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Friday, April 6, 2018

corporate laws -M.P. Power Management Company Ltd.- Suffice to note that in cases of delay, Articles 2.5 and 2.6 provide for levy of penalty. As observed by the High Court, since the contract permits imposition of penalty, respondent No.1 is liable to pay penalty in terms of clause 2.5.1 of the PPA for the delay. But the action of the appellant in terminating the contract is arbitrary and was rightly set aside by the High Court.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3600 OF 2018
(Arising out of SLP(C) No.23848 of 2017)
M.P. POWER MANAGEMENT COMPANY LTD. …Appellant
Versus
RENEW CLEAN ENERGY PVT. LTD. & ANR. ...Respondents
J U D G M E N T
R. BANUMATHI, J.
Leave granted.
2. This appeal arises out of the judgment passed by the High Court
of Madhya Pradesh, Principal Seat at Jabalpur in and by which the High
Court allowed the Writ Petition No.12432 of 2017 setting aside the order
of termination of contract dated 11.08.2017 while maintaining the
appellant's action on invocation of bank guarantee in terms of clause
2.5.1 of the contract.
3. Brief facts which led to filing of this appeal are as follows:
The appellant-M.P. Power Management Company Ltd. initiated the
process of procurement of power from Grid Connected Solar Energy
through tariff based competitive bidding for meeting its Renewable
Purchase obligations in the State of Madhya Pradesh. Accordingly, a
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Request for Proposal (RFP) dated 06.05.2015 was issued by the
appellant for long term procurement of 300 MW power from Grid
connected Solar Energy Sources through tariff based competitive
bidding. Out of 100 bidders who participated in the bidding process,
respondent No.1-ReNew Clean Energy Private Ltd. was selected on the
basis of cheaper merit order rates. The appellant issued a Letter of
Intent dated 23.10.2015 in favour of respondent No.1 allotting 51 MW
capacity at quoted tariff of Rs.5.457/kwh for twenty five years which was
accepted by respondent No.1 by its consent letter dated 26.10.2015. A
Power Purchase Agreement (PPA) dated 10.11.2015 was executed
between the appellant and respondent No.1 for sale and procurement of
51 MW solar power, for which, respondent No.1 submitted a bank
guarantee from respondent No.2-Bank for an amount of
Rs.15,30,00,000/- valid till January, 2018.
4. Since respondent No.1 was unable to obtain the requisite land for
establishing the power plant, respondent No.1 requested assistance
from the State Government. Accordingly, the Collector, District-Rajgarh
by order dated 21.04.2016 allotted 96.73 acres of revenue land to MP
New and Renewable Energy Department for further allotment on lease
to respondent No.1. This was done by the appellant even though the
land procurement was the obligation of the bidder.
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5. According to respondent No.1, there were difficulties in accessing
the land, because when measurement of land was taken on 29.06.2016,
it was found encroached and the project team faced heavy resistance,
physical attacks etc. and therefore, respondent No.1 vide its letter dated
29.09.2016 requested the appellant to allow to change of location of the
project. The said permission sought for by respondent No.1 was
granted by the appellant by its Resolution dated 29.12.2016. The
relevant portion of the Resolution reads as under:-
"Resolved that condition for not allowing change of location after 210
days from signing of PPA be relaxed and following Solar Power
developers be allowed to change the location of their respective project,
subject to provision of clause 2.5 and 2.6 of the PPA."
6. After permission was granted to change the location of the
project, respondent No.1 purchased lands to an extent of about 253
acres in villages Bansara and Pipriya Rai in Ashok Nagar district and
undertook the development/construction activities. On 10.07.2017,
respondent No.1 wrote to appellant that "commissioning process was in
final stages and we expect to commission the plant on 31.08.2017
(tentative date), which is ahead of scheduled commissioning date of
07.09.2017."
7. As per clause 2.5.1 of the PPA, a maximum period of nine months
beyond 07.06.2016 for achieving Conditions Subsequent enables the
appellant to terminate the agreement if respondent No.1 failed to satisfy
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the Conditions Subsequent by this date along with penalty which was to
be calculated as per clause 2.5.1 of the PPA. In the light of the
abovesaid provisions of the PPA, the appellant by order dated
11.08.2017 terminated the PPA and imposed a penalty of
Rs.11,95,54,200/- on respondent No.1. Being aggrieved, respondent
No.1 filed Writ Petition No.12432 of 2017 before the High Court praying
that the appellant be directed not to give effect to termination and
encashment of performance bank guarantee. The High Court vide
impugned judgment dated 18.08.2017 partly allowed the writ petition
setting aside the order of termination of the contract while maintaining
the invocation of the bank guarantee.
8. We have heard the learned counsel appearing for the parties and
perused the impugned judgment and materials on record.
