INDSIL HYDRO POWER & MANGANESE LTD. versus STATE OF KERALA & ORS ETC on 30 July 2019

[2019] 10 S.C.R. 647

INDSIL HYDRO POWER & MANGANESE LTD.

v.

STATE OF KERALA & ORS ETC.

(Civil Appeal Nos. 5943-5945 of 2019)

JULY 30, 2019

[DR. DHANANJAYA Y CHANDRACHUD AND

INDIRA BANERJEE, JJ.]

Electricity : Pursuant to the policy decision of StateGovernment to allow the private agencies to set up hydel schemes,the appellant was allowed to set up a Hydro Electric Project – MoUwas executed between the appellant and the KSEB – In terms of theMoU, the appellant would operate the unit for 30 years from thedate of commissioning i.e. the date from which the power generatedby the appellant is fed into the KSEB grid – The MoU contemplatedthat the transmission line required for transferring power from thepower house to the nearest grid sub-station upto a length of 4 Kms.would be built by KSEB at the cost of the appellant and rest of thetransmission line was to be constructed by the KSEB at its own cost– Delay in construction of transmission line led to institution of writpetition by appellant before High Court wherein appellant claimedpower free of cost in terms of clause 9 and 10 of the agreement andsought direction for expeditious construction of transmission line –Pursuant to interim order, the Chief Electrical Inspector filed a reportto the effect that the installation of transformers was completed bythe appellant on 21 August 2000 but the sanction for energizationof 110 KV was not issued since the transmission lines were not ready– High Court directed the State Government to deal with therepresentations submitted by the appellant – Pursuant to order ofHigh Court, State Government passed order on 7 February 2001opining inter alia that appellant was not entitled to the benefit ofthe pre 1992 tariff concession till the completion of the transmissionline by KSEB; that the delay in the construction of the transmissionlines was not deliberate and was due to factors beyond control;that the tariff concessions were provided to new industries which isa distinct issue from captive power generation and hence the plea

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Afor a tariff concession could not be acceded to; and having regardto the grievance of the appellant that it had been unable to evacuatethe power which it was positioned to generate for its captive unit,KSEB ought to adhere to the time schedule which it had undertakento fulfill and complete the construction of the transmission lines by28 February 2001 without fail – High Court dismissed the writBpetition eventually holding that there was no intentional delay inconstruction of the transmission lines on the part of KSEB; that thetariff concession was made available only to new industries; andthat the agreement between the parties did not disclose any specifiedtime limit for the provision of transmission lines – On appeal, held:CThe agreement stipulated that the date of commissioning would beconstrued as the date from which the power generated by the unitsset up by the appellant was fed into KSEB grid – Though the contractdid not specify the exact length of the transmission line, clause 9made it clear that for a length of 4 kms, construction would be atthe cost and expense of the appellant while the balance would beDconstructed by KSEB at its own cost – Clause 3 postulated thatcommercial operations would begin within a period of 30 months –Thus, the only reasonable construction of the contract would bethat the obligations which were to be performed by KSEB, namely,the construction of the transmission line must necessarily beEcompleted within the same period – Otherwise imposing anobligation upon the appellant to commence commercial operationswithin 30 months would have no meaning – Therefore, High Courtwas not correct in holding that the contract did not stipulate anytimelines for the completion of the work of constructing thetransmission line – Clause 12 of the agreement contemplated aFsituation where the KSEB grid is not in a position to absorb theenergy generated from the project for any reason including thebreakdown of transmission lines or any other reason beyond thecontrol of KSEB – In that event, clause 12 provided the generationfrom the project to be restricted to the extent of generation for captiveGconsumption as directed by KSEB – These provisions indicated thatthe contract was not entirely silent in regard to a situation involvingthe inability of KSEB’s grid to absorb the energy generated fromthe project for any reason – The report of the Chief Electricalinspector made it clear that it was as a result of the delay whichtook place in the construction of the transmission line that the actualH

injection of power into the grid could not take place – This clearlyshowed that the appellant had duly fulfilled its obligation of settingup Phase I and Phase II of its units and the only reason why it wasunable to inject power into the grid was because the setting up ofthe transmission lines by KSEB could not take place – Thus, thebasis on which State Government took a decision on 7 February2001 and High Court affirmed it by its impugned judgment wouldneed to be re-visited – Appellant was not entitled to the grant ofdeemed generation status as a matter of right – Similarly, theconcessional power tariff applicable for a period of five years from1994 to 1999 was extended until 20 August 2000 – This isundoubtedly a matter of policy and the High Court was justified incoming to the conclusion that it was not open to the Court to foist aparticular measure of policy on the State – State Government toreassess the matter in proper perspective within the availableframework of law and its own policy.

Conclusion

Administrative Law: Contractual matters – Judicial review –Scope of interference – Held: It is now a settled principle of lawthat the exercise of writ jurisdiction under Art.226 is not excludedin matters pertaining to contract – The States and its agencies areduty bound to act in a manner which is fair and transparent – Theycannot act arbitrarily in dealings with private parties – This mustparticularly be the governing principle where the State as a measureof encouraging industrialisation invites the participation of privateindustries to respond to the policy initiative of the State – Electricity.

