M/S PENNA ELECTRICITY LIMITED (NOW M/S PIONEER POWER LIMITED) VERSUS THE TAMIL NADU ELECTRICITY BOARD & ORS.

M/S PENNA ELECTRICITY LIMITED (NOW M/S PIONEER POWER LIMITED) VERSUS THE TAMIL NADU ELECTRICITY  BOARD & ORS. 

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



NON­REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 706 OF 2014
M/S PENNA ELECTRICITY LIMITED
(NOW M/S PIONEER POWER LIMITED) ….APPELLANT(S)
               VERSUS
THE TAMIL NADU ELECTRICITY 
BOARD & ORS. ….RESPONDENT(S)
J U D G M E N T
Rastogi, J.
1. The instant appeal has been filed under Section 125 of the
Electricity Act, 2003(hereinafter being referred to as the “Act 2003”)
assailing   the   judgment   and   order   of   the   Appellate   Tribunal   for
Electricity dismissing the appeal filed at the instance of the present
appellant.
1
2. The appellant initially filed a petition under Section 86(1)(f) of
the Act, 2003 and sought the following reliefs:­
(a) direct   the   Respondent   to   make   the   payment   of   Rs.25.63
Crores towards fixed charges and Rs.8.10 Crores towards
payment   due   on   the   actual   variable   charges   payable   in
respect   of   the   power   generated   and   availed   for   153.26
millions unit during the period 29.10.2005 to 30.06.2006 to
the Petitioner.
(b) direct   the   Respondents   to   make   the   payment   to   the
Petitioner   of   the   sum   of   Rs.18.06   Crores   towards   under
recovered   fixed   charges   in   respect   of   operations   of   the
generating station of the Petitioner for the period 01.07.2006
to 15.06.2009.
(c) direct   the   Respondents   to   make   the   payment   to   the
Petitioner   of   the   sum   of   Rs.12.77   crores   towards   under
recovered additional cost of generation (variable charges) in
respect of operations of generating Station of the Petitioner
for the period 01.07.2006 to 15.06.2009.
(d) direct the respondent to take immediate decisions on the use
of   Naphtha   or   any   other   compatible   fuel   as   alternate/
supplemental fuel to increase and maintain the PLF of the
plant   as   contemplated   in   the   amending   PPA   dated
25.08.2004   in   future   thereby   enabling   the   plant   being
operated at optional level so as to ensure the advantage to
the   Respondent   and   also   the   assured   return   to   the
Petitioner.     The permission to use of the Naphtha/other
compatible   fuel   should   also   contemplate   dispatching   the
plant under merit order under gas based tariff only.  If the
Respondent   desires   otherwise,   the   Petitioner   should   be
assured of the fixed charges.
(e) For any reason if the Respondent were not to consider any or
all of the relief claimed above by the Petitioner, to direct the
Respondent to make the payments due to the Petitioner as in
prayer (a), (b) and (c) above and relieve the Petitioner from
the obligations of the amendment PPA dated 25.08.2004.
2
3. The Tamil Nadu Electricity Regulatory Commission thereby
disposed   of   the   petition   by   order   dated   30th  December   2011,
rejecting the claim of the appellant relating to unpaid fixed charges
of Rs.18.06 under Combined Cycle Operation as well as the claim of
underpaid variable charges of Rs. 12.77 crores under Combined
Cycle Operation for the period between 1st July, 2006 to 15th June,
2009.
4.   This came to be challenged by the appellant in appeal before
the Appellate Tribunal for Electricity(hereinafter being referred to as
the “Tribunal”).   After the matter came to be heard, taking into
consideration   the   material   on   record,   the   Tribunal   returned   a
finding in paras 35, 36 and 38(1) and (2), and dismissed the appeal
under the impugned judgment.  The relevant paras are as under:­
“35. We   find   that   there   is   no   provision   for   compensation   for
capacity charges and variable charges due to the fact that the
plant was not able to maintain the normative availability/Plant
Load   Factor   on   account   of   shortage   of   fuel   in   the   Central
Commission’s Tariff Regulations, 2004 which were in vogue when
the amended PPA was entered into between the parties or in the
Sate Commission’s Tariff Regulations, 2005.  Admittedly, the State
Commission’s Tariff Regulations were made effective subsequent to
the signing of the PPA. The State Commission could not intervene
3
in allowing amendment in the provisions of the PPA in this regard
which were voluntarily agreed by both the parties and which are
not in contravention to any provision of the Act or Rules or the
Regulations.
36. Therefore, there is no infirmity in the findings of the State
Commission in not agreeing to interfere with the provisions of the
PPA declaring the PPA unworkable with regard to compensation for
fixed charges for the above period due to shortage of supply of gas.
37. xxx xxx
38. Summary of Our Findings
i) The Appellant is not entitled to payment of full fixed charges
and actual variable charges in respect of supply of energy
between   1.7.2006   to   15.6.2009   when   the   operational
parameters were affected on account of shortage supply of
gas by M/s GAIL in view of non availability of any provision
in this regard in the PPA or Tariff Regulations.
ii) There is no infirmity in the findings of the State Commission
in not agreeing to interfere with the provisions of the PPA or
declaring the PPA unworkable with regard to compensation
for fixed and variable charges for the above period due to
shortage of supply of gas.”
