WP/1993/2007 of M/s. Tungabhadra Holdings Private Limite Having work Vs The Andhra Pradesh Central Power Distribution Company on 31 December 2008

COMMON ORDER:

W.P. No. 1993 of 2007 is filed seeking a Mandamussetting aside the impugned Memo No.CGM (Comm.)/SE(C)/DE(C)/ADE-II/AE-I/F.HT/Ind./D.No. 1178/06 dated 23.9.2006 by declaring the action of

the respondents as arbitrary, illegal and violative of the principles ofnatural justice; consequently, to direct the respondents to grant temporaryderation of the CMD from 1800 KVA to 800 KVA for a period of one yearby collecting consumption charges only for the CMD of 800 KVA startingfrom January, 2007. Whereas, W.P. No. 2131 of 2008 is filed seeking aMandamus to set aside the impugned letterNo.SE/OP/MDK/SAO/HT/D.No.750/2007 dated 20.12.2007 issued by 2[nd]respondent by declaring the same as illegal and arbitrary. Since the issueinvolved in both these writ petitions is one and the same, both of them aredisposed of by this common order.

It is the case of the petitioner that it is engaged in thebusiness of manufacture of steel coated tubes and pipes, and situated atIsnapur village, Patancheru Mandal. The existing assets, both moveableand immoveable of the petitioner-company were purchased in the auctionconducted by the High Court of A.P. subsequent to winding up ofM/s.Nagarjuna Coated Tubes Limited under the provisions of theCompanies Act in R.C.C. No. 9/1991. Subsequently, the petitioner-company has entered into a HT agreement dated 2.5.2005 with theCentral Power Distribution Company of A.P. Limited (‘CPDC’ for short) forsanction of electricity load with CMD (Contract Maximum Demand) in twophases. The first phase of electricity was with the load of 800 KVA CMDand the second phase was with the load of 1000 KVA. The petitioner haspaid an amount of Rs.21.6 lakhs as security deposit and Rs.27.00 lakhstowards development fee, pursuant to the agreement. The CPDC hassanctioned the power and issued certificate for release of 800 KVA for firstphase on 16.9.2005 and the additional load of 1000 KVA in secondphase was to be released after three months from the date of supply.While that being so, due to unfortunate delay in delivery of part ofmachinery by the foreign collaborator, the petitioner has sought forextension of time for release of 1000 KVA for a period of three monthsvide Referece No.THPL/HYD/Elec/14/05-06 dated 21.11.2005 and therespondents have granted the same. However, the petitioner could not

