2017 (4) TMI 1385 - SC - Indian Laws

Frustation of contract - force majeure - Competitive bidding process - composite scheme for generation and sale of electricity - Section 79(1)(b) of the Electricity Act - Held that - Section 63 is a stand alone provision and has to be construed on its own terms, and that, therefore, in the case of transparent bidding nothing can be looked at except the bid itself which must accord with guidelines issued by the Central Government. One thing is immediately clear, that the appropriate Commission does not act as a mere post office under Section 63. It must adopt the tariff which has been determined through a transparent process of bidding, but this can only be done in accordance with the guidelines issued by the Central Government. Guidelines have been issued under this Section on 19th January, 2005, which guidelines have been amended from time to time. Clause 4, in particular, deals with tariff and the appropriate Commission certainly has the jurisdiction to look into whether the tariff determined through the process of bidding accords with clause 4. It is clear that this Court did not give any truncated right to argue force majeure or change of law. This Court explicitly stated that both force majeure and change of law can be argued in all its plenitude to support an order quantifying compensatory tariff so long as the appellants do not claim that they are relieved of performance of the PPAs altogether - the Appellate Tribunal rightly went into force majeure and change of law. Neither was the fundamental basis of the contract dislodged nor was any frustrating event, except for a rise in the price of coal, excluded by clause 12.4, pointed out. Alternative modes of performance were available, albeit at a higher price. This does not lead to the contract, as a whole, being frustrated. Consequently, we are of the view that neither clause 12.3 nor 12.7, referable to Section 32 of the Contract Act, will apply so as to enable the grant of compensatory tariff to the respondents. The Central Electricity Regulatory Commission will go into the matter afresh and determine what relief should be granted to those power generators who fall within clause 13 of the PPA - appeal disposed off.

Summary

Issues Involved:
1. Jurisdiction of the Central Commission under Section 79(1)(b) of the Electricity Act.
2. Applicability of the force majeure clause in the Power Purchase Agreements (PPAs).
3. Interpretation of "Change in Law" under the guidelines and PPAs.

Issue-wise Detailed Analysis:

Jurisdiction of the Central Commission:
The Supreme Court addressed whether the Central Commission had jurisdiction under Section 79(1)(b) of the Electricity Act. The appellants argued that a "composite scheme" must involve uniform tariffs across multiple states. The court clarified that "composite scheme" means a scheme for generation and sale of electricity in more than one state, without requiring uniform tariffs. The court emphasized that the Central Commission's jurisdiction is triggered when generation and sale occur in multiple states, aligning with the Act's scheme distinguishing between inter-state and intra-state matters. The court held that the Central Commission had jurisdiction to address the issues raised.

Force Majeure:
The court examined whether the rise in Indonesian coal prices constituted a force majeure event under the PPAs. The force majeure clause was found to be inclusive but not exhaustive. The court noted that force majeure clauses are to be narrowly construed and that a mere rise in price does not constitute a force majeure event. The court highlighted that the PPAs explicitly excluded changes in the cost of fuel and the agreement becoming onerous to perform from being considered force majeure events. The court concluded that the rise in coal prices did not qualify as a force majeure event, and thus, compensatory tariff could not be granted on this basis.

Change in Law:
The court analyzed the interpretation of "Change in Law" under the guidelines and PPAs. The respondents argued that "any change in law" should include foreign laws, given the context of imported coal. The court disagreed, stating that the definition of "law" in the PPAs referred only to Indian laws. The court emphasized that the guidelines and PPAs, both drafted by the Central Government, intended "any change in law" to mean changes in Indian laws only. However, the court acknowledged that changes in Indian coal distribution policy in 2013, which modified the 2007 policy, constituted a change in law under the PPAs. The court held that relief was available under the PPAs for changes in Indian law affecting coal supply from indigenous sources.

Conclusion:
The Supreme Court set aside the Appellate Tribunal's judgment and the Central Commission's orders, directing the Central Electricity Regulatory Commission to re-evaluate the relief to be granted to power generators under the PPAs, considering the court's interpretation of "Change in Law" and excluding the force majeure claim related to the rise in Indonesian coal prices.