RITHWIK ENERGY GENERATION PVT. LTD. versus BANGALORE ELECTRICITY SUPPLY CO. LTD. & ORS. ETC. on 6 February 2018

[2018] 1 S.C.R. 1023

RITHWIK ENERGY GENERATION PVT. LTD.

v.

BANGALORE ELECTRICITY SUPPLY CO. LTD. & ORS. ETC.(Civil Appeal Nos. 5084-5085 of 2015)

FEBRUARY 06 2018

[R. F. NARIMAN AND NAVIN SINHA, JJ.]

Electricity: Supply under Open Access System – PPA betweenappellant and respondent no.1 – State Commission did not accordapproval to the PPA and returned the same – Appellant filed O.P.before State Commission seeking declaration that no valid PPAsubsisted between them – State Commission dismissed the O.P. –Appeal before Appellate Tribunal – During pendency of appeal,appellant sent Letter dated 5.5.2011 to respondent no.1 mentioningthe defaults in making payment for power bill and interest anddefault in opening letter of credit and seeking permission to sell thepower to third party – Meanwhile appellant sought to bringsubsequent events on record for decision of appeal – AppellateTribunal examined the subsequent events on merits and ultimatelydismissed the appeal holding that no notice to remedy the defaultor termination notice was served by appellant on the respondentno.1 – On 11.5.2012, appellant sent notice of termination –Respondent no.1 made certain payments and also opened letter ofcredit and thereafter filed O.P. before State Commission seekingdeclaration that termination of PPA by appellant was invalid – On9.5.2013, Central Commission asked appellant to approach StateCommission for adjudication of dispute regarding subsistence orotherwise of the PPA after the termination notice dated 11.05.2012– O.P. by respondent was allowed by State Commission by orderdated 17.3.2017, on the ground that notice dated 5.5.2011 was nota default notice and therefore subsequent notice of termination basedupon 5.5.2011 notice could not be said to be valid in law – AppellateTribunal dismissed appeals of appellant filed against order dated9.5.2013 and 17.3.2017 – In the instant appeals, plea of appellantinter alia was that finding based on letter dated 5.5.2011 by AppellateTribunal was not on a matter directly and substantially in issue butbeing merely collateral could not be said to be res judicata – Held:

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AThere is no doubt whatsoever that the appellant itself invited theAppellate Tribunal to go into a subsequent event, which, accordingto it, was of extreme importance in deciding the appeal – This beingthe case, after contest, and after the Appellate Tribunal held infavour of the appellant that such subsequent event was indeedimportant and will be decided by the Tribunal, and then suffering aBfinding which was found, on merits, to be against it, the appellantwas clearly estopped from attempting to argue now that the veryimportant issue raised by way of subsequent events according tothe appellant itself should be held, as a matter of law, to be only acollateral issue and therefore, not res judicata – A reading of PPACshowed that upon occurrence of an event of default, a default noticemay be served to the Corporation in writing specifying in reasonabledetail the event of default giving rise to the notice, and calling uponRespondent No.1 to remedy the same within a period of 30 daysfrom the delivery of the default notice unless the parties have agreedotherwise – It is only then that the Company may deliver aDtermination notice to the Corporation – Letter dated 05.05.2011spoke only of events of default, but did not call upon RespondentNo.1 to remedy the same within the period specified – Thus therewas no substantial compliance of Clause 9.3.2 of the PPA – AppellateTribunal in the impugned judgment cannot be faulted on any score.

EDismissing the appeals, the Court

Conclusion

EDismissing the appeals, the Court

HELD: 1. Once a Court or Tribunal decides to look into asubsequent event at the behest of any of the parties, the Courtitself thinks that it is important to do so, otherwise it would notFlook into such subsequent event. As seen from the AppellateTribunal’s judgment, not only did the appellant considered thesubsequent event as directly and substantially in issue for decidingthe appeal, which incidentally was not opposed by RespondentNo.1 on this ground but on the ground that it would be bringingin a new issue at the stage of appeal, but the Appellate TribunalGhaving turned down the Respondent No.1’s plea, and havingexamined subsequent events, it cannot but be said that theAppellate Tribunal itself considered the issue No.3 raised by it,based on subsequent events brought to its notice, as beingdirectly and immediately in issue. On this ground also, therefore, H

