Jindal Thermal Power Company Ltd. vs Karnataka Power Transmission … on 8 April, 2004

JUDGMENT

S.R. Nayak, J.

1. The appellant, namely, Jindal Thermal Power Company Limited is a Company incorporated under the provisions of the Companies Act, 1956 engaged in the generation and supply of power in the State of Karnataka. Karnataka Power Transmission Corporation Limited, for short, The ‘KPTCL’, the first respondent herein, is a Company established under the provisions of the Companies Act, 1956 pursuant to the enactment of the Karnataka Electricity Reforms Act, 1999, for short, ‘the Act’ whereunder the Karnataka Electricity Board, the KEB, for short, was trifurcated into three Companies. Respondent No. 2 is Government of Karnataka (GOK).

2. Pursuant to the Notifications and the subsequent clarifications issued by the Government of India in March 1992 setting out the norms for determining the tariff payable to the generating Companies, by an order dated 7th March, 1994, approval was granted by GOK to the appellant for setting up a power project of 300 MW and selling power directly to industrial units, with the balance to KPTCL (the erstwhile KEB). As per the tariff fixed according to the norms laid down by Government of India (GoI), the order stated various advantages of setting up of the power project in the region. The order laid-down the guidelines and conditions on which approval was granted to the appellant. The Detailed Project Report (DPR) of the appellant, the order of GOK dated 7th March, 1994 and affidavit dated 10th October, 2001 of KPTCL filed before the Karnataka Electricity Regulatory Commission, Bangalore, for short, ‘the Commission’, would bring out the acute power shortage in the State of Karnataka and show justification for securing needed power for the State grid. The DPR states that the project was set up to supply around 150 MW of power without break to its steel plant and 100 MW power to the State grid. As per the GoI policies dated 9th October, 1995; 6th November, 1996 and 9th December, 1997 distinction is made between Captive Power Plant (CPP) and an Independent Power plant (IPP). The CPP has to be approved under Section 44 of the Electricity (Supply) Act, 1948, for short, the ‘Supply Act’ whereas an IPP would be approved under Sections 29 to 31 of the Electricity (Supply) Act, 1948, for short the ‘Supply Act’. As per the appellant, its plant is an IPP as it has fully complied with the provisions of Section 29 to 31 of the Supply Act for setting up of the Scheme and with the provisions of Section 43A of Supply Act for sale of electricity. KEB, in its letter dated 1st March, 1995 to the Central Electricity Authority (CEA) had clarified that the appellant is an IPP. On 30th March, 1995, the appellant and KEB signed Heads of Terms for a Wheeling, Banking and Grid support agreement. On 7th December, 1995 an Amended and Restated Power Purchase Agreement was entered into by Jindal Vijayanagar Steel Limited (JVSL) and the appellant for supply of power, which agreement was subsequently amended on 12th December, 2001. On 22nd December, 1995, GoK, in support of the project, conveyed its approval for allotment of land by KSIDC. On 23rd January, 1996 a Wheeling and Banking Agreement was entered into by the appellant with the KEB whereunder as per Clause 2.4, KEB agreed to Wheeling and Banking the energy generated by the appellant. Further, as per the terms of the said agreement, the appellant agreed to sell and KPTCL agreed to buy excess power on the terms to be agreed between parties and was also allowed the sale of excess surplus power to other industrial units in the State. GoK by its order dated 1st February 1996 once again confirmed that the appellant is an IPP. By its order dated 13th February 1996, GoK approved the modification of the capacity of the power plant from 240 MW to 260 MW. Further, GoK by its order dated 2nd March, 1996 gave its consent under Section 43-A of Supply Act and GoI by its Notification dated 30th March, 1992 accorded permission to the appellant to sell power to customer at mutually negotiated rates. The appellant also obtained the required approval from the CEA, Central Water Commission, Ministry of Environment and Forest and the Karnataka State Pollution Control Board for setting up an Independent Power Plant. The power plant was the first major Independent Power Producer in the private sector using a combination of cortex gas and coal as fuel in the State of Karnataka and was established under international competitive bidding. With the support of KPTCL and the GoK, the Techno-Economic clearance was obtained from the CEA by the appellant for establishing of the Power Plant of 2X130MW.

3. On 20th October, 1998 tariff calculations for 20 years and proposal for sale of power on the basis of GOI Notification with a rebate on Two-Part tariff was submitted by the appellant to KEB, with a request to grant the approval for the same. By its letter dated 21st November, 1998, the appellant submitted its offer for sale of power to KPTCL giving various options, including an offer with discount on Two-Part tariff. As per Two-Part tariff norms stipulated by GoI/CEA, for initial period of 5 years, tariff fixed was Rs. 2.90 per unit allowing escalation at 5% from the second year onwards. KEB by its letter dated 1st December, 1998 stated that it was in principle willing to purchase power from the appellant and the proposal relating to tariff was being evaluated by it. By its letter dated 19th January 1999, KPTCL informed GoK that the appellant has offered 100 MW on a guaranteed basis at tariff of 2.90 per unit. KPTCL recommended to GOK that it can buy power from the appellant at Rs. 2.60 (Fixed Cost Rs. 1.70 + Variable Cost Rs. 0.90) per unit with fixed cost being escalated by 5% from the second year onwards. In response to the aforesaid letter, GOK by its letter dated 5th March, 1999 asked KPTCL to negotiate a fixed Single-Part tariff instead of Two-Part tariff for 5 years. That led to several rounds of discussions on tariff between the parties and different methods of computation on tariff were also examined. After several rounds of consultations and negotiations, finally, at a meeting held on 26th March, 1999, the offer of the appellant on tariff was accepted by the KEB subject to the following terms and conditions: (i) term would be for 5 years; (ii) tariff should be a single part tariff with a fixed percentage of escalation applied on the total profit. KEB will not accept for Two-Part tariff for payment of tariff on actual Cost; (iii) KEB will provide a letter of credit on escrow mechanism; (iv) penalty” should be provided for short supply and short drawals; (v) the PPA should be a simple document.

4. By its letter dated 31st March, 1999, the appellant submitted its formal proposal on the basis of the negotiations conducted at the meeting held on 26th March, 1999 for sale of power at Rs. 2.60 per unit with an escalation of 5% each year. Minimum supply of power was guaranteed by the appellant to KPTCL and penalties of short supply and short drawals were stated. KPTCL by its letter dated 23rd April 1999, proposed two options to GoK: (i) fixed cost being escalated by 5% every year with variable cost being a pass through or (ii) rate of Rs. 2.60 (including fixed and variable cost) if escalated by 5% every year with other issues to be taken up at the time of finalisation of PPA. As the rupee had been depreciating heavily against the US Dollar, KPTCL recommended that the second proposal, that is, Rs. 2.60 per unit to be escalated every 5 years and requested, for orders to be obtained and communicated to it GoK independently examined all issues relating to the tariff and after necessary discussions with the KPTCL, by its order dated 12th May, 1999 approved tariff at Rs. 2.60 per unit with escalation of 5% each year, on the basis of the least cost tariff criterion for a term of 5 years.

5. When the matter stood thus pursuant to the enactment of the Karnataka Electricity Reforms Act, 1999, for short “the Act”, the Commission came into existence with effect from 1st June, 1999 Several rounds of discussions took place between the parties to finalise other terms and conditions (apart from tariff, escalation and tenure) of the PPA. While the terms were being discussed between the appellant and KPTCL, both the parties performed their respective obligations of selling and purchasing power and payments were also made at the rate of Rs. 2.60 per unit as per the contract dated 12th May, 1999. During this period, CRISIL was appointed by the KPTCL as its internal consultant to review the tariff rate of Rs. 2.60 per unit. CRISIL’s report suggested lower tariff and based on the said report the tariff was reduced to Rs. 2.52 by GOK. On re-examination of CRISIL’s report, GoK rejected the findings in the report and GoK itself revised the tariff to Rs. 2.60 per unit so as to honor its contractual obligations made to the appellant in its earlier order dated 12th May, 1999.

6. When the matter stood thus, the PPA was reviewed by the Commission and by its order dated 22nd May, 2002 (First Impugned Order), the contractual rate of Rs. 2.60 per unit was reduced by the Commission to Rs. 2.36 per unit with escalation of 2.5% each year. The Commission also held that the appellant is CPP and not IPP. Certain terms were given to the parties by the Commission to renegotiate the tariff on the basis of the guidelines laid down in the First Impugned Order.

7. In pursuance of the First impugned Order, meeting was held to discuss and renegotiate on the tariff, but no results were achieved as KPTCL treated the parameters laid down in the First Impugned Order as a ceiling rather than a basis for renegotiations. In view of the stand taken by the KPTCL, the appellant expressed its inability to reduce tariff, but, however, expressed its willingness to negotiate tariff based on Two-Part formula for a longer term of around 10 to 15 years.

8. The Commission by its order dated 8th July, 2002 (Second Impugned Order) confirmed the first impugned order and approved the draft PPA submitted by KPTCL. The tariff rate was reduced to Rs. 2.36 per unit up to 657 MUs and Rs. 1.88 per unit beyond 657 MUs with yearly escalation of 2.5%.

9. The appellant being aggrieved by the First Impugned Order and Second Impugned Order has preferred this appeal under Section 41 of the Act challenging the validity of the same. Interim Application No 1 of 2002 was filed in this appeal seeking stay of impugned orders. Interim Application No. 2 of 2002 was filed seeking leave of this Court to allow certain documents which could not be produced before the Commission. Interim Order was passed by this Court in Interim Application No. 1 of 2002, on 19th November 2002. This Court keeping in view the balance of equities and in order to be fair to both sides, by the interim order increased the rate from Rs. 2.36 to Rs. 2.48 with escalation of 5% with effect from November 2002. This Court also ordered recovery at 10% per month of the computed arrears until the payments related to the earlier periods were fully adjusted. When the matter stood thus, the appellant filed interim application No. 3 of 2002 seeking clarification of the interim order dated 19th November 2002. That LA was dismissed by this Court by its order dated 19th December, 2002. Thereafterwards, the appellant has filed a memo with a request to expunge certain remarks in the Interim Order by this Court dated 19th December, 2002 which are said to be adverse to the appellant.

10. Before we refer to the contentions of the learned Counsel for the parties, it is appropriate that we should consider I.A-II of 2002 filed by the appellant under Order 41, Rule 27, read with Section 151 CPC for production of additional documentary evidence. The said IA was filed on 31.07.2002. Although the said IA was posted before the Court for hearing and orders umpteen numbers of time, commencing from 17.08.2002 and onwards, somehow, no order was made on the IA. Records disclose that none of the respondents have filed any statement of objections to I.A-II of 2002. In paragraphs 4 and 5 of the affidavit filed in support of the IA it is stated thus:

“4. The Impugned Orders are passed by the Hon’ble Commission without considering the defense raised by the Appellant and the objections stated in its letter dated 20th June 2002. The Hon’ble Commission has passed the Impugned Order without any reasons on various issues and ignoring relevant factors. The Impugned Orders have raised significant questions of law before this Hon’ble Court. The Appellant needs to file additional evidence in order substantiate its appeal and in support of the question of law and grounds in the Appeal, which the Appellant could not have produced before the Hon’ble Commission as there arise out of the Hon’ble Commission Impugned Order. The additional evidence is in the interest of justice and shall assist this Hon’ble Court to determine the Appeal.

