Supreme Court of India
KARNATAKA POWER TRANSMISSION CORPORATION LIMITEDversusJSW ENERGY LIMITED (EARLIER KNOWN AS JINDAL THERMAL POWER COMPANY LIMITED & JINDAL TRACTABEL POWER COMPANY LIMITED) & ORS.
- Citation
- 2022 INSC 1219
- Decided
- 22 November 2022
- Disposal
- Disposed off
- Bench
- K M JOSEPH
Holding
No contract was concluded within the meaning of the proviso to Section 27(2) of the Karnataka Electricity Reforms Act, 1999, as the parties were not ad idem on essential terms and the PPA had not been finalised before the Act commenced.
Summary
The Supreme Court examined whether a Power Purchase Agreement (PPA) between Karnataka Power Transmission Corporation Ltd (KPTCL) and JSW Energy Ltd (formerly Jindal Thermal Power Co Ltd) was a "concluded contract" under the proviso to Section 27(2) of the Karnataka Electricity Reforms Act, 1999, which would exempt it from the Commission's tariff‑regulation power. The Court held that the parties were not ad idem on essential terms such as tariff, tenure and other conditions, and that the word "finalise" in the Government Order of 12‑May‑1999 indicated that the PPA had not been executed before the Act came into force on 1‑June‑1999. Consequently, no contract was concluded within the meaning of the proviso, and the Commission’s jurisdiction to determine tariff remained intact. The Court also set aside the High Court’s finding that the plant was an Independent Power Producer (IPP) and remitted the matter for reconsideration of the remaining issues. The appeal was partly allowed, the finding of a concluded contract was overturned, and the respondent was ordered to pay Rs 50 crore to the appellant.
Issues considered
- Whether a Power Purchase Agreement (PPA) between KPTCL and the first respondent was a "concluded contract" within the meaning of the proviso to Section 27(2) of the Karnataka Electricity Reforms Act, 1999, thereby exempting it from the Commission’s tariff‑regulation power.
- Whether the parties were ad idem on all essential terms (tariff, term, quantum, penalty, escrow, etc.) before 1‑June‑1999.
- Whether the status of the first respondent’s plant is that of an Independent Power Producer (IPP) or a Captive Power Plant (CPP).
- Whether the Karnataka Electricity Regulatory Commission’s tariff determination was perverse, arbitrary or made without application of mind.
- Whether principles of promissory estoppel or legitimate expectation apply to the parties.
Legislation cited
- Electricity (Supply) Act, 1948s. 28, s. 43A, s. 44
- Indian Contract Act, 1872s. 10, s. 2
- Karnataka Electricity Reforms Act, 1999s. 14, s. 17(1), s. 18, s. 19, s. 25(3), s. 27, s. 27(2), s. 41, s. 5
- Securities and Exchange Board of India Act, 1992
Subjects
Power Purchase AgreementConcluded contractKarnataka Electricity Reforms ActTariff regulationElectricity regulatory commissionContract formationAd idemIndependent Power ProducerCaptive Power PlantPromissory estoppelLegitimate expectationAppellate jurisdiction
Judgment
[2022] 12 S.C.R. 937 937
KARNATAKA POWER TRANSMISSION CORPORATION A
LIMITED
v.
JSW ENERGY LIMITED (EARLIER KNOWN AS JINDAL
THERMAL POWER COMPANY LIMITED & JINDAL
TRACTABEL POWER COMPANY LIMITED) & ORS. B
(Civil Appeal No. 8714 of 2022)
NOVEMBER 22, 2022
[K. M. JOSEPH, ANIRUDDHA BOSE AND
HRISHIKESH ROY, JJ.] C
Karnataka Electricity Reforms Act, 1999 – s.18, Explanation
to s.19, s.25(3) r/w s.17(1) and proviso to s.27(2) – Power Purchase
Agreement (PPA) – The Act came into force with effect from
01.06.1999 – Under s.27 of the Act, unless there was a ‘concluded
contract’ as on 01.06.1999, the Karnataka Electricity Regulatory D
Commission was to regulate the tariff – Whether before the Act came
into force, there was a concluded contract between the parties, and
therefore such a contract could not be unsettled by the regulatory
regime under the Act – Held: The parties contemplated a written
Power Purchase Agreement (PPA) containing various details apart
E
from the tariff rate and the tenure – The parties were not ad idem as
regards the issues which were expressly left open for negotiations –
The State Government (GoK) also contemplated ‘finalising’ a PPA –
The word ‘finalising’ and the word ‘PPA’, both of which did not
take place before 01.06.1999 resulted in a situation where a contract
could not be said to be concluded even within the meaning of the F
proviso to s.27(2) of the Act – This is not even a case where parties
were ad idem on all the essential aspects, which go into the formation
of a complex contract as involved in the facts of this case – On
facts, there was no concluded contract and what is more, a PPA
was not a mere desire but an indispensable requirement to conclude
G
the terms – It is clear as day light that all through the parties
undoubtedly contemplated entering into a power purchase agreement
– From the subject matter of the contract, the position of the parties,
the implications of the working of the contract and more importantly,
the intention of the parties, it was clear that there was a concluded
contract upon negotiations and correspondence, culminating in the H
937
938 SUPREME COURT REPORTS [2022] 12 S.C.R.
A Government Order 12.05.1999 – Even the GO dated 12.05.1999
expressly contemplated only a permission by the GoK to the KEB to
finalise “a PPA” for the purchase of surplus power – The word
“finalise” in the context of the PPA cannot be played down in the
context of the previous correspondence at any rate – It was, in fact,
also contemplated that the PPA which was to be finalised must after
B
finalisation be submitted again to the government – GoK was
thereafter to grant its approval – This cannot be overlooked.
Contract Act, 1872 – s.10 – It is not essential to form a
contract, that it should be in writing – Where a law stipulates that a
contract be in writing in which case a contract must be reduced to
C writing.
Contract Act, 1872 – ss.2 and 10 – Concluded contract –
Held: In order that there must be a contract concluded, there must
be a proposal made, which must be accepted – There must be
consideration for the promise – The proposal must be accepted,
D which must be communicated – The acceptance must be unqualified
– The parties can be said to have entered into a contract or a contract
would be said to be concluded only when they are ad idem on all the
essential terms of the contract – If the proposals containing the
essential terms have been accepted, and the acceptance is
E communicated and, if the other conditions in s.2 are complied with,
viz., that is there is consideration and the contract is enforceable in
law, within the meaning of s.10, it would lead to the creation of a
concluded contract.
Karnataka Electricity Reforms Act, 1999 – proviso to s.27(2)
F – Concluded contract within meaning of the proviso to s.27(2) –
Held: The proviso to s.27(2) when it uses the words ‘contracts
concluded’, does not use the words ‘contracts concluded as regards
tariffs’ – There are various other aspects about which the parties
must be ad idem – The rate, the term and quantum are integrally
interconnected with other terms – There cannot be concluded
G contract without parties being ad idem about those terms.
Karnataka Electricity Reforms Act, 1999 – s.41 – Appeals
against order of the Karnataka Electricity Regulatory Commission
– Any person aggrieved by any decision or order of the Commission
can file appeal to the High Court, on questions of law arising out
H of such order – Held: A Right of Appeal is a creature of a Statute –
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 939
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS.
The right can be qualified or conditioned – The ambit of the appellate A
power is to be discerned from the terms of the Statute – A ‘question
of law’ is not the same as a ‘substantial question of law’ – However,
when the Statute insists on a ‘question of law’ to maintain an appeal,
the Appellate Body stands constrained to that extent – Appeal.
Electricity Laws – Karnataka Electricity Regulatory B
Commission – The Commission is an Expert Body – Interference
with its findings cannot be sustained, to begin with, if it is bereft of
reasons – Findings of such a body must receive due deference –
Perversity in the sense of findings, which are wholly without basis
or material or which no person with the professed skills would arrive
at, may merit interference – A finding, which ill squares with a clear C
statutory injunction, would leave the door ajar for overturning the
finding.
Disposing of the appeals, the Court
HELD:1.1. In the instant case, a golden thread, which runs D
through the correspondence is that, both the Karnataka State
Electricity Board (KEB), the Government of Karnataka (GoK)
and the appellant and the first respondent, did contemplate the
execution of the Power Purchase Agreement (PPA). The
correspondence after 01.06.2000 also, unerringly, points to the
fact that parties did not view the PPA as a mere desire. They E
clearly proceeded on the footing that the terms of the agreement
must be evidenced in writing. Quite clearly, the High Court erred
in not bearing in mind the contents of the communications and
their true purport. [Para 77][1008-F-G]
2. In order that there must be a contract concluded, F
undoubtedly, there must be a proposal made, which must be
accepted. There must be consideration for the promise. The
proposal must be accepted, which must be communicated. The
acceptance must be unqualified. This is an over simplification of
a complex process. The parties can be said to have entered into G
a contract or a contract would be said to be concluded only when
they are ad idem on all the essential terms of the contract. If the
proposals containing the essential terms have been accepted,
and the acceptance is communicated and, if the other conditions
in Section 2 of the Contract Act are complied with, viz., that is
H
940 SUPREME COURT REPORTS [2022] 12 S.C.R.
A there is consideration and the contract is enforceable in law, within
the meaning of Section 10 of the Act, it would lead to the creation
of a concluded contract. [Para 78][1009-C-E]
3. The proviso to Section 27(2) of the Act when it uses the
words ‘contracts concluded’, does not use the words ‘contracts
B concluded as regards tariffs’. A contract of the nature, this Court
is concerned with, cannot be said to consist only of a rate and the
term or even the quantum included. In a contract of this nature,
there are various other aspects about which the parties must be
ad idem. The rate, the term and quantum are integrally
interconnected with other terms. There cannot be concluded
C contract without parties being ad idem about those terms. [Para
79][1012-B-C]
4. The parties contemplated a written PPA containing
various details apart from the tariff rate and the tenure. The
parties were not ad idem as regards the issues which were
D expressly left open for negotiations in the communication dated
23.04.1999. GoK also contemplated ‘finalising’ a PPA. The word
‘finalising’ and the word ‘PPA’, both of which did not take place
before 01.06.1999 has resulted in a situation where a contract
could not be said to be concluded even within the meaning of the
E proviso to Section 27(2) of the Act. Even proceeding on the basis
that even in a given case, a contract could be concluded within
the meaning of the proviso, even in absence of a written PPA,
bearing in mind also the absence of the word ‘PPA’ in the said
provision and contrasting it with Section 18 where the same Law-
Giver has used the word ‘PPA’, if the parties were not ad idem
F about the necessary terms and if the parties equally contemplated
a PPA to bring it into existence a contract within the meaning of
Section 27(2), then, clearly a PPA would be indispensable to attract
the proviso to Section 27(2). This is not even a case where parties
were ad idem on all the essential aspects, which go into the
G formation of a complex contract as is involved in the facts of this
case. Therefore, the supply of power by the first respondent, after
01.06.1999, cannot be relied upon, in view of the facts revealed
by the correspondence, which itself makes it a stop gap
arrangement, and what is more subject to conditions which
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 941
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS.
included execution of a PPA, to conclude that the subsequent A
conduct, unerringly pointed to the fact that a contract within the
meaning of Section 27(2) stood concluded before 01.06.1999.
[Para 79][1012-C-G]
5. On facts, there was no concluded contract and what is
more, a PPA was not a mere desire but an indispensable B
requirement to conclude the terms. It is clear as day light that all
through the parties undoubtedly contemplated entering into a
power purchase agreement. The subject matter of the contract,
the position of the parties, the implications of the working of the
contract and more importantly, the intention of the parties do not
persuade this Court to safely gather that there was a concluded C
contract upon negotiations and correspondence, culminating in
the Government Order 12.05.1999. It is clear that even the GO
dated 12.05.1999 expressly contemplated only a permission by
the Gok to the KEB to finalise “a PPA” for the purchase of surplus
power. The word “finalise” in the context of the PPA cannot be D
played down in the context of the previous correspondence at
any rate. It was, in fact, also contemplated that the PPA which
was to be finalised must after finalisation be submitted again to
the government. GoK was thereafter to grant its approval. This
cannot be overlooked. [Para 83][1017-F-H; 1018-A]
E
West Bengal Electricity Regulatory Commission v. CESC
Ltd. (2002) 8 SCC 715; India Thermal Power Ltd. v.
State of M.P. and others (2000) 3 SCC 379 : [2000] 1
SCR 925; All India Power Engineer Federation and
others v. Sasan Power Ltd. and others (2017) 1 SCC
487 : [2016] 9 SCR 901; K.P. Chowdhary v. State of F
Madhya Pradesh and others [1966] 3 SCR 919; Ram
Narain Sons Ltd. v. Asstt. Commissioner of Sales Tax
and others AIR 1955 SC 765 : [1955] 2 SCR 483;
Dwarka Prasad v. Dwarka Das Saraf AIR 1975 SC
1758 : [1976] 1 SCR 277; Mackinnon Mackenzie & G
Co. Ltd. v. Audrey D’Costa and another (1987) 2 SCC
469 : [1987] 2 SCR 659; Kollipara Sriramulu (Dead)
by His Legal Representative v. T. Aswatha Narayana
(Dead) by His Legal Representatives and others AIR
H
942 SUPREME COURT REPORTS [2022] 12 S.C.R.
A 1968 SC 1028 : [1968] 3 SCR 387; and Securities and
Exchange Board of India v. Mega Corporation Limited
MANU/SC/0362/2022 – referred to.
Alexander Brogden and others and the Directors, & c.,
of the Metropolitan Railway Company [L.R.] 2 App.
B Cas. 666/HL(E) 1877 Vol.2 666 – referred to.
Case Law Reference
(2002) 8 SCC 715 referred to Para 30
[2000] 1 SCR 925 referred to Para 32
C
[2016] 9 SCR 901 referred to Para 32
[1966] 3 SCR 919 referred to Para 33
[1955] 2 SCR 483 referred to Para 35
D [1976] 1 SCR 277 referred to Para 35
[1987] 2 SCR 659 referred to Para 35
[1968] 3 SCR 387 referred to Para 36
[1976] 1 SCR 277 referred to Para 52
E CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8714
of 2022.
From the Judgment and Order dated 08.04.2004 and modified on
16.04.2004 of the High Court of Karnataka at Bangalore in Miscellaneous
First Appeal No.4795 of 2002.
F
With
Civil Appeal No. 8715 of 2022.
S. S. Naganand, Dr. Abhishek M. Singhvi, Gopal Jain, Sr. Advs.,
Raghavendra S. Srivatsa, Venkita Subramonium T., Likhi Chand Bonsle,
G
Ms. Komal Mundhra, Rahul Prasanna Dave, L. Vishwanathan, Ramanuj
Kumar, Summit Attri, Manpreet Lamba, Aman Anand for M/s. Cyril
Amarchand Mangaldas, V. N. Raghupathy, Md. Apzal Ansari, Dhiraj
Abraham Philip, Robin Ratnakar David, Munawar Naseem, Rahul
Prasanna Dave, Advs. for the appearing parties.
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 943
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS.
The Judgment of the Court was delivered by A
K. M. JOSEPH, J.
1. Leave granted. Being connected, the appeals are being disposed
of by a common judgment.
B
2. The appellant, in appeal arising out of SLP (C) No. 18607/04, is
the Karnataka Power Transmission Corporation Limited and hereinafter
referred to as ‘the appellant’.
3. By the impugned judgment, the High Court has allowed
Miscellaneous First Appeal No. 4795 of 2002 filed by the first respondent C
herein, viz., JSW Energy Ltd., earlier known as Jindal Thermal Power
Company Limited (hereinafter referred to as the first respondent). The
appeal was filed by first respondent under Section 41 of the Karnataka
Electricity Reforms Act, 1999 (hereinafter referred to as the ‘Act’ for
brevity).
D
4. By the impugned order, the High Court has set aside the order
dated 22.05.2002 and the order dated 08.07.2002 which are orders passed
by the Karnataka Electricity Regulatory Commission (hereinafter referred
to as ‘Commission’ for brevity). The Commission is the appellant in the
other appeal. The High Court has after setting aside the impugned orders E
directed the appellant, to comply with the tariff rate specified in the
order of the Government of Karnataka (hereinafter referred to as ‘GoK’
for brevity) dated 12.05.1999. The further direction given is as follows:
“(ii) as per the interim order passed by this Court on 19th November,
2002, it is stated by Dr. Singhvi that the appellant has paid 40% of F
Rs. 62.5 crores computed by the KPTCL as difference between
the PPA rates and the rates fixed by the Commission and,
therefore, we direct the KPTCL to repay the amounts recovered
from the appellant in pursuance of the interim order dated 19th
November, 2002 and also pay the adjustment arising out of
G
payments made by the appellant to KPTCL (i.e., the date between
the respondent No. 2/PPA rate and respondent No. 31 entered
rate of this Hon’ble Court; as the case may be) from 1st August,
2000 up to November 2002 within a period of one month from
today;”
H
944 SUPREME COURT REPORTS [2022] 12 S.C.R.
A FACTS IN BRIEF
5. The first respondent was permitted by GoK during March 1994
to set up a 2X130 MW cortex gas/ coal based thermal power plant at
Bellary. It was apparently intended that Jindal Vijayanagar Steel Limited
(JVSL) would consume the power produced from the thermal plant to
B be set up by the first respondent. The Central Electricity Authority granted
the required technical economic clearance in March 1996. Originally,
GoK gave approval to set up the power plant by JTPCL for 300 MW. It
was initially reduced from 300 to 240 MW in March 1995 and finally, it
was modified by order dated 13.02.1996 and reduced to 260 MW
(130X2). There were to be two units, that is Unit No.1 and Unit No.2.
C
Karnataka State Electricity Board (KEB for short) entered into a heads
of terms with JTPCL on 30.09.1995.
6. Clause 4 of the heads of terms reads as follows:
“4. SALE OF EXCESS ENERGY & CAPACITY TO KEB
D
If, at any stage, JTPC has excess firm capacity and/or energy for
sale to KEB, then KEB may purchase the same from JTPC subject
to agreement on price and other terms to be negotiated at the
time of such sale.”
7. Heads of terms was essentially a memorandum prior to the
E
agreement, entered into in regard to wheeling and banking in regard to
sale to dedicated consumers by the first respondent. It was followed up
by a wheeling and banking agreement between the KEB and JTPCL
dated 23.01.1996.
8. In the said agreement also, the parties have reiterated the Clause
F
(Clause 2.4) relating to the sale by first respondent to KEB in similar
terms as in the Heads of terms. Somewhere in 1998, the first respondent
invoked the clause in its bid to sell power to KEB.
9. On 20.10.1998, the first respondent wrote to KEB as follows:
G “This has reference to your above referred letter on the above
subject. In this connection kindly refer to our earlier letter dated
28th September 1998, wherein we have confirmed that our tariff
is in accordance with GOI notification dated 30th March 1992.
Further we have confirmed that we would offer substantial rebate
on the two-part tariff calculated on the basis of GOI norms.
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 945
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
A statement giving details of Tariff calculations at 85% PLF and A
68.5% PLF and 68.5% PLF is enclosed. The statement also gives
details of cost under various sub-heads. The tariff is subject to
the following assumptions:
1. Landed costs of imported coal assumed at USD 50 per tone.
B
2. Any variation in coal price will be to customer’s account.
3. Exchange Rate assumed at USDI = Rs.42.
4. Repayment of Foreign Loan, ROE and Depreciation will vary
as per the applicable exchange rate.
C
5. O&M Charges will vary as per Indian Inflation Rate.
At your convenience, we can explain and furnish any clarifications
required on the tariff calculations.
Hope the details furnished along with this letter would enable you
to consider our proposal and hence request your to kindly arrange D
for the approval of your board.
10. On 21.11.1998 again, there is a proposal put forth by the first
respondent to the KEB. Therein it has indicated that it has completed
100 per cent construction, erection and testing facility of Unit No.1.
E
11. After stating that they are scheduled to synchronise Unit No.1,
by December, 1998, it was indicated that the commissioning of unit no.2
is scheduled for July 1999. Thereafter, reference is made to clause 2.4
of the Wheeling and Banking Agreement, as already referred to. The
respondent offered 50 MW from the commissioning date of Unit No.1.
Further offer of 100 MW was made (base load basis) from the F
commissioning date of Unit No.2. It further offered upto maximum of
200 MW during the time when the steel plant JVSL and JPOCL (another
dedicated consumer of first respondent) were under shut down (major
breakdown) or during the maintenance period. It further offered to pay
penalty if the supply was less than 75 MW from commissioning date of G
Unit No.2. The rate was shown as 2.90/Kwh. Payment was requested
by irrevocable revolving L/C. This offer, however, was exclusive of
certain items and it is indicated that the consideration of the same was in
line with Government of India and KEB Norms. We may notice the
following terms which are set out as the elements to be excluded of the
rate: H
946 SUPREME COURT REPORTS [2022] 12 S.C.R.
A
B
C
D
E
We propose to supply power on the basis outlined in this letter for
an initial period of five years from the date of commissioning of second
130 MW Unit. Since we are eligible for Income Tax Exemption for the
first five years, it is not included in the proposed tariff.”
F
12. The promise was to supply for a period of five years from the
date of commissioning of the second unit. It is stated that the first
respondent is available for any clarification and for further negotiation.
Under the head “Utilization of Power During Stabilization Period” it is
stated as follows:
G “II. UTILISATION OF POWER DURING STABILISATION
PERIOD.
(from the date of synchronization to commercial operation)
We have signed ‘Wheeling and Banking’ agreement with KEB
which allows us to bank Power with KEB during the period from
H synchronization to commercial operation.
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 947
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
During the above period we still be supplying power to our sister A
company’s i.e., JVSL and JPIOCL who are located adjacent to
Power Plant and within a common’s with yard (owned & controlled
by JTPC). During this period since the power may not be available
on ‘FIRM’ basis we would like to draw power from our Banked
Power and supply to JVSL and JPOCL.
B
KEB has sanctioned power to JPOCL, JVSL and JTPC to meet
their star-up power requirements. KEB has sanctioned demand
for each unit separately. All the three units are availing KEB power
for plant commissioning, start-up purposes, trial operation and each
unit is paying demand and energy charges to KEB.
C
After synchronization of JTPCL’s 1st 130 MW unit (December
98) we seek your kind consent and approval for the following
arrangements.
a. JTPCL will supply power to JPOCL and JVSL.
b. JTPCL, JVSL, JPOCL will continue the contract with D
KEB and continue to pay contracted demand charges to
KEB.
c. In exceptional cases when JTPC generation is lower
than the energy requirement of JVSL and JPOCL, subject
to their individual contract demand with KEB, JTPCL draws E
energy from KEB for a limited period, or during the
shutdown of the unit.
d. Bank all excess power (without limitation as per wheeling
and banking agreement) with KEB and take energy credit
for the Banked power, to utilize as and when required. F
e. In case, we draw power from KEB when our bank is
zero, we will also pay energy charges to KEB as per the
applicable tariff.
Once the reliability tests are over and when JTPC declares the
commercial operation of their unit, JVSL, JPOCL and JTPC will G
request KEB to cancel (withdraw) their contract demand with
KEB and JTPC will meet both demand and energy of these two
units on regular basis.
Present metering system (Annexure -1) INSTALLED by KEB
in our complex is on temporary basis and for adopting the above H
948 SUPREME COURT REPORTS [2022] 12 S.C.R.
A modalities permanent metering system is required to be established
by KEB which is detailed at Annexure- 2.
We request you to kindly accord your approval for the above two
proposals. Proposal 2 requires implementation of metering system
before synchronization of unit scheduled in the last week of
B December 1998 and hence approval may please be accorded at
the earliest.
Thanking you we remain
Yours faithfully
For JINDAL TRACTEBEL POWER CO. LTD.
C
Sd/-
S.S. Rao
Dy. MD & CEO”
13. The response of the KEB is found in communication dated 1st
D December, 1998. It is stated as follows:
“The Board is in principle willing to purchase surplus power from
your plants as already discussed. Your proposal regarding the tariff
is under evaluation by the Board”.
