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Thursday, April 13, 2017

a change in law in foreign and in India - effect on contract = change in law has only taken place only in 2013, which modifies the 2007 policy and to the extent that it does so, relief is available under the PPA itself to persons who source supply of coal from indigenous sources. It is to this limited extent that change in law is held in favour of the respondents. Certain other minor contentions that are raised on behalf of both sides are not being addressed by us for the reason that we find it unnecessary to go into the same.- The Appellate Tribunal’s judgment and the Commission’s orders following the said judgment are set aside. The Central Electricity Regulatory Commission will, as a result of this judgment, go into the matter afresh and determine what relief should be granted to those power generators who fall within clause 13 of the PPA as has been held by us in this judgment.


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                  Civil Appeal Nos.5399-5400 of 2016

Energy Watchdog                        …Appellant
Central Electricity Regulatory
Commission and Ors. Etc.                        …Respondents

                        Civil Appeal No.5347 of 2016
Prayas (Energy Group)                  …Appellant
Central Electricity Regulatory
Commission and Ors.                          …Respondents
                        Civil Appeal No.5348 of 2016
Prayas (Energy Group)                  …Appellant
Central Electricity Regulatory
Commission and Ors.                             …Respondents
                        Civil Appeal No.5364 of 2016
Punjab State Power Corpn. Ltd.                  …Appellant
Coastal Gujarat Power Ltd.  & Ors.                    …Respondents
                        Civil Appeal No.5346 of 2016

Ajmer Vidyut Nigam Ltd. and Ors.              …Appellants
Central Electricity Regulatory
Commission and Ors.                          …Respondents
                     Civil Appeal Nos.5351-5352 of 2016
Maharashtra State Electricity Distribution
Company Ltd.                                 …Appellant
Central Electricity Regulatory
Commission and Ors.                          …Respondents
                          Civil Appeal No.5415/2016
GRIDCO LTD.                                …Appellant
GMR – Kamalanga Energy Ltd. and Ors.   …Respondents

                     Civil Appeal Nos.9635-9642 of 2016
M/S. Coastal Gujarat Power Ltd.                 …Appellant
Central Electricity Regulatory
Commission and Ors.                            …Respondents

                        Civil Appeal No.9035 of 2014
M/S Coastal Gujarat Power Ltd.                 …Appellant

Central Electricity Regulatory
Commission and Ors.                           …Respondents

                               J U D G M E N T

1.    The present appeals arise from a judgment of  the  Appellate  Tribunal
for Electricity dated 7th April, 2016.  The facts  necessary  to  appreciate
the issues which arise in the present case, which will cover all  the  cases
before us, will be taken only from Civil  Appeal  No.5348  of  2016,  namely
Prayas (Energy) Group vs. Central Electricity Regulatory Commission.
2.    Section 63 of the Electricity Act, 2003 provides  for  procurement  of
power and determination of  tariff  by  a  transparent  competitive  bidding
process.  Once this is done, the appropriate Commission is  to  “adopt”  the
tariff which is accepted in the competitive bid subject to  guidelines  that
are made by the Central Government.  On  19th  January,  2005,  the  Central
Government issued detailed  guidelines  under  this  provision,  which  were
amended from time to time.  On 1st February, 2006, Gujarat Urja Vikas  Nigam
Limited (GUVNL) issued a public notice  inviting  proposals  for  supply  of
power on long term basis under three different  competitive  bid  processes.
The participating bidders were to  decide  on  the  tariff  and  quote  such
tariff after competing against each other.  The  bidders  were  entitled  to
quote escalable or non-escalable tariff or partly escalable and partly  non-
escalable tariff, as was considered  appropriate  by  them  to  cover  their
respective risks so as to obtain whatever returns  are  available  to  them.
The best levelised tariff as per certain pre-disclosed criteria  was  to  be
followed in order to arrive at the lowest tender.
3.    Haryana  Utilities  also  initiated  a  separate  competitive  bidding
process for purchase of 2000 MW on a long term basis. This was done on  25th
May, 2006.  The participating bidders were also entitled to  quote  bids  on
the lines  of  the  GUVNL  public  notice.   Both  the  Gujarat  Electricity
Regulatory Commission and the Haryana State Regulatory  Commission  approved
the bid documents  and  the  process  proposed  by  GUVNL  and  the  Haryana
Utilities, after which Requests for Proposal were issued by  both  of  them.
On 2nd/4th January, 2007, Adani Enterprises  Consortium  submitted  its  bid
for generation and supply of 1000 MW to GUVNL, quoting  a  levelised  tariff
of Rs.2.3495/kWh (Rs.1/kWh as the capacity charge and Rs.1.3495/kWh as  non-
escalable energy charge). In the bid,  the  Consortium  indicated  that  the
lead member, Adani Enterprises,  had  an  arrangement  for  indigenous  coal
requirement of the project with Gujarat Mineral Development Corporation,  as
the said Corporation had been allotted a certain coal block in the State  of
Chhattisgarh.    Also,  a  Memorandum  of  Understanding  was  entered  into
between Adani Enterprises Ltd. and a  German  Company  for  supply  of  non-
coking coal of 3 to 5 million tons (imported coal)  on  a  long  term  basis
till the year 2032.  A similar Memorandum of Understanding was also  entered
into between Adani Enterprises and a Japanese agent for supply  of  3  to  5
million tons of coal again on a long  term  basis.   The  two  Memoranda  of
Understanding were attached to the bid submitted by Adani Enterprises.
4.    On 11th January, 2007, the Adani Enterprises Consortium  was  selected
by GUVNL as the successful bidder for supply of  1000  MW  of  power  and  a
Letter of Intent was issued in its favour.  On 2nd February, 2007,  a  Power
Purchase Agreement was entered into between GUVNL and Adani Power  and  this
was for supply of power from a power  project  being  set  up  at  Korba  in
Chhattisgarh.  This was changed to a Mundra Project  in  Gujarat.   On  18th
April, 2007, a supplementary PPA was signed to this effect.
5.    As far as Haryana is concerned, Adani Power submitted  their  bid  for
supply of 1425 MW of power to Haryana  Utilities  on  24th  November,  2007.
This was at  a  levelised  tariff  of  Rs.2.94/kWh  from  the  Mundra  Power
Project.    The energy charges quoted  were  non-escalable.     Adani  Power
was declared as the successful bidder in  Haryana  for  supply  of  1424  MW
contracted capacity on 17th July, 2008 and a Letter of  Intent  was  issued.
Two separate PPAs were executed by Adani Power  with  two  Haryana  entities
for supply of 712 MW of  power  to  each  of  them  from  the  Mundra  Power
Project.  The Haryana State Commission adopted the tariff under  Section  63
of the Electricity Act on 31st July, 2008 (The Gujarat State Commission  had
adopted the tariff under Section 63 for supply of power  to  GUVNL  on  20th
December,  2007).   An  important  part  of  the  case  on  behalf  of   the
respondents is that a change in law in Indonesia  took  place  in  2010  and
2011,  which  aligned  the  export  price  of   coal   from   Indonesia   to
international market prices instead of the price that was prevalent for  the
last 40 years.This being the case, in both the cases, Adani  Power  filed  a
petition  before  the  Central  Electricity  Regulatory   Commission   being
Petition No.155  of  2012  on  5th  July,  2012  under  Section  79  of  the
Electricity Act seeking relief on the score of the impact of the  Indonesian
Regulation to either discharge them from  the  performance  of  the  PPA  on
account of frustration, or to evolve a mechanism to restore the  petitioners
to the same economic condition prior to occurrence of the change in law.
6.    On 16th October, 2012, the Central  Commission  held  that  the  Power
Purchase Agreements entered into by Adani in both the  cases  constituted  a
composite scheme for generation and sale of electricity as  envisaged  under
Section 79(1)(b) of the Electricity Act.  This being so,  it  held  that  it
was the appropriate Commission under the Act and not  the  respective  State
Commissions, which had jurisdiction  in  the  matter.    A  review  petition
against this order was dismissed on 16th January, 2013.
7.    On 2nd April, 2013, the Central Commission passed  an  order,  whereby
the claim of Adani Power on the grounds of force majeure  and/or  change  in
law was held not to be admissible.  However, the  Commission  held  that  in
exercise of the regulatory powers provided under Section 79 of the Act,  the
Central  Commission  can  provide  redressal  of  grievances  to  generating
companies, considering the larger public interest, and hence  constituted  a
committee to look into the alleged difficulties faced by Adani and  to  find
an acceptable solution thereto.
8.    On 16th August, 2013, pursuant to the order  dated  2nd  April,  2013,
the Committee constituted by the Commission submitted a  report.   Based  on
the Committee’s report, on  21st  February,  2014,  the  Central  Commission
proceeded to grant compensatory  tariff.   Appeals  and  cross-appeals  were
filed against this order, including cross objections.  On 1st August,  2014,
cross-objection filed by Adani Power was rejected by the Appellate  Tribunal
as  not  maintainable.   On  31st  October,  2014,  the  Appellate  Tribunal
rejected the prayer for condonation of delay  and  consequently  Appeal  No.
10016 of 2014 was filed by Adani Power.  Against  this  order,  Adani  Power
filed an appeal before the Supreme Court,  and  this  Court,  in  its  order
dated 31st March, 2015 held :
“the Appellant (Adani Power) is entitled to argue any  proposition  of  law,
be it “force majeure” or “change in law”  in  support  of  the  order  dated
21.2.2014 quantifying the compensatory tariff, the correctness of  which  is
under challenge before the Appellate Tribunal in Appeal No.98  of  2014  and
Appeal No.116 of  2014  preferred  by  the  respondents,  so  long  as  such
argument is based on the facts which are already pleaded before the  Central

