KARNATAKA POWER TRANSMISSION CORPORATION LIMITED v. JSW ENERGY LIMITED (EARLIER KNOWN AS JINDAL THERMAL POWER COMPANY LIMITED & JINDAL TRACTABEL POWER COMPANY LIMITED) & ORS.

The Judgment of the Court was delivered by A

K. M. JOSEPH, J.

1Copy pinpoint1. Leave granted. Being connected, the appeals are being disposed of by a common judgment. B

2Copy pinpoint2. The appellant, in appeal arising out of SLP (C) No. 18607/04, is the Karnataka Power Transmission Corporation Limited and hereinafter referred to as ‘the appellant’.

3Copy pinpoint3. By the impugned judgment, the High Court has allowed Miscellaneous First Appeal No. 4795 of 2002 filed by the first respondent C herein, viz., JSW Energy Ltd., earlier known as Jindal Thermal Power Company Limited (hereinafter referred to as the first respondent). The appeal was filed by first respondent under Section 41 of the Karnataka Electricity Reforms Act, 1999 (hereinafter referred to as the ‘Act’ for brevity). D

4Copy pinpoint4. By the impugned order, the High Court has set aside the order dated 22.05.2002 and the order dated 08.07.2002 which are orders passed by the Karnataka Electricity Regulatory Commission (hereinafter referred to as ‘Commission’ for brevity). The Commission is the appellant in the other appeal. The High Court has after setting aside the impugned orders E directed the appellant, to comply with the tariff rate specified in the order of the Government of Karnataka (hereinafter referred to as ‘GoK’ for brevity) dated 12.05.1999. The further direction given is as follows: “(ii) as per the interim order passed by this Court on 19th November, 2002, it is stated by Dr. Singhvi that the appellant has paid 40% of F 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 the adjustment arising out of G payments made by the appellant to KPTCL (i.e., the date between the respondent No. 2/PPA rate and respondent No. 31 entered rate of this Hon’ble Court; as the case may be) from 1st August, 2000 up to November 2002 within a period of one month from today;” H

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A FACTS IN BRIEF

5Copy pinpoint5. The first respondent was permitted by GoK during March 1994 to set up a 2X130 MW cortex gas/ coal based thermal power plant at Bellary. It was apparently intended that Jindal Vijayanagar Steel Limited (JVSL) would consume the power produced from the thermal plant to B be set up by the first respondent. The Central Electricity Authority granted the required technical economic clearance in March 1996. Originally, GoK gave approval to set up the power plant by JTPCL for 300 MW. It was initially reduced from 300 to 240 MW in March 1995 and finally, it was modified by order dated 13.02.1996 and reduced to 260 MW (130X2). There were to be two units, that is Unit No.1 and Unit No.2. C Karnataka State Electricity Board (KEB for short) entered into a heads of terms with JTPCL on 30.09.1995.

6Copy pinpoint6. Clause 4 of the heads of terms reads as follows: “4. SALE OF EXCESS ENERGY & CAPACITY TO KEB D If, at any stage, JTPC has excess firm capacity and/or energy for sale to KEB, then KEB may purchase the same from JTPC subject to agreement on price and other terms to be negotiated at the time of such sale.”

7Copy pinpoint7. Heads of terms was essentially a memorandum prior to the E agreement, entered into in regard to wheeling and banking in regard to sale to dedicated consumers by the first respondent. It was followed up by a wheeling and banking agreement between the KEB and JTPCL dated 23.01.1996.

8Copy pinpoint8. In the said agreement also, the parties have reiterated the Clause F (Clause 2.4) relating to the sale by first respondent to KEB in similar terms as in the Heads of terms. Somewhere in 1998, the first respondent invoked the clause in its bid to sell power to KEB.

9Copy pinpoint9. On 20.10.1998, the first respondent wrote to KEB as follows: G “This has reference to your above referred letter on the above subject. In this connection kindly refer to our earlier letter dated 28th September 1998, wherein we have confirmed that our tariff is in accordance with GOI notification dated 30th March 1992. Further we have confirmed that we would offer substantial rebate on the two-part tariff calculated on the basis of GOI norms. H

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] A statement giving details of Tariff calculations at 85% PLF and A 68.5% PLF and 68.5% PLF is enclosed. The statement also gives details of cost under various sub-heads. The tariff is subject to the following assumptions:

1. Landed costs of imported coal assumed at USD 50 per tone. B

2. Any variation in coal price will be to customer’s account.

3. Exchange Rate assumed at USDI = Rs.42.

4. Repayment of Foreign Loan, ROE and Depreciation will vary as per the applicable exchange rate. C

5. O&M Charges will vary as per Indian Inflation Rate. At your convenience, we can explain and furnish any clarifications required on the tariff calculations. Hope the details furnished along with this letter would enable you to consider our proposal and hence request your to kindly arrange D for the approval of your board.

10Copy pinpoint10. On 21.11.1998 again, there is a proposal put forth by the first respondent to the KEB. Therein it has indicated that it has completed 100 per cent construction, erection and testing facility of Unit No.1. E

11Copy pinpoint11. After stating that they are scheduled to synchronise Unit No.1, by December, 1998, it was indicated that the commissioning of unit no.2 is scheduled for July 1999. Thereafter, reference is made to clause 2.4 of the Wheeling and Banking Agreement, as already referred to. The respondent offered 50 MW from the commissioning date of Unit No.1. Further offer of 100 MW was made (base load basis) from the F commissioning date of Unit No.2. It further offered upto maximum of 200 MW during the time when the steel plant JVSL and JPOCL (another dedicated consumer of first respondent) were under shut down (major breakdown) or during the maintenance period. It further offered to pay penalty if the supply was less than 75 MW from commissioning date of G Unit No.2. The rate was shown as 2.90/Kwh. Payment was requested by irrevocable revolving L/C. This offer, however, was exclusive of certain items and it is indicated that the consideration of the same was in line with Government of India and KEB Norms. We may notice the following terms which are set out as the elements to be excluded of the rate: H

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We propose to supply power on the basis outlined in this letter for an initial period of five years from the date of commissioning of second 130 MW Unit. Since we are eligible for Income Tax Exemption for the first five years, it is not included in the proposed tariff.” F

12Copy pinpoint12. The promise was to supply for a period of five years from the date of commissioning of the second unit. It is stated that the first respondent is available for any clarification and for further negotiation. Under the head “Utilization of Power During Stabilization Period” it is stated as follows: G “II. UTILISATION OF POWER DURING STABILISATION PERIOD. (from the date of synchronization to commercial operation) We have signed ‘Wheeling and Banking’ agreement with KEB which allows us to bank Power with KEB during the period from H synchronization to commercial operation.

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] During the above period we still be supplying power to our sister A company’s i.e., JVSL and JPIOCL who are located adjacent to Power Plant and within a common’s with yard (owned & controlled by JTPC). During this period since the power may not be available on ‘FIRM’ basis we would like to draw power from our Banked Power and supply to JVSL and JPOCL. B KEB has sanctioned power to JPOCL, JVSL and JTPC to meet their star-up power requirements. KEB has sanctioned demand for each unit separately. All the three units are availing KEB power for plant commissioning, start-up purposes, trial operation and each unit is paying demand and energy charges to KEB. C After synchronization of JTPCL’s 1st 130 MW unit (December 98) we seek your kind consent and approval for the following arrangements. a. JTPCL will supply power to JPOCL and JVSL. b. JTPCL, JVSL, JPOCL will continue the contract with D KEB and continue to pay contracted demand charges to KEB. c. In exceptional cases when JTPC generation is lower than the energy requirement of JVSL and JPOCL, subject to their individual contract demand with KEB, JTPCL draws E energy from KEB for a limited period, or during the shutdown of the unit. d. Bank all excess power (without limitation as per wheeling and banking agreement) with KEB and take energy credit for the Banked power, to utilize as and when required. F e. In case, we draw power from KEB when our bank is zero, we will also pay energy charges to KEB as per the applicable tariff. Once the reliability tests are over and when JTPC declares the commercial operation of their unit, JVSL, JPOCL and JTPC will G request KEB to cancel (withdraw) their contract demand with KEB and JTPC will meet both demand and energy of these two units on regular basis. Present metering system (Annexure -1) INSTALLED by KEB in our complex is on temporary basis and for adopting the above H

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A modalities permanent metering system is required to be established by KEB which is detailed at Annexure- 2. We request you to kindly accord your approval for the above two proposals. Proposal 2 requires implementation of metering system before synchronization of unit scheduled in the last week of B December 1998 and hence approval may please be accorded at the earliest. Thanking you we remain Yours faithfully For JINDAL TRACTEBEL POWER CO. LTD. C Sd/- S.S. Rao Dy. MD & CEO”

13Copy pinpoint13. The response of the KEB is found in communication dated 1st D December, 1998. It is stated as follows: “The Board is in principle willing to purchase surplus power from your plants as already discussed. Your proposal regarding the tariff is under evaluation by the Board”.

