The Chief Engineer, Water Resources Department & Ors. vs Rattan India Power Ltd. Through Director & Ors.

CIVIL APPEAL No. 8550 of 2022 ARISING OUT OF SLP (C) No. 28161 of 2016

THE CHIEF ENGINEER, WATER RESOURCES DEPARTMENT & ORS. ....APPELLANT(S)

VERSUS

RATTAN INDIA POWER LIMITED THROUGH ITS DIRECTOR & ORS. ...RESPONDENTS(S)

JUDGMENT

PAMIDIGHANTAM SRI NARASIMHA, J.

1. The short question which arises for our consideration in the

present case relates to whether a party to a contract is entitled to

question the amount of consideration after signing the contract.

By adverting to the facts of the case, we have held that Respondent

No.1 is estopped from doing so because the Appellant, in all its

communications, had sought for an amount of Rs.1,00,000 as

irrigation restoration charges i.e., consideration for diversion of Signature Not Verified Digitally signed by Sanjay Kumar Date: 2023.01.13

water for industrial use, which was earlier reserved for irrigational 15:53:57 IST Reason:

purposes. Even the contract entered into between the parties Page 1 of 16 prescribed the same amount. In fact, Respondent No.1 agreed to

the pay the consideration by issuing an undertaking on the date

of signing of the contract. In any case, this contractual dispute

concerning the reduction of irrigation restoration charges, was

contested by the parties in an earlier Writ Petition before the High

Court of Judicature at Bombay, and the High Court by its order

dated 22.11.2012 had dismissed the challenge. This is the second

round of litigation on the same issue.

2. This appeal by the State of Maharashtra is against the

judgment of the Division Bench of the High Court of Judicature at

Bombay at Nagpur1, whereby the High Court has reduced the

‘irrigation restoration charges’ which the Respondent herein has

contracted to pay, from Rs.1,00,000 per hectare to Rs.50,000 per

hectare. This has the effect of reducing the total liability of the

Respondent towards irrigation restoration charges from Rs. 232.18

Crores to Rs.116.09 Crores.

3. The matter before us concerns the levy of ‘irrigation

restoration charge’ by the Appellant as per Government Resolution

dated 01.03.2009. The Respondent and other similarly placed

1 In WP No. 4968 of 2015 dated 05.05.2016. Page 2 of 16 companies use water for industrial purposes, which is otherwise

reserved for irrigation of agricultural land. The usage of water for

industrial purposes is seen as loss of water for irrigation, and in

order to compensate for the same, the said charge is levied and

collected by the Appellant. These charges are levied after taking

into account the total number of hectares which will be deprived

of irrigation due to the diversion of water for industrial use.

4. The other cost levied by the Appellant is the ‘capital

expenditure charge’. This charge is used towards the construction

and maintenance of dams. The payment of this charge is optional.

Therefore, in the present case, we are not concerned with the levy

and payment of the ‘capital expenditure charge’.

Facts:

5. On 21.02.2004, the Irrigation Department of the State of

Maharashtra came up with a circular wherein it was prescribed

that when water is diverted for non-irrigation purposes, then the

entity using such water shall pay a sum of Rs.50,000 per hectare

as irrigation restoration charges. The circular stated that no water

shall be diverted unless an agreement is entered into between the

concerned industry and the government.

Page 3 of 16

6. Sophia Power Company Ltd.2, the predecessor of Respondent

No.1 herein, intended to set up a 2640MW thermal power plant.

For that purpose, a communication dated 12.12.2007 was sent by

SPCL to the Maharashtra Industrial Development Corporation to

confirm the availability of 240 million liters of water per day to

facilitate the smooth running of the thermal power plant. Pursuant

to the application made by SPCL, a high-powered committee

constituted by the State of Maharashtra in its meeting held on

21.02.2008, granted in-principle approval for the usage of water

by SPCL. This in-principle approval was subject to SPCL paying

capital contribution and irrigation restoration charges. The high-

powered committee named the Appellant herein as the

implementing agency.

7. On 25.07.2008, the Vidarbha Irrigation Development

Corporation granted final approval for the usage of water by SPCL’s

thermal power plant, subject to SPCL paying a sum of Rs.549.98

Crores comprising of Rs.317.8 Crores as capital costs and

Rs.232.18 Crores as irrigation restoration charge. Irrigation

restoration charge stood at Rs.232.18 Crores since the total

number of hectares which would be deprived of irrigation due to

2 hereinafter referred to as ‘SPCL’.

