TaxTMI 
TaxTMI 
2019 (7) TMI 2077
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....under. Respondent No. 2, namely, Gujarat Urja Vikas Nigam Ltd. (hereinafter referred to as "the procurer") is a holding company engaged in the business of bulk purchases from the power generators and supply to the distribution companies in the State of Gujarat. On 01.02.2006, the procurer initiated the process of bidding for supply of power on long term basis, by issuing a Request For Qualification ("RFQ" for short). Three separate bids for purchase of power in accordance with the provisions of Section 63 of the Electricity Act, 2003 were invited. Each of the three bids envisaged purchase of power to the maximum extent of 2000 Mega Watt ("MW" for short). The RFQ was followed by Request For Proposal ("RFP" for short) on 24.11.2006. The present matter concerns bid No. 2 in respect of which the appellant was selected as a successful bidder. 3. On being successful in the bidding process, the procurer issued a Letter of Intent ("LOI" for short) in respect of bid no. 2, to the appellant on 11.01.2007 for supplying 1000 MW power at the rate of Rs. 2.35 per Kwh. Consequently, the Power Purchase Agreement ("PPA" for short) came to be entered into between the procurer and the appellant, f....
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....ld not be finalized. The record would further reveal, that there was a long correspondence between the Government of Gujarat, the GMDC, the procurer and the appellant with regard to the commitment by the GMDC to supply coal to the appellant in respect of bid No. 2 and non-adherence by the GMDC to abide by the said commitment. The appellant addressed a communication dated 15.11.2008 specifically informing the procurer that the bid was on the basis of the assurance by the GMDC to supply coal. It also informed the procurer that though it was in a position to comply with all other conditions subsequent but they are unable to execute the FSA since the GMDC had not cooperated in the matter. Another communication was addressed by the appellant on 17.01.2009 reiterating that in the absence of FSA with the GMDC, the appellant will not be in a position to supply contracted capacity of power to GUVNL/the procurer in the absence of FSA with the GMDC. It further informed that the appellant shall have no other option than to terminate the PPA unless the coal supply comes from the GMDC from MorgaII coal block. However, it appears that, thereafter, there was an attempt to amicably settle the matte....
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....f of the appellant is that the bid which was submitted by the appellant in respect of bid No. 2 was on the basis of the commitment given to it by the GMDC that it will supply the coal. It is submitted that the PPA executed between the appellant and the procurer was on the premise that the GMDC would abide by its commitment. It is also submitted that since the GMDC had failed to abide by its commitment and had not executed the FSA with the appellant, there was a non-compliance with the conditions stipulated in Article 3.1.2 of the PPA and therefore the appellant was entitled to terminate the agreement, by giving 7 days notice in writing in accordance with the provisions of Article 3.4.2 of the PPA. So the only liability of the appellant was to pay the liquidated damages at the rate of Rs. 10 lakhs per Mega Watt of the contracted capacity, which is worked out to Rs. 100 crores for 1000 MW. 10. It is the submission of Mr. Jain, learned senior counsel, that the Commission and the Appellate Tribunal have grossly erred in holding that unless there was an agreement between the parties to the effect that there was non-compliance with the conditions mentioned in Article 3.1.2 of the PPA,....
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....3. Shri Ramachandran further submitted that the contract is required to be read as a whole and the provisions of the contract cannot be read in isolation. He, therefore, submits that the Commission as well as the Appellate Tribunal has rightly held that Article 3.4.2 and Article 14.1 and Article 14.2 have to be read together. Thus, no fault could be found with the reasoning given by the Commission as well as the Appellate Tribunal. Learned senior counsel, therefore, submits that the appeal has no merit and deserves to be dismissed. 14. For appraising the rival submissions it would be necessary to refer to certain clauses of the PPA: The relevant part of Article 3 reads thus: "3. Article 3: CONDITIONS SUBSEQUENT TO BE SATISFIED BY THE SELLER AND THE PROCURER 3.1 Satisfaction of conditions subsequent by the Seller 3.1.1 xxx 3.1.2 The seller agrees and undertakes to duly perform and complete the following activities within (i) Twelve (12) Months from the Effective Date or (ii) Fourteen (14) Months from the date of issue of Letter of Intent, whichever is later, unless such completion is affected due to the Procurer's failure to comply wit....