14Copy pinpoint14. Next, it is relevant to notice the communication dated E 19.01.1999 made by KEB to GoK. It reads as under: “KARNATAKA ELECTRICITY BOARD K.P. SINGH, I.A.S. CAUVERY BHAVAN, CHAIRMAN BANGALORE–560001 F D.O.No./KEB/B2/B13/6306/93-94 Date: 19/1/1999 My dear Chaubey, Sub: Purchase of power generated by the captive power plant of M/s. Jindal Tractebel Power Company at Hospet. G Government of Karnataka vide GO No. de 221 PPC 93 Bangalore dated 7-3-1994 had permitted M/s. Jindal Tractebel Power Company to set up a 2xl20 MW power plant at Hospet, which was subsequently enhanced to 2xl30 MWs. This plant, which was set up as a captive power plant was given an IPP status later on vide Government letter No. DE 221 DPC 93 (P) dated 1-2-1996 H

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] as the shareholders of the power plant and steel plant were A different. TEC for the above project was issued by CEA vide their letter dated 22-3-1996. As the company proposed to utilize the power generated for their own use and to sell to other industries in the State, after initial round of discussions with the Company, only a wheeling and banking agreement was proposed. In January B 1996, Board entered into a Wheeling and Banking Agreement with the Company. In the Wheeling and Banking Agreement, as per Clause 2.4, the Company could sell excess capacity and/or energy to KEB and KEB had an option to purchase the same at a negotiated rate. The relevant clause is reproduced below: “‘If at any stage, the Company offers excess firm capacity and/or energy for sale to the Board, then the Board may purchase the same from the Company, subject to agreement on price and other terms to be negotiated at the time of such sale.” Jindal Tractebel Power Company is the first IPP to have achieved Financial Closure. Subsequent to achieving Financial Closure, the company took up the work of construction of the plant and the first unit of the plant has also been synchronised with the KEB grid recently. M/s. JTPC during discussion have stated that due to downward trend in the Steel industry, the requirement of the steel has reduced and consequently progress of the Corex Plant has slowed down. As a consequence of the above, the Company, vide their letter No.4 JTPC/KEB dated 20-10-1998 have offered to sell 50 Mw after the first unit is commissioned and 100 MW after the second unit is commissioned to KEB on basis. Also, in case of shut down of the JVSL Plant or its subsidiaries for maintenance purposes, they have offered to sell nearly 200 MWs to KEB. Though KEB has signed PPAs with various IPPs, the progress of these plants is not satisfactory. As of today, only the 200 MW G Barge Mounted Power Plant being set up by M/s. Tanir Bavi Power Company has neared financial closure. A table indicating the first-year tariffs payable to various IPPs, whose projects have been sanctioned under the bid route is given below. The present rate of Rs.42.50 to a dollar has been taken for the purpose of calculating the tariff. H

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C It is also to be stated that of the above mentioned plants, some of the plants may not come up. The doubtful plants are that of M/s. DLF, Scintilla and lnnox Power. In case of M/s. Rayalseema, even though the plant had intimated that they have achieved financial closure nearly 8 months back, they have requested for enhancement of capacity of the plant to double its size to make it economically viable. This issue is under examination. Because of the shortfall in generation in the State and the steady demand for power, KEB is purchasing power from MSEB in addition to that from Central Generating Stations. The tariff we are paying for power of MSEB is Rs.2.30/unit for power availed during off peak hours and Rs.2.65 for power availed during peak hours. We are at present purchasing nearly 100 MWs during peak hours and upto 200 MWs during off peak hours. MSEB has asked for revision of prices from 1-1-1999 for the power supplied by them. The revised rates are Rs.2.50 + FEC for off peak power and Rs.3.00 + FEC for power supplied during peak hours. Tamil Nadu is also purchasing power from MSEB at Rs.2.65 /unit during peak hours and Rs.2.30/unit during off peak hours. Tamil Nadu Electricity Board is also purchasing power from Eastern Grid at G Rs.2.74/unit. KPCL is proposing to synchronize their V and VI unit in the coming months. Though the actual cost is yet to be finalized, as the project cost is yet to be frozen, it is indicated that the tariff for the power generated by these plants vary between Rs.2.75 to Rs.2.80. It has also been reported in the press that for the power proposed to be generated from the Kayamkulam H

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] Thermal power plant being set up by M/s. NTPC, KSEB would have to pay nearly Rs.3.90/unit and after the intervention of the Prime Minister, the rate payable would be around Rs.3.52/unit. The project of M/s. JTPCL was under the Captive route and it was contemplated that the entire power generated would be used by JVSL and its subsidiaries. Though a provision was there in the wheeling and Banking agreement for KEB to purchase any surplus power from this project at a later date, it was clearly mentioned that the price at which this power would be purchased would be at negotiated rates. This was because, KEB did not feel it necessary to go into the details of the capital costs of this project as this project was contemplated as a captive power plant and only surplus power, if any, was to be sold to KEB, at a later date. M/s. JTPCL vide their letter dated 20-10-1998 had offered to sell power to KEB at Rs.2.90/unit. During internal meetings it was also decided that as this project was meant as a captive power plant and KEB did not go into the details of the project cost earlier or anticipate in the meetings at CEA before the TEC was issued, it would not be possible to negotiate tariff based on two-part tariff notification of GoI. Also, as we would be paying only a fixed price per unit, it was felt that going into the details such as the actual heat rate, the O&M E charges, the working capital, foreign exchange protection to be provided, etc. should not be done and only the cost per unit presently being offered from other sources should be compared. Further, to compensate for the variation in Rupee against the dollar, the increase in Consumer Price Index, interest rate on working capital etc., it was also decided that some annual increase in the fixed F price should be allowed to take care of the above-mentioned items as has been done in case of MOU Route projects. With this background, negotiations were held with M/s. JTPCL. During discussions, it was stated that the cost per unit will have to be split into two parts, viz. Fixed Component and Variable charges. G The variable charges would be based on the actual price of coal which JTPCL would buy. After detailed discussions, it was decided that a price of Rs.2.60/unit can be offered, comprising of Rs.l.70 as fixed charges and Rs.0.90 as variable charges. To compensate for depreciation of rupee against dollar, escalation of O&M charges H

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A due to increase in cost of price index, working capital requirements, etc. It was also decided that the fixed charges should be escalated by 5% every year beginning from the second year after we purchase power from JTPC. As regards the variable cost, which depends on the cost of coal, B the company will have to invite bids from global markets and satisfy KEB about the correctness of the procedure followed and the price arrived at. These bids can be either of I year duration or a longer period. Depending on the actual cost of coal, the variable price will be paid. C Regarding the term of the agreement, it is to be stated that the major thermal power projects , i.e. that of M/s Mangalore Power Company and M/s. Nagrujuna Power Company may not be available for the next five years. There is a case pending in Supreme Court regarding Mangalore Power Company and only after the judgment is known, Gol will consider extending counter guarantee to this project. After the counter guarantee is given, it may take anything between 4 to 5 years for the project to be issued. Again, it may take 4 to 5 years for the project to be put up, since the company will have to achieve financial closure. Hence it is considered prudent to limit the period of the agreement to purchase power from Ms. JTPCL to 5 years initially. The cost per unit of power purchased from M/s Jindal Tractebel during the five year period keeping the variable cost constant would be as follows:

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] Even with the increase of Fixed Charges by 5% every year, it is to be stated that in the 5th year, the cost of power with the variable charges remaining the same will be Rs.2.07 + Rs.0.90, i.e. Rs.2.97 per unit which is lower than the tariff now being offered by MSEB during peak hours. The company has offered to sell 100 MWs on a guaranteed basis, it will be necessary to assure a minimum level of offtake failing which Deemed Generation Charges will have to be paid. As per two part tariff notification the minimum assured off-take should be 68.5% PLF. As this project is essentially meant as a captive power plant, it is suggested that the minimum off-take below which deemed generation would be payable should be 50% of the contracted/declared capacity, whichever is lower. It is also suggested that a penalty be levied on M/s. JTPCL if there is any shortfall in power below 75% of the quantity assured by the company. D Keeping all the above in mind, it is suggested that we can purchase power from M/s JTPCL at Rs.2.60/unit (FC Rs.1.70 + VC Rs.0.90) with the fixed charge being escalated by 5% from the second year with the conditions of penalty to be paid by the firm for short supply of power and assured off-take mentioned above. E For all IPPs, Government is giving guarantee for the payments to be made by KEB for the power it receives. Apart from this, irrevocable letter of credit and escrow accounts are also being opened by KEB as additional security for power supplied by these companies. In case of JTPCL, as the question of providing government guarantee does not arise as the plant was essentially F set up as a captive power plant and majority of the power generated is being sold to captive industries. However, irrevocable revolving Letter of Credit and backup escrow can be provided to the Company. G Approval of the Government is sought for the above proposal. Subsequent to the approval, negotiations will be held with M/s JTPCL for finalizing the PPA.”

