WP(C)/40/2005 of Nar Bahadur Bhandari and Ors Vs State of Sikkim and Ors. on 14 October 2010

JUDGMENT

Dinakaran, CJ

I. The core issue

The core issue that arises for consideration in this WritPetition is: Whether the Agreement dated 18.07.2005 enteredinto between the State of `Sikkim and M/s. Teesta Urja Ltd.(respondent No.3), for setting up a Hydro Electric Project -Teesta Stage Ill based on the policy of State/Letter of Intentdated 26.02.2005, is contrary to law, guidelines, and mandatoryinstructions of the Ministry of Power, Government of India andopposed to public interest?

11. _Public Interest Litigation_

This is a Public Interest Litigation. The first petitionerwas the former Chief Minister of the State of Sikkim during theperiod 1979 to 1984. He was subsequently elected as a Memberof Parliament and then again was the Chief Minister until 1994;the second petitioner is an active member and office bearer ofthe Sikkim Pradesh Congress Committee; and the third petitioneris the Treasurer of the Sikkim Pradesh Congress Committee andwas also the former Mayor of Gangtok and former Member of theLegislative Assembly of Sikkim.I.-=#p...

Heard Mr. M. Z. Ahmed, learned Senior Counsel forthe petitioners, Mr. A. Mariarputham, learned Advocate Generalfor respondents No. 1 and 2, Mr. Jayanta Mitra, learned SeniorCounsel for respondent No. 3 and Mr. Karma Thinlay Namgyal,learned Central Government Counsel for respondents No. 4, 5and 6'

Ill. The Case of the Petitioners

The relevant and undisputed factual matrix of the caseis stated as follows: -

(i) The proposal for carrying out Hydro ElectricProjects in the State of Sikkim originated in the year 1974.The Sikkim State became part of the Indian Union in theyear 1975 by the 36th Amendment of the Constitution ofIndia. An expert team was constituted by Central WaterCommission (CWC) to formulate the proposal and makesuggestions for carrying out such investigations forestablishing Hydro Electric Generation Schemes in Sikkimparticularly in Teesta and Rangit Valleys of Sikkim.

(ii) CWC prepared a detailed Project Report for the1200 MW Teesta Stage-Ill Hydro Electric Pro].ect in the year1987. The Ministry of Power, Government of India RE±

requested the Government of Sikkim's concurrence to carryout the execution of the Pro].ect under the Central Sectorwith National Hydroelectric Power Corporation Ltd. (NHPC)as the implementing agency in October 1987 by a letterdated 12.10.1987. The State Government forwarded itsconcurrence to the said proposal on 14.03.1988.

(iii) The Detailed Project Report was drawn by NHPCfor the purpose of obtaining Techno Economic Clearance inDecember 1990,

(iv) In the year 1991, the Government of Indiaannounced a new liberalized policy whereby, theGovernment of India permitted entry of private parties inthe field of power generation and consequently, certainprivate parties expressed their interest in executing TeestaStage-Ill Hydro Electric Project for generating 1200 MWelectricity.

(v) The Government of Sikkim, to secure its interestin a better manner, invited interested parties forimplementation of the aforesaid pro].ect.

(vi) The State Government without taking any policydecision or carefully examining the proposals of the privateparties in detail, arbitrarily withdrew its original proposal toexecute the project with NHPC.

(vii) Government of Sikkim thus proposed to invitebidding from the interested developers across the globe, todevelop the said Power Pro].ect on `Build, Own, Operate andTransfer' (BOOT) basis in the year 1993, and also soughtpermission from the Central Government to execute theabove project on BOOT basis. Based on such invitationseveral interested parties came forward to execute theTeesta Stage-Ill Hydro Electric Power Project for generating1200 MW electricity. Of them seven private parties wereshort listed. For taking further decision in the matter, aHigh Level Committee was formed to evaluate the bids andoffers.

(viii) The Ministry of Power, Government of India intheir letters dated 18.01.1995 and 15.02.1995, stipulated amandate that after 18.02.1995, private power projectswhose total estimated cost exceeded Rs.100 crores, wouldhave to be awarded only through process of competitivebidding.

(ix) Thereafter, by letter dated 02.08.1996, theGovernment of India clarified that competitive bidding willnot be necessary for selection of the private companypartner in I.oint venture projects, where the State ElectricityBoard/Public Sector Undertakings hold the major share in

the I.oint venture company, i.e. a minimum of 51% equityshare. By the. said letter dated 02.08.1996, theGovernment of India also invited attention to their earlierletter dated 28.06.1996, which contemplates thatInternational Competitive Bidding (ICB) be followed foraward of Engineering, Procurement and Construction (EPC)contracts for projects awarded through the MOU/LOI route,and that, in case of joint venture projects between StateElectricity Board/Public Sector Undertaking and a privatecompany, International Competitive Bidding may befollowed, only in cases where the private project developerhas not been selected through competitive bidding.

(x) By letter dated 10.01.1997, Ministry of Power,Government of India made it clear that MOU/LOI signed onor before 18.02.1995 by the State Government/StateElectricity Boards with independent power producers forimplementation of the project by the latter, would alone beconsidered by the Central Electricity Authority (CEA) foraccord of their clearance and 31.03.1996 would be thedeadline for such `in-principle' clearance; and that wherethe pro].ect cost is more than Rs.100 crores, the techno-economic clearance by CEA is mandatory.

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(xi) Out of seven parties, only three partiessubmitted their bids and in view of repeated requests byother parties, the final date was fixed as 24.12,1997. Thebidding process continued for a long period of time butnone of the bids submitted were attractive and beneficialfor the State.

(xii) The State, therefore, once again proposed toallot the Teesta -Ill along with Teesta I and 11 to NHPC inNovember, 2002. NHPC was willing to execute the projecton Build, Own and Operate (BOO) basis, as per theguidelines of the Government of India. But the State-respondents wanted the pro].ect to be developed on Build,Own, Operate and Transfer (BOOT) basis. Hence, thematter was referred to a Negotiation Committee which wasconstituted in January, 2003 for carrying out negotiationwith NHPC. But no settlement could be arrived before theNegotiation Committee.

(xiii) In the year 2003, the new Electricity Act, 2003came into force, which facilitated development of Hydro-power Projects liberally. Government of India announ`cedthe 50,000 MW Hydro Power Initiative to harness theuntapped hydro potential in the country.

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(xiv) In October, 2003, the Ministry of Power clarifiedthat in case NHPC is unable to meet the requests of theState Government, the State would be well within its rightto either allot the projects to Independent Power Producersor to develop the projects under joint sector in partnershipwith developers.

(xv) Based on the new liberal policy, the Cabinet ofthe State met on 25.05.2004 and decided to speed up theefforts to tap the hydro power potential in the State.Accordingly, a High Powered Hydro Power Committee wasconstituted on 15.06.2004 to expedite development of theHydroelectric projects in the State of Sikkim.

(xvi) The Government of Sikkim, thereafter,announced the Power Policy, which proposed that theprojects above 25 MW capacity would be developed onBOOT basis under joint sector with Government of Sikkimholding 250/o of equity share in the projects and thepartners would have to arrange the funds for equityparticipation by Government and Government shall repaythe loan from the revenues accruing from the free power.

(xvii) The High Power Committee constituted byNotification dated 15.06.2004 recommended 13 projects inthe State of Sikkim, one of them being Teesta Stage-Ill (fu....---..

Hydro Electric Project and the same was recommended tothe consortium led by M/s. Athena Projects Private Limited.

(xviii) The Cabinet Note dated 21.02.2005 proposingaward of 13 projects to various developers asrecommended by the High Powered Hydro PowerCommittee was considered and approved by the Cabinet inits meeting held on 22.02.2005.

(xix) On 26.02.2005 the Cabinet approved the Policyof the State Government in the matter of awarding contract®to Athena Projects Private Ltd. - a Consortium for thedevelopment of Teesta Stage-Ill Hydro Electric PowerPro].ect, 1200 MW electricity production, one of the majorpower pro].ects in the country, on BOOT arrangement.

(xx) On 06.04.2005, M/s. Athena Pro].ects PrivateLimited informed the Government that it has incorporatedthe Company, Teesta Urja Limited, respondent No.3 herein,as a Special Purpose Vehicle for implementation of theproject.

(xxi) Trie Government of Sikkim by its letter dated20.04.2005 ,approved the formation of the Company,whereunder, M/s. Athena Pro].ects Private Limited alongwith its consortium partners would hold 740/o of the equity

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of Teesta Urja Limited and the Government of Sikkim wouldhold 260/o of the equity of Teesta ur].a Limited.

(xxii) The Government of Sikkim, thereafter, enteredinto an Agreement with Teesta ur].a Ltd. (respondent No.3)on 18.07.2005, for the development of Teesta Stage-IllHydro Electric Power Project, for production of 1200 MWelectricity, one of the ma].or power pro].ects in the country.

5.1Mr. M.Z. Ahmed, learned Senior Counsel for thepetitioners, with the above backdrop of the case, contends thatthe very policy of the State Government, as chalked out by theCabinet in the Letter of Intent dated 26.02.2005, is contrary topublic interest and also various guidelines issued by the Ministryof Power, Government of India dated 18..01.1995, 28.06.1996,02.08.1996, 09.01.1997 and 10.01.1997, which mandate:

(i) that after 18.02.1995, private power projectswhose total estimated cost exceeded Rs.100 crores, wouldhave to be awarded only through International CompetitiveBidding (ICB);

(ii) that International Competitive Bidding (ICB)would have to be followed for award of Engineering,Procurement and Construction (EPC) contract for pro].ectsrouted through the Memorandum of Understanding/Letter of Intent route after 18.02.1995. In the case of ].ointventure pro].ects, between the State ElectricityBoards/Public Sector Undertakings and a private company,ICB may be followed only where the private projectdeveloper has not been selected through competitivebidding;

(iii) that pro].ects routed through Memorandum ofUnderstanding /Letter of Intent signed on or before18.02.1995 by the State Governments/State ElectricityBoards with Independent Power Producers (IPPs) forimplementation of projects by the latter, would beconsidered by Central Electricity Authority (CEA) for accordof their clearance and that, where project cost exceedingRs.loo crores, Central Electricity Authority's techno-economic clearance would be required;

(iv) that International Competitive Bidding (ICB) isnot necessary for selection of private company partner injoint venture projects between the State Electricity Boards /Public Sector Undertakings and a private company, whereState Electricity Board/Public Sector Undertaking holds thema].ority share in the ].oint venture company, i.e. aminimum of 51 % of equity shares of the ].oint venturecompany. In the instant case, the State Government holds tke---.-.- only 26 0/o of the equity shares and, therefore, InternationalCompetitive Bidding (in the matter of EPC contract/turnkeycontract) could not be dispensed with;

(v) that the Central Electricity Authority's techno-economic clearance is also mandatory as per Section 29 ofthe Electricity (Supply) Act, 1948 and Section 8 of theElectricity Act, 2003, but the same has not been compliedwith in the instant case;

(vi) that the impugned Agreement dated 18.07.2005is contrary to the recommendations of the CarryingCapacity Study of Teesta Basin in Sikkim by the Centre forInter-Disciplinary Studies of Mountain & Hill Environment(CISMHE), University of Delhi, an Expert Body constitutedby the Ministry of Environment and Forests, Government ofIndia, which thoroughly weighed the impacts of theimpugned project on ecology and environment as weH asbiodiversity in Teesta Basin in Sikkim.

5.2 Mr. M. Z. Ahmed, the learned Senior Counsel for thepetitioners, further contends that the Teesta Ur].a Ltd.(respondent No.3), has not declared technical and financialcapacity of its Board of Directors. If the proj.ect ultimately fails,not only the State Government, but the Nation alstwould sufferCiEL------..

on account of ecological and environmental imbalance, as theforest lands are diverted for the purpose of the impugnedpro].ect. That apart, the private parties, whose lands would beacquired for the impugned project, would also be put intoirreparable loss and hardship. In any event, it is argued that12% free power to the State for the first 15 years and 150/o freepower to the State from the 16th to the end of the 35th year, asprovided in the Agreement, would not compensate the loss thatwould be caused to the eco-friendly environment and bio-diversity conditions that prevail in the impugned Teesta basin.

5.3 According to Mr. M.Z. Ahmed, learned Senior Counselfor the petitioners, the impugned Agreement dated 18.07.2005 isillegal, because the Letter of Intent dated 26.02.2005, which isalso called the Policy of the State, was issued to Athena Pro].ectsPrivate Limited, the leader of the consortium members, while theAgreement was signed by a third party namely Teesta UrjaLimited (respondent No.3), the Special Purpose Vehicle, who is inno way connected with the Letter of Intent dated 26.02.2005.

5.4 In any event, it is contended that the special purposeVehicle (SPV) Teesta urja Limited (respondent No.3) could notbe treated as a Public Sector Undertaking as the State does notpossess 51 % of equity shares but has got only limited interest in (.,_ _ -----..

the said Special Purpose Vehicle i.e. 26 % of the equity shares,whereas the consortium members of Athena Pro].ects Private Ltd.have 74 % of equity shares with them.

5.5 The decision making process adopted in awarding theimpugned contract js therefore, arbitrary, discriminatory andjllega,.

The petitioners have also filed two miscellaneousapplications, viz. Civil Misc. Application No.114 of 2006 and No.127 of 2006 for amendment of the prayers, whereunder, thepetitioners propose to challenge the policy of the StateGovernment drawn by the Letter of Intent dated 26.02.2005 andraise additional pleadjngs respectively. But the petitioners didnot press the C.M.A No, 114 of 2006 and, therefore, the samewas dismissed as withdrawn by order dated 17.03.2008. TheC.M.A. No.127 of 2006, for raising additional pleadings, wasordered vide this Court's order dated 17.03.2008.

IV. Case of the state Government

7. Mr. A. Mariarputham, learned Advocate Generalappearing for the respondents No. 1 and 2 (viz. State of Sikkim)co ntends., qE_.

(i) that the above writ petition is politicallymotivated, and therefore, the same js not a Public InterestLitigation. In this regard, the learned Advocate Generalinvited my attention to the earlier order of the DivisionBench of this Court dated 28.04.2008, made in a similarPublic Interest Litigation vjz. W.P,(C) No. 25 of 2006, filedby the very same writ petitioners on the same cause ofaction, challenging the resolution of the Cabinet dated22.02.2005 and the consequential Letter of Intent dated26.02.2005 (vjz. the Power Policy of the Government ofSikkim) for implementing 13 Hydro Electric Pro].ects,including the impugned Teesta Stage Ill Hydro ElectricProJ'ect;

(ii) that after the new enactment of the ElectricityAct, 2003, the Central Government liberalized the NationalElectricity Policy, encouraging private participation inimplementjng such pro].ects liberally, smoothly andeffectively; and that the Central Government has givendiscretion to the respective State Governments to work outtheir own modalities. The new National Electricity Policydated 12.02.2005 of the Central Government, is made incomphancewlthsection3oftheE#003,and +,`.•.i- the same provides for private participation for speedyimplementation of the Hydro Electric Projects in theCountry;

(iii) that the terms of Letter of Intent dated26.02.2005 (viz. the Power Policy of the Government ofSikkim) and the Agreement dated 18.07.2005 of theimpugned project would financiaHy benefit the State, Nationas well as public at large to the maximum;

(iv) that since the petitioners had withdrawn theirCMA No. 114 of 2006 for amendment, challenging theCabinet decision dated 22.02.2005 and consequential Letterof Intent dated 26.02.2005 (viz. the Power Policy of theGovernment of Sikkim) as well as Agreement dated18.07.2005, they had given up their rights to challenge theimplementation of the impugned Teesta Stage-Ill HydroElectric Project. In this regard, the learned AdvocateGeneral invites my attention to the order dated 17.03.2008passed by the Division Bench of this Court in CMA No.114Of 2006;

(v) that the petitioners have no locus standi tochallenge the implementation of the impugned Teesta :;..`h` _-..

StageTIII Hydro Electric Project as they had neither shownany interest in the development of the impugned TeestaStage-Ill Hydro Electric Pro].ect; nor was a competitor alongwith M/s. Athena Consortium; nor was one among thoseother entities who showed their interest, namely,

(i) NHPC,(ij) NTPC'(ij) NTPC'

(iii) SutlezJal vjdyut Ltd., and

(iv) Cosmos Electric Supply Pvt. Ltd,Consortium etc.Consortium etc.

(vi) that the Hydro Electric Power Projects in theState of Sikkim are decades-old proposals. Wide publicitywas given inviting participation of developers of HydroElectric Power Projects under j.oint venture, even before theElectricity Act, 2003 came into force, Forty one (41)developers showed their interest for implementing theHydro Electric Power Projects; but many of them were notwilling to accept the terms proposed by the Government ofSikkim. After the new Electricity Act, 2003 came into force,extensive exercises were taken by the Government ofSikkim during the period of November, 2004 and February,2005, inviting various developers to present theircredentials and plans before the High Powered Hydro PowerCommittee, constituted to study theoffers of the developers and also to determine the terms of the policy ofthe Government of Sikkim in this regard. It is only on therecommendations of the said High Powered Hydro PowerCommittee, a Letter of Intent dated 26.02.2005, which isthe policy of the State of Sikkim, was drawn and approvedby the Cabinet; pursuant to which an Agreement dated18.07.2005 was also executed for implementation of theimpugned Teesta Stage-Ill Hydro Electric Project. Thus thepower policy of the Government of Sikkim namely, theLetter of Intent dated 26.02.2005, drawn and approved bythe Cabinet was well within the public domain;

(vii) that the power policy of the State of Sikkim wasdrawn in consonance with the National Power Policy of theCentral Government, which was formulated in compliancewith Section 3 of the Electricity Act, 2003 and, therefore, nomalafide could be attributed either against the HighPowered Hydro Power Committee or the Cabinet or theGovernment of Sikkim in formulating the said power policyof the State, as the same is not contrary to or incontravention to the law of land; nor the petitioners havealleged malafide in the selection of M/s Athena Consortiumamong the five developers, who envisaged interest in i--....,.._...--.