streamline the operations and requested for further extension for releaseof electricity load with CMD of 1000 KVA vide ReferenceNo.THPL/HYD/Elec/21/05-06 dated 24.2.2006, but the respondents haverejected for further extension and released the electricity load of 1000KVA on 16.6.2006. The grievance of the petitioner is that in spite of thefact that the petitioner was even unable to utilize the electricity load of 800KVA, it was compelled to pay for additional 1000 KVA. Therefore, thepetitioner had given representation on 2.8.2006 for temporary deration of1800 KVA CMD to 800 KVA for a period of one year, but the respondentshave rejected the said request ad stated that the same will be consideredafter 16.9.2007, vide Memo No.CGM (Coml)/SE(C)/DE(C)/ADE-II/AE-I/F.HT Ind./D.No.1178/06 dated 25.9.2006. The said Memo dated25.9.2006 of the respondents was challenged in W.P. No. 1993 of 2007.In view of altered circumstances, a representation was made on 6.7.2007to the respondents vide reference No. THPL/HYD/Elec/01/0708 forterminating the HT agreement dated 2.5.2005 and surrendering the powersupply. In reply to the same, the 2[nd] respondent has issued the impugnedletter dated 8.8.2007 vide ReferenceLr.No.SE/OP/MDK/SAO/HT/D.No.425/2007 requesting the petitioner topay the arrears of Rs.20,81,543/ within 15 days from the date of notice,failing which, that the action will be taken under the R.R. Act. Therespondents also stated that the termination will be effected after threemonths from 16.9.2007 as per terms and conditions of the power supply.Insofar as the arrears are concerned, the 3[rd] respondent has acceptedthat the amounts are wrongly shown and with respect to the CC charges,the same were calculated till December, 2007 and the same is the subjectmatter in W.P. No. 2131 of 2008. According to the petitioner, therespondents have terminated the agreement in accordance with clause5.9.4.2 of the general terms and conditions of supply and alsodisconnected the power supply with effect from 23.10.2007. The 2[nd]respondent has issued impugned letter dated 20.12.2007 informing that the HT agreement was terminated with effect from 23.10.2007 i.e.disconnection as per clause 5.9.4.2 of the general terms and conditions ofsupply, without prejudice to the rights accrued under the subsistingagreement as on the date of such termination. The respondents haveadjusted the amount of Rs.27 lakhs, which was lying as consumptiondeposit with the respondents and, after such adjustment, directed thepetitioner to arrange an amount of Rs.22.867/-. According to the petitioner,issuing the impugned letter dated 20.12.2007 is arbitrary and illegal and,in fact, W.P. No. 1993 of 2007 is still pending before this Court. Theamount was deposited by the petitioner pursuant to the orders passed bythis Court in WPMP No. 2524 of 2007 and WPMP No. 5991 of 2007 inW.P. No. 1993 of 2007. Until disposal of the writ petition, the respondentscannot quantify the amount and make the petitioner liable to pay, more so,when the matter is sub-judiced before this Court. The respondents oughtnot to have adjusted the security deposit available with them and thesame is contemptuous, arbitrary and illegal.

A detailed counter affidavit has been filed by respondentNo.2 in W.P. No. 2131 of 2008 wherein it is stated that the petitioner hadmade an application for temporary deration from 1800 KVA to 800 KVAand the same was rejected. Questioning the said order, the petitioner hadfiled W.P. No. 1993 of 2007 before this Court. As per the test report signedby the consumer, additional load of 1000 KVA was released from16.10.2006 and the bills have been issued and the petitioner is paying thebills for 800 KVA only. The termination of the agreement was consideredand given effect to, on 23.10.2007. Further, as per clause 5.9.4.2 of thegeneral terms and conditions of power supply, if the consumer chooses toderate the CMD or terminate before the expiry of the minimum period oftwo years’ period of the agreement, the CMD will be derated or theagreement will be terminated with effect from the date of expiry of theinitial period of two years or after the expiry of three months notice period,whichever is later. In compliance with the interim directions in WPMP No.27794 of 2007 in W.P. No. 21434 of 2007, the service was terminated with effect from 23.10.2007, considering the three months’ notice period.As per clause 5.9.4.2 of general terms and conditions of power supply, ontermination of HT agreement the consumer shall pay all sums due underthe agreement as on the date of its termination. Relying on the aboveclause, the security deposit available was adjusted towards the CC duesand the balance amount of Rs.22,867 is payable by the consumer. Whilecomplying with the directions in WPMP No. 5991 of 2007 in W.P. No.1993 of 2007, the consumer was billed for 800 KVA only and the samewas received, but, however, as per the HT test report agreed by theconsumer, bills are issued for 1800 KVA. Further, as per clause 5.9.4.2 ofthe general terms and conditions of power supply, as and when theservice gets terminated, the available security deposit has to be adjustedtowards the current consumption charges, and the balance, if any,remained, will be refundable to the consumer. Hence, the security depositadjusted towards CC charges as on the date of termination is correct.Therefore, there is no illegality in passing the impugned order dated20.12.2007 and the writ petition is devoid of merit and liable to bedismissed.