15Copy pinpoint15. The GoK in its response by communication dated 05.03.1999 wrote as follows to the KEB: H

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A “R.No.DE 18 FEB 99 Dated 05-03-1999 I invite your to your D.O. letter dated 19-1-99 regarding your proposal to purchase power from M/s Jindal Tractabel Power Company at Rs.2.60/unit with a 5% escalation on fixed charges. The proposal has been examined in detail. The efforts of the KEB B to bridge the gap in power availability by entering into a short - term agreement with Jindal Tractebel Power Company Limited (JTPCL) is well appreciated. Government recognizes the fact that inspite of the best efforts made by the State Government to augment the power supply position there still continues to be a big gap between demand and supply. Government also note that presently KEB is supplying more than 75 Million units per day which is a record. The demand may further go up in the coming months and the situation may not change easily in the next few years on account of the substantial delay in the starting up of the Mega power projects in the State. Under these circumstances there is a need to tie up with IPP/other States/NTPC, for augmenting the power supply within the State urgently. There is no doubt all out efforts have to be made within the short time to tide over the problems of increased demand during the summer. The present proposal of the KEB keeps the tariff open ended and possible revision. The PP A being for a period of 5 years, KEB is advised to negotiate with the Jindal Tractebel for a fixed tariff for the next 5 years. This may kindly be got examined by KEB and the revised proposal may be sent to the government. F Yours, Sri K.P. Singh, IAS.”

16Copy pinpoint16. On 31.03.1999 after referring to the proposal dated 21.11.1998 and a series of discussions and the further meeting with the KEB officials on 26.03.1999, the first respondent indicated that in the meeting, KEB officials informed that it was willing to buy power from the first respondent subject to the following terms and conditions: “1. The term of the agreement could be 5 years.

2. The tariff should be a single part tariff. Escalation at a fixed percentage could be applied on the total price on an annual basis.

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] KEB will not consider any request either for two-part tariff based on CEA guidelines or for payment of fuel cost at actuals.

3. KEB will open irrevocable revolving letter of credit under which JTPC can get payments. It will also be supported by Escrow mechanism.

4. There can be penalty clause both for short supplies and short drawals.

5. The PPA should be a simple document.” [Emphasis supplied]

17Copy pinpoint17. Thereafter, it is stated that KEB asked for a formal proposal within aforesaid parameters. Thereafter in the communication, it is stated: “1. JTPC offers 50 MW (Energy 36 MU per month) of power from the commissioning date of Unit 1 and 100 MW (Energy 72 MU per Month) of power from the commissioning date of Unit 2. The first Unit of 130MW is expected to be commissioned in June 1999 and the second unit of 130 MW is expected to be commissioned in August 1999.

3. The tariff will be as follows: I year (Upto 31" March 2000)Rs. 2.60 I kwhr. II Year (Financial Year 2000-2001) Rs. 2.73 I kwhr. F III Year (Financial Year 2001-2002)Rs. 2.87 I kwhr. IV Year (Financial Year 2002-2003) Rs. 3.01 l kwhr. V Year (Financial Year 2003-2004) Rs. 3.16 I kwhr.

4. There will be no Wheeling charges or Electricity Tax on G supplies to KEB.

5. To maintain uniformity in penalty on either side, JTPC proposes as follows as from COD of Unit 2: (a) JTPC guarantees minimum supply of the Threshold Power Value after commissioning of JTPC Unit 2. If the H

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A supply is less than the Threshold Power Value, JTPC will pay penalty at 10% of the tariff, for supplies below the Threshold Power Value. (b) KEB shall guarantee that it will consume the Threshold Power Value. In case the consumption is less than the B Threshold Power Value, KEB shall pay to JTPC the full value of Threshold Power at the applicable tariff as above. (c) The Threshold Power Value is 75 MW (Energy 54 MU per month).

6. The minimum supply and the minimum consumption as per C para 5(a) and 5(b) above are applicable on a monthly basis.

7. If there is escalation in fuel cost beyond 5% at any time, JTPC reserves the right to terminate the contract with 3 months’ notice, if KEB does not agree to compensate for such escalation. D

8. KEB shall open irrevocable revolving letter of credit corresponding to 100 MW (Energy 72 MU per month) power sales under which JTPC can get payment for its monthly bills. It shall also be supported by Escrow mechanism.

9. The initial term of the agreement should be 5 years till March E 31, 2004, with a provision for renewal on terms mutually acceptable. We request you to agree to the above terms and conditions and convey your acceptance at the earliest. We will approach our Board and the lenders on getting your acceptance. F We also request you to let us have drafts of the PP A, Escrow agreement and the Letter of Credit, at the earliest. We propose to have one more meeting with your officials, after studying these drafts.”

18Copy pinpoint18. It is next necessary to notice the communication dated 23.04.1999 sent to the GoK by the Chairman of the KEB. “KARNATAKA ELECTRICITY BOARD K.P. SINGH, I.A.S. CAUVERY BHAVAN, CHAIRMAN BANGALORE–560001 H

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] Ref.No.83/99-2000 Date: 23 APR 1999 A My dear Arvind, Sub: Purchase of power generated by the captive power plant of M/s. Jindal Tractebel Power at Hospet. Ref: 1. This office D.O.letter No.KEB/B28/B13/6306/93-94 B dated 19-1-1999

2. DO letter NO.DE 18 FEB 99 dated 5-3-1999 of Energy Secretary addressed to the undersigned Accordingly, M/s JTPCL were invited for negotiations and discussions were held with them on 26th March 1999 to arrive at the rate they would sell power from their plant to KEB. During the meeting, the position of the Board/GoK was made known to the representatives of M/s JTPC, i.e. the tariff should be a single part tariff including variable charges and should be fixed for each year with an annual escalation by a fixed percentage. The firm was requested to intimate the tariff at which it would sell power to KEB. The firm stated that from their calculations, they will be taking a hit on fixed charges itself and this will be mainly due to depreciation of Rupee against the dollar and increase in O&M charges. Also E in case of variable charges, they stated that it is linked to the cost of coal, which is imported and that this will also increase due to the increase in cost of coal, the freight charges and again due to the depreciation of Rupee against the dollar in future years. They requested that the earlier negotiated position where the variable charges is a pass through should be retained. F The stand of the Government of Karnataka that only a fixed tariff per unit per year should be negotiated was again made known to the firm. The firm stated considering all aspects within the parameters fixed by the Board, they would be able to sell power at Rs.2.75 per unit with a cost escalation of 5% per year, which G was not ... acceptable to the Board. The firm was requested to offer a revised figure. After detailed negotiations, the firm, subject to confirmation of their Board of Directors, offered to sell power at a cost of Rs.2.60 per unit with an annual escalation of 5%. They stated that this is the minimum figure they could agree and H

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A any further reduction of the same would affect the project as it would be financially unviable. Hence there are two options available, i.e. either to retain the original proposal of the fixed charges being escalated by 5% every year with the variable charges being a pass through or the entire rate of Rs.2.60 including variable charges being escalated by 5% every year. In case of the second option, the tariff payable by KEB for each unit in different years will be as follows: With this the tariff payable during each year of operation will be as follows: Year Rs./Kwh 1 2.60 2 2.73 D 3 2.87 4 3.01 5 3.16 Considering the fact that rupee has been depreciating heavily E against the dollar the second proposal may be advantageous to KEB. The firm in its letter No.JTPC/KEB dated 31-3-1999 has confirmed that the tariff payable by KEB for power purchased will be Rs.2.60/ unit in the first year with an annual escalation of 5% every year. F They have stated that they will be offering 50 MWs (equivalent to 36 MU per month) from the date of commissioning of the first unit and 100 MW (equivalent to 72 MU per month) with the commissioning of the second unit. The first unit is expected to be commissioned in June 1999 and the second unit in August 1999. G They have also indicated that in case they have any surplus power beyond 50 MWs and 100 MWs after commissioning of unit I and unit 2, with the approval of KEB, they will sell power in excess of 50 MW s and 100 MW s. The firm has also proposed the following after commissioning of Unit 2: H

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

1. They will supply power with a threshold value of 75 MWs A equivalent to 54 MU per month.

2. If supply is less than the threshold power value, then JTPC will pay penalty of 10% of the tariff for supplies below the threshold power value.

