Full Judgment Text
Reportable
IN THE SUPREME COURT OF INDIA
2023 INSC 993
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 1922 of 2023
Maharashtra State Electricity Distribution Company Limited …. Appellant
Versus
Ratnagiri Gas and Power Private Limited & Ors. .…. Respondents
Signature Not Verified
Digitally signed by
Sanjay Kumar
Date: 2023.11.09
15:13:30 IST
Reason:
1
J U D G M E N T
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
2
1. This appeal arises from the judgment of the Appellate Tribunal for
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Electricity at New Delhi. APTEL dismissed an appeal against an order of the
2 3
Central Electricity Regulatory Commission dated 30 July 2013.
2. The first respondent, an electricity transmission company called Ratnagiri
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Gas And Power Private Limited , filed a petition under Section 79 of the
Electricity Act, 2003 against the appellant, Maharashtra State Electricity
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Distribution Co. Ltd. , 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
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Annual Plant Availability Factor 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 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.”
1
“APTEL”.
2
“CERC”.
3
Appeal No. 261 of 2013
4
“RGPPL”/first respondent.
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“MSEDCL”/appellant.
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“NAPAF”.
3
4. Consequently, there was correspondence between the appellant and the
first respondent regarding the liability towards fixed charges. The appellant
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disclaimed any liability under the Power Purchase Agreement 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.
ACTUAL ACKGROUND
F B
6. The first respondent, RGPPL is a joint venture of NTPC Ltd., Gas Authority
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of India Ltd , 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 to the distribution licensee MSEDCL, the appellant. The
appellant and the first respondent entered into a Power Purchase Agreement on
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“PPA”.
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“GAIL”
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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
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Agreement/Gas Transportation Agreement with GAIL for the supply of Recycled
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Liquid Natural Gas 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
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“GSA”/”GTA”.
10
“RLNG”
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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 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.
CERC O RDER DATED 30 J ULY 2023 AND APTEL J UDGEMENT AND F INAL O RDER
DATED 22 A PRIL 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
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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.
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,
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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.
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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.
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
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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:
“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
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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 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
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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
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for 25 years from the Commercial Operation Date. 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
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“COD”.
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pending, the Appellant is bound to pay 95% of the charges during
such pendency, which the Appellant has failed to do.
A NALYSIS AND C ONCLUSION
20. The issue that arises for consideration is whether the CERC and APTEL
were justified in affixing liability to pay fixed charges on the appellant. The dispute
primarily turns on the terms of the PPA. For the reasons stated hereafter, we
answer the issue in the affirmative.
ERMS OF THE
T 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
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the whole day, duly taking into account the availability of Gas and liquid fuels.
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
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incremental power.
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
12
Clause 1.1(b), PPA.
13
Clause 2.2.1, PPA.
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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 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.
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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 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.”
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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 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
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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.
F ACTUAL C ONTEXT AND THE I NTENTION 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
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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.
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
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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 of Andhra Pradesh
14
held as follows:
Ltd v. GMR Vemagiri Power Generation Limited
“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
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(2018) 3 SCC 716, 729 para 26.
19
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.
……………………………………….CJI.
[Dr Dhananjaya Y Chandrachud]
….….…………………………..………J.
[JB Pardiwala]
……..…………………………………J.
[Manoj Misra]
New Delhi;
November 09, 2023.
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