14. Next, it is relevant to notice the communication dated
E 19.01.1999 made by KEB to GoK. It reads as under:
“KARNATAKA ELECTRICITY BOARD
K.P. SINGH, I.A.S. CAUVERY BHAVAN,
CHAIRMAN BANGALORE–560001
F D.O.No./KEB/B2/B13/6306/93-94 Date: 19/1/1999
My dear Chaubey,
Sub: Purchase of power generated by the captive power plant
of M/s. Jindal Tractebel Power Company at Hospet.
G Government of Karnataka vide GO No. de 221 PPC 93 Bangalore
dated 7-3-1994 had permitted M/s. Jindal Tractebel Power
Company to set up a 2xl20 MW power plant at Hospet, which
was subsequently enhanced to 2xl30 MWs. This plant, which was
set up as a captive power plant was given an IPP status later on
vide Government letter No. DE 221 DPC 93 (P) dated 1-2-1996
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 949
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
as the shareholders of the power plant and steel plant were A
different. TEC for the above project was issued by CEA vide
their letter dated 22-3-1996. As the company proposed to utilize
the power generated for their own use and to sell to other industries
in the State, after initial round of discussions with the Company,
only a wheeling and banking agreement was proposed. In January
B
1996, Board entered into a Wheeling and Banking Agreement
with the Company. In the Wheeling and Banking Agreement, as
per Clause 2.4, the Company could sell excess capacity and/or
energy to KEB and KEB had an option to purchase the same at a
negotiated rate. The relevant clause is reproduced below:
“‘If at any stage, the Company offers excess firm capacity C
and/or energy for sale to the Board, then the Board may
purchase the same from the Company, subject to agreement
on price and other terms to be negotiated at the time of such
sale.”
Jindal Tractebel Power Company is the first IPP to have D
achieved Financial Closure. Subsequent to achieving Financial
Closure, the company took up the work of construction of the
plant and the first unit of the plant has also been synchronised
with the KEB grid recently.
M/s. JTPC during discussion have stated that due to downward E
trend in the Steel industry, the requirement of the steel has reduced
and consequently progress of the Corex Plant has slowed down.
As a consequence of the above, the Company, vide their letter
No.4 JTPC/KEB dated 20-10-1998 have offered to sell 50 Mw
after the first unit is commissioned and 100 MW after the second F
unit is commissioned to KEB on basis. Also, in case of shut down
of the JVSL Plant or its subsidiaries for maintenance purposes,
they have offered to sell nearly 200 MWs to KEB.
Though KEB has signed PPAs with various IPPs, the progress
of these plants is not satisfactory. As of today, only the 200 MW G
Barge Mounted Power Plant being set up by M/s. Tanir Bavi
Power Company has neared financial closure. A table indicating
the first-year tariffs payable to various IPPs, whose projects have
been sanctioned under the bid route is given below. The present
rate of Rs.42.50 to a dollar has been taken for the purpose of
calculating the tariff. H
950 SUPREME COURT REPORTS [2022] 12 S.C.R.
A
B
C
It is also to be stated that of the above mentioned plants, some of
the plants may not come up. The doubtful plants are that of M/s.
DLF, Scintilla and lnnox Power. In case of M/s. Rayalseema,
even though the plant had intimated that they have achieved
D financial closure nearly 8 months back, they have requested for
enhancement of capacity of the plant to double its size to make it
economically viable. This issue is under examination.
Because of the shortfall in generation in the State and the steady
demand for power, KEB is purchasing power from MSEB in
E addition to that from Central Generating Stations. The tariff we
are paying for power of MSEB is Rs.2.30/unit for power availed
during off peak hours and Rs.2.65 for power availed during peak
hours. We are at present purchasing nearly 100 MWs during peak
hours and upto 200 MWs during off peak hours. MSEB has asked
for revision of prices from 1-1-1999 for the power supplied by
F
them. The revised rates are Rs.2.50 + FEC for off peak power
and Rs.3.00 + FEC for power supplied during peak hours. Tamil
Nadu is also purchasing power from MSEB at Rs.2.65 /unit during
peak hours and Rs.2.30/unit during off peak hours. Tamil Nadu
Electricity Board is also purchasing power from Eastern Grid at
G Rs.2.74/unit. KPCL is proposing to synchronize their V and VI
unit in the coming months. Though the actual cost is yet to be
finalized, as the project cost is yet to be frozen, it is indicated that
the tariff for the power generated by these plants vary between
Rs.2.75 to Rs.2.80. It has also been reported in the press that for
the power proposed to be generated from the Kayamkulam
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 951
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
Thermal power plant being set up by M/s. NTPC, KSEB would A
have to pay nearly Rs.3.90/unit and after the intervention of the
Prime Minister, the rate payable would be around Rs.3.52/unit.
The project of M/s. JTPCL was under the Captive route and it
was contemplated that the entire power generated would be used
by JVSL and its subsidiaries. Though a provision was there in the B
wheeling and Banking agreement for KEB to purchase any surplus
power from this project at a later date, it was clearly mentioned
that the price at which this power would be purchased would be
at negotiated rates. This was because, KEB did not feel it
necessary to go into the details of the capital costs of this project
as this project was contemplated as a captive power plant and C
only surplus power, if any, was to be sold to KEB, at a later date.
M/s. JTPCL vide their letter dated 20-10-1998 had offered to sell
power to KEB at Rs.2.90/unit.
During internal meetings it was also decided that as this project
was meant as a captive power plant and KEB did not go into the D
details of the project cost earlier or anticipate in the meetings at
CEA before the TEC was issued, it would not be possible to
negotiate tariff based on two-part tariff notification of GoI. Also,
as we would be paying only a fixed price per unit, it was felt that
going into the details such as the actual heat rate, the O&M E
charges, the working capital, foreign exchange protection to be
provided, etc. should not be done and only the cost per unit presently
being offered from other sources should be compared. Further, to
compensate for the variation in Rupee against the dollar, the
increase in Consumer Price Index, interest rate on working capital
etc., it was also decided that some annual increase in the fixed F
price should be allowed to take care of the above-mentioned items
as has been done in case of MOU Route projects.
With this background, negotiations were held with M/s. JTPCL.
During discussions, it was stated that the cost per unit will have to
be split into two parts, viz. Fixed Component and Variable charges. G
The variable charges would be based on the actual price of coal
which JTPCL would buy. After detailed discussions, it was decided
that a price of Rs.2.60/unit can be offered, comprising of Rs.l.70
as fixed charges and Rs.0.90 as variable charges. To compensate
for depreciation of rupee against dollar, escalation of O&M charges H
952 SUPREME COURT REPORTS [2022] 12 S.C.R.
A due to increase in cost of price index, working capital requirements,
etc. It was also decided that the fixed charges should be escalated
by 5% every year beginning from the second year after we
purchase power from JTPC.
As regards the variable cost, which depends on the cost of coal,
B the company will have to invite bids from global markets and satisfy
KEB about the correctness of the procedure followed and the
price arrived at. These bids can be either of I year duration or a
longer period. Depending on the actual cost of coal, the variable
price will be paid.
C Regarding the term of the agreement, it is to be stated that the
major thermal power projects , i.e. that of M/s Mangalore Power
Company and M/s. Nagrujuna Power Company may not be
available for the next five years. There is a case pending in
Supreme Court regarding Mangalore Power Company and only
after the judgment is known, Gol will consider extending counter
D guarantee to this project. After the counter guarantee is given, it
may take anything between 4 to 5 years for the project to be
issued. Again, it may take 4 to 5 years for the project to be put up,
since the company will have to achieve financial closure. Hence
it is considered prudent to limit the period of the agreement to
E purchase power from Ms. JTPCL to 5 years initially.
The cost per unit of power purchased from M/s Jindal Tractebel
during the five year period keeping the variable cost constant would
be as follows:
F
G
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 953
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
Even with the increase of Fixed Charges by 5% every year, it is A
to be stated that in the 5th year, the cost of power with the variable
charges remaining the same will be Rs.2.07 + Rs.0.90, i.e. Rs.2.97
per unit which is lower than the tariff now being offered by MSEB
during peak hours.
The company has offered to sell 100 MWs on a guaranteed basis, B
it will be necessary to assure a minimum level of offtake failing
which Deemed Generation Charges will have to be paid. As per
two part tariff notification the minimum assured off-take should
be 68.5% PLF. As this project is essentially meant as a captive
power plant, it is suggested that the minimum off-take below which C
deemed generation would be payable should be 50% of the
contracted/declared capacity, whichever is lower. It is also
suggested that a penalty be levied on M/s. JTPCL if there is any
shortfall in power below 75% of the quantity assured by the
company.
D
Keeping all the above in mind, it is suggested that we can purchase
power from M/s JTPCL at Rs.2.60/unit (FC Rs.1.70 + VC Rs.0.90)
with the fixed charge being escalated by 5% from the second
year with the conditions of penalty to be paid by the firm for short
supply of power and assured off-take mentioned above.
E
For all IPPs, Government is giving guarantee for the payments to
be made by KEB for the power it receives. Apart from this,
irrevocable letter of credit and escrow accounts are also being
opened by KEB as additional security for power supplied by these
companies. In case of JTPCL, as the question of providing
government guarantee does not arise as the plant was essentially F
set up as a captive power plant and majority of the power
generated is being sold to captive industries. However, irrevocable
revolving Letter of Credit and backup escrow can be provided to
the Company.
G
Approval of the Government is sought for the above proposal.
Subsequent to the approval, negotiations will be held with M/s
JTPCL for finalizing the PPA.”
15. The GoK in its response by communication dated 05.03.1999
wrote as follows to the KEB:
H
954 SUPREME COURT REPORTS [2022] 12 S.C.R.
A “R.No.DE 18 FEB 99 Dated 05-03-1999
I invite your to your D.O. letter dated 19-1-99 regarding your
proposal to purchase power from M/s Jindal Tractabel Power
Company at Rs.2.60/unit with a 5% escalation on fixed charges.
The proposal has been examined in detail. The efforts of the KEB
B to bridge the gap in power availability by entering into a short -
term agreement with Jindal Tractebel Power Company Limited
(JTPCL) is well appreciated. Government recognizes the fact
that inspite of the best efforts made by the State Government to
augment the power supply position there still continues to be a big
C gap between demand and supply. Government also note that
presently KEB is supplying more than 75 Million units per day
which is a record. The demand may further go up in the coming
months and the situation may not change easily in the next few
years on account of the substantial delay in the starting up of the
Mega power projects in the State. Under these circumstances
D there is a need to tie up with IPP/other States/NTPC, for
augmenting the power supply within the State urgently. There is
no doubt all out efforts have to be made within the short time to
tide over the problems of increased demand during the summer.
The present proposal of the KEB keeps the tariff open ended and
E possible revision. The PP A being for a period of 5 years, KEB is
advised to negotiate with the Jindal Tractebel for a fixed tariff for
the next 5 years.
This may kindly be got examined by KEB and the revised proposal
may be sent to the government.
F Yours,
Sri K.P. Singh, IAS.”
16. On 31.03.1999 after referring to the proposal dated 21.11.1998
and a series of discussions and the further meeting with the KEB officials
G on 26.03.1999, the first respondent indicated that in the meeting, KEB
officials informed that it was willing to buy power from the first respondent
subject to the following terms and conditions:
“1. The term of the agreement could be 5 years.
2. The tariff should be a single part tariff. Escalation at a fixed
H percentage could be applied on the total price on an annual basis.
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 955
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
KEB will not consider any request either for two-part tariff based A
on CEA guidelines or for payment of fuel cost at actuals.
3. KEB will open irrevocable revolving letter of credit under which
JTPC can get payments. It will also be supported by Escrow
mechanism.
4. There can be penalty clause both for short supplies and short B
drawals.
5. The PPA should be a simple document.”
[Emphasis supplied]
17. Thereafter, it is stated that KEB asked for a formal proposal C
within aforesaid parameters. Thereafter in the communication, it is stated:
“1. JTPC offers 50 MW (Energy 36 MU per month) of power
from the commissioning date of Unit 1 and 100 MW (Energy
72 MU per Month) of power from the commissioning date
of Unit 2. The first Unit of 130MW is expected to be
D
commissioned in June 1999 and the second unit of 130 MW
is expected to be commissioned in August 1999.
2. JTPC would have an option to supply in excess of 50MW
(Energy 36 MU per month) after commissioning of Unit 1
and 100 MW (Energy 72 MU per month) after
commissioning of Unit 2, with KEB’s approval, as and when E
JTPC has surplus power available.
3. The tariff will be as follows:
I year (Upto 31" March 2000)Rs. 2.60 I kwhr.
II Year (Financial Year 2000-2001) Rs. 2.73 I kwhr. F
III Year (Financial Year 2001-2002)Rs. 2.87 I kwhr.
IV Year (Financial Year 2002-2003) Rs. 3.01 l kwhr.
V Year (Financial Year 2003-2004) Rs. 3.16 I kwhr.
4. There will be no Wheeling charges or Electricity Tax on G
supplies to KEB.
5. To maintain uniformity in penalty on either side, JTPC
proposes as follows as from COD of Unit 2:
(a) JTPC guarantees minimum supply of the Threshold
Power Value after commissioning of JTPC Unit 2. If the H
956 SUPREME COURT REPORTS [2022] 12 S.C.R.
A supply is less than the Threshold Power Value, JTPC will
pay penalty at 10% of the tariff, for supplies below the
Threshold Power Value.
(b) KEB shall guarantee that it will consume the Threshold
Power Value. In case the consumption is less than the
B Threshold Power Value, KEB shall pay to JTPC the full
value of Threshold Power at the applicable tariff as above.
(c) The Threshold Power Value is 75 MW (Energy 54 MU
per month).
6. The minimum supply and the minimum consumption as per
C para 5(a) and 5(b) above are applicable on a monthly basis.
7. If there is escalation in fuel cost beyond 5% at any time,
JTPC reserves the right to terminate the contract with 3
months’ notice, if KEB does not agree to compensate for
such escalation.
D
8. KEB shall open irrevocable revolving letter of credit
corresponding to 100 MW (Energy 72 MU per month) power
sales under which JTPC can get payment for its monthly
bills. It shall also be supported by Escrow mechanism.
9. The initial term of the agreement should be 5 years till March
E
31, 2004, with a provision for renewal on terms mutually
acceptable.
We request you to agree to the above terms and conditions and
convey your acceptance at the earliest. We will approach our
Board and the lenders on getting your acceptance.
F
We also request you to let us have drafts of the PP A, Escrow
agreement and the Letter of Credit, at the earliest. We propose to
have one more meeting with your officials, after studying these
drafts.”
G 18. It is next necessary to notice the communication dated
23.04.1999 sent to the GoK by the Chairman of the KEB.
“KARNATAKA ELECTRICITY BOARD
K.P. SINGH, I.A.S. CAUVERY BHAVAN,
CHAIRMAN BANGALORE–560001
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 957
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
Ref.No.83/99-2000 Date: 23 APR 1999 A
My dear Arvind,
Sub: Purchase of power generated by the captive power plant
of M/s. Jindal Tractebel Power at Hospet.
Ref: 1. This office D.O.letter No.KEB/B28/B13/6306/93-94 B
dated 19-1-1999
2. DO letter NO.DE 18 FEB 99 dated 5-3-1999 of Energy
Secretary addressed to the undersigned
Accordingly, M/s JTPCL were invited for negotiations and
discussions were held with them on 26th March 1999 to arrive at C
the rate they would sell power from their plant to KEB. During
the meeting, the position of the Board/GoK was made known to
the representatives of M/s JTPC, i.e. the tariff should be a single
part tariff including variable charges and should be fixed for each
year with an annual escalation by a fixed percentage. The firm D
was requested to intimate the tariff at which it would sell power
to KEB.
The firm stated that from their calculations, they will be taking a
hit on fixed charges itself and this will be mainly due to depreciation
of Rupee against the dollar and increase in O&M charges. Also
E
in case of variable charges, they stated that it is linked to the cost
of coal, which is imported and that this will also increase due to
the increase in cost of coal, the freight charges and again due to
the depreciation of Rupee against the dollar in future years. They
requested that the earlier negotiated position where the variable
charges is a pass through should be retained. F
The stand of the Government of Karnataka that only a fixed tariff
per unit per year should be negotiated was again made known to
the firm. The firm stated considering all aspects within the
parameters fixed by the Board, they would be able to sell power
at Rs.2.75 per unit with a cost escalation of 5% per year, which G
was not ... acceptable to the Board. The firm was requested to
offer a revised figure. After detailed negotiations, the firm, subject
to confirmation of their Board of Directors, offered to sell power
at a cost of Rs.2.60 per unit with an annual escalation of 5%.
They stated that this is the minimum figure they could agree and
H
958 SUPREME COURT REPORTS [2022] 12 S.C.R.
A any further reduction of the same would affect the project as it
would be financially unviable.
Hence there are two options available, i.e. either to retain the
original proposal of the fixed charges being escalated by 5% every
year with the variable charges being a pass through or the entire
B rate of Rs.2.60 including variable charges being escalated by 5%
every year.
In case of the second option, the tariff payable by KEB for each
unit in different years will be as follows:
With this the tariff payable during each year of operation will be
C as follows:
Year Rs./Kwh
1 2.60
2 2.73
D
3 2.87
4 3.01
5 3.16
Considering the fact that rupee has been depreciating heavily
E against the dollar the second proposal may be advantageous to
KEB.
The firm in its letter No.JTPC/KEB dated 31-3-1999 has confirmed
that the tariff payable by KEB for power purchased will be Rs.2.60/
unit in the first year with an annual escalation of 5% every year.
F They have stated that they will be offering 50 MWs (equivalent
to 36 MU per month) from the date of commissioning of the first
unit and 100 MW (equivalent to 72 MU per month) with the
commissioning of the second unit. The first unit is expected to be
commissioned in June 1999 and the second unit in August 1999.
G They have also indicated that in case they have any surplus power
beyond 50 MWs and 100 MWs after commissioning of unit I and
unit 2, with the approval of KEB, they will sell power in excess of
50 MW s and 100 MW s.
The firm has also proposed the following after commissioning of
Unit 2:
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 959
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
1. They will supply power with a threshold value of 75 MWs A
equivalent to 54 MU per month.
2. If supply is less than the threshold power value, then JTPC will
pay penalty of 10% of the tariff for supplies below the threshold
power value.
3. KEB shall guarantee that it will consume the threshold power B
value. In case the consumption is less than the threshold value,
KEB shall pay to JTPC the full value of threshold at the applicable
tariff as above.
4. The minimum supply and minimum consumption as above are
on monthly basis. C
5. If there is an escalation in fuel cost beyond 5% at any time,
JTPC reserves the right to terminate the contract with 3 months
notice, if KEB does not agree to compensate for such escalation.
6. KEB shall open irrevocable revolving letter of credit D
corresponding to 100 MW (energy 72 MU per month) power sales
under which JTPC can get payment for its monthly bills. It shall
also be supported by Escrow mechanism.
7. The initial term of the Agreement should be 5 years till March
31, 2004 with a provision for renewal on terms mutually acceptable.
E
These are issues to be negotiated with the firm while finalising
the PP A and will be taken up later on.
This is for information of the government and it is requested
that orders may please be obtained and communicated to us.
With regasrds, F
Yours sincerely,
Sd/-
(K.P. SINGH)
Shri Arvind Jadav, G
Secretary to Government,
Department of Energy,
Government of Karnataka
Bangalore” H
960 SUPREME COURT REPORTS [2022] 12 S.C.R.
A 19. Finally, on 12.05.1999, we find the following proceedings. It
reads interalia as follows:
“After detailed examination GOVT. ORDER NO. DE 18 FEB
99, BAN GALORE DATED 12TH MAY 1999
1. KEB is permitted to finalize a Power Purchase Agreement
B with M/s Jindal Tractebel Power Company Limited (JTPCL) for
the purchase of surplus power and submit the same to the
Government for approval.
2. The rate per unit being Rs. 2.60 including variable charges with
an annual increase of 5% every year.
C
3. The term of the PPA shall be for a period of five years.
4. To adopt the same principle of negotiated tariff for captive
generating power project who intend to sell power to KEB.”
20. The Act came into force with effect from 01.06.1999. The
D significance of this is that under Section 27 of the Act, unless there was
a ‘concluded contract’ as on 01.06.1999, the Commission was to regulate
the tariff. Thereafter we may notice the following correspondence as
well. On 04.01.2000, the superintending Engineer of the KEB wrote to
JPPCL. The correspondence would show as follows:
E “This refers to the tariff of 2.60 per KWhr negotiated for purchase
by KPTCL of the electricity generated by the subject power
project. You are requested to furnish details of the break-up of
the tariff so as to enable us to take further action.”
21. On 06.04.2000, the first respondent wrote to the Chairman of
F the appellant (KPTCL). It reads as follows:
“JINDAL TRACTEBEL POWER COMPANY LIMITED
Ref: JTPC/KPTCL/1545 April 6, 2000
To,
G The Chairman
Karnataka Power Transmission Corporation Ltd.,
Bangalore
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 961
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
Dear Sir, A
Sub: Purchase of Power from Jindal Tractebel Power
Company Limited (JTPCL) by Karnataka Power
Transmission Corporation Limited (KPTCL)
Ref: 1. Government Order No.DE 18 EEB 99
B
Bangalore dated 12th May 1999
2. Government Order No.DE 120 EEE 99
Bangalore dated 7th July 1999
We are happy to inform you that both the units (2 x 130 MW)
of our Power Plant are operating continuously. As per JVSL’s C
agreement with KPTCL, JVSL was to return 215.810 MU to
KPTCL. As on 6’h Apri12000 JVSL has returned 199.802 MU to
KPTCL and the balance left over is only 16.008 MU, which will
be completed by 12’h April 2000.
As per the Government Order (Ref. l), the Government of D
Karnataka has permitted KPTCL to purchase power from JTPCL
at the rate of Rs. 2.60 per unit including variable charges with an
annual escalation of 5% every year. The said order has also
permitted KPTCL to finalize the PPA with JTPC. Accordingly,
JTPC has finalized PPA with KPTCL and the final draft as
E
accepted between JTPC and KPTCL has been submitted to
KPTCL in September / October 1999.
SI. No.8 of the Government Order (Ref. 2) directs KPTCL to
operate the PPA with JTPC as Per Government Order NO. DE
18 EEB 99 Bangalore dated 12th May 1999 (Ref. I) only after
F
complying with the obligations under the Government of Karnataka
Order issued on 7th July 1999 (Ref. 2). SI. No.9 of the Government
of Karnataka Order dated 7th July 1999 (Ref.2) also directed
KPTCL to honour the obligations under Wheeling, Banking and
Grid Supporting Agreement between KPTCL and JTPCL only
after fulfilment of obligations under the Government of Karnataka G
Order dated 7th July 1999 (Ref. 2) Since the submission of final
draft PPA to KPTCL in September I October 1999, JTPC is
continuously pursuing KPTCL and Government of Karnataka for
signing of the PPA. During this period, whatever clarifications
were sought by KPTCL were submitted by JTPC & KTPCL.
H
962 SUPREME COURT REPORTS [2022] 12 S.C.R.
A Inspite of our best efforts, so far, the PPA has not been signed by
KPTCL thought the tariff and other conditions are already covered
in the Government Order.
After returning of the power by JVSL to KPTCL which is
expected to happen by 11th April 2000, JTPC will be supplying
B power to KPTCL as per the Government of Karnataka Order
dated 18’h May 1999 (Ref. 1). Even though PPA is not yet signed
and is pending with KPTCL, the absence of PP A should not
come in the way of supplying of power by JTPC to KPTCL from
12’h April 2000 as the formal Government of Karnataka Order
dated 12m May 1999 along with the details of tariff (Ref. 1) does
C
exist. Hence, pending finalization and signing of PP A between
JTPC and KPTCL, we request you to kindly accept the power
dispatched by JTPC to KPTCL from 12m April 2000. JTPC will
be submitting the invoices as per the Government of Karnataka
Order dated 12m May 1999 (Ref. 1) subject to any changes
D required to be done subsequently as per the terms and conditions
of the PPA to be agreed and signed between JTPC and KPTCL.”
22. In response to letter dated 06.04.2000, the appellant corporation
wrote to the first respondent on 12.04.2000. It reads as under:
“With reference to the above, I am directed to communicate
E
approval of the Corporation to continue to supply energy to the grid from
the 2x130 MW Power Plant of your Company pending finalization of
PPA under the following conditions.
