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CASE NO.:

Appeal (civil) 1140-43 of 2000

PETITIONER:

INDIAN THERMAL POWER LTD. ETC. ETC.

RESPONDENT:

STATE OF M.P. AND ORS.

DATE OF JUDGMENT: 16/02/2000

BENCH:

G.T. NANAVATI & S.N. PHUKAN

JUDGMENT:

JUDGMENT

2000 (1) SCR 925

The Judgment of the Court was delivered by

G.T. NANAVATI, J. Leave granted in all the S.L.Ps.

These appeals arise out of the common judgment of the Division Bench of the

Madhya Pradesh High Court in a batch of Letters Patent Appeals (Nos. 70 to

72, 93 to 99,106, 108 and 117 of 1999 and Writ Petition No. 1685 of 1998)

filed against the common judgment and order of a single Judge of that Court

in Writ Petitions filed by India Thermal Power Ltd. (W.P. 3534/1988),

Bhander Power Ltd. (W.P. 4253/98), G.V.K. Power Ltd. (W.P. 4631/98), S.I.P.

Power India Ltd. (W.P. 4694/98), M/s Shahpoorij Pallanji Power Co. Ltd.

(W.P. 4742/98), Bhilai Power Supply Co. Ltd. (W.P. 238/98) and Jindal Power

Ltd. (W.P. 6175/98).

In the year 1991-92, the Government of India declared a policy of

liberalisation in the electricity sector and thereby widened the scope for

private participation in generation, distribution and supply of

electricity. Pursuant to that policy the State of Madhya Pradesh decided to

invite private companies for setting up power plants at different places

within the State so as to increase it power generating capacity by about

7000 MW. On 27.2.1992 Madhya Pradesh Electricity Board (MPEB) invited

offers from potential private investors for pre qualification in

establishment of Four power projects. One of them was Thermal Power Project

at Korba (West) in the district of Bilaspur. Indian Thermal Power Ltd.

(hereinafter referred to as 'ITPL') made an application for establishment

of that power plant. After considering its application the Government of

Madhya Pradesh made an offer by issuing a letter of inlent to ITPL to

establish, operate and maintain a power plant at Korba (West) as a

generating company. Similar advertisements were issued for other projects

also and letters of inlent were issued to those who were found qualified.

In all 21 MOU's which were entered into between them and the Slate

Government and MPEB. 13 Independent Power Producers (IPPs) entered into

Power .purchase Agreements (PPAS) -with MPEB.

Under the MOU and PPA the generating company has to undertake the project

and offer for .sale all net electrical out-put from the project to MPEB and

the MPEB is under an obligation to purchase the same. We are not concerned

with the other terms and conditions contained in the agreements and the

mutual rights and obligations flowing from them except those relating to

method and amount of payment. Article 8 of the PPA provides for the same.

In order to secure payment to the IPP the MPEB will have to open one or

more Letters of Credit in respect of amounts payable by it. The aggregate

of each Letter of Credit shall be an amount necessary to meet two months

projected tariff payments. By way of further security Clause (e) of Article

8.3 of ITPL's PPA provides for maintaining an Escrow Account with MPEB's

bank at all times following the First Unit Commercial Operation Date, in

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such for and substance, as may be mutually agreed by the parties. It

farther provides that such Escrow Account shall be (i) established and

maintained by MPEB in accordance with Escrow Agreement and (ii) in form and

substance acceptable to the parties. In the PPAs with other IPPs the

provision regarding Escrow Account is different-ly worded. According to

these agreements the Company and the MPEB have to cooperate and assist each

other in establishing a practicable and appropriate Escrow Account mutually

acceptable to the parties as a satis-factory security mechanism for the

payment obligations of MPEB. The Escrow Account must take into account

reasonable requirements of the lenders of the projects. The amount of the

Escrow Account shall have to be the 'Escrow Account Amount' which means the

amount equal to one and a half (1.5) times of the estimated average amount

payable by MPEB in a Billing period. They do not provide for any Escrow

Agreement before opening as Escrow Account, In addition to the Letter of

Credit and the Escrow Account, the Article further provided for a guarantee

by the Government of Madhya Pradesh.

