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TMI Blog2016 (12) TMI 1763X X X X Extracts X X X X X X X X Extracts X X X X ..... re of a modification of the terms of the contract must be read in and become a part of the original contract in order to amount to an alteration Under Section 62 of the Indian Contract Act. No such thing having occurred on the present facts, it is clear that there is in fact no amendment by written agreement to the PPA. The relevant Section therefore that would apply on the facts of the present case is Section 63. At this stage, it is important to advert to an argument made by counsel for the Appellants that Article 18.3 only refers to waivers that can expressly be made under various provisions of the agreement and not to Article 6 which, according to learned Counsel, cannot be waived under the PPA. Assuming that such argument is correct, and that Article 18.3 refers only to the mode of carrying out a waiver under the PPA, yet it is clear that Section 63 would operate on the facts of this case. This is for the reason that, when read with Section 1 of the Contract Act, it becomes clear that the PPA is subject to Section 63 of the Contract Act, which would allow a promise to dispense with or remit, wholly or in part, the performance of the promise made to him, and accept instead of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent States, namely, Appellants 1 to 3 and Respondents 5 to 15 (in Civil Appeal Nos. 5239-5240 of 2016) nominated Power Finance Corporation Limited, a Government of India undertaking as the Nodal Agency to complete a competitive bid process for development of an ultra mega power project based on linked coalmines using super critical technology of units of 660 mega watts (MW) each, plus or minus 20%, in Sasan District, Singrauli, Madhya Pradesh. On 10.2.2006, Sasan Power Limited was incorporated as a special purpose vehicle by Power Finance Corporation in order to implement the aforesaid purpose. On 1.8.2007, based on the competitive bidding process held by Power Finance Corporation, Reliance Power Limited, having quoted the lowest amount, was selected as the successful bidder, and a letter of intent was issued to Reliance Power Ltd. The quoted tariff, year by year, for a period of 25 years, which was accepted and incorporated as Schedule 11 in the Power Purchase Agreement dated 7.8.2007 (PPA) had tariffs at an extremely depressed rate for the first two years, after which the tariffs were fixed at a significantly higher rate. On the very day that the PPA was executed between Sasan Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority under the Electricity Act, 2003. It is the case of Sasan that though they were ready to deliver electricity on 31.3.2013 at 95% of the contracted capacity of 620 MW of the unit, they could not do so as WRLDC did not give them the necessary green signal to go ahead. They relied heavily upon the independent engineer's test certificate dated 30.3.2013 to show that a COD took place on the following day, which we will consider in some detail later. At this stage, suffice it to say that a petition was filed by WRLDC before the Central Electricity Regulatory Commission (CERC) on 25.4.2013, in which it was prayed: 1. Kindly look into the veracity of the certificate issued by the Independent Engineer in view of deliberate suppression and misrepresentation of the facts and issue suitable directions to Respondent No. 2 to desist from such act. 2. Kindly look into the matter of Respondent No. 1 including into intentional mis-declaration of parameters related to commercial mechanism in vogue and has purported to declare the part (de-rated) capacity of 101.38 MW as commercial on the grounds of load restriction by WRLDC and issued suitable directions in the matter. 3. Issue sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule 5 of the PPA, and stated that this is an Article which does not merely reflect the individual rights and liabilities of the generator and procurers of electricity but would also sound in public interest inasmuch as the declaration of COD would have effect on the tariff that is payable by consumers generally. They, therefore, argued that Article 6.3.1 cannot be waived as a matter of law. They also argued that it cannot also be waived as a matter of fact inasmuch as when the PPA expressly allowed a certain provision to be waived, it expressly stated so. In this regard, Articles 3.1.2, 4.4.2(b) 10.1(c), 10.2(c) were pointed out by them. Referring to Article 18.3 of the PPA, it was argued that the said Article is not a substantive provision for waiver, but only a provision dealing with the manner in which waiver is to be exercised, and has reference only to the aforesaid Articles. Further, even assuming that there was a waiver, such waiver took place as late as 15.4.2013 when the last communication from Uttarakhand Power was received. There was, therefore, no waiver of the aforesaid condition on 31.3.2013. They also argued that as a matter of fact the emails exchanged between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of the Appellant, they referred to and relied upon Section 63 of the Indian Contract Act, 1872 to buttress their submission that waiver is a right granted by the Contract Act and does not depend upon the PPA. Therefore, whatever the construction of Article 18.3 of the PPA, it is clear that the Contract Act itself gives them this right which the procurers themselves have exercised in accordance with law, for the very good reason that they wanted the supply of cheap energy at any cost, even at the cost of being at 17% instead of 95% of contracted demand. It was also their case