Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal Nos.5399-5400 of 2016

Energy Watchdog …Appellant

Versus

Central Electricity Regulatory

Commission and Ors. Etc. …Respondents

WITH

Civil Appeal No.5347 of 2016

Prayas (Energy Group) …Appellant

Versus

Central Electricity Regulatory

Commission and Ors. …Respondents

AND

Civil Appeal No.5348 of 2016

Prayas (Energy Group) …Appellant

Versus

Central Electricity Regulatory

Commission and Ors. …Respondents

AND

Civil Appeal No.5364 of 2016

Punjab State Power Corpn. Ltd. …Appellant

Versus

Coastal Gujarat Power Ltd. & Ors. …Respondents

AND

Civil Appeal No.5346 of 2016

Ajmer Vidyut Nigam Ltd. and Ors. …Appellants

Versus

Central Electricity Regulatory

Commission and Ors. …Respondents

AND

Civil Appeal Nos.5351-5352 of 2016

Maharashtra State Electricity Distribution

Company Ltd. …Appellant

Versus

Central Electricity Regulatory

Commission and Ors. …Respondents

Page 2 AND

Civil Appeal No.5415/2016

GRIDCO LTD. …Appellant

Versus

GMR – Kamalanga Energy Ltd. and Ors. …Respondents

AND

Civil Appeal Nos.9635-9642 of 2016

M/S. Coastal Gujarat Power Ltd. …Appellant

Versus

Central Electricity Regulatory

Commission and Ors. …Respondents

AND

Civil Appeal No.9035 of 2014

M/S Coastal Gujarat Power Ltd. …Appellant

Versus

Central Electricity Regulatory

Commission and Ors. …Respondents

J U D G M E N T

R.F. NARIMAN, J.

1.The present appeals arise from a judgment of the Appellate Tribunal for

Electricity dated 7

th

April, 2016. The facts necessary to appreciate the issues

which arise in the present case, which will cover all the cases before us, will be

taken only from Civil Appeal No.5348 of 2016, namely Prayas (Energy) Group

vs. Central Electricity Regulatory Commission.

2.Section 63 of the Electricity Act, 2003 provides for procurement of power

and determination of tariff by a transparent competitive bidding process. Once

this is done, the appropriate Commission is to “adopt” the tariff which is

Page 3 accepted in the competitive bid subject to guidelines that are made by the

Central Government. On 19

th

January, 2005, the Central Government issued

detailed guidelines under this provision, which were amended from time to time.

On 1

st

February, 2006, Gujarat Urja Vikas Nigam Limited (GUVNL) issued a

public notice inviting proposals for supply of power on long term basis under

three different competitive bid processes. The participating bidders were to

decide on the tariff and quote such tariff after competing against each other.

The bidders were entitled to quote escalable or non-escalable tariff or partly

escalable and partly non-escalable tariff, as was considered appropriate by them

to cover their respective risks so as to obtain whatever returns are available to

them. The best levelised tariff as per certain pre-disclosed criteria was to be

followed in order to arrive at the lowest tender.

3.Haryana Utilities also initiated a separate competitive bidding process for

purchase of 2000 MW on a long term basis. This was done on 25

th

May, 2006.

The participating bidders were also entitled to quote bids on the lines of the

GUVNL public notice. Both the Gujarat Electricity Regulatory Commission and

the Haryana State Regulatory Commission approved the bid documents and the

process proposed by GUVNL and the Haryana Utilities, after which Requests for

Proposal were issued by both of them. On 2

nd

/4

th

January, 2007, Adani

Enterprises Consortium submitted its bid for generation and supply of 1000 MW

to GUVNL, quoting a levelised tariff of Rs.2.3495/kWh (Rs.1/kWh as the

Page 4 capacity charge and Rs.1.3495/kWh as non-escalable energy charge). In the

bid, the Consortium indicated that the lead member, Adani Enterprises, had an

arrangement for indigenous coal requirement of the project with Gujarat Mineral

Development Corporation, as the said Corporation had been allotted a certain

coal block in the State of Chhattisgarh. Also, a Memorandum of Understanding

was entered into between Adani Enterprises Ltd. and a German Company for

supply of non-coking coal of 3 to 5 million tons (imported coal) on a long term

basis till the year 2032. A similar Memorandum of Understanding was also

entered into between Adani Enterprises and a Japanese agent for supply of 3 to

5 million tons of coal again on a long term basis. The two Memoranda of

Understanding were attached to the bid submitted by Adani Enterprises.

4.On 11

th

January, 2007, the Adani Enterprises Consortium was selected by

GUVNL as the successful bidder for supply of 1000 MW of power and a Letter of

Intent was issued in its favour. On 2

nd

February, 2007, a Power Purchase

Agreement was entered into between GUVNL and Adani Power and this was for

supply of power from a power project being set up at Korba in Chhattisgarh.

This was changed to a Mundra Project in Gujarat. On 18

th

April, 2007, a

supplementary PPA was signed to this effect.

5.As far as Haryana is concerned, Adani Power submitted their bid for

supply of 1425 MW of power to Haryana Utilities on 24

th

November, 2007. This

was at a levelised tariff of Rs.2.94/kWh from the Mundra Power Project. The

Page 5 energy charges quoted were non-escalable. Adani Power was declared as the

successful bidder in Haryana for supply of 1424 MW contracted capacity on 17

th

July, 2008 and a Letter of Intent was issued. Two separate PPAs were executed

by Adani Power with two Haryana entities for supply of 712 MW of power to

each of them from the Mundra Power Project. The Haryana State Commission

adopted the tariff under Section 63 of the Electricity Act on 31

st

July, 2008 (The

Gujarat State Commission had adopted the tariff under Section 63 for supply of

power to GUVNL on 20

th

December, 2007). An important part of the case on

behalf of the respondents is that a change in law in Indonesia took place in 2010

and 2011, which aligned the export price of coal from Indonesia to international

market prices instead of the price that was prevalent for the last 40 years.This

being the case, in both the cases, Adani Power filed a petition before the Central

Electricity Regulatory Commission being Petition No.155 of 2012 on 5

th

July,

2012 under Section 79 of the Electricity Act seeking relief on the score of the

impact of the Indonesian Regulation to either discharge them from the

performance of the PPA on account of frustration, or to evolve a mechanism to

restore the petitioners to the same economic condition prior to occurrence of the

change in law.

6.On 16

th

October, 2012, the Central Commission held that the Power

Purchase Agreements entered into by Adani in both the cases constituted a

composite scheme for generation and sale of electricity as envisaged under

Page 6 Section 79(1)(b) of the Electricity Act. This being so, it held that it was the

appropriate Commission under the Act and not the respective State

Commissions, which had jurisdiction in the matter. A review petition against this

order was dismissed on 16

th

January, 2013.

7.On 2

nd

April, 2013, the Central Commission passed an order, whereby the

claim of Adani Power on the grounds of force majeure and/or change in law was

held not to be admissible. However, the Commission held that in exercise of the

regulatory powers provided under Section 79 of the Act, the Central Commission

can provide redressal of grievances to generating companies, considering the

larger public interest, and hence constituted a committee to look into the alleged

difficulties faced by Adani and to find an acceptable solution thereto.

8.On 16

th

August, 2013, pursuant to the order dated 2

nd

April, 2013, the

Committee constituted by the Commission submitted a report. Based on the

Committee’s report, on 21

st

February, 2014, the Central Commission proceeded

to grant compensatory tariff. Appeals and cross-appeals were filed against this

order, including cross objections. On 1

st

August, 2014, cross-objection filed by

Adani Power was rejected by the Appellate Tribunal as not maintainable. On

31

st

October, 2014, the Appellate Tribunal rejected the prayer for condonation of

delay and consequently Appeal No. 10016 of 2014 was filed by Adani Power.

Against this order, Adani Power filed an appeal before the Supreme Court, and

this Court, in its order dated 31

st

March, 2015 held :

Page 7 “the Appellant (Adani Power) is entitled to argue any proposition

of law, be it “force majeure” or “change in law” in support of the

order dated 21.2.2014 quantifying the compensatory tariff, the

correctness of which is under challenge before the Appellate

Tribunal in Appeal No.98 of 2014 and Appeal No.116 of 2014

preferred by the respondents, so long as such argument is based

on the facts which are already pleaded before the Central

Commission.”

9.Finally, the Appellate Tribunal on 7

th

April, 2016, passed the impugned

judgment in all the aforesaid cases before us. The Tribunal held, agreeing with

the Commission, that generation and sale of power by Adani Power to GUVNL

and Haryana Utilities was a composite scheme within the meaning of Section

79(1) (b) of the Act and that, therefore, the Central Commission would have

jurisdiction to proceed further in the matter. The Appellate Tribunal considered

the Supreme Court order dated 31

st

March, 2015 and felt that the argument of

force majeure and change in law could be gone into by it. It ultimately

concluded, having regard to the law on frustration contained in the Indian

Contract Act, 1872 and the relevant provisions of the PPAs, that force majeure

was made out on the facts of these cases and reversed the Commission on this

score. It also reversed the Commission on exercise of regulatory powers under

Section 79, stating that these powers could not be exercised once there was a

PPA entered into under Section 63 of the Act. It also held that change in law

provisions do not apply to foreign law and, therefore, changes in Indonesian law

did not come within the scope of the provisions. Insofar as changes in Indian law

were concerned, it held that the Government Policies that were relied upon, do

Page 8 not constitute ‘law’. Accordingly, the matter was remanded to the Commission to

find out the impact of the force majeure event to grant compensatory tariff. The

Commission by its order dated 6.12.2016 has arrived at a certain determination

as to compensatory tariff to be granted on account of force majeure.

10.We have heard learned counsel for the parties. On behalf of the

appellants Senior Counsel Shri Ramachandran, and Shri Prashant Bhushan

have argued that the liberty given to Adani Power by the order dated 31

st

March,

2015 of this Court was only limited to support the quantification of compensatory

tariff granted by the Central Commission by its order dated 21

st

February, 2014.

Hence, Adani Power is not entitled to raise the issue of force majeure and

change in law as a substantive issue, the force majeure claim and the change in

law claim having been rejected by the Central Commission in its earlier order;

and there being no valid appeal against the said order, force majeure and

change in law cannot be gone into. It is further argued, in the alternative, that in

any case, force majeure either under Section 56 of the Indian Contract Act, 1872

or under clauses 12.3 and 7 of the respective PPAs make it clear that it must be

an unforeseen event or circumstance that wholly or partly prevents the affected

party in the performance of its obligations under the agreement. According to

learned counsel, Adani voluntarily decided to quote energy charges as

non-escalable in order to be competitive and, therefore, get the award of the

contract. It cannot now, in the guise of being affected by force majeure, convert

Page 9 this into an escalable tariff. They have further argued that the bid given by

Adani Enterprises was not premised on the import of coal from Indonesia only

and this being the case it was open to them to get coal from any source. The

price of coal is the price of raw material and if prices go up, a contract does not

get frustrated merely because it becomes commercially onerous, as the PPA

itself states in clause 12.4. In any event, the fundamental basis of the PPAs

between the parties was not premised on the price of coal imported from

Indonesia.

11.On a true construction of the Act, learned counsel argued in support of the

Tribunal judgment that Section 63 of the Electricity Act is a standalone provision

and is notwithstanding anything contained in Section 62. It is obvious that under

Section 62 read with Section 61 and 64, the Commission has to “determine”

tariff under the Act having regard to various factors, whereas under Section 63

of the Act, the Commission does not “determine” but only “adopts” tariff obtained

through a transparent process of competitive bidding. This being the case, it is

clear that there is no residuary source of power contained in the Commission

either in Section 79 or otherwise to fix compensatory tariffs once the tariff is

adopted under Section 63. If at all, such tariff can be modified only in

accordance with the guidelines issued by the Central Government and not

otherwise. They also argued that the Central Commission itself has no

jurisdiction in view of the fact that on facts there is no composite scheme for the

Page 10 reason that the generation and sale of electricity from the power project of

Adani, under independent PPAs to Gujarat and Haryana Utilities, with different

tariffs, and from different generating units selected under different competitive

bidding processes, would show that there is no one composite scheme

containing uniform tariffs. This being the case, the State Commissions alone

would have jurisdiction. It was further argued that there is no change in law,

either for the very good reason stated by the Commission, viz. that change in

law applies to Indian and not Indonesian law, and further, a change in the tariff

policy in India will also not constitute change in law. They, therefore, supported

the Tribunal judgment on this aspect.

