KARNATAKA POWER TRANSMISSION CORPORATION LIMITED versus JSW ENERGY LIMITED (EARLIER KNOWN AS JINDAL THERMAL POWER COMPANY LIMITED & JINDAL TRACTABEL POWER COMPANY LIMITED) & ORS. on 22 November 2022

[2022] 12 S.C.R. 937

KARNATAKA POWER TRANSMISSION CORPORATIONLIMITED

v.

JSW ENERGY LIMITED (EARLIER KNOWN AS JINDALTHERMAL POWER COMPANY LIMITED & JINDALTRACTABEL POWER COMPANY LIMITED) & ORS.

(Civil Appeal No. 8714 of 2022)

NOVEMBER 22, 2022

[K. M. JOSEPH, ANIRUDDHA BOSE ANDHRISHIKESH ROY, JJ.]

Karnataka Electricity Reforms Act, 1999 – s.18, Explanationto s.19, s.25(3) r/w s.17(1) and proviso to s.27(2) – Power PurchaseAgreement (PPA) – The Act came into force with effect from01.06.1999 – Under s.27 of the Act, unless there was a ‘concludedcontract’ as on 01.06.1999, the Karnataka Electricity RegulatoryCommission was to regulate the tariff – Whether before the Act cameinto force, there was a concluded contract between the parties, andtherefore such a contract could not be unsettled by the regulatoryregime under the Act – Held: The parties contemplated a writtenPower Purchase Agreement (PPA) containing various details apartfrom the tariff rate and the tenure – The parties were not ad idem asregards the issues which were expressly left open for negotiations –The State Government (GoK) also contemplated ‘finalising’ a PPA –The word ‘finalising’ and the word ‘PPA’, both of which did nottake place before 01.06.1999 resulted in a situation where a contractcould not be said to be concluded even within the meaning of theproviso to s.27(2) of the Act – This is not even a case where partieswere ad idem on all the essential aspects, which go into the formationof a complex contract as involved in the facts of this case – Onfacts, there was no concluded contract and what is more, a PPAwas not a mere desire but an indispensable requirement to concludethe terms – It is clear as day light that all through the partiesundoubtedly contemplated entering into a power purchase agreement– From the subject matter of the contract, the position of the parties,the implications of the working of the contract and more importantly,the intention of the parties, it was clear that there was a concludedcontract upon negotiations and correspondence, culminating in the

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AGovernment Order 12.05.1999 – Even the GO dated 12.05.1999expressly contemplated only a permission by the GoK to the KEB tofinalise “a PPA” for the purchase of surplus power – The word“finalise” in the context of the PPA cannot be played down in thecontext of the previous correspondence at any rate – It was, in fact,also contemplated that the PPA which was to be finalised must afterBfinalisation be submitted again to the government – GoK wasthereafter to grant its approval – This cannot be overlooked.

Contract Act, 1872 – s.10 – It is not essential to form acontract, that it should be in writing – Where a law stipulates that acontract be in writing in which case a contract must be reduced toCwriting.

Contract Act, 1872 – ss.2 and 10 – Concluded contract –Held: In order that there must be a contract concluded, there mustbe a proposal made, which must be accepted – There must beconsideration for the promise – The proposal must be accepted,Dwhich must be communicated – The acceptance must be unqualified– The parties can be said to have entered into a contract or a contractwould be said to be concluded only when they are ad idem on all theessential terms of the contract – If the proposals containing theessential terms have been accepted, and the acceptance isEcommunicated and, if the other conditions in s.2 are complied with,viz., that is there is consideration and the contract is enforceable inlaw, within the meaning of s.10, it would lead to the creation of aconcluded contract.

Conclusion

Karnataka Electricity Reforms Act, 1999 – proviso to s.27(2)F– Concluded contract within meaning of the proviso to s.27(2) –Held: The proviso to s.27(2) when it uses the words ‘contractsconcluded’, does not use the words ‘contracts concluded as regardstariffs’ – There are various other aspects about which the partiesmust be ad idem – The rate, the term and quantum are integrallyinterconnected with other terms – There cannot be concludedGcontract without parties being ad idem about those terms.

Karnataka Electricity Reforms Act, 1999 – s.41 – Appealsagainst order of the Karnataka Electricity Regulatory Commission– Any person aggrieved by any decision or order of the Commissioncan file appeal to the High Court, on questions of law arising outHof such order – Held: A Right of Appeal is a creature of a Statute –

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS.

The right can be qualified or conditioned – The ambit of the appellatepower is to be discerned from the terms of the Statute – A ‘questionof law’ is not the same as a ‘substantial question of law’ – However,when the Statute insists on a ‘question of law’ to maintain an appeal,the Appellate Body stands constrained to that extent – Appeal.

Electricity Laws – Karnataka Electricity RegulatoryCommission – The Commission is an Expert Body – Interferencewith its findings cannot be sustained, to begin with, if it is bereft ofreasons – Findings of such a body must receive due deference –Perversity in the sense of findings, which are wholly without basisor material or which no person with the professed skills would arriveat, may merit interference – A finding, which ill squares with a clearstatutory injunction, would leave the door ajar for overturning thefinding.

Disposing of the appeals, the Court

HELD:1.1. In the instant case, a golden thread, which runsthrough the correspondence is that, both the Karnataka StateElectricity Board (KEB), the Government of Karnataka (GoK)and the appellant and the first respondent, did contemplate theexecution of the Power Purchase Agreement (PPA). Thecorrespondence after 01.06.2000 also, unerringly, points to thefact that parties did not view the PPA as a mere desire. Theyclearly proceeded on the footing that the terms of the agreementmust be evidenced in writing. Quite clearly, the High Court erredin not bearing in mind the contents of the communications andtheir true purport. [Para 77][1008-F-G]

2. In order that there must be a contract concluded,undoubtedly, there must be a proposal made, which must beaccepted. There must be consideration for the promise. Theproposal must be accepted, which must be communicated. Theacceptance must be unqualified. This is an over simplification ofa complex process. The parties can be said to have entered intoa contract or a contract would be said to be concluded only whenthey are ad idem on all the essential terms of the contract. If theproposals containing the essential terms have been accepted,and the acceptance is communicated and, if the other conditionsin Section 2 of the Contract Act are complied with, viz., that is A

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Athere is consideration and the contract is enforceable in law, withinthe meaning of Section 10 of the Act, it would lead to the creationof a concluded contract. [Para 78][1009-C-E]

3. The proviso to Section 27(2) of the Act when it uses thewords ‘contracts concluded’, does not use the words ‘contractsBconcluded as regards tariffs’. A contract of the nature, this Courtis concerned with, cannot be said to consist only of a rate and theterm or even the quantum included. In a contract of this nature,there are various other aspects about which the parties must bead idem. The rate, the term and quantum are integrallyinterconnected with other terms. There cannot be concludedCcontract without parties being ad idem about those terms. [Para79][1012-B-C]

4. The parties contemplated a written PPA containingvarious details apart from the tariff rate and the tenure. Theparties were not ad idem as regards the issues which wereDexpressly left open for negotiations in the communication dated23.04.1999. GoK also contemplated ‘finalising’ a PPA. The word‘finalising’ and the word ‘PPA’, both of which did not take placebefore 01.06.1999 has resulted in a situation where a contractcould not be said to be concluded even within the meaning of theEproviso to Section 27(2) of the Act. Even proceeding on the basisthat even in a given case, a contract could be concluded withinthe meaning of the proviso, even in absence of a written PPA,bearing in mind also the absence of the word ‘PPA’ in the saidprovision and contrasting it with Section 18 where the same Law-Giver has used the word ‘PPA’, if the parties were not ad idemFabout the necessary terms and if the parties equally contemplateda PPA to bring it into existence a contract within the meaning ofSection 27(2), then, clearly a PPA would be indispensable to attractthe proviso to Section 27(2). This is not even a case where partieswere ad idem on all the essential aspects, which go into theGformation of a complex contract as is involved in the facts of thiscase. Therefore, the supply of power by the first respondent, after01.06.1999, cannot be relied upon, in view of the facts revealedby the correspondence, which itself makes it a stop gaparrangement, and what is more subject to conditions which H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS.

included execution of a PPA, to conclude that the subsequentconduct, unerringly pointed to the fact that a contract within themeaning of Section 27(2) stood concluded before 01.06.1999.[Para 79][1012-C-G]

5. On facts, there was no concluded contract and what ismore, a PPA was not a mere desire but an indispensablerequirement to conclude the terms. It is clear as day light that allthrough the parties undoubtedly contemplated entering into apower purchase agreement. The subject matter of the contract,the position of the parties, the implications of the working of thecontract and more importantly, the intention of the parties do notpersuade this Court to safely gather that there was a concludedcontract upon negotiations and correspondence, culminating inthe Government Order 12.05.1999. It is clear that even the GOdated 12.05.1999 expressly contemplated only a permission bythe Gok to the KEB to finalise “a PPA” for the purchase of surpluspower. The word “finalise” in the context of the PPA cannot beplayed down in the context of the previous correspondence atany rate. It was, in fact, also contemplated that the PPA whichwas to be finalised must after finalisation be submitted again tothe government. GoK was thereafter to grant its approval. Thiscannot be overlooked. [Para 83][1017-F-H; 1018-A]

West Bengal Electricity Regulatory Commission v. CESCLtd. (2002) 8 SCC 715; India Thermal Power Ltd. v.State of M.P. and others (2000) 3 SCC 379 : [2000] 1SCR 925; All India Power Engineer Federation andothers v. Sasan Power Ltd. and others (2017) 1 SCC487 : [2016] 9 SCR 901; K.P. Chowdhary v. State ofMadhya Pradesh and others [1966] 3 SCR 919; RamNarain Sons Ltd. v. Asstt. Commissioner of Sales Taxand others AIR 1955 SC 765 : [1955] 2 SCR 483;Dwarka Prasad v. Dwarka Das Saraf AIR 1975 SC1758 : [1976] 1 SCR 277; Mackinnon Mackenzie &Co. Ltd. v. Audrey D’Costa and another (1987) 2 SCC469 : [1987] 2 SCR 659; Kollipara Sriramulu (Dead)by His Legal Representative v. T. Aswatha Narayana(Dead) by His Legal Representatives and others AIR

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A1968 SC 1028 : [1968] 3 SCR 387; and Securities andExchange Board of India v. Mega Corporation LimitedMANU/SC/0362/2022 – referred to.

Alexander Brogden and others and the Directors, & c.,of the Metropolitan Railway Company [L.R.] 2 App.BCas. 666/HL(E) 1877 Vol.2 666 – referred to.

Case Law Reference

ECIVIL APPELLATE JURISDICTION: Civil Appeal No. 8714of 2022.

From the Judgment and Order dated 08.04.2004 and modified on16.04.2004 of the High Court of Karnataka at Bangalore in MiscellaneousFirst Appeal No.4795 of 2002.F

With

Civil Appeal No. 8715 of 2022.

S. S. Naganand, Dr. Abhishek M. Singhvi, Gopal Jain, Sr. Advs.,Raghavendra S. Srivatsa, Venkita Subramonium T., Likhi Chand Bonsle,GMs. Komal Mundhra, Rahul Prasanna Dave, L. Vishwanathan, RamanujKumar, Summit Attri, Manpreet Lamba, Aman Anand for M/s. CyrilAmarchand Mangaldas, V. N. Raghupathy, Md. Apzal Ansari, DhirajAbraham Philip, Robin Ratnakar David, Munawar Naseem, RahulPrasanna Dave, Advs. for the appearing parties.H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS.

The Judgment of the Court was delivered by

K. M. JOSEPH, J.

1. Leave granted. Being connected, the appeals are being disposedof by a common judgment.

2. The appellant, in appeal arising out of SLP (C) No. 18607/04, isthe Karnataka Power Transmission Corporation Limited and hereinafterreferred to as ‘the appellant’.

3. By the impugned judgment, the High Court has allowedMiscellaneous First Appeal No. 4795 of 2002 filed by the first respondentherein, viz., JSW Energy Ltd., earlier known as Jindal Thermal PowerCompany Limited (hereinafter referred to as the first respondent). Theappeal was filed by first respondent under Section 41 of the KarnatakaElectricity Reforms Act, 1999 (hereinafter referred to as the ‘Act’ forbrevity).

4. By the impugned order, the High Court has set aside the orderdated 22.05.2002 and the order dated 08.07.2002 which are orders passedby the Karnataka Electricity Regulatory Commission (hereinafter referredto as ‘Commission’ for brevity). The Commission is the appellant in theother appeal. The High Court has after setting aside the impugned ordersdirected the appellant, to comply with the tariff rate specified in theorder of the Government of Karnataka (hereinafter referred to as ‘GoK’for brevity) dated 12.05.1999. The further direction given is as follows:

“(ii) as per the interim order passed by this Court on 19[th] November,2002, it is stated by Dr. Singhvi that the appellant has paid 40% ofRs. 62.5 crores computed by the KPTCL as difference betweenthe PPA rates and the rates fixed by the Commission and,therefore, we direct the KPTCL to repay the amounts recoveredfrom the appellant in pursuance of the interim order dated 19[th]November, 2002 and also pay the adjustment arising out ofpayments made by the appellant to KPTCL (i.e., the date betweenthe respondent No. 2/PPA rate and respondent No. 31 enteredrate of this Hon’ble Court; as the case may be) from 1st August,2000 up to November 2002 within a period of one month fromtoday;”

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AFACTS IN BRIEF

5. The first respondent was permitted by GoK during March 1994to set up a 2X130 MW cortex gas/ coal based thermal power plant atBellary. It was apparently intended that Jindal Vijayanagar Steel Limited(JVSL) would consume the power produced from the thermal plant toBbe set up by the first respondent. The Central Electricity Authority grantedthe required technical economic clearance in March 1996. Originally,GoK gave approval to set up the power plant by JTPCL for 300 MW. Itwas initially reduced from 300 to 240 MW in March 1995 and finally, itwas modified by order dated 13.02.1996 and reduced to 260 MW(130X2). There were to be two units, that is Unit No.1 and Unit No.2.CKarnataka State Electricity Board (KEB for short) entered into a headsof terms with JTPCL on 30.09.1995.

6. Clause 4 of the heads of terms reads as follows:

6. Clause 4 of the heads of terms reads as follows:

“4. SALE OF EXCESS ENERGY & CAPACITY TO KEBD

If, at any stage, JTPC has excess firm capacity and/or energy forsale to KEB, then KEB may purchase the same from JTPC subjectto agreement on price and other terms to be negotiated at thetime of such sale.”

7. Heads of terms was essentially a memorandum prior to theEagreement, entered into in regard to wheeling and banking in regard tosale to dedicated consumers by the first respondent. It was followed upby a wheeling and banking agreement between the KEB and JTPCLdated 23.01.1996.

8. In the said agreement also, the parties have reiterated the ClauseF(Clause 2.4) relating to the sale by first respondent to KEB in similarterms as in the Heads of terms. Somewhere in 1998, the first respondentinvoked the clause in its bid to sell power to KEB.

9. On 20.10.1998, the first respondent wrote to KEB as follows:

G“This has reference to your above referred letter on the abovesubject. In this connection kindly refer to our earlier letter dated28[th] September 1998, wherein we have confirmed that our tariffis in accordance with GOI notification dated 30[th] March 1992.Further we have confirmed that we would offer substantial rebateon the two-part tariff calculated on the basis of GOI norms.H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

A statement giving details of Tariff calculations at 85% PLF and68.5% PLF and 68.5% PLF is enclosed. The statement also givesdetails of cost under various sub-heads. The tariff is subject tothe following assumptions:

1. Landed costs of imported coal assumed at USD 50 per tone.

2. Any variation in coal price will be to customer’s account.

3. Exchange Rate assumed at USDI = Rs.42.

4. Repayment of Foreign Loan, ROE and Depreciation will varyas per the applicable exchange rate.

5. O&M Charges will vary as per Indian Inflation Rate.

At your convenience, we can explain and furnish any clarificationsrequired on the tariff calculations.

Hope the details furnished along with this letter would enable youto consider our proposal and hence request your to kindly arrangefor the approval of your board.

10. On 21.11.1998 again, there is a proposal put forth by the firstrespondent to the KEB. Therein it has indicated that it has completed100 per cent construction, erection and testing facility of Unit No.1.

11. After stating that they are scheduled to synchronise Unit No.1,by December, 1998, it was indicated that the commissioning of unit no.2is scheduled for July 1999. Thereafter, reference is made to clause 2.4of the Wheeling and Banking Agreement, as already referred to. Therespondent offered 50 MW from the commissioning date of Unit No.1.Further offer of 100 MW was made (base load basis) from thecommissioning date of Unit No.2. It further offered upto maximum of200 MW during the time when the steel plant JVSL and JPOCL (anotherdedicated consumer of first respondent) were under shut down (majorbreakdown) or during the maintenance period. It further offered to paypenalty if the supply was less than 75 MW from commissioning date ofUnit No.2. The rate was shown as 2.90/Kwh. Payment was requestedby irrevocable revolving L/C. This offer, however, was exclusive ofcertain items and it is indicated that the consideration of the same was inline with Government of India and KEB Norms. We may notice thefollowing terms which are set out as the elements to be excluded of therate:

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We propose to supply power on the basis outlined in this letter foran initial period of five years from the date of commissioning of second130 MW Unit. Since we are eligible for Income Tax Exemption for the first five years, it is not included in the proposed tariff.”F

12. The promise was to supply for a period of five years from thedate of commissioning of the second unit. It is stated that the firstrespondent is available for any clarification and for further negotiation.Under the head “Utilization of Power During Stabilization Period” it isstated as follows:G“II. UTILISATION OF POWER DURING STABILISATIONPERIOD.

(from the date of synchronization to commercial operation)

We have signed ‘Wheeling and Banking’ agreement with KEBwhich allows us to bank Power with KEB during the period fromHsynchronization to commercial operation.

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

During the above period we still be supplying power to our sistercompany’s i.e., JVSL and JPIOCL who are located adjacent toPower Plant and within a common’s with yard (owned & controlledby JTPC). During this period since the power may not be availableon ‘FIRM’ basis we would like to draw power from our BankedPower and supply to JVSL and JPOCL.

KEB has sanctioned power to JPOCL, JVSL and JTPC to meettheir star-up power requirements. KEB has sanctioned demandfor each unit separately. All the three units are availing KEB powerfor plant commissioning, start-up purposes, trial operation and eachunit is paying demand and energy charges to KEB.

After synchronization of JTPCL’s 1[st] 130 MW unit (December98) we seek your kind consent and approval for the followingarrangements.

a. JTPCL will supply power to JPOCL and JVSL.

b. JTPCL, JVSL, JPOCL will continue the contract withKEB and continue to pay contracted demand charges toKEB.

c. In exceptional cases when JTPC generation is lowerthan the energy requirement of JVSL and JPOCL, subjectto their individual contract demand with KEB, JTPCL drawsenergy from KEB for a limited period, or during theshutdown of the unit.

d. Bank all excess power (without limitation as per wheelingand banking agreement) with KEB and take energy creditfor the Banked power, to utilize as and when required.

e. In case, we draw power from KEB when our bank iszero, we will also pay energy charges to KEB as per theapplicable tariff.

Once the reliability tests are over and when JTPC declares thecommercial operation of their unit, JVSL, JPOCL and JTPC willrequest KEB to cancel (withdraw) their contract demand withKEB and JTPC will meet both demand and energy of these twounits on regular basis.

Present metering system (Annexure -1) INSTALLED by KEBin our complex is on temporary basis and for adopting the above A

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948SUPREME COURT REPORTS

Amodalities permanent metering system is required to be establishedby KEB which is detailed at Annexure- 2.

We request you to kindly accord your approval for the above twoproposals. Proposal 2 requires implementation of metering systembefore synchronization of unit scheduled in the last week ofBDecember 1998 and hence approval may please be accorded atthe earliest.

Thanking you we remain

Yours faithfully

For JINDAL TRACTEBEL POWER CO. LTD.CSd/- S.S. Rao Dy. MD & CEO”

13. The response of the KEB is found in communication dated 1[st]DDecember, 1998. It is stated as follows:

“The Board is in principle willing to purchase surplus power fromyour plants as already discussed. Your proposal regarding the tariffis under evaluation by the Board”.

14. Next, it is relevant to notice the communication datedE19.01.1999 made by KEB to GoK. It reads as under:

“KARNATAKA ELECTRICITY BOARD

K.P. SINGH, I.A.S.

CAUVERY BHAVAN, BANGALORE–560001

CHAIRMANFD.O.No./KEB/B2/B13/6306/93-94

Date: 19/1/1999

My dear Chaubey,

Sub: Purchase of power generated by the captive power plantof M/s. Jindal Tractebel Power Company at Hospet.

GGovernment of Karnataka vide GO No. de 221 PPC 93 Bangaloredated 7-3-1994 had permitted M/s. Jindal Tractebel PowerCompany to set up a 2xl20 MW power plant at Hospet, whichwas subsequently enhanced to 2xl30 MWs. This plant, which wasset up as a captive power plant was given an IPP status later onvide Government letter No. DE 221 DPC 93 (P) dated 1-2-1996

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KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

as the shareholders of the power plant and steel plant weredifferent. TEC for the above project was issued by CEA videtheir letter dated 22-3-1996. As the company proposed to utilizethe power generated for their own use and to sell to other industriesin the State, after initial round of discussions with the Company,only a wheeling and banking agreement was proposed. In January1996, Board entered into a Wheeling and Banking Agreementwith the Company. In the Wheeling and Banking Agreement, asper Clause 2.4, the Company could sell excess capacity and/orenergy to KEB and KEB had an option to purchase the same at anegotiated rate. The relevant clause is reproduced below:

“‘If at any stage, the Company offers excess firm capacityand/or energy for sale to the Board, then the Board maypurchase the same from the Company, subject to agreementon price and other terms to be negotiated at the time of suchsale.”

Jindal Tractebel Power Company is the first IPP to haveachieved Financial Closure. Subsequent to achieving FinancialClosure, the company took up the work of construction of theplant and the first unit of the plant has also been synchronisedwith the KEB grid recently.

M/s. JTPC during discussion have stated that due to downwardtrend in the Steel industry, the requirement of the steel has reducedand consequently progress of the Corex Plant has slowed down.As a consequence of the above, the Company, vide their letterNo.4 JTPC/KEB dated 20-10-1998 have offered to sell 50 Mwafter the first unit is commissioned and 100 MW after the secondunit is commissioned to KEB on basis. Also, in case of shut downof the JVSL Plant or its subsidiaries for maintenance purposes,they have offered to sell nearly 200 MWs to KEB.

Though KEB has signed PPAs with various IPPs, the progressof these plants is not satisfactory. As of today, only the 200 MWBarge Mounted Power Plant being set up by M/s. Tanir BaviPower Company has neared financial closure. A table indicatingthe first-year tariffs payable to various IPPs, whose projects havebeen sanctioned under the bid route is given below. The presentrate of Rs.42.50 to a dollar has been taken for the purpose ofcalculating the tariff.

