By the impugned order, the High Court has set aside the order dated 22.05.2002 and the order dated 08.07.2002 which are orders passed by the Karnataka Electricity Regulatory Commission (hereinafter referred to as ‘Commission’ for brevity). 62.5 crores computed by the KPTCL as difference between the PPA rates and the rates fixed by the Commission and, therefore, we direct the KPTCL to repay the amounts recovered from the appellant in pursuance of the interim order dated 19 November, 2002 and also pay the adjustment arising out of payments made by the appellant to KPTCL (i.e., the date between the respondent No 2/PPA rate and respondent No 31 entered rate of this Hon’ble Court; as the case may be) from 1st August, 2000 up to November 2002 within a period of one month from today;” FACTS IN BRIEF 5. The first respondent was permitted by GoK during March 1994 to set up a 2X130 MW cortex gas/ coal based thermal power plant at Bellary. In the said agreement also, the parties have reiterated the Clause (Clause 2.4) relating to the sale by first respondent to KEB in similar terms as in the 5 Heads of terms.
Repayment of Foreign Loan, ROE and Depreciation will vary as per the applicable exchange rate. Further offer of 100 MW was made (base load basis) from the commissioning date of Unit No.2. Electricity Tax: The Organizations such as KPCL, NTPC, NPC and MSEB who are supplying power to KEB is exempted from Electricity Tax. Hence JTPC be exempted from Electricity Tax. Since we are eligible for Income Tax Exemption for the first five years, it is not included in the proposed tariff.” The promise was to supply for a period of five years from the date of commissioning of the second unit. In exceptional cases when JTPC generation is lower than the energy requirement of JVSL and JPOCL, subject to their individual contract demand with KEB, JTPCL draws energy from KEB for a limited period, or during the shutdown of the unit. Present metering system (Annexure -1) INSTALLED by KEB in our complex is on temporary basis and for adopting the above modalities permanent metering system is required to be established by KEB which is detailed at Annexure- 2.
CAUVERY BHAVAN, CHAIRMAN BANGALORE–560001 D.O.No./KEB/B2/B13/6306/93-94 Date: 19/1/1999 My dear Chaubey, Sub: Purchase of power generated by the captive power plant of M/s. Government of Karnataka vide GO No de 221 PPC 93 Bangalore dated 7-3-1994 had permitted M/s.
The relevant clause is reproduced below: “‘If at any stage, the Company offers excess firm capacity and/or energy for sale to the Board, then the Board may purchase the same from the Company, subject to agreement on price and other terms to be negotiated at the time of such sale.” Jindal Tractebel Power Company is the first IPP to have achieved Financial Closure. As a consequence of the above, the Company, vide their letter No.4 JTPC/KEB dated 20-10-1998 have offered to sell 50 Mw after the first unit is commissioned and 100 MW after the second unit is commissioned to KEB on basis. The tariff we are paying for power of MSEB is Rs.2.30/unit for power availed during off peak hours and Rs.2.65 for power availed during peak hours. Tamil Nadu is also purchasing power from MSEB at Rs.2.65 /unit during peak hours and Rs.2.30/unit during off peak hours. This was because, KEB did not feel it necessary to go into the details of the capital costs of this project as this project was contemplated as a captive power plant and only surplus power, if any, was to be sold to KEB, at a later date. Further, to compensate for the variation in Rupee against the dollar, the increase in Consumer Price Index, interest rate on working capital etc., it was also decided that some annual increase in the fixed price should be allowed to take care of the above- mentioned items as has been done in case of MOU Route projects. After the counter guarantee is given, it may take anything between 4 to 5 years for the project to be issued. Again, it may take 4 to 5 years for the project to be put up, since the company will have to achieve financial closure. Rs.2.97 per unit which is lower than the tariff now being offered by MSEB during peak hours. Apart from this, irrevocable letter of credit and escrow accounts are also being opened by KEB as additional security for power supplied by these companies. letter dated 19-1- 99 regarding your proposal to purchase power 18 from M/s Jindal Tractabel Power Company at Rs.2.60/unit with a 5% escalation on fixed charges. The demand may further go up in the coming months and the situation may not change easily in the next few years on account of the substantial delay in the starting up of the Mega power projects in the State. KEB will not consider any request either for two-part tariff based on CEA guidelines or for payment of fuel cost at actuals. JTPC offers 50 MW (Energy 36 MU per month) of power from the commissioning date of Unit 20 1 and 100 MW (Energy 72 MU per Month) of power from the commissioning date of Unit 2.