Teesta Stage-Ill Hydro Electric Project, and agreed with allthe terms of the Power Policy of the Government of Sikkim;because the other developers viz. NTPC, NHPC and SutlezJal Vidyut Ltd. were not willing to accept the terms of thePower Policy of Government of Sikkim; the Cosmos ElectricSupply Pvt. Ltd., even though had agreed with the terms ofthe Power Policy of the Government of Sikkim, wanted 45years instead of 35 years for BOOT basis;

(viii) that in the absence of any such allegation ofmalafide in formulating the public policy of the Governmentof Sikkim, based on well defined reasons and the interest ofthe people, by the High Powered Hydro Power Committee,or in selection of the M/s Athena Consortium forimplementing the impugned pro].ect, it may not be properto have a judicial scrutiny of the said policy decision dated26.02.2005 or the consequential agreement dated18.07.2005 by way of a judicial review, as this Court isconcerned with only the decision making process but notthe decision itself while exercising its powers under Article226 of the Constitution of India;

(ix) that the implementation of the impugned TeestaStage-Ill Hydro Electric Pro].ect is, therefore, neither -it irrational, nor arbitrary, nor malafide, nor unreasonable,nor against any provisions of law, nor opposed to publicpolicy, nor opposed to public interest; and therefore noreasonable person could have any grievance against theimpugned project;

(x) that the letters dated 18.01.1995, 02.08.1996and 09.01.1997 issued by the Ministry of Power,Government of India relied upon by the petitioners are allrelated to clarifications provided under the Electricity(Supply) Act, 1948 and the policy framed thereunder,requiring to adopt competitive bidding process for selectionof private participants to the joint venture power projects;but the said letters do not survive after the National PowerPolicy dated 12.02.2005 formulated under Section 3 of theElectricity Act, 2003;

(xi) that the impugned pro].ect is not violative of anyprovisions of the Electricity Act, 2003, the NationalElectricity Policy 2005, the Forest Conservation Act, 1980,the Environmental (Protection) Act, 1986, the Wild Life(Protection) Act, 1972 and the Biological Diversity Act, 2002or any of the policies, guidelines, circulars, instructions, orproceedings of the competent statutory authorities under

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the said statutes, nor in violation to any of the provisions ofSikkim State Financial Rules, 1979. In this regard, Mr.Mariarputham, learned Advocate General invited myattention to Sections 3, 7, 8 and 185 of the Electricity Act,2003 and the National Electricity Policy, 2005;

(xii) that the power policy of the State of Sikkimdrawn as Letter of Intent dated 26.02.2005 in consonancewith the National Electricity Policy dated 12.02.2005 isnothing but Open Axis Policy to develop their own publicprivate partnership model.

(xiii) that the State Government had taken a decisionon 22.02.2005 to proceed with the Letter of Intent dated26.02.2005 and to entrust the impugned project to therespondent No. 3, because NHPC was not willing toimplement the impugned project on BOOT basis; but theywere willing to undertake the impugned project on BOObasis which is not favourable to the State Government andtherefore, the contention of the petitioners that theGovernment of Sikkim deliberately avoided NHPC isin,sleading; fir

(xiv) that the National Power Policy, 2005 permits theState Government to frame its own policy in consonancewith the National Electricity Policy, 2005 formulated underSection 3 of the Electricity Act, 2003. The Government ofSikkim, therefore, as recommended by the High PoweredHydro Power Committee, decided to invite the privateparticipants who evinced interest in Hydra Power Pro].ects,as per the terms of the Power Policy of the Government ofSikkim, i.e. the Letter of Intent dated 26.02.2005 withoutpreferring competitive bidding process, as otherwise itwould consume further time and cause more delay injmplementation of Hydro Electric Projects, because suchcompetitive bidding process requires a Detailed Pro].ectReports (DPR) to be prepared, consisting of varioustechnicalities and related studies. The Government ofSikkim is, therefore, well within its I.urisdiction to formulateits own power policy for implementing the impugned HydroPower Project;

(xv) that before executing the impugned Agreementdated 18.07.2005 between the State and 3rd Respondent,Teesta Urja Ltd., the State Government also approved theProposal of floating the Special Purpose Vehicle namely 3rd :i)```_-..`

respondent promoted by consortium led by Athena ProjectsPrivate Ltd. to implement the 1200 MW Teesta Stage-IllHydro Electric Pro].ect, of course, after due scrutiny by theHigh Powered Hydro Power Committee with regard to thetechnical knowledge and financial eligibility of variousconsortium partners of Athena Projects Pvt. Ltd;

(xvi) that the Power Policy of the State, namely, theLetter of Intent dated 26.02.2005 and the Agreement dated18.07.2005 entered between the Government of Sikkim andrespondent No. 3, prescribes definite time schedule forimplementing the pro].ect and also provides that the 3rdrespondent shall arrange for funds for the StateGovernment towards their 26% of equity share in the 3rdrespondent Company, a Special Purpose Vehicle, and thatthe same be repaid out of the income of the Government ofSikkim from free energy allotted to the Government,namely 12 °/o of the production of electricity during the first15 years and 15 % of production of electricity during theremaining 16th to 35th years and thereafter, to transfer theentire project to the State of Sikkim, at a zero cost, apartfrom providing several socio-economic benefits to thenatives of the State.

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(xvii) that the Letter of Intent dated 26.02.2005 (viz.Power Policy of the Government of Sikkim) as well as theAgreement dated 18.07.2005 ensure the public interest ofthe State of Sikkim;

(xviii) that the various proceedings of the competentstatutory authorities, namely, (a) Ministry of power, Government of lndia, (b) Ministry of Environment and Forest,Government of India, andGovernment of India, and

(c) Centre for Inter-Disciplinary Studies ofMountain and Hill Environment (CISMHE)and their Carrying Capacity Study of TeestaBasin in Sikkim;Mountain and Hill Environment (CISMHE)and their Carrying Capacity Study of TeestaBasin in Sikkim; are all in favour of implementation of the impugned TeestaStage-III Hydro Electric Project;

(xix) that the impugned project is more advantageousto the public, State as well as the Nation and therefore, thewrit petition is liable t6 be dismissed; and

(xx) that, if any interference to the implementation ofthe impugned pro].ect, therefore, would only cause greathardship and loss to the public interest.

V. Case of the respondent No. 3 - PrivateParticipant - Special Purpose vehicle.

Mr. Jayanta Mitra, learned Senior Counsel, appearingfor the 3rd respondent and supporting the arguments of thelearned Advocate General, contends:

(i) that Athena Projects Private Ltd. was amongstthe five Private Participant Companies short listed forimplementing the impugned Teesta Stage Ill Hydro ElectricProject pursuant to the invitation made by the State ofSikkim across the globe;

(ii) that even though the Letter of Intent dated26.02.2005 was addressed to Athena Pro].ects Pvt Ltd.necessary approval of the State Government was obtainedfor floating Teesta Urja Pvt. Ltd,, a Special Purpose Vehicle(SPV), for effective implementation of the Scheme retaining74 % equity shares for constituents of Athena Consortiumand allotting ,26 °/o equity shares to the State Government.Therefore, the agreement dated 18.07.2005 enteredbetween the State Government and the Teesta Ur].a Pvt. Ltdis valid in law;

(iii) that the 3rd respondent has thus identified theexperts for different nature of work involved in the pro].ectand entrusted the Engineering, Procurement andConstruction Contracts (EPC Contracts), to taking intoconsideration their merit, experience, technical knowledge,expertise, etc. through International Competitive Bidding(ICB);

(iv) that the report of the Centre for Inter-Disciplinary Studies of Mountain and Hill Environment(CISMHE) and their Carrying Capacity Study of Teesta Basinin Sikkim as well as the clearance obtained by the Ministryof Environment and Forests, Government of India for theimpugned pro].ect, both for diversion of forest land andacquisition of private land, are in favour of implementingthe impugned project; and till date there is no complaintfrom whomsoever as to any violation of any of the terms ofthe Power Policy of the Government of India in terms of theagreement or any of the conditions of the clearance givenby any of the statutory authorities;

(v) that the impugned project can not be comparedto any other civil or mechanical pro].ects where the nature (ii--......-- •1

of contract works are predetermined and do not involve anystudy and research as in the impugned pro].ect;

(vi) that the 3rd respondent has already spent asubstantial amount of Rs.3348.24 crores as on 31.07.2010and per day expense of the project is about Rs.10 crores.70 °/o of the pro].ect has almost been completed; and for theremaining works, orders have already been placed with therespective EPC contractors through ICB. Any interferencewith the impugned project at this stage would be againstpublic interest.

(vii) that the impugned project is based on theadministrative decision taken by the Cabinet of the StateGovernment which culminated into a State Policy as Letterof Intent dated 26.02.2005 and the same is well within theprovisions of Central Electricity Policy, 2005 formulatedunder section 3 of the Electricity Act, 2003 and thereforethere is no infraction from any of the instructions, circulars,guidelines issued under the provisions of:

(a) the Electricity Act, 2003,

(b) the National Electricity policy, 2005,

(c) the Forest conservation Act,1980

(d) the Environmental (Protection) Act, 1986, (.:.jffijftS---------

(e) the Wild Life (Protection) Act, 1972 and (f) the Biological Diversity Act, 2002.

(viii) that the change/changes of consortium membersof the Athena Projects Private Ltd. is/are all supported withgenuine and bonafide reasons; and also got the dueapproval of the State Government for suchchange/changes; and

(ix) that more than 70% of the impugned TeestaStage-Ill Hydro Electric Pro].ect has already beencompleted incurring huge investment; and, therefore, anyattempt by the petitioners to stall the impugned projectwould cause irreparable loss to respondent No. 3 and wouldalso be against the public interest.

VI. Case of the Central Government, i,e. respondentsNo. 4, 5 and 6

Mr. Karma Thinlay, learned Central GovernmentCounsel appearing for the 4th, 5th and 6th respondents, adoptingthe arguments of learned Advocate General and Mr. JayantaMitra, learned Senior Counsel, contends,

(i) that the 4th respondent Ministry of Power,Government of ` India is in favour of implementing thescheme;

(ii) that the impugned project is well protected bythe National Electricity Policy, 2005 notified by theUnion of India on 12.02.2005, which is formulated underSection 3 of the Electricity Act, 2003 inviting public privatepartnership model; and

(iii) that there is no illegality or violation of any ofthe guidelines of the Central Government Authority,namely respondents No. 4, 5 and 6.

VII. Consideration, Findings and Decisions

10. I have given my careful consideration to thesubmissions made on behalf of all the parties.

11. In the light of the above rival contentions, thefollowing issues arise for my consideration:-

(i) Whether the petitioners are bonafide in filing theabove Public Interest Litigation?above Public Interest Litigation?

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(ii) Whether the petitioners have locus standi to challengethe implementation of the impugned 1200 MW TeestaStage-III Hydro Electric Project?

(iii) Whether the Agreement dated 18.07.2005 enteredinto between the State of Sikkim and M/s Teesta UrjaLtd. (respondent No.3) for setting up a Hydro ElectricProject - Teesta Stage Ill based on the policy ofState, Letter of Intent dated 26.02.2005, is contraryto law, guidelines and mandatory instructions of theMinistry of Power, Government of India and opposedto public interest?

12.1IssueNo./i}: Whether the petitioners arebonafide in filing the above Public InterestLitigation?

Concededly the petitioners had filed another PublicInterest Litigation, W.P.(C) No. 25 of 2006 also before this Court,challenging thirteen (13) Hydro Electric Projects in the TeestaBasin, including the impugned Teesta Stage-III Hydro ElectricProject on the identical grounds raised in the present W.P.(C) No.40 of 2005: viz.

(i) that the Governnient of Sikkim failed to followvarious instructions, guidelines issued by the Ministry of (:rfu.-..-.--.--.

Power, Government of India in its letters dated 18.01.1995,02.08.1996 and 09.01.1997;

(ii) that the state Government deliberately departedfrom the National Electricity Policy dated 12.02.2005 of theGovernment of India by not accepting the offer given byNHPC. The reasons for refusing to accept the offer of theNHPC by the Government of Sikkim is not genuine and inthe interest of the State as well as the Nation;

(iii) that the Government of Sikkim erred in framingits own power policy, in contrary to the National PowerPolicy,. 2005 of the Ministry of Power, Government of Indiaas well as the instructions, guidelines and directions issuedby the Ministry of Power, Government of India in selectingthe private participants;

(iv) that the Government of Sikkim acted accordingto their own whims and fancies;

(v) that the power policy of the Government ofSikkim dated 26.02.2005 i.e. the Letter of Intent and theAgreement dated 18.07.2005 entered thereunder arearbitrary, unreasonable and contrary to the public interestand violative of Articles 14, 16, 19 and 21 of theConstitution of India, placing reliance on the contentions in (fib....-.- the present writ petition, namely, W.P.(C) No. 40 of 2005,etc.

12.2 The Division Bench of this Court, however, by Orderdated 28.04.2008 dismissed the said W.P.(C) No. 25 of 2006.The Order dated 28.04.2008 passed by the Division Bench inW.P.(C) No. 25 of 2006, reads as hereunder:

``This is a Public Interest Litigation challenging award ofcertain contracts for execution of works in North Sikkimintended for the purpose of augmenting the powersupply. We find that the last order passed in this matterwas on 17.03.2008 and the first one is dated 23.06.2006.The writ petition has been simply kept pending andadjournments have been obtained.

It is now a settled principle which all Courts followfor their own perseverance that no PIL is to beentertained unless it cannot but be entertained.

There are no details given in the petition; not eventhe date of award of the contracts could be told by thelearned counsel appearing for the writ petitioners.

The writ petitioners are thoroughly politicallycoloured. The first writ petitioner is no less than the ex-Chief Minister of Sikkim; the two other writ petitioners arebusinessmen (as submitted in Court by ld. Counsel for thepetitioners) of naturally, the same political leaning.

No businessman who was willing to tender a higheramount, or who says that he was interested in oneparticular project, but the Government kept him out ofsharing in the Government largesse by treating himunjustly and unfairly has come before the Couit.Allegedly public interest litigations of this nature cannotbe entertained. We have grave doubt whether it canform the subject matter of PIL at all because the businessinterest will always be private interest.

No notice should be issued in a matter of thisnature. Applications of this nature should be discouragedby nipping those in the bud so that the Court has time fordealing with its proper work, i.e. litigation proper, and isnot drawn into political battles by interested parties, who `:`rfe-.-.-----.-.

must fight such battle amongst the people, and in thestreets. This writ petition is dismissed in limine withoutany order as to costs.

The respondents are not called upon. Since themain petition is dismissed the modification applicationfollows suit, Sd/-(A.N. Ray, CJ)

Sd/-(A.P. Subba, J)"

12.3The Division Bench of this Court, by Order dated28.04.2008, thus held that the grievances of the petitioners arepolitically motivated; and consequently, the relief sought for wasnot bonafide. The petitioners have not preferred appeal againstthe said Order dated 28.04.2008 and therefore the said Orderdated 28.04.2008 in W.P.(C) No. 25 of 2006 had became final.Hence, the present W.P.(C) No. 40 of 2005 filed by the samepetitioners on identical grounds is also neither bonafide nor in thepublic interest.

12.4 Issue No. (i), therefore, is answered in the negative.

13.1Issue No. fiil: Whether the petitioners havelocus standi to challenge the implementation ofthe impugned 1200 MW Teesta Stage-Ill HydroElectric Project?

Concededly the impugned Teesta Stage-Ill Hydro ElectricProject has been implemented as per the terms of the Agreement ':,ck__-._..

i

Y

dated 18.07.2005, which had been entered into pursuant to thepolicy of the Government of Sikkim viz. the Letter of Intent dated26.02.2005, which is in consonance with the National PowerPolicy dated 12.02.2005 formulated in compliance with Section 3of the Electricity Act, 2003. Even though the petitioners made anapplication, Civil Misc. Application No. 114 of 2006 foramendment of the prayer, proposing to challenge the Letter ofIntent dated 26.02.2005 (viz. the Power Policy of theGovernment of Sikkim) and the Agreement dated 18.07.2005,the said Civil Misc. Application No.114 of 2006 was withdrawn asnot pressed; and therefore this Court dismissed the said CivilMisc. Application No.114 of 2006 by an Order dated 17.03.2008,which reads as hereunder:

"CM APPL No.114/2006

Leaned counsel for the petitioner submits that theamendment application No. 114/2006 is not pressed; assuch, the same is hereby dismissed without any order asto costs.

Sd/-(A.N. Ray, CJ)

Sd/-(A.P. Subba, ..)"

13.2 The petitioners, thus, having withdrawn the said CivilMisc. Application, challenging the Letter of Intent dated26.02.2005, as not pressed, has no locus standi to chaHenge the`:,ifa---..`

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implementation of the impugned Teesta Stage Ill Hydro ElectricProject.

13.3Issue No. (ii) is answered in the negativ`e.

14. Issue No.: Whether the Agreement dated18.07.2005 entered into between the State ofSikkim and M/s Teesta Urja Ltd. (respondentNo.3) for setting up a Hydro Electric Project -Teesta Stage Ill based on the policy of State,Letter of Intent dated 26.02.2005, is contrary tolaw, guidelines and mandatory instructions ofthe Ministry of Power, Government of India andopposed to public interest?

This is the core issue raised in this writ petition andrequires serious consideration from different perspective, viz.,

(i) actions taken by the Government of Sikkim forimplementing the impugned Teesta Stage-Ill Hydro ElectricProject with reference to the National Electricity Policy 2005,directions, instructions and guidelines of the Ministry of Power,Government of India, prior to the enactment of the ElectricityAct, 2003;

(ii) actions taken by the Government of Sikkim forimplementing the impugned Teesta Stage-Ill Hydro ElectricProject with reference to the National Electricity Policy 2005 and the directions, instructions and guidelines of the Ministry ofPower, Government of India, after the enactment of theElectricity Act, 2003;

(iii) actions taken by the Government of Sikkim forimplementing the impugned Teesta Stage-Ill Hydro ElectricProject with reference to formulation of the Power Policy of theGovernment of Sikkim, i.e. the Letter of Intent dated26,02.2005;

(iv) actions taken by the Government of Sikkim withreference to selection of the respondent No,3 for implementingthe impugned Teesta Stage-Ill Hydro Electric Project;

(v) actions taken by the Government of Sikkim forimplementing the impugned Teesta Stage-Ill Hydro ElectricProject with reference to the terms and conditions of theagreement dated 18.07.2005;

(vi) actions taken by the Government of Sikkim for thecompliance of statutory requirements and conditions prescribedfor statutory clearance by the 3rd respondent;

(vii) incorporation and functioning of the respondent No.3with respect to the implementation of the impugned project; fife_.-..-_

*

(viii) whether the implementation of the pro].ect requiresany interference by this Court by way of Judicial Review; and

(ix) Decision.

15.1 (i) Actions taken by the Government of sikkimfor implementing the impugned TeestaStage-III Hydro Electric Project withreference to the National Electricity Policy2005, directions, instructions andguidelines of the Ministry of Power,Government of India, prior to theenactment of the Electricity Act, 2003.for implementing the impugned TeestaStage-III Hydro Electric Project withreference to the National Electricity Policy2005, directions, instructions andguidelines of the Ministry of Power,Government of India, prior to theenactment of the Electricity Act, 2003.

