2021 (10) TMI 1302 - SC - Indian Laws

Alteration of rate of Late Payment Surcharge(LPS) payable by the Appellant to the Power Generating Companies under the respective Power Purchase Agreements - notifications dated 01.07.2010 and 03.03.2016 issued by the Reserve Bank of India - 'Change in Law' as defined in the respective Power Purchase Agreements between the Appellant and the Respondent Nos. 2, 3, 4 and 5 - LPS, which admittedly is compensatory in nature, can in law be awarded to the Respondents without any evidence of actual loss (equivalent to the LPS determined at the rate of PLR 2%), particularly when Power Generators are availing working capital loan at much lower rate of interest, based on Base Rate or MCLR? - LPS, which is admittedly compensatory in nature, can in law be awarded in such a manner that it results in unjust enrichment of the Power Generators, especially since the interest is to be paid by compounding monthly? HELD THAT - As held by this Court in State Bank of India and Ors. v. S.N. Goyal 2008 (5) TMI 649 - SUPREME COURT cited by Mr. Singh, the word substantial question of law means not only a substantial question of law of general importance, but also any substantial question of law arising in a case between the parties on which the decision in the lis depends. A question of law which arises incidentally or collaterally and has no bearing on the final outcome, will not be a substantial question of law. Whether the question raised is a question of law and if so, whether the question is a substantial question of law is also not determined by the enormity of the stakes involved in the case - In Nazir Mohamed v. J. Kamala and Ors. 2020 (8) TMI 866 - SUPREME COURT , also cited by Mr. Singh, this Court held that, to be substantial , a question of law must be debatable, not previously settled by the law of the land or any binding precedent, and must have a material bearing on the decision of the case and/or the rights of the parties before it, if answered either way. On a conjoint reading of Section 125 of the Electricity Act with Section 100 of the Code of Civil Procedure, it is absolutely clear that an appeal to this Court lies on a substantial question of law. The condition precedent for entertaining an appeal Under Section 125 of the Electricity Act, 2003 is the existence of a substantial question - In TUPPADAHALLI ENERGY INDIA PVT. LTD. VERSUS KARNATAKA ELEC. REG. COMM. ANR. 2017 (1) TMI 1781 - SUPREME COURT , this Court held that the view taken by the Kerala State Electricity Regulatory Commission and APTEL in interpreting of Clause 6(5) of the Power Purchase Agreement as an incentive, being a plausible view, there was no substantial question of law to warrant interference Under Section 125 of the Electricity Act. Whether the change applicable in respect of interest charged by banks and financial institutions from the Prime Lending Rate to Base Rate and then to MCLR amounts to change in law in terms of the Power Purchase Agreement? - whether there is any substantial question of law involved in this appeal? - HELD THAT - There can be no doubt that a notification issued by the Reserve Bank of India constitutes law. A Reserve Bank of India notification which alters, modifies, cancels or replaces an earlier notification would tantamount to a change in law. However the notification relating to alteration of the lending rates chargeable by banks and financial institutions are not laws which relate to the Power Purchase Agreements in question, and therefore do not attract, as the case may be, Article 13 of the Stage 1 Agreements or Article 10 of the Stage 2 Agreements - The RBI circulars/guidelines referred to above are admittedly instructions issued to banks and financial institutions and are not applicable to the Appellant or to the Respondent-Power Generating Companies, who are engaged in the business of production, sale/purchase and/or distribution of electricity and not of advancing loans. Moreover, SBAR as defined in the Power Purchase Agreements is admittedly not linked to any RBI guidelines or circulars. The guidelines/circulars are thus not relevant to the issues involved in this appeal. The definition of SBAR is clear and has been correctly applied by both the forums below. There are concurrent findings of fact that the SBI PLR (i.e. the benchmark reference rate mentioned in the PPA) is still being published and is available. The Court cannot, at this stage of a second appeal Under Section 125 of the Electricity Act reopen the factual question of whether at all PLR rates were being notified by SBI for short term loans - The provision in the Power Purchase Agreement, whereby the parties are to mutually agree on a rate of interest, in case there is no SBI Prime Lending Rate, in itself excludes the applicability of the general provision for Change in Law contained in Article 13 of the Power Purchase Agreement to Late Payment Surcharge. The object of LPS is to enforce and/or encourage timely payment of charges by the procurer, i.e. the Appellant. In other words, LPS dissuades the procurer from delaying payment of charges. The rate of LPS has no bearing or impact on tariff. Changes in the basis