In discharge of its obligations under the MOU's and PPA's the Madhya

Pradesh Government in December 1997 decided to recommend (1) Daewoo, (2)

Pench, (3) Bina, (4) GBL, (5) STF and (6) Maheshwar to the Financial

Institutions (FIs) for providing Escrow Protection to them and accordingly

letters of comforts were sent to those six IPPs. Meanwhile negotiations

were going on between Madhya Pradesh Government, MPEB and the IPPs

regarding the terms and conditions of the Escrow Agreement. The Government

had proposed to give Escrow Protection equal to one month's invoice. A

meeting between Government Officers, MPEB and the Financial Institutions

was also held on 5.9.1997 for discussing the issue of escrowable capacity

available with MPEB and whether it was possible to reduce Escrow Cover to

one month's invoice amount. In that meeting the Government suggested that

in order to accommodate more number of IPPs the Escrow Cover may be reduced

from 1.5 times to at least 1.2 times, The banks and Financial Institutions

accepted the escrowable capacity of MPEB at about 2200 M.W. only and stated

that Escrow Cover equal to 1.25 times could be accepted as reasonable. Even

for this relaxation it insisted that MPEB shall have to take certain steps

to improve its finances. The Filtanciai Institutions also directed that

MPEB should indicate to IPPs its ability/inability to provide Escrow

Account facility to them so that there may not remain any misunderstanding

in that behalf. After considering various aspects the Financial

Institutions decided to consider financial assistance to those four

projects which had already received techno-economic clearance by them. IPPs

thus approved were Shree Maheshwar Hydel Power Corporation Ltd., Daewoo

Power India Ltd., Bina Power Supply Co. Ltd. and GBL Power Ltd. MPEB was

requested to issue letters to all those IPPs to take steps to negotiate and

achieve financial closure within next two or three months. Therefore, MPEB

on 21.12.1997, wrote letters to the four approved IPPs about its decision

to recommend them for grant of Escrow Protection and called upon them to

finalise the negotiations within one month from the date of the letter and

obtain financial closure and start commencement of the project work within

three months of the execution of Escrow Agreement. They were told that in

case of failure to perform any of the stipulations the Escrow Agreement

will stand cancelled,

ITPL received techno-economic clearance from the Central Electricity

Authority on 12/15.9.1997. Pursuant to the decision taken in the meeting

with the Financial Institutions. MPEB wrote to ITPL on 21.4.1998 that it

was considering granting Escrow Protection to them equal to one months'

invoice amount and inquired whether ITPLwas agreeable to that condition and

also to the condition of executing the Escrow Agreement within one month

and achieve financial closure within next three months. ITPL expressed its

willingness. But IDBI, which was the main financial institution, did not

agree to any reduction below 1.25 times the monthly billing and insisted

that the Escrow Agreement should he executed before financial closure and

COD. It also informed MPEB that as a part of the security package,

Fls/banks would require IPPs to have first charge of its receivables. It

further told MPEB that in absence of compliance with the * above conditions

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it will be difficult for them to grant any financial closure to any of the

IPPs. Thus the terms of the Escrow Agreement and the decision to whom

Escrow Protection should be extended and to what extent could not be

finalised because of lower assessment of the escrowable capacity of MPEB

and unwillingness of the FIs to relax their stipulations.

