MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LIMITED v. MAHARASHTRA ELECTRICITY REGULATORY COMMISSION & ORS.
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Headnote — Supreme Court Reports (editorial summary, not part of the judgment)
Catchwords
A B (Civil Appeal No.1843 of 2021) Electricity Act, 2003: C s.125 – Appeal to Supreme Court – Interference with – Power purchase agreements – Change in law –On facts, petition u/s. 86 by the appellant-State Electricity Distribution Company seeking that the change in interest rate system by the RBI from Prime Lending Rate (PLR) to Base Rate and then to Marginal cost of funds based lending rate (MCLR) constituted change in law under the power purchase agreements between the appellant and the “Power Generating Companies”, so as to alter the rate of Late Payment Surcharge(LPS) payable by the appellant to the power generating companies – Dismissed by the Maharashtra Electricity Regulatory Commission(MERC)and issuance of direction to the appellant to make payment of LPS within the time stipulated – Said order upheld by the Appellate Tribunal for Electricity – On appeal,
Held
Existence of substantial question of law is sine qua non for second appeal u/ s 125 r/w s. 100 CPC – This Court would not make a factual enquiry into the mode and manner in which the Power Generating Companies meet their working capital requirements and interest that individual Power Generating Companies pay to their lenders – Thus, no substantial question of law involved in the instant appeal – RBI notifications would tantamount to a change in law, however the notification relating to alteration of the lending rates chargeable by banks and financial institutions are not laws which relate to the G Power Purchase Agreements and are not applicable to the appellant or to the Power Generating Companies engaged in distribution of electricity and not of advancing loans –Furthermore, courts cannot rewrite contract mutually executed by parties – Explicit terms of contract always the final word with regard to intention of parties – H Thus, MERC acted within the scope of its power of regulatory 1056
supervision in directing the appellant to make payment of LPS within A the time stipulated – APTEL rightly upheld the direction – In any case, such a direction cannot be interfered with in exercise of powers u/s. 125 – Code of Civil Procedure, 1908 – s. 100. s. 125 – Appeal to Supreme Court – Grounds for –
Held
Appeal lies to this Court u/s 125 only on grounds permitted u/s 100 B CPC – Condition precedent for entertaining an appeal u/s 124 is the existence of a substantial question – Code of Civil Procedure, 1908 – s. 100.
Catchwords
Maharashtra Electricity Regulatory Commission(MERC) – Power of –
Held
MERC constituted under the Electricity Act, 2003 C has all the trappings of a Court – MERC is a substitute for a Civil Court in respect of all disputes between licensees and Power Generating Companies. Dismissing the appeal, the Court HELD : 1.1 An appeal lies to this Court under Section 125 D of the Electricity Act, 2003 only on grounds permitted in Section 100 of the Code of Civil Procedure, 1908. On a conjoint reading of Section 125 of the 2003 Act with Section 100 CPC, it is absolutely clear that an appeal to this Court lies on a substantial question of law. The condition precedent for entertaining an appeal under Section 125 is the existence of a substantial question. [Para 148, 152][1122-C; 1123-E-F] State Bank of India and Ors. v. S.N. Goyal (2008) 8 SCC 92 : [2008] 7 SCR 631; Nazir Mohamed v. J. Kamala and Others 2020 SCC OnLine SC 676; Wardha F Power Company Limited v. Maharashtra State Electricity Distribution Co. Limited and Another (2016) 16 SCC 541; Tuppadahalli Energy India Private Limited v. Karnataka Electricity Regulatory Commission and Anr (2017) 11 SCC 194; Ramanuja Naidu v. V. Kanniah Naidu and Another (1996) 3 SCC 392 : [1996] 3 SCR G 239; Navaneethammal v. Arjuna Chetty (1996) 6 SCC 166 : [1996] 5 Suppl. SCR 582 – referred to. 1.2 It is not for this Court to re-analyze evidence adduced before the forums below or to sit in appeal over concurrent findings of facts. [Para 159][1128-G] H
Reporter's headnote (continued) and case details
1056 [2021] SUPREME COURT 5 S.C.R. 1056 REPORTS [2021] 5 S.C.R.
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1057 LTD. v. MERC & ORC.
p. 1058
A 1.3 There can be no doubt that a notification issued by the Reserve Bank of India constitutes law. A Reserve Bank of India notification which alters, modifies, cancels or replaces an earlier notification would tantamount to a change in law. However the notification relating to alteration of the lending rates chargeable by banks and financial institutions are not laws which relate to the Power Purchase Agreements in question, and therefore do not attract, as the case may be, Article 13 of the Stage 1 Agreements or Article 10 of the Stage 2 Agreements. [Para 160][1128-H; 1129-A-B] 1.4 The RBI circulars/guidelines referred to, are admittedly instructions issued to banks and financial institutions and are not applicable to the appellant or to the respondent-Power Generating Companies, who are engaged in the business of production, sale/ purchase and/or distribution of electricity and not of advancing loans. Moreover, State Bank Advanced Rate (SBAR) as defined in the Power Purchase Agreements is admittedly not linked to any RBI guidelines or circulars. The guidelines/circulars are thus not relevant to the issues involved in this appeal. [Para 161] [1129-B-C] 1.5 The RBI circulars/guidelines to banks, advising the banks to follow certain norms, while setting their benchmark reference rates for loans, and the amendments thereto, have no legal consequence on the contract between the parties. This has been correctly appreciated by both the forums below. [Para 162][1129-D]
F B.O.I. Finance Limited v. Custodian and Ors. (1997) 10 SCC 488 : [1997] 3 SCR 51 – referred to. 1.6 SBI has been notifying and continues to notify Prime Lending Rates(PLR) for its loans. The appellant itself has given the average PLR notified by SBI from 2010 till date in its G application being I.A. No. 69796 of 2021. Therefore, Late Payment Surcharge(LPS) as per the Power Purchase Agreement has been calculated at the rate of 2% in excess of the SBI notified Prime Lending Rate.From the impugned judgment and order of the APTEL, it appears that the appellant conceded before the APTEL that the SBI continues to issue the PLR rates till date. H [Para 164, 165][1129-F-H]
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1059 LTD. v. MERC & ORC.
1.7 The definition of SBAR is clear and has been correctly applied by both the forums below. There are concurrent findings of fact that the SBI PLR (i.e. the benchmark reference rate mentioned in the PPA) is still being published and is available. The Court cannot, at this stage of a second appeal under Section 125 of the Electricity Act reopen the factual question of whether at all PLR rates were being notified by SBI for short term loans. Therefore, there is no substantial question of law involved in this appeal filed under section 125 of the Electricity Act, 2003. [Para 166, 167][1130-B-C] 1.8 The definition of SBAR in the Power Purchase Agreements is clear. SBAR is the Prime Lending Rate per annum fixed by the State Bank of India (SBI) from time to time for loans with one year maturity. LPS is to be calculated at the rate of 2% in excess of the PLR for loans with 1 year maturity, as fixed from time to time by SBI. Moreover, the parties have consciously agreed that in the absence of such rate, the LPS rate shall be mutually agreed to by the Parties. [Para 168][1130-D-E] 1.9 The provision in the Power Purchase Agreement, whereby the parties are to mutually agree on a rate of interest, in case there is no SBI Prime Lending Rate, in itself excludes the applicability of the general provision for Change in Law contained in Article 13 of the Power Purchase Agreement to Late Payment Surcharge. [Para 170][1130-F] 1.10 This Court is unable to accept the submission that the conclusion of APTEL that LPS is not tariff is erroneous. The meaning of the expression tariff has to be considered, and has rightly been considered by APTEL in the context of the relevant provision of the Power Purchase Agreements. The dictionary meaning of tariff may be charge. However, in Article 13 of the Stage 1 and Article 10 of the Stage 2 Power Purchase Agreements, tariff means monthly tariff and tariff adjustment consequential to change in law, is of monthly tariff in respect of supply of electricity. G [Para 173][1131-B-C] 1.11 It was submitted by the Power Generating Companies respectively, LPS is only payable when payment against monthly
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A bills is delayed and not otherwise.The object of LPS is to enforce and/or encourage timely payment of charges by the procurer, i.e. the appellant. In other words, LPS dissuades the procurer from delaying payment of charges. The rate of LPS has no bearing or impact on tariff. Changes in the basis of the rates of LPS do not affect the rate at which power was agreed to be sold and purchased under the Power Purchase Agreements. The principle of restitution under the Change in Law provisions of the Power Purchase Agreements are attracted in respect of tariff. [Para 174, 175][1131-D-F] 1.12 LPS cannot be equated with carrying cost or actual cost incurred for the supply of power. The appellant has a contractual obligation to make timely payment of the invoices raised by the Power Generating Companies, subject, of course, to scrutiny and verification of the same. The counsel for the respondent has a point that if the funding cost was so much lesser than the rate of LPS, as contended by the appellant, the appellant could have raised funds at a lower rate of interest, made timely payment of the invoices raised by the Power Generating Companies, and avoided LPS. [Para 176][1131-F-G] 1.13 The proposition that Courts cannot rewrite a contract mutually executed between the parties, is well settled. The Court cannot, through its interpretative process, rewrite or create a new contract between the parties. The Court has to simply apply the terms and conditions of the agreement as agreed between the parties. As submitted, this appeal is renegotiate the terms of the PPA. It is well settled that Courts cannot substitute their own view of the presumed understanding of commercial terms by the parties, if the terms are explicitly expressed. The explicit terms of a contract are always the final word with regard to the intention of the parties. [Para 177][1131-H; 1132-A-C] Shree Ambica Medical Stores and Others. v. Surat G People’s Cooperative Bank Limited and Others (2020) 13 SCC 564 : [2020] 3 SCR 359; Nabha Power Limited v. Punjab State ower Corporation Limited (PSPCL) And Another (2018) 11 SCC 508 : [2017] 14 SCR 301 – referred to. H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1061 LTD. v. MERC & ORC.