9.    Finally, the  Appellate  Tribunal  on  7th  April,  2016,  passed  the
impugned judgment in all the aforesaid cases before us.  The Tribunal  held,
agreeing with the Commission, that generation and sale  of  power  by  Adani
Power to GUVNL and Haryana Utilities  was  a  composite  scheme  within  the
meaning of Section 79(1) (b) of the Act and  that,  therefore,  the  Central
Commission would have jurisdiction to proceed further in  the  matter.   The
Appellate Tribunal considered the Supreme  Court  order  dated  31st  March,
2015 and felt that the argument of force majeure and change in law could  be
gone into by it.  It ultimately concluded,  having  regard  to  the  law  on
frustration contained in the Indian Contract  Act,  1872  and  the  relevant
provisions of the PPAs, that force majeure was made  out  on  the  facts  of
these cases and reversed the Commission on this  score.   It  also  reversed
the Commission on exercise of regulatory powers under  Section  79,  stating
that these powers could not be exercised once there was a PPA  entered  into
under Section 63 of the Act.  It also held that change in law provisions  do
not apply to foreign law and, therefore, changes in Indonesian law  did  not
come within the scope of the provisions. Insofar as changes  in  Indian  law
were concerned, it held that the Government Policies that were relied  upon,
do not constitute ‘law’.   Accordingly,  the  matter  was  remanded  to  the
Commission to find out the impact  of  the  force  majeure  event  to  grant
compensatory tariff.  The  Commission  by  its  order  dated  6.12.2016  has
arrived at a certain determination as to compensatory tariff to  be  granted
on account of force majeure.
10.   We have heard learned counsel for  the  parties.   On  behalf  of  the
appellants Senior Counsel Shri Ramachandran, and Shri Prashant Bhushan  have
argued that the liberty given to Adani Power by the order dated 31st  March,
2015 of this Court  was  only  limited  to  support  the  quantification  of
compensatory tariff granted by the Central Commission  by  its  order  dated
21st February, 2014. Hence, Adani Power is not entitled to raise  the  issue
of force majeure and change  in  law  as  a  substantive  issue,  the  force
majeure claim and the change in  law  claim  having  been  rejected  by  the
Central Commission in its earlier order; and there  being  no  valid  appeal
against the said order, force majeure and  change  in  law  cannot  be  gone
into. It is further argued, in the alternative,  that  in  any  case,  force
majeure either under Section 56 of the Indian Contract Act,  1872  or  under
clauses 12.3 and 7 of the respective PPAs make it clear that it must  be  an
unforeseen  event  or  circumstance  that  wholly  or  partly  prevents  the
affected party in the performance of its obligations  under  the  agreement.
According to learned counsel, Adani  voluntarily  decided  to  quote  energy
charges as non-escalable in order to be competitive and, therefore, get  the
award of the contract.  It cannot now, in the guise  of  being  affected  by
force majeure, convert this into an escalable tariff.   They   have  further
argued that the bid given by Adani  Enterprises  was  not  premised  on  the
import of coal from Indonesia only and this being the case it  was  open  to
them to get coal from any source.  The price of coal is  the  price  of  raw
material and if prices go up, a contract  does  not  get  frustrated  merely
because it becomes commercially onerous, as the PPA itself states in  clause
12.4.  In any event, the fundamental basis of the PPAs between  the  parties
was not premised on the price of coal imported from Indonesia.
11.   On a true construction of the Act, learned counsel argued  in  support
of the Tribunal judgment that  Section  63  of  the  Electricity  Act  is  a
standalone provision and is notwithstanding anything  contained  in  Section
62.  It is obvious that under Section 62 read with Section 61  and  64,  the
Commission has to “determine” tariff under the Act having regard to  various
factors, whereas under Section 63  of  the  Act,  the  Commission  does  not
“determine” but only “adopts” tariff obtained through a transparent  process
of competitive bidding.  This being the case, it is clear that there  is  no
residuary source of power contained in the Commission either in  Section  79
or otherwise to fix compensatory tariffs once the tariff  is  adopted  under
Section 63.  If at all, such tariff can be modified only in accordance  with
the guidelines issued by the Central Government  and  not  otherwise.   They
also argued that the Central Commission itself has no jurisdiction  in  view
of the fact that on facts there is no composite scheme for the  reason  that
the generation and sale of electricity from  the  power  project  of  Adani,
under independent PPAs to Gujarat  and  Haryana  Utilities,  with  different
tariffs, and  from  different  generating  units  selected  under  different
competitive bidding processes, would show that there  is  no  one  composite
scheme  containing  uniform  tariffs.   This  being  the  case,  the   State
Commissions alone would have  jurisdiction.   It  was  further  argued  that
there is no change in law, either for the very good  reason  stated  by  the
Commission, viz. that change in law applies to  Indian  and  not  Indonesian
law, and further, a change in the tariff  policy  in  India  will  also  not
constitute change in law.  They, therefore, supported the Tribunal  judgment
on this aspect.
12.   Learned Senior counsel  Shri  Kapil  Sibal,  Shri  Harish  Salve,  Dr.
Abhishek Manu  Singhvi,  and  Shri  C.S.  Vaidyanathan,  on  behalf  of  the
respondents, on the other hand, countered each  one  of  these  submissions.
According   to   learned counsel,   first   and   foremost    the    Central
 Commission   alone would have jurisdiction on the  facts  of  these  cases,
inasmuch as Sections 79 and 86 form part of one scheme.  It  was  argued  by
them that all cases fall within either Section 79 or Section 86.    It    is
  clear   that   under   Section   86,   the    State    Commissions    have
only   to    deal with generation and sale of electricity within the  State.
 When generation and sale takes place outside the  State,  as  is  the  case
here, the State Commission would have no jurisdiction under Section 86,  and
consequently Section 79(1)(b) has to be read as part of a  scheme  in  which
the moment generation and sale of electricity is inter-State and  not  intra
State, the Central Commission alone  would  have  jurisdiction.   Judged  in
this  light,  the  expression  “composite  scheme”  would  only  mean   that
generation and sale of electricity would be in more  than  one  State.   For
this they also relied on the definition of “composite scheme”  in  the  2016
Central Government Policy.
13.   They further argued that the scheme of the Act shows that  neither  61
nor Section 79 are done away with when Section 63 applies.  Section 63  does
not use the expression “notwithstanding anything  contained  in  this  Act”.
It is clear, therefore, that all these  Sections  have  to  be  harmoniously
construed.  Section 79 is without a doubt  a  repository  of  power  to  fix
tariffs and/or modify fixation even when Section 63 applies.   Indeed,  Shri
Sibal argued that if there were no guidelines or if a matter arose  de  hors
the guidelines, then obviously there cannot  be  a  gap  in  the  law  which
remains unfilled.  The residuary power of the Commission  necessarily  comes
in under Section 79.   In any event, they also argued that  the  guidelines,
as amended, that are issued by  the  Central  Government  under  Section  63
clearly take care of the present situation in that any change  in  law  that
occurs and any dispute which relates to tariffs can both be resolved  before
the Central Commission.
14.   They also countered the submissions on force majeure by  stating  that
the fundamental basis of the contract was the  fuel  supply  agreement  that
was to be entered into, and pointed out various clauses in the PPAs to  show
that the fuel supply agreement and imported coal were  both  very  important
elements, both in the bid and the PPAs.  Non-escalable tariffs do  not  lead
to the conclusion that if a source of coal becomes unavailable in  a  manner
that completely undermines the basis  of  the  bid,  the  tariff  cannot  be
adjusted.  If otherwise they fall within the change in law provision  and/or
force majeure provision, the mere fact that a non-escalable tariff has  been
quoted would make  no  difference.    A  large  part  of  the  argument  was
centered around the meaning of the expression “frustration” in the  Contract
Act and the correct construction of clause 12 of the PPA.   A  large  number
of authorities, both English  and  Indian,  were  cited  to  show  that  the
contract had become commercially impracticable, and that they would have  to
fold up operations, which would not be in public interest as  the  consumers
would then have to obtain electricity at rates much higher than were  quoted
by them.  According to them, a force majeure event in Clause 12 takes  place
the moment performance is “hindered” and there  can  be  no  doubt  that  an
astronomical rise in prices of Indonesian coal, thanks to a change  in  law,
has certainly hindered performance.   They also argued  that  in  any  event
the change in law clause is very wide and since the PPA deals with  imported
coal, obviously change in law would cover foreign law.   They also  went  on
to add that when the PPA wanted to restrict a particular  clause  to  Indian
law, it did so expressly.  They also stated  that  it  is  significant  that
neither GUVNL nor Haryana Utilities had filed appeals in the  present  case,
and the Government had in several policy decisions and  statements  made  it
clear that in cases like  the  present,  where  there  is  grave  unforeseen
hardship on account of non-allocation of  Indian  coal,  the  rise  in  cost
should be adequately compensated.  They,  therefore,  questioned  the  locus
standi of the consumer groups,  who  are  the  only  appellants  before  us,
stating that on the estimation  made  by  the  respondents,  the  impact  of
increase in both cases on tariff would be extremely minimal  as  opposed  to
the huge accumulated losses suffered by  these  entities  which  would  make
them fold up.  Ultimately, it was argued that even  the  Central  Commission
did not give them  the  entire  benefit  of  rise  in  price  in  coal,  and
consequently in the final analysis the  relief  granted  on  the  ground  of
force majeure by the Central Commission should not be disturbed, and  relief
on the ground of change in law should,  in  addition,  have  been  given  to
15.   The learned Attorney General appearing  on  behalf  of  the  Union  of
India, submitted before us that  he  was  not  interested  in  the  ultimate
outcome of the appeals before  us.   He  was  only  appearing  in  order  to
apprise us that the electricity sector, having been privatized, has  largely
fulfilled the object sought to be achieved by the 2003 Act,  which  is  that
electricity generation, being delicenced, should  result  in  production  of
far greater electricity than was earlier  produced.   He  urged  us  not  to
disturb the delicate balance  sought  to  achieved  by  the  Act  i.e.  that
producers or generators of electricity, in order  that  they  set  up  power
plants, be entitled to a  reasonable  margin  of  profit  and  a  reasonable
return on their capital, so that they are induced to set up  more  and  more
power plants.  This must be  consistent  with  competitiveness  among  them,
which then translates itself into reasonable tariffs  that  are  payable  by
consumers of  electricity.   For  this  purpose,  he  relied  strongly  upon
Section 3 of the Electricity Act, which states that the Central  Government,
shall from time to time, prepare a National Electricity Policy and a  tariff
policy in consultation with the State Governments,  and  the  authority  for
development of the power system, based on  optimal  utilization  of  natural
resources.  According to him, the National  Electricity  Policy  and  tariff
policy that are issued from time to time, being  statutory  in  nature,  are
binding on all concerned.  This is, in fact, further recognized  by  Section
61(i)  by  which  the  appropriate  Commission,  in  specifying  terms   and
conditions for determination of tariffs, shall be  guided  by  the  National
Electricity Policy and tariff policy.  The  Central  Government’s  role  can
further be seen even in Section 63, where guidelines  that  are  binding  on
all are issued  by  the  Central  Government  in  cases  where  there  is  a
transparent process of bidding.  Further, according to  him,  Section  79(4)
also points in the  same  direction,  stating  that,  in  discharge  of  its
functions,  the  Central  Commission  shall  be  guided  by   the   National
Electricity Policy, National Electricity Plan, and tariff  policy  published
under Section 3. He also referred us to the Cabinet Committee  for  Economic
Affairs recognizing the overall shortfall in manufacture  of  domestic  coal
and the new coal distribution policy issued in July, 2013  pursuant  to  the
Cabinet Committee which, according to him, are  in  the  nature  of  binding
directions making it clear that as  generators of  electricity,  who  depend
upon indigenous coal, have  been  given  less  coal  than  was  anticipated,
should be  allowed  either  to  import  the  coal  themselves,  or  purchase
imported coal from Coal India Ltd.,  with  the  difference  in  price  being
passed through to them.  He further referred to and relied upon the  revised
tariff policy of 28th January, 2016 for the same purpose.
Relevant provisions of the Electricity Act, 2003
16.   The 2003  Act  did  away  with  three  earlier  statutes  in  which  a
completely different regime for generating and  supply  of  electricity  was
provided for, namely, the Indian  Electricity  Act,  1910,  the  Electricity
(Supply) Act, 1928 and the Electricity  Regulatory  Commissions  Act,  1998.
The Statement of Objects of Reasons for this Act reads as follows:

“The Electricity Supply Industry in India is  presently  governed  by  three
enactments  namely,  the  Indian  Electricity  Act,  1910,  the  Electricity
(Supply) Act, 1948, the Electricity Regulatory Commissions Act, 1998.

1.1   The Indian Electricity Act,  1910  created  the  basic  framework  for
electric supply industry in India which was then in  its  infancy.  The  Act
envisaged growth of the  electricity  industry  through  private  licensees.
Accordingly, it provided for licensees who could  supply  electricity  in  a
specified area. It created the legal framework for laying down of wires  and
other works relating to the supply of electricity.

1.2   The Electricity (Supply) Act, 1948 mandated the creation  of  a  State
Electricity Board. The State Electricity Board  has  the  responsibility  of
arranging the  supply  of  electricity  in  the  State.  It  was  felt  that
electrification which was limited to cities needed to  be  extended  rapidly
and the State should step in to shoulder  this  responsibility  through  the
State Electricity Boards. Accordingly the State Electricity  Boards  through
the  successive  Five  Year  Plans  undertook  rapid  growth  expansion   by
utilizing Plan funds.

1.3  Over  a  period  of  time,  however,  the  performance  of   SEBs   has
deteriorated substantially on account  of  various  factors.  For  instance,
though power to fix tariffs vests with the State  Electricity  Boards,  they
have generally been unable to take decisions on tariffs  in  a  professional
and independent manner and tariff determination in practice  has  been  done
by  the  State  Governments.  Cross-subsidies  have  reached   unsustainable
levels. To address this issue and to provide for  distancing  of  government
from determination of tariffs, the Electricity Regulatory  Commissions  Act,
was  enacted  in  1998.  It  created  the  Central  Electricity   Regulatory
Commission  and  has  an  enabling  provision  through   which   the   State
Governments can create a State Electricity Regulatory Commission. 16  States
have  so  far  notified/created  State  Electricity  Regulatory  Commissions
either under the Central Act or under their own Reform Acts.

2.    Starting with Orissa, some State  Governments  have  been  undertaking
reforms  through  their  own  Reform  Acts.   These  reforms  have  involved
unbundling  of  the  State  Electricity  Boards  into  separate  Generation,
Transmission and Distribution Companies through  transfer  schemes  for  the
transfer of the assets and staff into successor Companies. Orissa,  Haryana,
Andhra Pradesh, Karnataka, Rajasthan and Uttar  Pradesh  have  passed  their
Reform Acts and unbundled  their  State  Electricity  Boards  into  separate
companies. Delhi and Madhya Pradesh have also  enacted  their  Reforms  Acts
which, inter alia, envisage unbundling/corporatisation of SEBs.

3.    With  the  policy  of  encouraging  private  sector  participation  in
generation, transmission and distribution and the  objective  of  distancing
the regulatory  responsibilities  from  the  Government  to  the  Regulatory
Commissions, the need for harmonizing and rationalizing  the  provisions  in
the Indian Electricity Act, 1910, the Electricity  (Supply)  Act,  1948  and
the Electricity Regulatory Commissions Act, 1998  in  a  new  self-contained
comprehensive legislation arose. Accordingly, it became necessary  to  enact
a new legislation for regulating the  electricity  supply  industry  in  the
country which would replace the existing laws, preserve  its  core  features
other  than  those  relating  to  the  mandatory  existence  of  the   State
Electricity Board and the responsibilities of the State Government  and  the
State Electricity Board with respect to regulating licensees. There is  also
need to provide for newer concepts  like  power  trading  and  open  access.
There is also need to obviate the requirement of each  State  Government  to
pass its own Reforms Act. The Bill has progressive features  and  endeavours
to strike the right balance given the current realities of the power  sector
in India. It gives the State  enough  flexibility  to  develop  their  power
sector in the manner they consider appropriate. The Electricity  Bill,  2001
has been finalized after extensive discussions and  consultations  with  the
States and all other stake holders and experts.

4.    The main features of the Bill are as follows:-

(i)   Generation is being delicensed and captive generation is being  freely
permitted. Hydro  projects  would,  however,  need  approval  of  the  State
Government and clearance from the Central Electricity Authority which  would
go  into  the  issues  of  dam  safety  and  optimal  utilization  of  water

(ii)  There would be a Transmission Utility at the Central as well as  State
level, which would be a Government company and have  the  responsibility  of
ensuring that the  transmission  network  is  developed  in  a  planned  and
coordinated manner  to  meet  the  requirements  of  the  sector.  The  load
dispatch function could be kept with the Transmission Utility or  separated.
In the case of separation the load dispatch function would  have  to  remain
with a State Government organization/company.

(iii)       There is provision for private transmission    licensees.