12.Learned Senior counsel Shri Kapil Sibal, Shri Harish Salve, Dr. Abhishek

Manu Singhvi, and Shri C.S. Vaidyanathan, on behalf of the respondents, on the

other hand, countered each one of these submissions. According to learned

counsel, first and foremost the Central Commission alone would have

jurisdiction on the facts of these cases, inasmuch as Sections 79 and 86 form

part of one scheme. It was argued by them that all cases fall within either

Section 79 or Section 86. It is clear that under Section 86, the State

Commissions have only to deal with generation and sale of electricity

within the State. When generation and sale takes place outside the State, as is

the case here, the State Commission would have no jurisdiction under Section

86, and consequently Section 79(1)(b) has to be read as part of a scheme in

Page 11 which the moment generation and sale of electricity is inter-State and not intra

State, the Central Commission alone would have jurisdiction. Judged in this

light, the expression “composite scheme” would only mean that generation and

sale of electricity would be in more than one State. For this they also relied on

the definition of “composite scheme” in the 2016 Central Government Policy.

13.They further argued that the scheme of the Act shows that neither 61 nor

Section 79 are done away with when Section 63 applies. Section 63 does not

use the expression “notwithstanding anything contained in this Act”. It is clear,

therefore, that all these Sections have to be harmoniously construed. Section

79 is without a doubt a repository of power to fix tariffs and/or modify fixation

even when Section 63 applies. Indeed, Shri Sibal argued that if there were no

guidelines or if a matter arose de hors the guidelines, then obviously there

cannot be a gap in the law which remains unfilled. The residuary power of the

Commission necessarily comes in under Section 79. In any event, they also

argued that the guidelines, as amended, that are issued by the Central

Government under Section 63 clearly take care of the present situation in that

any change in law that occurs and any dispute which relates to tariffs can both

be resolved before the Central Commission.

14.They also countered the submissions on force majeure by stating that the

fundamental basis of the contract was the fuel supply agreement that was to be

entered into, and pointed out various clauses in the PPAs to show that the fuel

Page 12 supply agreement and imported coal were both very important elements, both in

the bid and the PPAs. Non-escalable tariffs do not lead to the conclusion that if

a source of coal becomes unavailable in a manner that completely undermines

the basis of the bid, the tariff cannot be adjusted. If otherwise they fall within the

change in law provision and/or force majeure provision, the mere fact that a

non-escalable tariff has been quoted would make no difference. A large part of

the argument was centered around the meaning of the expression “frustration”

in the Contract Act and the correct construction of clause 12 of the PPA. A large

number of authorities, both English and Indian, were cited to show that the

contract had become commercially impracticable, and that they would have to

fold up operations, which would not be in public interest as the consumers would

then have to obtain electricity at rates much higher than were quoted by them.

According to them, a force majeure event in Clause 12 takes place the moment

performance is “hindered” and there can be no doubt that an astronomical rise

in prices of Indonesian coal, thanks to a change in law, has certainly hindered

performance. They also argued that in any event the change in law clause is

very wide and since the PPA deals with imported coal, obviously change in law

would cover foreign law. They also went on to add that when the PPA wanted

to restrict a particular clause to Indian law, it did so expressly. They also stated

that it is significant that neither GUVNL nor Haryana Utilities had filed appeals in

the present case, and the Government had in several policy decisions and

Page 13 statements made it clear that in cases like the present, where there is grave

unforeseen hardship on account of non-allocation of Indian coal, the rise in cost

should be adequately compensated. They, therefore, questioned the locus

standi of the consumer groups, who are the only appellants before us, stating

that on the estimation made by the respondents, the impact of increase in both

cases on tariff would be extremely minimal as opposed to the huge accumulated

losses suffered by these entities which would make them fold up. Ultimately, it

was argued that even the Central Commission did not give them the entire

benefit of rise in price in coal, and consequently in the final analysis the relief

granted on the ground of force majeure by the Central Commission should not

be disturbed, and relief on the ground of change in law should, in addition, have

been given to them.

15.The learned Attorney General appearing on behalf of the Union of India,

submitted before us that he was not interested in the ultimate outcome of the

appeals before us. He was only appearing in order to apprise us that the

electricity sector, having been privatized, has largely fulfilled the object sought to

be achieved by the 2003 Act, which is that electricity generation, being

delicenced, should result in production of far greater electricity than was earlier

produced. He urged us not to disturb the delicate balance sought to achieved

by the Act i.e. that producers or generators of electricity, in order that they set up

power plants, be entitled to a reasonable margin of profit and a reasonable

Page 14 return on their capital, so that they are induced to set up more and more power

plants. This must be consistent with competitiveness among them, which then

translates itself into reasonable tariffs that are payable by consumers of

electricity. For this purpose, he relied strongly upon Section 3 of the Electricity

Act, which states that the Central Government, shall from time to time, prepare a

National Electricity Policy and a tariff policy in consultation with the State

Governments, and the authority for development of the power system, based on

optimal utilization of natural resources. According to him, the National Electricity

Policy and tariff policy that are issued from time to time, being statutory in

nature, are binding on all concerned. This is, in fact, further recognized by

Section 61(i) by which the appropriate Commission, in specifying terms and

conditions for determination of tariffs, shall be guided by the National Electricity

Policy and tariff policy. The Central Government’s role can further be seen even

in Section 63, where guidelines that are binding on all are issued by the Central

Government in cases where there is a transparent process of bidding. Further,

according to him, Section 79(4) also points in the same direction, stating that, in

discharge of its functions, the Central Commission shall be guided by the

National Electricity Policy, National Electricity Plan, and tariff policy published

under Section 3. He also referred us to the Cabinet Committee for Economic

Affairs recognizing the overall shortfall in manufacture of domestic coal and the

new coal distribution policy issued in July, 2013 pursuant to the Cabinet

Page 15 Committee which, according to him, are in the nature of binding directions

making it clear that as generators of electricity, who depend upon indigenous

coal, have been given less coal than was anticipated, should be allowed either

to import the coal themselves, or purchase imported coal from Coal India Ltd.,

with the difference in price being passed through to them. He further referred to

and relied upon the revised tariff policy of 28

th

January, 2016 for the same

purpose.

Relevant provisions of the Electricity Act, 2003

16.The 2003 Act did away with three earlier statutes in which a completely

different regime for generating and supply of electricity was provided for, namely,

the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1928 and the

Electricity Regulatory Commissions Act, 1998. The Statement of Objects of

Reasons for this Act reads as follows:

“The Electricity Supply Industry in India is presently

governed by three enactments namely, the Indian Electricity Act,

1910, the Electricity (Supply) Act, 1948, the Electricity Regulatory

Commissions Act, 1998.

1.1 The Indian Electricity Act, 1910 created the basic

framework for electric supply industry in India which was

then in its infancy. The Act envisaged growth of the

electricity industry through private licensees. Accordingly, it

provided for licensees who could supply electricity in a

specified area. It created the legal framework for laying

down of wires and other works relating to the supply of

electricity.

Page 16 1.2 The Electricity (Supply) Act, 1948 mandated the creation of

a State Electricity Board. The State Electricity Board has

the responsibility of arranging the supply of electricity in the

State. It was felt that electrification which was limited to

cities needed to be extended rapidly and the State should

step in to shoulder this responsibility through the State

Electricity Boards. Accordingly the State Electricity Boards

through the successive Five Year Plans undertook rapid

growth expansion by utilizing Plan funds.

1.3 Over a period of time, however, the performance of SEBs has

deteriorated substantially on account of various factors. For

instance, though power to fix tariffs vests with the State

Electricity Boards, they have generally been unable to take

decisions on tariffs in a professional and independent

manner and tariff determination in practice has been done

by the State Governments. Cross-subsidies have reached

unsustainable levels. To address this issue and to provide

for distancing of government from determination of tariffs,

the Electricity Regulatory Commissions Act, was enacted in

1998. It created the Central Electricity Regulatory

Commission and has an enabling provision through which

the State Governments can create a State Electricity

Regulatory Commission. 16 States have so far

notified/created State Electricity Regulatory Commissions

either under the Central Act or under their own Reform Acts.

2. Starting with Orissa, some State Governments have been

undertaking reforms through their own Reform Acts. These

reforms have involved unbundling of the State Electricity Boards

into separate Generation, Transmission and Distribution

Companies through transfer schemes for the transfer of the

assets and staff into successor Companies. Orissa, Haryana,

Andhra Pradesh, Karnataka, Rajasthan and Uttar Pradesh have

passed their Reform Acts and unbundled their State Electricity

Boards into separate companies. Delhi and Madhya Pradesh

have also enacted their Reforms Acts which, inter alia, envisage

unbundling/corporatisation of SEBs.

Page 17 3. With the policy of encouraging private sector participation in

generation, transmission and distribution and the objective of

distancing the regulatory responsibilities from the Government to

the Regulatory Commissions, the need for harmonizing and

rationalizing the provisions in the Indian Electricity Act, 1910, the

Electricity (Supply) Act, 1948 and the Electricity Regulatory

Commissions Act, 1998 in a new self-contained comprehensive

legislation arose. Accordingly, it became necessary to enact a

new legislation for regulating the electricity supply industry in the

country which would replace the existing laws, preserve its core

features other than those relating to the mandatory existence of

the State Electricity Board and the responsibilities of the State

Government and the State Electricity Board with respect to

regulating licensees. There is also need to provide for newer

concepts like power trading and open access. There is also need

to obviate the requirement of each State Government to pass its

own Reforms Act. The Bill has progressive features and

endeavours to strike the right balance given the current realities

of the power sector in India. It gives the State enough flexibility to

develop their power sector in the manner they consider

appropriate. The Electricity Bill, 2001 has been finalized after

extensive discussions and consultations with the States and all

other stake holders and experts.

4. The main features of the Bill are as follows:-

(i) Generation is being delicensed and captive generation is

being freely permitted. Hydro projects would, however,

need approval of the State Government and clearance from

the Central Electricity Authority which would go into the

issues of dam safety and optimal utilization of water

resources.

(ii) There would be a Transmission Utility at the Central as well

as State level, which would be a Government company and

have the responsibility of ensuring that the transmission

network is developed in a planned and coordinated manner

to meet the requirements of the sector. The load dispatch

function could be kept with the Transmission Utility or

Page 18 separated. In the case of separation the load dispatch

function would have to remain with a State Government

organization/company.

(iii) There is provision for private transmission licensees.

(iv) There would be open access in transmission from the

outset with provision for surcharge for taking care of current

level of cross subsidy with the surcharge being gradually

phased out.

(v) Distribution licensees would be free to undertake generation

and generating companies would be free to take up

distribution licensees.

(vi) The State Electricity Regulatory Commissions may permit

open access in distribution in phases with surcharge for –

(a) current level of cross subsidy to be gradually phased

out along with cross subsidies; and

(b) obligation to supply.

(vii) For rural and remote areas stand alone systems for

generation and distribution would be permitted.

(viii) For rural areas decentralized management of distribution

through Panchayats, Users Associations, Cooperatives or

Franchisees would be permitted.

(ix) Trading as a distinct activity is being recognized with the

safeguard of the Regulatory Commissions being authorized

to fix ceilings on trading margins, if necessary.

