MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LIMITEDversusRATNAGIRI GAS AND POWER PRIVATE LIMITED & ORS

                 [2023] 14 S.C.R. 761 : 2023 INSC 993



                           CASE DETAILS

    MAHARASHTRA STATE ELECTRICITY DISTRIBUTION
                COMPANY LIMITED
                                    v.
   RATNAGIRI GAS AND POWER PRIVATE LIMITED & ORS
                    (Civil Appeal No. 1922 of 2023)
                        NOVEMBER 09, 2023.
         [DR. DHANANJAYA Y CHANDRACHUD, CJI ,
           JB PARDIWALA AND MANOJ MISRA, JJ.]

                            HEADNOTES

      Issue for consideration: Whether the Central Electricity Regulatory
Commission-CERC and Appellate Tribunal for Electricity-APTEL were
justified in affixing liability to pay fixed charges on the appellant.
     Electricity Act, 2003 – s. 79 – Payment of fixed capacity charges –
Fixation of liability – Power Purchase Agreement between the appellant
and first respondent whereby the appellant would purchase power
from the first respondent – First respondent was supposed to receive
the contracted quantity of gas supply from RIL, however after there
was a decline in the supply – In order to make up for the shortfall,
the first respondent entered into a Gas Supply Agreement-GSA with
GAIL for the supply of Recycled Liquid Natural Gas, and conveyed
the same to the appellant and requested the appellant to schedule its
energy requirements – Appellant refused to schedule power at the
rates stipulated and stated that it stood absolved of the liability to pay
capacity charges in accordance with the PPA – Petition u/s. 79 by the
first respondent for non-payment of fixed charges – CERC held the
appellant liable to pay fixed capacity charges under the PPA – APTEL
upheld the order – Correctness:
      Held: Commercial document cannot be interpreted in a manner that
is at odds with the original purpose and intendment of the parties to the
document – Deviation from the plain terms of the contract is warranted

                                   761
762          SUPREME COURT REPORTS                        [2023] 14 S.C.R.


only when it serves business efficacy better – According to the principles
governing the interpretation of contracts, the PPA is required to be read
as a whole – Primary fuels include LNG/Natural gas and/or RLNG,
and the appellant’s agreement is required in case liquid fuels are to be
employed – A bare reading of the clause indicates that the requirement
to seek such an agreement does not attach to the first part of the clause
which envisages RLNG as a primary fuel – An arrangement involving a
transition from one primary fuel to another primary fuel is permissible
by the clause, even without the appellant’s agreement – Requirement of
an agreement, mandated for an arrangement involving liquid fuel cannot
be read into the plain text of the former part of Clause 4.3 – Capacity
declaration based on RLNG could be done unilaterally, unencumbered
by the requirement of the appellant’s consent in the latter half or the prior
approval requirement under Clause 5.9 of the PPA – Thus, the CERC and
APTEL correctly held that the GSA/GTA with GAIL is permissible by
the terms of the contract and the consent or approval of the appellant is
irrelevant. [Para 28-29, 32, 35-36]

       LIST OF CITATIONS AND OTHER REFERENCES

    Transmission Corporation of Andhra Pradesh Ltd v. GMR Vemagiri
Power Generation Limited (2018) 3 SCC 716 – referred to.
       OTHER CASE DETAILS INCLUDING IMPUGNED
              ORDER AND APPEARANCES

      CIVIL APPELLATE JURISDICTION : Civil Appeal No.1922 of 2023.
     From the Judgment and Order dated 22.04.2015 of the Appellate
Tribunal for Electricity at New Delhi in AN No.261 of 2013.
      Appearances:
    Vikas Singh, Sr. Adv., Samir Malik, Ms. Nikita Choukse, Akash
Lamba, Krishan Kumar, M/s. D.S.K. Legal, Advs. for the Appellant.
     C. Aryaman Sundaram, Sr. Adv., Mrs. Swapna Sheshadri, Anand K
Ganesan, Nitin Saluja, Ms. Ritu Apurva, Ms. Archita Kashyap, Advs. for
the Respondents.
    MSEDCL. v. RATNAGIRI GAS AND POWER PVT. LTD.                                                  763