To maintain uniformity in penalty on either side, JTPC proposes as follows as from COD of Unit 2: (a) JTPC guarantees minimum supply of the Threshold Power Value after commissioning of JTPC Unit 2. If the supply is less than the Threshold Power Value, JTPC will pay penalty at 10% of the tariff, for supplies below the Threshold Power Value. KEB shall open irrevocable revolving letter of credit corresponding to 100 MW (Energy 72 MU per month) power sales under which JTPC can get payment for its monthly bills. DO letter NO.DE 18 FEB 99 dated 5-3-1999 of Energy Secretary addressed to the undersigned Accordingly, M/s JTPCL were invited for negotiations and discussions were held with them on 26th March 1999 to arrive at the rate they would sell power from their plant to KEB. The firm stated considering all aspects within the parameters fixed by the Board, they would be able to sell power at Rs.2.75 per unit with a cost escalation of 5% per year, which was not… In case of the second option, the tariff payable by KEB for each unit in different years will be as follows: With this the tariff payable during each year of operation will be as follows: Year Rs./Kwh 1 2.60 2 2.73 3 2.87 4 3.01 24 5 3.16
Considering the fact that rupee has been depreciating heavily against the dollar the second proposal may be advantageous to KEB. They have stated that they will be offering 50 MWs (equivalent to 36 MU per month) from the date of commissioning of the first unit and 100 MW (equivalent to 72 MU per month) with the commissioning of the second unit.
In case the consumption is less than the threshold value, KEB shall pay to JTPC the full value of threshold at the applicable tariff as above. To adopt the same principle of negotiated tariff for captive generating power project who intend to sell power to KEB.” The Act came into force with effect from 01.06.1999. The significance of this is that under Section 27 of the Act, unless there was a ‘concluded contract’ as on 01.06.1999, the Commission was to regulate the tariff. You are requested to furnish details of the break-up of the tariff so as to enable us to take further action.” On 06.04.2000, the first respondent wrote to the Chairman of the appellant (KPTCL). Accordingly, JTPC has finalized PPA with KPTCL and the final draft as accepted 28 between JTPC and KPTCL has been submitted to KPTCL in September / October 1999. 2) directs KPTCL to operate the PPA with JTPC as Per Government Order NO. Even though PPA is not yet signed and is pending with KPTCL, the absence of PP A should not come in the way of supplying of power by JTPC to KPTCL from 12’h April 2000 as the formal Government of Karnataka Order dated 12m May 1999 along with the details of tariff (Ref.
Hence, pending finalization and signing of PP A between JTPC and KPTCL, we request you to kindly accept the power dispatched by JTPC to KPTCL from 12m April 29 2000. The energy banked prior to signing of PP A will be treated as energy banked with the Corporation and will be accounted as per the Corporations rules. The firm has to submit an undertaking that the terms and conditions of PP A between KPTCL and JTPCL will be applicable for the payments made by KPTCL for the energy supplied by JTPCL from the date as approved by government till the PP A is signed. 2.60 per unit with an annual increase of 5% every year for a period of 5 years. 2.52 vide Government Corrigendum dated 8.5.2000. 2.60 per unit would result in honoring the commitment of the Government.
No Shad also requested the Government to review the effective date for purchase of power from the said company and communicate the Government decision. This letter was treated as an application by the appellant (KTPCL) for entering into a power purchase 33 agreement under Section 25 (3) of the Act read with Section 17(1) of the Act. After referring to order of the GoK dated 12.05.1999, it is found that out of the 9 issues containing the proposal of JTPCL, Government has 34 indicated its intention to agree only to two issues, namely the rate of Rs 2.60/- per KW hr. Government order dated 12.05.1999 only served to provide broad guidelines to negotiate with the first respondent for a mutually agreed term. It is common knowledge that a number of generating projects are set up to take advantage of the existing infrastructures of other projects and it can never be said that merely because infrastructure is shared, the consumption of power is captive.
It is also contended on behalf of the respondents that determination of IPP/CPP is irrelevant as the Commission has allowed KPTCL to pay fixed charges to the appellant.” Thereafter, the Commission arrived at a probable tariff and finally directed the appellant to negotiate with the first respondent based on the calculation made and to come up with a fresh proposal. The PPA as approved by the Commission will come into effect from 1.8.2000 and shall be valid for a period of five years as per the proposal of KPTCL. (II)
Whether there existed a binding contract between the appellant and the KPTCL on the tariff prior to commencement of Karnataka Electricity Reform Act, 1999 with effect from 01.06.1999, in terms of Explanation to Section 19 and proviso to Section 27(2) of the Act? It was further found that when validity of the order of a quasi-judicial body is assailed in a court of law, it is healthy and fair that such authority (the commission) should not take sides. The High court took care that it should not be understood as meaning that the Commission cannot be a necessary and proper party if an appeal is preferred under Section 41 against its order regardless of the 40 question which arose. It was no doubt found that there were several rounds even after the Act came into force between the parties, and they discussed and finalised the terms and conditions of the PPA except tariff as the tariff was agreed upon as evident from GO dated 12.05.1999. The order dated 12.05.1999 was for all purposes treated as contract for sale of power. All terms and conditions agreed upon in the GoK order dated 12.05.1999 were incorporated in the PPA without any variation. It is recorded in the judgment that the appellant agreed with the first respondent that Section 27(2) of the Act did not require a contract in writing or any formal document or that it prescribed any particular form. The order dated 12.5.1999 did not employ the word “subject to”.