Page 19 (x) Where there is direct commercial relationship between a

consumer and a generating company or a trader the price

of power would not be regulated and only the transmission

and wheeling charges with surcharge would be regulated.

(xi)There is provision for a transfer scheme by which

company/companies can be created by the State

Governments from the State Electricity Boards. The State

Governments have the option of continuing with the State

Electricity Boards which under the new scheme of things

would be a distribution licensee and the State Transmission

Utility which would also be owning generation assets. The

service conditions of the employees would as a result of

restructuring not be inferior.

(xii) An Appellate Tribunal has been created for disposal of

appeals against the decision of the CERC and State

Electricity Regulatory Commissions so that there is speedy

disposal of such matters. The State Electricity Regulatory

Commission is a mandatory requirement.

(xiii) Provisions relating to theft of electricity have a revenue

focus.

5.The Bill seeks to replace the Indian Electricity Act, 1910, the

Electricity (Supply) Act, 1948 and the Electricity Regulatory

Commissions Act, 1998.

6. The Bill seeks to achieve the above objects.”

17.In the present case, we are concerned with the following Sections:

“Section 3. National Electricity Policy and Plan. --- (1) The

Central Government shall, from time to time, prepare the National

Electricity Policy and tariff policy, in consultation with the State

Governments and the Authority for development of the power

Page 20 system based on optimal utilisation of resources such as coal,

natural gas, nuclear substances or materials, hydro and

renewable sources of energy.

(2) The Central Government shall publish the National Electricity

Policy and tariff policy from time to time.

(3) The Central Government may, from time to time in

consultation with the State Governments, and the Authority,

review or revise, the National Electricity Policy and tariff policy

referred to in sub-section (1) .

(4) The Authority shall prepare a National Electricity Plan in

accordance with the National Electricity Policy and notify such

plan once in five years:

Provided that the Authority while preparing the National Electricity

Plan shall publish the draft National Electricity Plan and invite

suggestions and objections thereon from licensees, generating

companies and the public within such time as may be prescribed:

Provided further that the Authority shall –

(a) notify the plan after obtaining the approval of the Central

Government;

(b) revise the plan incorporating therein the directions, if any,

given by the Central Government while granting approval under

clause (a).

(5) The Authority may review or revise the National Electricity

Plan in accordance with the National Electricity Policy.

61. Tariff Regulations. The Appropriate Commission shall,

subject to the provisions of this Act, specify the terms and

conditions for the determination of tariff, and in doing so, shall be

guided by the following, namely:-

(a) the principles and methodologies specified by the Central

Commission for determination of the tariff applicable to

generating companies and transmission licensees;

(b) the generation, transmission, distribution and supply of

electricity are conducted on commercial principles;

(c) the factors which would encourage competition, efficiency,

economical use of the resources, good performance and

optimum investments;

(d) safeguarding of consumers' interest and at the same time,

recovery of the cost of electricity in a reasonable manner;

(e) the principles rewarding efficiency in performance;

(f) multi-year tariff principles;

(g) that the tariff progressively reflects the cost of supply of

electricity and also reduces cross-subsidies in the manner

Page 21 specified by the Appropriate Commission;

(h) the promotion of co-generation and generation of electricity

from renewable sources of energy;

(i) the National Electricity Policy and tariff policy:

Provided that the terms and conditions for determination of tariff

under the Electricity (Supply) Act, 1948, the Electricity Regulatory

Commissions Act, 1998 and the enactments specified in the

Schedule as they stood immediately before the appointed date,

shall continue to apply for a period of one year or until the terms

and conditions for tariff are specified under this section,

whichever is earlier.

62. Determination of Tariff. (1) The Appropriate Commission

shall determine the tariff in accordance with provisions of this Act

for – (a) supply of electricity by a generating company to a

distribution licensee:

Provided that the Appropriate Commission may, in case of

shortage of supply of electricity, fix the minimum and maximum

ceiling of tariff for sale or purchase of electricity in pursuance of

an agreement, entered into between a generating company and a

licensee or between licensees, for a period not exceeding one

year to ensure reasonable prices of electricity;

(b) transmission of electricity ;

(c) wheeling of electricity;

(d) retail sale of electricity:

Provided that in case of distribution of electricity in the same area

by two or more distribution licensees, the Appropriate

Commission may, for promoting competition among distribution

licensees, fix only maximum ceiling of tariff for retail sale of

electricity.

(2) The Appropriate Commission may require a licensee or a

generating company to furnish separate details, as may be

specified in respect of generation, transmission and distribution

for determination of tariff.

(3) The Appropriate Commission shall not, while determining the

tariff under this Act, show undue preference to any consumer of

electricity but may differentiate according to the consumer's load

factor, power factor, voltage, total consumption of electricity

during any specified period or the time at which the supply is

required or the geographical position of any area, the nature of

supply and the purpose for which the supply is required.

(4) No tariff or part of any tariff may ordinarily be amended, more

frequently than once in any financial year, except in respect of

Page 22 any changes expressly permitted under the terms of any fuel

surcharge formula as may be specified.

(5) The Commission may require a licensee or a generating

company to comply with such procedure as may be specified for

calculating the expected revenues from the tariff and charges

which he or it is permitted to recover.

(6) If any licensee or a generating company recovers a price or

charge exceeding the tariff determined under this section, the

excess amount shall be recoverable by the person who has paid

such price or charge along with interest equivalent to the bank

rate without prejudice to any other liability incurred by the

licensee.

63. Determination of tariff by bidding process.

Notwithstanding anything contained in section 62, the Appropriate

Commission shall adopt the tariff if such tariff has been

determined through transparent process of bidding in accordance

with the guidelines issued by the Central Government.

64. Procedure for tariff order. (1) An application for

determination of tariff under section 62 shall be made by a

generating company or licensee in such manner and

accompanied by such fee, as may be determined by regulations.

(2) Every applicant shall publish the application, in such abridged

form and manner, as may be specified by the Appropriate

Commission.

(3) The Appropriate Commission shall, within one hundred and

twenty days from receipt of an application under sub-section (1)

and after considering all suggestions and objections received

from the public,-

(a) issue a tariff order accepting the application with such

modifications or such conditions as may be specified in that

order;

(b) reject the application for reasons to be recorded in writing if

such application is not in accordance with the provisions of this

Act and the rules and regulations made thereunder or the

provisions of any other law for the time being in force:

Provided that an applicant shall be given a reasonable

opportunity of being heard before rejecting his application.

(4) The Appropriate Commission shall, within seven days of

making the order, send a copy of the order to the Appropriate

Government, the Authority, and the concerned licensees and to

the person concerned.

(5) Notwithstanding anything contained in Part X, the tariff for any

Page 23 inter-State supply, transmission or wheeling of electricity, as the

case may be, involving the territories of two States may, upon

application made to it by the parties intending to undertake such

supply, transmission or wheeling, be determined under this

section by the State Commission having jurisdiction in respect of

the licensee who intends to distribute electricity and make

payment therefor.

(6) A tariff order shall, unless amended or revoked, shall continue

to be in force for such period as may be specified in the tariff

order.

79. Functions of Central Commission. (1) The Central

Commission shall discharge the following functions, namely:-

(a) to regulate the tariff of generating companies owned or

controlled by the Central Government;

(b) to regulate the tariff of generating companies other than those

owned or controlled by the Central Government specified in

clause (a), if such generating companies enter into or otherwise

have a composite scheme for generation and sale of electricity in

more than one State;

(c) to regulate the inter-State transmission of electricity ;

(d) to determine tariff for inter-State transmission of electricity;

(e) to issue licenses to persons to function as transmission

licensee and electricity trader with respect to their inter-State

operations;

(f) to adjudicate upon disputes involving generating companies or

transmission licensee in regard to matters connected with

clauses (a) to (d) above and to refer any dispute for arbitration;

(g) to levy fees for the purposes of this Act;

(h) to specify Grid Code having regard to Grid Standards;

(i) to specify and enforce the standards with respect to quality,

continuity and reliability of service by licensees;

(j) to fix the trading margin in the inter-State trading of electricity,

if considered, necessary;

(k) to discharge such other functions as may be assigned under

this Act.

86. Functions of State Commission. – (1) The State

Commission shall discharge the following functions, namely, -

(a) determine the tariff for generation, supply, transmission and

wheeling of electricity, wholesale, bulk or retail, as the case may

be, within the State:

Provided that where open access has been permitted to a

category of consumers under Section 42, the State Commission

Page 24 shall determine only the wheeling charges and surcharge

thereon, if any, for the said category of consumers;

(b) regulate electricity purchase and procurement process of

distribution licensees including the price at which electricity shall

be procured from the generating companies or licensees or from

other sources through agreements for purchase of power for

distribution and supply within the State;

(c) facilitate intra-state transmission and wheeling of electricity;

(d) issue licences to persons seeking to act as transmission

licensees, distribution licensees and electricity traders with

respect to their operations within the State;

(e) promote cogeneration and generation of electricity from

renewable sources of energy by providing suitable measures for

connectivity with the grid and sale of electricity to any person, and

also specify, for purchase of electricity from such sources, a

percentage of the total consumption of electricity in the area of a

distribution licensee;

(f) adjudicate upon the disputes between the licensees, and

generating companies and to refer any dispute for arbitration;

(g) levy fee for the purposes of this Act;

(h) specify State Grid Code consistent with the Grid Code

specified under clause (h) of sub-section (1) of section 79;

(i) specify or enforce standards with respect to quality, continuity

and reliability of service by licensees;

(j) fix the trading margin in the intra-State trading of electricity, if

considered, necessary;

(k) discharge such other functions as may be assigned to it under

this Act.”

18.The construction of Section 63, when read with the other provisions of this

Act, is what comes up for decision in the present appeals. It may be noticed

that Section 63 begins with a non-obstante clause, but it is a non-obstante

clause covering only Section 62. Secondly, unlike Section 62 read with Sections

61 and 64, the appropriate Commission does not “determine” tariff but only

“adopts” tariff already determined under Section 63. Thirdly, such “adoption” is

only if such tariff has been determined through a transparent process of bidding,

Page 25 and, fourthly, this transparent process of bidding must be in accordance with the

guidelines issued by the Central Government. What has been argued before us

is that Section 63 is a stand alone provision and has to be construed on its own

terms, and that, therefore, in the case of transparent bidding nothing can be

looked at except the bid itself which must accord with guidelines issued by the

Central Government. One thing is immediately clear, that the appropriate

Commission does not act as a mere post office under Section 63. It must adopt

the tariff which has been determined through a transparent process of bidding,

but this can only be done in accordance with the guidelines issued by the

Central Government. Guidelines have been issued under this Section on 19

th

January, 2005, which guidelines have been amended from time to time. Clause

4, in particular, deals with tariff and the appropriate Commission certainly has

the jurisdiction to look into whether the tariff determined through the process of

bidding accords with clause 4.

19.It is important to note that the regulatory powers of the Central

Commission, so far as tariff is concerned, are specifically mentioned in Section

79(1). This regulatory power is a general one, and it is very difficult to state that

when the Commission adopts tariff under Section 63, it functions de hors its

general regulatory power under Section 79(1)(b). For one thing, such

regulation takes place under the Central Government’s guidelines. For another,

in a situation where there are no guidelines or in a situation which is not covered

Page 26 by the guidelines, can it be said that the Commission’s power to “regulate” tariff

is completely done away with? According to us, this is not a correct way of

reading the aforesaid statutory provisions. The first rule of statutory

interpretation is that the statute must be read as a whole. As a concomitant of

that rule, it is also clear that all the discordant notes struck by the various

Sections must be harmonized. Considering the fact that the non-obstante

clause advisedly restricts itself to Section 62, we see no good reason to put

Section 79 out of the way altogether. The reason why Section 62 alone has

been put out of the way is that determination of tariff can take place in one of

two ways – either under Section 62, where the Commission itself determines the

tariff in accordance with the provisions of the Act, (after laying down the terms

and conditions for determination of tariff mentioned in Section 61) or under

Section 63 where the Commission adopts tariff that is already determined by a

transparent process of bidding. In either case, the general regulatory power of

the Commission under Section 79(1)(b) is the source of the power to regulate,

which includes the power to determine or adopt tariff. In fact, Sections 62 and 63

deal with “determination” of tariff, which is part of “regulating” tariff. Whereas

“determining” tariff for inter-State transmission of electricity is dealt with by

Section 79(1)(d), Section 79(1)(b) is a wider source of power to “regulate” tariff.