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It is also to be stated that of the above mentioned plants, some ofthe plants may not come up. The doubtful plants are that of M/s.DLF, Scintilla and lnnox Power. In case of M/s. Rayalseema,even though the plant had intimated that they have achievedDfinancial closure nearly 8 months back, they have requested forenhancement of capacity of the plant to double its size to make iteconomically viable. This issue is under examination.

Because of the shortfall in generation in the State and the steadydemand for power, KEB is purchasing power from MSEB inEaddition to that from Central Generating Stations. The tariff weare paying for power of MSEB is Rs.2.30/unit for power availedduring off peak hours and Rs.2.65 for power availed during peakhours. We are at present purchasing nearly 100 MWs during peakhours and upto 200 MWs during off peak hours. MSEB has askedfor revision of prices from 1-1-1999 for the power supplied byFthem. The revised rates are Rs.2.50 + FEC for off peak powerand Rs.3.00 + FEC for power supplied during peak hours. TamilNadu is also purchasing power from MSEB at Rs.2.65 /unit duringpeak hours and Rs.2.30/unit during off peak hours. Tamil NaduElectricity Board is also purchasing power from Eastern Grid atGRs.2.74/unit. KPCL is proposing to synchronize their V and VIunit in the coming months. Though the actual cost is yet to befinalized, as the project cost is yet to be frozen, it is indicated thatthe tariff for the power generated by these plants vary betweenRs.2.75 to Rs.2.80. It has also been reported in the press that forthe power proposed to be generated from the Kayamkulam H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

Thermal power plant being set up by M/s. NTPC, KSEB wouldhave to pay nearly Rs.3.90/unit and after the intervention of thePrime Minister, the rate payable would be around Rs.3.52/unit.

The project of M/s. JTPCL was under the Captive route and itwas contemplated that the entire power generated would be usedby JVSL and its subsidiaries. Though a provision was there in thewheeling and Banking agreement for KEB to purchase any surpluspower from this project at a later date, it was clearly mentionedthat the price at which this power would be purchased would beat negotiated rates. This was because, KEB did not feel itnecessary to go into the details of the capital costs of this projectas this project was contemplated as a captive power plant andonly surplus power, if any, was to be sold to KEB, at a later date.M/s. JTPCL vide their letter dated 20-10-1998 had offered to sellpower to KEB at Rs.2.90/unit.

During internal meetings it was also decided that as this projectwas meant as a captive power plant and KEB did not go into thedetails of the project cost earlier or anticipate in the meetings atCEA before the TEC was issued, it would not be possible tonegotiate tariff based on two-part tariff notification of GoI. Also,as we would be paying only a fixed price per unit, it was felt thatgoing into the details such as the actual heat rate, the O&Mcharges, the working capital, foreign exchange protection to beprovided, etc. should not be done and only the cost per unit presentlybeing offered from other sources should be compared. Further, tocompensate for the variation in Rupee against the dollar, theincrease in Consumer Price Index, interest rate on working capitaletc., it was also decided that some annual increase in the fixedprice should be allowed to take care of the above-mentioned itemsas has been done in case of MOU Route projects.

With this background, negotiations were held with M/s. JTPCL.During discussions, it was stated that the cost per unit will have tobe split into two parts, viz. Fixed Component and Variable charges.The variable charges would be based on the actual price of coalwhich JTPCL would buy. After detailed discussions, it was decidedthat a price of Rs.2.60/unit can be offered, comprising of Rs.l.70as fixed charges and Rs.0.90 as variable charges. To compensatefor depreciation of rupee against dollar, escalation of O&M charges AB

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due to increase in cost of price index, working capital requirements,etc. It was also decided that the fixed charges should be escalatedby 5% every year beginning from the second year after wepurchase power from JTPC.

As regards the variable cost, which depends on the cost of coal,Bthe company will have to invite bids from global markets and satisfyKEB about the correctness of the procedure followed and theprice arrived at. These bids can be either of I year duration or alonger period. Depending on the actual cost of coal, the variableprice will be paid.

CRegarding the term of the agreement, it is to be stated that themajor thermal power projects , i.e. that of M/s Mangalore PowerCompany and M/s. Nagrujuna Power Company may not beavailable for the next five years. There is a case pending inSupreme Court regarding Mangalore Power Company and onlyafter the judgment is known, Gol will consider extending counterDguarantee to this project. After the counter guarantee is given, itmay take anything between 4 to 5 years for the project to beissued. Again, it may take 4 to 5 years for the project to be put up,since the company will have to achieve financial closure. Henceit is considered prudent to limit the period of the agreement toEpurchase power from Ms. JTPCL to 5 years initially.

The cost per unit of power purchased from M/s Jindal Tractebelduring the five year period keeping the variable cost constant wouldbe as follows:

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KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

Even with the increase of Fixed Charges by 5% every year, it isto be stated that in the 5th year, the cost of power with the variablecharges remaining the same will be Rs.2.07 + Rs.0.90, i.e. Rs.2.97per unit which is lower than the tariff now being offered by MSEBduring peak hours.

The company has offered to sell 100 MWs on a guaranteed basis,it will be necessary to assure a minimum level of offtake failingwhich Deemed Generation Charges will have to be paid. As pertwo part tariff notification the minimum assured off-take shouldbe 68.5% PLF. As this project is essentially meant as a captivepower plant, it is suggested that the minimum off-take below whichdeemed generation would be payable should be 50% of thecontracted/declared capacity, whichever is lower. It is alsosuggested that a penalty be levied on M/s. JTPCL if there is anyshortfall in power below 75% of the quantity assured by thecompany.

Keeping all the above in mind, it is suggested that we can purchasepower from M/s JTPCL at Rs.2.60/unit (FC Rs.1.70 + VC Rs.0.90)with the fixed charge being escalated by 5% from the secondyear with the conditions of penalty to be paid by the firm for shortsupply of power and assured off-take mentioned above.

For all IPPs, Government is giving guarantee for the payments tobe made by KEB for the power it receives. Apart from this,irrevocable letter of credit and escrow accounts are also beingopened by KEB as additional security for power supplied by thesecompanies. In case of JTPCL, as the question of providinggovernment guarantee does not arise as the plant was essentiallyset up as a captive power plant and majority of the powergenerated is being sold to captive industries. However, irrevocablerevolving Letter of Credit and backup escrow can be provided tothe Company.

Approval of the Government is sought for the above proposal.Subsequent to the approval, negotiations will be held with M/sJTPCL for finalizing the PPA.”

15. The GoK in its response by communication dated 05.03.1999wrote as follows to the KEB:

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954SUPREME COURT REPORTS

A“R.No.DE 18 FEB 99

Dated 05-03-1999

I invite your to your D.O. letter dated 19-1-99 regarding yourproposal to purchase power from M/s Jindal Tractabel PowerCompany at Rs.2.60/unit with a 5% escalation on fixed charges.

The proposal has been examined in detail. The efforts of the KEBBto bridge the gap in power availability by entering into a short -term agreement with Jindal Tractebel Power Company Limited(JTPCL) is well appreciated. Government recognizes the factthat inspite of the best efforts made by the State Government toaugment the power supply position there still continues to be a bigCgap between demand and supply. Government also note thatpresently KEB is supplying more than 75 Million units per daywhich is a record. The demand may further go up in the comingmonths and the situation may not change easily in the next fewyears on account of the substantial delay in the starting up of theMega power projects in the State. Under these circumstancesDthere is a need to tie up with IPP/other States/NTPC, foraugmenting the power supply within the State urgently. There isno doubt all out efforts have to be made within the short time totide over the problems of increased demand during the summer.

The present proposal of the KEB keeps the tariff open ended andEpossible revision. The PP A being for a period of 5 years, KEB isadvised to negotiate with the Jindal Tractebel for a fixed tariff forthe next 5 years.

This may kindly be got examined by KEB and the revised proposalmay be sent to the government.

F

Yours,

Sri K.P. Singh, IAS.”

16. On 31.03.1999 after referring to the proposal dated 21.11.1998and a series of discussions and the further meeting with the KEB officialsGon 26.03.1999, the first respondent indicated that in the meeting, KEBofficials informed that it was willing to buy power from the first respondentsubject to the following terms and conditions:

“1. The term of the agreement could be 5 years.

2. The tariff should be a single part tariff. Escalation at a fixedHpercentage could be applied on the total price on an annual basis.

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

KEB will not consider any request either for two-part tariff basedon CEA guidelines or for payment of fuel cost at actuals.

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3. KEB will open irrevocable revolving letter of credit under whichJTPC can get payments. It will also be supported by Escrowmechanism.

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4. There can be penalty clause both for short supplies and shortdrawals.

5. The PPA should be a simple document.”

[Emphasis supplied]

17. Thereafter, it is stated that KEB asked for a formal proposalwithin aforesaid parameters. Thereafter in the communication, it is stated:

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“1.JTPC offers 50 MW (Energy 36 MU per month) of powerfrom the commissioning date of Unit 1 and 100 MW (Energy72 MU per Month) of power from the commissioning dateof Unit 2. The first Unit of 130MW is expected to beDcommissioned in June 1999 and the second unit of 130 MWis expected to be commissioned in August 1999.

2. JTPC would have an option to supply in excess of 50MW(Energy 36 MU per month) after commissioning of Unit 1and 100 MW (Energy 72 MU per month) afterEcommissioning of Unit 2, with KEB’s approval, as and whenJTPC has surplus power available.

3. The tariff will be as follows:

I year (Upto 31" March 2000)Rs. 2.60 I kwhr.

II Year (Financial Year 2000-2001) Rs. 2.73 I kwhr.

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III Year (Financial Year 2001-2002)Rs. 2.87 I kwhr.

IV Year (Financial Year 2002-2003) Rs. 3.01 l kwhr.

V Year (Financial Year 2003-2004) Rs. 3.16 I kwhr.

4. There will be no Wheeling charges or Electricity Tax onGsupplies to KEB.

5. To maintain uniformity in penalty on either side, JTPCproposes as follows as from COD of Unit 2:

(a) JTPC guarantees minimum supply of the ThresholdPower Value after commissioning of JTPC Unit 2. If the H

Asupply is less than the Threshold Power Value, JTPC willpay penalty at 10% of the tariff, for supplies below theThreshold Power Value.

(b) KEB shall guarantee that it will consume the ThresholdPower Value. In case the consumption is less than theBThreshold Power Value, KEB shall pay to JTPC the fullvalue of Threshold Power at the applicable tariff as above.

(c) The Threshold Power Value is 75 MW (Energy 54 MUper month).

6. The minimum supply and the minimum consumption as perCpara 5(a) and 5(b) above are applicable on a monthly basis.

7. If there is escalation in fuel cost beyond 5% at any time,JTPC reserves the right to terminate the contract with 3months’ notice, if KEB does not agree to compensate forsuch escalation.

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8. KEB shall open irrevocable revolving letter of creditcorresponding to 100 MW (Energy 72 MU per month) powersales under which JTPC can get payment for its monthlybills. It shall also be supported by Escrow mechanism.

9. The initial term of the agreement should be 5 years till MarchE31, 2004, with a provision for renewal on terms mutuallyacceptable.

We request you to agree to the above terms and conditions andconvey your acceptance at the earliest. We will approach ourBoard and the lenders on getting your acceptance.FWe also request you to let us have drafts of the PP A, Escrowagreement and the Letter of Credit, at the earliest. We propose tohave one more meeting with your officials, after studying thesedrafts.”

G18. It is next necessary to notice the communication dated23.04.1999 sent to the GoK by the Chairman of the KEB.

“KARNATAKA ELECTRICITY BOARD

K.P. SINGH, I.A.S.

CAUVERY BHAVAN,

CHAIRMANH

Ref.No.83/99-2000

Date: 23 APR 1999A

My dear Arvind,

Sub:Purchase of power generated by the captive power plantof M/s. Jindal Tractebel Power at Hospet.

Ref: 1.This office D.O.letter No.KEB/B28/B13/6306/93-94dated 19-1-1999

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2. DO letter NO.DE 18 FEB 99 dated 5-3-1999 of EnergySecretary addressed to the undersigned Accordingly, M/s JTPCL were invited for negotiations anddiscussions were held with them on 26th March 1999 to arrive atthe rate they would sell power from their plant to KEB. Duringthe meeting, the position of the Board/GoK was made known tothe representatives of M/s JTPC, i.e. the tariff should be a singlepart tariff including variable charges and should be fixed for eachyear with an annual escalation by a fixed percentage. The firmwas requested to intimate the tariff at which it would sell powerto KEB.

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The firm stated that from their calculations, they will be taking ahit on fixed charges itself and this will be mainly due to depreciationof Rupee against the dollar and increase in O&M charges. Alsoin case of variable charges, they stated that it is linked to the costof coal, which is imported and that this will also increase due tothe increase in cost of coal, the freight charges and again due tothe depreciation of Rupee against the dollar in future years. Theyrequested that the earlier negotiated position where the variablecharges is a pass through should be retained.

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The stand of the Government of Karnataka that only a fixed tariffper unit per year should be negotiated was again made known tothe firm. The firm stated considering all aspects within theparameters fixed by the Board, they would be able to sell powerat Rs.2.75 per unit with a cost escalation of 5% per year, whichwas not ... acceptable to the Board. The firm was requested tooffer a revised figure. After detailed negotiations, the firm, subjectto confirmation of their Board of Directors, offered to sell powerat a cost of Rs.2.60 per unit with an annual escalation of 5%.They stated that this is the minimum figure they could agree and G

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Aany further reduction of the same would affect the project as itwould be financially unviable.

Hence there are two options available, i.e. either to retain theoriginal proposal of the fixed charges being escalated by 5% everyyear with the variable charges being a pass through or the entireBrate of Rs.2.60 including variable charges being escalated by 5%every year.

In case of the second option, the tariff payable by KEB for eachunit in different years will be as follows:

With this the tariff payable during each year of operation will beCas follows:

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Considering the fact that rupee has been depreciating heavilyagainst the dollar the second proposal may be advantageous toKEB.

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The firm in its letter No.JTPC/KEB dated 31-3-1999 has confirmedthat the tariff payable by KEB for power purchased will be Rs.2.60/unit in the first year with an annual escalation of 5% every year.FThey have stated that they will be offering 50 MWs (equivalentto 36 MU per month) from the date of commissioning of the firstunit and 100 MW (equivalent to 72 MU per month) with thecommissioning of the second unit. The first unit is expected to becommissioned in June 1999 and the second unit in August 1999.GThey have also indicated that in case they have any surplus powerbeyond 50 MWs and 100 MWs after commissioning of unit I andunit 2, with the approval of KEB, they will sell power in excess of50 MW s and 100 MW s.

The firm has also proposed the following after commissioning ofUnit 2:

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KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

1. They will supply power with a threshold value of 75 MWsequivalent to 54 MU per month.

2. If supply is less than the threshold power value, then JTPC willpay penalty of 10% of the tariff for supplies below the thresholdpower value.

3. KEB shall guarantee that it will consume the threshold powervalue. In case the consumption is less than the threshold value,KEB shall pay to JTPC the full value of threshold at the applicabletariff as above.

4. The minimum supply and minimum consumption as above areon monthly basis.

5. If there is an escalation in fuel cost beyond 5% at any time,JTPC reserves the right to terminate the contract with 3 monthsnotice, if KEB does not agree to compensate for such escalation.

6. KEB shall open irrevocable revolving letter of creditcorresponding to 100 MW (energy 72 MU per month) power salesunder which JTPC can get payment for its monthly bills. It shallalso be supported by Escrow mechanism.

7. The initial term of the Agreement should be 5 years till March31, 2004 with a provision for renewal on terms mutually acceptable.

These are issues to be negotiated with the firm while finalisingthe PP A and will be taken up later on.

This is for information of the government and it is requestedthat orders may please be obtained and communicated to us.

With regasrds,

Yours sincerely,Sd/-(K.P. SINGH)

Shri Arvind Jadav,Secretary to Government,Department of Energy,Government of KarnatakaBangalore”

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A19. Finally, on 12.05.1999, we find the following proceedings. Itreads interalia as follows:

“After detailed examination GOVT. ORDER NO. DE 18 FEB99, BAN GALORE DATED 12TH MAY 1999

1. KEB is permitted to finalize a Power Purchase AgreementBwith M/s Jindal Tractebel Power Company Limited (JTPCL) forthe purchase of surplus power and submit the same to theGovernment for approval.

2. The rate per unit being Rs. 2.60 including variable charges withan annual increase of 5% every year.

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3. The term of the PPA shall be for a period of five years.

4. To adopt the same principle of negotiated tariff for captivegenerating power project who intend to sell power to KEB.”

20. The Act came into force with effect from 01.06.1999. TheDsignificance of this is that under Section 27 of the Act, unless there wasa ‘concluded contract’ as on 01.06.1999, the Commission was to regulatethe tariff. Thereafter we may notice the following correspondence aswell. On 04.01.2000, the superintending Engineer of the KEB wrote toJPPCL. The correspondence would show as follows:

E“This refers to the tariff of 2.60 per KWhr negotiated for purchaseby KPTCL of the electricity generated by the subject powerproject. You are requested to furnish details of the break-up ofthe tariff so as to enable us to take further action.”

21. On 06.04.2000, the first respondent wrote to the Chairman ofFthe appellant (KPTCL). It reads as follows:

“JINDAL TRACTEBEL POWER COMPANY LIMITED

Ref: JTPC/KPTCL/1545

April 6, 2000

To,

GThe Chairman

Karnataka Power Transmission Corporation Ltd., Bangalore H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

Dear Sir,

Sub:Purchase of Power from Jindal Tractebel PowerCompany Limited (JTPCL) by Karnataka PowerTransmission Corporation Limited (KPTCL)

Ref:1.Government Order No.DE 18 EEB 99

Bangalore dated 12[th] May 1999

2. Government Order No.DE 120 EEE 99Bangalore dated 7[th] July 1999

We are happy to inform you that both the units (2 x 130 MW)of our Power Plant are operating continuously. As per JVSL’sagreement with KPTCL, JVSL was to return 215.810 MU toKPTCL. As on 6’h Apri12000 JVSL has returned 199.802 MU toKPTCL and the balance left over is only 16.008 MU, which willbe completed by 12’h April 2000.

As per the Government Order (Ref. l), the Government ofKarnataka has permitted KPTCL to purchase power from JTPCLat the rate of Rs. 2.60 per unit including variable charges with anannual escalation of 5% every year. The said order has alsopermitted KPTCL to finalize the PPA with JTPC. Accordingly,JTPC has finalized PPA with KPTCL and the final draft asaccepted between JTPC and KPTCL has been submitted toKPTCL in September / October 1999.

SI. No.8 of the Government Order (Ref. 2) directs KPTCL tooperate the PPA with JTPC as Per Government Order NO. DE18 EEB 99 Bangalore dated 12th May 1999 (Ref. I) only aftercomplying with the obligations under the Government of KarnatakaOrder issued on 7[th] July 1999 (Ref. 2). SI. No.9 of the Governmentof Karnataka Order dated 7[th] July 1999 (Ref.2) also directedKPTCL to honour the obligations under Wheeling, Banking andGrid Supporting Agreement between KPTCL and JTPCL onlyafter fulfilment of obligations under the Government of KarnatakaOrder dated 7[th] July 1999 (Ref. 2) Since the submission of finaldraft PPA to KPTCL in September I October 1999, JTPC iscontinuously pursuing KPTCL and Government of Karnataka forsigning of the PPA. During this period, whatever clarificationswere sought by KPTCL were submitted by JTPC & KTPCL.

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AInspite of our best efforts, so far, the PPA has not been signed byKPTCL thought the tariff and other conditions are already coveredin the Government Order.

After returning of the power by JVSL to KPTCL which isexpected to happen by 11th April 2000, JTPC will be supplyingBpower to KPTCL as per the Government of Karnataka Orderdated 18’h May 1999 (Ref. 1). Even though PPA is not yet signedand is pending with KPTCL, the absence of PP A should notcome in the way of supplying of power by JTPC to KPTCL from12’h April 2000 as the formal Government of Karnataka Orderdated 12m May 1999 along with the details of tariff (Ref. 1) doesCexist. Hence, pending finalization and signing of PP A betweenJTPC and KPTCL, we request you to kindly accept the powerdispatched by JTPC to KPTCL from 12m April 2000. JTPC willbe submitting the invoices as per the Government of KarnatakaOrder dated 12m May 1999 (Ref. 1) subject to any changesDrequired to be done subsequently as per the terms and conditionsof the PPA to be agreed and signed between JTPC and KPTCL.”

22. In response to letter dated 06.04.2000, the appellant corporationwrote to the first respondent on 12.04.2000. It reads as under:

“With reference to the above, I am directed to communicateEapproval of the Corporation to continue to supply energy to the grid fromthe 2x130 MW Power Plant of your Company pending finalization ofPPA under the following conditions.

1. The Grid support charges envisaged in the Wheeling &FBanking and Grid support Agreement i.e., Rs. 1.73 CroresAnnum will be provisionally deducted from the tariff invoiceswhen the amount is paid. This will be subject to change andhas to be paid as per the terms of PP A to be signed.

2. The 115% energy imported will be deducted from the energyGexported, provisionally pending finalization.

3. The energy will be accounted only after signing of PPA.

4. The energy banked prior to signing of PP A will be treatedas energy banked with the Corporation and will beaccounted as per the Corporations rules.

H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

5. This orders is only for facilitating continued operations ofthe Power Plant and Corporation makes no commitmentswith respect to terms of PPA which is being finalizedseparately.

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6. The metering arrangements should be as per the ArticleNo. 4 of the Wheeling, Banking Agreement and Grid SupportBAgreement already signed copy of the same is enclosed.”

23. We may still further notice the communication dated 24.05.2000addressed by the appellant to its Chief Engineer Electricity which readsas under:

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“With reference to the above, I am directed to convey approvalof the Corporation to make payments to M/s. JTPCL for the energysupplied to the grid from 15-4-2000 and onwards at Rs. 2.52 perunit pending signing of PPA. Under following terms.

1. The procedure for payments should be as per the standardprocedure followed in case of IPP Projects.

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2.115% of imported energy should be deducted form theexported energy and payments will be made for net exportedenergy so arrived.

3. The metering should be as per the terms of Wheeling &Banking Grid support Agreement between KEB and JTPCLsigned on 23-1-96, till such time PP A is finalized.

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4. The firm has to submit an undertaking that the terms andconditions of PP A between KPTCL and JTPCL will beapplicable for the payments made by KPTCL for the energysupplied by JTPCL from the date as approved bygovernment till the PP A is signed.

5. This is only an order to facilitate payment of energy chargesto M/s. JTPCL and Corporation makes no commitments inthis regard and the terms of PPS will be finalized separately.

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6. The energy transaction prior to 15-4-2000 will be finalizedseparately.”

