M. P. POWER MANAGEMENT COMPANY LIMITED, JABALPUR versus M/S. SKY POWER SOUTHEAST SOLAR INDIA PRIVATE LIMITED & OTHERS on 16 November 2022

M. P. POWER MANAGEMENT COMPANY LIMITED,JABALPUR

v.

M/S. SKY POWER SOUTHEAST SOLAR INDIA PRIVATELIMITED & OTHERS

(C.A. No. 8515-8516 of 2022)

NOVEMBER 16, 2022

[K. M. JOSPEH AND HRISHIKESH ROY, JJ.]

Electricity Laws – Electricity Act, 2003 – ss.63 and 62 –Contract – Non-statutory contract – Power Purchase Agreement(PPA) entered into by the appellant and the first respondent, if astatutory contract – Held: The PPA was not made either in purportedcompliance with the statutory dictate, either in the form of parentenactment or a subordinate legislation – The terms and conditionsof the PPA were not transplanted into the PPA from any statutoryprovision – That tariff was arrived at in accordance with thetransparent process of bidding, which was in tune with the guidelinesu/s.63, may not be sufficient to make the PPA a Statutory Contract –A contract containing prescribed terms and conditions beingmandatory under the Statute, results in the contract becoming aStatutory Contract – If this test is applied, one fails to see howreference to the bidding guidelines, under which the bids were madeand finally the PPA was entered into, can be treated as tantamountingto saying that the PPA contains prescribed statutory terms andconditions as an indispensable part of a Statute – The expression‘terms and conditions’, which are statutory in nature, must beunderstood as those statutory terms and conditions, which providefor rights and obligations of the contracting parties – Such referenceis conspicuous by its absence in the PPA – It may not be appropriateto describe the PPA as a Statutory Contract.

Contract – Administrative action – Judicial Review – Scopeof judicial review of action by the State in a matter arising from anon-statutory contract – Held: The mere fact that relief is soughtunder a contract which is not statutory, will not entitle therespondent-State in a case by itself to ward-off scrutiny of its actionor inaction under the contract if the complaining party is able to

A

B

CDEF

G

H

Aestablish that the action/inaction is per se arbitrary – Even if it is anon-statutory contract, there is no absolute bar in dealing with acause of action based on acts or omission by the State or itsinstrumentalities even during the course of the working of a contract.

Administrative Law – Arbitrariness in State action – When anBact is to be treated as arbitrary – Held: The court must carefullyattend to the facts and the circumstances of the case – It shouldfind out whether the impugned decision is based on any principle –If not, it may unerringly point to arbitrariness – If there is absenceof good faith and the action is actuated with an oblique motive, itcould be characterised as being arbitrary – A total non-applicationCof mind without due regard to the rights of the parties and publicinterest may be a clear indicator of arbitrary action – A whollyunreasonable decision which is little different from a perversedecision under the Wednesbury doctrine would qualify as anarbitrary decision under Art.14 – Ordinarily visiting a party withDthe consequences of its breach under a contract may not be anarbitrary decision – Constitution of India – Art. 14.

Dismissing the appeals, the Court

HELD:1. The writ jurisdiction is a public law remedy. Amatter, which lies entirely within a private realm of affairs of publicEbody, may not lend itself for being dealt with under the writjurisdiction of the Court. [Para 54][50-G]

2. The principle laid down in Bareilly Development Authoritythat in the case of a non-statutory contract the rights are governedonly by the terms of the contract and the decisions, which areFpurported to be followed, including Radhakrishna Agarwal, maynot continue to hold good, in the light of what has been laid downin ABL and as followed in the recent judgment in Sudhir KumarSingh. [Para 54][50-G; 51-A]

3. The mere fact that relief is sought under a contract whichGis not statutory, will not entitle the respondent-State in a case byitself to ward-off scrutiny of its action or inaction under thecontract, if the complaining party is able to establish that theaction/ inaction is, per se, arbitrary. [Para 54][51-B]

H

4. An action will lie, undoubtedly, when the State purportsto award any largesse and, undoubtedly, this relates to the stageprior to the contract being entered into. This scrutiny, no doubt,would be undertaken within the nature of the judicial review, whichhas been declared in the decision in Tata Cellular vs. Union ofIndia. [Para 54][51-C]

5. After the contract is entered into, there can be a varietyof circumstances, which may provide a cause of action to a partyto the contract with the State, to seek relief by filing a Writ Petition.[Para 54][51-D]

6. It may include the relief of seeking payment of amountsdue to the aggrieved party from the State. The State can, indeed,be called upon to honour its obligations of making payment, unlessit be that there is a serious and genuine dispute raised relatingto the liability of the State to make the payment. Such dispute,ordinarily, would include the contention that the aggrieved partyhas not fulfilled its obligations and the Court finds that such acontention by the State is not a mere ruse or a pretence. [Para54][51-E-F]

7. The existence of an alternate remedy, is, undoubtedly, amatter to be borne in mind in declining relief in a Writ Petition ina contractual matter. Again, the question as to whether the WritPetitioner must be told off the gates, would depend upon thenature of the claim and relief sought by the petitioner, thequestions, which would have to be decided, and, most importantly,whether there are disputed questions of fact, resolution of whichis necessary, as an indispensable prelude to the grant of the reliefsought. While there is no prohibition, in the Writ Court evendeciding disputed questions of fact, particularly when the disputesurrounds demystifying of documents only, the Court may relegatethe party to the remedy by way of a civil suit. [Para 54][51-G; 52-A-B]

8. The existence of a provision for arbitration, which is aforum intended to quicken the pace of dispute resolution, isviewed as a near bar to the entertainment of a Writ Petition. [Para54][52-C]

A

B

CDE

F

G

H

A

A9. The need to deal with disputed questions of fact, cannotbe made a smokescreen to guillotine a genuine claim raised in aWrit Petition, when actually the resolution of a disputed questionof fact is unnecessary to grant relief to a writ applicant. [Para54][52-D]B10. The reach of Article 14 enables a Writ Court to dealwith arbitrary State action even after a contract is entered into bythe State. A wide variety of circumstances can generate causes ofaction for invoking Article 14. The Court’s approach in dealingwith the same, would be guided by, undoubtedly, the overwhelmingneed to obviate arbitrary State action, in cases where the WritCremedy provides an effective and fair means of preventingmiscarriage of justice arising from palpably unreasonable actionby the State. [Para 54][52-E-F]

11. Termination of contract can again arise in a wide varietyof situations. If for instance, a contract is terminated, by a person,Dwho is demonstrated, without any need for any argument, to bethe person, who is completely unauthorised to cancel the contract,there may not be any necessity to drive the party to theunnecessary ordeal of a prolix and avoidable round of litigation.The intervention by the High Court, in such a case, where thereEis no dispute to be resolved, would also be conducive in publicinterest, apart from ensuring the Fundamental Right of thepetitioner under Article 14 of the Constitution of India. When itcomes to a challenge to the termination of a contract by the State,which is a non-statutory body, which is acting in purported exerciseof the powers/rights under such a contract, it would be overFsimplifying a complex issue to lay down any inflexible Rule infavour of the Court turning away the petitioner to alternate Fora.Ordinarily, the cases of termination of contract by the State, actingwithin its contractual domain, may not lend itself for appropriateredress by the Writ Court. This is, undoubtedly, so if the CourtGis duty-bound to arrive at findings, which involve untying knots,which are presented by disputed questions of facts. Undoubtedly,in view of ABL Limited, if resolving the dispute, in a case ofrepudiation of a contract, involves only appreciating the true scopeof documentary material in the light of pleadings, the Court maystill grant relief to an applicant. The Court must enter a caveat.H

The Courts are today reeling under the weight of a docketexplosion, which is truly alarming. If a case involves a large bodyof documents and the Court is called upon to enter upon findingsof facts and involves merely the construction of the document, itmay not be an unsound discretion to relegate the party to thealternate remedy. This is not to deprive the Court of itsconstitutional power as laid down in ABL. It all depends upon thefacts of each case as to whether, having regard to the scope ofthe dispute to be resolved, whether the Court will still entertainthe petition. [Para 54][52-G; 53-A-F]

12. In a case the State is a party to the contract and a breachof a contract is alleged against the State, a civil action in theappropriate Forum is, undoubtedly, maintainable. But this is notthe end of the matter. Having regard to the position of the Stateand its duty to act fairly and to eschew arbitrariness in all itsactions, resort to the constitutional remedy on the cause of action,that the action is arbitrary, is permissible. However, every caseinvolving breach of contract by the State, cannot be dressed upand disguised as a case of arbitrary State action. While the conceptof an arbitrary action or inaction cannot be cribbed or confined toany immutable mantra, and must be laid bare, with reference tothe facts of each case, it cannot be a mere allegation of breach ofcontract that would suffice. What must be involved in the casemust be action/inaction, which must be palpably unreasonable orabsolutely irrational and bereft of any principle. An action, whichis completely malafide, can hardly be described as a fair actionand may, depending on the facts, amount to arbitrary action. Thequestion must be posed and answered by the Court and discretionis available to the Court to grant relief in appropriate cases. [Para54][53-G-H; 54-A-C]

13. A lodestar, which may illumine the path of the Court,would be the dimension of public interest subserved by the Courtinterfering in the matter, rather than relegating the matter to thealternate Forum. [Para 54][54-D]

14. Another relevant criteria is, if the Court has entertainedthe matter, then, while it is not tabooed that the Court should notrelegate the party at a later stage, ordinarily, it would be a germaneconsideration, which may persuade the Court to complete what AB

CDE

F

GH

Ait had started, provided it is otherwise a sound exercise ofjurisdiction to decide the matter on merits in the Writ Petitionitself. [Para 54][54-E-F]

15. Violation of natural justice has been recognised as aground signifying the presence of a public law element and canBfound a cause of action premised on breach of Article 14. [Para54][54-F-G]

ABL International Ltd. v. Export Credit GuaranteeCorpn. of India Ltd. (2004) 3 SCC 553; India ThermalPower Ltd. v. State of M.P. and others (2000) 3 SCC379 : [2000] 1 SCR 925; Ramana Dayaram Shetty v.International Airport Authority of India (1979) 3 SCC489 : [1979] 3 SCR 1014; Shrilekha Vidyarthi (Kumari)v. State of U.P. (1991) 1 SCC 212 : [1990] 1 Suppl.SCR 625; East Coast Railway and Another v. MahadevAppa Roa and Others (2010) 7 SCC 678 : [2010]7 SCR 908; State of U.P. v. Sudhir Kumar Singh andOthers 2020 SCC Online 847 and Tata Cellular v. Unionof India (1994) 6 SCC 651 : [1994] 2 Suppl. SCR 122– relied on.

C

D

Radhakrishna Agrawal and Others v. State of Bihar andOthers (1977) 3 SCC 457 : [1977] 3 SCR 249; BareillyDevelopment Authority and Another v. Ajai Pal Singhand Others (1989) 2 SCC 116 : [1989] 1 SCR 743;Kerala State Electricity Board and Another v. Kurien E.Kalathil and Others (2000) 6 SCC 293 : [2000] 1 Suppl.SCR 581; Jaypee Kensington Boulevard ApartmentsWelfare Association and others v. NBCC (India) Ltd.and Others (2022) 1 SCC 401; Erusian Equipment andChemicals Limited v. State of West Bengal (1975) 1 SCC70 : [1975] 2 SCR 674; Banchhanidhi Rath v. The Stateof Orissa and Ors. (1972) 4 SCC 781; Har Shankarand Ors. v. The Dy. Excise and Taxation Commr. andOrs. (1975) 1 SCC 737 : [1975] 3 SCR 254; MahabirAuto Stores and Others v. Indian Oil Corporation andOthers (1990) 3 SCC 752 : [1990] 1 SCR 818; State ofU.P and others v. Bridge and Roof Company (India)Ltd. (1996) 6 SCC 22 : [1996] 4 Suppl. SCR

E

F

G

H

M. P. POWER MANAGEMENT COMPANY LTD., JABALPUR v. M/S. SKYPOWER SOUTHEAST SOLAR INDIA PVT. LTD.

762; Verigamto Naveen v. Govt. of A.P. and others(2001) 8 SCC 344 : [2001] 3 Suppl. SCR 112; BinnyLtd. and Another v. V. Sadasivan and Others (2005) 6SCC 657 : [2005] 2 Suppl. SCR 421; G. Bassi Reddyv. International Crops Research Institute and Another(2003) 4 SCC 225 : [2003] 1 SCR 1174; State of Keralaand Others v. K. Prasad and Another (2007) 7 SCC140 : [2007] 8 SCR 115; Joshi TechnologiesInternational Inc. v. Union of India and Others (2015)7 SCC 728 : [2015] 6 SCR 1042; State of Kerala v. M.K. Jose (2015) 9 SCC 433 : [2015] 9 SCR 17; State ofU.P. and Others v. Bridge & Roof Co. (1996) 6 SCC 22: [1996] 4 Suppl. SCR 762; All India Power EngineerFederation and Others v. Sasan Power Limited andOthers (2017) 1 SCC 487 : [2016] 9 SCR 901; RaunaqInternational Ltd. v. I.V.R. Construction Ltd. and Others,(1999) 1 SCC 492 : [1998] 3 Suppl. SCR 421; MichiganRubber (India) Limited v. State of Karnataka and Others(2012) 8 SCC 216 : [2012] 8 SCR 128; Mohinder SinghGill and another v. Chief Election Commissioner, NewDelhi and Others (1978) 1 SCC 405 : [1978] 2 SCR 272 – referred to.

A

B

C

D

E

H

E

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8515-8516 of 2022.

From the Judgment and Order dated 27.02.2020 of the High Courtof Madhya Pradesh, Principal Seat at Jabalpur in W.P. No. 4205 of 2019Fand final Judgment and Order dated 28.12.2020 in Review Petition No.682 of 2020.

K. M. Nataraj, ASG, Anish Kumar Gupta, Archana Preeti Gupta,Puneet Sheoran, Venugopal Abhay, Ms. Deepshikha Bharati, VaibhavVerma, Advs. for the Appellant.

G

Dr. Abhishek M. Singhvi, Naman Nagrath, Sr. Advs., ManpreetLamba, Ramanuj Kumar, Miss. Priyal Modi for M/s. Cyril AmarchandMangaldas, Aashish Anand Barnard, Paramhans Sahani, Sunil KumarPandey, R. K. Srivastava, Rajesh Kumar, Advs. for the Respondents.

H

The Judgment of the Court was delivered by

K. M. JOSEPH, J.

1. Leave granted.

2. The appellant impugns the Judgment of the High Court dated27.02.2020 in Writ Petition No. 420 of 2019. It further challenges theOrder dated 28.12.2020 in Review Petition No. 682 of 2020. By the saidJudgment in the Writ Petition, the High Court allowed the Writ Petitionfiled by the first respondent and quashed the Order dated 07.07.2018,which was passed by the appellant, terminating the Power PurchaseAgreement (hereinafter referred to as ‘the PPA’, for short), which wasentered into by the appellant and the first respondent. The review filedby the appellant was dismissed. Hence the appeals.

THE FACTS

3. The appellant, which is “a wholly owned company of theGovernment of Madhya Pradesh” (as described by the appellant in theSpecial Leave Petition), is responsible for the bulk purchase of electricityin the State of Madhya Pradesh for onward sale/supply to the distributionutilities (DISCOMS). The appellant issued a request for proposal (RFP)dated 06.05.2015 for long-term procurement of 300 MW of solar energythrough tariff-based competitive bidding. The bid of M/s Sky PowerSoutheast Asia Holding Limited was accepted. It was declared thesuccessful bidder for three units of 50 MW each at different tariff rates.The bidder subsequently incorporated the first respondent, viz., M/s SkyPower Southeast Solar India Private Limited as a special purposecompany. This was for developing one project of 50 MW. The rate,which is applicable in respect of the first respondent, was Rs.5.109 perunit. In respect of the other two bids, the bidder incorporated othercompanies, viz., M/s Sky Power Solar India Private Limited and M/sSky Power Southeast Asia One Private Limited. The rates applicable inrespect of said companies for the other two projects consisting of 50MW each was Rs.5.298 per unit and Rs.5.051 per unit, respectively.The PPA was entered into on 18.09.2015. The agreement, inter alia,provided for pre-commissioning activities. They are described assatisfaction of conditions subsequent by the seller. The first respondentis the seller under the PPA.

4. The Agreement contemplated completion of the conditionssubsequent, within a period of 210 days. In other words, the Agreement, BC

DEF

G

H

Aadmittedly, provided that the first respondent was to achieve fulfilmentof conditions subsequent by 15.04.2016. The Agreement furthercontemplates an extension of the period of fulfilment of the conditionsubsequent on payment of penalty for a further period of nine months.Thus, calculating 210 days and an additional nine months from 18.09.2015,which is the date of the PPA, the period would come to an end onB15.01.2017. A communication was addressed dated 12.01.2017 by thefirst respondent. The first respondent purported to refer to Article 2.1 ofthe PPA, which, inter alia, reads as follows:

“Article 2.1 Seller agrees and undertaken to duly perform andcomplete all of the following activities seller’s own cost and riskCwithin 210 days from the effective Date unless such completionis affected by any force Majeure event, or if any of the Effectiveis specifically waived in writing by MPPMCL:

a) The Seller shall obtain all Consents, Clearance and Permitsrequired for supply of Power to MPPMCL as per the terms ofDthis Agreement;”

5. The first respondent purported to present certain documentsand contend that there was compliance of its obligations under the PPA.This led to communication dated 22.02.2017 addressed by the appellantto the first respondent. It referred to the status of the documents, whichEthe appellant noted. Furthermore, appellant sought certain documents. Itis, inter alia, pointed out by the appellant that the first respondent hadno documents in regard to 34.12 hectare of land and an unregisteredlease deed for only 12 months was submitted, which could not beconsidered as fulfilment of the condition subsequent. Thereafter, it wasstated that the PPA is liable to be terminated in terms of Article 2.5.1 ofFthe PPA. Explanation/justification if any was called for from the firstrespondent. Acting on the request of the first respondent, the appellantgranted time for response of the first respondent till 10.03.2017. Theresponse, which was given on 10.03.2017, reads as follows:

G“Firstly, we are thrilled to update you that the project is underadvanced construction and all equipment order for the projecthave been placed and construction happening on site we expectthat the project will be top quality using the best equipment in themarket and constructed by a top-tier EPC, for the benefit of bothSky Power and the state of MP.H

1. Satisfaction of Condition subsequent regarding ConstructionFinancing A

MPPMCL Comment: “Loan sanction letter of Mis L&T Financevide letter No. S07201A03/16-17 DATED 29.08.2016 Copy offacility agreement and affecting compliance documents as statedin above letters are required to be submitted”

B

SKY POWER comment: reference is made to paragraph 2.1.1.(b)of the PPA, reproduced below:

Sd/-

D.G.M. (Commerical-3)R.0. MPMCL, Bhopal”

C

6. Thereafter, the first respondent sent communication dated14.03.2017. It reads as follows:

“SKY POWER GLOBAL

March 14, 2017D

To,

The Managing Director

MP Power Management Company Limited

Bittan Market,Bhopal-462016

E

Attention:Chief General Manager Commercial, MPPMC, Jabalpur.

Ref: Submission of Documents to MP Power ManagementCompany limited (“MPPMCL”) for fulfilment of Conditionssubsequent by SkyPower southeast solar India private Limited(“Sky Power”)

F

Reference: 1. Sky Poer Letter dated 10 March 2017,

2. Sky Power Letter SKP2/MP/SOLAR MPPMCL/2015-16/06dated 12 Jan 2017

G

3. Agreement (PPA) dated September 18, 2015 betweenMPPMCL and Skypower Dear Sir, Further to our office letter dated 10 March 2017 & skyP2/MP/SOLAR/MPPMCL/2015-16/06 dated 12 Jan 2017 we hereby H

Asubmit that we have completed the entire acquisition for land 29,85 Acres including balance 87.S Acres of land parcels.

The relevant land registration documents have been enclosed foryour perusal We hereby submit that we have duly completed land registrationBfor 249,85 Acer for the project Thanking you in anticipation.

MIS SKYPOWER SOUTHEAST SOLAR INDIA PRIVATELIMITED

CSd/- Shivani Jhariya

(Authorized Signatory)

Sd/-

D.G.M. (Commerical-3)

R.O. MPMCL, Bhopal”

D

7. After a gap of nearly five months, the next date, which is invokedby the appellant, is 09.08.2017. It is the case of the appellant that as thefirst respondent had failed to comply with the conditions subsequent, bymisrepresentation and manipulation, it purported to obtain approval fromthe Chief Electrical Inspector General (CEIG) under Regulation 32 ofEthe Central Electricity Authority (Measures relating to safety andelectricity supply) Regulation, 2010 read with Section 162 of the Act.According to the appellant, the Report of the CEIG came to theknowledge of the appellant on 20.08.2017. Prior to the said date, theappellant purported to terminate the PPA in terms of Article 2.5.1(d) ofFthe PPA, considering it to be mandatory by communication dated11.08.2017. In short, according to the appellant, as the maximum period,within which, the conditions subsequent, had to be fulfilled, had run outon 15.01.2017, under the PPA, the appellant had no other option but toterminate the Agreement. This led to the first Writ Petition filed by thefirst respondent. The said Writ Petition, viz., Writ Petition No. 12880 ofG2017, came to be allowed by the High Court by Judgment dated20.06.2018. The relevant portion of the Judgment reads as follows:

“2. The contract has been terminated on account of 54 days delayin achieving the first milestone i.e., procurement of land, financialclosure and necessary permissions from the competent authority H

within 210 days from the date of execution of agreement forcompleting the first part of the project. The only reason to terminatethe agreement is that the petitioner has failed to achieve firstmilestone within 210 days though the condition of - procurementof land was modified after 210 days on 20.04.2016. The delay inachieving the first milestone is visited with penalty in terms ofClause 2.5. of the agreement.

3. Similar communication terminating the contract was set asideby this Court in Writ Petition No.12432/2017 (Renew Clean EnergyPrivate Limited vs M.P. Power Management Company Limitedand another) vide order dated 18.08.2017. In the said petition, thepetitioner has admittedly commissioned the power project withinthe time prescribed except that there was delay of 16 days inachieving the first milestone. The said order has been affirmed on05.04.2018 by the Hon’ble Supreme Court in Civil Appeal No.3600/2018 (M.P. Power Management Company Limited vs RenewClean Energy Private Limited and another).

4. The parties are not ad idem about the stage of commissioningof the power project in the present petition.

5. Mr. Kaurav sought to justify the termination of the PowerPurchase Agreement (PPA) asserting that the petitioner has notcommissioned the power project within the time fixed in theagreement, but the lack of commissioning of power project is notthe reason for terminating of the contract. Since, such is not thereason mentioned in the order terminating the agreement, therefore,the respondents cannot supplement the reasons for termination ofthe contract by virtue of additional assertions in the return and/orin the arguments raised in view of the Supreme Court decision inMohinder Singh Gill v. Chief Election Commissioner (1978) 1 SCC405.

6. In view of the fact that the similar reason of termination of theagreement has not been found to be justified in the matter ofRenew Clean Energy Private Limited (supra), therefore, theimpugned communication dated 11.08.2017 is hereby set aside.However, liberty is granted to the respondents to pass fresh ordersin terms of Power Purchase Agreement dated 18th September,2015 in accordance with law.”

E

F

G

H

A

A8. On 07.07.2018, the appellant issued the fresh termination notice.This came to be challenged by the first respondent by Writ Petition No.420 of 2019. After exchange of pleadings, by the first impugned judgmentdated 27.02.2020, the High Court set aside the termination order.Thereafter the appellant in September, 2020 filed review petition whichcame to be dismissed by the second impugned order. On 15.04.2021 thisBcourt issued notice and stayed the impugned orders.

9. We have heard Mr. K.M. Natraj, learned Additional SolicitorGeneral on behalf of the appellant and Dr. A.M. Singhvi, learned SeniorCounsel along with Mr. Naman Nagrath, learned Senior Counsel onbehalf of the first respondent. We also heard Shri V. Giri, learned SeniorCCounsel appearing for the fifth respondent (Madhya Pradesh State LoadDespatch Centre).