Page 4 of 16 the diversion of water to SPCL’s thermal power plant was 23219

hectares. This essentially meant that SPCL was directed to pay

Rs.1,00,000 per hectare as irrigation restoration charge, as against

the prevalent rate of Rs.50,000 per hectare. Be that as it may, on

16.08.2008, the Appellant informed SPCL that it would be

reserving the required quantity of water, subject to SPCL paying a

sum of Rs.549.98 Crores. A demand letter to that effect was also

issued by the Appellant on 26.09.2008.

8. Notably, on 01.03.2009, the Water Resources Department of

the Government of Maharashtra increased the irrigation

restoration charges from Rs.50,000 to Rs.1,00,000 per hectare.

This circular came into effect from 01.04.2009.

9.1 On 25.01.2011, Respondent No.1 for the first time issued a

letter to the Minister, Water Resources Department, Government

of Maharashtra, in protest against the levy of Rs.1,00,000 as

irrigation restoration charges. It was of the view that since many

other power manufacturers were given exemption from paying the

capital contribution charge and the irrigation restoration charge,

it may also be exempted from paying the said charges. Pending

consideration of this request, Respondent No.1 requested that they

may be allowed to enter into an agreement for supply of water as

Page 5 of 16 mandated by the circular dated 21.02.2004. Without entering into

an agreement, they could not have drawn water from the dam.

9.2 Respondent No.1 again sent a letter on 25.02.2011, where it

stated that they may be allowed to pay irrigation restoration charge

at Rs.50,000 per hectare in five equal instalments because, when

the in-principle allocation was made and when the final approval

was given, the prevalent rate of irrigation restoration charge was

Rs.50,000. A similar letter was again sent by Respondent No.1 to

the Appellant on 01.06.2011, whereby in addition to the aforesaid

request, Respondent No.1 also asked for an extension to enter into

an agreement. In response, through its letter dated 08.06.2011,

the Appellant granted extension till 31.05.2012 to execute an

agreement. However, the Appellant made no commitments on the

other request raised by Respondent No.1 – waiver/reduction of the

irrigation restoration charge.

10. Since Respondent No.1 did not receive any reply on the

request concerning waiver/reduction of the irrigation restoration

cost, it sent a fresh communication on 10.05.2012 seeking

reduction of the said charge and also seeking permission to pay

the same in 5 equal instalments. The Appellant responded to this

request on 17.05.2012, by stating that there shall be no reduction

Page 6 of 16 in the irrigation restoration charge. That said, the option of paying

the said charge in 5 equal instalments was granted.

11. Ultimately, on 22.05.2012, the Appellant and Respondent

No.1 entered into a water supply agreement. Notably, this

agreement states that Respondent No.1 shall pay a sum of

Rs.1,00,000 as irrigation restoration charge. This agreement

indicates consensus ad idem on the amount to be paid towards

irrigation restoration. In fact, on the same day, Respondent No.1

also issued an undertaking to deposit the irrigation restoration

charge at the rate of Rs.1,00,000 per hectare in 5 equal

instalments.

12. Six months after signing the water supply agreement,

Respondent No.1 initiated writ proceedings before the High Court

of Judicature of Bombay challenging the communicated dated

16.08.2008 and the demand letter dated 26.09.2008. By its order

dated 22.11.2012, a division bench of the Bombay High Court

refused to quash the communications on the ground that the

Respondent No.1 had accepted its liability to pay irrigation

restoration charge at the rate of Rs.1,00,000 per hectare by signing

the agreement dated 22.05.2012. The High Court was of the view

that it could not pass any order which would obviate compliance

Page 7 of 16 of the agreement. However, the High Court held that Respondent

No.1’s plea for reduction of the irrigation restoration charge shall

be decided within a period of 8 weeks, and if the same is decided

favorably, then it would be open for Respondent No.1 to pursue

appropriate remedies in law – to seek a refund or adjust the excess

amount paid.

13. In compliance of the order passed by the High Court, the

Water Resources Department of the State of Maharashtra

considered the request of Respondent No.1 for reduction of the

irrigation restoration charge, and through its order dated

29.01.2013, rejected the said request. The reason given by the

Department was that the State had never committed to any

reduction and also that Respondent No.1 itself had signed the

agreement dated 22.05.2012, which stipulated Rs.1,00,000 per

hectare as the irrigation restoration charge. Immediately

thereafter, the Appellant also issued a demand letter.

14. Aggrieved by the rejection of its representation, Respondent

No.1 preferred a writ petition before the High Court of Judicature

of Bombay at Nagpur challenging the decision dated 29.01.2013.