3. KEB shall guarantee that it will consume the threshold power B value. In case the consumption is less than the threshold value, KEB shall pay to JTPC the full value of threshold at the applicable tariff as above.

4. The minimum supply and minimum consumption as above are on monthly basis. C

5. If there is an escalation in fuel cost beyond 5% at any time, JTPC reserves the right to terminate the contract with 3 months notice, if KEB does not agree to compensate for such escalation.

6. KEB shall open irrevocable revolving letter of credit D corresponding to 100 MW (energy 72 MU per month) power sales under which JTPC can get payment for its monthly bills. It shall also be supported by Escrow mechanism.

7. The initial term of the Agreement should be 5 years till March 31, 2004 with a provision for renewal on terms mutually acceptable. E These are issues to be negotiated with the firm while finalising the PP A and will be taken up later on. This is for information of the government and it is requested that orders may please be obtained and communicated to us. With regasrds, F

Yours sincerely, Sd/- (K.P. SINGH) Shri Arvind Jadav, G Secretary to Government, Department of Energy, Government of Karnataka Bangalore” H

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19Copy pinpoint19. Finally, on 12.05.1999, we find the following proceedings. It reads interalia as follows: “After detailed examination GOVT. ORDER NO. DE 18 FEB 99, BAN GALORE DATED 12TH MAY 1999

1. KEB is permitted to finalize a Power Purchase Agreement B with M/s Jindal Tractebel Power Company Limited (JTPCL) for the purchase of surplus power and submit the same to the Government for approval.

2. The rate per unit being Rs. 2.60 including variable charges with an annual increase of 5% every year. C

3. The term of the PPA shall be for a period of five years.

4. To adopt the same principle of negotiated tariff for captive generating power project who intend to sell power to KEB.”

20Copy pinpoint20. The Act came into force with effect from 01.06.1999. The D significance of this is that under Section 27 of the Act, unless there was a ‘concluded contract’ as on 01.06.1999, the Commission was to regulate the tariff. Thereafter we may notice the following correspondence as well. On 04.01.2000, the superintending Engineer of the KEB wrote to JPPCL. The correspondence would show as follows: E “This refers to the tariff of 2.60 per KWhr negotiated for purchase by KPTCL of the electricity generated by the subject power project. You are requested to furnish details of the break-up of the tariff so as to enable us to take further action.”

21Copy pinpoint21. On 06.04.2000, the first respondent wrote to the Chairman of F the appellant (KPTCL). It reads as follows: “JINDAL TRACTEBEL POWER COMPANY LIMITED Ref: JTPC/KPTCL/1545 April 6, 2000 To, G The Chairman Karnataka Power Transmission Corporation Ltd., Bangalore

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2. Government Order No.DE 120 EEE 99 Bangalore dated 7th July 1999 We are happy to inform you that both the units (2 x 130 MW) of our Power Plant are operating continuously. As per JVSL’s C agreement with KPTCL, JVSL was to return 215.810 MU to KPTCL. As on 6’h Apri12000 JVSL has returned 199.802 MU to KPTCL and the balance left over is only 16.008 MU, which will be completed by 12’h April 2000. As per the Government Order (Ref. l), the Government of D Karnataka has permitted KPTCL to purchase power from JTPCL at the rate of Rs. 2.60 per unit including variable charges with an annual escalation of 5% every year. The said order has also permitted KPTCL to finalize the PPA with JTPC. Accordingly, JTPC has finalized PPA with KPTCL and the final draft as accepted between JTPC and KPTCL has been submitted to KPTCL in September / October 1999. SI. No.8 of the Government Order (Ref. 2) directs KPTCL to operate the PPA with JTPC as Per Government Order NO. DE 18 EEB 99 Bangalore dated 12th May 1999 (Ref. I) only after complying with the obligations under the Government of Karnataka Order issued on 7th July 1999 (Ref. 2). SI. No.9 of the Government of Karnataka Order dated 7th July 1999 (Ref.2) also directed KPTCL to honour the obligations under Wheeling, Banking and Grid Supporting Agreement between KPTCL and JTPCL only after fulfilment of obligations under the Government of Karnataka G Order dated 7th July 1999 (Ref. 2) Since the submission of final draft PPA to KPTCL in September I October 1999, JTPC is continuously pursuing KPTCL and Government of Karnataka for signing of the PPA. During this period, whatever clarifications were sought by KPTCL were submitted by JTPC & KTPCL. H

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A Inspite of our best efforts, so far, the PPA has not been signed by KPTCL thought the tariff and other conditions are already covered in the Government Order. After returning of the power by JVSL to KPTCL which is expected to happen by 11th April 2000, JTPC will be supplying power to KPTCL as per the Government of Karnataka Order dated 18’h May 1999 (Ref. 1). Even though PPA is not yet signed and is pending with KPTCL, the absence of PP A should not come in the way of supplying of power by JTPC to KPTCL from 12’h April 2000 as the formal Government of Karnataka Order dated 12m May 1999 along with the details of tariff (Ref. 1) does exist. Hence, pending finalization and signing of PP A between JTPC and KPTCL, we request you to kindly accept the power dispatched by JTPC to KPTCL from 12m April 2000. JTPC will be submitting the invoices as per the Government of Karnataka Order dated 12m May 1999 (Ref. 1) subject to any changes required to be done subsequently as per the terms and conditions of the PPA to be agreed and signed between JTPC and KPTCL.”

22Copy pinpoint22. In response to letter dated 06.04.2000, the appellant corporation wrote to the first respondent on 12.04.2000. It reads as under: “With reference to the above, I am directed to communicate approval of the Corporation to continue to supply energy to the grid from the 2x130 MW Power Plant of your Company pending finalization of PPA under the following conditions.

1. The Grid support charges envisaged in the Wheeling & F Banking and Grid support Agreement i.e., Rs. 1.73 Crores Annum will be provisionally deducted from the tariff invoices when the amount is paid. This will be subject to change and has to be paid as per the terms of PP A to be signed.

2. The 115% energy imported will be deducted from the energy G exported, provisionally pending finalization.

3. The energy will be accounted only after signing of PPA.

4. The energy banked prior to signing of PP A will be treated as energy banked with the Corporation and will be accounted as per the Corporations rules. H

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

5. This orders is only for facilitating continued operations of A the Power Plant and Corporation makes no commitments with respect to terms of PPA which is being finalized separately.

6. The metering arrangements should be as per the Article No. 4 of the Wheeling, Banking Agreement and Grid Support B Agreement already signed copy of the same is enclosed.”

23Copy pinpoint23. We may still further notice the communication dated 24.05.2000 addressed by the appellant to its Chief Engineer Electricity which reads as under: C “With reference to the above, I am directed to convey approval of the Corporation to make payments to M/s. JTPCL for the energy supplied to the grid from 15-4-2000 and onwards at Rs. 2.52 per unit pending signing of PPA. Under following terms.

1. The procedure for payments should be as per the standard D procedure followed in case of IPP Projects.

2. 115% of imported energy should be deducted form the exported energy and payments will be made for net exported energy so arrived.

3. The metering should be as per the terms of Wheeling & E Banking Grid support Agreement between KEB and JTPCL signed on 23-1-96, till such time PP A is finalized.

4. The firm has to submit an undertaking that the terms and conditions of PP A between KPTCL and JTPCL will be applicable for the payments made by KPTCL for the energy F supplied by JTPCL from the date as approved by government till the PP A is signed.

