Karnataka Power Transmission Corporation Limited vs JSW Energy Limited (earlier known as Jindal Thermal Power Company Limited & Jindal Tractabel Power Company Limited) & Ors.

CIVIL APPEAL NO.8714 OF 2022 (Arising Out of SLP (CIVIL) NO.18607 OF 2004)

KARNATAKA POWER TRANSMISSION CORPORATION LIMITED ...APPELLANT(S) VERSUS JSW ENERGY LIMITED (EARLIER KNOWN AS JINDAL THERMAL POWER COMPANY LIMITED & JINDAL TRACTABEL POWER COMPANY LIMITED) & ORS. ...RESPONDENT(S)

With CIVIL APPEAL NO.8715 OF 2022 (Arising Out of SLP (CIVIL) NO.23793 OF 2004)

KARNATAKA ELECTRICITY REGULATORY COMMISSION ...APPELLANT(S) VERSUS JINDAL THERMAL POWER COMPANY LIMITED & OTHERS ...RESPONDENT(S)

JUDGMENT

K.M. JOSEPH, J.

1. Signature Not Verified Digitally signed by Leave granted. Being connected, the appeals are Jagdish Kumar Date: 2022.11.22 16:16:07 IST

being disposed of by a common judgment. Reason:

1

2. The appellant, in appeal arising out of SLP (C) No.

18607/04, is the Karnataka Power Transmission

Corporation Limited and hereinafter referred to as ‘the

appellant’.

3. By the impugned judgment, the High Court has

allowed Miscellaneous First Appeal No. 4795 of 2002

filed by the first respondent herein, viz., JSW Energy

Ltd., earlier known as Jindal Thermal Power Company

Limited (hereinafter referred to as the first

respondent). The appeal was filed by first respondent

under Section 41 of the Karnataka Electricity Reforms

Act, 1999 (hereinafter referred to as the ‘Act’ for

brevity).

4. 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). The

Commission is the appellant in the other appeal. The

High Court has after setting aside the impugned orders

directed the appellant, to comply with the tariff rate

specified in the order of the Government of Karnataka 2 (hereinafter referred to as ‘GoK’ for brevity) dated

12.05.1999. The further direction given is as follows:

“(ii) as per the interim order passed by this Court on 19th November, 2002, it is stated by Dr. Singhvi that the appellant has paid 40% of Rs. 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 19th 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. It was apparently

intended that Jindal Vijayanagar Steel Limited (JVSL)

would consume the power produced from the thermal plant

to be set up by the first respondent. The Central

Electricity Authority granted the required technical

economic clearance in March 1996. Originally, GoK gave

3 approval to set up the power plant by JTPCL for 300 MW.

It was initially reduced from 300 to 240 MW in March

1995 and finally, it was modified by order dated

13.02.1996 and reduced to 260 MW (130X2). There were to

be two units, that is Unit No.1 and Unit No.2. Karnataka

State Electricity Board (KEB for short) entered into a

heads of terms with JTPCL on 30.09.1995.

6. Clause 4 of the heads of terms reads as follows:

“4. SALE OF EXCESS ENERGY & CAPACITY TO KEB If, at any stage, JTPC has excess firm capacity and/or energy for sale to KEB, then KEB may purchase the same from JTPC subject to agreement on price and other terms to be negotiated at the time of such sale.”

7. Heads of terms was essentially a memorandum prior

to the agreement, entered into in regard to wheeling

and banking in regard to sale to dedicated consumers by

the first respondent. It was followed up by a wheeling

and banking agreement between the KEB and JTPCL dated

23.01.1996.

8. 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

4 Heads of terms. Somewhere in 1998, the first respondent

invoked the clause in its bid to sell power to KEB.

9. On 20.10.1998, the first respondent wrote to KEB

as follows:

“This has reference to your above referred letter on the above subject. In this connection kindly refer to our earlier letter dated 28th September 1998, wherein we have confirmed that our tariff is in accordance with GOI notification dated 30th March 1992. Further we have confirmed that we would offer substantial rebate on the two-part tariff calculated on the basis of GOI norms. A statement giving details of Tariff calculations at 85% PLF and 68.5% PLF and 68.5% PLF is enclosed. The statement also gives details of cost under various sub-heads.

The tariff is subject to the following assumptions:

1. Landed costs of imported coal assumed at USD 50 per tone.

2. Any variation in coal price will be to customer's account.

3. Exchange Rate assumed at USDI = Rs.42.

4. Repayment of Foreign Loan, ROE and Depreciation will vary as per the applicable exchange rate.

5. O&M Charges will vary as per Indian Inflation Rate.

At your convenience, we can explain and furnish any clarifications required on the tariff calculations.

5 Hope the details furnished along with this letter would enable you to consider our proposal and hence request your to kindly arrange for the approval of your board.

10. On 21.11.1998 again, there is a proposal put forth

by the first respondent to the KEB. Therein it has

indicated that it has completed 100 per cent

construction, erection and testing facility of Unit

No.1.

11. After stating that they are scheduled to

synchronise Unit No.1, by December, 1998, it was

indicated that the commissioning of unit no.2 is

scheduled for July 1999. Thereafter, reference is made

to clause 2.4 of the Wheeling and Banking Agreement, as

already referred to. The respondent offered 50 MW from

the commissioning date of Unit No.1. Further offer of

100 MW was made (base load basis) from the commissioning

date of Unit No.2. It further offered upto maximum of

200 MW during the time when the steel plant JVSL and

JPOCL (another dedicated consumer of first respondent)

were under shut down (major breakdown) or during the

maintenance period. It further offered to pay penalty

if the supply was less than 75 MW from commissioning 6 date of Unit No.2. The rate was shown as 2.90/Kwh.

Payment was requested by irrevocable revolving L/C.

This offer, however, was exclusive of certain items and

it is indicated that the consideration of the same was

in line with Government of India and KEB Norms. We may

notice the following terms which are set out as the

elements to be excluded of the rate:

“1. 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.

2. Inflation: Each year the tariff will be adjusted to inflation as per the acceptable published index.

3. Foreign Exchange: As an IPP, we have 85 MUS$ foreign exchange borrowing from US. Exim Bank and SBI-

New York. For repayment of the loan the exchange variation to be incurred by JTPC to be compensated in annual revision of price.

4 Fuel escalation Charges : We are using imported coal. In case of an increase in the coal price over and above the base price declared to KEB it is to be compensated.

7

5. Force majeure Conditions : Due to grid failure or transmission line failures if we cannot supply power no penalty should be levied on minimum guaranteed power.

6. Maintenance of Power Plant: During the scheduled maintenance and shutdown period penalty should not be levied.

We propose to supply power on the basis outlined in this letter for an initial period of five years from the date of commissioning of second 130 MW Unit. Since we are eligible for Income Tax Exemption for the first five years, it is not included in the proposed tariff.”

12. The promise was to supply for a period of five

years from the date of commissioning of the second

unit. It is stated that the first respondent is

available for any clarification and for further

negotiation. Under the head “Utilization of Power

During Stabilization Period” it is stated as follows:

“II. UTILISATION OF POWER DURING STABILISATION PERIOD.

(from the date of synchronization to commercial operation)

We have signed 'Wheeling and Banking' agreement with KEB which allows us to bank

8 Power with KEB during the period from synchronization to commercial operation.

During the above period we still be supplying power to our sister company's i.e., JVSL and JPIOCL who are located adjacent to Power Plant and within a common's with yard (owned & controlled by JTPC). During this period since the power may not be available on 'FIRM' basis we would like to draw power from our Banked Power and supply to JVSL and JPOCL.

KEB has sanctioned power to JPOCL, JVSL and JTPC to meet their star-up power requirements. KEB has sanctioned demand for each unit separately. All the three units are availing KEB power for plant commissioning, start-up purposes, trial operation and each unit is paying demand and energy charges to KEB.

After synchronization of JTPCL's 1st 130 MW unit (December 98) we seek your kind consent and approval for the following arrangements.

a. JTPCL will supply power to JPOCL and

JVSL.

b. JTPCL, JVSL, JPOCL will continue the contract with KEB and continue to pay contracted demand charges to KEB.

c. 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.

d. Bank all excess power (without limitation as per wheeling and banking 9 agreement) with KEB and take energy credit for the Banked power, to utilize as and when required.

e. In case, we draw power from KEB when our bank is zero, we will also pay energy charges to KEB as per the applicable tariff.

Once the reliability tests are over and when JTPC declares the commercial operation of their unit, JVSL, JPOCL and JTPC will request KEB to cancel (withdraw) their contract demand with KEB and JTPC will meet both demand and energy of these two units on regular basis. 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.

We request you to kindly accord your approval for the above two proposals. Proposal 2 requires implementation of metering system before synchronization of unit scheduled in the last week of December 1998 and hence approval may please be accorded at the earliest.

Thanking you we remain Yours faithfully For JINDAL TRACTEBEL POWER CO. LTD. Sd/-

S.S. Rao Dy. MD & CEO”

13. The response of the KEB is found in communication

dated 1st December, 1998. It is stated as follows:

10

“The Board is in principle willing to purchase surplus power from your plants as already discussed. Your proposal regarding the tariff is under evaluation by the Board”.

14. Next, it is relevant to notice the communication

dated 19.01.1999 made by KEB to GoK. It reads as under:

“KARNATAKA ELECTRICITY BOARD K.P. SINGH, I.A.S. 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. Jindal Tractebel Power Company at Hospet.

Government of Karnataka vide GO No. de 221 PPC 93 Bangalore dated 7-3-1994 had permitted M/s. Jindal Tractebel Power Company to set up a 2xl20 MW power plant at Hospet, which was subsequently enhanced to 2xl30 MWs. This plant, which was set up as a captive power plant was given an IPP status later on vide Government letter No. DE 221 DPC 93 (P) dated 1-2-1996 as the shareholders of the power plant and steel plant were different. TEC for the above project was issued by CEA vide their letter dated 22-3-1996. As the company proposed to utilize the power generated for their own use and to sell to other industries in the State, after initial round of discussions with the Company, only a wheeling and banking agreement was proposed. In January 1996, Board entered into a Wheeling and Banking Agreement with the Company. In the Wheeling and Banking Agreement, as per Clause 2.4, the Company could sell excess capacity and/or energy

11 to KEB and KEB had an option to purchase the same at a negotiated rate. 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. Subsequent to achieving Financial Closure, the company took up the work of construction of the plant and the first unit of the plant has also been synchronised with the KEB grid recently.

M/s. JTPC during discussion have stated that due to downward trend in the Steel industry, the requirement of the steel has reduced and consequently progress of the Corex Plant has slowed down. 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. Also, in case of shut down of the JVSL Plant or its subsidiaries for maintenance purposes, they have offered to sell nearly 200 MWs to KEB.

Though KEB has signed PPAs with various IPPs, the progress of these plants is not satisfactory. As of today, only the 200 MW Barge Mounted Power Plant being set up by M/s. Tanir Bavi Power Company has neared financial closure. A table indicating the first-year tariffs payable to various IPPs, whose projects have been sanctioned under the bid route is given below. The present rate of Rs.42.50 to a dollar has been taken for the purpose of calculating the tariff.

12 FIRST YEAR OF BID ROUTE PROJECTS Name of Tariff Calorific Price Fixed Variable Total firm heat rate value of of fuel Charges Charges Kcals.Kwh fuel Rs./Kg. Kcals/Kg Attria 1897.44 10800 8.40 1.3540 1.4758 2.8298 Power Bharat 1949.42 10800 8.40 1.2028 1.5162 2.7190 Forge Innox 2080.00 9900 6.80 1.6118 1.4287 3.0404 Power Scintilla 1923.00 9900 6.80 1.6030 1.3208 2.9238 Power Rayalseema 2153.85 9900 6.80 1.0743 1.4794 2.5537 Bhoruka 2087.86 9900 6.80 1.3494 1.4341 2.7834 DLF 2153.85 9900 6.80 1.0743 1.4794 2.5537 Tata 2115.30 9900 6.80 1.3204 1.4529 2.7733

It is also to be stated that of the above mentioned plants, some of the plants may not come up. The doubtful plants are that of M/s. DLF, Scintilla and lnnox Power. In case of M/s. Rayalseema, even though the plant had intimated that they have achieved financial closure nearly 8 months back, they have requested for enhancement of capacity of the plant to double its size to make it economically viable. This issue is under examination.

Because of the shortfall in generation in the State and the steady demand for power, KEB is purchasing power from MSEB in addition to that from Central Generating Stations. 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. We are at present purchasing nearly 100 MWs during peak hours and upto 200 MWs during off peak hours. MSEB has asked for revision of prices from 1-1-1999 for the power supplied by them. The revised rates are Rs.2.50 + FEC for off peak power and Rs.3.00 + FEC for power supplied 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. Tamil Nadu Electricity Board is also purchasing power from 13 Eastern Grid at Rs.2.74/unit. KPCL is proposing to synchronize their V and VI unit in the coming months. Though the actual cost is yet to be finalized, as the project cost is yet to be frozen, it is indicated that the tariff for the power generated by these plants vary between Rs.2.75 to Rs.2.80. It has also been reported in the press that for the power proposed to be generated from the Kayamkulam Thermal power plant being set up by M/s. NTPC, KSEB would have to pay nearly Rs.3.90/unit and after the intervention of the Prime Minister, the rate payable would be around Rs.3.52/unit.

The project of M/s. JTPCL was under the Captive route and it was contemplated that the entire power generated would be used by JVSL and its subsidiaries. Though a provision was there in the wheeling and Banking agreement for KEB to purchase any surplus power from this project at a later date, it was clearly mentioned that the price at which this power would be purchased would be at negotiated rates. 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. M/s. JTPCL vide their letter dated 20- 10-1998 had offered to sell power to KEB at Rs.2.90/unit.

During internal meetings it was also decided that as this project was meant as a captive power plant and KEB did not go into the details of the project cost earlier or anticipate in the meetings at CEA before the TEC was issued, it would not be possible to negotiate tariff based on two-part tariff notification of GoI. Also, as we would be paying only a fixed price per unit, it was felt that going into the details such as the actual heat rate, the O&M charges, the working capital, foreign exchange

14 protection to be provided, etc. should not be done and only the cost per unit presently being offered from other sources should be compared. 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.

With this background, negotiations were held with M/s. JTPCL. During discussions, it was stated that the cost per unit will have to be split into two parts, viz. Fixed Component and Variable charges. The variable charges would be based on the actual price of coal which JTPCL would buy. After detailed discussions, it was decided that a price of Rs.2.60/unit can be offered, comprising of Rs.l.70 as fixed charges and Rs.0.90 as variable charges. To compensate for depreciation of rupee against dollar, escalation of O&M charges due to increase in cost of price index, working capital requirements, etc. It was also decided that the fixed charges should be escalated by 5% every year beginning from the second year after we purchase power from JTPC.

As regards the variable cost, which depends on the cost of coal, the company will have to invite bids from global markets and satisfy KEB about the correctness of the procedure followed and the price arrived at. These bids can be either of I year duration or a longer period. Depending on the actual cost of coal, the variable price will be paid.

Regarding the term of the agreement, it is to be stated that the major thermal power projects , i.e. that of M/s Mangalore Power Company and M/s. Nagrujuna Power Company may not be available for the next five years. There is a case pending in

15 Supreme Court regarding Mangalore Power Company and only after the judgment is known, Gol will consider extending counter guarantee to this project. 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. Hence it is considered prudent to limit the period of the agreement to purchase power from Ms. JTPCL to 5 years initially.

The cost per unit of power purchased from M/s Jindal Tractebel during the five year period keeping the variable cost constant would be as follows:

Year Fixed Charge Variable Charge Total 1 1.70 0.90 2.60 2 1.79 0.90 2.69 3 1.87 0.90 2.77 4 1.97 0.90 2.87 5 2.07 0.90 2.97

Even with the increase of Fixed Charges by 5% every year, it is to be stated that in the 5th year, the cost of power with the variable charges remaining the same will be Rs.2.07 + Rs.0.90, i.e. Rs.2.97 per unit which is lower than the tariff now being offered by MSEB during peak hours.

The company has offered to sell 100 MWs on a guaranteed basis, it will be necessary to assure a minimum level of offtake failing which Deemed Generation Charges will have to be paid. As per two part tariff notification the minimum assured off-take should be 68.5% PLF. As this project is essentially meant as a captive power plant, it is suggested that the minimum off-take below which

16 deemed generation would be payable should be 50% of the contracted/declared capacity, whichever is lower. It is also suggested that a penalty be levied on M/s. JTPCL if there is any shortfall in power below 75% of the quantity assured by the company.

Keeping all the above in mind, it is suggested that we can purchase power from M/s JTPCL at Rs.2.60/unit (FC Rs.1.70 + VC Rs.0.90) with the fixed charge being escalated by 5% from the second year with the conditions of penalty to be paid by the firm for short supply of power and assured off- take mentioned above.

For all IPPs, Government is giving guarantee for the payments to be made by KEB for the power it receives. 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. In case of JTPCL, as the question of providing government guarantee does not arise as the plant was essentially set up as a captive power plant and majority of the power generated is being sold to captive industries. However, irrevocable revolving Letter of Credit and backup escrow can be provided to the Company. Approval of the Government is sought for the above proposal. Subsequent to the approval, negotiations will be held with M/s JTPCL for finalizing the PPA.”

15. The GoK in its response by communication dated

05.03.1999 wrote as follows to the KEB:

“R.No.DE 18 FEB 99 Dated 05-03-1999

I invite your to your D.O. letter dated 19-1- 99 regarding your proposal to purchase power

17 from M/s Jindal Tractabel Power Company at Rs.2.60/unit with a 5% escalation on fixed charges.