15.2 The hydro power potential in the State of Sikkim was,concededly, first conceived in the year 1974 when Sikkim wasnot a part of the Indian Union. The then Political Officer ofSikkim, who was also the then representative of the Governmentof India in Sikkim, discussed hydro power potential in Sikkimwith the Ministry of Irrigation and Power, Government of India.It was then decided that the Central Water Commission shouldformulate proposals to carry out surveys for hydro powerpotential in Teesta and Rangit Valley in the State of Sikkim. TheCentral Water Commission after careful and numerous siteinspections, survey, investigation and study, prepared a DetailedProject Report for the impugned 1200 MW Teesta Stage-IllHydro Electric Project in the year 1987.

I_3h .... _._.- -

y\

I_3h .... _._.- -

y\

15.3 The Ministry of power, Government of India requestedthe concurrence of the Government of Sikkim to carry out theTeesta Stage-Ill Hydro Electric Project under the Central Sectorwith NHPC. The Government of Sikkim accorded its concurrencein March 1988. The NHPC thereafter prepared a Detailed ProjectReport with some changes and submitted the same to theCentral Electricity Authority for their Techno Economic Clearance.In December, 1990 the Central Electricity Authority apprising thesaid Detailed Pro].ect Report formulated by NHPC and concludedthat the impugned Teesta Stage-Ill Hydro Electric Project wastechnically and economically viable. Therefore, CEA had giventheir Techno Economic Clearance for the impugned TeestaStage-III Hydro Electric Project.

15.4 The Government of India announced a new liberalizedpower policy in October, 1991 permitting private parties to floatand incorporate power generation companies. This impressedthe Government of Sikkim and to secure interest of the State andits people, the Government solicited offers from private partiesfor the development of the impugned Teesta State-III HydroElectric Project, expecting the terms to be better than the termsagreed to by the NHPC.(:`Jffh-..`-`.`

15.5 As several private parties evinced their interest, theGovernment of Sikkim withdrew its consent given to the NHPCfor execution of the impugned project under Central Sector. Butthe NHPC again through the Ministry of Power, Government ofIndia pursued the Government of Sikkim for executing theproject. The Government of Sikkim, however, informed NHPCand the Ministry of Power, Government of India the terms onwhich the private parties ,were willing to develop the impugnedproject and as NHPC was not willing to agree to the said terms,the Ministry of Power, Government of India permitted the Stateof Sikkim in the year 1993 to go ahead and develop theimpugned project by approaching any of the private parties of itschoice or in joint sector. The Government of Sikkim thus invitedbids from interested parties across the world by following theInternational Competitive Bidding process to develop theimpugned project under BOOT basis.

15.6 By January, 1995, seven (7) offers were received inresponse to the invitation of tenders by the Government ofSikkim. A High Level Committee was constituted by the State forevaluation of the Bids. At the same time, the Government ofIndia, by letter dated 18.01.1995, issued guidelines to the effectthat all future projects should come through the process of T*

competitive bidding. The Central Electricity Authority was askednot to entertain, in future, proposals which have not beenprocessed through the competitive bidding procedure.

15.7 Government of Sikkim, therefore, appointed M/sWapcos Ltd., a Government of India undertaking, to prepare thequestionnaires in accordance with the guidelines of theGovernment of India and the questionnaires so prepared wereissued to all the interested bidders in August, 1996. Ultimately,three (3) parties namely, Reliance, EDF and L & T were shortlisted and their offers though found to be comprehensive werenot up to the expectations of the Government of Sikkim.However, the offers of Reliance, EDF and L & T were once againreferred to M/s Wapcos Ltd. for evaluation.

15.8 In the meanwhile, Government of India issued anotherguideline dated 02.08.1996, that after 18.02.95 the privatepower projects whose total est:imated cost exceeded Rs.100crores would have to be awarded through the process ofcompetitive bidding; however, it was clarified that competitivebidding shall not be necessary for selection of private companypartner in joint venture pro].ects in cases where the StateElectricity Board/Public Sector Undertaking held major share ofthejointventurecompanyltwasalso#atinacaseof y joint venture project between State Electricity Board/PublicSector Undertaking and a private company, InternationalCompetitive Bidding is to be followed only in cases where theprivate project developer has not been selected throughcompetitive bidding. Hence the Government of Sikkim soughtapproval of the Ministry of Power, Government of India throughthe Central Electricity Authority.

15.9 As there was delay in getting the approval of theMinistry of Power, the Government of Sikkim again decided topursue the NHPC for developing the impugned project on theterms as desired by the Government of Sikkim and which wereagreed to by other developers for developing the Hydro ElectricProjects in the State of Sikkim, namely Teesta Stages-IV and VIetc. However, the NHPC was agreeable for execution of theimpugned project only on Build, Operate and Own (BOO) basis;but not on Build, Operate, Own and Transfer (BOOT) basis.Hence, a negotiating Committee was constituted for reaching anagreement on the terms and conditions with NHPC.

15.10 The Additional Secretary, Ministry of Power,Government of India convened a joint meeting on 13.10.2003between the State of Sikkim, NHPC and Central ElectricityffirfuL_

'`,

t-

Authority. The decision of the said joint meeting held on 13.10.2003 reads as hereunder:

"POWER DEPARTMENT

GOVERNMENT OF SIKKIM

s±±±: DEVELOpMEr`iT OF TEESTA STAGE I, 11 & IllHYDRO EH.ECTRIC PROJECTS THROUGH NHPC.

The Government of Sikkim had issued a ``letter ofIntent" vide no: 554/P/Gen/95/531 dated 2nd December2002 (Flag - A) to NHPC for development of Teestastage-I, 11 & Ill Hydro Electric Projects subject toacceptance of following terms and conditions by theNHPC: -

(i) 120/o free power shall be provided to theState .as royalty upto 15 years and 15%thereafter.(ii) 2ayo of the gross profit directly to theState Government.

(iii) 10%equitysharetospDC.

(iv) 100 % employment opportunity to thelocal Siltkimeses depending upon thesuitability, eligibility and qualificationcriteria.local Siltkimeses depending upon thesuitability, eligibility and qualificationcriteria.

(v) All Civil works other than major worksof specialised nature shall be offered tolocal contractors.of specialised nature shall be offered tolocal contractors.

(vi) NHPC shall not deploy surplus staffs fromother States to the projects without theapproval of the State Government.other States to the projects without theapproval of the State Government.

NHPC however failed to respond to the StateGovernments offer. And on 13th October 2003 PCECum Secretary & other Senior offlcers of PowerDepartment attended the meeting chaired by theAdditional Secretary, Ministry of Power in Delhi. Themeeting was attended by the representatives from NHPCand CEA also. During the meeting PowerDepartment explained the reasons of the StateGovernment as regards to above terms to befulfilled by NHPC before the State Governmentcould agree to award the projects. In fact it wasexplained that there are IPPs showing interesttowards developing the projects in much betterterms. IPPs, were not onlv readv to adhere to theconditions but were readv to take uD the Droiects' injoint venture with the State Go\/ernment as a minorPartner and also in BOOT arranaement for certain rc-`-----`-....`

`+

period and re\/ert back the Project to the StateGovernment at free of cost.

On the other hand NHPC officials explainedtheir compulsion for not agreeing to our terms,Their stand was that NHPC has to sustain a largemanpower and they have to engage this manpowerin the new projects. Therefore, employment fromthe State can only be considered after redeployingtheir existing manpower. As for the BOOTarrangement and other Propositions, it was simplyout of questions as l\lllpc had a set guideline forentire countrv.

Concluding t:he meeting Additional Secretary,Ministry of Power told Power Department thatGovernment of Sikkim can use its option and exploreother possibility to the best of its advantage. IbaAdditional Secretarv, Ministry of Po\^/er furtherinformed that the State Government can developthe Project either under Joint VentLire with thechosen IPPs or allot the oroiect to the IPP throughbiddina Drocess.

In the background as explained above it issubmitted that the LOI issued to NHPC be withdrawnas awarding the projects to NHPC in the existingguidelines serves little interest from the State'spoint of view. In this connection, it may be pertinent tomention here that SPDC/ Power Department has beenexploring the possibility of getting resourceful andreputed IPPs who can develop the projects under betterterms and conditions which will benefit the StateGovernment. In fact, a few companles had been shortlisted and negotiations are in advance stage. However,due to changes in Central Ministry it is apprehended thenegotiations shall stand stalled for a couple of months orso before the IPPs get a clear picture of the policies of thenew Government at the Centre.

In view of above, it is therefore advisable towithdraw the aforementioned LOI for which the StateGovernment's approval may kindly be sought while wecontinue carrying forvvard our negotiations with IPPs fordevelopment of Mega Projects in Teesta Basin.

Submitted for further action please.

Sol-4/6/04

(P. Wangchen)

Chief Engineer "

6B-

i

15.11 It is apparent from the minutes of the joint meetingheld on 13.10.2003 between the State of Sikkim, NHPC andCentral Electricity Authority that :

(i) (a) theGovernmentof sikkimwasparticulartoget 120/o free power to the State as royaltyupto 15 years and 15% thereafter;get 120/o free power to the State as royaltyupto 15 years and 15% thereafter; (b) 2 % of the gross profit directly to the StateGovernment;Government;

(c) 100% employment opportunity was to begiven to the local Sikkimese dependinggiven to the local Sikkimese depending upon their suitability, eligibility andqualification criteria.qualification criteria.

(d) All civil works other than major works ofspecialized nature would be offered to localcontractors, etc.;specialized nature would be offered to localcontractors, etc.;

(ii) the Independent Power Producers (IPP) were notonly ready to adhere to the conditions but were also readyto take up the projects in joint venture with the StateGovernment as a minor partner and also in BOOTarrangement for certain period and revert back the projectto the State Government free of cost;

(iii) on the other hand NHPC did not agree to thesaid terms. BOOT arrangement and other propositions#ti-......

were also found to be simply out of question as NHPC hadset guidelines for the entire country;

(iv) the Additional Secretary, Ministry of Power,Government of India further informed the StateGovernment that it could develop the project either underjoint venture with the chosen IPPs or allot the project to theIPPs through bidding process; and

(v) the Letter of Intent issued to NHPC in theexisting guidelines serves little interest from the State'spoint of view.

15.12 I am, therefore, convinced that NHPC did notagree with the terms of the Government of Sikkim andtherefore the contention of the petitioners thatGovernment of Sil{kim deliberately avoided NHPC is notcorrect.

16.1 (ii) Actions taken by the Government of sikkimfor implementing the impugned TeestaStage-III Hydro Electric Project withreference to the National Electricity Policy2005 and the directions, instructions andguidelines of the Ministry of Power,Government of India, after the enactmentof the Electricity Act, 2003.for implementing the impugned TeestaStage-III Hydro Electric Project withreference to the National Electricity Policy2005 and the directions, instructions andguidelines of the Ministry of Power,Government of India, after the enactmentof the Electricity Act, 2003.

16.2 The Electricity Act, 2003 was enacted and came intoforce from 10.06.2003 to consolidate the laws relating toci._-...force from 10.06.2003 to consolidate the laws relating toci._-...

a

generation, transmission, distribution, trading and use .ofelectricity and generally for taking measures conducive todevelopment of electricity industry, promoting competitiontherein, protecting interest of consumers and supply of electricityto all areas, rationalization of electricity tariff, ensuringtransparent policies regarding subsidies, promotion of efficientand environmentally benign policies etc.

16.3 The Electricity Act, 2003, thus, envisaged the growthof electricity industry through private licensees, with the policy ofencouraging private sector participation in generation,transmission and distribution and with the objective of distancingthe regulatory responsibilities from the Government to theRegulatory Commissions. The need for harmonizing andrationalizing the provisions in

(i) the Indian ElectricityAct,1910;

(ii) the Electricity (Supply) Act,1948; and

(iii) the Electricity Regulatory Commissions Act, 1998is a new self-contained comprehensive legislation. Accordingly,the new legislation replaced the then existing laws referred toabove and gave the State enough flexibHity to develop theirpower sector in the manner they consider.

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16.4 Section 3 of the Act empowers the CentralGovernment to prepare National Electricity Policy and tariff policyin consultation with the State Governments and the Authority fordevelopment of the power system based on optimal utilization ofresources such as coal, natural gas, nuclear substances ormaterials, hydro and renewable sources of energy.

16.5 Section 7 of the Act provides that any generatingcompany may establish, operate and maintain a generatingstation without obtaining a licence under this Act if it complieswith the technical standards relating to connectivity with the gridreferred to in clause (b) of Section 73.

16.6 Section 8 of the Act provides for setting up hydroelectric generating station, and the same reads as hereunder:

``8. Hydro-electric generation.-(1) Notwithstandinganything contained in section 7, any generating companyintending to set-up a hydro-generating station shallprepare and submit to the Authority for its concurrence, ascheme estimated to involve a capital expenditureexceeding such sum, as may be fixed by the CentralGovernment, from time to time, by notification.

(2) The Authority shall, before concurring in anyscheme submitted to it under sub-section (1) haveparticular regard to, whether or not in its opinion, - (a) the proposed river-works will prejudice theprospects for t:he best ultimate development of the riveror its tributaries for power generation, consistent with therequirements of drinking water, irrigation, navigation,flood-control, or other public purpose, and for thispurpose the Authority shall satisfy itself, afterconsultation with the State Government, the CentralGovernment, or such other agencies as it may deem fin---.....

appropriate, that an adequate study has been made ofthe optimum location of dams and other river-works; (b) the proposed scheme meets the normsregarding dam design and safety.

(3) Where a multi-purpose scheme for thedevelopment of any river in any region is in operation,.the State Government and the generating company shallco-ordinate their activities with the activities of thepersons responsible for such scheme in so far as they arei nter-re lated . "

16.7 Section 185 of the Act deals with the repeal andsavings clauses, which reads as hereunder:

``185. Repeal and saving.- (1) Save as other\^riseprovided in this Act, the Indian Electricity Act, 1910 (9 of1920), the Electricity (Supply) Act, 1948 (54 of 1948) andthe Electricity Regulatory Commissions Act, 1998 (14 of1998) are hereby repealed.

(2) Notwithstanding such repeal,-

(a) anything done or any action tal{en orpurported to have been done or tal{en including anyrule, notification, inspection, order or notice madeor issued or any appointment, confirmation ordeclaration made or any licence, permission,authorization or exemption granted or anydocument or instrument executed or any directiongiven under the repealed laws shall, in so far as j±jsnot inconsistent with the Drovisions of this Act, bedeemed to have been done or taken under thecorresponding provisions of this Act; (..-fi--......

16.8 After the enactment of the new Electricity Act, 2003,the Central Government, in compliance with Section 3 of theElectricity Act, 2003, formulated the National Electricity Policy,2005 dated 12.02.2005, the important provisions of the samereads as hereunder: - ``MINISTRY OF POWER

RESOLUTION

New Delhi, the 12th February, 2005

National Electricity PolicyNo.23/40/2004-R&R(Vol.11)

INTRODUCTION

1.1 In compliance with section 3 of the Electricity Act2003 the Central Government hereby notifies the NationalElectricity Policy.

dro Generation

5.2.5 Hydroelectricity is a clean and renewablesource of energy. Maximum emphasis would be laid onthe full development of the feasible hydro pote.ntial in thecountry. The 50,000 MW hydro initiative has beenalready launched and is being vigorously pursued withDPRs for projects of 33,000 MW capacity already underpreparation.

5.2.6 Harnessing hydro potential speedily willalso facilitate economic development of States,particularly North-Eastern States, Sikkim, Uttaranchal,Himachal Pradesh and J & K, since a large proportion ofour hydro power potential is located in these States. TheStates with hydro potential need to focus on the fulldevelopment of these potentials at the earliest.

5.2.7 Hydel projects call for comparativelylarger capital investment. Therefore, debt financingof longer tenure would ,need to be made availablefor hydro projects. Central Government is •``., _ ..... `

committed to policies that ensure financing ofviable hydro projects.

5.8.1 To meet the objective of rapid economicgrowth and "power for all" including householdelectrification, it is estimated that an investment ofthe order of Rs.9,00,000 crores at 2002-03 pricelevel would be required to finance generation,transmission, sub-transmission, distribution andrural electrification projects. Power being most crucialinfrastructure, public sector investments, both at theCentral Government and State Governments, wHl have tobe stepped up. Considering the magnitude of theexpansion of the sector required, a sizeable part of theinvestments will also need to be brought in from theprivate sector. The Act creates a conduciveenvironment for investments in all segments of theindustry, both for public sector and private sector,by removing barrier to entry in different segments.Section 63 of the Act provides for participation ofsuppliers on competitive basis in different segmentswhich will furt:her encourage private sector investment.Public service obligations like increasing access toelectricity to rural households and small and marginalfarmers have highest priority over public finances.

5.8.4 Capital is scarce. Private sector willhave multiple options for investments. Return oninvestment will, therefore, need to be provided in amanner that the sector is able to attract adequateinvestments at par with, if not in preference to,investment opportunities in other sectors. Thiswould obviously be based on a clear understandingand evaluation of opportunities and risks. Anappropriate balance will have to be maintainedbetween the interests of consumers and the needfor investments.

EL

5.8.9 Role of private participation ingeneration, transmission and distribution wouldbecome increasingly critical in view of the rapidlygrowing investment needs of the sector. TheCentral Government and the State Governmentsneed to develop workable and su_ccessful models forpublic Private partnei.ship. This would also enableleveraging private investment with the publicsector finances. Mechanisms for continuousdialogue with industry for streamlining proceduresfor encouraging private participation in powersector need to be put in place."

16.9 As per the National Electricity Policy, 2005 formulatedin compliance with the Section 3 of the Electricity Act, 2003, theCentral Government notified that: -

(i) harnessing hydro potential speedily will facilitateeconomic development of States, particularly North-EasternStates, Sikkim, Uttaranchal, Himachal Pradesh and J & K;

(ii) the States with hydro potential need to focus onthe full development of these potentials at the earliest;

(iii) the Central Government is committed to policiesthat ensure financing of viable hydro pro].ects;

(iv) a huge investment is required to financegeneration, transmission, sub-transmission, distribution andrural electrification projects to meet the objective of rapid :.-`=. ` ....-.

economic growth and `power for all' including householdelectrification;

(v) a conducive environment for investments in allsegments of the industry, both for public sector and privatesector, required to be created by removing barrier to entryin different segments;

(vi) capital is scarce. Private sectors will havemultiple options for investments. Return on investmentwill, therefore, need to be provided in a manner that thesector is able to attract adequate investments at par with, ifnot in preference to, investment opportunities in othersectors; and

(vii) Mechanisms for continuous dialogue withindustry for streamlining procedures for encouraging privateparticipation in power sector need to be put in place.