The High Court by the impugned order, allowed the writ and

directed Respondent No.1 to pay irrigation restoration charges at

Page 8 of 16 Rs.50,000 per hectare. The High Court came to this conclusion by

holding that the rate prevailing on the date on which the in-

principle approval was granted by the high-powered committee

would determine the cost of irrigation restoration charge. The High

Court was of the view that since the total quantity of water used

and total loss of water for irrigation was calculated on the date of

grant of in-principle approval, it would be appropriate for the rate

prevailing as on that date to govern the irrigation restoration

charge. It is this order which is impugned before this Court.

Submissions of the parties:

15. Shri Chander Uday Singh, learned Senior Counsel appearing

for the Appellant contended that the impugned order is in the teeth

of the agreement dated 22.05.2012 entered into between the

Appellant and Respondent No.1. It is his case that the after

accepting Rs.1,00,000 as irrigation restoration charges,

Respondent No.1 is not entitled to challenge it. The substance of

his argument was that a contract is sacrosanct and it must be

respected.

16. Shri Gopal Jain, learned Senior Counsel appearing for

Respondent No.1 contended that – (i) it is the rate prevailing on the

date of grant of in-principle approval by the high-powered Page 9 of 16 committee which would govern Respondent No.1. It is his case that

the irrigation restoration charge is directly linked to the date of

approval/sanction, and on the relevant date, since the circular

dated 21.02.2004 was applicable, the Appellant could have only

levied Rs.50,000 per hectare as irrigation restoration charges; (ii)

a few similarly placed companies were given the relief which

Respondent No.1 was seeking; (iii) the undertaking given by

Respondent No.1 after signing the agreement was not an

unconditional one. This undertaking was subject to the outcome

of the numerous representations made by Respondent No.1 for

reduction of the irrigation restoration charge; (iv) the Government

Circular dated 01.03.2009 will apply prospectively and will not

apply to ongoing contracts. Shri Jain contended that if the said

circular is given retrospective effect, then it would undermine

certainty.

Analysis

17. In the present case, the Appellant and Respondent No.1 had

entered into an agreement on 22.05.2012. This agreement

categorically stated that Respondent No.1 would pay a sum of

Rs.1,00,000 per hectare towards irrigation restoration charge.

Therefore, the Respondent No.1 is not justified in challenging the

Page 10 of 16 levy of Rs.1,00,000 when it itself had agreed to the same. In fact,

on the same day, Respondent No.1 had also issued an undertaking

that it would pay the stipulated sum within a specific period of

time. We may note here that right from the very beginning i.e., in

the sanction order, the demand notice and in all its letters, the

Appellant had stipulated a sum of Rs.1,00,000 per hectare as

irrigation restoration charges. All these communications get

subsumed in the agreement dated 22.05.2012. Therefore, we are

of the view that signing the agreement and issuing an undertaking

would estop Respondent No.1 from challenging the levy of

Rs.1,00,000 as irrigation restoration charges.

18. We are not impressed with the argument of Shri Gopal Jain

that it is the rate prevailing on the date of grant of in-principle

approval which would govern Respondent No.1. The rights and

liabilities of the parties stand crystallized on the date of entering

into the agreement, which is 22.05.2012. Therefore, the rate

prevailing on 22.05.2012 would govern the parties.

19. On the aspect of differential treatment, Respondent No.1

alleges that it has been discriminated when compared to eight

other companies. This allegation is denied by the Government and

they have explained this aspect in their rejoinder filed before this

Page 11 of 16 Court and also in the counter and sur-rejoinder filed before the

High Court. By referring to these records, we have noted that in as

many as four power generators are concerned, the in-principle

approval granted in their favor has itself been cancelled as they

had failed to execute an agreement with the Appellant. A Central

Government undertaking was given an exemption since the power

produced by the said company was to be used for public benefit.

One company was charged Rs.50,000 since the agreement was

entered into on 22.09.2008, and as on that date, the prevalent rate

was Rs.50,000 per hectare. Further, one other power generator

was given an exemption because there was no loss of irrigation

potential due to diversion of water. Another company was charged

Rs.50,000 per hectare since the water to be diverted in favor of the

said company was minimal and more importantly, that particular

area was not a water deficit area. In comparison, Respondent No.1

is drawing a high amount of water from an area where water is a

scarce resource. This is a reasonable and sufficient explanation.