1. The Grid support charges envisaged in the Wheeling &
F Banking and Grid support Agreement i.e., Rs. 1.73 Crores
Annum will be provisionally deducted from the tariff invoices
when the amount is paid. This will be subject to change and
has to be paid as per the terms of PP A to be signed.
2. The 115% energy imported will be deducted from the energy
G exported, provisionally pending finalization.
3. The energy will be accounted only after signing of PPA.
4. The energy banked prior to signing of PP A will be treated
as energy banked with the Corporation and will be
accounted as per the Corporations rules.
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 963
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
5. This orders is only for facilitating continued operations of A
the Power Plant and Corporation makes no commitments
with respect to terms of PPA which is being finalized
separately.
6. The metering arrangements should be as per the Article
No. 4 of the Wheeling, Banking Agreement and Grid Support B
Agreement already signed copy of the same is enclosed.”
23. We may still further notice the communication dated 24.05.2000
addressed by the appellant to its Chief Engineer Electricity which reads
as under:
C
“With reference to the above, I am directed to convey approval
of the Corporation to make payments to M/s. JTPCL for the energy
supplied to the grid from 15-4-2000 and onwards at Rs. 2.52 per
unit pending signing of PPA. Under following terms.
1. The procedure for payments should be as per the standard D
procedure followed in case of IPP Projects.
2. 115% of imported energy should be deducted form the
exported energy and payments will be made for net exported
energy so arrived.
3. The metering should be as per the terms of Wheeling & E
Banking Grid support Agreement between KEB and JTPCL
signed on 23-1-96, till such time PP A is finalized.
4. The firm has to submit an undertaking that the terms and
conditions of PP A between KPTCL and JTPCL will be
applicable for the payments made by KPTCL for the energy F
supplied by JTPCL from the date as approved by
government till the PP A is signed.
5. This is only an order to facilitate payment of energy charges
to M/s. JTPCL and Corporation makes no commitments in
this regard and the terms of PPS will be finalized separately. G
6. The energy transaction prior to 15-4-2000 will be finalized
separately.”
24. Finally, we notice the proceedings of the Government of
Karnataka dated 17.07.2000. It reads as under:
H
964 SUPREME COURT REPORTS [2022] 12 S.C.R.
A PREAMBLE:
ln Government Order No. DE 18 EEB 99 dated: 12.5.99 KEB
was permitted to finalize a power purchase agreement with M/s.
JTPCL for purchase of surplus power from generating units at
the rate of Rs. 2.60 per unit with an annual increase of 5% every
B year for a period of 5 years. Further the rate per unit has been
reduced from Rs. 2.60 to Rs. 2.52 vide Government Corrigendum
dated 8.5.2000. It is in this context the request made by the
JTPCUJVSL has been examined and it is found that continuing
with the earlier rate of Rs. 2.60 per unit would result in honoring
the commitment of the Government. Besides it has the advantage
C of procuring a better price every year for KTPCL. It would ensure
that power is purchased at Rs. 2.60 instead of Rs. 2.63 per unit in
the first year, Rs. 2. 73 instead of Rs. 2.77 per unit on the second
year, Rs. 2.87 instead of Rs. 2.92 per unit in the third year and Rs.
3.01 instead of Rs. 3.05 in the fourth year.
D Honoring the earlier Government Order would also ensure that
there is no litigation on this subject in a court of law.
The KPTCL vide it’s letter dated 22.5.2000 read at Sl. No. Shad
also requested the Government to review the effective date for
purchase of power from the said company and communicate the
E Government decision. The matter has been examined at
Government level in consultation with KPTCL and in the interest
of the Company. After examining the requested made by the
Company, Government are pleased to Order as follows:
GOVERNMENT ORDER NO. DE 18 EEB 99. BANGALORE
F DIST: 17.7.2000
In the circumstances explained above, Government are pleased
to permit Karnataka Power Transmission Corporation Limited to
purchase power from M/s. Jindal Tranctebel Power Company
Limited at the rate of 2.60 per unit with an annual increase of 5
G every year as indicated in the Preamble to this Order. The
implementation of this Order will commence from the date of the
issue.
The other conditions of the Government Order of even no. 6 dated
12.5.1999 remains unaltered.”
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 965
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
25. A draft power purchase agreement came to be made on A
07.11.2000 between the appellant and the first respondent. There are
elaborate details contained therein. Suffice at this juncture to notice
further, that a letter was sent to the Commission on 17.11.2000. This
letter was treated as an application by the appellant (KTPCL) for entering
into a power purchase agreement under Section 25 (3) of the Act read
B
with Section 17(1) of the Act. Based on a public notice, objections were
filed by five objectors. More importantly, the stand taken by the first
respondent was that the Commission was bereft of jurisdiction to examine
the PPA on the ground that it merely represented a contract which was
concluded with it prior to the commencement of the Act, and therefore,
the case fell within the four walls of the proviso to sub-section 2 of C
Section 27 of the Act. The Commission thereafter proceeded to enter
the following findings, inter alia:
The entire negotiation, correspondence and acceptance of an offer
must be absolute. The offer of the first respondent was subject to
further approval, that is, the approval of the Board of the Company D
and the lenders to the company. The Deputy Managing Director
and CEO of the company was not delegated the authority to bind
the company. The offer was not one to be converted into a
contract. After referring to order of the GoK dated 12.05.1999, it
is found that out of the 9 issues containing the proposal of JTPCL,
E
Government has indicated its intention to agree only to two issues,
namely the rate of Rs 2.60/- per KW hr. and the period of five
years that is the term of the agreement. The GoK, it is noted,
directed KEB to negotiate the PPA and to submit the same for
approval.
F
The provision for an escrow facility to guarantee payment to
JTPCL and payment for full charges for deemed generation
did not find reflection. These conditions were central to any
PPA.
As on 12.05.1999, the parties did not intend the agreement to
G
be binding. By the GO dated 12.05.1999, Government reserved
its right to vary the tariff. There is no acceptance of the proposal
as far as GOK is concerned. Government order dated
12.05.1999 only served to provide broad guidelines to negotiate
with the first respondent for a mutually agreed term.
H
966 SUPREME COURT REPORTS [2022] 12 S.C.R.
A (1) The PPA cannot be restricted to the aspect of rates only.
The mutual rights and obligations have to be stipulated
specifically even after the rate is agreed. There is no
concluded contract.
(2) Government of India notification dated 30.03.1992 was to
B be considered only as a ceiling and it is perfectly open to
the Electricity Board and generating companies to negotiate
and arrive at a lower tariff. Reference is made to the
omission of sub-section (2) of Section 43A of the Electricity
(Supply) Act, 1948 in the State of Karnataka with effect
from 14.09.2000.
C
26. After an elaborate study of documents, it was found, that the
power proposed to be supplied to the appellant (KPTCL) was surplus
power and the grant of IPP status by communication dated 01.02.1996
would not avail the first respondent.
D We may next notice the following discussion:
“60. Simply because, plant is making use of common infrastructures
for coal hand long and water supply it cannot be said that the
plant of the appellant is a CPP. It is common knowledge that a
number of generating projects are set up to take advantage of the
E existing infrastructures of other projects and it can never be said
that merely because infrastructure is shared, the consumption of
power is captive. The infrastructure facilities are shared between
the projects only with a view to minimise the project costs. The
power plant is designed to fire either corex gas or coal as fuel,
which confirms that the appellant’s power plant is not a captive
F plant and that it was intended to supply power to KPTCL even
with the steel plant is not working and not producing corex gas. It
also needs to be noticed that appellant and JVSL are distinct
Corporate entities and the appellant has obtained financial
assistance, project approvals from various statutory authorities,
G Gol and GoK on a stand alone’ basis.
61. It was, however, contended on behalf of the respondents that
power was supplied to KEB only after JVSL’s commitment was
fulfilled and since the entire capacity of 240 MW has been
underwritten by JVSL, the appellant is a CPP to the JVSL. It is
also contended on behalf of the respondents that determination of
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 967
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
IPP/CPP is irrelevant as the Commission has allowed KPTCL to A
pay fixed charges to the appellant.”
27. Thereafter, the Commission arrived at a probable tariff and
finally directed the appellant to negotiate with the first respondent based
on the calculation made and to come up with a fresh proposal. The first
respondent did not negotiate. It is this which led to the Commission passing B
the second impugned order. In the light of the same, Commission
proceeded to approve a draft PPA, submitted on 17.11.2000 with the
following modifications:
a) The tariff charges for the first tariff period shall be Rs.2.36
Unit instead of Rs.2.60/unit upto 657 MU (page 17 of the C
Draft PPA).
b) The tariff for the entire energy in excess of 657 MU in, the
first tariff period will be Rs. 1.88/unit instead of Rs.2.20/
unit (page 17 of the draft PPA)
c) Grid support charges per month as per the following formula: D
GSC = Fl Load in MW x 1000 x DC
PF
Where:
Fl Load in MW is the fluctuating load in MW (l3.55 mw) E
DC- Applicable Demand Charges
PF- Power Factor
d) the yearly escalation is 2.50% instead of 5% (Page 17 of
the Draft PPA) F
e) Regarding the penalty for non-generation, it is directed that
a penalty of 20% of the tariff shall be levied.
14. The PPA as approved by the Commission will come into effect
from 1.8.2000 and shall be valid for a period of five years as per the
proposal of KPTCL. G
15. In their letter No. JTPCL/AUTCH/2358 dated 20th June 2002.
JTPCL has expressed their willingness to enter into long term PPA on
two-part basis. The Commission advises KPTCL to negotiate with M/s.
JTPCL a long term PPA depending upon the need for power. On approval
of such a PPA by the Commission, the present PPA will get terminated.” H
968 SUPREME COURT REPORTS [2022] 12 S.C.R.
A 28. It is these orders which came to be challenged by the first
respondent before the High Court under Section 41 of the Karnataka
Electricity Reforms Act, 1999. The High Court formulated the following
points for decision.
“19. After hearing the learned Counsel for the parties, following
B points arise for decision:
(I) Whether the Karnataka Electricity Regulatory Commission-
Respondent No. 3 can be added as a party respondent to the
appeal and whether it is entitled to defend the impugned order
on merits?
C (II) Whether there existed a binding contract between the
appellant and the KPTCL on the tariff prior to commencement
of Karnataka Electricity Reform Act, 1999 with effect from
01.06.1999, in terms of Explanation to Section 19 and proviso
to Section 27(2) of the Act? if the answer is in the positive,
D whether the Commission has jurisdiction to review the tariff
particularly when the proviso to sub-section (2) of Section 27
is restricted to tariff determination and does not require a PPA
to establish a concluded contract?
(III) Whether the status of the appellant is that of an IPP or
E CPP?
(IV) Whether the impugned orders are perverse, arbitrary and
passed without application of mind?
(V) Whether the Commission has failed to appreciate the
appellant’s rights grounded on the principles of promissory
F estoppel and legitimate expectation?”
29. As regards point No.1 it was found that the Commission was
performing as a quasi-judicial body. It was further found that when validity
of the order of a quasi-judicial body is assailed in a court of law, it is
healthy and fair that such authority (the commission) should not take
G sides. The High court did not find justification for the Commission to file
its own extensive pleadings, engage a senior counsel and show abnormal
interest. The contesting parties were capable of taking care. The question
was also posed as to the position of the Commission if a case is remanded
back to it when it has been impleaded as a party and takes an
H unambiguous and inelastic view. It was finally found that the Commission
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 969
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
was not a proper party having regard to the questions that arose for A
decision in the appeal. The High court took care that it should not be
understood as meaning that the Commission cannot be a necessary and
proper party if an appeal is preferred under Section 41 against its order
regardless of the question which arose. Answering point No.2, that is
whether there is a concluded contract, the Court went on to find that
B
there was a concluded contract within the meaning of the explanation to
Section 19 and proviso to Section 27(2) of the Act. This view was formed
on the basis of the conspectus of the correspondence beginning with the
Government order dated 07.03.1994 and the communications which we
have already indicated and culminating in the GO dated 12.05.1999 of
GoK. Thus, it was found that all essential terms and conditions, that is, C
the tariff rate, escalation, quantity and tenure for purchase and sale of
power were agreed between the parties before 01.06.1999 (the date on
which the Act came into force). The order dated 12.05.1999 was preceded
by several rounds of negotiation. It was no doubt found that there were
several rounds even after the Act came into force between the parties, D
and they discussed and finalised the terms and conditions of the PPA
except tariff as the tariff was agreed upon as evident from GO dated
12.05.1999. The PPA dated 10.11.2000 incorporated all the agreed terms.
After signing the PPA, the appellant took steps to open letter of credit
for securing payment based on the tariff of Rs.2.60 per unit plus 5 per
cent escalation per annum without obtaining approval of the Commission. E
The letters dated 04.01.2000, 12.04.2000 and 24.05.2000 according to
the High court reflected the intention of the parties to treat GO dated
12.05.1999 as the binding contract as far as the tariff was concerned.
The High Court discussed case law and found inter alia that there was a
concluded contract. Interpreting the proviso to Section 27 (2) of the Act, F
it was found that the proviso was only for the purpose of Section 27(2),
that is, factors relating to tariff determination. The proviso could not deal
with other fields, the Section itself did not deal with. The correct
interpretation, according to the High Court, was as far as ‘contract
concluded’ is concerned the proviso is referable to the tariff which is
agreed between the parties before the Commission came into existence. G
There is no form for the concluded contract in the Act. No penalty is
imposed for not entering into the PPA. This shows that PPA is not an
essential requirement under the Act. The appellant purchases power
from other utilities without PPA. The fact that the learned counsel for
the Commission entertained this view, was recorded. It is found that H
970 SUPREME COURT REPORTS [2022] 12 S.C.R.
A when an offer is made and acceptance does not extend to all the terms,
on the terms accepted, a contract is concluded. The order dated
12.05.1999 was for all purposes treated as contract for sale of power.
Parties were ad idem. All terms and conditions agreed upon in the GoK
order dated 12.05.1999 were incorporated in the PPA without any
variation. GoK has given its consent to the first respondent in terms of
B
Section 43A of the Act, prior to the commencement of the Act. Since
approval was already given under Section 43A of the Electricity (Supply)
Act, 1948, approval under Section 17(1) was not necessary. It is recorded
in the judgment that the appellant agreed with the first respondent that
Section 27(2) of the Act did not require a contract in writing or any
C formal document or that it prescribed any particular form. The appellant
contended that there was no concluded contract for certain reasons.
They are as follows.
(1) It is reflected as the contention of the appellant that the
offer of first respondent itself was “subject to” the approval
D of the Board and its lenders. These approvals constituted
conditions precedent for formation of the contract.
(2) There was no acceptance or communication of acceptance
by the appellant (KTPCL).
(3) Essential clauses such as Escrow, deemed generation,
E auxiliary consumption etc. required for a PPA were not
agreed upon.
(4) The order dated 12.05.1999 was merely an internal approval
and not in exercise of any statutory provision.
F (5) The tariff of Rs.2.60 was an indicative figure. There was
no basis to arrive at the figure of Rs.2.60.
(6) There was no record to show that appellant participated
before the CEA (Central Electricity Authority).
30. The High Court proceeded to find that as regards the condition
G in the proposal that the offer that was made was subject to approval by
the Board of Directors and lenders that, neither of the parties insisted on
the satisfaction of the conditions before supplying power. The principle
of waiver was employed also. The order dated 12.5.1999 did not employ
the word “subject to”. The terms such as ‘deemed generation’ were not
H considered essential by the parties. The fact that the party continued to
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 971
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
perform for almost 3 years would show by ‘conduct’ that they cannot be A
termed as essential. It is not necessary that KPTCL should communicate
acceptance to the respondent. It is further found that a contract which is
concluded by acceptance by the ‘Gok’ is protected by proviso to Section
27(2). GoK found that the single part tariff is more advantageous to the
appellant. The tariff rate is arrived at on the basis of two-part tariff rate.
B
The break up of tariff for 20 years was submitted to the appellant after
detailed negotiation and examination. The tariff of Rs.2.60 per unit was
approved. The court concluded that there was a concluded contract.
Answering point No.3, it was found that the status of the power plant
was of the IPP and not of a CPP. In regard to point No.4, namely,
whether order of the Commission was perverse, arbitrary and passed C
without application of mind, noticing certain errors, it is found that the
Commission having opined that the fixed charges should be paid for 657
MUs, it calculated the fixed charges for 487 MUs while fixing the tariff.
Incentive payment charges was found by Commission to be Rs.0.952 in
arriving at the tariff rate, but the incentive payment charges are taken as D
Rs.0.924 per unit. These errors were not disputed. Having agreed to a
negotiated single part tariff, it was found the Commission could not have
unilaterally ignored well established parameters, and applied norms which
were relevant for the calculation of two-part tariff. The tariff proposed
was on the basis of single part tariff. The tariff of the first respondent is
one of the cheapest as it was based on the least cost tariff basis, whereas E
other companies pay higher charges either on the basis of a two-part
tariff or a fixed negotiated tariff. This was not seriously disputed. The
appellant (KPTCL) has fixed heat rate at 2400 Kcal/Kwh disregarding
the norms of the Ministry of Power as per which the heat rate should be
2500 Kcal/Kwh or the actual heat rate whichever is lower. The F
commission took the plant load factor at 77% disregarding norms under
the Electricity Supply Act as per which the plant load factor would be
68.5% or at a rate negotiated between the parties. The escalation was
reduced from 5% to 2.5% per annum. The two-part tariff provides for
escalation for inflation and exchange fluctuation and complete
reimbursement of fuel cost. The Commission arrived at 1637 MUs at G
77% PLF and disproportionately loaded fixed charges on to the first
respondent. The Commission ignored the fact that 1150 MUs are arrived
on the basis that the appellant is supplying the energy to the steel plant at
85% PLF and this disproportionate loading was found tantamounting to
cross subsidising contrary to the observations in the decision of this Court H
972 SUPREME COURT REPORTS [2022] 12 S.C.R.
A in West Bengal Electricity Regulatory Commission v. CESC Ltd.1.
The Commission was found at fault in reducing the assured supply level
to 487 MUs in its calculation whereas more than 900 MUs have been
supplied by the first respondent to the appellant for the years 2001 and
2002. In view of the wheeling and banking agreement in 1996 under
which Grid Support Charges payable were agreed upon, the finding of
B
the commission was found flawed in reviewing the charges without any
basis. It was found ultra vires the Act. The objections of the first
respondent filed before the first impugned order were rejected by the
Commission but reasons have not been given. The court went on to
answer point No.5 which was whether the case of the first respondent
C based on principles of promissory estoppel has not been considered by
the commission and therefore impugned order required interference.
The court after referring to case law on promissory estoppel and doctrine
of legitimate expectation found it unnecessary to dilate on this aspect,
but finding merit in the contention of the respondent that the Commission
failed to appreciate the rights of the respondent in the light of the, ‘said
D
principles’. Thereafter the High Court went on to allow the appeal in the
manner which we have already explained.
SUBMISSIONS OF THE APPELLANT
31. Shri S.S. Naganand, learned Senior Counsel appeared along
E with Shri Raghavendra S. Srivastava. Shri Raghavendra S. Srivastava,
learned Counsel appearing for the appellant would make the following
submissions.
There is no concluded contract within the meaning of the proviso
to Section 27 of the Act with the aid of the correspondence and the facts
F established otherwise. He would complain that the High Court has not
appreciated factual and the legal position. It is his case that it is clear
that the parties intended that there should be a PPA. This is not a case
of mere desire that there should be a written document encompassing
the agreement between the parties. On the contrary, he would contend
that the parties contemplated that there be a PPA whereupon alone a
G concluded contract would emerge. He would submit that Government
G.O. dated 12.05.1999 relied upon by first respondent as the fountain
head for the claim there is a concluded contract cannot for many reasons
be treated as such.
1
H (2002) 8 SCC 715
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 973
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
32. Attacking the findings of the High Court that the concluded A
contract under Section 19 and Section 27 of the Act need not be in
writing or in any particular form, it is contended as follows:
While there may not be any statutory requirement that there
must be a PPA in writing, the correspondence and the conduct of
the parties make it clear that they intended to have a formal B
document binding them on all material terms. Correspondence
shows that KEB was willing to buy power on certain terms and
conditions one of which was that there should be a PPA. The first
respondent had also called upon the appellant to confirm the terms,
for placing them before its own Board and sought draft of the
PPA to be executed. The Order dated 12.05.1999 cannot be treated C
as acceptance of the offer. It was merely the permission granted
by the GoK to enter into an agreement on certain terms and
conditions. Since, KEB and the first respondent were not ad idem
on any other term, no agreement was reached. Relying upon
Clause 2.4 of the Wheeling and Banking Agreement, it is contended D
that agreement was contemplated not merely on price but other
terms which were to be negotiated. Being a statutory corporation,
there was no scope for an implied contract. It is contended that a
perusal of letter dated 23.04.1999 would show that even as regards
the tariff rate proposed by the first respondent, it was subject to
the confirmation by the Board of Directors. Reinforcement, in E
this regard, is sourced in letter dated 04.01.2000, wherein the first
respondent was requested for the quote of the tariff for ‘further
action’. Further reliance is placed on the contents of letter dated
06.11.2000. Support is sought to be drawn from the Judgement
reported in India Thermal Power Ltd. v. State of M.P. and F
others2. The High Court erred in assuming that the first respondent
waived its rights under the draft PPA. Reliance is placed on the
Judgment of this Court in All India Power Engineer Federation
and others v. Sasan Power Ltd. and others3 to contend that
whenever waiver is pleaded, particularly, in contracts having public
interest, the party must show an agreement waiving the right, G
which has not been done in this case. The proviso to Section
27(2) cannot be read in isolation but it must be harmonised with
2
(2000) 3 SCC 379
3
(2017) 1 SCC 487 H
974 SUPREME COURT REPORTS [2022] 12 S.C.R.
A the other relevant provisions. Bearing in mind the mandate of
Section 17, the contract must be in the manner approved by the
Commission under Section 17 and it must include all material terms.
The first respondent was insisting that a PPA must be executed
by the appellant. In its communication dated 20.06.2002, the first
respondent admitted that the tariff was not acceptable but it would
B
be willing to negotiate on the basis of two-part tariff if the PPA
was made valid for 10 to 15 years. The first respondent again has
admitted that tariff and several other aspects were pending
discussion and negotiation with the appellant. GoK Order dated
12.05.1999 was amended vide Corrigendum dated 08.05.2000 by
C revising the tariff to Rs.2.52/unit. Later, vide Order dated
17.07.2000, on request by the first respondent, the tariff was
restored to Rs.2.60/unit. This establishes that the GoK Order dated
12.05.1999 was not final. Even the rate was confirmed only after
01.06.1999. There is no approval granted by GoK under Section
43A of the Electricity (Supply) Act, 1948. Therefore, approval of
D
the Commission was mandatory under Section 17 of the Act. The
Order dated 12.05.1999 was not an approval under Section 43A
but it was in the nature of permission given to KEB to negotiate
and enter into the contract. There was no contract with the KEB.
There could not have been any contract with the appellant
E (KPTCL) as the appellant was constituted only under the Act,
which came into effect from 01.06.1999. The following findings
of the High Court are placed under focus:
“It is not necessary that only the KPTCL should communicate
acceptance to the appellant. A contract which is concluded by
F acceptance by the GOK is protected by the proviso to Section
27(2) of the Act.
In our considered opinion the combined reading and
consideration of the following documents and circumstances
and the reasons we presently state would lead us to conclude
G that there existed a “concluded contract” between the appellant,
KPTCL and GoK well before 01.06.1999.”
33. In other words, the Court has even proceeded as if there was
a contract between the GoK and the first respondent. If that were the
case, apart from other contentions, Article 299 and requirements
H thereunder, are pressed into service. Drawing upon the Judgment in
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 975
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
K.P. Chowdhary v. State of Madhya Pradesh and others 4, it was A
contended that State Government cannot be bound by an implied contract.
It is next contended that the first respondent cannot be treated as an
Independent Power Producer (IPP). The operation of the first respondent
and the sister steel plant (JVSL) are intertwined and interdependent.