16.10By operation of laws, namely, Section 185 of theElectricity Act, 2003, I am convinced that the instructions,directions and guidelines issued by the Ministry of Power,Government of India under the letters dated 18.01.1995 and `-F

02.08.1996, referred to above, which were made under theearlier enactments, namely,

(i) the Indian ElectricityAct,1910;

(ii) the Electricity (Supply) Act,1948; and

(ili) the Electricity Regulatory Commissions Act, 1998requiring the State Government to adopt method of competitivebidding process in selecting the private partners, are no longervalid and relevant for selection of the p'ublic/privatepartners/developers after the enactment of the Electricity Act,2003 and formulation of the new National Electricity Policy, 2005dated 12.02.2005, which alone is currently occupying the field forthe development of the power sector and such participation bythe private sector in the power se€tor.

16.11 Therefore, after the enactment of the new ElectricityAct, 2003 and formulation of the National Electricity Policy, 2005,the Central Government authorized the State Governments towork out their own models.

16.12 The Government of Sikkim, having experiencedgreat delay and difficulty in developing the Hydro ElectricProject in the State through competitive bidding processor route, rightly decided to develop their own model of ajoint venture company with the participation of the private (..-i:..-._----- developers as per the National Electricity Policy, 2005,which were formulated in compliance with Section 3 of theElectricity Act, 2003.

17.1 (iii) Actions taken by the Government of sikkimfor implementing the impugned TeestaStage-III Hydro Electric Project withreference to formulation of the PowerPolicy of the Government of Sikkim, i.e. theLetter of Intent dated 26.02,2005.for implementing the impugned TeestaStage-III Hydro Electric Project withreference to formulation of the PowerPolicy of the Government of Sikkim, i.e. theLetter of Intent dated 26.02,2005.

17.2 As provided under clause 5.8.9 of the NationalElectricity Policy, 2005, the Government of Sikkim prepared itsown power policy to develop workable and successful models forpublic-private partnership, namely Letter of Intent dated 26.02.2005, which reads as hereunder:

GcrtyERNMENT OF slKKIM

ENERGY & POWER DEPARTMENT

KAZI ROAD, GANGTOK -737101

No.34;'GOS/E&P/2004-05/254 Dated 26/02/2005

TO

Athena Projects Private Limited,119, Jorbagh,New Delhi -ilo 003.119, Jorbagh,New Delhi -ilo 003.

SUB : LETTER OF INTENT FOR DEVELOPMENT OF1200 MW TEESTA STAGE-III HEP IN SIKKIMON BOOT ARRANGEMENT.1200 MW TEESTA STAGE-III HEP IN SIKKIMON BOOT ARRANGEMENT.

Ref :1. Your Letter No.ATR/GOS/SP/4914 datedSept. 14, 2004.Sept. 14, 2004.

2. Our Letter No.SPDC/39/2004-05/460 datedNov.20, 2004.Nov.20, 2004.3. Your Letter No.ATR/COS/SP/171204 datedDec. 17, 2004.Dec. 17, 2004.

-Ej`-..-.

.>

4. Your Letter No.ASG/EPD-GOS/05117 datedJan. 17, 2005.Jan. 17, 2005.

5. Your Letter No.ASG/EPD-GOS/5122 datedJan. 22, 2005.Jan. 22, 2005.

6. Your Letter No.ASG/EPD-GOS/5129 datedJan. 29, 2005.Jan. 29, 2005.

7. Your Letter No.ASG/EPD-GOS/5131 datedJan. 31, 2005.Jan. 31, 2005.

Dear Sir,

Please refer to your above letters regardinginterest shown by you for development of Teesta' Stage-IllHydro Power Project. In this connection, I am pleased toinform you that the Government has approved allotment ofabove project to Athena Projects Private Limited -Consortium, to be developed on BOOT arrangementunder joint sector as per the terms and conditions ofthe State Government. Therefore, this letter of intent isplaced in your favour as you are the leader of theconsortium, subject to acceptance of following terms andconditions :-

1. Royalty at the rate of 120/o of net energy ormoney equivalent thereof would be charged forthe first 15 years. Beyond 15 years ofoperation a royalty of 150/a of net energy will bemade available to the Government of Sikl{imfree of charge by the developer.money equivalent thereof would be charged forthe first 15 years. Beyond 15 years ofoperation a royalty of 150/a of net energy will bemade available to the Government of Sikl{imfree of charge by the developer.

2. The projects shall be offered for a period of 35years from the date of their commercialoperations at the end of which they shall bereverted back to the Government of Sikkim atfree of cost in good condition or extend further onmutually agreed terms as per decisions of theGovernment of Sikkim.years from the date of their commercialoperations at the end of which they shall bereverted back to the Government of Sikkim atfree of cost in good condition or extend further onmutually agreed terms as per decisions of theGovernment of Sikkim.

3. Sale ofpowershall be the responsibility of the Ipp.

4. The IPP shall be responsible for laying transmissionlines for connectivity to the nearest Grid Sub-Stat:ionof the State Government at the appropriate voltage.However, if the State Grid System is not adequate t:otransmit this power outside the State, the IPP has tomake its own arrangements t:o connect to the nearestGrid Station of Power Gnd Corporation of India Ltd.lines for connectivity to the nearest Grid Sub-Stat:ionof the State Government at the appropriate voltage.However, if the State Grid System is not adequate t:otransmit this power outside the State, the IPP has tomake its own arrangements t:o connect to the nearestGrid Station of Power Gnd Corporation of India Ltd.

5. The SPDC/Govt. of Sikkim shall invest 260/o inthe total equity. upon request from the Govt.of Sikkim, the IPP shall arrange this fund toinvest towards its share of equity in the project,which shall be repaid along with the agreedthe total equity. upon request from the Govt.of Sikkim, the IPP shall arrange this fund toinvest towards its share of equity in the project,which shall be repaid along with the agreed `,€rfe-..-`.`.

J

rate of interest from the sale proceeds of thefree power.

7. The IPP shall have to provide employment tothe Local skilled, semi skilled and unskilledmanpower as per the eligibHity criteria includingbusiness and contract opportunity to the locals.the Local skilled, semi skilled and unskilledmanpower as per the eligibHity criteria includingbusiness and contract opportunity to the locals.

Tfli-

13. The IPP may surrender the allotment of the projectback to the Government of Sikkim if on completion ofthe DPR within the stipulated time frame; it hasgrounds to establish that the project is not techno-economically viable. However, on such surrender,the Government of Sikkim shall not compensatetowards expenditures incurred by the IPP.back to the Government of Sikkim if on completion ofthe DPR within the stipulated time frame; it hasgrounds to establish that the project is not techno-economically viable. However, on such surrender,the Government of Sikkim shall not compensatetowards expenditures incurred by the IPP.

14. In the event of stoppage of construction on themain project components by the developer, fora period of mol.e than twelve months forreasons not covered under Force Majeure andfor reasons attributable to the developerand/or abandonment of the projects by thedeveloper, the Government shall, after givingdue opportunity to the developer to resume thework, have the right to terminate theAgreement. In the event of termination of theAgreement under this clause, the Government shauhave the option to take over the Project. At thetime of signing of agreement, pert chart giving thedetails of works as milestones should be specified inthe Agreement.main project components by the developer, fora period of mol.e than twelve months forreasons not covered under Force Majeure andfor reasons attributable to the developerand/or abandonment of the projects by thedeveloper, the Government shall, after givingdue opportunity to the developer to resume thework, have the right to terminate theAgreement. In the event of termination of theAgreement under this clause, the Government shauhave the option to take over the Project. At thetime of signing of agreement, pert chart giving thedetails of works as milestones should be specified inthe Agreement.

15. The cost involved in any studies of basindevelopment/ protection like Dam Breakanalysis, etc. to be carried out by the State Govt.would be shared by the IPPs in proportion tothe Installed Capacity of the project. For thesestudies, cost of establishment/running hydrologicalstations or instrumentation would also be shared bythe IPP.development/ protection like Dam Breakanalysis, etc. to be carried out by the State Govt.would be shared by the IPPs in proportion tothe Installed Capacity of the project. For thesestudies, cost of establishment/running hydrologicalstations or instrumentation would also be shared bythe IPP.

16. Resettlement & Rehabilitation Plan shall beprepared and implemented by the Govt. ofSikkim at the cost of IPP.prepared and implemented by the Govt. ofSikkim at the cost of IPP.

17. The IPP shall share with the Govt. of Sikkim all thedata of the studies made by them in this project.data of the studies made by them in this project.

18. Liabilities on account of investigation studiesfor this project by the State and the CentralGovt. have to be reimbursed by the IPP afterfinancial closure.for this project by the State and the CentralGovt. have to be reimbursed by the IPP afterfinancial closure.

19. The IPP shall adopt villages in and aroundproject area in consultation with the Govt. ofSikkim.project area in consultation with the Govt. ofSikkim.

20. The IPP shall submit details about the equityparticipation and technical responsibilities of itsparticipation and technical responsibilities of its L@L.-.-........

consortium members at the time of financialclosure of the project.

21. The Jurisdiction of the project shall be the Court ofSikkiml Your acceptance for development of this projectunder the above terms & conditions may be communicatedwithin one month time from the date of issue of this LOI.Subsequently, you have to enter into an agreement withthe State Govt. for development of Teesta Stage-Ill HydroPower Project within a period of 180 days from the date ofIssue of this letter of intent. In case, if your are not able toenter into an agreement within above stipulated period, theproject may be withdrawn and suitable penalty shall becharged.

Kindly acknowledge the receipt of this letter of intent.

Thanking you,

Yours faithfully,Sd/-( D.D. PRADHAN )PCE-CUM-SECRETARY"

17.3 The salient features of the Power Pc)licy of theGovernment of Sikkim, i.e. the Letter of Intent dated 26.02.005,are as follows:

(i) that the Independent Power Producer (IPP)provides for 120/o of net energy to the State Government asroyalty for the first 15 years or money equivalent therett)and beyond 15 years of operation, a royalty of 15% of netenergy to the State Government free of charge by thedeveloper; Z!

(ii) that the project would be offered for a period of35 years from the date of their commercial operation and atthe end of such period the project would be reverted backto the Government of Sikkim free of cost in good condition;

(iii) that the Government of Sikkim would have 26%of equity share under the IPP, the respondent No.3company, a Special Purpose Vehicle. The IndependentPower Producer (IPP), the respondent No.3 would arrangethe said funds also for the State to invest as equity share inthe project which would be repaid along with the agreedrate of interest from the sale proceeds of the free power;

(iv) that the IPP, respondent No.3 would provideemployment to the local skilled, semi skilled and unskilledmanpower;

(v) that the IPP, respondent No.3 would depositRs.1,20,00,000/- (Rupees one crore twenty lakhs) andRs.10,000/-(Rupees ten thousand) per MW for installationcapacity towards non-refundable processing fee in favour ofthe Secretary, Energy and Power Department, Governmentof Sikkim

i...S!-.........-.-.

`

(vi) that the IPP, respondent No.3 shall pay wheelingcharges in the event of using infrastructure facilities of theState Government;

(vii) that the IPP, respondent No.3 shall not bepermitted to transfer the project or sell the project to otherswithout prior permission of the Government of Sikkim;

(viii) that the IPP, respondent No.3 shall achieve thefinancial closure within a period of 12 months from the dateof agreement. In the event that it is confirmed as impossibleor impractical to achieve Financial Closure or if the FinancialClosure is not achieved on or before the expiry of twelve (12)months frown the effective date, for the reasons other thenthose attributable to the Government, the Governmentreserves the right to terminate the Agreement;

(ix) that the IPP, respondent No.3 would commissionthe project within a period of 48 to 60 months and in theevent of failure on the part of the respondent No.3 tocommission the project within the targeted period, namely,72 months from the date of Agreement, the respondentNo.3 Company would be liable to pay a penalty ofRs.10,000/-(Rupees ten thousand) per MW per month to JfB------.

the State Government for the period beyond 72 monthsfrom the date of Agreement;

(x) that the IPP, respondent No.3 may surrender theallotment of the project back to the Government of Sikkim ifon completion of the DPR within the stipulated time frame; ithas grounds to establish that the project is not techno-economically viable. However, on such surrender, theGovernment of Sikkim shall not compensate towardsexpenditures incurred by the IPP.

(xi) that in the event of stoppage of the constructionof the main project by the developer for a period of morethan 12 months for reasons attributable to the developer,the Government shall, after giving due opportunity to thedeveloper to resume the work, have the right to terminatethe Agreement and also shall have the option to take overthe project;

(xii) that the cost involved in the studies of basindevelopment/protection like Dam Break analysis etc. wouldbe shared by the IPP, respondent No.3 in proportion to theinstalled capacity of the project; [`#-------------.

+`

(xiii) that the resettlement and rehabilitation planwould be prepared and implemented by the StateGovernment at the cost of the IPP, 3rd respondent;

(xiv) that the IPP, respondent No.3 shall share withthe Government of Sikkim all the data of the studies madeby them in this project;

(xv) that the liabilities on account of investigationstudies of the project would to be reimbursed by the IPP,3rd respondent;

(xvi) that the IPP, respondent No.3 would adoptvillages in and around the project area in connection withthe Government of Sikkim; and

(xvii) that the IPP, respondent No.3 would submitdetails about the equity participation and technicalresponsibilities of its consortium members at the time offinancial closure of the project.

17.4Even clause 27 (7) of the Sikkim Finance Rules, 1979,contemplates thatcontracts shouldlaced onlafter tendershave been oinvited whenever Dracticable andadvantaaeous. In the instant case, t:he past experience of the (,-.-E#--..-.`

State of Sikkim is that inviting tenders openly was not successful.Hence, I do not see any violation of the provision of the SikkimFinancial Rules, 1979 also.

17.5 It is pertinent to note that these salient features wereformulated on the recommendation of the High Powered HydroPower Committee constituted by the Government of Sikkim andthese recommendations were placed for consideration of theNHPC; but NHPC was not agreeable for the same.

17.6 I am, therefore, convinced that these terms of thepower policy of the Government of Sikkim, viz. the Letterof Intent dated 26.02.2005, are fully in consonance withthe National Electricity Policy, 2005 dated 12.02.2005 andprovides for a transparent, fair and reasonable method foridentifying the IPP, which is apparently beneficial to theState of Sikkim.

18.1 (iv) Actions taken by the Government of sikkimwith reference to selection of therespondent No.3 for implementing theimpugned Teesta Stage-Ill Hydro ElectricProject.

18.2 The Power Policy of the Government of Sikkim asrecommended by the High Powered Hydro Power Committee and \ii±.---....-....

I

approved by the Cabinet and thereafter adopted by the StateGovernment, was communicated to various establisheddevelopers in the country and pursuant to which, five developers,namely:

(i) Athena projects pvt. Ltd.,

(ii) NTPC,

(iii) NHPC,

(iv) Sutlez Jal Vidyut Ltd. and

(v) Cosmos Electric Supply Pvt. Ltd.

Consortium,

out of 17 Hydro Power Developers, evinced their interest, in theimpugned Hydro Power Project. Among the said five developers,three had shown specific interest in the impugned Teesta Stage-Ill and two have shown general interest in all the Mega HydroElectric Projects. The comparative statement of evaluation of theoffers made by the said 5 Hydro Power Developers is stated asfollows:

\\

Comparative Statement of Hydro Power Developers '

Supply Pvt.Ltd.HT6aT7E-&MullerHydraProJects'HEPuta-ifeConsortium(Germany),AdamPowerTrad,ng,Export/Iinport45-Yes4iJ2qGotAserAI MegaHEP(2000MW)AllMegaI14N_i`FJ__Yes-en15.NHPCHEPYes4sJ2ffGotTeesta -H-,,r6-17sutlez JalVidvutLtd.J=.-

18.3 The High Powered Hydro Power Committee evaluatedthe comparative statement of these five developers andconcluded that only the offer received from M/s AthenaConsortium was in full compliance with the terms of the policiesand protects the interest of the State of Sikkim; because theCosmos Electric Supply Pvt. Ltd. Consortium wanted a period of45 years instead of 35 years for BOOT and the other threedevelopers namely, NTPC, NHPC and Sutlez Jal Vidyt Ltd. werenot agreeable to the terms of the Power Policy of the State ofSikkim, as tr}ey agreed only for the terms of Government ofIndia Policy i.e. for BOO basis and not for BOOT basis. Hence theHigh Powered Hydro Power Committee after careful considerationand evaluation of the offers of all the five developers selectedand recommended Athena Consortium, to be the joint venturepartner of the State of Sikkim for the development of the Erfe.---.--.

impugned Teesta Stage-Ill Hydro Electric Project on atransparent, fair and reasonable process, taking the largeinterest of the State of Sikkim into consideration.

18.4 It is, therefore, apparent on the face of the recordsthat the experience of the State Government since 1993 inidentifying the Independent Power Producer to be the jointventure partner of the State of Sikkim for the development of theimpugned 1200 MW Teesta Ill Hydro Electric Project throughcompetitive bidding process was not successful. TheGovernment of Sikkim was also conscious of the pre-requisitecondition, for competitive bidding process in the case of HydroElectric Projects, that a bankable and upto date Detailed ProjectReport (DPR) consisting of various technical details about theproject as also its estimated completion cost should be ready, sothat the competitive bidder could visualize the risk elementinvolved in the development of the said project. The StateGovernment having been mindful of time and cost factor involvedin preparing and updating the bankable DPR, had rightly taken apolicy decision within the purview of the National ElectridltyPolicy, 2005 formulated under Section 3 of the Electricity Act,2003, and worked out their own models, of course, with the approval of the Ministry of Power, Government of India as perthe minutes of the Joint Meeting held on 13.10.2003.

18.5 Accordingly, the decision of the state Governmentsounds reasonable. No reasonable person could have anygrievance against t-Fie Power Po[jcy of the Government ofSikkim or against the process of selection of respondentNo. 3 for implementing the impugned project, as rightlycontended on behalf of the State of Sikkim, as the samewere transparent, fair and reasonable.

19.1(v) Actions taken by the Government of sikkimfor implementing the impugned TeestaStage-III Hydro Electric Project withreference to the terms and conditions. of theagreement dated 18.07.2005.for implementing the impugned TeestaStage-III Hydro Electric Project withreference to the terms and conditions. of theagreement dated 18.07.2005.

