M. P. POWER MANAGEMENT COMPANY LTD. versus RENEW CLEAN ENERGY PVT. LTD. & ANR. on 5 April 2018

[2018] 3 S.C.R. 829

M. P. POWER MANAGEMENT COMPANY LTD.

v.

RENEW CLEAN ENERGY PVT. LTD. & ANR.

(Civil Appeal No. 3600 of 2018)

APRIL 05, 2018

[RANJAN GOGOI AND R. BANUMATHI, JJ.]

Contract – Termination of Contract – Appellant issued aRequest for Proposal (RFP) for long term procurement of 300 MVpower from Grid connected Solar Energy Sources through tariffbased competitive bidding – Respondent no.1 was selected –Pursuant thereto, Power Purchase Agreement (PPA) was executedbetween the appellant and respondent no.1 for sale and procurementof solar power, for which, respondent no.1 submitted bankguarantee – Respondent no.1 was unable to fulfill prescribedconditions within stipulated period – Consequently, PPA terminatedby the appellant and further, imposed penalty on respondent no.1 –Penalty amount was to be encashed from bank guarantee – HighCourt set aside the order of termination of the contract, however,maintained the invocation of bank guarantee – On appeal, held: –The termination of contract was not fair – Respondent no.1 wasunable to obtain the requisite land for establishing the power plantand on its request, the State allotted land to the respondent on lease– However, land was found to be heavily encroached and there wasstiff resistance every time respondent no.1 tried to approach theland – Respondent no.1 sought for change of location of the project,which was granted – Thereafter respondent no.1 purchased anotherland and undertook the construction activities and the project inan advance stage of synchronization – The same was notified to theappellant by communication dated 10.07.2017 stating that thecommissioning of the project was in final stage – However, stillappellant terminated the contract by its order dated 11.08.2017 –Respondent No.1 had spent substantial amount in development ofthe project in the changed location – The delay in commissioningthe project was due to unavoidable circumstances like resistancefaced at the allotted site and subsequent change of location of theproject – These circumstances, though not a Force Majeure event,

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Atime taken by respondent No.1 in change of location andconstruction of the plant have to be kept in view for counting thedelay – Further, since the contract permits imposition of penalty,respondent no.1 liable to pay penalty in terms of clause 2.5.1 of thePPA for delay – But the action of the appellant in terminating thecontract arbitrary and rightly set aside by the High Court – InsofarBas bank guarantee is concerned, Supreme Court stayed the orderof the High Court subject to restitution by the appellant of theamount covered by the bank guarantee which has been invokedwhich is said to have been complied with by the appellant.

Dismissing the appeal, the CourtCHELD: 1. Respondent No.1 was unable to obtain therequisite land, for establishing the power plant and on its request,the State Government had allotted 96.73 acres of land at districtRajgarh to the appellant on lease. According to respondent No.1,upon initiation of measurement and demarcation exercise by theDrevenue officials, the land was found to be heavily encroachedand there was stiff resistance which continued every timerespondent No.1 tried to approach the said land and therefore,respondent No.1 could not access the project site and commenceany construction activities. On request by respondent No.1 byEits letter dated 29.09.2016, respondent No.1 sought for changeof location of the project. The Board of Directors considered therequest of respondent No.1 and by Resolution dated 29.12.2016allowed change of location of the project. Thereafter, respondentNo.1 purchased the land to an extent of 253 acres in villageBansara and Pipriya Rai in Ashok Nagar district within a periodFof about eighty three days from the date of the appellant’sapproval. After acquiring the land, respondent No.1 undertookthe construction activities and the project in an advanced stageof synchronization as early as on 10.07.2017. The same wasnotified to the appellant by communication dated 10.07.2017Gstating that the commissioning of the project is in final stage andthat the expected date of commissioning of the project is31.08.2017 which according to respondent No.1 is ahead of thescheduled commissioning date i.e. 07.09.2017 in terms of thePPA.[Para 10][834-H; 835-A-D]

