Supreme Court: In an appeal against the judgment of the Appellate Tribunal for Electricity (‘APTEL’), wherein APTEL dismissed an appeal against an order of the Central Electricity Regulatory Commission (‘CERC’) dated 30-07-2013, the three-judge bench of Dr DY Chandrachud, CJI., JB Pardiwala, and Manoj Misra,JJ. has held that CERC and APTEL have correctly held that the as Gas Supply Agreement (GSA)/ Gas Transportation Agreement (GTA) with GAIL is permissible by the terms of the contract and the consent or approval of the MSEDCL is irrelevant. Clause 5.9 and Clause 4.3 operate in different spheres and the requirements of the former cannot be foisted on an arrangement permissible by the latter. Further, it said that a commercial document cannot be interpreted in a manner that is at odds with the original purpose and intendment of the parties to the document. A deviation from the plain terms of the contract is warranted only when it serves business efficacy better.
An electricity transmission company called Ratnagiri Gas and Power Pvt. Ltd (‘Ratnagiri Gas’), filed a petition under Section 79 of the Electricity Act, 2003 against Maharashtra State Electricity Distribution Co. Ltd. (‘MSEDCL’), seeking the resolution of issues arising out of the non-availability of domestic gas; beneficiaries’ reservations to allow Ratnagiri Gas to enter into contracts for alternate fuel, the revision of the Normative Annual Plant Availability Factor and directions to the beneficiaries to pay fixed charges due to Ratnagiri Gas. CERC, by its order dated 30 —07-2013 held the appellant liable to pay fixed charges to the first respondent. CERC’s decision was upheld by APTEL by the impugned order.
Consequently, there was correspondence between Ratnagiri Gas and MSEDCL regarding the liability towards fixed charges. Ratnagiri Gas disclaimed any liability under the Power Purchase Agreement (‘PPA’) stating that it stood absolved of the fixed charges, since the capacity declaration was made by the based on Recycled Liquefied Natural Gas (RLNG), without Ratnagiri Gas consent. It has filed an execution petition before APTEL seeking the payment of Rs 5287.76 crores together with an amount of Rs 1826 crores in accordance with the APTEL order dated 22 -05- 2013. Notice was issued on the execution petition by an order dated 25 —11- 2022. Thus, considering the subsequent events and the liberty granted by this Court, the present appeal has been filed.
Whether the CERC and APTEL were justified in affixing liability to pay fixed charges on Ratnagiri Gas?
The Court while answering the above issue in affirmative, said that “Declared Capacity” means the capability of the Station to deliver ex-bus electricity in MW declared by the Station in relation to any period of the day, or the whole day, duly considering the availability of Gas and liquid fuels. The Station has to allocate 95% of its capacity to MSEDCL after the Commercial Operation Date (‘COD’) of respective power blocks/stations. MSEDCL is liable to pay full capacity charges as mentioned in Clause 5.2 of PPA and shall be entitled to corresponding incremental power.
Further, the Bench noted that the PPA provides for the tariffs to be paid in two parts: capacity charges i.e. fixed charges corresponding to the declared capacity and energy charges i.e. variable charges corresponding to the actual electricity delivered.
The Bench interpreted the terms of the PPA and said that Ratnagiri Gas has consistently stated that the alternate arrangement in the form of GSA/GTA with GAIL and capacity declarations based on RLNG were necessitated on account of the unprecedented nationwide shortage of domestic fuel. But for such an alternate arrangement, it would have been unable to meet the target availability, which would have in turn affected their ability to recover fixed costs and jeopardized the viability of the project.
In accordance with settled principles governing the interpretation of contracts, the Court said that the PPA is required to be read as a whole. Clause 4.3 has two parts: according to the first, primary fuels include LNG/Natural gas and/or RLNG; according to the second, the MSEDCL agreement is required, in case liquid fuels are to be employed. A bare reading of the clause indicates that the requirement to seek such an agreement does not attach to the first part of the clause which envisages RLNG as a primary fuel. An arrangement involving a transition from one primary fuel to another primary fuel is permissible by the clause, even without the MSEDCL agreement.
Further, it said that the requirement of an agreement, mandated for an arrangement involving liquid fuel, cannot be read into the plain text of the former part of Clause 4.3. Thus, the capacity declaration based on RLNG could be done unilaterally, unencumbered by the requirement of the MSEDCL consent in the latter half or the prior approval requirement under Clause 5.9 of the PPA.
Thus, the Court held that CERC and APTEL have correctly held that the GSA/GTA with GAIL is permissible by the terms of the contract and the consent or approval of the MSEDCL is irrelevant. Clause 5.9 and Clause 4.3 operate in different spheres and the requirements of the former cannot be foisted on an arrangement permissible by the latter.
The Court noted that Capacity charges mandated under Clause 5.2 hinge on the declared capacity that the Station is capable of delivering to its beneficiaries. Further, energy charges are payable only against the actual energy delivered. MSEDCL’s liability for the former is actual delivery agnostic. It arises as long as the declared capacity is made in terms of the PPA i.e. Clause 4.3. 34.
Further, it noted that Clause 2.2.2 of the PPA prescribes that even in case MSEDCL is unable to utilize the entire allocated capacity of Ratnagiri Gas , or in case MSEDCL fails to comply with the payment obligations in accordance with the PPA, Ratnagiri Gas is entitled to sell power to other parties, without prejudice to its claim for recovery of capacity charges from MSEDCL subject to the provisions of Clause 2.2.2. Also, Clause 19 2.2.2 indicates the intention of the parties to the PPA to put the capacity charges beyond the realm of actual energy supplied. MSEDCL reading implies that such a fixed charge can be avoided and made subject to its consent. Such a reading goes against the apparent intention of the parties to treat capacity charges as fixed charges under the PPA.
As per the Court, a commercial document cannot be interpreted in a manner that is at odds with the original purpose and intendment of the parties to the document. A deviation from the plain terms of the contract is warranted only when it serves business efficacy better. MSEDCL’s arguments would entail reading in implied terms contrary to the contractual provisions which are otherwise clear. Such a reading of implied conditions is permissible only in a narrow set of circumstances.
Thus, bearing in mind the background of the establishment of Ratnagiri Gas, and the shortfall of domestic gas for reasons beyond its control, such a deviation from the plain terms is not merited and militates against business efficacy as it has a detrimental impact on the viability of Ratnagiri Gas. Further, while dismissing the appeal, it said that the execution proceedings pursuant to the above-mentioned execution petition before the APTEL to be continued.
[Maharashtra State Electricity Distribution Co. Ltd. v. Ratnagiri Gas & Power (P) Ltd., 2023 SCC OnLine SC 1462, decided on 09-11-2023]
*Judgment Authored by: Chief Justice of India, Dr. Justice D Y Chandrachud