They share common infrastructure for coal handling, water supply and
B
the coal for the first respondent is purchased by JVSL, for which, it
raises an invoice on the first respondent. The first respondent is to be
treated as the CPP, as it was supplying power to the steel plant. The
capacity was reduced at the request of the first respondent. The contents
of the G.O. dated 12.05.1999, which also indicates that the same principle
of negotiated tariff for captive generating power plant that intends to sell C
power to the KEB was applicable to the first respondent are pressed
into service. Reliance is also placed on the agreement dated 14.10.1999.
Though first respondent was granted the status of IPP by the GoK, it
was recognised by KEB/the appellant as a captive plant. The Commission
found that the energy supplied under the PPA was only the surplus energy,
D
after meeting the requirements of its dedicated consumers. When an
IPP is desirous of contracting power supply with the appellant on two-
part tariff basis, the KEB/appellant would be involved in every stage of
project formation, finalisation of capital costs and technical parameters.
KEB/the appellant would be represented before the Central Electricity
Authority for according Techno Economic Clearance as well as for coal E
supply agreements, but none of these formalities were carried out. It is
also pointed out that the first respondent availed of concession in the
matter of electricity tax by contending that it was the CPP, which was
accepted by a Quasi-Judicial Body by Order dated 21.11.2000.
34. It is next contended that the findings arrived at by the High F
Court in regard to the facts, was unsustainable. In this regard, it is
contended that the jurisdiction of the High Court in an Appeal under
Section 41 of the Act, is a limited one. The limitation arose from the
requirement that the appeal is maintainable only, when there is a question
of law. This legislative cribbing of the appellate power of the High Court
is to be viewed in the context of the fact that the appeal is directed G
against the findings of an Expert Body like the Commission. Legislature,
therefore, wished to clothe High Court not with the ordinary untrammelled
power of an Appellate Court. In the instant case, even though the point
4
(1966) 3 SCR 919 H
976 SUPREME COURT REPORTS [2022] 12 S.C.R.
A raised is, whether there was any perversity in the findings of the
Commission, without finding any perversity, as such, the High Court has
proceeded to make a foray into factual findings rendered by the Expert
Body. The findings of the Expert Body were premised on adequate
reasoning and material. It is without carefully appreciating and analysing
the findings, that various observations have been made. It is lastly also
B
contended that pursuant to the Interim Order passed by this Court, the
appellant had to deposit a sum of Rs.100 crores, which the first respondent
was permitted to withdraw on furnishing bank guarantee. The learned
Counsel would submit that, if the appellant succeeds, the amount paid by
the appellant, must be ordered to be restored by the first respondent.
C SUBMISSIONS OF RESPONDENT NO. 1
35. Dr A.M. Singhvi, learned Senior Counsel appeared along with
Shri Gopal Jain, learned Senior Counsel, for the first respondent. Dr.
Singhvi appearing would contend that prior to the issue of GO dated
12.05.1999, parties were agreed about the essential terms, viz., price/
D tariff, quantum and tenure. These terms were incorporated in the PPA
without any change or amendment. The conditions, seven in number,
enumerated in letter dated 23.04.1999, were incidental matters, which
were not necessary or a pre-requisite for the formation of the contract.
A PPA was not a pre-condition. From 15.04.2000, the first respondent
E supplied power to the appellant and the tariff was paid at the rate of
Rs.2.60/unit. With reference to GO dated 12.05.1999, it is contended
that though it contemplated submission of the PPA to the Government of
Karnataka (GOK), the interpretation has to be necessarily that the draft
PPA terms, apart from the terms in GO dated 12.05.1999, as and when
finalised, had to be submitted to the GoK. The seven conditions mentioned
F in letter dated 23.04.1999 remaining in the realm of negotiation as on
01.06.1999 did not detract from a concluded contract based on the GO
dated 12.05.1999. The Act does not prescribe a format for a concluded
contract. No penalty or consequence is contemplated for not entering
into a PPA. A signed PPA is not condition precedent. The language in
Section 18(6) of the Act, which contemplates a PPA, is contrasted with
G
the term ‘concluded contract’, employed in Section 17 of the Act. The
concluded contract on tariff is also evident from the conduct of the parties
as power was being supplied at Rs.2.60 per unit without waiting for
approval by Commission. The stand of the Commission that a PPA may
not be necessary, found recorded in the impugned Judgment is highlighted.
H It is contended that this is not a case where there is a counter proposal
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 977
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
from the appellant. This is a case where the final proposal of Rs.2.60 A
per unit, made by JTPCL during the meeting held on 26.03.1999, was
formalised by it in the letter dated 31.03.1999. The appellant sought
approval from the GoK. The approval was granted by GO dated
12.05.1999. It resulted in a concluded contract between the GOK/KEB
with JTPCL. The GO dated 17.07.2000, restoring the tariff of Rs.2.60,
B
reversing its corrigendum on 08.05.2000, by which, tariff was sought to
be reduced to Rs.2.52 per unit, indicates that Rs.2.60 emerged as a
sacrosanct figure, which had to be honoured. This again probabilised the
case of the first respondent that there was a concluded contract. The
expression ‘concluded contract’ employed in Section 27(2) of the Act,
must be given the interpretation apposite to the context provided by C
Section 27, which deals with factors/guidelines for determination of the
tariff by the Commission. In other words, similar words to be found in
Sections 14(7), 18(6) and 19, where the words used are ‘concluded
contract’ or ‘contract concluded’, may not be suitably used. Reliance is
placed on the Judgment of this Court in Ram Narain Sons Ltd. v. Asstt.
D
Commissioner of Sales Tax and others5, Dwarka Prasad v. Dwarka
Das Saraf6 and Mackinnon Mackenzie & Co. Ltd. v. Audrey D’Costa
and another7. In other words, the contention appears to be that the
proviso to Section 27(2) of the Act, must be interpreted in the context,
which is that a Law-Giver wanted to give relief against retrospectivity,
by protecting tariffs, which were subject matter of agreements between E
the parties arrived at prior to the commencement of the Act. It is further
contended that it is nobody’s case that the contracts entered into by the
KEB were not transferred to the appellant. As per Section 14(7) of the
Act, all contracts entered into, with or for the KEB, are deemed to have
been transferred to KPTCL (the appellant).
F
36. Considerable support is drawn from the Judgment of the House
of Lords reported in Alexander Brogden and others and the Directors,
& c., of the Metropolitan Railway Company8 and Kollipara Sriramulu
(Dead) by His Legal Representative v. T. Aswatha Narayana (Dead)
by His Legal Representatives and others9. Reliance is placed on these
decisions to contend that even if the parties did contemplate the signing G
5
AIR 1955 SC 765
6
AIR 1975 SC 1758
7
(1987) 2 SCC 469
8
[L.R.] 2 App. Cas. 666 / HL(E) 1877 Vol.2 666
9
AIR 1968 SC 1028 H
978 SUPREME COURT REPORTS [2022] 12 S.C.R.
A of an agreement, it would not prevent formation of a contract, even
dehors the formal document.
37. He further contended that the appellant made admissions before
the High court about the existence of a concluded contract qua tariff,
quantum and tenure. As regards the confirmation of the offer by the
B first respondent’s Board, it is merely a procedural internal requirement,
an aspect of the doctrine of indoor management. The recommendation
made by the KEB of the rate is relied upon. The contention based on the
appellant coming into existence after 1.6.1999 is brushed aside as a
matter of no moment as it is the successor of KEB, therefore bound by
C the contract. Merely because the first respondent was pressing for the
execution of the PPA, it would not detract from there being a concluded
contract qua tariff, quantum and tenure. Otherwise, the appellant would
not have purchased power from 15.04.2000. The appellant is unjustified
in contending that even qua tariff, there is no agreement. The submission
of the appellant that there is a model PPA is erroneous. The model PPA
D was issued only in 2005 by the Government of India after the issue of
guidelines for tariff determination by competitive bidding under the
provisions of the Electricity Act, 2003. The contention that there was no
approval granted under Section 43A of the Electricity (Supply) Act, 1948
and therefore, the approval of the commission is mandatory under Section
E 17 is deliberately made knowing it to be erroneous. GoK Order dated
02.03.1996 expressly establishes the consent given by the GoK under
Section 43A(1)(c) of the Electricity (Supply) Act, 1948. Section 17 does
not speak about tariff determination powers of the commission. The
tariff determination is exclusively dealt with by Section 27. It is pointed
out that the terms and conditions which were left to be negotiated in
F
letter dated 23.4.1999 have been incorporated as terms and conditions
in the draft PPA. Instances of perversity in the commission’s orders are
pressed before the Court. The first respondent also contended that for
various reasons it is entitled to be treated as IPP.
G 38. The first respondent does not lay store by the finding on
promissory estoppel & legitimate expectation. However, learned Counsel,
indeed, supports the other finding interfering with the Order of the
Commission, viz., that the first respondent was to be treated as an
independent power producer and that the Orders of the Commission
were afflicted with arbitrariness and error apparent.
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 979
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
ANALYSIS A
THE ACT – THE KARNATAKA ELECTRICITY
REFORM ACT, 1999.
39. Section 1(3) provides that the Act shall be deemed to have
come into force w.e.f. the First Day of June 1999. Section 13 provided
for the incorporation of the appellant/company. The principal object was B
to engage in the business of purchase, transmission, sale and supply of
electrical energy. Section 13(4) contemplates that the appellant was to
undertake the functions in Section 13 and other functions, as may be
assigned to it under the licence to be granted by the Commission under
the Act. Section 13(5) reads as follows: C
“13(5) Upon the grant of license to the KPTC under chapter VII,
the KPTC shall discharge such powers, duties and functions of
the Board including those under the Indian Electricity Act, 1910
and the Electricity (Supply) Act, 1948 or the rules framed
thereunder, as may be specified in the license and it shall be the D
obligation of the KPTC to undertake and duly discharge the
powers, duties and functions so assigned.”
40. Section 14 of the Act reads as follows:
“14. Reorganisation of the Karnataka Electricity Board.- (1) On
and with effect from the date on which a transfer scheme prepared E
by the State Government to give effect to the object and purposes
of this Act is published or such further date as may be prescribed
(hereinafter referred to as the effective date of the first transfer),
any property, interest in property, rights and liabilities which
immediately before the effective date of first transfer belong to F
the Board shall vest in the State Government on such terms as
may be agreed between the State Government and the Board.
(2) Any property, interest in property, rights and liabilities vested
in the State Government under sub-section (1) or part thereof
may be revested by the State Government in the KPTC or any
G
generating company or companies in accordance with the transfer
scheme published under subsection (1) along with such other
property, rights and liabilities of the State Government as may be
specified in such scheme, on such terms and conditions as may
be agreed between the State Government and the KPTC or any
generating company or companies, as the case may be. H
980 SUPREME COURT REPORTS [2022] 12 S.C.R.
A (3) From the effective date of first transfer of properties etc., to
the KPTC, the Board shall stand dissolved. The Chairman and
Members of the Board shall be deemed to have vacated their
office. Such of the functions, duties, rights and powers exercisable
by the Board under the Indian Electricity Act, 1910 or Electricity
(Supply) Act, 1948 or any rule framed thereunder as the State
B
Government may by notification specify shall be exercisable by
the KPTC or any generating company or companies, as the case
may be, from the effective date of first transfer.
(4) Notwithstanding anything in this section, where,- (a) the transfer
scheme involves the transfer of any property or rights to any person
C or undertaking not wholly owned by the State Government, the
scheme shall give effect to the transfer only for fair value to be
paid by the transferee to the State Government; and (b) a
transaction of any description is effected in pursuance of a transfer
scheme, it shall be binding on all persons including third parties.
D (5) The State Government may, after consulting the KPTC [or a
licensee as the case may be], KPTC require the 1 [or a licensee
as the case may be]1 to draw up a transfer scheme to vest in a
further licensee (the “transferee licensee”), any of the function
including a distribution function, any property, interest in property,
E rights and liabilities which have been vested in the KPTC [or a
licensee as the case may be] under this section and publish the
same as the scheme of transfer under this Act. The transfer
scheme to be notified under this sub section shall have the same
effect as the transfer scheme under sub section (2) and shall be
effective from the date specified (effective date of second
F transfer).
(6) A transfer scheme under this section may, amongst others,.-
(a) define the property, interest in property, rights and liabilities
to be allocated,-
G (i) by specifying or describing the property, rights and
liabilities in question;
(ii) by referring to all the property, interest in property, rights
and liabilities comprised in a specified part of the transferor’s
undertaking; or
H (iii) partly in the one way and partly in the other;
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 981
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
(b) provide that any rights or liabilities specified or described in A
the scheme shall be enforceable by or against the transferor,
or the transferee, as the case may be;
(c) impose on KPTC or any licensee, an obligation to enter
into such written agreements with, or execute such other
instruments in favour of, any person as may be specified in the B
scheme;
(d) impose on any transferee licensee the obligations to comply
with the power procurement and purchase arrangements with
KPTC; and
(e) make such supplemental, incidental and consequential C
provisions as transferor licensee considers appropriate including
provision specifying the order in which any transfer or
transaction is to be regarded as taking effect.
(7) All debts and obligations incurred, all contracts entered into
and all matters and things engaged to be done by, with or for the D
Board, or the KPTC or generating company or companies before
a transfer scheme becomes effective shall, to the extent specified
in the relevant transfer scheme, be deemed to have been incurred,
entered into or done by the Board, with the Board or for the State
Government or the KPTC or the transferee, and all suits or other E
legal proceedings instituted by or against the Board or transferor,
as the case may be, may be continued or instituted by or against
the State Government or the concerned transferee, as the case
may be.
(8) If pursuant to a transfer scheme framed by the State F
Government, the KPTC 1 [or a licensee as the case may be]1 is
required to vest any part of its undertaking in another company or
body corporate or person, the Commission shall amend the licence
granted to enable the transferee to carry out the functions and
activities assigned to the transferee.”
G
41. Section 17 which is the opening section in part VII, inter alia
provided as follows: -
“17. Regulation of generating companies and stations- (1) A
licensee or a bulk purchaser or any other person may enter into a
contract with a generating company for purchase of electricity in
H
982 SUPREME COURT REPORTS [2022] 12 S.C.R.
A the manner approved by the Commission and such approval
granted by the Commission shall have the effect of the consent
given by the State Government in terms of section 43A of the
Electricity (Supply) Act 1948: Provided that the approval granted
by the Commission under this sub-section shall not in any manner
affect the requirements to obtain approvals and sanctions of the
B
State Government or any other authority under any other law,
rule or regulations.”
42. Section 18, which falls in Part VII, deals with the requirements
of a license. It, inter alia, reads as follows:
“18. Requirement of licence.- (1) No person, other than those
C
authorised to do so by license or by virtue of exemption under this
Act or authorised to or exempted by any other Authority under
the Electricity (Supply) Act, 1948, shall engage in the State in the
business of,- (a) transmitting electricity; or (b) supplying electricity,
including bulk supply.
D XXX XXX XXX
(6) All licenses issued under the provisions of Indian Electricity
Act, 1910, by the State Government or any competent authority
shall be deemed to be a provisional licence and shall be subject to
the conditions provided under sub-sections (4) and (5). All power
E purchase agreements, transmission services agreements and other
contracts entered into shall continue in full force and effect and
will be transferred to the successor entities.”
(Emphasis supplied)
43. Section 19 of the Act, deals with grant of licenses by the
F Commission. Section 19(1) reads as follows:
“19. Grant of licenses by the Commission. - (1) The Commission
may on an application made in such form and on payment of such
fee as may be specified by regulations, grant a license authorising
any person to, - (a) transmit electricity in a specified area of
G transmission; and/or (b) supply electricity in a specified area of
supply or supply in bulk to the licensees or any person.”
44. Section 19(4)(j) reads, inter alia, as follows:
“(4) Without prejudice to the generality of sub-section (3), the
conditions included in a license by virtue of that sub-section may
H require the licensee to,-
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 983
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
(a) to (i) xxx xxx xxx A
(j) purchase power in an economical manner and under a
transparent power purchase procurement process; Explanation. -
The contracts concluded by the State Government or the Board
with generating companies and transmission companies prior to
the date of commencement of the Act shall stand assigned to the B
KPTC in terms of section 14 and the KPTC may continue the
purchase or transmission of power under such contracts for
effecting bulk sales, distribution and supply to other licensees;”
45. Section 20 provides for exemption from the requirement of
license. It contemplates that the regulation by the Commission to grant C
exemption from the requirement to have a supply license subject to
conditions to be specified. The other provisions of Part VII deals with
amendment of licenses and revoking of licenses apart from the general
restrictions on the licensee.
46. Section 27, which contains the proviso which is at the heart of D
the controversy, inter alia, reads as follows:
“27. Tariffs.- (1) The holder of each licence granted under this
Act shall observe the methodologies and procedures specified by
the Commission from time to time, in calculating the expected
revenue from charges which it is permitted to recover pursuant to E
the terms of its licence and in designing tariffs to collect such
revenues.
(2) The Commission shall, subject to sub-section (3), have the
power to lay down methodology and the terms and conditions for
determination of revenue of the licensee under sub section (1) of F
this section and the determination of tariff, in such other manner
as the Commission considers appropriate and for doing so, the
Commission shall be guided by the following factors, namely:-
(a) the financial principles and their applications provided in sections
7 and 57-A of the Electricity (Supply) Act, 1948 (54 of 1948) and
G
in the sixth schedule thereto;
(b) in the case of the Board or its successor entities, the principles
under section 59 of the Electricity (Supply) Act, 1948;
H
984 SUPREME COURT REPORTS [2022] 12 S.C.R.
A (c) that the tariff progressively reflects the cost of supply of
electricity at an adequate and improving level of efficiency;
(d) the factors which would encourage efficiency, economical
use of the resources, good performance and optimum investments
and other matters which the Commission considers appropriate
B for the purpose of this Act ; and
(e) the interest of the consumers are safeguarded and at the same
time, the consumers pay for the use of electricity in a reasonable
manner based on the average cost of supply of energy;
(f) the electricity generation, transmission, distribution and supply
C are conducted on commercial principles
(g) national and state power plans formulated by the Central or
State Government, as the case may be :
Provided that the contracts concluded by the Government of
D Karnataka and/or the Board with generation and transmission
companies prior to commencement of the Act shall be deemed to
have been approved by the Commission under the provisions of
this Act and shall be given effect by the Commission.
(3) Where the Commission departs from factors specified in the
sixth schedule to the Electricity (Supply) Act, 1948 (Central Act
E
54 of 1948) while determining revenue of the licensee and tariffs,
it shall record the reasons therefor in writing.
(4) Any methodology or procedure specified by the Commission
under sub-sections (1), (2) (3) above shall be to ensure that the
objectives and purposes of the Act are duly achieved.
F
(5) Any tariff implemented under this Act,- (a) shall not show
undue preference to any consumer of electricity, but may
differentiate according to the consumer’s load factor, power factor,
and total consumption of energy during any specified period or
the time at which supply is required, or the geographical position
G of any area , the nature of the supply and the purpose for which
the supply is required; or paying capacity of category of consumers
and need for cross subsidisation; and
(b) shall be just and reasonable and be such as to promote
economic efficiency in the supply and consumption of electricity;
H and
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 985
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
(c) shall satisfy all other relevant provisions of the Act, regulations A
and conditions of the license.
(6) The Commission also shall endeavour to fix tariff in such a
manner that, as far as possible, similarly placed consumers in
different areas pay similar tariff.”
B
(Emphasis supplied)
47. Section 5(1) of the Act declares that Members of the
Commission shall be persons of ability, integrity and standing, who have
adequate knowledge and experience of and have demonstrated capacity
in dealing with law or administration. Section 5 further declares that, at
C
all times, one Member shall be a graduate Electrical Engineer with at
least 25 years of experience of either generation, transmission or
distribution of electricity and have worked in a senior position in the said
field. There must always be two Members, who have qualification in the
field of law, finance, economics, commerce or administration, with at
least 25 years of working experience. Such person should have worked D
in a senior position in the said field. There are other aspects, which need
not detain us. Under Section 10 of the Act, the Commission is endowed
with certain powers of a Civil Court. It can enforce attendance of
witnesses. It can call for information. It can consult to the extent, it
considers appropriate, such persons or group of persons, who may be
E
affected or likely to be affected by its decisions. Section 11 deals with
the functions of the Commission. An array of functions vests with it
which includes regulating the purchase, distribution and supply and
utilisation of electricity, the quality of service, the tariff and charges
payable, keeping in view the interest of the consumer as well as the
consideration that the charges are adequately levied and duly collected. F
There are various other functions. It is to function as an independent
Statutory Body Corporate. The Commission has the power to act as an
Arbitrator or to nominate Arbitrators to decide disputes between the
licensees. The Commission is tasked with the power to grant licences
under Section 19 of the Act. More pertinently, the Commission is G
empowered under Section 27(2), to lay down the methodology and the
terms and conditions for determination of the tariff, inter alia. Section
27(2)(a) to (g) provide for the factors, which are to guide the Commission.
48. On a conspectus of the provisions of the Act, it is self-evident
that in keeping with the very name of the Act, viz., Karnataka Electricity H
986 SUPREME COURT REPORTS [2022] 12 S.C.R.
A Reforms Act, 1999, the Legislature intended to depart from the earlier
regime, under which, the State Electricity Boards, in conjunction with
the Government, enjoyed a free run in the matter of fixation of tariff.
The Act put in place a mechanism, by which, an independent Body, a
Commission, consisting of the Experts, as we saw, were to proceed in
the matter, in an independent manner, to determine, inter alia, the tariff.
B
The determination of the tariff was to be done, bearing in mind, the
interest of the consumer. At the same time, the Commission was not to
be oblivious to the need to arrive at charges for the service of purchase,
distribution and supply of electricity, in such a manner that the tariff is
adequate in that the charges for the electricity supply, was duly collected,
C being adequate, for maintaining the supply and distribution of electricity.
49. Section 14(7) provides, inter alia, that all contracts, entered
into with or for the Board or the appellant or the generating company or
companies, before a transfer scheme becomes effective, is to be deemed
to have been entered into or done by the Board, with the Board or for
D the State Government or the appellant or the transferee. Section 17
provides that a licensee or the bulk purchaser or any other person, may
enter into a contract, with a generating company, for purchase of
electricity, in the manner approved by the Commission. Such approval,
is accorded the status of a consent given by the State Government under
Section 43A of the Electricity (Supply) Act, 1948. Section 18, dealing
E with the requirement of a licence for transmitting electricity and for
supplying electricity, including bulk supply, inter alia, provides in Section
18(6) that all power purchase agreements, transmission services
agreements and other contracts, entered into, shall continue, in full force
and have effect and will be transferred to the successor entities. Section
F 19 deals with actual power to grant licence. The power is vested with
the Commission. Section 19(3) provides that the duration, extent to which
and the terms and conditions, under which, transmission or supply of
energy is to be made, are to be specified in the licence. The licence is
also to contain such other conditions as the Commission may consider
appropriate for achieving the purpose of the Act. It is thereafter that
G Section 19(4) provides that without detracting from the generality of the
power with the Commission to impose conditions mentioned in Sub-
Section (3), the conditions enumerated expressly in Sub-Section (4), may
be imposed. The Explanation relevant to the case, is found sandwiched
between Section 19(4)(j) and (k). Section 19(4)(j), the Explanation, which
H follows thereafter and Section 19(4)(k) read as follows:
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 987
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
“(j) Purchase power in an economical manner and under a A
transparent power purchase procurement process;
Explanation: The process concluded by the State Government or
the Board with generating companies and transmission companies
prior to the date of commencement of the Act shall stand assigned
to KPTC in terms of section 14 under such contracts for effecting B
bulk sales, distribution and supply to other licensees;
(k) the purchase of power from KPTC to the extent necessary to
enable the KOPTC to perform its obligations under the contracts
concluded by the State Government or the Board referred to in a
clause.” C
50. Moving on to Section 27, the proviso to Section 27(2), brings
up the rear to the said sub-Section. Section 27 deals with the duty of the
holder of every licence, to observe the methodologies and procedure to
be specified by the Commission from time-to-time, in calculating the
expected revenue from what it charges. Section 27 uses the expression D
‘design’. It only means that the Commission is to fix the tariff, which
would be a medium to raise revenue. It is thereafter that Section 27(2)
clothes the Commission with the power to actually lay down the
methodology and the terms and conditions for determination of the revenue
and the determination of the tariff. The factors to guide the Commission
in this regard are explicitly set-out in Clauses (a) to (g) under Section E
27(2). Since sub-Section (2) limits the power, with reference to sub-
Section (3), we may only notice that Section 27(3) obliges the Commission
to record reasons, when it departs from the factors specified in the Sixth
Schedule to the Electricity (Supply) Act, 1948 in determining the revenue
and the tariffs. Section 27(4) declares that the Commission, in formulating F
the methodology or procedure, is to ensure that the objectives or purpose
of the Act, are duly achieved. Section 27(5) further ordains that the
tariff is not to reflect any undue preference to any consumer but may
discriminate on the basis of the load factor, power factor, inter alia. The
paying capacity of the category of the consumers and the need for cross-
subsidisation, can form the premise for differentiation. Every licensee is G
to provide to the Commission, full details of its calculations for the ensuing
financial year, of the expected aggregate charges, which it believes to
have been permitted to recover, pursuant to the terms of its licence and
such further information, as the Commission may reasonably require, to
access such calculation [See Section 27(7)]. Section 27(7) further H
988 SUPREME COURT REPORTS [2022] 12 S.C.R.
A provided that within 90 days of the receipt of all the information by the
licensee that the Commission is to notify either its acceptance or its
refusal of the licensee’s revenue calculation and tariff proposals. It is
obliged to issue a notice, giving reasons, as to why it does not consider
the tariff proposals as compliant with the extant methodology or that it is
incorrect. It was to propose a modification or an alternative calculation
B
of the expected revenue from charges, which a licensee was to accept.