5. Mr. Parag P. Tripathi, learned senior counsel for the appellant
submits that in the absence of any clause/provision under the
amended   Power   Purchase   Agreement   dated   25th  August,
2004(hereinafter   being   referred  to   as   the   “PPA”)   in   reference   to
payment of fixed charges, it was incumbent upon the Tribunal to
have   considered   that   the   short   supply   of   gas   was   due   to   the
diversion of gas to other generating stations and on this account the
4
Tamil Nadu Electricity Board (hereinafter being referred to as the
“Board”) could not have made the appellant to suffer by citing the
terms   of   the   PPA.     However,   the   Tribunal   omitted   to   note   the
unimpeachable evidence and it has not been disputed before the
Tribunal that the short supply of gas was due to the diversion of
gas   to   the   generating   stations   of   Board   and   the   appellant   has
suffered financial losses due to the diversion of gas to the other
generating stations.
6.   Learned   counsel   further   submits   that   there   was   sufficient
evidence   on   record   regarding   the   communication   between   Gas
Authority of India Limited(GAIL) and the Board in reference to the
diversion of gas to other generating stations and this has seriously
impaired the functionality and efficiency of the appellant company.
7. Learned counsel further submits that it cannot be disputed
that the generating station of the appellant is capable of achieving
the technical parameters and 85% of Plant Load Factor(hereinafter
referred  to as  the  “PLF”).   In  the  aforesaid  premise, the  Board
cannot be allowed to take benefit due to its own wrong at the cost of
the appellant Company.
5
8. Learned counsel further submits that the amended PPA dated
25th August, 2004 was not approved in terms of Section 86(1)(b) of
the Act 2003 still it is a binding document between the parties inter
se and since the electricity was sold to the Board otherwise than as
a gratuitous act, Board needs to pay for the same on the principle
of Quantum Meriut.   In support of his submissions, learned counsel
has placed reliance on the judgment of this Court in State of West
Bengal Vs. B.K. Mondal and Sons1
; Union of India Vs. Sita Ram
Jaiswal2
 and Food Corporation of India and Others  Vs. Vikas
Majdoor Kamdar Sahkari Mandli Limited3
.
9. Learned counsel further pressed that even in the absence of
PPA  not   been   approved   and  enforceable,  still   the  compensation
payable to the appellant ought to be computed as per the tariff fixed
by the Commission for open market purchases by Board, or at least
in   accordance   with   the   relevant   regulations   and   this   being   the
manifest error which the Tribunal has committed in rejecting the
claim of the appellant needs to be interfered by this Court.
1 1962(Suppl) 1 SCR 876
2 1976(4) SCC 505
3 2007(13) SCC 544
6
10. Per   contra,   learned   counsel   for   the   respondents,   while
supporting the concurrent finding returned by the Commission and
confirmed by the Tribunal under the impugned judgment submits
that the appellant has failed to meet the PLF as agreed to under the
PFA ­ apart from the fact that admittedly PPA was not approved
under the Act 2003.   That apart, there is no clause in the PPA
which provides for payment of full fixed cost, even when generator
fails   to   meet   the   PLF.     Any   compensation   by   way   of   deemed
generation or relaxed heat rate due to partial loading of machine
due   to   shortage   of   fuel   supply   is   the   sole   responsibility   of   the
appellant.
11.   Learned counsel further submits that the shortfall in PLF and
increase in tariff heat rate was due to two factors, (i) poor efficiency
of the power plant; and (ii) short supply of natural gas by fuel
supplier(GAIL).  Further, during the period between 1st July, 2006
and   23rd  October,   2007,   sufficient   quantity   of   natural   gas   was
available to the appellant in order to operate the power at 52.8 MW
(the contracted capacity) but tariff heat rate of the plant was always
more than 1980 Kcal/Kwr due to its poor efficiency of the plant.
7
The PLF achieved by the appellant’s power plant for the period
between 1st July, 2006 and 1st July, 2009 is as under:­
Period Concerned PLF Achieved
1
st  July,   2006   to   30th  June,
2007
80.82%
1
st  July,   2007   to   30th  June,
2008
73.20%
1
st July, 2008 to 1st July, 2009 67.09%
12.   In the given circumstances, the respondents cannot be held
responsible to meet the short supply of gas to the appellant.  Thus,
issue of short supply of gas as alleged is an issue between GAIL and
the appellant.  It was submitted that the inability of the appellant to
achieve 85% of the PLF is not due to any Force Majeure as claimed.
More so, the appellant never initiated any proceedings under the
clause of Force Majeure as per procedure provided under the PPA.
13. In addition, learned counsel further submits that PPA was
entered   into   between   the   parties   based   on   notification   of
Government of India dated 6th November, 1995.  Therefore, claim of
compensation by way of deemed generation due to shortage in fuel
8
supply is the responsibility of the generator and not applicable in
terms   of   PPA   dated   25th  August,   2004.     Therefore,   the   State
Commission’s   refusal   to   allow   claim   of   underpaid   charges   and
variable   charges   is   well   founded   and   rightly   confirmed   by   the
Tribunal under the impugned judgment.
