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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3455 OF 2010

GUJARAT URJA VIKAS NIGAM LTD. … APPELLANT

VERSUS

ESSAR POWER LIMITED ...RESPONDENT

J U D G M E N T

ADARSH KUMAR GOEL, J.

Part I : Introductory

1.This appeal has been preferred under Section 125 of the

Electricity Act, 2003 (‘the Act’) against the judgment and order

dated 22

nd

February, 2010 passed by the Appellate Tribunal for

Electricity (the Tribunal) in Appeal No.86 of 2009 whereby the

Tribunal has set aside the order of the Gujarat Electricity

Regulatory Commission (‘the Commission’) which was in favour of

the appellant.

2.The substantial question of law sought to be raised by the

appellant is :

“Whether the Tribunal has correctly interpreted the terms of

Power Purchase Agreement dated 30

th

May, 1996 (PPA) and is

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justified in reversing the finding of the Commission based on

interpretation of the said PPA and other documents on

record.?”

Part II : Facts

3.The appellant, Gujarat Urja Vikas Nigam Ltd. (‘the GUVNL’), is

the successor of the Gujarat Electricity Board and is a deemed

licencee under Section 2 (39) read with Sections 12 and 14 of the

Act. The respondent, ESSAR Power Limited (‘the EPL’), is a

generation company within the meaning of Section 2 (28) of the

Act. The appellant filed a petition before the Commission under

Section 86 (i)(f) of the Act for adjudication of the dispute arising

out of the Power Purchase Agreement (‘the PPA’). The appellant

inter alia sought compensation for wrongful allocation of electricity

by the EPL to its sister concern, Essar Steel Ltd. (ESL) in preference

to the appellant.

4.According to the appellant, the EPL was required to allocate

300 MW out of the total 515 MW of electricity and the remaining

215 MW was to be allocated to ESL. In case the quantum of

generation was less than 515 MW, the allocation was to be in the

proportion of 300 : 215. Contrary to this requirement, the EPL

allocated more electricity to ESL. The EPL agreed, vide letter

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dated 17.02.2000, that the appellant will be entitled to electricity

in the proportion of 300 : 215 but the same was not adhered to.

This resulted in loss to the appellant and gain to the EPL which,

according to the appellant, tentatively worked out to Rs.476.22

crores (towards principal amount). It was further pleaded by the

appellant that under the agreement, the appellant was liable to

pay the annual fixed charges, the variable charges, incentive etc.

in relation to the allocated capacity of 300 MW out of total 515

MW. Similarly, the ESL to whom balance capacity of 215 MW was

allocated was to bear proportionate annual fixed cost, thus, the

EPL was required to make electricity available to the appellant in

the proportion of 300 : 215 as per clause 3 of the Agreement. The

EPL was required to declare the availability in the same proportion

so that the dispatch instruction could be issued as per the

Agreement. The appellant pleaded that it was entitled to

compensation for wrong allocation of electricity based on the

applicable HT rate from time to time. The appellant claimed

damages equal to the difference of rate at which electricity was to

be supplied to it and the rate at which the appellant was to supply

the same to its consumers. For this purpose, the respondent was

liable to give true details and complete account of the allocation

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made to the appellant and to ESL. The appellant had also raised a

claim for recovery of Deemed Generation Incentive paid to the

respondent to which the respondent was not entitled but the said

claim is no longer subject matter of this appeal, the order of the

Tribunal in that respect having become final.

5. It will be appropriate to refer to the prayer clause in the

petition filed by the appellant :-

“(a)hold that the petitioner is entitled to adjust in the

tariff payable by the petitioner to the respondent for

purchase of electricity all amounts received by the

respondent as a result of wrong allocation of

electricity; and deemed generation incentive when

Naphtha is proposed to be used as fuel;

(b)award cost of the proceedings in favour of the

petitioner and against the respondent; and

(c) pass such other or further orders as may be

deemed proper to give relief to the petitioner;

(d)continue to raise bills on Essar Group Companies

based on proportionate methodology.”

6.The above claims were contested by the respondent based

on preliminary objections including the plea of limitation as well as

on merits.

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Part III : Pleadings

7.As noticed in Para 4 above, the case of the appellant in the

petition filed before the Commission was that the respondent had

wrongly utilized the capacity of the generating station in favour of

its sister concern, against the rights and interest of the appellant

in violation of the PPA, the respondent allocated part of generating

capacity required to be allocated to the appellant to its sister

concern. The appellant had the obligation to pay annual fixed

charges, variable charges, incentive etc. in relation to the specified

allocated capacity and the sister concern of the respondent was to

pay proportionate annual fixed cost. The Agreement required the

EPL to declare availability in the specified proportion even when

generation was less than the total 515 MW capacity. Contrary to

the said requirement, the respondent allocated more electricity to

ESL and offered proportionately less electricity to the appellant.

Thereby, not only the agreement was violated, the understanding

reflected in letters issued by the respondent was also not honored.

In para 23.0 it was specifically mentioned that the appellant was

entitled to claim compensation for the wrong allocation and in

para 24.0, it was mentioned that the respondent was required to

give detailed and complete account of the allocation made.

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8.As against the above stand of the appellant, the stand of the

respondent in its written submission filed before the Commission

on 15

th

January, 2009 is that its only obligation was to supply 300

MW to the Board as and when called upon to do so. There was no

bar to supply more than 215 MW to ESL. There is no evidence of

any loss suffered by the appellant. Article 3.1 of the Agreement

could not be read as suggested by the appellant. Further, if supply

was below the quantum specified in the dispatch instructions,

penalty could be claimed as per clause 7.4.3 of Schedule VII of the

Agreement. Further, the appellant was defaulter in complying with

its obligations in making timely payment.

Part IV : Finding of the Commission

9.The Commission upheld the plea of limitation raised by the

respondent to the extent that the appellant was held entitled to its

claims only for three years preceding the filing of the petition, i.e.,

from 14

th

September, 2002, the petition having been filed on 14

th

September, 2005. The Tribunal upheld the said finding. Though

the appellant had filed Civil Appeal No.3454 of 2010 on this

aspect, the said appeal was dismissed by this Court vide order

dated 2

nd

September, 2011 as follows :

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“The appeal directed against the decision dated

22.2.2010 rendered by the Appellate Tribunal

for Electricity in appeal No.77/2009 upholding the finding

of the State Commission that the claim of the appellant

against the respondent for any period upto 14.9.2002 is

barred by time except to the extent of Rs.64 crores paid by

the respondent to the appellant pursuant to the full and

final settlement of claims for the period from 1998 upto

September, 2004, is dismissed.”

10.The Tribunal also upheld the order of the Commission

accepting the claim of the appellant under the head of a Deemed

Generation Incentive and the respondent has not challenged this

aspect.

11.Thus, the only question for consideration is the claim of the

appellant for failure to declare availability of power in the

proportion of 300 : 215 MW for the period from 14

th

September,

2002 onwards.

12.The Commission on this aspect held as follows :

“9.1 The PPA was executed on 30.5.1996 and effective for a

period of 20 years. The relevant clauses of the PPA have been

examined. It is quite clear that under the PPA, GUVNL has an

obligation to pay an annual fixed cost for the allocated capacity,

which is 300 MW. Having paid the annual fixed cost for the said

capacity, GUVNL has a right for an equivalent amount of electrical

output. The purpose of paying annual fixed cost is to ensure that

GUVNL alone has the right to the said capacity and that no part of

the same can be sold to any other party. It is true that 41 the

normal industry practice is that unless the allocated capacity, for

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which fixed charges are being paid by the beneficiary is

surrendered, the beneficiary has the ability to sell/ negotiate any

transaction for utilisation of such allocated capacity. In this

context, reference is also made to the CERC (Terms and Conditions

of Determination of Tariff) Regulations, 2004.

9.2 The question that arises for consideration is whether GUVNL

can claim allocation on a proportionate basis i.e. to say, that if EPL

is unable to declare 300MW capacity which is allocated to GUVNL

under the PPA, EPL would then have to declare capacity

proportionately in the ratio of 58:42 from the total declared

capacity. In this context one is required to carefully review Article

3.1 of the PPA.