24. Finally, we notice the proceedings of the Government ofKarnataka dated 17.07.2000. It reads as under:

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APREAMBLE:

ln Government Order No. DE 18 EEB 99 dated: 12.5.99 KEBwas permitted to finalize a power purchase agreement with M/s.JTPCL for purchase of surplus power from generating units atthe rate of Rs. 2.60 per unit with an annual increase of 5% everyyear for a period of 5 years. Further the rate per unit has beenreduced from Rs. 2.60 to Rs. 2.52 vide Government Corrigendumdated 8.5.2000. It is in this context the request made by theJTPCUJVSL has been examined and it is found that continuingwith the earlier rate of Rs. 2.60 per unit would result in honoringthe commitment of the Government. Besides it has the advantageof procuring a better price every year for KTPCL. It would ensurethat power is purchased at Rs. 2.60 instead of Rs. 2.63 per unit inthe first year, Rs. 2. 73 instead of Rs. 2.77 per unit on the secondyear, Rs. 2.87 instead of Rs. 2.92 per unit in the third year and Rs.3.01 instead of Rs. 3.05 in the fourth year.

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Honoring the earlier Government Order would also ensure thatthere is no litigation on this subject in a court of law.

The KPTCL vide it’s letter dated 22.5.2000 read at Sl. No. Shadalso requested the Government to review the effective date forpurchase of power from the said company and communicate theGovernment decision. The matter has been examined atGovernment level in consultation with KPTCL and in the interestof the Company. After examining the requested made by theCompany, Government are pleased to Order as follows:

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GOVERNMENT ORDER NO. DE 18 EEB 99. BANGALOREDIST: 17.7.2000

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In the circumstances explained above, Government are pleasedto permit Karnataka Power Transmission Corporation Limited topurchase power from M/s. Jindal Tranctebel Power CompanyLimited at the rate of 2.60 per unit with an annual increase of 5every year as indicated in the Preamble to this Order. Theimplementation of this Order will commence from the date of theissue.

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The other conditions of the Government Order of even no. 6 dated12.5.1999 remains unaltered.”

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KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

25. A draft power purchase agreement came to be made on07.11.2000 between the appellant and the first respondent. There areelaborate details contained therein. Suffice at this juncture to noticefurther, that a letter was sent to the Commission on 17.11.2000. Thisletter was treated as an application by the appellant (KTPCL) for enteringinto a power purchase agreement under Section 25 (3) of the Act readwith Section 17(1) of the Act. Based on a public notice, objections werefiled by five objectors. More importantly, the stand taken by the firstrespondent was that the Commission was bereft of jurisdiction to examinethe PPA on the ground that it merely represented a contract which wasconcluded with it prior to the commencement of the Act, and therefore,the case fell within the four walls of the proviso to sub-section 2 ofSection 27 of the Act. The Commission thereafter proceeded to enterthe following findings, inter alia:

The entire negotiation, correspondence and acceptance of an offermust be absolute. The offer of the first respondent was subject tofurther approval, that is, the approval of the Board of the Companyand the lenders to the company. The Deputy Managing Directorand CEO of the company was not delegated the authority to bindthe company. The offer was not one to be converted into acontract. After referring to order of the GoK dated 12.05.1999, itis found that out of the 9 issues containing the proposal of JTPCL,Government has indicated its intention to agree only to two issues,namely the rate of Rs 2.60/- per KW hr. and the period of fiveyears that is the term of the agreement. The GoK, it is noted,directed KEB to negotiate the PPA and to submit the same forapproval.

The provision for an escrow facility to guarantee payment toJTPCL and payment for full charges for deemed generationdid not find reflection. These conditions were central to anyPPA.

As on 12.05.1999, the parties did not intend the agreement tobe binding. By the GO dated 12.05.1999, Government reservedits right to vary the tariff. There is no acceptance of the proposalas far as GOK is concerned. Government order dated12.05.1999 only served to provide broad guidelines to negotiatewith the first respondent for a mutually agreed term.

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A(1)The PPA cannot be restricted to the aspect of rates only.The mutual rights and obligations have to be stipulatedspecifically even after the rate is agreed. There is noconcluded contract.

(2) Government of India notification dated 30.03.1992 was toBbe considered only as a ceiling and it is perfectly open tothe Electricity Board and generating companies to negotiateand arrive at a lower tariff. Reference is made to theomission of sub-section (2) of Section 43A of the Electricity(Supply) Act, 1948 in the State of Karnataka with effectfrom 14.09.2000.

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26. After an elaborate study of documents, it was found, that thepower proposed to be supplied to the appellant (KPTCL) was surpluspower and the grant of IPP status by communication dated 01.02.1996would not avail the first respondent.

DWe may next notice the following discussion:

“60. Simply because, plant is making use of common infrastructuresfor coal hand long and water supply it cannot be said that theplant of the appellant is a CPP. It is common knowledge that anumber of generating projects are set up to take advantage of theEexisting infrastructures of other projects and it can never be saidthat merely because infrastructure is shared, the consumption ofpower is captive. The infrastructure facilities are shared betweenthe projects only with a view to minimise the project costs. Thepower plant is designed to fire either corex gas or coal as fuel,which confirms that the appellant’s power plant is not a captiveFplant and that it was intended to supply power to KPTCL evenwith the steel plant is not working and not producing corex gas. Italso needs to be noticed that appellant and JVSL are distinctCorporate entities and the appellant has obtained financialassistance, project approvals from various statutory authorities,Gol and GoK on a stand alone’ basis.G

61. It was, however, contended on behalf of the respondents thatpower was supplied to KEB only after JVSL’s commitment wasfulfilled and since the entire capacity of 240 MW has beenunderwritten by JVSL, the appellant is a CPP to the JVSL. It isalso contended on behalf of the respondents that determination of H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]IPP/CPP is irrelevant as the Commission has allowed KPTCL topay fixed charges to the appellant.”

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27. Thereafter, the Commission arrived at a probable tariff andfinally directed the appellant to negotiate with the first respondent basedon the calculation made and to come up with a fresh proposal. The firstrespondent did not negotiate. It is this which led to the Commission passingthe second impugned order. In the light of the same, Commissionproceeded to approve a draft PPA, submitted on 17.11.2000 with thefollowing modifications:

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a)The tariff charges for the first tariff period shall be Rs.2.36Unit instead of Rs.2.60/unit upto 657 MU (page 17 of theCDraft PPA).

b)The tariff for the entire energy in excess of 657 MU in, thefirst tariff period will be Rs. 1.88/unit instead of Rs.2.20/unit (page 17 of the draft PPA)

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c)Grid support charges per month as per the following formula:

GSC = Fl Load in MW x 1000 x DC

PF

Where:

Fl Load in MW is the fluctuating load in MW (l3.55 mw)

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DC- Applicable Demand Charges

PF- Power Factor

d)the yearly escalation is 2.50% instead of 5% (Page 17 ofthe Draft PPA)

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e)Regarding the penalty for non-generation, it is directed thata penalty of 20% of the tariff shall be levied.

14. The PPA as approved by the Commission will come into effectfrom 1.8.2000 and shall be valid for a period of five years as per theproposal of KPTCL.

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15. In their letter No. JTPCL/AUTCH/2358 dated 20th June 2002.JTPCL has expressed their willingness to enter into long term PPA ontwo-part basis. The Commission advises KPTCL to negotiate with M/s.JTPCL a long term PPA depending upon the need for power. On approvalof such a PPA by the Commission, the present PPA will get terminated.”

H

A

28. It is these orders which came to be challenged by the firstrespondent before the High Court under Section 41 of the KarnatakaElectricity Reforms Act, 1999. The High Court formulated the followingpoints for decision.

“19. After hearing the learned Counsel for the parties, followingBpoints arise for decision:

(I) Whether the Karnataka Electricity Regulatory Commission-Respondent No. 3 can be added as a party respondent to theappeal and whether it is entitled to defend the impugned orderon merits?

C

(II) Whether there existed a binding contract between theappellant and the KPTCL on the tariff prior to commencementof Karnataka Electricity Reform Act, 1999 with effect from01.06.1999, in terms of Explanation to Section 19 and provisoto Section 27(2) of the Act? if the answer is in the positive,whether the Commission has jurisdiction to review the tariffparticularly when the proviso to sub-section (2) of Section 27is restricted to tariff determination and does not require a PPAto establish a concluded contract?

D

(III) Whether the status of the appellant is that of an IPP orCPP?

E

(IV) Whether the impugned orders are perverse, arbitrary andpassed without application of mind?

(V) Whether the Commission has failed to appreciate theappellant’s rights grounded on the principles of promissoryFestoppel and legitimate expectation?”

29. As regards point No.1 it was found that the Commission wasperforming as a quasi-judicial body. It was further found that when validityof the order of a quasi-judicial body is assailed in a court of law, it ishealthy and fair that such authority (the commission) should not takeGsides. The High court did not find justification for the Commission to fileits own extensive pleadings, engage a senior counsel and show abnormalinterest. The contesting parties were capable of taking care. The questionwas also posed as to the position of the Commission if a case is remandedback to it when it has been impleaded as a party and takes anHunambiguous and inelastic view. It was finally found that the Commission

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

was not a proper party having regard to the questions that arose fordecision in the appeal. The High court took care that it should not beunderstood as meaning that the Commission cannot be a necessary andproper party if an appeal is preferred under Section 41 against its orderregardless of the question which arose. Answering point No.2, that iswhether there is a concluded contract, the Court went on to find thatthere was a concluded contract within the meaning of the explanation toSection 19 and proviso to Section 27(2) of the Act. This view was formedon the basis of the conspectus of the correspondence beginning with theGovernment order dated 07.03.1994 and the communications which wehave already indicated and culminating in the GO dated 12.05.1999 ofGoK. Thus, it was found that all essential terms and conditions, that is,the tariff rate, escalation, quantity and tenure for purchase and sale ofpower were agreed between the parties before 01.06.1999 (the date onwhich the Act came into force). The order dated 12.05.1999 was precededby several rounds of negotiation. It was no doubt found that there wereseveral rounds even after the Act came into force between the parties,and they discussed and finalised the terms and conditions of the PPAexcept tariff as the tariff was agreed upon as evident from GO dated12.05.1999. The PPA dated 10.11.2000 incorporated all the agreed terms.After signing the PPA, the appellant took steps to open letter of creditfor securing payment based on the tariff of Rs.2.60 per unit plus 5 percent escalation per annum without obtaining approval of the Commission.The letters dated 04.01.2000, 12.04.2000 and 24.05.2000 according tothe High court reflected the intention of the parties to treat GO dated12.05.1999 as the binding contract as far as the tariff was concerned.The High Court discussed case law and found inter alia that there was aconcluded contract. Interpreting the proviso to Section 27 (2) of the Act,it was found that the proviso was only for the purpose of Section 27(2),that is, factors relating to tariff determination. The proviso could not dealwith other fields, the Section itself did not deal with. The correctinterpretation, according to the High Court, was as far as ‘contractconcluded’ is concerned the proviso is referable to the tariff which isagreed between the parties before the Commission came into existence.There is no form for the concluded contract in the Act. No penalty isimposed for not entering into the PPA. This shows that PPA is not anessential requirement under the Act. The appellant purchases powerfrom other utilities without PPA. The fact that the learned counsel forthe Commission entertained this view, was recorded. It is found that AB

C

DE

F

G

H

Awhen an offer is made and acceptance does not extend to all the terms,on the terms accepted, a contract is concluded. The order dated12.05.1999 was for all purposes treated as contract for sale of power.Parties were ad idem. All terms and conditions agreed upon in the GoKorder dated 12.05.1999 were incorporated in the PPA without anyvariation. GoK has given its consent to the first respondent in terms ofBSection 43A of the Act, prior to the commencement of the Act. Sinceapproval was already given under Section 43A of the Electricity (Supply)Act, 1948, approval under Section 17(1) was not necessary. It is recordedin the judgment that the appellant agreed with the first respondent thatSection 27(2) of the Act did not require a contract in writing or anyCformal document or that it prescribed any particular form. The appellantcontended that there was no concluded contract for certain reasons.They are as follows.

(1) It is reflected as the contention of the appellant that theoffer of first respondent itself was “subject to” the approvalDof the Board and its lenders. These approvals constitutedconditions precedent for formation of the contract.

(2) There was no acceptance or communication of acceptanceby the appellant (KTPCL).

(3) Essential clauses such as Escrow, deemed generation,Eauxiliary consumption etc. required for a PPA were notagreed upon.

(4) The order dated 12.05.1999 was merely an internal approvaland not in exercise of any statutory provision.

(5) The tariff of Rs.2.60 was an indicative figure. There wasno basis to arrive at the figure of Rs.2.60.

F

(6) There was no record to show that appellant participatedbefore the CEA (Central Electricity Authority).

30. The High Court proceeded to find that as regards the conditionGin the proposal that the offer that was made was subject to approval bythe Board of Directors and lenders that, neither of the parties insisted onthe satisfaction of the conditions before supplying power. The principleof waiver was employed also. The order dated 12.5.1999 did not employthe word “subject to”. The terms such as ‘deemed generation’ were notHconsidered essential by the parties. The fact that the party continued to KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

perform for almost 3 years would show by ‘conduct’ that they cannot betermed as essential. It is not necessary that KPTCL should communicateacceptance to the respondent. It is further found that a contract which isconcluded by acceptance by the ‘Gok’ is protected by proviso to Section27(2). GoK found that the single part tariff is more advantageous to theappellant. The tariff rate is arrived at on the basis of two-part tariff rate.The break up of tariff for 20 years was submitted to the appellant afterdetailed negotiation and examination. The tariff of Rs.2.60 per unit wasapproved. The court concluded that there was a concluded contract.Answering point No.3, it was found that the status of the power plantwas of the IPP and not of a CPP. In regard to point No.4, namely,whether order of the Commission was perverse, arbitrary and passedwithout application of mind, noticing certain errors, it is found that theCommission having opined that the fixed charges should be paid for 657MUs, it calculated the fixed charges for 487 MUs while fixing the tariff.Incentive payment charges was found by Commission to be Rs.0.952 inarriving at the tariff rate, but the incentive payment charges are taken asRs.0.924 per unit. These errors were not disputed. Having agreed to anegotiated single part tariff, it was found the Commission could not haveunilaterally ignored well established parameters, and applied norms whichwere relevant for the calculation of two-part tariff. The tariff proposedwas on the basis of single part tariff. The tariff of the first respondent isone of the cheapest as it was based on the least cost tariff basis, whereasother companies pay higher charges either on the basis of a two-parttariff or a fixed negotiated tariff. This was not seriously disputed. Theappellant (KPTCL) has fixed heat rate at 2400 Kcal/Kwh disregardingthe norms of the Ministry of Power as per which the heat rate should be2500 Kcal/Kwh or the actual heat rate whichever is lower. Thecommission took the plant load factor at 77% disregarding norms underthe Electricity Supply Act as per which the plant load factor would be68.5% or at a rate negotiated between the parties. The escalation wasreduced from 5% to 2.5% per annum. The two-part tariff provides forescalation for inflation and exchange fluctuation and completereimbursement of fuel cost. The Commission arrived at 1637 MUs at77% PLF and disproportionately loaded fixed charges on to the firstrespondent. The Commission ignored the fact that 1150 MUs are arrivedon the basis that the appellant is supplying the energy to the steel plant at85% PLF and this disproportionate loading was found tantamounting tocross subsidising contrary to the observations in the decision of this Court AB

C

D

E

F

G

H

AB

C

D

E

F

G

H

Ain West Bengal Electricity Regulatory Commission v. CESC Ltd.1.The Commission was found at fault in reducing the assured supply levelto 487 MUs in its calculation whereas more than 900 MUs have beensupplied by the first respondent to the appellant for the years 2001 and2002. In view of the wheeling and banking agreement in 1996 underwhich Grid Support Charges payable were agreed upon, the finding ofBthe commission was found flawed in reviewing the charges without anybasis. It was found ultra vires the Act. The objections of the firstrespondent filed before the first impugned order were rejected by theCommission but reasons have not been given. The court went on toanswer point No.5 which was whether the case of the first respondentCbased on principles of promissory estoppel has not been considered bythe commission and therefore impugned order required interference.The court after referring to case law on promissory estoppel and doctrineof legitimate expectation found it unnecessary to dilate on this aspect,but finding merit in the contention of the respondent that the Commissionfailed to appreciate the rights of the respondent in the light of the, ‘saidDprinciples’. Thereafter the High Court went on to allow the appeal in themanner which we have already explained.

SUBMISSIONS OF THE APPELLANT

31. Shri S.S. Naganand, learned Senior Counsel appeared alongEwith Shri Raghavendra S. Srivastava. Shri Raghavendra S. Srivastava,learned Counsel appearing for the appellant would make the followingsubmissions.

There is no concluded contract within the meaning of the provisoto Section 27 of the Act with the aid of the correspondence and the factsFestablished otherwise. He would complain that the High Court has notappreciated factual and the legal position. It is his case that it is clearthat the parties intended that there should be a PPA. This is not a caseof mere desire that there should be a written document encompassingthe agreement between the parties. On the contrary, he would contendthat the parties contemplated that there be a PPA whereupon alone aGconcluded contract would emerge. He would submit that GovernmentG.O. dated 12.05.1999 relied upon by first respondent as the fountainhead for the claim there is a concluded contract cannot for many reasonsbe treated as such.

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]32. Attacking the findings of the High Court that the concludedcontract under Section 19 and Section 27 of the Act need not be inwriting or in any particular form, it is contended as follows:

While there may not be any statutory requirement that theremust be a PPA in writing, the correspondence and the conduct ofthe parties make it clear that they intended to have a formaldocument binding them on all material terms. Correspondenceshows that KEB was willing to buy power on certain terms andconditions one of which was that there should be a PPA. The firstrespondent had also called upon the appellant to confirm the terms,for placing them before its own Board and sought draft of thePPA to be executed. The Order dated 12.05.1999 cannot be treatedas acceptance of the offer. It was merely the permission grantedby the GoK to enter into an agreement on certain terms andconditions. Since, KEB and the first respondent were not ad idemon any other term, no agreement was reached. Relying uponClause 2.4 of the Wheeling and Banking Agreement, it is contendedthat agreement was contemplated not merely on price but otherterms which were to be negotiated. Being a statutory corporation,there was no scope for an implied contract. It is contended that aperusal of letter dated 23.04.1999 would show that even as regardsthe tariff rate proposed by the first respondent, it was subject tothe confirmation by the Board of Directors. Reinforcement, inthis regard, is sourced in letter dated 04.01.2000, wherein the firstrespondent was requested for the quote of the tariff for ‘furtheraction’. Further reliance is placed on the contents of letter dated06.11.2000. Support is sought to be drawn from the Judgementreported in India Thermal Power Ltd. v. State of M.P. andothers2. The High Court erred in assuming that the first respondentwaived its rights under the draft PPA. Reliance is placed on theJudgment of this Court in All India Power Engineer Federationand others v. Sasan Power Ltd. and others3to contend thatwhenever waiver is pleaded, particularly, in contracts having publicinterest, the party must show an agreement waiving the right,which has not been done in this case. The proviso to Section27(2) cannot be read in isolation but it must be harmonised with 2 (2000) 3 SCC 379

3 (2017) 1 SCC 487

A

B

C

D

E

F

G

A

Athe other relevant provisions. Bearing in mind the mandate ofSection 17, the contract must be in the manner approved by theCommission under Section 17 and it must include all material terms.The first respondent was insisting that a PPA must be executedby the appellant. In its communication dated 20.06.2002, the firstrespondent admitted that the tariff was not acceptable but it wouldBbe willing to negotiate on the basis of two-part tariff if the PPAwas made valid for 10 to 15 years. The first respondent again hasadmitted that tariff and several other aspects were pendingdiscussion and negotiation with the appellant. GoK Order dated12.05.1999 was amended vide Corrigendum dated 08.05.2000 byCrevising the tariff to Rs.2.52/unit. Later, vide Order dated17.07.2000, on request by the first respondent, the tariff wasrestored to Rs.2.60/unit. This establishes that the GoK Order dated12.05.1999 was not final. Even the rate was confirmed only after01.06.1999. There is no approval granted by GoK under Section43A of the Electricity (Supply) Act, 1948. Therefore, approval ofDthe Commission was mandatory under Section 17 of the Act. TheOrder dated 12.05.1999 was not an approval under Section 43Abut it was in the nature of permission given to KEB to negotiateand enter into the contract. There was no contract with the KEB.There could not have been any contract with the appellantE(KPTCL) as the appellant was constituted only under the Act,which came into effect from 01.06.1999. The following findingsof the High Court are placed under focus:

B

C

D

B

C

D

“It is not necessary that only the KPTCL should communicateacceptance to the appellant. A contract which is concluded byacceptance by the GOK is protected by the proviso to Section27(2) of the Act.

F

In our considered opinion the combined reading andconsideration of the following documents and circumstancesand the reasons we presently state would lead us to concludethat there existed a “concluded contract” between the appellant,KPTCL and GoK well before 01.06.1999.”

G

33. In other words, the Court has even proceeded as if there wasa contract between the GoK and the first respondent. If that were thecase, apart from other contentions, Article 299 and requirementsHthereunder, are pressed into service. Drawing upon the Judgment in KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

K.P. Chowdhary v. State of Madhya Pradesh and others4, it wascontended that State Government cannot be bound by an implied contract.It is next contended that the first respondent cannot be treated as anIndependent Power Producer (IPP). The operation of the first respondentand the sister steel plant (JVSL) are intertwined and interdependent.They share common infrastructure for coal handling, water supply andthe coal for the first respondent is purchased by JVSL, for which, itraises an invoice on the first respondent. The first respondent is to betreated as the CPP, as it was supplying power to the steel plant. Thecapacity was reduced at the request of the first respondent. The contentsof the G.O. dated 12.05.1999, which also indicates that the same principleof negotiated tariff for captive generating power plant that intends to sellpower to the KEB was applicable to the first respondent are pressedinto service. Reliance is also placed on the agreement dated 14.10.1999.Though first respondent was granted the status of IPP by the GoK, itwas recognised by KEB/the appellant as a captive plant. The Commissionfound that the energy supplied under the PPA was only the surplus energy,after meeting the requirements of its dedicated consumers. When anIPP is desirous of contracting power supply with the appellant on two-part tariff basis, the KEB/appellant would be involved in every stage ofproject formation, finalisation of capital costs and technical parameters.KEB/the appellant would be represented before the Central ElectricityAuthority for according Techno Economic Clearance as well as for coalsupply agreements, but none of these formalities were carried out. It isalso pointed out that the first respondent availed of concession in thematter of electricity tax by contending that it was the CPP, which wasaccepted by a Quasi-Judicial Body by Order dated 21.11.2000.

34. It is next contended that the findings arrived at by the HighCourt in regard to the facts, was unsustainable. In this regard, it iscontended that the jurisdiction of the High Court in an Appeal underSection 41 of the Act, is a limited one. The limitation arose from therequirement that the appeal is maintainable only, when there is a questionof law. This legislative cribbing of the appellate power of the High Courtis to be viewed in the context of the fact that the appeal is directedagainst the findings of an Expert Body like the Commission. Legislature,therefore, wished to clothe High Court not with the ordinary untrammelledpower of an Appellate Court. In the instant case, even though the point AB

C

DE

FG

H

AB

C

DE

FG

H

Araised is, whether there was any perversity in the findings of theCommission, without finding any perversity, as such, the High Court hasproceeded to make a foray into factual findings rendered by the ExpertBody. The findings of the Expert Body were premised on adequatereasoning and material. It is without carefully appreciating and analysingthe findings, that various observations have been made. It is lastly alsoBcontended that pursuant to the Interim Order passed by this Court, theappellant had to deposit a sum of Rs.100 crores, which the first respondentwas permitted to withdraw on furnishing bank guarantee. The learnedCounsel would submit that, if the appellant succeeds, the amount paid bythe appellant, must be ordered to be restored by the first respondent.