5. The additional evidence are certain relevant correspondences between the Appellant, the Respondents (Government of India) relating to the matter, comparative charts of the Hon’ble Commission proving that the tariff rates of the Appellant are one of the lowest and newspaper reports and are undisputed citing the same. The additional documents that the Appellants seeks leave to file are attached as Annexures to this Interlocutory Application. For the sake of convenience of this Hon’ble Court a single compilation of documents filed before the Hon’ble Commission and before this Honb’le Court is annexed. The Appellant craves leave to refer to and rely upon the documents filed before the Hon’ble Commission.”

The documents sought to be produced as additional evidence are the correspondences between the parties, Government Orders, agreements, policy decisions, allotment orders etc., and they are relevant materials for decision-making. The respondents fairly, according to us, rightly did not oppose the application by filing statement of objections. Objections were not raised even during the final hearing of the appeal. Hence, we allow I.A-II of 2002 as prayed for.

11. We have heard Dr. A.M. Singhvi, Senior Advocate for appellant, Sri Nagananda, learned Counsel who appeared on behalf of M/s Sundaraswamy, Ramdas and Naganand for KPTCL, Sri K.P. Asokumar, Learned Additional Government Advocate for GOK, Sri K.G. Raghavan, learned Counsel for Dua Associates for the Commission, Sri Promod Khatavi, learned Counsel for R-4, Sri X.M. Joseph, counsel for R.6; Sri V.K. Somasekhar, counsel for R-7.

12. Dr. Singhvi, at the threshold, would contend that 3rd Respondent Commission cannot be impleaded as a party to the appeal inasmuch as it is neither proper nor necessary party to the appeal. Alternatively, Dr. Singhvi would contend that even assuming that the Commission can be impleaded as a party to the appeal because its orders are impugned in the appeal, nevertheless, the Commission cannot be permitted and is not entitled to contest the appeal on merits. Elaborating the above contention, Dr. Singhvi would contend that the Commission being a statutory adjudicatory authority cannot take sides with the contesting parties on merits and it should leave it to the concerned parties to work-out legal remedies against its orders by way of appeal or otherwise. Dr. Singhvi would emphasize that if the Commission is allowed to contest the issue brought before this Court on merits, its image as an impartial statutory authority which is vested with power to determine tariff affecting the rights of the parties would be impaired and its integrity would be doubted. Looking from that angle also, Dr. Singhvi would contend that it is highly improper, unfair and unjust for the Commission to put in appearance through a counsel in this appeal, file statement of objections and contest the appeal on merits with abnormal tenacity and contentiously Dr. Singhvi would contend that a bar should be imposed on the Commission by this Court particularly because the Commission is a quasi-judicial body performing judicial functions in pursuance of the powers conferred upon it under various provisions of the Act. Dr. Singhvi meeting the contention of the learned Counsel for the Commission, that the Commission is not discharging judicial or quasi-judicial functions, would submit that even accepting that, that is the fact, the Commission is undeniably required to act judiciously being a statutory authority.

13. Dr. Singhvi would next contend that there existed a concluded contract on tariff between the parties prior to 01.06.1999 in terms of Explanation to Section 19 and the proviso to Section 27(2) of the Act and, therefore, the Commission has no jurisdiction to review the tariff particularly when the proviso to Section 27(2) of the Act is restricted to tariff determination. Dr. Singhvi would submit that there is sufficient evidence on record to show that there was a concluded contract on tariff before 01.06.1999. Dr. Singhvi would next contend that the finding of the Commission that the appellant is a Captive Power Plant and not an Independent Power Plant is ex facie erroneous and in reaching that conclusion, the Commission has completely ignored relevant evidence adduced before it. Dr. Singhvi would also contend that the impugned order suffers from certain errors apparent on its face. Elaborating the contention, Dr. Singhvi would submit that the Commission having opined that the fixed charges should be paid for 657 MUs, it has wrongly calculated the fixed charges for 487 MUs while fixing the tariff. Further, the Commission having determined that the Incentive Payment charges shall be Rs. 0.952, in arriving at the tariff rate Incentive payment charges are taken as Rs. 0.924 per unit. Dr. Singhvi would contend that if the aforementioned two errors are corrected the tariff would increase to Rs. 2.54 per unit even as per the Commission’s own calculations. Dr. Singhvi would, therefore, conclude that the impugned order of the Commission suffers from vices of arbitrariness and non-application of mind. Dr. Singhvi would submit that in fixing the tariff, the Commission has taken into account irrelevant considerations and left out relevant considerations. Dr. Singhvi would next contend that this is an eminently fit case where doctrines of promissory estoppel and legitimate expectation should be applied. Dr. Singhvi would point out that GOI policy guarantees 16% return of equity at Plant Load Factor of 68.5% and provides incentive for higher Plant load Factor and the above rates are in line with the rates obtaining in other generating Companies. Since the appellant has performed its part of the contract on the belief that it would be entitled to the performance of reciprocal promises made by KPTCL and GoK, the KPTCL and GoK should be estopped from going back upon promises made to the appellant. Dr. Singhvi would also point out that the terms of tariff agreement entered into between the parties is quite reasonable and they in no way affect the public interest. On the other hand, according to Dr. Singhvi the consumers of Karnataka are getting power at the cheapest rate available in the state.

14. Sri Nagananda appearing for the KPTCL, on the other hand, would contend that the contention of the appellant that there was a concluded contract on tariff even before the Act came into force is untenable. The proposal of the appellant for the sale of power dated 31.3.1999 itself makes the offer conditional on the approval of the Board of the Company and approval of the lenders. Further, the Government Order dated 12.05.1999 permitting KPTCL to finalise a PPA with the appellant is also subject to approval of the Government. Further, the same Government Order directs the KPTCL to negotiate with the appellant with regard to the tariff. Furthermore, the Government vide its corrigendum dated 08.05.2000 reduced the price indicated in Government Order dated 12.05.1999 from Rs. 2.6 to Rs. 2.52. The Government vide order dated 17.7.2000 withdrew the corrigendum dated 08.05.2000. In the interregnum, KPTCL appointed CRISIL, an independent consultant to look into the matter of tariff and the CRISIL gave report stating that the price were to be fixed at Rs. 2.35 and after all these negotiations and exercises, the PPA was prepared and initialled only on 07.11.2000 and, therefore, it cannot be said that prior to 01.06.1999 there existed a concluded contract on tariff between the parties. Sri Nagananda would also contest the tenability of the argument of Dr. Singhvi that the appellant is an IPP and not CPP. Sri Nagananda however, would submit that the Commission cannot determine the tariff and that it can only approve or disapprove the PPA/ tariff filed.

15. Sri K.G. Raghavan, learned Counsel appearing for the Commission, would contend that the Commission is created under the Act as a Regulator with extensive power. Sri Raghavan would contend that a Regulator stands on a completely different footing from a judicial or quasi-judicial authority. Regulators are empowered to, regularly appear before appellate fora to defend the orders passed by them, According to Sri Raghavan, the functions of the Commission enumerated under Section 11 of the Act will have to be understood in the above context. The broad sweep of powers that the Commission is mandated to exercise is expressly traceable to the Act. The Act is, inter alia, intended for the purpose of rationalisation of the generation, transmission, distribution and supply of electricity in the State and generally for taking measures conducive to the development and management of the electricity industry in the State in an efficient, economic and competitive manner; to provide reliable quality power and to protect the interests of the consumers including vesting in the Commission the power to regulate the activities of the power sector in the State and other matters connected therewith or incidental thereto. The Statement of Objects and Reasons of the Act reflects this position loudly. Although the Commission performs and discharges various functions and acts in multiple capacity, when it fixes rates or tariffs, it acts in a purely legislative capacity and, therefore, the impugned order of the Commission cannot be treated as an outcome of the exercise of quasi-judicial power by the Commission as contended by learned Senior Counsel for the appellant. Sri Raghavan would vehemently contend that the Commission has not only the power, but also the duty to defend its orders fixing the rates or tariffs before appellate fora, According to him, the Commission while fixing the tariff does not adjudicate a lis between the parties, but only provides a hearing to all the stakeholders. Sri Raghavan would further contend that the scheme of the Act would clearly indicate that the tariff at which the licensee purchases power has a direct effect on the tariff that the licensee can charge to the consuming public. Since the Commission is a custodian or trustee of consumer interest, the right to defend its order before this Court cannot be denied. Since it is the considered opinion of the Commission that the impugned tariff is fixed after taking into account all relevant factors, it is under a statutory obligation to participate in any proceedings that challenges the same in the collective interest of the entire community of stakeholders in furtherance of its obligation under the Act.

16. Sri Raghavan would contend that the entitlement of the Commission to appear before this Court in the appeal and support its orders is no longer res integra in the light of the judgment of the Apex Court in WEST BENGAL ELECTRICITY REGULATORY COMMISSION v. CESC LTD., , Sri Raghavan, meeting the contention of Dr. Singhvi, would submit that the offer of the appellant for supply of power to KPTCL was made for the first time as late as on 21. 11.1998. Sri Raghavan would contend that the contract in question between the appellant and the KPTCL was concluded only after 01.06.1999, that is to say, after the Act came into force. Sri Raghavan would thus conclude by contending that as on 01.06.1999 there existed no concluded contract of the nature covered under the proviso to Sub-section (2) of Section 27 of the Act and, therefore, there was no merit in the contention that the impugned fixation of tariff is one without jurisdiction.

17. Sri Raghavan, meeting the next argument of Dr. Singhvi that fixation of tariff is arbitrary, unreasonable and without application of mind, would submit that the Commission having taken into account all relevant factors, the norms relating to heat rate, plant load factor, auxiliary consumption and secondary fuel oil consumption factors, have fixed the rate. According to Sri Raghavan, the detailed computation of the tariff is more than apparent on a mere perusal of the impugned order, and especially paras 70-75 as well as the comprehensive computation of fixed cost, variable cost and incentive for the appellant. Sri Raghavan would contend that the impugned tariff fixed on the basis of detailed consideration of all the above factors cannot be successfully challenged on the ground of being arbitrary and perverse. Sri Raghavan would contend that the appeal call be preferred under Section 41 of the Act to this Court against the order of the Commission fixing rate of tariff only on questions of law and it is not permissible for the appellant to question the correctness of the findings of fact. Sri Raghavan would add that the impugned tariff fixation by the Commission is essentially in the nature of a legislative function and, therefore, the Court is bound to show deference and cannot lightly interfere with such function.

18. Sri Pramod Khatavi, learned Counsel appearing for Respondent No. 4, Sri X.M. Joseph, learned Counsel appearing for Respondent No. 6 and Sri V.K. Somashekar, learned Counsel appearing for Respondent No. 7 would adopt the arguments of Sri Nagananda and Sri K.G. Raghavan.