H2. Even when respondent No.1 has undertaken the construction activities in the changed location and informed theappellant that the expected date of commissioning of the projectis 31.08.2017, the appellant terminated the contract by its orderdated 11.08.2017. Respondent No.1 stated in its counter affidavit,that it has got sanction of the term debt facility of Rs.267.37 croresfrom PTC India Financial Services Limited and has spent hugeamount in purchasing the land to an extent of 253 acres in AshokNagar district. Respondent No.1 has also spent substantialamount in development of the project in the changed locationand reached an advanced stage of commissioning the project by31.08.2017. The delay in commissioning the project appears tobe due to unavoidable circumstances like resistance faced at theallotted site in Rajgarh district and subsequent change of locationof the project. These circumstances, though not a Force Majeureevent, time taken by respondent No.1 in change of location andconstruction of the plant have to be kept in view for counting thedelay. Having invested huge amount in purchasing the land anddevelopment of the project at Ashok Nagar district and when theproject is in the final stage of commissioning, the termination ofthe contract is not fair. [Para 11][835-E-H; 836-A]

3. The High Court observed that the delay in completingthe project was only for sixteen days. But according to theappellant, respondent No.1 was granted time period of 210 daysto complete the Conditions Subsequent after which the penaltywas leviable for the delay and if the delay exceeded more thannine months, the appellant could terminate the contract.According to appellant, the delay was not of sixteen days; but thesaid delay of sixteen days is beyond the period of nine monthspermissible under the PPA. Suffice to note that in cases of delay,Articles 2.5 and 2.6 provide for levy of penalty. As observed bythe High Court, since the contract permits imposition of penalty,respondent No.1 is liable to pay penalty in terms of clause 2.5.1of the PPA for the delay. But the action of the appellant interminating the contract is arbitrary and was rightly set aside bythe High Court. [Para 12][836-B-D]

4. While setting aside the termination of the contract, theHigh Court maintained the action of invocation of bank guaranteein terms of clause 2.5.1 of the PPA. This Court has stayed the AB

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Aorder of the High Court subject to restitution by the appellant ofthe amount covered by the bank guarantee which has beeninvoked which is said to have been complied with by the appellant.Interest of justice would be met by directing respondent No.1 topay penalty amount of Rs.11,95,54,200/- imposed upon respondentNo.1 by the appellant. [Para 13][836-E]B

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3600of 2018.

From the Judgment and Order dated 18.08.2017 of the High Courtof Madhya Pradesh Principal Seat at Jabalpur in Writ Petition No. 12432Cof 2017.

Mukul Rohatgi, Sr. Adv., Purushaindra Kaurav, AG, MishraSaurabh, Ankit Kr. Lal, Ms. Anuradha Mishra, Advs. for the Appellant.

K. V. Vishwanathan, Sr. Adv., Ms. Mazag Andrabi, Ms. VrindaBhandari, Varun Kapur, Bharat Vinod Sharma, Advs. for theDRespondents.

The Judgement of the Court was delivered by

R. BANUMATHI, J. 1. Leave granted.

2. This appeal arises out of the judgment passed by the HighECourt of Madhya Pradesh, Principal Seat at Jabalpur in and by whichthe High Court allowed the Writ Petition No.12432 of 2017 setting asidethe order of termination of contract dated 11.08.2017 while maintainingthe appellant’s action on invocation of bank guarantee in terms of clause2.5.1 of the contract.F3. Brief facts which led to filing of this appeal are as follows:

The appellant-M.P. Power Management Company Ltd. initiatedthe process of procurement of power from Grid Connected Solar Energythrough tariff based competitive bidding for meeting its RenewablePurchase obligations in the State of Madhya Pradesh. Accordingly, aGRequest for Proposal (RFP) dated 06.05.2015 was issued by the appellantfor long term procurement of 300 MW power from Grid connected SolarEnergy Sources through tariff based competitive bidding. Out of 100bidders who participated in the bidding process, respondent No.1-ReNewClean Energy Private Ltd. was selected on the basis of cheaper meritorder rates. The appellant issued a Letter of Intent dated 23.10.2015 inH