10. Shri K.M. Natraj, learned Additional Solicitor General submitsthat the impugned judgments are clearly unsustainable. He would firstlypoint out that the writ petition filed by the first respondent is notDmaintainable. The PPA in question is not a statutory contract and thereforeinterference with the order terminating the contract was not justifiable.In this regard he drew support from the judgment of this Court inKerala1State Electricity Board and Another v. Kurien E. Kalathil and Others.He would next contend that the PPA contemplated provisions to resolveEdisputes. He further contended that first respondent should have resorted,if at all, to a civil suit to claim redress. He pointed out that a writ petitionis a public law remedy. The contract in question not being statutory innature, there was no public law element so as to justify the approachunder Article 226. He would next contend that there is no basis for theHigh Court to have interfered at all. This is a case where broadly theFcontract contemplated fulfilment of conditions at two stages. The firststage related to various conditions that had to be fulfilled by the firstrespondent which are described as conditions subsequent in the PPA.They are also aptly described as the pre-commissioning stage. The PPAclearly contemplated fulfilment of these conditions on an indisputableGbasis on or before 15.01.2017. In arriving at this date, the maximumperiod of 9 months contemplated under the PPA as the period which canbe extended on payment of penalty is also included. However, the firstrespondent did not fulfil the conditions subsequent except with a furtherdelay of 56 days. The PPA clearly provides that if the time limit is

exceeded which in this case was 15.01.2017, the appellant shall terminatethe contract. This is not a question of power or a discretion. This is aright which inhered with the appellant, a party to a contract. In thisregard he would emphasise that while the State may be burdened withthe obligation to act in a fair manner, it does not take away the rightsavailable to the State as a party to a contract to exercise the right with itunder the contract. In other words, the appellant as State within themeaning of Article 12 should not be denied the very right which could beduly exercised by a private party if it stood in the shoes of the appellantin similar circumstances. This is all that has been done by the appellant.Coming to the second stage, namely, commissioning of the project bythe first respondent, our attention was drawn to Article 2.6 of the PPA.He contended that agreement contemplated commissioning of plantwithin 12 months from the date of the financial closure subject to ForceMajeure. He would point out that there were no circumstances forinvoking Force Majeure. The period of 12 months from the date offinancial closure determined the maximum period within which thecommissioning had to take place. He would submit that first respondentwas in breach of even commissioning. Therefore, on that score also,there is no justification for the High Court to have interfered in the matter.He would further submit that there is another vital circumstance whichshould have dissuaded the High Court from granting relief. The casethrew up disputed questions of facts. On the one hand, it was the caseof the first respondent, that the first respondent had proceeded to doeverything within the time which is a period of two years from18.09.2015, the date of the PPA, and it was only if commissioning wasnot done within the said period that what is described in the agreementas Seller’s default occurs. Here is a case where the first respondent hadnot actually on the ground carried out necessary installation. In this regard,he would contend that while the CEIG has given its approval, the approvalwas granted without the first respondent having complied its obligationsunder the contract. In this regard essentially two aspects are projected.It is firstly pointed out that while the first writ petition was pendingconsideration, the appellant carried out an inspection on 19.04.2018. Areport ensued on 21.04.2018. It was revealed that the approval which isgranted by the CEIG may not advance the case of the first respondentas certain lacunae emerged. It was found by the inspecting team of theappellant that in the blocks 9 and 10 (the project of 50MW consisted of10 blocks of 5 MW each), 61 inverters were missing. It was further AB

C

DEF

G

H

AB

C

DEF

G

H

Arevealed that in regard to 258 invertors, there was duplication of numbers.In other words, without there being the professed numbers of invertorsas required under the contract, the approval of the CEIG was procured.In fact, this aspect, which when it was discovered by the appellant,formed the foundation for the review petition but was not favourablyconsidered by the High Court. A writ petition in the facts of this caseBwould not lie. He would submit that while a writ petition may bemaintainable when the State is awarding its largesse in the form of awardof contract, once it enters into a contract there would arise no occasionfor the court to do judicial review and strike it down. Action taken by thestate as contracting party when it is within the four walls of the contractCis immune in public law proceedings. That an action may lie for breachof contract where the aggrieved party can seek damages should haveweighed with the court. He would further contend that there is yet anotherdimension which has been overlooked by the High Court. Theoverwhelming public interest in the facts of this case did not favour thewrit court interfering in the matter. In this regard he would expatiate byDpointing out that the interference by the High Court will produce thefollowing results:

The PPA casts an obligation on the appellant to purchase powerat the rate of Rs.5.109 per unit for a period of 25 years. Power is availablein the market at a far cheaper rate. The inevitable result of implementingEthe order of the High court would be that the appellant would have topurchase power at a much higher rate and what is more disturbing andshould have troubled the High Court to decline jurisdiction is the aspectthat the increased rate would have to be passed on to the end consumer.Put it differently, when the appellant being entitled to terminate the contractFand would be in a position to purchase power at a cheaper rate andcharge the consumers at the lower rate, by the court granting relief tothe first respondent, the appellant is compelled to purchase power at thehigher rate and that too for a long period of 25 years, and what is more,compelled to pass on the burden to the hapless consumer. Thus, public interest in fact in the case lay in the court declining to grant relief to theGfirst respondent. He would further point out that the impugned judgmentdoes not deal with any of the aspects, be it the factual dimensions or thelegal requirements. The judgment is bereft of discussion of the contentionsraised by the appellant. He would therefore contend that the impugnedjudgments should be set aside and appeals allowed.H

11. Per contra, Dr. A.M. Singhvi, learned Senior Counsel for thefirst respondent would point out that there is absolutely no basis formaintaining the appeal in the facts. He would point out that this is a casewhere the first respondent turned out to be the lowest bidder in respectof the project in question and what is more an incredible number of 182bidders participated. It is trouncing its competitors that the holdingcompany of the first respondent turned out to be the lowest bidder (herewe must notice that during the course of the arguments the appellant didpropose that first respondent could come up with proposal whichapparently should involve rates lower than the contract rate so that thepublic interest concern is adequately addressed whereas the firstrespondent pointed out since it has planned for the project on the basiswhich made it the lowest bidder, it would not be feasible for it to reducethe rate any further). Dr. Singhvi pointed out that there is no basis fordiscriminating the case of the first respondent and M/s. Renew Energy.It is pointed out that the High Court in the first round of litigation hadinterfered with the termination order following the judgment in RenewEnergy. In the case of Renew Energy, it could achieve fulfilment of theconditions subsequent with a delay of 16 days which was condonedfinally. In the case of the first respondent, the delay happened to be 56days. Otherwise, their cases are similar. Renew Energy was allowed tocommission whereas the first respondent was at the receiving end ofdiscrimination without any basis. He would point out that the firstrespondent under the contract had 24 months from 18.09.2015 tocommission the project. Well before the expiry of 24 months, the projectwas ready. The respondent was prevented from commissioning. A partycannot take advantage of its own wrong. He would point out that thelaw has not stood still after this Court adopted a hands off approach inthe decision in Radhakrishna Agrawal and others v. State of Bihar2and others. Imbibing the grand mandate in Article 14 that it behovesthe State to steer clear of unfairness in all its acts, this Court has weaveda taboo against arbitrary action by the state even after it entered into acontract. He would point out in this regard the judgment of this Court inABL International Ltd. v. Export Credit Guarantee Corpn. of IndiaLtd.3 and the decisions following the same approving of the writ courtgranting relief in contractual matters also. He would point out that, presentarbitrariness, be it after a contract is entered into, the State has no place 2 (1977) 3 SCC 457

3 (2004) 3 SCC 553

AB

C

DEF

G

H

Ato hide when action is challenged and its action must pass the scrutiny ofthe constitutional court. It must demonstrate that the action was fair.The action of the State falls far short of the exacting standard of fairnessthat the Constitution demands in the case at hand for the followingreasons:

B12. Outbidding an unusually large body of competitors, a bid basedon competitive tariff, the first respondent which is a global player inRenewable Energy (solar power) bids at a rate which was very muchacceptable to the appellant and investment was made by the firstrespondent in the region of nearly Rs. 350 crores. There was an initialhiccup. One of the conditions subsequent was that the first respondentChad to acquire land for the project by way of sale deeds. There wereinsuperable obstacles which upon the first respondent pointing them outto the appellant, the appellant realized the genuine difficulty and amendedthe Article. This, in fact, would necessarily mean that the period of 210days would commence not from the date of the agreement but thereafterDon the basis of the amended Article. The first respondent engaged theservices of a company for the purposes of purchase and installation ofthe parts of the project. It had procured, inter alia the invertors whichwere to be installed, from abroad. There are irrefutable documents inthe form of invoices, bills of lading, lorry receipts which fortify the firstrespondent in its stand that it had installed all the invertors. The projectEwas ready to take off well within 24 months. The first respondent wouldsuffer grave avoidable financial loss, besides fall in esteem as a globalplayer, if the termination dated 07.07.2018 is allowed to stand. Underthe contract, the first respondent was obliged to sell power at an agreedrate for a period of 25 years. The fact that in view of the play of marketFforces, there has been a fall in the price of solar power and it would beopen to the appellant to procure solar power at a cheaper rate should notallow the appellant to resile from its contractual obligations. In fact, it ispointed out that the appellant is purchasing power even now at evenhigher rates. Being State under Article 12, the appellant should not be permitted to seek shelter under the theory of alternate remedies. ThisGCourt is reminded of the chronology of events commencing from thedate of the PPA in the year 2015. The first respondent has succeededbefore the High court on two occasions. In this regard he would pointout that in the impugned termination order dated 07.07.2018, the appellanthas purported to revive the closed chapter relating to non-fulfilment ofHconditions subsequent. The contention runs that by the judgment in the

first writ petition the impugned order therein which was based on thefirst respondent not fulfilling the conditions subsequent was quashed.This was done being inspired by the judgment of the High court in thecase of Renew Energy which has received the seal of approval by thisCourt as well. As far as the only other aspect about commissioning notbeing in time Dr. Singhvi addressed two submissions. Firstly, he wouldpoint out that admittedly, the appellant has not issued the pre-terminationnotice contemplated in Article 9.1 of the PPA. This suffices to sustainthe judgment. Secondly, equally importantly the appellant has actedarbitrarily in not realizing that the first respondent had 24 months tocommission the project and before the expiry of the same, the respondentwas fully ready to fulfil its obligation. The learned senior counsel wouldalso submit that contention of there being disputed questions of fact ispremised on red herrings. In this regard he would point out that on09.07.2017, a notice was issued by the first respondent to the appellantcalling upon the appellant to inspect and it would be ready to commissionthe project and that it was ready to supply power. However, no inspectionwas carried by the appellant till 19.04.2018. The competent body namelythe CEIG had carried out inspection which spread over a few days. TheBody was fully satisfied with the first respondent being compliant. Allthat happened was after the inspection, in September, 2017 since thefirst respondent was visited with the first order of termination dated11.08.2017 which was challenged in the High Court, there was a shortageof personnel around the project site. This facilitated thefts of the partswhich were installed. FIRs promptly registered in September 2017 shouldrule out the possibility of the case of theft being an afterthought. This isas the inspection was carried by the appellant much later on 19.04.2018.It is further pointed out that as far as the duplication is concerned in thenumber of certain invertors, it has been established as inconsequentialby the first respondent. The inspection and the report of the CEIG cannotbe lightly brushed aside on such a case. Still furthermore, it is pointed outthat having regard to the massive cost of the project which stood atnearly Rs. 350 crores, what is involved is a miniscule percentage. In thisregard learned counsel would emphasise the contravention of Article9.1 under which the appellant was obliged to serve a notice in case ofthe alleged seller’s default for not commissioning the project in 24 monthsfrom the date of PPA. If such a notice had been given, the first respondentwould have had an opportunity if at all even proceeding on the basis ofappellant’s contention being tenable to procure invertors which are AB

C

DEF

G

H

AB

C

DEF

G

H

Aportable and available in the market and redress the problem. When theproject has progressed in the manner, it had to deny the first respondentthe fruits of its labour, acting under a solemn contract awarded to itwould be clearly unfair. The mere fact that there had been a fall in themarket price of solar power should not persuade this Court to find thatthere is no overwhelming public interest. In this regard he also sought toBdraw support from recent Judgment of this Court in Vice Chairman &Managing Director, City and Industrial Development Corporatedof Maharashtra Ltd. and Another v. Shishir Realty P. Ltd. and others.He would further point out that solar power being renewable energy andgreen energy must be encouraged and it was on this basis that the firstCrespondent participated in the global tender and was selected, upon itbeing the lowest bidder amongst a large number of bidders. Dr. Singhviwould point out that for various reasons the contract in question is astatutory contract. He would submit that any rate irrespective of beingstatutory contract or not, it is but a fact in deciding whether the writapplicant should be relegated to an alternate remedy. The jurisdiction ofDthe High Court under Article 226 in the overpowering presence of Article14 would embrace the power to strike at arbitrary action by the State,even in the working out of rights in a non-statutory contract.13. Shri V. Giri, learned senior counsel for respondent No.5 wouldsupport the appellant in its stand that the first respondent was in clearEbreach of the contract. It is the case of fifth respondent that there arevarious steps to be undertaken and completed under regulations extantbefore which commissioning can be permitted. It is the case of the fifthrespondent that the first respondent could not therefore be said to haveacted in compliance with the regulations and therefore cannot be heardFto say that it had commissioned the project.

14. Shri K.M. Natraj, Additional Solicitor General would submitthat the judgment of the High court in the first-round litigation left it opento the appellant to take fresh proceedings under the contract. It is for thesaid reason that the said judgment was not challenged by the appellant.GHe would also point out at any rate even proceeding on the basis that theHigh Court is bound by the earlier judgment at any rate, as far as thisCourt is concerned, it would be free to consider the issue as to whetheron account of there being an admitted delay of 53 days by the firstrespondent beyond the maximum time contemplated under the contractfor fulfilling conditions subsequent, whether the appellant was justifiedH

being duty bound in the matter of terminating the contract? He furtherpointed out that there was a distinction in the case of the first respondentand the case of Renew Energy. In the case of Renew Energy, this Courtwhile refusing to interfere with the judgment of the High Court hadmade it clear that it is not pronouncing on the question as to the delay infulfilling the conditions subsequent and its impact. Secondly, it is pointedout that in the case of Renew Energy, the said company had gone aheadand commissioned the project and the only aspect was the delay of 16days whereas in the case of the first respondent the contract was liableto be terminated both for the reasons that the conditions subsequent wasnot fulfilled within the maximum time and also for the reason that thefirst respondent had not commissioned the project within the time providedunder the contract.

A

B

C

15. After hearing the learned counsel for the parties, we find thatthe following points arise for our consideration.

(1) Whether the PPA in question, is a statutory contract?

D

(2) What is the scope of judicial review of action by the Statein a matter arising from a contract and what is the effect ofthe contract not being statutory? What is arbitrariness?

(3) What is the concept of public law in judicial review in acontractual matter?

E

(4) Whether there is an arbitration clause in regard to the subjectmatter?

(5) Whether the order dated 07.07.2018 terminating the contractbased on first respondent not fulfilling the conditionssubsequent is sustainable having regard to the judgmentrendered by the High Court in the earlier round of litigationon 20.06.2018? And will the said judgment bar the appellantfrom terminating the contract on the ground of non-fulfilmentof conditions subsequent?

F

(6) Whether the writ petition must be dismissed as the caseGinvolves disputed questions of facts?

(7) Whether the case of the first respondent is on par withRenew Energy?

H

A(8)What is the effect of non-compliance of Article 9.1 of thePPA, namely, the effect of appellant not issuing noticecontemplated therein before issuing the impugnedtermination dated 07.07.2018?

(9) What is overwhelming public interest in the context ofBjudicial review in a contractual matter? Is the conceptapplicable only to cases which involve challenge to awardof largesse by the State or is it applicable across the Boardirrespective of the stage when the matter arises in relationto a contract?

C(10)Whether this Court should interfere with the judgment ofthe High Court in the totality of facts?16. Before we proceed to consider the question whether what isinvolved is a statutory contract or not, we may make the followingprefatory remarks:DUnder Article 298 of the Constitution, the Executive Powerof the Union and each State, inter alia, extends to making ofcontracts for any purpose. Article 299 provides for manner inwhich contracts made in the exercise of the executive power ofthe Union or the State is to be made.

E17. In this case, we are dealing not with a case where a contracthas been made by the State in exercise of its executive power within themeaning of Article 298. The PPA is a contract which has been enteredinto by the appellant, which is a fully owned Government Company. It isone thing to hold that the appellant, as a fully owned GovernmentFCompany, would be State for the purpose of Article 12 of the Constitutionof India and, quite another, to find that a contract is one which is made inthe executive power of the State within the meaning of Article 162 ofthe Constitution. What is contemplated, is the power of the Union or theState read in conjunction with Article 73 and Article 162 of the Constitutionof India, respectively. In other words, for the purpose of Article 298, theGbroader concept of State, as defined in Article 12 of the Constitution,which, no doubt, would include the appellant, is inapposite and inapplicable.The appellant, being a Company, would not be entitled to exercise theexecutive power contemplated in Article 162 of the Constitution, whichis the power with the Union or the State Governments. In this regard we H

may notice that the present avtar of Article 298 is born by substituting in1956 the original version and the present version reads as follows: - “298. Power to carry on trade, etc. The executive power ofthe Union and of each State shall extend to the carrying on ofany trade or business and to the acquisition, holding and disposalof property and the making of contracts for any purpose:

Provided that —

(a) the said executive power of the Union shall, in so far assuch trade or business or such purpose is not one with respectto which Parliament may make laws, be subject in each Stateto legislation by the State; and

(b) the said executive power of each State shall, in so far assuch trade or business or such purpose is not one with respectto which the State Legislature may make laws, be subject tolegislation by Parliament.”

It is pertinent to notice the Objects and Reasons.

“Clause 19.-In this clause it is proposed to revise and amplifythe scope of article 298, mainly to make it clear that UnionGovernment, as well as the State Governments, are competentto carry on any commercial or industrial undertaking, whetheror not it is related to a matter within the legislative competenceof the Union, or, as the case may be, of the State. Similarly, theholding, acquisition and disposal of property and the making ofcontracts by the Union or a State could be for any purposewithout constitutional impropriety. At the same time, the revisedarticle provides that this extended executive power of the Unionand of the States will be subject, in the former case, to legislationby the State, and in the latter case, to legislation by Parliament.”

WHETHER THE PPA IS A STATUTORY CONTRACT?

18. Moving on to the concept of the Statutory Contract, the learnedAdditional Solicitor General, no doubt, sought to draw considerablesupport from the Judgment of this Court reported in Kerala SEB andanother v. Kurien E. Kalathil and others4. That was a case, whichinvolved, a Writ Petition filed by a contractor, who was awarded the 4 (2000) 6 SCC 293

AB

C

D

E

F

G

H

Awork of construction of a dam, staking a claim, for enhanced minimumwages, which the contractor claimed, he had paid to his workers. Therewas no dispute that the workmen were entitled to the enhanced wagesunder a Notification. The appellant-Board, however, contended that therespondent-contractor had failed to prove the payment of the enhancedwages to the workmen. The High Court allowed the Writ Petition andBthis Court, while setting aside the Judgment, proceeded to make thefollowing statement:

“10. We find that there is a merit in the first contention ofMr Raval. Learned counsel has rightly questioned themaintainability of the writ petition. The interpretation andCimplementation of a clause in a contract cannot be the subject-matter of a writ petition. Whether the contract envisages actualpayment or not is a question of construction of contract. If a termof a contract is violated, ordinarily the remedy is not the writ petitionunder Article 226. We are also unable to agree with theDobservations of the High Court that the contractor was seekingenforcement of a statutory contract. A contract would not becomestatutory simply because it is for construction of a public utilityand it has been awarded by a statutory body. We are also unableto agree with the observation of the High Court that since theobligations imposed by the contract on the contracting parties comeEwithin the purview of the Contract Act, that would not make thecontract statutory. Clearly, the High Court fell into an error incoming to the conclusion that the contract in question was statutoryin nature.

D

D

11. A statute may expressly or impliedly confer power on aFstatutory body to enter into contracts in order to enable it todischarge its functions. Dispute arising out of the terms of suchcontracts or alleged breaches have to be settled by the ordinaryprinciples of law of contract. The fact that one of the parties tothe agreement is a statutory or public body will not by itself affectGthe principles to be applied. The disputes about the meaning of acovenant in a contract or its enforceability have to be determinedaccording to the usual principles of the Contract Act. Every actof a statutory body need not necessarily involve an exercise ofstatutory power. Statutory bodies, like private parties, have powerto contract or deal with property. Such activities may not raise H

any issue of public law. In the present case, it has not been shownhow the contract is statutory. The contract between the parties isin the realm of private law. It is not a statutory contract. Thedisputes relating to interpretation of the terms and conditions ofsuch a contract could not have been agitated in a petition underArticle 226 of the Constitution of India. That is a matter foradjudication by a civil court or in arbitration if provided for in thecontract. Whether any amount is due and if so, how much andrefusal of the appellant to pay it is justified or not, are not thematters which could have been agitated and decided in a writpetition. The contractor should have relegated to other remedies.”

19. As to what is a statutory contract, fell for consideration beforethis Court in the case reported in India Thermal Power Ltd. v. State ofM.P. and others5. Incidentally, it dealt with generation, distribution andsupply of electricity and, what is more, emanated from the State ofMadhya Pradesh. While negotiations were going on between therespondent-State, Electricity Board and independent power producers,on the basis of State inviting offers from potential private investors, forestablishing power projects, the Central Government amended the earlierTariff Notification. The Electricity Board decided to prioritize the projects,which offered the least tariff. The appellant-independent power producerchallenged the said decision in a Writ Petition. It must be noticed thatMoU and Power Purchase Agreement had been entered into by theappellant therein. The Division Bench of the High Court took the viewthat the PPAs therein were statutory contracts, entered into underSections 43 and 43(A) of the Electricity Supply Act, 1948. This Court,while dealing with this aspect and rejecting the contention that theElectricity Board could not unilaterally alter the conditions of the contractand invite bids, held as follows:

“11. It was contended by Mr Cooper, learned SeniorCounsel appearing for appellant GBL and also by somecounsel appearing for other appellants that the appellant/IPPs had entered into PPAs under Sections 43 and 43-A ofthe Electricity Supply Act and as such they are statutorycontracts and, therefore, MPEB had no power or authorityto alter their terms and conditions.………………

AB

C

D

E

F

G

26SUPREME COURT REPORTS

A……… Merely because a contract is entered into in exerciseof an enabling power conferred by a statute that by itselfcannot render the contract a statutory contract. If enteringinto a contract containing the prescribed terms andconditions is a must under the statute then that contractbecomes a statutory contract. If a contract incorporatesBcertain terms and conditions in it which are statutory thenthe said contract to that extent is statutory. A contract maycontain certain other terms and conditions which may notbe of a statutory character and which have beenincorporated therein as a result of mutual agreementCbetween the parties. Therefore, the PPAs can be regardedas statutory only to the extent that they contain provisionsregarding determination of tariff and other statutory-requirements of Section 43A(2). Opening and maintainingof an escrow account or an escrow agreement are not thestatutory requirements and, therefore, merely becauseDPPAs contemplate maintaining escrow accounts thatobligation cannot be regarded as statutory.”

(Emphasis supplied)

20. The decision in India Thermal Power Ltd. (supra), dealingEwith the concept of statutory contract, came to be considered in the lightof Section 6A of U.P. Industrial Area Development Act of 1976. Thesaid provision reads as follows:

“6A. Power to authorize a person to provide infrastructureor amenities and collect tax or fee. - NotwithstandingFanything to the contrary contained in any other provisionsof this Act and subject to such terms and conditions as maybe specified in the regulations, the Authority may, byagreement, authorize any person to provide or maintain orcontinue to provide or maintain any infrastructure oramenities under this Act and to collect taxes or fees, as theGcase may be, levied therefor.”21. This Court interpreting a contract entered into under Section6A in Jaypee Kensington Boulevard Apartments Welfare Associationand others v. NBCC (India) Ltd. and others6, took the view that the

agreement in question did not acquire the status of a statutory contractmerely for having been executed in terms of the power under Section6A.

