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TMI Blog2017 (10) TMI 1549X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 62 of the EA. However in a scenario such as the present case, the determination is as per the provisions of Section 63 of the EA, which reads as under: "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." 3. In order to facilitate the implementation of the project the PSEB incorporated Nabha Power Limited ('NPL/Appellant') on 9.4.2007 as a special purpose vehicle ('SPV') for implementation of the project and the successful bidder was to acquire 100 per cent shareholding of the NPL and enter into a 25 year Power Purchase Agreement ('PPA') with PSEB. 4. It may be noticed for the purpose of completion of facts that the first respondent, Punjab State Power Corporation Limited, ('PSPCL') is the successor entity of the erstwhile PSEB subsequent to the unbundling of PSEB in accordance with the Punjab Power Sector Reforms Transfer Scheme, 2010, while the second respondent is the Punjab State Electricity Regulatory Commission ('PSERC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant, the controversy commenced, and remained right from the first invoice. It is the case of the appellant, that the first respondent made deductions from the amount due and payable under the invoices, on the following accounts: "i. Component of the cost of purchasing coal comprising washing related costs including washery charges and cost of coal towards loss of quantity on account of washing (yield loss); ii. Consideration of mid-point of GCV of ROM coal onequilibrated GCV basis ('EGCV') to calculate energy charges; iii. Denial of road transportation cost - at the plant-end and at the mine-end. iv. Denial of Liaising charges, denial of Transit and handlinglosses and denial of Third party coal testing charges; and v. Non-payment of Capacity Charges for the period from20.02.2014 to 03.03.2014 when the availability was declared on non-linkage (alternate) coal." 9. The aforesaid gave rise to a cause for the appellant to file Petition No.52 of 2014 under Section 86(1)(b) & (f) of the EA before the State Commission seeking relief on account of wrongful deduction of certain components of monthly tariff by the first respondent. The State Commission, post admission, dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow: (i) Site identification and land acquisition: If land isrequired to be acquired for the power station, the notification under section 4 of the Land Acquisition Act, 1894 should have been issued before the publication of RFQ. The notification under section 6 of the Land Acquisition Act, 1894 should have been issued before the issue of RFP. If the provisions of section 17 of the Land Acquisition Act, 1894 regarding emergency have not been applied, the Award under the Land Acquisition Act should have been declared before the PPA becomes effective. (ii) Environmental clearance for the power station: RapidEnvironmental Impact Assessment (EIA) report should be available before the publication of RFQ. Requisite proposal for the environmental clearance should have been submitted before the concerned administrative authority responsible for according final approval in the Central/State Govt., as the case may be, before the issue of RFP. Environmental clearance should have been obtained before PPA becomes effective. (iii) Forest Clearance (if applicable) for the land for thepower station: Requisite proposal for the forest clearance should have been submitted before the concerned ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant that on 16.9.2009, prior to the bid date, PSPCL disclosed the coal quality in its pre-bid clarification. The project was located at a distance of more than 1,000 kilometers from the SECL mine and the coal arranged by the respondent contained more than 34 per cent ash. The project, thus, came under the ambit of Ministry of Environment and Forest (for short 'MoEF') Notification of 1997, making it mandatory for the coal to be washed for the use of generation of electricity energy. PSPCL, also mandated that washing of coal was to be arranged by the successful bidder (pre-bid clarification). The query raised by the appellant was as to whether the coal to be supplied for the project, was washed coal or unwashed coal (query No.6). It is the plea of the appellant that, thus, the reference to coal and fuel in the PPA, including the energy charges formula, could only refer to washed coal and thus the actual cost of purchasing, transporting and unloading coal referred to in Article 1.2.3 of Schedule 7 of the PPA, must refer to such actual cost of washed coal. The PSPCL, however, took a contrary stand that the term 'washing' is not part of the energy charges formula, while th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the claim of transportation cost of coal with respect to the first mile and the last mile. The first mile is on account of the unwashed coal from the mine to the washery, while the last mile is stated to have been incurred for carriage of coal from the nearest railway station to the project, on account of incomplete land acquisition by the Government of Punjab on behalf of the PSPCL. The transportation has to be reimbursed irrespective of mode. In a Case-2 project, the risk towards land is not assigned to the bidder but is of the PSPCL. 20. There are also certain other linked charges qua coal in the context of transit and handling charges, third party testing charges and liaising charges. 21. In the synopsis filed, the appellant has claimed even interest on the disputed energy charges in view of Article 11.3.4 read with Article 11.6.8 requiring payment of interest/late payment surcharge on the disputed component of the monthly bill from the date on which such payment was originally due against whom the dispute is settled/decided. The absence of a separate prayer for the payment of interest, it has been pleaded, cannot deny the appellant such benefit which must enure in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement between the appellant and the fuel supplier, i.e., SECL, and thus, the transaction of purchase referred to in Clause 1.2.3 of Schedule 7 of the PPA is identifiable to the purchase in the definition of the fuel supply agreement. 