Deeds and documents: Interpretation of commercial documents– In construing a commercial document, the contract must be readand understood in its entirety so as to attribute to it a businessmeaning which was within the understanding of the contractingparties – Electricity.

Disposing of the appeals, the Court

HELD: 1. In announcing the policy initiative on 7 December1990, the State Government intended to encourage the settingup of hydel power projects by private agencies and hence, a slewof concessions came to be provided. The agreement that wasentered into between the appellant and the KSEB is undoubtedlya matter in the contractual arena. It is now a settled principle oflaw that the exercise of writ jurisdiction under Article 226 is not A

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Aexcluded in matters pertaining to contract. The States and itsagencies are duty bound to act in a manner which is fair andtransparent. [Para 33] [664-E-F]

2. In the instant case, under its agreement with KSEB, theappellant assumed the obligation to set up Phases I and II of aBhydel project with a capacity of 21 MW and to operate the projectfor a period of 30 years. After the expiry of 30 years, the projectwould be handed over to the State free of cost. The agreementstipulated that the date of commissioning would be construed asthe date from which the power generated by the units set up bythe appellant was fed into KSEB grid. Under clause 3 of theCagreement, the appellant was to furnish within three months aprogramme for construction and installation towards thecompletion of the project. Commercial operation was to beachieved within a period of 30 months from that date. Underclause 9 of the contract, KSEB assumed the obligation to set upDthe transmission line. Though the contract did not specify theexact length of the transmission line, clause 9 made it clear thatfor a length of 4 kms, construction would be at the cost andexpense of the appellant while the balance would be constructedby KSEB at its own cost. While a superficial reading of clause 9alone is liable to lead to the interpretation that no time was fixedEfor the completion of the transmission lines, this would not be acorrect reading of the contract. In construing a commercialdocument, the contract must be read and understood in itsentirety so as to attribute to it a business meaning which waswithin the understanding of the contracting parties. [Paras 34- F35] [664-G; 665-A-D]

3. Clause 3 postulated that commercial operations wouldbegin within a period of 30 months. The only reasonableconstruction of the contract would be that the obligations whichwere to be performed by KSEB, namely, the construction of theGtransmission line must necessarily be completed within the sameperiod. Otherwise imposing an obligation upon the appellant tocommence commercial operations within 30 months would haveno meaning. This would result in a specific term of the contractbeing rendered redundant which the Court must as a principle of interpretation seek to avoid. Hence, the High Court was notcorrect in coming to the conclusion that the contract did notstipulate any timelines for the completion of the work ofconstructing the transmission line. Such a requirement wasimplicit in clause 3 of the agreement and clause 9 must necessarilybe read in that context. [Para 36] [665-E-H]

4. The submission which has been urged on behalf of KSEBprincipally relies on the concessions which have been providedto the appellant in regard to the tariff which is applicable to itsindustrial unit. These concessions were available to all newindustries to whom a concessional tariff was provided over a periodof five years from 1994 to 1999. These concessions wereindependent of and would not therefore disentitle the appellantto the benefit of the agreement that was entered into with KSEBon 30 December 1994. The grant of a concessional tariff is amatter of policy to encourage new industries to set up operationsin the State. Clause 10 of the agreement stipulated that the energydrawn from the hydel units – Phase I and Phase II – would bedelivered free of cost to the appellant less an amount of 12%towards wheeling charges and transmission losses. Alternatively,it would be banked by KSEB, if the appellant so desired. KSEBwould collect 1% of the energy so banked as its commission.[Paras 37-39] [666-A-D]

5. Clause 12 of the agreement contemplates a situationwhere the KSEB grid is not in a position to absorb the energygenerated from the project for any reason including the breakdownof transmission lines or any other reason beyond the control ofKSEB. In that event, clause 12 provides that the generation fromthe project will have to be restricted to the extent of generationfor captive consumption as directed by KSEB. These provisionsindicate that the contract is not entirely silent in regard to asituation involving the inability of KSEB’s grid to absorbthe energy generated from the project for any reasonincluding a reason which is beyond the control of KSEB.[Para 40] [666-E-G]

6. The report of the Chief Electrical inspector makes itclear that it was as a result of the delay which took place in theconstruction of the transmission line that the actual injection of A

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Apower into the grid could not take place. The order of the StateGovernment dated 7 February 2001 shows that there was nodeliberate act or default on the part of KSEB. Indeed, it has notbeen seriously disputed that at the material time, there wereagitations on the part of the farmers and certain othercircumstances which caused delay in the construction of theBtransmission lines. However as significant as these reasons are,it should not lead to a situation where a private investor who hasacted upon the policy of the State Government being left in thelurch as a result of supervening circumstances which haveresulted in the power not being evacuated into the grid due toCthe non-commissioning of the transmission lines at the materialtime by KSEB. It is imperative that contractual obligationsentered into by the State have legal sanctity. A legal regime wherethe sanctity of contracts is respected and commercial contractsare enforced is essential to the maintenance of the rule of law.Trade and commerce can be freely conducted in a stable legalDorder which provides remedies for enforcement. [Paras 42, 43][667-B-F]