It is clear that in a situation where the guidelines issued by the Central

Government under Section 63 cover the situation, the Central Commission is

Page 27 bound by those guidelines and must exercise its regulatory functions, albeit

under Section 79(1)(b), only in accordance with those guidelines. As has been

stated above, it is only in a situation where there are no guidelines framed at all

or where the guidelines do not deal with a given situation that the Commission’s

general regulatory powers under Section 79(1)(b) can then be used.

Jurisdiction of the Central Commission

20.The appellants have argued before us that the expression “composite

scheme” mentioned in Section 79(1) must necessarily be a scheme in which

there is uniformity of tariff under a PPA where there is generation and sale of

electricity in more than one State. It is not enough that generation and sale of

electricity in more than one State be the subject matter of one or more PPAs, but

that something more is necessary, namely, that there must be a composite

scheme for the same.

21.In order to appreciate and deal with this submission, it is necessary to set

out Section 2(5) of the Act which defines appropriate Government as follows:

“2. Definitions. In this Act, unless the context otherwise requires,

(5) "Appropriate Government" means, -

(a) the Central Government, -

(i) in respect of a generating company wholly or partly owned by

it;

(ii) in relation to any inter-State generation, transmission, trading

or supply of electricity and with respect to any mines, oil-fields,

railways, national highways, airports, telegraphs, broadcasting

stations and any works of defence, dockyard, nuclear power

installations;

Page 28 (iii) in respect of the National Load Despatch Centre; and

Regional Load Despatch Centre;

(iv) in relation to any works or electric installation belonging to it

or under its control ;

(b) in any other case, the State Government, having jurisdiction

under this Act;”

Sections 25 and 30 also have some bearing and are set out as under :

“25. Inter-State, regional and inter-regional transmission. For

the purposes of this Part, the Central Government may, make

region-wise demarcation of the country, and, from time to time,

make such modifications therein as it may consider necessary for

the efficient, economical and integrated transmission and supply

of electricity, and in particular to facilitate voluntary

interconnections and co-ordination of facilities for the inter-State,

regional and inter-regional generation and transmission of

electricity.

30. Transmission within a State. The State Commission shall

facilitate and promote transmission, wheeling and

inter-connection arrangements within its territorial jurisdiction for

the transmission and supply of electricity by economical and

efficient utilisation of the electricity.”

22.The scheme that emerges from these Sections is that whenever there is

inter-State generation or supply of electricity, it is the Central Government that is

involved, and whenever there is intra-State generation or supply of electricity,

the State Government or the State Commission is involved. This is the precise

scheme of the entire Act, including Sections 79 and 86. It will be seen that

Section 79(1) itself in sub-sections (c), (d) and (e) speaks of inter-State

transmission and inter-State operations. This is to be contrasted with Section 86

which deals with functions of the State Commission which uses the expression

“within the State” in sub-clauses (a), (b), and (d), and “intra-state” in sub-clause

Page 29 (c). This being the case, it is clear that the PPA, which deals with generation

and supply of electricity, will either have to be governed by the State

Commission or the Central Commission. The State Commission’s jurisdiction is

only where generation and supply takes place within the State. On the other

hand, the moment generation and sale takes place in more than one State, the

Central Commission becomes the appropriate Commission under the Act. What

is important to remember is that if we were to accept the argument on behalf of

the appellant, and we were to hold in the Adani case that there is no composite

scheme for generation and sale, as argued by the appellant, it would be clear

that neither Commission would have jurisdiction, something which would lead to

absurdity. Since generation and sale of electricity is in more than one State

obviously Section 86 does not get attracted. This being the case, we are

constrained to observe that the expression “composite scheme” does not mean

anything more than a scheme for generation and sale of electricity in more than

one State.

23.This also follows from the dictionary meaning [(Mc-Graw-Hill Dictionary of

Scientific and Technical Terms (6

th

Edition), and P.Ramanatha Aiyar’s

Advanced Law Lexicon (3

rd

Edition)] of the expression “composite”:

(a)‘Composite’ – “A re-recording consisting of at least two

elements. A material that results when two or more materials,

each having its own, usually different characteristics, are

combined, giving useful properties for specific applications. Also

known as composite material.”

Page 30 (b)‘Composite character’ – “A character that is produced by

two or more characters one on top of the other.”

(c)‘Composite unit” – “A unit made of diverse elements.”

The aforesaid dictionary definitions lead to the conclusion that the

expression “composite” only means “consisting of at least two elements”. In the

context of the present case, generation and sale being in more than one State,

this could be referred to as “composite”.

24.Even otherwise, the expression used in Section 79(1)(b) is that generating

companies must enter into or otherwise have a “composite scheme”. This

makes it clear that the expression “composite scheme” does not have some

special meaning – it is enough that generating companies have, in any manner,

a scheme for generation and sale of electricity which must be in more than one

State.

25.We must also hasten to add that the appellant’s argument that there must

be commonality and uniformity in tariff for a “composite scheme” does not follow

from the Section.

26.Another important facet of dealing with this argument is that the tariff policy

dated 6

th

June, 2006 is the statutory policy which is enunciated under Section 3

of the Electricity Act. The amendment of 28

th

January, 2016 throws

considerable light on the expression “composite scheme”, which has been

defined for the first time as follows:

“5.11 (j)Composite Scheme:Sub-section (b) of Section

79(1) of the Act provides that Central Commission shall regulate

Page 31 the tariff of generating company, if such generating company

enters into or otherwise have a composite scheme for generation

and sale of electricity in more than one State.

Explanation: The composite scheme as specified under section

791) of the Act shall mean a scheme by a generating company

for generation and sale of electricity in more than one State,

having signed long-term or medium-term PPA prior to the date of

commercial operation of the project (the COD of the last unit of

the project will be deemed to be the date of commercial operation

of the project) for sale of at least 10% of the capacity of the

project to a distribution licensee outside the State in which such

project is located.”

27.That this definition is an important aid to the construction of Section 79(1)

(b) cannot be doubted and, according to us, correctly brings out the meaning of

this expression as meaning nothing more than a scheme by a generating

company for generation and sale of electricity in more than one State. Section

64(5) has been relied upon by the Appellant as an indicator that the State

Commission has jurisdiction even in cases where tariff for inter-State supply is

involved. This provision begins with a non-obstante clause which would indicate

that in all cases involving inter-State supply, transmission, or wheeling of

electricity, the Central Commission alone has jurisdiction. In fact this further

supports the case of the Respondents. Section 64(5) can only apply if, the

jurisdiction otherwise being with the Central Commission alone, by application of

the parties concerned, jurisdiction is to be given to the State Commission having

jurisdiction in respect of the licensee who intends to distribute and make

payment for electricity. We, therefore, hold that the Central Commission had the

necessary jurisdiction to embark upon the issues raised in the present cases.

Page 32 Force Majeure

28.A large part of the argument turned on the finding of the Appellate Tribunal

that the rise in price of coal consequent to change in Indonesian law would be a

force majeure event which would entitle the respondents to claim compensatory

tariff. Before embarking on the merits of this claim, we must first advert to the

argument of the appellant that force majeure can only be argued for a very

restricted purpose, as has been pointed out in the Supreme Court judgment

dated 31

st

March, 2015.

29.In order to appreciate this contention, it is first necessary to set out the

relevant portion of this judgment. By the judgment dated 31

st

March, 2015, this

Court held:

“13. By order dated 1-8-2014, the Appellate Tribunal dismissed

the cross-objections of the appellant herein as not maintainable.

On 16-9-2014, the appellant preferred Appeal No. DFR No. 2355

of 2014 before the Appellate Tribunal against that part of the

order dated 2-4-2013 which went against the appellant.

Obviously, there was a delay in preferring that appeal. Therefore,

the appellant filed an application bearing IA No. 380 of 2014

seeking condonation of delay in preferring the appeal which was

rejected by the impugned order. Hence, the instant appeal.

14. The issue before this Court is limited. It is the correctness of

the decision of the Appellate Tribunal in declining to condone the

delay in preferring the appeal against the order dated 2-4-2013 of

the Central Commission.

15. However, elaborate submissions were made regarding the

scope of Order 41 Rule 22 of the Code of Civil Procedure, 1908

(for short “CPC”), and its applicability to an appeal under Section

Page 33 111 of the Act by the appellant relying upon earlier decisions of

this Court. The respondents submitted that such an enquiry is

wholly uncalled for as the cross-objections of the appellant in

Appeal No. 100 of 2013 stood rejected and became final.

16. Lastly, the learned counsel for the appellant submitted that

even if this Court comes to the conclusion that the appellant has

not made out a case for condonation of delay in preferring an

appeal against the order dated 2-4-2013 of the Central

Commission, the appellant is entitled to argue in the pending

Appeals Nos. 98 and 116 of 2014 both the grounds of “force

majeure” and “change of law” not for the purpose of seeking the

relief of a declaration of the frustration of the contracts between

the appellants and the respondents, thereby relieving the

appellant of his obligations arising out of the contracts, but only

for the purpose of seeking the alternative relief of compensatory

tariff. In other words, the appellant's submission is that the facts

which formed the basis of the submission of the frustration of

contracts are also relevant for supporting the conclusion of the

National Commission that the appellant is entitled for the relief of

compensatory tariff.

17. We agree with the respondents that we are not required to go

into the question of the applicability of Order 41 Rule 22 in the

instant appeal as the decision of the Appellate Tribunal to reject

the cross-objections of the appellant by its order dated 1-8-2014

has become final and no appeal against the said order is pending

before us.

18. We are also not required to go into the question whether the

order of the Central Commission dated 2-4-2013 by which it

declined to grant a declaration of frustration of the contracts

either on the ground of “force majeure” or on the ground of

“change of law” is independently appealable, since no such

appeal even if maintainable, is preferred by the appellant.

19. The question whether the appellant made out a case for

condonation of delay in preferring the appeal before the Appellate

Tribunal, in our opinion, need not also be examined by us in view

of the last submission made by the appellant. If the appellant is

not desirous of seeking a declaration that the appellant is relieved

of the obligation to perform the contracts in question, the

Page 34 correctness of the decision of the Appellate Tribunal in rejecting

the application to condone the delay in preferring the appeal

would become purely academic. We are of the opinion that so

long as the appellant does not seek a declaration, such as the

one mentioned above, the appellant is entitled to argue any

proposition of law, be it “force majeure” or “change of law” in

support of the order dated 21-2-2014 quantifying the

compensatory tariff, the correctness of which is under challenge

before the Appellate Tribunal in Appeal No. 98 of 2014 and

Appeal No. 116 of 2014 preferred by the respondents, so long as

such an argument is based on the facts which are already

pleaded before the Central Commission.”

30.This Court dealt with an appeal arising out of an order of the Appellate

Tribunal dated 31

st

October, 2014, in which the Appellate Tribunal declined to

condone a delay of 481 days in preferring an appeal against an order dated 2

nd

April, 2013.

31.As has been stated by this Court, the issue before the Court was limited.