Section 27 defined ‘expected revenue from charges’ in the Explanation
(a) under Section 27(12) as meaning, ‘the total revenue which the
appellant or the licensees are expected to recover from charges for
the level of forecast supply used in the determination under sub-
C Section (7) in any financial year in respect of goods or services
supplied to customers’. Explanation (b) defined ‘tariffs’ as ‘a schedule
of standard prices or charges for specified services which are
applicable to all such specified services provided to the type of
customers specified in the tariff published’.
D 51. On a conspectus of the Act, the Law-Giver has intended that
the holder of every licence granted under the Act, is bound by the regime
of regulation of the tariff by the Commission. The appellant was
incorporated under Section 13 of the Act. The Act came into force with
effect from 01.06.1999. The appellant, in other words, was not in
existence prior to 01.06.1999. No doubt it succeeded to KEB. In an
E answer to a query, it is pointed out that initially, the appellant was the
holder of a distribution and supply licence. Subsequently, there has been
an unbundling. At present, appellant is engaged in supply of electricity. It
is further not in dispute that the appellant is a licensee under the Act. It
would, therefore, be clear that being a holder of a licence, the appellant
F was to follow the procedure under Section 27. It came under the embrace
of the jurisdiction and power of the Commission in regard to the regulation
of the tariff. The power and jurisdiction of the Commission is to be
exercised to ensure that the objectives and the purpose of the Act, are
duly achieved. In the Statement of Objects of the Act, it is, inter alia,
recited that the law was made to ensure the development and
G management of the electricity industry in the State in an efficient,
economic and competitive manner to provide reliable quality power and
to protect the interest of the consumer, including, vesting in the
Commission, the power to regulate the power sector. The sublime
legislative object is further reflected in Section 11A, viz., the declaration
H of the functions of the Commission is, inter alia, to protect the interest
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 989
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
of the consumer, apart from promoting efficiency, economy, safety, in A
the use of electricity. This is, of course, besides ensuring that the charges
for electricity are adequately levied and duly collected. As noticed by us,
the Act signalled the demise of the old system, whereunder, fixation of
tariff was afflicted with caprice, unilateralism and a tendency to unduly
subsidise the State Electricity Boards, thereby preventing a natural free
B
play of market forces, which also did not conduce towards the promotion
of the production of electricity in the country. Section 27(2)(e) specifically
contemplates that the Commission is to be guided by the interests of the
consumers, but at the same time, providing for the return, by ensuring
that the consumer pays for the use of electricity in a reasonable manner,
based on average cost of supply of energy. Section 27 marked a paradigm C
shift. An independent Body was to exercise fairly drastic power in the
matter of regulating revenue and designing tariff by the licensees. The
proviso in Section 27(2) was, indeed, intended to protect cases, where
contracts were concluded by either the Government of Karnataka and/
or the KEB with generation and transmission company prior to the
D
commencement of the Act. The proviso freed parties to such contracts,
which were concluded from the regulatory regime. If such contracts
were concluded, the Law-Giver has made it clear that they would be
deemed to have been approved under the provisions of the Act.
Furthermore, the Commission is charged with the duty to give effect to
such contracts which are concluded before the commencement of the E
Act. It is, undoubtedly, true that the proviso to Section 27(2) does not
use the words ‘power purchase agreement’. It is equally true that Section
18(6), falling under Part VII and dealing with licensing of transmission
and supply, employs, inter alia, the words ‘power purchase agreement’.
Section 18(6), in fact, uses also the words ‘transmission service
F
agreements and other contracts’. The attempt of the first respondent is
to highlight the fact that the proviso to Section 27(2) does not use the
words ‘power purchase agreement’. The Law-Giver was aware and
has used the expression ‘power purchase agreement’ in Section 18(6).
In a later provision of the same Act, the same Law-Giver has, by omitting
the words ‘power purchase agreement’ in the proviso to Section 27(2), G
evinced its intention to be that a contract can be concluded for the purpose
of the proviso to Section 27(2) even without there being a power purchase
agreement.
52. The further argument is, that the proviso to Section 27(2)
must be understood with reference to Section 27 and not based on a H
990 SUPREME COURT REPORTS [2022] 12 S.C.R.
A roving expedition, involving survey of other provisions of the Act, which
may use similar words such as, Section 14(7) and Sections 18 and 19.
The principle that a proviso must receive meaning with reference to the
main provision to which it is a proviso, is pressed into service.
53. The first respondent relied upon the decision of this Court in
B Dwarka Prasad v. Dwarka Das Saraf10. This Court held, interpreting
the proviso in question in the said case as follows:
“18. We may mention in fairness to Counsel that the following,
among other decisions, were cited at the Bar bearing on the uses
of provisos in statutes: CIT v. Indo-Mercantile Bank Ltd, [AIR
C 1959 SC 713 : 1959 Supp (2) SCR 256, 266 : (1959) 36 ITR 1]
; Ram Narain Sons Ltd. v. Asstt. CST [AIR 1955 SC 765 : (1955)
2 SCR 483, 493 : (1955) 6 STC 627] ; Thompson v. Dibdin [(1912)
AC 533, 541 : 81 LJKB 918 : 28 TLR 490] ; Rex v. Dibdin [1910
Pro Div 57, 119, 125] and Tahsildar Singh v. State of U.P. [AIR
1959 SC 1012 : 1959 Supp (2) SCR 875, 893 : 1959 Cri LJ 1231]
D . The law is trite. A proviso must be limited to the subject-matter
of the enacting clause. It is a settled rule of construction that a
proviso must prima facie be read and considered in relation to the
principal matter to which it is a proviso. It is not a separate or
independent enactment. “Words are dependent on the principal
E enacting words to which they are tacked as a proviso. They cannot
be read as divorced from their context” (Thompson v. Dibdin,
1912 AC 533). If the rule of construction is that prima facie a
proviso should be limited in its operation to the subject-matter of
the enacting clause, the stand we have taken is sound. To expand
the enacting clause, inflated by the proviso, sins against the
F fundamental rule of construction that a proviso must be considered
in relation to the principal matter to which it stands as a proviso. A
proviso ordinarily is but a proviso, although the golden rule is to
read the whole section, inclusive of the proviso, in such manner
that they mutually throw light on each other and result in a
G harmonious construction.
“The proper course is to apply the broad general Rule of
construction which is that a section or enactment must be construed
as a whole, each portion throwing light if need be on the rest.
10
H (1976) 1 SCC 128
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 991
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
The true principle undoubtedly is, that the sound interpretation A
and meaning of the statute, on a view of the enacting clause,
saving clause, and proviso, taken and construed together is to
prevail. (Maxwell on Interpretation of Statutes, 10th Edn., p.
162)””
54. In other words, since Section 27 is a provision, which appears B
to deal with the revenue and tariff, which a licensee can garner/charge,
it suffices, if there is a contract, which is concluded, which has, for its
subject matter, the most indispensable element, viz., the tariff. It is pointed
out that in this case, the three essential components of a contract for the
purposes of Section 27, have been concluded well before 01.06.1999.
Correspondence and negotiation culminating in the issue of the G.O. C
dated 12.05.1999 by the GoK, by which, the Government of Karnataka,
gave its approval for the tariff at Rs.2.60 per unit, for the tenure of five
years, and what is more, the quantum to be supplied by the first respondent,
was also agreed upon cements the case of the first respondent that
there was a concluded contract for the purpose of Section 27(2). D
55. Shri Gopal Jain, learned Senior Counsel, would persuade the
Court to take a pragmatic and fair view. The Government of Karnataka/
KEB was, indeed, faced with the shortage of power. The proposal of
the first respondent was most reasonable. If the parties were agreed on
the essential terms, which, in terms of the proviso to Section 27(2), E
consisted, primarily of the tariff, and a PPA is conspicuous by its absence
in the proviso, as an indispensable requirement, to constitute a concluded
contract, then, nothing more is required to support the impugned Judgment,
it is contended.
THE LAW RELATING TO CONTRACT F
56. Section 2 of the Indian Contract Act, 1872 provides for the
interpretation clause. We may set out our understanding of Section 2, so
far as it is relevant, to be as follows:
It begins with a proposal made by a promisor. A proposal is an
offer to do something or an offer to abstain from doing something. G
The offer must be made with a view to obtaining the agreement
to it from the party to whom it is made. When the person to whom
the proposal, as defined, is made, who is treated as the promisee,
conveys his unqualified consent, the proposal is treated as having
been accepted. The proposal, when it is accepted, becomes a
H
992 SUPREME COURT REPORTS [2022] 12 S.C.R.
A promise. An agreement is every promise and every set of promises
forming the consideration for each other. As to what is
consideration, we need not be detained. A contract is an agreement
enforceable by law. Section 3 of the Contract Act deals with
communication, acceptance and revocation of proposals. The
acceptance of a proposal, inter alia, takes place by any act or
B
omission of the party accepting. It must be an act or omission by
which he either intends to communicate his acceptance or which
has the effect of communicating his acceptance. These are
matters of fact to be decided on the facts of each case. Section
10 of the Contract Act reads as follows:
C “10. What agreements are contracts. —All agreements are
contracts if they are made by the free consent of parties competent
to contract, for a lawful consideration and with a lawful object,
and are not hereby expressly declared to be void.
Nothing herein contained shall affect any law in force in India
D and not hereby expressly repealed by which any contract is
required to be made in writing1 or in the presence of witnesses,
or any law relating to the registration of documents.”
Thus, from the second part of Section 10 of the Contract Act, it is
self-evident that it is not essential to form a contract, that it should be in
E writing. The second part of Section 10, illustrated by Section 19 of the
Copyright Act, 1957 applies where a law stipulates that a contract be in
writing in which case a contract must be reduced to writing.
THE CORRESPONDENCE AND CONDUCT OF THE
PARTIES
F
57. It is apposite to refer to order dated 7.3.1994 where it all
began. It reads as follows:
“PROCEEDINGS OF THE GOVERNMENT OF KARNATAKA
Sub: Proposal of M/s. Jindal Iron & Steel Company Limited to
G set-up a 300 MW . Power plant in two stages of 150 Mw
Each near Bellary-Hospet.
Consequent on the amendments made by the Government of
India to the India Electricity Act 1990, and the Electricity (Supply)
sector participation in power generation and to sign MOUs with
H private or foreign companies to set up Thermal Power Plants at
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 993
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
Mysore, Hospet, Raichur, Mangalore and Bangalore and a Hyde! A
Power Station at Shivasemudram.
1. M/s. Jindal Iron & Steel Company Limited are setting up a
combined gas cycle plant of 300 MW (2XI50 MW) power plant
at Bellary-Hospet within the site allotted for a Steel Plant of 1.25
million ton capacity per annum, for which the Government of B
Karnataka has already accorded approval.
2. The estimated cost of the power plant is approximately Rs.900
Crores. The debt equity ratio shall be 2.1. The equity of around
Rs.225/- crores will be met 50% each by ‘ .. the participants - M/
s. JISCO and M/s. TRACT ABEL. The loans shall be arranged C
both from Indian financial institutions and foreign banka for which
discussions are under progress.
3. The advantage in setting up of the power plant at Bellary-
Hospet is that the excess power generated will be fed to the KEB
grid which will make the system more stable and can supply power D
to other industrial units in and around the Bellary-Hospet region.
Besides. it would also help to generate additional employment.
The fact that the Lingapur 220 KV Sub-station is nearer to the
site of the proposed Thermal Power Plant, will help in inter-
connection with the Sub-station.
E
4. The Karnataka Electricity Board has agreed to the proposal of
M/s. Jindal Tractebel Power Company for setting up of the
generating plant at Bellary - Hospet subject to the toll owing
conditions:
1. The above firm should send a detailed project report duly F
indicating the cost of the project with all relevant details like,
mode of execution fixation of tariff etc;
2. For evacuation of power from the above, the present KEB
transmission and distribution system may have to be
strengthened thus necessitating substantial funds for the above.
G
Board is examining the possibility of obtaining funds from
various organizations either from Government or other sources;
3. The sale of power should be exclusively to KEB and not to
any other entrepreneurs. In case power is contemplated to be
sold to third parties directly, the sales shall be at the rates to be
H
994 SUPREME COURT REPORTS [2022] 12 S.C.R.
A fixed by Government of Karnataka/KEB and with the prior
approval of Government of Karnataka/KEB;
4. The firm has to enter into power purchase agreement with
KEB and the rate at which power is to be purchased by KEB
is to be separately worked out;
B 5. The firm has to indicate the cost of the generation to take a
definite decision for I purchase of power from them.
ORDER NO. DE 221 PPC 93 BANGALORE. DATED 7TH
MARCH 1994.
C After examining the matter in detail Government are pleased
to accord; approval to the proposal of M/s. Jindal Iron & Steel
Company Limited a follows:
[1] Ms. Jindal Tractabel Power Company (JTPCL) is permitted
to set up this plant in two phases of 300 MW (each phase
D consisting of !50 MW each) subject to obtaining the approval
of the Government of India in respect of foreign investment by
M/s. Tractabel, Belgium in Karnataka and also subject to
obtaining other statutory clearances under the relevant Acts;
[2] M/s. JTPCL is permitted to sell power directly to industrial
units of the area at the mutually negotiated rates between M/
E
s. JTPCL and the industrial Units, subject to approval by the
State Government
[3] To permit KEB to evacuate power produced by M/s. JTPCL
through its grid system subject to the capacity of the grid system
and subject to payment of Wheeling and Banking charges
F
payable to KEB by M/s. JTPCL after evacuating power
produced by KPCL;
[4] The company has to sell the balance power to KEB at a
tariff to be fixed according to the norms laid down by the
Government of India vide Notification dated 31.3 .1992;
G
[5] KEB will make wheeling and banking arrangements for
M/s. JTPCL on payment of wheeling charges;
[6] KEB is permitted to enter into an agreement with M/s.
JTPCL regarding power purchase subject to approval by the
H State Government.”
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 995
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
58. A perusal of proceeding dated 07.03.1994 would reveal that A
though the KEB put forth the condition, inter alia, that the power to be
generated by the thermal plant sought to be set up by JISCL, was to be
sold exclusively to KEB and not to any other entrepreneur and that the
firm has to enter into a power purchase agreement with KEB, and the
rate at which power to be purchased by the KEB, is to be separately
B
worked out, in the Order, the GoK permitted the first respondent to sell
power directly to industrial units of the area at mutually negotiated rates
between the first respondent and the industrial units subject to approval
by the State Government. Further, it was decided, inter alia, that the
first respondent had to sell the balance power to KEB at a tariff fixed
according to the norms laid down by the Government of India vide C
Notification dated 31.03.1992.
59. Finally, KEB was permitted to enter into an agreement with
the first respondent regarding power purchase, subject to approval by
the State Government. What is noteworthy is that the KEB took the
stand that the first respondent would have to enter into a power purchase D
agreement with the KEB, and the rate at which power was to be
purchased, was to be separately worked out. In keeping with the decision,
apparently, that the first respondent was to sell the balance power to the
KEB, the Clause relating to sale of excess power to KEB was first
indicated in the Heads of Terms and later on in the Wheeling Banking
E
and Grid Support Agreement. It will be noticed that in the clause, what
was agreed upon, was that there was to be agreement as regards price
and other terms which were to be negotiated at the time of sale. This
may be contrasted with the terms of the proceedings dated 07.03.1994,
which contemplated sale according to norms dated 31.03.1992. On
20.10.1998, referring to an earlier letter dated 28.09.1998, the first F
respondent wrote to the KEB that tariff at which they would sell power
was in accordance with the Government of India Notification dated
30.03.1992. A statement was forwarded, containing the tariff calculation
and also indicating certain assumptions. On 21.11.1998, the first
respondent wrote to the KEB and we need notice the following: G
First respondent claimed that it has completed 100%
construction, erection and testing activities of Unit No.1 (130 MW).
It was scheduled to synchronise the Unit No.1 by last week of
December 1998. For Unit No.2, the first respondent claimed, it
had completed 100% construction, 90% erection of equipment,
H
996 SUPREME COURT REPORTS [2022] 12 S.C.R.
A the boiler light up was scheduled in January 1999 and the
commissioning was scheduled in July 1999. Thereafter, first
respondent refers to the PPA signed with JVSL and JPOSCL. It
was further stated that by proceeding dated 02.03.1996,
Government of Karnataka had given approval for the same. The
first respondent further makes reference to Clause 2.4 of the
B
Wheeling and Banking Agreement for sale of power to KEB at
mutually agreed rates. The communication reveals that thereafter,
the first respondent proceeded to make an offer to KEB for sale
of power. It offered 50MW from the commissioning date of Unit
No.1. Further, it offered 100 MW (base load basis of
C commissioning date of Unit No.2). A further offer was made of
maximum of 200 MW during the period when JVSL, JPOCL,
which were the dedicated consumers were under shut down (major
break down or during their maintenance period). Penalty was
offered if supply was less than 75 MW from the commissioning
date of Unit No.2. The price offered was Rs.2.90/KWHR. It is
D
thereafter that it was indicated that the price was to be exclusive
of the electricity tax, adjustment towards inflation, compensation
towards foreign exchange variations, provision for fuel escalation
charges, maintenance of power plant, for force majeure conditions.
The proposal was to supply power for an initial period of five
E years from the date of commissioning of the second 130 MW
Unit. There is reference made to utilisation of power during the
stabilisation period and we are not referring to the contents of the
same except to point out that this represented the second proposal.
Finally, the letter ended with a request to the KEB to accord
approval for the above two proposals. The KEB, in response,
F
pointed out that the Board was, in principle, willing to purchase
power from the first respondents and the proposal of the first
respondent, regarding tariff, was stated to be under evaluation by
the Board. It can be safely concluded that as on 15.12.1998, quite
clearly, apart from the KEB indicating that it was, agreeable in
G principle, to purchase surplus power from the first respondent,
there is no other effect in law produced.
60. Under the proviso to Section 27 of the Act relied upon by the
respondent, a contract could be concluded with the Government or with
the Electricity Board. In either case undoubtedly the regime under section
H 27 would cease to apply and the Commission would not have any power.
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 997
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
61. In the notes submitted by first respondent, it was seen A
contended that the contract was concluded between the first respondent
and GoK/KEB. To proceed with clarity, the court specifically asked
whether the case of the first respondent was that the contract was
concluded between the GoK and the first respondent or with KEB with
the first respondent. The submission which was made by the first
B
respondent was that the contract was concluded between the KEB and
the first respondent. Therefore, we must proceed on the basis that
contention of the first respondent is that the contract was concluded
between the first respondent and the KEB. The significance of this finding
is that it obviates any adjudication as to whether the contract in question
complies with the mandate of Article 299 of the Constitution. The appellant C
asserts that there can be no implied contract with the Government under
Article 299 and enlists support of case laws in this regard. In view of the
stand of the first respondent which we have indicated it would be an
unnecessary digression to explore the contours of Article 299.
62. The main question which arises for consideration is whether D
there is contract concluded between the first respondent and the KEB
and if so, whether such a contract was concluded before 01.06.1999?
01.06.1999 admittedly marks the commencement of the Act. If as on
01.06.1999, no contract was concluded between the KEB and the first
respondent within the meaning of proviso to Section 27(2), and such a
E
contract was concluded thereafter, it will not advance the case of the
first respondent.
63. We must at this juncture deal with an appeal made by the
learned Senior Counsel for the first respondent. It is contended that this
Court may adopt a pragmatic view. The first respondent had excess
F
power. The KEB stood in dire need of power. Thereafter, negotiations
ensued based on Clause 2.4 of the wheeling and Banking and Grid
Agreement. Apart from oral negotiation, correspondence evidence the
respective positions adopted by the parties. The KEB took up the matter
with the GoK and GoK finally gave approval on 12.05.1999. The terms
approved by the GoK stand incorporated in the subsequent PPA though G
the PPA was executed after 01.06.1999 but the significance of all this is
that as regards the essential terms, the parties were agreed. A practical
view is therefore pressed upon as a just view also, namely, substantially
for all practical purposes the parties were ad idem. Repeatedly our
attention is alerted to the fact that acting upon the GO dated 12.05.1999
H
998 SUPREME COURT REPORTS [2022] 12 S.C.R.
A and making it the sheet anchor, first respondent even supplied power.
Though there was some prevarication as regards the rate being 2.60 per
KWH, the GoK sought to honour the contract as embodied in the G.O.
dated 12.05.1999 by issuing G.O. dated 17.07.2000.
64. We are dealing with a statutory dictate. What is required to be
B established is that the contract stood concluded and furthermore it was
so done before 01.06.1999. Dr. Abhishek Manu Singhvi and Shri Gopal
Jain, learned Senior Counsels are right in pointing out that the purport of
proviso is to provide against retrospectivity of the law. In other words,
the lawgiver contemplated that when a contract stands concluded
between the Government or the KEB and a party before the Act came
C into force, the regulatory regime should not be allowed to unsettle a
solemn contract.
65. In this regard, we must bear in mind that the Act envisages
the setting up of an independent Commission. The Commission stood
endowed with various functions. One of the important functions is to fix
D the tariff. One of the vital objects of the Act is to protect the interest of
the consumer. The Electricity Board which was set up under the
Electricity (Supply) Act, 1948 was clothed with the power for fixing the
rate. The undesirable results it produced and the need for locating the
power in an independent body which would fairly and on preordained
E principles which involves striking a balance between the interest of the
consumer and at the same time promoting efficiency in the power sector
leading to enhancement in power generation led to the new regime.
While a reasonable view must indeed be taken it cannot be half baked or
a legally untenable approach. Flying on the wings of pragmatism, the
Court cannot gloss over a statutory injunction. We would think that the
F first respondent must anchor its case on surer foundations.