While the negotiations and discussion in that behalf were going on the

Central Government, in exercise of its power under Section 43A(2) of the

Electricity Supply Act, 1984, issued a notification on 8.6.1998 amending

its earlier tariff notification dated 30.3.1992, That was followed by a

letter dated 12/15.6.1998 of the Minister of Power, Government of India to

the Chief Minister of Madhya Pradesh Government pointing out the necessity

to finalise the projects quickly and drawing attention to the amendment

made in the tariff notification dated 8.6.1998. He requested the Government

to take an early decision by giving priority to those projects which offer

the least tariff so as to ensure that in the 9th Five Year Plan they get

the benefit of the capacity addition from those projects. The Minister of

Power again wrote to the Government on 5.7.1998 and 11,7.1998 to quickly

finalise the projects. The Madhya Pradesh Government therefore,, decided to

call all the IPPs on 14.7.1998 for discussion for altering terms and PPAs

in view of the amendment in the tariff notification and the suggestion made

by the Minister of Power. After the meeting MPEB took the decision to

prioritise the projects for providing Escrow Protection mainly on the basis

of least tariff criteria and alter considering an optimum mix of liquid

fuel, hydel and coal projects. By its letter dated 24.7.1998 it brought

that decision to the notice of all the IPPs and called upon them to submit

their offers containing better terms on the basis of the changed parameters

mentioned in Part B of the proforma sent along with that letter. The IPPs

were also called upon to furnish security deposit of an amount equal to of

2% of the approved project cost.

ITPL protested and maintained that the terms of its PPA remained unchanged

that the tariff offer by it was the cheapest, that it cannot be asked to

give security of 2% and that it should be given six months' time from the

date of approval of the Escrow by the Financial Institutions for obtaining

financial closure and completing other formalities. it then filed a writ

petition in the Madhya Pradesh High Court challenging the com-munication

dated 24.7.1998 and prayed for a Writ of Mandamus directing the respondents

to grant Escrow facility to it. Similar petitions were then filed by six

other IPPs. All the seven writ petitions were heard by a learned single

Judge. He was of the view that the Government and MPEB had not properly

applied their mind before taking the impugned decision. He directed them to

take a fresh decision objectively and dispassionately.

As some of the IPPs the State and MPEB were not satisfied with the said

order they filed Letters Patents Appeals before the Division Bench of that

court. The contentions raised before the Division Bench were that the PPAs

are statutory contracts and the condition regarding Escrow Cover is a

statutory condition and, therefore, it. is not open to the Slate Government

to go back upon it. It was also contended that the principles of promissory

estoppel and legitimate expectation would apply to the facts of these cases

and. therefore, it was not open to MPEB to invite fresh bids and determine

giving of priority for Escrow Protection on the basis of the new least

tariff criteria. Contentions regarding priority of adopting least tariff

criteria and who can be said to be lowest according to that criteria were

also raised.

The Division Bench held that the PPAs are statutory contracts as they have

been entered into under Sections 43 and 43A. It, however, upheld the

contention raised by the State and MPEB that the decision to invite fresh

bids on the basis of least tariff was taken in larger public interest and

the least tariff criteria is a good criteria. It also held that once the

IPPs participated in the negotiations and gave their fresh bids they can be

said to have abandoned their right to seek enforcement of the PPAs and to

challenge the letter dated 24.7.1998. It also held that as the ITPL had not

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challenged the earlier decision of issuing Letters of Comfort to six IPPs

it was not now entitled to any relief. Taking this view the Division Bench

allowed the appeals and dismissed the writ petitions filed by the IPPs.

It was contended by Mr. Cooper, learned senior counsel appearing for

appellant GBL and also by some counsel appearing for other appellants that

the appellant/IPPs had entered into PPAs under Sections 43 and 43A of the

Electricity Supply act and as such they are statutory contracts and,

therefore, MPEB had no power or authority to alter their terms and

conditions. This contention has been upheld by the High Court, in our

opinion the said contention is not correct and High Court was wrong in

accepting the same. Section 43 empowers Electricity Board to enter into

arrangement for purchase of electricity on such terms as may be agreed.