(iv)  There would be open  access  in  transmission  from  the  outset  with
provision for surcharge for taking care of current level  of  cross  subsidy
with the surcharge being gradually phased out.

(v)  Distribution licensees  would  be  free  to  undertake  generation  and
generating companies would be free to take up distribution licensees.

(vi)  The State Electricity Regulatory Commissions may  permit  open  access
in distribution in phases with surcharge for –

(a)   current level of cross subsidy to be gradually phased out  along  with
cross subsidies; and

(b)   obligation to supply.

(vii) For rural and remote areas stand  alone  systems  for  generation  and
distribution would be permitted.

(viii)  For rural areas decentralized  management  of  distribution  through
Panchayats,  Users  Associations,  Cooperatives  or  Franchisees  would   be

(ix)  Trading as a distinct activity is being recognized with the  safeguard
of the Regulatory Commissions being authorized to fix  ceilings  on  trading
margins, if necessary.

(x)   Where there is direct commercial relationship between a  consumer  and
a generating company or a trader the price of power would not  be  regulated
and only the transmission and  wheeling  charges  with  surcharge  would  be

(xi)  There is provision for a transfer scheme  by  which  company/companies
can be created by the State Governments from the State  Electricity  Boards.
The  State  Governments  have  the  option  of  continuing  with  the  State
Electricity Boards  which  under  the  new  scheme  of  things  would  be  a
distribution licensee and the State Transmission Utility  which  would  also
be owning generation assets. The service conditions of the  employees  would
as a result of restructuring not be inferior.

(xii)       An Appellate Tribunal has been created for disposal  of  appeals
against  the  decision  of  the  CERC  and  State   Electricity   Regulatory
Commissions so that there is speedy disposal  of  such  matters.  The  State
Electricity Regulatory Commission is a mandatory requirement.

(xiii)      Provisions relating to  theft  of  electricity  have  a  revenue

5.    The Bill seeks to  replace  the  Indian  Electricity  Act,  1910,  the
Electricity (Supply) Act, 1948 and the  Electricity  Regulatory  Commissions
Act, 1998.

6.    The Bill seeks to achieve the above objects.”

17.   In the present case, we are concerned with the following Sections:
“Section 3. National Electricity  Policy  and  Plan.  ---  (1)  The  Central
Government shall, from  time  to  time,  prepare  the  National  Electricity
Policy and tariff policy, in consultation with  the  State  Governments  and
the  Authority  for  development  of  the  power  system  based  on  optimal
utilisation of resources such as coal, natural gas,  nuclear  substances  or
materials, hydro and renewable sources of energy.
(2) The Central Government shall publish  the  National  Electricity  Policy
and tariff policy from time to time.
(3) The Central Government may, from time to time in consultation  with  the
State Governments,  and  the  Authority,  review  or  revise,  the  National
Electricity Policy and tariff policy referred to in sub-section (1) .
(4) The Authority shall prepare a National Electricity  Plan  in  accordance
with the National Electricity Policy and  notify  such  plan  once  in  five
Provided that the Authority while preparing the  National  Electricity  Plan
shall publish the draft National Electricity  Plan  and  invite  suggestions
and objections thereon from licensees, generating companies and  the  public
within such time as may be prescribed:
Provided further that the Authority shall –
(a) notify the plan after obtaining the approval of the Central  Government;

(b) revise the plan incorporating therein the directions, if any,  given  by
the Central Government while granting approval under clause (a).
(5) The Authority may review or revise  the  National  Electricity  Plan  in
accordance with the National Electricity Policy.
61. Tariff Regulations. The Appropriate Commission  shall,  subject  to  the
provisions  of  this  Act,  specify  the  terms  and  conditions   for   the
determination of tariff, and in doing so, shall be guided by the  following,
(a) the principles and methodologies specified  by  the  Central  Commission
for determination of the  tariff  applicable  to  generating  companies  and
transmission licensees;
(b) the generation, transmission, distribution  and  supply  of  electricity
are conducted on commercial principles;
(c) the factors which would encourage  competition,  efficiency,  economical
use of the resources, good performance and optimum investments;
(d) safeguarding of consumers' interest and at the same  time,  recovery  of
the cost of electricity in a reasonable manner;
(e) the principles rewarding efficiency in performance;
(f) multi-year tariff principles;
(g)  that  the  tariff  progressively  reflects  the  cost  of   supply   of
electricity and also reduces cross-subsidies in the manner specified by  the
Appropriate Commission;
(h) the promotion  of  co-generation  and  generation  of  electricity  from
renewable sources of energy;
(i) the National Electricity Policy and tariff policy:
Provided that the terms and conditions for  determination  of  tariff  under
the Electricity (Supply) Act, 1948, the Electricity  Regulatory  Commissions
Act, 1998 and the  enactments  specified  in  the  Schedule  as  they  stood
immediately before the appointed date, shall continue to apply for a  period
of one year or until the terms  and  conditions  for  tariff  are  specified
under this section, whichever is earlier.
62. Determination of Tariff. (1) The Appropriate Commission shall  determine
the tariff in accordance with provisions of this Act for  –  (a)  supply  of
electricity by a generating company to a distribution licensee:
Provided that the Appropriate Commission may, in case of shortage of  supply
of electricity, fix the minimum and maximum ceiling of tariff  for  sale  or
purchase of electricity in pursuance of an agreement, entered  into  between
a generating company and a licensee or between licensees, for a  period  not
exceeding one year to ensure reasonable prices of electricity;
(b) transmission of electricity ;
(c) wheeling of electricity;
(d) retail sale of electricity:
Provided that in case of distribution of electricity in  the  same  area  by
two or more distribution licensees,  the  Appropriate  Commission  may,  for
promoting  competition  among  distribution  licensees,  fix  only   maximum
ceiling of tariff for retail sale of electricity.
(2) The Appropriate Commission  may  require  a  licensee  or  a  generating
company to furnish separate details, as  may  be  specified  in  respect  of
generation, transmission and distribution for determination of tariff.
(3) The Appropriate Commission  shall  not,  while  determining  the  tariff
under this Act, show undue preference to any  consumer  of  electricity  but
may differentiate according to the consumer's  load  factor,  power  factor,
voltage, total consumption of electricity during  any  specified  period  or
the time at which the supply is required or  the  geographical  position  of
any area, the nature of supply and the  purpose  for  which  the  supply  is
(4) No tariff or  part  of  any  tariff  may  ordinarily  be  amended,  more
frequently than once in  any  financial  year,  except  in  respect  of  any
changes expressly permitted under the terms of any  fuel  surcharge  formula
as may be specified.
(5) The Commission may require a licensee or a generating company to  comply
with such procedure  as  may  be  specified  for  calculating  the  expected
revenues from the tariff  and  charges  which  he  or  it  is  permitted  to
(6) If any licensee or a generating  company  recovers  a  price  or  charge
exceeding the tariff determined under this section, the excess amount  shall
be recoverable by the person who has paid such price or  charge  along  with
interest equivalent  to  the  bank  rate  without  prejudice  to  any  other
liability incurred by the licensee.
63. Determination of tariff by  bidding  process.  Notwithstanding  anything
contained in section 62, the Appropriate Commission shall adopt  the  tariff
if such tariff has been determined through transparent  process  of  bidding
in accordance with the guidelines issued by the Central Government.
64. Procedure for tariff order. (1)  An  application  for  determination  of
tariff under section 62 shall be made by a generating  company  or  licensee
in such manner and  accompanied  by  such  fee,  as  may  be  determined  by
(2) Every applicant shall publish the application,  in  such  abridged  form
and manner, as may be specified by the Appropriate Commission.
(3) The Appropriate Commission shall, within one  hundred  and  twenty  days
from receipt of an application under sub-section (1) and  after  considering
all suggestions and objections received from the public,-
(a) issue a tariff order accepting the application with  such  modifications
or such conditions as may be specified in that order;
(b) reject the application for reasons to be recorded  in  writing  if  such
application is not in accordance with the provisions of  this  Act  and  the
rules and regulations made thereunder or the provisions  of  any  other  law
for the time being in force:
Provided that an applicant shall be given a reasonable opportunity of  being
heard before rejecting his application.
(4) The Appropriate Commission  shall,  within  seven  days  of  making  the
order, send  a  copy  of  the  order  to  the  Appropriate  Government,  the
Authority, and the concerned licensees and to the person concerned.
(5) Notwithstanding anything contained in Part X, the tariff for any  inter-
State supply, transmission or wheeling of electricity, as the case  may  be,
involving the territories of two States may, upon application made to it  by
the parties intending to undertake such supply,  transmission  or  wheeling,
be  determined  under  this  section  by   the   State   Commission   having
jurisdiction  in  respect  of  the  licensee  who  intends   to   distribute
electricity and make payment therefor.
(6) A tariff order shall, unless amended or revoked, shall  continue  to  be
in force for such period as may be specified in the tariff order.
79. Functions of  Central  Commission.  (1)  The  Central  Commission  shall
discharge the following functions, namely:-
(a) to regulate the tariff of generating companies owned  or  controlled  by
the Central Government;
(b) to regulate the tariff of generating companies other  than  those  owned
or controlled by the Central Government specified in  clause  (a),  if  such
generating companies enter into or otherwise have  a  composite  scheme  for
generation and sale of electricity in more than one State;
(c) to regulate the inter-State transmission of electricity ;
(d) to determine tariff for inter-State transmission of electricity;
(e) to issue licenses to persons to function as  transmission  licensee  and
electricity trader with respect to their inter-State operations;
(f)  to  adjudicate  upon  disputes  involving   generating   companies   or
transmission licensee in regard to matters connected  with  clauses  (a)  to
(d) above and to refer any dispute for arbitration;
(g) to levy fees for the purposes of this Act;
(h) to specify Grid Code having regard to Grid Standards;
(i)  to  specify  and  enforce  the  standards  with  respect  to   quality,
continuity and reliability of service by licensees;
(j) to fix the trading margin in the inter-State trading of electricity,  if
considered, necessary;
(k) to discharge such other functions as may be assigned under this Act.
86. Functions  of  State  Commission.  –  (1)  The  State  Commission  shall
discharge the following functions, namely, -
(a) determine the tariff for generation, supply, transmission  and  wheeling
of electricity, wholesale, bulk or retail, as the case may  be,  within  the
Provided that where  open  access  has  been  permitted  to  a  category  of
consumers under Section 42, the State Commission shall  determine  only  the
wheeling charges and surcharge thereon, if any, for  the  said  category  of
(b) regulate electricity purchase and procurement  process  of  distribution
licensees including the price at which electricity shall  be  procured  from
the  generating  companies  or  licensees  or  from  other  sources  through
agreements for purchase of power for  distribution  and  supply  within  the
(c) facilitate intra-state transmission and wheeling of electricity;
(d) issue licences to persons seeking  to  act  as  transmission  licensees,
distribution  licensees  and  electricity  traders  with  respect  to  their
operations within the State;
(e) promote  cogeneration  and  generation  of  electricity  from  renewable
sources of energy by providing suitable measures for connectivity  with  the
grid and sale of electricity to any person, and also specify,  for  purchase
of electricity from such sources, a percentage of the total  consumption  of
electricity in the area of a distribution licensee;
(f) adjudicate upon the  disputes  between  the  licensees,  and  generating
companies and to refer any dispute for arbitration;
(g) levy fee for the purposes of this Act;
(h) specify State Grid Code consistent with the Grid  Code  specified  under
clause (h) of sub-section (1) of section 79;
(i) specify or enforce standards with respect  to  quality,  continuity  and
reliability of service by licensees;
(j) fix the trading margin in the intra-State  trading  of  electricity,  if
considered, necessary;
(k) discharge such other functions as may  be  assigned  to  it  under  this

