Clarification vis-à-vis substantial alteration of commercial agreement; SC considers legality of retrospective application of modifications in agreement

Supreme Court: The Division Bench comprising of Ajay Rastogi* and Abhay S. Oka, JJ., held that a modification changing tariff for inadvertent drawal from temporary supply rate to the regular supply rate cannot be considered to be a mere clarification and is rather a substantial alteration which cannot be made applicable retrospectively.

Factual Background

The instant appeal under Section 125 of the Electricity Act, 2003 had been preferred at the instance of the distribution company, Ajmer Vidyut Vitran Nigam Ltd, the appellant herein. An agreement for short term open access of distribution system and supply of regular and standby HT supply came to be executed between the appellant and Hindustan Zinc Ltd. (HZL) in terms of the provisions of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004 on 22-09-2006 and draft format of the open access agreement became effective from 01-05-2006.

Consequently, the Rajasthan Electricity Regulatory Commission in terms of open access regulations specified a standard format of agreement for short term open access for distribution system and for HT supply which was served on 03-01-2007. Notably, under clause 29(1)(f), the standard format of agreement was supplied by the Commission on 03-01-2007, which stated: “29(1)(f). Inadvertent drawal of electricity in excess of regular & standby supply as per sub clause (e) at temporary supply tariff.”

However, when it was forwarded to HZL for its signatures, the HZL noticed that Clause 29(1)(f) of the format was different from the standard agreement prescribed in the open access regulations. Consequently, the appellant sought certain clarification and accordingly, reference was made to the Commission for examination of changes in the standard agreement for HT supply and short term open access in distribution.

Issues Involved

After deliberation, by its order dated 15-09-2007, the Commission made substantial changes and altered Clauses 29(1)(e) and 29(1)(f) and 32(4) of the standard format agreement and observed that the inadvertent drawal will be billed at the same rate as regular supply irrespective of whether such inadvertent drawal was done during a period of outage of generating unit affecting open access supply or during the period of shortage of supply.

Noticeably, Clause 29(1)(f) earlier provided that all inadvertent supply would be charged as per temporary supply tariff but the Commission altered the position substantially and held that instead of the tariff for temporary supply, a tariff for regular supply will be payable for inadvertent drawal.

It was when the appellant raised the bills for period from June, 2006 to February, 2008 (for the anterior period), thereby applying the changes introduced by the Commission retrospectively, the aggrieved respondents had filed appeal before the Appellate Tribunal questioning the order of the Commission which later on reached before the Bench in the instant case.

Analysis and Findings

The question before the Bench was, whether the order dated 15-09-2007 of the Commission was a mere interpretation/clarification of standard format agreement or the order changes the position substantially the terms of the format having prospective effect for raising future bills?

The Bench noticed that it was not the case of the appellant that the conditions of open access agreement and particularly, Clauses 29(1)(e) and 29(1)(f) of the agreement were either in contradistinction or in contravention to the Regulations, 2004 and tariff to be charged for inadvertent drawal from temporary supply rate was equally permissible under the scheme of Regulations, 2004 and agreement was accordingly executed between the parties in compliance thereof.

Therefore, the Bench held that the substantial change/modification which had been given effect to by the Commission under its order dated 15-09-2007 under Clause 29(1)(f) effecting the tariff for inadvertent drawal from temporary supply rate to regular supply rate was indeed a substantial change in the condition of the agreement and prejudicial to the interest of the parties (respondents herein) and could not be read to apply retrospectively from the date of agreement executed between the parties. The Bench expressed,

“As we are dealing with the commercial agreement, if any modification, that too substantial is being permitted to be altered under the agreement executed between the parties at a later stage with retrospective effect even by the statutory authority in the garb of correction or mistake or any typographical error, if any, that may, if prejudicial to the interest of the parties inter se in law be neither permissible nor advisable to give effect anterior to the date of modification/altercation in terms and conditions of the agreement.”

Although, acknowledging the infeasibility of laying down a straight-jacket principle regarding what is clarification or what may tantamount to a substantial change or modification, the Bench while relying on the guiding principles from Section 152 of the Code of Civil Procedure, 1908 clarified,

“…where there is an unintentional omission or mistake or an arithmetic or typographical error while drafting the agreement that may have been permissible to give an effect at a later stage from its inception but, where there is a substantial amendment/alteration in the conditions of agreement, if taken place with its inception, may certainly cause prejudice to the rights of the parties inter se financially or otherwise.”

Taking note of the interim order dated 27-08-2010 whereby the Court had directed the appellant to refund the amount deposited by the respondents with interest, the Bench clarified that considering the long business relations of the parties, the money already deposited by the respondents be adjusted against the future bills to be raised by the appellant in the terms as agreeable to the parties.

[Ajmer Vidyut Vitran Nigam Ltd. v. Hindustan Zinc Ltd., 2022 SCC OnLine SC 208, decided on 17-02-2022]


*Judgment by: Justice Ajay Rastogi


Appearance by

For the Appellant: Advocate Ajay Choudhary

For the Respondent: Advocate Dheeraj Nair


Kamini Sharma, Editorial Assistant has put this report together 


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