Section 43 A(l) provides that a generating company may enter into a

contract for the sale of electricity generated by it with Electricity

Board, As regards the determination of tariff for the sale of electricity

by a generating company to the Board, Section 43(1)(2) provides that the

tariff shall be determined in accordance with the norms regarding operation

and plant load factor as may be laid down by the authority and in

accordance with the rates of depreciation and reasonable return and such

other factors as may be determined from time to time by the Central

Government by a notification in the official gazette. These provisions

clearly indicate that the agreement can be on such terms as may be agreed

by the parties except that the tariff is to be determined in accordance

with the provision con-tained in section 43A(2) and notifications issued

thereunder. Merely be-cause a contract is entered into in exercise of an

enabling power conferred by a statute that by itself cannot render the

contract a statutory contract. If entering into a contract containing

prescribed terms and conditions is a must under the statute then that

contract becomes a statutory contract. If a contact incorporates certain

terms and conditions in it which are statutory then the said contract to

that extent is statutory. A contact may contain certain other terms and

conditions which may not be of a statutory character and which have been

incorporated therein as a result of mutual agreement between the parties.

Therefore, the PPAs can be regarded as statutory only to the extent that

they contain provisions regarding deter-mination of tariff and other

statutory requirements of Section 43A(2). Opening and maintaining of an

Escrow Account or an Escrow Agreement are not the statutory requirements

and, therefore, merely because PPAs contemplate maintaining Escrow Accounts

that obligation cannot be regarded as statutory.

It was contended by Mr. Harish N. Salve, learned senior counsel appearing

for ITPL, Mr. Cooper, appearing for GBL, Mr, Dave, appearing for STI and

other counsel appearing for the appellants that the MOUs and PPAs are

concluded contracts and, therefore, it was not open to MPEB to unilaterally

change the conditions of those contracts and to invite fresh bids on the

basis of the new least tariff criteria. There is no dispute on the point

that MOUs and PPAs are concluded contracts but to say that MOUs and PPAs

are concluded contract is one thing and to say that under those contracts

the appellants and other IPPs acquired a legal right and the MPEB incurred

an enforceable obligation in respect of providing an Escrow coverage is a

different thing. The MOUs and IPPs while providing for payment of dues by

MPEB has also at the same time made provisions for securing these payments.

Apart from an undertaking by MPEB under those agreements an obligation is

imposed upon MPEB to open a revolving letter of credit or letters of credit

for payment of the dues. By way of further security it is provided in those

contracts that Escrow Account shall be opened and maintained by MPEB to

secure payment of the amount equal to 1.5 times the monthly bill. Those

contracts also provide for a guarantee agreement with the State Government

for payment of dues of MPEB. Thus the purpose of opening and maintaining an

Escrow Account is to secure payment for the electricity to be supplied by

the generating companies to MPEB, The Escrow Account is, therefore, really

required to be opened at that stage and, therefore, it is provided in most

of these contracts that the Escrow Account shall be opened at the time of

the First Unit Commercial Operations Date.

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The MOUs with ITPL and SPPL do not specifically provide for an Escrow

Agreement or an Escrow Account, The MOUs with other appel-lants is in the

following terms :

"The Board shall open a revolving letter of credit as well as create an

escrow account in favour of......, which......shall have recourse to in

case of default."

The PPAs with ITPL and Jindal contain the following clause with respect to

Escrow Agreement and Escrow Account. ;

"To the extent such is agreed in accordance with the following, MPEB shall

at all times following the First Unit Commercial Operations Date maintain

an Escrow Account with MPEB's, Bank, in such from and substance as is

mutually agreed by Parties and on terms no less favourable then those

applicable to any other independent power generating company and into which

MPEB shall, for each month, place funds therein and from which overdue

payments under this Agreement may be made to the Company in the event of

MPEB failing lo maintain, replenish, renew, restore or replace one or more

Letters of Credit in the amounts provided for above. Such Escrow Account

shall be, (i) established and maintained by MPEB in accordance with Escrow

Agreement; (ii) in form and substance acceptable to the Parties."

