M/S Penna Electricity Ltd. (Now M/S Pioneer Power Ltd.) vs Tamilnadu Electricity Board

NON­REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO(S). 706 OF 2014

M/S PENNA ELECTRICITY LIMITED (NOW M/S PIONEER POWER LIMITED) ….APPELLANT(S)

VERSUS

THE TAMIL NADU ELECTRICITY BOARD & ORS. ….RESPONDENT(S)

JUDGMENT

Rastogi, J.

1. The instant appeal has been filed under Section 125 of the

Electricity Act, 2003(hereinafter being referred to as the “Act 2003”)

assailing the judgment and order of the Appellate Tribunal for

Electricity dismissing the appeal filed at the instance of the present Signature Not Verified Digitally signed by Jayant Kumar Arora Date: 2023.03.15 16:02:39 IST

appellant.

Reason:

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2. The appellant initially filed a petition under Section 86(1)(f) of

the Act, 2003 and sought the following reliefs:­

(a) direct the Respondent to make the payment of Rs.25.63 Crores towards fixed charges and Rs.8.10 Crores towards payment due on the actual variable charges payable in respect of the power generated and availed for 153.26 millions unit during the period 29.10.2005 to 30.06.2006 to the Petitioner.

(b) direct the Respondents to make the payment to the Petitioner of the sum of Rs.18.06 Crores towards under recovered fixed charges in respect of operations of the generating station of the Petitioner for the period 01.07.2006 to 15.06.2009.

(c) direct the Respondents to make the payment to the Petitioner of the sum of Rs.12.77 crores towards under recovered additional cost of generation (variable charges) in respect of operations of generating Station of the Petitioner for the period 01.07.2006 to 15.06.2009.

(d) direct the respondent to take immediate decisions on the use of Naphtha or any other compatible fuel as alternate/ supplemental fuel to increase and maintain the PLF of the plant as contemplated in the amending PPA dated 25.08.2004 in future thereby enabling the plant being operated at optional level so as to ensure the advantage to the Respondent and also the assured return to the Petitioner. The permission to use of the Naphtha/other compatible fuel should also contemplate dispatching the plant under merit order under gas based tariff only. If the Respondent desires otherwise, the Petitioner should be assured of the fixed charges.

(e) For any reason if the Respondent were not to consider any or all of the relief claimed above by the Petitioner, to direct the Respondent to make the payments due to the Petitioner as in prayer (a), (b) and (c) above and relieve the Petitioner from the obligations of the amendment PPA dated 25.08.2004.

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3. The Tamil Nadu Electricity Regulatory Commission thereby

disposed of the petition by order dated 30 th December 2011,

rejecting the claim of the appellant relating to unpaid fixed charges

of Rs.18.06 under Combined Cycle Operation as well as the claim of

underpaid variable charges of Rs. 12.77 crores under Combined

Cycle Operation for the period between 1 st July, 2006 to 15th June,

2009.

4. This came to be challenged by the appellant in appeal before

the Appellate Tribunal for Electricity(hereinafter being referred to as

the “Tribunal”). After the matter came to be heard, taking into

consideration the material on record, the Tribunal returned a

finding in paras 35, 36 and 38(1) and (2), and dismissed the appeal

under the impugned judgment. The relevant paras are as under:­

“35. We find that there is no provision for compensation for capacity charges and variable charges due to the fact that the plant was not able to maintain the normative availability/Plant Load Factor on account of shortage of fuel in the Central Commission’s Tariff Regulations, 2004 which were in vogue when the amended PPA was entered into between the parties or in the Sate Commission’s Tariff Regulations, 2005. Admittedly, the State Commission’s Tariff Regulations were made effective subsequent to the signing of the PPA. The State Commission could not intervene

3 in allowing amendment in the provisions of the PPA in this regard which were voluntarily agreed by both the parties and which are not in contravention to any provision of the Act or Rules or the Regulations.

36. Therefore, there is no infirmity in the findings of the State Commission in not agreeing to interfere with the provisions of the PPA declaring the PPA unworkable with regard to compensation for fixed charges for the above period due to shortage of supply of gas.

37. xxx xxx

38. Summary of Our Findings

i) The Appellant is not entitled to payment of full fixed charges and actual variable charges in respect of supply of energy between 1.7.2006 to 15.6.2009 when the operational parameters were affected on account of shortage supply of gas by M/s GAIL in view of non availability of any provision in this regard in the PPA or Tariff Regulations.

ii) There is no infirmity in the findings of the State Commission in not agreeing to interfere with the provisions of the PPA or declaring the PPA unworkable with regard to compensation for fixed and variable charges for the above period due to shortage of supply of gas.”