that they were ready to supply electricity on 31st March at 95% of the contracted demand, but unfortunately WRLDC prevented them from doing so, and that the independent engineer's certificate had been wrongly castigated by CERC, as was correctly held by the Appellate Tribunal. The independent engineer laid bare the facts correctly and therefore did not give a false or wrong certificate as was found by CERC. They also met an argument raised by the Appellant that Haryana at least had waived its right without prejudice to its other rights and contentions. This was met by stating that Haryana accounted only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning Test results. Within five (5) days of receipt of the Commissioning Test results, the Independent Engineer shall provide to the Procurers and the Seller in writing, his findings from the evaluation of Commissioning Test results, either in the form of Final Test Certificate certifying the matters specified in Article 6.3.1 or the reasons for non-issuance of Final Test Certificate. 6.3 Commercial Operation 6.3.1 A Unit shall be Commissioned on the day after the date when all the Procurers receive a Final Test Certificate of the Independent Engineer stating that: a) the Commissioning Tests have been carried out in accordance with Schedule 5 and are acceptable to him; and b) the results of the Performance Test show that the Unit's Tested Capacity, is not less than ninety five (95) percent of its Contracted Capacity as existing on the Effective Date. 6.3.2 If a Unit fails a Commissioning Test, the Seller may retake the relevant test, within a reasonable period after the end of the previous test, with three (3) day's prior written notice to the Procurers and the Independent Engineer. Provided however, the Procurers shall have a right to require deferment of any such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roportion to the reduction in the Contracted Capacity of the Power Station as a result of that de-rating (taking into account the Contracted Capacity of any Unit which has yet to be Commissioned). (ii) If at the end of Initial Performance Retest Period or the date of the eighth Performance Test mentioned in Article 6.3.3, whichever is earlier, the Tested Capacity is less than the Contracted Capacity (as existing on the date of this Agreement), the consequences mentioned in Article 8.2.2 shall apply for a period of one year. Provided that such consequences shall apply with respect to the Tested Capacity existing at the end of Initial Performance Retest Period or the date of the eighth Performance Test mentioned in Article 6.3.3, whichever is earlier. 6.3.5 If a Unit's Tested Capacity as at the end of the Initial Performance Retest Period or the date of the eighth Performance Test mentioned in Article 6.3.3, whichever is earlier, is found to be more than it's Contracted Capacity as existing on the Effective Date, the Tested Capacity shall be deemed to be the Unit's Contracted Capacity if any Procurer/s agrees and intimates the same to the Seller within thirty (30) day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only be used if the Grid System operation during the Performance Test exceeds Electrical System Limits. (c) The Performance Test shall be deemed to have demonstrated the Contracted Capacity of the Unit under all designed conditions and therefore no adjustments shall be made on account of fuel quality or ambient conditions. (d) The Seller shall perform in respect of each Unit a Performance Test, which such Unit shall be deemed to have passed if it operates continuously for seventy two consecutive hours at or above ninety five (95) percent of its Contracted Capacity as existing on the Effective Date and within the Electrical System Limits and the Functional Specifications. ii. For the purposes of any Performance Test pursuant to this sub-article 1.1, the Electrical System Limits to be achieved shall be as follows: (a) Voltage The Unit must operate within the voltage levels described in the Functional Specification for the duration of the Performance Test. If, during the Performance Test, voltage tests cannot be performed due to Grid System, data supplied from tests of the generator step-up transformers and generators supplied by the manufacturers shall be used to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and methodologies in respect of the wheeling and optimum scheduling and despatch of electricity as the Central Commission may specify in the Grid Code. (3) The Regional Load Despatch Centre shall - (a) be responsible for optimum scheduling and despatch of electricity within the region, in accordance with the contracts entered into with the licensees or the generating companies operating in the region; (b) monitor grid operations; (c) keep accounts of quantity of electricity transmitted through the regional grid; (d) exercise supervision and control over the inter-State transmission system; and (e) be responsible for carrying out real time operations for grid control and despatch of electricity within the region through secure and economic operation of the regional grid in accordance with the Grid Standards and the Grid Code. (4) The Regional Load Despatch Centre may levy and collect such fee and charges from the generating companies or licensees engaged in inter-State transmission of electricity as may be specified by the Central Commission. Section 29. Compliance of directions: --- (1) The Regional Load Despatch Centre may give such directions and exercise such su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would encourage competition, efficiency, economical use of the resources, good performance and