The clause relating to Escrow Account in PPAs with GBL, STI, SPP and Madhya

Bharat is differently worded and is as under :

"Escorw Account.

The Company and MPEB shall in good faith and expeditiously cooperate with

the assist each other in establishing a practicable and appropriate Escrow

Account mutually acceptable to the Parties as a satisfactory security

mechanism for the payment obliga-tions of MPEB, taking into account the

following parameters :

(i) the Escrow Account shall take into account the reasonable

requirements of the Lenders of the Project; and

(ii) the amount of the Escrow Account shall be the Escrow Account

Amount."

The Escrow Account clause in the PPA with Bhilai is different from others

and is in the following terms :

"Escrow Account. MPEB shall at all times following the First unit

Commercial operations Date or the date of deemed Commission-ing for the

first Generating Unit, maintain an Escrow Account with a Scheduled Bank

pursuant to an Escrow Agreement in form and substance as is mutually agreed

by the Parties and into which MPEB shall, for each Month, place funds

therein and from which overdue payments under this Agreement may be made to

the Company in the event of MPEB failing to maintain, replenish, renew,

restore or replace one or more Letters of Credit in the amounts provided

for above. Such Escrow Account shall be estab-lished and maintained by MPEB

in accordance with an Escrow Agreement which shall be in form and substance

acceptable to the Parties.''

These provisions in the MOUse and PPAs clearly disclose that the obligation

to open and maintain an Escrow Account is to be discharged by MPEB after

the First Unit Commercial Operations Date. They do not impose an obligation

on MPEB to execute an Escrow Agreement at an earlier date. The Escrow

Agreement is to be in such form and substance as is Acceptable to the

parties. The Escrow Account is also to be established and maintained in the

manner and to the extent agreed by the parties. The only obligation of MPEB

which had came into existence on execution of the MQUs and PPAs was to

cooperate with and assist the appellants in the matter of execution of an

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Escrow Agreement and opening of an Escrow Account Execution of the Escrow

Agreement and opening of an Escrow Account are thus contigent upon an

agreement between the parties regard-ing the terms and conditions of those

agreements and accounts. The terms and conditions of the Escrow Agreement

could not be finalised in view of the disagreement of the FIs with the

terms and conditions suggested by the MPEB and some of the appellants and

their insistence upon certain other conditions. Even though MPEB and most

of the appellants were willing for an Escrow Coverage to the extent of one

billing month's amount, the FIs insisted that it should be lor one and a

half month's billing amount. Even though MPEB was willing to provide Escrow

Coverage to as many IPPs as possible on the basis of its assessment that

its Escrowable capacity is more the FIs did not agree with that assessment

and showed their willing-ness to assist the IPPs on the basis of MPEB's

Escrowable capacity at 2200 MW only. Thus it was because of the Fl's

reluctance to agree with MPEB and the IPPs that the terms and conditions of

the Escrow Account, could not be finalised and Escrow Agreements could not

be executed. It was not because of any lack of effort on the part of MPEB.

In any case it cannot be said that any legal right in favour of IPPs to

have an Escrow Agreement at that stage had come into existence. Therefore,

the question of MPEB going back upon the terms and conditions of the

concluded contract does not arise at all. Mr. Nariman. learned senior

counsel appearing for SPPL also submitted that till 24.7.1998 no legally

enforceable right to have an Escrow Agreement had come into existence. Mr.

Shanti Bhushan, learned senior counsel appearing for Jindal has also not

disputed this position.