1.14 The appellant is obliged to seek amendment of the provisions of the Power Purchase Agreement only in accordance with the agreed procedure for amendment of the terms thereof. The agreed rate of Late Payment Surcharge can only be amended in the absence of SBI PLR and that too with the mutual consent of the parties to the Power Purchase Agreement.The submission that the Power Generating Companies are availing loans at a lesser rate of interest, but charging LPS on the basis of a higher rate of interest, leading to unjust enrichment, is untenable in law. LPS under the Power Purchase Agreements do not correspond to the actual interest paid by the Power Generating Companies for funds raised by them. The payment of Late Payment Surcharge C LPS penalty suffered by the Procurer, that is, the appellant, on account of default in timely payment. [Para 178, 179][1132-D-E] 1.15 The parties to the Power Purchase Agreements have mutually and consciously agreed to the incorporation of the PLR as notified by SBI from time to time, as the rate for levy of LPS. D Therefore, by virtue of the doctrine of incorporation, the PLR as notified by SBI each year gets incorporated in the Power Purchasing Agreements, as binding between the parties. Thus, any other system notified by the Reserve Bank of India by its circulars has no bearing on the terms of the Power Purchase Agreement and cannot be deemed to be incorporated in the Power E Purchase Agreement, except in case of mutual agreement between the parties, in the event of absence of SBI PLR, and approved by the MERC. [Para 180][1132-F-H] 1.16 As submitted, conceptually, PLR, Base Rate and MCLR are not comparable. The submission that the definition of SBAR should be read in the context of MCLR instead of PLR, is therefore not tenable. PLR is the internal benchmark rate for charging of interest on floating rate loans, calculated on the basis of average cost of funds and the loans were offered at a discount on their existing PLR. However, Base Rate is the lending rate calculated based on the total cost of funds of the banks and is the minimum interest rate at which a bank can lend, except for loans to its own employees, its retired employees and against bank’s own deposits. MCLR is a lending rate calculated on the cost of
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A raising new funds for the bank which include the cost of maintaining CRR/SLR (Credit Reserve Ratio/Statutory Liquidity Ratio), operating costs of banks and tenor premium. MCLR is the lowest interest rate that a bank or lender can offer. Thus, loans are offered at a markup on the MCLR. Thus, the basis of both the rates are different and cannot be compared, as has been B sought to be done by the appellant. When PLR, Base Rate and MCLR are compared side by side. The difference is that very stark. Loans are advanced at a mark-up over Base Rate and MCLR, while during the PLR regime, loans were offered at a discount on PLR. [Para 181][1133-A-D] C 1.17 In any case, the appellant cannot submit that the Reserve Bank of India circulars are to be considered as Change in Law, since Article 13.3.1 of the Stage 1 agreements corresponding to Article 10.4.1 of the Stage 2 agreements provides that notices of Change in Law events are to be issued D by the affected party, as soon as reasonably practicable, after the affected party becomes aware of Change in Law event or when it should reasonably have known of the Change in Law.In this case, the changes cited by the appellant were effected by RBI from July 2010 and April 2016 and notified in advance. The appellant issued notices of Change in Law as late as in September 2016, E more than six years after the Reserve Bank of India introduced the base rate system in place of the BPLR system. Furthermore, while the guidelines on the base rate system were published on 9th April 2010 and introduced with effect from 01.07.2010, the appellant entered into Power Purchase Agreements with the F Respondent No. 2 on 9th August 2010 and on 16th February 2013 incorporating PLR as the Late Payment Surcharge rate for supply of contracted quantum of electricity to the appellant. [Para 182, 183][1133-E-H] 1.18 Significantly, the appellant charges interest from its G consumers for delay in payment @ 1.25% per month and/or in other words 15% per annum as per the MYT Regulations of MERC. This also shows that interest rate is not co-related to the actual interest rate on loans taken by the appellant or by Power Generating Companies. According to the Respondent-
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1063 LTD. v. MERC & ORC.
Power Generating Companies, no other distribution licencee other than the appellant has raised the claim of Change in Law. All other Distribution Licencees procuring electricity from producers of electricity pay LPS in accordance with the respective Power Purchase Agreements.Admittedly, the appellant has landed itself in its present predicament, due to delay in making timely payments to the respondent Power Generating Companies. There was no pandemic at the time of filing of the petition before the MERC in 2017 and the Appeal before the APTEL in 2018. It, cannot, therefore be said that the appellant defaulted in payment of bills by reason of its financial predicament as a result of the outbreak of COVID 19 in India, which was in March 2020. C [Para 184, 186][1134-A-B] 1.19 Extensive submissions that the appellant committed default in payment of the bills raised by the Power Generating Companies on account of various circumstances, beyond its control. The various circumstances mentioned by the appellant, which allegedly impacted the financial position of the appellant, have no bearing on the merits of the Appeal. The counsels submitted in one voice that the delays in payment and/or non- payment of the invoices raised by the Power Generating Companies for the supply of power to the appellant, had put the respondent-Power Generating Companies under immense financial stress, as their source of revenue is from the sale and supply of power generated from their power plants. The respondent Power Generating Companies cannot be burdened with the consequences of the appellant’s defaults. [Para 187][1134-F-H; 1135-A] F M/s Kailash Nath Associates v. Delhi Development Authority and Anr (2015) 4 SCC 136 : [2015] 1 SCR 627 – distinguished. Halliburton Offshore Services Inc. v. Vedanta Limited & Anr., O.M.P (I) (COMM.) No. 88/2020, decided on G 29.05.2020 – referred to. 1.20 In this case, the appellant admittedly did not pay the bills raised by the Power Generating Companies within time. The
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A Power Purchase Agreements provided for Late Payment Surcharge on the presumption that delayed payment of bills causes prejudice and loss to the seller whose bill remains outstanding. Accordingly, the appellant also imposes delayed payment charges on its consumers, who pay their bills after the stipulated due date for payment of the bills at the rate of 1.5% per month and/or in B other 18% per annum. LPS rate of 2% above the SBAR is neither unreasonably exorbitant nor arbitrary. It cannot be said that the LPS agreed upon is not a genuine pre estimate of damages. [Para 189][1135-C-E] Union of India v. Association of Unified Telecom Service C Providers of India & Ors. 2020 (3) SCC 525 : [2019] 16 SCR 672; Hindustan Steel Ltd. v. State of Orissa 1969 (2) SCC 627 : [1970] 1 SCR 753; Akbar Badrudin Giwani v. Collector of Customs 1990 (2) SCC 203 : [1990] 1 SCR 369; Jaiprakash Industries Ltd. v. D Commissioner of Central Excise, Chandigarh 2003 (1) SCC 67; Tecumseh Products India Ltd. v. Commissioner of Central Excise, Hyderabad 2004 (6) SCC 30 : [2004] 2 Suppl. SCR 202; J.K. Synthetics Ltd. v. Commercial Taxes Officer 1994 (4) SCC 276:[1994] 3 SCR 964 ; Central Bank of India v. Ravindra and Others 2002 (1) E SCC 367 : [2001] 4 Suppl. SCR 323; M/s Kailash Nath Associates v. Delhi Development Authority and Anr (2015) 4 SCC 136 : [2015] 1 SCR 627 – referred to. 1.21 It would perhaps be pertinent to note that stereotype Power Purchase Agreements containing identical terms and F conditions are executed by the appellant with different Power Generating Companies. It is patently obvious that the Power Generating Companies only agree to terms and conditions of an agreement prepared by the appellant. It is difficult to accept that the appellant should incorporate in their stereotype Power G Purchase Agreements, a provision for payment of LPS at a rate 2% higher than the SBAR, in case of late payment of invoices/ bills, without any pre-estimation of the loss likely to be suffered by a Power Generating Company, by reason of non payment of bills in time, more so when the Late Payment Surcharge is linked
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1065 LTD. v. MERC & ORC.
to the rate of interest in respect of specific types of loan, charged A by a leading nationalised bank with the largest numbers of branches spread all over the country including in mofussil and rural areas. [Para 192][1137-C-E] 1.22 In any case, in this second appeal under Section 125 of the Electricity Act 2003, which is only to be heard on a B substantial question of law, this Court would not embark upon the exercise of making a factual enquiry into the mode and manner in which the Power Generating Companies meet their working capital requirements and interest that individual Power Generating Companies pay to their lenders. [Para 193] [1137-E-F] C
1.23 It is axiomatic that the Power Purchase Agreements provide for computation of Late Payment Surcharge in a particular manner to avoid the time consuming exercise of assessing the losses of individual Power Generating Companies by reason of late payment of their bills. The SBAR has been made the bench mark for computation of Late Payment Surcharge, irrespective of whether the Power Generating Companies are financed by the State Bank of India or any of its subsidiaries. The LPS provision is in the nature of a caution to arrange their affairs and finances keeping the upper limit of LPS of 2% above the SBAR in view, so that the Power Generating Company desists from borrowing at uneconomic rate of interest. [Para 194][1137-G-H] 1.24 There being no dispute in the instant case with regard to the principal sums due under the monthly bills, interest on delayed payment at 2% in excess of SBI PLR cannot be said to be arbitrarily high. There is no reason for this Court to reduce the contractual rate of interest and thereby alter or modify the contract between the parties, in exercise of its powers under Article 142 of the Constitution of India. [Para 195][1138-B] 1.25 The question whether or not the appellant has funds to clear its interest liability are not gone into. The appellant cannot continue to get supply of electricity without having appropriate funds. The appellant would necessarily have to raise funds to clear its contractual obligations. [Para 196][1138-C]
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A 1.26 Even assuming that the burden of interest would have to be passed on to the consumers, that cannot be the ground for the appellant to resile from its contractual commitment to the Power Generating Companies. The appellant cannot pass on the burden for delay in making payment to the Power Generating Companies. In any case the claims pertains to a period of three B years before filing of the petition before the MERC on 2nd December, 2016 and therefore barred by limitation. [Para 197][1138-D] 1.27 Reliance by the appellant, upon the tariff regulations framed by MERC for determination of tariff for Power Generating C Companies under Section 62 of the Electricity Act 2003, is untenable since the Tariff Regulations have no application in this case where PPAs have been executed pursuant to a bidding process, under Section 63 of the Electricity Act. [Para 198][1138- E-F] D 1.28 The challenge to the impugned judgment and order on the ground of the directions on the appellant to make payment of the LPS found due and payable, within a stipulated date, is also not sustainable. [Para 203][1140-B-C] 1.29 APTEL is not bound by the procedure laid down in the E Civil Procedure Code. Directions for time bound payment within a prescribed time frame are in conformity with the judgment of this Court in Jaipur Vidyut Vitran Nigam Ltd. v. Adani Power’s case which has been upheld by this Court. Moreover, one of the objectives of the Electricity Act is time bound disposal of matters. F This is evident from various provisions of the said Act including in particular Section 111(5) of the Act. Since APTEL and MERC are not bound by the procedure as laid down in the Civil Procedure Code, it was open to APTEL to pass such orders as would finally put an end to litigation. [Para 204][1140-C-D]
G Jaipur Vidyut Vitaran Nigam Limited & Ors. v. Adani Power Rajasthan Limited and Anr 2020 SCC Online SC 697 – distinguished. 1.30 An Electricity Regulatory Commission such as MERC constituted under the Electricity Act, 2003 has all the trappings of a Court. The MERC is a substitute for a Civil Court in respect H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1067 LTD. v. MERC & ORC.