9.3 Although in the definition of allocated capacity, it is only

mentioned that 192MW capacity during Open Cycle mode

operation and 300MW capacity during Combined Cycle mode

operation is allocated to GUVNL, the same is further elaborated in

Article 3.1. In Article 3.1, the parties have agreed as follows:

“3.1 The allocation of the Capacity shall be as under:

a) During Open Cycle mode operation prior to

commissioning of the Combined Cycle mode operation:

138MW to the Essar Group of Companies; and 192 MW

to the Board

b) During Combined Cycle mode:

215 MW to the Essar Group of Companies; and

300 MW to the Board

The Company undertakes that, subject to the provisions and

during the term of this Agreement, it will fuel and operate the

Generating Station to meet the requirements of electrical output

that can be generated corresponding to the allocated capacity, in

accordance with its Dynamic Parameters so as to comply with the

Operating Characteristics except to the extent:

(i) as anticipated under the Maintenance Programme during

the period of Scheduled Outage.

(ii) That to do so would not be in accordance with Good

Industry Practice;

(iii) That may be necessary due to circumstances relating to

Safety (of personnel or plant apparatus);

(iv) that to do so would be unlawful;

(v) That may be necessary for reasons of Force Majeure

Natural or NonNatural.”

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9.4 For the interpretation of the contract the following principle as

laid down by the Supreme Court in Mrs. M.N. Clubwala v. Fida

Hussain Saheb (1964) 6 SCR 642 has to be kept in mind:

Whether an agreement creates between the parties the

relationship of landlord and tenant or merely that of licensor

and licensee the decisive consideration is the intention of

the parties. This intention has to be ascertained on a

consideration of "all the relevant provisions in the

agreement.”

“…The dispute may arise between the very parties to the

written instrument, where on the construction of the deed

one party contends that the transaction is a 'licence' and

the other that it is a 'lease'. The intention to be gathered

from the document read as a whole has, quite obviously, a

direct bearing.” (Underline Supplied).

Also, the Hon’ble Supreme Court has held in State of Andhra

Pradesh. Vs. Kone Elevators India Ltd. (2005) 3 SCC 386:

“It is a settled law that the substance and not the form of

the contract is material in determining the nature of the

transaction”.

Therefore, it is necessary to read the PPA as a whole in order to

give a correct interpretation to the terms therein contained. The

definition of ‘Allocated Capacity’ in the PPA has to be read in

conjunction with Article 3.1. Article 3.1 clearly records the

allocation of capacity between two entities i.e. GUVNL as well as

Essar Steel.

9.5 From the reading of the Article 3.1 of the PPA as also the

corresponding Articles in the PPA with Essar Steel, it is clear

that the intention of the parties was that the capacity of the

generating plant will be shared between the two

beneficiaries only. The fact that Article 3.1 of the present PPA

records the capacity allocated to the Essar Group companies

along with the capacity allocated to GUVNL shows that

intention of the parties was to provide for allocation in the

proportion of 138:192 (while working in open cycle mode)

and 215:300 (while working in combined cycle mode).

Otherwise there is no reason for mentioning in Article 3.1. of

PPA about the quantum that is contracted with Essar Steel.

Similarly, the fact that the PPA with Essar Steel states the

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allocation to GUVNL goes to show that the allocation was

intended to be on a proportionate basis, between the two

parties / purchasers only. During the arguments, the Learned

Counsel for the Respondent also clarified that apart from the

two purchasers of power there is no other third party sale

that has taken place. The intention of EPL is to recover the

fixed charges is only from the two beneficiaries, in proportion

to the allocated capacity. This is clear from the reading of the

two PPAs. Hence, EPL cannot argue that the PPA does not

recognise the proportionate principle at all. If the

proportionate principle is acceptable for recovery of fixed

charges, it cannot be abandoned for allocation of supply.

9.6 The submission of EPL that there is no clause in the PPA

that it cannot supply more than 215 MW to Essar Steel is also

not correct. Once the entire capacity has been allocated

between the two parties in a particular proportion, EPL

cannot violate the proportionate allocation for the benefit of

any one party. Having sold the capacity of 300 MW to GUVNL

and 215 MW to Essar Steel, for which fixed charges are paid

in the said proportion, EPL cannot argue that it can sell

power to Essar Steel beyond the capacity allocated to it.

There is no spare capacity that allows EPL to do that. Under

the procedure for dispatch in Schedule VI of the PPA, EPL had

to declare weekly schedules of the “Capacity” that is

available for the entire station (and not the “Allocated

capacity”). On the basis of such declaration,

requirement-schedule and dispatch instructions are issued.

The obligation of EPL is clearly to declare the “Capacity” of

the generating plant as a whole. Once the declared

availability for the entire plant is known, the beneficiaries will

proceed to issue dispatch instructions in accordance with the

terms of the PPA. Hence, the argument of EPL that it does not

have the obligation to declare capacity for the entire plant is

incorrect and contrary to the terms of Schedule VI of the PPA.

This submission is contrary to the procedure prescribed in

the PPA as well as the normal industry practice. Once the

capacity of the generating station as a whole is available, the

allocation of capacity has to take place in the proportion that

is contracted. Also, the submission of EPL that the

Petitioner's only concern, under terms of the PPA, is that it

must get electricity in accordance with its Dispatch

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Instructions, within the limits of allocated capacity is not

entirely correct. The Petitioner has a right to be supplied

electrical output proportionate to the declared capacity of

the generating plant in terms of the PPA. EPL cannot ignore

its obligation of declaring the entire capacity. Once the entire

capacity of the generating plant is declared, the

proportionate principle of allocation of capacity will become

applicable and as a natural consequence, the electrical

output will be allocated and supplied between the two

beneficiaries on proportionate basis, in accordance with the

dispatch instructions. It appears that EPL is avoiding its

obligation to declare the entire capacity. The ability to

recover deemed non generation due to difference in

schedule generation and actual generation has nothing to do

with the requirement to allocate capacity and supply

electrical output on a proportionate basis.

9.7 In view of the aforesaid, the Commission accepts the

submission made by GUVNL to the effect that, if in a time

block the declared availability for the station with 515 MW of

the installed capacity in only 400 MW, the same should be

declared available to GUVNL to the extent of 233 MW and to

Essar Group to the extent of 167 MW, maintaining the

proportion of 58% : 42% (300:215). It is not valid for

EPL to declare available in any time block to Essar Group to

the extent of 215 MW towards their share and declare

available to GUVNL 185 MW. Such an act would mean that

Essar Group is being preferred at the cost of GUVNL. As

against the GUVNL’s entitlement of 233 MW they will get

only 185 MW and therefore a deficit of 48 MW equivalent of

electricity. That certainly cannot be the intention of the

parties.

9.8 Under the PPA, the obligation to supply power by EPL to

GUVNL is limited to the electrical output equivalent to the

allocated capacity of 300 MW. The fact that the EPL has an

obligation to make payment of deemed non generation

incentive and reduce annual fixed charges on a pro rata

basis, cannot in any manner negate the proportionate

principle of allocation when EPL declares availability less

than the allocated capacity.

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9.9 In this context, EPL’s reliance on the letter of the

Government of Gujarat dated 05.06.1995 to argue that only

the surplus, after meeting the requirement of its sister

companies, is to be supplied to GUVNL is not correct. Once

the PPA has been executed, the parties are governed by the

terms of the PPA. In fact Article 12.5 of the PPA clarifies that

the PPA and the schedules attached thereto are a complete

and exclusive statement of the terms of the agreement and

that all prior written or oral understandings, offers or other

communication of every kind pertaining to the sale or

purchase of electrical output and dependable capacity

between the parties is abrogated and withdrawn.

9.10 Furthermore, in the letter dated 17.02.2000, EPL

categorically agreed to the concept that power should be

supplied in the ratio of 58:42 provided certain conditions are

fulfilled. The conditions mentioned in the said letter will

demonstrate that the each condition is either in the nature of

additional concessions / modification that were sought by EPL

or alleged defaults on the part of GUVNL, which was not

agreed to by GUVNL.