RITHWIK ENERGY GENERATION PVT. LTD. v. BANGALOREELECTRICITY SUPPLY CO. LTD. & ORS. ETC.

apart from the appellant being estopped in law from raising sucha plea, the plea itself has no legs to stand down. [Paras 13, 15][1000-F-H; 1031-G-H; 1032-A-C]

2. A reading of clause 9.3.2 of the PPA would show thatupon occurrence of an event of default, a default notice may beserved to the Corporation in writing. The requirements of thesaid notice are two fold – (1) to specify in reasonable detail theevent of default giving rise to the notice, and (2) calling uponRespondent No.1 to remedy the same within a period of 30 daysfrom the delivery of the default notice unless the parties haveagreed otherwise. It is only then that the Company may delivera termination notice to the Corporation. Letter dated 05.05.2011spoke only of events of default, but did not call upon RespondentNo.1 to remedy the same within the period specified. This,according to the appellant was in any event substantial compliancewith the said clause. Both parts of Clause 9.3.2 are important -one specifying in reasonable detail the event of default and thesecond, calling upon Respondent No.1 to remedy the same withina period of 30 days. The parties may otherwise agree, in whichcase the Respondent No.1 may remedy the defaults mentionedin the notice either before or after the expiry of 30 days periodlaid down, showing that the parties considered that this part ofClause 9.3.2 is as important as the first part, for otherwise, atermination notice could, de hors the second part of Clause 9.3.2have issued straight away without more. This being the case,submission that there has been substantial compliance of Clause9.3.2 of the PPA is not tenable. [Paras 16, 17, 21] [1032-C-D;1033-B-C]

Pasupuleti Venkateswarlu v. The Motor & GeneralTraders [1975] 3 SCR 958 ; Sajjadanashin Sayed Md.B.E. EDR (D) by LRs. v. Musa Dadabhai Ummer andOthers (2000) 3 SCC 350 : [2000] 1 SCR 1095 – reliedon.

Nani Gopal Biswas v. the Municipality of Howrah[1958] SCR 774 ; Thakur Pratap Singh v. Shri KrishnaGupta and Others [1955] 2 SCR 1029 – Distinguished.

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CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5084-5085 of 2015.

From the Judgment and Order dated 11.03.2015 of the AppellateTribunal for Electricity, New Delhi in Appeal No. 170 of 2013.C

Dhruv Mehta, Sr. Adv, Mishra Saurabh, V. V. S. Murthy, AnkitKr. Lal, Ms. Vanshaja Shukla, Anant Gautam, Anubhav Ray, ManthaShrinivas, Advs for the Appellant.

Ms. Pratiksha Mishra, Balaji Srinivasan, Abhishek Bharti,Ms. Vaishnavi Subrahmanyam, Nikhil Nayyar, N. Sai Vinod, Ms. SmritiDShah, Divyanshu Rai, Tushar Bakshi, Advs for the Respondents.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. The present appeals are filed by theappellant - a Generating Company, which entered into an AgreementEdated 26.09.2006, with the Government of Karnataka for setting up a24.75 MW mini hydro-electric power plant in a certain District inKarnataka. On 03.05.2007, the appellant and Respondent No.1 signeda Power Purchase Agreement (for short ‘the PPA’). Pursuant to theClauses of the PPA, Respondent No.1 sent the PPA to the StateCommission for its approval. On 06.06.2007, the State Commission didFnot accord its approval to the PPA and returned the same on the groundthat Respondent No.1’s quota of 10% under the Karnataka Regulationsof 2004 had already been exhausted from other sources.