22. The contention of the respondent is that the PPA is a statutorycontract since it incorporates essential features such as tariff determinedthrough bidding (paragraph-4.7-CUF, paragraph-4.4-change in law,paragraph-4.5-payment security, paragraph-4.6-and bidding process,paragraphs-5.4 and 5.5-prescribed under the guidelines for tariff basedcompetitive process for grid connected power project based on renewableenergy resources issued by the MNRE under Section 63 of the Act).

23. The respondent relies on India Thermal Power Ltd.(supra)to contend that if the contract incorporates certain statutory terms andconditions, it is statutory.

24. Section 63 of the Electricity Act, 2003, reads as follows:

“63 (Determination of tariff by bidding process) Notwithstandinganything contained in Section 62, the appropriate Commission shalladopt the tariff, if such tariff has been determined throughtransparent process of bidding in accordance with the guidelinesissued by the Central Government.”

25. In the PPA in question, under the definition clause (Article 1),bidding guidelines have been defined as follows:

“Bidding Guidelines” shall mean the “Guidelines for Tariff BasedCompetitive Bidding Process for Grid Connected Power ProjectsBased on Renewable Energy Sources” issued by Government oflndia, Ministry of New and Renewable Energy on December, 2012under Section - 63 of the Electricity Act and as amended fromtime to time;”

26. We are of the view that it may not be appropriate to describethe PPA as a Statutory Contract. Section 63 of the Electricity Act, 2003must be understood in the background of immediately preceding provision,viz., Section 62, In a paradigm shift from the earlier regime, the task ofdetermining the tariff has been conferred on the appropriate Commission.Section 62 indicates the procedure. Section 63, on the other hand, compelsthe Commission to adopt the tariff determined through a transparentprocess of bidding. However, the transparent process of bidding mustbe in accordance with the guidelines issued by the Central Government.

A

B

C

D

E

F

G

H

AThus, it is for the purpose of applying the tariff determined under Section63 for the purpose of adopting the tariff under Section 62, that theguidelines issued by the Central Government become relevant. It is truethat there is reference to the guidelines made under Section 63 in thePPA. However, it is for the purpose of conducting the bidding that theguideline would become relevant. That the tariff has been arrived at inBaccordance with the transparent process of bidding, which is in tunewith the guidelines under Section 63, may not be sufficient to make thePPA a Statutory Contract. What is contemplated in India Thermal PowerLimited (supra), is that a contract containing prescribed terms andconditions being mandatory under the Statute, results in the contractCbecoming a Statutory Contract. If this test is applied, we fail to see howthe reference to the bidding guidelines, under which the bids were madeand finally the PPA is entered into, can be treated as tantamounting tosaying that the PPA contains prescribed statutory terms and conditionsas an indispensable part of a Statute. We are not shown also as to howthe PPA can be described as containing terms and conditions, which areDstatutory in nature. The expression ‘terms and conditions’, which arestatutory in nature, must be understood as those statutory terms andconditions, which provide for rights and obligations of the contractingparties. Such reference is conspicuous by its absence in the PPA. It iscommon case that the appellant is incorporated under the CompaniesEAct. It is not a statutory body or a corporation. Therefore, we wouldcome to the conclusion that we cannot describe the contract as aStatutory Contract. We must also notice that the PPA is not made eitherin purported compliance with the statutory dictate, either in the form ofparent enactment or a subordinate legislation. The terms and conditionsof the PPA are not transplanted into the PPA from any Statutory provision.FThe appellant being company under the Companies Act, would be freeas any other contracting party, subject, no doubt, to its position as aninstrumentality of the State under Article 12 of the Constitution of Indiaand the law otherwise. Moreover, the terms, which are relevant to thelis before us, viz, the Articles relating to the fulfilment of the conditionGsubsequent and the provisions relating to commissioning, sellers’ defaultand power of termination, are not demonstrated to be statutory in nature.

What is the scope of judicial review of action by the State ina matter arising from a contract and what is the effect of thecontract not being statutory?

H

What is the concept of public law in judicial review in acontractual matter?

What is ‘arbitrary’ action?

27. In Radhakrishna Agarwal and Ors. v. State of Bihar andOrs.7 writ petitions were filed against orders of the State Governmentrevising the rate of royalty under a lease. The contention was both againstthe revision of rate of royalty during the period of the lease and thecancellation of the lease on various grounds. Though an attempt wassought to draw support from the judgment of this Court in ErusianEquipment and Chemicals Limited v. State of West Bengal8, the Courttook the view that the said case involved discrimination at the thresholdor at the time of deciding as to whether the Government should enterinto the contract. The Court took the view that the only question whichnormally arises in such cases is as to whether the action complained ofwas in conformity with the agreement. We may notice the earlier opinionsof this Court which came to be dealt with in the following statement:

“We do not think that any of these cases could assist the appellantsor is at all relevant. None of these cases lays down that, when theState or its officers purport to operate within the contractual fieldand the only grievance of the citizen could be that the contractbetween the parties is broken by the action complained of, theappropriate remedy is by way of a petition under Article 226 ofthe Constitution and not an ordinary suit. There is a formidablearray of authority against any such a proposition. In LekhrajSatramdas Lalvani v. N.M.Shah, Deputy Custodian-cum-Managing Officer, Bombay(supra) this Court said:

“In our opinion any duty or obligation falling upon a public servantout of a contract entered into by him as such public servant cannotbe enforced by the machinery of a writ under Article 226 of theConstitution.”

In Banchhanidhi Rath v. The State of Orissa and Ors.9, this Courtdeclared:

“If a right is claimed in terms of a contract such a right cannot beenforced in a writ petition.”

7 (1977) 3 SCC 457

8 (1975) 1 SCC 70

9 (1972) 4 SCC 781

A

B

C

D

E

F

G

H

AIn Har Shankar and Ors. vs. The Dy. Excise and TaxationCommr. and Ors.10, a Constitution Bench of this Court observed:

“The appellants have displayed ingenuity in their search forinvalidating circumstances but a writ petition is not an appropriateremedy for impeaching contractual obligations.”

B

28. The Court also took the view “the correct view is that it is thecontract and not the executive power regulated by the Constitution whichgoverns the relations of the parties on facts apparent in the case beforeus”. No doubt the learned Additional Solicitor General asserts that thedestiny of the appeals before us must be governed by the law laid downCin Radhakrishna Agarwal (supra). However, as shall be presently noticedthe law has not stood still.

29. In Ramana Dayaram Shetty v. International AirportAuthority of India11 this court inter alia held as follows:

“10. Now, there can be no doubt that what para (1) of the noticeDprescribed was a condition of eligibility which was required to besatisfied by every person submitting a tender. The condition ofeligibility was that the person submitting a tender must beconducting or running a registered IInd Class hotel or restaurantand he must have at least 5 years’ experience as such and if heEdid not satisfy this condition of eligibility, his tender would not beeligible for consideration. This was the standard or norm ofeligibility laid down by Respondent 1 and since the Respondents 4did not satisfy this standard or norm, it was not competent toRespondent 1 to entertain the tender of Respondents 4. It is awell-settled rule of administrative law that an executive authorityFmust be rigorously held to the standards by which it professes itsactions to be judged and it must scrupulously observe thosestandards on pain of invalidation of an act in violation of them.This rule was enunciated by Mr Justice Frankfurterin Viteralli v. Saton [359 US 535 : Law Ed (Second series) 1012]Gwhere the learned Judge said:

“An executive agency must be rigorously held to the standards bywhich it professes its action to be judged .… Accordingly, ifdismissal from employment is based on a defined procedure, even 10 (1975) 1 SCC 737H11 (1979) 3 SCC 489

though generous beyond the requirements that bind such agency,that procedure must be scrupulously observed .... This judiciallyevolved rule of administrative law is now firmly established and,if I may add, rightly so. He that takes the procedural sword shallperish with the sword.”

This Court accepted the rule as valid and applicable in India in A.S.Ahluwalia v. Punjab [(1975) 3 SCC 503, 504 : 1975 SCC (L&S)27 : (1975) 3 SCR 82] and in subsequent decision givenin Sukhdev v. Bhagatram [(1975) 1 SCC 421, 462 : 1975 SCC(L&S) 101 : (1975) 3 SCR 619], Mathew, J., quoted the above-referred observations of Mr Justice Frankfurter with approval. Itmay be noted that this rule, though supportable also as anemanation from Article 14, does not rest merely on that article. Ithas an independent existence apart from Article 14. It is a rule ofadministrative law which has been judicially evolved as a checkagainst exercise of arbitrary power by the executive authority. Ifwe turn to the judgment of Mr Justice Frankfurter and examine it,we find that he has not sought to draw support for the rule fromthe equality clause of the United States Constitution, but evolvedit purely as a rule of administrative law. Even in England, therecent trend in administrative law is in that direction as is evidentfrom what is stated at pp. 540-41 in Prof Wade’s “AdministrativeLaw”, 4th Edn. There is no reason why we should hesitate toadopt this rule as a part of our continually expanding administrativelaw. Today with tremendous expansion of welfare and socialservice functions, increasing control of material and economicresources and large scale assumption of industrial and commercialactivities by the State, the power of the executive Government toaffect the lives of the people is steadily growing. The attainmentof socio-economic justice being a conscious end of State policy,there is a vast and inevitable increase in the frequency with whichordinary citizens come into relationship of direct encounter withState power-holders. This renders it necessary to structure andrestrict the power of the executive Government so as to preventits arbitrary application or exercise. Whatever be the concept ofthe Rule of Law, whether it be the meaning given by Dicey in his“The Law of the Constitution” or the definition given by Hayekin his “Road to Serfdom” and “Constitution of Liberty” or theexposition set forth by Harry Jones in his “The Rule of Law and A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

Athe Welfare State”, there is as pointed out by Mathew, J., in hisarticle on “The Welfare State, Rule of Law and Natural Justice”in “Democracy, Equality and Freedom” [ Upendra Baxi, Ed. :Eastern Book Co., Lucknow (1978) p. 28] “substantial agreementin juristic thought that the great purpose of the rule of law notionis the protection of the individual against arbitrary exercise ofBpower, wherever it is found”. It is indeed unthinkable that in ademocracy governed by the rule of law the executive Governmentor any of its officers should possess arbitrary power over theinterests of the individual. Every action of the executiveGovernment must be informed with reason and should be freeCfrom arbitrariness. That is the very essence of the rule of law andits bare minimal requirement. And to the application of this principleit makes no difference whether the exercise of the power involvesaffectation of some right or denial of some privilege.”

This case while it dealt with the issue of arbitrariness at the stageDof award of largesse by the State, it paved the way for future developmentin this field of law.

30. No doubt, in Bareilly Development Authority and anotherv. Ajai Pal Singh and others12, the appellant-Authority constituted underthe U.P. Planning and Development Act, 1973, issued advertisementEoffering to register the names of applicants desirous of purchasing houses/flats. The terms and conditions were sought to be revised. The Courtwent on to hold as follows:

“22. There is a line of decisions where the contract entered intobetween the State and the persons aggrieved is non-statutory andFpurely contractual and the rights are governed only by the termsof the contract, no writ or order can be issued under Article 226of the Constitution of India so as to compel the authorities to remedya breach of contract pure and simple — RadhakrishnaAgarwal v. State of Bihar [(1977) 3 SCC 457 : (1977) 3 SCR249], Premji Bhai Parmar v. Delhi Development AuthorityG[(1980) 2 SCC 129 : (1980) 2 SCR 704] and DFO v. BiswanathTea Company Ltd. [(1981) 3 SCC 238 : (1981) 3 SCR 662]”

31. In Mahabir Auto Stores and others v. Indian OilCorporation and others13, the appellant complained that the respondent,12 (1989) 2 SCC 116H13 (1990) 3 SCC 752

which was a company incorporated under the Companies Act wasdenying or discontinuing to deal with the appellant, which had beendealing with the respondent for nearly eighteen years. We listen to thefollowing words spoken by this Court:

“12. It is well settled that every action of the State or aninstrumentality of the State in exercise of its executive power,must be informed by reason. In appropriate cases, actionsuninformed by reason may be questioned as arbitrary inproceedings under Article 226 or Article 32 of the Constitution.Reliance in this connection may be placed on the observations ofthis Court in Radha Krishna Agarwal v. State of Bihar [(1977) 3SCC 457]. It appears to us, at the outset, that in the facts andcircumstances of the case, the respondent company IOC is anorgan of the State or an instrumentality of the State as contemplatedunder Article 12 of the Constitution. The State acts in its executivepower under Article 298 of the Constitution in entering or notentering in contracts with individual parties. Article 14 of theConstitution would be applicable to those exercises of power.Therefore, the action of State organ under Article 14 can bechecked.See Radha Krishna Agarwal v. State of Bihar [(1977) 3SCC 457] at p. 462, but Article 14 of the Constitution cannot andhas not been construed as a charter for judicial review of Stateaction after the contract has been entered into, to call upon theState to account for its actions in its manifold activities by statingreasons for such actions. In a situation of this nature certainactivities of the respondent company which constituted State underArticle 12 of the Constitution may be in certain circumstancessubject to Article 14 of the Constitution in entering or not enteringinto contracts and must be reasonable and taken only upon lawfuland relevant consideration; it depends upon facts andcircumstances of a particular transaction whether hearing isnecessary and reasons have to be stated. In case any rightconferred on the citizens which is sought to be interfered, suchaction is subject to Article 14 of the Constitution, and must bereasonable and can be taken only upon lawful and relevant groundsof public interest. Where there is arbitrariness in State action ofthis type of entering or not entering into contracts, Article 14 springsup and judicial review strikes such an action down. Every actionof the State executive authority must be subject to rule of law and A

BC

D

E

F

G

H

A

B

C

D

E

F

G

H

A

BC

D

E

F

G

H

A

B

C

D

E

F

G

H

must be informed by reason. So, whatever be the activity of thepublic authority, in such monopoly or semi-monopoly dealings, itshould meet the test of Article 14 of the Constitution. If agovernmental action even in the matters of entering or not enteringinto contracts, fails to satisfy the test of reasonableness, the samewould be unreasonable. In this connection reference may be madeto E.P. Royappa v. State of Tamil Nadu [(1974) 4 SCC 3 : 1974SCC (L&S) 165], Maneka Gandhi v. Union of India [(1978) 1SCC 248], Ajay Hasia v. Khalid Mujib Sehravardi [(1981) 1 SCC722 : 1981 SCC (L&S) 258], R.D. Shetty v. International AirportAuthority of India [(1979) 3 SCC 489] and also DwarkadasMarfatia and Sons v. Board of Trustees of the Port of Bombay[(1989) 3 SCC 293]. It appears to us that rule of reason and ruleagainst arbitrariness and discrimination, rules of fair play andnatural justice are part of the rule of law applicable in situation oraction by State instrumentality in dealing with citizens in a situationlike the present one. Even though the rights of the citizens are inthe nature of contractual rights, the manner, the method and motiveof a decision of entering or not entering into a contract, are subjectto judicial review on the touchstone of relevance andreasonableness, fair play, natural justice, equality and non-discrimination in the type of the transactions and nature of thedealing as in the present case.

17. We are of the opinion that in all such cases whether publiclaw or private law rights are involved, depends upon the facts andcircumstances of the case. The dichotomy between rights andremedies cannot be obliterated by any strait-jacket formula. Ithas to be examined in each particular case. Mr Salve sought tourge that there are certain cases under Article 14 of arbitraryexercise of such “power” and not cases of exercise of a “right”arising either under a contract or under a statute. We are of theopinion that that would depend upon the factual matrix.

18. Having considered the facts and circumstances of the caseand the nature of the contentions and the dealing between theparties and in view of the present state of law, we are of theopinion that decision of the State/public authority under Article298 of the Constitution, is an administrative decision and can beimpeached on the ground that the decision is arbitrary or violative

of Article 14 of the Constitution of India on any of the groundsavailable in public law field.It is true that there is discriminationbetween power and right but whether the State or theinstrumentality of a State has the right to function in public field orprivate field is a matter which, in our opinion, depends upon thefacts and circumstances of the situation, but such exercise ofpower cannot be dealt with by the State or the instrumentality ofthe State without informing and taking into confidence, the partywhose rights and powers are affected or sought to be affected,into confidence. In such situations most often people feel aggrievedby exclusion of knowledge if not taken into confidence.”

(Emphasis supplied]

32. In the judgment of this Court rendered by a Bench of two14learned Judges decided in Shrilekha Vidyarthi (Kumari) v. State of U.P,the court was concerned with a challenge to a general order by whichthe appointment of all government counsel in all the districts of the stateof U.P. came to be terminated. The writ petition was filed under Article32 of the Constitution of India. Important and apposite are the followingobservations:

“22. There is an obvious difference in the contracts betweenprivate parties and contracts to which the State is a party. Privateparties are concerned only with their personal interest whereasthe State while exercising its powers and discharging its functions,acts indubitably, as is expected of it, for public good and in publicinterest. The impact of every State action is also on public interest.This factor alone is sufficient to import at least the minimalrequirements of public law obligations and impress with thischaracter the contracts made by the State or its instrumentality. Itis a different matter that the scope of judicial review in respect ofdisputes falling within the domain of contractual obligations maybe more limited and in doubtful cases the parties may be relegatedto adjudication of their rights by resort to remedies provided foradjudication of purely contractual disputes.However, to the extent,challenge is made on the ground of violation of Article 14 byalleging that the impugned act is arbitrary, unfair or unreasonable,the fact that the dispute also falls within the domain of contractualobligations would not relieve the State of its obligation to comply 14 (1991) 1 SCC 212

AB

C

D

E

F

G

H

A

with the basic requirements of Article 14. To this extent, theobligation is of a public character invariably in every caseirrespective of there being any other right or obligation in additionthereto. An additional contractual obligation cannot divest theclaimant of the guarantee under Article 14 of non-arbitrariness atthe hands of the State in any of its actions.

B

24. The State cannot be attributed the split personality of Dr Jekylland Mr Hyde in the contractual field so as to impress on it all thecharacteristics of the State at the threshold while making a contractrequiring it to fulfil the obligation of Article 14 of the Constitutionand thereafter permitting it to cast off its garb of State to adornthe new robe of a private body during the subsistence of thecontract enabling it to act arbitrarily subject only to the contractualobligations and remedies flowing from it. It is really the nature ofits personality as State which is significant and must characterizeall its actions, in whatever field, and not the nature of function,contractual or otherwise, which is decisive of the nature of scrutinypermitted for examining the validity of its act.The requirement ofArticle 14 being the duty to act fairly, justly and reasonably, thereis nothing which militates against the concept of requiring the Statealways to so act, even in contractual matters. There is a basicdifference between the acts of the State which must invariably C

D

E

be in pubic interest and those of a private individual, engaged insimilar activities, being primarily for personal gain, which may ormay not promote public interest. Viewed in this manner, in whichwe find no conceptual difficulty or anachronism, we find no reasonwhy the requirement of Article 14 should not extend even in theFsphere of contractual matters for regulating the conduct of theState activity.

27. Unlike a private party whose acts uninformed by reason andinfluenced by personal predilections in contractual matters mayresult in adverse consequences to it alone without affecting thepublic interest, any such act of the State or a public body even inthis field would adversely affect the public interest.

G

28. Even assuming that it is necessary to import the concept ofpresence of some public element in a State action to attract Article14 and permit judicial review, we have no hesitation in saying thatthe ultimate impact of all actions of the State or a public body H

being undoubtedly on public interest, the requisite public elementfor this purpose is present also in contractual matters.We,therefore, find it difficult and unrealistic to exclude the State actionsin contractual matters, after the contract has been made, fromthe purview of judicial review to test its validity on the anvil ofArticle 14.”

(Emphasis supplied)

33. As to what constitutes arbitrariness is captured in paragraph36 and it reads as follows:

“36. The meaning and true import of arbitrariness is more easilyvisualized than precisely stated or defined. The question, whetheran impugned act is arbitrary or not, is ultimately to be answeredon the facts and in the circumstances of a given case. An obvioustest to apply is to see whether there is any discernible principleemerging from the impugned act and if so, does it satisfy the testof reasonableness. Where a mode is prescribed for doing an actand there is no impediment in following that procedure,performance of the act otherwise and in a manner which doesnot disclose any discernible principle which is reasonable, mayitself attract the vice of arbitrariness. Every State action must beinformed by reason and it follows that an act uninformed by reason,is arbitrary. Rule of law contemplates governance by laws andnot by humour, whims or caprices of the men to whom thegovernance is entrusted for the time being. It is trite that ‘be youever so high, the laws are above you’. This is what men in powermust remember, always.”

34. The pronouncement made by this Court would later becomethe springboard or the charter for the further evolution of the concept ofpublic law element as also premise for the superior courts invoking Article14 in various contractual matters.

35. In State of U.P and others v. Bridge and Roof Company15(India) Ltd., the Court was dealing with a case of a writ petition filedby the respondent therein which was a public sector corporation andseeking payment allegedly due from the appellant state. The Court notedthat the contract in question contained Articles providing inter alia for A

B

C

DE

F

G

H

Asettlement of disputes by reference to arbitration. The very resort toArticle 226 was found to be misconceived in the circumstances.

The Court also laid down as follows: -

“Firstly, the contract between the parties is a contract in the realmof private law. It is not a statutory contract. It is governed by theBprovisions of the Contract Act or maybe, also by certain provisionsof the Sale of Goods Act. Any dispute relating to interpretation ofthe terms and conditions of such a contract cannot be agitated,and could not have been agitated, in a writ petition. That is amatter either for arbitration as provided by the contract or for theCcivil court, as the case may be. Whether any amount is due to therespondent from the appellant-Government under the contract and,if so, how much and the further question whether retention orrefusal to pay any amount by the Government is justified, or not,are all matter which cannot be agitated in or adjudicated upon in awrit petition. The prayer in the writ petition, viz., to restrain theDGovernment from deducting a particular amount from the writpetitioner’s bill(s) was not a prayer which could be granted by theHigh Court under Article 226. Indeed, the High Court has notgranted the said prayer.”

36. In Verigamto Naveen v. Govt. of A.P. and others16, the caseEinvolved, mining leases granted to a corporation and a sub-lease, whichwas permitted by the Government. Thereafter, the permission was soughtto be withdrawn. The withdrawal of the permission, was the subjectmatter of challenge in writ proceedings, inter alia. Against, the Order ofthe Full Bench of the High Court, (which is reported in AIR 1995 A.P.1),Fappeals were carried to this Court. On the issue relating to the jurisdictionof the Court in cases arising out of contract, this Court held as follows:

“21. … Though there is one set of cases rendered by this Courtof the type arising in Radhakrishna Agarwal case [(1977) 3 SCC457 : AIR 1977 SC 1496] much water has flown in the stream ofGjudicial review in contractual field. In cases where the decision-making authority exceeded its statutory power or committed breachof rules or principles of natural justice in exercise of such poweror its decision is perverse or passed an irrational order, this Courthas interceded even after the contract was entered into between H16 (2001) 8 SCC 344

the parties and the Government and its agencies. We may advertto three decisions of this Court in Dwarkadas Marfatia &Sons v. Board of Trustees of the Port of Bombay [(1989) 3 SCC293], Mahabir Auto Stores v. Indian Oil Corpn. [(1990) 3 SCC752] and Shrilekha Vidyarthi (Kumari) v. State of U.P. [(1991)1 SCC 212 : 1991 SCC (L&S) 742 : AIR 1991 SC 537] Where thebreach of contract involves breach of statutory obligation whenthe order complained of was made in exercise of statutory powerby a statutory authority, though cause of action arises out of orpertains to contract, brings it within the sphere of public law becausethe power exercised is apart from contract. The freedom of theGovernment to enter into business with anybody it likes is subjectto the condition of reasonableness and fair play as well as publicinterest. After entering into a contract, in cancelling the contractwhich is subject to terms of the statutory provisions, as in thepresent case, it cannot be said that the matter falls purely in acontractual field.Therefore, we do not think it would be appropriateto suggest that the case on hand is a matter arising purely out of acontract and, therefore, interference under Article 226 of theConstitution is not called for. This contention also stands rejected.”

(Emphasis supplied)

The basis for interference was located in a statute which madeits presence felt.