The IPPs were insisting upon Escrow Coverage/protection and is-suance of

Letters of Comfort in their favour so as to enable them to persuade the FIs

to lend them enough money and obtain financial closure. For executing the

projects it is their duty to being enough finance. No doubt when such large

projects are undertaken it is expected that the party undertaking the

project will require monetary help from FIs. They are financed partly by

equity and partly by debt. Consistently with this position MPEB had agreed

to cooperate with and assist IPPs in obtaining financial assistance from

the FIs by making a provision for different types of securities for payment

of its dues to the IPs. Though the Escrow Account will have to be opened at

a later stage the appellants were insisting for letters of Comfort and

Escrow Agreements even before even obtaining financial closure. There was

no reluctance or refusal on the part of MPEB to provide Escrow Coverage to

all or as many as possible. But it was not possible for it to issue Letters

of Comfort and provide Escrow Coverage and enter into Escrow Agreements

with all of them as the appellants desired and the FIs required better

Escrow Coverage than the one which the MPEB was willing to provide. The

situation which had arisen was beyond the control of MPEB. The IPPs

including the appellants also could riot obtain financial closure because

of their inability to persuade the FIs to lend them enough money. This was

the position b the month of July 1998.

The Minister of Power, Government of India had drawn the attention of the

State Government to the delay in finalising the projects and the need to

take a final decision in the matter as early as possible and to the recent

amendments to the notifications issued under section 43A of the Electricity

Supply Act, Though the said amendment is prospective it cannot be said that

it was totally irrelevant and could not have been taken into considera-tion

by MPEB to seek revision of PPAS by inviting better terms from those IPPs

who had agreed to undertake the projects. But the situation in which all

were placed was such that it was not possible for the MPEB, the IPPs and

the FIs to enter into further agreements regarding Escrowabk Coverage and

financial closure. We are, therefore, of the opinion that the decision of

the MPEB to invite offers for better terms in its favour on different

parameters so as to enable it to priorities the projects for provid-ing

Escrow Protection based on least tariff criteria and to decide about the

optimum mix of liquid fuel, hydel and coal based projects cannot be said to

be unreasonable or arbitrary.

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The ITPL was of the view that the least tariff criteria was a 'hoax' and,

therefore, it did not give its fresh bid on the basis of that criteria. It

has, therefore, no right to make any grievance with respect to what has

happened after 24.7.1998, Jindal did make a fresh bid on the basis of least

tariff criteria but protested against the condition of 2% security deposit

and expressed its inability to give the security deposit as it believed

that it was impossible to achieve financial closure within two months of

providing a bankable Escrow Agreement Form. It was submitted by the learned

counsel Mr. Shanti Bhushan that the condition to complete the formality

regarding financial closure within two months should be held dis-

criminatory and invalid and Jindal should be considered on that basis. He

submitted that the tariff offered by Jindal was the lowest earlier and even

after the revised offers. He submitted that those who were given Letters of

Comfort earlier have a larger time to persuade the FIs and obtain financial

closure. He submitted that considering the tune usually taken by the FIs it

was impossible to get financial closure within two months and, therefore,

Jindal was entitled to be granted longer time for obtaining financial

closure. He submitted that the Court should not deny it the relief which

otherwise it is entitled to for non-compliance with the condition which was

really impossible of compliance. He submitted that the conditions to give

security deposit of 2% and to obtain financial closure within two months

was imposed with a view to favour some and exclude others whom they did not

like. He also submitted that no such condition was included earlier in

December when MPEB had issued Letters of Comfort. What is Important to be

noted is that Jindal did not furnish the security deposit nor had shown its

willingness to give 2% security deposit if any longer time was given to it

for obtaining financial closure. It is, therefore, obvious that it did not

comply with one of the conditions of re-invitationp of offer and,

therefore, cannot complain if it's offer has not been considered for

prioritisation and grant of Escrow Coverage on that basis.