18.   The construction of Section 63, when read with  the  other  provisions
of this Act, is what comes up for decision in the present appeals.   It  may
be noticed that Section 63 begins with a non-obstante clause, but  it  is  a
non-obstante clause covering only Section 62.  Secondly, unlike  Section  62
read  with  Sections  61  and  64,  the  appropriate  Commission  does   not
“determine”  tariff  but  only  “adopts”  tariff  already  determined  under
Section 63.  Thirdly, such “adoption”  is  only  if  such  tariff  has  been
determined through a transparent process of  bidding,  and,  fourthly,  this
transparent process of bidding must be in  accordance  with  the  guidelines
issued by the Central Government.  What has been argued before  us  is  that
Section 63 is a stand alone provision and has to be  construed  on  its  own
terms, and that, therefore, in the case of transparent bidding  nothing  can
be looked at except the bid itself which must accord with guidelines  issued
by the Central  Government.   One  thing  is  immediately  clear,  that  the
appropriate Commission does not act as a mere post office under Section  63.
 It must adopt the tariff which has been determined  through  a  transparent
process of bidding, but this  can  only  be  done  in  accordance  with  the
guidelines issued by the Central Government.   Guidelines have  been  issued
under this Section  on  19th  January,  2005,  which  guidelines  have  been
amended from time to time.  Clause 4, in particular, deals with  tariff  and
the appropriate Commission certainly  has  the  jurisdiction  to  look  into
whether the tariff determined through the process of  bidding  accords  with
clause 4.
19.   It is important to note that the  regulatory  powers  of  the  Central
Commission, so far as tariff is concerned,  are  specifically  mentioned  in
Section 79(1).  This regulatory power is a  general  one,  and  it  is  very
difficult to state that when the Commission adopts tariff under Section  63,
it functions de hors its general  regulatory power under  Section  79(1)(b).
For one thing, such regulation takes place under  the  Central  Government’s
guidelines.  For another, in a situation where there are  no  guidelines  or
in a situation which is not covered by the guidelines, can it be  said  that
the Commission’s power to “regulate” tariff is completely  done  away  with?
According to us, this  is  not  a  correct  way  of  reading  the  aforesaid
statutory provisions.  The first rule of statutory  interpretation  is  that
the statute must be read as a whole.  As a concomitant of that rule,  it  is
also clear that all the discordant notes  struck  by  the  various  Sections
must be harmonized.  Considering  the  fact  that  the  non-obstante  clause
advisedly restricts itself to Section 62, we  see  no  good  reason  to  put
Section 79 out of the way altogether.  The reason why Section 62  alone  has
been put out of the way is that determination of tariff can  take  place  in
one of two ways – either under  Section  62,  where  the  Commission  itself
determines the tariff in accordance with the provisions of the  Act,  (after
laying down the terms and conditions for determination of  tariff  mentioned
in Section 61) or under Section 63 where the Commission adopts  tariff  that
is already determined by a transparent process of bidding.  In either  case,
the general regulatory power of the Commission  under  Section  79(1)(b)  is
the source of the power to regulate, which includes the power  to  determine
or adopt tariff. In fact, Sections 62 and 63 deal  with  “determination”  of
tariff, which is part of “regulating” tariff.  Whereas “determining”  tariff
for inter-State  transmission  of  electricity  is  dealt  with  by  Section
79(1)(d), Section 79(1)(b) is a wider source of power to “regulate”  tariff.
It is clear that in a situation where the guidelines issued by  the  Central
Government under Section 63 cover the situation, the Central  Commission  is
bound by those  guidelines  and  must  exercise  its  regulatory  functions,
albeit under Section 79(1)(b), only in  accordance  with  those  guidelines.
As has been stated above, it is only in  a  situation  where  there  are  no
guidelines framed at all or where the guidelines do not deal  with  a  given
situation that the Commission’s  general  regulatory  powers  under  Section
79(1)(b) can then be used.

Jurisdiction of the Central Commission
20.   The appellants have argued before us that  the  expression  “composite
scheme” mentioned in Section 79(1) must necessarily be  a  scheme  in  which
there is uniformity of tariff under a PPA  where  there  is  generation  and
sale of electricity  in  more  than  one  State.   It  is  not  enough  that
generation and sale of electricity in more than one  State  be  the  subject
matter of one or more PPAs, but that something more  is  necessary,  namely,
that there must be a composite scheme for the same.
21.   In order to appreciate and deal with this submission, it is  necessary
to set out Section 2(5) of the Act which defines appropriate  Government  as
“2. Definitions. In this Act, unless the context otherwise requires,
(5) "Appropriate Government" means, -
(a) the Central Government, -
(i) in respect of a generating company wholly or partly owned by it;
(ii) in relation to any inter-State  generation,  transmission,  trading  or
supply of electricity and with respect to any mines,  oil-fields,  railways,
national highways,  airports,  telegraphs,  broadcasting  stations  and  any
works of defence, dockyard, nuclear power installations;
(iii) in respect of the National Load Despatch  Centre;  and  Regional  Load
Despatch Centre;
(iv) in relation to any works or electric installation belonging  to  it  or
under its control ;
(b) in any other case, the State Government, having jurisdiction under  this

Sections 25 and 30 also have some bearing and are set out as under :
“25.  Inter-State,  regional  and  inter-regional  transmission.   For   the
purposes  of  this  Part,  the  Central  Government  may,  make  region-wise
demarcation of the country, and, from time to time, make such  modifications
therein as it may consider  necessary  for  the  efficient,  economical  and
integrated transmission and supply of  electricity,  and  in  particular  to
facilitate voluntary interconnections and co-ordination  of  facilities  for
the inter-State, regional and inter-regional generation and transmission  of
30. Transmission within a State. The State Commission shall  facilitate  and
promote transmission, wheeling and inter-connection arrangements within  its
territorial jurisdiction for the transmission and supply of  electricity  by
economical and efficient utilisation of the electricity.”

22.   The scheme that emerges from these Sections is that whenever there  is
inter-State  generation  or  supply  of  electricity,  it  is  the   Central
Government that is involved, and whenever there  is  intra-State  generation
or supply of electricity, the State Government or the  State  Commission  is
involved.   This  is  the  precise  scheme  of  the  entire  Act,  including
Sections 79 and 86.  It will be seen  that  Section  79(1)  itself  in  sub-
sections (c), (d) and (e) speaks  of  inter-State  transmission  and  inter-
State operations.  This is to be contrasted  with  Section  86  which  deals
with functions of the State Commission which  uses  the  expression  “within
the State” in sub-clauses (a), (b),  and  (d),  and  “intra-state”  in  sub-
clause (c).  This being the case, it is clear  that  the  PPA,  which  deals
with generation and supply of electricity, will either have to  be  governed
by the State Commission or the Central Commission.  The  State  Commission’s
jurisdiction is only where generation and  supply  takes  place  within  the
State.  On the other hand, the moment generation and  sale  takes  place  in
more  than  one  State,  the  Central  Commission  becomes  the  appropriate
Commission under the Act.  What is important to remember is that if we  were
to accept the argument on behalf of the appellant, and we were  to  hold  in
the Adani case that there is no composite scheme for  generation  and  sale,
as argued by the appellant, it would be clear that neither Commission  would
have  jurisdiction,  something  which  would  lead  to   absurdity.    Since
generation and sale of electricity is  in  more  than  one  State  obviously
Section 86 does not get attracted.  This being the case, we are  constrained
to observe that the expression “composite scheme”  does  not  mean  anything
more than a scheme for generation and sale of electricity in more  than  one

23.    This  also  follows  from  the  dictionary   meaning   [(Mc-Graw-Hill
Dictionary of Scientific and Technical Terms (6th  Edition),             and
P.Ramanatha Aiyar’s Advanced Law Lexicon (3rd Edition)]  of  the  expression
(a)   ‘Composite’ – “A re-recording consisting of at least two elements.   A
material that results when two or  more  materials,  each  having  its  own,
usually different characteristics, are combined,  giving  useful  properties
for specific applications.  Also known as composite material.”
(b)   ‘Composite character’ – “A character that is produced by two  or  more
characters one on top of the other.”
(c)   ‘Composite unit” – “A unit made of diverse elements.”

      The aforesaid dictionary definitions lead to the conclusion  that  the
expression “composite” only means “consisting of  at  least  two  elements”.
In the context of the present case, generation and sale being in  more  than
one State, this could be referred to as “composite”.
24.   Even otherwise, the  expression  used  in  Section  79(1)(b)  is  that
generating  companies  must  enter  into  or  otherwise  have  a  “composite
scheme”.  This makes it clear that the expression  “composite  scheme”  does
not have some special meaning –  it  is  enough  that  generating  companies
have, in any manner, a scheme for generation and sale of  electricity  which
must be in more than one State.
25.   We must also hasten to add that the appellant’s  argument  that  there
must be commonality and uniformity in tariff for a “composite  scheme”  does
not follow from the Section.
26.   Another important facet of dealing with  this  argument  is  that  the
tariff policy dated  6th  June,  2006  is  the  statutory  policy  which  is
enunciated under Section 3 of the Electricity Act.   The amendment  of  28th
January,  2016  throws  considerable  light  on  the  expression  “composite
scheme”, which has been defined for the first time as follows:
“5.11 (j)   Composite Scheme:     Sub-section (b) of Section  79(1)  of  the
Act  provides  that  Central  Commission  shall  regulate  the   tariff   of
generating company, if such generating  company  enters  into  or  otherwise
have a composite scheme for generation and sale of electricity in more  than
one State.
Explanation: The composite scheme as specified under  section  791)  of  the
Act shall mean a scheme by a generating company for generation and  sale  of
electricity in more than one State, having signed long-term  or  medium-term
PPA prior to the date of commercial operation of the  project  (the  COD  of
the last unit of the project will be deemed to be  the  date  of  commercial
operation of the project) for sale of at least 10% of the  capacity  of  the
project to a distribution licensee outside the State in which  such  project
is located.”

27.   That this definition is  an  important  aid  to  the  construction  of
Section 79(1)(b) cannot be doubted and, according to  us,  correctly  brings
out the meaning of this expression as meaning nothing more than a scheme  by
a generating company for generation and sale of  electricity  in  more  than
one State.  Section 64(5) has been  relied  upon  by  the  Appellant  as  an
indicator that the State Commission has jurisdiction  even  in  cases  where
tariff for inter-State supply is involved.  This  provision  begins  with  a
non-obstante clause which would indicate that in all cases involving  inter-
State  supply,  transmission,  or  wheeling  of  electricity,  the   Central
Commission alone has jurisdiction.  In fact this further supports  the  case
of the Respondents.  Section 64(5)  can  only  apply  if,  the  jurisdiction
otherwise being with the Central Commission alone,  by  application  of  the
parties concerned, jurisdiction is to  be  given  to  the  State  Commission
having jurisdiction in respect of the licensee  who  intends  to  distribute
and make payment for electricity.  We,  therefore,  hold  that  the  Central
Commission had the necessary jurisdiction to embark upon the  issues  raised
in the present cases.

Force Majeure
28.   A large part of the argument turned on the finding  of  the  Appellate
Tribunal that the rise in price of coal consequent to change  in  Indonesian
law would be a force majeure event which would entitle  the  respondents  to
claim compensatory tariff.  Before embarking on the merits  of  this  claim,
we must first advert to the argument of the  appellant  that  force  majeure
can only be argued for a very restricted purpose, as has  been  pointed  out
in the Supreme Court judgment dated 31st March, 2015.
29.   In order to appreciate this contention, it is first necessary  to  set
out the relevant portion of this  judgment.   By  the  judgment  dated  31st
March, 2015, this Court held:
“13. By order dated 1-8-2014, the Appellate Tribunal  dismissed  the  cross-
objections of the appellant herein as not maintainable.  On  16-9-2014,  the
appellant preferred Appeal No. DFR No. 2355 of  2014  before  the  Appellate
Tribunal against that part of the order dated 2-4-2013  which  went  against
the appellant. Obviously, there was  a  delay  in  preferring  that  appeal.
Therefore, the appellant filed an application bearing IA  No.  380  of  2014
seeking condonation of delay in preferring the appeal which was rejected  by
the impugned order. Hence, the instant appeal.

14. The issue before this Court is limited. It is  the  correctness  of  the
decision of the Appellate Tribunal in declining  to  condone  the  delay  in
preferring the appeal against  the  order  dated  2-4-2013  of  the  Central

15. However, elaborate submissions were made regarding the  scope  of  Order
41 Rule 22 of the Code of Civil Procedure, 1908 (for short “CPC”),  and  its
applicability to an appeal under Section 111 of the  Act  by  the  appellant
relying upon earlier decisions of  this  Court.  The  respondents  submitted
that such an enquiry is wholly uncalled for as the cross-objections  of  the
appellant in Appeal No. 100 of 2013 stood rejected and became final.

16. Lastly, the learned counsel for the appellant  submitted  that  even  if
this Court comes to the conclusion that the appellant has  not  made  out  a
case for condonation of delay in preferring  an  appeal  against  the  order
dated 2-4-2013 of the Central  Commission,  the  appellant  is  entitled  to
argue in the pending Appeals Nos. 98 and 116 of 2014  both  the  grounds  of
“force majeure” and “change of law” not  for  the  purpose  of  seeking  the
relief of a declaration of the frustration  of  the  contracts  between  the
appellants and the respondents,  thereby  relieving  the  appellant  of  his
obligations arising out of the  contracts,  but  only  for  the  purpose  of
seeking the alternative relief of compensatory tariff. In other  words,  the
appellant's submission is that the facts  which  formed  the  basis  of  the
submission of the frustration of contracts are also relevant for  supporting
the conclusion of the National Commission that  the  appellant  is  entitled
for the relief of compensatory tariff.

17. We agree with the respondents that we are not required to  go  into  the
question of the applicability of Order 41 Rule 22 in the instant  appeal  as
the decision of the Appellate Tribunal to  reject  the  cross-objections  of
the appellant by its order dated 1-8-2014 has become  final  and  no  appeal
against the said order is pending before us.

18. We are also not required to go into the question whether  the  order  of
the Central Commission dated 2-4-2013  by  which  it  declined  to  grant  a
declaration of frustration of the contracts either on the ground  of  “force
majeure” or on the ground of “change of law”  is  independently  appealable,
since no such appeal even if maintainable, is preferred by the appellant.