CSUBMISSIONS OF RESPONDENT NO. 1

35. Dr A.M. Singhvi, learned Senior Counsel appeared along withShri Gopal Jain, learned Senior Counsel, for the first respondent. Dr.Singhvi appearing would contend that prior to the issue of GO dated12.05.1999, parties were agreed about the essential terms, viz., price/Dtariff, quantum and tenure. These terms were incorporated in the PPAwithout any change or amendment. The conditions, seven in number,enumerated in letter dated 23.04.1999, were incidental matters, whichwere not necessary or a pre-requisite for the formation of the contract.A PPA was not a pre-condition. From 15.04.2000, the first respondentEsupplied power to the appellant and the tariff was paid at the rate ofRs.2.60/unit. With reference to GO dated 12.05.1999, it is contendedthat though it contemplated submission of the PPA to the Government ofKarnataka (GOK), the interpretation has to be necessarily that the draftPPA terms, apart from the terms in GO dated 12.05.1999, as and whenfinalised, had to be submitted to the GoK. The seven conditions mentionedFin letter dated 23.04.1999 remaining in the realm of negotiation as on01.06.1999 did not detract from a concluded contract based on the GOdated 12.05.1999. The Act does not prescribe a format for a concludedcontract. No penalty or consequence is contemplated for not enteringinto a PPA. A signed PPA is not condition precedent. The language inSection 18(6) of the Act, which contemplates a PPA, is contrasted withGthe term ‘concluded contract’, employed in Section 17 of the Act. Theconcluded contract on tariff is also evident from the conduct of the partiesas power was being supplied at Rs.2.60 per unit without waiting forapproval by Commission. The stand of the Commission that a PPA maynot be necessary, found recorded in the impugned Judgment is highlighted.HIt is contended that this is not a case where there is a counter proposal KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

from the appellant. This is a case where the final proposal of Rs.2.60per unit, made by JTPCL during the meeting held on 26.03.1999, wasformalised by it in the letter dated 31.03.1999. The appellant soughtapproval from the GoK. The approval was granted by GO dated12.05.1999. It resulted in a concluded contract between the GOK/KEBwith JTPCL. The GO dated 17.07.2000, restoring the tariff of Rs.2.60,reversing its corrigendum on 08.05.2000, by which, tariff was sought tobe reduced to Rs.2.52 per unit, indicates that Rs.2.60 emerged as asacrosanct figure, which had to be honoured. This again probabilised thecase of the first respondent that there was a concluded contract. Theexpression ‘concluded contract’ employed in Section 27(2) of the Act,must be given the interpretation apposite to the context provided bySection 27, which deals with factors/guidelines for determination of thetariff by the Commission. In other words, similar words to be found inSections 14(7), 18(6) and 19, where the words used are ‘concludedcontract’ or ‘contract concluded’, may not be suitably used. Reliance isplaced on the Judgment of this Court inRam Narain Sons Ltd. v. Asstt.Commissioner of Sales Tax and others5,Dwarka Prasad v. DwarkaDas Saraf6and Mackinnon Mackenzie & Co. Ltd. v. Audrey D’Costaand another7. In other words, the contention appears to be that theproviso to Section 27(2) of the Act, must be interpreted in the context,which is that a Law-Giver wanted to give relief against retrospectivity,by protecting tariffs, which were subject matter of agreements betweenthe parties arrived at prior to the commencement of the Act. It is furthercontended that it is nobody’s case that the contracts entered into by theKEB were not transferred to the appellant. As per Section 14(7) of theAct, all contracts entered into, with or for the KEB, are deemed to havebeen transferred to KPTCL (the appellant).

36. Considerable support is drawn from the Judgment of the Houseof Lords reported in Alexander Brogden and others and the Directors,& c., of the Metropolitan Railway Company8and Kollipara Sriramulu(Dead) by His Legal Representative v. T. Aswatha Narayana (Dead)9by His Legal Representatives and others. Reliance is placed on thesedecisions to contend that even if the parties did contemplate the signing 5 AIR 1955 SC 765

6 AIR 1975 SC 1758

7 (1987) 2 SCC 469

8 [L.R.] 2 App. Cas. 666 / HL(E) 1877 Vol.2 666

9 AIR 1968 SC 1028

AB

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DEF

G

H

Aof an agreement, it would not prevent formation of a contract, evendehors the formal document.

37. He further contended that the appellant made admissions beforethe High court about the existence of a concluded contract qua tariff,quantum and tenure. As regards the confirmation of the offer by theBfirst respondent’s Board, it is merely a procedural internal requirement,an aspect of the doctrine of indoor management. The recommendationmade by the KEB of the rate is relied upon. The contention based on theappellant coming into existence after 1.6.1999 is brushed aside as amatter of no moment as it is the successor of KEB, therefore bound byCthe contract. Merely because the first respondent was pressing for theexecution of the PPA, it would not detract from there being a concludedcontract qua tariff, quantum and tenure. Otherwise, the appellant wouldnot have purchased power from 15.04.2000. The appellant is unjustifiedin contending that even qua tariff, there is no agreement. The submissionof the appellant that there is a model PPA is erroneous. The model PPADwas issued only in 2005 by the Government of India after the issue ofguidelines for tariff determination by competitive bidding under theprovisions of the Electricity Act, 2003. The contention that there was noapproval granted under Section 43A of the Electricity (Supply) Act, 1948and therefore, the approval of the commission is mandatory under SectionE17 is deliberately made knowing it to be erroneous. GoK Order dated02.03.1996 expressly establishes the consent given by the GoK underSection 43A(1)(c) of the Electricity (Supply) Act, 1948. Section 17 doesnot speak about tariff determination powers of the commission. Thetariff determination is exclusively dealt with by Section 27. It is pointedout that the terms and conditions which were left to be negotiated inFletter dated 23.4.1999 have been incorporated as terms and conditionsin the draft PPA. Instances of perversity in the commission’s orders arepressed before the Court. The first respondent also contended that forvarious reasons it is entitled to be treated as IPP.

G38. The first respondent does not lay store by the finding onpromissory estoppel & legitimate expectation. However, learned Counsel,indeed, supports the other finding interfering with the Order of theCommission, viz., that the first respondent was to be treated as anindependent power producer and that the Orders of the Commissionwere afflicted with arbitrariness and error apparent.H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

ANALYSIS

THE ACT – THE KARNATAKA ELECTRICITYREFORM ACT, 1999.

39. Section 1(3) provides that the Act shall be deemed to havecome into force w.e.f. the First Day of June 1999. Section 13 providedfor the incorporation of the appellant/company. The principal object wasto engage in the business of purchase, transmission, sale and supply ofelectrical energy. Section 13(4) contemplates that the appellant was toundertake the functions in Section 13 and other functions, as may beassigned to it under the licence to be granted by the Commission underthe Act. Section 13(5) reads as follows:

“13(5) Upon the grant of license to the KPTC under chapter VII,the KPTC shall discharge such powers, duties and functions ofthe Board including those under the Indian Electricity Act, 1910and the Electricity (Supply) Act, 1948 or the rules framedthereunder, as may be specified in the license and it shall be theobligation of the KPTC to undertake and duly discharge thepowers, duties and functions so assigned.”

40. Section 14 of the Act reads as follows:

“14. Reorganisation of the Karnataka Electricity Board.- (1) Onand with effect from the date on which a transfer scheme preparedby the State Government to give effect to the object and purposesof this Act is published or such further date as may be prescribed(hereinafter referred to as the effective date of the first transfer),any property, interest in property, rights and liabilities whichimmediately before the effective date of first transfer belong tothe Board shall vest in the State Government on such terms asmay be agreed between the State Government and the Board.

(2) Any property, interest in property, rights and liabilities vestedin the State Government under sub-section (1) or part thereofmay be revested by the State Government in the KPTC or anygenerating company or companies in accordance with the transferscheme published under subsection (1) along with such otherproperty, rights and liabilities of the State Government as may bespecified in such scheme, on such terms and conditions as maybe agreed between the State Government and the KPTC or anygenerating company or companies, as the case may be.

A

BC

D

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G

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A

A(3) From the effective date of first transfer of properties etc., tothe KPTC, the Board shall stand dissolved. The Chairman andMembers of the Board shall be deemed to have vacated theiroffice. Such of the functions, duties, rights and powers exercisableby the Board under the Indian Electricity Act, 1910 or Electricity(Supply) Act, 1948 or any rule framed thereunder as the StateBGovernment may by notification specify shall be exercisable bythe KPTC or any generating company or companies, as the casemay be, from the effective date of first transfer.

(4) Notwithstanding anything in this section, where,- (a) the transferscheme involves the transfer of any property or rights to any personor undertaking not wholly owned by the State Government, thescheme shall give effect to the transfer only for fair value to bepaid by the transferee to the State Government; and (b) atransaction of any description is effected in pursuance of a transferscheme, it shall be binding on all persons including third parties.

C

D

(5) The State Government may, after consulting the KPTC [or alicensee as the case may be], KPTC require the 1 [or a licenseeas the case may be]1 to draw up a transfer scheme to vest in afurther licensee (the “transferee licensee”), any of the functionincluding a distribution function, any property, interest in property,Erights and liabilities which have been vested in the KPTC [or alicensee as the case may be] under this section and publish thesame as the scheme of transfer under this Act. The transferscheme to be notified under this sub section shall have the sameeffect as the transfer scheme under sub section (2) and shall beeffective from the date specified (effective date of secondFtransfer).

E

(6) A transfer scheme under this section may, amongst others,.- (a) define the property, interest in property, rights and liabilitiesto be allocated,-

(i) by specifying or describing the property, rights andliabilities in question; G

(ii) by referring to all the property, interest in property, rightsand liabilities comprised in a specified part of the transferor’sundertaking; or

(iii) partly in the one way and partly in the other; H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

(b) provide that any rights or liabilities specified or described inthe scheme shall be enforceable by or against the transferor,or the transferee, as the case may be;

(c) impose on KPTC or any licensee, an obligation to enterinto such written agreements with, or execute such otherinstruments in favour of, any person as may be specified in thescheme; (d) impose on any transferee licensee the obligations to complywith the power procurement and purchase arrangements withKPTC; and (e) make such supplemental, incidental and consequentialprovisions as transferor licensee considers appropriate includingprovision specifying the order in which any transfer ortransaction is to be regarded as taking effect.

(7) All debts and obligations incurred, all contracts entered intoand all matters and things engaged to be done by, with or for theBoard, or the KPTC or generating company or companies beforea transfer scheme becomes effective shall, to the extent specifiedin the relevant transfer scheme, be deemed to have been incurred,entered into or done by the Board, with the Board or for the StateGovernment or the KPTC or the transferee, and all suits or otherlegal proceedings instituted by or against the Board or transferor,as the case may be, may be continued or instituted by or againstthe State Government or the concerned transferee, as the casemay be.

(8) If pursuant to a transfer scheme framed by the StateGovernment, the KPTC 1 [or a licensee as the case may be]1 isrequired to vest any part of its undertaking in another company orbody corporate or person, the Commission shall amend the licencegranted to enable the transferee to carry out the functions andactivities assigned to the transferee.”

41. Section 17 which is the opening section in part VII, inter aliaprovided as follows: - “17. Regulation of generating companies and stations- (1) Alicensee or a bulk purchaser or any other person may enter into acontract with a generating company for purchase of electricity in A

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Athe manner approved by the Commission and such approvalgranted by the Commission shall have the effect of the consentgiven by the State Government in terms of section 43A of theElectricity (Supply) Act 1948: Provided that the approval grantedby the Commission under this sub-section shall not in any manneraffect the requirements to obtain approvals and sanctions of theBState Government or any other authority under any other law,rule or regulations.”

42. Section 18, which falls in Part VII, deals with the requirementsof a license. It, inter alia, reads as follows:

“18. Requirement of licence.- (1) No person, other than thoseCauthorised to do so by license or by virtue of exemption under thisAct or authorised to or exempted by any other Authority underthe Electricity (Supply) Act, 1948, shall engage in the State in thebusiness of,- (a) transmitting electricity; or (b) supplying electricity,including bulk supply.DXXXXXXXXX

(6) All licenses issued under the provisions of Indian ElectricityAct, 1910, by the State Government or any competent authorityshall be deemed to be a provisional licence and shall be subject tothe conditions provided under sub-sections (4) and (5). All powerEpurchase agreements, transmission services agreements and othercontracts entered into shall continue in full force and effect andwill be transferred to the successor entities.”

43. Section 19 of the Act, deals with grant of licenses by theFCommission. Section 19(1) reads as follows:

“19. Grant of licenses by the Commission. - (1) The Commissionmay on an application made in such form and on payment of suchfee as may be specified by regulations, grant a license authorisingany person to, - (a) transmit electricity in a specified area ofGtransmission; and/or (b) supply electricity in a specified area ofsupply or supply in bulk to the licensees or any person.”

44. Section 19(4)(j) reads, inter alia, as follows:

“(4) Without prejudice to the generality of sub-section (3), theconditions included in a license by virtue of that sub-section mayHrequire the licensee to,- KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

(a) to (i) xxxxxxxxx

(j) purchase power in an economical manner and under atransparent power purchase procurement process; Explanation. -The contracts concluded by the State Government or the Boardwith generating companies and transmission companies prior tothe date of commencement of the Act shall stand assigned to theKPTC in terms of section 14 and the KPTC may continue thepurchase or transmission of power under such contracts foreffecting bulk sales, distribution and supply to other licensees;”

45. Section 20 provides for exemption from the requirement oflicense. It contemplates that the regulation by the Commission to grantexemption from the requirement to have a supply license subject toconditions to be specified. The other provisions of Part VII deals withamendment of licenses and revoking of licenses apart from the generalrestrictions on the licensee.

46. Section 27, which contains the proviso which is at the heart ofthe controversy, inter alia, reads as follows:

“27. Tariffs.- (1) The holder of each licence granted under thisAct shall observe the methodologies and procedures specified bythe Commission from time to time, in calculating the expectedrevenue from charges which it is permitted to recover pursuant tothe terms of its licence and in designing tariffs to collect suchrevenues.

(2) The Commission shall, subject to sub-section (3), have thepower to lay down methodology and the terms and conditions fordetermination of revenue of the licensee under sub section (1) ofthis section and the determination of tariff, in such other manneras the Commission considers appropriate and for doing so, theCommission shall be guided by the following factors, namely:- (a) the financial principles and their applications provided in sections7 and 57-A of the Electricity (Supply) Act, 1948 (54 of 1948) andin the sixth schedule thereto; (b) in the case of the Board or its successor entities, the principlesunder section 59 of the Electricity (Supply) Act, 1948; A

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A(c) that the tariff progressively reflects the cost of supply ofelectricity at an adequate and improving level of efficiency; (d) the factors which would encourage efficiency, economicaluse of the resources, good performance and optimum investmentsand other matters which the Commission considers appropriateBfor the purpose of this Act ; and (e) the interest of the consumers are safeguarded and at the sametime, the consumers pay for the use of electricity in a reasonablemanner based on the average cost of supply of energy; (f) the electricity generation, transmission, distribution and supplyCare conducted on commercial principles (g) national and state power plans formulated by the Central orState Government, as the case may be :

Provided that the contracts concluded by the Government ofDKarnataka and/or the Board with generation and transmissioncompanies prior to commencement of the Act shall be deemed tohave been approved by the Commission under the provisions ofthis Act and shall be given effect by the Commission.

(3) Where the Commission departs from factors specified in thesixth schedule to the Electricity (Supply) Act, 1948 (Central ActE54 of 1948) while determining revenue of the licensee and tariffs,it shall record the reasons therefor in writing.

(4) Any methodology or procedure specified by the Commissionunder sub-sections (1), (2) (3) above shall be to ensure that theobjectives and purposes of the Act are duly achieved.F

(5) Any tariff implemented under this Act,- (a) shall not showundue preference to any consumer of electricity, but maydifferentiate according to the consumer’s load factor, power factor,and total consumption of energy during any specified period orthe time at which supply is required, or the geographical positionGof any area , the nature of the supply and the purpose for whichthe supply is required; or paying capacity of category of consumersand need for cross subsidisation; and (b) shall be just and reasonable and be such as to promoteeconomic efficiency in the supply and consumption of electricity;Hand KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

(c) shall satisfy all other relevant provisions of the Act, regulationsand conditions of the license.

(6) The Commission also shall endeavour to fix tariff in such amanner that, as far as possible, similarly placed consumers indifferent areas pay similar tariff.”

47. Section 5(1) of the Act declares that Members of theCommission shall be persons of ability, integrity and standing, who haveadequate knowledge and experience of and have demonstrated capacityin dealing with law or administration. Section 5 further declares that, atall times, one Member shall be a graduate Electrical Engineer with atleast 25 years of experience of either generation, transmission ordistribution of electricity and have worked in a senior position in the saidfield. There must always be two Members, who have qualification in thefield of law, finance, economics, commerce or administration, with atleast 25 years of working experience. Such person should have workedin a senior position in the said field. There are other aspects, which neednot detain us. Under Section 10 of the Act, the Commission is endowedwith certain powers of a Civil Court. It can enforce attendance ofwitnesses. It can call for information. It can consult to the extent, itconsiders appropriate, such persons or group of persons, who may beaffected or likely to be affected by its decisions. Section 11 deals withthe functions of the Commission. An array of functions vests with itwhich includes regulating the purchase, distribution and supply andutilisation of electricity, the quality of service, the tariff and chargespayable, keeping in view the interest of the consumer as well as theconsideration that the charges are adequately levied and duly collected.There are various other functions. It is to function as an independentStatutory Body Corporate. The Commission has the power to act as anArbitrator or to nominate Arbitrators to decide disputes between thelicensees. The Commission is tasked with the power to grant licencesunder Section 19 of the Act. More pertinently, the Commission isempowered under Section 27(2), to lay down the methodology and theterms and conditions for determination of the tariff, inter alia. Section27(2)(a) to (g) provide for the factors, which are to guide the Commission.

48. On a conspectus of the provisions of the Act, it is self-evidentthat in keeping with the very name of the Act, viz., Karnataka Electricity A

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AReforms Act, 1999, the Legislature intended to depart from the earlierregime, under which, the State Electricity Boards, in conjunction withthe Government, enjoyed a free run in the matter of fixation of tariff.The Act put in place a mechanism, by which, an independent Body, aCommission, consisting of the Experts, as we saw, were to proceed inthe matter, in an independent manner, to determine, inter alia, the tariff.BThe determination of the tariff was to be done, bearing in mind, theinterest of the consumer. At the same time, the Commission was not tobe oblivious to the need to arrive at charges for the service of purchase,distribution and supply of electricity, in such a manner that the tariff isadequate in that the charges for the electricity supply, was duly collected,Cbeing adequate, for maintaining the supply and distribution of electricity.

49. Section 14(7) provides, inter alia, that all contracts, enteredinto with or for the Board or the appellant or the generating company orcompanies, before a transfer scheme becomes effective, is to be deemedto have been entered into or done by the Board, with the Board or forDthe State Government or the appellant or the transferee. Section 17provides that a licensee or the bulk purchaser or any other person, mayenter into a contract, with a generating company, for purchase ofelectricity, in the manner approved by the Commission. Such approval,is accorded the status of a consent given by the State Government underSection 43A of the Electricity (Supply) Act, 1948. Section 18, dealingEwith the requirement of a licence for transmitting electricity and forsupplying electricity, including bulk supply, inter alia, provides in Section18(6) that all power purchase agreements, transmission servicesagreements and other contracts, entered into, shall continue, in full forceand have effect and will be transferred to the successor entities. SectionF19 deals with actual power to grant licence. The power is vested withthe Commission. Section 19(3) provides that the duration, extent to whichand the terms and conditions, under which, transmission or supply ofenergy is to be made, are to be specified in the licence. The licence isalso to contain such other conditions as the Commission may consider appropriate for achieving the purpose of the Act. It is thereafter thatGSection 19(4) provides that without detracting from the generality of thepower with the Commission to impose conditions mentioned in Sub-Section (3), the conditions enumerated expressly in Sub-Section (4), maybe imposed. The Explanation relevant to the case, is found sandwichedbetween Section 19(4)(j) and (k). Section 19(4)(j), the Explanation, whichHfollows thereafter and Section 19(4)(k) read as follows:

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

“(j) Purchase power in an economical manner and under atransparent power purchase procurement process; Explanation: The process concluded by the State Government orthe Board with generating companies and transmission companiesprior to the date of commencement of the Act shall stand assignedto KPTC in terms of section 14 under such contracts for effectingbulk sales, distribution and supply to other licensees; (k) the purchase of power from KPTC to the extent necessary toenable the KOPTC to perform its obligations under the contractsconcluded by the State Government or the Board referred to in aclause.”

50. Moving on to Section 27, the proviso to Section 27(2), bringsup the rear to the said sub-Section. Section 27 deals with the duty of theholder of every licence, to observe the methodologies and procedure tobe specified by the Commission from time-to-time, in calculating theexpected revenue from what it charges. Section 27 uses the expression‘design’. It only means that the Commission is to fix the tariff, whichwould be a medium to raise revenue. It is thereafter that Section 27(2)clothes the Commission with the power to actually lay down themethodology and the terms and conditions for determination of the revenueand the determination of the tariff. The factors to guide the Commissionin this regard are explicitly set-out in Clauses (a) to (g) under Section27(2). Since sub-Section (2) limits the power, with reference to sub-Section (3), we may only notice that Section 27(3) obliges the Commissionto record reasons, when it departs from the factors specified in the SixthSchedule to the Electricity (Supply) Act, 1948 in determining the revenueand the tariffs. Section 27(4) declares that the Commission, in formulatingthe methodology or procedure, is to ensure that the objectives or purposeof the Act, are duly achieved. Section 27(5) further ordains that thetariff is not to reflect any undue preference to any consumer but maydiscriminate on the basis of the load factor, power factor, inter alia. Thepaying capacity of the category of the consumers and the need for cross-subsidisation, can form the premise for differentiation. Every licensee isto provide to the Commission, full details of its calculations for the ensuingfinancial year, of the expected aggregate charges, which it believes tohave been permitted to recover, pursuant to the terms of its licence andsuch further information, as the Commission may reasonably require, toaccess such calculation [See Section 27(7)]. Section 27(7) further AB

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Aprovided that within 90 days of the receipt of all the information by thelicensee that the Commission is to notify either its acceptance or itsrefusal of the licensee’s revenue calculation and tariff proposals. It isobliged to issue a notice, giving reasons, as to why it does not considerthe tariff proposals as compliant with the extant methodology or that it isincorrect. It was to propose a modification or an alternative calculationBof the expected revenue from charges, which a licensee was to accept.Section 27 defined ‘expected revenue from charges’ in the Explanation(a) under Section 27(12) as meaning, ‘the total revenue which theappellant or the licensees are expected to recover from charges forthe level of forecast supply used in the determination under sub-CSection (7) in any financial year in respect of goods or servicessupplied to customers’. Explanation (b) defined ‘tariffs’ as ‘a scheduleof standard prices or charges for specified services which areapplicable to all such specified services provided to the type ofcustomers specified in the tariff published’.

