THE CHIEF ENGINEER, WATER RESOURCES DEPARTMENT & ORS. versus RATTAN INDIA POWER LIMITED THROUGH ITS DIRECTOR & ORS. on 13 January 2023

1. The short question which arises for our consideration in thepresent case relates to whether a party to a contract is entitled to questionthe amount of consideration after signing the contract. By adverting tothe facts of the case, we have held that Respondent No.1 is estoppedfrom doing so because the Appellant, in all its communications, hadsoughtfor an amount of Rs.1,00,000 as irrigation restoration charges i.e.,consideration for diversion of water for industrial use, which was earlierreserved for irrigational purposes. Even the contract entered into betweenthe parties prescribed the same amount. In fact, Respondent No.1 agreedto the pay the considerationby issuing an undertaking on the date ofsigning of the contract. In any case, thiscontractual dispute concerningthe reduction of irrigation restoration charges,was contested by the partiesin an earlier Writ Petition before the High Court of Judicature at Bombay, A

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Aand the High Courtby its order dated 22.11.2012 had dismissed thechallenge. This is the second round of litigation on the same issue.

2. This appeal by the State of Maharashtra is against the judgmentof the Division Bench of the High Court of Judicature at Bombay atNagpur[1], whereby the High Court has reduced the ‘irrigation restorationBcharges’ which the Respondent herein has contracted to pay, fromRs.1,00,000 per hectare to Rs.50,000 per hectare. This has the effect ofreducing the total liability of the Respondent towards irrigation restorationcharges from Rs. 232.18 Crores to Rs.116.09 Crores.

3. The matter before us concerns the levy of ‘irrigation restorationCcharge’ by the Appellant as per Government Resolution dated 01.03.2009.The Respondent and other similarly placed companies use water forindustrial purposes, which is otherwise reserved for irrigation ofagricultural land. The usage of water for industrial purposes is seen asloss of water for irrigation, and in order to compensate for the same, theDsaid charge is levied and collected by the Appellant. These charges arelevied after taking into account the total number of hectares which willbe deprived of irrigation due to the diversion of water for industrial use.

4. The other cost levied by the Appellant is the ‘capital expenditurecharge’. This charge is used towards the construction and maintenanceEof dams. The payment of this charge is optional. Therefore,in the presentcase, we are not concerned with the levy and payment of the ‘capitalexpenditure charge’.

Facts:F

5. On 21.02.2004, the Irrigation Department of the State ofMaharashtra came up with a circular wherein it was prescribed thatwhen water is diverted for non-irrigation purposes, then the entity usingsuch water shall pay a sum of Rs.50,000 per hectare as irrigationrestoration charges. The circular stated that no water shall be divertedGunless an agreement is entered into between the concerned industry andthe government.

6. Sophia Power Company Ltd.[2], the predecessor of RespondentNo.1 herein, intended to set up a 2640MW thermal power plant. For that 1In WP No. 4968 of 2015 dated 05.05.2016.H2 hereinafter referred to as ‘SPCL’. hereinafter referred to as ‘SPCL’.

2 hereinafter referred to as ‘SPCL’. hereinafter referred to as ‘SPCL’.

purpose, a communication dated 12.12.2007 was sent by SPCL to theMaharashtra Industrial Development Corporation to confirm theavailability of 240 million liters of water per day to facilitate the smoothrunning of the thermal power plant. Pursuant to the application made bySPCL, a high-powered committee constituted by the State ofMaharashtra in its meeting held on 21.02.2008, granted in-principleapproval for the usage of water by SPCL. This in-principle approvalwas subject to SPCL paying capital contribution and irrigation restorationcharges. The high-powered committee named the Appellant herein asthe implementing agency.

7. On 25.07.2008, the Vidarbha Irrigation DevelopmentCorporation granted final approval for the usage of water by SPCL’sthermal power plant, subject to SPCL paying a sum of Rs.549.98 Crorescomprising of Rs.317.8 Crores as capital costs and Rs.232.18 Crores asirrigation restoration charge. Irrigation restoration charge stood atRs.232.18 Crores since the total number of hectares which would bedeprived of irrigation due to the diversion of water to SPCL’s thermalpower plant was 23219 hectares. This essentially meant that SPCL wasdirected to pay Rs.1,00,000 per hectare as irrigation restoration charge,as against the prevalent rate of Rs.50,000 per hectare. Be that as it may,on 16.08.2008, the Appellant informed SPCL that it would be reservingthe required quantity of water, subject to SPCL paying a sum of Rs.549.98Crores. A demand letter to that effect was also issued by the Appellanton 26.09.2008.