19. The question whether the appellant made out a case  for  condonation  of
delay in preferring  the  appeal  before  the  Appellate  Tribunal,  in  our
opinion, need not also be examined by us in  view  of  the  last  submission
made by the appellant. If  the  appellant  is  not  desirous  of  seeking  a
declaration that the appellant is relieved of the obligation to perform  the
contracts in question, the correctness of  the  decision  of  the  Appellate
Tribunal in rejecting the application to condone  the  delay  in  preferring
the appeal would become purely academic. We are of the opinion that so  long
as the appellant does not seek a declaration,  such  as  the  one  mentioned
above, the appellant is entitled to argue any  proposition  of  law,  be  it
“force majeure” or “change of law” in support of the order  dated  21-2-2014
quantifying the compensatory tariff,  the  correctness  of  which  is  under
challenge before the Appellate Tribunal in Appeal No. 98 of 2014 and  Appeal
No. 116 of 2014 preferred by the respondents, so long as  such  an  argument
is based  on  the  facts  which  are  already  pleaded  before  the  Central

30.   This Court dealt with an  appeal  arising  out  of  an  order  of  the
Appellate  Tribunal  dated  31st  October,  2014,  in  which  the  Appellate
Tribunal declined to condone a delay of 481 days  in  preferring  an  appeal
against an order dated 2nd April, 2013.
31.   As has been stated by this Court,  the  issue  before  the  Court  was
limited.  This Court held that the appellant  is  entitled  to  argue  force
majeure and change in law in pending Appeals Nos.98 and 116 of  2014.   This
was because what was concluded by the Central Commission was  force  majeure
and change of law for the purpose of seeking the relief  of  declaration  of
frustration of the contract  between  the  appellant  and  the  respondents,
thereby relieving the appellant  of  its  obligations  arising  out  of  the
contract.  Since the appellant was not desirous  of  seeking  a  declaration
that the appellant is relieved of the obligation of performing the  contract
in question, the appellant is entitled to argue force majeure or  change  of
law in support of the Commission’s  order  of  21st  February,  2014,  which
quantified compensatory tariff, the correctness of which is under  challenge
in Appeal Nos.98 and 116 of 2014.  This being the case,  it  is  clear  that
this Court did not give any  truncated  right  to  argue  force  majeure  or
change of law.  This Court explicitly stated that  both  force  majeure  and
change of law can be argued  in  all  its  plenitude  to  support  an  order
quantifying compensatory tariff so long as the appellants do not claim  that
they are relieved of performance of the PPAs  altogether.   This  being  the
case, we are of the view that the preliminary submission  of  the  appellant
before us  is  without  any  force.   Accordingly,  the  Appellate  Tribunal
rightly went into force majeure and change of law.
32.   “Force majeure” is governed by the Indian Contract Act, 1872.   In  so
far as it is relatable to an express or implied clause in a  contract,  such
as the PPAs before us, it is  governed  by  Chapter  III  dealing  with  the
contingent contracts, and more particularly, Section 32 thereof.  In so  far
as a force majeure event occurs de hors the contract, it is dealt with by  a
rule of positive law under Section 56 of the Contract.   Sections 32 and  56
are set out herein:
“32. Enforcement of Contracts contingent on an event happening -  Contingent
contracts to do or not to do anything if an uncertain future event  happens,
cannot be enforced by law unless and until that event has happened.  If  the
event becomes impossible, such contracts become void.

56. Agreement to do impossible act - An agreement to do  an  act  impossible
in itself is void.

Contract to do act afterwards becoming impossible or  unlawful.  A  contract
to do an act which, after the  contract  made,  becomes  impossible  or,  by
reason of some  event  which  the  promisor  could  not  prevent,  unlawful,
becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be  impossible
or unlawful. Where one person has promised to do  something  which  he  knew
or, with reasonable diligence, might have known, and which the promisee  did
not  know,  to  be  impossible  or  unlawful,  such   promisor   must   make
compensation to such promise for  any  loss  which  such  promisee  sustains
through the non-performance of the promise.”

33.   Prior to the decision in Taylor vs. Caldwell,  (1861-73)  All  ER  Rep
24, the  law  in  England  was  extremely  rigid.   A  contract  had  to  be
performed, notwithstanding  the  fact  that  it  had  become  impossible  of
performance, owing to some unforeseen event, after it was  made,  which  was
not the fault of either of the parties to the contract.   This  rigidity  of
the common law in which the absolute sanctity of  contract  was  upheld  was
loosened somewhat by the decision in Taylor vs. Caldwell  in  which  it  was
held that if some unforeseen  event  occurs  during  the  performance  of  a
contract which makes it impossible of performance, in  the  sense  that  the
fundamental basis of the contract goes, it need not  be  further  performed,
as insisting upon such performance would be unjust.

34.   The law in India has  been  laid  down  in  the  seminal  decision  of
Satyabrata Ghose v. Mugneeram Bangur  &  Co.,  1954  SCR  310.   The  second
paragraph of Section 56 has been adverted to, and it was  stated  that  this
is exhaustive of the law as it stands in India.  What was held was that  the
word “impossible” has not been used in the Section in the sense of  physical
or literal impossibility.   The performance of an act may not  be  literally
impossible but it may be impracticable and useless from the  point  of  view
of the object and purpose of the parties.  If an untoward  event  or  change
of circumstance totally upsets the very foundation upon  which  the  parties
entered their  agreement,  it  can  be  said  that  the  promisor  finds  it
impossible to do the act which he had promised to do.  It was  further  held
that where the Court finds that the  contract  itself  either  impliedly  or
expressly contains a  term,  according  to  which  performance  would  stand
discharged under certain circumstances,  the  dissolution  of  the  contract
would take place under the terms of  the  contract  itself  and  such  cases
would be dealt with under Section 32 of the Act.  If,  however,  frustration
is to take place de hors the contract, it will be governed by Section 56.
35.   In M/s Alopi Parshad & Sons Ltd. v. Union of India, 1960 (2) SCR  793,
this Court, after setting out Section 56 of the Contract Act, held that  the
Act does not enable a party to a contract to ignore  the  express  covenants
thereof and to claim  payment  of  consideration,  for  performance  of  the
contract at rates different from the stipulated rates, on a  vague  plea  of
equity.  Parties to an executable contract are often faced,  in  the  course
of carrying it out, with a  turn  of  events  which  they  did  not  at  all
anticipate, for example, a wholly abnormal rise or fall in prices  which  is
an unexpected obstacle to execution.  This does not in  itself  get  rid  of
the bargain they have made. It is only when a consideration of the terms  of
the contract, in the light of the circumstances existing when it  was  made,
showed that they never agreed to  be  bound  in  a  fundamentally  different
situation which had unexpectedly emerged, that the contract ceases to  bind.
 It was further held that the performance of a contract is never  discharged
merely because it may become onerous to one of the parties.
36.   Similarly, in Naihati Jute Mills Ltd. v. Hyaliram Jagannath, 1968  (1)
SCR 821, this Court went  into  the  English  law  on  frustration  in  some
detail, and then cited  the  celebrated  judgment  of  Satyabrata  Ghose  v.
Mugneeram Bangur & Co.   Ultimately, this Court concluded  that  a  contract
is not frustrated merely because the circumstances in which it was made  are
altered.  The Courts have no general power  to  absolve  a  party  from  the
performance of its part of the contract merely because its  performance  has
become onerous on account of an unforeseen turn of events.
37.   It has also been held that applying the doctrine of  frustration  must
always be within narrow limits.  In an instructive English judgment  namely,
Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH, 1961 (2) All  ER  179,  despite
the closure of the Suez canal, and  despite  the  fact  that  the  customary
route for shipping the goods was only through the Suez canal,  it  was  held
that the contract of sale of groundnuts in that  case  was  not  frustrated,
even though it would  have  to  be  performed  by  an  alternative  mode  of
performance which was much more expensive, namely, that the ship  would  now
have to go around the Cape of Good Hope, which is three times  the  distance
from Hamburg to Port Sudan.  The freight for such journey was  also  double.
Despite this, the House of Lords held that  even  though  the  contract  had
become more onerous to perform, it was  not  fundamentally  altered.   Where
performance is otherwise possible, it is clear that a mere rise  in  freight
price would not allow one of the  parties  to  say  that  the  contract  was
discharged by impossibility of performance.
38.   This view of the law has been echoed in ‘Chitty  on  Contracts’,  31st
edition. In paragraph 14-151 a rise in cost or expense has been  stated  not
to frustrate a contract. Similarly, in ‘Treitel  on  Frustration  and  Force
Majeure’, 3rd edition, the learned author has opined, at  paragraph  12-034,
that the cases provide many illustrations of  the  principle  that  a  force
majeure clause will not normally be construed to apply  where  the  contract
provides for an alternative mode of performance.  It is clear  that  a  more
onerous method of performance by itself would not amount to  an  frustrating
event.  The same learned author also  states  that  a  mere  rise  in  price
rendering the  contract  more  expensive  to  perform  does  not  constitute
frustration.  (See paragraph 15-158)
39.   Indeed, in England, in the celebrated Sea Angel case, 2013 (1)  Lloyds
Law Report 569, the modern approach to frustration  is  well  put,  and  the
same reads as under:
“111. In my  judgment,  the  application  of  the  doctrine  of  frustration
requires a multi-factorial approach. Among the  factors  which  have  to  be
considered are the terms of the contract itself, its matrix or context,  the
parties’  knowledge,  expectations,  assumptions  and   contemplations,   in
particular as to risk, as at the time of the contract, at any  rate  so  far
as these can be ascribed mutually and objectively, and then  the  nature  of
the  supervening  event,  and  the  parties’  reasonable   and   objectively
ascertainable calculations as to the possibilities of future performance  in
the  new  circumstances.  Since  the  subject  matter  of  the  doctrine  of
frustration is contract, and contracts are about  the  allocation  of  risk,
and since the allocation and assumption of risk is not simply  a  matter  of
express or implied provision but may also  depend  on  less  easily  defined
matters such as “the contemplation of the parties”, the application  of  the
doctrine can often be a difficult one. In such circumstances,  the  test  of
“radically different” is important: it tells us that the doctrine is not  to
be lightly invoked; that mere incidence of expense or delay  or  onerousness
is not sufficient; and that there has to be as it were a break  in  identity
between the contract as provided for and contemplated  and  its  performance
in the new circumstances.”

40.   It is clear from the above that the  doctrine  of  frustration  cannot
apply  to  these  cases  as  the  fundamental  basis  of  the  PPAs  remains
unaltered.  Nowhere do the PPAs state that coal is to be procured only  from
Indonesia at a particular price.  In fact, it is clear on a reading  of  the
PPA as a whole that the price payable for the supply  of  coal  is  entirely
for the person who sets up the power plant to bear.  The fact that the  fuel
supply agreement has to be appended to the PPA is only to indicate that  the
raw material for the working of the plant is there and is in  order.  It  is
clear that an unexpected rise in the price of  coal  will  not  absolve  the
generating companies from performing their part  of  the  contract  for  the
very good reason that when they submitted their bids, this was a  risk  they
knowingly took.  We are of the view that the mere fact that the bid  may  be
non-escalable does not mean that the respondents are precluded from  raising
the plea of frustration, if otherwise it is available in  law  and   can  be
pleaded by them.  But the fact that a non-escalable  tariff  has  been  paid
for, for example, in the Adani case, is a factor which  may  be  taken  into
account only to show that the risk of supplying electricity  at  the  tariff
indicated was upon the generating company.
41.   Coming to the PPAs themselves, we find that the force  majeure  clause
contained in all of them is in a standard form and is as follows :
“12.3 Force Majeure
      ‘Force Majeure’ means any event  or  circumstance  or  combination  of
events and circumstances including those stated below that wholly or  partly
prevents or unavoidably delays an Affected Party in the performance  of  its
obligations under this Agreement, but only if and to the  extent  that  such
events or circumstances are not within the reasonable control,  directly  or
indirectly, of the Affected Party and could not have  been  avoided  if  the
Affected Party had taken reasonable care or complied  with  Prudent  Utility
i.    Natural Force Majeure Events:
act of God, including, but not  limited  to  lightning,  drought,  fire  and
explosion (to the extent originating from a source external  to  the  Site),
earthquake, volcanic eruption, landslide, food, cyclone,  typhoon,  tornado,
or exceptionally adverse weather conditions  which  are  in  excess  of  the
statistical measures for the last hundred (100) years,

ii.   Non-Natural Force Majeure Events:

Direct Non-Natural Force Majeure Events

Nationalization  or  compulsory  acquisition  by   any   Indian   Government
Instrumentality or any material assets  or  rights  of  the  Seller  or  the
Seller’s contractors; or

The unlawful, unreasonable or discriminatory revocation of,  or  refusal  to
renew,  any  Consent  required  by  the  Seller  or  any  of  the   Seller’s
contractors to perform their obligations under the Project Documents or  any
unlawful, unreasonable or discriminatory refusal to grant any other  consent
required for the development/ operation of the  Project,  provided  that  an
appropriate court of law declares the revocation or refusal to be  unlawful,
unreasonable and discriminatory and strikes the same down; or

Any other unlawful, unreasonable or discriminatory action on the part of  an
Indian Government Instrumentality which is  directed  against  the  Project,
provided that an  appropriate  court  of  law  declares  the  revocation  or
refusal to be unlawful, unreasonable  and  discriminatory  and  strikes  the
same down.

Indirect Non – Natural Force Majeure Events

Any act of war (whether declared or undeclared),  invasion,  armed  conflict
or act of foreign enemy, blockade, embargo, revolution, riot,  insurrection,
terrorist or military action; or

Radio active contamination or ionising radiation originating from  a  source
in India or resulting from another Indirect Non Natural Force Majeure  Event
excluding circumstances where  the  source  or  cause  of  contamination  or
radiation is brought or has been brought  into  or  near  the  site  by  the
affected party or those employed or engaged by the affected party; or

Industry wide strikes and labor disturbances having a nationwide  impact  in

12.7  Available Relief for a Force Majeure Event
Subject to this Article 12:
No Party shall be in breach of its obligations pursuant  to  this  Agreement
to the extent  that  the  performance  of  its  obligations  was  prevented,
hindered or delayed due to a Force Majeure Event;

Every Party shall be entitled  to  claim  relief  in  relation  to  a  Force
Majeure Event in regard to its obligations, including  but  not  limited  to
those specified under Article 4.5.