of the rates of LPS do not affect the rate at which power was agreed to be sold and purchased under the Power Purchase Agreements. The principle of restitution under the Change in Law provisions of the Power Purchase Agreements are attracted in respect of tariff - LPS cannot be equated with carrying cost or actual cost incurred for the supply of power. The Appellant has a contractual obligation to make timely payment of the invoices raised by the Power Generating Companies, subject, of course, to scrutiny and verification of the same. Mr. Mukul Rohatgi has a point that if the funding cost was so much lesser than the rate of LPS, as contended by the Appellant, the Appellant could have raised funds at a lower rate of interest, made timely payment of the invoices raised by the Power Generating Companies, and avoided LPS. The Parties to the Power Purchase Agreements have mutually and consciously agreed to the incorporation of the PLR as notified by SBI from time to time, as the rate for levy of LPS. Therefore, by virtue of the doctrine of incorporation, the PLR as notified by SBI each year gets incorporated in the Power Purchasing Agreements, as binding between the parties. Thus, any other system notified by the Reserve Bank of India by its circulars has no bearing on the terms of the Power Purchase Agreement and cannot be deemed to be incorporated in the Power Purchase Agreement, except in case of mutual agreement between the parties, in the event of absence of SBI PLR, and approved by the MERC - Admittedly, the Appellant has landed itself in its present predicament, due to delay in making timely payments to the Respondent Power Generating Companies. There was no pandemic at the time of filing of the petition before the MERC in 2017 and the Appeal before the APTEL in 2018. It, cannot, therefore be said that the Appellant defaulted in payment of bills by reason of its financial predicament as a result of the outbreak of COVID 19 in India, which was in March 2020. It is difficult to accept that the Appellant should incorporate in their stereotype Power Purchase Agreements, a provision for payment of LPS at a rate 2% higher than the SBAR, in case of late payment of invoices/bills, without any pre estimation of the loss likely to be suffered by a Power Generating Company, by reason of non payment of bills in time, more so when the Late Payment Surcharge is linked to the rate of interest in respect of specific types of loan, charged by a leading nationalised bank with the largest numbers of branches spread all over the country including in mofussil and rural areas - in this second appeal Under Section 125 of the Electricity Act 2003, which is only to be heard on a substantial question of law, this Court would not embark upon the exercise of making a factual enquiry into the mode and manner in which the Power Generating Companies meet their working capital requirements and interest that individual Power Generating Companies pay to their lenders. It is now well settled by various decisions of this Court that an Electricity Regulatory Commission such as MERC constituted under the Electricity Act, 2003 has all the trappings of a Court. The MERC is a substitute for a Civil Court in respect of all disputes between licensees and Power Generating Companies - MERC acted within the scope of its power of regulatory supervision in directing the Appellant to make payment of LPS within the time stipulated in the order of MERC. The APTEL rightly upheld the direction. In any case, such a direction cannot be interfered with in exercise of powers Under Section 125 of the Electricity Act which corresponds to the power of Second Appeal Under Section 100 of the Code of Civil Procedure, since the sine qua non for entertaining an appeal is the existence of a substantial question of law. The Appellant filed an application to bring on record additional facts and documents in the form of queries under the Right to Information Act, 2005 made by one Alka Mehta to the State Bank of India and the responses thereto in an attempt to show that PLR would not apply to short term loans advanced by SBI after transition to the Base Rate/MCLR system. This Court cannot take note of any documents sought to be introduced after the conclusion of hearing - this Court cannot in a second appeal Under Section 125 of the Electricity Act, 2003 interfere with concurrent factual findings arrived at by MERC and APTEL on the basis of facts admitted by the Appellant. The Appellant had been accepting the invoices raised by the Respondent-Power Generating companies and accounts had duly been reconciled by the Appellant. The LPS charged by the Respondent Power Generating Companies was never disputed. Furthermore, this Court cannot look into documents introduced for the first time in this second appeal, which were not tendered in evidence before the MERC or the APTEL. Even otherwise, queries made by one Alka Mehta, a rank outsider as late as on 12th July 2021 or replies thereto cannot be relied upon in evidence, by the Appellant. There are no grounds to interfere with the judgment and order of the learned APTEL confirming the judgment and order passed by MERC - appeal dismissed.