8. Notably, on 01.03.2009, the Water Resources Department ofthe Government of Maharashtra increased the irrigation restorationcharges from Rs.50,000 to Rs.1,00,000 per hectare. This circular cameinto effect from 01.04.2009.

9.1 On 25.01.2011, Respondent No.1 for the first time issued aletter to the Minister, Water Resources Department, Government ofMaharashtra, in protest against the levy of Rs.1,00,000 as irrigationrestoration charges. It was of the view that since many other powermanufacturers were given exemption from paying the capital contributioncharge and the irrigation restoration charge, it may also be exemptedfrom paying the said charges. Pending consideration of this request,Respondent No.1 requested that they may be allowed to enter into an AB

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Aagreement for supply of water as mandated by the circular dated21.02.2004. Without entering into an agreement, they could not havedrawn water from the dam.

9.2 Respondent No.1 again sent a letter on 25.02.2011, where itstated that they may be allowed to pay irrigation restoration charge atBRs.50,000 per hectare in five equal instalments because,when thein-principle allocation was made and when the final approval was given,the prevalent rate of irrigation restoration charge was Rs.50,000. A similarletter was again sent by Respondent No.1 to the Appellant on 01.06.2011,whereby in addition to the aforesaid request, Respondent No.1 also askedCfor an extension to enter into an agreement.In response, through its letterdated 08.06.2011, the Appellant granted extension till 31.05.2012 toexecute an agreement. However, the Appellant made no commitmentson the other request raised by Respondent No.1 – waiver/reduction ofthe irrigation restoration charge.

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10. Since Respondent No.1 did not receive any reply on the requestconcerning waiver/reduction of the irrigation restoration cost, it sent afresh communication on 10.05.2012 seeking reduction of the said chargeand also seeking permission to pay the same in 5 equal instalments. TheAppellant responded to this request on 17.05.2012, by stating that thereEshall be no reduction in the irrigation restoration charge. That said, theoption of paying the said charge in 5 equal instalments was granted.

11. Ultimately, on 22.05.2012, the Appellant and Respondent No.1entered into a water supply agreement. Notably, this agreement statesthat Respondent No.1 shall pay a sum of Rs.1,00,000 as irrigationFrestoration charge. This agreement indicates consensus ad idem on theamount to be paid towards irrigation restoration. In fact, on the sameday, Respondent No.1 also issued an undertaking to deposit the irrigationrestoration charge at the rate of Rs.1,00,000 per hectare in 5 equalinstalments.G

12. Six months after signing the water supply agreement,Respondent No.1 initiated writ proceedings before the High Court ofJudicature of Bombay challenging the communicated dated 16.08.2008and the demand letter dated 26.09.2008. By its order dated 22.11.2012,a division bench of the Bombay High Court refused to quash theHcommunications on the ground that the Respondent No.1 had accepted its liability to pay irrigation restoration charge at the rate of Rs.1,00,000per hectare by signing the agreement dated 22.05.2012. The High Courtwas of the view that it could not pass any order which would obviatecompliance of the agreement. However, the High Court held thatRespondent No.1’s plea for reduction of the irrigation restoration chargeshall be decided within a period of 8 weeks, and if the same is decidedfavorably, then it would be open for Respondent No.1 to pursueappropriate remedies in law – to seek a refund or adjust the excessamount paid.

13. In compliance of the order passed by the High Court, theWater Resources Department of the State of Maharashtra consideredthe request of Respondent No.1 for reduction of the irrigation restorationcharge,and through its order dated 29.01.2013, rejected the said request.The reason given by the Department was that the State had nevercommitted to any reduction and also that Respondent No.1 itself hadsigned the agreement dated 22.05.2012, which stipulated Rs.1,00,000per hectare as the irrigation restoration charge. Immediately thereafter,the Appellant also issued a demand letter.

