SHREE RENUKA SUGARS LIMITED v. STATE OF KARNATAKA DEPARTMENT OF ENERGY
2021-07-20
M.NAGAPRASANNA
body2021
DigiLaw.ai
ORDER : Cluster of these petitions raise a common issue of interpretation of a contract -Power Purchase Agreement[PPA-for Short] entered into between the Karnataka Power Transmission Corporation Ltd.,[ KPTCL -for Short] and the petitioners. 2. The petitioners are companies engaged in the business of manufacturing sugar and its allied products and also produces steam and electricity through its bagasse based cogeneration units situated at respective places. 3. Since all the petitions raise a common issue, they are taken up together and disposed by this judgment. 4. The KPTCL had long ago issued commissioning certificates to bagasse based co-generation power plants. It is since then, the co-generation plants have been in the business of generation of electricity in the plants established at various places in the State. But there was no decision from the hands of the Government approving an agreement being entered into between the co-generation with the KPTCL or ESCOMs for purchase of power. It is for the first time, the Government approved purchase of power from bagasse based co-generation plants. 5. The issue in the present lis emanates from that Government Order dated 11.11.2016 issued approving purchase of power from bagasse based co-generation plants that are generating power, but did not have subsisting PPA with the Electricity Supply Companies[ESCOMs for Short]. It is after the Government Order, the respondents 2 to 6 ESCOMs entered into PPA in respect of co-generation power plants for procurement of 501 MWs. round the clock (RTC) power on medium term basis for a period of 5 years, which according to the agreement was from 02.01.2017 to 01.01.2022. In W.P.No.10349/2021, the PPA is entered into on 17.02.2017 and the claim is that it would be in subsistence for 5 years thereafter. 6. In furtherance of the PPA entered between ESCOMs and the petitioners, the Karnataka Electricity Regulatory Commission[KERC for Short] (hereinafter referred to as the ‘KERC’ for short) passed an order determining the tariff for purchase of power from bagasse based co-generation power plant on 11.04.2017. 7. During the subsistence of the aforesaid events -i.e., the agreement and the determination of the tariff by the Commission, the petitioners submitted certain representations to draw power in terms of the PPA till the expiry of its validity i.e., 1.1.2022, on an apprehension of foreclosure of the PPA.
7. During the subsistence of the aforesaid events -i.e., the agreement and the determination of the tariff by the Commission, the petitioners submitted certain representations to draw power in terms of the PPA till the expiry of its validity i.e., 1.1.2022, on an apprehension of foreclosure of the PPA. That representation having not met its consideration at the hands of the respondents filed a writ petition in W.P.No.15677/2020 to consider the representation and declare PPA to be valid till 1.1.2022. In the wake of the respondents continuing to accept the power beyond 1.1.2021 the petitioner withdrew the writ petition to approach this Court in the case of need. 8. Long after the aforesaid proceedings, the second respondent-Corporation issued a communication on 06.03.2021 KERC for Short contending that the PPA was valid till 31.03.2021 and the Corporation would not be liable to pay for the energy injected by the petitioner with effect from 01.04.2021 onwards. It is this communication that is called in question by the petitioners in this writ petition. 9. Heard Sri.P.N.Manmohan and Sri.Shridhar Prabhu, learned counsel appearing for petitioners in these cluster of petitions, Sri.S.Sriranga, learned counsel for the Corporation and Sri.B.N.Prakash, learned counsel for the Commission in all these cases. 10. Learned counsel appearing for the petitioners, would in unison, submit that the agreement that was entered into between the Corporation and the petitioners is to be construed to be in subsistence for a period of 5 years from the date of commissioning/commencement of the agreement and not in terms of what is indicated in the term of agreement and would submit that 5 years has to commence from the date on which the commencement of power supply happened after entering into the PPA i.e., on 02.01.2017. 10.1. Learned counsel would rely on Section 64(5) and (6) and 86(b) and (e) of the Electricity Act, 2003[Act for Short] to contend that even the tariff that is indicated by the Commission will have to be in operation till the subsistence of the agreement which would be 5 years from the date on which it commenced. 11.
10.1. Learned counsel would rely on Section 64(5) and (6) and 86(b) and (e) of the Electricity Act, 2003[Act for Short] to contend that even the tariff that is indicated by the Commission will have to be in operation till the subsistence of the agreement which would be 5 years from the date on which it commenced. 11. On the other hand, learned counsel Sri.S.Sriranga would refute these contentions with vehemence that the petitioners have no right to contend that the Corporation should purchase power from them beyond the period of contract i.e., financial year 2021, as according to him, the contract was for a period of 5 years from 2016-17 to 2020-21 and would further submit that the Commission had determined tariff for the purchase of power from the hands of the petitioners and the Corporation as on date has no tariff to be paid to the petitioners. Therefore, they cannot be saddled with any payment of tariff for the electricity that they generate or inject into the Corporation for distribution. 12. I have given my anxious consideration to the submissions made by the learned counsel appearing for the respective parties and have perused the material on record, in furtherance whereof, the issue that falls for my consideration is, ‘Whether the PPA entered into between the parties would continue to operate from the date of its commencement or in terms of Clause 8.1 which depicts term of agreement in the contract?’ 13. To consider the issue certain clauses of the PPA are required to be noticed, and are the following.