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....ended for the period of such Force Majeure event, subject to a maximum extension period of ten (10) Months, continuous or non-continuous in aggregate. Thereafter, this Agreement may be terminated by the Procurer or the Seller by giving a notice of at least seven (7) days, in writing to the Other Party." Since both the Commission and the Appellate Tribunal have referred to Article 14, we also reproduce the same. "14. ARTICLE 14 : EVENTS OF DEFAULT AND TERMINATION 14.1 Seller Event of Default The occurrence and continuation of any of the following events, unless any such event occurs as a result of a Force Majeure Event or a breach by Procurer of their obligations under this Agreement, shall constitute a Seller Event of Default: i) the failure to Commission any Unit by the date falling twelve (12) Months after its Scheduled Commercial Operation Date, or ii) after the commencement of construction of the Project, the abandonment by the Seller or the Seller's Construction Contractors of the construction of the Project for a continuous period of two (2) Months and such default is not rectified within thirty (30) days from the receipt of fir....
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.... of thirty (30) days, or (b) any winding up or bankruptcy or insolvency order is passed against the Seller, or (c) the Seller goes into liquidation or dissolution or has a receiver or any similar officer appointed over all or substantially all of its assets or official liquidator is appointed to manage its affairs, pursuant to Law, except where such dissolution or liquidation of the Seller is for the purpose of a merger, consolidation or reorganization and where the resulting entity has the financial standing to perform its obligations under this Agreement and creditworthiness similar to the Seller and expressly assumes all obligations of the Seller under this Agreement and is in a position to perform them; or ix) the Seller repudiates this Agreement and does not rectify such breach even within a period of thirty (30) days from a notice from the Procurer in this regard; or x) except where due to Procurer's failure to comply with its material obligations, the Seller is in breach of any of its material obligations pursuant to this Agreement or of any of the RFP Documents where the Procurer and Seller are parties, and such material breach is not rectified by the Sell....
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.... voluntarily or involuntarily the subject of any bankruptcy or insolvency or winding up proceedings and such proceedings remain uncontested for a period of thirty (30) days, or (b) any winding up or bankruptcy or insolvency order is passed against the Procurer, or (c) the Procurer goes into liquidation or dissolution or has a receiver or any similar officer appointed over all or substantially all of its assets or official liquidator is appointed to manage its affairs, pursuant to Law, except where such dissolution or liquidation of the Procurer is for the purpose of a merger, consolidation or reorganization and where the resulting entity has the financial standing to perform its obligations under this Agreement and has creditworthiness similar to the Procurer and expressly assumes all obligations of the Procurer under this Agreement and is in a position to perform them; or; vi) occurrence of any other event which is specified in this Agreement to be a material breach or default of the Procurer. 14.3 Procedure for cases of Seller Event of Default 14.3.1 Upon the occurrence and continuation of any Seller Event of Default under Article 14.1, the Procurer sha....
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.... mutandis. 14.4 Termination for Procurer Events of Default 14.4.1 Upon the occurrence and continuation of any Procurer Event of Default pursuant to Article 14.2 (i), the seller shall follow the remedies provided under Article 11.5.2. 14.4.2 Without in any manner affecting the rights of the Seller under Article 14.4.1, on the occurrence of any Procurer Event of Default specified in Article 14.2 the Seller shall have the right to deliver to the Procurer a Seller Preliminary Default Notice, which notice shall specify in reasonable detail the circumstances giving rise to its issue. 14.4.3 Following the issue of a Seller Preliminary Default Notice, the Consultation Period of ninety (90) days or such longer period as the Parties may agree, shall apply. 14.4.4 During the Consultation Period, the Parties shall continue to perform their respective obligations under this Agreement. 14.4.5. (i) After a period of seven (7) days following the expiry of the Consultation Period and unless the Parties shall have otherwise agreed to the contrary or the Procurer Event of Default giving rise to the Consultation Period shall have been remedied, the....