9.11 However, if GUVNL does not take the power declared

available by EPL in terms of the aforesaid ratio, EPL will have

the right to sell the power to its sister concern subject to

reimbursement of the proportionate of the annual fixed

charges. GUVNL cannot make a submission that although it

will not purchase such power as declared available by EPL,

EPL cannot sell the same to its sister concern. Such a

submission would defeat the purpose of the Electricity Act,

2003 and the National Electricity Policy which promotes

generation and encourages sale of surplus capacity. If GUVNL

does not schedule the power to the extent of availability

declared by EPL of the entire plant in terms of the PPA, it

cannot complain if the power is sold to EPL’s sister concern

and the proportionate of the annual fixed cost is reimbursed.

9.12 The Commission is of the view that GUVNL is entitled to

claim compensation for the energy diverted to Essar Steel

from the capacity allocated to GUVNL under the PPA. EPL at

all times has an obligation under the present PPA to declare

availability for the entire plant and allocate the supply on the

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basis of 300:215 or 58:42.

9.13 As regards the quantum of compensation payable on

account of diversion, the PPA is silent on the same. The

parties in the settlement for dues on account of diversion for

the period between 1998 and September, 2004 agreed on a

particular methodology for determining such compensation.

The parties had agreed that GUVNL is entitled to the HTP 1

energy tariff after excluding the variable cost. The diversion

in the circumstance should be computed on an hourly basis.

This appears to be a fair manner of determining the

compensation that is to be paid for the period after

September, 2004. The parties are required to reconcile the

generation data and make final calculation on the basis of

the aforesaid principle.

9.14 The Commission also directs that for the remaining

period of the PPA, EPL has a legal obligation to declare

availability for the entire capacity and that it shall not divert

any power to its sister concern in a manner contrary to the

proportionate principle. If GUVNL declines to purchase power

allocated on the proportionate basis, EPL will have the right

to sell the power to its sister concern subject to

reimbursement of proportionate of the fixed cost.”

Part V : Appeal to the Tribunal and the Finding of the Tribunal

13.The respondent preferred an appeal before the Tribunal being

Appeal No.86 of 2009. Contention of the appellant was that the

EPL was not obliged to declare electricity availability in ratio of 300

: 215 MW to the appellant. The PPA signed with the appellant and

the sister concern of the EPL were independent. The obligation to

supply was to arise after receiving dispatch instructions only.

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14.The Tribunal framed following questions for consideration :

“ (i) Whether under the PPA I and II the supply of electrical output

to be made by the Appellant shall be in the ratio of 300:215 MW,

the allocated capacity of the Electricity Board (R-1) and Essar

Steels Ltd. respectively?

(ii) Whether the Appellant, which failed to declare the entire

capacity of its generating station to the Electricity Board made

the supply of electricity to its sister concern Essar Steels Ltd. in

excess of the said ratio is liable to be held responsible for the

breach of the terms of PPA and consequently the Appellant is

liable to compensate the Electricity Board (R-1)”…..

15.The Tribunal upheld the stand of the EPL. It was held that

Articles I and III of Schedule VI to the PPA did not require the EPL

to declare the capacity in the ratio of 300 : 215 MW. As regards

letters dated 17th February, 2000 and 4

th

October, 2001 by which

the respondent accepted its liability, it was held that the GUVNL

never accepted or complied with its obligations and therefore, the

respondent was not bound by the stand in the said letters. It was

further observed that the claim for the period from 1

st

July, 1996

stood settled in view letter dated 13th October, 2006 of the

GUVNL to accept Rs.64 crores for diverting electricity to ESL.

Non-declaration of available capacity on proportionate basis was

not shown to have resulted in any loss or damage to GUVNL.

GUVNL had not proved any actual loss. It was observed that on

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the principle of Section 35 of the Sale of Goods Act, 1920, there

was no obligation to deliver in absence of dispatch instructions.

Further, the ESL supplied fuel to EPL for conversion into electricity

but for supply to the GUVNL, the EPL had to procure fuel from

outside. GUVNL also made default in making payment to the EPL

which amounted to breach of reciprocal obligation. GUVNL also

failed to establish letter of credit to secure the payment of the

amount payable to the EPL which also was breach on the part of

the appellant.

16.The finding of the Tribunal is :-

“45. From these provisions of Schedule-VI, it is clear that there

is no provision, express or implied, to suggest that the EPL is

liable to declare the available capacity in the said ratio to the

Board and the Essar Steels Ltd. All these provisions would only

say that the EPL has to first give Weekly Schedules to the

Electricity Board indicating the time and capacity which would

be available and the Electricity Board shall thereafter issue its

requirement schedule through Despatch Instructions and

thereupon EPL is liable to operate generating station in

accordance with the Despatch Instructions given by the

Electricity Board and supply.

46. On a combined reading of Articles 1 and 3 and Schedule VI

of the PPA-1, it is clear that EPL has to declare available

capacity up to the allocated capacity to both the Electricity

Board as well as to Essar Steels Ltd. and not on proportionate

theory basis.

47. As a matter of fact, Article 5.2 of the PPA-1 obligates the

Electricity Board to pay to the Appellant its Annual Fixed

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Charges including the cost of the project on the level of

generation achieved up to the allocated capacity and not on the

allocated capacity itself. The Electricity Board has accordingly

paid the Annual Fixed Charges on monthly basis on the level of

generation achieved up to the allocated capacity.

48. It is pointed out by the Ld. Senior Counsel for the Appellant

that so far as the payment towards cost of the project is

concerned, the Electricity Board had agreed to pay Rs. 945

crores out of the total cost of the project amounting to Rs. 2061

crores which only comes to approximately 46%, i.e. less than

58% of the total project cost.

49. In such circumstances, the Electricity Board (R-1) cannot

claim that by reasons of it’s making payment for the Annual

Fixed Charges up to the allocated capacity, it was always

obligatory on the part of the EPL to supply power to the extent

of 58% to the Electricity Board and that since EPL has sold a

part of Electricity Board’s share in the power generated by the

EPL to its sister concern, EPL is liable to compensate the

Electricity Board for the same by treating such power which sold

by EPL to Essar Steel Ltd. as if it was sold by the Electricity

Board itself to Essar Steel Ltd. after purchasing the same from

the EPL.

50. On the basis of letters dated 17.02.2000 and 04.10.2001, it

is contended on behalf of the Electricity Board (R-1) that EPL

has conceded to its proportionate theory basis and as such it

cannot go back. This contention is not tenable. EPL in those

letters merely expressed its willingness to agree to the

proportionate theory basis subject to the condition that

Electricity Board should commit default in making the payment

of dues payable under the PPA-1 to EPL and also subject to the

condition that the Electricity Board shall comply with other

conditions of the PPA-1.

51. Admittedly, the stipulated conditions in those letters were

neither accepted nor complied with by the Electricity Board.

Hence the offer made by the EPL to the Electricity Board for

agreeing to the proportionate theory basis would not be

construed to be conceding and as such it is binding on it.

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52. In the second letter dated 04.10.2001 also, EPL stipulated

the condition of making prompt payments by the Electricity

Board to EPL and for establishment of Letter of Credit to secure

payments under PPA-1. Even this condition, the Electricity Board

was not ready to comply with. As such the proposal made by

the EPL to the Electricity Board regarding proportionate theory

subject to the conditions is not binding on the Appellant.

53. Furthermore, when there is an amendment to the PPA-1 on

18.12.2003, there is no reference about these amendments for

declaration of supply of power in the ratio of 58:42 to the

Electricity Board as well as to the Essar Steels Ltd. respectively.

The preamble of the said Supplemental Agreement dated

18.12.2003 clearly establishes that EPL is only obliged to

generate the electricity up to 300 MW allocated to the

Electricity Board and nothing more. In other words, there is no

amendment with regard to the declaration of electricity

generated on proportionate basis in the said Supplemental

Agreement dated 18.12.2003.

54. Under such circumstances, it is not open to the Electricity

Board to rely upon the aforesaid letters dated 17.02.2000 and

04.10.2001 to advance the plea of its proportionate theory.

55. It is an admitted fact that the Electricity Board through its

letter dated 29.10.2003 demanded from EPL the payment of an

aggregate amount of Rs. 537 crores on account of alleged

diversion of power by EPL to Essar Steels Ltd for the period

commencing from 01.07.1996 to 31st March 1999. It is also an

admitted fact that the parties thereafter held several rounds of

discussions and as a result of those discussions, a settlement

was actually arrived at by the parties in October 2004. Pursuant

to the said settlement, the Electricity Board recalculated the

amount, due on the basis of power supplied by the EPL to Essar

Steels Ltd in excess of the allocated capacity of 215 MW shall

alone be treated as sold and supplied by the Electricity Board.

