to give business efficacy to the contract; (3) it goes without saying, i.e., The Officious Bystander Test; (4) capable of clear expression; and (5) must not contradict any express term of the contract. The same penta-principles find reference also in Investors Compensation Scheme Ltd. vs. West Bromwich Building Society (supra) and Attorney General of Belize and Ors. vs. Belize Telecom Ltd. and Anr. (supra). Needless to say that the application of these principles would not be to substitute this Court's own view of the presumed understanding of commercial terms by the parties if the terms are explicit in their expression. The explicit terms of a contract are always the final word with regards to the intention of the parties. The multi-clause contract inter se the parties has....
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....expressed in kCal/kwh and is equal to the Quoted Net Heat Rate of the Contract Year in which month "m" occurs, as provided in Schedule 11. FCOALn is the weighted average actual cost to the Seller of purchasing, transporting and unloading the coal most recently supplied to and at the Project before the beginning of month "m" (expressed in Rs./MT in case of domestic coal) PCVn is the weighted average gross calorific value of the coal most recently delivered to the Project before the beginning of month "m" expressed in kcal/kg." (emphasis supplied) 53. The variable component of 'FCOALn' refers to the 'actual' cost to the seller/appellant of the three components, i.e., (a) purchasing; (b) transporting; and (c) unloading the coal. The first respondent is thus right that there may be different aspects before the coal is used in the plant which are not required to be reimbursed by the first respondent. The illustrations given by the first respondent are of sizing of coal, crushing of coal, sprinkling and moisturisation of coal for stacking and storage, etc. being activities required to be undertaken prior to generation. Thus, there is no hesitation in our concludin....
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....nal property to A' will be construed, reddendo singula singulis by applying 'devise' to 'real' property and 'bequeath' to 'personal' property and in the sentence: 'If any one shall draw or load ant sword or gun' the word 'draw' is applied to 'sword' only and the word 'load' to gun only, because it is impossible to load a sword or draw a gun. " 57. The aforesaid also refers to Koteswar Vittal Kamath v. K. Rangappa Balia & Co. , which in turn has referred to the Black's Interpretation of Laws to define this expression as: "Where asentences in a statue contains several an tecedents and several consequences, they are to be read distributively; that is to say, each phrase or expression is to be referred to its appropriate object." 58. We have thus, also endeavoured to read the provision distributively, by applying each object, to the appropriate subject. Thus, the relevant preposition has been applied to the relevant activity. 59. Once we obtain clarity on the aforesaid formula for calculation of the energy charges, the prior activity of 'washing', before receiving the coal at the project site would be....
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....the transportation cost, once again, what is sought to be excluded is taking the coal for 'washing' as well as the last mile to the project, on account of the Railway siding not being located at the project site for a certain specified period of time. It is for that period of time that the actual transportation cost through road is sought to be recovered by the appellant. 64. We fail to appreciate as to how these costs can be excluded, as the transportation costs to the project site have to be compensated to the appellant. It is not qualified by the methodology of transfer, i.e., railways or road. It is also a matter of necessity, since the railway siding had not reached the project site due to some complications in acquisition of land. It is really the transportation cost from point to point which would be involved and the mere mention in the RFP under project related activity/milestone about Railway siding and the Railway lines from nearby station to site cannot imply that the Railways is the only mode of transportation when the siding has not been made, albeit on account of land acquisition problems. 65. The plea of the first respondent that despite the absence of rail sid....
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....9. We are, thus, of the view that the reading of the energy formula leads to only one conclusion that all costs of coal up to the point of the project site have to be included and the Calorific Value of the coal has to be taken as at the project-site. 70. We may notice that there are certain other essential costs sought to be claimed by the appellant such as the transit and handling losses, third party testing charges, liaising charges. We have already held that the formula contains only three elements and thus, the appellant cannot be permitted to plead that any other element, other than those would also incidentally form a part of the formula. In fact, such claims would be hit by RFP clause 2.7.1.4(3) and the energy charges have to be calculated only on the basis of the formula understood in a business sense. Thus, these claims are rejected. 71. Last but not the least is the claim for interest. It is undisputed that no such claim has been laid so far, at any stage. The appellant claims to rely upon clause 11.3.4 read with clause 11.6.8. We have extracted the relevant clause aforesaid. No doubt there is a provision for a late payment surcharge in the event of delay in paymen....