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.... "23. A party cannot claim anything more than what is covered by the terms of contract, for the reason that contract is a transaction between the two parties and has been entered into with open eyes and understanding the nature of contract. Thus, contract being a creature of an agreement between two or more parties, has to be interpreted giving literal meaning unless, there is some ambiguity therein. The contract is to be interpreted giving the actual meaning to the words contained in the contract and it is not permissible for the court to make a new contract, however reasonable, if the parties have not made it themselves. It is to be interpreted in such a way that its terms may not be varied. The contract has to be interpreted without any outside aid. The terms of the contract have to be construed strictly without altering the nature of the contract, as it may affect the interest of either of the parties adversely. [Vide United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, (2004) 8 SCC 644, and Polymat India (P) Ltd. v. National Insurance Co. Ltd., (2005) 9 SCC 174.] 24. In DLF Universal Ltd. v. Town and Country Planning Deptt., (2010) 14 SCC 1, this Court h....
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....here is the third category of documents made by laymen who have no knowledge of law or expertise in the field. The legal quality or perfection of the document is comparatively low in the third category, high in second and higher in first. No doubt, in the process of interpretation in the first category, the courts do make an attempt to gather the purpose of the legislation, its context and text. In the second category also, the text as well as the purpose is certainly important, and in the third category of the documents like wills, it is simply intention alone of the executor that is relevant. In the case before us, being a contract executed between the two parties, the court cannot adopt an approach for interpreting a statue. The terms of the contract will have to be understood in the way the parties wanted and intended them to be. In that context, particularly in agreements of arbitration, where party autonomy is the ground norm, how the parties worked out the agreement, is one of the indicators to decipher the intention, apart from the plain or grammatical meaning of the expressions and the use of the expressions at the proper places in the agreement." 18. Recently, this Cou....
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.... be made to construe commercial agreements broadly and one must not be astute to find defects in them, or reject them as meaningless." 47. In Union of India v. D.N. Revri & Co.{(1976) 4 SCC 147}, P.N. Bhagwati, J. (as he then was), speaking for the Bench of two Judges said in para 7 as under : (SCC p. 151) "7. It must be remembered that a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it. It would not be right while interpreting a contract, entered into between two lay parties, to apply strict rules of construction which are ordinarily applicable to a conveyance and other formal documents. The meaning of such a contract must be gathered by adopting a common sense approach and it must not be allowed to be thwarted by a narrow, pedantic and legalistic interpretation. ..." 48. Lastly, in Satya Jain v. Anis Ahmed Rushdie {(2013) 8 SCC 131}, Ranjan Gogoi, J., elucidated the well-established principles of the classic test of business efficacy to achieve the result of consequences intended by the parties acting as prudent businessmen. It was opined as....
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....vision for it in their agreement, they would testily suppress him with a common "Oh, of course!" ' Shirlaw v. Southern Foundaries (1926) Ltd. {(1939) 2 KB 206 : (1939) 2 All ER 113 (CA)}, KB p. 227." * * * * "...An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, although tacit, formed part of the contract which the parties made for themselves." Trollope and Colls Ltd. v. North West Metropolitan Regl. Hospital Board {(1973) 1 WLR 601 : (1973) 2 All ER 260 (HL)}, WLR p. 609 C-D : All ER p. 268 a-b.' (emphasis in original) 35. The business efficacy test, therefore, should be applied only in cases where the term that is sought to be read as implied is such which could have been clearly intended by the parties at the time of making of the agreement. ..." After reproducing the paras from earlier judg....
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....only if by a plain literal interpretation of the term in the agreement or the contract, it is not possible to achieve the result or the consequence intended by the parties acting as prudent businessmen. 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. If the contract makes business sense without the term, the courts will not imply the same. It is amply clear that courts can imply a clause only if it is found that the plain and literal meaning given to the expression used in the terms is not in a position to make out the intention of the parties. Reading an unexpressed term in an agreement would be justified on the basis that such a term was always and obviously intended by and between the parties thereto. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract. It is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them. It must have been a ter....