5. This is only an order to facilitate payment of energy charges to M/s. JTPCL and Corporation makes no commitments in this regard and the terms of PPS will be finalized separately. G

6. The energy transaction prior to 15-4-2000 will be finalized separately.”

24Copy pinpoint24. Finally, we notice the proceedings of the Government of Karnataka dated 17.07.2000. It reads as under: H

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A PREAMBLE: ln Government Order No. DE 18 EEB 99 dated: 12.5.99 KEB was permitted to finalize a power purchase agreement with M/s. JTPCL for purchase of surplus power from generating units at the rate of Rs. 2.60 per unit with an annual increase of 5% every year for a period of 5 years. Further the rate per unit has been reduced from Rs. 2.60 to Rs. 2.52 vide Government Corrigendum dated 8.5.2000. It is in this context the request made by the JTPCUJVSL has been examined and it is found that continuing with the earlier rate of Rs. 2.60 per unit would result in honoring the commitment of the Government. Besides it has the advantage of procuring a better price every year for KTPCL. It would ensure that power is purchased at Rs. 2.60 instead of Rs. 2.63 per unit in the first year, Rs. 2. 73 instead of Rs. 2.77 per unit on the second year, Rs. 2.87 instead of Rs. 2.92 per unit in the third year and Rs. 3.01 instead of Rs. 3.05 in the fourth year. D Honoring the earlier Government Order would also ensure that there is no litigation on this subject in a court of law. The KPTCL vide it’s letter dated 22.5.2000 read at Sl. No. Shad also requested the Government to review the effective date for purchase of power from the said company and communicate the E Government decision. The matter has been examined at Government level in consultation with KPTCL and in the interest of the Company. After examining the requested made by the Company, Government are pleased to Order as follows: GOVERNMENT ORDER NO. DE 18 EEB 99. BANGALORE F DIST: 17.7.2000 In the circumstances explained above, Government are pleased to permit Karnataka Power Transmission Corporation Limited to purchase power from M/s. Jindal Tranctebel Power Company Limited at the rate of 2.60 per unit with an annual increase of 5 G every year as indicated in the Preamble to this Order. The implementation of this Order will commence from the date of the issue. The other conditions of the Government Order of even no. 6 dated 12.5.1999 remains unaltered.” H

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

25Copy pinpoint25. A draft power purchase agreement came to be made on A 07.11.2000 between the appellant and the first respondent. There are elaborate details contained therein. Suffice at this juncture to notice further, that a letter was sent to the Commission on 17.11.2000. This letter was treated as an application by the appellant (KTPCL) for entering into a power purchase agreement under Section 25 (3) of the Act read B with Section 17(1) of the Act. Based on a public notice, objections were filed by five objectors. More importantly, the stand taken by the first respondent was that the Commission was bereft of jurisdiction to examine the PPA on the ground that it merely represented a contract which was concluded with it prior to the commencement of the Act, and therefore, the case fell within the four walls of the proviso to sub-section 2 of C Section 27 of the Act. The Commission thereafter proceeded to enter the following findings, inter alia: The entire negotiation, correspondence and acceptance of an offer must be absolute. The offer of the first respondent was subject to further approval, that is, the approval of the Board of the Company D and the lenders to the company. The Deputy Managing Director and CEO of the company was not delegated the authority to bind the company. The offer was not one to be converted into a contract. After referring to order of the GoK dated 12.05.1999, it is found that out of the 9 issues containing the proposal of JTPCL, E Government has indicated its intention to agree only to two issues, namely the rate of Rs 2.60/- per KW hr. and the period of five years that is the term of the agreement. The GoK, it is noted, directed KEB to negotiate the PPA and to submit the same for approval. F The provision for an escrow facility to guarantee payment to JTPCL and payment for full charges for deemed generation did not find reflection. These conditions were central to any PPA. As on 12.05.1999, the parties did not intend the agreement to G be binding. By the GO dated 12.05.1999, Government reserved its right to vary the tariff. There is no acceptance of the proposal as far as GOK is concerned. Government order dated 12.05.1999 only served to provide broad guidelines to negotiate with the first respondent for a mutually agreed term. H

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A (1) The PPA cannot be restricted to the aspect of rates only. The mutual rights and obligations have to be stipulated specifically even after the rate is agreed. There is no concluded contract. (2) Government of India notification dated 30.03.1992 was to B be considered only as a ceiling and it is perfectly open to the Electricity Board and generating companies to negotiate and arrive at a lower tariff. Reference is made to the omission of sub-section (2) of Section 43A of the Electricity (Supply) Act, 1948 in the State of Karnataka with effect from 14.09.2000. C

26Copy pinpoint26. After an elaborate study of documents, it was found, that the power proposed to be supplied to the appellant (KPTCL) was surplus power and the grant of IPP status by communication dated 01.02.1996 would not avail the first respondent. D We may next notice the following discussion: “60. Simply because, plant is making use of common infrastructures for coal hand long 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, G Gol 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 H

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] IPP/CPP is irrelevant as the Commission has allowed KPTCL to pay fixed charges to the appellant.”

27Copy pinpoint27. Thereafter, the Commission arrived at a probable tariff and finally directed the appellant to negotiate with the first respondent based on the calculation made and to come up with a fresh proposal. The first respondent did not negotiate. It is this which led to the Commission passing the second impugned order. In the light of the same, Commission proceeded to approve a draft PPA, submitted on 17.11.2000 with the following modifications: a) The tariff charges for the first tariff period shall be Rs.2.36 Unit instead of Rs.2.60/unit upto 657 MU (page 17 of the C Draft PPA). b) The tariff for the entire energy in excess of 657 MU in, the first tariff period will be Rs. 1.88/unit instead of Rs.2.20/ unit (page 17 of the draft PPA) c) Grid support charges per month as per the following formula: D GSC = Fl Load in MW x 1000 x DC PF Where: Fl Load in MW is the fluctuating load in MW (l3.55 mw) E DC- Applicable Demand Charges PF- Power Factor d) the yearly escalation is 2.50% instead of 5% (Page 17 of the Draft PPA) F e) Regarding the penalty for non-generation, it is directed that a penalty of 20% of the tariff shall be levied.

14. The PPA as approved by the Commission will come into effect from 1.8.2000 and shall be valid for a period of five years as per the proposal of KPTCL. G

15. In their letter No. JTPCL/AUTCH/2358 dated 20th June 2002. JTPCL has expressed their willingness to enter into long term PPA on two-part basis. The Commission advises KPTCL to negotiate with M/s. JTPCL a long term PPA depending upon the need for power. On approval of such a PPA by the Commission, the present PPA will get terminated.” H

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28Copy pinpoint28. It is these orders which came to be challenged by the first respondent before the High Court under Section 41 of the Karnataka Electricity Reforms Act, 1999. The High Court formulated the following points for decision. “19. After hearing the learned Counsel for the parties, following B 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? C (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, D 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 E 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?”

29Copy pinpoint29. As regards point No.1 it was found that the Commission was performing as a quasi-judicial body. It was further found that when validity of the order of a quasi-judicial body is assailed in a court of law, it is healthy and fair that such authority (the commission) should not take sides. The High court did not find justification for the Commission to file its own extensive pleadings, engage a senior counsel and show abnormal interest. The contesting parties were capable of taking care. The question was also posed as to the position of the Commission if a case is remanded back to it when it has been impleaded as a party and takes an unambiguous and inelastic view. It was finally found that the Commission

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] was not a proper party having regard to the questions that arose for decision in the appeal. The High court took care that it should not be understood as meaning that the Commission cannot be a necessary and proper party if an appeal is preferred under Section 41 against its order regardless of the question which arose. Answering point No.2, that is whether there is a concluded contract, the Court went on to find that there was a concluded contract within the meaning of the explanation to Section 19 and proviso to Section 27(2) of the Act. This view was formed on the basis of the conspectus of the correspondence beginning with the Government order dated 07.03.1994 and the communications which we have already indicated and culminating in the GO dated 12.05.1999 of GoK. Thus, it was found that all essential terms and conditions, that is, the tariff rate, escalation, quantity and tenure for purchase and sale of power were agreed between the parties before 01.06.1999 (the date on which the Act came into force). The order dated 12.05.1999 was preceded by several rounds of negotiation. It was no doubt found that there were several rounds even after the Act came into force between the parties, and they discussed and finalised the terms and conditions of the PPA except tariff as the tariff was agreed upon as evident from GO dated 12.05.1999. The PPA dated 10.11.2000 incorporated all the agreed terms. After signing the PPA, the appellant took steps to open letter of credit for securing payment based on the tariff of Rs.2.60 per unit plus 5 per cent escalation per annum without obtaining approval of the Commission. E The letters dated 04.01.2000, 12.04.2000 and 24.05.2000 according to the High court reflected the intention of the parties to treat GO dated 12.05.1999 as the binding contract as far as the tariff was concerned. The High Court discussed case law and found inter alia that there was a concluded contract. Interpreting the proviso to Section 27 (2) of the Act, F it was found that the proviso was only for the purpose of Section 27(2), that is, factors relating to tariff determination. The proviso could not deal with other fields, the Section itself did not deal with. The correct interpretation, according to the High Court, was as far as ‘contract concluded’ is concerned the proviso is referable to the tariff which is agreed between the parties before the Commission came into existence. G There is no form for the concluded contract in the Act. No penalty is imposed for not entering into the PPA. This shows that PPA is not an essential requirement under the Act. The appellant purchases power from other utilities without PPA. The fact that the learned counsel for the Commission entertained this view, was recorded. It is found that H