19. After hearing the learned Counsel for the parties, following points arise for decision:

(I) Whether the Karnataka Electricity Regulatory Commission-Respondent No. 3 can be added as a party respondent to the appeal and whether it is entitled to defend the impugned order on merits?

(II) Whether there existed a binding contract between the appellant and the KPTCL on the tariff prior to commencement of Karnataka Electricity Reform Act, 1999 with effect from 01.06.1999, in terms of Explanation to Section 19 and proviso to Section 27(2) of the Act? if the answer is in the positive, whether the Commission has jurisdiction to review the tariff particularly when the proviso to Sub-section(2) of Section 27 is restricted to tariff determination and does not require a PPA to establish a concluded contract?

(III) Whether the status of the appellant is that of an IPP or CPP?

(IV) Whether the impugned orders are perverse, arbitrary and passed without application of mind?

(V) Whether the Commission has failed to appreciate the appellant’s rights grounded on the principles of promissory estoppel and legitimate expectation?

POINT NO. 1.

20. The appellant did not implead the Commission as a party respondent to the appeal. When I.A-I of 2002 for stay filed by the appellant was posted before the Court for hearing on 17.08.2002, the Court itself thought it appropriate to hear the Commission on LA for stay before passing order on that I.A. Therefore, the Court on 17.08.2002 directed the appellant to give notice to the Commission to file reply and make submissions, if any, on the question of interim relief. We have perused the interim order made by the Court on 17.08.2002. It is seen that on 17.08.2002 during the course of hearing, Dr. Singhvi contended that the Commission is neither necessary nor proper party to the appeal, but, he submitted that if the Court ultimately felt that the authority (Commission) should be made a party that he has no objection in doing so “without prejudice to his basic argument that the KERC is not either a necessary or essential party”. The conditional concession made by Dr. Singhvi on behalf of the appellant is specifically noted by the Court in its order. The contention of Dr. Singhvi that the Commission is neither necessary nor proper party to the appeal was left open by the Court for being considered at a later stage. It needs to be noticed that except the direction of the Court to the appellant to serve notice of I.A-I of 2002 for stay on the Commission, at no stage of the proceedings, the Court directed to implead the Commission as a party respondent to the appeal. However, the office of the Court has added the Commission as respondent No. 3 to the appeal. In terms of the liberty reserved for the appellant vide older dated 17.08.2002, Dr. Singhvi advanced his arguments in support of the contention that the Commission is neither a necessary nor a proper party to the appeal.

21. It is the contention of the appellant that the role of the Commission in approving the PPA is not legislative, but quasi-judicial. Therefore, a quasi-judicial authority cannot take side when its quasi-judicial order is assailed before the Appellate Court and it should leave it to the parties to work out legal remedies available to them. It is highlighted that if a quasi-judicial authority is permitted to defend its own order before the Court above, it would send a wrong signal to all the concerned that, that quasi-judicial authority is taking sides and that it is abnormally interested in upholding the correctness and legality of its order. Coming to the facts of this case, it is further urged that even assuming that in tariff fixation the Commission is required to take public interest in general and the interest of the consumers in particular, having regard to the sources and strength of the contesting parties- KPTCL and GoK in this appeal to defend the impugned orders effectively, there is absolutely no necessity for the Commission to put in appearance and defend its own order as if there is nobody to defend the impugned orders.

22. Per contra, Sri Raghavan, learned Counsel for the Commission would submit that the Commission has four broad functions under the Act, viz. (i) Licensing under Sections 18, 19(4)(d), 21 and 22, (ii) Fixation of tariff which is a legislative function under Sections 27(1), 27(2)(d) and (e), (iii) Acting as an arbitrator (quasi-judicial function) under Section 29 ; and (iv) Performing other functions specified in Sub-section (1) of Section 11 of the Act. Sri Raghavan, however, would fairly submit that whether a particular function of the Commission is quasi-judicial, legislative or administrative, will depend upon the nature of such function of the Commission. Sri Raghavan would submit that if the function of the Commission is quasi-judicial, the Commission need not be made a party to the appeal, but if the impugned order of the Commission is the outcome of a legislative function of the Commission, the Commission is entitled to be impleaded as a party to the appeal and it is also entitled to defend its order inasmuch as it is charged with a duty to protect the interest of the consumers and to implement the provisions of the Act. Sri Raghavan would contend that the question whether the Commission is required to be impleaded as a party-respondent to the appeal is no longer res integra and that question is already settled by the Supreme Court in WEST BENGAL ELECTRICITY REGULATORY COMMISSION v. CESC LTD (supra) Sri Raghavan would also contend that even assuming that there is no lis between the parties, the Commission is obligated to defend its order impugned in this appeal in terms of Section 11(2) of the Act.

23. Having heard the learned Counsel for the parties, the question that arises for decision is whether the impugned order could be regarded as an outcome of a quasi-judicial function of the Commission. If it is not the outcome of a quasi -judicial function of the Commission, the next question to be considered is whether the function undertaken by the Commission which has resulted in passing of the impugned order, is required to be judicious or in other words, whether the Commission was required to act judiciously, if not as a quasi-judicial forum. If the answer to either of the two questions is in the positive, it is trite, the Commission, even as per Sri Raghavan also, need not be made a party to the appeal. If the answer to both the questions is in the negative, the next question to be considered is whether the impugned order is a legislative action of the Commission, and, if so, whether it is entitled to be impleaded as a party-respondent to the appeal and to defend the impugned order.

24. It is well settled by the judgments of the Supreme Court in UDIT NARAYAN SINGH v. BOARD OF REVENUE, , MUHAMMED EAMUAL HAQUE v. MUHAMMED J. HUSSAIN, Civil Appeal No. 985 of 1963 decided on 5.5.1964 (SC), PEPSI FOODS LTD. v. SPECIAL JUDICIAL MAGISTRATE AND ORS., , JASBIR K SEHGAL v. DISTRICT JUDGE DEHRADUN, , MD. OMER v. S. NOORUDIN, , R.T. AUTHORITY v. SRI RAM, and PUZHAKKAL EDAM ALIAS PUTHEW EDON v. KUNCHAPPAN, that when an order of a Court or quasi-Judicial body is assailed before an Appellate Court or an Appellate Forum, such Court or quasi-judicial body need not be made as a party to the proceedings.

25. The Supreme Court in UDIT NARAYAN SINGH’S case (supra) held that in an appeal against the decree of a subordinate Court, the Court that passed the decree need not be made a party. The Supreme Court made a distinction between an appeal against a decree or an order and a writ of certiorari to quash the order of a Tribunal or authority. Since this appeal is a regular statutory appeal preferred to this Court under Section 41 of the Act against the order of the Commission, on the same parity of reasoning, it can be said that the Commission need not be made a party to the appeal.

26. The Supreme Court in MUHAMMED ENAMUAL HAQUE’s case (supra) held:

“There is neither practice nor binding authority to support the contention raised by the counsel for the Respondent that in a proceeding for an order under Art. 227 of the constitution it is necessary to implead the Court or tribunal against the order for which the proceeding is initiated by the High Court. By entertaining a petition under Article 227, the High Court does not seek to exercise jurisdiction to issue any prerogative writ -jurisdiction which the High Court exercise under Article 227 is of superintendence – a jurisdiction somewhat analogous to the revisional jurisdiction which the High Courts for a long time past have been invested under diverse statutes. To a proceeding invoking jurisdiction of the High Court under 227 of the constitution the tribunal was not a necessary party, and in an appeal against the order passed in personam against the appellant in that proceeding the tribunal is not a necessary party.

27. In SRI RAM’s case (supra), the Allahabad High Court dealing with the question whether the authorities which are quasi- judicial authorities should be impleaded as party respondents when the orders made by them are assailed in a writ proceeding under Article 226 held:

“A preliminary point has been raised on behalf of the respondent that these authorities which are quasi-judicial authorities and whose orders passed under Sections 58(2) and 64(1) are quasi-judicial orders, had no locus standi to file this special appeal. We are of the opinion that this preliminary point has considerable force in it. In our opinion a judicial authority or quasi judicial authority has no personal interest in the confirmation or reversal of its order passed in its judicial or quasi-judicial capacity and, as such, it is not competent for that authority to maintain a writ under Article 226 or file an appeal against such order simple because the order passed by that authority has been reversed by a superior authority.”

28. In PUZHAKKAL EDAM ALIAS PUTHEN EDON’S case (supra), Kerala High Court having considered the judgment of a Division Bench of the Nagpur High Court in NAZIRUDDIN v. P.S. LAWALE, AIR 1956 NAG 65, the judgment of Punjab High Court in HUDI GOSHAON v. SUDI GOSHOAN, , judgment of the Supreme Court in UDIT NARAYAN SINGHs case (supra), the judgment of a Division Bench of Gujarat High Court in GOPI CHAND v. WESTERN RAILWAY, AIR 1567 GUJ 27, and the judgment of the Supreme Court in MOHAMMED ENAMUAL HAQUE’s case (supra), in paragraph-9 of the judgment concluded thus.

“I think that, in the light of the above authorities, the proposition is well-settled that the Court or tribunal whose order is sought to be revised under Article 227 of the Constitution is not a necessary party to the proceeding before the High Court. The objection raised by the respondent to the maintainability of this Original Petition cannot, therefore, succeed.”

29. It is also well settled by the judgments of the Supreme Court in SHRI SITARAM SUGAR MILLS LTD. v. UNION OF INDIA, and JASWANT SUGAR MILLS v. LAXMI CHAND, , the price fixation for a manufacture is adjudicative function whereas price fixation for consumers of manufactured goods as a class is a legislative function. Under the Essential Commodities Act, it has been held that price fixation for a manufacture is adjudicative while price fixation for the consumers is legislative. If price fixation is legislative in nature, then, some safeguards such as ‘laying procedure’ is normally provided under the statute concerned. The other circumstance which indicates that the impugned order in this appeal cannot be regarded as the outcome of a purely legislative function of the Commission is that against the impugned order, an appeal is provided under Section 41 of the Act. If the price fixation made by the Commission in the impugned order is legislative in nature, there was no question of the law- maker providing an appeal to this Court under Section 41 of the Act against such legislative action. The validity of a legislation is always tested on the touchstone of Constitutional provisions under Article 32 and/or Article 226 of the Constitution of India. It is not the requirement of law that in order to show that an authority or a body performs judicial or quasi-judicial function or that such authority or body is required to act judiciously in the decision making, there should exist a lis between the parties before it. What is of essence is that if the action of the authority has the effect of affecting legal rights and interest of the parties before it, its action should be judicious. Once it is held that an authority is required to act judiciously, it is the requirement of law that such authority should be impartial, objective, reasonable, fair and its order or opinion should be based on relevant materials and objective considerations. The validity of its opinion could be tested on the touchstone of the postulates of Article 14 of the Constitution viz., fairness, reasonableness and non-arbitrariness. Further, even certain aspects of the doctrine of principles of natural justice should also be read into the procedure by which such authority is governed in the decision-making.