7. Though in the order of the State Government dated 7February 2001, it was envisaged that the transmission lines wouldbe constructed and completed by 28 February 2001, there was aEfurther delay of approximately three months even thereafter as aresult of which the evacuation of power could commence onlywith effect from 1 June 2001. On the basis of the factual datawhich has emerged from the record, on which there is no dispute,the basis on which the State Government took a decision on 7FFebruary 2001 and the High Court affirmed it by its impugnedjudgment would need to be re-visited. The appellant was notentitled to the grant of deemed generation status as a matter ofright. Similarly, the concessional power tariff which is applicablefor a period of five years from 1994 to 1999 was extended until20 August 2000. This is undoubtedly a matter of policy and theGHigh Court was justified in coming to the conclusion that it is notopen to the Court to foist a particular measure of policy on theState. In what manner the State should remedy the grievance ofthe private investor is something which should be duly consideredby the State Government within the available framework of lawHand its own policy. [Paras 44, 45] [667-G-H; 668-A-C]

Shrilekha Vidyarthi (Kumari) v. State of U.P. (1991) 1SCC 212 : [1990] 1 Suppl. SCR 625 ; ABL InternationalLtd. v. Export Credit Guarantee Corpn. of India Ltd.(2004) 3 SCC 553 ; Noble Resources Ltd. v. State ofOrissa (2006) 10 SCC 236 : [2006] 6 Suppl. SCR 53– referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5943-5945 of 2019.

From the Judgment and Order dated 21.08.2015 of the HighCourt of Kerala at Ernakulam in O.P. Nos. 6030 of 2001, 25360 of 2000and W.P.(C) No. 20393 of 2003.

V. Giri, Joseph Kodianthara, Sr Advs., Amit, R. Gopalakrishnan,Advs. for the Appellant.

C. K. Sasi, Nayantara Roy, Abdulla Naseeh V. J., P. V. Dinesh,Ms Sindhu T. P., Mukund P. Unny, R. S. Lakshman, Bineesh K., AshwiniKumar Singh, Ms. Bina Madhavan, Ms. Anthony Elizabeth,Ms. Akanksha Mehra (for M/s. Lawyer S. Knit & Co.), Advs. for theRespondents.

The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, J.

1. Leave granted.

2. These appeals arise from the judgment of a Division Bench ofthe High Court of Kerala dated 21 August 2015. The High Court hasdismissed the writ proceedings instituted by the appellant under Article226 of the Constitution of India.

3. On 7 December 1990, the State of Kerala issued G.O (Ms)No. 23/90/PD by which private entities were permitted to construct andoperate Hydel Power Projects for the generation of power, subject tocertain conditions. These conditions, broadly speaking were:

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The Private Agencies would be allowed to set up sanctionedhydel schemes at their own cost.

Where the power scheme is located in an area owned by theBRespondents, the land would be leased for a period of 30 yearsfrom the date of commissioning of the same, after which theland with all structures would vest in the Government freefrom all encumbrances.

The transmission line required for transferring power from theCcaptive plant of the agency to the nearest grid sub-station wouldbe built at the cost of the agency by the KSEB and afterconstruction it would be transferred to the KSEB without anycompensation.

The captive plant energy fed into the KSEB grid – 12%Dwheeling charges loss would be delivered free of cost to theagency at their H.T. Terminals.

The percentage of 12% for Transmission & Distribution losses,wheeling charges, etc. will be liable for review by Board duringrevisions of tariff rates periodically.

EBefore implementation of the Scheme, an agreement settingforth all the above aspects and such other conditions as foundnecessary would be entered into between the agency and theKSEB.”

4. On 12 March 1992, the State government issued G.O (Ms) No.F5/92/PD by which the earlier Government Order was supplemented interms of the following conditions:

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The power generated by the agencies could be utilized by themin their own factories/business premises anywhere in the StateGor could be sold to the KSEB.

For each project, the rate of purchase of electricity generatedwill be notional ensuring a minimum rate of return as prescribedby the Government.”

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5. The appellant is an EHT consumer with a contract demand of14000 KVA. It has a power intensive unit for the manufacture of FerroAlloys which was energized on 12 August 1994. The appellantcommenced commercial production on 1 October 1994.

6. On 6 February 1992, the Government of Kerala providedincentives to new industrial units by providing an exemption for fiveyears from the payment of enhanced tariff of electricity from 1 January1992. This was made available to manufacturing units which commencedcommercial production on or before 31 December 1996. The pre-1992tariff concession was allowed to the appellant for the period from 1October 1994 to 30 September 1999. Pursuant to a policy decision ofthe State Government, the appellant was also granted an extension ofthe pre-1992 tariff for a further period commencing from 1 October1999 until 20 August 2000. From 21 August 2000, the appellant is beingbilled under the prevailing tariff. The pre-1992 tariff was at the rate ofRs 0.42 per unit as against the cost of thermal power purchased by theKerala State Electricity Board which at the material time was Rs 3.30per unit.