5. Mr. Parag P. Tripathi, learned senior counsel for the appellant

submits that in the absence of any clause/provision under the

amended Power Purchase Agreement dated 25 th August,

2004(hereinafter being referred to as the “PPA”) in reference to

payment of fixed charges, it was incumbent upon the Tribunal to

have considered that the short supply of gas was due to the

diversion of gas to other generating stations and on this account the

4 Tamil Nadu Electricity Board (hereinafter being referred to as the

“Board”) could not have made the appellant to suffer by citing the

terms of the PPA. However, the Tribunal omitted to note the

unimpeachable evidence and it has not been disputed before the

Tribunal that the short supply of gas was due to the diversion of

gas to the generating stations of Board and the appellant has

suffered financial losses due to the diversion of gas to the other

generating stations.

6. Learned counsel further submits that there was sufficient

evidence on record regarding the communication between Gas

Authority of India Limited(GAIL) and the Board in reference to the

diversion of gas to other generating stations and this has seriously

impaired the functionality and efficiency of the appellant company.

7. Learned counsel further submits that it cannot be disputed

that the generating station of the appellant is capable of achieving

the technical parameters and 85% of Plant Load Factor(hereinafter

referred to as the “PLF”). In the aforesaid premise, the Board

cannot be allowed to take benefit due to its own wrong at the cost of

the appellant Company.

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8. Learned counsel further submits that the amended PPA dated

25th August, 2004 was not approved in terms of Section 86(1)(b) of

the Act 2003 still it is a binding document between the parties inter

se and since the electricity was sold to the Board otherwise than as

a gratuitous act, Board needs to pay for the same on the principle

of Quantum Meriut. In support of his submissions, learned counsel

has placed reliance on the judgment of this Court in State of West

Bengal Vs. B.K. Mondal and Sons1; Union of India Vs. Sita Ram

Jaiswal2 and Food Corporation of India and Others Vs. Vikas

Majdoor Kamdar Sahkari Mandli Limited3.

9. Learned counsel further pressed that even in the absence of

PPA not been approved and enforceable, still the compensation

payable to the appellant ought to be computed as per the tariff fixed

by the Commission for open market purchases by Board, or at least

in accordance with the relevant regulations and this being the

manifest error which the Tribunal has committed in rejecting the

claim of the appellant needs to be interfered by this Court.

1 1962(Suppl) 1 SCR 876 2 1976(4) SCC 505 3 2007(13) SCC 544

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10. Per contra, learned counsel for the respondents, while

supporting the concurrent finding returned by the Commission and

confirmed by the Tribunal under the impugned judgment submits

that the appellant has failed to meet the PLF as agreed to under the

PFA ­ apart from the fact that admittedly PPA was not approved

under the Act 2003. That apart, there is no clause in the PPA

which provides for payment of full fixed cost, even when generator

fails to meet the PLF. Any compensation by way of deemed

generation or relaxed heat rate due to partial loading of machine

due to shortage of fuel supply is the sole responsibility of the

appellant.

11. Learned counsel further submits that the shortfall in PLF and

increase in tariff heat rate was due to two factors, (i) poor efficiency

of the power plant; and (ii) short supply of natural gas by fuel

supplier(GAIL). Further, during the period between 1 st July, 2006

and 23rd October, 2007, sufficient quantity of natural gas was

available to the appellant in order to operate the power at 52.8 MW

(the contracted capacity) but tariff heat rate of the plant was always

more than 1980 Kcal/Kwr due to its poor efficiency of the plant.

7 The PLF achieved by the appellant’s power plant for the period

between 1st July, 2006 and 1st July, 2009 is as under:­

Period Concerned PLF Achieved 1 July, 2006 to 30 June, 80.82% st th

2007 1st July, 2007 to 30th June, 73.20%

2008 1st July, 2008 to 1st July, 2009 67.09%

12. In the given circumstances, the respondents cannot be held

responsible to meet the short supply of gas to the appellant. Thus,

issue of short supply of gas as alleged is an issue between GAIL and

the appellant. It was submitted that the inability of the appellant to

achieve 85% of the PLF is not due to any Force Majeure as claimed.

More so, the appellant never initiated any proceedings under the

clause of Force Majeure as per procedure provided under the PPA.

13. In addition, learned counsel further submits that PPA was

entered into between the parties based on notification of

Government of India dated 6th November, 1995. Therefore, claim of

compensation by way of deemed generation due to shortage in fuel

8 supply is the responsibility of the generator and not applicable in

terms of PPA dated 25th August, 2004. Therefore, the State

Commission’s refusal to allow claim of underpaid charges and

variable charges is well founded and rightly confirmed by the

Tribunal under the impugned judgment.