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A when an offer is made and acceptance does not extend to all the terms, on the terms accepted, a contract is concluded. The order dated 12.05.1999 was for all purposes treated as contract for sale of power. Parties were ad idem. All terms and conditions agreed upon in the GoK order dated 12.05.1999 were incorporated in the PPA without any variation. GoK has given its consent to the first respondent in terms of B Section 43A of the Act, prior to the commencement of the Act. Since approval was already given under Section 43A of the Electricity (Supply) Act, 1948, approval under Section 17(1) was not necessary. It is recorded in the judgment that the appellant agreed with the first respondent that Section 27(2) of the Act did not require a contract in writing or any formal document or that it prescribed any particular form. The appellant contended that there was no concluded contract for certain reasons. They are as follows. (1) It is reflected as the contention of the appellant that the offer of first respondent itself was “subject to” the approval of the Board and its lenders. These approvals constituted conditions precedent for formation of the contract. (2) There was no acceptance or communication of acceptance by the appellant (KTPCL). (3) Essential clauses such as Escrow, deemed generation, auxiliary consumption etc. required for a PPA were not agreed upon. (4) The order dated 12.05.1999 was merely an internal approval and not in exercise of any statutory provision. F (5) The tariff of Rs.2.60 was an indicative figure. There was no basis to arrive at the figure of Rs.2.60. (6) There was no record to show that appellant participated before the CEA (Central Electricity Authority).

30Copy pinpoint30. The High Court proceeded to find that as regards the condition in the proposal that the offer that was made was subject to approval by the Board of Directors and lenders that, neither of the parties insisted on the satisfaction of the conditions before supplying power. The principle of waiver was employed also. The order dated 12.5.1999 did not employ the word “subject to”. The terms such as ‘deemed generation’ were not considered essential by the parties. The fact that the party continued to

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] perform for almost 3 years would show by ‘conduct’ that they cannot be A termed as essential. It is not necessary that KPTCL should communicate acceptance to the respondent. It is further found that a contract which is concluded by acceptance by the ‘Gok’ is protected by proviso to Section 27(2). GoK found that the single part tariff is more advantageous to the appellant. The tariff rate is arrived at on the basis of two-part tariff rate. B The break up of tariff for 20 years was submitted to the appellant after detailed negotiation and examination. The tariff of Rs.2.60 per unit was approved. The court concluded that there was a concluded contract. Answering point No.3, it was found that the status of the power plant was of the IPP and not of a CPP. In regard to point No.4, namely, whether order of the Commission was perverse, arbitrary and passed C without application of mind, noticing certain errors, it is found that the Commission having opined that the fixed charges should be paid for 657 MUs, it calculated the fixed charges for 487 MUs while fixing the tariff. Incentive payment charges was found by Commission to be Rs.0.952 in arriving at the tariff rate, but the incentive payment charges are taken as D Rs.0.924 per unit. These errors were not disputed. Having agreed to a negotiated single part tariff, it was found the Commission could not have unilaterally ignored well established parameters, and applied norms which were relevant for the calculation of two-part tariff. The tariff proposed was on the basis of single part tariff. The tariff of the first respondent is one of the cheapest as it was based on the least cost tariff basis, whereas E other companies pay higher charges either on the basis of a two-part tariff or a fixed negotiated tariff. This was not seriously disputed. The appellant (KPTCL) has fixed heat rate at 2400 Kcal/Kwh disregarding the norms of the Ministry of Power as per which the heat rate should be 2500 Kcal/Kwh or the actual heat rate whichever is lower. The F commission took the plant load factor at 77% disregarding norms under the Electricity Supply Act as per which the plant load factor would be 68.5% or at a rate negotiated between the parties. The escalation was reduced from 5% to 2.5% per annum. The two-part tariff provides for escalation for inflation and exchange fluctuation and complete reimbursement of fuel cost. The Commission arrived at 1637 MUs at G 77% PLF and disproportionately loaded fixed charges on to the first respondent. The Commission ignored the fact that 1150 MUs are arrived on the basis that the appellant is supplying the energy to the steel plant at 85% PLF and this disproportionate loading was found tantamounting to cross subsidising contrary to the observations in the decision of this Court H

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A in West Bengal Electricity Regulatory Commission v. CESC Ltd.1. The Commission was found at fault in reducing the assured supply level to 487 MUs in its calculation whereas more than 900 MUs have been supplied by the first respondent to the appellant for the years 2001 and

2002. In view of the wheeling and banking agreement in 1996 under which Grid Support Charges payable were agreed upon, the finding of the commission was found flawed in reviewing the charges without any basis. It was found ultra vires the Act. The objections of the first respondent filed before the first impugned order were rejected by the Commission but reasons have not been given. The court went on to answer point No.5 which was whether the case of the first respondent based on principles of promissory estoppel has not been considered by the commission and therefore impugned order required interference. The court after referring to case law on promissory estoppel and doctrine of legitimate expectation found it unnecessary to dilate on this aspect, but finding merit in the contention of the respondent that the Commission failed to appreciate the rights of the respondent in the light of the, ‘said principles’. Thereafter the High Court went on to allow the appeal in the manner which we have already explained. SUBMISSIONS OF THE APPELLANT

31Copy pinpoint31. Shri S.S. Naganand, learned Senior Counsel appeared along with Shri Raghavendra S. Srivastava. Shri Raghavendra S. Srivastava, learned Counsel appearing for the appellant would make the following submissions. There is no concluded contract within the meaning of the proviso to Section 27 of the Act with the aid of the correspondence and the facts established otherwise. He would complain that the High Court has not appreciated factual and the legal position. It is his case that it is clear that the parties intended that there should be a PPA. This is not a case of mere desire that there should be a written document encompassing the agreement between the parties. On the contrary, he would contend that the parties contemplated that there be a PPA whereupon alone a G concluded contract would emerge. He would submit that Government G.O. dated 12.05.1999 relied upon by first respondent as the fountain head for the claim there is a concluded contract cannot for many reasons be treated as such.

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.]

32Copy pinpoint32. Attacking the findings of the High Court that the concluded contract under Section 19 and Section 27 of the Act need not be in writing or in any particular form, it is contended as follows: While there may not be any statutory requirement that there must be a PPA in writing, the correspondence and the conduct of the parties make it clear that they intended to have a formal document binding them on all material terms. Correspondence shows that KEB was willing to buy power on certain terms and conditions one of which was that there should be a PPA. The first respondent had also called upon the appellant to confirm the terms, for placing them before its own Board and sought draft of the PPA to be executed. The Order dated 12.05.1999 cannot be treated as acceptance of the offer. It was merely the permission granted by the GoK to enter into an agreement on certain terms and conditions. Since, KEB and the first respondent were not ad idem on any other term, no agreement was reached. Relying upon Clause 2.4 of the Wheeling and Banking Agreement, it is contended that agreement was contemplated not merely on price but other terms which were to be negotiated. Being a statutory corporation, there was no scope for an implied contract. It is contended that a perusal of letter dated 23.04.1999 would show that even as regards the tariff rate proposed by the first respondent, it was subject to the confirmation by the Board of Directors. Reinforcement, in this regard, is sourced in letter dated 04.01.2000, wherein the first respondent was requested for the quote of the tariff for ‘further action’. Further reliance is placed on the contents of letter dated 06.11.2000. Support is sought to be drawn from the Judgement reported in India Thermal Power Ltd. v. State of M.P. and F others2. The High Court erred in assuming that the first respondent waived its rights under the draft PPA. Reliance is placed on the Judgment of this Court in All India Power Engineer Federation and others v. Sasan Power Ltd. and others3 to contend that whenever waiver is pleaded, particularly, in contracts having public interest, the party must show an agreement waiving the right, G which has not been done in this case. The proviso to Section 27(2) cannot be read in isolation but it must be harmonised with

2 (2000) 3 SCC 379 3 (2017) 1 SCC 487 H

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A the other relevant provisions. Bearing in mind the mandate of Section 17, the contract must be in the manner approved by the Commission under Section 17 and it must include all material terms. The first respondent was insisting that a PPA must be executed by the appellant. In its communication dated 20.06.2002, the first respondent admitted that the tariff was not acceptable but it would be willing to negotiate on the basis of two-part tariff if the PPA was made valid for 10 to 15 years. The first respondent again has admitted that tariff and several other aspects were pending discussion and negotiation with the appellant. GoK Order dated 12.05.1999 was amended vide Corrigendum dated 08.05.2000 by revising the tariff to Rs.2.52/unit. Later, vide Order dated 17.07.2000, on request by the first respondent, the tariff was restored to Rs.2.60/unit. This establishes that the GoK Order dated 12.05.1999 was not final. Even the rate was confirmed only after 01.06.1999. There is no approval granted by GoK under Section 43A of the Electricity (Supply) Act, 1948. Therefore, approval of the Commission was mandatory under Section 17 of the Act. The Order dated 12.05.1999 was not an approval under Section 43A but it was in the nature of permission given to KEB to negotiate and enter into the contract. There was no contract with the KEB. There could not have been any contract with the appellant E (KPTCL) as the appellant was constituted only under the Act, which came into effect from 01.06.1999. The following findings of the High Court are placed under focus: “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. 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.”

