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TMI Blog2018 (2) TMI 1976X X X X Extracts X X X X X X X X Extracts X X X X ..... ept 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t;the Commission"), in O.P. No. 20 of 2013 dated 08.08.2013, preferred by the Respondent, held that the term 'fuel' as used in the PPA meant natural gas only in its natural form, and did not include RLNG. Simply because the physical composition of natural gas and RLNG are similar, it does not automatically entitle the Respondent to generate power with RLNG, which was more expensive and not domestically available, affecting the per unit supply of power generated by it, as ultimately the consumer would have to pay more. 3. In Appeal No. 222 of 2013 preferred by the Respondent, the Appellate Tribunal by the impugned order dated 30.06.2014 held that use of the word "only" after "natural gas" in the PPA dated 02.05.2007 had to be understood in context of the deletion of other alternate fuel such as Naphtha etc. incorporated in the earlier PPAs, and it was never intended to restrict the meaning of the word natural gas to exclude RLNG, which was a variant of natural gas and did not come in the category of an alternate fuel. It further held that the higher price of RLNG could not be a determinative factor to exclude it from the agreement as any increase in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l meant "natural gas only" and did not include RLNG, which was priced much higher affecting the per unit price of power generated from the same to the ultimate detriment of the consumers. 6. Shri Basava Prabhu Patil, learned senior Counsel appearing for the Appellant, submitted that under the PPA, it was only natural gas in its natural form which was agreed to be used as fuel for generation of power. Merely because RLNG may be a variant of natural gas, will not suffice to bring it within the definition of fuel under the PPA. The cost of RLNG being three to four times higher than natural gas, the Commission rightly held that it was also a relevant factor to hold that RLNG was never intended by the parties to be included in the agreement. 7. The word 'fuel', as defined in the agreement, had to be given its natural meaning by confining it to natural gas only as intended by the parties. The definition could not be extended so as to include RLNG, as the parties never intended the same. There is no ambiguity in language warranting any inclusion to the definition either by implication or intention. Even if there was any ambiguity with regard to the intendment of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generation cost of ₹ 9/- compared to ₹ 3/- per unit with existing natural gas leading to a financial burden of ₹ 3.7 crores per day. These exceptions can never be construed to mean the norm to contend that use of RLNG was always in the contemplation of the parties and was intended to be included within the term natural gas. The very fact that the Respondent sought permission on 07.08.2012 and 27.08.2012 to use RLNG for power generation makes it manifest that even as per its understanding, RLNG was not included within the term natural gas according to the intent of the parties. The Appellant in its reply dated 10.09.2012 had reiterated that RLNG did not fall within the ambit of the PPA which was confined to natural gas only citing the cost difference of power per unit also. 10. A contract document had to be interpreted in accordance with the language used, with reference to the context in which it came to be prepared. A technical view of an agreement, torn out of context, cannot be taken to reinterpret the agreement and arrive at a new finding with regard to the intendment of the parties by including something which was never intended to be included, to the prejud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictionary meaning they are the same. 12. The deletion of the words "intended to be used" after the words "natural gas", as used in the second PPA, and the replacement thereof in the third PPA by the words "natural gas only" gave a much wider meaning and amplitude to the word natural gas so as to take within its ambit RLNG also. The deletion of "importation charges" in the PPA dated 18.06.2003 was of no significance as RLNG was to be delivered at the project site through the pipeline, and the cost of fuel was to be at the metering point at the project site, which would be inclusive of importation cost. Evidently there would be no separate charges by GAIL towards importation of RLNG. So long as the supplies were at GAIL prices, the Appellants cannot raise objections with regard to price. 13. The term natural gas has not been defined under the PPA. The definition of natural gas in Section 2(za)(i) of the Petroleum and Natural Gas Regulatory Board Act, 2006 (hereafter referred to as the "PNGRB Act") includes both liquefied natural gas (LNG) and RLNG. The Appellants on more than one occasion had themselves permitted use of RLNG for pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, the Government of Andhra Pradesh, due to the cost factor, decided to replace gas as the primary fuel, and Naphtha was made an alternate fuel leading to allotment of natural gas by the Ministry of Petroleum and execution of an agreement between the Respondent and GAIL. The PPA was then amended on 18.06.2003 making gas the primary fuel. Subsequently, when GAIL was unable to supply the allocated quantities of natural gas to the Respondent because of sector prioritisation, the Respondent was permitted to obtain supplies of natural gas from RIL. The realisation that in the circumstances, the generator could resort to use of other costly fuels also, led to the third amended PPA dated 02.05.2007 confining the definition of 'fuel' to "natural gas only". 