The Supreme Court of India (“Supreme Court”) in the case of Bangalore Electricity Supply Company Limited v. E.S Solar Power Private Limited and Others [C.A. 9273 of 2019] by judgement dated May 03, 2021, upheld the decision of the Appellate Tribunal for Electricity (“APTEL”). The APTEL had passed an order reversing the findings of the Karnataka Electricity Regulatory Commission (“KERC”). KERC, more specifically, had imposed tariff reduction for solar power projects based out of Bagepalli and Bidar, Karnataka.

Facts

Karnataka Renewable Energy Development Limited (“KREDL”) had issued a request for proposal in 2015 to invite bids for development of ‘Solar PV ground mount power plants’ in Karnataka, pursuant to the government’s decision of development of 1200 MWA of solar power through private sector participation. Emmvee Photovoltaic Power Private Limited, respondent no. 2 herein, (“EPL”) incorporated two special purpose vehicles as per the terms of the request for proposal and submitted the bid for acceptance of Bangalore Electricity Supply Company Limited, the appellant herein (“BESCL”). Respondent no. 1 in Civil Appeal 9273 of 2019 (filed by BESCL before KERC) is a special purpose vehicle constituted by EPL for setting up a Solar PV ground mount project with a capacity of 10 MWA (AC) in Bidar. Respondent no. 1 in Civil Appeal 9274 of 2019 (filed by BESCL before KERC) is a special purpose vehicle for setting up a 20 MWA (AC) capacity Solar PV ground mount Project in Bagepalli. The projects were awarded on March 31, 2016. Thereafter, power purchase agreements (“PPA”) were entered between the parties on May 23, 2016. PPA was approved by KERC on October 17, 2016. Supplementary PPAs were also entered into between the parties on December 17, 2016 incorporating further modifications suggested by KERC. In respect of the Bidar project and Bagepalli project, a commissioning certificate was issued on October 25, 2017 and November 23, 2017 respectively.

Proceedings before KERC

Original petition no. 18 of 2018 was filed in Civil Appeal 9274 of 2019, contesting the reduction of tariff payable by BESCL from INR 6.10/kWh to INR 4.36/kWh and imposition of damages of INR 20,00,000/- for delay in commissioning the plant. It was contended that the Bagepalli project commenced within 12 months from the approval of the PPA. Therefore, imposition of damages and reduction of tariff payable by BESCL was contrary to provisions of PPA. Original petition no. 19 of 2018 was also filed in Civil Appeal 9723 of 2019 in respect of the Bidar project for reliefs similar to those claimed in original petition no. 18 of 2018. KERC by an order dated October 23, 2018, dismissed the aforementioned original petitions.

KERC had originally framed four issues for consideration:

• Whether the scheduled commissioning date of the power projects would fall on October 16, 2017 or October 17, 2017.
• The date on which the solar power projects in the abovementioned original petitions have started injection of power into the state grid.
• Whether injection of power into the state grid was essential to declare that project is commissioned.
• Whether commissioning of the project/commercial operation of the project is the same or are different concepts.

Observations of KERC

In respect of issue (i), the scheduled date of commissioning was October 16, 2017 and not October 17, 2017. As far as issues (ii), (iii) and (iv) were concerned, injection of power into the state grid was a sine qua non for declaring that the project was commissioned. However, this had in fact occurred on October 17, 2017. In view of the above, KERC dismissed the above-mentioned original petitions.

Proceedings before APTEL

Thereafter, appeal nos. 332 and 333 of 2018 were filed against the order of KERC before APTEL. The tribunal considered: Whether the project was delayed by one day in terms of PPA and if KERC was justified in imposing liquidated damages for such delay in commissioning.

Observations of APTEL

The commissioning date of both the Bidar and Baghepalli plants was October 16, 2017. The scheduled date of commissioning was done within the time limit prescribed under the agreements even if the commencement was in fact taken to be on October 17, 2017. Allowing the appeals, APTEL set aside the orders passed by KERC. Thereafter, BESCL has challenged the orders passed by APTEL before the Supreme Court.

Contentions of BESCL before the Supreme Court

APTEL’s conclusion regarding the scheduled date of commissioning was contrary to the terms of the PPA. Clauses of the PPA justified the decision taken in respect of reductions of tariff and imposition of liquidated damages. Injection of power into the state grid was a prerequisite to determine the date of commissioning. KERC had in fact correctly interpreted the PPA to include the first date and the last date, that is, the date on which PPA was approved by the KERC for determining the scheduled commissioning date. As per records, there was minimum generation of power on October 16, 2017, which did not satisfy the condition of injection power into the state grid. Therefore, the entities were not entitled to the tariff at the rate of 6.10/kWh. APETL had also committed an error by relying on the judgements relating to General Clauses Act, 1897 when the PPA excluded applicability of the same.

Contentions of Respondent Nos. 1 and 2 (E. S. Solar Private Limited and EPL) (“Respondents”) before the Supreme Court

The 12-month period for deciding the scheduled commissioning date started from October 17, 2016 which was also date of approval of PPA. As per the covenants of the PPA, the date of approval of PPA had to be excluded for computing 12-month period for deciding the scheduled date of commissioning. As such there is no dispute regarding injection of power into the grid on October 17, 2017. Therefore, there is no default as far as the entities were concerned. Alternatively, even if October 17, 2016 is not excluded, the 12-month period ends on October 16, 2017 on which the plants were commissioned. Further, commissioning date of the plant was different from commercial operation date. Moreover, the PPA were entered into on the basis of the offer to pay tariff at Rs. 6.10/kwh. Reduction of tariff would also be detrimental in respect of the plants.