The proposal has been examined in detail. The efforts of the KEB to bridge the gap in power availability by entering into a short -term agreement with Jindal Tractebel Power Company Limited (JTPCL) is well appreciated. Government recognizes the fact that inspite of the best efforts made by the State Government to augment the power supply position there still continues to be a big gap between demand and supply. Government also note that presently KEB is supplying more than 75 Million units per day which is a record. 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. Under these circumstances there is a need to tie up with IPP/other States/NTPC, for augmenting the power supply within the State urgently. There is no doubt all out efforts have to be made within the short time to tide over the problems of increased demand during the summer.

The present proposal of the KEB keeps the tariff open ended and possible revision. The PP A 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.

This may kindly be got examined by KEB and the revised proposal may be sent to the government.

Yours,

Sri K.P. Singh, IAS.”

18

16. On 31.03.1999 after referring to the proposal dated

21.11.1998 and a series of discussions and the further

meeting with the KEB officials on 26.03.1999, the first

respondent indicated that in the meeting, KEB officials

informed that it was willing to buy power from the first

respondent subject to the following terms and

conditions:

“1. The term of the agreement could be 5 years.

2. The tariff should be a single part tariff.

Escalation at a fixed percentage could be applied on the total price on an annual basis. KEB will not consider any request either for two-part tariff based on CEA guidelines or for payment of fuel cost at actuals.

3. KEB will open irrevocable revolving letter of credit under which JTPC can get payments. It will also be supported by Escrow mechanism.

4. There can be penalty clause both for short supplies and short drawals.

5. The PPA should be a simple document.” [Emphasis supplied]

17. Thereafter, it is stated that KEB asked for a

formal proposal within aforesaid parameters. Thereafter

in the communication, it is stated:

“1. JTPC offers 50 MW (Energy 36 MU per month) of power from the commissioning date of Unit

19 1 and 100 MW (Energy 72 MU per Month) of power from the commissioning date of Unit 2.

The first Unit of 130MW is expected to be commissioned in June 1999 and the second unit of 130 MW is expected to be commissioned in August 1999.

2. JTPC would have an option to supply in excess of 50MW (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.

3. The tariff will be as follows:

I year (Upto 31" March 2000)Rs. 2.60 I kwhr. II Year (Financial Year 2000-2001) Rs. 2.73 I kwhr. III Year (Financial Year 2001-2002)Rs. 2.87 I kwhr. IV Year (Financial Year 2002-2003) Rs. 3.01 l kwhr. V Year (Financial Year 2003-2004) Rs. 3.16 I kwhr.

4. There will be no Wheeling charges or Electricity Tax on supplies to KEB.

5. 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.

(b) KEB shall guarantee that it will consume the Threshold Power Value. In case the consumption is less than the Threshold Power Value, KEB shall pay to JTPC the full value of Threshold Power at the applicable tariff as above.

20 (c) The Threshold Power Value is 75 MW (Energy 54 MU per month).

6. The minimum supply and the minimum consumption as per para 5(a) and 5(b) above are applicable on a monthly basis.

7. If there is escalation in fuel cost beyond 5% at any time, JTPC reserves the right to terminate the contract with 3 months' notice, if KEB does not agree to compensate for such escalation.

8. 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. It shall also be supported by Escrow mechanism.

9. The initial term of the agreement should be 5 years till March 31, 2004, with a provision for renewal on terms mutually acceptable.

We request you to agree to the above terms and conditions and convey your acceptance at the earliest. We will approach our Board and the lenders on getting your acceptance.

We also request you to let us have drafts of the PP A, Escrow agreement and the Letter of Credit, at the earliest. We propose to have one more meeting with your officials, after studying these drafts.”

18. It is next necessary to notice the communication

dated 23.04.1999 sent to the GoK by the Chairman of the

KEB.

21 “KARNATAKA ELECTRICITY BOARD K.P. SINGH, I.A.S. CAUVERY BHAVAN, CHAIRMAN BANGALORE–560001

Ref.No.83/99-2000 Date: 23 APR 1999

My dear Arvind,

Sub: Purchase of power generated by the captive power plant of M/s. Jindal Tractebel Power at Hospet.

Ref: 1. This office D.O.letter No.KEB/B28/B13/ 6306/93-94 dated 19-1-1999

2. 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. During the meeting, the position of the Board/GoK was made known to the representatives of M/s JTPC, i.e. the tariff should be a single part tariff including variable charges and should be fixed for each year with an annual escalation by a fixed percentage. The firm was requested to intimate the tariff at which it would sell power to KEB.

The firm stated that from their calculations, they will be taking a hit on fixed charges itself and this will be mainly due to depreciation of Rupee against the dollar and increase in O&M charges. Also in case of variable charges, they stated that it is linked to the cost of coal, which is imported and that this will also increase due to the increase in cost of coal, the freight charges and again due to the depreciation of Rupee against the dollar in future years. They requested that the earlier negotiated

22 position where the variable charges is a pass through should be retained.

The stand of the Government of Karnataka that only a fixed tariff per unit per year should be negotiated was again made known to the firm. 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 ... acceptable to the Board. The firm was requested to offer a revised figure. After detailed negotiations, the firm, subject to confirmation of their Board of Directors, offered to sell power at a cost of Rs.2.60 per unit with an annual escalation of 5%. They stated that this is the minimum figure they could agree and any further reduction of the same would affect the project as it would be financially unviable.

Hence there are two options available, i.e. either to retain the original proposal of the fixed charges being escalated by 5% every year with the variable charges being a pass through or the entire rate of Rs.2.60 including variable charges being escalated by 5% every year.

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

23 5 3.16

Considering the fact that rupee has been depreciating heavily against the dollar the second proposal may be advantageous to KEB.

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. 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. The first unit is expected to be commissioned in June 1999 and the second unit in August 1999. They have also indicated that in case they have any surplus power beyond 50 MWs and 100 MWs after commissioning of unit I and unit 2, with the approval of KEB, they will sell power in excess of 50 MW s and 100 MW s. The firm has also proposed the following after commissioning of Unit 2:

1. They will supply power with a threshold value of 75 MWs equivalent to 54 MU per month.

2. If supply is less than the threshold power value, then JTPC will pay penalty of 10% of the tariff for supplies below the threshold power value.

3. KEB shall guarantee that it will consume the threshold power value. 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.

4. The minimum supply and minimum consumption as above are on monthly basis.

5. If there is an escalation in fuel cost beyond 5% at any time, JTPC reserves the right to terminate the contract with 3 months notice, if KEB does not agree to compensate for such escalation.

24 6. 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. It shall also be supported by Escrow mechanism.

7. The initial term of the Agreement should be 5 years till March 31, 2004 with a provision for renewal on terms mutually acceptable.

These are issues to be negotiated with the firm while finalising the PP A and will be taken up later on.

This is for information of the government and it is requested that orders may please be obtained and communicated to us.

With regasrds, Yours sincerely, Sd/-

(K.P. SINGH) Shri Arvind Jadav, Secretary to Government, Department of Energy, Government of Karnataka Bangalore”

19. Finally, on 12.05.1999, we find the following

proceedings. It reads interalia as follows:

“After detailed examination GOVT. ORDER NO. DE 18 FEB 99, BAN GALORE DATED 12TH MAY 1999

1. 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.

25 2. The rate per unit being Rs. 2.60 including variable charges with an annual increase of 5% every year.

3. The term of the PPA shall be for a period of five years.

4. To adopt the same principle of negotiated tariff for captive generating power project who intend to sell power to KEB.”

20. 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. Thereafter we may notice the

following correspondence as well. On 04.01.2000, the

superintending Engineer of the KEB wrote to JPPCL. The

correspondence would show as follows:

“This refers to the tariff of 2.60 per KWhr negotiated for purchase by KPTCL of the electricity generated by the subject power project. You are requested to furnish details of the break-up of the tariff so as to enable us to take further action.”

21. On 06.04.2000, the first respondent wrote to the

Chairman of the appellant (KPTCL). It reads as follows:

26 “JINDAL TRACTEBEL POWER COMPANY LIMITED

Ref: JTPC/KPTCL/1545 April 6, 2000

To,

The Chairman Karnataka Power Transmission Corporation Ltd., Bangalore

Dear Sir,

Sub:Purchase of Power from Jindal Tractebel Power Company Limited (JTPCL) by Karnataka Power Transmission Corporation Limited (KPTCL)

Ref: 1. Government Order No.DE 18 EEB 99 Bangalore dated 12th May 1999 2. Government Order No.DE 120 EEE 99 Bangalore dated 7th July 1999

We are happy to inform you that both the units (2 x 130 MW) of our Power Plant are operating continuously. As per JVSL's agreement with KPTCL, JVSL was to return 215.810 MU to KPTCL. As on 6'h Apri12000 JVSL has returned 199.802 MU to KPTCL and the balance left over is only 16.008 MU, which will be completed by 12'h April 2000.

As per the Government Order (Ref. l), the Government of Karnataka has permitted KPTCL to purchase power from JTPCL at the rate of Rs. 2.60 per unit including variable charges with an annual escalation of 5% every year. The said order has also permitted KPTCL to finalize the PPA with JTPC. Accordingly, JTPC has finalized PPA with KPTCL and the final draft as accepted

27 between JTPC and KPTCL has been submitted to KPTCL in September / October 1999.

SI. No.8 of the Government Order (Ref. 2) directs KPTCL to operate the PPA with JTPC as Per Government Order NO. DE 18 EEB 99 Bangalore dated 12th May 1999 (Ref. I) only after complying with the obligations under the Government of Karnataka Order issued on 7th July 1999 (Ref. 2). SI. No.9 of the Government of Karnataka Order dated 7th July 1999 (Ref.2) also directed KPTCL to honour the obligations under Wheeling, Banking and Grid Supporting Agreement between KPTCL and JTPCL only after fulfilment of obligations under the Government of Karnataka Order dated 7th July 1999 (Ref. 2) Since the submission of final draft PPA to KPTCL in September I October 1999, JTPC is continuously pursuing KPTCL and Government of Karnataka for signing of the PPA. During this period, whatever clarifications were sought by KPTCL were submitted by JTPC & KTPCL. Inspite of our best efforts, so far, the PPA has not been signed by KPTCL thought the tariff and other conditions are already covered in the Government Order.

After returning of the power by JVSL to KPTCL which is expected to happen by 11th April 2000, JTPC will be supplying power to KPTCL as per the Government of Karnataka Order dated 18'h May 1999 (Ref. 1). 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. 1) does exist. 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

28 2000. JTPC will be submitting the invoices as per the Government of Karnataka Order dated 12m May 1999 (Ref. 1) subject to any changes required to be done subsequently as per the terms and conditions of the PPA to be agreed and signed between JTPC and KPTCL.”

22. In response to letter dated 06.04.2000, the

appellant corporation wrote to the first respondent on

12.04.2000. It reads as under:

“With reference to the above, I am directed to communicate approval of the Corporation to continue to supply energy to the grid from the 2x130 MW Power Plant of your Company pending finalization of PPA under the following conditions.

1. The Grid support charges envisaged in the Wheeling & Banking and Grid support Agreement i.e., Rs. 1.73 Crores Annum will be provisionally deducted from the tariff invoices when the amount is paid. This will be subject to change and has to be paid as per the terms of PP A to be signed.

2. The 115% energy imported will be deducted from the energy exported, provisionally pending finalization.

3. The energy will be accounted only after signing of PPA.

4. 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.

5. This orders is only for facilitating continued operations of the Power Plant and Corporation

29 makes no commitments with respect to terms of PPA which is being finalized separately.

6. The metering arrangements should be as per the Article No. 4 of the Wheeling, Banking Agreement and Grid Support Agreement already signed copy of the same is enclosed.”

23. We may still further notice the communication dated

24.05.2000 addressed by the appellant to its Chief

Engineer Electricity which reads as under:

“With reference to the above, I am directed to convey approval of the Corporation to make payments to M/s. JTPCL for the energy supplied to the grid from 15-4-2000 and onwards at Rs. 2.52 per unit pending signing of PPA. Under following terms.

1. The procedure for payments should be as per the standard procedure followed in case of IPP Projects.

2. 115% of imported energy should be deducted form the exported energy and payments will be made for net exported energy so arrived.

3. The metering should be as per the terms of Wheeling & Banking Grid support Agreement between KEB and JTPCL signed on 23-1-96, till such time PP A is finalized.

4. 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.

30 5. This is only an order to facilitate payment of energy charges to M/s. JTPCL and Corporation makes no commitments in this regard and the terms of PPS will be finalized separately.

6. The energy transaction prior to 15-4-2000 will be finalized separately.”

24. Finally, we notice the proceedings of the

Government of Karnataka dated 17.07.2000. It reads as

under:

PREAMBLE:

ln Government Order No. DE 18 EEB 99 dated: 12.5.99 KEB was permitted to finalize a power purchase agreement with M/s. JTPCL for purchase of surplus power from generating units at the rate of Rs. 2.60 per unit with an annual increase of 5% every year for a period of 5 years. Further the rate per unit has been reduced from Rs. 2.60 to Rs. 2.52 vide Government Corrigendum dated 8.5.2000. It is in this context the request made by the JTPCUJVSL has been examined and it is found that continuing with the earlier rate of Rs. 2.60 per unit would result in honoring the commitment of the Government. Besides it has the advantage of procuring a better price every year for KTPCL. It would ensure that power is purchased at Rs. 2.60 instead of Rs. 2.63 per unit in the first year, Rs. 2. 73 instead of Rs. 2.77 per unit on the second year, Rs. 2.87 instead of Rs. 2.92 per unit in the third year and Rs. 3.01 instead of Rs. 3.05 in the fourth year.

Honoring the earlier Government Order would also ensure that there is no litigation on this subject in a court of law.

31 The KPTCL vide it's letter dated 22.5.2000 read at Sl. No. Shad also requested the Government to review the effective date for purchase of power from the said company and communicate the Government decision. The matter has been examined at Government level in consultation with KPTCL and in the interest of the Company. After examining the requested made by the Company, Government are pleased to Order as follows:

GOVERNMENT ORDER NO. DE 18 EEB 99. BANGALORE DIST: 17.7.2000

In the circumstances explained above, Government are pleased to permit Karnataka Power Transmission Corporation Limited to purchase power from M/s. Jindal Tranctebel Power Company Limited at the rate of 2.60 per unit with an annual increase of 5 every year as indicated in the Preamble to this Order. The implementation of this Order will commence from the date of the issue.

The other conditions of the Government Order of even no. 6 dated 12.5.1999 remains unaltered.”

25. A draft power purchase agreement came to be made

on 07.11.2000 between the appellant and the first

respondent. There are elaborate details contained

therein. Suffice at this juncture to notice further,

that a letter was sent to the Commission on 17.11.2000.

This letter was treated as an application by the

appellant (KTPCL) for entering into a power purchase

32 agreement under Section 25 (3) of the Act read with

Section 17(1) of the Act. Based on a public notice,

objections were filed by five objectors. More

importantly, the stand taken by the first respondent

was that the Commission was bereft of jurisdiction to

examine the PPA on the ground that it merely represented

a contract which was concluded with it prior to the

commencement of the Act, and therefore, the case fell

within the four walls of the proviso to sub-section 2

of Section 27 of the Act. The Commission thereafter

proceeded to enter the following findings, inter alia:

The entire negotiation, correspondence and

acceptance of an offer must be absolute. The offer

of the first respondent was subject to further

approval, that is, the approval of the Board of the

Company and the lenders to the company. The Deputy

Managing Director and CEO of the company was not

delegated the authority to bind the company. The

offer was not one to be converted into a contract.

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

33 indicated its intention to agree only to two issues,

namely the rate of Rs 2.60/- per KW hr. and the

period of five years that is the term of the

agreement. The GoK, it is noted, directed KEB to

negotiate the PPA and to submit the same for

approval.

The provision for an escrow facility to guarantee

payment to JTPCL and payment for full charges for

deemed generation did not find reflection. These

conditions were central to any PPA.

As on 12.05.1999, the parties did not intend the

agreement to be binding. By the GO dated

12.05.1999, Government reserved its right to vary

the tariff. There is no acceptance of the

proposal as far as GOK is concerned. Government

order dated 12.05.1999 only served to provide

broad guidelines to negotiate with the first

respondent for a mutually agreed term.

(1) The PPA cannot be restricted to the aspect of

rates only. The mutual rights and obligations

have to be stipulated specifically even after the

rate is agreed. There is no concluded contract.

34 (2) Government of India notification dated

30.03.1992 was to be considered only as a ceiling

and it is perfectly open to the Electricity Board

and generating companies to negotiate and arrive

at a lower tariff. Reference is made to the

omission of sub-section (2) of Section 43A of the

Electricity (Supply) Act, 1948 in the State of

Karnataka with effect from 14.09.2000.

26. After an elaborate study of documents, it was

found, that the power proposed to be supplied to the

appellant (KPTCL) was surplus power and the grant of

IPP status by communication dated 01.02.1996 would not

avail the first respondent.

We may next notice the following discussion:

“60. Simply because, plant is making use of common infrastructures for coal hand long and water supply it cannot be said that the plant of the appellant is a CPP. 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. The infrastructure facilities are shared between the projects only with a view to minimise the project costs. The power plant is designed to fire either corex gas or coal as

35 fuel, which confirms that the appellant's power plant is not a captive plant and that it was intended to supply power to KPTCL even with the steel plant is not working and not producing corex gas. It also needs to be noticed that appellant and JVSL are distinct Corporate entities and the appellant has obtained financial assistance, project approvals from various statutory authorities, Gol and GoK on a stand alone' basis.

61. It was, however, contended on behalf of the respondents that power was supplied to KEB only after JVSL's commitment was fulfilled and since the entire capacity of 240 MW has been underwritten by JVSL, the appellant is a CPP to the JVSL. 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.”