On this basis, the Electricity Board itself furnished a statement

to the Appellant, EPL showing that a sum of Rs. 64 crores is

payable for the aforesaid period and on the aforesaid basis, the

EPL accepted the same as a part of overall package and

authorized the Electricity Board to recover the same on a

condition that the same methodology would be adopted in

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future also. Thereafter, through their letter dated 13.10.2006,

the Electricity Board accepted to receive Rs. 64 crores for

diverting the electricity to the Essar Steels Ltd.

56. Under those circumstances, it is clear that the claim of the

Electricity Board against the EPL with respect to the alleged

diversion of power by the EPL to Essar Steels Ltd. for the period

from 01.07.96 had already been settled by the payment and

this settlement is final, conclusive and binding on the parties.

As correctly observed by the State Commission, the same is not

liable to be reopened at this stage.

57. Admittedly, it is not established that there is any breach of

the contract as the part of the Appellant under PPA-1 on

account of non-declaration of available capacity to the

Electricity Board on proportionate basis. The compensation can

be claimed only when there is a breach and due to the same

there was a loss or damage caused by the said breach of

contract. This has to be pleaded and proved. Unless this is

done, no compensation can be claimed. This is a settled law as

held by the Supreme Court in (1974) Vol-2 SCC 231 – Raman

Foundry V/s Union of India.

58. In the present case, the Electricity Board has not pleaded

and proved the actual loss or damage caused to it due to the

alleged breach of contract. The principle enshrined in section 73

of the Contract Act has been incorporated in Article 10.1 of the

PPA-1 which reads as follows:

“……neither Party shall be liable to the other Party in

contract, trot, warranty, strict liability or any other any

other legal theory for any indirect, consequential,

incidental, punitive or exemplary damages. Neither

Party shall have any liability to the other Party except

pursuant to, or for breach of this Agreement, provided,

however, that this provision is not intended to constitute

a waiver of any rights of one Party against the other

with regard to matters related to this Agreement or any

activity contemplated by this Agreement”.

59. Similarly, the explanation to Section 73 of the Indian

Contract Act provides that in estimating the loss or damage

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arising from breach of contract, the means which existed of

remedying the inconvenience caused by the non-performance

of the contract must be taken into account. It is the duty of the

court to take into account whether the party affected by breach

of contract has performed its duty to mitigate the loss while

estimating the loss or damage arising from the breach of

contract. In the present case, the Electricity Board merely

pleads that EPL has failed to declare and supply the available

capacity of electricity on proportionate basis to the Electricity

Board and nothing more.

60. As indicated above, as per Article 3.2 of PPA-1, the EPL

becomes liable to deliver the capacity to the Electricity Board at

the delivery point in accordance with the Despatch Instructions.

The Despatch Instructions are instructions for delivery of

electricity. The principle contained in Article 3.2 of PPA-1 is in

terms of the provisions of Section 35 of the Sale of Goods Act,

1920. Section 35 of the Sale of Goods Act declares that the

seller of goods is not bound to deliver until the buyer applies for

the delivery.

xxx

74. One more aspect needs to be mentioned. The arrangement

in relation to supply of electricity up to the allocated capacity

of 300 MW between the Appellant EPL and the Electricity Board

under the PPA-1 and between the EPL and its sister concern

Essar Steels Ltd. under PPA-2 read with Fuel Management

Agreement dated 18.10.1996 are materially different. The Essar

Steels Ltd supplies fuel to EPL for conversion into electricity,

whereas the Electricity Board is under no obligation to supply

fuel to EPL. Admittedly, the EPL has to procure fuel from outside

and use it for generating electricity for sale to the Electricity

Board.

75. The PPA-1 is a contract between the EPL and the Electricity

Board containing reciprocal promises. In consideration of EPL

supplying electricity to the Electricity Board up to the allocated

capacity in accordance with the Despatch Instructions, the

Electricity Board had agreed and undertaken to pay the EPL the

tariff as mentioned in the PPA- 1. It is an admitted fact that the

Page 20 20

Electricity Board has committed default in making payment

when due to be made to the EPL under the PPA-1. In fact, the

EPL, the Appellant has produced materials to show that at one

point of time in March 2008, the aggregate amount due to EPL

was to the tune of Rs. 519 crores. EPL has produced documents

to show that the Electricity Board is a defaulter in making

payment of its due under the PPA-1 right from the inception of

it.

76. It is also an admitted fact that EPL had written several

letters to the Electricity Board to establish Letter of Credit to

secure the payment of the amount payable under PPA-1 and

also pay the amounts when due. But the Electricity Board did

not heed to the request made by the EPL in this behalf and as a

result of it the ability of EPL to purchase the fuel for generating

electricity meant for sale to the Electricity Board got impaired.

77. As mentioned above, the claim for compensation made by

the Electricity Board against EPL in the present case is due to

the alleged breach of contract by EPL in declaring and supplying

the power to the Electricity Board in the proportion of 300MW

out of the total capacity 515 MW. The grievance is that EPL has

supplied less power than what is due to the Electricity Board

under the PPA-1. As aforesaid, Article 3.2 of the PPA-1 obliges

the Appellant to supply electricity to the Electricity Board only

in accordance with the Despatch Instructions given by the

Electricity Board from time to time. As a matter of fact, there is

no provision in the PPA-1 which restricts the right of the

Electricity Board to demand for supply of electricity only up to

the declared available capacity of the EPL. Admittedly, many a

times the Electricity Board asked for supply of more quantum of

electricity than what was declared as available to it by the EPL

by revising its Despatch Instructions and immediately thereafter

the EPL met this demand.

xxx

81. In the light of the above position, the direction given by the

State Commission with reference to reimbursement of Annual

Fixed Charges to the Electricity Board when the Electricity Board

has not secured energy to the extent allocated under the

Page 21 21

proportionate principle is not correct as the same is

misconceived. In this case we are of the view that the Annual

Fixed Charges are not refundable for the surrendered portion of

the electricity to the person in whose favour such electricity is

surrendered. Hence, in regard to the issue relating to the

liability to pay compensation we hold that, in Electricity Board is

not entitled to get the compensation as claimed and as such

the Appellant EPL succeeds in this issue. Consequently the

findings given by the State Commission on this issue are set

aside. “

Part VI : Rival Submissions

17.We have heard Shri C.A. Sundaram, learned senior counsel

for the appellant and Shri K.K. Venugopal, learned senior counsel

for the respondent.

18.Learned counsel for the appellant submitted that the Tribunal

had ignored the implications of Article 3 of the PPA. The true

import of the PPA clearly casts an obligation on the EPL to allocate

electricity in ratio of 300 : 215 MW. This interpretation was

accepted by the EPL in its letters dated 17

th

February, 2000, 4

th

March, 2000 and 4

th

October, 2001. Issues of non payment of

money due or not opening the letter of credit and not making

advance payment of fuel stood settled by Supplementary

Agreement dated 18

th

December, 2003 and letter dated 19

th

December, 2003. Thus, the Tribunal erroneously assumed that

Page 22 22

amount of Rs.519 crores was outstanding. Moreover, there is an

error in the order of the Tribunal in observing that GUVNL had not

proved suffering of any damage. Para 23 of the petition expressly

asserted the damage. There is further error in interpretation of

Schedule VI in regard to the obligation to declare the availability

of generating power upon which the dispatch instructions could be

issued. In absence of such declaration, the dispatch instructions

could not be issued. Finding that the appellant accepted Rs.64

crores by way of settlement was against record.

19. The EPL supports the view taken by the Tribunal. It is

submitted that there was no obligation for proportionate

declaration of available generation capacity. The respondent was

to meet the requirement of electric output corresponding to

allocated capacity of 300 MW. This obligation was subject to

reciprocal performance of obligation by the appellant. The PPA

executed by the respondent with the ESL was on different terms.

The appellant was required to make payment on due dates under

Article 5.3 of the Agreement and was also required to establish a

letter of credit under Article 5.5. As against this, under Article 4.1

of the PPA with the ESL, fuel is to be supplied by the ESL which

created an obligation to generate electrical output upto the

Page 23 23

capacity allocated to the ESL. For supply to the appellant, fuel is

required to be arranged by the respondent. The appellant had not

paid cost for its allocated capacity. The cost was pegged at Rs.945

crores as against investment of Rs.2061 crores by the respondent.