of all disputes between licensees and Power Generating A Companies. MERC acted within the scope of its power of regulatory supervision in directing the appellant to make payment of LPS within the time stipulated in the order of MERC. The APTEL rightly upheld the direction. In any case, such a direction cannot be interfered with in exercise of powers under Section B 125 of the Electricity Act which corresponds to the power of Second Appeal under Section 100 of the CPC, since the sine qua non for entertaining an appeal is the existence of a substantial question of law. [Page 205, 207][1140-E-F; 1141-B-C] Tamil Nadu Generation & Distribution Corporation Ltd. v. PPN Power Generating Company Private Limted C (2014) 11 SCC 53 : [2014] 4 SCR 667; Andhra Pradesh Power Coordination Committee & Others v. Lanco Kondapalli Power Ltd & Ors. (2016) 3 SCC 468 : [2015] 12 SCR 447; Gujarat Urja Vikas Nigam Limited v. Amit Gupta and Others (2021) SCC OnLine 194; D State of Karnataka v. Vishwabharathi House Building Cooperative Society and Others (2003) 2 SCC 412 : [2003] 1 SCR 397; All India Power Engineering Federation & Ors. vs. Sasan Power Limited & Others (2017) 1 SCC 487 : [2016] 9 SCR 901 – referred to. E 1.31 After the the hearing of this appeal was concluded and the appeal was reserved for judgment, the appellant filed an application to bring on record additional facts and documents in the form of queries under the Right to Information Act, 2005 made to the State Bank of India and the responses thereto in an attempt to show that PLR would not apply to short term loans F advanced by SBI after transition to the Base Rate/MCLR system. This Court cannot take note of any documents sought to be introduced after the conclusion of hearing. In any case, this Court cannot in a second appeal under Section 125 of the Electricity Act, 2003 interfere with concurrent factual findings arrived at by G MERC and APTEL on the basis of facts admitted by the appellant. The appellant had been accepting the invoices raised by the respondent–Power Generating companies and accounts had duly been reconciled by the appellant. The LPS charged by the
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A respondent Power Generating Companies was never disputed. Further more, this Court cannot look into documents introduced for the first time in this second appeal, which were not tendered in evidence before the MERC or the APTEL. Even otherwise, queries made by a rank outsider as late as on 12th July 2021 or replies thereto cannot be relied upon in evidence, by the B appellant. [Para 208][1141-C-F] 1.32 There is no ground to interfere with the judgment and order of the APTEL confirming the judgment and order passed by MERC. [Para 209][1141-G] C DSR Steel (P). Ltd. v. State of Rajasthan and others (2012) 6 SCC 782 : [2012] 5 SCR 583; Power Grid Corporation of India and Ors. v. Tamil Nadu Generation and Distribution Company Limited and Others. (2019) 7 SCC 34 : [2019] 7 SCR 724; Bharat Sanchar Nigam Ltd. v. Pawan Kumar Gupta (2016) 1 SCC 363 : [2015] D 11 SCR 402; Adani Power (Mundra) Ltd. v. Gujarat Electricity Regulatory Commission and Others (2019) 19 SCC 9; Uttar Haryana Bijli Vitran Nigam Limited and Another v Adani Power Limited and Others (2019) 5 SCC 325 : [2019] 4 SCR 487; CLP India Private E Limited v. Gujarat Urja Vikas Nigam Limited and Another 2020 (5) SCC 185; Transmission Corporation of Andhra Pradesh Ltd . And Others v. GMR Vemagiri Power Generation Ltd. And Another (2018) 3 SCC 716; Indian Council for Enviro-Legal Action v. Union of India (2011) 8 SCC 161 : [2011] 9 SCR 146; Gujarat Urja F Vikas Nigam Ltd. v. Essar Power Limited (2008) 4 SCC 755 : [2008] 4 SCR 822 – referred to. https://www.merriam-webster.com/dictionary/tariff – referred to.
G Case Law Reference [2012] 5 SCR 583 referred to Para 72 [2019] 7 SCR 724 referred to Para 73 [2015] 11 SCR 402 referred to Para 74 H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1069 LTD. v. MERC & ORC.
(2019) 19 SCC 9 referred to Para 95 A [2019 ] 4 SCR 487 referred to Para 112 2020 (5) SCC 185 referred to Para 115 (2018) 3 SCC 716 referred to Para 117 B [2011] 9 SCR 146 referred to Para 128 [2008] 4 SCR 822 referred to Para 139 [2008] 7 SCR 631 referred to Para 151 (2016) 16 SCC 541 referred to Para 154 C (2017) 11 SCC 194 referred to Para 155 [1996] 3 SCR 239 referred to Para 156 [1996] 5 Suppl. SCR 582 referred to Para 157 [1997] 3 SCR 51 referred to Para 163 D [2017] 14 SCR 301 referred to Para 177 [2020] 3 SCR 359 referred to Para 177 [2015] 1 SCR 627 distinguished Para 188 E [2019] 16 SCR 672 referred to Para 190 [1970] 1 SCR 753 referred to Para 191 [1990] 1 SCR 369 referred to Para 191 2003 (1) SCC 67 referred to Para 191 F [2004] 2 Suppl. SCR 202 referred to Para 191 [1994] 3 SCR 964 referred to Para 191 [2001] 4 Suppl. SCR 323 referred to Para 191 [2014] 4 SCR 667 referred to Para 205 G [2015] 12 SCR 447 referred to Para 205 [2003] 1 SCR 397 referred to Para 206 [2016] 9 SCR 901 referred to Para 206 H
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A CIVIL APPELLATE JURISDICTION : Civil Appeal No.1843 of 2021. From the Judgment and Order dated 27.04.2021 of the Appellate Tribunal for Electricity at New Delhi in Appeal No.77 of 2018. Vikas Singh, Sr. Adv., G. Saikumar, Samir Malik, Rahul Sinha, B Ms. Himangini Mehta, Ms. Deepika Kalia, Satwik Mishra, Ms. Farha Malik, Chandra Prakash, M/s D. S. K. Legal, Advs. for the Appellant. Mukul Rohatgi, Sr. Adv., Aman Anand, Vivek Singh, Aman Dixit, Mahesh Agarwal, Ms. Parul Shukla, Arshit Anand, Nishant Rao, E. C. Agrawala, Vishrov Mukherjee, Gaurav Ray, Alok Shankar, Ms. Divya C Anand, Advs. for the Respondents.
Judgment
The Judgment of the Court was delivered by INDIRA BANERJEE, J. This appeal, under Section 125 of the Electricity Act 2003, is against D a judgment and order dated 27th April 2021 passed by the Appellate Tribunal for Electricity, hereinafter referred to, in short, as ‘APTEL’, dismissing Appeal No.77 of 2018 filed by the Appellant, Maharashtra State Electricity Distribution Company Ltd., and affirming an order dated 16th November, 2017 passed by the Maharashtra Electricity Regulatory Commission, hereinafter referred to, in short, as ‘MERC’, whereby E MERC dismissed the petition filed by the Appellant under Section 86 of the Electricity Act, being Case No.24 of 2017, rejecting the contention of the Appellant that, introduction by Reserve Bank of India of the Base Rate system and the Marginal Cost of Funds Based Lending Rate system constituted a change in law, within the meaning of the expression ‘Change F in Law’ as defined in the respective Power Purchase Agreements between the Appellant and the Respondent Nos.2, 3, 4 and 5, hereinafter collectively referred to as the “Power Generating Companies”, so as to alter the rate of Late Payment Surcharge(LPS) payable by the Appellant to the Power Generating Companies under the respective Power Purchase Agreements. G
22. The Appellant, incorporated under the Companies Act, 1956, pursuant to the decision of the Government of Maharashtra to reorganize erstwhile Maharashtra State Electricity Board, is a Distribution Licensee under the provisions of the Electricity Act, 2003, with license to supply electricity all over the State of Maharashtra, except some parts of the H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1071 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
city of Mumbai. The Appellant is a bulk purchaser of electricity from generators of electricity.
33. The Appellant had, from time to time, issued Tender Notices, inviting bids for bulk supply of electricity to the Appellant, pursuant to which, the Power Generating Companies submitted their bids.
44. The Appellant has executed Power Purchase Agreements with the Power Generating Companies, arrayed as Respondent Nos. 2 to 5 in this appeal in two stages. The two sets of Power Purchase Agreements, hereinafter referred to as the stage 1 and stage 2 Power Purchase Agreements, contain almost identical terms and conditions. The respective dates and brief particulars of the respective agreements (five in number) C are as follows:- “Stage 1-PPA
E Stage 2-PPA
55. The relevant terms and conditions of the Stage 1 Power G Purchase Agreements are set out hereunder:- “Article 1 : Definitions and interpretation Change in law – shall have the meaning ascribed thereto in Article 13.1.1 of this agreement. H
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A Indian Governmental instrumentality – means the GoI, Government of Maharashtra and any ministry or, department of or, board, agency or other regulatory or quasi-judicial authority controlled by GoI or Government of States where the procurer and project are located and includes the CERC and MERC. B Late Payment Surcharge – shall have the meaning ascribed there to in Article 11.3.4 Law – means, in relation to this Agreement, all laws including Electricity Laws in force in India and any stature, ordinance, regulation, notification or code, rule, or any interpretation of any of them by an Indian Government Instrumentality and having force of law and shall further include all applicable rules, regulations, orders, notifications by an Indian Governmental Instrumentality pursuant to or under any of them and shall include all rules, regulations, decisions and orders of the CERC and the MERC. SBAR – means the prime lending Rate per annum applicable for loans with one (1) year maturity as fixed from time to time by the State Bank of India. In the absence of such rate, any other arrangement that substitutes such prime lending rate as mutually agreed to by the parties. Article 11: Billing and Payment . . F . 11.3.4 In the event of delay in payment of a monthly bill by the procurer beyond its due date month billing, a Late Payment Surcharge shall be payable by the procurer to the seller at the rate of two (2) percent in excess of applicable SBAR per G annum, on the amount of outstanding payment, calculated on a day to day basis (and compounded with monthly rest) for each date of the delay. ..