27. 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 first

respondent did not negotiate. It is this which led to

the Commission passing the second impugned order. In

the light of the same, Commission proceeded to approve

a draft PPA, submitted on 17.11.2000 with the following

modifications:

36

a) The tariff charges for the first tariff period shall be Rs.2.36 Unit instead of Rs.2.60/unit upto 657 MU (page 17 of the Draft PPA).

b) The tariff for the entire energy in excess of 657 MU in, the first tariff period will be Rs.

1.88/unit instead of Rs.2.20/unit (page 17 of the draft PPA)

c) Grid support charges per month as per the following formula:

GSC = Fl Load in MW x 1000 x DC PF

Where:

Fl Load in MW is the fluctuating load in MW (l3.55 mw) DC- Applicable Demand Charges PF- Power Factor

d) the yearly escalation is 2.50% instead of 5% (Page 17 of the Draft PPA)

e) Regarding the penalty for non-generation, it is directed that a penalty of 20% of the tariff shall be levied.

14. 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.

15. In their letter No. JTPCL/AUTCH/2358 dated 20th June 2002. JTPCL has expressed their willingness to enter into long term PPA on two- part basis. The Commission advises KPTCL to negotiate with M/s. JTPCL a long term PPA depending upon the need for power. On approval of such a PPA by the Commission, the present PPA will get terminated.”

37

28. It is these orders which came to be challenged by

the first respondent before the High Court under

Section 41 of the Karnataka Electricity Reforms Act,

1999. The High Court formulated the following points

for decision.

“19. After hearing the learned Counsel for the parties, following points arise for decision:

(I) Whether the Karnataka Electricity Regulatory Commission-Respondent No. 3 can be added as a party respondent to the appeal and whether it is entitled to defend the impugned order on merits?

(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? if the answer is in the positive, whether the Commission has jurisdiction to review the tariff particularly when the proviso to sub-

section (2) of Section 27 is restricted to tariff determination and does not require a PPA to establish a concluded contract?

(III) Whether the status of the appellant is that of an IPP or CPP?

(IV) Whether the impugned orders are perverse, arbitrary and passed without application of mind?

38 (V) Whether the Commission has failed to appreciate the appellant's rights grounded on the principles of promissory estoppel and legitimate expectation?”

29. As regards point No.1 it was found that the

Commission was performing as a quasi-judicial body. 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 did

not find justification for the Commission to file its

own extensive pleadings, engage a senior counsel and

show abnormal interest. The contesting parties were

capable of taking care. The question was also posed as

to the position of the Commission if a case is remanded

back to it when it has been impleaded as a party and

takes an unambiguous and inelastic view. It was finally

found that the Commission was not a proper party having

regard to the questions that arose for decision in the

appeal. 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

39 question which arose. Answering point No.2, that is

whether there is a concluded contract, the Court went

on to find that there was a concluded contract within

the meaning of the explanation to Section 19 and proviso

to Section 27(2) of the Act. This view was formed on

the basis of the conspectus of the correspondence

beginning with the Government order dated 07.03.1994

and the communications which we have already indicated

and culminating in the GO dated 12.05.1999 of GoK. Thus,

it was found that all essential terms and conditions,

that is, the tariff rate, escalation, quantity and

tenure for purchase and sale of power were agreed

between the parties before 01.06.1999 (the date on

which the Act came into force). The order dated

12.05.1999 was preceded by several rounds of

negotiation. 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 PPA dated 10.11.2000 incorporated all

the agreed terms. After signing the PPA, the appellant

40 took steps to open letter of credit for securing payment

based on the tariff of Rs.2.60 per unit plus 5 per cent

escalation per annum without obtaining approval of the

Commission. The letters dated 04.01.2000, 12.04.2000

and 24.05.2000 according to the High court reflected

the intention of the parties to treat GO dated

12.05.1999 as the binding contract as far as the tariff

was concerned. The High Court discussed case law and

found inter alia that there was a concluded contract.

Interpreting the proviso to Section 27 (2) of the Act,

it was found that the proviso was only for the purpose

of Section 27(2), that is, factors relating to tariff

determination. The proviso could not deal with other

fields, the Section itself did not deal with. The

correct interpretation, according to the High Court,

was as far as ‘contract concluded’ is concerned the

proviso is referable to the tariff which is agreed

between the parties before the Commission came into

existence. There is no form for the concluded contract

in the Act. No penalty is imposed for not entering into

the PPA. This shows that PPA is not an essential

requirement under the Act. The appellant purchases

41 power from other utilities without PPA. The fact that

the learned counsel for the Commission entertained this

view, was recorded. It is found that when an offer is

made and acceptance does not extend to all the terms,

on the terms accepted, a contract is concluded. The

order dated 12.05.1999 was for all purposes treated as

contract for sale of power. Parties were ad idem. All

terms and conditions agreed upon in the GoK order dated

12.05.1999 were incorporated in the PPA without any

variation. GoK has given its consent to the first

respondent in terms of Section 43A of the Act, prior to

the commencement of the Act. Since approval was already

given under Section 43A of the Electricity (Supply)

Act, 1948, approval under Section 17(1) was not

necessary. 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 appellant contended that there was

no concluded contract for certain reasons. They are as

follows.

42 (1) It is reflected as the contention of the

appellant that the offer of first respondent

itself was “subject to” the approval of the Board

and its lenders. These approvals constituted

conditions precedent for formation of the

contract.

(2) There was no acceptance or communication of

acceptance by the appellant (KTPCL).

(3) Essential clauses such as Escrow, deemed

generation, auxiliary consumption etc. required

for a PPA were not agreed upon.

(4) The order dated 12.05.1999 was merely an internal

approval and not in exercise of any statutory

provision.

(5) The tariff of Rs.2.60 was an indicative figure.

There was no basis to arrive at the figure of

Rs.2.60.

(6) There was no record to show that appellant

participated before the CEA (Central Electricity

Authority).

30. The High Court proceeded to find that as regards

the condition in the proposal that the offer that was

43 made was subject to approval by the Board of Directors

and lenders that, neither of the parties insisted on

the satisfaction of the conditions before supplying

power. The principle of waiver was employed also. The

order dated 12.5.1999 did not employ the word “subject

to”. The terms such as ‘deemed generation’ were not

considered essential by the parties. The fact that the

party continued to perform for almost 3 years would

show by ‘conduct’ that they cannot be termed as

essential. It is not necessary that KPTCL should

communicate acceptance to the respondent. It is further

found that a contract which is concluded by acceptance

by the ‘Gok’ is protected by proviso to Section 27(2).

GoK found that the single part tariff is more

advantageous to the appellant. The tariff rate is

arrived at on the basis of two-part tariff rate. The

break up of tariff for 20 years was submitted to the

appellant after detailed negotiation and examination.

The tariff of Rs.2.60 per unit was approved. The court

concluded that there was a concluded contract.

Answering point No.3, it was found that the status of

the power plant was of the IPP and not of a CPP. In

44 regard to point No.4, namely, whether order of the

Commission was perverse, arbitrary and passed without

application of mind, noticing certain errors, it is

found that the Commission having opined that the fixed

charges should be paid for 657 MUs, it calculated the

fixed charges for 487 MUs while fixing the tariff.

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. These errors were not disputed. Having agreed to

a negotiated single part tariff, it was found the

Commission could not have unilaterally ignored well

established parameters, and applied norms which were

relevant for the calculation of two-part tariff. The

tariff proposed was on the basis of single part tariff.

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. This was not seriously disputed. The appellant

(KPTCL) has fixed heat rate at 2400 Kcal/Kwh

disregarding the norms of the Ministry of Power as per

45 which the heat rate should be 2500 Kcal/Kwh or the

actual heat rate whichever is lower. The commission

took the plant load factor at 77% disregarding norms

under the Electricity Supply Act as per which the plant

load factor would be 68.5% or at a rate negotiated

between the parties. The escalation was reduced from 5%

to 2.5% per annum. The two-part tariff provides for

escalation for inflation and exchange fluctuation and

complete reimbursement of fuel cost. The Commission

arrived at 1637 MUs at 77% PLF and disproportionately

loaded fixed charges on to the first respondent. 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. CESC Ltd.1. The Commission was found at fault in

reducing the assured supply level to 487 MUs in its

calculation whereas more than 900 MUs have been

supplied by the first respondent to the appellant for

1 (2002) 8 SCC 715

46 the years 2001 and 2002. In view of the wheeling and

banking agreement in 1996 under which Grid Support

Charges payable were agreed upon, the finding of the

commission was found flawed in reviewing the charges

without any basis. It was found ultra vires the Act.

The objections of the first respondent filed before the

first impugned order were rejected by the Commission

but reasons have not been given. 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. The

court after referring to case law on promissory

estoppel and doctrine of legitimate expectation found

it unnecessary to dilate on this aspect, but finding

merit in the contention of the respondent that the

Commission failed to appreciate the rights of the

respondent in the light of the, ‘said principles’.

Thereafter the High Court went on to allow the appeal

in the manner which we have already explained.

47 SUBMISSIONS OF THE APPELLANT

31. Shri S.S. Naganand, learned Senior Counsel appeared

along with Shri Raghavendra S. Srivastava. Shri

Raghavendra S. Srivastava, learned Counsel appearing

for the appellant would make the following submissions.

There is no concluded contract within the meaning

of the proviso to Section 27 of the Act with the aid of

the correspondence and the facts established otherwise.

He would complain that the High Court has not

appreciated factual and the legal position. It is his

case that it is clear that the parties intended that

there should be a PPA. This is not a case of mere desire

that there should be a written document encompassing

the agreement between the parties. On the contrary, he

would contend that the parties contemplated that there

be a PPA whereupon alone a concluded contract would

emerge. He would submit that Government G.O. dated

12.05.1999 relied upon by first respondent as the

fountain head for the claim there is a concluded

contract cannot for many reasons be treated as such.

48

32. 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. Correspondence

shows that KEB was willing to buy power on certain

terms and conditions one of which was that there

should be a PPA. The first respondent had also called

upon the appellant to confirm the terms, for placing

them before its own Board and sought draft of the PPA

to be executed. The Order dated 12.05.1999 cannot be

treated as acceptance of the offer. It was merely the

permission granted by the GoK to enter into an

agreement on certain terms and conditions. Since, KEB

and the first respondent were not ad idem on any other

term, no agreement was reached. Relying upon Clause

2.4 of the Wheeling and Banking Agreement, it is

contended that agreement was contemplated not merely 49 on price but other terms which were to be negotiated.

Being a statutory corporation, there was no scope for

an implied contract. 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. Reinforcement, in this regard, is

sourced in letter dated 04.01.2000, wherein the first

respondent was requested for the quote of the tariff

for ‘further action’. Further reliance is placed on

the contents of letter dated 06.11.2000. Support is

sought to be drawn from the Judgement reported in

India Thermal Power Ltd. v. State of M.P. and others2.

The High Court erred in assuming that the first

respondent waived its rights under the draft PPA. Reliance is placed on the Judgment of this Court in

All India Power Engineer Federation and others v.

Sasan Power Ltd. and others3 to contend that whenever

waiver is pleaded, particularly, in contracts having

public interest, the party must show an agreement

2 (2000) 3 SCC 379 3 (2017) 1 SCC 487 50 waiving the right, which has not been done in this

case. The proviso to Section 27(2) cannot be read in

isolation but it must be harmonised with the other

relevant provisions. Bearing in mind the mandate of

Section 17, the contract must be in the manner

approved by the Commission under Section 17 and it

must include all material terms. The first respondent

was insisting that a PPA must be executed by the

appellant. In its communication dated 20.06.2002, the

first respondent admitted that the tariff was not

acceptable but it would be willing to negotiate on the

basis of two-part tariff if the PPA was made valid

for 10 to 15 years. The first respondent again has

admitted that tariff and several other aspects were

pending discussion and negotiation with the appellant.

GoK Order dated 12.05.1999 was amended vide

Corrigendum dated 08.05.2000 by revising the tariff

to Rs.2.52/unit. Later, vide Order dated 17.07.2000,

on request by the first respondent, the tariff was

restored to Rs.2.60/unit. This establishes that the

GoK Order dated 12.05.1999 was not final. Even the

rate was confirmed only after 01.06.1999. There is no

51 approval granted by GoK under Section 43A of the

Electricity (Supply) Act, 1948. Therefore, approval

of the Commission was mandatory under Section 17 of

the Act. The Order dated 12.05.1999 was not an

approval under Section 43A but it was in the nature

of permission given to KEB to negotiate and enter into

the contract. There was no contract with the KEB.

There could not have been any contract with the

appellant (KPTCL) as the appellant was constituted

only under the Act, which came into effect from

01.06.1999. The following findings of the High Court

are placed under focus:

“It is not necessary that only the KPTCL should communicate acceptance to the appellant. A contract which is concluded by acceptance by the GOK is protected by the proviso to Section 27(2) of the Act. 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.”

33. In other words, the Court has even proceeded as if

there was a contract between the GoK and the first

52 respondent. If that were the case, apart from other

contentions, Article 299 and requirements thereunder,

are pressed into service. Drawing upon the Judgment in

K.P. Chowdhary v. State of Madhya Pradesh and others4,

it was contended that State Government cannot be bound

by an implied contract. It is next contended that the

first respondent cannot be treated as an Independent

Power Producer (IPP). The operation of the first

respondent and the sister steel plant (JVSL) are

intertwined and interdependent. They share common

infrastructure for coal handling, water supply and the

coal for the first respondent is purchased by JVSL, for

which, it raises an invoice on the first respondent.

The first respondent is to be treated as the CPP, as it

was supplying power to the steel plant. The capacity

was reduced at the request of the first respondent. The

contents of the G.O. dated 12.05.1999, which also

indicates that the same principle of negotiated tariff

for captive generating power plant that intends to sell

power to the KEB was applicable to the first respondent

are pressed into service. Reliance is also placed on

4 (1966) 3 SCR 919 53 the agreement dated 14.10.1999. Though first respondent

was granted the status of IPP by the GoK, it was

recognised by KEB/the appellant as a captive plant. The

Commission found that the energy supplied under the PPA

was only the surplus energy, after meeting the

requirements of its dedicated consumers. 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.

KEB/the appellant would be represented before the

Central Electricity Authority for according Techno

Economic Clearance as well as for coal supply

agreements, but none of these formalities were carried

out. It is also pointed out that the first respondent

availed of concession in the matter of electricity tax

by contending that it was the CPP, which was accepted

by a Quasi-Judicial Body by Order dated 21.11.2000.

34. It is next contended that the findings arrived at

by the High Court in regard to the facts, was

unsustainable. In this regard, it is contended that the

jurisdiction of the High Court in an Appeal under

54 Section 41 of the Act, is a limited one. The limitation

arose from the requirement that the appeal is

maintainable only, when there is a question of law.

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. Legislature,

therefore, wished to clothe High Court not with the

ordinary untrammelled power of an Appellate Court. In

the instant case, even though the point raised is,

whether there was any perversity in the findings of the

Commission, without finding any perversity, as such,

the High Court has proceeded to make a foray into

factual findings rendered by the Expert Body. The

findings of the Expert Body were premised on adequate

reasoning and material. It is without carefully

appreciating and analysing the findings, that various

observations have been made. It is lastly also

contended that pursuant to the Interim Order passed by

this Court, the appellant had to deposit a sum of Rs.100

crores, which the first respondent was permitted to

withdraw on furnishing bank guarantee. The learned

55 Counsel would submit that, if the appellant succeeds,

the amount paid by the appellant, must be ordered to be

restored by the first respondent.

SUBMISSIONS OF RESPONDENT NO. 1

35. Dr A.M. Singhvi, learned Senior Counsel appeared

along with Shri Gopal Jain, learned Senior Counsel, for

the first respondent. Dr. 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. These terms were

incorporated in the PPA without any change or

amendment. The conditions, seven in number, enumerated

in letter dated 23.04.1999, were incidental matters,

which were not necessary or a pre-requisite for the

formation of the contract. A PPA was not a pre-

condition. From 15.04.2000, the first respondent

supplied power to the appellant and the tariff was paid

at the rate of Rs.2.60/unit. 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

56 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 seven conditions mentioned in letter

dated 23.04.1999 remaining in the realm of negotiation

as on 01.06.1999 did not detract from a concluded

contract based on the GO dated 12.05.1999. The Act does

not prescribe a format for a concluded contract. No

penalty or consequence is contemplated for not entering

into a PPA. A signed PPA is not condition precedent.

The language in Section 18(6) of the Act, which

contemplates a PPA, is contrasted with the term

‘concluded contract’, employed in Section 17 of the

Act. The concluded contract on tariff is also evident

from the conduct of the parties as power was being

supplied at Rs.2.60 per unit without waiting for

approval by Commission. The stand of the Commission

that a PPA may not be necessary, found recorded in the

impugned Judgment is highlighted. It is contended that

this is not a case where there is a counter proposal

from the appellant. This is a case where the final

proposal of Rs.2.60 per unit, made by JTPCL during the

meeting held on 26.03.1999, was formalised by it in the

57 letter dated 31.03.1999. The appellant sought approval

from the GoK. The approval was granted by GO dated

12.05.1999. It resulted in a concluded contract between

the GOK/KEB with JTPCL. 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. This again probabilised the case of the first

respondent that there was a concluded contract. The

expression ‘concluded contract’ employed in Section

27(2) of the Act, must be given the interpretation

apposite to the context provided by Section 27, which

deals with factors/guidelines for determination of the

tariff by the Commission. In other words, similar words

to be found in Sections 14(7), 18(6) and 19, where the

words used are ‘concluded contract’ or ‘contract

concluded’, may not be suitably used. Reliance is

placed on the Judgment of this Court in Ram Narain Sons

Ltd. v. Asstt. Commissioner of Sales Tax and others5,

5 AIR 1955 SC 765 58 Dwarka Prasad v. Dwarka Das Saraf6 and Mackinnon

Mackenzie & Co. Ltd. v. Audrey D'Costa and another7. In

other words, the contention appears to be that the

proviso to Section 27(2) of the Act, must be interpreted

in the context, which is that a Law-Giver wanted to

give relief against retrospectivity, by protecting

tariffs, which were subject matter of agreements

between the parties arrived at prior to the

commencement of the Act. It is further contended that

it is nobody’s case that the contracts entered into by

the KEB were not transferred to the appellant. 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).