Incentive payment charges was found by Commission to be Rs.0.952 in arriving at the tariff rate, but the incentive payment charges are taken as Rs.0.924 per unit. The tariff of the first respondent is one of the cheapest as it was based on the least cost tariff basis, whereas other companies pay higher charges either on the basis of a two-part tariff or a fixed negotiated tariff. The Commission ignored the fact that 1150 MUs are arrived on the basis that the appellant is supplying the energy to the steel plant at 85% PLF and this disproportionate loading was found tantamounting to cross subsidising contrary to the observations in the decision of this Court in West Bengal Electricity Regulatory Commission v. The court went on to answer point No.5 which was whether the case of the first respondent based on principles of promissory estoppel has not been considered by the commission and therefore impugned order required interference. Attacking the findings of the High Court that the concluded contract under Section 19 and Section 27 of the Act need not be in writing or in any particular form, it is contended as follows: While there may not be any statutory requirement that there must be a PPA in writing, the correspondence and the conduct of the parties make it clear that they intended to have a formal document binding them on all material terms. It is contended that a perusal of letter dated 23.04.1999 would show that even as regards the tariff rate proposed by the first respondent, it was subject to the confirmation by the Board of Directors. Reliance is placed on the Judgment of this Court in All India Power Engineer Federation and others v. GoK Order dated 12.05.1999 was amended vide Corrigendum dated 08.05.2000 by revising the tariff to Rs.2.52/unit. In our considered opinion the combined reading and consideration of the following documents and circumstances and the reasons we presently state would lead us to conclude that there existed a “concluded contract” between the appellant, KPTCL and GoK well before 01.06.1999.” In other words, the Court has even proceeded as if there was a contract between the GoK and the first 53 respondent. It is next contended that the first respondent cannot be treated as an Independent Power Producer (IPP). The first respondent is to be treated as the CPP, as it was supplying power to the steel plant. When an IPP is desirous of contracting power supply with the appellant on two-part tariff basis, the KEB/appellant would be involved in every stage of project formation, finalisation of capital costs and technical parameters. This legislative cribbing of the appellate power of the High Court is to be viewed in the context of the fact that the appeal is directed against the findings of an Expert Body like the Commission. Singhvi appearing would contend that prior to the issue of GO dated 12.05.1999, parties were agreed about the essential terms, viz., price/tariff, quantum and tenure. With reference to GO dated 12.05.1999, it is contended that though it contemplated submission of the PPA to the Government of Karnataka (GOK), the interpretation has to be necessarily that 57 the draft PPA terms, apart from the terms in GO dated 12.05.1999, as and when finalised, had to be submitted to the GoK. The GO dated 17.07.2000, restoring the tariff of Rs.2.60, reversing its corrigendum on 08.05.2000, by which, tariff was sought to be reduced to Rs.2.52 per unit, indicates that Rs.2.60 emerged as a sacrosanct figure, which had to be honoured. As per Section 14(7) of the Act, all contracts entered into, with or for the KEB, are deemed to have been transferred to KPTCL (the appellant). 666 / HL(E) 1877 Vol.2 666 60 His Legal Representatives and others. The model PPA was issued only in 2005 by the Government of India after the issue of guidelines for tariff determination by competitive bidding under the provisions of the Electricity Act, 2003. However, learned Counsel, indeed, supports the other finding interfering with the Order of the Commission, viz., that the first respondent was to be treated as an independent power producer and that the Orders of the Commission were afflicted with arbitrariness and error apparent. Section 13(5) reads as follows: “13(5) Upon the grant of license to the KPTC under chapter VII, the KPTC shall discharge such powers, duties and functions of the Board including those under the Indian Electricity Act, 1910 and the Electricity (Supply) Act, 1948 or the rules framed thereunder, as may be specified in the license and it shall be the obligation of the KPTC to undertake and duly discharge the powers, duties and functions so assigned.” (2) Any property, interest in property, rights and liabilities vested in the State Government under sub-section (1) or part thereof may be revested by the State Government in the KPTC or any generating company or companies in accordance with the transfer scheme published under subsection (1) along with such other property, rights and liabilities of the State Government as may be specified in such scheme, on such terms and conditions as may be agreed 64 between the State Government and the KPTC or any generating company or companies, as the case may be.
Such of the functions, duties, rights and powers exercisable by the Board under the Indian Electricity Act, 1910 or Electricity (Supply) Act, 1948 or any rule framed thereunder as the State Government may by notification specify shall be exercisable by the KPTC or any generating company or companies, as the case may be, from the effective date of first transfer. (6) A transfer scheme under this section may, amongst others,.- (a) define the property, interest in property, rights and liabilities to be allocated,- (i) by specifying or describing the property, rights and liabilities in question; (ii) by referring to all the property, interest in property, rights and liabilities comprised in a specified part of the transferor’s undertaking; or (iii) partly in the one way and partly in the other; (b) provide that any rights or liabilities specified or described in the scheme shall be enforceable by or against the transferor, or the transferee, as the case may be; (c) impose on KPTC or any licensee, an obligation to enter into such written agreements with, or execute such other instruments in favour of, any person as may be specified in the scheme; (d) impose on any transferee licensee the obligations to comply with the power procurement and purchase arrangements with KPTC; and (e) make such supplemental, incidental and consequential provisions as transferor licensee considers appropriate including provision specifying the order in which any transfer or transaction is to be regarded as taking effect. (8) If pursuant to a transfer scheme framed by the State Government, the KPTC 1 [or a licensee as the case may be]1 is required to vest any part of its undertaking in another company or body corporate or person, the Commission shall amend the licence granted to enable the transferee to carry out the functions and activities assigned to the transferee.” Requirement of licence.- (1) No person, other than those authorised to do so by license or by virtue of exemption under this Act or authorised to or exempted by any other Authority under the Electricity (Supply) Act, 1948, shall engage in the State in the business of,- (a) transmitting electricity; or (b) supplying electricity, including bulk supply.