2. Meanwhile, on 26.07.2008, the appellant entered into anotherPPA with PTC India Limited for sale of electricity and sought theGCommission’s approval for supply to PTC under the Open Accessprovisions of the Electricity Act. On 31.08.2009, the appellant filed O.P.No. 29 of 2009 before the State Commission seeking a declaration thatno valid PPA subsisted between the appellant and Respondent No.1, asa result of which it was open to the appellant to enter into another PPAand supply electricity under the Open Access system.H

3. On 23.12.2010, the State Commission dismissed the appellant’sO.P. holding that the return of the PPA did not tantamount to rejection,and this non-grant of approval, therefore, did not invalidate the PPAbetween the parties. An Appeal was preferred before the AppellateTribunal, during the pendency of which a letter dated 05.05.2011 wassent by the appellant to Respondent No.1. As a great deal turns uponthe effect of this letter, the relevant paragraphs are set out herein below:- The letter begins with “WITHOUT PREJUDICE” and has as itsSubject - “Permission to sell Power to Third Parties”. The letter thengoes on to state that on the assumption that the PPA is valid, which ispending appeal before the Appellate Tribunal, the appellant wishes tobring to the attention of Respondent No.1 three specific defaults in theobligations undertaken by Respondent No.1 under the PPA. The defaultsrelated to default in making payments for the Power Bills within 15 daysof submission; default in payment of interest; and default in opening aLetter of Credit. The letter further goes on to state:

“Thus, BESCOM defaulted in its financial and material obligations,that too for over a continuous period of three months.

There, BESCOM shall permit, in terms of Article 9.2.2. of t h edisputed PPA, our Company to sell power from the Project to third partiesand for entering into Wheeling and Banking Agreement with it.

So we request you to confirm that you will permit us to sell thepower to third to pay the applicable charges.”

4. On 21.10.2011, the Appellate Tribunal dismissed the appealfiled by the appellant. On the two issues that were raised before theState Commission, the Appellate Tribunal found in favour of RespondentNo.1 and was in complete agreement with the findings of the StateCommission. However, the Appellate Tribunal then went on to advert toan affidavit that was filed before the Appellate Tribunal seeking to bringon record certain subsequent events as being material for decision ofthe appeal. And these subsequent events were sought to be brought onrecord by the appellant itself. After a contest on whether these eventsought to be brought on record, Respondent No.1 stating that this is anew case not permissible in appeal, the Appellate Tribunal turned downthe plea of Respondent No.1 and felt that it was important to examinethe subsequent events on merits. It then referred to certain provisionsof the PPA and, in particular, Clause 9.3.2 which deals with terminationfor default of Respondent No.1, and then went on to hold as follows:

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A“12.12.Thus, for termination of the PPA, in the event of paymentdefault for a continuous period of three months, the appellant hasto deliver a Default Notice to the second respondent in writingcalling upon it to remedy the same. After expiry of 30 days fromdelivery of notice unless the parties have agreed otherwise or theevent of default has been remedied, the appellant can deliver aBTermination Notice to the second respondent under intimation tothe State Commission. Upon delivery of the Termination Notice,the PPA shall stand terminated.

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C12.13Admittedly, no notice to remedy the default or terminationnotice has been served by the appellant on the respondentdistribution licensee, only a letter dated 5.5.2011 about paymentdefault and seeking permission to third parties in terms of Article9.2.2. was sent to the respondent distribution licensee on 19.5.2011after the interim order of the Tribunal dated 18.5.2011"D

5. On 11.05.2012, since according to the appellant, RespondentNo.1 did not remedy the default in payment of interest despite the expiryof 30 days period from the date of the notice dated 05.05.2011 and alsofrom the expiry of a further period of 30 days granted by the AppellateTribunal, the appellant purported to terminate the PPA. The letter ofE11.05.2012 specifically referred to and relied upon the notice dated05.05.2011 and referred to it in para 9 thereof as a default notice thatwas issued subsequent to which, defaults as mentioned therein, werenot cured and that therefore, exercising their rights under Clause 9.3.2of the PPA, a termination notice was then issued. It needs only to beFmentioned that on 29.05.2012, in reply to the “without prejudice” part ofthe 11.05.2012 notice to pay interest, in any case, within 30 days fromthe said notice, Respondent No.1 paid a sum of Rs. 3.22 lakhs as interest.On 14.08.2012, it also substituted the earlier Letter of Credit that wasopened and opened a Letter of Credit for an amount that was inaccordance with the PPA, as was contended by the appellant.G

6. Thereafter, on 21.02.2013, Respondent No.1 filed O.P. No. 6of 2013 before the State Commission for a declaration that the terminationof the PPA by the appellant was invalid.

