CASE NAME: MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LIMITED VERSUS RATNAGIRI GAS AND POWER PRIVATE LIMITED & ORS.
CASE NUMBER: CIVIL APPEAL NO. 1922 OF 2023
DATED ON: NOVEMBER 09, 2023
QUORUM: HONOURABLE CIJ Dr. D.Y. CHANDRACHUD, JUSTICE P.B. PARDIWALA & JUSTICE MANOJ MISHRA.
INTRODUCTION
The Appellate Tribunal for Electricity (APTEL) in New Delhi dismissed an appeal against an order from the Central Electricity Regulatory Commission (CERC) in 2013. The first respondent, Ratnagiri Gas And Power Private Limited, filed a petition against Maharashtra State Electricity Distribution Co. Ltd., seeking resolution of issues related to non-availability of domestic gas, alternate fuel contracts, and fixed charges. CERC held the appellant liable, which was upheld by APTEL. The court granted the appellant the liberty to move the court again if necessary. The first respondent filed an execution petition, seeking payment of Rs 5287.76 crores and Rs 1826 crores, in accordance with the APTEL order.
FACTS OF THE CASE
The first respondent, RGPPL, a joint venture of NTPC Ltd., Gas Authority of India Ltd, MSEB Holding Company, ICICI, IDBI, SBI, and Canara Bank, took over the assets of Dabhol Power Company Limited after its operations were closed down. The first respondent owns a gas-based generating station in Ratnagiri, Maharashtra, with 95% allocated to the State of Maharashtra and the rest to Goa, Daman, Diu, Dadra, and Nagar Haveli. The appellant, MSEDCL, entered into a Power Purchase Agreement with the first respondent in 2007 for 25 years. The first respondent received gas supply from RIL until September 2011, but a decline in supply was attributed to low-yielding KG-D6 gas fields. The issue was raised with the Central Government and placed before the Empowered Group of Ministers on 24 December.
The first respondent entered into a Gas Supply Agreement/Gas Transportation Agreement with GAIL to supply Recycled Liquid Natural Gas under spot cargo. The appellant, however, refused to schedule power at the agreed rates, claiming that the first respondent failed to obtain their approval before entering into the agreement. The appellant argued that the declaration of capacity on RLNG was unilateral and arbitrary, violating Clause 5.9 of the Power Purchase Agreement. The first respondent filed a petition under Section 79 of the Electricity Act 2003 to resolve the issue of non-payment of fixed charges, the reservations of beneficiaries to enter alternate contractual arrangements for fuel, and the revision of the NAPAF.
LEGAL PROVISIONS:
POWER PURCHASE AGREEMENT
Clause (4.3) Declared Capacity
“Primary Fuel for RGPPL is LNG/Natural gas and/or RLNG. Normally capacity of the station shall be declared on gas and/or RLNG for all three power blocks. However, if agreed by MSEDCL, RGPPL shall make arrangements of Liquid fuel(s) for the quantum required by MSEDCL. In such a case the capacity on liquid fuel shall also be taken into account for the purpose of Availability, Declared Capacity and PLF calculations till the time Liquid fuel(s) stock agreed/requisitioned by MSEDCL is available at site.”
Clause (5.9) Gas Supply Agreement (GSA)/ Gas Transportation Agreement (GTA)
The gas supply agreement for 1.5 MMTPA R-LNG up to September 2009 is in place, sourced through Petronet LNG Ltd and re-gasified at their Dahej terminal. Commercial implications of the GSA/GTA contract will be signed separately with MSEDCL. The total gas/LNG will be procured through short-term and long-term contracts through GAIL, under GoI’s direction. RGPPL must obtain MSEDCL’s approval on contracting terms and price before entering the contract.
ELECTICITY ACT, 2003
SECTION-79: FUNCTION OF CENTRAL COMMISSION
(1) The Central Commission shall discharge the following functions :–
The Act regulates the tariffs of generating companies owned or controlled by the Central Government, those with a composite scheme for electricity generation and sale in multiple states, and inter-state transmission of electricity. It determines tariffs for inter-state transmission, issues licenses for transmission licensees and electricity traders, adjudicates disputes involving generating companies or transmission licensees, levies fees for the Act, specifies Grid Codes and Standards, enforces quality, continuity, and reliability of service by licensees, sets trading margins in inter-state electricity trading, and discharges other functions assigned under the Act.