        JUDGMENT / ORDER OF THE SUPREME COURT

                                        JUDGMENT

      DR. DHANANJAYA Y CHANDRACHUD, CJI
                                                Contents
      Factual Background .......................................................................4*
      CERC Order dated 30 July 2023 and APTEL Judgement and Final
      Order dated 22 April 2015..............................................................6*
      Submissions....................................................................................9*
      Analysis and Conclusion ..............................................................13*
             Terms of the PPA .................................................................13*
             Factual Context and the Intention of parties to the contract 17*
     1. This appeal arises from the judgment of the Appellate Tribunal for
Electricity1 at New Delhi. APTEL dismissed an appeal against an order of
the Central Electricity Regulatory Commission2 dated 30 July 2013.3
      2. The first respondent, an electricity transmission company called
Ratnagiri Gas And Power Private Limited4, filed a petition under Section
79 of the Electricity Act, 2003 against the appellant, Maharashtra State
Electricity Distribution Co. Ltd.5, seeking the resolution of issues arising out
of the non-availability of domestic gas; beneficiaries’ reservations to allow
the first respondent to enter into contracts for alternate fuel, the revision
of the Normative Annual Plant Availability Factor6 and directions to the
beneficiaries to pay fixed charges due to the first respondent.
     3. CERC, by its order dated 30 July 2013 held the appellant liable to
pay fixed charges to the first respondent. CERC’s decision was upheld by


* Ed Note: Pagination is as per the original judgment.
1 “APTEL”.
2 “CERC”.
3 Appeal No. 261 of 2013
4 “RGPPL”/first respondent.
5 “MSEDCL”/appellant.
6 “NAPAF”.
764            SUPREME COURT REPORTS                         [2023] 14 S.C.R.


APTEL by the impugned order. The civil appeal against the APTEL order
was disposed of by this Court by an order dated 13 May 2015, whereby the
appellant was granted liberty to move the court when it became necessary.
This Court directed as follows:
       “The question raised in the present appeal before this Court at this stage
       appears to be academic in the absence of any coercive steps against the
       appellant for recovery. We, therefore, decline to entertain this appeal
       at this stage. However, we give liberty to the appellant to move this
       Court once again in the event it becomes so necessary.”
      4. Consequently, there was correspondence between the appellant
and the first respondent regarding the liability towards fixed charges. The
appellant disclaimed any liability under the Power Purchase Agreement7
stating that it stood absolved of the fixed charges since the capacity
declaration was made by the first respondent based on RLNG, without the
appellant’s consent. The first respondent filed an execution petition before
APTEL seeking the payment of Rs 5287.76 crores together with an amount
of Rs 1826 crores in accordance with the APTEL order dated 22 May 2013.
Notice was issued on the execution petition by an order dated 25 November
2022.
      5. Thus, in light of the subsequent events and the liberty granted by
this Court, the present appeal has been filed.
       FACTUAL BACKGROUND
      6. The first respondent, RGPPL is a joint venture of NTPC Ltd., Gas
Authority of India Ltd8, MSEB Holding Company, ICICI, IDBI, SBI, and
Canara Bank. It was established as a Special Purpose Vehicle to take over
the assets of Dabhol Power Company Limited whose operations had to be
closed down. The first respondent is a transmission company that owns a
gas-based generating station at Ratnagiri, Maharashtra. 95% of its capacity
has been allocated by the Ministry of Power to the State of Maharashtra
and the rest to the State of Goa, and UTs of Daman and Diu, and Dadra and
Nagar Haveli. The share allocated to the State of Maharashtra is supplied