30. The principle that justice should be done and at the same time it should appear to be done, as an expansion of the doctrine of audi alteram partem, has come to stay in the administrative law and it is quite often employed to test the impartiality of the Courts and quasi-judicial authorities or the authorities who are required to act judiciously in the decision- making. The Commission being a statutory authority is duty- bound to act judiciously in performing its functions whether such functions are administrative or quasi-judicial. This position is well settled by the judgment of the Supreme Court in INDIAN NATIONAL CONGRESS v. INSTITUTE OF SOCIAL WELFARE., It is also well settled that if a statutory authority is required to take a decision only after holding an enquiry, such statutory authority is required to act judiciously and the decision that may be given by such statutory authority, will be quasi judicial in nature, even in the absence of any lis or contest between the contending parties before it. The Commission under the Act performs judicial functions in pursuance of the powers conferred upon it under Sections 9, 10, 11, 29, 30, 31, 32, 39, 41, 42, 43, 46, 52 and 54 of the Act. The provisions of the Act clearly indicate that the Commission has the trappings of the Civil Court. The Commission functioned as a quasi-judicial forum while passing the impugned orders. Inasmuch as by virtue of the judgments of the Supreme Court in PROVINCE OF BOMBAY v. KUSHALDAS ADVANI, and BOARD OF REVENUE v. VIDYAWATI, , the Commission is required to act judiciously in fixing tariff for a generator and supplier of electricity, the Commission as to be treated as a quasi-judicial authority. Since the Commission was required to act judiciously in passing the impugned order and since that order cannot be regarded as a purely administrative order, the Commission need not be impleaded as a party to the appeal.

31. Although Sri Raghavan contended that the Commission is a ‘Statutory Regulator’, and, therefore, its right to defend its orders cannot be denied by placing reliance on the judgments of the Supreme Court in JIYAJEERAO COTTON MILLS v. MP ELECTRICITY BOARD , K.RAMANATHAN v. STATE OF TAMIL NADU , RESERVE BANK OF INDIA v. PEERLESS GENERAL FINANCE, and WEST BENGAL ELECTRICITY REGULATORY COMMISSION v. CESC LTD. (supra), the case law cited by him is of no help to the Commission to claim that it is a necessary and proper party to this appeal and that it has the right to defend the impugned order. We do not think it necessary to go into the question whether the Commission is a ‘regulator’ in detail, because, having examined the provisions of the Act, we find that the Commission is conferred with certain regulatory powers. The regulatory powers conferred on the Commission include rationalisation of the generation, transmission, distribution and supply of electricity in the State; taking measures conducive to the development and management of the electricity industry in the State in an efficient, economic and competitive manner; making provisions for reliable quality power and protection of the interests of the consumers, realisation of the activities of the power sector in the State and other matters connected therewith or incidental thereto. Section 11 of the Act deals with the general powers and functions of the Commission. But, simply because the Commission is conferred with regulatory powers under the Act, it cannot be said that the Commission as a matter of right can insist that it should be impleaded as a party-respondent in a legal proceeding which is directed against its own order and that it should be permitted to contest the proceedings on merits also. There are certain sound and good reasons to say that the Commission is not well advised in seeking its impleadment in the appeal as a party-respondent, filing quite extensive pleadings on merits and contesting the appeal with abnormal zeal, vehemence and resources at its disposal. When validity of an order of a quasi- judicial authority or of an order of an authority which is required to be made judiciously is assailed in a Court of law or an appellate forum, it is healthy and fair that such authority should not take side and it should leave the validity of its order to the Court or appellate forum, as the case may be, for determination unless the statute which has created the authority itself directs the authority to put in appearance before the Court or the appellate forum and defend its order. The Act does not direct the Commission to do so in an appeal preferred against its order under Section 41 of the Act. Be that as it may, even otherwise, we do not find any justification for the Commission to file on its own quite extensive pleadings, engage a senior counsel and contest the appeal exhibiting an abnormal interest normally unknown to the statutory authorities performing quasi-judicial functions and expending its considerable resources as if it is more affected than the affected interests thereby meaning the consumers of electricity and the KPTCL. The contesting respondents KPTCL and the Government of Karnataka are not hapless or helpless parties without any resources to effectively defend the impugned orders of the Commission. Both of them have equivalent, if not more, financial resources and legal expertise and aid to defend the impugned order effectively. Even otherwise, we take it that this Court is not incompetent to review the impugned order of the Commission properly and find out whether any error has crept into the impugned orders with the assistance of the learned Counsel for the parties.

32. In Md. Omer’s case (supra), in an appeal arising out of an order of the Registrar of Trade Marks, the Registrar of Trade Marks had put in appearance and for him the Solicitor General of India had appeared. The Bombay High Court speaking through CHAGLA, CJ while disapproving the above action of the Registrar of Trade Marks in paragraph-12 observed thus.

“The Solicitor General said that he appeared in order to help the Court by pointing out certain errors in the judgment of the lower Court. Now, it seems to us that this is rather a startling proposition for the Solicitor General to advance. I have never heard of a Judge of first instance briefing counsel in a Court of appeal in order to point out that the judgment of the lower Appellate Court was wrong and his judgment was right. If this were the true principle, then every time we hear a second appeal we should look to being guided by the Judge of the Trial Court appearing by counsel and telling us what the mistakes in the judgment of the lower Court are. We take it that this Court is sufficiently competent to find out for itself, with the guidance of the counsel of parties, as to what errors, if any, have been committed by the lower Court. We, therefore, think that it was entirely wrong on the part of the Registrar in this case to have appeared merely for the purpose of elucidating his own judgment and pointing out the errors in the judgment of the Court below. That is not the proper function of the Court of first instance, and in this case the Registrar is nothing else except the Court of first instance. He must submit to the judgment of lower Appellate Court if there is no appeal from that judgment. If there is an appeal, he must submit to the judgment of the final Court of appeal. If his judgment is right, it will be restored by the final Court and the errors of the lower appellate Court will be rectified; if his Court’s judgment will be confirmed by the final Court of appeal. But as I said before, this Court neither needs illumination nor guidance from the Judge of the first instance as to what are the errors in the judgment of the lower appellate Court.”

(emphasis supplied by us)

We may add to the above underlined understandably emphatic lines of Chagla CJ that though the Courts show deference to the opinions of the experts and those who are supposed to be experts in highly evolved fields of human knowledge in great measures and use them as aid in the decision-making, these expert bodies should not forget that we are ruled by the Rule of law and not by expert opinion. Although the Courts are not experts, they are empowered by the Constitution and the Law to review and sit in judgment over the opinions and orders of expert bodies and determine the legality of their opinions, actions and orders. The Courts cannot abdicate that power and refuse to review the impugned decisions of the experts on the specious plea that the Courts are not experts. These observations of ours would dispose off the contention of Sri Raghavan that the Commission is a body of experts and, therefore, the findings recorded by such a body on technical and tariff matters are not liable to be interfered: No doubt, under Section 41 of the Act, appeal lies to this Court against any order of the Commission only ‘on questions of law arising out of such orders’. But, then, if this Court finds that findings of fact recorded by the Commission are perverse and/or not based on any evidence, the Court can treat that flaw as an error of law and interfere with those factual findings. We need not burden this view with case law. It is well settled. Further, even expert opinions can be tested on the touchstone of the postulates of Article 14 of the Constitution, viz. fairness, reasonableness and non-arbitrariness. Therefore, the impugned orders of the Commission cannot escape from that scrutiny of the Court. The Constitution and the Act have reposed trust in the efficacy and objectivity of the Court to undertake that scrutiny. The Committee need not labour under an impression that there will be failure of justice if it does not participate in the appeal and contest the case on merits.

33. We also find considerable force in the contention of Dr. Singhvi that if ultimately this Court decides to remand the proceedings to the Commission for fresh consideration in exercise of its appellate jurisdiction, the Commission having contested the matter before this Court with abnormal interest and psyche of a private contesting litigant, cannot be fair enough to decide the issue with impartiality and disinterestedness required of it and that the confidence reposed by the appellant on the impartiality of the Commission will be lost. It is true that if this Court in exercise of its appellate jurisdiction remands the proceedings to the Commission for reconsideration of evidence, there will be likelihood of the appellant entertaining apprehension that the Commission is not impartial in the decision-making and that it will not do justice, and in that event, it cannot be said that its apprehension is baseless or imaginary. Such situation can be avoided if the Commission remains as a disinterested and neutral statutory authority before this Court in this appeal. By adopting such posture, the Commission can avoid criticism that the Commission will not act fairly and disinterestedly in the decision-making. It will also ensure openness and fairness on the part of the Commission in the decision-making. The value of openness, which is an integral part of any judicial or quasi-judicial process should be preserved and protected jealously. If it is lost and the Court finds that the decision-maker dealt with the issue with closed mind or predetermination of the issue, only on that count, it will invalidate the action of the decision-maker. The Commission after being a Judge of an original Court cannot take the role of a Prosecutor in an appeal and cannot be allowed to defend its own findings as a quasi-judicial authority.

34. Sri Raghavan, however, would contend that the entitlement of the Commission to appear in this appeal and to defend the impugned orders cannot be doubted in the light of the judgment of the Supreme Court in WEST BENGAL ELECTRICITY REGULATORY COMMISSION (supra). In the above case, WEST BENGAL ELECTRICITY REGULATORY COMMISSION (WBERC), by its order dated 07.11.2001 determined the tariff for the sale of electricity by Calcutta Electricity Supply Company Ltd. Being aggrieved by the said determination of tariff, the Company preferred an appeal before the High Court of Calcutta. In fact, the respondent Company had itself impleaded the Commission as a party respondent to the appeal. The High Court by its judgment allowed the appeal of the Company and itself re-determined the tariff enhancing the same. Against the said judgment of the Calcutta High Court, the WBERC preferred an appeal to the Supreme Court. Placing reliance on the above judgment of the Apex Court, Sri Raghavan would contend that the question whether the Commission can be a party to this appeal and whether it can defend its order impugned in this appeal is no longer res integra. The submission of Sri Raghavan is not well-founded and not acceptable to us. In the above case, no doubt the WBERC was appellant in Civil Appeal No. 4037 of 2002. Certain others also had preferred Civil Appeals. The Supreme Court clubbed all Civil Appeals preferred against the same judgment of the Calcutta High Court. In paragraph-3 of the judgment it is pointed out by the Supreme Court that CA No. 4037 of 2002 was preferred by the WBERC specifically stating that it is not challenging the tariff fixed by the High Court in its appellate jurisdiction, and that the said appeal was preferred by the WBERC only against the interpretation placed by the Calcutta High Court on some of the provisions of the Electricity Regulatory Commission Act, 1998 and as also against the finding of the Calcutta High Court in regard to the validity of the Regulations and the procedure to be followed in fixing the tariff by contending that, that finding would make the Commission nugatory and defeat the very object of Electricity Regulatory Commission Act, 1998. The WBERC did not assail any of the findings recorded by the Calcutta High Court on merit and in fact, it accepted those findings gracefully. Further, in that case, no question with regard to the competency or locus standi or propriety of the Commission to implead itself in an appeal preferred against its order and to defend its order on merit before the appellate Court was raised by any of the parties in the appeals. The Supreme Court also, quite obviously, did not deal with the above question suo moto or express its opinion anywhere in the judgment. It is trite that in order to be a binding precedent of the Supreme Court, the question concerned should have been addressed to the Supreme Court and the Supreme Court having dealt with the question has given its opinion on the question. Ratio decidendi of a judgment is not the decision as such, but, the rationale of the decision. This appeal does not involve validity or interpretation of provisions of the Act or the Regulations framed thereunder. What essentially arises in the appeal for decision-making is the validity and legality of the tariff fixed by the Commission.