This Court held that the appellant is entitled to argue force majeure and change

in law in pending Appeals Nos.98 and 116 of 2014. This was because what was

concluded by the Central Commission was force majeure and change of law for

the purpose of seeking the relief of declaration of frustration of the contract

between the appellant and the respondents, thereby relieving the appellant of its

obligations arising out of the contract. Since the appellant was not desirous of

seeking a declaration that the appellant is relieved of the obligation of

performing the contract in question, the appellant is entitled to argue force

majeure or change of law in support of the Commission’s order of 21

st

February,

Page 35 2014, which quantified compensatory tariff, the correctness of which is under

challenge in Appeal Nos.98 and 116 of 2014. This being the case, it is clear that

this Court did not give any truncated right to argue force majeure or change of

law. This Court explicitly stated that both force majeure and change of law can

be argued in all its plenitude to support an order quantifying compensatory tariff

so long as the appellants do not claim that they are relieved of performance of

the PPAs altogether. This being the case, we are of the view that the

preliminary submission of the appellant before us is without any force.

Accordingly, the Appellate Tribunal rightly went into force majeure and change of

law.

32.“Force majeure” is governed by the Indian Contract Act, 1872. In so far as

it is relatable to an express or implied clause in a contract, such as the PPAs

before us, it is governed by Chapter III dealing with the contingent contracts,

and more particularly, Section 32 thereof. In so far as a force majeure event

occurs de hors the contract, it is dealt with by a rule of positive law under

Section 56 of the Contract. Sections 32 and 56 are set out herein:

“32. Enforcement of Contracts contingent on an event

happening - Contingent contracts to do or not to do anything if

an uncertain future event happens, cannot be enforced by law

unless and until that event has happened. If the event becomes

impossible, such contracts become void.

56. Agreement to do impossible act - An agreement to do an

act impossible in itself is void.

Contract to do act afterwards becoming impossible or

Page 36 unlawful. A contract to do an act which, after the contract made,

becomes impossible or, by reason of some event which the

promisor could not prevent, unlawful, becomes void when the act

becomes impossible or unlawful.

Compensation for loss through non-performance of act

known to be impossible or unlawful. Where one person has

promised to do something which he knew or, with reasonable

diligence, might have known, and which the promisee did not

know, to be impossible or unlawful, such promisor must make

compensation to such promise for any loss which such promisee

sustains through the non-performance of the promise.”

33.Prior to the decision in Taylor vs. Caldwell, (1861-73) All ER Rep 24, the

law in England was extremely rigid. A contract had to be performed,

notwithstanding the fact that it had become impossible of performance, owing to

some unforeseen event, after it was made, which was not the fault of either of

the parties to the contract. This rigidity of the common law in which the absolute

sanctity of contract was upheld was loosened somewhat by the decision in

Taylor vs. Caldwell in which it was held that if some unforeseen event occurs

during the performance of a contract which makes it impossible of performance,

in the sense that the fundamental basis of the contract goes, it need not be

further performed, as insisting upon such performance would be unjust.

34.The law in India has been laid down in the seminal decision of Satyabrata

Ghose v. Mugneeram Bangur & Co., 1954 SCR 310. The second paragraph

of Section 56 has been adverted to, and it was stated that this is exhaustive of

the law as it stands in India. What was held was that the word “impossible” has

Page 37 not been used in the Section in the sense of physical or literal impossibility. The

performance of an act may not be literally impossible but it may be impracticable

and useless from the point of view of the object and purpose of the parties. If an

untoward event or change of circumstance totally upsets the very foundation

upon which the parties entered their agreement, it can be said that the promisor

finds it impossible to do the act which he had promised to do. It was further held

that where the Court finds that the contract itself either impliedly or expressly

contains a term, according to which performance would stand discharged under

certain circumstances, the dissolution of the contract would take place under the

terms of the contract itself and such cases would be dealt with under Section 32

of the Act. If, however, frustration is to take place de hors the contract, it will be

governed by Section 56.

35.In M/s Alopi Parshad & Sons Ltd. v. Union of India, 1960 (2) SCR 793,

this Court, after setting out Section 56 of the Contract Act, held that the Act does

not enable a party to a contract to ignore the express covenants thereof and to

claim payment of consideration, for performance of the contract at rates different

from the stipulated rates, on a vague plea of equity. Parties to an executable

contract are often faced, in the course of carrying it out, with a turn of events

which they did not at all anticipate, for example, a wholly abnormal rise or fall in

prices which is an unexpected obstacle to execution. This does not in itself get

rid of the bargain they have made. It is only when a consideration of the terms

Page 38 of the contract, in the light of the circumstances existing when it was made,

showed that they never agreed to be bound in a fundamentally different situation

which had unexpectedly emerged, that the contract ceases to bind. It was

further held that the performance of a contract is never discharged merely

because it may become onerous to one of the parties.

36.Similarly, in Naihati Jute Mills Ltd. v. Hyaliram Jagannath, 1968 (1) SCR

821, this Court went into the English law on frustration in some detail, and then

cited the celebrated judgment of Satyabrata Ghose v. Mugneeram Bangur &

Co. Ultimately, this Court concluded that a contract is not frustrated merely

because the circumstances in which it was made are altered. The Courts have

no general power to absolve a party from the performance of its part of the

contract merely because its performance has become onerous on account of an

unforeseen turn of events.

37.It has also been held that applying the doctrine of frustration must always

be within narrow limits. In an instructive English judgment namely, Tsakiroglou

& Co. Ltd. v. Noblee Thorl GmbH, 1961 (2) All ER 179, despite the closure of

the Suez canal, and despite the fact that the customary route for shipping the

goods was only through the Suez canal, it was held that the contract of sale of

groundnuts in that case was not frustrated, even though it would have to be

performed by an alternative mode of performance which was much more

expensive, namely, that the ship would now have to go around the Cape of

Page 39 Good Hope, which is three times the distance from Hamburg to Port Sudan.

The freight for such journey was also double. Despite this, the House of Lords

held that even though the contract had become more onerous to perform, it was

not fundamentally altered. Where performance is otherwise possible, it is clear

that a mere rise in freight price would not allow one of the parties to say that the

contract was discharged by impossibility of performance.

38.This view of the law has been echoed in ‘Chitty on Contracts’, 31

st

edition.

In paragraph 14-151 a rise in cost or expense has been stated not to frustrate a

contract. Similarly, in ‘Treitel on Frustration and Force Majeure’, 3

rd

edition, the

learned author has opined, at paragraph 12-034, that the cases provide many

illustrations of the principle that a force majeure clause will not normally be

construed to apply where the contract provides for an alternative mode of

performance. It is clear that a more onerous method of performance by itself

would not amount to an frustrating event. The same learned author also states

that a mere rise in price rendering the contract more expensive to perform does

not constitute frustration. (See paragraph 15-158)

39. Indeed, in England, in the celebrated Sea Angel case, 2013 (1) Lloyds

Law Report 569, the modern approach to frustration is well put, and the same

reads as under:

“111. In my judgment, the application of the doctrine of frustration

requires a multi-factorial approach. Among the factors which have

to be considered are the terms of the contract itself, its matrix or

context, the parties’ knowledge, expectations, assumptions and

Page 40 contemplations, in particular as to risk, as at the time of the

contract, at any rate so far as these can be ascribed mutually and

objectively, and then the nature of the supervening event, and the

parties’ reasonable and objectively ascertainable calculations as

to the possibilities of future performance in the new

circumstances. Since the subject matter of the doctrine of

frustration is contract, and contracts are about the allocation of

risk, and since the allocation and assumption of risk is not simply

a matter of express or implied provision but may also depend on

less easily defined matters such as “the contemplation of the

parties”, the application of the doctrine can often be a difficult

one. In such circumstances, the test of “radically different” is

important: it tells us that the doctrine is not to be lightly invoked;

that mere incidence of expense or delay or onerousness is not

sufficient; and that there has to be as it were a break in identity

between the contract as provided for and contemplated and its

performance in the new circumstances.”

40.It is clear from the above that the doctrine of frustration cannot apply to

these cases as the fundamental basis of the PPAs remains unaltered. Nowhere

do the PPAs state that coal is to be procured only from Indonesia at a particular

price. In fact, it is clear on a reading of the PPA as a whole that the price

payable for the supply of coal is entirely for the person who sets up the power

plant to bear. The fact that the fuel supply agreement has to be appended to the

PPA is only to indicate that the raw material for the working of the plant is there

and is in order. It is clear that an unexpected rise in the price of coal will not

absolve the generating companies from performing their part of the contract for

the very good reason that when they submitted their bids, this was a risk they

knowingly took. We are of the view that the mere fact that the bid may be

non-escalable does not mean that the respondents are precluded from raising

Page 41 the plea of frustration, if otherwise it is available in law and can be pleaded by

them. But the fact that a non-escalable tariff has been paid for, for example, in

the Adani case, is a factor which may be taken into account only to show that

the risk of supplying electricity at the tariff indicated was upon the generating

company.

41.Coming to the PPAs themselves, we find that the force majeure clause

contained in all of them is in a standard form and is as follows :

“12.3Force Majeure

‘Force Majeure’ means any event or circumstance or

combination of events and circumstances including those stated

below that wholly or partly prevents or unavoidably delays an

Affected Party in the performance of its obligations under this

Agreement, but only if and to the extent that such events or

circumstances are not within the reasonable control, directly or

indirectly, of the Affected Party and could not have been avoided

if the Affected Party had taken reasonable care or complied with

Prudent Utility Practices:

i.Natural Force Majeure Events:

act of God, including, but not limited to lightning, drought, fire and

explosion (to the extent originating from a source external to the

Site), earthquake, volcanic eruption, landslide, food, cyclone,

typhoon, tornado, or exceptionally adverse weather conditions

which are in excess of the statistical measures for the last

hundred (100) years,

ii.Non-Natural Force Majeure Events:

1Direct Non-Natural Force Majeure Events

aNationalization or compulsory acquisition by any

Indian Government Instrumentality or any material

assets or rights of the Seller or the Seller’s

contractors; or

bThe unlawful, unreasonable or discriminatory

revocation of, or refusal to renew, any Consent

required by the Seller or any of the Seller’s

Page 42 contractors to perform their obligations under the

Project Documents or any unlawful, unreasonable

or discriminatory refusal to grant any other consent

required for the development/ operation of the

Project, provided that an appropriate court of law

declares the revocation or refusal to be unlawful,

unreasonable and discriminatory and strikes the

same down; or

cAny other unlawful, unreasonable or discriminatory

action on the part of an Indian Government

Instrumentality which is directed against the

Project, provided that an appropriate court of law

declares the revocation or refusal to be unlawful,

unreasonable and discriminatory and strikes the

same down.

2Indirect Non – Natural Force Majeure Events

aAny act of war (whether declared or undeclared),

invasion, armed conflict or act of foreign enemy,

blockade, embargo, revolution, riot, insurrection,

terrorist or military action; or

bRadio active contamination or ionising radiation

originating from a source in India or resulting from

another Indirect Non Natural Force Majeure Event

excluding circumstances where the source or

cause of contamination or radiation is brought or

has been brought into or near the site by the

affected party or those employed or engaged by

the affected party; or

cIndustry wide strikes and labor disturbances

having a nationwide impact in India.