17. It is relevant to notice that at both stages of the amendment to the PPA, in the proceedings before the Commission Under Section 21(5) of the Andhra Pradesh Electricity Reforms Act, 1998, the parties never referred to the availability of RLNG as fuel contemplated within the term "natural gas" and the discussion was confined to "natural gas only". Had the parties intended otherwise, or the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the words actually used therein that the parties had agreed on a particular term, there is nothing in law which prevents them from setting up that term. The terms of a contract can be expressed or implied from what has been expressed. It is in the ultimate analysis a question of construction of the contract. And again it is well established that in construing a contract it would be legitimate to take into account surrounding circumstances... 19. It will not be a safe method to interpret a contract by picking out one Clause of the same defining fuel, apply a technical scientific meaning to it as observed in Truetuf Safety Glass Industries (supra) and then conclude that being a form of natural gas, RLNG was intended to be impliedly included in the definition of fuel. The terms of a contract have to be given their plain meaning with regard to the intendment of the parties as to what was intended to be included and what was not intended to be included, as distinct from an express exclusion. The commercial parlance test will also have to be applied as to whether those in the business consider the two forms of gas as synonymous and interchangeable. Quite obviously the answer has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion in OP No. 20 of 2013. The pleadings of the Respondent, as quoted hereinafter, further confirm its own understanding that RLNG was never intended to be included in the definition of fuel which was confined to natural gas only: 9. Since the above scenario affects the generation activities of the Petitioner, the Petitioner proposed to use RLNG. In this respect, the Petitioner has already made representations to the Respondent Nos. 2 and 3 vide its letters dated 7.8.2012 and 27.8.2012 (produced as Annexures P-2 and P-3 respectively). In both these letters, the Petitioner appealed to the said Respondents to allow usage of RLNG and substantiated the circumstances/reasons for the said request of the Petitioner. 10. To the utter surprise and shock of the Petitioner, instead of acceding to the above requests of the Petitioner, the Respondent No. 3 has rejected the above requested of the Petitioner vide its letter dated 10.09.2012. 22. 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 te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al terms or not. Suffice it that they have, by their course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it.' 25. A commercial document cannot be interpreted in a manner to arrive at a complete variance with what may originally have been the intendment of the parties. Such a situation can only be contemplated when the implied term can be considered necessary to lend efficacy to the terms of the contract. If the contract is capable of interpretation on its plain meaning with regard to the true intention of the parties it will not be prudent to read implied terms on the understanding of a party, or by the court, with regard to business efficacy as observed in Satya Jain (D) thr. L.Rs. and Ors. v. Anis Ahmed Rushdie (D) thr. L.Rs. and Ors., (2013) 8 SCC 131, as follows: 33. The principle of business efficacy is normally invoked to read a term in an agreement or contract so as to achieve the result or the consequence intended by the parties acting as prudent businessmen. Business efficacy means the power to produce intended results. The classic test of business efficacy was proposed by Lord Justice Bowen, L.J. in Moorcock. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, although tacit, formed part of the contract which the parties made for themselves. Trollope and Colls Ltd. v. North West Metropolitan Regl. Hospital Board, All ER p. 268a-b.' 35. The business efficacy test, therefore, should be applied only in cases where the term that is sought to be read as implied is such which could have been clearly intended by the parties at the time of making of the agreement... 26. 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. Similarly, the observation made in Association of Natural Gas (supra) in context of the controversy with regard to legislative entry has no relevance to the interpretation of the PPA. 27. The aforesaid discussion, therefore, leads to the inevitable conclusion 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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