Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Home Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles News Highlights
Extracts
Home List
← Previous Next →

Indian Thermal Power Ltd. Etc. Etc Versus State Of M.P. And Ors

2000 (2) TMI 842 - SUPREME COURT OF INDIA

Appeal (civil) 1140-43 of 2000 - Dated:- 16-2-2000 - G.T. Nanavati, S.N. Phukan, JJ. JUDGMENT G.T. NANAVATI, J. Leave granted in all the S.L.Ps. These appeals arise out of the common judgment of the Division Bench of the Madhya Pradesh High Court in a batch of Letters Patent Appeals (Nos. 70 to 72, 93 to 99,106, 108 and 117 of 1999 and Writ Petition No. 1685 of 1998) filed against the common judgment and order of a single Judge of that Court in Writ Petitions filed by India Thermal Power Ltd. (W .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cy the State of Madhya Pradesh decided to invite private companies for setting up power plants at different places within the State so as to increase it power generating capacity by about 7000 MW. On 27.2.1992 Madhya Pradesh Electricity Board (MPEB) invited offers from potential private investors for pre qualification in establishment of Four power projects. One of them was Thermal Power Project at Korba (West) in the district of Bilaspur. Indian Thermal Power Ltd. (hereinafter referred to as &# .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. 13 Independent Power Producers (IPPs) entered into Power .purchase Agreements (PPAS) -with MPEB. Under the MOU and PPA the generating company has to undertake the project and offer for .sale all net electrical output from the project to MPEB and the MPEB is under an obligation to purchase the same. We are not concerned with the other terms and conditions contained in the agreements and the mutual rights and obligations flowing from them except those relating to method and amount of payment. Ar .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and substance, as may be mutually agreed by the parties. It farther provides that such Escrow Account shall be (i) established and maintained by MPEB in accordance with Escrow Agreement and (ii) in form and substance acceptable to the parties. In the PPAs with other IPPs the provision regarding Escrow Account is differently worded. According to these agreements the Company and the MPEB have to cooperate and assist each other in establishing a practicable and appropriate Escrow Account mutually a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n to the Letter of Credit and the Escrow Account, the Article further provided for a guarantee by the Government of Madhya Pradesh. In discharge of its obligations under the MOU's and PPA's the Madhya Pradesh Government in December 1997 decided to recommend (1) Daewoo, (2) Pench, (3) Bina, (4) GBL, (5) STF and (6) Maheshwar to the Financial Institutions (FIs) for providing Escrow Protection to them and accordingly letters of comforts were sent to those six IPPs. Meanwhile negotiations we .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uggested that in order to accommodate more number of IPPs the Escrow Cover may be reduced from 1.5 times to at least 1.2 times, The banks and Financial Institutions accepted the escrowable capacity of MPEB at about 2200 M.W. only and stated that Escrow Cover equal to 1.25 times could be accepted as reasonable. Even for this relaxation it insisted that MPEB shall have to take certain steps to improve its finances. The Filtanciai Institutions also directed that MPEB should indicate to IPPs its abi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

IPPs to take steps to negotiate and achieve financial closure within next two or three months. Therefore, MPEB on 21.12.1997, wrote letters to the four approved IPPs about its decision to recommend them for grant of Escrow Protection and called upon them to finalise the negotiations within one month from the date of the letter and obtain financial closure and start commencement of the project work within three months of the execution of Escrow Agreement. They were told that in case of failure t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

within one month and achieve financial closure within next three months. ITPL expressed its willingness. But IDBI, which was the main financial institution, did not agree to any reduction below 1.25 times the monthly billing and insisted that the Escrow Agreement should he executed before financial closure and COD. It also informed MPEB that as a part of the security package, Fls/banks would require IPPs to have first charge of its receivables. It further told MPEB that in absence of compliance .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on 43A(2) of the Electricity Supply Act, 1984, issued a notification on 8.6.1998 amending its earlier tariff notification dated 30.3.1992, That was followed by a letter dated 12/15.6.1998 of the Minister of Power, Government of India to the Chief Minister of Madhya Pradesh Government pointing out the necessity to finalise the projects quickly and drawing attention to the amendment made in the tariff notification dated 8.6.1998. He requested the Government to take an early decision by giving prio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Power. After the meeting MPEB took the decision to prioritise the projects for providing Escrow Protection mainly on the basis of least tariff criteria and alter considering an optimum mix of liquid fuel, hydel and coal projects. By its letter dated 24.7.1998 it brought that decision to the notice of all the IPPs and called upon them to submit their offers containing better terms on the basis of the changed parameters mentioned in Part B of the proforma sent along with that letter. The IPPs were .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Pradesh High Court challenging the communication dated 24.7.1998 and prayed for a Writ of Mandamus directing the respondents to grant Escrow facility to it. Similar petitions were then filed by six other IPPs. All the seven writ petitions were heard by a learned single Judge. He was of the view that the Government and MPEB had not properly applied their mind before taking the impugned decision. He directed them to take a fresh decision objectively and dispassionately. As some of the IPPs the St .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