All power purchase agreements, transmission services agreements and other contracts entered into shall continue in full force and effect and will be transferred to the successor entities.” (Emphasis supplied) Section 19 of the Act, deals with grant of licenses by the Commission. Section 19(4)(j) reads, inter alia, as follows: “(4) Without prejudice to the generality of sub-section (3), the conditions included in a license by virtue of that sub-section may require the licensee to,- (a) to (i) xxx xxx xxx (j) purchase power in an economical manner and under a transparent power purchase procurement process; Explanation. (2) The Commission shall, subject to sub- section (3), have the power to lay down methodology and the terms and conditions for determination of revenue of the licensee under sub section (1) of this section and the determination of tariff, in such other manner as the Commission considers appropriate and for doing so, the Commission shall be guided by the following factors, namely:- (a) the financial principles and their applications provided in sections 7 and 57-A of the Electricity (Supply) Act, 1948 (54 of 1948) and in the sixth schedule thereto; (b) in the case of the Board or its successor entities, the principles under section 59 of the Electricity (Supply) Act, 1948; (c) that the tariff progressively reflects the cost of supply of electricity at an adequate and improving level of efficiency; 70 (d) the factors which would encourage efficiency, economical use of the resources, good performance and optimum investments and other matters which the Commission considers appropriate for the purpose of this Act ; and (e) the interest of the consumers are safeguarded and at the same time, the consumers pay for the use of electricity in a reasonable manner based on the average cost of supply of energy; (f) the electricity generation, transmission, distribution (5) Any tariff implemented under this Act,- (a) shall not show undue preference to any consumer of electricity, but may differentiate 71 according to the consumer’s load factor, power factor, and total consumption of energy during any specified period or the time at which supply is required, or the geographical position of any area, the nature of the supply and the purpose for which the supply is required; or paying capacity of category of consumers and need for cross subsidisation; and (b) shall be just and reasonable and be such as to promote economic efficiency in the supply and consumption of electricity; and (c) shall satisfy all other relevant provisions of the Act, regulations and conditions of the license. Section 5 further declares that, at all times, one Member shall be a graduate Electrical Engineer with at least 25 years of experience of either generation, transmission or distribution of electricity and have worked in a senior position in the said field. The Commission is tasked with the power to grant licences under Section 19 of the Act. The Act put in place a mechanism, by which, an independent Body, a Commission, consisting of the Experts, as we saw, were to proceed in the matter, in an independent manner, to determine, inter alia, the tariff. Section 18, dealing with the requirement of a licence for transmitting electricity and for supplying electricity, including bulk supply, inter alia, provides in Section 18(6) that all power purchase agreements, transmission 75 services agreements and other contracts, entered into, shall continue, in full force and have effect and will be transferred to the successor entities. Section 19(4)(j), the Explanation, which follows thereafter and Section 19(4)(k) read as follows: “(j) Purchase power in an economical manner and under a transparent power purchase procurement process; 76 Explanation: The process concluded by the State Government or the Board with generating companies and transmission companies prior to the date of commencement of the Act shall stand assigned to KPTC in terms of section 14 under such contracts for effecting bulk sales, distribution and supply to other licensees; (k) the purchase of power from KPTC to the extent necessary to enable the KOPTC to perform its obligations under the contracts concluded by the State Government or the Board referred to in a clause.” Since sub- 77 Section (2) limits the power, with reference to sub- Section (3), we may only notice that Section 27(3) obliges the Commission to record reasons, when it departs from the factors specified in the Sixth Schedule to the Electricity (Supply) Act, 1948 in determining the revenue and the tariffs. Every licensee is to provide to the Commission, full details of its calculations for the ensuing financial year, of the expected aggregate charges, which it believes to have been permitted to recover, pursuant to the terms of its licence and such further information, as the Commission may reasonably require, to access such calculation [See Section 27(7)]. Section 27 defined ‘expected revenue from charges’ in the Explanation (a) under Section 27(12) as meaning, ‘the total revenue which the appellant or the licensees are expected to recover from charges for the level of forecast supply used in the determination under sub-Section (7) in any financial year in respect of goods or services supplied to customers’. In the Statement of Objects of the Act, it is, inter alia, recited that the 80 law was made to ensure the development and management of the electricity industry in the State in an efficient, economic and competitive manner to provide reliable quality power and to protect the interest of the consumer, including, vesting in the Commission, the power to regulate the power sector. Section 27(2)(e) specifically contemplates that the Commission is to be guided by the interests of the consumers, but 81 at the same time, providing for the return, by ensuring that the consumer pays for the use of electricity in a reasonable manner, based on average cost of supply of energy. It is, undoubtedly, true that the proviso to Section 27(2) does not use the words ‘power purchase agreement’. In a later provision of the same Act, the same Law- Giver has, by omitting the words ‘power purchase agreement’ in the proviso to Section 27(2), evinced its intention to be that a contract can be concluded for the purpose of the proviso to Section 27(2) even without there being a power purchase agreement. [AIR 1959 SC 1012 : 1959 Supp (2) SCR 875, 893 : 1959 Cri LJ 1231]. It is a settled rule of construction that a proviso must prima facie be read and considered in relation to the principal matter to which it is a proviso.