33Copy pinpoint33. In other words, the Court has even proceeded as if there was a contract between the GoK and the first respondent. If that were the case, apart from other contentions, Article 299 and requirements thereunder, are pressed into service. Drawing upon the Judgment in

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] K.P. Chowdhary v. State of Madhya Pradesh and others 4, it was contended that State Government cannot be bound by an implied contract. It is next contended that the first respondent cannot be treated as an Independent Power Producer (IPP). The operation of the first respondent and the sister steel plant (JVSL) are intertwined and interdependent. They share common infrastructure for coal handling, water supply and the coal for the first respondent is purchased by JVSL, for which, it raises an invoice on the first respondent. The first respondent is to be treated as the CPP, as it was supplying power to the steel plant. The capacity was reduced at the request of the first respondent. The contents of the G.O. dated 12.05.1999, which also indicates that the same principle of negotiated tariff for captive generating power plant that intends to sell power to the KEB was applicable to the first respondent are pressed into service. Reliance is also placed on the agreement dated 14.10.1999. Though first respondent was granted the status of IPP by the GoK, it was recognised by KEB/the appellant as a captive plant. The Commission found that the energy supplied under the PPA was only the surplus energy, after meeting the requirements of its dedicated consumers. When an IPP is desirous of contracting power supply with the appellant on two- part tariff basis, the KEB/appellant would be involved in every stage of project formation, finalisation of capital costs and technical parameters. KEB/the appellant would be represented before the Central Electricity Authority for according Techno Economic Clearance as well as for coal supply agreements, but none of these formalities were carried out. It is also pointed out that the first respondent availed of concession in the matter of electricity tax by contending that it was the CPP, which was accepted by a Quasi-Judicial Body by Order dated 21.11.2000.

34Copy pinpoint34. It is next contended that the findings arrived at by the High F Court in regard to the facts, was unsustainable. In this regard, it is contended that the jurisdiction of the High Court in an Appeal under Section 41 of the Act, is a limited one. The limitation arose from the requirement that the appeal is maintainable only, when there is a question of law. This legislative cribbing of the appellate power of the High Court is to be viewed in the context of the fact that the appeal is directed G against the findings of an Expert Body like the Commission. Legislature, therefore, wished to clothe High Court not with the ordinary untrammelled power of an Appellate Court. In the instant case, even though the point

4 (1966) 3 SCR 919 H

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A raised is, whether there was any perversity in the findings of the Commission, without finding any perversity, as such, the High Court has proceeded to make a foray into factual findings rendered by the Expert Body. The findings of the Expert Body were premised on adequate reasoning and material. It is without carefully appreciating and analysing the findings, that various observations have been made. It is lastly also B contended that pursuant to the Interim Order passed by this Court, the appellant had to deposit a sum of Rs.100 crores, which the first respondent was permitted to withdraw on furnishing bank guarantee. The learned Counsel would submit that, if the appellant succeeds, the amount paid by the appellant, must be ordered to be restored by the first respondent. C SUBMISSIONS OF RESPONDENT NO. 1

35Copy pinpoint35. Dr A.M. Singhvi, learned Senior Counsel appeared along with Shri Gopal Jain, learned Senior Counsel, for the first respondent. Dr. Singhvi appearing would contend that prior to the issue of GO dated 12.05.1999, parties were agreed about the essential terms, viz., price/ D tariff, quantum and tenure. These terms were incorporated in the PPA without any change or amendment. The conditions, seven in number, enumerated in letter dated 23.04.1999, were incidental matters, which were not necessary or a pre-requisite for the formation of the contract. A PPA was not a pre-condition. From 15.04.2000, the first respondent supplied power to the appellant and the tariff was paid at the rate of Rs.2.60/unit. With reference to GO dated 12.05.1999, it is contended that though it contemplated submission of the PPA to the Government of Karnataka (GOK), the interpretation has to be necessarily that the draft PPA terms, apart from the terms in GO dated 12.05.1999, as and when finalised, had to be submitted to the GoK. The seven conditions mentioned in letter dated 23.04.1999 remaining in the realm of negotiation as on 01.06.1999 did not detract from a concluded contract based on the GO dated 12.05.1999. The Act does not prescribe a format for a concluded contract. No penalty or consequence is contemplated for not entering into a PPA. A signed PPA is not condition precedent. The language in Section 18(6) of the Act, which contemplates a PPA, is contrasted with the term ‘concluded contract’, employed in Section 17 of the Act. The concluded contract on tariff is also evident from the conduct of the parties as power was being supplied at Rs.2.60 per unit without waiting for approval by Commission. The stand of the Commission that a PPA may not be necessary, found recorded in the impugned Judgment is highlighted. H It is contended that this is not a case where there is a counter proposal

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] from the appellant. This is a case where the final proposal of Rs.2.60 A per unit, made by JTPCL during the meeting held on 26.03.1999, was formalised by it in the letter dated 31.03.1999. The appellant sought approval from the GoK. The approval was granted by GO dated 12.05.1999. It resulted in a concluded contract between the GOK/KEB with JTPCL. The GO dated 17.07.2000, restoring the tariff of Rs.2.60, B reversing its corrigendum on 08.05.2000, by which, tariff was sought to be reduced to Rs.2.52 per unit, indicates that Rs.2.60 emerged as a sacrosanct figure, which had to be honoured. This again probabilised the case of the first respondent that there was a concluded contract. The expression ‘concluded contract’ employed in Section 27(2) of the Act, must be given the interpretation apposite to the context provided by C Section 27, which deals with factors/guidelines for determination of the tariff by the Commission. In other words, similar words to be found in Sections 14(7), 18(6) and 19, where the words used are ‘concluded contract’ or ‘contract concluded’, may not be suitably used. Reliance is placed on the Judgment of this Court in Ram Narain Sons Ltd. v. Asstt. D Commissioner of Sales Tax and others5, Dwarka Prasad v. Dwarka Das Saraf6 and Mackinnon Mackenzie & Co. Ltd. v. Audrey D’Costa and another7. In other words, the contention appears to be that the proviso to Section 27(2) of the Act, must be interpreted in the context, which is that a Law-Giver wanted to give relief against retrospectivity, by protecting tariffs, which were subject matter of agreements between E the parties arrived at prior to the commencement of the Act. It is further contended that it is nobody’s case that the contracts entered into by the KEB were not transferred to the appellant. As per Section 14(7) of the Act, all contracts entered into, with or for the KEB, are deemed to have been transferred to KPTCL (the appellant). F

36Copy pinpoint36. Considerable support is drawn from the Judgment of the House of Lords reported in Alexander Brogden and others and the Directors, & c., of the Metropolitan Railway Company8 and Kollipara Sriramulu (Dead) by His Legal Representative v. T. Aswatha Narayana (Dead) by His Legal Representatives and others9. Reliance is placed on these decisions to contend that even if the parties did contemplate the signing G

5 AIR 1955 SC 765 6 AIR 1975 SC 1758 7 (1987) 2 SCC 469 8 [L.R.] 2 App. Cas. 666 / HL(E) 1877 Vol.2 666 9 AIR 1968 SC 1028 H

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A of an agreement, it would not prevent formation of a contract, even dehors the formal document.