36. Considerable support is drawn from the Judgment of

the House of Lords reported in Alexander Brogden and

others and the Directors, & c., of the Metropolitan

Railway Company8 and Kollipara Sriramulu (Dead) by His

Legal Representative v. T. Aswatha Narayana (Dead) by

6 AIR 1975 SC 1758 7(1987) 2 SCC 469 8 [L.R.] 2 App. Cas. 666 / HL(E) 1877 Vol.2 666

59 His Legal Representatives and others9. Reliance is

placed on these decisions to contend that even if the

parties did contemplate the signing of an agreement, it

would not prevent formation of a contract, even dehors

the formal document.

37. He further contended that the appellant made

admissions before the High court about the existence of

a concluded contract qua tariff, quantum and tenure. As

regards the confirmation of the offer by the first

respondent’s Board, it is merely a procedural internal

requirement, an aspect of the doctrine of indoor

management. The recommendation made by the KEB of the

rate is relied upon. The contention based on the

appellant coming into existence after 1.6.1999 is

brushed aside as a matter of no moment as it is the

successor of KEB, therefore bound by the contract.

Merely because the first respondent was pressing for

the execution of the PPA, it would not detract from

there being a concluded contract qua tariff, quantum

and tenure. Otherwise, the appellant would not have

purchased power from 15.04.2000. The appellant is

9 AIR 1968 SC 1028 60 unjustified in contending that even qua tariff, there

is no agreement. The submission of the appellant that

there is a model PPA is erroneous. 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. The contention that there was no

approval granted under Section 43A of the Electricity

(Supply) Act, 1948 and therefore, the approval of the

commission is mandatory under Section 17 is

deliberately made knowing it to be erroneous. GoK Order

dated 02.03.1996 expressly establishes the consent

given by the GoK under Section 43A(1)(c) of the

Electricity (Supply) Act, 1948. Section 17 does not

speak about tariff determination powers of the

commission. The tariff determination is exclusively

dealt with by Section 27. It is pointed out that the

terms and conditions which were left to be negotiated

in letter dated 23.4.1999 have been incorporated as

terms and conditions in the draft PPA. Instances of

perversity in the commission’s orders are pressed

before the Court. The first respondent also contended

61 that for various reasons it is entitled to be treated

as IPP.

38. The first respondent does not lay store by the

finding on promissory estoppel & legitimate

expectation. 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.

ANALYSIS

THE ACT – THE KARNATAKA ELECTRICITY REFORM ACT, 1999.

39. Section 1(3) provides that the Act shall be deemed

to have come into force w.e.f. the First Day of June

1999. Section 13 provided for the incorporation of the

appellant/company. The principal object was to engage

in the business of purchase, transmission, sale and

supply of electrical energy. Section 13(4) contemplates

that the appellant was to undertake the functions in

Section 13 and other functions, as may be assigned to

62 it under the licence to be granted by the Commission

under the Act. 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.”

40. Section 14 of the Act reads as follows:

“14. Reorganisation of the Karnataka Electricity Board.- (1) On and with effect from the date on which a transfer scheme prepared by the State Government to give effect to the object and purposes of this Act is published or such further date as may be prescribed (hereinafter referred to as the effective date of the first transfer), any property, interest in property, rights and liabilities which immediately before the effective date of first transfer belong to the Board shall vest in the State Government on such terms as may be agreed between the State Government and the Board.

(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

63 between the State Government and the KPTC or any generating company or companies, as the case may be.

(3) From the effective date of first transfer of properties etc., to the KPTC, the Board shall stand dissolved. The Chairman and Members of the Board shall be deemed to have vacated their office. 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.

(4) Notwithstanding anything in this section, where,- (a) the transfer scheme involves the transfer of any property or rights to any person or undertaking not wholly owned by the State Government, the scheme shall give effect to the transfer only for fair value to be paid by the transferee to the State Government; and

(b) a transaction of any description is effected in pursuance of a transfer scheme, it shall be binding on all persons including third parties.

(5) The State Government may, after consulting the KPTC [or a licensee as the case may be], KPTC require the 1 [or a licensee as the case may be]1 to draw up a transfer scheme to vest in a further licensee (the “transferee licensee”), any of the function including a distribution function, any property, interest in property, rights and liabilities which have been vested in the KPTC [or a licensee as the case may be] under this section and publish the same as the scheme of transfer under this Act. The transfer scheme to be notified under this sub section shall have the same effect as the transfer scheme under sub section (2) 64 and shall be effective from the date specified (effective date of second 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.

65 (7) All debts and obligations incurred, all contracts entered into and all matters and things engaged to be done by, with or for the Board, or the KPTC or generating company or companies before a transfer scheme becomes effective shall, to the extent specified in the relevant transfer scheme, be deemed to have been incurred, entered into or done by the Board, with the Board or for the State Government or the KPTC or the transferee, and all suits or other legal proceedings instituted by or against the Board or transferor, as the case may be, may be continued or instituted by or against the State Government or the concerned transferee, as the case may be.

(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.”

41. Section 17 which is the opening section in part

VII, inter alia provided as follows: -

“17. Regulation of generating companies and stations- (1) A licensee or a bulk purchaser or any other person may enter into a contract with a generating company for purchase of electricity in the manner approved by the Commission and such approval granted by the Commission shall have the effect of the consent given by the State Government in terms of section 43A of the Electricity (Supply) Act

66 1948: Provided that the approval granted by the Commission under this sub-section shall not in any manner affect the requirements to obtain approvals and sanctions of the State Government or any other authority under any other law, rule or regulations.”

42. Section 18, which falls in Part VII, deals with the

requirements of a license. It, inter alia, reads as

follows:

“18. 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.

XXX XXX XXX

(6) All licenses issued under the provisions of Indian Electricity Act, 1910, by the State Government or any competent authority shall be deemed to be a provisional licence and shall be subject to the conditions provided under sub-sections (4) and (5). 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)

43. Section 19 of the Act, deals with grant of licenses

by the Commission. Section 19(1) reads as follows:

67

“19. Grant of licenses by the Commission. -

(1) The Commission may on an application made in such form and on payment of such fee as may be specified by regulations, grant a license authorising any person to, - (a) transmit electricity in a specified area of transmission; and/or (b) supply electricity in a specified area of supply or supply in bulk to the licensees or any person.”

44. 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. - The contracts 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 the KPTC in terms of section 14 and the KPTC may continue the purchase or transmission of power under such contracts for effecting bulk sales, distribution and supply to other licensees;”

45. Section 20 provides for exemption from the

requirement of license. It contemplates that the

regulation by the Commission to grant exemption from

the requirement to have a supply license subject to

conditions to be specified. The other provisions of

68 Part VII deals with amendment of licenses and revoking

of licenses apart from the general restrictions on the

licensee.

46. Section 27, which contains the proviso which is at

the heart of the controversy, inter alia, reads as

follows:

“27. Tariffs.- (1) The holder of each licence granted under this Act shall observe the methodologies and procedures specified by the Commission from time to time, in calculating the expected revenue from charges which it is permitted to recover pursuant to the terms of its licence and in designing tariffs to collect such revenues.

(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;

69 (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 and supply are conducted on commercial principles

(g) national and state power plans formulated by the Central or State Government, as the case may be :

Provided that the contracts concluded by the Government of Karnataka and/or the Board with generation and transmission companies prior to commencement of the Act shall be deemed to have been approved by the Commission under the provisions of this Act and shall be given effect by the Commission.

(3) Where the Commission departs from factors specified in the sixth schedule to the Electricity (Supply) Act, 1948 (Central Act 54 of 1948) while determining revenue of the licensee and tariffs, it shall record the reasons therefor in writing.

(4) Any methodology or procedure specified by the Commission under sub-sections (1), (2) (3) above shall be to ensure that the objectives and purposes of the Act are duly achieved.

(5) Any tariff implemented under this Act,-

(a) shall not show undue preference to any consumer of electricity, but may 70 differentiate 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.

(6) The Commission also shall endeavour to fix tariff in such a manner that, as far as possible, similarly placed consumers in different areas pay similar tariff.” (Emphasis supplied)

47. Section 5(1) of the Act declares that Members of

the Commission shall be persons of ability, integrity

and standing, who have adequate knowledge and

experience of and have demonstrated capacity in dealing

with law or administration. 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. There must always be two

71 Members, who have qualification in the field of law,

finance, economics, commerce or administration, with at

least 25 years of working experience. Such person

should have worked in a senior position in the said

field. There are other aspects, which need not detain

us. Under Section 10 of the Act, the Commission is

endowed with certain powers of a Civil Court. It can

enforce attendance of witnesses. It can call for

information. It can consult to the extent, it considers

appropriate, such persons or group of persons, who may

be affected or likely to be affected by its decisions.

Section 11 deals with the functions of the Commission.

An array of functions vests with it which includes

regulating the purchase, distribution and supply and

utilisation of electricity, the quality of service, the

tariff and charges payable, keeping in view the

interest of the consumer as well as the consideration

that the charges are adequately levied and duly

collected. There are various other functions. It is to

function as an independent Statutory Body Corporate.

The Commission has the power to act as an Arbitrator or

to nominate Arbitrators to decide disputes between the

72 licensees. The Commission is tasked with the power to

grant licences under Section 19 of the Act. More

pertinently, the Commission is empowered under Section

27(2), to lay down the methodology and the terms and

conditions for determination of the tariff, inter alia.

Section 27(2)(a) to (g) provide for the factors, which

are to guide the Commission.

48. On a conspectus of the provisions of the Act, it

is self-evident that in keeping with the very name of

the Act, viz., Karnataka Electricity Reforms Act, 1999,

the Legislature intended to depart from the earlier

regime, under which, the State Electricity Boards, in

conjunction with the Government, enjoyed a free run in

the matter of fixation of tariff. 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. The determination

of the tariff was to be done, bearing in mind, the

interest of the consumer. At the same time, the

Commission was not to be oblivious to the need to arrive

at charges for the service of purchase, distribution

73 and supply of electricity, in such a manner that the

tariff is adequate in that the charges for the

electricity supply, was duly collected, being adequate,

for maintaining the supply and distribution of

electricity.

49. Section 14(7) provides, inter alia, that all

contracts, entered into with or for the Board or the

appellant or the generating company or companies,

before a transfer scheme becomes effective, is to be

deemed to have been entered into or done by the Board,

with the Board or for the State Government or the

appellant or the transferee. Section 17 provides that

a licensee or the bulk purchaser or any other person,

may enter into a contract, with a generating company,

for purchase of electricity, in the manner approved by

the Commission. Such approval, is accorded the status

of a consent given by the State Government under Section

43A of the Electricity (Supply) Act, 1948. 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

74 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

deals with actual power to grant licence. The power is

vested with the Commission. Section 19(3) provides that

the duration, extent to which and the terms and

conditions, under which, transmission or supply of

energy is to be made, are to be specified in the

licence. The licence is also to contain such other

conditions as the Commission may consider appropriate

for achieving the purpose of the Act. It is thereafter

that Section 19(4) provides that without detracting

from the generality of the power with the Commission to

impose conditions mentioned in Sub-Section (3), the

conditions enumerated expressly in Sub-Section (4), may

be imposed. The Explanation relevant to the case, is

found sandwiched between Section 19(4)(j) and (k).

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;

75 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.”

50. Moving on to Section 27, the proviso to Section

27(2), brings up the rear to the said sub-Section.

Section 27 deals with the duty of the holder of every

licence, to observe the methodologies and procedure to

be specified by the Commission from time-to-time, in

calculating the expected revenue from what it charges.

Section 27 uses the expression ‘design’. It only means

that the Commission is to fix the tariff, which would

be a medium to raise revenue. It is thereafter that

Section 27(2) clothes the Commission with the power to

actually lay down the methodology and the terms and

conditions for determination of the revenue and the

determination of the tariff. The factors to guide the

Commission in this regard are explicitly set-out in

Clauses (a) to (g) under Section 27(2). Since sub-

76 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. Section 27(4)

declares that the Commission, in formulating the

methodology or procedure, is to ensure that the

objectives or purpose of the Act, are duly achieved.

Section 27(5) further ordains that the tariff is not to

reflect any undue preference to any consumer but may

discriminate on the basis of the load factor, power

factor, inter alia. The paying capacity of the category

of the consumers and the need for cross-subsidisation,

can form the premise for differentiation. 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(7) further

77 provided that within 90 days of the receipt of all the

information by the licensee that the Commission is to

notify either its acceptance or its refusal of the

licensee’s revenue calculation and tariff proposals. It

is obliged to issue a notice, giving reasons, as to why

it does not consider the tariff proposals as compliant

with the extant methodology or that it is incorrect. It

was to propose a modification or an alternative

calculation of the expected revenue from charges, which

a licensee was to accept. 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’. Explanation (b) defined ‘tariffs’ as ‘a

schedule of standard prices or charges for specified

services which are applicable to all such specified

services provided to the type of customers specified in

the tariff published’.

78

51. On a conspectus of the Act, the Law-Giver has

intended that the holder of every licence granted under

the Act, is bound by the regime of regulation of the

tariff by the Commission. The appellant was

incorporated under Section 13 of the Act. The Act came

into force with effect from 01.06.1999. The appellant,

in other words, was not in existence prior to

01.06.1999. No doubt it succeeded to KEB. In an answer

to a query, it is pointed out that initially, the

appellant was the holder of a distribution and supply

licence. Subsequently, there has been an unbundling. At

present, appellant is engaged in supply of electricity.

It is further not in dispute that the appellant is a

licensee under the Act. It would, therefore, be clear

that being a holder of a licence, the appellant was to

follow the procedure under Section 27. It came under

the embrace of the jurisdiction and power of the

Commission in regard to the regulation of the tariff.

The power and jurisdiction of the Commission is to be

exercised to ensure that the objectives and the purpose

of the Act, are duly achieved. In the Statement of

Objects of the Act, it is, inter alia, recited that the

79 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. The sublime

legislative object is further reflected in Section 11A,

viz., the declaration of the functions of the

Commission is, inter alia, to protect the interest of

the consumer, apart from promoting efficiency, economy,

safety, in the use of electricity. This is, of course,

besides ensuring that the charges for electricity are

adequately levied and duly collected. As noticed by us,

the Act signalled the demise of the old system,

whereunder, fixation of tariff was afflicted with

caprice, unilateralism and a tendency to unduly

subsidise the State Electricity Boards, thereby

preventing a natural free play of market forces, which

also did not conduce towards the promotion of the

production of electricity in the country. Section

27(2)(e) specifically contemplates that the Commission

is to be guided by the interests of the consumers, but

80 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. Section 27 marked a paradigm shift. An

independent Body was to exercise fairly drastic power

in the matter of regulating revenue and designing

tariff by the licensees. The proviso in Section 27(2)

was, indeed, intended to protect cases, where contracts

were concluded by either the Government of Karnataka

and/or the KEB with generation and transmission company

prior to the commencement of the Act. The proviso freed

parties to such contracts, which were concluded from

the regulatory regime. If such contracts were

concluded, the Law-Giver has made it clear that they

would be deemed to have been approved under the

provisions of the Act. Furthermore, the Commission is

charged with the duty to give effect to such contracts

which are concluded before the commencement of the Act.

It is, undoubtedly, true that the proviso to Section

27(2) does not use the words ‘power purchase

agreement’. It is equally true that Section 18(6),

falling under Part VII and dealing with licensing of

81 transmission and supply, employs, inter alia, the words

‘power purchase agreement’. Section 18(6), in fact,

uses also the words ‘transmission service agreements

and other contracts’. The attempt of the first

respondent is to highlight the fact that the proviso to

Section 27(2) does not use the words ‘power purchase

agreement’. The Law-Giver was aware and has used the

expression ‘power purchase agreement’ in Section 18(6).

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.

52. The further argument is, that the proviso to

Section 27(2) must be understood with reference to

Section 27 and not based on a roving expedition,

involving survey of other provisions of the Act, which

may use similar words such as, Section 14(7) and

Sections 18 and 19. The principle that a proviso must

receive meaning with reference to the main provision to

which it is a proviso, is pressed into service.

82

53. The first respondent relied upon the decision of

this Court in Dwarka Prasad v. Dwarka Das Saraf10. This

Court held, interpreting the proviso in question in the

said case as follows:

“18. We may mention in fairness to Counsel that the following, among other decisions, were cited at the Bar bearing on the uses of provisos in statutes: CIT v. Indo-Mercantile Bank Ltd, [AIR 1959 SC 713 : 1959 Supp (2) SCR 256, 266 : (1959) 36 ITR 1] ; Ram Narain Sons Ltd. v. Asstt. CST [AIR 1955 SC 765 : (1955) 2 SCR 483, 493 : (1955) 6 STC 627] ; Thompson v. Dibdin [(1912) AC 533, 541 : 81 LJKB 918 : 28 TLR 490] ; Rex v. Dibdin [1910 Pro Div 57, 119, 125] and Tahsildar Singh v. State of U.P. [AIR 1959 SC 1012 :

1959 Supp (2) SCR 875, 893 : 1959 Cri LJ 1231] . The law is trite. A proviso must be limited to the subject-matter of the enacting clause. 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. It is not a separate or independent enactment. “Words are dependent on the principal enacting words to which they are tacked as a proviso. They cannot be read as divorced from their context” (Thompson v. Dibdin, 1912 AC 533). If the rule of construction is that prima facie a proviso should be limited in its operation to the subject-matter of the enacting clause, the stand we have taken is sound. 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. A proviso ordinarily is but a

10 (1976) 1 SCC 128 83 proviso, although the golden rule is to read the whole section, inclusive of the proviso, in such manner that they mutually throw light on each other and result in a harmonious construction.