Observations of the Supreme Court

The dispute in these appeals is whether the projects were not commissioned before the expiry of 12 months from October 17, 2016, which is the date of approval of PPA by KERC. The conflicting views herein relate to computation of 12 months for the purpose of determining whether the scheduled date of commissioning is October 16, 2017 or October 17, 2017. Thereafter, the second aspect being whether injection of power was a pre-requisite for deciding the date of commissioning and whether the commercial operation date and commissioning date were the same. The court noted that its duty was not to delve deep into the intricacies of human mind to explore the undisclosed intention, but only to take the meaning of words used, that is, to say expressed intentions. In seeking to construe a clause in a contract, there is no scope for adopting either a liberal or a narrow approach, whatever that may mean. The exercise or process to be undertaken is to determine what the words mean. It may happen, at times that the conclusion is ambiguous. In such cases, court has to prefer one above the other in accordance with the settled principles. If one meaning is more in accord with what the court considers to the underlined purpose and intent of the contract, or part of it, than the other, then the court will choose the former. The intention of the parties must be understood from the language they have used, considered in the light of the surrounding circumstances and object of the contract. In light of article 5.8.1 of the PPA, liquidated damages could be imposed on the developer if he was unable to commence supply of power by the scheduled commissioning date. Article 12 of the PPA, which deals with applicable tariff, is reproduced herein:

“12.1. The Developer shall be entitled to receive the Tariff of INR6.10 / kWh of energy supplied by it to BESCOM in accordance with the terms of this Agreement during the period between COD and the Expiry Date.

12.2. Provided further that as a consequence of delay in Commissioning of the Project beyond the Scheduled Commissioning Date, subject to Article 4, if there is change in KERC applicable tariff, the changed applicable Tariff for the Project shall be the lower of the following: I. Tariff at in Clause 12.1 above II. KERC applicable Tariff as on the Commercial Operation Date.”

The issue here is whether the scheduled commissioning date is October 16, 2017 or October 17, 2017. KERC approved the PPAs on October 17, 2016. Whereas the scheduled commissioning date should be, as per the agreement, 12 months from October 17, 2016. There is no dispute as such that 12 months equals to be 365 days. As per BESCL, if October 17, 2016 is included in the computation, the scheduled commissioning date would be October 16, 2017. Whereas if it is excluded in the calculation, October 17, 2017 would be the scheduled commissioning date. KERC relied on clause 1.2.1 (m) of the PPA to conclude that October 17, 2016 has to be included for interpreting the period of 365 days. Whereas, APTEL held that article 1.2.1 (k) of the PPA would be the relevant interpretation clause. Both of these clauses from the PPA are reproduced hereunder:

“Article 1.2 (k): any reference to month shall mean a reference to a calendar month as per the Gregorian calendar;

Article 1.2 (l) and (m): any reference to any period commencing “from” a specified day or date and “till” or “until” a specified day or date shall include both such days or dates; provided that if the last day of any period computed under this Agreement is not a business day, then ·the period shall run until the end of the next business day”

Reduction of tariff is permissible under the PPA only if there is a delay in commissioning of the project beyond scheduled commissioning date. The parties agree that the effective date is undoubtedly October 17, 2016. The court looked at the definition of the expression ‘month’ as provided under article 21.1 of the PPA. Month had been defined to mean a period of 30 days and excluding (the date of the event) where applicable, else a calendar month. If the date of the event, that is, October 17, 2016 is excluded, the scheduled commissioning date would be October 17, 2017. Article 21 of the PPA is reproduced herein:

“COD” or “Commercial Operation Date” shall mean the actual commissioning date of respective units of the Power Project where upon the Developer starts injecting power from the Power Project to the Delivery Point.

“Effective Date” shall mean date of Approval of PPA by KERC;

“Month” shall mean a period of thirty, (30) days from (and excluding) the date of the event, where applicable, else a calendar month.

“Scheduled Commissioning Date” shall mean 12 (twelve) months from the Effective Date

Decision of the Supreme Court

KERC was incorrect in its interpretation regarding definition of month. It had applied article 1.2.1 (m) of the PPA which refers to a period commencing from a specified date to a specified day for the purpose of including the date of the event. The correct provision applicable was article 1.2.1 (k) of the PPA read with the definition of month in article 21.1 of the PPA. There is a specific mention of twelve months in the scheduled commissioning date and article 1.2.1 (k) of the PPA provides that any reference to a month shall mean a calendar month. This interpretation therefore in clear terms, excludes the applicability of article 1.2.1 (m) of the PPA. The court noted the second issue raised by BESCL, that the injection of power into the state grid being on October 17, 2017 and the scheduled date being October 16, 2017, the reduction of tariff was justified. Whereas, the Respondents contended that even if scheduled date was October 16, 2017, plants had been commissioned on October 16, 2017 itself. They were objecting to the premise adopted by BESCL that the actual injection of power was required to show that solar plants were commissioned. The court noted that APTEL had reversed KERC’s findings by relying on the commissioning certificate which is to the effect that the plants were commissioned on October 16, 2017 itself. The court held that that there was no dispute that the power was injected into the state grid on October 17, 2017. However, in view of the observations of the court that the scheduled date was October 17, 2017, it was not necessary to look into the point in respect of actual injection of power into the grid vis-à-vis date of commissioning.

VA View:

The SC in this instance reiterated that there was no scope for adopting either a liberal or a narrow approach, whatever that may mean. The exercise or process taken by the courts would be to determine what the words actually mean. Even if in terms of determining the contract, there are two different meanings, the court would opt one over the other, if it is in synchronization with the intent and underlying purpose of the contract.

The background of the contract can also be taken into consideration to construe the intent of the contract. It would provide an insight into the understanding between the parties to an agreement. This would be helpful in adopting one interpretation over the other, in the face of two conflicting interpretations.

For more information please write to Mr. Bomi Daruwala at [email protected]

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