For the avoidance of doubt, it is clarified that no Tariff shall be paid  by
the Procurers for the part of Contracted  Capacity  affected  by  a  Natural
Force Majeure Event affecting the Seller, for the duration of  such  Natural
Force Majeure Event.  For the balance part of the Contracted  Capacity,  the
Procurer shall pay the Tariff to the Seller, provided during such period  of
Natural Force Majeure Event, the  balance  part  of  the  Power  Station  is
declared to be Available for scheduling and dispatch as per ABT  for  supply
of power by the Seller to the Procurers.

If the average Availability of the Power  Station  is  reduced  below  sixty
(60) percent for over two (2) consecutive months or for any non  consecutive
period of four (4) months both within any continuous period  of  sixty  (60)
months, as a result of an Indirect Non Natural  Force  Majeure,  then,  with
effect from the end of that period and for so  long  as  the  daily  average
Availability of the Power Station continues to be reduced below  sixty  (60)
percent as a result of an Indirect Non Natural Force Majeure  of  any  kind,
the Procurers shall make payments for Debt Service, relatable to such  Unit,
which are due under the  Financing  Agreements,  subject  to  a  maximum  of
Capacity Charges based on Normative Availability, and  these  amounts  shall
be paid from the date, being the later of a) the date of cessation  of  such
Indirect Non Natural Force Majeure Event and  b)  the  completion  of  sixty
(60) days from the receipt of the Financing Agreements  by  the  Procurer(s)
from the Seller, in the form of an increase in  Capacity  Charge.   Provided
such Capacity Charge increase shall be determined by CERC on  the  basis  of
putting the Seller in the same economic position as the  Seller  would  have
been in case the Seller had been paid Debt Service in a situation  when  the
Indirect Non Natural Force Majeure had not occurred.

Provided that the Procurers will have the above obligation to  make  payment
for the Debt Service only (a) after the Unit(s) affected  by  such  Indirect
Non Natural Force Majeure Event has been Commissioned, and (b)  only  if  in
the  absence  of  such  Indirect  Non  Natural  Force  Majeure  Event,   the
Availability of such Commissioned Unit(s) would have  resulted  in  Capacity
Charges equal to Debt Services.

e)  If the average Availability  of  the  Power  Station  is  reduced  below
eighty (80) percent for over two (2)  consecutive  months  or  for  any  non
consecutive period of four (4) months both within any continuous  period  of
sixty (60) months, as a result of a Direct Non Natural Force Majeure,  then,
with effect from the end of that  period  and  for  so  long  as  the  daily
average Availability of the Power Station  continues  to  be  reduced  below
eighty (80) percent as a result of a Direct Non  Natural  Force  Majeure  of
any kind, the Seller may elect in a written  notice  to  the  Procurers,  to
deem the Availability of the Power Station  to  be  eighty  (80)  percentage
from the end of such period, regardless of its actual  Available   Capacity.
In such a case, the Procurers shall be liable to make payment to the  Seller
of Capacity Charges calculated on such deemed Normative Availability,  after
the cessation of the effects of Non Natural  Direct  Force  Majeure  in  the
form of an increase in  Capacity  Charge.   Provided  such  Capacity  Charge
increase shall be determined by CERC on the basis of putting the  Seller  in
the same economic position as the Seller would have been in case the  Seller
had been paid Capacity Charges in a situation where the Direct  Non  Natural
Force Majeure had not occurred.

For so long as the Seller is claiming relief due to any  Non  Natural  Force
Majeure Event (or Natural Force  Majeure  Event  affecting  the  Procurer/s)
under this Agreement, the Procurers may from time to time on  one  (1)  days
notice  inspect  the  Project  and  the  Seller  shall  provide   Procurer’s
personnel with access to the Project to carry out such inspections,  subject
to  the  Procurer’s  personnel  complying   with   all   reasonable   safety
precautions  and  standards.   Provided  further  the  Procurers  shall   be
entitled at all times to request Repeat Performance  Test,  as  per  Article
8.1, of the Unit(s) Commissioned earlier  and  now  affected  by  Direct  or
Indirect Non Natural Force Majeure Event (or  Natural  Force  Majeure  event
affecting the Procurer/s), where such Testing is possible to  be  undertaken
in spite of the Direct or Indirect  Non  Natural  Force  Majeure  Event  (or
Natural Force Majeure Event affecting the Procurer/s), and  the  Independent
Engineer accepts  and  issues  a  Final  Test  Certificate  certifying  such
Unit(s) being capable  of  delivering  the  Contracted  Capacity  and  being
Available, had there been no such  Direct  or  Indirect  Non  Natural  Force
Majeure Event (or Natural Force Majeure  Event  affecting  the  Procurer/s).
In  case,  the  Available  Capacity  as  established  by  the  said   Repeat
Performance  Test  (provided  that  such  Repeat   Performance   Test,   the
limitation imposed  by  Article  8.1.1  shall  not  apply)  and  Final  Test
Certificate issued by the Independent Engineer is less  than  the  Available
Capacity corresponding to which the Seller would  have  been  paid  Capacity
Charges equal to Debt Service in case of Indirect Non Natural Force  Majeure
Event (or Natural Force Majeure Event affecting the  Procurer/s),  then  the
Procurers shall make pro-rata payment of Debt Service but only with  respect
to such reduced Availability.  For the avoidance of doubt, if  Debt  Service
would have been payable at an Availability of 60% and pursuant to  a  Repeat
Performance Test it is established that the  Availability  would  have  been
40%, then Procurers shall make payment equal to Debt Service  multiplied  by
40% and divided by 60%.  Similarly, the  payments  in  case  of  Direct  Non
Natural Force Majeure Event (and Natural Force Majeure Event  affecting  the
Procurer/s) shall also be  adjusted  pro-rata  for  reduction  in  Available

(g) In case of a Natural Force Majeure Event affecting the Procurer/s  which
adversely affects the performance  obligations  of  the  Seller  under  this
Agreement, the provisions of sub-proviso (d) and (f) shall apply.

(h)  For the avoidance of doubt, it is specified that  the  charges  payable
under this Article 12 shall be paid by the Procurers in proportion to  their
then existing Allocated Contracted Capacity.”

42.   It has strongly been contended by counsel for  the  respondents  that,
first and foremost, the force majeure clause is not exhaustive, but is  only
inclusive.  Further, it may wholly or partly prevent an affected party  from
performance of obligations under  the  agreement.   Rise  in  the  price  of
Indonesian coal, according to them, was  unforeseen  inasmuch  as  the  PPAs
have been entered into sometime in 2006 to 2008, and the rise in price  took
place only in 2010 and 2011.  Such rise in price is also  not  within  their
control at all and, therefore, clause  12.3  read  with  clause  12.7  would
apply.  They further argued that the force majeure  clause  in  the  present
case  went  further  and  stated  that  so  long  as  performance  of  their
obligation was “hindered” due to a  force  majeure  event,  they  can  claim
compensatory tariff.
43.   First and foremost, the respondents are correct in  stating  that  the
force majeure clause does not exhaust the possibility of  unforeseen  events
occurring outside natural and/or non-natural  events.   But  the  thrust  of
their argument was really that so long as their performance is  hindered  by
an unforeseen event,  the  clause  applies.   ‘Chitty  on  Contracts’,  31st
edition at para 14-151 cites a number of judgments for the proposition  that
the expression “hindered” must be  construed  with  regard  to  words  which
precede and follow it, and also with regard to the nature and general  terms
of the contract.  Given the fact that the PPA must be read as a  whole,  and
that clauses 12.3 and 12.7(a) are  a  part  of  the  same  scheme  of  force
majeure under the contract, it is clear that the  expression  “hindered”  in
clause 12.7(a) really goes with the expression “partly prevents”  in  clause
12.3.  Force majeure clauses are to be  narrowly  construed,  and  obviously
the expression “prevents” in  clause  12.3  is  spoken  of  also  in  clause
12.7(a).  When “prevent” is preceded by the expression “wholly  or  partly”,
it is reasonable  to  assume  that  the  expression  “prevented”  in  clause
12.7(a) goes with the expression “wholly” in clause 12.3 and the  expression
“hindered” in clause 12.7(a)  goes  with  the  expression  “partly”.    This
being so, it is clear that there must be  something  which  partly  prevents
the performance of the obligation under the agreement.   Also,  ‘Treitel  on
Frustration and Force Majeure’, 3rd edition, in paragraph 15-158  cites  the
English judgment of Tennants (Lancashire) Ltd. v. G.S. Wilson and Co.  Ltd.,
1917 Appeal Cases 495  for  the  proposition  that  a  mere  rise  in  price
rendering the  contract  more  expensive  to  perform  will  not  constitute
“hindrance”.   This is echoed in the celebrated judgment of  Peter  Dixon  &
Sons Ltd. v. Henderson, Craig & Co. Ltd., 1919(2) KB 778  in  which  it  was
held that the expression “hinders the delivery” in a contract would only  be
attracted if there was not merely  a  question  of  rise  in  price,  but  a
serious hindrance in performance  of  the  contract  as  a  whole.   At  the
beginning of the First World War, British ships were  no  longer  available,
and although foreign shipping could be obtained  at  an  increased  freight,
such foreign ships were liable to be captured by  the  enemy  and  destroyed
through mines or sub-marines, and could be detained  by  British  or  allied
warships.  In the circumstances, the  Tennants  (Lancashire)  Ltd.  judgment
was applied, and the Court of Appeals held:
    “Under the circumstances, can it be  said  that  the  sellers  were  not
“hindered or prevented” within the meaning of the  contract?  It  is  not  a
question of price,  merely  an  increase  of  freight.  Tonnage  had  to  be
obtained  to  bring  the  pulp  in  Scandinavian  ships,  and  although  the
difficulty in  obtaining  tonnage  may  be  reflected  in  the  increase  of
freight, it was not a mere matter of increase of freight; if so, there  were
standing contracts that ought  to  have  been  fulfilled.  Counsel  for  the
respondents urged that certain shipowners, for reasons of their  own,  chose
not to fulfil standing contracts.  It  was  not  only  shipowners  but  pulp
buyers and sellers. The  whole  trade  was  dislocated,  by  reason  of  the
difficulty that had arisen in tonnage. It seems to me that the  language  of
Lord Dunedin in Tennants, Ld. v. Wilson & Co. is applicable to  the  present
case: “Where I think, with deference to the learned judges, the majority  of
the Court below have gone wrong is that they  have  seemingly  assumed  that
price was the only drawback.  I  do  not  think  that  price  as  price  has
anything to do with it. Price may be evidence, but it is only  one  of  many
kinds of evidence as to shortage. If the appellants had alleged nothing  but
advanced price they would have failed. But they have shown much more.”  That
is exactly so here. Price, as price only, would not have affected  it.  They
were all standing contracts, but the position has so changed  by  reason  of
the war that buyers and  sellers  and  the  whole  trade  were  hindered  or
prevented from carrying out those contracts.”

44.   As a matter of fact, clause 12.4 of the PPA, which  deals  with  force
majeure exclusions, reads as follows :
“12.4 Force Majeure Exclusions
Force Majeure shall not include (i)  any  event  or  circumstance  which  is
within the  reasonable  control  of  the  parties  and  (ii)  the  following
conditions, except to the extent that they are consequences of an  event  of
Force Majeure:
Unavailability, late delivery, or changes in cost of the  plant,  machinery,
equipment, materials, spare parts, fuel or consumables for the Project;

Delay in the performance of any contractor, sub-contractors or their  agents
excluding the conditions as mentioned in Article 12.2;

Non-performance resulting from normal wear and  tear  typically  experienced
in power generation materials and equipment;

Strikes or labour disturbance at the facilities of the Affected Party;

Insufficiency of finances or funds or  the  agreement  becoming  onerous  to
perform; and

Non-performance caused by, or connected with, the Affected Party’s:

Negligent or intentional acts, errors or omissions;

Failure to comply with an Indian Law; or

Breach of, or default under this Agreement or any Project Documents.”

