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

2000 (1) SCR 925, 2000 AIR 1005, 2000 (1) SCR 925, 2000 (3) SCC 379, 2000 (2) JT 171, 2000 (1) SCALE 612 - 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 commo .....

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cope for private participation in generation, distribution and supply of electricity. Pursuant to that policy 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 Pr .....

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found qualified. In all 21 MOU's which were entered into between them and the Slate Government and MPEB. 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 th .....

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Account with MPEB's bank at all times following the First Unit Commercial Operation Date, in such for 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 .....

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a Billing period. They do not provide for any Escrow Agreement before opening as Escrow Account, In addition 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 Pr .....

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it was possible to reduce Escrow Cover to one month's invoice amount. In that meeting the Government suggested 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 t .....

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India Ltd., Bina Power Supply Co. Ltd. and GBL Power Ltd. MPEB was requested to issue letters to all those 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 proj .....

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ed whether ITPLwas agreeable to that condition and also to the condition of executing the Escrow Agreement 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 woul .....

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ns and discussion in that behalf were going on the Central Government, in exercise of its power under Section 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 t .....

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ms and PPAs in view of the amendment in the tariff notification and the suggestion made by the Minister of 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 bas .....

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r obtaining financial closure and completing other formalities. it then filed a writ petition in the Madhya 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 deci .....

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principles of promissory estoppel and legitimate expectation would apply to the facts of these cases and. therefore, 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 .....

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allenged the earlier decision of issuing Letters of Comfort to six IPPs it was not now entitled to any relief. 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 .....

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d, As regards the determination of tariff for the sale of electricity by a generating company to the Board, 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 cle .....

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ntract becomes a statutory contract. If a contact incorporates certain terms and conditions in it which are 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 ot .....

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contracts and, therefore, it was not open to MPEB to unilaterally change the conditions of those contracts 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 cover .....

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imes the monthly bill. Those contracts also provide for a guarantee agreement with the State Government for 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 Commerc .....

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ed in accordance with the following, MPEB shall at all times following the First Unit Commercial Operations 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 l .....

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he assist each other in establishing a practicable and appropriate Escrow Account mutually acceptable to the 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 other .....

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EB failing to maintain, replenish, renew, restore or replace one or more Letters of Credit in the amounts provided 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 .....

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Escrow Account Execution of the Escrow Agreement and opening of an Escrow Account are thus contigent upon an 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 w .....

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9;s reluctance to agree with MPEB and the IPPs that the terms and conditions of the Escrow Account, could not 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. .....

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eir duty to being enough finance. No doubt when such large projects are undertaken it is expected that the 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 a .....

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provide. The situation which had arisen was beyond the control of MPEB. The IPPs including the appellants also 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 amendment .....

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overage and financial closure. We are, therefore, of the opinion that the decision of the MPEB to invite offers 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, i .....

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earned counsel Mr. Shanti Bhushan that the condition to complete the formality regarding financial closure 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 .....

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and exclude others whom they did not like. He also submitted that no such condition was included earlier in 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 .....

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er to give priority to those projects which offers the State the least tariffs for the power to be supplied 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 purp .....

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ot rational, as an 'excuse' because it was adopted to favour some and rule out others and as 'unrealistic' 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 .....

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r decision taken. But that cannot render the decision already taken arbitrary or invalid so long as it is taken 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 .....

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iff was to be determinated. Our attention was also invited to the report of the Expert Committee which was 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 .....

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ted that the decision taken by the Cabinet Sub Committee based on unrealistic assumptions should be regarded 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 ba .....

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exchange variation was adopted on the basis of the advise of the Ministry of Finance. Having considered all 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 throug .....

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y interference by the Court and the High Court was right in upholding that decision. However, as regards Pencil 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 .....

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adhya Pradesh had accepted the policy of an optimum mix of liquid fuel project, hydel project and coal based 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 .....

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