14. We have heard learned counsel for the parties and with their
assistance perused the material available on record.
15. From   the   facts,   it   manifest   that   the   appellant   is   an
Independent   Power   Producer(IPP)   operating   and   maintaining   a
Combined Cycle Gas Turbine Power Generating station in Tamil
Nadu   with   a   generating   capacity   of   52.8   MW   and   the   said
generating station is dedicated to the Board and the entire power
generated by the appellant is to be supplied to the Board.
16. It is not disputed that the PPA dated 25th August, 2004 was
not approved under Section 86(1)(b) of the Act 2003.  That apart,
there is no clause in the PPA which provides for full fixed cost, even
when appellant fails to meet the PLF.  PPA between the parties was
entered   based   on   notification   of   Government   of   India   dated   6th
November, 1995 and in terms of clause 4.3 of the said notification,
9
the   responsibility   of   the   fuel   linkage   would   be   that   of   the
independent power producer and any fuel supply risk would have to
be shared between the power and fuel producer/supplier and not
by the Board to indemnify.
17. There is a bi­partite agreement executed between appellant
and the GAIL, to which the respondent Board is not privy, and if
any default has been committed by GAIL in supply of natural gas to
the appellant, the respondent Board is not supposed to indemnify,
that apart, there is nothing on record to show that any remedial
action   was   taken   by   the   appellant   against   the   gas   supplier   on
account of short supply of gas, if permissible under the law.
18. At   the   same   time,   the   appellant   has   not   been   able   to
demonstrate any provision either under the Act, 2003 or under the
PPA although has not been approved by the competent authority
under the Act, 2003 which may protect the right and interest of the
appellant.  That apart, no clause of the PPA has been pointed out
indicating if there is a short supply of gas due to diversion of gas to
the other generating station of the Board, the respondent Board has
to indemnify the appellant. 
10
19. The thrust of submission of learned counsel for the appellant
that it is the respondent Board who have sent letters to the GAIL to
divert the gas to other generating units of the Board, at least on this
account, the Board could not have made the appellant to suffer by
citing the terms of the PPA.   There is no dispute that the project
was taken over on the basis of the notification dated 6th November,
1995 issued by Government of India and in terms of para 4.3 of the
notification, the fuel of the power project was either fuel oils or
natural gas.  The said clause of the Notification is as under:­
“4.3   The   responsibility   of   either   indigenous   or   imported   fuel
linkage would be that of the Independent Power Producer(IPP) and
any   fuel   supply   risks   would   have   to   be   shared   between   the
IPP/Fuel suppliers.  The State Electricity Board will not take any
fuel supply risk.”
20. In terms of the notification referred to above, it is clear that
the responsibility of fuel linkage ­ either heavy fuel or natural gas ­
would be that of the appellant to the generator.  If there is any risk
in the supply, the same has to be shared between the generator and
the fuel supplier.  The notification has classified that the Board will
not take any fuel supply risk and is not supposed to indemnify in
the given situation.  
11
21. It is also not disputed that there is no clause in PPA which
provides for payment of full fixed cost to the generator, even when
generator fails to meet the PLF.   In the given circumstances, any
compensation by way of deemed generation or released heat rate
due to partial loading of machine, arising due to shortage to fuel
supply   which   is   the   sole   responsibility   of   the   appellant,   is   not
applicable   as   per   the   amended   PPA   dated   25th  August,   2004.
Furthermore, there is  no  provision for  compensation  by  way  of
deemed generation or partial norms due to operation of the power
plant at partial load due to shortage of fuel in Central Government’s
Tariff Regulations, 2004 which admittedly were in force when the
agreement was entered into between the parties.  
22. The submission made by learned counsel for the appellant
that because of the diversion of gas to the other generating stations
of the Board, at least on this account, the Board could not have
made the appellant to suffer by citing the terms of PPA, on the first
blush appears to be attractive but has no legs to stand for the
reason   that   in   the   absence   of   there   being   any   provision   for
compensation for capacity charges and variable charges due to the
12
fact   that   the   plant   was   not   able   to   maintain   the   normative
availability/PLF   on   account   of   shortage   of   fuel   in   terms   of   the
Central   Government’s   Tariff   Regulations,   2004,   at   least   the
respondent Board cannot be said to be at fault and that was the
reason prevailed upon the Commission to arrive at the conclusion
that the appellant was not entitled to payment of fuel fixed charges
and actual variable charges in respect of supply of energy between
1
st July, 2006 and 15th June, 2009 during the period when partial
parameters were rejected because of shortage of supply in view of
the provision in PPA or tariff regulations.
23. We find no infirmity in the finding returned by the Tribunal in
the impugned judgment which may call for our interference. 
24. Consequently, the appeal fails and is accordingly dismissed.
No costs.
25. Pending application(s), if any, shall stand disposed of.
…………………………….J.
(AJAY RASTOGI)
13
…………………………….J.
(C.T. RAVIKUMAR)
NEW DELHI;
MARCH 15, 2023
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