35. In conclusion, we hold that the Commission is not a necessary and proper party to the appeal having regard to the questions that arise for decision in the appeal. There are no allegations of personal bias against the Chairman or against the members of the Commission. Therefore, we are unable to understand why the Commission should be made a party to the appeal. We would, therefore, strike out the name of the 3rd respondent from the array of the parties. In doing so, we are guided by what the Hon’ble Supreme Court did in para 27 of the judgment in PEPSI FOODS LTD. AND ANR. v. SPECIAL JUDICIAL MAGISTRATE AND ORS. (supra). By the above observations of ours, we should not be understood to have held that the Commission cannot be a necessary and proper party to an appeal preferred against its order under Section 41 of the Act regardless of nature of questions that may arise in an appeal for decision-making.

POINT No. II:

36. “Concluded Contract” in terms of Explanation to Section 19 and proviso to Section 27(2) of the Act need not be in writing; it need not be in any particular form for the Act does not prescribe any particular form; it need not be a formal agreement; it need not be a PPA and it is restricted to tariff determination only. It is the stand of the appellant that there existed a “concluded contract” between the appellant, KPTCL and GoK prior to commencement of the Act, i.e. 01.06.1999. Therefore, it is necessary for us to see whether this claim of the appellant is substantiated with reference to the evidence on record.

37. In our considered opinion the combined reading and consideration of the following documents and circumstances and the reasons we presently state would lead us to conclude that there existed a “concluded contract” between the appellant, KPTCL and GoK well before 01.06.1999:

(i) G O No. DE 221 PPC 93 Bangalore, dated 7th March 1994 and GO No. DE 18 EEB 99, Bangalore dated 12th May, 1999 of the GoK in which it is stated that the tariff rate and the PPA would be finalized separately;

(ii) Clause 4 of the Heads of Terms for Wheeling and Banking Agreement which provides that if, at any stage, the appellant has excess firm capacity and/or energy for sale, then, KEB may purchase the same from the appellant subject to agreement on price and other terms to be negotiated at the time of such sale. In other words, KEB has agreed to buy excess firm capacity of power on such price and terms negotiated at the time of such sale.

(iii) Appellant’s letter dated 20th October, 1998 referring to its earlier proposal dated 28th September, 1998, incorporating the details and the basis of tariff calculations for 20 years. (iv) Appellant’s offer dated 21st November, 1998 for sale of power on two-part basis for the first year at tariff rate of Rs. 2.90 per unit inclusive of fixed and variable costs.

(v) KEB’s letter dated 1st September, 1998 by which in principle it considered and evaluated the tariff proposal.

(vi) Letter of KPTCL dated 19th January 1999 informing the GoK of the appellant’s officer of 100 MW on a guaranteed basis at a tariff rate of Rs. 2.90 per unit and its recommendation to GoK to buy power from the appellant at Rs. 2.60 per unit with escalation of 5% per annum thereon.

(vii) The response of the GoK contained in the letter dated 5th March 1999 asking KPTCL to negotiate a single fixed tariff for 5 years instead of two-part tariff.

(viii) The acceptance of the terms of the offer made by the appellant by KPTCL at the meeting held on 26.03.1999.

(ix) The formal proposal of the appellant contained in its letter dated 31.03.1999 incorporating the terms settled at the meeting and containing the final offer of supplying 100 MW of power on single part tariff basis at the rate of Rs. 2.60 per unit with escalation of 5% per annum for a period of 5 years.

(x) The letter of KPTCL dated 23.04.1999 giving the following two options to the GoK after its negotiations with the appellant: (a) fixed cost being escalated by 5% per annum and the variable cost being a pass through, (b) tariff at Rs. 2.60 per unit inclusive of fixed and variable costs with escalation of 5% per annum. As could be seen from the above letter of the KPTCL, the KPTCL having opined that the rupee was depreciating heavily against American dollar, suggested that the single-part fixed tariff option of Rs. 2.60 per unit be approved inasmuch as it would be more advantageous to it.

(xi) Admission of the KPTCL that several rounds of negotiations took place, different methods of tariff computation were tried before the tariff was agreed to by KPTCL and then only it forwarded the proposal to GoK who, in turn, independently examined all issues before issuing the GO dated 12th May, 1999. (xii) GoK after independent and detailed examination of all the issues and on the recommendation of the KPTCL by its order dated 12th May, 1999 approved the second option of single- part tariff at a fixed rate of Rs. 2.60 per unit with escalation of 5% per annum for 5 years.

38. The Government order dated 12th May, 1999 refers to the Government Order dated 7th March, 1994; Wheeling and Banking Agreement dated 26th January 1996; Government Order dated 2nd March 1996, GO dated 22nd March, 1996; CEA’s Techno Economic clearance dated 22nd March, 1996; letter of the KPTCL dated 19th January 1999; letter of GoK dated 5th March 1999 and letter of GOK dated 23rd April, 1999. In order to know the actual purport of the GO dated 12th May, 1999 it should be read with the documents to which it has made references as components of the same transaction and if it is so read, it would clearly demonstrate that (i) before the GO dated 12th May, 1999 was issued the detailed negotiations took place on the tariff as well as conclusion of the contract; (ii) the basis for arriving at the rate of Rs. 2.60 per unit is the agreement between the parties and (iii) KPTCL and the GoK took decision only after taking into account all relevant considerations objectively and their ultimate decision for arriving at the rate of Rs. 2.60 per unit is undeniably based upon a rational criteria i.e. least cost tariff principle.

39. All essential terms and conditions, i.e., the tariff rate, escalation, quantity, and the tenure for purchase and sale of power were agreed between the parties before 01.06.1999 and, therefore, the contract should be deemed to have been approved by the Commission under the Act within the meaning of the proviso to Sub-section (2) of Section 27 of the Act. It is already noticed above that the order dated 12th May, 1999 was preceded by several rounds of negotiations between the parties to discuss and finalise all essential terms and conditions. Even after the Act came into force, it is true, several rounds of negotiations were held between the parties to discuss and finalise the terms and conditions of the PPA except tariff because the tariff was already agreed upon by the parties and the GoK too accepted the proposal of the KPTCL and issued the G.O dated 12th May, 1999 according its approval. The PPA was entered between the parties on 7th November 2000, which incorporated all the agreed terms of the GO dated 12th May, 1999. After signing the PPA, the KPTCL took steps to open letter of Credit as a security for payment based on the tariff of Rs. 2.60 per unit with escalation of 5% per annum without waiting for the approval of the Commission, as the same was not required as far as the tariff of Rs. 2.60 per unit was concerned. Further, the letter dated 4th January 2000 of KEB to the appellant requiring the break-up of the negotiated tariff of Rs. 2.60 per Kwhr. letter dated 4th April 2000 of the appellant, letters dated 12th April, 2000 and 24th May, 2000 of KPTCL relating to supply of power pending finalization of PPA show the intention of the parties to treat the letter of the GoK dated 12th May, 1999 as the binding contract as far as tariff was concerned.

40. In ALEXANDER BROGDEN AND ORS. v. THE DIRECTORS, & C, OF THE METROPOLITAN RAILWAY COMPANY, (1877)2 App Cases 666 where an alleged contract for the sale of a leasehold house, contained in letters wherein it was stipulated by the purchaser that her acceptance was subject to, amongst others, a condition that her solicitors should “approve the title to and covenants contained in the lease, the title from the freeholder and the form of contract”, Chancery Division was called upon to construe the documents in order to decide whether the contract is susceptible of being enforced by way of specific performance. Chancery Division speaking through Parker J. held:

“It appears to be well settled by the authorities that if the documents or letters relied on a constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document is in words which according to their natural construction import a condition is generally if not invariably conclusive against the reference being treated as the expression of a mere desire.”

41. In KOLLIPARA SRI RAMULU(DEAD) BY HIS LRs v. T. ASWATHA NARAYANA (DEAD) BY HIS LRs AND ORS., , the Supreme Court while construing an agreement for sale of land where price and area of land and time for completion for sale was fixed, held that mere omission to settle mode of payment does not affect the completeness of contract. The Supreme Court in paragraph-3 of the judgment held;

“We proceed to consider the next question raised in these appeals, namely whether the oral agreement was ineffective because the parties contemplated the execution of a formal document or because the mode of payment of the purchase money was not actually agreed upon. It was submitted on behalf of the appellant that there was no contract because the sale was conditional upon a regular agreement being executed and no such agreement was executed. We do not accept this argument as correct. It is well established that a mere reference to a future formal contract will not prevent a binding bargain between the parties. The fact that the parties refer to the preparation of an agreement by which the terms agreed upon are to be put in a more formal shape does not prevent the existence of a binding contract. There are, however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case. As observed by the Lord Chancellor (Lord Cranworth) in Ridgway v. Wharton, (1857) 6 HLC, 238 at Page 263, the fact of a subsequent agreement being prepared may be evidence that the previous negotiation, did not amount to a concluded agreement, but the mere fact that persons wish to have a formal agreement drawn up does not establish the proposition that they cannot be bound by a previous agreement’.

The Supreme Court in the said judgment has extracted the observations of Parker J. in the case of ALEXANDER(supra) extracted by us supra, with approval. Further, the Supreme Court has also referred to the following observation of Lord Cairns in ROSSITER v. MILLER , 1878(3) AC 1124 with approval:

“If you find not an unqualified acceptance subject to the condition that an agreement is to be prepared and agreed upon between the parties, and until that condition is fulfilled no contract is to arise then you cannot find a concluded contract”.

42. The Supreme Court on facts of that case, recorded its finding thus:

“The evidence adduced on behalf of respondent No. 1 does not show that the drawing up of a written agreement was a pre-requisite to the coming into effect of the oral agreement. It is therefore not possible to accept the contention of the appellant that the oral agreement was ineffective in law because there is no execution of any formal written document. As regards the other point, it is true that there is no specific agreement with regard to the mode of payment but, this does not necessarily make the agreement ineffective. The mere omission to settle the mode of payment does not affect the completeness of the contract because the vital terms of the contract like the price and area of the land and the time for completion of the sale were all fixed”.

43. In GUJAR MAL RAM RATTAN PURI v. GOVERNOR GENERAL OF INDIA, AIR (29) 1942 Peshwar 33, it was held that where the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain, or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case, there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. In the latter case, there is binding contract and the reference to the mere formal document may be ignored. The conduct of the parties in acting upon the contract before the formal agreement was drawn up is the clearest evidence of this fact.