19.2 Pursuant to the Power Policy of the State of Sikkiin,i.e. the Letter of Intent dated 26.02.2005 and the selection :`ofrespondent No.3 as Independent Power Producer (IPP) to be thejoint venture partner of the State of Sikkim for development`ofthe impugned 1200 MW Teesta Stage-Ill Hydro Electric Project,the State of Sikkim and the respondent No.3 have entered intoan Agreement dated 18.07.2005, the relevant provisions of the said Agreement reads as hereunder: •':BEL--.--.

I,

``AGREEMENT

This DEED of AGREEMENT (hereinafter referred toas the ``Agreement'') is made on th.is the day of 18th(Eighteenth) of the month of July in the Year 2005 (TwoThousand and Five) at Gangtok, Sikkim; By and between The Governor of Sikkim, through the Principal ChiefEngineer Gum Secretary to the Government of Sikkim,Energy & Power Department, hereinafter referred to asthe ``Government'', (which expression shall, unlessexcluded by or repugnant to the context, mean andinclude its successors, admlnistrators and permittedassigns) of the FIRST PART

AND

Teesta Urja Limited, a public limited companyincorporated under the Companies Act, 1956, having itsregistered office at 119, Jor Bagh, New Delhi 110 003,India, (hereinafter referred to as the ``Company" whichexpression shall, unless excluded by or repugnant to thecontext, mean and include its successors, administratorsand permitted assigns) of the SECOND PART

WHEREAS

1. Athena Projects Private Limited, a companyincorporated under the Companies Act, 1956,having its registered office at 119, Jor Bagh, NewDelh.I 110 003, India, had along with its consort.iummembers, submitted a detailed proposal to theGovernment for the development of 1200 MWTeesta Stage Ill Hydroelectric Project, NorthSikkim (the "Project");incorporated under the Companies Act, 1956,having its registered office at 119, Jor Bagh, NewDelh.I 110 003, India, had along with its consort.iummembers, submitted a detailed proposal to theGovernment for the development of 1200 MWTeesta Stage Ill Hydroelectric Project, NorthSikkim (the "Project");

2. Government after due examination of the proposalsreceived from various parties and after determiningthat Athena and its consortium members are bestplaced and have the requisite capabilities toimplement the Project, has issued a letter of intentvide letter No.34/GOS/E&P/2004-05/255 da'tedFebruary 26, 2005 to the leader of the Consortium,Athena Projects Private Limited for thedevelopment of ]200 MW Teesta Stage-Ill HydroPower Project on a Build, Own, Operate andTransfer ("BOOT") bas.is, under joint sector withthe Government/SPDC; Athena Projects Private Limited has vide its letterdated 6Lh April, 2005 informed the Government thatdated 6Lh April, 2005 informed the Government that

3. i:` -.-

it has incorporated the Company, TeestaLimited, as a Special Purpose Vehicle (SPV) forimplementation of the Project. The Governmhas vide its letter 34/GOS/E&P/2004-05/595 d20th April, 2005 approved the formation ofCompany for the purpose of the developmentthe Project;

4. The Company has carried out at its own cost, thefeas.ibHity studies in respect of the Project and ha.ssubm.itted the Pre-Feasibility Report (TechnoEconomic Appraisal) vide their letter no. ASG/GOS-E&P/50414 dated April 18, 2005 in respect of thesame to the Government. Accordingly, theGovernment and the Company have satisfiedthemselves about the techno-economic feasibilityof the Project;

5. The Company agrees to supply power free of cost to the Government @120/a (Twelvepercent) of the electricity generated at theGeneration Point(s) or money equivalentthereof, from the project for the first 15(fifteen) years of operation and @150/o(Fifteen percent) or money equivalent thereoffor 16th (Sixteenth) to 35th (Thirty Fifth) yearfrom the date of commencement of thecommercial production. However, the StateGovernment, at its discretion may receive themoney in lieu of free power at a rate to bemutually agreed from time to time.

NOW, THEREFORE, in consideration of the premises andmutual covenants and conditions set forth herein, it isagreed by and between the Parties hereto as follows: - Article 1

INTERPRETATIONS AND DEFINITIONS

1. INTERPRETATIONS

1.2.39``Power Purchase Agreement (PPA)" means acontractual agreement to be signed by theCompany with an electricity consumer, trader c)rany other parties permitted under the statute topurchase the power.contractual agreement to be signed by theCompany with an electricity consumer, trader c)rany other parties permitted under the statute topurchase the power.

•-._```...-.

Article 2

TERM OF THE AGREEMENT

2.1 Effectiveness.

2.2 Agreement period.

2.2.1 This Agreement shall remain in force for a periodof 35 (Thirty five) years from the CommercialOperation Date of the Project unless terminatedearlier in accordance with the provisions of theAgreement.

Article 3

OBLIGATIONS OF THE GOVERNMENT

3.6 Rehabilitation and Resettlement plan

The Company shall, wherever required and subject tothe approval of any competent authority, prepare arehabilitation and re-settlement plan in coordinationwith the Government for local residents that might beadversely affected or displaced due to construction ofthe Project at the Site as on the Effective Date. Thecost of preparation and implementation of the aboveplan shall be borne by the Company andimplemented under the supervision of theGovernment.

Article 4

OBLIGATIONS 0F THE COMPANY

4.1 Modeof saleof power

The Company shall have the option to dispose ofpower from the Project after allowing forGovernment Supply in any one or more of the following modes; EE

(i) to make captive use for the industrytobe set up in the State of Sikkim; orbe set up in the State of Sikkim; or

(ii) to sell power outside the State ofSikkim; andSikkim; and

(iii) To mal{e third party sale within theState of Sikkim with the permission ofthe Government of Sil{kim.State of Sikkim with the permission ofthe Government of Sil{kim.

The Company shall pay the necessary wheelingcharges including charges on account oftransmission losses prevalent at that time towardsthe energy transmitted, in case the company usesthe Sikkim's Transmission/ distribution system fortransfer of power up to the appropriate deliverypoint/interstate po.int as per (i) to (ii) above, as thecase may be.

4.2 Government Supply

4.2.1 The royalty in the shape of free power shall belevied @120/a (Twelve percent) of theDeliverable Energy (Net generation measuredat the Generation Point) of the Project ormoney equivalent thereof, from the project forthe first 15 (Fifteen) years of operation and @150/a (Fifteen percent) or money equivalentthereof for the period from 16th (Sixteenth) to35th (Thirty Fifth) year for the period startingfrom the date of COD of the Project and at sucht.iines as may be mutually agreed upon for the periodthat may be extended in terms of Clause 2.2.2.levied @120/a (Twelve percent) of theDeliverable Energy (Net generation measuredat the Generation Point) of the Project ormoney equivalent thereof, from the project forthe first 15 (Fifteen) years of operation and @150/a (Fifteen percent) or money equivalentthereof for the period from 16th (Sixteenth) to35th (Thirty Fifth) year for the period startingfrom the date of COD of the Project and at sucht.iines as may be mutually agreed upon for the periodthat may be extended in terms of Clause 2.2.2.

4.7 Commissioning of the Project

4.7 Commissioning of the Project

The Company shall achieve the Financ.ial Closurewithin 12 (Twelve) months from the date of signingof this agreement. The Commercial Operation of theProject shall be achieved within a period of 60 (S.ixty)months from the date of the Financial Closure. TheCompany shall start the construction of the projectwit:hin 6 (Six) months from the date of the FinancialClosure.

The Company shall initiate the process forobtaining Environment Clearance within onemonth fl-om the date of signing this Agreementand shall keep the Government Informed of thestatus and progress in respect of EnvironmentClearance on a monthly basis.

€ffli .

In the event the Company obtains EnvironmentClearance from the Ministry of Environment andForests (MOEF) within 12 (Twelve) months from thedate of signing of this Agreement, but is unable toachieve the Financial Closure within 12 (Twelve)months from the date of signing of this Agreement,then the time period for achieving the FinancialClosure shall stand extended up to the end of 6 (six)months from the date of Environment Clearance.However, in the event of delay in obtaining theEnvironment Clearance from MOEF beyond 12(Twelve) months from the date of signing of thisAgreement, for reasons not attributable to theCompany, the Government shall extend the periodfor achieving the financial closure, which shall haveto be achieved, within 6 (six) mQnths from the dateof Environment Clearance.

In case the Company is unable to commission theProject within the aforesaid time period for reasonsexclusively attributable to the Company, theCompany shall be liable to pay a Penalty @Rs.10,000/-(Rupees Ten thousand) per MW.PerMonth to the Government for delay beyond theaforesaid time period for the Commercial Operationof the Project.

4.8 Environmental Impact Assessment(EIA)

The Company shall be liable to carry outEnvironmental Impact Assessment (EIA), inassociation with the Forests, Wild Life &Environment Management Department of theGovernment, as required under the Environmental(Protection) Act, 1986 through consultant(s) drawnfrom a reputed organization and obtain the consentof State Pollution Control Board.

4.9 Equity participation

4.9.1 Subscription of Equity by the Government The Company shall allocate 260/o (Twenty Sixpercent) of the Company's equity share toGovernment by way of execution of an equitysubscription agreement between the Companyand Government, which shall be executed within aperiod of 6 (six) months from the date of signing ofthe Agreement.

Upon execution of such an equity subscriptionagreement, Athena as defined in the DefinitionsClause 1.2.5 shall, on request from the Government (.___ ` .`ir r without the requirement of sovereign guarantees,arrange the funding for equity participation ofGovernment in the Project at the Tutual agreedterms.

The proceeds from such sale of Free Power and thedividends in respect of Government's equity in theProject, whether in part or full at the discretion of theGovernment, would be utilized for repayment of thefunding arranged by Athena for f.Inancing the equityparticipation of the Government, and Governmentshall execute all the necessary agreements asdesired by the providers of such funding.

However, if the Government arranges its own equity,then Government shall be allowed to do so, providedthat such arrangement shall not be detrimental tothe Company's interests and the equity subscriptionsshall be made pro-rata with the other equityparticipants.

4.9.2 Subscription of Equity by the members of theConsortiumConsortium The balance 74 0/o (Seventy Four percent) ofequity shares of the Company shall besubscribed by Athena. The Share holdings ofeach constituent of Athena and theirresponsibilities shall be communicated by theCompany to the Government of Sikkim at thetime of Financial Closure. The Company shall notchange the constitution of the Athena consortiumwithout prior permission from the Government. Ifthe Company fails to submit the share holdingagreement with the members of the Athena at thetime of Financial Closure, then the Government canterminate this agreement."

19.3 The significant features of the Agreement dated18.07.2005 provides that:

(i) supply of power free of cost to the Governmentof Sikkim @ 12% of the electricity generated from the JE- .`f project for the first 15 year and thereafter @ 15°/o from thei6th to 35th year;

(ii) the Government of Sikkim, at its discretion, mayreceive money in lieu of free power at a rate to be mutuallyagreed;

(iii) for Rehabilitation and Resettlement Plan incoordination with the Government of Sikkim for localresidents who are adversely affected and displaced due tothe construction of the project;

(iv) cost of preparation and implementation of thesaid plan shall be borne by the 3rd respondent;

(v) the Company is to adopt villages along withvicinity of the project;

(vi) the Company shall provide the facilities for thebenefit of the villages such as road connectivity , powerconnectivity, schools, health care, water security,sanitation, religious/ social/ community development andmaintenance;

(vii) the responsibility of evacuation of power fromthe project to the point of consumption lies with theCompany; EL

(viii) the company shall provide finances forCatchment Area Treatment Plan as determined by theGovernment of Sikkim;

(ix) the company is to achieve the financial closure in12 months from the date of agreement and has to start theconstruction of the project within six months;

(x) the commercial operation of the project will beachieved within a, period of 60 (sixty) months from the dateof the financial closure;

(xi) the company has to initiate the process forobtaining environmental clearance within one month ofsigning of the agreement, if the company obtainsenvironmental clearance from the Union of India but isunable to achieve financial closure within a period of 12months then the time period shall be extended upto sixmonths from the date of environment clearance, ifenvironment clearance is delayed beyond 12 months forreasons not attributable to the company the Government ofSikkim shall extend the period;

(xiii) if the company is unable to commission theproject within the said period the company shall be liable topay the penalty; gr

(xiii) the company shall allocate 26 % of its equityshare to the Government of Sikkim;

(xiv) the company would arrange the funding forequity participation of the Government of Sikkim in theproject at the mutually agreed terms;

(xv) the proceeds from the sale of the power share ofthe Government of Sikkim and the dividends in respect ofthe Government of Sikkim equity in the project whether inpart or full at the discretion of the Government of Sikkimwould be utilized for repayment of the funding arranged byAthena Project Pvt. Ltd. for financing the equityparticipation of the Government of Sikkim;

(xvi) the company shall not change the constitution ofM/s Athena Consortium;

(xvii) the company shau not be permitted to transferor sale the project;

(xviii) the Government of Sikkim has a right toterminate the agreement, if it is'eventually confirmed thatfinancial closure for the project is impossible or impracticalto achieve or if the construction of the project has notcommenced before the expiry of the six month from thedate of achieving of financial closure; (--i+` -- *

*

(xix) after the expiry of agreement period of 35 years,the project including its all assets and works shall betransferred to the Government of Sikkim free of cost ahd ingood operating condition; and

(xx) the interest of the State of Sikkim has beentaken into consideration and safe guarded.

19.4 I am, therefore, convinced to the terms `.andconditions of the said Agreement dated 18.07.2005, whichare neither irrational nor arbitrary nor unreasonable noragainst any provisions of law nor opposed to public policynor opposed to public interest. And they are reasonableand in consonance with the Electricity Act, 2003 and theNational Electricity Policy, 2005 and also ensures theinterest of the public as well as of the State.

201 (Vl) :=e :::P`EGa:::rn°ies=:tuto°fry s:kqki=:meannt:compliance of conditions prescribed instatutory clearance by the 3rd respondent.

2o.2 The centre for Inter-Disclpllnary studles of Mountapr`i& Hill Environment, University of Delhi under the directionsMinistry of Environment & Forests, Government of India, afterinspection of t:he site, survey and detailed study, submitted. aC.`....--..-.

+-

Carrying Capacity Study of Teesta Basin in Sikkim with regard tothe implementation of the impugned Teesta Stage-Ill HydroElectric Project.

20.3 Pursuant to the said carrying capacity study ofTeestabasin in Sikkim, a meeting of the Steering Committee was heldon 25.04.2005. The relevant portion of the minutes of themeeting reads as hereunder:- ``Chairperson, Smt. Meena Gupta requested Dr. Bhaskar ofCISHME to clarify the recommendation specifically in respe'ct ofTeesta Stage-Ill, IV & VI, as these projects are belowChungthang area. It was clarified that site clearance forsurvey & investigation for these projects may beallowed.,,

20.4 Thereafter, the Carrying Capacity Study of TeestaBasin in Sikkim was again reviewed by the Steering Committeeon 25.09.2006 and the relevant portion of the minutes of themeeting reads as hereunder: - ``Dr. Bhaskar summarized the findings of all PrincipalInvestigators and concluded that North Sikkim is geologically,seismically, ecologically and biologically extremely sensitive andfragile. Any proposed hydro-electric projects in this regionwould have adverse Impacts and would cause damage to thenascent and pristine ecosystems. The glacial moraines,temporarHy forming glacial lakes and debris cones are potentialsource of hazards in North Sikkim. He suggested that theheight of the dam should not exceed 80 in from riverbedlevel especially in north Sikkim as the available literatureindicate that dam witli 80 in height in such type ofgeological condition may trigger reservoir inducedseismicity....

``All members of the study team expressed their concernabout the envlronmental clearance given for Teesta Stage-Ill ;.`....-

H.E. project by the Ministry without taking Into considerationthe reservations and recommendations of the Carrying CapacityStudy report. Dr. Bhowmic explained that the decision forgranting site clearance to this project was taken in the 3rdsteering committee meeting held in New Delhi on 25th April`,2005. The team had recommended for the site clearanceof Teesta Stage -11, IV & VI as these projects are belowChungthang area. The EIA report of Stage - Ill wasprepared by WAPCOs and EXDert Commlttee dld not flndanv thinq wronq|o stop the project

20.5 Based on the minutes of the Steering Committeedated 25.04.2005 and 25.09.2006 relating to the Environmentand Ecology, Earthquake Engineering, Fisheries, WaterTechnology, etc. the Expert Appraisal Committee recommend.edEnvironmental clearance for the Teesta Stage-Ill Hydro ElectricProject as referred to above. As per the said recommendation,the Ministry of Environment and Forests, Government of Indiaaccorded the Environmental Clearance. However, against the saidenvironmental clearance, an appeal was preferred under Section11(1) of the National Environment Appellate Authority Act,1997,namely, Appeal No.8 of 2006 and the National EnvironmentAppellate Authority in its order dated 05.07.2007 held ashereunder: - ``That the EIA report has made a detailedexamination of the geological conditions ofthe project area and related aspects. A perusalof EIA report and EMP reveals that EIA reportthrows evidence to proper assessment of theenvironmental impact of the project. The variousEnvironment programme such as MuckManagement plan, Forest and Wildlife .,i`-, _-.`

Conservation plan, Fish Management Plan etc.prove the point of view of the Respondentsthat comprehensive analysis of the impact ofthe project on the local environment has beendone in the EIA Report. Necessary attention hasbeen paid to preservation of aquatic ecology of theriver system by assuring minimum flow of water inthe system. This Authority note that theExpert Committee on River Valley projects ofthe MOEF has examined the report on theCarrying Capacity Study on Teesta RiverSystem and recommended the project forapproval of Respondent No,1 (MOEF). Allthese analyses and precautionary programmeconfirms the comprehensive coverage of EIAReport and protective nature of EMP."

20.6 Thus, the National Environment AppellateAuthority, which is the statutory and expert authority, relatingto the grant of Environmental Clearance satisfied with andconfirmed the grant of Environmental Clearance to theimpugned Teesta-Ill Hydro Electric Project, after dealing withall the issues raised comprehensively.

20.7 Simultaneously, the Forest Advisory Committee,Government of India granted in-principle approval for theimpugned Project, vide the letter dated 12.10.2007. Incontinuation of the said in-principle approval datedl2.10.2007and in compliance of the various conditions. imposed therein, theMinistry of Environment and Forests, Government of Indiaconveyed its approval under Section 2 of the Forest(Conservation) Act, 1980 by the letter dated 02.11.2007 for

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diversion of 83.0405 .hactres of forest land (68.3130 hactressurface forest are and 14.7275 hactres underground forest area)for construction of 1200 MW Teesta Stage-Ill Hydro ElectricPro].ect by M/s. Teesta Ur].a Limited in North District of Sikkim, ofcourse, after holding a public hearing on 08.06.2006 atChungthang, which is a conditjon'' precedent. The stringentconditions are imposed in the said approval dated 02.11.2007,which read as hereunder:- "F.No.8-142/2006-FC

Government of IndiaMinistry of Environment & Forests (FC Division)

Paryavaran Bhawan, CGO Complex,Lodhi Road, New Delhi-110003

Dated: 2nd November, 2007

To

The Principal Secretary (Forest)Government of SikkimGangtok, Sikkim.