optimum investments; (d) safeguarding of consumers' interest and at the same time, recovery of the cost of electricity in a reasonable manner; (e) the principles rewarding efficiency in performance; (f) multi year tariff principles; (g) that the tariff progressively reflects the cost of supply of electricity and also, reduces cross-subsidies in the manner specified by the Appropriate Commission; (h) the promotion of co-generation and generation of electricity from renewable sources of energy; (i) the National Electricity Policy and tariff policy: Provided that the terms and conditions for determination of tariff under the Electricity (Supply) Act, 1948, the Electricity Regulatory Commission Act, 1998 and the enactments specified in the Schedule as they stood immediately before the appointed date, shall continue to apply for a period of one year or until the terms and conditions for tariff are specified under this section, whichever is earlier. Section 62. Determination of tariff: (1) The Appropriate Commission shall determine the tariff in accordance with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government. 11. Since counsel for the opposing parties have made wide ranging arguments on the effect of Article 18 and waiver as a legal concept, it is important first to find out as to which pigeonhole the facts of the present case fit - whether the emails exchanged by the parties would amount to an "amendment" governed by Article 18.1, or whether it would amount to a "waiver" governed by Article 18.3. 12. A perusal of the emails exchanged between the parties would show that the parties did not intend to amend by a written agreement any of the provisions of the PPA. Whereas an amendment of the PPA Under Article 18.1 would be bilateral, a waiver of a provision of the PPA would be unilateral Under Article 18.3. 13. In order to better understand, conceptually, the difference between amendment and waiver, it is necessary to advert to Sections 1, 62 and 63 of the Indian Contract Act, 1872. Section 1. Short title.-This Act may be called the Indian Contract Act, 1872. Extent, Commencements.- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y written agreement to the PPA. To this extent, learned Counsel for Sasan are correct. 16. The relevant Section therefore that would apply on the facts of the present case is Section 63. At this stage, it is important to advert to an argument made by counsel for the Appellants that Article 18.3 only refers to waivers that can expressly be made under various provisions of the agreement and not to Article 6 which, according to learned Counsel, cannot be waived under the PPA. Assuming that such argument is correct, and that Article 18.3 refers only to the mode of carrying out a waiver under the PPA, yet it is clear that Section 63 would operate on the facts of this case. This is for the reason that, when read with Section 1 of the Contract Act, it becomes clear that the PPA is subject to Section 63 of the Contract Act, which would allow a promise to dispense with or remit, wholly or in part, the performance of the promise made to him, and accept instead of it any satisfaction which he thinks fit. This is made clear in an interesting judgment by Chief Justice Stone in Official Assignee of Bombay v. Madholal Sindhu ILR 1948 (2) Bom 1. The learned Chief Justice after setting out the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand what exactly is meant by waiver. In Jagad Bandhu Chatterjee v. Nilima Rani (1969) 3 SCC 445, this Court held: In India the general principle with regard to waiver of contractual obligation is to be found in Section 63 of the Indian Contract Act. Under that Section it is open to a promise to dispense with or remit, wholly or in part, the performance of the promise made to him or he can accept instead of it any satisfaction which he thinks fit. Under the Indian law neither consideration nor an agreement would be necessary to constitute waiver. This Court has already laid down in Waman Shriniwas Kini v. Ratilal Bhagwandas & Co. [1959 Supp 2 SCR 217, 226] that waiver is the abandonment of a right which normally everybody is at liberty to waive. "A waiver is nothing unless it amounts to a release. It signifies nothing more than an intention not to insist upon the right". It is well-known that in the law of pre-emption the general principle which can be said to have been uniformly adopted by the Indian courts is that acquiescence in the sale by any positive act amounting to relinquishment of a pre-emptive right has the effect of the forfeiture of such a right. So far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is a clear intention to relinquish a right that is fully known to a party, a party cannot be said to waive it. But the matter does not end here. It is also clear that if any element of public interest is involved and a waiver takes place by one of the parties to an agreement, such waiver will not be given effect to if it is contrary to such public interest. This is clear from a reading of the following authorities. 