7. In pursuance of the policy decision of the State Government toallow private agencies to set up hydel schemes, the appellant was allowedto set up a Hydro Electric Project (Kuthungal Phase I & II) at Kuthungal,Idukki District with a capacity of 21 MW as a captive power project interms of the Government Order dated 7 December 1990. The allotmentof the hydel project was confirmed in favour of the appellant in June andJuly 1992. An MoU was executed between the appellant and KSEB inpursuance of which the appellant was to set up a hydel project atKuthungal in Idukki District.

Some of the relevant terms of the agreement contemplated that:

“‘Commercial Operation’ i.e. the date on which powergenerated by the Petitioner is fed into the KSEB Grid, was tobe achieved within 30 months from date of execution of theagreement. A penalty would be levied if the Company wasnot able to adhere to the above timeline.

If the Petitioner was not able to adhere to the agreed schedule,for reasons beyond its control, the KSEB may consider therequest of the company for a revised schedule.

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If the Petitioner is unable to complete the project or aftercompletion is unable to operate the project as per the schedule,the KSEB shall have the right to take over.

The KSEB would build 4 kms of the transmission line requiredfor transferring power from the power house to the nearestBgrid/substation at the cost of the Petitioner. The balance wouldbe constructed by the KSEB at its own cost as a promotionalmeasure.

The power generated - 12.0% (Wheeling & TransmissionLosses) would be available/delivered to the Petitioner at theEHT Terminals at the point of supply in its installations.

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If the KSEB grid was not in a position to absorb the energygenerated from the project for any reason beyond the controlof the KSEB, the generation from the project would berestricted to the extent of generation for captive consumptionDas directed by the KSEB.

In case of any dispute/difference between the parties, thematter would be referred to the State Govt. and their decisionwould be final and binding between the parties.”

8. The agreement contemplated that the appellant as the projectEagency would operate the unit for a period of 30 years from the date ofcommissioning. The date of commissioning was defined to mean thedate from which the power generated by the appellant is fed into theKSEB grid.

9. Clause 3 of the agreement stipulated that the appellant would,Fupon the execution of the agreement, submit a programme of constructionand installation so that commercial operation is achieved within a periodof 30 months. The agreement contemplated that the transmission linerequired for transferring power from the power house to the nearestgrid sub-station or location as suggested by KSEB, upto a length of 4kms, would be built by KSEB at the cost of the appellant. The rest of theGtransmission line was to be constructed by KSEB at its own cost.

10. Clauses 3 and 9 insofar they are material, are extracted below:

“3. The KSEB is entitled to check up, whenever it deemsnecessary to see whether the conditions stipulated - “in respect H

of installation, operation and maintenance are being adhered to bythe company. The company will furnish, within three months ofsigning the Agreement, a programme of construction andinstallation to the effect of completing the project in such a mannerthat the commercial operation (the term, “commercial operation”in this context indicates the date on which the power generatedby the company is fed into the KSEB grid) of the project is achievedwithin 30 (thirty) months from that date…”

9. The transmission line required for transferring power from thepower house to the nearest grid, substation and/or other locationsas suggested by the KSEB upto a length of 4 (four) km shall, bebuilt by the KSEB at the company, as a deposit work and thebalance constructed by the KSEB at its cost as a promotionalmeasure for encouraging the private entrepreneurs for thecompany by KSEB it shall be transferred to the KSEB withoutany compensation. Land required for construction of suchtransmission line will be considered as part of land required forthe project as per conditions as elaborated under clause (6) aboveand the metering equipment as per the specifications of KSEBshall be provided by the company at their cost at a point in thegenerating station as approved by the KSEB and handed over tothe KSEB along with transmission line, without any compensation.”

11. Clause 10 of the agreement contemplated that the energyfrom the hydel units set up by the appellant and fed into the KSEB gridless 12% towards wheeling charges and transmission losses would bedelivered free of cost to the appellant.

12. Clause 12 makes the following provision for a situation wherethe grid of KSEB was not in a position to absorb the energy generatedfrom the project:

“12. If the KSEB grid is not in a position to absorb the energygenerated from the project for any reason such as high level ofstorage in reservoirs, breakdown of transmission lines and/or otherreasons beyond the control of KSEB, the generation from theproject will have to be restricted to the extent of generation forcaptive consumption as directed by KSEB. The schedule of powergeneration from the project shall be as directed by the KSEB.”

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A13. Clause 25 of the agreement envisaged that any dispute ordifference between the parties would be referred to the Government ofKerala whose decision would be final and binding.

14. On 25 July 1998, the Chief Engineer of KSEB called upon theappellant to deposit 2.13 crores for the construction of 4 km of theBtransmission line in pursuance of clause 9 of the agreement. The amountwas deposited by the appellant on 5 October 1998. A further demand ofRs 20,55,075 /- made on 5 May 1999 was also fulfilled.

15. The case of the appellant is that civil construction work wascompleted and one of the three generators was commissioned andCsynchronised with the grid on 15 May 2000. There was a delay in thesetting up of the transmission lines without which it was not possible forthe hydel unit to inject power into the KSEB grid. On 20 May 2000 and30 June 2000, the appellant addressed representations in regard to thedelay. According to the appellant, on 21 August 2000, the remaining twogenerators of the project were also commissioned and a certificate wasDissued by the Chief Electrical Inspector of the Government of Kerala.