Learned counsel for the petitioner strenuously contendedthat the petitioner had purchased a sick Unit i.e. M/s. Nagarjuna CoatedTubes Limited, in the Court auction. It had contracted with therespondents for supply of 1800 KVA and requested the authorities toderate 1000 KVA, till the project commences, on the ground that theproject could not be commenced immediately in view of some delay fromforeign collaborator in supply of machinery. Initially, it was granted for aperiod of three months. However, since the operations could not bestreamlined, the petitioner requested for postponement of release ofelectricity load with CMD of 1000 KVA and the same was also granted bythe respondents. But, subsequently, the further request of the petitioner forpostponement of release of electricity was rejected by the respondentsand they have released the electricity load of 1000 KVA on 16.6.2006.Learned counsel for the petitioner submitted that the petitioner was even

unable to utilize 800 KVA which was released initially, whereas, it wascompelled to pay for additional 1000 KVA, though request was made forpostponement of release of 1000 KVA for the reasons beyond the controlof the petitioner. In this regard, the petitioner gave a representation on2.8.2006 for temporary deration of 1800 KVA CMD to 800 KVA for aperiod of one year, which was rejected by the respondents, and the sameis the subject matter in W.P. No. 1993 of 2007. Learned counsel for thepetitioner strenuously contended that the whole project could not becommenced in view of failure of the foreign collaborator to supplymachinery and ultimately it has to be closed down and whatevermachinery available was shifted to Mumbai. Under those circumstances,the petitioner has asked for termination of HT agreement dated 2.5.2005and to surrender the power supply. Though it was terminated, the CCcharges were calculated till December, 2007 and the petitioner wasasked to pay the same. In the month of July, 2007 the petitioner-companyhas become non-operational due to various factors and the manufacturingprocess could not be commenced because of non-cooperation of theforeign collaborator and technical difficulties and the petitioner-companyhas become sick and the machinery was shifted to Mumbai due tounfeasibility of the project. These aspects are well within the knowledgeof the respondents and there is no denial of these things. Therefore, itmust be deemed that the contract was frustrated. Thus, the doctrine offrustration operates and the respondents are not entitled to deny therefund of security deposit and it is illegal on the part of the respondents toadjust the same towards the consumption deposit. Though the full 1800KVA was released, the petitioner never utilized even 800 KVA and therespondents have diverted 1000 KVA to 3[rd] parties and collected thecharges there-against. Since the contract was frustrated, the respondentscannot say that the amount of Rs.27.00 lakhs, which was lying asconsumption deposit with them has been adjusted towards arrears ofelectricity consumed by the petitioner. Even clause 5.9.4.2 of the generalterms and conditions of supply has no application in a case like this, where the contract has been frustrated due to the reasons beyond thecontrol of the petitioner. Therefore, the impugned order passed by therespondents, which is the subject matter of W.P. No. 2131 of 2008, isliable to be quashed.

Per contra, learned counsel for the respondents SriO. Manohar Reddy, while reiterating the stand taken in the counteraffidavit filed by the respondents, has strenuously contended that this ispurely a matter of contract between the parties and, as per the terms of thecontract i.e. clause 5.9.4.2, even if a contract is sought to be terminatedeither on a notice or even when it is frustrated, the consumer is supposedto pay arrears of the minimum consumption for a period of two years fromthe date of agreement. The agreement, once entered, cannot beterminated without lapse of two years. Thus, the petitioner is liable to paythe minimum two years’ arrears for 1800 KVA. The doctrine of frustration,as contended by the learned counsel for the petitioner, has no role to playin the facts and circumstances of the case and it cannot be applied incase of statutory contracts. Further, the reasons for frustration of contractcannot be attributed to the respondents. May be, the foreign collaboratormight have failed in fulfilling the promise made to the petitioner and theproject might not have been commenced, but, that itself does not meanthat the petitioner can get over the terms of agreement and it cannot besaid that the petitioner is not liable for payment of arrears as demanded inthe impugned order. The writ petition is devoid of merits and liable to bedismissed.

I have given my earnest consideration to the respectivesubmissions made by the learned counsel on either side, perused theimpugned orders and the other material made available on record.