Sub:::VersL9rnfa:fe83fo°r4e°s5th:r:faf°:ens:'a:i.j=;531::underground forest area) for construction of1200 MW Teesta Stage-Ill Hydro ElectricProject by M/s Teesta Urja Limited in NorthDistrict of Sikkim.

Sir,

I am directed to refer to your Letter no.1096(1070)FCA/FEWMD dated 13.12.2006 on the abovementioned subject, wherein prior approval of the CentralGovernment t for the diversion of 83.0405 has of forestland (63.3130 ha surface forest area and 14.7275 haun]de3rground forest area) for construction of 1200 MWTeesta Stage-Ill Hydro Electric Project by M/s Teesta UrjaLimited in North District of Sikkim, was sought, inaccordance with Section 2 of the Forest (Conservation )

Effi-

Act, 1980. The said proposal has been examined by theForest Advisory Committee constituted by the CentralGovernment under Section 3 of the aforesaid Act.

State %%::r:aJ::fnut' :: ns',£:::t'°ann d°fotnhethper°bpa°S,:' :ffrecommendations of the Forest Advisory Committee,Central Government granted in principle app.roval tothe said proposal vide letter of even no dated 12-Oct 2007, subject to certain conditions. The complianceof these conditions was submitted by Nodal Officer cumChief Conservator of Forests, Sikkim, vide letters No.786(1070) dat:ed 18.10.2007 and 801(1070) dated24.10.2007. After consideration of the proposal andcompliance of various conditions by the StateGovernment, the Central Government herebyconveys its approval under Section 2 of the Foi.est(Conservation) Act, 1980 for the diversion of 83.0405ha forest land (63.3130 ha surface forest area and14.7275 ha underground forest area) for construction of1200 MW Teesta Stage-Ill Hydro Electric Project by M/sTeesta Urja Limited in North District of Sikkim.

1. Legal Status of the Forest land shallremain unchanged.remain unchanged.

2. Compensatory Afforestation shall beraised and maintained over double thedegraded forest land at the cost of theUser Agency.raised and maintained over double thedegraded forest land at the cost of theUser Agency.

3. The State Government shall charge theNet Present Value of the forest areadiverted under this proposal from theUser Agency as per the orders of theHon'ble Supreme Court of India dated30.10.2002 and 01.08.2003 in IA No. 566 inWP(C) No.202/1995 and as per theguidelines issued by this Ministry vide lettersNo. 5-1/1998-FC (Pt. 11) dated 18.09.2003,as well as letter No. 5-2/2006-FC dated03.10.2006 in this regard.Net Present Value of the forest areadiverted under this proposal from theUser Agency as per the orders of theHon'ble Supreme Court of India dated30.10.2002 and 01.08.2003 in IA No. 566 inWP(C) No.202/1995 and as per theguidelines issued by this Ministry vide lettersNo. 5-1/1998-FC (Pt. 11) dated 18.09.2003,as well as letter No. 5-2/2006-FC dated03.10.2006 in this regard.

4. Additional amount of the NPV of thediverted forestland, if any, becoming dueafter finalisation of the same by the hon'bleSupreme Court of India on receipt of thereport from the Expert Committee, shall becharged by the State Government from theUser Agency. The User Agency shall furnishan undertaking to this effect.diverted forestland, if any, becoming dueafter finalisation of the same by the hon'bleSupreme Court of India on receipt of thereport from the Expert Committee, shall becharged by the State Government from theUser Agency. The User Agency shall furnishan undertaking to this effect.

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10. While constructing approach roads, sufficientsafety measures should be adopted to avoidrolling down of muck/debris along the slopeand damage to forest area should beavoided.safety measures should be adopted to avoidrolling down of muck/debris along the slopeand damage to forest area should beavoided.11. All conditions stipulated at the time ofgrant of Environmental clearance shallbe complied with by the User Agency.As per the Environmental Clearance orderduring the lean season a minimum of 3cumecs water shall be released downstreamof the dam for the sustenance of aquatic life.grant of Environmental clearance shallbe complied with by the User Agency.As per the Environmental Clearance orderduring the lean season a minimum of 3cumecs water shall be released downstreamof the dam for the sustenance of aquatic life.

13. Any tree felling shall be done only whenit is unavoidable and under strictsupervision of the State ForestDepartment.it is unavoidable and under strictsupervision of the State ForestDepartment.

14. Planting of native tree species shaH beundertaken on vacant land along thereservoi.rs and canals.undertaken on vacant land along thereservoi.rs and canals.15. No tree felling in the area between FRLand FRL-4 in. levels shall be carried out.and FRL-4 in. levels shall be carried out.

16. Water will be provided free of cost tothe State Forest Department for raisingnurser6y/plantations in nearby areas.the State Forest Department for raisingnurser6y/plantations in nearby areas.

17. No labour camps shall be set up insidethe forest area. The User Agency shallprovide fuel wood preferably alternate fuel t:othe labourers and the staff working at thesite .the forest area. The User Agency shallprovide fuel wood preferably alternate fuel t:othe labourers and the staff working at thesite .

18. Nodamagetothefloraandfaunaofthearea shall be caused. The forest land shallnot be used for any purpose other than thatspecified in the proposal.area shall be caused. The forest land shallnot be used for any purpose other than thatspecified in the proposal.

19. All efforts should be made by the UserAgency for the protection of theenvironment and to avoid any damageto the Wild life found in the area. Stepsmay be taken to minimize biotic pressureover adjoining/near by forests.Agency for the protection of theenvironment and to avoid any damageto the Wild life found in the area. Stepsmay be taken to minimize biotic pressureover adjoining/near by forests.

20. All the components of the EnvironmentManagement Plan (EMP) shall beimplemented by the User Agency in co-ordination with the different agencies of theState Government.Management Plan (EMP) shall beimplemented by the User Agency in co-ordination with the different agencies of theState Government.

21. The Forest land thus diverted shall benon~transferable. Whenever and whateverextent of forest land is not required by theUser Agency, it shall be surrendered to theState Forest Department after properrehabilitation, under intimation to thisMinistry.non~transferable. Whenever and whateverextent of forest land is not required by theUser Agency, it shall be surrendered to theState Forest Department after properrehabilitation, under intimation to thisMinistry.

22. All other conditions that the CCF, NorthEast Regional Officer, Shillong mayimpose from time to time for theprotection and improvement of the floraEast Regional Officer, Shillong mayimpose from time to time for theprotection and improvement of the flora (`;-`-..`._..

and fauna in the forest area shall alsobe applicable.

The State Government shall ensurecompliance of all the above conditions.

Yours faithfully,

Sd/-

(A.K. JOshi)Assistant Inspector General of Forests"

20.8 These statutory clearances were also brought to thenotice of the Hon'ble Supreme Court in an InterlocutoryApplication No.2163 of 2008 in Writ Petition (C) No.202 of 1995(T. N. Godavarman Thirumalpad vs. Union of India) by way of anaffidavit filed by the Ministry of Environment and Forests,Government of India. In the said affidavit, the Ministry ofEnvironment and Forests, Government of India specificallymentioned that the recommendations and observations containedin the Carrying Capacity Studies and the pro].ect specificEnvironmental Impact Assessment (EIA) studies andEnvironment Management Plan (EMP) were considered by theExpert Appralsal Commlttee (EAC) for River Valley andHydroelectric Pro].ects constituted under the EnvironmentProtection Act, 1986 and that the EAC, after satisfyingthemselves, recommended Environmental Clearance for theprojects and subsequently Ministry had accorded Environmental rEB- Clearance for the Teesta-VI Pro].ect on 21.09.2006 and for TeestaStage-III on 04.08.2006 respectively.

20.9 The affidavit filed on behalf of the Ministry ofEnvironment and Forests, Government of India before theHon'ble Supreme Court in the lnterlocutory Application No.2163of 2008 in Writ Petition (C) No.202 of 1995, reads as hereunder:

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION (C) NO. 202 0F 1995

IN THE MATTER OF: -

T.N. Godavarman Thirumalpad ...Petitioner

Versus

Union of India and others ...Respondents

I.A. No. 2163 & 2167 IN IA No. 1413 REGARDING THECONSTITUTION OF THE FOREST ADVISORY COMMITTEE (FAC).&DIVERSION OF 89.4266 HA OF FOREST LAND FORCONSTRUCTION OF 500 MW TEESTA STAGE - VIHYDROELECTRIC PROJECT BY M/S LANCO ENERGY PRIVATELIMITED IN SIKKIM.

AFFIDAVIT ON BEHALF OF

MINISTRY OF ENVIRONMENT AND FORESTS

I, C.D. Singh, aged about 44 years, S/o Shri R.D. Singh,residing at G-72, Type -V, Nivedita Kun], R.K. Puram, Sector-10, New Delhi-110 022 do hereby solemnly affirm and state asunder:

1. That, I am working as Assistant Inspector General ofForests (F.C. Division), Ministry of Environment and Forest(MOEF), Government of India, and as such am well conversantwith the facts of the case from records maintained in the office.I have been authorized and directed to swear in this affidavit onbehalf of the Ministry of Environment and Forests, Governmentof India.

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2. That, the MOEF has filed Its response by way of anaffidavit dated 05.03.2008 on the observations of Fourth Reportof CEC dated 15.11.2007 in relation to Teesta-VI Project beforethis Hon'ble Court. The MOEF in I.ts affidavit has affirmed inPara 48(I) that the Carrying Capacity Study of the Teesta Riverwas carried out by the Centre for Inter Disclplinary Studies forHill and Mountain Environment (CISHME) to assess the impactof the envisaged development projects in Sikkim includlng sixhydroelectrlc projects identlfled for development in the TeestaRiver basin.

3. That, the CEC filed its supplementary report dated26.03.2008, wherein it further prayed that the forest clearancegranted to Teesta-Ill HEP may be kept in abeyance and furtherno permission be granted to Teesta-VI project till MOEF aftertaking into consideration the Carrying Capacity Studlesconcludes that the implemen'tation of these Projects isenvironmentally and ecologically compati`ble.

4. That, it is submitted that both these projects namelyTeesta-Ill and Teesta-VI are being implemented by the StateGovernment of Sikklm in Joint Sector on BOT basis. TheCarrylng Capacity Study by CISHME in association wlth sixother reputed institutions was started in 2001 and completed in2006 in four phases and relates to environmental aspects of thedevelopment projects including proposed hydroelectric projectsin Teesta basin in Sikkim. The phase-I report was received inthe Mlnistry durlng May 2003, Phase-II report durlng April,2005. As part of Phase-Ill, the draft final report alongwith the executive summary and recommendations wassubmitted to the Ministry of Environment & Forest byM/s CISHME in March 2006. M/s CISHME as part of Phase-IV i.e. the flnal phase of the Project, has conducted workshopsand seminars for the general public and the Govt. official toapprise them of the findings of the study and thereafter, MOEFhas directed M/s CISHME to revise the summary andrecommendations of the final report and clearly mentionwhether or not the dams would be constructed, aboveChungthang area in Teesta Basin. The revised ExecutiveSummary and recommendations of the Carrying Capacityit:fi=So°ffJ:::thab=:,Sj:o:;:;uhicmh]t::£t:sy€h[:tH%Eaj:e:t:developmental :activity is proposed in Teesta Basin, itshould be uncle+tar(en in the areas below Chungthang. Itwas further recommended that if the dams areabsolutely nec?ssary the same may not be of heightsabove 80 in.

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5. That, when the proposal for Site Clearance for TeestaProjects Teesta-Ill, Teesta-IV and Teesta-VI came up, Ministryhad already recelved the Draft Carrying Capaclty Studies. Thesite clearance proposals were further deliberated by theSrtdeemr:negt,ncgoTeT:tt.enego.T;:;r!'.ng5fa!::::::=::::i:!±:;:::;::a;:;;S::S::it:t:a:ai;:E::H[e;e::;:eelti±c:r:;i:::i:c:iigj::=:i:i:yi;:::;d`:::a§ts':;j'§°§if

i::§vj:::i:::jj:jn;t;r::;i::e:i:;:§j:s::o;ue::;±::jj:;;;I:::e;:;:a::::h:i:i;i:e:e;jet;5::;I:;;:s::r:u:C;::u,=§!i:±=bi:i:ti:::f[e¥dn:n:d=:E=¥:ie:r;e:6:::::uf:=::d:r:i:t:i:toe:£:i::::::n::e±:rr:::::::::jxoe:::::d::::::::i::i:::i::¥;r:::E=:Tiet:{'endq'und:]rshEenrL::;nm-ewn:teprrotet:,Cohnn°;°ctqYr±#while coiisiderinci the DroDosal for cirant of En\/ironmentclearance for Teesta Staqe-VI and Teesta Staqe-Illi=iiiithHHEFTEiiE.#iEiE=EEEEleEHEEEHEEEnvironmental Clearance for the[Teesta Sta][ e-VI Pro]=±±:=:o6 and for Teesta Stage-III on 04-08..2¥QfresDectivelv.

6. That, after the qrant of the Environme;ntalClearance to Teesta Staqe-VI and Teestacie Stac|eTIII,their Proposals for Forest Clearance were considered bvthe Forest Advisorv Committee f FAC` and after detailedand thorouqh examlnatlon of the I)roDosals forwardeq bv#:eGq::::TmM%nEtF:I:=f,,oWJtq?:;t:'hnassp:ectc`:::eepn°didfrt°r=diversion of forest land, takinq into account`, theE=::::::tT:snetaD'roc]':=a,noc= La7'trhe#Y ;::;in mend ed by the

7. That, Teesta-VI Is located at an altitude of only 3`40 inand is well below Chungthang ln South Sikkim. The projectinvolves construction of a barrage of about 25 in height With asmall diurnal pondage, which is well within the ceiling of 80 inheight recommended by CISHME in Its carrying capaclty studyof Teesta Basin in Sikkim. The study has also noted that thearea concernmed is already under significantly changed landuse and there will be no rna)or transformation of any,'naturalecosystems with the implementation of the project in fact thestudy reports that the local villages mostly extended theirsupport for the project and the Inhabitants of surrounding areaswelcomed the project expecting to get jobs and expar)d theirbusiness. Further the Environment Impact Assessmen,t (EIA)Study for Teesta Stage-VI was conducted by the Department ofForests, Environment and Wlld Life Management Plan (EMP) hasbeen formulated for this project. The EIA report contained acomprehensive study on the various base line parameters likewater, air, biological environment comprising of vegetation EEJ

EEJ

details, floristic study, fauna, aquatic ecology etc. and theprobable associated impacts and the mitigative measuresrelating to Project development and the same werecomprehensively dealt in the EMP which interalia covers thevarious measures like Rehabilitation and Resettlement Plan,Restoration Plan for Quarry areas and Spoil tips, Public healthand Solid waste management plan, Bio-Diversity ConservationPlan including Fishery Management, Soil Conservation andprotection plan, Greenbelt Development Plan, Catchmerit AreaTreatment Plan, Environmental Monitoring Scheme, andLandscape plan etc. In view of the above facts noted in thecarrying capacity study about the Teesta VI Project, theEnvironmental Clearance for Teesta Stage-VI was accorded on21.9.2006 after duly considering the Carrying Capacity Studies.This Ministry ls of the view that the implementation of theTeesta VI project is environmentally safe and ecologicallycompatible.

8. That, Teesta-III Droiect is located belowChunathana with the dam heiaht 60 in which is wellwithin the stipulated heiaht below 80 in as Per therecommendations of the Carrvinq CaDacitv Studies. It isfurther submitted that M/S WAPCOS (Government of Indiaundertaking concern) wlio were also involved in the CarryihgCapacity studies of Teesta Basin and were full knowleobservations of Carrying Capacity Studies, had prepdetailed EIA/EMP report for the Teesta Stage-Ill afterinto account the detailed data. The EIA report contain'ed adetailed study on the various base line parameters likewater, air, biological environment comprisin6 ofvegetation details, flora, fauna, fisheries, etc. and theprobable associated risks and the mitigative measuresrelating to the Project activity and the same werecomprehensively dealt in the EMP which interalia coversthe various measures like Rehabilitation andResettlement Plan, Local Area Development Programme,Muck Management Plan, Forest Protection plan, WildlifeConservation Plan, Bio-Diversity Conservation Plan,Reservoir Rim Treatment Plan, Disaster ManagementPlan, Dam Break Analysis, Fish Management Plan, SolidWaster Management plan, Greenbelt Development Plan,Quarry stablilization & Restoration plan, Public HealthDelivery System and Catchment Area Treatment Plan,etc. Sufficient mitigation measures have been proposed inconsultation with the State Forest Department and covered aspart of EMP to take care of environmental implications. It issubmitted that t:his Ministry had received a copy ofrepresentations regarding various apprehensions includingobservations relating to Carrying Capacity Studies. TheMinistry had forwarded the same to Teesta Ill HEPasking them to submit their responses to the aboveobservations. Teesta Ill HEP submitted a detailed r,eply inresponse to the said representations and the same were dulyconsidered by the EAC during the appraisal meeting held on28-6-2006 & 19-7-2006. It is further stated, all theEnvironmental Aspects including that of geologicalparameters of the project have been thoroughlyexamined and scrutinized by the various competentauthorities i.e. State Level Environmental Impact

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Assessment Committee, Expert Committee for lowerValley & Hydroelectric Projects of Ministry OfEnvironment and Forests, eta. before granting clearanceto the said project. As the Environmental Clearance wasaccorded on 4.8.2006 after duly considering the Cai.ryingCapacity Studies, the Ministry is of the view that tlieimplernentation of the Teesta Stage-Ill pi.oject isenvironmentally safe and ecologically viable andcompatible.