16. The delay in the construction of the transmission line led tothe institution by the appellant of a writ petition under Article 226 of theConstitution of India before the Kerala High Court. The reliefs whichthe appellant sought were in the following terms:

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“a. Declare that the petitioner is entitled to consume power freeof cost at its plant at Palakkad namely Sun Metal and Alloy Limitedat Kanjikode in Palakkad and Indsil Electrosmelts Ltd. at Pallatheriin accordance with clause 9 of Exhibit P2 order and clause 10 ofExhibit P6 agreement calculated on the basis of the possibleFconsumption as mentioned by the Electricity Board in Exhibit P38Budget proposal until such time as the Board lays the transmissionline and is ready to evacuate the power actually generated fromthe Kuthungal Hydro Electric project in Kuthungal Idukki District.

b. Issue a writ in the nature of mandamus commanding secondGrespondent to take expeditious steps to see that the transmissionline required for transmission of power from Kuthungal toNeriaoiangalam is completed as early as possible.

c. Issue a writ in the nature of mandamus commandingrespondents 2 and 3 to refrain from collecting any amount from H

INDSIL HYDRO POWER & MANGANESE LTD. v. STATE OFKERALA [DR. DHANANJAYA Y CHANDRACHUD, J.]

the petitioner by way of electricity charges or related charges forthe power consumed by the petitioner and its associate inaccordance with clause 10 of Exhibit P6 agreement on the basisof the possible power generation as mentioned in P38 Budgetuntil evacuation of power generated in the project at 21 MW.

d. Issue a writ in the nature of mandamus commanding the firstrespondent to take appropriate decision on Exhibit P.26, 35 and 36representations by taking appropriate directions to the Board tomake available to the petitioner power in accordance with clause9 of Exhibit P2 and Clause 10 of Exhibit P6 agreement.”

17. In pursuance of an interim order passed by the High Court on31 August 2000, the Chief Electrical Inspector of the Government ofKerala filed a report on 14 September 2000. The Report, insofar as it ismaterial to these proceedings, states that the installation of transformerswas completed by the appellant on 21 August 2000 but the sanction forenergization of 110 KV was not issued since the transmission lines werenot ready. The Chief Electrical Inspector stated in his conclusions thatexcept for a pre-commissioning test and other minor work, installationhad been completed. What remained to be completed is the constructionof transmission lines by KSEB.

18. The conclusion in the report reads thus:

18. The conclusion in the report reads thus:

“Except for the pre-commissioning tests to be done prior toenergisation of the 110 KV lines, and minor works connected atthe time of pre-commissioning, the installation of the 3 bios of the7 generators, 11 kv – switch gears 4 Nos. of the 11KV/110KVstep-up transformers, 500 KVA uxiliary transformer and the 110kvyard is completed.

The 11 KV switch gears, transformers and the 110 KV yard arecompleted and ready for evacuation of power generatedsimultaneously by the 3 Nos. of 7MW generators installed atKuthungal only the 110 KV transmission lines are to be connectedwhich is now incomplete. The name plate details of the generators,step-up transformers and equipment with 110 KV yard areenclosed for reference.”

19. The High Court of Kerala, by an order dated 1 November2000, directed the State Government to deal with the representations A

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Asubmitted by the appellant in terms of the dispute resolution procedurecontained in clause 25 of the agreement. The State Government was todecide whether there was any delay in the construction of the transmissionlines by KSEB and to determine the claim of the appellant for the grantof concessions including a deemed generation status or an extension ofthe pre 1992 concessional tariff.B20. Pursuant to the order of the High Court, an order was passedby the State Government on 7 February 2001. The State opined that:

(i) There was no penal provision in the agreement providing aconsequence for a delay in the completion of the constructionCof the transmission lines by KSEB;

(ii) The appellant was not entitled to deemed generation statussince this was neither a concession provided in the agreementnor was the concession available to an entity such as theappellant which generated power for its own consumption; D

(iii) The appellant was not entitled to the benefit of the pre 1992tariff concession till the completion of the transmission lineby KSEB;

(iv) KSEB had not deliberately delayed the construction and thedelay in the construction of the transmission lines was due toEfactors beyond its control including public agitation and theinaccessibility of the terrain;

(v) Tariff concessions are provided to new industries which is adistinct issue from captive power generation and hence theplea for a tariff concession could not be acceded to; andF

(vi) Having regard to the grievance of the appellant that it hadbeen unable to evacuate the power which it was positionedto generate for its captive unit, KSEB ought to adhere to thetime schedule which it had undertaken to fulfill and completethe construction of the transmission lines by 28 February 2001Gwithout fail.

Accordingly, the State Government directed that:

(i) The appellant shall continue to remit the pre-1992 tariff fromAugust 2000 to February 2001; H

(ii) The difference between the billed and the concessional tariffshall be remitted to KSEB in 48 equal monthly instalments;and

(iii) The penalties shall be waived.