37. In Binny Ltd. and Another v. V. Sadasivan and Others17,this Court was dealing with termination of services of respondents whowere working as Members of the Management, staff of the appellantcompany. The appellant company purported to terminate their services.The respondents thereupon filed a writ petition under Article 226 of theconstitution of India. The appellant company contended that it was neithera public authority nor did its action involve a public law element, and awrit of Mandamus would not lie. The High Court granted only thedeclaratory relief to the effect that the termination was illegal. We noticethe following: - “30. A contract would not become statutory simply because it isfor construction of a public utility and it has been awarded by astatutory body. But nevertheless, it may be noticed that the A

BC

D

E

F

G

H

AGovernment or government authorities at all levels are increasinglyemploying contractual techniques to achieve their regulatory aims.It cannot be said that the exercise of those powers are free fromthe zone of judicial review and that there would be no limits to theexercise of such powers, but in normal circumstances, judicialreview principles cannot be used to enforce contractual obligations.BWhen that contractual power is being used for public purpose, itis certainly amenable to judicial review. The power must be usedfor lawful purposes and not unreasonably.”

(Emphasis supplied)

(Emphasis supplied)

C38. The Court went to hold that the decision of the employer toterminate the services of the employees could not be said to have anyelement of public policy. The Court did not find any public element in thetermination of the employees. We may at once notice that the appellantin the said case was not a public sector unit as the appellant in thepresent case.D

39. In G. Bassi Reddy v. International Crops Research Instituteand another18, the services of the appellant came to be terminated bythe respondent-ICRISAT. The Court went on to hold that the respondentcould not be treated as State under Article 12. The Court furtherproceeded to hold that the Writ Petition was not maintainable against theErespondent, noticing that neither was the respondent set up by a Statutenor were its activities statutorily controlled.

40. ABL(supra) marks a milestone, as it were, in the matter ofthe superior court interfering in contractual matters where the State is aplayer even after the contract is entered into. A petition was filed underFArticle 226 wherein the respondent which was incorporated under theCompanies Act repudiated an insurance claim made by the appellant-writ petitioner. This Court undertook an elaborate discussion of the earliercase law. We find that this Court dealt with several obstacles whichwere sought to be posed by the respondent. They included disputedGquestions of facts being involved, availability of alternate remedy, andthe case involving entertaining a money claim. This court went on tohold as follows:

“27. From the above discussion of ours, the following legal principlesemerge as to the maintainability of a writ petition:H18 (2003) 4 SCC 225

(a) In an appropriate case, a writ petition as against a State or aninstrumentality of a State arising out of a contractual obligation ismaintainable.

(b) Merely because some disputed questions of fact arise forconsideration, same cannot be a ground to refuse to entertain awrit petition in all cases as a matter of rule.

(c) A writ petition involving a consequential relief of monetaryclaim is also maintainable.”

41. No doubt, we must also notice para 28 which serves as anadmonition against considering the availability of the remedy under Article226 as an absolute charter to invoke jurisdiction in all cases.

“28. However, while entertaining an objection as to themaintainability of a writ petition under Article 226 of the Constitutionof India, the court should bear in mind the fact that the power toissue prerogative writs under Article 226 of the Constitution isplenary in nature and is not limited by any other provisions of theConstitution. The High Court having regard to the facts of thecase, has a discretion to entertain or not to entertain a writ petition.The Court has imposed upon itself certain restrictions in theexercise of this power. (See Whirlpool Corpn. v. Registrar ofTrade Marks [(1998) 8 SCC 1].) And this plenary right of theHigh Court to issue a prerogative writ will not normally be exercisedby the Court to the exclusion of other available remedies unlesssuch action of the State or its instrumentality is arbitrary andunreasonable so as to violate the constitutional mandate of Article14 or for other valid and legitimate reasons, for which the Courtthinks it necessary to exercise the said jurisdiction.”

(Emphasis supplied)

42. We may also notice how this Court steered clear of thecriticism that it was not following the principle laid down by this Court inState of U.P. v. Bridge & Roof Co. (India) Ltd.19. The Court notedthat the said case did involve a contract which contained an arbitrationclause. It is found that in the case before it there was no arbitrationclause. In regard to the question as to whether the first respondent in thesaid case was discharging a public duty or public function was involved 19 (1996) 6 SCC 22

A

B

C

D

E

F

G

H

19 (1996) 6 SCC 22

A

B

C

D

E

F

G

H

Awhile repudiating the claim of the appellants arising out of the contract,the Court drew support from the judgment in Kumari ShrilekhaVidyarthi(supra).

43. In Noble Resources Ltd. v. State of Orissa20, this courtfollowed ABL(supra). However, in the facts of the said case again theBmatter involving refusal by a public authority to honour the contract inthe matter of purchase of Iron ore, the Court held as follows:

“15. It is trite that if an action on the part of the State is violativeof the equality clause contained in Article 14 of the Constitutionof India, a writ petition would be maintainable even in theCcontractual field. A distinction indisputably must be made betweena matter which is at the threshold of a contract and a breach ofcontract; whereas in the former the court’s scrutiny would bemore intrusive, in the latter the court may not ordinarily exerciseits discretionary jurisdiction of judicial review, unless it is found tobe violative of Article 14 of the Constitution. While exercisingDcontractual powers also, the government bodies may be subjectedto judicial review in order to prevent arbitrariness or favouritismon their part. Indisputably, inherent limitations exist, but it wouldnot be correct to opine that under no circumstances a writ will lieonly because it involves a contractual matter.”

E44. The court went on to approve of ABL(supra) and observedthat this Court had declared that no decision lays down as an absoluterule that in all cases of disputed questions of fact, the parties should berelegated to a civil Court. We may also notice paragraph 29:

“29. Although the scope of judicial review or the development ofFlaw in this field has been noticed hereinbefore particularly in thelight of the decision of this Court in ABL International Ltd. [(2004)3 SCC 553] each case, however, must be decided on its ownfacts. Public interest as noticed hereinbefore, may be one of thefactors to exercise the power of judicial review. In a case whereGa public law element is involved, judicial review may be permissible.(See Binny Ltd. v. V. Sadasivan [(2005) 6 SCC 657 : 2005 SCC(L&S) 881] and G.B. Mahajan v. Jalgaon Municipal Council[(1991) 3 SCC 91]”

45. Of further relevance to notice is the case of the respondenttherein that only because the price of iron ore increased in the internationalmarket, the appellant had filed the writ petition only in February 2004. Itwas found that the said contention was not wholly misconceived.Thereafter the court went on to following observations:

“41. The submission of Mr Desai that rise in international pricewould not by itself be a relevant consideration to rescind thecontract may be correct, but then the same was not the sole groundfor Respondent 2 to refuse to supply iron ore fines to the appellant.

42. Moreover, certain serious disputed questions of fact have arisenfor determination. Such disputed questions of fact ordinarily couldnot have been entertained by the High Court in exercise of itspower of judicial review.”

46. In the context of upgradation of aided schools and a complaintof discrimination, we notice the following observations of this court in21State Of Kerala and others v. K. Prasad and another.

“ Para 11. This Court in Shrilekha Vidyarthi v. State of U.P. [(1991)1 SCC 212: 1991 SCC (L&S) 742] held that every State action, inorder to survive, must not be susceptible to the vice of arbitrarinesswhich is the crux of Article 14 and basic to the rule of law, thesystem which governs us, arbitrariness being the negation of therule of law. Non-arbitrariness, being a necessary concomitant ofthe rule of law, it is imperative that all actions of every publicfunctionary in whatever sphere must be guided by reason and nothumour, whim, caprice or personal predilections of the personsentrusted with the task on behalf of the State and exercise of allpowers must be for public good instead of being an abuse ofpower.”

47. We may notice that as to what constitutes arbitrariness fellfor consideration by this court in a case which involved cancellation ofthe examination held as part of a recruitment process, in East CoastRailway and another v. Mahadev Appa Roa and others22. We noticethe following passages which are apposite for this case.

“19. Black’s Law Dictionary describes the term “arbitrary” in thefollowing words:

21 (2007) 7 SCC 14022 (2010) 7 SCC 678

A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

“Arbitrary. —1. Depending on individual discretion; specif.,determined by a judge rather than by fixed rules, procedures, orlaw. 2. (Of a judicial decision) founded on prejudice or preferencerather than on reason or fact. This type of decision is often termedarbitrary and capricious.”

20. To the same effect is the meaning given to the expression“arbitrary” by Corpus Juris Secundum which explains the term inthe following words:

“Arbitrary.—Based alone upon one’s will, and not upon any courseof reasoning and exercise of judgment; bound by no law;capricious; exercised according to one’s own will or caprice andtherefore conveying a notion of a tendency to abuse possessionof power; fixed or done capriciously or at pleasure, withoutadequate determining principle, non-rational, or not done or actingaccording to reason or judgment; not based upon actuality butbeyond a reasonable extent; not founded in the nature of things;not governed by any fixed rules or standard; also, in a somewhatdifferent sense, absolute in power, despotic, or tyrannical; harshand unforbearing. When applied to acts, ‘arbitrary’ has been heldto connote a disregard of evidence or of the proper weight thereof;to express an idea opposed to administrative, executive, judicial,or legislative discretion; and to imply at least an element of badfaith, and has been compared with ‘willful’.”

xxx

xxx

xxx

23. Arbitrariness in the making of an order by an authority canmanifest itself in different forms. Non-application of mind by theauthority making the order is only one of them. Every order passedby a public authority must disclose due and proper application ofmind by the person making the order. This may be evident fromthe order itself or the record contemporaneously maintained.Application of mind is best demonstrated by disclosure of mind bythe authority making the order. And disclosure is best done byrecording the reasons that led the authority to pass the order inquestion. Absence of reasons either in the order passed by theauthority or in the record contemporaneously maintained is clearlysuggestive of the order being arbitrary hence legally unsustainable.”

48. We would, therefore, sum up as to when an act is to be treatedas arbitrary. The court must carefully attend to the facts and thecircumstances of the case. It should find out whether the impugneddecision is based on any principle. If not, it may unerringly point toarbitrariness. If the act betrays caprice or the mere exhibition of thewhim of the authority it would sufficiently bear the insignia of arbitrariness.In this regard supporting an order with a rationale which in thecircumstances is found to be reasonable will go a long way to repel achallenge to state action. No doubt the reasons need not in every casebe part of the order as such. If there is absence of good faith and theaction is actuated with an oblique motive, it could be characterised asbeing arbitrary. A total non-application of mind without due regard to therights of the parties and public interest may be a clear indicator of arbitraryaction. A wholly unreasonable decision which is little different from aperverse decision under the Wednesbury doctrine would qualify as anarbitrary decision under Article 14. Ordinarily visiting a party with theconsequences of its breach under a contract may not be an arbitrarydecision.

49. We may now notice the judgment of this court in JoshiTechnologies International Inc. v. Union of India and others23, whichis also relied upon by the learned Additional Solicitor General. The saidcase actually involved the complaint of the writ petitioner therein that itwas entitled to the benefit of Section 42 of the Income Tax Act, 1961which provided for certain deductions. The petitioner had entered intoan agreement with the respondent, the Government of India. The caseof the respondent, inter alia, was one denying the case of the petitionerthat the omission of Section 42 was by oversight. The prayer in the writpetition itself inter alia was essentially to declare entitlement to thededuction under Section 42, inter alia. It is while dealing with the saidcase that this court no doubt proceeds to, inter alia, lay down as followingafter adverting toABL limited(supra) also:- “69. The position thus summarised in the aforesaid principles hasto be understood in the context of discussion that preceded whichwe have pointed out above. As per this, no doubt, there is noabsolute bar to the maintainability of the writ petition even incontractual matters or where there are disputed questions of factor even when monetary claim is raised. At the same time, AB

C

D

E

F

G

H

A

discretion lies with the High Court which under certaincircumstances, it can refuse to exercise. It also follows that underthe following circumstances, “normally”, the Court would notexercise such a discretion:

69.1. The Court may not examine the issue unless the action hasBsome public law character attached to it.

69.2. Whenever a particular mode of settlement of dispute isprovided in the contract, the High Court would refuse to exerciseits discretion under Article 226 of the Constitution and relegatethe party to the said mode of settlement, particularly whensettlement of disputes is to be resorted to through the means ofarbitration.

C

69.3. If there are very serious disputed questions of fact whichare of complex nature and require oral evidence for theirdetermination.

D

69.4. Money claims per se particularly arising out of contractualobligations are normally not to be entertained except in exceptionalcircumstances.”

“70. Further, the legal position which emerges from variousjudgments of this Court dealing with different situations/aspectsErelating to contracts entered into by the State/public authority withprivate parties, can be summarised as under:

70.1. At the stage of entering into a contract, the State acts purelyin its executive capacity and is bound by the obligations of fairness.

70.2. State in its executive capacity, even in the contractual field,is under obligation to act fairly and cannot practise somediscriminations.

F

70.3. Even in cases where question is of choice or considerationof competing claims before entering into the field of contract,facts have to be investigated and found before the question of aGviolation of Article 14 of the Constitution could arise. If thosefacts are disputed and require assessment of evidence thecorrectness of which can only be tested satisfactorily by takingdetailed evidence, involving examination and cross-examinationof witnesses, the case could not be conveniently or satisfactorilyHdecided in proceedings under Article 226 of the Constitution. In H

such cases the Court can direct the aggrieved party to resort toalternate remedy of civil suit, etc.

70.4. Writ jurisdiction of the High Court under Article 226 of theConstitution was not intended to facilitate avoidance of obligationvoluntarily incurred.

70.5. Writ petition was not maintainable to avoid contractualobligation. Occurrence of commercial difficulty, inconvenienceor hardship in performance of the conditions agreed to in thecontract can provide no justification in not complying with theterms of contract which the parties had accepted with open eyes.It cannot ever be that a licensee can work out the licence if hefinds it profitable to do so: and he can challenge the conditionsunder which he agreed to take the licence, if he finds itcommercially inexpedient to conduct his business.

70.6. Ordinarily, where a breach of contract is complained of, theparty complaining of such breach may sue for specificperformance of the contract, if contract is capable of beingspecifically performed. Otherwise, the party may sue for damages.

70.7. Writ can be issued where there is executive actionunsupported by law or even in respect of a corporation there isdenial of equality before law or equal protection of law or if it canbe shown that action of the public authorities was without givingany hearing and violation of principles of natural justice after holdingthat action could not have been taken without observing principlesof natural justice.

70.8. If the contract between private party and the State/instrumentality and/or agency of the State is under the realm of aprivate law and there is no element of public law, the normal coursefor the aggrieved party, is to invoke the remedies provided underordinary civil law rather than approaching the High Court underArticle 226 of the Constitution of India and invoking itsextraordinary jurisdiction.

70.9. The distinction between public law and private law elementin the contract with the State is getting blurred. However, it hasnot been totally obliterated and where the matter falls purely inprivate field of contract, this Court has maintained the positionthat writ petition is not maintainable. The dichotomy between public A

B

C

DE

F

G

H

Alaw and private law rights and remedies would depend on thefactual matrix of each case and the distinction between the publiclaw remedies and private law field, cannot be demarcated withprecision. In fact, each case has to be examined, on its factswhether the contractual relations between the parties bear insigniaof public element. Once on the facts of a particular case it isBfound that nature of the activity or controversy involves publiclaw element, then the matter can be examined by the High Courtin writ petitions under Article 226 of the Constitution of India tosee whether action of the State and/or instrumentality or agencyof the State is fair, just and equitable or that relevant factors areCtaken into consideration and irrelevant factors have not gone intothe decision-making process or that the decision is not arbitrary.

70.10. Mere reasonable or legitimate expectation of a citizen, insuch a situation, may not by itself be a distinct enforceable right,but failure to consider and give due weight to it may render theDdecision arbitrary, and this is how the requirements of dueconsideration of a legitimate expectation forms part of the principleof non-arbitrariness.

70.11. The scope of judicial review in respect of disputes fallingwithin the domain of contractual obligations may be more limitedEand in doubtful cases the parties may be relegated to adjudicationof their rights by resort to remedies provided for adjudication ofpurely contractual disputes.”

50. In State of Kerala v. M.K. Jose24, the specific question withwhich we are concerned with, namely, entertaining a writ petition in aFcontractual matter and where the specific question was the validity ofthe termination of the contract, fell for consideration. We may noticethe following:

“13. A writ court should ordinarily not entertain a writ petition, ifthere is a breach of contract involving disputed questions of fact.GThe present case clearly indicates that the factual disputes areinvolved.”

51. Thereafter, the court went on to consider in detail the judgmentof this Court in ABL(supra) and found that it was a case where thecourt granted relief as the facts were absolutely clear from the H24 (2015) 9 SCC 433

documentary evidence and it pertained to interpretation of such clausesof the contract of insurance. We need notice only paragraph 20 inM.K.Jose(supra). It reads as under:

“20. We have referred to the aforesaid authorities to highlight underwhat circumstances in respect of contractual claim or challengeto violation of contract can be entertained by a writ court. It dependsupon facts of each case. The issue that had arisen in ABLInternational [(2004) 3 SCC 553] was that an instrumentality ofa State was placing a different construction on the clauses of thecontract of insurance and the insured was interpreting the contractdifferently. The Court thought it apt merely because something isdisputed by the insurer, it should not enter into the realm of disputedquestions of fact. In fact, there was no disputed question of fact,but it required interpretation of the terms of the contract ofinsurance. Similarly, if the materials that come on record fromwhich it is clearly evincible, the writ court may exercise the powerof judicial review but, a pregnant one, in the case at hand, theHigh Court has appointed a Commission to collect the evidence,accepted the same without calling for objections from therespondent and quashed the order of termination of contract.”

(Emphasis supplied)

52. In State of U.P. v. Sudhir Kumar Singh and Others25, thefirst respondent the successful tenderer had worked the contract for ayear when he was visited with cancellation. This Court exhaustivelyreferred to the earlier case law including ABL(supra) and JoshiTechnology(supra) and held, inter alia, as follows: - “23. It may be added that every case in which a citizen/personknocks at the doors of the writ court for breach of his or itsfundamental rights is a matter which contains a “public lawelement”, as opposed to a case which is concerned only withbreach of contract and damages flowing therefrom. Whenever aplea of breach of natural justice is made against the State, thesaid plea, if found sustainable, sounds in constitutional law asarbitrary State action, which attracts the provisions of Article 14of the Constitution of India - see Nawabkhan Abbaskhan v. Stateof Gujarat (1974) 2 SCC 121 at paragraph 7. The present case is, A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

Atherefore, a case which involves a “public law element” in thatthe petitioner (Respondent No. 1 before us) who knocked at thedoors of the writ court alleged breach of the audi alteram partemrule, as the entire proceedings leading to cancellation of the tender,together with the cancellation itself, were done on an ex parteappraisal of the facts behind his back.”B

53. We have already concluded that PPA is not a StatutoryContract. However, that would not be the end of enquiry. Dr. A.M.Singhvi, learned Senior Counsel, would point out that the contract, notbeing a statutory contract, assumes relevance only for the purpose ofdeciding as to whether the Court should relegate the writ applicant, toCalternate remedies. In other words, while the Court would retain itsdiscretion to entertain the petition or decline to do so, in the facts of eachcase, there is no absolute taboo against the Court granting relief, even ifthe challenge to the termination of a contract is made in the case of acontract, which is not statutory in nature, when the offending party is theDState. In other words, the contention is that the law in this field haswitnessed an evolution and, what is more, a revolution of sorts and atransformatory change with a growing realisation of the true ambit ofArticle 14 of the Constitution of India. The State, he points out, cannotplay the Dr. Jekyll and Hyde game anymore. Its nature is cast in stone.Its character is inflexible. This is irrespective of the activity it indulgesEin. It will continue to be haunted by the mandate of Article 14 to actfairly. There has been a stunning expansion of the frontiers of the Court’sjurisdiction to strike at State action in matters arising out of contract,based, undoubtedly, on the facts of each case. It remains open to theCourt to refuse to reject a case, involving State action, on the basis thatFthe action is, per se, arbitrary.

54. We may cull out our conclusions in regard to the points, whichwe have framed:

i.It is, undoubtedly, true that the writ jurisdiction is a publiclaw remedy. A matter, which lies entirely within a privateGrealm of affairs of public body, may not lend itself for beingdealt with under the writ jurisdiction of the Court.

ii.The principle laid down inBareilly Development Authority(supra) that in the case of a non-statutory contract the rightsare governed only by the terms of the contract and theHdecisions, which are purported to be followed, including Radhakrishna Agarwal(supra), may not continue to holdgood, in the light of what has been laid down inABL(supra)and as followed in the recent judgment in Sudhir KumarSingh(supra).

iii.The mere fact that relief is sought under a contract whichis not statutory, will not entitle the respondent-State in acase by itself to ward-off scrutiny of its action or inactionunder the contract, if the complaining party is able toestablish that the action/ inaction is, per se, arbitrary.

iv.An action will lie, undoubtedly, when the State purports toaward any largesse and, undoubtedly, this relates to the stageprior to the contract being entered into [See R.D. Shetty(supra)]. This scrutiny, no doubt, would be undertaken withinthe nature of the judicial review, which has been declaredin the decision in Tata Cellular vs. Union of India26.

v.After the contract is entered into, there can be a variety ofcircumstances, which may provide a cause of action to aparty to the contract with the State, to seek relief by filing aWrit Petition.

vi.Without intending to be exhaustive, it may include the reliefof seeking payment of amounts due to the aggrieved partyfrom the State. The State can, indeed, be called upon tohonour its obligations of making payment, unless it be thatthere is a serious and genuine dispute raised relating to theliability of the State to make the payment. Such dispute,ordinarily, would include the contention that the aggrievedparty has not fulfilled its obligations and the Court finds thatsuch a contention by the State is not a mere ruse or apretence.

vii.The existence of an alternate remedy, is, undoubtedly, amatter to be borne in mind in declining relief in a Writ Petitionin a contractual matter. Again, the question as to whetherthe Writ Petitioner must be told off the gates, would dependupon the nature of the claim and relief sought by thepetitioner, the questions, which would have to be decided, A

B

C

D

E

F

G

A

Aand, most importantly, whether there are disputed questionsof fact, resolution of which is necessary, as an indispensableprelude to the grant of the relief sought. Undoubtedly, whilethere is no prohibition, in the Writ Court even decidingdisputed questions of fact, particularly when the disputesurrounds demystifying of documents only, the Court mayBrelegate the party to the remedy by way of a civil suit.

viii.The existence of a provision for arbitration, which is a forumintended to quicken the pace of dispute resolution, is viewedas a near bar to the entertainment of a Writ Petition (See inthis regard, the view of this Court even in ABL(supra)Cexplaining how it distinguished the decision of this Court inState of U.P. and others v. Bridge & Roof Co.27, by itsobservations in paragraph-14 inABL(supra)].

ix.The need to deal with disputed questions of fact, cannot bemade a smokescreen to guillotine a genuine claim raised inDa Writ Petition, when actually the resolution of a disputedquestion of fact is unnecessary to grant relief to a writapplicant.

x.The reach of Article 14 enables a Writ Court to deal witharbitrary State action even after a contract is entered intoEby the State. A wide variety of circumstances can generatecauses of action for invoking Article 14. The Court’sapproach in dealing with the same, would be guided by,undoubtedly, the overwhelming need to obviate arbitraryState action, in cases where the Writ remedy provides anFeffective and fair means of preventing miscarriage of justicearising from palpably unreasonable action by the State.

xi.Termination of contract can again arise in a wide variety ofsituations. If for instance, a contract is terminated, by aperson, who is demonstrated, without any need for anyargument, to be the person, who is completely unauthorisedto cancel the contract, there may not be any necessity todrive the party to the unnecessary ordeal of a prolix andavoidable round of litigation. The intervention by the HighCourt, in such a case, where there is no dispute to be G

resolved, would also be conducive in public interest, apartfrom ensuring the Fundamental Right of the petitioner underArticle 14 of the Constitution of India. When it comes to achallenge to the termination of a contract by the State, whichis a non-statutory body, which is acting in purported exerciseof the powers/rights under such a contract, it would be oversimplifying a complex issue to lay down any inflexible Rulein favour of the Court turning away the petitioner to alternateFora. Ordinarily, the cases of termination of contract bythe State, acting within its contractual domain, may not lenditself for appropriate redress by the Writ Court. This is,undoubtedly, so if the Court is duty-bound to arrive atfindings, which involve untying knots, which are presentedby disputed questions of facts. Undoubtedly, in view ofABL Limited(supra), if resolving the dispute, in a case ofrepudiation of a contract, involves only appreciating the truescope of documentary material in the light of pleadings, theCourt may still grant relief to an applicant. We must enter acaveat. The Courts are today reeling under the weight of adocket explosion, which is truly alarming. If a case involvesa large body of documents and the Court is called upon toenter upon findings of facts and involves merely theconstruction of the document, it may not be an unsounddiscretion to relegate the party to the alternate remedy. Thisis not to deprive the Court of its constitutional power as laiddown inABL(supra). It all depends upon the facts of eachcase as to whether, having regard to the scope of the disputeto be resolved, whether the Court will still entertain thepetition.

xii.In a case the State is a party to the contract and a breachof a contract is alleged against the State, a civil action inthe appropriate Forum is, undoubtedly, maintainable. Butthis is not the end of the matter. Having regard to the positionof the State and its duty to act fairly and to eschewarbitrariness in all its actions, resort to the constitutionalremedy on the cause of action, that the action is arbitrary,is permissible (See in this regard Kumari Shrilekha28Vidyarthi and others v. State of U.P. and others).28 (1991) 1 SCC 212)

ABC

DEF

GH

A

However, it must be made clear that every case involvingbreach of contract by the State, cannot be dressed up anddisguised as a case of arbitrary State action. While theconcept of an arbitrary action or inaction cannot be cribbedor confined to any immutable mantra, and must be laid bare,with reference to the facts of each case, it cannot be amere allegation of breach of contract that would suffice.What must be involved in the case must be action/inaction,which must be palpably unreasonable or absolutely irrationaland bereft of any principle. An action, which is completelymalafide, can hardly be described as a fair action and may,depending on the facts, amount to arbitrary action. Thequestion must be posed and answered by the Court and allwe intend to lay down is that there is a discretion availableto the Court to grant relief in appropriate cases.