H Article 13 : Change in Law
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1073 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
13.1. Definitions A In this Article 13, the following terms have the following meanings. 13.1.1 “Change in Law” means the occurrence of any of the following events after the date, which is seven (7) days prior, to the Bid Deadline: B
(i) the enactment, bringing into effect, adoption, promulgation, amendment, modification or repeal or any law or (ii) a change in interpretation of any law by a competent court of law, tribunal or Indian governmental instrumentality provided such court of law, tribunal or Indian governmental instrumentality is final authority under law for such interpretation. But shall not include (i) any change in any withholding tax on income or dividends distributed to the shareholders of the seller, or (ii) Change in respect of UI charges or frequency intervals by an Appropriate Commission. . . . E
13.2 Application and principal for computing impact of Change in Law While determining the consequence of Change in Law under this Article 13, the parties shall have due regard to the F principle that the purpose compensating the party affected by such change in law, is to restore through monthly tariff payments to the extent contemplated in this Article 13, the affected party to the same economic position as if such Change in Law has not occurred. G a) ………… b) Operation Period – As a result of change in Law, the compensation for any increase/decrease in revenue or cost to the seller shall be determined by the Maharashtra State Electricity Regulatory H
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A Commission whose decision shall be final and binding on both the parties, subject to right of appeal provided under applicable law and effective from the date specified in 13.4.1 13.3. Notification of Change in Law: 13.3.1. If the seller is affected by a Change in Law in B accordance with Article 13.2 and the Seller wishes to claim a Change in Law under this Article, it shall give notice to the Procurer of such Change in Law as soon as reasonably practicable after becoming aware of the same or should reasonably have known of the Change in Law. C 13.3.2.Notwithstanding Article 13.3.1, the seller shall be obliged to serve notice to the Procurer under this Article 13.3.2 if it is beneficially affected by a Change in Law. Without prejudice to the factor of materiality or other provisions contained in this Agreement, the obligation to inform the procurer contained herein shall be material. Provided that in case the seller has not provided such notice, the Procurer shall have the right to issue such notice to the seller. 13.3.3 Any notice served pursuant to this Article 13.3.2 shall provide, amongst other things, precise details of: a) The Change in Law; and b) The effects on the Seller of the matters referred to in Article 13.2 F 13.4.Tariff adjustment payment on account of Change in Law 13.4.1. subject to Article 13.2, the adjustment in monthly tariff payment shall be effective from: (i) the date of adoption, promulgation, amendment, re- enactment, repeal of the Law or Change in Law, or G (ii) the date of order/judgment of the competent court or tribunal or Indian Governmental Instrumentality, if the Change in Law is on account of a change in interpretation of law.”
66. The Stage 2 Power Purchase Agreements, as stated hereinbefore, contain terms and conditions almost identical to those of H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1075 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
the first set of agreements. The relevant provisions of the second set of A agreements (Stage 2) are as follows:- “Article 1 : Definitions and Interpretation Change in law – shall have the meaning ascribed thereto in Article 10.1.1 of this agreement. B Indian Governmental Instrumentality – shall mean the Government of India, Governments of state(s) of Maharashtra, and any ministry, department, board, authority, agency, corporation, commission under the direct or indirect control of Government of India or any of the above State Government(s) or both, any political sub-division of any of C them including any court or Appropriate Commission(s) or tribunal or judicial or quasi-judicial body in India but excluding the Seller and the Procurer. Late Payment Surcharge – shall have the meaning ascribed thereto in Article 8.3.5 of this Agreement. D Law – Shall mean in relation to this Agreement, all laws including Electricity Laws in force in India and any statute, ordinance, regulation, notification or code, rule or any interpretation of any of them by an Indian Governmental instrumentality and having force of law and shall further E include without limitation all applicable rules, regulations, orders, notifications by an Indian Governmental instrumentality pursuant to or under any of them and shall include without limitation all rules, regulations, decisions and orders of the Appropriate Commission. F SBAR – Shall mean the prime lending Rate per annum applicable for loans with one (1) year maturity as fixed from time to time by the State Bank of India. In the absence of such rate, SBAR shall mean any other arrangement that substitutes such prime lending rate as mutually agreed to by the parties. G Article 8 : Billing and Payment . . . H
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A 8.3.5 In the event of delay in payment of a monthly bill by the procurer beyond its due date, a Late Payment Surcharge shall be payable by such procurer to the seller at the rate of two (2) percent in excess of applicable SBAR per annum, on the amount of outstanding payment, calculated on a day to day basis (and compounded with monthly rest) for each date of B the delay. The Late Payment Surcharge shall be claimed by the Seller through the Supplementary Bill. . . C . Article 10 : Change in Law 10.1 Definitions In this Article 10, the following terms have the following D meanings 10.1.1. “Change in Law” means the occurrence of any of the following events after the date, which is seven (7) days prior, to the Bid Deadline resulting into any additional recurring/ non-recurring expenditure by the Seller or any income to the E Seller: * the enactment, coming into effect, adoption, promulgation, amendment, modification or repeal (without re-enactment or consolidation) in India, of any Law, including rules and regulations framed pursuant to such Law; F * a change in interpretation or application of any law by any Indian Governmental Instrumentality having the legal power to interpret or apply such Law, or any Competent Court of Law; * the imposition of requirement for obtaining any Consents, G Clearances and Permits which was not required earlier; * a change in the terms of conditions prescribed for obtaining any Consents, Clearances and Permits or the inclusion of any new terms or conditions for obtaining such Consents, Clearances and Permits; except due to any default of the H Seller;
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1077 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
* any change in tax or introduction of any tax made A applicable for supply of power by the Seller as per the terms of this Agreement but shall not include (i) any change in any withholding tax on income or dividends distributed to the shareholders of the Seller, or (ii) Change in respect of UI Charges or frequency intervals by an Appropriate Commission B or (iii) any change on account of regulatory measures by the Appropriate Commission including calculation of Availability. 10.2. Application and Principles for computing impact of Change in Law 10.2.1. While determining the consequence of Change in Law C under this Article 10, the parties shall have due regard to the principle that the purpose compensating the party affected by such Change in Law, is to restore through monthly tariff Payment, to the extent contemplated in this Article 10, the affected party to the same economic position as if such Change in Law has not occurred. D
10.3 Relief for Change in Law 10.3.2 During Operation Period The compensation for any decrease in revenue or increase in expenses to the Seller shall be payable only if the decrease in E revenue or increase in expenses of the Seller is in excess of an amount equivalent to 1% of the value of the Letter of Credit in aggregate for the relevant Contract Year. 10.4 Notification of change in Law: F 10.4.1. If the seller is affected by a Change in Law in accordance with Article 10.1 and the Seller wishes to claim a Change in Law under this Article 10, it shall give notice to the Procurer of such Change in Law as soon as reasonably practicable after becoming aware of the same or should reasonably have known of the Change in Law. G 10.4.2 Notwithstanding Article 10.4.1, the Seller shall be obliged to serve notice to the Procurer under this Article 10.4.2, even if it is beneficially affected by a Change in Law. Without prejudice to the factor of materiality or other H
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A provisions contained in this Agreement, the obligation to inform the procurer contained herein shall be material. Provided that in case the Seller has not provided such notice, the Procurer shall have the right to issue such notice to the Seller. B 10.4.3. Any notice served pursuant to this Article 10.4.2 shall provide, amongst other things, precise details of: a) The Change in Law; and b) The effects on the Seller. C 10.5. Tariff Adjustment Payment on account of Change in Law 10.5.1. Subject to Article 10.2, the adjustment in monthly Tariff Payment shall be effective from: (i) the date of adoption, promulgation, amendment, re- D enactment, repeal of the Law or Change in Law, or (ii) the date of order/ judgment of the Competent Court or tribunal or Indian Governmental Instrumentality, if the Change in Law is on account of a change in interpretation of Law. E 10.5.2. The payment for Change in Law shall be through Supplementary Bill as mentioned in Article 8.8. However, in case any change in Tariff by reason of Change in Law, as determined in accordance with this Agreement, the Monthly Invoice to be raised by the Seller after such change in Tariff shall appropriately reflect the changed tariff.” F
77. With the object of bringing transparency in the lending rates, that is, the rates of interest charged by banks on loans and advances, the Reserve Bank of India had introduced the Benchmark Prime Lending Rate (BPLR) system in 2003.
88. By a notification dated 1st July 2010, the Reserve Bank of India introduced the Base Rate System, replacing the BPLR system with immediate effect. The relevant extracts of the notification dated 01.07.2010 are set out hereinbelow :- “2.2.1 The Base Rate system, as detailed below and in Annex 1 will replace the BPLR system with effect from July 1, 2010. H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1079 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
For loans sanctioned up to June 30, 2010, BPLR will be applicable, as given in Annex 3 and 4. However, for those loans sanctioned up to June 30, 2010 which come up for renewal from July 1, 2010 onwards, Base Rate would be applicable….. 2.3.6. The Base Rate system would be applicable for all new loans and for those old loans that come up for renewal. Existing loans based on the BPLR system may run till their maturity. In case existing borrowers want to switch to the new system, before expiry of existing contracts, an option may be given to them, on mutually agreed terms. Banks, however, should not charge any fee for such switch-over. C
2.3.7 Interest rates under the BPLR system are applicable to all existing loans sanctioned up to June 30, 2010. However, wherever loans sanctioned up to June 30, 2010 come up for renewal from July 1, 2010 the Base Rate system would be applicable. The guidelines on Benchmark Prime Lending Rate D (BPLR) and Spreads and its determination for existing loans sanctioned up to June 30, 2010 are given in Annex 3 and Annex 4.” (Emphasis supplied)
99. Later by a further notification dated 3rd March 2016, the Reserve Bank of India introduced the Marginal Cost of Funds Based Lending E Rate (MCLR) replacing the Base Rate System with effect from 1st April 2016. The notification dated 03.03.2016 provided: “6 (a) (i) All floating rate rupee loans sanctioned and renewed between July 1, 2010 and March 31, 2016 shall be priced with reference to the Base Rate which will be the internal F benchmark for such purposes. ……….. 6 (b) (i) All floating rate rupee loans sanctioned and renewed w.e.f. April 1, 2016 shall be priced with reference to the G Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark for such purposes subject to the provisions contained in paragraph 7 of this Master Direction. “(Emphasis supplied) H
p. 1080
1010. There can be no dispute that the obligation to pay Late Payment Surcharge (LPS) in case of delay in payment of bills raised by the Power Generating Companies on the Appellant arises from the Power Purchase Agreements, the relevant clauses being Article 11.3.4 of the Stage 1 Power Purchase Agreements and Article 8.3.5 of the Stage 2 Power Purchase Agreements. B
1111. LPS is payable at the rate agreed upon by the parties to the Power Purchase Agreements. The Power Purchase Agreements stipulate that LPS for delay in payment of bills is to be computed on the basis of the Prime Lending Rate fixed as per SBAR, that is, the State Bank Advance Rate. C
1212. The expression SBAR (State Bank Advance Rate) refers to the Prime Lending Rate notified by the State Bank of India (hereinafter referred to as ‘SBI’) from time to time, that is applicable per annum for loans with one year maturity, advanced by SBI. It is only in the absence of SBAR that the rate of LPS may be substituted by some other D arrangement, by mutual agreement.