21. The Writ Petition filed before the High Court was eventuallyadjudicated upon in the impugned order of the Division Bench dated 21August 2015. The Division Bench held that though the appellant waspermitted to put up a captive power plant in terms of the agreementdated 30 December 1994, the agreement did not contemplate a situationwhere the transmission lines will not be ready for evacuation of power.The High Court held that there was no intentional delay in the constructionof the transmission lines on the part of KSEB. On whether or not theconcession should be granted to the appellant, the State Governmenthad already passed an order on 7 February 2001 opining that the tariffconcession was made available only to new industries. This procedure,according to the State Government, was not available to captive powergeneration units. The High Court held that this view was not contrary tothe policy of the State Government. The High Court held that theagreement between the parties did not disclose any specified time limitfor the provision of transmission lines. The High Court accordinglydismissed the Writ Petition.

22. Assailing the judgment of the High Court, it has been urged onbehalf of the appellant by Mr V Giri, learned Senior Counsel that actingin pursuance of the agreement dated 30 December 1994, the appellantcompleted the entire construction of the two units of the hydel project.Mr Giri urged that the High Court was not correct in proceeding on theassumption that the agreement did not contain a time limit for theconstruction of the transmission lines. In this context, it was submittedthat clause 3 of the agreement obligated the appellant to furnish aprogramme of construction within three months of the execution of theagreement in such a manner that commercial operation was achievedwithin 30 months from that date. It was urged that the expression“commercial operation” has been defined as the date on which powergenerated by the appellant is fed into the KSEB grid. Mr Giri submittedthat these provisions contained in clause 3 of the agreement have to beread in the context of clause 9 under which KSEB assumed the obligationto set up four kilometers of the transmission line at the cost of the appellant A

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Aand the balance on its own cost. On this basis, it was submitted that itwas the obligation of KSEB to achieve the completion of the installationof transmission lines within the period stipulated by the agreement forthe commencement of commercial operation since in the absence of thetransmission lines, commercial operation would not become possible.B23. Mr Giri submitted that clause 9 of the agreement casts an B23. Mr Giri submitted that clause 9 of the agreement casts anobligation on KSEB to carry out construction of the transmission lines.Hence, though clause 9 does not expressly provide for a period ofcompletion, it must be read in the context of clause 3 under whichcommercial operations, with reference to the injection of power into thepower grid, were to commence within a period of 30 months.CConsequently, it is urged that the duty to complete the transmission linesmust necessarily be fulfilled within the period of 30 months stipulated forcommencement of commercial operation.

24. Mr Giri urged that the failure to complete the construction oftransmission lines had a direct bearing on the appellant. If the transmissionDlines were constructed, the appellant would have been in a position toutilise the power generated by the hydel unit for captive consumption.Instead, the appellant had to purchase electrical power from KSEB andto pay for the purchase.

25. In this backdrop, it was submitted that the High Court was notEjustified in coming to the conclusion that no period was stipulated for thecompletion of transmission lines. Moreover, it was submitted that thefinding that the appellant would not be entitled to an extension of theconcessional tariff or deemed generation status would not solve the issue.The appellant has to be compensated for the situation which has beenFcaused by the default of KSEB.

26. Mr Giri submitted that even after the State Government passedan order on 7 February 2001, it is a matter of record that the transmissionlines were not completed by the date envisaged i.e. 28 February 2001.As a result, evacuation of power could commence only with effect from1 June 2001.G

27. It has been urged that as a result of the demand for interest onthe differential tariff, the appellant will face a serious financial problem.Mr Giri urged that though the appellant had not taken recourse to theremedy of a civil suit for the recovery of damages, this was in view ofthe ongoing relationship with the State Government and KSEB and itH

would be appropriate if this Court were to direct that the State Governmentshould reconsider the matter afresh having regard to the grievances ofthe appellant.

28. Mr Giri has also urged that clause 12 of the agreementspecifically contemplates a situation in which the KSEB grid is not in aposition to absorb the energy generated by the project for any reason, inthe event of which, it has been provided that the generation from theproject will be restricted to the extent of generation for captiveconsumption as directed by KSEB.

29. On the other hand, it has been urged on behalf of the KSEBby Mr P V Dinesh, learned counsel, that in the present case, the contractwas a commercial bargain between the appellant and KSEB. Learnedcounsel submitted that in terms of the policy decision of the State ofKerala, substantial tariff concessions have already been granted to theappellant initially for a period of five years between 1 October 1994 and30 September 1999 and thereafter by a further extension until 20 August2000. Learned counsel submitted that whereas the pre 1992 tariff toindustries was at the rate of Rs 0.42 per unit, the cost of thermal powerpurchased by KSEB is Rs 3.30 per unit. Hence, the appellant has paidapproximately 19.84 crores on account of the concessional tariff asagainst an amount of Rs 51.32 crores towards energy charges alonewhich would nothave been possible had the normal rate of tariff beenapplicable.