B

C

xiii.A lodestar, which may illumine the path of the Court, wouldDbe the dimension of public interest subserved by the Courtinterfering in the matter, rather than relegating the matterto the alternate Forum.

xiv.Another relevant criteria is, if the Court has entertained thematter, then, while it is not tabooed that the Court shouldEnot relegate the party at a later stage, ordinarily, it would bea germane consideration, which may persuade the Court tocomplete what it had started, provided it is otherwise a soundexercise of jurisdiction to decide the matter on merits in theWrit Petition itself.

Fxv.Violation of natural justice has been recognised as a groundsignifying the presence of a public law element and canfound a cause of action premised on breach of Article 14.[See Sudhir Kumar Singh and Others(supra)].

WHETHER THERE IS AN ARBITRATION CLAUSE?

G55. Before we proceed to deal further with the matter, we wouldhave to first find whether there is any arbitration clause. We have alreadyreferred to the dispute resolution clause, namely, Article 13.2.1 and Article13.2.3. They would appear to indicate that the clauses may not constitutean arbitration clause. As far as Article 13.3.1. is concerned, to whichresort is to be made when the dispute remains unresolved under 13.2.3,H

it deals with disputes arising from a claim for any matter relating to thetariff. Therefore, we would take the view that it may not be a casewhere the PPA provides for an arbitration clause capable of determiningthe lis in question. The situation therefore contemplated in U.P. Roof(supra) as laid down in ABL (supra) does not exist.

THE IMPACT OF THE JUDGMENT IN THE FIRSTWRIT PETITION

56. Taking up point no. 5., viz., the effect of the judgment of theHigh Court in the earlier round, we must notice indeed that this is a casewhich represents the second round of the litigation. In the earlier roundthe respondents had successfully invoked the jurisdiction under Article226 when it was served with the order of termination of the contractdated 11.08.2017. We have already noticed the fate of the said case.The first battle which commenced in the year 2017 resumed as it werewith the present writ petition. We are not oblivious to the fact that theappellant did not think it fit to challenge the verdict in the first round oflitigation. No doubt, the case of the appellant is that the appellant was ofthe view that the court has left it free to the appellant to take steps underthe contract for termination of the contract. It is the case of the appellantin fact, that the judgment of the High Court in the earlier round wouldnot be an obstacle for the appellant to revisit and terminate the contractfor the reason that the PPA made it incumbent on the appellant toterminate the contract under Article 2.1(d) if the contractor did not fulfilthe conditions subsequent even after the expiry of 210 days and a furtherperiod of nine months after the commencement of PPA. We mustexamine whether the earlier judgment, in fact, in law permits the appellantto re-open the said issue. A perusal of the judgment dated 20.6.2017would reveal that the court was dealing with the challenge to the orderdated 11.08.2017. The order dated 11.08.2017 would reveal that theappellant has found that there is a delay of 54 days in achieving thecondition subsequent deadline. After considering the representation bythe respondent, the appellant found that there is no merit in the case offorce majeure and there was no justification for the delay in achievingconditions subsequent. Thereafter, the appellant, in terms of Article2.5.1(d), terminated the PPA. Still further, a sum of Rs.1180.50 lakhswas found recoverable as penalty in terms of Article 2.5. It is this orderwhich was challenged. Thereafter we find that the High court went onto notice that in a similar case, viz., relating to New Clean Energy Pvt.

A

B

C

D

EF

G

H

ALtd., the petitioner therein admittedly commissioned the project withinthe time prescribed except that there was a delay of 16 days in achievingthe first milestone.

57. Here we must understand the word ‘first milestone’ asfulfilment of the conditions subsequent. In regard to fulfilment of saidBmilestone for which there was a delay of 16 days in the case of Renewclean Energy, there was a delay of 54 days in the case of the firstrespondent. It is further noticed by the High Court that there was anorder passed in favour of the Renew clean energy setting aside thetermination of the contract in the said petitioner’s case as confirmed bythis Court. Next the High Court went on to record that there is a disputeCas to whether the respondent had commissioned the power project inthe present case. We notice that an attempt was made by the appellantto justify the termination on the basis that the respondent had notcommissioned the power project within the time fixed. The High Courtproceeds to notice that the aspect of commissioning the project was notDthe basis for terminating the contract. Relying onMohinder Singh Gill29,the appellants were not permitted to supplement the reasons fortermination. Finally, the High court has proceeded to find that since thesimilar reason for termination of the agreement in the communicationdated 11.8.2017 was not found justified in the case of Renew CleanEnergy, the impugned communication dated 11.08.2017 was set aside.EIt is thereafter that the liberty was given to the appellants to pass freshorders in terms of the PPA in accordance with law.

58. The appellants would persuade us to hold that the High Courtintended, by the liberty granted to leave it open to the appellant to passorders invoking its power under the PPA which would not only includeFtermination of the PPA based on respondent not commissioning the projectwithin the time but also revisit the aspect relating to non-fulfilment of theconditions subsequent. The respondent would join issue with the appellanton the score that judgment of the High Court must be understood asmeaning that on the issue relating to non-fulfilment of the conditionsGsubsequent the court made its pronouncement on merits with referenceto the decision in Renew Clean Energy. All that was left open was thequestion related to the delay in commissioning the project.

59. Learned Additional Solicitor General apart from reiteratinghis contention would point out that the earlier judgment should not beH29 (1978) 1 SCC 405

treated as res judicata and the only reason appellant did not challengethe High court judgment, dated 20.06.2018, was the liberty granted. Hewould further submit that at any rate even proceeding on the basis thatthe High court could not revisit the issue of the non-fulfilment of theconditions subsequent, the decision of the High Court would not stand inthe way of this Court considering whether the order which is impugnedin this case which includes the issue relating to non-fulfilment of theconditions subsequent is sustainable. This is apart from pointing out thateven in the case of Renew Clean Energy, this Court in its order refusingto interfere in the judgment of the High Court has made it clear that itwas not going into the merits of the said contention having regard toobservations which had been made, namely, that the contractor thereinbeing faced with unavoidable circumstances as also the factum of hugeinvestment made in the project.

60. Having noticed the contents of the decision of the High courtdated 20.06.2018 and also bearing in mind the terms of the notice oftermination dated 11.08.2017 we are of the view that the High Courtmust be treated as having interfered with the order based no doubt onthe order of the said court as affirmed by this Court in the case ofRenew Clean Energy. Noticing, however, the contentions based on theaspect relating to project not being commissioned by the respondentwithin time and further clearly finding that the impugned order was notpremised on project not being commissioned the impugned order wasset aside finding that the termination was not justified as regards to non-fulfilment of conditions subsequent. It is thereafter that the liberty wasgranted and it had to pass fresh order in terms of the PPA. We have totake the order as it is and we are of the firm view that the analysis of theorder leads us to only one conclusion which is that the High Court intendedto only leave open the right of the appellant to invoke its power under thecontract in regard to the issue relating to commissioning of the project orrather in the matter of default in commissioning the project. It wouldneither be legal nor equitable to permit the appellant to contend that theissue relating to not having fulfilled the conditions subsequent can becanvassed all over again.

AN ASIDE?THE STATE LOAD DISPATCH CENTRE (RESPONDENTNO.5): ITS STAND AND THE IMPACT OF THE SAME

AB

C

D

E

F

G

H

A61. Respondent No.5 filed a counter affidavit in this Court. Itclaims to be the ‘Authority charged to perform functions under Section32 (2) of the Electricity Act, 2003. Its responsibility is limited to monitoringand controlling of existing Grid elements and generating stations keepingthe account of energy transmitted through the Grid. It specifically statesthat its role emerges after commissioning of the generating plant. It furtherBstates all activities prior to readiness of generator to inject power intothe Grid are beyond its purview. The further stand is that none of theregulatory provisions allows it to interfere in pre-requisite regulatorycompliance by the generator before injecting of power into the Grid.There is reference to short-term open access for which there areCregulations. In respect of Renewable Energy generators intending toconnect with the Grid, certain regulatory requirements, before injectingof power therein, are to be complied with. They are registration, dataand speech communication facility, interface metering and communicationof meter data through automatic meter reading.

DSingle line diagram indicating connectivity with the grid dulycertified by MPPTCL (fourth respondent), when connected to 132KVand above, inter alia, copy of connection agreement with the fourthrespondent, inter alia, information regarding sale of power under long-term access, medium-term open access or short-term open access,approval of CEIG for construction, operation and maintenance of electricalEplans and electrical lines under Section 73C of the Electricity Act, 2003and approval of Power, Telecommunication and Coordination Committee(PTCC). It is further stated that on compliance with procedures it firstissues a unique code for charging power evacuation line. When the lineholds for a reasonable time, unique code for injection is issued. RealFtime generation is monitored. If it is satisfied with the data recorded bythe interface meters (Main and check) then a generating station is deemedto be commissioned. It is pointed out by letters dated 2.12.2015 and3.11.2016 respondent No.5 requested Respondent No.1 for complianceof the procedure/response. Mandatory documents were not submitted

for injecting of Grid except registration. CEIG approval is only forGrenewable energy generation units and equipments installed in theSwitchyard. Respondent No.1 has not obtained CEIG approval oftransmission line. The details of the interface meters, metering equipmentsare not mentioned in the report of CGIG. It is pointed out that other unitsincluding M/s. New Clean Energy was ready for evacuation of powerHwith all regulatory requirements.

62. In the reply affidavit filed by the first respondent to the saidcounter affidavit, it is complained that respondent No.5 though a party inthe earlier writ petition as also in the present writ petition it neverresponded, objecting to the readiness of first respondent in August 2017.The belated reply in the High Court is stated to seem as ill motivated anddone at the instance of the appellant. Furthermore, the first respondentpoints out that it is not the case of the first respondent that its projectwas commissioned. Its case was that it was complete in all respects andwould have commissioned before the expiry of 24 months but for theillegal termination on two occasions as noted. In regard to non-compliancewith certain regulatory requirements, various steps taken by it are referredto.

63. As far as registration is concerned, it was completed on15.12.2016. In regard to data and speech communication facility, it isstated by Respondent No.1 that it is completed on 23.03.2017. In thesaid communication, on a letterhead showing the name of the fourthrespondent and also showing the name of the fifth respondent, it is statedthat the telemetry scheme for the 100MW solar power plant was generallyin order and accepted for implementation, subject to four conditionsstipulated therein. Thereafter, it is stated that “it is, therefore, requiredthat the telemetry and voice communication from the control centreof the proposed power plant upto Back Up SLDC Bhopal/Sub-LDCIndore/SLDC Jabalpur be arranged before synchronization of yourpower plant. It may please be noted that synchronization of plantwith grid shall not be allowed without commissioning of telemetryand voice communication.” It is seen signed by the SuperintendingEngineer (LD:E&T), SLDC, MPPTCL, Jabalpur. As far as therequirement of connection agreement, it has been stated in the replyaffidavit of the first respondent that such connection agreement was,indeed, executed between Respondent No.1 and Respondent No.4. Theagreement is dated 18.05.2017. At this juncture, we may notice that aSur-Rejoinder has been filed by Respondent No.5. Having regard to theconnection agreement, all that is stated is, till date, Respondent No.5was not provided with a copy by the first respondent. It is also statedthat Respondent Nos. 4 and 5 are two distinct entities and, therefore, itwas required for compliance that the same should have been submittedto Respondent No. 5. We have already noticed that letter dated 23.07.2017is on the same letterhead, showing the names of Respondent Nos. 4 and5 and signed by the Superintending Engineer, wherein also, the names of AB

C

D

E

F

G

H

AB

C

D

E

F

G

H

ARespondent Nos. 4 and 5 appear. It is a little intriguing and strange, thatthe fifth respondent did not know about the agreement and referred to itas a requirement and as though it had not been complied with by the firstrespondent. The first respondent has stated that, with regard to the single-line diagram indicating connectivity with the grid, that it was completedon 19.10.2016. An extension was sought for by Respondent No.1, inBwhich required diagrams were furnished to Respondent No. 4.Respondent No.4, it is stated, has granted permission for charging thetransmission line connected from the project to the STU. Diagrams werealso, it is stated, approved by the CEIG. The answer of RespondentNo.5 in the Sur-Rejoinder that the letter dated 29.08.2017 was not issuedCby Respondent No.5 but by Respondent No.4. It is admitted that it isstated therein that the line is ready for charging but further necessaryaction, like issuing of charging code, has to be taken from RespondentNo.5 by Respondent No.1. It is again stated that Respondent No.1 hasnever approached Respondent No.5 with copy of letter dated 29.08.2017and CEIG approval for readiness of evacuating line. It is again statedDthat Respondent No.5 is not an arm or even unit of Respondent No.4. Inregard to the contention that information regarding sale of power foraccess, including long-term access, was not made available by the firstrespondent. It is pointed out that the first respondent set up the project tosupply power to the appellant only as per the PPA and the saidErequirement was not applicable.

64. The fifth respondent in the Sur-Rejoinder responded by pointingout that Respondent No.5 is the Nodal Body for managing the gridoperations and within the State and it is generally seen that if the plant iscommissioned the same cannot be left idle and be allowed to inject powerFinto the grid, and it was in this regard, it was mentioned that if a third-party sale was to be undertaken by Respondent No.1 so that its plantwas not left idle, then, it was incumbent on Respondent No.1 to haveobtained open access. We find that as per Article 9.8 of the PPA, thefirst respondent was obliged to sell the contracted capacity for a periodof twenty-five years from COD. Elaborate provisions have been made,Gwhich would visit the first respondent with monetary compensation tobe paid to the appellant, in case of breach. Article 9.7 also provides forthe obligation of the appellant to buy power for twenty-five years. It isonly if there was refusal or inability to buy by the appellant, fully orpartially, or in the event of default, as per Article 9.5, leading to termination,H

the first respondent was left free to sell power to a third party, whichsale was to be regulated by certain terms.

65. As regards another requirement, viz., approval of the CEIGfor construction, operation and maintenance of the electrical plants andelectrical lines, it is the case of the first respondent that such approvalwas obtained by letter dated 10.08.2017. It was also marked toRespondent No.4. CEIG approval for the electrical plant was receivedon 09.08.2017. Respondent No.4, it is pointed out, had also, on 24.08.2017,issued a Joint Inspection Report certifying that the project may becharged. In fact, we find, in the Joint Inspection Report issued by thefourth respondent that:

“Newly constructed 132KV D.C.D.S. line from 400KV PSChhegaon to 50MW Pooling Station of M/S Sky Power SolarIndia Pvt. Ltd. And 50MW Pooling Station of M/S Sky PowerSoutheast Solar India Pvt. Ltd. At village Chhirbel has beenjointly inspected with EE (EHT-M) MPPTCL, Indore on dt.24/08/2017. During Joint Inspection No. any majordefects hasbeen found and line. May be charged.”

(Emphasis supplied)

66. In regard to the same, Respondent No.5 in the Sur-Rejoinderwould state that it is misleading and incorrect on the basis that it hasbeen averred by Respondent No.1 that the approval of the CEIG forreadiness of 132KV double circuit line for connection with the grid wassubmitted by the sister concern of Respondent No.1, while requestingcode for charging the 132KV line for the sister concern. It is stated thatin the approval issued on 10.08.2017, there is no mention that the secondline will be utilised by Respondent No.1. The letter of the CEIG dated10.08.2017 is said to be addressed to the sister concern. There was tobe a specific approval of CEIG in favour of Respondent No.1. Copywas not marked to Respondent No.5 but only marked to RespondentNo.4. It again reiterated that they are two different entities.

67. It appears to us that though letter dated 10.08.2017 is addressedto the sister concern of Respondent No.1, viz., Sky Power Solar IndiaPvt. Ltd., what was the subject matter of the communication was for100MW solar power project, and what is more, and it was for theestablishment of 132KV ‘dual’ circuit transmission. This understandingof this CEIG Report is clear from the Joint Inspection Report of A

B

C

D

EF

G

H

ARespondent No.4 as Respondent No.1 has entered into a PPA for 50MW,and the sister concern, apparently, had a PPA for 50MW. Lastly, evengiven an opportunity, this is a matter which could have been clarified bythe CEIG, for which no opportunity appears to have been given. Webear in mind Article 9.1 of the PPA. From the Joint Inspection Report,bearing in mind that 132KV line had a dual circuit, the same line was toBbe used by the first respondent and its sister concern. This appears to bethe only possible meaning on a joint reading of the CEIG Report dated10.08.2017 and Joint Inspection Report dated 24.08.2017. We standfortified in this regard by the report dated 21.04.2018 also where it isinter alia stated as follows:-C“1. Present Status of Transmission Line for power evacuationfrom Power Plant to Grid Substation 132 kV DCDS line is found erected between Pooling Substationto 400 kV Chhegaon (Torni)Substation. One circuit is used foralready existing 50 MW plant of M/s Sky Power and 2[nd] circuit isDproposed to be used for M/s Sky Power South East Solar IndiaPvt. Ltd. at village Chirbel, Distt. Khandwa, for which siteverification visit is conducted.”

68. The next requirement, according to the fifth respondent wasthat approval of the PTCC was required. The first respondent has, inEthe reply, stated the said requirement was completed on 05.09.2017. Wefind that Chief Engineer (Procurement) of the fourth respondent hasrecorded in the communication dated 05.09.2017 that PTCC had accordedPTCC route approval:

“With reference to the subject cited above, DET (PTCC), MumbaiFhas accorded PTCC route approval for charging 132KV DCDSline from 400kV S/s Chhegaon to 100MW Solar Power Projectof M/s SkyPower Solar India & M/s SkyPower Southeast SolarIndia Pvt. Ltd. Chhirbel, Dist. Khandwa.”

69. The fifth respondent, in the Sur-Rejoinder, in response to theGsame, would respond by stating that the Respondent No.4 grantingapproval, did not mean that the same was issued with the knowledge orconcurrence of Respondent No.5. We only remind ourselves that in theCounter Affidavit filed by Respondent No.5, Respondent No.5 had onlystated against Requirement No.VIII that there was the requirement ofapproval of PTCC. What is reflected in letter dated 05.09.2017 is thatH

DET [PTCC] has accorded PTCC route approval. The approval is notgranted by the fourth respondent. We are a little mystified by thestatement that the PTCC approval should be one issued with theknowledge and concurrence of the fifth respondent.

70. It is, no doubt, true that as regards the contention of the fifthrespondent that there must be interface metering and communication ofthe meter data through automatic meter reading (AMR), which detailsare to be provided to the SLDC before the commissioning of the plant,there is no specific averment by the first respondent. Here we mustnotice that it is for the first time such a plea is being raised by the fifthrespondent. Even proceeding on the basis that it was a requirement; it isrequired to be provided before commissioning. This is not a matter, whichcould not be set right at any rate, if an opportunity to remove a defectwas provided, as we shall see, may be contemplated under Article 9.1.It is also true that as far as the data and speech communication facility,the first respondent has claimed that it was completed on 23.03.2017.We have already referred to it also. The stand of the fifth respondent isthat there is approval but it is only in principle. It is complained that tilldate, the telemetry and voice communication was not working, in spiteof the fact that by letter dated 03.04.2017, relevant IP address for realtime data communication was furnished. It is not functional till date, inthe case of the first respondent, whereas, in regard to its sister concern,it is operational. A letter dated 14.10.2021 is produced to indicate thatthe telemetry of the first respondent was not integrated and no real timedata was received from the IP address provided to it. Even, in regard tothis matter, if an opportunity was to be given in law, to the first respondentunder Article 9.1, it is not something which may be not achievable.

71. We are also dealing with these aspects on the basis of anaffidavit filed raising such issues for the first time by the fifth respondent.The fifth respondent had all the opportunity in the writ petition to raisesuch contentions. Even in the Review Petition, there is only adoption ofthe contentions of the appellant.

72. Emphasis is placed on the statement of Respondent no.5 byrespondent no.1 wherein it is stated “whereas though the generatingstation is ready for generation of power but the power cannot beevacuated into the grid in the absence of transmission line”. This is takenas an admission of the readiness of the first respondent for generation ofpower. It is pointed out further that necessary approval was taken before A

BC

D

E

F

G

H

ADecember 2016 to August 2017 for operating the transmission line.Respondent No.1 was not allowed to commission. Reliance is also placedon the inspection report of the appellant to show that the transmissionline was ready. The examples about other operators are brushed asideas irrelevant. It is the generator’s prerogative to sell power in the openmarket.B

73. A Sur-Rejoinder is filed by respondent No.5. Therein, it hasinterestingly produced its return in the review petition filed by the appellantbefore the High court. Therein we may notice that it referred to Section32(2) of the Electricity Act and its functions. Thereafter it has stated asfollows:C

“3. That, in accordance with Electricity act, 2003, role of SLDCcomes after commissioning of the generating plant and itsevacuating transmission lines. On receipt of commissioningcertificate of a generator, connectivity with the Grid, meteringarrangement and other regulatory compliances, SLDC accordsDpermission of injection of power into the Grid. Further, SLDCschedules power of generator to the beneficiary/consumer if thevalid Power Purchase Agreement exists between buyer and seller.

4. That, writ proceeding in the instant petition is regardingcompletion of commissioning of solar Generating Plant of M/s.ESky Power Southeast Solar India Pvt. Ltd., whereas theresponsibility of SLDC begins after commissioning of the SolarGenerating Plant and other regulatory compliances. As perprovisions of Electricity Act, 2003 and MPEGC, commissioningcertification is beyond the jurisdiction of SLDC.

F6. That, the answering respondent is more of a formal respondentas the agreement was entered into between MPPMCL and theOriginal Petitioner in Writ Proceedings which is M/s. Sky Power.”

74. No doubt, it has also stated in paragraph-7 that it adopts all thefacts and grounds raised by the review petitioner, namely, the appellant.G

75. It will be noticed that though respondent no.5 was a party tothe earlier writ petition as much as it is a party in the present writ petition,respondent no.5 has not filed any counter affidavit in either of the writpetitions. It is only in the review petition that the respondent no.5 hasfiled a reply and we have noticed its stand. The stand appears to be thatHit is more of a formal respondent. Its role comes in only after

commissioning. It is in this Court that there has been blossoming of itscase for the first time. It is also admitted by respondent No.5 that it isnot concerned with the pre-commissioning. It is its specific stand that allthe activities prior to readiness of the generator to inject power are beyondits purview. It has specifically stated that its role comes only aftercommissioning the project. First respondent states that it has notcommissioned the project. Its only case is that it was ready to commissionthe project within 24 months as provided in the PPA but it was illegallyprevented from doing it.

