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2018 (2) TMI 1976 - SC - Indian LawsInterpretation of statute - Whether the word 'fuel' as used in Clause 1.1.27 of the Power Purchase Agreement (PPA) means natural gas only or includes Regasified Liquefied Natural Gas (RLNG) also? - HELD THAT - A wrong question will inevitably lead to a wrong answer - The question for consideration presently is not if RLNG is a form of natural gas, but whether the parties intended to exclude any form of gaseous fuel from the ambit of the contract except for natural gas in its natural form from the domestic market, keeping the price of gas in mind, which would ultimately set the price per unit of electricity for the consumer. The PPA is a technical commercial document. It has been drafted by persons conversant with the business. RLNG and natural gas as used in the agreement are not synonymous or interchangeable. The principle of business efficacy will also have to be kept in mind for interpreting the contract. The terms of the agreement have to be read first to understand the true scope and meaning of the same with regard to the nature of the agreement that the parties had in mind. The Respondent's letters dated 07.08.2012 and 27.08.2012 become crucially relevant for the understanding that it was itself under no misapprehension that RLNG was never intended to be included within the definition of natural gas under the contract. In the former, the Respondent wrote, We await the confirmation from your good office to take it up further for obtaining necessary consent, if any, in accordance with law for use of RLNG and the resultant tariff increase. The latter again requested for permission to use RLNG to supplement shortfall in gas from the KG-D6 Basin, requesting to acknowledge its usage. The contention of the Respondent that these were only intimations and not request for permission to use RLNG stands belied from the plain language used in them - The sporadic use of RLNG on one or two occasions under pressing circumstances, after due orders Under Section 11 of the Electricity Act, 2003, for short durations, cannot make the exception the norm to contend either that RLNG was included in the term fuel or that the Appellant had agreed to its use. The question of waiver by the Appellant or application of the principle of approbate and reprobate does not arise in the facts of the case. The present was a contract for purchase of power generated from fuel which was reasonably priced so as to keep in check the cost of power generated from the same, in the interest of the consumer. Undoubtedly, cost of fuel was a primary consideration in the mind of the Appellant - there can be no manner of doubt that the parties by their conduct and dealings right up to the institution of proceedings by the Respondent before the Commission were clear in their understanding that RLNG was not to be included within the term Natural Gas under the PPA. The definition of natural gas in Section 2(za)(i) of the PNGRB Act, has no relevance to the present controversy as the Act was enacted with the object to oversee and regulate refining, processing, distribution and marketing of petroleum products and natural gas - thus, the inevitable conclusion is that the intention of the parties under the agreement, as amended from time to time, was to generate power from fuel reasonably priced, so as to ultimately make available power to the consumers at reasonable rates. The choice of fuel as natural gas only has, therefore, to be understood as being confined to natural gas only in its natural form. The Respondent was well aware that RLNG was never intended to be included in the definition of natural gas as understood by the parties, notwithstanding that it may be a variant of natural gas. Appeal allowed.
Issues Involved:
1. Interpretation of the term 'fuel' in the Power Purchase Agreement (PPA). 2. Whether 'natural gas only' includes Regasified Liquefied Natural Gas (RLNG). 3. Impact of the cost of RLNG on the per unit price of power. 4. Conduct and understanding of the parties regarding the use of RLNG. 5. Relevance of the Petroleum and Natural Gas Regulatory Board Act (PNGRB Act) definition of natural gas. Issue-wise Detailed Analysis: 1. Interpretation of the term 'fuel' in the Power Purchase Agreement (PPA): The core issue revolves around whether the term 'fuel' as defined in Clause 1.1.27 of the PPA includes RLNG or is limited to natural gas in its natural form. The Andhra Pradesh Electricity Regulatory Commission initially held that 'fuel' meant natural gas only and did not include RLNG. This interpretation was based on the higher cost of RLNG and its non-domestic availability, which would affect the per unit supply cost of power. The Appellate Tribunal, however, held that the term 'natural gas only' should not exclude RLNG, considering it a variant of natural gas and not an alternate fuel. 2. Whether 'natural gas only' includes Regasified Liquefied Natural Gas (RLNG): The Commission's decision was based on the understanding that 'natural gas only' referred strictly to natural gas in its natural form. The Appellate Tribunal, however, interpreted the term to include RLNG, citing the deletion of other alternate fuels in earlier PPAs and the acceptance of price risks. The Supreme Court, however, concluded that the term 'natural gas only' was intended to exclude RLNG, given the cost implications and the specific language of the PPA amendments. 3. Impact of the cost of RLNG on the per unit price of power: The Commission and the Supreme Court both emphasized the significant cost difference between natural gas and RLNG. The Commission noted that RLNG was three to four times more expensive than natural gas, which would ultimately burden consumers with higher electricity costs. The Supreme Court highlighted that the cost of power generation from RLNG was substantially higher than from natural gas, reinforcing the interpretation that RLNG was not intended to be included in the PPA. 4. Conduct and understanding of the parties regarding the use of RLNG: The Supreme Court examined the conduct and communications between the parties, noting that the Respondent had sought permission to use RLNG, indicating their understanding that RLNG was not included in the PPA. The Court also observed that the sporadic use of RLNG under special circumstances did not imply its inclusion in the term 'natural gas'. The consistent conduct of the parties and the absence of RLNG in discussions during the PPA amendments supported the conclusion that RLNG was not intended to be included. 5. Relevance of the Petroleum and Natural Gas Regulatory Board Act (PNGRB Act) definition of natural gas: The Respondent argued that the definition of natural gas in the PNGRB Act, which includes RLNG, should apply. However, the Supreme Court found this definition irrelevant to the PPA's interpretation, as the Act's context and purpose differed from the commercial agreement between the parties. The Court emphasized that the PPA's terms should be interpreted based on the parties' intent and the specific language used in the agreement. Conclusion: The Supreme Court allowed the appeal, reversing the Appellate Tribunal's judgment and affirming the Commission's order. The Court concluded that the term 'natural gas only' in the PPA was intended to exclude RLNG, based on the language of the agreement, the cost implications, and the conduct of the parties. The decision underscores the importance of interpreting commercial agreements based on the parties' intent and the specific terms used, rather than external definitions or subsequent conduct.
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