66. In this case, we proceed on the basis that it all began with the
communication dated 20.10.1998 sent by the first respondent. However,
for reasons which will be clear, we need not harp upon its contents in
greater detail. On 21.11.1998, after referring to the fact that the first
G respondent was recognised as an independent power producer and it
has achieved financial closure and further that it was the only company
in Karnataka which could be set up as an independent power producer
and still further having completed 100% construction, erection and testing
ability in regard to Unit I, it was stated that the synchronising of Unit I
H will take place by the last week of December 1998. Regarding Unit II,
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 999
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
commissioning was projected in July, 1999. Thereafter, the formal offer A
was made for sale of power. The rate was Rs.2.90/Kwhr. Even the said
rate was to exclude electricity tax, inflation, foreign exchange, fuel
escalation charges, maintenance of power plant. The rate was also to
be exclusive of force majeure. This meant that if there is grid failure or
transmission line failure leading to no supply, there would be no penalty
B
on the minimum guaranteed power. There is also another aspect in the
offer under the caption “utilisation of power during stabilizing period”
that is from the date of synchronisation till commercial operation. There
are certain details thereunder and the letter concluded by the first
respondent requesting approval to the two proposals at the earliest. By
communication dated 15.12.1998, the Board conveyed that the proposal C
of the first respondent is under evaluation. The Board (KEB) also
expressed its willingness to purchase power as already discussed. On
19.01.1998, the KEB wrote to the GOK. Therein, it is, inter alia, stated
that the plant of the first respondent which was set up as a captive
power plant was given IPP status later on by GO dated 01.02.1996 as
D
the shareholders of the power plant (the first respondent) and the steel
plant (the sister concern of the first respondent) were different. After
referring to the wheeling and Banking agreement, it is, inter alia, stated
that the first respondent during discussion revealed that there was a
decline in the demand for power due to the reduction in the demand of
the steel, leading to the proposal by first respondent, KEB further wrote E
about PPAs entered into with various IPPs and the fact that the progress
under the said agreements was not satisfactory. Some other plants may
not come up was a concern voiced by the KEB. Other issues relating to
them find reflection. Shortfall in generation in the state and the steady
demand for power are seen articulated. KEB was purchasing power
F
from Maharashtra State Electricity Board in addition to central generating
stations. After dealing with Wheeling and Banking agreement and clause
2.4 which contemplated sale of excess power to the KEB, it was stated
that the clause, however, contemplated purchase at a negotiated rate.
This, it is further stated was because at that stage details regarding the
capital cost were not looked into as the project was contemplated as a G
captive power plant. It is also for the same reason stated that it would
not be possible to negotiate tariff based on two-part tariff notification of
the Government of India. After providing certain other details including
the variation in the exchange rate qua the US $ and the decrease in
consumer price index, interest rate and the need for annual increase in
H
1000 SUPREME COURT REPORTS [2022] 12 S.C.R.
A the fixed price, negotiations were undertaken it is mentioned. After detailed
discussion, it was decided that a price of Rs.2.60 per unit could be offered.
This comprised of Rs.1.70 as fixed charge and Rs.0.90 as variable charge.
Variable cost was to depend on the cost of coal. Its cost would determine
the variable price. Suffice it to further notice that the KEB suggested
that “We” can purchase power from the first respondent at Rs.2.60 per
B
unit (FC Rs.1.70) plus (VC Rs.0.70). The fixed charge was to be
escalated from the second year with the conditions of penalty to be paid
by the firm for short supply of power and assured off take which has
been referred in the letter earlier. We may finally notice the final paragraph
of the said communication “Approval of the government is sought to the
C above proposal. Subsequent to the approval, negotiations will be held
with M/s JTPCL for finalizing the PPA.”
67. The GOK wrote to the KEB. It is stated inter alia that the
proposal was examined in detail. The efforts of KEB to bridge the gap
on power availability by entering into short term agreement with the first
D respondent was appreciated. The wide gap between demand and supply
was noted. The prospect of the demand going up further was echoed. It
is finally stated as follows:
“The present proposal of the KEB keeps the tariff open ended
and possible revision. The PPA being for a period of 5 years,
E KEB is advised to negotiate with the Jindal Tractebel for a fixed
tariff for the next 5 years.
This may kindly be got examined by KEB and the revised proposal
may be sent to the government”
68. We must not be led astray by the use of the word “the present
F proposal of the KEB” as meaning that the proposal is one made by the
KEB. In law, it would be the first respondent which has made the
proposal as contained in its communication dated 21.11.1998 and
thereafter following negotiations, the first respondent came up with
the price of Rs.2.60. It is this proposal of the first respondent which
G was suggested by the KEB. The GoK found that the said suggestion
about the proposal made by the first respondent kept the tariff open
ended with possible revision. The GoK contemplated a PPA being
entered into limited to a period of 5 years. Therefore, the GoK wanted
KEB to further negotiate a fixed rate for the next 5 years. A revised
proposal was to be sent to the Government. It is not the case of the
H either party that a concluded contract emerged at this stage. Without
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1001
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
the parties apparently being aware, the next communication brought A
them even more perilously close to the date of the commencement of
the Act. On 31.03.1999, the first respondent wrote about its first proposal
on 21.11.1998. The fact that the discussions followed is further
mentioned. Specifically, there is reference to meeting held on
26.03.1999. The readiness of the KEB to purchase power was made
B
subject to the following terms and conditions:
1. The term of the agreement could be 5 years.
2. The tariff should be a single part tariff. Escalation at a fixed
percentage could be applied on the total price on an annual basis.
KEB will not consider any request either for two-part tariff based C
on CEA guidelines or for payment of fuel cost at actuals.
3. KEB will open irrevocable revolving letter of credit under which
JTPC can get payments. It will also be supported by Escrow
mechanism.
4. There can be penalty clause both for short supplies and short D
drawals.
5. The PPA should be a simple document.”
69. A formal proposal being demanded by the KEB subject to the
approval of the Board of Directors and also the approval of its lender,
E
the first respondent made the proposal.
“Accordingly, subject to approval of our Board and also subject to
approval of our lenders, we make the following proposal for sale
of power to KEB.
1. JTPC offers 50 MW (Energy 36 MU per month) of power F
from the commissioning date of Unit 1 and 100 MW (Energy 72
MU per Month)of power from the commissioning date of Unit 2.
The first Unit of 130MW is expected to be commissioned in June
1999 and the second unit of 130 MW is expected to be
commissioned in August 1999.
G
2. JTPC would have an option to supply in excess of SOMW
(Energy 36 MU per month) after commissioning of Unit 1 and
100 MW (Energy 72 MU per month) after commissioning of Unit
2, with KEB’s approval, as and when JTPC has surplus power
available.
H
1002 SUPREME COURT REPORTS [2022] 12 S.C.R.
A 3. The tariff will be as follows:
I year (Upto 31" March 2000) Rs.2.60/kwhr.
II Year (Financial Year 2000-2001) Rs.2.73/kwhr.
III Year (Financial Year 2001-2002) Rs.2.87/kwhr.
B IV Year (Financial Yea; 2002-2003) Rs.3.01/kwhr.
V Year (Financial Year 2003-2004) Rs.3.16/kwhr.
4. There will be no Wheeling charges or Electricity Tax on supplies
to KEB.
5. To maintain uniformity in penalty on either side, JTPC proposes
C
as follows as from COD of Unit 2:
(a) JTPC guarantees minimum supply of the Threshold Power
Value after commissioning of JTPC Unit 2. If the supply is less
than the Threshold Power Value, JTPC will pay penalty at l0% of
the tariff, for supplies below the Threshold Power Value.
D
(b) KEB shall guarantee that it will consume the Threshold Power
Value. In case the consumption is less than the Threshold Pow~r
Value, KEB shall pay to JTPC the full value of Threshold Power
at the applicable tariff as above.
E (c) The Threshold Power Value is 75 MW (Energy 54 MU per
month).
6. The minimum supply and the minimum consumption as per para
5(a) and 5(b) above are applicable on a monthly basis.
7. If there is escalation in fuel cost beyond 5% at any time, JTPC
F reserves the right to terminate the contract with 3 months’ notice,
if KEB does not agree to compensate for such escalation.
8. KEB shall open irrevocable revolving letter of credit
corresponding to 100 MW (Energy 72 MU per month) power
sales under which JTPC can get payment for its monthly bills. It
G shall also be supported by Escrow mechanism.
9. The initial term of the agreement should be 5 years till March
31, 2004, with a provision for renewal on terms mutually acceptable.
We request you to agree to the above terms and conditions and
convey your acceptance at the earliest. We will approach our
H Board and the lenders on getting your acceptance.
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1003
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
We also request you to let us have drafts of the PPA, Escrow A
agreement and the Letter of Credit at the earliest. We propose to
have one more meeting with your officials, after studying these
drafts.
Looking forward for your early favorable response,
Thanking you, B
Yours faithfully
For JINDAL TRACTEBEL POWER CO., LTD.
Sd/-
S.S. Rao C
Dy, Managing Director & CEO
CC: Superintending Engineer El. Projects. KEB”
70. 23.04.1999 is the next milestone. After referring to the previous
development leading up to the proposal dated 31.03.1999, KEB wrote
that there were two options available. The fall in the rupee was noted. D
Thereafter, it is stated as under:
“The firm in its letter No.JTPC/KEB dated 31-3-1999 has
confirmed that the tariff payable by KEB for power purchased
will be Rs.2.60/unit in the first year with an annual escalation of
5% every year. They have stated that they will be offering 50 E
MWs (equivalent to 36 MU per month) from the date of
commissioning of the first unit and 100 MW (equivalent to 72 MU
per month) with the commissioning of the second unit The first
unit is expected to be commissioned in June 1999 and the second
unit in August 1999. They have also indicated that in case they F
have any surplus power beyond 50 MWs and 100 MWs after
commissioning of unit I and unit 2, with the approval of KEB, they
will sell power in excess of 50 MWs and 100 MWs.
The firm has also proposed the following after commissioning of
Unit 2: G
1. They will supply power with a threshold value of 75 MWs
equivalent to 54 MU per month.
2. If supply is less than the threshold power value, then JTPC will
pay penalty of 10% of the tariff for supplies below the threshold
power value. H
1004 SUPREME COURT REPORTS [2022] 12 S.C.R.
A 3. KEB shall guarantee that it will consume the threshold power
value. In case the consumption is less than the threshold value,
KEB shall pay to JTPC the full value of threshold at the applicable
tariff as above.
4. The minimum supply and minimum consumption as above are
B on monthly basis.
5. If there is a escalation in fuel cost beyond 5% at any time,
JTPC reserves the right to terminate the contract with 3 months
notice, if KEB does not agree to compensate for such escalation.
6. KEB shall open irrevocable revolving letter of credit
C corresponding to 100 MW (energy 72 MU per month) power sales
under which JTPC can get payment for its monthly bills. It shall
also be supported by Escrow mechanism.
7. The initial term of the Agreement should be 5 years till March
31, 2004 with a provision for renewal on terms mutually acceptable.
D These are issues to be negotiated with the firm while finalising
the PPA and will be taken up later on.
This is for information of the government and it is requested that
orders may please be obtained and communicated to us.
With regards,
E
Yours sincerely,
Sd/-
(K.P. SINGH)
Shri Arvind Jadav,
F
Secretary to Government,
Department of Energy,
Government of Karnataka,
Bangalore.”
G 71. Thereafter, on 12.05.1999 emerges the Government Order
which reads as under:
1. KEB is permitted to finalize a Power Purchase Agreement
with M/s Jindal Tractebel Power Company Limited (JTPCL) for
the purchase of surplus power and submit the same to the
H Government for approval.
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1005
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
2. The rate per unit being Rs. 2.60 including variable charges with A
an annual increase of 5% every year.
3. The term of the PPA shall be for a period of five years.
4. To adopt the same principle of negotiated tariff for captive
generating power project who intend to sell power to KEB.
B
By Order and in the name of the Governor of Karnataka
(K.T. VUAYARAJ URS)
Under Secretary to Government
Energy Department”
C
DEVELOPMENTS POST 01.06.1999
72. Nearly, six months after 01.06.1999, i.e., on 04.01.2000, the
Superintending Engineer of KEB wrote to the first respondent stating
that the communication related to the tariff of Rs.2.60 per kw/hr
negotiated for purchase by the appellant. The first respondent was
D
requested to furnish details of the break-up of the tariff so as to enable
KEB to take further action in the matter. It may at once be noticed that
appellant could not have negotiated prior to 01.06.1999. This is for the
reason that the appellant was only an offspring of the Act, which came
into force with effect from 01.06.1999. The first respondent wrote letter
dated 06.04.2000 to the chairman of the appellant. It refers to the E
agreement between the first respondent and the appellant and that
thereunder first respondent was to return 215.810 MU to the appellant.
It is indicated that as on 06.04.2000, the first respondent had returned
199.80 MU to the appellant. Referring to order dated 12.05.1999, it was
stated that it permitted the appellant to purchase power from it at Rs.
F
2.60 inter alia. It was also stated that it permitted appellant to finalise the
PPA with the first respondent. It was also stated that the first respondent
had finalised the PPA with the appellant and the final draft as accepted
was submitted to the appellant in September-October, 1999.
73. It may be noticed that the aforesaid statement indicates that
the final draft which was accepted between the parties was submitted G
only in September/October 1999. This is significant as it fortifies us in
our view that the parties did contemplate the PPA and the relevant terms
were to be embodied in the PPA. The final draft was clearly ready only
after 01.06.1999. Thereafter, referring to G.O. dated 7 th July 1999, the
first respondent goes on to state that the said order directs the appellant H
1006 SUPREME COURT REPORTS [2022] 12 S.C.R.
A to operate the PPA as per the order dated 12.05.1999 only after complying
with the obligations of GoK under order dated 07.07.1999. This is with
reference to serial no.8 of order dated 7th July 1999. The first respondent
goes on to state in the letter dated 06.04.2000 that it was continuously
pursuing the appellant and GoK for signing of the PPA. It is further
stated that even though the PPA was not yet signed, being pending with
B
appellant, the absence of the PPA should not come in the way of supplying
power by the first respondent to the appellant from 12.04.2000 as the
order dated 12.05.1999 along with the details of the tariff does exist.
Significantly thereafter, the first respondent indicated that pending
finalisation and signing of the PPA between the parties, appellant was
C requested to accept power despatched by the first respondent from
12.04.2000. Invoices would be generated by the first respondent in terms
of letter dated 12.05.1999. It was indicated by the first respondent that it
was to be again subject to any changes required to be done subsequently
as per the terms and conditions of the PPA, to be agreed and signed
between the parties. The contents of the communication have been
D
emphasised by Shri Raghavendra S. Srivatsa, learned counsel for the
appellant as clearly indicating that matters were in a state of flux and
uncertainty and still furthermore articulation was to await the finalisation
of the PPA. On 12.04.2000 the appellant responded to the communication
dated 06.04.2000. The appellant communicated its approval for the
E continued supply pending finalisation of the PPA but subject to certain
conditions. We may notice those conditions:
1. The Grid support charges envisaged in the Wheeling & Banking
and Grid support Agreement i.e., Rs. 1.73 Crores Annum will be
provisionally deducted from the tariff invoices when the amount
F is paid. This will be subject to change and has to be paid as per
the terms of PPA to be signed.
2. The 115% energy imported will be deducted from the energy
exported, provisionally pending finalization.
3. The energy will be accounted only after signing of PPA.
G 4. The energy banked prior to signing of PPA will be treated as
energy banked with the Corporation and will be accounted as per
the Corporations rules.
5. This order is only for facilitating continued operations of the
Power Plant and Corporation makes no commitments with respect
H to terms of PPA which is being finalized separately.
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1007
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
6. The metering arrangements should be as per the Article No. 4 A
of the Wheeling, Banking Agreement and Grid Support Agreement
already signed copy of the same is enclosed.
[Emphasis supplied]
74. Pertinently, it is noteworthy that the appellant appointed a
B
professional body CRISIL to re-examine the matter relating to tariff.
CRISIL submitted report to the appellant that the rate should be Rs.
2.10 per KWH in the first year. The appellant found the figure indicative
and recommended that Rs. 2.45 per KWH should not be exceeded.
GoK issued corrigendum dated 08.05.2000 fixing the rate at Rs. 2.52
per KWH. A perusal of the letter dated 24.05.2000 sent by the Additional C
secretary of the appellant to the Chief Engineer Electricity, KTPCL
indicates that Corporation gave its approval for the energy supplied to
the Grid from 15.04.2000 onwards at Rs.2.52 per unit pending signing of
PPA. It also contains certain terms. They are as follows:
1. The procedure for payments should be as per the standard D
procedure followed in case of IPP Projects.
2. 115% of imported energy should be deducted form the exported
energy and payments will be made for net exported energy so
arrived.
E
3. The metering should be as per the terms of Wheeling & Banking
Grid support Agreement between KEB and JTPCL signed on 23-
01-96, till such time PPA is finalized.
4. The firm has to submit an undertaking that the terms and
conditions of PPA between KPTCL and JTPCL will be applicable
F
for the payments made by KPTCL for the energy supplied by
JTPCL from the date as approved by government till the PPA is
signed.
5. This is only an order to facilitate payment of energy charges to
M/s. JTPCL and Corporation makes no commitments in this regard
G
and the terms of PPS will be finalized separately.
6. The energy transaction prior to 15-04-2000 will be finalized
separately.”
(Emphasis supplied)
H
1008 SUPREME COURT REPORTS [2022] 12 S.C.R.
A 75. Therefore, the said communication would not indicate conduct
which matches action in accordance with the concluded contract allegedly
under the GO dated 12.05.1999, as the rate stood reduced from Rs.2.60
to Rs.2.52. Various conditions as noticed by us are incorporated.
Importantly, condition no.5 indicates that it is only an order to facilitate
payments. It was unambiguously indicated that the appellant did not make
B
any commitment in this regard and clinchingly it was indicated that the
terms of the PPA will be finalised separately.
76. The last communication after 1.6.1999, to bear in mind, is the
Order dated 17.07.2000. Therein, in the Preamble, it is, inter alia, stated
that KEB was permitted to finalise the PPA for purchase of the surplus
C power, as provided therein. Reference is made further to the Government
Corrigendum dated 08.05.2000, whereunder, the rate was reduced to
Rs.2.52 per unit. Next, it is stated that, on examination, it was found that,
continuing with earlier rate of Rs.2.60 per unit, would result in honouring
the commitment of the Government. There would be advantage of
D procuring the better price every year. The formal Order was passed by
the GoK, permitting the appellant to purchase power at the rate of Rs.2.60,
with an annual increase of five percent every year, as indicated in the
Preamble to the Order. The Order was to be implemented from the date
of issue of the Order. The other conditions of the Government Order
dated 12.05.1999 were to remain unaltered. It is thereafter that the draft
E PPA was prepared dated 07.11.2000. We may observe, that as far as
the rate is concerned, the rate indicated in G.O. dated 12.05.1999, being
restored and bearing in mind the contents of G.O. dated 07.07.2000, it
could be found, that the ‘rate’ as such was concluded under G.O. dated
12.05.1999.
F 77. However, a golden thread, which runs through the
correspondence is that, both the KEB, GoK and the appellant and the
first respondent, did contemplate the execution of the PPA. The
correspondence after 01.06.2000 also, unerringly, points to the fact that
parties did not view the PPA as a mere desire. They have clearly
G proceeded on the footing that the terms of the agreement must be
evidenced in writing. Quite clearly, the High Court has erred in not bearing
in mind the contents of the communications and their true purport.
78. It is true that there is no express provision in the proviso to
Section 27(2) of the Act within the meaning of second part of Section 10
H of the Indian Contract Act, that the contract, which is concluded, must
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1009
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
be in writing. However, the question would arise, as to whether there is A
a contract, which was concluded within the meaning of proviso to Section
27(2). It is further true that Section 27(2) does not use the words ‘Power
Purchase Agreement’. Section 19(4)(j) of the Act refers to ‘contracts
concluded’. Placing the said words side-by-side with the words used in
the proviso to Section 27(2), we find that they are identical. The said
B
words, viz., ‘contracts concluded’ must bear the same meaning, both in
Section 19 and in Section 27. It is true that there is no format prescribed
for a PPA. The format came in 2005. Section 27(2) and Section 19(4)(j),
do not expressly refer to a PPA. However, the search must continue to
ascertain the purport of the words ‘contracts concluded’. In order that
there must be a contract concluded, undoubtedly, there must be a proposal C
made, which must be accepted. There must be consideration for the
promise. The proposal must be accepted, which must be communicated,
as already explained. The acceptance must be unqualified. This is an
over simplification of a complex process. We say this, as the parties can
be said to have entered into a contract or a contract would be said to be
D
concluded only when they are ad idem on all the essential terms of the
contract. In other words, if the proposals containing the essential terms
have been accepted, and the acceptance is communicated and, if the
other conditions in Section 2 of the Indian Contract Act are complied
with, viz., that is there is consideration and the contract is enforceable in
law, within the meaning of Section 10 of the Act, it would lead to the E
creation of a concluded contract. Here, as we have noticed, the KEB,
the GoK and, what is more, the first respondent, clearly contemplated
that there should be a PPA.
79. We may further notice that there was a Banking, wheeling
and grid agreement, executed in the year 1996 between the KEB and F
the first respondent. It is with the execution of the draft PPA, that it was
decided that the earlier agreement of 1996, was to remain in abeyance
during the period of the PPA. In the proposal dated 21.11.1998, the rate
was initially shown as Rs.2.90/KWH but even this rate was exclusive of
certain six elements, which meant that the rate would be even more.
Thereafter, communication dated 19.01.1999, addressed by KEB to the G
GoK would indicate that negotiations were held, and what is more, detailed
discussions were held, whereunder, it was decided that a price of Rs.2.60
per unit can be offered, comprising of Rs.1.70 as fixed charges and
Rs.0.90 as variable charges. Fixed charges were to be escalated by five
per cent every year beginning from the second year. Conditions of penalty H
1010 SUPREME COURT REPORTS [2022] 12 S.C.R.
A to be paid by the firm for short supply of power and assured offtake was
also indicated. The KEB sought approval from GoK. The GoK responded
to this recommendation by KEB by letter dated 05.03.1999. It was
indicated that the present proposal kept the tariff open-ended and possible
revision. The PPA being for a period five years, KEB was advised to
negotiate with the first respondent for fixed tariff for five years. Revised
B
proposal was called for, which led to further discussions. In the said
communication, KEB expressed its willingness to buy power subject to
certain terms and conditions. They included a penalty clause, both for
short supply and short drawal and that the PPA was to be a simple
document. A two-part tariff was ruled out. Equally, was payment of fuel
C cost, at actual. Therefore, on 31.03.1999, it is that, what has been described
as the proposal, as such, was made by the first respondent. KEB was
asked to convey its acceptance at the earliest. This is as first respondent
was to approach its Board and its lenders on getting its acceptance. We
will proceed on the basis that it was a matter of internal arrangement.
On 23.04.1999, KEB wrote to the GoK. KEB mentioned about two
D
options. Further, the KEB also, indicated it must be noted that the first
respondent had made an offer as detailed in letter after the commissioning
of Unit 2. They are seven aspects. They included obligation to supply
power with a threshold value of 75MW equivalent to 54MU per month,
penalty to be paid by the first respondent in case of supply being less
E than threshold value, payment by KEB of full value of threshold in case
consumption is less than the threshold value and minimum supply and
minimum consumption being on monthly basis, right of first respondent
to terminate the contract, if there is escalation in fuel cost beyond five
per cent at any time unless KEB agreed to compensate for such
escalation. What is most important is, with regard to these matters, it
F
was expressly indicated in the letter dated 23.04.1999 that ‘these are
issues’ to be negotiated with the firm while finalising the PPA and will be
taken up later on. These issues were not negotiated between the KEB
and the first respondent before 01.06.1999. There is no dispute about
this aspect. The fact that the appellant did not mention in communication
G after 01.06.1999 about the need for approval by the Commission is clearly
insufficient to oust the jurisdiction of the Commission. The Commission
cannot be prevented from exercising the power based on the conduct of
the appellant in this regard which included preparation of the draft PPA.