It was submitted by Mr. Dave, learned senior counsel appearing for STI that

MPEB having decided to provide Escrow Coverage to 4 or 6 IPPs, really no

need had arisen for it to change that decision, even though it was

justified in entering into negotiations for reduction of tariffs. The

Minister of Power, Government of India had pointed out in his letter dated

12/25.6.1998 that it would be better to give priority to those projects

which offers the State the least tariffs for the power to be supplied to

MPEB, He had also suggested that it was necessary to establish a mechanism

to quickly finalise those steps and select projects with least tariffs for

being given an Escrow facility urgently so as to ensure that in the 9th

Plan they get the benefit of the capacity addition from those projects. It

was under these circumstances that a fresh policy decision was taken and,

therefore, no purpose would have been served by retaining the selection

earlier made for recommending Escrow protection and going for negotiations

for reduc-tion of tariffs. No other IPP except those who had been given

Letters of Comfort would have possibly participated in such negotiations.

Therefore, it is not possible to agree with the contention that the

priority fixed earlier should have been maintained by MPEB.

Some of the learned counsel challenged the least tariff criteria as 'hoax'

because it is not rational, as an 'excuse' because it was adopted to favour

some and rule out others and as 'unrealistic' as it is based upon certain

assumptions which are not valid. it is difficult to appreciate how the

least tariff criteria can be said to be hoax when it is based upon and

consistent with the notification issued under section 43A(2). To give

priority to that project which will supply electricity to MPEB at a cheaper

rate far from being regarded as an hoax or as an excuse must be regarded as

a rational criteria because it will be more beneficial to MPEB and the

general public who are the ultimate consumers of the electricity. The

situation in which MPEB was placed at the relevant time justified adopting

that criteria and the Court cannot in such matters substitute its opinion

and say that it would have been better if a different criteria had been

adopted. After the event it may be possible to visualise that it would have

been better if a different course was adopted or decision taken. But that

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cannot render the decision already taken arbitrary or invalid so long as it

is taken bonafide and is based upon consideration of relevant aspects.

Prioritisation could have been done on the basis of the dates on which TEC

was sanctioned or it could have been on the basis of the date of sanction

given by the Financial Institutions. If, however, considering all the

relevant aspects MPEB thought it proper to priorities the projects on the

basis of least tariff criteria it cannot be said that thereby it acted in

an arbitrary or unreasonable manner. It is also not possible to accept the

contention that the said criteria was adopted with a view to favour some

and rule out others as no material is available on record to justify such

an inference. It was submitted that least tariff criteria adopted by MPEB

for deciding prioritisation is unrealistic. Our attention was drawn to

certain assump-tions on the basis of which the project cost was to be

estimated and least tariff was to be determinated. Our attention was also

invited to the report of the Expert Committee which was constituted for

tariff evaluation for the improved offers submitted by IPPs. The said

Committee had opined as under:

"CONCLUSION : - Based on the factors and assumptions as brought out in para

3/N above, it can be stated that the project cost as complied on Commercial

Operation Date (COD) is not realistic or accurate. Any subsequent tariff

calculations based on the unrealistic project cost are also un-reliable and

unrealistic. Given the set of assumptions, the resulting tariff for various

IPPs falls in narrow range and a change in any of the assumptions can lead

to a different tariff for the IPPs. Therefore such resulting tariffs,

should not be depended upon to arrive at any conclusions or any subsequent

decisions."

The Cabinet Sub Committee in spite of the objections raised by Bhilai and

Bina had evaluated the offers on the basis of said wrong assumptions. It

was submitted that the decision taken by the Cabinet Sub Committee based on

unrealistic assumptions should be regarded as bad. We do not think that it

would be proper for this Court to examine in details the various

assumptions as they are technical matters and moreover, the techno-economic

clearance was given by the CEA on the basis of such assump-tions. Certain

assumptions bad to be made while determining the project Cost and inviting

offers on the basis thereof. Once we find that there was some valid basis

for making these assumptions and that they are not fanciful or arbitrary it

would not be proper to invalidate the decision taken on the basis of such

assumptions. They were made applicable equally to all. It was, however,

submitted by Mr. Singhvi that the Foreign Exchange Variation percentage

fixed at 2.553 was very low and that has benefited some of the IPPs with

large foreign exchange equity participation. As indicated in the minutes of

the Cabinet Sub Committee meeting the rate of foreign exchange variation

was adopted on the basis of the advise of the Ministry of Finance. Having

considered all the relevant facts and cir-cumstances it is not possible for

us to agree with the contention that the least tariff criteria was not a

good criteria as it was unrealistic and arbitrary.