The stand taken in the letter of the Respondent dated 17

th

February, 2000 could not be read as obligation of the respondent

for proportionate generation of the output or declaration of

available capacity in absence of compliance of obligations under

the PPA by the appellant. In letter dated 4

th

March, 2000, it was

made clear that if letter of credit was not opened by the appellant,

respondent will not be obliged to supply power.

Part VII : Points for consideration

20.The points which arise for consideration are :

(i)True interpretation of PPA to determine whether

there is any obligation to declare availability of power in

the ratio of 300 : 215;

(ii) Effect of letters dated 17

th

February, 2000, 4

th

March, 2000 and 4

th

October, 2001on the rights of the

parties;

(iii)Interpretation of Schedule VI to determine whether

the obligation to issue dispatch instructions arose

before declaration of availability.

Page 24 24

(iv)Relief to which the appellant may be entitled to.

Part VIII : Decision on above points and reasons therefor

Re : (i) :

21.It is necessary to refer to the relevant provisions of the

Agreement:

“Article 3

3.1 Allocation of the Capacity

The allocation of the Capacity shall be as under:

a) During Open Cycle mode operation prior to commissioning of

the Combined Cycle mode operation: 138MW to the Essar Group

of Companies; and 192 MW to the Board

b) During Combined Cycle mode:

215 MW to the Essar Group of Companies; and

300 MW to the Board

The Company undertakes that, subject to the provisions and

during the term of this Agreement, it will fuel and operate the

Generating Station to meet the requirements of electrical output

that can be generated corresponding to the allocated capacity, in

accordance with its Dynamic Parameters so as to comply with the

Operating Characteristics except to the extent:

(i) as anticipated under the Maintenance Programme during the

period of Scheduled Outage.

(ii) That to do so would not be in accordance with Good Industry

Practice;

(iii) That may be necessary due to circumstances relating to

Safety (of personnel or plant apparatus);

(iv) that to do so would be unlawful;

(v) That may be necessary for reasons of Force Majeure Natural or

Non-Natural.”

Page 25 25

3.2Delivery of Active Energy

The Company shall deliver Active Energy and Reactive

Energy to the Board at the Delivery Point in accordance with

Dispatch Instructions issued by the Board under the Dispatch

procedures as specified in Schedule VI. All Active Energy

delivered by the Company shall have at the Delivery Point, the

voltage, frequency and the other electrical parameters associated

with active/reactive power as may be decided by the Board in

accordance with the Operating Characteristics.

3.3Availability Declarations

From the date of Entry into Commercial Service of the first

Unit the Company shall, submit to the Board from time to time,

Declared Available Generation Capacity as per the procedures set

forth in Schedule VI.

xxx

Schedule VI

6.1Submission of Weekly Schedules

The Company will submit to the Board’s Load Dispatch

Centre at Jambua, Baroda weekly schedules indicating the times

and Capacity which will be available from Generating Station and

if not available and reasons therefor. These weekly schedules will

be submitted on or before each Friday for the next week starting

from Monday. If at any time after the issue of such schedule,

there is any change in circumstances, the Company will notify the

Board about the revisions necessary in the weekly schedule and

the reasons therefor.

6.2Issuance of Requirement Schedule

The Board shall issue to the Company’s Generating Station

at Hazira a Schedule of its requirement with respect to the

generation of the Allocated Capacity by the Generating Station

during each day by 5.00 PM on the preceding day. This schedule

will indicate the level of Active Power required to be produced by

Generating Station.

Page 26 26

6.3Issuance of Dispatch Schedule

The Board may issue Dispatch Instruction at any time after

issue of the schedule as mentioned in Clause 6.2 above. Dispatch

instruction may include requirements in respect of the reactive

power output measured at the Delivery Point to be maintained by

the Generating Station.

6.4Operation of Generating Station

The Company, subject to the provisions contained in Article

3.3 of this Agreement, shall operate Generating Station in

accordance with the relevant Dispatch Instructions given by the

Board from time to time provided that the Company shall not be

obliged to comply with such instructions to the extent that it

would require the Company to operate the Generating Station

otherwise than the Dynamic Parameters applicable from time to

time.

Schedule VII

7.1 TARIFF

The Tariff shall be determined as follows

a) Annual Fixed Charges to be determined in terms of Section

7.1.1

b)Variable Charges to be determined in terms of Section 7.2

c)Incentive Payment to be determined in terms of Section 7.3.

7.1.1 Annual Fixed Charges: Computation and payment

The Annual Fixed Charge shall be computed on the following

basis:

a)Interest on Debt:

It shall be computed on the Debt as per the Financial Plan

Page 27 27

approved by the Board. Interest on Debt shall also include lease

rentals payable in respect of lease assistance obtained by the

Company towards financing the Capital Cost.

If the Financing Plan envisages variable rates of interest on any

component of Debt, the Interest on Debt shall be recomputed by

applying the prevailing rates of interest during the month on each

such Debt.

In respect of interest on Foreign Debt, the interest liability on the

applicable Foreign Debt shall first be computed in the applicable

foreign currencies and thereafter be converted to Rupees by

adopting the Base Exchange Rate and such amount shall be

adopted for the purposes of computing Interest on Debt.

A Supplementary Invoice shall be raised for an amount equal to

the difference between the amount of interest liability on Foreign

Debt as determined on the basis of Base Exchange Rate and the

amount of interest liability as on the due dates of the payment of

interest as per the Financing Plan computed on the basis of the

then prevailing exchange rate. If the amount payable to the

Company is determined to be less, on account of foreign exchange

variation, than the amount paid by the Board at the Base

Exchange Rate, such difference shall be repaid to the Board within

14 days from the date of the determination.

b)Operation and Maintenance Expenses (O&M) Expenses:

O&M Expenses including Insurance Charges for the first full

Accounting Year, after commissioning of Combined Cycle

Operation of the Generating Station, shall be calculated at the

rate of 2.5% of the Capital Cost of Rs.945 crores in respect of the

Allocated Capacity.

The expenditure on the O&M expense in each subsequent year

shall be revised on the basis of the weighted Price Index based on

the Wholesale Price Index and Consumer Price Index in the ratio of

70:30 respectively or at the rate of 10% progressively every year,

whichever is lower. O&M expenses shall not qualify for foreign

exchange variations.

c)Depreciation

Depreciation will mean the depreciation as notified by the

Page 28 28

Government of India from time to time and provided under the

Electricity (Supply) Act, 1948 and shall be first computed on the

assets of the Generating Station and thereafter apportioned for

the purposes of the determining the Annual Fixed Charges as a

proportion of the Allocated Capacity over the Nominal Installed

Capacity.

d)Tax on Income:

Tax on Income shall be determined in accordance with the

provisions of the Income Tax Act, 1961 every year as under:

Tax payable by the Company x Return on Equity plus

Total taxable Income Incentive Payment

For the purposes of determination of the Annual Fixed Charges,

the Tax on Income shall be computed on an estimated basis. Any

under or over recovery of Tax on Income shall be adjusted every

year on the basis of certificate of documentation of Tax paid and

assessment by the Income Tax Officer concerned.

e)Return on Equity (ROE):

Return on Equity shall be computed on Equity at 16% per annum

and shall include ROFE.

Return on Foreign Equity (ROFE) shall be computed at the rate of

16% on the amount of Foreign Equity in the applicable foreign

currency and thereafter be converted to Rupees at the Base

Exchange Rate and such amount shall be adopted for the purpose

of computing ROFE.

A Supplementary Invoice shall be raised at the end of each

Quarter in an Accounting Year, for an amount equal to the

difference between the amount of ROFE determined on the basis

of Base Exchange Rate and the amount of ROFE as at the end of

each Quarter computed on the basis of the then prevailing

exchange rate. If the amount payable to the Company is

determined to be less, on account of foreign exchange variation

than the amount paid by the Board at the Base Exchange Rate,

such difference shall be re-paid to the Board within 14 days from

the date of the determination.