“The proper course is to apply the broad general Rule of construction which is that a section or enactment must be construed as a whole, each portion throwing light if need be on the rest.

The true principle undoubtedly is, that the sound interpretation and meaning of the statute, on a view of the enacting clause, saving clause, and proviso, taken and construed together is to prevail. (Maxwell on Interpretation of Statutes, 10th Edn., p.

162)””

54. In other words, since Section 27 is a provision,

which appears to deal with the revenue and tariff, which

a licensee can garner/charge, it suffices, if there is

a contract, which is concluded, which has, for its

subject matter, the most indispensable element, viz.,

the tariff. It is pointed out that in this case, the

three essential components of a contract for the

purposes of Section 27, have been concluded well before

01.06.1999. Correspondence and negotiation culminating

in the issue of the G.O. dated 12.05.1999 by the GoK,

by which, the Government of Karnataka, gave its

84 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).

55. Shri Gopal Jain, learned Senior Counsel, would

persuade the Court to take a pragmatic and fair view.

The Government of Karnataka/KEB was, indeed, faced with

the shortage of power. The proposal of the first

respondent was most reasonable. If the parties were

agreed on the essential terms, which, in terms of the

proviso to Section 27(2), consisted, primarily of the

tariff, and a PPA is conspicuous by its absence in the

proviso, as an indispensable requirement, to constitute

a concluded contract, then, nothing more is required to

support the impugned Judgment, it is contended.

THE LAW RELATING TO CONTRACT

56. Section 2 of the Indian Contract Act, 1872 provides

for the interpretation clause. We may set out our

understanding of Section 2, so far as it is relevant,

to be as follows:

85

It begins with a proposal made by a promisor. A

proposal is an offer to do something or an offer to

abstain from doing something. The offer must be made

with a view to obtaining the agreement to it from the

party to whom it is made. When the person to whom the

proposal, as defined, is made, who is treated as the

promisee, conveys his unqualified consent, the

proposal is treated as having been accepted. The

proposal, when it is accepted, becomes a promise. An

agreement is every promise and every set of promises

forming the consideration for each other. As to what

is consideration, we need not be detained. A contract

is an agreement enforceable by law. Section 3 of the

Contract Act deals with communication, acceptance and

revocation of proposals. The acceptance of a proposal,

inter alia, takes place by any act or omission of the

party accepting. It must be an act or omission by

which he either intends to communicate his acceptance

or which has the effect of communicating his

acceptance. These are matters of fact to be decided

on the facts of each case. Section 10 of the Contract

Act reads as follows:

86 “10. What agreements are contracts. —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 second part of Section 10, illustrated by

Section 19 of the Copyright Act, 1957 applies where a

law stipulates that a contract be in writing in which

case a contract must be reduced to writing.

THE CORRESPONDENCE AND CONDUCT OF THE PARTIES

57. It is apposite to refer to order dated 7.3.1994

where it all began. It reads as follows:

“PROCEEDINGS OF THE GOVERNMENT OF KARNATAKA

Sub: Proposal of M/s. Jindal Iron & Steel Company Limited to set-up a 300 MW . Power plant in two stages of 150 Mw Each near Bellary-Hospet.

87 Consequent on the amendments made by the Government of India to the India Electricity Act 1990, and the Electricity (Supply) sector participation in power generation and to sign MOUs with private or foreign companies to set up Thermal Power Plants at Mysore, Hospet, Raichur, Mangalore and Bangalore and a Hyde! Power Station at Shivasemudram.

1. M/s. Jindal Iron & Steel Company Limited are setting up a combined gas cycle plant of 300 MW (2XI50 MW) power plant at Bellary-

Hospet within the site allotted for a Steel Plant of 1.25 million ton capacity per annum, for which the Government of Karnataka has already accorded approval.

2. The estimated cost of the power plant is approximately Rs.900 Crores. The debt equity ratio shall be 2.1. The equity of around Rs.225/- crores will be met 50% each by ' .. the participants - M/s. JISCO and M/s. TRACT ABEL. The loans shall be arranged both from Indian financial institutions and foreign banka for which discussions are under progress.

3. 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. Besides. it would also help to generate additional employment. The fact that the Lingapur 220 KV Sub-station is nearer to the site of the proposed Thermal Power Plant, will help in inter-connection with the Sub- station.

4. The Karnataka Electricity Board has agreed to the proposal of M/s. Jindal 88 Tractebel Power Company for setting up of the generating plant at Bellary - Hospet subject to the toll owing conditions:

1. The above firm should send a detailed project report duly indicating the cost of the project with all relevant details like, mode of execution fixation of tariff etc;

2. For evacuation of power from the above, the present KEB transmission and distribution system may have to be strengthened thus necessitating substantial funds for the above. Board is examining the possibility of obtaining funds from various organizations either from Government or other sources;

3. The sale of power should be exclusively to KEB and not to any other entrepreneurs. 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. The firm has to enter into power purchase agreement with KEB and the rate at which power is to be purchased by KEB is to be separately worked out;

5. The firm has to indicate the cost of the generation to take a definite decision for I purchase of power from them.

ORDER NO. DE 221 PPC 93 BANGALORE. DATED 7TH MARCH 1994.

89 After examining the matter in detail Government are pleased to accord; approval to the proposal of M/s. Jindal Iron & Steel Company Limited a follows:

[1] Ms. Jindal Tractabel Power Company (JTPCL) is permitted to set up this plant in two phases of 300 MW (each phase consisting of !50 MW each) subject to obtaining the approval of the Government of India in respect of foreign investment by M/s. Tractabel, Belgium in Karnataka and also subject to obtaining other statutory clearances under the relevant Acts;

[2] M/s. 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

[3] To permit KEB to evacuate power produced by M/s. JTPCL through its grid system subject to the capacity of the grid system and subject to payment of Wheeling and Banking charges payable to KEB by M/s. JTPCL after evacuating power produced by KPCL;

[4] The company has to sell the balance power to KEB at a tariff to be fixed according to the norms laid down by the Government of India vide Notification dated 31.3 .1992;

[5] KEB will make wheeling and banking arrangements for M/s. JTPCL on payment of wheeling charges;

[6] KEB is permitted to enter into an agreement with M/s. JTPCL regarding power purchase subject to approval by the State Government.” 90

58. 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. Further, it was

decided, inter alia, that the first respondent had to

sell the balance power to KEB at a tariff fixed

according to the norms laid down by the Government of

India vide Notification dated 31.03.1992.

59. Finally, KEB was permitted to enter into an

agreement with the first respondent regarding power

purchase, subject to approval by the State Government.

What is noteworthy is that the KEB took the stand that

the first respondent would have to enter into a power

91 purchase agreement with the KEB, and the rate at which

power was to be purchased, was to be separately worked

out. 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. It

will be noticed that in the clause, what was agreed

upon, was that there was to be agreement as regards

price and other terms which were to be negotiated at

the time of sale. This may be contrasted with the terms

of the proceedings dated 07.03.1994, which contemplated

sale according to norms dated 31.03.1992. On

20.10.1998, referring to an earlier letter dated

28.09.1998, the first respondent wrote to the KEB that

tariff at which they would sell power was in accordance

with the Government of India Notification dated

30.03.1992. A statement was forwarded, containing the

tariff calculation and also indicating certain

assumptions. On 21.11.1998, the first respondent wrote

to the KEB and we need notice the following:

92

First respondent claimed that it has completed

100% construction, erection and testing activities of

Unit No.1 (130 MW). It was scheduled to synchronise

the Unit No.1 by last week of December 1998. For Unit

No.2, the first respondent claimed, it had completed

100% construction, 90% erection of equipment, the

boiler light up was scheduled in January 1999 and the

commissioning was scheduled in July 1999. Thereafter,

first respondent refers to the PPA signed with JVSL

and JPOSCL. It was further stated that by proceeding

dated 02.03.1996, Government of Karnataka had given

approval for the same. The first respondent further

makes reference to Clause 2.4 of the Wheeling and

Banking Agreement for sale of power to KEB at mutually

agreed rates. The communication reveals that

thereafter, the first respondent proceeded to make an

offer to KEB for sale of power. It offered 50MW from

the commissioning date of Unit No.1. Further, it

offered 100 MW (base load basis of commissioning date

of Unit No.2). A further offer was made of maximum of

200 MW during the period when JVSL, JPOCL, which were

the dedicated consumers were under shut down (major

93 break down or during their maintenance period).

Penalty was offered if supply was less than 75 MW from

the commissioning date of Unit No.2. The price offered

was Rs.2.90/KWHR. It is thereafter that it was

indicated that the price was to be exclusive of the

electricity tax, adjustment towards inflation,

compensation towards foreign exchange variations,

provision for fuel escalation charges, maintenance of

power plant, for force majeure conditions. The

proposal was to supply power for an initial period of

five years from the date of commissioning of the

second 130 MW Unit. There is reference made to

utilisation of power during the stabilisation period

and we are not referring to the contents of the same

except to point out that this represented the second

proposal. Finally, the letter ended with a request to

the KEB to accord approval for the above two

proposals. 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. It can be safely

94 concluded that as on 15.12.1998, quite clearly, apart

from the KEB indicating that it was, agreeable in

principle, to purchase surplus power from the first

respondent, there is no other effect in law produced.

60. Under the proviso to Section 27 of the Act relied

upon by the respondent, a contract could be concluded

with the Government or with the Electricity Board. In

either case undoubtedly the regime under section 27

would cease to apply and the Commission would not have

any power.

61. In the notes submitted by first respondent, it was

seen contended that the contract was concluded between

the first respondent and GoK/KEB. 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. The submission

which was made by the first respondent was that the

contract was concluded between the KEB and the first

respondent. Therefore, we must proceed on the basis

that contention of the first respondent is that the

contract was concluded between the first respondent and

95 the KEB. The significance of this finding is that it

obviates any adjudication as to whether the contract in

question complies with the mandate of Article 299 of

the Constitution. The appellant asserts that there can

be no implied contract with the Government under

Article 299 and enlists support of case laws in this

regard. In view of the stand of the first respondent

which we have indicated it would be an unnecessary

digression to explore the contours of Article 299.

62. The main question which arises for consideration

is whether there is contract concluded between the

first respondent and the KEB and if so, whether such a

contract was concluded before 01.06.1999? 01.06.1999

admittedly marks the commencement of the Act. 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.

63. We must at this juncture deal with an appeal made

by the learned Senior Counsel for the first respondent.

It is contended that this Court may adopt a pragmatic

96 view. The first respondent had excess power. The KEB

stood in dire need of power. Thereafter, negotiations

ensued based on Clause 2.4 of the wheeling and Banking

and Grid Agreement. Apart from oral negotiation,

correspondence evidence the respective positions

adopted by the parties. The KEB took up the matter with

the GoK and GoK finally gave approval on 12.05.1999.

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.

A practical view is therefore pressed upon as a just

view also, namely, substantially for all practical

purposes the parties were ad idem. Repeatedly our

attention is alerted to the fact that acting upon the

GO dated 12.05.1999 and making it the sheet anchor,

first respondent even supplied power. Though there was

some prevarication as regards the rate being 2.60 per

KWH, the GoK sought to honour the contract as embodied

in the G.O. dated 12.05.1999 by issuing G.O. dated

17.07.2000.

97

64. We are dealing with a statutory dictate. What is

required to be established is that the contract stood

concluded and furthermore it was so done before

01.06.1999. Dr. Abhishek Manu Singhvi and Shri Gopal

Jain, learned Senior Counsels are right in pointing out

that the purport of proviso is to provide against

retrospectivity of the law. In other words, the

lawgiver contemplated that when a contract stands

concluded between the Government or the KEB and a party

before the Act came into force, the regulatory regime

should not be allowed to unsettle a solemn contract.

65. In this regard, we must bear in mind that the Act

envisages the setting up of an independent Commission.

The Commission stood endowed with various functions.

One of the important functions is to fix the tariff.

One of the vital objects of the Act is to protect the

interest of the consumer. The Electricity Board which

was set up under the Electricity (Supply) Act, 1948 was

clothed with the power for fixing the rate. The

undesirable results it produced and the need for

locating the power in an independent body which would

98 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. While a reasonable view must indeed

be taken it cannot be half baked or a legally untenable

approach. Flying on the wings of pragmatism, the Court

cannot gloss over a statutory injunction. We would

think that the first respondent must anchor its case on

surer foundations.

66. In this case, we proceed on the basis that it all

began with the communication dated 20.10.1998 sent by

the first respondent. However, for reasons which will

be clear, we need not harp upon its contents in greater

detail. On 21.11.1998, after referring to the fact that

the first respondent was recognised as an independent

power producer and it has achieved financial closure

and further that it was the only company in Karnataka

which could be set up as an independent power producer

and still further having completed 100% construction,

erection and testing ability in regard to Unit I, it

was stated that the synchronising of Unit I will take

99 place by the last week of December 1998. Regarding Unit

II, commissioning was projected in July, 1999.

Thereafter, the formal offer was made for sale of power.

The rate was Rs.2.90/Kwhr. Even the said rate was to

exclude electricity tax, inflation, foreign exchange,

fuel escalation charges, maintenance of power plant.

The rate was also to be exclusive of force majeure.

This meant that if there is grid failure or transmission

line failure leading to no supply, there would be no

penalty on the minimum guaranteed power. There is also

another aspect in the offer under the caption

“utilisation of power during stabilizing period” that

is from the date of synchronisation till commercial

operation. There are certain details thereunder and the

letter concluded by the first respondent requesting

approval to the two proposals at the earliest. By

communication dated 15.12.1998, the Board conveyed that

the proposal of the first respondent is under

evaluation. The Board (KEB) also expressed its

willingness to purchase power as already discussed. On

19.01.1998, the KEB wrote to the GOK. Therein, it is,

inter alia, stated that the plant of the first

100 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 referring

to the wheeling and Banking agreement, it is, inter

alia, stated that the first respondent during

discussion revealed that there was a decline in the

demand for power due to the reduction in the demand of

the steel, leading to the proposal by first respondent,

KEB further wrote about PPAs entered into with various

IPPs and the fact that the progress under the said

agreements was not satisfactory. Some other plants may

not come up was a concern voiced by the KEB. Other

issues relating to them find reflection. Shortfall in

generation in the state and the steady demand for power

are seen articulated. KEB was purchasing power from

Maharashtra State Electricity Board in addition to

central generating stations. After dealing with

Wheeling and Banking agreement and clause 2.4 which

contemplated sale of excess power to the KEB, it was

stated that the clause, however, contemplated purchase

101 at a negotiated rate. This, it is further stated was

because at that stage details regarding the capital

cost were not looked into as the project was

contemplated as a captive power plant. It is also for

the same reason stated that it would not be possible to

negotiate tariff based on two-part tariff notification

of the Government of India. 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. After detailed discussion, it was decided

that a price of Rs.2.60 per unit could be offered. This

comprised of Rs.1.70 as fixed charge and Rs.0.90 as

variable charge. Variable cost was to depend on the

cost of coal. Its cost would determine the variable

price. Suffice it to further notice that the KEB

suggested that “We” can purchase power from the first

respondent at Rs.2.60 per unit (FC Rs.1.70) plus (VC

Rs.0.70). The fixed charge was to be escalated from the

second year with the conditions of penalty to be paid

by the firm for short supply of power and assured off

102 take which has been referred in the letter earlier. We

may finally notice the final paragraph of the said

communication “Approval of the government is sought to

the above proposal. Subsequent to the approval,

negotiations will be held with M/s JTPCL for finalizing

the PPA.”

67. The GOK wrote to the KEB. It is stated inter alia

that the proposal was examined in detail. The efforts

of KEB to bridge the gap on power availability by

entering into short term agreement with the first

respondent was appreciated. The wide gap between demand

and supply was noted. The prospect of the demand going

up further was echoed. It is finally stated as follows:

“The present proposal of the KEB keeps the tariff open ended and possible revision. 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.

This may kindly be got examined by KEB and the revised proposal may be sent to the government”

68. We must not be led astray by the use of the word

“the present proposal of the KEB” as meaning that the

proposal is one made by the KEB. In law, it would be

103 the first respondent which has made the proposal as

contained in its communication dated 21.11.1998 and

thereafter following negotiations, the first respondent

came up with the price of Rs.2.60. It is this proposal

of the first respondent which was suggested by the KEB.

The GoK found that the said suggestion about the

proposal made by the first respondent kept the tariff

open ended with possible revision. The GoK contemplated

a PPA being entered into limited to a period of 5 years.

Therefore, the GoK wanted KEB to further negotiate a

fixed rate for the next 5 years. A revised proposal was

to be sent to the Government. It is not the case of the

either party that a concluded contract emerged at this

stage. Without the parties apparently being aware, the

next communication brought them even more perilously

close to the date of the commencement of the Act. On

31.03.1999, the first respondent wrote about its first

proposal on 21.11.1998. The fact that the discussions

followed is further mentioned. Specifically, there is

reference to meeting held on 26.03.1999. The readiness

of the KEB to purchase power was made subject to the

following terms and conditions:

104

1. The term of the agreement could be 5 years.

2. The tariff should be a single part tariff. Escalation at a fixed percentage could be applied on the total price on an annual basis. KEB will not consider any request either for two-part tariff based on CEA guidelines or for payment of fuel cost at actuals.

3. KEB will open irrevocable revolving letter of credit under which JTPC can get payments. It will also be supported by Escrow mechanism.

4. There can be penalty clause both for short supplies and short drawals.

5. The PPA should be a simple document.”

69. A formal proposal being demanded by the KEB subject

to the approval of the Board of Directors and also the

approval of its lender, the first respondent made the

proposal.