(2) The Central Commission shall advise the Central Government on all or any of the following matters :–
The Central Commission is responsible for formulating National Electricity Policy and tariff policy, promoting competition, efficiency, and economy in the electricity industry, promoting investment, and addressing other government-referred matters. It ensures transparency and is guided by the National Electricity Policy, National Electricity Plan, and tariff policy.
ISSUSES RAISED:
- whether the CERC and APTEL were justified in affixing liability to pay fixed charges on the appellant.
- Whether the dispute in the particular case primarily turns on the terms of the Power Purchase Agreement or not.
CERC ORDER DATED 30 JULY 2023 AND APTEL JUDGEMENT AND FINAL ORDER DATED 22 APRIL 2015.
The CERC allowed a petition and held the appellant liable to pay fixed capacity charges under the Power Purchase Agreement. It ruled that the appellant’s decision not to schedule RLNG influenced variable charges, not fixed charges. Further, the appeal in APTEL was made and they directed that if the appellant wanted to not pay for RLNG, it must compensate the first respondent, as it is liable under Article 5.2 of the PPA. No prior consent was required for liability to arise. APTEL dismissed the appeal. The Civil Appeal against APTEL’s decision was initially disposed of by this Court. Since the appellant was not facing any punitive action for recovery, and the appellant was granted the liberty to approach the court when needed. The present appeal is before the Supreme Court of India.
APPELLANT’S CONTENTION
The appellant challenged APTEL’s judgment and final order, arguing that the CERC divided Clause 4.3 and Clause 5.9 of the PPA into two separate categories, absolving the appellant of paying for declared capacity due to RLNG. The placement of the prior approval clause in clause 5.9 suggests it applies to both clause 5.2 and clause 5.3 energy charges. The decision to adopt RLNG has commercial implications, so the prior approval requirement in clause 5.9 is invoked. The compartmentalization of clauses 4.3 and 5.9 is flawed, and the plant availability factor would be less than 70%, reducing capacity charges in accordance with CERC Regulations 2009.
RESPONDENT’S CONTENTION:
The first Respondent urged that, The appellant established a generating station to meet their electricity needs. After the failure of M/s Enron International and M/s Dabhol Power Company, the station was revived and its assets transferred to RGPPL. The appellant held 13.51% shares in the first respondent. The capacity declaration and demand for charges are in accordance with Clauses 4.3 and 5.2 of the Power Purchase Agreement (PPA). The PPA is valid for 25 years and the appellant is bound by Clauses 6.6. and 6.7, which stipulate paying 95% of charges during a dispute.
COURT’S ANALYSIS:
TERMS OF PPA
The PPA outlines two types of tariff charges for MSEDCL: capacity charges and energy charges. The former are fixed and subject to revision by the Government of India or Maharashtra, while the latter are calculated using a formula. MSEDCL must schedule energy sending from RGPPL and obtain approval from CERC for provisional billing. The total gas requirements are procured through GAIL, with RGPPL obtaining approval before entering into a GSA/GTA.
The first respondent argues that an alternate arrangement with GAIL and capacity declarations based on RLNG was necessary due to a nationwide fuel shortage. The appellant argues that the unilateral decision to declare capacity based on RLNG violated the mandatory approval requirement under clause 5.9 of the PPA, exempting it from liability to pay fixed capacity charges.
FACTUAL CONTEXT AND THE INTENTION OF PARTIES TO THE CONTRACT
The first respondent was established due to the failure of M/s Enron International and M/s Dabhol Power Company to meet Maharashtra’s energy needs. The tariff requirements were determined to preserve the unit’s viability. The appellant’s liability for the former is actual delivery agnostic, as long as the declared capacity is made in terms of the PPA.
The appellant’s interpretation of the PPA contradicts the original purpose and intendment of the parties, as it implies that capacity charges can be avoided and made subject to the appellant’s consent. A deviation from the plain terms of the contract is warranted only when it serves business efficacy better. The appellant’s arguments would require reading in implied terms contrary to the contractual provisions, which is permissible only in a narrow set of circumstances.
JUDGEMENT:
In the present context, bearing in mind the background of the establishment of the first respondent, and the shortfall of domestic gas for reasons beyond the control of the first respondent, 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 the first respondent.
The execution proceedings pursuant to the above-mentioned execution petition before the APTEL be continued. The appeal is dismissed. There shall be no order as to costs.
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JUDGEMENT REVIEWED BY: ABHISHEK SINGH
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