44. In K.S. LAKSHMINARAYANA SETTY N. KAMAKSHIAH SETTY v. STATE OF MYSORE, AIR 1967 Mysore 156, the Government called for tenders for the purchase of double and inferior cocoons from its silk filatures. The plaintiff gave a tender for both the varieties of cocoons and quoted individual rates and also made the required deposit. Later the plaintiff was informed that his tender for the purchase of inferior cocoons alone was accepted and was asked to remit a further amount equivalent to 1/10th of the value of the accepted tender. A date was also given before which the cocoon should be removed. The plaintiff was dissatisfied by the rejection of his tender for double cocoons did not remove on payment and the Government issued notice of resale and they were actually sold. The Government called upon the plaintiff to make good the loss and informed him that in case of failure the same would be recovered under Section 52 of the Madras Revenue Recovery Act. It was contended that there was no concluded contract and as such he was entitled for refund of earnest money and that Section 52 Madras Revenue Recovery Act could not be resorted unless it filed a suit and obtained a decree to recover damages from the plaintiff. This Court dealing with the above contention held that the offer made by the plaintiff in pursuance of the tender notice was accepted by the Government and that the acceptance of the offer was duly communicated to the plaintiff. It was sufficient in law to constitute a completed and concluded contract between the plaintiff and the defendant. This Court has observed that once the contract was completed and concluded between the parties, then, the subsequent requirements relating to deposit of security and the execution of an agreement in a stamped paper being formal, would not make the contract invalid which was otherwise valid.

45. In AMRITLAL MAGANLAL v. HARKISANDAS KAHANDAS, AIR (33) 1946 Bombay 149, defendant entered into an agreement to sell his one-third share in certain property during the pendency of the partition suit. A draft agreement was written. Some formal terms were, however, not embodied in the draft since a pacca agreement was to be drawn up shortly. All the essential terms were, however, already agreed upon. The formal agreement not having been executed, the intended purchaser brought a suit for specific performance. In the context of those facts, Bombay High Court held that the mere fact that a formal document of contract was to be drawn up embodying all the terms did not render the agreement incomplete. All the terms already agreed upon but not mentioned in the draft were only subsidiary and hence the draft must be deemed to contain a completed and enforceable contract. The judgment of Madras High Court in MAHESHWARI METALS AND METAL REFINERY, BANGALORE v. THE MADRAS STATE SMALL INDUSTRIES CORPORATION LTD., and the judgment of Delhi High Court in PROGRESSIVE CONSTRUCTIONS LTD. v. BHARAT HYDRO POWER CORPORATION LTD., are also to the same effect and support the principle stated by this Court.

46. Section 27(1) of the Act deals with tariff of the licensees and the procedure to be adopted in determining the same. Section 27(2) deals with the powers of the Commission and the factors by which the Commission shall be guided in determining the tariff. The proviso to Section 27(2) provides that contracts concluded by the GOK/KEB with the appellant prior to the commencement of the Act, shall be deemed to have been approved by the Commission and shall be given effect by the Commission. A proviso must be considered in relation to the principal matter to which it stands as proviso. The Section must be read along with the proviso as a whole. It is a cardinal rule of interpretation that a proviso of a particular provision of a statute only embraces the field covered by the main provision. Therefore, the proviso to Section 27(2) is only for the purpose of Section 27(2) i.e. for factors relating to tariff determination. It is a rule of interpretation that a proviso has to be strictly construed and it has no existence apart from the provision it is designed to limit or quality. Even if the language of proviso is general, it is to be construed in relation to the subject matter covered by the Section to which the proviso is appended. The proviso to Section 27(2) is nothing but an exception to the enacting clause on tariff determination and the object of the proviso is to qualify something which has gone before. The proviso cannot deal with any other field which the Section itself does not deal with. The correct interpretation as far as ‘contracts concluded’ is concerned, is that the proviso to Section 27(2) would refer to tariff which is agreed between the parties before the Commission came into existence and a PPA is not required to be executed for the same. The proviso to Section 27(2) is for the purposes of giving binding effect to the contract concluded on tariff; which was concluded by the GOK order dated 12th May, 1999 before the Commission came into existence on 1st June 1999. There is no form prescribed for a concluded contract under the Act or any penalty /consequences for not entering into a PPA, proving that, PPA is not an essential requirement under the Act. The Act does not provide that the contract should be in any particular form, much less in the form of a PPA. In any event the KPTCL purchases power from other States/utilities without entering into PPAs. Learned Counsel for the Commission has concurred with the interpretation of appellant that, for the purpose of the proviso to Section 27(2) of the Act, a ‘concluded contract’ need not be a formal agreement nor be in writing nor be a PPA. Thus, the claim of the appellant that the tariff is deemed to have been approved under the proviso to Section 27(2) of the Act is vindicated.

47. In DWARKA PRASAD v. DWARKA DAS SARAF, the Supreme Court in paragraph 18 of the judgment held:

“A proviso must be limited to the subject-matter of the enacting clause. It is a settled rule of construction that a proviso must prima facie be read and considered in relation to the principal matter to which it is a proviso. It is not a separate or independent enactment. ‘Words are dependent on the principal enacting words, to which they are tacked as a proviso. They cannot be read as divorced from their context’ (1912 A.C. 544). If the rule of construction is that prima facie a proviso should be limited in its operation to the subject-matter of the enacting clause, the stand we have taken is sound. To expand the enacting clause, inflated by the proviso, sins against the fundamental rule of construction that a proviso must be considered in relation to the principal matter to which it stands as a proviso. A proviso ordinarily is but a proviso, although the golden rule is to read the whole Section, inclusive of the proviso, in such manner that they mutually throw light on each other and result in a harmonious construction.”

48. In RAM NARAIN SONS LTD. AND ORS. v. ASST.COMMISSIONER OF SALES TAX AND ORS., a Constitutional Bench of the Supreme Court held that it is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other. The judgment of the Supreme Court in MACKINNON MACKENZIE & CO. LTD. v. AUDREY D’COSTA AND ANR., is also to the same effect. The Supreme Court held that the proviso to Sub-section (3) of Section 4 of the Equal Remuneration Act, 1976 cannot travel beyond the provision to which it is a proviso.

49. The principles of interpretation of statutes enunciated by the Supreme Court in the above cases are the binding authorities to state that the proviso to Sub-section (2) of Section 27 of the Act is required to be restricted only to tariff determination and does not require a PPA to establish a concluded contract.

50. In this case the offer made by the appellant with regard to the tariff was accepted by the KPTCL and Gok after internal negotiations and the parties implemented and effectuated the terms of the contract. It is well settled that when an offer is made and acceptance does not extend to all the terms which are accepted, a contract is concluded on the terms accepted by the offeree, as the offeror did not insist on terms of the offer which were not accepted by the offeree. Even though there was no elaborate description of the rights and obligations of the parties, the terms and conditions agreed upon and ascertainable under the order dated 12th May, 1999 of the GoK was, for all purposes, treated as the contract for sale of power. The parties did not feel the necessity of entering into a formal PPA to create legally binding relationship for the purposes of performance of their obligations of buying and selling power. Notwithstanding the intention of the parties to enter into a formal agreement, it is evident that acceptance was conveyed with an intention to create a legally binding obligation and parties were ad idem on rate, escalation, quantity and tenure of purchase. Therefore, despite the intention of the parties to have a formal agreement, there existed a concluded contract before the Act came into force, since the parties had begun performing their respective obligation on the agreed terms. All the terms and conditions agreed upon in the order of the GoK dated 12th May, 1999 were incorporated in the PPA without any variation.

51. In ALEXANDER’S case (supra) one B had for some years supplied the M. Railway Company with coals. At last it was suggested by B that a contract should be entered into between them. After their agents had met together the terms of agreement were drawn up by the agent of the M. Company and sent to B. B filled up certain parts of it which had been left in blank, and introduced the name of the gentleman who was to act as arbitrator in case of differences between the parties, wrote “approved” at the end of the paper, and signed his own name B’s agent sent back the paper to the agent of the M. Company, who put it in his desk, and nothing farther was done in the way of a formal execution of it. Both parties for some time acted in accordance with the arrangements mentioned in the paper, coals were supplied and payments made as therein stated, and when some complaints of inexactness in the supply of coals, according to the terms stated in the paper, were made by the M. Company, there were explanations and excuses given by B, and the “contract” was mentioned in the correspondence, and matters went on as before. Finally disagreements arose and B denied that there was any contract which bound him in the matter. The House of Lords held that these facts; and the actual conduct of the parties, established the existence of such a contract, and there having been a clear breach of it, B must be held liable upon it

52. In SHRI RAMA METAL WORKS AND ORS. v. THE NATIONAL SMALL INDUSTRIES CORPORATION LTD, Government Company B was established to assist small industries by arranging supply of machinery on hire purchase in terms of its scheme and firm A which was aware of the terms applied to B to supply on hire purchase lathe machine manufactured by C and requested B to instruct C to deliver the machine to A and assured B that it was prepared to sign the necessary documents in respect of the transaction. B issued delivery instructions to C and forwarded to A agreement forms and a statement of account particularising the total price and the amount of first and subsequent installments which was accepted by A. A received the machine but failed to execute the agreement forms and pay the price whereupon B filed a suit to recover the price. In the premise of these facts, the Division Bench of this Court speaking through M. N. Venkatachaliah, J., as he then was, held that the parties had reached a completed hire purchase agreement through correspondence and the delivery of the machine was in pursuance of it and the signing of further formal agreement though desirable was not essential and did not affect its validity and therefore the suit was maintainable.

53. According to us, in this case, there was no need to obtain approval of the Commission required under Section 17(1) of the Act. In this case GoK had given its consent to the appellant in terms of Section 43A of the Supply Act, prior to the commencement of the Act and, therefore, the KPTCL would not require the consent of the Commission for purchase of electricity under Section 17(1) of the Act. If approval under Section 17(1) of the Act is in lieu of the approval under Section 43A of the Supply Act, since the approval under Section 43A of the Supply Act was already obtained, approval under Section 17(1) of the Act would not be necessary. Therefore, approval of the Commission for sale and purchase of electricity would not be required to be obtained by the appellant and the KPTCL. However, learned Counsel for respondents, while agreeing with the appellant that the proviso to Sub-section (2) of Section 27 of the Act does not require a contract in writing, does not require any formal document, does not prescribe any particular form and does not have to be a PPA, would contend that (i) there was no concluded contract for the offer of the appellant was “subject to” approval of the Board and Lenders, which were conditions precedent to the formation of the contract as opposed to conditions precedent for performance of the contract; (ii) there was no acceptance or communication of acceptance by the KPTCL which was to be the contracting party; (iii) essential clauses such as escrow, deemed generation, auxiliary consumption etc which are required for a power purchase transaction were not agreed upon; (iv) the Order dated 12th May, 1999 of GoK was merely an internal approval and not in exercise of any statutory provision; (v) the order of GOK dated 12th May, 1999 which refers to submitting of the PPA to GoK for approval and to adopt the same principle of negotiated tariff for captive power plant, shows that the tariff of Rs. 2.60 was only an indicative figure; (vi) there is no basis to show how the rate of Rs. 2.60 was arrived, (vii) there are no records to show that the KPTCL participated before the CEA.