76. We may only observe that the fifth respondent has, in the Sur-Rejoinder, owned up letter dated 23.03.2017 as the letter it has sent. Thesaid letter is in the letterhead of the fourth respondent and therein thename of the fifth respondent is also shown. It would appear that the fifthrespondent is created under Section 31 of the Electricity Act, 2003.Section 31 reads as follows:

“Constitution of State Load Despatch Centres.—(1) The StateGovernment shall establish a Centre to be known as the StateLoad Despatch Centre for the purpose of exercising the powersand discharging the functions under this Part.

(2) The State Load Despatch Centre shall be operated by aGovernment company or any authority or corporation establishedor constituted by or under any State Act, as may be notified bythe State Government:

Provided that until a Government company or any authorityor corporation is notified by the State Government, the StateTransmission Utility shall operate the State Load Despatch Centre:

Provided further that no State Load Despatch Centre shallengage in the business of trading in electricity.”

77. Therefore, it would appear to us that actually the fifthrespondent is to be operated by the State Transmission Utility, which isdefined in Section 2(67) as the Board (defined as the State ElectricityBoard) or the Government company specified by the State Governmentunder Section 39(1), unless it is operated by a Government company orany authority or corporation established or constituted by or under andState Act. It would, therefore, appear to us that if the fourth respondentis the State Transmission Utility, it would be the Body to operate the fifthrespondent. The attempted disassociating of the fifth respondent from A

B

C

D

E

F

G

H

Athe fourth respondent, appears to us to be without justification. However,we leave the matter there. We may conclude nearly that all therequirements were met. There remained the metering requests and theaspects about furnishing data. They clearly appear to be matters whichcould have been remedied at any rate if a default notice was given.

BTHE NARRATIVE RESUMES

78. At this juncture, we must make certain observations. Whilethe law has evolved from the hands-off approach to one of contractslending ground for writ courts making a foray into decisions by State andits instrumentalities even in contractual matter, there are certain principlesCwhich we have already in fact generally noticed. We have already foundthat the contract in question, i.e., the PPA, is not a statutory contract.We have also noticed that even if it is a non-statutory contract, there isno absolute bar in dealing with a cause of action based on acts or omissionby the State or its instrumentalities even during the course of the workingof a contract. We again reiterate that a monetary claim arising from aDcontract may be successfully urged by a writ applicant but the premisewould not be a mere breach of contract. Being part of public law thecase must proceed on the basis of there being arbitrariness vitiating thedecision. The matter should not fall within a genuinely disputed questionof facts scenario. The dispute which must be capable of being resolvedEon a proper understanding of documents which are not in dispute mayfurnish a cause of action in a writ court. Such was the case in ABL(supra). What is this litigation all about? This litigation is not aboutenforcing a monetary claim. The writ petition lays a challenge to thetermination of the contract. A termination of the contract, no doubt, againmay not be immune if it is found to be afflicted with the vice ofFarbitrariness. Interference again may be refused if the court finds thatthe case really belongs to the small area with unclear contours where itcan be appropriated as a private law dispute. The distinction betweenpublic law and private law has concededly been reduced to nearlyimperceptible terms but the distinction in law remains. As far as theGpublic law aspect is concerned, we are inclined to take the view that inview of what has been laid down in Shri Vidhyarthi Lekha(supra), theimpact of the action in a contractual matter in the facts by public authorityis felt in public domain. We are dealing with the action of the appellant interminating the contract dealing with the right to generate renewableenergy and for supplying it to the consumers. Supply of power and itsH

consumption are imperative and indispensable needs for not only thecommon man but also for the efficient functioning of trade and industry.Decisions in this domain do impinge on public interest. Therefore, wewould not be inclined to shut the doors on the first respondent in thismatter. We also bear in mind that this is the second round of litigation.As noticed already, in the first round, the first respondent did succeed.

79. Having found that though a non-statutory contract and thatthere is no absolute prohibition against judicial review on the score thataction is shown to be arbitrary, the questions which would fall for furtherconsideration are: (1) whether action is arbitrary (2) the projected disputesof facts and their impact; (3) what is the impact of the principle thatthere must be overwhelming public interest in favour of the writ applicantfor the writ court to interfere.

THE ARGUMENT OF ‘OVERWHELMING PUBLICINTEREST’

80. The case based on ‘overwhelming public interest not beingpresent in this case is based on the following submissions by the learnedAdditional Solicitor General. It is pointed out that under the PPA, if theappellants are compelled to comply with the impugned Judgment andthat too for a period of twenty-five years, it would be liable to purchasepower at the rate of Rs. 5.109/- unit. On the other hand, if the WritPetition filed by the first respondent is dismissed, there would be noobligation and consequent burden. It is important to notice that theappellant would be compelled to pass on the burden to the ultimateconsumers. All of this is to be viewed in the scenario, when power isavailable at a cheaper rate in the market. In other words, public interestlies not in favour of exercise of jurisdiction under Article 226 of theConstitution of India. The High Court erred in not bearing in mind thisfundamental principle the argument runs. The appellant relied on thedecision in All India Power Engineer Federation and others v. SasanPower Limited and others30, for the proposition that the Court must bemindful of public interest, which consists of interest of the consumersultimately.

81. Per contra, the submission of the first respondent is that theCourt must not be oblivious to certain facts. The rate per unit, in thecase of the first respondent, is Rs.5.109 per unit. In respect of another AB

C

DE

F

G

H

Aproject, where the PPA was entered into with a sister concern of thefirst respondent, the project price was Rs.5.298 per unit. The projectstands commissioned. The tariff was arrived at on the basis of highlycompetitive bids. There were, in fact, 183 bids. It is further contendedthat the bid of the first respondent was found to be the lowest in thecompetitive bidding. The appellant is, in fact, buying power at higherBtariff from at least 5 generators, who commissioned their projects in theyear 2017-2018. It was further contended that the daily demand of theappellant is approximately 15000 megawatts. The quantum of the projectof the first respondent is only 50 megawatts, which constitutes 0.33 percent of the total demand. Purchasing such a small capacity, in terms ofCthe rate under the PPA, would make no difference to the consumertariff. This is apart from countenancing the appellant reneging on a bindingcontract, which involves reaching a reward for arbitrary State action,besides, destroying an investment of Rs.331 crores. In this regard, relianceis placed on the Judgment of this Court in Vice Chairman & ManagingDirector, City and Industrial Development Corporation of MaharashtraDLtd. and another v. Shishir Realty Private Limited and others[31]. Publicinterest cannot be determined with reference to monetary considerationsalone, it is pointed out.

82. As far as All India Power Engineer Federation(supra) isconcerned, in fact, the Court was dealing with Civil Appeals, which wereEfiled under the Electricity Act, 2003. The question about public interestarose in the context of the provision in the contract, which provided forwaiver, which would be a unilateral act under Article 18.3 of the PPAtherein. The Court also discussed the effect of Section 63 of the IndianContract Act, 1872. The Court, while dealing with waiver and publicFinterest, held as follows:

“21. Regard being had to the aforesaid decisions, it is clearthat when waiver is spoken of in the realm of contract, Section 63of the Contract Act, 1872 governs. But it is important to note thatwaiver is an intentional relinquishment of a known right, and that,Gtherefore, unless there is a clear intention to relinquish a right thatis fully known to a party, a party cannot be said to waive it. Butthe matter does not end here. It is also clear that if any element ofpublic interest is involved and a waiver takes place by one of theparties to an agreement, such waiver will not be given effect to if

it is contrary to such public interest. This is clear from a readingof the following authorities.

xxxxxxxxx

25. It is thus clear that if there is any element of publicinterest involved, the court steps in to thwart any waiver whichmay be contrary to such public interest.”

83. In the said case, the Court further held that the moment theelectricity tariff gets affected, the consumer interest comes in and publicinterest gets affected and further that there is a statutory recognition forthe same in Sections 61 to 63 of the Electricity Act, 2003. Therefore,this Judgment, though in the context of a Statutory Appeal, has laid downthat consumer interest in tariff is intertwined with public interest.

84. On the other hand, in Vice Chairman & Managing Director,City and Industrial Development Corporation of Maharashtra Ltd. (supra),this Court, while dealing with a case involving the question of award ofcontract, held as follows:

“58. When a contract is being evaluated, the mere possibility ofmore money in the public coffers, does not in itself serve publicinterest. A blanket claim by the State claiming loss of public moneycannot be used to forgo contractual obligations, especially when itis not based on any evidence or examination. The larger publicinterest of upholding contracts and the fairness of public authoritiesis also in play. Courts need to have a broader understanding ofpublic interest, while reviewing such contracts.”

85. In fact, the principle of public interest has found expression incases which involved challenge to the legality of the award ofcontract.[See in this regard Tata Cellular v. Union of India(1994) 6SCC 651[32] (supra) and Raunaq International Ltd. v. I.V.R. ConstructionLtd. and Others, (1999) 1 SCC 492.

86. In Michigan Rubber (India) Limited v. State of Karnatakaand Others33 after referring toTata Cellular and Raunaq InternationalLimited(supra), the Court inter alia held as follows: - “35. As observed earlier, the Court would not normally interferewith the policy decision and in matters challenging the award of 32 (2017) 1 SCC 487

33 (2012) 8 SCC 216

A

B

C

D

E

F

G

H

Acontract by the State or public authorities. In view of the above,the appellant has failed to establish that the same was contrary topublic interest and beyond the pale of discrimination orunreasonable.”

87. In Raunaq International Ltd. v. I.V.R. Construction Ltd.Band Others34 the case involved award of contract for the purpose ofThermal Power Station. In fact, the Appeals in this court were maintainedagainst the grant of an interim order against the appellant to whom thecontracts stood awarded. The case also involved relaxation of the criteriawhich was based on valid principles it was found. It was further foundthat the construction of two Thermal Power Units was being held upCdue to the dispute. The Court, inter alia, held as follows: - “9. However, because the State or a public body or an agency ofthe State enters into such a contract, there could be, in a givencase, an element of public law or public interest involved even insuch a commercial transaction.D

10. The elements of public interest are: (1) Public money wouldbe expended for the purposes of the contract. (2) The goods orservices which are being commissioned could be for a publicpurpose, such as, construction of roads, public buildings, powerplants or other public utilities. (3) The public would be directlyEinterested in the timely fulfilment of the contract so that the servicesbecome available to the public expeditiously. (4) The public wouldalso be interested in the quality of the work undertaken or goodssupplied by the tenderer. Poor quality of work or goods can leadto tremendous public hardship and substantial financial outlay eitherFin correcting mistakes or in rectifying defects or even at times inredoing the entire work — thus involving larger outlays of publicmoney and delaying the availability of services, facilities or goods,e.g., a delay in commissioning a power project, as in the presentcase, could lead to power shortages, retardation of industrialdevelopment, hardship to the general public and substantial costGescalation.

11. When a writ petition is filed in the High Court challenging theaward of a contract by a public authority or the State, the courtmust be satisfied that there is some element of public interest

involved in entertaining such a petition. If, for example, the disputeis purely between two tenderers, the court must be very carefulto see if there is any element of public interest involved in thelitigation. A mere difference in the prices offered by the twotenderers may or may not be decisive in deciding whether anypublic interest is involved in intervening in such a commercialtransaction. Price may not always be the sole criterion for awardinga contract.”

88. Therefore, on a conspectus of the case law, we find that theconcept of overwhelming public interest has essentially evolved in thecontext of cases relating to the award of contract by the State. It becomesan important consideration in the question as to whether then the Statewith whatever free play it has in its joints decides to award a contract, tohold up the matter or to interfere with the same should be accompaniedby a careful consideration of the harm to public interest. We do not goon to say that consideration of public interest should not at all enter themind of the court when it deals with a case involving repudiation of aclaim under a contract or for that matter in the termination of the contract.However, there is a qualitative difference in the latter categories of cases.Once the State enters into the contract, rights are created. If the case isbrought to the constitutional court and it is invited to interfere with Stateaction on the score that its action is palpably arbitrary, if the action is sofound then an appeal to public interest must be viewed depending on thefacts of each case. If the aspect of public interest flows entirely on thebasis that the rates embodied in the contract which is arbitrarily terminatedhas with the passage of time become less appealing to the State or thatbecause of the free play of market forces or other developments, thereis a fall in the rate of price of the services or goods then this cannotbecome determinative of the question as to whether court should declinejurisdiction. In this case, it is noteworthy that the rates were in factsettled on the basis of international competitive bidding and in which asmany as 182 bidders participated and the rate offered by the firstrespondent was undoubtedly the lowest. The fact that power has becomecheaper in the market subsequently by itself should not result in non-suiting of the complaint of the first respondent, if it is found that a caseof clear arbitrariness has been established by the first respondent.

89. In other words, public interest cannot also be conflated withan evaluation of the monetary gain or loss alone.

D

E

F

G

H

APOINTS NO. 6 - 8 AND 10

90. The time is now ripe to take a closer look at the relevantclauses of the PPA. Article 2 deals with the pre commissioning activities.Article 2.1 deals with satisfaction of the conditions subsequent by therespondent. Clause 2.1.1 contemplates that the respondent must completeBall the conditions which are set out at his own cost and risk within 210days from the effective date. The only two exceptions were ‘forcemaejure’ or if any of the conditions subsequent was specifically waivedby the appellant in writing. The consequences of non-fulfilling the conditionsubsequent is dealt with in Article 2.2 which related to force majeureobstructing the fulfilment of the conditions subsequent. Article 2.2.2 inCfact provided that any increase in the time period for completion of theconditions subsequent mentioned under Article 2.1 would also lead to anequal extension in the scheduled commissioning date. Article 2.5 providedfor delay in achieving the conditions subsequent. Article 2.5.1 reads asfollows:

D“2.5.1. In case of delay in achieving any of the ConditionsSubsequent under clause 2.1 (a to h), as may be applicable,MPPMCL shall encash CPG (submitted by Seller @ Rs. 30 Lakhs/MW) as under, subject to Force Majeure: -

a) Delay from 0-3 months - 1 % per week.Eb) Delay from 3-6 months - 2% per week for the periodexceeding 3 months, apart from (a) above.

c) Delay from 6-9 months - 3% per week for the periodexceeding 6 months, apart from (a) and (b) above.

Fd) In case of delay of more than 9 months, MPPMCL shallterminate PPA and release balance amount of CPG.”

91. Thereafter, PPA deals with the aspect of commissioning.Article 2.6 deals with commissioning and it reads as follows:

“2.6. COMMISSIONINGG

In case of Solar Project of capacity up to 50 MW, commissioningof plant shall be within 12 months from the date of financial closuresubject to Force Majeure. In case of Solar Project of capacitybeyond 50 MW and up to 100 MW, commissioning of plant shallbe within 15 months from the date of financial closure subject to H

Force Majeure For capacity beyond 100 MW, commissioningperiod shall be within 18 months from the date of financial closuresubject to Force Majeure..1

In case of failure to achieve this milestone, provision of PPA asmentioned below shall apply: - MPPMCL shall en cash the CPG in the following manner for thecapacity not commissioned, subject to Force Majeure:-

a) Delay from 0-3 months - 1% per week.

b) Delay from 3-6 months - 2% per week for the period exceeding3 months, apart from (a) above..

c) Delay of more than 6 months – 3% per week for the periodexceeding 6 months, apart from (a) and (b) above.

Part Commissioning: In case of Solar PV Projects, Partcommissioning of the Project shall be accepted by MPPMCLsubject to the condition that the minimum capacity for acceptanceof part commissioning shall be 5 MW. Or in multiple of 5 MW

COD means the commissioning date of just units (s) of the powerproject where upon the seller starts injecting power from fullcontracted capacity of the power project to the delivery point; asapproved by competent authority of the Transco/Discom. ThePPA will remain in force for a period of25 month from the COD.”

92. There are other Articles which need not detain us. Article 3deals with Supply Arrangements under Open Access. Article 3.1.1 readsas under:

“3.1.1. The power generated through 50 MW Solar Power Project(PY/Thermal Technology) installed by the Seller Located at Villagebedhsya, Tai: Khandwa, Dist: Khandwa, State: Madhya Pradeshshall be injected into the Transmission/Distribution system ofTransco/Discom on 33kV or above side of 33kV /EHV Substationsituated at Deshgaon at injection point for sale to MPPMCL, subjectto fulfilling the terms and conditions and protection schemes bythe Seller as approved by the concerned Transco/Discom’s.

3.1.2. The Seller shall ensure to interconnect and operate the solarpower plant in parallel with the grid of Transco/Discom (in the A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

A

Aarea of the location of the generating unit) system subject to theterms and provisions of this agreement. The Seller shall be fullyresponsible for obtaining and maintaining any or all licenses andpermissions required by law. The Seller shall abide by any law,rules, regulations or any notification or order issued there underby the Central Govt. or State Govt. or Commission or LocalBAuthority or any other Authority prescribed under the lawconnected with the project of the Seller.

The Seller shall be fully responsible for the design, construction,testing, operation and maintenance of the solar power plant inaccordance with Standard Utility Practices, relevant technicalstandards and specifications.

C

b) For the power plant situated in MP State, the power evacuationinfrastructure laid by the Seller shall be the property of theconcerned licensee (Transco/Discom) in whose territorial areathe above lines are located - notwithstanding the fact that the costDof the said infrastructure has been paid by the Seller and the same. shall then be maintained by the concerned licensee at its cost. Aseparate transfer agreement shall be subsequently signed in thisregard with the concerned licensee, if required.

3.1.3. The Seller shall obtain all statutory and non-statutorypermissions as required. The seller supplying power from outsideof MP State shall require to obtain long term open accesspermission as per relevant regulations of central and stateregulators, as the case may be, from the state or regional loaddispatch center and/or the state/central transmission utilities.”

E

F

93. Article 4 deals with System Operations. Article 4.2 deals withsystem operation and scheduling. We may notice Articles 4.2.1 and 4.2.4.

“4.2.1. The State Load Despatch Center shall be the NodalAgency if the project is located in MP, for system operation, poweraccounting, scheduling, etc. The foes and charges of SLDC asGapproved by the MPERC shall be payable by the Seller to theSLDC. In case of the system is located in any other state, theSeller has to follow the regulations of the particular SLDCIRLDCand the fees and charges shall be payable by the seller accordingly.”

“4.2.4. SLDCs/Control Centers of the States/UTs/DVC, in whichHthe solar power plant is located, shall provide the 15-minute block-

wise data of schedule and actual generation from Solar GridConnected Power Plant as recorded in the Energy Meters to theconcerned RLDC and NLDC on a weekly basis as per therequirement of SLDCIRLDC/NLDC. All the data shall besubmitted in the form prescribed by the NLDC.”

94. Article 4.3 deals with open access. Article 5.1 deals withcommercial operations date (COD). COD has been defined in theagreement as meaning the commissioning date of the last unit(s) of thepower project whereupon the seller starts injecting power from fullcontracted capacity of the power project to the delivery point as approvedby competent authority of the TRANSCO/DISCOM. DISCOM hasbeen defined as a licensee authorised to operate and maintain adistribution system for supplying electricity to the consumers in the Stateof Madhya Pradesh. Article 5.1 reads as under:

“5.1. COMMERCIAL OPERATIONS DATE

The Commercial Operation Date of the plant shall mean thecommissioning date of last unit (s) of the power project whereupon the seller starts injecting power from contracted capacity ofthe power project to the delivery point as approved by competentauthority of the Transco/discom.

After Each part commissioning and/por CoD of the contractedcapacity, the commissioning certificate (s) certified by Transco/Discom shall be attached as Annezure- XII to the Power PurchaseAgreement However part commissioning of the plant shall be accepted aslaid out in clause 2.6 and the energy supplied from the same shallbe considered for billing and payment of the energy supplied fromsuch commissioned units.”

95. Article 5.2. deals with Pre-Commercial Operations and it interalia provides that the discom shall take all power produced through theSTU/CTU during the testing of the plant without any charges. Thereafter5.3 deals with Notice of Commercial Operations. It reads as follows:- “5.3 NOTICE OF COMMERCIAL OPERATIONS:- The Seller will specify in a written notice to the MPPMCL that:

A

BC

D

E

F

G

H

A

B

C

D

E

F

G

H

a) The Plant is constructed in accordance with this Agreementand is ready to deliver Solar Power in accordance with theterms hereof;

b) All permissions and approvals required for the Plant to sellSolar Power at the rates and terms specified under thisAgreement have been obtained and

c) All interconnection facilities are available to receive SolarPower from the Plant.

Such notice shall take effect and the Commercial Operations Datewill be achieved following the Transco/Discom’s declaration thatall of the conditions set forth in this Article have been satisfied orwaived by the STU/CTU/MPPMCL/Transco/Discom i.e.:

a) The Seller has successfully completed the testing ofthe Plant in accordance with the manufacturer’srecommendations and the Seller has obtained andprovided to the STU/CTU/Transco/Discom Certificatesfrom the Electrical Inspectorate of GoMP or any otherstate government authorised agency, and the STU/Transco/Discom’s officer as may be designated; in caseproject is located in MP. In case project is located outsideMP, similar certificates be obtained from the concernauthority of respective state.

b) The Seller has delivered to the Transco/Discom a listof the Plant’s equipment, showing the make, model,serial number and certified the installed capacity of thePlant;

c) The Plant has achived initial synchronization with theTransco/Discom’s/STU/CTU Grid System and hasdemonstrated the reliability of its communicationssystems and communications with the STU/CTU/Transco/Discom;

d) The Seller has operated the Plant without experiencingany abnormal or unsafe operating conditions on anyinterconnected system;

e) The Seller shall also have notified the MPPMCL/Trancso/Discom/STU/CTU no later than 30 days prior

to the Commercial Operations Date that all theConditions Subsequent as laid out in clause 1.01 havebeen met and MPPMCL shall verify the same and shallprovide the Seller a written endorsement in this behalfacknowledging the documents, certificates, approvalsetc provided by the Seller in this regard.”

The respondent was duty bound to notify to the appellant that theplant is constructed as per PPA and it was ready to produce solar powerand that all permissions and approvals to sell power at the rates andterms under the agreement had been obtained and all inter connectionfacilities were available to receive solar power from the plant. The PPAfurther contemplates that the said notice would take effect and the CODbe achieved upon the TRANSCO/DISCOM declaring that all conditionsin this Article were either fulfilled or waived. The PPA further dealswith Sale and Purchase of Solar Power in Article 6 commencing atCOD date. The seller, that is, the respondent was to sell and the appellantwas to purchase and accept 50MW solar power at the point of delivery.The respondent undertook not to sell any solar power (all of which iscommitted to the appellant) to any other person. Article 7 deals withMetering and Measuring. Article 8 deals with Billing and PowerAccounting. Article 9 deals with Events of Default and Remedies. Article9.1 is relevant and it deals as follows:

“9.1. DEFAULTS AND TERMINATION.

In case of default, the non-defaulting party shall issue a defaultnotice to the defaulting party. If the default is not fully set rightwithin three months from the date of issue of the default notice,then in case of default by the Seller, the MPPMC.L by givingseven days termination notice in writing, may terminate theagreement. In case of default by MPPMCL, the Seller may in thesame way terminate the agreement.”

96. Article 9.4 deals with various events which are described asseller event of default. The relevant provision reads, inter alia:

“9.4. SELLER EVENT OF DEFAULT

The occurrence and continuation of any of the following events,unless any such event occurs as a result ofa Force Majeure Event,shall constitute Seller Event of Default:

AB

C

D

E

F

G

H

Aa) The failure to commence supply of power to MPPMCL up tothe Contracted, Capacity, relevant to the Scheduled CommissioningDate, by the end of 24 months; or”

97. Article 9.5 provides for appellant’s events of default. Article9.7 falling under 9.6 which generally deals with ‘Remedy’. It reads asBfollows:

“9.7. MPPMCL commits to buy power, as indicated in ArticleError! Reference source not found. of PPA, from Seller at Rs.5.051 per kWh for a period of 25 years from COD. In caseMPPMCL refuses or is unable to buy the said power, fully orCpartially, or there is an event of default as per Clause 9 .5 of PPAleading to termination of the PPA, the seller would be free to sellthe said power to a Third Party at any rate which will be decidedbetween the Seller and the said Third Party and such sale wouldbe governed by the following principles:”

(Emphasis supplied)

D

The principles are set out providing for two cases.