21. In Lachoo Mal v. Radhey Shyam (1971) 1 SCC 619, it was held: The general principle is that everyone has a right to waive and to agree to waive the advantage of a law or Rule made solely for the benefit and protection of the individual in his private capacity which may be dispensed with without infringing any public right or public policy. Thus the maxim which sanctions the non-observance of the statutory provision is cuilibet licet renuntiare juri pro se introducto. (See Maxwell on Interpretation of Statutes, Eleventh Edn., pp. 375 and 376). If there is any express prohibition against contracting out of a statute in it then no question can arise of anyone entering into a contract which is so prohibited but where there is no such prohibition it will have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61. The present case, however, is covered by Section 63, which begins with a non obstante Clause stating that notwithstanding anything contained in Section 62, the appropriate commission shall adopt the tariff if such tariff has been determined through a transparent process of bidding in accordance with the guidelines issued by the Central Government. The guidelines dated 19.1.2005 issued by the Central Government Under Section 63 make it clear that such guidelines are framed with the following objectives in mind: These guidelines have been framed under the above provisions of Section 63 of the Act. The specific objectives of these guidelines are as follows: 1) Promote competitive procurement of electricity by distribution licensees; 2) Facilitate transparency and fairness in procurement processes; 3) Facilitate reduction of information asymmetries for various bidders; 4) Protect consumer interests by facilitating competitive conditions in procurement of electricity; 5) Enhance standardization and reduce ambiguity and hence time for materialization of projects; 6) Provide flexibility to suppliers on internal operations while ensuring certainty on availability of powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dopted by the Commission Under Section 63 is only a tariff obtained by competitive bidding in conformity with guidelines issued. If at any subsequent point of time such tariff is increased, which increase is outside the four corners of the PPA, even in cases covered by Section 63, the legislative intent and the language of Sections 61 and 62 make it clear that the Commission alone can accept such amended tariff as it would impact consumer interest and therefore public interest. 31. But on the facts of these cases, it is argued by learned Counsel for Sasan that in point of fact the tariff laid down in Schedule 11 of the PPA has not been sought to be changed. All that has happened is that, as a result of COD being declared on 31.3.2013, the very tariff laid down in Schedule 11 becomes applicable, but for year one being treated as one day and year two commencing from 1.4.2013. Counsel for Sasan may be right in saying this, but the substance of the matter is that a consumer would have to pay substantially more by way of tariff under the PPA if year one is gobbled up in one day, as year two's tariff is one paisa more than year one and year three's tariff is substantially more t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n takes place that the unit is to be commissioned. What is important is that at the commissioning stage, the parameters mentioned in Schedule 5 are to be met. The most important parameter mentioned in Schedule 5, when the performance test is to be taken for the purpose of commissioning, is that a unit shall be deemed to have passed such test only if it operates continuously for 72 consecutive hours at or about 95% of its contracted capacity as existing on the effective date and within the electrical system limits and functional specifications. Further, as a part of the performance test, the seller must demonstrate that the unit meets functional specifications for ramping rate separately mentioned in Schedule 4 of the PPA. It is only when such test is passed that a unit can be said to be commissioned under the PPA. This then is to be certified by the independent engineer jointly appointed by the parties Under Article 6.3.1, in the form of a final test certificate, which states that (a) the commission tests have been carried in accordance with Schedule 5 and are acceptable to him, and (b) the result of the performance test shows that the unit's tested capacity is not less than 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Management Company Limited. It was attended by all the other procurers, and officials of Sasan. What is emphasized on behalf of Sasan is that the revised COD of the Sasan units was accepted by all the procurers Under Article 4.5.1 of the PPA to be - (first unit) by 31.3.2013. The procurers asked Sasan for the estimated date for synchronization and COD of the first unit. Sasan indicated that synchronization is expected in the first week of March, 2013, and the COD before 31.3.2013. What is important about this meeting is that the procurers were no doubt interested in getting electricity from Sasan as soon as possible, but obviously only in accordance with Article 6.3.1 read with the 5th Schedule. This would only mean that the meeting would disclose that the anxiety of the procurers to get electricity at cheap rates would be in accordance with the PPA and not against it. In other words, if a final test certificate had been given to the effect that 95% of contracted capacity could have been delivered by Unit No. 3 on or before 31.3.2013, the procurers were anxious to avail of it, and not otherwise. 36. It is unnecessary for us to burden this judgment with the emails that passed bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were operating at their technical minimum capacity. 3. The Seller was continuously keeping in touch with WRLDC till 21.40 hours on 29th March 2013 for seeking permission to raise the load. At 22.19 hrs on 29th March 2013 WRLDC permitted the seller to raise the load. Accordingly, Seller raised the load to around 150 MW (ex bus). 