Page 29 29

f)Interest on Working Capital :

The amount of working capital on the Allocated Capacity shall be

computed on the basis of annual estimated level of generation

adopting the following norms:

i)Fuel Cost for liquid fuels only for one month;

ii)Operation & Maintenance expenses (Cash) for one month;

iii)Maintenance Spares at actual but not exceeding one year’s

requirement, less value of One Fifth of initial spares already

capitalized; and

iv)Receivable equivalent to two months’ average billing for sale

of electricity.

The Interest on Working Capital shall be computed by applying the

rate of interest as applied by the Company’s bankers or the

Board’s Bankers whichever is lower on the amount of working

capital computed above.

g)Base Foreign Debt Repayment Adjustment Amount:

In respect of the Foreign Debt, the amounts falling due for

repayment during the Accounting Year shall be first computed in

the applicable foreign currencies and thereafter be converted to

Rupees by adopting the Base Exchange Rate. The difference

between the amounts of repayment determined as above and the

amount of repayment of Foreign Debt falling due during the

relevant Accounting Year and expressed in rupees adopting the

exchange rate as per the Financing Plan shall be included in the

Annual Fixed Charges.

A Supplementary Invoice shall be raised for an amount equal to

the difference between the amount of repayment on Foreign Debt

determined on the basis of Base Exchange Rate and the amount

of repayment on Foreign Debt as on the due dates of repayment

of Foreign Debt as per Financing Plan on the then prevailing

exchange rates. If the amount payable to the Company is

determined to be less on account of foreign exchange variation

than the amount paid by the Board at the Base Exchange Rate,

such difference shall be re-paid to the Board within 14 days from

Page 30 30

the date of the determination.

The amount of Annual Fixed Charges for the purposes of this

Agreement shall the aggregate of (a) to (g), but excluding the

amounts of supplementary Invoices under (a), (e) and (g) above.

For the purpose of monthly Invoice 1/ 12

th

of the Annual Fixed

Charges will be claimed.

The Invoice in each month shall further specify the number of

units of Active Energy and Deemed Generation expressed in Kwh

achieved during such month and the cumulative Level of

Generation including Deemed Generation less Deemed

Non-Generation achieved upto end of such month.

22.The agreement clearly contemplates the proportion of

allocation of a capacity. The EPL has to fuel and operate the

generating station to meet the requirement of electric output that

can be generated corresponding to the allocated capacity. The

appellant has to pay annual fixed cost as determined in terms of

clause 7.1.1 of Schedule VII of the Agreement. The Commission is

thus, right in observing that once the entire capacity has been

allocated in two parts in a particular proportion, the contention of

the EPL that it could sell power to ESL beyond the allocated

capacity could not be accepted. The EPL was under obligation as

per Schedule VI to declare weekly schedule of the capacity

available and the dispatch instructions were to be issued on the

basis of the said declaration. It could not thus be said that the EPL

had no obligation to declare the capacity and the obligation of

Page 31 31

GUVNL to issue dispatch instructions was not dependent on

declaration of the available capacity by the EPL. Contrary view of

the Tribunal is clearly erroneous. In paras 45 and 46 and

elsewhere in its judgment, the Tribunal erred in holding that there

was no obligation to declare available capacity on proportionate

basis. The finding of the Commission in paras 9.5 to 9.12 of its

order quoted above is the correct interpretation of the Agreement.

We hold accordingly.

Re : (ii) :

23.The Commission in this aspect observed :

“8.4 In the present case, the PPA was executed on 30.5.1996 and

remains operational for a period of twenty years. Under the terms

of the PPA, the generating company i.e. EPL is required to declare

availability and supply of electricity for the entire duration of the

PPA, while the Petitioner GUVNL has an obligation to purchase

electricity and pay the tariff in terms thereof. The dispute appears

to have arisen sometime in 1998-99, when the CAG Report for

the year 1998-99 rejected the contention of the Government that

there was no adverse financial impact as a result of diversion of

power. Thereafter, on or around 10.2.2000, a meeting was

conducted with the GEB to discuss the issue of diversion. On

17.2.2000, EPL subject to certain conditions accepted that power

is required to be supplied on a 58:42 basis. Attempts were made

to renegotiate the PPA. By a letter dated 23.4.2002, GEB wrote to

EPL identifying certain key areas for negotiation of PPA. The issue

of allocation of power was also part of the agenda. Since the

issue of allocation of power could not be settled, GEB by its letter

dated 29.10.2003 raised a claim of Rs. 537 crores for the period

1.7.1996 to 31.3.1999. EPL by its letters dated 1.11.2003 and

1.12.2003 denied the claim of GUVNL.

Page 32 32

xxxx

9.10 Furthermore, in the letter dated 17.02.2000, EPL

categorically agreed to the concept that power should be

supplied in the ratio of 58:42 provided certain conditions are

fulfilled. The conditions mentioned in the said letter will

demonstrate that the each condition is either in the nature of

additional concessions / modification that were sought by EPL or

alleged defaults on the part of GUVNL, which was not agreed to

by GUVNL. “

24.It is clear from the above that the letters of the respondent

acknowledged its liability to allocate the generated power to the

appellant and to the ESL in the ratio of 58 : 42. The Tribunal in

para 54 quoted above, held that the said letters could not be relied

upon in support of the claim that the appellant was entitled to be

allocated generated power in proportion of 58 : 42. This

finding is clearly erroneous and is without any basis and is liable to

be set aside. The finding of the Commission is based on record.

Re : (iii) :

25.In interpreting Schedule VI, the Commission held that the

EPL was liable to declare weekly capacity available and on that

basis dispatch instructions were required to be issued (para 9.6).

The contrary view taken by the Tribunal in para 45 and elsewhere

Page 33 33

is clearly contrary to the agreement between the parties as

reflected in Schedule VI quoted above.

Re : (iv) :

26.The main basis of the order of the Tribunal in rejecting the

claim of the appellant is the finding that the respondent had no

obligation to allocate available power in the ratio of 58 : 42 under

the terms of the Agreement and in terms of correspondence

between the parties. Apart from this, the Tribunal held that the

appellant had claimed Rs.64 crores by way of full and final

settlement (para 55) and that the appellant was in default in not

opening letter of credit and not paying Rs.519 crores. In doing so,

the Tribunal has ignored clear stipulation in the letter of the

appellant dated 13

th

December, 2004 referred to in para 8.14 of

the Commission that the amount of Rs.64 crores was not accepted

by way of final settlement. Similarly, the Tribunal has ignored the

supplementary agreement between the parties dated 18

th

December, 2003 followed by letter dated 19

th

December, 2003

(page 337 and 341,Vol.V) under which amount of Rs.289.40 crores

was paid to the respondent by way of settlement for the delayed

payment charges and other heads. Thus, the Tribunal was not

Page 34 34

justified in observing in para 75 that the appellant had defaulted in

making payment of Rs.519 crores which was a breach of promise

on the part of the appellant, thereby absolving the respondent of

its obligation to supply power as per the agreement. Similar is the

position with regard to letter of credit referred in para 17.6 of the

order of the Tribunal. We have been informed that these aspects

have been gone into by the State Commission in a subsequent

dispute vide order dated 22

nd

October, 2014 and Appeal No.2 of

2015 against the said order before the Tribunal. We thus, make it

clear that our observations may not be treated as affecting the

decision of the said appeal.

27.We thus, hold that the order of the Tribunal is erroneous. The

said order has given rise to the substantial question of law which

has been discussed above, i.e., the interpretation of the

Agreement between the parties and the obligation of the

respondent to declare availability of generated power in the ratio

of 58 : 42 and consequence of default therein. The Tribunal

erroneously held that there was no pleading for making the claim.

Thus, the Tribunal has committed error of law as well as of record

in recording its finding as demonstrated above. It may also be

noted that the Commission has left actual working out of the loss

Page 35 35

to be worked out separately and on that basis the appellant has

already filed its claim which was pending consideration before the

Commission. The said proceeding can now be revived in the light

of our finding.

28.Accordingly, we allow this appeal, set aside the order of the

Tribunal and restore that of the Commission.

An Epilogue

29.Before we part with this judgment, it appears to be necessary

to draw attention of all concerned to a vital issue of composition

and functioning of Tribunals and statutory framework thereof

especially its impact on working of this Court and in turn on the

rule of law.