To expand the enacting clause, inflated by the proviso, sins against the fundamental rule of construction that a proviso must be considered in relation to the principal matter to which it stands as a proviso. dated 12.05.1999 by the GoK, by which, the Government of Karnataka, gave its 85 approval for the tariff at Rs.2.60 per unit, for the tenure of five years, and what is more, the quantum to be supplied by the first respondent, was also agreed upon cements the case of the first respondent that there was a concluded contract for the purpose of Section 27(2). We may set out our understanding of Section 2, so far as it is relevant, to be as follows: 86 It begins with a proposal made by a promisor. —All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India and not hereby expressly repealed by which any contract is required to be made in writing1 or in the presence of witnesses, or any law relating to the registration of documents.” Thus, from the second part of Section 10 of the Contract Act, it is self-evident that it is not essential to form a contract, that it should be in writing. The advantage in setting up of the power plant at Bellary-Hospet is that the excess power generated will be fed to the KEB grid which will make the system more stable and can supply power to other industrial units in and around the Bellary-Hospet region. In case power is contemplated to be sold to third parties directly, the sales shall be at the rates to be fixed by Government of Karnataka/KEB and with the prior approval of Government of Karnataka/KEB; 4.
JTPCL is permitted to sell power directly to industrial units of the area at the mutually negotiated rates between M/s. JTPCL and the industrial Units, subject to approval by the State Government A perusal of proceeding dated 07.03.1994 would reveal that though the KEB put forth the condition, inter alia, that the power to be generated by the thermal plant sought to be set up by JISCL, was to be sold exclusively to KEB and not to any other entrepreneur and that the firm has to enter into a power purchase agreement with KEB, and the rate at which power to be purchased by the KEB, is to be separately worked out, in the Order, the GoK permitted the first respondent to sell power directly to industrial units of the area at mutually negotiated rates between the first respondent and the industrial units subject to approval by the State Government. In keeping with the decision, apparently, that the first respondent was to sell the balance power to the KEB, the Clause relating to sale of excess power to KEB was first indicated in the Heads of Terms and later on in the Wheeling Banking and Grid Support Agreement. On 21.11.1998, the first respondent wrote to the KEB and we need notice the following: 93 First respondent claimed that it has completed 100% construction, erection and testing activities of Unit No.1 (130 MW).
The communication reveals that thereafter, the first respondent proceeded to make an offer to KEB for sale of power. The KEB, in response, pointed out that the Board was, in principle, willing to purchase power from the first respondents and the proposal of the first respondent, regarding tariff, was stated to be under evaluation by the Board. To proceed with clarity, the court specifically asked whether the case of the first respondent was that the contract was concluded between the GoK and the first respondent or with KEB with the first respondent.
If as on 01.06.1999, no contract was concluded between the KEB and the first respondent within the meaning of proviso to Section 27(2), and such a contract was concluded thereafter, it will not advance the case of the first respondent. The terms approved by the GoK stand incorporated in the subsequent PPA though the PPA was executed after 01.06.1999 but the significance of all this is that as regards the essential terms, the parties were agreed. The undesirable results it produced and the need for locating the power in an independent body which would 99 fairly and on preordained principles which involves striking a balance between the interest of the consumer and at the same time promoting efficiency in the power sector leading to enhancement in power generation led to the new regime. We would think that the first respondent must anchor its case on surer foundations. In this case, we proceed on the basis that it all began with the communication dated 20.10.1998 sent by the first respondent. By communication dated 15.12.1998, the Board conveyed that the proposal of the first respondent is under evaluation. Therein, it is, inter alia, stated that the plant of the first 101 respondent which was set up as a captive power plant was given IPP status later on by GO dated 01.02.1996 as the shareholders of the power plant (the first respondent) and the steel plant (the sister concern of the first respondent) were different.