25. The attention of the Court was also invited to "Project Documents", which reads as under: ""Project Documents" mean a) Construction Contracts; b) Fuel Supply Agreements including the FuelTransportation Agreement; c) O&M contracts; d) RfP and RfP Project Documents; and e) any other agreements designated in writing as such,from time to time, jointly by the Procurer and the Seller;" 26. It is, thus, pleaded that there is no separate agreement for 'washing' included in this list of what constituted "Project Documents." The delivery point under the fuel supply agreement is the loading end of the colliery whereafter the title and risk of the coal is that of the appellant. Thus, the purchase is complete. 27. The burden to obtain any clarification being on the appellant, it was submitted that the clarification which they actually sought was as to whether the coal to be supplied would be washed or unwashed, to which a categorical answ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: "6. ..... In construing a particular Clause of the Contract it is only reasonable to construe that the word and the terms used therein must be given effect to. In other words one part of the Contract cannot be made otiose by giving a meaning to the policy of the contract. Then again when the same Clause of a contract uses two different expressions, ordinarily those different expressions conveying one and the same meaning." 30. Qua the issue of road transportation charges, a reference has been made to the RFP where under the heading of "Activities/Milestones to be completed before issue of RfP as per Bidding guidelines" at serial No.3 only transportation through Railways has been envisaged: Sl. No. Project Inputs/clearances Parameters Status of activities/milestones 3. Fuel Transportation For Coal approx. 1600 km Railways have given assurance for Transportation of Coal from SECL. 31. The land for the Railways siding was to be acquired by the bidder (appellant) as per the requirement, and the Government of Punjab was to facilitate the acquisition of land. 1078 acres of land was already acquired. The relevant extract of the RFP is as under: B. Other Project Related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side; and I believe that if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not impose on one side all the perils of the transaction, or to emancipate one side from the all chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances." (Emphasis supplied) 35. The significant issue was the prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, "What will happen in such a case," they would both have replied, "Of course, so and so will happen; we did not trouble to say that; it is too clear." Unless the Court comes to some such conclusion as that, it ought not to imply a term which the parties themselves have not expressed." .... .... .... .... .... "Is that a necessary implication? If this matter had been mooted at the time when the contract was being negotiated, I expect that the parties would at once have disagreed as to what the position was. Unless we are satisfied that it is an implication which must necessarily have been in the minds of both parties, we cannot imply a term which they have not expressed, especially when I see that they have thought sufficiently about the matter to express two conditions on which the agreement is to be determined, first, the obvious one on the death of the agent; and, secondly, by six months' notice after the expiration of the seven years." 39. In Liverpool City Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or only a promise to use reasonable care? That cannot be solved by inquiring what they both intended, or into what was necessary. But only into what was reasonable. This is to be decided as matter of law, not as matter of fact. Lord Wright pulled the blinkers off our eyes when he said in 1935 to the Holdsworth Club: "The truth is that the court .... decides this question in accordance with what seems to be just or reasonable in its eyes. The judge finds in himself the criterion of what is reasonable. The court is in this sense making a contract for the parties - though it is almost blasphemy to say so." (Lord Wright of Durley, Legal Essays and Addresses (1939), p. 259.) In 1956, Lord Radcliffe put it elegantly when he said of the parties to an implied term: "their actual persons should be allowed to rest in peace. In their place there rises the figure of the fair and reasonable man. And the spokesman of the fair and reasonable man, who represents after all no more than the anthropomorphic conception of justice, is and must be the court itself": see Davis Contractors Ltd. v. Fareham Urban District Council [1956] A.C. 696, 728. In 1969, Lord Reid put it simply when he said: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether or not it was reasonable in all the circumstances to do so .... This is to be decided as matter of law, not as matter of fact." I have respectfully to say that I prefer the views of the majority in the Court of Appeal. Bowen L.J. said in the well known passage in The Moorcock, 14 P.D. 64, 68: "In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; ... to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for ..." That is not to say, of course, that consideration of what is reasonable plays no part in determining whether or not a term should be implied. Thus, in Hamlyn & Co. v. Wood & Co. [1891] 2 Q.B. 488, decided only two years after The Moorcock (to which he had been a party), Lord Esher M.R. said, at p. 491: "... the court has no right to imply in a written contract any such stipulation, unless , on considering the terms of the contract in a reasonable and business manner , an implication necessarily arises that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all those relationships which are of common occurrence. Such as the relationship of seller and buyer, owner and hirer, master and servant, landlord and tenant, carrier by land or by sea, contractor for building works, and so forth. In all those relationships the courts have imposed obligations on one party or the other, saying they are "implied terms." These obligations are not founded on the intention of the parties, actual or presumed, but on more general considerations: see Luxor (Eastbourne) Ltd. v. Cooper [1941] A.C. 108, 137 by Lord Wright; Lister v. Romford Ice and Cold Storage Co. Ltd. [1957] A.C. 555, 576 by Viscount Simonds, and at p. 594 by Lord Tucker (both of whom give interesting