This clause makes it clear  that  changes  in  the  cost  of  fuel,  or  the
agreement becoming onerous to perform, are  not  treated  as  force  majeure
events under the PPA itself.
45.   We are, therefore, of the view that neither was the fundamental  basis
of the contract dislodged nor was any frustrating event, except for  a  rise
in the price of coal, excluded by clause 12.4,  pointed  out.    Alternative
modes of performance were available, albeit at a  higher  price.  This  does
not lead to the contract, as a whole,  being  frustrated.  Consequently,  we
are of the view that neither clause 12.3 nor 12.7, referable to  Section  32
of the Contract Act, will apply so as to enable the  grant  of  compensatory
tariff to the respondents. Dr. Singhvi, however, argued that even if  clause
12 is held inapplicable, the law laid down on frustration under  Section  56
will apply so as to give the respondents the necessary relief on the  ground
of force majeure.  Having once held that clause 12.4 applies as a result  of
which rise in the price of fuel cannot be regarded as a force majeure  event
contractually, it is difficult  to  appreciate  a  submission  that  in  the
alternative Section 56 will apply.  As has been held in particular,  in  the
Satyabrata Ghose case, when a  contract  contains  a  force  majeure  clause
which on construction by the Court is held attracted to  the  facts  of  the
case, Section 56 can  have  no  application.  On  this  short  ground,  this
alternative submission stands disposed of.
Change in Law

46.   It has been submitted on behalf of the counsel  for  the  respondents,
that the guidelines of 19th January, 2005, as amended by  the  18th  August,
2006 amendment, make it clear that any change in law, either  abroad  or  in
India, would result in the consequential rise in price of coal  being  given
to the power generators.  Since various  provisions  of  the  guidelines  as
well as the power purchase agreements are  referred  to,  we  set  them  out
“Clause 2.3.
2.3   Unless explicitly specified in these  guidelines,  the  provisions  of
these guidelines shall be binding  on  the  procurer.   The  process  to  be
adopted in  event  of  any  deviation  proposed  from  these  guidelines  is
specified later in these guidelines under para 5.16.
Clause 4.3
4.3.  Tariffs shall be designated in Indian Rupees only.   Foreign  exchange
risks, if any, shall be borne by the supplier.  Transmission charges in  all
cases shall be borne by the procurer.
Provided that the foreign exchange rate variation would be permitted in  the
payment of energy charges [in the manner stipulated in para 4.11  (iii)]  if
the procurer mandates use of imported fuel  for  coastal  power  station  in
Clause 4.7. (unamended)
Any change in tax on generation or sale of electricity as a  result  of  any
change in Law with respect to that applicable on the date of bid  submission
shall be adjusted separately.
Clause 4.7 (amended).
Any change in law impacting cost or revenue from  the  business  of  selling
electricity to the procurer with respect to the law applicable on  the  date
which is 7 days before the  last  date  for  RFP  bid  submission  shall  be
adjusted separately.  In case of any dispute regarding  the  impact  of  any
change in law, the decision of the Appropriate Commission shall apply.
5.4. Standard documentation to be provided by the procurer in the RFQ  shall
include - (ii) Model PPA proposed to be entered  into  with  the  seller  of
electricity.  The PPA shall include necessary details on:
Risk allocation between parties;

Technical requirements on minimum load conditions;

Assured offtake levels;

Force majeure clauses as per industry standards;

Lead times for scheduling of power;

Default conditions and cure thereof, and penalties;

Payment security proposed to be offered by the procurer.

Clause 5.6. Standard documentation to be provided by  the  procurer  in  the
RFP shall include - (ii) PPA  proposed  to  be  entered  with  the  selected
The model PPA proposed in the RFQ stage may be amended based on  the  inputs
received from the interested parties, and shall be provided to  all  parties
responding to the RFP. No further amendments shall  be  carried  out  beyond
the RFP stage;
Clause 5.16 (old)
Deviation from process defined in the guidelines
Clause 5.16.     In case there is any deviation from these  guidelines,  the
same shall be subject  to  approval  by  the  Appropriate  Commission.   The
Appropriate Commission shall approve or  require  modification  to  the  bid
documents within a reasonable time not exceeding 90 days.
Clause 5.17 (old)
Clause 5.17.     The procurer will establish an Amicable Dispute  Resolution
(ADR) mechanism in accordance with the provisions of the Indian  Arbitration
and Conciliation Act, 1996.  The ADR shall be mandatory  and  time-bound  to
minimize disputes regarding the bid process and the documentation thereof.
If the ADR fails to resolve  the  dispute,  the  same  will  be  subject  to
jurisdiction of the appropriate Regulatory Commission under  the  provisions
of the Electricity Act, 2003.
Clause 5.16 (new)
Deviation from process defined in the guidelines
5.16  In case there is any deviation from these guidelines, the  same  shall
be subject to  approval  by  the  Appropriate  Commission.  The  Appropriate
Commission shall approve  or  require  modification  to  the  bid  documents
within a reasonable time not exceeding 90 days.
Clause 5.17 (new)
Clause 5.17   Where any dispute arises claiming any change in  or  regarding
determination of the tariff or any tariff related matters, or  which  partly
or  wholly  could  result  in  change  in  tariff,  such  dispute  shall  be
adjudicated by the Appropriate Commission.
All other disputes  shall  be  resolved  by  arbitration  under  the  Indian
Arbitration and Conciliation Act, 1996.
Power purchase agreement
“Bid Deadline”     shall mean the last date for submission  of  the  Bid  in
response to the RFP, specified in Clause 2.8 of the RFP;

“Dispute”  means any dispute or difference of any kind  between  a  Procurer
and the Seller or  between  the  Procurers  (jointly)  and  the  Seller,  in
connection with or arising out of this Agreement including any issue on  the
interpretation and scope of the terms  of  this  Agreement  as  provided  in
Article 17;

“Electricity Laws” means  the  Electricity  Act,  2003  and  the  rules  and
regulations made thereunder from time to time along with amendments  thereto
and replacements  thereof  and  any  other  Law  pertaining  to  electricity
including regulations framed by the Appropriate Commission;

“Fuel”  means  primary   fuel   used   to   generate   electricity   namely,

“Fuel Supply Agreements” means the agreement(s)  entered  into  between  the
Seller and the Fuel Supplier for the purchase, transportation  and  handling
of the Fuel, required for the operation of the Power Station.  In  case  the
transportation of the Fuel is not the responsibility of the  Fuel  Supplier,
the term shall also include the separate agreement between  the  Seller  and
the Fuel Transporter for the transportation  of  Fuel  in  addition  to  the
agreement between the Seller and the Fuel Supplier for  the  supply  of  the

“Law” means, in relation to this Agreement, all laws  including  Electricity
Laws in force in India and any statute, ordinance, regulation,  notification
or code, rule, or any interpretation of any of them by an Indian  Government
Instrumentality and having force  of  law  and  shall  further  include  all
applicable  rules,  regulations,  orders,   notifications   by   an   Indian
Governmental Instrumentality pursuant to or under  any  of  them  and  shall
include all rules, regulations, decisions  and  orders  of  the  Appropriate

“Project Documents”  mean

Construction Contracts;

Fuel Supply Agreements, including  the  Fuel  Transportation  Agreement,  if

O&M contacts;

RFP and RFP Project Documents; and

Any other agreements designated in writing  as  such,  from  time  to  time,
jointly by the Procurers and the Seller;

13.1  Definitions
In this Article 13, the following terms shall have the following meanings:
13.1.1      “Change in Law” means the occurrence of  any  of  the  following
events after the date, which is seven (7) days prior to the Bid Deadline:
(i)    the  enactment,  bringing  into   effect,   adoption,   promulgation,
amendment,  modification  or  repeal,  of  any  Law  or  (ii)  a  change  in
interpretation of any Law by a competent Court of law,  tribunal  or  Indian
Governmental Instrumentality provided such Court of law, tribunal or  Indian
Governmental  Instrumentality  is  final  authority  under  law   for   such
interpretation or (iii)  change  in  any  consents,  approvals  or  licenses
available or obtained for the Project, otherwise than  for  default  of  the
Seller, which results in any change in any  cost  of  or  revenue  from  the
business of selling electricity by the Seller to  the  Procurers  under  the
terms of this Agreement, or (iv) any change in the (a)  Declared   value  of
Land for the Project or (b) the cost of implementation of  resettlement  and
rehabilitation package of the land for the Project mentioned in the  RFP  or
(c) the cost of implementing Environmental Management  Plan  for  the  Power
Station mentioned in the RFP, indicated under the RFP and the PPA;
but shall not include (i) any change in any withholding  tax  on  income  or
dividends distributed to the shareholders of the Seller, or (ii)  change  in
respect of UI Charges or frequency intervals by an Appropriate Commission.
Provided that if Government of India does not extend the income tax  holiday
for power generation projects under Section 80 IA of  the  Income  Tax  Act,
upto the Scheduled Commercial Operation Date of the Power Station, such non-
extension shall be deemed to be a Change in Law.
13.1.2 “Competent Court” means:
The Supreme Court or  any  High  Court,  or  any  tribunal  or  any  similar
judicial  or  quasi-judicial  body  in  India  that  has   jurisdiction   to
adjudicate upon issues relating to the Project.
13.2  Application and Principles for computing impact of Change in Law
While determining the consequence of Change in Law under  this  Article  13,
the Parties shall have due regard to  the  principle  that  the  purpose  of
compensating the Party affected  by  such  Change  in  Law,  is  to  restore
through Monthly Tariff Payments, to the extent contemplated in this  Article
13, the affected Party to the same economic position as if  such  Change  in
Law has not occurred.
Construction Period

As a result of any  Change  in  Law,  the  impact  of  increase/decrease  of
Capital Cost of the Project in the Tariff shall be governed by  the  formula
given below:
For every cumulative increase/decrease of each Rupees  Fifty  crores  (Rs.50
crores)  in  the  Capital  Cost  over  the  term  of  this  Agreement,   the
increase/decrease in Non Escalable  Capacity  Charges  shall  be  an  amount
equal to zero point two six seven (0.267%) of  the  Non  Escalable  Capacity
Charges.  Provided that the Seller provides  to  the  Procurers  documentary
proof of such increase/decrease in Capital Cost for establishing the  impact
of such Change in Law.  In case of Dispute, Article 17 shall apply.
It is clarified that the above mentioned compensation shall  be  payable  to
either  Party,  only  with  effect  from  the  date  on  which   the   total
increase/decrease exceeds amount of Rs.fifty (50) crores.
Operation Period
As a result of Change in Law, the compensation for any increase/decrease  in
revenues or cost to the Seller shall be determined and effective  from  such
date, as decided by the  Central  Electricity  Regulatory  Commission  whose
decision shall be final and binding on both the Parties, subject  to  rights
of appeal provided under applicable Law.
Provided that the above mentioned compensation shall be payable only if  and
for increase/decrease in revenues or cost to the Seller is in excess  of  an
amount equivalent to 1% of Letter of Credit  in  aggregate  for  a  Contract
13.3 Notification of Change in Law
13.3.1  If the Seller is affected by a Change  in  Law  in  accordance  with
Article 13.2 and wishes to claim a Change in  Law  under  this  Article,  it
shall give notice to the  Procurers  of  such  Change  in  Law  as  soon  as
reasonably  practicable  after  becoming  aware  of  the  same   or   should
reasonably have known of the Change in Law.
13.3.2 Notwithstanding Article 13.3.1, the Seller shall be obliged to  serve
a  notice  to  all  the  Procurers  under  this  Article  13.3.2  if  it  is
beneficially affected by a Change in Law.  Without prejudice to  the  factor
of  materiality  or  other  provisions  contained  in  this  Agreement,  the
obligation to inform the  Procurers  contained  herein  shall  be  material.
Provided that  in  case  the  Seller  has  not  provided  such  notice,  the
Procurers shall jointly have the right to issue such notice to the Seller.
13.3.3       Any  notice  served  pursuant  to  this  Article  13.3.2  shall
provide, amongst other things, precise details of:
(a)   the Change in Law; and
(b)   the effects on the Seller of the matters referred to in Article  13.2.

13.4  Tariff Adjustment Payment on account of Change in Law
13.4.1      Subject to  Article  13.2,  the  adjustment  in  Monthly  Tariff
Payment shall be effective from:
(i)   the date of adoption, promulgation, amendment, re-enactment or  repeal
of the Law or Change in Law; or
(ii) the date of order/judgment  of  the  Competent  Court  or  tribunal  or
Indian Governmental Instrumentality, if the Change in Law is on  account  of
a change in interpretation of Law.
13.4.2      The payment for Changes in Law shall  be  through  Supplementary
Bill as mentioned in Article 11.8.   However,  in  case  of  any  change  in
Tariff by reason of Change in Law, as determined  in  accordance  with  this
Agreement, the Monthly Invoice to be raised by the Seller after such  change
in Tariff shall appropriately reflect the changed Tariff.
17.3.1      Where any Dispute arises from a claim made by any Party for  any
change in or determination of the Tariff or any matter related to Tariff  or
claims made by any Party which partly or wholly relate to any change in  the
Tariff or determination of any of such claims could result in change in  the
Tariff or  (ii)  relates  to  any  matter  agreed  to  be  referred  to  the
Appropriate Commission under Articles 4.7.1, 13.2, 18.1 or clause 10.1.3  of
Schedule 17 hereof, such Dispute shall be submitted to adjudication  by  the
Appropriate Commission.  Appeal against the  decisions  of  the  Appropriate
Commission shall be made only as per the provisions of the Electricity  Act,
2003, as amended from time to time.
18.1 Amendment
      This Agreement may only  be  amended  or  supplemented  by  a  written
agreement between the Parties and after duly obtaining the approval  of  the
Appropriate Commission, where necessary.”

47.   The respondents have argued before  us  that  it  is  clear  from  the
change made in clause 4.7 of the guidelines read with clause 5.17  that  any
change in law impacting  cost  or  revenue  from  the  business  of  selling
electricity  shall  be  adjusted  separately.   Learned  counsel   for   the
respondents have argued that “any change  in  law”  is  not  qualified  and,
therefore,  would  include  foreign  law.   According  to  them,  the  power
purchase agreement is subservient to the guidelines  and  can  never  negate
the  terms  of  the  guidelines.   Under  clauses  4.7  and  5.1.7  of   the
guidelines, these guidelines  are  binding  on  all  parties  including  the
procurers and any deviation therefrom has to be approved by the  appropriate
Commission.   Therefore,  according  to  them,  the  PPA  must  be  read  as
including foreign laws as well.   On  the  other  hand,  our  attention  was
invited to the definition of “electricity  laws”  and  it  was  argued  that
clause 13 would have to be read in the light of the PPA  provisions  and  so
read it would not include changes in Indonesian law, being foreign  and  not
Indian Law.