D51. On a conspectus of the Act, the Law-Giver has intended thatthe holder of every licence granted under the Act, is bound by the regimeof regulation of the tariff by the Commission. The appellant wasincorporated under Section 13 of the Act. The Act came into force witheffect from 01.06.1999. The appellant, in other words, was not inexistence prior to 01.06.1999. No doubt it succeeded to KEB. In anEanswer to a query, it is pointed out that initially, the appellant was theholder of a distribution and supply licence. Subsequently, there has beenan unbundling. At present, appellant is engaged in supply of electricity. Itis further not in dispute that the appellant is a licensee under the Act. Itwould, therefore, be clear that being a holder of a licence, the appellant Fwas to follow the procedure under Section 27. It came under the embraceof the jurisdiction and power of the Commission in regard to the regulationof the tariff. The power and jurisdiction of the Commission is to beexercised to ensure that the objectives and the purpose of the Act, areduly achieved. In the Statement of Objects of the Act, it is, inter alia, recited that the law was made to ensure the development andGmanagement of the electricity industry in the State in an efficient,economic and competitive manner to provide reliable quality power andto protect the interest of the consumer, including, vesting in theCommission, the power to regulate the power sector. The sublimelegislative object is further reflected in Section 11A, viz., the declarationHof the functions of the Commission is, inter alia, to protect the interest KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

of the consumer, apart from promoting efficiency, economy, safety, inthe use of electricity. This is, of course, besides ensuring that the chargesfor electricity are adequately levied and duly collected. As noticed by us,the Act signalled the demise of the old system, whereunder, fixation oftariff was afflicted with caprice, unilateralism and a tendency to undulysubsidise the State Electricity Boards, thereby preventing a natural freeplay of market forces, which also did not conduce towards the promotionof the production of electricity in the country. Section 27(2)(e) specificallycontemplates that the Commission is to be guided by the interests of theconsumers, but at the same time, providing for the return, by ensuringthat the consumer pays for the use of electricity in a reasonable manner,based on average cost of supply of energy. Section 27 marked a paradigmshift. An independent Body was to exercise fairly drastic power in thematter of regulating revenue and designing tariff by the licensees. Theproviso in Section 27(2) was, indeed, intended to protect cases, wherecontracts were concluded by either the Government of Karnataka and/or the KEB with generation and transmission company prior to thecommencement of the Act. The proviso freed parties to such contracts,which were concluded from the regulatory regime. If such contractswere concluded, the Law-Giver has made it clear that they would bedeemed to have been approved under the provisions of the Act.Furthermore, the Commission is charged with the duty to give effect tosuch contracts which are concluded before the commencement of theAct. It is, undoubtedly, true that the proviso to Section 27(2) does notuse the words ‘power purchase agreement’. It is equally true that Section18(6), falling under Part VII and dealing with licensing of transmissionand supply, employs, inter alia, the words ‘power purchase agreement’.Section 18(6), in fact, uses also the words ‘transmission serviceagreements and other contracts’. The attempt of the first respondent isto highlight the fact that the proviso to Section 27(2) does not use thewords ‘power purchase agreement’. The Law-Giver was aware andhas used the expression ‘power purchase agreement’ in Section 18(6).In a later provision of the same Act, the same Law-Giver has, by omittingthe words ‘power purchase agreement’ in the proviso to Section 27(2),evinced its intention to be that a contract can be concluded for the purposeof the proviso to Section 27(2) even without there being a power purchaseagreement.

52. The further argument is, that the proviso to Section 27(2)must be understood with reference to Section 27 and not based on a AB

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Aroving expedition, involving survey of other provisions of the Act, whichmay use similar words such as, Section 14(7) and Sections 18 and 19.The principle that a proviso must receive meaning with reference to themain provision to which it is a proviso, is pressed into service.

53. The first respondent relied upon the decision of this Court in10BDwarka Prasad v. Dwarka Das Saraf. This Court held, interpretingthe proviso in question in the said case as follows:

“18. We may mention in fairness to Counsel that the following,among other decisions, were cited at the Bar bearing on the usesof provisos in statutes: CIT v. Indo-Mercantile Bank Ltd, [AIRC1959 SC 713 : 1959 Supp (2) SCR 256, 266 : (1959) 36 ITR 1]; Ram Narain Sons Ltd. v. Asstt. CST [AIR 1955 SC 765 : (1955)2 SCR 483, 493 : (1955) 6 STC 627] ; Thompson v. Dibdin [(1912)AC 533, 541 : 81 LJKB 918 : 28 TLR 490] ; Rex v. Dibdin [1910Pro Div 57, 119, 125] and Tahsildar Singh v. State of U.P. [AIR1959 SC 1012 : 1959 Supp (2) SCR 875, 893 : 1959 Cri LJ 1231]D. The law is trite. A proviso must be limited to the subject-matterof the enacting clause. It is a settled rule of construction that aproviso must prima facie be read and considered in relation to theprincipal matter to which it is a proviso. It is not a separate orindependent enactment. “Words are dependent on the principalEenacting words to which they are tacked as a proviso. They cannotbe read as divorced from their context” (Thompson v. Dibdin,1912 AC 533). If the rule of construction is that prima facie aproviso should be limited in its operation to the subject-matter ofthe enacting clause, the stand we have taken is sound. To expandthe enacting clause, inflated by the proviso, sins against theFfundamental rule of construction that a proviso must be consideredin relation to the principal matter to which it stands as a proviso. Aproviso ordinarily is but a proviso, although the golden rule is toread the whole section, inclusive of the proviso, in such mannerthat they mutually throw light on each other and result in aGharmonious construction.

“The proper course is to apply the broad general Rule ofconstruction which is that a section or enactment must be construedas a whole, each portion throwing light if need be on the rest.

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

The true principle undoubtedly is, that the sound interpretationand meaning of the statute, on a view of the enacting clause,saving clause, and proviso, taken and construed together is toprevail. (Maxwell on Interpretation of Statutes, 10th Edn., p.162)””

54. In other words, since Section 27 is a provision, which appearsto deal with the revenue and tariff, which a licensee can garner/charge,it suffices, if there is a contract, which is concluded, which has, for itssubject matter, the most indispensable element, viz., the tariff. It is pointedout that in this case, the three essential components of a contract for thepurposes of Section 27, have been concluded well before 01.06.1999.Correspondence and negotiation culminating in the issue of the G.O.dated 12.05.1999 by the GoK, by which, the Government of Karnataka,gave its approval for the tariff at Rs.2.60 per unit, for the tenure of fiveyears, and what is more, the quantum to be supplied by the first respondent,was also agreed upon cements the case of the first respondent thatthere was a concluded contract for the purpose of Section 27(2).

55. Shri Gopal Jain, learned Senior Counsel, would persuade theCourt to take a pragmatic and fair view. The Government of Karnataka/KEB was, indeed, faced with the shortage of power. The proposal ofthe first respondent was most reasonable. If the parties were agreed onthe essential terms, which, in terms of the proviso to Section 27(2),consisted, primarily of the tariff, and a PPA is conspicuous by its absencein the proviso, as an indispensable requirement, to constitute a concludedcontract, then, nothing more is required to support the impugned Judgment,it is contended.

THE LAW RELATING TO CONTRACT

56. Section 2 of the Indian Contract Act, 1872 provides for theinterpretation clause. We may set out our understanding of Section 2, sofar as it is relevant, to be as follows:

It begins with a proposal made by a promisor. A proposal is anoffer to do something or an offer to abstain from doing something.The offer must be made with a view to obtaining the agreementto it from the party to whom it is made. When the person to whomthe proposal, as defined, is made, who is treated as the promisee,conveys his unqualified consent, the proposal is treated as havingbeen accepted. The proposal, when it is accepted, becomes a A

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Apromise. An agreement is every promise and every set of promisesforming the consideration for each other. As to what isconsideration, we need not be detained. A contract is an agreementenforceable by law. Section 3 of the Contract Act deals withcommunication, acceptance and revocation of proposals. Theacceptance of a proposal, inter alia, takes place by any act orBomission of the party accepting. It must be an act or omission bywhich he either intends to communicate his acceptance or whichhas the effect of communicating his acceptance. These arematters of fact to be decided on the facts of each case. Section10 of the Contract Act reads as follows:

C“10. What agreements are contracts. —All agreements arecontracts if they are made by the free consent of parties competentto contract, for a lawful consideration and with a lawful object,and are not hereby expressly declared to be void.

Nothing herein contained shall affect any law in force in IndiaDand not hereby expressly repealed by which any contract isrequired to be made in writing1 or in the presence of witnesses,or any law relating to the registration of documents.”

Thus, from the second part of Section 10 of the Contract Act, it isself-evident that it is not essential to form a contract, that it should be inEwriting. The second part of Section 10, illustrated by Section 19 of theCopyright Act, 1957 applies where a law stipulates that a contract be inwriting in which case a contract must be reduced to writing.

THE CORRESPONDENCE AND CONDUCT OF THEPARTIESF57. It is apposite to refer to order dated 7.3.1994 where it allbegan. It reads as follows:

“PROCEEDINGS OF THE GOVERNMENT OF KARNATAKA

Sub:Proposal of M/s. Jindal Iron & Steel Company Limited toGset-up a 300 MW . Power plant in two stages of 150 MwEach near Bellary-Hospet.

Consequent on the amendments made by the Government ofIndia to the India Electricity Act 1990, and the Electricity (Supply)sector participation in power generation and to sign MOUs withHprivate or foreign companies to set up Thermal Power Plants at KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

Mysore, Hospet, Raichur, Mangalore and Bangalore and a Hyde!Power Station at Shivasemudram.

1. M/s. Jindal Iron & Steel Company Limited are setting up acombined gas cycle plant of 300 MW (2XI50 MW) power plantat Bellary-Hospet within the site allotted for a Steel Plant of 1.25million ton capacity per annum, for which the Government ofKarnataka has already accorded approval.

2. The estimated cost of the power plant is approximately Rs.900Crores. The debt equity ratio shall be 2.1. The equity of aroundRs.225/- crores will be met 50% each by ‘ .. the participants - M/s. JISCO and M/s. TRACT ABEL. The loans shall be arrangedboth from Indian financial institutions and foreign banka for whichdiscussions are under progress.

3. The advantage in setting up of the power plant at Bellary-Hospet is that the excess power generated will be fed to the KEBgrid which will make the system more stable and can supply powerto other industrial units in and around the Bellary-Hospet region.Besides. it would also help to generate additional employment.The fact that the Lingapur 220 KV Sub-station is nearer to thesite of the proposed Thermal Power Plant, will help in inter-connection with the Sub-station.

4. The Karnataka Electricity Board has agreed to the proposal ofM/s. Jindal Tractebel Power Company for setting up of thegenerating plant at Bellary - Hospet subject to the toll owingconditions:

1. The above firm should send a detailed project report dulyindicating the cost of the project with all relevant details like,mode of execution fixation of tariff etc;

2. For evacuation of power from the above, the present KEBtransmission and distribution system may have to bestrengthened thus necessitating substantial funds for the above.Board is examining the possibility of obtaining funds fromvarious organizations either from Government or other sources;

3. The sale of power should be exclusively to KEB and not toany other entrepreneurs. In case power is contemplated to besold to third parties directly, the sales shall be at the rates to be ABC

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fixed by Government of Karnataka/KEB and with the priorapproval of Government of Karnataka/KEB;

4. The firm has to enter into power purchase agreement withKEB and the rate at which power is to be purchased by KEBis to be separately worked out;

5. The firm has to indicate the cost of the generation to take adefinite decision for I purchase of power from them.

ORDER NO. DE 221 PPC 93 BANGALORE. DATED 7THMARCH 1994.

After examining the matter in detail Government are pleasedto accord; approval to the proposal of M/s. Jindal Iron & SteelCompany Limited a follows:

[1] Ms. Jindal Tractabel Power Company (JTPCL) is permittedto set up this plant in two phases of 300 MW (each phaseconsisting of !50 MW each) subject to obtaining the approvalof the Government of India in respect of foreign investment byM/s. Tractabel, Belgium in Karnataka and also subject toobtaining other statutory clearances under the relevant Acts; [2] M/s. JTPCL is permitted to sell power directly to industrialunits of the area at the mutually negotiated rates between M/s. JTPCL and the industrial Units, subject to approval by theState Government [3] To permit KEB to evacuate power produced by M/s. JTPCLthrough its grid system subject to the capacity of the grid systemand subject to payment of Wheeling and Banking chargespayable to KEB by M/s. JTPCL after evacuating powerproduced by KPCL; [4] The company has to sell the balance power to KEB at atariff to be fixed according to the norms laid down by theGovernment of India vide Notification dated 31.3 .1992; [5] KEB will make wheeling and banking arrangements forM/s. JTPCL on payment of wheeling charges; [6] KEB is permitted to enter into an agreement with M/s.JTPCL regarding power purchase subject to approval by theState Government.”

58. A perusal of proceeding dated 07.03.1994 would reveal thatthough the KEB put forth the condition, inter alia, that the power to begenerated by the thermal plant sought to be set up by JISCL, was to besold exclusively to KEB and not to any other entrepreneur and that thefirm has to enter into a power purchase agreement with KEB, and therate at which power to be purchased by the KEB, is to be separatelyworked out, in the Order, the GoK permitted the first respondent to sellpower directly to industrial units of the area at mutually negotiated ratesbetween the first respondent and the industrial units subject to approvalby the State Government. Further, it was decided, inter alia, that thefirst respondent had to sell the balance power to KEB at a tariff fixedaccording to the norms laid down by the Government of India videNotification dated 31.03.1992.

59. Finally, KEB was permitted to enter into an agreement withthe first respondent regarding power purchase, subject to approval bythe State Government. What is noteworthy is that the KEB took thestand that the first respondent would have to enter into a power purchaseagreement with the KEB, and the rate at which power was to bepurchased, was to be separately worked out. In keeping with the decision,apparently, that the first respondent was to sell the balance power to theKEB, the Clause relating to sale of excess power to KEB was firstindicated in the Heads of Terms and later on in the Wheeling Bankingand Grid Support Agreement. It will be noticed that in the clause, whatwas agreed upon, was that there was to be agreement as regards priceand other terms which were to be negotiated at the time of sale. Thismay be contrasted with the terms of the proceedings dated 07.03.1994,which contemplated sale according to norms dated 31.03.1992. On20.10.1998, referring to an earlier letter dated 28.09.1998, the firstrespondent wrote to the KEB that tariff at which they would sell powerwas in accordance with the Government of India Notification dated30.03.1992. A statement was forwarded, containing the tariff calculationand also indicating certain assumptions. On 21.11.1998, the firstrespondent wrote to the KEB and we need notice the following:

First respondent claimed that it has completed 100%construction, erection and testing activities of Unit No.1 (130 MW).It was scheduled to synchronise the Unit No.1 by last week ofDecember 1998. For Unit No.2, the first respondent claimed, ithad completed 100% construction, 90% erection of equipment, AB

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Athe boiler light up was scheduled in January 1999 and thecommissioning was scheduled in July 1999. Thereafter, firstrespondent refers to the PPA signed with JVSL and JPOSCL. Itwas further stated that by proceeding dated 02.03.1996,Government of Karnataka had given approval for the same. Thefirst respondent further makes reference to Clause 2.4 of theBWheeling and Banking Agreement for sale of power to KEB atmutually agreed rates. The communication reveals that thereafter,the first respondent proceeded to make an offer to KEB for saleof power. It offered 50MW from the commissioning date of UnitNo.1. Further, it offered 100 MW (base load basis ofCcommissioning date of Unit No.2). A further offer was made ofmaximum of 200 MW during the period when JVSL, JPOCL,which were the dedicated consumers were under shut down (majorbreak down or during their maintenance period). Penalty wasoffered if supply was less than 75 MW from the commissioningdate of Unit No.2. The price offered was Rs.2.90/KWHR. It isDthereafter that it was indicated that the price was to be exclusiveof the electricity tax, adjustment towards inflation, compensationtowards foreign exchange variations, provision for fuel escalationcharges, maintenance of power plant, for force majeure conditions.The proposal was to supply power for an initial period of fiveEyears from the date of commissioning of the second 130 MWUnit. There is reference made to utilisation of power during thestabilisation period and we are not referring to the contents of thesame except to point out that this represented the second proposal.Finally, the letter ended with a request to the KEB to accordapproval for the above two proposals. The KEB, in response,Fpointed out that the Board was, in principle, willing to purchasepower from the first respondents and the proposal of the firstrespondent, regarding tariff, was stated to be under evaluation bythe Board. It can be safely concluded that as on 15.12.1998, quiteclearly, apart from the KEB indicating that it was, agreeable inGprinciple, to purchase surplus power from the first respondent,there is no other effect in law produced.

60. Under the proviso to Section 27 of the Act relied upon by therespondent, a contract could be concluded with the Government or withthe Electricity Board. In either case undoubtedly the regime under sectionH27 would cease to apply and the Commission would not have any power.

61. In the notes submitted by first respondent, it was seencontended that the contract was concluded between the first respondentand GoK/KEB. To proceed with clarity, the court specifically askedwhether the case of the first respondent was that the contract wasconcluded between the GoK and the first respondent or with KEB withthe first respondent. The submission which was made by the firstrespondent was that the contract was concluded between the KEB andthe first respondent. Therefore, we must proceed on the basis thatcontention of the first respondent is that the contract was concludedbetween the first respondent and the KEB. The significance of this findingis that it obviates any adjudication as to whether the contract in questioncomplies with the mandate of Article 299 of the Constitution. The appellantasserts that there can be no implied contract with the Government underArticle 299 and enlists support of case laws in this regard. In view of thestand of the first respondent which we have indicated it would be anunnecessary digression to explore the contours of Article 299.

62. The main question which arises for consideration is whetherthere is contract concluded between the first respondent and the KEBand if so, whether such a contract was concluded before 01.06.1999?01.06.1999 admittedly marks the commencement of the Act. If as on01.06.1999, no contract was concluded between the KEB and the firstrespondent within the meaning of proviso to Section 27(2), and such acontract was concluded thereafter, it will not advance the case of thefirst respondent.

63. We must at this juncture deal with an appeal made by thelearned Senior Counsel for the first respondent. It is contended that thisCourt may adopt a pragmatic view. The first respondent had excesspower. The KEB stood in dire need of power. Thereafter, negotiationsensued based on Clause 2.4 of the wheeling and Banking and GridAgreement. Apart from oral negotiation, correspondence evidence therespective positions adopted by the parties. The KEB took up the matterwith the GoK and GoK finally gave approval on 12.05.1999. The termsapproved by the GoK stand incorporated in the subsequent PPA thoughthe PPA was executed after 01.06.1999 but the significance of all this isthat as regards the essential terms, the parties were agreed. A practicalview is therefore pressed upon as a just view also, namely, substantiallyfor all practical purposes the parties were ad idem. Repeatedly ourattention is alerted to the fact that acting upon the GO dated 12.05.1999

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Aand making it the sheet anchor, first respondent even supplied power.Though there was some prevarication as regards the rate being 2.60 perKWH, the GoK sought to honour the contract as embodied in the G.O.dated 12.05.1999 by issuing G.O. dated 17.07.2000.

64. We are dealing with a statutory dictate. What is required to beBestablished is that the contract stood concluded and furthermore it wasso done before 01.06.1999. Dr. Abhishek Manu Singhvi and Shri GopalJain, learned Senior Counsels are right in pointing out that the purport ofproviso is to provide against retrospectivity of the law. In other words,the lawgiver contemplated that when a contract stands concludedbetween the Government or the KEB and a party before the Act cameCinto force, the regulatory regime should not be allowed to unsettle asolemn contract.

65. In this regard, we must bear in mind that the Act envisagesthe setting up of an independent Commission. The Commission stoodendowed with various functions. One of the important functions is to fixDthe tariff. One of the vital objects of the Act is to protect the interest ofthe consumer. The Electricity Board which was set up under theElectricity (Supply) Act, 1948 was clothed with the power for fixing therate. The undesirable results it produced and the need for locating thepower in an independent body which would fairly and on preordainedEprinciples which involves striking a balance between the interest of theconsumer and at the same time promoting efficiency in the power sectorleading to enhancement in power generation led to the new regime.While a reasonable view must indeed be taken it cannot be half baked ora legally untenable approach. Flying on the wings of pragmatism, theCourt cannot gloss over a statutory injunction. We would think that theFfirst respondent must anchor its case on surer foundations.

66. In this case, we proceed on the basis that it all began with thecommunication dated 20.10.1998 sent by the first respondent. However,for reasons which will be clear, we need not harp upon its contents ingreater detail. On 21.11.1998, after referring to the fact that the firstGrespondent was recognised as an independent power producer and ithas achieved financial closure and further that it was the only companyin Karnataka which could be set up as an independent power producerand still further having completed 100% construction, erection and testingability in regard to Unit I, it was stated that the synchronising of Unit IHwill take place by the last week of December 1998. Regarding Unit II,

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

commissioning was projected in July, 1999. Thereafter, the formal offerwas made for sale of power. The rate was Rs.2.90/Kwhr. Even the saidrate was to exclude electricity tax, inflation, foreign exchange, fuelescalation charges, maintenance of power plant. The rate was also tobe exclusive of force majeure. This meant that if there is grid failure ortransmission line failure leading to no supply, there would be no penaltyon the minimum guaranteed power. There is also another aspect in theoffer under the caption “utilisation of power during stabilizing period”that is from the date of synchronisation till commercial operation. Thereare certain details thereunder and the letter concluded by the firstrespondent requesting approval to the two proposals at the earliest. Bycommunication dated 15.12.1998, the Board conveyed that the proposalof the first respondent is under evaluation. The Board (KEB) alsoexpressed its willingness to purchase power as already discussed. On19.01.1998, the KEB wrote to the GOK. Therein, it is, inter alia, statedthat the plant of the first respondent which was set up as a captivepower plant was given IPP status later on by GO dated 01.02.1996 asthe shareholders of the power plant (the first respondent) and the steelplant (the sister concern of the first respondent) were different. Afterreferring to the wheeling and Banking agreement, it is, inter alia, statedthat the first respondent during discussion revealed that there was adecline in the demand for power due to the reduction in the demand ofthe steel, leading to the proposal by first respondent, KEB further wroteabout PPAs entered into with various IPPs and the fact that the progressunder the said agreements was not satisfactory. Some other plants maynot come up was a concern voiced by the KEB. Other issues relating tothem find reflection. Shortfall in generation in the state and the steadydemand for power are seen articulated. KEB was purchasing powerfrom Maharashtra State Electricity Board in addition to central generatingstations. After dealing with Wheeling and Banking agreement and clause2.4 which contemplated sale of excess power to the KEB, it was statedthat the clause, however, contemplated purchase at a negotiated rate.This, it is further stated was because at that stage details regarding thecapital cost were not looked into as the project was contemplated as acaptive power plant. It is also for the same reason stated that it wouldnot be possible to negotiate tariff based on two-part tariff notification ofthe Government of India. After providing certain other details includingthe variation in the exchange rate qua the US $ and the decrease inconsumer price index, interest rate and the need for annual increase in A

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Athe fixed price, negotiations were undertaken it is mentioned. After detaileddiscussion, it was decided that a price of Rs.2.60 per unit could be offered.This comprised of Rs.1.70 as fixed charge and Rs.0.90 as variable charge.Variable cost was to depend on the cost of coal. Its cost would determinethe variable price. Suffice it to further notice that the KEB suggestedthat “We” can purchase power from the first respondent at Rs.2.60 perBunit (FC Rs.1.70) plus (VC Rs.0.70). The fixed charge was to beescalated from the second year with the conditions of penalty to be paidby the firm for short supply of power and assured off take which hasbeen referred in the letter earlier. We may finally notice the final paragraphof the said communication “Approval of the government is sought to theCabove proposal. Subsequent to the approval, negotiations will be heldwith M/s JTPCL for finalizing the PPA.”67. The GOK wrote to the KEB. It is stated inter alia that theproposal was examined in detail. The efforts of KEB to bridge the gapon power availability by entering into short term agreement with the firstDrespondent was appreciated. The wide gap between demand and supplywas noted. The prospect of the demand going up further was echoed. Itis finally stated as follows:

“The present proposal of the KEB keeps the tariff open endedand possible revision. The PPA being for a period of 5 years,EKEB is advised to negotiate with the Jindal Tractebel for a fixedtariff for the next 5 years.