Equally, the act of the GoK in issuing corrigendum dated 08.05.2000
H or the order dated 07.07.2000, cannot also detract from the power of
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1011
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
Commission or lead us to hold that there was a concluded contract under A
Section 27(2). The fact that issues in letter dated 23.04.1999 have been
included in terms of the PPA is clearly besides the point as the question
is whether the parties were agreed on them as on 01.06.1999. They
were clearly not. In this regard we may notice the sheet anchor of the
first respondent, viz., the G.O. dated 12.05.1999. GoK in the said G.O.,
B
undoubtedly, agreed for the rate per unit to be Rs. 2.60, including variable
charges. It also agreed for an annual increase of five per cent every
year. The term of the PPA was to be five years. The other two aspects
must, however, are not be lost sight of. By G.O. dated 12.05.1999, actually
KEB was permitted to ‘finalise a Power Purchase Agreement’ and to
submit the same to the Government for approval. What could be said to C
be approved by the Government was the rate, as indicated, and the
term. The G.O. clearly indicated that all the parties, including the GoK
contemplated a PPA with the execution of which alone, they were to be
bound. The Principle of Negotiated Tariff for captive generating power
project, who intend to sell power to KEB, was to be adopted. Several
D
matters remained unsettled. It is not in the region of dispute that the
issues, which KEB, in its letter dated 23.04.1999, had indicated, as issues
to be negotiated while finalising the PPA and to be taken up later on,
never came to be negotiated pursuant to the GO dated 12.05.1999 before
01.06.1999. This is crucially fatal to the case of the first respondent. We
conclude that the parties contemplated a written PPA containing various E
details apart from the tariff rate and the tenure. There was no concluded
contract with respect to several aspects, at least, as on 01.06.1999, which
is the date on which the Act came into force. The fact that power was
supplied after the Act came into force, must be understood in the context
of the correspondence, which we have elaborately referred to. Even
F
here, we may notice that there were doubts about the rates itself. An
Expert Body was appointed. It recommended Rs.2.10 per KWH. The
appellant, which, in the meantime, came upon the scene, as a result of
the Act, and succeeded to the KEB, recommended that supply of power
may be made by the first respondent subject to the finalisation of the
PPA at a rate not exceeding Rs.2.45 per unit. GoK issued a Corrigendum G
providing for the rate of Rs.2.52 per unit. Supply was made and payments
made at Rs.2.52 per unit. Government issued Order dated 07.07.2000
reinstating the rate of Rs.2.60 per unit. There may be merit in the
contention of the first respondent that as far as the rate is concerned,
there is consistency in that, GoK restored the rate at Rs.2.60 by way of
H
1012 SUPREME COURT REPORTS [2022] 12 S.C.R.
A honouring its contractual commitment. It is here that we must unravel
the true scope of the words ‘contracts concluded’ in Section 27(2) of
the Act. The proviso when it uses the words ‘contracts concluded’,
does not use the words ‘contracts concluded as regards tariffs’. A contract
of the nature, we are concerned with, cannot be said to consist only of a
rate and the term or even the quantum included. In a contract of this
B
nature, there are obviously various other aspects about which the parties
must be ad idem. The rate, the term and quantum are integrally
interconnected with other terms. There cannot be concluded contract
without parties being ad idem about those terms. We found that the
parties were not ad idem as regards the issues which were expressly
C left open for negotiations in the communication dated 23.04.1999. GoK
also contemplated ‘finalising’ a PPA. The word ‘finalising’ and the word
‘PPA’, both of which did not take place before 01.06.1999, in our view,
has resulted in a situation where a contract could not be said to be
concluded even within the meaning of the proviso to Section 27(2) of the
Act. In other words, even proceeding on the basis that even in a given
D
case, a contract could be concluded within the meaning of the proviso,
even in absence of a written PPA, bearing in mind also the absence of
the word ‘PPA’ in the said provision and contrasting it with Section 18
where the same Law-Giver has used the word ‘PPA’, if the parties
were not ad idem about the necessary terms and if the parties equally
E contemplated a PPA to bring it into existence a contract within the
meaning of Section 27(2), then, clearly a PPA would be indispensable to
attract the proviso to Section 27(2). This is not even a case where, in
other words, parties were ad idem on all the essential aspects, which go
into the formation of a complex contract as is involved in the facts of this
case. Therefore, the supply of power, in our view, by the first respondent,
F
after 01.06.1999, cannot be relied upon, in view of the facts revealed by
the correspondence, which itself makes it a stop gap arrangement, and
what is more subject to conditions which included execution of a PPA,
to conclude that the subsequent conduct, unerringly pointed to the fact
that a contract within the meaning of Section 27(2) stood concluded
G before 01.06.1999.
80. In Alexander Brogden(supra), from which considerable
support is sought to be drawn by Dr. Abhishek Singhvi, learned Senior
Counsel, the appellants who were defendants claimed that there was no
binding contract between them and the plaintiffs. The appellants had
H supplied coal for some time to the plaintiffs. The appellants suggested
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1013
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
after some time that there should be a contract entered into between the A
parties. After the agents met, the terms of the agreement came to be
drawn up by the agent of the plaintiff and sent to the defendants. The
defendants filled up certain parts which had been left in blank, and what
is more, the name of a person was shown as an arbitrator. The word
‘approved’ was written at the end of the paper. The chief partner in the
B
defendant’s firm signed. Though the usual form of the signature of the
partnership was “B & Sons”, it was the chief partner who signed. The
defendant sent the paper to the agent of the plaintiff who put it in his
desk. Nothing towards the execution of the formal agreement took place.
Both parties acted upon the same. Coals were supplied. Payments were
made. In fact, when there were some complaints in regard to the C
correctness of the supply in accordance with the paper containing the
approval of the appellant through its chief partner, explanation and excuses
were given, ‘the contract’ came to be alluded to in the correspondence.
Further supplies resumed. However thereafter arose disputes. The
appellants refused to honour the agreement to supply. In much of the
D
correspondence which followed again the word ‘contract’ made its
appearance. The plaintiff brought an action for damages for breach of
contract. It was on these facts that Lord Hatherley inter alia held:
“Now, my Lords, I apprehend that if it had stopped here, this is a
course of action from which the inference would fairly be drawn
which becomes quite conclusive afterwards. Up to the present E
stage to which I have brought it the case stands thus: Agreement
proposed first of all by the coal company, sent as a proposition to
the railway company, converted by the railway company into a
definite agreement with some very slight alterations, sent back
again with these few alterations and then adopted and approved F
by the coal company with only one important farther alteration,
namely, the insertion of Mr. Armstrong’s name as the arbitrator
— a letter written with it by the person engaged in the whole
negotiation on the one side, saying that he could not see the person
who was negotiating on the other side until the time when the
agreement was to come into effect — that immediately followed G
by an order for coals to the extent of 250 tons — an inquiry sent
by telegram, and an anxious inquiry by letter also saying:— “Let
us know whether we can rely upon your supplying us with 220
tons of coal per week, because, upon your answer whether you
can or cannot supply us with that quantity will depend the H
1014 SUPREME COURT REPORTS [2022] 12 S.C.R.
A arrangements I am to make with other coal companies in the
North.
It was said that this was inconsistent with the Plaintiffs having an
agreement by which the Defendants had bound themselves to
supply that quantity of coal. I do not see any such inconsistency
B whatever. It might possibly bear on the question of whether the
agreement was actually clenched at that moment or not. It might
indicate this: If you cannot answer definitely that you can supply
us with the 250 tons of coal, we may feel ourselves at liberty then
to deal with the other coal companies — that might possibly be
the true view of it, in which case it struck me it might be said that
C it was not eo instanti that the agreement was clenched. However,
what followed did clench it most distinctly, because there not only
comes the answer,…
XXX XXX XXX
D My Lords, I will not go through the whole of these transactions, If
you ask me, when in my judgment the agreement was complete,
I answer that the agreement was complete when the first coals,
the 300 tons of coal supplied in January, were invoiced at the
differing price, and when that differing price was accepted and
paid. I think that did bring the case up to what Mr. Herschell very
E fairly admitted, as he was bound to admit it, would be a sufficient
case to make out on the part of the Plaintiffs. It does establish a
course of action on the part of the Plaintiffs of such a character
as necessarily to lead to the inference on the part of the
Defendants that the agreement had been accepted on the part of
F the Plaintiffs, and was to be acted upon by them; and they did act
upon it accordingly.”
81. We have noticed the facts. It was a contract for sale of coal.
There was a long course of dealing between the parties. The defendant
wanted, however, to have a written contract. The agents met. The terms
G of the draft agreement were prepared by the agent of the buyer and
sent to the seller. The chief partner of the Seller firm, in fact, filled up
certain parts of the terms which had been left in blank. What is more,
the name of the arbitrator to decide in the case of a dispute was also
written. Most importantly, the word ‘approved’ was written. It was signed
by the chief partner. It was sent to the agent of the buyer. Though the
H matter did not culminate in the drawing up of a formal written agreement
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1015
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
as such, the evidence revealed that the coal was supplied and paid for. It A
is pertinent to notice the context in which the question arose. It did not
involve the aspect about a statute like the Act in question, with its
ramifications both qua the alleged contracting parties and the impact on
the object of the Act bearing in mind the interests of the consumers as
well. At any rate, the view taken in the said case cannot be safely applied
B
even otherwise to the facts of the case before us. It is not a case where
the parties were not ad idem on all the essential terms of the contract. It
is not a case where the correspondence revealed that a concluded contract
did not exist. The conduct of the parties in the supply of the goods in
question, and the acceptance of the same and the payment made therefor
and the not infrequent reference to the terms of ‘the contract’ as approved C
by the chief partner of the Seller firm “as contract” fortified the Court in
the facts in concluding that there was a concluded contract. On the
other hand, the correspondence in this case establish a completely different
factual matrix. Both before 01.06.1999 and thereafter, the parties clearly
contemplated the execution of the PPA. They were not ‘ad idem’ on
D
seven matters which are expressely left open for negotiations as indicated
in letter dated 23.04.1999. We are unable to brush aside these as not
constituting essential terms. To conflate ‘concluded contract’ even in the
context of the proviso to Section 27, as one merely agreeing to the tariff,
tenure and the quantum overlooks the complex nature of the working of
such a contract. We cannot be oblivious to the impact of provisions relating E
to penalty, threshold value, consumption and other terms. Before
01.06.1999, it is not in dispute that no negotiation as was contemplated in
regard to the same took place. Even negotiations after 01.06.1999, and
the preparation of a draft PPA on 07.11.2000, cannot clearly suffice. This
is a case of a contract involving a public body. This is also a case where
F
the implications of the contract are not confined to the parties alone. The
contract impinges on interest such as interest of the consumer and other
relevant aspects. We, therefore, are of the view that we cannot permit
the first respondent to draw support from the said judgment.
82. In Kollipara Sriramulu (Dead) by His Legal Representative
(supra), the Court was dealing with a question, whether there was an G
oral agreement for the sale of shares by the partners of the firm. One of
the contentions of the appellant therein was that there was no contract
because the sale was conditional upon a regular agreement being
executed and there was none. It is apposite that we notice the following
discussion: H
1016 SUPREME COURT REPORTS [2022] 12 S.C.R.
A “3. … We do not accept this argument as correct. It is well
established that a mere reference to a future formal contract will
not prevent a binding bargain between the parties. The fact that
the parties refer to the preparation of an agreement by which the
terms agreed upon are to be put in a more formal shape does not
prevent the existence of a binding contract. There are, however,
B
cases where the reference to a future contract is made in such
terms as to show that the parties did not intend to be bound until a
formal contract is signed. The question depends upon the intention
of the parties and the special circumstances of each particular
case. As observed by the Lord Chancellor (Lord Cranworth)
C in Ridgway v. Wharton [6 HLC 238, 63], the fact of a subsequent
agreement being prepared may be evidence that the previous
negotiations did not amount to a concluded agreement, but the
mere fact that persons wish to have a formal agreement drawn
up does not establish the proposition that they cannot be bound by
a previous agreement. In Von Hatzfeldt-Wildenburg v. Alexander
D [(1912) 1 CH 284, 288] it was stated by Parker, J. as follows:
“It appears to be well settled by the authorities that if the
documents or letters relied on as constituting a contract
contemplate the execution of a further contract between the
parties, it is a question of construction whether the execution
E of the further contact is a condition or term of the bargain or
whether it is a mere expression of the desire of the parties as
to the manner in which the transaction already agreed to will
in fact go through. In the former case there is no enforceable
contract either because the condition is unfulfilled or because
the law does not recognize a contract to enter into a contract.
F
In the latter case there is a binding contract and the reference
to the more formal document may be ignored.”
4. In other words, there may be a case where the signing of a
further formal agreement is made a condition or term of the
bargain, and if the formal agreement is not approved and signed
G there is no concluded contract. In Rossiter v. Miller [3 AC 1124]
Lord Cairns said:
“If you find not an unqualified acceptance subject to the
condition that an agreement is to be prepared and agreed upon
between the parties, and until that condition is fulfilled no
H contract is to arise then you cannot find a concluded contract.”
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1017
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
In Currimbhoy and Company Ltd. v. Creet [60 IA 297] the A
Judicial Committee expressed the view that the principle of the
English law which is summarised in the judgment of Parker, J.
In Von Hatzfeldt-Wildenburg v. Alexander [(1912) 1 CH 284,
288] was applicable in India. The question in the present appeals
is whether the execution of a formal agreement was intended to
B
be a condition of the bargain dated July 6, 1952 or whether it was
a mere expression of the desire of the parties for a formal
agreement which can be ignored. The evidence adduced on behalf
of Respondent 1 does not show that the drawing up of a written
agreement was a pre-requisite to the coming into effect of the
oral agreement. It is therefore not possible to accept the contention C
of the appellant that the oral agreement was ineffective in law
because there is no execution of any formal written document.
As regards the other point, it is true that there is no specific
agreement with regard to the mode of payment but this does not
necessarily make the agreement ineffective. The mere omission D
to settle the mode of payment does not affect the completeness
of the contract because the vital terms of the contract like the
price and area of the land and the time for completion of the sale
were all fixed. We accordingly hold that Mr Gokhale is unable to
make good his argument on this aspect of the case.”
E
The principle is unexceptionable. But we are of the view that the
facts are distinguishable and, on the facts, herein, there was no concluded
contract and what is more, a PPA was not a mere desire but an
indispensable requirement to conclude the terms.
83. It is clear as day light that all through the parties undoubtedly
F
contemplated entering into a power purchase agreement. The subject
matter of the contract, the position of the parties, the implications of the
working of the contract and more importantly, the intention of the parties
do not persuade us to safely gather that there was a concluded contract
upon negotiations and correspondence, culminating in the Government
Order 12.05.1999. It is clear that even the GO dated 12.05.1999 expressly G
contemplated only a permission by the Gok to the KEB to finalise “a
PPA” for the purchase of surplus power. The word “finalise” in the
context of the PPA cannot be played down in the context of the previous
correspondence at any rate. It was, in fact, also contemplated that the
PPA which was to be finalised must after finalisation be submitted again
H
1018 SUPREME COURT REPORTS [2022] 12 S.C.R.
A to the government. GoK was thereafter to grant its approval. This cannot
be overlooked.
C.A. @ S.L.P. (C) NO. 23793 OF 2004
84. The contention of the appellant-Commission is that it was not
a party originally in the appeal. The Court, on 17.08.2002, directed the
B Commission to be ready with the written submission on the question of
interim relief. On 19.11.2002, the High Court directed the appellant in
the other case to add the Commission as a party. On this basis, it is
contended that the findings in the impugned Order, that at no stage, the
High Court had directed the Commission to be impleaded, is not correct.
C 85. Next, it is contended that the finding that Commission filed
extensive pleadings and contested the appeal, exhibiting an abnormal
interest, is not correct. The Order dated 17.08.2002, hereinbefore referred
to, is relied upon. The finding, therefore, that the Commission exhibited
an abnormal interest in contesting the appeal or filed extensive pleadings,
is impugned. As regards the decision of the Court to not allow the
D impleadment of the Commission, it is contended that the appellant does
not seek to challenge the same. All that the learned Counsel submits is
that the observations made against the appellant-Commission may be
set aside.
86. Shri Gopal Jain, learned Senior Counsel for the first respondent
E has no objection to the same. Therefore, the appeal filed by the
Commission is to be disposed of, setting aside the observations made
against it and the appeal is to be allowed on the said basis.
THE CONTOURS OF SECTION 41 OF THE ACT
87. Section 41 of the Act reads as follows:
F “41. Appeals against the order of the Commission. - Any person
aggrieved by any decision or order of the Commission passed
under this Act may file an appeal to the High Court of Karnataka
within sixty days from the date of communication of the decision
or order of the Commission to him, on questions of law arising out
G of such order:
Provided that the High Court may, if it is satisfied that the appellant
was prevented by sufficient cause from filing the appeal within
the said period, allow it to be filed within a further period not
exceeding thirty days.”
H (Emphasis supplied)
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1019
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
88. A Right of Appeal is a creature of a Statute. The right can be A
qualified or conditioned. The ambit of the appellate power is to be
discerned from the terms of the Statute. A ‘question of law’ is not the
same as a ‘substantial question of law’. However, when the Statute
insists on a ‘question of law’ to maintain an appeal, the Appellate Body
stands constrained to that extent.
B
89. Interpreting Section 15Z of the Securities and Exchange Board
of India Act, 1992, which also conditions the Right of Appeal, ‘on any
question arising out of such Order’, this Court, speaking through P.S.
Narasimha J., in Securities and Exchange Board of India v. Mega
Corporation Limited11 held, inter alia, as follows:
C
“14. On a ‘textual’ interpretation, the expression ‘question of law’
is defined in the Black’s Law Dictionary as follows:
“1. An issue to be decided by the judge, concerning the application
or interpretation of the law;
2. A question that the law itself has authoritatively answered, so D
that the Court may not answer it as a matter of discretion;
3. An issue about what the law is on a particular point; an issue in
which parties argue about, and the court must decide what the
true rule of law is;
E
4. An issue that, although it may turn on a factual point, is reserved
for the court and excluded from the jury; an issue that is exclusively
within the province of the judge and not the jury”
17. The jurisdiction of the Supreme Court under Section 15Z to
consider any question of law arising from the orders of the Tribunal
F
should therefore be seen in the ‘context’ of the powers and
jurisdiction of the Tribunal under Sections 15K, 15L, 15M, 15T,
15U and 15Y of the Act. It is in the functioning of the Tribunal to
re-examine all questions of fact at the appellate stage while
exercising jurisdiction under Section 15T of the Act. In Clariant18
and National Securities Depository19, this Court had an occasion G
to examine the jurisdiction of the Tribunal and explain that the
Tribunal has wide powers. Being a permanent body, apart from
acting as an appellate Tribunal on fact, the Tribunal routinely
11
MANU/SC/0362/2022 H
1020 SUPREME COURT REPORTS [2022] 12 S.C.R.
A interprets the Act, Rules and Regulations made thereunder and
evolves a legal regime, systematically developed over a period of
time. The advantage and benefit of this process is consistency
and structural evolution of the sectorial laws.
19. It is in this very context that the UK Supreme Court in the
B case of Jones v. First Tier Tribunal,20 formulated certain principles
for appellate courts to interfere against the orders of Tribunals on
the ground of existence of questions of law. The Court held as
under:
“16 … It is primarily for the tribunals, not the appellate courts, to
C develop a consistent approach to these issues [of law and fact],
bearing in mind that they are peculiarly well fitted to determine
them. A pragmatic approach should be taken to the dividing line
between law and fact, so that the expertise of tribunals at the first
tier and that of the Upper Tribunal can be used to best effect. An
D appeal court should not venture too readily into this area by
classifying issues as issues of law which are really best left for
determination by the specialist appellate tribunals.”
20. The scope of appeal under Section 15Z may be formulated as
under:
E
20.1 The Supreme Court will exercise jurisdiction only when there
is a question of law arising for consideration from the decision of
the Tribunal. A question of law may arise when there is an
erroneous construction of the legal provisions of the statute or the
general principles of law. In such cases, the Supreme Court in
F exercise of its jurisdiction of Section 15Z may substitute its decision
on any question of law that it considers appropriate.
20.2 However, not every interpretation of the law would amount
to a question of law warranting exercise of jurisdiction under
Section 15Z. The Tribunal while exercising jurisdiction under
G Section 15T, apart from acting as an appellate authority on fact,
also interprets the Act, Rules and Regulations made thereunder
and systematically evolves a legal regime. These very principles
are applied consistently for structural evolution of the sectorial
laws. This freedom to evolve and interpret laws must belong to
the Tribunal to subserve the Regulatory regime for clarity and
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1021
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
consistency. These are policy and functional considerations which A
the Supreme Court will keep in mind while exercising its jurisdiction
under Section 15Z.”
The Commission is an Expert Body. Interference with its findings
cannot be sustained, to begin with, if it is bereft of reasons. Findings of
such a body must receive due deference. Perversity in the sense of B
findings, which are wholly without basis or material or which no person
with the professed skills would arrive at, may merit interference. A finding,
which ill squares with a clear statutory injunction, would leave the door
ajar for overturning the finding.
THE OTHER FINDINGS OF THE HIGH COURT C
90. We must deal with the three other findings. The High Court
has found that there is merit in the argument based on principles of
promissory estoppel and legitimate expectation. We would have explored
the matter and rendered our findings qua the approach of the High Court
in regard to this matter which at least at first blush looks ‘wholly untenable’ D
but since the first respondent has taken the stand before this Court that
it may not seek to draw support from the said principles and rightfully so,
we desist from further enquiry.
WHETHER THE FINDINGS OF THE COMMISSION ARE
PERVERSE, ARBITRARY AND WITHOUT APPLICATION OF E
MIND (POINT NO.4)?
91. As regards the finding by the High Court answering point no.
4, namely, whether the impugned orders are perverse, arbitrary and
passed without application of mind, our attention is drawn by the appellant
to the limited nature of jurisdiction exercised by the High Court under F
Section 41 of the Act.
92. It has been the endeavour of the appellant to point out that
contrary to the point which was raised, namely, whether the orders were
perverse, arbitrary and passed without application of mind at any rate,
the point has been answered in a manner which cannot be sustained. G
The High Court opens the discussion under point no. 4 by referring to
the contention of the first respondent that the impugned order suffers
from certain errors apparent on its face. Reliance is placed on a decision
of this Court dealing with power of this court under Article 136 of the
Constitution.
H
1022 SUPREME COURT REPORTS [2022] 12 S.C.R.
A 93. The High Court has proceeded to find that patent errors have
been committed by the Commission. It is found that the Commission has
wrongly calculated the fixed charges for 487MUs while fixing the tariff.
This is after finding that the fixed charges should be for 657Mus. The
second error, it is found, lay in the Commission finding that the incentive
payment charges should be Rs.0.952, in arriving at the tariff rate whereas
B
incentive payment charges were taken as Rs.0.924 per unit. The tariff
would stand raised to Rs.2.54 per unit, if the aforesaid errors were
corrected. Next, it is observed that these errors were not disputed by
the appellants in the pleadings before the High Court or in the course of
argument. The learned Senior Counsel for the appellant Shri S.S.
C Naganand, who submits that he had appeared in the High Court, pointed
out that, in the first place, being a Statutory Appeal, there is no provision
for pleadings, as such, in the High Court. Further, the Commission has
given a basis for what it has done. A detailed note is also made available,
in this regard, to this Court. The learned Counsel has further said that
D the matter was argued threadbare before the Court. We find that the
High Court has not given any independent reasoning except as we have
referred to. Next, the High Court has found that, having agreed to a
negotiated single part tariff, the Commission could not have unilaterally
ignored the well-established parameters and applied norms, which were,
undoubtedly, valid for a two-part tariff and super impose the same in
E calculating tariff on a single part tariff basis. The two-part tariff applied
uniformly, it is found would have resulted in a tariff rate of Rs.3.16 per
unit, which was much higher than Rs.2.60 under the draft PPA. Here
again, these findings appear to be based on there being a concluded
contract and, secondly, are bereft of any reasons and material. The High
F Court proceeds to note the case of the first respondent that tariff of the
first respondent was one of the cheapest as it was based on least cost
tariff basis unlike other companies. No attempt is made to deal with the
findings of the Commission or the power and duty of the Commission.
This part of the finding is summed-up by finding that there is ‘some
substance’ in the contention of the first respondent that it was at the
G receiving end of ‘invidious discrimination and arbitrariness’. We take
exception to this approach by the High Court in a Statutory Appeal
conditioned by the requirement that a question of law must arise. A
finding that there is ‘some substance’ cannot be the approach, when it is
finally disposing of an appeal and finding fault with the Order of an
H Expert Body, in particular. Equally, we are mystified by the invocation of
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1023
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
the Doctrine of Invidious Discrimination and Arbitrariness in the facts of A
the case.
94. Next, the High Court proceeded to find fault with the fixing of
the heat rate disregarding the norms laid down by the Ministry of Power/
CEA or whichever is lower. The High Court has been critical of the
Commission fixing of the plant load factor disregarding the norms under B
the Electricity Supply Act or the negotiated plant load factor. There are
no reasons forthcoming to support this finding. High Court next found
fault with the Commission for doubling the penalty. There is no rationale.
There is no appreciation within the limits of its qualified jurisdiction.