37Copy pinpoint37. He further contended that the appellant made admissions before the High court about the existence of a concluded contract qua tariff, quantum and tenure. As regards the confirmation of the offer by the first respondent’s Board, it is merely a procedural internal requirement, an aspect of the doctrine of indoor management. The recommendation made by the KEB of the rate is relied upon. The contention based on the appellant coming into existence after 1.6.1999 is brushed aside as a matter of no moment as it is the successor of KEB, therefore bound by the contract. Merely because the first respondent was pressing for the execution of the PPA, it would not detract from there being a concluded contract qua tariff, quantum and tenure. Otherwise, the appellant would not have purchased power from 15.04.2000. The appellant is unjustified in contending that even qua tariff, there is no agreement. The submission of the appellant that there is a model PPA is erroneous. The model PPA D was issued only in 2005 by the Government of India after the issue of guidelines for tariff determination by competitive bidding under the provisions of the Electricity Act, 2003. The contention that there was no approval granted under Section 43A of the Electricity (Supply) Act, 1948 and therefore, the approval of the commission is mandatory under Section E 17 is deliberately made knowing it to be erroneous. GoK Order dated 02.03.1996 expressly establishes the consent given by the GoK under Section 43A(1)(c) of the Electricity (Supply) Act, 1948. Section 17 does not speak about tariff determination powers of the commission. The tariff determination is exclusively dealt with by Section 27. It is pointed out that the terms and conditions which were left to be negotiated in F letter dated 23.4.1999 have been incorporated as terms and conditions in the draft PPA. Instances of perversity in the commission’s orders are pressed before the Court. The first respondent also contended that for various reasons it is entitled to be treated as IPP.

38Copy pinpoint38. The first respondent does not lay store by the finding on promissory estoppel & legitimate expectation. However, learned Counsel, indeed, supports the other finding interfering with the Order of the Commission, viz., that the first respondent was to be treated as an independent power producer and that the Orders of the Commission were afflicted with arbitrariness and error apparent. H

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] ANALYSIS A THE ACT – THE KARNATAKA ELECTRICITY REFORM ACT, 1999.

39Copy pinpoint39. Section 1(3) provides that the Act shall be deemed to have come into force w.e.f. the First Day of June 1999. Section 13 provided for the incorporation of the appellant/company. The principal object was B to engage in the business of purchase, transmission, sale and supply of electrical energy. Section 13(4) contemplates that the appellant was to undertake the functions in Section 13 and other functions, as may be assigned to it under the licence to be granted by the Commission under the Act. Section 13(5) reads as follows: C “13(5) Upon the grant of license to the KPTC under chapter VII, the KPTC shall discharge such powers, duties and functions of the Board including those under the Indian Electricity Act, 1910 and the Electricity (Supply) Act, 1948 or the rules framed thereunder, as may be specified in the license and it shall be the obligation of the KPTC to undertake and duly discharge the powers, duties and functions so assigned.”

40Copy pinpoint40. Section 14 of the Act reads as follows: “14. Reorganisation of the Karnataka Electricity Board.- (1) On and with effect from the date on which a transfer scheme prepared by the State Government to give effect to the object and purposes of this Act is published or such further date as may be prescribed (hereinafter referred to as the effective date of the first transfer), any property, interest in property, rights and liabilities which immediately before the effective date of first transfer belong to the Board shall vest in the State Government on such terms as may be agreed between the State Government and the Board. (2) Any property, interest in property, rights and liabilities vested in the State Government under sub-section (1) or part thereof may be revested by the State Government in the KPTC or any generating company or companies in accordance with the transfer scheme published under subsection (1) along with such other property, rights and liabilities of the State Government as may be specified in such scheme, on such terms and conditions as may be agreed between the State Government and the KPTC or any generating company or companies, as the case may be. H

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A (3) From the effective date of first transfer of properties etc., to the KPTC, the Board shall stand dissolved. The Chairman and Members of the Board shall be deemed to have vacated their office. Such of the functions, duties, rights and powers exercisable by the Board under the Indian Electricity Act, 1910 or Electricity (Supply) Act, 1948 or any rule framed thereunder as the State B Government may by notification specify shall be exercisable by the KPTC or any generating company or companies, as the case may be, from the effective date of first transfer. (4) Notwithstanding anything in this section, where,- (a) the transfer scheme involves the transfer of any property or rights to any person C or undertaking not wholly owned by the State Government, the scheme shall give effect to the transfer only for fair value to be paid by the transferee to the State Government; and (b) a transaction of any description is effected in pursuance of a transfer scheme, it shall be binding on all persons including third parties. D (5) The State Government may, after consulting the KPTC [or a licensee as the case may be], KPTC require the 1 [or a licensee as the case may be]1 to draw up a transfer scheme to vest in a further licensee (the “transferee licensee”), any of the function including a distribution function, any property, interest in property, rights and liabilities which have been vested in the KPTC [or a licensee as the case may be] under this section and publish the same as the scheme of transfer under this Act. The transfer scheme to be notified under this sub section shall have the same effect as the transfer scheme under sub section (2) and shall be effective from the date specified (effective date of second transfer). (6) A transfer scheme under this section may, amongst others,.- (a) define the property, interest in property, rights and liabilities to be allocated,- G (i) by specifying or describing the property, rights and liabilities in question; (ii) by referring to all the property, interest in property, rights and liabilities comprised in a specified part of the transferor’s undertaking; or H (iii) partly in the one way and partly in the other;

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LTD. (EARLIER KNOWN AS JINDAL THERMAL POWER CO. LTD. & JINDAL TRACTABEL POWER CO. LTD.) & ORS. [K. M. JOSEPH, J.] (b) provide that any rights or liabilities specified or described in the scheme shall be enforceable by or against the transferor, or the transferee, as the case may be; (c) impose on KPTC or any licensee, an obligation to enter into such written agreements with, or execute such other instruments in favour of, any person as may be specified in the scheme; (d) impose on any transferee licensee the obligations to comply with the power procurement and purchase arrangements with KPTC; and (e) make such supplemental, incidental and consequential provisions as transferor licensee considers appropriate including provision specifying the order in which any transfer or transaction is to be regarded as taking effect. (7) All debts and obligations incurred, all contracts entered into and all matters and things engaged to be done by, with or for the D Board, or the KPTC or generating company or companies before a transfer scheme becomes effective shall, to the extent specified in the relevant transfer scheme, be deemed to have been incurred, entered into or done by the Board, with the Board or for the State Government or the KPTC or the transferee, and all suits or other E legal proceedings instituted by or against the Board or transferor, as the case may be, may be continued or instituted by or against the State Government or the concerned transferee, as the case may be. (8) If pursuant to a transfer scheme framed by the State F Government, the KPTC 1 [or a licensee as the case may be]1 is required to vest any part of its undertaking in another company or body corporate or person, the Commission shall amend the licence granted to enable the transferee to carry out the functions and activities assigned to the transferee.” G

41Copy pinpoint41. Section 17 which is the opening section in part VII, inter alia provided as follows: - “17. Regulation of generating companies and stations- (1) A licensee or a bulk purchaser or any other person may enter into a contract with a generating company for purchase of electricity in H

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A the manner approved by the Commission and such approval granted by the Commission shall have the effect of the consent given by the State Government in terms of section 43A of the Electricity (Supply) Act 1948: Provided that the approval granted by the Commission under this sub-section shall not in any manner affect the requirements to obtain approvals and sanctions of the B State Government or any other authority under any other law, rule or regulations.”

42Copy pinpoint42. Section 18, which falls in Part VII, deals with the requirements of a license. It, inter alia, reads as follows: “18. Requirement of licence.- (1) No person, other than those C authorised to do so by license or by virtue of exemption under this Act or authorised to or exempted by any other Authority under the Electricity (Supply) Act, 1948, shall engage in the State in the business of,- (a) transmitting electricity; or (b) supplying electricity, including bulk supply. D XXX XXX XXX (6) All licenses issued under the provisions of Indian Electricity Act, 1910, by the State Government or any competent authority shall be deemed to be a provisional licence and shall be subject to the conditions provided under sub-sections (4) and (5). All power E purchase agreements, transmission services agreements and other contracts entered into shall continue in full force and effect and will be transferred to the successor entities.” (Emphasis supplied)

43Copy pinpoint43. Section 19 of the Act, deals with grant of licenses by the F Commission. Section 19(1) reads as follows: “19. Grant of licenses by the Commission. - (1) The Commission may on an application made in such form and on payment of such fee as may be specified by regulations, grant a license authorising any person to, - (a) transmit electricity in a specified area of transmission; and/or (b) supply electricity in a specified area of supply or supply in bulk to the licensees or any person.”

44Copy pinpoint44. Section 19(4)(j) reads, inter alia, as follows: “(4) Without prejudice to the generality of sub-section (3), the conditions included in a license by virtue of that sub-section may require the licensee to,-

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