4. At 07.13 hours on 30th March 2013, WRLDC asked the seller to submit its revised power injection Schedule for raising the load. At this point of time, the Unit had already completed continuous operation of 50 (fifty) consecutive hours at a low load of about 100 MW (ex-bus) and another 9 (nine) consecutive hours immediately thereafter at 150 MW. Seller informed WRLDC at 14.18 hrs that it would increase the load from 20.00 hours to reach full load. As such, in line with WRLDC instructions and grid conditions. Seller maintained load of around 100 MW (ex bus) for around 50 hours and maintained load of around 150 MW (ex bus) for remaining 22 hours as per WRLDC instructions and grid conditions. 5. The Commissioning Test has been carried out in accordance with Schedule 5 of PPA and the results of the Performance Test are acceptable to IE. The results of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 2013 38. It will be seen from this certificate that the tested capacity of the Unit was found to be only 101.38 MW as against 95% of 620 MW i.e. 587 MW. It was also stated that since the unit was operating below 50% of the rated load due to grid restriction, the unit could not demonstrate ramping rate above 50% of rated load in accordance with the Schedule 4 of the PPA. 39. Paragraph 9 of the certificate leaves much to be desired. Obviously, if the tested capacity is 101.38 MW as against the required 95% i.e. 587 MW, the test could not have been carried out in accordance with Article 6 read with Schedule 5, and that despite the fact that ramping up and down could not be achieved, functional specifications stipulated in Schedule 4 of the PPA were said to have been met. We are constrained, therefore, to agree with CERC which in its order dated 8.8.2014 has castigated this certificate. What Article 6.3.1 requires is first and foremost a final test certificate of the Independent Engineer. The certificate dated 30.3.2013 given by the Independent Engineer is not a final test certificate. Indeed, it is only in August that a final test certificate was given in accordance with Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procurer to Sasan. This email categorically states as follows: With reference to the letter No. GEIE 12086/12-13/001/RKS dt. 30th March 2013 relating to the Test Certificate of the Independent Engineer towards the Performance Test for declaration of COD of Unit-3 of 660 MW of UMPP Sasan Project. It is to inform that as per Clause 6.3.1 (a) and (b) of the PPA, Commissioning Test should have been carried out in accordance with Schedule 5 of PPA and that the result of the test should not have been less than ninety five (95) percent of its Contracted Capacity. The test result is not as per the aforesaid Clause and, therefore, is not acceptable to us. If the Seller is agreeable to consider the performance test under Clause 6.3.4 for a de-rated capacity of 101.38 MW, the same could be agreed by us. 41. However, Sasan relies heavily upon an email sent on 2.4.2013 by the lead procurer to Sasan. This email reads as follows: To The Chief Executive Officer M/s. Sasan Power Ltd., Dhirubhai Ambani Knowledge City, 1 Block, 2nd Floor, North Wing, Thane, Belapur Road, Koparkhairane, Navi Mumbai, Maharashtra 400 710 Sub: Independent Engineer's letter dated 30th March 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that scheduled power would have to be supplied, which in turn can only be done if there is waiver of the aforesaid requirement. It is difficult to agree. The case of the Appellants has throughout been, starting from 12th April, 2013, onwards, that it has never consented to Schedule 5 of the PPA and Article 6.3.1(b) parameters being lowered. It is true that Article 6.3.4 would not apply for the reason that it would come into effect only after the last recent performance test mentioned in Article 6.3.3 has been conducted. And for Article 6.3.3 to apply, a performance test must first indicate that from a unit's COD an increased tested capacity over and above that provided in Article 6.3.1(b) must first occur. Admittedly on facts this has not happened. What is important to note therefore is that the Appellants desperately wanted power at a cheaper rate, and were willing to go to any extent to get such power, including invoking Clause 6.3.4, which would not apply, and stating that anything over and above 101.38 MW ought to be treated as infirm power. It is clear under the Regulations, however, that infirm power can never be supplied to the Appellants themselves but can only be supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, in the impugned judgment dated 31.3.2016, contradicts itself when it states in one portion as follows: e) We have carefully gone through the ratio of the law laid down by Hon'ble Supreme Court in Waman Shriniwas and in Krishan Lal's case, wherein in the latter case the Hon'ble Supreme Court cited an illustration in paragraph 21 thereof. The words of the Hon'ble Supreme Court are "to illustrate this principle, it has been stated that if the statutory condition be imposed simply for the security or the benefit of the parties to the action themselves, such condition will not be considered as indispensable and either party may waive it." In the present case, the requirement of achieving 95% of the contracted capacity for declaration of COD was not one for the private benefit of the seller and procurers. The said requirement and the appointment of an independent expert to oversee the commissioning process was built into the statutory contract i.e. PPA itself for a specific purpose, as a requirement of general policy, to ensure that generators do not declare their units to be commercially available without even demonstrating the capability of such units to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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