14. We have heard learned counsel for the parties and with their

assistance perused the material available on record.

15. From the facts, it manifest that the appellant is an

Independent Power Producer(IPP) operating and maintaining a

Combined Cycle Gas Turbine Power Generating station in Tamil

Nadu with a generating capacity of 52.8 MW and the said

generating station is dedicated to the Board and the entire power

generated by the appellant is to be supplied to the Board.

16. It is not disputed that the PPA dated 25th August, 2004 was

not approved under Section 86(1)(b) of the Act 2003. That apart,

there is no clause in the PPA which provides for full fixed cost, even

when appellant fails to meet the PLF. PPA between the parties was

entered based on notification of Government of India dated 6 th

November, 1995 and in terms of clause 4.3 of the said notification, 9 the responsibility of the fuel linkage would be that of the

independent power producer and any fuel supply risk would have to

be shared between the power and fuel producer/supplier and not

by the Board to indemnify.

17. There is a bi­partite agreement executed between appellant

and the GAIL, to which the respondent Board is not privy, and if

any default has been committed by GAIL in supply of natural gas to

the appellant, the respondent Board is not supposed to indemnify,

that apart, there is nothing on record to show that any remedial

action was taken by the appellant against the gas supplier on

account of short supply of gas, if permissible under the law.

18. At the same time, the appellant has not been able to

demonstrate any provision either under the Act, 2003 or under the

PPA although has not been approved by the competent authority

under the Act, 2003 which may protect the right and interest of the

appellant. That apart, no clause of the PPA has been pointed out

indicating if there is a short supply of gas due to diversion of gas to

the other generating station of the Board, the respondent Board has

to indemnify the appellant.

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19. The thrust of submission of learned counsel for the appellant

that it is the respondent Board who have sent letters to the GAIL to

divert the gas to other generating units of the Board, at least on this

account, the Board could not have made the appellant to suffer by

citing the terms of the PPA. There is no dispute that the project

was taken over on the basis of the notification dated 6 th November,

1995 issued by Government of India and in terms of para 4.3 of the

notification, the fuel of the power project was either fuel oils or

natural gas. The said clause of the Notification is as under:­

“4.3 The responsibility of either indigenous or imported fuel linkage would be that of the Independent Power Producer(IPP) and any fuel supply risks would have to be shared between the IPP/Fuel suppliers. The State Electricity Board will not take any fuel supply risk.”

20. In terms of the notification referred to above, it is clear that

the responsibility of fuel linkage ­ either heavy fuel or natural gas ­

would be that of the appellant to the generator. If there is any risk

in the supply, the same has to be shared between the generator and

the fuel supplier. The notification has classified that the Board will

not take any fuel supply risk and is not supposed to indemnify in

the given situation.

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21. It is also not disputed that there is no clause in PPA which

provides for payment of full fixed cost to the generator, even when

generator fails to meet the PLF. In the given circumstances, any

compensation by way of deemed generation or released heat rate

due to partial loading of machine, arising due to shortage to fuel

supply which is the sole responsibility of the appellant, is not

applicable as per the amended PPA dated 25 th August, 2004.

Furthermore, there is no provision for compensation by way of

deemed generation or partial norms due to operation of the power

plant at partial load due to shortage of fuel in Central Government’s

Tariff Regulations, 2004 which admittedly were in force when the

agreement was entered into between the parties.

22. The submission made by learned counsel for the appellant

that because of the diversion of gas to the other generating stations

of the Board, at least on this account, the Board could not have

made the appellant to suffer by citing the terms of PPA, on the first

blush appears to be attractive but has no legs to stand for the

reason that in the absence of there being any provision for

compensation for capacity charges and variable charges due to the

12 fact that the plant was not able to maintain the normative

availability/PLF on account of shortage of fuel in terms of the

Central Government’s Tariff Regulations, 2004, at least the

respondent Board cannot be said to be at fault and that was the

reason prevailed upon the Commission to arrive at the conclusion

that the appellant was not entitled to payment of fuel fixed charges

and actual variable charges in respect of supply of energy between

1st July, 2006 and 15th June, 2009 during the period when partial

parameters were rejected because of shortage of supply in view of

the provision in PPA or tariff regulations.

23. We find no infirmity in the finding returned by the Tribunal in

the impugned judgment which may call for our interference.

24. Consequently, the appeal fails and is accordingly dismissed.

No costs.

25. Pending application(s), if any, shall stand disposed of.

…………………………….J. (AJAY RASTOGI)

13 …………………………….J. (C.T. RAVIKUMAR) NEW DELHI;

MARCH 15, 2023

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