7     “PPA”.
8     “GAIL”
    MSEDCL. v. RATNAGIRI GAS AND POWER PVT. LTD.                           765
       [DR. DHANANJAYA Y CHANDRACHUD, CJI]

to the distribution licensee MSEDCL, the appellant. The appellant and the
first respondent entered into a Power Purchase Agreement on 10 April 2007
for 25 years whereby the appellant would purchase power from the first
respondent. The tariffs for the three blocks of the generating station were
determined by CERC in accordance with the Central Electricity Regulatory
Commission (Terms and Conditions of Tariff) Regulations, 2004 having
regard to the capital cost and plant capacity of the generating station.
      7. The first respondent was supposed to receive the contracted quantity
of gas supply from RIL. It is stated on behalf of the first respondent that the
supply was received accordingly until September 2011, after which, there
was a progressive decline in the gas supply. The shortfall was attributed to
the low-yielding KG-D6 gas fields. The issue of short supply was taken up
with the Central Government and was placed before the Empowered Group
of Ministers in its meeting held on 24 December 2012.
      8. On account of the steady decline in the supply of domestic gas since
September 2011, and in order to make up for the shortfall in the generation
of power during 2011-2012, the first respondent entered into a Gas Supply
Agreement/Gas Transportation Agreement9 with GAIL for the supply of
Recycled Liquid Natural Gas10 under spot cargo on a take-and-pay-contract
basis. The first respondent conveyed this to the appellant by a letter dated
16 December 2011. In this letter, the first respondent stated that due to the
shortfall in the supply of domestic gas, the first respondent was unable to
achieve the target availability stipulated in the tariff order. According to the
first respondent, this, in turn, was impacting their ability to make full fixed
cost recovery and hampering the viability of the project. The appellant was
requested to schedule its energy requirements accordingly based on capacity
declarations made by the first respondent.
      9. The appellant refused to schedule power at the rates stipulated in
the above letter. The appellant stated that in accordance with Clause 5.9
of the PPA, the first respondent failed to obtain the appellant’s approval
before entering into the GSA/GTA with GAIL. As such, the declaration of
capacity on RLNG was stated to be unilateral and arbitrary and in violation


9 “GSA”/”GTA”.
10 “RLNG”
766           SUPREME COURT REPORTS                         [2023] 14 S.C.R.


of the terms of Clause 5.9 of the PPA which mandated prior approval from
the appellant. Therefore, the appellant stated, that it stood absolved of the
liability to pay capacity charges in accordance with the PPA. Letters were
exchanged between the appellant and the first respondent from 17 December
2011 to 01 March 2012.
      10. In order to resolve the above issue of non-payment of fixed charges,
the first respondent filed a petition under Section 79 of the Electricity Act
2003 seeking the resolution of the issue of shortfall of domestic gas, the
reservations of the beneficiaries to allow it to enter into alternate contractual
arrangements for fuel i.e. RLNG. The petition additionally sought the
revision of the NAPAF and directions to the beneficiaries to pay outstanding
fixed charges.
   C E R C O R D E R D AT E D 30 J U LY 2023 A N D A P T E L
JUDGEMENT AND FINAL ORDER DATED 22 APRIL 2015.
      11. CERC allowed the above petition and held the appellant liable to
pay fixed capacity charges under the PPA. It held that (i) Clause 4.3 of the
PPA permits the use of LNG/Natural gas or RLNG as a ‘primary fuel’; (ii)
the first respondent is permitted to use even liquid gas, albeit with the consent
of the appellant; (iii) the terms of the PPA do not injunct the first respondent
from declaring capacity based on RLNG; (iv) the beneficiaries have the
option to dispatch or refuse to dispatch the capacity on natural gas, RLNG,
or liquid fuel; (v) in the event they choose to refuse the dispatch, they cannot
repudiate the liability to pay fixed charges citing the transmission company’s
failure to obtain approval; (vi) such consent or approval is not necessary
for declaring capacity based on the contractually designated primary fuels,
including RLNG; (vii) the requirement of seeking the appellant’s approval
under Clause 5.9 is not a mandatory pre-requisite for making capacity
declarations under Clause 4.3; (viii) the fixed tariffs are payable on declared
capacity; (ix) since the first respondent was unable to obtain domestic gas
due to a country-wide shortage, they made arrangements for RLNG; (x) the
appellant’s decision to not schedule the supply based on RLNG has a bearing
on variable charges and not on the fixed charges; and (xi) the appellant was
thus liable to pay the fixed charges based on capacity declarations made on
RLNG by the first respondent.
MSEDCL. v. RATNAGIRI GAS AND POWER PVT. LTD.                          767
   [DR. DHANANJAYA Y CHANDRACHUD, CJI]