The facts are not much in dispute. Thus, the only aspectwhich needs to be examined is, whether in the facts and circumstances ofthe case the contract entered into between the parties was frustrated asper Section 56 of the Indian Contract Act, 1872 and thus the petitioner isnot liable to pay the minimum consumption charges.

Admittedly, the petitioner had applied for 1800 KVA forreviving a sick Unit, which was purchased in a Court auction, namely,M/s. Nagarjuna Coated Tubes Limited, situated at Isnapur village,Patancheru Mandal, Medak District. The company was under revival. Theelectricity to be supplied was in phased manner and the respondentshave sanctioned electricity load with CMD, in two phases. The first phaseof electricity was with the load of 800 KVA CMD and the second phasewas with the load of 100 KVA. Accordingly, the petitioner entered into anagreement with the respondents on 2.5.2005 by paying an amount ofRs.21.60 lakhs as deposit amount and an amount of Rs.27.00 lakhstowards development fee. The respondents have sanctioned power andissued certificate for release of 800 KVA in first phase on 16.9.2005 andthe additional load of 1000 KVA in second phase had to be released afterthree months from the date of supply. In the meanwhile, the orders placedby the petitioner for importing machinery from different countries for thepurpose of its business were delayed. Therefore, the petitioner hadsought for extension of release of 1000 KVA initially for three months andagain for three months, which was granted by the respondents. Thepetitioner approached a foreign company in USA for expansion toproduce online galvanized coated pipes, but, in the meantime, therespondents have released the electricity load with CMD of 1000 KVA on16.6.2006 in spite of the fact that the petitioner has sought for extension oftime orally and the petitioner was utilizing the then existing load of 800KVA. Without any intimation to the petitioner or rejecting the case of thepetitioner, the respondents have simply released the load of 1000 KVA.The crucial component pertaining to manufacture of tubes and pipes wasyet to be received. Therefore, the petitioner has never utilized even theelectricity load of 800 KVA, which was released by the respondents in thefirst phase. The maximum load utilized by the petitioner was 418.5 KVAper month. Due to the drastic decision of the respondents for releasing1000 KVA to the petitioner, the petitioner was compelled to pay anadditional amount of Rs.2,31,000/- without there being any utilization of additional electric power. In the representation made by the petitioner, thefact that the project could not commence due to non-supply of requiredmachinery by the foreign collaborator was clearly mentioned. Therefore,the contract entered into between the parties for supply of electricity wasfrustrated.

The contention of the learned counsel for the respondentsthat the doctrine of frustration is not applicable in case of statutorycontracts cannot be accepted, in the light of the following case law on thesubject.

I n Satyabrata Ghose v. Mugneeram Bangur and Co.and another[[1]]it was held by the Supreme Court as follows:“The word “impossible” has not been used inthe sense of physical or literal impossibility. Theperformance of an act may not be literallyimpossible but it may be impracticable anduseless from the point of view of the object andpurpose which the parties had in view; and if anuntoward event or change of circumstancestotally upsets the very foundation upon which theparties rested their bargain, it can very well besaid that the promisor finds it impossible to do theact which he promised to do”.

In the above decision, the Supreme Court further held:

“The essential idea upon whichthe doctrine of frustration is bases is that ofimpossibility of performance of the contract; infact impossibility and frustration are often used asinterchangeable expressions. The changedcircumstances make the performance of thecontract impossible and the parties areabsolved from the further performance of it asthey did not promise to perform an impossibility. The doctrine of frustration isreally an aspect or part of the law of dischargeof contract by reason of superveningimpossibility or illegality of the act agreed tobe done and hence comes within the purviewof S.56. (emphasis supplied). To the extent thatthe Contract Act deals with a particular subject, itis exhaustive upon the same and it is notpermissible to import the principles of Englishlaw ‘dehors’ these statutory provisions. Thedecisions of the English Courts possess only apersuasive value and may be helpful in showinghow the Courts in England have decided casesunder circumstances similar to those which havecome before Indian Courts. In deciding cases inIndia the only doctrine that we have to go by isthat of supervening impossibility or illegality aslaid down in S.56, taking the word ‘impossible’ inits practical and not literal sense. Section 56 laysdown a rule of positive law and does not leavethe matter to be determined according to theintention of the parties. I cases, where the Courtgathers as a matter of construction that thecontract itself contained impliedly or expressly aterm, according to which it would standdischarged o the happening of certaincircumstances, the dissolution of the contractwould take place under the terms of the contractitself and such cases would be outside thepurview of S. 56 altogether. They would be dealtwith under S. 32 which deals with contingentcontracts or similar other provisions contained in the Act. In the large majority of cases, however,the doctrine of frustration is applied not on theground that the parties themselves agreed to animplied term which operatd to release the fromthe performance of the contract. The relief isgiven by the Court on the ground ofsubsequent impossibility when it finds thatthe whole purpose or basis of a contract was frustrated by the intrusionor occurrence of an unexpected event orchange of circumstances which was beyondwhat was contemplated by the parties at thetime when they entered into the agreement.(emphasis supplied). When such an event orchange of circumstance occurs which is sofundamental as to be regarded by law as strikingat the root of the contract as a whole, it is theCourt which can pronounce the contract to befrustrated and at an end. The Court undoubtedlyhas to examine the contract and thecircumstances under which it was made. Thebelief, knowledge and intention of the parties areevidence, but evidence only on which the Courthas to form its own conclusion whether thechanged circumstances destroyed altogether thebasis of the adventure and its underlying object.This is really a rule of positive law and as suchcomes within the purview of S. 56 of the ContractAct”.

Further, in Central Bank of India Staff CooperativeBuilding Society Limited, Vijayawada v. Dulipalla Ramachandra Koteswara Rao[[2]], a Division Bench of this Court held:

“Frustration signified a certain setof circumstances arising after the formation of thecontract, the occurrence of which is due to nofault of either party and which rendersperformance of the contract by one or both partiesphysically and commercially impossible. TheCourt regards these sets of circumstances asreleasing the parties from any further obligations.Where the entire performance of a contractbecomes substantially impossible without anyfault on either side, the contract is prima faciedissolved by the doctrine of frustration.

The law excuses furtherperformance under the doctrine of frustration,where the contract is silent as to the position ofthe parties in the event of performance becomingliterally impossible or only possible in a verydifferent way from that originally contemplated.The doctrine of frustration operates to excusefrom further performance where (1) it appearsfrom the nature of the contract and thesurrounding circumstances that the parties havecontracted on the basis that particular person willcontinue to be available, or that some futureevent, which forms the basis of the contract, willtake place, and (2) before breach, a event inrelation to the matter stipulated (a) rendersperformance impossible or only possible in avery different way from that contemplated, butwithout default of either party. (emphasissupplied).

The impossibility of performancemay arise through subsequent changes in thelaw. Where performance of the contract has beenrendered impossible by an act of Parliament passed after the contract was made, then thepromisor is excused from performing his promiseunless it appears that he intended to bind himselfwith reference to the future state of the law”.

I n Pallava Granite Industries India Private Limited v.Andhra Pradesh Mineral Development Corporation Limited[[3]], alearned single Judge of this Court held:

“In Boothalinga Agencies v.V.T.C. Poriaswami Nadar the Supreme Courtobserved as follows: the doctrine f frustration ofcontract is really an aspect or part of the law ofdischarge of contract by reason of superveningimpossibility or illegality of the act agreed to bedone and hence comes within the purview ofSection 56 of the Indian Contract Act. It should benoticed that Section 56 lays down a rule ofpositive law and does not leave the matter to bedetermined according to the intention of theparties.