Summary

Issues Involved:
1. Whether the change in interest rate system by the RBI from Prime Lending Rate (PLR) to Base Rate and then to MCLR amounts to Change in Law under the Power Purchase Agreements.
2. Whether the notifications dated 01.07.2010 and 03.03.2016 issued by the Reserve Bank of India are an event of change in law in terms of the Power Purchase Agreements.
3. Whether Late Payment Surcharge (LPS) can be determined on the basis of the Prime Lending Rate (PLR) methodology.
4. Whether LPS, which is compensatory in nature, can be awarded without any evidence of actual loss.
5. Whether LPS can be awarded in a manner that results in unjust enrichment of the Power Generators.
6. Whether the claim of the Appellant is time-barred.
7. Whether the Appellant can resile from its contractual commitment due to financial hardship caused by the COVID-19 pandemic.

Detailed Analysis:

1. Change in Interest Rate System as Change in Law:
The court determined that the change in interest rate system by the RBI from Prime Lending Rate (PLR) to Base Rate and then to MCLR does not amount to Change in Law under the Power Purchase Agreements (PPAs). The RBI notifications are instructions to banks and financial institutions and do not apply to the Appellant or Respondent-Power Generating Companies engaged in the business of electricity. The definition of SBAR in the PPAs is not linked to any RBI guidelines or circulars.

2. RBI Notifications as Change in Law:
The court held that the RBI notifications dated 01.07.2010 and 03.03.2016 do not constitute a change in law under the PPAs. The notifications are not laws relating to the PPAs and thus do not attract the provisions of Article 13 of the Stage 1 Agreements or Article 10 of the Stage 2 Agreements.

3. Determination of LPS Based on PLR Methodology:
The court found that LPS is to be calculated at the rate of 2% in excess of the SBI notified Prime Lending Rate (PLR) as per the PPAs. The definition of SBAR is clear and has been correctly applied by both the forums below. The Appellant's contention that the PLR has been replaced and should not be used was rejected.

4. LPS as Compensatory in Nature:
The court concluded that LPS is compensatory in nature and is payable only when there is a delay in payment of bills. The LPS rate does not have to correspond to the actual interest rate paid by the Power Generating Companies for funds raised by them. The agreed rate of LPS is a genuine pre-estimate of damages.

5. Unjust Enrichment of Power Generators:
The court rejected the argument that LPS results in unjust enrichment of the Power Generators. LPS is a penalty for delay and is intended to enforce timely payment of charges. The Power Generating Companies are not unjustly enriched as LPS is a part of the contractual obligations agreed upon by the parties.

6. Time-Barred Claims:
The court held that the Appellant's claim is time-barred. The Appellant issued notices of Change in Law more than six years after the RBI introduced the Base Rate system, which is beyond the reasonable time frame to claim such a change.

7. Financial Hardship Due to COVID-19:
The court found that the Appellant's financial hardship due to the COVID-19 pandemic does not justify resiling from its contractual commitments. The default in payment occurred before the pandemic, and the Appellant cannot use the pandemic as an excuse for non-performance of its contractual obligations.

Conclusion:
The court dismissed the appeal, upholding the decisions of MERC and APTEL. The Appellant is obligated to pay LPS as per the terms of the PPAs, and the RBI notifications do not constitute a change in law affecting the PPAs. The court emphasized that contractual terms must be honored, and financial difficulties or changes in interest rate systems do not alter the obligations under the PPAs.