To consider the issue certain clauses of the PPA are required to be noticed, and are the following. Clause 1.1 defines what is a ‘Contract Period’ and ‘Effective Date’ and reads as follows: “Contract Period shall mean period of 5 years from the date of commencement of power supply after signing of PPA.” “Effective Date means the date of execution of PPA” The ‘Term’ is also defined in the contract which reads as follows: “Term means the term of the Agreement as defined in clause 8.1” Clause 8.1 which is the bone of contention reads as follows: “8.1 Term of the Agreement: Term of the Agreement: This Agreement shall become effective upon the executing and delivery thereof by the Parties and unless terminated, shall continue to be in force for such time until the completion of a period of five (5) years from the date of commencement of power supply i.e.2016-17 to 2020-21.” Therefore, it is the interpretation of these clauses of the PPA that is to be done in the lis at hand. 14. It is not in dispute that the PPA was entered into between the parties pursuant to the Government Order dated 11.11.2016 when the Government approved the purchase of power from bagasse based co-generation plants, which the petitioners are. In furtherance of the said Government order, the PPA was entered into on 2.1.2017. 15. Clause 8.1 (supra) defines ‘Term of the Agreement’. The term of agreement would be 5 years from the date of commencement of power supply. It is qualified to be from 2016-17 to 2020-21. It is on this qualification clause 8.1, the respondents have now stalled the purchase of power or payment of tariff, as according to them, the term, in terms of clause 8.1, has come to an end. 16. Clause 8.1 cannot be read in isolation or in segregation without looking into other clauses of the contract. The definition of ‘Contract Period’ (supra) in the agreement would depict 5 years from the date of commencement of power supply after signing the PPA. The Effective Date also would mean that effective date of execution of PPA. The Term is defined as term of the Agreement as defined in clause 8.1.(supra). 17.
The definition of ‘Contract Period’ (supra) in the agreement would depict 5 years from the date of commencement of power supply after signing the PPA. The Effective Date also would mean that effective date of execution of PPA. The Term is defined as term of the Agreement as defined in clause 8.1.(supra). 17. A conjoint reading of the aforesaid clauses of the agreement would in unmistakable terms indicate that the 5 years period of the contract would commence from the date of commencement of the power supply, after signing the PPA. The signing of the PPA is on 02.01.2017. Therefore, in my considered view, the contract period shall mean 5 years from 2.1.2017 which would end on a sheer calculation on 1.1.2022. The action of the respondents in issuing the impugned communication that they would not purchase power in terms of the PPA with effect from 31.03.2021 is neither here nor there, as it is neither in terms of the agreement or on a rationale that it would end on the financial year 31.3.2021. It is at best the ipse dixit of the Corporation. Therefore, I hold that the agreement entered into between the parties for a period of 5 years would commence and be in operation for a period of 5 years from 2.1.2017 and 17.02.2017 respectively. TARIFF: 18. The next question that arises for consideration is, the submission of the learned counsel appearing for the respondents with regard to there being a vacuum in tariff, as the learned counsel would submit that beyond 31.03.2021 they have no mandate of a tariff from the hands of the Commission and this vacuum cannot be saddled upon the ESCOMs for payment of a particular amount without there being any determination by the Commission and would submit that the petitioners have to be relegated to the Commission for a determination of fresh tariff in the light of the agreement ending on 31.3.2021. 19. This submission is again unacceptable for the reasons indicated (supra) that I have held that agreement has not come to an end on 31.03.2021, insofar as the tariff which the learned counsel for the respondents would submit, it is necessary to notice Section 64 of the Act which deals with procedure for tariff order.
19. This submission is again unacceptable for the reasons indicated (supra) that I have held that agreement has not come to an end on 31.03.2021, insofar as the tariff which the learned counsel for the respondents would submit, it is necessary to notice Section 64 of the Act which deals with procedure for tariff order. Sub-section (4) and (6) of Section 64 of the Act, which are germane are extracted for the purpose of quick reference: “(4) The Appropriate Commission shall, within seven days of making the order, send a copy of the order to the Appropriate Government, the Authority, and the concerned licensees and to the person concerned. (6) A tariff order shall, unless amended or revoked, shall continue to be in force for such period as may be specified in the tariff order.” (Emphasis supplied) In terms of the afore-extracted provision of law it makes it unmistakably clear that a tariff order unless amended or revoked shall continue to be in force, for such period, as may be prescribed in the tariff order. In the light of the said provision of law, it is now necessary to notice and consider the tariff order. 20. It is not in dispute that both the petitioners and the ESCOMs were before the Commission seeking determination of tariff for purchase of power from bagasse in terms of PPAs that they had entered into. The Commissioner by his order dated 11.04.2017 directed a particular amount of tariff to be in operation for a period of 5 years. The order passed by the Commissioner reads as follows: “15) issue No.(5): What Order?