herefore, it was not open to MPEB to invite fresh bids and determine giving of priority for Escrow Protection on the basis of the new least tariff criteria. Contentions regarding priority of adopting least tariff criteria and who can be said to be lowest according to that criteria were also raised. The Division Bench held that the PPAs are statutory contracts as they have been entered into under Sections 43 and 43A. It, however, upheld the contention raised by the State and MPEB that the decisio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ef. Taking this view the Division Bench allowed the appeals and dismissed the writ petitions filed by the IPPs. It was contended by Mr. Cooper, learned senior counsel appearing for appellant GBL and also by some counsel appearing for other appellants that the appellant/IPPs had entered into PPAs under Sections 43 and 43A of the Electricity Supply act and as such they are statutory contracts and, therefore, MPEB had no power or authority to alter their terms and conditions. This contention has be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Section 43(1)(2) provides that the tariff shall be determined in accordance with the norms regarding operation and plant load factor as may be laid down by the authority and in accordance with the rates of depreciation and reasonable return and such other factors as may be determined from time to time by the Central Government by a notification in the official gazette. These provisions clearly indicate that the agreement can be on such terms as may be agreed by the parties except that the tarif .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

statutory then the said contract to that extent is statutory. A contact may contain certain other terms and conditions which may not be of a statutory character and which have been incorporated therein as a result of mutual agreement between the parties. Therefore, the PPAs can be regarded as statutory only to the extent that they contain provisions regarding determination of tariff and other statutory requirements of Section 43A(2). Opening and maintaining of an Escrow Account or an Escrow Agr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and to invite fresh bids on the basis of the new least tariff criteria. There is no dispute on the point that MOUs and PPAs are concluded contracts but to say that MOUs and PPAs are concluded contract is one thing and to say that under those contracts the appellants and other IPPs acquired a legal right and the MPEB incurred an enforceable obligation in respect of providing an Escrow coverage is a different thing. The MOUs and IPPs while providing for payment of dues by MPEB has also at the sam .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

payment of dues of MPEB. Thus the purpose of opening and maintaining an Escrow Account is to secure payment for the electricity to be supplied by the generating companies to MPEB, The Escrow Account is, therefore, really required to be opened at that stage and, therefore, it is provided in most of these contracts that the Escrow Account shall be opened at the time of the First Unit Commercial Operations Date. The MOUs with ITPL and SPPL do not specifically provide for an Escrow Agreement or an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Date maintain an Escrow Account with MPEB's, Bank, in such from and substance as is mutually agreed by Parties and on terms no less favourable then those applicable to any other independent power generating company and into which MPEB shall, for each month, place funds therein and from which overdue payments under this Agreement may be made to the Company in the event of MPEB failing lo maintain, replenish, renew, restore or replace one or more Letters of Credit in the amounts provided for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Parties as a satisfactory security mechanism for the payment obligations of MPEB, taking into account the following parameters : (i) the Escrow Account shall take into account the reasonable requirements of the Lenders of the Project; and (ii) the amount of the Escrow Account shall be the Escrow Account Amount." The Escrow Account clause in the PPA with Bhilai is different from others and is in the following terms : "Escrow Account. MPEB shall at all times following the First unit Co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rovided for above. Such Escrow Account shall be established and maintained by MPEB in accordance with an Escrow Agreement which shall be in form and substance acceptable to the Parties.'' These provisions in the MOUse and PPAs clearly disclose that the obligation to open and maintain an Escrow Account is to be discharged by MPEB after the First Unit Commercial Operations Date. They do not impose an obligation on MPEB to execute an Escrow Agreement at an earlier date. The Escrow Agreement .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n agreement between the parties regarding the terms and conditions of those agreements and accounts. The terms and conditions of the Escrow Agreement could not be finalised in view of the disagreement of the FIs with the terms and conditions suggested by the MPEB and some of the appellants and their insistence upon certain other conditions. Even though MPEB and most of the appellants were willing for an Escrow Coverage to the extent of one billing month's amount, the FIs insisted that it sho .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot be finalised and Escrow Agreements could not be executed. It was not because of any lack of effort on the part of MPEB. In any case it cannot be said that any legal right in favour of IPPs to have an Escrow Agreement at that stage had come into existence. Therefore, the question of MPEB going back upon the terms and conditions of the concluded contract does not arise at all. Mr. Nariman. learned senior counsel appearing for SPPL also submitted that till 24.7.1998 no legally enforceable right .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