“Accordingly, subject to approval of our Board and also subject to approval of our lenders, we make the following proposal for sale of power to KEB.

1. JTPC offers 50 MW (Energy 36 MU per month) of power from the commissioning date of Unit 1 and 100 MW (Energy 72 MU per Month)of power from the commissioning date of Unit 2. The first Unit of 130MW is expected to be commissioned in June 1999 and the second unit of 130 MW is expected to be commissioned in August 1999.

105

2. 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.

3. The tariff will be as follows:

I year (Upto 31" March 2000) Rs.2.60/kwhr. II Year (Financial Year 2000-2001) Rs.2.73/kwhr. III Year (Financial Year 2001-2002) Rs.2.87/kwhr. IV Year (Financial Yea; 2002-2003) Rs.3.01/kwhr. V Year (Financial Year 2003-2004) Rs.3.16/kwhr.

4. There will be no Wheeling charges or Electricity Tax on supplies to KEB.

5. 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 l0% of the tariff, for supplies below the Threshold Power Value.

(b) KEB shall guarantee that it will consume the Threshold Power Value. In case the consumption is less than the Threshold Pow~r Value, KEB shall pay to JTPC the full value of Threshold Power at the applicable tariff as above.

(c) The Threshold Power Value is 75 MW (Energy 54 MU per month).

6. The minimum supply and the minimum consumption as per para 5(a) and 5(b) above are applicable on a monthly basis.

106

7. If there is escalation in fuel cost beyond 5% at any time, JTPC reserves the right to terminate the contract with 3 months' notice, if KEB does not agree to compensate for such escalation.

8. 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. It shall also be supported by Escrow mechanism.

9. The initial term of the agreement should be 5 years till March 31, 2004, with a provision for renewal on terms mutually acceptable.

We request you to agree to the above terms and conditions and convey your acceptance at the earliest. We will approach our Board and the lenders on getting your acceptance.

We also request you to let us have drafts of the PPA, Escrow agreement and the Letter of Credit at the earliest. We propose to have one more meeting with your officials, after studying these drafts.

Looking forward for your early favorable response,

Thanking you, Yours faithfully

For JINDAL TRACTEBEL POWER CO., LTD.

Sd/-

S.S. Rao Dy, Managing Director & CEO CC: Superintending Engineer El. Projects. KEB”

107

70. 23.04.1999 is the next milestone. After referring

to the previous development leading up to the proposal

dated 31.03.1999, KEB wrote that there were two options

available. The fall in the rupee was noted. 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. 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 The first unit is expected to be commissioned in June 1999 and the second unit in August 1999. They have also indicated that in case they have any surplus power beyond 50 MWs and 100 MWs after commissioning of unit I and unit 2, with the approval of KEB, they will sell power in excess of 50 MWs and 100 MWs.

The firm has also proposed the following after commissioning of Unit 2:

1. They will supply power with a threshold value of 75 MWs equivalent to 54 MU per month.

2. If supply is less than the threshold power value, then JTPC will pay penalty of 10% of the tariff for supplies below the threshold power value.

3. KEB shall guarantee that it will consume the threshold power value. 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.

108 4. The minimum supply and minimum consumption as above are on monthly basis.

5. If there is a escalation in fuel cost beyond 5% at any time, JTPC reserves the right to terminate the contract with 3 months notice, if KEB does not agree to compensate for such escalation.

6. 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. It shall also be supported by Escrow mechanism.

7. The initial term of the Agreement should be 5 years till March 31, 2004 with a provision for renewal on terms mutually acceptable.

These are issues to be negotiated with the firm while finalising the PPA and will be taken up later on.

This is for information of the government and it is requested that orders may please be obtained and communicated to us.

With regards,

Yours sincerely,

Sd/-

(K.P. SINGH) Shri Arvind Jadav, Secretary to Government, Department of Energy, Government of Karnataka, Bangalore.”

71. Thereafter, on 12.05.1999 emerges the Government

Order which reads as under:

109

1. 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.

2. The rate per unit being Rs. 2.60 including variable charges with an annual increase of 5% every year.

3. The term of the PPA shall be for a period of five years.

4. To adopt the same principle of negotiated tariff for captive generating power project who intend to sell power to KEB.

By Order and in the name of the Governor of Karnataka

(K.T. VUAYARAJ URS) Under Secretary to Government Energy Department”

DEVELOPMENTS POST 01.06.1999

72. 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. The first respondent was

requested to furnish details of the break-up of the

tariff so as to enable KEB to take further action in

the matter. It may at once be noticed that appellant

110 could not have negotiated prior to 01.06.1999. This is

for the reason that the appellant was only an offspring

of the Act, which came into force with effect from

01.06.1999. The first respondent wrote letter dated

06.04.2000 to the chairman of the appellant. It refers

to the agreement between the first respondent and the

appellant and that thereunder first respondent was to

return 215.810 MU to the appellant. It is indicated

that as on 06.04.2000, the first respondent had

returned 199.80 MU to the appellant. Referring to order

dated 12.05.1999, it was stated that it permitted the

appellant to purchase power from it at Rs. 2.60 inter

alia. It was also stated that it permitted appellant to

finalise the PPA with the first respondent. 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.

73. It may be noticed that the aforesaid statement

indicates that the final draft which was accepted

between the parties was submitted only in

September/October 1999. This is significant as it

111 fortifies us in our view that the parties did

contemplate the PPA and the relevant terms were to be

embodied in the PPA. The final draft was clearly ready

only after 01.06.1999. Thereafter, referring to G.O.

dated 7th 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. This is with reference to serial no.8

of order dated 7th July 1999. The first respondent goes

on to state in the letter dated 06.04.2000 that it was

continuously pursuing the appellant and GoK for signing

of the PPA. It is further stated that even though the

PPA was not yet signed, being pending with appellant,

the absence of the PPA should not come in the way of

supplying power by the first respondent to the

appellant from 12.04.2000 as the order dated 12.05.1999

along with the details of the tariff does exist.

Significantly thereafter, the first respondent

indicated that pending finalisation and signing of the

PPA between the parties, appellant was requested to

accept power despatched by the first respondent from

112 12.04.2000. Invoices would be generated by the first

respondent in terms of letter dated 12.05.1999. It was

indicated by the first respondent that it was to be

again subject to any changes required to be done

subsequently as per the terms and conditions of the

PPA, to be agreed and signed between the parties. The

contents of the communication have been emphasised by

Shri Raghavendra S. Srivatsa, learned counsel for the

appellant as clearly indicating that matters were in a

state of flux and uncertainty and still furthermore

articulation was to await the finalisation of the PPA.

On 12.04.2000 the appellant responded to the

communication dated 06.04.2000. The appellant

communicated its approval for the continued supply

pending finalisation of the PPA but subject to certain

conditions. We may notice those conditions:

1. The Grid support charges envisaged in the Wheeling & Banking and Grid support Agreement i.e., Rs. 1.73 Crores Annum will be provisionally deducted from the tariff invoices when the amount is paid. This will be subject to change and has to be paid as per the terms of PPA to be signed.

113 2. The 115% energy imported will be deducted from the energy exported, provisionally pending finalization.

3. The energy will be accounted only after signing of PPA.

4. 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.

5. This order is only for facilitating continued operations of the Power Plant and Corporation makes no commitments with respect to terms of PPA which is being finalized separately.

6. The metering arrangements should be as per the Article No. 4 of the Wheeling, Banking Agreement and Grid Support Agreement already signed copy of the same is enclosed.

[Emphasis supplied]

74. Pertinently, it is noteworthy that the appellant

appointed a professional body CRISIL to re-examine the

matter relating to tariff. CRISIL submitted report to

the appellant that the rate should be Rs. 2.10 per KWH

in the first year. The appellant found the figure

indicative and recommended that Rs. 2.45 per KWH should

not be exceeded. GoK issued corrigendum dated

114 08.05.2000 fixing the rate at Rs. 2.52 per KWH. 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 also contains certain terms. They

are as follows:

1. The procedure for payments should be as per the standard procedure followed in case of IPP Projects.

2. 115% of imported energy should be deducted form the exported energy and payments will be made for net exported energy so arrived.

3. The metering should be as per the terms of Wheeling & Banking Grid support Agreement between KEB and JTPCL signed on 23-01-96, till such time PPA is finalized.

4. The firm has to submit an undertaking that the terms and conditions of PPA 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 PPA is signed.

5. This is only an order to facilitate payment of energy charges to M/s. JTPCL and Corporation

115 makes no commitments in this regard and the terms of PPS will be finalized separately.

6. The energy transaction prior to 15-04-2000 will be finalized separately.” (Emphasis supplied)

75. Therefore, the said communication would not

indicate conduct which matches action in accordance

with the concluded contract allegedly under the GO

dated 12.05.1999, as the rate stood reduced from

Rs.2.60 to Rs.2.52. Various conditions as noticed by us

are incorporated. Importantly, condition no.5 indicates

that it is only an order to facilitate payments. 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.

76. The last communication after 1.6.1999, to bear in

mind, is the Order dated 17.07.2000. Therein, in the

Preamble, it is, inter alia, stated that KEB was

permitted to finalise the PPA for purchase of the

surplus power, as provided therein. Reference is made

further to the Government Corrigendum dated 08.05.2000,

whereunder, the rate was reduced to Rs.2.52 per unit.

116 Next, it is stated that, on examination, it was found

that, continuing with earlier rate of Rs.2.60 per unit,

would result in honouring the commitment of the

Government. There would be advantage of procuring the

better price every year. 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. The Order was to be implemented from the date of

issue of the Order. The other conditions of the

Government Order dated 12.05.1999 were to remain

unaltered. It is thereafter that the draft PPA was

prepared dated 07.11.2000. We may observe, that as far

as the rate is concerned, the rate indicated in G.O.

dated 12.05.1999, being restored and bearing in mind

the contents of G.O. dated 07.07.2000, it could be

found, that the ‘rate’ as such was concluded under G.O.

dated 12.05.1999.

77. However, a golden thread, which runs through the

correspondence is that, both the KEB, GoK and the

appellant and the first respondent, did contemplate the

execution of the PPA. The correspondence after

117 01.06.2000 also, unerringly, points to the fact that

parties did not view the PPA as a mere desire. They

have clearly proceeded on the footing that the terms of

the agreement must be evidenced in writing. Quite

clearly, the High Court has erred in not bearing in

mind the contents of the communications and their true

purport.

78. 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. However, the question would arise,

as to whether there is a contract, which was concluded

within the meaning of proviso to Section 27(2). It is

further true that Section 27(2) does not use the words

‘Power Purchase Agreement’. Section 19(4)(j) of the Act

refers to ‘contracts concluded’. Placing the said words

side-by-side with the words used in the proviso to

Section 27(2), we find that they are identical. The

said words, viz., ‘contracts concluded’ must bear the

same meaning, both in Section 19 and in Section 27. It

is true that there is no format prescribed for a PPA.

118 The format came in 2005. Section 27(2) and Section

19(4)(j), do not expressly refer to a PPA. However, the

search must continue to ascertain the purport of the

words ‘contracts concluded’. In order that there must

be a contract concluded, undoubtedly, there must be a

proposal made, which must be accepted. There must be

consideration for the promise. The proposal must be

accepted, which must be communicated, as already

explained. The acceptance must be unqualified. This is

an over simplification of a complex process. We say

this, as the parties can be said to have entered into

a contract or a contract would be said to be concluded

only when they are ad idem on all the essential terms

of the contract. In other words, if the proposals

containing the essential terms have been accepted, and

the acceptance is communicated and, if the other

conditions in Section 2 of the Indian Contract Act are

complied with, viz., that is there is consideration and

the contract is enforceable in law, within the meaning

of Section 10 of the Act, it would lead to the creation

of a concluded contract. Here, as we have noticed, the

119 KEB, the GoK and, what is more, the first respondent,

clearly contemplated that there should be a PPA.

79. 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. It is with

the execution of the draft PPA, that it was decided

that the earlier agreement of 1996, was to remain in

abeyance during the period of the PPA. In the proposal

dated 21.11.1998, the rate was initially shown as

Rs.2.90/KWH but even this rate was exclusive of certain

six elements, which meant that the rate would be even

more. 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. Fixed charges were to be escalated by five per

cent every year beginning from the second year.

Conditions of penalty to be paid by the firm for short

supply of power and assured offtake was also indicated.

The KEB sought approval from GoK. The GoK responded to

120 this recommendation by KEB by letter dated 05.03.1999.

It was indicated that the present proposal kept the

tariff open-ended and possible revision. The PPA being

for a period five years, KEB was advised to negotiate

with the first respondent for fixed tariff for five

years. Revised proposal was called for, which led to

further discussions. In the said communication, KEB

expressed its willingness to buy power subject to

certain terms and conditions. They included a penalty

clause, both for short supply and short drawal and that

the PPA was to be a simple document. A two-part tariff

was ruled out. Equally, was payment of fuel cost, at

actual. Therefore, on 31.03.1999, it is that, what has

been described as the proposal, as such, was made by

the first respondent. KEB was asked to convey its

acceptance at the earliest. This is as first respondent

was to approach its Board and its lenders on getting

its acceptance. We will proceed on the basis that it

was a matter of internal arrangement. On 23.04.1999,

KEB wrote to the GoK. KEB mentioned about two options.

Further, the KEB also, indicated it must be noted that

the first respondent had made an offer as detailed in

121 letter after the commissioning of Unit 2. They are seven

aspects. 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. What is most important is, with regard to

these matters, it was expressly indicated in the letter

dated 23.04.1999 that ‘these are issues’ to be

negotiated with the firm while finalising the PPA and

will be taken up later on. These issues were not

negotiated between the KEB and the first respondent

before 01.06.1999. There is no dispute about this

aspect. The fact that the appellant did not mention in

communication after 01.06.1999 about the need for

approval by the Commission is clearly insufficient to

oust the jurisdiction of the Commission. The Commission

122 cannot be prevented from exercising the power based on

the conduct of the appellant in this regard which

included preparation of the draft PPA.

Equally, the act of the GoK in issuing corrigendum dated

08.05.2000 or the order dated 07.07.2000, cannot also

detract from the power of Commission or lead us to hold

that there was a concluded contract under Section

27(2). 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. They were clearly

not. In this regard we may notice the sheet anchor of

the first respondent, viz., the G.O. dated 12.05.1999.

GoK in the said G.O., undoubtedly, agreed for the rate

per unit to be Rs. 2.60, including variable charges. It

also agreed for an annual increase of five per cent

every year. The term of the PPA was to be five years.

The other two aspects must, however, are not be lost

sight of. By G.O. dated 12.05.1999, actually KEB was

permitted to ‘finalise a Power Purchase Agreement’ and

to submit the same to the Government for approval. What

could be said to be approved by the Government was the

123 rate, as indicated, and the term. The G.O. clearly

indicated that all the parties, including the GoK

contemplated a PPA with the execution of which alone,

they were to be bound. The Principle of Negotiated

Tariff for captive generating power project, who intend

to sell power to KEB, was to be adopted. Several matters

remained unsettled. It is not in the region of dispute

that the issues, which KEB, in its letter dated

23.04.1999, had indicated, as issues to be negotiated

while finalising the PPA and to be taken up later on,

never came to be negotiated pursuant to the GO dated

12.05.1999 before 01.06.1999. This is crucially fatal

to the case of the first respondent. We conclude that

the parties contemplated a written PPA containing

various details apart from the tariff rate and the

tenure. There was no concluded contract with respect to

several aspects, at least, as on 01.06.1999, which is

the date on which the Act came into force. The fact

that power was supplied after the Act came into force,

must be understood in the context of the

correspondence, which we have elaborately referred to.

Even here, we may notice that there were doubts about

124 the rates itself. An Expert Body was appointed. It

recommended Rs.2.10 per KWH. 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. GoK issued a Corrigendum providing

for the rate of Rs.2.52 per unit. Supply was made and

payments made at Rs.2.52 per unit. Government issued

Order dated 07.07.2000 reinstating the rate of Rs.2.60

per unit. There may be merit in the contention of the

first respondent that as far as the rate is concerned,

there is consistency in that, GoK restored the rate at

Rs.2.60 by way of honouring its contractual commitment.

It is here that we must unravel the true scope of the

words ‘contracts concluded’ in Section 27(2) of the

Act. The proviso when it uses the words ‘contracts

concluded’, does not use the words ‘contracts concluded

as regards tariffs’. A contract of the nature, we are

concerned with, cannot be said to consist only of a

rate and the term or even the quantum included. In a

contract of this nature, there are obviously various

125 other aspects about which the parties must be ad idem.

The rate, the term and quantum are integrally

interconnected with other terms. There cannot be

concluded contract without parties being ad idem about

those terms. We found that the parties were not ad idem

as regards the issues which were expressly left open

for negotiations in the communication dated 23.04.1999.

GoK also contemplated ‘finalising’ a PPA. The word

‘finalising’ and the word ‘PPA’, both of which did not

take place before 01.06.1999, in our view, has resulted

in a situation where a contract could not be said to be

concluded even within the meaning of the proviso to

Section 27(2) of the Act. 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

126 27(2), then, clearly a PPA would be indispensable to

attract the proviso to Section 27(2). This is not even

a case where, in other words, parties were ad idem on

all the essential aspects, which go into the formation

of a complex contract as is involved in the facts of

this case. Therefore, the supply of power, in our view,

by the first respondent, after 01.06.1999, cannot be

relied upon, in view of the facts revealed by the

correspondence, which itself makes it a stop gap

arrangement, and what is more subject to conditions

which included execution of a PPA, to conclude that the

subsequent conduct, unerringly pointed to the fact that

a contract within the meaning of Section 27(2) stood

concluded before 01.06.1999.

80. In Alexander Brogden (supra), from which

considerable support is sought to be drawn by

Dr. Abhishek Singhvi, learned Senior Counsel, the

appellants who were defendants claimed that there was

no binding contract between them and the plaintiffs.