The Commissioner by his order dated 11.04.2017 directed a particular amount of tariff to be in operation for a period of 5 years. The order passed by the Commissioner reads as follows: “15) issue No.(5): What Order? For the foregoing reasons, we pass the following: ORDER (a) The tariff payable per unit for the energy supplied from the Cogen Plants commissioned in different years during the period from 2005 or earlier to 2014, shall be as detailed below: Year of commissioning FY 17 (Rs.Ps.) FY 18 (Rs.Ps.) FY 19 (Rs.Ps.) FY 20 (Rs.Ps.) FY 21 (Rs.Ps.) VC ---) 3.14 3.32 3.51 3.71 3.92 2005 and earlier 3.98 4.16 4.35 4.55 4.76 2006 3.96 4.14 4.33 4.53 4.74 2007 3.95 4.13 4.32 4.52 4.73 2008 4.01 4.19 4.38 4.58 4.79 2009 4.08 4.26 4.45 4.65 4.86 2010 4.58 4.76 4.95 5.15 5.36 2011 4.71 4.89 5.08 5.28 5.49 2012 4.85 5.03 5.22 5.42 5.63 2013 4.91 5.09 5.28 5.48 5.69 2014 4.96 5.14 5.33 5.53 5.74 (b) The Cogen Plants commissioned within one year after the commencement of the generic Tariff Order dated 1.1.2015 shall be treated as having been commissioned during the year 2014 for the applicability of the tariff; (c) The Cogen Plants commissioned within one year after the commencement of the Effective Date of the generic Tariff Order dated 11.12.2009 shall be treated a having been commissioned during the year 2009 for the applicability of the tariff; (d) If any of the Cogen Plants referred to in (b) and (c) above could produce evidence to establish that, the whole or a substantial part of the Project Cost was incurred by it in the year 2015 or 2010, as the case may be, the Commission would then revise the tariff suitably in such cases; (e) The owners of the Cogen Plants shall produce the Commissioning Certificates in proof of the date of commissioning of the Cogen Plants/any of its Units, before entering into a PPA with the ESCOM concerned; (f) The owners of the Cogen Plants, who are entering into PPAs with the ESCOMs for sale of energy, as per the tariff determined in this Order, shall do so within one month from the date of this Order, failing which, they shall not have any claim for entering into a PPA with any ESCOM; and (g) Office is directed to keep this original Order in OP No.38/2016 and copies thereof in the other connected Petitions herein.” In terms of the mandate of law i.e., sub-section (6) of Section 64 of the Act, the tariff that is determined was in tune with the agreement.
The agreement that is interpreted by this Court is its commencement and subsistence up to 1.1.2022. Therefore, the tariff that was already determined which was to be in co-terminus with the agreement will remain co-terminus with the commencement and ending of the agreement as made by this Court (supra). Therefore, the tariff that was determined by the Commission which was hitherto being paid to the petitioners by the ESCOMs shall continue to operate and be binding on the parties till the subsistence of the agreement up to 1.1.2022. 21. The literal or liberal interpretation of a contract would frustrate the object for which it is entered into between the parties. Therefore, it has become necessary to ignore the pendulum between the literal or liberal interpretation of a contract and venture into contextual and purposive interpretation, so that the object for which the contract is entered into does not get obliterated. The Government Order that permitted the ESCOMs to enter into PPA with the petitioners and the like was only on 11.11.2016. Even if that date is taken into consideration, the contract would not have ended on the date on which the impugned communication is passed. Therefore, it is common sense that the 5 years of the agreement would begin from the date on which it is entered into i.e., on 2.1.2017. It is trite that Court sense is not the enemy of commonsense. Therefore, the inescapable interpretation of the term of contract of 5 years would be, to be beginning on 02.01.2017 and not any ipse dixit opinion of the respondents. 22. Insofar as the contention of the learned counsel for the respondents with regard to relegating the petitioners to the Commission for a determination of tariff, afresh, is concerned, the same would not be a necessity at this juncture, in the light of Section 64(6) of the Act as indicated hereinabove, the tariff that was hitherto being paid to the petitioners would continue to be the tariff that would be in subsistence till the subsistence of the agreement. Therefore, the submission is noted, only to be rejected. 23. For the aforesaid reasons, the following: ORDER (i) Writ Petitions are allowed. (ii) The impugned communication dated 06.03.2021 issued by respondent No.2 in all the cases stands quashed. (iii) The petitioners would be entitled to all consequential benefits that would flow from the quashing of the impugned order.
Therefore, the submission is noted, only to be rejected. 23. For the aforesaid reasons, the following: ORDER (i) Writ Petitions are allowed. (ii) The impugned communication dated 06.03.2021 issued by respondent No.2 in all the cases stands quashed. (iii) The petitioners would be entitled to all consequential benefits that would flow from the quashing of the impugned order. (iv) The respondent-ESCOMs to continue the contract till its subsistence, up to 01.01.2022 except as otherwise provided for its termination. (v) The respondent-ESCOMs to continue the contract till its subsistence, up to 16.02.2022 insofar as it concerns W.P.No.10349/2021 except as otherwise provided for its termination. Ordered accordingly. In view of disposal of the petitions, all pending applications would not survive for consideration and stands disposed.