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.... as provided in Article 3.1.2 within the period specified in the said Article, an option is available both to the seller or the procurer to terminate the PPA. The only requirement is that, in either of the situations, the liability would be only on the seller to pay the liquidated damages at the rate of Rs. 10 lakhs per MW. 23. The Appellate Tribunal has held that only in the event there is an agreement between the parties that any of the terms specified in Article 3.1.2 is violated, the provisions of Article 3.4.2 can be invoked. 24. It will be relevant to quote certain observations made in the judgment of the Appellate Tribunal which are as follows: "85. The perusal of Article 3.1.2 of the PPA would make it clear that the Appellant undertook to perform the condition subsequent to the execution of the Power Purchase Agreement. The Seller's right to terminate the Power Purchase Agreement as mentioned above can only arises upon the Procurer's default in complying with its obligation under Article 3.1.2. ... 89.(iii) Article 3.4.2 provides a situation under which the Power Purchase Agreement can be terminated either by the Procurer or by the Seller on....
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.... to inserting a totally new condition in Article 3.4.2 of the PPA and would amount to re-writing the contract between the parties; it would do total violence to the provisions of Article 3.4.2 of the PPA. It cannot be said to be a condition which is either reasonable or equitable; it also cannot be said to be a condition which is necessary to give business efficacy to the contract; it also cannot be said to be a test which justifies the Officious Bystander Test; it also cannot be said to be a condition which is capable of the clear expression; it is also not a condition which does not contradict any expressed terms of the contract. On the contrary, is a condition which would totally change the tenor of Article 3.4.2 of the PPA. We are, therefore, of the considered view that the Appellate Tribunal has grossly erred in coming to the conclusion that Article 3.4.2 of the PPA could be invoked only in the event that there is an agreement with regard to violation of any of the conditions in Article 3.1.2. 27. The Tribunal, while arriving at its finding, has held that agreement has to be read as a whole and if it is read as whole and if Articles 3.4.2 and 3.1.2 and Article 14 are harmon....
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.... Again, while interpreting the provisions of Section 47 and Order XXI, Rule 2 of the CPC, this Court in the case of Sultana Begum vs. Prem Chand Jain reported in AIR 1997 SC 1006, has observed thus: "12....... On a conspectus of the case law indicated above, the following principles are clearly discernible: (1)It is the duty of the Courts to avoid a head on clash between two Sections of the Act and to construe the provisions which appear to be in conflict with each other in such a manner as to harmonize them. (2)The provisions of one Section of a statute cannot be used to defeat the other provisions unless the Court, in spite of its efforts finds it impossible to effect reconciliation between them. (3)It has to be borne in mind by all the Courts all the time that when there are two conflicting provisions in an Act, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This is the essence of the rule of "harmonious construction". (4)The Courts have also to keep in mind that an interpretation which reduces one of the provisions as a "dead letter" or "useless lumber" is ....
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....pliance with any of the conditions in Article 3.1.2. The power is available to both procurer and seller. However, in either of the cases i.e. termination by seller or termination by procurer, there is a specific provision of damages at the rate of Rs 10 lakhs per MW, whereas consequences of the termination in Articles 14.1 and 14.2 are totally different. As such, effect will have to be given to both the provisions, which are independent of each other. 31. We find, that both the Commission and the Appellate Tribunal have grossly erred in arriving at finding that termination can be effected under Article 3.4.2 only if there is an agreement with regard to non-compliance of condition under Article 3.4.2 by both the parties. If the finding of the Appellate Tribunal is accepted, it will be amounting to making provisions of Article 3.4.2 a dead letter and rendering them otiose. 32. We further find that the Commission as well as the Appellate Tribunal has lost sight of one another important principle of law. This Court in the case of J.K. Cotton Spinning and Weaving Mills Co. Ltd. vs. State of Uttar Pradesh, reported in AIR 1961 SC 1170, while construing the provisions of Clause 5(a)....