party undertaking the project will require monetary help from FIs. They are financed partly by equity and partly by debt. Consistently with this position MPEB had agreed to cooperate with and assist IPPs in obtaining financial assistance from the FIs by making a provision for different types of securities for payment of its dues to the IPs. Though the Escrow Account will have to be opened at a later stage the appellants were insisting for letters of Comfort and Escrow Agreements even before even .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lso could riot obtain financial closure because of their inability to persuade the FIs to lend them enough money. This was the position b the month of July 1998. The Minister of Power, Government of India had drawn the attention of the State Government to the delay in finalising the projects and the need to take a final decision in the matter as early as possible and to the recent amendments to the notifications issued under section 43A of the Electricity Supply Act, Though the said amendment is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fers for better terms in its favour on different parameters so as to enable it to priorities the projects for providing Escrow Protection based on least tariff criteria and to decide about the optimum mix of liquid fuel, hydel and coal based projects cannot be said to be unreasonable or arbitrary. The ITPL was of the view that the least tariff criteria was a 'hoax' and, therefore, it did not give its fresh bid on the basis of that criteria. It has, therefore, no right to make any grievan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

within two months should be held discriminatory and invalid and Jindal should be considered on that basis. He submitted that the tariff offered by Jindal was the lowest earlier and even after the revised offers. He submitted that those who were given Letters of Comfort earlier have a larger time to persuade the FIs and obtain financial closure. He submitted that considering the tune usually taken by the FIs it was impossible to get financial closure within two months and, therefore, Jindal was e .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

December when MPEB had issued Letters of Comfort. What is Important to be noted is that Jindal did not furnish the security deposit nor had shown its willingness to give 2% security deposit if any longer time was given to it for obtaining financial closure. It is, therefore, obvious that it did not comply with one of the conditions of re-invitation of offer and, therefore, cannot complain if it's offer has not been considered for prioritisation and grant of Escrow Coverage on that basis. It .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to MPEB, He had also suggested that it was necessary to establish a mechanism to quickly finalise those steps and select projects with least tariffs for being given an Escrow facility urgently so as to ensure that in the 9th Plan they get the benefit of the capacity addition from those projects. It was under these circumstances that a fresh policy decision was taken and, therefore, no purpose would have been served by retaining the selection earlier made for recommending Escrow protection and g .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nrealistic' as it is based upon certain assumptions which are not valid. it is difficult to appreciate how the least tariff criteria can be said to be hoax when it is based upon and consistent with the notification issued under section 43A(2). To give priority to that project which will supply electricity to MPEB at a cheaper rate far from being regarded as an hoax or as an excuse must be regarded as a rational criteria because it will be more beneficial to MPEB and the general public who ar .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aken bonafide and is based upon consideration of relevant aspects. Prioritisation could have been done on the basis of the dates on which TEC was sanctioned or it could have been on the basis of the date of sanction given by the Financial Institutions. If, however, considering all the relevant aspects MPEB thought it proper to priorities the projects on the basis of least tariff criteria it cannot be said that thereby it acted in an arbitrary or unreasonable manner. It is also not possible to ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

constituted for tariff evaluation for the improved offers submitted by IPPs. The said Committee had opined as under: "CONCLUSION : - Based on the factors and assumptions as brought out in para 3/N above, it can be stated that the project cost as complied on Commercial Operation Date (COD) is not realistic or accurate. Any subsequent tariff calculations based on the unrealistic project cost are also un-reliable and unrealistic. Given the set of assumptions, the resulting tariff for various I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d as bad. We do not think that it would be proper for this Court to examine in details the various assumptions as they are technical matters and moreover, the techno-economic clearance was given by the CEA on the basis of such assumptions. Certain assumptions bad to be made while determining the project Cost and inviting offers on the basis thereof. Once we find that there was some valid basis for making these assumptions and that they are not fanciful or arbitrary it would not be proper to inva .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l the relevant facts and circumstances it is not possible for us to agree with the contention that the least tariff criteria was not a good criteria as it was unrealistic and arbitrary. As regards the application of the least tariff criteria for evaluating the various revised bids for deciding prioritisation also there were some objections raised on behalf the appellants. Having gone through the minutes of the meeting of the Cabinet Sub Committee and the relevant facts and circumstances and on t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ncil Thermal Power Project we find that it is not a pit-head project and it did not have any appropriate coal linkage. The coal linkage which was suggested by the State Government was neither approved by the coal companies nor by the Railways. Its project cost was also not properly evaluated and the cost of supplying water from the dam was not taken into consideration on the ground that the whole cost of the dam is to be borne by MPEB. We need not go into the further details regarding the merits .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d project. He submitted that while deciding prioritisation on the basis of least tariff criteria the Government and the MPEB ought to have compared the tariffs within the fuel category and not between different fuels used. The MPEB also in its letters dated 24.7.1998 had declared that it would decide prioritisation of projects after considering an optimum mix of liquid fuel projects, hydel projects and coal based projects. He, therefore, submitted that the MPEB ought not to have exhausted all it .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Forum
what is new what is new
  ↓     bird's eye view     ↓  


|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version