M.P. POWER MANAGEMENT COMPANY LTD. v. RENEWCLEAN ENERGY PVT. LTD. [R. BANUMATHI, J.]

favour of respondent No.1 allotting 51 MW capacity at quoted tariff ofRs.5.457/kwh for twenty five years which was accepted by respondentNo.1 by its consent letter dated 26.10.2015. A Power PurchaseAgreement (PPA) dated 10.11.2015 was executed between the appellantand respondent No.1 for sale and procurement of 51 MW solar power,for which, respondent No.1 submitted a bank guarantee from respondentNo.2-Bank for an amount of Rs.15,30,00,000/- valid till January, 2018.

4. Since respondent No.1 was unable to obtain the requisite landfor establishing the power plant, respondent No.1 requested assistancefrom the State Government. Accordingly, the Collector, District-Rajgarhby order dated 21.04.2016 allotted 96.73 acres of revenue land to MPNew and Renewable Energy Department for further allotment on leaseto respondent No.1. This was done by the appellant even though theland procurement was the obligation of the bidder.

5. According to respondent No.1, there were difficulties inaccessing the land, because when measurement of land was taken on29.06.2016, it was found encroached and the project team faced heavyresistance, physical attacks etc. and therefore, respondent No.1 vide itsletter dated 29.09.2016 requested the appellant to allow to change oflocation of the project. The said permission sought for by respondentNo.1 was granted by the appellant by its Resolution dated 29.12.2016.The relevant portion of the Resolution reads as under:- “Resolved that condition for not allowing change of location after210 days from signing of PPA be relaxed and following SolarPower developers be allowed to change the location of theirrespective project, subject to provision of clause 2.5 and 2.6 ofthe PPA.”

6. After permission was granted to change the location of theproject, respondent No.1 purchased lands to an extent of about 253 acresin villages Bansara and Pipriya Rai in Ashok Nagar district and undertookthe development/construction activities. On 10.07.2017, respondent No.1wrote to appellant that “commissioning process was in final stagesand we expect to commission the plant on 31.08.2017 (tentativedate), which is ahead of scheduled commissioning date of07.09.2017.”

7. As per clause 2.5.1 of the PPA, a maximum period of ninemonths beyond 07.06.2016 for achieving Conditions Subsequent enables A

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Athe appellant to terminate the agreement if respondent No.1 failed tosatisfy the Conditions Subsequent by this date along with penalty whichwas to be calculated as per clause 2.5.1 of the PPA. In the light of theabovesaid provisions of the PPA, the appellant by order dated 11.08.2017terminated the PPA and imposed a penalty of Rs.11,95,54,200/- onrespondent No.1. Being aggrieved, respondent No.1 filed Writ PetitionBNo.12432 of 2017 before the High Court praying that the appellant bedirected not to give effect to termination and encashment of performancebank guarantee. The High Court vide impugned judgment dated18.08.2017 partly allowed the writ petition setting aside the order oftermination of the contract while maintaining the invocation of the bankCguarantee.

8. We have heard the learned counsel appearing for the partiesand perused the impugned judgment and materials on record.

9. Clause 2.1 of the PPA required respondent No.1 to fulfil allConditions Subsequent within a period of 210 days from the effectiveDdate i.e. 06.06.2017, failing which Article 2.5 of the PPA allowed furtherextension up to nine months for fulfillment of the Conditions Subsequentsubject to payment of liquidated damages in terms of the PPA. Clause2.5 of the PPA reads as follows:- 2.5 DELAY IN ACHIEVING CONDITIONSESUBSEQUENT