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....GMDC, who has been allocated Morga II coal block in the State of Chhatisgarh. Further with a view to ensure supply of fuel with optimum techno-commercial parameters, we have also tied up supply of imported coal with M/s Coal Orbis Trading GMBH, Germany and M/s Kowa Company Ltd. and accordingly executed separate MoUs with them dated 9th Sept 2006 and 21st Dec 2006 respectively." 37. In the brief summary of the Project given in the said bid document, it has been specifically mentioned by the appellant that the bid was submitted on the basis of indigenous coal supply committed by the GMDC. The bid documents also form part of the PPA between the parties. 38. It will be relevant to note that after the communication dated 15.11.2008 by the appellant to the procurer thereby conveying its intention to terminate the PPA in the wake of pending FSA with the GMDC for supply of power under bid No. 2, the Managing Director of Gujarat Urja Vikas Nigam Ltd., the procurer, had addressed a communication to the Principal Secretary, Energy and Petrochemicals Department, Government of Gujarat, requesting it to issue suitable directions since the issue regarding allocation of coal from the mines a....
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..../s. APL to ensure supply of 1000 MW power to GUVNL at competitive rate to meet future demand of the state. Further Government of Gujarat is requested to kindly issue suitable directives to GUVNL for further necessary action in the matter." 41. It could thus be seen that, even the procurer was aware that the bid of the appellant was on the basis of the commitment by the GMDC to supply the indigenous coal. 42. In view of the aforesaid, it could be seen that the appellant as well as the procurer and also the Government of Gujarat clearly understood that the bid submitted by the appellant was on the basis of the commitment of the GMDC to supply indigenous coal to it. It will be pertinent to mention that the appellant had sent notices intimating its intention to terminate the PPA on account of non-finalisation of FSA with the GMDC and also terminate the contract much prior to commissioning of the project and commencement of power supply to the procurer. Annexure III to the PPA would itself show that expected commercial date of operation is January, 2012, whereas termination is vide notice dated 28.12.2009. The materials placed on record would reveal that the appellant has supplied....
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....ination was legal and valid the question arises as to what relief is to be granted to the appellant. On the basis of the Order of the Commission and the Appellate Tribunal, the appellant is continuing supply of electricity to the respondent No. 2, the procurer, though it is the contention of the appellant that it has been sustaining losses by doing so. 46. It will be relevant to refer to certain subsequent developments. The appellant had approached this Court by Interlocutory Application No. 4 of 2015 for the following reliefs: "(a) to stay the operation of the impugned judgment dated 7.9.2011 and suspend further supply of electricity in terms of the PPA during the pendency of this Appeal. (b) in the alternative to prayer (a) above, during the pendency of the accompanying Civil Appeal the Hon'ble Court may direct the Respondent(s) to pay the tariff as per CERC norms for tariff on cost plus basis; and also make the payment from the date of the supply of power under the PPA of the differential amount between the PPA tariff and the tariff as per CERC norms for tariff on cost plus basis on the such terms and condition as this Hon'ble court deems fit as just and pro....
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....ning the coal from the open market would also be required to be taken into consideration. The appellant would also be entitled to the interest on the delay of payment after it receives payment upon determination of the rate which would be determined by the Central Electricity Regulatory Commission ("CERC" for short). However, we find that it will not be appropriate for us to go into that exercise. 50. Section 62 of the Electricity Act, 2003, provides entire mechanism for determination of the tariff by the CERC. It will also be relevant to note that the CERC (Terms and Conditions of Tariff) Regulations 2009 also consider various factors which are required to be taken into consideration by the CERC while determining the compensatory tariff. We find that it will be appropriate to relegate the parties to CERC for determination of the compensatory tariff payable to the appellant from the date of termination of the PPA. After such determination, the procurer would be entitled to adjust the amount if already paid in accordance with affidavit dated 23.11.2015, from the amount so determined by the CERC. 51. Hence, the following order: (i) The appeal is allowed. (ii) ....