After providing certain other details including the variation in the exchange rate qua the US $ and the decrease in consumer price index, interest rate and the need for annual increase in the fixed price, negotiations were undertaken it is mentioned. The efforts of KEB to bridge the gap on power availability by entering into short term agreement with the first respondent was appreciated. The PPA being for a period of 5 years, KEB is advised to negotiate with the Jindal Tractebel for a fixed tariff for the next 5 years. KEB will not consider any request either for two-part tariff based on CEA guidelines or for payment of fuel cost at actuals. JTPC would have an option to supply in excess of SOMW (Energy 36 MU per month) after commissioning of Unit 1 and 100 MW (Energy 72 MU per month) after commissioning of Unit 2, with KEB’s approval, as and when JTPC has surplus power available. If the supply is less than the Threshold Power Value, JTPC will pay penalty at l0% of the tariff, for supplies below the Threshold Power Value. We also request you to let us have drafts of the PPA, Escrow agreement and the Letter of Credit at the earliest. Thereafter, it is stated as under: “The firm in its letter No.JTPC/KEB dated 31- 3-1999 has confirmed that the tariff payable by KEB for power purchased will be Rs.2.60/unit in the first year with an annual escalation of 5% every year. In case the consumption is less than the threshold value, KEB shall pay to JTPC the full value of threshold at the applicable tariff as above. KEB is permitted to finalize a Power Purchase Agreement with M/s Jindal Tractebel Power Company Limited (JTPCL) for the purchase of surplus power and submit the same to the Government for approval. Nearly, six months after 01.06.1999, i.e., on 04.01.2000, the Superintending Engineer of KEB wrote to the first respondent stating that the communication related to the tariff of Rs.2.60 per kw/hr negotiated for purchase by the appellant. It was also stated that the first respondent had finalised the PPA with the appellant and the final draft as accepted was submitted to the appellant in September-October, 1999. dated 7 July 1999, the first respondent goes on to state that the said order directs the appellant to operate the PPA as per the order dated 12.05.1999 only after complying with the obligations of GoK under order dated 07.07.1999. Invoices would be generated by the first respondent in terms of letter dated 12.05.1999. The appellant communicated its approval for the continued supply pending finalisation of the PPA but subject to certain conditions. The energy will be accounted only after signing of PPA. The energy banked prior to signing of PPA will be treated as energy banked with the Corporation and will be accounted as per the Corporations rules.
A perusal of the letter dated 24.05.2000 sent by the Additional secretary of the appellant to the Chief Engineer Electricity, KTPCL indicates that Corporation gave its approval for the energy supplied to the Grid from 15.04.2000 onwards at Rs.2.52 per unit pending signing of PPA. It was unambiguously indicated that the appellant did not make any commitment in this regard and clinchingly it was indicated that the terms of the PPA will be finalised separately. The formal Order was passed by the GoK, permitting the appellant to purchase power at the rate of Rs.2.60, with an annual increase of five percent every year, as indicated in the Preamble to the Order. It is true that there is no express provision in the proviso to Section 27(2) of the Act within the meaning of second part of Section 10 of the Indian Contract Act, that the contract, which is concluded, must be in writing.
The said words, viz., ‘contracts concluded’ must bear the same meaning, both in Section 19 and in Section 27. Section 27(2) and Section 19(4)(j), do not expressly refer to a PPA. We may further notice that there was a Banking, wheeling and grid agreement, executed in the year 1996 between the KEB and the first respondent. Thereafter, communication dated 19.01.1999, addressed by KEB to the GoK would indicate that negotiations were held, and what is more, detailed discussions were held, whereunder, it was decided that a price of Rs.2.60 per unit can be offered, comprising of Rs.1.70 as fixed charges and Rs.0.90 as variable charges. They included obligation to supply power with a threshold value of 75MW equivalent to 54MU per month, penalty to be paid by the first respondent in case of supply being less than threshold value, payment by KEB of full value of threshold in case consumption is less than the threshold value and minimum supply and minimum consumption being on monthly basis, right of first respondent to terminate the contract, if there is escalation in fuel cost beyond five per cent at any time unless KEB agreed to compensate for such escalation.
The fact that issues in letter dated 23.04.1999 have been included in terms of the PPA is clearly besides the point as the question is whether the parties were agreed on them as on 01.06.1999. GoK in the said G.O., undoubtedly, agreed for the rate per unit to be Rs. dated 12.05.1999, actually KEB was permitted to ‘finalise a Power Purchase Agreement’ and to submit the same to the Government for approval. The appellant, which, in the meantime, came upon the scene, as a result of the Act, and succeeded to the KEB, recommended that supply of power may be made by the first respondent subject to the finalisation of the PPA at a rate not exceeding Rs.2.45 per unit.