This may kindly be got examined by KEB and the revised proposalmay be sent to the government”

68. We must not be led astray by the use of the word “the presentFproposal of the KEB” as meaning that the proposal is one made by theKEB. In law, it would be the first respondent which has made theproposal as contained in its communication dated 21.11.1998 andthereafter following negotiations, the first respondent came up withthe price of Rs.2.60. It is this proposal of the first respondent whichGwas suggested by the KEB. The GoK found that the said suggestionabout the proposal made by the first respondent kept the tariff openended with possible revision. The GoK contemplated a PPA beingentered into limited to a period of 5 years. Therefore, the GoK wantedKEB to further negotiate a fixed rate for the next 5 years. A revisedproposal was to be sent to the Government. It is not the case of theHeither party that a concluded contract emerged at this stage. Without KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

the parties apparently being aware, the next communication broughtthem even more perilously close to the date of the commencement ofthe Act. On 31.03.1999, the first respondent wrote about its first proposalon 21.11.1998. The fact that the discussions followed is furthermentioned. Specifically, there is reference to meeting held on26.03.1999. The readiness of the KEB to purchase power was madesubject to the following terms and conditions:

1. The term of the agreement could be 5 years.

2. The tariff should be a single part tariff. Escalation at a fixedpercentage could be applied on the total price on an annual basis.KEB will not consider any request either for two-part tariff basedon CEA guidelines or for payment of fuel cost at actuals.

3. KEB will open irrevocable revolving letter of credit under whichJTPC can get payments. It will also be supported by Escrowmechanism.

4. There can be penalty clause both for short supplies and shortdrawals.

5. The PPA should be a simple document.”

69. A formal proposal being demanded by the KEB subject to theapproval of the Board of Directors and also the approval of its lender,the first respondent made the proposal.

“Accordingly, subject to approval of our Board and also subject toapproval of our lenders, we make the following proposal for saleof power to KEB.

1. JTPC offers 50 MW (Energy 36 MU per month) of powerfrom the commissioning date of Unit 1 and 100 MW (Energy 72MU per Month)of power from the commissioning date of Unit 2.The first Unit of 130MW is expected to be commissioned in June1999 and the second unit of 130 MW is expected to becommissioned in August 1999.

2. JTPC would have an option to supply in excess of SOMW(Energy 36 MU per month) after commissioning of Unit 1 and100 MW (Energy 72 MU per month) after commissioning of Unit2, with KEB’s approval, as and when JTPC has surplus poweravailable.

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SUPREME COURT REPORTS[2022] 12 S.C.R.

3. The tariff will be as follows:

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4. There will be no Wheeling charges or Electricity Tax on suppliesto KEB.

5. To maintain uniformity in penalty on either side, JTPC proposesas follows as from COD of Unit 2:

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(a) JTPC guarantees minimum supply of the Threshold PowerValue after commissioning of JTPC Unit 2. If the supply is lessthan the Threshold Power Value, JTPC will pay penalty at l0% ofthe tariff, for supplies below the Threshold Power Value.

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(b) KEB shall guarantee that it will consume the Threshold PowerValue. In case the consumption is less than the Threshold Pow~rValue, KEB shall pay to JTPC the full value of Threshold Powerat the applicable tariff as above.

(c) The Threshold Power Value is 75 MW (Energy 54 MU permonth).

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6. The minimum supply and the minimum consumption as per para5(a) and 5(b) above are applicable on a monthly basis.

7. If there is escalation in fuel cost beyond 5% at any time, JTPCFreserves the right to terminate the contract with 3 months’ notice,if KEB does not agree to compensate for such escalation.

8. KEB shall open irrevocable revolving letter of creditcorresponding to 100 MW (Energy 72 MU per month) powersales under which JTPC can get payment for its monthly bills. ItGshall also be supported by Escrow mechanism.

9. The initial term of the agreement should be 5 years till March31, 2004, with a provision for renewal on terms mutually acceptable.

We request you to agree to the above terms and conditions andconvey your acceptance at the earliest. We will approach ourHBoard and the lenders on getting your acceptance.

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

We also request you to let us have drafts of the PPA, Escrowagreement and the Letter of Credit at the earliest. We propose tohave one more meeting with your officials, after studying thesedrafts.

Looking forward for your early favorable response, Thanking you, Yours faithfully For JINDAL TRACTEBEL POWER CO., LTD.

Sd/-

S.S. Rao

Dy, Managing Director & CEO

CC: Superintending Engineer El. Projects. KEB”

70. 23.04.1999 is the next milestone. After referring to the previousdevelopment leading up to the proposal dated 31.03.1999, KEB wrotethat there were two options available. The fall in the rupee was noted.Thereafter, it is stated as under:

“The firm in its letter No.JTPC/KEB dated 31-3-1999 hasconfirmed that the tariff payable by KEB for power purchasedwill be Rs.2.60/unit in the first year with an annual escalation of5% every year. They have stated that they will be offering 50MWs (equivalent to 36 MU per month) from the date ofcommissioning of the first unit and 100 MW (equivalent to 72 MUper month) with the commissioning of the second unit The firstunit is expected to be commissioned in June 1999 and the secondunit in August 1999. They have also indicated that in case theyhave any surplus power beyond 50 MWs and 100 MWs aftercommissioning of unit I and unit 2, with the approval of KEB, theywill sell power in excess of 50 MWs and 100 MWs.

The firm has also proposed the following after commissioning ofUnit 2:

1. They will supply power with a threshold value of 75 MWsequivalent to 54 MU per month.

2. If supply is less than the threshold power value, then JTPC willpay penalty of 10% of the tariff for supplies below the thresholdpower value.

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3. KEB shall guarantee that it will consume the threshold powervalue. In case the consumption is less than the threshold value,KEB shall pay to JTPC the full value of threshold at the applicabletariff as above.

4. The minimum supply and minimum consumption as above areBon monthly basis.

5. If there is a escalation in fuel cost beyond 5% at any time,JTPC reserves the right to terminate the contract with 3 monthsnotice, if KEB does not agree to compensate for such escalation.

6. KEB shall open irrevocable revolving letter of creditCcorresponding to 100 MW (energy 72 MU per month) power salesunder which JTPC can get payment for its monthly bills. It shallalso be supported by Escrow mechanism.

7. The initial term of the Agreement should be 5 years till March31, 2004 with a provision for renewal on terms mutually acceptable.

DThese are issues to be negotiated with the firm while finalisingthe PPA and will be taken up later on.

This is for information of the government and it is requested thatorders may please be obtained and communicated to us.

With regards,

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Yours sincerely,

Sd/-

(K.P. SINGH)

Shri Arvind Jadav,

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Secretary to Government,

Department of Energy,

Government of Karnataka,

Bangalore.”G71. Thereafter, on 12.05.1999 emerges the Government Orderwhich reads as under:

1. KEB is permitted to finalize a Power Purchase Agreementwith M/s Jindal Tractebel Power Company Limited (JTPCL) forthe purchase of surplus power and submit the same to theHGovernment for approval.

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

2. The rate per unit being Rs. 2.60 including variable charges withan annual increase of 5% every year.

3. The term of the PPA shall be for a period of five years.

4. To adopt the same principle of negotiated tariff for captivegenerating power project who intend to sell power to KEB.

By Order and in the name of the Governor of Karnataka (K.T. VUAYARAJ URS)

Under Secretary to Government

Energy Department”

DEVELOPMENTS POST 01.06.1999

72. Nearly, six months after 01.06.1999, i.e., on 04.01.2000, theSuperintending Engineer of KEB wrote to the first respondent statingthat the communication related to the tariff of Rs.2.60 per kw/hrnegotiated for purchase by the appellant. The first respondent wasrequested to furnish details of the break-up of the tariff so as to enableKEB to take further action in the matter. It may at once be noticed thatappellant could not have negotiated prior to 01.06.1999. This is for thereason that the appellant was only an offspring of the Act, which cameinto force with effect from 01.06.1999. The first respondent wrote letterdated 06.04.2000 to the chairman of the appellant. It refers to theagreement between the first respondent and the appellant and thatthereunder first respondent was to return 215.810 MU to the appellant.It is indicated that as on 06.04.2000, the first respondent had returned199.80 MU to the appellant. Referring to order dated 12.05.1999, it wasstated that it permitted the appellant to purchase power from it at Rs.2.60 inter alia. It was also stated that it permitted appellant to finalise thePPA with the first respondent. It was also stated that the first respondenthad finalised the PPA with the appellant and the final draft as acceptedwas submitted to the appellant in September-October, 1999.

73. It may be noticed that the aforesaid statement indicates thatthe final draft which was accepted between the parties was submittedonly in September/October 1999. This is significant as it fortifies us inour view that the parties did contemplate the PPA and the relevant termswere to be embodied in the PPA. The final draft was clearly ready onlyafter 01.06.1999. Thereafter, referring to G.O. dated 7[th] July 1999, thefirst respondent goes on to state that the said order directs the appellant A

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Ato operate the PPA as per the order dated 12.05.1999 only after complyingwith the obligations of GoK under order dated 07.07.1999. This is withreference to serial no.8 of order dated 7[th] July 1999. The first respondentgoes on to state in the letter dated 06.04.2000 that it was continuouslypursuing the appellant and GoK for signing of the PPA. It is furtherstated that even though the PPA was not yet signed, being pending withBappellant, the absence of the PPA should not come in the way of supplyingpower by the first respondent to the appellant from 12.04.2000 as theorder dated 12.05.1999 along with the details of the tariff does exist.Significantly thereafter, the first respondent indicated that pendingfinalisation and signing of the PPA between the parties, appellant wasCrequested to accept power despatched by the first respondent from12.04.2000. Invoices would be generated by the first respondent in termsof letter dated 12.05.1999. It was indicated by the first respondent that itwas to be again subject to any changes required to be done subsequentlyas per the terms and conditions of the PPA, to be agreed and signedbetween the parties. The contents of the communication have beenDemphasised by Shri Raghavendra S. Srivatsa, learned counsel for theappellant as clearly indicating that matters were in a state of flux anduncertainty and still furthermore articulation was to await the finalisationof the PPA. On 12.04.2000 the appellant responded to the communicationdated 06.04.2000. The appellant communicated its approval for theEcontinued supply pending finalisation of the PPA but subject to certainconditions. We may notice those conditions:

1. The Grid support charges envisaged in the Wheeling & Bankingand Grid support Agreement i.e., Rs. 1.73 Crores Annum will beprovisionally deducted from the tariff invoices when the amountFis paid. This will be subject to change and has to be paid as perthe terms of PPA to be signed.

2. The 115% energy imported will be deducted from the energyexported, provisionally pending finalization.

3. The energy will be accounted only after signing of PPA.

G4. The energy banked prior to signing of PPA will be treated asenergy banked with the Corporation and will be accounted as perthe Corporations rules.

5. This order is only for facilitating continued operations of thePower Plant and Corporation makes no commitments with respectHto terms of PPA which is being finalized separately.

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

6. The metering arrangements should be as per the Article No. 4of the Wheeling, Banking Agreement and Grid Support Agreementalready signed copy of the same is enclosed.

[Emphasis supplied]

74. Pertinently, it is noteworthy that the appellant appointed aprofessional body CRISIL to re-examine the matter relating to tariff.CRISIL submitted report to the appellant that the rate should be Rs.2.10 per KWH in the first year. The appellant found the figure indicativeand recommended that Rs. 2.45 per KWH should not be exceeded.GoK issued corrigendum dated 08.05.2000 fixing the rate at Rs. 2.52per KWH. A perusal of the letter dated 24.05.2000 sent by the Additionalsecretary of the appellant to the Chief Engineer Electricity, KTPCLindicates that Corporation gave its approval for the energy supplied tothe Grid from 15.04.2000 onwards at Rs.2.52 per unit pending signing ofPPA. It also contains certain terms. They are as follows:

1. The procedure for payments should be as per the standardprocedure followed in case of IPP Projects.

2. 115% of imported energy should be deducted form the exportedenergy and payments will be made for net exported energy soarrived.

3. The metering should be as per the terms of Wheeling & Banking-Grid support Agreement between KEB and JTPCL signed on 2301-96, till such time PPA is finalized.

4. The firm has to submit an undertaking that the terms andconditions of PPA between KPTCL and JTPCL will be applicablefor the payments made by KPTCL for the energy supplied byJTPCL from the date as approved by government till the PPA issigned.

5. This is only an order to facilitate payment of energy charges toM/s. JTPCL and Corporation makes no commitments in this regardand the terms of PPS will be finalized separately.

6. The energy transaction prior to 15-04-2000 will be finalizedseparately.”

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A75. Therefore, the said communication would not indicate conductwhich matches action in accordance with the concluded contract allegedlyunder the GO dated 12.05.1999, as the rate stood reduced from Rs.2.60to Rs.2.52. Various conditions as noticed by us are incorporated.Importantly, condition no.5 indicates that it is only an order to facilitatepayments. It was unambiguously indicated that the appellant did not makeBany commitment in this regard and clinchingly it was indicated that theterms of the PPA will be finalised separately.

76. The last communication after 1.6.1999, to bear in mind, is theOrder dated 17.07.2000. Therein, in the Preamble, it is, inter alia, statedthat KEB was permitted to finalise the PPA for purchase of the surplusCpower, as provided therein. Reference is made further to the GovernmentCorrigendum dated 08.05.2000, whereunder, the rate was reduced toRs.2.52 per unit. Next, it is stated that, on examination, it was found that,continuing with earlier rate of Rs.2.60 per unit, would result in honouringthe commitment of the Government. There would be advantage ofDprocuring the better price every year. The formal Order was passed bythe GoK, permitting the appellant to purchase power at the rate of Rs.2.60,with an annual increase of five percent every year, as indicated in thePreamble to the Order. The Order was to be implemented from the dateof issue of the Order. The other conditions of the Government Orderdated 12.05.1999 were to remain unaltered. It is thereafter that the draftEPPA was prepared dated 07.11.2000. We may observe, that as far asthe rate is concerned, the rate indicated in G.O. dated 12.05.1999, beingrestored and bearing in mind the contents of G.O. dated 07.07.2000, itcould be found, that the ‘rate’ as such was concluded under G.O. dated12.05.1999.F

77. However, a golden thread, which runs through thecorrespondence is that, both the KEB, GoK and the appellant and thefirst respondent, did contemplate the execution of the PPA. Thecorrespondence after 01.06.2000 also, unerringly, points to the fact thatparties did not view the PPA as a mere desire. They have clearlyGproceeded on the footing that the terms of the agreement must beevidenced in writing. Quite clearly, the High Court has erred in not bearingin mind the contents of the communications and their true purport.

78. It is true that there is no express provision in the proviso toSection 27(2) of the Act within the meaning of second part of Section 10Hof the Indian Contract Act, that the contract, which is concluded, must KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

be in writing. However, the question would arise, as to whether there isa contract, which was concluded within the meaning of proviso to Section27(2). It is further true that Section 27(2) does not use the words ‘PowerPurchase Agreement’. Section 19(4)(j) of the Act refers to ‘contractsconcluded’. Placing the said words side-by-side with the words used inthe proviso to Section 27(2), we find that they are identical. The saidwords, viz., ‘contracts concluded’ must bear the same meaning, both inSection 19 and in Section 27. It is true that there is no format prescribedfor a PPA. The format came in 2005. Section 27(2) and Section 19(4)(j),do not expressly refer to a PPA. However, the search must continue toascertain the purport of the words ‘contracts concluded’. In order thatthere must be a contract concluded, undoubtedly, there must be a proposalmade, which must be accepted. There must be consideration for thepromise. The proposal must be accepted, which must be communicated,as already explained. The acceptance must be unqualified. This is anover simplification of a complex process. We say this, as the parties canbe said to have entered into a contract or a contract would be said to beconcluded only when they are ad idem on all the essential terms of thecontract. In other words, if the proposals containing the essential termshave been accepted, and the acceptance is communicated and, if theother conditions in Section 2 of the Indian Contract Act are compliedwith, viz., that is there is consideration and the contract is enforceable inlaw, within the meaning of Section 10 of the Act, it would lead to thecreation of a concluded contract. Here, as we have noticed, the KEB,the GoK and, what is more, the first respondent, clearly contemplatedthat there should be a PPA.

79. We may further notice that there was a Banking, wheelingand grid agreement, executed in the year 1996 between the KEB andthe first respondent. It is with the execution of the draft PPA, that it wasdecided that the earlier agreement of 1996, was to remain in abeyanceduring the period of the PPA. In the proposal dated 21.11.1998, the ratewas initially shown as Rs.2.90/KWH but even this rate was exclusive ofcertain six elements, which meant that the rate would be even more.Thereafter, communication dated 19.01.1999, addressed by KEB to theGoK would indicate that negotiations were held, and what is more, detaileddiscussions were held, whereunder, it was decided that a price of Rs.2.60per unit can be offered, comprising of Rs.1.70 as fixed charges andRs.0.90 as variable charges. Fixed charges were to be escalated by fiveper cent every year beginning from the second year. Conditions of penalty AB

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Ato be paid by the firm for short supply of power and assured offtake wasalso indicated. The KEB sought approval from GoK. The GoK respondedto this recommendation by KEB by letter dated 05.03.1999. It wasindicated that the present proposal kept the tariff open-ended and possiblerevision. The PPA being for a period five years, KEB was advised tonegotiate with the first respondent for fixed tariff for five years. RevisedBproposal was called for, which led to further discussions. In the saidcommunication, KEB expressed its willingness to buy power subject tocertain terms and conditions. They included a penalty clause, both forshort supply and short drawal and that the PPA was to be a simpledocument. A two-part tariff was ruled out. Equally, was payment of fuelCcost, at actual. Therefore, on 31.03.1999, it is that, what has been describedas the proposal, as such, was made by the first respondent. KEB wasasked to convey its acceptance at the earliest. This is as first respondentwas to approach its Board and its lenders on getting its acceptance. Wewill proceed on the basis that it was a matter of internal arrangement.

On 23.04.1999, KEB wrote to the GoK. KEB mentioned about twoDoptions. Further, the KEB also, indicated it must be noted that the firstrespondent had made an offer as detailed in letter after the commissioningof Unit 2. They are seven aspects. They included obligation to supplypower with a threshold value of 75MW equivalent to 54MU per month,penalty to be paid by the first respondent in case of supply being lessEthan threshold value, payment by KEB of full value of threshold in caseconsumption is less than the threshold value and minimum supply andminimum consumption being on monthly basis, right of first respondentto terminate the contract, if there is escalation in fuel cost beyond fiveper cent at any time unless KEB agreed to compensate for suchescalation. What is most important is, with regard to these matters, itFwas expressly indicated in the letter dated 23.04.1999 that ‘these areissues’ to be negotiated with the firm while finalising the PPA and will betaken up later on. These issues were not negotiated between the KEBand the first respondent before 01.06.1999. There is no dispute aboutthis aspect. The fact that the appellant did not mention in communicationGafter 01.06.1999 about the need for approval by the Commission is clearlyinsufficient to oust the jurisdiction of the Commission. The Commissioncannot be prevented from exercising the power based on the conduct ofthe appellant in this regard which included preparation of the draft PPA.