54. The above contentions of the learned Counsel for the respondents are not acceptable to us for more than one reason. The offer of the appellant subject to the approval of the Board and Lenders was not a condition precedent to the formation of the contract. They were conditions for the benefit of the appellant and could be waived by the appellant. The Supreme Court in JIWANLAL v. BRIJ MOHAN, held that if the condition is for the exclusive benefit of one contracting party and does not create any liability against the other, the condition can be unilaterally waived by the party. It needs to be noticed that in this case, neither of the parties insisted on the satisfaction of the conditions before supplying power. The order of GOK does not include the word “subject to” neither does the PPA contain the conditions which have been referred to by the respondent as conditions precedent. As regards acceptance by the GoK, the KPTCL’s letter dated 1st December, 1998 and letter dated 19th January 1999 and averments in paras 5 and 6 of the Statement of Objections of the KPTCL clearly show that the rate was accepted by the KPTCL and then it recommended to the GoK to approve its decision. Therefore, the acceptance by the KPTCL was prior to 01.06.1999 Terms such as escrow, deemed generation etc were not considered essential by the parties for the performance of their respective obligations under the contract. What terms are essential to the contract is for the parties to determine and if the parties continued to perform without these terms for almost 3 years, then, by conduct they cannot be termed as essential. Section 27(2) proviso establishes that a concluded contract can arise by acceptance by the KPTCL or GoK. It is not necessary that only the KPTCL should communicate acceptance to the appellant. A contract which is concluded by acceptance by the GOK is protected by the proviso to Section 27(2) of the Act. The tariff rate, escalation, tenure and quantity were finalized and approved by the GoK and only terms apart from the above, were to be negotiated by the KPTCL with the appellant for the purpose of finalizing the PPA. Secondly, since the GoK felt that the single-part tariff is more advantageous to respondents as the two-part tariff may be open-ended, the GOK by its order dated 12th May, 1999 directed the KPTCL that the principle of arriving at fixed single-part tariff through negotiations must act as a guideline and should be adopted in fixing tariff for purchases even from captive power plants in future. The tariff rate was arrived on the basis of the offer on two-part tariff rate and break-up of tariff for 20 years was submitted to the KPTCL. After detailed negotiations and examination of all the issues, the tariff of Rs. 2.60 per unit was finally approved by the respondents upon the least cost tariff basis; The Supreme Court in INDIAN THERMAL POWER LTD. v. M.P. ELECTRICITY BOARD, (2000) SCC 379 held that the basis of the least cost tariff criterion cannot be faulted.

55. In SHAMJIBHAI v. JAGOO HEMCHAND AND ORS., AIR (39) 1952 Nagpur 220, speaking about the stages of making of a contract Nagpur High Court has stated that it involves three stages, namely, (i) period of negotiation; (ii) parties reach an agreement at the second stage after the conclusion of the first stage where either the matter is settled or the points of agreement is reduced in writing to draw a formal document at a later stage and agree not to be bound until they have signed the formal document and (iii) the execution of the document. In this case at the second stage of making the contract there was no condition between the parties that they did not intend to bind themselves until the formal agreement was signed. Instead the parties performed their respective obligations in absence of the formal document and payments were also made for the same. Further, in this case, all the material terms essential for the performance of the contract were agreed upon and the parties were ad idem which created a binding contract. Terms such as Escrow, deemed generation were for the benefit of the appellant and, therefore they could be unilaterally waived by the appellant as held by the Supreme Court in the case of JIWAN LAL (supra). Further, the documents produced in the case would show that the parties did not insist on those terms and conditions. It is a matter of record that even in the absence of those terms, the parties continued to perform their respective obligations for 3 years, and, therefore those terms cannot be termed as essential to the contract.

56. We having considered the entire documentary evidence on record, the facts and circumstances of the case and the conduct of the parties at various stages of making of the contract, are satisfied that there existed a concluded and binding contract between the appellant and the KPTCL with regard to tariff well- before the Act came into force with effect from 01.06.1999.

POINT No. III:

57. The policies incorporated in the documents of the GOI dated 9th October 1995, 30th January 1996, 6th November, 1996, 9th January 1997 make a distinction between the CPP and an independent generating company. In terms of these policies, approval for a CPP has to be obtained under Section 44 of the Supply Act whereas the approval for an IPP has to be obtained under Sections 29 to 31 of the Supply Act and approval for sale of electricity under Section 43-A of the Supply Act. In this case, the appellant has complied with the above requirements of Supply Act for establishing a generating Company, for setting up of a Scheme pursuant to Sections 29 to 31 of the Supply Act and for sale of electricity pursuant to Section 43-A of the Supply Act, thus making the appellant an IPP not a CPP which requires approval under Section 44 of the Supply Act. This position cannot be disputed having regard to the documents placed before the Court. The GoK vide order dated 7th March 1994 granted approval to set up the plant so that continuous power would be supplied to the grid, making it more stable. The KPTCL in its letter dated 1st March, 1995, confirmed to the CEA that the appellant is an IPP and not a CPP. Wheeling and Banking Agreement dated 26th January 1996 provides for the sale of firm capacity to the KPTCL. The GoK has confirmed to the CEA that the appellant is an IPP under Section 43A of the Supply Act while drawing the attention of the CEA to its earlier letter dated 24th May, 1995 wherein it had clarified to the CEA that the appellant is an IPP. The Gok vide its order dated 2nd March 1996 consented for sale of power under Section 43A of the Supply Act. The CEA vide its letter dated 22nd March, 1996 granted Techno-economic clearance to the appellant. It needs to be noticed that no such clearance would have been required if the appellant was a CPP. The KPTCL vide its letter dated 29th March 1996, supported the project cost and forwarded the same for approval to GoI. The KPTCL participated in discussions with the CEA for approval of the project and supported the transmission system as availed by all IPPs. It also needs to be noted that the offer for sale of power was made by the appellant as an IPP at it guaranteed minimum supply of Threshold Power. Further it also needs to be noticed that the procedure for payment of charges for supply of electricity was to be a standard procedure followed in case of IPP projects.

58. If the appellant was a CPP, they would have setup a 140 MW plant to meet the requirements of JVSL and not a 260 MW plant. The 260 MWs plant was conceived in order to provide ‘firm’ capacity to the KPTCL as is evident from the approval of the Gok to the power plant dated 7th March 1994. DPR provides that the requirement of the steel plant was only 150 MWs and balance 110 MWs will be supplied to KEB to reduce the power deficit in the State. This position is confirmed in the affidavit of the KPTCL dated 18th October 2001 filed before the Commission. The order of the GOK dated 12th May 1999 refers to (i) Wheeling and Banking Agreement pursuant to which, the appellant offered excess firm capacity to KEB and (ii) letter dated 19th January 1999 of KPTCL to GoK informing GOK of appellant’s offer of 100 MWs on a guaranteed basis at Rs. 2.90 per unit. If the appellant was a CPP it could riot have dedicated firm capacity to KPTCL and guaranteed continuous supply of power. Since the plant was an IPP, penalties were to be imposed on the appellant for short-supplies and for short drawals upon KPTCL, similar to what is applicable to other IPPs. The Commission having recognized the fact that the status of IPP was granted to it by GoK cannot treat it as a CPP for the purpose of determining the tariff.

59. The Chief Minister, GoK and the KPTCL have made public announcements that the tariff rate is one of the lowest and is to be the benchmark rate for all future IPPs. The documents containing those announcements are produced. The KPTCL in its affidavit dated 18th October, 2001 has admitted that the appellant is an IPP. In addition, daily generation/transmission charges of KPTCL and website of KPTCL show the appellant as an IPP. Even the tariff orders of the Commission for the years 2000, 2002 and 2003 show that the appellant is an IPP.

60. Simply because, plant is making use of common infrastructures for coal handling and water supply it cannot be said that the plant of the appellant is a CPP. It is common knowledge that a number of generating projects are set up to take advantage of the existing infrastructures of other projects and it can never be said that merely because infrastructure is shared, the consumption of power is captive. The infrastructure facilities are shared between the projects only with a view to minimise the project costs. The power plant is designed to fire either corex gas or coal as fuel, which confirms that the appellant’s power plant is not a captive plant and that it was intended to supply power to KPTCL even with the steel plant is not working and not producing corex gas. It also needs to be noticed that appellant and JVSL are distinct Corporate entities and the appellant has obtained financial assistance, project approvals from various statutory authorities, GoI and GoK on a ‘stand alone’ basis.

61. It was, however, contended on behalf of the respondents that power was supplied to KEB only after JVSL’s commitment was fulfilled and since the entire capacity of 240 MW has been underwritten by JVSL, the appellant is a CPP to the JVSL. It is also contended on behalf of the respondents that determination of IPP/CPP is irrelevant as the Commission has allowed KPTCL to pay fixed charges to the appellant.

63. At the outset, it needs to be noticed that capacity was underwritten for the protection of Lenders and foreign shareholders as a temporary measure till the PPA was signed with KPTCL. After the PPA was entered into with KPTCL and after the exist of the foreign shareholders, the appellant and the JVSL amended the terms of the agreement. The DPR provides that the peak requirement of the steel plant is only 150 MW and the balance of 110 MW would be supplied to the State grid in order to reduce the power deficit in the State. The Commission has arrived at 1637 MUs at 77% PLF and fixed charges for 1150 MUs supplied to KPTCL ignoring the fact that the appellant has been supplying the energy to JVSL at 85% PLF. Such a direction has been given because of the wrong conclusion that the appellant is a CPP. It needs to be noticed that KPTCL is required to pay fixed charges on a pro rata basis to JVSL for the capacity guaranteed by it

64. The materials produced in the case and the circumstances noticed above would show that the status of power plant is that of an IPP and not CPP. POINT NO. IV:

65. It is the contention of the appellant that the impugned order suffers from certain errors apparent on its face. The question is whether the allegation of the appellant is justified. In CLERKS AND DEPOT CASHIERS OF THE CALCUTTA TRAMWAYS CO. LTD. v. CALCUTTA TRAMWAYS CO. LIMITED, the Supreme Court observed.

“….it is now well settled that generally the necessary prerequisites for this Court’s interference to set right decisions arrived at by Tribunals whose conclusions on questions of fact are final can be classified under the following categories namely, (i) where the Tribunal acts in excess of the jurisdiction conferred upon it under the statute or regulation creating it or where it ostensibly fails to exercise a patent jurisdiction; (ii) where there is an apparent error on the face of the decision and (iii) where the Tribunal has erroneously applied well-accepted principles of jurisprudence. It is only when errors of this nature exist, that interference is called for.”

The Commission having opined that the fixed charges should be paid for 657 Mus; it has wrongly calculated the fixed charges for 487 MUs while fixing the tariff. Further, the Commission though opined that the Incentive payment charges shall be Rs. 0.952/- in arriving at the tariff rate, Incentive payment charges are taken as Rs. 0.924 per unit. It is apparent that if the aforementioned two errors are corrected, the tariff would increase to Rs. 2.54 per unit as per the Commission’s own calculations. It needs to be noticed that the above patent errors have neither being disputed nor adverted to by the respondents nor any clarifications have been provided by any of the respondents in the pleadings filed before the Court or in the course of the arguments by their learned Counsel.