9. That an appeal was filed by Affected Citizens of Teesta,a NG0 against the grant of the Environmental aearance toTeesta Hydroelectric Project Stage-Ill under Section 11(1) ofthe National Environment Appellate Authority Act, 1997numbered as Appeal No. 8 of 2006. The issue of CarryingCapacity Studies was raised in the said Appeal. The NationalEnvironment Appellate Authority (NEAA) in its order dated 5thJuly, 2007 clearly stated:

EEEEEEEiiiEE|=FT±iEEif|iEreport and EMP reveals that EIA report throws evidenceto proper assessment of the environmental impact of theE=#u.ckEar::uL=::wlprohnnT®E:lLrqu::FmJa'#Conservation Plan, Fish Manaaement Plan eta.Dro\/e the Point of \/iew of tlie Respondents thatE[iiEETHi+ii¥ME±=iEEiEEi[EE=Tif±TiEF|i=±EI:±=HE|[EifEEpreservation of aquatic ecology of the river system byng]nat:i::t°¥h®:fB|¥EeE:;p.E¥E#rrt#.acthdrThL=mcam¥=drtedYedsE:?D°ron,|#¥b:hfReT.¥:!no,t::N.£a'.#R..LEProtective nature of EMP".

ii=E±:jHEItiifi+iEEii=i[iEITEEti=:ijEiJEE=EiifiHijfii|iifE¥i'i=iririEi!iiTi=¥ii:EEiiffFbqJL#::¥di#noq:offfin:'T=Hffiffun swing and irretrie\/able loss and damage would I)eccaused to the Teesta-Ill Project if the development andconstruction of the Project is stopped. The Ministrywhile considering the proposal for EnvironmentalClearance, lias noted that Teesta-III HEP is one Of thebest investigated projects (since 1974) in the State ofSikkim and all the apprehensions raised in the CarryingCapacity Studies were adequately covered and whichafter years of attempts is now being developed andconstructed by trie Company at an excellent pace wliich rdr- *i is reflected as under (as per the progress reportsubmitted by M/s Teesta urja Limited, vide dated02-04.08); More than Rs.900 Crore has been spent on the projectas on date.as on date.

The biggest financial closure in Joint Sector developmentof Hydro Power Project in the Country has beenachieved, wherein Rural Electrification Corporation (REC)leading a Consortium of Eleven (11) Nationalised Bankshad agreed to finance the debt of approximately toRs,4,500 crores for development of the Project.of Hydro Power Project in the Country has beenachieved, wherein Rural Electrification Corporation (REC)leading a Consortium of Eleven (11) Nationalised Bankshad agreed to finance the debt of approximately toRs,4,500 crores for development of the Project.

The contractor has mobilized men & machinery at theproject site and the Main Civil Works have been started.project site and the Main Civil Works have been started.

Labour camps have been established by the Contractorat Power House Site, Adjt V and Diversion Tunnel andthe same are under development at other sites.at Power House Site, Adjt V and Diversion Tunnel andthe same are under development at other sites.

About Fifteen Hundred (1500) workers are workinground the clock.round the clock.

Various important approach roads around 18 Kin fromthe existing North Sikkim Highway and the bridges toDam Site and Power House site etc. have been mostlycompleted.the existing North Sikkim Highway and the bridges toDam Site and Power House site etc. have been mostlycompleted.

Majority of the lnfrastructural works have beencompleted and Major Civil Works under progress.completed and Major Civil Works under progress.

A single day delay in the construction of theTeesta-III HE Project at current price wouldcause a loss of Rs.8 to 10 Crores a day.Teesta-III HE Project at current price wouldcause a loss of Rs.8 to 10 Crores a day.

Similarly for Teesta-VI, delay in implementation of the projectwill cause loss to the nation of more than Rs.2 crores per dayon account of delayed power generation from the project andcost over run due to delay in implementation of the project.

10. That, the Govt. of Sikkim has intimated to this Ministrythat they had constituted a Multidisciplinary Committee withrepresentatives from various disciplines of Forestry, Ecology,Wild Life, Agriculture, Social Justice, Disaster Management,WWF-Sikkim Branch, representatives from MOEF, FisheriesDepartment, etc. to oversee the effective implementation of thesuggested safeguard measures proposed in the EnvironmentalManagement Plan as approved by this Ministry and also tosuggest additional measures when ever required accordingly.Further, the project companies are obliged to comply with anyother additional safeguard measures pronounced subsequentlyas deemed required by this Ministry to ensure effectiveimplementation of the suggested safeguard measures in a timebound and satisfactory manner.

11. That, the country js already reeling under severe peakpower deficit of around 13 %, which is a direct result of adversehydro thermal ratio of 25:75 against the desired level of 40:60.

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This position needs to be corrected through execution of moreand more hydro power projects to generate environmentfriendly and peak power and reduce dependence on powergeneration based on fossil fuels which are contributingenormously towards atmospheric pollution and global warming.

12. That, in view of above, it may be noted that Ministry ofEnvironment and Forests has considered all aspects relatecl toCarrying Capacity Report before granting environmentalclearance to both Teesta Stage VI HEP and Teesta StageIIIHEP. Ministry once again recommends that permission fordiversion of 89.4266 ha of forest land (67.4295 for surface useand 21.9971 ha for undenground works) for construction of theTeesta VI HE Project may kindly be considered.

13. That, the Ministry recommends that the forest clearanceaccorded by this Hontole Court on 28.09.2007 and approved bythe MOEF vide letter no. 8-142/2006-FC dated 12.10.2007 forTeesta Stage-Ill HEP may kindly be continued.

14. That, as regards to Teesta Stage-IV project referred bythe CEC in its report is located in Dar]eeling Dist, Of WestBengal ITeesta Low Dam Stage-IV), the same is not covered inthe scope of Carrying Capacity Study, which was limitecl only tothe Teesta Basin in Sikkim.

15. I state that what is stated above is true and correct.

Sd/-DEPONENT

VERIFICATION

I, the above named deponent, do hereby verify that thecontents of the Paras 1 to 15 of this Affidavit are true andcorrect to the best of my knowledge derived from the recordsmaintained in the office and nothing material has beenconcealed there from.

Verified at New Delhi on this 24th day of April 2008

Sd/-

DEPONENT"

20.10 The affidavit filed by Ministry of Environement andForests, Government of India dated 24.04.2008 iscomprehensive and self-explaining. After perusal for the affidavitof the Ministry of Environment and Forests, Government of India, -`i``` `` -- the Hon'ble Supreme Court vide its order dated 25.04.2008observed that the Ministry may examine and pass appropriateorders. The Supreme Court thus accepted the recommendations,subject to the clearance by the Ministry of Environment andForests, Government of India. The Interlocutory Application wasdisposed of accordingly. It is, therefore, evident that all therequired statutory clearance were obtained and conditionsimposed thereunder were duly complied with and neitherthe petitioners nor the State has any grievance against therespondent No.3 for any non-compliance of therequirement of terms and conditions of the clearancesimposed by the competent authorities.

21.1(vii) Incorporation and functioning of therespondent No.3 with respect to theimplementation of the impugned project.

21.2 The relevant materials brought to my notice by Mr.Jayanta Mltra, learned Senior Counsel for the respondent No.3ensure that -

(i) incorporation of the respondent No.3 joint venturecompany, viz. a Special Purpose Vehicle, holding 74%equity shares for their consortium partners and allotting26 % of equity shares to the Government of Sikkim, of-:i_, _

course, with the approval of the Government of Sikkim, isfully in compliance with the power policy of the Governmentof Sikkim as well as the National Electricity Policy, 2005,which was formulated in compliance with Section 3 of theElectricity Act, 2003;

(ii) the respondent No.3 Company, a SpecialPurpose Vehicle, themselves has agreed to arrange thefunds for the State Government towards their 26% equityshares;

(iii) all the statutory clearances with stringentconditions in respect of the Project have been granted;

(iv) all the stringent conditions imposed in thestatutory clearance are duly complied with by the useragency i.e. the respondent No.3;

(v) the acquisition of the private land required forthe Project has been accomplished and the compensationamount has been distributed to the land owners;

(vi) the permission for diversion of forest landrequired for the Project has been obtained and the rf=`...---.

construction of the Civil Components of the Project are infull swing;

(vii) the site location for the impugned project isbelow Chungthang;

(viii) the height of the dam is restricted only upto 60'far below to 80';

(ix) the respondent No.3 has also initiated andimplemented various social welfare activities in the Projectarea such as holding of various Medical Camps;Afforestation; provision of Ambulance facility; Constructionof Community Centre has been commenced at ThengVillage; Sponsoring of various cultural activities. Furtherthe respondent No.3 has firmed up plans for improvementof education facilities, medical facilities, sanitation andwater supply in the Project area villages;

(x) Teesta Industrial Training & Development Centre(``TITDC'') has been started at Mangan to impart technicaltraining to the local youth;

(xi) out of the 26 kin. of the constructed roadsrequired for the Project, to provide access to the various work fronts and components, the construction of about 20kin. of the roads have been completed;

(xii) two bridges across River Teesta and RiverLanchungchu of the span of about 320 ft. and 80 ft.respectively have been constructed;

(xiii) underground component of the Project such asdiversion tunnel, access Adits to the Head Race Tunnel,Main Access Tunnel to the power house, Cable Tunnel worksare under way and as on today in total more than 400 in.length of tunnelling works have been completed and theconstruction works at various sites are going on round theclock;

(xiv) the Engineering, Procurement and Construction(EPC) Contractors have mobilized huge quantity of heavyconstruction plant, equipment and machinery and materialsat different work fronts. More than 1200 highly skilled,semi skilled and unskilled work force is actively engagedround the clock at various work sites;

(xv) labour camps have been established at worksites and other infrast'ructure like stores and workshops etc.have been constructed; fB----.-...

(xvi) M/s Energy Infratech has already completed thepreparation of Value Engineering Report, Design Report.The detailed construction Drawings of Left Bank DiversionTunnel, Adit Zero to Inlet Tunnel, Slope stabilization worksat Diversion Tunnel and Inlet to HRT, all construction Aditto the Head Race Tunnel & Head Race Tunnel, CableTunnel, Main Access Tunnel to Power House and OpenExcavation of Surge Shaft have been prepared and issuedto the EPC Contractor;

(xvii) PTC India Ltd. has executed the sharesubscription agreement with the respondent No.3;

(xviii) the Govt. of Sikkim is in the final stages ofapproving the share subscription agreement vide which theGovt. of Sikkim would subscribe to the equity share capitalof the respondent No.3; (xjx) the respondent No.3 is at advance stage of itsnegotiations with APGENCO, for participation;

(xx) the respondent No.3 achieved the financialclosure of the Project, wherein Rural ElectrificationCorporation Ltd (``REC'') leading the consortium of 11I;i:...._-.-.

nationalised Banks and Financial Institution sanctioned theDebt amounting to Rs.4560 crores for the Project and thecommon loan agreements have already been executed withthe lenders by the respondent No.3; REC had vide itssanction letter dated 23.12.2006 mandated that theEngineering, Procurement and Construction Contract (EPCContract) of the Project is to be awarded through theprocess of International Competitive Bidding route by the3rd respondent. Accordingly, the respondent No.3 floatedthe tenders for EPC Contract of Teesta Ill HEP;

(xxi) Larsen & Toubro (``L&T'') who has proposed to bethe equity investor and EPC contractor in the AthenaConsortium also presented its bid in response to suchtender for EPC Contract. One of the conditions of suchTender was that the successful bidder had to invest in theequity share capital of the respondent No.3 ;

(xxii) however, in a transparent bidding process whichprocess had been certified and rated by M/s ICRA Limited, apremier rating agency in the country which has beenincorporated by various Banks and Financial Institutions,the EPC Contract was awarded to the consortium lead byNavyuga Engineering Company (NEC) and consisting of SEW Constructions Ltd. -Abjr Construction Private Limited(ABIR) - M/s Sabir Dam & Water Works ConstructionCompany and M/s CKD Hydro Power Pvt. Ltd. The Electro-mechanical works have been awarded to a consortium ledby M/s VATech Hydro;

(xxiji) the role of Karvy Group, ICICI Securities andIL&FS, who were not the investing partners in the Athenaconsortium, was to Syndicate the Debt and Equity for theProject. The Pun].ab National Bank("PNB'') which is one ofthe Nationalised Bank in the Consortium of lenders led byM/s REC, as a term of sanctioning the debt mandated that itshould be given the role to syndicate the debt for theProject and accordingly PNB was given the said role. As ondate the paid up equity share capital of the respondentNo.3 is Rs. 383.82 crores and the REC led consortium hasalready disbursed an amount of Rs.676.52 crores torespondent No.3 as debt. The respondent No.3 wouldavail further services of M/s Karvy, M/s ICICI Securities andIL&FS as and when required;

(xxiv) the roleof M/sHalcrow&M/scolenco, whowere not the investing partners in the Athena consortium,was to provide engineering services for execution of the-'iv-.--.....

Project. The respondent No.3 after detailed deliberation onvarious types of Dam Structure decided to have ``ConcreteFaced Rock Fill Dam" (``CFRD") instead of Concrete GravityDam (``CGD'') for the Project. The services of M/s Energylnfratech Private Limited (``EIPL'') a premier companyproviding consultancy services from concept tocommissioning of the Power Pro].ects were engaged tolocate the companies who have expertise in construction ofCFRD Dam. M/s Tecsult of Canada and M/s Sogreah ofFrance were narrowed down as experts for execution ofCFRD Dam. M/s EIPL entered into Joint venture agreementwith the said two Companies for providing EngineeringServices for the Pro].ect. The expertise of M/s Halcrow andM/s Colenco would also be obtained as per therequirements of the Project, during the development of thedetailed designs and execution of the Pro].ect; and

(xxv) the Technical parameters and the Project costhas been certified by the Central Electricity Authority, whilegranting the Techno-Economic concurrence to the Pro].ect,under Section 8 of the Electricity Act, 2003 and therespondent No.3 is bound by the terms of suchconcurrence.EEE±

21,3 I am, therefore, convinced that incorporation ofrespondent No.3, a Special Purpose Vehicle, and itsfunctionillg with reference to imp[ementation of theimpugned project is strictly in accordance with law andnot arbitr.ary and She same is fair and transparent and alsoprotects the interest of the Stclte as well as the public.

22.1 (viii) Whether the implementation of the projectrequires any interference of this Court byway of Judicial Review.

Issues

22.2 It is the settled law that while exercising the power ofjudicial review under Article 226 of the Constitution of India, thisCourt is concerned only as to the decision making process, butnot as to the decision taken by the State Gover.nment. Ofcourse, while doing so, the Court should ensure that suchprocess is transparent, fair and reasonable.

22.3 It is true the Stal-e's action in commercial anclcontractual transactions with private parties must beinconsonance with Article 14 and the same should not beinfluenced by extraneous and irrelevant consideration. Ofcourse, even though public aiithoiities have some discretion incontracts having commercial element:, such discretion is not (-`€h --.`.`

absolute and must be governed by some norms and proceduresin public Interest and for public good as contended on behalf ofthe writ petitioners based on the decision of the Apex Court inSterling Computers Ltd. vs. M/s M & N Publications Ltd.and ofAers reported in (1993) 1 SCC 445. In the Instant case,It ls apparent on the face of the records, as discussed above, thataH the earlier attempts of the Government of Slkkim forinstallatlon of Hydro Electric Power Projects by a I.oint venturecould not succeed, in spite of their extensive efforts. After theenactment of the Electricjty Act, 2003 and the formulatlon of thenew National Electriclty Policy, 2005, giving free hand to theState Government to work out their own modules, the StateGovernment constituted a HIgh Powered Hydro PowerCommittee, who studied the issue in depth and recommendedthe Stat:e Power Policy, which was approved by the Cabinet andthen adopted by the Government of Slkkim by the Letter ofIntent dated 26.02.2005. The above decision maklng processadopted by the State of Sikkjm ls transparent, fair andreasonable. Once this Court arrives at a conclusion that thepower policy of the State is transparent, fair and reasonable, itmay not be proper for this Court to replace its own judgment inrespect of such policy of the State, more particularly in acomplex matter of this nature, which involves highly technlcal €fk .__

Issues, Hence, it may not be proper for t:hls Court, to interferew[th sijch decislon taken and the Agreement dated 28.07.2005entered Into pursuant to said Power Policy of the State of Sikkjmdated 26.02.2005.

22.4 The above conclusion is also fortified with thedecisions of the Apex Court, as referred to hereunder:

(i) In Sterling Computers Limited and Ors. Vs.

M & N Publications Limited and Ors reported in J993fz/ SCC 445, the Apex Court held as follows: -

12. Attjmes it is said that public authorities must havethe same liberty as they have jn framing the policies,even whi.Ie entering into contracts because manycontracts amount to jmplementation or proj.ection ofpolici.es of the Government. But it cannot be overlookedthat unlike policies, contracts are legally bindingcommitments and they commit the authority which maybe held to be a State withi.n t:he meaning of Article ¥ ofthe Constitution in many cases for years. That is why theCourts have impressed that even in contractual mattersthe public authori.ty should not have unfettered discreti.on.In contracts having commercial element, somemore discretion has to be conceded to theauthorities so that they may enter into contractswith persons, l<eeping an eye on the augmentationof the revenue. But even in such matters they haveto follow the norms recognised by Courts whiledealing with public property. It is not possible forCourts to question and ad].udicate every decisiontaken by an authority, because many of theGovernment Undertakings which in due course haveacquired the monopolist position in matters of saleand purchase of products and with so manyventures in hand, they can come out with a pleathat it is not always possible to act like a quasijudicial authority while awarding contracts. Undersome special circumstances a discretion has to be conceded to the authorities who have to enter intocontract giving them liberty to assess the overallsituation for purpose of taking a decision as towhom the contract be awarded and at what terms.If the decisions have been tal<en in bona fidemanner although not strictly following the normslaid down by the Courts, such decisions arc upheldon the principle laid down by Justice Holmes, thatCourts while judging the constitutional validity ofexecutive decisions must grant certain measure offreedoiti of "p±arjntt±'. to the executive.

13. But in normal course some rules must exist toregulate the selection of persons for awarding contracts.In such matters always a defence cannot beentertained that contract has been awardedwithout observing the well settled norms and rulesprescribed, on basis of the doctrine of "executivenecessity". The norms and procedures prescribedby Government and indicated by Courts to be morestrictly followed while awarding contracts whichhave along with a commercial element a publicpurpose as in the present case. The publication ofdirectories by the MTNL is not just a commercialventure; the primary object is to provide service tothe peop,e.

Xx

15. There is nothing paradoxical in imposing legallimits on such authorities by Courts even incontractual matters because the whole conception_ __.._.--v,|\|-I,,|\,||of unfettered discretion is inappropriate to a public-¢ |,-c_++___i i-_ -,-.authority, who is expected to exercise such powersonly for public good.--I.. £___ .___I_I.