1313. On 23.09.2016, the Appellant issued notice of ‘Change in Law’ to independent power producers including the Power Generating Companies impleaded as Respondent Nos.2 to 5.
1414. On 02.12.2016, the Appellant filed Case No.24 of 2017 before the MERC claiming that the introduction of the Base Rate and MCLR qualifies as Change in Law. Case No.24 of 2017 has been dismissed by a judgment and order dated 16.11.2017, which has been affirmed by the APTEL in Appeal No.77 of 2018, by the judgment and order impugned in this Appeal under Section 125 of the Electricity Act, 2003. F
1515. Mr. Vikas Singh appearing on behalf of the Appellant submitted that this appeal raises the following substantial questions of law: (a) Whether Late Payment Surcharge (LPS) can be determined on the basis of the Prime Lending Rate (PLR) methodology, particularly when:- G (i) Reserve Bank of India discontinued the PLR methodology and shifted to Base Rate system by its notification dated 01.07.2010 and Marginal Cost of Fund-based Lending Rate System (MCLR) by its H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1081 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
notification dated 03.03.2016 as methodologies for calculation of rate of interest? (ii) Should the State Bank Advance Rate (SBAR) as defined in the Power Purchase Agreement be determined only on the basis of PLR even though SBAR is for loans with one year maturity (i.e., short term loans) and not for long term loans? (b) Whether the notifications dated 01.07.2010 and 03.03.2016 issued by the Reserve Bank of India are an event of change in law in terms of Article 13 and Article 10 of the two sets of Power Purchase Agreements executed by the Appellant C with the Power Generators? (c) Whether LPS, which admittedly is compensatory in nature, can in law be awarded to the Respondents without any evidence of actual loss (equivalent to the LPS determined at the rate of PLR +2%), particularly when Power D Generators are availing working capital loan at much lower rate of interest, based on Base Rate or MCLR? (d) Whether LPS, which is admittedly compensatory in nature, can in law be awarded in such a manner that it results in unjust enrichment of the Power Generators, especially since the interest is to be paid by compounding monthly?
1616. Mr. Singh argued that none of the above questions of law have yet been decided by this Court, in the context of LPS. All these questions of law go to the root of the dispute between the Appellant and the Power Generating Companies and have a direct bearing on the outcome of the lis between the parties. If any of these substantial questions of law are decided either way, the same shall not only be determinative of inter-se rights between the parties during the entire term of the Power Purchase Agreements but shall also have wide ranging impact across the entire electricity sector. G
1717. In support of his argument that this Appeal involves a substantial question of law, well within the four corners of Section 125 of the Electricity Act, 2003 Mr. Singh cited State Bank of India and Ors. v. S.N. Goyal1, where this Court held:- 1 (2008) 8 SCC 92 H
p. 1082
A “13. Second appeals would lie in cases which involve substantial questions of law. The word “substantial” prefixed to “question of law” does not refer to the stakes involved in the case, nor intended to refer only to questions of law of general importance, but refers to impact or effect of the question of law on the decision in the lis between the parties. B “Substantial questions of law” means not only substantial questions of law of general importance, but also substantial question of law arising in a case as between the parties. In the context of Section 100 CPC, any question of law which affects the final decision in a case is a substantial question of C law as between the parties. A question of law which arises incidentally or collaterally, having no bearing on the final outcome, will not be a substantial question of law. Where there is a clear and settled enunciation on a question of law, by this Court or by the High Court concerned, it cannot be said that the case involves a substantial question of law. It is said that a D substantial question of law arises when a question of law, which is not finally settled by this Court (or by the High Court concerned so far as the State is concerned), arises for consideration in the case. But this statement has to be understood in the correct perspective. Where there is a clear enunciation of law and the lower court has followed or rightly applied such clear enunciation of law, obviously the case will not be considered as giving rise to a substantial question of law, even if the question of law may be one of general importance. On the other hand, if there is a clear enunciation of law by this Court (or by the High Court concerned), but the lower court had ignored or misinterpreted or misapplied the same, and correct application of the law as declared or enunciated by this Court (or the High Court concerned) would have led to a different decision, the appeal would involve a substantial question of law as between the parties. Even where there is an enunciation of law by this Court (or the High Court concerned) and the same has been followed by the lower court, if the appellant is able to persuade the High Court that the enunciated legal position needs reconsideration, alteration, modification or clarification or that there is a need to resolve H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1083 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
an apparent conflict between two viewpoints, it can be said A that a substantial question of law arises for consideration. There cannot, therefore, be a straitjacket definition as to when a substantial question of law arises in a case. Be that as it may.” (Emphasis supplied)
1818. Mr. Singh also cited Nazir Mohamed v. J. Kamala and B Others2, authored by one of us (Indira Banerjee, J), where this Court reiterated that :- “32. To be “substantial”, a question of law must be debatable, not previously settled by the law of the land or any binding precedent, and must have a material bearing on the decision of the case and/or the rights of the parties before it, if answered either way.” (Emphasis supplied)
1919. Mr. Singh submitted that the LPS under the Power Purchase Agreements must be calculated at prevailing Base Rate/ MCLR Rates as issued by the RBI from time to time. Mr. Singh argued that, as per the definition of SBAR in the Power Purchase Agreement, SBAR means the Prime Lending Rate per annum applicable for loans with one (1) year maturity, as fixed from time to time by the State Bank of India, and in the absence of such rate, any other arrangement that substitutes such Prime Lending Rate, as mutually agreed to by the parties. E
2020. Mr. Singh argued that the definition of SBAR as provided under the Power Purchase Agreements expressly refers to the interest rate that is applicable for loans with one year maturity. The interest rate is therefore, to be renewed on a yearly basis, and further, only the interest rates for short term loans would be applicable to LPS under the Power Purchase Agreements. Upon renewal of the loan, the Base Rate system and/or MCLR system, as the case may be, is to be applicable, for the relevant period for which LPS is to be calculated.
2121. Mr. Singh submitted that no PLR rates are being notified by SBI for short term loans. The PLR rates issued by SBI, after notification of the Base Rate system and the MCLR rates by the RBI, are only for long term loans that have not come up for renewal, and for those loans which are running to maturity. Even in case of loans there is option of switching to the Base Rate / MCLR system.
2 2020 SCC OnLine SC 676 H
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2222. Mr. Singh submitted that in Jaipur Vidyut Vitaran Nigam Limited & Ors. v. Adani Power Rajasthan Limited and Anr3., this Court has capped the interest rate on LPS at 9% per annum, inclusive of the 2% in excess of the applicable interest rate. Moreover, this Court has directed that the interest should be compounded annually and not monthly as provided in the clause therein. The relevant portion of the said judgment cited to by Mr. Singh, is reproduced hereunder: “71. Considering the facts of this case and keeping in view that the RERC and APTEL have given concurrent findings in favour of the respondent with regard to change in law, with which we also concur, we may now deal with the question of liability of appellants- Rajasthan Discoms with regard to late payment surcharge. In this regard, the following Articles 8.3.5 and 8.8 of PPA, which are relevant for the present purpose, are extracted hereunder: “8.3.5. In the event of delay in payment of a Monthly Bill D by the Procurers beyond its Due Date, a Late Payment Surcharge shall be payable by such Procurers to the Seller at the rate of two percent (2%) in excess of the applicable SBAR per annum, on the amount of outstanding payment, calculated on a day to day basis (and compounded with monthly rest), for each day of the delay. The Late Payment Surcharge shall be claimed by the Seller through the Supplementary Bill.
72. Liability of the Late Payment Surcharge which has been saddled upon the appellants is at the rate of 2% in excess of applicable SBAR per annum, on the amount of outstanding payment, calculated on a day to day basis (and compounded with monthly rest) for each day of the delay. Therefore, there shall be huge liability of payment of Late Payment Surcharge upon the appellants-Rajasthan Discoms.
G 73. With regard to the question of interest/late payment surcharge, we notice that the plea of change in law was initially raised by APRL in the year 2013. A case was also filed by APRL in the year 2013 itself raising its claim on such basis. However, the appellants- Rajasthan Discoms did not 3 2020 SCC Online SC 697 H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1085 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
allow the claim regarding change in law, because of which A APRL was deprived of raising the bills with effect from the date of change in law in the year 2013. We are, thus, of the opinion that considering the totality of the facts of this case and in order to do complete justice and to reduce the liability of the appellants-Rajasthan Discoms, payment of 2 per cent in excess of the applicable SBAR per annum with monthly rest would be on higher side. In our opinion, it would be appropriate to direct the appellants-Rajasthan Discoms to pay interest/late payment surcharge as per applicable SBAR for the relevant years, which should not exceed 9 per cent per annum. It is also provided that instead of monthly rest, the interest would be compounded per annum.
74. We accordingly direct that the rate of interest/late payment surcharge would be at SBAR, not exceeding 9 per cent per annum, to be compounded annually, and the 2 per cent above the SBAR (as provided in Article 8.3.5 of PPA) would not be charged in the present case.”
2323. Mr. Singh argued that the provisions of the Power Purchase Agreement considered in Jaipur Vidyut Vitaran Nigam Ltd. (supra) with regard to LPS are in pari materia with the corresponding provisions in the Power Purchase Agreements under consideration in this case. E Thus, the aforesaid judgment squarely covers the present case.
2424. Mr. Singh argued that, in terms of Article 1 of the Power Purchase Agreements, “law means all laws including Electricity Laws in force in India and any statute, ordinance, regulation, notification or code, rule, or any interpretation of any of them by an Indian F Governmental Instrumentality and having force of law and shall further include all applicable rules, regulations, orders, notifications by an Indian Governmental Instrumentality pursuant to or under any of them and shall include all rules,” Change in Law has been defined to include the enactment, bringing into effect, adoption, promulgation, amendment, modification or repeal of any law. G
2525. Mr. Singh further argued that the Reserve Bank of India is an Indian Government Instrumentality. The Notifications referred to above, were issued by the Reserve Bank of India under Sections 21 and 35A of the Banking Regulation Act, 1949 and have the force of law. Thus, these H
p. 1086
A Notifications are well within the definition of law provided in the Power Purchase Agreements.