 12. APTEL upheld the above order in the following terms:
 a.   The need to obtain the consent of the distribution licensee arises
      only when the power generation company makes arrangements
      based on liquid gas. In the present case, the only change in
      question is being made from one primary fuel to another primary
      fuel i.e. from natural gas to RLNG. Both of these are “primary
      fuel for RGPPL” in accordance with Article 4.3 of the PPA. This
      change, unlike the change from primary fuel sources to liquid
      gas, does not require the consent of the distribution company;
 b.   The PPA did not require the power generation company to obtain
      the consent of the distribution licensee for entering into the GSA/
      GTA with GAIL. The plant was set up after significant efforts
      from the central and state governments. The first respondent was
      left with no choice but to enter into the GSA/GTA with GAIL in
      order to overcome the domestic gas shortage. The appellant had
      refused to schedule power for the declared availability based on
      RLNG to be supplied under the GSA/GTA;
 c.   The first respondent has declared the necessary availability of
      electricity when the appellant has chosen not to schedule the
      quantum of electricity on the declared availability. As long
      as the first respondent has the declared available capacity and
      irrespective of whether the appellant has scheduled the capacity
      offered by the first respondent, the appellant is liable to pay the
      fixed capacity charges; and
 d.   The first respondent has invested in establishing, operating, and
      maintaining the generating station. The annual fixed charges
      are determined with reference to specific tariff requirements
      stemming from the Tariff Regulations of 2009. The capital costs
      invested in the station need to be serviced by way of the annual
      fixed charges.
      Thus, APTEL directed that if the appellant wishes to not pay for
      the electricity from RLNG, it must pay compensation to the first
      respondent, since it is liable, under Article 5.2 of the PPA, to pay
      the capacity charges. No prior consent, as envisaged in Article
      5.9, is required, in order for such liability to arise.
768          SUPREME COURT REPORTS                         [2023] 14 S.C.R.


      13. APTEL thus held that the appellant has been rightly ordered to pay
the capacity charges notwithstanding the fact that they have not consented
to the GSA/GTA with GAIL. The appeal was thus dismissed.
      14. The Civil Appeal against APTEL’s decision was initially disposed
of by this Court. Since the appellant was not facing any punitive action for
recovery, the appeal was dismissed and the appellant was granted the liberty
to approach the Court when necessary.
      15. In view of the above liberty, the present appeal is before us.
     16. Following the issue of notice, the first respondent has entered
appearance and filed a counter affidavit.
      17. We have heard Senior Counsel for the appellants and respondents.
      SUBMISSIONS
   18. The appellant urged the following submissions in its challenge to
APTEL’s judgment and final order:
      a.   CERC has put Clause 4.3 and Clause 5.9 of the PPA in two
           separate buckets. According to the PPA (clauses 4.3, and 5.9 read
           conjointly), the first respondent was obligated to obtain prior
           approval from the appellant before entering into the GSA/GTA
           with GAIL. Failing this requirement, the first respondent has
           absolved the appellant of the obligation to pay for the declared
           capacity to the extent that such declared capacity is attributable
           to the RLNG which though, a primary source of fuel, could have
           been obtained by the first respondent only after prior consent of
           the appellant;
      b.   The placement of the prior approval clause in clause 5.9 suggests
           that it applies to clause 5.2 capacity charges as well as clause
           5.3 energy charges. The impugned decisions make an artificial
           distinction between the two sub-clauses and the two types of
           charges and incorrectly subjects only clause 5.3 (energy charge)
           and not clause 5.2 (capacity charge) to the approval requirement
           in clause 5.9;
      c.   Clause 5.9 reads as follows:
MSEDCL. v. RATNAGIRI GAS AND POWER PVT. LTD.                         769
   [DR. DHANANJAYA Y CHANDRACHUD, CJI]