17. It is true that by way of judicial review theCourt is not expected to act as a court of appealwhile examining an administrative decision and torecord a finding whether such decision could havebeen taken otherwise in the facts andcircumstances of the case. In the book AdministrativeLaw, Prof. Wade has said:

9``The doctrine that powers must be

exercised reasonably has to be reconciledwith the no less important doctrine that thecourt must not usurp the discretion of thepublic authority which Parliament appointedto take the decision. Wjthi.n the bounds of legalreasonableness is the area in which the deciding •` i ` _ ...- ` -.... `...

authority has genuinely free discretion.those bounds, it acts ultra vires. Thetherefore resist the temptation to drawtoo tightly, merely according to its own[::oeLt,Epoai::s:]opinion. Itmust strive to apply an objective standard whichleaves to the deciding authority the fun range ofchoices which legislature is presumed to haveintended. The decisions which are extravagant orcapricious cannot be legitimate. But if thedecision is within the confines ofreasonableness, it is no part of the court`sfunction to look further into its merits. "Withthe question whether a particular policy iswise or foolish the court is not concerned; itcan only interfere if to pursue it is beyond thepowers of the authority."

But in the same book Prof. Wade has also said:

``The powers of public authorities aretherefore essentially different from those ofprivate persons. A man making his will may,subject to any rights of his dependants, di.spose ofhis property ].ust as he may wish. He may act outof malice or a spirit of revenge, but I.n law this doesnot affect his exercise of his power. In the sameway a private person has an absolute power toallow whom he likes to use his land, to release adebtor, or, where the law permits, to evict tenant,regardless of his motives. This is unfettereddiscretion. But a public authority may do noneof these things unless it acts reasonably andin good faith and upon lawful and relevantgrounds of public interest.

There are many cases in which a publicauthority has been held to have acted fromImproper motives or upon irrelevantconsiderations, or to, have failed to take account ofrelevant considerations, so that it:s action is ultravi.res and void."

18. While exercising the power of judicial revi w,In respect of contracts entered into 6n behalf ofState, the Court is concerned primarily aswhether there has been any infirmity in||J__=_..___ 1."decision malting process". In this connection___--_ `---` ,,,, in+|\Greference may be made to the case of ChiefConstable of the North Wales Police v. Evans (1982)3 All ER 141, where it was said that: (p.144a)

___--_ `---` ,,,, in+|\G

"The purpose of ].udicial review" ..is to ensure that the individual receives fair fir----------.

I.

:rfteeartamc::rt6,nagndfarr°ttret:t:nesnut:eretahcahte:h:naauii°art'::iwhich it is authorised or en].oined by law to decidedfor itself a conclusion which is correct in the eyes ofthe court.''

By way of judi.cial revi.ew the Court cannot examinethe details of the terms of the contract which havebeen entered into by the public bodies or the State.Courts have inherent limitations on the scope of any suchenquiry. But at the same time as was said by the Houseof Lords in the 55 aforesaid case, Chief Constable of t:heNorth Wales Police v. Evans (supra), the Courts cancertai.nly examine whether "decision malting process'.was reasonable, rational, not arbitrary and violativeof Article 14 of the Constitution.

19. If the contract has been entered into withoutignoring the procedure can be said to be basic in natureand after an objective consideration of di.fferent optionsavailable taking into account the interest of the Stateand the public, then Court cannot act as anappellate aiithority by substituting its opinion inrespect of selection made for entering into suchcontract. But, once the procedure adopted by anauthority for purpose of entering into a contract isheld to be against the mandate of Article 14 of theConstitution, the Courts cannot ignore such actionsaying that the authorities concerned must havesome latitude or liberty in contractual matters andany interference by Court amounts to encroachmenton the exclusive right of the executive to take suchdecision.

(ii) In Tata Cellular Vs, Union of India reported inAIR Z996 SC ]1, the Apex Court further held as follows: -,

113. The principles deducible from the above are:

(1) The modern trend points to judicialrestraint in administrative action.

(2) The Court does no sit as a court of appealbut merely reviews the manner in which thedecision was made.

)

(3) The Court does not have the experti`se ;tocorrect tlle administrative decision. If areview of the administrative decision ispermitted it will be substituting its owndecision, without the necessary expertisewliich itself may be fallible.

(4) The terms of the invitation to tenderthe invitation to tender is in the realm of===n=_t`...b.=...PpeT te jusl-ic.ial scrutEn;-b=-c==s~=contract. Normally speaking, the decision toaccept the tender or award the contract isreached by process of negotiations throughseveral tiers. More often than not, suchdecisions are made qualitatively by experts.

(5) The Government must have freedom ofcontract. In other words, a fairplay in thejoints is a necessary concomitant for anadministrative body functjoning in anadministrative sphere or quasi-administrativesphere. However, the decision must not onlybe tested by the application of Wednesburyprinciple of reasonableness (including itsother facts pointed out above) hut must befree arbitrariness not affected by bias oractuated by mala fides.

(6) Quashing decisions may impose heavyadministrative burden on the administrationand lead to increased and unbudgetedexpenditure.

(iii) In Raunaq International Limited Vs. I.V.R.Construction Ltd. & Ors. reported in AJR ]999 SC 393,the Apex Court also held as follows: - i:-`.```i--.``

\.

9. The award ofa contract, whetherit is by aprivate party or by a public body or the State, isessentially a commercial transaction. In arrMng ata commercial decision considerations which are ofparamount importance are commercialconsi.derations. These would be :(1) The pricewhich the other side is willing to do the work;Whether the goods or services offered are ofrequisite specifications; (3) Whether the persontendering has the ability to deliver the goods orservices as per specifications. When large workscontracts involving engagement of substantialmanpower or requiring specific skjlls are to beoffered, the financial ability of the tenderer to fulfilthe requirements of the job is also important; (4)the ability of the tenderer to deliver goods orservices or to do the work of the requisite standardand quality; (5) past experience of the tenderer,and whether he has successfully completed similarwork earlier; (6) time which will be taken to deliverthe goods or services; and often (7) the abili.ty ofthe tenderer to take follow up action, rectifydefects or to give post contract services. Evenwhen the State or a public body enters into acommercial transaction, considerations whichwould prevail in its decision to award the contractto a given party would be the same. However,because the State or a public body or an agency ofthe State enters into such a contract, there couldbe, in a given case, an element of public lawOrpublic interest involved even in such atransaction.

10. What are these elements of public I.nter(1) Public money would be expended forpurposes of the contract; (2) The goods orwhich are being commissioned could be for apurpose, such as, construction of roads, pbuildings, power plants or other public utilitiesThe public would be directly interested in the timelyfulfilment of the contract so that the servicesbecome available to the public expeditiously. (4)Thheepwuobr'ic#:dit:'kse°nbeointgeor::tsedsLnp;I,:dqug;'tyth°6ftenderer. Poor quali.ty of work or goods can lead totremendous public hardship and substantialfinancial outlay either in correcting mistakes or inrectifying defects or even at times in re-doing th:eentire work - thus Involving larger outlays or publi,cmoney and delaying the availability of services,facilities or goods, e.g. A delay in commissioning apower project, as in the present case, could lead topower shortages, retardat:ion of industria.I

(ill---.

development, hardship to the general public andsubstantial cost escalation.

11. When a writpetition is filed in the High courtchallenging the award of a contract by a publicauthority or the State, the court must be satisfiedthat there is some element of public interestinvolved in entertaining such a petition. If, forexample, the dispute is purely between twotenderers, die court must be very careful to see if:::re,,::g:t|5n:'eAme:ter°efpd|fbf::e'nnct:r::t'tnhvt°'Vperfc::offered by the two tenderers may or may not bedecislve in deciding whether any public interest isinvolved in intervening in such a commercialtransaction. It is important to bear in mi`nd thatby court intervention, the proposed projectmay be considerably delayed thus escalatingthe cost far more than any saving which thecourt would ultimately effect in public moneyby deciding the dispute in favour of onetenderer or the other tenderer. Therefore,in disputes between two rival tenderers.

12. When a petition is filed as a public int:erestlitigation challenging the award of a contract by theState or any public body to a particular tenderer,the court must satisfy itself that party whichhas brought the litigation is litigatingbonafide for public good. The public interestlitigation should not be merely a cloak forattaining private ends of a third party or ofthe party bringing the petition. The court canexamine the previous record of public servicerendered by the organisation bringing publicinterest litigation. Even when a public interestlitigation is entertained the court must be careful toweigh conflicting public interests beforeintervening. Intervention by the court mayultimately result in delay in the execution of theproject. The obviov: consequence of such delay isprice escalation. If any re-tendering is prescribed,fost of the project can escalate substantially. Whatis more important, ultimately the public would haveto pay a much higher price in the form of delay inthe commissioning of the project and theconsequent delay in t:he contemplated publicservice becoming available to the public. If it is apower project which is thus delayed, the .`8`

.`8`

public may lose substantially because ofshortage in electric supply and theconsequent obstruction in industrialdevelopment. If the project is for the constructionof a road, or an irrigation canal, the delay intransportation facility becoming available or thedelay jn water supply for agriculture beingavailable, can be a substantial set back to thecountry's economic development. Where thedecision has been taken bonafide and a choicehas been exercised on legitimateconsiderations and not arbitrarily, there is noreason why the court should entertain apetition under Article 226.

Xxxx

22. In Tata Cellular v. Union of India,:AIR1996SC11, this Court again examined thescope of judicial review in the case of a tenderawarded by a public authority for carrying outcertain work. This Court acknowledged thatthe principles of judicial review can apply tothe exercise of contractual powers byGovernment bodies in order to preventarbitrariness or favouritism. However, there areinherent limitations in the exercise of that power ofjudicial review. The Court also observed that theright to choose cannot be considered as anarbitrary power. of course, if this power isexerclsed for any collateral purpose, the exercise ofthat power will be struck down. "Judicial quest inadministrative matters has been to find the rightbalance between the admlnistrative discretion todecide matters and the need to remedy anyunfairness. Such an unfairness is set right byI.udicial review." After examinlng a number ofauthorities, the Court concluded (at page 687) asfollows :-

(1) The modern trend points to judicialrestraint in administrative action.

(2) The court does not sit as a court of appealbut merely reviews the manner in which thedecision was made.

(3) The court does not have the expertise tocorrect the administrative, decision. If areview of the administrative decision ispermitted it will be substituting its owndecision, without the necessary expertise,which itself may be fallible.

i;-`.-.-.

(4) The terms of the invitation to tender cannot beopen to judicial scrutiny because the invitation totender is in the realm of contract.

(5) The Government must have freedom ofcontract. In other words, a fair play in thejoints is a necessary concomitant for anadministrative body functioning in anadministrative or quasi-administrativesphere. However, the decision can be tested bythe application of the "Wednesbury principle" ofreasonableness and the decision should be freefrom arbitrariness, not affected by bias or actuatedby mala fides.

(6) Quashing decisions may impose heavyadministrative burden on the administration ,andlead to increased and unbudgeted expenditure.

23. The same view has been reiterated inAsia Foundation and Construction Ltd. v.Trafalgar House Construction (I) Ltd. andOrs., : (1997)1SCC738 , the court observing thatjudicial review of cont:ractual transactions byGovernment bodies is permissible to preventarbitrariness, favouritism or use of power forcollateral purposes. This Court added a furtherdimension to the undesirability of intervention bypointing out that where the project is a high costproject for which loans from the World Bank orother international bodies have been obtained afterfollowing the specifications and procedure of such abody, it would be detrimental to public interest tointerfere. The same principles have been';. alsoreaffirmed in New Horizons Limited andAUnion of India and Ors.,: (1995)1SCC47€this Court again emphasising theia7eA8e?#`allow for certain flexjbility in admindecision-malting, observing that thecan be challenged only on theprinciple of unreasonableness i.e. unledecision is so unreasonable that no sensible personwould have arrived at such a decision, it should notbe upset. In Delhi Science Forum and Or5. v.Union of India and Anr.,: [1996]2SCR767 `A thisCourt once again observed that if a reasonable3::Cu:gurneothabseb:::,,::I:::e€'xctehpetdoenc:F:::Wednesbury principle of unreasonablenes£.

24. Dealing with interim orders, this `Courtobserved in Assistant Collector of Central E\xcise,Chandan Nagar, West Bengal v. : 1985ECR4(SC)

(..-) ..._...

that an interim order should not be granted withoutconsidering balance of convenience, the publicinterest involved and the financial impact of aninterim order. Similarly, in Ramniklal N. Bhutta andAnr. v. State of Maharashtra and Ors„AIR1997SC1236 , the Court said that whilegranting a Stay the court should arrive at a properbalancing of competing interests and grant a Stayonly when there is an overwhelming public interestin granting it, as against the public detriment whichmay be caused by granting a Stay. Therefore, ingranting an Injunction or Stay order against theaward of a contract by the Government or aGovernment agency, the court has to satisfy itselfthat the public interest in holding up the project faroutweighs the public interest in carrying it outwithin a reasonable time. The court must alsotake into account the cost involved in stayingthe project and whether the public wouldstand to benefit by incurring such cost.

25. Therefore, when such a Stay order isobtained at the instance of a private party or evenat the instance of a body litigating in publicinterest, any interim order which stops the projectfrom proceeding further, must provide for thereimbursement of costs to the public in caseultimately the litigation sta.rted by such anindividual or body fails. The public must becompensated both for the delay in implementationof the project and the cost escalation resulting fromsuch delay. Unless an adequate provision .is madefor this in the interim order, the interim order mayprove counter-productive.

22.5 Testing the Power Policy of the Government ofSikkim dated 26.02,2005, and the Agreement dated18.07.2005 entered into between the Government ofSikkim and the respondent No.3, incorporation of therespondent No.3 and its functioning with reference toimplementation of the impugned project, in the light of the •--_=-,--.- I

JL

Elm

ratios laid down by the Apex Court referred to above, I amsatisfied that the same do not suffer from any infraction ofdecision making process or infirmity of weH settled legal )princip,es.

23.1 (ix) Decision.

23.2 From the above detailed discussion, there cannot bean Iota of doubt that the Teesta Stage-III Hydro Electric Project,a mega pro].ect, is one of the few best Projects in the world,which has been investigated, surveyed and studied for decades.The impugned Teesta Stage-Ill Hydro Electric Project was foundmost beneficial not only for the State of Sikkim but also for theNation. It could not be executed for various reasons Including theconstraints imposed by Government of India and its inflexiblepolicy towards the Central Sector Proj.ects, which did not meetthe speclfic needs of the State of Sjkkim, vlz. free power share,transfer of project after the license period free of cost to theState Government, preference to the local employment, socio-economic welfare measures guaranteed to the people of thelocality, etc. The Teesta Stage-Ill Hydro Electric Pro].ect thushad suffered nearly two decades delay with a loss of about onemlllion units of power generation so far. Any further delay would -`-`` -I: -...

J,

t!t

mean a loss of fourteen million units per day. More delay wouldalso mean an enhanced cost of construction, delay in realisationof power benefits to the Nation and delay in realisation of freepower revenue to the State of Sikkim, i.e. nearly 1.6 million unitsper day tantamounting to Rs.32,00,000/-per day, more delay increation of employment and infrastructure in the State of Sikkim,more delay in completing the ownership of asset by Sikkim afterlicense period, shattering of investor confidence which may causedelay in all above benefits from an t:he projects put together, etc.The impugned hydel power project is, therefore, the onlymaximum revenue earner for the State in the coming years andany delay will further constrain the progress of the State.

23.3 In fine, I am convinced that:

(i) NHPC did not agree with the terms of theGovernment of Sikkim and therefore thecontention of the petitioners that Government ofSikkim deliberately avoided NHPC is not correct;

(ii) the Government of Sikkim, having experiencedgreat delay and difficulty in developing the HydroElectric Project in the State through competitive ffiB-

bidding process or route, rightly decided todevelop their own model of a joint venturecompany with the participation of the privatedevelopers as per the National Electricity Policy,2005, which were formulated jn compliance withSection 3 of the Electricity Act, 2003;

(iii) these terms of the power policy of theGovernment of Sikkim, viz. the Letter of Intentdated 26.02.2005, are fully in consonance withthe National Electricity Policy, 2005 dated12.02.2005 and provides for a transparent, fairand reasonable method for identifying the IPP,which is apparently beneficial to the State ofSikkim;Government of Sikkim, viz. the Letter of Intentdated 26.02.2005, are fully in consonance withthe National Electricity Policy, 2005 dated12.02.2005 and provides for a transparent, fairand reasonable method for identifying the IPP,which is apparently beneficial to the State ofSikkim;

(iv) the decision of the State Government soundsreasonable. No reasonable person could haveany grievance against the Power Policy of theGovernment of Sikkim or against the process ofselection of respondent No. 3 for implementingthe impugned pro].ect, as rightly contended on-_-.) __ ....--reasonable. No reasonable person could haveany grievance against the Power Policy of theGovernment of Sikkim or against the process ofselection of respondent No. 3 for implementingthe impugned pro].ect, as rightly contended on-_-.) __ ....-- ¥*`

behalf of the State of Sikkim, as the same weretransparent, fair and reasonable;

(v) the terms and conditions of the said Agreementdated 18.07.2005, which are neither irrationalnor arbitrary nor unreasonable nor against anyprovisions of law nor opposed to public policy noropposed to public interest. And they arereasonable and in consonance with the ElectricityAct, 2003 and the National Electricity Policy,2,005 and also ensures the interest of the publicas well as of the State;

(vi) all the required statutory clearance wereobtained and conditions imposed thereunderwere duly complied with and neither thepetitioners nor the State has any grievanceagainst the respondent No.3 for any non-compliance of the terms and conditions of suchstatutory clearances imposed by the competentauthorities.obtained and conditions imposed thereunderwere duly complied with and neither thepetitioners nor the State has any grievanceagainst the respondent No.3 for any non-compliance of the terms and conditions of suchstatutory clearances imposed by the competentauthorities.

(-`;i...`` --

*,

(vii) incorporation of respondent No.3 , a Special

(-`;i...`` --

*,

(vii) incorporation of respondent No.3 , a Special Purpose Vehicle, and its functioning withreference to implementation of the impugnedpro].ect is strictly in accordance with law, fair andtransparent; and also protects the interest of theState as well as the public; and the same isneither arbitrary nor unreasonable; and

(viii) testing the Power Policy of the Government ofSikkim dated 26.02.2005 and the Agreementdated 18.07.2005 entered into with therespondent No.3 and incorporation of therespondent No.3 and its functioning withreference to implementation of the impugnedproject, in the light of the ratios laid down by theApex Court referred to above, I am satisfied thatthe same do not suffer from any infraction ofdecision making process or infirmity of wellsettled legal principles.

24. Issue No. (iii) is answered in the negative.

`

25. The Writ Petition is, therefore, dismissed as devoid ofmerits and want of legal contentions with cost of Rs.50,000/-(Rupees fifty thousand) which shall be paid to the Stateexchequer by the petitioners jointly and severely.

--:;::i -(P.D. Dinakaran, CJ)/4 .10.2010

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