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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 ..... pondent : None JUDGMENT Rohinton Fali Nariman, J. 1. These appeals have been argued over a number of days, but ultimately the points raised in them lie within a narrow compass. 2. On 19.1.2005, the Central Government, in exercise of powers Under Section 63 of the Electricity Act, 2003 issued guidelines for a tariff based competitive bid process to be initiated by distribution licensees/procurers for procurement of power from generating companies. The electricity to be procured by such procurers is for the purpose of distribution and retail supply to consumers generally. On 10.2.2006, in pursuance of these guidelines, procurers in different 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 Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013, as has been held by the Appellate Tribunal, the consumers would have to pay a sum of over ` 1000 crores, being the differential tariff that would apply. 4. The date for commissioning the first unit was fixed under the PPA as 7th May, 2013. However, under Schedule 11 thereof, this date was preponed to 27th November, 2012. As Sasan kept postponing this date, it appears that the commissioning tests for generating Unit No. 3 commenced from 20.3.2013. Various emails were exchanged from 27.3.2013 to 30.3.2013 between Sasan and the Western Region Load Dispatch Centre (hereinafter referred to as "the WRLDC"), a statutory 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracted capacity, was accepted by all the procurers, and that therefore there was a waiver of this essential condition, which would then entitle the generator to treat 31.3.2013 as the date on which commercial operation of Unit No. 3 commenced. It is the correctness of this judgment which has been assailed by the various Appellants before us. 7. Mr. Jayant Bhushan, learned senior Counsel, Mr. Gopal Jain, learned senior Counsel, Mr. M.G. Ramachandran, learned Counsel, Mr. Purusha Indra Kavrar, learned AAG, and Mr. Alok Shankar, learned Counsel appearing for the Appellants have relied heavily on Article 6.3.1 read with 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the moment such power generation began, whether it was 69 paise or 70 paise for the second year, the aforesaid tariff was much, much lower than what the procurers would have to pay otherwise. It was their argument that it was only at the behest of the procurers themselves that the COD was declared on 31.3.2013. They further argued that on a correct reading of emails and letters exchanged between the parties, the lead procurer and all other procurers had actually and unequivocally waived the requirement of 95% of contracted capacity demand and that the Appellate Tribunal was right in this behalf. Countering the arguments 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written notice of Commissioning Test of each Unit. 6.2.3 The Seller (individually), the Procurers (jointly) and the Independent Engineer (individually) shall each designate qualified and authorized representatives to witness and monitor Commissioning Test of each Unit. 6.2.4 Testing and measuring procedures applied during each Commissioning Test shall be in accordance with the codes, practices and procedures mentioned in Schedule 5 of this Agreement. 6.2.5 Within five (5) days of a Commissioning Test, the Seller shall provide the Procurers (jointly) and the Independent Engineer with copies of the detailed Commissioning 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent of its Contracted Capacity as existing on the Effective Date: Rs. 0.25/kwh x [1 - {(Tested Capacity of all Commissioned Units + Contracted Capacity of all Units not Commissioned at the Effective Date)/Contracted Capacity of all Units at the Effective Date}) c) the Seller shall not be permitted to declare the Available Capacity of the Unit at a level greater than its Tested Capacity; d) the Availability Factor of the derated Unit shall be calculated by reference to the reduced Contracted Capacity; and e) the Capital Cost and each element of the Capital Structure Schedule shall be reduced in proportion 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 respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiver of such breach or acceptance of any variation or the relinquishment of any such right or any other right under this Agreement, which shall remain in full force and effect. Schedule 5: Commissioning and Testing 1.1 Performance Test i. (a) The Performance Test shall be conducted under any and all ambient conditions (temperature, humidity etc.) and any and all Fuel qualities that may exist during the time of the Performance Test and no corrections in final gross and net output of the Unit will be allowed as a result of prevailing ambient conditions or Fuel quality. (b) The correction curves will 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall comply with the prevalent Laws, Rules and Regulations as applicable to the provisions contained in this Schedule from time to time. Schedule 11: Quoted Tariff 10. It is also necessary to set out the relevant provisions of the Electricity Act, 2003. Sections 28, 29, 61, 62 and 63 of the Electricity Act, 2003 read as under: Section 28. Functions of Regional Load Despatch Centre: (1) The Regional Load Despatch Centre shall be the apex body to ensure integrated operation of the power system in the concerned region. (2) The Regional Load Despatch Centre shall comply with such principles, guidelines 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (3), he shall be liable to a penalty not exceeding rupees fifteen lacs. Section 61. Tariff Regulations: The Appropriate Commission shall, subject to the provisions of this Act, specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by the following, namely: (a) the principles and methodologies specified by the Central Commission for determination of the tariff applicable to generating companies and transmission licensees; (b) the generation, transmission, distribution and supply of electricity are conducted on commercial principles; (c) the factors 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating company to comply with such procedures as may be specified for calculating the expected revenues from the tariff and charges which he or it is permitted to recover. (6) If any licensee or a generating company recovers a price or charge exceeding the tariff determined under this section, the excess amount shall be recoverable by the person who has paid such price or charge along with interest equivalent to the bank rate without prejudice to any other liability incurred by the licensee. Section 63. Determination of tariff by bidding process: Notwithstanding anything contained in Section 62, the Appropriate 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are read into and become part and parcel of the original contract. The original terms also continue to be part of the contract and are not rescinded and/or superseded except in so far as they are inconsistent with the modifications. Those of the original terms which cannot make sense when read with the alterations must be rejected. In my view the arbitration Clause in this case is in no way inconsistent with the subsequent modifications and continues to subsist. [para 15] 15. 