           “the conditions of GSA/GST having commercial
           implications (for example, bearing on plant availability,
           contracted quantity, price components, Take or pay
           provisions, penalties, and damages, etc.) shall be signed
           separately with the MSEDCL as supplementary agreement.
           The total required to be Gas/LNG is envisaged procured
           through short-term contracts long long-term contracts
           through GAIL and under the directions of GOI, the details
           of which shall be furnished in due course. RGPPL shall be
           required to obtain approval of MSEDCL on contracting
           terms and price before entering into the GSA/GTA
           contract.”
      The phrase “commercial implication” makes the consent
      requirement applicable to the present GSA/GTA. The commercial
      implication of “plant availability” is the average of daily declared
      capacity as a percentage of net capacity. Thus, plant capacity
      stands affected by the decision to adopt RLNG which affects the
      quantum of declared capacity. Thus, the use of RLNG by the first
      respondent automatically has “commercial implications” and as
      such, the prior approval requirement in clause 5.9 stood invoked;
 d.   There is an “organic interlinking” between clause 5.9, commercial
      implications, plant availability, declared capacity, and declaration
      of capacity in terms of choice of fuel as provided in clause 4.3.
      Therefore, the compartmentalization of clauses 4.3 and 5.9, which
      is the premise of the impugned decisions is flawed;
 e.   For the reasons stated above, the plant availability factor would
      be less than 70%, and as such, the capacity charges would be
      reduced in accordance with Clause 21(1)(a) of CERC (Terms
      and Conditions of Tariff) Regulations 2009;
 f.   CERC and APTEL have virtually re-written the contract between
      the parties which is impermissible under settled principles
      of contractual interpretation. The correct reading must be in
      accordance with the terms of the contract as well as the conduct
      of the parties to the contract. The conduct of the parties in the
      present case suggests that the approval of the appellant was a
770           SUPREME COURT REPORTS                        [2023] 14 S.C.R.


            mandatory pre-requisite in order to attach the liability of fixed
            charges to the appellant. In the past, for a similar GSA, prior
            approval of the appellant was sought by the first respondent. As
            such, the intention as evinced by this past conduct, seems to be
            that the consent requirement was a mandatory pre-requisite for
            such GTA/GSA. Failing that, the liability of the appellant to pay
            does not arise; and
      g.    The impugned decisions will impact the customers of the
            appellant.
    19. As against the above, the first Respondent urged the following
submissions:
      a.    The generating station was established to meet the electricity
            demands of the appellant. After the failure of M/s Enron
            International, and M/s Dabhol Power Company, the generating
            station was revived and its assets were transferred to RGPPL,
            the first Respondent, by virtue of an order of the Bombay High
            Court dated 22.09.2005. NTPC Ltd and GAIL owned 23.5%
            shares each while the Appellant held 13.51% shares in the first
            respondent at the time of the take-over; and
      b.    The capacity declaration using RLNG as well as demanding
            capacity charges based on such declared capacity are in
            accordance with Clauses 4.3 and 5.2 of the PPA. The PPA
            contained no clause for termination of the PPA, and was thus valid
            for 25 years from the Commercial Operation Date.11 As such,
            the appellant is bound by the PPA as a whole and particularly
            by Clauses 6.6. and 6.7 which stipulate that even if a dispute is
            pending, the Appellant is bound to pay 95% of the charges during
            such pendency, which the Appellant has failed to do.
      ANALYSIS AND CONCLUSION
     20. The issue that arises for consideration is whether the CERC
and APTEL were justified in affixing liability to pay fixed charges on the