30. Moreover, it has been submitted that under the terms of theagreement, KSEB undertook the obligation to fund a portion of thetransmission line over and above the distance of 4 kms which wasconstructed at the cost of the appellant. For drawing the entire line of16.77 kms, KSEB acquired a substantial tract of land which involved thepayment of compensation.

31. Mr Dinesh urged that as a result of the acquisition, there wereprotests from the farmers due to which construction of the towers wasdelayed. It was urged that in the order of the State Government dated 7February 2001, a finding of fact was recorded to the effect that thedelay in the construction of the transmission lines was not occasioned byany deliberate act on the part of KSEB. In this background, it has beensubmitted that the appellant which had pressed its claim for grant ofdeemed generation status and for a concessional tariff beyond 20 August AB

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A2000 is clearly not entitled to it in law. It was urged that the deemedgeneration status cannot be allowed to the appellant which is a captivepower unit and, similarly, a concessional tariff is made available to newindustries which had already been availed of by the appellant. In thisview of the matter, it was urged that particularly in the background ofthe fact that there was no deliberate act on the part of KSEB, the HighBCourt was not in error in dismissing the Writ Petition. It was urged thatthe contract between the parties does not envisage any consequencefor a delay on the part of KSEB in erecting the transmission lines andthere is no specific provision in regard to the period within which thetransmission lines have to be set up.C32. Mr C K Sasi, learned counsel appearing on behalf of the Stateof Kerala has placed reliance on the decision of the State Governmentdated 7 February 2001 in support of the submission that relevant factshave been taken into account.

33. While assessing the merits of the rival contentions, this CourtDmust be cognizant of the fact that the invocation of the power of judicialreview under Article 226 of the Constitution of India was in the contextof a contract which was entered into between the appellant and KSEBin pursuance of a policy initiative of the Government of Kerala. Evidently,in announcing the policy initiative on 7 December 1990, the StateEGovernment intended to encourage the setting up of hydel power projectsby private agencies and hence, a slew of concessions came to beprovided. The agreement that was entered into between the appellantand the KSEB is undoubtedly a matter in the contractual arena. It isnow a settled principle of law that the exercise of writ jurisdiction underArticle 226 is not excluded in matters pertaining to contract. The StatesFand its agencies are duty bound to act in a manner which is fair andtransparent. The State and its instrumentalities cannot act arbitrarily indealings with private parties.[1] This must particularly be the governingprinciple where the State as a measure of encouraging industrialisationinvites the participation of private industries to respond to the policyGinitiative of the State.

34. In the present case, under its agreement with KSEB theappellant assumed the obligation to set up Phases I and II of a hydel 1 Shrilekha Vidyarthi (Kumari) v. State of U.P., (1991) 1 SCC 212 ; ABL InternationalLtd. v. Export Credit Guarantee Corpn. of India Ltd., (2004) 3 SCC 553 ; NobleHResources Ltd. v. State of Orissa, (2006) 10 SCC 236

project with a capacity of 21 MW and to operate the project for a periodof 30 years. After the expiry of 30 years, the project would be handedover to the State free of cost.

35. It was in this background that the agreement stipulated thatthe date of commissioning would be construed as the date from whichthe power generated by the units set up by the appellant was fed intoKSEB grid. Under clause 3 of the agreement, the appellant was tofurnish within three months a programme for construction and installationtowards the completion of the project. Commercial operation was to beachieved within a period of 30 months from that date. Under clause 9 ofthe contract, KSEB assumed the obligation to set up the transmissionline. Though the contract does not specify the exact length of thetransmission line, clause 9 makes it clear that for a length of 4 kms,construction would be at the cost and expense of the appellant while thebalance would be constructed by KSEB at its own cost. While asuperficial reading of clause 9 alone is liable to lead to the interpretationthat no time was fixed for the completion of the transmission lines, this inour opinion, would not be a correct reading of the contract. In construinga commercial document, the contract must be read and understood in itsentirety so as to attribute to it a business meaning which was within theunderstanding of the contracting parties.

36. Clause 3 postulates that commercial operations would beginwithin a period of 30 months. The only reasonable construction of thecontract would be that the obligations which were to be performed byKSEB, namely, the construction of the transmission line must necessarilybe completed within the same period. Otherwise imposing an obligationupon the appellant to commence commercial operations within 30 monthswould have no meaning. This would result in a specific term of thecontract being rendered redundant which the Court must as a principleof interpretation seek to avoid. Thus, the reasonable construction of thecontract would be that the commencement of commercial operationswithin 30 months postulated that both the appellant and KSEB mustperform their respective obligations under the contract within that periodso as to adhere to the date of commencing commercial operations. Hence,the High Court was not correct in coming to the conclusion that thecontract did not stipulate any timelines for the completion of the work ofconstructing the transmission line. Such a requirement was implicit inclause 3 of the agreement and clause 9 must necessarily be read in thatcontext.

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A37. The submission which has been urged on behalf of KSEBprincipally relies on the concessions which have been provided to theappellant in regard to the tariff which is applicable to its industrial unit.These concessions, it must be noted, were available to all new industriesto whom a concessional tariff was provided over a period of five yearsfrom 1994 to 1999. These concessions were independent of and wouldBnot therefore disentitle the appellant to the benefit of the agreement thatwas entered into with KSEB on 30 December 1994. The grant of aconcessional tariff is a matter of policy to encourage new industries toset up operations in the State.