The appellants had supplied coal for some time to the

plaintiffs. The appellants suggested after some time

that there should be a contract entered into between

127 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. The defendants

filled up certain parts which had been left in blank,

and what is more, the name of a person was shown as an

arbitrator. The word ‘approved’ was written at the end

of the paper. The chief partner in the defendant’s firm

signed. Though the usual form of the signature of the

partnership was “B & Sons”, it was the chief partner

who signed. The defendant sent the paper to the agent

of the plaintiff who put it in his desk. Nothing towards

the execution of the formal agreement took place. Both

parties acted upon the same. Coals were supplied.

Payments were made. In fact, when there were some

complaints in regard to the correctness of the supply

in accordance with the paper containing the approval of

the appellant through its chief partner, explanation

and excuses were given, ‘the contract’ came to be

alluded to in the correspondence. Further supplies

resumed. However thereafter arose disputes. The

appellants refused to honour the agreement to supply.

In much of the correspondence which followed again the

128 word ‘contract’ made its appearance. The plaintiff

brought an action for damages for breach of contract.

It was on these facts that Lord Hatherley inter alia

held:

“Now, my Lords, I apprehend that if it had stopped here, this is a course of action from which the inference would fairly be drawn which becomes quite conclusive afterwards. Up to the present stage to which I have brought it the case stands thus: Agreement proposed first of all by the coal company, sent as a proposition to the railway company, converted by the railway company into a definite agreement with some very slight alterations, sent back again with these few alterations and then adopted and approved by the coal company with only one important farther alteration, namely, the insertion of Mr. 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 was said that this was inconsistent with the Plaintiffs having an agreement by which the Defendants had bound themselves to supply that quantity of coal. I do not see any such inconsistency whatever. It might possibly 129 bear on the question of whether the agreement was actually clenched at that moment or not. 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. However, what followed did clench it most distinctly, because there not only comes the answer,…

XXX XXX XXX

My Lords, I will not go through the whole of these transactions, If you ask me, when in my judgment the agreement was complete, I answer that the agreement was complete when the first coals, the 300 tons of coal supplied in January, were invoiced at the differing price, and when that differing price was accepted and paid. I think that did bring the case up to what Mr. Herschell very fairly admitted, as he was bound to admit it, would be a sufficient case to make out on the part of the Plaintiffs. 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. We have noticed the facts. It was a contract for

sale of coal. There was a long course of dealing between

the parties. The defendant wanted, however, to have a

written contract. The agents met. The terms of the draft

130 agreement were prepared by the agent of the buyer and

sent to the seller. The chief partner of the Seller

firm, in fact, filled up certain parts of the terms

which had been left in blank. What is more, the name of

the arbitrator to decide in the case of a dispute was

also written. Most importantly, the word ‘approved’ was

written. It was signed by the chief partner. It was

sent to the agent of the buyer. Though the matter did

not culminate in the drawing up of a formal written

agreement as such, the evidence revealed that the coal

was supplied and paid for. It is pertinent to notice

the context in which the question arose. It did not

involve the aspect about a statute like the Act in

question, with its ramifications both qua the alleged

contracting parties and the impact on the object of the

Act bearing in mind the interests of the consumers as

well. At any rate, the view taken in the said case

cannot be safely applied even otherwise to the facts of

the case before us. It is not a case where the parties

were not ad idem on all the essential terms of the

contract. It is not a case where the correspondence

revealed that a concluded contract did not exist. The

131 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. On the other hand, the correspondence in this

case establish a completely different factual matrix.

Both before 01.06.1999 and thereafter, the parties

clearly contemplated the execution of the PPA. They

were not ‘ad idem’ on seven matters which are expressely

left open for negotiations as indicated in letter dated

23.04.1999. We are unable to brush aside these as not

constituting essential terms. To conflate ‘concluded

contract’ even in the context of the proviso to Section

27, as one merely agreeing to the tariff, tenure and

the quantum overlooks the complex nature of the working

of such a contract. We cannot be oblivious to the impact

of provisions relating to penalty, threshold value,

consumption and other terms. Before 01.06.1999, it is

not in dispute that no negotiation as was contemplated

in regard to the same took place. Even negotiations

132 after 01.06.1999, and the preparation of a draft PPA on

07.11.2000, cannot clearly suffice. This is a case of

a contract involving a public body. This is also a case

where the implications of the contract are not confined

to the parties alone. The contract impinges on interest

such as interest of the consumer and other relevant

aspects. We, therefore, are of the view that we cannot

permit the first respondent to draw support from the

said judgment.

82. In Kollipara Sriramulu (Dead) by His Legal

Representative (supra), the Court was dealing with a

question, whether there was an oral agreement for the

sale of shares by the partners of the firm. One of the

contentions of the appellant therein was that there was

no contract because the sale was conditional upon a

regular agreement being executed and there was none. It

is apposite that we notice the following discussion:

“3. … We do not accept this argument as correct. It is well established that a mere reference to a future formal contract will not prevent a binding bargain between the parties. 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 133 existence of a binding contract. There are, however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case. As observed by the Lord Chancellor (Lord Cranworth) in Ridgwa y v. Wharton [6 HLC 238, 63], the fact of a subsequent agreement being prepared may be evidence that the previous negotiations did not amount to a concluded agreement, but the mere fact that persons wish to have a formal agreement drawn up does not establish the proposition that they cannot be bound by a previous agreement. In Von Hatzfeldt-Wildenburg v. A lexander [(1912) 1 CH 284, 288] it was stated by Parker, J. 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. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In

134 the latter case there is a binding contract and the reference to the more formal document may be ignored.”

4. In other words, there may be a case where the signing of a further formal agreement is made a condition or term of the bargain, and if the formal agreement is not approved and signed there is no concluded contract. In Rossiter v. 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. v. Creet [60 IA 297] the Judicial Committee expressed the view that the principle of the English law which is summarised in the judgment of Parker, J. In Von Hatzfeldt-Wildenburg v.

Alexander [(1912) 1 CH 284, 288] was applicable in India. The question in the present appeals is whether the execution of a formal agreement was intended to be a condition of the bargain dated July 6, 1952 or whether it was a mere expression of the desire of the parties for a formal agreement which can be ignored. The evidence adduced on behalf of Respondent 1 does not show that the drawing up of a written agreement was a pre-requisite to the coming into effect of the oral agreement. It is therefore not possible to accept the contention of the appellant that 135 the oral agreement was ineffective in law because there is no execution of any formal written document. As regards the other point, it is true that there is no specific agreement with regard to the mode of payment but this does not necessarily make the agreement ineffective. The mere omission to settle the mode of payment does not affect the completeness of the contract because the vital terms of the contract like the price and area of the land and the time for completion of the sale were all fixed. We accordingly hold that Mr Gokhale is unable to make good his argument on this aspect of the case.”

The principle is unexceptionable. But we are of the

view that the facts are distinguishable and, on the

facts, herein, there was no concluded contract and what

is more, a PPA was not a mere desire but an

indispensable requirement to conclude the terms.

83. It is clear as day light that all through the

parties undoubtedly contemplated entering into a power

purchase agreement. 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

136 negotiations and correspondence, culminating in the

Government Order 12.05.1999. It is clear that even the

GO dated 12.05.1999 expressly contemplated only a

permission by the Gok to the KEB to finalise “a PPA”

for the purchase of surplus power. The word “finalise”

in the context of the PPA cannot be played down in the

context of the previous correspondence at any rate. It

was, in fact, also contemplated that the PPA which was

to be finalised must after finalisation be submitted

again to the government. GoK was thereafter to grant

its approval. This cannot be overlooked.

C.A. @ S.L.P. (C) NO. 23793 OF 2004

84. The contention of the appellant-Commission is that

it was not a party originally in the appeal. 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. On this basis, it is contended that the findings

in the impugned Order, that at no stage, the High Court

137 had directed the Commission to be impleaded, is not

correct.

85. Next, it is contended that the finding that

Commission filed extensive pleadings and contested the

appeal, exhibiting an abnormal interest, is not

correct. The Order dated 17.08.2002, hereinbefore

referred to, is relied upon. The finding, therefore,

that the Commission exhibited an abnormal interest in

contesting the appeal or filed extensive pleadings, is

impugned. As regards the decision of the Court to not

allow the impleadment of the Commission, it is

contended that the appellant does not seek to challenge

the same. All that the learned Counsel submits is that

the observations made against the appellant-Commission

may be set aside.

86. Shri Gopal Jain, learned Senior Counsel for the

first respondent has no objection to the same.

Therefore, the appeal filed by the Commission is to be

disposed of, setting aside the observations made

against it and the appeal is to be allowed on the said

basis.

138 THE CONTOURS OF SECTION 41 OF THE ACT

87. Section 41 of the Act reads as follows:

“41. Appeals against the order of the Commission. - Any person aggrieved by any decision or order of the Commission passed under this Act may file an appeal to the High Court of Karnataka within sixty days from the date of communication of the decision or order of the Commission to him, on questions of law arising out of such order:

Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding thirty days.” (Emphasis supplied)

88. A Right of Appeal is a creature of a Statute. The

right can be qualified or conditioned. The ambit of the

appellate power is to be discerned from the terms of

the Statute. A ‘question of law’ is not the same as a

‘substantial question of law’. However, when the

Statute insists on a ‘question of law’ to maintain an

appeal, the Appellate Body stands constrained to that

extent.

89. Interpreting Section 15Z of the Securities and

Exchange Board of India Act, 1992, which also

139 conditions the Right of Appeal, ‘on any question

arising out of such Order’, this Court, speaking

through P.S. Narasimha J., in Securities and Exchange

Board of India v. Mega Corporation Limited11 held, inter

alia, as follows:

“14. On a ‘textual’ interpretation, the expression ‘question of law’ is defined in the Black’s Law Dictionary as follows:

“1. An issue to be decided by the judge, concerning the application or interpretation of the law;

2. A question that the law itself has authoritatively answered, so that the Court may not answer it as a matter of discretion;

3. 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. An issue that, although it may turn on a factual point, is reserved for the court and excluded from the jury; an issue that is exclusively within the province of the judge and not the jury”

17. 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. It is in the functioning of the Tribunal to re-examine

11 MANU/SC/0362/2022 140 all questions of fact at the appellate stage while exercising jurisdiction under Section 15T of the Act. In Clariant18 and National Securities Depository19, this Court had an occasion to examine the jurisdiction of the Tribunal and explain that the Tribunal has wide powers. Being a permanent body, apart from acting as an appellate Tribunal on fact, the Tribunal routinely interprets the Act, Rules and Regulations made thereunder and evolves a legal regime, systematically developed over a period of time. The advantage and benefit of this process is consistency and structural evolution of the sectorial laws.

19. It is in this very context that the UK Supreme Court in the case of Jones v. First Tier Tribunal,20 formulated certain principles for appellate courts to interfere against the orders of Tribunals on the ground of existence of questions of law. The Court held as under:

“16 … It is primarily for the tribunals, not the appellate courts, to develop a consistent approach to these issues [of law and fact], bearing in mind that they are peculiarly well fitted to determine them. A pragmatic approach should be taken to the dividing line between law and fact, so that the expertise of tribunals at the first tier and that of the Upper Tribunal can be used to best effect. 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.”

20. The scope of appeal under Section 15Z may be formulated as under:

141 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. A question of law may arise when there is an erroneous construction of the legal provisions of the statute or the general principles of law. 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.

20.2 However, not every interpretation of the law would amount to a question of law warranting exercise of jurisdiction under Section 15Z. The Tribunal while exercising jurisdiction under Section 15T, apart from acting as an appellate authority on fact, also interprets the Act, Rules and Regulations made thereunder and systematically evolves a legal regime. These very principles are applied consistently for structural evolution of the sectorial laws.

This freedom to evolve and interpret laws must belong to the Tribunal to subserve the Regulatory regime for clarity and consistency. These are policy and functional considerations which the Supreme Court will keep in mind while exercising its jurisdiction under Section 15Z.”

The Commission is an Expert Body. Interference with

its findings cannot be sustained, to begin with, if it

is bereft of reasons. Findings of such a body must

receive due deference. Perversity in the sense of

findings, which are wholly without basis or material or

which no person with the professed skills would arrive

142 at, may merit interference. A finding, which ill

squares with a clear statutory injunction, would leave

the door ajar for overturning the finding.

THE OTHER FINDINGS OF THE HIGH COURT

90. We must deal with the three other findings. The

High Court has found that there is merit in the argument

based on principles of promissory estoppel and

legitimate expectation. 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.

WHETHER THE FINDINGS OF THE COMMISSION ARE PERVERSE, ARBITRARY AND WITHOUT APPLICATION OF MIND (POINT NO.4)?

91. As regards the finding by the High Court answering

point no. 4, namely, whether the impugned orders are

perverse, arbitrary and passed without application of

143 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.

92. It has been the endeavour of the appellant to point

out that contrary to the point which was raised, namely,

whether the orders were perverse, arbitrary and passed

without application of mind at any rate, the point has

been answered in a manner which cannot be sustained.

The High Court opens the discussion under point no. 4

by referring to the contention of the first respondent

that the impugned order suffers from certain errors

apparent on its face. Reliance is placed on a decision

of this Court dealing with power of this court under

Article 136 of the Constitution.

93. The High Court has proceeded to find that patent

errors have been committed by the Commission. It is

found that the Commission has wrongly calculated the

fixed charges for 487MUs while fixing the tariff. This

is after finding that the fixed charges should be for

657Mus. 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

144 whereas incentive payment charges were taken as

Rs.0.924 per unit. The tariff would stand raised to

Rs.2.54 per unit, if the aforesaid errors were

corrected. Next, it is observed that these errors were

not disputed by the appellants in the pleadings before

the High Court or in the course of argument. The learned

Senior Counsel for the appellant Shri S.S. Naganand,

who submits that he had appeared in the High Court,

pointed out that, in the first place, being a Statutory

Appeal, there is no provision for pleadings, as such,

in the High Court. Further, the Commission has given a

basis for what it has done. A detailed note is also

made available, in this regard, to this Court. The

learned Counsel has further said that the matter was

argued threadbare before the Court. We find that the

High Court has not given any independent reasoning

except as we have referred to. 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

145 on a single part tariff basis. The two-part tariff

applied uniformly, it is found would have resulted in

a tariff rate of Rs.3.16 per unit, which was much higher

than Rs.2.60 under the draft PPA. Here again, these

findings appear to be based on there being a concluded

contract and, secondly, are bereft of any reasons and

material. The High Court proceeds to note the case of

the first respondent that tariff of the first

respondent was one of the cheapest as it was based on

least cost tariff basis unlike other companies. No

attempt is made to deal with the findings of the

Commission or the power and duty of the Commission.

This part of the finding is summed-up by finding that

there is ‘some substance’ in the contention of the first

respondent that it was at the receiving end of

‘invidious discrimination and arbitrariness’. We take

exception to this approach by the High Court in a

Statutory Appeal conditioned by the requirement that a

question of law must arise. A finding that there is

‘some substance’ cannot be the approach, when it is

finally disposing of an appeal and finding fault with

the Order of an Expert Body, in particular. Equally, we

146 are mystified by the invocation of the Doctrine of

Invidious Discrimination and Arbitrariness in the facts

of the case.

94. 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.

The High Court has been critical of the Commission

fixing of the plant load factor disregarding the norms

under the Electricity Supply Act or the negotiated

plant load factor. There are no reasons forthcoming to

support this finding. High Court next found fault with

the Commission for doubling the penalty. There is no

rationale. There is no appreciation within the limits

of its qualified jurisdiction. 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. It is without considering the ambit of the power

of the Commission and the objects of the Act. There are

similar findings with respect to fixed costs,

147 disproportionate loading, tantamounting to cross

subsidisation being contrary to the Judgement of this

Court in West Bengal Electricity Regulatory Commission

v. CESC Ltd.12. Again, there is no discussion and the

High Court has purported to proceed as if it is itself

an Expert Body. At least, the reasons have not been

furnished for justifying the Commission being arraigned

in the manner done. Likewise, there is impugning of the

findings of the Commission in regard to grid support

charges being unjustified and ultra vires the Act. It

is also stated that objections filed by the first

respondent were not considered by the Commission.

Lastly, it was found that the Commission has not given

reasons.

95. We are of the view that the High Court has

apparently proceeded on the basis that there existed a

concluded contract within the meaning of proviso to

Section 27(2). We have found that it is unsustainable.

We are of the view that findings which have been

rendered under Point No. 4, have been considerably

influenced by the finding relating to there being

12 (2002) 8 SCC 715 148 negotiations and the emergence of the concluded

contract. 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. But, at the

same time, we are of the view that, being an assessment

of the findings of an Expert Body, the High Court must

reconsider the matter. To the said extent, the matter

must be remitted back to the High Court in regard to

Point No.4.

CPP V. IPP (POINT NO.3)

96. The last question which remains relates to point

no.3 that is, whether the first respondent was a CPP or

an IPP.

97. Under point no.3, the High Court has relied upon

the orders of GoI dated 09.10.1995, 31.01.1996,

06.11.1996 and 09.01.1997. 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 149 Sections 29 to 31 for sale, pursuant to Section 43A,

making it an IPP. It is found that CPP would have to

get clearance under Section 44 of the Electricity

(Supply) Act, whereas an IPP would require to process

the matter under Sections 29 to 31 of the Electricity

(Supply) Act, 1948. Reliance was placed on the fact

that the first respondent was granted techno-economic

clearance by order dated 22.03.1996.