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

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

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

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

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

10. Since respondent No.1 was unable to obtain the requisite land,on request by respondent No.1, the State Government allotted 96.73

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acres of land at district Rajgarh to the appellant for being allotted torespondent No.1 on lease. According to respondent No.1, upon initiationof measurement and demarcation exercise by the revenue officials, theland was found to be heavily encroached and there was stiff resistancewhich continued every time respondent No.1 tried to approach the saidland and therefore, respondent No.1 could not access the project siteand commence any construction activities. On request by respondentNo.1 by its letter dated 29.09.2016, respondent No.1 sought for changeof location of the project. The Board of Directors considered the requestof respondent No.1 and by Resolution dated 29.12.2016 allowed changeof location of the project. Thereafter, respondent No.1 purchased theland to an extent of 253 acres in village Bansara and Pipriya Rai inAshok Nagar district within a period of about eighty three days from thedate of the appellant’s approval. After acquiring the land, respondentNo.1 undertook the construction activities and the project in an advancedstage of synchronization as early as on 10.07.2017. The same wasnotified to the appellant by communication dated 10.07.2017 stating thatthe commissioning of the project is in final stage and that the expecteddate of commissioning of the project is 31.08.2017 which according torespondent No.1 is ahead of the scheduled commissioning date i.e.07.09.2017 in terms of the PPA.

11. Even when respondent No.1 has undertaken the constructionactivities in the changed location and informed the appellant that theexpected date of commissioning of the project is 31.08.2017, the appellantterminated the contract by its order dated 11.08.2017. As pointed out byrespondent No.1 in its counter affidavit, on 06.06.2016, respondent No.1has got sanction of the term debt facility of Rs.267.37 crores from PTCIndia Financial Services Limited and has spent huge amount in purchasingthe land to an extent of 253 acres in Ashok Nagar district. RespondentNo.1 has also spent substantial amount in development of the project inthe changed location and reached an advanced stage of commissioningthe project by 31.08.2017. The delay in commissioning the project appearsto be due to unavoidable circumstances like resistance faced at the allottedsite in Rajgarh district and subsequent change of location of the project.These circumstances, though not a Force Majeure event, time takenby respondent No.1 in change of location and construction of the planthave to be kept in view for counting the delay. Having invested hugeamount in purchasing the land and development of the project at Ashok AB

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ANagar district and when the project is in the final stage of commissioning,the termination of the contract is not fair.

12. The High Court observed that the delay in completing theproject was only for sixteen days. But according to the appellant,respondent No.1 was granted time period of 210 days to complete theBConditions Subsequent after which the penalty was leviable for the delayand if the delay exceeded more than nine months, the appellant couldterminate the contract. According to appellant, the delay was not ofsixteen days; but the said delay of sixteen days is beyond the period ofnine months permissible under the PPA. In the light of our observationsabove, we are not inclined to go into the merits of this contention. SufficeCto note that in cases of delay, Articles 2.5 and 2.6 provide for levy ofpenalty. As observed by the High Court, since the contract permitsimposition of penalty, respondent No.1 is liable to pay penalty in terms ofclause 2.5.1 of the PPA for the delay. But the action of the appellant interminating the contract is arbitrary and was rightly set aside by theDHigh Court.

13. While setting aside the termination of the contract, the HighCourt maintained the action of invocation of bank guarantee in terms ofclause 2.5.1 of the PPA. By order dated 22.09.2017, this Court hasstayed the order of the High Court subject to restitution by the appellantEof the amount covered by the bank guarantee which has been invokedwhich is said to have been complied with by the appellant. In our view,interest of justice would be met by directing respondent No.1 to paypenalty amount of Rs.11,95,54,200/- imposed upon respondent No.1 bythe appellant.

F14. In the result, the appeal is dismissed. The respondent No.1shall pay the penalty of Rs.11,95,54,200/- to the appellant within a periodof four weeks from the date of this judgment. No costs.

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Ankit Gyan

Appeal dismissed.

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