Equally, the act of the GoK in issuing corrigendum dated 08.05.2000Hor the order dated 07.07.2000, cannot also detract from the power of KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

Commission or lead us to hold that there was a concluded contract underSection 27(2). The fact that issues in letter dated 23.04.1999 have beenincluded in terms of the PPA is clearly besides the point as the questionis whether the parties were agreed on them as on 01.06.1999. Theywere clearly not. In this regard we may notice the sheet anchor of thefirst respondent, viz., the G.O. dated 12.05.1999. GoK in the said G.O.,undoubtedly, agreed for the rate per unit to be Rs. 2.60, including variablecharges. It also agreed for an annual increase of five per cent everyyear. The term of the PPA was to be five years. The other two aspectsmust, however, are not be lost sight of. By G.O. dated 12.05.1999, actuallyKEB was permitted to ‘finalise a Power Purchase Agreement’ and tosubmit the same to the Government for approval. What could be said tobe approved by the Government was the rate, as indicated, and theterm. The G.O. clearly indicated that all the parties, including the GoKcontemplated a PPA with the execution of which alone, they were to bebound. The Principle of Negotiated Tariff for captive generating powerproject, who intend to sell power to KEB, was to be adopted. Severalmatters remained unsettled. It is not in the region of dispute that theissues, which KEB, in its letter dated 23.04.1999, had indicated, as issuesto be negotiated while finalising the PPA and to be taken up later on,never came to be negotiated pursuant to the GO dated 12.05.1999 before01.06.1999. This is crucially fatal to the case of the first respondent. Weconclude that the parties contemplated a written PPA containing variousdetails apart from the tariff rate and the tenure. There was no concludedcontract with respect to several aspects, at least, as on 01.06.1999, whichis the date on which the Act came into force. The fact that power wassupplied after the Act came into force, must be understood in the contextof the correspondence, which we have elaborately referred to. Evenhere, we may notice that there were doubts about the rates itself. AnExpert Body was appointed. It recommended Rs.2.10 per KWH. Theappellant, which, in the meantime, came upon the scene, as a result ofthe Act, and succeeded to the KEB, recommended that supply of powermay be made by the first respondent subject to the finalisation of thePPA at a rate not exceeding Rs.2.45 per unit. GoK issued a Corrigendumproviding for the rate of Rs.2.52 per unit. Supply was made and paymentsmade at Rs.2.52 per unit. Government issued Order dated 07.07.2000reinstating the rate of Rs.2.60 per unit. There may be merit in thecontention of the first respondent that as far as the rate is concerned,there is consistency in that, GoK restored the rate at Rs.2.60 by way of A

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Ahonouring its contractual commitment. It is here that we must unravelthe true scope of the words ‘contracts concluded’ in Section 27(2) ofthe Act. The proviso when it uses the words ‘contracts concluded’,does not use the words ‘contracts concluded as regards tariffs’. A contractof the nature, we are concerned with, cannot be said to consist only of arate and the term or even the quantum included. In a contract of thisBnature, there are obviously various other aspects about which the partiesmust be ad idem. The rate, the term and quantum are integrallyinterconnected with other terms. There cannot be concluded contractwithout parties being ad idem about those terms. We found that theparties were not ad idem as regards the issues which were expresslyCleft open for negotiations in the communication dated 23.04.1999. GoKalso contemplated ‘finalising’ a PPA. The word ‘finalising’ and the word‘PPA’, both of which did not take place before 01.06.1999, in our view,has resulted in a situation where a contract could not be said to beconcluded even within the meaning of the proviso to Section 27(2) of theAct. In other words, even proceeding on the basis that even in a givenDcase, a contract could be concluded within the meaning of the proviso,even in absence of a written PPA, bearing in mind also the absence ofthe word ‘PPA’ in the said provision and contrasting it with Section 18where the same Law-Giver has used the word ‘PPA’, if the partieswere not ad idem about the necessary terms and if the parties equallyEcontemplated a PPA to bring it into existence a contract within themeaning of Section 27(2), then, clearly a PPA would be indispensable toattract the proviso to Section 27(2). This is not even a case where, inother words, parties were ad idem on all the essential aspects, which gointo the formation of a complex contract as is involved in the facts of thiscase. Therefore, the supply of power, in our view, by the first respondent,Fafter 01.06.1999, cannot be relied upon, in view of the facts revealed bythe correspondence, which itself makes it a stop gap arrangement, andwhat is more subject to conditions which included execution of a PPA,to conclude that the subsequent conduct, unerringly pointed to the factthat a contract within the meaning of Section 27(2) stood concludedGbefore 01.06.1999.

80. In Alexander Brogden(supra), from which considerablesupport is sought to be drawn by Dr. Abhishek Singhvi, learned SeniorCounsel, the appellants who were defendants claimed that there was nobinding contract between them and the plaintiffs. The appellants hadHsupplied coal for some time to the plaintiffs. The appellants suggested KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

after some time that there should be a contract entered into between theparties. After the agents met, the terms of the agreement came to bedrawn up by the agent of the plaintiff and sent to the defendants. Thedefendants filled up certain parts which had been left in blank, and whatis more, the name of a person was shown as an arbitrator. The word‘approved’ was written at the end of the paper. The chief partner in thedefendant’s firm signed. Though the usual form of the signature of thepartnership was “B & Sons”, it was the chief partner who signed. Thedefendant sent the paper to the agent of the plaintiff who put it in hisdesk. Nothing towards the execution of the formal agreement took place.Both parties acted upon the same. Coals were supplied. Payments weremade. In fact, when there were some complaints in regard to thecorrectness of the supply in accordance with the paper containing theapproval of the appellant through its chief partner, explanation and excuseswere given, ‘the contract’ came to be alluded to in the correspondence.Further supplies resumed. However thereafter arose disputes. Theappellants refused to honour the agreement to supply. In much of thecorrespondence which followed again the word ‘contract’ made itsappearance. The plaintiff brought an action for damages for breach ofcontract. It was on these facts that Lord Hatherley inter alia held:

“Now, my Lords, I apprehend that if it had stopped here, this is acourse of action from which the inference would fairly be drawnwhich becomes quite conclusive afterwards. Up to the presentstage to which I have brought it the case stands thus: Agreementproposed first of all by the coal company, sent as a proposition tothe railway company, converted by the railway company into adefinite agreement with some very slight alterations, sent backagain with these few alterations and then adopted and approvedby the coal company with only one important farther alteration,namely, the insertion of Mr. Armstrong’s name as the arbitrator— a letter written with it by the person engaged in the wholenegotiation on the one side, saying that he could not see the personwho was negotiating on the other side until the time when theagreement was to come into effect — that immediately followedby an order for coals to the extent of 250 tons — an inquiry sentby telegram, and an anxious inquiry by letter also saying:— “Letus know whether we can rely upon your supplying us with 220tons of coal per week, because, upon your answer whether youcan or cannot supply us with that quantity will depend the A

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Aarrangements I am to make with other coal companies in theNorth.

It was said that this was inconsistent with the Plaintiffs having anagreement by which the Defendants had bound themselves tosupply that quantity of coal. I do not see any such inconsistencyBwhatever. It might possibly bear on the question of whether theagreement was actually clenched at that moment or not. It mightindicate this: If you cannot answer definitely that you can supplyus with the 250 tons of coal, we may feel ourselves at liberty thento deal with the other coal companies — that might possibly bethe true view of it, in which case it struck me it might be said thatCit was not eo instanti that the agreement was clenched. However,what followed did clench it most distinctly, because there not onlycomes the answer,…

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DMy Lords, I will not go through the whole of these transactions, Ifyou ask me, when in my judgment the agreement was complete,I answer that the agreement was complete when the first coals,the 300 tons of coal supplied in January, were invoiced at thediffering price, and when that differing price was accepted andpaid. I think that did bring the case up to what Mr. Herschell veryEfairly admitted, as he was bound to admit it, would be a sufficientcase to make out on the part of the Plaintiffs. It does establish acourse of action on the part of the Plaintiffs of such a characteras necessarily to lead to the inference on the part of theDefendants that the agreement had been accepted on the part ofFthe Plaintiffs, and was to be acted upon by them; and they did actupon it accordingly.”

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81. We have noticed the facts. It was a contract for sale of coal.There was a long course of dealing between the parties. The defendantwanted, however, to have a written contract. The agents met. The termsGof the draft agreement were prepared by the agent of the buyer andsent to the seller. The chief partner of the Seller firm, in fact, filled upcertain parts of the terms which had been left in blank. What is more,the name of the arbitrator to decide in the case of a dispute was alsowritten. Most importantly, the word ‘approved’ was written. It was signedby the chief partner. It was sent to the agent of the buyer. Though theHmatter did not culminate in the drawing up of a formal written agreement KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

as such, the evidence revealed that the coal was supplied and paid for. Itis pertinent to notice the context in which the question arose. It did notinvolve the aspect about a statute like the Act in question, with itsramifications both qua the alleged contracting parties and the impact onthe object of the Act bearing in mind the interests of the consumers aswell. At any rate, the view taken in the said case cannot be safely appliedeven otherwise to the facts of the case before us. It is not a case wherethe parties were not ad idem on all the essential terms of the contract. Itis not a case where the correspondence revealed that a concluded contractdid not exist. The conduct of the parties in the supply of the goods inquestion, and the acceptance of the same and the payment made thereforand the not infrequent reference to the terms of ‘the contract’ as approvedby the chief partner of the Seller firm “as contract” fortified the Court inthe facts in concluding that there was a concluded contract. On theother hand, the correspondence in this case establish a completely differentfactual matrix. Both before 01.06.1999 and thereafter, the parties clearlycontemplated the execution of the PPA. They were not ‘ad idem’ onseven matters which are expressely left open for negotiations as indicatedin letter dated 23.04.1999. We are unable to brush aside these as notconstituting essential terms. To conflate ‘concluded contract’ even in thecontext of the proviso to Section 27, as one merely agreeing to the tariff,tenure and the quantum overlooks the complex nature of the working ofsuch a contract. We cannot be oblivious to the impact of provisions relatingto penalty, threshold value, consumption and other terms. Before01.06.1999, it is not in dispute that no negotiation as was contemplated inregard to the same took place. Even negotiations after 01.06.1999, andthe preparation of a draft PPA on 07.11.2000, cannot clearly suffice. Thisis a case of a contract involving a public body. This is also a case wherethe implications of the contract are not confined to the parties alone. Thecontract impinges on interest such as interest of the consumer and otherrelevant aspects. We, therefore, are of the view that we cannot permitthe first respondent to draw support from the said judgment.

82. In Kollipara Sriramulu (Dead) by His Legal Representative(supra), the Court was dealing with a question, whether there was anoral agreement for the sale of shares by the partners of the firm. One ofthe contentions of the appellant therein was that there was no contractbecause the sale was conditional upon a regular agreement beingexecuted and there was none. It is apposite that we notice the followingdiscussion:

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“3. … We do not accept this argument as correct. It is wellestablished that a mere reference to a future formal contract willnot prevent a binding bargain between the parties. The fact thatthe parties refer to the preparation of an agreement by which theterms agreed upon are to be put in a more formal shape does notprevent the existence of a binding contract. There are, however,cases where the reference to a future contract is made in suchterms as to show that the parties did not intend to be bound until aformal contract is signed. The question depends upon the intentionof the parties and the special circumstances of each particularcase. As observed by the Lord Chancellor (Lord Cranworth)in Ridgway v. Wharton [6 HLC 238, 63], the fact of a subsequentagreement being prepared may be evidence that the previousnegotiations did not amount to a concluded agreement, but themere fact that persons wish to have a formal agreement drawnup does not establish the proposition that they cannot be bound bya previous agreement. In Von Hatzfeldt-Wildenburg v. Alexander[(1912) 1 CH 284, 288] it was stated by Parker, J. as follows:

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“It appears to be well settled by the authorities that if thedocuments or letters relied on as constituting a contractcontemplate the execution of a further contract between theparties, it is a question of construction whether the executionof the further contact is a condition or term of the bargain orwhether it is a mere expression of the desire of the parties asto the manner in which the transaction already agreed to willin fact go through. In the former case there is no enforceablecontract either because the condition is unfulfilled or becausethe law does not recognize a contract to enter into a contract.In the latter case there is a binding contract and the referenceto the more formal document may be ignored.”

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4. In other words, there may be a case where the signing of afurther formal agreement is made a condition or term of thebargain, and if the formal agreement is not approved and signedGthere is no concluded contract. In Rossiter v. Miller [3 AC 1124]Lord Cairns said:

“If you find not an unqualified acceptance subject to thecondition that an agreement is to be prepared and agreed uponbetween the parties, and until that condition is fulfilled nocontract is to arise then you cannot find a concluded contract.”

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KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

In Currimbhoy and Company Ltd. v. Creet [60 IA 297] theJudicial Committee expressed the view that the principle of theEnglish law which is summarised in the judgment of Parker, J.In Von Hatzfeldt-Wildenburg v. Alexander [(1912) 1 CH 284,288] was applicable in India. The question in the present appealsis whether the execution of a formal agreement was intended tobe a condition of the bargain dated July 6, 1952 or whether it wasa mere expression of the desire of the parties for a formalagreement which can be ignored. The evidence adduced on behalfof Respondent 1 does not show that the drawing up of a writtenagreement was a pre-requisite to the coming into effect of theoral agreement. It is therefore not possible to accept the contentionof the appellant that the oral agreement was ineffective in lawbecause there is no execution of any formal written document.As regards the other point, it is true that there is no specificagreement with regard to the mode of payment but this does notnecessarily make the agreement ineffective. The mere omissionto settle the mode of payment does not affect the completenessof the contract because the vital terms of the contract like theprice and area of the land and the time for completion of the salewere all fixed. We accordingly hold that Mr Gokhale is unable tomake good his argument on this aspect of the case.”

The principle is unexceptionable. But we are of the view that thefacts are distinguishable and, on the facts, herein, there was no concludedcontract and what is more, a PPA was not a mere desire but anindispensable requirement to conclude the terms.

83. It is clear as day light that all through the parties undoubtedlycontemplated entering into a power purchase agreement. The subjectmatter of the contract, the position of the parties, the implications of theworking of the contract and more importantly, the intention of the partiesdo not persuade us to safely gather that there was a concluded contractupon negotiations and correspondence, culminating in the GovernmentOrder 12.05.1999. It is clear that even the GO dated 12.05.1999 expresslycontemplated only a permission by the Gok to the KEB to finalise “aPPA” for the purchase of surplus power. The word “finalise” in thecontext of the PPA cannot be played down in the context of the previouscorrespondence at any rate. It was, in fact, also contemplated that thePPA which was to be finalised must after finalisation be submitted again AB

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Ato the government. GoK was thereafter to grant its approval. This cannotbe overlooked.

C.A. @ S.L.P. (C) NO. 23793 OF 2004

84. The contention of the appellant-Commission is that it was nota party originally in the appeal. The Court, on 17.08.2002, directed theBCommission to be ready with the written submission on the question ofinterim relief. On 19.11.2002, the High Court directed the appellant inthe other case to add the Commission as a party. On this basis, it iscontended that the findings in the impugned Order, that at no stage, theHigh Court had directed the Commission to be impleaded, is not correct.

C85. Next, it is contended that the finding that Commission filedextensive pleadings and contested the appeal, exhibiting an abnormalinterest, is not correct. The Order dated 17.08.2002, hereinbefore referredto, is relied upon. The finding, therefore, that the Commission exhibitedan abnormal interest in contesting the appeal or filed extensive pleadings,is impugned. As regards the decision of the Court to not allow theDimpleadment of the Commission, it is contended that the appellant doesnot seek to challenge the same. All that the learned Counsel submits isthat the observations made against the appellant-Commission may beset aside.

86. Shri Gopal Jain, learned Senior Counsel for the first respondentEhas no objection to the same. Therefore, the appeal filed by theCommission is to be disposed of, setting aside the observations madeagainst it and the appeal is to be allowed on the said basis.

THE CONTOURS OF SECTION 41 OF THE ACT

87. Section 41 of the Act reads as follows:F“41. Appeals against the order of the Commission. - Any personaggrieved by any decision or order of the Commission passedunder this Act may file an appeal to the High Court of Karnatakawithin sixty days from the date of communication of the decisionor order of the Commission to him, on questions of law arising outGof such order:Provided that the High Court may, if it is satisfied that the appellantwas prevented by sufficient cause from filing the appeal withinthe said period, allow it to be filed within a further period notexceeding thirty days.”

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KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

88. A Right of Appeal is a creature of a Statute. The right can bequalified or conditioned. The ambit of the appellate power is to bediscerned from the terms of the Statute. A ‘question of law’ is not thesame as a ‘substantial question of law’. However, when the Statuteinsists on a ‘question of law’ to maintain an appeal, the Appellate Bodystands constrained to that extent.

89. Interpreting Section 15Z of the Securities and Exchange Boardof India Act, 1992, which also conditions the Right of Appeal, ‘on anyquestion arising out of such Order’, this Court, speaking through P.S.Narasimha J., in Securities and Exchange Board of India v. MegaCorporation Limited11held, inter alia, as follows:

“14. On a ‘textual’ interpretation, the expression ‘question of law’is defined in the Black’s Law Dictionary as follows:

“1. An issue to be decided by the judge, concerning the applicationor interpretation of the law;

2. A question that the law itself has authoritatively answered, sothat the Court may not answer it as a matter of discretion;

3. An issue about what the law is on a particular point; an issue inwhich parties argue about, and the court must decide what thetrue rule of law is;

4. An issue that, although it may turn on a factual point, is reservedfor the court and excluded from the jury; an issue that is exclusivelywithin the province of the judge and not the jury”

17. The jurisdiction of the Supreme Court under Section 15Z toconsider any question of law arising from the orders of the Tribunalshould therefore be seen in the ‘context’ of the powers andjurisdiction of the Tribunal under Sections 15K, 15L, 15M, 15T,15U and 15Y of the Act. It is in the functioning of the Tribunal tore-examine all questions of fact at the appellate stage whileexercising jurisdiction under Section 15T of the Act. In Clariant18and National Securities Depository19, this Court had an occasionto examine the jurisdiction of the Tribunal and explain that theTribunal has wide powers. Being a permanent body, apart fromacting as an appellate Tribunal on fact, the Tribunal routinely A

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interprets the Act, Rules and Regulations made thereunder andevolves a legal regime, systematically developed over a period oftime. The advantage and benefit of this process is consistencyand structural evolution of the sectorial laws.

19. It is in this very context that the UK Supreme Court in theBcase of Jones v. First Tier Tribunal,20 formulated certain principlesfor appellate courts to interfere against the orders of Tribunals onthe ground of existence of questions of law. The Court held asunder:

“16 … It is primarily for the tribunals, not the appellate courts, toCdevelop a consistent approach to these issues [of law and fact],bearing in mind that they are peculiarly well fitted to determinethem. A pragmatic approach should be taken to the dividing linebetween law and fact, so that the expertise of tribunals at the firsttier and that of the Upper Tribunal can be used to best effect. AnDappeal court should not venture too readily into this area byclassifying issues as issues of law which are really best left fordetermination by the specialist appellate tribunals.”

20. The scope of appeal under Section 15Z may be formulated asunder:

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20.1 The Supreme Court will exercise jurisdiction only when thereis a question of law arising for consideration from the decision ofthe Tribunal. A question of law may arise when there is anerroneous construction of the legal provisions of the statute or thegeneral principles of law. In such cases, the Supreme Court inFexercise of its jurisdiction of Section 15Z may substitute its decisionon any question of law that it considers appropriate.

20.2 However, not every interpretation of the law would amountto a question of law warranting exercise of jurisdiction underSection 15Z. The Tribunal while exercising jurisdiction underGSection 15T, apart from acting as an appellate authority on fact,also interprets the Act, Rules and Regulations made thereunderand systematically evolves a legal regime. These very principlesare applied consistently for structural evolution of the sectoriallaws. This freedom to evolve and interpret laws must belong tothe Tribunal to subserve the Regulatory regime for clarity and H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

consistency. These are policy and functional considerations whichthe Supreme Court will keep in mind while exercising its jurisdictionunder Section 15Z.”

The Commission is an Expert Body. Interference with its findingscannot be sustained, to begin with, if it is bereft of reasons. Findings ofsuch a body must receive due deference. Perversity in the sense offindings, which are wholly without basis or material or which no personwith the professed skills would arrive at, may merit interference. A finding,which ill squares with a clear statutory injunction, would leave the doorajar for overturning the finding.

THE OTHER FINDINGS OF THE HIGH COURT

90. We must deal with the three other findings. The High Courthas found that there is merit in the argument based on principles ofpromissory estoppel and legitimate expectation. We would have exploredthe matter and rendered our findings qua the approach of the High Courtin regard to this matter which at least at first blush looks ‘wholly untenable’but since the first respondent has taken the stand before this Court thatit may not seek to draw support from the said principles and rightfully so,we desist from further enquiry.

WHETHER THE FINDINGS OF THE COMMISSION AREPERVERSE, ARBITRARY AND WITHOUT APPLICATION OFMIND (POINT NO.4)?

91. As regards the finding by the High Court answering point no.4, namely, whether the impugned orders are perverse, arbitrary andpassed without application of mind, our attention is drawn by the appellantto the limited nature of jurisdiction exercised by the High Court underSection 41 of the Act.

92. It has been the endeavour of the appellant to point out thatcontrary to the point which was raised, namely, whether the orders wereperverse, arbitrary and passed without application of mind at any rate,the point has been answered in a manner which cannot be sustained.The High Court opens the discussion under point no. 4 by referring tothe contention of the first respondent that the impugned order suffersfrom certain errors apparent on its face. Reliance is placed on a decisionof this Court dealing with power of this court under Article 136 of theConstitution.

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A93. The High Court has proceeded to find that patent errors havebeen committed by the Commission. It is found that the Commission haswrongly calculated the fixed charges for 487MUs while fixing the tariff.This is after finding that the fixed charges should be for 657Mus. Thesecond error, it is found, lay in the Commission finding that the incentivepayment charges should be Rs.0.952, in arriving at the tariff rate whereasBincentive payment charges were taken as Rs.0.924 per unit. The tariffwould stand raised to Rs.2.54 per unit, if the aforesaid errors werecorrected. Next, it is observed that these errors were not disputed bythe appellants in the pleadings before the High Court or in the course ofargument. The learned Senior Counsel for the appellant Shri S.S.CNaganand, who submits that he had appeared in the High Court, pointedout that, in the first place, being a Statutory Appeal, there is no provisionfor pleadings, as such, in the High Court. Further, the Commission hasgiven a basis for what it has done. A detailed note is also made available,in this regard, to this Court. The learned Counsel has further said thatthe matter was argued threadbare before the Court. We find that theDHigh Court has not given any independent reasoning except as we havereferred to. Next, the High Court has found that, having agreed to anegotiated single part tariff, the Commission could not have unilaterallyignored the well-established parameters and applied norms, which were,undoubtedly, valid for a two-part tariff and super impose the same inEcalculating tariff on a single part tariff basis. The two-part tariff applieduniformly, it is found would have resulted in a tariff rate of Rs.3.16 perunit, which was much higher than Rs.2.60 under the draft PPA. Hereagain, these findings appear to be based on there being a concludedcontract and, secondly, are bereft of any reasons and material. The HighFCourt proceeds to note the case of the first respondent that tariff of thefirst respondent was one of the cheapest as it was based on least costtariff basis unlike other companies. No attempt is made to deal with thefindings of the Commission or the power and duty of the Commission.This part of the finding is summed-up by finding that there is ‘somesubstance’ in the contention of the first respondent that it was at theGreceiving end of ‘invidious discrimination and arbitrariness’. We takeexception to this approach by the High Court in a Statutory Appealconditioned by the requirement that a question of law must arise. Afinding that there is ‘some substance’ cannot be the approach, when it isfinally disposing of an appeal and finding fault with the Order of anHExpert Body, in particular. Equally, we are mystified by the invocation of KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

the Doctrine of Invidious Discrimination and Arbitrariness in the facts ofthe case.

94. Next, the High Court proceeded to find fault with the fixing ofthe heat rate disregarding the norms laid down by the Ministry of Power/CEA or whichever is lower. The High Court has been critical of theCommission fixing of the plant load factor disregarding the norms underthe Electricity Supply Act or the negotiated plant load factor. There areno reasons forthcoming to support this finding. High Court next foundfault with the Commission for doubling the penalty. There is no rationale.There is no appreciation within the limits of its qualified jurisdiction.Reduction of escalation by the Commission from five per cent to twoand a half per cent per annum, is apparently with reference to whattranspired during the negotiations and, therefore, proceeding on the basisthat the matter was a concluded contract, as it was, indeed, the findingof the High Court. It is without considering the ambit of the power of theCommission and the objects of the Act. There are similar findings withrespect to fixed costs, disproportionate loading, tantamounting to crosssubsidisation being contrary to the Judgement of this Court inWest Bengal12Electricity Regulatory Commission v. CESC Ltd.. Again, there is nodiscussion and the High Court has purported to proceed as if it is itselfan Expert Body. At least, the reasons have not been furnished forjustifying the Commission being arraigned in the manner done. Likewise,there is impugning of the findings of the Commission in regard to gridsupport charges being unjustified and ultra vires the Act. It is also statedthat objections filed by the first respondent were not considered by theCommission. Lastly, it was found that the Commission has not givenreasons.