2626. Mr. Singh emphatically argued that the Reserve Bank of India Notifications dated 01.07.2010 and 03.03.2016, issued after execution of the Power Purchase Agreements with the Respondent Nos. 2 to 5 B constituted change in Law, as contemplated in the Power Purchase Agreements.
2727. Mr. Singh submitted that the APTEL has erroneously come to the conclusion that LPS is not tariff and also not part of the income of the Respondent Power Generating Companies and thus does not constitute change in law. Mr. Singh submitted that any payment made by a procurer of electricity to the generator of electricity is nothing but a facet of the tariff payable under the Power Purchase Agreement. The term ‘tariff’ cannot be restricted to only two facets of tariff, i.e., per unit energy charge and fixed energy charge on the basis of production capacity (capacity charge). All payments that are payable to a generator of electricity for supply of electricity under the Power Purchase Agreements including LPS are different facets of tariff. Tariff will also include what the distribution licencees would ultimately charge the consumers.
2828. Referring to the meaning of the word ‘tariff’ as given in Merriam Webster Dictionary, as downloaded from the website https:// E www.merriam-webster.com/dictionary/tariff on 29.07.2021, which includes a charge, Mr. Singh argued that LPS is part of the charges that are payable by the Appellant to the Respondent Generating Companies under their respective Power Purchase Agreements, and is therefore tariff.
2929. Mr. Singh submitted that interest income is considered as income under the Income Tax Act, 1961. LPS is nothing but interest on account of delay in payment of the tariff under the Power Purchase Agreements, and is payable as a part of the said tariff. However, APTEL has by its impugned judgment and order wrongly held that LPS neither G has any bearing on the income of the Respondent Power Generating Companies nor is part of the tariff. APTEL has erroneously held that change in methodology in computation of the rate of interest is not change in law.
3030. Mr. Singh further argued that the LPS, as a concept, is compensatory in nature for delayed payment, if any. The Order dated H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1087 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
16.11.2017 passed by the MERC in Case No.24 of 2017 also holds that A LPS is essentially compensatory in character, in terms of the effect on the seller on account of delay by the procurer in making payments.
3131. Mr. Singh further argued that LPS is paid to compensate a power generator for delay in making payments of invoices, because the B power generator would have to arrange additional working capital loan to the extent of the amount of outstanding delayed invoice(s). Thus, to offset the loss that may have been caused on account of additional interest on such additional working capital loan, the Power Purchase Agreements contain a provision for LPS. The fact that LPS is to be compounded monthly is a further benefit to the Power Generating Companies. Thus, C LPS in essence is nothing but a kind of liquidated damages for delay in payment of invoice(s).
3232. Mr. Singh emphatically argued that LPS being compensatory in nature, the same cannot be claimed as a windfall gain. A comparative analysis of the LPS rate claimed by the Respondents, with the prevailing rates of interest for availing working capital loans would reveal that the Respondent Power Generating Companies were making profit from LPS, at the cost of the Appellant, contrary to the concept of compensation and/or damages.
3333. Mr. Singh submitted that it is well settled that law does not permit any windfall gain, while awarding any compensation. In this context Mr. Singh cited M/s Kailash Nath Associates v. Delhi Development Authority and Anr.4 where this court held :- “43. …..On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows:- 43.1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the 4 (2015) 4 SCC 136 H
p. 1088
A amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.” B 43.2. Reasonable compensation will be fixed on well-known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act. 43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section. 43.4. The section applies whether a person is a plaintiff or a defendant in a suit. 43.5. The sum spoken of may already be paid or be payable in future. 43.6. The expression “whether or not actual damage or loss is proved to have been caused thereby” means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded. E 43.7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application.
F 44. The Division Bench has gone wrong in principle. As has been pointed out above, there has been no breach of contract by the appellant. Further, we cannot accept the view of the Division Bench that the fact that DDA made a profit from re- auction is irrelevant, as that would fly in the face of the most basic principle on the award of damages—namely, that G compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall” (emphasis supplied)”
3434. To impress upon this Court that the Respondents were making a huge gain from LPS as claimed by them, Mr. Singh emphasized the H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1089 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
difference between LPS rates as claimed by the Respondents and the A rates of LPS which the Appellant seeks, based on rates of interest on loans (excluding an additional 2% as payable in terms of the Power Purchase Agreements) as given in the Table below:-
3535. Mr. Singh also relied on a table reproduced below, of the monetary difference between the LPS claimed by the Respondents and the LPS if charged as per Base Rate/MCLR methodologies :-
p. 1090
3636. Mr. Singh emphatically submitted that the Respondent Power Generating Companies have been availing their working capital loans at interest computed in accordance with the Reserve Bank of India Notifications, but are claiming LPS applying archaic and discontinued PLR methodology. There are, however, no materials on record to substantiate the contention that the Respondent Power Companies are availing working capital loans at interest computed in accordance with the Notification dated 3rd March, 2016 of the Reserve Bank of India.
3737. Mr. Singh submitted that the Respondent No.2 sought for bill discounting from the Appellant during the financial year 2020-2021. Such bill discounting was done at the rate of 7% per annum. He pointed out that other Power Generators had also discounted their energy bills at interest rates varying from 4 to 6.5%. However, those Power Generators are not parties to this appeal.
3838. Mr. Singh adverted to the Independent Auditor’s Certificate on computation of actual rate of interest on short term borrowings for D Coastal Gujarat Power Limited (CGPL), which is also an Independent Power Producer. The actual rates of interest on short term borrowings by CGPL between 01.04.2018 to 25.01.2021 are as follows:
CGPL not being a party to these proceedings its borrowings or the interest paid by them on borrowings is inconsequential.
3939. Mr. Singh further submitted that the Appellant is a revenue neutral entity. The Annual Revenue Requirement of the Appellant is required to be approved by the MERC. Expenditure not allowed by the MERC is excluded from the Annual Revenue Requirement that is approved by the MERC. The delay in payments made under the Power Purchase Agreements is due to several extraneous and unavoidable circumstances, which are beyond the control of the Appellant, including but not limited to delayed recovery of dues from the consumers of the Appellant. Even before the outbreak of the COVID-19 pandemic, the H Appellant had been suffering major cashflow crunches.
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1091 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
4040. Mr. Singh submitted that the Appellant has been facing severe A cash flow issues, as the tariff hike approved by the MERC is much lower than the required tariff hike. The same is evident from the gap in the revenue sought by the Appellant as against the revenue allowed by the MERC, the figures of which are as follows: B
4141. Mr. Singh argued that a Revenue gap of Rs.2433 Crores has not been approved by the MERC for the Financial Years 2015-16, 2016- 17 and 2017-18. Furthermore, the Appellant has projected/claimed Revenue Gap of Rs. 34,646 Crores upto the Financial Year 2019-20 (including past period revenue gap, from 2015-16 to FY 2017-18). D However, the MERC has determined the total Revenue Gap at Rs. 20,651 Crores only vide its Order dated 12.09.2018 passed in a Mid- term Review Petition being Case No. 195 of 2017 out of which Rs. 8,269 Crores was allowed to be recovered in tariff. As per the order of the MERC a “Regulatory Asset” has been created, in respect of the balance amount Rs.12,382 Crores. There is, however, no timeline or stipulations provided in the order of the MERC for recovery of the aforesaid amount. This has led to severe financial problems for Appellant.
4242. Mr. Singh submitted that the MERC has disallowed various components of Annual Revenue Requirement sought by the Appellant, such as Agriculture (AG) Sales. The MERC has suo motu disallowed sale of agriculture units for the Financial Years 2014-15 and 2015-16 by 2414 and 3399 units respectively, thereby penalizing the Appellant for Rs.935 Crores & 2286 Crores, for each of the years, which has widened the revenue gap and cannot be met unless the MERC allows the Revenue Gap in terms of Case No. 195 of 2017 (supra). Mr. Singh has referred to the yearwise approval of total sales and AG sale, which are not relevant to this appeal and therefore not reproduced in this judgment, to avoid prolixity.
4343. Mr. Singh submitted that, even though the AG Sales figures submitted by the Appellant were based on actual consumption, the MERC H
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A was of the opinion that the methodology followed by the Appellant needed to be revisited and validated. Pending the enquiry into the methodology, the MERC mechanically devised its own methodology to calculate AG Sales, which does not take into consideration the details / actual figures submitted by the Appellant. This led to disallowance of a quantum of AG sales. The difference between the AG Sales claimed by the Appellant, B as against the quantum allowed, has led to shortfall in cash flow and inability of the Appellant to make payments.
4444. Mr. Singh further submitted that the tariff for the Financial Year 2016-2017 came into effect from 01.11.2016 instead of 01.04.2016 in view of Tariff Order dated 03.11.2016 passed by the MERC in Case C No.48 of 2016, leading to the older tariff to continue to remain in effect after 7 months of commencement of the Financial Year.
4545. Mr. Singh submitted that the shortfall in actual revenue vis-à- vis the approved revenue requirement was made up after almost 2 years, by an order dated 12.09.2018 in Case No. 195 of 2017. The Appellant D has therefore been constrained to take loans, the interest component of which is not allowed to be passed on as a tariff component. 46 Mr. Singh submitted that the actual growth in sales of the Appellant in relation to subsidized categories (e.g. HT industrial and Commercial) was very low. Further, tariff subsidy for making prompt E payment has widened the gap between expenditure and revenue receipts, so has the rise in the number of consumers from different categories, who delay payment of their dues.
4747. Mr. Singh argued that the MERC determines tariff upon consideration of actual gains and losses. He argued that the MERC F considered the Gains/Losses of the Appellant at time of passing the Multi Year Tariff (MYT) Order instead of considering the same at the time of true up of the Appellant as specified in MYT regulations, which resulted into loss of revenue to the Appellant.
4848. Mr. Singh further argued that the data submitted and approved G in determining Multi Year tariff (MYT) and/or Annual Revenue Requirement (ARR) is based on estimation/ projections/ norms, as against the data which is submitted at the time of True-up Petition, which is based on audited accounts and figures which are actually frozen, as per Regulation 11 of the Maharashtra Electricity Regulatory Commission H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1093 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
(Multi Year Tariff) Regulations, 2015, referred to hereinafter as the ‘MYT A Regulations’.
4949. By way of example, Mr. Singh pointed out that, if a particular expense is approved at a certain amount but during true-up exercise, the actual expenditure is higher than that approved by the MYT Order, the Appellant ends up borrowing additional working capital for which the interest is not approved by the MERC, if it crosses the normative working capital. As per the MYT Regulations, the difference would be subject to treatment of sharing of gains or loss as envisaged under Regulation 11. In other words, only 1/3rd of the loss and/or difference would be permitted to be recovered through tariff, and the balance 2/3rd amount would have to be borne by the Appellant as financial loss. This led to further cashflow crunch for the Appellant.