7. By an order dated 09.05.2013, the Central Commission firstasked the petitioner i.e. the appellant herein to approach the StateH

Commission for adjudication of the dispute regarding subsistence orotherwise of the PPA after the termination notice dated 11.05.2012.

8. On 17.10.2013, Respondent No.1’s O.P. No. 6 of 2013 wasallowed by the State Commission, relying strongly on the observationsof the Appellate Tribunal in its judgment dated 21.10.2011, which havebeen extracted above, to say that the notice dated 05.05.2011 was not adefault notice or could not be said to be a default notice under Clause9.3.2 of the PPA and that this being so, it is clear that the subsequentnotice of termination based upon the 05.05.2011 notice being a defaultnotice could not be said to be valid in law. It thus allowed the O.P. filedby Respondent No.1 and held the termination of the PPA to be invalid.

9. In appeals filed against both the 09.05.2013 order and the17.10.2013 order, the Appellate Tribunal dismissed the appeals of theappellant, again relying upon the Appellate Tribunal’s judgment dated21.10.2011 in stating that the alleged notice dated 05.05.2011, not beingin conformity with Clause 9.3.2 of the PPA, could not be said to be adefault notice and that, therefore, any termination notice issued thereafteris also invalid. It also ultimately found, as a matter of fact, that so far asthe Letter of Credit was concerned, since the appellant had not gone tothe State Commission to remedy the same, it did not find any fault withthe State Commission’s orders and ultimately after summarizing itsfindings, dismissed both the appeals.

10. Mr. Dhruv Mehta, learned Senior Advocate, appearing onbehalf of the appellant has raised three points before us. According tohim, the finding based on the letter of 05.05.2011 by the Appellate Tribunalin its judgment dated 21.10.2011 was not on a matter directly andsubstantially in issue, but being merely collateral, could not be said to beres judicata. He next argued that, in any case, the notice dated05.05.2011 was a notice, which substantially conformed to Clause 9.3.2of the PPA, and, therefore, ought to have been held as a default notice.This being so, the termination notice dated 11.05.2012 was valid in lawand, therefore, the judgments of the State Commission as well theAppellate Tribunal are incorrect on this score. He cited certain judgments,which will be dealt with by us. He also argued that despite the relevantperiod under the PPA having long elapsed, defaults continued and wereremedied long after the period so stated.

11. Ms. Pratiksha Mishra, learned counsel appearing for therespondent(s), on the other hand, first argued that Mr. Mehta’s client AB

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Aought to be estopped from taking the plea that there was no res judicatain the instant case, and it is the appellant itself that filed an affidavitbefore the Appellate Tribunal and called for a finding on subsequentevents which, according to the appellant, was important for determinationof the issue at hand. She also adverted to the relevant portions of thejudgment of the Appellate Tribunal dated 21.10.2011, and stated that, inBany case, it was correct in law. So far as the opening of the Letter ofCredit was concerned, it was her case that a Letter of Credit was openedand there was, therefore, no default. Only the amount for which it wasopened being lower than what the PPA required, when such default waspointed out, rectification followed and the Letter of Credit as it standsCafter 14.08.2012 is opened in accordance with the PPA.

12. Having heard the learned counsel appearing for the parties,we are of the view that there is no doubt whatsoever that the appellantitself invited the Appellate Tribunal to go into a subsequent event, which,according to it, was of extreme importance in deciding the appeal. ThisDbeing the case, it is clear that, after contest, and after the AppellateTribunal held in favour of the appellant that such subsequent event isindeed important and will be decided by the Tribunal, and then sufferinga finding which was found, on merits, to be against it, we are of the viewthat the appellant is clearly estopped from attempting to argue now thatthe very important issue raised by way of subsequent events accordingEto the appellant itself should be held, as a matter of law, to be only acollateral issue and therefore, not res judicata.