illustrations); and Liverpool City Council v. Irwin [1976] 2 W.L.R. 562, 571 by Lord Cross of Chelsea, and at p. 579 by Lord Edmund-Davies. In such relationships the problem is not to be solved by asking what did the parties intend? Or would they have unhesitatingly agreed to it, if asked? It is to be solved by asking: has the law already defined the obligation or the extent of it? If so, let it be followed. If not, look to see what would be reasonable in the general run of such cases: see by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed about Liverpool City Council v. Irwin. In this court the argument was only about an implication in the second category. In the House of Lords that argument was not pursued. It was only the first category. Into which of the two categories does the present case come? I am tempted to say that a solus agreement between supplier and buyer is of such common occurrence nowadays that it could be put into the first category: so that the law could imply a term based on general considerations. But I do not think this would be found acceptable. Nor do I think the case can be brought within the second category. If the Shell company had been asked at the beginning: "Will you agree not to discriminate abnormally against the buyer?" I think they would have declined. it might be a reasonable term, but it is not a necessary term. Nor can it be formulated with sufficient precision. On this point I agree with Kerr J. It should be noticed that in the Esso case Mocatta J. also refused to make such an implication: see [1966] 2 Q.B. 514, 536-541; and there was no appeal from his decision. In the circumstances, I do not think any term can be implied." 43. A parallel development in Australia arose out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse to give efficacy to the contract i.e., if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, 'What will happen in such a case?', they would both have replied: 'Of course, so and so will happen; we did not trouble to say that; it is too clear."' In Shirlaw v. Southern Foundries (1926) Ltd. (21), MacKinnon LJ said: "Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common, 'Oh, of course.'"" (Emphasis supplied) 44. The next development, was in Investors Compensation Scheme Ltd. vs. West Bromwich Building Society . Lord Hoffmann, in his majority opinion, prefaced his explanation of reasons with some general remarks about the principles which contractual documents are nowadays construed - common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201: "if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.'" 45. Once again, Lord Hoffmann, now sitting on the Privy Council, in Attorney General of Belize and Ors. vs. Belize Telecom Ltd. and Anr. , dealt with the implied terms of the contract in the context of the Articles of Association of a company. It has been observed as under: "16. Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves." 20. More recently, in Equitable Life Assurance Society v Hyman[2002] 1 AC 408 , 459, Lord Steyn said: "If a term is to be implied, it could only be a term implied from the language of [the instrument] read in its commercial setting." 21. It follows that in every case in which it is said that someprovision ought to be implied in an instrument, the question for the court is whether such a provision would spel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears earlier by BowenLJ in his well known formulation in The Moorcock (1889) 14 PD 64, 68: "In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men ..." 25. Likewise, the requirement that the implied term must "gowithout saying" is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. Any attempt to make more of this requirement runs the risk of diverting attention from the objectivity which informs the whole process of construction into speculation about what the actual parties to the contract or authors (or supposed authors) of the instrument would have thought about the proposed implication. The imaginary conversation with an officious bystander in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 , 227 is celebrated throughout the common law world. Like the phrase "necessary to give business efficacy", it vividly emphasises the need for the court to be satisfied that the proposed implication spells out what t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll good reasons for saying that a reasonable man would not have understood that to be what the instrument meant." 46. There were, once again, parallel developments in India during this period in various High Courts but the views of this Court can be found expression in M/s. Dhanrajamal Gobindram vs. M/s. Shamji Kalidas and Co. : "19. ....Commercial documents are sometimes expressed in language which does not, on its face, bear a clear meaning. The effort of Courts is to give a meaning, if possible. This was laid down by the House of Lords in Hillas & Co. v. Arcos Ltd. [(1932) All ER 494] , and the observations of Lord Wright have become classic, and have been quoted with approval both by the Judicial Committee and the House of Lords ever since. The latest case of the House of Lords is Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. [(1959) AC 133] There, the clause was "This bill of lading", whereas the document to which it referred was a charter-party. Viscount Simonds summarised at p. 158 all the rules applicable to construction of commercial documents, and laid down that effort should always be made to construe commercial agreements broadly and one must not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances." 34. Though in an entirely different context, this Court in UnitedIndia Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera [(2008) 10 SCC 404] had considered the circumstances when reading an unexpressed term in an agreement would be justified on the basis that such a term was always and obviously intended by and between the parties thereto. Certain observations in this regard expressed by courts in some foreign jurisdictions were noticed by this Court in para 51 of the Report. As the same may have application to the present case it would be useful to notice the said observations: (SCC p. 434) "51. ... '... "Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander, were to suggest some express provision for it in their agreement, they would testily suppress him with a common 'Oh, of course!'" Shirlaw v. Southern Foundries (1926) Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms by the parties if the terms are explicit in their expression. The explicit terms of a contract are always the final word with regards to the intention of the parties. The multi-clause contract inter se the parties has, thus, to be understood and interpreted in a manner that any view, on a particular clause of the contract, should not do violence to another part of the contract. 