48.   Both the guidelines and the model PPA, of which clause 13 is  a  part,
have been drafted by the  Central  Government  itself.   It  is,  therefore,
clear that the PPA only fleshes out what is mentioned in clause 4.7  of  the
guidelines, and goes on to explain what the expression “any change  in  law”
means.  This being the case, it  is  clear  that  the  definition  of  “law”
speaks  of  all  laws  including  electricity  laws  in  force   in   India.
Electricity  laws,  as  has  been  seen  from  the  definition,  means   the
Electricity Act, rules and regulations made thereunder from  time  to  time,
and any other law pertaining to electricity.  This being  so,  it  is  clear
that the expression “in force in India” in  the  definition  of  ‘law’  goes
with “all laws”.  This is for the reason that otherwise the said  expression
would become tautologous, as electricity laws that are  in  force  in  India
are  already  referred  to  in  the  definition  of  “electricity  laws”  as
contained in the PPA.  Once this is clear, at least textually  it  is  clear
that “all laws” would have to be read with “in force in  India”  and  would,
therefore, refer only to Indian laws.  Even otherwise,  from  a  reading  of
clause 13, it is clear that clause 13.1.1 is in four different  parts.   The
first part speaks of enacted laws; the second speaks  of  interpretation  of
such laws by Courts or other instrumentalities; the third speaks of  changes
in consents, approvals or licences which result in change  in  cost  of  the
business of selling electricity; and the fourth refers to any change in  the
declared law of the land for the project,  cost  of  implementation  of  re-
settlement and rehabilitation or  cost  of  implementing  the  environmental
management plan.  ‘Competent Court’ in clause 13.1.2 is defined  as  meaning
only the judicial system of India.

49.   First and foremost, the expression  “any  law”  occurs  in  both  sub-
section (1) and sub-section (2) of clause 13.1.1, which expression  must  be
given the same meaning in both sub-sections.  This being  the  case,  as  in
sub-clause (2), this expression would refer only to  Indian  law,  the  same
meaning will have to be given to the  very  same  expression  in  sub-clause
(1).  Even otherwise,  sub-clauses  (1)  and  (2)  form  part  of  the  same
contractual scheme in that sub-clause (1) refers to the enactment  of  laws,
whereas sub-clause (2) relates to interpretation of those  very  laws  by  a
competent  Court  of  law/Tribunal  or  Indian  Government  instrumentality.
‘Competent Court’, as  we  have  seen  above,  speaks  only  of  the  Indian
judicial system and, therefore, the enactments spoken of in  sub-clause  (1)
would necessarily refer only to Indian enactments.

50.   However, we were referred to other clauses in the  PPA,  for  example,
clauses 12.4(f)(ii), 4.1.1(a) and 17.1, all of which speak  of  Indian  law.
It was, therefore, argued that wherever  the  parties  wanted  to  refer  to
Indian law, they did so explicitly, and from  this  it  should  be  inferred
that the expression “law” would otherwise include all  laws  whether  Indian
or otherwise.

51.   This argument  is  based  on  the  Latin  maxim  expressio  unius  est
exclusio alterius.   This  maxim  has  been  referred  to  in  a  number  of
judgments of this Court in which it has been described as a ‘useful  servant
but a dangerous master’. (See for example CCE v.  National  Tobacco  Co.  of
India Ltd., (1972) 2 SCC 560 at Para 30).

      From a reading of the  above,  it  is  clear  that  if  otherwise  the
expression “any law” in clause 13 when read with  the  definition  of  “law”
and “Electricity Laws” leads unequivocally to the conclusion that it  refers
only to the law of India, it would be unsafe to rely upon the other  clauses
of the agreement where Indian law is specifically mentioned to  negate  this

52.   It was also argued, placing reliance upon the fact that  a  commercial
contract is to be interpreted in a manner which gives business  efficacy  to
such contract, that the subject matter of the  PPA  being  “imported  coal”,
obviously the expression “any law” would refer to laws governing  coal  that
is imported from other countries.  We are afraid, we cannot agree with  this
argument.  There are many  PPAs  entered  into  with  different  generators.
Some generators may source fuel only from India.  Others, as is the case  in
the Adani Haryana matter, would source fuel to the extent of 70% from  India
and 30% from abroad, whereas other generators, as in  the  case  of  Gujarat
Adani and the Coastal case, would  source  coal  wholly  from  abroad.   The
meaning of the expression “change in law” in clause 13  cannot  depend  upon
whether coal is sourced in a particular PPA from  outside  India  or  within
India.  The meaning will have to remain the same  whether  coal  is  sourced
wholly in India, partly in India and partly from  outside,  or  wholly  from
outside. This being the case, the meaning of the  expression  “any  law”  in
clause 13 cannot possibly be interpreted in  the  manner  suggested  by  the
respondents.   English  judgments  and  authorities  were  cited   for   the
proposition that if performance of a contract is to be  done  in  a  foreign
country, what would be relevant would be foreign law.  This  would  be  true
as a general statement of law, but for the reason  given  above,  would  not
apply to the PPAs in the present case.

53.   However, in so far as the applicability of clause 13 to  a  change  in
Indian law is concerned, the respondents are on firm  ground.   It  will  be
seen that under clause 13.1.1 if there is a change in any consent,  approval
or licence available or obtained for the project,  otherwise  than  for  the
default of the seller, which  results in any  change  in  any  cost  of  the
business of selling electricity, then  the  said  seller  will  be  governed
under clause 13.1.1.   It is clear from a reading of  the  Resolution  dated
21st June, 2013, which resulted in the letter of 31st July, 2013, issued  by
the Ministry of Power, that the earlier coal distribution  policy  contained
in the letter dated 18th March, 2007 stands modified as the  Government  has
now approved a revised arrangement for supply of coal. It has  been  decided
that, seeing the overall domestic availability and  the  likely  requirement
of power projects, the power projects will only be  entitled  to  a  certain
percentage of what was earlier allowable.  This  being  the  case,  on  31st
July, 2013, the following letter, which is set  out  in  extenso  states  as
follows :
                          FU-12/2011-IPC (Vol-III)
                             Government of India
                              Ministry of Power

                                              Shram Shakti Bhawan, New Delhi
                                                       Dated 31st July, 2013
The Secretary,
Central Electricity Regulatory Commission,
Chanderlok Building, Janpath,
New Delhi
Subject: Impact on tariff in the concluded PPAs due to shortage in  domestic
coal availability and consequent changes in NCDP.
Ref. CERC’s D.O. No.10/5/2013-Statutory Advice/CERC dated 20.05.13
      In view of the demand for coal of  power  plants  that  were  provided
coal linkage by  Govt.  of  India  and  CIL  not  signing  any  Fuel  Supply
Agreement (FSA) after March, 2009, several meetings at different  levels  in
the Government were held to review the situation. In February 2012,  it  was
decided that FSAs will be signed for full quantity of coal mentioned in  the
Letter of Assurance (LOAs) for a period of 20 years with a trigger level  of
80% for levy of disincentive and 90% for levy  of  incentive.  Subsequently,
MOC indicated that CIL will not be able  to  supply  domestic  coal  at  80%
level of ACQ and coal will have to be imported by CIL  to  bridge  the  gap.
The issue of increased cost of power due to  import  of  coal/e-auction  and
its impact on the tariff of concluded PPAs were also  discussed  and  CERC’s
advice sought.
2.    After considering all aspects and the advice of CERC in  this  regard,
Government has decided the following in June 2013:
i)    taking into account  the  overall  domestic  availability  and  actual
requirements, FSAs to be signed for domestic coal component for the levy  of
disincentive at the quantity of 65%, 65%, 67% and 75% of  Annual  Contracted
Quantity (ACQ) for the remaining four years of the 12th Plan.
ii)   to meet its balance FSA obligations, CIL may import  coal  and  supply
the same to the willing TPPs on cost plus basis. TPPs may also  import  coal
themselves if they so opt.
iii)  higher cost of imported coal to be considered for pass through as  per
modalities suggested by CERC.
3.    Ministry of Coal vide letter dated 26th July  2013  has  notified  the
changes in the New Coal Distribution Policy (NCDP) as approved by  the  CCEA
in relation to be coal supply for the next  four  years  of  the  12th  Plan
(copy enclosed).
4.    As per decision of the Government, the higher  cost  of  import/market
based e-auction coal be considered for being made a pass through on  a  case
to case basis by CERC/SERC to  the  extent  of  shortfall  in  the  quantity
indicated in the LoA/FSA and the CIL supply of domestic coal which would  be
minimum of 65%, 65%, 67% and 75% of LOA for the remaining four years of  the
12th Plan for the already concluded PPAs based on tariff  based  competitive
5.    The ERCs are advised to  consider  the  request  of  individual  power
producers in this regard as per due process on  a  case  to  case  basis  in
public  interest.   The  Appropriate  Commissions  are  requested  to   take
immediate steps  for  the  implementation  of  the  above  decision  of  the
This issues with the approval of MOS(P)I/C.
Encl: as above
                                                           Yours faithfully,

This is further reflected in the revised tariff policy dated  28th  January,
2016, which in paragraph 1.1 states as under :
In compliance with Section 3  of  the  Electricity  Act  2003,  the  Central
Government  notified  the  Tariff  Policy  on  6th  January,  2006.  Further
amendments to the Tariff Policy were notified  on  31st  March,  2008,  20th
January, 2011 and 8th July, 2011. In  exercise  of  powers  conferred  under
Section 3(3)  of  Electricity  Act,  2003,  the  Central  Government  hereby
notifies the revised  Tariff  Policy  to  be  effective  from  the  date  of
publication of the resolution in the Gazette of India.

Notwithstanding anything done or any action taken or purported to have  been
done or taken under the provisions of the  Tariff  Policy  notified  on  6th
January, 2006 and amendments made thereunder, shall, in so far as it is  not
inconsistent with this Policy, be deemed to have been done  or  taken  under
provisions of this revised policy.

Clause 6.1 states:
6.1 Procurement of Power
As stipulated in para 5.1, power procurement for future requirements  should
be through a transparent competitive bidding mechanism using the  guidelines
issued by the  Central  Government  from  time  to  time.  These  guidelines
provide  for  procurement  of   electricity   separately   for   base   load
requirements and for peak load requirements.  This would facilitate  setting
up of generation capacities specifically for meeting such requirements.
However, some of the competitively bid projects as per the guidelines  dated
19th January, 2005 have experienced difficulties  in  getting  the  required
quantity of coal  from  Coal  India  Limited  (CIL).   In  case  of  reduced
quantity of domestic coal supplied by CIL, vis-à-vis  the  assured  quantity
or  quantity  indicated   in   Letter   of   Assurance/FSA   the   cost   of
imported/market based e-auction coal procured for making up  the  shortfall,
shall be considered for being made a pass through by Appropriate  Commission
on a case to case basis, as per advisory issued by Ministry  of  Power  vide
OM NO.FU-12/2011-IPC (Vol-III) dated 31.7.2013.

      Both the letter dated 31st July, 2013 and the  revised  tariff  policy
are statutory documents being issued under Section 3 of  the  Act  and  have
the force of  law.   This  being  so,  it  is  clear  that  so  far  as  the
procurement of Indian coal is concerned, to the extent that the supply  from
Coal India and other Indian sources is cut down, the  PPA  read  with  these
documents provides in clause 13.2 that while  determining  the  consequences
of change in law, parties shall have due regard to the  principle  that  the
purpose of compensating the party affected by  such  change  in  law  is  to
restore,  through  monthly  tariff  payments,  the  affected  party  to  the
economic position as if such change in law has not occurred.   Further,  for
the operation period of the PPA, compensation for any  increase/decrease  in
cost to the seller shall be determined and be effective from  such  date  as
decided by the Central Electricity Regulation Commission.   This  being  the
case, we are of the view that though change  in  Indonesian  law  would  not
qualify as a change in law under the guidelines read with  the  PPA,  change
in Indian law certainly would.

54.    However,  Shri  Ramachandran,  learned   senior   counsel   for   the
appellants, argued that the policy dated 18th October,  2007  was  announced
even before the effective date of  the  PPAs,  and  made  it  clear  to  all
generators that coal may not be given to the extent of the  entire  quantity
allocated. We are afraid that we cannot accede  to  this  argument  for  the
reason that the change in law has only  taken  place  only  in  2013,  which
modifies the 2007 policy and to the  extent  that  it  does  so,  relief  is
available under the PPA itself to persons who source  supply  of  coal  from
indigenous sources.  It is to this limited extent  that  change  in  law  is
held in favour of the respondents.  Certain  other  minor  contentions  that
are raised on behalf of both sides are not being addressed  by  us  for  the
reason that we find it unnecessary to  go  into  the  same.   The  Appellate
Tribunal’s judgment and the Commission’s orders following the said  judgment
are set aside. The Central Electricity  Regulatory  Commission  will,  as  a
result of this judgment, go  into  the  matter  afresh  and  determine  what
relief should be granted to those power generators who  fall  within  clause
13 of the PPA as has been held by us in this judgment.
55.   All the appeals are disposed of accordingly.


                                  …….…………………………… J.
                                  (R.F. NARIMAN)
New Delhi;
April 11, 2017

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