98. It is further found with reference to the G.O.

dated 07.03.1994, which we have referred to that GoK

gave approval so that continuous power could be

supplied to the grid making it more stable. Reliance is

also placed on letter dated 01.03.1995 allegedly issued

by the appellant (whereas it is actually issued by the

KEB) confirming to the CEA, that the first respondent

was an IPP. It is next found that under the Wheeling

and Banking Agreement dated 26th January, 1996 sale of

firm capacity to the appellant was provided for. GoK

also confirmed to the CEA that the first respondent was

an IPP under Section 43A of the Supply Act. GoK order

dated 2nd March, 1996 providing for consent for sale of

power under Section 43A of the Supply Act is referred

150 to. The techno economic clearance granted by the CEA

dated 22nd March, 1996 is adverted to and it is further

found that such a clearance was unnecessary if the first

respondent was a CPP. The appellant is alleged to have,

by letter dated 29th March, 1996, supported the project

cost and forwarded the same for the approval of GoI.

The appellant is also alleged to have participated in

the discussion with the CEA for approval of the project

and started the transmission system as availed by all

IPPs. It was further found that the procedure for

payment of charges for supply of electricity was to be

a standard procedure followed in case of IPP projects.

Next, the High Court reasons that if the first

respondent was a CPP, it would have set up a 140 MW

plant to meet the requirements of JVSL and not 260 MW

plant. 260 MW plant was contemplated to provide firm

capacity to the appellant as evident from the order

dated 7th March, 1994. The detailed project report

provided that the requirement of steel plant was only

150 MW and rest 110 MW will be supplied to KEB to reduce

the power deficit in the State. If the first respondent

was a CPP, it could not have dedicated firm capacity to

151 the appellant and guaranteed continuous supply of

power. The Commission itself, having recognised the

fact that the status of IPP was granted, it could not

treat it as CPP for determining the tariff. The mere

use of common infrastructure for coal handling and

water supply could not render the first respondent a

CPP. The power plant was designed to fire either corex

gas or coal as fuel which confirmed that the first

respondent plant was not a captive plant and it was

intended to supply power to the appellant even with the

Steel plant not working and not producing corex gas.

The first respondent and JVSL were distinct corporate

entities having obtained financial assistance and

project approval on stand-alone basis. The fact that

the capacity of 240 MW was underwritten by JVSL was

also found not germane to conclude that the first

respondent was a CPP. 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. Such direction was based on

the wrong conclusion that the first respondent was CPP.

152 The High Court concluded that the power plant of the

first respondent was having the status of IPP and not

CPP.

99. According to the appellant, the operation of first

respondent and JVSL was intertwined and interdependent.

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. Therefore, the first respondent is to be

treated as a CPP as it is supplying power to JVSL.

Reliance is placed on the Wheeling, Banking and Grid

Support Agreement dated 23.01.1996. The priority of the

sales was to begin with sales being made to its

dedicated customers firstly. Secondly, power was to be

wheeled to third party exclusive customers, and only if

excess power is available, it was to be supplied to the

KEB on negotiated terms. 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

153 respondent. The agreement dated 14.10.1999 entered into

between KEB and the first respondent for supply of power

from KEB to JVSL on barter basis makes it clear that

the entire net capacity is underwritten by JVSL and it

has permitted the first respondent to enter into a

Wheeling and Banking Agreement as well as PPA with KEB

for sale of excess power. It is further pointed out

that the Government of Karnataka has extended

concessions for payment of electricity taxes by

treating it as a captive unit by Government Order dated

21.12.2000. The power proposed to be supplied by the

first respondent to the appellant was surplus power and

the grant of status of IPP by GoK would make no

difference. The appellant has a case that the grant of

status of IPP was also based on the difference in the

shareholding of the companies but that cannot overlook

the other aspects about the transactions from which it

could be concluded that the first respondent was a CPP,

it is contended.

100. The first respondent would support the findings of

the High Court. Reliance is undoubtedly placed on the

Government of India policies stressing the distinction

154 between the IPP and CPP. Having obtained consent under

Sections 29 to 31 of the Supply Act, 1948, it is

contended that it is an IPP. Prior to the Electricity

Act, 2003, there was no definition of a CPP nor were

their requirements set out. Such requirements evolved

only with the Electricity Rules of 2005. The first

respondent has been recognised by the KEB and the GoK

as an IPP. 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. G.O. dated 02.03.1996, according the

exemption to the first respondent from electricity tax

only on the power supplied to JVSL, its sister concern.

The alleged CPP status was only qua power sold to the

sister concern to benefit it and not the first

respondent and it is not as projected. The

establishment of the plant of 260 MW can be explained

not with it being CPP, in which latter case, it would

have sufficed to set up a plant of 140 MW. The letter

dated 01.03.1995 sent by KEB confirmed that the first

155 respondent was an IPP. An affidavit of the appellant

dated 18.10.2001 admitted that the first respondent was

an IPP. The DPR contemplated the need to supply power

to the grid and the appellant and GoK approved the

project cost as an IPP and it was forwarded to the CEA

for approval.

101. The guaranteed minimum supply of threshold power

is compatible with the first respondent being an IPP.

Penalties for failure to sell the firm capacity or

rather for short supplies is relied upon. Payment of

charges for supply of electricity was based on

procedure in IPP projects. The tariff order of the

commission for the years 2000, 2002 and 2003 shows that

the first respondent was an IPP. Sharing of common

infrastructure did not necessarily imply that the power

plant of the first respondent was a CPP. There were

other projects taking advantage of such infrastructure.

It was intended only to optimise the project cost.

FINDINGS

102. It is not in dispute that it is with the Electricity

Rules of 2005 that the requirements of a captive

generating plant were laid down. It is the admitted 156 position that at the relevant time there was no

definition of a CPP in existence. The requirements of

a captive generating plant was, according to the first

respondent, not available.

103. It would appear that the private power policy of

the GoI was announced in the year 1991. GoI letter dated

09.10.1995 would show that there were a number of

proposals through IPP route. It was found however that

it would have a long gestation period. Captive power

plants provided an alternative. 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. This

would add to the generating capacity in the country.

There is mention of co-generation as also small power

production. 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

157 for direct sale of power to other industrial units. We

may notice that this communication is after GoK order

dated 07.03.1994 by which the first respondent was

permitted to be set up. Moreover, what is contemplated

under captive power plant was that it could sell surplus

power, if any, to the grid as per mutually agreed terms.

Therefore, in the case of the captive power plant,

primarily, the industries could satisfy their power

requirements from the captive units.

104. On 01.03.1995 the KEB responding to the request

from the Director of the CEA to clarify whether the

generating plant set up by the first respondent was

captive plant under Section 44 of the Supply Act, 1948

or a generating plant, stated that it was an independent

generating plant. The copy of the approval granted by

the GoK for setting up the generating plant was

enclosed. This would take us to G.O. dated 07.03.1994

which we have already adverted to. 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

158 already given approval. There is reference to the

financial aspects. Thereafter, it is recited that the

advantage of setting up the power plant at Bellary-

Hospet was that the excess power generated will be fed

to the KEB grid and can sell to other industrial units

in the area, besides generation of additional

employment. The KEB was found seeking a detailed

project report indicating the cost of the project inter

alia. It is thereafter that the first respondent was

permitted to set up the plant in two phases of 300 MW

of 150 MW each. This was subject to approval of the GoI

in respect of the foreign investment. It was also

subject to obtaining statutory clearances under the

relevant Acts. The first respondent was permitted to

sell power directly to industrial units in the area at

mutually negotiated rates again subject to approval of

the state government. The first respondent had to sell

the balance power to KEB at tariff to be determined as

per norms dated 31.03.1992. We may get the prima facie

impression that the said terms would appear to be in

tune with the concept of a captive unit, as contemplated

in GoI letter dated 09.10.1995.

159

105. It would appear it is not in dispute that the

capacity has been reduced from 300 MW to 260 MW. The

circumstances in which it stood reduced is not borne

out by any order produced before us. The next

development in chronological order, we notice, is the

Wheeling and Banking Agreement dated 23.01.1996. The

agreement is entered into between the first respondent

and the KEB. The agreement refers to the company or the

first respondent as a generating company and that it

proposed to set up a 2x120MW dual fire which is to be

understood with reference to the statement that it is

fired, namely, with corex gas with coal firing to

supplement it. Next it is stated that the first

respondent intended to sell the ‘majority’ of the power

to dedicated or third-party exclusive customers as

defined. 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.

Third party exclusive customer was defined to mean the

consumer who had contracted for its entire demand and

energy requirements from the first respondent. However,

160 the power was to be supplied through the KEB’s

transmission system. It is as we have already noted

provided in Clause 2.4 that ‘if at any stage’ the first

respondent offered ‘excess’ firm capacity for sale to

the board (KEB), then, the Board ‘may purchase’ the

same from the first respondent. Such purchase was to be

based on agreement on price and other terms to be

negotiated at the time of such sale. Therefore, it would

appear that what was contemplated was the sale of the

majority or most of the power generated to its dedicated

customers which included the JVSL and to other third

party exclusive customers. Clause 2.4 appears to

provide that if at any stage it was found that there

was excess power which could be firmly offered to KEB,

KEB may purchase such power. The order dated 30.01.1996

is not seen produced. It is one of the letters of the

GoI which has been referred to by the High Court and

the first respondent.

106. On 02.03.1996 GoK after referring to the G.O. dated

07.03.1994 and the request by the first respondent for

support in various matters offered certain concessions.

GoK gave its consent under Section 43A(1)(c) and

161 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. It is also

provided that the consent was also to be deemed as

previous sanction under Section 28 of the Indian

Electricity Act, 1910. Still further exemption was

granted under Section 3 of the Karnataka Tax on

Consumption of Electricity Act, 1959 on the consumption

of electricity generated by it for five years from the

date on which the power plant of the first respondent

went into commercial operation. Likewise, the consumer

was exempted. Certain other concessions were promised.

107. Section 43A(1)(c) of the Supply Act, 1948 provided

inter alia that a generating company could enter into

a contract for sale of electricity generated by it with

any other person with the consent of the competent

government or governments. The Order, thus, must be

viewed in the said perspective. This is apart from it

operating as consent for sale within the meaning of

Section 28 of the Electricity Act, 1910.

162

108. On 22.03.1996, we may notice that the ‘scheme’ for

establishment of a 2x130 MW corex/ coal based thermal

power station was accorded techno economic clearance by

the CEA subject to certain conditions which are

indicated therein.

109. Next in chronological order is the communication

dated 06.11.1996 issued by the GoI. The heading in fact

of the said communication is promotion of co-generation

power plants. In the said communication after noticing

the energy shortage and referring to letter dated

09.10.1995 it was indicated that by the subsequent

communication dated 30th January, 1996 (a communication

which we are not provided with) regarding clearance

process of captive power that the captive power plants

of any other persons including the juristic persons and

excepting generating companies was not subject to

Section 29(2) of the Supply Act. 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. Thus, in terms of Section 44 of the Act captive

power/ co-generation plants required the approval of

163 the board only. The Board were to refer the proposal

for consultation with the CEA where the capacity

exceeded 25 MW under Section 44 (2A). Thereafter, the

order went on to deal with co-generational units which

were understood as units which simultaneously produce

two or more forms of energy.

110. The last communication is dated 09.01.1997.

Therein, reference is made to the order dated 30th

January, 1996 and that it was therein clarified that

proposals for setting up captive power plants under

Section 44 would not come under the purview of Sections

29 to 31 of the Supply Act, 1948, which related to the

CEA’s detailed scrutiny and techno economic clearance.

It was added that the intention was that in view of the

large demand supply gap existing industries should be

encouraged to set up their own captive power plants to

add quick captive capacity in the electricity supply

industry. The letter dated 9th 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

164 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. In the

letter dated 01.01.1997, it is further observed

pertinently that however these would be generating

companies by definition and reference is made to GoI

instructions dated 18.01.1995, which required that

selection of IPP be through competitive bidding by the

government or electricity board. The industries

preferred to have the choice of negotiations with

parties on a bilateral basis instead of the IPP being

selected through competitive bidding. GoI decided to

facilitate setting up of ‘generating stations’ by ‘IPP’

exclusively for ‘the captive use’ of an industry or a

group of industries without involving any sale to the

State Grid. The selection of such IPP through

competitive bidding was no longer required. Thus,

letter dated 9th 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.

Secondly, such IPPs could be selected without

165 competitive bidding. We do not have the letter dated

18.01.1995, which is referred to in letter dated 9th

January, 1997. We do not also have the order dated

21.12.2000 which appears to have been relied upon by

the Commission and which is relied upon by the appellant

before us, as per which the first respondent availed

concessions from payment of electricity taxes holding

out to be a CPP. We further notice that the High Court

in the impugned judgment does not appear to have dealt

with order dated 21.12.2000. There is a case for the

appellant that when IPP desires to contract for power

with the appellant on two-part tariff basis, KEB/ the

appellant must be involved in every stage of project

formation, finalisation of capital costs. According to

appellant, KEB/ KPTCL would be involved during the

discussions stage to accord techno economic clearance

as well as for whole supply agreement to ensure the

least cost and these formalities have not been complied

with. In this case the High court has referred to the

appellant (KEB) vide its letter dated 29th March, 1996,

supporting the project cost and forwarding the same for

approval to the GoI. It is also further stated that the

166 appellant participated in discussion with the CEA for

approval of the project and supported the transmission

system. We are unable to locate the letter dated 29th

March, 1996. No doubt, the appellant must be understood

as its predecessor the KEB. But there is no

communication dated 29th March, 1996 indicating that the

KEB supported the project cost. It would appear that a

copy of such a letter (29.03.1996) was annexed as

Annexure 14A before the High Court. 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.

Appellant is stated to have participated in the

discussion before the CEA and the second respondent

(GoK) actively supported the project by granting

approval and various benefits. The High Court has apart

from finding that the appellant participated also

stated that appellant supported the transmission system

as availed by all IPPs. Prima facie, we would think

also that what was contemplated in the Wheeling and

Banking Agreement dated 23.01.1996 was that, if there

167 was any excess which meant after fulfilling its

obligations to the dedicated and third-party customers,

it would be offered to KEB.

111. The appellant has a case that what in ‘substance’

was agreed to be sold to the appellant was only surplus

available power. The status of IPP being established

also would not by itself be relevant in the

determination of the cost, it is contended. 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 findings therefore, that the first

respondent was CPP will stand set aside and High Court

will undertake a consideration of the matter based on

a study of the documents and also taking note of the

proceedings by which, the first respondent allegedly

claimed as CPP and availed benefits. The High Court

will also consider the argument of the appellant that

even treating the first respondent as IPP, in the

context of the contention of the appellant that the

168 sale contemplated to the appellant was only of ‘surplus

power’, only after the demand of the first two

categories were fulfilled on the aspect of fixation of

tariff.

112. The upshot of the above discussion is that the

appellant is entitled to succeed in the manner we shall

hereinafter immediately indicate. The appeal is partly

allowed. The finding that there was a concluded

contract within the meaning of the proviso to Section

27(2) of the Act will stand set aside. The findings

which have been rendered under point no. 4 about

perversity, arbitrariness in the findings of the

Commission are set aside. The finding relating to the

first respondent being an IPP is also set aside. The

matter will now stand remitted back to the High Court.

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. It will proceed, however, to deal

with the appeal under Section 41 of the Act in regard

to point no.3 and 4, namely, whether the findings of

the Commission are such that they are required to be

interfered under the jurisdiction available under

169 Section 41 of the Act including the question whether

the first respondent is a CPP or an IPP.

113. We must also deal with the request made by the

learned Counsel for the appellant that as Rs.100 crores

has been received by the first respondent on the

strength of a bank guarantee based on the impugned

judgment, under the interim Order passed by this Court,

if the appeal is allowed, the first respondent is duty

bound to pay the aforesaid amount to the appellant.

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. It is also the contention of the first

respondent that there will be undue enrichment as the

appellant would have shifted the burden to the end

customer.

114. This line of argument is sought to be met by the

learned counsel for the appellant by pointing out that

the appellant is a public authority, and more

170 importantly, the appellant being erroneously compelled

to pay under the orders of the court, has witnessed a

deprivation of valuable funds from the appellant, which

would otherwise have been available to it. Furthermore,

what is more important is, if the appellant succeeds in

regard to the point canvassed, namely, that there was

no concluded contract within the meaning of proviso to

Section 27 of the Act and if the amount is ordered to

be given to the appellant, then, it would have a bearing

on the interest of the consumers. 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.

115. We have considered this aspect of the matter. We

are remitting the matter back after finding that the

High Court was clearly in error in finding that there

was a concluded contract. We have also interfered with

the other findings. However, at the same time we may

not overlook the fact that we are not allowing the

appeal entirely. The validity and correctness of the

171 order of the Commission must be decided with reference

to the boundaries of the jurisdiction of High Court

under Section 41 in regard to the matter. We would at

the same time find that the appellant has succeeded in

a substantial manner. We would think that the equities

must be balanced.

116. We would think that the interest of justice would

be met if the first respondent be directed to pay a sum

of Rs.50 crores from out of Rs.100 crores which has

been paid. The payment of the amount is to be made

within a period of 8 weeks from today.

117. 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.

118. The appeal filed by Karnataka Power Transmission

Corporation Limited is partly allowed and the impugned

Judgment shall stand set aside. We find that there was

no contract concluded within the meaning of Section

27(2) of the Act. We remand the case back to the High

Court for reconsidering the points ‘3’ and ‘4’ 172 formulated by the High Court. The first respondent

shall pay to the appellant a sum of Rs.50 crores (fifty

crores) within eight weeks. As regards further

liability to pay, it will await and depend upon the

decision of the High Court. So also, the payment of

Rs.50 crores (fifty crores) by the first respondent,

under this Judgment, will be subject to the

determination to be made by the High Court.

119. 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. Parties will bear their respective costs.

………………………………………………………J. [K.M. JOSEPH]

………………………………………………………J. [ANIRUDDHA BOSE]

………………………………………………………J. [HRISHIKESH ROY]

NEW DELHI;

DATED; NOVEMBER 22, 2022.

173