50. The pricing of the coal is, if one may say, the crux of the problem. It is no doubt true, as contended by the first respondent, that while submitting the financial bid, clause 2.7.1.4(3) of the RFP required the tariff to be quoted in Format-1 of Annexure 4 to be an 'all inclusive tariff' and provided that no exclusion shall be allowed. This clause has already been extracted aforesaid. The bidder/appellant was, thus, required to take into account all costs, including capital and operational costs, statutory taxes, etc.. The same clause also provides that the availability of inputs necessary for generation of power should be ensured by the seller at the 'Project Site', which must be reflected in the quoted tariff. The significant aspect is that the working of the contract is on the basis of 'Project Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cking and storage, etc. being activities required to be undertaken prior to generation. Thus, there is no hesitation in our concluding that in view of the specific formula provided, only three aspects relatable to coal would determine the particular co-efficient. 54. These three expressions are thereafter followed by the stipulation that the coal has to be recently supplied "to and at the project." The question is, what is the meaning of this expression? The word 'to' obviously would have reference to transporting while the word 'at' would have relationship with unloading since it would be 'transporting to' and 'unloading at'. Any other construction will fail to make grammatical sense. Not only that, all the three, i.e., purchasing, transporting and unloading, have a reference to "the Project." Thus, the definition of FCOALn is the weighted average actual cost incurred by the appellant of purchasing the coal and transporting it to the project site and thereafter unloading the coal at the project site. The fact that the property in coal passed on to the appellant vis-à-vis SECL, on delivery being taken at the mine-end would not change the definition of coal pricing as is req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges, the prior activity of 'washing', before receiving the coal at the project site would be part of the pricing of coal and cost of purchasing the same. The appellant did seek to obtain clarity on the issue of the quality of coal to be used, to which the first respondent did answer that it would have to be 'washed' coal. In fact, this was in conformity with the Notification issued by the MoEF since the travel distance was more than 1,000 kilometers. The reference to coal in the formula would, thus, be only a reference to 'washed' coal and not to 'unwashed' coal. 60. The appellant has correctly sought to point out that the manner in which the first respondent seeks to read the definition is different from the actual definition by giving the following illustration: "Actual definition in the PPA: FCOALn is the weighted average actual cost to the Seller of purchasing, transporting and unloading the coal most recently supplied to and at the Project PSPCL's Interpretation: FCOALn is the weighted average actual cost to the Seller of purchasing unwashed coal, transporting washed and unloading the washed coal most recently supplied to and at the Project" 61. The fact that the clarific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65. The plea of the first respondent that despite the absence of rail siding, if the appellant proceeded to operate the plant, that was their 'business decision', cannot be sustained for the reason that the project was set up for obtaining electricity for the first respondent and as a prudent business decision for both, it would be required to operate the plant at the earliest. The complication in obtaining land by the State Government, cannot imply that the project should be on hold for two years, causing loss to everyone and lack of availability of electricity. Such a plea would be in defiance of the very object of the setting up of the power plant. 66. Now turning to the other aspect of the GCV of the coal. If the issue is one of SECL billing for higher Calorific Value while actually supplying a low Calorific Value of coal, that would be a matter between the appellant and the SECL and the first respondent cannot be blamed for the same. That does not take away from the application of the formula for energy charge which provides for PCVn as the weighted average Gross Calorific Value delivered to the project. This Calorific Value of coal would have to be, thus, on the same parame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for a late payment surcharge in the event of delay in payment of a monthly bill but in the present case it is not as if there are undisputed bills remaining unpaid. There were serious disputes regarding the interpretation of the contractual clauses itself. We do not think that the present one is a fit case where the principle of compensation for deprivation should enure for the benefit of the appellant as a measure of restitution. More so as it has not been claimed by them at any stage. It does appear that this inclusion in the written synopsis does seem to arise as canvassed by the learned Senior Advocate for the first respondent on account of the Tribunal not finding favour with such claim in the remand proceedings by reason of no claim being laid towards the same. We are, thus, not inclined to grant this claim. 72. We may, however, in the end, extend a word of caution. It should certainly not be an endeavour of commercial courts to look to implied terms of contract. In the current day and age, making of contracts is a matter of high technical expertise with legal brains from all sides involved in the process of drafting a contract. It is even preceded by opportunities of seek ..... X X X X Extracts X X X X X X X X Extracts X X X X
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