14. Aggrieved by the rejection of its representation, RespondentNo.1 preferred a writ petition before the High Court of Judicature ofBombay at Nagpur challenging the decision dated 29.01.2013. The HighCourt by the impugned order, allowed the writ and directed RespondentNo.1 to pay irrigation restoration charges at Rs.50,000 per hectare. TheHigh Courtcame to this conclusion by holding that the rate prevailing onthe date on which the in-principle approval was granted by the high-powered committee would determine the cost of irrigation restorationcharge.The High Court was of the view that since the total quantity ofwater used and total loss of water for irrigation was calculated on thedate of grant of in-principle approval, it would be appropriate for the rateprevailing as on that date to govern the irrigation restoration charge. It isthis order which is impugned before this Court.

Submissions of the parties:

15. Shri Chander Uday Singh, learned Senior Counsel appearingfor the Appellant contended that the impugned order is in the teeth of theagreement dated 22.05.2012 entered into between the Appellant andRespondent No.1. It is his case that the after accepting Rs.1,00,000 as AB

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Airrigation restoration charges, Respondent No.1 is not entitled to challengeit. The substance of his argument was that a contract is sacrosanct andit must be respected.

16. Shri Gopal Jain, learned Senior Counsel appearing forRespondent No.1 contended that – (i) it is the rate prevailing on the dateBof grant of in-principle approval by the high-powered committee whichwould govern Respondent No.1. It is his case that the irrigation restorationcharge is directly linked to the date of approval/sanction, and on therelevant date, since the circular dated 21.02.2004 was applicable, theAppellant could have only levied Rs.50,000 per hectare as irrigationCrestoration charges; (ii) a few similarly placed companies were giventhe relief which Respondent No.1 was seeking; (iii) the undertaking givenby Respondent No.1 after signing the agreement was not an unconditionalone. This undertaking was subject to the outcome of the numerousrepresentations made by Respondent No.1 for reduction of the irrigationrestoration charge; (iv) the Government Circular dated 01.03.2009 willDapply prospectively and will not apply to ongoing contracts. Shri Jaincontended that if the said circular is given retrospective effect, then itwould undermine certainty.

AnalysisE

17. In the present case, the Appellant and Respondent No.1 hadentered into an agreement on 22.05.2012. This agreement categoricallystated that Respondent No.1 would pay a sum of Rs.1,00,000 per hectaretowards irrigation restoration charge. Therefore, the Respondent No.1is not justified in challenging the levy of Rs.1,00,000 when it itself hadFagreed to the same. In fact, on the same day, Respondent No.1 had alsoissued an undertaking that it would pay the stipulated sum within a specificperiod of time. We may note here that right from the very beginning i.e.,in the sanction order, the demand notice and in all its letters, the Appellanthad stipulated a sum of Rs.1,00,000 per hectare as irrigation restorationGcharges. All these communications get subsumed in the agreement dated22.05.2012.Therefore, we are of the view that signing the agreementand issuing an undertaking would estop Respondent No.1 from challengingthe levy of Rs.1,00,000 as irrigation restoration charges.

18. We are not impressed with the argument of Shri Gopal JainHthat it is the rate prevailing on the date of grant of in-principle approval which would govern Respondent No.1. The rights and liabilities of theparties stand crystallized on the date of entering into the agreement,which is 22.05.2012.Therefore, the rate prevailing on 22.05.2012 wouldgovern the parties.

19. On the aspect of differential treatment, Respondent No.1alleges that it has been discriminated when compared to eight othercompanies.This allegation is denied by the Government and they haveexplained this aspect in their rejoinder filed before this Court and also inthe counter and sur-rejoinder filed before the High Court. By referringto these records, we have noted that in as many as four power generatorsare concerned, the in-principle approval granted in their favor hasitselfbeen cancelled as they had failed to execute an agreement with theAppellant. A Central Government undertaking was given an exemptionsince the power produced by the said company was to be used for publicbenefit. One company was charged Rs.50,000 since the agreement wasentered into on 22.09.2008, and as on that date, the prevalent rate wasRs.50,000 per hectare. Further, one other power generator was givenan exemption because there was no loss of irrigation potential due todiversion of water. Another company was charged Rs.50,000 per hectaresince the water to be diverted in favor of the said company was minimaland more importantly, that particular area was not a water deficit area.In comparison, Respondent No.1 is drawing a high amount of waterfrom an area where water is a scarce resource. This is a reasonableand sufficient explanation.