11 “COD”.
    MSEDCL. v. RATNAGIRI GAS AND POWER PVT. LTD.                           771
       [DR. DHANANJAYA Y CHANDRACHUD, CJI]

appellant. The dispute primarily turns on the terms of the PPA. For the
reasons stated hereafter, we answer the issue in the affirmative.
      TERMS OF THE PPA
      21. “Declared Capacity” means the capability of the Station to deliver
ex-bus electricity in MW declared by the Station in relation to any period
of the day, or the whole day, duly taking into account the availability of
Gas and liquid fuels.12
      22. The Station has to allocate 95% of its capacity to MSEDCL after
the COD of respective power blocks/stations. MSEDCL is liable to pay
full capacity charges as mentioned in Clause 5.2 and shall be entitled to
corresponding incremental power.13
      23. Clause 4.3 states as follows:
      4.3 Declared Capacity
            Primary Fuel for RGPPL is LNG/Natural gas and/or RLNG.
            Normally capacity of the station shall be declared on gas and/
            or RLNG for all three power blocks. However, if agreed by
            MSEDCL, RGPPL shall make arrangements of Liquid fuel(s) for
            the quantum required by MSEDCL. In such a case the capacity
            on liquid fuel shall also be taken into account for the purpose
            of Availability, Declared Capacity and PLF calculations till the
            time Liquid fuel(s) stock agreed/requisitioned by MSEDCL is
            available at site.”
      24. Clause 5 of the PPA deals with Tariff and states that the Tariff of the
Station shall be ascertained based on the restructuring model as approved by
the GOI and GOM and IFIs for the revival of the erstwhile Dabhol Power
Project and that the Station cannot be compared with other power stations
as the financial and technical parameters have been restructured to arrive
at a viable and acceptable tariff.
     25. The PPA provides for the tariffs to be paid in two parts: capacity
charges i.e. fixed charges corresponding to the declared capacity and energy


12 Clause 1.1(b), PPA.
13 Clause 2.2.1, PPA.
772           SUPREME COURT REPORTS                         [2023] 14 S.C.R.


charges i.e. variable charges corresponding to the actual electricity delivered.
The relevant clauses are extracted below:
      5.2 “Capacity Charge
      The Annual Capacity Charge (ACC) of Power Block for supply of
      power from the station worked out to Rs. 1446.451 Cr. per annum
      based on capacity charge of 96p/KWH finalized at the time of asset
      takeover by RGPPL. This Capacity Charge of 96p/KWH is increased
      to 98.5p/KWH pursuant to discussions under the aegis of Gd. This
      Capacity Charge of 98.5p/KWH is subject to further review and
      finalization by GoT and GOM pursuant to the ongoing restructuring
      exercise under consideration by GoI to ensure project viability based
      on above capacity charges on levelized basis of 98.5p/KWH, the total
      Annual Capacity Charges work out to Rs 1484.12 Cr. per annum.
      Full capacity charges shall be payable at 80% of 2150MW
      (i.e.1720MW) declared capacity lower than this shall be recovered
      on pro-rata basis after COD of Block(s)/Station. MSEDCL shall pay
      capacity charges in proportion to the allocation of power from RGPPL.
      …
      5.3 Energy Charges:
      The Energy Charge for supply of power from the Station shall
      be worked out based on the gross heat rate and auxiliary Power
      Consumption as given below:
      …
      5.4 For the purpose of Tariff computation all values of price, quantity,
      etc. would be considered up to eight decimal point accuracy.
      5.5 Energy Charges shall be worked out on the basis of ex-bus energy
      scheduled to be sent out from the Station as per the following formula:
           Energy Charges (Rs) = REC9 * SG on Gas + REC * SG on
           liquid fuel
      5.6 Provisional Billing: RGPPL shall be billing provisionally MSEDCL
      based on the above rate calculated for Capacity Charges and Energy
      Charges and MSEDCL agrees to pay based on the above billing till
   MSEDCL. v. RATNAGIRI GAS AND POWER PVT. LTD.                              773
      [DR. DHANANJAYA Y CHANDRACHUD, CJI]