98. Article 11.6.3 deals with Change in Law. Article 13 dealswith Jurisdiction and Dispute Resolution. Article 13.2.1 reads as follows:

“13.2.1. Either Party is entitled to raise any claim, dispute orEdifference of whatever nature arising under, out of or in connectionwith this Agreement (“Dispute”) by giving a written notice (DisputeNotice) to the other Party, which shall contain:

• a description of the Dispute;

F• the grounds for such Dispute; and

• all written material in support of its claim 13.2.2. The other Party shall, within thirty (30) days of issue ofDispute Notice issued under 13.2.1, furnish:

G• counter-claim and defences, if any, regarding the Dispute; and

• all written material m support of its defences and counter-claim.

13.2.3. Within thirty (30) days of issue of Dispute Notice by anyParty pursuant to Article 13 .2.1 if the other Party does - notfurnish any counter claim or defence under Article 13.2.2 or thirtyH(30) days from the date of furnishing counter claims or defence

by the other Party, both the Parties to the Dispute shall meet tosettle such Dispute amicably. If the Parties fail to resolve theDispute amicably within thirty (30) days from the later of thedates mentioned in this Article, the Dispute shall be referred fordispute resolution in accordance with Article 13.3.”

99. Article 12.2 reads as follows:

“12.2 GRID CODE DISCIPLINE

The concerned Transco/Discom and the Seller shallobserve the State/Indian Electricity Grid Code or its amendmentif any, and operate their systems to the best of their capacityand resources.”

100. Article 13.3.1 reads as follows:

“13.3.1. Where any Dispute arising from a claim made by anyParty for any matter related to Tariff or claims made by anyParty which partly or wholly relate to any change in the Tariffor determination of any of such claims could result in changein the Tariff, shall be submitted to adjudication by the MPERC.Appeal against the decisions of MPERC shall be made only asper the provisions of the Electricity Act, 2003, as amendedfrom time to time.”

101. Article 15.1.4. deals with Compliance with Law and insubstance it provides that the provisions of the Electricity Act, 2003 willprevail in case of repugnancy or deviation from the terms of theagreement from the Act.

102. In the impugned judgment the High Court has proceeded tohold inter alia that the respondent has invested Rs. 350 crores inestablishing the unit and after replacing the stolen parts, the unit is readyfor commissioning on any date. The High court has further proceededon the basis that the project involved two milestones and the High courthas set aside the earlier order which dealt with delay in achieving thefirst milestone. Thereafter, the finding is that the project was certified tobe completed much prior to 24 months which period ended on 19.9.2017and the notice of commissioning was given on 4.7.2017. The CEIGapproval was also granted on 9.8.2017. It is further found that anotherinspection was done on 19.04.2018 after nine months of the notice ofcommissioning and the CEIG approval. It is despite the same that the A

BC

D

E

F

G

H

Aimpugned order has been passed. Still further the High court proceedsto find that it is undisputedly established that both the milestones of theproject were completed whereas only some of the invertors were stolenfor which an FIR was also lodged. It is again found that it is not indispute that the aforesaid parts have been replaced by the respondent.Support was drawn from the case of Renew Energy and the courtsBdiscretion to interfere in the matter was reiterated. The decision wasfound to be arbitrary. The court directed the respondent to file necessaryapplication for statutory sanction for operation of the unit and the appellantwas to decide on the application. To complete the narrative a reviewpetition, was filed by the appellant. The appellant sought to project theCaspect of fraud. The fraud consisted of the act of the respondent relyingon unique/distinctive serial numbers of the invertors in regard to a numberof invertors which were found to be common/duplicate. In other words,the case of the appellant was that the project for 50 MV was dividedinto 10 blocks of 5 megawatt. Each block had 116/117 invertors. A fraud was committed on the CEIG. In other words, it was the appellants caseDthat the respondent had not complied with the PPA in regard to theinstalling of the required number of invertors. The first respondent tookthe stand that the all the serial number of the invertors were quite legiblethough the contrary was contended. The CEIG reported the physicalreadiness of the project for commissioning. The respondent also drewEupon the inspection report of the appellant itself. The High Court bearingin mind the limited jurisdiction dismissed the review.103. In the impugned Termination Notice dated 07.07.2018, afterreferring to the delay of 54 days in fulfilling condition subsequent, it ismentioned that the commercial operation date, as per Article 2.6, wasF14.04.2017. It was indicated that there was no indication regardingcommissioning against the column ‘readiness of plant’ as on 11.08.2017.The last date for commencement of supply was shown as 18.09.2017.The expiry date of three months period for commencement of supplyfrom the last due date was 18.12.2017. It is further provided that the expiry date of seven days of PPA Termination Notice period wasG25.12.2017. The status of the project as on 19.04.2018 was indicated as‘not ready for commissioning’. Thereafter, it is pointed out that there isno justification for delay in achieving condition subsequent. Still further,reference is made to the Order passed by the High Court in the earlierWrit Petition. Physical verification was carried out on 19.04.2018,Hwhereupon, it was found that installation work of plant and equipment

was incomplete in Blocks 9 and 10. It was further pointed out that thecopy of the Inspection Report was enclosed, where installation ofinvertors, installation of solar EV panels, cabelling and earthing work,was yet to be completed. It was further pointed out that even after morethan six months, after deadline of commissioning of project, the plant isnot ready for commissioning. Thus, there was not only failure to achievecondition subsequent but also failure to commission the project withintime. In comparison with the case of Renew Clean Energy, it is pointedout that apart from failure to comply with condition subsequent, even theouter timeline has not been observed, whereas, in the case of RenewClean Energy, they were ready to commission by the scheduledcommissioning date. The timeline under Article 9.1 was not conformedto. After referring to the Order of the High Court, it was found that, withreference to Article 2.5.1(d) and Article 9.1 of the PPA, the PPA wasterminated.

104. Let us demystify the case for termination. Apart from non-fulfilment of the condition subsequent, apparently, in tune with the libertygranted by the High Court, the appellant has set out a case that the lastdate of commencement of supply was 18.09.2017, and even as on19.04.2018, the respondent was not ready for commissioning of theproject. With reference to Articles 5.1, 5.2 and 5.3 of the PPA, whichconsisted of the commercial operation date, pre-commercial operationand notice of commercial operation, it is stated that the respondent hasnot intimated regarding the schedule of commissioning, till the date ofthe Termination Notice. A distinction is sought to be drawn betweenRenew Clean Energy and the respondent, in that the case of the firstrespondent, even the first respondent was not ready to commission theproject within the stipulated time.

105. The case that the first respondent has projected in the WritPetition, on the other hand, is, inter alia, as follows:

On 04.07.2017, while issuing letter to respondent no.4, itissued notice for commissioning by 31.07.2017, in terms of Article5.1(c) of the PPA. Site inspection by the appellant was solicitedthrough its EPC. The respondent obtained approval from the CEIGfor commissioning on 09.08.2017. The CEIG certified that allinfrastructure and installation pertaining to the project were readyand the respondent may proceed with the commissioning activities.CEIG approval is requirement under Article 5.3(a). However, the AB

C

D

E

F

G

H

SUPREME COURT REPORTS

AB

C

D

E

F

G

H

SUPREME COURT REPORTS

Aappellant proceeded to terminate the PPA by Order dated07.07.2018. Thus, it is stated that the appellant, for reasons bestknown to it, chose to ignore the first respondent’s request forproceeding with the commissioning of the project. The respondentalso obtained in principle connectivity for the project from theappellant. It is the specific case of the respondent that prior toB11.08.2017, first respondent had received intimation from its EPCContractor that the project was ready for commissioning barringminor works pending completion such as construction of shed/cubical for the Guard which would have no bearing on the projectcommissioning. The respondent pointed out that the appellant wasCobliged to issue default notice under Article 9.1 of the PPA. Therespondent was entitled for a period of three months. No suchnotice was issued. As far as the Report of the Inquiry Committeedated 19.04.2018, relied on by the appellant, it is pointed out thatthe challenge to the earlier termination notice was pending andthe respondent was constrained to demobilise its staff/securityDguards. Thefts took place. It is pointed out that these thefts tookplace after the certification by the CEIG. In other words, therespondent would blame the appellant for not conducting an inquiryimmediately after the certification by the CEIG. It is also the caseof the first respondent that, through its EPC Contractor, it hadEprocured, inter alia, 1163 string invertors. Some of the stringinvertors were stolen, as stated earlier. That the case of therespondent is not that the project had been commissioned but thatthe appellant prevented it from commissioning the project beforethe last date. It is also seen stated that the project was completein all respects from the side of the respondent but on account ofFtheft of a very small number of equipment, highlighted by theappellant in its Inspection Report, the first respondent had, in themeanwhile ensured to get these miscellaneous equipments andparts reinstalled and the project was complete in all respects ason that date. As far as the theft is concerned, the first respondentGhad lodged two FIRs through its EPC Contractor well before theinspection carried out on 19.04.2018.

THE ASPECT OF DISPUTED QUESTIONS OF FACTS

106. What are the disputed questions of facts? The most importantdisputed question of fact is as to whether the first respondent was, inH

fact, ready to commission the project by the end of the peremptory date,which was fixed as a period of twenty-four months from the date of theagreement. On the one hand, the appellant would contend that firstrespondent was not ready to commission the project. This is for thereason that in the 9[th] and the 10[th] Blocks, certain string invertors werefound missing. On the other hand, the case of the respondent is based onthe Report of the CEIG, which would show that the respondent wasready to commission the project. As far as the CEIG Report is concerned,the case of the appellant appears to be that the respondent had played afraud in obtaining the CEIG Report. This was unsuccessfully canvassedbefore the High Court in the Review Petition. In other words, the casesought to be set up by the appellant is that as many as 272 string invertorswere bearing duplicate numbers and, therefore, it was being held out bythe first respondent that it had performed its contractual obligation, whenit was not the case. As far as the delay of 53 days in fulfilling the conditionssubsequent is concerned, there is no dispute that there was such a delay.Though, an attempt was made by the first respondent to contend that inview of the amendment substituting one of the conditions subsequent,viz., the condition relating to land and, therefore, there would be furtherextension of time. We do not think that we can allow the first respondentto set up such a plea. However, we have already concluded that theissue as to the right or power of the appellant to terminate the PPA onaccount of the delay of 53 days, may not be open to the appellant, inview of the Judgment of the High Court.

107. The learned Senior Counsel for the first respondent, Dr. A.M.Singhvi, would, in fact, contend that this Court may proceed on the basisthat actually there is a disputed question of fact. This is on the reasoningthat even if this Court proceeds on the basis of the Inspection Reportdated 19.04.2018, a miniscule percentage of Rs. 350 crores would bethe subject matter of the lacunae that was pointed out by the InspectingTeam in its Report dated 19.04.2018. It is pointed out that the firstrespondent should not be visited with the highly arbitrary decision toterminate the PPA when nearly Rs. 350 crores have been sunk into theproject. The project itself is an environment friendly project. An unusuallylarge number of competitors had bid in the bidding process and the firstrespondent had emerged as a lowest bidder, which, at that time washailed.

ABC

DE

F

G

H

ATHE CASE UNDER ARTICLE 9.1 READ WITHARTICLE 9.4(a)

ABC

DE

F

G

H

ATHE CASE UNDER ARTICLE 9.1 READ WITHARTICLE 9.4(a)

108. One of the grounds taken by the first respondent against thetermination notices is that it is issued without complying with Article 9.1of the PPA. We have already adverted to the said Article. We have alsoBreferred to Article 9.4.(a). Let us divine what is contemplated under thePPA. The PPA contemplates Article 9 with its sub-divisions to providefor events of default and remedies. Under Article 9, the sub-Articlesprovide for seller’s event of default and the appellant’s Event of default.Reading Article 9.1 with Article 9.4 and, more particularly, Article 9.4.(a),which alone is relevant, we understand the following to be what isCcontemplated by the parties. Article 9.1 begins with the words ‘in caseof default’. The default in the case of seller’s event of default would bethe default, which is the subject matter of the termination. Here, we cansafely conclude that the seller’s event of default, which is apposite, isthe failure to commence the supply of power to the appellant at theDcontracted capacity, relevant to the scheduled commissioning date bythe end of twenty-four months. The words ‘scheduled commissioningdate’, have been defined in the PPA itself, to mean, for solar project ofcapacity 50MW as per the quantum indicated in LOI, the commissioningperiod allowed shall be nineteen months from the date of signing of thePPA. The period of twenty-four months must be reckoned from theEdate of the PPA and, so understood, since the date of the PPA is18.09.2015, twenty-four months therefrom would expire on 18.09.2017.We, therefore, proceed on the basis that such an event, constituting defaulton the part of the first respondent, had taken place. Continuing with theanalysis of Article 9.1, what was expected of the appellant was, as theFnon-defaulting party, to issue a default notice to the defaulting party, viz.,the seller, which in this case is the first respondent. Article 9.1 furtherclearly contemplates that if the default is not fully set right within threemonths from the date of issue of the default notice, then, in the case ofdefault by the seller, the appellant was to serve a seven days’ notice of termination. The notice was, undoubtedly, to be in writing. It is by theGsecond notice, which is to be of the duration of seven days that theappellant could validly terminate the agreement. Thus, PPA clearlyindicates the issuance of a default notice when seller commits an act ofdefault. Without issuing the first default notice, giving three months’ timefrom the date of issue of the notice, the second notice, which would beHa notice of termination, cannot be issued.

109. Now, let us find whether the appellant has followed thisprocedure. In the impugned termination notice dated 07.07.2018, whatis indicated in a Table in paragraph-9 is that there was a delay of 54 daysin the matter of fulfilment of conditions subsequent and the scheduledcommercial operation date, as per Article 2.6 was 14.04.2017. 11.08.2017is noted as the date of notice of termination. 18.09.2017, being the endof twenty-four months from the date of signing of the PPA is shown asthe last date of commencement of supply of the contracted capacity andArticle 9.4 is referred to. 18.12.2017 is shown as the expiry date ofthree months, apparently, from 18.09.2017, for commencement of supplyfrom the last due date. Thereafter, 25.12.2017 is shown as the expirydate of seven days of the PPA termination notice period. In paragraphs-21, 22 and 23 of the impugned notices, the appellant takes the followingstand:

“21. As per table-I, time line for commissioning of project hasbeen indicated. You were required to adhere to st1pulatedprovisions of the PPA. Whereas this has not been achieved byyou, within the time line even considering provisions of Article 9.1of the PPA i.e., 24 months (supply to power to. contracted capacityfrom date of PPA) + 3 months (default notice period) + 7 days(termination notice period), from the signing of the PPA havealready being exhausted.

22. Whereas, in light of showcause notice issued vide this officeletter no. 108 dated 22.02.2017 and liberty granted “ by Hon’bleCourt to MPPMCL, in its order dated 20.06.2018 for issuing freshorder in terms of PPA dated 18.09.2015 to you, in accordancewith law, it is evident that you have failed to fulfil your contractualobligation as per PPA executed with you on 18.09.2015. Thus,the PPA qualifies for termination.

23. Therefore, in line and in compliance to the Hon’ble High Courtjudgment dated 20.06.2018 and pursuant to the provision underArticle-2.5.1 (d) along with the consideration of the timelinestipulated in Article 9 .1 of the PPA and showcause notice dated22.02.2017, the PPA signed on 18 Sept. 2015, between Mis SkyPower Southeast Solar India Pvt. Ltd. New -Delhi, (SPV ofParent Company Sky power Southeast Asia Holding 2 Ltd.) andMPPMCL, for supply of Power from the proposed, 50MW. SolarPY plant located at Village-Bedhaya District - Khandwa and AB

C

D

E

F

G

H

86SUPREME COURT REPORTS

[2022] 5 S.C.R.

Asubsequently location changed to Village Chhibel, Teb-Khalliiwa,Distt- Khandwa at a rate of Rs. 5.091 per unit, is herebyterminated.”

110. Thus, we find the twenty-four months period from the dateof the PPA, plus three months default notice period, plus seven daysBtermination notice period, had been already exhausted. In paragraph-22,support is sought to be drawn from the show-cause notice dated‘22.02.2017’ and the liberty granted by the High Court in the first WritPetition, for issuing a fresh Order. The PPA, it was found by the appellant,qualified for termination. In paragraph-23, it is explicitly stated that basedon Article 2.1.1(d) along with the timeline stipulated in Article 9.1 andCthe show-cause notice dated 22.02.2017, the PPA was terminated.

111. Therefore, the show-cause notice dated 22.02.2017 is whatthe appellant lays store by to conclude that it was acting in compliancewith the requirement of issuance of the default notice under Article 9.1.It, therefore, becomes necessary to advert to the notice dated 22.02.2017.DWe may extract the following:

“MP POWER MANAGEMENT COMPANY LIMITEDCIN: U4010MP2006SGC018637

(A Govt. of M.P. UNDERTAKING)

ERegd. Office: Shakti Bhawan, Rampur, Jabalpur, Madhya Pradesh,india-482008, Tel: 0761-2661111;-2660500, Fax: 0761- 261696,website:-www.mppmcl.com, email: [REDACTED], No. 05-01/Solar Bidding-III/PP A/108

‘Jabalpur Date 22.02.2017

F

To,

M/s Sky Power Southeast Solar Pvt. Ltd.

16A/20 W.E.A. Main Ajmal Khan Road,

GKarol Bagh,New Delhi-110005.

Subject: submission of documents for fulfilment of conditionsubsequent in respect of your 50MW Solar Power project proposedat Village Chhirbel, Tallika Dist Khandwa under Phase-III solarHcompetitive bidding.

Ref: 1. Power purchase Agreement executed on 18.09.2015.

2. Your letter No. SKP/MP/SOLAR/MPPMCL/2015-116/06,dated 12.01.2017

Dear Sir,

With reference to your latter cited above, this is to intimate thaton scrutiny of the documents submitted by you for fulfilment ofcondition subsequent after 210 days from signing of PPA. Inrespect of your 50 MW solar power project proposed at villageChhirbel, Taluka & dist Khandwa, status of the documents foundas under:

D.G.M. (Commercial-3)R.0., MPPMCL, Bhopal Chief General Manager (Commercial): Block No. 11, ShaktiBhawan, Rampur, Jabalpur (MP) 482008

Tel: 0761-2661245, 2702404, Fax: 0761-2661245,email: [REDACTED]

A

B

C

D

E

F

G

H

A

It needs to be mentioned here that as per provisions of amendedclause 2.1 (f) of the PPA pertaining to acquisition of land for theproject, Seller shall be required to furnish the following ~documentary evidence:-

• Ownership or lease hold right (for at least 30 years) or right touse permission (for revenue land in Madhya Pradesh) in the nameof seller and possession of 100% of the area of the land requiredfor the allotted project.

B

• Requisite documents from the concerned and competentrevenue registered authority for the acquisition ownership vestingof the land in the name of the seller and in case of private landclear title for ownership and/ or registered lease deed for landtaken on lease.

C

As can be seen from the above table you have submitted cleartitle for ownership for only 64.94 hectare land. whereas for 34.12Dhectare land you have submitted unregistered lease deed for only12 months, which cannot be considered for fulfilment of conditionsubsequent as per provisions of the PPA as mentioned above.

Further, as per provision of clause 2.5.l (dO of the PPA, referredPPA is liable for termination. Therefore, you are requested tosubmit your explanation/ justifications, if any, within 10 days fromthe issue of this letter, for further - necessary action in the matter.

E

Chief General Manager CommercialMPPMCL, Jabalpur”

F

112. A perusal of this notice, would reveal the following:

The subject matter of the said notice appears to be the fulfilmentof condition subsequent. It is clearly mentioned that as perArticle 2.5.1, the PPA was liable for termination. The firstrespondent was asked for the explanation within ten days fromthe date of the letter for further necessary action in the matter.

G

We are of the view that the said notice cannot qualify as onewhich was issued as a default notice under Article 9.1. Wehave already found that Article 9.1, dealing with default, whichin this case, is the default by the seller, and, furthermore, theHdefault being non-observance of the time limit of twenty-four

months from the date of agreement dated 18.09.2015, the noticedated 22.02.2017, could not have been issued, even before theexpiry of the period of twenty-four months from 18.09.2015.In other words, the seller’s event of default under Article 9.4(a)could have become the subject matter of a notice under Article9.1 only if there was failure on the part of the first respondentto supply power, as provided in Article 9.4(a), within twenty-four months. That point of time, viz., the expiry of twenty-fourmonths from 18.09.2015, would arrive, at the earliest, only on18.09.2017. Therefore, it is only after 18.09.2017 that the firstnotice or, what is described as the default notice, could havebeen issued by the respondent under Article 9.1. Apparently,what has happened is the appellant has combined the defaultalleged with reference to Article 2.5.1(d), to which, undoubtedly,notice dated 22.02.2017, could be said to be related and hasprojected the said show-cause notice as the default notice withinthe meaning of Article 9.1 read with Article 9.4. Article 9.1contemplates a default, the issuance of default notice and, mostimportantly, giving a period of three months for the seller (firstrespondent) to set right things. It is if the seller does not remedythe matter within three months, that the second notice, whichis essentially an Order of termination of the PPA, can be issued.A perusal of the notice dated 22.02.2017 does not make anyreference to the seller’s event of default contemplated in Article9.4.(a). The reasons are not far to seek. For the reasons, whichwe have indicated hereinbefore, the notice could not have beenissued based on there being a seller’s default within the meaningof Article 9.4.(a) on 22.02.2017. We reiterate that as on22.02.2017, the seller’s event of default under Article 9.4.(a),could not exist in law or in facts. Still further, we notice fromthe tenor of the notice dated 22.02.2017 that the first respondentwas, in fact, asked to give its justification within ten days fromthe date of issue of the notice for necessary action in the matter.This is totally incompatible with the notice contemplated as adefault notice within the meaning of Article 9.1. Article 9.1contemplates the existence of a default by the seller and thegiving of a period of three months to the seller to remove thedefect. We are unable to understand how notice dated22.02.2017 could be understood as affording any such ABC

DEF

G

H

Aopportunity as is contemplated under Article 9.1. Therefore,we have no hesitation in holding that the appellant cannot seekshelter under notice dated 22.02.2017 to justify the notice oftermination dated 07.07.2018, if reliance is to be placed onArticle 9.1 read with Article 9.4.(a). We have already foundthat the appellant cannot be permitted to reopen the issue relatingBto the non-fulfilment of the conditions subsequent, as the issuehas attained finality by virtue of the Judgment of the High Courtdated 20.06.2018.

113. Appellant has attempted to justify the notice dated 22.02.2017as the show-cause notice within the meaning of Article 9.1 based on theCJudgment of the High Court in the first round of litigation. We are of theview that appellant would not be justified in drawing support from thesaid Judgment to contend that the issuance of notice dated 22.02.2017,would suffice and it absolves the appellant from complying with Article9.1. From a perusal of the said Judgment in Writ Petition No. 12880 ofD2017, we find that the High Court found that an attempt was made bythe appellant to justify the earlier termination dated 11.08.2017 on theground that respondent had not commissioned the power project withinthe time fixed in the agreement. The High Court was not impressed as itfound that the lack of commissioning of the power project was not thereason for terminating the contract and the appellant could not supplementEthe reason in view of Judgment of this Court in Mohinder Singh Gill35and another v. Chief Election Commissioner, New Delhi and others.It is thereafter, after setting aside the Order dated 11.08.2017, that libertywas granted to the appellants to pass fresh Order in terms of the PPA,in accordance with law. High Court, therefore, only permitted the Fappellants to invoke the PPA with respect to the lack of commissioning,and moreover, in accordance with law. It becomes clear as day light thatsince by the date of the Judgment, i.e., 20.06.2018, the period of twenty-four months from the date of the agreement, had expired, and if, interms of the liberty granted by the High Court, the appellant was tolawfully terminate the contract, it could not have acted in breach of theGmandate of the PPA, which, in fact, the High Court had specificallydirected appellant to comply with. In other words, though nearly ninemonths had gone by from 18.09.2017, when the High Court pronouncedJudgment on 20.06.2018, if the appellant wanted to terminate theagreement, at least under the contract, the appellant was obliged to issueH35 (1978) 1 SCC 405

the default notice. As we have noticed, the appellant was perhapspersuaded to issue the impugned termination notice on the basis of theearlier notice dated 22.02.2017 as it felt that it was entitled to ask theCourt to revisit the issue relating to the non-fulfilment of the conditionsubsequent as well. The appellant has, in fact, proceeded in the notice oftermination that the three months period, contemplated in Article 9.1,came to an end automatically, on 18.12.2017 and things had not changedon the ground, entitling it to issue the notice dated 07.07.2018, after thefurther expiry of seven days on 25.12.2017. The appellant, in this regard,appears to have laboured under the apprehension that the mere expiryof the period of three months, after the occurring of the event of sellerdefault, within the meaning of Article 9.4.(a) and the further expiry ofanother seven days, entitled it to issue the notice of termination. What,on the other hand, Article 9.1 read with Article 9.4.(a) contemplatedwas not the mere running of time for a period of three months, after theoccurrence of the seller’s event of default but an opportunity to theseller by the giving of a notice of default and waiting for three months. Itis only after the seller was put on notice of the default, which it hadcommitted and an opportunity was granted to remove fully the defaultand it persevered in breach, that a valid Order of termination could bepassed. On this reasoning, there can be no dispute that the appellant hasclearly failed to act in terms of the clear mandate of Article 9.1 readwith Article 9.4.(a).