13. In Pasupuleti Venkateswarluvs. The Motor & GeneralTraders, [1975] 3 S.C.R. 958, this Court adverted to the cautious takinginto account of events that arise subsequent to the filing of a petition.FKrishna Iyer, J., in the aforesaid decision, stated:

“We feel the submissions devoid of substance. First about thejurisdiction and propriety vis a vis circumstances which come intobeing subsequent to the commencement of the proceedings. It isbasic to our processual jurisprudence that the right to relief mustGbe judged to exist as on the date a suitor institutes the legalproceeding. Equally clear is the principle that procedure is thehandmaid and not the mistress of the judicial process. If a fact,arising after the lis has come to court and has a fundamentalimpact on the right to relief or the manner of moulding it, is brought H

RITHWIK ENERGY GENERATION PVT. LTD. v. BANGALOREELECTRICITY SUPPLY CO. LTD. & ORS. [R.F. NARIMAN, J.]

diligently to the notice of the tribunal, it cannot blink at it or beblind to events which stultify or render inept the decretal remedy.Equity justifies bending the rules of procedure, where no specificprovision or fairplay is violated, with a view to promote substantialjustice-subject, of course, to the absence of other disentitlingfactors or just circumstances. Nor can we contemplate anylimitation on this power to take note of updated facts to confine itto the trial Court. If the litigation pends, the power exists, absentother special circumstances repelling resort to that course in lawor justice. Rulings on this point are legion, even as situations forapplications of this equitable rule are myraid. We affirm theproposition that for making the right or remedy claimed by theparty just and meaningful as also legally and factually in accordwith the current realities, the court can, and in many cases must,take cautious cognizance of events and developments subsequentto the institution of the proceedings provided the rules of fairnessto both sides are scrupulously obeyed.”

It is clear therefore, that once a Court or Tribunal decides to lookinto a subsequent event at the behest of any of the parties, the Courtitself thinks that it is important to do so, otherwise it would not look intosuch subsequent event.

14. In Sajjadanashin Sayed Md. B.E. EDR. (D) by LRs. vs.Musa Dadabhai Ummer and Others, (2000) 3 SCC 350, one of theissues that arose for consideration was what exactly is an issue which isdirectly and substantially in issue, as opposed to being collaterally andincidentally in issue. After referring to various authorities, both Englishand American, this Court ultimately referred to and relied upon Mulla’sCivil Procedure Code (15[th] Edition) in which two tests were set out.One test is that if the issue was “necessary” to be decided for adjudicatingon the principal issue, and was decided, it would be treated as directlyand substantially in issue as the judgment was, in fact, based upon sucha decision. The other principle is that the issue must be decided on thefacts of each case, the material test to be applied being whether theCourt considers the adjudication of the said issue material and essentialfor its decision.

15. As seen from the Appellate Tribunal’s judgment dated21.10.2011, not only did the appellant considered the subsequent event

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Aas directly and substantially in issue for deciding the appeal, whichincidentally was not opposed by Respondent No.1 on this ground but onthe ground that it would be bringing in a new issue at the stage of appeal,but the Appellate Tribunal having turned down the Respondent No.1’splea, and having examined subsequent events, it cannot but be said thatthe Appellate Tribunal itself considered the issue No.3 raised by it, basedBon subsequent events brought to its notice, as being directly andimmediately in issue. On this ground also, therefore, we are of the viewthat, apart from the appellant being estopped in law from raising such aplea, the plea itself has no legs to stand down.

16. We now come to the other main plank of Mr. Mehta’sCsubmission. Mr. Mehta read to us Clause 9.3.2 of the PPA and contendedthat the letter dated 05.05.2011 substantially complied with therequirements of the said clause and should be treated to be a notice ofdefault under the said clause. To appreciate this plea, Clause 9.3.2 ofthe PPA needs to be set out:

D“9.3.2 Termination for corporation’s Default: Upon theoccurrence of an event of default as set out in sub-clause 9.2.2above, Company may deliver a Default Notice to the Corporationin writing which shall specify in reasonable detail the Event ofDefault giving rise to the default notice, and calling upon theEBESCOM to remedy the same.