12.7Available Relief for a Force Majeure Event

Subject to this Article 12:

aNo Party shall be in breach of its obligations

pursuant to this Agreement to the extent that the

performance of its obligations was prevented,

hindered or delayed due to a Force Majeure Event;

bEvery Party shall be entitled to claim relief in

relation to a Force Majeure Event in regard to its

obligations, including but not limited to those

specified under Article 4.5.

cFor the avoidance of doubt, it is clarified that no

Page 43 Tariff shall be paid by the Procurers for the part of

Contracted Capacity affected by a Natural Force

Majeure Event affecting the Seller, for the duration

of such Natural Force Majeure Event. For the

balance part of the Contracted Capacity, the

Procurer shall pay the Tariff to the Seller, provided

during such period of Natural Force Majeure

Event, the balance part of the Power Station is

declared to be Available for scheduling and

dispatch as per ABT for supply of power by the

Seller to the Procurers.

dIf the average Availability of the Power Station is

reduced below sixty (60) percent for over two (2)

consecutive months or for any non consecutive

period of four (4) months both within any

continuous period of sixty (60) months, as a result

of an Indirect Non Natural Force Majeure, then,

with effect from the end of that period and for so

long as the daily average Availability of the Power

Station continues to be reduced below sixty (60)

percent as a result of an Indirect Non Natural

Force Majeure of any kind, the Procurers shall

make payments for Debt Service, relatable to such

Unit, which are due under the Financing

Agreements, subject to a maximum of Capacity

Charges based on Normative Availability, and

these amounts shall be paid from the date, being

the later of a) the date of cessation of such Indirect

Non Natural Force Majeure Event and b) the

completion of sixty (60) days from the receipt of

the Financing Agreements by the Procurer(s) from

the Seller, in the form of an increase in Capacity

Charge. Provided such Capacity Charge increase

shall be determined by CERC on the basis of

putting the Seller in the same economic position as

the Seller would have been in case the Seller had

been paid Debt Service in a situation when the

Indirect Non Natural Force Majeure had not

occurred.

Provided that the Procurers will have the above obligation to

make payment for the Debt Service only (a) after the Unit(s)

Page 44 affected by such Indirect Non Natural Force Majeure Event has

been Commissioned, and (b) only if in the absence of such

Indirect Non Natural Force Majeure Event, the Availability of such

Commissioned Unit(s) would have resulted in Capacity Charges

equal to Debt Services.

e) If the average Availability of the Power Station is reduced

below eighty (80) percent for over two (2) consecutive months or

for any non consecutive period of four (4) months both within any

continuous period of sixty (60) months, as a result of a Direct Non

Natural Force Majeure, then, with effect from the end of that

period and for so long as the daily average Availability of the

Power Station continues to be reduced below eighty (80) percent

as a result of a Direct Non Natural Force Majeure of any kind, the

Seller may elect in a written notice to the Procurers, to deem the

Availability of the Power Station to be eighty (80) percentage from

the end of such period, regardless of its actual Available

Capacity. In such a case, the Procurers shall be liable to make

payment to the Seller of Capacity Charges calculated on such

deemed Normative Availability, after the cessation of the effects

of Non Natural Direct Force Majeure in the form of an increase in

Capacity Charge. Provided such Capacity Charge increase shall

be determined by CERC on the basis of putting the Seller in the

same economic position as the Seller would have been in case

the Seller had been paid Capacity Charges in a situation where

the Direct Non Natural Force Majeure had not occurred.

fFor so long as the Seller is claiming relief due to

any Non Natural Force Majeure Event (or

Natural Force Majeure Event affecting the

Procurer/s) under this Agreement, the Procurers

may from time to time on one (1) days notice

inspect the Project and the Seller shall provide

Procurer’s personnel with access to the Project

to carry out such inspections, subject to the

Procurer’s personnel complying with all

reasonable safety precautions and standards.

Provided further the Procurers shall be entitled

at all times to request Repeat Performance

Test, as per Article 8.1, of the Unit(s)

Commissioned earlier and now affected by

Direct or Indirect Non Natural Force Majeure

Event (or Natural Force Majeure event affecting

Page 45 the Procurer/s), where such Testing is possible

to be undertaken in spite of the Direct or Indirect

Non Natural Force Majeure Event (or Natural

Force Majeure Event affecting the Procurer/s),

and the Independent Engineer accepts and

issues a Final Test Certificate certifying such

Unit(s) being capable of delivering the

Contracted Capacity and being Available, had

there been no such Direct or Indirect Non

Natural Force Majeure Event (or Natural Force

Majeure Event affecting the Procurer/s). In

case, the Available Capacity as established by

the said Repeat Performance Test (provided

that such Repeat Performance Test, the

limitation imposed by Article 8.1.1 shall not

apply) and Final Test Certificate issued by the

Independent Engineer is less than the Available

Capacity corresponding to which the Seller

would have been paid Capacity Charges equal

to Debt Service in case of Indirect Non Natural

Force Majeure Event (or Natural Force Majeure

Event affecting the Procurer/s), then the

Procurers shall make pro-rata payment of Debt

Service but only with respect to such reduced

Availability. For the avoidance of doubt, if Debt

Service would have been payable at an

Availability of 60% and pursuant to a Repeat

Performance Test it is established that the

Availability would have been 40%, then

Procurers shall make payment equal to Debt

Service multiplied by 40% and divided by 60%.

Similarly, the payments in case of Direct Non

Natural Force Majeure Event (and Natural

Force Majeure Event affecting the Procurer/s)

shall also be adjusted pro-rata for reduction in

Available Capacity.

(g) In case of a Natural Force Majeure Event affecting the

Procurer/s which adversely affects the performance obligations of

the Seller under this Agreement, the provisions of sub-proviso (d)

and (f) shall apply.

Page 46 (h) For the avoidance of doubt, it is specified that the charges

payable under this Article 12 shall be paid by the Procurers in

proportion to their then existing Allocated Contracted Capacity.”

42.It has strongly been contended by counsel for the respondents that, first

and foremost, the force majeure clause is not exhaustive, but is only inclusive.

Further, it may wholly or partly prevent an affected party from performance of

obligations under the agreement. Rise in the price of Indonesian coal,

according to them, was unforeseen inasmuch as the PPAs have been entered

into sometime in 2006 to 2008, and the rise in price took place only in 2010 and

2011. Such rise in price is also not within their control at all and, therefore,

clause 12.3 read with clause 12.7 would apply. They further argued that the

force majeure clause in the present case went further and stated that so long as

performance of their obligation was “hindered” due to a force majeure event,

they can claim compensatory tariff.

43.First and foremost, the respondents are correct in stating that the force

majeure clause does not exhaust the possibility of unforeseen events occurring

outside natural and/or non-natural events. But the thrust of their argument was

really that so long as their performance is hindered by an unforeseen event, the

clause applies. ‘Chitty on Contracts’, 31

st

edition at para 14-151 cites a number

of judgments for the proposition that the expression “hindered” must be

construed with regard to words which precede and follow it, and also with regard

to the nature and general terms of the contract. Given the fact that the PPA

Page 47 must be read as a whole, and that clauses 12.3 and 12.7(a) are a part of the

same scheme of force majeure under the contract, it is clear that the expression

“hindered” in clause 12.7(a) really goes with the expression “partly prevents” in

clause 12.3. Force majeure clauses are to be narrowly construed, and

obviously the expression “prevents” in clause 12.3 is spoken of also in clause

12.7(a). When “prevent” is preceded by the expression “wholly or partly”, it is

reasonable to assume that the expression “prevented” in clause 12.7(a) goes

with the expression “wholly” in clause 12.3 and the expression “hindered” in

clause 12.7(a) goes with the expression “partly”. This being so, it is clear that

there must be something which partly prevents the performance of the obligation

under the agreement. Also, ‘Treitel on Frustration and Force Majeure’, 3

rd

edition, in paragraph 15-158 cites the English judgment of Tennants

(Lancashire) Ltd. v. G.S. Wilson and Co. Ltd., 1917 Appeal Cases 495 for the

proposition that a mere rise in price rendering the contract more expensive to

perform will not constitute “hindrance”. This is echoed in the celebrated

judgment of Peter Dixon & Sons Ltd. v. Henderson, Craig & Co. Ltd., 1919(2)

KB 778 in which it was held that the expression “hinders the delivery” in a

contract would only be attracted if there was not merely a question of rise in

price, but a serious hindrance in performance of the contract as a whole. At the

beginning of the First World War, British ships were no longer available, and

although foreign shipping could be obtained at an increased freight, such foreign

Page 48 ships were liable to be captured by the enemy and destroyed through mines or

sub-marines, and could be detained by British or allied warships. In the

circumstances, the Tennants (Lancashire) Ltd. judgment was applied, and the

Court of Appeals held:

“Under the circumstances, can it be said that the sellers were

not “hindered or prevented” within the meaning of the contract? It

is not a question of price, merely an increase of freight. Tonnage

had to be obtained to bring the pulp in Scandinavian ships, and

although the difficulty in obtaining tonnage may be reflected in the

increase of freight, it was not a mere matter of increase of freight;

if so, there were standing contracts that ought to have been

fulfilled. Counsel for the respondents urged that certain

shipowners, for reasons of their own, chose not to fulfil standing

contracts. It was not only shipowners but pulp buyers and sellers.

The whole trade was dislocated, by reason of the difficulty that

had arisen in tonnage. It seems to me that the language of Lord

Dunedin in Tennants, Ld. v. Wilson & Co. is applicable to the

present case: “Where I think, with deference to the learned

judges, the majority of the Court below have gone wrong is that

they have seemingly assumed that price was the only drawback. I

do not think that price as price has anything to do with it. Price

may be evidence, but it is only one of many kinds of evidence as

to shortage. If the appellants had alleged nothing but advanced

price they would have failed. But they have shown much more.”

That is exactly so here. Price, as price only, would not have

affected it. They were all standing contracts, but the position has

so changed by reason of the war that buyers and sellers and the

whole trade were hindered or prevented from carrying out those

contracts.”

44.As a matter of fact, clause 12.4 of the PPA, which deals with force majeure

exclusions, reads as follows :

“12.4 Force Majeure Exclusions

Force Majeure shall not include (i) any event or circumstance

which is within the reasonable control of the parties and (ii) the

following conditions, except to the extent that they are

Page 49 consequences of an event of Force Majeure:

a.Unavailability, late delivery, or changes in cost of the plant,

machinery, equipment, materials, spare parts, fuel or

consumables for the Project;

b.Delay in the performance of any contractor, sub-contractors or

their agents excluding the conditions as mentioned in Article 12.2;

c.Non-performance resulting from normal wear and tear typically

experienced in power generation materials and equipment;

d.Strikes or labour disturbance at the facilities of the Affected Party;

e.Insufficiency of finances or funds or the agreement becoming

onerous to perform; and

f.Non-performance caused by, or connected with, the Affected

Party’s:

i.Negligent or intentional acts, errors or omissions;

ii.Failure to comply with an Indian Law; or

iii.Breach of, or default under this Agreement or any Project

Documents.”

This clause makes it clear that changes in the cost of fuel, or the

agreement becoming onerous to perform, are not treated as force majeure

events under the PPA itself.

45.We are, therefore, of the view that neither was the fundamental basis of

the contract dislodged nor was any frustrating event, except for a rise in the

price of coal, excluded by clause 12.4, pointed out. Alternative modes of

performance were available, albeit at a higher price. This does not lead to the

contract, as a whole, being frustrated. Consequently, we are of the view that

neither clause 12.3 nor 12.7, referable to Section 32 of the Contract Act, will

apply so as to enable the grant of compensatory tariff to the respondents. Dr.

Singhvi, however, argued that even if clause 12 is held inapplicable, the law laid

down on frustration under Section 56 will apply so as to give the respondents

Page 50 the necessary relief on the ground of force majeure. Having once held that

clause 12.4 applies as a result of which rise in the price of fuel cannot be

regarded as a force majeure event contractually, it is difficult to appreciate a

submission that in the alternative Section 56 will apply. As has been held in

particular, in the Satyabrata Ghose case, when a contract contains a force

majeure clause which on construction by the Court is held attracted to the facts

of the case, Section 56 can have no application. On this short ground, this

alternative submission stands disposed of.

Change in Law

46.It has been submitted on behalf of the counsel for the respondents, that

the guidelines of 19

th

January, 2005, as amended by the 18

th

August, 2006

amendment, make it clear that any change in law, either abroad or in India,

would result in the consequential rise in price of coal being given to the power

generators. Since various provisions of the guidelines as well as the power

purchase agreements are referred to, we set them out herein:

Guidelines

“Clause 2.3.