20. We are not satisfied with the approach adopted by the HighCourt when Respondent No.1 itself has willfully and deliberately enteredinto an agreement knowing fully well the legal and businessconsequences. In fact, the relief claimed in this Writ Petition is similar tothe prayer in the Writ Petition which was disposed of on 22.11.2012.Even in that proceeding, Respondent No.1 had raised similar arguments.They were countered by the State by contending that there existed anagreement between the parties which stipulated a sum of Rs.1,00,000as irrigation restoration charges, and pursuant to this agreement,Respondent No.1 had even issued an undertaking. After taking note ofthe contentions, the High Court held as follows:

“5. The record before the Court would indicate that even priorto the execution of the agreement the Petitioners had by a A

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letter dated 12 May 2010 accepted the liability to pay anamount of Rs. 232.18 crores in five instalments. However, sincea representation had been submitted to the Government forcharging of irrigation restoration charges at the rate of50,000/- per hectare instead of Rs.1 lakh per hectare, thePetitioners stated as follows:

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“Without prejudice to IPL’s right made in the representationwhich is pending with the State Government, it is confirmedthat IPL will be willing to execute the agreement before31st May 2012 on the conditions mentioned at 2 a) & 2 b)Cabove. However, we will like to clarify that in the event ofour representation at 1 is decided in our favour, the amountpayable towards irrigation restoration charges will standreduced accordingly and the instalments paid/payable byus will be suitably adjusted/modified.”

D6. The agreement which was executed thereafter contemplatesthat the Petitioners would pay irrigation restoration chargesat the rate of Rs. 1 lakh per hectare to Government togetherwith interest and that the decision of the Government on therepresentation dated 25 January 2011 submitted for theEreduction of the irrigation restoration charges would bindthe parties. The Petitioners have besides the representationdated 25 January 2011, followed up with subsequentrepresentations which are still pending one of which is therepresentation dated 30 June 2011 (Exhibit “I”). ThePetitioners have moved these proceedings virtually at the endFof the deadline for the payment of the second instalment whichfalls due on 21 November 2012. If this petition were to beinstituted much before the approaching deadline, directionscould have been issued for the disposal of the representationwell in time before the approaching deadline for the secondGinstalment. In these circumstances and particularly in acontractual area where the parties are governed by anagreement dated 22 May 2012 in support of which thePetitioners have also tendered an undertaking, it will not bepossible for the Court to pass any order which would obviateHcompliance with the agreement….”

The High Court merely directed the concerned authority to take adecision on the representations made by Respondent No.1 within a periodof eight weeks, and if the same came to be decided in the favor ofRespondent No.1, then Respondent No.1 could take such measures inlaw to seek a refund. It is evident that the High Court refrained fromgranting a stay on the payment of the second instalment.In compliancewith the direction of the High Court, the Government considered thematter and it rejected the representation on 29.01.2013. In that view ofthe matter, we are of the opinion that the High Court committed an errorin entertaining a fresh writ petition, which effectively claimed the samereliefs as of the previous one. The High Court committed a mistake innot only entertaining the writ petition, but also in supplanting its viewoverthat of the contract.

21. As has been noted above, irrigation restoration charges wereto be paid by Respondent No.1 in five installments.

Clause 4 of the undertaking dated 22.05.2012 which was issuedby Respondent No.1 stated that if there is a delay in making the payment,then penal interest @12% p.a. shall be levied.The records before usindicate that that only two instalments have been paid. Therefore, wedirect that the balance amountdue and payable towards irrigationrestoration charge shall pe paid by Respondent No.1 on or before30.06.2023. Further, interest @ 12% p.a. shall be payable from the datethe instalment/payment fell due till the date of the impugned order i.e.,05.05.2016.

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A22. In conclusion, we allow the Civil Appeal No. 8550 of 2022arising out of SLP (C) No.28161 of 2016 and set aside the impugnedfinal judgement and order dated 05.05.2016 passed by the High Court ofJudicature of Bombay at Nagpur in W.P. No. 4968 of 2015.

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23. Parties shall bear their own costs.

Devika Gujral

Appeal allowed.

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