114. There is another vital aspect to be borne in mind. Theimpugned notice dated 11.08.2017, brought about the termination of thecontract. This is while notice dated 04.07.2017 was issued by the firstrespondent, as noticed. Therein, the appellant was specifically asked toinspect the premises. The CEIG also issued the certificate on 09.08.2017.Now the really significant fact is that after the appellant terminated thecontract on 11.08.2017, it is wholly inconceivable and arbitrary to predicatethat the first respondent should have commenced the project and compliedwith Article 9.4(a) by 18.09.2017. Even more unfair it would be to findthat the first respondent had three months period from 18.09.2017 tocure the defect which period came to an end on 18.12.2017. Yet, thisvery premise is reflected in the impugned notice dated 07.07.2018. Thereis no case at all for the appellant that immediately on the expiry of 24months contemplated in Article 9.4(a), a notice was given under Article9.1. This could not be, also for the reason that the appellant had wellbefore 18.09.2017, on 11.08.2017, terminated the contract. This is ABC

DE

F

GH

Aindisputable. Equally significantly, termination of the contract dated11.08.2017 clearly was illegal though it was found later and set aside byjudgment dated 20.06.2018. Thus, we cannot also brush aside thecomplaint of the first respondent that this is a case where it stood preventedfrom commencing supply within the meaning of Article 9.4(a). The factof termination by order dated 11.08.2017 and its invalidation by the HighBcourt on 20.06.2018 are again not matters of dispute.

115. There is another aspect to the matter. The termination of acontract, undoubtedly, results in the intrusion into and deprivation ofvaluable rights, which are vouchsafed to the awardee of the contract. Itcould be argued that dehors a contractual provision, unless it be that theCcontract peremptorily provides for the termination of the contractexpressly without service of the notice on the occurrence of certainstipulated events, principles of natural justice may not be out of placeand under the Theory of Fair State Action, in consonance with Article14, an opportunity to the awardee as to why the contract should not beDterminated, may be just. In this regard, we may recapitulate what thisCourt in State of U.P. v. Sudhir Kumar Singh and Others36 has, interalia, held:

“23. It may be added that every case in which a citizen/personknocks at the doors of the writ court for breach of his or itsEfundamental rights is a matter which contains a “public lawelement”, as opposed to a case which is concerned only withbreach of contract and damages flowing therefrom. Whenever aplea of breach of natural justice is made against the State, thesaid plea, if found sustainable, sounds in constitutional law asarbitrary State action, which attracts the provisions of Article 14Fof the Constitution of India - see Nawabkhan Abbaskhan v. Stateof Gujarat (1974) 2 SCC 121 at paragraph 7. The present caseis, therefore, a case which involves a “public law element” in thatthe petitioner (Respondent No. 1 before us) who knocked at thedoors of the writ court alleged breach of the audi alteramGpartem rule, as the entire proceedings leading to cancellation ofthe tender, together with the cancellation itself, were done on an exparte appraisal of the facts behind his back.”

No doubt, it related to a case of cancellation of the tender afterthe tenderer had worked thereunder for over a year and based on twoH36 (2020) SCConline SC 847

ex parte enquiries. We may bear in mind that Article 9.1 captures notreally the principles of natural justice as such but an opportunity to setright a default by the seller.

116. Having found that the impugned termination Order dated07.07.2018 ill squares with the requirement of Article 9.1, the questionmay arise, whether this is a matter which should be the basis forinterference in powers of judicial review under Article 226. This is notthe basis on which the impugned Judgment is based. Could it be said thatthis is a matter, which should have formed the subject matter of aproceeding in a civil court. In this regard, we may notice the followingaspects:

The object behind giving the default notice under Article 9.1 is toprovide an opportunity to the seller under the PPA to comply with thePPA and remove the default within the period of three months. If it is acase where it is demonstrated that removal of the default was animpossibility, then, it would, indeed, be a futile exercise and perhaps, atleast, in a writ proceeding based on infraction of Article 14 or that theaction is arbitrary, the Court may have refused to exercise theextraordinary jurisdiction and relegate the party to other forum to seekwhatever relief it may be entitled to. If on the other hand, complyingwith Article 9.1 was, indeed, meaningful and the default (Article 9.4.(a)could have been removed as contemplated under Article 9.1, then,undoubtedly, it may constitute arbitrariness to deprive the first respondentof the benefit of a default notice.

We cannot be totally unmindful of the fact that such a Clause likeArticle 9.1 was inserted with the understanding, that, in such largecomplex projects, involving large sums of money being invested, andfurthermore, the successful completion of the project being intended toaugment the production of energy, in this case solar energy, there wasan element of public interest also involved in not allowing the curtains tobe rung down by an abrupt termination without affording an opportunityto the seller to remove the default. Therefore, we would also examinewhether there is a case where, it could be said that the case of the firstrespondent is totally bereft of bonafides or merit.

117. In this case, on 04.07.2017, the first respondent addressedwhat it purports to be the notice of commercial operations within themeaning of Article 5.3. It reads as follows:

AB

C

DEF

G

H

SUPREME COURT REPORTS

[2022] 5 S.C.R.

A

“Ref No. SKP-2/MP/SOLAR/COMM/2017-18/026Date: 04-07-2017

To

The Chief Engineer (Planning & Design)

B

M P Power Transmission Company Limited,

Shakti Bhawan, Rampur,

Jabalpur – 482008, Madhya Pradesh.

C

Subject: Notice to Commission on the 50 MW Solar Power Projectof SkyPower Southeast Solar India Private Limited located atVillage Chirbel, District Khandwa (“Project”), and Evacuation ofPower from the Project to the 400 KV Chhagaon Sostation.

Reference: Power Purchase Agreement dated September 18, 2015between Southeast Solar India Private Limited and MP PowerManagement Company Limited (“PPA”).

D

Dear Sir,

As per above cited subject matter and reference, we herebyintimate you of our intention to commission the project by 31stJuly, 2017(“Proposed Commissioning Date”). By the ProposedCommissioning Date, we are likely to procure and obtain allpermissions and approvals required for the Plant and fulfil andobligations specified in Article 5.3 read with Annexure XII of thePPA.

E

F

In relating to the commissioning of the Project by the ProposedCommissioning Date, we would like to apprise you of the progressmade by use in relation to completion of some of the critical pathitems for the Project-

•Transmission Line – 95% work has been completed as onG28[th] June, 2017 for the 132KV DCDS (double circuit doublestring) transmission line from location of the Project to the400KV substation Chhegaon. Balance 5% is expected tobe completed by 15[th] July, 2017 in all respect.

•Bay construction- 90% work on the 132 KV bay isHcompleted (post receipt of connectivity approval from MP

Power Transmission Company Limited (“MPPTCL”) forthe Project along with installation of specified equipmentas required by MPPTCL. Balance 10% of the work,including testing, meter and CRP panel, is expected to becompleted by 20[th] July, 2017.

•Connecting Agreement-Connection agreements havealready been signed on 18[th] May, 2017 between MadhyaPradesh Power Transmission Company Limited, Jabalpurand M/s SkyPower Solar India Private Limited.

•SLDC connectivity- Connectivity from plant to the SLDC-Indore is already established through dedicated 2nox2mbpspoint to point lease lines from BSNL (as per approvedscheme of SLDC on 23[rd] March, 2017 through letter no.SE./LD. E&T/880, data can be transferred immediately oncharging of plant). Specified equipment as per approvedscheme of SLDC has been installed at SLDC-Indore andat the Project. Even, IP scheme for both the routers hasbeen allocated by the SLDC, Jabalpur (through letter no.SE/LD.E&T/06, dated 3[rd] April, 2017).

•CEIG Certification-We have initiated the process to obtainthe CEIG certification, and the CEIG certification is expectedby 20[th] July, 2017. The CEIG certificate shall be producedto MPPTCL as an annexure to obtain the commissioningcertificate, as required under the PPA.

Considering above facts on project progress we hereby requestyour kind needful and depute necessary officials and personnelsto our site to undertake necessary inspection and testing and helpus in the target commissioning dated of 31[st] July, 2017.

In the event, you require any further information from us, we willbe happy to provide the same upon your request.”

(Emphasis supplied)

118. No doubt, Article 5.3 contemplates a notice whereunder theseller specifies that the plant was constructed as per the agreement andit was ready to deliver the solar power in accordance with its terms.Secondly, it must be indicated that all permissions and approvals requiredfor the plant to sell solar power at the rates and terms had been obtained.

A

B

C

D

E

F

G

H

AStill further, all interconnection facilities were available to receive solarpower. Notice is to take effect, however, only when the TRANSCO/DISCOM declares that all the conditions in Article 5.3 stood satisfied(or waived by it), inter alia, i.e., that the seller had successfully completedthe testing of the plant in accordance with the manufacturer’srecommendations and the seller had obtained and provided from theBElectrical Inspectorate of the Government of Madhya Pradesh or otherauthorised agency, a certificate and the seller had delivered a list of theequipments with details. The further condition is that the plant had achievedinitial synchronisation with the appellant and had demonstrated reliabilityof its communication system, inter alia, that the seller had operated theCplant without experiencing any abnormal or any unsafe operating conditionon any interconnected system. The seller was also to notify the appellantwithin no later than 30 days prior to the commercial operations date, thatthe conditions, as laid down in Article 1.01 have been met.

119. However, the first respondent in the letter dated 04.07.2017Dhas intimated about the intention to commission the project by 31.07.2017,which is on the 27[th] day after the notice. As far as transmission line wasconcerned, 95 per cent of the work was claimed to have been completedas on the 28.06.2017. Balance 5 per cent, it is stated, would be completedby the 15.07.2017 in all respects. In regard to bay construction, 90 percent of work was stated to be completed along with installation of certifiedEequipment. Here also, it is stated that the balance 10 per cent of thework including, testing, meter and CRP panel would be completed by20.07.2017. Connection agreement is stated to have been signed on18.05.2017. As far as SLDC connectivity is concerned, it is stated thatconnectivity to SLDC indoor was already established through dedicatedF2nox2mbps point to point lease lines from BSNL. As far as thecertification by the CEIG, it is stated that the process to obtain the CEIGcertification would be initiated and it is expected by 20.07.2017. Inspectionwas prayed for so as to achieve the target commissioning date by31.07.2017. No doubt, the appellant has proceeded on the basis that the notice dated 04.07.2017 cannot be treated under Article 5.3 of the PPA.GAs far as the CEIG Report is concerned, it appears to be dated09.08.2017. It could no doubt be found that what Article 5.3 noticecontemplates is a state of accomplishment of conditions when the noticeis sent. However, the notice dated 04.07.2017 promised completion by31.07.2017. Article 5.3 provides for waiver. If a default notice underHArticle 9.1, was given on 07.07.2018, in place of the termination notice, then, with the state of completion attained and, if anything further remained,doing that also, and issuing the notice, if insisted, the defect could havebeen removed.

120. In this regard, we may notice a significant distinction betweenArticle 2.5.1 (d) which was used as the sheet anchor by the appellant tocontend that in the event of non-achievement of condition subsequenttermination was mandatory. Article 2.5.1(d) is as follows:

“d) In case of delay of more than 9 months, MPPMCL shallterminate PPAand release balance amount of CPG.”

(Emphasis supplied)

121. When it comes to Article 9.1, we have noticed that itcontemplates the giving of default notice when an event of default takesplace. The seller is given three months’ time to set right things fully.Thereafter, Article 9.1 provides that in case of the default by the sellernot being removed fully, apparently, the appellant by giving seven daystermination notice ‘may’ terminate the agreement. The choice of theword ‘may’ importing discretion in Article 9.1 is in stark contrast withArticle 2.5.1 (d).

122. Apparently, it was so drafted so that in an event like in aseller event of default under Article 9.4.(a), i.e., failure by the seller tosupply power within 24 months, bearing in mind the nature of projectand the stakes involved for both the appellant and the seller, there maybe cases where the seller may wish to grant more time so that a projectwhich has progressed to a state of near completion may not be abortedby the termination and grant of time would, on the other hand, witnessthe full blossoming of the project.

123. It would appear that the appellant did not carry out anyinspection. The inspection carried out by the CEIG in first week of August,2017 was an inspection conducted by the five-member team and it isfurther claimed that this inspection lasted for 3-4 days beginning from01.08.2017. The CEIG has certified that the project was ready and thatthe first respondent can proceed with the commissioning activity. Webear in mind that the period of twenty-four months contemplated in Article9.4(a), would expire only on 18.09.2017. The CEIG has given its Reporton 09.08.2017 that the project was ready for commissioning. The factumof the Report cannot be treated as a disputed question of fact as it iscovered by a document. In fact, we find that, the appellant proceeded A

B

C

DE

F

GH

A

B

C

DE

F

GH

Aon the basis admittedly that it was reliable, but, however, on 11.08.2017issued the termination notice solely based on non-fulfilment of conditionssubsequent. This notice stood set aside on 20.06.2018. Maybe the mannerin which the inspection was carried out and the pitfalls in the same maybe characterised as the disputed questions of facts. Also, though theappellant was invited to carry out the inspection on 04.07.2017, theBappellant carried out the inspection only on 19.04.2018 and the Reportwas dated 21.04.2018.

124. If we go by the Report of the CEIG, the project of therespondent would appear to have been completed for the purposes ofeffecting commissioning. It may be another matter that other formalitiesChad to be completed. When the team of the appellant carried out thephysical inspection, (it was done on 19.04.2018), the appellant’s teamalso substantially endorsed the Report of the CEIG. However, it wasfound that a certain number of string inverters inter alia, were not foundat many locations in Block Nos. 9 and 10. It was found as follows:D“4. Any other specified observation in respect of installation ofsolar P.V plant In block 9 and 10, string inverters were not found at many locationbut those location had solar panels installed interconnections ofPV panel (cabling) string work at there location are not foundEconnected with each other Further, at some location the cableand earthing work is observed incomplieto & suspended.”

125. It is here that we must notice the case of the first respondentto be that though the equipment was installed as certified in the Reportof the CEIG and what remained was formal connectivity to the gridFupon which commissioning certificate would be issued, the final eventremained on account of non-issuance of connectivity code for connectionto the grid. It is while so, when the challenge against the first terminationnotice was under consideration and there was demobilisation ofmanpower, certain string inverters were stolen, the cost of which is statedGto be Rs.172000 per string inverter. Based on safety concerns, theequipment was, according to the first respondent, removed and kept insafe custody. The first respondent has laid store by two first informationreports lodged. The first FIR was lodged on 12.09.2017 and anotherFIR was lodged on 04.03.2018 relating to the theft of certain equipments.This is a case where the first respondent has alleged that it has alreadyHinvested Rs.331 crores.

126. We will proceed on the basis that there was a CEIG Reportdated 09.08.2017 certifying that the project of the first respondent wascomplete. This is well before 18.09.2017, which was the date by whichthe commissioning had to be done. It is also clear that the commissioning,as such, was not completed. Still further, if we go by the CEIG Report,the case of the first respondent of it being on the verge of commissioningcould not be brushed aside as wanting in bonafides or merit. Still further,there is a case of the appellant that the inspection carried out on19.04.2018, resulting in Report dated 21.04.2018, revealed certaindeficiencies in the form of missing inverters inter alia from Block Nos.9 and 10 inter alia. First respondent has a case of thefts occurring. Infact, the first respondent has a definite case that about 39 invertersinvolved were also replaced in June, 2018 based on Purchase Order ofMay 2018 [See Annexure R12 produced before the High Court in ReviewPetition No.682 of 2020]. This is even before 07.07.2018. No doubt, theappellant has a case that the FIRs relied on by the first respondent didnot refer to inverters. As to whether, it was a result of thefts that theinverters etc. which were already there as on the date of the CEIGinspection went subsequently missing or as to whether it was as a resultof the Report of the CEIG being flawed and, therefore, the invertersetc. were not there in the first place, even as on the date of the CEIGReport, appears to us to be a disputed question of fact. We proceed onthe basis that the inverters in question were not there. But as noticed,about 39 stolen invertors were already replaced in June 2018. At anyrate, if a default notice had been given pointing out this aspect, the mattercould possibly be put right within three months of such a notice. Werecall here the few complaints (essentially two in number) which remainedof Respondent No.5. It could have been pointed out as part of aspect ofdefault if it was so understood. We have also found that the joint inspectionof the respondent No.4 had found on 24.08.2017 that the line may becharged. What we can find is only that this is not a case where the firstrespondent could be said to be in a position where it could be said that itwould be unable to comply with the terms of the default notice if it waswarranted. In other words, if as on 07.07.2018, instead of issuing atermination notice, if notice had been given within the meaning of Article9.1, it is quite possible that the first respondent would have remedied thedefect as alleged. We have also noted that even in 2017, no notice wasgiven under Article 9.1 and even the contract was terminated illegally asfound by the High Court by notice dated 11.08.2017. The whole idea A

B

C

D

EF

G

H

Abehind the default notice under Article 9.1 was lost sight of by theappellant. We have unravelled also, the impact of the use of the word‘may’ in Article 9.1. The action of the appellant in departing fromunambiguous regime of the PPA without any justification would makeits actions arbitrary.

B127. The other aspect projected by the appellant is what wasprojected in the Review Petition filed before the High Court. It wascontended essentially as follows:

The first respondent had committed a fraud on the Officeof the Chief Electrical Inspector, the appellant and on the Court.CIt was alleged that the project was divided into 10 blocks of 5MWeach and each Block of 5MW would have 116/117 Invertersapproximately. Each of the Inverter was to have a uniquedistinctive serial number. Each inverter was to have 43KV rating,as indicated in the CEIG Report. The fraud consisted of adiscovery by the appellant on an alleged ‘detailed’ analysis of theDserial numbers of the inverters, that in each Block, there wereseveral Inverters having numbers which were common/duplicateand interchangeably used in the same or other blocks. It wasalleged that for about 186 Invertors serial numbers werecommonly, duplicably and interchangeably used. Some of theEinverter numbers were not legible. Therefore, it was alleged thatthere was lack of due diligence by the authorised personnel of theCEIG.

128. In this regard, the first respondent has countered the case ofthe appellant not only by producing invoices supplied by the overseasFsupplier and the bill of entry issued by the Customs Department but theLorry Receipts, to establish the procurement of 1175 Inverters requiredfor the first respondent Unit in 2017. It is also their case that the inverterserial numbers themselves carry no significance. They were mereidentifiers for the purpose of record keeping, warranty claims, etc. Allthe 1163 Inverters installed by the first respondent had identical mechanicalGspecification and the mere mention of incorrect serial numbers in theReport of the CEIG did not establish that the first respondent was notready to commission the project. The first respondent also has pointedout that on learning of the duplication of the few inverters serial numbersin the Report of the CEIG, it promptly approached the CEIG on 16.09.2020Hwith details of the correct unique serial numbers and the corresponding

location of the inverters. It requested the CEIG to inspect and verify theinverters and to issue a corrigendum to the first Report dated 09.08.2017.In fact, there is reference to first respondent in compliance with the firstimpugned Judgment writing to the CEIG earlier on 15.04.2020, to visitthe project site for reissuing/revalidating the approval for commissioningthe project, since the validity of the first report dated 09.08.2017 hadlapsed. It is specifically contended in the reply to the Review Petitionthat due to non-cooperation of the appellant on the excuse of Covid-19,the CEIG inspection could not be undertaken. This stand is reiterated, infact, in the counter affidavit in this Court also. It would appear that thefirst respondent had deposited the inspection fee of Rs.66,14,000/- whichis said to be equipment based meaning thereby that it was paid reckoningall the inverters. It would appear that no inspection has been carried bythe CEIG based on the request for revisit. As far as this aspect isconcerned, apart from the fact that the CEIG has conducted an inspectionand given a Report on 09.08.2017, certifying the readiness of the Unit ofthe first respondent, the first respondent has produced documents likeinvoices from overseas sellers, bill of entry with the Customs Departmentand certain lorry receipts. The alleged fraud is the common numberfound in 186 inverters in the Report of the CEIG. A physical inspectionby the CEIG, which was necessitated in terms of the original Judgement,at any rate, for revalidation of the Report was and is necessary andinevitable even if the appeals fail. The first respondent had alerted theCEIG for the need for a reinspection for ascertaining the aspect relatingto duplication in numbers. It would appear that such inspection has notbeen carried out. In this regard, it is important to notice that the appellantcarried out an inspection on 19.04.2018 and it had not found out anysuch discrepancy as it has not projected in regard to the aspect of commonnumbers or illegibility of numbers, in the inverters, in its Report dated21.04.2018. At any rate, the PPA clearly provided for the issuance of adefault notice, providing an opportunity to remove the defect. Thisobligation has been observed in its breach.

129. Therefore, we would find that an inspection by the CEIGwould necessarily have to be carried out in which the appellant wouldhave to be involved to facilitate the exercise. In the facts of this case, onbeing satisfied, the CEIG would necessarily have to grant the re-validationof the earlier Report. It would also involve an opportunity to the CEIG tolook into the aspects which have been projected by the fist respondentitself in its letter dated 16.09.2020. The report would indeed indicate the AB

C

D

E

F

G

H

102SUPREME COURT REPORTS

Astate of affairs about all the facets. As already noticed, even under theimpugned Judgement dated 27.02.2020, the first respondent would haveto submit necessary applications. We only clarify that it may involveremoving any remaining deficiencies with the fifth respondent.

130. It may not be wholly irrelevant to notice the following aspectBwhich is reflected in the counter affidavit filed by the respondent No.1before this Court.

“It is of utmost importance to mention here that while the challengeto the 2018 Termination Notice was pending, the Petitioner hadproposed a so-called amicable resolution of the dispute with theCRespondent No.1 and convened a meeting for this purpose onFebruary 6, 2020. Occurrence of this meeting and the discussionsheld are recorded at paragraphs 7 and 8 of the Impugned Order1. During this meeting, the Petitioner had attempted to impressupon the Respondent No.1 to explore ‘Third Party Sale’ from theproject or, agree to a reduction in tariff in line with the recentDauctions conducted by SECI for other solar power projects.Respondent No.1 had rejected both the option of ‘third Party Sale’or, the attempts to reduce tariff specified in Article 9.7 of thePPA, which was discovered through a transparent competitivebidding process. The very fact that the Petitioner had proposed toEthe respondent No.1 to explore sale of power from the Project tothird parties is proof enough that the Project was complete andready for commissioning.”

In this regard, we may notice paragraph 4 of the minutes of themeeting dated 06.02.2020 which reads as follows: -F“4. MPPMCL further stated that, as the commissioning of theproject has been substantially delayed and, in the meantime solarbinding tariffs have been considerable reduced up to Rs. 2.61/Unit for which MPPMCL has already entered into PPAs, thereforeMPPMCL offered M/s Sky Power to supply power at reducedGtariff of the project was the lowest in the bid and their investmentwas made during the FY 2016-2017 therefore, supplying powerto MPPMCL at reduced tariff will not be viable hence notpossible.”

We would think that essentially the appellant’s attempt was tosecure a reduction in the rate. The rate of the first respondent wasH

found to be the lowest after a clearly keenly competitive internationalbidding, involving a large number of bidders.

131. In the totality of facts, we would, therefore, think that thoughfor reasons, which may not be the same as in the impugned judgment,we need not interfere with the view taken by the High Court. The appealsfail and are dismissed. Parties to bear their own costs.

Bibhuti Bhushan Bose(Assisted by : Neha Sharma, LCRA)

Appeals dismissed.

A

B

C

D

E

F

G

H