2.3Unless explicitly specified in these guidelines, the

provisions of these guidelines shall be binding on the procurer.

The process to be adopted in event of any deviation proposed

from these guidelines is specified later in these guidelines under

para 5.16.

Clause 4.3

4.3.Tariffs shall be designated in Indian Rupees only. Foreign

exchange risks, if any, shall be borne by the supplier.

Transmission charges in all cases shall be borne by the procurer.

Page 51 Provided that the foreign exchange rate variation would be

permitted in the payment of energy charges [in the manner

stipulated in para 4.11 (iii)] if the procurer mandates use of

imported fuel for coastal power station in case-2.

Clause 4.7. (unamended)

Any change in tax on generation or sale of electricity as a result

of any change in Law with respect to that applicable on the date

of bid submission shall be adjusted separately.

Clause 4.7 (amended).

Any change in law impacting cost or revenue from the business

of selling electricity to the procurer with respect to the law

applicable on the date which is 7 days before the last date for

RFP bid submission shall be adjusted separately. In case of any

dispute regarding the impact of any change in law, the decision of

the Appropriate Commission shall apply.

5.4. Standard documentation to be provided by the procurer in

the RFQ shall include - (ii) Model PPA proposed to be entered

into with the seller of electricity. The PPA shall include necessary

details on:

·Risk allocation between parties;

·Technical requirements on minimum load conditions;

·Assured offtake levels;

·Force majeure clauses as per industry standards;

·Lead times for scheduling of power;

·Default conditions and cure thereof, and penalties;

·Payment security proposed to be offered by the

procurer.

Clause 5.6. Standard documentation to be provided by the

procurer in the RFP shall include - (ii) PPA proposed to be

entered with the selected bidder.

The model PPA proposed in the RFQ stage may be amended

based on the inputs received from the interested parties, and

shall be provided to all parties responding to the RFP. No further

amendments shall be carried out beyond the RFP stage;

Clause 5.16 (old)

Deviation from process defined in the guidelines

Clause 5.16.In case there is any deviation from these

guidelines, the same shall be subject to approval by the

Appropriate Commission. The Appropriate Commission shall

approve or require modification to the bid documents within a

Page 52 reasonable time not exceeding 90 days.

Clause 5.17 (old)

Arbitration

Clause 5.17.The procurer will establish an Amicable Dispute

Resolution (ADR) mechanism in accordance with the provisions

of the Indian Arbitration and Conciliation Act, 1996. The ADR

shall be mandatory and time-bound to minimize disputes

regarding the bid process and the documentation thereof.

If the ADR fails to resolve the dispute, the same will be subject to

jurisdiction of the appropriate Regulatory Commission under the

provisions of the Electricity Act, 2003.

Clause 5.16 (new)

Deviation from process defined in the guidelines

5.16In case there is any deviation from these guidelines, the

same shall be subject to approval by the Appropriate

Commission. The Appropriate Commission shall approve or

require modification to the bid documents within a reasonable

time not exceeding 90 days.

Clause 5.17 (new)

Arbitration

Clause 5.17 Where any dispute arises claiming any change in or

regarding determination of the tariff or any tariff related matters,

or which partly or wholly could result in change in tariff, such

dispute shall be adjudicated by the Appropriate Commission.

All other disputes shall be resolved by arbitration under the Indian

Arbitration and Conciliation Act, 1996.

Power purchase agreement

“Bid Deadline” shall mean the last date for submission of the

Bid in response to the RFP, specified in Clause 2.8 of the RFP;

“Dispute” means any dispute or difference of any kind between a

Procurer and the Seller or between the Procurers (jointly) and the

Seller, in connection with or arising out of this Agreement

including any issue on the interpretation and scope of the terms

of this Agreement as provided in Article 17;

“Electricity Laws” means the Electricity Act, 2003 and the rules

and regulations made thereunder from time to time along with

amendments thereto and replacements thereof and any other

Law pertaining to electricity including regulations framed by the

Appropriate Commission;

Page 53 “Fuel” means primary fuel used to generate electricity namely,

_______________”,

“Fuel Supply Agreements” means the agreement(s) entered into

between the Seller and the Fuel Supplier for the purchase,

transportation and handling of the Fuel, required for the operation

of the Power Station. In case the transportation of the Fuel is not

the responsibility of the Fuel Supplier, the term shall also include

the separate agreement between the Seller and the Fuel

Transporter for the transportation of Fuel in addition to the

agreement between the Seller and the Fuel Supplier for the

supply of the Fuel;

“Law” means, in relation to this Agreement, all laws including

Electricity Laws in force in India and any statute, ordinance,

regulation, notification or code, rule, or any interpretation of any

of them by an Indian Government Instrumentality and having

force of law and shall further include all applicable rules,

regulations, orders, notifications by an Indian Governmental

Instrumentality pursuant to or under any of them and shall include

all rules, regulations, decisions and orders of the Appropriate

Commission;

“Project Documents” mean

aConstruction Contracts;

bFuel Supply Agreements, including the Fuel

Transportation Agreement, if any;

cO&M contacts;

dRFP and RFP Project Documents; and

eAny other agreements designated in writing as

such, from time to time, jointly by the Procurers

and the Seller;

13.ARTICLE 13: CHANGE IN LAW

13.1Definitions

In this Article 13, the following terms shall have the following

meanings:

13.1.1 “Change in Law” means the occurrence of any of the

following events after the date, which is seven (7) days prior to

the Bid Deadline:

(i)the enactment, bringing into effect, adoption, promulgation,

Page 54 amendment, modification or repeal, of any Law or (ii) a change in

interpretation of any Law by a competent Court of law, tribunal or

Indian Governmental Instrumentality provided such Court of law,

tribunal or Indian Governmental Instrumentality is final authority

under law for such interpretation or (iii) change in any consents,

approvals or licenses available or obtained for the Project,

otherwise than for default of the Seller, which results in any

change in any cost of or revenue from the business of selling

electricity by the Seller to the Procurers under the terms of this

Agreement, or (iv) any change in the (a) Declared value of Land

for the Project or (b) the cost of implementation of resettlement

and rehabilitation package of the land for the Project mentioned

in the RFP or (c) the cost of implementing Environmental

Management Plan for the Power Station mentioned in the RFP,

indicated under the RFP and the PPA;

but shall not include (i) any change in any withholding tax on

income or dividends distributed to the shareholders of the Seller,

or (ii) change in respect of UI Charges or frequency intervals by

an Appropriate Commission.

Provided that if Government of India does not extend the income

tax holiday for power generation projects under Section 80 IA of

the Income Tax Act, upto the Scheduled Commercial Operation

Date of the Power Station, such non-extension shall be deemed

to be a Change in Law.

13.1.2 “Competent Court” means:

The Supreme Court or any High Court, or any tribunal or any

similar judicial or quasi-judicial body in India that has jurisdiction

to adjudicate upon issues relating to the Project.

13.2Application and Principles for computing impact of

Change in Law

While determining the consequence of Change in Law under this

Article 13, the Parties shall have due regard to the principle that

the purpose of compensating the Party affected by such Change

in Law, is to restore through Monthly Tariff Payments, to the

extent contemplated in this Article 13, the affected Party to the

same economic position as if such Change in Law has not

occurred.

aConstruction Period

As a result of any Change in Law, the impact of

increase/decrease of Capital Cost of the Project in the Tariff shall

be governed by the formula given below:

Page 55 For every cumulative increase/decrease of each Rupees Fifty

crores (Rs.50 crores) in the Capital Cost over the term of this

Agreement, the increase/decrease in Non Escalable Capacity

Charges shall be an amount equal to zero point two six seven

(0.267%) of the Non Escalable Capacity Charges. Provided that

the Seller provides to the Procurers documentary proof of such

increase/decrease in Capital Cost for establishing the impact of

such Change in Law. In case of Dispute, Article 17 shall apply.

It is clarified that the above mentioned compensation shall be

payable to either Party, only with effect from the date on which

the total increase/decrease exceeds amount of Rs.fifty (50)

crores.

Operation Period

As a result of Change in Law, the compensation for any

increase/decrease in revenues or cost to the Seller shall be

determined and effective from such date, as decided by the

Central Electricity Regulatory Commission whose decision shall

be final and binding on both the Parties, subject to rights of

appeal provided under applicable Law.

Provided that the above mentioned compensation shall be

payable only if and for increase/decrease in revenues or cost to

the Seller is in excess of an amount equivalent to 1% of Letter of

Credit in aggregate for a Contract Year.

13.3 Notification of Change in Law

13.3.1 If the Seller is affected by a Change in Law in accordance

with Article 13.2 and wishes to claim a Change in Law under this

Article, it shall give notice to the Procurers of such Change in Law

as soon as reasonably practicable after becoming aware of the

same or should reasonably have known of the Change in Law.

13.3.2 Notwithstanding Article 13.3.1, the Seller shall be obliged

to serve a notice to all the Procurers under this Article 13.3.2 if it

is beneficially affected by a Change in Law. Without prejudice to

the factor of materiality or other provisions contained in this

Agreement, the obligation to inform the Procurers contained

herein shall be material. Provided that in case the Seller has not

provided such notice, the Procurers shall jointly have the right to

issue such notice to the Seller.

13.3.3 Any notice served pursuant to this Article 13.3.2 shall

provide, amongst other things, precise details of:

(a)the Change in Law; and

(b)the effects on the Seller of the matters referred to in Article

13.2.

Page 56 13.4Tariff Adjustment Payment on account of Change in

Law

13.4.1 Subject to Article 13.2, the adjustment in Monthly Tariff

Payment shall be effective from:

(i)the date of adoption, promulgation, amendment,

re-enactment or repeal of the Law or Change in Law; or

(ii) the date of order/judgment of the Competent Court or tribunal

or Indian Governmental Instrumentality, if the Change in Law is

on account of a change in interpretation of Law.

13.4.2 The payment for Changes in Law shall be through

Supplementary Bill as mentioned in Article 11.8. However, in

case of any change in Tariff by reason of Change in Law, as

determined in accordance with this Agreement, the Monthly

Invoice to be raised by the Seller after such change in Tariff shall

appropriately reflect the changed Tariff.

17.3.1 Where any Dispute arises from a claim made by any

Party for any change in or determination of the Tariff or any

matter related to Tariff or claims made by any Party which partly

or wholly relate to any change in the Tariff or determination of any

of such claims could result in change in the Tariff or (ii) relates to

any matter agreed to be referred to the Appropriate Commission

under Articles 4.7.1, 13.2, 18.1 or clause 10.1.3 of Schedule 17

hereof, such Dispute shall be submitted to adjudication by the

Appropriate Commission. Appeal against the decisions of the

Appropriate Commission shall be made only as per the provisions

of the Electricity Act, 2003, as amended from time to time.

18.1 Amendment

This Agreement may only be amended or supplemented by

a written agreement between the Parties and after duly obtaining

the approval of the Appropriate Commission, where necessary.”

47.The respondents have argued before us that it is clear from the change

made in clause 4.7 of the guidelines read with clause 5.17 that any change in

law impacting cost or revenue from the business of selling electricity shall be

adjusted separately. Learned counsel for the respondents have argued that

“any change in law” is not qualified and, therefore, would include foreign law.

According to them, the power purchase agreement is subservient to the

Page 57 guidelines and can never negate the terms of the guidelines. Under clauses 4.7

and 5.1.7 of the guidelines, these guidelines are binding on all parties including

the procurers and any deviation therefrom has to be approved by the

appropriate Commission. Therefore, according to them, the PPA must be read

as including foreign laws as well. On the other hand, our attention was invited to

the definition of “electricity laws” and it was argued that clause 13 would have to

be read in the light of the PPA provisions and so read it would not include

changes in Indonesian law, being foreign and not Indian Law.