38. The claim of the appellant, however, in the present proceedingsCis based upon the contract for setting up a captive power generation unitrelying on the hydel policy of the State dated 7 December 1990 in termsof which the agreement between the parties was executed.

39. Clause 10 of the agreement stipulated that the energy drawnfrom the hydel units – Phase I and Phase II – would be delivered free ofDcost to the appellant less an amount of 12% towards wheeling chargesand transmission losses. Alternatively, it would be banked by KSEB, ifthe appellant so desired. KSEB would collect 1% of the energy so bankedas its commission.

40. The case of the appellant is that as a result of the inability ofEKSEB to set up the transmission lines it was unable to receive the powerwhich it was in a position to evacuate into the grid for its captive use.The grievance of the appellant is that as a result of this, it was compelledto purchase power from KSEB at the rates as applicable. Clause 12 ofthe agreement contemplates a situation where the KSEB grid is not in aFposition to absorb the energy generated from the project for any reasonincluding the breakdown of transmission lines or any other reason beyondthe control of KSEB. In that event, clause 12 provides that the generationfrom the project will have to be restricted to the extent of generation forcaptive consumption as directed by KSEB. These provisions indicatethat the contract is not entirely silent in regard to a situation involving theGinability of KSEB’s grid to absorb the energy generated from the projectfor any reason including a reason which is beyond the control of KSEB.

41. In the present case, the essential facts are not in dispute.

42. Pursuant to the interim order that was passed by the HighCourt, the Chief Electrical Inspector upon inspecting the work ofH

installation submitted a report on 14 September 2000. The report has notbeen questioned. The report categorically states that the installation oftransformers was completed on 21 August 2000. The work whichremained was in the nature of pre-commissioning tests for which thework which had to be completed was essentially the laying down of the110 KV line on the part of KSEB. The report of the Chief Electricalinspector makes it clear that it was as a result of the delay which tookplace in the construction of the transmission line that the actual injectionof power into the grid could not take place. There is, in other words,clear and cogent material to lead to the conclusion that the appellant hadduly fulfilled its obligation of setting up Phase I and Phase II of its unitsand the only reason why it was unable to inject power into the grid wasbecause the setting up of the transmission lines by KSEB could not takeplace.

43. The order of the State Government dated 7 February 2001shows that there was no deliberate act or default on the part of KSEB.Indeed, it has not been seriously disputed that at the material time, therewere agitations on the part of the farmers and certain other circumstanceswhich caused delay in the construction of the transmission lines. Howeveras significant as these reasons are, it should not lead to a situation wherea private investor who has acted upon the policy of the State Governmentbeing left in the lurch as a result of supervening circumstances whichhave resulted in the power not being evacuated into the grid due to thenon-commissioning of the transmission lines at the material time byKSEB. It is imperative that contractual obligations entered into by theState have legal sanctity. A legal regime where the sanctity of contractsis respected and commercial contracts are enforced is essential to themaintenance of the rule of law. Trade and commerce can be freelyconducted in a stable legal order which provides remedies forenforcement.

44. At this stage, it is also necessary to note that though in theorder of the State Government dated 7 February 2001, it was envisagedthat the transmission lines would be constructed and completed by 28February 2001, there was a further delay of approximately three monthseven thereafter as a result of which the evacuation of power couldcommence only with effect from 1 June 2001. On the basis of thefactual data which has emerged from the record, on which there is nodispute, we are hence, of the view that the basis on which the State A

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AGovernment took a decision on 7 February 2001 and the High Courtaffirmed it by its impugned judgment would need to be re-visited in thelight of what we have observed above.

45. We are in agreement with the view of the State Government,as accepted by the High Court, that the appellant was not entitled to theBgrant of deemed generation status as a matter of right. Similarly, theconcessional power tariff which is applicable for a period of five yearsfrom 1994 to 1999 was extended until 20 August 2000. This isundoubtedly a matter of policy and the High Court was justified in comingto the conclusion that it is not open to the Court to foist a particularmeasure of policy on the State. In what manner the State should remedyCthe grievance of the private investor is something which should be dulyconsidered by the State Government within the available framework oflaw and its own policy.

46. To facilitate this exercise, we are of the view that it would beappropriate if both the State Government and KSEB together re-visitDthe entire matter afresh and take an appropriate decision in accordancewith law preferably within a period of four months from the receipt of acertified copy of this order. The appellant would be at liberty to supplementits earlier representations with whatever, in addition, it may wish to submitbefore the State Government within a period of one month of the receiptEof a certified copy of this order.

47. We would expect that the State Government would now re-assess the matter in a fair and proper perspective so that the dispute canattain finality with the ultimate decision.

48. To facilitate this exercise, we allow the appeals and set asideFthe impugned judgment and order of the High Court dated 21 August2015.

49. The appeals shall accordingly stand disposed of in terms ofthe above directions. There shall be no order as to costs.

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Devika Gujral

Appeals disposed of.

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