5050. Mr. Singh submitted that the time gap between the approval of the Annual Revenue Requirement and the final true up has resulted in grave mismatch in revenue and expenditure thereby increasing the working capital requirement of the Appellant. The Appellant has been constrained to borrow from Financial Institutions/ Banks, on an interest component, which is not passed through in its Annual Revenue Requirement.
5151. Mr. Singh argued that another important factor that has deepened the financial crisis of the Appellant is low recovery of dues from agricultural consumers who consume about 30% of the electricity supplied through the Appellant. Similarly, the arrears on account of supply of electricity to Government departments, public water works and for street-lights have also accumulated. Under the MYT Regulations MERC allows a provision for bad debts to the extent of 1.5% of receivables only, even though the largest consumer base of the Appellant is in rural areas where consumers are less likely to pay bills on time.
5252. Mr. Singh submitted that these issues are not within the control of the Appellant, but has continued to deeply impact the financial position of the Appellant for many years. It is not that the Appellant has been realising its dues from its consumers in time, but not making payments to the Power Generating Companies. The Appellant is itself in a precarious financial position which becomes worse by levy of interest beyond rates prescribed in RBI Notifications for delay, which is not in the control of the Appellant. H
p. 1094
5353. Mr. Singh submitted that the COVID 19 pandemic has also severely affected the financial viability of the Appellant, and has led to the Appellant incurring losses to the tune of Rs.7500 crores. Further, the financial position of the Appellant has also been affected by the measures taken to alleviate difficulties of the consumers during the pandemic. The Appellant has given rebate of 2% to all residential consumers for timely B payment of all bills (including arrears) of June-20 and July-20 in full, based on actual readings. Further, residential category consumers who were not able to pay the electricity bills of June-20 and July-20 at one go, were allowed to pay bills in three equal instalments, without interest or delayed payment charges.
5454. Mr. Singh further submitted that on 26.03.2020 the MERC issued the following ‘Practice Direction- Measures to Minimize Public Interface in View of the Coronavirus Epidemic’. (a) Distribution Licensees were to ensure continuity of supply. Complaints related to restoration of supply as also safety D related complaints were to continue to be attended by the Distribution Licensee. (b) The Distribution Licensees might suspend other non- essential services which required visit to premises of consumers or meeting consumers in person i.e., Meter E reading, Billing, Offline Bill Collection at Bill Payment Centres, release of new connections etc. (c) Automated Meter Reading facility whenever available was to be used for meter reading.
F (d) In the absence of Meter reading, the Consumers were to be intimated through digital channels such as email, sms, mobile app about their estimated bill, computed on average basis, as per Supply Code Regulations. (e) For bill payment, Distribution Licensee was required to facilitate and update alternate payment modes i.e. digital G payment mode. (f) All the above measures were directed to be communicated through social media, electronic media and print media for wider publicity. H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1095 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
5555. Later, on 30.03.2020, the MERC issued an order approving a A moratorium for consumers under the Industrial and Commercial category, on payment of electricity bills for three billing cycles beginning from the lockdown date of 25.03.2020. Mr. Singh submitted that the said moratorium granted by the MERC has badly affected the revenue mechanism of the Appellant as the Appellant continued to incur expenditure due to its universal service obligations whilst the recovery got badly hit. Further, the MERC, through its practice directions issued on 09.05.2020 and 21.05.2020, gave the following relaxations and/or reliefs to the consumers: (a) It was clarified that moratorium of 3 billing cycles had been given to the industrial and commercial establishments for payment of fixed charges, which they would be liable to pay in the subsequent three billing cycles, in equal interest free instalments. (b) If the consumers chose to pay the entire moratorium amount in one go, rebate of 1% would be given to such consumers. D (c) HT Industrial and HT Commercial consumers were allowed to revise their contract Demand upto 3 times in a Billing Cycle. (d) Low Tension Industrial and Low Tension Commercial consumers having demand-based tariff were allowed to revise their Contract Demand up to 2 times in a Billing E Cycle. (e) for Industrial and Commercial consumers, only a token amount of 10% of the average energy consumption was to be billed in respect of premises under Lockdown.
5656. Mr. Singh argued that these factors clearly show that the F Appellant could not make timely payments for reasons beyond its control, for which the Appellant cannot be blamed. It is for this delay that compensation is prescribed under the Power Purchase Agreements by way of LPS. Mr. Singh emphatically reiterated his submission that such compensation cannot in law be a windfall gain or unjust enrichment of G the Respondents at the cost of the Appellant, and the consumers including marginalised consumers i.e., agricultural consumers, people living in slums and the downtrodden strata of the society.
5757. Mr. Singh finally argued that the claim of the Appellant is not time barred, as contended by the Power Generators. In terms of Article H
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A 13.3.2 of the Power Purchase Agreements, the seller is obligated to serve the Change in Law notice to the procurer, if it is beneficially affected by a Change in Law. The Respondent Nos. 2 to 5 however, failed to issue any such notice, and are now attempting to take advantage of their own wrong, in contravention of settled principles of law to this effect. Moreover, on account of the failure of the Respondent B Power Generating Companies to issue Change in Law notices under the Power Purchase Agreements, the Appellant herein was constrained to issue the Change in Law notices to the Respondent Generating Companies.
5858. In conclusion, Mr. Singh submitted the argument that APTEL C erred in law in issuing directions on the Appellant for payment of LPS as claimed. Such directions to make payment to the Respondent Power Generators could not have been made, more so in the Appellant’s appeal. No monetary relief could be granted in the Appellant’s appeal. The Respondents should have been remitted to MERC for execution and D quantification of the Change in Law claims.
5959. The only issue in this appeal is whether the change in interest rate system by the RBI from Prime Lending Rate (PLR) to Base Rate and then to MCLR amounts to Change in Law under the Power Purchase Agreements.
6060. Mr. Mukul Rohatgi, Senior Advocate appearing on behalf of the Respondent No.2, followed by Dr. Abhishek Manu Singhvi, Senior Advocate appearing on behalf of the Respondent No.3, Mr. Vishrov Mukherjee appearing on behalf of the Respondent No.4 and Ms. Divya Anand appearing on behalf of the Respondent No.5 advanced arguments, F opposing the appeal. There being some overlapping of arguments of the respective Counsel, this Court has not recorded the submission of all Counsel in entirety, to avoid unnecessary repetition.
6161. Mr. Rohatgi, Mr. Singhvi, Mr. Vishrov Mukerjee and Ms. Divya Anand all argued in one voice that this Appeal under Section 125 of the G Electricity Act 2003, is not maintainable, there being no question of law, not to speak of substantial question of law raised by the Appellant.
6262. Mr. Rohatgi appearing for the Respondent No.2, Mr. Singhvi appearing for Respondent No.3, Mr. Mukerjee appearing for the Respondent No.4 and Ms. Divya Anand appearing for the Respondent No.5 submitted that Article 8.3.5 of the Stage 2 Power Purchase H
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1097 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
Agreements corresponding to Article 11.3.4 of the Stage 1 Power A Purchase Agreements between the Distribution Licensee, that is, the Appellant, as purchaser, and the Power Generating Companies being the Respondent Nos.2 to 5, for supply of electricity, governs the LPS payable by the Appellant to the Power Generating Companies, whenever there is delay in payment of bills. Article 11.3.4. of the Stage 1 Power B Purchase Agreement, and Article 8.3.5 of the Stage 2 Power Purchase Agreement have been set out earlier in this Judgment.
6363. Mr. Rohatgi submitted that the SBAR which is actually the rate of interest for grant of loan/finance by the State Bank of India, has been incorporated in the Power Purchase Agreements and the agreed rate for LPS is 2% above the SBAR. This SBAR keeps changing. LPS C is therefore 2% in excess of the applicable SBAR during the billing period.
6464. Mr. Rohatgi pointed out that the SBI rate is existing even today, as pleaded by the Respondent No.2 at pages 48 to 50 of its Reply to the application for stay being I.A. No. 69796 of 2021 filed by the D Appellant. The SBAR for the month of March 2021 is 12.15%.
6565. Ms. Divya Anand appearing on behalf of the Respondent No.5, drew the attention of this Court to Clause 10 of the Notification dated 03.03.2016 of the Reserve Bank of India, introducing the MCLR system with effect from 01.04.2016, in place of the Base Rate System, in terms whereof existing loans based on the PLR system were to continue under the PLR System till maturity. She submitted that MCLR System was to apply to loans sanctioned after 01.04.2016, and not loans already in existence as on that date.
6666. Ms. Divya Anand submitted that the State Bank of India has been notifying all three rates, that is, PLR, Base Rate and MCLR as demonstrated in the Table of interest rates of the State Bank of India during the year 2020 which is reproduced below:-
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6767. Mr. Rohatgi argued that, the contention of the Appellant that, the contractual rate, as incorporated in the Power Purchase Agreements, which is the SBI Rate, will stand altered by introduction by the Reserve Bank of India of the MCLR w.e.f. from 2016, is completely misconceived. The Power Purchase Agreement cannot be deemed to be amended by introduction of the MCLR. It is open to the Appellant, a B Government entity, to take a loan at a cheaper rate if it wants to, and clear the bills raised by the Power Generating Companies.
6868. Mr. Rohatgi submitted that the Appellant is purporting to portray late payments as an act of virtue. If the Appellant did not delay payment, it would not have to pay any LPS. LPS is attracted only in the event of C delay in payment beyond the due date. The Appellant cannot circumvent the provisions of the Power Purchase Agreement which is a binding contract.
6969. Mr. Rohatgi argued that the APTEL has, by its impugned Judgment and order dated 27.04.2021, correctly dismissed the Statutory D Appeal filed by the Appellant, and upheld the order of the MERC dated 16.11.2017. The limited issue involved in the present Civil Appeal is, whether the Appellant is liable to pay LPS calculated as per the SBAR (State Bank Advance Rate) as provided in the Power Purchase Agreements executed between the Appellant and Mr. Rohatgi’s client E or as per the Base Rate System introduced in 2010 and Marginal Cost of Funds Based Lending Rate System(MCLR) introduced in 2016 as notified by the Reserve Bank of India. Mr. Rohatgi pointed out that the Appellant had not, at any stage, denied that it had committed a series of defaults in timely payments.