30.It is well known that in the wake of 42

nd

Amendment to the

Constitution of India, incorporating Article 323A and 323B of the

Constitution under Part XIVA, various Tribunals have been set up.

The Tribunals constitute alternative institutional mechanism for

dispute resolution. The declared objective of such Tribunals is

inability of the existing system of courts to cope up with the

Page 36 36

volume of work. This Court has gone into the question of validity

of scheme under which the High Court is bypassed without the

alternative institutional mechanism being equally effective for the

access to justice which was necessary component of rule of law

and this Court being over burdened with routine matters in several

judgments to which reference may be made.

31.In L Chandra Kumar Vs. Union of India

1

, in the course of

considering the constitutional validity of exclusion of jurisdiction of

the High Courts in service matters against the orders of the

Central Administrative Tribunal, this Court observed that the

manner in which justice is dispensed with by the Tribunals left

much to be desired. The remedy of appeal to this Court from the

order of the Tribunals was too costly and inaccessible for it to be

real and effective. Furthermore, the result of providing such

remedy was that the docket of this Court was crowded with

decisions of the Tribunals and this Court was forced to perform the

role of a first appellate court. It was necessary that High Courts

are able to exercise judicial superintendence over decisions of the

Tribunals. With these observations this Court directed that “all”

decisions of the Tribunals will be subject to High Court’s writ

1 (1997) 3 SCC 261

Page 37 37

jurisdiction under Article 226/227

2

. It was further observed that

the then existing position of direct appeal to this Court from orders

of Tribunal will stand modified

3

.

32.In Madras Bar Association Vs. Union of India

4

, the issue

considered by this Court was validity of setting up of National Tax

Tribunals under the National Tax Tribunal Act, 2005. While striking

down the Act, this Court commented upon validity of various

provisions of the said Act. Section 5 of the Act which provided for

sittings to be at Delhi, it was observed that a litigant who may

belong to a distant/remote State, may have to travel a long

distance and may find it difficult to identify an advocate who will

represent him. It was further observed that while vesting

jurisdiction in an alternative court/Tribunal, it was imperative for

the legislature to ensure that redress should be available with the

same convenience and expediency as it was prior to the

introduction of the newly created court/tribunal

5

. As regards

Section 6 dealing with the qualification for appointment of a

member, it was observed that it was difficult to appreciate how

non judicial members could handle complicated questions of law

2 Para 91

3 Para 92

4 (2014) 10 SCC 1

5 Para 123

Page 38 38

which the Tribunal was required to deal with

6

. Further,

composition of tribunals which were like courts of first instance

whose decisions are amenable to challenge under Article 226/227

and which are subservient to jurisdiction of the High Court stood

on a different footing from the Tribunals whose appeals were

directly provided to Supreme Court. Such Tribunals were

practically substitute for the High Courts. Process of selection and

appointment of Chairperson and members of such Tribunals could

not be different from the manner of selection of the High Court

Judges

7

.

33.The above resume of law laid down by this Court may call for

review of composition of Tribunals under the Electricity Act or

other corresponding statutes. Appeals to this Court on question of

law or substantial question of law show that Tribunals deal with

such questions or substantial questions. Direct appeals to this

Court has the result of denial of access to the High Court. Such

Tribunals thus become substitute for High Courts without manner

of appointment to such Tribunals being the same as the manner of

appointment of High Court Judges. A perusal of Sections 113(b)(i)

to (iii) and 113(3) read with Section 78, Sections 84, 85 and 125 of

6 Para 126

7 Para 130

Page 39 39

the Electricity Act and corresponding provisions of similar Acts

may, thus, need a fresh look.

34.It may also be noted that in some Tribunals (For example, the

tribunal constituted under the Telecom Regulatory Authority of

India Act, 1997), the Tribunal exercises original jurisdiction to the

exclusion of all courts and is located only at Delhi

8

. It may further

be noted that normally tenure of office of the Chairman and

members is of short duration of three to five years. Access to

justice may not be, thus, available with the convenience with

which it is available when jurisdiction is with the local civil courts

sought to be substituted. Such provisions may need review in

larger public interest and for providing access to justice.

35.Apart from the above aspect, further question is whether

providing appeals to this Court in routine, without there being

issues of general public importance, is not a serious obstruction to

the effective working of this Court.

36. This issue has already been subject matter of debate. In an

Article by Shri T.R. Andhyarujina former Solicitor General of India,

titled “Restoring the Character and Stature of the Supreme Court

8 Sections 14 and 15

Page 40 40

of India

9

” learned author states that it was necessary to restore

the character and stature of the Supreme Court. The jurisdiction

of the Supreme Court should by and large be limited to matters of

constitutional importance and matters involving substantial

questions of law of general importance. The Supreme Court of

India, like apex Courts in other jurisdictions, was not to be a final

court to decide ordinary disputes between parties. The highest

court has its unique assigned role. But after the year 1990, the

Supreme Court is losing its original character and becoming a

general court of appeal by entertaining and deciding cases which

do not involve important constitutional issues or issues of law of

national importance. The adverse effect of this trend is that

matters of constitutional importance are not getting the due

priority and are pending for several years. Reference has been

made to the Statement of Objects for amending the Supreme

Court (Number of Judges) Act, 1956 in the year 2008, to the effect

that “it has not been possible for the Chief Justice of India to

constitute a five-judge Bench on a regular basis to hear the cases

involving interpretation of constitutional law as doing that would

result in constitution of less number of Division Benches which in

turn would result in delay in hearing of other civil and criminal

9 (2013) 9 SCC (J) 43

Page 41 41

cases”. In spite of the said amendment to increase strength of

judges to 31, larger Benches to decide constitutional and

important cases have not been regularly functioning. On account

of increase in number of issues other than constitutional law or

substantial questions of general importance, all the Benches are

engaged in handling the heavy routine work. The court rooms are

so crowded that it is hardly possible to enter a court room or to

pass through the corridors. “No other Supreme Court presents

such an undignified sight.” Further reference has been made to

functioning of other Supreme/highest courts in the world to

emphasize that the highest courts are engaged in deciding cases

of national importance by larger benches of 9/11 judges while the

Supreme Court of India is deciding most of the cases by Benches

of two-judges, which has its own adverse implications. Reference

has also been made to the discussion between Sir B.N. Rau, the

Constitutional Advisor and Justice Frankfurter of the U.S. Supreme

Court that the jurisdiction exercisable by the Supreme Court

should be exercised by Full Court. It is further stated that the

highest court should have limited number of cases and should not

be overloaded. On an average, in a year 80 cases are decided by

Supreme Court of U.K., the Canadian Supreme Court and the

Page 42 42

Australian High Court. 38 cases are decided by Constitutional

Court of South Africa in a year. Supreme Court of India is deciding

large number of cases and the reports in the cases sometimes run

upto 19 volumes in a year with only a few cases of real

constitutional or of national importance. In Australia there is no

appeal to the highest court as of right and the cases are

entertained only if they are of public importance. They are to

resolve difference of opinion in different courts. This was

necessary to preserve efficiency and standing. Reference is also

made to the expert opinion that no litigant should get more than

two chances in litigation. It is further stated that “The Supreme

Court of India must cease to be a mere court of appeal to litigants

and a daily mentor of the Government, if it is to preserve its

pristine character, dignity and stature comparable to the Supreme

Court in other jurisdictions.” The Article ends with observation

“This requires a national debate by Judges, Lawyers, jurists and

informed public.”

37.In Mathai alias Joby Vs. George

10

, this Court referred to the

R.K. Jain Memorial Lecture delivered on 30

th

January, 2010 by Shri

K.K. Venugopal, senior advocate to the effect that “an alarming

10 .(2010) 4 SCC 358

Page 43 43

state of affairs has developed in this Court because this Court has

gradually converted itself into a mere court of appeal which has

sought to correct every error which it finds in the judgments of the

High Courts of the country as well as the vast number of

tribunals

11

. The court has strayed from its original character as a

constitutional court and the apex court of the country. Failure to

hear and dispose of cases within reasonable time erode confidence

of the litigants in the apex court. Reference was made to an

Article by Justice K.K. Mathew to the effect that time, attention and

energy should be devoted to matters of larger public concern.