Government issued Order dated 07.07.2000 reinstating the rate of Rs.2.60 per unit. In other words, even proceeding on the basis that even in a given case, a contract could be concluded within the meaning of the proviso, even in absence of a written PPA, bearing in mind also the absence of the word ‘PPA’ in the said provision and contrasting it with Section 18 where the same Law-Giver has used the word ‘PPA’, if the parties were not ad idem about the necessary terms and if the parties equally contemplated a PPA to bring it into existence a contract within the meaning of Section 127 27(2), then, clearly a PPA would be indispensable to attract the proviso to Section 27(2). The appellants suggested after some time that there should be a contract entered into between 128 the parties. After the agents met, the terms of the agreement came to be drawn up by the agent of the plaintiff and sent to the defendants. Armstrong’s name as the arbitrator — a letter written with it by the person engaged in the whole negotiation on the one side, saying that he could not see the person who was negotiating on the other side until the time when the agreement was to come into effect — that immediately followed by an order for coals to the extent of 250 tons — an inquiry sent by telegram, and an anxious inquiry by letter also saying:— “Let us know whether we can rely upon your supplying us with 220 tons of coal per week, because, upon your answer whether you can or cannot supply us with that quantity will depend the arrangements I am to make with other coal companies in the North. It might indicate this: If you cannot answer definitely that you can supply us with the 250 tons of coal, we may feel ourselves at liberty then to deal with the other coal companies — that might possibly be the true view of it, in which case it struck me it might be said that it was not eo instanti that the agreement was clenched. It does establish a course of action on the part of the Plaintiffs of such a character as necessarily to lead to the inference on the part of the Defendants that the agreement had been accepted on the part of the Plaintiffs, and was to be acted upon by them; and they did act upon it accordingly.” 81. The 132 conduct of the parties in the supply of the goods in question, and the acceptance of the same and the payment made therefor and the not infrequent reference to the terms of ‘the contract’ as approved by the chief partner of the Seller firm “as contract” fortified the Court in the facts in concluding that there was a concluded contract. Even negotiations 133 after 01.06.1999, and the preparation of a draft PPA on 07.11.2000, cannot clearly suffice. The fact that the parties refer to the preparation of an agreement by which the terms agreed upon are to be put in a more formal shape does not prevent the 134 existence of a binding contract. as follows: “It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contact is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. Miller [ 3 AC 1124] Lord Cairns said: “If you find not an unqualified acceptance subject to the condition th at an agreement is to be prepared and agreed upon between the parties, and until that condition is fulfilled no contract is to arise then you cannot find a concluded contract.” In Currimbhoy and Company Ltd.
It is therefore not possible to accept the contention of the appellant that 136 the oral agreement was ineffective in law because there is no execution of any formal written document. The subject matter of the contract, the position of the parties, the implications of the working of the contract and more importantly, the intention of the parties do not persuade us to safely gather that there was a concluded contract upon 137 negotiations and correspondence, culminating in the Government Order 12.05.1999. The Court, on 17.08.2002, directed the Commission to be ready with the written submission on the question of interim relief. On 19.11.2002, the High Court directed the appellant in the other case to add the Commission as a party. The finding, therefore, that the Commission exhibited an abnormal interest in contesting the appeal or filed extensive pleadings, is impugned.
However, when the Statute insists on a ‘question of law’ to maintain an appeal, the Appellate Body stands constrained to that extent. An issue about what the law is on a particular point; an issue in which parties argue about, and the court must decide what the true rule of law is; 4. The jurisdiction of the Supreme Court under Section 15Z to consider any question of law arising from the orders of the Tribunal should therefore be seen in the ‘context’ of the powers and jurisdiction of the Tribunal under Sections 15K, 15L, 15M, 15T, 15U and 15Y of the Act.
An appeal court should not venture too readily into this area by classifying issues as issues of law which are really best left for determination by the specialist appellate tribunals.” The scope of appeal under Section 15Z may be formulated as under: 142 20.1 The Supreme Court will exercise jurisdiction only when there is a question of law arising for consideration from the decision of the Tribunal. In such cases, the Supreme Court in exercise of its jurisdiction of Section 15Z may substitute its decision on any question of law that it considers appropriate. We would have explored the matter and rendered our findings qua the approach of the High Court in regard to this matter which at least at first blush looks ‘wholly untenable’ but since the first respondent has taken the stand before this Court that it may not seek to draw support from the said principles and rightfully so, we desist from further enquiry. 4, namely, whether the impugned orders are perverse, arbitrary and passed without application of 144 mind, our attention is drawn by the appellant to the limited nature of jurisdiction exercised by the High Court under Section 41 of the Act. The second error, it is found, lay in the Commission finding that the incentive payment charges should be Rs.0.952, in arriving at the tariff rate 145 whereas incentive payment charges were taken as Rs.0.924 per unit. Next, the High Court has found that, having agreed to a negotiated single part tariff, the Commission could not have unilaterally ignored the well-established parameters and applied norms, which were, undoubtedly, valid for a two-part tariff and super impose the same in calculating tariff 146 on a single part tariff basis.
Next, the High Court proceeded to find fault with the fixing of the heat rate disregarding the norms laid down by the Ministry of Power/CEA or whichever is lower. Reduction of escalation by the Commission from five per cent to two and a half per cent per annum, is apparently with reference to what transpired during the negotiations and, therefore, proceeding on the basis that the matter was a concluded contract, as it was, indeed, the finding of the High Court. We are of the view that, at any rate, particularly bearing in mind, the limited nature of the jurisdiction of the High Court under Section 41 of the Act, the approach and the findings of the High Court under Point No 4, may not be sustainable.