7070. Mr. Rohatgi emphatically argued that the APTEL had, by the impugned judgment and order, very rightly held that the notifications, guidelines or circulars issued by the Reserve Bank of India, including the Notifications dated 09.04.2010 introducing the Base Rate and 03.03.2016 introducing the MCLR, after execution of the Power Purchase Agreements dated 14.08.2008, 31.03.2010, 09.08.2010 and 16.02.2013 G between the Appellant and the Respondent No.2 would not qualify as Change in Law. He argued that the APTEL had correctly held that the payment of LPS along with interest calculated on the SBAR, has authorisation in the express terms of the aforesaid Power Purchase Agreements. Moreover, since the Circulars dated 09.04.2010 of the H Reserve Bank of India, introducing Base Rate had been in existence
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1099 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
since 2010, the Change in Law notice, issued only on 23.09.2016, had A rightly been held to be time barred.
7171. Mr. Rohatgi submitted that this Appeal does not meet the requirement of Section 125 of the Electricity Act, 2003, which only permits grounds as specified under Section 100 of the Code of Civil Procedure, 1908 (hereinafter referred to as “CPC”). Section 100 of the CPC B mandates that the first Appellate Court is the final Court of facts. Section 100 of the CPC does not permit interference with findings of fact of the first Appellate Court.
7272. Mr. Rohatgi submitted that contrary to the grounds permitted in Section 100 of the CPC, in this Appeal under Section 125 of the C Electricity Act, 2003, the Appellant has raised pure questions of fact, which have been concurrently decided in favour of the Power Generating Companies. This Appeal is, therefore not maintainable. In support of the aforesaid argument, Mr. Rohatgi cited DSR Steel (P). Ltd. v. State of Rajasthan and others 5, Tamil Nadu Generation & Distribution Corporation Ltd. v. PPN Power Generating Company Private Limted 6 D and Wardha Power Company Limited v. Maharashtra State Electricity Distribution Co. Limited and Another7.
7373. Mr. Vishrov Mukherjee cited DSR Steel (P) Ltd. v. State of Rajasthan and Ors. (supra) referring to paras 4, 14, 15, 16, 18 & 19 and Power Grid Corporation of India and Ors. v. Tamil Nadu E Generation and Distribution Company Limited and Others.8 in support of the argument that this appeal under Section 125 of the Electricity Act, 2003 is liable to be dismissed as it does not involve any substantial question of law.
7474. Mr. Mukherjee also cited Bharat Sanchar Nigam Ltd. v. F Pawan Kumar Gupta9, Wardha Power Co. Ltd. v. MSEDCL & Anr., (supra) and Tuppadahalli Energy India Private Limited v. Karnataka Electricity Regulatory Commission and Anr. 10, where this Court dismissed statutory appeals on the ground of absence of any substantial question of law. G 5 (2012) 6 SCC 782 (para 14) 6 (2014) 11 SCC 53 (paras 53 and 70) 7. (2016) 16 SCC 541 (para 5) 8. (2019) 7 SCC 34 (para 1 and 6) 9. (2016) 1 SCC 363 10. (2017) 11 SCC 194 H
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7575. Mr. Rohatgi pointed out that both the MERC and the APTEL have rendered concurrent findings against the Appellant as shown in the tabular statement given below:
7676. Mr. Rohatgi argued that the Appellant is seeking to raise the above issues which have been concurrently decided, once again. No substantial question of law has arisen in this Appeal filed under Section E 125 of the Electricity Act, 2003 warranting interference by this Court. Mr. Rohatgi cited Ramanuja Naidu v. V. Kanniah Naidu and Another11 and Navaneethammal v. Arjuna Chetty12 in support of his aforesaid argument.
7777. Mr. Rohatgi argued that since SBAR continues to be in operation, it cannot be said that there is any change in law. The Respondent No.2 and the Appellant have entered into four Power Purchase Agreements, the first dated 14.08.2008 for supply of 1320 MW, the second dated 31.03.2010 for supply of 1200 MW, the third dated 09.08.2010 for supply of 125 MW and the fourth dated 16.02.2013 for supply of 440 MW of electricity, pursuant to the competitive bidding process initiated by the Appellant. Article 8.3.5 of the Power Purchase Agreements dated 31.03.2010, 09.8.2010 and 16.02.2013, executed after introduction of the Base Rate System, specially provide for computation 11. (1996) 3 SCC 392 (para 11) 12. H (1996) 6 SCC 166 (para 11)
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1101 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
of LPS as per the SBAR, in invocation of the principle of incorporation A by reference. There is a specific reference to the SBAR in the Power Purchase Agreements, binding on the parties for the entire term of the contract i.e., 25 years. The Power Purchase Agreement dated 14.08.2008 for supply of 1320 MW entered into between the Appellant and the Respondent No.2 also contains similar provision for LPS. B
7878. Mr. Rohatgi further argued that the Power Purchase Agreements define SBAR to mean “the prime lending rate per annum applicable for loans with one (1) year maturity as fixed from time to time by the State Bank of India. In the absence of such rate, SBAR shall mean any other arrangement that substitutes such prime lending rate as mutually agreed to by the parties”. C
7979. Mr. Rohatgi submitted that the definition of SBAR in the Power Purchase Agreements makes it clear that any reference in the Power Purchase Agreements to SBAR has to be construed as reference to the Prime Lending Rate as fixed by State Bank of India. These provisions have no reference at all to the Reserve Bank of India. Further, the Power D Purchase Agreements do not contemplate automatic shift to Base Rate / MCLR notified by RBI, even if SBI PLR ceased to be in existence. The agreed position in such situation is for the contracting parties to substitute SBI PLR with any other mutually agreed arrangement. Having agreed to such an arrangement in the Power Purchase Agreements, the E claim of Appellant for treating Base Rate/MCLR as Change in Law event cannot be entertained.
8080. Mr. Rohatgi argued that, while introducing the Base Rate system in 2010 and the MCLR system in 2016, the Reserve Bank of India had provided for the continuation of the earlier Benchmark Prime F Lending Rate (BPLR) dispensation for existing loans. Consequently, the SBAR Rate referred to in Clause 8.3.5 and/or 11.3.4 of the two sets of Power Purchase Agreements, which is the SBI PLR for loans with maturity of one year, continues to be notified even to this day. The same is evident from the Notification dated 03.03.2016 of the Reserve Bank of India. G
8181. Mr. Rohatgi further argued that, in terms of the relevant clauses in the Power Purchase Agreements regarding Change in Law, the pre- requisites are that the event in question must be one that is covered by Clause 10.1.1 of the Stage 2 Power Purchase Agreements corresponding H
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A to Clause 13.1.1. of the Stage 1 Power Purchase Agreements, that is, it must be a new enactment, or amendment of existing legislation, or new interpretation by a competent court, the event must have occurred after the Cut-off Date, which is in this case, concededly 31.07.2009, that is, the date seven days prior to the Bid Deadline date, which is 07.08.2009 and such event must have resulted in additional recurring or non-recurring B expenditure or income for the Seller. The first and third of these conditions are not fulfilled by the Appellant since the LPS Rate under the Power Purchase Agreements is not linked to Reserve Bank of India circulars or guidelines and the RBI notifications referred to are not shown to have resulted in any additional income or expenditure for the Power Generating C Companies. The introduction of Base Rate in 2010 and MCLR in 2016 by the Reserve Bank of India by its Notifications/Circulars does not, therefore, amount to Change in Law. Therefore, the contention of the Appellant that Reserve Bank of India Directive of 2016 amounts to “Change in Law” is erroneous and misleading. The Appellant is, therefore, liable to pay the LPS as per SBAR as rightly held by the MERC and the D APTEL.
8282. Refuting the argument of Mr. Singh that the RBI circulars are to be considered as Change in Law, Mr. Rohatgi advanced an alternate submission that the Appellant is not entitled to claim Change in Law since Clause 13.3.1 of the Power Purchase Agreement dated 14.08.2008 E for supply of 1320 MW and Article 10.4.1 of the other three Power Purchase Agreements provides that notices of Change in Law events are to be issued by the affected party as soon as reasonably practicable after becoming aware of the Change in Law. While the changes cited by the Appellant were effected by Reserve Bank of India from July, F 2010 and again April, 2016 and notified in advance, the Appellant issued notices of Change in Law to the Respondent No.2 only in September 2016 i.e. more than 6 years after Reserve Bank of India introduced the Base Rate system in place of the BPLR system. The Appellant could not have been unaware of the revision effected by the Reserve Bank of India at that time. Nor has it explained this inordinate delay in raising its claim. Further, while Base Rate was introduced on 09.04.2010, the Appellant entered into Power Purchase Agreements with the Respondent No.2 on 09.08.2010 and 16.02.2013 incorporating PLR as the LPS rate for supply of contracted quantum of 125 MW and 440 MW of electricity respectively to the Appellant. As such, the Appellant’s claim is inadmissible, the same being barred by limitation.
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COM. 1103 LTD. v. MERC & ORC. [INDIRA BANERJEE, J. ]
8383. Mr. Rohatgi emphatically reiterated that Late Payment A Surcharge ( LPS) is imposed only when there is delay in the payment of bills. The liability towards LPS was therefore, within the control of the Appellant, for there would be no LPS liability, if the Appellant did not delay payment of monthly or supplementary bills beyond the due date. Mr. Rohatgi argued that, LPS is a penalty to which the Appellant has voluntarily agreed, in case it delays payment to the Power Generating Companies. Any changes by the Reserve Bank of India in respect of interest on loans advanced by Banks and Financial Institutions, do not affect in any manner the rates at which power was agreed to be sold and purchased or the rate at which LPS is chargeable. Mr. Rohatgi emphatically argued that LPS is a deterrent to inculcate payment discipline and is also entirely avoidable.
8484. Mr. Rohatgi pointed out that the APTEL has, by its impugned judgment and order (para 21) categorically rejected the Appellant’s contention of there being unjust enrichment of the Respondent Power Generating Companies, on account of LPS being calculated at SBAR D Rate. The APTEL has held :- (i) In order to be termed as unjust enrichment, benefit gained by a party must be such as to have been retained without any legal basis; (ii) The primary purpose of LPS being to compensate the Power E Generators for the time value of money lost on account of delay in payment by the Appellant, it cannot be said that recovery of LPS results in the generators being unjustly enriched; (iii) The payment of LPS, with interest calculated on the Prime F Lending Rate, has authorisation in the express terms of the Power Purchase Agreements; (iv) The claim of LPS does not represent any benefit accruing to the Respondent Power Generating Companies, but is compensatory in nature. Moreover, LPS is not economic G restitution but is a disincentive; (v) It is wrong to equate LPS with carrying cost or actual cost incurred because any interest paid for finances raised cannot have any nexus to the LPS as it is not the same as a loan advanced, but is a penalty for delay; H
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