        such time it is approved by CERC or other competent authority.
        Provisional Billing shall be adjusted after final approval of tariff by
        CERC or other competent authority.
        5.9 Gas Supply Agreement (GSA)/ Gas Transportation Agreement
        (GTA) Gas supply agreement is presently for 1.5 MMTPA R-LNG
        upto September 2009 after being sourced through Petronet LNG Ltd
        and regasified at their Dahej terminal with supply though GAIL/off-
        takers. The conditions of GSA/GTA having commercial implications
        (for example bearing on Plant availability, contracted quantity, price
        components, Take or Pay provisions, penalties and damages etc.) shall
        be signed separately with MSEDCL as a supplementary agreement. The
        total required Gas/LNG is envisaged to be procured through short-term
        contracts/long-term contracts through GAIL and under the directions
        of GoI, the details of which shall be furnished in due course. RGPPL
        shall be required to obtain approval of MSEDCL on contracting terms
        and price before entering into the GSA/GTA contract.”
        26. The position which emerges from the terms of the PPA is formulated
thus:
        a.   There are two types of tariff charges payable by MSEDCL –
             capacity charges under clause 5.2 and energy charges under
             clause 5.3;
        b.   For the former, the rates are fixed, having been finalized at the
             time of takeover by RGPPL, and are subject to revision by the
             Government of India or the Government of Maharashtra;
        c.   For the latter, the rates are to be calculated by way of the formula
             stipulated in Clause 5.3;
        d.   MSEDCL is required to schedule the sending of energy from
             RGPPL and the energy charges are payable according to the
             energy scheduled to be sent out from RGPPL to MSEDCL;
        e.   Provisional billing of the two types of charges shall be made
             until the billing is approved by CERC; and
        f.    The total gas requirements are to be procured through GAIL,
             by way of a GSA/GTA under the directions of the GOI. Before
774          SUPREME COURT REPORTS                         [2023] 14 S.C.R.


           entering into the GSA/GTA, RGPPL is supposed to obtain
           approval from MSEDCL on the terms of the contract and the
           price since such a GSA/GTA has ‘commercial implications’.
      27. The first respondent has consistently stated that the alternate
arrangement in the form of GSA/GTA with GAIL and capacity declarations
based on RLNG were necessitated on account of the unprecedented
nationwide shortage of domestic fuel. But for such an alternate arrangement,
the first respondent would have been unable to meet the target availability,
which would have in turn affected their ability to recover fixed costs, and
jeopardized the viability of the project. The appellant does not dispute the
shortage of domestic fuel but merely objects to the “unilateral” decision
to declare capacity based on RLNG, which the appellant states violated
the mandatory approval requirement under clause 5.9 of the PPA, thereby
exonerating it of the liability to pay fixed capacity charges.
      28. In accordance with settled principles governing the interpretation
of contracts, the PPA is required to be read as a whole. Clause 4.3 has two
parts: according to the first, primary fuels include LNG/Natural gas and/or
RLNG; according to the second, the appellant’s agreement is required in
case liquid fuels are to be employed. A bare reading of the clause indicates
that the requirement to seek such an agreement does not attach to the first
part of the clause which envisages RLNG as a primary fuel. An arrangement
involving a transition from one primary fuel to another primary fuel is
permissible by the clause, even without the appellant’s agreement.
      29. The requirement of an agreement, mandated for an arrangement
involving liquid fuel cannot be read into the plain text of the former part of
Clause 4.3. Thus, the capacity declaration based on RLNG could be done
unilaterally, unencumbered by the requirement of the appellant’s consent in
the latter half or the prior approval requirement under Clause 5.9 of the PPA.
    FACTUAL CONTEXT AND THE INTENTION OF PARTIES
TO THE CONTRACT
     30. We must remain mindful of the conspectus of facts that led to the
establishment of the first respondent. It was set up consequent to the failure
of M/s Enron International, and M/s Dabhol Power Company to meet the
energy needs of the State of Maharashtra. The tariff requirements have been
determined based on the need to preserve the viability of the unit.
    MSEDCL. v. RATNAGIRI GAS AND POWER PVT. LTD.                            775
       [DR. DHANANJAYA Y CHANDRACHUD, CJI]