Reduction of escalation by the Commission from five per cent to two
and a half per cent per annum, is apparently with reference to what C
transpired during the negotiations and, therefore, proceeding on the basis
that the matter was a concluded contract, as it was, indeed, the finding
of the High Court. It is without considering the ambit of the power of the
Commission and the objects of the Act. There are similar findings with
respect to fixed costs, disproportionate loading, tantamounting to cross D
subsidisation being contrary to the Judgement of this Court in West Bengal
Electricity Regulatory Commission v. CESC Ltd.12. Again, there is no
discussion and the High Court has purported to proceed as if it is itself
an Expert Body. At least, the reasons have not been furnished for
justifying the Commission being arraigned in the manner done. Likewise,
there is impugning of the findings of the Commission in regard to grid E
support charges being unjustified and ultra vires the Act. It is also stated
that objections filed by the first respondent were not considered by the
Commission. Lastly, it was found that the Commission has not given
reasons.
95. We are of the view that the High Court has apparently F
proceeded on the basis that there existed a concluded contract within
the meaning of proviso to Section 27(2). We have found that it is
unsustainable. We are of the view that findings which have been rendered
under Point No. 4, have been considerably influenced by the finding
relating to there being negotiations and the emergence of the concluded G
contract. We are of the view that, at any rate, particularly bearing in
mind, the limited nature of the jurisdiction of the High Court under Section
41 of the Act, the approach and the findings of the High Court under
Point No. 4, may not be sustainable. But, at the same time, we are of the
12
(2002) 8 SCC 715 H
1024 SUPREME COURT REPORTS [2022] 12 S.C.R.
A view that, being an assessment of the findings of an Expert Body, the
High Court must reconsider the matter. To the said extent, the matter
must be remitted back to the High Court in regard to Point No.4.
CPP V. IPP (POINT NO.3)
96. The last question which remains relates to point no.3 that is,
B whether the first respondent was a CPP or an IPP.
97. Under point no.3, the High Court has relied upon the orders of
GoI dated 09.10.1995, 31.01.1996, 06.11.1996 and 09.01.1997. The High
Court has found that under these orders there is a distinction between
the IPP and CPP and the first respondent has complied with the
C requirement under the Supply Act for establishing a generating company
with reference to Sections 29 to 31 for sale, pursuant to Section 43A,
making it an IPP. It is found that CPP would have to get clearance under
Section 44 of the Electricity (Supply) Act, whereas an IPP would require
to process the matter under Sections 29 to 31 of the Electricity (Supply)
D Act, 1948. Reliance was placed on the fact that the first respondent was
granted techno-economic clearance by order dated 22.03.1996.
98. It is further found with reference to the G.O. dated 07.03.1994,
which we have referred to that GoK gave approval so that continuous
power could be supplied to the grid making it more stable. Reliance is
E also placed on letter dated 01.03.1995 allegedly issued by the appellant
(whereas it is actually issued by the KEB) confirming to the CEA, that
the first respondent was an IPP. It is next found that under the Wheeling
and Banking Agreement dated 26th January, 1996 sale of firm capacity
to the appellant was provided for. GoK also confirmed to the CEA that
the first respondent was an IPP under Section 43A of the Supply Act.
F GoK order dated 2nd March, 1996 providing for consent for sale of power
under Section 43A of the Supply Act is referred to. The techno economic
clearance granted by the CEA dated 22nd March, 1996 is adverted to
and it is further found that such a clearance was unnecessary if the first
respondent was a CPP. The appellant is alleged to have, by letter dated
G 29th March, 1996, supported the project cost and forwarded the same
for the approval of GoI. The appellant is also alleged to have participated
in the discussion with the CEA for approval of the project and started
the transmission system as availed by all IPPs. It was further found that
the procedure for payment of charges for supply of electricity was to be
a standard procedure followed in case of IPP projects. Next, the High
H Court reasons that if the first respondent was a CPP, it would have set
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1025
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
up a 140 MW plant to meet the requirements of JVSL and not 260 MW A
plant. 260 MW plant was contemplated to provide firm capacity to the
appellant as evident from the order dated 7th March, 1994. The detailed
project report provided that the requirement of steel plant was only 150
MW and rest 110 MW will be supplied to KEB to reduce the power
deficit in the State. If the first respondent was a CPP, it could not have
B
dedicated firm capacity to the appellant and guaranteed continuous supply
of power. The Commission itself, having recognised the fact that the
status of IPP was granted, it could not treat it as CPP for determining
the tariff. The mere use of common infrastructure for coal handling and
water supply could not render the first respondent a CPP. The power
plant was designed to fire either corex gas or coal as fuel which confirmed C
that the first respondent plant was not a captive plant and it was intended
to supply power to the appellant even with the Steel plant not working
and not producing corex gas. The first respondent and JVSL were distinct
corporate entities having obtained financial assistance and project
approval on stand-alone basis. The fact that the capacity of 240 MW
D
was underwritten by JVSL was also found not germane to conclude that
the first respondent was a CPP. The Commission, it was found, erred in
arriving at 1637 MUs at 77 per cent PLF and fixed charges at 1150
MUs supplied to appellant ignoring that the first respondent was supplying
energy to JVSL at 85 per cent PLF. Such direction was based on the
wrong conclusion that the first respondent was CPP. The High Court E
concluded that the power plant of the first respondent was having the
status of IPP and not CPP.
99. According to the appellant, the operation of first respondent
and JVSL was intertwined and interdependent. It is contended by the
appellant that they share common infrastructure for coal handling, water F
supply and the coal is purchased for the first respondent by its sister
company, JVSL, and JVSL raised invoices on the first respondent.
Therefore, the first respondent is to be treated as a CPP as it is supplying
power to JVSL. Reliance is placed on the Wheeling, Banking and Grid
Support Agreement dated 23.01.1996. The priority of the sales was to
begin with sales being made to its dedicated customers firstly. Secondly, G
power was to be wheeled to third party exclusive customers, and only if
excess power is available, it was to be supplied to the KEB on negotiated
terms. The Government Order dated 12.05.1999 itself makes it clear
that the first respondent was selling surplus power to the appellant and
indicates that the same principle of negotiated tariff for CPP would be H
1026 SUPREME COURT REPORTS [2022] 12 S.C.R.
A applicable to the first respondent. The agreement dated 14.10.1999
entered into between KEB and the first respondent for supply of power
from KEB to JVSL on barter basis makes it clear that the entire net
capacity is underwritten by JVSL and it has permitted the first respondent
to enter into a Wheeling and Banking Agreement as well as PPA with
B KEB for sale of excess power. It is further pointed out that the
Government of Karnataka has extended concessions for payment of
electricity taxes by treating it as a captive unit by Government Order
dated 21.12.2000. The power proposed to be supplied by the first
respondent to the appellant was surplus power and the grant of status of
IPP by GoK would make no difference. The appellant has a case that
C the grant of status of IPP was also based on the difference in the
shareholding of the companies but that cannot overlook the other aspects
about the transactions from which it could be concluded that the first
respondent was a CPP, it is contended.
100. The first respondent would support the findings of the High
D Court. Reliance is undoubtedly placed on the Government of India policies
stressing the distinction between the IPP and CPP. Having obtained
consent under Sections 29 to 31 of the Supply Act, 1948, it is contended
that it is an IPP. Prior to the Electricity Act, 2003, there was no definition
of a CPP nor were their requirements set out. Such requirements evolved
E only with the Electricity Rules of 2005. The first respondent has been
recognised by the KEB and the GoK as an IPP. Reliance is placed on
GoK order dated 07.03.1994, KEB letter dated 01.03.1995 confirmation
by GoK of the IPP status, GoK Order dated 02.03.1996, CEA letter
dated 22.03.1996, granting techno-economic clearance, and GoK letter
dated 22.03.1996, supporting project cost. G.O. dated 02.03.1996,
F according the exemption to the first respondent from electricity tax only
on the power supplied to JVSL, its sister concern. The alleged CPP
status was only qua power sold to the sister concern to benefit it and not
the first respondent and it is not as projected. The establishment of the
plant of 260 MW can be explained not with it being CPP, in which latter
G case, it would have sufficed to set up a plant of 140 MW. The letter
dated 01.03.1995 sent by KEB confirmed that the first respondent was
an IPP. An affidavit of the appellant dated 18.10.2001 admitted that the
first respondent was an IPP. The DPR contemplated the need to supply
power to the grid and the appellant and GoK approved the project cost
as an IPP and it was forwarded to the CEA for approval.
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1027
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
101. The guaranteed minimum supply of threshold power is A
compatible with the first respondent being an IPP. Penalties for failure
to sell the firm capacity or rather for short supplies is relied upon. Payment
of charges for supply of electricity was based on procedure in IPP
projects. The tariff order of the commission for the years 2000, 2002
and 2003 shows that the first respondent was an IPP. Sharing of common
B
infrastructure did not necessarily imply that the power plant of the first
respondent was a CPP. There were other projects taking advantage of
such infrastructure. It was intended only to optimise the project cost.
FINDINGS
102. It is not in dispute that it is with the Electricity Rules of 2005 C
that the requirements of a captive generating plant were laid down. It is
the admitted position that at the relevant time there was no definition of
a CPP in existence. The requirements of a captive generating plant was,
according to the first respondent, not available.
103. It would appear that the private power policy of the GoI was D
announced in the year 1991. GoI letter dated 09.10.1995 would show
that there were a number of proposals through IPP route. It was found
however that it would have a long gestation period. Captive power plants
provided an alternative. GoI decided that captive power plants of industries
could be allowed to sell the surplus power, if any, to the grid on a
E
remunerative tariff as per mutually agreed terms. This would add to the
generating capacity in the country. There is mention of co-generation as
also small power production. It was therefore suggested to all Chief
Secretaries of the states that they may create an institutional mechanism
which may allow captive power units an easy automatic entry into power
sector by quickly clearing such applications by the state governments by F
giving them rational tariff for purchase of surplus power by the grid and
the third-party access for direct sale of power to other industrial units.
We may notice that this communication is after GoK order dated
07.03.1994 by which the first respondent was permitted to be set up.
Moreover, what is contemplated under captive power plant was that it
G
could sell surplus power, if any, to the grid as per mutually agreed terms.
Therefore, in the case of the captive power plant, primarily, the industries
could satisfy their power requirements from the captive units.
104. On 01.03.1995 the KEB responding to the request from the
Director of the CEA to clarify whether the generating plant set up by
H
1028 SUPREME COURT REPORTS [2022] 12 S.C.R.
A the first respondent was captive plant under Section 44 of the Supply
Act, 1948 or a generating plant, stated that it was an independent
generating plant. The copy of the approval granted by the GoK for setting
up the generating plant was enclosed. This would take us to G.O. dated
07.03.1994 which we have already adverted to. What is stated therein is
that the first respondent’s sister company namely Jindal Iron and Steel
B
Company was setting up a combined gas cycle plant of 300 MW x 150
MW within the site allotted for a steel plant for which GoK had already
given approval. There is reference to the financial aspects. Thereafter,
it is recited that the advantage of setting up the power plant at Bellary-
Hospet was that the excess power generated will be fed to the KEB
C grid and can sell to other industrial units in the area, besides generation
of additional employment. The KEB was found seeking a detailed project
report indicating the cost of the project inter alia. It is thereafter that the
first respondent was permitted to set up the plant in two phases of 300
MW of 150 MW each. This was subject to approval of the GoI in respect
of the foreign investment. It was also subject to obtaining statutory
D
clearances under the relevant Acts. The first respondent was permitted
to sell power directly to industrial units in the area at mutually negotiated
rates again subject to approval of the state government. The first
respondent had to sell the balance power to KEB at tariff to be determined
as per norms dated 31.03.1992. We may get the prima facie impression
E that the said terms would appear to be in tune with the concept of a
captive unit, as contemplated in GoI letter dated 09.10.1995.
105. It would appear it is not in dispute that the capacity has been
reduced from 300 MW to 260 MW. The circumstances in which it stood
reduced is not borne out by any order produced before us. The next
F development in chronological order, we notice, is the Wheeling and
Banking Agreement dated 23.01.1996. The agreement is entered into
between the first respondent and the KEB. The agreement refers to the
company or the first respondent as a generating company and that it
proposed to set up a 2x120MW dual fire which is to be understood with
reference to the statement that it is fired, namely, with corex gas with
G coal firing to supplement it. Next it is stated that the first respondent
intended to sell the ‘majority’ of the power to dedicated or third-party
exclusive customers as defined. Dedicated customers has been defined
in the agreement as those consumers of power supplied solely by the
first respondent through transmission lines set up by it and it was to
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1029
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
include the sister concern, JVSL. Third party exclusive customer was A
defined to mean the consumer who had contracted for its entire demand
and energy requirements from the first respondent. However, the power
was to be supplied through the KEB’s transmission system. It is as we
have already noted provided in Clause 2.4 that ‘if at any stage’ the first
respondent offered ‘excess’ firm capacity for sale to the board (KEB),
B
then, the Board ‘may purchase’ the same from the first respondent.
Such purchase was to be based on agreement on price and other terms
to be negotiated at the time of such sale. Therefore, it would appear that
what was contemplated was the sale of the majority or most of the
power generated to its dedicated customers which included the JVSL
and to other third party exclusive customers. Clause 2.4 appears to C
provide that if at any stage it was found that there was excess power
which could be firmly offered to KEB, KEB may purchase such power.
The order dated 30.01.1996 is not seen produced. It is one of the letters
of the GoI which has been referred to by the High Court and the first
respondent.
D
106. On 02.03.1996 GoK after referring to the G.O. dated
07.03.1994 and the request by the first respondent for support in various
matters offered certain concessions. GoK gave its consent under Section
43A(1)(c) and paragraph-3.2 of the GoI Tariff Notification dated
13.03.1992 as amended for sale of power by the first respondent directly
to any customer at rates to be mutually negotiated by the first respondent. E
It is also provided that the consent was also to be deemed as previous
sanction under Section 28 of the Indian Electricity Act, 1910. Still further
exemption was granted under Section 3 of the Karnataka Tax on
Consumption of Electricity Act, 1959 on the consumption of electricity
generated by it for five years from the date on which the power plant of F
the first respondent went into commercial operation. Likewise, the
consumer was exempted. Certain other concessions were promised.
107. Section 43A(1)(c) of the Supply Act, 1948 provided inter alia
that a generating company could enter into a contract for sale of
electricity generated by it with any other person with the consent of the G
competent government or governments. The Order, thus, must be viewed
in the said perspective. This is apart from it operating as consent for sale
within the meaning of Section 28 of the Electricity Act, 1910.
108. On 22.03.1996, we may notice that the ‘scheme’ for
establishment of a 2x130 MW corex/ coal based thermal power station H
1030 SUPREME COURT REPORTS [2022] 12 S.C.R.
A was accorded techno economic clearance by the CEA subject to certain
conditions which are indicated therein.
109. Next in chronological order is the communication dated
06.11.1996 issued by the GoI. The heading in fact of the said
communication is promotion of co-generation power plants. In the said
B communication after noticing the energy shortage and referring to letter
dated 09.10.1995 it was indicated that by the subsequent communication
dated 30th January, 1996 (a communication which we are not provided
with) regarding clearance process of captive power that the captive
power plants of any other persons including the juristic persons and
excepting generating companies was not subject to Section 29(2) of the
C
Supply Act. It is further indicated that the Electricity Board [KEB] was
to send to the Authority under Section 44(2)(A) if the capacity of a new
generation station, inter alia, exceeded 25 MW. Thus, in terms of Section
44 of the Act captive power/ co-generation plants required the approval
of the board only. The Board were to refer the proposal for consultation
D with the CEA where the capacity exceeded 25 MW under Section 44
(2A). Thereafter, the order went on to deal with co-generational units
which were understood as units which simultaneously produce two or
more forms of energy.
110. The last communication is dated 09.01.1997. Therein,
E reference is made to the order dated 30th January, 1996 and that it was
therein clarified that proposals for setting up captive power plants under
Section 44 would not come under the purview of Sections 29 to 31 of the
Supply Act, 1948, which related to the CEA’s detailed scrutiny and techno
economic clearance. It was added that the intention was that in view of
the large demand supply gap existing industries should be encouraged to
F
set up their own captive power plants to add quick captive capacity in
the electricity supply industry. The letter dated 9th January, 1997, further
noticed that there were suggestions from some States that some of the
industries found it difficult to set up power plants through the existing
companies and they favoured setting up of power plants by an independent
G entity (IPP) with total dedication of power generated to the existing
industry/group of industries but without any sale of power to the State
Grid. In the letter dated 01.01.1997, it is further observed pertinently
that however these would be generating companies by definition and
reference is made to GoI instructions dated 18.01.1995, which required
that selection of IPP be through competitive bidding by the government
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1031
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
or electricity board. The industries preferred to have the choice of A
negotiations with parties on a bilateral basis instead of the IPP being
selected through competitive bidding. GoI decided to facilitate setting up
of ‘generating stations’ by ‘IPP’ exclusively for ‘the captive use’ of an
industry or a group of industries without involving any sale to the State
Grid. The selection of such IPP through competitive bidding was no
B
longer required. Thus, letter dated 9th January, 1997, appears to indicate
that IPP generating stations could be set up exclusively for the ‘captive
use’ of the industry or a group of industries without any sale to the State
Grid. Secondly, such IPPs could be selected without competitive bidding.
We do not have the letter dated 18.01.1995, which is referred to in letter
dated 9th January, 1997. We do not also have the order dated 21.12.2000 C
which appears to have been relied upon by the Commission and which is
relied upon by the appellant before us, as per which the first respondent
availed concessions from payment of electricity taxes holding out to be
a CPP. We further notice that the High Court in the impugned judgment
does not appear to have dealt with order dated 21.12.2000. There is a
D
case for the appellant that when IPP desires to contract for power with
the appellant on two-part tariff basis, KEB/ the appellant must be involved
in every stage of project formation, finalisation of capital costs. According
to appellant, KEB/ KPTCL would be involved during the discussions
stage to accord techno economic clearance as well as for whole supply
agreement to ensure the least cost and these formalities have not been E
complied with. In this case the High court has referred to the appellant
(KEB) vide its letter dated 29th March, 1996, supporting the project cost
and forwarding the same for approval to the GoI. It is also further stated
that the appellant participated in discussion with the CEA for approval
of the project and supported the transmission system. We are unable to
F
locate the letter dated 29th March, 1996. No doubt, the appellant must be
understood as its predecessor the KEB. But there is no communication
dated 29th March, 1996 indicating that the KEB supported the project
cost. It would appear that a copy of such a letter (29.03.1996) was
annexed as Annexure 14A before the High Court. Further, in the appeal
memorandum, in paragraph 9 thereof, it would appear that what was G
contended by the first respondent was that the appellant and GoK
approved the project cost and DPR and letter dated 29.03.1996 was
produced. Appellant is stated to have participated in the discussion before
the CEA and the second respondent (GoK) actively supported the project
by granting approval and various benefits. The High Court has apart
H
1032 SUPREME COURT REPORTS [2022] 12 S.C.R.
A from finding that the appellant participated also stated that appellant
supported the transmission system as availed by all IPPs. Prima facie,
we would think also that what was contemplated in the Wheeling and
Banking Agreement dated 23.01.1996 was that, if there was any excess
which meant after fulfilling its obligations to the dedicated and third-
party customers, it would be offered to KEB.
B
111. The appellant has a case that what in ‘substance’ was agreed
to be sold to the appellant was only surplus available power. The status
of IPP being established also would not by itself be relevant in the
determination of the cost, it is contended. We would think that the interest
of justice require that taking note of also the fact that first respondent
C
had allegedly specifically claiming to be a CPP availed benefits and this
has also not been considered by the High Court, the matter must be
reconsidered by the High Court. The findings therefore, that the first
respondent was CPP will stand set aside and High Court will undertake
a consideration of the matter based on a study of the documents and
D also taking note of the proceedings by which, the first respondent allegedly
claimed as CPP and availed benefits. The High Court will also consider
the argument of the appellant that even treating the first respondent as
IPP, in the context of the contention of the appellant that the sale
contemplated to the appellant was only of ‘surplus power’, only after
the demand of the first two categories were fulfilled on the aspect of
E
fixation of tariff.
112. The upshot of the above discussion is that the appellant is
entitled to succeed in the manner we shall hereinafter immediately
indicate. The appeal is partly allowed. The finding that there was a
concluded contract within the meaning of the proviso to Section 27(2) of
F
the Act will stand set aside. The findings which have been rendered
under point no. 4 about perversity, arbitrariness in the findings of the
Commission are set aside. The finding relating to the first respondent
being an IPP is also set aside. The matter will now stand remitted back
to the High Court. It will proceed on the basis that there was no concluded
G contract within the meaning of the proviso to Section 27(2) of the Act. It
will proceed, however, to deal with the appeal under Section 41 of the
Act in regard to point no.3 and 4, namely, whether the findings of the
Commission are such that they are required to be interfered under the
jurisdiction available under Section 41 of the Act including the question
whether the first respondent is a CPP or an IPP.
H
KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGY 1033
LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &
JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]
113. We must also deal with the request made by the learned A
Counsel for the appellant that as Rs.100 crores has been received by
the first respondent on the strength of a bank guarantee based on the
impugned judgment, under the interim Order passed by this Court, if the
appeal is allowed, the first respondent is duty bound to pay the aforesaid
amount to the appellant. This was countered by the first respondent by
B
pointing out in the ‘unlikely event’ of the appeal being allowed only on
the point that there was no concluded contract and if the other two
aspects are to be reconsidered by the High Court, then the first respondent
cannot till these matters are reconsidered be directed to repay the amount.
It is also the contention of the first respondent that there will be undue
enrichment as the appellant would have shifted the burden to the end C
customer.
114. This line of argument is sought to be met by the learned
counsel for the appellant by pointing out that the appellant is a public
authority, and more importantly, the appellant being erroneously compelled
to pay under the orders of the court, has witnessed a deprivation of D
valuable funds from the appellant, which would otherwise have been
available to it. Furthermore, what is more important is, if the appellant
succeeds in regard to the point canvassed, namely, that there was no
concluded contract within the meaning of proviso to Section 27 of the
Act and if the amount is ordered to be given to the appellant, then, it E
would have a bearing on the interest of the consumers. This is for the
reason that in working out the rate to be charged from consumers, even
now this amount if it is brought into the coffers of the appellant, it would
result in a corresponding reduction in the burden which the consumer
would have to bear.
F
115. We have considered this aspect of the matter. We are remitting
the matter back after finding that the High Court was clearly in error in
finding that there was a concluded contract. We have also interfered
with the other findings. However, at the same time we may not overlook
the fact that we are not allowing the appeal entirely. The validity and
G
correctness of the order of the Commission must be decided with
reference to the boundaries of the jurisdiction of High Court under Section
41 in regard to the matter. We would at the same time find that the
appellant has succeeded in a substantial manner. We would think that
the equities must be balanced.
H
1034 SUPREME COURT REPORTS [2022] 12 S.C.R.
A 116. We would think that the interest of justice would be met if
the first respondent be directed to pay a sum of Rs.50 crores from out of
Rs.100 crores which has been paid. The payment of the amount is to be
made within a period of 8 weeks from today.
117. Disbursement of further amounts as also the fate of the
B payment of Rs.50 crores by the first respondent will await the final
decision of the High Court in regard to the determination for which we
remit the matter.
118. The appeal filed by Karnataka Power Transmission
Corporation Limited is partly allowed and the impugned Judgment shall
C stand set aside. We find that there was no contract concluded within the
meaning of Section 27(2) of the Act. We remand the case back to the
High Court for reconsidering the points ‘3’ and ‘4’ formulated by the
High Court. The first respondent shall pay to the appellant a sum of
Rs.50 crores (fifty crores) within eight weeks. As regards further liability
to pay, it will await and depend upon the decision of the High Court. So
D also, the payment of Rs.50 crores (fifty crores) by the first respondent,
under this Judgment, will be subject to the determination to be made by
the High Court.
119. The appeal filed by Karnataka Electricity Regulatory
Commission will stand allowed to the extent that the remarks made against
E it in the impugned judgment shall stand set aside as indicated hereinbefore.
Parties will bear their respective costs.
Bibhuti Bhushan Bose Appeals disposed of.
(Assisted by : Shashwat Jain, LCRA)
F
G
H
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