20. We are not satisfied with the approach adopted by the High

Court when Respondent No.1 itself has willfully and deliberately

entered into an agreement knowing fully well the legal and

business consequences. In fact, the relief claimed in this Writ

Page 12 of 16 Petition is similar to the prayer in the Writ Petition which was

disposed of on 22.11.2012. Even in that proceeding, Respondent

No.1 had raised similar arguments. They were countered by the

State by contending that there existed an agreement between the

parties which stipulated a sum of Rs.1,00,000 as irrigation

restoration charges, and pursuant to this agreement, Respondent

No.1 had even issued an undertaking. After taking note of the

contentions, the High Court held as follows:

“5. The record before the Court would indicate that even prior to the execution of the agreement the Petitioners had by a letter dated 12 May 2010 accepted the liability to pay an amount of Rs. 232.18 crores in five instalments. However, since a representation had been submitted to the Government for charging of irrigation restoration charges at the rate of 50,000/- per hectare instead of Rs.1 lakh per hectare, the Petitioners stated as follows:

“Without prejudice to IPL's right made in the representation which is pending with the State Government, it is confirmed that IPL will be willing to execute the agreement before 31st May 2012 on the conditions mentioned at 2 a) & 2 b) above. However, we will like to clarify that in the event of our representation at 1 is decided in our favour, the amount payable towards irrigation restoration charges will stand reduced accordingly and the instalments paid/payable by us will be suitably adjusted/modified.”

6. The agreement which was executed thereafter contemplates that the Petitioners would pay irrigation restoration charges at the rate of Rs. 1 lakh per hectare to Government together with interest and that the decision of the Government on the representation dated 25 January 2011 submitted for the reduction of the irrigation restoration Page 13 of 16 charges would bind the parties. The Petitioners have besides the representation dated 25 January 2011, followed up with subsequent representations which are still pending one of which is the representation dated 30 June 2011 (Exhibit “I”). The Petitioners have moved these proceedings virtually at the end of the deadline for the payment of the second instalment which falls due on 21 November 2012. If this petition were to be instituted much before the approaching deadline, directions could have been issued for the disposal of the representation well in time before the approaching deadline for the second instalment.

In these circumstances and particularly in a contractual area where the parties are governed by an agreement dated 22 May 2012 in support of which the Petitioners have also tendered an undertaking, it will not be possible for the Court to pass any order which would obviate compliance with the agreement….”

The High Court merely directed the concerned authority to take a

decision on the representations made by Respondent No.1 within

a period of eight weeks, and if the same came to be decided in the

favor of Respondent No.1, then Respondent No.1 could take such

measures in law to seek a refund. It is evident that the High Court

refrained from granting a stay on the payment of the second

instalment. In compliance with the direction of the High Court, the

Government considered the matter and it rejected the

representation on 29.01.2013. In that view of the matter, we are of

the opinion that the High Court committed an error in entertaining

a fresh writ petition, which effectively claimed the same reliefs as

of the previous one. The High Court committed a mistake in not

Page 14 of 16 only entertaining the writ petition, but also in supplanting its view

over that of the contract.

21. As has been noted above, irrigation restoration charges were

to be paid by Respondent No.1 in five installments.

S. No. Due Date Amount

1st Installment 22.05.2012 Rs.46,43,80,000

2nd Installment 21.11.2012 Rs.60,13,44,725

3rd Installment 21.05.2013 Rs.56,70,98,175

4th Installment 21.11.2013 Rs.53,28,51,625

5th Installment 21.05.2014 Rs.49,85,35,075

Clause 4 of the undertaking dated 22.05.2012 which was issued

by Respondent No.1 stated that if there is a delay in making the

payment, then penal interest @12% p.a. shall be levied. The

records before us indicate that that only two instalments have been

paid. Therefore, we direct that the balance amount due and

payable towards irrigation restoration charge shall pe paid by

Respondent No.1 on or before 30.06.2023. Further, interest @ 12%

Page 15 of 16 p.a. shall be payable from the date the instalment/payment fell

due till the date of the impugned order i.e., 05.05.2016.

22. In conclusion, we allow the Civil Appeal No. 8550 of 2022

arising out of SLP (C) No. 28161 of 2016 and set aside the

impugned final judgement and order dated 05.05.2016 passed by

the High Court of Judicature of Bombay at Nagpur in W.P. No.

4968 of 2015.

23. Parties shall bear their own costs.

……………………………….J. [S. RAVINDRA BHAT]

……………………………….J. [PAMIDIGHANTAM SRI NARASIMHA]

NEW DELHI;

JANUARY 13, 2023

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