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. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " and in the three latter Sections the expression used is "in the absence of any contract to contrary". In my opinion, therefore, except in these four sections, the provisions of the Act with regard to bailment are mandatory: see The Co-operative Hindustan Bank, Ltd. v. Surendranath De [(1931) 59 Cal. 667.]. 17. It is thus clear that if on facts there is a waiver of a provision of the PPA by one of the parties to the PPA, then Section 63 of the Contract Act will operate in order to give effect to such waiver. 18. At this juncture, it is important to understand 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 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a right at the time of waiver. Some mistake or misapprehension as to some facts which constitute the underlying assumption without which parties would not have made the contract may be sufficient to justify the court in saying that there was no consent. [para 13] 20. Regard being had to the aforesaid decisions, it is clear that when waiver is spoken of in the realm of contract, Section 63 of the Indian Contract Act governs. But it is important to note that waiver is an intentional relinquishment of a known right, and that, therefore, unless there 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Electricity Act in Sections 61 to 63 thereof. Under Section 61, the appropriate commission, when it specifies terms and conditions for determination of tariff, is to be guided inter alia by the safeguarding of the consumer interest and the recovery of the cost of electricity in a reasonable manner. For this purpose, factors that encourage competition, efficiency and good performance are also to be heeded. Under Section 62 of the Act, the appropriate commission is to determine such tariff in accordance with the principles contained in Section 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 gui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 17.10.2007 makes it clear that the tariff is adopted by the Commission only because the competitive bidding process which has been undertaken is in accordance with the guidelines so issued. 30. All this would make it clear that even if a waiver is claimed of some of the provisions of the PPA, such waiver, if it affects tariffs that are ultimately payable by the consumer, would necessarily affect public interest and would have to pass muster of the Commission Under Sections 61 to 63 of the Electricity Act. This is for the reason that what is adopted 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PA, and whether there has been waiver in fact in the sense of being the intentional relinquishment of a known right by the procurers or on their behalf, it is necessary to advert to the scheme of Article 6, the independent engineer's certificate, and various meetings, emails, and letters exchanged between the parties. Article 6 deals with synchronization, commissioning, and commercial operations. In the first step to be taken by the seller, the unit producing electricity has to be synchronized to the grid system. It is only after synchronization 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 func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 5 are achieved and there is a final test certificate to that effect. The subsequent clauses, Article 6.3.3 and Article 6.3.4 only kick in after COD is obtained in a unit, leading to either increased capacity or to de-rated capacity with consequences which follow under the PPA. 35. The meetings, emails, and letters between the parties have now to be examined. The first important meeting that is necessary for us to advert to is the meeting of 27.2.2013. The meeting was Chaired by the Managing Director of the lead procurer i.e. M.P. Power 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 accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction Schedule to WRLDC at 15.35 hours on 27th March 2013 for raising the load gradually to 100% of the Contracted Capacity of 620.4 MW(ex bus) by 2000 hrs. on 27th March 2013 for demonstrating continuous operation at that load for continuous 72 (seventy two) consecutive hours. However, WRLDC, did not permit the Seller to operate the Unit beyond 100 MW (ex bus) till the morning of 28th March 2013 due to the following reasons: a) The demand in the grid was low due to the Holiday on account of Holi Festival. b) All the Units in the grid 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 immedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and Generator core temperature were found to be well within the equipment limits recommended by OEM. 9. In view of the above, the Unit-3 is certified to have achieved Commercial Operation, with a tested capacity of 101.38 MW (ex bus) since: (a) Commissioning Test was carried out in accordance with Article 6 and Schedule 5 of the PPA. (B) Results of the test show that Unit-3 has met functional specifications stipulated in Schedule 4 of the PPA. For Lahmeyer International s(India) Sd/- R.K. Soni Project Manager Dated: 30th 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only one day after the date when the test certificate of the Independent Engineer has been received by the procurers. For this reason also, the test certificate is by no means in accordance with Article 6.3.1 of the PPA read with Schedule 5 thereof. 40. It is now important to examine the correspondence between the parties in order to ascertain whether the Appellate Tribunal is correct in stating that waiver had in fact taken place. At this stage, it is important to advert to an email dated 31.3.2013 sent by the lead 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 ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby that this ought to be treated as de-rated capacity, which should be paid for as provided. And any quantity produced over and above 101.38 MW would be treated as infirm power Under Article 11.1 proviso, and paid for as such. 43. Shri Sibal argued that the moment Article 6.3.4 of the PPA is attracted, this would necessarily mean that the Appellants have waived the requirement of 95% of the contracted capacity as existing on the effective date mentioned in Article 6.3.1(b). According to him, this would mean 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PL with immediate effect and confirm. Regards. Sanjay Srivastav. Assistant VP BRPL. 9312147045 Sanjay Srivastav (As V.P.) 46. This acceptance email is in stark contrast with the acceptance email of the lead procurer, in that it unequivocally accepts COD of the first Unit of 660 MW as declared by Sasan. It is therefore clear that on facts in this case there is no waiver and the Appellate Tribunal in coming to an opposite conclusion, is clearly erroneous. 47. Interestingly enough, the Appellate Tribunal, 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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