66. The records produced in the case show that the offer made by the appellant to KEB for sale of power on two-part tariff basis at Rs. 2.90 per unit is inclusive of fixed cost and the variable cost. During the negotiations, KPTCL and GoK preferred the single- part tariff as it would be more advantageous to them. Finally, a single-part fixed tariff at the rate of Rs. 2.60 with an escalation of 5% per annum was offered by the appellant and the same was accepted by KPTCL and GoK as reflected in the order of the GoK dated 12th May 1999. Having agreed to a negotiated single-part tariff, the Commission could not have unilaterally ignored the well established parameters and applied operating norms which are undeniably relevant for calculation of two-part tariff and superimposed the same in calculating the tariff on a single-part tariff basis. The tariff proposed by the appellant was fixed on the basis of a single-part tariff at the instance of KPTCL and GoK and, therefore, it is not open for the Commission to arbitrarily apply elements of two-part tariff to reduce the single-part tariff of the appellant, because, uniform application of the two-part tariff would result in a tariff rate of Rs. 3.16 per unit which would have been much higher than Rs. 2.60 per unit. According to the appellant, the tariff of the appellant is one of the cheapest as it is based on the least cost tariff basis, whereas other companies in the State are being paid higher charges either on the basis of two-part tariff or a fixed negotiated tariff; This assertion made by the appellant in the pleading is not seriously disputed by the respondents. Therefore, there is some substance in the contention of Dr. Singhvi that the treatment meted out to the appellants tantamounts to invidious discrimination and arbitrariness.

67. We also find some force in the grievance of the appellants that the Commission in passing the impugned order has taken into account irrelevant considerations and has left out relevant considerations. We say this, because, KPTCL has fixed the heat rate at 2400 kcal/kwh disregarding the norms laid down by the Ministry of Power/Central Electricity Authority as per which the heat rate should be at 2500 kcal/kwh or the actual achievable heat rate whichever is lower. Further, the Commission has fixed the plant load factor at 77% disregarding the norms laid down under the Supply Act as per which it would be 68.5% or the plant load factor negotiated between the parties. It is also shown that the Commission doubled the penalty for short-supply by stating that the penalty for short-supply and penalty for short-drawals should be proportionate, without considering that the purpose of penalty for short-supply is to compensate for the incremental cost of procurement of power whereas the purpose of penalty for short-drawals is to compensate for the fixed charges which accrue.

68. It is also seen that the Commission has reduced the escalation from 5% to 2 1/2%, per annum, despite the fact that the two-part tariff provides for escalation for inflation and exchange fluctuation and complete reimbursement of fuel cost without any ceiling. It is seen above that to begin with, appellant was willing to accept the escalation as per GoI’s two-part tariff formula as per which the fuel risk, risk of inflation and exchange fluctuations are all reimbursed. But, the KPTCL insisted for one-part tariff formula and that that proposal was accepted by the appellant. Therefore, we find merit in the grievance of the appellant that it is prejudicial for the appellant to accept the risk at the rate of escalation proposed by the Commission. Further, the Commission has arrived at 1637 MUs at 77% PLF and disproportionately loaded fixed charges onto the appellant for 1150 Mus. The fixed cost is required to be shared proportionately on a pro rata basis between KPTCL and JVSL in the ratio of JVSL – 962 MUs and KPTCL – 675 MUs. The Commission has ignored the fact that 1150 MUs are arrived at on the basis that the appellant is supplying energy to JVSL at 85% PLF Therefore, it is clear that this disproportionate loading would tantamount to cross-subsidization in favour of KPTCL and such a cross-subsidization would be against the observation of the Supreme Court in paragraph-91 of WBERC’s case (supra). It is also seen that the Commission has reduced the assured supply level to 487 MUs in its calculations, whereas more than 900 MUs have been supplied by the appellant to KPTCL for the years 2000-2001 and 2001-2002.

69. The Grid Support Charges payable by KPTCL to the appellant were agreed under the Wheeling and Banking Agreement in 1996 before the establishment of the Commission. The Commission, therefore, is not justified in unilaterally reviewing the Grid. Support Charges without any basis and justification. The action of the Commission in reviewing the Grid Support Charges payable to the appellant by KPTCL is without justification and ultra vires the Act. From the records we also find that the objections of the appellant filed before the first impugned order was passed, were not considered by the Commission. Thus objections have been rejected by the Commission without giving any reason by merely stating that those issues raised in the objections were dealt with in sufficient length in the first impugned order. This statement is factually incorrect.

70. It is well settled that except in cases where the requirement of giving reasons has been dispensed with expressly or by necessary implication, an administrative authority exercising judicial or quasi-judicial functions is required to record the reasons for its decision. The Supreme Court in WOOLCOMBERS OF INDIA LIMITED v. WOOLCOMBERS WORKERS UNION, , observed:

“The giving of reasons in support of their conclusions by judicial and quasi-judicial authorities when exercising initial jurisdiction is essential for various reasons. First, it is calculated to prevent unconscious unfairness or arbitrariness in reaching the conclusions. The very search for reasons will put the authority on the alert and minimise the chances of unconscious infiltration of personal bias or unfairness in the conclusion. The authority will adduce reasons which will be regarded as fair and legitimate by a reasonable man and will discard irrelevant or extraneous considerations. Second, it is a well known principle that justice should not only be done but should also appear to be done. Unreasoned conclusions may be just but they may not appear to be just to those who read them. Reasoned conclusions, on the other hand, will have also the appearance of justice. Third, it should be remembered that an appeal generally lies from the decision of judicial and quasi-judicial authorities of this Court by special leave granted under Article 136. A judgment which does not disclose the reasons, will be of little assistance of the Court.”

71. To the same effect is the observation of the Supreme Court in S.N. MUKERJEE v. UNION OF INDIA.,

POINT NO. V:

72. It is now well settled that the equitable doctrine of promissory estoppel is applicable against the State and instrumentalities of the State, statutory authorities and other bodies who could be regarded as “State” within the meaning of Article 12 of the Constitution, at the instance of a private individual even though there has been no contract according to the requirements of Article 299 of the Constitution or a statute. The doctrine of promissory estoppel means that if Government or some other public body or its officials makes a representation or a promise and an individual acts upon such promise and alters his position, Government or the public body, as the case may be, must make good that promise and shall not be allowed to fall back upon formal defect in the contract. The doctrine of promissory estoppel does not belong to the law of contract or evidence but appertains to equity and fairness in action. The doctrine of legitimate expectation evolved in England has been followed in most of English-speaking countries, including India. This doctrine is an offshoot of the general doctrine that every public authority must act fairly and reasonably. The plea of legitimate expectation provides a sufficient interest to a person to enable him to move for judicial remedies in a case where he cannot point to the existence of a substantive right to obtain such remedies. In other words, as per the doctrine, even where a person claiming some benefit or privilege has no legal right to it, he may have a legitimate expectation of receiving the benefit or privilege as a matter of public law, in which case the Courts will insist on a fair Procedure.

73. Having noticed briefly the doctrine of promissory estoppel and doctrine of legitimate expectation, let us have a look at the facts and circumstances of the case, in order to see whether there is any justification in the grievance of the appellant. Policy framed by the GoI guarantees 16% return equity at Plant Load Factor of 68.5% and provides incentive for a higher Plant Load Factor. It is the contention of Dr. Singhvi that it was the legitimate expectation of the appellant that it would be allowed to sell power at such rates which prevailed in other power generating companies. The documents to which reference is made supra would disclose that the appellant performed its part of contract on the belief that it would be entitled to performance of reciprocal promises made by the KPTCL and GOK. We do not think it necessary to dilate on this aspect except stating that there is merit in the contention of Dr. Singhvi that the Commission has failed to appreciate the appellant’s rights in the backdrop of the doctrine of promissory estoppel and doctrine of legitimate expectation which have come to stay as permissible grounds in administrative law of the country to review the administrative and statutory actions.

74. The doctrine of legitimate expectation has its genesis in the field of administrative law. The Government and its department, the public authorities, in administering the affairs assigned to them are expected to honour their statements of policy or intention and treat citizens with full personal consideration without abuse of discretion. Unfairness in the form of unreasonableness is akin to violation of principles of natural justice. It was in this context that the doctrine of legitimate expectation was evolved which has become a source of substantive as well as procedural rights. The actions of the ‘State’ as well as statutory authorities have to be in conformity with Article 14 of the constitution of which non- arbitrariness is a significant facet. The Supreme Court in NATIONAL BUILDINGS CONSTRUCTION CORPORATION v. S. RAGHUNATHAN AND ORS., (1990) 7 SCC 88 has noted the circumstances stated by Lord Diplock with approval when the doctrine of legitimate expectation can be invoked. Paragraph 20 of the judgment reads:

“20. Lord Diplock in Council of Civil Service Unions v. Minister for the Civil Service (1985 AC 374: (1984) 3 All ER 935: (1984) 3 WLR 1174, HL) laid down that the doctrine of “legitimate expectation” call be invoked if the decision which is challenged in the Court has some person aggrieved either (a) by altering rights or obligations of that person which are enforceable by or against him in private law, or (b) by depriving him of some benefit or advantage which either (i) he had in the past been permitted by the decision-maker to enjoy and which he can legitimately expect to be permitted to continue to do until there has been communicated to him some rational grounds for withdrawing it on which he has been given an opportunity to comment; or (ii) he has received assurance from the decision-maker that it will not be withdrawn without giving him first an opportunity of advancing reasons for contending that it should not be withdrawn”.

75. In MOTILAL PADAMPAT SUGAR MILLS CO. LTD. v. THE STATE OF UTTAR PRADESH AND ORS., in paragraph-24 of the judgment, the Supreme Court held:

“The law may therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. It is elementary that in a republic governed by the rule of law, no one, howsoever high or low, is above the law. Every one is subject to the law as fully and completely as any other and the Government is no exception. It is indeed the pride of constitutional democracy and rule of law that the Government stands on the same footing as a private individual so far as the obligation of the law is concerned; the former is equally bound as the later. It is indeed difficult to see on what principle can a Government, committed to the rule of law, claim immunity from the doctrine of promissory estoppel?”

76. In the result and for the foregoing reasons:

(i) we allow the appeal and set aside the impugned orders and direct the KPTCL to comply with the tariff rate specified in the order of GoK dated 12th May, 1999;

(ii) as per the interim order passed by this Court on 19th November, 2002, it is stated by Dr. Shighvi that the appellant has paid 40% of Rs. 62.5 crores computed by the KPTCL as difference between the PPA rates and the rates fixed by the Commission and, therefore, we direct the KPTCL to repay the amounts recovered from the appellant in pursuance of the interim order dated 19th November, 2002 and also pay amounts that become payable to the appellant arising out of adjustments of the payments already made by the appellant to KPTCL (i.e., the difference between respondent No. 2/PPA rate and Respondent No. 3/interim rate fixed by this Court pending disposal of the appeal, as the case may be) from 1st August 2000 upto November, 2002 within a period of one month from today.”

(iii) In the facts and circumstances of the case, we direct the parties to bear their respective costs in this appeal.