At the expiry of 30 (thirty) days from the delivery of this defaultnotice and unless the Parties have agreed otherwise or the Eventof Default giving rise to the Default Notice has been remedied,Company may deliver a Termination Notice to Corporation.FCompany may terminate this Agreement by delivering such aTermination Notice to Corporation and intimate the same to theCommission. Upon delivery of the Termination Notice thisAgreement shall stand terminated.

Where a Default Notice has been issued with respect to an EventGof Default which requires the co-operative of both BESCOMand the Company to remedy, BESCOM shall render all reasonablecooperation to enable the Event of Default to be remedied.”

A reading of this clause would show that upon occurrence of anevent of default, a default notice may be served to the Corporation in H

writing. The requirements of the aforesaid notice are two fold – (1) tospecify in reasonable detail the event of default giving rise to the notice,and (2) calling upon Respondent No.1 to remedy the same within aperiod of 30 days from the delivery of the default notice unless the partieshave agreed otherwise. It is only then that the Company may deliver atermination notice to the Corporation.

17. On a perusal of the letter dated 05.05.2011, what is clear isthat the letter speaks only of events of default, but does not call uponRespondent No.1 to remedy the same within the period specified. This,according to Mr. Mehta, is in any event substantial compliance with theaforesaid clause. We cannot agree. Both parts of Clause 9.3.2 areimportant - one specifying in reasonable detail the event of default andthe second, calling upon Respondent No.1 to remedy the same within aperiod of 30 days. It is also important to note that the parties mayotherwise agree, in which case the Respondent No.1 may remedy thedefaults mentioned in the notice either before or after the expiry of 30days period laid down, showing that the parties considered that this partof Clause 9.3.2 is as important as the first part, for otherwise, a terminationnotice could, de hors the second part of Clause 9.3.2 have issued straightaway without more. This being the case, we are unable to agree withMr. Mehta’s submission that there has been substantial compliance ofClause 9.3.2 of the PPA.

18. Mr. Mehta cited three judgments before us to persuade usthat the letter dated 05.05.2011 substantially complied with Clause 9.3.2of the PPA.

19. In Nani Gopal Biswasvs. The Municipality of Howrah,[1958 S.C.R. 774, this Court was concerned with a notice issued underSection 299 of the Calcutta Municipal Act, 1923. Since Section 300 ofthe Municipal Act was attracted to the facts of the case and not Section299, this Court held that even though the notice may be headed as beingunder Section 299 of the Act, it would make no difference as, in substance,the effective part of the notice leaves no doubt in the minds of the partiesconcerned that the requisition is to remove an encroachment caused bya compound wall which is a structure which falls within Section 300.This case is wholly distinguishable inasmuch as all that was required bySection 300 of the Calcutta Municipal Act was the fact that a compoundwall was an encroachment. This was clearly stated in the notice, and A

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Athe fact that it was stated to be under a wrong provision of law would,therefore, make no difference to the substance of the notice.

20. Similarly, in Thakur Pratap Singhvs. Shri Krishna Guptaand Others, [1955] 2 S.C.R. 1029, this Court dealt with the filling up ofa nomination paper in order to stand for the office of President of aBMunicipal Committee. Here again, this Court held that the fact that theword “occupation” in the form was either struck out or left blank wouldmake no difference since a man’s occupation is not one of thequalifications for the office of President. It was, therefore, held that thispart of the form was only directory, and is part of the description of thecandidate, but does not go to the root of the matter, so long as there isCenough material in the paper to enable him to be identified beyond doubt.This judgment again is wholly distinguishable on facts in that, as hasbeen found by us above, the part of Clause 9.3.2 relating to calling uponRespondent No.1 to remedy defaults within a period of 30 days unlessotherwise agreed is as important as the events of default that have beenDstated to have taken place. Substantial compliance, therefore, can be noanswer to such a mandatory requirement.

21. It is unnecessary for us to pronounce on any further aspect,including the aspect of late payment and late opening of Letter of Credit.We are of the view that the Appellate Tribunal in the impugned judgmentEcannot be faulted on any score.

22. The appeals are, accordingly, dismissed.

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Devika Gujral

Appeals dismissed.

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