9. Clause 2.1 of the PPA required respondent No.1 to fulfil all
Conditions Subsequent within a period of 210 days from the effective
date i.e. 06.06.2017, failing which Article 2.5 of the PPA allowed further
extension up to nine months for fulfillment of the Conditions Subsequent
subject to payment of liquidated damages in terms of the PPA. Clause
2.5 of the PPA reads as follows:-
2.5 DELAY IN ACHIEVING CONDITIONS SUBSEQUENT
2.5.1. In case of delay in achieving any of the Conditions Subsequent
under clause 2.1 (a to h), as may be applicable, MPPMCL shall
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encash CPG (submitted by Seller @ Rs.30 Lakhs/MW) as under,
subject to Force Majeure:
a) Delay from 0-3 months - 1% per week.
b) Delay from 3-6 months - 2% per week for the
period exceeding 3 months, apart from (a) above.
c) Delay from 6-9 months - 3% per week for the
period exceeding 6 months, apart from (a) and (b)
above.
d) In case of delay of more than 9 months, MPPMCL
shall terminate PPA and release balance amount of
CPG.
10. Since respondent No.1 was unable to obtain the requisite land, on
request by respondent No.1, the State Government allotted 96.73 acres
of land at district Rajgarh to the appellant for being allotted to
respondent No.1 on lease. According to respondent No.1, upon
initiation of measurement and demarcation exercise by the revenue
officials, the land was found to be heavily encroached and there was
stiff resistance which continued every time respondent No.1 tried to
approach the said land and therefore, respondent No.1 could not
access the project site and commence any construction activities. On
request by respondent No.1 by its letter dated 29.09.2016, respondent
No.1 sought for change of location of the project. The Board of
Directors considered the request of respondent No.1 and by Resolution
dated 29.12.2016 allowed change of location of the project. Thereafter,
respondent No.1 purchased the land to an extent of 253 acres in village
Bansara and Pipriya Rai in Ashok Nagar district within a period of about
eighty three days from the date of the appellant's approval. After
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acquiring the land, respondent No.1 undertook the construction
activities and the project in an advanced stage of synchronization as
early as on 10.07.2017. The same was notified to the appellant by
communication dated 10.07.2017 stating that the commissioning of the
project is in final stage and that the expected date of commissioning of
the project is 31.08.2017 which according to respondent No.1 is ahead
of the scheduled commissioning date i.e. 07.09.2017 in terms of the
PPA.
11. Even when respondent No.1 has undertaken the construction
activities in the changed location and informed the appellant that the
expected date of commissioning of the project is 31.08.2017, the
appellant terminated the contract by its order dated 11.08.2017. As
pointed out by respondent No.1 in its counter affidavit, on 06.06.2016,
respondent No.1 has got sanction of the term debt facility of Rs.267.37
crores from PTC India Financial Services Limited and has spent huge
amount in purchasing the land to an extent of 253 acres in Ashok Nagar
district. Respondent No.1 has also spent substantial amount in
development of the project in the changed location and reached an
advanced stage of commissioning the project by 31.08.2017. The delay
in commissioning the project appears to be due to unavoidable
circumstances like resistance faced at the allotted site in Rajgarh district
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and subsequent change of location of the project. These circumstances,
though not a Force Majeure event, time taken by respondent No.1 in
change of location and construction of the plant have to be kept in view
for counting the delay. Having invested huge amount in purchasing the
land and development of the project at Ashok Nagar district and when
the project is in the final stage of commissioning, the termination of the
contract is not fair.
12. The High Court observed that the delay in completing the project
was only for sixteen days. But according to the appellant, respondent
No.1 was granted time period of 210 days to complete the Conditions
Subsequent after which the penalty was leviable for the delay and if the
delay exceeded more than nine months, the appellant could terminate
the contract. According to appellant, the delay was not of sixteen days;
but the said delay of sixteen days is beyond the period of nine months
permissible under the PPA. In the light of our observations above, we
are not inclined to go into the merits of this contention. Suffice to note
that in cases of delay, Articles 2.5 and 2.6 provide for levy of penalty. As
observed by the High Court, since the contract permits imposition of
penalty, respondent No.1 is liable to pay penalty in terms of clause 2.5.1
of the PPA for the delay. But the action of the appellant in terminating
the contract is arbitrary and was rightly set aside by the High Court.
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13. While setting aside the termination of the contract, the High Court
maintained the action of invocation of bank guarantee in terms of clause
2.5.1 of the PPA. By order dated 22.09.2017, this Court has stayed the
order of the High Court subject to restitution by the appellant of the
amount covered by the bank guarantee which has been invoked which
is said to have been complied with by the appellant. In our view,
interest of justice would be met by directing respondent No.1 to pay
penalty amount of Rs.11,95,54,200/- imposed upon respondent No.1 by
the appellant.
14. In the result, the appeal is dismissed. The respondent No.1 shall
pay the penalty of Rs.11,95,54,200/- to the appellant within a period of
four weeks from the date of this judgment. No costs.
.…….…………...………J.
 [RANJAN GOGOI]
…………….……………J.
 [R. BANUMATHI]
New Delhi;
April 05, 2018
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