48.Both the guidelines and the model PPA, of which clause 13 is a part, have

been drafted by the Central Government itself. It is, therefore, clear that the

PPA only fleshes out what is mentioned in clause 4.7 of the guidelines, and goes

on to explain what the expression “any change in law” means. This being the

case, it is clear that the definition of “law” speaks of all laws including electricity

laws in force in India. Electricity laws, as has been seen from the definition,

means the Electricity Act, rules and regulations made thereunder from time to

time, and any other law pertaining to electricity. This being so, it is clear that the

expression “in force in India” in the definition of ‘law’ goes with “all laws”. This is

for the reason that otherwise the said expression would become tautologous, as

electricity laws that are in force in India are already referred to in the definition of

“electricity laws” as contained in the PPA. Once this is clear, at least textually it

is clear that “all laws” would have to be read with “in force in India” and would,

Page 58 therefore, refer only to Indian laws. Even otherwise, from a reading of clause

13, it is clear that clause 13.1.1 is in four different parts. The first part speaks of

enacted laws; the second speaks of interpretation of such laws by Courts or

other instrumentalities; the third speaks of changes in consents, approvals or

licences which result in change in cost of the business of selling electricity; and

the fourth refers to any change in the declared law of the land for the project,

cost of implementation of re-settlement and rehabilitation or cost of

implementing the environmental management plan. ‘Competent Court’ in clause

13.1.2 is defined as meaning only the judicial system of India.

49.First and foremost, the expression “any law” occurs in both sub-section (1)

and sub-section (2) of clause 13.1.1, which expression must be given the same

meaning in both sub-sections. This being the case, as in sub-clause (2), this

expression would refer only to Indian law, the same meaning will have to be

given to the very same expression in sub-clause (1). Even otherwise,

sub-clauses (1) and (2) form part of the same contractual scheme in that

sub-clause (1) refers to the enactment of laws, whereas sub-clause (2) relates

to interpretation of those very laws by a competent Court of law/Tribunal or

Indian Government instrumentality. ‘Competent Court’, as we have seen above,

speaks only of the Indian judicial system and, therefore, the enactments spoken

of in sub-clause (1) would necessarily refer only to Indian enactments.

Page 59 50.However, we were referred to other clauses in the PPA, for example,

clauses 12.4(f)(ii), 4.1.1(a) and 17.1, all of which speak of Indian law. It was,

therefore, argued that wherever the parties wanted to refer to Indian law, they

did so explicitly, and from this it should be inferred that the expression “law”

would otherwise include all laws whether Indian or otherwise.

51.This argument is based on the Latin maxim expressio unius est exclusio

alterius. This maxim has been referred to in a number of judgments of this

Court in which it has been described as a ‘useful servant but a dangerous

master’. (See for example CCE v. National Tobacco Co. of India Ltd., (1972) 2

SCC 560 at Para 30).

From a reading of the above, it is clear that if otherwise the expression

“any law” in clause 13 when read with the definition of “law” and “Electricity

Laws” leads unequivocally to the conclusion that it refers only to the law of India,

it would be unsafe to rely upon the other clauses of the agreement where Indian

law is specifically mentioned to negate this conclusion.

52.It was also argued, placing reliance upon the fact that a commercial

contract is to be interpreted in a manner which gives business efficacy to such

contract, that the subject matter of the PPA being “imported coal”, obviously the

expression “any law” would refer to laws governing coal that is imported from

other countries. We are afraid, we cannot agree with this argument. There are

Page 60 many PPAs entered into with different generators. Some generators may

source fuel only from India. Others, as is the case in the Adani Haryana matter,

would source fuel to the extent of 70% from India and 30% from abroad,

whereas other generators, as in the case of Gujarat Adani and the Coastal case,

would source coal wholly from abroad. The meaning of the expression “change

in law” in clause 13 cannot depend upon whether coal is sourced in a particular

PPA from outside India or within India. The meaning will have to remain the

same whether coal is sourced wholly in India, partly in India and partly from

outside, or wholly from outside. This being the case, the meaning of the

expression “any law” in clause 13 cannot possibly be interpreted in the manner

suggested by the respondents. English judgments and authorities were cited for

the proposition that if performance of a contract is to be done in a foreign

country, what would be relevant would be foreign law. This would be true as a

general statement of law, but for the reason given above, would not apply to the

PPAs in the present case.

53.However, in so far as the applicability of clause 13 to a change in Indian

law is concerned, the respondents are on firm ground. It will be seen that under

clause 13.1.1 if there is a change in any consent, approval or licence available

or obtained for the project, otherwise than for the default of the seller, which

results in any change in any cost of the business of selling electricity, then the

said seller will be governed under clause 13.1.1. It is clear from a reading of

Page 61 the Resolution dated 21

st

June, 2013, which resulted in the letter of 31

st

July,

2013, issued by the Ministry of Power, that the earlier coal distribution policy

contained in the letter dated 18

th

March, 2007 stands modified as the

Government has now approved a revised arrangement for supply of coal. It has

been decided that, seeing the overall domestic availability and the likely

requirement of power projects, the power projects will only be entitled to a

certain percentage of what was earlier allowable. This being the case, on 31

st

July, 2013, the following letter, which is set out in extenso states as follows :

FU-12/2011-IPC (Vol-III)

Government of India

Ministry of Power

Shram Shakti Bhawan, New Delhi

Dated 31

st

July, 2013

To,

The Secretary,

Central Electricity Regulatory Commission,

Chanderlok Building, Janpath,

New Delhi

Subject: Impact on tariff in the concluded PPAs due to shortage in

domestic coal availability and consequent changes in NCDP.

Ref. CERC’s D.O. No.10/5/2013-Statutory Advice/CERC dated

20.05.13

Sir,

In view of the demand for coal of power plants that were

provided coal linkage by Govt. of India and CIL not signing any Fuel

Supply Agreement (FSA) after March, 2009, several meetings at

different levels in the Government were held to review the situation.

In February 2012, it was decided that FSAs will be signed for full

quantity of coal mentioned in the Letter of Assurance (LOAs) for a

period of 20 years with a trigger level of 80% for levy of disincentive

and 90% for levy of incentive. Subsequently, MOC indicated that CIL

will not be able to supply domestic coal at 80% level of ACQ and

coal will have to be imported by CIL to bridge the gap. The issue of

Page 62 increased cost of power due to import of coal/e-auction and its

impact on the tariff of concluded PPAs were also discussed and

CERC’s advice sought.

2.After considering all aspects and the advice of CERC in this

regard, Government has decided the following in June 2013:

i)taking into account the overall domestic availability and actual

requirements, FSAs to be signed for domestic coal component for

the levy of disincentive at the quantity of 65%, 65%, 67% and 75%

of Annual Contracted Quantity (ACQ) for the remaining four years of

the 12

th

Plan.

ii)to meet its balance FSA obligations, CIL may import coal and

supply the same to the willing TPPs on cost plus basis. TPPs may

also import coal themselves if they so opt.

iii)higher cost of imported coal to be considered for pass through

as per modalities suggested by CERC.

3.Ministry of Coal vide letter dated 26

th

July 2013 has notified the

changes in the New Coal Distribution Policy (NCDP) as approved by

the CCEA in relation to be coal supply for the next four years of the

12th Plan (copy enclosed).

4.As per decision of the Government, the higher cost of

import/market based e-auction coal be considered for being made a

pass through on a case to case basis by CERC/SERC to the extent

of shortfall in the quantity indicated in the LoA/FSA and the CIL

supply of domestic coal which would be minimum of 65%, 65%, 67%

and 75% of LOA for the remaining four years of the 12th Plan for the

already concluded PPAs based on tariff based competitive bidding.

5.The ERCs are advised to consider the request of individual

power producers in this regard as per due process on a case to

case basis in public interest. The Appropriate Commissions are

requested to take immediate steps for the implementation of the

above decision of the Government.

This issues with the approval of MOS(P)I/C.

Encl: as above

Yours faithfully,

Sd/-

(V.Apparao)

Director

This is further reflected in the revised tariff policy dated 28

th

January, 2016,

which in paragraph 1.1 states as under :

Page 63 1.1In compliance with Section 3 of the Electricity Act 2003, the

Central Government notified the Tariff Policy on 6

th

January, 2006.

Further amendments to the Tariff Policy were notified on 31

st

March, 2008, 20

th

January, 2011 and 8

th

July, 2011. In exercise of

powers conferred under Section 3(3) of Electricity Act, 2003, the

Central Government hereby notifies the revised Tariff Policy to be

effective from the date of publication of the resolution in the

Gazette of India.

Notwithstanding anything done or any action taken or

purported to have been done or taken under the provisions

of the Tariff Policy notified on 6

th

January, 2006 and

amendments made thereunder, shall, in so far as it is not

inconsistent with this Policy, be deemed to have been done

or taken under provisions of this revised policy.

Clause 6.1 states:

6.1 Procurement of Power

As stipulated in para 5.1, power procurement for future

requirements should be through a transparent competitive

bidding mechanism using the guidelines issued by the

Central Government from time to time. These guidelines

provide for procurement of electricity separately for base

load requirements and for peak load requirements. This

would facilitate setting up of generation capacities

specifically for meeting such requirements.

However, some of the competitively bid projects as per the

guidelines dated 19

th

January, 2005 have experienced

difficulties in getting the required quantity of coal from Coal

India Limited (CIL). In case of reduced quantity of domestic

coal supplied by CIL, vis-à-vis the assured quantity or

quantity indicated in Letter of Assurance/FSA the cost of

imported/market based e-auction coal procured for making

up the shortfall, shall be considered for being made a pass

through by Appropriate Commission on a case to case

basis, as per advisory issued by Ministry of Power vide OM

NO.FU-12/2011-IPC (Vol-III) dated 31.7.2013.

Both the letter dated 31

st

July, 2013 and the revised tariff policy are

statutory documents being issued under Section 3 of the Act and have the force

of law. This being so, it is clear that so far as the procurement of Indian coal is

Page 64 concerned, to the extent that the supply from Coal India and other Indian

sources is cut down, the PPA read with these documents provides in clause 13.2

that while determining the consequences of change in law, parties shall have

due regard to the principle that the purpose of compensating the party affected

by such change in law is to restore, through monthly tariff payments, the

affected party to the economic position as if such change in law has not

occurred. Further, for the operation period of the PPA, compensation for any

increase/decrease in cost to the seller shall be determined and be effective from

such date as decided by the Central Electricity Regulation Commission. This

being the case, we are of the view that though change in Indonesian law would

not qualify as a change in law under the guidelines read with the PPA, change in

Indian law certainly would.

54.However, Shri Ramachandran, learned senior counsel for the appellants,

argued that the policy dated 18

th

October, 2007 was announced even before the

effective date of the PPAs, and made it clear to all generators that coal may not

be given to the extent of the entire quantity allocated. We are afraid that we

cannot accede to this argument for the reason that the change in law has only

taken place only in 2013, which modifies the 2007 policy and to the extent that it

does so, relief is available under the PPA itself to persons who source supply of

coal from indigenous sources. It is to this limited extent that change in law is

held in favour of the respondents. Certain other minor contentions that are

Page 65 raised on behalf of both sides are not being addressed by us for the reason that

we find it unnecessary to go into the same. The Appellate Tribunal’s judgment

and the Commission’s orders following the said judgment are set aside. The

Central Electricity Regulatory Commission will, as a result of this judgment, go

into the matter afresh and determine what relief should be granted to those

power generators who fall within clause 13 of the PPA as has been held by us in

this judgment.

55.All the appeals are disposed of accordingly.

…………………………………..J.

(PINAKI CHANDRA GHOSE )

…….…………………………… J.

(R.F. NARIMAN)

New Delhi;

April 11, 2017