As regards the application of the least tariff criteria for evaluating the

various revised bids for deciding prioritisation also there were some

objections raised on behalf the appellants. Having gone through the minutes

of the meeting of the Cabinet Sub Committee and the relevant facts and

circumstances and on taking an overall view we find that the decision to

recommend Maheshwar, Daewoo and Bina in respect of Maheshwar Hydel Project

(82MW), Korba (East) Thermal Power Project (1070 MW) and Bina Thermal Power

Project (578 MW) cannot be faulted. The decision in favour of these

projects appears to have been taken bona fide and in overall public

interest. That decision, therefore, did not call for any interference by

the Court and the High Court was right in upholding that decision.

However, as regards Pencil Thermal Power Project we find that it is not a

pit-head project and it did not have any appropriate coal linkage. The coal

linkage which was suggested by the State Government was neither approved by

the coal companies nor by the Railways. Its project cost was also not

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properly evaluated and the cost of supplying water from the dam was not

taken into consideration on the ground that the whole cost of the dam is to

be borne by MPEB. We need not go into the further details regarding the

merits and demerits of the Pench Project, as in view of the remaining

available Escrowable capacity we are directing MPEB to recon-sider its

decision as to which remaining coal based project should be given priority

in recommending it for Escrow Coverage. It was next contended by Mr.

Nariman appearing for SPPL that right from the beginning the Government of

India and even the State Govern-ment of Madhya Pradesh had accepted the

policy of an optimum mix of liquid fuel project, hydel project and coal

based project. He submitted that while deciding prioritisation on the basis

of least tariff criteria the Govern-ment and the MPEB ought to have

compared the tariffs within the fuel category and not between different

fuels used. The MPEB also in its letters dated 24.7.1998 had declared that

it would decide prioritisation of projects after considering an optimum mix

of liquid fuel projects, hydel projects and coal based projects. He,

therefore, submitted that the MPEB ought not to have exhausted all its

Escrowable capacity by recommending one hydel project and three coal based

projects for Escrow Coverage and financial assistance. As disclosed by the

decision of the Cabinet Sub Committee and also by the order of the High

Court produced before this Court no decision to recommend any liquid fuel

project on priority basis for Escrow Coverage could be taken because of a

stay order issued by the Madhya Pradesh High Court. No doubt it was an

interim order and after the same was vacated the State Government could

have soon thereafter taken a decision. How-ever, not taking a decision then

cannot be regarded as sufficient to vitiate the decision taken with respect

to the hydel and thermal power projects. To us it appears that the

compulsions of the situation have prevented the MPEB for not extending

priority for Escrow coverage to any liquid fuel project. The decision to

give priority to the two coal based and one hydel power projects was not

taken with a view to favour them. Nor does it imply giving up an optimum

mix policy.

In the result, the appeals filed by ITPL [out of SLP (C) Nos.

8654-8657/99], Jindal (out of SLP (C) Nos. 9796-9797/99), Bhilai (out of

SLP (C) Nos. 10799-10802/99). SPPL (out of SLP (C) No. 14853/99), Madhya

Bharat (out of SLP (C) No. 14792/99) and GBL (out of SLP (C) No. 9678/99)

are dismissed and the appeals filed by STI (out of SLP (C) Nos.

9770-9772/99) are partly allowed. The decision to give priority to Pench is

quashed and the MPEB is directed to take a fresh decision for giving

priority for Escrow Coverage after considering its Escrowable capacity and

other relevant factors. The MPEB shall do so within two months from the

date of this order.

Partly allowed.