95. We are of the view that the High Court has apparentlyproceeded on the basis that there existed a concluded contract withinthe meaning of proviso to Section 27(2). We have found that it isunsustainable. We are of the view that findings which have been renderedunder Point No. 4, have been considerably influenced by the findingrelating to there being negotiations and the emergence of the concludedcontract. We are of the view that, at any rate, particularly bearing inmind, the limited nature of the jurisdiction of the High Court under Section41 of the Act, the approach and the findings of the High Court underPoint No. 4, may not be sustainable. But, at the same time, we are of the AB

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Aview that, being an assessment of the findings of an Expert Body, theHigh Court must reconsider the matter. To the said extent, the mattermust be remitted back to the High Court in regard to Point No.4.

CPP V. IPP (POINT NO.3)

96. The last question which remains relates to point no.3 that is,Bwhether the first respondent was a CPP or an IPP.

97. Under point no.3, the High Court has relied upon the orders ofGoI dated 09.10.1995, 31.01.1996, 06.11.1996 and 09.01.1997. The HighCourt has found that under these orders there is a distinction betweenthe IPP and CPP and the first respondent has complied with theCrequirement under the Supply Act for establishing a generating companywith reference to Sections 29 to 31 for sale, pursuant to Section 43A,making it an IPP. It is found that CPP would have to get clearance underSection 44 of the Electricity (Supply) Act, whereas an IPP would requireto process the matter under Sections 29 to 31 of the Electricity (Supply)DAct, 1948. Reliance was placed on the fact that the first respondent wasgranted techno-economic clearance by order dated 22.03.1996.

98. It is further found with reference to the G.O. dated 07.03.1994,which we have referred to that GoK gave approval so that continuouspower could be supplied to the grid making it more stable. Reliance isEalso placed on letter dated 01.03.1995 allegedly issued by the appellant(whereas it is actually issued by the KEB) confirming to the CEA, thatthe first respondent was an IPP. It is next found that under the Wheelingand Banking Agreement dated 26[th] January, 1996 sale of firm capacityto the appellant was provided for. GoK also confirmed to the CEA thatthe first respondent was an IPP under Section 43A of the Supply Act.FGoK order dated 2[nd] March, 1996 providing for consent for sale of powerunder Section 43A of the Supply Act is referred to. The techno economicclearance granted by the CEA dated 22[nd] March, 1996 is adverted toand it is further found that such a clearance was unnecessary if the firstrespondent was a CPP. The appellant is alleged to have, by letter datedG29[th] March, 1996, supported the project cost and forwarded the samefor the approval of GoI. The appellant is also alleged to have participatedin the discussion with the CEA for approval of the project and startedthe transmission system as availed by all IPPs. It was further found thatthe procedure for payment of charges for supply of electricity was to bea standard procedure followed in case of IPP projects. Next, the HighHCourt reasons that if the first respondent was a CPP, it would have set KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

up a 140 MW plant to meet the requirements of JVSL and not 260 MWplant. 260 MW plant was contemplated to provide firm capacity to theappellant as evident from the order dated 7[th] March, 1994. The detailedproject report provided that the requirement of steel plant was only 150MW and rest 110 MW will be supplied to KEB to reduce the powerdeficit in the State. If the first respondent was a CPP, it could not havededicated firm capacity to the appellant and guaranteed continuous supplyof power. The Commission itself, having recognised the fact that thestatus of IPP was granted, it could not treat it as CPP for determiningthe tariff. The mere use of common infrastructure for coal handling andwater supply could not render the first respondent a CPP. The powerplant was designed to fire either corex gas or coal as fuel which confirmedthat the first respondent plant was not a captive plant and it was intendedto supply power to the appellant even with the Steel plant not workingand not producing corex gas. The first respondent and JVSL were distinctcorporate entities having obtained financial assistance and projectapproval on stand-alone basis. The fact that the capacity of 240 MWwas underwritten by JVSL was also found not germane to conclude thatthe first respondent was a CPP. The Commission, it was found, erred inarriving at 1637 MUs at 77 per cent PLF and fixed charges at 1150MUs supplied to appellant ignoring that the first respondent was supplyingenergy to JVSL at 85 per cent PLF. Such direction was based on thewrong conclusion that the first respondent was CPP. The High Courtconcluded that the power plant of the first respondent was having thestatus of IPP and not CPP.

99. According to the appellant, the operation of first respondentand JVSL was intertwined and interdependent. It is contended by theappellant that they share common infrastructure for coal handling, watersupply and the coal is purchased for the first respondent by its sistercompany, JVSL, and JVSL raised invoices on the first respondent.Therefore, the first respondent is to be treated as a CPP as it is supplyingpower to JVSL. Reliance is placed on the Wheeling, Banking and GridSupport Agreement dated 23.01.1996. The priority of the sales was tobegin with sales being made to its dedicated customers firstly. Secondly,power was to be wheeled to third party exclusive customers, and only ifexcess power is available, it was to be supplied to the KEB on negotiatedterms. The Government Order dated 12.05.1999 itself makes it clearthat the first respondent was selling surplus power to the appellant andindicates that the same principle of negotiated tariff for CPP would be AB

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Aapplicable to the first respondent. The agreement dated 14.10.1999entered into between KEB and the first respondent for supply of powerfrom KEB to JVSL on barter basis makes it clear that the entire netcapacity is underwritten by JVSL and it has permitted the first respondentto enter into a Wheeling and Banking Agreement as well as PPA withKEB for sale of excess power. It is further pointed out that theBGovernment of Karnataka has extended concessions for payment ofelectricity taxes by treating it as a captive unit by Government Orderdated 21.12.2000. The power proposed to be supplied by the firstrespondent to the appellant was surplus power and the grant of status ofIPP by GoK would make no difference. The appellant has a case thatCthe grant of status of IPP was also based on the difference in theshareholding of the companies but that cannot overlook the other aspectsabout the transactions from which it could be concluded that the firstrespondent was a CPP, it is contended.

100. The first respondent would support the findings of the HighDCourt. Reliance is undoubtedly placed on the Government of India policiesstressing the distinction between the IPP and CPP. Having obtainedconsent under Sections 29 to 31 of the Supply Act, 1948, it is contendedthat it is an IPP. Prior to the Electricity Act, 2003, there was no definitionof a CPP nor were their requirements set out. Such requirements evolvedEonly with the Electricity Rules of 2005. The first respondent has beenrecognised by the KEB and the GoK as an IPP. Reliance is placed onGoK order dated 07.03.1994, KEB letter dated 01.03.1995 confirmationby GoK of the IPP status, GoK Order dated 02.03.1996, CEA letterdated 22.03.1996, granting techno-economic clearance, and GoK letterdated 22.03.1996, supporting project cost. G.O. dated 02.03.1996,Faccording the exemption to the first respondent from electricity tax onlyon the power supplied to JVSL, its sister concern. The alleged CPPstatus was only qua power sold to the sister concern to benefit it and notthe first respondent and it is not as projected. The establishment of theplant of 260 MW can be explained not with it being CPP, in which latterGcase, it would have sufficed to set up a plant of 140 MW. The letterdated 01.03.1995 sent by KEB confirmed that the first respondent wasan IPP. An affidavit of the appellant dated 18.10.2001 admitted that thefirst respondent was an IPP. The DPR contemplated the need to supplypower to the grid and the appellant and GoK approved the project costas an IPP and it was forwarded to the CEA for approval.H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

101. The guaranteed minimum supply of threshold power iscompatible with the first respondent being an IPP. Penalties for failureto sell the firm capacity or rather for short supplies is relied upon. Paymentof charges for supply of electricity was based on procedure in IPPprojects. The tariff order of the commission for the years 2000, 2002and 2003 shows that the first respondent was an IPP. Sharing of commoninfrastructure did not necessarily imply that the power plant of the firstrespondent was a CPP. There were other projects taking advantage ofsuch infrastructure. It was intended only to optimise the project cost.

FINDINGS

102. It is not in dispute that it is with the Electricity Rules of 2005that the requirements of a captive generating plant were laid down. It isthe admitted position that at the relevant time there was no definition ofa CPP in existence. The requirements of a captive generating plant was,according to the first respondent, not available.

103. It would appear that the private power policy of the GoI wasannounced in the year 1991. GoI letter dated 09.10.1995 would showthat there were a number of proposals through IPP route. It was foundhowever that it would have a long gestation period. Captive power plantsprovided an alternative. GoI decided that captive power plants of industriescould be allowed to sell the surplus power, if any, to the grid on aremunerative tariff as per mutually agreed terms. This would add to thegenerating capacity in the country. There is mention of co-generation asalso small power production. It was therefore suggested to all ChiefSecretaries of the states that they may create an institutional mechanismwhich may allow captive power units an easy automatic entry into powersector by quickly clearing such applications by the state governments bygiving them rational tariff for purchase of surplus power by the grid andthe third-party access for direct sale of power to other industrial units.We may notice that this communication is after GoK order dated07.03.1994 by which the first respondent was permitted to be set up.Moreover, what is contemplated under captive power plant was that itcould sell surplus power, if any, to the grid as per mutually agreed terms.Therefore, in the case of the captive power plant, primarily, the industriescould satisfy their power requirements from the captive units.

104. On 01.03.1995 the KEB responding to the request from theDirector of the CEA to clarify whether the generating plant set up by AB

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Athe first respondent was captive plant under Section 44 of the SupplyAct, 1948 or a generating plant, stated that it was an independentgenerating plant. The copy of the approval granted by the GoK for settingup the generating plant was enclosed. This would take us to G.O. dated07.03.1994 which we have already adverted to. What is stated therein isthat the first respondent’s sister company namely Jindal Iron and SteelBCompany was setting up a combined gas cycle plant of 300 MW x 150MW within the site allotted for a steel plant for which GoK had alreadygiven approval. There is reference to the financial aspects. Thereafter,it is recited that the advantage of setting up the power plant at Bellary-Hospet was that the excess power generated will be fed to the KEBCgrid and can sell to other industrial units in the area, besides generationof additional employment. The KEB was found seeking a detailed projectreport indicating the cost of the project inter alia. It is thereafter that thefirst respondent was permitted to set up the plant in two phases of 300MW of 150 MW each. This was subject to approval of the GoI in respectof the foreign investment. It was also subject to obtaining statutoryDclearances under the relevant Acts. The first respondent was permittedto sell power directly to industrial units in the area at mutually negotiatedrates again subject to approval of the state government. The firstrespondent had to sell the balance power to KEB at tariff to be determinedas per norms dated 31.03.1992. We may get the prima facie impressionEthat the said terms would appear to be in tune with the concept of acaptive unit, as contemplated in GoI letter dated 09.10.1995.

105. It would appear it is not in dispute that the capacity has beenreduced from 300 MW to 260 MW. The circumstances in which it stoodreduced is not borne out by any order produced before us. The nextFdevelopment in chronological order, we notice, is the Wheeling andBanking Agreement dated 23.01.1996. The agreement is entered intobetween the first respondent and the KEB. The agreement refers to thecompany or the first respondent as a generating company and that itproposed to set up a 2x120MW dual fire which is to be understood withreference to the statement that it is fired, namely, with corex gas withGcoal firing to supplement it. Next it is stated that the first respondentintended to sell the ‘majority’ of the power to dedicated or third-partyexclusive customers as defined. Dedicated customers has been definedin the agreement as those consumers of power supplied solely by thefirst respondent through transmission lines set up by it and it was to H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

include the sister concern, JVSL. Third party exclusive customer wasdefined to mean the consumer who had contracted for its entire demandand energy requirements from the first respondent. However, the powerwas to be supplied through the KEB’s transmission system. It is as wehave already noted provided in Clause 2.4 that ‘if at any stage’ the firstrespondent offered ‘excess’ firm capacity for sale to the board (KEB),then, the Board ‘may purchase’ the same from the first respondent.Such purchase was to be based on agreement on price and other termsto be negotiated at the time of such sale. Therefore, it would appear thatwhat was contemplated was the sale of the majority or most of thepower generated to its dedicated customers which included the JVSLand to other third party exclusive customers. Clause 2.4 appears toprovide that if at any stage it was found that there was excess powerwhich could be firmly offered to KEB, KEB may purchase such power.The order dated 30.01.1996 is not seen produced. It is one of the lettersof the GoI which has been referred to by the High Court and the firstrespondent.

106. On 02.03.1996 GoK after referring to the G.O. dated07.03.1994 and the request by the first respondent for support in variousmatters offered certain concessions. GoK gave its consent under Section43A(1)(c) and paragraph-3.2 of the GoI Tariff Notification dated13.03.1992 as amended for sale of power by the first respondent directlyto any customer at rates to be mutually negotiated by the first respondent.It is also provided that the consent was also to be deemed as previoussanction under Section 28 of the Indian Electricity Act, 1910. Still furtherexemption was granted under Section 3 of the Karnataka Tax onConsumption of Electricity Act, 1959 on the consumption of electricitygenerated by it for five years from the date on which the power plant ofthe first respondent went into commercial operation. Likewise, theconsumer was exempted. Certain other concessions were promised.

107. Section 43A(1)(c) of the Supply Act, 1948 provided inter aliathat a generating company could enter into a contract for sale ofelectricity generated by it with any other person with the consent of thecompetent government or governments. The Order, thus, must be viewedin the said perspective. This is apart from it operating as consent for salewithin the meaning of Section 28 of the Electricity Act, 1910.

108. On 22.03.1996, we may notice that the ‘scheme’ forestablishment of a 2x130 MW corex/ coal based thermal power station AB

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Awas accorded techno economic clearance by the CEA subject to certainconditions which are indicated therein.

109. Next in chronological order is the communication dated06.11.1996 issued by the GoI. The heading in fact of the saidcommunication is promotion of co-generation power plants. In the saidBcommunication after noticing the energy shortage and referring to letterdated 09.10.1995 it was indicated that by the subsequent communicationdated 30[th] January, 1996 (a communication which we are not providedwith) regarding clearance process of captive power that the captivepower plants of any other persons including the juristic persons andexcepting generating companies was not subject to Section 29(2) of theCSupply Act. It is further indicated that the Electricity Board [KEB] wasto send to the Authority under Section 44(2)(A) if the capacity of a newgeneration station, inter alia, exceeded 25 MW. Thus, in terms of Section44 of the Act captive power/ co-generation plants required the approvalof the board only. The Board were to refer the proposal for consultationDwith the CEA where the capacity exceeded 25 MW under Section 44(2A). Thereafter, the order went on to deal with co-generational unitswhich were understood as units which simultaneously produce two ormore forms of energy.

110. The last communication is dated 09.01.1997. Therein,Ereference is made to the order dated 30[th] January, 1996 and that it wastherein clarified that proposals for setting up captive power plants underSection 44 would not come under the purview of Sections 29 to 31 of theSupply Act, 1948, which related to the CEA’s detailed scrutiny and technoeconomic clearance. It was added that the intention was that in view ofthe large demand supply gap existing industries should be encouraged toFset up their own captive power plants to add quick captive capacity inthe electricity supply industry. The letter dated 9[th] January, 1997, furthernoticed that there were suggestions from some States that some of theindustries found it difficult to set up power plants through the existingcompanies and they favoured setting up of power plants by an independentGentity (IPP) with total dedication of power generated to the existingindustry/group of industries but without any sale of power to the StateGrid. In the letter dated 01.01.1997, it is further observed pertinentlythat however these would be generating companies by definition andreference is made to GoI instructions dated 18.01.1995, which requiredthat selection of IPP be through competitive bidding by the governmentH

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

or electricity board. The industries preferred to have the choice ofnegotiations with parties on a bilateral basis instead of the IPP beingselected through competitive bidding. GoI decided to facilitate setting upof ‘generating stations’ by ‘IPP’ exclusively for ‘the captive use’ of anindustry or a group of industries without involving any sale to the StateGrid. The selection of such IPP through competitive bidding was nolonger required. Thus, letter dated 9[th] January, 1997, appears to indicatethat IPP generating stations could be set up exclusively for the ‘captiveuse’ of the industry or a group of industries without any sale to the StateGrid. Secondly, such IPPs could be selected without competitive bidding.We do not have the letter dated 18.01.1995, which is referred to in letterdated 9[th] January, 1997. We do not also have the order dated 21.12.2000which appears to have been relied upon by the Commission and which isrelied upon by the appellant before us, as per which the first respondentavailed concessions from payment of electricity taxes holding out to bea CPP. We further notice that the High Court in the impugned judgmentdoes not appear to have dealt with order dated 21.12.2000. There is acase for the appellant that when IPP desires to contract for power withthe appellant on two-part tariff basis, KEB/ the appellant must be involvedin every stage of project formation, finalisation of capital costs. Accordingto appellant, KEB/ KPTCL would be involved during the discussionsstage to accord techno economic clearance as well as for whole supplyagreement to ensure the least cost and these formalities have not beencomplied with. In this case the High court has referred to the appellant(KEB) vide its letter dated 29[th] March, 1996, supporting the project costand forwarding the same for approval to the GoI. It is also further statedthat the appellant participated in discussion with the CEA for approvalof the project and supported the transmission system. We are unable tolocate the letter dated 29[th] March, 1996. No doubt, the appellant must beunderstood as its predecessor the KEB. But there is no communicationdated 29[th] March, 1996 indicating that the KEB supported the projectcost. It would appear that a copy of such a letter (29.03.1996) wasannexed as Annexure 14A before the High Court. Further, in the appealmemorandum, in paragraph 9 thereof, it would appear that what wascontended by the first respondent was that the appellant and GoKapproved the project cost and DPR and letter dated 29.03.1996 wasproduced. Appellant is stated to have participated in the discussion beforethe CEA and the second respondent (GoK) actively supported the projectby granting approval and various benefits. The High Court has apart A

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Afrom finding that the appellant participated also stated that appellantsupported the transmission system as availed by all IPPs. Prima facie,we would think also that what was contemplated in the Wheeling andBanking Agreement dated 23.01.1996 was that, if there was any excesswhich meant after fulfilling its obligations to the dedicated and third-party customers, it would be offered to KEB.B

111. The appellant has a case that what in ‘substance’ was agreedto be sold to the appellant was only surplus available power. The statusof IPP being established also would not by itself be relevant in thedetermination of the cost, it is contended. We would think that the interestof justice require that taking note of also the fact that first respondentChad allegedly specifically claiming to be a CPP availed benefits and thishas also not been considered by the High Court, the matter must bereconsidered by the High Court. The findings therefore, that the firstrespondent was CPP will stand set aside and High Court will undertakea consideration of the matter based on a study of the documents andDalso taking note of the proceedings by which, the first respondent allegedlyclaimed as CPP and availed benefits. The High Court will also considerthe argument of the appellant that even treating the first respondent asIPP, in the context of the contention of the appellant that the salecontemplated to the appellant was only of ‘surplus power’, only afterthe demand of the first two categories were fulfilled on the aspect ofEfixation of tariff.

112. The upshot of the above discussion is that the appellant isentitled to succeed in the manner we shall hereinafter immediatelyindicate. The appeal is partly allowed. The finding that there was aconcluded contract within the meaning of the proviso to Section 27(2) ofFthe Act will stand set aside. The findings which have been renderedunder point no. 4 about perversity, arbitrariness in the findings of theCommission are set aside. The finding relating to the first respondentbeing an IPP is also set aside. The matter will now stand remitted backto the High Court. It will proceed on the basis that there was no concludedGcontract within the meaning of the proviso to Section 27(2) of the Act. Itwill proceed, however, to deal with the appeal under Section 41 of theAct in regard to point no.3 and 4, namely, whether the findings of theCommission are such that they are required to be interfered under thejurisdiction available under Section 41 of the Act including the questionwhether the first respondent is a CPP or an IPP.H

KARNATAKA POWER TRANSMISSION CORP. LTD. v. JSW ENERGYLTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. &JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

113. We must also deal with the request made by the learnedCounsel for the appellant that as Rs.100 crores has been received bythe first respondent on the strength of a bank guarantee based on theimpugned judgment, under the interim Order passed by this Court, if theappeal is allowed, the first respondent is duty bound to pay the aforesaidamount to the appellant. This was countered by the first respondent bypointing out in the ‘unlikely event’ of the appeal being allowed only onthe point that there was no concluded contract and if the other twoaspects are to be reconsidered by the High Court, then the first respondentcannot till these matters are reconsidered be directed to repay the amount.It is also the contention of the first respondent that there will be undueenrichment as the appellant would have shifted the burden to the endcustomer.

114. This line of argument is sought to be met by the learnedcounsel for the appellant by pointing out that the appellant is a publicauthority, and more importantly, the appellant being erroneously compelledto pay under the orders of the court, has witnessed a deprivation ofvaluable funds from the appellant, which would otherwise have beenavailable to it. Furthermore, what is more important is, if the appellantsucceeds in regard to the point canvassed, namely, that there was noconcluded contract within the meaning of proviso to Section 27 of theAct and if the amount is ordered to be given to the appellant, then, itwould have a bearing on the interest of the consumers. This is for thereason that in working out the rate to be charged from consumers, evennow this amount if it is brought into the coffers of the appellant, it wouldresult in a corresponding reduction in the burden which the consumerwould have to bear.

115. We have considered this aspect of the matter. We are remittingthe matter back after finding that the High Court was clearly in error infinding that there was a concluded contract. We have also interferedwith the other findings. However, at the same time we may not overlookthe fact that we are not allowing the appeal entirely. The validity andcorrectness of the order of the Commission must be decided withreference to the boundaries of the jurisdiction of High Court under Section41 in regard to the matter. We would at the same time find that theappellant has succeeded in a substantial manner. We would think thatthe equities must be balanced.

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A116. We would think that the interest of justice would be met ifthe first respondent be directed to pay a sum of Rs.50 crores from out ofRs.100 crores which has been paid. The payment of the amount is to bemade within a period of 8 weeks from today.

117. Disbursement of further amounts as also the fate of theBpayment of Rs.50 crores by the first respondent will await the finaldecision of the High Court in regard to the determination for which weremit the matter.

118. The appeal filed by Karnataka Power TransmissionCorporation Limited is partly allowed and the impugned Judgment shallCstand set aside. We find that there was no contract concluded within themeaning of Section 27(2) of the Act. We remand the case back to theHigh Court for reconsidering the points ‘3’ and ‘4’ formulated by theHigh Court. The first respondent shall pay to the appellant a sum ofRs.50 crores (fifty crores) within eight weeks. As regards further liabilityto pay, it will await and depend upon the decision of the High Court. SoDalso, the payment of Rs.50 crores (fifty crores) by the first respondent,under this Judgment, will be subject to the determination to be made bythe High Court.

119. The appeal filed by Karnataka Electricity RegulatoryCommission will stand allowed to the extent that the remarks made againstEit in the impugned judgment shall stand set aside as indicated hereinbefore.Parties will bear their respective costs.

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Bibhuti Bhushan Bose(Assisted by : Shashwat Jain, LCRA)

Appeals disposed of.

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