Functioning of Supreme Court was not to remedy a particular

litigant’s wrong, but consideration of cases involving principles of

wide public or governmental interest which ought to be

authoritatively declared by the final court. The docket of the court

should be kept down so that its volume did not preclude wise

adjudication. The matter was referred for consideration of the

larger Bench for interpretation of Article 136. By the time, the

matter came up for consideration of the larger Bench on 11

th

January, 2016, the SLP became infructuous as the suit in which the

impugned interim order was passed itself had been decided. This

Court while dismissing the SLP as infructuous observed that while

11 Para 15

Page 44 44

Article 136 could be used with circumspection but its scope could

not be limited.

38.In Bihar Legal Support Society Vs. Chief Justice of

India

12

, it was observed that Supreme Court was not a regular

court of appeal. If an additional forum above the Tribunal was

required to be set up, a separate national court of appeal could be

created. In this respect, the matter was also considered in 229

th

Report of the Law Commission submitted in August, 2009.

However, that is a different issue particularly when this aspect is

being separately considered by a different Bench in Writ Petition

(C) No.36 of 2016 titled V. Vasanthakumar Vs. Sri H.C. Bhatia.

39.In Justice H.R. Khanna Memorial Lecture delivered on 8

th

September, 2014 by Hon’ble Mr. Justice J. Chelameswar of this

Court, the topic was “the Supreme Court of India, its jurisdiction

and problem of arrears”

13

. It was stated that :

“The law declared by the Supreme Court in Hindustan Commercial

Bank Ltd. v. Bhagwan Dass [AIR 1965 SC 1142] was that normally

a party should approach the Supreme Court with a certificate of

the High Court. Only in exceptional circumstances would the

Supreme Court relax that requirement, is simply ignored. The

12 (1986) 4 SCC 767

13 (2015) 9 SCC (J-I)

Page 45 45

exception has become the rule now. The result is more and more

unsuccessful people getting encouraged to have another go at it

by approaching the Supreme Court. In most of the cases, what is

sought is a simple second or third “guess on facts” or taking

another plausible view of the matter.

xxxx

Coming to matters where the rights and obligations of the parties

are purely founded upon a local law i.e. a law made by the

legislature of a State, etc., I do not see any harm befalling the

nation, if the judgment of the High Court is to become final. At

least in these areas of litigation, the time worn cliche “we are not

final because we are infallible, but we are infallible only because

we are final” might as well be extended to the decisions of the

High Courts which are equally constitutional courts.”

40.While there may be no lack of legislative competence with

the Parliament to make provision for direct appeal to the Supreme

Court from orders of Tribunals but the legislative competence is

not the only parameter of constitutionality. It can hardly be

gainsaid that routine appeals to the highest court may result in

obstruction of the Constitutional role assigned to the highest court

as observed above. This may affect the balance required to be

maintained by the highest court of giving priority to cases of

national importance, for which larger Benches may be required to

be constituted. Routine direct appeals to the highest court in

commercial litigation affecting individual parties without there

being any issue of national importance may call for

reconsideration at appropriate levels. Further question is

Page 46 46

composition of Tribunals as substitutes for High Courts and

exclusion of High Court jurisdiction on account of direct appeals to

this Court. Apart from desirability, constitutionality of such

provisions may need to be gone into. We are, however, not

expressing any opinion on this aspect at this stage.

41.We are thus of the view that in the first instance the Law

Commission may look into the matter with the involvement of all

the stakeholders.

42.We make it clear that as far as heavy pendency in this Court

on account of liberal exercise of jurisdiction under Article 136 of

the Constitution of India is concerned, we do not wish to make any

comment as this is a matter in the discretion of the Court and it is

for the Court to address this issue. Our discussion is limited to the

consideration of desirability of providing statutory appeals directly

to this Court from orders of Tribunals on issues not affecting

national or public interest and other aspects of statutory

framework in respect of Tribunals as discussed above.

43.The questions which may be required to be examined by the

Law Commission are :

Page 47 47

I Whether any changes in the statutory framework

constituting various Tribunals with regard to persons

appointed, manner of appointment, duration of

appointment, etc. is necessary in the light of judgment

of this Court in Madras Bar Association (supra) or

on any other consideration from the point of view of

strengthening the rule of law?

II Whether it is permissible and advisable to provide

appeals routinely to this Court only on a question of

law or substantial question of law which is not of

national or public importance without affecting the

constitutional role assigned to the Supreme Court

having regard to the desirability of decision being

rendered within reasonable time?

IIIWhether direct statutory appeals to the Supreme Court

bypassing the High Courts from the orders of Tribunal

affects access to justice to litigants in remote areas of

the country?

IV Whether it is desirable to exclude jurisdiction of all

courts in absence of equally effective alternative

Page 48 48

mechanism for access to justice at grass root level as

has been done in provisions of TDSAT Act (Sections 14

and 15).

V Any other incidental or connected issue which may be

considered appropriate.

44.We request the Law Commission to give its report as far as

possible within one year. Thereafter the matter may be examined

by concerned authorities.

45.Action taken by the Central Government, after its

consideration, may be placed on record. List the matter in

November, 2017 before an appropriate Bench, preferably of three

Judges to consider the above issue.

……………………………………………… ..J.

[ ANIL R. DAVE ]

……………………………………………… ..J.

[ ADARSH KUMAR GOEL ]

NEW DELHI;

AUGUST 09, 2016.

Page 49 49

1A-FOR JUDGMENT COURT NO.13 SECTION XVII

S U P R E M E C O U R T O F I N D I A

RECORD OF PROCEEDINGS

Civil Appeal No(s). 3455/2010

GUJARAT URJA VIKAS NIGAM LTD. Appellant(s)

VERSUS

ESSAR POWER LIMITED Respondent(s)

Date : 09/08/2016 This appeal was called on for pronouncement of

JUDGMENT today.

For Appellant(s)

Ms. Hemantika Wahi,Adv.

Ms. Puja Singh, Adv.

Mr. Shubham Arya, Adv.

For Respondent(s) Ms. N. Nagpal, Adv.

Mr. E. C. Agrawala,Adv.

Hon'ble Mr. Justice Adarsh Kumar Goel

pronounced the judgment of the Bench comprising

Hon'ble Mr. Justice Anil R. Dave and His Lordship.

The appeal is allowed in terms of the signed

Reportable Judgment inter alia with following

observations.

“We are thus of the view that in the first

instance the Law Commission may look into

the matter with the involvement of all the

stakeholders.

We make it clear that as far as heavy

pendency in this Court on account of

liberal exercise of jurisdiction under

Page 50 50

Article 136 of the Constitution of India

is concerned, we do not wish to make any

comment as this is a matter in the

discretion of the Court and it is for the

Court to address this issue. Our

discussion is limited to the consideration

of desirability of providing statutory

appeals directly to this Court from orders

of Tribunals on issues not affecting

national or public interest and other

aspects of statutory framework in respect

of Tribunals as discussed above.

The questions which may be required to

be examined by the Law Commission are :

IWhether any changes in the statutory

framework constituting various Tribunals

with regard to persons appointed, manner

of appointment, duration of appointment,

etc. is necessary in the light of judgment

of this Court in Madras Bar Association

(supra) or on any other consideration from

the point of view of strengthening the

rule of law?

IIWhether it is permissible and

advisable to provide appeals routinely to

this Court only on a question of law or

substantial question of law which is not

of national or public importance without

affecting the constitutional role assigned

to the Supreme Court having regard to the

desirability of decision being rendered

within reasonable time?

IIIWhether direct statutory appeals to

the Supreme Court bypassing the High

Courts from the orders of Tribunal affects

access to justice to litigants in remote

areas of the country?

IVWhether it is desirable to exclude

jurisdiction of all courts in absence of

equally effective alternative mechanism

for access to justice at grass root level

as has been done in provisions of TDSAT

Page 51 51

Act (Sections 14 and 15).

VAny other incidental or connected

issue which may be considered appropriate.

We request the Law Commission to give

its report as far as possible within one

year. Thereafter the matter may be

examined by concerned authorities.

Action taken by the Central

Government, after its consideration, may

be placed on record. List the matter in

November, 2017 before an appropriate

Bench, preferably of three Judges to

consider the above issue.”

(VINOD KUMAR JHA)

AR-CUM-PS

(SUMAN JAIN)

COURT MASTER

(Signed Reportable judgment is placed on the file)