      31. The first respondent was compelled to make alternate arrangements
in view of the country-wide shortage of domestic gas, making RLNG a
viable and contractually permissible alternative. Notably, the appellant has
not disputed the circumstances in which this need arose.
      32. In the present case, CERC and APTEL have correctly held that
the GSA/GTA with GAIL is permissible by the terms of the contract and
the consent or approval of the appellant is irrelevant. Clause 5.9 and Clause
4.3 operate in different spheres and the requirements of the former cannot
be foisted on an arrangement permissible by the latter.
       33. Capacity charges mandated under Clause 5.2 hinge on the declared
capacity that the Station is capable of delivering to its beneficiaries. Energy
Charges, on the other hand, are payable only against the actual energy
delivered. The appellant’s liability for the former is actual delivery agnostic.
It arises as long as the declared capacity is made in terms of the PPA i.e.
Clause 4.3.
       34. Clause 2.2.2 of the PPA prescribes that even in case MSEDCL is
unable to utilize the entire allocated capacity of RGPPL, or in case MSEDCL
fails to comply with the payment obligations in accordance with the PPA,
RGPPL shall be entitled to sell power to other parties, without prejudice
to its claim for recovery of capacity charges from MSEDCL subject to the
provisions of Clause 2.2.2. Clause 2.2.2 indicates the intention of the parties
to the PPA to put the capacity charges beyond the realm of actual energy
supplied. The appellant’s reading implies that such a fixed charge can be
avoided and made subject to the consent of the appellant. Such a reading
goes against the apparent intention of the parties to treat capacity charges
as fixed charges under the PPA.
      35. A commercial document cannot be interpreted in a manner that is at
odds with the original purpose and intendment of the parties to the document.
A deviation from the plain terms of the contract is warranted only when
it serves business efficacy better. The appellant’s arguments would entail
reading in implied terms contrary to the contractual provisions which are
otherwise clear. Such a reading of implied conditions is permissible only in
a narrow set of circumstances. This Court in Transmission Corporation
776            SUPREME COURT REPORTS                         [2023] 14 S.C.R.


of Andhra Pradesh Ltd v. GMR Vemagiri Power Generation Limited14
held as follows:
      “26. A commercial document cannot be interpreted in a manner to
      arrive at a complete variance with what may originally have been the
      intendment of the parties. Such a situation can only be contemplated
      when the implied term can be considered necessary to lend efficacy
      to the terms of the contract. If the contract is capable of interpretation
      of its plain meaning with regard to the true intention of the parties it
      will not be prudent to read implied terms on the understanding of a
      party, or by the court, with regard to business efficacy.”
      36. In the present context, bearing in mind the background of the
establishment of the first respondent, and the shortfall of domestic gas for
reasons beyond the control of the first respondent, such a deviation from the
plain terms is not merited and militates against business efficacy as it has a
detrimental impact on the viability of the first respondent.
     37. The execution proceedings pursuant to the above-mentioned
execution petition before the APTEL be continued.
      38. The appeal is dismissed. There shall be no order as to costs.
      39. Pending applications, if any, stand disposed of.


Headnotes prepared by:                                          Appeal dismissed.
Nidhi Jain




14 (2018) 3 SCC 716, 729 para 26.