In the case on hand, there was astatutory obligation on the part of the respondentto secure permit from the concerned authorities. Itfails to do so and even on allowing the writappeals also it could not get the permit todemand the petitioner to lift the granite blocks.The mere writing of a letter to the Director ofMines and Geology requesting to issuenecessary instructions to the Assistant Director ofMinds and Geology to issue the permit itself doesnot amount to discharge of the obligation of therespondent. In the absence of the permit to lift the granite blocks, it is impossible for the petitioner tolift them. The principles laid down in the abovedecisions are squarely applicable to the presentcase. The material available on record is clearlyindicating that on account of the failure of therespondent in getting permits within 10 days fromthe date of payment of the bid amount or on anysubsequent date before the petitioner requestedfor refund of the amount, it became impossible forthe petitioner to execute the contract by lifting thegranite blocks. After going through the entirematerial on record, I am convinced that the tenderbecame frustrated due to the inaction and failureof the respondent in issuing transport permits tothe petitioner and this is a fit case for orderingrefund of the bid amount to the petitioner”.

Facts

Coming to the facts of the case, as noticed above, byreason of supervening the impossibility an act agreed to be donebecomes frustrated and attracts the provisions of Section 56 of the IndianContract Act. From the very beginning, the petitioner has been asking forderation of CMD of 1000 KVA on the ground that the foreign collaboratorhas failed to fulfil its obligation and thus the petitioner was unable tosecure the required machinery for revival of the sick Unit. Therefore,ultimately, the project could not take off and whatever machineryavailable, was shifted to Mumbai and thus even the Unit of the petitioner,before it could be revived, became sick. Hence, it cannot be said thatthere was no frustration of the contract between the parties. No doubt, thefrustration of contract is not on account of the respondents, but, unlessand until the machinery was received by the petitioner, it could not havecommenced the project and these facts are not in dispute. Thus, theagreement has become an ‘impossibility’ to be performed on the part of the petitioner. Therefore, the doctrine of frustration is very muchapplicable to the case on hand and the petitioner cannot be asked toperform an impossibility. Firstly, the petitioner paid CMD for 800 KVAthough the maximum utilized energy was only 418 KVA. Secondly, 1000KVA was never utilized by the petitioner and, thirdly, it is not the case ofthe respondents that the petitioner has not paid the charges for gettingservice charges. Further, it is not the case of the respondents that 1000KVA which was released to the petitioner was not diverted, utilized, soldand encashed by them. The released energy cannot be stored anywhereand the respondents have already earned money for the same.

Under these circumstances, in the guise of ContractedMaximum Demand (CMD), the respondents should not have charged fortwo years’ CMD against 1000 KVA, which was never utilized by thepetitioner, and adjusted the same from the security deposit lying withthem. The Court, undoubtedly, has to examine the contract and thecircumstances under which it was made. The changed circumstanceshave destroyed altogether the basis of the adventure and its underlyingobject. In view of failure of the foreign collaborator to supply the crucialcomponent of the machinery for production of galvanized pipes and tubes,the project could not be commenced and even the 800 KVA was notutilized to the maximum. Unless the machinery was received, thepetitioner could not have utilized the second phase of 1000 KVA. Thus,the basis of the contract was frustrated by the intrusion or occurrence ofan unexpected event or changed circumstances which were beyond whatwas contemplated by the parties at the time when they entered into theagreement. Since the contract was frustrated, this Court is of theconsidered view that it was not proper on the part of the respondents indemanding CMD for 1000 KVA from the petitioner for two years in theguise of clause 5.9.4.2 of the general terms and conditions of the policy.The action of the respondents is arbitrary, illegal, not in good conscienceand equity of justice. Therefore, the impugned order dated 20.12.2007 inW.P. 2131 of 2008 is liable to be set aside and accordingly set aside and

the respondents are directed to refund the security deposit of Rs.27.00lakhs to the petitioner.

Writ Petition No. 2131 of 2008 is accordingly disposed of.

W.P. No. 1993 of 2007:

In view of the orders passed in W.P. No. 2131 of 2008, nofurther orders are required in this writ petition. It is accordingly disposedof.

C.V. RAMULU, J.

Date: 31-12-2008.

MVB.

[1]. AIR 1954 SC 44

[2]AIR 2004 AP 18

[3]2005 ALT (4) 79