The High Court has found that under these orders there is a distinction between the IPP and CPP and the first respondent has complied with the requirement under the Supply Act for establishing a generating company with reference to 150 Sections 29 to 31 for sale, pursuant to Section 43A, making it an IPP. The techno economic clearance granted by the CEA dated 22 March, 1996 is adverted to and it is further found that such a clearance was unnecessary if the first respondent was a CPP. 260 MW plant was contemplated to provide firm capacity to the appellant as evident from the order dated 7 March, 1994.
The Commission, it was found, erred in arriving at 1637 MUs at 77 per cent PLF and fixed charges at 1150 MUs supplied to appellant ignoring that the first respondent was supplying energy to JVSL at 85 per cent PLF. It is contended by the appellant that they share common infrastructure for coal handling, water supply and the coal is purchased for the first respondent by its sister company, JVSL, and JVSL raised invoices on the first respondent. The Government Order dated 12.05.1999 itself makes it clear that the first respondent was selling surplus power to the appellant and indicates that the same principle of negotiated tariff for CPP would be applicable to the first 154 respondent.
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Reliance is placed on GoK order dated 07.03.1994, KEB letter dated 01.03.1995 confirmation by GoK of the IPP status, GoK Order dated 02.03.1996, CEA letter dated 22.03.1996 granting techno-economic clearance, and GoK letter dated 22.03.1996, supporting project cost.
An affidavit of the appellant dated 18.10.2001 admitted that the first respondent was an IPP. GoI decided that captive power plants of industries could be allowed to sell the surplus power, if any, to the grid on a remunerative tariff as per mutually agreed terms. It was therefore suggested to all Chief Secretaries of the states that they may create an institutional mechanism which may allow captive power units an easy automatic entry into power sector by quickly clearing such applications by the state governments by giving them rational tariff for purchase of surplus power by the grid and the third-party access 158 for direct sale of power to other industrial units.
What is stated therein is that the first respondent’s sister company namely Jindal Iron and Steel Company was setting up a combined gas cycle plant of 300 MW x 150 MW within the site allotted for a steel plant for which GoK had 159 already given approval. The first respondent had to sell the balance power to KEB at tariff to be determined as per norms dated 31.03.1992. Dedicated customers has been defined in the agreement as those consumers of power supplied solely by the first respondent through transmission lines set up by it and it was to include the sister concern, JVSL. GoK gave its consent under Section 43A(1)(c) and 162 paragraph-3.2 of the GoI Tariff Notification dated 13.03.1992 as amended for sale of power by the first respondent directly to any customer at rates to be mutually negotiated by the first respondent.
This is apart from it operating as consent for sale within the meaning of Section 28 of the Electricity Act, 1910. Next in chronological order is the communication dated 06.11.1996 issued by the GoI. It is further indicated that the Electricity Board [KEB] was to send to the Authority under Section 44(2)(A) if the capacity of a new generation station, inter alia, exceeded 25 MW. The letter dated 9 January, 1997, further noticed that there were suggestions from some States that some of the industries found it difficult to set up power plants through the existing companies and they favoured setting up of power plants by an independent 165 entity (IPP) with total dedication of power generated to the existing industry/group of industries but without any sale of power to the State Grid.
Thus, letter dated 9 January, 1997, appears to indicate that IPP generating stations could be set up exclusively for the ‘captive use’ of the industry or a group of industries without any sale to the State Grid. In this case the High court has referred to the appellant (KEB) vide its letter dated 29 March, 1996, supporting the project cost and forwarding the same for approval to the GoI. Further, in the appeal memorandum, in paragraph 9 thereof, it would appear that what was contended by the first respondent was that the appellant and GoK approved the project cost and DPR and letter dated 29.03.1996 was produced. We would think that the interest of justice require that taking note of also the fact that first respondent had allegedly specifically claiming to be a CPP availed benefits and this has also not been considered by the High Court, the matter must be reconsidered by the High Court. The finding that there was a concluded contract within the meaning of the proviso Section 27(2) of the Act will stand set aside. It will proceed on the basis that there was no concluded contract within the meaning of the proviso to Section 27(2) of the Act. This was countered by the first respondent by pointing out in the ‘unlikely event’ of the appeal being allowed only on the point that there was no concluded contract and if the other two aspects are to be reconsidered by the High Court, then the first respondent cannot till these matters are reconsidered be directed to repay the amount. This is for the reason that in working out the rate to be charged from consumers, even now this amount if it is brought into the coffers of the appellant, it would result in a corresponding reduction in the burden which the consumer would have to bear. Disbursement of further amounts as also the fate of the payment of Rs.50 crores by the first respondent will await the final decision of the High Court in regard to the determination for which we remit the matter. The appeal filed by Karnataka Electricity Regulatory Commission will stand allowed to the extent that the remarks made against it in the impugned judgment shall stand set aside as indicated hereinbefore. [ANIRUDDHA BOSE]……………………………………….. J.
Case Title: KARNATAKA POWER TRANSMISSION CORPORATION LIMITED Vs. JSW ENERGY LIMITED (2022 INSC 1219)
Case Number: C.A. No.-008714-008714 / 2022
